As filed with the Securities and Exchange Commission on June 30, 1997
SEC Registration No. 33-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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
Fresno, California 93720
(209) 447-4557
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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 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 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, "Easyriders Magazine", and the "Born to
be Wild" 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 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.
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 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".
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. The Company estimates that new Units of similar
size will cost approximately $600,000 to $800,000 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 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 motorcycle "Captain
America" from the 1960's cult flick "Easyrider", 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 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. The
restaurant also has recorded music and live bands that entertain until 2:00
a.m. Moreover, a dance floor is available for those that wish to "trip the
light fantastic".
Site Selection
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The Company intends to locate its Units at high profile sites in major
tourist markets and key urban centers. The Company will seek 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 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.
Merchandising
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Each Unit's retail store will offer premium-quality fashion merchandise,
such as jackets, T-shirts, sweatshirts, hats, pants, leather jackets, vests,
pants, gloves and other 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
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. The Company is also marketing its own private label beer and wine. 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, the Company operated one Unit located in
Fresno, California. 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, California; San Diego, 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 franchise or joint venture arrangements. However, the
Company 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 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.
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".
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, the Company employed or leased employees
totaling approximately 70 persons, 4 of whom were corporate management, 6 were
restaurant and merchandise management personnel, and approximately 60 were
employed in non-management restaurant and merchandising operations. 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 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 that is 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 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. 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 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 approximately
$500,000.00 from such offering, the proceeds of which will be 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. 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.
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The Company was formed in late 1994. From inception until April 1996 the
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 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 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.
- -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 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 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 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 Company has
already 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". Thus, the Company believes that the
Myrtle Beach location will enjoy robust sales throughout the full year.
- -Results of Operations
- ----------------------
The Company's sales for the year ended December 31, 1996 were
approximately $1,161,520. Net loss for the same period was approximately
$1,036,240 or 89% of Sales. 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 to
expenses associated with the opening of its first store 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. Total cost of sales for the three months ended
March 31, 1997 was $239,476, or approximately 52.06% of sales. Net loss for
the three month period ended March 31, 1996 was $32,444. The Company
attributes its loss for the three month period ended March 31, 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,
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 entire sliding glass wall of
the Cafe to be opened during business hours to include the patio within the
restaurant. Approximately 800 square feet will be dedicated to the Roadware
Apparel store.
For zoning reasons, the Myrtle Beach motorcycle shop is in a separate
location, approximately 1.5 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.
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 motorcycle shop 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)
----------------------- -------------------------
Michael T. Purcell (1) 3,785,657 22.69%
Leon Hatcher (1) 3,785,657 22.69%
Hal H. Bolen II (2)(3)(6) 40,000 0.23%
John E. Martin (4)(5)(6) 492,300 2.89%
C.W. Doyle (1) 1,892,895 11.11%
Rick L. Pierce (1) 3,785,657 22.69%
All Officers and Directors(6) 9,504,209 55.83%
(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.
Name Age Position with Company
- ---------------------- --- ---------------------------------
Michael T. Purcell 57 President, Chief Operating Officer, Chief
Financial Officer, Chief Executive Officer and
Director
Leon Hatcher 46 Chairman of the Board of Directors and Director
Hal H. Bolen II 47 Assistant Secretary
C.W. Doyle 62 Director
John E. Martin 53 Nominee to become a Director
Mr. Michael T. Purcell is a co-founder of Newriders Limited and has
acted in several executive positions since inception on November 8, 1994. Mr.
Purcell has served as Chief Operating Officer, Chief Financial Officer, Chief
Executive Officer and as a Director of the Company since its inception. He
has served as President since August 1996. 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. 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 President from inception until August
1996. He has also served in various capacities with Easyrider 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 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 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.
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.
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
President, CEO, Secretary, 1996 $100,000 -0-
Chairman of the Board of Directors 1995 $ -0- -0-
and Director 1994 $ -0- -0-
Leon S. Hatcher 1996 $100,000 -0-
Chairman of the Board of Directors 1995 $ -0- -0-
1994 $ -0- -0-
As of December 31, 1996, 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.
Employment Agreements
- ---------------------
The Company presently has no employment agreements with any of its
executive officers or directors. An employment agreement between Mr. Michael
T. Purcell and the Company is expected to be executed soon, outlining future
compensation.
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.
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 to acquire
common stock to a director 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 shares of Common Stock are issued and
outstanding as of December 31, 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 shares of Common Stock outstanding as of
December 31, 1996. Of the 16,168,000 shares of Common Stock outstanding the
Company estimates that approximately 1,081,000 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
As of April 11, 1997 there were approximately 203 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
- -----------------------------------------------------------------------------
Note 1. $160,000 of payroll.
Note 2. For promotional activity valued at $800,000.
Note 3. $1,000,000 worth of advertising, goods and services.
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 AUDITORS' REPORT
-----------------------------
To the Board of Directors
Newriders, Inc. and Subsidiary
Fresno, California
We have audited the accompanying consolidated balance sheet of Newriders, Inc.
and subsidiary as of December 31, 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the years
ended December 31, 1996 and 1995. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Newriders, Inc. and subsidiary as of December 31, 1996, and the
consolidated results of their operations and their cash flows for the years
ended December 31, 1996 and 1995, in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 4 to
the consolidated financial statements, the Company has incurred losses from
its inception and does not have an established source of revenues sufficient
to cover its operating costs which raises substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 4. The consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
Jones, Jensen & Company
June 3, 1997
50 So Main Street, Suite 1450, Salt Lake City, Utah 84144
Telephone (801) 328-4408, Facsimile (801) 328-4461
PAGE
<PAGE>
NEWRIDERS, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
C O N T E N T S
Independent Auditors' 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 Sheet
ASSETS
------
December 31,
1996
------------
CURRENT ASSETS
Cash and cash equivalents $ 20,047
Inventory (Note 5) 584,890
Prepaid expenses 2,035
-------------
Total Current Assets 606,972
-------------
PROPERTY AND EQUIPMENT - Net (Note 3) 1,324,222
-------------
OTHER ASSETS
Deferred charges - net (Note 6) 227,494
Deposits 16,378
-------------
Total Other Assets 243,872
-------------
TOTAL ASSETS $ 2,175,066
=============
The accompanying notes are an integral part of these
consolidated financial statements.
NEWRIDERS, INC. AND SUBSIDIARY
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
December 31,
1996
----------------
CURRENT LIABILITIES
Accounts payable $ 154,975
Accrued expenses 25,010
Current obligation under capital lease (Note 7) 27,723
----------------
Total Current Liabilities 207,708
----------------
OBLIGATION UNDER CAPITAL LEASE,
Less Current Obligation (Note 7) 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
Additional paid-in capital 3,991,608
Common stock subscription receivable (Note 8) (1,000,000)
Accumulated deficit (1,072,142)
----------------
Total Stockholders' Equity 1,935,792
----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,175,066
================
The accompanying notes are an integral part of these
consolidated financial statements.
NEWRIDERS, INC. AND SUBSIDIARY
Consolidated Statements of Operations
For the Years Ended
December 31,
1996 1995
----------------- -----------------
SALES $ 1,161,520 $ 250,818
COST OF SALES 532,487 189,344
----------------- -----------------
GROSS MARGIN 629,033 61,474
----------------- -----------------
EXPENSES
Selling, general and administrative 1,520,271 87,731
Depreciation and amortization 129,277 9,884
----------------- -----------------
Total Expenses 1,649,548 97,615
----------------- -----------------
Loss from Operations (1,020,515) (36,141)
----------------- -----------------
OTHER INCOME (EXPENSE)
Interest income 36 239
Other income 3,613 -
Interest expense (18,365) -
Bad debt expense (1,009) -
----------------- -----------------
Total Other Income (Expense) (15,725) 239
----------------- -----------------
NET LOSS $ (1,036,240) $ (35,902)
================= ==================
NET LOSS PER SHARE $ (0.07) $ NIL
================= ==================
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 15,770,351 11,000,000
================= ==================
The accompanying notes are an integral part of
these consolidated financial statements.
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, 1994 - $ - $ - $ - $ -
Common stock issued
for cash at approximately
$0.03 per share 11,000,000 11,000 289,000 - -
Capital contributed by
shareholders - - 466,756 - -
Net loss for the year
ended December 31, 1995 - - - - (35,902)
------------ ----------- -------------- --------------- ------------
Balance,
December 31, 1995 11,000,000 11,000 755,756 - (35,902)
Issuance of common
stock to acquire New
Riders Limited (Note 1) 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 period
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)
=============== ============= ============= ================ =============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
NEWRIDERS, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Years Ended
December 31,
----------------------------------
1996 1995
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,036,240) $ (35,902)
Adjustments to reconcile net loss
to net cash used by operating
activities:
Common stock issued for services 300,000 -
Depreciation and amortization 129,277 9,884
Changes in operating assets and
liabilities:
(Increase) decrease in accounts receivable 1,009 (1,009)
(Increase) decrease in inventory (258,822) (326,068)
(Increase) decrease in deferred charges (189,810) (95,933)
(Increase) decrease in prepaid expenses (2,035) -
(Increase) decrease in deposits 3,214 (19,592)
Increase (decrease) in accounts
payable and accrued expenses 177,428 2,557
-------------- ----------------
Net Cash Used by Operating Activities (875,979) (466,063)
-------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (567,585) (214,352)
-------------- ----------------
Net Cash Used by Investing Activities (567,585) (214,352)
-------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from capital lease obligation 74,264 -
Cash contributions to capital 1,116,429 435,833
Common stock issued for cash 217,500 300,000
-------------- ----------------
Net Cash Provided by Financing Activities 1,408,193 735,833
-------------- ----------------
NET INCREASE (DECREASE) IN CASH (35,371) 55,418
CASH AT BEGINNING OF YEAR 55,418 -
-------------- ----------------
CASH AT END OF YEAR $ 20,047 $ 55,418
============== =================
The accompanying notes are an integral part of these
consolidated financial statements.
NEWRIDERS, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows (Continued)
For the Years Ended
December 31,
----------------------------------
1996 1995
---------------- ----------------
SUPPLEMENTAL CASH FLOW INFORMATION
CASH PAID FOR:
Interest $ 18,365 $ -
Income taxes $ - $ -
NON CASH FINANCING ACTIVITIES:
Common stock issued in settlement of debt $ 214,907 $ -
Common stock issued for services $ 250,000 $ -
Capital contributions of fixed assets $ 442,342 $ -
Capital contributions of inventory $ - $ 30,923
The accompanying notes are an integral part of these
consolidated financial statements.
NEWRIDERS, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
December 31, 1996
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Newriders, Inc. (the Company) was incorporated under the laws of the State of
Nevada on July 15, 1995 as American Furniture Wholesale, Inc. The Company was
originally organized to engage in activities in the furniture business. On
June 28, 1996 the Company changed its name to Newriders, Inc.
On June 28, 1996 the Company acquired all of the outstanding common stock of
New Riders Limited (the Subsidiary) for 13,250,000 shares of the Company's
common stock. Of the common shares issued, 11,000,000 were new issues and
2,250,000 were concurrently reacquired from an existing shareholder and
reissued as part of the acquisition. The acquisition of the Subsidiary was
recorded as a recapitalization of the Subsidiary, whereby the acquired company
is treated as the surviving entity for accounting purposes. The Subsidiary
was formed on November 8, 1994 in the State of California and is engaged in
the restaurant and retail motorcycle business.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Accounting Method
The Company's consolidated financial statements are prepared using the accrual
method of accounting. The Company has elected a December 31 year end.
b. Net Loss Per Share
The computation of net loss per share of common stock is based on the weighted
average number of common shares outstanding during each period presented.
c. Provision for Income Taxes
The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109 (FAS 109). Under FAS 109 the asset and liability method is
used in calculating deferred income taxes.
At December 31, 1996, the Company has net operating loss carryforwards of
approximately $1,072,000 that may be offset against future taxable income
through 2011. No tax benefit has been reported in the consolidated financial
statements. Because of the Company's history of operating losses, the Company
believes there is a 50% or greater likelihood the carryforwards will expire
unused. Accordingly, the potential tax benefits of the loss carryforwards
have been offset by a valuation allowance of the same amount. Utilization of
the carryforwards may be subject to a substantial annual limitation due to the
ownership change limitations provided by the Internal Revenue Code of 1986 and
similar state provisions. The annual limitation may result in the expiration
of loss carryforwards before utilization.
d. Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
NEWRIDERS, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements (Continued)
December 31, 1996
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
e. Principles of Consolidation
The consolidated financial statements include those of Newriders, Inc. and New
Riders Limited. All significant intercompany accounts and transactions have
been eliminated.
f. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
g. Inventory
Inventory is valued at the lower of cost (computed on a first-in, first-out
basis) or market.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Minor additions and renewals are
expensed in the year incurred. Major additions and renewals are capitalized
and depreciated over their estimated useful lives of 5 to 20 years.
Property and equipment consists of the following:
December 31,
1996
-----------------
Display motorcycles $ 55,500
Vehicles 337,243
Computer equipment 9,580
Kitchen equipment 57,037
Shop equipment 6,077
Furniture and fixtures 38,079
Assets under capital lease 74,264
Leasehold improvements 850,246
-----------------
1,428,026
Less: accumulated depreciation (103,804)
-----------------
Net Property and Equipment $ 1,324,222
=================
Depreciation is computed using the straight-line method over the assets
expected useful lives. Depreciation for the years ended December 31, 1996 and
1995 was $96,837 and $6,967, respectively.
NEWRIDERS, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements (Continued)
December 31, 1996
NOTE 4 - GOING CONCERN
The Company's consolidated financial statements are prepared using generally
accepted accounting principles applicable to a going concern which
contemplates the realization of assets and liquidation of liabilities in the
normal course of business. The Company has incurred losses from its inception
through December 31, 1996. The Company does not have an established source of
revenues sufficient to cover its operating costs which raises substantial
doubt about its ability to continue as a going concern. The consolidated
financial statements do not include any adjustments that might result from
the outcome of this uncertainty. It is the intent of the Company to seek
additional financing through offerings of its common stock and other debt and
equity financing in order to expand its operations (see note 10).
NOTE 5 - INVENTORY
Inventory consists of the following:
December 31,
1996
-----------------
Food $ 3,300
Motorcycles and parts 407,243
Apparel 174,347
-----------------
$ 584,890
=================
NOTE 6 - DEFERRED CHARGES
Deferred charges consist of the following:
December 31,
1996
------------------
Franchise fees $ 75,000
Organization costs 171,426
Liquor license 16,425
------------------
262,851
Less: accumulated amortization (35,357)
$ 227,494
=================
Deferred charges are amortized using the straight-line method over five years.
Amortization expense for the years ended December 31, 1996 and 1995 was
$32,440 and $2,917, respectively.
NEWRIDERS, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements (Continued)
December 31, 1996
NOTE 7 -LEASE COMMITMENTS
Shop Lease - The Company leases its motorcycle shop facility under an
operating lease. The lease agreement expires July 31, 2005, with two five
year options to renew. Lease expense for the year ended December 31, 1996 was
$4,019 per month, and will continue as such until August 1, 1997 when the rent
shall increase 4% per year. An additional $659 per month is due to the lessor
for common area maintenance charges. These charges are redetermined every
year, and include real estate taxes and liability insurance.
Cafe Lease - The Company leases its cafe facility under an operating lease.
The lease agreement expires July 31, 2015. Lease expense is $7,000 per month
for the period ended December 31, 1996. This lease calls for the payment of
real estate taxes, common area maintenance and liability insurance in addition
to monthly rent charges. Monthly rent will increase to $8,550 on June 1,
2000, $9,760 on June 1, 2005 and $11,145 on June 1, 2010.
Total rent expense for the years ended December 31, 1996 and 1995 was $89,682
and $53,431, respectively.
Employee Lease - The Company has entered into two agreements by which it
leases its employees from a human resources company. The lease agreements
have been renewed and will expire on November 1, 1997. One lease calls for
the payment of a monthly administrative fee of $1,920 in addition to all
wages, medical and workers' compensation coverage, 401K plan, applicable
payroll taxes and other administration costs. A second agreement calls for a
monthly fee of $160 in addition to those other costs previously listed.
Capital Lease Obligation - In January, 1996, the Company entered into an
agreement to lease computer hardware and software having a cost of $74,264 to
be used in its Fresno, California cafe. The term of the lease is 36 months
and calls for monthly payments of $2,695. This is a capital lease with the
cost of the assets capitalized as property and equipment (see Note 3) and the
related liability reflected as an obligation under capital lease in the
accompanying consolidated financial statements. Maturities of the obligation
under capital lease are as follows: 1997 $27,723, 1998 $28,911, 1999 $2,655.
NOTE 8 - COMMON STOCK SUBSCRIPTION
In November 1996, the Company entered into an agreement with a barter service
to issue 400,000 shares of common stock in exchange for $1,000,000 of barter
advertising and other services and merchandise. As of December 31, 1996, the
Company had not utilized any of the barter services or merchandise. This
amount has been reflected as a reduction of stockholders' equity in the
accompanying consolidated financial statements.
NOTE 9 - NONMONETARY TRANSACTIONS
During the year ended December 31, 1996, the Company entered into various
transactions whereby certain leasehold improvements totaling approximately
$175,000 were acquired in exchange for motorcycles, parts and related
servicing. The fair value of the leasehold improvements received in the
transactions approximated the cost of the related inventory and servicing
exchanged.<PAGE>
NEWRIDERS, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements (Continued)
December 31, 1996
NOTE 10 - SUBSEQUENT 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.
[Letterhead of Jones Jensen & Company appears here]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Newriders, Inc. and Subsidiary
Fresno, California
The accompanying consolidated balance sheet of Newriders, Inc. and Subsidiary
as of March 31, 1997 and the related consolidated statements of operations,
stockholders' equity, and cash flows for the three months ended March 31, 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
June 24, 1997
50 So Main Street, Suite 1450, Salt Lake City, Utah 84144
Telephone (801) 328-4408, Facsimile (801) 328-4461
<PAGE>
NEWRIDERS, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997 and December 31, 1996
C O N T E N T S
Independent Auditors' 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
NEWRIDERS, INC. AND SUBSIDIARY
Consolidated Balance Sheets
ASSETS
-------------
March 31, December 31,
1997 1996
----------------- -------------------
(unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 33,931 $ 20,047
Inventory 589,391 584,890
Prepaid expenses - 2,035
----------------- --------------------
Total Current Assets 623,322 606,972
----------------- --------------------
PROPERTY AND EQUIPMENT - Net 1,723,385 1,324,222
----------------- --------------------
OTHER ASSETS
Deferred charges - net 219,384 227,494
Deposits 16,378 16,378
----------------- -------------------
Total Other Assets 235,762 243,872
----------------- -------------------
TOTAL ASSETS $ 2,582,469 $ 2,175,066
================= ====================
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
NEWRIDERS, INC. AND SUBSIDIARY
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------
March 31, December 31,
1997 1996
-------------------- --------------------
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 210,614 $ 154,975
Accrued expenses 22,351 25,010
Current obligation under capital lease 27,723 27,723
-------------------- -------------------
Total Current Liabilities 260,688 207,708
-------------------- -------------------
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 4,515,264 3,991,608
Common stock subscription receivable (859,007) (1,000,000)
Accumulated deficit (1,379,672) (1,072,142)
------------------- -------------------
Total Stockholders' Equity 2,292,911 1,935,792
------------------- -------------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 2,582,469 $ 2,175,066
=================== ==================
The accompanying notes are an integral part of these
consolidated financial statements.
NEWRIDERS, INC. AND SUBSIDIARY
Consolidated Statements of Operations
For the Three Months Ended
March 31,
-----------------------------------
1997 1996
----------------- -----------------
(unaudited) (unaudited)
SALES $ 455,225 $ -
COST OF SALES 239,476 -
---------------- ------------------
GROSS MARGIN 215,749 -
---------------- ------------------
EXPENSES
Selling, general and administrative 488,191 27,504
Depreciation and amortization 32,319 4,940
---------------- ------------------
Total Expenses 520,510 (32,444)
---------------- ------------------
Loss from Operations (304,761) (32,444)
---------------- ------------------
OTHER INCOME (EXPENSE)
Interest income 2 -
Other income 54 -
Interest expense (2,825) -
Bad debt expense - -
----------------- -----------------
Total Other Income (Expense) (2,769) -
----------------- ------------------
NET LOSS $ (307,530) $ (32,444)
================= ==================
NET LOSS PER SHARE $ (0.02) $ NIL
================= ==================
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 16,326,000 11,000,000
================= ==================
The accompanying notes are an integral part of these consolidated
financial statements.
