<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
FORM 10-K/A
________________
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-14509
---------
EASYRIDERS, INC.
----------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 33-0811505
- -------------------------------------------- ---------------------------------------
33-0811505 (I.R.S. Employer Identification No.)
(State or other jurisdiction of
incorporation or organization)
91301
28210 Dorothy Drive ----------------------------------------
Agoura Hills, California (Zip Code)
- --------------------------------------------
(Address of principal executive office)
</TABLE>
Registrant's telephone number, including area code: (818) 889-8740
-------------
Securities registered pursuant to Section 12(b) of the Act: Common Stock, $.001
par value per share
Securities registered pursuant to Section 12(g) of the Act: None
<PAGE>
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
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ].
The aggregate market value of the voting stock held by non-affiliates of
the registrant, based upon the average bid and asked prices of such stock on
April 16, 1999, was $11,120,694. There were 23,308,685 shares of Common Stock
outstanding as of April 16, 1999.
2
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Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
DIRECTORS
Mr. John E. Martin, age 54, has been Chairman of the Easyriders Inc.
("Easyriders" or the "Company") Board of Directors since June 1998 and was the
Chairman of the Newriders, Inc. ("Newriders") Board of Directors from July 1997
until September 1998. He served as Chief Executive Officer of Newriders from
July 1997 until October 1997. From October 1996 until June 1997, Mr. Martin was
Chairman and Chief Executive officer of PepsiCo. Casual Dining International, a
division of PepsiCo. In October 1995, Mr. Martin became Chairman of Taco Bell
Corp. where he also served as Chief Executive Officer from August 1983 until his
departure in October 1996. Mr. Martin is a member of the Educational Foundation
of the National Restaurant Association's Board of Trustees, and is a founding
member of the Chief Executive Round Table at the University of California,
Irvine. Mr. Martin is a director of The Good Guys, Inc., Williams-Sonoma, Inc.,
Franchise Mortgage Acceptance Company, LLC ("FMAC") and Chevy's Mexican
Restaurants, Inc.
Mr. William E. Prather, age 51, has been the President and Chief Executive
Officer of Easyriders since September 1998 and was the President and Chief
Executive Officer of Newriders from October 1997 until September 1998. Mr.
Prather has served as a director of Easyriders since June 1998. Mr. Prather is
the founder and President of M & B Restaurants, L.C. and was the Chief Executive
Officer of Furr's Bishop's Cafeteria, Inc. from February 1992 to October 1994.
Mr. Prather has served as Chief Executive officer of Hardee's and has been
employed by Burger King in various capacities including Regional Manager, Head
of European Operations and Executive Vice President of Worldwide Operations.
Mr. Wayne L. "Buz" Knyal, age 52, has served as a director of Easyriders
since September 1998 and was a director of Newriders from August 1997 until
September 1998. Mr. Knyal has been the President, Chief Executive Officer and a
Director of FMAC since its inception in June 1995. Prior to founding FMAC's
predecessor in 1991, Mr. Knyal founded and owned CBI Insurance Services, Inc.
and concurrently served as President of CBI Mortgage Company, a residential
mortgage banker.
Mr. Daniel J. Gallery, age 44, has served as a director of Easyriders since
September 1998 and was a director of Newriders from August 1997 until September
1998. Mr. Gallery is a co-founder of Carts of Colorado, Inc., which is engaged
in mobile and modular merchandising and the utilization of non-traditional
locations for food service operations, including airports, stadiums and arenas,
convenience stores, and golf courses. Mr. Gallery continues as Executive Vice
President for Carts of Colorado, Inc., a position he has held for a period of
more than five years. He is a member of the Board of Directors of Cohabaco
Cigar Company, a private venture engaged in cigar marketing, Monterey Pasta
Company, a pasta manufacturing company, and the National Association of
Concessionaires.
3
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Mr. Joseph Teresi, age 58, has served as a director of Easyriders since
September 1998. He founded Paisano Publications, Inc ("Paisano Publications") in
1970 and since 1986 has been the sole shareholder of Paisano Publications. He
has served as Chairman of the Board of Directors of Paisano Publications and
certain other companies affiliated with Paisano Publications (the "Paisano
Companies") for more than the past five years.
