<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 report ended June 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 23,778,565 shares of outstanding Common Stock of the Registrant as
of August 10, 1999.
<PAGE>
PART I -- FINANCIAL INFORMATION
- -------------------------------
Item 1. Financial Statements
EASYRIDERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-----------------------------------------
<S> <C> <C>
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 559,012 $ 278,035
Restricted cash 313,640
Accounts receivable, less allowance for doubtful accounts
of $436,604 (1999) and $395,681 (1998) 4,005,308 2,874,779
Inventories 3,945,767 3,975,443
Prepaid publication costs 737,721 629,375
Prepaid expenses and other 1,586,642 875,846
Receivable from shareholder - 398,085
----------- -----------
Total current assets 10,834,450 9,345,203
PROPERTY AND EQUIPMENT, net 4,379,800 3,718,067
GOODWILL, net of accumulated amortization
of $1,701,490 (1999) and $612,739 (1998) 61,465,947 62,704,698
INTANGIBLE ASSETS, net of accumulated amortization
of $104,958 (1999) and $36,538 (1998) 735,763 809,409
OTHER ASSETS 1,262,604 560,245
----------- -----------
$78,678,564 $77,137,622
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------------------------------------------
<S> <C> <C>
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 5,808,372 $ 4,086,773
Accrued payroll and payroll related expenses 1,182,666 589,861
Other current liabilities 2,054,868 1,659,631
Income taxes payable - 7,034
Current portion of deferred subscription and advertising income 4,249,904 3,348,420
Current portion of note payable to stockholder -
Current portion of long-term debt 671,270 558,748
------------ ------------
Total current liabilities 13,967,080 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 $808,225 (1999) and $895,304 (1998). 23,258,326 22,713,670
OTHER LONG TERM LIABILITIES, including deferred subscription
revenues of $1,210,721 (1999) and $549,838 (1998) 1,393,632 799,838
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, 22,091,275 shares (1999) and 19,295,375 shares (1998) 22,091 19,295
outstanding
Additional paid in capital 57,915,794 54,318,590
Receivable from the sale of stock (7,300,000) (7,300,000)
Accumulated deficit (23,470,026) (17,980,905)
------------ ------------
Total stockholders' equity 27,167,859 29,056,980
------------ ------------
$ 78,678,564 $ 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 Six Months Ended
June 30, June 30,
1999 1998 1999 1998
------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
SALES $ 11,017,265 $ 609,992 22,048,977 $ 824,155
COST OF SALES 8,153,836 322,172 16,174,705 386,964
------------ ----------- ----------- ------------
GROSS MARGIN 2,863,429 287,820 5,874,272 437,191
EXPENSES:
Selling, general, and administrative 4,119,626 1,093,361 7,456,039 2,047,023
Depreciation and amortization 782,796 59,665 1,551,945 122,988
Stock issuance expenses 600,000 1,888,867 600,000 1,888,867
Loss on sale of restaurant to related party - 631,986 - 631,986
------------ ----------- ----------- ------------
Total expenses 5,502,422 3,673,879 9,607,984 4,690,864
------------ ----------- ----------- ------------
LOSS FROM OPERATIONS (2,638,993) (3,386,059) (3,733,712) (4,253,673)
OTHER INCOME (EXPENSE) (146,196) - 21,173
INTEREST EXPENSE (861,438) (580,122) (1,772,432) (943,501)
------------ ----------- ----------- ------------
LOSS BEFORE PROVISION FOR INCOME TAXES (3,646,627) (3,966,181) (5,484,971) (5,197,174)
PROVISION FOR INCOME TAXES 2,075 4,150
------------ ------------ ----------- -------------
NET LOSS $(3,648,702) $(3,966,181) $(5,489,121) $(5,197,174)
============ =========== =========== ============
COMPREHENSIVE LOSS $(3,648,702) $(3,966,181) $(5,489,121) $(5,197,174)
============ =========== =========== ============
NET LOSS PER SHARE - BASIC AND DILUTED $(0.17) $(0.23) $(0.27) $(0.30)
============ =========== =========== ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING - BASIC AND DILUTED 21,845,482 17,545,283 20,577,473 17,401,846
============ =========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
1999 1998
----------------------------------
<S> <C> <C>
(unaudited)
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net loss $(5,489,121) $(5,197,174)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock issuance expenses $ 600,000 $ 1,888,867
Depreciation and amortization 1,551,945 122,988
Loss on sale of restaurant to related party 631,986
Loss on sale of fixed assets 170,042
Loss on sale of stock held for investment 20,959
Amortization of debt issuance costs 157,389
Non-cash interest expense 903,755
Increase (decrease) in cash resulting from changes in operating
accounts:
Current assets (1,208,270) (673,138)
Other assets (702,359) (2,609)
Current liabilities 3,529,091 195,305
Other long-term liabilities 593,794 22,284
----------- -----------
Net cash used in operating activities (776,530) (2,107,736)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (942,282) (144,881)
----------- -----------
Net cash used in investing activities (942,282) (144,881)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of convertible debentures and debt 657,178 2,100,000
Common stock issued for cash 1,500,000
Payments of stockholders advances (162,000)
Payment of long-term debt and capital leases (157,389) (590,002)
----------- -----------
Net cash provided by financing activities 1,999,789 1,347,998
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 280,977 $ (904,619)
CASH AND CASH EQUIVALENTS, beginning of year 278,035 1,262,633
----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 559,012 $ 358,014
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION -
Cash paid for interest $ 1,015,043 $ 60,451
=========== ===========
NONCASH FINANCING ACTIVITIES:
Common stock issued in settlement of debt $ 1,500,000 $ 902,997
=========== ===========
Issuance of warrants in connection with debt issuance $ 542,858
===========
Convertible debentures issued with conversion discount $ 333,335
===========
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (unaudited)
- --------------------------------------------------------------------------------
1. GENERAL BASIS OF PRESENTATION
The information set forth in these condensed financial statements as of June
30, 1999 and for the six months ended June 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 six months ended June 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
Easyriders 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 11
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 22 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 SIX MONTHS ENDED JUNE 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 Debt - 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 June 30, 1999, $122,000 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.
Related Party Debt - On February 23, 1999, the Company borrowed $704,612
from two directors of the Company. The balance borrowed was evidenced by two
notes of equal amount from each shareholder. The notes bear interest at 13%
per annum and both interest and principal are due on September 23, 2002. The
Notes were fully repaid through proceeds from the issuance of common stock
to these directors on April 8, 1999.
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.
6
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (unaudited)
- --------------------------------------------------------------------------------
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 Option Grants - During the six months ended June 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. COMMITMENTS AND CONTINGENCIES
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 for the greater of its fair market value
or the lender's total investment in the property. This commitment expires
after March 1, 2000.
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 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.
7
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (unaudited)
- --------------------------------------------------------------------------------
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 June 30, 1999 5,934,736 1,804,846 2,967,797 30,000 279,886 11,017,265
- ---------------------------------------------------------------------------------------------------------------------------------
Sales external customers -
Year-to date June 30, 1999 11,555,445 3,247,758 5,831,131 78,137 1,336,506 22,048,977
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations-
Quarter ended June 30, 1999 685,664 85,998 223,356 (676,442) (654,766) (336,190)
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations-
Year-to-date June 30, 1999 1,347,320 (171,716) 429,866 (1,168,367) (540,171) (103,068)
- ---------------------------------------------------------------------------------------------------------------------------------
Segment Assets 10,403,654 1,350,995 4,196,436 71,116 631,404 16,653,605
- ---------------------------------------------------------------------------------------------------------------------------------
Capital Expenditures 493,127 4,660 427,495 - 17,000 942,282
- ---------------------------------------------------------------------------------------------------------------------------------
Depreciation/Amortization -
Quarter ended June 30, 1999 67,363 12,086 119,841 2,118 28,369 229,777
- ---------------------------------------------------------------------------------------------------------------------------------
Depreciation/Amortization -
Year-to-date June 30, 1999 140,165 24,173 218,235 4,237 56,172 442,982
- ---------------------------------------------------------------------------------------------------------------------------------
</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.
A reconciliation of the totals reported for the operating segments to the
applicable line items in the consolidated financial statements is as
follows:
<TABLE>
<S> <C>
Quarter ended June 30, 1999:
Income (loss) from operations included in segment disclosure $ (336,190)
Unallocated, selling, general, and administrative (2,302,803)
-----------
Loss from operations $(2,638,993)
===========
Year-to-date June 30, 1999:
Income (loss) from operations included in segment disclosure $ (103,068)
Unallocated, selling, general, and administrative (3,630,644)
-----------
Loss from operations $(3,733,712)
===========
</TABLE>
8
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
As at June 30, 1999:
Segment assets $16,653,605
Cash and cash equivalents 559,012
Goodwill 61,465,947
-----------
Total Assets $78,678,564
===========
Quarter ended June 30, 1999:
Depreciation and amortization included in segment disclosure $ 229,777
Amortization of goodwill 553,019
----------
Depreciation and amortization $ 782,796
==========
Year-to-date June 30, 1999:
Depreciation and amortization included in segment disclosure $ 442,982
Amortization of goodwill 1,108,963
----------
Depreciation and amortization $1,551,945
==========
</TABLE>
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 6/30/99 9,877,432 273,402 159,124 145,918 114,706 446,683 $11,017,265
YTD 6/30/99 19,883,837 520,596 299,657 291,980 224,530 828,377 $22,048,977
</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>
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 Easyriders 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.
10
<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.
11
<PAGE>
Results of Operations
The following table sets forth certain operating data for Easyriders and
Newriders for the three months ended June 30, 1999 and 1998:
<TABLE>
<CAPTION> Paisano
Easyriders Companies El Paso Consolidated Newriders
For the Three Months Ended June 30,
---------------------------------------------------------------------------------------------
1999 1999 1999 1999 1998
<S> <C> <C> <C> <C> <C>
(unaudited)
SALES
Publishing $ - $ 5,934,736 $ - $ 5,934,736 $ -
Goods and services 1,804,846 1,804,846
Food service 2,967,797 2,967,797 609,992
Franchising 30,000 30,000
Other operations 279,886 279,886
---------------------------------------------------------------------------------------------
- 8,049,468 2,967,797 11,017,265 609,992
COST OF SALES
Publishing 4,210,794 4,210,794
Goods and services 1,758,357 1,758,357
Food service 1,799,658 1,799,658 322,172
Franchising - -
Other operations 385,027 385,027
---------------------------------------------------------------------------------------------
- 6,354,178 1,799,658 8,153,836 322,172
GROSS MARGIN
Publishing - 1,723,942 - 1,723,942
Goods and services - 46,489 - 46,489
Food service - - 1,168,139 1,168,139 287,820
Franchising - 30,000 - 30,000
Other operations - (105,141) - (105,141)
---------------------------------------------------------------------------------------------
- 1,695,290 1,168,139 2,863,429 287,820
EXPENSES
Publishing 1,038,278 1,038,278
Goods and services (39,509) (39,509)
Food service 944,783 944,783 1,174,342
Franchising 706,442 706,442
Other operations (50,375) (50,375)
Unallocated expenses 1,642,404 1,260,399 2,902,803 610,670
---------------------------------------------------------------------------------------------
1,642,404 2,915,235 944,783 5,502,422 1,785,012
INCOME (LOSS) FROM OPERATIONS
Publishing - 685,664 - 685,664
Goods and services - 85,998 - 85,998
Food service - - 223,356 223,356 (886,522)
Franchising - (676,442) - (676,442)
Other operations - (54,766) - (54,766)
Unallocated (1,642,404) (1,260,399) - (2,902,803) (610,670)
---------------------------------------------------------------------------------------------
$(1,642,404) $(1,219,945) $ 223,356 $(2,638,993) $(1,497,192)
=============================================================================================
NET INCOME (LOSS) $(1,977,679) $(1,837,994) $ 166,971 $(3,648,702) $(3,966,181)
=============================================================================================
EBITDA $(1,066,150) $ (701,729) $ 365,486 $(1,402,393) $(1,437,527)
=============================================================================================
</TABLE>
12
<PAGE>
The following table sets forth certain operating data for Easyriders and
Newriders for the six months ended June 30, 1999 and 1998:
<TABLE>
<CAPTION> Paisano
Easyriders Companies El Paso Consolidated Newriders
For the Six Months Ended June 30,
--------------------------------------------------------------------------------------------
1999 1999 1999 1999 1998
(unaudited)
<S> <C> <C> <C> <C> <C>
SALES
Publishing $ - $11,555,445 $ - $11,555,445 $ -
Goods and services 3,247,758 3,247,758
Food service 5,831,131 5,831,131 824,155
Franchising 78,137 78,137
Other operations 1,336,506 1,336,506
--------------------------------------------------------------------------------------------
- 16,217,846 5,831,131 22,048,977 824,155
COST OF SALES
Publishing 8,063,490 8,063,490
Goods and services 3,237,423 3,237,423
Food service 3,570,401 3,570,401 386,964
Franchising - -
Other operations 1,303,391 1,303,391
--------------------------------------------------------------------------------------------
- 12,604,304 3,570,401 16,174,705 386,964
GROSS MARGIN
Publishing - 3,491,955 - 3,491,955
Goods and services - 10,335 - 10,335
Food service - - 2,260,730 2,260,730 437,191
Franchising 78,137 78,137
Other operations - 33,115 - 33,115
--------------------------------------------------------------------------------------------
- 3,613,542 2,260,730 5,874,272 437,191
EXPENSES
Publishing 2,144,635 2,144,635
Goods and services 182,051 182,051
Food service 1,830,864 1,830,864 1,530,871
Franchising 1,246,504 1,246,504
Other operations (26,714) (26,714)
Unallocated expenses 2,168,668 2,061,976 4,230,644 1,271,126
--------------------------------------------------------------------------------------------
2,168,668 5,608,452 1,830,864 9,607,984 2,801,997
INCOME (LOSS) FROM OPERATIONS
Publishing - 1,347,320 - 1,347,320
Goods and services - (171,716) - (171,716)
Food service - - 429,866 429,866 (1,093,680)
Franchising (1,168,367) (1,168,367)
Other operations - 59,829 - 59,829
Unallocated (2,168,668) (2,061,976) - (4,230,644) (1,271,126)
--------------------------------------------------------------------------------------------
$(2,168,668) $(1,994,910) $ 429,866 $(3,733,712) $(2,364,806)
============================================================================================
NET INCOME (LOSS) $(2,675,480) $(3,190,980) $ 377,339 $(5,489,121) $(5,197,174)
============================================================================================
EBITDA $(1,464,492) $ (914,170) $ 818,068 $(1,560,594) $(2,241,818)
============================================================================================
</TABLE>
13
<PAGE>
Results of Operations of Easyriders and Newriders
During the three months ended June 30, 1999, the Company experienced a net
loss in the amount of $3,648,702 (or $0.17 per share), compared with a net loss
of $3,966,181 (or $0.23 per share) for the three months ended June 30, 1998. The
net loss for the six months ended June 30, 1999 was $5,489,121 (or $0.27 per
share), compared with a net loss of $5,197,174 (or $0.30 per share) for the same
period in the prior year. The Company experienced negative EBITDA in the amount
of $1,402,393 and $1,560,594 for the three and six months ended June 30, 1999,
respectively, compared with negative EBITDA of $1,437,527 and $2,241,818 for the
three and six months ended June 30, 1998.
The decreased loss for the three months ended June 30, 1999 can be
substantially attributed to the increase in gross margin of $2,575,608,
generated primarily by Paisano Publications and by El Paso, offset by the
increase in operating expenses of $1,828,542 and by the increase in non-
operational expenses of $427,512.
The increased loss for the six months ended June 30, 1999 can be
substantially attributed to the increase in operating expenses for the combined
operations of the Company and Newriders of $4,917,120 together with the increase
in non-operational expenses of $807,758, offset by the increase in gross margin
of $5,437,081, 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 six months
ended June 30, 1999 include the results for the Paisano Companies.
The Paisano Companies' sales totaling $8,049,468 and $16,217,846 for the
three and six months ended June 30, 1999, respectively, include sales from the
publishing segment of $5,934,736 and $11,555,445, sales from the goods and
services segment of $1,804,846 and $3,247,758, sales from the franchising
segment of $30,000 and $78,137, and sales from other segments of $279,886 and
$1,336,506. The Paisano Companies' gross margin totaling $1,695,290 and
$3,613,542 for the three and six months ended June 30, 1999, respectively,
includes margin from the publishing segment of $1,723,942 and $3,491,955, margin
from the goods and services segment of $46,489 and $10,335, margin from the
franchising segment of $30,000 and $78,137, a negative margin from other
segments of $105,141 for the three month period and margin from the other
segments of $33,115 for the six month period. The Paisano Companies' loss from
operations totaling $1,219,945 and $1,994,910 for the three and six months ended
June 30, 1999, respectively, includes income from operations of $685,664 and
$1,347,320 from the publishing segment, income from operations of the goods and
services segment of $85,998 for the three month period and loss from operations
of the goods and services segment of $171,716 for the six month period, loss
from operations of the franchising segment of $676,442 and $1,168,367, loss from
operations of other segments of $54,766 for the three month period and income
from operations of other segments of $59,829 for the six month period, and
expenses not allocated to any segment of $1,260,399 and $2,061,976.
The Paisano Companies' publishing segment includes sales generated from
subscription sales, newsstand sales and advertising sales related to the
Companies' eleven 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, two retail stores, and franchise programs. The related
14
<PAGE>
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' 25 operating franchisees 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 $2,915,235 and $5,608,452 for
the three and six months ended June 30, 1999, respectively, include $1,654,836
and $3,546,476 of expenses specifically allocated to individual segments and
$1,260,399 and $2,061,976 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 six month periods ended June 30, 1999 totaled $444,138 and
$852,643, respectively. Depreciation and amortization for the same periods
totaled $537,103 and $1,079,161, related primarily to $469,740 and $938,996 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 $572,930 and $1,145,749
for the three and six months ended June 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 $1,837,994 and $3,190,980 for the
three and six months ended June 30, 1999, respectively, with negative EBITDA of
$701,729 and $914,170.
The principal raw material used in publishing operations of the Paisano
Companies is paper. Paper costs represented approximately 16% of Paisano
Publications' production, selling and other direct costs for both the three and
six months ended June 30, 1999. 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 six months
ended June 30, 1999, include the results for E1 Paso. The results for 1998 do
not include any of the results of El Paso.
15
<PAGE>
E1 Paso's sales from its four El Paso Bar-B-Que Restaurants totaled
$2,967,797 and $5,831,131 for the three and six months ended June 30, 1999,
respectively, with cost of sales totaling $1,799,658 and $3,570,401 for the same
periods. Cost of sales includes food costs of $879,331 and $1,735,287 for the
three and six month periods, and direct payroll costs related to the operations
of the restaurants of $920,327 and $1,835,114 for the same periods. The gross
margin was $1,168,139 and $2,260,730, or 39.4% and 38.8% of sales, for the three
and six months ended June 30, 1999, respectively. Operating expenses for El
Paso for the three and six month periods totaled $944,783 and $1,830,864,
respectively, or 31.8% and 31.4% of sales, and include depreciation and
amortization of $203,120 and $388,202. Interest expense associated with debt
used to finance the restaurants and capital leases was $65,820 and $122,952 for
the three and six months ended June 30, 1999. Net income for the three and six
months ended June 30, 1999 was $166,971 and $377,339, respectively, and EBITDA
was $365,486 and $818,068 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 June 30, 1999, the Company had negative working capital
of approximatley $3.1 million due primarily to deferred subscription and
advertising income.
Cash used in operating activities during the six month period ended June
30, 1999 totaled approximately $0.8 million. The operating loss of $5.5 million
was offset by several non-cash charges including $1.7 million for depreciation
and amortization, $0.6 million for stock issuance expenses, and $0.2 million for
losses on the sale of assets. Cash of $2.2 million was provided by changes in
operating accounts.
Net cash used in investing activities totaled $0.9 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 June 30, 1999, there was $1,250,000 of
available borrowings under the Revolving Loans.
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 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.
