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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-14509
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EASYRIDERS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 33-0811505
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
28210 Dorothy Drive, Agoura Hills, California 91301
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (818) 889-8740
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Securities registered pursuant to Section 12(b) of the Act: Common Stock, $.001
par value per share
Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ].
The aggregate market value of the voting stock held by non-affiliates of
the registrant, based upon the average bid and asked prices of such stock on
April 5, 2000 was $7,875,207. There were 25,702,374 shares of Common Stock
issued and outstanding as of April 5, 2000.
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PART I
Item 1. Business
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INFORMATION ABOUT EASYRIDERS
General
Easyriders, Inc. ("Easyriders" or the "Company") is a corporation
established under the laws of the state of Delaware on May 13, 1998. Easyriders
currently derives substantially all of its revenues from the operations of two
wholly-owned subsidiaries, Paisano Publications, Inc. ("Paisano Publications"),
a California corporation, and M & B Restaurants, L.C. dba El Paso Bar-B-Que
Company ("El Paso"), a Texas limited liability company.
Reorganization
On September 23, 1998, Easyriders consummated a series of transactions (the
"Reorganization") comprising the following: (a) the acquisition by Easyriders
from Joseph Teresi of all of the outstanding common stock of Paisano
Publications and certain affiliated corporations (the "Paisano Companies"),
engaged at the time in (i) publishing special-interest magazines relating
primarily to American-made "V-Twin" motorcycles and tattoo art, (ii) selling
branded motorcycle apparel and accessories through a mail-order catalogue,
events and franchise stores, (iii) producing motorcycle and tattoo-related
events, and franchising retail stores to market its branded motorcycle apparel
and accessories; (b) the acquisition by Easyriders of all of the outstanding
membership interests of El Paso, which at the time was engaged in the operation
of four restaurants under the name "El Paso Bar-B-Que"; and (c) the merger (the
"Merger") of a subsidiary of Easyriders with and into Newriders, Inc., a Nevada
corporation ("Newriders").
As a result of the Merger (i) each two shares of Newriders common stock,
par value $.01 per share (the "Newriders Common Stock") were exchanged for one
share of Easyriders common stock, par value $.001 per share ("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/1/.
At the time of the Reorganization, Easyriders and Paisano Publications
entered into a Note and Warrant Purchase Agreement (the "Credit Agreement") with
Nomura Holding America
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/1/ Easyriders owns El Paso through Newriders, Inc., a Nevada corporation.
Newriders, Inc. is a wholly-owned subsidiary of Easyriders.
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Inc. ("Nomura" or "Lender"), pursuant to which Nomura agreed, subject to the
satisfaction of certain terms and conditions, to lend Paisano Publications up to
$22,000,000 (the "Nomura Indebtedness"). $20,500,000 was borrowed under the
Credit Agreement at the time of the Reorganization and used as a portion of the
consideration paid by Easyriders to Joseph Teresi to acquire the Paisano
Companies. As of April 7, 2000, $300,000 is available for borrowing under the
Credit Agreement.
Recent Developments
In late 1999 the Board of Directors approved a management proposal to streamline
the Company's operations in order to concentrate on three principal lines of
business, as follows:
. Magazine publishing in the motorcycle, automotive and tattoo lifestyle
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sectors, operated through Paisano Publications.
. Retail sales of Easyriders-branded merchandise, via a network of licensed
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stores, as opposed to a franchise system. These operations are pursued
through Easyriders Licensing, Inc., a California corporation and a wholly
owned subsidiary of Newriders, Inc.
. Restaurant operations, development and franchising, operated by El Paso.
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The implementation of this strategy (the "2000 Plan") has resulted in
certain changes within the Company's operating units, as discussed herein.
Effective February 7, 2000, Nomura entered into a consent and waiver
pursuant to the Credit Agreement pursuant to which Nomura consented to (a) the
issuance by Paisano of a promissory note in furtherance of the settlement of
litigation (see Item 3, Legal Proceedings - The Steel Horses Arbitration), and
(b) an advance under the Nomura credit line of $325,000, and waived a previous
event of default related to the late payment of a principal installment.
On April 12, 2000, Nomura agreed to waive defaults under the Credit
Agreement relating to maximum capital expenditures, maximum leverage ratios,
minimum consolidated EBITDA, minimum consolidated net worth, minimum
consolidated working capital and minimum interest coverage ratios, pursuant to a
Second Amendment and Waiver Under Note and Warrant Purchase Agreement and Second
Amendment to Warrant. In addition, Nomura agreed to amend the Credit Agreement
in order to relax covenants for the 2000 calendar year relating to the
maintenance of required levels of net worth and EBITDA, maximum leverage ratios
and minimum interest coverage ratios. In consideration of the foregoing waivers
and amendments, the Company agreed to reduce the exercise price on warrants to
purchase 355,920 shares of Easyriders Common Stock issued to Nomura at the time
the Credit Agreement was originally entered into, from $1.625 to "market price,"
as determined by a formula set forth in the Second Amendment to Warrant.
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Joseph Teresi, sole stockholder of Paisano Publications prior to the
Reorganization, was issued 6,493,507 shares of the Company's common stock in the
Reorganization. In addition, Mr. Teresi received promissory notes aggregating
$13,000,000 (the "Contributor Notes"). The Contributor Notes consist of a
subordinated promissory note in the amount of $5,000,000, a limited recourse
subordinated promissory note in the amount of $5,000,000 secured by the Martin
Mirror Note (as defined in the applicable instruments) and a subordinated
promissory note in the amount of $3,000,000.
During 1999, Mr. Teresi acquired an additional 1,801,790 shares of Common
Stock through open market purchases and purchases directly from the Company for
cash and/or the forgiveness of debt under the Contributor Notes. As part of the
Nomura Consent and Waiver dated February 7, 2000, and in order to help alleviate
the Company's cash flow problems, Mr. Teresi purchased on February 9, 2000 an
additional 493,827 shares of the Company's Common Stock for $250,000 in cash.
Concurrently, the Company's Chairman, John Martin made an identical purchase of
493,827 shares for $250,000 in cash. These shares were sold to Messrs. Teresi
and Martin 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 period of 10 consecutive trading days ending on and including
February 4, 2000.
As of April 1, 2000, the Company's promissory note obligations to Mr.
Teresi were as follows:
<TABLE>
<CAPTION>
Note Original Principal Current Principal Maturity Accrued Interest
- ---- ------------------ ----------------- -------- ----------------
<S> <C> <C> <C> <C>
Subordinated Short $ 3,000,000 $ 3,000,000 3-31-00 $ 456,497
Term 10%
Subordinated 7% $ 5,000,000 $ 3,575,000 9-23-03 $ 335,875
Mirror 7% $ 5,000,000 $ 5,000,000 9-23-03 $ 482,676
Totals $13,000,000 $11,575,000 $1,275,048
</TABLE>
Effective April 3, 2000 the Company's Board of Directors accepted a
proposal advanced by Mr. Teresi, pursuant to which:
. Mr. Teresi has agreed to forgive $3,446,787 of principal owed on the
Subordinated 7% note, leaving a principal balance of $128,213, in exchange
for 3,356,170 shares of the Company's Common Stock. This transaction is
valued at full market price without discount, market price being
determined as the average daily closing price of the Common Stock on the
American Stock Exchange over 30 consecutive trading days ending on and
including March 22, 2000, the date of the Company's last meeting of its
Board of Directors.
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. Mr. Teresi has agreed to forgive (a) the residual balance due under the
Subordinated 7% note of $128,213, (b) $96,739 of other obligations owed to
Mr. Teresi by the Company in connection with rent and consulting fees, and
(c) accrued interest on the Contributor Notes of $525,040, in exchange for
the undertakings of Paisano Publications pursuant to an agreement
involving the Company's events division. See, "Information about the
Paisano Companies - Events Promotion and Management Activities," below.
. Mr. Teresi has agreed to waive the default in payment of the Subordinated
Short Term Note and to extend the maturity of that note until March 31,
2002, and to defer payment of interest accruing on such note until March
31, 2001.
. Assets of the Company's Easyriders of Columbus store will be conveyed to
Mr. Teresi in exchange for forgiveness of obligations owed to Mr. Teresi
by Paisano Publications pertaining to accrued but unpaid consulting fees
and rent. See "Information about the Paisano Companies - Easyriders of
Columbus," below.
In order to help alleviate the Company's liquidity concerns, El Paso is
presently in negotiations with an independent third party concerning the sale of
one of El Paso's restaurants in Arizona. Discussions have progressed to the
point of a letter of intent which is subject to several contingencies. The
transaction contemplates that the purchaser will pay cash for a 100% interest,
and will then enter into a development agreement with El Paso pursuant to which
the purchaser will develop additional El Paso restaurants as a franchisee of El
Paso.
INFORMATION ABOUT THE PAISANO COMPANIES
General
Paisano Publications is a California corporation organized on November
17, 1970. It presently has 84 employees, and is engaged primarily in the
business of publishing magazines for the motorcycle and tattoo lifestyle
markets. Paisano Publications has also acquired a number of domestic and
international trademarks in classes pertaining to merchandise, apparel and non-
publishing services, as part of an overall product licensing program. (See
"Information about Easyriders Licensing," herein.)
Easyriders of Columbus is an Ohio corporation organized on January 3,
1994. It presently has 16 employees and it owns and operates a flagship store
that sells Easyriders apparel and offers motorcycle customization, custom and
pre-owned motorcycle sales, motorcycle parts and accessory sales, motorcycle
servicing, a cafe, custom leather and embroidery and a tattoo studio. Recently,
in furtherance of the 2000 Plan, the Company entered into an agreement with
Joseph Teresi pursuant to which the assets of Easyriders of Columbus will be
sold to Mr. Teresi (the "Columbus Transaction"), in exchange for forgiveness by
Mr. Teresi of certain financial obligations owed to him by Paisano Publications
and/or the Company.
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Pursuant to the Columbus Transaction:
. All inventory, motorcycles, equipment, tools, parts, racks, shelves and
other tangible property will be conveyed to Mr. Teresi, subject to
certain adjustments and exclusions.
. The liquor license applicable to the site will be conveyed to Mr.
Teresi.
. The corporation will retain all cash on hand and accounts receivable,
and responsibility for all trade payables.
. The corporation will be relieved of all liability under the lease with
Mr. Teresi for the premises in question.
The total amount of forgiveness is currently estimated at $565,840, but is
subject to adjustment based on levels of inventory, cash, receivable and
payables at closing. Upon closing of the Columbus Transaction, which is
anticipated to occur in April 2000, Mr. Teresi will continue operating the
business as "Easyriders of Columbus" pursuant to a licensing agreement with
Easyriders. The Company anticipates recording a loss associated with the sale
of Easyriders of Columbus upon its consummation of approximately $1,400,000,
including a goodwill write-off of approximately $879,000.
Easyriders Franchising ("Easyriders Franchising") is a California
corporation organized on June 23, 1993. It presently has no employees, but
prior to implementation of the 2000 Plan was engaged in the business of selling
franchises to third parties to sell Easyriders apparel and motorcycle
accessories. During 1999, Easyriders Franchising waived payment of franchise
fees by its franchisees and considered a number of alternatives for modification
of this line of business. Pursuant to the 2000 Plan, the Company recently
terminated its franchise program (with the exception of one remaining
franchisee) and converted all but one franchise to a licensed-store program, as
discussed herein, under "Information about Easyriders Licensing." As a
consequence, the operations of Easyriders Franchising are now limited to
management of the one remaining franchise relationship and administrative
services pertaining to the former franchise program. These are performed by
employees in the employ of Paisano Publications and/or Easyriders Licensing.
Teresi, Inc., dba Easyriders Events, is a California corporation
organized on April 7, 1982. It presently shares 5 employees with Paisano
Publications, Inc., and until recently was engaged in the business of organizing
and producing motorcycle-oriented and tattoo-theme events, and selling
Easyriders-branded event-specific merchandise. In furtherance of the 2000 Plan,
Easyriders has entered into a long-term licensing agreement with a third party,
Action Promotions, Inc. ("API") pursuant to which API has been granted the
exclusive right to produce and manage events and to sell event-specific
merchandise under the Easyriders brand, in exchange for a commitment to make an
advance purchase of merchandise and to pay certain
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guaranteed and percentage-based royalties. See "Information about the Paisano
Companies - Events Promotion and Management Activities," herein.
Bros Club, Inc. is a California corporation organized on February 17,
1994. It presently has no separate employees, and relies on services provided
by other Paisano Companies. Bros Club is engaged in the business of soliciting
memberships for an association of motorcycle enthusiasts and provides various
services for members. In furtherance of the 2000 Plan, Easyriders has recently
entered into a long term licensing agreement with an unrelated party, ISP
Insurance Services, Inc. ("ISPI") pursuant to which ISPI has been granted the
exclusive right to manage and operate the Bros Club business on an out-source
basis, in exchange for a negotiated royalty. (See "Bros Club" below.)
Associated Rodeo Riders on Wheels ("ARROW") is a California corporation
organized on February 29, 1988. It is a service company formed to assist
Teresi, Inc. in connection with certain aspects of its events business. ARROW
presently has no employees and no operations. In view of the API transaction
described above, it is contemplated that the assets or stock of ARROW will be
conveyed to API for nominal consideration.
Print Media Publishing Overview
Paisano Publications publishes eleven special interest magazines that are
sold worldwide, and a trade magazine provided free to motorcycle shops.
Including foreign language editions for Germany, France, Italy, Spain and Japan,
there are twenty-one separate versions of the eleven magazines. Eight of these
magazines are targeted at the motorcycle and tattoo markets, as to which Paisano
Publications is generally regarded as the market leader. One of these magazines
is targeted at the hot rod market, one to the music industry and one to the
airbrush art community. In addition, the launch of Tailgate, a magazine
directed to the custom pick-up truck market, is planned for June 2000. All
magazines are published in-house. Articles and photography are typically
acquired from a select group of freelance writers and photographers.
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Following are the magazines published by Paisano:
Motorcycle Lifestyle Magazines
Easyriders
Easyriders is Paisano Publications' original magazine. It was first
published in 1971, and remains Paisano Publications' flagship magazine. The
magazine has been closely associated with Harley-Davidson enthusiasts since the
early 1970's and has an extremely strong following in the U.S. and abroad. The
"Easyriders" name has acquired a degree of brand name recognition, and is used
by Paisano Publications on products and for its retail and license operations.
Easyriders is focused on what has been referred to as the "Harley-Davidson
lifestyle," featuring motorcycles, people, and events involving Harley-Davidson
and other American-made "V-Twin" motorcycles. In addition Easyriders has served
as a means of promoting other products and services offered by Paisano
Publications. Easyriders is published monthly in a fixed format, including
approximately 152 pages. The magazine sells at U.S. newsstands for $6.99, with
plans to offer some issues at $5.99 in the latter half of 2000.
There are six special annual issues of Easyriders, including two product
catalogs, one buyers' guide, and one related to an annual Columbus, Ohio
motorcycle event. These annual issues have additional pages and sell for $6.99.
Other Motorcycle Lifestyle Magazines
Other motorcycle lifestyle magazines published by Paisano Publications
include Biker, Easyriders V-Twin, In the Wind, and VQ, with newsstand prices
that range from $3.99 to $5.99 per issue. In addition, Paisano Publications
publishes a monthly trade publication, Eagle's Eye, distributed at no charge to
motorcycle and motorcycle accessory shops.
Tattoo Lifestyle Magazines
Tattoo
Tattoo is Paisano Publications' original entry into the tattoo market.
The magazine is targeted at the growing number of tattoo enthusiasts and
includes profiles of individuals, information about events, and other related
topics. Management believes Tattoo has a majority share of the readers in its
market. Tattoo is a monthly publication produced in a fixed format of 96 pages
primarily in color and on coated paper, with a limited number of pages on
newsprint. The magazine retails for $4.99 in the U.S.
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Tattoo Flash
Tattoo Flash is a gallery of individual examples of tattoo art that
retails for $4.99 in the U.S. The magazine has no advertising content.
Tattoo Savage
Tattoo Savage features more "extreme" uses of tattoos. Along with its
tattoo focus, Tattoo Savage includes body piercing content and photography.
Tattoo Savage retails in the U.S. for $4.99.
American Rodder
American Rodder targets hot rod enthusiasts and focuses on the
restoration and customization of "classic" hot rods. American Rodder is a
monthly publication retailing for $3.99 in the U.S. There are four special
annual issues of American Rodder with additional pages, including three related
to events and one swimsuit issue. These special issues retail for $4.99.
Tailgate
Tailgate has been in development for several months and is scheduled for
newsstand release on June 6, 2000. Tailgate is directed toward younger males
interested in custom trucks and related events and activities. It seeks to
capitalize on current trends in magazine readership, with a focus on provocative
content and a strong editorial stance directed to the target market.
Heavy Metal Magazine
In February 1998, Paisano Publications entered into an exclusive
licensing agreement with Dennis Publishing of London, for the North American
distribution rights to Metal Hammer, Britain's premier heavy metal music
magazine. Metal Hammer showcases a musical genre that combines traditional
rock, hardcore punk and urban rap to create today's heavy metal music. Paisano
has printed and distributed the publication on a quarterly basis since April
1999.
Airbrush Art + Action
In May of 1997 Paisano Publications entered into an exclusive licensing
agreement with an agent of Modern Media Publishing, Ltd. of Jersey, Great
Britain, for the North American distribution rights to Airbrush Art + Action, a
publication devoted to visual art works created with airbrush technology, and
the techniques used by artists who specialize in this medium. Paisano has
printed and distributed the publication on a bi-monthly basis since September
1997.
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Other Materials
In addition to its magazine publications, Paisano Publications also
periodically publishes calendars, buyer guides and other printed materials.
Video Magazines
In the past, Paisano Publications produced video magazine versions of its
Easyriders magazine. These were produced as periodicals and sold like
magazines, as single copies or as subscriptions. Paisano Publications has built
a large library of footage for its videos and has released 39 video titles to
date. In addition, Paisano Publications has in the past distributed several
modified versions of its video magazines on pay-per-view programming. The video
magazines contain some adult content and are not rated. Recently, in
furtherance of the 2000 Plan, Paisano Publications terminated its video
production operations and intends to liquidate its remaining inventory of videos
through its licensee stores and other channels. The Company also intends to
continue the exploitation of its existing video library through distribution
agreements with cable television networks and other media outlets.
Printing and Production
Magazine and calendar printing and production is handled by RR Donnelly &
Sons Company under contract with Paisano Publications. The agreement provides
for RR Donnelly & Sons Company to provide all printing requirements for a period
of five years ending in 2001 for designated publications and to provide printing
for additional publications upon notice, subject to availability of adequate
equipment.
Distribution and Marketing
Paisano Publications' magazine and video products are marketed and
distributed through four major avenues:
North American Newsstand Sales
Magazines are distributed to newsstands in the U.S., Canada, and a limited
number of foreign countries under a distribution agreement with Curtis
Circulation Company that runs through June 1, 2001. Curtis has the option to
extend the distribution agreement through July 1, 2002 upon payment of a one-
time extension fee to Paisano Publications. The distributor's responsibilities
are primarily related to marketing and include marketing magazines to
newsstands; maintaining relationships with magazine wholesalers, who deliver the
magazines to the newsstands; monitoring purchasing activity and directing the
number of each issue the wholesaler delivers to each newsstand account;
providing shipping labels for each issue of the magazines to the printer, who
then ships to the wholesalers; and tracking magazine returns which are picked
up, counted, and destroyed by the wholesaler.
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Subscription Sales
Subscription sales in the U.S. and Canada are handled through a contract
with the fulfillment house Centrobe, Inc. ("Centrobe"). There are no
subscription sales to other countries. Centrobe maintains a database of current
and past subscribers. For each magazine issue, Centrobe sends a list of current
subscribers to the printer. The printer, in turn, mails the magazines to
subscribers.
Subscriptions are marketed primarily through Paisano Publications'
magazines. Each magazine includes information about other Paisano Publications'
magazines. To increase subscribers, Paisano also runs sweepstakes through its
magazines and by direct mail.
Non-Newsstand Retail Sales
Due to the target markets served by Paisano Publications, its magazines
are often carried at retail locations that do not otherwise carry magazines.
Primarily, these "non-newsstand" accounts are motorcycle and tattoo shops.
These non-newsstand accounts are managed by an independent vendor, Retail
Visions.
Paisano Publications has a direct marketing effort that targets non-
newsstand customers. Paisano Publications maintains a database of accounts and
prospects for non-newsstand retail sales. Paisano Publications provides mailing
labels to the printer for each issue of the magazines, who then, in turn, ships
to the non-newsstand customers.
Foreign Newsstand Sales
Paisano Publications uses several distributors to handle the distribution
and marketing of its magazines outside North America. The printer ships the
magazine to foreign break-up points based on shipping lists provided by Paisano
Publications.
Bros Club
Bros Club is a motorcycle travelers' service club. The program was
developed to support the Easyriders Stores by providing a product that closely
ties the stores to their customers. Easyriders Licensing permits each licensee
to form a Bros Club chapter and to include a membership with each motorcycle
purchase. Bros Club members pay annual service fees of $29.95 and receive
emergency road service and access to insurance for custom bikes. Paisano
Publications contracts with a third party to provide 24-hour road-side
assistance and towing to members. This third party has over 12,000 24-hour
locations in the U.S. As of April 1, 1999, there were approximately 6,000 Bros
Club members.
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As noted above, Paisano Publications has completely outsourced the
management and operation of Bros Club to an independent third party, ISPI, who
has become responsible for all aspects of the program. Under this new
arrangement, all obligations to carry inventory, fulfill orders, service
members, and promote and advertise the business have been shifted to ISPI.
Under ISPI, the program will be expanded to include a separately-named
membership service addressed to owners of foreign-made motorcycles commonly
referred to as the "metric market," and the royalties paid to Paisano
Publications will include a percentage of this new business as well as that
pertaining to the original Bros Club.
Event Promotion and Management Activity
For over a decade, Teresi, Inc. dba Easyriders Events has promoted events
intended to appeal to motorcycle enthusiasts, including motorcycle rodeos,
motorcycle shows, and tattoo shows. Historically, TI has either promoted such
events for its own account and incurred the risk of all associated expenses
against the prospect of collecting all revenues for ticket sales, or provided
services on a fee basis to the party taking such role. Services provided have
included organization, advertising, arranging for attractions, locations,
insurance, concessions, and contest supervision. In addition, TI has in the past
contracted with one of the Company's shareholders to provide trucks at events
from which it markets magazines, motorcycle accessories, soft goods and related
products.
As noted above, TI has recently entered into a long-term licensing
agreement with Action Promotions, Inc. ("API") pursuant to which API has been
granted the exclusive right for a ten year period (with options to extend) to
produce and manage events and to sell event-specific merchandise under the
Easyriders brand. The principals of API are Melissa Penland, an apparel
manufacturer with extensive event-merchandise experience, and John Green, a
current licensee of Easyriders Licensing and owner of the Daytona Easyriders
Store. In addition, Mr. Teresi has loaned API the sum of $750,000. Under this
new arrangement, all responsibilities for production, scheduling, staffing,
management, purchasing and promotion have been shifted to API, under an
arrangement that guarantees the Company a minimum level of royalties, plus a
percentage of gross revenues from gate and merchandise sales. Under the
agreement, API has also committed to a significant purchase of Easyriders
merchandise, to be paid for in advance, but fulfilled over the term of the
license agreement. In exchange, Paisano Publications has agreed to provide a
significant level of advertising support at no additional cost to the licensee.
In exchange for a merchandise credit in the total sum of $1,500,000, the
Company received (a) $750,000 in cash from API (of which one half has been
received, the balance due by April 17, 2000), and (b) forgiveness by Mr. Teresi
of obligations owed to him by the Company in the amount of $750,000, as more
fully explained above, under "Recent Developments."
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Competition
Paisano Publications' seven motorcycle titles (including the trade
publication, Eagle's Eye) have among the largest circulation in the U.S. of the
motorcycle magazine segment. Paisano directly competes with the following six
other Harley-Davidson oriented motorcycle magazines: Hot Rod Bikes, Big Twin,
Hot Bike, American Rider, Iron Works and American Iron. The company's three
tattoo-oriented titles compete primarily with Skin & Ink, International Tattoo,
Outlaw Biker Tattoo and Tattoo Gallery. American Rodder competes with others in
the hot rod market, including Rod & Custom and Street Rodder. In the custom
truck sector, Tailgate will compete with Trucking, Sports Trucks and Street
Trucks.
Trademarks
Paisano Publications is the owner of a large number of trademarks and
service marks registered with the U.S. Patent and Trademark Office and numerous
foreign jurisdictions. Classes of registration include magazines and printed
material, advertising services, media distribution, and a wide range of apparel
and accessories. The company's principal registered marks are Easyriders,
Biker, In the Wind, Roadware, Tattoo, Tattoo Flash, V-Twin, VQ, and its well-
known stylized motorcycle logo.
Employees
As of April 5, 2000, the Paisano Companies employed approximately 110
full-time and part-time employees. None of the Paisano Companies' employees is
covered by a collective bargaining agreement and the Paisano Companies have
never experienced an organized work stoppage, strike or labor dispute. The
Paisano Companies believe its relations with its employees are generally good.
INFORMATION ABOUT EASYRIDERS LICENSING
Apparel Sales, Licensing and Store Operations Overview
Paisano Publications has used its access to the Harley-DavidsonTM and
hybrid American-made motorcycle market to sell apparel and other products it
creates. Originally sold through Paisano Publications' magazines and mail order
catalogs, Paisano Publications then expanded the marketplace for such products
to include two company-owned stores, and subsequently introduced a franchise
program for motorcycle specialty shops. Pursuant to the 2000 Plan, all of the
Company's product-related activities were consolidated under the management of
Easyriders Licensing, Inc. ("ELI"), a wholly-owned subsidiary of Newriders, Inc.
(which as noted above is itself a wholly-owned subsidiary of Easyriders), and
the franchise program has been converted to one based on licenses to store
owners.
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Apparel and Other Product Sales
Shortly after commencing publication of Easyriders, Paisano Publications
began developing and distributing a line of apparel and other motorcycle-related
soft goods, marketed under the Easyriders brand. In 1984, this activity became a
dedicated business unit of the Company. The products currently offered include
clothing, belts, buckles and pins, boots, jewelry, tee shirts, toys, leather
apparel, hats, collectibles, bike accessories and greeting cards.
Easyriders Licensing sells its products through several channels:
Mail-Order/Retail Customers. Historically, products have been sold
through advertisements in Paisano Publications' magazines and through annual
Easyriders product catalogs. Since 1995, Paisano Publications has produced
newsstand catalogs under the name "Roadware" in order to increase mail-order
sales of its products and to provide nationwide marketing support for its
franchise/license stores.
