As filed with the Securities and Exchange Commission on June 30,
October __, 1997
SEC Registration No. 33- 000-22775
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) or (g) OF THE SECURITIES EXCHANGE ACT OF 1934
NEWRIDERS, INC.
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(Name of Small Business Issuer in its Charter)
Nevada 77-0390222
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(State or Jurisdiction (IRS Employer Identification
of Incorporation) Number)
1040 East Herndon Avenue, Suite 102 </R
567 San Nicolas Drive, Suite400
Fresno Newport Beach, California
93720 92660
(209) 447-4557
(714) 718-4630
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(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
Securities to be registered under Section 12(b) of the Act:
None None
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Title of each Class Name of each exchange on which
to be so registered each class is to be registered
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Securities to be registered under Section 12 (g) of the Act:
Common Stock, $0.001 par value
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(Title of Class)
Copies to:
Robert N. Wilkinson, Esq.
Suite 900 - Gateway Tower East
10 East South Temple
Salt Lake City, Utah 84133
(801) 530-7370
Fax (801) 364-9127
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INFORMATION REQUIRED IN REGISTRATION STATEMENT
PART I
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Item 1. DESCRIPTION OF BUSINESS
General
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Newriders, Inc., a Nevada corporation, and Newriders Limited, a
California corporation entered into a Plan of Reorganization on June 28, 1996,
whereby Newriders, Inc. acquired 100% of the outstanding Common Stock of
Newriders Limited in exchange for issuing 13,250,000 shares of the common
stock of Newriders, Inc. to the former shareholders of Newriders Limited.
Newriders, Inc. was incorporated in the State of Nevada on July 13, 1995 under
the name of American Furniture Wholesale, Inc. In connection with the
acquisition of Newriders Limited, American Furniture Wholesale, Inc. amended
its Articles of Incorporation effective July 1, 1996 to change its name to
Newriders, Inc. Throughout this document the Company or Newriders shall mean
the combined entities of Newriders, Inc. and its subsidiary, Newriders
Limited.
Newriders Limited owns and operates an Easyriders Cafe Restaurant, an
Easyriders Apparel and Merchandise Store, and an Easyriders Motorcycle and
Accessory Shop all from its in Fresno, California
location . In May 1997, the Company opened its second location
in Myrtle Beach, South Carolina, which consists of an approximately 8,900
square foot cafe and apparel store. A separate motorcycle sales and service
facility is under construction at a site nearby in Myrtle Beach, South
Carolina. The Company plans to open three locations or Units in 1998. A
"Unit" will generally include an Easyriders Cafe Restaurant and an Easyriders
Apparel and Merchandise store. In some instances it may also include an
Easyriders Motorcycle and Accessory Shop.
Newriders is a party to franchise agreements with Easyriders Franchising,
Inc., a California corporation, and a subsidiary of Paisano Publications, the
publisher of "Easyriders Magazine", to operate Easyriders apparel, motorcycle
and accessory shops and the right to use the name Easyriders in connection
with their operation. (See Franchise Agreement attached as Exhibit 6.1).
The Company's theme restaurants, Easyriders Cafe in Fresno, California
and in Myrtle Beach, South Carolina, provide a unique dining and entertaining
experience in a high-energy environment, that capitalizes on the
universal appeal of Harley-Davidson Motorcycles and other
American made motorcycles and the "Easyriders Magazine" and the
"Born to be Wild" "Live to Ride, Ride to Live" lifestyle that is
emphasized. The integrated retail apparel and merchandise stores offer a
broad selection of premium-quality merchandise displaying the Company's logos.
The Easyriders name and distinctive logo design have become
widely-recognized trademarks in the world over the last twenty five
years.
The Company's Units will offer high-quality, popular
cuisine, excellent service and an ongoing atmosphere of excitement created by
combining unique layouts and decor with motorcycle and Easyriders memorabilia,
and live entertainment consisting of Blues, Old Rock and other popular music.
The Company's objectives are to enhance and expand the applications of
its existing operations. Its primary strategy in pursuing these objectives is
to increase the number and geographic diversity of its Units to generate even
greater consumer enthusiasm for its theme concept. The Company believes that
there are significant opportunities for additional Easyriders Cafe Units,
particularly in high major tourist markets, both domestic
and international. In addition, the Company intends to seek joint ventures
and licensing agreements that will capitalize on the public awareness of its
restaurants, apparel and merchandise Units, motorcycle shops and its brands,
through a variety of items under the Easyriders brand, including its own beer
and , wine and condiments .
The Company's Restaurant - Merchandise Store Concept
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The key elements of the Company's restaurant merchandise store concept
are as follows:
Broad-based theme. The Company focuses on a theme that it believes has
developed into universal appeal. The Harley-Davidson Motorcycle and Biker
theme has grown to great acceptance over the last twenty five years. Bikers
are no longer considered the renegade outlaws of the past, but are more
commonly affluent middle and upper class men and women who enjoy the freedom
and excitement of the sport.
Distinctive design features. The Company plans to characterize its Units
with dramatic physical design and layout, which typically will have striking
facades intended to attract attention. The Units also expect to gain
attention from rows the array of patron motorcycles
typically parked outside of the restaurants.
High profile locations. The Company intends to select its Unit locations
based on their proximity to popular attractions or areas in major
tourist markets. The Company expects to open Units following the markets of
the "Hard Rock Cafe" and "Planet Hollywood" a variety of
considerations including real estate values, traffic patterns, income and age
demographics and tourism. The Company is also carefully evaluating the site
selections of "Planet Hollywood", "Hard Rock Cafe", and other theme restaurant
operations.
Celebrity participation. The Company hopes to distinguish its Units by
the promotional activities of selected celebrities and by the significant
media coverage of appearances by celebrities at each Unit's grand opening and
at special events thereafter .
Extensive retail merchandising. Each Unit will include an integrated
retail store offering premium quality merchandise displaying the Company's
distinctive brands and proprietary and licensed logo designs. Merchandising
provides additional off-site promotion of the Company's brands. The Company's
merchandise sales yield higher operating margins than do its food and beverage
sales.
Quality food. Each Unit serves freshly prepared, high quality, popular
cuisine designed to appeal to a variety of tastes and budgets with an emphasis
on reasonably priced signature items and items of particular appeal to the
local market.
Quality and excellent service. In order to maintain its unique image,
the Company provides attentive and friendly service with a high ratio
of service personnel to customers, and invests heavily in the training
and supervision of its service personnel.
The Company hopes to achieve an average of $500 in annual sales per
square foot for each of its Units. The cost of the first Unit in Fresno,
California, which includes the Easyriders Cafe Restaurant, the Apparel and
Merchandise Store, and the Motorcycle Shop was approximately $1,200,000. The
cost of the Myrtle Beach, South Carolina Easyriders Cafe and apparel store was
approximately $1,200,000 $1,400,000. The Company
estimates that new Units of similar size will cost approximately
$600,000 to $800,000 $800,000 to $1,200,000 each.
Layout and Design
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The Company anticipates that its Units will generally range in size from
approximately 7,500 to 20,000 15,000 square feet and in
seating capacity from 140 to 400 persons. Each Easyriders Cafe Restaurant
Unit will feature authentic motorcycle memorabilia, such as a replica of
Peter Fonda's the motorcycle "Captain America" from the
1960's cult flick "Easyrider" 1970's movie "Easy
Rider", which is displayed in the Fresno, California Unit, and the actual
motorcycle that holds the land speed record which is on display in the Myrtle
Beach, South Carolina Unit. Other props and custom Harley-Davidson and
Indian Motorcycles other American made motorcycles are
displayed in the restaurant and will be displayed in future restaurants. The
Units will also display prints and original works of art that feature the
"Biker" theme Easyriders lifestyle. The restaurant
also has recorded music and live bands that entertain until 2:00
a.m. provide late-night entertainment, depending upon local
ordinances. Moreover, a dance floor is available for those that wish to
"trip the light fantastic" dance .
Site Selection
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The Company intends to locate its Units at high profile sites in
major tourist highly populated markets and key urban
centers. The Company will seek evaluate markets
already established by other theme restaurants such as the "Hard Rock Cafe"
and "Planet Hollywood", for example. The major metropolitan areas
domestically and internationally are all potential sites for new locations.
The Company believes that tourists will comprise a majority of its
customers at most locations, particularly during the summer months and holiday
seasons. By locating Units in high profile, heavy traffic areas, the Company
is able to attract both destination customers as well as passers-by who are
drawn to the Units' unique facades, the rows display of
patrons motorcycles typically parked outside and the exciting environment.
Proper site selection is essential to the success of a Unit, and the Company
devotes significant time and resources to analyzing each prospective location.
In addition to assessing demographic information for each prospective site,
management considers factors such as visibility, traffic patterns,
accessibility, proximity to entertainment centers and theme parks and other
tourist attractions, the area's restaurant competition and average income
levels for the area. Once a particular city has been approved for a Unit,
real estate brokers and agents are hired to locate appropriate and
available locations on reasonable terms and conditions. the Company
searches for appropriate sites either independently or through local real
estate brokers and agents.
Merchandising
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Each Unit's retail apparel store will offer
premium-quality fashion merchandise, such as jackets, T-shirts, sweatshirts,
hats, pants, leather jackets, vests, pants, gloves and other l leather
items. Each store will also offer Harley-Davidson and Easyriders
patches, pins, key chains, bandannas, glasses, watches, jewelry, and a variety
of other souvenir and everyday items. Those Many other
items not on display at the store are available from the Easyriders Roadware
Apparel Catalog which lists hundreds of items, and is available to shoppers
and diners from their table. The merchandise can be purchased only at the
Units or at other Easyriders Apparel Franchise Units that prominently display
that Unit's colorful and distinctive trademark and logo design and typically
the name of the city in which the Unit is located, which enhances the
collectible nature of the items. Each Unit's mix will vary to meet the demand
of the particular tourist market in which the Unit is located.
The Company's merchandise sales yield higher operating margins than do its
food and beverage sales and provide additional off-site promotion for the
Company.
Menu
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The Company's Units offer generous portions of a wide variety of popular
foods with a California-American and Mexican cuisine emphasis;
such as steak, rotisserie chicken, ribs, burgers, sandwiches, pastas, sea
food, salads, grilled platters and a variety of appetizers and desserts. All
new menu items are chosen on the basis of sales popularity, ease of
preparation and profitability. The food is of the highest quality and
prepared fresh daily according to recipes created by the Company. Menu items
will generally be the same at all Units, with certain specialties in each
market to accommodate local preferences. Prices typically range from $1.75 to
$6.95 for appetizers, $2.95 to $7.50 for salads, $3.25 to $5.25 for burger
plates, $5.75 to $21.95 for entrees and $2.50 to $4.75 for desserts. A full
bar service makes available specialty alcoholic and nonalcoholic drinks and
an impressive wine list a variety of wines . The
Company is also marketing its own private label beer and
, wine and certain condiments. The Company expects that
alcoholic beverage sales generally will range from 30% to 40% of a Unit's
total food and beverage sales, depending on the market.
Service
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The Company emphasizes excellent customer service in order to make each
patron's visit an enjoyable, memorable experience. The Company is committed
to providing its customers prompt, friendly, attentive service. Accordingly,
it maintains a high ratio of service personnel to customers and will staff
each Unit with an experienced management team to ensure that its high service
standards are maintained. New employees are trained by experienced employees
who are familiar with the Company's policies and newly promoted or recently
hired managers must complete a training program prior to commencing their
duties.
Unit Locations and Expansion
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As of December 31, 1996 June 30, 1997 , the
Company operated one Unit two Units located in Fresno,
California and Myrtle Beach, South Carolina . The Fresno, California
Unit opened on May 1, 1996, and consists of an Easyriders Cafe Restaurant,
Easyriders Roadware Apparel Store, and an Easyriders Motorcycle and Accessory
Shop. The Company opened its second Easyriders Cafe Unit at "Broadway at the
Beach" in Myrtle Beach, South Carolina, in May 1997. The Company plans on
opening a total of three Units in 1998 and three to six in 1999. Future
cities being considered for Units include: Newport Beach ,
Orange County ,California; San Diego Los Angeles ,
California; Orlando, Florida; Las Vegas, Nevada; Miami, Florida; New York, New
York; San Francisco, California; Dallas, Texas; Chicago, Illinois; New
Orleans, Louisiana; Atlantic City, New Jersey and Washington, D.C.
There can be no assurance, however, that the Company will meet its plans
to open three Units in 1998 and an additional six Units in 1999. The
Company's growth will depend on such factors as its profitability and its
ability to raise additional capital and/or borrow additional funds.
The Company anticipates that all Company-owned Units will be located on
leased sites. The Fresno Unit is leased for five years with renewal options.
The Myrtle Beach Unit is leased for ten years.
Management generally will seek out to operate future
sites as Company-owned Units rather than as well as
franchise or joint venture arrangements. However, the
The Company also expects to pursue franchise and joint venture
arrangements in the future primarily in international markets
where the local region presents certain political or economic risks, where an
association with local owners would be advantageous due to their market
expertise or connections with the local business and industry, or where
required by local laws.
Advertising and Promotion
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The Company believes it will attract new customers through word-of-mouth,
the visibility of its branded merchandise, radio and print advertising,
extensive coverage in "Easyriders" magazine, billboards and the broad based
media coverage typically associated with grand openings of new Units due to
the anticipated attendance of celebrities. The Company is fortunate
to have Mr. Michael T. Purcell leading the Company as Chairman of the Board of
Directors and President. Mr. Purcell has served as President and Chief
Executive Officer of Purcell Advertising, formerly known as Purcell Appling
and Associates, one of Fresno County's leading advertising agencies and
marketing consulting firms, since 1987. (See "Management").Purcell
Advertising currently provides advertising services for the Company and may
continue to provide such services in the future. No written agreement has been
entered into with Purcell Advertising. However, the Company will pay fees
normally charged by Purcell Advertising for such services. In
connection with Unit openings, local public relations firms will be retained
to generate local interest, and industry magazines and television shows
are will be alerted to the upcoming potential "photo
opportunities" with celebrities. The Company also hosts and will continue to
host fund-raising parties for local charities at its Units.