16
<PAGE>
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 June 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 June 30, 1999, Paisano Publications has
been able to provide $56,979 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 June 30, 1999 total $36,220,064.
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. As of June
30, 1999, the Company is in compliance with all of the covenants.
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 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 June 30, 1999, $122,000 was owing under this credit facility.
17
<PAGE>
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.
The Company believes that projected cash flow from operations, projected
availability under the Nomura Credit Agreement, availability under the El Paso
credit facilities, the $0.5 million raised in July 1999 from the sale of stock
to Messrs. Martin and Teresi, and availability under other capital commitments
will be sufficient to meet its anticipated cash needs for at least the next 12
months. However, any projections of future cash needs and cash flows are
subject to substantial uncertainty. If current cash, funds that may be
generated from operations, and borrowings available from the Credit Agreement
are insufficient to satisfy the Company's liquidity requirements, the Company
may seek to sell additional equity or debt securities. The sale of additional
equity or debt securities could result in additional dilution to the Company's
stockholders. There can be no assurance that financing will be available in
amounts or on terms acceptable to the Company, if at all.
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 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 September,
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
18
<PAGE>
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 $16,443,021 outstanding on June 30, 1999 was
9.6 %. An increase in interest rates of 1% would result in an increase in
interest expense of approximately $165,000 per annum.
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.
19
<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.
In May 1999, Easyriders settled a lawsuit with Palisades Capital, Inc. and
Palisades Holdings, Inc. (collectively "Palisades"). Newriders was named as a
defendant in the lawsuit brought by Palisades in the Superior Court of
California, County of Los Angeles, number BC194913, filed July 27, 1998.
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 and is
vigorously opposing such claims, and has filed a response to the counterclaim
and other supplemental pleadings. Recently, the Adversary Claims were
transferred for adjudication to the Federal District Court in Fresno. At this
point, the outcome of this action cannot be determined.
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 "Steel Horses Arbitration") is now pending before an
arbitration panel in Orange County, California. The Chicago Franchisee alleges
that EFI understated the capital requirements of the business opportunity, and
seeks 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 believe that the
claims of the Chicago Franchisee have no merit. Accordingly, they have
vigorously defended this action and will continue to do so. At this point,
however, the outcome of the Steel Horses Arbitration cannot be determined.
Item 2. Changes in Securities and Use of Proceeds.
On April 8, 1999, 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
20
<PAGE>
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. 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.
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.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of matters to a vote of security holders
At the Company's Annual Meeting of its Stockholders held on June 17, 1999 (the
"Annual Meeting") the stockholders of the Company approved the following
proposals:
Proposal 1. Election of Directors
The following persons were elected as directors of the Company at the Annual
Meeting to hold office for a term of one year or until their successors have
been duly elected and qualified:
21
<PAGE>
<TABLE>
<CAPTION>
Name Votes For Votes Against Votes Abstaining Broker Non-Votes
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John E. Martin 19,284,378 0 71,574 0
William E. Prather 19,284,378 0 71,574 0
Wayne L. "Buz" Knyal 19,284,378 0 71,574 0
Daniel J. Gallery 19,284,378 0 71,574 0
Joseph Teresi 19,284,378 0 71,574 0
Ellen Meagher 19,284,378 0 71,574 0
Robert Davis 19,284,378 0 71,574 0
Joseph J. Jacobs 19,284,378 0 71,574 0
</TABLE>
Proposal 2. Appointment of Independent Auditors
The appointment by the Board of Directors of the Company of Deloitte and
Touche, LLP as the Company's independent auditors for the fiscal year ending
December 31, 1999 was ratified with 19,295,243 votes for the proposal, 13,512
votes against the proposal, 47,197 votes abstaining, and 0 broker non-votes.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Exhibit Number Description of Exhibit
- -------------- ----------------------
- ---------------------------------------------------------------------------------------------------------------
<C> <S>
Stock Purchase Agreement, dated July 14, 1999, between John Martin and Easyriders.
10.55
- ---------------------------------------------------------------------------------------------------------------
Stock Purchase Agreement, dated July 14, 1999, between Joseph Teresi and Easyriders.
10.56
- ---------------------------------------------------------------------------------------------------------------
Commercial Lease, dated July 23, 1999, for the property located at 28216 Dorothy Drive,
10.57 Agoura Hills, California.
- ---------------------------------------------------------------------------------------------------------------
10.58 Loan Agreement between FFCA Acquisition Corporation and El Paso, dated June 1, 1999, for
$475,000.
- ---------------------------------------------------------------------------------------------------------------
10.59 Credit Agreement between Imperial Bank and El Paso, dated March 17, 1999, for a $500,000
Revolving Line of Credit.
- ---------------------------------------------------------------------------------------------------------------
10.60 Commitment Letter between FFCA Acquisition Corporation and El Paso, dated February 11, 1999,
for $3,450,000.
- ---------------------------------------------------------------------------------------------------------------
27.1 Financial Data Schedule
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Company during the quarterly
period ended June 30, 1999.
22
<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: August 11, 1999 /s/ J. Robert Fabregas
---------------------------
J. Robert Fabregas
Chief Financial Officer and
Executive Vice President
23
<PAGE>
EXHIBIT 10.55
STOCK PURCHASE AGREEMENT
Stock Purchase Agreement, made and entered into as of July 14, 1999 (the
"Agreement"), between Easyriders, Inc., a Delaware corporation (the "Company")
and John E. Martin (the "Investor").
WHEREAS, the Company desires to sell, and the Investor desires to purchase,
subject to the terms and conditions of this Agreement, shares of the Company's
common stock, par value $.001 per share (the "Common Stock");
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Company and the Investor agree as
follows:
SECTION I. AUTHORIZATION; SALE AND PURCHASE OF THE COMPANY'S SECURITIES;
CLOSING.
I.1 Sale and Purchase of Common Stock. Subject to the terms and
conditions hereof, the Company agrees to sell to the Investor and the Investor
agrees to purchase from the Company on the Closing Date, a number of shares of
Common Stock (the "Shares") determined by dividing $250,000 by 75% of the
Average Closing Price of the Common Stock (as hereinafter defined) for an
aggregate cash purchase price of $250,000. The Average Closing Price of the
Common Stock shall mean the average of the daily Closing Prices (as hereinafter
defined) of the Common Stock on the ten consecutive trading days ending on and
including July 14, 1999. The Closing Price shall mean the last recorded sale
price of the Common Stock or, if no such reported sale takes place on such day,
the average of the reported closing bid and asked price of the Common Stock, as
reported on the American Stock Exchange.
I.2 Closing. The closing of the transaction contemplated by this
Agreement (the "Closing") shall take place at 10:00 a.m., Pacific Standard time,
on July 14, 1999 (the "Closing Date") or at such other time or day as may be
mutually acceptable to the Investor and the Company.
I.3 Delivery; Payment. At the Closing, the Company will deliver to
the Investor a certificate, dated the Closing Date, representing the Shares
purchased by the Investor, registered in his name as stated herein (or in the
name of his nominee) against payment to the Company of the purchase price of the
Shares being purchased by the Investor, which payment shall be made in cash.
I.4 Registration Rights. After the Closing Date, the parties
hereto will negotiate in good faith the terms and conditions upon which the
Company will grant the Investor "shelf" and "piggyback" registration rights.
<PAGE>
SECTION II. INVESTMENT REPRESENTATIONS.
The Investor represents that:
II.1 Investment Intent.
(a) The Shares being acquired by the Investor are being
acquired for investment for the Investor's own account and not with the view to,
or for resale in connection with, any distribution or public offering thereof.
The Investor understands that the Shares have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or any state
securities laws by reason of their contemplated issuance in transactions exempt
from the registration requirements of the Securities Act pursuant to Section
4(2) thereof and applicable state securities laws, and that the reliance of the
Company and others upon these exemptions is predicated in part upon this
representation by the Investor. The Investor further understands that the Shares
may not be transferred or resold without (i) registration under the Securities
Act and any applicable state securities laws, or (ii) an exemption from the
requirements of the Securities Act and applicable state securities laws.
(b) The Shares are only transferable pursuant to (a) a
public offering registered under the Securities Act or (b) pursuant to an
exemption from the registration requirements of the Securities Act and
applicable state securities or blue sky laws .
(c) Each certificate representing Shares shall be endorsed
with the following legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR WITH THE SECURITIES COMMISSION OF ANY STATE UNDER ANY
APPLICABLE STATE SECURITIES OR BLUE SKY LAWS AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT OR IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS
OF THOSE SECURITIES LAWS.
II.2 Qualification, Etc. The Investor acknowledges that the
Company has made available to the Investor at a reasonable time prior to the
execution of this Agreement the opportunity to ask questions and receive answers
concerning the terms and conditions of the sale of securities contemplated by
this Agreement and to obtain any additional information (which the Company
possesses or can acquire without unreasonable effort or expense) as may be
necessary to verify the accuracy of information furnished to such Investor.
Such Investor (a) is able to bear the loss of his entire investment in the
Shares, and (b) has such knowledge and experience in financial and business
matters that he is capable of evaluating the merits and risks of the investment
to be made by it pursuant to this Agreement.
2
<PAGE>
II.3 Accredited Investor. The Investor is an "accredited investor"
within the meaning of Rule 501 promulgated under the Securities Act.
SECTION III. FAIRNESS OPINION
As a condition to the purchase and sale of the Shares, the
Company shall rely on a recent opinion from an investment banking firm that the
transactions contemplated hereby are fair to the Company and the stockholders of
the Company from a financial point of view.
SECTION IV. MISCELLANEOUS.
IV.1 Amendments; Waiver and Consents. This Agreement may be
amended or modified, and the obligations of the Company and the Investor may be
waived only by the written consent of the Company and Investor. Any waiver or
consent may be given subject to satisfaction of conditions stated therein and
any waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given.
IV.2 Assignment. This Agreement may not be assigned by either
party hereto.
IV.3 Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Agreement.
IV.4 Entire Agreement. This Agreement contains the entire
agreement between the parties and supersedes any prior understandings,
agreements or representations by or between the parties, written or oral, which
may have related to the subject matter hereof in any way.
IV.5 Governing Law. The internal law, without regard to conflicts
of laws principles, of the State of California shall govern all questions
concerning the construction, validity and interpretation of this Agreement and
the performance of the obligations imposed by this Agreement.
IV.6 Counterparts. This Agreement may be executed concurrently in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
3
<PAGE>
IN WITNESS WHEREOF, the Company and the Investor has caused this Agreement to be
executed by its duly authorized representative.
EASYRIDERS, INC.
By: /s/ J. Robert Fabregas
------------------------------
Name: J. Robert Fabregas
Title: Chief Financial Officer
Investor:
/s/ John E. Martin
John E. Martin
4
<PAGE>
EXHIBIT 10.56
STOCK PURCHASE AGREEMENT
Stock Purchase Agreement, made and entered into as of July 14, 1999 (the
"Agreement"), between Easyriders, Inc., a Delaware corporation (the "Company")
and Joseph Teresi (the "Investor").
WHEREAS, the Company desires to sell, and the Investor desires to purchase,
subject to the terms and conditions of this Agreement, shares of the Company's
common stock, par value $.001 per share (the "Common Stock");
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Company and the Investor agree as
follows:
SECTION I. AUTHORIZATION; SALE AND PURCHASE OF THE COMPANY'S SECURITIES;
CLOSING.
I.1 Sale and Purchase of Common Stock. Subject to the terms and
conditions hereof, the Company agrees to sell to the Investor and the Investor
agrees to purchase from the Company on the Closing Date, a number of shares of
Common Stock (the "Shares") determined by dividing $250,000 by 75% of the
Average Closing Price of the Common Stock (as hereinafter defined) for an
aggregate cash purchase price of $250,000. The Average Closing Price of the
Common Stock shall mean the average of the daily Closing Prices (as hereinafter
defined) of the Common Stock on the ten consecutive trading days ending on and
including July 14, 1999. The Closing Price shall mean the last recorded sale
price of the Common Stock or, if no such reported sale takes place on such day,
the average of the reported closing bid and asked price of the Common Stock, as
reported on the American Stock Exchange.
I.2 Closing. The closing of the transaction contemplated by this
Agreement (the "Closing") shall take place at 10:00 a.m., Pacific Standard time,
on July 14, 1999 (the "Closing Date") or at such other time or day as may be
mutually acceptable to the Investor and the Company.
I.3 Delivery; Payment. At the Closing, the Company will deliver to
the Investor a certificate, dated the Closing Date, representing the Shares
purchased by the Investor, registered in his name as stated herein (or in the
name of his nominee) against payment to the Company of the purchase price of the
Shares being purchased by the Investor, which payment shall be made in cash.
I.4 Registration Rights. After the Closing Date, the parties
hereto will negotiate in good faith the terms and conditions upon which the
Company will grant the Investor "shelf" and "piggyback" registration rights.
<PAGE>
SECTION II. INVESTMENT REPRESENTATIONS.
The Investor represents that:
II.1 Investment Intent.
(a) The Shares being acquired by the Investor are being
acquired for investment for the Investor's own account and not with the view to,
or for resale in connection with, any distribution or public offering thereof.
The Investor understands that the Shares have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or any state
securities laws by reason of their contemplated issuance in transactions exempt
from the registration requirements of the Securities Act pursuant to Section
4(2) thereof and applicable state securities laws, and that the reliance of the
Company and others upon these exemptions is predicated in part upon this
representation by the Investor. The Investor further understands that the Shares
may not be transferred or resold without (i) registration under the Securities
Act and any applicable state securities laws, or (ii) an exemption from the
requirements of the Securities Act and applicable state securities laws.
(b) The Shares are only transferable pursuant to (a) a public
offering registered under the Securities Act or (b) pursuant to an exemption
from the registration requirements of the Securities Act and applicable state
securities or blue sky laws.
(c) Each certificate representing Shares shall be endorsed
with the following legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR WITH THE SECURITIES COMMISSION OF ANY STATE UNDER ANY
APPLICABLE STATE SECURITIES OR BLUE SKY LAWS AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT OR IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF
THOSE SECURITIES LAWS.
II.2 Qualification, Etc. The Investor acknowledges that the
Company has made available to the Investor at a reasonable time prior to the
execution of this Agreement the opportunity to ask questions and receive answers
concerning the terms and conditions of the sale of securities contemplated by
this Agreement and to obtain any additional information (which the Company
possesses or can acquire without unreasonable effort or expense) as may be
necessary to verify the accuracy of information furnished to such Investor.
Such Investor (a) is able to bear the loss of his entire investment in the
Shares, and (b) has such knowledge and experience in financial and business
matters that he is capable of evaluating the merits and risks of the investment
to be made by it pursuant to this Agreement.
2
<PAGE>
II.3 Accredited Investor. The Investor is an "accredited investor"
within the meaning of Rule 501 promulgated under the Securities Act.
SECTION III. FAIRNESS OPINION
As a condition to the purchase and sale of the Shares, the
Company shall rely on a recent opinion from an investment banking firm that the
transactions contemplated hereby are fair to the Company and the stockholders of
the Company from a financial point of view.
SECTION IV. MISCELLANEOUS.
IV.1 Amendments; Waiver and Consents. This Agreement may be
amended or modified, and the obligations of the Company and the Investor may be
waived only by the written consent of the Company and Investor. Any waiver or
consent may be given subject to satisfaction of conditions stated therein and
any waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given.
IV.2 Assignment. This Agreement may not be assigned by either
party hereto.
IV.3 Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Agreement.
IV.4 Entire Agreement. This Agreement contains the entire
agreement between the parties and supersedes any prior understandings,
agreements or representations by or between the parties, written or oral, which
may have related to the subject matter hereof in any way.
IV.5 Governing Law. The internal law, without regard to conflicts
of laws principles, of the State of California shall govern all questions
concerning the construction, validity and interpretation of this Agreement and
the performance of the obligations imposed by this Agreement.
IV.6 Counterparts. This Agreement may be executed concurrently in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
3
<PAGE>
IN WITNESS WHEREOF, the Company and the Investor has caused this Agreement to be
executed by its duly authorized representative.
EASYRIDERS, INC.
By: /s/ J. Robert Fabregas
-------------------------------
Name: J. Robert Fabregas
Title: Chief Financial Officer
Investor:
/s/ Joseph Teresi
Joseph Teresi
4
<PAGE>
EXHIBIT 10.57
COMMERCIAL LEASE
1. PARTIES.
(a) This Lease is made and entered into as of this 23rd day of July, 1999
by and between Joseph Teresi, a single man (hereinafter referred to as
"Landlord") and Paisano Publications, Inc., a Corporation (hereinafter referred
to as "Tenant").
2. PREMISES.
(a) Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord, on the terms and conditions hereinafter set forth, that certain real
property and the building and improvements located thereon situated in the City
of Agoura Hills, County of Los Angeles, State of California, commonly known as
28216 Dorothy Drive, and described as Lot 11 in Block 1 of Tract 8451 as per map
recorded in book 104, pages 79-90 in the office of the County recorder of said
County. (Said real property is hereinafter called the "Premises").
3. TERM.
(a) The term of this lease shall be for ten (10) years, commencing on July
23, 1999, and ending on July 23, 2009 unless sooner terminated as hereinafter
provided.
4. RENT.
(a) Tenant shall pay to Landlord as rent for the Premises the following
sums per month, in advance on the first day of each month during the term of
this Lease. During the first year of the term of this Lease, a base rent in the
sum of Twenty Thousand Six Hundred Sixty Nine Dollars ($20,699.00) per month, as
the minimum monthly rent.
(b) The minimum monthly rent provided for in paragraph 4(a) shall be
subject to adjustment at the commencement of the second year of the term and
each year thereafter, ("the adjustment date") as follows:
(c) The base for computing the adjustment is the "C.P.I." (as used herein
"C.P.I." shall mean the "United States Department of Labor, Bureau of Labor
Statistics Consumer Price Index For All Urban Consumers" for the metropolitan
area in which the respective premises are located), which is in effect on the
date of the commencement of the term ("Beginning Index"). The Index published
most immediately preceding the adjustment date in question ("Extension Index")
is to be used in determining the amount of the adjustment. If the Extension
Index has increased over the
1
<PAGE>
Beginning Index, the minimum monthly rent for the following year, (until the
next rent adjustment) shall be set by multiplying the minimum monthly rent set
forth in paragraph 4(a) by a fraction, the numerator of which is the Extension
Index and denominator of which is the Beginning Index. However, any annual
adjustments made to the amount of the monthly rent based on the C.P.I. shall not
be less than three percent (3%), and shall not exceed six percent (6%), of the
monthly rent paid during the preceding annual term.
(d) On adjustment of the minimum monthly rent as provided in this lease,
the parties shall immediately execute an amendment to this lease stating the new
minimum monthly rent.
(e) If the index is changed so that the base year differs from that in
effect when the term commences, the Index shall be converted in accordance with
the conversion factor published by the United States Department of Labor, Bureau
of Labor Statistics. If the Index is discontinued or revised during the term,
such other government index or computation with which it is replaced shall be
used in order to obtain substantially the same result as would be obtained if
the Index had not been discontinued or revised.
5. USE.
(a) Tenant shall use the Premises only for activities legal under local
ordinances and other applicable laws and regulations and for no other purpose
without the Landlord's prior written consent.
(b) Tenant shall not do, bring or keep anything in or about the Premises
that will cause a cancellation of any Insurance covering the Premises or the
building in which the Premises are located. If the rate of any insurance carried
by the Landlord is increased as a result of Tenant's use, Tenant shall pay to
Landlord within ten (10) days after written demand from Landlord, the amount of
any such increase. Tenant shall comply with all laws, including any and all
environmental regulations, concerning the Premises or Tenant's use of the
Premises, including without limitation, the obligation at Tenant's cost to
alter, maintain, or restore the Premises in compliance and conformity with all
laws relating to the condition, use or occupancy of the Premises by Tenant
during the term of this Lease. Tenant shall not use or permit the use of the
Premises in any manner that will tend to create waste or a nuisance or, if there
shall be more than one tenant of the building containing the Premises, which
shall unreasonably disturb any other tenant.