Easyriders Stores. Retail stores ("Easyriders Stores") operating under
the Easyriders name include one franchisee in Myrtle Beach, SC, and 30 sites
under a license agreement with the Easyriders Licensing. In addition,
Easyriders Licensing is presently processing 5 applications for retail store
licenses. The Easyriders Stores sell products purchased from Easyriders
Licensing. Management believes this will be a significant growth area for
product sales.
Other Customers: The Paisano Companies sell apparel and other products at
wholesale to non-Easyriders stores. These stores include a variety of
motorcycle and accessory shops. Another market for distribution is events, as
discussed below
Paisano Publications uses its magazines to market for all of the above
distribution channels. Advertisements for the products, the catalogs, and the
Easyriders Stores are included throughout the various Paisano Publications'
magazines.
Easyriders Licensing Overview
In 1992, Paisano Publications began licensing the name Easyriders and by
1994 had 14 U.S. licensed stores, with a wide range of formats and products. In
1994, Paisano Publications decided that the potential for the stores would be
best served by a franchise arrangement. A plan was then developed to change
certain stores to franchises and to establish additional franchise stores. Of
the 14 licensed stores, 8 converted to franchised stores and the remainder
ceased using the Easyriders name. By the end of 1998, the number of franchise
stores had grown to 26.
14
<PAGE>
Following the Reorganization, the Company hired an experienced franchise
executive, Mr. Gaylon Smith, to manage its franchise program. At his
recommendation, in February, 1999 management suspended franchise fees for the
balance of 1999, while the entire business of Easyriders Stores was re-
evaluated. By late 1999, the Company determined, as part of the 2000 Plan, to
convert its franchise program to one based on a network of stores operating
under a license agreement, rather than a franchise agreement. Since then, all
but one of the 26 franchise stores has been converted to a license-based
operation. The Company will continue to service this franchisee and honor its
obligations as franchisor, but is no longer offering franchises for Easyriders
Stores. As to franchise regulation, see "Information about El Paso - Franchise
Regulation," below. ELI is subject to the same regulatory regime as is El Paso
with respect to past and current franchise activities.
The Company's standard-form license agreement obligates each licensee to
purchase a minimum amount of merchandise on an annual basis, as a condition of
operating under the Easyriders name. While differing somewhat from location to
location the inventory carried by these Easyriders Stores includes not only
merchandise purchased from the Company, but also motorcycles, after-market
motorcycle parts and supplies, and other motorcycle-related goods provided by
other vendors. In addition, many Easyriders Stores offer motorcycle service and
customization, tattooing, and food services.
The plan of Easyriders Licensing is to continue offering license
agreements for Easyriders Stores to qualified entrepreneurs, including owners of
existing independent motorcycle stores. According to the Company's
investigation, there are approximately 6,500 such stores operating in the U.S.,
each of which is a potential candidate for becoming a licensee. Management
believes this market represents a significant growth opportunity for Easyriders
Licensing. In addition, ELI has recently consummated a master licensing
agreement with its former franchisee in Toronto, Ontario (Canada), for the
territory of Canada. Pursuant to this arrangement, the master licensee has
committed to purchasing escalating levels of merchandise over a 5 year period,
and ELI will also derive revenues on sales made by sub-licensees of Canada-
sourced product bearing the Easyriders brand.
Company-Owned Stores
Easyriders of Columbus
Easyriders of Columbus was designed to be a test store for merchandising
Easyriders products and services and was incorporated separately from Paisano
Publications and Easyriders Franchising. The store is 22,000 square feet. Aside
from selling Easyriders apparel, this location offers motorcycle customization,
custom and pre-owned motorcycle sales, motorcycle parts and accessory sales,
motorcycle servicing, a cafe, custom leather and embroidery, and a tattoo
studio. As stated above, while originally a company-owned store, as a
consequence of the Columbus Transaction, in the future this store will operate
under a standard license agreement between Easyriders Licensing and Mr. Teresi.
15
<PAGE>
Daytona Beach, Florida
The Daytona Beach store is the original Easyriders store. In December
1999 its assets were sold to John Green (see discussion under Event Promotion
and Management Activity above). Mr. Green now operates the business under a
standard license agreement with ELI, and out of this location also manages the
warehousing and distribution of back-issues of Paisano Publications' various
titles, under a written agreement with Paisano.
Competition
The Company competes generally with a wide range of manufacturers and
distributors of apparel, including vendors which service consumers interested in
the American motorcycle lifestyle through catalogue sales, dealer networks, and
sales to independent motorcycle stores. Within the motorcycle retail channel,
the market is generally considered to be quite fragmented, with the exception of
Harley-Davidson, which is actively engaged in selling branded merchandise
through its own dealer network and certain other selected outlets.
Employees
Easyriders Licensing currently employs 6 full-time individuals, and
relies on services provided by other Paisano Companies. None of the Easyriders
Licensing employees is covered by a collective bargaining agreement and the
company has never experienced an organized work stoppage, strike or labor
dispute. Easyriders Licensing believes its relations with its employees are
generally good.
INFORMATION ABOUT EL PASO
General
M & B Restaurants, L.C., a Texas limited liability company ("El Paso"),
was formed on September 13, 1994 and was acquired by the Company on September
23, 1998 as a wholly-owned subsidiary of Newriders. El Paso currently operates
four El Paso Bar-B-Que Restaurants, located in Tulsa, Oklahoma; Glendale,
Arizona; Scottsdale, Arizona; and Phoenix, Arizona. In addition, El Paso has
two other restaurants in development, one in Mesa, Arizona and one in Tucson,
Arizona, both of which are scheduled to open by June 1, 2000.
El Paso's restaurants offer high-quality, Southwestern-style barbecue
cuisine and excellent service in a Southwestern atmosphere.
16
<PAGE>
Description of Menu
El Paso Bar-B-Que Restaurants offer smoked meats featuring El Paso's
proprietary seasoning rub, and a variety of entrees including salmon, turkey,
lamb, and prime rib. The primary menu items concentrate on high quality,
genuine hickory-smoked barbecue. All dishes include an assortment of unique and
proprietary side items, along with a variety of El Paso's barbecue sauces.
Restaurant Decor, Layout and Design
The El Paso Bar-B-Que Restaurants have a highly distinctive, warm and
colorful southwestern decor, with a flagstone entryway, peal poles, full service
bar and stone fireplace. El Paso considers its El Paso Bar-B-Que Restaurants to
be upscale destination restaurants with a casual dining experience.
The existing restaurants range in size from approximately 6,900 to 11,000
square feet and seat from 275 to 350 persons.
Service
El Paso emphasizes excellent customer service in order to make each
patron's visit an enjoyable, memorable experience. El Paso is committed to
providing its customers with prompt, friendly, attentive service. Accordingly,
it attempts to maintain an adequate ratio of service personnel to customers, and
staffs each restaurant with an experienced management team to ensure that its
high service standards are maintained. New employees are trained by experienced
employees who are familiar with El Paso's policies, and newly promoted or
recently hired managers are required to complete a 13 week training program
prior to commencing their duties.
Advertising and Promotion
El Paso believes it will attract new customers through word-of-mouth, the
visibility of its radio and print advertising, and the broad-based media
coverage typically associated with grand openings of new restaurants.
Restaurant Operations and Management
El Paso strives to maintain quality and consistency in its restaurants
through carefully training and supervising its personnel and by establishing
standards relating to food and beverage preparation, maintenance of facilities
and conduct of personnel. The onsite management for its restaurants consists of
a general manager, kitchen manager and several floor assistants, who
collectively are responsible for every aspect of each restaurant's operation.
In an effort to ensure that its employees properly implement El Paso's
commitment to consistent high-quality, popular food and friendly and attentive
service, El Paso has developed manuals regarding its policies and procedures for
all aspects of restaurant operations, including
17
<PAGE>
food handling and preparation and dining room and beverage service operations.
New employees are trained by experienced employees who have demonstrated their
familiarity with and ability to consistently implement El Paso policies. El Paso
requires continual evaluation and testing of employees' job-related skills in
order to provide the highest quality of customer service. In addition, hourly
employees who demonstrate a positive business attitude along with leadership
skills are encouraged to proceed into management training.
Purchasing and Distribution
El Paso's management negotiates directly with suppliers of food and
beverage products to try to achieve uniform quality and freshness of food
products in its restaurants and to obtain competitive prices. New restaurants
will be required to purchase a majority of their supplies from a list of pre-
approved producers and wholesalers. Management believes that its food and
beverage products are available from alternate sources and suppliers.
Competition
The restaurant industry is affected by changes in consumer tastes and by
international, national, regional and local economic conditions and demographic
trends. Changes in discretionary spending priorities, traffic patterns, tourist
travel, weather conditions, employee availability and the type, number and
location of competing restaurants also directly affect the performance of an
individual restaurant. Changes in any of these factors in the markets where El
Paso currently operates, and intends to operate, could adversely affect El
Paso's results of operations.
The restaurant industry is highly competitive based on the type, quality
and selection of the food offered, price, service, location and other factors.
El Paso believes its existing restaurants are, and future restaurants will be,
distinguished from those of its competitors by their exciting and high-energy
environments, extensive displays of unique memorabilia, high-quality popular
barbecue cuisine and excellent service.
Nevertheless, many well-established restaurant companies with greater
financial, marketing and other resources compete with El Paso. El Paso
anticipates that competitors with significantly more resources will compete with
El Paso in most markets in which El Paso proposes to operate. In addition, some
competitors have design and operating concepts similar to those of El Paso and
El Paso may choose to locate their restaurants in close proximity to established
competitors at locations believed to be desirable.
Employees
As of April 5, 2000, El Paso employed approximately 360 full-time and
part-time employees, of which 2 are corporate management, approximately 37 are
restaurant management personnel, and the balance are restaurant staff. El
Paso's employees are not covered by a collective bargaining agreement, and El
Paso has never experienced an organized work stoppage, strike or labor dispute.
El Paso believes its relations with its employees are generally good.
18
<PAGE>
Governmental Regulation
El Paso's restaurants are subject to licensing and regulation by a number
of governmental authorities. El Paso is required to operate its restaurants in
strict compliance with federal licensing requirements imposed by the Bureau of
Alcohol, Tobacco and Firearms of the United States Department of Treasury, as
well as the licensing requirements of the states and municipalities where its
restaurants are located. Alcoholic beverage control regulations require each
restaurant to apply to a state authority and, in certain locations, county and
municipal authorities for a license and permit to sell alcoholic beverages on
the premises. Typically, licenses must be renewed annually and may be revoked
or suspended for cause at any time. Alcoholic beverage control regulations
affect numerous aspects of the daily operations of the current and future El
Paso restaurants, including minimum age of patrons and employees, hours of
operation, advertising, wholesale purchasing, inventory control and handling,
storage and dispensing of alcoholic beverages. El Paso has obtained all
regulatory permits and licenses necessary to operate its four restaurants.
El Paso may be subject to "dram-shop" laws that exist in many states.
These laws generally provide a person injured by an intoxicated person with the
right to recover damages from an establishment that wrongfully served alcoholic
beverages to such person. While El Paso carries liquor liability coverage as
part of its existing comprehensive general liability insurance, there can be no
assurance that it will not be subject to a judgment in excess of such insurance
coverage or that it will be able to obtain or continue to maintain such
insurance coverage at reasonable costs, or at all. The imposition of a judgment
substantially in excess of El Paso's insurance coverage, or the failure or
inability of El Paso to obtain and maintain insurance coverage, could materially
and adversely affect El Paso.
Franchise Regulation
El Paso intends to grow by offering franchise opportunities to restaurant
entrepreneurs. This activity ("Franchising") is subject to extensive regulation
at both a federal and state level. Federal law emanates from the Federal Trade
Commission Act, and it particular the "FTC Rule" issued pursuant thereto, which
set forth comprehensive disclosure requirements with respect to offerings of
franchises. At a state level, every state of the U.S. has enacted a business
opportunity statute which mandates the use of a "Uniform Franchise Offering
Circular" ("UFOC") developed initially by the North American Securities
Administrators Association. Most states merely require use of the UFOC when
offering franchise opportunities, but approximately 15 states (including
California, Illinois and New York) also require registration or some type of
limited filing with the applicable state agency. El Paso has developed a UFOC
for its Franchising activities and intends to comply with all federal and state
laws in connection therewith.
19
<PAGE>
Trademarks
El Paso has six registered trademarks with the United States Patent and
Trademark Office. The Company regards its restaurant name, El Paso Bar-B-Que and
logo as having significant value and as being an important factor in the
marketing of El Paso's business. El Paso has obtained trademark registrations
under the names "El Paso Bar-B-Que Company," "Bar-B-Que With An Attitude," "El
Paso Chili Burger" and "El Paso Cantina" and the design logos for "El Paso Bar-
B-Que Company" and "El Paso Cantina."
Growth Strategies
Management of El Paso includes executives with extensive experience in
chain restaurant development and operations, as well as superb contacts within
the restaurant industry. Drawing upon such experience and relationships,
management is currently in the process of pursuing an aggressive growth strategy
for El Paso, which includes plans to (a) open additional company-owned stores in
Arizona and elsewhere in the Southwestern U.S., (b) enter into multi-site
development agreements with franchisees, (c) sell franchises across the U.S.,
and (d) grow through acquisition of other restaurant chains which can be
converted to El Paso restaurants, and/or operated under different restaurant
names and concepts.
Item 2. Properties.
----------
The principal executive offices of Easyriders and the Paisano Companies,
which consist of approximately 21,000 square feet, are located at 28210 Dorothy
Drive, Agoura Hills, California 91301. The warehouse and advertising
departments, which occupy approximately 14,000 square feet, are located at 28216
Dorothy Drive, Agoura Hills, California 91301. Both of these facilities are
owned by Joseph Teresi, Easyriders director, and are leased to Easyriders at
rents that are believed by management to be at or below market rates. As noted
above, under "Information about Easyriders Licensing," the Company is no longer
obligated under the lease for the Daytona Store, as that obligation has been
transferred to John Green, now a licensee of ELI. Another retail facility,
consisting of approximately 22,000 square feet, is located at 611 East Broad
Street, Columbus, Ohio 43215. This facility, also owned by Mr. Teresi, houses
the operations of Easyriders of Columbus. As stated above (under ("Information
about Easyriders Licensing"), as a consequence of the Columbus Transaction, the
Company will have no further obligations under this lease.
20
<PAGE>
El Paso presently occupies four restaurant properties. Its restaurant
sites are between 6,900 square feet and 11,000 square feet, with maximum
occupancy between 275 and 350 persons. Monthly lease rates are from $5,000 to
$15.000. All leases are "triple-net." The leases have remaining terms from five
to ten years, and all but the Tulsa location have options to renew for up to two
terms of five years. The leases pertaining to Mesa and Tucson, Arizona, are
both within these parameters.
Item 3. Legal Proceedings.
-----------------
The Company hereby incorporates by reference the Legal Proceedings
sections of its quarterly report on Form 10-Q filed November 15, 1999.
The Steel Horses Arbitration
----------------------------
The Company has previously reported on the arbitration action commenced
in January, 1998 by Steel Horses, Inc. dba Easyriders of Chicago ("Steel
Horses") against Paisano Publications, Easyriders Franchising, Inc. ("EFI") and
certain officers of the Company, arising out of the Franchise Agreement entered
into in 1994 between Steel Horses and EFI.
Following collapse of the settlement reached in September, 1999, the
parties continued to negotiate, as a result of which effective January 12, 2000,
the Arbitration Action was settled and dismissed with finality pursuant to a
settlement agreement executed as of that date by all parties (the "Settlement
Agreement"). Under the Settlement Agreement, Paisano Publications agreed to pay
Steel Horses and its founders an agreed upon sum over a period of 2 years and
the Company agreed to issue to such parties and their counsel 400,000 shares of
Easyriders common stock in the aggregate.
The Pierce Litigation
The Company has previously reported on the legal action involving Rick
Pierce, a former shareholder of Newriders, including (a) the Chapter 7
bankruptcy proceeding pending in the United States Bankruptcy Court, Eastern
District of California, Fresno Division Case No. 98-19111-A-11, which was
commenced as an involuntary proceeding and then converted to a Chapter 11 case
with the debtor, Rick Pierce, in possession, and (b) the Company's adversary
proceeding against the Pierce Bankruptcy Estate and other parties who claim an
interest in shares of the Company acquired through various transactions with Mr.
Pierce. This action involves claims and counterclaims arising out of the
Reorganization in which Mr. Pierce sought damages of at least $20 million.
Based upon the previously-reported (a) settlement conference in September,
1999 before Judge Montali, (b) the arrest and indictment of Mr. Pierce on 29
counts of conspiracy, mail fraud and money laundering (c) conversion of the
bankruptcy proceeding from Chapter 11 to Chapter 7, (d) dissolution of the
creditor's committee, (e) appointment of a trustee to administer the bankruptcy
estate, and (f) recent discussions with the trustee, the Company now believes it
likely
21
<PAGE>
that the action will be dismissed with no material adverse consequences to the
Company, and that in any event all claims of Pierce could be successfully
defended if necessary.
Item 4. Submission of Matters to a Vote of Security-Holders.
---------------------------------------------------
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
-------------------------------------------------------------
Matters.
- --------
Easyriders' common stock, $0.001 par value ("Easyriders' Common Stock") has
been listed on the American Stock Exchange ("AMEX") since September 23, 1998
(AMEX: EZR). Prior to that time, Common Stock of Newriders, Easyriders'
predecessor, was traded on the OTC Electronic Bulletin Board. The following
tables set forth the range of high and low closing bid quotations for Newriders'
common stock as reported on the OTC Bulletin Board for each quarterly period
from January 1, 1998 through September 23, 1998 and high and low sales prices
for Easyriders' Common Stock as reported on AMEX for each quarterly period from
September 24, 1998 through December 31, 1999. Such quotations represent prices
between dealers without adjustment for retail markups, markdowns or commissions,
and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
Newriders' Common Stock Bid Price
---------------------------------
High Low
--------------- ---------------
<S> <C> <C>
1998
- ----
First Quarter $4.50 $2.38
Second Quarter $2.88 $1.75
Third Quarter (ending September 23, 1998) $2.06 $1.00
1998
- ----
Third Quarter (from September 24, 1998) $4.25 $2.50
Fourth Quarter $3.00 $1.12
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Newriders' Common Stock Bid Price
---------------------------------
High Low
--------------- ---------------
<S> <C> <C>
1999
- ----
First Quarter $2.75 $1.38
Second Quarter $1.75 $1.00
Third Quarter $1.50 $0.88
Fourth Quarter $2.00 $0.63
2000
- ----
First Quarter $1.44 $0.63
</TABLE>
On April 5, 2000, the closing sale price of the Easyriders Common Stock as
reported on the AMEX was $1.19. As of April 5, 2000 there were approximately
420 record holders of Common Stock.
Since its incorporation, the Company has not paid or declared dividends on
the Newriders Common Stock or the Easyriders Common Stock, nor does it intend to
pay or declare cash dividends on the Easyriders Common Stock in the foreseeable
future.
23
<PAGE>
Item 6. Selected Financial Data
-----------------------
Newriders was incorporated on July 15, 1995 as American Furniture
Wholesale, Inc. On July 28, 1996, it changed its name to Newriders. Easyriders
was incorporated on May 13, 1998 and for financial reporting purposes is the
successor to Newriders. The following selected financial data includes the
results of American Furniture Wholesale, Inc., Newriders and Easyriders, from
the period of original inception, July 15, 1995 through December 31, 1999 and
has been derived from the Company's audited financial statements. The following
information should be read in conjunction with the Consolidated Financial
Statements and Notes thereto included elsewhere in this Report.
<TABLE>
<CAPTION>
For the year ended December 31,
-------------------------------
1995/1/ 1996 1997 1998 1999
-------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Sales $250,818 $1,161,520 $2,932,708 $13,760,318 $44,496,402
Cost of sales 189,344 532,487 1,670,146 10,457,224 37,012,329
-------- ---------- ---------- ----------- -----------
Gross margin 61,474 629,033 1,262,562 3,303,094 7,484,073
Selling, general and administrative 87,731 1,520,271 3,729,500 7,664,959 14,125,966
Depreciation and amortization 9,884 129,277 99,388 1,056,538 3,215,780
Other operating expenses - - 1,872,129 4,354,627 739,379
-------- ---------- ---------- ----------- -----------
Loss from operations 36,141 1,020,515 4,438,455 9,773,030 10,597,052
Interest expense 18,365 338,419 2,532,637 3,782,187
Other income 239 2,640 182,078 287,181
Provision for income taxes - - - 8,300 11,500
-------- ---------- ---------- ----------- -----------
Net loss $ 35,902 $1,036,240 $4,776,874 $12,131,889 $14,103,558
======== ========== ========== =========== ===========
Net loss per share - basic and diluted /2/ $ 0.00 $ 0.07 $ 0.57 $ 1.04 $ 0.65
======== ========== ========== =========== ===========
Total assets $733,411 $2,175,066 $3,462,355 $77,137,622 $75,745,908
Long-term debt $ 0 $ 31,566 $1,815,874 $37,280,337 $37,555,714
Total equity $730,854 $1,935,792 $ 302,842 $29,056,980 $19,621,740
</TABLE>
/1/ July 15, 1995 (Date of Inception) to December 31, 1999.
/2/ Gives effect to a 1 for 2 exchange of common stock in conjunction with the
acquisition of the Paisano Companies and El Paso (See Note 1 to
Consolidated Financial Statements).
24
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations.
- -------------
Management's discussion and analysis of the results of operations and
financial condition of the Company should be read in conjunction with the
Consolidated Financial Statements and related Notes thereto.
Overview
Easyriders was 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 (the
"Reorganization") comprising the following: (a) the acquisition by Easyriders
from Joseph Teresi of all of the outstanding common stock of Paisano
Publications and certain affiliated corporations (the "Paisano Companies"),
engaged at the time in (i) publishing special-interest magazines relating
primarily to American-made "V-Twin" motorcycles and tattoo art, (ii) selling
branded motorcycle apparel and accessories through a mail-order catalogue,
events and franchise stores, (iii) producing motorcycle and tattoo-related
events, and franchising retail stores to market its branded motorcycle apparel
and accessories; (b) the acquisition by Easyriders of all of the outstanding
membership interests of El Paso, which at the time was engaged in the operation
of four restaurants under the name "El Paso Bar-B-Que"; and (c) the merger
(the "Merger") of a subsidiary of Easyriders with and into Newriders, Inc., a
Nevada corporation ("Newriders"). (See Note 3 to the Consolidated Financial
Statements).
As a result of the Merger (i) each two shares of Newriders common stock,
par value $.01 per share (the "Newriders Common Stock") were exchanged for one
share of Easyriders common stock, par value $.001 per share ("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 (See Note 2 to Consolidated Financial Statements).
25
<PAGE>
The following financial information includes the results of the Paisano
Companies and El Paso from the date of acquisition, September 23, 1998.
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.
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. 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 accounting principles
generally accepted in the United States of America. Also, EBITDA, as calculated
by the Company, may not be comparable to similarly titled measures used by other
companies.
26
<PAGE>
Results of Operations
The following tables set forth certain operating data for Easyriders and
Newriders for each of the three years in the period ended December 31, 1999.
The information for the year ended December 31, 1998 includes the operations of
the Paisano Companies and El Paso for the period September 23, 1998 to December
31, 1998:
<TABLE>
<CAPTION>
Easyriders and Paisano
Newriders Companies El Paso Consolidated
--------------------------------------------------------------------------------------
For the Year Ended December 31, 1999
------------------------------------
<S> <C> <C> <C> <C>
SALES
Publishing $ $ 23,588,851 $ $ 23,588,851
Goods and services 5,968,735 5,968,735
Food service 11,294,859 11,294,859
Franchising 93,137 93,137
Other operations 3,550,820 3,550,820
--------------------------------------------------------------------------------------
33,201,543 11,294,859 44,496,402
COST OF SALES
Publishing 19,175,826 19,175,826
Goods and services 6,807,446 6,807,446
Food service 7,150,980 7,150,980
Franchising
Other operations 3,878,077 3,878,077
--------------------------------------------------------------------------------------
29,861,349 7,150,980 37,012,329
GROSS MARGIN
Publishing 4,413,025 4,413,025
Goods and services (838,711) (838,711)
Food service 4,143,879 4,143,879
Franchising 93,137 93,137
Other operations (327,257) (327,257)
--------------------------------------------------------------------------------------
3,340,194 4,143,879 7,484,073
EXPENSES
Publishing 5,270,999 5,270,999
Goods and services 1,271,271 1,271,271
Food service 4,054,377 4,054,377
Franchising 2,015,569 2,015,569
Other operations (412,540) (412,540)
Unallocated expenses 3,949,593 1,931,856 5,881,449
--------------------------------------------------------------------------------------
3,949,593 10,077,155 4,054,377 18,081,125
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
Easyriders and Paisano
Newriders Companies El Paso Consolidated
--------------------------------------------------------------------------------------
For the Year Ended December 31, 1999
------------------------------------
<S> <C> <C> <C> <C>
INCOME (LOSS) FROM OPERATIONS
Publishing (857,974) (857,974)
Goods and services (2,109,982) (2,109,982)
Food service 89,502 89,502
Franchising (1,922,432) (1,922,432)
Other operations 85,283 85,283
Unallocated (3,949,593) (1,931,856) (5,881,449)
--------------------------------------------------------------------------------------
$(3,949,593) $(6,586,961) $ 89,502 $(10,597,052)
======================================================================================
NET LOSS $(4,739,808) $(9,226,186) $ (137,564) $(14,103,558)
======================================================================================
EBITDA $(3,472,753) $(4,549,705) $ 928,367 $ (7,094,091)
======================================================================================
</TABLE>
<TABLE>
<CAPTION>
Easyriders and Paisano
Newriders Companies El Paso Consolidated
------------------------------------------------------------------------------------
Twelve Months September 23, September 23, Twelve Months
Ended December 1998 to 1998 to Ended December
31, 1998 December 31, December 31, 31, 1998
1998 1998
<S> <C> <C> <C> <C>
SALES
Publishing $ $ 6,954,082 $ $ 6,954,082
Goods and services 281,272 2,284,042 2,565,314
Food service 679,859 2,847,452 3,527,311
Franchising 151,200 151,200
Other operations 8,293 554,118 562,411
------------------------------------------------------------------------------------
969,424 9,943,442 2,847,452 13,760,318
COST OF SALES
Publishing 5,275,939 5,275,939
Goods and services 129,543 1,891,694 2,021,237
Food service 449,334 1,812,111 2,261,445
Franchising
Other operations 898,603 898,603
------------------------------------------------------------------------------------
578,877 8,066,236 1,812,111 10,457,224
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Easyriders and Paisano
Newriders Companies El Paso Consolidated
------------------------------------------------------------------------------------
Twelve Months September 23, September 23, Twelve Months
Ended December 1998 to 1998 to Ended December
31, 1998 December 31, December 31, 31, 1998
1998 1998
<S> <C> <C> <C> <C>
GROSS MARGIN
Publishing 1,678,143 1,678,143
Goods and services 151,729 392,348 544,077
Food service 230,525 1,035,341 1,265,866
Franchising 151,200 151,200
Other operations 8,293 (344,485) (336,192)
------------------------------------------------------------------------------------
390,547 1,877,206 1,035,341 3,303,094
EXPENSES
Publishing 492,990 492,990
Goods and services 303,245 303,245
Food service 261,241 1,051,696 1,312,937
Franchising 734,733 734,733
Other operations 27,261 27,261
Unallocated 8,192,329 2,012,629 10,204,958
expenses
------------------------------------------------------------------------------------
8,453,570 3,570,858 1,051,696 13,076,124
INCOME (LOSS) FROM OPERATIONS
Publishing 1,185,153 1,185,153
Goods and services 151,729 89,103 240,832
Food service (30,716) (16,355) (47,071)
Franchising (583,533) (583,533)
Other operations 8,293 (371,746) (363,453)
Unallocated (8,192,329) (2,012,629) (10,204,958)
------------------------------------------------------------------------------------
$(8,063,023) $(1,693,652) $ (16,355) $ (9,773,030)
====================================================================================
NET LOSS $(9,752,943) $(2,303,461) $ (75,485) $(12,131,889)
====================================================================================
EBITDA $(7,647,081) $(1,079,859) $ 184,225 $ (8,534,415)
====================================================================================
</TABLE>
29
<PAGE>
The fiscal year ended December 31, 1999 compared to the fiscal year ended
December 31, 1998
Results of Operations of Easyriders Inc., and subsidiaries
During the year ended December 31, 1999, the Company experienced a net loss
in the amount of $14,103,558, compared with a net loss of $12,131,889 for the
twelve months ended December 31, 1998. The Company's net loss per share was
$0.65 for the year ended December 31, 1999, compared to a net loss of $1.04 per
share for the year ended December 31, 1998. The Company experienced a negative
EBITDA in the amount of $7,094,091 for the year ended December 31, 1999,
compared with a negative EBITDA of $8,534,415 for the year ended December 31,
1998.
