<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 1999 Commission File No. 001-14509
EASYRIDERS, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-0811505
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
28210 Dorothy Drive, Agoura Hills, California 91301
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 889-8740
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $.001 per share
Securities registered pursuant to Section 12(g) of the Act:
Not Applicable
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
There were 23,828,565 shares of outstanding Common Stock of the Registrant
as of November 10, 1999.
================================================================================
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
EASYRIDERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-----------------------------------
<S> <C> <C>
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 112,242 $ 278,035
Restricted cash 313,640
Accounts receivable, less allowance for doubtful accounts
of $445,442 (1999) and $395,681 (1998) 3,106,555 2,874,779
Inventories 3,957,067 3,975,443
Prepaid publication costs 718,956 629,375
Prepaid expenses and other 1,401,222 875,846
Receivable from shareholder 381,358 398,085
----------- -----------
Total current assets 9,677,400 9,345,203
PROPERTY AND EQUIPMENT, net 5,219,890 3,718,067
GOODWILL, net of accumulated amortization
of $2,256,214 (1999) and $612,739 (1998) 60,911,223 62,704,698
INTANGIBLE ASSETS, net of accumulated amortization
of $152,610 (1999) and $36,538 (1998) 815,183 809,409
OTHER ASSETS 652,704 560,245
----------- -----------
$77,276,400 $77,137,622
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-----------------------------------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable $ 6,652,056 $ 4,086,773
Accrued payroll and payroll related expenses 1,379,160 589,861
Accrued interest payable 979,307 -
Other current liabilities 1,386,462 1,659,631
Income taxes payable - 7,034
Current portion of deferred subscription and advertising income 4,204,049 3,348,420
Current portion of note payable to stockholder - -
Current portion of long-term debt 997,293 558,748
------------ ------------
Total current liabilities 15,598,327 10,250,467
------------ ------------
CONVERTIBLE DEBENTURES, net, including related party
debentures of $1,000,000 (1999 and 1998) 1,316,667 1,316,667
NOTE PAYABLE TO STOCKHOLDER 11,575,000 13,000,000
LONG-TERM DEBT, net of current portion and debt discount, including
related party indebtedness of $762,406 (1999) and $895,304 (1998) 22,990,420 22,713,670
OTHER LONG TERM LIABILITIES, including deferred subscription
revenues of $1,092,895 (1999) and $549,838 (1998) 1,269,707 799,838
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.001 per share; 10,000,000 shares
authorized, none outstanding
Common stock, par value $.001 per share; 50,000,000 shares
authorized, 22,611,155 shares (1999) and 19,295,375 shares (1998) 22,611 19,295
outstanding
Additional paid in capital 58,580,899 54,318,590
Receivable from the sale of stock (7,300,000) (7,300,000)
Accumulated deficit (26,777,231) (17,980,905)
------------ ------------
Total stockholders' equity 24,526,279 29,056,980
------------ ------------
$ 77,276,400 $ 77,137,622
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
--------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
SALES $ 11,643,932 $ 1,416,563 $ 33,692,909 $ 2,240,718
COST OF SALES 9,613,755 831,990 26,981,972 1,218,954
------------ ------------ ------------ ------------
GROSS MARGIN 2,030,177 584,573 6,710,937 1,021,764
EXPENSES:
Selling, general, and administrative 3,740,591 1,570,602 9,957,553 3,617,625
Depreciation and amortization 796,660 109,543 2,348,605 232,531
Stock issuance expenses 100,000 700,000 1,888,867
Loss on sale of restaurant to related party - 467,774 - 1,099,760
------------ ------------ ------------ ------------
Total expenses 4,637,251 2,147,919 13,006,158 6,838,783
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (2,607,074) (1,563,346) (6,295,221) (5,817,019)
OTHER INCOME (EXPENSE) 208,835 6,269 184,443 6,269
INTEREST EXPENSE (906,891) (380,812) (2,679,323) (1,324,313)
------------ ------------ ------------ ------------
LOSS BEFORE PROVISION FOR INCOME TAXES (3,305,130) (1,937,889) (8,790,101) (7,135,063)
PROVISION FOR INCOME TAXES 2,075 6,225
------------ ------------ ------------ ------------
NET LOSS $ (3,307,205) $ (1,937,889) $ (8,796,326) $ (7,135,063)
============ ============ ============ ============
COMPREHENSIVE LOSS $ (3,307,205) $ (1,937,889) $ (8,796,326) $ (7,135,063)
============ ============ ============ ============
NET LOSS PER SHARE - BASIC AND DILUTED $ (0.15) $ (0.19) $ (0.41) $ (0.78)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING - BASIC AND DILUTED 22,521,173 10,012,929 21,232,493 9,143,064
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
1999 1998
------------------------------------
(unaudited)
<S> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net loss $ (8,796,326) $ (7,135,063)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock issuance expenses 700,000 1,888,867
Stock issued for services 65,625 616,000
Depreciation and amortization 2,348,605 232,531
Loss on sale of restaurant to related party 1,099,760
Loss on sale of fixed assets 132,602
Loss on sale of stock held for investment 20,959
Loss on write-off of intangible 20,507
Amortization of debt issuance costs 236,082 1,202,870
Increase (decrease) in cash resulting from changes in operating accounts:
Current assets (518,949) 412,041
Other assets 4,834,315 46,093
Current liabilities (141,482) (140,307)
Other long-term liabilities 469,869 (280,717)
------------ ------------
Net cash used in operating activities (628,193) (2,057,925)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisitions, less cash acquired (18,801,876)
Proceeds from sale of fixed assets 3,000 215,325
Purchase of intangible assets (142,859)
Purchase of fixed assets (2,113,036) (203,496)
------------ ------------
Net cash used in investing activities (2,252,895) (18,790,047)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of convertible debentures and debt 951,377 22,600,000
Common stock issued for cash 2,000,000 5,000,000
Payments of stockholders advances (201,350)
Payment of long-term debt and capital leases (236,082) (7,648,105)
------------ ------------
Net cash provided by financing activities 2,715,295 19,750,545
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ (165,793) $ (1,097,427)
CASH AND CASH EQUIVALENTS, beginning of year 278,035 1,262,633
------------ ------------
CASH AND CASH EQUIVALENTS, end of year $ 112,242 $ 165,206
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION -
Cash paid for interest $ 2,515,361 $ 92,467
============ ============
NONCASH FINANCING ACTIVITIES:
Common stock issued in settlement of debt $ 1,500,000
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (unaudited)
- --------------------------------------------------------------------------------
1. GENERAL BASIS OF PRESENTATION
The information set forth in these condensed financial statements as of
September 30, 1999 and for the nine months ended September 30, 1999 and
1998 is unaudited. The information reflects all adjustments consisting
only of normal recurring entries that, in the opinion of management, are
necessary to present fairly the financial position and results of
operations of the Company for the periods indicated. Results of
operations for the nine months ended September 30, 1999 are not
necessarily indicative of the results of operations for the full fiscal
year.
Certain information in the footnote disclosures normally included in the
annual financial statements has been condensed or omitted, in accordance
with the rules and regulations of the Securities and Exchange
Commission.
Easyriders, Inc. (Easyriders or the Company) was incorporated in the
State of Delaware on May 13, 1998, and for financial reporting purposes
is the successor to Newriders, Inc. On September 23, 1998, Easyriders,
Inc. consummated a series of transactions (collectively, the
Reorganization), including the following: (i) the merger of a subsidiary
of Easyriders with and into Newriders, Inc. (Newriders) (the Merger)
upon which the shareholders of Newriders exchanged their stock on a
2-for-1 basis for Easyriders, Inc. common stock; (ii) the acquisition by
Easyriders of all of the outstanding common stock of Paisano
Publications, Inc. (Paisano Publications), a California corporation, and
certain affiliated corporations (collectively, the Paisano Companies);
and (iii) the acquisition by Newriders of all of the outstanding
membership interests of M&B Restaurants, L.C. (El Paso), a Texas limited
liability company.
As a result of the merger, the Newriders common stock was exchanged for
Easyriders common stock on the basis of one share of Easyriders common
stock for each two shares of Newriders common stock, and the
stockholders of Newriders immediately prior to the merger became
stockholders of Easyriders. The merger was accounted for as a
combination of entities under common control, similar to a pooling of
interest. Therefore, the historical financial statements represent the
combined financial statements of Easyriders and Newriders. The
acquisitions of the Paisano Companies and El Paso were accounted for as
a purchase.
The Paisano Companies consist of Paisano Publications; Easyriders of
Columbus, Inc., an Ohio corporation; Easyriders Franchising, Inc., a
California corporation; Easyriders Events, Inc., a California
corporation; Bros Club, Inc., a California corporation; and Associated
Rodeo Riders on Wheels, a California corporation. Paisano Publications
publishes 14 special-interest magazines directed to motorcycle, hot-rod,
and tattoo enthusiasts. Other Paisano Companies market a line of apparel
and other products designed to appeal to motorcycle, hot-rod, and tattoo
enthusiasts, and own three Easyriders stores and have franchised 24
additional stores that sell Easyriders apparel, customized new and used
American-made motorcycles, and motorcycle accessories.
El Paso is a Texas limited liability company, which owns and operates
four barbecue and smoked meat restaurants, three of which are located in
Arizona and one of which is located in Oklahoma. The restaurants are
operated under the name "El Paso Bar-B-Que."
5
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (unaudited)
- --------------------------------------------------------------------------------
Easyriders currently derives substantially all of its revenues from the
operations of Paisano Publications and El Paso.
2. LONG-TERM DEBT
El Paso - In March 1999, El Paso completed negotiations for a $500,000
unsecured revolving line of credit to be used for general corporate
purposes. This credit facility bears interest at a rate of prime plus
0.5%, and matures on March 15, 2000. At September 30, 1999, $372,000 was
owed under this credit facility.
In June 1999, El Paso borrowed $475,000 from a qualified lender to
complete the build-out of its El Paso Bar-B-Que in Tulsa, Oklahoma. This
unsecured loan bears interest at a rate of 10.5% per annum, matures on
July 1, 2009, and requires monthly payments of principal and interest to
commence August 1, 1999. During the quarter ended September 30, 1999,
approximately $13,000 was repaid on this loan.
Paisano Publications - Based on the results for the quarter ended
September 30, 1999, Paisano was in violation of the leverage ratio, the
minimum consolidated EBITDA and the interest coverage ratio required
under the financial covenants of the Nomura Credit Agreement.
6
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (unaudited)
- --------------------------------------------------------------------------------
3. STOCKHOLDERS' EQUITY
Exchange Ratio - As more fully described in Note 1, at the time of the
Merger, the Company effected a 2-for-1 exchange of its common stock.
Historical share and per share information has been retroactively
restated in the accompanying consolidated financial statements.
Related-Party Stock Purchases - On April 8, 1999, the Company sold
1,397,950 shares of common stock of the Company to a director of the
Company for the sum of $1,500,000. The number of shares issued was
calculated as 75% of the average closing price of the common stock, with
average closing price being defined as the average of the last recorded
sale price of the common stock on the ten consecutive trading days
ending on and including April 8, 1999. In conjunction with this stock
issuance at a discount, the Company recorded $300,000 of stock issuance
expense.
Also on April 8, 1999, the Company sold 1,397,950 shares of common stock
of the Company to the former sole shareholder of the Paisano Companies
and a director of the Company for the sum of $1,500,000. The number of
shares issued was calculated as 75% of the average closing price of the
common stock, with average closing price being defined as the average of
the last recorded sale price of the common stock on the ten consecutive
trading days ending on and including April 8, 1999. As consideration for
the $1,500,000 in common stock, the director forgave interest on a
$5,000,000 note payable of $75,000 and reduced the principal on the note
payable from $5,000,000 to $3,575,000. In conjunction with this stock
issuance at a discount, the Company recorded $300,000 of stock issuance
expense.
On July 14, 1999, the Company sold to two directors of the Company
234,940 shares each of common stock of the Company for the sum of
$250,000 each. The number of shares issued was calculated as 75% of the
average closing price of the common stock, with average closing price
being defined as the average of the last recorded sale price of the
common stock on the ten consecutive trading days ending on and including
July 14, 1999.
Stock issued to settle litigation - On August 3, 1999, the Company
issued 50,000 shares of the common stock of the Company in settlement of
a dispute with an ex-employee. Compensation expense was recognized equal
to the fair market value of such shares on the date of issuance.
Stock Option Grants - During the nine months ended September 30, 1999,
the Board of Directors of the Company authorized the granting of
1,727,000 options to employees, consultants and directors of the
company, 1,227,000 were granted under the Company's 1998 Executive
Incentive Compensation plan, and 500,000 were granted outside of the
plan. SFAS No. 123, Accounting for Stock-Based Compensation, encourages
but does not require the Company to record compensation cost for
employee stock option grants. The Company has chosen to continue to
account for employee option grants using Accounting Principles Board
Opinion No. 25.
4. CONTINGENCIES
The Company is involved in certain litigation as outlined in Part II
Item 1. Legal Proceedings. Currently, the Company believes that any
liability with respect to such legal actions can not be determined.
5. BUSINESS SEGMENTS
Information by Operating Segment - Operating segments are defined as
components of an enterprise for which separate financial information is
available that is evaluated regularly by the chief operating
decision-maker, or decision-making group, in deciding how to allocate
resources
7
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (unaudited)
- --------------------------------------------------------------------------------
and in assessing performance. Easyriders, Inc. chief operating
decision-making group is comprised of the chief executive officer and
the officers who report to him directly.
Easyriders Inc. has five reportable segments: publishing, goods and
services, food service, franchising, and other events and operations.
The publishing segment includes magazine and catalog publishing and
other operations. The trade goods and services segment distributes
motorcycle apparel and other related goods to both intermediate and
end-users and offers motorcycle repair and services through a Company
owned store. The food service segment includes the operations of El Paso
and Newriders. The franchising segment includes the franchising of
Easyriders motorcycle stores for distribution of equipment and apparel.
The other events and operations segment includes the coordination and
sponsorship of motorcycle related events and operations.
Easyriders, Inc. evaluates performance based on profit or loss from
operations before income taxes, not including nonrecurring gains and
losses and foreign exchange gains and losses. (The Company utilizes the
other events and operations segment as a venue for increased exposure
for publication sales.) The accounting policies of the operating
segments are the same as those described in the summary of significant
accounting policies. The financial results for Easyriders, Inc. five
operating segments have been prepared on a basis which is consistent
with the manner in which Easyriders, Inc. management internally
disaggregates financial information for the purposes of assisting in
making internal operating decisions. In this regard, certain common
expenses have been allocated among segments less precisely than would be
required for stand alone financial information prepared in accordance
with generally accepted accounting principles. Revenue attributed to
geographic areas is based on the location of the customer.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Goods and Food Other
Publishing Services Service Franchising Operations Totals
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales external customers -Quarter
ended September 30, 1999 6,146,982 1,269,292 2,374,637 25,000 1,828,021 11,643,932
Sales external customers -
Year-to date September 30, 1999 17,723,427 4,496,050 8,205,768 103,137 3,164,527 33,692,909
Income (loss) from operations-
Quarter ended September 30, 1999 565,049 (203,925) (317,351) (538,448) (150,925) (645,600)
Income (loss) from operations-
Year-to-date September 30, 1999 1,933,365 (396,641) 112,515 (1,706,813) (219,129) (276,703)
Segment Assets 8,959,294 1,411,362 5,150,049 44,803 687,427 16,252,935
Capital Expenditures 464,882 4,660 1,626,494 -- 17,000 2,113,036
Depreciation/Amortization -
Quarter ended September 30, 1999 85,334 12,087 123,442 2,119 18,954 241,936
Depreciation/Amortization -
Year-to-date September 30, 1999 225,499 36,260 341,677 6,356 75,126 684,918
</TABLE>
The historical results of the Company represent the results of
Newriders, Inc. only and therefore no segment information is provided
for prior years. The operations of Newriders, Inc. are considered to be
one component of the food service segment.
8
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (unaudited)
- --------------------------------------------------------------------------------
A reconciliation of the totals reported for the operating segments to the
applicable line items in the consolidated financial statements is as follows:
Quarter ended September 30, 1999:
Income (loss) from operations included in segment disclosure $ (645,600)
Unallocated, selling, general, and administrative (1,961,474)
------------
Loss from operations $ (2,607,074)
============
Year-to-date September 30, 1999:
Income (loss) from operations included in segment disclosure $ (276,703)
Unallocated, selling, general, and administrative (6,018,518)
------------
Loss from operations $ (6,295,221)
============
As at September 30, 1999:
Segment assets $ 16,252,935
Cash and cash equivalents 112,242
Goodwill 60,911,223
------------
Total Assets $ 77,276,400
============
Quarter ended September 30, 1999:
Depreciation and amortization included in segment disclosure $ 241,936
Amortization of goodwill 554,724
------------
Depreciation and amortization $ 796,660
============
Year-to-date September 30, 1999:
Depreciation and amortization included in segment disclosure $ 684,918
Amortization of goodwill 1,663,687
------------
Depreciation and amortization $ 2,348,605
============
Revenues concerning principal geographic areas are as follows based on customer
location:
<TABLE>
<CAPTION>
USA Canada Germany UK Australia Other Total
<S> <C> <C> <C> <C> <C> <C> <C>
QE 9/30/99 10,727,953 274,217 123,241 127,236 112,110 279,175 $11,643,932
YTD 9/30/99 30,611,790 794,813 422,898 419,216 336,640 1,107,552 33,692,909
</TABLE>
The Company's foreign operations consist primarily of international newsstand
sales and mail-order product sales. No one country makes up more than 10% of
international sales. The Company does not have any identifiable assets
attributable to these foreign activities and does not separately identify any
expenses related specifically to foreign activities. Therefore, income before
taxes and net income associated with foreign activities is not presented.
9
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (unaudited)
- --------------------------------------------------------------------------------
6. SUBSEQUENT EVENTS
In October 1999, Paisano Publications issued an Increasing Rate Secured
Promissory Note in the amount of $275,000 to a qualified lender. This
loan bears interest at a rate of 13% per annum, plus additional
capitalized interest at a rate of 7% per annum which increases by 1%
monthly beginning on April 14, 2000. Interest is due and payable
monthly, and the principal balance with any accrued interest is due and
payable on or before October 14, 2000. To the extent that the Note has
not been repaid in full, the Company will issue a warrant to the holder
to purchase up to 100,000 shares of common stock on the sixth month
anniversary, 400,000 shares of common stock on the ninth month
anniversary and 500,000 shares of common stock on the twelfth month
anniversary of the closing date of the Note. The warrant exercise price
will be $0.01 per share. The Note is guaranteed by Newriders, Inc. and
is secured by all of the common stock held by Newriders, Inc. in El
Paso. The proceeds are to be used for general working capital purposes.
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Management's discussion and analysis of the financial condition and the
results of operations of the Company should be read in conjunction with the
Consolidated Financial Statements and related Notes thereto.
Overview
Easyriders is a corporation organized under the laws of the state of
Delaware on May 13, 1998. Easyriders currently derives substantially all of its
revenues from the operations of Paisano Publications and El Paso.
On September 23, 1998, Easyriders consummated a series of transactions
including the following: (i) the acquisition by Easyriders from Joseph Teresi of
all of the outstanding common stock of Paisano Publications and certain
affiliated corporations that engage in publishing special interest magazines
relating to motorcycles and tattooing, marketing motorcycle apparel and
accessories, promoting motorcycle and tattoo related events, and franchising
retail stores that market motorcycle apparel and accessories; (ii) the
acquisition by Newriders of all of the outstanding membership interests of El
Paso, which engages in the operation of four restaurants under the name "El Paso
Bar-B-Que"; and (iii) the merger of a subsidiary of Easyriders with and into
Newriders.
As a result of the Merger (i) each two shares of Newriders Common Stock
were exchanged for one share of Easyriders Common Stock and the shareholders of
Newriders immediately prior to the Merger became stockholders of Easyriders,
(ii) all of the outstanding options, warrants and other convertible securities
exercisable for or convertible into Newriders Common Stock were exchanged for
the right to purchase or convert into one-half the number of shares of
Easyriders Common Stock at an exercise price or conversion ratio per share equal
to two times the exercise price or conversion ratio provided for in the stock
option, warrant or other agreements evidencing such options, warrants or other
convertible securities, and (iii) Newriders, the Paisano Companies and El Paso
became wholly-owned subsidiaries of Easyriders. The Merger was accounted for as
a combination of entities under common control, similar to a pooling of
interest. Therefore, the historical financial statements represent the combined
financial statements of the Company and Newriders. The acquisitions of the
Paisano Companies and El Paso were accounted for as a purchase.
The acquisitions of the Paisano Companies and El Paso had, and will
continue to have, a material impact on the Company's financial statements;
accordingly, current and future financial statements may not be directly
comparable to the Company's historical financial statements. In future periods,
the amortization of goodwill will significantly effect the Company's financial
statements.
11
<PAGE>
Use of EBITDA
The following comparative discussion of the results of operations and
financial condition of the Company includes, among other factors, an analysis of
changes in the operating income of the business segments before interest
expense, taxes, depreciation and amortization ("EBITDA") in order to eliminate
the effect on the operating performance of the Paisano Companies and El Paso of
significant amounts of amortization of intangible assets and interest expense
recognized through the Reorganization. In addition, certain non-cash charges
pertaining to the private placement of common stock have been added back to the
results of operations in determining EBITDA. Financial analysts generally
consider EBITDA to be an important measure of comparative operating performance
for the businesses of the Company and its subsidiaries, and when used in
comparison to debt levels or the coverage of interest expense as a measure of
liquidity. However, EBITDA should be considered in addition to, not as a
substitute for, operating income, net income, cash flow and other measures of
financial performance and liquidity reported in accordance with generally
accepted accounting principles.
12
<PAGE>
Results of Operations
The following table sets forth certain operating data for Easyriders and
Newriders for the three months ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
Paisano
Easyriders Companies EL Paso Consolidated Newriders
For the Three Months Ended September 30,
-------------------------------------------------------------------------------------------
1999 1999 1999 1999 1998
(unaudited)
<S> <C> <C> <C> <C> <C>
SALES
Publishing $ - $ 6,146,982 $ - $ 6,146,982 $ -
Goods and services 1,269,292 1,269,292
Food service 2,374,637 2,374,637 1,416,563
Franchising 25,000 25,000
Other operations 1,828,021 1,828,021
-------------------------------------------------------------------------------------------
- 9,269,295 2,374,637 11,643,932 1,416,563
COST OF SALES
Publishing 5,026,859 5,026,859
Goods and services 1,449,489 1,449,489
Food service 1,621,445 1,621,445 831,990
Franchising - -
Other operations 1,515,962 1,515,962
-------------------------------------------------------------------------------------------
- 7,992,310 1,621,445 9,613,755 831,990
GROSS MARGIN
Publishing - 1,120,123 - 1,120,123
Goods and services - (180,197) - (180,197)
Food service - - 753,192 753,192 584,573
Franchising - 25,000 - 25,000
Other operations - 312,059 - 312,059
-------------------------------------------------------------------------------------------
- 1,276,985 753,192 2,030,177 584,573
EXPENSES
Publishing 555,074 555,074
Goods and services 23,728 23,728
Food service 1,070,543 1,070,543 2,147,919
Franchising 563,448 563,448
Other operations 462,984 462,984
Unallocated expenses 884,386 1,077,088 1,961,474
-------------------------------------------------------------------------------------------
884,386 2,682,322 1,070,543 4,637,251 2,147,919
INCOME (LOSS) FROM OPERATIONS
Publishing - 565,049 - 565,049
Goods and services - (203,925) - (203,925)
Food service - - (317,351) (317,351) (1,563,346)
Franchising - (538,448) - (538,448)
Other operations - (150,925) - (150,925)
Unallocated (884,386) (1,077,088) - (1,961,474) -
-------------------------------------------------------------------------------------------
$ (884,386) $ (1,405,337) $ (317,351) $ (2,607,074) $ (1,563,346
===========================================================================================
NET INCOME (LOSS) $ (875,860) $ (2,052,576) $ (378,769) $ (3,307,205) $ (1,937,889)
===========================================================================================
EBITDA $ (500,235) $ (892,419) $ (108,925) $ (1,501,579) $ (1,447,534)
===========================================================================================
</TABLE>
13
<PAGE>
The following table sets forth certain operating data for Easyriders and
Newriders for the nine months ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
Paisano
Easyriders Companies El Paso Consolidated Newriders
For the Nine Months Ended September 30,
---------------------------------------------------------------------------------------------
1999 1999 1999 1999 1998
(unaudited)
<S> <C> <C> <C> <C> <C>
SALES
Publishing $ - $ 17,723,427 $ - $ 17,723,427 $ -
Goods and services 4,496,050 4,496,050
Food service 8,205,768 8,205,768 2,240,718
Franchising 103,137 103,137
Other operations 3,164,527 3,164,527
---------------------------------------------------------------------------------------------
- 25,487,141 8,205,768 33,692,909 2,240,718
COST OF SALES
Publishing 14,155,827 14,155,827
Goods and services 4,686,912 4,686,912
Food service 5,191,846 5,191,846 1,218,954
Franchising - -
Other operations 2,947,387 2,947,387
---------------------------------------------------------------------------------------------
21,790,126 5,191,846 26,981,972 1,218,954
GROSS MARGIN
Publishing - 3,567,600 - 3,567,600
Goods and services - (190,862) - (190,862)
Food service - - 3,013,922 3,013,922 1,021,764
Franchising 103,137 103,137
Other operations - 217,140 - 217,140
---------------------------------------------------------------------------------------------
- 3,697,015 3,013,922 6,710,937 1,021,764
EXPENSES
Publishing 1,634,235 1,634,235
Goods and services 205,779 205,779
Food service 2,901,407 2,901,407 6,838,783
Franchising 1,809,950 1,809,950
Other operations 436,269 436,269
Unallocated expenses 3,053,055 2,965,463 6,018,518 -
---------------------------------------------------------------------------------------------
3,053,055 7,051,696 2,901,407 13,006,158 6,838,783
INCOME (LOSS) FROM OPERATIONS
Publishing - 1,933,365 - 1,933,365
Goods and services - (396,641) - (396,641)
Food service - - 112,515 112,515 (5,817,019)
Franchising (1,706,813) (1,706,813)
Other operations - (219,129) - (219,129)
Unallocated (3,053,055) (2,965,463) - (6,018,518) -
---------------------------------------------------------------------------------------------
$ (3,053,055) $ (3,354,681) $ 112,515 $ (6,295,221) $ (5,817,019)
=============================================================================================
NET INCOME (LOSS) $ (3,551,341) $ (5,243,555) $ (1,430) $ (8,796,326) $ (7,135,063)
=============================================================================================
EBITDA $ (1,964,728) $ (1,806,588) $ 709,143 $ (3,062,173) $ (3,689,352)
=============================================================================================
</TABLE>
14
<PAGE>
Results of Operations: Easyriders, Inc. Consolidated
During the three months ended September 30, 1999, the Company
experienced a net loss in the amount of $3,307,205 (or $0.15 per share),
compared with a net loss of $1,937,889 (or $0.19 per share) for the three months
ended September 30, 1998. The net loss for the nine months ended September 30,
1999 was $8,796,326 (or $0.41 per share), compared with a net loss of $7,135,063
(or $0.78 per share) for the same period in the prior year. The Company
experienced negative EBITDA in the amount of $1,501,579 and $3,062,173 for the
three and nine months ended September 30, 1999, respectively, compared with
negative EBITDA of $1,447,534 and $3,689,352 for the three and nine months ended
September 30, 1998.
The increased loss for the three months ended September 30, 1999 can be
substantially attributed to the increase in gross margin of $1,445,604,
generated primarily by Paisano Publications and by El Paso, offset by the
increase in operating expenses of $2,489,332 and by the increase in
non-operational expenses of $323,513.
The increased loss for the nine months ended September 30, 1999 can be
substantially attributed to the increase in operating expenses for the combined
operations of the Company and Newriders of $6,167,375 together with the increase
in non-operational expenses of $1,176,836, offset by the increase in gross
margin of $5,689,173, generated primarily by Paisano Publications and by El
Paso.
Results of Operations: Paisano Companies
The operating results of the Company for both the three and nine months
ended September 30, 1999 include the results for the Paisano Companies.
The Paisano Companies' sales totaling $9,269,295 and $25,487,141 for
the three and nine months ended September 30, 1999, respectively, include sales
from the publishing segment of $6,146,982 and $17,723,427, sales from the goods
and services segment of $1,269,292 and $4,496,050, sales from the franchising
segment of $25,000 and $103,137, and sales from other segments of $1,828,021 and
$3,164,527. The Paisano Companies' gross margin totaling $1,276,985 and
$3,697,015 for the three and nine months ended September 30, 1999, respectively,
includes margin from the publishing segment of $1,120,123 and $3,567,600,
negative margin from the goods and services segment of $180,197 and $190,862,
margin from the franchising segment of $25,000 and $103,137, and margin from
other segments of $312,059 and $217,140. The Paisano Companies' loss from
operations totaling $1,405,337 and $3,354,681 for the three and nine months
ended September 30, 1999, respectively, includes income from operations of
$565,049 and $1,933,365 from the publishing segment, loss from operations of the
goods and services segment of $203,925 and $396,641, loss from operations of the
franchising segment of $538,448 and $1,706,813, loss from operations of other
segments of $150,925 and $219,129, and expenses not allocated to any segment of
$1,077,088 and $2,965,463.
The Paisano Companies' publishing segment includes sales generated from
subscription sales, newsstand sales and advertising sales related to the
Companies' fourteen special interest magazines. The related cost of sales
includes direct costs related to the sales consisting primarily of printing,
publication and distribution costs. The goods and services segment includes
sales generated from the sale of apparel and other products through its mail
order catalogs, retail store, and franchise programs. The related cost of sales
includes the costs of the apparel and other products. The franchising segment
includes sales generated through royalties and franchise fees charged to the
Companies' 24 operating franchisees.
15
<PAGE>
There is no related cost of sales. The Paisano Companies' other segments
primarily includes Easyriders Events, Inc., which generates substantially all of
its sales from the sale of tickets to its motorcycle rodeos, motorcycle shows,
and tattoo shows. The related cost of sales includes the direct costs of
promoting the events.
The Paisano Companies' operating expenses of $2,682,322 and $7,051,696
for the three and nine months ended September 30, 1999, respectively, include
$1,605,234 and $4,086,233 of expenses specifically allocated to individual
segments and $1,077,088 and $2,965,463 which have not been allocated to any one
segment. The allocated expenses include payroll, promotion, and other general
and administrative expenses specifically attributable to the business segment.
The unallocated expenses include payroll and related benefits, professional
fees, consulting, rent and other expenses not specifically attributable to any
one segment. Unallocated payroll and related benefits for the Paisano Companies
for the three and nine month periods ended September 30, 1999 totaled $404,742
and $1,328,818, respectively. Depreciation and amortization for the same periods
totaled $555,074 and $1,634,235, related primarily to $469,740 and $1,408,736 in
amortization of the $56,368,752 in goodwill created out of the Paisano
Companies' acquisition by the Company.
Interest expense for the Paisano Companies totaled $588,264 and
$1,734,013 for the three and nine months ended September 30, 1999, respectively,
which is primarily attributable to the debt issued to finance the Company's
acquisition of the Paisano Companies.
Net loss for the Paisano Companies was $2,052,576 and $5,243,555 for
the three and nine months ended September 30, 1999, respectively, with negative
EBITDA of $892,419 and $1,806,588.
The principal raw material used in publishing operations of the Paisano
Companies is paper. Paper costs represented approximately 15% and 16% of Paisano
Publications' production, selling and other direct costs for the three and nine
months ended September 30, 1999, respectively. Certain commodity grades of paper
have shown considerable price volatility over the last decade. There can be no
assurance that future fluctuations in paper prices will not have a material
adverse effect on the Paisano Companies' results of operations or financial
condition.
The profitability of the Paisano Companies' publishing segment is also
affected by the cost of postage and could be materially adversely affected if
there is an increase in postal rates. Future fluctuations in postal rates could
have a material adverse effect on the publishing segments' results of operations
or financial condition. No assurance can be given that the publishing segment
can recoup paper or postal cost increases by passing them through to its
advertisers and readers. In addition, future fluctuations in paper prices or
postal rates could have an effect on comparisons of the results of operations
and financial condition of the publishing segments.
Results of Operations: El Paso
The operating results of the Company for both the three and nine months
ended September 30, 1999, include the results for E1 Paso. The results for 1998
include the results for El Paso for only the 7 day period subsequent to the date
of the Reorganization.
16
<PAGE>
E1 Paso's sales from its four El Paso Bar-B-Que Restaurants totaled
$2,374,637 and $8,205,768 for the three and nine months ended September 30,
1999, respectively, with cost of sales totaling $1,621,445 and $5,191,846 for
the same periods. Cost of sales includes food costs of $737,135 and $2,472,422
for the three and nine month periods, and direct payroll costs related to the
operations of the restaurants of $884,310 and $2,719,424 for the same periods.
The gross margin was $753,192 and $3,013,922, or 31.7% and 36.7% of sales, for
the three and nine months ended September 30, 1999, respectively. Operating
expenses for El Paso for the three and nine month periods totaled $1,070,543 and
$2,901,407, respectively, or 45.1% and 35.4% of sales, and include depreciation
and amortization of $208,426 and $596,628. Interest expense associated with debt
used to finance the restaurants and capital leases was $63,112 and $186,065 for
the three and nine months ended September 30, 1999. Net loss for the three and
nine months ended September 30, 1999 was ($378,769) and ($1,430), respectively,
and EBITDA was ($108,925) and $709,143 for the same periods.
Liquidity and Capital Resources
The Company's primary cash requirements are to fund the Company's
working capital needs, primarily accounts receivable, inventory and prepaid
expenses and to service its debt. On September 30, 1999, the Company had
negative working capital of approximately $5.9 million due primarily to the loss
sustained during the three month period ended September 30, 1999 and to deferred
subscription and advertising income.
Cash used in operating activities during the nine month period ended
September 30, 1999 totaled approximately $0.6 million. The operating loss of
$8.8 million was offset by several non-cash charges including $2.6 million for
depreciation and amortization, $0.7 million for stock issuance expenses, and
$0.2 million for losses on the sale of assets. Cash of $4.7 million was provided
by changes in operating accounts.
Net cash used in investing activities totaled $2.3 million, and
represented cash paid for capital expenditures.
Upon its acquisition by the Company, Paisano Publications obtained an
aggregate of $22,000,000 in financing (the "Nomura Indebtedness") from Nomura
Holding American, Inc. (the "Lender"). This financing was comprised of
$17,000,000 of senior term loans (the "Term Loans") and $5,000,000 of revolving
loans (the "Revolving Loans"). The proceeds from the Term Loans plus $3,500,000
of the Revolving Loans were used to repay certain promissory notes issued to the
shareholder of the Paisano Companies in conjunction with the acquisition of the
Paisano Companies, and to pay certain acquisition expenses. To the extent that
Paisano Publications is in compliance with the terms of the Nomura Indebtedness,
any unused portion of the Revolving Loans may be used by Paisano Publications
for working capital purposes. At September 30, 1999, there was $1,250,000 of
available borrowings under the Revolving Loans. On October 1, 1999, the Company
borrowed another $625,000 against the Revolving Loans, reducing the available
balance to $625,000. Paisano is currently in discussions to resolve the
technical default of several financial covenants required by the Nomura Credit
Agreement.
The Nomura Indebtedness is guaranteed (the "Guarantees") by the Company
and the Paisano Companies, other than Paisano Publications (the "Guarantors").
The Nomura Indebtedness will mature on September 23, 2001, and bears interest at
an annual rate equal to the prime rate of the Lender from time to time plus
1.85%, payable monthly. The Nomura Indebtedness and the Guarantees are secured
by a first priority security interest in substantially all of the tangible and
intangible assets (owned or hereafter acquired) of the Company and the Paisano
Companies, including all of the capital stock or equity interests of the Paisano
Companies, Newriders, and El Paso. The Nomura Indebtedness and the
17
<PAGE>
Guarantees constitute the sole senior secured indebtedness of Paisano
Publications and Guarantors and rank senior to all other indebtedness of Paisano
Publications and the Guarantors.
At the end of each one-month period in which the Term Loans are
outstanding, Paisano Publications is required to prepay the Term Loans in an
aggregate principal amount equal to 35% of Excess Cash Flow, as defined in the
Credit Agreement, for such period, to the extent such Excess Cash Flow is
achieved. Because this prepayment is dependent upon Excess Cash Flow, no amounts
have been classified as current at September 30, 1999.
Subject to certain limitations on dividends, provided that no event of
default has occurred, Paisano Publications may loan funds to the Company
monthly, limited to the lessor of $100,000 or 35% of the Excess Cash Flow for
the preceding monthly period. As of September 30, 1999, Paisano Publications has
been able to provide $102,915 of funding to the Company based on Paisano's
attainment of Excess Cash Flow. The inability of Paisano Publications to provide
funds to the Company in the future can adversely impact the ability of the
Company to repay certain expenses of the Company.
Because the Nomura Indebtedness includes restrictions on the ability of
the Paisano Companies to transfer funds to the Company in the form of cash
dividends, loans or advances, the net assets of the Paisano Companies are
considered to be restricted. The restricted net assets of the Paisano Companies
on September 30, 1999 total $34,167,572.
The Nomura Indebtedness contains numerous operating and financial
covenants, including but not limited to, payment of dividends, limitations on
indebtedness and the maintenance of minimum net worth, minimum working capital,
interest coverage ratios and the achievement of cash flow measures. Based on the
results for the quarter ended September 30, 1999, Paisano was in violation of
several financial covenants including the required leverage ratio, the required
minimum consolidated EBITDA and the required interest coverage ratio. Paisano is
currently in discussions with the lender to resolve the technical defaults.
In connection with the Paisano Acquisition, the Company issued notes in
the aggregate amount of $13,000,000 to Joseph Teresi (the sole shareholder of
the Paisano Companies prior to the Paisano Acquisition). Of the total,
$10,000,000 of the notes consist of variable rate, five-year subordinated notes
(the "Contributor Notes"). The Contributor Notes bear interest at an annual rate
that may vary from 6% to 10% and may be extended for an additional five years.
The remaining $3,000,000 was issued as a 90 day note that bears interest at an
annual rate of 10%. As of March 31, 1999, the Company was in arrears in
repayment of the $3,000,000 short-term note which was due December 23, 1998. On
March 31, 1999, Joseph Teresi waived the default which existed on that date with
respect to the non-payment of interest on the $3,000,000 promissory note from
the Company. In addition, Mr. Teresi agreed that between March 31, 1999 and
March 31, 2000 he would not make any claim of default in connection with the
non-payment of interest or principal which were due as of March 31, 1999 or
which would accrue between March 31, 1999 and March 31, 2000 on the $3,000,000
promissory note and two $5,000,000 promissory notes given to Mr. Teresi as part
of the consideration for the acquisition from him of the Paisano Companies. On
April 8, 1999, Mr. Teresi purchased $1,500,000 in the common stock of the
Company and paid for his shares by forgiving $75,000 of interest and $1,425,000
of principal owed to him by the Company, reducing the principal on one of the
$5,000,000 notes payable to $3,575,000.
In February 1999, El Paso secured a commitment from a qualified lender
to finance up to $3,450,000 for the purchase and lease back of up to two new
properties, together with the development costs associated with the new
restaurants. A transaction under this commitment would be structured as a
sale-leaseback, with El Paso having the option to purchase the property at
specified times in the lease life
18
<PAGE>
for the greater of its fair market value or the lender's total investment in the
property. This commitment expires after March 1, 2000.
In March, 1999, El Paso completed negotiations for a $500,000 unsecured
revolving line of credit to be used for general corporate purposes. This credit
facility bears interest at a rate of prime plus 0.5%, and matures on March 15,
2000. At September 30, 1999, $372,000 was owing under this credit facility.
In June 1999, El Paso borrowed $475,000 from a qualified lender to
complete the build-out of its El Paso Bar-B-Que in Tulsa, Oklahoma. This
unsecured loan bears interest at a rate of 10.5% per annum, matures on July 1,
2009, and requires monthly payments of principal and interest to commence August
1, 1999. Through September 30, 1999, approximately $13,000 had been paid against
this loan.
In October 1999, Paisano Publications borrowed $275,000 from a
qualified lender. This loan is subordinate to the Nomura Indebtedness. The loan
bears interest at a rate of 7% per annum (increasing by 1% monthly beginning
April 14, 2000), and is due and payable with accrued interest on October 14,
2000. The funds are to be used for general working capital purposes.
The Company is presently attempting to secure a cash infusion and to
accelerate cash flow, through the pursuit of various approaches, including
selling certain assets, drawing down funds available under the revolving credit
portion of the Nomura Credit Agreement and consummating certain business
transactions. The Company is also evaluating the issuance of additional debt or
equity securities. While the Company believes that such efforts, together with
ongoing operations, will enable the Company to meet its anticipated cash needs
for the next 12 months, there can be no assurance that this will be the case. In
the event that the Company is unsuccessful in its efforts to raise capital
beyond that which is projected to be realized from current operations, the
Company will not be able to meet its liquidity obligations in the near future.
Forward-Looking Information and Certain Factors
Certain statements in this Form 10-Q and in future filings by the
Company with the Securities and Exchange Commission, in the Company's press
releases, and in oral statements made by or with the approval of an authorized
executive officer constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). The
forward-looking statements are subject to numerous risks and uncertainties that
could cause actual results to differ materially from those set forth in such
forward-looking statements. Such risks and uncertainties include, without
limitation, risks associated with future capital needs, management of growth,
availability of adequate financing, integration of business operations,
concentration of stock ownership, restrictions imposed on the Company by the
Lender, the magazine publishing and restaurant business, paper, pork and other
raw material prices and other factors discussed herein, in the Company's
Prospectus/Proxy Statement on Form S-4 dated September 8, 1998 and other filings
submitted to the Securities and Exchange Commission.
Year 2000 Readiness Disclosure
Many of the world's computer systems currently record years in a
two-digit format. Such computer systems will be unable to properly interpret
dates beyond the year 1999, which could lead to business disruptions in the U.S.
and internationally (the "Year 2000 issue"). The potential costs and
uncertainties associated with the Year 2000 issue will depend on a number of
factors, including software, hardware and the nature of the industry in which
the Company operates. Additionally, companies must
19
<PAGE>
coordinate with other entities with which they electronically interact, such as
customers and creditors.
The Company has reviewed its business processes and internal
information systems, including its computer systems to determine whether the
Company's software applications and computer and information systems are
compliant with the Year 2000. The Company is in the process of upgrading its
computer system to be Year 2000 compliant and anticipates completing this
process by the end of November, 1999. In addition, the Company is querying all
of its major suppliers and customers as to their progress in identifying and
addressing Year 2000 problems. The Company's products do not have any material
Year 2000 problems. While the Company believes that its business processes and
internal information systems will be fully compliant for the Year 2000, there
can be no assurance that the Company will not experience unanticipated negative
consequences and/or material costs caused by undetected errors or defects in the
technology used in its business processes or internal information systems, which
are comprised predominantly of third party software and hardware. The Company
does not currently anticipate that the Year 2000 issue will have a material
impact on its business, financial condition or results of operations as total
costs are not anticipated to exceed $150,000.
Should the Company not be completely successful in mitigating internal
and external Year 2000 risks, the likely worst case scenario could be a system
failure causing disruptions of operations, including, among other things, a
temporary inability to process transactions, or engage in normal business
activities at the Company or its vendors and suppliers. The Company currently
does not have a contingency plan with respect to potential Year 2000 failures of
its suppliers or customers. If these failures would occur, depending upon their
duration and severity, they could have a material adverse effect on the
Company's business, results of operations and financial condition.
Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which is effective for fiscal years
beginning after June 15, 1999. This standard establishes accounting and
reporting standards for derivative instruments and for hedging activities and
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The Company does not believe that the adoption of this new
standard will have a material impact on its financial position or results of
operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company is exposed to a variety of risks, including paper price
volatility and changes in interest rates affecting the cost of its debt.
Paper Price Volatility
A primary component of the Company's cost of revenues in the magazine
publishing segment is the cost of paper. Consequently, increases in paper prices
can adversely impact the Company results of operations.
Interest Rates
The Company is subject to certain interest rate risk related to the
Term Loans. The Term Loans mature on September 23, 2001 and bear interest at an
annual rate equal to the prime rate of the Lendor plus 1.85% payable monthly.
The interest rate on the balance of $16,376,611 outstanding on September 30,
1999 was 10.1 %. An increase in interest rates of 1% would result in an increase
in interest expense of approximately $164,000 per annum.
20
<PAGE>
The Company's remaining long-term debt and convertible debentures have
fixed interest rates and therefore the Company does not believe a 1% increase in
interest rates would have a material impact on the Company's consolidated
financial statements.
21
<PAGE>
PART II -- OTHER INFORMATION
- ----------------------------
Item 1. Legal Proceedings.
Easyriders and its subsidiaries are subject to litigation incidental to the
conduct of their respective businesses in the ordinary course of operations.
The Pierce Litigation
An involuntary bankruptcy proceeding was filed against Rick Pierce, a former
shareholder of Newriders, on September 23, 1998 in the United States Bankruptcy
Court, Eastern District of California, Fresno Division Case No. 98-19111-A-11.
The bankruptcy was filed against Mr. Pierce before Pierce had returned certain
stock certificates evidencing shares of Newriders Common Stock to Newriders in
accordance with certain contractual arrangements regarding the Reorganization.
By complaint filed November 20, 1998 and amended in February 1999, Easyriders
and Newriders commenced an adversary proceeding against the Pierce Bankruptcy
Estate and other parties who claim an interest in the share certificates through
various transactions with Mr. Pierce. The action sought a declaratory judgment
confirming that the Newriders certificates were canceled pursuant to the merger
and that the Bankruptcy Estate has no claim to the Newriders certificates and a
decision enjoining any transfer of Newriders stock. In March 1999, Mr. Pierce,
as debtor in possession, filed an amended counterclaim and cross-claim seeking
reinstatement and return of his Newriders stock certificate, delivery of the
Easyriders stock due in the Reorganization and seeking damages of at least $20
million based on various claims including breach of contract, breach of
fiduciary duty, fraud, and fraudulent transfer generally arising out of the
Reorganization (the "Adversary Claims"). The Adversary Claims have been
asserted against Easyriders, Newriders, Messrs. Martin and Teresi and a former
officer of Easyriders and others now claiming an interest in the shares through
transactions with Mr. Pierce. Easyriders denies these allegations, is
vigorously opposing such claims, and has filed a response to the counterclaim
and other supplemental pleadings. On August 5, 1999, the Adversary Claims were
transferred for adjudication to the Federal District Court in Fresno.
On September 9 and 10 a settlement conference was held in San Francisco, at
which the Company presented its argument that the Adversary Claims are without
merit and are not supported by written documentation or evidence of any kind,
other than the uncorroborated testimony of Mr. Pierce. On October 1, 1999 Mr.
Pierce was arrested in Fresno, California as the result of a 29-count Federal
indictment charging Mr. Pierce and his brother, Kevin, with conspiracy, mail
fraud and money laundering. According to the indictment, Mr. Pierce and his
brother devised a scheme to defraud 342 mostly elderly or retired individuals in
connection with a real estate development project that was never completed, and
operated as a "Ponzi" scheme whereby money from new investors was used to pay a
guaranteed interest payment to earlier investors. Subsequently, Mr. Pierce was
denied bail after a finding that he presented a substantial flight risk, and he
remains in custody awaiting trial.
As a result of the foregoing, in October, 1999 (i) the bankruptcy proceeding
was converted from a Chapter 11 proceeding to a Chapter 7 proceeding, (ii) the
creditor's committee, comprised in part of nominees of Mr. Pierce, was
disbanded, and (iii) a trustee was appointed to administer the bankruptcy estate
and begin an aggressive search for cash assets believed to have been placed in
off-shore accounts by Mr. Pierce, as alleged in the Federal indictment. On the
basis of these developments, including the settlement conference, the Company
now believes that it likely that the Adversary Claims will be dismissed with no
material adverse consequences to the Company, and that in any event the
Adversary Claims could be successfully defended if necessary.
22
<PAGE>
The Steel Horses Arbitration
On January 5, 1998 a Demand for Arbitration was filed with the American
Arbitration Association against Paisano Publications, Easyriders Franchising,
Inc. ("EFI") and certain officers of the Company. This action was commenced by
Steel Horses, Inc. dba Easyriders of Chicago (the "Chicago Franchisee"), and
arises out of the Franchise Agreement entered into in 1994 between Steel Horses
and EFI. This action (the "Arbitration Action") was brought before an
arbitration panel in Los Angeles, California. The Chicago Franchisee alleged
that EFI understated the capital requirements of the business opportunity, and
sought compensatory damages of at least $500,000, plus punitive damages under
various theories of recovery, including violation of the Illinois Franchise
Disclosure Act, violation of other Illinois business practices statutes, fraud
and breach of the 1994 Franchise Agreement. EFI and Paisano asserted that the
claims of the Chicago Franchisee were without merit.
On September 28, 1999, by mutual agreement of all parties after voluntary
mediation, a settlement agreement was concluded which provided for formal
dismissal of the Arbitration Action upon the satisfaction by Company of certain
terms and conditions by on or about October 28, 1999. The settlement was based
on the Company's belief that financing to cover a negotiated cash payment could
be obtained, and, therefore, the settlement was conditioned upon the
availability of this or a similar financing vehicle. The settlement agreement
provided that it would be null and void if this contingency were not met. The
Company did not finalize the required financing, as a result of which the
Company considers the original settlement agreement to be null and void.
However, the Company has indicated that it is willing to meet the essential
monetary provisions of the original settlement, subject to agreement on revised
terms of payment. Based on the history of the parties' negotiations and other
relevant considerations, the Company believes that settlement of the Arbitration
Action, upon modified terms, is still possible. There can be no assurance,
however, that subsequent discussions and efforts will produce this result, and
it is still possible, therefore, that arbitration proceedings could resume.
Item 2. Changes in Securities and Use of Proceeds.