2
<PAGE>
(c) Tenant hereby accepts the Premises in their condition existing as of
the date that Tenant possess the Premises, subject to all applicable zoning,
municipal, county and state laws, ordinances, regulations governing or
regulating the use of the Premises, including all applicable environmental rules
and regulations, and accepts this Lease subject thereto and to all matters
disclosed thereby. Tenant hereby acknowledges that neither the Landlord nor
Landlord's agent has made any representation or warranty to Tenant as to the
suitability of the Premises for the conduct of Tenant's business.
6. TAXES.
(a) Real Property Taxes.
Tenant shall pay, prior to delinquency, all real property taxes and general
and special assessments levied and assessed against the Premises during the term
of this Lease as they come due. Landlord shall use its best efforts to cause the
Premises to be separately assessed from other real property owned by Landlord.
If Landlord is unable to obtain such a separate assessment, the assessor's
evaluation based on the building and other improvements that are a part of the
Premises shall be used to determine the real property taxes. If this evaluation
is not available, the parties shall equitably allocate the property taxes
between the building and other improvements that are a part of the Premises and
all buildings and other improvements included in the tax bill. In making the
allocation, the parties shall reasonably evaluate the factors to determine the
amount of the real property taxes so that the allocation of the building and
other improvements that are a part of the Premises will not be less than the
ratio of the total number of square feet of the building and other improvements
that are part of the Premises to the total number of square feet in all
buildings and other improvements included in the tax bill.
(b) Real property taxes attributable to land in the Premises shall be
determined by the ratio that the total number of square feet in the premises
bears to the total number of square feet of land included in the tax bill.
(c) Personal Property Taxes.
Tenant shall pay prior to their delinquency all taxes assessed against and
levied upon the trade fixtures, furnishings, equipment and other personal
property of Tenant contained in the Premises. Tenant shall endeavor to cause
such trade fixtures, furnishings and equipment and all other personal property
to be assessed and billed separately from the property of the Landlord. If any
of Tenant's said personal property shall be assessed with Landlord's property,
Tenant shall pay to Landlord the taxes attributable to Tenant within ten (10)
days after receipt of a written statement from Landlord setting forth the taxes
applicable to Tenant's property.
3
<PAGE>
7. UTILITIES.
(a) Tenant shall make all arrangements and pay for all water, gas, heat,
light, power, telephone and other utility services supplied to the Premises
together with any taxes thereon and for all connection charges. If any such
services are not separately metered to Tenant, the Tenant shall pay a reasonable
proportion, to be determined by Landlord, of all charges jointly metered with
other premises.
8. MAINTENANCE AND REPAIRS.
(a) Tenant's Obligations:
Subject to the provisions of Article 12, Tenant at Tenant's sole cost and
expense shall keep in good order, condition and repair the Premises and every
part thereof, including, without limitation, all Tenant's personal property,
fixtures, signs, store fronts, plate glass, show windows, doors, interior walls,
interior ceilings, and lighting facilities. Tenant shall also be responsible for
exterior walls, plumbing, roofs, wiring,heating, ventilation, air conditioning,
parking lots, sidewalks, driveways and landscaping, and for all tenant
improvements.
(b) If Tenant fails to perform Tenant's obligations as stated herein,
Landlord may, (but shall not be required to) at its option, enter the Premises,
after ten (10) days prior written notice to Tenant, and put the same in good
order, condition and repair. The costs thereof together with interest thereon at
the rate of ten (10%) percent per annum shall become due and payable as
additional rent to Landlord together with Tenant's next rental installment.
9. TRIPLE NET LEASE.
This is intended to be a "triple net" lease, and Tenant is responsible for
all expenses and costs.
10. ALTERATIONS AND ADDITIONS.
(a) Tenant shall not, without the Landlord's prior written consent, make
any alterations, improvements or additions in or about the Premises except for
non-structural work which does not exceed five thousand dollars ($5,000.00) in
cost. As a condition to giving any such consent, the Landlord may require the
Tenant to remove any such alterations, improvements, or additions at the
expiration of the term, and to restore the Premises to their prior condition by
giving Tenant thirty (30) days written notice prior to the expiration of the
term that Landlord requires Tenant to remove any such alterations, improvements
or additions that Tenant has
4
<PAGE>
made to the Premises. If Landlord so elects, Tenant at its sole cost shall
restore the Premises to the condition designated by Landlord in its election
before the last day of the term of this Lease.
(b) Before commencing any work relating to the alterations, additions, or
improvements affecting the Premises, Tenant shall notify Landlord in writing of
the expected date of the commencement of such work so that Landlord can post and
record the appropriate notices of non-responsibility, if applicable, to protect
Landlord from any mechanic's liens, materialman liens, or any other liens. In
any event, Tenant shall pay, when due, all claims for labor and materials
furnished to or for Tenant at or for use in the Premises. Tenant shall not
permit any mechanic's liens or materialman's liens to be levied against the
Premises for any labor or material furnished to Tenant or claimed to have been
furnished to Tenant or Tenant's agents or contractors in connection with work of
any character performed or claimed to have been performed on the Premises by or
at the direction of Tenant. Tenant shall have the right to assess the validity
of any such lien if, immediately on demand by Landlord, Tenant procures and
records a lien release bond meeting all state and local requirements of the
jurisdiction in which the Premises are located, and which shall provide for the
payment of any sum that the claimant may recover on the claim (together with
costs of suit, if it is recovered in the action).
(c) Unless the Landlord requires their removal as set forth above, all
alterations, improvements or additions which are made on the Premises by the
Tenant shall become the property of the Landlord and remain upon and be
surrendered with the Premises at the expiration of the term. Notwithstanding the
provisions of this paragraph, Tenant's trade fixtures, furniture, equipment and
other machinery, other than that which is affixed to the Premises so that it
cannot be removed without material or structural damage to the Premises, shall
remain the property of the Tenant and be removed by Tenant at the expiration of
the term of this Lease.
11. INSURANCE: INDEMNITY
(a) Fire Insurance.
Tenant at its cost shall maintain during the term of this Lease on the
Premises a policy or policies of standard fire and extended coverage insurance
to the extent of at least ninety (90%) percent of full replacement value
thereof. Said insurance policies shall be issued in the name of the Landlord and
Tenant, as their interests may appear.
(b) Tenant at its cost shall maintain during the term of this Lease on all
its personal property, Tenant's improvements, and alterations in or about the
Premises, a policy of standard fire and extended coverage insurance, with
vandalism and malicious mischief
5
<PAGE>
endorsements, to the extent of their full replacement value. The proceeds from
any such policy shall be used by Tenant for the replacement of personal property
or the restoration of Tenant's improvements or alterations.
(c) Liability Insurance.
Tenant at its sole cost and expense shall maintain during the term of this
Lease public liability, property damage and products and completed operations
liability insurance, insuring Tenant and Tenant's employees and authorized
representatives against all bodily injury, property damage, personal injury, and
other loss or liability connected with Tenant's maintenance, occupation and use
of the Premises under this Lease in amounts not less than $1,000,000.00 per
occurrence, $2,000,000.00 annual aggregate bodily injury and property damage
combined single limit as a result of any accident or incident. Both public
liability insurance and property damage insurance shall insure performance by
Tenant of the indemnity provision of sub-paragraph (e) below, but the limits of
such insurance shall not, however, limit the liability of Tenant hereunder. Both
Landlord and Tenant shall be named as additional insureds, and the policies
shall contain cross-liability endorsements. If Tenant shall fail to procure and
maintain such insurance the Landlord may, but shall not be required to, procure
and maintain same at the expense of Tenant and the cost thereof, together with
interest thereon at the rate of ten (10%) percent per annum, shall become due
and payable as additional rental to Landlord together with Tenant's next rental
installment. Tenant shall deliver copies of said policies to Landlord within ten
(10) days of their issuance, and shall not cancel or modify same without first
providing thirty (30) days notice to Landlord.
In the event that Landlord determines, in Landlord's reasonable judgement,
that the limits of public liability, property damage, or products liability
insurance then carried by Tenant are materially less than the amount or type of
insurance typically carried by owners or tenants of properties located in the
same county in which the Premises are located, which are similar to and operated
for similar business purposes a the Premises, Landlord may elect to require
Tenant to increase the amount of specific coverage, change the type of policy
carried, or both. If Landlord so elects, Tenant shall be notified in writing of
the specific change in policy amount or type required and shall have 30 days
after the date of Landlord's notice to effect the change in amount or type of
policy. Unless otherwise agreed by Landlord and Tenant, any adjustment under
this section may be made not more than every year.
(d) Earthquake Insurance.
Tenant at its sole cost and expense shall maintain during the term of this
Lease earthquake insurance insuring the Premises under
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this Lease for at least $1,280,000, subject to no more than a 15% deductible.
Both Landlord and Tenant shall be named as additional insureds. If Tenant shall
fail to procure and maintain such insurance the Landlord may, but shall not be
required to, procure and maintain same at the expense of Tenant and the cost
thereof, together with interest thereon at the rate of ten (10%) percent per
annum, shall become due and payable as additional rental to Landlord together
with Tenant's next rental installment. Tenant shall deliver copies of said
policies to Landlord within ten (10) days of their issuance, and shall not
cancel or modify same without first providing thirty (30) days notice to
Landlord.
(e) Waiver of Subrogation.
Tenant and Landlord each waives any and all rights of recovery against the
other, or against the officers, employees, agents, and representatives of the
other, for loss of or damage to such waiving party or its property or the
property of others under its control, where such loss or damage is insured
against under any insurance policy in force at the time of such loss or damage.
Each party shall cause each insurance policy obtained by it hereunder to provide
that the insurance company waives all right to recovery by way of subrogation
against either party in connection with any damage covered by any such policy.
(f) Hold Harmless.
Tenant shall indemnify and hold Landlord harmless from and against any and
all claims arising from Tenant's use or occupancy of the Premises or from the
conduct of its business or from any activity, work, or things which may be
permitted or suffered by Tenant in or about the Premises including all damage,
costs, attorney's fees, expenses and liabilities incurred in the defense of any
claim or action or proceeding arising therefrom. Except for Landlord's willful
or grossly negligent conduct, Tenant hereby assumes all risk of damage to
property or injury to person in or about the Premises from any cause, and Tenant
hereby waives all claims in respect thereof against Landlord.
(g) Exemption of Landlord from Liability.
Except for Landlord's willful or grossly negligent conduct, Tenant hereby
agrees that Landlord shall not be liable for any injury to Tenant's business or
loss of income therefrom or for damage to the goods, wares, merchandise, or
other property of Tenant, Tenant's employees, invitees, customers or any other
person in or about the Premises; nor shall Landlord be liable for injury to the
person of Tenant, Tenant's employees, agents, contractors, or invitees, whether
such damage or injury is caused by or results from fire, steam, electricity,
gas, water or rain, or from the breakage, leakage, obstruction or other defects
of pipes, sprinklers, wires, appliances, plumbing, air conditioning, or lighting
fixtures, or from any other cause, whether such damage results from conditions
arising upon the Premises or upon other
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portions of the building in which the Premises are a part, or from any other
sources or places. Landlord shall not be liable to Tenant for any damages
arising from any act or neglect of any other tenant, if any, of the building in
which the Premises are located.
12. DAMAGE OR DESTRUCTION.
(a) Damage--Insured.
If during the term of this Lease, the Premises and/or the building and
other improvements in which the Premises are located are totally or partially
destroyed rendering the Premises totally or partially inaccessible or unusable,
and such damage or destruction was caused by casualty covered under an insurance
policy required to be maintained hereunder, Landlord shall restore the Premises
and/or the building and other improvements in which the Premises are located
into substantially the same condition as they were in immediately before such
damage or destruction, provided that the restoration can be made under the
existing laws and can be completed within one hundred and twenty (120) working
days after the date of such destruction or damage. Such destruction or damage
shall not terminate this Lease.
(b) If the restoration cannot be made in said 120 day period, then within
fifteen (15) days after the parties hereto determine that the restoration cannot
be made in the time stated in this paragraph, Tenant may terminate this Lease
immediately by giving notice to the Landlord and the Lease will be deemed
cancelled as of the date of such damage or destruction. If Tenant fails to
terminate this Lease and the restoration is permitted under the existing laws,
Landlord, at its option, may terminate this Lease, or restore the Premises
and/or any other improvements in which the Premises are located within a
reasonable time and this Lease shall continue in full force and effect. If the
existing laws do not permit the restoration, either party can terminate this
Lease immediately by giving notice to the other party.
(c) Notwithstanding the above, if the Tenant is the insuring party and if
the insurance proceeds received by the Landlord are not sufficient to effect
such repair, Landlord shall give notice to Tenant of the amount required in
addition to the insurance proceeds to effect such repair. Tenant may, at
Tenant's option, contribute the required amount, but upon failure to do so
within thirty (30) days following such notice, Landlord's sole remedy shall be,
at Landlord's option and with no liability to Tenant, to cancel and terminate
this Lease. If Tenant shall contribute such amount to Landlord within said
thirty (30) day period, Landlord shall make such repairs as soon as reasonably
possible and this Lease shall continue in full force and effect. Tenant shall in
no event have
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any right to reimbursement for any amount so contributed.
(d) Damage - Uninsured.
In the event that the Premises are damaged or destroyed by a casualty which
is not covered by the fire and extended coverage insurance which is required to
be carried by the party designated in Article 11(a) above, then Landlord shall
restore the same; provided that if the damage or destruction is to an extent
greater than ten (10%) percent of the then replacement cost of the improvements
on the Premises (exclusive of Tenant's trade fixtures and equipment and
exclusive of foundations and footings), then Landlord may elect not to restore
and to terminate this Lease. Landlord must give to Tenant written notice of its
intention not to restore within thirty (30) days from the date of such damage or
destruction and, if not given, Landlord shall be deemed to have elected to
restore and in such event shall repair any damage as soon as reasonably
possible. In the event that Landlord elects to give such notice of Landlord's
intention to cancel and terminate this lease, Tenant shall have the right,
within ten (10) days after receipt of such notice, to give written notice to
Landlord of Tenant's intention to repair such damage at Tenant's expense,
without reimbursement from Landlord, in which event the lease shall continue in
full force and effect and Tenant shall proceed to make such repairs as soon as
reasonably possible. If the Tenant does not give such notice within such 10 day
period, this Lease shall be cancelled and be deemed terminated as of the date of
the occurrence of such damage or destruction.
(e) Damage Near the End of the Term.
If the Premises are totally or partially destroyed during the last twelve
(12) months of the term of this Lease, Landlord may, at Landlord's option,
cancel and terminate this Lease as of the date of the cause of such damage by
giving written notice to Tenant of Landlord's election to do so within 30 days
after the date of the occurrence of such damage; provided, however, that, if the
damage or destruction occurs within the last 12 months of the term and if within
fifteen (15) days after the date of such damage or destruction Tenant exercises
any option to extend the term provided herein, Landlord shall restore the
Premises if obligated to do so as provided in subparagraphs (a)(b) and (c) or
(d) above.
(f) Abatement of Rent.
If the Premises are partially or totally destroyed or damaged and Landlord
or Tenant repairs or restores them pursuant to the provisions of this Article
12, the rent payable hereunder for the period during which such damage, repair
or restoration continues shall be abated in proportion to the degree to which
Tenant's reasonable use of the Premises is impaired. Except for the abatement of
rent, if any, Tenant shall have no claim against Landlord for any damages
suffered by reason of any such damage, destruction, repair or restoration.
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(g) Trade Fixtures and Equipment.
If Landlord is required or elects to restore the Premises as provided in
this Article, Landlord shall not be required to restore Tenant's improvements,
trade fixtures, equipment or alterations made by Tenant, such excluded items
being the sole responsibility of Tenant to restore hereunder.
(h) Total Destruction-Multitenant Building.
If the Premises are a part of a multitenant building and there is
destruction to the Premises and/or the building of which the Premises are a part
that exceeds fifty (50%) percent of the then replacement value of the Premises
and/or the building in which the Premises are a part from any cause whether or
not covered by the insurance described in Article 11 above, Landlord may, at its
option, elect to terminate this Lease (whether or not the Premises are
destroyed) so long as Landlord terminates the leases of all other tenants in the
building of which the Premises are a part, effective as of the date of such
damage or destruction.
13. CONDEMNATION.
(a) If the Premises or any portion thereof are taken by the power of
eminent domain, or sold by Landlord under the threat of exercise of such power
(all of which is herein referred to as "condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority takes
title or possession, whichever occurs first. If more than twenty (20%) percent
of the floor area of any buildings on the Premises, or more than twenty (20%)
percent of the land area of the Premises not covered with buildings, is taken by
condemnation, either Landlord or Tenant may terminate this Lease as of the date
the condemning authority takes possession by notice in writing of such election
within twenty (20) days after Landlord shall have notified Tenant of such taking
or, in the absence of such notice, then within twenty (20) days after the
condemning authority shall have taken possession.
(b) If this Lease is not terminated by either Landlord or Tenant as
provided hereinabove, then it shall remain in full force and effect as to the
portion of the Premises remaining, provided that the rental shall be reduced in
proportion to the floor area of the buildings taken within the Premises as bears
to the total floor area of all buildings located on the Premises. In the event
this Lease is not so terminated, then Landlord agrees at Landlord's sole cost
and expense, to as soon as reasonably possible restore the Premises to a
complete unit of like quality and character as existed prior to the
condemnation.
(c) All awards for the taking of any part of the Premises or
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any payment made under the threat of the exercise of the power of eminent domain
shall be the property of the Landlord, whether made as compensation for the
diminution of the value of the leasehold or for the taking of the fee or as
severance damages: provided, however, that Tenant shall be entitled to any award
for loss of or damage to Tenant's trade fixtures and removable personal
property.
(d) Each party hereby waives any provisions of the laws or regulations of
the jurisdiction in which the Premises are located allowing either party to
petition the Court to terminate this lease in the event of partial taking of the
Premises.
(e) Rent shall be abated or reduced during the period from the date of
taking until the completion of restoration by Landlord, but all other
obligations of Tenant under this Lease shall remain in full force and effect.
The abatement or reduction of the rent shall be based on the extent to which the
restoration interferes with Tenant's use of the Premises.
14. ASSIGNMENT AND SUBLETTING.
(a) Tenant shall not voluntarily or by operation of law assign, transfer,
sublet, mortgage, or otherwise transfer or encumber all or any part of Tenant's
interest in this Lease or in the Premises without Landlord's prior written
consent which consent shall not be unreasonably withheld. Any attempted
assignment, transfer, mortgage, encumbrance, or subletting without such consent
shall be void and shall constitute a breach of this Lease. If Tenant is a
corporation, any dissolution, merger, consolidation or other reorganization of
Tenant, or the sale or other transfer of a controlling percentage of the capital
stock of Tenant, or the sale of at least fifty-one (51%) percent of the value of
the assets of Tenant shall be deemed a voluntary assignment. The phrase
"controlling percentage" means the ownership of, and the right to vote, stock
possessing at least fifty-one (51%) percent of the total combined voting power
of all classes of Tenant's capital stock issued, outstanding, and entitled to
vote for the election of directors. This paragraph shall not apply to
corporations the stock of which is traded through an exchange or over the
counter.
(b) Regardless of Landlord's consent, no subletting or assignment shall
release Tenant of Tenant's obligation to pay rent and to perform all other
obligations to be performed by Tenant hereunder for the term of this Lease. The
acceptance of rent by Landlord from any other person shall not be deemed a
waiver by Landlord of any provision hereof. Consent to one assignment or
subletting shall not be deemed consent to any subsequent assignment or
subletting.
15. DEFAULT.
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(a) Events of Default.
The occurrence of any one or more of the following events shall constitute
a default and breach of this Lease by Tenant:
(1) Failure to pay rent when due, if the failure continues for five (5)
days after written notice has been given to Tenant.
(2) Abandonment and vacation of the Premises (failure to occupy the
Premises for fourteen (14) consecutive days shall be deemed an abandonment and
vacation).