Franchise Agreement - Easyriders
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The Company has entered into franchise agreements with Easyriders
Franchising, Inc., a California Corporation ("Franchisor") which has developed
a business operational program or system that is identified by the mark
"EASYRIDERS". It consists of a business for the retail sale of motorcycle
apparel such as shirts, jackets, belts, boots and related clothing. It also
includes the retail sale of parts and related hard goods and services in the
repair and customization of motorcycles. It has further developed certain
operating and accounting systems for use by the Company as a franchisee.
Under the franchise agreements, the Company is granted the exclusive
territorial areas of Fresno, California and Myrtle Beach, South Carolina in
which to operate the business and the Franchisor agrees to not enfranchise or
operate another facility within those areas, but it retains the right to do so
in other areas. Franchisor also retains the right to sell its clothing and
hard goods in the territories in a variety of ways described in the agreements
such as catalog sales and mobile retail showrooms at various public events.
The Fresno franchise agreement, dated November 30, 1994 has an initial
term of five years. The Company has the option to renew the franchise
agreement under its then current form for three additional periods of five
years each, subject to compliance with conditions which give the Franchisor
considerable leeway in agreeing to the renewal.
The Myrtle Beach franchise agreement dated January 4, 1996 has an initial
term of five years. The Company has the option to renew the franchise
agreement under its then current form for three additional five year periods,
subject to restrictions similar to those in the Fresno, California franchise
agreement.
The franchise is limited to specific locations as approved by the
Franchisor. While the Company is responsible for the purchase or lease of the
site, the Franchisor has strict provisions concerning the design, decor,
equipment, and advertising of the site. It also requires the Company to
periodically make reasonable capital expenditures to remodel or redecorate
during the term of the agreement.
The Fresno site is the first and the one and only Easyrider authorized
cafe now in existence.
The Franchisor will provide training to the Company's manager(s) and
assistance in opening the business, at the cost of the Company. If the
Franchisor, in its sole discretion, determines that the Company cannot
complete the training program satisfactorily, the Franchisor can terminate the
franchise agreement. The Franchisor will provide training to previously
trained or newly hired personnel during the term of the franchise
agreement.
The franchise agreements allow the Company to use the various service and
trademarks owned by the Franchisor and its affiliates, Paisano Publications,
subject to very specific rules concerning display of the marks.
All advertising of any nature must be submitted to the Franchisor for
approval. The Company is required to spend a specific percentage of its
revenues on local advertising. It also contributes an additional
percentage of its revenues on local advertising. It also contributes
an additional percentage of specified revenues to an advertising fund utilized
by the Franchisor to promote the products in media that is not specific to the
Company.
The Company has paid a franchise fee of $5,000 and is obligated to pay,
weekly, a Continuing Services and Royalty Fee based on revenues or profits, as
defined in the franchise agreement. Failure to make all payments due the
Franchisor on a timely manner is grounds for termination of the franchise
agreement.
The Company is required to maintain accounting records as specified by
the Franchisor and to provide financial statements quarterly and annually to
the Franchisor. The Franchisor has a right to audit the records of the
Company and under certain circumstances the Company will be required to pay
for the audit.
The Company is obligated to sell only motorcycle apparel and
paraphernalia such as shirts, jackets, parts and related hard goods in the
apparel store and motorcycle shop. The Franchisor will provide a list of
approved manufacturers, suppliers, and distributors authorized for the Company
to purchase its inventory. If the Company desires to sell items not included
on the approved lists it must obtain the permission of the Franchisor.
The Franchisor has the right of first refusal if the shareholders of the
Company should decide to sell the Company, or the business and its assets to
another party.
The Franchisor owns and operates four Easyriders locations, and other
franchisees own and operate approximately 32 other Easyriders locations.
However, none of the Franchisor or other franchisee operated Easyriders
locations include restaurant or cafe facilities such as operated by the
Company.
Unit Operations and Management
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The Company will strive to maintain quality and consistency in its Units
through careful training and supervision of personnel and the establishment of
standards relating to food and beverage preparation, maintenance of facilities
and conduct of personnel. The on site management for all Company-owned Units
will consist of a general manager, assistant general manager,
kitchen manager, merchandise manager, and several floor managers, who
collectively are responsible for every aspect of the Unit's operation. Units
that maintain a motorcycle shop will also have a shop manager. The
Company is in the process of developing plans where on-site managers will
report to regional managers located in the regions divided as Western,
Mid-Western, and Eastern United States.
In an effort to ensure that its employees properly implement the
Company's commitment to consistent high-quality, popular food and friendly and
attentive service, the Company has developed manuals regarding its policies
and procedures for all aspects of Unit operations, including food handling and
preparation and dining room and beverage service operations. New employees
are trained by experienced employees who have demonstrated their familiarity
with the ability to consistently implement Company policies. The Company
continually evaluates and tests employees on job-related skills in order to
provide the highest quality of customer service. In addition, hourly
employees who demonstrate a positive business attitude along with leadership
skills are encouraged to proceed into management training.
Purchasing and Distribution
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The Company's management negotiates directly with suppliers of food and
beverage products to try to achieve uniform quality and freshness of food
products in its Units and to obtain competitive prices. New Units will
purchase a majority of its needs from a list of pre-approved local producers
and wholesalers. Management believes that its food and beverage products are
available from alternate sources and suppliers.
The Company's merchandise is procured from a variety of sources, however,
a majority of the items are provided from the "Easyriders Roadware Catalog"
and are subject to the Franchise Agreement. The items are chosen on the basis
of cost and reliability of a supplier. The majority of all the items, from
T-shirts and sweatshirts to leather and denim jackets, to key chains and
jewelry are manufactured in the United States.
Currently, merchandise is shipped directly to the Units in Myrtle Beach,
South Carolina and Fresno, California, where ample space is available for
storage. In the future, and as the Company grows, it is anticipated that a
centralized warehouse location will distribute the merchandise to each Unit.
Management will maintain strict control over the quality of merchandise sold
in domestic and foreign Units.
Competition
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The restaurant and retail merchandising industries are affected by
changes in consumer tastes and by international, national, regional and local
economic conditions and demographic trends. Changes in discretionary spending
priorities, traffic patterns, tourist travel, weather conditions, employee
availability and the type, number and location of competing restaurants also
directly affect the performance of an individual Unit. Changes in any of
these factors in the markets where the Company currently operates and will
operate Units could adversely affect the Company's results of operations.
Moreover, the theme restaurant industry is relatively young, is particularly
dependent on tourism and has seen the emergence of a number of new
competitors. Established competitors include the "Hard Rock Cafe,"
and "Planet Hollywood" , "NASCAR Cafe and All Star
Cafe".
The restaurant and retail merchandising industries are highly competitive
based on the type, quality and selection of the food or merchandise offered,
price, service, location and other factors. The Company believes its existing
Unit and future Units will be distinguished from those of its competitors by
their exciting and high energy environments, the anticipated involvement of
celebrities, extensive displays of unique memorabilia, high-quality popular
cuisine and excellent service. Nevertheless, many well established restaurant
companies with greater financial, marketing and other resources than the
Company compete with the Company. It is anticipated they will compete with
the Company in most markets in which the Company proposes to operate. In
addition, some competitors have design and operating concepts similar to those
of the Company and it is expected that those competitors will locate their
restaurants and stores in close proximity to established competitors such as
the "Hard Rock Cafe" and "Planet Hollywood."
Employees
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As of December 31, 1996 October 15, 1997 , the
Company employed or leased employees totaling approximately 70
112 persons, 4 5 of whom were corporate
management, 6 9 were restaurant and merchandise
management personnel, and approximately 60 2 were
employed in non-management restaurant and merchandising
operations and the balance are restaurant employees . The Company's
employees are not covered by a collective bargaining agreement, and the
Company has never experienced an organized work stoppage, strike or labor
dispute. The Company considers relations with its employees to be excellent.
Governmental Regulation
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Alcoholic Beverage Regulation. The Company's existing Units and future
Units are subject to licensing and regulation by a number of governmental
authorities. The Company is required to operate its Units in strict
compliance with federal licensing requirements imposed by the Bureau of
Alcohol, Tobacco and Firearms of the United States Department of Treasury, as
well as the licensing requirements of the states and municipalities where its
Units are located. Alcoholic beverage control regulations will require each
of the Company's Units to apply to a state authority and, in certain
locations, county and municipal authorities for a license and permit to sell
alcoholic beverages on the premises. Typically, licenses must be renewed
annually and may be revoked or suspended for cause at any time. Alcoholic
beverage control regulations relate to numerous aspects of the daily
operations of the current Unit Units and future Units,
including minimum age of patrons and employees, hours of operation,
advertising, wholesale purchasing, inventory control and handling, storage and
dispensing of alcoholic beverages. The Company has obtained all regulatory
permits and licenses necessary to operate its Unit two
Units that is are currently open, and intends to do
the same for all future Units. Failure on the part of the Company to comply
with federal, estate, or local regulations could cause the Company's licenses
to be revoked and force it to terminate the sale of alcoholic beverages at the
Units affected. To reduce this risk the Company plans that each Company Unit
will be operated in accordance with procedures intended to ensure compliance
with applicable laws and regulations. The failure to receive or retain, or
any delay in obtaining, a liquor license in a particular location could
adversely affect the Company's ability to obtain such a license elsewhere.
The Company will be subject to "dram-shop" laws that exist in several
states. These laws generally provide a person injured by an intoxicated
person the right to recover damages from an establishment that wrongfully
served alcoholic beverages to such person. While the Company carries liquor
liability coverage as part of its existing comprehensive general liability
insurance, there can be no assurance that it will not be subject to a judgment
in excess of such insurance coverage or that it will be able to obtain or
continue to maintain such insurance coverage at reasonable costs, or at all.
The imposition of a judgment substantially in excess of the Company's
insurance coverage, or the failure or inability of the Company to obtain and
maintain insurance coverage, could materially and adversely affect the
Company.
Other Regulations. The Company's current Unit
Units and future Units will be subject to regulation by federal and
foreign agencies and to licensing and regulation by foreign, state and local
health, sanitation, building, zoning, safety, fire and other departments
relating to the development and operation of restaurants and retail
establishments. These regulations include matters relating to environmental,
building construction, zoning requirements and the preparation and sale of
food and beverages. Various federal, foreign and state labor laws govern the
Company's relationship with its employees, including minimum wage
requirements, overtime, working conditions and citizenship requirements.
Significant additional government - imposed increases in minimum wages, paid
leaves of absence and mandated health benefits, or increased tax reporting and
tax payment requirements for employees who receive gratuities could have an
adverse effect on the Company. Delays or failure in obtaining the required
construction and operating licenses, permits or approvals could delay or
prevent the opening of new Units.
The Federal Americans With Disabilities Act ("ADA") prohibits
discrimination on the basis of disability in public accommodations and
employment. The Company's current Units are designed to be accessible to the
disabled. The Company intends to continue to comply in future Units with the
ADA and future regulations relating to accommodating the needs of the
disabled, and the Company does not anticipate that such compliance will have a
material effect on its operations.
Future Units which may be established in countries other than the United
States will be subject to governmental regulations in the jurisdictions in
which they are established principally in respect of sales of liquor,
construction of premises and working conditions of employees. The Company
does not believe that such regulations will materially adversely affect its
business.
Trademarks
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The Company at this time does not have a registered trademark with the
United States Patent and Trademark Office. The Company regards its name,
"Newriders", and logo as having significant value and as being an important
factor in the marketing of the Company's products, and has applied for a
trademark registration under its design logo. The "Easyriders" trademark is
registered with the United State Patent and Trademark Office and is the
property of Paisano Publications, Inc. The Company has the right to use the
"Easyriders" trademark pursuant to the Franchise Agreement.
Insurance
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The Company maintains general liability and property insurance. The
costs of insurance coverage vary generally and the availability of certain
coverage has fluctuated in recent years. While the Company believes that its
present insurance coverage is adequate for its current operations, there can
be no assurance that the coverage is sufficient for all future claims or will
continue to be available in adequate amounts or at reasonable rates.
Litigation
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No material legal proceedings are pending to which the Company or any of
its property is subject, nor to the knowledge of the Company are any such
legal proceedings threatened. However, as the Company grows, the Company
expects to be a defendant from time to time in routine lawsuits incidental to
its business, none of which is expected to have a material adverse effect on
the Company, individually or in the aggregate.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Plan of Operation
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The Company's plan of operation for the next twelve months is to focus on
the following:
1. Refine and continue to improve the profitability of the Fresno and
Myrtle Beach sites.
2. Research, identify and secure up to three additional sites for
expansion in calendar 1998.
The Fresno site has reached a break even level of operation and
the Company believes that it will continue to be self sustaining and
contribute to the Company's overall profit is currently operating
at a loss, however, management has implemented cost reductions and increases
in advertising and promotion which are expected to bring the Fresno Unit into
profitable status by the end of 1997 . The Company's Myrtle Beach site
which opened in May 1997, is expected to show a profit from operations for its
initial year of operations.
The Company has reached an arrangement with ABS Worldwide to
receive $1,000,000.00 of advertising, goods and services in exchange for the
issuance of 400,000 shares of the Company's restricted stock in a private
placement. On June 1, 1997, the Company sold $600,000.00 of 10% convertible
notes to Offshore Securities Limited in a transaction exempt from registration
under the Securities Act of 1933 under Rule 504 of Regulation D. The Company
expects to net received net proceeds of approximately
$500,000.00 from such offering ,the .The proceeds
of which will be were used to repay the cost of
construction of the Myrtle Beach, South Carolina Cafe and for working capital.
The Company is engaged constantly in market research, menu development,
entertainment choices, and thematic presentation, all of which results in a
continual refinement and upgrading of the Company's products and services.
In May 1997, the Company opened the Myrtle Beach site. As a result, the
Company has added approximately 80 new employees at Myrtle Beach
for the peak summer season . While the Company presently does not
intend to open stores in addition to Myrtle Beach during 1997, it does intend
to open up to three new stores in 1998. However, depending on the
timing of various opportunities, the Company may accelerate plans for the 1998
openings into 1997.