Ms. Ellen Meagher, age 45, has served as a director of Easyriders since
September 1998 and is a director of Paisano Publications. Ms. Meagher joined
Paisano Publications in 1986 and has held positions as Controller, Treasurer,
Chief Financial Officer and Chief Operating Officer. Ms. Meagher is also
Secretary and Director of Easyriders Franchising and President of Easyriders of
Columbus.
Mr. Robert Davis, age 51, has served as a director of Easyriders since
September 1998 and is currently the Vice President of Finance of Paisano
Publications. Mr. Davis has been with Paisano Publications since January, 1993.
Mr. Davis is also Treasurer and Director of Easyriders Franchising and Treasurer
of Easyriders of Columbus.
Mr. Joseph J. Jacobs, age 74, has served as a director of Easyriders since
September 1998 and has been an independent legal counsel on merger and
acquisition matters for the Paisano Companies since 1992. Mr. Jacobs has served
as General Counsel of Graphic Scanning Corp. and Ram/BSE LP and has served in
various legal positions with American Broadcasting Company, Metromedia, Inc.,
United Artists Broadcasting, ITT Corporation's Communications Operations Group,
ITT World Communications, Inc. and United States Transmission Systems, Inc.
EXECUTIVE OFFICERS
The executive officers of the Company are its senior elected officers and
serve for terms of office determined by the Board. Biographical summaries of the
business experience of Mr. Martin, Chairman of the Board and Mr. Prather,
President and Chief Executive Officer, are included above. The name, age, and
biographical information with respect to the other executive officer are as
follows:
J. Robert Fabregas, Executive Vice President, Chief Financial Officer and
Secretary, age 53, was appointed the Executive Vice President, Chief Financial
Officer and Secretary of the Company in January 1999. Mr. Fabregas was the
President of Stonepine Holdings, Limited from June 1988 to December 1998. Mr.
Fabregas served as a director of Numex Corporation from March 1998 through
December 1998.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors, and persons who own more than ten percent
of a registered
4
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class of the Company's equity securities, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission (the "SEC") and
the American Stock Exchange. Officers, directors and greater than ten-percent
stockholders are required by SEC regulations to furnish the Company with copies
of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no forms were
required for those persons, the Company believes that, during fiscal 1998,
Joseph Teresi, William Prather and Ellen Meagher, directors of the Company,
failed to file on a timely basis one report covering the purchase of 100 shares
of Common Stock each on September 24, 1998.
Item 11. Executive Compensation
----------------------
EXECUTIVE COMPENSATION
The following table summarizes all compensation for services to the Company
and its subsidiaries for the fiscal years ended December 31, 1998, 1997 and 1996
earned by or awarded or paid to the persons who were the chief executive officer
and the other officers of the Company whose compensation exceeded $100,000
during 1998 (the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
-----------------
Annual Compensation Annuals
-----------------
Securities
Underlying
Options/ All Other
Name SARs (#) Compensation
and Principal Position Year Salary ($) Bonus ($) ($)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
John E. Martin, 1998 $222,917 /1/ $212,143 /7/ -- --
Chairman of the Board
of Directors 1997 $114,583 /1/ -- 2,000,000 /5/ $ 75,000 /6/
1996 -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
William E. Prather, 1998 $200,000 /2/ -- -- --
President, Chief Executive Officer
and Director 1997 $ 41,667 /2/ -- 750,000 /5/ --
1996 -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
William R. Nordstrom, Executive 1998 $150,000 /3/ -- -- $616,000 /4/
Vice President of Finance and
Administration 1997 $ 62,500 /3/ -- -- --
1996 -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
5
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/1/ In July 1997, Mr. Martin became Chairman of the Board of Directors of
Newriders and the interim Chief Executive Officer (a position he held until
October 1997) at an annual base salary of $250,000. Mr. Martin's salary for
1997 accrued during the year, and was paid in January 1998. Mr. Martin
agreed to a reduction of his salary to $150,000 per year which became
effective on September 23, 1998.