(3) Failure to perform any other provision of this Lease if the failure
to perform is not cured within thirty (30) days after written notice thereof has
been given to Tenant by Landlord. If the default cannot reasonably be cured
within said thirty (30) day period, Tenant shall not be in default under this
Lease if Tenant commences to cure the default within the thirty (30) day period
and diligently prosecutes the same to completion.
(4) The making by Tenant of any general assignment, or general
arrangement for the benefit of creditors; the filing by or against Tenant of a
petition to have Tenant adjudged a bankrupt or a petition for reorganization or
arrangement under any law relating to bankruptcy unless the same is dismissed
within sixty (60) days; the appointment of a trustee or receiver to take
possession of substantially all of Tenant's assets at the Premises or of
Tenant's interest in this Lease, where possession is not restored to Tenant
within thirty (30) days; or the attachment, execution or other judicial seizure
of substantially all of Tenant's assets located at the Premises or of Tenant's
interest in the Lease, where such seizure is not discharged within thirty (30)
days.
(b) Notices given under this paragraph shall specify the alleged default
and the applicable Lease provisions, and shall demand that Tenant perform the
provisions of this Lease or pay the rent that is in arrears as the case may be,
within the applicable period of time. No such notice shall be deemed a
forfeiture or a termination of this Lease unless Landlord so elects in the
notice.
(c) Landlord's Remedies.
The Landlord shall have the following remedies if Tenant commits a default
under this Lease. These remedies are not exclusive but are cumulative and in
addition to any remedies now or hereafter allowed by law.
(1) Landlord can continue this Lease in full force and effect, and the
Lease will continue in effect so long as Landlord does not terminate Tenant's
right to possession, and the Landlord shall have the right to collect rent when
due. During the period
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that Tenant is in default, Landlord can enter the Premises and relet them, or
any part of them, to third parties for Tenant's account. Tenant shall be liable
immediately to the Landlord for all costs the Landlord incurs in reletting the
Premises, including, without limitation, broker's commissions, expenses of
remodelling the Premises required by the reletting, and like costs. Reletting
can be for a period shorter or longer than the remaining term of this Lease.
Tenant shall pay to Landlord the rent due under this Lease on the dates the rent
is due, less the rent Landlord receives from any reletting. No act by Landlord
allowed by this paragraph shall terminate this Lease unless Landlord notifies
Tenant that Landlord elects to terminate this lease. After tenant's default and
for so long as Landlord has not terminated Tenant's right to possession of the
Premises, if Tenant obtains Landlord's consent, Tenant shall have the right to
assign or sublet its interest in the Lease, but Tenant shall not be released
from liability. Landlord's consent to the proposed assignment or subletting
shall not be unreasonably withheld.
(2) If Landlord elects to relet the Premises as provided in this
paragraph, any rent that Landlord receives from such reletting shall apply first
to the payment of any indebtedness from Tenant to Landlord other than the rent
due from Tenant to Landlord; secondly, to all costs, including maintenance,
incurred by Landlord in such reletting; and third, to any rent due and unpaid
under this Lease. After deducting the payments referred to in this paragraph,
any sum remaining from the rent Landlord receives from such reletting shall be
held by Landlord and applied in payment of future rent as rent becomes due under
this Lease. In no event shall tenant be entitled to any excess rent received by
Landlord. If, on the date rent is due under this Lease, the rent received from
the reletting is less than the rent due on that date, Tenant shall pay to
Landlord, in addition to the remaining rent due, all costs, including
maintenance, that Landlord shall have incurred in reletting, that remain after
applying the rent received from the reletting as provided by this paragraph.
(3) Landlord can, at its option, terminate Tenant's right to possession
of the Premises at any time. No act by Landlord other than giving written notice
to Tenant shall terminate this Lease. Acts of maintenance, efforts to relet the
Premises, or the appointment of a receiver on Landlord's initiative to protect
Landlord's interest in this Lease shall not constitute a termination of Tenant's
right to possession, in the event of such termination, Landlord has the right to
recover from Tenant:
(i) The worth, at the time of the award, of the unpaid rent that
had been earned at the time of the termination of this Lease;
(ii) The worth, at the time of the award, of
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the amount by which the unpaid rent that would have been earned after the date
of the termination of this Lease until the time of the award exceeds the amount
of the loss of rent that Tenant proves could have been reasonably avoided;
(iii) The worth, at the time of the award, of the amount by which
the unpaid rent for the balance of the term after the time of the award exceeds
the amount of the loss of rent that Tenant proves could have been reasonably
avoided; and
(iv) Any other amount, including court costs, necessary to
compensate Landlord for all detriment proximately caused by Tenant's default.
"The worth at the time of the award," as used in (i) and (ii) of this
para-graph is to be computed by allowing interest at the maximum rate
an individual is permitted by Law to charge. "The worth at the time of
the award" as referred to in (iii) of this paragraph is to be computed
by discounting the amount at the discount rate of the Federal Reserve
Bank most proximately located to the Premises at the time of the award,
plus one (1%) percent.
(4) If Tenant is in default under the terms of this Lease, Landlord
shall have the additional right to have a receiver appointed to collect rent and
conduct Tenant's business. Neither the filing of a petition for the appointment
of a receiver nor the appointment itself shall constitute an election by
Landlord to terminate this Lease.
(5) Landlord at any time after Tenant commits a default, can cure the
default at Tenant's cost and expense. If Landlord at any time, by reason of
Tenant's default, pays any sum or does any act that requires the payment of any
sum, the sum paid by Landlord shall be due immediately from Tenant to Landlord
at the time the sum is paid, and if paid at a later date shall bear interest at
the maximum rate an individual is permitted by law to charge from the date the
sum is paid by Landlord until Landlord is reimbursed by Tenant. The sum,
together with interest thereon, shall be considered additional rent.
16. SIGNS.
(a) Tenant shall not have the right to place, construct or maintain any
sign, advertisement, awning, banner, or other exterior decorations on the
building or other improvements that are part of the Premises without Landlord's
prior, written consent, which consent shall not be unreasonably withheld.
17. EARLY POSSESSION.
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(a) In the event that the Landlord shall permit Tenant to occupy the
Premises prior to the commencement date of the term of this Lease, such
occupancy shall be subject to all the provisions of this Lease. Said early
possession shall not advance the termination date of this Lease.
18. SUBORDINATION.
(a) This Lease, at Landlord's option, shall be subordinate to any ground
lease, mortgage, deed of trust, or any other hypothecation for security now or
hereafter placed upon the real property of which the Premises are a part and to
any and all advances made on the security thereof and to all renewal,
modifications, and extensions thereof. Notwithstanding any such subordination,
Tenant's right to quiet possession of the Premises shall not be disturbed if
Tenant is not in default and so long as Tenant shall pay the rent and observe
and perform all the other provisions of this Lease, unless this Lease is
otherwise terminated pursuant to its terms. If any mortgagee, trustee, or ground
lessor shall elect to have this Lease prior to the lien of its mortgage or deed
of trust or ground lease, and shall give written notice thereof to Tenant, this
Lease shall be deemed prior to such mortgage, deed of trust or ground lease,
whether this Lease is dated prior to or subsequent to the date of such mortgage,
deed of trust or ground lease, or the date of recording thereof. Tenant agrees
to execute any documents required to effect such subordination or to make this
Lease prior to the lien of any mortgage, deed of trust, or ground lease, as the
case may be, and failing to do so within ten (10) days after written demand from
Landlord does hereby make, constitute and irrevocably appoint Landlord as
Tenant's attorney in fact and in Tenant's name, place and stead to do so.
19. SURRENDER.
(a) On the last day of the term hereof, or on any sooner termination,
Tenant shall surrender the Premises to Landlord in good condition, broom clean,
ordinary wear and tear accepted. Tenant shall repair any damage to the Premises
occasioned by its use thereof, or by the removal of Tenant's trade fixtures,
furnishings and equipment which repair shall include the patching and filling of
holes and repair of structural damage. Tenant shall remove all of its personal
property and fixtures on the Premises prior to the expiration of the term of
this Lease and if required by Landlord pursuant to Article 10(a) above, any
alterations, improvements or additions made by Tenant to the Premises. If Tenant
fails to surrender the Premises to Landlord on the expiration of the Lease as
required by this paragraph, Tenant shall hold Landlord harmless from all damages
resulting from Tenant's
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failure to vacate the Premises, including, without limitation, claims made by
succeeding tenant resulting from Tenant's failure to surrender the Premises.
20. HOLDING OVER.
(a) If the Tenant, with the Landlord's consent, remains in possession of
the Premises after the expiration or termination of the term of this Lease, such
possession by Tenant shall be deemed to be a tenancy from month-to-month at a
rental in the amount of the last monthly rental plus all other charges payable
hereunder, upon all the provisions of this Lease applicable to month-to month
tenancy.
21. BINDING ON SUCCESSORS AND ASSIGNS.
(a) The terms, conditions and covenants of this Lease shall be binding upon
and shall inure to the benefit of each of the parties hereto, their heirs,
personal representatives, successors and assigns.
22. NOTICES.
(a) Whenever under this Lease a provision is made for any demand, notice or
declaration of any kind, it shall be in writing and served either personally or
sent by registered or certified United States mail, postage prepaid, addressed
as set forth below;
TO LANDLORD AT: 2400 Laguna Drive
Fort Lauderdale, FL 33316
TO TENANT AT: 28210 Dorothy Drive
Agoura Hills, CA 91301-2693
(b) Such notice shall be deemed to be received within forty-eight (48)
hours from the time of mailing, if mailed as provided in this paragraph.
23. LANDLORD'S RIGHT TO INSPECTIONS.
(a) Landlord and Landlord's agent shall have the right to enter the
Premises at reasonable times for the purpose of inspecting same, showing the
same to prospective purchasers or lenders, and making such alterations, repairs,
improvements or additions to the Premises or to the building of which the
Premises are a part as Landlord may deem necessary or desirable. Landlord
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may at any time place on or about the Premises any ordinary "For Sale or Lease"
signs, all without rebate of rent or liability to Tenant.
24. CHOICE OF LAW.
(a) This Lease shall be governed by the laws of the state in which the
Premises are located.
25. ATTORNEY'S FEES.
(a) If either Landlord or Tenant becomes a party to any litigation or
arbitration concerning this Lease, the premises, or the building or other
improvements in which the Premises are located, by reason of any act or omission
of the other party or its authorized representatives, and not by reason of any
act or omission of the party that becomes a party to that litigation or any act
or omission of its authorized representatives, the party that causes the other
party to become involved in the litigation shall be liable to that party for
reasonable attorney's fees and court costs incurred by it in the litigation.
(b) If either party commences an action against the other party arising out
of or in connection with this Lease, the prevailing party shall be entitled to
have and recover from the losing party reasonable attorney's fees and costs of
suit.
26. LANDLORD'S LIABILITY.
(a) The term "Landlord" as used in this Lease shall mean only the owner or
owners at the time in question of the fee title or of Lessee's interest in a
ground lease of the Premises, and in the event of any transfer of such title or
interest, Landlord herein named (and in case of subsequent transfers to the then
successor) shall be relieved from and after the date of such transfer of all
liability in respect to Landlord's obligations thereafter to be performed. The
obligations contained in this Lease to be performed by Landlord shall be binding
upon the Landlord's successors and assigns, only during their respective periods
of ownership.
27. WAIVERS.
(a) No waiver by Landlord of any provision hereof shall be deemed a waiver
of any other provision hereof or of any subsequent breach by Tenant of the same
or any other provision. Landlord's consent to or approval of any act shall not
be deemed to render unnecessary the obtaining of Landlord's consent to or
approval of any subsequent act by Tenant. The acceptance of rent hereunder by
Landlord shall not be a wavier of any preceding breach by Tenant of any
provision hereof, other than the failure of Tenant to pay the
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particular rent so accepted, regardless of Landlord's knowledge of such
preceding breach at the time of its acceptance of such rent.
28. INCORPORATION OF PRIOR AGREEMENTS.
(a) This Lease contains all agreements of the parties with respect to any
matter mentioned herein. No prior agreement or understanding pertaining to any
such matter shall be effective. This Lease may be modified only in writing, and
signed by the parties in interest at the time of such modification.
29. TIME.
(a) Time is of the essence of this Lease.
30. SEVERABILITY.
(a) The unenforceability, invalidity, or illegality of any provision of
this Lease shall not render the other provisions hereof unenforceable, invalid
or illegal.
31. ESTOPPEL CERTIFICATES.
(a) Each party, within ten (10) days after notice from the other party,
shall execute and deliver to the other party a certificate stating that this
Lease is unmodified and in full force and effect, or in full force and effect as
modified, and stating the modification. The certificate shall also state the
amount of minimum monthly rent, the dates to which rent has been paid in
advance, and the amount of any security deposit or prepaid rent, if any, as well
as acknowledging that there are not, to the party's knowledge, any uncured
defaults on the part of the other party, or specifying such defaults, if any,
which are claimed. Failure to deliver such a certificate within the ten (10) day
period shall be conclusive upon the party failing to deliver the certificate to
the benefit of the party requesting the certificate that this Lease is in full
force and effect, that there are no uncured defaults hereunder, and has not been
modified except as may be represented by the party requesting the certificate.
32. COVENANTS AND CONDITIONS.
(a) Each provision of this Lease performable by Tenant shall be deemed both
a covenant and condition.
33. SINGULAR AND PLURAL.
(a) When required by the context of this Lease, the singular shall include
the plural.
34. JOINT AND SEVERAL OBLIGATIONS.
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(a) "Party" shall mean Landlord and Tenant, and if more than one person or
entity is the Landlord or Tenant, the obligations imposed on that party shall be
joint and several.
35. REVIEW OF RENTS.
(a) Landlord and Tenant agree that during the fifth year of this Lease
Agreement Landlord shall have the power and authority to adjust the monthly rent
upward in an amount equal to the then fair market rental for the Premises (based
on a review of the rental rates for comparable premises in the same area), and
for the subsequent years of the lease term rent shall be subject to "C.P.I."
increases, as set forth in Article 4. herein. In no event shall the amount of
the monthly rent be lowered or adjusted downward pursuant to this paragraph.
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36. INDEPENDENT AGREEMENTS.
(a) Landlord acknowledges that this is one of two commercial leases made
and entered into this date by Landlord and Tenant, and agrees that each Lease is
a separate and independent agreement, and that the provisions of each lease may
be exercised by Landlord and Tenant, independently and without regard to the
exercise of the provisions in any other lease. Further, Landlord agrees that the
default of Tenant as to the terms and conditions of one lease, shall in no way
affect Tenant's rights to exercise or not exercise its options pursuant to those
other leases executed between the parties, for which it is not in default.
37. LANDLORD AND TENANT.
(a) Landlord and Tenant expressly recognize and agree that Tenant shall not
be responsible for correcting, eliminating or removing any environmental hazards
or conditions on the premises which were neither caused by nor the result of
Tenant's acts or omissions, and that this paragraph 37 shall supersede and
modify any contrary or inconsistent terms or provisions, if any, which may be
found elsewhere in this Lease.
The parties have executed this Lease on the date first above written.
LANDLORD: TENANT:
By: /s/ Joseph Teresi By: /s/ Robert Davis, CFO
------------------------- -------------------------
By: By: /s/ Rick Busman, VPIS
------------------------- -------------------------
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EXHIBIT 10.58
LOAN AGREEMENT
THIS LOAN AGREEMENT (this "Agreement") is made as of June 1, 1999, by and
between FFCA ACQUISITION CORPORATION, a Delaware corporation ("FFCA"), whose
address is 17207 North Perimeter Drive, Scottsdale, Arizona 85255, and M&B
RESTAURANTS, LC, a Texas limited liability company ("Debtor"), whose address is
28210 Dorothy Drive, Agoura Hills, California 91301.
PRELIMINARY STATEMENT:
Unless otherwise expressly provided herein, all defined terms used in this
Agreement shall have the meanings set forth in Section 1. Debtor has requested
from FFCA, and applied for, the Loan. The Loan will be evidenced by a Note. FFCA
has committed to make the Loan pursuant to the terms and conditions of this
Agreement and other Loan Documents.
AGREEMENT:
In consideration of the mutual covenants and provisions of this Agreement,
the parties agree as follows:
1. Definitions. The following terms shall have the following meanings for
all purposes of this Agreement:
"Action" has the meaning set forth in Section 10.A(4).
"Affiliate" means any Person which directly or indirectly controls, is
under common control with, or is controlled by any other Person. For purposes of
this definition, "controls", "under common control with" and "controlled by"
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of such Person, whether through
ownership of voting securities or otherwise.
"Business Day" means any day on which FFCA is open for business other than
a Saturday, Sunday or a legal holiday, ending at 5:00 PM Phoenix time.
"Capital Lease" has the meaning set forth in Section 7.B.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" means the United States Bankruptcy Code, 11 U.S.C. Sec. 101 et seq.,
as amended.
"Commitment" means that certain Commitment Letter dated March 3, 1999,
between FFCA and Debtor, and any amendments or supplements thereto.
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"Corporate Fixed Charge Coverage Ratio" has the meaning set forth in
Section 7.B.
"Counsel" means legal counsel to Debtor and Guarantors, licensed in the
state(s) in which (i) Debtor is incorporated or formed and (ii) Debtor and
Guarantors reside or maintain a principal place of business, as applicable, as
selected by Debtor and Guarantors and approved by FFCA.
"Debt" has the meaning set forth in Section 7.B.
"Debtor Entities" means, collectively, Debtor, Guarantors and any Affiliate
of Debtor and Guarantors.
"Depreciation and Amortization" has the meaning set forth in Section 7.B.
"Disclosure" has the meaning set forth in Section 13.P.
"Event of Default" has the meaning set forth in Section 10.
"FCCR Amount" has the meaning set forth in Section 10.A(6).
"Fee" means an underwriting, site assessment, processing and commitment fee
equal to 1% of the sum of the Loan Amount, which Fee shall be payable as set
forth in Section 3.
"FFCA Entities" means, collectively, FFCA, Franchise Finance and any
Affiliate of FFCA or Franchise Finance.
"Franchise Finance" means Franchise Finance Corporation of America, a
Delaware corporation, and its successors.
"GAAP" means generally accepted accounting principles consistently applied.
"Governmental Authority" means any governmental authority, agency,
department, commission, bureau, board, instrumentality, court or
quasi-governmental authority.
"Guarantors" means William E. Prather, Marna Prather and John E. Martin.
"Guaranty" means the unconditional guaranty of payment and performance
dated as of the date of this Agreement to be executed by Guarantors for the
benefit of FFCA with respect to the Loan, as the same may be amended from time
to time.
"Indemnified Parties" has the meaning set forth in Section 12.
"Interest Expense" has the meaning set forth in Section 7.B.
"Loan" means the loan described in Section 2.
"Loan Amount" means $475,000.00.
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"Loan Documents" means, collectively, this Agreement, the Note, and all
other documents executed in connection therewith or contemplated thereby.
"Net Income" has the meaning set forth in Section 7.B.
"Note" means the promissory note dated as of the date of this Agreement to
be executed by Debtor in favor of FFCA, as the same may be amended from time to
time.
"Operating Lease Expense" has the meaning set forth in Section 7.B.
"Other Agreements" means, collectively, all agreements and instruments
between, among or by (1) any of the Debtor Entities, and, or for the benefit of,
(2) any of the FFCA Entities, including, without limitation, promissory notes
and guaranties but excluding the Loan Documents.
"Participation" has the meaning set forth in Section 13.P.
"Person" means any individual, corporation, partnership, limited liability
company, trust, unincorporated organization, Governmental Authority or any other
form of entity.
"Securitization" means one or more sales, dispositions, transfers or
assignments by FFCA or any of the other FFCA Entities to a special purpose
corporation, trust or other entity identified by FFCA or any of the other FFCA
Entities of notes evidencing obligations to repay secured or unsecured loans
owned by FFCA or any of the other FFCA Entities (and, to the extent applicable,
the subsequent sale, transfer or assignment of such notes to another special
purpose corporation, trust or other entity identified by FFCA or any of the
other FFCA Entities), and the issuance of bonds, certificates, notes or other
instruments evidencing interests in pools of such loans, whether in connection
with a permanent asset securitization or a sale of loans in anticipation of a
permanent asset securitization. Each Securitization shall be undertaken in
accordance with all requirements which may be imposed by the investors or the
rating agencies involved in each such sale, disposition, transfer or assignment
or which may be imposed by applicable securities, tax or other laws or
regulations, including, without limitation, laws relating to FFCA's status as a
real estate investment trust.