The operating results of the Company for the year ended December 31, 1999
include the results for the Paisano Companies and El Paso for the entire twelve
months, while the operating results of the Company for the year ended December
31, 1998 include the results for the Paisano Companies and El Paso only for the
period subsequent to the Reorganization, or from September 23, 1998 through
December 31, 1998.
The increase in operating expenses for the combined operations of the
Company and Newriders of $5,005,001 and the increase in interest expense of
$1,249,550 also contributed to the increased losses for the year ended December
31, 1999, offset by the increase in gross margin of $4,180,979. Significant
components of the increases in the expenses are summarized as follows:
. The Company incurred a loss of $1,218,000 related to settlement of the
Steel Horses Arbitration in the year ended December 31, 1999. (See Note 20
to the Condensed Consolidated Financial Statements).
. Amortization of Goodwill arising from the 1998 Reorganization increased
$1,605,671, from $612,739 in 1998 to $2,218,410 in 1999.
. Legal and Professional fees increased $2,381,272, from $1,051,196 in 1998
to $3,432,468 in 1999. These increased fees are attributable to several
factors including the lawsuit with a founder of Newriders, Inc., the Steel
Horses legal action and the additional cost of being a public company for
an entire year.
Results of Operations: Paisano Companies
As noted above the operating results of the Company for the year ended
December 31, 1999 include the results for the Paisano Companies for the entire
twelve months, while the operating results of the Company for the year ended
December 31, 1998 include the results for the Paisano Companies only for the
period from September 23, 1998 through December 31, 1998.
30
<PAGE>
The Paisano Companies' sales totaling $33,201,543, includes sales from the
publishing segment of $23,588,851, sales from the goods and services segment of
$5,968,735, sales from the franchising segment of $93,137, and sales from other
segments of $3,550,820. The Paisano Companies' gross margin totaling $3,340,194,
includes margin from the publishing segment of $4,413,025, negative margin from
the goods and services segment of $838,711, margin from the franchising segment
of $93,137, and negative margin from other segments of $327,257. The Paisano
Companies' loss from operations totaling $6,586,961, includes a loss from
operations of $857,974 from the publishing segment, a loss from operations of
the goods and services segment of $2,109,982, loss from operations of the
franchising segment of $1,922,432, income from operations of other segments of
$85,283 and expenses not allocated to any segment of $1,931,856.
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, one retail store, and franchise programs. The related cost of
sales includes the costs of the apparel and other products. The franchising
segment includes sales generated through royalties and franchise fees charged to
the Companies' twenty six 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. Cost of
sales for the other segments represent direct costs of promoting the events.
The Paisano Companies' operating expenses of $10,077,155 include $8,145,299
of expenses specifically allocated to individual segments and $1,931,856 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 legal
and professional fees of $692,896.
Payroll and related benefits for the Paisano Companies for the year ended
December 31, 1999 totaled $1,673,035. Depreciation and amortization for the
same period totaled $2,226,015 related primarily to $1,878,476 in amortization
of the $56,368,752 in goodwill created out of the Paisano Companies' acquisition
by the Company. Legal and professional fees for the year ended December 31,
1999 totaled $1,276,308. In addition, in 1999 Paisano recorded a non-recurring
expense of $1,218,000 related to the settlement of the Steel Horses arbitration
(See Note 20 to the Consolidated Financial Statements).
Interest expense for the Paisano Companies totaled $2,361,730, primarily
attributable to the debt issued to finance the Company's acquisition of the
Paisano Companies.
Net loss for the Paisano Companies was $9,226,186 for the year ended
December 31, 1999, with a negative EBITDA of $4,549,705.
31
<PAGE>
Loss from operations of the Franchising segment of the Paisano Companies
was $1,922,432 for the year ended December 31, 1999. A significant portion of
this loss, or $1,139,995, is attributable to legal fees incurred in defending
lawsuits brought against the Company by franchisees. In addition, the Company
waived its right to all 1999 franchise fees, which contributed to the loss from
this segment.
The principal raw material used in publishing operations of the Paisano
Companies is paper. Paper costs represented approximately 16% and 18% of Paisano
Publications' production, selling and other direct costs for the fiscal years
ended December 31, 1999 and 1998, respectively. Certain commodity grades of
paper have shown considerable price volatility over the last decade. There can
be no assurance that future fluctuations in paper prices will not have a
material adverse effect on the Paisano Companies' results of operations or
financial condition.
The profitability of the Paisano Companies' publishing segment is also
affected by the cost of postage and could be materially adversely affected if
there is an increase in postal rates. Future fluctuations in postal rates could
have a material adverse effect on the publishing segments' results of operations
or financial condition. No assurance can be given that the publishing segment
can recoup paper or postal cost increases by passing them through to its
advertisers and readers. In addition, future fluctuations in paper prices or
postal rates could have an effect on comparisons of the results of operations
and financial condition of the publishing segments.
Results of Operations: El Paso
The operating results of the Company for the year ended December 31, 1999
include the results for El Paso for the entire twelve months, while the
operating results of the Company for the year ended December 31, 1998 include
the results for El Paso only for the period from September 23, 1998 through
December 31, 1998.
E1 Paso's sales from its four El Paso Bar-B-Que Restaurants totaled
$11,294,859, and cost of sales, which included food and direct payroll costs
related to the operations of the restaurants of $3,407,853 and $3,743,127,
respectively, totaled $7,150,980 for the year ended December 31, 1999. The
gross margin was $4,143,879, or 36.7% of sales. Operating expenses for El Paso
for the period totaled $4,054,377, or 35.9% of sales, and include depreciation
and amortization of $838,865. Interest expense associated with debt used to
finance the restaurants and capital leases was $227,066 for year ended December
31, 1999. Net loss for the period was $137,564, and EBITDA was $928,367.
32
<PAGE>
The fiscal year ended December 31, 1998 compared to the fiscal year ended
December 31, 1997
Results of Operations of Easyriders and Newriders
During the twelve months ended December 31, 1998, the Company experienced a
net loss in the amount of $12,131,889, compared with a net loss of $4,776,874
for the year ended December 31, 1997. The Company's net loss per share was $1.04
for the year ended December 31, 1998, compared to a net loss of $.57 per share
for the year ended December 31, 1997. The Company experienced a negative EBITDA
in the amount of $8,534,415 for the year ended December 31, 1998, compared with
a negative EBITDA of $4,339,067 for the year ended December 31, 1997.
The Company attributes the increased losses for the year ended December 31,
1998 primarily to its subsidiary, Newriders. During the year ended December 31,
1998, Newriders closed its Fresno restaurant location for remodeling and sold
its Myrtle Beach restaurant location to a related party. Prior to July of 1998,
these locations generated all of Newriders' revenues, which amounted to $969,424
and $2,932,708 for the years ended December 31, 1998 and 1997, respectively.
The related gross margin on these sales were $390,547 and $1,262,562 for the
years ended December 31, 1998 and 1997, respectively.
The increase in operating expenses for the combined operations of the
Company and Newriders of $2,752,553 and the increase in interest expense of
$1,475,850 also contributed to the increased Newriders' losses for the year
ended December 31, 1998. Significant components of these increases are
summarized as follows:
. Newriders incurred a loss of $1,099,760 related to the sale of the Myrtle
Beach restaurant to a related party during the year ended December 31,
1998. (See Note 14 to the Condensed Consolidated Financial Statements).
. Stock issuance expense was $2,504,867 for the year ended December 31, 1998,
as compared to $1,244,000 for the year ended December 31, 1997. During the
year ended December 31, 1998, Newriders issued 1,000,000 shares (pre-split)
of Newriders Common Stock to Joseph Teresi for the forgiveness of certain
trade payables. Newriders recorded a stock issuance expense of $1,888,867
associated with this transaction. The remaining stock issuance expense of
$616,000 related to stock issued to a former employee as consideration for
services performed associated with consummating the acquisitions of El Paso
and the Paisano Companies.
. Easyriders recorded a $750,000 write-off of a stock subscription receivable
related to a barter arrangement for which it was determined that no
probable future economic benefit would be realized.
33
<PAGE>
. For the first nine months of 1998, Newriders incurred significant general
and administrative costs, primarily associated with being a public company,
without the leverage of an adequate revenue base.
. Newriders recorded noncash interest expense of $1,369,536 and $310,877 for
the year ended December 31, 1998 and 1997, respectively, associated with
conversion discounts and stock purchase warrants granted to certain parties
in conjunction with the sale of convertible debentures and certain notes
issued by Newriders and Easyriders. (See Notes 2, 3, and 6 to the condensed
Consolidated Financial Statements.)
Results of Operations: Paisano Companies
The operating results of the Company for the year ended December 31, 1998,
include the results for the Paisano Companies for the period from September 23,
1998 through December 31, 1998.
The Paisano Companies' sales totaling $9,943,442, includes sales from the
publishing segment of $6,954,082, sales from the goods and services segment of
$2,284,042, and sales from other segments of $705,318. The Paisano Companies'
gross margin totaling $1,877,206, includes margin from the publishing segment of
$1,678,143, margin from the goods and services segment of $392,348, and a
negative margin from other segments of $193,285. The Paisano Companies' loss
from operations totaling $1,693,652, includes income from operations of
$1,185,153 from the publishing segment, income from operations of the goods and
services segment of $89,103, loss from operations of other segments of $955,279
and expenses not allocated to any segment of $2,012,629.
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 cost of
sales includes the costs of the apparel and other products. The Paisano
Companies' other segments primarily include Easyriders Franchising and Teresi,
Inc. Easyriders Franchising sales were generated through royalties and franchise
fees charged to the Companies' 24 operating franchisees. Teresi, Inc. generated
primarily all of its sales from the sale of tickets to its motorcycle rodeos,
motorcycle shows, and tattoo shows. Cost of sales for the other segments
represent direct costs of promoting the events.
The Paisano Companies' operating expenses of $3,570,858 include $1,558,229
of expenses specifically allocated to individual segments and $2,012,629 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 and depreciation and amortization not
specifically attributable to any one segment. Unallocated payroll and related
benefits for the Paisano Companies for the period from September 23 through
December 31,
34
<PAGE>
1998 totaled $594,694. Depreciation and amortization for the same period totaled
$587,337 related primarily to $509,635 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 $658,313, primarily
attributable to the debt issued to finance the Company's acquisition of the
Paisano Companies.
Net loss for the Paisano Companies was $2,303,461 for the year ended
December 31, 1998, with a negative EBITDA of $1,079,859.
The principal raw material used in publishing operations of the Paisano
Companies is paper. Paper costs represented approximately 18% and 14% of Paisano
Publications' production, selling and other direct costs for the fiscal years
ended December 31, 1998 and 1997, respectively. Certain commodity grades of
paper have shown considerable price volatility over the last decade. There can
be no assurance that future fluctuations in paper prices will not have a
material adverse effect on the Paisano Companies' results of operations or
financial condition.
The profitability of the Paisano Companies' publishing segment is also
affected by the cost of postage and could be materially adversely affected if
there is an increase in postal rates. Future fluctuations in postal rates could
have a material adverse effect on the publishing segments' results of operations
or financial condition. No assurance can be given that the publishing segment
can recoup paper or postal cost increases by passing them through to its
advertisers and readers. In addition, future fluctuations in paper prices or
postal rates could have an effect on comparisons of the results of operations
and financial condition of the publishing segments.
Results of Operations: El Paso
The operating results of the Company for the year ended December 31, 1998,
include the results for E1 Paso for the period from September 23, 1998 through
December 31, 1998. The results for 1997 do not include any of the results of El
Paso.
E1 Paso's sales from its four El Paso Bar-B-Que Restaurants totaled
$2,847,452, and cost of sales, which included food and direct payroll costs
related to the operations of the restaurants of $833,406 and $978,705,
respectively, totaled $1,812,111 for the period September 23,1998 through
December 31, 1998. The gross margin was $1,035,341, or 36.4% of sales.
Operating expenses for El Paso for the period totaled $1,051,696, or 36.9% of
sales, and include depreciation and amortization of $195,873. Interest expense
associated with debt used to finance the restaurants and capital leases was
$63,837 for period ended December 31, 1998. Net loss for the period September
23, 1998 through December 31, 1998 was $75,485, and EBITDA was $184,225.
35
<PAGE>
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 December 31, 1999, the Company had negative working
capital of $8.4 million due primarily from the loss sustained during the year
ended December 31, 1999, and to deferred subscription and advertising income of
$3,464,959.
Cash used in operating activities during 1999 totaled $2.2 million. The
net loss of $14.1 million was offset by non-cash charges of $1.2 million for
common stock issued for services and interest, $3.2 million for depreciation and
amortization, a $0.3 million loss on the sale of fixed assets, and $0.3 million
of amortization of debt issuance costs. Cash of $6.9 million was provided by
changes in operating accounts.
Net cash used in investing activities totaled $1.2 million, which was
primarily comprised of cash paid for the acquisition of fixed assets.
As noted above (see Item 1, "Recent Developments") upon its acquisition by
the Company, Paisano Publications obtained an aggregate of $22,000,000 in Nomura
Indebtedness. 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 Paisano Acquisition (See Note 2 to
Consolidated Financial Statements) 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 December 31, 1999, there
was $625,000 of available borrowings under the Revolving Loans subject to the
approval of the Lender. In February 2000, an additional $325,000 was drawn on
the loan reducing the available balance to $300,000. As discussed above under
Item 1. Business - Information about Easyriders - Recent Developments, the
- ---------------------------------------------------------------------
Lender has waived the defaults that existed under the Nomura Indebtedness as of
December 31, 1999 and the Company is now in compliance with the terms of the
Nomura Indebtedness.
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, and Newriders. 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. With respect to the September 23, 2001 maturity, the Company has
begun to explore alternative financing sources and believes it
36
<PAGE>
will be able to either negotiate with Nomura an extension of the maturity date,
or to refinance the Nomura Indebtedness with other lenders and/or investors.
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 the Company achieving
Excess Cash Flow, which is dependent on uncertain future events, no amounts have
been classified as current liabilities at December 31, 1999.
Subject to certain limitations on dividends, provided that no event of
default has occurred, Paisano Publications may advance funds to the Company
monthly, limited to the lesser of $100,000 or 35% of the Excess Cash Flow for
the preceding monthly period. As of December 31, 1999, Paisano Publications has
been able to provide $204,712 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 can adversely impact the ability of the Company to
repay certain expenses of the Company. (See Note 11 to Consolidated Financial
Statements).
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 December 31, 1999 total $30,446,576.
The Nomura Indebtedness contains numerous operating and financial
covenants, including but not limited to, payment of dividends, limitations on
indebtedness and the maintenance of minimum net worth, minimum working capital,
interest coverage ratios and the achievement of cash flow measures. Based on
the results for the year ended December 31, 1999, Paisano was in violation of
several of the financial covenants including the required leverage ratio, the
required minimum consolidated EBITDA and the required interest coverage ratio.
As of April 12, 2000, the Company received waivers related to events of non-
compliance.
As noted above (see Item 1 - "Recent Developments") in connection with the
Paisano Acquisition, the Company issued Contributor Notes in the aggregate
amount of $13,000,000 to Joseph Teresi, the sole shareholder of the Paisano
Companies prior to the Paisano Acquisition. The Contributor Notes consist of a
subordinated promissory note in the amount of $5,000,000, a limited recourse
subordinated promissory note in the amount of $5,000,000 secured by the Martin
Mirror Note (as defined in the applicable instruments) and a short-term
subordinated promissory note in the amount of $3,000,000. The first two notes
(the "Subordinated 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 (the "Short Term Note") was initially issued as a 90 day note that
bears interest at an annual rate of 10%. By mutual agreement, the maturity on
the Short Term Note was subsequently extended to March 31, 2000. As of April 1,
2000, the Company was in default in repayment of the $3,000,000 Short Term Note,
and for interest of $242,500 on the Subordinated Notes. On April 3, 2000,
Joseph Teresi waived the default which
37
<PAGE>
existed on that date with respect to the non-payment of interest on the
$3,000,000 Short Term Note. In addition, Mr. Teresi agreed that between March
31, 2000 and March 31, 2002 he would not make any claim of default in connection
with the non-payment of principal under the $3,000,000 Short Term Note, and that
between March 31, 2000 and March 31, 2001, he would not make any claim of
default for interest which was due as of March 31, 2000 or which would accrue
between March 31, 2000 and March 31, 2001.
In October 1999, Paisano Publications issued a $275,000 increasing rate
secured promissory note to an investment partnership, Siena Capital Partners,
L.P. This loan (the "Siena Loan") is subordinate to the Nomura Indebtedness.
The loan bears interest at a rate of 20% per annum (increasing by 1% monthly
beginning April 14, 2000), and is due and payable with accrued interest on
October 14, 2000. Warrants to purchase 100,000 shares of the Common Stock of the
Company were issued with an exercise price of $0.01 per share. If the Siena
Loan has been paid off in its entirety by April 13, 2000, the warrants become
null and void. In addition, if the balance is not paid in full by July 13, 2000,
the Company must issue warrants to purchase an additional 300,000 shares of the
Common Stock of the Company, and if the balance is not paid in full by October
13, 2000, the Company must issue warrants to purchase an additional 100,000
shares of the Common Stock of the Company. Thereafter, until the loan is paid
in full, the Company must issue warrants to purchase 150,000 shares of the
Common Stock of the Company on the 13th day of each month.
As of April 13, 2000 the Company did not possess the resources to pay off
the Siena Loan. However, John Martin and Joseph Teresi were granted a right of
first refusal in connection with any assignment of the Siena Loan. Based on
this right, the Company pursued negotiations with Mr. Teresi and Mr. Martin
concerning their assumption of the Siena Loan upon terms more favorable to the
Company. These negotiations were successful and on April 13, 2000, Mr. Martin
and Mr. Teresi each paid to Siena the sum of $137,500 and assumed the position
of Siena with respect to the Siena Loan. Concurrently, the first 100,000
warrants vested, and Mr. Martin and Mr. Teresi agreed to make the following
modifications to the Siena Loan terms:
. The interest rate will be reduced from 20% per annum to 13% per annum.
. Provided the Siena Loan is paid off by December 31, 2000, twenty percent
(20%) of all warrants vested by and through such date will be
surrendered.
These modifications are subject to the formal consent of Nomura, which the
Company is confident will be secured.
The Company continues in its attempts to secure a cash infusion and to
accelerate cash flow, through the pursuit of various approaches, including
selling certain assets, drawing down funds available under the revolving credit
portion of the Nomura Credit Agreement and consummating certain business
transactions (see Notes 2 and 20 to the Consolidated Financial Statements). The
Company is also evaluating the issuance of additional debt or equity securities.
38
<PAGE>
While the Company believes that such efforts, together with ongoing operations,
will enable the Company to meet its anticipated cash needs for the next 12
months, there can be no assurance that this will be the case, as projections of
future cash needs and cash flows are subject to substantial uncertainty. In the
event that the Company is unsuccessful in its efforts to raise capital beyond
that which is projected to be realized from current operations, the Company will
not be able to meet its liquidity obligations.
Forward-Looking Information and Certain Factors
Certain statements in this Form 10-K 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 Problems
The Company experienced no material disruptions in any aspect of its
business operations or management information systems as a result of the
calendar change from 1999 to 2000, but continues to remain alert for the
possibility that such problems may yet occur. In this regard, the Company
deploys routine system checks and its MIS department remains current with
applicable literature and commentary on this issue.
Recent Accounting Pronouncements
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting
for Derivative Instruments and Hedging Activities, was issued in June 1998 and
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging activities. SFAS No.
133 was initially effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. In July 1999, SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133, was issued which delays the effective date of SFAS No. 133 to
fiscal years beginning after June 15, 2000. 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.
39
<PAGE>
Item 7a. Quantitative and Qualitative Disclosure 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 Lender plus 1.85% payable monthly.
The interest rate on the balance of $20,126,412 outstanding on December 31, 1999
was 10.35 %. An increase in interest rates of 1% would result in an increase in
interest expense of approximately $200,000.
The Company's remaining long-term debt and convertible debentures have
fixed interest rates and therefore the Company does not believe a 10% increase
in interest rates would have a material impact on the Company's consolidated
financial statements.
Item 8. Financial Statements and Supplementary Data.
-------------------------------------------
The information required by this item appears beginning on page F-1.
Item 9. Changes In and Disagreements With Accountants On Accounting and
---------------------------------------------------------------
Financial Disclosure.
- --------------------
None.
40
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
---------------------------------------------------
Information concerning directors and officers of the Company is included in
the definitive Proxy Statement for the Company's 2000 Annual Meeting of
Stockholders, which is incorporated herein by reference.
Item 11. Executive Compensation.
----------------------
Information concerning directors and officers of the Company is included in
the definitive Proxy Statement for the Company's 2000 Annual Meeting of
Stockholders, which is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
--------------------------------------------------------------
Information concerning directors and officers of the Company is included in
the definitive Proxy Statement for the Company's 2000 Annual Meeting of
Stockholders, which is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
----------------------------------------------
Information concerning directors and officers of the Company is included in
the definitive Proxy Statement for the Company's 2000 Annual Meeting of
Stockholders, which is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
---------------------------------------------------------------
(a) The following documents are filed as a part of this Annual Report on
Form 10-K:
(1) Financial Statements
The financial statements filed as a part of this report appear
beginning on page F-1.
(2) Financial Statement Schedules
The financial statement schedules filed as a part of this report are
listed in Exhibit 27.
41
<PAGE>
(b) Reports on Form 8-K
None.
(c) Exhibits
Exhibit
No. Description
------- -----------
2.1 Agreement and Plan of Merger and Reorganization dated June 30, 1998,
by and among Newriders, the Registrant and Easyriders Sub, Inc.
(incorporated by reference to Exhibit 2.1 of the Registrant's
Registration Statement on Form S-4, filed July 6, 1998).
2.2 Stock Contribution and Sale Agreement, dated June 30, 1998 ("Stock
Contribution and Sale Agreement"), by and among Newriders, the
Registrant, Easyriders Sub II, Inc., Paisano Publications, Inc.,
Easyriders of Columbus, Inc., Easyriders Franchising, Inc., Teresi,
Inc., Bros Club, Inc., Associated Rodeo Riders on Wheels and Mr.
Joseph Teresi. (incorporated by reference to Exhibit 2.2 of the
Registrant's Registration Statement on Form S-4, filed July 6,
1998). List of exhibits and schedules to Stock Contribution and Sale
Agreement (incorporated by reference to Exhibit 2.2 on the
Registrant's Registration Statement on Form S-4, filed July 6,
1998).
2.3 LLC Interest Contribution Agreement, dated June 30, 1998 ("LLC
Interest Contribution Agreement"), by and among Newriders, the
Registrant, William E. Prather, Marna Prather, John E. Martin, and M
& B Restaurants, L.C. (incorporated by reference to Exhibit 2.3 of
the Registrant's Registration Statement on Form S-4, filed July 6,
1998).
3.1 Certificate of Incorporation of the Registrant (incorporated by
reference to Exhibit 3.1 of the Registrant's Registration Statement
on Form S-4, filed July 6, 1998).
3.2 By-Laws of the Registrant (incorporated by reference to Exhibit 3.2
of the Registrant's Registration Statement on Form S-4, filed July
6, 1998).
4.1 Specimen of the Registrant's Common Stock Certificates (incorporated
by reference to Exhibit 4.1 of the Registrant's Registration
Statement on Form S-4/A, filed August 28, 1998).
10.1 Assignment of Motorcycle Shop Lease Agreement -- Myrtle Beach, SC by
Newriders to Leon Hatcher (incorporated by reference to Exhibit
10.2.5 to
42
<PAGE>
Newriders' Annual Report on Form 10-KSB for the year ended December
31, 1997).
10.2 Employment Letter Agreement between Newriders and John Martin
(incorporated by reference to Exhibit 10.2 of Newriders'
Registration Statement on Form S-8, filed November 24, 1997).
10.3 Employment Letter Agreement between Newriders and William R.
Nordstrom dated August 22, 1997 (incorporated by reference to
Exhibit 10.4.2 of Newriders' Annual Report on Form 10-KSB for the
year ended December 31, 1997).
10.4 Stock Purchase Agreement for Restricted Shares and Warrants between
Newriders and John E. Martin dated as of April 21, 1997
(incorporated by reference to Exhibit 10.4.3 of Newriders' Annual
Report on Form 10-KSB for the year ended December 31, 1997).