Management's Discussion and Analysis of Financial
Condition and Results of Operations.
- ------------------------------------
The Company Company's operating subsidiary, Newriders
Limited, was formed in late 1994. From inception until April 1996
the Newriders Limited Company was in the process of developing
its operational plan, building the motorcycle shop and building the restaurant
and apparel store located in Fresno, California. Moreover, the Company was
scouting evaluating additional sites for its future
Units. The Company's Unit in Fresno has been operational since May 1,
1996. and has a limited operating history
The majority all The substantial amount of the
Company's funding has been contributed from the initial founders.
Approximately $1.5 million of financing came from the founders of the Company
in exchange for common stock. In April, 1997, two persons who subsequently
became Directors invested a total of $500,000 in exchange for restricted
common stock and warrants. Additional financing of approximately $2.0 million
has been received through private placements.
- -Liquidity and Capital Needs
- ---------------------------
The Company opened its Myrtle Beach, South Carolina location in May,
1997. The Company has identified Fort Lauderdale or Orlando, Florida
as the probable location for its third cafe. Substantial expenditures
are incurred whenever a new location is opened. This requires substantial
cash commitments by the Company. The cash commitments needed to open a third
location exceed the Company's available liquid resources. In order
open a third location the Company intends to raise approximately $1,500,000 in
equity capital. The Company can presently offer no assurance that it
will be successful in its capital raising plans. If not successful in
raising sufficient equity capital to meet such capital expenditures, the
Company may seek loans to finance these anticipated expenses.
The Myrtle Beach, South Carolina location began generating
liquidity and net income immediately upon positive cash flow
approximately one month after its opening. However, in order to open
additional locations, the Company anticipates that the majority of necessary
funds will come from equity capital raising transactions or loans.
The Myrtle Beach development will be the only capital expenditure
anticipated by the Company during 1997.
Financing for the development and opening of the Myrtle Beach store
was obtained largely through raising equity capital. Most of the design and
building costs were paid by the Company's agreement to issue 400,000 shares of
restricted stock in a private placement with ABS Worldwide, Inc.
The Company believes that the timing of its opening of the Myrtle Beach
store in May 1997, was particularly beneficial to the Company's
profitability and initial success of that location. Not only
is May the traditional beginning of the summer tourist season, it is the month
in which Myrtle Beach hosts the longest running continuous annual motorcycle
rally in the United States. An estimated 50,000 Harley riders converge on the
community over a two one week period. The Company's
theme and products are precisely targeted to this lucrative customer base.
Myrtle Beach is the highest gross restaurant sales market in the
United States and the Company believes its products and services will achieve
initial acceptance and success at this location. While the Spring
through Fall tourist seasons in Myrtle Beach receive the most traffic, the
Winter, featuring a temperature climate, lends itself exactly to the
conditions conducive to enjoyment of motorcycle touring. In addition,
the The Company has already also begun an
extensive campaign to position itself as a popular place for "locals" who have
felt unwelcome in the "corporate" theme restaurants such as "Hard Rock Cafe"
and "Planet Hollywood". Further, the Company has embarked upon a
promotional campaign to attract many of the thousands of golfers who descend
upon Myrtle Beach's more than 100 golf courses during the winter season.
Thus, the Company believes that the Myrtle Beach location will enjoy
robust sales be profitable throughout the full year.
- -Results of Operations
- ----------------------
The Company's sales for the year six months ended
December 31, 1996 June 30, 1997 were approximately
$1,161,520. Net loss for the same period was approximately $1,036,240
or 89% of Sales. $1,149,111 in contrast to sales of $276,388 for the
six month period ended June 30, 1996. Total cost of sales for the six months
ended June 30, 1997 was $718,957 or 62.6% of Sales. Total cost of sales for
the six months ended June 30, 1996 was $98,251 or 35.5% of Sales. Net loss
for the six month period ended June 30, 1997 was approximately $760,302 or
$0.05 per share in contrast to a net loss of $195,757 or $0.02 per share for
the six months ended June 30, 1996. The Company's sales were not
reflective of any direct marketing or advertising conducted by the Company.
The Company to date has spent only a very small portion of funds on
advertising or marketing of its restaurants and motorcycle shop. The Company
attributes its loss losses largely to expenses associated
with the opening of its first store and second stores and
commencement of operations.
Total Cost of Sales for the year ended December 31, 1996 was $532,487
or 45.8% of Sales.
The Company's sales for the three months ended March 31, 1997
totaled $455,225. The Company did not open its first location until
approximately May 1, 1996. Therefore, the Company had no sales in the three
month period ended March 31, 1996. Net loss for the three month period ended
March 31, 1997 was $307,530, or $0.02 per share June 30, 1997
totaled approximately $693,886. The Company's sales for the three months
ended June 30, 1996 totaled $276,388. Total cost of sales for the three
months ended June 30, 1997 was $479,481, or approximately 69.1% of sales.
Total cost of sales for the three months ended March 31, 1997 was
$239,476, or approximately 52.06% June 30, 1996 was $98,251 or 35.5%
of sales. Net loss for the three month period ended March 31,
1996 was $32,444. The Company attributes its loss June 30, 1997 was
$452,772, or approximately $0.03 per share, an increase of $289,459 over the
$163,313 loss ($0.01 per share) for the three month period ended
March 31 June 30, 1996. The Company attributes its loss for
the three month period ended June 30 , 1997 to expenses associated with the
preparation, construction and opening of its second location ,and to
the fact that January and February are generally the slowest months in the
seasonal restaurant business .
Item 3. DESCRIPTION OF PROPERTY.
The Company presently occupies four properties, described as follows:
1. Fresno Retail Sites: The Company leases two retail locations in
Fresno, California. They are housed in two buildings, separated by a common
parking lot. Both are located within one-half block from the intersection of
the two main thoroughfares in the City of Fresno and are passed by
approximately 60,000 vehicles per day on average. The Cafe and Roadware
Apparel store are located in a 7,500 square foot free-standing building at the
entrance to a regional shopping center. The Cafe seats 120 in an open,
airy, a well lighted, modernistic setting, highlighted by a
custom made stainless steel flowing bar that accents the room and
distinguishes the entire restaurant. Glass, Brick stainless steel, a display
kitchen and liberal use of thematic materials highlight the Fresno Cafe and
Roadware Apparel store.
The Fresno Motorcycle Shop is located in a 4,000 square foot area
adjacent to the Cafe. It features a modern showroom in which up to 15 new,
customized and used motorcycles can be displayed and offered for sale. A full
line of after market motorcycle parts is offered. In addition, a complete
motorcycle customizing and repair shop is included, in which motorcycles can
be repaired, customized or built from the frame up.
2. Myrtle Beach Sites: The Company occupies two retail locations in
Myrtle Beach, South Carolina. The first has been leased at Broadway at the
Beach, adjacent to the main entrance and next to an existing Hard Rock Cafe.
The site consists of 8,900 square feet and an 800 foot square
foot patio and will seat 240. It features a clean, modern motif with three
full bars, a display kitchen and entertainment stage. Like the Fresno
Cafe, its feel is open, light and airy. An air dam will allow An air
dam allows an entire sliding glass wall of the Cafe to be opened during
business hours to include the patio within the restaurant. Approximately
800 250 square feet will be is
dedicated to the Roadware Apparel store.
For zoning reasons, the Myrtle Beach motorcycle shop is in a separate
location, approximately 1.5 3.0 miles from the cafe. The
Company has leased a 10,000 square foot free standing building on
approximately 2 acres located on a major artery entering the City of Myrtle
Beach, South Carolina. It is currently remodeling the facility as a roadware
apparel, motorcycle sales, parts and service facility. The Company intends to
sublease portions of the building to related businesses such as a custom paint
shop and powder coat paint applicator. The Company expects to open the store
and shop before the end of 1997.
3. Corporate Offices: The Company maintains corporate offices in
space leased in Fresno, California apart from the retail sites
on a month-to-month basis in Newport Beach, California, for monthly rent of
$7,000, which includes certain equipment and support services. .
Leases: The Fresno Cafe and Apparel store lease became effective on
August 1, 1995. It is a triple net lease with the following rent structure:
Commencement to 5/31/00 $ 84,000.00 annually
6/1/00 to 5/31/05 102,000.00 annually
6/1/05 to 5/31/10 117,120.00 annually
6/1/10 to 5/31/15 133,740.00 annually
The Company also pays annual property taxes of approximately $8,000.00
pursuant to the lease.
The motorcycle shop space begins at $48,000.00 annually with
incremental increases on a percentage basis reflecting the rent increases in
the Cafe lease.
The Myrtle Beach Cafe and Apparel store lease was executed on January 24,
1997. Rent became payable in accordance with the following schedule on April
1 1997 in accordance with the following schedule:
Commencement to 3/31/98 $ 12,044.38 monthly
4/1/98 to 3/31/99 13,248.21 monthly
4/1/99 to 3/31/02 17,481.55 monthly
4/1/02 to 3/31/07 20,991.63 monthly
In addition the lease requires payment of percentage rent at the natural
break point in the amount of 7.5% until April 1, 2002 and 6% thereafter. The
tenant is also assessed common area maintenance charges.
The Myrtle Beach Motorcycle Shop and Store lease was executed on June 6,
1997 for a term of twenty years. Rent is payable at the rate of $2,200.00 per
month with cost of living adjustments at the end of each five year period.
Item 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock by (I) each person known by
the Company to beneficially own more than 5% of the Common Stock, (II) each
Named Officer or Director who will beneficially own any shares, and (III) all
Directors and Executive Officers of the Company as a group.
Amount and Nature Percentage of Common Stock
of Beneficial Ownership (If all stock sold) (6)
----------------------- -------------------------
John E. Martin (4)(5)(6) 492,300 2.89%
(1)(9) 792,300 4.71%
William R. Nordstrom (2)(9) 772,300 4.58%
Michael T. Purcell (1) 3,785,657 22.69%
(3) 3,185,821 19.51%
Leon Hatcher (4) 3,746,918 22.95%
(1) 3,785,657 22.69%
C.W. Doyle (1) 1,892,895 11.11%
(5) 1,887,809 11.56%
Wayne L. Knyal (6)(9) 25,000 0.15%
Daniel Gallery (6)(9) 25,000 0.15%
Hal H. Bolen II (7)(9) 50,000 0.31%
(2)(3)(6) 40,000 0.23%
Rick L. Pierce (1) 3,785,657 22.69%
(8) 2,707,000 16.58%
All Officers and Directors (6) 9,504,209 55.83%
(9) 10,485,148 60.34%
(4 persons)
- -----------------------------
(1) Address is 5155 N. Blackstone, Fresno, California 93710
(2) Address is Suite 430, East Tower, Guarantee Financial Center, 1322 East
Shaw Avenue, Fresno, California 93710.
(3) The Company has agreed to issue 40,000 shares of its common stock to Mr.
Bolen's law firm, Bolen, Fransen & Boostrom LLP in the exchange for
$60,000 of legal services provided by the law firm.
(4) John E. Martin is not currently a director of the Company. He has agreed
to become a director once the Company obtains certain directors and
officers liability insurance. Address is 567 San Nicolas Drive, #400,
Newport Beach, California 92660.
(5) For agreeing to serve as a director, the Company has agreed to issue to
Mr. Martin 50,000 shares of its common stock, and to grant to Mr. Martin
an option to purchase up to 500,000 shares exercisable at $2.50 per share
at any time within 10 years of the date of grant. The option is only
exercisable immediately with respect to 250,000 of the shares. The option
becomes exercisable for an additional 125,000 shares after serving one
year as a director, and for the final 125,000 shares after serving two
years as a director.
(6) The Company has treated as issued and outstanding the 40,000 shares to be
issued to Bolen, Fransen & Boostrom LLP, the 50,000 shares to be issued to
John E. Martin and 250,000 shares covered by the option granted to Mr.
Martin, which are the only option shares exercisable within the next 60
days.
(1)Share total for Mr. Martin includes: (a) warrants to purchase up to
250,000 shares at $4.00 per share anytime on or before April 21, 1999;
and (b) a stock option to purchase up to 250,000 shares at $2.50 per
share anytime on or before July 8, 2007. Mr. Martin has other options to
purchase additional shares which have not been included since they are
not exercisable within the next 60 days.
(2) Share total for Mr. Nordstrom includes: (a) warrants to purchase up to
250,000 shares at $4.00 per share anytime on or before April 21, 1999;
and (b) a stock option to purchase up to 250,000 shares at $2.50 per
share anytime on or before February 14, 2002. Mr. Nordstrom has options
to purchase additional shares which have not been included since they are
not exercisable within the next 60 days.
(3) Address is 5155 N. Blackstone, Fresno, California 93710.
(4) Address is 8117 North Fowler, Clovis, California 93611.
(5) Address is 68 Johnson Hill Road, West Dover, Vermont 05356.
(6) Mr. Knyal and Mr. Gallery each hold an option to purchase up to 50,000
shares of common stock, of which only 25,000 shares of each option are
exercisable within the next 60 days. The options are exercisable at
$2.50 per share.
(7) The Company has agreed to issue 40,000 shares of its common stock to Mr.
Bolen's law firm, Bolen, Fransen & Boostrom LLP in the exchange for
$60,000 of legal services provided by the law firm. Mr. Bolen also owns
10,000 shares in his self-directed account in the Bolen, Fransen &
Boostrom Pension Plan.
(8) Address is P.O. Box 379, Cambria, California 93428.
(9) The Company has treated as issued and outstanding 50,000 shares to be
issued to John E. Martin, 500,000 shares covered by warrants and/or
options granted to Mr. Martin that are currently exercisable, 30,000
shares to be issued to Mr. Nordstrom, 500,000 shares covered by warrants
and/or options issued to Mr. Nordstrom that are currently exercisable,
and 25,000 shares each covered by the options issued to Messrs. Knyal and
Gallery, which are the only warrant shares and/or option shares
exercisable within the next 60 days. The Company has also treated as
issued and outstanding the 40,000 shares to be issued to Bolen, Fransen
& Boostrom.