On July 14, 1999, the Company raised additional capital by selling shares
of its Common Stock to John Martin and Joseph Teresi for $250,000 cash each. The
shares were sold to Messrs. Martin and Teresi at a 25% discount from market
price, market price being determined as the average daily closing price of the
Common Stock on the American Stock Exchange over a certain number of consecutive
trading days ending on and including July 14, 1999. Each of Messrs. Martin and
Teresi received 234,940 shares of Easyriders Common Stock as a result of such
purchases. The sale of Easyriders Common Stock to Messrs. Martin and Teresi was
unanimously approved by the members of the Board of Directors (other than
Messrs. Martin and Teresi) after extensive consideration of the circumstances,
including but not limited to, the cash needs of the Company and the absence of
any viable alternative funding sources. Based on the foregoing, the Board of
Directors determined that the $250,000 cash paid by each of Messrs. Martin and
Teresi for their shares was fair to the Company's stockholders from a financial
point of view.
In both transactions, the shares were issued to Mr. Martin and Mr. Teresi
in transactions that were exempt from the registration requirements of the
Securities Act of 1933, as amended, pursuant to Section 4(2) thereof.
On August 3, 1999, the Company issued 50,000 shares of the common stock of
the Company in settlement of a dispute with an ex-employee. The shares were
valued at their market price, market price being determined as the closing price
of the Common Stock on the American Stock Exchange on the date of issuance. The
issuance of Easyriders Common Stock to the ex-employee was unanimously approved
by the members of the Board of Directors. Pendent registration rights were
provided.
Item 3. Defaults Upon Senior Securities
Based on the results for the quarter ended September 30, 1999, Paisano
was in violation of several financial covenants contained in the Nomura
Indebtedness Agreement including the required
23
<PAGE>
leverage ratio, the required minimum consolidated EBITDA and the required
interest coverage ratio. Paisano is currently in discussions with the lender to
resolve the technical defaults.
Item 4. Submission of matters to a vote of security holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit Description of Exhibit
- ------- ----------------------
Number
- --------------------------------------------------------------------------------
10.61 Securities Purchase Agreement between Siena Capital Partners, L.P.
("Siena Capital") and Paisano Publications, Inc., dated October 14,
1999, for the issue of a $275,000 Increasing Rate Secured Promissory
Note
- --------------------------------------------------------------------------------
10.62 Pledge and Guarantee Agreement between Newriders, Inc. and Siena
Capital, dated October 14, 1999
- --------------------------------------------------------------------------------
10.63 Warrant Agreement between Siena Capital and Easyriders, Inc., dated
October 14, 1999
- --------------------------------------------------------------------------------
10.64 Increasing Rate Secured Promissory Note executed by Paisano
Publications, Inc., dated October 14, 1999
- --------------------------------------------------------------------------------
10.65 Common Stock Purchase Warrant issued to Siena Capital by Easyriders,
Inc., dated October 14, 1999
- --------------------------------------------------------------------------------
10.66 Intercreditor and Subordination Agreement between Siena Capital,
Nomura Holding America, Inc., Paisano Publications, Inc. and
Easyriders, Inc., dated October 14, 1999
- --------------------------------------------------------------------------------
10.67 Consent and Waiver under Note and Purchase Warrant, between
Easyriders, Inc., Paisano Publications, Inc., and Nomura Holding
America, Inc., dated October 14, 1999
- --------------------------------------------------------------------------------
27.1 Financial Data Schedule
- --------------------------------------------------------------------------------
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Company during the quarterly
period ended September 30, 1999.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EASYRIDERS, INC.
(Registrant)
Dated: November 11, 1999 /s/ J. Robert Fabregas
---------------------------------------
J. Robert Fabregas
Chief Financial Officer and
Executive Vice President
25
<PAGE>
EXHIBIT 10.61
EXECUTION COPY
"""""""""""""""""""""""""""`
----------------------------
---------------
SECURITIES PURCHASE AGREEMENT
Dated as of October 14, 1999
---------------
"""""""""""""""""""""""""""`
<PAGE>
EXECUTION COPY
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (this "Agreement") is entered into as of
---------
October 14, 1999 between SIENA CAPITAL PARTNERS, L.P., a California limited
partnership ("Siena"), and PAISANO PUBLICATIONS, INC., a California corporation
-----
(the "Company").
-------
In consideration of the mutual covenants and agreements contained herein,
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, and intending to be legally bound hereby, the parties
hereto hereby agree as follows:
Section 1 ISSUANCE OF SECURITIES.
Section 1.1 Authorization. The Company has duly authorized the issue of its
-------------
Increasing Rate Secured Promissory Note due October 14, 2000, in the principal
amount of US$275,000.00 (the "Note"), substantially in the form of Exhibit A
---- ---------
hereto, and the Company's parent, Easyriders, Inc., a Delaware corporation
("Easyriders"), has duly authorized the issuance of warrants (the "Warrants") to
---------- --------
purchase initially an aggregate of up to 100,000 shares of common stock,
US $.001 par value per share (the "Common Stock"), subject to adjustment,
------------
exercisable (in the event the Note has not been repaid on or before April 14,
2000) pursuant to that certain Warrant Agreement, substantially in the form of
Exhibit B hereto (the "Warrant Agreement"). The Note shall mature, shall bear
- --------- -----------------
interest, shall be payable and shall be otherwise as provided herein and in
Exhibit A. The Warrants shall be exercisable, transferable and subject to
- ---------
adjustment and shall be otherwise as provided herein and in Exhibit B. The Note,
---------
the Warrants, the Warrant Securities (as defined in the Warrant Agreement) and
certificates and other instruments from time to time evidencing the same, are
herein sometimes collectively called the "Securities."
----------
Section 1.2 Purchase and Sale of the Securities; the Closing. In reliance
------------------------------------------------
upon the representations of the Company contained in Section 1.5 hereof and
-----------
subject to the terms and conditions set forth herein, Siena shall purchase the
Securities from the Company and the Company shall sell the Securities to Siena
for an aggregate purchase price of US$275,000.00 (the "Purchase Price"). The
--------------
closing (the "Closing") of Siena's purchase of the Securities shall be held at
-------
10:00 a.m., Los Angeles time on October 14, 1999 (the "Closing Date"), at the
------------
offices of Siena Capital Partners, L.P. 150 South Rodeo Drive, Suite 100,
Beverly Hills, CA 90210 or at such other time or place as the parties hereto may
mutually agree.
On the Closing Date, the Company will deliver to Siena the Note in the
aggregate principal amount specified above, and Easyriders will deliver to Siena
the Warrants, registered in Siena's name or in the name of Siena's nominee or
nominees, as may be specified by Siena upon two (2) Business Days' advance
written notice to the Company, duly executed and dated the Closing Date, against
Siena's delivery to the Company (or to persons at the direction of the Company)
of immediately available funds in the amount of the Purchase Price (net of any
costs or expenses to be paid by the Company to Siena or their counsel pursuant
to Section 3.16 of this Agreement). For purposes of this Agreement, "Business
------------ --------
Day" shall mean any day, except a Saturday, Sunday or other day on which
- ---
commercial banks in the State of California are authorized or required by law to
close.
<PAGE>
Section 1.3 The Note.
--------
(a) Rate of Interest. Subject to modification pursuant to Section
---------------- -------
1.3 (c) below, the Note shall bear interest from the Closing Date on the
- -------
principal of the Note from time to time outstanding at a rate per annum equal
to thirteen percent (13%) (such rate, as increased as provided in this
Agreement, the "Cash Interest Rate"). The Note shall also bear additional
------------------
capitalized interest from the Closing Date on the principal amount of the Note
from time to time outstanding at a rate per annum equal to seven percent (7%)
(such rate, as increased as provided in this Agreement, the "Capitalized
-----------
Interest Rate" and together with the Cash Interest Rate, collectively, the
- -------------
"Interest Rate"). From and after April 14, 2000, the Capitalized Interest Rate
-------------
shall increase to a rate per annum equal to eight percent (8%). The Capitalized
Interest Rate shall increase by an additional one percent (1%) on the 14th day
of each month thereafter.
(b) Payment of Interest. Interest shall be calculated in arrears
-------------------
through the last day of each month. The Company shall make monthly payments on
the interest that has accrued at the Cash Interest Rate on the last Business Day
of each month, commencing with November 30, 1999, and ending on October 14, 2000
(the "Maturity Date"). All other interest which has accrued at the Capitalized
-------------
Interest Rate shall be capitalized into the principal of the Note and shall be
due and payable in full on the Maturity Date.
(c) Computation of Interest. Interest shall be computed on the Note
-----------------------
on the basis of a 360-day year consisting of twelve (12) 30-day months and on
the actual number of days elapsed in any period including the Closing Date but
excluding the date by which Siena is deemed, pursuant to Section 1.3(g), to have
--------------
received payment. Except as permitted pursuant to Section 1.3(b), any principal
--------------
or interest payment due on the Note which is not paid when due, whether at
stated maturity, by notice of acceleration or otherwise, shall bear interest
(calculated in the manner set forth above) at a rate equal to the then-current
Interest Rate plus an additional five percent (5%) per annum.
(d) Payment of Principal. The outstanding principal balance of the
--------------------
Note shall be due and payable in full on the Maturity Date.
(e) Prepayments.
-----------
(i) Optional. The Company may, from time to time, prepay the
Note, in whole or in part, so long as each partial prepayment of principal on
the Note is equal to or greater than US$50,000 and the Company has given Siena
one (1) or more Business Days' written notice of such optional prepayment. Any
such optional prepayment of principal shall be without premium or penalty. Each
prepayment of principal under this Section shall be accompanied by all interest
-------
then accrued and unpaid on the principal so prepaid. Any principal prepaid
pursuant to this Section shall be in addition to, and not in lieu of, all
payments otherwise required to be paid under the Note and this Agreement at the
time of such prepayment.
2
<PAGE>
(ii) Mandatory. Unless otherwise agreed to by Siena and subject
to the provisions of the Nomura Agreement (as defined below), the Company shall
prepay the Note to the extent of the net financing proceeds in excess of $50,000
actually received by the Company or its affiliates in the event that (A) the
Company completes any financing transaction (other than the purchase of the
Securities hereunder) whatsoever from and after the Closing Date, including
without limitation any public or private placements of debt or equity or (B)
Easyriders completes any financing transaction (subject to the provisions of
that certain Note and Warrant Purchase Agreement between Easyriders and Nomura
Holding America, Inc. dated September 23, 1998 (the "Nomura Agreement")) or any
----------------
sale of any material assets of Easyriders or its subsidiaries. In addition, on
the last Business Day of each month commencing with April, 2000, the Company
shall prepay the Note in an amount equal to fifteen percent (15%) of the
Company's Excess Cash Flow on such date. For purposes hereof, "Excess Cash Flow"
shall have the meaning given such term in the Nomura Agreement.
(f) Finance Fee. As additional consideration and as an inducement for
-----------
Siena's purchasing the Securities, the Company shall pay to Siena a financing
fee in immediately available funds in the amount of US$11,000.00 (the "Finance
-------
Fee") on the Closing Date.
- ---
(g) General Payment Provisions. The Company shall make each payment
--------------------------
which it owes under the Note or this Agreement not later than 11:00 a.m., Los
Angeles, California time, on the date such payment becomes due and payable, in
lawful money of the United States of America, without set-off, deduction or
counterclaim, and in immediately available funds sent by wire transfer to Siena
in care of Citibank, NA, 450 West 33rd Street, New York, New York, No.:
82100084, For the account of Lewco Securities, Account No.: 09253792, for the
account of Siena Capital Partners, L.P., Sub-account No.: W-7-8041738,
Reference: Paisano principal and interest (or to such other bank and accounts as
Siena may from time to time specify pursuant to written instructions received by
the Company no later than five (5) Business Days prior to such payment date).
Any payment received by Siena after such time shall be deemed to have been made
on the next following Business Day. Should any such payment become due and
payable on a day other than a Business Day, the maturity of such payment shall
be the next Business Day. Any amount received by Siena, whether as an interest
payment, principal payment or principal prepayment from or on behalf of the
Company, shall be applied as follows in descending order of priority: (i) to all
costs, fees and expenses of Siena (including reasonable attorneys' fees and the
Finance Fee) incurred in connection with this Agreement or in enforcing any
obligations of, or in collecting any payments from, any obligor hereunder or
under the Securities; (ii) to interest which has accrued on past due payments
hereunder; (iii) to interest that is currently due and payable on the Note; (iv)
to payment of principal on the Note currently due and payable; (v) to the
payment of past due principal on the Note; and (vi) to the prepayment of
principal due under the Note.
(h) No Further Obligation. Other than the payment of the Purchase
Price, which payment is subject to the terms and conditions hereof, and
notwithstanding whether or not the Company has repaid such amounts in whole or
in part, Siena shall have no obligation whatsoever to lend, advance or otherwise
pay any other monies to or on behalf of the Company.
3
<PAGE>
Section 1.4 The Warrants.
------------
To induce Siena to purchase the Note from the Company, concurrently
herewith, Easyriders and Siena are entering into the Warrant Agreement, pursuant
to which Easyriders shall execute and deliver to Siena a Warrant on the Closing
Date. The Warrant shall be dated as of the Closing Date and shall initially be
exercisable for the purchase of up to 100,000 shares of Common Stock (in the
event the Note has not been repaid on or before April 14, 2000). In the event
the Note has not been repaid in full on or before certain dates, as set forth in
the Warrant, the Warrant shall become exercisable for the purchase of additional
shares of Common Stock, as set forth in the Warrant.
Section 1.5 Representations and Warranties of the Company.
---------------------------------------------
The Company represents and warrants to Siena that on the date hereof and as
of the Closing Date:
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of California and is duly qualified
as a foreign corporation in each jurisdiction in which the character of the
properties owned or held under lease by it or the nature of the business
transacted by it requires such qualification. The Company has all requisite
power to transact the business it transacts and proposes to transact, to execute
and deliver this Agreement, the Securities and all other documents and
agreements contemplated hereby and thereby, and to perform the provisions hereof
and thereof and to consummate the transactions contemplated hereby and thereby.
(b) The execution, delivery and performance of this Agreement, the
Securities, and all other documents and agreements contemplated hereby and
thereby, and the consummation of the transactions contemplated hereby or
thereby, have been duly authorized and approved by the Company. This Agreement,
the Securities, and all other documents and agreements contemplated hereby and
thereby have each been duly authorized, executed and delivered by, and each is
the valid and binding obligation of, the Company enforceable against the Company
in accordance with its terms, except as may be limited by applicable bankruptcy,
reorganization, insolvency, moratorium or other similar laws or by legal or
equitable principles relating to or limiting creditors' rights generally.
(c) Except as set forth in Schedule 1.5(c) hereto or as set forth in
---------------
the Company's most recent Securities Exchange Act of 1934 filings with the
Securities and Exchange Commission, copies of which have been provided to Siena
by the Company, the Company has no actual knowledge of any fact that materially
adversely affects, or could reasonably be expected to materially adversely
affect, the business, prospects, properties, assets, operations or financial
condition of the Company, or the ability of the Company to perform its
respective obligations under this Agreement, the Securities or any other
documents or agreements contemplated hereby and thereby.
(d) Easyriders owns all of the authorized capital stock of the
Company. The Common Stock and any Warrant Securities issued pursuant to the
Warrants will, when issued, be duly and validly issued, fully paid and
nonassessable. There are no other outstanding options, warrants or similar
rights of any person to acquire any of the capital stock of the Company and the
4
<PAGE>
Company has no contingent obligations to issue additional shares. The Company is
not subject to any obligation (contingent or otherwise) to repurchase or
otherwise acquire or retire any of its capital stock or other securities or
obligation evidencing the right of any holder thereof to purchase any of its
capital stock or other securities.
(e) The consummation of the transactions contemplated by this
Agreement and the performance of the terms and provisions of this Agreement, the
Securities and any other documents or agreements contemplated hereby and thereby
will not (i) contravene, result in any breach of, or constitute a default under
any indenture, mortgage, deed of trust, bank loan or credit agreement, corporate
charter, by-laws or other material agreement or instrument to which the Company
is a party or by which the Company or any of its properties is bound, (ii)
conflict with or result in a breach of any of the terms, conditions or
provisions of any order of any court, arbitrator or Federal, State, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign (collectively, "Governmental Person")
-------------------
applicable to the Company or (iii) violate any material provision of any statute
or other rule or regulation of any Governmental Person applicable to the
Company.
(f) Except as set forth in Schedule 1.5(f) hereto, no consent,
---------------
approval or authorization of, or registration, filing or declaration with, any
person or entity is required for the issuance of the Securities or the valid
execution and delivery of the Securities or for the performance by the Company
of this Agreement, the Securities, and any other documents or agreements
contemplated hereby and thereby, other than the filings, registrations or
qualifications under the securities laws or "blue sky" laws of any State that
may be required to be made or obtained in connection with the offer, issuance,
sale or delivery of the Securities or any interest therein.
(g) The Company possesses all material licenses, permits, franchises,
authorizations, patents, copyrights, trademarks and trade names and any other
tangible or intangible or intellectual property rights, or rights thereto,
required to conduct its business substantially as now conducted and as currently
proposed to be conducted, without actual knowledge of conflict with the rights
of others. A true, correct and complete list of the Company's material
intellectual property is attached as Schedule 1.5(g) hereto. The Company has not
---------------
directly or indirectly, created, incurred, assumed or permitted to exist any
Lien (as hereinafter defined) on any such intellectual property.
(h) No employee benefit plan established or maintained by the Company
or to which the Company has made contributions is subject to Part 3 of Subtitle
B of Title 1 of the Employee Retirement Income Security Act of 1974, as amended,
or Section 412 of the Internal Revenue Code of 1954, as amended.
(i) Neither the Company nor anyone acting on its behalf has offered
the Securities, or any interest or participation therein, for sale to or
solicited any offer to buy the Securities, or any interest or participation
therein, from, or otherwise approached or negotiated in respect thereof with,
any person other than Siena, and its partners, officers, affiliates and
representatives. Neither the Company nor anyone acting on its behalf has taken
and will not take any action that would require the offer, issuance or sale of
the Securities or any interest or participation therein to be registered under
Section 5 of the Securities Act of 1933, as amended. The Company has not
authorized or appointed any person to act on its behalf in connection with the
5
<PAGE>
offering of the Securities. No broker or finder (other than Imperial Capital,
LLC) has acted for the Company in connection with this Agreement or the
transactions contemplated hereby, and no broker or finder (other than Imperial
Capital, LLC) is entitled to any brokerage or finder's fees or other commission
in respect of such transaction based in any way on agreements, arrangements or
understandings made by or on behalf of the Company.
(j) No part of the proceeds from the sale of the Securities hereunder
will be used, directly or indirectly, for the purpose of buying or carrying any
"margin stock" within the meaning of Regulation G of the Board of Governors of
the Federal Reserve System (12 CFR 207), or for the purpose of buying or
carrying or trading in any securities under such circumstances as to involve the
Company in a violation of Regulation X of said Board (12 CFR 224) or to involve
any broker or dealer in a violation of Regulation T of said Board (12 CFR 220).
The assets of the Company do not include any margin stock, and the Company does
not have any present intention of acquiring any margin stock.
(k) The Company is not an investment company subject to registration
under the Investment Company Act of 1940, as amended.
(l) At Closing, Siena shall acquire good and marketable title to the
Securities free and clear of all covenants, conditions, restrictions, liens,
pledges, charges, encumbrances, options and adverse claims or rights of any kind
whatsoever.
(m) Except for Indebtedness incurred in the ordinary course of
business not in excess of US$10,000 in the aggregate or as otherwise disclosed
in Schedule 1.5(m), the Company has no outstanding Indebtedness of any kind
---------------
(including contingent obligations, tax assessments and unusual forward or long-
term commitments). For purposes of this Agreement, "Indebtedness" shall mean any
------------
obligation for borrowed money (other than the Company's obligations to Siena in
connection herewith), including without limitation (A) any obligation owed for
all or any part of the purchase price of property, services or other assets or
for the cost of property or other assets constructed or of improvements thereto,
(B) accounts payable included in current liabilities outstanding for more than
one hundred twenty (120) days and incurred in respect of property purchased in
the ordinary course of business, (C) any obligations secured by any lien in
respect of property even though the person owning the property has not assumed
or become liable for the payment of such obligation, (D) any guarantee with
respect to any of the foregoing indebtedness of another person, and (E)
obligations in respect of letters of credit.
(n) Except as set forth in Schedule 1.5(f) hereto, there are no
---------------
material (i) actions, suits or legal, equitable, arbitrative or administrative
proceedings pending, or to the knowledge of the Company, threatened against the
Company and (ii) judgements, injunctions, writs, rulings or orders by any
Governmental Person against the Company or its directors or officers.
Section 2 CONDITIONS TO OBLIGATIONS OF SIENA. The obligation of Siena to
purchase and pay for the Securities on the Closing Date shall be subject to the
satisfaction on or before the Closing Date of the conditions hereinafter set
forth:
6
<PAGE>
Section 2.1 Proceedings Satisfactory. All proceedings taken on or prior to
------------------------
the Closing Date in connection with the issuance of the Securities and the
consummation of the transactions contemplated hereby and all documents and
papers relating thereto shall be satisfactory in form and substance to Siena and
its counsel.
Section 2.2 Representations True. All representations and warranties of the
--------------------
Company contained herein shall be true and correct in all respects on and as of
the Closing Date with the same effect as though such representations and
warranties had been made on and as of the Closing Date; the Company shall have
performed in all respects all agreements on its part required to be performed
under this Agreement on or prior to the Closing Date; and no Event of Default
(as hereinafter defined) shall have occurred and be continuing on and as of the
Closing Date.
Section 2.3 The Purchase by Siena Permitted by Applicable Laws. The sale
--------------------------------------------------
by the Company and the payment for the Securities to be purchased by Siena (i)
shall not be prohibited by any applicable law or governmental regulation,
release, interpretation or opinion, (ii) shall not subject Siena to any penalty
under or pursuant to any applicable law or governmental regulation, and (iii)
shall be permitted by the laws and regulations of the jurisdictions to which
Siena is subject.
Section 2.4 Payment of Finance Fee. Concurrently with the Closing, the
----------------------
Company shall have paid to Siena the Finance Fee and all other amounts required
to be paid by the Company pursuant to Section 3.16 hereof.
------------
Section 2.5 Execution and Delivery of Documents. Siena shall have received
-----------------------------------
the following at its offices, duly executed and delivered and in form and
substance satisfactory to Siena and its counsel: the Note, the Warrants and the
Warrant Agreement, and such other documents and information as Siena may
reasonably request in connection herewith, including without limitation, an
Omnibus Certificate, substantially in the form of Exhibit C hereto and a
---------
Guarantee and Pledge in the form of Exhibit D hereto. The Omnibus Certificate
---------
together with this Agreement, the Note, the Warrant Agreement, the Warrants and
the Guarantee and Pledge are sometimes collectively referred to herein as the
"Loan Documents."
--------------
Section 3 COVENANTS. The Company covenants and agrees that on and after the
date hereof, so long as the Note shall be outstanding:
Section 3.1 Payment of the Note. The Company shall pay the principal of and
-------------------
interest on the Note on the dates and in the manner provided in the Note and
this Agreement. The obligation of the Company described in the preceding
sentence is absolute and unconditional, irrespective of any tax or accounting
treatment of such obligation including without limitation any documentary stamp,
transfer, ad valorem or other taxes assessed by any jurisdiction in connection
with this transaction.
Section 3.2 Stay, Extension and Usury Laws. The Company agrees (to the
------------------------------
extent it may lawfully do so) that it will not at any time insist upon, plead or
in any manner whatsoever claim or take the benefit or advantage of, any stay or
extension law or any usury law or other law that would prohibit or forgive the
Company from paying all or a portion of the principal
7
<PAGE>
of, Finance Fee, or interest on the Note as contemplated herein, wherever
enacted, now or at any time hereinafter in force, or that may materially affect
the covenants or the performance of this Agreement in any manner inconsistent
with the provisions of this Agreement. The Company expressly waives all benefit
or advantage of any such law. If a court of competent jurisdiction prescribes
that the Company may not waive its rights to take the benefit or advantage of
any stay or extension law or any usury law or other law in accordance with the
prior sentence, then the obligation to pay interest on the Note shall be reduced
to the maximum legal limit under applicable law governing the interest payable
in connection with the Note, and any amount of interest paid by the Company that
is deemed illegal shall be deemed to have been a prepayment of principal on the
Note.
Section 3.3 Corporate Existence. The Company will do or cause to be done
-------------------
all things necessary to preserve and keep in full force and effect its corporate
existence, as the case may be, in accordance with the rights (charter and
statutory), licenses and franchises of the Company.
Section 3.4 Taxes. The Company shall pay prior to delinquency all taxes,
-----
assessments and governmental levies that may be imposed upon the Company, except
as contested in good faith and by appropriate proceedings.
Section 3.5 Limitations on Indebtedness. Without Siena's prior written
---------------------------
consent, which consent may not be unreasonably withheld or denied, and except as
permitted under the Nomura Agreement, the Company shall not, directly or
indirectly, create, incur, assume, suffer to exist or otherwise in any manner
become liable or commit to become liable for any Indebtedness other than the
Company's obligations to Siena in connection herewith and Indebtedness incurred
in the ordinary course of business not in excess of US$10,000 in the aggregate.
Notwithstanding the foregoing, should Siena consent to the Company's incurring
of any Indebtedness (other than Indebtedness described in the immediately
preceding sentence) and subject to the provisions of the Nomura Agreement, the
net proceeds of such Indebtedness shall be applied as a mandatory prepayment of
principal of the Note in accordance with Section 1.3(e) hereof.
--------------
Section 3.6 Limitations on Liens. The Company shall not directly or
--------------------
indirectly, create, incur, assume or permit to exist or otherwise cause or
permit to become effective any mortgage, lien, pledge, charge, security interest
or other encumbrance in or on, or any interest or title of any vendor, lessor,
lender or other secured party to or of the Company under any conditional sale or
other title retention agreement or capital lease with respect to, any property
or asset of the Company, or the signing or filing of a financing statement that
names the Company as debtor, or the signing of any security agreement
authorizing any other party as the secured party thereunder to file any
financing statement (collectively, a "Lien"), other than Liens created in
----
connection with, or permitted under, the Nomura Agreement or otherwise approved
in writing by Siena.
Section 3.7 Intentionally deleted.
Section 3.8 Limitations on Transactions with Affiliates. The Company shall
-------------------------------------------
not make any payment to or investment in, or enter into any transaction with,
any Affiliate, including without limitation the purchase, sale or exchange of
property or the rendering of any service, except transactions entered into with
Affiliates (I) which are permitted under the Nomura Agreement or (II) (a) in the
ordinary course of business, (b) on terms and conditions substantially similar
to those that
8
<PAGE>
the Company would have received in an "arm's length" transaction with a third
party and (c) related to the Company's principal activities. For purposes of
this Agreement, "Affiliate" shall mean any other person controlling or
---------
controlled by or under common control with such specified person. For the
purposes of this definition, "control" when used with respect to any specified
-------
person means the power to direct the management and policies of such person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
----------- ----------
meanings correlative to the foregoing.
Section 3.9 Change in Control. Except with Siena's written consent, the
-----------------
Company shall not merge or consolidate with or into, or sell, transfer, lease or
convey all or substantially all of its assets to, any person or into another
corporation or entity, or otherwise permit any person or group to acquire direct
or indirect beneficial ownership of 50% or more of the outstanding Common Stock.
Section 3.10 Maintenance of Properties. The Company shall maintain,
-------------------------
preserve, protect and keep its properties in good repair, working order and
condition (ordinary wear and tear excepted), and make necessary and proper
repairs, renewals and replacements so that its business carried on in connection
therewith may be properly conducted at all times consistent with past practices
of the Company.
Section 3.11 Maintenance of Insurance. The Company shall maintain insurance
------------------------
with responsible and reputable insurance companies or associations in such
amounts and covering such risks as is usually carried by companies engaged in
similar businesses and owning similar properties in the same general areas in
which the Company operates.
Section 3.12 Sale of Assets. Except as permitted by the Nomura Agreement,
--------------
the Company shall not sell, lease, transfer or dispose of any of its interest in
its respective properties or assets, whether real, personal or mixed, or
tangible or intangible, other than in the ordinary course of business consistent
with prudent business practice (which includes the disposition in a commercially
reasonable manner of equipment and inventory that is obsolete).
Section 3.13 Repurchase of Securities. Except with Siena's written consent,
------------------------
the Company shall not repurchase or otherwise acquire or retire any of its
capital stock or other equity securities or obligation evidencing the right of
any holder thereof to purchase any of its capital stock or other securities in
an aggregate amount in excess of US$10,000.00.
Section 3.14 Reporting; Inspection. On the last day of each month
---------------------
commencing with September 30, 1999, the Company shall provide to Siena a written
certificate signed by the Company's President, containing the following: (a)
copies of all reports and other written information which the Company delivers
to its securityholders during such month; (b) copies of all of the Company's
internally prepared balance sheets, profit and loss statements and cash flow
statements for such month, all prepared in conformity with generally accepted
accounting principles except for the absence of footnotes and for regularly
recurring periodic adjustments; (c) copies of any other material submissions to
any Governmental Persons during such month; and (d) such other information as
Siena may reasonably request from time to time, including without limitation the
ability to communicate orally and in writing with officers and directors of the
Company. In addition,
9
<PAGE>
Siena shall have the right to inspect the Company's properties and to examine
its books and records, all at reasonable times and upon reasonable notice to the
Company.
Section 3.15 Compliance with Laws. The Company shall comply in all respects
--------------------
with all applicable laws, statutes and regulations of any Governmental Person, a
violation of which would have a material adverse effect on the financial
condition, operations, business, profits, prospects or properties of the Company
or the validity or enforceability of this Agreement, the Securities or any other
documents or agreements contemplated hereby or thereby or any of the
transactions contemplated hereby or thereby.
Section 3.16 Payment of Expenses. Whether or not the transactions
-------------------
contemplated by this Agreement are consummated, the Company shall promptly pay
to Siena all reasonable costs and out-of-pocket expenses of Siena, including
without limitation its reasonable attorneys' fees and the Finance Fee, incurred
in connection with the negotiation, preparation, execution and delivery of this
Agreement and the Securities, any administration costs in connection therewith,
and defense or enforcement costs related thereto. On the Closing Date, the
Company shall pay the Finance Fee to Siena and all reasonable costs and
out-of-pocket expenses of Siena, including, without limitation, the reasonable
fees, office charges and expenses of Nida & Maloney, counsel to Siena, by
directing Siena to pay itself and such entities on the Closing Date out of the
Purchase Price.
Section 4 EVENTS OF DEFAULT; REMEDIES.
Section 4.1 Events of Default Defined; Acceleration of Maturity. If any of
---------------------------------------------------
the following events ("Events of Default") shall occur and be continuing (for
-----------------
any reason whatsoever and whether it shall be voluntary or involuntary or by
operation of law or otherwise):
A. default shall be made in the payment of the principal of, or interest
on, the Note when and as the same shall become due and payable, whether at
stated maturity, by acceleration, upon a mandatory prepayment due date or
otherwise; or
B. default shall be made in the performance or observance of any covenant,
agreement or condition contained herein or in any of the other Loan Documents,
and such default shall have continued for a period of five (5) Business Days; or
C. default shall be made in the performance or observance of any covenant,
agreement or condition contained in the Nomura Agreement and such default shall
have resulted in an acceleration of the obligations under the Nomura Agreement;
or
D. the Company shall (1) apply for or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of itself
or of all or a substantial part of its property and assets, (2) be generally
unable to pay its debts as such debts become due, (3) make a general assignment
for the benefit of its creditors, (4) commence a voluntary case under the United
States Bankruptcy Code or similar law or regulation (as now or hereafter in
effect), (5) file a petition seeking to take advantage of any other law
providing for the relief of debtors, (6) fail to controvert in a timely or
appropriate manner, or acquiesce in writing to, any petition filed against it in
an involuntary case under such Bankruptcy Code or other law or regulation, (7)
dissolve, (8) take
10
<PAGE>
any corporate action under any applicable law analogous to any of the foregoing,
or (9) take any corporate action for the purpose of effecting any of the
foregoing; or
E. a proceeding or case shall be commenced, without the application or
consent of the Company in any court of competent jurisdiction, seeking (1) the
liquidation, reorganization, dissolution, winding up or composition or
readjustment of its debts, (2) the appointment of a trustee, receiver,
custodian, liquidator or the like of it or for all or any substantial part of
its assets, or (3) similar relief in respect of the Company, under any law
providing for the relief of debtors, and such proceeding or case shall continue
undismissed, or unstayed and in effect, for a period of sixty (60) days; or an
order for relief shall be entered in an involuntary case under the United States
Bankruptcy Code or other similar law or regulation, against the Company; or
action under the laws of any jurisdiction affecting the Company analogous to any
of the foregoing shall be taken with respect to the Company and shall continue
unstayed and in effect for any period of sixty (60) days; or
F. final judgment for the payment of money shall be rendered by a court of
competent jurisdiction against the Company and the Company shall not discharge
the same or provide for its discharge in accordance with its terms, or procure a
stay of execution thereof within sixty (60) days from the date of entry thereof
and within said period of sixty (60) days, or such longer period during which
execution of such judgment shall have been stayed, appeal therefrom and cause
the execution thereof to be stayed during such appeal, and such judgment
together with all other such judgments shall exceed in the aggregate US$50,000;
or
G. any representation or warranty made by the Company in this Agreement, or
any other documents or agreements contemplated hereby and thereby or in any
certificate or other instrument delivered hereunder or pursuant hereto or in
connection with any provision hereof shall be false or incorrect in any material
respect on the date as of which made;
then (x) upon the occurrence of any Event of Default described in subsection D
------------
or E, the unpaid principal amount of the Note, together with the interest
- ----
accrued thereon and all other amounts payable by the Company hereunder, shall
automatically become immediately due and payable, without presentment, demand,
protest or other requirements of any kind, all of which are hereby expressly
waived by the Company or (y) upon the occurrence of any other Event of Default,
Siena may, by notice to the Company, declare the unpaid principal amount of the
Note to be, and the same shall forthwith become, due and payable, together with
the interest accrued thereon and all other amounts payable by the Company
hereunder.
Section 4.2 Suits for Enforcement. If any Event of Default shall have
---------------------
occurred and be continuing, Siena may proceed to protect and enforce its rights
against the Company, either by suit in equity or by action at law, or both,
whether for the specific performance of any covenant or agreement contained in
this Agreement or in aid of the exercise of any power granted in this Agreement,
or Siena may proceed to enforce the payment by the Company of all sums due upon
the Note or to enforce any other legal or equitable right of Siena.
The Company covenants that, if it shall default in the making of any
payment due under the Note or in the performance or observance of any agreement
contained in this Agreement, it will pay to Siena such further amounts, to the
extent lawful, to cover any reasonable costs and
11
<PAGE>
expenses of collection or of otherwise enforcing Siena's rights, including
without limitation the reasonable counsel fees and costs and expenses incurred
in connection with any restructuring, negotiation, refinancing, workout,
bankruptcy or other similar transaction or proceeding. The obligations set forth
in this paragraph shall survive the payment in full of the Note.
Section 4.3 Remedies Cumulative. No remedy herein conferred upon Siena is
-------------------
intended to be exclusive of any other remedy and each and every such remedy
shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute or
otherwise.
Section 4.4 Remedies Not Waived. No course of dealing between the Company
-------------------
and any other person and no delay or failure in exercising any rights hereunder
or under the Note in respect thereof shall operate as a waiver of Siena's
rights.
Section 5 TAXES.
The Company will pay all taxes (including interest and penalties), other
than taxes imposed on the income of Siena, which may be payable in respect of
the execution and delivery of this Agreement or of the execution and delivery
(but not the transfer) of any of the Securities or of any amendment of, or
waiver or consent under or with respect to, this Agreement or of any of the
Securities and will save Siena and all subsequent holders of the Securities
harmless against any loss or liability resulting from nonpayment or delay in
payment of any such tax. The obligations of the Company under this Section shall
survive the payment of the Note.
Section 6 MISCELLANEOUS.
Section 6.1 Indemnification. The Company agrees to indemnify, defend and
---------------
hold harmless Siena and its successors, assigns, heirs, subsidiaries, Affiliates
and all of the officers, directors, employees, partners and agents (including
attorneys and accountants) of each of the aforementioned persons or entities,
and each of them, from and against any and all losses, claims, damages,
liabilities, expenses, demands, causes of action, suits, debts, obligations,
rights, promises, acts, agreements and damages of any kind or nature whatsoever,
whether at law or in equity, whether known or unknown, foreseen or unforeseen,
heretofore or hereafter arising out of, relating to, connected with or
incidental to the failure of any representation or warranty made by the Company
or in any other documents or agreements contemplated hereby or the failure of
the Company to comply in all material respects with the covenants contained in
this Agreement or in any other documents or agreements contemplated hereby. The
indemnification set forth herein shall in no way limit, impair or otherwise have
any effect on the indemnification provisions set forth in any agreement between
Imperial Capital, LLC and the Company.
Section 6.2 Reliance on and Survival of Representations. All
-------------------------------------------
representations, warranties, covenants and agreements of the Company herein
shall be deemed to be material and to have been relied upon by Siena and shall
survive the execution and delivery of this Agreement and of the Securities, for
so long as the Note remains outstanding.
12
<PAGE>
Section 6.3 Successors and Assigns. This Agreement shall bind and inure to
----------------------
the benefit of and be enforceable by the Company, Siena and each of their
respective successors and assigns, and, in addition, shall inure to the benefit
of and be enforceable by each person who shall from time to time be a holder of
the Note. Siena shall be permitted to transfer the Securities in accordance with
their terms and in accordance with applicable restrictions under applicable
federal and state securities laws.
Section 6.4 Notices. All notices and other communications provided for in
-------
this Agreement shall be in writing and delivered by registered or certified
mail, postage prepaid, or delivered by overnight courier (for next Business Day
delivery) or telecopied, addressed as follows, or at such other address as any
of the parties hereto may hereafter designate by notice to the other parties
given in accordance with this Section:
-------
1) if to the Company or the Shareholders:
Paisano Publications, Inc.
28210 Dorothy Drive
Agoura Hills, CA 91301
Attn: J. Robert Fabregas
Telephone: 818-889-8740
Telecopier: 818-889-4726
2) if to Siena:
Siena Capital Partners, L.P.
150 South Rodeo Drive, Suite 100
Beverly Hills, California 90212
Attn: Christopher P. Shepard
Telephone: (310) 246-3700
Telecopy: (310) 246-3672
With a copy of any notice to:
Nida & Maloney, LLP
800 Anacapa Street
Santa Barbara, California 93101
Attn: C. Thomas Hopkins, Esq.
Telephone: (805) 568-1151
Telecopy: (805) 568-1955
Any such notice or communication shall be deemed to have been duly given on
the fifth day after being so mailed, the next Business Day after delivery by
overnight courier, when received when sent by telecopy or upon receipt when
delivered personally.
Section 6.5 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one
13
<PAGE>
and the same instrument. Signatures may be exchanged by telecopy, with original
signatures to follow. Each of the parties hereto agrees that it will be bound by
its own telecopied signature and that it accepts the telecopied signatures of
the other parties to this Agreement. The original signature pages shall be
forwarded to Siena or its counsel and Siena or its counsel will provide all of
the parties hereto with a copy of the entire Agreement.
Section 6.6 Amendments. This Agreement may only be amended by a writing
----------
duly executed by the parties hereto.
Section 6.7 Severability. If any term or provision of this Agreement or any
------------
other document executed in connection herewith shall be determined to be illegal
or unenforceable, all other terms and provisions hereof and thereof shall
nevertheless remain effective and shall be enforced to the fullest extent
permitted by applicable law.
Section 6.8 Governing Law; Submission to Process. EXCEPT TO THE EXTENT THAT
------------------------------------
THE LAW OF ANOTHER JURISDICTION IS EXPRESSLY SELECTED IN A DOCUMENT OR SECURITY,
THIS AGREEMENT AND THE SECURITIES AND ALL AMENDMENTS, SUPPLEMENTS, WAIVERS AND
CONSENTS RELATING HERETO OR THERETO SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAW. THE COMPANY HEREBY IRREVOCABLY SUBMITS ITSELF TO THE
NON-EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE STATE
OF CALIFORNIA AND AGREES AND CONSENTS THAT SERVICE OF PROCESS MAY BE MADE UPON
IT IN ANY LEGAL PROCEEDINGS RELATING HERETO BY ANY MEANS ALLOWED UNDER
CALIFORNIA OR FEDERAL LAW. THE COMPANY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO
THE LAYING OF VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH COURT AND ANY CLAIM
THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. THE COMPANY SHALL APPOINT AN AGENT FOR SERVICE OF PROCESS IN
CALIFORNIA AND SHALL NOTIFY SIENA OF ANY FUTURE CHANGE THEREIN.
Section 6.9 Entire Agreement. This Agreement contains the entire Agreement
----------------
of the parties hereto with respect to the transactions contemplated hereby and
supersedes all previous oral and written, and all previous contemporaneous oral
negotiations, commitments and understandings.
Section 6.10 Further Assurances. The Company agrees promptly to execute and
------------------
deliver such documents and to take such other acts as are reasonably necessary
to effectuate the purposes of this Agreement.
Section 6.11 Headings. The headings contained herein are for reference
--------
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
14
<PAGE>
Section 6.12 Waiver of Jury Trial. THE COMPANY AND SIENA EACH HEREBY AGREE
--------------------
TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF THIS AGREEMENT, THE SECURITIES OR ANY OTHER
AGREEMENTS RELATING TO THE SECURITIES OR ANY DEALINGS BETWEEN THEM RELATING TO
THE SUBJECT MATTER OF THIS TRANSACTION. NOTWITHSTANDING ANYTHING TO THE CONTRARY
HEREIN, THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, THE SECURITIES OR ANY
OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE SECURITIES.
Section 6.13 Assignments and Participations; Right of First Refusal;
-------------------------------------------------------
Repurchase Right. The Company may not assign its rights or obligations hereunder
- ----------------
or under the Note without the prior written consent of Siena. Siena may assign
all or any portion of the Note or other Securities without the prior consent of
the Company or Easyriders. Siena may sell or agree to sell to one or more other
persons a participation in all or any part of any of the Note or other
Securities without the prior consent of the Company or Easyriders. Upon
surrender of the Note or other Securities, the Company or Easyriders shall
execute and deliver one or more substitute notes, warrants or other securities
in such denominations and of a like aggregate unpaid principal amount or other
amount issued to Siena and/or to Siena's designated transferee or transferees.
Siena may furnish any information in the possession of Siena concerning the
Company or Easyriders, or any of its respective subsidiaries, from time to time
to assignees and participants (including prospective assignees and
participants). In the event Siena proposes to sell or otherwise transfer the
Note (except for the sale of participating interests in the Note) or receives a
bona-fide offer from any third party to purchase the Note which Siena elects to
accept then Siena shall give written notice to Joseph Teresi and John Martin
(collectively, the "Shareholders") of its intention to transfer (the "Sale
------------ ----
Notice"). In such event, the Shareholders shall have the right, but not the
- ------
obligation, to purchase the Note by paying to Siena all outstanding principal
and all accrued and unpaid interest of the Note (the "Purchase Amount"). The
---------------
Shareholders shall deliver to Siena within five (5) Business Days after receipt
of the Sale Notice from the Secretary, a written election (the "Purchase
--------
Notice") to purchase the Note along with immediately available funds in an
- ------
amount equal to the Purchase Amount. The Shareholders shall also have the right,
at any time while the Note is outstanding, to purchase the Note by delivering to
Siena a Purchase Notice and immediately available funds in an amount equal to
the Purchase Amount.
[Signature page to follow.]
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto execute this Agreement as of the date
first set forth above.
SIENA:
SIENA CAPITAL PARTNERS, L.P.,
a California limited partnership
By: Charleville Capital, L.P.,
a California limited partnership,
its general partner
By: Aneis Advisors, Inc.,
a California corporation,
its general partner
By: /s/ Chris Shepard
___________________________
Name: Chris Shepard
Title: V.P.-Secretary
THE COMPANY:
PAISANO PUBLICATIONS, INC.,
a California corporation
By: /s/ J. Robert Fabregas
_______________________________
Name: J. Robert Fabregas
Title: Secretary
16
<PAGE>
Exhibit A
FORM OF NOTE
17
<PAGE>
Exhibit B
FORM OF WARRANT AGREEMENT
18
<PAGE>
Exhibit C
OMNIBUS CERTIFICATE
19
<PAGE>
Omnibus Certificate
-------------------
I, J. Robert Fabregas, do hereby certify that I am the duly appointed,
qualified and acting Secretary of Paisano Publications, Inc. (the
"Corporation"), and that, in such capacity, I am authorized to certify on behalf
of the Corporation to Siena Capital Partners, L.P. ("Siena"), in connection with
that certain Securities Purchase Agreement dated as of October 14, 1999, (the
"Agreement"), by and among the Corporation and Siena, that:
1. Attached hereto as Exhibit A are true, correct and complete copies of
---------
the Articles of Incorporation of the Corporation, and all amendments
thereto, certified by the Secretary of State of the State of
California, and as in effect on the date hereof.
2. Attached hereto as Exhibit B are true, correct and complete copies of
---------
the Bylaws of the Corporation as in effect on the date hereof.
3. Attached hereto as Exhibit C are true, correct and complete copies of
---------
the resolutions, adopted by unanimous written consent of the Board of
Directors of the Corporation, approving the Agreement and the
transactions contemplated therein, authorizing the execution,
delivery and performance by the Corporation of the Agreement to which
it is a party and the consummation of the transactions contemplated
therein, which resolutions have not been revoked, modified, amended
or rescinded and are still in full force and effect on the date
hereof.
4. The below-named persons or entities have been duly elected and
qualified and on October 14, 1999 were and at all time subsequent
thereto, including the date hereof, have been officers of the
Corporation, holding the offices indicated opposite their respective
names.
Name Office
- ---- ------
William E. Prather President
J. Robert Fabregas Executive Vice President, Secretary
Robert Davis Vice President, Treasurer, Chief Financial Officer
Rick Busman Senior Vice President - Publishing
Grady Pfeiffer Vice President - Sales
David Nichols Vice President - Media
Michael Weinglass Vice President - Manufacturing and Production
Richard Marzella Vice President - Circulation
Gilbert Luna Vice President - Associate Publisher
Page 1 of 2
<PAGE>
DATED AND EFFECTIVE as of October 14, 1999.
------------------------------------
J. Robert Fabregas
Secretary
The undersigned hereby certifies that J. Robert Fabregas, who executed the
foregoing certificate is the duly elected Secretary of the Corporation, and the
signature set forth above his name is his genuine signature.
------------------------------------
Name: Robert Davis
Title: Vice President
Page 2 of 2
<PAGE>
[STAMP]
E N D O R S E D
F I L E D
In the office of the Secretary of State
of the State of California
NOV 17 1970
H.P. SULLIVAN, Secretary of State
By JAMES E. HARRIS
Deputy
ARTICLES OF INCORPORATION
-------------------------
OF
PAISANO PUBLICATIONS, INC.
--------------------------
KNOW ALL MEN BY THESE PRESENTS:
That we, the undersigned, have this day voluntarily associated ourselves
together for the purpose of forming a corporation under the laws of the State of
California, and we do hereby certify:
I
The name of this corporation is PAISANO PUBLICATIONS, INC.
II
The purposes for which this corporation is formed are:
A. Primarily, to publish and distribute, at wholesale and retail,
magazines, periodicals, books, photographs and printed matter of every
description; and secondarily, as follows:
B. To carry on any business whatsoever which this corporation may deem
proper or convenient in connection with the foregoing purposes or otherwise, or
which may be calculated directly or indirectly to promote the interest of this
corporation, or to enhance the value of its property or business;
C. To borrow money; to lend money; to own real property; to own personal
property; to have and to exercise all the powers conferred by the laws of the
State of California upon corporations formed under the laws pursuant to and
under which this corporation is formed, as such laws are now in effect or may at
any time hereafter be enacted or amended;
D. To act as principal, agent, joint venturer, partner, or in any other
capacity which may be authorized, ratified or approved by the board of directors
of this corporation; and
E. To transact business in the State of California or in any other
jurisdiction of the United States of America or elsewhere in the world.
-1-
<PAGE>
The foregoing statement of purposes shall be construed as a statement of
both purposes and powers, and the purposes and powers stated in each clause
shall, except where otherwise expressed, be in nowise limited or restricted by
reference to or inference from the terms or provisions of any other clause, but
shall be regarded as independent purposes.
III
The principal office for the transaction of the business of this
corporation is to be located in the County of Los Angeles, State of California.
IV
A. There shall be only one class of stock of this corporation, and the
total number of shares that the corporation shall have authority to issue is 500
shares; that the aggregate par value of all shares is $25,000.00, each share
having a par value of $50.00. Such shares may be issued from time to time for
such consideration as the directors from time to time determine.
B. Each shareholder or subscriber to shares of this corporation shall be
entitled to full pre-emptive or preferential rights, as such rights have been
heretofore defined at common law, to purchase and subscribe for his
proportionate part of any shares which may be issued at anytime by this
corporation.
C. Before there can be a valid sale or transfer of any of the shares of
this corporation by the holders thereof, the holder of the shares to be sold or
transferred shall first give notice in writing to the secretary of this
corporation of his intention to sell or transfer such shares. Said notice shall
specify the number of shares to be sold or transferred, the price per share, and
the terms upon which such holder intends to make such sale or transfer. The
secretary shall, within five days thereafter, mail or deliver a copy of said
notice to each of the other shareholders of record of this corporation. Within
thirty days after the mailing or delivering of said notices to such
shareholders, any such shareholder desiring to acquire any part or all of the
shares referred to in said notice shall deliver to the secretary a written offer
to purchase a specified number of such shares at the price and on terms stated
in said notice.
If the total number of shares specified in such offer exceeds the number
of shares referred to in said notice, each offering shareholder shall be
entitled to purchase such proportion of the shares in said notice, as the number
shares which he holds bears to the total number of shares held by all such
offering shareholders.
If all the shares in said notice are not disposed of under such
apportionment, each shareholder desiring to purchase
-2-
<PAGE>
shares in excess of his proportionate share shall be entitled to purchase such
proportion of those remaining shares, as the total number of shares which he
holds bears to the total number of shares held by other offering shareholders
desirous of purchasing in excess of such apportionment.