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 period
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) - - - 140,993 -
Capital contributions by
shareholders (Unaudited) - - 523,656 - -
Net loss for the three months
ended March 31, 1997 (Unaudited) - - - - (307,530)
--------------- ------------- ------------- ----------------- ------------
Balance, March 31, 1997
(Unaudited) 16,326,000 $ 16,326 $ 4,515,264 $ (859,007) $(1,379,672)
============== ============= ============= ================= =============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
NEWRIDERS, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Three Months Ended
March 31,
-----------------------------------
1997 1996
----------------- ---------------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (307,530) $ (32,444)
Adjustments to reconcile net loss to
net cash used by operating activities:
Common stock issued for services 140,993 -
Depreciation and amortization 32,319 4,940
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable - 1,009
(Increase) decrease in inventory (4,501) (19,421)
(Increase) decrease in deferred charges - (25,000)
(Increase) decrease in prepaid expenses 2,035 4,131
(Increase) decrease in deposits - 3,214
Increase (decrease) in accounts
payable and accrued expenses 52,980 5,176
------------------ --------------
Net Cash Used by Operating Activities (83,704) (58,395)
------------------ --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (423,372) (207,347)
----------------- ----------------
Net Cash Used by Investing Activities (423,372) (207,347)
----------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on capital lease obligation (2,696) 70,802
Cash contributions to capital 523,656 169,069
----------------- ----------------
Net Cash Provided by Financing
Activities 520,960 239,871
------------------ ---------------
NET INCREASE (DECREASE) IN CASH 13,884 (25,871)
CASH AT BEGINNING OF PERIOD 20,047 55,418
------------------ ---------------
CASH AT END OF PERIOD $ 33,931 $ 29,547
================== ================
The accompanying notes are an integral part of these
consolidated financial statements.
NEWRIDERS, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows (Continued)
For the Three Months Ended
March 31,
-------------------------------------
1997 1996
------------------- ---------------
(unaudited) (unaudited)
SUPPLEMENTAL CASH FLOW INFORMATION
CASH PAID FOR:
Interest $ 2,825 $ -
Income taxes $ - $ -
NON CASH FINANCING ACTIVITIES:
Common stock issued for services $ 140,993 $ -
The accompanying notes are an integral part of these
consolidated financial statements.
NEWRIDERS, INC. AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
March 31, 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 March 31, 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 March 31, 1997 and 1996 are not necessarily indicative of
the operating results for the full year.
NOTE 2 -SUBSEQUENT 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.
8.1 Plan of Reorganization
10.1 Consent of Jones, Jensen & Company
Item 2. DESCRIPTION OF EXHIBITS.
Exhibit No. Description of Exhibit Page No.
---------- ----------------------------------- --------
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. _______
8.1 Plan of Reorganization
10.1 Consent of Jones, Jensen & Company _______
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 1997 By: /s/ Michael T. Purcell
---------------------------
Michael T. Purcell,
President and CEO
Exhibit 2.1
SECRETARY OF STATE
[Here appears the Great Seal of
the State of Nevada]
CORPORATE CHARTER
I, DEAN HELLER, the duly elected and qualified Nevada Secretary of State, do
hereby certify that AMERICAN FURNITURE WHOLESALE, INC. did on the THIRTEENTH
day of JULY, 1995, file in this office the original Articles of Incorporation;
that said Articles are now on file and of record in the office of the
Secretary of State of Nevada, and further, that said Articles contain all the
provisions required by the law of said State of Nevada.
IN WITNESS WHEREOF, I have hereunto set my hand and
Affixed the Great Seal of State, at my office, in
Carson City, Nevada, this THIRTEENTH day of JULY, 1995.
/s/ Dean Heller
Secretary of State
By /s/ Signature illegible
Certification Clerk
[Here is the Great Seal
of the State of Nevada]
<PAGE>
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
JUL 13 1995
11817- 95
DEAN HELLER SECRETARY OF STATE
NO./s/ Dean Heller
ARTICLES OF INCORPORATION
OF
AMERICAN FURNITURE WHOLESALE INC.
FIRST. The name of the corporation is:
AMERICAN FURNITURE WHOLESALE INC.
SECOND. Its registered office in the State of Nevada is located at 7604
Delaware Bay Drive, Las Vegas, Nevada 89128, that this Corporation may
maintain an office, or offices, in such other place within or without the
State of Nevada as may be from time to time designated by the Board of
Directors, or by the By-Laws of said Corporation, and that this Corporation
may conduct all Corporation business of every kind and nature, including the
holding of all meetings of Directors and Stockholders, outside the State of
Nevada as well as within the State of Nevada.
THIRD. The objects for which this Corporation is formed are: To engage in any
lawful activity, including, but not limited to the following:
(A) Shall have such rights, privileges and powers as may be conferred
upon corporations by any existing law.
(B) May at any time exercise such rights, privileges and powers, when not
inconsistent with the purposes and objects for which this corporation is
organized.
(C) Shall have power to have succession by its corporate name for the
period limited in its certificate or articles of incorporation, and when no
period is limited, perpetually, or until dissolved and its affairs wound up
according to law.
(D) Shall have the power to effect litigation in its own behalf and
interest in any court of law.
(E) Shall have power to make contracts.
(F) Shall have power to hold, purchase and convey real and personal
estate and mortgage or lease any such real and personal estate with its
franchises. The power to hold real and personal estate shall include the power
to take the same by devise or bequest in the State of Nevada, or in any other
state, territory or country.
(G) Shall have power to appoint such officers and agents as the affairs
of the corporation shall require, and to allow them suitable compensation. -.
(H) Shall have power to make By-Laws not inconsistent with the
constitution or laws of the United States, or of the State of Nevada, for the
management, regulation and government of its affairs and property, the
transfer of its stock, the transaction of its business, and the calling and
holding of meetings of its stockholders.
(I) Shall have power to dissolve itself.
(J) Shall have power to adopt and use a common seal or stamp, and alter
the same. The use of a seal or stamp by the corporation on any corporate
documents is not necessary. The corporation may use a seal or stamp, if it
desires, but such use or nonuse shall not in any way affect the legality of
the document.
(K) Shall have power to borrow money and contract debts when necessary
for the transaction of its business, or for the exercise of its corporate
rights, privileges or franchises, of for any other lawful purpose of its
incorporation; to issue bonds, promissory notes, bills of exchange,
debentures, and other obligations and evidences of indebtedness, payable at a
specified time or times, or payable upon the happening of a specified event or
events, whether secured by mortgage, pledge or otherwise, or unsecured, for
money borrowed, or in payment for property purchased, or acquired, or for any
other lawful object.
(L) Shall have power to guarantee, purchase, hold, sell, assign,
transfer, mortgage, pledge or otherwise dispose of the shares of the capital
stock of, or any bonds, securities or evidences of the indebtedness created
by, any other corporation or corporations of the State of Nevada, or any other
state or government, and, while owners of such stock, bonds, securities or
evidences of indebtedness, to exercise all the rights, powers and privileges
of ownership, including the right to vote, if any.
(M) Shall have power to purchase, hold, sell and transfer shares of its
own capital stock and use therefor its capital, capital surplus, surplus, or
other property or fund.
(N) Shall have power to conduct business, have one or more offices, and
hold, purchase mortgage and convey real and personal property in the State of
Nevada, and in any of the several states, territories, possessions and
dependencies of the United States, the District of Columbia, and foreign
countries.
(O) Shall have power to do all and everything necessary and proper for
the accomplishment of the objects enumerated in its certificate or articles of
incorporation, or any amendment thereof, or necessary or incidental to the
protection and benefit of the corporation, and, in general to carry on any
lawful business necessary or incidental to the attainment of the objects of
the corporation, whether or not such business is similar in nature to the
objects set forth in the certificate or articles of incorporation of the
corporation, or any amendment thereof.
(P) Shall have power to make donations for the public welfare or for
charitable scientific or educational purposes.
(Q) Shall have power to enter into partnerships, general or limited, or
joint ventures in connection with any lawful activities.
FOURTH. The aggregate number of shares the corporation shall have
authority to issue shall be TWENTY FIVE MILLION (25,000,000) shares of common
stock, par value one mil ($.001) per share, each share of common stock having
equal rights and preferences, voting privileges and preferences.
FIFTH. The governing board of this corporation shall be known as
directors, and the number of directors may from time to time be increased or
decreased in such manner as shall be provided by the By-Laws of this
Corporation, providing that the number of directors shall not be reduced to
fewer than one (1).
The name and post office address of the first Board of Directors shall be
one (1) in number and listed as follows:
NAME POST OFFICE ADDRESS
------ --------------------
Stanley K. Stilwell 7604 Delaware Bay Drive
Las Vegas, Nevada 89128
SIXTH. The capital stock, after the amount of the subscription price, or
par value, has been paid in, shall not be subject to assessment to pay the
debts of the corporation.
SEVENTH. The name and post office address of the Incorporator signing the
Articles of Incorporation is as follows:
NAME POST OFFICE ADDRESS
------- -------------------
Stanley K. Stilwell 7604 Delaware Bay Drive
Las Vegas, Nevada 89128
EIGHTH. The resident agent for this corporation shall be:
STANLEY K. STILWELL
The address of said agent, and the registered or statutory address of
this corporation in the state of Nevada shall be:
7604 Delaware Bay Drive
Las Vegas, Nevada 89128
NINTH. The corporation is to have perpetual existence.
TENTH. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized:
Subject to the By-Laws, if any, adopted by the Stockholders, to make,
alter or amend the By-Laws of the Corporation.
To fix the amount to be reserved as working capital over and above its
capital stock paid in; to authorize and cause to be executed, mortgages and
liens upon the real and personal property of this Corporation.
By resolution passed by a majority of the whole Board, to designate one (1) or
more committees, each committee to consist of one or more of the Directors of
the Corporation, which, to the extent provided in the resolution, or in the
By-Laws of the Corporation, shall have and may exercise the powers of the
Board of Directors in the management of the business and affairs of the
Corporation. Such committee, or committees shall have such name, or names as
may be stated in the By-Laws of the Corporation, or as may be determined from
time to time by resolution adopted by the Board of Directors.
When and as authorized by the affirmative vote of the Stockholders
holding stock entitling them to exercise at least a majority of the voting
power given at a Stockholders meeting called for that purpose, or when
authorized by the written consent of the holders of at least a majority of the
voting stock issued and outstanding, the Board of Directors shall have power
and authority at any meeting to sell, lease or exchange all of the property
and assets of the Corporation, including its good will and its corporate
franchises, upon such terms and conditions as its Board of Directors deems
expedient and for the best interests of the Corporation.
ELEVENTH. No shareholder shall be entitled as a matter of right to
subscribe for or receive additional shares of any class of stock of the
Corporation, whether now or hereafter authorized, or any bonds, debentures or
securities convertible into stock, but such additional shares of stock or
other securities convertible into stock may be issued or disposed of by the
Board of Directors to such persons and on such terms as in its discretion it
shall deem advisable.
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 or 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 or officer of the Corporation for acts of omissions prior to such
repeal or modification.
THIRTEENTH. This Corporation reserves the right to amend, alter, change
or repeal any provision contained in the Articles of Incorporation, in the
manner now or hereafter prescribed by statute, or by the Articles of
Incorporation, and all rights conferred upon Stockholders herein are granted
subject to this reservation.
I, THE UNDERSIGNED, being the Incorporator hereinbefore named for the
purpose of forming a Corporation pursuant to the General Corporation Law of
the State of Nevada, do make and file these Articles of Incorporation, hereby
declaring and certifying that the facts herein stated are true, and
accordingly have hereunto set my hand this 12th day of July, 1995.
/s/ Stanley K. Stilwell
--------------------------
Stanley K. Stilwell
STATE OF NEVADA )
: ss.
COUNTY OF CLARK )
On this the 12th day of July, 1995, in Las Vegas, Nevada before me, the
undersigned, a Notary Public in and for Las Vegas, State of Nevada personally
appeared Stanley K. Stilwell, known to me to be the person whose name is
subscribed to the foregoing document and acknowledged to me that he executed
the same.
[Here appears Notary Seal]
MONICA J. CUNNINGHAM
Notary Public - Nevada /s/ Monica Cunningham
Clark County ----------------------------
My appt. exp. Aug. 15,1998 l Notary Public
I, Stanley K. Stilwell, hereby accept as Resident Agent for the
previously named Corporation.
7/12/95 /s/ Stanley K. Stilwell
- ---------- -------------------------
Date Stanley K. Stilwell
Exhibit 2.2
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
JUL 01 1996
1817-95
AMERICAN FURNITURE WHOLESALE, INC.
--------------------------------------
Name of Corporation
We, the undersigned TAI TRAN and
-----------------------------
President or Vice President
TAI TRAN of AMERICAN FURNITURE WHOLESALE INC.
- ---------------------------- -----------------------------------------
Secretary or Asst. Secretary Name of Corporation
do hereby certify:
That the Board of Directors of said corporation at a meeting duly
convened held on the 28th day of JUNE, 1996, adopted a resolution to amend the
original articles of incorporation as follows:
Article One is hereby amended to read as follows:
The name of the corporation will be:
NEWRIDERS, INC.
The number of shares of the corporation outstanding and entitled to
vote on an amendment to the Articles of Incorporation is 4,581,000; that the
said change(s) and amendment have been consented to and approved by a majority
vote of the stockholders holding at least a majority of each class of stock
outstanding and entitled to vote thereon.
/s/ Tai Tran
----------------------------
President or Vice President
/s/ Tai Tran
---------------------------------
Secretary or Assistant Secretary
STATE OF CALIFORNIA )
)ss.
COUNTY OF FRESNO )
On 6-28-96 , personally appeared before me, a Notary Public, Tai Tran,
who acknowledged that they executed the above instrument.
[Stamp of Joe Teran, Jr.
Comm. #1043814, Notary Public /s/ Joe A. Teran, Jr.
California, Fresno County ----------------------
appears here] (Signature of Notary)
appears
jere
Exhibit 2.3
BYLAWS
OF
AMERICAN FURNITURE WHOLESALE, INC.
ARTICLE I
OFFICES
SECTION 1. PRINCIPAL OFFICE. The principal office of the Corporation
shall be located in the City of Las Vegas, Nevada, Clark, State of Nevada.
SECTION 2. OTHER OFFICES. In addition to the principal office at 927
Decatur, Las Vegas, Nevada other offices may also be maintained at such other
place or places, either within or without the State of Nevada, as may be
designated from time to time by the Board of Directors, where any and all
business of the Corporation may be transacted, and where meetings of the
stockholders and of the Directors may be held with the same effect as though
done or held at said principal office.
ARTICLE II
MEETING OF STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS. The annual meeting of the shareholders,
commencing with the year 1995, shall be held at the registered office of the
corporation, or at such other place as may be specified or fixed in the notice
of such meetings in the month of or the month preceding the due date of the
annual list of the officers and directors of the corporation at such time as
the shareholders shall decide, for the election of directors and for the
transaction of such other business as may properly come before said meeting.
SECTION 2. NOTICE OF ANNUAL MEETINGS. The Secretary shall mail, in the
manner provided in Section 5 of Article II of these Bylaws, or deliver a
written or printed notice of each annual meeting to each stockholder of
record, entitled to vote thereat, or may notify by telegram, as least ten and
not more than sixty (60) days before the date of such meeting.
SECTION 3. PLACE OF MEETINGS. The Board of Directors may designate any
place either within or without the State of Nevada as the place of meeting for
annual meeting or for any special meeting called by the Board of Directors. A
waiver of notice signed by all stockholders may designate any place either
within or without the State of Nevada, as the place for the holding of such
meeting. If no designation is made, or if a special meeting be otherwise
called, the place of meeting shall be the principal office of Corporation in
the State of Nevada, except as otherwise provided in Section 6, Article II of
these Bylaws, entitled "Meeting of All Stockholders".
SECTION 4. SPECIAL MEETINGS. Special meetings of the stockholders shall
be held at the principal office of the Corporation or at such other place as
shall be specified or fixed in a notice thereof. Such meetings of the
stockholders may be called at any time by the President or Secretary, or by a
majority of the Board of Directors then in office, and shall be called by the
President with or without Board approval on the written request
of the holders of record of at least fifty percent (50%) of the number of
shares of the Corporation then outstanding and entitled to vote, which written
request shall state the object of such meeting.
SECTION 5. NOTICE OF MEETING. Written or printed notice stating the
place, day and hour of the meeting and, in case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not
less than ten (10) nor more than sixty (60) days before the date of the
meeting, either personally or by mail, by or at the direction of the President
or the Secretary to each stockholder of record entitled to vote at such
meeting. If mailed, such notice shall be deemed to be delivered when deposited
in the United States mail, addressed to the stockholder at his address as it
appears on the records of the Corporation, with postage prepaid.
Any stockholder may at any time, by duly signed statement in writing to
that effect, waive any statutory or other notice of any meeting, whether such
statement be signed before or after such meeting.
SECTION 6. MEETING OF ALL STOCKHOLDERS. If all the stockholders shall
meet at any time and place, either within or without the State of Nevada, and
consent to the holding of the meeting at such time and place, such meeting
shall be valid without call or notice and at such meeting any corporate action
may be taken.
SECTION 7. QUORUM. At all stockholder's meetings, the presence in person
or by proxy of the holders of a majority of the outstanding stock entitled to
vote shall be necessary to constitute a quorum for the transaction of
business, but a lesser number may adjourn to some future time not less than
seven (7) nor more than twenty-one (21) days later, and the Secretary shall
thereupon give at least three (3) days' notice by mail to each stockholder
entitled to vote who is absent from such meeting.
SECTION 8. MODE OF VOTING. At all meetings of the stockholders the voting
may be voice vote, but any qualified voter may demand a stock vote whereupon
such stock vote shall be taken by ballot, each of which shall state the name
of the stockholder voting and the number of shares voted by him and, if such
ballot be cast by proxy, it shall also state the name of such proxy; provided,
however, that the mode of voting prescribed by statute for any particular case
shall be in such case followed.
SECTION 9. PROXIES. At any meeting of the stockholders, any stockholder
may be represented and vote by a proxy or proxies appointed by an instrument
in writing. In the event any such instrument in writing shall designate two or
more persons to act as proxies, a majority of such persons present at the
meeting, or, if only one shall be present, then that one shall have and may
exercise all of the powers conferred by such written instrument upon all of
the persons so designated unless the instrument shall otherwise provide. No
such proxy shall be valid after the expiration of six months from the date of
its execution, unless coupled with an interest, or unless the person executing
it specified therein the length of time for which it is to continue in force,
which in no case shall exceed seven years from the date of its execution.
Subject to the above, any proxy duly executed is not revoked and continues in
full force and effect until any instrument revoking it or a duly executed
proxy bearing a later date is filed with the secretary of the Corporation. At
no time shall any proxy be valid which shall be filed less than ten (10) hours
before the commencement of the meeting.
SECTION 10. VOTING LISTS. The officer or agent in charge of the transfer
books for shares of the corporation shall make, at least three days before
each meeting of stockholders, a complete list of the stockholders entitled to
vote at such meeting, arranged in alphabetical order with the number of shares
held by each, which list for a period of two days prior to such meeting shall
be kept on file at the registered office of the corporation and shall be
subject to inspection by any stockholder at any time during the whole time of
the meeting. The original share ledger or transfer book, or duplicate thereof,
kept in this state, shall be prima facie evidence as to who are the
stockholders entitled to examine such list or share ledger or transfer book or
to vote at any meeting of stockholders.
SECTION 11. CLOSING TRANSFER BOOKS OR FIXING OF RECORD DATE. For the
purpose of determining stockholders entitled to notice or to vote for any
meeting of stockholders, the Board of Directors of the Corporation may provide
that the stock transfer books be closed for a stated period but not to exceed
in any case sixty (60) days before such determination. If the stock transfer
books be closed for the purpose of determining stockholders entitled to notice
of a meeting of stockholders, such books shall be closed for at least fifteen
days immediately preceding such meeting. In lieu of closing the stock transfer
books, the Board of Directors may fix in advance a date in any case to be not
more than sixty (60) days, not less than ten (10) days prior to the date on
which the particular action, requiring such determination of stockholders, is
to be taken. If the stock transfer books are not closed and no record date is
fixed for determination of stockholders entitled to notice of a meeting of
stockholders, or stockholders entitled to receive payment of a dividend, the
date on which notice of the meeting is mailed or the date on which the
resolution of the Board of Directors declaring such dividend is adopted, as
the case may be, shall be the record of date for such determinations of
shareholders.
SECTION 12. VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing in the
name of another corporation, domestic or foreign, may be voted by such
officer, agent or proxy as the Bylaws of such corporation by prescribe, or, in
the absence of such provisions, as the Board of Directors of such corporation
may determine.
Shares standing in the name of a deceased person may be voted by his
administrator or executor, either in person or by proxy. Shares standing in
the name of a guardian, conservator or trustee may be voted by such fiduciary
either in person or by proxy, but no guardian, conservator, or trustee shall
be entitled, as such fiduciary, to vote shares held by him without a transfer
of such shares into his name.
Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer thereof into his name if authority so to do be
contained in an appropriate order of the court at which such receiver was
appointed.
A stockholder whose shares are pledged shall be entitled to vote such
shares until shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Shares of its own stock belonging to this corporation shall not voted,
directly or indirectly, at any meeting and shall not be counted in determining
the total number of outstanding shares at any time, but shares of its own
stock held by it in a fiduciary capacity may be voted and shall be counted in
determining the total number of outstanding shares at any given time.
SECTION 13. INFORMAL ACTION BY STOCKHOLDERS. Any action is required to be
taken at a meeting of the stockholders or any other action which may be taken
at a meeting of the stockholders except the election of directors may be taken
without a meeting if a consent in writing setting forth the action so taken
shall be signed by all of the stockholders entitled to vote with respect to
the subject matter thereof.
SECTION 14. VOTING OF SHARES. Each outstanding share entitled to vote
shall be entitled to one vote upon each matter submitted to vote at a meeting
of stockholders.