10.5 Stock Purchase Agreement for Restricted Shares and Warrants between
Newriders and William R. Nordstrom dated April 21, 1997
(incorporated by reference to Exhibit 10.4.4 of Newriders' Annual
Report on Form 10-KSB for the year ended December 31, 1997).
10.6 Letter of Intent dated October 7, 1997 between Newriders and M & B
Restaurants, L.C. (Incorporated by reference to Exhibit 10.5.1 of
Newriders' Annual Report on Form 10-KSB for the year ended December
31, 1997).
10.7 Letter Agreement dated January 13, 1998 between Newriders and the
Paisano Companies (incorporated by reference to Exhibit 10.5.2 of
Newriders' Annual Report on Form 10-KSB for the year ended December
31, 1997).
10.8 Secured Installment Promissory Note between Newriders as Maker and
Franchise Mortgage Acceptance Company, LLC as Lender dated October
21, 1997 for $475,000 (Loan # 11441-102) (incorporated by reference
to Exhibit 10.6.1 of Newriders Annual Report on Form 10-KSB for the
year ended December 31, 1997).
10.9 Security Agreement between Newriders and Franchise Mortgage
Acceptance Company, LLC dated October 21, 1997 for $475,000 (Loan #
11441-102) (incorporated by reference to Exhibit 10.6.2 of Newriders
Annual Report on Form 10-KSB for the year ended December 31, 1997).
43
<PAGE>
10.10 Guaranty dated October 21, 1997 signed by Leon Hatcher and Sandra
Hatcher (incorporated by reference to Exhibit 10.6.3 of Newriders
Annual Report on Form 10-KSB for the year ended December 31, 1997).
10.11 Form of Agreement to Exchange Options and Waive Change in Control
Rights (incorporated by reference to Exhibit 10.1.12 of the
Registrant's Registration Statement on Form S-4, filed July 6,
1998).
10.12 Newriders, Inc. 8% Convertible Debenture Due June 30, 2000 in the
amount of $1,000,000 payable to Wayne L. Knyal (incorporated by
reference to Exhibit 10.1.13 of the Registrant's Registration
Statement on Form S-4, filed July 6, 1998).
10.13 Newriders, Inc. Warrant dated June 10, 1998 in favor of Wayne L.
Knyal for 225,000 shares (incorporated by reference to Exhibit
10.1.14 of the Registrant's Registration Statement on Form S-4,
filed July 6, 1998).
10.14 Newriders, Inc. 8% Convertible Debenture Due May 11, 2000, in the
amount of $500,000 payable Silenus, Ltd (incorporated by reference
to Exhibit 10.1.15 of the Registrant's Registration Statement on
Form S-4, filed July 6, 1998).
10.15 Newriders, Inc. Warrant dated May 11, 1998 in favor of Silenus, Ltd.
for 25,000 shares (incorporated by reference to Exhibit 10.1.16 of
the Registrant's Registration Statement on Form S-4, filed July 6,
1998).
10.16 Security Agreement between Leon Hatcher as pledgor and Silenus, Ltd.
as secured party dated May 11, 1998 pledging 400,000 shares of
Newriders Common Stock as security (incorporated by reference to
Exhibit 10.1.17 of the Registrant's Registration Statement on Form
S-4, filed July 6, 1998).
10.17 Letter Agreement dated January 13, 1998 between Imperial Capital,
LLC and Newriders, Inc. (incorporated by reference to Exhibit
10.1.12 of the Registrant's Registration Statement on Form S-4,
filed July 6, 1998).
10.18 Newriders, Inc. Convertible Note due December 12, 2000 in the amount
of $400,000 payable to Offshore Investment Fund (incorporated by
reference to Exhibit 10.1.19 of the Registrant's Registration
Statement on Form S-4, filed July 6, 1998).
10.19 Newriders, Inc. Convertible Note due December 12, 2000 in the amount
of $400,000 payable to Offshore Investment Fund (incorporated by
reference to Exhibit 10.1.20 of the Registrant's Registration
Statement on Form S-4, filed July 6, 1998).
44
<PAGE>
10.20 Proxy dated April 19, 1998, for 800,000 shares of Newriders Common
Stock given by Michael T. Purcell in favor of Mr. Joseph Teresi
(incorporated by reference to Exhibit 10.1.21 of the Registrant's
Registration Statement on Form S-4, filed July 6, 1998).
10.21 Proxy dated April 20, 1998, for 640,000 shares of Newriders Common
Stock given by Mr. C. W. Doyle in favor of Mr. Joseph Teresi
(incorporated by reference to Exhibit 10.1.22 of the Registrant's
Registration Statement on Form S-4, filed July 6, 1998).
10.22 Proxy dated April 20, 1998, for 1,300,000 shares of Newriders Common
Stock given by Mr. Leon Hatcher in favor of Mr. Joseph Teresi
(incorporated by reference to Exhibit 10.1.23 of the Registrant's
Registration Statement on Form S-4, filed July 6, 1998).
10.23 Letter Agreement for Return of Common Stock dated February 9, 1998
executed by Cyril Doyle, Leon Hatcher and Michael T. Purcell
(incorporated by reference to Exhibit 10.1.24 of the Registrant's
Registration Statement on Form S-4, filed July 6, 1998).
10.24 Letter Agreement for Return of Common Stock dated February 10, 1998
executed by Rick Pierce (incorporated by reference to Exhibit
10.1.25 of the Registrant's Registration Statement on Form S-4,
filed July 6, 1998).
10.25 Agreement to Relinquish Stock Options dated June 25, 1998, by and
among Newriders, Inc., John Martin, William Nordstrom, William
Prather, Wayne Knyal and Daniel Gallery (incorporated by reference
to Exhibit 10.1.26 of the Registrant's Registration Statement on
Form S-4, filed July 6, 1998).
10.26 Form of Agreement for Change in Conversion Rights (incorporated by
reference to Exhibit 10.1.27 of the Registrant's Registration
Statement on Form S-4/A, filed August 28, 1998).
10.27 Easyriders 1998 Executive Incentive Plan (incorporated by reference
to Exhibit 10.2.1 of the Registrant's Registration Statement on Form
S-4, filed July 6, 1998).
10.28 Distribution Agreement dated April 1, 1987 between Curtis
Circulation Company and Paisano Publications, Inc. (confidential
treatment requested) (incorporated by reference to Exhibit 10.3.1 of
the Registrant's Registration Statement on Form S-4, filed July 6,
1998).
10.29 Letter Agreement dated April 20, 1998 between Curtis Circulation
Company and Paisano Publications, Inc., amending Distribution
45
<PAGE>
Agreement dated April 1, 1987 (confidential treatment requested)
(incorporated by reference to Exhibit 10.3.2 of the Registrant's
Registration Statement on Form S-4, filed July 6, 1998).
10.30 Letter Agreement between RR Donnelley & Sons Company and Paisano
Publications, Inc. dated September 11, 1996 (incorporated by
reference to Exhibit 10.3.3 of the Registrant's Registration
Statement on Form S-4, filed July 6, 1998).
10.31 Limited Recourse Subordinated Promissory Note compromising Exhibit
B-1 to the Stock Contribution and Sale Agreement, by the Registrant
in favor of Joseph Teresi in the amount of $5,000,000 (incorporated
by reference to Exhibit 10.4.1 of the Registrant's Registration
Statement on Form S-4, filed July 6, 1998).
10.32 Pledge Agreement compromising Exhibit B-2 to Stock Contribution and
Sale Agreement by Easyriders as pledgor and Joseph Teresi as pledgee
(incorporated by reference to Exhibit 10.4.2 of the Registrant's
Registration Statement on Form S-4, filed July 6, 1998).
10.33 Subordinated Promissory Note compromising Exhibit B-3 to the Stock
Contribution and Sale Agreement, by the Registrant in favor of
Joseph Teresi in the amount of $5,000,000 (incorporated by reference
to Exhibit 10.4.3 of the Registrant's Registration Statement on Form
S-4, filed July 6, 1998).
10.34 Subordinated Promissory Note compromising Exhibit B-4 to the Stock
Contribution and Sale Agreement, by the Registrant in favor of
Joseph Teresi in the amount of $3,000,000 (incorporated by reference
to Exhibit 10.4.4 of the Registrant's Registration Statement on Form
S-4, filed July 6, 1998).
10.35 Employment Agreement between Paisano Publications, Inc. and Robert
Davis comprising Exhibit D-2 to the Stock Contribution and Sale
Agreement (incorporated by reference to Exhibit 10.4.5 of the
Registrant's Registration Statement on Form S-4, filed July 6,
1998).
10.36 Employment Agreement between Paisano Publications, Inc. and Joseph
Teresi comprising Exhibit F-1 to the Stock Contribution and Sale
Agreement (incorporated by reference to Exhibit 10.4.6 of the
Registrant's Registration Statement on Form S-4, filed July 6,
1998).
10.37 Consulting Agreement between Paisano Publications, Inc. and Joseph
Teresi comprising Exhibit F-2 to the Stock Contribution and Sale
46
<PAGE>
Agreement (incorporated by reference to Exhibit 10.4.7 of the
Registrant's Registration Statement on Form S-4, filed July 6,
1998).
10.38 Stockholders Voting Agreement comprising Exhibit I to Stock
Contribution and Sale Agreement between John E. Martin and Joseph
Teresi (incorporated by reference to Exhibit 10.4.8 of the
Registrant's Registration Statement on Form S-4, filed July 6,
1998).
10.39 Promissory Note compromising Exhibit 2.2(a) to the Stock
Contribution and Sale Agreement, by Easyriders Sub II, Inc. in favor
of Joseph Teresi in the amount of $15,000,000 (incorporated by
reference to Exhibit 10.4.9 of the Registrant's Registration
Statement on Form S-4, filed July 6, 1998).
10.40 Stock Purchase Agreement dated June 30, 1998, between Easyriders and
John E. Martin ("Stock Purchase Agreement") (incorporated by
reference to Exhibit 10.4.10 of the Registrant's Registration
Statement on Form S-4, filed July 6, 1998).
10.41 Promissory Note comprising Exhibit A to the Stock Purchase
Agreement, by John E. Martin in favor of Easyriders in the amount of
$5,000,000 (incorporated by reference to Exhibit 10.4.11 of the
Registrant's Registration Statement on Form S-4, filed July 6,
1998).
10.42 Promissory Note comprising Exhibit B to the Stock Purchase
Agreement, by John E. Martin in favor of Easyriders in the amount of
$2,300,000 (incorporated by reference to Exhibit 10.4.12 of the
Registrant's Registration Statement on Form S-4, filed July 6,
1998).
10.43 Commercial Lease -- Daytona, Florida, comprising Exhibit C to the
Stock Contribution and Sale Agreement, by Joseph Teresi and
Easyriders (incorporated by reference to Exhibit 10.4.13 of the
Registrant's Registration Statement on Form S-4, filed July 6,
1998).
10.44 Commercial Lease -- Columbus, Ohio, comprising Exhibit C to the
Stock Contribution and Sale Agreement, by Joseph Teresi and
Easyriders (incorporated by reference to Exhibit 10.4.14 of the
Registrant's Registration Statement on Form S-4, filed July 6,
1998).
10.45 Commercial Lease -- 28216 Dorothy Drive, Agoura Hills, California,
comprising Exhibit C to the Stock Contribution and Sale Agreement,
by Joseph Teresi and Easyriders (incorporated by reference to
Exhibit 10.4.15 of the Registrant's Registration Statement on Form
S-4, filed July 6, 1998).
47
<PAGE>
10.46 Commercial Lease -- 28216 Dorothy Drive, Agoura Hills, California,
comprising Exhibit C to the Stock Contribution and Sale Agreement,
between Joseph Teresi and Easyriders (incorporated by reference to
Exhibit 10.4.16 of the Registrant's Registration Statement on Form
S-4, filed July 6, 1998).
10.47 Employment Agreement between Newriders and William E. Prather
comprising Exhibit F to the LLC Interest Contribution Agreement
(incorporated by reference to Exhibit 10.4.17 of the Registrant's
Registration Statement on Form S-4, filed July 6, 1998).
10.48 Employment Agreement, dated January 4, 1999, by and between
Easyriders and J. Robert Fabregas (incorporated by reference to
Exhibit 10.48 of the Easyriders, Inc. Annual Report on Form 10-K, as
amended, for the year ended December 31, 1998).
10.49 Form of Subordinated Promissory Note, dated February 23, 1999, by
Easyriders in favor of John Martin in the amount of $352,306
(incorporated by reference to Exhibit 10.49 of the Easyriders, Inc.
Annual Report on Form 10-K, as amended, for the year ended December
31, 1998).
10.50 Form of Subordinated Promissory Note, dated February 23, 1999, by
Easyriders in favor of Joseph Teresi in the amount of $352,306
(incorporated by reference to Exhibit 10.50 of the Easyriders, Inc.
Annual Report on Form 10-K, as amended, for the year ended December
31, 1998).
10.51 Stock Purchase Agreement, dated April 8, 1999, between John Martin
and Easyriders (incorporated by reference to Exhibit 10.51 of the
Easyriders, Inc. Annual Report on Form 10-K, as amended, for the
year ended December 31, 1998).
10.52 Stock Purchase Agreement, dated April 8, 1999, between Jospeh Teresi
and Easyriders.(incorporated by reference to Exhibit 10.51 of the
Easyriders, Inc. Annual Report on Form 10-K, as amended, for the
year ended December 31, 1998).
10.53 Letter Agreement, dated as of April 14 1999, by and between
Easyriders, Inc. and Joseph Teresi (incorporated by reference to
Exhibit 10.53 of the Easyriders, Inc. Annual Report on Form 10-K, as
amended, for the year ended December 31, 1998).
10.54 First Amendment, Consent and Waiver Under Note and Warrant Purchase
Agreement, dated as of March 31, 1999, by and among Easyriders,
Paisano Publications and Nomura Holding America, Inc (incorporated
by
48
<PAGE>
reference to Exhibit 10.54 of the Easyriders, Inc. Annual Report
on Form 10-K, as amended, for the year ended December 31, 1998).
10.55 Stock Purchase Agreement, dated February 4, 2000, between John
Martin and Easyriders.
10.56 Stock Purchase Agreement, dated February 4, 2000 between Joseph
Teresi and Easyriders.
10.57 Proposal of Joseph Teresi dated April 3, 2000
10.58 Consent and Waiver Under Note and Warrant Purchase Agreement, dated
as of February 7, 2000, by and among Easyriders, Paisano
Publications and Nomura Holding America, Inc.
10.59 Agreement dated December 15, 1999 between Paisano Publications,
Inc., John Green and Joseph Teresi.
10.60 Events License and Inventory Sales Agreement dated as of March 31,
2000 by and between Paisano Publications, Inc., Teresi, Inc., and
Action Promotions, Inc.
10.61 Loan Purchase Agreement dated as of April 13, 2000 by and between
John Martin, Joseph Teresi and Siena Capital Partners, L.P.
10.62 General Assignment and Assumption Agreement dated April 13, 2000 by
and between Siena Capital Partners, L.P., John Martin and Joseph
Teresi.
10.63 Consent and Waiver under Note and Purchase Agreement, dated as of
April 12, 2000 by and among Easyriders, Paisano Publications and
Nomura Holding America, Inc.
21 Subsidiaries of the Registrant
27 Financial Statement Schedules
49
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Easyriders, Inc. and subsidiaries
We have audited the accompanying consolidated balance sheets of Easyriders, Inc.
and subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Easyriders, Inc. and subsidiaries
as of December 31, 1999 and 1998, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ Deloitte & Touche, LLP
Costa Mesa, California
April 14, 2000
F-1
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 734,856 $ 278,035
Restricted cash - 313,640
Accounts receivable, less allowance for doubtful accounts
of $645,212 in 1999 and $503,629 in 1998 3,307,501 2,874,779
Inventories 2,994,832 3,975,443
Prepaid publication costs 563,577 629,375
Prepaid expenses and other 712,935 875,846
Receivable from shareholder 395,010 398,085
----------- -----------
Total current assets 8,708,711 9,345,203
PROPERTY AND EQUIPMENT, net 5,314,321 3,718,067
GOODWILL, net of accumulated amortization of $2,810,936 in 1999 60,356,501 62,704,698
and $612,739 in 1998
TRADEMARKS, net of accumulated amortization of $172,253 652,680 809,409
in 1999 and $36,538 in 1998
OTHER ASSETS 713,695 560,245
----------- -----------
$75,745,908 $77,137,622
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND 1998 (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 7,683,114 $ 4,086,773
Accrued payroll and payroll related expenses 951,115 589,861
Accrued interest payable 1,091,129 321,682
Other current liabilities 1,669,089 1,337,949
Income taxes payable 8,800 7,034
Current portion of deferred subscription and advertising income 3,464,959 3,348,420
Current portion of Convertible Debentures 316,667 -
Current portion of long-term debt 1,874,578 558,748
------------ ------------
Total current liabilities 17,059,451 10,250,467
CONVERTIBLE DEBENTURES, net, including related party
debentures of $1,000,000 in 1999 and 1998 1,000,000 1,316,667
NOTES PAYABLE TO STOCKHOLDER 11,575,000 13,000,000
LONG-TERM DEBT, net of current portion and debt discount, including
related party indebtedness of $781,439 in 1999 and $895,304 in 1998 24,549,917 22,713,670
OTHER LONG TERM LIABILITIES, including $1,509,003 and $549,838
of deferred subscription revenues in 1999 and 1998, respectively 1,939,800 799,838
COMMITMENTS AND CONTINGENCIES (Note 12)
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, 23,056,751 (1999) and 19,295,375 (1998) outstanding 23,056 19,295
Additional paid in capital 58,983,147 54,318,590
Receivable from the sale of stock (7,300,000) (7,300,000)
Accumulated deficit (32,084,463) (17,980,905)
------------ ------------
Total stockholders' equity 19,621,740 29,056,980
------------ ------------
$ 75,745,908 $ 77,137,622
============ ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
SALES $ 44,496,402 $ 13,760,318 $ 2,932,708
COST OF SALES 37,012,329 10,457,224 1,670,146
------------ ------------ -----------
GROSS MARGIN 7,484,073 3,303,094 1,262,562
EXPENSES:
Selling, general, and administrative 14,125,966 7,664,959 3,729,500
Depreciation and amortization 3,215,780 1,056,538 99,388
Stock issuance expense 739,379 2,504,867 1,244,000
Loss on sale of restaurant to related party 1,099,760
Write-off of stock subscription receivable 750,000
Write-off of leasehold improvements 628,129
------------ ------------ -----------
Total expenses 18,081,125 13,076,124 5,701,017
------------ ------------ -----------
LOSS FROM OPERATIONS (10,597,052) (9,773,030) (4,438,455)
OTHER INCOME 287,181 182,078
INTEREST EXPENSE (3,782,187) (2,532,637) (338,419)
------------ ------------ -----------
LOSS BEFORE PROVISION FOR INCOME TAXES (14,092,058) (12,123,589) (4,776,874)
PROVISION FOR INCOME TAXES 11,500 8,300
------------ ------------ -----------
NET LOSS $(14,103,558) $(12,131,889) $(4,776,874)
============ ============ ===========
NET LOSS PER SHARE - BASIC AND DILUTED $ (0.65) $ (1.04) $ (0.57)
============ ============ ===========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING - BASIC AND DILUTED 21,617,543 11,686,551 8,317,533
============ ============ ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common
Additional stock
Common stock paid-in subscription
Shares Amount capital receivable
<S> <C> <C> <C> <C>
BALANCE, January 1, 1997 8,084,000 $8,084 $3,579,076 $(1,000,000)
Common stock issued in conjunction with
convertible debentures 146,913 147 610,670
Discount on convertible debenture issuance 481,667
Warrants issued in connection with issuance
of debt 105,130
Issuance of common stock in exchange for
cash 192,300 192 499,808
Issuance of common stock in exchange for
services performed 167,500 168 572,332
Services rendered in satisfaction of stock 250,000
Issuance of stock as compensation to
employee 671,500
Capital contributed 373,084
Net loss
------------ ------- ---------- ------------
BALANCE, December 31, 1997 8,590,713 $8,591 $6,893,267 $ (750,000)
</TABLE>
<TABLE>
<CAPTION>
Receivable Total
from the sale Treasury Accumulated stockholders'
of stock stock deficit equity
<S> <C> <C> <C> <C>
BALANCE, January 1, 1997 $ - $ - $(1,072,142) $ 2,587,160
Common stock issued in conjunction with
convertible debentures 610,817
Discount on convertible debenture issuance 481,667
Warrants issued in connection with issuance
of debt 105,130
Issuance of common stock in exchange for
cash 500,000
Issuance of common stock in exchange for
services performed 572,500
Services rendered in satisfaction of stock 250,000
Issuance of stock as compensation to
employee 671,500
Capital contributed 373,084
Net loss (4,776,874) (4,776,874)
------------- -------- ------------ -----------
BALANCE, December 31, 1997 $ - $ - $(5,849,016) $ 302,842
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999 (Continued)
<TABLE>
<CAPTION>
Common
Additional stock
Common stock paid-in subscription
Shares Amount capital receivable
<S> <C> <C> <C> <C>
BALANCE, January 1, 1998 8,590,713 $ 8,591 $ 6,893,267 $(750,000)
Common stock issued in conjunction with
convertible debentures 432,575 432 1,205,711
Warrants issued in connection with issuance
of convertible debentures 542,858
Common stock issued for services and in
satisfaction of accounts payable 500,000 500 2,099,500
Discount on convertible debenture issuance 500,002
Contribution of stock from certain founders of
the Company (9,480,979)
Reissuance of treasury stock in connection with
the acquisition of the Paisano Companies 9,480,979
Issuance of stock related to the purchase of
Paisano Companies 3,415,267 3,415 19,996,585
Issuance of stock options and common stock
purchase warrants in connection with the
acquisition of the Paisano Companies 3,711,024
Issuance of stock related to the purchase of
M&B Restaurants LC 2,000,000 2,000 6,158,000
Issuance of common stock in exchange for
cash and notes receivable 4,036,797 4,037 12,295,963
Issuance of common stock as compensation to
employees 320,000 320 915,680
Write-off of common stock subscription
receivable 750,000
Shares issued in lieu of payment on rounding
caused by stock split 23
Net loss
------------ -------- ----------- ------------
BALANCE, December 31, 1998 19,295,375 $19,295 $54,318,590 $ -
</TABLE>
<TABLE>
<CAPTION>
Receivable Total
from the sale Treasury Accumulated stockholders'
of stock stock deficit equity
<S> <C> <C> <C> <C>
BALANCE, January 1, 1998 $ - $ - $ (5,849,016) $ 302,842
Common stock issued in conjunction with
convertible debentures 1,206,143
Warrants issued in connection with issuance
of convertible debentures 542,858
Common stock issued for services and in
satisfaction of accounts payable 2,100,000
Discount on convertible debenture issuance 500,002
Contribution of stock from certain founders of
the Company 9,480,979
Reissuance of treasury stock in connection with
the acquisition of the Paisano Companies (9,480,979)
Issuance of stock related to the purchase of
Paisano Companies 20,000,000
Issuance of stock options and common stock
purchase warrants in connection with the
acquisition of the Paisano Companies 3,711,024
Issuance of stock related to the purchase of
M&B Restaurants LC 6,160,000
Issuance of common stock in exchange for
cash and notes receivable (7,300,000) 5,000,000
Issuance of common stock as compensation to
employees 916,000
Write-off of common stock subscription
receivable 750,000
Shares issued in lieu of payment on rounding
caused by stock split
Net loss (12,131,889) (12,131,889)
------------- ----------- ------------- ------------
BALANCE, December 31, 1998 $(7,300,000) $ - $(17,980,905) $ 29,056,980
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999 (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common
Additional stock
Common stock paid-in subscription
Shares Amount capital receivable
<S> <C> <C> <C> <C>
BALANCE, January 1, 1999 19,295,375 $19,295 $54,318,590 $ -
Common stock issued in a private
placement on April 8, 1999 2,795,900 2,796 3,597,204
Common stock issued in a private
placement on July 14, 1999 469,880 470 599,530
Common stock issued in a private
placement on July 31, 1999 10,000 10 13,890
Common stock issued in a private
placement on August 31, 1999 10,000 10 11,890
Common stock issued for services 236,782 236 272,641
Common stock issued as compensation
to employees 9,700 10 12,115
Common stock issued in satisfaction
of interest payable 229,114 229 157,287
Net loss
---------- ------- ----------- ------------
BALANCE, December 31, 1999 23,056,751 $23,056 $58,983,147 $ -
========== ======= =========== ============
</TABLE>
<TABLE>
<CAPTION>
Receivable Total
from the sale Treasury Accumulated stockholders'
of stock stock deficit equity
<S> <C> <C> <C> <C>
BALANCE, January 1, 1999 $(7,300,000) $ - $(17,980,905) $ 29,056,980
Common stock issued in a private
placement on April 8, 1999 3,600,000
Common stock issued in a private
placement on July 14, 1999 600,000
Common stock issued in a private
placement on July 31, 1999 13,900
Common stock issued in a private
placement on August 31, 1999 11,900
Common stock issued for services 272,877
Common stock issued as compensation
to employees 12,125
Common stock issued in satisfaction
of interest payable 157,516
Net loss (14,103,558) (14,103,558)
------------- -------- ------------- ------------
BALANCE, December 31, 1999 $(7,300,000) $ - $(32,084,463) $ 19,621,740
============= ======== ============= ============
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net loss $(14,103,558) $(12,131,889) $(4,776,874)
Adjustments to reconcile net loss to net cash used in operating activities:
Common stock issuance expense 739,379 1,888,867
Common stock issued for services and as compensation 285,002 616,000 572,500
Common stock issued for interest 118,137
Compensatory options issued to nonemployees 671,500
Services rendered in satisfaction of common stock 250,000
Depreciation and amortization 3,215,780 1,056,538 99,388
Write-off of leasehold improvements 628,129
Loss on sale of restaurant to third party 1,099,760
Loss on sale of fixed assets 318,150 182,717
Write-off of stock subscription receivable 750,000
Amortization of debt issuance costs 314,775 1,369,536 310,877
Increase (decrease) in cash resulting from changes in operating
accounts, net of acquisitions:
Current assets 758,714 2,162,248 183,066
Other assets 5,118,628 44,219
Current liabilities (109,288) 1,180,124
Other long-term liabilities 1,139,962 (139,696) 872,246
------------ ------------ -----------
Net cash used in operating activities (2,204,319) (1,921,576) (1,189,168)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisitions, less cash acquired (18,951,876)
Proceeds from the sale of fixed assets 9,500 215,325
Purchase of fixed assets (1.244.943) (243,319) (1,214,957)
------------ ------------ -----------
Net cash used in investing activities (1,235,443) (18,979,870) (1,214,957)
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in restricted cash 313,640
Issuance of convertible debentures 1,500,000 1,600,000
Issuance of long-term debt 2,762,976 21,350,000 1,050,000
Payment of long-term debt and capital leases (1,205,833) (7,731,802) (127,723)
Payments of stockholders advances (201,350)
Issuance of note payable to stockholder 339,350
Payment of note payable to stockholder (88,000)
Capital contributed 373,084
Common stock issued for cash 2,025,800 5,000,000 500,000
------------ ------------ -----------
Net cash provided by financing activities 3,896,583 19,916,848 3,646,711
------------ ------------ -----------
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999 (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS $ 456,821 $ (984,598) $1,242,586
CASH AND CASH EQUIVALENTS, beginning of year 278,035 1,262,633 20,047
---------- ------------ ----------
CASH AND CASH EQUIVALENTS, end of year $ 734,856 $ 278,035 $1,262,633
========== ============ ==========
SUPPLEMENTAL CASH FLOW INFORMATION -
Cash paid for interest $2,544,813 $ 1,083,101 $ 21,482
========== ============ ==========
NONCASH FINANCING ACTIVITIES:
Common stock issued in settlement of accounts payable $ - $ 211,134 $ -
========== ============ ==========
Common stock issued in settlement of debt $1,500,000 $ 1,506,142 $ 610,817
========== ============ ==========
Convertible debentures issued with conversion discount $ - $ 500,002 $ 481,667
========== ============ ==========
Issuance of warrants in connection with debt issuance $ - $ 1,487,190 $ 105,130
========== ============ ==========
Issuance of stock in settlement of accrued liability $ - $ 300,000 $
========== ============ ==========
Common stock issued in exchange for a note receivable $ - $ 7,300,000 $ -
========== ============ ==========
NONCASH INVESTING ACTIVITIES:
Purchase of magazine label and assumption of current portion of subscription income $ 132,859 $ - $ -
========== ============ ==========
Purchase of property, plant and equipment under capital leases $1,280,159 $ - $ -
========== ============ ==========
DETAIL OF BUSINESSES ACQUIRED IN PURCHASE
BUSINESS COMBINATIONS (Note 2):
On September 23, 1998, the Company acquired the net assets of the
Paisano Companies. A summary of the transaction is as follows:
Cash paid $ 15,000,000
Receivable related to purchase adjustments (398,085)
Promissory notes issued 13,000,000
Fair market value of stock issued (6,493,507 shares at $3.08 per share) 20,000,000
Fair market value of options issued to employees of Paisano Companies 697,434
Fair value of liabilities assumed 14,499,307
Other acquisition costs 5,251,474
Fair value of tangible and identifiable assets acquired (11,681,378)
------------
Excess of cost over identifiable assets acquired (goodwill) $ 56,368,752
============
</TABLE>
See notes to consolidated financial statements.