Item 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The names and ages of all directors and executive officers and all
persons nominated or chosen to become such appear in the table below:
Name Age Position with Company
- ---------------------- --- ---------------------------------
John E. Martin 52 Chairman of the Board of Directors and Chief
Executive officer
53 Nominee to become a Director
William R. Nordstrom 55 Executive Vice President of finance and
Administration and Director
Michael T. Purcell 57 Vice President, Chief Marketing
Operating Officer, Chief
Financial Officer, Chief Executive
Officer and Director
Leon Hatcher 46 Chairman of the Board of Directors
Vice President, Chief Operating Officer
and Director
Hal H. Bolen II 47 Assistant Secretary
C.W. Doyle 62 Director
Wayne L. Knyal 51 Director
Daniel Gallery 43 Director
Mr. John E. Martin has been the Chairman and Chief Executive Officer
of the Company since July 1997. Mr. Martin served as President and Chief
Executive Officer of Taco Bell Corp. from August 1983 until 1995. In 1995,
Mr. Martin became Chairman and continued as Chief Executive Officer of Taco
Bell Corp. until October 1996, and he also assumed responsibility for
PepsiCo's casual dining concepts. From October 1996 until June 1997, Mr.
Martin was Chairman and Chief Executive Officer of PepsiCo Casual Dining
International, a division of PepsiCo which includes California Pizza Kitchen,
Chevy's Mexican Restaurants and East Side Mario's. Mr. Martin has been a
director of Franchise Mortgage Acceptance since its inception in 1991. In
1996, Mr. Martin was named the third most successful restaurant executive in
the Spenser Stuart/Cornell Study. He received the first Innovator Award from
the Multi-Unit Foodservice Operators Association in 1994; the Silver Plate
Award from the International Foodservice Manufacturers Association in 1993 for
his innovative leadership in the quick-service industry; the National
Association of Corporate Real Estate Executives named him as the 1992 CEO of
the year, and Restaurants and Institutions Magazine named him Executive of the
Year in 1991. Mr. Martin is a member of the Educational Foundation of the
National Restaurant Association's board of trustees, and is a founding member
of the Chief Executive Round Table at the University of California,
Irvine.
Mr. Nordstrom has served as Executive Vice President of Finance and
Administration and as a director of the Company since July 1997. Mr.
Nordstrom is an experienced and successful businessman and entrepreneur with
an extensive background in management consulting, sales training, organization
development and business start-ups. He has hands-on experience in building
and managing a business, including capital formation, marketing and sales,
operations, MIS, human resources, business planning, strategic planning,
engineering, research and development and corporate finance. He was formerly
Chairman and CEO of National Investors Council, a financial publishing and
communications firm, which he founded in 1987. Prior to establishing National
Investors Council, Mr. Nordstrom was a consultant to a number of
organizations, including Integrated Barter International, Inc. (a
publicly-held corporate barter and excess inventory re-marketing specialist),
Jallow International, Inc. (an international economic consulting firm
established by Dr. Raymond Jallow, former chief economist for First Interstate
Bank), and Corporate Capital Resources, Inc. (a "Business Development Company"
specializing in the financing and "incubation" of start-up businesses).
Mr. Michael T. Purcell is a co-founder of Newriders Limited and has
acted in several executive positions since its inception on November
8, 1994. Mr. Purcell has served as Chief Operating Officer,
Chief Financial Officer and Chief Executive Officer and as a
Director of the Company since its inception. He has served as President since
August 1996 of the Company from July 1996 until July 1997. He
has served as Vice President and Chief Marketing Officer since July 1997 and
as a Director since July 1996. He has served as President of the Company from
August 1996 until July 1997 . He served as President and Chief Executive
Officer of Purcell Appling Associates, an advertising agency and marketing
consulting firm, from 1987 until 1991. Since July, 1991, Mr. Purcell has been
the sole proprietor of Purcell Advertising, a successor firm to Purcell
Appling Associates. Mr. Purcell served as Director of Sales Development for
NBC Radio in New York City and Partner in the Transtar Radio Network from 1981
to 1985. He has served as the Producer and Promotor of Harley Davidson
oriented events such as the Harley Challenge and Valley Thunder Biker Bash and
Blues Festival in Central California since 1992. Mr. Purcell has also served
as the Coordinator and Director of the Chili Cookoff held in Central
California since 1984. Mr. Purcell devotes approximately 90% of his working
time to the business of the Company.
Mr. Leon Hatcher is a co-founder of Newriders Limited and has served as
Chairman of the Board of Directors and as a Director since
inception in November 8, 1994. Mr. Hatcher served as Chairman of the
Board of Directors of the Company from inception until July 1997 and as
President from inception until August 1996. He has served as Vice
President and Chief Operating Officer since July 1997. He has also served
in various capacities with Easyrider s Rodeos, Custom Bike, Tatoo, Show,
and Apparel Outlets since 1980.
Mr. Hal H. Bolen II has served as the Assistant Secretary
of the Company since November 1996. Mr. Bolen is an attorney and has been a
partner in the Fresno, California law firm of Bolen, Fransen & Boostrom LLP
for more than the last 10 years. Mr. Bolen has served as Secretary and as a
director in Silver Oak Land Company, a California corporation which develops
senior citizen housing projects, for more than the last 5 years. He has also
served as a director of Lawyers Mutual Insurance Company, a company
specializing in liability insurance for lawyers, since approximately
September
1993.
Mr. C.W. "Bill" Doyle has served as a Director of the Company since
August 1996. Mr. Doyle is a retired attorney and airline pilot. Mr. Doyle
served as the Director of TWA Flight School Operations and as a Check Pilot.
As a Captain he piloted 747's on international routes. While with TWA, Mr.
Doyle obtained a law degree from Seton Hall University and is a member of the
New York and New Jersey Bars. Mr. Doyle was associated with the Roy Cohen Law
Firm in New York City.
Mr. Doyle's wife, Georgette Doyle, has over twenty years
experience in the restaurant business, primarily managing two of New York
City's most well known Italian Restaurants.
In March 1997, Mr. John E. Martin agreed to serve as a director
of the Company once the Company filed this Registration Statement and the
Company obtained certain officers and directors liability insurance coverage
which the Company expects to obtain in July, 1997. Mr. Martin /R>
Wayne
L. Knyal has served as a Director of the Company since July 1997. Mr.Knyal
has been the President, Chief Executive Officer and a Director of Franchise
Mortgage Acceptance Company since its inception in 1991, and has been the
President, Chief Executive Officer and a Manager of Franchise Mortgage LLC
since its inception in June 1995. Prior to founding Mortgage Acceptance
Company's predecessor in 1991, Mr. Knyal founded and owned CBI Insurance
Services, Inc. and concurrently served as President and Chief
Executive officer of Taco Bell from August 1983 until 1995. In 1995, Mr.
Martin became Chairman and continued as Chief Executive Officer of Taco Bell,
and he also assumed responsibility for PepsiCo's casual dining concepts. In
October 1996, Mr. Martin became Chairman and Chief Executive Officer of
PepsiCo Casual Dining International, a division of PepsiCo which includes
California Pizza Kitchen, Chevy's Mexican Restaurants and East Side
Mario's. of CBI Mortgage Company, a residential mortgage banker.
From 1968 to 1980, Mr. Knyal was an Executive Vice President of Krupp/Taylor
Advertising and served clients in the fast food industry.
Additional Key Personnel
-------------------------
Mr. Mark Burger (38), has served as a restaurant management consultant
to the Company since inception. Mr. Burger has served as President of The
Secret Garden in Carmel, California since August, 1994; Director of Operations
of Bindel-Cavalaro Restaurants since 1991; marketing Sales Representative of
Remanco International Systems since 1990; as Director of Sales of The Sardine
Factory restaurant from 1984 to 1989; and Director of Purchasing for
Restaurants Central from 1987 to 1989. Mr. Burger has managed various
restaurants in Central California since 1973 Daniel J. Gallery
has served as a Director of the Company since July 1997. Mr. Gallery is a
co-founder of Carts of Colorado, Inc., an industry leader in the creation of
the mobile and modular merchandising concept and the utilization of
non-traditional locations for food service operations. Carts of Colorado has
been instrumental in the development and implementation of the "express
concepts" seen today in most airports, stadiums and arenas, convenience
stores, on golf courses, as well as thousands of other venues around the
world. Mr. Gallery has worked extensively with PepsiCo on their Express
concepts, with 4,000 units worldwide and over $1 billion in sales. He has
helped develop an exclusive worldwide partnership with E-Z-Go Golf Cars to
design and building food, beverage and merchandising units. In addition to
PepsiCo, he has developed concepts for Coca-Cola, Burger King, Arby's, Subway,
Sara Lee, and Dannon. He is also Co-founder of Cohabaco Cigar Company, a new
venture designed to take advantage of the resurgence of interest in
fine-quality cigars. He is a member of the Board of Directors of Monterey
Pasta Company and the National Association of Concessionaires.
Item 6. EXECUTIVE COMPENSATION.
The following table sets forth information concerning compensation paid
to the Company's Chief Executive officer as well as annual compensation of
$100,000 or more paid to any executive officer or directors of the Company for
services rendered in all capacities to the Company for the years ended
December 31, 1994, 1995 and 1996.
Year Ended
Name and Principal Position December 31, Salary Bonus
- ------------------------------------- ----------- ---------- ----------
Michael T. Purcell (1) 1996 $100,000 $ -0-
Vice/R> President,
CEO, Secretary, 1995 $ -0- $ -0-
Chief Marketing Officer,
Chairman of the Board of 1994 $ -0- $ -0-
Directors
and Director
Leon S. Hatcher 1996 $100,000 $ -0-
Chairman of the Board of
Directors 1995 $ -0- $ -0-
Vice President, Chief Operating
Officer and Director 1994 $ -0- $ -0-
(1) Purcell Advertising, a sole proprietorship of Michael T. Purcell,
acts as the Company's advertising agency, for which it may receive
a standard 15% commission paid by the medial advertising venders
with which the Company advertises. As of September 30, 1997,
Purcell Advertising had not received any commissions for
advertising provided to the Company.
As of December 31, 1996, the The Company has an
obligation to Mr. Purcell in the amount of $100,000 and to Mr. Hatcher in the
amount of $100,000 for compensation accrued and earned in 1996, but not yet
paid.
In connection with hiring Mr. Martin and Mr. Nordstrom, the Company
entered into employment agreements with them, each of which provides for the
payment of annual cash compensation in excess of $100,000, and for options.
For a description of the compensation to be paid to Messrs. Martin and
Nordstrom, see the "Employment Agreements" subsection immediately below.
Employment Agreements
- ---------------------
The Company presently has no employment agreements with
Mr. Martin and with Mr. Nordstrom. The Company presently has no other
employment agreements with any of its executive officers or directors.
An The employment agreement between Mr.
Michael T. Purcell and the Company is expected to be executed soon, outlining
future compensation. with Mr. Martin provides that Mr. Martin be
paid a base salary of $250,000 annually while Mr. Martin serves as either or
both Chief Executive Officer and Chairman of the Board of Directors, positions
he has held since July 1997. The salary is to accrue and its payment is to be
deferred until Mr. Martin determines, in his judgment, that the Company has
sufficient cash flow to begin to pay Mr. Martin's salary and all other
executive salaries that are being deferred, on a pro rata basis. Mr. Martin
is entitled to an office reimbursement expense allowance of $84,000 per year
in addition to reimbursement of specific business expenses reasonably incurred
on behalf of the Company. Mr. Martin received options to purchase up to
1,500,000 shares of the Company's common stock at $2.50 per share. The
options vest in 5 increments of 300,000 shares each, upon the date the
Company's total market capitalization reaches the following levels: $150
million, $300 million, $500 million, $750 million and $1 billion. The options
are exercisable for a period of ten years following vesting, subject to Mr.
Martin serving as interim Chief Executive Officer until a suitable replacement
is found (but not beyond June 30, 1998), and serving as Chairman of the Board
of Directors for a minimum of 3 years (unless Mr. Martin earlier terminated
his position for good cause).
In addition to the compensation provided to Mr. Martin by the
Employment Agreement, the Company agreed to compensate Mr. Martin separately
for his agreement to serve as a director of the Company as follows: (a)
issuing 50,000 shares of the Company's common stock to him and registering
those shares on a Form S-8 registration statement; and (b) granting a option
to acquire up to 500,000 additional shares of the Company's common stock
exercisable at $2.50 per share. The option immediately vests with respect to
the right to purchase up to 250,000 shares. An additional 125,000 shares vest
after completing 1 year as a director, and the final 125,000 shares vest after
completing 2 years as a director.
The employment agreement with Mr. Nordstrom provides that Mr.
Nordstrom be paid a base salary of $150,000 annually while Mr. Nordstrom
serves as Executive Vice President of Finance and Administration, a position
he has held since July 1997. The salary is to accrue and its payment is to be
deferred until Mr. Martin determines, in his judgment, that the Company has
sufficient cash flow to begin to pay Mr. Nordstrom's salary and all other
executive salaries that are being deferred, on a pro rata basis. Mr.
Nordstrom is entitled to reimbursement of specific business expenses
reasonably incurred on behalf of the Company. Mr. Nordstrom received options
to purchase up to 500,000 shares of the Company's common stock at $2.50 per
share. The options vest in 5 increments of 100,000 shares each, upon the date
the Company's total market capitalization reaches the following levels: $150
million, $300 million, $500 million, $750 million and $1 billion. The options
are exercisable for a period of ten years following vesting, subject to Mr.
Nordstrom's continuing employment with the Company for a minimum of 3 years
(unless Mr. Nordstrom earlier terminates his position for good cause).
In addition to the compensation provided to Mr. Nordstrom by the
Employment Agreement, the Company agreed to compensate Mr. Nordstrom
separately for consulting services in early 1997 by issuing 30,000 shares of
the Company's common stock to be registered on Form S-8, and by granting him
an option to purchase up to 250,000 shares of the Company's common stock at
$2.50 per share exercisable from February 14, 1997 until February 14,
2002.