ARTICLE III
DIRECTORS
SECTION 1. GENERAL POWERS. The Board of Directors shall have the control
and general management of the affairs and business of the Corporation. Such
directors shall in all cases act as Board, regularly convened, by a majority,
and they may adopt such rules and regulations for the conduct of their
meetings and the management of the Corporation, as they may deem proper, not
inconsistent with these Bylaws, Articles of Incorporation and the laws of the
State of Nevada. The Board of Directors shall further have the right to
delegate certain other powers to the Executive Committee as provided in these
Bylaws.
SECTION 2. NUMBER OF DIRECTORS. The affairs and business of this
Corporation shall be managed by a Board of Directors consisting of five (5)
full-age members, until changed by amendment of the Articles of Incorporation
or by an amendment to these By Laws adopted by the shareholders amending this
Section 2, Article III, and except as authorized by the Nevada Revised
Statutes, there shall in no event be less than one (1) Director.
SECTION 3. ELECTION. The Directors of the Corporation shall be elected at
the annual meeting of the stockholders except as hereinafter otherwise
provided for the filling of vacancies. Each director shall hold office for a
term of one year and until his successor shall have been duly chosen and shall
have qualified, or until his death, or until he shall resign or shall have
been removed in the manner hereinafter provided.
SECTION 4. VACANCIES IN THE BOARD. Any vacancy in the Board of Directors
occurring during the year through death, resignation, removal or other cause,
including vacancies caused by an increase in the number of directors, shall be
filled for the unexpired portion they constitute a quorum, at any special
meeting of the Board called for that purpose, or at any regular meeting
thereof; provided, however, that in the event the remaining directors do not
represent a quorum of the number set forth in Section 2 hereof, a majority of
such remaining directors may elect directors to fill any vacancies then
existing.
SECTION 5. DIRECTORS MEETINGS. Annual meeting of the Board of Directors
shall be held each year immediately following the annual meeting of the
stockholders. Other regular meetings of the Board of Directors shall from time
to time by resolution be prescribed. No further notice of such annual or
regular meeting of the Board of Directors need be given.
SECTION 6. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by or at the request of the President or any director. The
person or persons authorized to call special meetings of the Board of
Directors may fix any place, either within or without the State of Nevada, as
the place for holding any special meeting of the Board of Directors called by
them.
SECTION 7. NOTICE. Notice of any special meeting shall be given at least
twenty-four hours previous thereto by written notice if personally delivered,
or five days previous thereto if mailed to each director at his business
address, or by telegram. If mailed, such notice shall be deemed to have been
delivered when deposited in the United States mail so addressed with postage
thereon prepaid. If notice is given by telegram, such notice shall be deemed
to be delivered when the telegram is delivered to the telegraph company. Any
director may waive notice of any meeting. The attendance of a director at any
meeting shall constitute a waiver of notice of such meeting, except where a
director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened.
SECTION 8. CHAIRMAN. At all meetings of the Board of Directors, the
President shall serve as Chairman, or in the absence of the President, the
directors present shall choose by majority vote a director to preside as
Chairman.
SECTION 9. QUORUM AND MANNER OF ACTING. A majority of the directors,
whose number is designated in Section 2 herein, shall constitute a quorum for
the transaction of business at any meeting and the act of a majority of the
directors present at any meeting at which a quorum is present shall be the act
of the Board of Directors. In the absence of a quorum, the majority of the
directors present may adjourn any meeting from time to time until a quorum be
had. Notice of any adjourned meeting need not be given. The directors shall
act only as a Board and the individual directors shall have no power as such.
SECTION 10. REMOVAL OF DIRECTORS. Any one or more of the directors may be
removed either with or without cause at any time by the vote or written
consent of the stockholders representing not less than two-thirds (2/3) of the
issued and outstanding capital stock entitled to voting power.
SECTION 11. VOTING. At all meetings of the Board of Directors, each
director is to have one vote, irrespective of the number of shares of stock
that he may hold.
SECTION 12. COMPENSATION. By resolution of the Board of Directors, the
directors may be paid their expenses, if any, of attendance at each meeting of
the Board, and may be paid a fixed sum for attendance at meetings or a stated
salary of directors. No such payment shall preclude any director from serving
the corporation in any other capacity and receiving compensation therefor.
SECTION 13. PRESUMPTION OF ASSENT. A director of the Corporation who is
present at a meeting of the Board of Directors at which action on any
corporate matter is taken, shall be conclusively presumed to have assented to
the action unless his dissent shall be entered in the minutes of the meeting
or unless he shall file his written dissent to such action with the person
acting as the secretary of the meeting before the adjournment thereof or shall
file forward such dissent by certified or registered mail to the Secretary of
the corporation immediately after the adjournment of the meeting. Such right
to dissent shall not apply to a director who voted in favor of such action.
ARTICLE IV
EXECUTIVE COMMITTEE
SECTION 1. NUMBER AND ELECTION. The Board of Directors may, in its
discretion, appoint from its membership an Executive Committee of one or more
directors, each to serve at the pleasure of the Board of Directors.
SECTION 2. AUTHORITY. The Executive Committee is authorized to take any
action which the Board of Directors could take, except that the Executive
Committee shall not have the power either to issue or authorize the issuance
of shares of capital stock, to amend the Bylaws, or a resolution of the Board
of Directors. Any authorized action taken by the Executive Committee shall be
as effective as if it had been taken by the full Board of Directors.
SECTION 3. REGULAR MEETINGS. Regular meetings of the Executive Committee
may be held within or without the State of Nevada at such time and place as
the Executive Committee may provide from time to time.
SECTION 4. SPECIAL MEETINGS. Special meetings of the executive committee
may be called by or at the request of the President or any member of the
Executive Committee.
SECTION 5. NOTICE. Notice of any special meeting shall be given at least
one day previous thereto by written notice, telephone, telegram or in person.
Neither the business to be transacted, nor the purpose of a regular or special
meeting of the Executive Committee need be specified in the notice or waiver
of notice of such meeting. A member may waive notice of any meeting of the
Executive Committee. The attendance of a member at any meeting shall
constitute a waiver of notice of such meeting, except where a member attends a
meeting for the express purpose of objecting to the transaction of any
business because the meeting is not lawfully called or convened.
SECTION 6. QUORUM. A majority of the members of the Executive Committee
shall constitute a quorum for the transaction of business at any meeting of
the Executive Committee; provided that if fewer than a majority of the members
are present at said meeting a majority of the members present may adjourn the
meeting from time to time without further notice.
SECTION 7. MANNER OF ACTING. The act of the majority of the members
present at a meeting at which a quorum is present shall be the act of the
Executive Committee, and said Committee shall keep regular minutes of its
proceedings which shall at all times be open for inspection by the Board of
Directors.
SECTION 8. PRESUMPTION OF ASSENT. A member of the Executive Committee who
is present at a meeting of the Executive Committee at which action on any
corporate matter is taken, shall be conclusively presumed to have assented to
the action taken unless his dissent shall be entered in the minutes of the
meeting or unless he shall file his written dissent to such action with the
person acting as secretary of the meeting before the adjournment thereof, or
shall forward such dissent by certified or registered mail to the Secretary of
the Corporation immediately after the adjournment of the meeting. Such right
to dissent shall not apply to a member of the Executive Committee who voted in
favor of such action.
ARTICLE V
OFFICERS
SECTION 1. NUMBER. The officers of the corporation shall be a President,
Vice President, a Treasurer and a Secretary and such other or subordinate
officers as the Board of Directors may from time to time elect. One person may
hold the office and perform the duties of one or more of said officers. No
officer need be a member of the Board of Directors.
SECTION 2. ELECTION, TERM OF OFFICE, QUALIFICATIONS. The officers of the
Corporation shall be chosen by the Board of Directors and they shall be
elected annually at the meeting of the Board of Directors held immediately
after each annual meeting of the stockholders except as hereinafter otherwise
provided for filling vacancies. Each officer shall hold his office until his
successor has been duly chosen and has qualified, or until his death, or until
he resigns or has been removed in the manner hereinafter provided.
SECTION 3. REMOVALS. Any officer or agent elected or appointed by the
Board of Directors may be removed by the Board of Directors at any time
whenever in its judgment the best interests of the Corporation would be served
thereby, and such removal shall be without prejudice to the contract rights,
if any, of the person so removed.
SECTION 4. VACANCIES. All vacancies in any office shall be filled by the
Board of Directors without undue delay, at any regular meeting, or at a
meeting specially called for that purpose.
SECTION 5. PRESIDENT. The President shall be the chief executive officer
of the corporation and shall have general supervision over the business of the
corporation and over its several officers, subject, however, to the control of
the Board of Directors. He may sign, with the Treasurer or with the Secretary
or any other proper officer of the Corporation thereunto authorized by the
Board of Directors, certificates for shares of the capital stock of the
Corporation; may sign and execute in the name of the Corporation deeds,
mortgages, bonds, contracts or other instruments authorized by the Board of
Directors, except in cases where signing and execution thereof shall be
expressly delegated by the Board of Directors or by these Bylaws to some other
officer or agent of the Corporation; and in general shall perform all duties
incident to the duties of the President, and such other duties as from time to
time may be assigned to him by the Board of Directors.
SECTION 6. VICE PRESIDENT. The Vice President shall in the absence or
incapacity of the President, or as ordered by the Board of Directors, perform
the duties of the President, or such other duties or functions as may be given
to him by the Board of Directors from time to time.
SECTION 7. TREASURER. The Treasurer shall have the care and custody of
all the funds and securities of the Corporation and deposit the same in the
name of the Corporation in such bank or trust company as the Board of
Directors may designate; he may sign or countersign all checks, drafts and
orders for the payment of money and may pay out and dispose of same under the
direction of the Board of Directors, and may sign or countersign all notes or
other obligations of indebtedness of the Corporation; he may sign with the
President or Vice President, certificates for shares of stock of the
Corporation; he shall at all reasonable times exhibit the books and accounts
to any director or stockholder of the Corporation under application at the
office of the company during business hours; and he shall, in general, perform
all duties as from time to time may be assigned to him by the President or by
the Board of Directors. The Board of Directors may at its discretion require
that each officer authorized to disburse the funds of the Corporation be
bonded in such amount as it may deem adequate.
SECTION 8. SECRETARY. The Secretary shall keep the minutes of the
meetings of the Board of Directors and also the minutes of the meetings of the
stockholders; he shall attend to the giving and serving of all notices of the
Corporation and shall affix the seal of the Corporation to all certificates of
stock, when signed and countersigned by the duly authorized officers; he may
sign certificates for shares of stock of the Corporation; he may sign or
countersign all checks, drafts and orders for the payment of money; he shall
have charge of the certificate book and such other books and papers as the
Board may direct; he shall keep a stock book containing the names
alphabetically arranged, of all persons who are stockholders of the
Corporation, showing their places of residence, the number of shares of stock
held by them respectively, the time when they respectively became the owners
thereof, and the amount paid thereof; and he shall, in general, perform all
duties incident to the office of Secretary and such other duties as from time
to time may be assigned to him by the President or by the Board of Directors.
SECTION 9. OTHER OFFICERS. The Board of Directors may authorize and
empower other persons or other officers appointed by it to perform the duties
and functions of the officers specifically designated above by special
resolution in each case.
SECTION 10. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. The Assistant
Treasurers shall respectively, as may be required by the Board of Directors,
give bonds for the faithful discharge of their duties, in such sums and with
such sureties as the Board of Directors shall determine. The Assistant
Secretaries as thereunto authorized by the Board of Directors may sign with
the President or Vice President certificates for shares of the capital stock
of the Corporation, issue of which shall have been authorized by resolution of
the Board of Directors. The Assistant Treasurers and Assistant Secretaries
shall, in general, perform such duties as may be assigned to them by the
Treasurer or the Secretary respectively, or by the President or by the Board
of Directors.
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.
ARTICLE VII
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. CONTRACTS. The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the Corporation, and such
authority may be general or confined to specific instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of the
Corporation and no evidence of indebtedness shall be issued in its name unless
authorized by the Board of Directors or approved by loan committee appointed
by the Board of Directors and charged with the duty of supervising
investments. Such authority may be general or confined to specific instances.
SECTION 3. CHECKS, DRAFTS, ETC. Checks, drafts or other orders for
payment of money, notes or other evidences of indebtedness issued in the name
of the Corporation shall be signed by such officer or officers, agent or
agents of the Corporation and in such manner as shall from time to time be
determined by resolutions of the Board of Directors.
SECTION 4. DEPOSITS. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositories as the Board of Directors may
select.
ARTICLE VIII
CAPITAL STOCK
SECTION 1. CERTIFICATES FOR SHARES. Certificates for shares of stocks of
the Corporation shall be in such form as shall be approved by the
incorporators or by the Board of Directors. The certificates shall be numbered
in the order of their issue, shall be signed by the President or the Vice
President and by the Secretary or the Treasurer, or by such other person or
officer as may be designated by the Board of Directors; and the seal of the
Corporation shall be affixed thereto, which said signatures of the duly
designated officers and of the seal of the Corporation. Every certificate
authenticated by a facsimile of such signatures and seal must be countersigned
by a Transfer Agent to be appointed by the Board of Directors, before
issuance.
SECTION 2. TRANSFER OF STOCK. Shares of the stock of the Corporation may
be transferred by the delivery of the certificate accompanied either by an
assignment in writing on the back of the certificate or by written power of
attorney to sell, assign, and transfer the same on the books of the
Corporation, signed by the person appearing by the certificate to the owner of
the shares represented thereby, together with all necessary federal and state
transfer tax stamps affixed and shall be transferable on the books of the
Corporation upon surrender thereof so signed or endorsed. The person
registered on the books of the Corporation as the owner of any shares of stock
shall be entitled to all rights of ownership with respect to such shares.
SECTION 3. REGULATIONS. The Board of Directors may make such rules and
regulations as it may deem expedient not inconsistent with the Bylaws or with
the Articles of Incorporation, concerning the issue, transfer and registration
of the certificates for shares of stock of the Corporation. It may appoint a
transfer agent or a registrar of transfers, or both, and it may require all
certificates to bear the signature of either or both.
SECTION 4. LOST CERTIFICATES. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost
or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost or destroyed. When authorizing
such issue of a new certificate or certificates, the Board of Directors may,
in its discretion and as a condition precedent to the issuance thereof,
require the owner of such lost or destroyed certificate or certificates, or
his legal representative, to advertise the same in such manner as it shall
require and/or give the Corporation a bond in such sum as it may direct as
indemnity against any claim that may be made against the Corporation with
respect to the certificate alleged to have been lost or destroyed.
ARTICLE IX
DIVIDENDS
SECTION 1. The Corporation shall be entitled to treat the holder of any
share or shares of stock as the holder in fact thereof and, accordingly, shall
not be bound to recognize any equitable or other claim to or interest in such
shares on the part of any other person, whether or not it shall have express
or other notice thereof, except as expressly provided by the laws of Nevada.
SECTION 2. Dividends on the capital stock of the Corporation, subject to
the provisions of the Articles of Incorporation, if any, may be declared by
the Board of Directors at any regular or special meeting, pursuant to law.
SECTION 3. The Board of Directors may close the transfer books in its
discretion for a period not exceeding fifteen days preceding the date fixed
for holding any meeting, annual or special, of the stockholders, or the day
appointed for the payment of a dividend.
SECTION 4. Before payment of any dividend or making any distribution of
profits, there may be set aside out of funds of the Corporation available for
dividends, such sum or sums as the directors may from time to time, in their
absolute discretion, think proper as a reserve fund to meet contingencies, or
for equalizing dividends, or for repairing or maintaining any property of the
Corporation, or for any such other purpose as the directors shall think
conducive to the interest of the Corporation, and the directors may modify or
abolish any such reserve in the manner in which it was created.
ARTICLE X
SEAL
The Board of Directors shall provide a Corporate seal which shall be in
the form of a Circle and shall bear the full name of the Corporation, the year
of its incorporation and the words "Corporate Seal, State of Nevada".
ARTICLE XI
FISCAL YEAR
The fiscal year of the Corporation shall end on the 31st day of December
of each year.
ARTICLE XII
WAIVER OF NOTICE
Whenever any notice whatever is required to be given under the provisions
of these Bylaws, or under the laws of the State of Nevada, or under the
provisions of the Articles of Incorporation, a waiver in writing signed by the
person or persons entitled to such notice, whether before or after the time
stated therein, shall be deemed equivalent to the giving of such notice.
ARTICLE XIII
AMENDMENTS
These Bylaws may be altered, amended or repealed and new Bylaws may be
adopted at any regular or special meeting of the Stockholders by a vote of the
stockholders owning a majority of the shares and entitled to vote thereat.
These Bylaws may also be altered, amended or repealed and new Bylaws may be
adopted at any regular or special meeting of the Board of Directors of the
Corporation (if notice of such alteration or repeal be contained in the notice
of such special meeting) by a majority vote of the directors present at the
meeting at which a quorum is present, but any such amendment shall not be
inconsistent with or contrary to the provision of any amendment adopted by the
stockholders.
KNOW ALL MEN BY THESE PRESENTS that the undersigned, being the Secretary
of AMERICAN FURNITURE WHOLESALE, INC., a Nevada corporation hereby
acknowledges that the above and foregoing Bylaws were duly adopted as the
Bylaws of said Corporation on July 20, 1995.
IN WITNESS WHEREOF, I hereunto subscribe my name this 20th day of July,
1995.
/s/ Tai Tran
-------------------------------
TAI TRAN President/Director
/s/ Kim Tran
-------------------------------
KIM TRAN Sec/Treas/Director
Exhibit 6.1
EASYRIDERS FRANCHISING, INC.
FRANCHISE AGREEMENT
<PAGE>
TABLE OF CONTENTS
Paragraph Page
- ---------- -----
I. Appointment and Franchise Fee..............2
II. Term and Renewal...........................4
III. Business Location..........................5
IV. Training and Assistance....................8
V. Proprietary Marks..........................9
VI. Confidential Operations Manual............10
VII. Confidential Information..................11
VIII. Modification of the System................12
IX. Advertising...............................12
X. Continuing Services and Royalty Fee.......15
XI. Accounting and Records....................16
XII. Standards of Quality and Performance......17
XIII. Franchisor's Operations Assistance........20
XIV. Insurance.................................22
XV. Covenants.................................24
XVI. Default and Termination...................26
XVII. Rights and Duties of Parties Upon
Expiration or Termination..............28
XVIII. Transferability of Interest...............30
XIX. Death or Incapacity of Franchisee.........34
XX. Right of First Refusal....................35
XXI. Operation in the Event of Absence,
Disability or Death....................35
XXII. Independent Contractor And
Indemnification........................36
XXIII. Non-Waiver................................36
XXIV. Notice....................................37
XXV. Cost of Enforcement or Defense............37
XXVI. Entire Agreement..........................38
XXVII. Severability and Construction.............38
XXVIII. Applicable Law............................39
XXIX. Arbitration...............................39
XXX. "Franchisee" Defined and Guaranty.........40
XXXI. Force Majeure.............................40
XXXII. Caveat....................................40
XXXIII. Acknowledgments...........................41
Exhibits
- --------
A. Guaranty and Assumption of Obligations
B. Refunds and Cancellation
C. Map of Designated Area
D. Conversion Franchise Agreement<PAGE>
EASYRIDERS FRANCHISING, INC.
FRANCHISE AGREEMENT
This Franchise Agreement ("this Agreement"), made by and between
EASYRIDERS FRANCHISING, INC., a corporation formed and operating under the
laws of California and having its principal place of business at 5055 Chesebro
Road, Agoura Hills, California, 91301 ("Franchisor"), and ___________________
_____________________________________________________________________________
_____________________________________________________________________________
______________________________________________________________("Franchisee").
WITNESSETH
WHEREAS, Franchisor, and its affiliates, over a period of time and as the
result of the expenditure of time, skill, effort and money, (a) has developed
and owns a unique system ("System"), identified by the mark "EASYRIDERS",
relating to the establishment, development and operation of businesses for the
retail sale of motorcycle paraphernalia such as shirts, jackets, belts,
posters and related items and the sale of parts and related hard goods and
related services; (b) and has developed a line of motorcycle related goods and
other merchandise and products bearing the Marks ("Trademarked Product
Lines"), all of which may be changed from time to time; and (c) has developed
certain specifications and standards, marketing and advertising techniques for
such products and merchandise, all of which may be changed, improved or
further developed by Franchisor from time to time; and
WHEREAS, the distinguishing characteristics of the System include,
without limitation, exterior and interior design, decor, and layout standards,
exclusively designed signage, furnishings and materials; specialized retail
business operating procedures and methods; unique techniques and methods for
merchandising activities; the EASYRIDERS Confidential Operations Manual;
procedures and techniques relating to the marketing of the Trademarked Product
Lines the Proprietary Software Package (if developed); distinct procedures for
purchasing inventory and merchandise; other confidential operations
procedures; and methods and techniques for inventory and cost controls, record
keeping and reporting, personnel management, purchasing, sales promotion,
marketing and advertising; all of which may be changed, improved and further
developed by Franchisor from time to time; and
WHEREAS, Franchisor's affiliate, Paisano Publications, Inc., is the owner
of the right, title and interest together with all the goodwill connected
thereto in and to the trade name, trademarks and service marks "EASYRIDERS",
"EASYRIDERS, plus the design", associated logos and commercial symbols and
such other trade names, trademarks and service marks as are now designated
(and may hereinafter be designated by Franchisor) as an integral part of the
System ("Mark(s)") and has licensed to Franchisor the rights to use the Marks
and sublicense the Marks to franchisees;
WHEREAS, Franchisor grants to qualified persons franchises to own and
operate EASYRIDERS business selling and distributing motorcycle paraphernalia
and hard goods, some of which will bear the Marks, and related merchandise and
products and providing services authorized and approved by Franchisor and
utilizing the System and Marks. Franchisee desires to operate a EASYRIDERS
business under the System and using the Marks and has applied for a franchise
and such application has been approved by Franchisor in reliance upon all of
the representations made therein; and
WHEREAS, Franchisee understands and acknowledges the importance of
Franchisor's high and uniform standards of quality, operations, and service
and the necessity of operating the EASYRIDERS retail business in strict
conformity with Franchisor's standards and specifications; and
WHEREAS, Franchisor expressly disclaims the making of and Franchisee
acknowledges that it has not received nor relied upon any warranty or
guaranty, express or implied, as to the revenues, profits or success of the
business venture contemplated by this Agreement. Franchisee acknowledges that
it has read this Agreement and Franchisor's Uniform Franchise offering
Circular and that it has no knowledge of any representations by Franchisor, or
its officers, directors, shareholders, employees or agents that are contrary
to the statements made in Franchisor's Uniform Franchise Offering Circular or
to the terms herein.