If none or only a part of the shares in said notice is purchased as
aforesaid, within said thirty-day period, the shareholder desiring to sell or
transfer may dispose of all unpurchased shares to any person he may so desire;
provided that he shall not sell or transfer such shares, however, at a lower
price or on terms more favorable to the purchased or transferee than those
specified in said notice to the secretary.
Any sale or transfer, or purported sale or transfer, of the shares of this
corporation shall be null and void unless the terms, conditions and provisions
of this Article IV(C) are strictly observed and followed.
V
The number of the directors is three (3), and the names and addresses of
the persons who are appointed to act as the first directors of this corporation
are:
Louis Kimzey
301 Ocean
Seal Beach, California 90740
Joseph Teresi
2117 North Buena Vista
Burbank, California 91504
Milford C. Blair
2117 North Buena Vista
Burbank, California 91504
VI
Authority is hereby granted to the holders of shares of this corporation
untitled to vote, to change from time to time the authorized number of directors
of this corporation by a duly adopted amendment to the by-laws of this
corporation.
DATED: November, 11 1970
/s/ Louis Kimzey
------------------------------
LOUIS KIMZEY
/s/ Joseph Teresi
------------------------------
JOSEPH TERESI
/s/ Milford C. Blair
------------------------------
MILFORD C. BLAIR
-3-
<PAGE>
STATE OF CALIFORNIA )
: ss.
COUNTY OF LOS ANGELES)
On October 26, 1970, before me, the undersigned, a Notary Public in and for
said county and state, personally appeared JOSEPH TERESI, known to me to be the
person whose name is subscribed to the foregoing Articles of Incorporation, and
acknowledged to me that he executed the same.
/s/ RUSSELL A. CANNON
--------------------------------------
Notary Public in and for
said county and state
- -----------------------------------
[SEAL] OFFICIAL SEAL
RUSSELL A. CANNON
NOTARY PUBLIC CALIFORNIA
PRINCIPAL OFFICE IN
SAN DIEGO COUNTY
MY COMMISSION EXPIRES JULY 7, 1974
- -----------------------------------
STATE OF CALIFORNIA )
: ss.
COUNTY OF LOS ANGELES)
On October 26, 1970, before me, the undersigned, a Notary Public in and for
said county and state, personally appeared MILFORD C. BLAIR, known to me to be
the person whose name is subscribed to the foregoing Articles of Incorporation,
and acknowledged to me that he executed the same.
/s/ RUSSELL A. CANNON
--------------------------------------
Notary Public in and for
said county and state
- -----------------------------------
[SEAL] OFFICIAL SEAL
RUSSELL A. CANNON
NOTARY PUBLIC CALIFORNIA
PRINCIPAL OFFICE IN
SAN DIEGO COUNTY
MY COMMISSION EXPIRES JULY 7, 1974
- -----------------------------------
-4-
<PAGE>
STATE OF CALIFORNIA )
: ss.
COUNTY OF LOS ANGELES )
On November 11, 1970, before me, the undersigned,
a Notary Public in and for said county and state, personally
appeared LOUIS KIMZEY, known to me to be the person whose name
is subscribed to the foregoing Articles of Incorporation, and
acknowledged to me that he executed the same.
/s/ Gary M. Crane
--------------------------
Notary Public in and for
said county and state
=========================================
OFFICIAL SEAL
(SEAL) GARY M. CRANE
Notary Public - California
PRINCIPAL OFFICE IN
LOS ANGELES COUNTY
MY COMMISSION EXPIRES NOV. 29, 1971.
=========================================
<PAGE>
[LOGO] State
of
California
OFFICE OF THE SECRETARY OF STATE
================================================================================
I, MARCH FONG EU, Secretary of State of the State of California, hereby
certify:
That the annexed transcript has been compared with the record on file in
this office, of which it purports to be a copy, and that same is full, true and
correct.
IN WITNESS WHEREOF, I execute
this certificate and affix the Great
Seal of the State of California this
MAY 19 1986
--------------------------
/s/ March Fong Eu
Secretary of State
[SEAL]
THE GREAT SEAL OF THE STATE OF
CALIFORNIA
Exhibit A
<PAGE>
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
-----------------------------------------------------
OF PAISANO PUBLICATIONS, INC., A CALIFORNIA CORPORATION
-------------------------------------------------------
Joseph Teresi and Milford C. Blair declare that:
1. They are the duly elected and acting President and Treasurer,
respectively, of said Corporation.
2. The Articles of Incorporation of said Corporation should be amended by
revising Article V to read as follows:
"The number of the Directors is three (3)."
3. The foregoing amendment has been approved by the Board of Directors of
said Corporation.
4. The foregoing amendment was approved by the required vote of the
shareholders of said Corporation in accordance with ss.902 of the California
General Corporation Laws. The Corporation has only one class of shares. The
- ------------------------
total number of outstanding shares entitled to vote with respect to the
foregoing amendment was fifty (50) common shares. The number of shares voting in
favor of the foregoing amendment equaled or exceeded the vote required, such
required vote being a majority of the outstanding shares.
IN WITNESS WHEREOF, the undersigned have executed this certificate on
3-14-, 1986.
/s/ Joseph Teresi Pres.
-------------------------------
JOSEPH TERESI, President
/s/ Milford C. Blair
-------------------------------
MILFORD C. BLAIR, Treasurer
The undersigned, Joseph Teresi and Milford C. Blair, the President and
Treasurer respectively, of Paisano Publications, Inc., each declares under
penalty of perjury that the matters set out in the foregoing certificate are
true of his own knowledge.
Executed at Agoura Hills, California on 3-14-, 1986.
/s/ Joseph Teresi Pres.
-------------------------------
JOSEPH TERESI, President
/s/ Milford C. Blair
-------------------------------
MILFORD C. BLAIR, Treasurer
[STAMP]
E N D O R S E D
F I L E D
In the office of the Secretary of State
of the State of California
MAY 8 1986
MARCH FONG EU, Secretary of State
<PAGE>
[LOGO] State
of
California
OFFICE OF THE SECRETARY OF STATE
================================================================================
I, MARCH FONG EU, Secretary of State of the State of California, hereby
certify:
That the annexed transcript has been compared with the record on file in
this office, of which it purports to be a copy, and that same is full, true and
correct.
IN WITNESS WHEREOF, I execute
this certificate and affix the Great
Seal of the State of California this
MAR 16 1986
------------------------
/s/ March Fong Eu
Secretary of State
[SEAL]
THE GREAT SEAL OF THE STATE OF
CALIFORNIA
<PAGE>
[STAMP]
E N D O R S E D
F I L E D
In the office of the Secretary of State
of the State of California
MAR 7 - 1983
MARCH FONG EU, Secretary of State
By JAMES E. HARRIS
Deputy
CERTIFICATE OF AMENDMENT OF ARTICLES OF
---------------------------------------
INCORPORATION OF PAISANO PUBLICATIONS INC.
------------------------------------------
LOUIS KIMZEY and JOSEPH TERESI certify that:
1. They are the President and the Secretary of PAISANO PUBLICATIONS, INC.,
a California corporation.
Article V of the Articles of Incorporation of said corporation shall
be amended to read in full as follows:
"The number of directors is two (2)."
2. The amendment has been approved by the Board of Directors.
The amendment has been approved by the required vote of the
shareholders in accordance with Section 902 of the California Corporations Code.
The corporation has only one class of shares. Each outstanding share is entitled
to one vote. There are only 2 shareholders. The corporation has fifty (50)
shares outstanding and, hence, the total number of shares entitled to vote with
respect to the amendment was fifty (50). The number of shares voting in favor of
the amendment exceeded the vote required, in that the affirmative vote of 83-1/3
per cent of the outstanding shares was required for approval of the amendment
and the amendment was approved by the affirmative vote of fifty (50) shares or
100 per cent of the outstanding voting shares.
/s/ Louis Kimzey
------------------------------------
LOUIS KIMZEY
President
/s/ Joseph Teresi
------------------------------------
JOSEPH TERESI
Secretary
Each of the undersigned declares under penalty of perjury that the matters
set forth in the foregoing certificate
<PAGE>
are true and correct of his own knowledge and that this Declaration was executed
on this 14 day of Jan, 1983, at Monrovia, California.
/s/ Louis Kimzey
------------------------------------
LOUIS KIMZEY
/s/ Joseph Teresi
------------------------------------
JOSEPH TERESI
2.
<PAGE>
EXHIBIT 10.67
BY-LAWS
OF
PAISANO PUBLICATIONS, INC.
--------------------------
A CALIFORNIA CORPORATION
ARTICLE I
OFFICES
Section 1. PRINCIPAL EXECUTIVE OFFICE. The principal executive office of
the corporation is hereby fixed and located at 261 Latigo Canyon Road, City of
Malibu, State of California. The Board of Directors is hereby granted full power
and authority to change said principal executive office from one location to
another. The location of the principal executive office of the corporation need
not be in the State of California.
Section 2. OTHER OFFICES. Branch or subordinate offices may at any time be
established by the Board of Directors at any place or places.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. PLACE OF MEETINGS. All meetings of shareholders shall be held
either at the principal executive office or at any other place within or without
the State of California which may be designated either by the Board of Directors
pursuant to authority hereinafter granted to said Board, or by written consent
of all shareholders entitled to vote thereat, given either before or after the
meeting, filed with the Secretary of the corporation.
Section 2. ANNUAL MEETINGS. The annual meetings of shareholders, commencing
with the meeting to be held in 1982, shall be held at 10:00 o'clock A.M. on the
5th of January if not a legal holiday, and if a legal holiday, then on the next
business day following which is not a legal holiday, or at such other time and
date as may be designated by the Board of Directors. At such meeting the
shareholders shall elect a Board of Directors in accordance with the provisions
of Article II, Section 6 of the By-Laws, and transact such other business as
may properly be brought before the meeting.
-1-
<PAGE>
Written notice of each annual meeting shall be given to each shareholder
entitled to vote thereat, either personally or by mail or other means of written
communication, charges prepaid, addressed to such shareholder at his or her
address appearing on the books of the corporation or given by him or her to the
corporation for the purpose of notice. If any notice or report addressed to the
shareholder at the address of such shareholder appearing on the books of the
corporation is returned to the corporation by the United States Postal Service
marked to indicate that the United States Postal Service is unable to deliver
the notice or report to the shareholder at such address, all future notices or
reports shall be deemed to have been duly given without further mailing if the
same shall be available to the shareholder upon written demand of the
shareholder at the principal executive office of the corporation for a period of
one year from the date of the giving of the notice or report to all other
shareholders. If a shareholder gives no address, notice shall be deemed to have
been given him or her if sent by mail or other means of written communication
addressed to the place where the principal executive office of the corporation
is situated, or if published at least once in some newspaper of general
circulation in the county in which said office is located.
All such notices shall be given to each shareholder entitled thereto not
less than ten (10) days nor more than sixty (60) days before each annual
meeting. Any such notice shall be deemed to have been given at the time when
delivered personally or deposited in the mail or sent by other means of written
communication.
Such notices shall specify:
(a) the place, the date, and the hour of such meeting;
(b) those matters which the Board, at the time of the mailing of the
notice, intends to present for action by the shareholders;
(c) if directors are to be elected, the names of nominees intended at the
time of the notice to be presented by management for election;
(d) the general nature of a proposal, if any, to take action with respect
to approval of: (i) a contract or other transaction with an interested
director, (ii) amendment of the Articles of Incorporation, (iii) a
-2-
<PAGE>
reorganization of the corporation as defined in Section 181 of the
California General Corporations Law, (iv) voluntary dissolution of the
corporation, or (v) a distribution in dissolution other than in accordance
with the rights of outstanding preferred shares, if any; and
(e) such other matters, if any, as may be expressly required by
statute.
Section 3. SPECIAL MEETINGS. Special meetings of the shareholders, for any
purpose or purposes whatsoever may be called at any time by the Chairman of the
Board or the President, or by the Board of Directors, or by holders of shares
entitled to cast not less than ten percent (10%) of the votes at the meeting.
Upon request in writing directed to the Chairman of the Board, President, Vice
President or Secretary by any person (other than the Board) entitled to call a
special meeting of shareholders, such officer forthwith shall cause notice to be
given to shareholders entitled to vote that a meeting will be held at a time
requested .by the person or persons calling the meeting, not less than thirty-
five (35) nor more than sixty (60) days after receipt of the request. If the
notice is not given within twenty (20) days after receipt of the request, the
persons entitled to call the meeting may give the notice. Except in cases where
other express provision is made by statute, notice of such special meeting shall
be given in the same manner as required for annual meetings of shareholders. In
addition to the matters required by items (a) and, if applicable, (c) of Section
2 above, notice of any special meeting shall specify the general nature of the
business to be transacted, and no other business may be transacted at such
meeting.
Section 4. ADJOURNED MEETINGS AND NOTICE THEREOF. Any shareholders' meeting,
annual or special, whether or not a quorum is present, may be adjourned from
time to time by vote of a majority of the shares, the holders of which are
either present in person or by proxy thereat, but in the absence of a quorum
(except as provided in Section 7 below), no other business may be transacted at
any such meeting.
When any shareholders' meeting, either annual or special, is adjourned for
forty-five (45) days or more, or if after adjournment a new record date is fixed
for the adjourned meeting, notice of the adjourned meeting shall be given as in
the case of an original meeting. Except as provided above, it shall not be
necessary to give any
-3-
<PAGE>
notice of the time and place of the adjourned meeting or of the business to be
transacted thereat, other than by announcement of the time and place thereof at
the meeting at which such adjournment is taken.
Section 5. AFFIDAVIT OF MAILING. Whenever any shareholder entitled to vote
has been absent from any meeting of shareholders, whether annual or special, an
entry in the minutes to the effect that notice has been duly given shall be
sufficient evidence that due notice of such meeting was given to such
shareholder as required by law and the By-Laws of the corporation.
Section 6. VOTING.
(a) Generally: The shareholders entitled to notice of any meeting or to
---------
vote at any such meeting shall be only persons in whose name shares stand on
the stock records of the corporation on the record date determined in
accordance with Section 1 of ARTICLE VI.
(b) Ballots: Such vote may be viva voce or by ballot; provided, however,
------- ---- ----
upon demand made by a shareholder at any election and before the voting
begins, all elections for directors must be by ballot.
(c) Action by Majority: If a quorum is present except with respect to
------------------
election of directors, the affirmative vote of the majority of the shares
represented at the meeting and entitled to vote on any matter shall be the act
of the shareholders, unless the vote of a greater number or voting by classes
is required by the California General Corporations Law or the Articles of
Incorporation.
(d) Cumulative Voting: Subject to the requirements hereinbelow provided,
-----------------
every shareholder entitled to vote at any election for directors shall have
the right to cumulate such shareholder's votes and give one candidate a number
of votes equal to the number of directors to be elected multiplied by the
number of votes to which the shareholder's shares are entitled, or to
distribute the shareholder's votes on the same principle among as many
candidates as he shall think fit. No shareholder shall be entitled to cumulate
votes unless the name of the candidate or candidates for whom such votes would
be cast has been placed in nomination prior to the voting and the shareholder
has
-4-
<PAGE>
given notice at the meeting prior to the voting, of the shareholder's
intention to cumulate their votes. If any one shareholder has given such
notice, all shareholders may cumulate their votes for candidates in
nomination. The candidates receiving the highest number of votes of shares
entitled to be voted for them, up to the number of directors to be elected,
shall be elected.
Section 7. QUORUM. The presence in person or by proxy of the holders of a
majority of the shares entitled to vote at any meeting shall constitute a quorum
for the transaction of business. The shareholders present at a duly called or
held meeting at which a quorum is present may continue to do business until
adjournment, notwithstanding the withdrawal of enough shareholders to leave less
than a quorum, if any action taken (other than adjournment) is approved by at
least a majority of the shares required to constitute a quorum.
Section 8. CONSENT OF ABSENTEES. The transactions of any meeting of
shareholders, either annual or special, however called and noticed, shall be as
valid as though had at a meeting duly held after regular call and notice, if a
quorum is present either in person or by proxy, and if, either before or after
the meeting, each of the persons entitled to vote, not present in person or by
proxy, or who, though present, has, at the beginning of the meeting, properly
objected to the transaction of any business because the meeting was not lawfully
called or convened, or to particular matters of business legally required to be
included in the notice, but not so included, signs a written waiver of notice,
or a consent to the holding of such meeting, or an approval of the minutes
thereof. Except as provided in Sections 601(e) and 601(f) of the California
General Corporations Law, the business transacted at the meeting need not be
specified in a written waiver of notice by a shareholder, in a consent to the
holding of the meeting by a shareholder or in an approval of the minutes of the
meeting by a shareholder. All such waivers, consents or approvals shall be filed
with the corporate records or made a part of the minutes of the meeting.
Section 9. ACTION WITHOUT MEETING.
(a) Election of Directors by Written Consent: Directors may be elected
----------------------------------------
without a meeting by a consent in writing, setting forth the actions so taken,
signed by all the persons who would We entitled to vote for the election of
directors. A director may be elected
-5-
<PAGE>
at any time to fill a vacancy not filled by the directors by the written
consent of persons holding a majority of the outstanding shares entitled to
vote for the election of directors.
(b) Other Actions by Written Consent: Any other action which, under
--------------------------------
any provision of the California General Corporations Law, may be taken at a
meeting of the shareholders, may be taken without a meeting, and without
notice except as hereinafter set forth, if a consent in writing, setting
forth the action so taken, is signed by the holders of outstanding shares
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted.
(c) Notice of Action by Written Consent: If the consents of all
-----------------------------------
shareholders entitled to vote have not been solicited in writing, and if
the unanimous written consent of all such shareholders shall not have been
received, the secretary shall give prompt notice of the corporate action
approved by the shareholders without a meeting. This notice shall be given
in the manner specified in Section 2 of this ARTICLE II. In the case of
approval of (i) contracts or transactions in which a director has a direct
or indirect financial interest, pursuant to Section 310 of the Corporations
Code of California, (ii) indemnification of agents of the corporation,
pursuant to Section 317 of that Code, (iii) a reorganization of the
corporation, pursuant to Section 1201 of that Code, and (iv) a distribution
in dissolution other than in accordance with the rights of outstanding
preferred shares, pursuant to Section 2007 of that Code, the notice shall
be given at least ten (10) days before the consummation of any action
authorized by that approval.
(d) Record Date: Unless, as provided in Section 1 of Article VI of
-----------
these By-Laws, the Board of Directors has fixed a record date for the
determination of shareholders entitled to notice of and to give such
written consent, the record date for such determination shall be the day on
which the first written consent is given. All such written consents shall
be filed with the secretary of the corporation.
(e) Revocation of Written Consent: Any shareholder giving a written
-----------------------------
consent, or the shareholder's proxy holders, or a transferee of the shares
or a
-6-
<PAGE>
personal representative of the shareholder or their respective proxy
holders, may revoke the consent by a writing received by the corporation
prior to the time that written consents of the number of shares required to
authorize the proposed action has been filed with the secretary of the
corporation, but may not do so thereafter. Such revocation is effective
upon its receipt by the secretary of the corporation.
(f) Form of Written Consent: The form of written consent shall be
-----------------------
governed by the provisions of Section 604 of the California Corporations
Law where applicable.
Section 10. PROXIES. Every person entitled to vote or execute consents
shall have the right to do so either in person or by one or more agents
authorized by a written proxy executed by such person or his duly authorized
agent and filed with the Secretary of the corporation. Any proxy duly executed
is not revoked and continues in full force and effect until: (i) an instrument
revoking it or a duly executed proxy bearing a later date is filed with the
secretary of the corporation prior to the vote pursuant thereto, (ii) a
subsequent proxy is executed by the person executing the prior proxy and is
presented to the meeting, (iii) the person executing the proxy attends the
meeting and votes in person, or (iv) written notice of the death or incapacity
of the maker of such proxy is received by the corporation before the vote
pursuant thereto is counted; provided that no such proxy shall be valid after
the expiration of eleven (11) months from the date of its execution, unless the
person executing it specifies therein the length of time for which such proxy is
to continue in force. Notwithstanding the foregoing, a proxy may be made
irrevocable pursuant to the provisions of Section 705(e) of the California
General Corporations Law. The form of proxy shall be governed by the provisions
of Section 604 of the California General Corporations Law, where applicable.
Section 11. INSPECTORS OF ELECTION. In advance of any meeting of
shareholders, the Board of Directors may appoint any persons other than nominees
for office as inspectors of election to act at such meeting or any adjournment
thereof. If inspectors of election are not so appointed, the chairman of any
such meeting may, and on the request of any shareholder or his proxy shall, make
such appointment at the meeting. The number of inspectors shall be either one
(1) or three (3). If appointed at a meeting on the request of one or more
shareholders or proxies, the majority of shares represented in person or by
proxy shall determine whether one (1) or three (3) inspectors are to be
appointed.
-7-
<PAGE>
In case any person appointed as inspector fails to appear or fails or refuses to
act, the vacancy may, and on the request of any shareholder or a shareholder's
proxy shall, be filled by appointment by the Board of Directors in advance of
the meeting, or at the meeting by the chairman of the meeting.
The duties of such inspectors shall be as prescribed in Section 707(b) of
the California General Corporations Law and shall include: determining the
number of shares outstanding and the voting power of each, the shares
represented at the meeting, the existence of a quorum, the authenticity,
validity and effect of proxies; receiving votes, ballots or consents; hearing
and determining all challenges and questions in any way arising in connection
with the right to vote; counting and tabulating all votes or consents;
determining when the polls shall close; determining the result; and such acts as
may be proper to conduct the election or vote with fairness to all shareholders.
In the determination of the validity and effect of proxies, the dates contained
on the forms of proxies shall presumptively determine the order of execution of
the proxies, regardless of the postmarked dates on the envelopes in which they
are mailed.
The inspectors of election shall perform their duties impartially, in good
faith, to the best of their ability and as expeditiously as is practical. If
there are three (3) inspectors of election, the decision, act or certificate of
a majority is effective in all respects as the decision, act or certificate of
all. Any report or certificate made by the inspectors of election is prima facie
evidence of the facts stated herein.
ARTICLE III
DIRECTORS
Section 1. POWERS. Subject to any limitations in the Articles of
Incorporation and the California General Corporations Law relating to action
requiring shareholder approval, the business and affairs of the corporation
shall be managed and all corporate powers shall be exercised by or under the
direction of the Board of Directors. The Board of Directors may delegate the
management of the day-to-day operation of the business of the corporation to a
management company or other person, provided that the business and affairs of
the corporation shall be managed and all corporate powers shall be exercised
under the ultimate direction of the Board of Directors. Without prejudice to
such general powers, but subject to the same limitatons, it is hereby
-8-
<PAGE>
expressly declared that the Board shall have the following powers in addition to
the other powers enumerated in these By-Laws:
(a) To select and remove all the other officers, agents, and employees
of the corporation, prescribe the powers and duties for them as may not be
inconsistent with law, or with the Articles or these By-Laws, fix their
compensation, and require from them security for faithful service.
(b) To conduct, manage, and control the affairs and business of the
corporation and to make such rules and regulations therefor not
inconsistent with law, or with the Articles or these By-Laws, as they may
deem best.
(c) To adopt, make, and use a corporate seal, and to prescribe the
forms of certificates of stock, and to alter the form of such seal and of
such certificates from time to time as in their judgment they may deem
best.
(d) To authorize the issuance of shares of stock of the corporation
from time to time, upon such terms and for such consideration as may be
lawful.
(e) To borrow money and incur indebtedness for the purposes of the
corporation, and to cause to be executed and delivered therefor, in the
corporate name, promissory notes, bonds, debentures, deeds of trust,
mortgages, pledges, hypothecations, or other evidences of debt and
securities therefor.
Section 2. NUMBER AND QUALIFICATIONS OF DIRECTORS. The authorized number of
directors of the corporation shall be three (3) until changed by amendment of
the Articles of Incorporation, by a By-Law duly adopted by the shareholders
amending this Section 2 or, if no shares have been issued, by a By-Law duly
adopted by the directors amending this Section 2.
Section 3. ELECTION AND TERM OF OFFICE. The directors shall be elected at
each annual meeting of the shareholders, but if any such annual meeting is not
held, or the directors are not elected thereat, the directors may be elected at
any special meeting of the shareholders held for that purpose. All directors
shall hold office at the pleasure of the shareholders or until their respective
successors are elected. The shareholders may at any time,
-9-
<PAGE>
either at a regular or special meeting, remove any director and elect his or her
successor.
Section 4. RESIGNATION AND REMOVAL OF DIRECTORS.
(a) Resignation: Any director may resign effective upon giving written
-----------
notice to the Chairman of the Board, the President, `Secretary or the Board
of Directors of the corporation, unless the notice specifies a later time
for the effectiveness of such resignation, in which case such resignation
shall be effective at the time specified.
(b) Unsound Mind; Felony: The Board of Directors may declare vacant the
--------------------
office of a director who has been declared of unsound mind by an order of
Court or convicted of a felony.
(c) Removal Without Cause by Shareholders: Any or all of the directors
-------------------------------------
may be removed without cause if such removal is approved by the affirmative
vote of a majority of the outstanding shares entitled to vote, provided
that no director may be removed (unless the entire board is removed) when
the votes cast against removal, or not consenting in writing to such
removal, would be sufficient to elect such director if voted cumulatively
at an election at which the same total number of votes were cast (or, if
such action is taken by written consent, all shares entitled to vote were
voted) and the entire number of directors authorized at the time of the
director's most recent election were then being elected.
(d) Reduction of Authorized Number of Directors: No reduction of the
-------------------------------------------
authorized number of directors shall have the affect of removing any
director before his term of office expires.
Section 5. VACANCIES.
(a) Vacancy Defined: A vacancy in the Board of Directors shall be
---------------
deemed to exist in the case of the death, resignation or removal of any
director, if a director has been declared of unsound mind by order of Court
or convicted of a felony, if the authorized number of directors is
increased, or if the shareholders fail at any annual or special meeting of
shareholders at which any director or directors are elected to elect the
full authorized number of directors to be voted for at that meeting.
-10-
<PAGE>
(b) Action by Board of Directors: Vacancies in the Board of Directors,
----------------------------
except for a vacancy created by the removal of a director, may be filled by
a majority of the remaining directors, although less than a quorum, or by a
sole remaining director, and each director so elected shall hold office
until a successor is elected at an annual or a special meeting of the
shareholders. A vacancy in the Board of Directors created by the removal of
a director may be filled only by the vote of majority of the shares
represented and voting at a duly held meeting at which a quorum is present,
or by the written consent of the holders of a majority of the outstanding
shares.
(c) Action by Shareholders: The shareholders may elect a director or
----------------------
directors at any time to fill any vacancy or vacancies not filled by the
directors. Any such election by written consent other than to fill a
vacancy created by removal shall require the consent of holders of a
majority of the outstanding shares entitled to vote.
Section 6. PLACE OF MEETING. Regular and special meetings of the Board of
Directors shall be held at any place within or without the State which has been
designated in the notice of the meeting, or, if not stated in the notice or
there is no notice, designated by resolution of the Board of Directors or,
either before or after the meeting, consented to in writing by members of the
Board pursuant to the provisions of ARTICLE III, Section 10 of these By-Laws.
If the place of a regular or special meeting is not designated in the notice or
fixed by a resolution of the Board or consented to in writing by all members of
the Board, it shall be held at the corporation's principal executive office.
Section 7. ORGANIZATION MEETING. Immediately following each annual meeting
of shareholders, the Board of Directors shall hold a regular meeting for the
purpose of organization, election of officers, and the transaction of other
business. Notice of such meeting is hereby dispensed with.
Section 8. SPECIAL MEETINGS. Special meetings of the Board of Directors for
any purpose may be called at any time by the Chairman of the Board or the
President or any Vice President or the Secretary or any Assistant Secretary, or
any two directors. Notice of the time of special meetings shall be delivered
personally or by telephone or
-11-
<PAGE>
telegraph or sent to the directors by mail. In case notice is given by mail, or
telegram, it shall be sent, charges prepaid, addressed to him or her at his or
her address as it is shown on the records of the corporation, or if it is not on
these records or is not readily ascertainable, at the place where the regular
Board meetings are held. If notice is delivered personally or given by telephone
or telegraph, it shall be given or delivered to the telegraph office at least
twenty-four (24) hours before the meeting. If notice is mailed, it shall be
deposited in the United States mail at least forty--eight (48) hours before the
meeting.
A notice, or waiver of notice, need not specify the purpose of the meeting
of the Board of Directors.
Section 9. ACTION WITHOUT MEETING. Any action required or permitted to be
taken by the Board of Directors by law, according to the Articles of
Incorporation or according to these By-Laws may be taken without a meeting, if
all members of the Board shall individually or collectively consent in writing
to such action. Such written consent or consents shall be filed with the minutes
of the proceedings of the Board, and shall have the same force and effect as a
unanimous vote of such directors.
Section 10. MEETINGS BY CONFERENCE TELEPHONE. Members of the Board of
Directors may participate in a meeting through use of conference telephone or
similar communications equipment, so long as all members participating in such a
meeting can hear and speak to one another. Participation by a director in a
meeting in the manner provided in this Section shall constitute presence in
person by such director at such meeting.
Section 11. ACTION AT MEETING: QUORUM AND REQUIRED VOTE. Presence of a
majority of the authorized number of directors at a meeting of the Board of
Directors constitutes a quorum for the transaction of business, except as
hereinafter provided. Every act or decision done or made by a majority of the
directors present at a meeting duly held at which a quorum is present is the act
of the Board of Directors, unless a greater number, or the same number after
disqualifying one or more directors from voting, is required by law, the
Articles of Incorporation or these By-Laws. A meeting at which a quorum is
initially present may continue to transact business notwithstanding the
withdrawal of one or more directors, provided that any action taken is approved
by at least a majority of the required quorum for such meeting.
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Section 12. WAIVER OF NOTICE. The transactions of any meeting of the Board
of Directors, however called and noticed or wherever held, shall be as valid as
though had at a meeting duly held after regular call and notice, if a quorum be
present, and if, either before or after the meeting, each of the directors not
present or who, though present, has prior to the meeting or at its commencement,
protested the lack of proper notice to him, signs a written waiver of notice or
a consent to holding such meeting or in approval of the minutes thereof. A
waiver of notice need not specify the purpose of any regular or special meeting
of the Board of Directors. All such waivers, consents or approvals shall be
filed with the corporate records or made a part of the minutes of the meeting.
Section 13. ADJOURNMENT. A majority of the directors present, whether or
not a quorum is present, may adjourn any meeting to another time and place. If
the meeting is adjourned for more than twenty-four (24) hours, notice of the
adjournment to another time or place shall be given prior to the time of the
adjourned meeting to the directors who are not present at the time of the
adjournment.
Section 14. FEES AND COMPENSATION. Directors shall not receive any stated
salary for their services as directors, but, by resolution of the board, a fixed
fee, with or without expenses of attending, may be allowed for attendance at
each meeting. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise, and receiving compensation therefor.
ARTICLE IV
OFFICERS
Section 1. OFFICERS. The officers of the corporation shall be:
a. President
b. Secretary
c. Treasurer
The corporation may also have, at the discretion of the Board of Directors,
a chairman of the Board, one or more vice-presidents, one or more
assistant-secretaries, one or more assistant-treasurers, and such other offices
as may be appointed by the Board of Directors. Officers other than the Chairman
of the Board need not be directors. One person may hold two or more offices.
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Section 2. ELECTIONS. The officers of the corporation designated in the
preceding section of this Article, except such officers as may be elected or
appointed in accordance with Section 3 or Section 5 of this Article, shall be
chosen annually by the Board of Directors, and each shall bold his or her office
at the pleasure of the Board of Directors, who may, either at a regular or
special meeting, remove any such officer and appoint his or her successor.
Section 3. SUBORDINATE OFFICERS, ETC. The Board of Directors may appoint
such other officers as the business of the corporation may require, each of whom
shall hold office for such period, have such authority and perform such duties
as are provided in the By-Laws or as the Board of Directors may from time to
time determine.
Section 4. REMOVAL AND RESIGNATION. Any officer may be removed, either with
or without cause, by the Board of Directors at that time in office, at a regular
or special meeting of the Board, or, except in case of an officer chosen by the
Board of Directors, by any officer upon whom such power or removal may be
conferred by the Board of Directors, subject, in each case, to the rights, if
any, of an officer under any contract of employment.
Any officer may resign at any time by giving written notice to the Board of
Directors or to the president, or to the secretary of the corporation without
prejudice, however, to the rights, if any, of the corporation under any contract
to which such officer is a party. Any such resignation shall take effect at the
date of the receipt of such notice or at any later time specified therein; and
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 5. VACANCIES. A vacancy in any office because of death, resignation,
removal, disqualification or any other cause shall be filled in the manner
prescribed in the By-Laws for regular appointments to such office.
Section 6. CHAIRMAN OF THE BOARD. The chairman of the Board, if there shall
be such an officer, shall, if present, preside at all meetings of the Board of
Directors, and exercise and perform such other powers and duties as may be from
time to time assigned to him or her by the Board of Directors as prescribed by
the By-Laws.
Section 7. PRESIDENT. Subject to such supervisory powers, if any, as may be
given by the Board of Directors to the chairman of the Board, if there be such
an officer, the
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president shall be the chief executive officer of the corporation and shall,
subject to the control of the Board of Directors, have general supervision,
direction and control of the business and affairs of the corporation. He shall
preside at all meetings of the shareholders, and in the absence of the chairman
of the Board, or if there be none, at all meetings of the Board of Directors. He
shall be ex-officio a member of all the standing committees, including the
executive committee, if any, and shall have the general powers and duties of
management usually vested in the office of president of a corporation, and shall
have such other powers and duties as may be prescribed by the Board of Directors
or the By-Laws.
Section 8. VICE-PRESIDENT. In the absence or disability of the president,
the vice-presidents in order of their rank as designated by the Board of
Directors, if there shall be such officers, shall perform all the duties of the
president, and when so acting shall have all the powers of, and be subject to
all the restrictions upon, the president. The vice-president shall have such
other powers and perform such other duties as from time to time may be
prescribed for them respectively by the Board of Directors or the By-Laws.
Section 9. SECRETARY. The secretary shall record or cause to be recorded,
and shall keep a book of minutes at the principal executive office or such other
place as the Board of Directors may order, of actions taken at all meetings of
directors, shareholders and its committees, with the time and place of holding,
whether regular or special and if special, how authorized, the notice thereof
given, the names of those directors and shareholders present, the names of those
present at the directors' meeting, the number of shares present or represented
at shareholders meetings and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive
office or at the office of the corporation's transfer agent, a share register,
or a duplicate share register, showing the names of the shareholders and their
addresses; the number and classes of shares held by each; the number and date of
certificates issued for the same; the number and date cancellation of every
certificate surrendered for cancellation.
The secretary shall give or cause to be given, notice of all meetings of
shareholders and the Board of Directors, as required by the By-Laws or by law
to be given, and shall have such other powers and perform such other duties as
may be prescribed by the Board of Directors or the By-Laws.
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Section 10. TREASURER. The treasurer shall be the chief financial officer
of the corporation and keep and maintain, or cause to be kept and maintained,
adequate and correct accounts of the properties and business transactions of the
corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, surplus, surplus shares and shall send or
cause to be sent to the Shareholders of the Corporation such financial
statements and reports as are by law or these By-Laws required to be sent to
them. Any surplus, including earned surplus, paid-in surplus and surplus
arising from a reduction of stated capital, shall be classified according to
source and shown in a separate account. The books of account shall at all times
be open for inspection by any director.
The chief financial officer shall deposit all monies and other valuables in
the name and to the credit of the corporation with such depositories as may be
designated by the Board of Directors. He or she shall disburse the funds of the
corporation as may be ordered by the Board of Directors and shall render to the
president and directors, when they request it, an account of all of his or her
transactions as chief financial officer and of the financial condition of the
corporation, and shall have such other powers and perform such other duties as
may be prescribed by the Board of Directors or these By-Laws.
ARTICLE V
EXECUTIVE AND OTHER COMMITTEES
The Board may appoint one or more committees, each consisting of two or
more directors, and delegate to such committees any of the authority of the
Board except with respect to:
(a) The approval of any action for which the California General Corporation
Law also requires shareholders' approval or approval of the outstanding
shares;
(b) The filling of vacancies on the Board or on any committee;
(c) The fixing of compensation of the directors for serving on the Board or
on any committee;
(d) The amendment or repeal of By-Laws or the adoption of new By-Laws;
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(e) The amendment or repeal of any resolution of the Board which by its
express terms is not so amendable or repealable;
(f) A distribution to the shareholders of the corporation except at a rate
or in a periodic amount or within a price range determined by the Board;
(g) The appointment of other committees of the Board or the members
thereof.
Any such committee must be appointed by resolution adopted by a majority of
the authorized number of directors and may be designated an Executive Committee
or by such other name as the Board shall specify. The Board shall have the power
to prescribe the manner in which proceedings of any such committee shall be
conducted. In the absence of any such prescription, such committee shall have
the power to prescribe the manner in which its proceedings shall be conducted.
Unless the Board or such committee shall otherwise provide, the regular and
special meetings and other actions of any such committee shall be governed by
the provisions of this Article applicable to meetings and actions of the Board.
Minutes shall be kept of each meeting of each committee.
ARTICLE VI
CORPORATE RECORDS AND REPORTS -- INSPECTION
MISCELLANEOUS
Section 1. RECORD DATE. The Board of Directors may fix a time in the future
as a record date for the determination of the shareholders entitled to notice of
and to vote at any meeting of shareholders or entitled to give consent to
corporate action in writing without a meeting, to receive any report, to receive
any dividend or distribution, or any allotment of rights, or to exercise rights
in respect to any change, conversion, or exchange of shares. The record date so
fixed shall not be more than sixty (60) days nor less than ten (10) days prior
to the date of any meeting, not more than sixty (60) days prior to any other
event for the purposes of which it is fixed. When a record date is so fixed,
only shareholders of record on that date are entitled to notice of and to vote
at any such meeting, to give consent without a meeting, to receive any report,
to receive a dividend, distribution, or allotment of rights, or to exercise the
rights, as the case may be, notwithstanding any transfer of any shares on the
books of the corporation after the record date, except as otherwise provided in
the Articles of Incorporation or By-Laws.
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If no record date is fixed by the Board; the record date for determining
shareholders entitled to notice of or to vote at a meeting of shareholders shall
be at the close of business on the business day next preceding the day on which
notice is given or, if notice is waived, at the close of business on the
business day next preceding the day on which the meeting is held. The record
date for determining shareholders entitled to give consent to corporate action
in writing without a meeting, when no prior action by the Board is necessary,
shall be the day on which the first consent is given.
The record date for determining shareholders for any other purpose shall be
at the close of business on the day on which the Board adopts the resolution
relating thereto, or the 60th day prior to the date of such other action
whichever is later.
Section 2. INSPECTION OF CORPORATE RECORDS. The accounting books and
records, the record of shareholders, and minutes of proceedings of the
shareholders and the Board and committees of the Board of this corporation and
any subsidiary of this corporation shall be open to inspection upon the written
demand on the corporation of any shareholder or holder of a voting trust
certificate at any reasonable time during usual business hours, for a purpose
reasonably related to such holder's interests as a shareholder or as the holder
of such voting trust certificate. Such inspection by a shareholder or holder of
a voting trust certificate may be made in person or by agent or attorney, and
the right of inspection includes the right to copy and make extracts.
A shareholder or shareholders holding at least five (5) percent in the
aggregate of the outstanding voting shares of the corporation or who hold at
least one (1) percent of such voting shares and have filed a Schedule 14B with
the United States Securities and Exchange Commission relating to the election of
directors of the corporation shall have (in person, or by agent or attorney) the
right to inspect and copy the record of shareholders ` names and addresses and
shareholdings during usual business hours upon five (5) business days' prior
written demand upon the corporation and to obtain from the transfer agent for
the corporation, upon written demand and upon the tender of its usual charges, a
list of the shareholders' names and addresses, who are entitled to vote for the
election of directors, and their shareholdings, as of the most recent record
date for which it has been compiled or as of a date specified by the shareholder
subsequent to the date of demand. The list shall be made available on or before
the later of five (5) business o days after the demand is received or the date
specified therein as the date as of which the list is to be compiled.
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Every director shall have the absolute right at any reasonable time to
inspect and copy all books, records and documents of every kind and to inspect
the physical properties of the corporation. Such inspection by a director may be
made in person or by agent or attorney and the right of inspection includes the
right to copy and make extracts.
Section 3. CERTIFICATION AND INSPECTION OF BY-LAWS. The original or a copy
of these By-Laws, as amended or otherwise altered to date, certified by the
secretary, shall be open to inspection by the shareholders at all reasonable
times during office hours. If the principal executive office of the corporation
is outside the State of California and the corporation has no principal business
office in such state, it shall upon the written notice of any shareholder
furnish to such shareholder a copy of these By-Laws as amended to date.
Section 4. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for
payment of money, notes or other evidences of indebtedness, issued in the name
of or payable to the corporation, shall be signed or endorsed by such person or
persons and in such manner as shall be determined from time to time by
resolution of the Board of Directors.
Section 5. CONTRACTS, ETC. -- HOW EXECUTED. The Board of Directors, except
as the By-Laws otherwise provide, may authorize any officer or officers, agent
or agents, to enter into any contract or execute any instrument in the name of
and on behalf of the corporation. Such authority may be general or confined to
specific instances.
Section 6. ANNUAL AND OTHER REPORTS. The Board of Directors of the
corporation shall cause an annual report to be sent to the shareholder no later
than 120 days after the close of the fiscal or calendar year. Such report shall
contain a balance sheet as of the end of such fiscal year and an income
statement and statement of changes in financial position for such fiscal year,
accompanied by the report thereon of independent accountants or, if there is no
such report, the certificate of an authorized officer of the corporation that
such statements were prepared without audit from the books and records of the
corporation.
If no annual report for the last fiscal year has been sent to shareholders,
the corporation shall, upon the written request of any shareholder made more
than 120 days after the close of such fiscal year, deliver or mail to the
person making the request within (30) days thereafter the financial statements
required by this Section for such year.
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A shareholder or shareholders holding at least five percent (5%) of the
outstanding shares of any class of the corporation may make a written request of
the corporation for an income statement of the corporation for the three-month,
six-month or nine-month period of the current fiscal year ended more than thirty
(30) days prior to the date of the request and a balance sheet of the
corporation as of the end of such period and, in addition, if no annual report
for the last fiscal year has been sent to shareholders, the annual report for
the last fiscal year. The corporation shall use its best efforts to deliver the
statement to the person making the request within thirty (30) days thereafter. A
copy of any such statements shall be kept on file in the principal executive
office of the corporation for twelve (12) months and they shall be exhibited at
all reasonable times to any shareholder demanding an examination of them or a
copy shall be mailed to such shareholder.
The quarterly income statements and balance sheets referred to in this
Section 6 shall be accompanied by the report thereon, if any, of any independent
accountants engaged by the corporation or the certificate of an authorized
officer of the corporation that such financial statements were prepared without
audit from the books and records of the corporation.
ARTICLE VII
CERTIFICATES AND TRANSFER OF SHARES
Section 1. CERTIFICATE FOR SHARES. Every holder of shares in the corporation
shall be entitled to have a certificate signed in the name of the corporation by
the chairman or vice-chairman of the Board or the president or a vice-president
and by the chief financial officer or an assistant-treasurer or the secretary or
any assistant-secretary, certifying the number of shares and the class or series
of shares owned by the shareholder. Any of the signatures on the certificate may
be facsimile, provided that in such event at least one signature, including that
of either officer or the corporation's registrar or transfer agent, if any,
shall be manually signed. In any case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the corporation with the same effect
as if such person were an officer, transfer agent or registrar at the date of
issue.
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Any such certificate shall also contain such legend or other statement as
may be required by Section 418 of the General Corporation Law, the Corporate
Securities Law of 1968, the federal securities laws, and any agreement between
the corporation and the issuee thereof.
Certificates for shares may be issued prior to full payment under such
restrictions and for such purposes as the Board of Directors or the By-Laws may
provide; provided, however, that any such certificate so issued prior to full
payment shall state on the face thereof the amount remaining unpaid and the
terms of payment thereof.
No new certificate for shares shall be issued in lieu of an old certificate
unless the latter is surrendered and cancelled at the same time; provided,
however, that a new certificate will be issued without the surrender and
cancellation of the old certificate if (1) the old certificate is lost,
apparently destroyed or wrongfully taken; (2) the request for the issuance of
the new certificate is made within a reasonable time after the owner of the old
certificate has notice of its loss, destruction, or theft; (3) the request for
the issuance of a new certificate is made prior to the receipt of notice by the
corporation that the old certificate has been acquired by a bona fide purchaser;
(4) the owner of the old certificate files a sufficient indemnity bond with or
provides other adequate security to the corporation; and (5) the owner satisfies
any other reasonable requirements imposed by the corporation. In the event of
the issuance of a new certificate, the rights and liabilities of the
corporation, and of the holders of the old and new certificates, shall be
governed by the provisions of Section 8104 and 8405 of the California Commercial
Code.
Section 2. TRANSFER ON THE BOOKS. Upon surrender to the secretary or
transfer agent of the corporation by proper evidence of succession, assignment
or authority to transfer, it shall be the duty of the corporation to issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
Section 3. LOST OR DESTROYED CERTIFICATES. Any person claiming a certificate
of stock to be lost or destroyed shall make an affidavit or affirmation of that
fact and advertise the same in such manner as the Board of Directors may
require, and shall if the directors so require give the corporation a bond of
indemnity, in form with one or more sureties satisfactory to the Board, in at
least double the value of the stock represented by said certificate, whereupon a
new certificate may be issued of the same tenor
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and for the same number of shares as the one alleged to be lost or destroyed.
Section 4. TRANSFER AGENTS AND REGISTRARS. The Board of Directors may
appoint one or more transfer agents or transfer clerks, and one or more
registrars, which shall be an incorporated bank or trust company --- either
domestic or foreign, who shall be appointed at such times and places as the
requirements of the corporation may necessitate and the Board of Directors may
designate.
Section 5. RECORD DATE AND CLOSING BOOKS. The Board of Directors may fix a
time in the future as a record date for the determination of the shareholders
entitled to give consent to corporate action in writing without a meeting to
receive any report, dividends or distribution, or any allotment of rights, or to
exercise rights in respect to any change, conversion or exchange of shares. The
record date so fixed shall be not more than sixty (60) days prior to any other
event for the purposes of which it is fixed. When a record date is so fixed,
only shareholders of record on that date are entitled to notice of, and to vote
at any such meeting, to give consent without a meeting, to receive any report,
to receive a dividend, distribution, or allotment of rights, or to exercise the
rights, as the case may be, notwithstanding any transfer of any shares on the
books of the corporation after the record date, except as otherwise provided in
the Articles of Incorporation or By-Laws.
The Board of Directors may close the books of the corporation against
transfers of shares during the whole or any part of a period of not more than
sixty (60) days prior to the date of a shareholders' meeting, the date when the
right to any dividend, distribution, or allotment of rights vests, or the
effective date of any change, conversion, or exchange of shares.
Section 6. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The president or
any vice-president and the secretary or assistant secretary of this corporation
are authorized to vote, represent and exercise on behalf of this corporation all
rights incident to any and all shares of any other corporation or corporations
standing in the name of this corporation. The authority herein granted to said
officers to vote or represent on behalf of this corporation any and all shares
held by this corporation in any other corporation or corporations, may be
exercised either by such officers in person or by a person authorized so to do
by proxy or power of attorney duly executed by said officers.
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Section 7. CONSTRUCTION AND DEFINITIONS. Unless the context otherwise
requires, the general provisions, rules of construction and definitions
contained in the California General Corporation Law shall govern the
construction of these By-Laws. Without limiting the generality of the foregoing,
the masculine gender includes the feminine and neuter, the singular number
includes the plural and the plural number includes the singular, and the term
"person" includes a corporation as well as a natural person.
ARTICLE VIII
INDEMNIFICATION
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Section 1. DEFINITIONS. For the purposes of this Article "agent" includes
any person who is or was a director, officer, employee, or other agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, or other enterprise, or was a
director, officer, employee, or agent of a foreign or domestic corporation which
was a predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation; "proceeding" includes any threatened,
pending, or completed action or proceeding, whether civil, criminal,
administrative or investigative; and "expenses" includes attorneys' fees and any
expenses of establishing a right to indemnification under Section 4 or Section
5(c).
Section 2. INDEMNIFICATION IN ACTIONS BY THIRD PARTIES. The corporation
shall have power to indemnify any person who was or is a party or is threatened
to be made a party to any proceeding (other than an action by or in the right of
the corporation to procure a judgment in its favor) by reason of the fact that
such person is or was an agent of the corporation, against expenses, judgments,
fines, settlements, and other amounts actually and reasonably incurred in
connection with such proceeding if such person acted in good faith and in a
manner such person reasonably believed to be in the best interests of the
corporation and, in the case of a criminal proceeding, had no reasonable cause
to believe the conduct of such person was unlawful. The termination of any
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent shall not, of itself, create a presumption that the
person did not act in good faith and in a manner which the person reasonably
believed to be in the best interests of the corporation or that the person had
reasonable cause to believe that the person's conduct was unlawful.
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Section 3. INDEMNIFICATION IN ACTIONS BY OR IN THE RIGHT OF THE CORPORATION.
The corporation shall have power to indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending, or completed
action by or in the right of the corporation to procure a judgment in its favor
by reason of the fact that such person is or was an agent of the corporation,
against expenses actually and reasonably incurred by such person in connection
with the defense or settlement of such action if such person acted in good
faith, in a manner such person believed to be in the best interests of the
corporation, and with such care, including reasonable inquiry, as an ordinarily
prudent person in a like position would use under similar circumstances. No
indemnification shall be made under this Section 3:
(a) In respect of any claim, issue, or matter as to which such person
shall have been adjudged to be liable to the corporation in the performance
of such person's duty to the corporation, unless and only to the extent
that the court in which such proceeding is or was pending shall determine
upon application that, in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for the expenses
which such court shall determine;
(b) Of amounts paid in settling or otherwise disposing of a threatened or
pending action, with or without court approval; or
(c) Of expenses incurred in defending a threatened or pending action which
is settled or otherwise disposed of without court approval.