Stock Option Plan
- ------------------
The Company has not adopted any stock option plan at this time. However,
the Company is currently in the process of investigating alternatives
to providing incentives to employees and adopting an incentive stock option
plan intends to adopt a broad stock plan for officers, directors,
employees and consultants in the near future, and to set aside 3,000,000
shares of the Company's common stock for issuance under the Plan.
Retirement Plan
- ---------------
The Company has not adopted any retirement plan at this time. However,
the Company is investigating a variety of plans and may establish a retirement
plan in the near future.
Health Insurance Plan
- ---------------------
The Company is currently reviewing various health benefit plans and
options to offer to its employees. Placement of coverage is planned to
commence in 1997.
Item 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In addition to the issuance of shares of the Company's common stock to
its officers, directors and founders, and the granting of an
option various options and warrants to acquire common stock
to a director certain directors as described in
"Item 4. Security Ownership of Certain Beneficial Owners and Management"
herein, since the Company was organized, it has entered into the following
significant related party transactions:
1. Purcell Advertising acts as the Company's advertising agency for
which it receive a standard 15% commission paid by advertising vendors with
which the Company advertises. Michael Purcell is the owner and sole
proprietor of Purcell Advertising.
2. Bolen, Fransen & Boostrom LLP provides legal services for the
Company and charges its standard rates for such services. The Company has
agreed to issue 40,000 shares of its common stock to Bolen, Fransen & Boostrom
LLP for $60,000 of legal services provided to the Company by that firm. Hal
H. Bolen II is a partner in Bolen, Fransen & Boostrom LLP.
Item 8. DESCRIPTION OF SECURITIES.
Common Stock
- -------------
The Company has authorized 25,000,000 shares of Common Stock, $.001 par
value per share, of which 16,168,000 16,326,000 shares
of Common Stock are issued and outstanding as of December 31
June 30 , 1996. All presently outstanding shares of the Company's
Common Stock are validly issued, fully paid and non-assessable. The holders
of Common Stock do not and will not have any preemptive or other subscription
rights to subscribe for or purchase any additional securities issued by the
Company, nor will they have any redemption or conversion rights.
The holders of Common Stock are entitled to receive dividends, when, as
and if declared by the Board of Directors out of funds legally available
therefore. It is highly unlikely that dividends will be paid by the Company
in the foreseeable future on its Common Stock.
The holders of Common Stock are entitled to receive on liquidation of
the Company a pro rata distribution of the assets of the Company, subject to
rights of creditors and holders of any Preferred Stock then outstanding. At
this time there is no Preferred Stock authorized, issued or outstanding.
Shares Eligible for Future Sale
- --------------------------------
The Company has 16,168,000 16,849,352 shares of
Common Stock outstanding as of December 31, 1996 September 9,
1997 . Of the 16,168,000 16,849,352 shares of
Common Stock outstanding the Company estimates that approximately
1,081,000 1,682,432 are free trading and the balance are
"Restricted Securities" as defined under the Securities Act of 1933 and Rule
144. In general, under Rule 144 a person who has satisfied a one year holding
period, under certain circumstances, may sell within any three-month period a
number of shares which does not exceed the greater of one percent of the then
outstanding shares of that class of securities or the average weekly trading
volume in such shares during the four calendar weeks prior to such sale. Rule
144 also permits, under certain circumstances, the sale of shares without any
quality or other limitation by a person who is not an affiliate of the Company
and who has satisfied a two year holding period. Any sales of a substantial
amount of Common Stock in the open market, under Rule 144 or otherwise, could
have a significant adverse effect on the market price of the Company's Common
Stock.
---------------------------------------------------------------------------
PART II
--------------------------------------------------------------------------
Item 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS.
Market Information
- --------------------
The Common Stock of the Company is traded in the over-the-counter market
and quoted on the NASD Bulletin Board under the ticker symbol "NWRD". The
shares were first quoted on the Bulletin Board in April 1996. The shares are
thinly traded and a very limited market presently exists for the shares. The
following table sets forth, for the respective periods indicated, the prices
of the Company's Common Stock in the over-the-counter market, based on
inter-dealer bid prices, without retail mark-up, mark-down or commissions and
may not necessarily reflect actual transactions. The quotations have been
provided by market makers in the Company's Common Stock and/or the National
Quotation Bureau.
Quarter Ended High Bid Low Bid
- ------------------------- ----------------- -----------------
June 30, 1996 $5.25 $5.25
September 30, 1996 $5.75 $1.00
December 31, 1996 $2.50 $1.00
March 31, 1997 $8.563 $1.00
June 30, 1997 $4.125 $1.8125
As of April 11 September 18, 1997 there were
approximately 203 299 stockholders of record.
Dividend Information
- --------------------
The Company has not paid any dividends in the past. The Company
currently intends to retain all earnings to finance the development and
expansion of its operations and does not anticipate paying cash dividends or
making any other distributions on its shares of Common Stock in the
foreseeable future. The Company's future dividend policy will be determined
by its Board of Directors on the basis of various factors, including the
Company's results of operations, financial condition, business opportunities
and capital requirements.
Under Nevada state corporate law, no dividends may be paid if, after
giving effect to the dividends: (a) the Company would not be able to pay its
debts as they become due in the usual course of business; or (b) except as
otherwise specifically allowed by the Company's Articles of Incorporation, the
Company's total assets would be less than the sum of its total liabilities
plus the amount that would be needed, if the Company were to be dissolved at
the time of distribution, to satisfy the preferential rights upon dissolution
of stockholders whose preferential rights are superior to those receiving the
dividend.
Item 2. LEGAL PROCEEDINGS.
The Company is not a party to any material pending legal proceedings.
The Company's property is not subject to any material pending legal
proceedings. To the best of the Company's knowledge, no governmental
authority or other party has threatened or is contemplating the filing of any
material legal proceedings against the Company.
Item 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
During the Company's two most recent fiscal years or any later interim
period, the Company and its subsidiary have not had a principal independent
accountant or an independent accountant on whom the principal independent
accountant expressed reliance in its report, resign, decline to stand for
re-election, or be dismissed.
Item 4. RECENT SALES OF UNREGISTERED SECURITIES.
During the past three years, the Company sold securities which were not
registered under the Securities Act of 1933, as amended, as follows:
Number of Shares
Name Date Of Common Stock Total Consideration
- ----------------------- ------- ---------------- -------------------
Consolidated
Equity Parters, Inc. 4/23/96 2,500,000 $ ______
Michael T. Purcell 7/03/96 3,205,400 Stock in Newriders Limited
Leon Hatcher 7/03/96 3,114,100 Stock in Newriders Limited
Rick L. Pierce 7/03/96 3,114,100 Stock in Newriders Limited
C. W. Doyle 7/03/96 1,566,400 Stock in Newriders Limited
Jess and Luann Borrego 7/28/96 4,800 $ 12,000
OTRA VEZ, INC. 6/29/96 4,000 $ 10,000
Barry M. Stratton 8/07/96 1,000 $ 2,500
Thomas D. McPherson 8/30/96 1,000 $ 2,500
Dean P. Hahn 6/25/96 3,000 $ 7,500
Robert Haag 8/09/96 2,000 $ 5,000
Frank/Jennie Martinez 6/25/96 1,000 $ 2,500
Douglas/Carol Johnson 6/25/96 1,000 $ 2,500
David/Eileen Erickson 8/30/96 2,000 $ 5,000
Consolidated Equity
Partners, Inc. 6/28/96 67,200 $168,000
First Source of Nevada 1/17/97 80,000 Note 1
Doug Ames 10/20/96 50,000 Note 2
Chester McGloughlin 10/20/96 50,000 Note 2
ABS Worldwide, Inc. 12/16/96 400,000 Note 3
John Martin 5/19/97 192,300 $250,000
William R. Nordstrom 5/19/97 192,300 $250,000
Kevin Gabbert 5/29/97 50,000 Services
Offshore
Securities Ltd. 5/29/97 Note 4 $600,000
-----------------------------------------------------------------------------
Note 1. $160,000 $80,000 of payroll.
Note 2. For promotional activity valued at $800,000
$300,000.
Note 3. $1,000,000 worth of bartered advertising, goods and
services.
Note 4. The Company sold $600,000 of notes convertible to common stock at
72.5% of average market price during 5 days prior to conversion
or at average market price during 5 days prior to closing date,
whichever is less.
With respect to the sales made, the Company relied on Section 4(2) of the
Securities Act of 1933, as amended. No advertising or general solicitation
was employed in offering the shares. The securities were offered to the
persons named above, who received disclosure information concerning the
Company and who had access to information concerning the Company either by
virtue of their relationship with the Company, or the opportunity to make
investigation and inquiry provided to each of the investors, including their
purchaser representative where applicable, by the Company and its officers and
directors. The securities were offered for investment purposes only and not
for the purpose of resale or distribution, and the transfer thereof was
appropriately restricted by the Registrant.
No underwriters were involved in any of the sales, and no underwriting
discounts or commissions were paid by the Company.
Item 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The only statutes, charter provisions, by-laws, contracts or other
arrangements under which any controlling person, director or officer of the
Company is insured or indemnified in any manner against any liability which he
may incur in his capacity as such, are as follows:
A. Sections 78.037, 78.751 and 78.752 of the Nevada Revised Statutes
offer limitation of liability protection for officers and directors and/or
indemnification protection of officers, directors, employees and agents of the
Company, and provide as follows:
78.751. Articles of incorporation: Optional provisions.
The articles of incorporation may also contain:
1. A provision eliminating or limiting the personal liability of a
director officer to the corporation or its stockholders for damages for breach
of fiduciary duty as a director or officer, but such a provision must not
eliminate or limit the liability of a director or officer for:
(a) Acts or omissions which involve intentional misconduct,
fraud or a knowing violation of law; or
(b) The payment of distributions in violation of NRS 78.300.
2. Any provision, not contrary to the laws of this state, for the
management of the business and for the conduct of the affairs of the
corporation, and any provision creating, defining, limiting or regulating the
powers of the corporation or the rights, powers or duties of the directors,
and the stockholders, or any class of the stockholders, or the holders of
bonds or other obligations of the corporation, or governing the distribution
or division of the profits of the corporation.
78.751. Indemnification of officers, directors, employees and agents;
advancement of expenses.
1. A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
except an action by or in the right of the corporation, by reason of the fact
that he is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses, including attorneys' fees, judgments,
fines and amounts paid in settlement actually and reasonably incurred by him
in connection with the action, suit or proceeding if he acted in good faith
and in a manner which is reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, does not, of
itself, create a presumption that the person did not act in good faith and in
a manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and that, with respect to any criminal action or
proceeding, he had reasonable cause to believe that his conduct was unlawful.
2. A corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment in
its favor by reason of the fact that he is or was a director, officer,
employee or agent of the corporation or is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses, including amounts paid in settlement and attorneys' fees actually
and reasonably incurred by him in connection with the defense or settlement of
the action or suit if he acted in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation. Indemnification may not be made for any claim, issue or matter
as to which such a person has been adjudged by a court of competent
jurisdiction, after exhaustion of all appeals therefrom, to be liable to the
corporation or for amounts paid in settlement to the corporation, unless and
only to the extent that the court in which the action or suit was brought or
other court of competent jurisdiction determines upon application that in view
of all the circumstances of the case, the person is fairly and reasonably
entitled to indemnity for such expenses as the court deems proper.
3. To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections 1 and 2, or in defense
of any claim, issue or matter therein, he must be indemnified by the
corporation against expenses, including attorneys' fees, actually and
reasonably incurred by him in connection with the defense.
4. Any indemnification under subsections 1 and 2, unless ordered by a
court or advanced pursuant to subsection 5, must be made by the corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances. The determination must be made:
a. By the stockholders;
b. By the board of directors by majority vote of a quorum
consisting of directors who were not parties to the act, suit or proceeding;
c. If a majority vote of a quorum consisting of directors who
were not parties to the act, suit or proceeding so orders, by independent
legal counsel in a written opinion; or
d. If a quorum consisting of directors who were not parties to
the act, suit or proceeding cannot be obtained, by independent legal counsel
in a written opinion.
5. The articles of incorporation, the bylaws or an agreement made
by the corporation may provide that the expenses of officers and directors
incurred in defending a civil or criminal action, suit or proceeding must be
paid by the corporation as they are incurred and in advance of the final
disposition of the action, suit or proceeding, upon receipt of an undertaking
by or on behalf of the director or officer to repay the amount if it is
ultimately determined by a court of competent jurisdiction that he is not
entitled to be indemnified by the corporation. The provisions of this
subsection do not affect any rights to advancement of expenses to which
corporate personnel other than directors or officers may be entitled under any
contract or otherwise by law.
6. The indemnification and advancement of expenses authorized in or
ordered by a court pursuant to this section:
a. Does not exclude any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under the articles
of incorporation or any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, for either an action in his official
capacity or an action in another capacity while holding his office, except
that indemnification, unless ordered by a court pursuant to subsection 2 or
for the advancement of expenses made pursuant to subsection 5, may not be made
to or on behalf of any director or officer if a final adjudication establishes
that his acts or omissions involved intentional misconduct, fraud or a knowing
violation of the law and was material to the cause of action.
b. Continues for a person who has ceased to be a director,
officer, employee or agent and inures to the benefit of the heirs, executors
and administrators of such a person.
78.752. Insurance and other financial arrangements against liability of
directors, officers, employees and agents.
1. A corporation may purchase and maintain insurance or make other
financial arrangements on behalf of any person who is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise for
any liability asserted against him and liability and expenses incurred by him
in his capacity as a director, officer, employee or agent, or arising out his
status as such, whether or not the corporation has the authority to indemnify
him against such liability and expenses.
2. The other financial arrangements made by the corporation pursuant
to subsection 1 may include the following:
a. The creation of a trust fund.
b. The establishment of a program of self-insurance.
c. The securing of its obligation of indemnification by
granting a security interest or other lien on any assets of the corporation.
d. The establishment of a letter of credit, guaranty or surety.
No financial arrangement made pursuant to this subsection may provide
protection for a person adjudged by a court of competent jurisdiction, after
exhaustion of all appeals therefrom, to be liable for intentional misconduct,
fraud or a knowing violation of law, except with respect to the advancement of
expenses or indemnification ordered by a court.