NOW, THEREFORE, the parties, in consideration of the undertakings and
commitments of each party to the other set forth in this Agreement hereby
agree as follows:
I. APPOINTMENT AND FRANCHISE FEE
A. Franchisor hereby grants to Franchisee, upon the terms and
conditions herein contained, the right, license and privilege to use the
Marks, and Franchisee undertakes the obligation to operate a EASYRIDERS retail
business for the sale and distribution of a wide assortment of motorcycle
paraphernalia and hard goods, some of which will bear the Marks, and related
merchandise and products ("Franchised Business") and to use safely in
connection therewith the System, as it may be changed, improved and further
developed from time to time, at one location only, such location to be:
1)_________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
or;
2) At a location to be designated, as provided in Paragraph III
hereof within the following area: ___________________________________________
_____________________________________________________________________________
Provided, however, that when a location has been designated and approved by
the parties, said location shall become Paragraph I.A.1., as if originally
incorporated therein. Franchisee shall not relocate the Franchised Business
without the prior written approval of Franchisor.
B. Franchisee receives an exclusive territory and such territories
will vary in size and dimensions. Franchisor shall not grant to itself or
another person a EASYRIDERS franchise within such exclusive territory. The
determination of the exclusive territory shall be made and agreed upon between
Franchisor and Franchisee. The exclusive territory so selected is described in
writing below and in a map attached hereto as Exhibit C and hereby made a part
of this Agreement. Franchisee may relocate its business within the same
general vicinity, while remaining in the aforesaid territory, only with the
prior written approval of Franchisor and subject to the rights of other
franchisees.
C. Franchisor will not, so long as this Agreement is in force and
effect and Franchisee is not in material default under any of the terms
hereof, enfranchise or operate any other EASYRIDERS business within the
following area:_____________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
("Designated Area").
D. Franchisor has the right, in its sole discretion, to grant such
other franchises outside of the Designated Area as Franchisor, in its sole and
exclusive discretion, deems appropriate. Further, both within and outside of
the Designated Area, Franchisee acknowledges that Franchisor may hereafter and
that Franchisor's affiliates have and will continue to hereafter advertise,
promote, offer and sell at wholesale or retail and authorize others the right
to offer and sell (in various ways including mail order catalog sales,
magazine and other media advertising and promotions through company owned
stores, licensed Full-line Dealers, mobile retail showrooms at various public
events, and through other motorcycle-related vendors or any other species of
wholesale or retail vendor whatsoever), the products which may comprise or may
in the future comprise a part of the System. Those products and services which
comprise a part of the EASYRIDERS System are delineated and set forth in
detail in the EASYRIDERS Confidential Operations Manual ("Confidential
Operations Manual"), which Confidential Operations Manual may be amended from
time to time to reflect additions to, deletions from and modifications to the
specifications of those services and products which comprise a part of the
System.
E. In consideration of the franchise granted herein, Franchisee shall
pay to Franchisor an initial franchise fee ("Franchise Fee") of FIVE THOUSAND
Dollars ($5,000.00). The initial franchise fee is waived for "Full-line
Dealer" licensees of Franchisor or its affiliate who elect to become a
Franchised Business by executing a Franchise Agreement within thirty (30) days
of the applicable effective date. Said fee shall be deemed fully earned and
non-refundable upon execution of this Agreement as consideration for expenses
incurred by Franchisor in furnishing assistance and services to Franchisee and
for Franchisor's lost or deferred opportunity to franchise others, except as
may be specifically provided in this Agreement, Exhibit B, or any other
Exhibit attached hereto.
F. Franchisee acknowledges that because complete and detailed
uniformity under many varying conditions may not be possible or practical,
Franchisor specifically reserves the right and privilege, at its sole
discretion and as it may deem in the best interests of all concerned in any
specific instance, to vary standards for any System franchisee based upon the
peculiarities of the particular site or circumstance, density of population,
business potential, population of trade area, existing business practices or
any other condition which Franchisor deems to be of importance to the
successful operation of such franchisee's business. Franchisee shall not be
entitled to require Franchisor to disclose or grant to franchisee a like or
similar variation hereunder.
II. TERM AND RENEWAL
A. This Agreement shall be effective and binding from the date of its
execution for an initial term equal to five (5) years commencing on the date
of execution of this Agreement.
B. Franchisee shall have the right to renew this franchise before the
expiration of the initial term of the Franchise for three (3) additional
successive terms of five (5) years each, providing all of the conditions
hereinafter set forth have been fulfilled:
1. Franchisee has, during the entire term of this Agreement,
complied with all its provisions;
2. Franchisee maintains possession of the premises of the
Franchised Business ("Franchised Premises") and by the expiration date of this
Agreement has brought the Franchised Business into full compliance with the
specifications and standards then applicable for new or renewing EASYRIDERS
businesses and presents evidence satisfactory to Franchisor that it has the
right to remain in possession of the Franchised Premises for the duration of
any renewal term; or, in the event Franchisee is unable to maintain possession
of the premises, or if in the judgment of Franchisor, the Franchised Business
should be relocated, Franchisee secures substitute premises approved by
Franchisor and has furnished, stocked and equipped such premises to bring the
Franchised Business at its substitute premises into full compliance with the
then-current specifications and standards by the expiration date of this
Agreement;
3. Franchisee has given notice of renewal to Franchisor as
provided below;
4. Franchisee has satisfied all monetary obligations owed by
Franchisee to Franchisee's suppliers, Franchisor and its affiliates, if any,
and has timely met these obligations throughout the term of this Agreement;
5. Franchisee has executed upon renewal Franchisor's
then-current form of Franchise Agreement (with appropriate modifications to
reflect the fact that the agreement relates to the grant of a renewal
Franchise), which agreement shall supersede in all respects this Agreement,
and the terms of which may differ from the terms of this Agreement, including,
without limitation, a different percentage Continuing Services and Royalty
Fee, advertising contribution and/or a different territory; provided, however,
Franchisee shall not be required to pay the then-current initial franchise fee
or its equivalent;
6. Franchisee has complied with Franchisor's then-current
qualification and training requirements; and
7. Franchisee has executed a general release, in a form
prescribed by Franchisor, of any and all claims against Franchisor and its
affiliates, and their respective officers, directors, agents and employees.
C. f Franchisee desires to renew this franchise at the expiration of
this Agreement or any renewal period, Franchisee shall give Franchisor written
notice of its desire to renew at least twelve (12) months, but not more than
eighteen (18) months, prior to the expiration of the initial term of this
Agreement. Within sixty (6O) days after its receipt of such timely notice,
Franchisor shall furnish Franchisee with written notice of: (i) reasons which
could cause Franchisor not to grant a renewal to Franchisee, including any
deficiencies which require correction and a schedule for correction thereof by
Franchisee; and (ii) Franchisor's then-current requirements relating to the
image, appearance, decoration, furnishing, equipping and stocking of
EASYRIDERS businesses, and a schedule for effecting such upgrading or
modifications in order to bring the Franchised Business in compliance
therewith, as a condition of renewal. Renewal of the franchise shall be
conditioned upon Franchisee's compliance with such requirements and continued
compliance with all the terms and conditions of this Agreement up to the date
of termination of the initial term, provided, however, that in the event
Franchisee is curing any deficiencies as required by Franchisor, the term of
this Agreement shall be extended for a period of time equal to the number of
days required to cure such deficiency.
D. Franchisor shall give Franchisee written notice of its election to
renew or not renew the franchise six (6) months prior to the expiration of the
initial term of this Agreement.
III. BUSINESS LOCATION
A. Franchisee may operate the Franchised Business only at the
location specified in Paragraph I hereof. If the lease for the site of the
Franchised Business expires or terminates without fault of Franchisee, or if
the site is destroyed, condemned or otherwise rendered unusable, as otherwise
may be agreed upon in writing by Franchisor and Franchisee, Franchisor will
grant permission for relocation of the Franchised Business at a location and
site acceptable to Franchisor. Any such relocation shall be at Franchisee's
sole expense and Franchisor shall have the right to charge Franchisee for any
costs incurred by Franchisor, and a reasonable fee for its services, in
connection with any such relocation of the Franchised Business.
B. Franchisee will be responsible for purchasing or leasing a
suitable site for the Franchised Business. Prior to the acquisition by lease
or purchase of any site for the Franchised Premises, Franchisee shall submit a
description of the proposed site to Franchisor, together with a letter of
intent or other evidence satisfactory to Franchisor which confirms
Franchisee's favorable prospects for obtaining the proposed site. Franchisor
shall provide Franchisee written notice of approval or disapproval of the
proposed site within thirty (30) days after receiving Franchisee's written
proposal.
C. After receiving Franchisor's written approval of the location of
the Franchised Business as provided in Paragraph III.B. hereof, Franchisee
shall execute a lease (if the premises are to be leased) or a binding
agreement to purchase the site, the terms of which have been previously
approved by Franchisor. Franchisor's approval of the lease shall be
conditioned upon inclusion in the lease of terms acceptable to Franchisor and,
at Franchisor's option, the lease shall contain such provisions as Franchisor
may reasonably require, including, but not limited to:
1. A provision reserving to Franchisor the right, at
Franchisor's election, to receive an assignment of the leasehold interest upon
termination or expiration of the franchise grant;
2. A provision which expressly permits the lessor of the
premises to provide Franchisor all sales and other information it may have
related to the operation of the Franchised Business, as Franchisor may
request;
3. A provision which requires the lessor concurrently to
provide Franchisor with a copy of any written notice of deficiency under the
lease sent to Franchisee and which grants to Franchisor, in its sole
discretion and sole option, the right (but not the obligation) to cure any
deficiency under the lease should Franchisee fail to do so within fifteen (15)
days after the expiration of the period in which Franchisee may cure the
default;
4. A provision which evidences the right of Franchisee to
display the Marks in accordance with the specifications required by the
Confidential Operations Manual, subject only to the provisions of applicable
law;
5. A provision that the premises shall be used only for the
operation of the Franchised Business;
6. A provision which expressly states that any default under
the lease shall constitute a default under this Agreement; and
7. A provision which states that upon default of this Agreement
and in accordance with this Agreement, Franchisor may, in its sole discretion,
take possession of the Franchised Premises and operate the Franchised
Business.
D. If the location is not designated above, Franchisor shall use
reasonable efforts to help analyze Franchisee's market area, to help determine
site feasibility, and to assist in the designation of the location, which must
be approved by Franchisor; provided however, that Franchisor will not conduct
site selection activities on Franchisee's behalf. While Franchisor shall
utilize its experience and expertise in a designation of location, nothing
contained herein shall be interpreted as a guarantee of success for said
location nor shall any site recommendation or approval made by Franchisor be
deemed a representation that any particular site is available for use as a
EASYRIDERS business. It shall be the sole responsibility of Franchisee to
undertake site selection activities and otherwise secure premises for
Franchisee's Franchised Business.
E. In the event no acceptable site is found and approved by the
parties within ninety (90) days from the date of this Agreement, then and in
that event, upon written application from either party, this contract shall be
terminated and deposits received by Franchisor shall be resumed to Franchisee.
Provided, however, that in the event Franchisor has within the aforesaid time
submitted in writing to Franchisee two (2) or more sites which are acceptable
to Franchisor, and Franchisee has refused to accept same, then Franchisee,
upon termination, shall forfeit to Franchisor the sum of TWO THOUSAND FIVE
HUNDRED Dollars ($2,500.00) as liquidated damages in payment for Franchisor's
expenses in its site evaluation and selection activities. Franchisee and
Franchisor agree that the amount set forth to wit, TWO THOUSAND FIVE HUNDRED
Dollars ($2,500.00) as liquidated damages is a reasonable amount and that due
to the nature of the subject matter, it will be impossible to ascertain the
exact amount of damages sustained by the recipient therefore.
F. Franchisor shall require Franchisee to provide all of the
following to Franchisor, promptly upon obtaining possession of the site for
the Franchised Business: (i) cause to be prepared and submit for approval by
Franchisor a site survey and any modifications to Franchisor's basic
architectural requirements and specifications (not for construction) for a
EASYRIDERS business (including requirements for dimensions, exterior design,
materials, and work area design and layout, equipment, fixtures, furniture,
signs and decorating) required for the development of a EASYRIDERS business at
the site leased or purchased therefor, provided that Franchisee may modify
Franchisor's basic plans and specifications only to the extent required to
comply with all applicable ordinances, building codes and permit requirements
and with prior notification to and approval by Franchisor; (ii) obtain all
required zoning changes; all required building, utility, health, sanitation,
and sign permits and licenses and any other required permits and licenses;
(iii) purchase or lease equipment, fixtures, furniture and signs as provided
herein; (iv) complete the construction and/or remodeling, equipment, fixture,
furniture and sign installation and decorating of the Franchised Business in
full and strict compliance with plans and specifications therefor approved by
Franchisor and all applicable ordinances, building codes and permit
requirements; (v) obtain all customary contractors' sworn statements and
partial and final waivers of lien for construction, remodeling, decorating and
installation services; and (vi) otherwise complete development of and have the
Franchised Business ready to open and commence the conduct of its business in
accordance with Paragraph XII. hereof.
G. Franchisee shall be required to periodically make reasonable
capital expenditures to remodel, modernize and redecorate the Franchised
Premises so that the Franchised Business will reflect the then-image intended
to be portrayed by EASYRIDERS business. All remodeling, modernization, or
redecoration of the Franchised Business and its premises must be done in
accordance with the standards and specifications as prescribed by Franchisor
from time to time and with the prior written approval of Franchisor. All
replacements must conform to Franchisor's then-current quality standards and
specifications and must be approved by Franchisor in writing. Franchisee shall
not be required to remodel, modernize and redecorate the Franchised Business
and its premises more than once during the initial term of this Agreement
requiring expenditures in excess of TWELVE THOUSAND FIVE HUNDRED Dollars
($12,500.00); however, maintenance of the Franchised Premises may exceed this
amount, and maintenance costs may not be credited to remodeling,
modernization, or redecoration expenditures. If the lease for the Franchised
Premises requires expenditures for remodeling, modernization and redecoration,
such an amount shall be credited to amounts required by Franchisor.
IV. TRAINING AND ASSISTANCE
Franchisor shall make training available to Franchisee or its designated
manager and Franchisee or its designated manager must successfully complete
the following training programs.
A. Prior to opening for business, Franchisor will provide to
Franchisee and Franchisee's designated manager a training and familiarization
course of approximately one (1) to two (2) weeks in duration to be conducted
at an operating EASYRIDERS retail store or at such other place as Franchisor
shall designate. Said training program shall cover various aspects of the
operation of a EASYRIDERS franchise.
B. Franchisor will provide a second phase of training to Franchisee
and Franchisee's designated manager at Franchisor designated business
location. This hands on training program will be provided prior to
Franchisee's commencement of operations.
C. Around the commencement of operations of the Franchised Business,
additional assistance in opening the Franchised Business will be made
available to Franchisee through a third party at cost and at Franchisee's
expense. Franchisor, in its discretion, may require such third party
assistance if Franchisor feels it is necessary and appropriate, based on
Franchisee's performance in training.
D. If Franchisor determines, in its sole discretion, that Franchisee
is unable to satisfactorily complete the training programs, Franchisor shall
have the right to terminate this Agreement in the manner herein provided. If
this Agreement is terminated pursuant to this Paragraph, Franchisor shall
return to Franchisee the franchise fee paid by Franchisee less an amount, not
to exceed ONE THOUSAND Dollars ($1,000.00) to compensate Franchisor for work
performed and expenses incurred in connection with said training. Upon return
of said amount, Franchisor shall be fully and forever released from any claims
or causes of action Franchisee may have under or pursuant to this Agreement
and Franchisee shall have no further right, title or interest in the Marks and
the System and any such rights shall automatically revert to Franchisor.
E. If Franchisee designates new or additional managers after the
initial training program, Franchisor shall provide training to such managers
to the extent that Franchisor can reasonably accommodate such managers in
Franchisor's regularly scheduled training courses. Franchisor shall provide
such training to up to two managers a year for no tuition, additional managers
will be trained at the then-current published rates. Franchisee shall be
responsible for any travel, accommodation or salary expense associated with
training. In no event will Franchisor be under any obligation to provide
individual training to Franchisee's managers.
F. Franchisor from time to time may provide and may require that
previously-trained and experienced franchisees or their managers or employees
attend and successfully complete refresher training programs or seminars to be
conducted within Franchisor's Metropolitan Statistical Area ("MSA") as that
term is defined by the United States Census Bureau, at such location as may be
designated by Franchisor. Attendance at such refresher training programs or
seminars shall be at Franchisee's sole expense; provided, however, that
attendance will not be required at more than one (1) such program in any
calendar year and shall not exceed five (5) business days in duration.
G. All expenses incurred by Franchisee and its employees in attending
training programs, including, without limitation, travel costs, room and board
expenses, and employees salaries shall be the sole responsibility of
Franchisee.
V. PROPRIETARY MARKS
A. Franchisee acknowledges that Franchisor's affiliate is the owner
of all right, title and interest together with all the goodwill of the Marks
and that Franchisee's right to use the Marks is derived solely from this
Agreement and is limited to the conduct of business by Franchisee pursuant to
and in compliance with this Agreement and all applicable standards,
specifications, and operating procedures prescribed by Franchisor from time to
time during the term of the franchise. Any unauthorized use of the Marks by
Franchisee is a breach of this Agreement and an infringement of the rights of
Franchisor and its affiliate in and to the Marks. Franchisee acknowledges that
all usage of the Marks by Franchisee and any goodwill established by
Franchisee's use of the Marks shall inure to the exclusive benefit of
Franchisor and its affiliate and that this Agreement does not confer any
goodwill or other interests in the Marks upon Franchisee and its affiliate.
Franchisee shall not, at any time during the term of this Agreement or after
its termination or expiration, contest the validity or ownership of any of the
Marks or assist any other person in contesting the validity or ownership of
any of the Marks. All provisions of this Agreement applicable to the Marks
apply to any additional trademarks, service marks, and commercial symbols
authorized for use by and licensed to Franchisee by Franchisor after the date
of this Agreement.
B. Franchisee shall not use any Mark or portion of any of the Marks
as part of any corporate or trade name, or with any prefix, suffix, or other
modifying words, terms, designs, or symbols, or in any modified form.
Franchisee shall not use any Marks in connection with the sale of any
unauthorized product or service or in any other manner not expressly
authorized in writing by Franchisor. Franchisee shall properly attribute
ownership of the Marks to Franchisor's affiliate and shall give such notices
of trademark and service mark registrations as Franchisor specifies and obtain
such fictitious or assumed name registrations as may be required under
applicable law.
C. Franchisee shall promptly notify Franchisor of any potential or
actual claim, demand, or cause of action known by Franchisee or which
Franchisee reasonably suspects or believes may exist, based upon or arising
from any attempt by any other person, firm or corporation to use the Marks or
any colorable imitation thereof. Franchisee shall also notify Franchisor of
any action, claim or demand against Franchisee relating to the Marks within
ten (10) days after Franchisee receives notice of said action, claim or
demand. Upon receipt of timely notice of an action, claim or demand against
Franchisee relating to the Marks, Franchisor and/or its affiliate shall have
the sole right to determine all matters and issues relating to the defense of
said action. Franchisor and/or its affiliate shall have the exclusive right to
challenge, oppose, contest or bring legal action against any third party
regarding the third party's use of any of the Marks and shall exercise such
right in its sole discretion. In any defense or prosecution of any litigation
relating to the Marks or components of the System undertaken by Franchisor
and/or its affiliate, Franchisee shall cooperate with Franchisor and/or its
affiliate and execute any and all documents and take all actions as may be
desirable or necessary in the opinion of Franchisor's and/or its affiliate's
counsel, to protect the Marks and to defend or prosecute any litigation
relating to the Marks or components of the System. Both parties will make
every effort consistent with the foregoing to protect, maintain, and promote
the Marks as identifying the System and only the System. FRANCHISOR MAKES NO
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE USE, EXCLUSIVE
OWNERSHIP, VALIDITY OR ENFORCEABILITY OF THE MARKS.