Section 4. INDEMNIFICATION AGAINST EXPENSES. To the extent that an agent of
the corporation has been successful on the merits in defense of any proceeding
referred to in Sections 2 or 3 of this Article or in defense of any claim, issue
or matter therein, the agent shall be indemnified against expenses actually and
reasonably incurred by the agent in connection therewith.
Section 5. REQUIRED DETERMINATIONS. Except as provided in Section 4, any
indemnification under this Article shall be made by the corporation only if
authorized in the specific case, upon a determination that indemnification of
the agent is proper in the circumstances because the agent has met the
applicable standard of conduct set forth in Sections 2 or 3 by:
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(a) A majority vote of a quorum consisting of directors who are not parties
to such proceeding;
(b) Approval of the shareholders, with the shares owned by the person to be
indemnified not being entitled to vote thereon; or
(c) The court in which such proceeding is or was pending upon application
made by the corporation or the agent or the attorney or other person rendering
services in connection with the defense, whether or not such application by
the agent, attorney, or other person is opposed by the corporation.
Section 6. ADVANCE OF EXPENSES. Expenses incurred in defending any
proceeding may be advanced by the corporation prior to the final disposition of
such proceeding upon receipt of an undertaking by or on behalf of the agent to
repay such amount unless it shall be determined ultimately that the agent is
entitled to be indemnified as authorized in this Article.
Section 7. OTHER INDEMNIFICATION. No provision made by the corporation to
indemnify its or its subsidiary's directors or officers for the defense of any
proceeding, whether contained in the Articles, By-Laws, a resolution of
shareholders or directors, an agreement, or otherwise, shall be valid unless
consistent with this Article. Nothing contained in this Article shall affect any
right to indemnification to which persons other than such directors and officers
may be entitled by contract or otherwise.
Section 8. FORMS OF INDEMNIFICATION NOT PERMITTED. No indemnification or
advance shall be made under this Article, except as provided in Section 4 or
5(c) in any circumstance where it appears:
(a) That it would be inconsistent with a provision of the Articles, By-
Laws, a resolution of the shareholders or an agreement in effect at the time
of the accrual of the alleged cause of action asserted in the proceeding in
which the expenses were incurred or other amounts were paid, which prohibits
or otherwise limits indemnification; or
(b) That it would be inconsistent with any condition expressly imposed by a
court in approving a settlement.
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Section 9. INSURANCE. The corporation shall have the power to purchase and
maintain insurance on behalf of any agent of the corporation against any
liability asserted against or incurred by the agent in such capacity or arising
out of the agent's status as such whether or not the corporation would have the
power to indemnify the agent against such liability under the provisions of this
Article.
Section 10. NONAPPLICABILITY TO FIDUCIARIES OF EMPLOYEE BENEFIT PLANS. This
Article does not apply to any proceeding against any trustee, investment
manager, or other fiduciary of an employee benefit plan in such person's
capacity as such, even though such person may also be an agent of the
corporation as defined in Section 1. The corporation shall have the power to
indemnify and to purchase and maintain insurance on behalf of any such trustee,
investment manager, or other fiduciary to the extent permitted by Section 207 of
the California General Corporation Law.
ARTICLE IX
CORPORATE SEAL
The corporate seal shall be circular in form, and shall have inscribed
thereon the name of the corporation, the date of its incorporation, and the word
"California."
ARTICLE X
AMENDMENTS TO BY-LAWS
Section 1. BY SHAREHOLDERS. New By-Laws may be adopted or these By-Laws
may be repealed or amended at their annual meeting, or at any other meeting of
the shareholders called for that purpose, by a vote of shareholders entitled to
exercise a majority of the voting power of the corporation, or by written assent
of such shareholders, except as otherwise provided by law, the Articles of
Incorporation, or Article III Section 2 of these By-Laws.
Section 2. POWER OF DIRECTORS. Subject to the right of shareholders as
provided in Section 1 of this Article X to adopt, amend, or repeal By-Laws,
other than a By-Law or amendment thereof changing the authorized number of
directors, these By-Laws may be adopted, amended or repealed by the Board of
Directors; provided, however, that
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<PAGE>
if no shares have been issued, the Board of Directors may adopt a By-Law or
amendment thereof changing the authorized number of Directors.
I, the undersigned, hereby certify:
1. That acting secretary of I am the duly elected, qualified and Paisano
Publications, Inc.
2. That the foregoing By-Laws of said corporation were duly adopted as the
By-Laws thereof by an Action Taken by Unanimous Written Consent of the
Shareholders of said corporation on July 9, 1981, and that the same do now
constitute the By-Laws of said corporation.
Executed this 14 day of Jan., 1982.
/s/ Joseph Teresi Sec.
----------------------------------------
Joseph Teresi,
Secretary of Paisano Publications,
Inc., a California corporation
-27-
<PAGE>
BY-LAWS OF
PAISANO PUBLICATIONS, INC.
ARTICLE I
SHAREHOLDERS' MEETING
Section 1. PLACE OF MEETINGS.
All meetings of the shareholders shall be held at the office of the
corporation in the State of California, as may be designated for that purpose
from time to time by the Board of Directors.
Section 2. ANNUAL MEETINGS.
The annual meeting of the shareholders shall be held on the 5th day of
January in each year, if not a legal holiday, and if a legal holiday, then on
the next succeeding business day, at the hour of 10 o'clock A.M., at which time
the shareholders shall elect by plurality vote a Board of Directors, consider
reports of the affairs of the Corporation, and transact such other business as
may properly be brought before the meeting.
Section 3. SPECIAL MEETINGS.
Special meetings of the shareholders, for any purpose or purposes
whatsoever, may be called at any time by the President, or by the Board of
Directors, or by any two or more members thereof, or by one or more shareholders
holding not less than one-fifth (1/5) of the voting power of the corporation.
Section 4. NOTICE OF MEETINGS.
Notices of meetings annual or special, shall be given in writing to
shareholders entitled to vote by the Secretary or the Assistant Secretary, or if
there be no such officer, or in case of his neglect or refusal, by any director
or shareholder.
Such notices shall be sent to the shareholder's address appearing on the
books of the corporation, or supplied by him to the corporation for the purpose
of notice, not less than seven days before such meeting.
Notice of any meeting of shareholders shall specify the place, the day and
the hour of meeting, and in case of special meeting, as provided by the
Corporations Code of California, the general nature of the business to be
transacted.
When a meeting is adjourned for thirty days or more, notice of the
adjourned meeting shall be given as in case of an original meeting. Save, as
aforesaid, it shall not be necessary to give any notice of the adjournment or of
the business to be transacted at an adjourned meeting other than by announcement
at the meeting at which such adjournment is taken.
Section 5. CONSENT TO SHAREHOLDERS' MEETINGS.
The transactions of any meeting of shareholders, however called and
noticed, shall be valid as though had at a meeting duly held after regular call
and notice if a quorum be present either in person or by proxy, and if, either
before or after the meeting, each
--1--
<PAGE>
of the shareholders entitled to vote, not present in person or by proxy, sign a
written waiver of notice, or a consent to the holding of such meeting, or an
approval of the minutes thereof. All such waivers, consents or approvals shall
be filed with the corporate records or made a part of the minutes of the
meeting.
Any action which may be taken at a meeting of the shareholders, may be
taken without a meeting if authorized by a writing signed by all of the holders
of shares who would be entitled to vote at a meeting for such purpose, and filed
with the Secretary of the corporation.
Section 6. QUORUM.
The holders of a majority of the shares entitled to vote thereat, present
in person, or represented by proxy, shall be requisite and shall constitute a
quorum at all meetings of the shareholders for the transaction of business
except as otherwise provided by law, by the Articles of Incorporation, or by
these By-Laws. If, however, such majority shall not be present or represented at
any meeting of the shareholders, the shareholders entitled to vote thereat,
present in person, or by proxy, shall have power to adjourn the meeting from
time to time, until the requisite amount of voting shares shall be present. At
such adjourned meeting at which the requisite amount of voting shares shall be
represented, any business may be transacted which might have been transacted at
the meeting as originally notified.
Section 7. VOTING RIGHTS; CUMULATIVE VOTING.
Only persons in whose names shares entitled to vote stand on the stock
records of the corporation on the day of any meeting of shareholders, unless
some other day be fixed by the Board of Directors for the determination of
shareholders of record, then on such other day, shall be entitled to vote at
such meeting.
Every shareholder entitled to vote shall be entitled to one vote for each
of said shares and shall have the right to cumulate his votes as provided in
Section 2235, Corporations Code of California.
Section 8. PROXIES.
Every shareholder entitled to vote, or to execute consents, may do so,
either in person or by written proxy, executed in accordance with the provisions
of Section 2225 of the Corporations Code of California and filed with the
Secretary of the corporation.
ARTICLE II
DIRECTORS; MANAGEMENT
Section 1. POWERS.
Subject to the limitation of the Articles of Incorporation, of the By-Laws
and of the Laws of the State of California as to action to be authorized or
approved by the shareholders, all corporate powers shall be exercised by or
under authority of, and the business and affairs of this corporation shall be
controlled by, a Board of Directors.
--2--
<PAGE>
Section 2. NUMBER AND QUALIFICATION.
The authorized number of directors of the corporation shall be three (3),
until changed by amendment to the Articles of Incorporation or by an
amendment to this Section 2, Article II of these By-Laws, adopted by the vote or
written assent of the shareholders entitled to exercise the majority of the
voting power of the corporation.
Section 3. ELECTION AND TENURE OF OFFICE.
The directors shall be elected by ballot at the annual meeting of the
shareholders, to serve for one year and until their successors are elected and
have qualified. Their term of office shall begin immediately after election.
Section 4. VACANCIES.
Vacancies in the Board of Directors may be filled by a majority of the
remaining directors, though less than a quorum, or by a sole remaining director,
and each director so elected shall hold office until his successor is elected at
an annual meeting of shareholders or at a special meeting called for that
purpose.
The shareholders may at any time elect a director to fill any vacancy not
filled by the directors, and may elect the additional directors at the meeting
at which an amendment of the By-Laws is voted authorizing an increase in the
number of directors.
A vacancy or vacancies shall be deemed to exist in case of the death,
resignation or removal of any director, or if the shareholders shall increase
the authorized number of directors but shall fail at the meeting at which such
increase is authorized, or at an adjournment thereof, to elect the additional
director so provided for, or in case the shareholders fail at any time to elect
the full number of authorized directors.
If the Board of Directors accepts the resignation of a Director tendered to
take effect at a future time, the Board, or the shareholders, shall have power
to elect a successor to take office when the resignation shall become effective.
No reduction of the number of directors shall have the effect of removing
any director prior to the expiration of his term of office.
Section 5. REMOVAL OF DIRECTORS.
The entire Board of Directors or any individual director may be removed
from office as provided by Sections 807, 810 and 811 of the Corporations Code of
the State of California.
Section 6. PLACE OF MEETINGS.
Meetings of the Board of Directors shall be held at the office of the
corporation in the State of California, as designated for that purpose, from
time to time, by resolution of the Board of Directors, or written consent of all
of the Members of the Board. Any meeting shall be valid, wherever held, if held
by the written consent of all Members of the Board of Directors, given either
before or after the meeting and filed with the Secretary of the corporation.
--3--
<PAGE>
Section 7. ORGANIZATION MEETINGS.
The organization meetings of the Board of Directors shall be held
immediately following the adjournment of the annual meetings of the
shareholders.
Section 8. OTHER REGULAR MEETINGS.
Regular meetings of the Board of Directors shall be held on such dates as
shall be set from time to time by the Board of Directors.
If said day shall fall upon a holiday, such meetings shall be held on the next
succeeding business day thereafter. No notice need be given of such regular
meetings.
Section 9. SPECIAL MEETINGS--NOTICES.
Special meetings of the Board of Directors for any purpose or purposes
shall be called at any time by the President or if he is absent or unable or
refuses to act, by any Vice-President, or by any two directors.
Written notice of the time and place of special meetings shall be delivered
personally to the directors or sent to each director by letter or by telegram,
charges prepaid, addressed to him at his address as it is shown upon the records
of the corporation, or if it is not so shown on such records or is not readily
ascertainable, at the place in which the meetings of the directors are regularly
held. In case such notice is mailed or telegraphed, it shall be deposited in the
United States mail or delivered to the telegraph company in the place in which
the principal office of the corporation is located at least forty-eight (48)
hours prior to the time of the holding of the meeting. In case such notice is
delivered as above provided; it shall be so delivered at least twenty-four (24)
hours prior to the time of the holding of the meeting. Such mailing,
telegraphing or delivery as above provided shall be due, legal and personal
notice to such director.
Section 10. WAIVER OF NOTICE.
When all the directors are present at any directors' meeting, however
called or noticed, and sign a written consent thereto on the records of such
meeting, or, if a majority of the directors are present, and if those not
present sign in writing a waiver of notice of such meeting, whether prior to or
after the holding of such meeting, which said waiver shall be filed with
Secretary of the corporation, the transactions thereof are as valid as if had at
a meeting regularly called and noticed.
Section 11. NOTICE OF ADJOURNMENT.
Notice of the time and place of holding an adjourned meeting need not be
given to absent directors if the time and place be fixed at the meeting
adjourned.
Section 12. QUORUM.
A majority of the number of directors as fixed by the articles or By-Laws
shall be necessary to constitute a quorum for the transaction of business, and
the action of a majority of the directors
--4--
<PAGE>
present at any meeting at which there is a quorum, when duly assembled, is valid
as a corporate act; provided that a minority of the directors, in the absence of
a quorum, may adjourn from time to time, but may not transact any business.
Section 13. CONSENT OF BOARD OBVIATING NECESSITY OF MEETING
(Pursuant to California Corporations Code Section 814.5)
Notwithstanding anything to the contrary contained in these By-Laws, any
action required or permitted to be taken by the board of directors under any
provisions of Sections 100-6804 of the Corporations Code of California may be
taken without a meeting, if all members of the board of directors shall
individually or collectively consent in writing to such action. Such written
consent or consents shall be filed with the minutes of the proceedings of the
board. Such action by written consent shall have the same force and effect as a
unanimous vote of such directors.
ARTICLE III
OFFICERS
Section 1. OFFICERS.
The officers shall be a President, one or more Vice-Presidents, a Secretary
and a Treasurer, which officers shall be elected by, and hold office at the
pleasure of, the Board of Directors.
Section 2. ELECTION.
After their election the directors shall meet and organize by electing a
President from their own number, and one or more Vice-Presidents, a Secretary
and a Treasurer, who may, but need not be, members of the Board of Directors.
Any two or more of such offices except those of President and Secretary, may be
held by the same person.
Section 3. COMPENSATION AND TENURE OF OFFICE.
The compensation and tenure of office of all the officers of the
corporation shall be fixed by the Board of Directors.
Section 4. REMOVAL AND RESIGNATION.
Any officer may be removed, either with or without cause, by a majority of
the directors at the time in office, at any regular or special meeting of the
Board, or, except in case of any officer chosen by the Board of Directors, by
any officer upon whom such power of removal may be conferred by the Board of
Directors.
Any officer may resign at any time by giving written notice to the Board of
Directors or to the President, or to the Secretary of the corporation. Any such
resignation shall take effect at the date of the receipt of such notice or at
any later time specified therein; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
--5--
<PAGE>
Section. 5. VACANCIES.
A vacancy in any office because of death, resignation, removal,
disqualification or other cause shall be filled in the manner prescribed in the
By-Laws for regular appointments to such office.
Section 6. PRESIDENT.
The President shall be the chief executive officer of the corporation and
shall, subject to the control of the Board of Directors, have general
supervision, direction and control of the business and affairs of the
corporation. He shall preside at all meetings of the shareholders and of the
Board of Directors. He shall be ex-officio a member of all the standing
committees, including the executive committee, if any, and shall have the
general powers and duties of management usually vested in the office of
President of a corporation, and shall have such other powers and duties as may
be prescribed by the Board of Directors or the By-Laws,
Section 7. VICE-PRESIDENTS.
The Vice-Presidents shall, in the order designated by the Board of
Directors, in the absence or disability of the President, perform the duties and
exercise the powers of the President, and shall perform such other duties as the
Board of Directors shall prescribe.
Section 8. SECRETARY.
The Secretary shall keep, or cause to be kept, a book of minutes at the
principal office or such other place as the Board of Directors may order, of all
meetings of directors and shareholders, with the time and place of holding,
whether regular or special, and if special, how authorized, the notice thereof
given, the names of those present at directors' meetings, the number of shares
present or represented at shareholders' meetings and the proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal office or
at the office of the corporation's transfer agent, a share register, or a
duplicate share register, showing the names of the shareholders and their
addresses; the number and classes of shares held by each; the number and date of
certificates issued for the same, and the number and date of cancellation of
every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all the meetings
of the shareholders and of the Board of Directors required by the By-Laws or by
law to be given; he shall keep the seal of the corporation and affix said seal
to all documents requiring a seal, and shall have such other powers and perform
such other duties as may be prescribed by the Board of Directors or the By-Laws.
Section 9. TREASURER.
The Treasurer shall receive and keep all the funds of the corporation, and
pay them out only on the check of the corporation, signed in the manner
authorized by the Board of Directors.
--6--
<PAGE>
Section 10. ASSISTANTS.
Any Assistant Secretary or Assistant Treasurer, respectively, may exercise
any of the powers of Secretary or Treasurer, respectively, as provided in these
By-Laws or as directed by the Board of Directors, and shall perform such other
duties as are imposed upon them by the By-Laws or the Board of Directors.
Section 11. SUBORDINATE OFFICERS.
The Board of Directors may from time to time appoint such subordinate
officers or agents as the business of the corporation may require, fix their
tenure of office and allow them suitable compensation.
ARTICLE IV
EXECUTIVE AND OTHER COMMITTEES
The Board of Directors may appoint an executive committee, and such other
committees as may be necessary from time to time, consisting of such number of
its members and with such powers as it may designate, consistent with the
Articles of Incorporation and By-Laws and the General Corporation Laws of the
State of California. Such committees shall hold office at the pleasure of the
board.
ARTICLE V
CORPORATE RECORDS AND REPORTS-INSPECTION
Section 1. RECORDS.
The corporation shall maintain adequate and correct accounts, books and
records of its business and properties. All of such books, records and accounts
shall be kept at its principal place of business in the State of California, as
fixed by the Board of Directors from time to time.
Section 2. INSPECTION OF BOOKS AND RECORDS.
All books and records provided for in Sections 3003 - 3005 of the
Corporations Code of California shall be open to inspection of the directors and
shareholders from time to time and in the manner provided in said Sections 3003
- - 3005.
Section 3. CERTIFICATION AND INSPECTION OF BY-LAWS.
The original or a copy of these By-Laws, as amended or otherwise altered to
date, certified by the Secretary, shall be open to inspection by the
shareholders of the company, as provided in Section 502 of the Corporations Code
of California.
Section 4. CHECKS, DRAFTS, ETC.
All checks, drafts or other orders for payment of money, notes or other
evidences of indebtedness, issued in the name of or payable to the corporation,
shall be signed or endorsed by such person or persons and in such manner as
shall be determined from time to time by resolution of the Board of Directors.
--7--
<PAGE>
Section 5. CONTRACTS, ETC.--HOW EXECUTED.
The Board of Directors, except as in the By-Laws otherwise provided, may
authorize any officer or officers, agent or agents, to enter into any contract
or execute any instrument in the name of and on behalf of the corporation. Such
authority may be general or confined to specific instances. Unless so authorized
by the Board of Directors, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement, or to pledge
its credit, or to render it liable for any purpose or to any amount.
Section 6. ANNUAL REPORTS.
The Board of Directors shall cause annual reports to be made to the
shareholders as provided by Sections 3006 - 3012 of the Corporations Code of
California. The Board of Directors shall cause such annual reports to be sent to
the shareholders not later than one hundred twenty (120) days after the close of
the fiscal or calendar year.
ARTICLE VI
CERTIFICATES AND TRANSFER OF SHARES
Section 1. CERTIFICATES FOR SHARES.
Certificates for shares shall be of such form and device as the Board of
Directors may designate and shall state the name of the record holder of the
shares represented thereby; its number; date of issuance; the number of shares
for which it is issued; the par value, if any, or a statement that such shares
are without par value; a statement of the rights, privileges, preferences and
restrictions, if any; a statement as to redemption or conversion, if any; a
statement of liens or restrictions upon transfer or voting, if any; if the
shares be assessable, or, if assessments are collectible by personal action, a
plain statement of such facts.
Every certificate for shares must be signed by the President or a Vice-
President and the Secretary or an Assistant Secretary or must be authenticated
by facsimiles of the signatures of the President and Secretary or by a facsimile
of the signature of its President and the written signature of its Secretary or
an Assistant Secretary. Before it becomes effective every certificate for shares
authenticated by a facsimile of a signature must be countersigned by a transfer
agent or transfer clerk and must be registered by an incorporated bank or trust
company, either domestic or foreign, as registrar of transfers.
Section 2. TRANSFER ON THE BOOKS.
Upon surrender to the Secretary or transfer agent of the corporation of a
certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
Section 3. LOST OR DESTROYED CERTIFICATES.
Any person claiming a certificate of stock to be lost or
--8--
<PAGE>
destroyed shall make an affidavit or affirmation of that fact and advertise the
same in such manner as the Board of Directors may require, and shall if the
directors so require give the corporation a bond of indemnity, in form and with
one or more sureties satisfactory to the Board, in at least double the value of
the stock represented by said certificate, whereupon a new certificate may be
issued of the same tenor and for the same number of shares as the one alleged to
be lost or destroyed.
Section 4. TRANSFER AGENTS AND REGISTRARS.
The Board of Directors may appoint one or more transfer agents of transfer
clerks, and one or more registrars, which shall be an incorporated bank or trust
company--either domestic or foreign, who shall be appointed at such times and
places as the requirements of the corporation may necessitate and the Board of
Directors may designate.
Section 5. CLOSING STOCK TRANSFER BOOKS.
The Board of Directors may close the transfer books in their discretion for
a period not exceeding thirty days preceding any meeting, annual or special, of
the shareholders, or the day appointed for the payment of a dividend.
ARTICLE VII
CORPORATE SEAL
The corporate seal shall be circular in form, and shall have inscribed
thereon the name of the corporation, the date of its incorporation, and the word
California.
ARTICLE VIII
AMENDMENTS TO BY-LAWS
Section 1. BY SHAREHOLDERS.
New By-Laws may be adopted or these By-Laws may be repealed or amended at
their annual meeting, or at any other meeting of the shareholders called for
that purpose, by a vote of shareholders entitled to exercise a majority of the
voting power of the corporation, or by written assent of such shareholders.
Section 2. POWERS OF DIRECTORS.
Subject to the right of the shareholders to adopt, amend or repeal By-Laws,
as provided in Section 1 of this Article VIII, the Board of Directors may adopt,
amend or repeal any of these By-Laws other than a By-Law or amendment thereof
changing the authorized number of directors.
Section 3. RECORD OF AMENDMENTS.
Whenever an amendment or new By-Law is adopted, it shall be copied in the
Book of By-Laws with the original By-Laws, in the appropriate place. If any
By-Law is repealed, the fact of repeal with the date of the meeting at which the
repeal was enacted or written assent was filed shall be stated in said book.
--9--
<PAGE>
KNOW ALL MEN BY THESE PRESENTS:
That we, the undersigned, being all of the persons appointed in the Articles of
Incorporation to act as the first Board of Directors of PAISANO PUBLICATIONS,
INC. hereby assent to the foregoing By-Laws, and adopt the same as the By-Laws
of said corporation.
IN WITNESS WHEREOF, we have hereunto set our hands this __ day of ___________
19__.
)
/s/ Joseph Teresi )
- ---------------------------- )
JOSEPH TERESI )
)
)
/s/ Milford C. Blair )
- ---------------------------- ) Directors.
MILFORD C. BLAIR )
)
)
/s/ Louis Kimex )
- ---------------------------- )
LOUIS KIMEX )
)
)
)
)
)
THIS IS TO CERTIFY:
That I am the duly elected, qualified and acting Secretary of PAISANO
PUBLICATIONS, INC. and that the above and foregoing By-Laws were adopted as the
By-Laws of said corporation on the 22nd day of January 1971, by the persons
appointed in the Articles of Incorporation to act as the first directors of said
corporation.
IN WITNESS WHEREOF, I have hereunto my hand this 22nd day of January 1971.
/s/ MILFORD C. BLAIR
------------------------------
Secretary. MILFORD C. BLAIR
THIS IS TO CERTIFY:
That I am the duly elected, qualified and acting Secretary PAISANO
PUBLICATIONS, INC. of and that the above and foregoing Code of By-Laws was
submitted to the shareholders at their first meeting held on the 22nd day of
January 1971, and was ratified by the vote of the shareholders entitled to
exercise the majority of the voting power of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand this 22nd day of January
1971.
/s/ MILFORD C. BLAIR
------------------------------
Secretary. MILFORD C. BLAIR
--10--
<PAGE>
ACTION BY UNANIMOUS WRITTEN CONSENT
OF THE BOARD OF DIRECTORS OF
PAISANO PUBLICATIONS, INC.
The directors of Paisano Publications, Inc. ("Corporation"), hereby adopt
the following resolution by this action in lieu of a meeting:
AUTHORIZATION TO BORROW
WHEREAS, the Corporation proposes to borrow from Siena Capital Partners,
L.P. ("Siena") the sum of $275,000 pursuant to the terms set forth on Exhibit A,
attached hereto and by this reference made a part hereof (the "Loan
Transaction"), and
WHEREAS, the Loan Transaction is deemed to be in the best interests of
Corporation,
NOW, THEREFORE, BE IT RESOLVED, that the Corporation is hereby authorized
to enter into the Loan Transaction and perform all obligations required of it in
connection therewith, and
RESOLVED FURTHER, that the President and Chief Financial Officer of the
Corporation are authorized and directed to execute all documents necessary to
effect the foregoing.
The foregoing resolutions are effective as of September 3, 1999.
/s/ JOHN MARTIN /s/ ROBERT DAVIS
- ------------------------------- ---------------------------------
JOHN MARTIN ROBERT DAVIS
/s/ JOSEPH TERESI /s/ WILLIAM PRATHER
- ------------------------------- ---------------------------------
JOSEPH TERESI WILLIAM PRATHER
/s/ J. ROBERT FABREGAS
- -------------------------------
J. ROBERT FABREGAS
<PAGE>
EXHIBIT A
---------
[LOGO] Imperial
Capital, LLC
- -------------------------------------------------------------------------------
150 SOUTH RODEO DRIVE, SUITE 100 BEVERLY HILLS, CA 90212
310-246-3700 800-929-2299 FAX 310-246-3794
September 3, 1999
Mr. J. Robert Fabregas
Chief Financial Officer
Easyriders, Inc.
28210 Dorothy Drive
Agoura Hills, California 91301
Dear Bob:
This letter confirms our understanding that Easyriders, Inc. (which together
with its subsidiaries and affiliates is hereinafter referred to as the
"Company") has engaged Imperial Capital, LLC ("IC") to act as exclusive
financial advisor to the Company in efforts to enter into a Transaction with the
publishing subsidiary ("Publishing Division") of the Company which Transaction
may include a possible transaction or series of transactions representing a
merger, consolidation or any other business combination, sale of all or a
substantial amount of the Publishing Division (or any other subsidiaries sold as
part of the sale of the Publishing Division) business, securities or assets of
the Company, any recapitalization or spinoff or any transaction which is
structured to substantially achieve the same result (each, a "Transaction").
Section 1. Services to be Rendered. In connection with a Transaction, IC's
-----------------------
services to the Company may include: (i) assistance in the preparation of
materials describing the Company, its operations, historical performance and
future prospects; (ii) advising on a proposed purchase price and form of
consideration; (iii) assisting the Company in structuring a Transaction; and
(iv) identifying and contacting selected qualified purchasers (the "Purchasers")
for any Transaction.
Section 2. Compensation. As compensation for the services to be provided by IC
------------
hereunder with respect to a Transaction, the Company agrees to pay to IC;
(i) a retainer fee of $50,000 (the "Retainer") to be paid as follows:
(a) $25,000 payable promptly upon the earlier of (i) the receipt by the
Company of new financing proceeds (the "Financing Proceeds") equal
to or in excess of $300,000 or (ii) one month following the
execution of this Agreement; and
(b) three equal monthly installments of the remaining balance with
payments beginning one month from the date of this Agreement; and
Nothwithstanding anything to the contrary contained in section 2 (i)
above, the full amount of the Retainer will be payable upon a termination
by the Company of this Agreement.
<PAGE>
J. Robert Fabregas
Easyriders, Inc.
September 3, 1999
Page 2
(ii) one and one-quarter percent (1.25%) of Aggregate Consideration (as
defined below) received in a Transaction to the extent that the Aggregate
Consideration is less than forty million dollars ($40,000,000); one and one-half
percent (1.50%) of Aggregate Consideration received in a Transaction to the
extent that the Aggregate Consideration is equal to or greater than forty
million dollars ($40,000,000) and less than fifty five million dollars
($55,000,000); and one and three-quarter percent (1.75%) of Aggregate
Consideration received in a Transaction to the extent that the Aggregate
Consideration is greater than fifty five million dollars ($55,000,000) (the
"Success Fee"). The Retainer will be credited against the Success Fee upon
consummation of the Transaction.
The "Aggregate Consideration" in a Transaction for purposes of determining the
Transaction Fee shall mean (x) the aggregate amount of consideration received by
the Company and/or its shareholders (treating any shares issuable upon exercise
of options, warrants or other rights of conversion as outstanding) and the
implied value of any equity interest retained by the Company's shareholders in
the Publishing Division or any other subsidiaries or assets sold with the
Publishing Division plus (y) the amount of any debt assumed or repaid or
preferred stock redeemed or remaining outstanding in connection with a
Transaction. The Transaction Fee shall be payable in cash promptly upon
consummation of a Transaction.
A Transaction shall be deemed to have been consummated upon the earliest of any
of the following events to occur: (i) a merger or consolidation of the
Publishing Division with or into the Purchaser or an entity controlled by the
Purchaser; (iii) the acquisition by the Purchaser or an entity controlled by the
Purchaser of substantially all of the Publishing Division's assets; or (iv) in
the case of any other Transaction, the consummation thereof.
In the event that the consideration received in a Transaction is paid in whole
or in part in the form of securities or other assets, the value of such
securities or other assets, for purposes of calculating our cash compensation
referred to in clause (i) above, shall be the fair market value thereof, as the
parties hereto shall mutually agree, on the day prior to the consummation of a
Transaction; provided, that if such consideration includes securities with an
existing public trading market, the value thereof shall be determined by the
last sales price for such securities on the last trading day thereof prior to
such consummation. In the event that all or some portion of the consideration is
related to the future earnings or operations of the Company, the portion of IC's
compensation relating thereto shall be calculated and shall be paid at the time
a Transaction is consummated (as determined by the preceding paragraph) based
upon the estimated net present value thereof
As IC will be acting on your behalf, the Company agrees to the indemnification
and other obligations set forth in Schedule I attached hereto, which Schedule is
an integral part hereof.
In addition, upon consummation of a Transaction, the Company agrees to reimburse
IC for all reasonable out-of-pocket expenses incurred by IC in connection with
this engagement. IC will be paid a cash expense advance of $25,000 that will be
used by IC to defray its out-of-pocket expenses and any unused amounts will be
returned to the Company. An initial deposit of $7,500 will be payable upon
execution of this Agreement. $7,500 of the remaining $17,500 will be payable
upon the earlier of (i) a documented request by IC for additional out-of-pocket
expenses, (ii) one month following the execution of this Agreement; or (iii)
upon receipt of any financing proceeds. The final $10,000 will be payable upon
the earlier of (i) a request by IC for additional out of pocket expenses or (ii)
in three equal monthly installments with the first installment payable one month
from the date of execution of this Agreement. Further, the Company will be
responsible for all other expenses associated with a potential Transaction,
including, but not limited to, its own accounting and legal fees, printing and
travel costs. Reimbursement of out-of-pocket expenses will be paid to IC
promptly by the Company whether or not a Transaction is consummated. The Company
shall
<PAGE>
J. Robert Fabregas
Easyriders, Inc.
September 3, 1999
Page 3
have the right to approve any one time expense in excess of $5,000 (which shall
exclude the printing bill which both parties hereby acknowledge will exceed
$5,000).
Section 3. Term of Engagement. This Agreement may be terminated by either
------------------
party hereto upon 30 days written notice. Upon any termination or expiration of
this agreement, IC will be entitled to prompt payment of all fees and out of
pocket expenses accrued prior to such termination or expirations. Sections 2, 3,
5, 6, 9 and 10 of this Agreement and the indemnity and other provisions
contained in Schedule I will also remain operative and in full force and effect
regardless of any termination or expiration of this Agreement except that the
provisions of Schedule I shall only be effective for a period ten years from the
date of such termination or expiration. Any termination shall be in writing by
either party.
In addition, if at any time prior to 24 months after the termination or
expiration of this Agreement, the Company enters into a Transaction with any
party to whom IC has sent selling materials and engaged in substantial
discussions and the Company completes any such Transaction, IC, in addition to
any expense reimbursement otherwise owing pursuant to Section 2 of this
Agreement, shall be entitled to payment in full of the compensation described in
Section 2 of this Agreement with respect to such Transaction. Not withstanding
anything to the contrary contained in this paragraph, the Company shall have no
liability to IC if it enters into a transaction more than 12 months following
the termination or expiration of this Agreement with parties to whom IC only
delivered selling materials (i.e. IC did not have substantial discussions with
such party).
In addition, if at any time prior to 12 months after the termination or
expiration of this Agreement, the Company enters into a Transaction with any
party not introduced by IC and the Company completes any such Transaction, IC,
in addition to any expense reimbursement otherwise owing pursuant to Section 2
of this Agreement shall be entitled to payment in full of the compensation
described in Section 2 of this Agreement with respect to such Transaction.
Section 4. Cooperation. To the extent possible, the Company will furnish IC
-----------
with all financial and other information and data as IC reasonably believes
appropriate in connection with its activities on the Company's behalf, and shall
provide IC access to its officers, directors, employees and professional
advisors. In addition, during the term of this Agreement, the Company agrees to
forward the names of potential Purchasers to IC. Such potential Purchasers will,
for purposes of this letter be parties introduced by IC. In addition, the
Company with the assistance of IC will be responsible for preparing the
materials relating to any Transaction. The Company agrees that it and its
counsel will be solely responsible for ensuring that the materials and any
Transaction comply in all respects with the applicable law, except with regard
to statements or representations with regard to IC. The Company, to the extent
possible, authorizes IC to transmit the materials to potential participants in a
Transaction. The Company will also cause to be furnished to IC at the closing,
copies of such agreements, opinions, certificates and other documents delivered
at the closing as IC may reasonably request. The Company will promptly notify IC
if it learns of any material inaccuracy or misstatement in, or material omission
from, any information theretofore delivered to IC.
The Company recognizes and confirms that IC, in connection with performing
its services hereunder: (i) will be relying without investigation upon all
information that is available from public sources or supplied to it by or on
behalf of the Company, or its advisors, (ii) shall not in any respect be
responsible for the accuracy or completeness of, or have any obligation to
verify, the same, (iii) will not conduct any appraisal of arty assets of the
Company, and (iv) may require that any materials contain appropriate disclaimers
consistent with the foregoing. The Company recognizes and confirms that IC will
be relying on the Company for the information that it will be providing to IC.
<PAGE>
J. Robert Fabregas
Easyriders, Inc.
September 3, 1999
Page 4
Section 5. Confidentiality. The Company agrees that any advice, written or
---------------
oral, provided by IC pursuant to this Agreement will be treated by the Company
as confidential, will be solely for the information and assistance of the
Company in connection with its consideration of a transaction of the type
referred to in Section 1 of this Agreement and will not be used, circulated,
quoted or otherwise referred to for any other purpose, nor will it be filed
with, included in or referred to, in whole or in part, in any registration
statement, proxy statement or any other communication, whether written
(including, without limitation, any materials furnished with respect to a
Transaction) or oral, prepared, issued or transmitted by the Company or any
affiliate, director, officer, employee, agent or representative of any thereof,
without, in each instance, IC's prior written consent.
Further, in connection with this engagement of IC, it is contemplated that
the Company will supply to IC certain non-public or proprietary information
concerning the Company ("Confidential Information"). The Company agrees to use
its best efforts to appropriately mark all such information which is delivered
in written form. IC shall use Confidential Information solely for the purposes
of rendering services pursuant to and in accordance with this engagement and
shall nor, without the prior written consent of the Company, disclose any
Confidential Information to any person, other than its officers, directors,
employees and outside advisors with a need to know; provided, however, that the
foregoing shall not apply to any information which becomes publicly available
other than as a result of the breach of IC's undertakings hereunder, or that
which IC is required to disclose by judicial or administrative process in
connection with any action, suit, proceeding or claim.
Section 6. Conflicts. The Company acknowledges that IC and its affiliates
---------
may have and may continue to have investment banking and other relationships
with parties other than the Company pursuant to which IC may acquire information
of interest to the Company. IC shall have no obligation to disclose such
information to the Company, or to use such information in connection with any
contemplated transaction. The Company recognizes that IC is being engaged
hereunder to provide the services described above only to the Company and is not
acting as an agent or a fiduciary of, and shall have no duties or liability to,
the equity holders of the Company or any third party in connection with its
engagement hereunder, all of which are hereby expressly waived. No one other
than the Company is authorized to rely upon the engagement of IC hereunder or
any statements, advice, opinions or conduct by IC.
Section 7. Exclusivity. The Company agrees that no other financial advisor
-----------
is or will be authorized by it during the term of this Agreement to perform
services relative to the Publishing Division on its behalf of the type which IC
is authorized to perform hereunder. No fee payable to any other financial
advisor either by the Company or any other entity shall reduce or otherwise
affect the fees payable hereunder to IC.
Section 8. Public Announcements. IC shall have the right to place
--------------------
announcements and advertisements in financial and other newspapers and journals,
at its own expense, describing their services in connection with any Transaction
hereunder, provided that IC obtain the Company's consent, which consent will not
be unreasonably withheld.
Section 9. Complete Agreement; Severability; Amendments; Assignment. This
--------------------------------------------------------
Agreement embodies the entire agreement and understanding between the parties
hereto and supersedes any prior agreements and understandings relating to the
subject matter hereof (notwithstanding anything to the contrary contained
herein, this Agreement shall in no way affect the provisions of any written
agreements between IC and the Company related to past or future financings or
services). If any provision of this Agreement is determined to be invalid or
unenforceable in any respect, such determination will not affect such provision
in any other respect or any other provision of this Agreement, which will remain
in full force and effect. This Agreement may not be amended or otherwise
modified or waived except by an
<PAGE>
J. Robert Fabregas
Easyriders, Inc.
September 3, 1999
Page 5
instrument in writing signed by both IC and the Company. This Agreement may not
be assigned by either party without the prior written consent of the other
party.
This Agreement shall be binding upon and inure to the benefit of the Company,
IC, each Indemnified Person (as defined in Schedule I hereto) and their
respective successors and assigns.
Section 10. Governing Law; Forum. This Agreement will be governed by, and
--------------------
construed in accordance with, the laws of the state of California applicable to
agreements made and to be performed entirely in such state. Each of the Company
and IC agree that any action or proceeding based hereon, or arising out of IC's
engagement hereunder, shall be entitled to reasonable attorney fees.
Section 11. Notwithstanding anything to the contrary herein contained, or
which might be implied from the nature of IC's exclusive representation, the
final decision as to whether it should proceed with any Transaction rests solely
and exclusively with the Company and the Company shall not be liable to IC for a
fee of any kind if it elects not to proceed with a proposed Transaction except
for the Retainer and any fee due to IC under Section 3 of this Agreement.
Section 12. Nothing herein contained shall be deemed to preclude the sale
of any subsidiary of the Company (other than Paisano Publications, Inc.) or all
or any portion of the assets of any such subsidiary, and the proceeds of any
such sale shall not be commissionable to IC unless the buyer of such subsidiary
was introduced to IC as part of a possible Transaction with the Publishing
Division.
<PAGE>
J. Robert Fabregas
Easyriders, Inc.
September 3, 1999
Page 6
Please confirm that the foregoing correctly sets forth our agreement by signing
and returning to IC the enclosed original copy of this Agreement.
Very truly yours,
IMPERIAL CAPITAL, LLC
By: /s/ Jason Reese
-------------------------------
Jason Reese
President
Accepted as of the date written above,
EASYRIDERS, INC.
By: /s/ J. Robert Fabregas
-----------------------------------
J. Robert Fabregas
Chief Financial Officer
<PAGE>
J. Robert Fabregas
Easyriders, Inc.
September 3, 1999
Page 7
Schedule I
This Schedule I is a part of and is incorporated into that certain letter
agreement (together, the "Agreement") dated September 3, 1999 by and between
Easyriders, Inc. (the "Company") and Imperial Capital, LLC ("IC").
This Schedule will confirm that the Company agrees to indemnify and hold
harmless IC and its affiliates, the respective directors, officers, and
employees of IC and its affiliates and each other person, if any, controlling IC
or any of its affiliates (IC and each such person and entity being referred to
as an "Indemnified Person"), to the full extent lawful, from and against any
------------------
losses, claims, damages or liabilities or actions (including without limitation
shareholder actions and actions arising from the use of information contained in
any materials furnished with respect to a Transaction or omissions from such
materials) related to or arising out of this engagement or IC's role in
connection herewith, and will pay (or if paid by an Indemnified Person,
reimburse such Indemnified Person) for all fees and expenses (including without
limitation counsel fees) incurred by such Indemnified Person in connection with
investigating, preparing or defending any such action or claim, whether or not
in connection with pending or threatened litigation in which any Indemnified
Person is a party. The Company will not, however, be responsible for any claims,
liabilities, losses, damages or expenses which result from any compromise or
settlement not approved by the Company or which result primarily from the fraud,
willful misconduct or gross negligence of any Indemnified Person. The Company
also agrees that no Indemnified Person shall have any liability to the Company
for or in connection with this engagement, except for any such liability for
losses, claims, damages, liabilities or expenses incurred by the Company that
result from the fraud, willful misconduct or gross negligence of the Indemnified
Person or the violation of any applicable law, rule or regulation. The foregoing
agreement shall be in addition to any rights that any Indemnified Person may
have at common law or otherwise, including without limitation any right to
contribution. The Company's agreement to indemnify IC and other indemnified
Persons pursuant to this letter shall not be disclosed publicly or made
available to third parties by either party hereto without the other party's
prior written consent.
If any action or proceeding is brought against any Indemnified Person in
respect of which indemnity may be sought against the Company pursuant hereto, or
if any Indemnified Person receives notice from any potential litigant or a claim
which such person reasonably believes will result in the commencement of any
such action or proceeding, such Indemnified Person shall promptly notify the
Company in writing of the commencement of such action or proceeding, or of the
existence of any such claim, but the failure so to notify the Company of any
such action or proceeding shall not relieve the Company from any other
obligation or liability which it may have to any Indemnified Person otherwise
than under this Agreement or with respect to any other action or proceeding. In
case any such action or proceeding shall be brought against any Indemnified
Person, the Company shall be entitled to participate in such action or
proceeding with counsel of the Company's choice, or compromise or settle such
action or proceeding, at its expense (in which case the Company shall not
thereafter be responsible for the fees and expenses of any separate counsel
retained by such Indemnified Person); provided, however, that such counsel shall
-----------------
be satisfactory to the Indemnified Person in the exercise of its reasonable
judgment. Notwithstanding the Company's election to assume the defense of such
action or proceeding, such Indemnified Person shall have the right to employ
separate counsel and to participate in the defense of such action or proceeding,
and the Company shall bear the reasonable fees, costs and expenses of such
separate counsel (and shall pay such fees, costs and expenses at least
quarterly), if (i) the use of counsel chosen by the Company to represent such
indemnified Person would, in the reasonable judgment of the Indemnified Person,
present such counsel with a conflict of interest; (ii) the defendants in, or
targets of, any such action or proceeding include both an Indemnified Person and
the Company, and such Indemnified Person shall have reasonably concluded that
there may be legal defenses available to it or to other Indemnified Persons
which are different from or additional to those available to the Company (in
which case the Company shall
<PAGE>
J. Robert Fabregas
Easyriders, Inc.
September 3, 1999
Page 8
not have the right to direct the defense of such action or proceeding on behalf
of the indemnified Person); (iii) the Company shall not have employed counsel
satisfactory to such Indemnified Person in the exercise of the Indemnified
Person's reasonable judgment to represent such Indemnified Person within a
reasonable time after notice of the institution of such action or proceeding; or
(iv) the Company shall authorize such Indemnified Person to employ separate
counsel at the Company's expense.
In order to provide for the just and equitable contribution, if a claim for
indemnification hereunder is found unenforceable in a final judgment by a court
of competent jurisdiction (not subject to further appeal), even though the
express provisions hereof provide for indemnification in such case, then the
Company and IC shall contribute to the losses, claims, damages, judgments,
liability or costs to which the Indemnified Person may be subject in accordance
with the relative benefits received by, and the relative fault of, each in
connection with the statements, acts or omissions which resulted in such losses,
claims, damages, judgments, liabilities, or costs provided however Ics
contribution will not be in excess of the total fees received by it under the
Agreement. No person found liable for a fraudulent misrepresentation or omission
shall be entitled to contribution from any person who is not also found liable
for such fraudulent misrepresentation or omission. Notwithstanding the
foregoing, IC shall not be obligated to contribute to any amount hereunder that
exceeds the amount of fees previously received by IC for its services to the
Company.
These indemnification provisions shall (i) remain operative and in full
force and effect regardless of any termination or completion of the engagement
of IC; (ii) inure to the benefit of any successors, assigns, heirs or personal
representative of any Indemnified Person; and (iii) be in addition to any other
rights that any Indemnified Person may have.
<PAGE>
EXHIBIT B
---------
The following term sheet is for discussion and does not constitute a commitment
or undertaking to provide financing.
Easyriders, Inc.
Increasing Rate Senior Bridge Notes
Summary of Proposed Terms
- -------------------------------------------------------------------------------
Issuer.......................Paisano Publications, Inc. (the "Company").
Lender.......................Siena Capital Partners, L.P., affiliates ("Siena")
and bridge participants.
Issue........................Increasing Rate Senior Bridge Notes (the "Bridge
Notes").
Principal Amount.............$275,000.
Use of Proceeds..............The proceeds of the Bridge Notes will be used to
fund an intercompany loan to Easyriders, Inc. for
general corporate purposes.
Final Maturity...............October [ ], 2000, (12 months).
Commitment Fee...............4.0% of the principal amount of the Bridge Notes,
payable in cash at closing to Siena.
Interest Rate................13.0% in cash plus 7.0% payable-in-kind for the
first six months, increasing on the first day of
each month thereafter by 1% payable-in-kind.
Interest shall be payable monthly in cash in
arrears.
Warrants.....................To the extent that the Bridge Notes have not been
repaid in full, Easyriders, Inc will grant Siena a
warrant to purchase 100,000 shares of common stock
on the sixth month anniversary, 400,000 shares of
common stock on the ninth month anniversary and
500,000 shares of Common Stock on the twelfth
month anniversary of the closing date of the Bridge
Notes (the "Additional Warrants"). To the extent
the Bridge Notes are not repaid at Final Maturity,
warrants will continue to increase by 150,000 per
month until the Bridge Notes are repaid. The
Warrants will have (i) a nominal exercise price,
(ii) a 7-year term, (iii) "cash-less" exercise
provisions, (iv) unlimited "piggy-back"
registration rights subject to underwriter cutbacks
and (v) standard anti-dilution provisions.
Page 1
<PAGE>
DRAFT
Ranking......................The Bridge Notes will be subordinated to the
senior indebtedness of Nomura Holdings America, Inc
("Nomura") existing at the time of closing of the
Bridge Notes including any additional debt under
the Revolving Notes (as defined in the Nomura Loan
Documents). The Notes will be senior to any and all
existing and future Subordinated Indebtedness.
Guarantee....................The Bridge Notes will be guaranteed by Easyriders,
Inc. The Guarantee will be secured by all of the
common stock held by Easyriders, Inc. in El Paso
Barbecue Restaurants, Inc.
Optional Redemption..........The Bridge Notes may be prepaid at any time in
whole or in part at 100% of the principal amount to
be prepaid, together with interest accrued and
unpaid to the date fixed for such prepayment
without penalty or premium.
Right of First Refusal.......Mr. Teresi and Mr. Martin shall have the right to
purchase the Bridge Notes at par plus accrued
interest prior to any sale to any other party. Mr.
Teresi and Mr. Martin shall also have the right at
any time following the closing of the Bridge Notes
to purchase the Bridge Notes at par plus accrued
interest.
Mandatory Redemption.........Subject to the subordination arrangements between
Siena and Nomura, the Bridge Notes will become
immediately due and payable upon the earlier of (i)
the occurrence of an event of default under the
Note Purchase Agreement, (ii) proceeds from the
sale of any material assets of Easyriders, Inc. or
any of its subsidiaries, and/or (iii) the funding
of any other financing.
Excess Cash Repurchase.......Beginning on the sixth month anniversary and for
each month thereafter until the Bridge Notes are
repaid in full, if any of the Bridge Notes remain
outstanding, the Company will be required in order
of priority to pay accrued interest on the Bridge
Notes and repurchase the Bridge Notes with 25% of
its Excess Cash Flow (as defined in the Nomura Loan
Documents.)
Subordination................Siena and Nomura will enter into subordination
- ------------- arrangements acceptable to both parties prior to
the closing of the Bridge Notes.
Covenants....................The Bridge Notes will contain certain covenants,
including, but not limited to, covenants with
respect to the following matters: (i) limitations
on the incurrence of additional indebtedness and
the issuance of disqualified capital stock; (ii)
limitations on restricted payments; (iii)
limitations on the sale of
Page 2
<PAGE>
DRAFT
assets; (iv) limitations on lines of business; (v)
limitations on transactions with affiliates; (vi)
limitations on additional liens; (vii) restrictions
on mergers, consolidations and the transfer of all
or substantially all of the assets of the Company
to another person; and (viii) certain additional
financial covenants, among others.