/2/ In October 1997, Mr. Prather became the President and Chief Executive
Officer of Newriders at an annual base salary of $200,000. Mr. Prather's
salary for 1997 accrued during the year, and was paid in January 1998.
/3/ In August 1997, Mr. Nordstrom became the Executive Vice President of
Finance and Administration of Newriders at an annual base salary of
$150,000. Mr. Nordstrom's salary for 1997 accrued during the year, and was
paid in January 1998.
/4/ In September 1998, the Company issued Mr. Nordstrom 200,000 shares of
Easyriders, Inc. Common Stock as compensation for services performed
related to the acquisitions of Paisano Publications and M & B Restaurants,
L.C. The fair value of the stock was $616,000 at the time of issuance.
/5/ These options held by Messrs. Martin and Prather were relinquished on
September 23, 1998.
/6/ Fair market value of 50,000 shares of Newriders Common Stock at the time of
issuance.
/7/ Annual Incentive Award for 1998 under the Company's 1998 Executive
Incentive Compensation Plan. See "Long Term Incentive Awards" below.
DIRECTOR COMPENSATION
The Company's directors do not receive any compensation for service on the
Company's Board of Directors or any committee thereof but are reimbursed for
expenses incurred in connection with attending meetings of the Company's Board
of Directors and any committee thereof. John Martin has been separately
compensated for his services as a director with 25,000 shares of Common Stock.
LONG TERM INCENTIVE PLAN AWARDS
The following table and related footnotes set forth certain information for
the year ended December 31, 1998 concerning the grant of bonuses to John Martin,
the Chairman of the Board, under the Company's 1998 Executive Incentive
Compensation Plan.
6
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<TABLE>
<CAPTION>
Performance or
Number of Other Period
Shares, Units Until
or Other Maturation or Estimated Future Payouts under Non-Stock Price-
Name Rights (#) Payout Based Plans
----------------------------------------------------
Threshold Target Maximum
($ or #) ($ or #) ($ or #)
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
John E. Martin /1/ N/A 1/1/99 - $0 $ 4,976,071 /3/ $ 4,976,071 /3/
9/23/03
John E. Martin /2/ N/A 9/23/98 - $0 $13,000,000 $13,000,000
9/23/03
</TABLE>
/1/ Mr. Martin has the ability to earn annual cash bonuses under the Company's
1998 Executive Incentive Compensation Plan (the "Annual Incentive
Awards"), if the Company achieves specified EBITDA Targets. The amount of
the Annual Incentive Award is equal to (1) the total amount of interest
that Mr. Martin is obligated to pay in cash to the Company for such year
on two promissory notes in the total amount of $7,300,000 (the "Martin
Notes"), multiplied by (2) a fraction, the numerator of which is one and
the denominator of which is one minus the highest marginal rate for
federal, state and local income taxes applicable to Mr. Martin in the year
that the bonus is paid. For the 1999 calendar year the EBITDA Target is
125% of EBITDA for the 1998 calendar year. For each subsequent calendar
year, the EBITDA Target is 125% of the average EBITDA for the two calendar
years immediately prior to such calendar year.
/2/ Mr. Martin also has the ability to earn a one-time bonus under the
Company's 1998 Executive Incentive Compensation Plan equal to (1) the
amount of principal and accrued interest then remaining on the Martin
Notes, multiplied by (2) a fraction, the numerator of which is one and the
denominator of which is one minus the highest marginal rate for federal,
state and local income taxes applicable to Martin in the year the bonus is
paid, up to a maximum of $13,000,000, if and when Paisano Publications
repays in full (a) all amounts due pursuant to the Credit Agreement, and
(b) the Contributor Notes (as defined below under "Certain Relationships
and Related Transactions"), provided the Company has achieved certain
predetermined levels of earnings during the prior year (generally, for
1999, positive EBITDA during 1998; and for each year thereafter, at least
80% of the Annual EBITDA Target for the prior year or for each of the
second and third years preceding such year).