"Securitized Loan Pool" means any pool or group of loans that are a part of
any Securitization.
"Transfer" has the meaning set forth in Section 13.P.
2. Transaction. On the terms and subject to the conditions set forth in the
Loan Documents, FFCA shall make the Loan. The Loan will be evidenced by the
Note. Guarantors will provide further security for the Loan by executing and
delivering the Guaranty. Debtor shall repay the outstanding principal amount of
the Loan together with interest thereon in the manner and in accordance with the
terms and conditions of the Note and the other Loan Documents. The Loan shall be
advanced at the Closing in cash or otherwise immediately available funds subject
to any prorations and adjustments required by this Agreement.
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3. Underwriting, Site Assessment, Valuation, Processing and Commitment
Fee. Debtor paid FFCA and received a credit by FFCA pursuant to the Commitment
for one-half of the Fee pursuant to the Commitment, and such portion was deemed
nonrefundable and fully earned when received. The remainder of the Fee shall be
paid at the Closing and shall be deemed nonrefundable and fully earned upon the
Closing. The Fee constitutes FFCA's underwriting, site assessment, valuation,
processing and commitment fee. In the event the transaction set forth in this
Agreement fails to close due to a breach or default by Debtor under this
Agreement, FFCA shall retain the portion of the Fee received by FFCA (without
affecting or limiting FFCA's remedies set forth in this Agreement).
4. Closing. (a) The Loan shall be closed (the "Closing") within 30 days
following the satisfaction of all of the terms and conditions contained in this
Agreement, but in no event shall the date of the Closing be extended beyond June
1, 1999, unless such extension shall be approved by FFCA in its sole discretion
(the date on which the Closing shall occur is referred to herein as the "Closing
Date").
(b) All costs of the transaction described in this Agreement shall be
borne by Debtor, including, without limitation, the attorneys' fees of Debtor,
attorneys' fees and expenses of FFCA, FFCA's in-house costs and fees, and escrow
fees. The Closing Documents shall be dated as of the Closing Date.
5. Representations and Warranties of FFCA. The representations and
warranties of FFCA contained in this Section are being made by FFCA as of the
date of this Agreement and the Closing Date to induce Debtor to enter into this
Agreement and consummate the transactions contemplated herein, and Debtor has
relied, and will continue to rely, upon such representations and warranties from
and after the execution of this Agreement and the Closing. FFCA represents and
warrants to Debtor as follows:
A. Organization of FFCA. FFCA has been duly formed, is validly
existing and has taken all necessary action to authorize the execution,
delivery and performance by FFCA of this Agreement.
B. Authority of FFCA. The person who has executed this Agreement on
behalf of FFCA is duly authorized so to do.
C. Enforceability. Upon execution by FFCA, this Agreement shall
constitute the legal, valid and binding obligation of FFCA, enforceable
against FFCA in accordance with its terms.
All representations and warranties of FFCA made in this Agreement shall
survive the Closing.
6. Representations and Warranties of Debtor. The representations and
warranties of Debtor contained in this Section are being made by Debtor as of
the date of this Agreement and the Closing Date to induce FFCA to enter into
this Agreement and consummate the transactions contemplated herein, and FFCA has
relied, and will continue to rely, upon such
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representations and warranties from and after the execution of this Agreement
and the Closing. Debtor represents and warrants to FFCA as follows:
A. Information and Financial Statements. Debtor has delivered to
FFCA financial statements (either audited financial statements or, if
Debtor does not have audited financial statements, certified financial
statements) and certain other information concerning itself and Guarantors,
which financial statements and other information are true, correct and
complete in all material respects; and no material adverse change has
occurred with respect to any such financial statements and other
information provided to FFCA since the date such financial statements and
other information were prepared or delivered to FFCA. Debtor understands
that FFCA is relying upon such financial statements and information and
Debtor represents that such reliance is reasonable. All such financial
statements were prepared in accordance with GAAP and accurately reflect as
of the date of this Agreement and the Closing Date, the financial condition
of each individual or entity to which they pertain.
B. Organization and Authority. (1) Debtor is duly organized or
formed, validly existing and in good standing under the laws of its state
of incorporation or formation, and qualified as a foreign corporation,
partnership or limited liability company, as applicable, to do business in
any jurisdiction where such qualification is required. All necessary
corporate, partnership or limited liability company action has been taken
to authorize the execution, delivery and performance of this Agreement and
of the other Loan Documents.
(2) The person(s) who have executed this Agreement on behalf of
Debtor are duly authorized so to do.
C. Enforceability of Documents. Upon execution by Debtor and
Guarantors, as applicable, this Agreement and the other Loan Documents
shall constitute the legal, valid and binding obligations of Debtor and
Guarantors, respectively, enforceable against Debtor and Guarantors in
accordance with their respective terms.
D. Litigation. There are no suits, actions, proceedings or
investigations pending or threatened against or involving Debtor,
Guarantors or any property of Debtor or Guarantors before any arbitrator or
Governmental Authority which might reasonably result in any material
adverse change in the contemplated business, condition, worth or operations
of Debtor or Guarantors.
E. Absence of Breaches or Defaults. Debtor and Guarantors are
not, and the authorization, execution, delivery and performance of this
Agreement and the other Loan Documents will not result, in any breach or
default under any other document, instrument or agreement to which Debtor
and/or any Guarantor is a party or by which Debtor or any of the property
of Debtor or Guarantors is subject or bound. The authorization, execution,
delivery and performance of this Agreement and the other Loan Documents
will not violate any applicable law, statute, regulation, rule, ordinance,
code, rule or order.
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F. No Other Agreements and Options. Neither Debtor, any Guarantor
nor any property of Debtor or Guarantors is subject to any commitment,
obligation, or agreement, including, without limitation, any right of first
refusal, option to purchase or lease granted to a third party, which could
or would prevent or hinder FFCA in making the Loan or prevent or hinder
Debtor and Guarantors from fulfilling their obligations under this
Agreement or the other Loan Documents.
G. No Reliance. Debtor acknowledges that FFCA did not prepare or
assist in the preparation of any of the projected financial information
used by Debtor in analyzing the economic viability and feasibility of the
transaction contemplated by this Agreement. Furthermore, Debtor
acknowledges that it has not relied upon, nor may it hereafter rely upon,
the analysis undertaken by FFCA in determining the Loan Amount, and such
analysis will not be made available to Debtor.
All representations and warranties of Debtor made in this Agreement shall
be and will remain true and complete in all respects as of and subsequent to the
Closing Date as if made and restated in full as of such time and shall survive
the Closing.
7. Covenants. Debtor covenants to FFCA from and after the Closing Date as
follows:
A. Inspections. Debtor shall, at all reasonable times, (i) provide
FFCA and FFCA's officers, employees, agents, advisors, attorneys,
accountants, architects, and engineers with access to all properties of
Debtor, all drawings, plans, and specifications for all properties of
Debtor in possession of Debtor or Guarantors, all engineering reports
relating to all properties of Debtor in the possession of Debtor or
Guarantors, the files, correspondence and documents relating to all
properties of Debtor, and the financial books and records, including lists
of delinquencies, relating to the ownership, operation, and maintenance of
all properties of Debtor (including, without limitation, any of the
foregoing information stored in any computer files), and (ii) allow such
persons to make such inspections, tests, copies, and verifications as FFCA
considers necessary.
B. Corporate Fixed Charge Coverage Ratio. Until such time as all
of Debtor's obligations under the Notes and the other Loan Documents are
paid, satisfied and discharged in full, Debtor shall maintain a Corporate
Fixed Charge Coverage Ratio of at least 1.25:1, as determined on the last
day of Debtor's fiscal year. For purposes of this Section, the term
"Corporate Fixed Charge Coverage Ratio" shall mean with respect to the
twelve month period of time immediately preceding the date of
determination, the ratio calculated for such period of time, each as
determined in accordance with GAAP, of (a) the sum of Net Income,
Depreciation and Amortization, Interest Expense and Operating Lease
Expense, minus income taxes or charges equivalent to income taxes allocable
to the period of determination, to (b) the sum of Operating Lease Expense,
scheduled principal payments of long term Debt, scheduled maturities of all
Capital Leases and Interest Expense (excluding non-cash interest expense
and amortization of non-cash financing expenses).
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For purposes of this Section, the following terms shall be defined as set
forth below:
"Capital Lease" shall mean all leases of any property, whether real,
personal or mixed, by Debtor or any of the other Debtor Entities, as applicable,
which lease would, in conformity with GAAP, be required to be accounted for as a
capital lease on the balance sheet of Debtor. The term "Capital Lease" shall not
include any operating lease.
"Debt" shall mean, for the period of determination, (i) indebtedness for
borrowed money, (ii) obligations evidenced by bonds, indentures, notes or
similar instruments, (iii) obligations to pay the deferred purchase price of
property or services, (iv) obligations under leases which should be, in
accordance with GAAP, recorded as Capital Leases, and (v) obligations under
direct or indirect guarantees in respect of, and obligations (contingent or
otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor
against loss in respect of, indebtedness or obligations of others of the kinds
referred to in clauses (i) through (iv) above.
"Depreciation and Amortization" shall mean the depreciation and
amortization accruing during any period of determination with respect to Debtor,
as determined in accordance with GAAP.
"Interest Expense" shall mean for any period of determination, the sum of
all interest accrued or which should be accrued in respect of all Debt of
Debtor, as determined in accordance with GAAP.
"Net Income" shall mean with respect to the period of determination, the
net income or net loss of Debtor. In determining the amount of Net Income, (i)
adjustments shall be made for nonrecurring gains and losses or non-cash items
allocable to the period of determination, (ii) deductions shall be made for,
among other things, Depreciation and Amortization, Interest Expense, and
Operating Lease Expense allocable to the period of determination, and a
corporate overhead expense equal to five percent (5%) of Debtor's gross sales
attributable to the period of determination, and (iii) no deductions shall be
made for (X) minority interest expense or (Y) income taxes or charges equivalent
to income taxes allocable to the period of determination, as determined in
accordance with GAAP.
"Operating Lease Expense" shall mean the sum of all payments and expenses
incurred by Debtor, collectively, under any operating leases during the period
of determination, as determined in accordance with GAAP.
C. Lost Note. Debtor shall, if the Note is mutilated, destroyed, lost or
stolen (a "Lost Note"), promptly deliver to FFCA, upon receipt of an affidavit
from FFCA stipulating that such Note has been mutilated, destroyed, lost or
stolen, in substitution therefor, a new promissory note containing the same
terms and conditions as such Lost Note with a notation thereon of the unpaid
principal and accrued and unpaid interest. Debtor shall provide
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fifteen (15) days' prior notice to FFCA before making any payments to third
parties in connection with a Lost Note.
D. Affiliate Transactions. Unless otherwise approved by FFCA, all
transactions between Debtor and any of its Affiliates shall be on terms
substantially as advantageous to Debtor as those which could be obtained by
Debtor in a comparable arm's length transaction with a non-Affiliate of Debtor.
E. Reporting Obligations. Debtor shall provide to FFCA the following:
(i) Financial Statements. Complete financial statements of Debtor and
Guarantors including a balance sheet, profit and loss statement, statement
of cash flows and all other related schedules for the fiscal period then
ended: (a) with respect to Debtor, within 45 days after the end of each
fiscal quarter and within 120 days after the end of each fiscal year of
Debtor; and (b) with respect to Guarantors, within 120 days after the end
of each fiscal year and upon request by FFCA, within 45 days after the end
of each fiscal quarter of Guarantors. All such financial statements shall
be prepared in accordance with GAAP and shall be certified to be accurate
and complete by Debtor (or the treasurer or other appropriate officer of
Debtor) and Guarantors, as applicable. Debtor understands that FFCA is
relying upon such financial statements and Debtor represents that such
reliance is reasonable. The financial statements delivered to FFCA need not
be audited, but Debtor and Guarantors shall deliver to FFCA copies of any
audited financial statements of Debtor and Guarantors which may be
prepared, as soon as they are available.
(ii) Event of Default. Promptly, but in any event within five days
after Debtor becomes aware of an Event of Default, written notification to
an officer of FFCA specifying the nature and period of existence thereof
and what action Debtor is taking or proposes to take with respect thereto.
(iii) Litigation. Within ten days after Debtor or Guarantors become
aware of any action, suit or proceeding pending or threatened in writing
against or involving Debtor or any Guarantor or any property of Debtor or
any Guarantor, except for those actions, suits or proceedings (1) for which
damages of less than $250,000 have been sought, threatened or are likely to
be incurred and (2) which Debtor and Guarantors in good faith determine
will be covered by insurance (including worker's compensation claims),
Debtor and Guarantors shall notify FFCA of such action, suit or proceeding
and in such notice specify the nature thereof, whether the alleged
liability therein is covered by insurance then in effect and, if so
covered, the monetary coverage thereof, and what action Debtor and
Guarantors are taking or proposes to take with respect thereto.
(iv) Auditors' Reports. Promptly upon receipt thereof, a copy of each
report submitted to Debtor or Guarantors, as applicable, by independent
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accountants in connection with any annual, interim or special audit
made of the books of Debtor or Guarantors.
(v) Other Information. Promptly after the receipt of written
request therefor, information concerning Debtor that is required to
satisfy all requirements applicable to FFCA pursuant to the Securities
Exchange Act of 1934 and all other regulatory laws applicable to FFCA
or to which FFCA is subject or bound.
F. Payment of Taxes, Etc. Unless Debtor shall contest the amount or
validity thereof in the manner described below, Debtor shall pay all taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or profits, or upon any properties belonging to it, prior to the
date on which penalties attach thereto, and all lawful claims which, if
unpaid, might become a lien upon any of its properties. Debtor may, at its
own expense, contest or cause to be contested such taxes, assessments,
governmental charges or levies or other claims (i) in good faith, (ii) by
proper proceedings, and (iii) provided Debtor shall have furnished the
security as may be required by such proceeding.
G. Organization of Debtor. Debtor shall continue to be a limited
liability company duly organized, validly existing and in good standing
under the laws of its jurisdiction and qualified to do business in any
jurisdiction where such qualification is required.
H. Licenses, Permits, Consents and Approvals. Debtor shall maintain
in full force and effect all required licenses, permits, consents and
approvals, both governmental and private, to use and operate its assets and
conduct its business in the intended manner.
I. Disposition of Assets. Debtor shall not, directly or indirectly,
sell, assign, lease, transfer or otherwise dispose of all or substantially
all of its assets. Debtor shall not transfer or dispose of any material
part of its assets except for: (a) full and fair consideration and
reasonably equivalent value; or (b) cash transfers and payments to any
equity holder or other Debtor Entity to the extent that they do not render
Debtor insolvent, impair or impede Debtor's ability to meet all of its
obligations to FFCA as and when they become due, or result in, or with the
passage of time or the giving of notice, would result in, an Event of
Default.
8. Transaction Characterization. This Agreement is a contract to extend a
financial accommodation (as such term is used in the Code) for the benefit of
Debtor. It is the intent of the parties hereto that the business relationship
created by this Agreement, the Note, and the other Loan Documents is solely that
of creditor and debtor and has been entered into by both parties in reliance
upon the economic and legal bargains contained in the Loan Documents. None of
the agreements contained in the Loan Documents is intended, nor shall the same
be deemed or construed, to create a partnership between Debtor and FFCA, to make
them joint venturers, to make Debtor an agent, legal representative, partner,
subsidiary or employee of FFCA, nor to make FFCA in any way responsible for the
debts, obligations or losses of Debtor.
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9. Conditions of Closing. The obligation of FFCA to consummate the
transaction contemplated by this Agreement is subject to the fulfillment or
waiver of each of the following conditions:
A. Compliance With Representations, Warranties and Covenants. All
obligations of Debtor under this Agreement shall have been fully performed
and complied with, and no event shall have occurred or condition shall
exist which would, upon the Closing Date, or, upon the giving of notice
and/or passage of time, constitute a breach or default hereunder or under
the Loan Documents or any other agreement between or among FFCA and Debtor
pertaining to the subject matter hereof, and no event shall have occurred
or condition shall exist or information shall have been disclosed by Debtor
or any Guarantor or discovered by FFCA which has had or would have a
material adverse effect on Debtor or Guarantors or FFCA's willingness to
consummate the transaction contemplated by this Agreement, as determined by
FFCA in its sole and absolute discretion.
B. Opinion of Counsel to Debtor and Guarantors. Debtor and
Guarantors shall have caused Counsel to prepare and deliver an opinion to
FFCA in form and substance satisfactory to FFCA and its counsel.
C. Availability of Funds. FFCA presently has sufficient funds to
discharge its obligations under this Agreement. In the event that the
transaction contemplated by this Agreement does not close on or before the
date established for Closing under Section 3(a) hereof, FFCA does not
warrant that it will thereafter have sufficient funds to consummate the
transaction contemplated by this Agreement.
D. Closing Documents. At or prior to the Closing Date, Debtor and
Guarantors, as applicable, shall execute and deliver or cause to be
executed and delivered to FFCA, as may be appropriate, all documents
required to be delivered by this Agreement, and such other documents,
payments, instruments and certificates, as FFCA may require in form
acceptable to FFCA, including, without limitation, the Note and Guaranty.
Upon fulfillment or waiver of all of the above conditions, FFCA shall cause the
transaction contemplated herein to close in accordance with the terms and
conditions of this Agreement.
10. Default and Remedies. A. Each of the following shall be deemed an
event of default by Debtor (each, an "Event of Default"):
(1) If any representation or warranty of Debtor or any Guarantor set
forth in any of the Loan Documents is false in any material respect, or if
Debtor or any Guarantor renders any false statement or account.
(2) If any principal, interest or other monetary sum due under the
Note or any other Loan Document is not paid within five days after the date
when due; provided, however, notwithstanding the occurrence of such an
Event of Default, FFCA shall not be entitled to exercise its rights and
remedies set forth below unless and until FFCA shall
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have given Debtor notice thereof and a period of five days from the
delivery of such notice shall have elapsed without such Event of Default
being cured.
(3) If Debtor fails to observe or perform any of the other covenants,
conditions, or obligations of this Agreement or the other Loan Documents
(except with respect to a breach of the Corporate Fixed Charge Coverage
Ratio, which is addressed in subitem [6] below); provided, however, if any
such failure does not involve the payment of any monetary sum, is not
willful or intentional, does not place any rights or property of FFCA in
immediate jeopardy, and is within the reasonable power of Debtor to
promptly cure after receipt of notice thereof, all as determined by FFCA in
its reasonable discretion, then such failure shall not constitute an Event
of Default hereunder, unless otherwise expressly provided herein, unless
and until FFCA shall have given Debtor notice thereof and a period of 30
days shall have elapsed, during which period Debtor may correct or cure
such failure, upon failure of which an Event of Default shall be deemed to
have occurred hereunder without further notice or demand of any kind being
required. If such failure cannot reasonably be cured within such 30-day
period, as determined by FFCA in its reasonable discretion, and Debtor is
diligently pursuing a cure of such failure, then Debtor shall have a
reasonable period to cure such failure beyond such 30-day period, which
shall not exceed 90 days after receiving notice of the failure from FFCA.
If Debtor shall fail to correct or cure such failure within such 90-day
period, an Event of Default shall be deemed to have occurred hereunder
without further notice or demand of any kind being required.
(4) If Debtor or any Guarantor becomes insolvent within the meaning
of the Code, files or notifies FFCA that it intends to file a petition
under the Code, initiates a proceeding under any similar law or statute
relating to bankruptcy, insolvency, reorganization, winding up or
adjustment of debts (collectively, an "Action"), becomes the subject of
either a petition under the Code or an Action, or is not generally paying
its debts as the same become due.