D. If it becomes advisable at any time in Franchisor's sole
discretion, for Franchisor and/or Franchisee to modify or discontinue use of
any of the Marks, and/or use one (1) or more additional or substitute trade
names, trademarks, service marks, or other commercial symbols, Franchisee
shall comply with Franchisor's directions within a reasonable time after
notice to Franchisee by Franchisor, and Franchisor shall have no liability or
obligation whatsoever with respect to Franchisee's modification or
discontinuance of any Mark.
E. In order to preserve the validity and integrity of the Marks and
copyrighted materials franchised herein and to assure that Franchisee is
properly employing the same in the operation of its Franchised Business,
Franchisor or its agents shall have the right to enter and inspect
Franchisee's premises (with or without prior notice) during normal business
hours and, additionally, shall have the right to observe the manner in which
Franchisee is conducting its operations, to confer with Franchisee's employees
and customers, and to select and inspect Franchisee's merchandise to make
certain that such merchandise is satisfactory and meets the quality control
provisions and performance standards established by Franchisor.
VI. CONFIDENTIAL OPERATIONS MANUAL
A. Franchisor will loan to Franchisee during the term of the
franchise one (1) or more copies of a Confidential Operations Manual
containing reasonable, mandatory and suggested specifications, standards,
operating procedures and rules prescribed from time to time by Franchisor for
EASYRIDERS businesses and information relative to other obligations of
Franchisee hereunder and the operation of its Franchised Business. Franchisor
shall have the right to add to and otherwise modify the Confidential
Operations Manual from time to time to reflect changes in the specifications,
standards, operating procedures and rules by Franchisor for EASYRIDERS
businesses, provided that no such addition or modification shall alter
Franchisee's fundamental status and rights under this Agreement.
B. The Confidential Operations Manual shall at all times remain the
sole property of Franchisor and shall promptly be returned upon the expiration
or other termination of this Agreement. Franchisee shall not to make any
disclosure, duplication or other unauthorized use of any portion of the
Confidential Operations Manual.
C. The Confidential Operations Manual contains proprietary
information of Franchisor and shall be kept confidential by Franchisee both
during the term of the franchise and subsequent to the expiration or
termination of the franchise. Franchisee shall at all times insure that its
copy of the Confidential Operations Manual is available at the Franchised
Business premises in a current and up-to-date manner. At all times that the
Confidential Operations Manual is not in use by authorized personnel,
Franchisee shall maintain the Confidential Operations Manual in a locked
receptacle at the Franchised Premises, and shall only grant authorized
personnel, as defined in the Confidential Operations Manual, access to the key
or lock combination of such receptacle. In the event of any dispute as to the
contents of the Confidential Operations Manual, the terms of the master copy
of the Confidential Operations Manual maintained by Franchisor at Franchisor's
home office shall be controlling.
VII. CONFIDENTIAL INFORMATION
A. Franchisee acknowledges that its entire knowledge of the operation
of a EASYRIDERS business including the knowledge or know-how regarding the
specifications, standards and operating procedures of a EASYRIDERS business,
is derived from information disclosed to Franchisee by Franchisor which
information is proprietary, confidential and a trade secret of Franchisor. All
information, standards and specifications with respect to the sale of
motorcycle paraphernalia and/or which identifies or assists in the
identification of actual or potential customers of the Franchised Business are
the trade secrets and the proprietary information of Franchisor. Franchisee
shall maintain the absolute confidentiality of all such information during and
after the term of the franchise and shall not use any such information in any
other business or in any manner not specifically authorized or approved in
writing by Franchisor.
B. Franchisee shall divulge trade secret information only to such of
its employees and only to the extent that such access is necessary for them to
operate the Franchised Business. Any and all information, knowledge and
know-how, including, without limitation, designs, drawings, materials,
equipment, retail business systems and methods, merchandising techniques and
procedures and other data, which Franchisor designates as confidential or
proprietary or a trade secret shall be deemed to be a trade secret for
purposes of this Agreement, excepting only such information as Franchisee can
demonstrate lawfully came to its attention prior to disclosure thereof by
Franchisor; or which, at the time of disclosure by Franchisor to Franchisee,
had lawfully become a part of the public domain, through publication or
communication by others; or which, after disclosure to Franchisee by
Franchisor, lawfully becomes a part of the public domain, through publication
or communication by others.
C. Due to the special and unique nature of the confidential
information, Marks, and Confidential Operations Manual of Franchisor,
Franchisee acknowledges that Franchisor shall be entitled to immediate
equitable remedies, including but not limited to, restraining orders and
injunctive relief in order to safeguard such trade secrets, and proprietary,
confidential, unique, and special information of Franchisor and that money
damages alone would be an insufficient remedy with which to compensate
Franchisor for any breach of the terms of Paragraphs V., VI., and VII. of this
Agreement. Furthermore, all employees of Franchisee having access to the
confidential and proprietary information of Franchisor shall be required to
execute confidential information agreements in a form acceptable to
Franchisor.
VIII. MODIFICATION OF THE SYSTEM
Franchisee recognizes that from time to time hereafter Franchisor may
change or modify the System presently identified by the Marks including,
without limitation, the adoption and use of new or modified trade names,
trademarks, service marks or copyrighted materials, new computer programs and
systems, new types or brands of merchandise and products, new inventory
requirements, new equipment or new techniques and that Franchisee will accept,
use and display for the purpose of this Agreement any such changes in the
System, as if they were part of this Agreement at the time of execution
hereof. Franchisee will make such expenditures as such changes or
modifications in the System may reasonably require. Franchisee shall not
change, modify or alter in any way the System.
IX. ADVERTISING
Recognizing the value of advertising and the importance of the
standardization of advertising and promotion to the furtherance of the
goodwill and the public image of EASYRIDERS businesses, Franchisee agrees as
follows:
A. Franchisee will submit to Franchisor or its designated agency, for
its prior approval, all promotional materials and advertising to be used by
Franchisee, including, but not limited to, newspapers, radio and television
advertising, specialty and novelty items, signs, containers, and Yellow Page
advertising. In the event written disapproval of said advertising and
promotional material is not given by Franchisor to Franchisee within thirty
(30) days from the date such material is received by Franchisor, said
materials shall be deemed approved. Failure by Franchisee to conform with the
provisions herein and subsequent nonaction by Franchisor to require Franchisee
to cure or remedy this failure and default shall not be deemed a waiver of
future or additional failures and defaults of any other provision of this
Agreement. The submission of advertising to Franchisor for approval shall not
affect Franchisee's right to determine the prices at which Franchisee sells
its products or services.
B. Within the initial six (6) months of operation of the Franchised
Business, Franchisee shall expend a minimum of TWO THOUSAND Dollars
($2,000.00) as designated by Franchisor for catalog, newspaper, direct mail,
advertising or promotional items as grand opening advertising and promotion to
generate initial consumer awareness and patronage ("Grand Opening
Advertising"); provided, however, Franchisor may collect and spend a portion
of the sums designated for Grand Opening Advertising for promotions which
feature the EASYRIDERS land speed record setting motorcycle commonly known as
the "Streamliner". Franchisor shall prepare an accounting of expenditures by
Franchisor which shall be made available to Franchisee and shall refund to
Franchisee any monies which are not spent in accordance with the
above-mentioned Grand Opening Advertising procedures. Full-line Dealers who
convert to the System shall not be required to make expenditures for or
conduct any Grand Opening Advertising.
C. Franchisee shall contribute to the EASYRIDERS Advertising and
Development Fund ("Fund") an amount equal to two percent (2%) of Franchisee's
Gross Sales, as defined in Paragraph X. Franchisee's required payments to the
Fund shall be made at the same time and in the same manner as, and in addition
to, the Continuing Services and Royalty Fee provided in Paragraph X herein.
Such payment shall be made in addition to and exclusive of any sums that
Franchisee may be required to spend on local advertising and promotion.
Full-line Dealers who convert to the System shall not be required to
contribute to the Fund until the earlier of the expiration of such licensee's
current License Agreement or two (2) years from the date of execution of this
Agreement ("Waiver Period"). The fund shall be maintained and administered by
Franchisor or its designee, as follows:
1. Franchisor shall supervise all advertising programs with
sole discretion over the creative concepts, materials and media used in such
programs and the placement and allocation thereof. Advertising programs may be
primarily concentrated in Franchisor's affiliates' publications and catalog
promotion. Franchisor or its designee shall make expenditures for advertising
or promotion in Franchisee's Area of Dominant Influence. However, Franchisor
cannot and does not ensure any particular franchisee benefits directly pro
rata from the placement of advertising.
2. The funds may also be used to meet any and all costs of
maintaining, administering, directing and preparing advertising (including,
without limitation, the cost of conducting public relations activities,
conducting advertising; and producing promotional brochures, and other
marketing materials to franchisees in the System). All sums paid by Franchisee
to the Fund shall be maintained in a separate account from the other funds of
Franchisor and shall not be used to defray any of Franchisor's general
operating expenses, except for such reasonable administrative costs and
overhead, if any, as Franchisor may incur in activities reasonably related to
the administration or direction of the Fund and advertising programs
including, without limitation, conducting market research, preparing marketing
and advertising materials, and collecting and accounting for assessments for
the Fund.
3. It is anticipated that all contributions to the Fund shall
be expended for advertising and promotional purposes during Franchisor's
fiscal year within which contributions are made. If, however, excess amounts
remain in the Fund at the end of such fiscal year, all expenditures in the
following fiscal year(s) shall be made first out of any current interest or
other earnings of the Fund, next out of any accumulated earnings, and finally
from principal.
4. Although Franchisor intends the Fund to be of perpetual
duration, Franchisor maintains the right to terminate the Fund. The Fund shall
not be terminated, however, until all monies in the Fund have been expended
for advertising and promotional purposes.
5. An accounting of the operation of the Fund shall be prepared
annually and shall be made available to Franchisee upon request. Franchisor
reserves the right, at its option, to require that such annual accounting
include an audit of the operation of the Fund prepared by an independent
certified public accountant selected by Franchisor and prepared at the expense
of the Fund.
D. Franchisee shall spend a minimum of one percent (1%) of
Franchisee's Gross Sales per month on local advertising in the manner directed
by Franchisor in its sole discretion. Franchisee shall submit to Franchisor an
accounting of Franchisee's expenditures on local advertising required pursuant
to this Paragraph IX. D. in the form and manner specified in the Confidential
Operations Manual. Full-line Dealers who convert to the System shall not be
required to make such local advertising expenditures during the Waiver Period.
E. From time to time, Franchisor may designate a local or regional
advertising coverage area in which Franchisee's business and at least one (1)
other EASYRIDERS business is located for purposes of developing a cooperative
local or regional advertising or promotional program. If directed by
Franchisor, Franchisee agrees to participate in and contribute to such
cooperative advertising and promotional programs in Franchisee's Advertising
Coverage Areas in addition to such contributions and expenditures as required
pursuant to Paragraphs IX.B. and IX.C. The cost of the program shall be
allocated among locations in such area and each franchisee's share shall be in
proportion to its sales during the preceding twelve (12) month period, or
portion of said period. Said contributions to cooperative advertising
promotional programs will be credited toward the local advertising and
promotional expenditure required in Paragraph IX.D. above. At the time a
program is submitted, Franchisor shall submit a list to Franchisee of all
operating businesses within the advertising coverage area. Full-line Dealers
who convert to the System shall not be required to participate in such
cooperative advertising programs during the Waiver Period.
F. Franchisee shall maintain a business phone and advertise
continuously in the classified or Yellow Pages of the local telephone
directory under the listings "Motorcycles", "Motorcycles - Supplies, Parts
and Accessories", or such other listings as deemed appropriate by Franchisor
using mats of the type and size approved in advance by Franchisor. When more
than one (1) EASYRIDERS business serves a metropolitan area, classified
advertisements shall 1ist all EASYRIDERS businesses operating within the
distribution area of such classified directories, and Franchisee shall
contribute its equal share of the cost of such advertisement. The expenditures
for such advertising shall not be credited toward other advertising
requirements pursuant to this Agreement. Full-line Dealers who convert to the
System shall not be required to advertise in the Yellow Pages directory during
the Waiver Period.
G. Franchisor may, from time to time, develop and market special
catalogs, brochures and other promotional items which will be made available
to Franchisee at Franchisor's cost plus a reasonable mark up and Franchisee
shall maintain a representative inventory of such promotional items to meet
public demand. Franchisee shall have the right to purchase alternative
promotional items provided that such alternative goods conform to the
specifications and quality standards established by Franchisor from time to
time.
H. Franchisee shall not advertise or use in advertising or any other
form of promotion, the copyrighted materials, trademarks, service marks, logos
or commercial symbols designated by Franchisor without an appropriate c
[copyright symbol appears here] or R [registration mark symbol appears here]
registration marks or the designation TM or SM where applicable.
X. CONTINUING SERVICES AND ROYALTY FEE
A. Franchisee shall pay without offset, credit or deduction of any
nature, to Franchisor, so long as this Agreement shall be in effect, a weekly
Continuing Services and Royalty Fee equal to three percent (3%) of the Gross
Sales derived from the Franchised Business. Said Continuing Services and
Royalty Fee shall be paid weekly in the manner specified below or as otherwise
prescribed in the Confidential Operations Manual. For current full-line dealer
licensees of Franchisor or its affiliate who convert to the franchised System
within thirty (30) days of the applicable effective date, the Continuing
Services and Royalty fees are waived until the earlier of the expiration of
such licensee's current license agreement or two (2) years from the date of
execution of this Agreement.
1. On or before each Wednesday, Franchisee will submit to
Franchisor on a form approved by Franchisor, a correct statement, signed by
Franshisee, of Franchisee's Gross Sales for the preceding week ending
Saturday. Franchisee will make available to Franchisor for reasonable
inspection during normal business hours and with or without prior notice by
Franchisor, all original books and records that Franchisee may deem necessary
to ascertain Franchisee's Gross Sales
2. The term "Gross Sales", as used herein and throughout this
Agreement, shall mean and include the total of all sales of all Trademarked
Product Lines, merchandise, products or services to customers of Franchisee,
(including interim deposits) whether or not sold or performed at or from the
EASYRIDERS Franchised Business, and whether received in cash, in services in
kind, from barter and/or exchange, on credit (whether or not payment is
received therefor) or otherwise. There will be deducted from Gross Sales for
purposes of said computation (but only to the extent they have been included)
the amount of all sales tax receipts or similar tax receipts which, by law,
are chargeable to customers, if such taxes are separately stated when the
customer is charged and if such taxes are paid to the appropriate taxing
authority. There will be further deducted from Gross Sales the amount of any
documented refunds, chargebacks, credits and allowances given in good faith to
customers by Franchisee. All barter and/or exchange transactions pursuant to
which Franchisee furnishes services and/or products in exchange for goods or
services to be provided to Franchisee by a vendor, supplier or customer will,
for the purpose of determining Gross Sales, be valued at the full retail value
of the goods and/or services to provided to Franchisee.
B. All Continuing Services and Royalty Fees, advertising
contributions, amounts due for purchases by Franchisee from Franchisor or its
affiliates shall bear interest after due date at the highest applicable legal
rate for open account business credit. Franchisee acknowledges that this
Paragraph shall not constitute agreement by Franchisor or its affiliates to
accept such payments after same are due or a commitment by Franchisor to
extend credit to, or otherwise finance Franchisee's operation of, the
Franchised Business. Further, Franchisee acknowledges that its failure to pay
all amounts when due shall constitute grounds for termination of this
Agreement, as provided in Paragraph XVI. hereof, notwithstanding the
provisions of this Paragraph.
C. Notwithstanding any designation by Franchisee, Franchisor shall
have the sole discretion to apply any payments by Franchisee to any past due
indebtedness of Franchisee for Continuing Services and Royalty Fees,
advertising contributions, purchases from Franchisor or its affiliate,
interest or any other indebtedness.
XI. ACCOUNTING AND RECORDS
A. Franchisee shall establish and maintain a bookkeeping, accounting
and record keeping system conforming to the requirements prescribed by
Franchisor, including without limitation the use and retention of sales
tickets, purchase orders, invoices, payroll records, check stubs, sales tax
records and returns, cash receipts and disbursements, journals and general
ledgers. Franchisee shall preserve for a period of not less than three (3)
years, during the term of this Agreement and for not less than three (3) years
following the term of this Agreement, all accounting records and supporting
documentation relating to the Franchised Business.
B. Franchisee will supply to Franchisor on or before the fifteenth
(15th) day after the term of each calendar quarter, in the form approved by
Franchisor, a profit and loss statement and balance sheet for the last
preceding calendar quarter. Additionally, Franchisee shall, at its expense,
submit to Franchisor within ninety (90) days of the end of each fiscal year
during the term of this Agreement, a profit and loss statement for such fiscal
year and a balance sheet for the last date of such year. Such annual
statements shall be prepared and reviewed by an independent certified public
accountant, in accordance with generally accepted accounting principles
applied on a consistent basis. Franchisor reserves the right to require
Franchisee to submit audited financial statements.
C. Franchisee shall submit to Franchisor such other periodic reports,
forms and records as specified, and in the manner and at the time as specified
in the Confidential Operations Manual or otherwise in writing.
D. Franchisor or its designated agents shall have the right, during
normal business hours and with or without prior notice, to examine and copy,
at its expense, the books, records, and tax returns of Franchisee. Franchisor
shall also have the right at any time, to have an independent audit made of
the books of Franchisee. If an inspection should reveal that any payments to
Franchisor have been understated in any report to Franchisor, then Franchisee
shall immediately pay to Franchisor the amount understated upon demand, in
addition to interest from the date such amount was due until paid, at the
maximum rate permitted by law. If an inspection discloses an understatement in
any report of two percent (2%) or more, Franchisee shall, in addition,
reimburse Franchisor for any and all costs and expenses connected with the
inspection (including, without limitation, reasonable accounting and
attorneys' fees). The foregoing remedies shall be in addition to any other
remedies Franchisor may have.
E. Franchisee acknowledges that nothing contained herein constitutes
Franchisor's agreement to accept any payments after same are due or a
commitment by Franchisor to extend credit to or otherwise finance Franchisee's
operation of the Franchised Business. Further, Franchisee acknowledges that
its failure to pay all amounts when due shall constitute grounds for
termination of this Agreement, as herein provided.
XII. STANDARDS OF QUALITY AND PERFORMANCE
A. Franchisee shall comply with all requirements set forth in this
Agreement, the Confidential Operations Manual and other written policies
supplied to Franchisee by Franchisor. Mandatory specifications, standards,
operating procedures and rules prescribed from time to time by Franchisor in
the Confidential Operations Manual or otherwise communicated to Franchisee in
writing, shall constitute provisions of this Agreement as if fully set forth
herein and shall be reasonably and uniformly applied to all franchisees. All
references herein to this Agreement shall include all such mandatory
specifications, standards and operating procedures and rules. Franchisee shall
comply with the entire System including, but not limited to, the requirements
of this Paragraph XII.
B. Franchisee shall commence operation of the Franchised Business not
later than six (6) months after the execution of this Agreement or as
otherwise required in Franchisee's lease and approved by Franchisor. Prior to
such opening, Franchisee shall have compiled with all Franchisor's pre-opening
standards and specifications. If Franchisee for any reason fails to commence
operation as herein provided, such failure shall be considered a default and
Franchisor may terminate this Agreement as herein provided.
C. Franchisee shall maintain the condition and appearance of the
Franchised Premises consistent with Franchisor's standards. Franchisee shall
maintain the Franchised Premises as is from time to time required to maintain
or improve the appearance and efficient operation of the Franchised Business,
including, but not limited to, replacement of worn out or obsolete fixtures
and signs, and repair of the exterior and interior of the Franchised Business.
If at any time in Franchisor's judgment the general state of repair or the
appearance of the Franchised Premises or its equipment, fixtures, signs or
decor does not meet Franchisor's standards therefor, Franchisor shall so
notify Franchisee, specifying the action to be taken by Franchisee to correct
such deficiency. If Franchisee fails or refuses to initiate within thirty (30)
days after receipt of such notice, and thereafter continue, a bona fide
program to complete any required maintenance, Franchisor shall have the right,
in addition to all other remedies, to enter upon the Franchised Premises and
effect such maintenance on behalf of Franchisee and Franchisee shall pay the
entire costs thereof on demand.
D. Franchisee shall make no material alterations to the Franchised
Premises nor shall Franchisee make material replacements of or alterations to
the equipment, fixtures or signs of the Franchised Business without the prior
written approval by Franchisor.
E. Franchisee shall offer for sale and sell at the Franchised
Business various types of motorcycle paraphernalia such as shirts, jackets,
belts, posters, and related items and parts and related hard goods, and will
not offer for sale or sell or provide at the Franchised Business or the
premises which it occupies any other category of merchandise or products or
use such premises for any purpose other than the operation of a Franchised
Business in full compliance with this Agreement.