3. Any insurance or other financial arrangement made on behalf of a
person pursuant to this section may be provided by the corporation or any
other person approved by the board of directors, even if all or part of the
other person's stock or other securities is owned by the corporation.
4. In the absence of fraud:
a. The decision of the board of directors as to the propriety of
the terms and conditions of any insurance or other financial arrangement made
pursuant to this section and the choice of the person to provide the insurance
or other financial arrangement is conclusive; and
b. The insurance or other financial arrangement:
(1) Is not void or voidable; and
(2) Does not subject any director approving it to
personal liability for his action, even if a director approving the insurance
or other financial arrangement is a beneficiary of the insurance or other
financial arrangement.
5. A corporation or its subsidiary which provides self-insurance for
itself or for another affiliated corporation pursuant to this section is not
subject to the provisions of Title 57 of NRS.
B. The TWELFTH article of the Company's Articles of Incorporation
limits the liability exposure of officers and directors of the Company for
damages. It provides as follows:
TWELFTH. No director or officer of the Corporation shall be personally
liable to the Corporation or any of its stockholders for damages for breach of
fiduciary duty as a director or officer involving any act or omission of any
such director or officer; provided however, that the foregoing provision shall
not eliminate or limit the liability of a director or officer (i) for acts or
omissions which involve intentional misconduct, fraud or a knowing violation
of law, or (ii) the payment of dividends in violation of Section 78.300 of the
Nevada Revised Statutes. Any repeal or modification of this Article by the
stockholders of the Corporation shall be prospective only and shall not
adversely affect any limitation on the personal liability of a director of
officer of the Corporation or acts of omissions prior to such repeal or
modification.
C. Article VI of the Company's By-Laws provides for the following
indemnification protections:
ARTICLE VI
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Except as hereinafter stated otherwise, the Corporation shall indemnify
all of its officers and directors, past, present and future, against any and
all expenses incurred by them, and each of them including but not limited to
legal fees, judgments and penalties which may be incurred, rendered or levied
in any legal action brought against any or all of them for or on account of
any act or omission alleged to have been committed while acting within the
scope of their duties as officers or directors of this Corporation.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
Company pursuant to the foregoing provisions, the Company has been informed
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
--------------------------------------------------------------------------
PART F/S - FINANCIAL STATEMENTS
--------------------------------------------------------------------------
[Letterhead of Jones, Jensen & Company appears here]
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors
Newriders, Inc. and Subsidiary
Fresno, California
The accompanying consolidated balance sheet of Newriders, Inc. and Subsidiary
as of June 30, 1997 and the related consolidated statements of operations,
stockholders' equity, and cash flows for the three and six months ended June
30, 1997 and 1996 were not audited by us and, accordingly, we do not express
an opinion on them. The accompanying consolidated balance sheet of Newriders,
Inc. and subsidiary as of December 31, 1996 was audited by us and we expressed
an unqualified opinion on it in our report dated June 3, 1997.
Jones, Jensen & Company
August 29, 1997
50 South Main Street, Suite 1450, Salt Lake City, Utah 84144
Telephone (801)328-4408, Facsimile (801)328-4461
NEWRIDERS, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997 and December 31, 1996
C O N T E N T S
Independent Accountants' Report ............................... 3
Consolidated Balance Sheet .................................... 4
Consolidated Statements of Operations ......................... 6
Consolidated Statements of Stockholders' Equity ............... 7
Consolidated Statements of Cash Flows ......................... 8
Notes to the Consolidated Financial Statements ............... 10
<PAGE>
NEWRIDERS, INC. AND SUBSIDIARY
Consolidated Balance Sheets
ASSETS
---------
June 30, December 31,
1997 1996
--------------- ---------------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ - $ 20,047
Accounts receivable 805 -
Inventory 590,541 584,890
Prepaid expenses - 2,035
--------------- ---------------
Total Current Assets 591,346 606,972
--------------- ---------------
PROPERTY AND EQUIPMENT - Net 2,292,356 1,324,222
--------------- ---------------
OTHER ASSETS
Deferred charges - net 211,274 227,494
Deposits 16,378 16,378
--------------- ---------------
Total Other Assets 227,652 243,872
--------------- ---------------
TOTAL ASSETS $ 3,111,354 $ 2,175,066
=============== ===============
The accompanying notes are an integral part of these consolidated
financial statements.
-4-
NEWRIDERS, INC. AND SUBSIDIARY
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
June 30, December 31,
1997 1996
--------------- ---------------
(Unaudited)
CURRENT LIABILITIES
Cash overdraft $ 146,814 $ -
Accounts payable 551,233 154,975
Accrued expenses 127,572 25,010
Current obligation under
capital lease 27,723 27,723
--------------- ---------------
Total Current Liabilities 853,342 207,708
--------------- ---------------
OBLIGATION UNDER CAPITAL LEASE,
Less Current Obligation 28,870 31,566
--------------- ---------------
STOCKHOLDERS' EQUITY
Common stock; 25,000,000 shares
authorized of $0.001 par value;
16,326,000 shares issued and
outstanding 16,326 16,326
Additional paid-in capital 4,045,260 3,991,608
Common stock subscription receivable - (1,000,000)
Accumulated deficit (1,832,444) (1,072,142)
-------------- ---------------
Total Stockholders' Equity 2,229,142 1,935,792
-------------- ---------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 3,111,354 $ 2,175,066
============== ===============
The accompanying notes are an integral part of these consolidated
financial statements.
-5-
NEWRIDERS, INC. AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
------------------------------ ------------------------------
1997 1996 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
SALES $ 693,886 $ 276,388 $ 1,149,111 $ 276,388
COST OF SALES 479,481 98,251 718,957 98,251
-------------- -------------- -------------- --------------
GROSS MARGIN 214,405 178,137 430,154 178,137
-------------- -------------- -------------- --------------
EXPENSES
Selling, general and administrative 632,266 338,791 1,120,457 366,295
Depreciation and amortization 32,319 4,940 64,638 9,880
-------------- -------------- -------------- --------------
Total Expenses 664,585 343,731 1,185,095 376,175
-------------- -------------- -------------- --------------
Loss from Operations (450,180) (165,594) (754,941) (198,038)
-------------- -------------- -------------- --------------
OTHER INCOME (EXPENSE)
Interest income 71 - 73 -
Other income 345 2,281 399 2,281
Interest expense (3,008) - (5,833) -
Bad debt expense - - - -
-------------- -------------- -------------- --------------
Total Other Income (Expense) (2,592) 2,281 (5,361) 2,281
-------------- -------------- -------------- --------------
NET LOSS $ (452,772) $ (163,313) $ (760,302) $ (195,757)
============== ============== ============== ==============
NET LOSS PER SHARE $ (0.03) $ (0.01) $ (0.05) $ (0.02)
============== ============== ============== ==============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 16,326,000 11,000,000 16,326,000 11,000,000
============== ============== ============== ==============
The accompanying notes are an integral part of these consolidated financial statements.
-6-
</TABLE>
NEWRIDERS, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Common
Common Stock Additional Stock
------------------------- Paid-in Subscription Accumulated
Shares Amount Capital Receivable Deficit
------------- ---------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance,
December 31, 1995 11,000,000 $ 11,000 $ 755,756 $ - $ (35,902)
Issuance of common
stock to acquire New
Riders Limited 4,581,000 4,581 58,110 - -
Common stock issued
through private placement
at $2.50 per share 87,000 87 217,413 - -
Common stock issued
for debt at and average
of $1.36 per share 158,000 158 214,749 - -
Common stock subscription
for future goods and services 400,000 400 999,600 (1,000,000) -
Common stock issued
for services 100,000 100 249,900 - -
Capital contributed by
shareholders - - 1,496,080 - -
Net loss for the year
ended December 31, 1996 - - - - (1,036,240)
------------- ----------- ----------- ------------ -------------
Balance,
December 31, 1996 16,326,000 16,326 3,991,608 (1,000,000) (1,072,142)
Services rendered in
satisfaction of common
stock subscription receivable
(Unaudited) - - - 1,000,000 -
Capital contributions by
shareholders (Unaudited) - - 53,652 - -
Net loss for the six months
ended June 30, 1997
(Unaudited) - - - - (760,302)
------------ ----------- ----------- ------------ -------------
Balance, June 30, 1997
(Unaudited) 16,326,000 $ 16,326 $ 4,045,260 $ - $ (1,832,444)
============ =========== =========== ============ =============
The accompanying notes are an integral part of these consolidated financial statements.
-7-
/TABLE
<PAGE>
NEWRIDERS, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
------------------------------ ------------------------------
1997 1996 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss $ (452,772) $ (163,313) $ (760,302) $ (195,757)
Adjustments to reconcile net loss
to net cash used by operating
activities:
Common stock issued for services 859,007 - 1,000,000 -
Depreciation and amortization 32,319 4,940 64,638 9,880
Changes in operating assets and
liabilities:
(Increase) decrease in accounts
receivable (805) (1,009) (805) -
(Increase) decrease in inventory (1,150) (118,367) (5,651) (137,788)
(Increase) decrease in deferred charges 16,220 25,000 16,220 -
(Increase) decrease in prepaid expenses - (4,131) 2,035 -
(Increase) decrease in deposits - 1,715 - 4,929
Increase (decrease) in cash overdraft 146,814 - 146,814 -
Increase (decrease) in accounts
payable and accrued expenses 445,840 69,639 498,820 74,815
-------------- -------------- --------------- -------------
Net Cash Used by Operating
Activities 1,045,473 (185,526) 961,769 (243,921)
-------------- -------------- --------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (609,400) (32,581) (1,032,772) (239,928)
-------------- -------------- --------------- -------------
Net Cash Used by Investing
Activities (609,400) (32,581) (1,032,772) (239,928)
-------------- -------------- --------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on capital lease obligation - (70,802) (2,696) -
Cash contributions to capital (470,004) 352,062 53,652 521,131
-------------- -------------- --------------- -------------
Net Cash Provided by Financing
Activities (470,004) 281,260 50,956 521,131
-------------- -------------- --------------- -------------
NET INCREASE (DECREASE) IN CASH (33,931) 63,153 (20,047) 37,282
CASH AT BEGINNING OF PERIOD 33,931 29,547 20,047 55,418
-------------- -------------- --------------- -------------
CASH AT END OF PERIOD $ - $ 92,700 $ - $ 92,700
============== ============== =============== =============
The accompanying notes are an integral part of these consolidated financial statements.
-8-
</TABLE>
NEWRIDERS, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
------------------------------ ------------------------------
1997 1996 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION
CASH PAID FOR:
Interest $ 3,008 $ - $ 5,833 $ -
Income taxes $ - $ - $ - $ -
NON CASH FINANCING ACTIVITIES:
Common stock issued for services $ 859,007 $ - $ 1,000,000 $ -
</TABLE>
NEWRIDERS, INC. AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
June 30, 1997 (Unaudited) and December 31, 1996
NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been prepared by the
Company without audit. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
financial position, results of operations and cash flows at June 30, 1997 and
for all periods presented have been made.
Certain information and footnote disclosures normally included in consolidated
financial statements prepared in accordance with general accepted accounting
principles have been condensed or omitted. It is suggested that these
condensed consolidated financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's December 31,
1996 audited consolidated financial statements. The results of operations for
the periods ended June 30, 1997 and 1996 are not necessarily indicative of the
operating results for the full year.
NOTE 2 - MATERIAL EVENTS
In May 1997, the Company opened a new cafe location in Myrtle Beach, South
Carolina with the intention of opening a motorcycle retail and repair facility
at the same location in the near future. The Company has entered into a ten
year lease agreement in conjunction with those new facilities and has also
acquired and leased certain operating equipment used at this new location.
The Company has invested approximately $1,000,000 in this operation financed
primarily by additional shareholder capital contributions including $500,000
advanced from unrelated parties which will be converted to debt or equity
financing as yet to be determined.
------------------------------------------------------------------------- -
PART III
------------------------------------------------------------------------
Item 1. INDEX TO EXHIBITS.
Exhibit No. Description of Exhibit
---------- -----------------------------------
2.1 Articles of Incorporation
2.2 Amendment to Articles of Incorporation, dated June 28, 1996
2.3 By-Laws
6.1 Franchise Agreement with Easyriders Franchising, Inc.
6.2 Letter to John Martin dated March 1997 re: Compensation as
Director
6.3 Letter Agreement with John E. Martin dated July 2, 1997 re:
Employment
6.4 Letter Agreement with William R. Nordstrom dated August 22,
1997 re: Employment
6.5 Corporate Development Consulting Agreement, dated February
14, 1997
8.1 Plan of Reorganization
10.1 Consent of Jones, Jensen & Company
27.1 Financial Data Schedule
Item 2. DESCRIPTION OF EXHIBITS.
Exhibit No. Description of Exhibit Page No.
---------- ----------------------------------- --------
2.1 Articles of Incorporation Initial Filing
2.2 Amendment to Articles of Incorporation
dated June 28, 1996 Initial Filing
2.3 By-Laws Initial Filing
6.1 Franchise Agreement with
Easyriders Franchising, Inc. Initial Filing
6.2 Letter to John Martin dated March 11,
1997 re: Compensation as Director __________
6.3 Letter Agreement with John E. Martin
dated July 2, 1997 re: Employment __________
6.4 Letter Agreement with William R.
Nordstrom dated August 22, 1997
re: Employment __________
6.5 Corporate Development Consulting
Agreement, dated February 14, 1997 __________
8.1 Plan of Reorganization Initial Filing
10.1 Consent of Jones, Jensen & Company Initial Filing
27.1 Financial Data Schedule __________
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
Registrant caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
NEWRIDERS, INC.
Date: June 27
October 17, 1997 By: /s/ Michael T. Purcell
------------------------ /s/John E. Martin
---------------------------
Michael T. Purcell, President
John E. Martin, Chairman and CEO
EXHIBIT 6.2
NEWRIDERS, INC.