Indemnification..............The Company will agree to: (i) indemnify and hold
harmless Siena and Imperial Capital, LLC, each of
their affiliates and each director, officer,
employee and agent of each such entity (each an
"Indemnified Person") from and against any and all
losses, claims, damages, liabilities and expenses
that arises out of, result from or relate to the
Bridge Notes, and (ii) reimburse each Indemnified
Person for all legal or other expenses incurred in
connection with investigating, defending or
participating in the defense of any such matter
(whether or not such Indemnified Person is a party
to any action or proceeding out of which any such
expense arises.)
Representations and
Warranties..................Customary for a transaction of this nature.
Expenses.....................The Company will pay all expenses of Siena,
including but not limited to, reasonable expenses
of counsel.
Page 3
<PAGE>
ACTION BY UNANIMOUS WRITTEN CONSENT
OF THE BOARD OF DIRECTORS OF
EASYRIDERS, INC.
The directors of Easyriders, Inc. ("Corporation"), hereby adopt the
following resolutions by this action in lieu of a meeting:
1. ENGAGEMENT OF IMPERIAL CAPITAL
RESOLVED, that the engagement of Imperial Capital, LLC pursuant to the
engagement agreement attached hereto as Exhibit A and by this reference made a
part hereof is hereby ratified as a lawful corporate act, and the officers of
the Corporation are hereby authorized and directed to perform the obligations
and enforce the rights of the Corporation pursuant thereto.
2. ISSUANCE OF WARRANTS
WHEREAS, the Corporation's subsidiary, Paisano Publications, Inc.
("Paisano") proposed to borrow from Siena Capital Partners, LP ("Siena") the sum
of $275,000 pursuant to the terms set forth on Exhibit B, attached hereto and by
this reference made a part hereof, and
WHEREAS, pursuant to such transaction it is contemplated that Corporation
will issue to Siena warrants to purchase shares of the Corporation's common
stock in the amount and upon the terms set forth on Exhibit B (the "Warrants"),
and
WHEREAS, the issuance of such Warrants is deemed to be in the best
interests of the Corporation,
NOW, THEREFORE, BE IT RESOLVED, that the corporation is hereby authorized
to issue the Warrants and perform all obligations required of it in connection
therewith, and
Balance of this page left blank intentionally.
Page 1 of 2
<PAGE>
RESOLVED FURTHER, that the President and/or Chief Financial Officer of the
Corporation are authorized and directed to execute all documents necessary to
effect the foregoing.
The foregoing resolutions are effective as of September 3, 1999.
/s/ John Martin /s/ Daniel Gallery
- ----------------------------- -----------------------------
JOHN MARTIN DANIEL GALLERY
/s/ Stewart Gordon /s/ Joseph Jacobs
- ----------------------------- -----------------------------
STEWART GORDON JOSEPH JACOBS
/s/ Wayne Knyal /s/ Ellen Meagher
- ----------------------------- -----------------------------
WAYNE KNYAL ELLEN MEAGHER
/s/ William Prather /s/ Joseph Teresi
- ----------------------------- -----------------------------
WILLIAM PRATHER JOSEPH TERESI
Page 2 of 2
<PAGE>
Exhibit D
GUARANTEE AND PLEDGE
<PAGE>
EXHIBIT 10.62
EXECUTION COPY
PLEDGE AND GUARANTEE AGREEMENT
This PLEDGE AND GUARANTEE AGREEMENT (this "Agreement") dated as of October
---------
14, 1999 is made by NEWRIDERS, INC., a Nevada corporation (the "Obligor"), in
-------
favor of SIENA CAPITAL PARTNERS, L.P., a California limited partnership (such
limited partnership, and its successors and assigns, "Siena").
-----
The Securities Purchase Agreement dated as of October 14, 1999 (as amended,
modified or supplemented and in effect from time to time, the "Securities
----------
Purchase Agreement") between Paisano Publications, Inc., a California
- ------------------
corporation (the "Company"), and Siena provides, inter alia, for the issuance by
-------
the Company to Siena of an Increasing Rate Secured Promissory Note in the
principal amount of US$275,000 and for the issuance by the Obligor to Siena of
warrants to purchase common stock of the Obligor. It is a condition to the
obligations of Siena under the Securities Purchase Agreement that the Obligor
shall have executed and delivered, and granted the Liens provided for, in this
Agreement.
To induce Siena to enter into, and to extend credit under, the Securities
Purchase Agreement and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Obligor has agreed to
pledge and grant a security interest in the Collateral as security for the
Secured Obligations. Accordingly, the Obligor agrees with Siena as follows:
Section 1. Definitions. Unless otherwise defined, all capitalized terms
-----------
used in this Agreement that are defined in the Securities Purchase Agreement
(including those terms incorporated by reference) shall have the respective
meanings assigned to them in the Securities Purchase Agreement. In addition, the
following terms shall have the following meanings under this Agreement:
"Basic Documents" shall mean the Securities Purchase Agreement, the Note,
---------------
the Warrants, the Warrant Agreement, the other Securities, this Agreement and
any other document, instrument or agreement evidencing any of the Secured
Obligations, as the same may be amended, modified or supplemented and in effect
from time to time.
"Collateral" shall have the meaning assigned to that term in Section 3.01.
---------- ------------
"Guaranteed Obligations" shall mean any and all obligations of the Company
----------------------
arising under or in connection with the Securities Purchase Agreement, the Note,
or other Basic Documents.
"LLC Collateral" shall have the meaning assigned to that term in Section
-------------- -------
3.01(a).
- -------
"M&B Restaurants" shall mean M&B Restaurants, L.C., a Texas limited
---------------
liability company, and any successor thereto.
"Pledged LLC Interest" shall have the meaning assigned to that term in
--------------------
Section 3.01(a).
- ---------------
<PAGE>
"Secured Obligations" shall mean any and all obligations of the Company,
-------------------
the Obligor and/or any other person (other than Siena) arising under or in
connection with the Securities Purchase Agreement, the Note, the Warrants, the
Warrant Agreement, the other Securities, this Agreement or any other agreement
or guaranty securing any such obligations.
"Uniform Commercial Code" shall mean the Uniform Commercial Code as in
-----------------------
effect in the State of California from time to time or, by reason of mandatory
application, any other applicable jurisdiction.
Section 2. Guarantee.
---------
2.01 Guarantee. Subject to the limitation set forth in Section 2.08, the
--------- ------------
Obligor hereby guarantees to Siena the timely payment in full when due (whether
at stated maturity, by acceleration or otherwise) and performance of the
Guaranteed Obligations in each case strictly in accordance with their terms. The
Obligor hereby further agrees that if the Company shall fail to pay in full when
due (whether at stated maturity, by acceleration or otherwise) all or any part
of the Guaranteed Obligations, the Obligor will immediately pay the same,
without any demand or notice whatsoever, and that in the case of any extension
of time of payment or renewal of all or any part of the Guaranteed Obligations,
the same will be timely paid in full when due (whether at extended maturity, by
acceleration or otherwise) in accordance with the terms of such extension or
renewal. The obligations of the Obligor under this Section 2 are irrevocable and
---------
unconditional in nature and are made with respect to any Guaranteed Obligations
now existing or in the future arising. The Obligor's liability under this
Agreement shall continue until full satisfaction of all Guaranteed Obligations.
The obligations of the Obligor constitute a guarantee of due and punctual
payment and performance and not merely a guarantee of collection.
2.02 Acknowledgments, Waivers and Consents. The Obligor acknowledges that
-------------------------------------
the obligations undertaken by it under this Agreement involve the guarantee of
obligations of persons other than the Obligor and that such obligations of the
Obligor are absolute, irrevocable and unconditional under any and all
circumstances. In full recognition and in furtherance of the foregoing, the
Obligor agrees that:
(a) Without affecting the enforceability or effectiveness of this Agreement
in accordance with its terms and without affecting, limiting, reducing,
discharging or terminating the liability of the Obligor, or the rights,
remedies, powers and privileges of Siena under this Agreement, Siena may, at any
time and from time to time and without notice or demand of any kind or nature
whatsoever: (i) amend, supplement, modify, extend, renew, waive, accelerate or
otherwise change the time for payment or performance of, or the terms of, all or
any part of the Guaranteed Obligations (including any increase or decrease in
the rate or rates of interest on all or any part of the Guaranteed
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------------------------------
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<PAGE>
Obligations); (ii) amend, supplement, modify, extend, renew, waive or otherwise
change, or enter into or give, any Basic Document or any agreement, security
document, guarantee, approval, consent or other instrument with respect to all
or any part of the Guaranteed Obligations, any Basic Document or any such other
instrument or any term or provision of the foregoing; (iii) accept or enter into
new or additional agreements, security documents, guarantees or other
instruments in addition to, in exchange for or relative to any Basic Document
with Borrower or other parties related to Borrower, all or any part of the
Guaranteed Obligations or any collateral now or in the future serving as
security for the Guaranteed Obligations; (iv) accept or receive (including from
any other guarantor) partial payments or performance on the Guaranteed
Obligations (whether as a result of the exercise of any right, remedy, power or
privilege or otherwise); (v) accept, receive and hold any additional collateral
for all or any part of the Guaranteed Obligations (including from any other
guarantor); (vi) release, reconvey, terminate, waive, abandon, allow to lapse or
expire, fail to perfect, subordinate, exchange, substitute, transfer, foreclose
upon or enforce any collateral, security documents or guarantees (including the
obligations of any other guarantor) for or relative to all or any part of the
Guaranteed Obligations; (vii) apply any collateral or the proceeds of any
collateral or guarantee (including the obligations of any other guarantor) to
all or any part of the Guaranteed Obligations in such manner and extent as Siena
may in its discretion determine; (viii) release any person (including any other
guarantor) from any personal liability with respect to all or any part of the
Guaranteed Obligations; (ix) settle, compromise, release, liquidate or enforce
upon such terms and in such manner as Siena may determine or as applicable law
may dictate all or any part of the Guaranteed Obligations or any collateral on
or guarantee of all or any part of the Guaranteed Obligations (including with
any other guarantor);(x) consent to the merger or consolidation of, the sale of
substantial assets by, or other restructuring or termination of the corporate
existence of the Company or any other person (including any other guarantor);
(xi) proceed against the Company, such or any other guarantor or any other
guarantor of all or any part of the Guaranteed Obligations or any collateral
provided by any person and exercise the rights, remedies, powers and privileges
of Siena under the Basic Documents or otherwise in such order and such manner as
Siena may, in its discretion, determine, without any necessity to proceed upon
or against or exhaust any collateral, right, remedy, power or privilege before
proceeding to call upon or otherwise enforce this Agreement as to any Obligor;
(xii) foreclose upon any deed of trust, mortgage or other instrument creating or
granting liens on any interest in real property by judicial or nonjudicial sale
or by deed in lieu of foreclosure, bid any amount or make no bid in any
foreclosure sale or make any other election of remedies with respect to such
liens or exercise any right of set-off; (xiii) obtain the appointment of a
receiver with respect to any collateral for all or any part of the Guaranteed
Obligations and apply the proceeds of such receivership as Siena may in its
discretion determine (it being agreed that nothing in this clause (xiii) shall
-------------
be deemed to make Siena a party in possession in contemplation of law, except at
its option); (xiv) enter into such other transactions or business dealings with
any other guarantor, the Company, any subsidiary or affiliate of the Company or
any other guarantor of all or any part of the Guaranteed Obligations as Siena
may desire; and (xv) do all or any combination of the actions set forth in this
Section 2.02(a).
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------------------------------
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<PAGE>
(b) The enforceability and effectiveness of this Agreement and the
liability of the Obligor, and the rights, remedies, powers and privileges of
Siena under this Agreement shall not be affected, limited, reduced, discharged
or terminated, and the Obligor hereby expressly waives to the fullest extent
permitted by law any defense now or in the future arising, by reason of: (i) the
illegality, invalidity or unenforceability of all or any part of the Guaranteed
Obligations, any Basic Document or any agreement, security document, guarantee
or other instrument relative to all or any part of the Guaranteed Obligations;
(ii) any disability or other defense with respect to all or any part of the
Guaranteed Obligations of the Company, any other guarantor or any other
guarantor of all or any part of the Guaranteed Obligations, including the effect
of any statute of limitations that may bar the enforcement of all or any part of
the Guaranteed Obligations or the obligations of any such other guarantor; (iii)
the illegality, invalidity or unenforceability of any security or guarantee for
all or any part of the Guaranteed Obligations or the lack of perfection or
continuing perfection or failure of the priority of any lien on any collateral
for all or any part of the Guaranteed Obligations; (iv) any failure of Siena to
marshal assets in favor of the Company or any other person (including any other
guarantor), to exhaust any collateral for all or any part of the Guaranteed
Obligations, to pursue or exhaust any right, remedy, power or privilege it may
have against any other guarantor, the Company, any other guarantor of all or any
part of the Guaranteed Obligations or any other person or to take any action
whatsoever to mitigate or reduce such or any other guarantor's liability under
this Agreement, Siena not being under any obligation to take any such action
notwithstanding the fact that all or any part of the Guaranteed Obligations may
be due and payable and that the Company may be in default of its obligations
under any Basic Document; (v) any failure of Siena to give notice of sale or
other disposition of any collateral (including any notice of any judicial or
nonjudicial foreclosure or sale of any interest in real property serving as
collateral for all or any part of the Guaranteed Obligations) for all or any
part of the Guaranteed Obligations to the Company, any Obligor or any other
person or any defect in, or any failure by any Obligor or any other person to
receive, any notice that may be given in connection with any sale or disposition
of any collateral; (vi) any failure of Siena to comply with applicable laws in
connection with the sale or other disposition of any collateral for all or any
part of the Guaranteed Obligations; (vii) any judicial or nonjudicial
foreclosure or sale of, or other election of remedies with respect to, any
interest in real property or other collateral serving as security for all or any
part of the Guaranteed Obligations, even though such foreclosure, sale or
election of remedies may impair the subrogation rights of any Obligor or may
preclude any Obligor from obtaining reimbursement, contribution, indemnification
or other recovery from any other guarantor, the Company, any other guarantor or
any other person and even though the Company may not, as a result of such
foreclosure, sale or election of remedies, be liable for any deficiency; (viii)
any benefits the Company, any Obligor or any other guarantor may otherwise
derive from the laws of any jurisdiction of the nature of a "one-form-of-
action," "anti-deficiency" or "security-first" rule; (ix) any act or omission of
Siena or any other person that directly or indirectly results in or aids the
discharge or release of the Company or any other guarantor of all or any part of
the Guaranteed Obligations or any security or guarantee for all or any part of
the
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<PAGE>
Guaranteed Obligations by operation of law or otherwise; (x) any law which
provides that the obligation of a surety or Obligor must neither be larger in
amount nor in other respects more burdensome than that of the principal or which
reduces a surety's or Obligor's obligation in proportion to the principal
obligation; (xi) the possibility that the obligations of the Company to Siena
may at any time and from time to time exceed the aggregate liability of the
Obligor under this Agreement; (xii) any counterclaim, set-off or other claim
which the Company or any other guarantor has or alleges to have with respect to
all or any part of the Guaranteed Obligations; (xiii) any failure of Siena to
file or enforce a claim in any bankruptcy or other proceeding with respect to
any person; (xiv) the election by Siena, in any bankruptcy proceeding of any
person, of the application or nonapplication of Section 1111(b)(2) of the
Bankruptcy Code; (xv) any extension of credit or the grant of any Lien under
Section 364 of the Bankruptcy Code; (xvi) any use of cash collateral under
Section 363 of the Bankruptcy Code; (xvii) any agreement or stipulation with
respect to the provision of adequate protection in any bankruptcy proceeding of
any person; (xviii) the avoidance of any Lien in favor of Siena for any reason;
(xix) any bankruptcy, insolvency, reorganization, arrangement, readjustment of
debt, liquidation or dissolution proceeding commenced by or against any person,
including any discharge of, or bar or stay against collecting, all or any part
of the Guaranteed Obligations (or any interest on all or any part of the
Guaranteed Obligations) in or as a result of any such proceeding; (xx) any
action taken by Siena that is authorized by this Section 2.02 or otherwise in
this Agreement or by any other provision of any Basic Document or any omission
to take any such action; or (xxi) any other circumstance whatsoever that might
otherwise constitute a legal or equitable discharge or defense of a surety or
Obligor.
(c) The Obligor expressly waives, for the benefit of Siena, all set-offs
and counterclaims and all presentments, demands for payment or performance,
notices of nonpayment or nonperformance, protests, notices of protest, notices
of dishonor and all other notices or demands of any kind or nature whatsoever
with respect to the Guaranteed Obligations, and all notices of acceptance of
this Agreement or of the existence, creation, incurring or assumption of new or
additional Guaranteed Obligations. The Obligor further expressly waives the
benefit of any and all statutes of limitation and any and all laws providing for
the exemption of property from execution or for valuation and appraisal upon
foreclosure, to the maximum extent permitted by applicable law.
(d) The Obligor represents and warrants to Siena that it has established
adequate means of obtaining financial and other information pertaining to the
business, operations and condition (financial and otherwise) of the Company and
its properties on a continuing basis and that such Obligor is now and will in
the future remain fully familiar with the business, operations and condition
(financial and otherwise) of the Company and its properties. The Obligor further
represents and warrants that it has reviewed and approved each of the Basic
Documents and is fully familiar with the transaction contemplated by the Basic
Documents and that it will in the future remain fully familiar with such
transaction and with any new Basic Documents and the transactions contemplated
by such Basic Documents. The Obligor hereby expressly waives and relinquishes
any
Pledge and Guarantee Agreement
------------------------------
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<PAGE>
duty on the part of Siena to disclose to such or any other guarantor any matter
of fact or other information related to the business, operations or condition
(financial or otherwise) of the Company or its properties or to any Basic
Document or the transactions undertaken pursuant to, or contemplated by, any
such Basic Document, whether now or in the future known by Siena.
(e) The Obligor intends that its rights and obligations shall be those
expressly set forth in this Agreement and that its obligations shall not be
affected, limited, reduced, discharged or terminated by reason of any principles
or provisions of law which conflict with the terms of this Agreement.
2.03 Understanding With Respect to Waivers and Consents. The Obligor
--------------------------------------------------
warrants and agrees that each of the waivers and consents set forth in this
Agreement are made voluntarily and unconditionally after consultation with
outside legal counsel and with full knowledge of their significance and
consequences, with the understanding that events giving rise to any defense or
right waived may diminish, destroy or otherwise adversely affect rights which
such or any other guarantor otherwise may have against the Company, Siena or any
other person or against any collateral. If, notwithstanding the intent of the
parties that the terms of this Agreement shall control in any and all
circumstances, any such waivers or consents are determined to be unenforceable
under applicable law, such waivers and consents shall be effective to the
maximum extent permitted by law.
2.04 Subrogation. The Obligor hereby agrees that, until the payment and
-----------
satisfaction in full of all of the Guaranteed Obligations, it shall not exercise
any right, remedy, power or privilege, such as any right of subrogation,
contribution or indemnity or related remedy, power or privilege, arising
(whether by contract or operation of law, including under the Bankruptcy Code)
against the Company, any other guarantor or any other guarantor of all or any
part of the Guaranteed Obligations or any collateral for all or any part of the
Guaranteed Obligations by reason of any payment or other performance pursuant to
the provisions of this Agreement and, if any amount shall be paid to such
Obligor on account of such rights, remedies, powers or privileges, it shall hold
such amount in trust for the benefit of, and pay the same over to, Siena on
account of the Guaranteed Obligations. The Obligor understands that the exercise
by Siena of any right, remedy, power or privilege that it may have under the
Basic Documents, any agreement, security document, guarantee or other instrument
relative to all or any part of the Guaranteed Obligations or otherwise may
affect or eliminate such or any other guarantor's right of subrogation or
similar recovery against the Company, any other guarantor, any other guarantors
or any collateral and that such and the other guarantors may therefore incur
partially or totally nonreimbursable liability under this Agreement.
Nevertheless, the Obligor hereby authorizes and empowers Siena to exercise, in
its or their sole discretion, any combination of such rights, remedies, powers
and privileges.
2.05 Reinstatement. The obligations of the Obligor under this Section 2
-------------
shall be automatically reinstated if and to the extent that for any reason any
payment by or on behalf of the
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------------------------------
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<PAGE>
Company, any other guarantor or any other person or any other application of
funds (including the proceeds of any collateral for all or any part of the
Guaranteed Obligations) in respect of all or any part of the Guaranteed
Obligations is rescinded or must be otherwise restored by any holder of such
Guaranteed Obligations, whether as a result of any proceedings in bankruptcy,
reorganization or otherwise and the Obligor agrees that it will indemnify Siena
on demand for all reasonable costs and expenses (including fees and expenses of
counsel) incurred by Siena in connection with such rescission or restoration.
2.06 Remedies. The Obligor hereby agrees that, between it and Siena, the
--------
obligations of the Company under the Basic Documents may be declared to be
forthwith (or may become automatically) due and payable as provided in the Basic
Documents for purposes of Section 2.01 notwithstanding any stay, injunction or
other prohibition preventing such declaration (or such obligations becoming due
and payable as against the Company) and that, in the event of such declaration
(or such obligation being deemed due and payable), such obligations (whether or
not due and payable by the Company) shall forthwith become due and payable for
purposes of Section 2.01.
2.07 Subordination of Indebtedness of the Company; Security Interest.
---------------------------------------------------------------
(a) The Obligor agrees that any indebtedness of the Company now or in the
future owed to such Obligor is hereby subordinated to the Guaranteed
Obligations. If Siena so requests, any such indebtedness shall be collected,
enforced and received by such Obligor as Lender for Siena and shall be paid over
to Siena in kind on account of the Guaranteed Obligations. If, after Siena's
request, such Obligor fails to collect or enforce any such indebtedness or to
pay the proceeds of such indebtedness to Siena, Siena as such Obligor's
attorney-in-fact may do such acts and sign such documents in such Obligor's name
and on such Obligor's behalf as Siena considers necessary or desirable to effect
such collection, enforcement or payment, Siena being hereby appointed such
Obligor's attorney-in-fact for such purpose.
(b) The Obligor hereby grants to Siena a security interest in any
indebtedness referred to in Section 2.07(a) and in any personal property of the
---------------
Company in which such Obligor now has or in the future acquires any right, title
or interest. The Obligor agrees that such security interest shall be additional
security for the Guaranteed Obligations and shall be superior to any right of
such Obligor in such property until the Guaranteed Obligations have been fully
satisfied and performed.
2.08 Limitation on Guarantee. In any proceeding involving any state
-----------------------
corporate law or any state or federal bankruptcy, insolvency, reorganization or
other law affecting the rights of creditors generally, if the obligations of the
Obligor under Section 2.01 would otherwise, taking into account the provisions
------------
of Section 2.09, be held or determined to be void, invalid or unenforceable or
------------
if the claims of Siena in respect of such obligations would be subordinated to
the claims of any other creditors on account of the Obligor's liability under
Section 2.01, then, notwithstanding any other
- ------------
Pledge and Guarantee Agreement
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<PAGE>
provision of this Agreements to the contrary, the amount of such liability
shall, without any further action by the Obligor, Siena or any other person, be
automatically limited and reduced to the highest amount which is valid and
enforceable and not subordinated to the claims of other creditors as determined
in such action or proceeding.
Section 3 Collateral.
----------
3.01 Grant. As collateral security for the prompt payment in full when
-----
due (whether at stated maturity, by acceleration or otherwise) and performance
of the Secured Obligations, the Obligor hereby pledges and grants to Siena, for
the benefit of Siena, a security interest in all of the Obligor's right, title
and interest in and to the following property, whether now owned or hereafter
acquired by the Obligor and whether now existing or hereafter coming into
existence (collectively, the "Collateral"):
----------
(a) (i) all of the Obligor's right, title and interest in the equity of M&B
Restaurants and all other interests whatsoever in M&B Restaurants, now owned or
hereafter acquired by the Obligor, together with the certificates, if any,
listed on Annex 1 representing the same (collectively, the "Pledged LLC
------- -----------
Interest");
- --------
(ii) all shares, securities, moneys or property representing a dividend on,
or a distribution or return of capital in respect of any of the Pledged LLC
Interest, resulting from a split-up, revision, reclassification or other like
change of any of the Pledged LLC Interest or otherwise received in exchange for
any of the Pledged LLC Interest and all other rights issued to the holders of,
or otherwise in respect of, any of the Pledged LLC Interest; and
(iii) without affecting the obligations of the Obligor under any provision
prohibiting such action under any Basic Document, in the event of any
consolidation or merger in which M&B Restaurants is not the surviving entity,
all shares of each class of the equity of the successor corporation or entity
formed by or resulting from such consolidation or merger (collectively, and
together with the property described in clauses (1) and (ii) above, the "LLC
----------- ---- ---
Collateral"); and
- ---------
(b) all proceeds and products of any of the property of the Obligor
described in Section 3.01(a) above.
---------------
3.02 Perfection. Concurrently with the execution and delivery of this
----------
Agreement, the Obligor shall (i) deliver to Siena all certificates, if any,
identified on Annex 1, and (ii) take all such other actions as shall be
-------
necessary or as Siena may request to perfect and establish the priority of the
Liens granted by this Agreement.
Pledge and Guarantee Agreement
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3.03 Preservation and Protection of Security Interests. The Obligor
-------------------------------------------------
shall:
(a) upon the acquisition after the date hereof by the Obligor of any
LLC Collateral, promptly notify Siena in writing of such acquisition and either
(x) transfer and deliver to Siena all such LLC Collateral (together with the
certificates, if any, representing such LLC Collateral duly endorsed in blank)
or (y) take such other action as Siena shall deem necessary or appropriate to
perfect, and establish the priority of, the Liens granted by this Agreement in
such LLC Collateral; and
(b) give, execute, deliver, file or record any and all financing
statements, notices, contracts, agreements or other instruments, obtain any and
all governmental approvals and take any and all steps that may be necessary or
as Siena may request to create, perfect, establish the priority of, or to
preserve the validity, perfection or priority of, the Liens granted by this
Agreement or to enable Siena to exercise and enforce its rights, remedies,
powers and privileges under this Agreement with respect to such Liens, including
causing any or all of the LLC Collateral to be transferred of record into the
name of Siena or its nominee (and Siena agrees that if any LLC Collateral is
transferred into its name or the name of its nominee, Siena will thereafter
promptly give to the Obligor copies of any notices and communications received
by it with respect to the LLC Collateral pledged by the Obligor).
3.04 Attorney-in-Fact. Subject to the rights of the Obligor under Section
---------------- -------
3.05, Siena is hereby appointed the attorney-in-fact of the Obligor for the
- ----
purpose of carrying out the provisions of this Agreement and taking any action
and executing any instruments which Siena may deem necessary or advisable to
accomplish the purposes of this Agreement, to preserve the validity, perfection
and priority of the Liens granted by this Agreement and, following any Event of
Default, to exercise its rights, remedies, powers and privileges under this
Agreement. This appointment as attorney-in-fact is irrevocable and coupled with
an interest. Without limiting the generality of the foregoing, Siena shall be
entitled under this Agreement upon the occurrence and continuation of any Event
of Default (i) to ask, demand, collect, sue for, recover, receive and give
receipt and discharge for amounts due and to become due under and in respect of
all or any part of the Collateral; (ii) to receive, endorse and collect any
drafts, instruments, documents and chattel paper in connection with clause (i)
----------
above; (iii) to file any claims or take any action or proceeding that Siena may
deem necessary or advisable for the collection of all or any part of the
Collateral; and (iv) to execute, in connection with any sale or disposition of
the collateral under Section 6, any endorsements, assignments, bills of sale or
---------
other instruments of conveyance or transfer with respect to all or any part of
the Collateral.
3.05 Special Provisions Relating to LLC Collateral.
---------------------------------------------
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<PAGE>
(a) So long as no Event of Default shall have occurred and be continuing,
the Obligor shall have the right to exercise all voting, consensual and other
powers of ownership pertaining to the LLC Collateral for all purposes not
inconsistent with the terms of any Basic Document, provided that the Obligor
--------
agrees that it will not vote the LLC Collateral in any manner that is
inconsistent with the terms of any Basic Document; and Siena shall, at the
Obligor's expense, execute and deliver to the Obligor or cause to be executed
and delivered to the Obligor all such proxies, powers of attorney, dividend and
other orders and other instruments, without recourse, as the Obligor may
reasonably request for the purpose of enabling the Obligor to exercise the
rights and powers which it is entitled to exercise pursuant to this Section
-------
3.05(a).
- -------
(b) If any Event of Default shall have occurred and be continuing, and
whether or not Siena exercises any available right to declare any Secured
Obligation due and payable or seeks or pursues any other right, remedy, power or
privilege available to it under applicable law, this Agreement or any other
Basic Document, all dividends and other distributions on the LLC Collateral
shall be paid directly to Siena and retained by it as part of the LLC
Collateral, subject to the terms of this Agreement, and, if Siena shall so
request, the Obligor agrees to execute and deliver to Siena appropriate
additional dividend, distribution and other orders and instruments to that end,
provided that if such Event of Default is cured, any such dividend or
- --------
distribution paid to Siena prior to such cure shall, upon request of the Obligor
(except to the extent applied to the Secured Obligations), be returned by Siena
to the Obligor.
3.06 Rights and Obligations.
----------------------
(a) No reference in this Agreement to proceeds or to the sale or other
disposition of Collateral shall authorize the Obligor to sell or otherwise
dispose of any Collateral except to the extent otherwise expressly permitted by
the terms of any Basic Document.
(b) Neither Siena nor any person shall be required to take steps necessary
to preserve any rights against prior parties to any part of the Collateral.
3.07 Termination. When all Secured Obligations shall have been paid in
-----------
full, this Agreement shall terminate, and Siena shall forthwith cause to be
assigned, transferred and delivered, against receipt but without any recourse,
warranty or representation whatsoever, any remaining Collateral and money
received in respect of the Collateral, to or on the order of the Obligor.
Section 4 Representations and Warranties. As of the date hereof, the
------------------------------
Obligor represents and warrants to Siena as follows:
(a) The Company is a wholly owned subsidiary of the Obligor and the Obligor
is the sole beneficial owner of the Collateral in which it purports to grant a
Lien pursuant to this Agreement,
Pledge and Guarantee Agreement
------------------------------
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<PAGE>
and such Collateral is free and clear of all Liens and of any other right in
favor of any other person (other than Siena). The Liens granted by this
Agreement in favor of Siena for the benefit of Siena have attached and
constitute a perfected security interest in all of such Collateral prior to all
other Liens.
(b) All information with respect to the Collateral set forth in any
schedule, certificate or other writing at any time heretofore or hereafter
furnished by the Obligor to Siena, and all other written information heretofore
or hereafter furnished by the Obligor to Siena is and will be true and correct
in all material respects as of the date furnished.
(c) The Pledged LLC Interest identified in Annex 1 are duly authorized,
-------
validly existing, fully paid and nonassessable, and none of such Pledged LLC
Interest is subject to any contractual restriction, or any restriction under the
organizational documents or operating agreement of the M&B Restaurants, upon the
transfer of such Pledged LLC Interest (except for any such restriction contained
in any Basic Document). The Pledged LLC Interest identified on Annex 1
-------
constitutes one hundred percent of the issued and outstanding shares of equity
of any class of M&B Restaurants on the date hereof, and Annex 1 correctly
-------
identifies, as of the date hereof, M&B Restaurants as the issuer of such Pledged
LLC Interest, the respective value of the interests comprising such Pledged LLC
Interest and the registered owners of the stock evidenced by each such
certificate, if any. The Obligor represents and warrants that it owns 100% of
the equity of M&B Restaurants.
Section 5 Covenants.
---------
5.01 Books and Records. The Obligor shall:
-----------------
(a) keep full and accurate books and records relating to the Collateral and
stamp or otherwise mark such books and records in such manner as Siena may
reasonably require in order to reflect the Liens granted by this Agreement; and
(b) permit representatives of Siena, upon reasonable notice, at any time
during normal business hours to inspect and make abstracts from its books and
records pertaining to the Collateral, permit representatives of Siena to be
present at the Obligor's place of business to receive copies of all
communications and remittances relating to the Collateral and forward copies of
any notices or communications received by the Obligor with respect to the
Collateral, all in such manner as Siena may request.
5.02 Removals, Etc. Without at least 30 days' prior written notice to
-------------
Siena, the Obligor shall not (i) maintain any of its books and records with
respect to the Collateral at any office or maintain its principal place of
business at any place, other than at the address initially indicated for
Pledge and Guarantee Agreement
------------------------------
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<PAGE>
notices to it under Section 7 or (ii) change its name from the name shown on the
---------
signature pages to this Agreement.
5.03 Sales and Other Liens. Without the prior written consent of Siena,
---------------------
the Obligor shall not dispose of any Collateral, create, incur, assume or suffer
to exist any Lien upon any Collateral or file or suffer to be on file or
authorize to be filed, in any jurisdiction, any financing statement or like
instrument with respect to all or any part of the Collateral in which Siena is
not named as the sole secured party.
5.04 Further Assurances. The Obligor agrees that, from time to time upon
------------------
the written request of Siena, the Obligor will execute and deliver such further
documents and do such other acts and things as Siena may reasonably request in
order fully to effect the purposes of this Agreement.
Section 6 Remedies.
--------
6.01 Events of Default, Etc. If any Event of Default shall have occurred
----------------------
and be continuing:
(a) Siena in its discretion may, in its name or in the name of the
Obligor or otherwise, demand, sue for, collect or receive any money or property
at any time payable or receivable on account of or in exchange for all or any
part of the Collateral, but shall be under no obligation to do so;
(b) Siena in its discretion may, upon ten business days' prior
written notice to the Obligor of the time and place, with respect to all or any
part of the Collateral which shall then be or shall thereafter come into the
possession, custody or control of Siena or any of its agents, sell, lease or
otherwise dispose of all or any part of such Collateral, at such place or places
as Siena deems best, for cash, for credit or for future delivery (without
thereby assuming any credit risk) and at public or private sale, without demand
of performance or notice of intention to effect any such disposition or of time
or place of any such sale (except such notice as is required above or by
applicable statute and cannot be waived), and Siena or any other person may be
the purchaser, lessee or recipient of any or all of the Collateral so disposed
of at any public sale (or, to the extent permitted by law, at any private sale)
and thereafter hold the same absolutely, free from any claim or right of
whatsoever kind, including any right or equity of redemption (statutory or
otherwise), of the Obligor, any such demand, notice and right or equity being
hereby expressly waived and released. Siena may, without notice or publication,
adjourn any public or private sale or cause the same to be adjourned from time
to time by announcement at the time and place fixed for the sale, and such sale
may be made at any time or place to which the sale may be so adjourned; and
(c) Siena shall have, and in its discretion may exercise, all of the
rights, remedies, powers and privileges with respect to the Collateral of a
secured party under the Uniform Commercial Code
Pledge and Guarantee Agreement
------------------------------
- 12 -
<PAGE>
(whether or not the Uniform Commercial Code is in effect in the jurisdiction
where such rights, remedies, powers and privileges are asserted) and such
additional rights, remedies, powers and privileges to which a secured party is
entitled under the laws in effect in any jurisdiction where any rights,
remedies, powers and privileges in respect of this Agreement or the Collateral
may be asserted, including the right, to the maximum extent permitted by law, to
exercise all voting, consensual and other powers of ownership pertaining to the
Collateral as if Siena were the sole and absolute owner of the Collateral (and
the Obligor agrees to take all such action as may be appropriate to give effect
to such right).
6.02 Deficiency. If the proceeds of, or other realization upon, the
----------
Collateral by virtue of the exercise of remedies under Section 6.01 are
------------
insufficient to cover the costs and expenses of such exercise and the payment in
full of the other Secured Obligations, the Obligor shall remain liable for any
deficiency.
6.03 Private Sale.
------------
(a) Siena shall incur no liability as a result of the sale, lease or
other disposition of all or any part of the Collateral at any private sale
pursuant to Section 6.01 conducted in a commercially reasonable manner. The
------------
Obligor hereby waives any claims against Siena arising by reason of the fact
that the price at which the Collateral may have been sold at such a private sale
was less than the price which might have been obtained at a public sale or was
less than the aggregate amount of the Secured Obligations, even if Siena accepts
the first offer received and does not offer the Collateral to more than one
offeree.
(b) The Obligor recognizes that, by reason of certain prohibitions
contained in the Securities Act of 1933 and applicable state securities laws,
Siena may be compelled, with respect to any sale of all or any part of the
Collateral, to limit purchasers to those who will agree, among other things, to
acquire the Collateral for their own account, for investment and not with a view
to distribution or resale. The Obligor acknowledges that any such private sales
may be at prices and on terms less favorable to Siena than those obtainable
through a public sale without such restrictions, and, notwithstanding such
circumstances, agrees that any such private sale shall be deemed to have been
made in a commercially reasonable manner and that Siena shall have no obligation
to engage in public sales and no obligation to delay the sale of any Collateral
for the period of time necessary to permit the respective Issuer of such
Collateral to register it for public sale.
6.04 Application of Proceeds. Except as otherwise expressly provided in
-----------------------
this Agreement and except as provided below in this Section 6.04, the proceeds
------------
of, or other realization upon, all or any part of the Collateral by virtue of
the exercise of remedies under Section 6.01, and any other cash at the time held
------------
by Siena under Section 3 or this Section 6, shall be applied by Siena:
--------- ---------
Pledge and Guarantee Agreement
------------------------------
- 13 -
<PAGE>
First, to the payment of the costs and expenses of such exercise of
-----
remedies, including reasonable out-of-pocket costs and expenses of Siena, the
fees and expenses of its agents and counsel and all other expenses incurred and
advances made by Siena in that connection;
Next, to the payment in full of the remaining Secured Obligations equally
----
and ratably in accordance with their respective amounts then due and owing or as
Siena may otherwise agree; and
Finally, to the payment to the Obligor, or its respective successors or
-------
assigns, or as a court of competent jurisdiction may direct, of any surplus then
remaining.
As used in this Section 6, "proceeds" of Collateral shall mean cash,
--------- --------
securities and other property realized in respect of, and distributions in kind
of, Collateral, including any property received under any bankruptcy,
reorganization or other similar proceeding as to the Obligor or any issuer of,
or account debtor or other guarantor on, any of the Collateral.
Section 7 Miscellaneous.
-------------
7.01 Waiver. No failure on the part of Siena or any person to exercise
------
and no delay in exercising, and no course of dealing with respect to, any right,
remedy, power or privilege under this Agreement shall operate as a waiver of
such right, remedy, power or privilege, nor shall any single or partial exercise
of any right, remedy, power or privilege under this Agreement preclude any other
or further exercise of any such right, remedy, power or privilege or the
exercise of any other right, remedy, power or privilege. The rights, remedies,
powers and privileges provided in this Agreement are cumulative and not
exclusive of any rights, remedies, powers and privileges provided by law.
7.02 Notices. All notices and communications to be given under this
-------
Agreement shall be given or made in writing to the intended recipient at the
address specified below or, as to any party, at such other address as shall be
designated by such party in a notice to each other party. Except as otherwise
provided in this Agreement, all such communications shall be deemed to have been
duly given when transmitted by telex or telecopier, delivered to the telegraph
or cable office or personally delivered or, in the case of a mailed notice, upon
receipt, in each case, given or addressed as provided in this Section 7.02:
------------
To the Obligor:
Paisano Publications, Inc.
28210 Dorothy Drive
Agoura Hills, CA 91301
Attn: J. Robert Fabregas
Telephone: 818-889-8740
Pledge and Guarantee Agreement
------------------------------
- 14 -
<PAGE>
Telecopier: 818-889-4726
To Siena:
Siena Capital Partners, L.P.
150 South Rodeo Drive, Suite 100
Beverly Hills, California 90212
Attn: Christopher P. Shepard
Telephone: (310) 246-3700
Telecopy: (310) 246-3672
With a copy of any notice to:
Nida & Maloney, LLP
800 Anacapa Street
Santa Barbara, California 93101
Attn: C. Thomas Hopkins, Esq.
Telephone: (805) 568-1151
Telecopy: (805) 568-1955
7.03 Expenses, Etc. The Obligor agrees to pay or to reimburse Siena for
-------------
all costs and expenses (including reasonable attorney's fees and expenses) that
may be incurred by Siena in any effort to enforce any of the provisions of this
Agreement or any of the obligations of the Obligor in respect of the Collateral
or in connection with (a) the preservation of the Lien of, or the rights of
Siena under this Agreement or (b) any actual or attempted sale, lease,
disposition, exchange, collection, compromise, settlement or other realization
in respect of, or care of, the Collateral, including all such costs and expenses
(and reasonable attorney's fees and expenses) incurred in any bankruptcy,
reorganization, workout or other similar proceeding.
7.04 Amendments, Etc. Any provision of this Agreement may be modified,
---------------
supplemented or waived only by an instrument in writing duly executed by the
Obligor and Siena. Any such modification, supplement or waiver shall be for such
period and subject to such conditions as shall be specified in the instrument
effecting the same and shall be binding upon Siena, each holder of any of the
Secured Obligations and the Obligor, and any such waiver shall be effective only
in the specific instance and for the purposes for which given.
7.05 Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the Obligor, Siena and each holder of any of the Secured
Obligations and their respective successors and permitted assigns. The Obligor
shall not assign or transfer its rights under this Agreement without the prior
written consent of Siena.
Pledge and Guarantee Agreement
------------------------------
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<PAGE>
7.06 Survival. All representations and warranties made in this Agreement
--------
or in any certificate or other document delivered pursuant to or in connection
with this Agreement shall survive the execution and delivery of this Agreement
or such certificate or other document (as the case may be) or any deemed
repetition of any such representation or warranty.
7.07 Agreements Superseded. This Agreement supersedes all prior
---------------------
agreements and understandings, written or oral, among the parties with respect
to the subject matter of this Agreement.
7.08 Severability. Any provision of this Agreement that is prohibited or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions of this Agreement, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
7.09 Captions. The table of contents and captions and section headings
--------
appearing in this Agreement are included solely for convenience of reference and
are not intended to affect the interpretation of any provision of this
Agreement.
7.10 Counterparts. This Agreement may be executed in any number of
------------
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties to this Agreement may execute this Agreement
by signing any such counterpart.
7.11 Governing Law; Submission to Process. EXCEPT TO THE EXTENT THAT THE
------------------------------------
LAW OF ANOTHER JURISDICTION IS EXPRESSLY SELECTED IN A DOCUMENT OR SECURITY,
THIS AGREEMENT AND THE SECURITIES AND ALL AMENDMENTS, SUPPLEMENTS, WAIVERS AND
CONSENTS RELATING HERETO OR THERETO SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAW. THE OBLIGOR HEREBY IRREVOCABLY SUBMITS ITSELF TO THE NON-
EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE STATE OF
CALIFORNIA AND AGREES AND CONSENTS THAT SERVICE OF PROCESS MAY BE MADE UPON IT
IN ANY LEGAL PROCEEDINGS RELATING HERETO BY ANY MEANS ALLOWED UNDER CALIFORNIA
OR FEDERAL LAW. THE OBLIGOR IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING
OF VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH COURT AND ANY CLAIM THAT ANY
SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM.
Pledge and Guarantee Agreement
------------------------------
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<PAGE>
THE OBLIGOR SHALL APPOINT AN AGENT FOR SERVICE OF PROCESS IN CALIFORNIA AND
SHALL NOTIFY SIENA OF ANY FUTURE CHANGE THEREIN.
7.12 Waiver of Jury Trial. THE OBLIGOR AND SIENA EACH HEREBY AGREE TO
--------------------
WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF THIS AGREEMENT, THE SECURITIES OR ANY OTHER
AGREEMENTS RELATING TO THE SECURITIES OR ANY DEALINGS BETWEEN THEM RELATING TO
THE SUBJECT MATTER OF THIS TRANSACTION. NOTWITHSTANDING ANYTHING TO THE CONTRARY
HEREIN, THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, THE SECURITIES OR ANY
OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE SECURITIES.
[Signature page to follow.]
Pledge and Guarantee Agreement
------------------------------
- 17 -
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the day and year first above written.
OBLIGOR:
NEWRIDERS, INC.,
a Nevada corporation
By: /s/ J. Robert Fabregas
----------------------------------------
Name: J. Robert Fabregas
Title: Secretary
SIENA:
SIENA CAPITAL PARTNERS, L.P.,
a California limited partnership
By: Charleville Capital, L.P.,
a California limited partnership,
its general partner
By: Aneis Advisors, Inc.,
a California corporation,
its general partner
By: /s/ Chris Shepard
-----------------------------
Name: Chris Shepard
Title: V.P.-Secretary
Pledge and Guarantee Agreement
------------------------------
- 18 -
<PAGE>
ANNEX 1
PLEDGED LLC INTEREST
<TABLE>
<CAPTION>
Certificate Registered
Issuer Nos. Owner Amount
- ------ ----------- ---------- ------
<S> <C> <C> <C>
M&B Membership NewRiders 100%
Restaurants, L.C. Interest
Certificate #10
</TABLE>
Annex 1 to Pledge & Guarantee Agreement
---------------------------------------
<PAGE>
EXHIBIT 10.63
EXECUTION COPY
WARRANT AGREEMENT
Between
SIENA CAPITAL PARTNERS, L.P.
And
EASYRIDERS, INC.
Dated as of October 14, 1999
THE WARRANT AND WARRANT SECURITIES TO BE RECEIVED UPON EXERCISE OF THE WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR QUALIFIED UNDER ANY STATE SECURITIES LAWS. THE WARRANT AND
WARRANT SECURITIES, AS THE CASE MAY BE, MAY NOT BE OFFERED, SOLD, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED, WHETHER OR NOT FOR CONSIDERATION, IN THE
ABSENCE OF (1) AN EFFECTIVE REGISTRATION STATEMENT AND QUALIFICATION IN EFFECT
WITH RESPECT TO THE WARRANT AND WARRANT SECURITIES, AS THE CASE MAY BE, UNDER
THE SECURITIES ACT AND UNDER ANY APPLICABLE STATE SECURITIES LAWS OR (2) AN
EXEMPTION FROM SUCH REGISTRATION AND QUALIFICATION.
<PAGE>
WARRANT AGREEMENT
THIS WARRANT AGREEMENT (this "Agreement") is dated as of October 14, 1999,
---------
and executed by and between SIENA CAPITAL PARTNERS, L.P., a California limited
partnership ("Siena"), and EASYRIDERS, INC., a Delaware corporation (the
-----
"Company").
-------
WHEREAS, the Company has agreed to grant to Siena or its assigns a common
stock warrant in the form attached hereto as Exhibits A hereto (the "Warrant")
---------- -------
to acquire shares of the Company's Common Stock, US$.001 par value per share.
This Agreement sets forth certain rights and obligations of the Company and
Siena with respect to the Warrant.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants,
representations, warranties and agreements contained in this Agreement, the
parties hereto agree as follows:
I. DEFINITIONS
Section 1.01 Defined Terms. As used in this Agreement, the following
-------------
capitalized terms shall have the meanings respectively assigned to them below,
which meanings shall be applicable equally to the singular and plural forms of
the terms so defined. Terms not otherwise defined herein shall have the meanings
ascribed to such terms in that certain Securities Purchase Agreement dated
October 14, 1999 between Paisano Publications, Inc. and Siena.
"Adjustment Transaction" shall mean any of: (i) the issuance and/or sale of
----------------------
Common Stock or Common Stock Equivalents for less than Fair Value (as
hereinafter defined) (other than (a) delivery of shares of Common Stock upon
exercise of this Warrant and (b) the issuance of Common Stock or Common Stock
Equivalents (x) pursuant to options or other convertible securities disclosed on
Schedule 3.5(c) hereto, (y) for which an adjustment has already been made or (z)
- ---------------
that were originally issued at Fair Value), in addition to the number of shares
outstanding as of the date hereof, as disclosed herein, (ii) the declaration of
a Dividend upon, or distribution in respect of, any of the Company's capital
stock, payable in Common Stock or Common Stock Equivalents, (iii) the
subdivision or combination by the Company of its outstanding Common Stock into a
larger or smaller number of shares of Common Stock, as the case may be, (iv) any
capital reorganization or reclassification of the Common Stock of the Company,
(v) the consolidation or merger of the Company or any Subsidiary (as hereinafter
defined) with or into another corporation, (vi) the sale or transfer or other
disposition of all or substantially all of the property of the Company, (vii)
the dissolution, liquidation or winding up of the Company or (viii) any event as
to which the foregoing clauses are not strictly applicable, but the failure to
make an adjustment in the Exercise Price hereunder would not fairly protect the
purchase rights, without dilution, represented by the Warrant.
"Common Equity" shall mean the total equity interest in the Company
-------------
represented by the Common Stock and shall include Common Equity resulting from
any reorganization, reclassification or recapitalization or similar event.
"Common Stock Equivalents" shall mean all options, warrants (including the
------------------------
Warrant),
<PAGE>
convertible securities, securities and other rights (in each case whether now
existing or hereafter issued or arising) to acquire from the Company shares of
Common Stock (without regard to whether such options, warrants, convertible
securities, securities and other rights are then exchangeable, exercisable or
convertible in full, in part or at all).
"Dividend" means, as to any Person (as hereinafter defined), any
--------
declaration or payment of any dividend (other than a stock dividend) on, or the
making of any pro rata distribution, loan, advance, or investment to, any shares
of capital stock of such Person.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
------------
and the rules and regulations promulgated thereunder, and any successor
provisions thereto.
"Exercise Price" shall have the meaning given in the Warrant, as adjusted
--------------
from time to time pursuant to the terms of the Warrant and this Agreement.
"Expiration Period" means the period commencing on the date hereof through
-----------------
and including the fifth anniversary of the date hereof or, in the event the
fifth anniversary is not a Business Day (as hereinafter defined), the next
succeeding Business Day.
"Exercise Quantity" shall mean the number of shares of Common Stock,
-----------------
determined from time to time, taking into account all shares of Common Stock
theretofore issued upon exercise of the Warrant, required to be issued by the
Company to the Holders of the Warrant. Exercise Quantity shall initially have
the meaning given in the Warrant, and may be adjusted from time to time,
pursuant to the provisions of the Warrant and this Agreement.