F. From time to time, Franchisor shall provide to Franchisee a list
of approved manufacturers, suppliers, and distributors authorized for the
Franchised Business ("Approved Suppliers List") and a 1ist of approved
inventory products, fixtures, furniture, equipment, signs, stationery,
supplies, and other items or services necessary to operate the Franchised
Business ("Approved Supplies List"). Franchisor may revise the Approved
Supplies List and Approved Suppliers List from time to time in its sole
discretion. If Franchisee proposes to offer for sale or use at the Franchised
Business any brand of product, or other material or supply which is not on the
Approved Supplies List or to purchase any product from a supplier that is not
on the Approved Suppliers List, Franchisee shall first notify Franchisor and
shall upon request by Franchisor submit samples and such other information as
Franchisor requires for examination and/or testing or to otherwise determine
whether such product, material or supply, or such proposed supplier meets its
specifications and quality standards. A charge not to exceed the reasonable
cost of the inspection and evaluation and the actual cost of the test may be
imposed by Franchisor and shall be paid by Franchisee or the supplier.
Franchisor reserves the right to re-inspect the businesses and products of any
supplier of an approved item and to revoke its approval of any item or
supplier which fails to continue to meet any of Franchisor's criteria.
G. All inventory, products and materials, and other items and
supplies used in the operation of the Franchised Business which are not
specifically required to be purchased in accordance with Franchisor's Approved
Supplies List and Approved Suppliers List shall conform to the specifications
and quality standards established by Franchisor from time to time.
H. Franchisor's affiliate has developed a proprietary line of
motorcycle-related goods bearing the Marks. Franchisee acknowledges that
Franchisee shall carry an adequate supply and maintain a representative
inventory of such Trademarked Product Lines as required by the Confidential
Operations Manual. Franchisee shall maintain, carry and promote such
Trademarked Product Lines for use in servicing the general public in order to
meet customer demand as designated by Franchisor. Franchisee shall, throughout
the term of this Agreement, purchase Trademarked Product Lines from
Franchisor, Franchisor's affiliate or other designated sources which
manufacture the Trademarked Product Lines to Franchisor's precise
specifications and carry an adequate inventory of the Trademarked Product
Lines.
I. Franchisor may, in the future, develop and custom design a
software package for conducting accounting, inventory control, point-of-sale
functions and related activities ("Proprietary Software Package"). If
developed, the software shall be proprietary to Franchisor and confidential
information of Franchisor. Franchisor may not be able to practically alter the
Proprietary Software Package to accommodate each and every franchisee of the
System; therefore, Franchisee shall utilize the Proprietary Software Package
in the operation of the Franchised Business and comply with all specifications
and standards prescribed by Franchisor regarding the Proprietary Software
Package, as will be provided from time to time in the Confidential Operations
Manual. This unique software will be in an ongoing development and testing
stage and upgrades may be implemented into the System at Franchisor's
discretion. If developed, Franchisor or its designee shall provide ongoing
service and support to Franchisee regarding the Proprietary Software Package,
and Franchisor shall lease such software to Franchisee at the then-current
rates published by Franchisor.
J. Franchisee shall secure and maintain in force all required
licenses, permits and certificates relating to the operation of the Franchised
Business and shall operate the Franchised Business in full compliance with all
applicable laws, ordinances and regulations, including without limitation,
those relating to occupational hazards and health, consumer protection, trade
regulation, equal employment opportunity, prevention and elimination of
unlawful discrimination and harassment, worker's compensation, unemployment
insurance, withholding and payment of Federal and State income taxes, social
security taxes and sales, use and property taxes. Franchisee shall refrain
from any merchandising, advertising or promotional practice which is
unethical, which infringes upon the trade marks or copyrights of others which
constitutes unfair competition, or which otherwise is or may be injurious to
the business of Franchisor and/or other franchised businesses or to the
goodwill associated with the Marks.
K. Franchises shall in the operation of the Franchised Business use
only displays, labels, forms and other products and documentation imprinted
with the Marks and colors as prescribed from time to time by Franchisor.
L. Prior to commencement of operation of the Franchised Business,
Franchisee shall adequately supply the Franchised Business with a
representative inventory as prescribed by Franchisor of motorcycle
paraphernalia and hard goods and related items of the type, quantity and
quality as specified by Franchisor. Franchisee shall maintain levels of
inventory that will permit operation of the Franchised Business at maximum
capacity.
M. The Franchised Business shall at all times be under the direct,
on-premises supervision of Franchisee or a trained and competent employee
acting as full-time manager. Franchisee shall keep Franchisor informed at all
times of the identity of any employee(s) acting as manager(s) of the
Franchised Business. Franchisee shall, at all limes, faithfully, honestly and
diligently perform its obligations hereunder and shall not engage in any
business or other activities that will conflict with its obligations
hereunder.
N. Franchisee shall not install or maintain the Franchised Premises
any telephone booths, newspaper racks, video games, juke boxes, gum machines,
games, rides, vending machines or other similar devices without the written
approval of Franchisor.
O. Franchisee shall participate actively in a EASYRIDERS Regional
Advisory Franchisee Council ("Council") and participate in all Council
programs approved by Franchisor for Franchisee's particular Council. The
purposes of the Council(s) include, but are not limited to, exchanging ideas
and problem solving methods, advising Franchisor on expenditures for regional
advertising, providing backup support and staffing for political influence,
and coordinating System franchisee efforts. Franchisee shall pay all Council
assessments levied by the Council, and Franchisor has the right to enforce
this obligation. Assessments and expenditures may very from time to time and
due to variations in Council participation and costs as determined by a
particular Council and as approved by Franchisor. Although Franchisee shall
pay such Council assessments, such assessments shall in no way diminish
Franchisee's rights and the benefit of the bargain under this Agreement. Such
Council(s) may be formed by Franchisor at such time that more than one (1)
franchisee conducts a EASYRIDERS Franchised Business in any given region, the
boundaries of such region to be determined in the sole and unfettered
discretion of Franchisor.
P. Franchisee shall notify Franchisor in writing within five (5) days
of the commencement of any action, suit, or proceeding, and of the issuance of
any order, writ, injunction, award, or decree of any court, agency, or other
governmental instrumentality, which may adversely affect the operation or
financial condition of the Franchised Business.
XIII. FRANCHISOR'S OPERATIONS ASSISTANCE
A. Franchisor may from time to time advise or offer guidance to
Franchisee relative to prices for the merchandise and services, if any,
offered for sale by the Franchised Business that in Franchisor's judgment
constitute good business practice. Such guidance will be based on the
experience of Franchisor and is franchisees in operating franchised businesses
and an analysis of the costs of such services, activities, merchandise,
supplies, coordinating accessory items and products and prices charged for
competitive inventory and products. Franchisee shall not be obligated to
accept any such advice or guidance and shall have the sole right to determine
the prices to be charged from time to lime by the Franchised Business and no
such advice or guidance shall be deemed or construed to impose upon Franchisee
any obligation to charge any fixed, minimum or maximum prices for any product
or service offered for sale by the Franchised Business.
B. Upon commencement and during operation of the Franchised Business,
and during the term of this Agreement and any renewal period thereof,
Franchisor shall do the following:
1. Provide to Franchisee a comprehensive list of established
sources of motorcycle-related merchandise and hard goods and related
merchandise, products and services associated with the retail motorcycle
business and other merchandise and products, equipment, fixtures and supplies
necessary for the operation of the Franchised Business and provide
specifications for such products. However, Franchisor makes no representation
or warranty that any particular approved supplier will be willing or able to
sell to all franchisees;
2. Administer the Fund;
3. As Franchisor deems necessary, negotiate supply contracts and
pass on purchasing economics to maximize cost savings;
4. As Franchisor deems necessary, attempt to coordinate
equipment, product and supplies distribution for local, regional and national
suppliers;
5. Regulate quality standards and products in conformance with
the System specifications throughout the network of franchised business;
6. Provide use of a mailing list of "EASYRIDERS" subscribers in
the Designated Area;
7. Provide Franchisee participation in a customer referral 800
number;
8. Conduct product testing;
9. Make available the EASYRIDERS merchandising and display
program;
10. Make available mail order catalogs from which to provide
products not currently in stock; and
11. Offer a centralized buying program for EASYRIDERS products.
C. Franchisor shall advise Franchisee of problems arising out of the
operation of the Franchised Business as disclosed by reports submitted to
Franchisor by Franchisee or by inspections conducted by Franchisor of the
Franchised Business. Franchisor may furnish Franchisee with such assistance in
connection with the operation of the Franchised Business as is reasonably
determined to be necessary by Franchisor from time to time. Operations
assistance may consist of advice and guidance with respect to:
1. Proper utilization of procedures developed for a EASYRIDERS
business with respect to products and related business services as approved by
Franchisor;
2. Additional equipment, merchandise, products and services
authorized for EASYRIDERS businesses;
3. The institution of proper administrative, bookkeeping,
accounting, inventory control, supervisory and general operating procedures
for the effective operation of a EASYRIDERS business;
4. Ongoing research and development of new improvements, new
products and services and other modifications to the System;
5. Advertising, displays and other promotional programs; and
6. Refresher training courses.
D. Franchisor or Franchisor's representative shall make periodic
visits to the Franchised Business for the purposes of consultation,
assistance, and guidance of Franchisee in all aspects of the operation and
management of the Franchised Business. Franchisor, and Franchisor's
representatives, who attend at the Franchised Business will prepare, for the
benefit of both Franchisor and Franchisee, written reports in respect to such
visits outlining any suggested changes or improvements in the operations of
the Franchised Business and detailing any defaults in such operations which
become evident as a result of any such visit, and a copy of each such written
report shall be provided to both Franchisor and Franchisee. Franchisor shall
advise Franchisee of problems arising out of the operation of the Franchised
Business as disclosed by reports submitted to Franchisor by Franchisee or by
inspections conducted by Franchisor of the Franchised Business.
E. All of the specifications, Approved Suppliers Lists, Approved
Supplies Lists, training and operations manuals to be provided by Franchisor
to Franchisee pursuant to this Agreement shall be delivered upon completion of
training.
XIV. INSURANCE
A. Franchisee shall procure at its expense and maintain in full force
and effect during the term of this Agreement, an insurance policy or policies
protecting Franchisee and Franchisor, and their officers, directors, partners
and employees, from claims, demands, defense costs, attorneys fees, expenses,
liability, loss and damage, including personal injury, death, or property
damage or expense of whatsoever kind or nature arising out of or occurring
upon or in connection with the Franchised Business, as Franchisor may
reasonably require for its own and Franchisee's protection. Franchisor shall
be named an additional insured in such policy or policies. Such insurance is
limited to its "conditions, provisions and exclusions" and does not
necessarily include any expense whatsoever arising or occurring upon or in
connection with the Franchised Business.
B. Such policy or policies shall be written by an insurance company
licensed in the state in which Franchisee operates and having at least an "A"
Rating Classification as indicated in Best's Key Rating Guide in accordance
with standards and specifications set forth in the Confidential Operations
Manual or otherwise in writing, and shall include, at a minimum (except as
additional coverages and higher policy limits may reasonably be specified for
all franchisees from time to time by Franchisor in the Confidential Operations
Manual or otherwise in writing) the following:
1. All risks coverage insurance on the EASYRIDERS business and
all fixtures, equipment, supplies and inventory and other property used in the
operation of the EASYRIDERS business (which coverage may include flood and/or
earthquake coverage where applicable, and theft insurance) for full repair and
replacement value of the machinery, equipment, improvements and betterments,
without any applicable co-insurance clause except that an appropriate
deductible clause shall be permitted.
2. Worker's compensation and employer's liability insurance as
well as such other insurance as may be required by statute or rule of the
state in which the Franchised Business is located and operated.
3. Comprehensive general liability insurance and product
liability insurance including a per premises aggregate with the following
coverages: broad form contractual liability, personal injury,
products/completed operation; and fire legal; insuring Franchisor and
Franchisee against all claims, suits, obligations, liabilities and damages,
including attorneys' fees, based upon or arising out of actual or alleged
personal injuries or property damage resulting from, or occurring in the
course of, or on or about or otherwise relating to the Franchised Business
including General Aggregate coverage in the following limits:
Recommended Coverage Minimum Limits of Coverage
- -------------------- --------------------------
General Aggregate............................. $1,000,000.00
Products/Completed Operations Aggregate....... $1,000,000.00
Personal and Advertising Injury............... $1,000,000.00
Each Occurrence............................... $1,000,000.00
Fire Damage (any one fire)....................... $50,000.00
Medical Expense (any one person).................. $5,000.00
4. Business interruption insurance for actual losses sustained.
5. Automobile liability insurance, including owned, hired and
non-owned vehicle coverage, with a combined single limit of at least ONE
MILLION DOLLARS ($1,000,000.00)
6. Such additional insurance and types of coverage as may be
required by the terms of any lease for the Franchised Business, or as may be
required from time to time by Franchisor.
7. Franchisees which service motorcycles at the Franchised
Business shall obtain and maintain (i) legal liability insurance with minimum
limits of TEN THOUSAND Dollars ($10,000.00) per vehicle and ONE HUNDRED
THOUSAND Dollars ($100,000.00) per aggregate loss, and (ii) liability
insurance with a minimum coverage limit of ONE MILLION Dollars
($1,000,000.00).
C. The insurance afforded by the policy or policies respecting
liability shall not be limited in any way by reason of any insurance which may
be maintained by Franchisor. Within four (4) months of the signing of this
Agreement, but in no event later than the date on which Franchisee acquires an
interest in the real property on which it will develop and operate the
Franchised Business, a Certificate of Insurance showing compliance with the
foregoing requirements shall be furnished by Franchisee to Franchisor for
approval. Such certificate shall state that said policy or policies will not
be canceled or altered without at least thirty (30) days prior written notice
to Franchisor and shall reflect proof of payment of premiums. Maintenance of
such insurance and the performance by Franchisee of the obligations under this
Paragraph shall not relieve Franchisee of liability under the indemnity
provision set forth in this Agreement. Minimum limits as required above may
be modified from time to time, as conditions require, by written notice to
Franchisee.
D. Should Franchisee, for any reason, not procure and maintain such
insurance coverage as required by this Agreement, Franchisor shall have the
right and authority (without, however, any obligation to do so) immediately to
procure such insurance coverage and to charge to Franchisee the cost of same
together with a reasonable fee for expenses incurred by Franchisor in
connection with such procurement, shall be payable by Franchisee immediately
upon notice.
XV. COVENANTS
A. Unless otherwise specified, the term "Franchisee" as used in this
Paragraph XV. shall include, collectively and individually, all officers,
directors, and holders of a beneficial interest of five percent (5%) or more
of the securities of Franchisee, and of any corporation directly or indirectly
controlling Franchisee, if Franchisee is a corporation; and the general
partners and any limited partner (including any corporation and the officers,
directors, and holders of a beneficial interest of five percent (5%) or more
of securities, of a corporation which controls, directly or indirectly, any
general or limited partner) if Franchisee is a partnership.
B. Franchisee covenants that during the term of this Agreement and
any renewals thereof, except as otherwise approved in writing by Franchisor,
Franchisee (if Franchisee is an individual), a shareholder of a beneficial
interest of ten percent (10%) or more of the securities of Franchisee (if
Franchisee is a corporation), a general partner of Franchisee (if Franchisee
is a partnership), or Franchisee's full-time manager (approved by Franchisor)
shall devote full time, energy, and best efforts, to the management and
operation of the Franchised Business.
C. Franchisee covenants that during the term of this Agreement and
any renewal thereof, unless an exception is specifically approved by
Franchisor in writing, Franchisee shall not, either directly or indirectly,
for himself, for himself, or through, on behalf of, or in conjunction with any
person, persons, partnership, or corporation:
1. Divert or attempt to divert any business or customer of the
Franchised Business to any competitor, by direct or indirect inducement or
otherwise, or do or perform, directly or indirectly, any other act injurious
or prejudicial to the goodwill associated with the Marks and the System.
2. Employ or seek to employ any person who is at that time
employed by Franchisor or by any other Franchisee of Franchisor, or otherwise
directly or indirectly induce or seek to induce such person to leave his or
her employment thereat.
3. Own, maintain, engage in, or have any interest in any
business (including any business operated by Franchisee prior to entry into
this Agreement) specializing, in whole or in part, in the wholesale or retail
sale or distribution of motorcycle-related paraphernalia and related hard
goods and related merchandise and products, or offering, selling or providing
merchandise or services the same as or similar to that offered, sold or
provided through the System.
D. Franchisee specifically acknowledges that, pursuant to this
Agreement, Franchisee will receive valuable training and confidential
information, including, without limitation, information regarding the
promotional, operational, sales, and marketing methods and techniques of
Franchisor and the System. Accordingly, Franchisee covenants that, except as
otherwise approved in writing by Franchisor, Franchisee shall not, for a
period of two (2) years after the expiration or termination of this Agreement,
regardless of the cause of the termination, either directly or indirectly, for
himself, or through, on behalf of, or in conjunction with any person, persons,
partnership, or corporation, own, maintain, engage in, or have any interest in
any business specializing, in whole or in part, in the wholesale or retail
sale or distribution of motorcycle-related paraphernalia and related hard
goods, or offering or providing any related services or selling any
merchandise or product the same as or similar to those provided or sold
through the EASYRIDERS System:
1. Within the MSA in which the Franchised Business is located; or
2. Within a radius of ten (10) miles of the Franchised Business;
or
3. Within a radius of ten (10) miles of the location of any other
business using the System, whether franchised or owned by Franchisor.
E. The parties agree that each of the foregoing covenants shall be
construed as independent of any other covenant or provision of this Agreement.
The parties have reviewed and acknowledged that the foregoing covenants are
reasonable including but not limited to geographical and time limitations. If
all or any portion of a covenant in this Paragraph XV. is held unreasonable or
unenforceable by a court or agency having valid jurisdiction in an unappealed
final decision to which Franchisor is a party, Franchisee shall be bound by
any lesser covenant subsumed within the terms of such covenant that imposes
the maximum duty permitted by law, as if the resulting covenant were stated in
and made a part of this Paragraph XV.
F. Franchisee understands and acknowledges that Franchisor shall have
the right, in its sole discretion, to reduce the scope of any covenant set
forth in Paragraphs XV.C. and XV.D. in this Agreement, or any portion thereof,
without Franchisee's consent, effective immediately upon receipt by Franchisee
of written notice thereof, without Franchisee's consent, effective immediately
upon receipt by Franchisee of written notice thereof, and Franchisee shall
comply forthwith with any covenant as so modified, which shall be fully
enforceable notwithstanding the provisions of Paragraph XXVI.
G. Franchisor shall have the right to require all of Franchisee's
personnel performing managerial or supervisory functions and all personnel
receiving special training from Franchisor to execute similar covenants in a
form satisfactory to Franchisor.
XVI. DEFAULT AND TERMINATION
A. If Franchisee is in substantial compliance with this Agreement and
Franchisor materially breaches this Agreement and fails to cure such breach
within a reasonable time after written notice thereof is delivered to
Franchisor, Franchisee may terminate this Agreement. Such termination shall
be effective thirty (30) days after delivery to Franchisor of notice that such
breach has not been cured and Franchisee elects to terminate this Agreement.
A termination of this Agreement by Franchisee for any reason other than breach
of this Agreement by Franchisor and Franchisor's failure to cure such breach
within a reasonable time after receipt of written notice thereof shall be
deemed a termination by Franchisee without cause.
B. This Agreement shall terminate automatically upon delivery of
notice of termination to Franchisee, if Franchisee or its owner(s),
officer(s), or manager(s):
1. Fails to satisfactorily complete the training program as
provided in Paragraph IV of this Agreement;
2. Has made any material misrepresentation or omission in its
application for the franchise;
3. Is convicted of or pleads no contest to a felony or other
crime or offense that is likely to adversely affect the reputation of
Franchisee or the EASYRIDERS Franchised Business;
4. Makes any unauthorized use, disclosure or duplication of any
portion of the Confidential Operations Manual or duplicates or discloses or
makes any unauthorized use of any trade secret or confidential information
provided to Franchisee by Franchisor;
5. Abandons or fails or refuses to actively operate the
Franchised Business for two (2) business days in any twelve (12) month period,
unless the Franchised Business has been closed for a purpose approved by
Franchisor, or fails to relocate to an approved premises within an approved
period of time following expiration or termination of the lease for the
premises of the Franchised Business;
6. Surrenders or transfers control of the operation of the
EASYRIDERS Franchised Business, makes an unauthorized direct or indirect
assignment of the franchise or an ownership interest in Franchisee or fails or
refuses to assign the franchise or the interest in Franchisee of a deceased or
disabled controlling owner thereof as herein required;
7. Submits to Franchisor on three (3) or more separate occasions
at any time during the term of the franchise any reports or other data,
information or supporting records which understate by more than three percent
(3%) the Continuing Services and Royalty Fees owed to Franchisor for any
period of, or periods aggregating, three (3) or more weeks, and Franchisee is
unable to demonstrate that such understatements resulted from inadvertent
error;
8. If Franchisee shall become insolvent or make a general
assignment for the benefit of creditors, or if a petition in bankruptcy is
filed by Franchisee or such a petition is filed against and consented to by
Franchisee, or if Franchisee is adjudicated a bankrupt, or if a bill in equity
or other proceeding for the appointment of a receiver of Franchisee or other
custodian is filed by Franchisee, or if a receiver or other custodian
(permanent or temporary) of Franchisee's assets or property, or any part
thereof, is appointed by any court of competent jurisdiction, or if
proceedings for a composition with creditors under any state or federal law
should be instituted by or against Franchisee, or if a final judgement remains
unsatisfied or of record for thirty (30) days or longer (unless supersedeas
bond is filed), or if execution is levied against Franchisee's Franchised
Business or property, or suit to foreclose any lien or mortgage against the
premises or equipment is instituted against Franchisee and not dismissed
within thirty (30) days, or if the real or personal property of Franchisee's
Franchised Business shall be sold after levy thereupon by any sheriff,
marshall, or constable;
9. Materially misuses or makes an unauthorized use of the Marks
or commits any act which can reasonably be expected to materially impair the
goodwill associated with the Marks;
10. Materially misuses or makes an unauthorized use of the
Proprietary Software Package (if developed); or
11. Fails on two (2) or more separate occasions within any
period of twelve (12) consecutive months to submit when due reports or other
information or supporting records, to pay when due the Continuing Services and
Royalty Fees, advertising contributions, amounts due for purchases from
Franchisor or its affiliates or other payments due to Franchisor or its
affiliates, or otherwise fails to comply with this Agreement, whether or not
such failures to comply are corrected after notice thereof is delivered to
Franchisee.