/3/ Assumes that no principal payments will be made during the term of the
Martin Notes, and a blended tax rate of 44%. Based on these assumptions,
the potential annual cash bonuses would be $813,214, $945,357, $1,072,500,
$1,202,143 and $942,857 for the years 1999 to 2003, respectively.
7
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EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with John Martin dated
July 2, 1997, which provides that Mr. Martin will serve as Chairman of the Board
for an initial term of 3 years. Mr. Martin is entitled to a base salary of
$150,000, plus an office reimbursement expense allowance of $84,000 per year in
addition to reimbursement of specific business expenses reasonably incurred on
behalf of Easyriders.
The Company entered into an employment agreement with William Prather dated
as of September 23, 1998, which provides that he will serve as President and
Chief Executive Officer of the Company for an initial term of 5 years, such term
of employment to continue thereafter unless and until terminated by either party
upon no less than sixty days written notice. Mr. Prather is entitled to an
annual salary of $200,000, subject to an annual review, plus a discretionary
incentive bonus on a yearly basis to be determined in the sole discretion of the
Company's Board of Directors. In addition, Mr. Prather shall be entitled to
receive certain other benefits, including four weeks of vacation, participation
in the Company's stock option plan, profit sharing plans, annual physical
examinations, dental and medical plans, personal catastrophe and disability
insurance, financial planning, retirement plans and supplementary executive
retirement plans, if any. The Company shall at its expense procure and keep in
effect a $1,000,000 term life insurance policy payable to Mr. Prather's
beneficiaries.
The Company entered into an employment agreement with William Nordstrom
dated August 22, 1997, which provides that he will serve as Executive Vice
President of Finance and Administration until thirty days notice given by either
party. Mr. Nordstrom's annual salary is $150,000. Mr. Nordstrom's employment
agreement provides Mr. Nordstrom the same benefits package as made available to
other executive officers. Mr. Nordstrom no longer serves as Executive Vice
President of Finance and Administration.
REPORT OF THE COMPENSATION COMMITTEE OF
THE BOARD OF DIRECTORS REGARDING EXECUTIVE COMPENSATION
The Compensation Committee (the "Compensation Committee") of the Board of
Directors reviews and recommends to the Board of Directors matters relating to
the compensation of the Company's executive officers. The Compensation
Committee is comprised of three outside directors, none of whom is an employee
or former employee of the Company.
Compensation Philosophy
The Company's executive compensation philosophy has the following
objectives:
(1) To provide a total compensation opportunity that is consistent with
competitive practices, enabling the Company to attract and retain qualified
executives;
8
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(2) To create a direct link between the compensation payable to each
executive officer and the financial performance both of the Company generally
and of the specific business unit or units for which the executive is
responsible; and
(3) To create a common interest between executive officers and the
Company's stockholders through the use of stock options and other stock awards
that link a portion of each executive officer's compensation opportunity
directly to the value of the Company's common stock.
Base Salary
The base salaries for each of the Named Officers and most of the Company's
other executive officers for 1998 were established prior to the Reorganization
pursuant to the terms of each executive's respective employment arrangements
with Newriders. The Compensation Committee was established after the
Reorganization and therefore did not review any of such employment agreements
prior to the time they were entered into by Newriders and such executives. The
Compensation Committee will make recommendations to the Board with respect to
the base salary of executives whose employment with the Company or a subsidiary
thereof begins after the Reorganization and, as to executives whose employment
with the Company or a subsidiary thereof began prior to the Reorganization, with
respect to the base salary of such executives pursuant to any new employment
arrangement entered into after the Reorganization, in each case by comparison to
competitive market levels for the executive's job function. At the Company's
current performance level, base salaries will generally be targeted at the low
to middle end of the range of comparable companies in the magazine publishing
business. However, if performance improves, the Compensation Committee may seek
to target base salaries at the middle to high end of such range. Salaries will
be reviewed at regular intervals, approximately annually, depending on job
classification and competitive market levels.