(5) If there is an "Event of Default" under any other Loan Document
or a breach or default, after the passage of all applicable notice and cure
or grace periods, under any of the Other Agreements.
(6) If there is a breach of the Corporate Fixed Charge Coverage Ratio
requirement and FFCA shall have given Debtor notice thereof and Debtor
shall have failed within a period of 30 days from the delivery of such
notice to either (i) pay to FFCA the FCCR Amount (without premium or
penalty) as is necessary to cure the breach of the Corporate Fixed Charge
Coverage Ratio requirement or (ii) prepay the Note in whole but not in part
(without premium or penalty). For purposes of the preceding sentence, "FCCR
Amount" means that sum of money which, when subtracted from the outstanding
principal amount of the Note, and assuming the resulting principal balance
is reamortized in equal monthly payments over the remaining term of the
Note at the rate of interest set forth therein, will result in an adjusted
Corporate Fixed Charge Coverage Ratio of at least 1.25:1 based on the prior
year's operations. Promptly after Debtor's payment of the
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FCCR Amount, Debtor and FFCA shall execute an amendment to the Note in form
and substance reasonably acceptable to FFCA reducing the principal amount
payable to FFCA under the Note and reamortizing the principal amount of the
Note in equal monthly payments over the then remaining term of the Note at
the rate of interest set forth therein.
B. Upon the occurrence of an Event of Default, subject to the limitations
set forth in subsection A, FFCA may declare all or any part of the obligations
of Debtor under the Note, this Agreement and any other Loan Document to be due
and payable, and the same shall thereupon become due and payable without any
presentment, demand, protest or notice of any kind except as otherwise expressly
provided herein, and Debtor hereby waives notice of intent to accelerate the
obligations and notice of acceleration. Thereafter, FFCA may exercise, at its
option, concurrently, successively or in any combination, all remedies available
at law or in equity, including without limitation any one or more of the
remedies available under the Note or any other Loan Document. Neither the
acceptance of this Agreement nor its enforcement shall prejudice or in any
manner affect FFCA's right to realize upon or enforce any other security now or
hereafter held by FFCA, it being agreed that FFCA shall be entitled to enforce
this Agreement and any other security now or hereafter held by FFCA in such
order and manner as it may in its absolute discretion determine. No remedy
herein conferred upon or reserved to FFCA is intended to be exclusive of any
other remedy given hereunder or now or hereafter existing at law or in equity or
by statute. Every power or remedy given by any of the Loan Documents to FFCA, or
to which FFCA may be otherwise entitled, may be exercised, concurrently or
independently, from time to time and as often as may be deemed expedient by
FFCA.
11. Assignments. A. FFCA may assign in whole or in part its rights under
this Agreement, including, without limitation, in connection with any Transfer,
Participation and/or Securitization. Upon any unconditional assignment of FFCA's
entire right and interest hereunder, FFCA shall automatically be relieved, from
and after the date of such assignment, of liability for the performance of any
obligation of FFCA contained herein.
B. Debtor shall not, without the prior written consent of FFCA, sell,
assign, transfer, mortgage, convey, encumber or grant any rights or interests of
any kind in any of Debtor's rights under this Agreement, any of the other Loan
Documents or any interest in Debtor, whether voluntarily, involuntarily or by
operation of law or otherwise, including, without limitation, by merger,
consolidation, dissolution or otherwise.
12. Indemnity. Debtor agrees to indemnify, hold harmless and defend FFCA
and its directors, officers, shareholders, employees, successors, assigns,
agents, contractors, subcontractors, experts, licensees, affiliates, lessees,
lenders, mortgagees, trustees and invitees, as applicable (collectively, the
"Indemnified Parties"), for, from and against any and all losses, costs, claims,
liabilities, damages and expenses, including, without limitation, reasonable
attorneys' fees and court costs, arising as the result of a breach of any of the
representations, warranties, covenants, agreements or obligations of Debtor set
forth in this Agreement or any other Loan Document. Without limiting the
generality of the foregoing, such indemnity shall include, without limitation,
any engineering, governmental inspection and reasonable attorneys' fees and
expenses that the Indemnified Parties may incur by reason of any representation
set
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forth in this Agreement or any other Loan Document being false, or by reason of
any investigation or claim of any Governmental Authority in connection
therewith.
13. Miscellaneous Provisions.
A. Notices. All notices, consents, approvals or other instruments
required or permitted to be given by either party pursuant to this
Agreement shall be in writing and given by (i) had delivery, (ii)
facsimile, (iii) express overnight delivery service or (iv) certified or
registered mail, return receipt requested, and shall be deemed to have been
delivered upon (a) receipt, if hand delivered, (b) transmission, if
delivered by facsimile, (c) the next Business Day, if delivered by express
overnight delivery service, or (d) the third Business Day following the day
of deposit of such notice with the United States Postal Service, if sent by
certified or registered mail, return receipt requested. Notices shall be
provided to the parties and addresses (or facsimile numbers, as applicable)
specified below:
If to Debtor: William E. Prather
President and Chief Executive Officer
M&B Restaurants, LC
28210 Dorothy Drive
Agoura Hills, California 91301
Telephone: (818) 889-8740
Telecopy: (818) 889-4726
If to FFCA: Dennis L. Ruben, Esq.
Executive Vice President and General Counsel
FFCA Acquisition Corporation
17207 North Perimeter Drive
Scottsdale, AZ 85255
Telephone: (602) 585-4500
Telecopy: (602) 585-2226
B. Commission. FFCA and Debtor represent and warrant to each other
that they have dealt with no broker, agent, finder or other intermediary in
connection with the transactions contemplated by this Agreement. FFCA and
Debtor shall indemnify and hold each other harmless from and against any
costs, claims or expenses, including attorneys' fees, arising out of the
breach of their respective representations and warranties contained within
this Section.
C. Waiver and Amendment. No provisions of this Agreement shall be
deemed waived or amended except by a written instrument unambiguously
setting forth the matter waived or amended and signed by the party against
which enforcement of such waiver or amendment is sought. Waiver of any
matter shall not be deemed a waiver of the same or any other matter on any
future occasion.
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<PAGE>
D. Captions. Captions are used throughout this Agreement for
convenience of reference only and shall not be considered in any manner in
the construction or interpretation hereof.
E. FFCA's Liability. Notwithstanding anything to the contrary
provided in this Agreement, it is specifically understood and agreed, such
agreement being a primary consideration for the execution of this Agreement
by FFCA, that (i) there shall be absolutely no personal liability on the
part of any shareholder, director, officer or employee of FFCA, with
respect to any of the terms, covenants and conditions of this Agreement or
the other Loan Documents, (ii) Debtor waives all claims, demands and causes
of action against FFCA's officers, directors, employees and agents in the
event of any breach by FFCA of any of the terms, covenants and conditions
of this Agreement or the other Loan Documents to be performed by FFCA and
(iii) Debtor shall look solely to the assets of FFCA for the satisfaction
of each and every remedy of Debtor in the event of any breach by FFCA of
any of the terms, covenants and conditions of this Agreement or the other
Loan Documents to be performed by FFCA, such exculpation of liability to be
absolute and without any exception whatsoever.
F. Severability. The provisions of this Agreement shall be deemed
severable. If any part of this Agreement shall be held unenforceable, the
remainder shall remain in full force and effect, and such unenforceable
provision shall be reformed by such court so as to give maximum legal
effect to the intention of the parties as expressed therein.
G. Construction Generally. This is an agreement between parties who
are experienced in sophisticated and complex matters similar to the
transaction contemplated by this Agreement and is entered into by both
parties in reliance upon the economic and legal bargains contained herein
and shall be interpreted and construed in a fair and impartial manner
without regard to such factors as the party which prepared the instrument,
the relative bargaining powers of the parties or the domicile of any party.
Debtor and FFCA were each represented by legal counsel competent in
advising them of their obligations and liabilities hereunder.
H. Other Documents. Each of the parties agrees to sign such other
and further documents as may be appropriate to carry out the intentions
expressed in this Agreement.
I. Attorneys' Fees. In the event of any judicial or other
adversarial proceeding between the parties concerning this Agreement, the
prevailing party shall be entitled to recover its attorneys' fees and other
costs in addition to any other relief to which it may be entitled.
References in this Agreement to the attorneys' fees and/or costs of FFCA
shall mean both the fees and costs of independent outside counsel retained
by FFCA with respect to this transaction and the fees and costs of FFCA's
in-house counsel incurred in connection with this transaction.
J. Entire Agreement. This Agreement and the other Loan Documents,
together with any other certificates, instruments or agreements to be
delivered in connection therewith, constitute the entire agreement between
the parties with respect to the subject
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matter hereof, and there are no other representations, warranties or agreements,
written or oral, between Debtor and FFCA with respect to the subject matter of
this Agreement. Notwithstanding anything in this Agreement to the contrary, upon
the execution and delivery of this Agreement by Debtor and FFCA, the Commitment
shall be deemed null and void and of no further force and effect and the terms
and conditions of this Agreement shall control notwithstanding that such terms
may be inconsistent with or vary from those set forth in the Commitment.
K. Forum Selection; Jurisdiction; Venue; Choice of Law. Debtor
acknowledges that this Agreement was substantially negotiated in the State of
Arizona, the Agreement was signed by FFCA in the State of Arizona and delivered
by Debtor in the State of Arizona, all payments under the Note will be delivered
in the State of Arizona and there are substantial contacts between the parties
and the transactions contemplated herein and the State of Arizona. For purposes
of any action or proceeding arising out of this Agreement, the parties hereto
hereby expressly submit the jurisdiction of all federal and state courts located
in the State of Arizona and Debtor consents that it may be served with any
process or paper by registered mail or by personal service within or without the
State of Arizona in accordance with applicable law. Furthermore, Debtor waives
and agrees not to assert in any such action, suit or proceeding that it is not
personally subject to the jurisdiction of such courts, that the action, suit or
proceeding is brought in an inconvenient forum or that venue of the action, suit
or proceeding is improper. It is the intent of the parties hereto that all
provisions of this Agreement shall be governed by and construed under the laws
of the State of Arizona, without giving effect to its principles of conflicts of
law. Nothing in this Section shall limit or restrict the right of FFCA to
commence any proceeding in federal or state courts located outside of Arizona to
the extent FFCA deems such proceeding necessary or advisable to exercise
remedies available under this Agreement or the other Loan Documents.
L. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original.
M. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of Debtor and FFCA and their respective successors and permitted
assigns, including, without limitation, any United States trustee, any debtor in
possession or any trustee appointed from a private panel.
N. Survival. Except for the conditions of Closing set forth in Section 9,
which shall be satisfied or waived as of the Closing Date, all representations,
warranties, agreements, obligations and indemnities of Debtor and FFCA set
forth in this Agreement shall survive the Closing.
O. Waiver of Jury Trial and Punitive, Consequential, Special and Indirect
Damages. DEBTOR AND FFCA HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE
THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY AND ALL ISSUES
PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY EITHER OF
THE
15
<PAGE>
PARTIES HERETO AGAINST THE OTHER OR ITS SUCCESSORS WITH RESPECT TO ANY
MATTER ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY DOCUMENT
CONTEMPLATED HEREIN OR RELATED HERETO. THIS WAIVER BY THE PARTIES HERETO OF
ANY RIGHT EITHER MAY HAVE TO A TRIAL BY JURY HAS BEEN NEGOTIATED AND IS AN
ESSENTIAL ASPECT OF THEIR BARGAIN. FURTHERMORE, DEBTOR HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT IT MAY HAVE TO SEEK
PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES FROM FFCA AND ANY OF
FFCA'S AFFILIATES, OFFICERS, DIRECTORS OR EMPLOYEES OR ANY OF THEIR
SUCCESSORS WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION,
PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY DEBTOR AGAINST FFCA OR ANY OF
FFCA'S AFFILIATES, OFFICERS, DIRECTORS OR EMPLOYEES OR ANY OF THEIR
SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH
THIS AGREEMENT OR ANY DOCUMENT CONTEMPLATED HEREIN OR RELATED HERETO. THE
WAIVER BY DEBTOR OF ANY RIGHT IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL,
SPECIAL AND INDIRECT DAMAGES HAS BEEN NEGOTIATED BY THE PARTIES HERETO AND
IS AN ESSENTIAL ASPECT OF THEIR BARGAIN.
P. Transfer, Participations and Securitization. (1) A material
inducement to FFCA's willingness to complete the transactions contemplated
by the Loan Documents is Debtor's agreement that FFCA may, at any time,
sell, transfer or assign the Note and/or any of the other Loan Documents,
and any or all servicing rights with respect thereto (each, a "Transfer"),
or grant participations in the Note and/or any of the other Loan Documents
(each, a "Participation"), or complete a Securitization with respect to the
Note and/or any of the other Loan Documents.
(2) Debtor agrees to cooperate in good faith with FFCA in connection
with any such Transfer, Participation and/or Securitization of the Note
and/or any of the other Loan Documents, including, without limitation, (i)
providing such documents, financial and other data, and other information
and materials (the "Disclosures") which would typically be required with
respect to Debtor and Guarantors by a purchaser, transferee, assignee,
servicer, participant, investor or rating agency involved with respect to
such Transfer, Participation and/or Securitization, as applicable;
provided, however, Debtor and Guarantors shall not be required to make
Disclosures of any confidential information or any information which has
not previously been made public unless required by applicable federal or
state securities laws; and (ii) amending the terms of the transactions
evidenced by the Loan Documents to the extent necessary so as to satisfy
the requirements of purchasers, transferees, assignees, servicers,
participants, investors or selected rating agencies involved in any such
Transfer, Participation or Securitization, so long as such amendments would
not have a material adverse effect upon Debtor, Guarantors or the
transactions contemplated hereunder.
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(3) Debtor consents to FFCA providing the Disclosures, as well
as any other information which FFCA may now have or hereafter acquire with
respect to the financial condition of Debtor and Guarantors or any property
of Debtor or Guarantors to each purchaser, transferee, assignee, servicer,
participant, investor or rating agency involved with respect to such
Transfer, Participation and/or Securitization, as applicable. FFCA and
Debtor (and their respective Affiliates) shall each pay their own attorneys
fees and other out-of-pocket expenses incurred in connection with the
performance of their respective obligations under this Section.
(4) Notwithstanding anything to the contrary contained in this
Agreement or the other Loan Documents:
(a) a breach or default, after the passage of all applicable
notice and cure or grace periods, under any Loan Document or Other
Agreement which relates to a loan or sale/leaseback transaction which
has not been the subject of a Securitization shall not constitute an
Event of Default or a breach or default, as applicable, under any Loan
Document or Other Agreement which relates to a loan which has been the
subject of a Securitization;
(b) a breach or default, after the passage of all
applicable notice and cure or grace periods, under any Loan Document
or Other Agreement which relates to a loan which is included in any
Securitized Loan Pool shall not constitute an Event of Default or a
breach or default, as applicable, under any Loan Document or Other
Agreement which relates to a loan which is included in any other
Securitized Loan Pool;
(c) the Loan Documents corresponding to the Notes in any
Securitized Loan Pool shall not secure the obligations of any of the
Debtor Entities contained in any Loan Document or Other Agreement
which does not correspond to a loan in such Securitized Loan Pool;
and
(d) the Loan Documents and Other Agreements which do not
correspond to a loan in any Securitized Loan Pool shall not secure the
obligations of any of the Debtor Entities contained in any Loan
Document or Other Agreement which does correspond to a loan in such
Securitized Loan Pool.
Q. Confidentiality. Debtor and FFCA shall not make any public
announcements concerning the Loan without the prior written consent of the
other, except as may be required by law or judicial action.
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<PAGE>
IN WITNESS WHEREOF, Debtor and FFCA have entered into this Agreement as of
the date first above written.
FFCA:
FFCA ACQUISITION CORPORATION, a
Delaware corporation
By /s/ Stephen Y. Schwanz
---------------------------------------
Printed Name Stephen Y. Schwanz
-----------------------------
Its Senior Vice President
--------------------------------------
DEBTOR:
M&B RESTAURANTS, LC, a Texas limited
liability company
By William E. Prather
---------------------------------------
William E. Prather
President and Chief Executive Officer
STATE OF ARIZONA )
)SS.
COUNTY OF MARICOPA )
The foregoing instrument was acknowledged before me on June 7, 1999 by
Stephen Y. Schwanz, Senior V.P. of FFCA Acquisition Corporation, a Delaware
corporation, on behalf of the corporation.
/s/ Michelle M. Tegels
----------------------------------------
Notary Public
My Commission Expires: ---------------------------------------------
OFFICIAL SEAL
6/21/2000 MICHELLE M. TEGELS
- ------------------------ [SEAL] Notary Public - State of Arizona
MARICOPA COUNTY
My Comm. Expires June 21, 2000
---------------------------------------------
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<PAGE>
STATE OF California )
-----------------
)SS.
COUNTY OF Ventura )
----------------
The foregoing instrument was acknowledged before me on May 28, 1999 by
William E. Prather, president and chief executive officer of M&B Restaurants,
LC, a Texas limited liability company, on behalf of the limited liability
company.
Lani Marie Jassem, Notary Public
------------------------------------
Notary Public
/s/ Lani Marie Jassem
My Commission Expires:
April 5, 2003
- ---------------------
--------------------------------------
LANI MARIE JASSEM
Commission # 1215168
[SEAL] Notary Public - California
Ventura County
My Comm. Expires Apr 5, 2003
--------------------------------------
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EXHIBIT 10.59
CREDIT AGREEMENT
----------------
This Credit Agreement ("Agreement") is made and entered into on March 17, 1999,
by and between M & B Restaurants, a Texas limited liability company ("Borrower")
and Imperial Bank, a California banking corporation, ("Bank").
Subject to the terms and conditions of this Agreement, any security agreement
executed by Borrower in favor of Bank, any note executed by Borrower in favor of
Bank, or any other agreements executed in conjunction therewith (collectively,
the "Loan Documents"), Bank shall make the loans and or advances (individually a
"Loan" and collectively "Loans") referred to below to Borrower.
In consideration of mutual covenants and conditions hereof, the parties hereto
agree as follows:
1. AMOUNT AND TERMS OF CREDIT
--------------------------
1.01 Revolving Credit Commitment.
(a) Revolving Line of Credit. Subject to the terms and conditions of
this Agreement, provided that no event of default then has occurred and is
continuing, Bank shall, upon Borrower's request make advances ("Revolving
Loans") to Borrower, for general corporate purposes, in an amount not to exceed
$500,000 (the "Revolving Line of Credit") until March 15, 2000 (the "Revolving
Line of Credit Maturity Date"). Revolving Loans may be repaid and reborrowed,
provided that all outstanding principal and accrued interest on the Revolving
Loans shall be payable in full on the Revolving Credit Maturity Date.
(b) Revolving Note. The interest rate, principal and interest
payments, maturity date and certain other terms of the Revolving Loan will be
contained in a promissory note dated the date of this agreement, as such may be
amended or replaced from time to time.
1.02 Loan Fee. In addition to any other amounts due, or to become due,
concurrent with the execution hereof, in connection with the Revolving Line of
Credit, Borrower shall pay to Bank a loan fee of Five Thousand Dollars ($5,000).
1.03 Documentation Fee, Costs and Expenses. In addition to any other
amounts due, or to become due, concurrently with the execution hereof, Borrower
agrees to pay to Bank a documentation fee in the amount of Two Hundred Fifty
Dollars ($250), and all other costs and expenses incurred by the Bank in the
preparation of this Agreement, the other Loan Documents and the perfection of
any security interest granted to Bank by Borrower.
1.04 Collateral. Borrower shall grant or cause to be granted to Bank a
lien on any and all personal property assets of Borrower which is assigned or
hereafter is assigned to Bank as security or in which Bank now has or hereafter
acquires a security interest or pursuant to the terms of any security
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<PAGE>
agreement, an intellectual property security agreement or otherwise as security
for all of Borrower's obligations to Bank, all as may be subject to Section 5.03
herein.