1040 East Herndon Avenue, Suite 102
Fresno, California 93720
March 11, 1997
Mr. John Martin
567 San Nicolas Drive, Suite 400
Newport Beach, California 92660
Dear John:
Newriders, Inc. (the "Company") is pleased to offer you a position as a member
of its Board of Directors, effective immediately. Obviously, the Company will
stand to benefit tremendously from your reputation, experience and leadership
in the restaurant industry. Your passion for motorcycles only adds to the
excitement which all of the Board members feel about the prospect of your
joining us.
The purpose of this letter is to set forth the compensation you will receive
upon your becoming a director. By way of information the Company is planning
to register its securities with the Securities and Exchange Commission on Form
10-SB within the next two weeks. This registration statement shall become
effective no later than 60 days following its filing. During said 60 day
period the Company intends to adopt a plan (the "Company's Stock Plan")
covering 2,000,000 of its shares of common stock which will allow for the
direct issuance of said shares and/or the granting of options with respect to
said shares. Immediately following the effectiveness of the Company's
registration statement on Form 10SB, the Company intends to file a
registration statement on Form S-8 (which will immediately be effective) for
the purpose of registering (i) the stock and options which have been or may
subsequently be granted pursuant to the Company's Stock Plan, (ii) the stock
and options granted to you pursuant to this letter in the event they are
granted outside of the Company's Stock Plan, and (iii) the resale by you (and
others) of the stock granted to you and hereunder and the stock received by
you upon exercise of the options granted to you hereunder. Although you will
be able to sell shares immediately upon the effectiveness of the S-8
registration statement, as a Board member you will be limited to the number of
shares you can sell by the volume limitations contained in Rule 144 which have
been explained to you.
The specifics of the compensation to be paid to you upon your becoming a
director are as follows:
1. There will be issued to you 50,000 shares of the Company's common
stock.
2. You will be granted options to acquire an additional 500,000
shares of the Company's common stock, which options will be subject to the
following:
Mr. John Martin
March 11, 1997
Page 2
a. Your right to exercise the options as to 250,000 shares shall be
fully vested immediately; your right to exercise the options as to 125,000
shares shall vest upon your having completed one (1) year of service as a
director of the Company; your right to exercise the options as to the
remaining 125,000 shares shall vest upon your having completed two (2) years
of service as a director of the Company.
b. The term of the options shall be for ten years from the date of
grant.
c. The option price shall be $2.50 per share.
d. As to options in which you are vested, you will be entitled to
exercise the options at any time in whole or in part during their term,
whether or not you remain a director or otherwise affiliated with the Company.
e. In addition to any other methods of exercise which may be provided
for generally in the Company's Stock Plan, after a period of two years from
your commencing to be a director (or sooner if sooner provided for other
participants in the Company's Stock Plan), you will be entitled to exercise
your options in whole or in part by either (i) using existing shares of the
Company's common stock, meaning that you may deliver common shares of the
Company already owned by you with an aggregate fair market value on the date
of exercise equal to the purchase price and/or (ii) effecting a "cashless
exercise," meaning that you may surrender your option and receive a number of
shares of common stock equal to the full number of shares of common stock
subject to the option less that number of shares having an aggregate fair
market value on the date of exercise equal to the purchase price.
f. The options shall be subject to the same anti-dilution provisions
as may be contained in the Company's stock plan.
g. Notwithstanding the provisions of subjection a above, your right
to exercise any unvested options shall automatically become fully vested
immediately upon your termination of service with the Board of Directors of
the Company for "good reason". For purposes of this Agreement, "good reason"
shall mean any of the following:
(1) Your failure to be re-elected to the Board of Directors or
removal from the Board of Directors by action of the shareholders of the
Company.
(2) Failure of the Company to implement and follow agreed upon
policies of corporate governance.
(3) Failure of the Company to make substantial progress in
implementing its business plan as set forth in
Mr. John Martin
March 11, 1997
Page 3
the Form 10 filed with the Securities and Exchange Commission or as otherwise
modified by the Board of Directors of the Company.
(4) There is internal discord among the members of the Board of
Director and policies material to the conduct of business of the Company are
adopted by the Board which are opposed by you.
(5) There is a material adverse change in the business or financial
condition of the Company or its business prospects.
(6) The Company is sued or otherwise engages in business activity
which in your judgment exposes members of the Board of Directors to personal
liability not covered by insurance.
(7) The Company shall engage in activities in violation of law.
The shares and options to be issued to you may be part of the Company's
Stock Plan if issuances under the Company's Stock Plan are consistent with the
above provisions for your benefit.
The Company is also in agreement that upon your becoming a Board member,
it will enter into an indemnity agreement with you in the form attached as
Exhibit "A" to this letter.
Any dispute which may arise with respect to this Agreement shall be
resolved by arbitration to be conducted in Orange County, California pursuant
to the provisions of California Civil Code of Procedure 1280 et seq. The
prevailing party in any such proceeding shall be entitled to recover its
attorneys fees, in addition to its costs of the proceeding.
I look forward to your reply.
Very truly yours,
/s/ Michael Purcell
MICHAEL PURCELL,
President and Chief
Executive Officer of
NEWRIDERS, INC.
EXHIBIT 6.3
NEWRIDERS, INC.
1040 East Herndon Avenue, Suite 102
Fresno, California 93720
(209) 447-4557; FAX (209) 447-4553
July 2, 1997
Mr. John Martin
567 San Nicolas Drive, Suite 400
Newport Beach, California 92660
Dear John:
Reference is made to my letter to you dated June 25, 1997 in which I
invited you to become the interim Chief Executive Officer and Chairman of the
Board of Directors of Newriders, Inc. (the "Company"). With the consent of
the Board of Directors of the Company, by this letter ("Letter Agreement") I
am formalizing the terms and conditions pursuant to which you have agreed to
become interim Chief Executive Officer of the Company and the Chairman of its
Board of Directors.
We have agreed on the following terms and conditions:
1. Position: Chairman of the Board and interim Chief Executive
Officer.
2. Term: As Chief Executive Officer for the minimum amount of time
necessary to locate and bear the cost of a suitable replacement, subject,
however, to earlier termination by you at your option at any time after June
30, 1998; as Chairman of the Board, for a minimum of three years. The
foregoing terms of office shall be subject to
Mr. John Martin
July 2, 1997
Page 2
earlier termination by the Company for "cause" (as defined below) and subject
to earlier termination by you for "good reason" (as defined below).
3. Base Salary: $250,000 annually during the period when you serve
as either or both Chief Executive Officer and Chairman of the Board, with the
salary being initially deferred until, in your judgment, the Company has
sufficient cash flow to begin to pay your salary and all other executive
salaries that have been deferred on a pro rata basis. A list of the other
deferred executive salaries as of the date hereof and projected into the
future has been provided to you.
4. Expense Reimbursement: While serving as either Chief Executive
Officer or Chairman of the Board and, so long as you maintain an office
separate from that of the Company headquarters, you will be entitled to
reimbursement on a current basis for remote office expenses of $85,000 per
year in addition to reimbursement for specific business expenses reasonably
incurred on behalf of the Company.
5. Lack of Exclusivity: The Company recognizes that you are
presently involved in substantial other business activities, and anticipate
becoming involved in yet additional business activities while serving as
interim Chief Executive Officer or as Chairman of the Board of the Company.
Notwithstanding that these other business
Mr. John Martin
July 2, 1997
Page 3
activities may compete for your time, the Company agrees that you may in your
discretion devote as much of your time as you determine in business activities
other than that of serving as an officer of the Company. The Company further
recognizes that your other business interests may involve or relate to
restaurants (although not motorcycle theme restaurants) and that other
business opportunities involving the restaurant business may become available
to you; you will not have any obligation to make such opportunities available
to the Company. The Company hereby waives any and all rights and claims which
it may otherwise have as a result of your engaging in any such activities or
pursuing such opportunities.
6. Benefits: You have informed the Company that you anticipate being
covered by health insurance, disability insurance and life insurance through
other arrangements which are being provided to you and which are expected to
continue through August 1, 2000. You have agreed that so long as such
benefits are provided to you, the Company shall not be required to provide any
such benefits.
7. Stock Options: Upon your execution of this Letter Agreement, the
Company agrees to issue to you options to purchase 1,500,000 shares of
Newriders, Inc. common stock for an option price of $2.50 per share (the
"Options"). The Options will vest in five increments of 300,000 shares each,
upon the date on which the Company's total market capitalization reaches the
following levels:
Mr. John Martin
July 2, 1997
Page 4
Total Market Capitalization Option Increment
- -----------------------------------------------------------------------------
$ 150,000,000 300,000
300,000,000 300,000
500,000,000 300,000
750,000,000 300,000
1,000,000,000 300,000
The Options shall be subject to the following additional terms:
a. Any vested Options will be exercisable by you (or your successors
by the laws of descent and distribution) in whole or in part for a period of
ten (10) years following the date on which they vest, whether or not you
remain as an officer or director of the Company.
b. If you complete the minimum required term as interim Chief
Executive Officer and as Chairman of the Board (or terminate your position
early for "good reason") then whether or not you are still serving as Chief
Executive Officer or Chairman of the Board of the Company, the Options will
vest in you upon attainment by the Company of the above stated market
capitalization levels. For example, if four years from the date hereof,
having completed your agreed upon term as interim Chief Executive Officer and
Chairman of the Board of Directors, the Company achieves a total market
capitalization of $500,000,000 your option to purchase which previously would
have vested) will become fully vested and you will have ten years from that
date within which to exercise your option. If, prior to completion of
Mr. John Martin
July 2, 1997
Page 5
the minimum required term (set forth in paragraph 2 hereof), you voluntarily
terminate (without "good reason") your position as either interim Chief
Executive Officer or Chairman of the Board or are terminated from either of
said positions for "cause", any unvested Options shall thereupon terminate and
be of no further force or effect.
c. Unless prohibited by applicable securities laws, the Options shall
become subject to registration on the initial form S-8 filed by the Company.
d. In the event the Company becomes a party to a "change in control
agreement" (as defined below), all of the unvested options shall become
immediately vested; upon such vesting, the Company shall, at its election,
either (i) permit you to purchase any or all of the shares covered by the
Options concurrent with the consummation of the change in control agreement in
which you will be entitled to participate, (ii) purchase or cause the purchase
of the Options for an amount equal to the difference obtained by subtracting
the exercise price of the Options from the fair market value of the shares
which are the subject of the Options on the date of closing of such change in
control agreement, or (iii) if the other party to the change in control
agreement is a public corporation with a market capitalization of at least $1
billion, arrange for equivalent fully vested options
Mr. John Martin
July 2, 1997
Page 6
(without restrictions on the resale of shares obtained upon exercise of such
Options) to be issued by the other party to the change in control agreement.
A "change in control agreement" refers to an agreement which provides for a
merger or consolidation to which the Company is a party and following the
consummation of which the shareholders of the Company immediately prior to
such transaction do not own a majority of the outstanding shares of common
stock of the Company, or any other sale of the majority of the outstanding
shares of the common stock of the Company, or the transfer of all or
substantially all of the assets of the Company, or the Company's liquidation
or dissolution. The provisions of this section 7d shall also apply to any
other unvested and/or vested Options which you may hold with respect to the
common stock of the Company.
e. In addition to any other methods of exercise which may be provided
for generally in any stock option plan the Company may adopt, after a period
of two years from your commencing to be a director (or sooner, if sooner
provided for other participants in the stock option plan adopted by the
Company), you will be entitled to exercise the Options in whole or in part by
either (i) using existing shares of the Company's common stock, meaning that
you may deliver common shares of the Company already owned by you with an
aggregate fair market value on the date of exercise equal to the purchase
price and/or (ii) effecting a
Mr. John Martin
July 2, 1997
Page 7
"cashless exercise," meaning that you may surrender the Options and receive a
number of shares of common stock equal to the full number of shares of common
stock subject to the surrendered Options less that number of shares having an
aggregate fair market value on the date of exercise equal to the purchase
price.
f. The Options shall be subject to standard anti-dilution provisions
which shall be the same as those contained in the Company's stock option plan
when adopted.
For purposes of this Letter Agreement, "good reason" shall mean any of
the following:
(1) Your failure to be re-elected to the Board of Directors or
removal from the Board of Directors by action of the shareholders of the
Company.
(2) Failure of the Company to implement and follow agreed upon
policies of corporate governance.
(3) Failure of the Company to make substantial progress in
implementing its business plan as set forth in the Form 10 filed with the
Securities and Exchange Commission or as otherwise modified by the Board of
Directors of the Company.
Mr. John Martin
July 2, 1997
Page 8
(4) There is internal discord among the members of the Board of
Directors and policies material to the conduct of business of the Company are
adopted by the Board which are opposed by you.
(5) There is a material adverse change in the business or financial
condition of the Company or its business prospects.
(6) The Company is sued or otherwise engages in business activity
which in your judgment exposes members of the Board of Directors to personal
liability not covered by insurance.
(7) The Company shall engage in activities in violation of law.
(8) The Company shall fail to maintain in effect directors and
officers liability insurance in an amount of $20,000,000 (subject to a
retention of $250,000), and subject to other terms and conditions and
exclusions acceptable to you.
(9) The Company shall breach the terms of this Letter Agreement.
Mr. John Martin
July 2, 1997
Page 9
For purposes of this Letter Agreement, "cause" shall mean:
(1) Your conviction of, or entry of a plea of guilty or nolo
contenders for any felony crime involving moral turpitude.
(2) Your commission of any act of dishonesty or fraud which is
materially detrimental to the Company's business or goodwill.
(3) Your willful failure or refusal to perform your duties as
required by this Letter Agreement.
Any dispute which may arise with respect to this Letter Agreement shall
be resolved by arbitration to be conducted in Orange County, California
pursuant to the provisions of California Civil Code of Procedure 1280 et seq.
The prevailing party in any such proceeding shall be entitled to recover its
attorneys fees, in addition to its costs in the proceeding.
Very truly yours,
/s/ Michael Purcell
MICHAEL PURCELL,
President and Chief
Executive Officer of
NEWRIDERS, INC.
AGREED AND ACCEPTED THIS
8TH DAY OF JULY, 1997:
/s/ John E. Martin
________________________
JOHN MARTIN
EXHIBIT 6.4
NEWRIDERS, INC.