"Fair Value" as of a particular date shall mean the average last sale price
----------
of the Common Stock as reported on a national securities exchange or on the
NASDAQ SmallCap or National Market System for the five trading days immediately
preceding such date or, if a last sale reporting quotation is not available for
the Common Stock, the average of the bid and asked prices of the Common Stock as
reported by NASDAQ or on the NASD's OTC Bulletin Board Service for the five
trading days immediately preceding such date, or if not so reported, as listed
in the National Quotation Bureau, Inc.'s "Pink Sheets." If such quotations are
unavailable, or with respect to other appropriate security, property, assets,
business or entity, "Fair Value" shall mean the fair value of such item as
determined by mutual agreement reached by the Holder and the Company or, in the
event the parties are unable to agree, an opinion of an independent investment
banking firm or firms in accordance with the following procedure. In the case of
any event which gives rise to a requirement to determine "Fair Value" pursuant
to this Agreement, the Company shall be responsible for initiating the process
by which Fair Value shall be determined as promptly as practicable, but in any
event within sixty (60) days following such event and if the procedures
contemplated herein in connection with determining Fair Value have not been
complied with fully, then any such determination of Fair Value for any purpose
of this Agreement shall be deemed to be preliminary and subject to adjustment
pending full compliance with such procedures. Upon the occurrence of an event
requiring the determination of Fair Value, the Company shall give the Holder(s)
of the
2
<PAGE>
Warrant notice of such event, and the Company and the Holders shall engage in
direct good faith discussions to arrive at a mutually agreeable determination of
Fair Value.
In the event the Company and the Holder(s) (as hereinafter defined) are
unable to arrive at a mutually agreeable determination within thirty (30) days
of the notice, the Company and the Holder(s) of the Warrant (who, if more than
one, shall agree among themselves by a majority) shall each retain a separate
independent investment banking firm of national reputation (which firm, in
either case, may be the independent investment banking firm regularly retained
by the Company or any such Holder). Such firms shall jointly determine the Fair
Value of the security, property, assets, business or entity, as the case may be,
in question and deliver their opinion in writing to the Company and to such
Holder within thirty (30) days of their retention. In no event shall the
marketability, or lack thereof, or lack of registration of a security be a
factor in determining the "Fair Value" of such security.
If such firms cannot jointly make such determination within such 30-day
period, then, unless otherwise directed by agreement of the Company and the
Holder(s) of a majority or more of the Warrant, such firms, in their sole
discretion, shall choose another independent investment banking firm of the
Company or such Holder(s), which firm shall make such determination and render
such an opinion. In either case, the determination so made shall be conclusive
and binding on the Company and such Holder(s). The fees and expenses of the
investment banking firm retained by Holder(s) pursuant to this provision shall
be borne by Holder(s). The fees and expenses of all other investment banking
firms retained pursuant to this provision shall be borne by the Company.
"Holder" or "Holders" shall mean the Person(s) then registered as the
------ -------
owner(s) of the Warrant or Warrant Securities, as the case may be, on the books
and records of the Company.
"Person" shall mean any individual, corporation, partnership, limited
------
liability company, association, joint-stock company, trust, estate,
unincorporated organization, joint venture, court or governmental or political
subdivision or agency thereof.
"Registrable Securities" shall have the meaning assigned to it in Section
---------------------- -------
6.01 hereof.
- ----
"Subsidiary" shall mean any corporation as to which an aggregate of more
----------
than 50% of the outstanding voting stock is at any time directly or indirectly
owned by the Company, or by one or more of its Subsidiaries or by the Company
and one or more of its Subsidiaries.
"Warrant Securities" shall mean the shares of Common Stock (or other
------------------
securities representing Common Stock) purchasable or purchased from time to time
under the Warrant or acquired upon any transfer of any such shares, together
with all additional securities received in payment of dividends or distributions
on or splits of those securities or received as a result of the adjustments
provided for in Article V hereof.
---------
3
<PAGE>
II. WARRANT
On the date hereof, the Company will grant to Siena, for good and valuable
consideration, the Warrant in the form attached as Exhibit A hereto. Siena and
---------
any subsequent Holder of the Warrant and of Warrant Securities shall have the
rights and obligations provided for in the Warrant and in this Agreement.
III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants as follows:
(a) The execution and delivery of this Agreement and the Warrant have been
duly and properly authorized by all requisite corporate action of the Company
and its board of directors, and no consent of any other Person is required as a
prerequisite to the validity and enforceability of this Agreement and the
Warrant that has not been obtained. The Company has the full legal right, power
and authority to execute and deliver this Agreement and the Warrant and to
perform its obligations hereunder and thereunder. When issued and delivered
pursuant to this Agreement, the Warrant will have been duly executed, issued and
delivered and will constitute valid and legally binding obligations of the
Company entitled to the benefits provided herein and therein.
(b) The Company is not a party to or otherwise subject to any contract or
agreement which restricts or otherwise affects its right or ability to execute
and deliver this Agreement or the Warrant or to perform any obligation hereunder
or thereunder (including, without limitation, issuance of the Warrant
Securities), except for contracts or agreements that the Company has received a
written consent and/or waiver from the other party or parties thereto and
delivered a copy of the same to Siena. Neither the execution or delivery of this
Agreement or the Warrant, nor compliance therewith (including, without
limitation, issuance of the Warrant Securities), will conflict with, or result
in a breach of the terms, conditions or provisions of, or constitute a default
under, or result in any violation of, or result in the creation of any material
lien upon any properties of the Company under, or require any consent, approval,
or other action by, notice to or filing with any court or Governmental Person
pursuant to the Certificate of Incorporation or By-laws of the Company, as
currently in effect, any award of any arbitrator, or any material agreement,
instrument or law to which the Company is subject or by which it is bound.
(c) On the date hereof, the authorized capital stock of the Company will
consist of 50,000,000 shares of Common Stock and no shares of preferred stock.
As of the Closing Date, the Company had issued and outstanding 23,778,565 shares
of Common Stock. The Common Stock and any Warrant Securities issued pursuant to
the Warrants will, when issued, be duly and validly issued, fully paid and
nonassessable. Except as set forth in Schedule 3.5(c) hereto, there are no other
---------------
outstanding options, warrants or similar rights of any person to acquire any of
the capital stock of the Company and the Company has no contingent obligations
to issue additional shares. Except as set forth in Schedule 3.5(c) hereto, the
---------------
Company is not subject to any obligation (contingent or otherwise) to repurchase
or otherwise acquire or retire any of its capital stock or other securities or
4
<PAGE>
obligation evidencing the right of any holder thereof to purchase any of its
capital stock or other securities. All such outstanding shares are validly
issued, fully paid and nonassessable. The issuance by the Company of the Warrant
and the Warrant Securities is not subject to any preemptive or similar right of
any Person pursuant to statute, contract or understanding.
(d) Except as provided in this Agreement, the Company is not subject to any
obligation to repurchase or otherwise acquire or retire any shares of capital
stock.
(e) The Warrant is, and the Warrant Securities will be, issued by the
Company to Siena in a transaction exempt from registration and qualification
under the applicable federal and state securities laws.
(f) Except as set forth in Schedule 3.5(f) hereto, there is not in effect
---------------
on the date of this Agreement any agreement by the Company (other than this
Agreement) pursuant to which any holders of securities of the Company have a
right to cause the Company to register such securities under the Securities Act.
IV. COVENANTS
Section 4.01 Covenants of the Company. The Company hereby covenants and
------------------------
agrees that, during the term of this Agreement, unless all of the Holders of the
Warrant agree otherwise in writing:
(a) Each of the Warrant Securities issued and delivered upon the exercise
of the Warrant and payment of the Exercise Price will be duly and validly
authorized and issued, will be fully paid and nonassessable, and will not be
subject to any unpaid tax or any lien, whether respecting their issuance to and
purchase by the Holder of the Warrant or otherwise. The Company will take all
such actions as may be necessary to assure that all such shares of Common Stock
may be so issued without violation of any applicable law or governmental
regulation or any requirements of any domestic securities exchange upon which
shares of Common Stock may be listed.
(b) The Company shall reserve and at all times keep available for issuance
an authorized number of shares of Common Stock sufficient to permit the full and
immediate exercise of the Warrant and the full and immediate exercise, exchange
and conversion of all other securities, options, warrants and other rights
issued or granted by the Company.
(c) The Company shall not permit the par value of its Common Stock to
exceed, at any time, the Exercise Price and shall take all such actions as may
be necessary or appropriate to ensure that it does not do so.
(d) As soon as available, and in no event later than the dates filed with
any other Governmental Person or other regulatory authority, if such documents
are so filed, the Company shall deliver to the Holder(s) of the Warrant and the
Warrant Securities copies of (i) all annual,
5
<PAGE>
quarterly and monthly financial statements made available by the Company to its
stockholders, (ii) all reports, notices and proxy or information statements sent
or made available generally by the Company to its stockholders, and (iii) all
regular and periodic reports and all registration statements, prospectuses and
other information filed by the Company with the Securities and Exchange
Commission, relevant state authorities or any securities exchange, securities
quotation system or other self-regulatory organization.
(e) The Company shall cooperate with the Holder(s) of the Warrant and the
Warrant Securities in supplying such information as may be reasonably necessary
for the Holder(s) to complete and file any information or other reporting forms
from time to time required by the Securities and Exchange Commission, relevant
state authorities or any securities exchange, securities quotation system or
other self-regulatory organization, including, without limitation, information
pertaining to or required for the availability of any exemption from the
securities laws for the sale, transfer or other disposition of the Warrant or
any of the Warrant Securities.
Section 4.02 Indemnification.
---------------
(a) In connection with any registration or qualification of Warrant
Securities hereunder, the Company agrees that Siena and each other Holder of the
Warrant or any Warrant Securities purchased hereunder, any underwriter(s), and
their respective directors, officers, employees, attorneys and agents, as well
as each other Person (if any) controlling any of the foregoing Persons within
the meaning of Section 15 of the Securities Act, or Section 20 of the Exchange
Act, shall not incur any liability for acts and omissions arising out of or
related directly or indirectly to the Warrant, the Warrant Securities, this
Agreement, any registration statement or prospectus or any misstatement or
omission of a material fact therein; and the Company hereby expressly waives any
and all claims and actions which it now has or may hereafter at any time have
against Siena and each other Holder of the Warrant or underlying Warrant
Securities, and their respective directors, officers, employees, attorneys and
agents, arising out of or related directly or indirectly to any and all of the
foregoing acts, omissions and circumstances, except insofar as such liability is
caused by untrue statements or alleged untrue statements or omissions or alleged
omissions and is based upon information furnished in writing by Holder expressly
for use therein and in such event such Holder shall indemnify the Company from
any claim or loss arising out of such Holder's untrue statement or omission.
(b) The Company agrees to defend, indemnify and hold harmless Siena and
each other Holder of the Warrant, this Agreement, or any Warrant Security
purchased hereunder, any underwriter(s), and their respective directors,
officers, employees, attorneys and agents, as well as each other Person (if any)
controlling any of the foregoing Persons within the meaning of Section 15 of the
Securities Act, or Section 20 of the Exchange Act, from and against any and all
claims, liabilities, losses and expenses (including, without limitation, the
disbursements, expenses and fees of their respective attorneys) that may be
imposed upon, incurred by, or asserted against any of them, any of their
respective directors, officers, employees, attorneys and agents, or any such
control Person, under the Securities Act, the Exchange Act or any other statute
or at common law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof), arise out of or are related
6
<PAGE>
directly or indirectly to: (i) the Warrant or the Warrant Securities, (ii) any
registration statement or prospectus, (iii) any alleged untrue statement of any
material fact contained, on the effective date thereof, in any registration
statement under which such securities were registered under the Securities Act
or the Exchange Act, or in any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereto, or (iv) any alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and shall reimburse
such Persons for any legal or any other expenses reasonably incurred by such
Persons in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company shall not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon any alleged untrue statement or alleged
omission made in such registration statement, preliminary prospectus, prospectus
or amendment or supplement in reliance upon and in conformity with written
information furnished to the Company through an instrument duly executed by such
respective Person specifically for use therein. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
any such indemnified Person, and shall survive the transfer of such securities
by such Person. Promptly after receipt of notice of the commencement of any
action in respect of which indemnity may be sought against the Company, the
Company shall assume the defense of such action (including the employment of
counsel, who shall be counsel reasonably satisfactory to the party seeking
indemnity hereunder) and the payment of expenses insofar as such action shall
relate to any alleged liability in respect of which indemnity may be sought
against the Company. The Company shall not, except with the approval of each
party being indemnified under this Section 4.02, consent to entry of any
judgment or enter into any settlement that does not include as an unconditional
term thereof the giving by the claimant or plaintiff to the parties being so
indemnified of a release from all liability in respect to such claim or
litigation.
Section 4.03 Listing on the Securities Exchange. The Company shall, at its
----------------------------------
expense, list on any securities exchange where it lists its Common Stock, and
maintain and increase when necessary such listing of all outstanding Warrant
Securities so long as any shares of Common Stock shall be so listed. The Company
shall also so list on each securities exchange, and will maintain such listing
of, any other securities which the holder of the Warrant shall be entitled to
receive upon the exercise thereof if at the time any securities of the same
class shall be listed on such securities exchange by the Company.
V. ANTIDILUTION
Section 5.01 No Dilution or Impairment. The Company hereby acknowledges
-------------------------
that the initial number of shares issuable upon exercise of the Warrant was
calculated based upon 0.36% (based on the Warrant being initially exercisable
for 100,000 shares, which percentage shall increase accordingly if and when the
number of shares the Warrant may be exercised for is increased) of the number of
shares of Common Stock and Common Stock Equivalents outstanding and the
representation of the Company that the number of shares of Common Stock and
Common Stock Equivalents outstanding as of the date hereof (including the
Warrant Securities) was 27,937,315 shares (which number was calculated as
follows: 23,778,565 shares of Common Stock outstanding,
7
<PAGE>
3,858,750 shares available under the Company's existing and contemplated stock
option plans, stock options, warrants and other convertible securities, and
100,000 shares issuable upon exercise of the Warrant). If for any reason it
shall hereafter be determined by the Company that the actual number of shares of
Common Stock and Common Stock Equivalents outstanding as of the Date hereof was
different from the foregoing, the Company will notify the Holder(s) of such
determination and if the Holder(s) does not dispute the same, the Company shall
forthwith reissue the Warrant with an appropriate proportional increase in the
Exercise Quantity to be effective from the Date hereof. If a Holder shall
dispute such determination and the parties cannot otherwise resolve the dispute
promptly and in good faith, then the Company shall appoint a firm of independent
public accountants of recognized national standing (which may be the regular
auditors of the Company), which shall give their opinion as to the adjustment,
if any, to be made to the Exercise Quantity. Upon receipt of such opinion, the
Company shall promptly mail a copy thereof to the Holder(s) of the Warrant and
shall make the adjustment described therein.
It is the intent of the parties hereto that, after giving effect to any
exercise of the Warrant, the Holder(s) of the Warrant or Warrant Securities
would collectively be the owner of 0.36% (based on the Warrant being initially
exercisable for 100,000 shares, which percentage shall increase accordingly if
and when the number of shares the Warrant may be exercised for is increased) of
the Common Stock and Common Stock Equivalents (or have the right to acquire
0.36% of the Common Stock and Common Stock Equivalents outstanding as such
amount may be adjusted in the event of a cashless exercise of the Warrant
according to Section 2(a)(ii) or (iii) thereof or other adjustments contemplated
---------------- -----
herein and based on the Warrant being initially exercisable for 100,000 shares,
which percentage shall increase accordingly if and when the number of shares the
Warrant may be exercised for is increased), except such percentage may be
reduced as a consequence of an issuance of Common Stock not requiring any
adjustment in the Exercise Price resulting from any Adjustment Transaction in
accordance with Section 5.02 or other adjustments contemplated herein.
------------
Upon any adjustment of the Exercise Price as provided in Section 5.02, the
------------
Exercise Quantity shall be adjusted so that the New Exercise Quantity shall be
equal to the product of (x) the former Exercise Quantity and (y) the following
fraction:
The Exercise Price in effect immediately prior to such adjustment
-----------------------------------------------------------------
The Exercise Price resulting from such adjustment
Exhibit B hereto sets forth the formula and an illustrative example of the
---------
manner in which the adjustments contemplated herein should be applied.
So long as any Warrants are outstanding, then, without the prior written
consent of the Holders of outstanding Warrants evidencing a majority in number
of the total number of Warrant Securities at the time purchasable upon the
exercise of all then outstanding Warrants, the Company will not (a) merge or
consolidate with or into another Person or voluntarily reorganize, liquidate,
dissolve or wind up its affairs; or (b) take any other voluntary action, to
avoid or seek to avoid the observance or performance of any of the terms of this
Agreement or the Warrant or impair the ability
8
<PAGE>
of the Holder(s) to realize the full intended economic value thereof, but will
at all times in good faith assist in the carrying out of all such terms, and of
the taking of all such action as may be necessary or appropriate in order to
protect the rights of the Holder of the Warrant against dilution or other
impairment.
Section 5.02 Adjustment.
----------
(a) In the event the Company, after the Date hereof, shall propose to
consider or engage in an Adjustment Transaction, then, in each such event, the
Company shall mail to the Holder of the Warrant notice of such proposed action,
which shall specify the date on which the stock transfer books of the Company
shall close, or a record shall be taken, for determining the holders of Common
Stock entitled to receive the benefit of such Adjustment Transaction, or the
date on which the Adjustment Transaction shall take place or commence, as the
case may be, and the date as of which it is expected that holders of Common
Stock of record shall be entitled to receive securities or other property
deliverable upon such action, if any such date is to be fixed. Such notice shall
be mailed at least thirty (30) days prior to the date upon which it is proposed
that such action take place and twenty (20) days prior to any record date to
determine holders of Common Stock entitled to receive the benefit of such
Adjustment Transaction. If an Adjustment Transaction occurs, the Exercise Price
shall be adjusted by the Company so as to fairly preserve, without dilution, the
purchase rights represented by the Warrant in accordance with Section 5.01 and
------------
otherwise with the essential intent and purposes hereof. If the Holder(s) of the
Warrant disputes the adjustment of the Exercise Price made by the Company and
the parties cannot otherwise resolve the dispute promptly and in good faith,
then the Company shall at its expense appoint a firm of independent public
accountants of recognized national standing (which may be the regular auditors
of the Company), which shall give their opinion as to the adjustment, if any, to
be made to the Exercise Price as the result of the relevant Adjustment
Transaction. Upon receipt of such opinion, the Company shall promptly mail a
copy thereof to the Holder(s) of the Warrant and shall make the adjustment
described therein. An adjustment made pursuant to this Section 5.02(a) shall
---------------
become effective immediately after the effective date of any such issue, sale,
Dividend, subdivision, combination or reclassification.
Anything herein to the contrary notwithstanding, the Company shall not be
required to make any adjustment of the Exercise Price in the case of the
issuance of shares of Common Stock upon the exercise in whole or part of the
Warrant.
(b) Whenever the Exercise Price is adjusted as provided in this Section
-------
5.02, the Company will, if requested, promptly obtain a certificate of a firm of
- ----
independent public accountants of recognized national standing selected by the
Board of Directors of the Company (who may be the regular auditors of the
Company) setting forth the Exercise Price, and the Exercise Quantity as so
adjusted, the computation of such adjustment and a brief statement of facts
accounting for such adjustment, and will retain such certificate on file and
mail to the Holder(s) of the Warrant a copy of such certificate from such firm
of independent public accountants.
9
<PAGE>
VI. REGISTRATION RIGHTS
Section 6.01 "Piggyback" Registration Rights. If at any time the Company
-------------------------------
shall determine to register under the Securities Act (including pursuant to a
demand of any security holder of the Company exercising registration rights) any
of its Common Stock (except securities to be issued solely in connection with
any acquisition of any entity or business, shares issuable solely pursuant to
employee benefit plans eligible for registration on SEC Form S-8 or shares to be
registered on any registration form that does not permit secondary sales), it
shall send to Siena and to each of the Holder(s) written notice of such
determination at least thirty (30) days prior to each such filing and, if within
twenty (20) days after receipt of such notice, any Holder shall so request in
writing, the Company shall use its best efforts to include in such registration
statement (to the extent permitted by applicable regulation) all or any part of
the Warrant Securities (collectively referred to in this Article VI as
----------
"Registrable Securities") that such Holder requests to be registered, provided,
----------------------
however, that if, in connection with any offering involving an underwriting of
Common Stock to be issued by the Company, the managing underwriter shall impose
a limitation on the amount of Registrable Securities included in any such
registration statement, then, to the extent that any Registrable Securities
remain available for registration after the underwriter's cutback, the Company
shall be obligated to include in such registration statement with respect to
each Holder requesting inclusion only the product of : (i) the number of
Registrable Securities with respect to which such Holder has requested inclusion
hereunder and (ii) such Holder's pro rata share of the sum of all Registrable
Securities permitted to be registered and all other securities of the Company,
the holders of which Registrable Securities and other securities have requested
that such securities be registered. Any Registrable Securities which are
included in any underwritten offering under this Section 6.01 shall be sold upon
------------
such terms as the managing underwriters shall reasonably request but in any
event shall be upon terms not less favorable than those upon which any other
selling security holder shall sell any of its securities. If any Holder
disapproves of the terms of such underwriting, such Holder may elect to withdraw
therefrom by written notice to the Company and the underwriter. The Company
shall use its best efforts to cause the managing underwriter or underwriters of
a proposed underwritten offering (the "Company Underwriter") to permit the
-------------------
Holders who have requested to participate in the registration for such offering
to include such Registrable Securities in such offering on the same terms and
conditions as the securities of the Company included therein. Notwithstanding
the foregoing, if the Company Underwriter delivers a written opinion to the
Holders that the total amount or kind of securities which they, the Company and
any other Persons intend to include in such offering (the "Total Securities") is
----------------
sufficiently large so as to prevent the Company from affecting a successful
offering of the Total Securities, then the amount or kind of securities to be
offered for the account of any members of management shall be reduced pro rata
to the extent necessary to reduce the Total Securities to the amount recommended
by the Company Underwriter, and if the amount or kind of Total Securities is
still sufficiently large so as to prevent the Company from affecting a
successful offering of the Total Securities, then the amount or kind of
securities to
10
<PAGE>
be offered for the account of the Holders and any other Persons shall be reduced
pro rata to the extent necessary to reduce the Total Securities to the amount
recommended by the Company Underwriter. Notwithstanding the provisions of this
Section 6.01, the Company shall have the right, at any time after it shall have
- ------------
given written notice pursuant to this Section 6.01 (irrespective of whether a
------------
written request for inclusion of Registrable Securities shall have been made),
to elect not to file any such proposed registration statement or to withdraw the
same after the filing and prior to the effective date thereof.
Section 6.02 Effectiveness. If necessary to permit distribution of the
-------------
Registrable Securities, the Company shall use its best efforts to maintain the
effectiveness for up to one (1) year of the registration pursuant to which any
of the Registrable Securities are being offered, and from time to time will
amend or supplement such registration statement and the prospectus contained
therein as and to the extent necessary to comply with the Securities Act and any
applicable state securities statute or regulation. Notwithstanding the
foregoing, if the registration by the Company of the resale of Registrable
Securities is eligible for SEC Form S-3 or any successor to such form, the
Company shall use its best efforts to maintain the effectiveness of the
registration until all registered Registrable Securities are sold. The Holder
shall notify the Company promptly of the completion of the offering of its
Registrable Securities under any such effective registration statement.
(a) The Company shall not be required to effect a registration statement
pursuant to this Section 6.01 after the Company has previously effected two (2)
------------
registrations pursuant to this Section 6.01, and such registrations have been
------------
declared or ordered effective; or
(b) If requested by the Company or a representative of the underwriters
of Common Stock (or other securities) of the Company, each Holder shall not sell
or otherwise transfer or dispose of any Common Stock (or other securities) of
the Company held by such Holder (other than those included in registration) for
a period specified by the representative of the underwriters, not to exceed one
hundred eighty (180) days following the effective date of a registration
statement of the Company filed under the Securities Act for the Company's
initial public offering of the Company's Common Stock.
Section 6.03 Further Obligations of the Company. Whenever, under the
----------------------------------
preceding Sections of this Article VI, the Company is required hereunder to
----------
register Registrable Securities, it agrees that it shall also do the following:
(a) Furnish to each selling Holder such copies of each preliminary and
final prospectus and any other documents as such Holder may reasonably request
to facilitate the public offering of its Registrable Securities;
(b) Use its best efforts to register or qualify the Registrable
Securities to be registered pursuant to this Article VI under the applicable
----------
securities or blue sky laws of such jurisdictions as any selling Holder may
reasonably request;
11
<PAGE>
(c) Furnish to each selling Holder: (i) a signed counterpart of an opinion
of counsel for the Company, dated the effective date of the registration
statement; and (ii) a copy of any "comfort" letters signed by the Company's
independent public accountants who have examined and reported on the Company's
financial statements included in the registration statement, covering
substantially the same matters as are customarily covered in opinions of
issuer's counsel and in accountants' "comfort" letters delivered to the
underwriters in underwritten public offerings of securities;
(d) Permit each selling Holder or such Holder's counsel or other
representatives to inspect and copy such corporate documents and records as may
reasonably be requested by them in connection with such registration; and
(e) Furnish to each selling Holder, upon request, a copy of all documents
filed and all correspondence from or to the Commission in connection with any
such offering.
Section 6.04 Expenses. Except for underwriters' discounts and brokerage
--------
commissions allocable to the Registrable Securities, the Company shall bear all
costs and expenses of each registration contemplated in Section 6.01 including,
------------
but not limited to, printing, legal and accounting fees and expenses, SEC and
NASD filing fees and blue sky fees and expenses in any jurisdiction in which the
securities to be offered are to be registered or qualified.
Section 6.05 Transfer of Registration Rights. The registration rights of
-------------------------------
the Holders of Registrable Securities under this Article VI shall inure to the
----------
benefit of and be exercisable by any transferee of Registrable Securities.
VII. TRANSFER OF WARRANT AND WARRANT SECURITIES
Section 7.01 Transfer. Except as set forth in Section 7.02 below, the
-------- ------------
Warrant and the Warrant Securities and all rights thereunder are transferable,
in whole or in part, on the books of the Company to be maintained for such
purpose, upon surrender of such Warrant at the office of the Company maintained
for such purpose, together with a written assignment of such Warrant duly
executed by the Holder hereof or its agent or attorney and payment of funds
sufficient to pay any stock transfer taxes payable upon the making of such
transfer. Upon such surrender and payment, the Company shall execute and deliver
a new Warrant or Warrant in the name of the assignee or assignees and in the
denominations specified in such instrument of assignment, and this Warrant shall
promptly be canceled. If and when the transferred Warrant is assigned in blank,
the Company may (but shall not be obliged to) treat the bearer thereof as the
absolute owner of such Warrant for all purposes and the Company shall not be
affected by any notice to the contrary. The transferred Warrant, if properly
assigned in compliance herewith, may be exercised by an assignee for the
purchase of shares of Common Stock without having a new Warrant issued. The
Company will not close its stock transfer books against a transfer of the
Warrant or the Warrant Securities or any exercise of the Warrant. Any such
transfer or exercise tendered while such stock transfer books shall be closed
shall be deemed effective immediately prior to such closure.
12
<PAGE>
Subject to Section 7.02 below, the Warrant may be divided or combined with
------------
other Warrant upon presentation at the aforesaid office of the Company, together
with a written notice specifying the names and denominations in which new
Warrant are to be issued, signed by the Holder thereof or its agent or attorney.
Subject to compliance with this, as to any transfer which may be involved in
such division or combination, the Company shall execute and deliver a new
Warrant or Warrant in exchange for the Warrant or Warrant to be divided or
combined in accordance with such notice.
The Company shall pay all expenses, taxes (other than income taxes, if any,
of the transferee) and other charges incurred by the Company in the performance
of its obligations in connection with the preparation, issue and delivery of
Warrant under this Section. The Company agrees to maintain at its aforesaid
office books for the registration and transfer of the Warrant. Notwithstanding
any provision to the contrary contained herein, the Warrant and the Warrant
Securities shall be transferable only in compliance with the provisions of the
Securities Act and applicable state securities laws in respect of the transfer
of any Warrant or any Warrant Securities.
Section 7.02 Transfer Restrictions. Neither this Warrant Agreement, the
---------------------
Warrant nor the Warrant Securities, when issued, have been registered under the
Securities Act or under the securities laws of any state. Neither this
Agreement, the Warrant nor the Warrant Securities, when issued, may be
transferred: (a) if such transfer would constitute a violation of any federal or
state securities laws or a breach of the conditions to any exemption from
registration thereunder and (b) unless and until one of the following has
occurred: (i) registration of this Agreement, the Warrant or the Warrant
Securities, as the case may be, under the Securities Act, and such registration
or qualification as may be necessary under the securities laws of any state,
have become effective, or (ii) the Holder has delivered evidence reasonably
satisfactory to the Company that such registration or qualification is not
required.
Each certificate for Warrant Securities issued upon exercise of a Warrant
and each certificate issued to a subsequent transferee, unless at the time of
exercise such Warrant Securities are registered under the Securities Act, shall
bear a legend substantially in the following form (and any additional legends
required by law) on the face thereof:
THE WARRANT SECURITIES TO BE RECEIVED UPON EXERCISE OF THE WARRANT HAS
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
QUALIFIED UNDER ANY STATE SECURITIES LAWS. THE WARRANT SECURITIES MAY NOT
BE OFFERED, SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED, WHETHER
OR NOT FOR CONSIDERATION, IN THE ABSENCE OF (1) AN EFFECTIVE REGISTRATION
STATEMENT AND QUALIFICATION IN EFFECT WITH RESPECT TO THE WARRANT
SECURITIES UNDER THE SECURITIES ACT AND UNDER ANY APPLICABLE STATE
SECURITIES LAWS OR (2) AN EXEMPTION FROM SUCH REGISTRATION AND
QUALIFICATION.
Section 7.03 Replacement of Instruments. Upon receipt by the Company of
--------------------------
evidence
13
<PAGE>
reasonably satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of any certificate or instrument evidencing any
Warrant or Warrant Securities, and (a) in the case of loss, theft or
destruction, upon receipt by the Company of indemnity reasonably satisfactory to
it (provided that, if the owner of the same is a commercial bank or an
institutional lender or investor, its own agreement of indemnity shall be deemed
to be satisfactory), or (b) in the case of mutilation, upon surrender and
cancellation thereof, the Company, at its expense, will execute, register and
deliver, in lieu thereof, a new certificate or instrument for (or covering the
purchase of) an equal number of Warrant or Warrant Securities.
VIII. MISCELLANEOUS
Section 8.01 Term. Except as otherwise expressly provided in this Agreement
----
or the Warrant, this Agreement shall expire seven (7) years after the date
hereof, provided that the Company's obligations to honor an exercise of the
Warrant given prior to such expiration or to perform any obligation continue and
survive notwithstanding the expiration of this Agreement.
Section 8.02 No Waiver Under Other Agreements. The terms and provisions
--------------------------------
contained in this Agreement are not intended and shall not be construed to
waive, modify, repeal, stay, diminish or otherwise impair or affect in any
manner whatsoever any right or remedy of Siena or the Holder(s) under the
Company's Certificate of Incorporation, By-laws or similar agreements.
Section 8.03 Reliance. Each party to this Agreement shall be entitled to
--------
rely upon any notice, consent, certificate, affidavit, statement, paper,
document, writing or other communication reasonably believed by that party to be
genuine and to have been signed, sent or made by the proper Person or Persons.
Section 8.04 Notice. All notices and other communications provided for in
------
this Agreement shall be in writing and delivered by registered or certified
mail, postage prepaid, or delivered by overnight courier (for next Business Day
delivery) or telecopied, addressed as follows, or at such other address as any
of the parties hereto may hereafter designate by notice to the other parties
given in accordance with this Section:
-------
1) if to the Company:
Easyriders, Inc.
28210 Dorothy Drive
Agoura Hills, CA 91301
Attn: J. Robert Fabregas
Telephone: (818) 889-8740
Telecopier: (818) 889-4726
2) if to Siena:
14
<PAGE>
Siena Capital Partners, L.P.
150 South Rodeo Drive, Suite 100
Beverly Hills, California 90212
Attn: Christopher P. Shepard
Telephone: 310-246-3700
Telecopier: 310- 246-3672
With a copy of any notice to:
Nida & Maloney, LLP
800 Anacapa Street
Santa Barbara, California 93101
Attn: C. Thomas Hopkins, Esq.
Telephone: 805-568-1151
Telecopier: 805-568-1955
Any such notice or communication shall be deemed to have been duly given
on the fifth day after being so mailed, the next Business Day after delivery by
overnight courier, when received when sent by telecopy or upon receipt when
delivered personally.
Section 8.05 Enforcement. The Company acknowledges that the Holders may
-----------
proceed to exercise or enforce any right, power, privilege, remedy or interest
that they may have under this Agreement or applicable law without notice, except
as otherwise expressly provided herein, without pursuing, exhausting or
otherwise exercising or enforcing any other right, power, privilege, remedy or
interest that they may have against or in respect of any other party, or any
other Person or thing, and without regard to any act or omission of such party
or any other Person.
Section 8.06 Intentionally Omitted.
---------------------
Section 8.07 Interpretation; Headings; Severability.
--------------------------------------
(a) The parties acknowledge and agree that since each party and its
counsel have reviewed and negotiated the terms and provisions of this Agreement
and have contributed to its revision, the normal rule of construction to the
effect that any ambiguities are resolved against the drafting party shall not be
employed in the interpretation of this Agreement, and its terms and provisions
shall be construed fairly as to all parties hereto and not in favor of or
against any party, regardless of which party was generally responsible for the
preparation of this Agreement.
(b) The Section and other headings contained in this Agreement are for
reference
15
<PAGE>
purposes only and shall not affect the meaning or interpretation of this
Agreement.
(c) In the event that any term or provision of this Agreement shall be
finally determined to be superseded, invalid, illegal or otherwise unenforceable
pursuant to applicable law by a governmental authority having jurisdiction and
venue, determination shall not impair or otherwise affect the validity, legality
or enforceability: (i) by or before that authority of the remaining terms and
provisions of this Agreement, which shall be enforced as if the unenforceable
term or provision were deleted, or (ii) by or before any other authority of any
of the terms and provisions of this Agreement.
(d) If any period of time specified in this Agreement expires on a day that
is not a Business Day, that period shall be extended to and expire on the next
succeeding Business Day.
Section 8.08 Survival of Covenants. Each of the covenants and other
---------------------
agreements of the parties contained in this Agreement shall be absolute and,
except as otherwise expressly provided, unconditional, shall survive the
execution and delivery of this Agreement and shall continue in full force and
effect until the term of this Agreement has expired, and thereafter with respect
to events occurring prior thereto.
Section 8.09 No Required Exercise. No term or provision of the Warrant or
--------------------
this Agreement is intended to require, nor shall any such term or provision be
construed as requiring, any Holder of the Warrant to exercise or put the
Warrant.
Section 8.10 Binding Effect. This Agreement shall be binding upon and
--------------
enforceable against the parties hereto and their respective successors and
assigns.
Section 8.11 No Waiver by Action. The failure or delay of a party at any
-------------------
time or times to require performance of, or to exercise its rights with respect
to, any term or provision of this Agreement (except as otherwise expressly
provided herein) shall not affect its right at a later time to enforce any such
provision.
Section 8.12 Waiver; Modification; Amendment. Each and every modification
-------------------------------
to and amendment of this Agreement shall be in writing and signed by the
Company, Siena (if at that time Siena is a Holder) and by the Holders of a
majority in interest of all issued and unissued Warrant Securities. Each and
every waiver of and consent to any departure from any term or provision hereof
(except as otherwise provided herein) shall be in writing and signed by Siena
(if at that time it is a Holder) and by the Holders of a majority in interest of
all issued and unissued Warrant Securities and by each party against whom
enforcement of the waiver or consent may be sought.
Section 8.13 Entire Agreement. This Agreement and the Warrant contain the
----------------
entire agreement of the parties and supersede all other representations,
warranties, agreements and understandings, oral or otherwise, among the parties
hereto with respect to the matters contained herein, except as otherwise
provided herein.
16
<PAGE>
Section 8.14 No Inconsistent Agreements or Rights. The Company shall not
------------------------------------
enter into any agreement with respect to its securities that is inconsistent
with the rights granted to the Holders in this Agreement.
Section 8.15 Governing Law; Consent to Jurisdiction; Waiver of Jury Trial.
------------------------------------------------------------
THIS AGREEMENT, THE WARRANT AND THE WARRANT SECURITIES AND ALL AMENDMENTS,
SUPPLEMENTS, WAIVERS AND CONSENTS RELATING HERETO OR THERETO SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW. THE COMPANY HEREBY IRREVOCABLY SUBMITS
ITSELF TO THE NON-EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING
IN THE STATE OF CALIFORNIA AND AGREES AND CONSENTS THAT SERVICE OF PROCESS MAY
BE MADE UPON IT IN ANY LEGAL PROCEEDINGS RELATING HERETO BY ANY MEANS ALLOWED
UNDER CALIFORNIA OR FEDERAL LAW. THE COMPANY IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH COURT AND ANY
CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. THE COMPANY SHALL APPOINT AN AGENT FOR SERVICE OF PROCESS IN
CALIFORNIA AND SHALL NOTIFY SIENA OF ANY CHANGE THEREIN. THE COMPANY AND SIENA
EACH HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM
OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT. NOTWITHSTANDING
ANYTHING TO THE CONTRARY HEREIN, THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY
NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT,
THE WARRANT, THE WARRANT SECURITIES OR ANY OTHER DOCUMENTS OR AGREEMENTS
RELATING THERETO.
[Signature page to follow.]
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be executed as of the day and year first above written.