1.05 Collection of Payments. Borrower authorizes Bank to collect all interest,
fees, costs and/or expenses due under this Agreement by charging Borrower's
demand deposit account number 97005303 with Bank, or any other demand deposit
account maintained by Borrower with Bank, for the full amount thereof. Should
there be insufficient funds in any such demand deposit account to pay all such
sums when due, the full amount of such deficiency shall be immediately due and
payable by Borrower.
2. REPRESENTATIONS OF BORROWER
---------------------------
Borrower represents and warrants that:
2.01 Existence and Rights. Borrower is a limited liability company, duly
organized and existing in good standing under the laws of the state of Texas,
without limit as to the duration of its existence. Borrower has no investment in
any other business entity unless specified in writing to Bank.
2.02 Agreement Authorized. The execution, delivery and performance of this
Agreement and the Loan Documents are duly authorized and do not require the
consent or approval of any governmental body or other regulatory authority; are
not in contravention of or in conflict with any law or regulation or any term or
provision of Borrower's operating agreement or similar document as the case may
be, and this Agreement is the valid, binding and legally enforceable obligation
of Borrower in accordance with its terms; subject only to bankruptcy, insolvency
or similar laws affecting creditors rights generally.
2.03 No Conflict. The execution, delivery and performance of this Agreement
and the Loan Documents are not in contravention of or in conflict with any
agreement, indenture or undertaking to which Borrower is a party or by which it
or any of its property may be bound or affected, and do not cause any lien,
charge or other encumbrance to be created or imposed upon any such property by
reason thereof.
2.04 Litigation. Except as disclosed in writing to bank by Borrower, there is
no litigation or other proceeding pending or threatened against or affecting
Borrower which if determined adversely to Borrower or its interest would have a
material adverse effect on the financial condition of Borrower, and Borrower is
not in default with respect to any order, writ, injunction, decree or demand of
any court or other governmental or regulatory authority.
2.05 Financial Condition. The consolidated and consolidating balance sheet of
Borrower as of November 30, 1998, and the related profit and loss statement for
the year to date period ended as of that date, a copy of which has heretofore
been delivered to Bank by Borrower, and all other statements and data submitted
in writing by Borrower to Bank in connection with this request for credit are
true and correct, and said balance sheet truly presents the financial condition
of Borrower as of the date thereof, and has been prepared in accordance with
generally accepted accounting principles on a basis
2
<PAGE>
consistently maintained. Since such date there have been no material adverse
changes in the financial condition or business of Borrower. Borrower has no
knowledge of any liabilities, contingent or otherwise, at such date not
reflected in said balance sheet, and Borrower has not entered into any special
commitments or substantial contracts which are not reflected in said balance
sheet, other than in the ordinary and normal course of its business, which may
have a materially adverse effect upon its financial condition, operations or
business as now conducted.
2.06 Title to Assets. Borrower has good title to its assets, and the same are
not subject to any liens or encumbrances other than those permitted by Section
5.03 hereof.
2.07 Tax Status. Borrower has no liability for any delinquent state, local or
federal taxes, and, if Borrower has contracted with any government agency,
Borrower has no liability for renegotiation of profits.
2.08 Trademarks, Patents. Borrower, as of the date hereof, possesses all
necessary trademarks, trade names, copyrights, patents, patent rights, and
licenses to conduct its business as now operated, without any known conflict
with the valid trademarks, trade names, copyrights, patents and license rights
of others.
2.09 Regulation U. None of the proceeds of any Loan shall be used to purchase
or carry margin stock (as defined within Regulation U of the Board of Governors
of the Federal Reserve system).
2.10 ERISA. All defined benefit pension plans as defined in the Employees
Retirement Income Security Act of 1974, as amended ("ERISA"), of Borrower meet,
as of the date hereof, the minimum funding standards of Section 302 of ERISA,
and no Reportable Event or Prohibited Transaction as defined in ERISA has
occurred with respect to any such plan.
2.11 Year 2000 Compliance. Borrower and its subsidiaries, as applicable, have
reviewed the areas within their operations and business which could be adversely
affected by, and have developed or are developing a program to address on a
timely basis, the Year 2000 Problem and have made related appropriate inquiry of
material suppliers and vendors, and based on such review and program, the Year
2000 Problem will not have a material adverse effect upon its financial
condition, operations or business as now conducted. "Year 2000 Problem" means
the possibility that any computer applications or equipment used by Borrower may
be unable to recognize and properly perform date sensitive functions involving
certain dates prior to and any dates one or after December 31, 1999.
3. CONDITIONS PRECEDENT TO LOAN.
-----------------------------
Prior to Bank being obligated to make any Loan pursuant to this Agreement,
Bank must receive all of the following, each of which must be in form and
substance satisfactory to Bank:
3.01 Promissory Note. Original, executed promissory note(s).
3.02 Security Agreement. Original, executed security agreement(s) covering the
personal property collateral securing the Loan.
3
<PAGE>
3.03 Financing Statement. Financing statement executed by Borrower.
3.04 Guarantees. Continuing Guarantee(s) in favor of Bank executed by William
E. Prather, Jr. in the amount of $500,000, and Marna D. Prather, in the amount
of $500,000, and John E. Martin in the amount of $500,000, individually a
"Guarantor" and jointly the "Guarantors".
3.05 Insurance. Borrower shall have delivered to Bank evidence of insurance
coverage required pursuant to that Agreement to Provide Insurance executed by
Borrower, in form, substance, amounts, covering risks and issued by companies
satisfactory to Bank, and where required by Bank, with loss payable endorsements
in favor of Bank.
3.06 Organizational Documents. Copies of the articles of incorporation or
similar document as the case may be, of the Borrower.
3.07 Authorizations. Certified copies of all action taken by the Borrower and
each Guarantor to authorize the execution, delivery and performance of the Loan
Documents.
3.08 Good Standing. Good standing certificates from the appropriate secretary
of state of the state in which the Borrower is organized and in each state in
which it is required to be qualified to do business.
3.09 Additional Documents. Such other documents as Bank may reasonable deem
necessary.
4. AFFIRMATIVE COVENANTS OF BORROWER
---------------------------------
Borrower agrees that so long as it is indebted to Bank, under borrowings, or
other indebtedness, or so long as Bank has any obligation to extend credit to
Borrower it will, unless Bank shall otherwise consent in writing:
4.01 Rights and Facilities. Maintain and preserve all rights, franchises and
other authority adequate for the conduct of its business; maintain its
properties, equipment and facilities in good order and repair; conduct its
business in an orderly manner without voluntary interruption and, if a
corporation or partnership, maintain and preserve its existence.
4.02 Use of Proceeds. Use the proceeds of the Loans only for purposes specified
in Section 1 of this Agreement.
4.03 Insurance. Maintain public liability, property damage and workers'
compensation insurance and insurance on all its insurable property against fire
and other hazards with responsible insurance carriers to the extent usually
maintained by similar businesses and/or in the exercise of good
4
<PAGE>
business judgment, and as required by that Agreement to Provide Insurance
executed by Borrower, with the Bank to be shown as Lenders Loss Payee on such
policies.
4.04 Taxes and Other Liabilities. Pay and discharge, before the same become
delinquent and before penalties accrue thereon, all taxes, assessments and
governmental charges upon or against it or any of its properties, and all its
other liabilities at any time existing, expect to the extent and so long as:
(a) The same are being contested in good faith and by appropriate proceedings
in such manner as not to cause any materially adverse effect upon its financial
condition or the loss of any right of redemption from any sale thereunder; and
(b) It shall have set aside on its books reserves (segregated to the extent
required by generally accepted accounting practice) deemed by it to be adequate
with respect thereto.
4.05 Records and Reports. Maintain a standard and modern system of accounting
in accordance with generally accepted accounting principles on a basis
consistently maintained; permit Bank's representatives to have access to, and to
examine its properties, books and records at all reasonable times and upon
reasonable notice during normal business hours; and furnish Bank:
(a) Quarterly Financial Statement. As soon as available, and in any event
within twenty (20) days after the close of each quarter, a consolidated and
consolidating balance sheet, profit and loss statement and reconciliation of
Borrower's capital balance accounts as of the close of such period and covering
operations for the portion of Borrower's fiscal year ending on the last day of
such period, all in reasonable detail and reasonably acceptable to Bank, in
accordance with generally accepted accounting principles on a basis consistently
maintained by Borrower and certified by an appropriate officer of Borrower.
(b) Annual Financial Statement. As soon as available, and in any event within
ninety (90) days after and as of the close of each fiscal year of Borrower, a
consolidated and consolidating report of audit of Company, all in reasonable
detail, audited by an independent certified public accountant selected by
Borrower and reasonably acceptable to Bank, in accordance with generally
accepted accounting principles on a basis consistently maintained by Borrower
and certified by an appropriate officer of Borrower;
(c) Audit Reports. Promptly after the receipt thereof by Borrower, copies of
any detailed audit reports submitted to Borrower by independent accountants in
connection with each annual or interim work on the accounts of Borrower made by
such accountants;
(d) Easyriders, Inc. Quarterly Financial Statement. As soon as available, and
in any event within forty-five (45) days after the close of each quarter, a
consolidated and consolidating balance sheet, profit and loss statement and
reconciliation of Easyriders, Inc.'s capital balance accounts as of the close of
such period and covering operations for the portion of Easyriders, Inc.'s fiscal
year ending on the last day of such period, all in reasonable detail and
reasonably acceptable to Bank, in accordance with generally
5
<PAGE>
accepted accounting principles on a basis consistently maintained by Easyriders,
Inc. and certified by an appropriate officer of Borrower.
(e) Easyriders, Inc.'s Annual Financial Statement. As soon as available,
and in any event within ninety (90) days after and as of the close of each
fiscal year of Easyriders, Inc., a consolidated and consolidating report of
audit of Company, all in reasonable detail, audited by an independent certified
public accountant selected by Easyriders, Inc. and reasonably acceptable to
Bank, in accordance with generally accepted accounting principles on a basis
consistently maintained by Easyriders, Inc. and certified by an appropriate
officer of Borrower;
(f) Guarantors' Financial Statements. Cause each Guarantor to submit to
Bank such Guarantor's financial statement, confirmed as to its correctness by
Guarantor's signature, either on Bank's form or prepared by an independent
certified public accountant, together with a completed copy of such Guarantor's
federal income tax return for the previous calendar year, no later than fifteen
(15) days after filing of same with the Internal Revenue Service.
(g) Annual Budget. As soon as available, and in any event within thirty
(30) days after the close of each fiscal year of Borrower and Easyriders, Inc.,
an annual budget in accordance with generally accepted accounting principals on
a basis consistently maintained by Borrower and Easyriders, Inc.
(h) Stockholder, Security and Exchange Commission Statements and Reports.
Promptly after the same are available, copies of all such proxy statements,
financial statements and reports as Easyriders, Inc. or any subsidiary shall
send to its members or stockholders as appropriate, if any, and copies of all
reports which Borrower or any subsidiary may file with the Securities and
Exchange Commission.
(i) Other Information. Such other information relating to the affairs of
Borrower as the Bank reasonably may request from time to time.
4.06 Debt Service Coverage Ratio. Maintain quarterly on a
consolidated basis, a Debt Service Coverage Ratio of not less than 1.25 to 1.00.
Debt Service Coverage Ratio is defined as the ratio of EBITDAR, divided by
current maturities of Long Term Debt, plus capital lease expense, plus interest
expense. EBITDAR shall mean the sum of (a) net income after taxes, plus (b)
interest expense, plus (c) accrued federal and state income taxes, plus (d)
depreciation and amortization expense, plus (e) capital lease expense annualized
on a rolling four quarter basis. Long Term Debt shall mean those debts or
renewals or extensions thereof whose original terms exceed one (1) year.
4.07 ERISA. Cause all defined benefit pension plans, as defined in
ERISA, of Borrower to, at all times, meet the minimum funding standards of
Section 302 of ERISA, and ensure that no Reportable Event or Prohibited
Transaction, as defined in ERISA, will occur with respect to any such plan.
4.08 Laws. At all times comply with, or cause to be complied with,
all laws, statutes, rules, regulations, orders and directions of any
governmental authority having jurisdiction over Borrower or Borrower's business.
6
<PAGE>
4.09 Use of Proceeds. Use the proceeds of the Loans only for the purposes
specified in Section 1 herein.
4.10 GAAP. Compliance with all financial covenants shall be calculated based on
generally accepted accounting principles applied on a consistent basis as
maintained by Borrower.
4.11 Year 2000 Compliant. Borrower shall perform all acts reasonably necessary
to ensure that (a) Borrower and any business in which Borrower holds a
substantial interest, and (b) all customers, suppliers and vendors whose
compliance is likely to be material to Borrower's business, become Year 2000
Compliant in a timely manner. Such acts shall include, without limitation,
performing a comprehensive review and assessment of all Borrower's systems and
adopting a detailed plan, with itemized budget, for the remediation, monitoring
and testing of such systems. As used in this paragraph, "Year 2000 Compliant"
shall mean, in regard to any entity, that all software, hardware, firmware,
equipment, goods or systems utilized by or material to the business operations
or financial condition of such entity, will properly perform date sensitive
functions before, during and after the year 2000. Borrower shall, immediately
upon request, provide to Agent such certifications or other evidence of
Borrower's compliance with the terms of this paragraph as Bank may from time to
time require.
4.12 Operating Accounts. Maintain all primary accounts and banking
relationship with the Bank. Maintain, or cause to be maintained, on deposit with
Bank, non-interest bearing demand deposit balances sufficient to compensate
Bank for all services provided by Bank. Balances shall be calculated after
reduction for the reserve requirement of the Federal Reserve Board and
uncollected funds. Any deficiencies shall be charged directly to the Borrower on
a monthly basis.
4.13 Notices. Promptly notify Bank in writing of (i) the occurrence of any
Event of Default hereunder or any event which upon notice and lapse of time
would be an Event of Default; (ii) all litigation affecting Borrower where the
amount is $100,000 or more; any substantial dispute which may exist between
Borrower and any governmental regulatory body or law enforcement authority; any
change in Borrower's name or principal place of business; or any other matter
which has resulted or might result in a material adverse change in Borrower's
financial condition or operations.
5. NEGATIVE COVENANTS OF BORROWER
------------------------------
Borrower agrees that so long as it is indebted to Bank, or so long as Bank has
any obligation to extend credit to Borrower, it will not, without Bank's written
consent:
5.01 Type of Business; Management; Change in Control. Make any substantial
change in the character of its business; make any change in its executive
management or permit the current shareholders to decrease their ownership in
Borrower.
5.02 Outside Indebtedness. Create, incur, assume or permit to exist any
indebtedness for borrowed moneys other than Loans from the Bank except
obligations now existing as shown in the financial statement dated November 30,
1998, and excluding indebtedness incurred in the normal operations of the
business including real estate leases, equipment leases, and real estate term
loans.
7
<PAGE>
5.03 Loans, Investments, Secondary Liabilities. Make any loans or
advances to any person or other entity other than in the ordinary and normal
course of its business as now conducted or make any investment in the securities
of any person or other entity other than the United States Government; or
guarantee or otherwise become liable upon the obligation of any person or other
entity, except by endorsement of negotiable instruments for deposit or
collection in the ordinary and normal course of its business.
5.04 Acquisition or Sale of Business; Merger or Consolidation.
Purchase or otherwise acquire the assets or business of any person or other
entity; or liquidate, dissolve, merge or consolidate, or commence any
proceedings therefor; or sell any assets except in the ordinary and normal
course of its business as now conducted; or sell, lease, assign, or transfer any
substantial part of its business or fixed assets, or any property or other
assets necessary for the continuance of its business as now conducted, including
without limitation the selling of any property or other asset accompanied by the
leasing back of the same.
5.05 Distributions. Declare or pay any withdrawals, dividends,
distributions, or upstream payments without demonstration of compliance with
the Debt Service Coverage Ratio on both a pre and post payment basis.
6. EVENTS OF DEFAULT
-----------------
The occurrence of any of the following events of default ("Events of Default")
shall, at Bank's option, terminate Bank's commitment to lend and make all sums
of principal and interest then remaining unpaid on all Borrower's indebtedness
to Bank immediately due and payable, all without demand, presentment or notice,
all of which are hereby expressly waived:
6.01 Failure to Pay. Failure to pay any installment of principal or of
interest on any indebtedness of Borrower to Bank within, five (5) days of its
due date.
6.02 Breach of Covenant. Failure of Borrower to perform any other term
or condition of this Agreement or any Loan Document binding upon Borrower.
6.03 Breach of Warranty. Any of Borrower's representations or
warranties made herein or any statement or certificate at any time given in
writing pursuant hereto or in connection herewith shall be false or misleading
in any respect.
6.04 Insolvency; Receiver or Trustee. Borrower shall become
insolvent; or admit its inability to pay is debts as they mature; or make an
assignment for the benefit of creditors; or apply for or consent to the
appointment of a receiver or trustee for it or for a substantial part of its
property or business.
6.05 Judgments, Attachments. Any money judgment in excess of
$100,000, writ or warrant of attachment, or similar process shall be entered or
filed against Borrower or any of its assets and shall
8
<PAGE>
remain unvacated, unbonded or unstayed for a period of ten (10) days or in any
event later than five (5) days prior to the date of any proposed sale
thereunder.
6.06 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against Borrower and, if
instituted against it, shall not be dismissed within thirty (30) days
thereafter.
6.07 Revocation of Guarantee. Any guarantee required hereunder is breached or
becomes ineffective; or any Guarantor or subordination creditor disavows or
attempts to revoke or terminate such guarantee or subordination agreement.
6.08 Ownership. Any change in ownership which results in the Guarantors
collectively owning less than fifty percent (50%) of Borrower's voting stock.
6.09 Cessation of Business. Borrower shall voluntarily suspend its business.
6.10 Adverse Change. Any change which, in the opinion of Bank, is materially
adverse to the financial condition of Borrower or any Guarantor; or should Bank,
for any reason, believe that the prospect of Borrower's payment or performance
hereunder or under any other agreement or instrument with Bank be impaired.
6.11 Other Defaults. Borrower, or any Guarantor of Borrower's obligations to
Bank, shall commit or do or fail to commit or do any act or thing which would
constitute an event of default under any of the terms of any other agreement,
document or instrument executed or to be executed by it concerning the
obligation to pay money.
6.12 Advances. Notwithstanding anything to the contrary contained herein, Bank
shall have no duty to make advances while any event of default exists
notwithstanding any cure period provided for herein.
7. MISCELLANEOUS PROVISIONS
-------------------------
7.01 Failure or Indulgence Not Waiver. No failure or delay on the part of Bank
or any holder of notes issued hereunder, in the exercise of any power, right or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege. All rights and
remedies existing under this Agreement or any note(s) issued in connection with
a Loan that Bank may make hereunder, are cumulative to, and not exclusive of,
any rights or remedies otherwise available.
7.02 Counterparts; Entire Agreement. This Agreement may be executed by the
parties hereto in several counterparts, each of which shall be deemed to be an
original and all of which shall constitute together but one and the same
agreement. This Agreement, and the other Loan Documents
9
<PAGE>
constitute the entire understanding among the parties hereto with respect to the
subject matter hereof and supersedes any prior agreements, written or oral, with
respect thereto.
7.03 Attorney's Fees. Borrower will pay promptly to Bank without demand after
notice, with interest thereon from the date of expenditure at the rate
applicable to the Loan, reasonable attorneys' fees and all costs and expenses
paid or incurred by Bank in collecting or compromising the Loan after the
occurrence of an Event of Default, whether or not suit is filed. If suit is
brought to enforce any provision of this Agreement, the prevailing party shall
be entitled to recover its reasonable attorneys' fees and court costs in
addition to any other remedy or recovery awarded by the court.
7.04 Additional Remedies. The rights, powers and remedies given to Bank
hereunder shall be cumulative and not alternative and shall be in addition to
all rights, powers and remedies given to Bank by law against Borrower or any
other person, including but not limited to Bank's rights of setoff or banker's
lien.
7.05 Inurement. The benefits of this Agreement shall inure to the successors
and assigns of Bank and the permitted successors and assigns of Borrower.