Annual Bonus
Under the terms of their respective employment agreements, most executive
officers are entitled to a discretionary bonus based upon the Compensation
Committee's recommendation and the full Board's approval. Except for the bonus
paid to John Martin as set forth under "Summary Compensation Table", no bonuses
were paid to any executive officers with respect to the fiscal year ended
December 31, 1998. In order to tie compensation to performance, future bonuses
are likely to be based upon EBITDA and earnings per share targets recommended by
the Compensation Committee and approved by the Board of Directors.
At the time of the consummation of the Reorganization, the stockholders of
the Company and the Compensation Committee and the Board of Directors approved
an Annual Incentive Award/Long-Term Incentive Performance Award to John Martin
under the Company's 1998 Executive Incentive Compensation Plan (the "Plan"), the
terms of which Award are described under "Long Term Incentive Awards".
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Equity Incentives
The Plan, which was approved by the Company's stockholders in September of
1998, is administered by the Compsenation Committee and its stated purpose is to
secure for the Company the benefits arising from capital stock ownership and the
receipt of capital stock-based incentives by those employees, directors,
officers and consultants of the Company who will be responsible for the
Company's future growth and continued success. Under the Plan, equity
incentives, primarily in the form of grants to executives of stock options, will
be considered in order to tie compensation of executives to performance by the
Company.
Compensation of Chief Executive Officer
Mr. Prather's base salary of $200,000 for 1998 was established pursuant to
an employment agreement with Newriders that was the result of bilateral
negotiations between Mr. Prather and Newriders. No specific formula was used in
determining or agreeing to Mr. Prather's compensation at the time his employment
agreement was entered into. Mr. Prather's employment agreement provides for a
discretionary incentive bonus on a yearly basis to be determined in the sole
discretion of the Company's Board of Directors. Mr. Prather was not awarded a
bonus in 1998.
Policy as to Section 162(m) of the Code
Section 162(m) of the Internal Revenue Code of 1986, as amended, generally
denies a publicly traded company a Federal income tax deduction for compensation
in excess of $1 million paid to certain of its executive officers unless the
amount of such excess is payable based solely upon the attainment of objective
performance criteria. The Company has undertaken to qualify substantial
components of the incentive compensation it makes available to its executive
officers for the performance exception to nondeductibility. However, in
appropriate circumstances, such as the hiring of a new executive officer, it may
be necessary or appropriate to pay compensation or make incentive awards that do
not meet the performance based exception and therefore may not be deductible by
reason of Section 162(m).
The foregoing report has been approved by all members of the Compensation
Committee.
Wayne L. Knyal, Chairman
Daniel J. Gallery
Joseph J. Jacobs
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COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
Wayne L. Knyal, Daniel J. Gallery and Joseph J. Jacobs serve as the members
of the Compensation Committee of the Company's Board of Directors, and Mr. Knyal
is the Chairman of the Compensation Committee. None of such persons is an
officer, employee, or former officer or employee, of the Company or any of its
subsidiaries. Except as set forth in the paragraph below, no interlocking
relationship exists between the members of the Company's Board of Directors or
Compensation Committee and the board of director's or compensation committee of
any other company, nor has any such interlocking relationship existed in the
past.
On January 13, 1998, Newriders entered into a letter agreement engaging
Imperial Capital, LLC ("Imperial Capital") to act as exclusive financial advisor
and placement agent with respect to the Reorganization. For its services,
Imperial Capital received cash compensation of approximately $1,485,000 plus
additional warrants. Franchise Mortgage Acceptance Company ("FMAC") received
10% of the cash compensation to be paid to Imperial Capital under a finder's
arrangement. Mr. Knyal is the Chairman and Chief Executive Officer of FMAC, and
indirectly owns approximately 19% of the equity interests of FMAC. Imperial
Credit owns approximately 60% of the equity interests of Imperial Capital and
approximately 38% of the equity interests of FMAC.