F-9
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999 (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
On September 23, 1998, the Company acquired the net assets of the
M&B Restaurants, L.C. A summary of the transaction is as follows:
Fair market value of stock issued (2,000,000 shares at $3.08 per $ 6,160,000
share)
Fair value of liabilities assumed 4,140,729
Other acquisition costs 639,817
Fair value of tangible and identifiable assets acquired (4,141,861)
-----------
Excess of cost over identifiable assets acquired (goodwill) $ 6,798,685
===========
</TABLE>
See notes to consolidated financial statements.
F-10
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
1. GENERAL AND BASIS OF PRESENTATION
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
stockholders 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 (See Note 3).
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 accompanying financial
statements include the results of the Paisano Companies and El Paso's
operations from the date of acquisition, September 23, 1998.
The Paisano Companies consist of Paisano Publications; Easyriders of
Columbus, Inc., an Ohio corporation; Easyriders Franchising, Inc., a
California corporation; Teresi, Inc. (DBA 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 one Easyriders store and have franchised 26
additional stores that sell Easyriders apparel, customized new and used
American-made motorcycles, and motorcycle accessories. Effective with the
fiscal year ended December 31, 1999, substantially all of the franchisees
have signed agreements converting their franchise arrangement to a licensing
arrangement.
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."
Easyriders currently derives substantially all of its revenues from the
operations of Paisano Publications and El Paso.
F-11
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
2. MANAGEMENT'S PLANS
During the year ended December 31, 1999 the Company incurred a net loss of
$14,103,558, and the cash used in operations was $2,204,319. The net loss
includes the following items:
During 1999 expenses aggregating $4,673,073 were recorded during the year
which contributed to the net loss, but did not adversely impact the
Company's operating cash flow. Components of such expenses include: (i)
depreciation and amortization of $3,215,780; (ii) stock issuances in
satisfaction of obligations and stock issuance expense aggregating
$1,142,518; and, (iii) non-cash debt issuance costs of $314,775.
Additionally, the Company incurred substantial expenses during the year
which Management believes will not recur in future periods to the extent
experienced in 1999. Such expenses include: (i) $2,113,844 loss in the
Easyriders Franchising Division primarily related to litigation, settlement,
and royalty abeyance; (ii) approximately $1,500,000 of legal and
professional expenses; (iii) $475,569 loss in the Easyriders Events Division
as a result of new event theme costs; and, (iv) $473,847 in lease expenses
relating to the closure of certain locations. Management believes the
significant litigation experienced in 1999 has been resolved. Additionally,
management is evaluating and implementing several strategies which will
improve the liquidity and operations of the Company. While there can be no
assurance that ultimate implementation will be successful, these strategies
include:
. Conversion of Easyriders Franchisees to a license format. Management
believes licensing the Easyriders concept will allow the Company to more
cost effectively operate this business segment.
. Growth of retail sales of merchandise through expansion of the Easyriders
Store network, including Canada.
. Licensing of events division to an independent production and
merchandising company, resulting in significant pre-purchase of product
and guaranteed royalty revenue over the license term.
. Increasing revenues related to the expansion of El Paso Bar-B-Que
Restaurant chain through development of new company-owned stores, joint
ventures with development partners, franchising and acquisitions.
. Expansion of the subscriber base and advertising revenues of Paisano
Publications magazine titles.
. Renegotiation of the terms associated with certain of its loan
agreements, including the conversion of certain debt and accrued interest
into equity (Note 20).
F-12
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999 (Continued)
- --------------------------------------------------------------------------------
. Seeking additional financing either in the form of equity or additional
debt (Note 20).
. The sale of certain assets (Note 20), the proceeds of which will be used
to reduce trade payables.
. Closure or restructuring of marginal business operations to reduce
overhead and increase income.
3. ACQUISITIONS
Paisano Acquisition - On September 23, 1998, the Company acquired all of the
issued and outstanding stock of each of the corporations that comprise the
Paisano Companies (The Paisano Acquisition). In exchange for the
outstanding stock of each Paisano Company, the sole stockholder of the
Paisano Companies (the Seller) received total consideration of $48,000,000.
This consideration was comprised of the following:
A. An aggregate 6,493,507 shares of Easyriders common stock valued at $3.08
per share.
B. Promissory notes aggregating $28,000,000, of which $15,000,000 was
repaid subsequent to the Paisano Acquisition using proceeds from a
credit facility (see Note 8) and proceeds from the sale of stock to a
related party.
Additionally, under the terms of the Stock Contribution and Sale Agreement,
Easyriders was obligated to issue stock options to purchase an aggregate of
300,000 shares of Easyriders common stock at an exercise price of $5.00 per
share to certain employees of the Paisano Companies. These options were
valued at $697,434 using Black-Scholes option-pricing model and has been
included in the determination of the aggregate purchase price of the Paisano
Companies.
Based upon the terms of the Stock Contribution and Sale Agreement, the
purchase price was subject to adjustment based upon the working capital
level of the Paisano Companies at September 23, 1998. In March 1999, the
Seller and the Company reached an agreement to reduce the consideration paid
to the Seller by $398,085. This amount has been recorded as a receivable
from stockholders in the Company's financial statements.
The acquisition of Paisano Companies was accounted for as a purchase and the
resulting goodwill of $56,368,752 is being amortized on a straight-line
basis over 30 years.
El Paso Acquisition - On September 23, 1998, the Company acquired all of the
issued and outstanding membership interests of El Paso from the members, who
included the Chairman and the President of the Company, for 2,000,000 shares
of Easyriders' common stock valued at $3.08 per share.
The acquisition of El Paso was accounted for as a purchase and the resulting
goodwill of $6,798,685 is being amortized on a straight-line basis over 20
years.
Other - Warrants to purchase 870,393 shares of Easyriders' common stock were
issued to a financial advisor of the Company on the closing date of the
Reorganization, at nominal cost. The exercise price
F-13
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999 (Continued)
- --------------------------------------------------------------------------------
of the warrants is $4.3125 per share. The warrants have been valued, in
aggregate, at $2,069,258 using the Black-Scholes option-pricing model and
have been included in the determination of the purchase price of the Paisano
Companies and El Paso. The warrants will be exercisable at any time for a
period of seven years from their date of issuance. As compensation for
certain services provided by the financial advisor in April 1999, the
Company repriced the warrants. The increase in fair value of the warrants,
if any, related to the reduction in the exercise price to $1.75 per share
was recorded as expense in April 1999.
The following unaudited pro forma information presents a summary of
consolidated results of operations of the Company, the Paisano Companies and
El Paso as if the acquisition had occurred at the beginning of 1998, with
pro forma adjustments to give effect to amortization of goodwill and
interest expense on acquisition debt.
<TABLE>
<S> <C>
SALES $ 47,232,108
============
PRO FORMA LOSS FROM OPERATIONS $(12,021,536)
============
PRO FORMA NET LOSS $(16,004,759)
============
PRO FORMA NET LOSS PER SHARE $ (0.83)
============
</TABLE>
The pro forma results of operations are not necessarily indicative of actual
results that may have occurred had the operations of Easyriders, Newriders,
the Paisano Company, and El Paso been combined in prior years nor are they
necessarily indicative of future operating results.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation - The consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries. Material intercompany
accounts and transactions have been eliminated in consolidation.
Revenue Recognition - The Company's revenue stems primarily from the sale of
magazines, magazine advertising space, products, and restaurant sales. The
Company records revenue based on the following:
. Magazine Revenues - Advertising revenues are recognized upon the
magazines' on-sale date, net of provisions for estimated rebates,
adjustments, and discounts. Proceeds from subscriptions are recorded as
deferred subscription income when received and are included in revenue
over the terms of the subscription services, generally one to two years.
Subscriptions expiring within one year are included as a current
liability and the portion of the subscriptions in excess of one year are
classified as a long-term liability. Sales to newsstand distributors are
recognized as revenue in the month of distribution, using historical
experience to estimate the ultimate sales of magazines to the newsstand.
In the event that actual sales differ from estimates, adjustments are
made in subsequent months. Historically, these adjustments have not been
material.
F-14
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999 (Continued)
- --------------------------------------------------------------------------------
. Other Revenues - Event production revenues are recognized upon completion
of events. Retail and mail order revenues are recognized upon product
shipment.
. Food Service Revenue - Revenue is recognized at the point of sale to the
customer.
Income Taxes - Deferred tax assets and liabilities are determined based on
temporary differences between financial reporting and tax basis assets and
liabilities and are measured by applying enacted tax rates and laws to
taxable years in which differences are expected to be recovered or settled.
A valuation allowance was recorded to reduce deferred tax assets to an
amount that represents the Company's best estimate of the amount of such
deferred tax assets that likely will be realized.
Cash and Cash Equivalents - The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents.
Restricted Cash - As part of certain advertising, promotion, and inventory
purchase activities, the Company is required to maintain certain minimum
deposits with a financial institution. The deposit amount has been included
as restricted cash in the accompanying consolidated balance sheets.
Accounts Receivable - The Company has recorded the following activity in the
valuation accounts since the Reorganization on September 23, 1998, as
activity prior to this date was not significant:
<TABLE>
<CAPTION>
Period Ending Beginning Balance Charged to Expense Written-off Ending Balance
------------- ----------------- ------------------ ----------- --------------
<S> <C> <C> <C> <C>
December 31, 1998 $460,674 $196,125 $(153,170) $503,629
December 31, 1999 $503,629 $258,737 $(117,154) $645,212
</TABLE>
Inventories - Inventories, consisting primarily of paper for magazine
production and retail merchandise, food, beverages, and other restaurant
supplies and are stated at the lower of cost (first-in, first-out method) or
market.
Prepaid Publication Costs - Publication costs of magazines and videos,
including editorial, postage, and typesetting costs are included in prepaid
publications costs until the issue is released for sale, at which time the
related costs are charged to cost of revenues.
Deferred Promotion Costs - The Company accounts for promotion costs, which
consist primarily of printing and mailing costs, on direct mail promotions
for its general circulation magazines in accordance with American Institute
of Certified Public Accountants' Statement of Position 93-7. These costs,
which are deferred to the extent of additional subscription revenues less
incremental fulfillment costs, are amortized over the periods of the
magazine subscriptions generated from these promotions, not to exceed one
year. All other advertising expenses are expensed at the time the
advertising takes place. As of December 31, 1999, $288,569 of these
expenses were included in prepaids and other current assets.
Property and Equipment - Property and equipment are stated at cost, net of
accumulated depreciation and amortization. Depreciation and amortization is
provided for by using the accelerated and straight-
F-15
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999 (Continued)
- --------------------------------------------------------------------------------
line methods, using the estimated useful lives of the respective asset or,
as to leasehold improvements, the term of the related lease if less than the
estimated service life. Useful lives generally range from 3 to 15 years.
Intangible Assets - Intangible assets consist of goodwill associated with
the acquisition of the Paisano Companies and El Paso in 1998 (Note 3), and a
trademark of the name and design `El Paso Bar-B-Que Company', and related
trademarks. Goodwill is amortized on a straight-line basis over periods
ranging from 20 to 30 years. At each balance sheet date, management
assesses whether there has been a permanent impairment in the value of
goodwill. If the carrying value of the asset exceeds the estimated
undiscounted future cash flows from operating activities of the related
business, a permanent impairment is deemed to have occurred. In this event,
the asset is written down, accordingly. As of December 31, 1999, management
determined that no impairment existed. The trademarks are being amortized
on a straight-line basis over a period of 7 years.
Pre-Opening Costs - Costs incurred prior to commencement of a restaurant's
operations are expensed as incurred.
Deferred Financing Costs - Costs incurred in obtaining financing are
deferred and amortized over the term of the related debt.
Deferred Rent - The Company recognizes rent expense on a straight-line basis
over the term of the leases (Note 12).
Fair Value of Financial Instruments - The Company's financial instruments
consist primarily of cash and cash equivalents, restricted cash, accounts
receivable, accounts payable, accrued liabilities, and notes payable,
convertible debentures, and long-term debt. The carrying value of all
financial instruments, other than notes payable, convertible debentures, and
long-term debt are representative of their fair values because of their
short-term maturities. The carrying value of the Company's notes payable,
convertible debentures, and long-term debt are representative of their fair
value because of the short period of time elapsed since origination or the
underlying interest rates are variable.
Use of Estimates in Preparation of Financial Statements - The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities as the date of the financial statements and the
reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
Long-Lived Assets - The Company accounts for the impairment and disposition
of long-lived assets in accordance with Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." In accordance with
SFAS No. 121, long-lived assets are reviewed for events or changes in
circumstances that indicate that their carrying value may not be
recoverable. At December 31, 1999, management determined that the carrying
value is recoverable.
F-16
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999 (Continued)
- --------------------------------------------------------------------------------
Comprehensive Income - In 1997, the Financial Accounting Standards Board
(FASB) issued SFAS No. 130, Reporting Comprehensive Income, which
established standards for the reporting and displaying of comprehensive
income and its components. For the years ended December 31, 1997, 1998 and
1999, there was no difference between the Company's net loss and
comprehensive loss.
Recent Accounting Developments - Statement of Financial Accounting Standards
("SFAS") No. 133, Accounting for Derivative Instruments and Hedging
Activities, was issued in June 1998 and establishes accounting and reporting
standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. SFAS No. 133 was initially
effective for all fiscal quarters of fiscal years beginning after June 15,
1999. In July 1999, SFAS No. 137, Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133, was issued which delays the effective date of SFAS No. 133 to fiscal
years beginning after June 15, 2000. The Company will adopt this new
standard as of January 1, 2001.
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Office equipment $ 559,009 $ 406,218
Computer equipment 806,843 535,298
Production and restaurant equipment 2,476,211 1,296,051
Leasehold improvements 2,587,329 1,753,430
----------- ----------
6,429,392 3,990,997
Less accumulated depreciation (1,115,071) (272,930)
----------- ----------
Property and equipment, net $ 5,314,321 $3,718,067
=========== ==========
</TABLE>
F-17
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999 (Continued)
- --------------------------------------------------------------------------------
6. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Food and restaurant supplies $ 54,406 $ 187,718
Paper 866,171 1,295,918
Motorcycles and parts 921,800 754,399
Other retail products 1,152,455 1,737,408
---------- ----------
$2,994,832 $3,975,443
========== ==========
</TABLE>
7. CONVERTIBLE DEBENTURES
On May 11, 1998, the Company issued convertible debentures with a face value
of $500,000 due May 11, 2000 in a private placement transaction. The
debentures accrue interest at 8% per year. The debentures are convertible
at the option of the holder into shares of the Company's common stock at the
lesser of the five-day average closing bid price on the closing date or 75%
of the five-day average closing bid price on the conversion date, as
defined. The debentures were converted into common stock in increments
throughout September 1998. The Company issued a total of 274,130 shares of
its common stock in connection with the conversion of the Debentures. The
conversion discount, which was $166,667 at the date of issuance, was
recognized by the Company as interest expense over the shortest expected
term to anticipated conversion of the debentures with a corresponding
increase to the original principal amount of the debentures. In conjunction
with the issuance of the convertible debentures, Newriders issued warrants
for the purchase of 25,000 shares of Newriders' common stock to a financial
advisor as compensation for arranging the Convertible Debenture issuances.
The warrants have an exercise price of $2.82 per share and can be exercised
at any time during the next three years. The fair value of the warrants,
aggregating $40,901, has been recorded as debt issuance costs and was
amortized over the term that the debentures were outstanding.
On June 11, 1998, the Company issued convertible debentures with a face
value of $1,000,000 due June 30, 2000, in a private placement transaction
with a director of the Company. The debentures accrue interest at 8% per
year, with interest payable quarterly. The debentures are convertible at
the option of the holder into shares of the Company's common stock at the
lesser of the five-day average closing bid price on the closing date or 75%
of the five-day average closing bid price on the conversion date, as
defined. The debentures are convertible at the holder's option anytime
after August 10, 1998. The conversion discount, which was $333,335 at the
date of issuance, was recognized by the Company as interest expense over the
shortest expected term to anticipated conversion of the debentures, with a
corresponding increase to the original principal amount of the debentures.
In conjunction with the issuance of the convertible debentures, the Company
issued warrants for the purchase of 25,000 shares of the Company's common
stock, with an exercise price of $2.98 per share at any time during the next
F-18
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999 (Continued)
- --------------------------------------------------------------------------------
three years. The fair value of the warrants, aggregating $41,518, has been
recorded as debt issuance costs and is being amortized over the term of the
debentures. At December 31, 1999, $1,000,000 in principal balance remains
outstanding. During 1999, $118,137 of accrued interest on this debenture
was converted into 229,114 shares of Common Stock of the Company. In
connection with this transaction, the Company incurred a stock issuance
expense of $39,379. The Company has executed an agreement with the director
to waive collection on this debenture until subsequent to March 31, 2001.
Therefore, this debt has been classified as non-current.
During the year ended December 31, 1997, the Company issued two tranches of
convertible debentures (the Debentures) with face values of $600,000
(Tranche A) and $1,000,000 (Tranche B) in private placements to
institutional investors. The Debentures accrue interest at rates of 10% and
8% per year, respectively, payable semi-annually. The Debentures are
convertible at the option of the holder into shares of the Company's common
stock based upon the following terms:
Tranche A - The Debentures in Tranche A were converted into common stock
at 72.5% of the five-day average closing bid price on the conversion date
and were converted into common shares during 1997. The Company issued a
total of 146,913 shares of its common stock in connection with the
conversion of the $600,000 of the original principal amount of the
Debentures, plus interest accrued through the conversion date of $10,523.
Tranche B Due December 12, 2000 - Convertible into common shares at the
lesser of the five-day average closing bid price on the closing date or
80% of the five-day average closing bid price on the conversion date, as
defined. The Debentures in Tranche B are convertible at the holder's
option: one-third after January 26, 1998; one-third after February 25,
1998; and one-third after March 27, 1998. The Debentures are convertible
at the option of the issuer at any time after December 12, 1998. As of
December 31, 1999, the Company had issued 158,445 shares of its common
stock in connection with the conversion of $683,333 in principal amount
of the Debentures. At December 31, 1999, $316,667 in principal balance
remains outstanding.
The conversion of the Debentures at a discount of the Company's common stock
results in the Debentures being issued at a discount. The conversion
discount, which aggregated $481,667 at the dates of issuance, is being
recognized by the Company as interest expense over the shortest expected
term to anticipated conversion of the Debentures with a corresponding
increase to the original principal amount of the Debentures. Upon
conversion of the Debentures, any portion of the conversion discount not
previously recognized is recorded as interest expense on the conversion
date.
In conjunction with the issuance of the Debentures, the Company issued an
aggregate of 25,000 shares to a financial advisor as compensation for
arranging the Convertible Debenture issuances. The fair value of the shares
has been recorded as debt issuance costs and was amortized through the
conversion date of the Convertible Debentures.
Additionally, in conjunction with the issuance of the Debentures, the
Company issued five-year broker warrants for 41,529 shares of common stock
with exercise prices from $3.83 to $4.05. The fair value
F-19
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATION FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999 (Continued)
- --------------------------------------------------------------------------------
of the warrants has been recorded as debt issuance costs and is being
amortized over the term of the Convertible Debentures.
8. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations is summarized as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1999 1998
<S> <C> <C>
Senior term loan, net of unamortized debt discount
of $544,176 in 1999 and $858,954 in 1998. $15,751,412 $16,141,046
Revolving term loan 4,375,000 3,750,000
Note payable related to settlement of litigation in the amount
of $1,000,000 less imputed interest (at 10.35%) of $106,999.
Payments of $35,000 are due monthly through December 20,
2000 increasing to $40,000 through December 20, 2001,
and to $50,000 through February 20, 2002 893,001 -
Secured installment promissory note agreements with a
commercial lender bearing interest at 13.5%, interest and
principle payments of $24,160 due through December 2002.
A director and the president of the lender are directors of
the Company 781,439 895,304
Note payable to a financial institution, dated June 30, 1997,
in the amount of $1,500,000. The note bears interest at 11%
with monthly principal and interest payments of $20,663
through July 1, 2007 and is collateralized by certain
property and equipment 1,262,567 1,364,702
Note payable to a financial institution, dated May 1, 1996 in
the amount of $1,017,000. The note bears interest at the
prime rate plus 1% with monthly principal and interest
payments of $15,364 through January 2001 and is
collateralized by certain property and equipment 621,358 742,736
Note payable to a current landlord, dated May 15, 1995 in the
amount of $1,500,000. The note bore interest at 10.5% with
monthly principal and interest payments of $3,373.
The note was repaid in 1999 - 201,815
Unsecured promissory note to a financial institution, dated
March 2, 1998. The note bore interest at 8% and was
repaid in 1999 - 100,000
Note payable related to settlement of litigation in the amount
of $90,000 which was paid in full by March 2000 37,000 -
</TABLE>
F-20
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATION FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999 (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
-------------------------
1999 1998
<S> <C> <C>
Increasing rate secured promissory note with a financial
institution, dated October 14, 1999, bearing interest
at a rate beginning at 20% and increasing 1% each month
from April 14, 2000 through its maturity on October 14,
2000. The note is secured by the common stock of the Company. 275,000 0
Secured installment promissory note agreement with a
commercial lender bearing interest at the prime rate plus 1%
with monthly principal and interest payments of $12,373
through November 1, 2002 and is collateralized by certain
property and equipment. 500,000 0
Secured inventory flooring agreement with a commercial lender
bearing interest at the prime rate plus 3.75% due upon sale
of the underlying inventory. 157,516 0
Obligations under capital leases with various financial
institutions ending on various dates through November 2008. 1,770,202 76,815
---------- ----------
26,424,495 23,272,418
Less current maturities (1,874,578) (558,748)
----------- -----------
$24,549,917 $22,713,670
=========== ===========
</TABLE>
Upon its acquisition by Easyriders, Inc., Paisano Publications obtained an
aggregate of $22,000,000 in financing (the Senior Loans) from a financial
institution. This financing was comprised of $17,000,000 in senior term
loans (the Term Loans) and $5,000,000 in 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 stockholder
of the Paisano Companies in conjunction with the Paisano Acquisition (Note
3) and to pay certain acquisition expenses. To the extent that Paisano
Publications is in compliance with the terms of the Senior Loans, any unused
portion of the Revolving Loans may be used by Paisano Publications for
working capital purposes. At December 31, 1999, there was $625,000 of
available borrowings under the Revolving Loans subject to the approval of
the lender. In February 2000, the Company borrowed another $325,000 under
the Revolving Loans, leaving a balance of $300,000 of available borrowings.
The Senior Loans are guaranteed (the Guarantees) by Easyriders and the
Paisano Companies, other than Paisano Publications (the Guarantors). The
Senior Loans will mature on September 23, 2001, and
F-21
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATION FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999 (Continued)
- --------------------------------------------------------------------------------
bear interest at an annual rate equal to the prime rate (8.50 % at
December 31, 1999) plus 1.85%, payable monthly. The Senior Loans 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 Easyriders and the Paisano Company, including all of the
capital stock or equity interests of the Paisano Company and Newriders. The
Senior Loans and the Guarantees constitute the sole senior secured
indebtedness of Paisano Publications and the Guarantors and rank senior to
all other indebtedness of Paisano Publications and the Guarantors.
Paisano Publications is obligated to pay the Senior Lender a fee equal to
0.25% per annum of the average daily undrawn amount of the Revolving Loans.
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, 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 December 31, 1999.
Because the Senior Loans included restrictions on the ability of the Paisano
Companies to transfer funds to Easyriders 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 at
December 31, 1999, total $30,446,576. See Parent Company financial
information at Note 19.
Subject to certain limitations on dividends and provided that no event of
default has occurred, Paisano Publications may loan funds to Easyriders
monthly, limited to the lessor of $100,000 or 35% of the Excess Cash Flow
for the preceding monthly period. As of December 31, 1999, Paisano
Publications has been able to provide $204,712 of funding to the Company
based on Paisano's attainment of Excess Cash Flow. The inability of Paisano
Publications to provide funds to Easyriders, Inc. in the future can
adversely impact the ability of Easyriders, Inc. to repay certain expenses
of the Company (Note 12).