7.06 Applicable Law. This Agreement and all other agreements and instruments
required by Bank in connection therewith shall be governed by and construed
according to the laws of the state of California, to the jurisdiction of whose
courts the parties hereby agree to submit.
7.07 Offset. In addition to and not in limitation of all rights of offset that
Bank or other holder of the Loan may have under applicable law, Bank or other
holder of any note issued hereunder shall, upon the occurrence of any Event of
Default or any event which with the passage of time or notice would constitute
such an Event of Default, have the right to appropriate and apply to the payment
of the Loan any and all balances, credits, deposits, accounts or monies of
Borrower then or thereafter with Bank or other holder, within ten (10) days
after the Event of Default, and notice of the occurrence of any Event of Default
by Bank to Borrower.
7.08 Severability. Should any one or more provisions of the Agreement be
determined to be illegal or unenforceable, all other provisions nevertheless
shall be effective.
7.09 Time of the Essence. Time is hereby declared to be of the essence of this
Agreement and of every part hereof.
7.10 Accounting. All accounting terms shall have the meanings applied under
generally accepted accounting principles unless otherwise specified.
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<PAGE>
711. Reference Provision.
(a) Other than (i) nonjudicial foreclosure and all matters in connection
therewith regarding security interests in real or personal property; or (ii) the
appointment of a receiver, or the exercise of other provisional remedies (any
and all of which may be initiated pursuant to applicable law), each controversy,
dispute or claim between the parties arising out of or relating to this Credit
Agreement, any security agreement executed by Borrower in favor of Bank or any
note executed by Borrower in favor of Bank or any other agreement or instrument
issued in favor of Bank by Borrower (collectively in this Section, the
"Agreement") which controversy, dispute or claim is not settled in writing
within thirty (30) days after the "Claim Date" (defined as the date on which a
----------
party subject to this Agreement gives written notice to all other parties that a
controversy, dispute or claim exists), will be settled by a reference proceeding
in California in accordance with the provisions of Section 638 et seq. of the
-- ---
California Code of Civil Procedure, or their successor section ("CCP"), which
---
shall constitute the exclusive remedy for the settlement of any controversy,
dispute or claim concerning this Agreement, including whether such controversy,
dispute or claim is subject to the reference proceeding and except as set forth
above, the parties waive their rights to initiate any legal proceedings against
each other in any court or jurisdiction other than the Superior Court in the
County where the Real Property, if any, is located or Los Angeles County if none
(the "Court"). The referee shall be a retired Judge of the Court selected by
-----
mutual agreement of the parties, and if they cannot so agree within forty-five
(45) days after the Claim Date, the referee shall be promptly selected by the
Presiding Judge of the Court (or his representative). The referee shall be
appointed to sit as a temporary judge, with all of the powers for a temporary
judge, as authorized by law, and upon selection should take and subscribe to the
oath of office as provided for in Rule 244 of the California Rules of Court (or
any subsequently enacted Rule). Each party shall have one preemptory challenge
pursuant to CCP (S)170.6. The referee shall (a) be requested to set the matter
for hearing within sixty (60) days after the date of selection of the referee
and (b) try any and all issues of law or fact and report a statement of decision
upon them, if possible, within ninety (90) days of the Claim Date. Any decision
rendered by the referee will be final, binding and conclusive and judgment shall
be entered pursuant to CCP (S)644 in any court in the state of California having
jurisdiction. Any party may apply for a reference proceeding at any time after
thirty (30) days following notice to any other party of the nature of the
controversy, dispute or claim, by filing a petition for a hearing and/or trial.
All discovery permitted by this Agreement shall be completed no later than
fifteen (15) days before the first hearing date established by the referee. The
referee may extend such period in the event of a party's refusal to provide
requested discovery for any reason whatsoever, including, without limitation,
legal objections raised to such discovery or unavailability of a witness due to
absence or illness. No party shall be entitled to "priority" in conducting
discovery. Depositions may be taken by either party upon seven (7) days written
notice, and request for production or inspection of documents shall be responded
to within ten (10) days after service. All disputes relating to discovery which
cannot be resolved by the parties shall be submitted to the referee whose
decision shall be final and binding upon the parties. Pending appointment of the
referee as provided herein, the Superior Court is empowered to issue temporary
and/or provisional remedies, as appropriate.
(b) Except as expressly set forth in this Agreement, the referee shall
determine the manner in which the reference proceeding is conducted including
the time and place of all hearings, the order of presentation of evidence, and
all other questions that arise with respect to the course of the reference
proceeding. All proceedings and hearings conducted before the referee, except
for trial, shall be conducted without a court reporter except that when any
party so requests, a court reporter will be used at any hearing conducted
11
<PAGE>
before the referee. The party making such a request shall have the obligation to
arrange for and pay for the court reporter. The costs of the court reporter at
the trial shall be borne equally by the parties.
(c) The referee shall be required to determine all issues in accordance with
existing case law and the statutory laws of the state of California. The rules
of evidence applicable to proceedings at law in the state of California will be
applicable to the reference proceeding. The referee shall be empowered to enter
equitable as well as legal relief, to provide all temporary and/or provisional
remedies and to enter equitable orders that will be binding upon the parties.
The referee shall issue a single judgment at the close of the reference
proceeding which shall dispose of all of the claims of the parties that are the
subject of the reference. The parties hereto expressly reserve the right to
contest or appeal from the final judgment or any appealable order or appealable
judgment entered by the referee. The parties hereto expressly reserve the right
to findings of fact, conclusions of laws, a written statement of decision, and
the right to move for a new trial or a different judgment, which new trial, if
granted, is also to be a reference proceeding under this provision.
(d) In the event that the enabling legislation which provides for appointment
of a referee is repealed (and no successor statute is enacted), any dispute
between the parties that would otherwise be determined by the reference
procedure herein described will be resolved and determined by arbitration. The
arbitration will be conducted by a retired judge of the Court, in accordance
with the California Arbitration Act, (S)1280 through (S)1294.2 of the CCP as
amended from time to time. The limitations with respect to discovery as set
forth hereinabove shall apply to any such arbitration proceeding.
7.12 This Agreement may be modified only by a writing signed by all parties
hereto.
This Agreement is executed on behalf of the parties by duly authorized officers
as of the date first above written.
IMPERIAL BANK M & B Restaurants, L.C.
("Bank") ("Borrower")
By: By: /s/ William Prather
----------------------------- -------------------------------
Its: Its:
---------------------------- ------------------------------
By:
-------------------------------
Its:
------------------------------
12
<PAGE>
EXHIBIT 10.60
[LETTERHEAD OF FRANCHISE FINANCE CORPORATION OF AMERICA]
February 11, 1999
VIA TELECOPY AND
- ----------------
AIRBORNE EXPRESS
- ----------------
Mr. William E. Prather
El Paso Bar-B-Que Company
28210 Dorothy Drive
Agoura Hills, California 91301
Dear Mr. Prather:
El Paso Bar-B-Que Company ("El Paso") has asked FFCA Acquisition
Corporation ("FFCA") to assist El Paso in adding up to two (2) new El Paso
Bar-B-Que restaurants (individually, a "Property" and collectively, the
"Properties") to its system within the next 12 months. The land underlying these
restaurant sites (the "Land") will be purchased by FFCA and then leased to and
developed by El Paso. The cost of developing each restaurant and the related
improvements (the "Improvements") will be funded by FFCA.
Upon the acceptance of this commitment letter (this "Commitment") by El
Paso, FFCA commits to purchase and lease back to El Paso up to two Properties
identified by El Paso all on the terms set forth in this Commitment
(individually, a "Transaction" and collectively, the "Transactions").
A. Basic Commitment Terms.
----------------------
Background: This Commitment outlines certain basic terms and conditions
of the Transactions; however, it is not meant to define all
of the terms and conditions of the Transactions, which will
be set forth more fully in a separate term sheet (the "Term
Sheet") and the final documentation for each Transaction.
Each Transaction is subject, among other things, to the
approval by FFCA's in-house site review and valuation
department of each Property and its Purchase Price and
Development Price, the satisfaction of the conditions
outlined in this Commitment, and the receipt by FFCA of all
documents and other information requested by FFCA and its
counsel.
Acceptance: El Paso may accept this Commitment by signing and returning
a copy of this Commitment, together with a check for the Fee
(as defined below), to FFCA within 10 days of the date
hereof.
<PAGE>
Fee: El Paso shall pay FFCA a $6,000.00 fee for this
Commitment.
Refundability of Fee: Although the Fee shall be nonrefundable and fully
earned when received by FFCA, all or part of the Fee
will be applied to the Property Commitment Fees as
described in the Property Commitment Fee Section below.
Transaction
Processing: El Paso will notify FFCA as soon as El Paso has entered
into a contract to purchase a Property. Such notice
shall include a copy of the contract or option
agreement, a description of the Property (including the
proposed Improvements) and the proposed Transaction, a
detailed budget for the cost of the Improvements, and
any other documents and information available regarding
the Property (the "Property Notice"). Upon receipt of
the Property Notice, FFCA will prepare a Term Sheet in
the form attached hereto as Exhibit A outlining the
specific terms and conditions upon which FFCA would be
willing to enter into the Transaction. FFCA's in-house
site review and valuation department will not inspect
any Property identified by El Paso until a Term Sheet
has been accepted by El Paso. FFCA will not order a
title insurance or instruct its counsel to begin
preparing any of the documentation, until FFCA has
approved the Property and FFCA and El Paso have agreed
upon a Purchase Price and Development Price.
Commitment Term: The term of this Commitment shall commence on the date
this Commitment is accepted and automatically expire
and be of no further force or effect after March 1,
2000. Any Property Notice received by FFCA after such
date shall be ineffective.
Transaction Amounts: Notwithstanding anything in this Commitment to the
contrary, the sum of the Purchase Price and the
Development Price for each Property shall not exceed
$1,725,000.00 (inclusive of the Property Commitment Fee
and the financed closing costs).
Property Locations: Each of the Properties shall be located in the state
of California.
B. Basic Terms of Transactions.
---------------------------
Property Commitment
Fee: For each Transaction, El Paso shall pay FFCA an
underwriting and processing fee equal to the sum of one
2
<PAGE>
percent (1%) of the sum of the of the sum of Purchase
Price, the Development Price and the Equipment Loan
Amount. El Paso shall be entitled to a $3,000.00 credit
towards the Property Commitment Fee owing under each
Term Sheet. One-half of the balance of the Property
Commitment Fee shall be due upon El Paso's acceptance
of a Term Sheet; the balance of the Property Commitment
Fee shall be due at the Closing.
Documentation: For each Transaction, FFCA's counsel will prepare and
submit to El Paso FFCA's proposed form of build-to-suit
sale-leaseback documents.
Purchase Price: The Purchase Price of the Land shall be the sum of (i)
the lesser of the actual cost of the Land or the fair
market value of the Land as such amount is determined
by FFCA's in-house site review and valuation
department, (ii) the Fee and (iii) such other
Transaction-related costs as may be approved by FFCA in
its sole discretion.
Development Price: After purchasing and leasing the Land at each Property
back to El Paso, FFCA will agree to fund the cost to
construct the Improvements, as approved by FFCA in its
sole discretion.
Closing Costs: El Paso shall pay its attorneys fees, FFCA's customary
attorneys' fees, FFCA's site inspection expenses, the
cost of the environmental insurance policy, and all
other closing and disbursement costs, including,
without limitation, all title insurance premiums,
transfer taxes, stamp taxes, transfer, escrow and
recording fees, construction consultant fees,
disbursement agent fees, soil report expenses, real
estate taxes and assessments, and survey fees.
Lease Term: Approximately twenty (20) years and four (4) months
with two (2) successive five-year extension options.
Base Annual Rental: During the construction period (i.e., the period from
the closing until the final disbursement of the
Development Price) Base Annual Rental shall equal the
product of (a) the 30-day London Interbank Offered Rate
("LIBOR") the in effect plus 4.50% and (b) the sum of
the Purchase Price and the Development Price then
funded. Thereafter, Base Annual Rental shall equal the
product of (a) the greater of (i) 11% or (ii) the 10-
year U.S. Treasury Note Rate in effect 10 days prior to
the date that FFCA initially anticipates the Closing to
occur (which date shall be established by a letter from
FFCA to El Paso) plus 5.0%, multiplied by (b) the sum
of the Purchase Price and the Development Price. Base
Annual Rental shall be payable in equal monthly
installments
3
<PAGE>
on the first day of each month.
Base Annual Rental Commencing on the second anniversary of the Closing and
Increases: continuing every other year throughout the Lease Term
(including all extensions thereof), the Base Annual
Rental shall increase by an annual amount equal to the
product of (i) the Base Annual Rental then in effect,
multiplied by (ii) the lesser of (A) 4.04% or (B) an
amount equal to five (5) times the average increase in
the U.S. Consumer Price Index during the prior two
years (which increases shall be compounded).
Extension Option Rents: During any extension of the Lease Term, the Lease shall
continue in effect upon its original terms except that
the Base Annual Rental shall be the greater of (i) the
fair market rental value of the Property, or (ii) the
Base Annual Rental in effect at the expiration of the
Lease Term or the first extension of the Lease Term, as
applicable.
Purchase Option: El Paso shall have the option during the ninety (90)
days immediately preceding the 10/th/ and 20/th/
anniversaries of the lease and, if applicable, during
the ninety-day periods immediately preceding the end of
the first and second extension terms, to purchase the
Property for the greater of (i) its fair market value,
or (ii) FFCA's total investment in the Property.
Basic Construction El Paso, FFCA and the title company will enter into
Funding Terms: FFCA's standard form disbursement agreement wherein
FFCA will agree to fund the Development Price in
progress payments through the title company and El Paso
will agree to complete the Improvements as provided
therein.
Title Company: The close of escrow with respect to the Lease and all
subsequent disbursements thereon shall be processed
through LandAmerica Financial Services/Lawyers Title
Insurance Corporation.
Guaranty: All of the obligations of El Paso under the Sale-
Leaseback Documents shall be unconditionally guaranteed
by William E. Prather, Marna Prather, and John E.
Martin (collectively, "Guarantors"). From and after the
fifth anniversary of the Closing, El Paso may request
that FFCA release the Guarantors from their obligations
under the Guaranty, if El Paso has maintained an annual
Fixed Charge Coverage Ratio (as determined on
individual basis) of at least 1.50:1 for the previous
five (5) consecutive years. For purposes hereof, the
term "Fixed Charge Coverage Ratio" shall mean the ratio
of (a) net income before non-recurring items and
4
<PAGE>
after corporate overhead allocation (equal to 4% of
gross sales) plus depreciation and amortization
expense, operating lease payments and interest expense,
to (b) the sum of any loan payments, equipment loan
payments and operating lease payments which are
associated with the Property.
D. Other Material Transaction Terms.
--------------------------------
Cross-Default: The sale-leaseback agreements, leases, disbursement
agreements, and any other agreements between FFCA and
El Paso with respect to the Transactions shall be
cross-defaulted with each other leases, loan
agreements, notes, mortgages, deeds of trust and other
agreements now or hereafter entered into between (or,
in the case of notes and guaranties, in favor of) (i)
FFCA, Franchise Finance Corporation of America or any
of its other subsidiaries and affiliates, on the one
hand, and (ii) El Paso, Guarantors or any of their
subsidiaries or affiliates, on the other hand.
Non Disclosure: Prior to the Closing, neither El Paso nor FFCA shall
make any public disclosure of this Commitment or the
Transactions proposed by this Commitment without the
prior written consent of the other party hereto.
D. Other Matters.
-------------
THE FOREGOING SUMMARY OF BASIC TERMS AND CONDITIONS IS NOT MEANT TO BE NOR
SHOULD IT BE CONSTRUED AS AN ATTEMPT TO DEFINE ALL OF THE TERMS AND CONDITIONS
REGARDING THE TRANSACTIONS. INSTEAD, IT IS INTENDED ONLY TO OUTLINE CERTAIN
BASIC POINTS OF THE BUSINESS UNDERSTANDING AROUND WHICH LEGAL DOCUMENTATION WILL
BE STRUCTURED. THE OUTLINED TERMS AND CONDITIONS ARE SUBJECT TO FINAL
DOCUMENTATION SATISFACTORY TO ALL PARTIES AND COMPLETE LEGAL REVIEW AND APPROVAL
OF ALL PERTINENT MATTERS.
This Commitment and Transactions contemplated hereby shall be subject to,
in FFCA's sole judgment, there being no material adverse change in (i) the
financial condition of El Paso or any Guarantor or (ii) capital markets utilized
by FFCA. This Commitment shall not be assignable by El Paso or relied upon by
any third party without the prior written consent of FFCA, and shall be governed
by the internal laws of the State of Arizona, without giving effect to conflict
of law principles. This Commitment may be assigned by FFCA without the consent
of El Paso. Within forty-five days following the end of each quarter during the
Commitment Term, El Paso shall provide FFCA with El Paso's financial statements
for the preceding quarter. The closing of the purchase and lease transactions
involved in any Transaction are not severable and the closing of one shall be
conditioned upon the closing of the other. Each Transaction shall constitute a
sale and "true lease" and not a transaction creating a financing lease,
equitable mortgage, deed of trust, security agreement, trust
5
<PAGE>
agreement or other financing or trust arrangement. This Commitment (i)
supersedes any previous discussions, agreements and/or proposals relating to the
Transactions, and (ii) may only be amended by a written agreement executed by
FFCA and El Paso. FFCA reserves the right to cancel this Commitment in the event
El Paso has made any misrepresentations or has withheld any information with
regard to the Transactions.
ANY ACTION ARISING OUT OF THIS COMMITMENT SHALL BE PROSECUTED ONLY IN THE
STATE OR FEDERAL COURTS LOCATED IN THE STATE OF ARIZONA. FFCA, EL PASO AND
GUARANTORS WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY
ACTION ARISING OUT OF THIS COMMITMENT. EL PASO AND GUARANTORS WAIVE ANY RIGHT
THEY HAVE OR MAY HAVE TO SEEK OR RECOVER FROM FFCA OR ANY OF ITS AFFILIATES,
OFFICERS, DIRECTORS AND EMPLOYEES ANY AWARD OF SPECIAL, INDIRECT, CONSEQUENTIAL
OR PUNITIVE DAMAGES IN CONNECTION WITH ANY DEFAULT BY FFCA UNDER THIS
COMMITMENT.
Please indicate El Paso's acceptance of this Commitment by having a copy of
this Commitment signed and returned to FFCA to the attention of Kelly A.
Hallford, FFCA Acquisition Corporation, 17207 North Perimeter Drive, Scottsdale,
Arizona 85255, together with a check payable to "FFCA Acquisition Corporation"
for $6,000.00 within ten (10) days from the date hereof or this Commitment will
automatically expire.
FFCA Acquisition Corporation,
a Delaware corporation
/s/ Stephen Y. Schwanz
------------------------------------
Stephen Y. Schwanz
Sr. Vice President Corporate Finance
ACCEPTED AND AGREED TO on this 16th day of February, 1999.
El Paso Bar-B-Que Company
a Texas limited liability company
By Wm. Prather
---------------------
Printed Name Wm. Prather
--------------
Title President CEO
------------------
6
<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
THREE MONTH PERIOD ENDED JUNE 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 559,012
<SECURITIES> 0
<RECEIVABLES> 4,441,912
<ALLOWANCES> 436,604
<INVENTORY> 3,945,767
<CURRENT-ASSETS> 10,834,450
<PP&E> 6,935,558
<DEPRECIATION> 2,555,758
<TOTAL-ASSETS> 78,678,564
<CURRENT-LIABILITIES> 13,967,080
<BONDS> 1,316,667
0
0
<COMMON> 22,091
<OTHER-SE> 27,167,859
<TOTAL-LIABILITY-AND-EQUITY> 78,678,564
<SALES> 11,017,265
<TOTAL-REVENUES> 11,017,265
<CGS> 8,153,836
<TOTAL-COSTS> 5,502,422
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 861,438
<INCOME-PRETAX> (3,648,702)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,648,702)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,648,702)
<EPS-BASIC> .17
<EPS-DILUTED> .17
</TABLE>