SIENA:
SIENA CAPITAL PARTNERS, L.P.,
a California limited partnership
By: Charleville Capital, L.P.,
a California limited partnership,
its general partner
By: Aneis Advisors, Inc.,
a California corporation,
its general partner
By: /s/ Chris Shepard
---------------------------
Name: Chris Shepard
Title: V.P.-Secretary
THE COMPANY:
EASYRIDERS, INC.,
a Delaware corporation
By: /s/ J. Robert Fabregas
------------------------------------
Name: J. Robert Fabregas
Title: Chief Financial Officer
18
<PAGE>
Exhibit A
to
Warrant Agreement
Warrant
-------
19
<PAGE>
Exhibit B to Warrant Agreement
------------------------------
The following is only for example purposes
Bold figures are inputs
Example: 1000 shares are issued for $1000 on the day after the Closing
___________ OSBefore Outstanding shares of Common Stock (including Common Stock
Equivalents) before adjustment
$__________ FVBefore Fair Value (per share) before adjustment
$__________ EPBefore Exercise Price of Warrants before adjustment
___________ OWBefore Number of Warrants before adjustment
__________% Fully diluted ownership before adjustment
$__________ CR Consideration received or to be received for new shares of
Common Stock or Common Stock Equivalents
___________ OSAfter Outstanding shares of Common Stock (including Common Stock
Equivalents) after sale but before Warrant adjustment
$__________ EPAfter Exercise Price after adjustment
___________ OWAfter Number of Warrants after adjustment
__________% Fully diluted ownership after dilution
$__________ EPAfter 'lesser of (OSBefore x EPBefore) + CR
--------------------------
OSAfter
or
EPBefore x ((OSBefore x FVBefore) + CR)
---------------------------------------
OSAfter x FVBefore
___________ OWAfter' EPBefore x OWBefore/EPAfter
20
<PAGE>
Schedule 3.5 (C)
Outstanding Options and Warrants
<TABLE>
<CAPTION>
Date of # of Exercise Vesting Vesting Expiry
Name of Optionee Grant shares price Period % date
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Options under EZR Plan
Meagher, Ellen 9/23/98 15,000 $2.000 3 yrs beg. 1st anniv. of grant 0% 9/24/08
Jacobs, Joseph 9/23/98 15,000 $2.000 3 yrs beg. 1st anniv. of grant 0% 9/24/08
-------
9/98 Formula Grants 30,000
-------
Blakeboro, Norman 11/10/98 200 $5.000 Immediate 100% 11/10/08
Cuff, Marcus 11/10/98 100 $5.000 Immediate 100% 11/10/08
Gingerelli, Dain 11/10/98 100 $5.000 Immediate 100% 11/10/08
Halper, Mickey 11/10/98 200 $5.000 Immediate 100% 11/10/08
Mann, David 11/10/98 1,000 $5.000 Immediate 100% 11/10/08
Marsh, Regina 11/10/98 1,350 $5.000 Immediate 100% 11/10/08
Meyers, Sandy 11/10/98 1,950 $5.000 Immediate 100% 11/10/08
Miragila, Michelina 11/10/98 100 $5.000 Immediate 100% 11/10/08
Neal, Rose 11/10/98 100 $5.000 Immediate 100% 11/10/08
Reacki, Kai 11/10/98 500 $5.000 Immediate 100% 11/10/08
Robinson, Tammy 11/10/98 250 $5.000 Immediate 100% 11/10/08
Teresi, Dick 11/10/98 5,000 $5.000 Immediate 100% 11/10/08
Tinney, William 11/10/98 1,000 $5.000 Immediate 100% 11/10/08
Williamson, Mark 11/10/98 500 $5.000 Immediate 100% 11/10/08
-------
Subtotal - Consultants 12,350
-------
Bishop, Mike 11/10/98 -- $5.000 N/A 100% 11/10/08
Boyer, Wayne 11/10/98 -- $5.000 N/A 100% 11/10/08
Cabrera, Mario 11/10/98 -- $5.000 N/A 100% 11/10/08
Green, John 11/10/98 -- $5.000 N/A 100% 11/10/08
Hartman, Raiko 11/10/98 -- $5.000 N/A 100% 11/10/08
Hatcher, Leon 11/10/98 -- $5.000 N/A 100% 11/10/08
Lichter, Michael 11/10/98 -- $5.000 N/A 100% 11/10/08
Randle, Pat 11/10/98 -- $5.000 N/A 100% 11/10/08
Towle, Jon 11/10/98 -- $5.000 N/A 100% 11/10/08
Wilde, John 11/10/98 -- $5.000 N/A 100% 11/10/08
-------
Subtotal - No release signed --
-------
Blair, Milford 11/10/98 25,000 $5.000 Immediate 100% 11/10/08
Campos, David 11/10/98 500 $5.000 Immediate 100% 11/10/08
Jacobs, Joseph 11/10/98 5,000 $5.000 Immediate 100% 11/10/08
Jermyn, Beverly 11/10/98 100 $5.000 Immediate 100% 11/10/08
Kimzey, Estate 11/10/98 5,000 $5.000 Immediate 100% 11/10/08
Meagher, Ellen 11/10/98 158,700 $5.000 Immediate 100% 11/10/08
-------
Sutotal - Prior services 194,300
-------
Alabanza, Marc 11/10/98 50 $5.000 Immediate 100% 2/28/00
Altus, Linda 11/10/98 50 $5.000 Immediate 100% 2/28/00
Busman, Diana 11/10/98 650 $5.000 Immediate 100% 2/28/00
Fierro, Steven K 11/10/98 450 $5.000 Immediate 100% 2/28/00
Hotinger, Marie 11/10/98 1,800 $5.000 Immediate 100% 2/28/00
Johnson, C. Howard 11/10/98 50 $5.000 Immediate 100% 11/10/08
Kidder, Todd A. 11/10/98 450 $5.000 Immediate 100% 2/28/00
Knight, Barbara 11/10/98 50 $5.000 Immediate 100% 11/10/08
Lieberson, Donata 11/10/98 400 $5.000 Immediate 100% 2/28/00
</TABLE>
1
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Marks, Eunice 11/10/98 50 $5.000 Immediate 100% 2/28/00
Martin, Dale 11/10/98 50 $5.000 Immediate 100% 11/10/08
Mazzapica, Doug 11/10/98 500 $5.000 Immediate 100% 2/28/00
Panzica, Ignatius 11/10/98 100 $5.000 Immediate 100% 2/28/00
Roode, Uwe 11/10/98 450 $5.000 Immediate 100% 2/28/00
Rose, Sandra 11/10/98 50 $5.000 Immediate 100% 2/28/00
Sherman, Al 11/10/98 1,250 $5.000 Immediate 100% 2/28/00
Stern, Dan 11/10/98 100 $5.000 Immediate 100% 2/28/00
Sullivan, Laina L. 11/10/98 750 $5.000 Immediate 100% 2/28/00
Tucker, Alma 11/10/98 50 $5.000 Immediate 100% 11/10/08
Volk, Amy 11/10/98 400 $5.000 Immediate 100% 2/28/00
Weiss, Joel T. 11/10/98 1,050 $5.000 Immediate 100% 2/28/00
Wood, Brian 11/10/98 5,000 $5.000 Immediate 100% 2/28/00
------
Subtotal - Terminated 13,750
------
Alexander, Linda J 11/10/98 600 $5.000 Immediate 100% 11/10/08
Amore, Joseph V 11/10/98 600 $5.000 Immediate 100% 11/10/08
Andes, Greg 11/10/98 100 $5.000 Immediate 100% 11/10/08
Ball, Keith 11/10/98 5,000 $5.000 Immediate 100% 11/10/08
Bertram, Savannah 11/10/98 450 $5.000 Immediate 100% 11/10/08
Berwick, Rebecca 11/10/98 450 $5.000 Immediate 100% 11/10/08
Betlach, Jim 11/10/98 100 $5.000 Immediate 100% 11/10/08
Botts, Alison V. 11/10/98 500 $5.000 Immediate 100% 11/10/08
Bowlds, Angela 11/10/98 300 $5.000 Immediate 100% 11/10/08
Busman, Richard 11/10/98 10,000 $5.000 Immediate 100% 11/10/08
Cain, Robert 11/10/98 550 $5.000 Immediate 100% 11/10/08
Campbell, Paula 11/10/98 50 $5.000 Immediate 100% 11/10/08
Cannady, Gaea 11/10/98 50 $5.000 Immediate 100% 11/10/08
Carey, Josephine 11/10/98 350 $5.000 Immediate 100% 11/10/08
Carver, Gudrun 11/10/98 900 $5.000 Immediate 100% 11/10/08
Castile, Sheila 11/10/98 50 $5.000 Immediate 100% 11/10/08
Centeno, Benny S 11/10/98 450 $5.000 Immediate 100% 11/10/08
Chaffin, Bill 11/10/98 750 $5.000 Immediate 100% 11/10/08
Chaffin, Catherine 11/10/98 1,100 $5.000 Immediate 100% 11/10/08
Clark, Donna-Rae 11/10/98 550 $5.000 Immediate 100% 11/10/08
Conroy, Robert K. 11/10/98 450 $5.000 Immediate 100% 11/10/08
Corona, Sylvia 11/10/98 650 $5.000 Immediate 100% 11/10/08
Cranford, Thad 11/10/98 300 $5.000 Immediate 100% 11/10/08
Cunningham, Mike 11/10/98 100 $5.000 Immediate 100% 11/10/08
Daniel, Tammy D. 11/10/98 850 $5.000 Immediate 100% 11/10/08
Davis, Robert 11/10/98 5,000 $5.000 Immediate 100% 11/10/08
Deitch, Craig 11/10/98 50 $5.000 Immediate 100% 11/10/08
Durant, Michele 11/10/98 600 $5.000 Immediate 100% 11/10/08
Eberhardt, Cathy 11/10/98 1,600 $5.000 Immediate 100% 11/10/08
Emery, Carolyn 11/10/98 750 $5.000 Immediate 100% 11/10/08
Ferguson, Daniel S. 11/10/98 650 $5.000 Immediate 100% 11/10/08
Fletcher, Linda M. 11/10/98 700 $5.000 Immediate 100% 11/10/08
Franco, Cesar 11/10/98 250 $5.000 Immediate 100% 11/10/08
Garson, Paul 11/10/98 650 $5.000 Immediate 100% 11/10/08
Garza-Shand, Dora 11/10/98 650 $5.000 Immediate 100% 11/10/08
Gordon, Lisa F. 11/10/98 650 $5.000 Immediate 100% 11/10/08
Grotefend, Tracy 11/10/98 400 $5.000 Immediate 100% 11/10/08
Hassinger, Matthew 11/10/98 50 $5.000 Immediate 100% 11/10/08
</TABLE>
2
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Hurd, Laura 11/10/98 100 $5.000 Immediate 100% 11/10/08
Jay, Cindy 11/10/98 650 $5.000 Immediate 100% 11/10/08
Johnson, Karen L 11/10/98 1,550 $5.000 Immediate 100% 11/10/08
Kiemm, Susan 11/10/98 200 $5.000 Immediate 100% 11/10/08
Koberling, Emily 11/10/98 750 $5.000 Immediate 100% 11/10/08
Kress, Joseph 11/10/98 500 $5.000 Immediate 100% 11/10/08
Lamboeuf, Benoit M. 11/10/98 600 $5.000 Immediate 100% 11/10/08
Lawrence, Mark F. 11/10/98 400 $5.000 Immediate 100% 11/10/08
Lopez, Alex 11/10/98 1,500 $5.000 Immediate 100% 11/10/08
Luna, Gilbert 11/10/98 1,500 $5.000 Immediate 100% 11/10/08
Luna, Gilberto A. 11/10/98 500 $5.000 Immediate 100% 11/10/08
Maira, Christopher 11/10/98 900 $5.000 Immediate 100% 11/10/08
Martinez, Marvin 11/10/98 500 $5.000 Immediate 100% 11/10/08
Marzella, Rich 11/10/98 100 $5.000 Immediate 100% 11/10/08
McCarthy, Michelle 11/10/98 400 $5.000 Immediate 100% 11/10/08
McCool, Scott A. 11/10/98 400 $5.000 Immediate 100% 11/10/08
Merton, Dave 11/10/98 1,000 $5.000 Immediate 100% 11/10/08
Mileski, Stanley 11/10/98 400 $5.000 Immediate 100% 11/10/08
Miley, Ed 11/10/98 450 $5.000 Immediate 100% 11/10/08
Morgan, Carin Jane 11/10/98 1,000 $5.000 Immediate 100% 11/10/08
Murillo, Arjelia 11/10/98 1,000 $5.000 Immediate 100% 11/10/08
Nichols, Dave 11/10/98 1,600 $5.000 Immediate 100% 11/10/08
Nielsen, John K. 11/10/98 600 $5.000 Immediate 100% 11/10/08
Nielsen, Sandra 11/10/98 950 $5.000 Immediate 100% 11/10/08
Orr, Fred 11/10/98 50 $5.000 Immediate 100% 11/10/08
Osborn, Michael, W. 11/10/98 650 $5.000 Immediate 100% 11/10/08
Padulla, Melissa 11/10/98 350 $5.000 Immediate 100% 11/10/08
Parr, Jason J. 11/10/98 400 $5.000 Immediate 100% 11/10/08
Pease, James K. 11/10/98 400 $5.000 Immediate 100% 11/10/08
Pedicini, Lisa 11/10/98 1,050 $5.000 Immediate 100% 11/10/08
Peterson, Kim 11/10/98 1,600 $5.000 Immediate 100% 11/10/08
Petty, Isobel 11/10/98 1,800 $5.000 Immediate 100% 11/10/08
Pfeiffer, Grady 11/10/98 100 $5.000 Immediate 100% 11/10/08
Pietro, Sandra 11/10/98 600 $5.000 Immediate 100% 11/10/08
Pinchot, Katherine 11/10/98 450 $5.000 Immediate 100% 11/10/08
Polito, Fred 11/10/98 250 $5.000 Immediate 100% 11/10/08
Polito, Pam 11/10/98 850 $5.000 Immediate 100% 11/10/08
Richman, Michelle 11/10/98 50 $5.000 Immediate 100% 11/10/08
Rivers, Randi L. 11/10/98 550 $5.000 Immediate 100% 11/10/08
Roben, Kari 11/10/98 700 $5.000 Immediate 100% 11/10/08
Robinson, Dana 11/10/98 650 $5.000 Immediate 100% 11/10/08
Rose, George E. 11/10/98 1,450 $5.000 Immediate 100% 11/10/08
Saffire, Chris 11/10/98 1,200 $5.000 Immediate 100% 11/10/08
Shawler, Dean 11/10/98 1,000 $5.000 Immediate 100% 11/10/08
Shiigi, David Y. 11/10/98 450 $5.000 Immediate 100% 11/10/08
Shore, Donald 11/10/98 800 $5.000 Immediate 100% 11/10/08
Slatzer, Michael 11/10/98 50 $5.000 Immediate 100% 11/10/08
Slifka, Michael 11/10/98 100 $5.000 Immediate 100% 11/10/08
Smulson, Leslie 11/10/98 250 $5.000 Immediate 100% 11/10/08
Stich, Catherine 11/10/98 600 $5.000 Immediate 100% 11/10/08
Terry, Betty J. 11/10/98 500 $5.000 Immediate 100% 11/10/08
Thornbury, Bill J 11/10/98 1,300 $5.000 Immediate 100% 11/10/08
</TABLE>
3
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Trier, Nancy M. 11/10/98 450 $5.000 Immediate 100% 11/10/08
Tschasar, Sharon 11/10/98 750 $5.000 Immediate 100% 11/10/08
Waddell, Gerald 11/10/98 50 $5.000 Immediate 100% 11/10/08
Walden, Melissa J. 11/10/98 400 $5.000 Immediate 100% 11/10/08
Weinglass, Michael 11/10/98 1,150 $5.000 Immediate 100% 11/10/08
Werner, Steven 11/10/98 700 $5.000 Immediate 100% 11/10/08
Whitehouse, Bevi 11/10/98 1,200 $5.000 Immediate 100% 11/10/08
Williams, Sandy L. 11/10/98 450 $5.000 Immediate 100% 11/10/08
Wollerman, Bobbi 11/10/98 600 $5.000 Immediate 100% 11/10/08
Wood, Jessica 11/10/98 250 $5.000 Immediate 100% 11/10/08
Worley, Lynn C. 11/10/98 600 $5.000 Immediate 100% 11/10/08
---------
Subtotal - Current employees 79,600
---------
Teresi 9/98 list 300,000
---------
Smith, James Gaylon 12/23/98 25,000 $2.250 12,500 12/1/99; 12,500 12/1/00 0% 11/23/03
Fabregas, J. Robert 1/4/99 75,000 $2.063 3 yrs beg. w/12/31/99 0% 1/4/09
Prather, William E. 3/18/99 750,000 $1.750 3 yrs beg. 1st anniv. of grant 0% 3/18/09
Teresi, Joseph 3/18/99 500,000 $1.750 3 yrs beg. 1st anniv. of grant 0% 3/18/09
---------
Executive grant 3/99 1,250,000
---------
Blakeboro, Norman 3/18/99 200 $1.750 Immediate 100% 3/18/09
Cuff, Marcus 3/18/99 100 $1.750 Immediate 100% 3/18/09
Gingerelli, Dain 3/18/99 100 $1.750 Immediate 100% 3/18/09
Halper, Mickey 3/18/99 200 $1.750 Immediate 100% 3/18/09
Mann, David 3/18/99 1,000 $1.750 Immediate 100% 3/18/09
Meyers, Sandy 3/18/99 3,900 $1.750 Immediate 100% 3/18/09
Miragila, Michelina 3/18/99 100 $1.750 Immediate 100% 3/18/09
Neal, Rose 3/18/99 100 $1.750 Immediate 100% 3/18/09
Reacke, Kai 3/18/99 500 $1.750 Immediate 100% 3/18/09
Robinson, Tammy 3/18/99 250 $1.750 Immediate 100% 3/18/09
Teresi, Dick 3/18/99 5,000 $1.750 Immediate 100% 3/18/09
Tinney, William 3/18/99 1,000 $1.750 Immediate 100% 3/18/09
Williamson, Mark 3/18/99 500 $1.750 Immediate 100% 3/18/09
---------
Subtotal - Consultants 12,950
---------
Blair, Milford 3/18/99 25,000 $1.750 Immediate 100% 3/18/09
Campos, David 3/18/99 500 $1.750 Immediate 100% 3/18/09
Jacobs, Joseph 3/18/99 5,000 $1.750 Immediate 100% 3/18/09
Jermyn, Beverly 3/18/99 100 $1.750 Immediate 100% 3/18/09
Meagher, Ellen 3/18/99 60,250 $1.750 Immediate 100% 3/18/09
---------
Subtotal - Prior services 90,850
---------
Fierro, Steven K 3/18/99 450 $1.750 Immediate 100% 2/28/00
Knight, Barbara 3/18/99 50 $1.750 Immediate 100% 3/18/09
Lieberson, Donata 3/18/99 400 $1.750 Immediate 100% 2/28/00
Mazzapica, Doug 3/18/99 500 $1.750 Immediate 100% 2/28/00
Roode, Uwe 3/18/99 450 $1.750 Immediate 100% 2/28/00
Rose, Sandra 3/18/99 50 $1.750 Immediate 100% 2/28/00
Sullivan, Laina L. 3/18/99 750 $1.750 Immediate 100% 2/28/00
Wood, Brian 3/18/99 10,000 $1.750 Immediate 100% 2/28/00
---------
Subtotal - Terminated 12,650
---------
Alexander, Linda J. 3/18/99 600 $1.750 Immediate 100% 3/18/09
</TABLE>
4
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Amore, Joseph V. 3/18/99 600 $1.750 Immediate 100% 3/18/09
Bertram, Savannah 3/18/99 450 $1.750 Immediate 100% 3/18/09
Berwick, Rebrecca 3/18/99 450 $1.750 Immediate 100% 3/18/09
Betlach, Jim 3/18/99 1,000 $1.750 Immediate 100% 3/18/09
Botts, Alison V. 3/18/99 500 $1.750 Immediate 100% 3/18/09
Bowlds, Angela 3/18/99 300 $1.750 Immediate 100% 3/18/09
Cain, Robert 3/18/99 550 $1.750 Immediate 100% 3/18/09
Campbell, Paula 3/18/99 50 $1.750 Immediate 100% 3/18/09
Cannady, Gaea 3/18/99 50 $1.750 Immediate 100% 3/18/09
Carey, Josephine 3/18/99 350 $1.750 Immediate 100% 3/18/09
Carver, Gudrun 3/18/99 900 $1.750 Immediate 100% 3/18/09
Castile, Sheila 3/18/99 50 $1.750 Immediate 100% 3/18/09
Centeno, Benny S. 3/18/99 450 $1.750 Immediate 100% 3/18/09
Chaffin, Bill 3/18/99 750 $1.750 Immediate 100% 3/18/09
Chaffin, Catherine 3/18/99 2,200 $1.750 Immediate 100% 3/18/09
Clark, Donna-Rae 3/18/99 550 $1.750 Immediate 100% 3/18/09
Conroy, Roberta K. 3/18/99 450 $1.750 Immediate 100% 3/18/09
Corona, Sylvia 3/18/99 650 $1.750 Immediate 100% 3/18/09
Cranford, Thad 3/18/99 300 $1.750 Immediate 100% 3/18/09
Cunningham, Mike 3/18/99 1,000 $1.750 Immediate 100% 3/18/09
Daniel, Tammy D. 3/18/99 850 $1.750 Immediate 100% 3/18/09
Deitch, Craig 3/18/99 50 $1.750 Immediate 100% 3/18/09
Durant, Michele 3/18/99 600 $1.750 Immediate 100% 3/18/09
Emery, Carolyn 3/18/99 1,500 $1.750 Immediate 100% 3/18/09
Ferguson, Daniel S. 3/18/99 650 $1.750 Immediate 100% 3/18/09
Fletcher, Linda M. 3/18/99 700 $1.750 Immediate 100% 3/18/09
Franco, Cesar 3/18/99 250 $1.750 Immediate 100% 3/18/09
Garson, Paul 3/18/99 650 $1.750 Immediate 100% 3/18/09
Gordon, Lisa F. 3/18/99 1,300 $1.750 Immediate 100% 3/18/09
Grotefend, Tracy 3/18/99 400 $1.750 Immediate 100% 3/18/09
Hassinger, Matthew 3/18/99 50 $1.750 Immediate 100% 3/18/09
Jay, Cindy 3/18/99 650 $1.750 Immediate 100% 3/18/09
Klemm, Susan 3/18/99 200 $1.750 Immediate 100% 3/18/09
Koberling, Emily 3/18/99 750 $1.750 Immediate 100% 3/18/09
Kress, Joseph 3/18/99 500 $1.750 Immediate 100% 3/18/09
Lamboeuf, Benoit M. 3/18/99 600 $1.750 Immediate 100% 3/18/09
Lawrence, Mark F. 3/18/99 400 $1.750 Immediate 100% 3/18/09
Lopez, Alex 3/18/99 1,500 $1.750 Immediate 100% 3/18/09
Luna, Gilberto A. 3/18/99 500 $1.750 Immediate 100% 3/18/09
Maira, Christopher 3/18/99 1,800 $1.750 Immediate 100% 3/18/09
Martinez, Marvin 3/18/99 500 $1.750 Immediate 100% 3/18/09
McCarthy, Michelle 3/18/99 400 $1.750 Immediate 100% 3/18/09
McCool, Scott A. 3/18/99 400 $1.750 Immediate 100% 3/18/09
Merton, Dave 3/18/99 1,000 $1.750 Immediate 100% 3/18/09
Mileski, Stanley 3/18/99 400 $1.750 Immediate 100% 3/18/09
Miley, Ed 3/18/99 450 $1.750 Immediate 100% 3/18/09
Morgan, Carin Jane 3/18/99 2,000 $1.750 Immediate 100% 3/18/09
Murillo, Arjelia 3/18/99 1,000 $1.750 Immediate 100% 3/18/09
Nielsen, John K. 3/18/99 600 $1.750 Immediate 100% 3/18/09
Nilsen, Sandra 3/18/99 950 $1.750 Immediate 100% 3/18/09
Orr, Fred 3/18/99 50 $1.750 Immediate 100% 3/18/09
Osborn, Michael W. 3/18/99 650 $1.750 Immediate 100% 3/18/09
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Padulla, Melissa 3/18/99 350 $1.750 immediate 100% 3/18/09
Parr, Jason J. 3/18/99 400 $1.750 immediate 100% 3/18/09
Pease, James K. 3/18/99 400 $1.750 immediate 100% 3/18/09
Pedicini, Lisa 3/18/99 1,050 $1.750 immediate 100% 3/18/09
Peterson, Kim 3/18/99 1,600 $1.750 immediate 100% 3/18/09
Petty, Isobel 3/18/99 1,800 $1.750 immediate 100% 3/18/09
Pietro, Sandra 3/18/99 600 $1.750 immediate 100% 3/18/09
Pinchot, Katherine 3/18/99 450 $1.750 immediate 100% 3/18/09
Polito, Fred 3/18/99 250 $1.750 immediate 100% 3/18/09
Polito, Pam 3/18/99 850 $1.750 immediate 100% 3/18/09
Richman, Michelle 3/18/99 50 $1.750 immediate 100% 3/18/09
Rivers, Randi L. 3/18/99 550 $1.750 immediate 100% 3/18/09
Roben, Kari 3/18/99 700 $1.750 immediate 100% 3/18/09
Robinson, Dana 3/18/99 650 $1.750 immediate 100% 3/18/09
Rose, George E. 3/18/99 1,450 $1.750 immediate 100% 3/18/09
Saffire, Chris 3/18/99 2,400 $1.750 immediate 100% 3/18/09
Shawler, Dean 3/18/99 1,000 $1.750 immediate 100% 3/18/09
Shiigi, David Y. 3/18/99 450 $1.750 immediate 100% 3/18/09
Shore, Donald 3/18/99 800 $1.750 immediate 100% 3/18/09
Slatzer, Michael 3/18/99 50 $1.750 immediate 100% 3/18/09
Slifka, Michael 3/18/99 100 $1.750 immediate 100% 3/18/09
Smulson, Leslie 3/18/99 250 $1.750 immediate 100% 3/18/09
Stich, Catherine 3/18/99 600 $1.750 immediate 100% 3/18/09
Terry, Betty J. 3/18/99 500 $1.750 immediate 100% 3/18/09
Thornbury, Bill J. 3/18/99 1,300 $1.750 immediate 100% 3/18/09
Trier, Nancy M. 3/18/99 450 $1.750 immediate 100% 3/18/09
Tschasar, Sharon 3/18/99 750 $1.750 immediate 100% 3/18/09
Waddell, Gerald 3/18/99 50 $1.750 immediate 100% 3/18/09
Walden, Melissa J. 3/18/99 400 $1.750 immediate 100% 3/18/09
Werner, Steven 3/18/99 700 $1.750 immediate 100% 3/18/09
Whitehouse, Bevi 3/18/99 1,200 $1.750 immediate 100% 3/18/09
Williams, Sandy L. 3/18/99 450 $1.750 immediate 100% 3/18/09
Wollerman, Bobbi 3/18/99 600 $1.750 immediate 100% 3/18/09
Wood, Jessica 3/18/99 250 $1.750 immediate 100% 3/18/09
Worley, Lynch C. 3/18/99 600 $1.750 immediate 100% 3/18/09
-----------
btotal - Current employees 58,550
-----------
Teresi 3/99 list 175,000
-----------
Ball, Keith 3/18/99 30,000 $1.750 3 yrs beg. 1st anniv. of grant 0% 3/18/09
Pfeiffer, Grady 3/18/99 15,000 $1.750 3 yrs beg. 1st anniv. of grant 0% 3/18/09
David, Robert A. 3/18/99 30,000 $1.750 3 yrs beg. 1st anniv. of grant 0% 3/18/09
Busman, Rick 3/18/99 12,000 $1.750 3 yrs beg. 1st anniv. of grant 0% 3/18/09
Nichols, Dave 3/18/99 15,000 $1.750 3 yrs beg. 1st anniv. of grant 0% 3/18/09
Luna, Gil 3/18/99 9,000 $1.750 3 yrs beg. 1st anniv. of grant 0% 3/18/09
Gibson, Cathy 3/18/99 9,000 $1.750 3 yrs beg. 1st anniv. of grant 0% 3/18/09
Garza-Shand, Dee Dee 3/18/99 9,000 $1.750 3 yrs beg. 1st anniv. of grant 0% 3/18/09
Andes, Greg 3/18/99 9,000 $1.750 3 yrs beg. 1st anniv. of grant 0% 3/18/09
Boyer, Wayne 3/18/99 9,000 $1.750 3 yrs beg. 1st anniv. of grant 0% 3/18/09
Marzella, Rich 3/18/99 9,000 $1.750 3 yrs beg. 1st anniv. of grant 0% 3/18/09
Weinglass, Michael 3/18/99 9,000 $1.750 3 yrs beg. 1st anniv. of grant 0% 3/18/09
Hurd, Laura 3/18/99 9,000 $1.750 3 yrs beg. 1st anniv. of grant 0% 3/18/09
Johnson, Karen 3/18/99 9,000 $1.750 3 yrs beg. 1st anniv. of grant 0% 3/18/09
</TABLE>
6
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Marsh, Regina 3/18/99 9,000 $1.750 3 yrs beg. 1st anniv. of grant 0% 3/18/09
Berger, Steve 3/18/99 15,000 $1.750 3 yrs beg. 1st anniv. of grant 0% 3/18/09
Holt, Craig 3/18/99 2,000 $1.750 3 yrs beg. 1st anniv. of grant 0% 3/18/09
Quigley, Dan 3/18/99 2,000 $1.750 3 yrs beg. 1st anniv. of grant 0% 3/18/09
Pickard, Randi 3/18/99 2,000 $1.750 3 yrs beg. 1st anniv. of grant 0% 3/18/09
Bauman, Andrew 3/18/99 2,000 $1.750 3 yrs beg. 1st anniv. of grant 0% 3/18/09
Mower, Connie 3/18/99 2,000 $1.750 3 yrs beg. 1st anniv. of grant 0% 3/18/09
Guillian, Juan 3/18/99 2,000 $1.750 3 yrs beg. 1st anniv. of grant 0% 3/18/09
Vensor, Richard 3/18/99 2,000 $1.750 3 yrs beg. 1st anniv. of grant 0% 3/18/09
Whittle, Joe 3/18/99 2,000 $1.750 3 yrs beg. 1st anniv. of grant 0% 3/18/09
Hutteman, Beau 3/18/99 2,000 $1.750 3 yrs beg. 1st anniv. of grant 0% 3/18/09
Grapevine, Kathy 3/18/99 2,000 $1.750 3 yrs beg. 1st anniv. of grant 0% 3/18/09
-----------
Prather 3/99 list 227,000
-----------
Meagher, Ellen 4/16/99 15,000 $1.625 3 yrs beg. 1st anniv. of grant 0% 4/16/09
Jacobs, Joseph 4/16/99 15,000 $1.625 3 yrs beg. 1st anniv. of grant 0% 4/16/09
Knyal, Wayne L. 4/16/99 15,000 $1.625 3 yrs beg. 1st anniv. of grant 0% 4/16/09
Gallery, Daniel 4/16/99 15,000 $1.625 3 yrs beg. 1st anniv. of grant 0% 4/16/09
-----------
4/99 Formula Grants 60,000
-----------
-----------
Total Options Granted 2,142,000
under EZR Plan -----------
Options under Newriders Plan
Investors 2/14/97 125,000 $5.00 Immediate 100% 2/14/07
Keating 2/14/97 50,000 $5.00 Immediate 100% 2/14/07
Gallery, Daniel 7/16/97 15,000 $5.00 3 yrs beg. 1st anniv. of grant 33% 7/16/07
Knyal, Wayne 7/16/97 15,000 $5.00 3 yrs beg. 1st anniv. of grant 33% 7/16/07
Allen 10/10/97 5,000 $5.00 Immediate 100% 10/10/07
Barisic 10/10/97 5,000 $5.00 Immediate 100% 10/10/07
Sugars 10/10/97 2,500 $5.00 Immediate 100% 10/10/07
Wilhelm 10/10/97 5,000 $5.00 Immediate 100% 10/10/07
Mantooth 11/1/97 25,000 $5.00 Immediate 100% 11/1/07
Paine 11/1/97 5,000 $5.00 Immediate 100% 11/1/07
Sugars 11/1/97 25,000 $5.00 Immediate 100% 11/1/07
Hatch, Leon 12/1/97 10,000 $5.00 Immediate 100% 12/1/07
Polston 12/1/97 500 $6.00 Immediate 100% 12/1/07
Alvares 1/1/98 1,000 $6.00 Immediate 100% 1/1/08
Dillon 1/1/98 25,000 $5.00 Immediate 100% 1/1/08
Frasher 1/1/98 2,500 $6.00 Immediate 100% 1/1/08
Grapevine, Kathy 1/1/98 1,500 $6.00 Immediate 100% 1/1/08
Mower 1/1/98 2,500 $6.00 Immediate 100% 1/1/08
Picard 1/1/98 2,500 $6.00 Immediate 100% 1/1/08
Quigley 1/1/98 2,500 $6.00 Immediate 100% 1/1/08
Valverde 1/1/98 2,500 $6.00 Immediate 100% 1/1/08
Minno, Maurice 3/12/98 25,000 $6.00 Vest fully 3/12/99 100% 3/12/00
Knyal, Wayne 4/1/98 15,000 $2.84 3 yrs beg. 1st anniv. of grant 33% 4/1/08
Gallery, Daniel 4/1/98 15,000 $2.84 3 yrs beg. 1st anniv. of grant 33% 4/1/08
-----------
Total Options Granted 383,000
under NWR Plan -----------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Warrants
<S> <C> <C> <C> <C>
Martin 04/01/97 125,000 8.00 Immediate 10
Nordstrom 04/01/97 125,000 8.00 Immediate 10
Offshore 05/28/97 3,087 8.10 Immediate 10
Offshore 06/27/97 4,487 7.80 Immediate 10
Bermuda 12/11/97 13,072 7.65 Immediate 10
Imperial 03/17/98 54,000 3.00 Immediate 10
Avalon 03/17/98 27,000 3.00 Immediate 10
Wooster 03/17/98 9,000 3.00 Immediate 10
Silenus 05/11/98 12,500 5.64 Immediate 10
Knyal 06/11/98 12,500 5.96 Immediate 10
------------------
Total as Newriders 385,646
------------------
Nomura 09/23/98 355,920 1.63 Immediate 7
Imperial 09/23/98 592,184 1.75 Immediate 7
------------------
Total as Easyriders 948,104
------------------
Total Warrants 1,333,750
------------------
Total Options and Warrants O/S 3,858,750
==================
</TABLE>
8
<PAGE>
Schedule 3.5(f)
No demand registration rights outstanding.
<PAGE>
EXHIBIT 10.64
THIS NOTE HAS BEEN ISSUED PURSUANT TO THAT CERTAIN SECURITIES PURCHASE
AGREEMENT, DATED AS OF OCTOBER 14, 1999, BY AND BETWEEN THE COMPANY (AS DEFINED
BELOW) AND SIENA (AS DEFINED BELOW) (THE "SECURITIES PURCHASE AGREEMENT"). THIS
-----------------------------
NOTE IS SUBJECT TO ALL OF THE TERMS AND CONDITIONS OF THE SECURITIES PURCHASE
AGREEMENT AND IS ENTITLED TO THE BENEFITS THEREOF. ALL TERMS NOT OTHERWISE
DEFINED HEREIN, SHALL HAVE THE MEANING GIVEN TO SUCH TERMS IN THE SECURITIES
PURCHASE AGREEMENT. ALL INDEBTEDNESS EVIDENCED BY THIS NOTE IS SUBORDINATED TO
OTHER INDEBTEDNESS PURSUANT TO, AND TO THE EXTENT PROVIDED IN, AND THE RIGHTS OF
THE HOLDER OF THIS NOTE ARE OTHERWISE SUBJECT TO THE TERMS OF, THE INTERCREDITOR
AND SUBORDINATION AGREEMENT, DATED AS OF OCTOBER 14, 1999, AS THE SALE MAY BE
AMENDED, MODIFIED OR OTHERWISE SUPPLEMENTED FROM TIME TO TIME (THE
"INTERCREDITOR AGREEMENT"), BY AND AMONG NOMURA HOLDING AMERICA INC., SIENA
CAPITAL PARTNERS, L.P., PAISANO PUBLICATIONS, INC. AND EASYRIDERS, INC. THE
TERMS OF THE INTERCREDITOR AGREEMENT ARE HEREBY INCORPORATED BY REFERENCE INTO
THIS NOTE AS IF SET FORTH IN FULL HEREIN.
THE SECURITY REPRESENTED BY THIS NOTE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER ANY STATE SECURITIES
LAWS. THIS NOTE MAY NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED, WHETHER OR NOT FOR CONSIDERATION, IN THE ABSENCE OF (1) AN
EFFECTIVE REGISTRATION STATEMENT AND QUALIFICATION IN EFFECT WITH RESPECT TO
THIS NOTE UNDER THE SECURITIES ACT AND UNDER ANY APPLICABLE STATE SECURITIES
LAWS OR (2) AN EXEMPTION FROM SUCH REGISTRATION AND QUALIFICATION.
----------
INCREASING RATE SECURED PROMISSORY NOTE
----------
US$275,000.00 Beverly Hills, California
October 14, 1999
FOR VALUE RECEIVED, the undersigned, PAISANO PUBLICATIONS, INC., a
California corporation (the "Company"), hereby promises to pay to SIENA CAPITAL
-------
PARTNERS, L.P. ("Siena"), a California limited partnership or its assigns (the
-----
"Holder"), the principal sum of TWO HUNDRED SEVENTY FIVE THOUSAND UNITED STATES
------
DOLLARS (US$275,000.00) (or so much thereof as shall remain outstanding) on
October 14, 2000 (the "Maturity Date"). Subject to modification pursuant to
-------------
Section 1.3(c) of the Securities Purchase Agreement, this Note shall bear
interest from the Closing Date on the principal of this Note from time to time
outstanding at a rate per annum equal to thirteen percent (13%) (such rate, as
increased as provided in the Securities Purchase Agreement, the "Cash Interest
-------------
Rate"). This Note shall also bear additional capitalized interest from the
- ----
Closing Date on the principal amount of this Note from time to time outstanding
at a rate per annum equal to seven percent (7%) (such rate, as increased as
provided in the Securities Purchase Agreement, the "Capitalized Interest Rate"))
-------------------------
and together with the Cash Interest Rate, collectively, the "Interest Rate").
-------------
From and after April 14, 2000,
<PAGE>
the Capitalized Interest Rate shall increase to a rate per annum equal to eight
percent (8%). The Capitalized Interest Rate shall increase by an additional one
percent (1%) on the 14th day of each month thereafter.
Interest shall be calculated in arrears through the last day of each month.
The Company shall make monthly payments on the interest that has accrued at the
Cash Interest Rate on the last Business Day of each month, commencing with
November 30, 1999, and ending on October 14, 2000 (the "Maturity Date"). All
-------------
other interest which has accrued at the Capitalized Interest Rate shall be
capitalized into the principal of this Note and shall be due and payable in full
on the Maturity Date.
Interest shall be computed on this Note on the basis of a 360-day year
consisting of twelve (12) 30-day months and on the actual number of days elapsed
in any period including the date hereof but excluding the date by which the
Holder is deemed pursuant to the Securities Purchase Agreement to have received
payment. Any principal or interest payment due on this Note which is not paid
when due, whether at stated maturity, by notice of acceleration or otherwise,
shall bear interest (calculated in the manner set forth above) at a rate equal
to the then-current Interest Rate plus an additional five percent (5%) per
annum.
The outstanding principal balance of the Note shall be due and payable in
full on the Maturity Date.
The Company may, from time to time, prepay this Note, in whole or in part,
so long as each partial prepayment of principal on this Note is equal to or
greater than $50,000 and the Company has given the Holder one (1) or more
Business Day's written notice of such optional prepayment. Any such optional
prepayment of principal shall be without premium or penalty. Each prepayment of
principal under this Note shall be accompanied by all interest then accrued and
unpaid on the principal so prepaid. Any principal prepaid shall be in addition
to, and not in lieu of, all payments otherwise required to be paid hereunder and
under the Securities Purchase Agreement at the time of such prepayment.
Unless otherwise agreed to by Siena, the Company shall prepay the Note to
the extent of the net financing proceeds in excess of $50,000 actually received
by the Company or its affiliates in the event that (A) the Company completes any
financing transaction (other than the purchase of the Securities hereunder)
whatsoever from and after the Closing Date, including without limitation any
public or private placements of debt or equity or (B) Easyriders completes any
financing transaction (subject to the provisions of that certain Note and
Warrant Purchase Agreement between Easyriders and Nomura Holding America, Inc.
dated September 23, 1998 (the "Nomura Agreement") or any sale of any material
----------------
assets of Easyriders or its subsidiaries. In addition, on the last Business Day
of each month commencing with April 14, 2000, the Company shall prepay the Note
in an amount equal to fifteen percent (15%) of the Company's Excess Cash Flow on
such date. For
-2-
Increasing Rate Secured Promissory Note
---------------------------------------
<PAGE>
purposes hereof, "Excess Cash Flow" shall have the meaning given such term in
the Nomura Agreement.
The Company shall make each payment which it owes under this Note or the
Securities Purchase Agreement not later than 11:00 a.m., Los Angeles, California
time, on the date such payment becomes due and payable, in lawful money of the
United States of America, without set-off, deduction or counterclaim, and in
immediately available funds sent by wire transfer to Siena in care of Citibank,
NA, 450 West 33rd Street, New York, New York, No.: 82100084, For the account of
Lewco Securities, Account No.: 09253792, for the account of Siena Capital
Partners, L.P., Sub-account No.: W-7-8041738, Reference: Paisano principal and
interest (or to such other bank and accounts as Siena may from time to time
specify pursuant to written instructions received by the Company no later than
five (5) Business Days prior to such payment date). Any payment received by
Siena after such time shall be deemed to have been made on the next following
Business Day. Should any such payment become due and payable on a day other than
a Business Day, the maturity of such payment shall be the next Business Day. Any
amount received by Siena, whether as an interest payment, principal payment or
principal prepayment from or on behalf of the Company, shall be applied as
follows in descending order of priority: (i) to all costs, fees and expenses of
Siena (including reasonable attorneys' fees and the Finance Fee) incurred in
connection with this Note or in enforcing any obligations of, or in collecting
any payments from, any obligor hereunder or under the Securities; (ii) to
interest which has accrued on past due payments hereunder; (iii) to interest
that is currently due and payable on this Note; (iv) to payment of principal on
this Note currently due and payable; (v) to the payment of past due principal on
this Note; and (vi) to the prepayment of principal due under this Note.
Payments of principal, premium (if any) and interest are to be made in
lawful money of the United States of America.
The Company and all other parties whatsoever liable for payment of any
amounts due or to become due under the terms of this Note, hereby waive
presentment for payment, protest and demand, any notice of protest or demand,
and any other indulgences or forebearances of any kind whatsoever.
Subject to compliance with applicable federal and state securities laws,
the Holder may sell, assign and otherwise transfer all or portions of, and
participations in, the Holder's interest in this Note from time to time. The
Company hereby agrees to execute and deliver to the Holder such documents,
interests and agreements as Holder deems necessary or desirable to effect such
transfer. Upon surrender of this Note for registration of transfer or
assignment, duly endorsed, or accompanied by a written instrument of transfer or
assignment duly executed by the registered holder hereof or such holder's
attorney duly authorized in writing, one or more new Notes for a like principal
amount will be issued to, and, at the option of the holder, registered in the
name of, the transferee(s) or assignee(s). The Company shall treat the person
who holds this Note as the owner hereof for all purposes whatsoever.
-3-
Increasing Rate Secured Promissory Note
---------------------------------------
<PAGE>
The Company may not assign its rights or obligations hereunder without the
prior written consent of Holder. Holder may assign all or any portion of this
Note without the prior consent of the Company. Holder may sell or agree to sell
to one or more other persons a participation in all or any part of any of this
Note without the prior consent of the Company. Upon surrender of this Note, the
Company shall execute and deliver one or more substitute notes in such
denominations and of a like aggregate unpaid principal amount issued to Holder
and/or to Holder's designated transferee or transferees. This Note is subject to
certain purchaser rights and rights of first refusal as set forth in the
Securities Purchase Agreement.
If an Event of Default shall occur and be continuing, the principal of this
Note may, under certain circumstances, become or be declared due and payable in
the manner and with the effect provided in the Securities Purchase Agreement.
This Note is governed by and shall be construed in accordance with the laws of
the State of California.
PAISANO PUBLICATIONS, INC.,
a California corporation
By: /s/ J. Robert Fabregas
-------------------------
Name: J. Robert Fabregas
Title: Secretary
-4-
Increasing Rate Secured Promissory Note
---------------------------------------
<PAGE>
EXHIBIT 10.65
THE WARRANT SECURITIES TO BE RECEIVED UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER
ANY STATE SECURITIES LAWS. THE WARRANT SECURITIES MAY NOT BE OFFERED, SOLD,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED, WHETHER OR NOT FOR
CONSIDERATION, IN THE ABSENCE OF (1) AN EFFECTIVE REGISTRATION STATEMENT AND
QUALIFICATION WITH RESPECT TO THE WARRANT SECURITIES UNDER THE SECURITIES ACT
AND UNDER ANY APPLICABLE STATE SECURITIES LAWS OR (2) AN EXEMPTION FROM SUCH
QUALIFICATION AND REGISTRATION.
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF ARE SUBJECT TO
THE TERMS AND PROVISIONS OF A WARRANT AGREEMENT DATED AS OF OCTOBER 14, 1999,
BETWEEN EASYRIDERS, INC. AND SIENA CAPITAL PARTNERS, L.P. (AS THE SAME MAY BE
SUPPLEMENTED, MODIFIED, AMENDED, EXTENDED OR RESTATED FROM TIME TO TIME, THE
"WARRANT AGREEMENT"). AMONG OTHER THINGS, THE WARRANT AGREEMENT CONTAINS
PROVISIONS FOR RESTRICTIONS ON TRANSFER AND REGISTRATION RIGHTS. COPIES OF THE
WARRANT AGREEMENT ARE AVAILABLE AT THE EXECUTIVE OFFICES OF THE COMPANY.
COMMON STOCK PURCHASE WARRANT
-----------------------------
------------------------
Capitalized terms used and not otherwise defined in this Warrant shall have the
meanings respectively assigned to them in the Warrant Agreement referred to in
the legend above.
EASYRIDERS, INC., a Delaware corporation (the "Company"), having its executive
-------
offices at 28210 Dorothy Drive, Agoura Hills, California 91301, does hereby
certify and agree that, for good and valuable consideration (the existence,
sufficiency and receipt of which are hereby acknowledged by the Company), SIENA
CAPITAL PARTNERS, L.P., a California limited partnership, its successors and
assigns ("Holder"), hereby is entitled to purchase from the Company, during the
------
term set forth in Section 1 hereof, up to an aggregate amount of 100,000 shares
(vesting on April 14, 2000), as adjusted from time to time pursuant to the terms
of this Warrant and the Warrant Agreement (the "Exercise Quantity"), of duly
-----------------
authorized, validly issued, fully paid and non-assessable shares of Common
Stock, par value US$.001 per share, of the Company (the "Common Stock"), all
------------
upon the terms and provisions and subject to adjustment of such Exercise
Quantity provided in the Warrant Agreement and this Common Stock Purchase
Warrant (the "Warrant"). The exercise price per share of Common Stock for which
-------
this Warrant is exercisable shall be ONE CENT ($.01), as adjusted from time to
time pursuant to the terms of this Warrant and the Warrant Agreement (the
"Exercise Price"). In the event that all principal, interest and other amounts
--------------
owing under the Note (and the Securities Purchase Agreement) have been repaid in
full on or before April 14, 2000, the Exercise Quantity shall be reduced to zero
and this Warrant shall be
<PAGE>
null and void. In the event that all principal, interest and other amounts owing
under the Note (and the Securities Purchase Agreement) have not been repaid in
full on or before July 14, 2000 the Exercise Quantity shall be increased by an
additional 300,000 shares to a total of 400,000 shares, subject to adjustment as
provided in the Warrant Agreement, and such Exercise Quantity shall further be
increased by an additional 100,000 shares to a total of 500,000 shares in the
event that all principal, interest and other amounts owing under the Note (and
the Securities Purchase Agreement) have not been repaid in full on or before
October 14, 2000. The Exercise Quantity shall further be increased by an
additional 150,000 shares on the 14th day of each month after October 2000 in
the event that all principal, interest and other amounts owing under the Note
(and the Securities Purchase Agreement) have not been repaid in full on or
before such date. In the event that the Exercise Quantity is adjusted for any
reason pursuant to the Warrant Agreement, an adjustment shall likewise be made
in the amount of additional shares to be added to the Exercise Quantity in
accordance with the preceding sentence (By way of example only, in the event the
original Exercise Quantity of 100,000 is adjusted upwards to 400,000 by reason
of an Adjustment Transaction, the amount of additional shares to be added to the
Exercise Quantity shall be likewise increased accordingly to 400,000 shares or
such other appropriate amount).
1. Term of the Warrant. The term of this Warrant commences as of the date
-------------------
hereof, and shall expire at 5:00 P.M., Los Angeles time, on the seventh
anniversary hereof. In the event that this Warrant would expire on a day that is
not a Business Day, then the term of this Warrant automatically shall be
extended to 5:00 P.M., Los Angeles time, on the next succeeding Business Day.
2. Exercise of Warrant.
-------------------
(a) This Warrant may be exercised by the Holder of this Warrant at any
time during the term hereof, in whole or in part, from time to time (but not for
fractional shares, unless this Warrant is exercised in whole), by presentation
and surrender of this Warrant to the Company, together with the annexed Exercise
Form duly completed and executed and payment in the aggregate amount equal to
the Exercise Price multiplied by the number of shares of Common Stock being
purchased. At the option of Holder, payment of the Exercise Price may be made
either by (i) certified check payable to the order of the Company, (ii)
surrender of certificates then held representing, or deduction from the number
of shares issuable upon exercise of this Warrant, of that number of shares which
has an aggregate Fair Value determined in accordance with the Warrant Agreement
on the date of exercise equal to the aggregate Exercise Price for all shares to
be purchased pursuant to this Warrant or (iii) by any combination of the
foregoing methods. Upon the Company's receipt of this Warrant, the completed and
signed Exercise Form and the requisite payment, the Company shall issue and
deliver (or cause to be delivered) to the exercising Holder stock certificates
aggregating the number of shares of Common Stock purchased. In the event of a
partial exercise of this Warrant, the Company shall issue and deliver to the
Holder a new Warrant at the same time such stock certificates are delivered,
which new Warrant shall entitle the Holder to purchase the balance of the
Exercise Quantity not purchased in that partial exercise and shall otherwise be
upon the same terms and provisions as this Warrant.
(b) In the event the Holder of this Warrant desires that any or all of
the stock
2
<PAGE>
certificates to be issued upon the exercise hereof be registered in a name
or names other than that of the Holder of this Warrant, the Holder must (i) so
request in writing at the time of exercise if the transfer is not a registered
transfer, (ii) provide to the Company an opinion of counsel reasonably
satisfactory to the Company to the effect that the proposed transfer may be
effected without registration under the Securities Act, and (iii) pay to the
Company funds sufficient to pay all stock transfer taxes (if any) payable in
connection with the transfer and delivery of such stock certificates.
(c) Upon the due exercise by the Holder of this Warrant, whether in
whole or in part, the Holder (or any other person to whom a stock certificate is
to be so issued) shall be deemed for all purposes to have become the Holder of
record of the shares of Common Stock for which this Warrant has been so
exercised, effective immediately prior to the close of business on the date this
Warrant, the completed and signed Exercise Form and the requisite payment were
duly delivered to the Company, irrespective of the date of actual delivery of
certificates representing such shares of Common Stock so issued.
3. Surrender of Warrant; Expenses.
------------------------------
(a) Whether in connection with the exercise, exchange, registration of
transfer or replacement of this Warrant, surrender of this Warrant shall be made
to the Company during normal business hours on a Business Day (unless the
Company otherwise permits) at the executive offices of the Company located at
28210 Dorothy Drive, Agoura Hills, California 91301, or to such other office or
duly authorized representative of the Company as from time to time may be
designated by the Company by written notice given to the Holder of this Warrant.
(b) The Company shall pay all costs and expenses incurred in connection
with the exercise, registering, exchange, transfer, replacement or put of this
Warrant, including the costs of preparation, execution and delivery of warrants
and stock certificates, and shall pay all taxes (other than any taxes measured
by the income of any Person other than the Company) and other charges imposed by
law payable in connection with the transfer or replacement of this Warrant.
4. Warrant Register; Exchange; Transfer: Loss.
------------------------------------------
(a) The Company at all times shall maintain at its chief executive
offices an open register for all Warrants, in which the Company shall record the
name and address of each Person to whom a Warrant has been issued or
transferred, the number of shares of Common Stock or other securities
purchasable thereunder and the corresponding purchase prices.
(b) This Warrant may be exchanged for two or more warrants entitling the
identical Holder hereof to purchase the same aggregate Exercise Quantity at the
same Exercise Price per share and otherwise having the same terms and provisions
as this Warrant. The identical Holder may request such an exchange by surrender
of this Warrant to the Company, together with a written exchange request
specifying the desired number of warrants and allocation of the Exercise
Quantity purchasable under the existing Warrant.
3
<PAGE>
(c) This Warrant may be transferred only in accordance with the
provisions of Article VII of the Warrant Agreement, in whole or in part, by
-----------
the Holder or any duly authorized representative of such Holder. A transfer may
be registered with the Company by submission to it of this Warrant, together
with the annexed Assignment Form duly completed and executed, and if the
transfer is not a registered transfer, an opinion of counsel reasonably
satisfactory to the Company. Within five (5) Business Days after the Company's
receipt of this Warrant and the Assignment Form so completed and executed, the
Company will issue and deliver to the transferee a new Warrant representing the
portion of the Exercise Quantity transferred at the same Exercise Price per
share and otherwise having the same terms and provisions as this Warrant, which
the Company will register in the new Holder' s name.
(d) Upon receipt by the Company of evidence reasonably satisfactory to
it of the ownership of and the loss, theft, destruction or mutilation of this
Warrant, and (a) in the case of loss, theft or destruction, upon receipt by the
Company of indemnity reasonably satisfactory to it (provided that, if the owner
of the same is a commercial bank or an institutional lender or investor, its own
agreement of indemnity shall be deemed to be satisfactory), or (b) in the case
of mutilation, upon surrender and cancellation thereof, the Company, at its
expense, will execute, register and deliver, in lieu thereof, a new certificate
or instrument for (or covering the purchase of) this Warrant.
(e) The Company will not close its books against the transfer of this
Warrant or any of the Warrant Securities in any manner which interferes with the
timely exercise of this Warrant. The Company will from time to time take all
such action as may be necessary to assure that the par value per share of the
unissued Common Stock acquirable upon exercise of this Warrant is at all times
equal or less than the Exercise Price then in effect.
5. Rights and Obligations of the Company and the Holder. The Company and
----------------------------------------------------
the Holder of this Warrant is entitled to the rights and bound by the
obligations set forth in the Warrant Agreement, all of which rights and
obligations are hereby incorporated by reference herein. This Warrant shall not
entitle its Holder to any rights of a stockholder in the Company (other than as
provided in Section 2(c) of this Warrant and the Warrant Agreement).
------------
[remainder of page left intentionally blank]
4
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized representative and its corporate seal, if any, to be
impressed hereupon and attested to by its Secretary or Assistant Secretary.
EASYRIDERS, INC.,
a Delaware corporation
By: /s/ J. Robert Fabregas
-----------------------------
Name: J. Robert Fabregas
Title: Chief Financial Officer
Attest:
/s/ J. Robert Fabregas
- -----------------------------
Secretary J. Robert Fabregas
5
<PAGE>
COMMON STOCK WARRANT
--------------------
EXERCISE FORM
-------------
- ------------------------
- ------------------------
- ------------------------
The undersigned Holder of the within Warrant hereby irrevocably elects to
exercise the within Warrant to the extent of [______] shares of Common Stock,
$____ par value per share, of the Company.
The undersigned herewith encloses the Warrant and
[_] a certificate representing that number of shares of Common Stock of the
Company having an aggregate current market price of $_______ in payment of the
Exercise Price;
[_] a check (payable to the order of the Company) in the amount of
$___________ in payment of the Exercise Price; and/or
[_] the undersigned hereby elects to effect a cashless exercise and
authorizes the Company to deduct from the shares issuable upon exercise a number
of shares of Common Stock of the Company having an aggregate current market
price on the date hereof of $________________.
Instructions for Registering the Securities
On the Stock Transfer Books of the Company
Name of Transferee:
-------------------------------------
State of Organization (if applicable):
------------------
Federal Tax Identification or
Social Security Number:
------------------------------
Address:
------------------------------------------------
If this exercise of the Warrant is not an exercise in full, then the
undersigned Holder hereby requests that a new Warrant of like tenor (exercisable
for the balance of the Exercise Quantity of shares of Common Stock underlying
this Warrant) be issued and delivered to the undersigned Holder at the address
on the warrant register of the Company.
Dated:
-------------------- ------------------------------------------
(Name of Registered Holder - Please Print)
By:
--------------------------------------
(Signature of Registered Holder or of Duly
Authorized Signatory)
Title:
-------------------------------
<PAGE>
COMMON STOCK WARRANT
--------------------
ASSIGNMENT FORM
---------------
FOR VALUE RECEIVED, the undersigned Holder of the within Warrant hereby
sells, assigns and transfers unto the transferee whose name and address are set
forth below all of the rights of the undersigned under the within Warrant (to
the extent of the portion of the within Warrant being transferred hereby, which
portion is _____________________).
Name of Transferee:
--------------------------------------
State of Organization (if applicable):
-------------------
Federal Tax Identification or
Social Security Number:
------------------------------
Address:
-------------------------------------------------
If such portion of the Warrant being transferred shall not consist of all
of the within Warrant, then the undersigned hereby requests that, as provided in
the within Warrant, a new warrant of like tenor respecting the balance of the
Exercise Quantity of shares of Common Stock underlying this Warrant not being
transferred pursuant hereto be issued in the name of and delivered to the
undersigned. The undersigned does hereby irrevocably constitute and appoint
________________________ attorney to register the foregoing transfer on the
books of the Company maintained for that purpose, with full power of
substitution in the premises.
[_] As required by the Warrant, enclosed herewith is the opinion of legal
counsel for the undersigned.
Dated:
------------------- ------------------------------------------
(Name of Registered Holder - Please Print)
By:
--------------------------------------
(Signature of Registered Holder or of Duly
Authorized Signatory)
Title:
-------------------------------
<PAGE>
EXHIBIT 10.66
INTERCREDITOR
AND SUBORDINATION AGREEMENT
INTERCREDITOR AND SUBORDINATION AGREEMENT, dated as of October 14, 1999,
among SIENA CAPITAL PARTNERS, L.P., a California limited partnership (together
with any other holder of the Subordinated Obligations from time to time,
collectively, the "Subordinated Noteholder"), NOMURA HOLDING AMERICA INC.
-----------------------
(together with its successors and assigns, the "Senior Creditor"), PAISANO
---------------
PUBLICATIONS, INC., a California corporation (the "Borrower"), and EASYRIDERS,
--------
INC., a Delaware corporation ("Parent").
------
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Borrower and the Subordinated Noteholder have agreed to
consummate a transaction whereby the Subordinated Noteholder will make a loan to
the Borrower of up to $275,000 which will be evidenced by the Subordinated Notes
(such terms and all other capitalized terms used herein without definition have
the meanings provided in Section 2 hereof) and Newriders will guarantee payment
and performance thereof pursuant to the Subordinated Guarantee;
WHEREAS, the Borrower, the Parent and the Senior Creditor are parties to a
Senior Note Agreement pursuant to which the Senior Creditor has purchased the
Senior Notes issued by the Borrower, and the Parent has guaranteed payment and
performance of the Senior Notes pursuant to the Senior Guarantee; and
WHEREAS, it is a condition precedent to the Senior Creditor consenting to
the Borrower's issuance of the Subordinated Notes that the Borrower, Parent and
the Subordinated Noteholders shall have executed and delivered this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereby agree as follows:
Section 1. Definitions.
-----------
1.1 Senior Note Agreement Definitions. Unless otherwise defined herein,
---------------------------------
terms defined in the Senior Note Agreement and used herein shall have the
meanings given to them in the Senior Note Agreement.
1.2 Defined Terms. The following terms shall have the following respective
-------------
meanings when used in this Agreement:
"Agreement" shall mean this Intercreditor and Subordination Agreement.
---------
<PAGE>
"Business Day" shall mean any day that is not a Saturday, a Sunday or a day
------------
on which banks are required or permitted to be closed in the State of New York.
"Credit Parties" shall mean Borrower, Parent and their respective
--------------
Subsidiaries, and their respective successors and assigns.
"exercise of remedies" shall mean any of the following with respect to the
--------------------
Subordinated Obligations; (i) the taking of actions to collect or enforce all or
any part of the Subordinated Obligations or any claims in respect thereof
against any Credit Party or any of its property or assets (except actions for
specific performance of payments specifically permitted under Section 3.1
hereof), (ii) the application of any property or assets of any Credit Party to
the Subordinated Obligations (except payments specifically permitted under
Section 3.1 hereof) or the repossession of, foreclosure on, or the exercise of
any other remedy (judicially or nonjudicially) with respect to any Credit Party
or any of its property or assets; (iii) the taking of control or possession of,
or the exercise of any right of setoff with respect to, any property or assets
of any Credit Party or the sale or other disposition of any interest in such
property or assets; (iv) the taking of any action to interfere with any rights
in respect of such property or assets of Senior Creditor or its ability to
realize upon or otherwise deal with such property or assets; or (v) the
commencement or maintenance of any action, suit or other proceeding at law, in
equity or otherwise in furtherance of any of the foregoing or to otherwise
enforce rights against any Credit Party or any of its property or assets or to
direct the owner of such property or assets to sell or otherwise dispose of any
interest therein. To "exercise remedies" shall mean to take or institute the
-----------------
taking of any exercise of remedies.