C. This Agreement shall terminate without further action or notice to
Franchisee if Franchisee's owner:
1. Fails or refuses to make payments of any amounts due
Franchisor for Continuing Services and Royalty Fees, advertising
contributions, purchases from Franchisor or its affiliates or any other
amounts due to Franchisor or its affiliates, and does not correct such failure
or refusal within ten (10) days after written notice of such failure is
delivered to Franchisee;
2. Fails or refuses to comply with any other provision of this
Agreement, or any other agreement to which Franchisor and Franchisee are
parties or any mandatory specification, standard or operating procedure
prescribed in the Confidential Operations Manual or otherwise in writing, and
does not correct such failure within thirty (30) days (or provide proof
acceptable to Franchisor that it has made all reasonable efforts to correct
such failure and will continue to make all reasonable efforts to cure until a
cure is effected, if such failure cannot reasonably be corrected within thirty
(30) days) after written notice of such failure to comply is delivered to
Franchisee.
D. To the extent that the provisions of this Agreement provide for
periods of notice less than those required by applicable law, or provide for
termination, cancellation, non-renewal or the like other than in accordance
with applicable law, such provisions shall, to the extent such are not in
accordance with applicable law, not be effective, and Franchisor shall comply
with applicable law in connection with each of these matters.
E. In addition to Franchisor's right to terminate this Agreement, and
not in lieu of such right or any other rights against Franchisee, Franchisor,
in the event that Franchisee shall not have cured a default under this
Agreement within the twenty (20) days after receipt of the written "Notice to
Cure" from Franchisor, may, at its option, enter upon the premises of the
EASYRIDERS Franchised Business and exercise complete authority with respect to
the operation of said business until such time as Franchisor determines that
the default of Franchisee has been cured and that there is compliance with the
requirements of this Agreement. Franchisee acknowledges that a designated
representative of Franchisor may take over, control, and operate said
business, and that Franchisee shall pay Franchisor a service fee of not less
than FIVE HUNDRED Dollars ($500.00) per day plus all travel expenses, room and
board and other expenses reasonably incurred by such representative so long as
it shall be required by the representative to enforce compliance herewith.
XVII. RIGHTS AND DUTIES OF PARTIES UPON EXPIRATION OR TERMINATION
Upon termination or expiration, this Agreement and all rights granted
hereunder to Franchisee shall forthwith terminate, and:
A. Franchisee shall immediately cease to operate the Franchised
Business under this Agreement, and shall not thereafter, directly or
indirectly, represent to the public or hold itself out as a present or former
Franchisee of Franchisor.
B. Franchisee shall assign to Franchisor upon its demand Franchisee's
interest in any lease then in effect for the Franchised Business premises, and
Franchisee shall furnish Franchisor with evidence satisfactory to Franchisor
of compliance with this obligation within thirty (30) days after termination
or expiration of this Agreement.
C. Franchisee shall immediately and permanently cease to use, by
advertising or in any other manner whatsoever, any confidential methods, the
Proprietary Software Package (if developed), procedures and techniques
associated with the System; the Marks; and any distinctive form, slogans,
signs, symbols, logos or devices associated with the System. In particular,
Franchisee shall cease to use, without limitation, all signs, advertising
materials, stationery, forms, and any other articles which display the Marks
associated with the System.
D. Franchisee shall take such action as may be necessary to cancel or
assign to Franchisor or Franchisor's designee, at Franchisor's option, any
assumed name or equivalent registration which contains the name "EASYRIDERS"
or any Marks associated with the System, and Franchisee shall furnish
Franchisor with evidence satisfactory to Franchisor of compliance with this
obligation within thirty (30) days after termination or expiration of this
Agreement.
E. Franchisee shall, in the event it continues to operate or
subsequently begins to operate any other business, not use any reproduction,
counterfeit, copy or colorable imitation of the Marks either in connection
with such other business or the promotion thereof, which is likely to cause
confusion, mistake or deception, or which is likely to dilute Franchisor's
exclusive rights in and to the Marks. Franchisee shall not utilize any
designation of origin or description or representation which falsely suggests
or represents an association or connection with Franchisor so as to constitute
unfair competition. Franchisee shall make such modifications or alterations
to the Franchised Business (including, without limitation, the changing of the
telephone number) immediately upon termination or expiration of this Agreement
as may be necessary to prevent any association between Franchisor or the
System and any business thereon subsequently operated by Franchisee or others,
and shall make such specific additional changes thereto as Franchisor may
reasonably request for that purpose, including, without limitation, removal of
all distinctive physical and structural features identify the System. In the
event Franchisee fails or refuses to comply with the requirements of this
Paragraph XVII., Franchisor shall have the right to enter upon the premises
where Franchisee's Franchised Business was conducted, without being guilty of
trespass or any other tort, for the purpose of making or causing to be make
such changes as may be required at the expense of Franchisee, which expense
Franchisee shall pay upon demand.
F. Franchisee shall promptly pay all sums owing to Franchisor and its
affiliates. In the event of termination for any default of Franchisee, such
sums shall include all damages, costs, and expenses, including reasonable
attorneys' fees, incurred by Franchisor as a result of the default.
G. Franchisee shall pay to Franchisor all damages, costs and
expenses, including reasonable attorneys' fees, incurred by Franchisor
subsequent to the termination or expiration of the franchise herein granted in
obtaining injunctive or other relief for the enforcement of any provisions of
this Paragraph XVII or Paragraph XV.
H. Franchisee shall immediately turn over to Franchisor all manuals,
including the Confidential Operations Manual, customer lists, records, files,
instructions, brochures, agreements, disclosure statements, and any and all
other materials provided by Franchisor to Franchisee relating to the operation
of the Franchised Business (all of which are acknowledged to be Franchisor's
property).
I. Franchisor shall acquire right, title and interest to any sign or
sign faces bearing the Marks. Franchisee hereby acknowledges Franchisor's
right to access the Franchised Premises should Franchisor elect to take
possession of any said sign or sign faces bearing the Marks.
J. Franchisor shall have the right (but not the duty), to be
exercised by notice of intent to do so within thirty (30) days after
termination or expiration, to purchase for cash, except as provided in
Paragraph XVII.I, any or all equipment, supplies, and other inventory,
advertising materials, and all items bearing the Marks, at Franchisee's cost
or fair market value, whichever is less. If the parties cannot agree on fair
market value within a reasonable time, the determination of fair market value
shall be submitted to arbitration in accordance with Paragraph XXIX. If
Franchisor elects to exercise any option to purchase herein provided, it shall
have the right to set off all amounts due from Franchisee under this Agreement
against any payment therefor.
K. Franchisee hereby acknowledges that all telephone numbers used in
the operation of the franchised businesses constitute assets of the Franchised
Business; and upon termination of expiration of this Agreement Franchisee
shall assign to Franchisor or its designee, all Franchisee's right, title, and
interest in and to Franchisee's telephone numbers and shall notify the
telephone company and all listing agencies of the termination or expiration of
Franchisee's right to use any telephone number and any regular, classified or
other telephone directory listing associated with the Marks and to authorize a
transfer of same to or at the direction of Franchisor.
L. Franchisee shall comply with the covenants contained in Paragraph
XV. of this Agreement.
M. All obligations of Franchisor and Franchisee which expressly or by
their nature survive the expiration or termination of this Agreement shall
continue in full force and effect subsequent to and notwithstanding its
expiration or termination and until they are satisfied or by their nature
expire.
XVIII. TRANSFERABILITY OF INTEREST
A. This Agreement and all rights hereunder can be assigned and
transferred by Franchisor and, if so, shall be binding upon and inure to the
benefit of Franchisor's successors and assigns; provided, however, that with
respect to any assignment resulting in the subsequent performance by the
assignee of the functions of Franchisor, the assignee shall;
1. At the time of such assignment, be financially responsible
and economically capable of performing the obligations of Franchisor
hereunder; and
2. Expressly assume and agree to perform such obligations.
Specifically, and without limitation to the foregoing, Franchisee expressly
agrees that Franchisor may sell its assets, Marks or System outright to a
third party; may make a public offering of securities; may engage in a private
placement of some or all of its securities; may merge, acquire other
corporations or entities, or be acquired by another corporation or other
entity; may undertake a refinancing, recapitalization, leveraged buy out or
other economic or financial restructuring; and, with regard to any or all of
the above sales, assignments and dispositions, Franchisee expressly and
specifically waives any claims, demands or damages arising from or related to
the loss of said Marks (or any variation thereof) and/or the loss of
association with or identification of EASYRIDERS FRANCHISING, INC., as
Franchisor hereunder. Nothing contained in this Agreement shall require
Franchisor to remain in the business in the event that Franchisor exercises
its right hereunder to assign its rights in this Agreement.
B. This Agreement and all rights hereunder may be assigned and
transferred by Franchisee and, if so, shall be binding upon and inure to the
benefit of Franchisee's successors and assigns, subject to the following
conditions and requirements, and Franchisor's right of first refusal as set
forth herein:
1. No Franchisee, partner of Franchisee, (if Franchisee is a
partnership), or shareholder of Franchisee (if Franchisee is a corporation),
without Franchisor's prior written consent, by operation of law or otherwise
shall sell, assign, transfer, convey, give away, or encumber to any person,
firm, or corporation, all or any part of its interest in this Agreement or its
interest in the franchise granted hereby or its interest in any
proprietorship, partnership or corporation which owns any interest in the
franchise, nor offer, permit, or suffer the same to be sold, assigned,
transferred, conveyed, given away, or encumbered in any way to any person,
firm, or corporation. Franchisee may not, without the prior written consent
of Franchisor, fractionalize any of the rights of Franchisee granted pursuant
to this Agreement. Any purported assignment of any of Franchisee's rights
herein not having the aforesaid consent shall be null and void and shall
constitute a material default hereunder.
2. Franchisor shall not unreasonably withhold its consent to any
transfer referenced in Paragraphs XVII.B.1 of this Agreement when requested;
provided, however, that the following conditions and requirements shall first
be met to the full satisfaction of Franchisor.
a. If Franchisee is an individual or partnership and
desires to assign and transfer its rights to a corporation:
(1) Said transferee corporation shall be newly
organized and its charter shall provide that its activities are confined
exclusively to acting as a EASYRIDERS Franchisee as franchised under this
Agreement;
(2) Franchisee shall be and shall remain the owner of
the majority stock interest of the transferee corporation;
(3) The individual Franchisee (or, if Franchisee is a
partnership, one of the partners) shall be and shall remain the principal
executive officer of the corporation;
(4) The transferee corporation shall enter into a
written assignment (in a form satisfactory to Franchisor), in which the
transferee corporation assumes all of Franchisee's obligations hereunder;
(5) All shareholders of the transferee corporation
shall enter into a written agreement, in a form satisfactory to Franchisor,
jointly and severally guaranteeing the full payment and performance of the
transferee corporation's obligations to Franchisor under this Agreement;
(6) Each stock certificate of the transferee
corporation shall have conspicuously endorsed upon it a statement that it is
held subject to, and that further assignment or transfer thereof is subject
to, all restrictions imposed upon assignments by this Agreement;
(7) No new shares of common or preferred voting stock
in the transferee corporation shall be issued to any person, partnership,
trust, foundation, or corporation without obtaining Franchisor's prior written
consent and then only upon disclosure of the terms and conditions contained
herein being made to the prospective new holders of the stock;
(8) All accrued money obligations of Franchisee to
Franchisee's suppliers, Franchisor, its affiliates or assignees, shall be
satisfied prior to assignment or transfer.
b. If the transfer, other than such transfer as is
authorized under Paragraph XVIII.B.2.a. of this Agreement, if consummated
alone or together with other related previous, simultaneous, or proposed
transfers, would have the effect of transferring control of the franchise
licensed herein to someone other than an original signatory of this Agreement;
(1) The transferee(s) shall be of good moral character
and reputation and shall have a good credit rating and competent business
qualifications reasonably acceptable to Franchisor. Franchisee shall provide
Franchisor with such information as Franchisor may require to make such
determination concerning each such proposed transferee(s).
(2) The transferee(s) or such other individual(s) as
shall be the actual manager of the franchise shall have successfully completed
and passed the training course then in effect for franchisees, or otherwise
demonstrated to Franchisor's satisfaction, sufficient ability to operate the
unit being transferred.
(3) The transferee(s), including all shareholders,
officers, directors and partners of the transferee(s), shall jointly and
severally execute any or all of the following, at Franchisor's sole discretion
and as Franchisor shall direct:
aa. A Franchise Agreement and other standard
ancillary agreements with Franchisor on the current standard forms being used
by Franchisor, except that an additional franchise fee shall not be charged;
and/or
bb. A written assignment from Franchisee in a
form satisfactory to Franchisor, wherein transferee shall assume all of
Franchisee's obligations hereunder.
(4) Approval by Franchisor of any transfer by
Franchisee of the franchise herein granted or any of Franchisee's rights under
this Agreement shall in no way be deemed a release by Franchisor of
Franchisee's obligations pursuant to this Agreement . Consent by Franchisor to
a transfer of the franchise shall not constitute or be interpreted as consent
for any future transfer thereof.
(5) The term of said agreements required pursuant to
Paragraph XVII.B.2.(3) shall be for the unexpired term of this Agreement and
for any extensions or renewals as provided herein.
(6) If transferee is a corporation:
aa. Each stock certificate of the transferee
corporation shall have conspicuously endorsed upon it a statement that it is
held subject to, and that further assignment or transfer thereof is subject
to, all restrictions imposed upon assignments by this Agreement; and
bb. No new shares of common or preferred voting
stock in the transferee corporation shall be issued to any person,
partnership, trust, foundation, or corporation without obtaining Franchisor's
prior written consent, and then only upon disclosure of the terms and
conditions contained herein being made to the prospective new holders of the
stock; and
cc. All shareholders of the transferee
corporation shall enter into a written agreement, in a form satisfactory to
Franchisor, jointly and severally guaranteeing full payment and the
performance of the transferee corporation of all obligations under this
Agreement.
(7) All accrued money obligations of Franchisee to
Franchisee's suppliers, Franchisor, its affiliates or assignees, shall be
satisfied prior to assignment or transfer, and Franchisee shall not be in
default under the terms of this Agreement.
(8) Franchisee, prior to the transfer, shall execute a
general release, in a form prescribed by Franchisor, of any and all existing
claims against Franchisor and its affiliates, if any, and their respective
officers, directors, agents and employees, except such claims as are not
permitted to be waived under applicable law.
3. Franchisee shall have fully paid and satisfied all of
Franchisee's obligations to Franchisor, and the transferee or Franchisee shall
have fully paid to Franchisor a non-refundable transfer fee equal to one-half
(1/2) the then-current initial franchise fee charged by Franchisor, for start-
up franchises, at the time of the transfer, for the training, supervision,
administrative costs, overhead, counsel fees, accounting and other expenses
incurred by Franchisor in connection with the transfer. This transfer fee
does not apply to an assignment of interest to a corporation under Paragraph
XVIII.B.2.a of this Agreement.
4. No sale, assignment, transfer, conveyance, encumbrance, or
gift of any interest in this Agreement or in the franchise granted thereby,
shall relieve Franchisee and the shareholders or partners participating in any
transfer, of the obligations of the covenants contained in Paragraph XV.,
except where Franchisor shall expressly authorize in writing.
C. Franchisee must give Franchisor ninety (90) days written notice
prior to any sale or assignment by Franchisee. The purpose of this Paragraph
is to enable Franchisor to comply with any applicable state or federal
franchise disclosure laws.
D. Franchisee must promptly ("promptly" herein defined as within
fifteen (15) days of receipt of an offer to buy) give Franchisor written
notice whenever Franchisee has received an offer to buy Franchisee's
franchise. Franchisee must also give Franchisor written notice simultaneously
with any offer to sell the franchise made by, for, or on behalf of Franchisee.
The purpose of this Paragraph is to enable Franchisor to comply with any
applicable state or federal franchise disclosure laws or rules.
E. Franchisee shall not, without prior written consent of Franchisor,
place in, on or upon the location of the Franchised Business, or in any
communication media, any form of advertising relating to the sale of the
Franchised Business or the rights granted hereunder.
XIX. DEATH OR INCAPACITY OF FRANCHISEE
A. In the event of the death or incapacity of an individual
Franchisee, or any partner of a Franchisee which is a partnership or any
shareholder owning fifty percent (50%) of more of the capital stock of a
Franchisee which is a corporation, the heirs, beneficiaries, devisees, or
legal representatives of said individual, partner or shareholders shall,
within one hundred eighty (180) days of such event:
1. Apply to Franchisor for the right to continue to operate the
franchise for the duration of the term of this Agreement and any renewals
hereof, which right shall be granted upon the fulfillment of all of the
conditions set forth in Paragraph XVII.B.2.b of this Agreement (except that no
transfer fee shall be required); or
2. Sell, assign, transfer, or convey Franchisee's interest in
compliance with the provisions of Paragraphs XVIII.B. and XX. of this
Agreement; provided, however, in the event a proper and timely application for
the right to continue to operate has been made and rejected, the one hundred
eighty (180) days to sell, assign, transfer or convey shall be computed from
the date of said rejection. For purposes of this Paragraph, Franchisor's
silence on an application through the one hundred and eighty (180) days
following the event of death or incapacity shall be deemed a rejection made on
the last day of such period.
B. In the event of the death or incapacity of an individual
Franchisee, or any partner or shareholder of a Franchisee which is a
partnership or corporation, where the aforesaid provisions of Paragraph XVIII
have not been fulfilled within the time provided, all rights franchised to
Franchisee under this Agreement shall, at the option of Franchisor, terminate
forthwith and Franchisor shall have the option to purchase the assets of
Franchised Business in accordance with Paragraph XVII.J. of this Agreement.
XX. RIGHT OF FIRST REFUSAL
If Franchisee or its owners propose to sell the Franchised Business (or
its assets) or part or all of the ownership of Franchisee, Franchisee or its
owners shall obtain and deliver a bona fide, executed written offer to
purchase same to Franchisor, which shall, for a period of fifteen (15) days
from the date of delivery of such offer, have the right, exercisable by
written notice to Franchisee or its owners, to purchase the Franchised
Business (or its assets) or such ownership for the price and on the terms and
conditions contained in such offer, provided that Franchisor may substitute
cash for any form of payment proposed in such offer. If Franchisor does not
exercise this right of first refusal, the offer may be accepted by Franchisee
or its owners, subject to the prior written approval of Franchisor, as
provided in Paragraph XVIII hereof, provided that if such offer is not so
accepted within six (6) months of the date thereof, Franchisor shall again
have the right of first refusal herein described. Should a transfer
Franchisee assume the rights and obligations under this Agreement, such
transferee Franchisee shall likewise by subject to Franchisor's right of first
refusal under terms and conditions as set forth herein.
XXI. OPERATION IN THE EVENT OF ABSENCE, DISABILITY OR DEATH
In order to prevent any interruption of the Franchised Business which
would cause harm to said business and thereby depreciate the value thereof,
Franchisee authorizes Franchisor, in the event that Franchisee is absent or
incapacitated by reason of illness or death and is not, therefore, in the sole
judgement of Franchisor, able to operate the Franchised Business, to operate
said business for so long as Franchisor deems necessary and practical, and
without waiver of any other rights or remedies Franchisor may have under this
Agreement. Nothing contained herein shall create an obligation on the part of
Franchisor, nor shall Franchisor's operation of the Franchised Business create
an obligation on the part of Franchisor to so operate the Franchised Business.
All monies from the operation of the business during such period of operation
by Franchisor shall be kept in a separate account and the expenses of the
business, including reasonable compensation and expenses for Franchisor's
representative, shall be charged to said account.
XXII. INDEPENDENT CONTRACTOR AND INDEMNIFICATION
A. This Agreement does not create a fiduciary relationship between
the parties, nor does it constitute Franchisee as an agent, legal
representative, joint venturer, partner, employee, or servant of Franchisor
for any purpose whatsoever; and it is understood between the parties hereto
that Franchisee shall be an independent contractor and is in no way authorized
to make any contract, agreement, warranty or representation on behalf of
Franchisor, or to create any obligation, express or implied, on behalf of
Franchisor.