The Senior Loans contain 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.
At December 31, 1999, Paisano was in violation of several financial
covenants including the required leverage ratio, the required minimum
consolidated EBITDA and the required interest coverage ratio. The Company
has received waivers related to events of noncompliance.
Under the terms of the Senior Loans the Company issued warrants to purchase
348,157 shares of common stock at an exercise price of $3.00 per share,
exercisable at any time up to seven years from their date of issuance. The
fair value of the warrants, $944,332, has been recorded as a debt discount
and is being amortized over the term of the Senior Loans. As compensation
for the waivers related to events of noncompliance, the Company repriced the
warrants. The increase in fair value of the warrants, if any, related to
the reduction in the exercise price to $1.625 per share was recorded as a
debt discount and is being amortized over the remaining term of the Senior
Loans.
F-22
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATION FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999 (Continued)
- --------------------------------------------------------------------------------
In October 1999, Paisano Publications issued a $275,000 increasing rate
secured promissory note to an investment partnership, Siena Capital
Partners, L.P. This loan (the "Siena Loan") is subordinate to the Nomura
Indebtedness. The loan bears interest at a rate of 20% per annum
(increasing by 1% monthly beginning April 14, 2000), and is due and payable
with accrued interest on October 14, 2000. Warrants to purchase 100,000
shares of the Common Stock of the Company were issued with an exercise
price of $0.01 per share. If the Siena Loan has been paid off in its
entirety by April 13, 2000, the warrants become null and void. In addition,
if the balance is not paid in full by July 13, 2000, the Company must issue
warrants to purchase an additional 300,000 shares of the Common Stock of the
Company, and if the balance is not paid in full by October 13, 2000, the
Company must issue warrants to purchase an additional 100,000 shares of the
Common Stock of the Company. Thereafter, until the loan is paid in full,
the Company must issue warrants to purchase 150,000 shares of the Common
Stock of the Company on the 13th day of each month. (See Subsequent Events -
Note 20).
Aggregate maturities of long-term debt and payment obligations under capital
leases for each of the next five years and thereafter are as follows:
<TABLE>
<CAPTION>
Long-Term Capital Lease
Debt Obligations Total
---------------------------------------------------------
Year ending December 31:
<S> <C> <C> <C>
2000 $ 1,458,811 $ 433,949 $ 1,892,760
2001 22,065,299 470,037 22,535,336
2002 793,906 459,671 1,253,577
2003 157,924 451,933 609,857
2004 176,199 329,332 505,531
Thereafter 546,330 493,981 1,040,311
----------- ---------- -----------
25,198,469 2,638,903 27,837,372
Less debt discount (544,176) - (544,176)
Less imputed interest - (868,701) (868,701)
----------- ---------- -----------
$24,654,293 $1,770,202 $26,424,495
=========== ========== ===========
</TABLE>
9. NOTES PAYABLE TO STOCKHOLDER
In connection with the Paisano Acquisition, the sole stockholder of the
Paisano Companies received promissory notes aggregating $13,000,000 (the
Contributor Notes). The Contributor Notes consist of a subordinated
promissory note (the Contributor Subordinated Note) in the amount of
$5,000,000, a limited recourse subordinated promissory note (the Contributor
Mirror Note) in the amount of $5,000,000 secured by the Martin Mirror Note
(defined below) and a subordinated promissory note (the Contributor Short-
Term Subordinated Note) in the amount of $3,000,000. The Contributor
Subordinated Note has a term of five years and can be extended for an
additional term of five years by
F-23
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATION FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999 (Continued)
- --------------------------------------------------------------------------------
Registrant and bears interest at an annual rate between 6% and 10%. The
Contributor Mirror Note has a term of five years and will be extended if,
and to the extent that, the Martin Mirror Note (Note 13) is extended, and
bears interest at an annual rate between 6% and 10%. The Contributor Short-
Term Subordinated Note bears interest at an annual rate of 10% and had a
term of 90 days (stated maturity date of December 23, 1998). On April 9,
1999, the Company issued shares of stock in exchange for the forgiveness of
interest on the Contributor Subordinated Note of $75,000 and a reduction in
principal of the Contributor Subordinated Note from $5,000,000 to $3,575,000
(Note 13). On March 31, 2000, the former sole stockholder of the Paisano
Companies agreed to defer collection of all interest and principle due under
the Contributor Notes until March 31, 2001. Therefore, the $3,000,000
Contributor Short-Term Subordinated Note was classified as long-term (See
Subsequent Events - Note 20).
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 on April 8,
1999.
10. INCOME TAXES
The Company's provision (benefit) for income taxes consists of the following
at December 31:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Current:
Federal $ 0 $ 0
State 11,500 8,300
--------- -----------
11,500 8,300
Deferred:
Federal 4,163,454 3,263,935
State 528,759 473,317
Change in valuation allowance (4,692,213) (3,737,252)
--------- -----------
0 0
--------- -----------
$ 11,500 $ 8,300
========= ===========
</TABLE>
A reconciliation of the provision (benefit) for income taxes to the amount
of income tax expense that would result from applying the federal statutory
rate to income before provision for income taxes is as follows for the year
ended December 31:
F-24
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATION FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999 (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Federal statutory rate (35)% (35)%
State income taxes, net of federal benefit 1 (3)
Nondeductible expenses related to acquired intangibles 5 3
Change in valuation allowance 30 32
Other (1) 3
----- -----
0% 0%
===== =====
</TABLE>
Significant components of the Company's deferred tax assets (liabilities) at
December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Current:
State taxes $ (90,218) $ (28,980)
Accrued compensation 510,344 329,840
Other 788,517 277,605
Valuation allowance (1.208,643) (578,465)
----------- -----------
- -
----------- -----------
Noncurrent:
State taxes (354,976) (233,613)
Fixed assets (14,410) 40,313
Net operating loss carryforward 9,675,237 5,437,116
Valuation allowance (9,305,851) (5,243,816)
----------- -----------
- -
----------- -----------
$ - $ -
=========== ===========
</TABLE>
The Company has provided a full valuation allowance on the net deferred
asset at December 31, 1999 and December 31, 1998, due to the uncertainty
regarding its realization.
At December 31, 1999, the Company has available net operating loss
carryforwards of approximately $25,377,000 and $11,961,000 for federal and
state income tax purposes, respectively. Approximately $11,995,000 of the
federal loss carryforward related to pre-reorganization periods which can be
used to offset future taxable income. Sections 382, 383, and 1502 of the
Internal Revenue Code of 1986 place certain limitations on the use of these
acquired losses. A maximum of approximately $1,100,000 of the
F-25
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATION FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999 (Continued)
- --------------------------------------------------------------------------------
net operating loss carryforwards can be utilized annually in 2000 and
subsequent years. Any net operating losses not utilized will begin expiring
in 2010 and 2003 for federal and state purposes, respectively.
11. PENSION PLAN
The Paisano Companies had a noncontributory defined benefit pension plan
(the Plan) covering a majority of their employees. The Company assumed this
plan through the purchase of the Paisano Companies. Effective November 22,
1999, the Plan was terminated and the Plan assets were distributed to the
Plan participants.
12. COMMITMENTS and CONTINGENCIES
Leases - The Company leases its facilities and certain equipment under both
capital leases (Note 8) and triple net operating lease agreements. Under
the terms of the operating leases, the Company is required to pay certain
costs of the leased properties including taxes, insurance, and utilities.
Rent expense for the years ended December 31, 1999, 1998 and 1997 was
$1,577,706, $470,978 and $433,188, of which $599,124, $140,808 and $42,000
was paid to directors and stockholders of the Company.
Minimum annual payments under these agreements as of December 31, 1999 are
as follows:
<TABLE>
<CAPTION>
Operating Operating
leases leases
(related
parties)
Year ending December 31:
<S> <C> <C>
2000 $ 718,041 $ 563,999
2001 769,725 575,058
2002 767,183 586,360
2003 761,237 446,232
2004 539,209
Thereafter 1.868,323
---------- ----------
Total minimum lease payments $5,423,718 $2,171,649
========== ==========
</TABLE>
Employment Agreements - The Company has entered into employment and
consulting agreements with certain Company officers requiring minimum
aggregate compensation as follows: $910,000 (2000), $835,000 (2001),
$650,000 (2002), $555,000 (2003) and $300,000 thereafter.
F-26
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATION FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999 (Continued)
- --------------------------------------------------------------------------------
Restrictions Under Financing Facilities - Paisano Publications, a primary
source of the Company's revenue is subject to certain restrictions in the
Senior Credit Agreement underlying the Notes that limit its ability to
transfer funds to Easyriders, Inc., its parent, or to its other affiliates
(Note 8).
Concentration - Primarily all of the Company's magazine distribution is
performed by one distributor and primarily all of the Company's printing and
production is performed by one printing company. Any failure to renew the
distribution and printing contracts with these companies could have a
material adverse effect on the Company's operations.
Paper Price Volatility - A primary component of the Company' 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.
Litigation - The Company is currently involved in litigation incidental to
its business both as a plaintiff and defendant. In the opinion of
management, the ultimate resolution of such litigation will not have a
material impact on the Company's financial statements.
13. 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.
Treasury Stock Transactions - In connection with the reorganization, four of
the largest stockholders of Newriders agreed to return to Newriders an
aggregate of 6,156,480 shares of Newriders' common stock. A total of
4,848,480 of these shares were delivered to Newriders for cancellation at or
prior to closing. One of the four stockholders, Rick Pierce, failed to
deliver 1,308,000 of the Newriders shares to be canceled, of which 464,000
Newriders shares are beneficially owned by another individual, who had
consented to their cancellation. The Paisano stockholder waived the
condition for cancellation of the 1,308,000 Newriders' shares at closing, on
the condition that Newriders continue to pursue the cancellation of the
1,308,000 Newriders shares.
Easyriders has issued stop transfer instructions concerning the 1,308,000
Newriders' shares which were to have been canceled, which is equivalent to
654,000 shares of Easyriders, Inc. common stock. Following the closing on
September 23, 1998, a petition for an involuntary bankruptcy proceeding
under Chapter 11 of the U.S. Bankruptcy Code involving Rick Pierce was
filed. Easyriders has pursued its claim for cancellation of the 1,308,000
Newriders' shares in the bankruptcy proceeding in question. The bankruptcy
Trustee has recently procured share certificates in the name of Rick Pierce
totaling 1,500,000 shares of Newriders common stock. It is anticipated that
these shares will be surrendered to Easyriders' transfer agent. Upon such
surrender, Rick Pierce will have met his entire commitment to surrender
shares pursuant to the Reorganization, and his bankruptcy estate will be
entitled to receive 96,000 shares of Easyriders common stock (192,000
Newriders). Share and per share
F-27
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATION FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999 (Continued)
- --------------------------------------------------------------------------------
amounts in the accompanying consolidated financial statements assume that
the 1,308,000 shares have been canceled.
Sale of Stock to Related Parties - In connection with the Reorganization,
the chairman of the Company purchased 4,036,797 shares of Easyriders' common
stock at $3.05 per share. Aggregate consideration of $12,300,000 was paid,
$5,000,000 in cash and the balance by delivery of two promissory notes (the
Martin Mirror Note and the Other Martin Note). The Martin Mirror Note is in
the amount of $5,000,000 and has been pledged by Easyriders to secure a note
payable to the former stockholder of the Paisano Companies. The Other
Martin Note has a face amount of $2,300,000. The Martin Mirror Note has a
term of five years, may be extended by Mr. Martin for an additional period
of five years, and bears interest at an annual rate beginning at 6% and
increasing to 10% over its life. The Other Martin Note has a term of five
years, and may be extended for an additional five years and bears interest
at an annual rate between 6% and 10%. These promissory notes have been
recorded as an offset to stockholders' equity.
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 stockholder of the Paisano Companies and a
director of the Company for the sum of $1,500,000. The number of shares
issued was calculated as 75% of the average closing price of the common
stock, with average closing price being defined as the average of the last
recorded sale price of the common stock on the ten consecutive trading days
ending on and including April 8, 1999. As consideration for the $1,500,000
in common stock, the director forgave interest on a $5,000,000 note payable
of $75,000 and reduced the principal on the note payable from $5,000,000 to
$3,575,000. In conjunction with this stock issuance at a discount, the
Company recorded $300,000 of stock issuance expense.
On July 14, 1999, the Company sold to two directors of the Company 234,940
shares each of common stock of the Company for the sum of $250,000 each.
The number of shares issued was calculated as 75% of the average closing
price of the common stock, with average closing price being defined as the
average of the last recorded sale price of the common stock on the ten
consecutive trading days ending on and including July 14, 1999. In
conjunction with this stock issuance at a discount, the Company recorded
$100,000 of stock issuance expense.
Stock issued to settle litigation - On August 3, 1999, the Company issued
50,000 shares of the common stock of the Company in settlement of a dispute
with an ex-employee. Compensation expense was recognized equal to the fair
market value of such shares on the date of issuance.
F-28
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATION FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999 (Continued)
- --------------------------------------------------------------------------------
On December 7, 1999, the Company issued 36,782 shares of the common stock of
the Company in settlement of a dispute with an ex-consultant. An amount
equal to the fair market value of such shares on the date of issuance was
expensed.
Common Stock Issued for Services - During 1997, the Company issued 167,500
shares (including 25,000 issued to a financial advisor [see Note 7]) for
consulting and other services. Shares were issued at their fair value at
the date of issuance which ranged from $3.00 to $4.20 per share and was
recorded as stock issuance expense in the accompanying consolidated
financial statements.
During June 1998, the Company issued 500,000 shares of the Company's common
stock to the sole stockholder of Paisano Publications, Inc. for services to
the Company and the satisfaction of certain trade payables. The fair value
of the shares, net of the forgiven trade payables, was recorded as stock
issuance expense in the accompanying consolidated financial statements.
As more fully described in Note 3, in conjunction with the Reorganization,
the Company issued warrants to purchase 870,393 shares of common stock of
the Company to a financial advisor of the Company. The warrants have been
valued at $2,069,258 using the Black-Scholes option-pricing model and have
been included in the determination of the purchase price of the Paisano
Companies and El Paso. The warrants will be exercisable at any time for a
period of seven years from their date of issuance.
During September 1998, the Company issued 200,000 shares of Easyriders, Inc.
stock to an employee of Easyriders as compensation for services performed
related to the Paisano and the El Paso Acquisitions. The fair value of the
stock, $616,000, is recorded as stock issuance expenses in consolidated
statement of operations.
During November 1998, the Company issued 120,000 shares of Easyriders, Inc.
stock with a fair value of $300,000 to a former employee of El Paso as part
of a settlement of a severance agreement existing prior to the El Paso
Acquisition.
During July and August 1999, the Company issued 70,000 shares of Easyriders,
Inc. stock to a consultant of Easyriders as compensation for services
performed. The fair value of the stock, $90,020, was recorded as consulting
expense.
During November 1999, the Company issued 9,700 shares of Easyriders, Inc.
stock with a fair value of $12,115 to 97 employees who had been employed
since the date of the Reorganization.
During December 1999, the Company issued 100,000 shares of Easyriders, Inc.
stock to a consultant of Easyriders as compensation for services performed.
The fair value of the stock, $106,250, was recorded as consulting expense.
F-29
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATION FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999 (Continued)
- --------------------------------------------------------------------------------
Common Stock Subscription - In November 1996, the Company entered into an
agreement with a barter service to issue 200,000 shares of common stock in
exchange for $1,000,000 of barter advertising and other services and
merchandise. As of December 31, 1997, the Company had utilized services in
satisfaction of $250,000 of the subscription receivable. The remaining
$750,000 subscription receivable was written off during the year ended
December 31, 1998, as it was determined that no probable future economic
benefit would be realized from the receivable.
Stock Option Plans - In November 1997, the Company adopted its 1997
Executive Incentive Compensation plan (the Newriders Plan), which provides
for the grant of stock options to purchase Newriders stock and other awards
to certain officers, key employees, consultants, or other persons affiliated
with the Company. The maximum number of Newriders shares of common stock
that may be issued pursuant to the Plan is 5,000,000 (pre-split). Following
the adoption of such plan, the Company granted options to purchase an
aggregate of 2,721,000 (pre-split) shares of the Newriders common stock at
(pre-split) prices ranging from $2.50 to $3.00 per share (pre-split), which
the Company's Board of Directors deemed to be equal to, or in excess of,
fair market value of the common stock at the dates of grants, to employees
of the Company. Additionally, in 1997, options were granted for the
purchase of up to 395,000 (pre-split) Newriders common shares at $2.50 per
share (pre-split) to certain nonemployees of the Company. The Company
recorded compensation expense equivalent to the fair value of the options
granted to nonemployees, totaling approximately $671,500. These options
vested upon grant. As part of the Reorganization, all the outstanding
options to purchase Newriders shares were exchanged for options under the
Easyriders Plan to purchase the Company's stock on the basis of one share of
the Company's Common Stock for each two shares of Newriders Common Stock at
an exercise price equal to two times the exercise price provided in the
stock option. Activity under the Newriders Plan has been restated to give
effect to this exchange ratio.
In September 1998, the Company adopted its 1998 Executive Incentive
Compensation plan (the Easyriders Plan), which provides for the grant of
stock options and other awards to certain officers, key employees,
consultants or other persons affiliated with the Company. The maximum
number of shares of common stock that may be issued pursuant to the
Easyriders Plan is 2,800,000. Following the adoption of such plan, the
Company granted options to purchase an aggregate of 355,000 shares of the
Company's common stock at $5.00 as part of the acquisition of the Paisano
Companies. Of these option grants, 160,700 were granted under the Company's
1998 Executive Incentive Compensation plan, and 194,300 were granted outside
of the plan. The Company recorded an increase to the purchase consideration
for the Paisano Companies equivalent to the fair value of the options
granted to nonemployees, totaling approximately $697,434.
During the year ended December 31, 1999, the Board of Directors of the
Company authorized the granting of 1,867,000 options to employees,
consultants and directors of the company, 1,276,150 were granted under the
Company's 1998 Executive Incentive Compensation plan, and 590,850 were
granted outside of the plan. SFAS No. 123, Accounting for Stock-Based
Compensation, encourages but does
F-30
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATION FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999 (Continued)
- --------------------------------------------------------------------------------
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.
The following table summarizes the activity under the Plan for the period
indicated:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------- --------------------------- ----------------------------
Weighted Weighted Weighted
Number of average Number of average Number of average
shares exer. price shares exer. price shares exer. price
<S> <C> <C> <C> <C> <C> <C>
Beginning of period 738,000 $5.00 1,558,000 $5.00 - $ -
Grants 1,867,000 1.73 825,000 5.00 1,558,000 5.00
Cancelations (88,150) 3.69 (1,645,000) 5.00 -
--------- --------- --------
End of period 2,516,850 $2.55 738,000 $5.00 1,558,000 $5.00
========= ========== =========
Exercisable at 851,350 $4.07 608,000 $5.03 258,000 $5.00
end of period ========= ========== =========
</TABLE>
Summary information related to stock options outstanding as of December 31,
1999, is as follows:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
Number Number
outstanding at Weighted Remaining exercisable at Weighted
Exercise December 31, average contractual December 31, average
price 1999 exercise price life (in years) 1999 exercise price
<S> <C> <C> <C> <C> <C>
$0.9375 to $1.75 1,746,700 $1.72 9.18 193,700 $1.67
$2.00 to $2.85 160,000 $2.23 8.02 57,500 $2.23
$5.00 to $6.00 610,150 $5.01 7.09 600,150 $5.02
--------- -------
2,516,850 851,350
========= =======
</TABLE>
Stock Warrants - The Company has issued warrants related to the issuance of
subordinated debt and as compensation to employees during 1999, 1998 and
1997. The following outlines the activity related to the Warrants for the
period indicated:
F-31
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATION FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999 (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------- --------------------------- ---------------------------
Weighted Weighted Weighted
Number of average Number of average Number of average
shares exercise price shares exercise price shares exercise price
<S> <C> <C> <C> <C> <C> <C>
Beginning of period 1,333,750 $7.58 270,646 $7.98 -
Grants 100,000 $0.01 1,063,104 $8.00 270,646 $7.98
Cancelations (250,000) $8.00
--------- --------- -------
End of period 1,183,750 $1.85 1,333,750 $7.58 270,646 $7.98
========= ========= =======
</TABLE>
In April 1999, as compensation for certain services provided by a financial
advisor, the Company repriced warrants to purchase 592,184 shares of the
Company's common stock. The exercise price was reduced to $1.75 per share.
As of December 31, 1999, 1,083,750 of the outstanding warrants are
exercisable. The warrants have a range of exercise price from $0.01 to
$8.10 and have a weighted average remaining life of 6.0 years.
SFAS No. 123, Accounting for Stock-Based Compensation, encourages but does
not require 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. No compensation
expense has been recognized for employee stock option grants. Had
compensation expense for the employee stock option grants been determined
based on the fair value at the grant dates consistent with SFAS No. 123, the
Company's net loss and net loss per share for the years ended December 31,
1999, 1998 and 1997, would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Net loss applicable to common stock:
As reported $(14,103,558) $(12,131,889) $(4,776,874)
Pro forma $(17,123,385) $(12,828,148) $(6,107,953)
Net loss per common share:
As reported $ (0.65) $ (1.04) $ (0.57)
Pro forma $ (0.79) $ (1.10) $ (0.73)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1997, 1998 and 1999: zero dividend yield,
expected volatility of 109%, risk-free interest rate of 5.9%, and expected
lives of three years in 1997; zero dividend yield, expected volatility of
101% to 150%, risk-free interest rate of 5.4% to 6.2%, and expected lives of
3 to 10 years in 1998; and, zero dividend yield, expected volatility of 44%
to 136%, risk-free interest rate of 4.8% to 6.2%, and expected lives of 1
year to 10
F-32
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATION FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999 (Continued)
- --------------------------------------------------------------------------------
years in 1999. The weighted average fair value of each option grant was
$1.66 per share, $3.38 per share and $7.75 per share for 1999, 1998 and
1997, respectively.
14. WRITE-OFF OF LEASEHOLD IMPROVEMENTS
In December 1997, the Company initiated plans to substantially rebuild its
restaurant located in Fresno, California. As a result, the Company recorded
a write-down of $628,129 with respect to leasehold improvements and store
fixtures at the Fresno location.
15. SALE OF RESTAURANT TO RELATED PARTY
On July 22, 1998, the Company sold its Myrtle Beach Restaurant to a
stockholder of the Company. As a result of this sale, the Company recorded
a loss during the year ended December 31, 1998 of $1,099,760, primarily
related to the write-down to net realizable value of leasehold improvements
and store fixtures.
16. NET LOSS PER SHARE
A reconciliation of the numerators and denominators used in basic and
diluted net loss per share are as follows for the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Net loss $(14,103,558) $(12,131,889) $(4,776,874)
------------ ------------ -----------
Weighted average number of common shares:
Basic 21,617,543 11,686,551 8,317,533
Effect of dilutive securities
------------ ------------ -----------
Diluted 21,617,543 11,686,551 8,317,533
============ ============ ===========
Net loss per share:
Basic $ (0.65) $ (1.04) $ (0.57)
Effect of dilutive securities
------------ ------------ -----------
Diluted $ (0.65) $ (1.04) $ (0.57)
============ ============ ===========
</TABLE>
F-33
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATION FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999 (Continued)
- --------------------------------------------------------------------------------
All stock options, stock warrants, and convertible debentures were
considered anti-dilutive and therefore basic weighted average number of
common shares equals diluted weighted average number of common shares for
December 31, 1999, 1998 and 1997.
17. 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.
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. four 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.
F-34
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATION FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999 (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Goods and Food Other
Publishing services service Franchising operations Totals
1998:
<S> <C> <C> <C> <C> <C> <C>
Sales external customers $ 6,954,082 $ 2,565,314 $ 3,527,311 $ 151,200 $ 562,411 $13,760,318
Income (loss) from
operations 1,185,153 240,832 (47,071) (583,533) (363,453) 431,928
Segment assets 4,748,986 3,474,002 5,137,288 196,568 199,960 13,756,804
Capital expenditures 76,642 70,266 96,411 243,319
Depreciation and
amortization 53,204 62,323 315,730 12,542 443,799
1999:
Sales external customers $23,588,851 $ 5,968,735 $11,294,859 $ 93,137 $3,550,820 $44,496,402
Income (loss) from
operations (857,974) (2,109,982) 89,502 (1,922,432) 85,283 (4,715,603)
Segment assets 7,381,964 1,299,782 5,296,659 8,899 272,237 14,259,541
Capital expenditures 574,346 5,649 647,948 17,000 1,244,943
Depreciation and
amortization 347,539 48,347 498,931 8,475 94,078 997,370
</TABLE>
No segment information is provided for 1997, as the results represent the
results of Newriders, Inc. only. 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>
<CAPTION>
1999 1998
-----------------------------------
<S> <C> <C>
Loss from operations included in segment disclosure $ (4,715,603) $ 431,928
Unallocated, selling, general, and administrative (5,142,070) (5,850,331)
Stock issuance expense (739,379) (2,504,867)
Loss on sale of restaurant to related party 0 (1,099,760)
Write-off of stock subscription receivable 0 (750,000)
------------ -----------
Loss from operations $(10,597,052) $(9,773,030)
============ ===========
</TABLE>
F-35
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATION FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999 (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
--------------------------------------------
<S> <C> <C>
Segment assets $14,259,541 $13,756,804
Cash and cash equivalents 734,856 278,035
Receivable from shareholder 395,010 398,085
Goodwill 60,356,501 62,704,698
----------- -----------
Total assets $75,745,908 $77,137,622
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
1999 1998
------------------------------------------
<S> <C> <C>
Depreciation and amortization included in segment disclosure $ 997,370 $ 443,799
Amortization of goodwill 2,218,410 612,739
---------- ----------
Depreciation and amortization $3,215,780 $1,056,538
========== ==========
</TABLE>
Revenues concerning principal geographic areas is as follows based on
customer location:
<TABLE>
<CAPTION>
USA Canada Germany UK Australia Other Total
<S> <C> <C> <C> <C> <C> <C> <C>
1999 $40,254,431 $1,065,203 $609,534 $500,298 $476,978 $1,589,958 $44,496,402
1998 $12,783,632 $ 298,061 $189,727 $154,680 $124,044 $ 210,174 $13,760,318
</TABLE>
The Company's foreign operations consist primarily of international
newsstand sales and mail-order product sales. No one foreign 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.
F-36
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATION FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999 (Continued)
- --------------------------------------------------------------------------------
18. TRANSACTIONS WITH RELATED PARTIES
For each of the three years in the period ended December 31, 1999, the
Company entered into transactions with the following related parties:
significant stockholders of the Company and entities in which significant
stockholders of the Company are directors or own a controlling interest.