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total return on the Newriders
Common Stock and the Easyriders Common Stock from the date on which Newriders
Common Stock began trading on the OTC Bulletin Board (July 23, 1996) through
September 23, 1998 and then the date the Easyriders Common Stock began trading
on the American Stock Exchange (September 24, 1998) through December 31, 1998,
with the Broad Market American Stock Exchange Index (the "AMEX Market Index")
and Media General Industry Group Index for publishing and periodicals (the "Peer
Group Index"). The cumulative total return assumes that $100 was invested in
each of the Newriders Common Stock/Easyriders Common Stock and the AMEX Market
Index and Peer Group Index on July 23, 1996 (the date the Newriders' stock began
trading on the OTC Bulletin Board) and also assumes the reinvestment of any
dividends. Past financial performance should not be considered a reliable
indicator of future performance, and investors should not use historical trends
to anticipate results or trends in future periods.
Company Name/Index 7/23/96 12/31/96 12/31/97 12/31/98
- --------------------------------------------------------------------------------
Easyriders, Inc. 100 32.61 52.17 30.43
AMEX Market Index 100 107.36 129.19 127.44
Peer Group Index 100 103.17 136.83 119.86
11
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Item 12. Security Ownership of Certain Beneficial Ownership and Management
-----------------------------------------------------------------
The following table sets forth information as of April 16, 1999, regarding
the beneficial ownership of Common Stock by (1) each stockholder known by the
Company to be the beneficial owner of more than 5% of the Common Stock; (2) by
each Director of the Company; (3) by each Named Officer; and (4) by all
executive officers and directors of the Company as a group. Except as indicated
in the footnotes hereto, each person named in the table has (or could have upon
exercise of an option vested or vesting within 60 days after April 16, 1999)
sole voting and investment power (or such power together with any spouse of such
person, if they are joint tenants) with respect to securities beneficially owned
by such person as set forth opposite such person's name.
Common Stock Beneficially Owned On April 16, 1999
<TABLE>
<CAPTION>
Amount and Nature Percentage of
of Beneficial Outstanding
Ownership of Common Stock of
Name of Beneficial Owner Easyriders /(1)/ Easyriders /(1)/
- ------------------------ ----------------- -----------------
<S> <C> <C>
Directors
John E. Martin /(2)/ /(7)/.......... 6,542,447 27.3%
Wayne L. Knyal /(3)/................ 238,027 0.2%
Daniel J. Gallery /(4)/............. 37,500 1.0%
Joseph Teresi....................... 8,391,557 35.0%
Ellen Meagher /(5)/................. 125,600 0.5%
Robert Davis /(6)/.................. 5,000 0.0%
Joseph J. Jacobs /(6)/.............. 6,000 0.0%
Executive Officers
William E. Prather.................. 1,000,100 4.2%
William R. Nordstrom/(7)/........... 296,450 1.2%
All Executive Officers and
Directors of Easyriders as a
group (9 persons).............. 16,642,681 69.3%
</TABLE>
Unless otherwise indicated, the address of each beneficial owner listed
above is c/o Easyriders, Inc., 28210 Dorothy Drive, Agoura Hills, California
91301.
/1./ Assumes that the shares of Newriders common stock held in the name of Rick
Pierce are returned and canceled (See "Certain Transactions With Related
Parties")
/2./ Easyriders shares for Mr. Martin include 96,150 shares held through the
John E. Martin Revocable Trust dated June 16, 1992, of which Mr. Martin is
trustee and beneficiary.
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/3./ Mr. Knyal holds an option to purchase up to 15,000 shares of Common Stock
at $5.00 per share and warrants to purchase up to 12,500 shares of Common
Stock at $5.96 per share.
/4./ Mr. Gallery holds an option to purchase up to 15,000 shares of Common
Stock at $5.00 per share. The Easyriders share total for Mr. Gallery also
includes 17,500 shares held of record by G3 Holdings, LLC, a limited
liability company in which Mr. Gallery, his brother and his sister are co-
managers and owners .
/5./ Ms. Meagher holds an option to purchase up to 125,000 shares of Common
Stock at $5.00 per share.
/6./ Messrs. Davis and Jacobs each hold options to purchase up to 5,000 shares
at $5.00 per share.