B. During the term of this Agreement and any extension hereof,
Franchisee shall hold itself out to the public as an independent contractor
operating the business pursuant to a franchise from Franchisor. Franchisee
shall take such affirmative action as may be necessary to do so, including,
without limitation, exhibiting a notice of that fact in a conspicuous place on
the Franchised Premises, the content of which Franchisor reserves the right to
specify.
C. Franchisee shall defend at his own cost and indemnify and hold
harmless Franchisor, its affiliates, shareholders, directors, officers,
employees and agents, from and against any and all claims demands, losses,
costs, legal actions, judgements, awards, expenses (including, without
limitation, reasonable accountants', attorneys', and expert witness fees,
costs of investigation and proof of facts, court costs, other litigation
expenses and travel and living expenses), damages and liabilities, however,
caused, resulting directly or indirectly from or pertaining to the use,
condition, or construction, equipping, decorating, maintenance or operation of
the Franchised Business, including the sale of any products, service or
merchandise sold from the Franchised Business. Such loss, claims, costs,
expenses, damages and liabilities shall include, without limitation, those
arising from latent or other defects in the Franchised Business, whether or
not discoverable by Franchisor, and those arising from the death or injury to
any person or arising from damage to the property of Franchisee or Franchisor,
their agents or employees, or any third person, firm or corporation, whether
or not such losses, claims, costs, expenses, damages, or liabilities were
actually or allegedly caused wholly or in part through the active or passive
negligence of Franchisor or any of its agents or employees or resulted from
any strict liability imposed on Franchisor or any of its agents or employees.
All such indemnification shall survive the termination of this Agreement.
D. Franchisor shall not, by virtue of any approvals, advice or
services provided to Franchisee, assume responsibility or liability to
Franchisee or any third parties to which Franchisor would not otherwise be
subject.
XXIII. NON-WAIVER
No failure of Franchisor to exercise any power reserved to it hereunder,
or to insist upon strict compliance by Franchisee with any obligation or
condition hereunder, and no custom or practice of the parties in variance with
the terms hereof, shall constitute a waiver of Franchisor's right to demand
exact compliance with the terms hereof. Waiver by Franchisor of any
particular default by Franchisee shall not be binding unless in writing and
executed by the party sought to be charged and shall not affect or impair
Franchisor's right with respect to any subsequent default of the same or of a
different nature; nor shall any delay, waiver, forbearance, or omission of
Franchisor to exercise any power or rights arising out of any breach or
default by Franchisee of any of the terms, provisions, or covenants hereof,
affect or impair Franchisor's rights nor shall such constitute a waiver by
Franchisor of any right hereunder of the right to declare any subsequent
breach or default. Subsequent acceptance by Franchisor of any payment(s) due
to it hereunder shall not be deemed to be a waiver by Franchisor of any
preceding breach by Franchisee of any terms, covenants or conditions of this
Agreement.
XXIV. NOTICE
Any and all notices required or permitted under this Agreement shall be
in writing and shall be personally delivered or mailed by certified mail,
return receipt requested, to the respective parties at the following addresses
unless and until a different address has been designated by written notice to
the other party:
Notices to Franchisor: EASYRIDERS FRANCHISING, INC.
5055 Chesebro Road
Agoura Hill, California 91301
Copy to:
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Notices to Franchisee:
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Copies to:
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Any notice by certified mail shall be deemed to have been given at the date
and time of mailing.
XXV. COST OF ENFORCEMENT OR DEFENSE
In the event that either party to this Agreement is required to employ
legal counsel or to incur other expenses to enforce any obligation of the
second party hereunder, or to defend against any claim, demand, action, or
proceeding by reason of the second party's failure to perform any obligation
imposed upon the second party by this Agreement, and provided that legal
action is filed and such action or the settlement thereof establishes the
second party's default hereunder, then the first party shall be entitled to
recover from the second party the amount of all reasonable attorney's fees of
such counsel and all other expenses incurred in enforcing such obligation or
in defending against such claim, demand, action or proceeding, whether
incurred prior to, or in preparation for, or in contemplation of the filing of
such action or thereafter. Nothing contained in this Paragraph shall relate
to arbitration proceedings pursuant to this Agreement.
XXVI. ENTIRE AGREEMENT
This Agreement, and Exhibit attached hereto, and the documents referred
to herein, shall be construed together and constitute the entire, full and
complete agreement between Franchisor and Franchisee concerning the subject
matter hereof, and supersede all prior agreements. No other representation
has induced Franchisee to execute this Agreement, and there are no
representations, inducements, promises, or agreements, oral or otherwise,
between the parties not embodied herein, which are of any force or effect with
reference to this Agreement or otherwise. No amendment, change or variance
from this Agreement shall be binding on either party unless executed in
writing by both parties.
XXVII. SEVERABILITY AND CONSTRUCTION
A. Each Paragraph, part, term and/or provision of this Agreement
shall be considered severable, and if, for any reason, any Paragraph, part,
term and/or provision herein is determined to be invalid and contrary to, or
in conflict with, any existing or future law or regulation, such shall not
impair the operation of or affect the remaining portions, sections, parts,
terms and/or provisions of this Agreement, and the latter will continue to be
given full force and effect and bind the parties hereto; and said invalid
sections, parts, terms and/or provisions shall be deemed not part of this
Agreement.
B. Anything to the contrary herein notwithstanding, nothing in this
Agreement is intended, nor shall be deemed, to confer upon any person or legal
entity other than Franchisor or Franchisee and such of their respective
successors and assigns as may be contemplated by this Agreement, any rights or
remedies under or by reason of this Agreement.
C. Franchisee shall be bound by an promise or covenant imposing the
maximum duty permitted by law which is contained within the terms of any
provision hereof, as though it were separately stated in and made a part of
this Agreement, that may result from striking from any of the provisions
hereof any portion or portions which a court may hold to be unreasonable and
unenforceable in a final decision to which Franchisor is a party, or from
reducing the scope of any promise or covenant to the extent required to comply
with such a court order.
D. All captions herein are intended solely for the convenience of the
parties, and none shall be deemed to affect the meaning or construction of any
provision hereof.
E. This Agreement may be executed in triplicate, and each copy so
executed shall be deemed an original.
F. The recitals set forth in this Agreement are specifically
incorporated into the terms of this Agreement and hereby constitute a part
thereof.
XXVIII. APPLICABLE LAW
A. THIS AGREEMENT TAKES EFFECT UPON ITS ACCEPTANCE AND EXECUTION BY
FRANCHISOR IN CALIFORNIA; AND SHALL BE INTERPRETED AND CONSTRUED UNDER THE
LAWS THEREOF, WHICH LAWS SHALL PREVAIL IN THE EVENT OF ANY CONFLICT OF LAW,
EXCEPT TO THE EXTENT GOVERNED BY THE UNITED STATES TRADEMARK ACT OF 1946
(LANHAM ACT, 15, U.S.C. SECTIONS 1051 ET SEQ), THE UNITED STATES COPYRIGHT ACT
OF 1976, AS AMENDED, AND THE UNITED STATES PATENT ACT OF 1952, AS AMENDED.
B. FRANCHISEE ACKNOWLEDGES THAT THIS AGREEMENT IS ENTERED INTO IN LOS
ANGELES COUNTY, CALIFORNIA AND THAT ANY ACTION SOUGHT TO BE BROUGHT BY EITHER
PARTY, EXCEPT THOSE CLAIMS REQUIRED TO BE SUBMITTED TO ARBITRATION SHALL BE
BROUGHT IN THE APPROPRIATE STATE OR FEDERAL COURT IN CALIFORNIA WITH
JURISDICTION OVER THE MATTER, AND THE PARTIES DO HEREBY WAIVE ALL QUESTIONS OF
PERSONAL JURISDICTION OR VENUE FOR THE PURPOSES OF CARRYING OUT THIS
PROVISION.
C. NO RIGHT OR REMEDY CONFERRED UPON OR RESERVED TO FRANCHISOR OR
FRANCHISEE BY THIS AGREEMENT IS INTENDED TO BE, NOR SHALL BE DEEMED, EXCLUSIVE
OF ANY OTHER RIGHT OR REMEDY HEREIN OR BY LAW OR EQUITY PROVIDED OR PERMITTED,
BUT EACH SHALL BE CUMULATIVE OF EVERY OTHER RIGHT OR REMEDY.
D. NOTHING HEREIN CONTAINED SHALL BAR FRANCHISOR'S RIGHT TO OBTAIN
INJUNCTIVE RELIEF AGAINST THREATENED CONDUCT THAT WILL CAUSE IT LOSS OR
DAMAGES, UNDER THE USUAL EQUITY RULES, INCLUDING THE APPLICABLE RULES FOR
OBTAINING RESTRAINING ORDERS AND PRELIMINARY INJUNCTIONS.
XXIX. ARBITRATION
A. Any monetary claim arising out of or relating to this Agreement,
or any breach thereof, and any controversy regarding the establishment of the
fair market value of leasehold improvements and other Franchised Business
assets pursuant to Paragraph XVII.J. hereof, shall be submitted to arbitration
in Los Angeles County, California, in accordance with the rules of the
American Arbitration Association and judgement upon the award may be entered
in any court having jurisdiction thereof. Nothing contained herein shall,
however, be construed to limit or to preclude Franchisor from bringing any
action in any court of competent jurisdiction for injunctive or other
provisional relief as Franchisor deems to be necessary or appropriate to
compel Franchisee to comply with his obligations hereunder or to protect the
Marks or other property rights of Franchisor. In addition, nothing contained
herein shall be construed to limit or to preclude Franchisor from joining with
any action for injunctive or provisional relief all monetary claims that
Franchisor may have against Franchisee which arise out of the acts or
omissions to act giving rise to the action for injunctive or provisional
relief. This arbitration provision shall be deemed to be self-executing and
in the event that Franchisee fails to appear any properly noticed arbitration
proceeding, award may be entered against Franchisee notwithstanding his
failure to appear.
B. Nothing herein contained shall bar the right of either party to
seek and obtain temporary injunctive relief from a court of competent
jurisdiction in accordance with applicable law against threatened conduct that
will cause loss or damage, pending completion of the arbitration.
C. It is the intent of the parties that any arbitration between
Franchisor and Franchisee shall be of Franchisee's individual claim and that
the claim subject to arbitration shall not be arbitrated on a classwide basis.
XXX. "FRANCHISEE" DEFINED AND GUARANTY
As used in this Agreement, the term "Franchisee" shall include all
persons who succeed to the interest of the original Franchisee by permitted
transfer or operation of law and shall be deemed to include not only the
individual or entity defined as "Franchisee" in the introductory paragraph of
this Agreement but shall also include all partners of the entity that executes
this Agreement, in the event said entity is a partnership, and all
shareholders, officers and directors of the entity that executes this
Agreement, in the event said entity is a corporation. By the signatures
hereto, all partners, shareholders, officers and directors of the entity that
signs this Agreement as Franchisee acknowledges and accepts the duties and
obligations imposed upon each of them, individually, by the terms of this
Agreement. All partners of the entity that executes this Agreement, in the
event said entity is a partnership and all shareholders, officers and
directors of the entity that executed this Agreement, in the event said entity
is a corporation, shall execute the Guaranty and Assumption of Obligations
attached hereto as Exhibit A and made a part hereof.
XXXI. FORCE MAJEURE
Whenever a period of time is provided in this Agreement for either party
to do or perform any act or thing, except the payment of monies, neither party
shall be liable or responsible for any delays due to strikes, lockouts,
casualties, acts of God, war, governmental regulation or control or other
causes beyond the reasonable control of the parties, and in any event said
time period for the performance of an obligation hereunder shall be extended
for the amount of time of the delay. This clause shall not apply or not
result in an extension of the term of this Agreement.
XXXII. CAVEAT
The success of the business venture contemplated to be undertaken by
Franchisee by virtue of this Agreement is speculative and depends, to a large
extent, upon the ability of Franchisee as an independent businessman, and his
active participation in the daily affairs of the business as well as other
factors. Franchisor does not make any representation or warranty express or
implied as to the potential success of the business venture contemplated
hereby.
XXXIII. ACKNOWLEDGMENTS
A. Franchisee represents and acknowledges that it has received, read
and understood this Agreement and Franchisor's Uniform Franchise Offering
Circular; and that Franchisor has fully and adequately explained the
provisions of each to Franchisee's satisfaction; and that Franchisor has
accorded Franchisee ample time and opportunity to consult with advisors of its
own choosing about the potential benefits and risks of entering into this
Agreement.
B. Franchisee acknowledges that it has received a copy of this
Agreement and the attachments thereto, at least five (5) business days prior
to the date on which this Agreement was executed. Franchisee further
acknowledges that Franchisee has received the disclosure document required by
the Trade Regulation Rule of the Federal Trade Commission entitled Disclosure
Requirements and Prohibitions Concerning Franchising and Business Opportunity
Ventures, at least (10) business days prior to the date on which this
Agreement was executed.
C. Franchisee has been advised to consult with its own advisors with
respect to the legal, financial and other aspect of this Agreement, the
business franchised hereby, and the prospects for that business. Franchisee
has either consulted with such advisors or has deliberately declined to do so.
D. The covenants not to compete set forth in this Agreement are fair
and reasonable and will not impose any undue hardship on Franchisee, since
Franchisee has other considerable skills, experience and education which
afford Franchisee the opportunity to derive income from other endeavors.
E. Franchisee affirms that all information set forth in any and all
applications, financial statements and submissions to Franchisor is true,
complete and accurate in all respects, with Franchisee expressly acknowledging
that Franchisor is relying upon the truthfulness, completeness and accuracy of
such information.
F. Franchisee has conducted an independent investigation of the
business contemplated by this Agreement and recognizes that, like any other
business, an investment in a EASYRIDERS Franchised Business involves business
risks and that the success of the venture is primarily dependent upon the
business abilities and efforts of Franchisee.
G. Franchisee hereby consents and agrees that any disputes arising
between Franchisor and Franchisee be submitted to arbitration as provided in
Paragraph XXIX.A. of this Agreement.
H. FRANCHISEE UNDERSTANDS AND ACKNOWLEDGES THAT ALL REPRESENTATIONS
OF FACT CONTAINED HEREIN ARE MADE SOLELY BY FRANCHISOR. ALL DOCUMENTS,
INCLUDING FRANCHISOR'S FRANCHISE AGREEMENT AND UNIFORM FRANCHISE OFFERING
CIRCULAR AND ALL EXHIBITS THERETO, HAVE BEEN PREPARED SOLELY IN RELIANCE UPON
REPRESENTATIONS MADE AND INFORMATION PROVIDED BY FRANCHISOR, ITS OFFICERS AND
DIRECTORS. FRANCHISEE FURTHER AGREES TO INDEMNIFY AND HOLD HARMLESS THE
PREPARER OF ANY AND ALL SUCH FRANCHISE AGREEMENTS, OFFERING CIRCULARS AND
EXHIBITS THERETO FROM ANY AND ALL LOSS, COSTS, EXPENSES, (INCLUDING ATTORNEYS'
FEES), DAMAGES AND LIABILITIES RESULTING FROM ANY REPRESENTATIONS AND/OR
CLAIMS MADE BY FRANCHISOR IN SUCH DOCUMENTS.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have duly executed, sealed and delivered this Agreement in triplicate
the day and year first above written.
ATTEST: EASYRIDERS FRANCHISING, INC.
/s/ Signature illegible By: /s/ Signature illegible
- ------------------------------ ---------------------------------
Witness
Title: President
-----------------------------
Date: 11-30-94
------------------------------
ATTEST: FRANCHISEE
/s/ Signature illegible By: /s/ Signature illegible
- ------------------------------- ---------------------------------
Witness
Title: Owner
------------------------------
Date: 11-30-94
- ------------------------------- -------------------------------
Witness
Exhibit 8.1
PLAN OF REORGANIZATION
This Plan of Reorganization is made and entered into as of this the 28th
day of June, 1996 by and between American Furniture Wholesale, Inc., a Nevada
Corporation, hereinafter referred to as "American" and Newriders Limited, a
California Corporation, hereinafter referred to as "Newriders".
RECITALS
A. American is a public Nevada corporation in good standing in said
state with 25,000,000 shares of $.001 par value authorized and 4,581,000
shares outstanding.
B. Newriders is a California corporation in good standing in said
state engaged in the ownership and operation of Easyriders Cafe Restaurants,
Easyriders apparel and clothing stores, Easyriders motorcycle shops and the
marketing and distribution of brand names under the Easyriders label and
Newriders label.
C. American is desirous of acquiring New Riders.
D. The parties believe it to be in their mutual best interest for
American to acquire One Hundred percent (100%) of the common stock of
Newriders in exchange for common stock of American.
E. The parties desire the transaction to quality as a tax free, stock
for stock, reorganization pursuant to Internal Revenue Code 368(a)(1)(B),
1986, as amended.
F. The parties desire to formalize their Agreement and Plan of
Reorganization.
NOW THEREFORE, IN CONSIDERATION OF THEIR MUTUAL PROMISES AND COVENANTS SET
FORTH HEREINAFTER, THE PARTIES AGREE AS FOLLOWS:
1. Plan of Reorganization: The parties hereby adopt a Plan of
Reorganization whereby American will acquire One Hundred percent (100%) of the
outstanding common stock of Newriders, pursuant to the terms and conditions
set forth hereunder. The parties further acknowledge that it is their intent
that such reorganization qualify as a tax free reorganization pursuant to
applicable sections of the Internal Revenue Code of 1986, as amended. Both
parties, however, will seek their own tax counsel.
2. Exchange: American hereby agrees to transfer to the
shareholders of Newriders Eleven Million (11,000,000) shares of authorized but
unissued, common stock and Two Million Two Hundred Fifty Thousand (2,250,000)
shares of issued common stock from treasury in exchange for One Hundred
percent (100%) of the common stock of Newriders. Said issuance will be made
contemporaneously with the receipt of the Newriders shares.
3. Business Purpose: The parties acknowledge that the purpose of
the reorganization is to expand the business of American into the theme
restaurant and apparel business and to take advantage of the opportunity that
now exist within the theme restaurant business.
4. Exempt Transactions: All parties acknowledge and agree that any
transfer of securities pursuant to this Agreement will constitute an exempt,
isolated transaction and that the securities received in such transfer or
exchange shall not be registered under federal or state securities law.
5. Transfer of Securities: All parties agree that the common stock
of American received by Newriders shall be distributed directly to the
shareholders of Newriders, not more than ten (10) in number. The parties
acknowledge that said shareholders have approved the terms and conditions of
this Plan of Reorganization and exchange and distribution of American stock.
6. Unregistered Securities: Newriders is aware and acknowledges
that the shares of American to be transferred to Newriders will be
unregistered securities and may not be transferred by the holders thereof
unless subsequently registered or an exemption from registration is available.
The certificates issued to Newriders will bear a legend to the effect that the
shares have not been registered and cannot be transferred unless subsequently
registered or an exemption from registration is available.
7. Default: In the event that either party defaults in performing
any of its duties or obligations under this Agreement, the party responsible
for such default shall pay all costs incurred by the other party in enforcing
its rights under this Agreement or in obtaining damages for such default,
including costs of court and reasonable attorney's fees, whether incurred
through legal action or otherwise and whether incurred before or after
judgement.
8. Notices: Any notices or correspondence required or permitted to
be given under this Agreement may be given personally to an individual party
or to an officer or registered agent of a corporate party or may be given to
depositing such notice or correspondence in the U.S. mail, postage prepaid,
certified or registered, return receipt requested, addressed to the parties at
the following address:
American Furniture Wholesale, Inc.
15701 Garfield Avenue
Paramount, California 90723
Newriders Limited
5155 N. Blackstone
Fresno, California 93710
Any notice given by mail shall be deemed to be delivered on the date such
notice was deposited in the U.S. mail. Any party may change its address by
giving written notice to the other parties as provided above.
9. Binding: This Agreement shall be binding upon the parties hereto
and upon their respective heirs, representatives, successors and assignees.
10. Governing Law: This Agreement shall be governed by and construed
under the laws of the state of Nevada.
11. Authority: The officers executing this Agreement on behalf of
corporate parties represent that they have been authorized to execute this
Agreement pursuant to resolutions of their respective corporations.
12. This Agreement may be signed in counterpart.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first written.
AMERICAN FURNITURE WHOLESALE, INC.
By: /s/ Tai Tran
-----------------------------
Tai Tran, President & Director
By: /s/ Kim Tran
-----------------------------------
Kim Tran, Secretary & Director
NEWRIDERS LIMITED
By: /s/ Leon Hatcher/(illegible signature)by Mitchell Purcell Attorney in Fact
---------------------------------------------------------------------
Leon Hatcher, Chairman of the Board [initials of M. Purcell appear here]
By: /s/ Michael T. Purcell
------------------------------------------
Michael T. Purcell, President and CEO
By: /s/ Rick L. Pierce
------------------------------------------
Rick L. Pierce, Vice President & Director
Exhibit 10.1
[Letterhead of Jones, Jensen & Company appears here]
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
June 26, 1997
Newriders, Inc.
Fresno, California
We hereby consent to the use of our audit report dated June3, 1997 relating to
the consolidated financial statements of Newriders, Inc. as of and for the
year ended December 31, 1996 to be used in the Form 10 SB registration
statement of Newriders, Inc.
/s/ Jones, Jensen & Company
Jones, Jensen & Company
50 South Main Street, Suite 1450, Salt Lake City, Utah 84144
Telephone (801) 328-4408, Facsimile (801) 328-4461