The following amounts represent related party transactions for the years
ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Rent paid to shareholders/directors (Note 12) $ 599,124 $ 140,808 $ 42,000
Interest expense to directors/shareholders $ 887,050
Interest income from directors/shareholders $ 438,000
Product sales to shareholder $ 196,877 $ 75,182
Loss on sale of restaurant to shareholder (Note 15) $1,099,760
Sale of 96,150 shares of stock to directors of the Company $500,000
Sale of 3,265,780 shares of stock to directors of the Company $3,500,000
Issuance of 20,000 shares in exchange for legal services from
a stockholder and director $ 60,000
Expense related to issuance of 500,000 shares in
exchange for services and satisfaction of $210,333 of
trade payables to a director of the Company (Note 13) $1,888,867
Expense related to issuance of 229,114 shares in payment
of interest payable to a director of the Company $ 39,379
Expense related to issuance of 3,265,780 shares in
private placements of Common Stock to directors of
the Company (Note 13) $ 700,000
Expense related to issuance of 200,000 shares to an employee of
the Company as compensation for services performed (Note 13) $ 616,000
Expense related to issuance of 229,114 shares to a director of
the Company for interest owed on convertible securities $ 118,137
Expense related to legal services from a stockholder $ 38,884 $ 150,378 $ 44,315
Expense related to consulting services from a stockholder $ 230,000
Compensation of directors/shareholders $1,407,341
Cash paid for advertising from a stockholder and director $ 41,133
Advances from shareholders $305,000
Repayments of advances from shareholders $ 270,650
</TABLE>
F-37
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATION FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999 (Continued)
- --------------------------------------------------------------------------------
The following amounts represent related party balances as of December 31:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Subordinated debt issued to a director (Note 7) $ 1,000,000 $ 1,000,000
Note payable issued to a stockholder (Note 9) $11,575,000 $13,000,000
Interest payable to directors $ 1,030,747
Receivable from a shareholder from the sale of stock (Note 13) $ 7,300,000 $ 7,300,000
Receivable from a shareholder related to the
Paisano Companies acquisition (Note 3) $ 375,716 $ 398,085
Interest receivable from director $ 556,016
Other receivable from shareholder $ 19,294 $ 32,000
Accrued compensation to a shareholder $ 1,172,857
Advances from shareholder
Promissory note with affiliated lender (Note 8) $ 781,439 $ 895,304
Payable to shareholder for legal services performed $ 18,761 $ 47,684
Payable to shareholder for rent $ 177,621
</TABLE>
Lease Assignment - On February 9, 1998, a stockholder and director assumed
the Company's obligation under an operating lease agreement effective March
1, 1998. Under the terms of the lease, monthly lease payments of $2,200
have been assumed through the end of the lease term in May 2017.
19. Parent Company Financial Information
The following presents the unconsolidated financial statements of the parent
company only, Easyriders, Inc. (Note 1) as of December 31, 1999.
F-38
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATION FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999 (Continued)
- --------------------------------------------------------------------------------
EASYRIDERS, INC. (Parent Company Only)
<TABLE>
<CAPTION>
BALANCE SHEETS
1999 1998
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ (9,967) $ 33,341
Inventory - 74,999
Other current assets - 118,016
----------- -----------
Total current assets (9,967) 226,356
PROPERTY AND EQUIPMENT, net - 8,398
DEPOSITS AND OTHER ASSETS 106,509 205,726
INVESTMENTS IN SUBSIDIARIES 36,127,926 45,491,676
----------- -----------
$36,224,468 $45,932,156
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 628,206 $ 516,325
Accrued expenses and other current liabilities 1,683,541 690,740
Payables to subsidiaries 320,791 277,057
Current portion of long-term debt 645,565 353,485
----------- -----------
Total current liabilities 3,278,103 1,837,607
CONVERTIBLE DEBENTURES, net 1,000,000 1,316,667
NOTE PAYABLE TO STOCKHOLDER 11,575,000 13,000,000
LONG-TERM DEBT 489,541 720,902
OTHER LONG TERM LIABILITIES 260,084
STOCKHOLDERS' EQUITY 19,621,740 29,056,980
----------- -----------
$36,224,468 $45,932,156
=========== ===========
</TABLE>
F-39
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATION FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999 (Continued)
- --------------------------------------------------------------------------------
EASYRIDERS, INC. (Parent Company Only)
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
1999 1998 1997
<S> <C> <C> <C>
REVENUES $ $ 969,424 $ 2,932,708
COST OF SALES 578,877 1,670,146
------------ ------------ -----------
GROSS MARGIN $ 390,547 1,262,562
EXPENSES 3,210,211 8,453,570 5,701,017
------------ ------------ -----------
LOSS FROM OPERATIONS (3,210,211) (8,063,023) (4,438,455)
EQUITY IN NET LOSSES OF SUBSIDIARIES 9,363,753 2,378,946
OTHER EXPENSE, net 1,529,594 1,689,920 338,419
------------ ------------ -----------
NET LOSS $(14,103,558) $(12,131,889) $(4,776,874)
============ ============ ===========
</TABLE>
F-40
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATION FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999 (Continued)
- --------------------------------------------------------------------------------
EASYRIDERS, INC. (Parent Company Only)
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
1999 1998 1997
CASH FLOWS (USED IN) FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net loss $(14,103,558) $(12,131,889) $(4,776,874)
Adjustments to reconcile net loss to net cash used in
operating activities:
Common stock issuance expense 739,379 1,888,867
Common stock issued for services 171,875 616,000 572,500
Common stock issued for interest 118,137
Compensatory options issued to nonemployees 671,500
Services rendered in satisfaction of common stock 250,000
Depreciation and amortization 65,364 261,241 99,388
Write-off of leasehold improvements 628,129
Loss on sale of restaurant to third party 1,099,760
Loss on sale of property, plant, and equipment 182,717
Write-off of stock subscription receivable 750,000
Amortization of debt issuance costs 1,369,536 310,877
Equity in net losses from subsidiaries 9,363,753 2,378,946
Increase (decrease) in cash resulting from changes in operating
accounts, net of acquitions
Current assets 193,015 124,988 183,066
Current liabilities 1,260,115 1,031,845
Other assets 42,251
Other liabilities 260,084 (128,003) 872,246
------------ ------------ -----------
Net cash used in operating activities (1,889,585) (2,555,992) (1,189,168)
CASH FLOWS FROM INVESTING ACTIVITIES -
Cash paid for acquisitions, less cash acquired (5,000,000)
Proceeds from sale of fixed assets 200,000
Purchases of fixed assets - (164,771) (1,214,957)
------------ ------------ -----------
Net cash used in investing activities - (4,964,771) (1,214,957)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of convertible debentures and long-term debt 2,100,000 2,650,000
Payment of long-term debt and capital leases (179,520) (607,179) (127,723)
Payments of stockholders advances (201,350)
Issuance and payment of note payable to stockholder 251,350
Cash contributions to capital 373,084
Common stock issued for cash 2,025,800 5,000,000 500,000
------------ ------------ ---------
Net cash provided by financing activities 1,846,280 6,291,471 3,646,711
------------ ------------ ---------
</TABLE>
F-41
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATION FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999 (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS $ (43,308) $(1,229,292) $1,242,586
CASH AND CASH EQUIVALENTS, beginning of year 33,341 1,262,633 20,047
---------- ----------- ----------
CASH AND CASH EQUIVALENTS, end of year $ (9,967) $ 33,341 $1,262,633
========== =========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION -
Cash paid for interest $ 195,976 $ 364,733 $ 21,482
========== =========== ==========
NONCASH FINANCING ACTIVITIES:
Common stock issued in settlement of accounts payable $ - $ 211,134 $ -
========== =========== ==========
Common stock issued in settlement of debt $1,500,000 $ 1,506,142 $ 610,817
========== =========== ==========
Convertible debentures issued with conversion discount $ - $ 500,002 $ 481,667
========== =========== ==========
Issuance of warrants in connection with debt issuance $ - $ 1,487,190 $ 105,130
========== =========== ==========
Common stock issued in exchange for a note receivable $ - $ 7,300,000 $ -
========== =========== ==========
</TABLE>
20. SUBSEQUENT EVENTS
Steel Horses Settlement - As of January 12, 2000, the Arbitration Action
which was commenced in January, 1998 by Steel Horses, Inc. dba Easyriders of
Chicago ("Steel Horses") against Paisano Publications, Easyriders
Franchising, Inc. ("EFI") and certain officers of the Company, arising out
of the Franchise Agreement entered into in 1994 between Steel Horses and
EFI, was settled and dismissed with finality pursuant to a settlement
agreement executed as of that date by all parties (the "Settlement
Agreement"). Pursuant to the Settlement Agreement, Paisano Publications
agreed to pay Steel Horses and its founders an agreed upon sum over a period
of 2 years and the Company agreed to issue to such parties and their counsel
400,000 shares of common stock in the aggregate. The settlement expenses
were accrued as of December 31, 1999, as the amount of the loss was
estimable and the loss was probable as of that date.
Related-Party Stock Purchases - On February 9, 2000, the Company sold to two
directors of the Company 493,827 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
February 2, 2000.
F-42
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATION FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999 (Continued)
- --------------------------------------------------------------------------------
Debt Covenant Amendments - Effective February 7, 2000, Nomura entered into a
consent and waiver pursuant to the Credit Agreement pursuant to which Nomura
consented to (a) the issuance by Paisano of a promissory note in furtherance
of the settlement of litigation and (b) an advance under the Nomura credit
line of $325,000, and waived a previous event of default related to the late
payment of a principal installment.
On April 12, 2000, Nomura agreed to waive defaults under the Credit
Agreement relating to maximum capital expenditures, maximum leverage ratios,
minimum consolidated EBITDA, minimum consolidated net worth, minimum
consolidated working capital and minimum interest coverage ratios, pursuant
to a Second Amendment and Waiver Under Note and Warrant Purchase Agreement
and Second Amendment to Warrant. In addition, Nomura agreed to amend the
Credit Agreement in order to relax covenants for the 2000 calendar year
relating to the maintenance of required levels of net worth and EBITDA,
maximum leverage ratios and minimum interest coverage ratios. In
consideration of the foregoing waivers and amendments, the Company agreed to
reduce the exercise price on warrants to purchase 355,920 shares of
Easyriders Common Stock issued to Nomura at the time the Credit Agreement
was originally entered into, from $1.625 to "market price," as determined by
a formula set forth in the Second Amendment to Warrant.
Forgiveness of Debt by Stockholder - Effective April 3, 2000, Joseph Teresi,
the sole stockholder of Paisano Publications prior to the Reorganization,
agreed to forgive $3,446,787 of principal owed on the Subordinated 7% note,
leaving a principal balance of $128,213, in exchange for 3,356,170 shares of
the Company's Common Stock. This transaction was valued at full market
price without discount, market price being determined as the average daily
closing price of the Common Stock on the American Stock Exchange over 30
consecutive trading days ending on and including March 22, 2000, the date of
the Company's last meeting of its Board of Directors. Concurrently, Mr.
Teresi agreed to forgive (a) the residual balance due under the Subordinated
7% note of $128,213, (b) $96,739 of other obligations owed to Mr. Teresi by
the Company in connection with rent and consulting fees, and (c) accrued
interest on the Contributor Notes of $525,040, in exchange for the
undertakings of Paisano Publications pursuant to an agreement involving the
Company's events division.
In April 2000, the Company entered into an agreement with Joseph Teresi
pursuant to which the assets of Easyriders of Columbus will be sold to Mr.
Teresi (the "Columbus Transaction"), in exchange for forgiveness by Mr.
Teresi of certain financial obligations owed to him by Paisano Publications
and/or the Company. The total amount of forgiveness is anticipated to be
approximately $600,000. Upon closing of the Columbus Transaction,
Easyriders of Columbus will be relieved of all liability under the lease for
the premises occupied by the retail operations in question. Mr. Teresi, who
owns the premises, has agreed to continue operating the business as
"Easyriders of Columbus" pursuant to a licensing agreement with Easyriders.
The Company anticipates recording a loss associated with the sale of
Easyriders of Columbus upon its consummation of approximately $1,400,000,
including a goodwill write-off of approximately $879,000.
Licensing of Easyriders Events - In March 2000, Easyriders entered into a
long-term licensing agreement with a third party, Action Promotions, Inc.
("API") pursuant to which API has been granted the exclusive right to
produce and manage events and to sell event-specific merchandise under the
F-43
<PAGE>
EASYRIDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATION FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999 (Continued)
- --------------------------------------------------------------------------------
Easyriders brand, in exchange for a commitment to make an advance purchase
of merchandise and to pay certain guaranteed and percentage-based royalties.
Assumption of the Siena Loan - As of April 13, 2000 the Company did not
possess the resources to pay off the Siena Loan. However, John Martin and
Joseph Teresi were granted a right of first refusal in connection with any
assignment of the Siena Loan. Based on this right, the Company pursued
negotiations with Mr. Teresi and Mr. Martin concerning their assumption of
the Siena Loan upon terms more favorable to the Company. These negotiations
were successful and on April 13, 2000, Mr. Martin and Mr. Teresi each paid to
Siena the sum of $137,500 and assumed the position of Siena with respect to
the Siena Loan. Concurrently, the first 100,000 warrants vested, and Mr.
Martin and Mr. Teresi agreed to make the following modifications to the Siena
Loan terms: (i) the interest rate will be reduced from 20% per annum to 13%
per annum, and (ii) provided the Siena Loan is paid off by December 31, 2000,
twenty percent (20%) of all warrants vested by and through such date will be
surrendered. These modifications are subject to the formal consent of
Nomura, which the Company is confident will be secured.
Letter of Intent for the Sale of a Restaurant - El Paso is presently in
negotiations with an independent third party concerning the sale of one of
El Paso's restaurants in Arizona. Discussions have progressed to the point
of a letter of intent which is subject to several contingencies. The
transaction contemplates that the purchaser will pay cash for a 100%
interest, and will then enter into a development agreement with El Paso
pursuant to which the purchaser will develop additional El Paso restaurants
as a franchisee of El Paso.
F-44
<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)
Date: April 13, 2000 By: /s/ William E. Prather
----------------------------------------
William E. Prather
President, Chief Executive Officer and
Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of registrant
and on the dates indicated.
Date: April 13, 2000 By: /s/ J. Robert Fabregas
----------------------------------------
J. Robert Fabregas
Chief Financial Officer, Secretary
and Executive Vice President
Date: April 10, 2000 By: /s/ John E. Martin
----------------------------------------
John E. Martin
Chairman of the Board
Date: April 13, 2000 By: /s/ Joseph Teresi
----------------------------------------
Joseph Teresi
Director
Date: April 13, 2000 By: /s/ Daniel J. Gallery
----------------------------------------
Daniel J. Gallery
Director
Date: April 13, 2000 By: /s/ Wayne L. Knyal
----------------------------------------
Wayne L. Knyal
Director
Date: April 10, 2000 By: /s/ John P. Corrigan
----------------------------------------
John P. Corrigan
Director
Date: April 11, 2000 By: /s/ Stewart G. Gordon
----------------------------------------
Stewart G. Gordon
Director
<PAGE>
EXHIBIT 10.55
STOCK PURCHASE AGREEMENT
Stock Purchase Agreement, made and entered into as of February 4, 2000 (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 February 2, 2000. 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 5:00 p.m., Pacific Standard time,
on February 4, 2000 (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 February 4, 2000 (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 February 4, 2000. 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 5:00 p.m., Pacific Standard time,
on February 4, 2000 (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
JOSEPH TERESI
2400 Laguna Drive, Fort Lauderdale, Florida 33316
April 3, 2000
Board of Directors
Easyriders, Inc.
Attention: John Martin
Chairman
567 San Nicholas, Suite 400
Newport Beach, CA 92666
Gentlemen:
This letter sets forth my proposal for resolution of the issues raised in my
letter to the Board of Directors dated February 16, 2000.
1. Recitals. This proposal is based on the following material facts:
--------
1.1 Easyriders, Inc. ("Easyriders" or the "Company") is presently
obligated to me (hereinafter, "JT") under three (3) promissory notes. These
notes (collectively, the "Contributor Notes"), and the amounts due April 1, 2000
for delinquent interest, are itemized as follows:
<TABLE>
<CAPTION>
Note Principal Maturity Past Due Interest
- ---- --------- -------- -----------------
<S> <C> <C> <C>
Short Term Subordinated $3,000,000 3-31-00 $ 456,497
Note - 10%
Subordinated Note 7% 3,575,000 9-23-03 335,875
Mirror Note 7% 5,000,000 9-23-03 482,676
Total Delinquent Interest $1,275,048
</TABLE>
1.2 JT is the owner of commercial property known as 28210-28216 Dorothy
Drive (the "Premises"). The Premises are occupied by the Company and its
subsidiary, Paisano Publications, Inc. ("Paisano") pursuant to two leases
executed by Paisano as Tenant, and JT as Landlord (the "HQ Leases"). Past due
rent under the HQ Leases as of April 1, 2000 amounts to $273,862 (the "HQ Past
Due Rent"). Paisano also owes JT the sum of $10,815 as the last installment of
rent due pursuant to the lease between Paisano and JT for the Easyriders of
Daytona Store, the assets of which have been sold to an unrelated third party.
Paisano has been relieved of all liability under this lease, except for payment
of this delinquent sum (the "Daytona Past Due Rent"). For purposes of this
proposal, the HQ Past Due Rent and the Daytona Past Due Rent, which amount to
$284,677 in the aggregate, are collectively referred to as the "Past Due Rent."
1.3 As of April 1, 2000 the Company and/or Paisano owes JT the sum of
$130,402 as reimbursement for legal fees incurred by JT in connection with
matters pertaining to the Company and/or Paisano.
<PAGE>
1.4 Exhibit A, attached hereto and by this reference made a part hereof,
sets forth the terms of a proposed acquisition by JT of the assets of Easyriders
of Columbus, Inc., a subsidiary of Easyriders, and owner of the retail store
known as Easyriders of Columbus (the "Columbus Transaction").
1.5 Exhibit B, attached hereto and by this reference made a part hereof,
sets forth the terms of a proposed Licensing and Inventory Credit Agreement
concerning the business of Paisano known as "Events" (the "Events Transaction").
1.6 The Company's subsidiary, M&B Restaurants, L.C. dba El Paso Bar-B-
Que Company ("El Paso") is presently in the process of attempting to sell its
restaurant in Glendale, Arizona (the "Glendale Store").
1.7 In connection with the Paisano Acquisition, JT entered into a
contract with Paisano (the "Consulting Agreement"), pursuant to which JT agreed
to provide certain consulting services to Paisano in addition to the services
required to be performed by JT under his employment agreement with Paisano. The
Consulting Agreement is for an indefinite term, in the discretion of the Board
of Directors. Effective June 1, 1999 JT assigned his obligations and rights
under the Consulting Agreement to Teresi Publications, Inc., a Delaware
corporation ("TPI"). In exchange for the services performed under the Consulting
Agreement, JT (or his assignee) became entitled to receive monthly payments of
$5,000 per month for October, November and December, 1998, $7,500 for January,
1999, increasing by $2,500 per month for each month thereafter through July,
1999, and $25,000 per month commencing August, 1999 and thereafter for so long
as the Consulting Agreement is in effect. All required payments through May,
1999, in the aggregate sum of $97,500 were timely paid. None of the payments
required to be made, i.e. $22,500 in July, 1999, and $25,000 per month
thereafter, have been made, as a consequence of which Paisano as of April 1,
2000 owes TPI the aggregate sum of $247,500.
2. Specific Proposals. JT hereby proposes the following:
------------------
2.1 Short Term Subordinated Note.
----------------------------
(a) It is agreed that the maturity date of the Short Term
Subordinated Note shall be changed from March 31, 2000 to March 31, 2002.
(b) It is agreed that Easyriders shall have no obligation to pay
interest on the Short Term Subordinated Note through and until March 31,
2001, at which time all interest then accrued but unpaid shall become due
and payable.
2.2 Non-Interest Payables.
---------------------
(a) The total due to JT (and/or TPI) for Past Due Rents,
reimbursement of expenses as described in section 1.3, and consulting
fees as described in section 1.7 (collectively, "Non-Interest Payables")
amounts to $662,579.
(b) The Columbus Transaction is approved, as a consequence of which
it is hereby agreed that in exchange for conveyance to JT of the assets
described therein, the total due for Non-Interest Payables shall be
reduced by the sum of $565,840, to $96,739.00, provided that such
calculations are subject to change prior to closing of the Columbus
Transaction, and shall be accounted for by the adjustment provided for in
paragraph 2.3 (f), below.
2
<PAGE>
2.3 Payments, Credits and Exchange of Debt and Interest for Common
--------------------------------------------------------------
Stock.
-----
(a) By no later than December 31, 2000, the Company shall cause JT
to be paid the sum of $750,000 in cash, provided that from the gross
proceeds realized from sale of the Glendale Store, if any, JT shall be
paid the sum of not less than $600,000. If such payment of $600,000 is
made, the total sum due by December 31, 2000 shall be reduced to
$150,000.
(b) The Events Transaction is hereby approved, as a consequence of
which the Company shall receive a credit of $750,000 to be applied as
provided below.
(c) After applying the offset to Non-Interest Payables for Columbus
as provided for in paragraph 2.2 (b), it is acknowledged that the total
due for principal on the Subordinated Note, delinquent interest under the
Contributor Notes, and the remaining Non-Interest Payables amounts to the
sum of $4,946,787 (the "Pre-Credit Total").
(d) The Pre-Credit Total shall be reduced by (i) the payments made
pursuant to paragraph 2.3 (a), upon payment, and (ii) application of the
credit provided for in paragraph 2.3 (b) upon the closing of the Events
Transaction.
(e) The Pre-Credit Total shall be reduced further by the sum of
$3,446,787 upon issuance to JT of a total of 3,356,170 shares of the
Company's common stock. It is acknowledged that such number of shares was
based upon the average closing price of the Company's common stock as
reported on the American Stock Exchange for the 30 trading days prior to
and ending on March 22, 2000, the date of the company's last meeting of
the Board of Directors.
(f) At the closing of the Columbus Transaction, the exact value of
the inventory purchased shall be fixed (the "Transfer Balance"). If the
Transfer Balance is greater than the sum of $565,840, then the excess
amount shall be credited to Company, which shall have the right to off-
set such figure against any future obligation owing to JT. If the
Transfer Balance is less than the sum of $565,840, then such shortfall
amount shall be paid to JT as an addition to the next payment of
consulting fees, or at the Company's election, in equal installments as
an addition to the next two (2) payments for consulting fees.
3. Consequences of Default
-----------------------
3.1 Any failure to pay JT within 10 business days of the date due with
respect to (a) principal and/or interest under the Contributor Notes, (b) rent
pursuant to the HQ Leases, (c) reimbursable expenses, or (d) the payments due
under paragraph 2.3 (a) above, shall constitute an Event of Default. With
respect to reimbursable expenses, the "date due" shall be the date by which the
Company normally and customarily effects reimbursement to senior executives
according to established Company policy, but in no event later that 2 weeks
after demand for reimbursement is made (provided such demand is accompanied by
all proper documentary support for the reimbursement request in question).
Furthermore, in the case of consulting fees, any failure to pay TPI on the due
date shall also constitute an Event of Default.
3.2 Subject to the provisions of paragraph 3.3, upon the occurrence of
an Event of Default, the Company shall become obligated as of the 1st business
day following the expiration
3
<PAGE>
of the cure period specified in paragraph 3.1 (the "Cure Period"), or in the
case of consulting fees, on the 1st business day following the due date, to
issue to JT shares of common stock in an amount equal to 10,000 shares for each
separate Event of Default (e.g. failure to pay each monthly installment of rent,
a quarterly interest payment, etc., plus 1,000 shares for each day that such
default remains uncured after the due date (with respect to consulting fees) or
expiration of the Cure Period as to all other Events of Default (the "Penalty
Shares").
3.3 The obligation of the Company to issue the Penalty Shares shall be
specifically conditioned upon verification by at least one member of the
Company's audit committee that an Event of Default has occurred.
4. Management Authority. JT shall become the Chief Executive Officer of
--------------------
Paisano, effective April 3, 2000, to serve thereafter in such capacity in the
discretion of the Board of Directors.
5. Further Acts. In furtherance of the foregoing, the Board of Directors
------------
shall adopt appropriate resolutions authorizing and directing its officers to
(a) create and execute all documents necessary and/or appropriate in order to
effect the foregoing, including, without limitation, amendments to promissory
notes, definitive agreements, stock issuance orders, and (b) cause Paisano and
El Paso to take such action as may be necessary and/or appropriate to effect the
foregoing, including, without limitation, Board Resolutions.
I request that the Board accept this proposal by formal resolution.
Sincerely,
/s/ Joseph Teresi
JOSEPH TERESI
4
<PAGE>
Term Sheet
Proposed Acquisition of Easyriders of Columbus by Joe Teresi
1) Transaction to be structured as a sale by Easyriders of Columbus, Inc., an
Ohio corporation ("EZR Columbus") of substantially all of its assets of to Joe
Teresi ("JT"). Easyriders, Inc. ("Easyriders") owns all of the outstanding
capital stock of EZR Columbus.
2) Assets to be sold:
. All inventory/1/, comprising both "soft" (apparel) and "hard" (motorcycle
parts, etc.), subject to exception for "stale" inventory noted below.
. All motorcycles owned by the store, subject to exclusion of the 2 Titans
as noted below/2/.
. The liquor license applicable to the store.
. All fixed assets, e.g. racks, shelves, tools.
. All rights of EZR Columbus under the existing store lease with JT - JT to
release EZR Columbus from all liability under the lease. (All rent is
current; lease continues though 9-23-00 at the rate of $ 5,000 per month,
which amounts to $210,00 in total future rent obligations.)
3) Excluded items: EZR Columbus will retain all cash on hand (estimated
$100,000), all accounts receivable (estimated $100,000, and responsibility for
all trade payables of approximately $69,000/3/).
4) Consideration to be paid by JT: Forgiveness of certain obligations owed by
Easyriders (and/or subsidiaries) to JT/4/ in an amount equal to the total of the
following:
. 100% of the cost of all non-motorcycle inventory items which are not
"stale"- i.e. identical items have sold in the store within the last 12
months.
. 10% of the cost of all "stale" inventory items, provided that at
election of Easyriders, these items may be returned to Easyriders at its
expense, in which case no credit will be given for the same.
. 100% of the cost of all motorcycles owned by the store, with the
exception of the 2 Titan motorcycles (the "Titans"). As to the Titans,
EZR Columbus can elect either of the two following options:
- ----------------------
/1/ Detailed inventory and fixed asset list is being prepared and will be an
exhibit to the final agreement.