/7./ Easyriders share total for Mr. Martin and Mr. Nordstrom does not include
warrants to purchase up to 125,000 shares of Common Stock at $8.00 per
share which expired on April 21, 1999.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
Four of the largest shareholders of Newriders agreed to return to Newriders
an aggregate of 6,156,480 shares of Newriders common stock to be canceled. A
total of 4,848,480 of these shares were delivered to Newriders for cancellation.
One of the four shareholders failed to deliver 1,308,000 of the Newriders shares
to be canceled, of which 464,000 Newriders shares are beneficially owned by
another individual, who had consented to their cancellation. Easyriders is
continuing to pursue the cancellation of these shares and has issued stop
transfer instructions concerning the 1,308,000 shares, which is equivalent to
654,000 shares of Easyriders, Inc. common Stock. On September 23, 1998, a
petition for an involuntary bankruptcy proceeding under Chapter 11 of the U.S.
Bankruptcy Code involving the holder of these shares was filed. The Company,
through its subsidiary, Newriders, intends to pursue this claim for cancellation
of the 1,308,000 Newriders shares in the bankruptcy proceeding involving the
shareholder.
On July 22, 1998, the Company sold its Myrtle Beach Restaurant to Leon
Hatcher, a stockholder of the Company for $ 100,000. As a result of this sale,
the Company recorded a loss during the three months ended June 30, 1998 of
$467,774, primarily related to the write-down to net realizable value of
leasehold improvements and store fixtures. During the three months ended
September 30, 1998, the Company renegotiated the Myrtle Beach purchase
agreement, thereby resulting in an additional loss on the sale of the Myrtle
Beach Restaurant of $631,986.
On September 23, 1998, John Martin, William Prather and his wife, Marna
Prather, who together owned all of the outstanding membership interests of El
Paso, received a total of 2,000,000 shares of Common Stock in exchange for all
of the outstanding membership interests of El Paso.
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On September 23, 1998, John Martin purchased 4,036,797 shares of Common
Stock, for a purchase price of $12,300,000, which he paid $5,000,000 in cash and
the balance by delivery of two promissory notes. One note is in the amount of
$5,000,000, has a term of five years, may be extended by Mr. Martin for an
additional period of five years and bears interest at an annual rate between six
and ten percent. The other note is in the amount of $2,300,000, has a term of
five years and may be extended by Mr. Martin for an additional five years and
bears interest at an annual rate between six and ten percent (the "Martin
Notes").
On September 23, 1998, Joseph Teresi received total consideration in the
amount of $48,000,000, consisting of 6,493,507 shares of Common Stock and
promissory notes aggregating $28,000,000 consisting of a promissory note of
Easyriders Sub II in the principal amount of $15,000,000 which was repaid upon
consummation of the Reorganization, and other promissory notes in the amount of
$13,000,000 (the "Contributor Notes") in exchange for all of the issued and
outstanding shares of Paisano Publications Inc. ("Paisano Publications") and
certain affiliated subsidiaries (the "Paisano Companies"). Mr. Teresi also
received a dividend of $7,000,000 from Paisano Publications, which was funded by
a loan in that amount to Paisano Publications. Mr. Teresi also has the right to
recommend that certain employees or consultants of the Paisano Companies receive
options to purchase an aggregate of 300,000 shares of Common Stock exercisable
at $5.00 per share.
The Company and its subsidiaries lease from Joseph Teresi, at below market
rates, the real estate located at 29210 Dorothy Drive and 28216 Dorothy Drive,
Agoura Hills, California, 605 Main Street, Daytona Beach, Florida and 611 Broad
Street, Columbus, Ohio. All such leases are triple net leases with CPI
adjustments for a five year period with renewal options for additional five year
periods.