1040 East Herndon Avenue, Suite 102
Fresno, California 93720
(209) 447-4557; FAX (209) 447-4553
August 22, 1997
William R. Nordstrom
National Investors Council
1501 Westcliff Drive, Suite 305
Newport Beach, California 92660
Dear Bill:
With the consent of the Board of Directors of Newriders, Inc. (the
"Company"), by this letter ("Letter Agreement"), I am formalizing the terms
and conditions pursuant to which you have agreed to become a member of the
Board and the Executive Vice President of Finance and Administration of the
Company.
We have agreed on the following terms and conditions:
1. Position: Director and Executive Vice President of Finance and
Administration.
2. Term: Effective as of July 8, 1997 (the "Effective Date") and
continuing until thirty days notice given by either party to the other. The
foregoing term of this agreement shall be subject to earlier termination by
the Company for "cause" (as defined below) and by you for "good reason" (as
defined below).
3. Base Salary. $150,000 annually, with the salary being initially
deferred until, in the judgment of the Executive Vice President of Finance and
Administration, the Company has sufficient cash flow to begin to pay your
salary and all other executive salaries that have been deferred, on a pro rata
basis. A list of the other deferred executive salaries as of the date hereof
and projected into the future has been provided to you.
4. Expense Reimbursement. While serving as Executive V.P. of Finance
and Administration you will be entitled to reimbursement on a current basis
for specific business expenses reasonably incurred on behalf of the Company.
5. Lack of Exclusivity: The Company recognizes that you are
presently involved in certain other business activities which you are in the
process of concluding in an orderly manner. The Company will expect you to
devote a sufficient percentage of your productive time as necessary to
properly attend to the Company's business during this interim period and full
time thereafter,
Mr. William R. Nordstrom
August 22, 1997
Page 2
subject to a reasonable amount of time devoted to acting as Chairman of the
Board of National Investor's Council.
6. Benefits. You shall be entitled to the same benefits package as
and when it becomes available to other executive officers.
7. Stock Options. Upon your execution of this Letter Agreement, the
Company agrees to issue to you options to purchase 500,000 shares of
Newriders, Inc. common stock for an option price of $2.50 per share (the
"Options"). The Options will vest in five increments of 100,000 shares each,
upon the date on which the Company's total market capitalization reaches the
following levels:
Total Market Capitalization Option Increment
---------------------------------------------------------------------------
$ 150,000,000 100,000
300,000,000 100,000
500,000,000 100,000
750,000,000 100,000
1,000,000,000 100,000
The Options shall be subject to the following additional terms:
a. Any vested Options will be exercisable by you (or your successors
by the laws of descent and distribution) in whole or in part for a period of
ten (10) years following the date on which they vest, whether or not you
remain as an officer or director of the Company.
b. Provided that you do not voluntarily terminate your position and
are not terminated for cause, for a period of three years from the effective
date of this Agreement, then whether or not you are still serving as Executive
Vice President of Finance and Administration of the Company, the Options will
vest in you upon attainment by the Company of the above stated market
capitalization levels. For example, if four years from the date hereof,
having completed three years as Executive V.P. of Finance and Administration,
the Company achieves a total market capitalization of $500,000,000 your option
to purchase an additional 100,000 shares (in addition to 200,000 shares which
previously would have vested) will become fully vested and you will have ten
years from that date within which to exercise your option. If, prior to
completion of three years of service as Executive V.P. of Finance and
Administration, you voluntarily terminate (without "good reason") your
position as Executive V.P. of Finance and Administration or are terminated by
the Company for "cause", any unvested Options shall thereupon terminate and be
of no further force or effect.
William R. Nordstrom
August 22, 1997
Page 3
c. Unless prohibited by applicable securities laws, the Options shall
become subject to registration on the initial form S-8 filed by the Company.
d. In the event the Company becomes a party to a "change in control
agreement" (as defined below), all of the unvested Options shall become
immediately vested; upon such vesting, the Company shall, at its election,
either (i) permit you to purchase any or all of the shares covered by the
Options concurrent with the consummation of the change in control agreement in
which you will be entitled to participate, (ii) purchase or cause the purchase
of the Options for an amount equal to the difference obtained by subtracting
the exercise price of the Options from the fair market value of the shares
which are the subject of the Options on the date of closing of such change in
control agreement, or (iii) if the other party to the change in control
agreement is a public corporation with a market capitalization of at least $1
billion, arrange for equivalent fully vested options (without restrictions on
the resale of shares obtained upon exercise of such Options) to be issued by
the other party to the change in control agreement. A "change in control
agreement" refers to an agreement which provides for a merger or consolidation
to which the Company is a party and following the consummation of which the
shareholders of the Company immediately prior to such transaction do not own a
majority of the outstanding shares of common stock of the Company, or any
other sale of the majority of the outstanding shares of the common stock of
the Company, or the transfer of all or substantially all of the assets of the
Company, or the Company's liquidation or dissolution. Consummation of the
transaction under discussion with Paisano Publications will not constitute a
change in control.
e. In addition to any other methods of exercise which may be provided
for generally in any stock option plan the Company may adopt and subject to
the foregoing, you will be entitled to exercise the Options in whole or in
part by either (i) using existing shares of the Company's common stock,
meaning that you may deliver common shares of the Company already owned by you
with an aggregate fair market value on the date of exercise equal to the
purchase price and/or (ii) effecting a "cashless exercise," meaning that you
may surrender the Options and receive a number of shares of common stock equal
to the full number of shares of common stock subject to the surrendered
Options less that number of shares having an aggregate fair market value on
the date of exercise equal to the purchase price.
William R. Nordstrom
August 22, 1997
Page 4
f. The Options shall be subject to standard anti-dilution provisions
which shall be the same as those contained in the Company's stock option plan
when adopted.
For purposes of this Letter Agreement, "good reason" shall mean any of
the following:
(1) Your failure to be re-elected to the Board of Directors or
removal from the Board of Directors by action of the shareholders of the
Company.
(2) Failure of the Company to implement and follow agreed upon
policies of corporate governance.
(3) Failure of the Company to make substantial progress in
implementing its business plan as set forth in the Form 10 filed with the
Securities and Exchange Commission or as otherwise modified by the Board of
Directors of the Company.
(4) There is internal discord among the members of the Board of
Directors and policies material to the conduct of business of the Company are
adopted by the Board which are opposed by you.
(5) There is a material adverse change in the business or financial
condition of the Company or its business prospects.
(6) The Company is sued or otherwise engages in business activity
which in your judgment exposes members of the Board of Directors to personal
liability not covered by insurance.
(7) The Company shall engage in activities in violation of law.
(8) The Company shall fail to maintain in effect directors and
officers liability insurance in an amount of $20,000,000 (subject to a
retention of $250,000), and subject to other terms and conditions and
exclusions acceptable to you.
(9) The Company shall breach the terms of this Letter Agreement.
For purposes of this Letter Agreement, "cause" shall mean:
(1) Your conviction of, or entry of a plea of guilty or nolo
contendere for any felony crime involving moral turpitude.
William R. Nordstrom
August 22, 1997
Page5
(2) Your commission of any act of dishonesty or fraud which is
materially detrimental to the Company's business or goodwill.
(3) Your willful failure or refusal to perform your duties as required
by this Letter Agreement.
Any dispute which may arise with respect to this Letter Agreement shall
be resolved by arbitration to be conducted in Orange County, California
pursuant to the provisions of California Civil Code of Procedure 1280 et seq.
The prevailing party in any such proceeding shall be entitled to recover its
attorneys fees, in addition to its costs in the proceeding.
Very truly yours,
/s/ John E. Martin
JOHN MARTIN
Chairman and CEO
NEWRIDERS, INC.
AGREED AND ACCEPTED THIS
26TH DAY OF AUGUST, 1997:
/s/ William R. Nordstrom
________________________
WILLIAM R. NORDSTROM
EXHIBIT 6.5
CORPORATE DEVELOPMENT CONSULTING AGREEMENT
THIS AGREEMENT, made and entered into this 14th day of February, 1997 by
and between Newriders, Inc. (hereinafter "Client"), a corporation organized
and existing under the laws of the State of Nevada, having its principal
office at 1040 East Herndon Ave., Suite 102, Fresno, California 93720, and
National Investors Council (hereinafter "NIC"), a sole proprietorship having
its principal place of business at 1501 Westcliff Drive, Suite 305, Newport
Beach, California 92660.
WITNESSETH
WHEREAS, NIC and its affiliates have the professional ability to assist
corporations in strategic planning, organizational development, broker and
shareholder relations, media relations and other corporate activities,
hereinafter "Corporate Development", and
WHEREAS, Client desires to receive consulting services and assistance on
Corporate Development,
NOW, THEREFORE, the parties agree to the following:
1. Client hereby agrees to contract with NIC for Corporate Development
consulting services and NIC hereby agrees to provide said services to Client
in a professional and timely manner. These services shall include but are not
limited to all of NIC's publishing and reporting services, i.e., Corporate
Digests, "Bill Nordstrom's Growth Stock Newsletter" and "Portfolio Picks."
2. The term of this Agreement shall be one year from the date of
execution.
3. Compensation shall be as follows:
A. Client shall issue 30,000 shares of Client's common stock to
William R. Nordstrom, the sole proprietor of NIC, such shares to be issued
under Client's S-8 stock and option plan immediately upon the effective date
of said plan;
B. As soon as permitted by applicable securities laws, Client shall
issue to William R. Nordstrom, the sole proprietor of NIC, options under
Client's S-8 plan to purchase 250,000 shares of Client's common stock at $2.50
per share, such option to have an expiration date of five years from the date
of issuance;
C. Client shall issue to Mr. M. Richard Keating, an individual and an
affiliate of NIC, 20,000 shares of Client's common stock under Client's S-8
stock and option plan, immediately upon the effective date of said plan, and;
D. As soon as permitted by applicable securities laws, Client shall
issue to Mr. M. Richard Keating options under Client's S-8 plan to purchase
100,000 shares at $2.50 per share, such option to have an expiration date of
five years from the date of issue.
4. Client agrees to pay any pre-approved expenses incurred by NIC and/or
its affiliates while performing Corporate Development services under this
Agreement, such as travel and lodging, printing, bulk mailing costs, etc. In
the event NIC performs services for anyone other than Client while traveling
at Client's expense, the travel expenses for that trip shall be pro-rated
among the parties as appropriate.
5. This Agreement shall be governed for all purposes by the laws of the
State of California.
6. This Agreement can only be terminated for cause, which shall be defined
as unprofessional, untimely or fraudulent providing of Corporate Development
consulting services. If Client is dissatisfied with NIC's performance, Client
shall give notice in writing specifying such dissatisfaction, and NIC shall
have 10 business days in which to rectify or resolve the complaint. NIC's
failure to resolve or rectify the complaint shall constitute cause for
termination.
7. Any controversy or claim arising out of or relating to this Agreement,
or the breach thereof, will be finally settled by Arbitration in Newport
Beach, California, in accordance with the then current rules of the American
Arbitration Association. Any award shall be final, binding and conclusive
upon the parties and a judgment upon the award rendered thereon may be entered
in any court of competent jurisdiction. Unless otherwise ordered by the
arbitrators, each party to such arbitration shall bear its own costs and
expenses of such arbitration, including its experts, evidence and legal fees
and expenses.
8. This Agreement contains the entire Agreement of the two parties and
supersedes all other agreements, either oral or written, and no
representations or warranties that are not contained herein shall be valid or
binding on the parties hereto.
9. This Agreement may not be changed, modified, amended or supplemented
except by written instrument signed by both parties.
10. This Agreement may not be assigned or otherwise transferred in whole
or in part by either party without the prior written consent of the other
party, which consent shall not be unreasonably withheld.
11. The terms of this Agreement shall be binding upon and inure to the
benefit of and be enforceable by the respective successors and assignees of
the parties hereto.
12. If any part, term or provision of this Agreement shall be held
unenforceable, such provision shall be deemed to have been severed from this
Agreement, and the remainder of this Agreement shall nevertheless remain in
full force and effect.
13. Each party hereto agrees to execute, acknowledge and deliver such
other instruments and to do all other such acts as may be necessary or
appropriate in order to carry out the purpose and intend of this Agreement.
14. Neither party shall be liable for any failure to delay in performance
under this Agreement which is due in whole or in part, directly or indirectly
to any cause of any nature beyond the reasonable control of such parties,
including fire, explosion, earthquake, storm, flood, strike, lockout
activities of a combination of workmen or other labor difficulties, war,
insurrection, riot, act of God, or the public enemy, law, regulation,
ordinance or instrument of government or other public authorities, or judgment
or decree of a court of competent jurisdiction (not arising out of breach by
such party of this Agreement). In the event of the happening of such a cause,
the party so affected shall give prompt, written notice to the other party
stating the period of time the same is expected to continue, and shall take
all reasonable measures to ensure that the effects of such case of Force
Majeure is kept as minimal as possible.
15. All notices required by this Agreement shall be in writing. All
notices and reports shall be considered to be delivered when faxed, hand
delivered, or sent by overnight courier. Notices shall be deemed to be given
when received by the other party.
16. Waiver by either party of breach or any provision herein shall be in
writing, and shall in no way be construed as a waiver of any succeeding breach
or provision or the waiver of the provision itself.
17. In performing the Corporate Development consulting services under this
Agreement, NIC and its affiliates shall operate as, and have the status of,
independent contractor. As an independent contractor, NIC will be solely
responsible for determining the means and methods of performing and/or
providing the Corporate Development consulting services described in this
Agreement.
18. NIC will rely upon the accuracy and completeness of information
supplied to it by the Client in the performance of its Corporate Development
activities. Client agrees to hold harmless and bear the cost of defense of
NIC for any claim which arises from Client's negligence in providing accurate
and complete information to NIC.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives.
NEWRIDERS, INC. NATIONAL INVESTORS COUNCIL
By: /s/ Michael Purcell By: /s/ W R Nordstrom
--------------------- -------------------
Date: 3/28/97 Date: 2/14/97
-------------- ------------------
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