"Insolvency Event" shall mean (A) any Credit Party commencing any case,
----------------
proceeding or other action (1) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization, conservatorship or relief of debtors, seeking to have an order
for relief entered with respect to it, or seeking to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to it or its
debts, or (2) seeking appointment of a receiver, trustee, custodian, conservator
or other similar official for it or for all or any substantial part of its
assets, or any Credit Party making a general assignment for the benefit of its
creditors; or (B) there being commenced against any Credit Party any case,
proceeding or other action of a nature referred to in clause (A) above which (1)
results in the entry of an order for relief or any such adjudication or
appointment or (2) remains undismissed, undischarged or unbonded for a period of
30 days; or (C) there being commenced against any Credit Party any case,
proceeding or other action seeking issuance of a warrant of attachment,
execution, distraint or similar process against all or any substantial part of
its assets which results in the entry of an order for any such relief which
shall not have been vacated, discharged, or stayed or bonded pending appeal
within 30 days from the entry thereof; or (D) any Credit Party taking any
corporate action in furtherance of, or indicating its consent to, approval of,
or acquiescence in, any of the acts set forth in clause (A), (B) or (C) above;
or (E) any Credit Party generally not paying, or being unable to pay, or
admitting in writing its inability to pay, its debts as they become due.
"Lien" shall mean any mortgage, deed of trust, pledge, hypothecation,
----
assignment, deposit arrangement, security interest, encumbrance, lien (statutory
or other),
2
<PAGE>
preference, priority or other security agreement or preferential arrangement of
any kind or nature whatsoever.
"Payment or Distribution" shall mean any direct or indirect payment or
-----------------------
distribution of assets of any kind or character, whether in cash, property or
securities, by setoff or otherwise, on or with respect to the Subordinated
Obligations, including any principal of or interest on the Subordinated
Obligations. Payment or Distribution shall not include the issuance of any
Subordinated PIK Notes.
"Person" shall mean any individual, sole proprietorship, partnership, joint
------
venture, trust, unincorporated organization, association, corporation,
institution, public benefit corporation, entity or government (whether Federal,
state, county, city, municipal or otherwise, including any instrumentality,
division, agency, body or department thereof).
"Refinancing Senior Creditor" has the meaning specified in Section 8.13.
---------------------------
"Senior Creditor" shall have the meaning provided in the first paragraph
---------------
hereof and shall be deemed to include any Refinancing Senior Creditor or any
other Person providing replacement or refinancing indebtedness for the then
outstanding Senior Obligations.
"Senior Guarantee" shall mean the Guarantee dated as of September 23,
----------------
1998 made by the Parent and certain Subsidiaries thereof in favor of the Senior
Creditor, as amended, modified or supplemented from time to time.
"Senior Note Agreement" shall mean the Note and Warrant Purchase Agreement
---------------------
dated as of September 23, 1998 by and among Borrower, Parent and Senior
Creditor, as amended, modified or supplemented from time to time, before or
after the date hereof including amendments, modifications, supplements and
restatements thereof giving effect to increases, renewals, extensions,
refundings, deferrals, restructurings, replacements or refinancings of, or
additions to, the arrangements provided in such agreement (whether provided by
the original Senior Creditor under such agreement, by successors or assigns or
by Refinancing Senior Creditor).
"Senior Note Documents" shall mean the collective reference to the Senior
---------------------
Note Agreement, the Senior Notes, the Senior Guarantee, the other Note Documents
and all other documents that from time to time evidence the Senior Obligations
or secure or support payment or performance thereof.
"Senior Notes" shall mean the promissory note or notes of the Borrower
------------
outstanding from time to time under the Senior Note Agreement evidencing the
Senior Obligations.
"Senior Obligations" shall mean the collective reference to the unpaid
------------------
principal of and interest on the Senior Notes and all other Obligations of
Borrower or any other Credit Party to Senior Creditor (including interest
accruing at the then applicable rate provided in the Senior Note Agreement after
the maturity of the Senior Notes and interest accruing at the then applicable
rate provided in the Senior Note
3
<PAGE>
Agreement after the filing of any petition in bankruptcy, or the commencement of
any insolvency, reorganization or like proceeding, relating to any Credit Party,
whether or not a claim for post-filing or post-petition interest is allowed in
such proceeding), whether direct or indirect, absolute or contingent, due or to
become due, or now existing or hereafter incurred, which may arise under, out
of, or in connection with, this Agreement, the Senior Note Documents or any
other document made, delivered or given in connection herewith or therewith, in
each case whether on account of principal, interest, reimbursement obligations,
fees, indemnities, costs, expenses or otherwise (including all fees and
disbursements of counsel to Senior Creditor that are required to be paid by any
Credit Party pursuant to the terms of this Agreement or any Senior Note
Document). This term shall not include, for purposes of the definition of
Termination Date and determining whether all Senior Obligations have been paid
in full, contingent obligations for which no claim then exists but which may
arise in the future solely by virtue of the continued effectiveness after the
Termination Date of indemnities and other obligations under the Senior Note
Documents which expressly survive termination thereof.
"Subordinated Guarantee" shall mean the Pledge and Guarantee Agreement,
----------------------
dated the date hereof, between Newriders and the Subordinated Noteholder, as
amended, modified or supplemented from time to time.
"Subordinated Note Documents" shall mean the collective reference to the
---------------------------
Subordinated Note Agreement, the Subordinated Notes, the Subordinated Guarantee
and any other documents or instruments, if any, that from time to time evidence
the Subordinated Obligations or secure or support payment or performance
thereof.
"Subordinated Notes" shall mean the Increasing Rate Promissory Notes dated
------------------
the date hereof in the original aggregate principal amount of $275,000 issued by
Borrower to Subordinated Noteholder and any Subordinated PIK Notes issued from
time to time.
"Subordinated Note Agreement" shall mean the Securities Purchase Agreement
---------------------------
dated as of the date hereof among Borrower and the Subordinated Noteholder.
"Subordinated Obligations" shall mean, collectively, the unpaid principal
------------------------
of and interest on the Subordinated Notes and all other obligations and
liabilities of Borrower and any other Credit Party to Subordinated Noteholder
(including interest accruing at the then applicable rate provided in the
Subordinated Notes after the maturity of the indebtedness evidenced thereby and
interest accruing at the then applicable rate provided in the Subordinated Notes
after the filing of any petition in bankruptcy, or the commencement of any
insolvency, reorganization or 1ike proceeding, relating to any Credit Party,
whether or not a claim for post-filing or post-petition interest is allowed in
such proceeding, whether direct or indirect, absolute or contingent, due or to
become due, or now existing or hereafter incurred, which may arise under, out
of, or in connection with, this Agreement, the Subordinated Notes Agreement, the
Subordinated Notes, the Subordinated Guarantee or any other Subordinated Note
Document, in each case whether on account of principal, interest, reimbursement
obligations, fees, indemnities, costs, expenses or otherwise (including
4
<PAGE>
all fees and disbursements of counsel to Subordinated Noteholder that are
required to be paid by any Credit Party pursuant to the terms of the
Subordinated Notes, this Agreement, the Subordinated Note Agreement, the
Subordinated Guarantee or any other Subordinated Loan Document).
"Subordinated PIK Notes" shall mean any increasing Rate Promissory Notes
----------------------
issued in payment of interest in kind pursuant to Section 1.3 of the
Subordinated Note Agreement.
"Termination Date" shall mean the date on which the Senior Obligations are
----------------
paid in full and Senior Creditor has no further obligation to extend to any
financial accommodations to any Credit Party.
1.3 Miscellaneous Terms of Construction. The words "hereof, "herein" and
----------------------------------- ------ ------
"hereunder" and words of similar import when used in this Agreement shall refer
---------
to this Agreement, and section and paragraph references are to this Agreement
unless otherwise specified. For purposes of this Agreement, the following
additional rules of construction shall apply: (a) wherever from the context it
appears appropriate, each term stated in either the singular or plural shall
include the singular and the plural, and pronouns stated in the masculine,
feminine or neuter gender shall include the masculine, the feminine and the
neuter; (b) the term "including" shall not be limiting or exclusive, unless
specifically indicated to the contrary; (c) all references to statutes and
related regulations shall include any amendments of same and any successor
statutes and regulations; and (d) all references to any instruments or
agreements, including references to any of this Agreement, the Subordinated Note
Documents and the Senior Note Documents, shall include any and all
modifications, supplements or amendments thereto and any and all extensions or
renewals thereof, in each case, made in accordance with the terms hereof.
1.4 Payment in Full. The expressions "prior payment in full," "payment in
--------------- --------------------- ----------
full," "paid in full" and any other similar terms or phrases when used herein
- ---- ------------
with respect to the Senior Obligations shall mean the indefeasible payment in
full, in immediately available funds, of all of the Senior Obligations and
termination or expiration of any commitments to extend any financial
accommodations to any Credit Party under the Senior Note Documents.
Section 2. Subordination.
-------------
2.1 Subordinated Obligations Subordinated to Senior Obligations. Each of
-----------------------------------------------------------
the Borrower and Subordinated Noteholder agrees, for itself and each future
holder of the Subordinated Obligations, that the payment of the Subordinated
Obligations are and shall be subordinate and subject, to the extent and in the
manner hereinafter set forth, to the prior payment in full of all Senior
Obligations.
2.2 Insolvency Events. Upon any payment or distribution or other transfer
-----------------
of assets of any Credit Party to creditors upon or in connection with any
Insolvency Event:
5
<PAGE>
(a) all Senior Obligations shall be paid in full before any Payment or
Distribution is made or received by Subordinated Noteholder and no part of the
Subordinated Obligations shall have any claim to the assets of any Credit Party
on a parity with or prior to the claim of the Senior Obligations; and
(b) any Payment or Distribution to which Subordinated Noteholder would be
entitled except for the provisions hereof, shall be paid or delivered by the
Credit Parties, or any receiver, trustee in bankruptcy, liquidating trustee,
disbursing agent or other Person making such Payment or Distribution, directly
to Senior Creditor to the extent necessary to pay in full all Senior
Obligations, before any Payment or Distribution shall be made to Subordinated
Noteholder.
2.3 Return of Prohibited Payments. If any Payment or Distribution shall be
-----------------------------
collected or received by Subordinated Noteholder, except payments permitted to
be made at the time of payment as provided in Section 3 hereof, Subordinated
Noteholder forthwith shall deliver the same to Senior Creditor, in the form
received, duly indorsed to Senior Creditor, if required, to be applied in
accordance with the Senior Note Documents to the payment or prepayment of the
Senior Obligations until the Senior Obligations are paid in full. Until so
delivered, such Payment or Distribution shall be held in trust by Subordinated
Noteholder as the property of Senior Creditor, segregated from other funds and
property held by Subordinated Noteholder.
Section 3. Limitations on Payments and Distributions on Subordinated
---------------------------------------------------------
Indebtedness.
- ------------
3.1 Payments; Remedies. Without the express prior written consent of Senior
------------------
Creditor, Subordinated Noteholder will not (i) take, demand or receive from any
Credit Party, and no Credit Party will make, give or permit, any Payment or
Distribution, or (ii) exercise remedies against any Credit Party or any of their
respective assets or property; provided, however, that Credit Parties may make,
-------- -------
and Subordinated Noteholder may receive, (l)(a) scheduled monthly interest
payments at a per annum rate not exceeding 13.0% when due under the Subordinated
Notes, and (b) mandatory prepayments of the Subordinated Notes from Excess Cash
Flow pursuant to the second sentence of Section l.3(e)(ii) of the Subordinated
Note Agreement, provided, that, with respect to the foregoing clauses (a) and
--------
(b), no Default (exclusive of a Default resulting solely from the non-compliance
with Section 9.2, 9.5, 9.6, 9.7, 9.8, 9.9, 9.10, 9.11, 9.12 or 9.13 of the
Senior Note Agreement) or Event of Default shall have occurred and be continuing
or would result after giving effect to any such payment or prepayment; and (2) a
repayment, in whole but not in part, of the Subordinated Notes (together with
accrued interest thereon) with the proceeds of Common Stock issued by the Parent
meeting the requirements of Section 10.8 of the Senior Note Agreement, provided,
--------
that no Default or Event of Default shall have occurred and be continuing or
would result after giving effect to such repayment.
3.2 Acceleration of Senior Obligations and Subordinated Obligations.
---------------------------------------------------------------
Notwithstanding any other provision of this Agreement, following an acceleration
of the maturity of the Senior Obligations and as long as such acceleration shall
continue unrescinded, all Senior Obligations shall first be paid in full in cash
before any Payment or Distribution is made on account of or applied on the
Subordinated Obligations. No
6
<PAGE>
acceleration (other than automatic acceleration upon the occurrence of an
Insolvency Event with respect to any Credit Party) of the maturity of the
Subordinated Notes will be effective until the Senior Obligations have been paid
in full.
3.3 Provisions of Section 2 Control. The provisions of this Section 3 shall
-------------------------------
not be applicable in any case in which the provisions of Section 2 hereof are
applicable.
Section 4. Subrogation. On and after the Termination Date, Subordinated
-----------
Noteholder shall be subrogated to the rights of Senior Creditor to receive
payments or distributions of assets of the Credit Parties in respect of the
Senior Obligations until the Senior Obligations shall be paid in full. For the
purposes of such subrogation, no Payments or Distributions to Senior Creditor to
which Subordinated Noteholder would be entitled except for the provisions of
this Agreement shall be deemed, as between the Credit Parties and their
creditors other than Senior Creditor and Subordinated Noteholder, to be a
payment by the Credit Parties to or on account of the Senior Obligations, it
being understood that the provisions of this Agreement are, and are intended
solely, for the purpose of defining the relative rights of Subordinated
Noteholder, on the one hand, and Senior Creditor, on the other hand.
Section 5. Consent; Waivers; Other Matters.
-------------------------------
5.1 Consent to Amendments, etc. Subordinated Noteholder consents that,
---------------------------
without the necessity of any reservation of rights against him, and without
notice to or further assent by Subordinated Noteholder:
(a) any demand for payment of any Senior Obligations made by Senior
Creditor may be rescinded in whole or in part by Senior Creditor, and the Senior
Obligations, or the liability of any Credit Party or any other party upon or for
any part thereof, or any collateral security or guarantee therefor or right of
offset with respect thereto, or any obligation or liability of any Credit Party
or any other party under the Senior Note Documents or any other agreement, may,
from time to time, in whole or in part, be increased, continued, renewed,
extended, modified, accelerated, compromised, waived, surrendered, or released
by Senior Creditor; and
(b) any Senior Note Document may be amended, modified, supplemented,
terminated or waived, in whole or in part, as Senior Creditor may deem advisable
from time to time, and any collateral security at anytime held by Senior
Creditor for the payment of any of the Senior Obligations may be sold,
exchanged, waived, surrendered or released, in each case all without notice to
or further assent by Subordinated Noteholder, which will remain bound under this
Agreement, and all without impairing, abridging, releasing or affecting the
subordination and other provisions hereof.
5.2 Reliance by Senior Creditor. Subordinated Noteholder acknowledges and
---------------------------
agrees that Senior Creditor has relied upon the subordination and other
provisions hereof in connection with the Senior Note Documents and in purchasing
the Senior Notes thereunder. Subordinated Noteholder waives any and all
7
<PAGE>
notice of the creation, renewal, increase, extension or accrual of any of the
Senior Obligations and notice of or proof of reliance by Senior Creditor upon
this Agreement. The Senior Obligations, and any of them, shall be deemed
conclusively to have been created, contracted or incurred in reliance upon this
Agreement, and all dealings between the Credit Parties and Senior Creditor shall
be deemed to have been consummated in reliance upon this Agreement.
5.3 No Representation by Senior Creditor. Except as provided in Section 6.2
------------------------------------
hereof, Senior Creditor has not made and do not hereby or otherwise make to
Subordinated Noteholder, any representations or warranties, express, or implied,
nor does Senior Creditor assume any liability to Subordinated Noteholder with
respect to: (a) the financial or other condition of the Credit Parties or any
other obligors under any instruments of guarantee, if any, with respect to the
Senior Obligations, (b) the enforceability, validity, value or collectibility of
the Senior Obligations or the Subordinated Obligations, any collateral therefor,
or any guarantee or security which may have been granted in connection with any
of the Senior Obligations or the Subordinated Obligations or the validity,
priority or perfections of any Liens, or (c) any Credit Party's title or right
to any property or assets or to transfer any collateral or security.
5.4 No Waiver of Subordination Provisions. No right of Senior Creditor to
-------------------------------------
enforce the subordination provisions of this Agreement shall at any time in any
way be prejudiced or impaired by any act or failure to act on the part of any
Credit Party or by any act or failure to act by Senior Creditor, or by an
noncompliance by any Person with the terms, provisions and covenants of this
Agreement or any of the Senior Note Documents, regardless of any knowledge
thereof which Senior Creditor may have or be otherwise charged with.
5.5 Waivers. Subordinated Noteholder hereby agrees that (i) Senior Creditor
-------
may exercise remedies against all or part of any collateral it holds as security
for the Senior Obligations in such order as Senior Creditor, in its sole
discretion, elects and (ii) any proceeds of such collateral received by Senior
Creditor may be applied, reversed, and reapplied, in whole or in part, to any of
the Senior Obligations, as Senior Creditor, in its sole discretion, deems
appropriate. Subordinated Noteholder agrees not to assert and hereby waives, to
the fullest extent permitted by law, any right to demand, request, plead or
otherwise assert or otherwise claim the benefit of, any marshaling,
appraisement, valuation or other similar right of a creditor that may otherwise
be available under applicable law or any right to receive notice of Senior
Creditor's intended disposition of such collateral (or a portion thereat) or of
Senior Creditor's proposed retention of such collateral in satisfaction of the
Senior Obligations (or a portion thereof). Neither Senior Creditor nor any of
its directors, officers, employees or agents shall be liable for failure to
demand, collect or realize upon any of such collateral or for any delay in doing
so or shall be under any obligation to sell or otherwise dispose of any such
collateral upon the request of any Credit Party or Subordinated Noteholder or
any other Person or to take any other action whatsoever with regard to any such
collateral or any part thereof. Subordinated Noteholder hereby waives, releases
and discharges any and all rights, claims, causes of action, liabilities, claims
and demands, in law or equity, which Subordinated Noteholder has had, now has,
or may in the future have, arising out of or relating directly or indirectly to
the
8
<PAGE>
taking or not taking of any act or proceeding or not proceeding with any action
which Senior Creditor may take pursuant to the Senior Note Documents or any
other documents or in an effort to collect in respect of the Senior Obligations.
5.6 Amendments to Subordinated Note Documents. Without the prior written
-----------------------------------------
consent of Senior Creditor, no Subordinated Note Document shall be amended,
modified, waived or supplemented.
Section 6. Representations, Warranties and Covenants.
-----------------------------------------
6.1 Representations and Warranties of Subordinated Noteholder. Subordinated
---------------------------------------------------------
Noteholder represents and warrants to Senior Creditor that:
(a) the Subordinated Notes (1) have been issued to it for good and valuable
consideration, (2) are owned by Subordinated Noteholder free and clear of any
Liens whatsoever arising from, through or under Subordinated Noteholder, other
than the interest of Senior Creditor under this Agreement, and (3) are payable
solely and exclusively to Subordinated Noteholder and to no other Person;
(b) Subordinated Noteholder has the limited partnership power and authority
and the legal right to execute and deliver and to perform its obligations under
this Agreement and has taken all necessary limited partnership action to
authorize its execution, delivery and performance of this Agreement; and
(c) this Agreement constitutes a legal, valid and binding obligation of
Subordinated Noteholder.
6.2 Representations and Warranties of Senior Creditor. Senior Creditor
-------------------------------------------------
represents and warrants to Subordinated Noteholder that:
(a) Senior Creditor has the corporate power and authority and the legal right
to execute and deliver and to perform its obligations under this Agreement and
has taken all necessary corporate action to authorize its execution, delivery
and performance of this Agreement; and
(b) this Agreement constitutes a legal, valid and binding obligation of Senior
Creditor.
6.3 Covenants of Subordinated Noteholder. Subordinated Noteholder shall not
------------------------------------
(and hereby releases and waives any right to), without the prior written consent
of Senior Creditor:
(a) permit to exist any Lien on any property or assets of any Credit Party to
secure or provide for payment or performance of the Subordinated Obligations; or
(b) commence or join with any creditors other than Senior Creditor in
commencing any proceeding referred to in the definition "Insolvency Event."
9
<PAGE>
Section 7. Bankruptcy Matters.
------------------
7.1 Bankruptcy. The provisions of this Agreement shall continue in full
----------
force and effect notwithstanding the occurrence of any Insolvency Event.
Subordinated Noteholder agrees that Senior Creditor may consent to the use of
cash collateral or provide financing to any Credit Party on such terms and
conditions and in such amounts as Senior Creditor, in its sole discretion, may
decide and that Subordinated Noteholder shall not contest or oppose in any
manner, such cash collateral use or such financing, and further that in
connection with such cash collateral use or financing any Credit Party (or a
trustee appointed for the estate of any Credit Party) may grant to Senior
Creditor Liens upon all or any part of the assets of such Credit Party, which
Liens (i) shall secure payments of all Senior Obligations (whether such Senior
Obligations arose prior to the filing of the petition for relief or arise
thereafter); and (ii) shall be superior in priority to the Liens on the assets
of such Credit Party held by any other Person. All allocations of payments
between Senior Creditor and Subordinated Noteholder shall, subject to any court
order, continue to be made after the filing of a petition under the United
States Bankruptcy Code, as amended (the "Bankruptcy Code"), or any similar
---------------
proceeding on the same basis that the payments were to be allocated prior to the
date of such filing. Subordinated Noteholder agrees that it will not object to
or oppose a sale or other disposition of any assets securing the Senior
Obligations (or any portion thereof) free and clear of Liens or other claims
under Section 363 of the Bankruptcy Code or any other provision of the
Bankruptcy Code if Senior Creditor has consented to such sale or disposition of
such assets. In the event that Subordinated Noteholder has or at any time
acquires any security for the Subordinated Obligations, Subordinated Noteholder
agrees not to assert any right it may have to "adequate protection" of its
interest in such security in any bankruptcy proceeding and agrees that it will
not seek to have the automatic stay lifted with respect to such security,
without the prior written consent of Senior Creditor. Subordinated Noteholder
waives any claim it may now or hereafter have arising out of Senior Creditor's
election, in any proceeding instituted under Chapter 11 of the Bankruptcy Code,
of the application of Section 1111(b)(2) of the Bankruptcy Code, and/or any
borrowing or grant of a security interest under Section 364 of the Bankruptcy
Code by any Credit Party, as debtor in possession. Subordinated Noteholder (both
in its capacity as Subordinated Noteholder and in its capacity as a party which
may be obligated to the Credit Parties and their respective Affiliates with
respect to contracts which are part of the Senior Creditor's Collateral) agrees
not to initiate or prosecute or encourage any other Person to initiate or
prosecute any claim, action or other proceeding (i) challenging the
enforceability of Senior Creditor's claim or oppose any action by Senior
Creditor to enforce its rights or remedies relating to the Senior Obligations,
(ii) challenging the enforceability, validity, priority or perfected status of
any Liens on assets securing the Senior Obligations or (iii) asserting any
claims which the Credit Parties may hold with respect to Senior Creditor.
Subordinated Noteholder agrees that it will not seek participation or
participate on any creditors' committee without Senior Creditor's prior written
consent. In the event that Senior Creditor consents to such participation, at
the request of Senior Creditor, Subordinated Noteholder will resign from its
position on such committee.
7.2 Invalidated Payments. To the extent tat Senior Creditor receives
--------------------
payments on, or proceeds of collateral for, the Senior Obligations which are
10
<PAGE>
subsequently invalidated, declared to be fraudulent or preferential, set aside
and/or required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law, or equitable cause, then to
the extent of such payment or proceeds received, the Senior Obligations, or part
thereof, intended to be satisfied shall be revived and continue in full force
and effect as if such payments or proceeds had not been received by Senior
Creditor.
7.3 Proof of Claims. Upon the occurrence and during the continuance of any
---------------
Insolvency Event:
(a) Subordinated Noteholder irrevocably authorizes and empowers Senior
Creditor (A) to demand, sue for, collect and receive for and on behalf of
Subordinated Noteholder every Payment or Distribution on account of the
Subordinated Obligations payable or deliverable in connection with such
Insolvency Event and give acquittance therefor, and (B) if proper proof of claim
and other pleadings and motions are not filed by Subordinated Noteholder at
least 30 days prior to the bar date for such filings, to file claims and proofs
of claim in any statutory or non-statutory proceeding against the Credit Parties
on account of the Subordinated Obligations and to vote such proofs of claim in
any such proceeding and take such other actions, in its own name as Senior
Creditor, or in the name of Subordinated Noteholder or otherwise, as Senior
Creditor may deem necessary or advisable for the enforcement of the provisions
of this Agreement; provided, however, that the foregoing authorization and
-------- -------
empowerment imposes no obligation on Senior Creditor to take any such action and
that, in voting such proofs of claim in any such proceeding, Senior Creditor may
act in a manner consistent with their own interests and shall have no duty to
take any action to optimize or maximize Subordinated Noteholder's recovery with
respect to its claim;
(b) Subordinated Noteholder shall take such action, duly and promptly, as
Senior Creditor may request from time to time (A) to demand, sue for, collect
and receive the Subordinated Obligations for the account of Senior Creditor and
(B) to file appropriate proofs of claim and other pleadings and motions in
respect of the Subordinated Obligations; and
(c) Subordinated Noteholder shall execute and deliver such powers of attorney,
assignments or proofs of claim or other instruments as Senior Creditor may
request to enable Senior Creditor to enforce any and all claims in respect of
the Subordinated Obligations and to collect and receive any and all payments and
distributions which may be payable or deliverable at any time upon or in respect
of the Subordinated Obligations.
Section 8. Miscellaneous.
-------------
8.1 Termination. This Agreement shall remain in full force and effect and
-----------
be enforceable against each party hereto according to its terms and shall
terminate upon the Termination Date. This is a continuing agreement of
subordination and Senior Creditor may continue, at any time and without notice
to Subordinated Noteholder to extend credit and other financial accommodations
and lend monies to or for the benefit of any Credit Party on the faith hereof.
Subordinated Noteholder and
11
<PAGE>
Senior Creditor hereby waive any right they may have under applicable law to
revoke this Agreement or any of the provisions of this Agreement.
8.2 Further Assurances. Subordinated Noteholder and each Credit Party, at
------------------
its own expense and at any time from time to time, upon the written request of
Senior Creditor will promptly and duly execute and deliver such further
instruments and documents and take such further actions as Senior Creditor
reasonably may request for the purposes of obtaining or preserving the full
benefits of this Agreement and of the rights and powers herein granted.
8.3 Provisions Define Relative Rights. This Agreement is intended solely
---------------------------------
for the purpose of defining the relative rights of Senior Creditor on the one
hand and Subordinated Noteholder on the other, and no other Person shall have
any right, benefit or other interest under this Agreement.
8.4 Legend. Subordinated Noteholder and the Credit Parties will cause the
------
Subordinated Notes to bear the following legend:
ALL INDEBTEDNESS EVIDENCED BY THIS NOTE IS SUBORDINATED TO OTHER INDEBTEDNESS
PURSUANT TO, AND TO THE EXTENT PROVIDED IN, AND THE RIGHTS OF THE HOLDER OF
THIS NOTE ARE OTHERWISE SUBJECT TO THE TERMS OF, THE INTERCREDITOR AND
SUBORDINATION AGREEMENT, DATED AS OF OCTOBER 14. 1999. AS THE SAME MAY BE
AMENDED, MODIFIED OR OTHERWISE SUPPLEMENTED FROM TIME TO TIME (THE
"INTERCREDITOR AGREEMENT"), BY AND AMONG NOMURA HOLDING AMERICA INC., SIENA
CAPITAL PARTNERS, L.P., PAISANO PUBLICATIONS, INC. AND EASYRIDERS, INC. THE
TERMS OF THE INTERCREDITOR AGREEMENT ARE HEREBY INCORPORATED BY REFERENCE INTO
THIS NOTE AS IF SET FORTH IN FULL HEREIN.
8.5 Powers Coupled With An Interest. All powers, authorizations and agencies
-------------------------------
contained in this Agreement are coupled with an interest and are irrevocable
until termination of this Agreement.
8.6 Specific Performance. Senior Creditor is hereby authorized to demand
--------------------
specific performance of this Agreement at any time when Subordinated Noteholder
shall have failed to comply with any of the provisions of this Agreement
applicable to Subordinated Noteholder, whether or not the Credit Parties shall
have complied with any of the provisions hereof applicable to the Credit
Parties, and Subordinated Noteholder hereby irrevocably waives any defense based
on the adequacy of a remedy at law which might be asserted as a bar to such
remedy of specific performance.
8.7 Notices. Except as otherwise provided herein, whenever it is provided
-------
herein that any notice, demand, request, consent, approval, declaration or other
communication shall or may be given to or served upon any of the parties by any
other party, or whenever any of the parties desire to give or serve upon any
other party any communication with respect to this Agreement, each such notice,
demand, request,
12
<PAGE>
consent, approval, declaration or other communication shall be in writing and
shall be given in the manner as provided for in Section 14.5 of the Senior Note
Agreement; provided that any notice to the Subordinated Noteholder shall be at
its address or transmission number for notices set forth under its signature
below.
8.8 Counterparts. This Agreement may be executed by one or more of the
------------
parties on any number of separate counterparts, and all of said counterparts
taken together shall be deemed to constitute one and the same instrument.
8.9 Severability. Any provision of this Agreement which is prohibited or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
8.10 Integration. This Agreement represents the agreement of Senior
-----------
Creditor and Subordinated Noteholder with respect to the subject matter hereof
and there are no promises or representations by Senior Creditor or Subordinated
Noteholder relative to the subject matter hereof not reflected herein.
8.11 Amendments in Writing; No Waiver; Cumulative Remedies.
-----------------------------------------------------
(a) None of the terms or provisions of this Agreement may be waived, amended,
supplemented or otherwise modified, except by a written instrument executed by
Senior Creditor, Subordinated Noteholder, the Borrower and the Parent; provided
that any provision of this Agreement may be waived by Senior Creditor in a
letter or agreement executed by Senior Creditor or by telex or facsimile
transmission from Senior Creditor.
(b) No failure to exercise, nor any delay in exercising, on the part of
Senior Creditor, any right, power or privilege hereunder shall operate as a
waiver thereof. No single or partial exercise of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege.
(c) The rights and remedies herein provided are cumulative, may be exercised
singly or concurrently and are not exclusive of any other rights or remedies
provided by law.
8.12 Section Headings. The section headings used in this Agreement are for
----------------
convenience of reference only and are not to affect the construction hereof or
be taken into consideration in the interpretation hereof.
8.13 Successors and Assigns: Refinancing of Senior Obligations. This Agreement
---------------------------------------------------------
shall be binding upon Subordinated Noteholder and the Credit Parties and their
respective successors and assigns and shall inure to the benefit of Senior
Creditor and its successors and assigns. Neither Subordinated Noteholder nor
Borrower may assign its rights or delegate its obligations hereunder, except to
the extent permitted
13
<PAGE>
with respect to the Subordinated Noteholder by the immediately succeeding
sentence of this Section 8.13. Subordinated Noteholder shall not, without the
prior written consent of Senior Creditor, sell, assign, or otherwise transfer,
in whole or in part, the Subordinated Obligations to any other Person (a
"Transferee") or create, incur or suffer to exist any Lien whatsoever upon the
----------
Subordinated Obligations in favor of any Transferee unless (1) such action is
made expressly subject to this Agreement and (2) the Transferee expressly
acknowledges to Senior Creditor, by a writing in form and substance reasonably
satisfactory to Senior Creditor, the subordination provided for herein and
agrees to be bound by all of the terms hereof. In the event that any Person
("Refinancing Senior Creditor") at any time hereafter extends credit to any
---------------------------
Credit Party and the proceeds of such extension of credit are applied to the
repayment of all of the Senior Obligations then all indebtedness and liabilities
of the Credit Parties to the Refinancing Senior Creditor and the Refinancing
Senior Creditor shall be entitled to the benefits of this Agreement to the same
extent as the Senior Obligations and Senior Creditor, and Subordinated
Noteholder and the Credit Parties shall promptly execute and deliver any
agreement which the Refinancing Senior Creditor shall reasonably request with
respect thereto confirming the terms and conditions of this Agreement in favor
of the Refinancing Senior Creditor.
8.14 Senior Obligations Unconditional. All rights and interests of Senior
--------------------------------
Creditor hereunder, and all agreements and obligations of Subordinated
Noteholder and the Credit Parties hereunder, shall be absolute and irreversible
notwithstanding (a) any lack of validity or enforceability of any Senior Note
Document; (b) any change in time, manner or place of payment of, or in any other
term of, all or any of the Senior Obligations, any increase in the amount of the
Senior Obligations, or any amendment or waiver or other modification, whether by
course of conduct or otherwise, of the terms of any Senior Note Document; (c)
any exchange, release or nonperfection of any security interest in any
collateral, or any release, amendment, waiver or other modification, whether in
writing or by course of conduct or otherwise, of all or any of the Senior
Obligations or any guarantee thereof; or (d) any other circumstances which
otherwise might constitute a defense available to, or a discharge of, any Credit
Party in respect of the Senior Obligations, or of Subordinated Noteholder or any
Credit Party in respect of this Agreement. To the maximum extent permitted by
law, Subordinated Noteholder waives any claim it might have against Senior
Creditor with respect to, or arising out of, any action or failure to act or any
error of judgment, negligence, or mistake or oversight whatsoever on the part of
Senior Creditor or its directors, officers, employees or agents with respect to
any exercise of rights or remedies or other action or failure to act under or in
connection with the Senior Note Documents.
8.15 GOVERNING LAW: CONSENT TO JURISDICTION AND VENUE. THIS AGREEMENT AND THE
------------------------------------------------
OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS
MADE AND PERFORMED IN SUCH STATE, AND ANY APPLICABLE LAWS OF THE UNITED STATES
OF AMERICA. EACH OF THE PARTIES HERETO HEREBY CONSENTS AND AGREES THAT THE STATE
OR FEDERAL COURTS LOCATED IN NEW YORK CITY SHALL HAVE EXCLUSIVE JURISDICTION TO
HEAR AND DETERMINE ANY CLAIMS
14
<PAGE>
OR DISPUTES AMONG THE PARTIES HERETO PERTAINING TO THIS AGREEMENT OR TO ANY
MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT, PROVIDED, THAT THE PARTIES
--------
HERETO ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A
COURT LOCATED OUTSIDE OF NEW YORK CITY AND, PROVIDED, FURTHER, THAT NOTHING IN
-------- -------
THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE SENIOR CREDITOR FROM
BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE
ON ANY SECURITY FOR THE SENIOR OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER
COURT ORDER iN FAVOR OF SENIOR CREDITOR. EACH OF THE PARTIES HERETO EXPRESSLY
SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT
COMMENCED IN ANY SUCH COURT, AND EACH OF THE PARTIES HERETO HEREBY WAIVES ANY
OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER
VENUE OR FORUM NON CONVENIENS. EACH OF THE PARTIES HERETO HEREBY WAIVES PERSONAL
--------------------
SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION
OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY
BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO IT AT THE ADDRESS SET FORTH
HEREIN, AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF
SUCH PARTY'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S.
MAILS, PROPER POSTAGE PREPAID.
8.16 MUTUAL WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION WITH
---------------------------
COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN
EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL
LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR
DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO
ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF
ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER SOUNDING IN
CONTRACT, TORT, OR OTHERWISE, BETWEEN THE PARTIES ARISING OUT OF, CONNECTED
WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN
CONNECTION WITH, THIS AGREEMENT OR THE TRANSACTIONS RELATED THERETO.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered as of the day and year first above written,
Senior Creditor:
---------------
NOMURA HOLDING AMERICA INC.
By: /s/ John Toffolon
--------------------------------
Name: John Toffolon
Title: Chief Financial Officer
Subordinated Noteholder:
-----------------------
SIENA CAPITAL PARTNERS, L.P.,
a California limited partnership
By: Charleville Capital, L.P.,
a California limited partnership,
its general partner
By: Aneis Advisors, Inc.,
a California corporation,
its general partner
By: /s/ Chris Shepard
---------------------------
Name: Chris Shepard
Title: V.P.-Secretary
Notice Information:
------------------
150 South Rodeo Drive, Suite 100
Beverly Hills, California 90212
Attention: Christopher P. Shepard
Telephone: (310) 246-3700
Telecopier: (310) 246-3672
<PAGE>
Borrower:
--------
PAISANO PUBLICATIONS, NC.
By: /s/ J. Robert Fabregas
----------------------------------
Name: J. Robert Fabregas
Title: Secretary
Parent:
------
EASYRIDERS, INC.
By: /s/ J. Robert Fabregas
----------------------------------
Name: J. Robert Fabregas
Title: Chief Financial Officer
<PAGE>
CONSENT AND WAIVER UNDER
------------------------
NOTE AND WARRANT PURCHASE AGREEMENT
-----------------------------------
CONSENT AND WAIVER, dated as of October 14, 1999 (this "Consent"), to the Note
-------
and Warrant Purchase Agreement referred to below by and among EASYRIDERS, INC.
(the "Parent"), PAISANO PUBLICATIONS, INC, (as successor by merger with
------
Easyriders Sub II, Inc.) (the "Company") and NOMURA HOLDING AMERICA INC. (the
-------
"Purchaser").
---------
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Parent, the Company and the Purchaser are parties to that certain
Note and Warrant Purchase Agreement, dated as of September 23, 1998 (as amended,
supplemented or otherwise modified from time to time, the "Note Purchase
-------------
Agreement");
- ---------
WHEREAS, the Company and Siena Capital Partners, L.P., a California limited
partnership ("Siena"), have agreed to consummate a transaction (the
-----
"Transaction") whereby (x) Siena will make a loan (the "Subordinated Loan") to
----------- -----------------
the Company of up to $275,000 which will be evidenced by an Increasing Rate
Secured Promissory Note, dated the date hereof, issued by the Company to Siena
(together with any Increasing Rate Secured Promissory Notes issued in payment of
interest in kind, the "Subordinated Notes"), pursuant to the terms of the
------------------
Securities Purchase Agreement, dated the date hereof, between the Company and
Siena and attached hereto as Annex I (the "Securities Purchase Agreement"), (y)
------- -----------------------------
the Parent will issue warrants (the "Siena Warrants") to purchase shares of the
--------------
Parent's Common Stock pursuant to the Securities Purchase Agreement and the
Warrant Agreement, dated the date hereof, between the Parent and Siena (the
"Warrant Agreement") and (z) Newriders will guarantee payment and performance of
-----------------
the Subordinated Notes pursuant to the Pledge and Guarantee Agreement, dated the
date hereof, between Newriders and Siena (the "Subordinated Guarantee"); and
----------------------
WHEREAS, the Purchaser has agreed to consent to the consummation of the
Transaction and to certain related actions, in each case which are otherwise
prohibited under the Note Purchase Agreement, in the manner, and on the terms
and conditions, provided for herein;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt, adequacy and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
<PAGE>
1. Definitions. Capitalized terms not otherwise defined herein shall have
-----------
the meanings ascribed to them in the Note Purchase Agreement.
2. Consent and Waiver.
------------------
(a) Consent. (1) Notwithstanding the provisions of Sections 10.1
-------
(Indebtedness), 10.2 (Liens), 10.7 (Restricted Payments and Restricted
Investments), 10.8 (Issuance of Capital Stock), 10.9 (Transactions with
Affiliates), and 10.13 (Limitation on Dividend Restrictions Affecting
Subsidiaries) of the Note Purchase Agreement, the Purchaser consents to the
Parent and the Company consummating the Transaction, provided that:
-------------
(i) 100% of the proceeds of the Subordinated Loan are concurrently
distributed by the Company as an intercompany loan to the Parent for its
operating expenses and that such intercompany loan is evidenced by a
subordinated demand note (the "Intercompany Note"), in form and substance
-----------------
(including the terms of the subordination provisions) satisfactory to the
Purchaser, which note shall be pledged and delivered to the Purchaser
pursuant to the Security Agreement as additional collateral for the
Obligations;
(ii) the principal amount of the Intercompany Note shall reduce, on a
dollar for dollar basis, (x) the $5,000,000 basket for retained Net Cash
Proceeds and the $2,000,000 basket for operating costs, in each case as set
forth in Section 3.1(d) of the Note Purchase Agreement and (y) the
Permitted Subordinated Indebtedness Amount;
(iii) no payments shall be made, and no other action shall be taken, in
contravention of the Intercreditor and Subordination Agreement (as defined
below); and
(iv) failure to comply with clause (iii) of this proviso shall
constitute an immediate Event of Default under the Note Purchase Agreement.
(2) So long as no Default or Event of Default has occurred and is
continuing and to the extent permitted by the Intercreditor and Subordination
Agreement referred to in Section 5(e), the Purchaser hereby further consents
to the prepayment of the Subordinated Loan, together with accrued interest
thereon, in whole but not in part with the proceeds of Common Stock issued by
the Parent meeting the requirements of Section 10.8 of the Note Purchase
Agreement; provided that for purposes of Section 3.1(d) of the Note Purchase
--------
Agreement, the proceeds of such Common Stock shall not be required to be
applied to repay Term Loans to the extent of the principal amount of the
Subordinated Loan (plus any accrued interest) outstanding at the time of such
refinancing. Any prepayment of the Subordinated Loan in accordance with this
paragraph shall not constitute a
-2-
<PAGE>
Restricted Payment under paragraph (d) of the definition of "Restricted
Payment" in the Note Purchase Agreement.
(b) Waiver. The Purchaser hereby waives the requirement, as provided in the
------
second sentence of Section 3.1(d) of the Note Purchase Agreement, that the
proceeds of the Subordinated Loan be applied to repay Term Notes.
3. Acknowledgment of Anti-Dilution Adjustments. The Credit Parties hereby
-------------------------------------------
acknowledge that (x) the consummation of the Transaction, the issuance of the
Siena Warrants, and the increases in the "Exercise Quantity" under and as
defined therein shall result in certain adjustments from time to time thereafter
with respect to the Warrants (under and as defined in the Note Purchase
Agreement) pursuant to Section 4 thereof, and (y) promptly after each such
adjustment (including, without limitation, the adjustment resulting from the
vesting, if any, on April 14,2000 of the Siena Warrants issued on the Consent
Effective Date), the Parent shall cause its Chief Financial Officer to prepare
and deliver an officer's certificate describing each such adjustment pursuant
to, and as more fully described in, Section 5 of the Warrants.
4. Representations and Warranties. To induce the Purchaser to enter into
------------------------------
this Consent, each of the Parent and the Company, jointly and severally, hereby
represents and warrants to the Purchaser that:
(a) Corporate Power. The execution, delivery and performance of this Consent
---------------
are within its corporate power and have been duly authorized by all necessary
corporate and shareholder action.
(b) Due Execution and Delivery. This Consent has been duly executed and
--------------------------
delivered by or on behalf of each of the Parent and the Company.
(c) Binding Effect. This Consent constitutes a legal, valid and binding
--------------
obligation of each of the Parent and the Company enforceable against such
Person, in accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally and by general equitable principles
(whether enforcement is sought by proceedings in equity or at law).
(d) No Defaults. No Default or Event of Default has occurred and is
-----------
continuing after giving effect to the waivers set forth in Section 2(b) hereof.
(e) Representations and Warranties True. The representations and warranties
-----------------------------------
of the Parent and the Company contained in the Note Purchase Agreement and each
other Note Document (including without limitation the Note Documents delivered
pursuant to this Consent) shall be true and correct on and as of the Consent
Effective Date with the same effect as if such representations and warranties
had been made on and as of such date, except that any such representation or
warranty which is expressly made only as of a specified date need be true only
as of such date.
-3-
<PAGE>
5. Effectiveness. This Consent shall become effective as of October 14,
-------------
1999 (the "Consent Effective Date") only upon satisfaction in full in the
----------------------
judgment of the Purchaser of each of the following conditions on or prior to
October 14, 1999:
(a) Consent. The Purchaser shall have received four (4) original copies of
-------
this Consent duly executed and delivered by the Parent and the Company.
(b) Representations and Warranties True. The representations and warranties
-----------------------------------
of the Parent and the Company contained in this Consent shall be true and
correct on and as of the Consent Effective Date.
(c) Proceedings Satisfactory. All corporate and other proceedings taken or
------------------------
to be taken in connection with the transactions contemplated hereby and all
documents incident thereto shall be reasonably satisfactory in form and
substance to the Purchaser and its special counsel, and the Purchaser and its
special counsel shall have received all such counterpart originals or certified
or other copies of such documents as they may reasonably request, including
certificates as to the incumbency and signatures of each of the officers of the
Parent and the Company who shall execute this Consent on behalf of such Person.
(d) Fees. On or before the Consent Effective Date, the Company shall have
----
paid to the Purchaser all costs and expenses owing in connection with the
preparation of this Consent (including, without limitation, any legal fees and
expenses).
(e) Intercompany Note: Transaction Documents: Subordination Agreement.
-----------------------------------------------------------------
The Purchaser shall have received from the Company (i) the Intercompany Note
accompanied by a note power satisfactory to the Purchaser and duly executed by
the Company in blank, (ii) true and correct copies of the Securities Purchase
Agreement and each of the documents and instruments executed in connection
therewith (including, without limitation, the Subordinated Notes, the Siena
Warrant, the Warrant Agreement and the Subordinated Guarantee), and (iii) a duly
executed and delivered Intercreditor and Subordination Agreement, in the form of
Annex II hereto, with respect to the Subordinated Notes (the "Intercreditor and
-----------------
Subordination Agreement").
- -----------------------
6. No Other Amendments/Waivers. Except as expressly modified in Section 2
---------------------------
hereof; the Note Purchase Agreement shall be unmodified and shall continue to be
in full force and effect in accordance with its terms. In addition, except as
expressly provided in Section 2(b) hereof, this Consent shall not be deemed a
waiver of any term or condition of the Note Purchase Agreement or any Note
Document and shall not be deemed to prejudice any right or rights which the
Purchaser may now have or may have in the future under or in connection with the
Note Purchase Agreement or any Note Document or any of the instruments or
agreements referred to therein, as the same may be amended from time to time.
7. GOVERNING LAW. THIS CONSENT SHALL BE GOVERNED BY, CONSTRUED AND
-------------
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
-4-
<PAGE>
8. Counterparts. This consent may be executed by the parties hereto
------------
on any number of separate counterparts and all of said counterparts taken
together shall be deemed to constitute one and the same instrument.
[Signature pages follow.]
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Consent to
be duly executed and delivered as of the day and year first above written.
EASYRIDERS, INC.
By: /s/ J. Robert Fabregas
-------------------------------
Name: J. Robert Fabregas
Title: Chief Financial Officer
PAISANO PUBLICATIONS, INC. (as
successor by merger with EASYRIDERS
SUB II, INC.)
By: /s/ J. Robert Fabregas
-------------------------------
Name: J. Robert Fabregas
Title: Secretary
NOMURA HOLDING AMERICA INC.
By: /s/ John Toffolon
-------------------------------
Name: John Toffolon
Title: Chief Financial Officer
Each of the undersigned hereby acknowledges
and consents to the consents and waivers to
the Note Purchase Agreement effected by this
Consent and hereby confirms and agrees that
its obligations under the Note Documents
shall continue without any diminution thereof
and shall remain in full force and effect
without amendment or modification on and
after the effectiveness of this Consent.
<PAGE>
ACKNOWLEDGED, CONSENTED and
AGREED to as of the date first written above.
EASYRIDERS OF COLUMBUS, INC.
By: /s/ J. Robert Fabregas
--------------------------------
Name: J. Robert Fabregas
Title: Secretary
EASYRIDERS FRANCHISING, INC.
By: /s/ J. Robert Fabregas
--------------------------------
Name: J. Robert Fabregas
Title: Secretary
TERESI, INC.
By: /s/ J. Robert Fabregas
--------------------------------
Name: J. Robert Fabregas
Title: Secretary
BROS CLUB, INC.
By: /s/ J. Robert Fabregas
--------------------------------
Name: J. Robert Fabregas
Title: Secretary
ASSOCIATED RODEO RIDERS ON WHEELS
By: /s/ J. Robert Fabregas
--------------------------------
Name: J. Robert Fabregas
Title: Secretary
<PAGE>
Annex I
-------
Securities Purchase Agreement
<PAGE>
Annex II
--------
Intercreditor and Subordination Agreement
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the day and year first above written.
Senior Creditor:
---------------
NOMURA HOLDING AMERICA INC.
By: /s/ John Toffolon
_______________________
Name: John Toffolon
Title: Chief Financial Officer
Subordinated Noteholder:
-----------------------
SIENA CAPITAL PARTNERS, L.P.,
a California limited partnership
By: Charleville Capital, L.P.,
a California limited partnership,
its general partner
By: Anals Advisers, Inc.
a California corporation,
its general partner
By: /s/ Chris Shepard
____________________
Name: Chris Shepard
Title: VP-Secretary
Notice Information:
------------------
150 South Rodeo Drive, Suite 100
Beverly Hills, California 90212
Attention: Christopher P. Shepard
Telephone: (310) 246-3700
Telecopier: (310) 246-3672
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE INTERIM
CONSOLIDATED FINANCIAL STATEMENTS OF EASYRIDERS, INC. AND AS OF AND FOR THE NINE
MONTH PERIOD ENDED SEPTEMBER 30, 1999 INCLUDED IN THIS REPORT ON FORM 10-Q AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 112,242
<SECURITIES> 0
<RECEIVABLES> 3,521,444
<ALLOWANCES> 445,442
<INVENTORY> 3,957,067
<CURRENT-ASSETS> 9,677,400
<PP&E> 8,538,599
<DEPRECIATION> 3,318,709
<TOTAL-ASSETS> 77,276,400
<CURRENT-LIABILITIES> 15,598,327
<BONDS> 1,316,667
0
0
<COMMON> 22,611
<OTHER-SE> 24,526,279
<TOTAL-LIABILITY-AND-EQUITY> 77,276,400
<SALES> 33,692,909
<TOTAL-REVENUES> 33,692,909
<CGS> 26,981,972
<TOTAL-COSTS> 13,006,158
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,679,323
<INCOME-PRETAX> (8,790,101)
<INCOME-TAX> 6,225
<INCOME-CONTINUING> (8,796,326)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,796,326)
<EPS-BASIC> (.41)
<EPS-DILUTED> (.41)
</TABLE>