On April 8, 1999, in order to alleviate a cashflow shortage at Easyriders
resulting from restrictions under the Credit Agreement on the distribution of
funds from the Paisano Companies to Easyriders, the Company raised additional
capital by selling shares of its Common Stock to John Martin and Joseph Teresi
for $1,500,000 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 April 8, 1999. Each
of Messrs. Martin and Teresi received 1,397,950 shares of Easyriders Common
Stock as a result of such purchases. Mr. Martin paid cash for his shares, and
Mr. Teresi paid for his shares by forgiving $75,000 of interest and $1,425,000
of principal owed to him by the Company. As a result of such sales, the total
number of shares of Easyriders Common Stock owned by Mr. Martin increased from
5,269,497 immediately before such sales to 6,667,447 (27.8% of the outstanding
number of shares of Easyriders Common Stock on a fully diluted basis, assuming
the shares held in the name of Rick
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Pierce are returned and canceled) immediately after such sales, and the total
number of shares of Easyriders Common Stock owned by Mr. Teresi increased from
6,993,507 immediately before such sales to 8,391,557 (35.3% of the outstanding
number of shares of Easyriders Common Stock on a fully diluted basis, assuming
the shares held in the name of Rick Pierce are returned and canceled)
immediately after such sales. $718,163 of the cash paid by Mr. Martin for his
shares was used to repay the principal of and accrued interest on amounts
borrowed by the Company from Messrs. Martin and Teresi (the "Bridge Note
Proceeds") on February 23, 1999, which Bridge Note Proceeds were used to make a
$500,000 prepayment on the Company's Senior Secured Debt with Nomura Holding
America Inc. and for working capital at the Paisano Companies and Easyriders.
The remainder of the cash paid by Mr. Martin for his shares will be used by the
Company for working capital purposes. 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. The
Board of Directors also received and relied upon, a written opinion of Imperial
Capital that the $1,500,000 cash paid by Mr. Martin for his shares and the
$1,500,000 forgiveness of interest and principal given by Mr. Teresi in exchange
for his shares are fair to the Company's stockholders from a financial point of
view.
In accordance with the agreement pursuant to which the Company acquired the
Paisano Companies from Joseph Teresi, a post-closing adjustment was to be made
based upon the amount by which working capital of the Paisano Companies as of
the closing of the acquisition exceeded or was less than $4,537,000. Based upon
a closing date balance sheet prepared by the Company, the Company determined
that the working capital of the Paisano Companies as of the closing was less
than $4,537,000. Mr. Teresi disputed that determination. After protracted
negotiations, the Board of Directors of the Company agreed on March 19,1999 to
accept a payable from Mr. Teresi (the "Teresi Payable") in the amount of
$398,085 in satisfaction of the working capital adjustment. The Teresi Payable
does not bear interest and, subject to prior payment in the circumstances
described below, is due when the entire principal and interest on the
$13,000,000 of promissory notes issued by the Company to Mr. Teresi as partial
consideration for the acquisition of the Paisano Companies has been paid in
full. Certain aged receivables of the Company which have been fully reserved by
the Company have been identified (the "Receivables") and to the extent
collections are received on the Receivables, a percentage of such collections
will be credited against the Teresi Payable. In addition, if the Company
determines that the amount of a pension accrual with respect to pre-
Reorganization operations of the Paisano Companies should be decreased, the
Teresi Payable will be reduced by the amount of such decrease. Furthermore, to
the extent that certain fully reserved inventory of the Company is sold or used
by the Company for promotional purposes, the Teresi Payable will be reduced by
the amount of sale proceeds or value assigned by the Company to such promotional
use. Also, if the Company receives a refund of any portion of a specified
foreign tax payable by the Company, the Teresi Payable will be reduced by the
amount of such refund. From and after the time the Teresi Payable has been
reduced to zero, Mr. Teresi will be entitled to receive (in cash, or if any of
the Nomura Indebtedness is outstanding, in the form of a non-interest bearing
receivable from the Company) the applicable percentage of collections on the
Receivables and all amounts, if any, attributable to a reduction in such pension
accrual and the sale or promotional use of such inventory.
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SIGNATURES
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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.
Date: April 28, 1999 EASYRIDERS, INC.
----------------
(Registrant)
By:/s/ J. Robert Fabregas
----------------------
J. Robert Fabregas
Chief Financial Officer and
Executive Vice President
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