/2/ Presently there are 20 motorcycles with an aggregate cost basis of
$316,170.
/3/ Per schedule to be prepared by Bob Davis. Estimates subject to considerable
fluctuation - numbers may change considerably prior to closing.
/4/ Schedule itemizing debt and/or obligations to be forgiven is set forth in
proposal to Board of Directors.
EXHIBIT A
<PAGE>
. Option 1: EZR Columbus will retain title to the 2 Titans (which have a
--------
cost basis of $52,330), along with responsibility for the TransAmerica
flooring debt secured by the Titans. Easyriders will be responsible for
all costs in connection with removal of the Titans from the store and
relocation of the same.
. Option 2: JT will take the Titans in exchange for an offset equal to
--------
70% of their cost (i.e. $36,631 based on cost of $52,330), provided that
EZR Columbus will retain liability for the TransAmerica flooring debt.
6) JT will enter into a standard license agreement with Easyriders Licensing,
Inc. and pursuant thereto will continue to operate the store as "Easyriders of
Columbus." (This will obligate JT to purchase $75,000 of Roadware Merchandise
per year.)
2
<PAGE>
Term Sheet
Proposed Inventory Purchase and License Agreement
Easyriders Events Division
Through the efforts of Joe Teresi, a new company to be formed by Melissa Penland
(Hot Action Sportswear) and John Green (Easyriders of Daytona) has made a
proposal to take over the management, promotion, and event-merchandise division
of Easyriders, pursuant to a two-step transaction as follows:
1) Inventory Credit.
----------------
Newco will pay the company $750,000 in cash. In addition, Joe Teresi will
forgive $750,000 of obligations owed by Easyriders, in exchange for a note
from Newco. As consideration for the cash and debt forgiveness, Easyriders
will provide Newco with a credit of $1.5 million which may be used only to
purchase Roadware merchandise at the rate of no more than $200,000 per year.
Pricing is "dealers cost" and the merchandise purchased with the credit can
only be sold by Newco at authorized events (as defined).
2) License.
-------
. License: To produce and manage Easyriders Events, to make and sell
-------
event-specific merchandise bearing the Easyriders brand at the Events,
and to sell Roadware merchandise at Events. Agreement will contain strong
brand-protection covenants.
. Royalties: Guaranteed royalty of $100,000 per calendar quarter, plus
---------
$150,000 per year (increasing by 5% per year) against 5% of gross Event
revenues- gate, event-specific merchandise.
. Term: Ten years. Option to extend for two 10-year periods, on same terms
----
as adjusted for CPI increases.
. Advertising Support: Paisano to provide 1 full page ad and 2 one-third
-------------------
page ads (all 4-color) in all issues of each applicable title, at no cost
to Licensee.
EXHIBIT B
<PAGE>
EXHIBIT 10.58
CONSENT AND WAIVER UNDER
------------------------
NOTE AND WARRANT PURCHASE AGREEMENT
-----------------------------------
CONSENT AND WAIVER, dated as of February 7, 2000 (this "Consent"), to the
-------
Note and Warrant Purchase Agreement referred to below by and among EASYRIDERS,
INC. (the "Parent"), PAISANO PUBLICATIONS, INC. (as successor by merger with
------
Easyriders Sub II, Inc.) (the "Company") and NOMURA HOLDING AMERICA INC. (the
-------
"Purchaser").
---------
W I T N E S S E T H
-------------------
WHEREAS, the Parent, the Company and the Purchaser are parties to that
certain Note and Warrant Purchase Agreement, dated as of September 23, 1998 (as
amended, supplemented or otherwise modified from time to time, the "Note
----
Purchase Agreement");
- ------------------
WHEREAS, the Parent, the Company, and Easyriders Franchising, Inc.
have entered into a Settlement Agreement and Mutual General Release (the
"Release"), a copy of which is attached as Annex 1, in respect of certain
------- -------
litigation brought by Steel Horses, Inc. and its affiliates (the "Claimants");
---------
WHEREAS, in connection with the Release, (i) the Company, and
Easyriders Franchising, Inc. have delivered a promissory note (the "Note") to
----
certain; of the Claimants which provides for certain monthly payments to be
made through February 2002 and (ii) the Parent has issued to certain of the
Claimants 400,000 shares of its Common Stock;
WHEREAS, (i) for the period ended September 30, 1999, the Company
failed to comply with its covenant to maintain maximum Leverage Ratio, minimum
Consolidated EBITDA and minimum Interest Coverage Ratio as required by Sections
10.18(c), (d)and (e), respectively, of the Note Purchase Agreement, and (ii)for
the period ended December 31, 1999, the Company failed to comply with (x) its
covenant as to maximum Operating Leases as required by Section 10.11 of the Note
Purchase Agreement, and (y) its covenant to maintain minimum Consolidated Net
Worth, maximum Leverage Ratio, minimum Consolidated EBITDA and minimum Interest
Coverage Ratio as required by Sections 10.18(b), (c), (d) and (e), respectively,
of the Note Purchase Agreement, and each such noncompliance set forth in clause
(i) and (ii) above constitutes an Event of Default (collectively, the "Financial
---------
Covenant Event of Default"); and
- -------------------------
WHEREAS, the Purchaser has agreed to consent to certain actions, which
are otherwise prohibited under the Note Purchase Agreement, in the manner, and
on the terms and conditions, provided for herein;
<PAGE>
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, the receipt, adequacy and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. Definitions. Capitalized terms not otherwise defined herein shall
-----------
have the meanings ascribed to them in the Note Purchase Agreement.
2. Consent and Waiver.
------------------
(a) Consent. (i) The Purchaser consents to (x) the delivery of the
-------
Note and (y) so long as no Default or Event of Default shall then exist or
result therefrom, the payment by the Company of scheduled principal payments in
respect of the Note (as set forth in the form of Note attached hereto).
(ii) Notwithstanding the existing Events of Default, the Purchaser
hereby consents and agrees that on the Consent Effective Date, the Company
shall be permitted to issue and sell to Purchaser Revolving Notes in an
aggregate amount not exceeding $325,000 subject to all other terms and
conditions set forth in the Note Purchase Agreement.
(b) Waiver. The Purchaser hereby waives the Event of Default
------
resulting solely from the principal payment on the Note made on or about
January 20, 2000.
3. Acknowledgment of Event of Default. The Parent and the Company
----------------------------------
hereby acknowledge and agree that (w)the Financial Covenant Event of Default has
occurred and is continuing, (x) the Purchaser has not exercised its rights and
remedies under the Note Purchase Agreement and the other Note Documents with
respect to the Financial Covenant Event of Default and that, as a result of the
Financial Covenant Event of Default, Purchaser has the immediate right to
exercise any and all rights and remedies under the Note Documents, including
without limitation the right to terminate any commitment to make further
extensions of credit, declare all or any portion of the Obligations to be
immediately due and payable, charge interest at the Default Rate and to exercise
any and all rights and remedies under the Note Documents with respect to the
Collateral, (y) the current non-exercise of rights, remedies, powers and
privileges by the Purchaser under the Note Documents with respect to the
Financial Covenant Event of Default, and any future such non-exercise thereof
with respect to the Financial Covenant Event of Default (except to the extent as
evidenced by a written instrument, executed and delivered in accordance with the
provisions of Section 14.1 of the Note Purchase Agreement), shall not be, and
shall not be construed as, a waiver of any of the Purchaser's rights, remedies,
powers or privileges, and (z) the Purchaser has reserved its rights, and has the
right, to fully invoke any and all of its rights, remedies, powers or privileges
under the Note Purchase Agreement and all other Note Documents at any time it
deems appropriate in respect of the Financial Covenant Event of Default. This
Agreement shall constitute a Note Document. The breach by Parent and Company of
any representation, warranty, covenant or agreement in this Agreement shall
constitute an Event of Default hereunder and under the other Note Documents.
-2-
<PAGE>
4. Representations and Warranties. To induce the Purchaser to
------------------------------
enter into this Consent, each of the Parent and the Company, jointly and
severally, hereby represents and warrants to the Purchaser that:
(a) Corporate Power. The execution, delivery and performance of this
---------------
Consent are within its corporate power and have been duly authorized by all
necessary corporate and shareholder action.
(b) Due Execution and Delivery. This Consent has been duly executed and
--------------------------
delivered by or on behalf of each of the Parent and the Company.
(c) Binding Effect. This Consent constitutes a legal, valid and
--------------
binding obligation of each of the Parent and the Company enforceable against
such Person, in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' rights generally and by general equitable
principles (whether enforcement is sought by proceedings in equity or at law).
(d) No Defaults. Except for the Financial Covenant Event of
-----------
Default, no Default or Event of Default has occurred and is continuing after
giving effect to the waivers set forth in Section 2(b)hereof.
(e) Representations and Warranties True. The representations and
-----------------------------------
warranties of the Parent and the Company contained in the Note Purchase
Agreement and each other Note Document (including without limitation the Note
Documents delivered pursuant to the Consent) shall be true and correct on and as
of the Consent Effective Date with the same effect as if such representations
and warranties had been made on and as of such date, except that any such
representation or warranty which is expressly made only as of a specified date
need be true only as of such date.
5. Effectiveness. This Consent shall become effective as of
-------------
February 7, 2000 (the "Consent Effective Date") only upon satisfaction in full
----------------------
in the judgment of the Purchaser of each of the following conditions on or prior
to February 7, 2000:
(a) Consent. The Purchaser shall have received four (4) original
-------
copies of this Consent duly executed and delivered by the Parent and the
Company.
(b) Representations and Warranties True. The representations and
-----------------------------------
warranties of the Parent and the Company contained in this Consent shall be
true and correct on and as of the Consent Effective Date.
(c) Proceedings Satisfactory. All corporate and other proceedings
------------------------
taken or to be taken in connection with the transactions contemplated hereby
and all documents incident thereto shall be reasonably satisfactory in form and
substance to the Purchaser and its special counsel, and the Purchaser and its
special counsel shall have received all such counterpart originals or certified
or other copies of such documents as
-3-
<PAGE>
they may reasonably request, including certificates as to the incumbency and
signatures of each of the officers of the Parent and the Company who shall
execute this Consent on behalf of such Person.
(d) Fees. On or before the Consent Effective Date, the Company shall
----
have paid to the Purchaser all costs and expenses owing in connection with the
preparation of this Consent (including, without limitation, any legal fees and
expenses).
(e) Capital Contribution. Parent shall have received from Martin and
--------------------
Teresi not less than $500,000, in the aggregate, in cash as a contribution to
Parent's common equity, on terms and conditions satisfactory to Purchaser.
(f) Release; Notes. The Purchaser shall have received from the
--------------
Company true and correct copies of the Release and the Note.
6. No Other Amendments/Waivers. The Note Purchase Agreement shall be
---------------------------
unmodified and shall continue to be in full force and effect in accordance with
its terms. In addition, except as expressly provided in Section 2 hereof, this
Consent shall not be deemed a consent to any action under, or a waiver of any
term or condition of, the Note Purchase Agreement or any Note Document and shall
not be deemed to prejudice any right or rights which the Purchaser may now have
or may have in the future under or in connection with the Note Purchase
Agreement or any Note Document or any of the instruments or agreements referred
to therein, as the same may be amended from time to time.
7. Outstanding Indebtedness; Waiver of Claims. Parent and Company
------------------------------------------
hereby acknowledge and agree that (i) as of February 1, 2000 the aggregate
outstanding principal amounts of the Term Notes and Revolving Notes are
$16,295,588 and $4,375,000, respectively; and that such principal amounts are
payable pursuant to the Note Documents, without defense, offset,
withholding, counterclaim or deduction of any kind (all of which are hereby
waived by Parent and Company) and (ii) all of the Obligations are secured by a
first priority security interest in all of the Collateral, and such security
interest remains in full force and effect. Each of Parent, Company and each
other Credit Party executing this Consent hereby acknowledges that it has no
claims against Purchaser, the participants and their respective employees,
agents, representatives, consultants, attorneys, fiduciaries, servants,
officers, directors, partners, predecessors, subsidiary corporations, parent
corporations and related corporate divisions and their respective successors and
assigns (all of the foregoing being the "Indemnified Person"), and hereby
------------------
waives, releases, remises and forever discharges Purchaser and each other
Indemnified Person from any and all claims of any and every character, known or
unknown, direct and/or indirect, at law or in equity, of whatsoever kind or
nature, whether heretofore or hereafter arising, for or because of any matter or
things done, omitted or suffered to be done by any Indemnified Person prior to
and including the Consent Effective Date, and in any way directly or indirectly
arising out of or in any way connected to the Note Purchase Agreement, this
Consent or any other Note Document.
-4-
<PAGE>
8. GOVERNING LAW. THIS CONSENT SHALL BE GOVERNED BY, CONSTRUED AND
-------------
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
9. Counterparts. This Consent may be executed by the parties hereto
------------
on any number of separate counterparts and all of said counterparts taken
together shall be deemed to constitute one and the same instrument.
[Signature pages follow.]
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Consent to be
duly executed and delivered as of the day and year first above written.
EASYRIDERS, INC.
By: /s/ J. Robert Fabregas
---------------------------------
Name: J. Robert Fabregas
Title: CHIEF FINANCIAL OFFICER
PAISANO PUBLICATIONS, INC. (as
successor by merger with EASYRIDERS
SUB II, INC.)
By: /s/ J. Robert Fabregas
---------------------------------
Name: J. Robert Fabregas
Title: EXECUTIVE VICE PRESIDENT
NOMURA HOLDING AMERICA INC.
By: /s/ Joseph R. Schmuckler
---------------------------------
Name: Joseph R. Schmuckler
Title: EXECUTIVE MANAGING DIRECTOR
Each of the undersigned hereby acknowledges
and consents to the consents and waivers to
the Note Purchase Agreement affected by this
Consent and hereby confirms and agrees that
its obligations under the Note Documents
shall continue without any diminution thereof
and shall remain in full force and effect
without amendment or modification on and
after the effectiveness of this Consent.
<PAGE>
ACKNOWLEDGED, CONSENTED and
AGREED to as of the date first written above.
EASYRIDERS OF COLUMBUS, INC.
By: /s/ J. Robert Fabregas
-----------------------------
Name: J. Robert Fabregas
Title: Secretary
EASYRIDERS FRANCHISING, INC.
By: /s/ J. Robert Fabregas
-----------------------------
Name: J. Robert Fabregas
Title: Secretary
TERESI, INC.
By: /s/ J. Robert Fabregas
-----------------------------
Name: J. Robert Fabregas
Title: Secretary
BROS CLUB, INC.
By: /s/ J. Robert Fabregas
-----------------------------
Name: J. Robert Fabregas
Title: Secretary
ASSOCIATED RODEO RIDERS ON WHEELS
By: /s/ J. Robert Fabregas
-----------------------------
Name: J. Robert Fabregas
Title: Secretary
<PAGE>
EXHIBIT 10.59
AGREEMENT
THIS AGREEMENT is made by and among Paisano Publications, Inc., a
California corporation ("Paisano"), Joseph Teresi, an individual ("Teresi") and
John Green, an individual ("Green"), as of the "Effective Date" specified in
section 6 below.
1. Recitals. This Agreement is made with reference to the following material
--------
facts:
1.1 Paisano, a wholly-owned subsidiary of Easyriders, Inc. ("Easyriders"),
is the publisher of various magazines sold under the titles ("Titles")
"Easyriders," "Biker," "Tattoo," "V-Twin," "VQ," "In the Wind," and others
(collectively, the "Magazines"). Paisano also sells apparel and other
merchandise under the trade names "Easyriders," "Roadware," and other brands,
via a direct-mail catalogue and a chain of retail stores ("Merchandise").
Easyriders is in the process of introducing a new program pursuant to which it
intends to offer licenses to individuals and firms ("Licensees") for the purpose
of operating retail stores under the "Easyriders" brand name (the "License
Program").
1.2 Paisano presently operates a retail business (the "Retail Business")
under the trade name "Easyriders of Daytona," located at 605 Main Street,
Daytona, Florida (the "Premises"). Paisano also operates at the Premises a
business (the "Fulfillment Business") of fulfilling customer orders to purchase
back issues of previously-released Magazines ("Back Issues"), which orders are
generated through advertising in the Titles. The Retail Business and the
Fulfillment Business are hereinafter collectively referred to as the
"Businesses").
1.3 In order to operate the Businesses, Paisano has leased the Premises from
Teresi pursuant to a written lease dated December 31, 1994, a copy of which is
attached hereto as Exhibit A and by this reference made a part hereof (the
"Lease").
1.4 The assets of the Businesses consist of (a) Paisano's rights under the
Lease, and (b) the inventory, furniture, fixtures and other assets presently
located at the premises (collectively, the "Assets"). Paisano hereby represents
and warrants to Green that it is the sole and exclusive owner of the Assets.
1.5 Paisano intends to close the Retail Business and desires to sell to
Green the Assets and to grant to Green the right to manage fulfillment for the
Fulfillment Business, and Green desires to purchase the same and act in such
capacity, upon the terms and conditions hereinafter stated.
2. Purchase and Sale of Assets.
----------------------------
2.1 In consideration for the performance of Paisano as set forth below,
concurrently with execution of this Agreement, Green shall cause the sum of
Seventy Five Thousand Dollars ($75,000) to be paid to Paisano (the "Purchase
Consideration"), via such means of payment as Paisano shall have specified in
writing.
2.2 Provided Paisano shall have first received full payment of the Purchase
Consideration, (a) Paisano hereby sells, transfers, and conveys to Green all of
Paisano's right, title and interest in and to the Assets, (b) Green hereby
assumes responsibility for performance of all of the obligations of Tenant under
the Lease, (c) Teresi hereby releases Paisano from any and all liability under
the Lease as provided further in section 4.2, and (d) Green is hereby granted
the right to operate in the Premises the Fulfillment Business as provided in
section 3 hereof. In order
<PAGE>
to confirm and evidence such conveyance, (i) Paisano shall, within 5 business
days following the Effective Date, deliver to Green a properly drafted and
executed Bill of Sale, (ii) Teresi and Green shall forthwith execute such
documents as may be necessary to confirm that the Lease has been assumed by
Green.
3. Fulfillment Business.
--------------------
3.1 Obligations of Paisano. Paisano shall:
----------------------
(a) Continue to offer its readers Back Issues, via advertising in its
Magazines and (at Paisano's election) its Website on the Internet. Such
advertising shall offer readers an opportunity to order Back Issues via a
toll-free telephone number, completion and return of a printed form appearing
in the Magazines, and (at the election of Paisano) e-mail via the Internet.
(b) Provide in each edition of each Title it publishes a full color
advertisement of not less than 1/2 page, in connection with which Green
shall have reasonable approval rights.
(c) Cause all customer orders to be collected, received and forwarded to
Green for fulfillment.
(d) Cause its printer to send to Green, at the expense of Paisano, such
quantities of Back Issues as Paisano deems appropriate. At present, its
standing order for Back Issues is as follows:
Quantity Title
-------- -----
150 Biker
250 Tattoo
175 Tattoo Savage
150 American Rodder
600 Easyriders
100 Airbrush Art + Action
175 In the Wind
150 VQ
30 Metal Hammer
150 Tattoo Flash
50 Inked
(e) Permit Green to purchase Merchandise as provided in section 3.3.
3.2 Obligations of Green. Green shall:
--------------------
(a) Do everything necessary to collect all revenues in connection with
customers order for Back Issues, and promptly upon receipt, remit 100% of
such revenues to Paisano pursuant to the specific instructions of Paisano.
(b) Safeguard and store all Back Issues (including those presently in
the Premises, as itemized on Exhibit B, incorporated herein by this
reference), and otherwise do everything necessary to collect, process and
fulfill, at his sole cost and expense and in a commercially reasonable
manner, all customer orders for Back Issues.
2
<PAGE>
3.3 Merchandise Credit. Of the total revenues collected on a monthly
------------------
basis as a result of the Fulfillment Business, the dollar sum equal to two-
thirds (2/3) thereof shall represent a credit which may be redeemed for
Merchandise (the "Credit"). The terms of the Credit shall be as follows:
(a) Not later than 10 days following the end of each calendar month,
commencing February 10, 2000, Paisano shall deliver to Green a report
specifying the amount of revenues collected and remitted in the previous
month ("Reported Revenues"). Upon receipt of such report, Green shall be
deemed to own the right to acquire from Paisano, at the purchase price set
forth below, that amount of Merchandise equal to two-thirds of Reported
Revenues.
(b) The purchase price of the Merchandise shall be the "Dealer's Price"
as set forth in Paisano's dealer catalogue, as the same is published from
time-to-time, provided that (i) as to routine, standard orders (i.e. not
close-outs or bulk dispositions), the price charged to Green shall not be
greater than that charged to any other wholesale buyer, and (ii) as to close-
outs and bulk sales of discontinued items, the price charged to Green shall
be 2/3ds of Paisano's cost (subject to mutual negotiation in good faith as to
alternate terms).
(c) The Credit may be used only to acquire Easyriders Merchandise, FOB
Paisano's warehouse in Agoura Hills, CA.
(d) In order to exercise the Credit, Green shall deliver to Paisano a
purchase order specifying the items to be acquired. Paisano agrees to
maintain reasonable levels of inventory, in its discretion, and shall have a
commercially reasonable amount of time to fulfill orders. Notwithstanding
the foregoing, during any single month Paisano shall not be obligated to fill
orders amounting to more than two months' worth of Credits.
4. Other Covenants of the Parties.
------------------------------
4.1 Green shall have no right to conduct a business at the Premises under
the name "Easyriders," and hereby disclaims any and all rights to use such name
in commerce, provided that upon implementation by Easyriders, Inc. of the
Licensing Program, Green shall have the option of becoming a Licensee at the
Premises. In such event, Green's purchase of the Assets shall be credited
toward satisfaction of any and all minimum merchandise purchase commitments
required of Licensees. Such option shall be contingent upon Green entering into
Easyriders' standard-form license agreement and otherwise meeting all other
then-applicable standard conditions of becoming a Licensee. Such option must be
exercised, if at all, within 6 months following implementation of the Easyriders
License Program.
4.2 Green agrees to maintain appropriate insurance insuring all Back Issues
against loss, damage or destruction in an amount of not less than $50,000, and
to name Paisano as an "additional insured" on all such coverage. Green further
agrees to issue to Paisano, at Paisano's request, a certificate of insurance
confirming such coverage.
4.3 Teresi hereby releases Paisano, and all of its officers, directors,
employees and agents from any and all liabilities, costs, damages and claims of
any kind arising out of the Lease, except for the obligations of Paisano to pay
rent and all other monies due under the Lease through December 15, 1999, and in
connection with such release hereby waives the application of California Civil
Code section 1542, which provides:
3
<PAGE>
"A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the release,
which if known by him, must have materially affected his settlement with
the debtor."
4.4 The Assets are conveyed hereby "as is." Paisano makes no
representations as to their quality, or fitness for use, merchantability or
otherwise, and makes no claims as to what items are included in the physical
inventory and property, other than that this conveyance includes only those
items physically in the Premises as of the Effective Date.
5. Assignment. Neither Paisano nor Green may assign, transfer or delegate all
----------
or any of the rights and obligations created by this Agreement without the
consent of the other party, which consent shall not unreasonably be withheld.
6. Effective Date. The effective date of this Agreement is 12:01 a.m. Los
--------------
Angeles Time on the day on which both parties hereto have executed the same.
7. General Provisions.
------------------
7.1 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California. Any action brought by any
party arising out of this Agreement shall be brought in a court of competent
jurisdiction in the County of Los Angeles, California, and the parties hereby
consent to the jurisdiction of such court for purposes of adjudicating any and
all disputes arising hereunder.
7.2 Further Assurances. Each party to this Agreement shall execute all
------------------
instruments and documents and take all actions as may be reasonably required to
effectuate this Agreement.
7.3 Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed an original and all of which together shall constitute one
document.
7.4 Time of Essence. Time and strict and punctual performance are of the
---------------
essence with respect to each provision of this Agreement.
7.5 Attorney's Fees. In the event any dispute arises between any of the
---------------
parties hereto to enforce or interpret the provisions of this Agreement, the
prevailing party in such action shall be entitled to recover from the other
party all reasonable costs, expenses, attorney's fees and costs actually
incurred relating to or arising from such action.
7.6 Modification. This Agreement may be modified only by a contract in
------------
writing executed by the party(ies) to this Agreement against whom enforcement of
such modification is sought.
7.7 Headings. The headings of the sections of this Agreement have been
--------
included only for convenience, and shall not be deemed in any manner to modify
or limit any of the provisions of this Agreement, or be used in any manner in
the interpretation of this Agreement.
7.8 Prior Understanding. This Agreement contains the entire agreement
-------------------
between the parties to this Agreement with respect to the subject matter of this
Agreement, is intended as a final expression of such parties' agreement, is
intended as a complete and exclusive statement of the terms of such agreement,
and supersedes all negotiations, stipulations, understandings, agreements,
representations and warranties, if any, with respect to such subject matter,
which precede the execution of this Agreement.
4
<PAGE>
7.9 Interpretation. Whenever the context so requires in this Agreement, all
--------------
words used in the plural (and vice versa), each gender shall be construed to
include any other genders, and the word "person" shall be construed to include a
natural person, a joint venture, a trust, an estate or any other entity. This
Agreement shall be deemed to have been created jointly by all of the parties and
shall be interpreted the same way as to all parties, without regard to which of
them may have actually drafted the instrument.
7.10 Partial Invalidity. Each provision of this Agreement shall be valid
------------------
and enforceable to the fullest extent permitted by law. If any provision of
this Agreement or the application of such provision to any person or
circumstance shall, to any extent, be invalid or unenforceable, the remainder of
this Agreement, or the application of such provision to persons or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected by such invalidity or unenforceability, unless such provision or such
application of such provision is essential to this Agreement.
7.11 Successors-in-Interest and Assigns. Subject to any restriction on
----------------------------------
transferability contained in this Agreement, this Agreement shall be binding
upon and shall inure to the benefit of the successors-in-interest and permitted
assigns of each party to this Agreement. Nothing in this Paragraph shall create
any rights enforceable by any person not a party to this Agreement, except for
the rights of the successors-in-interest and assigns of each party to this
Agreement, unless such rights are expressly granted in this Agreement to other
specifically identified persons.
7.12 Waiver. Any waiver of a default under this Agreement must be in
------
writing and shall not be a waiver of any other default concerning the same or
any other provision of this Agreement. No delay or omission in the exercise of
any right or remedy shall impair such right or remedy or be construed as a
waiver. A consent to or approval of any act shall not be deemed to waive or
render unnecessary consent to or approval of any other or subsequent act.
7.13 Notices. Notices under this agreement shall be deemed effective upon
-------
receipt, if delivered by messenger, facsimile or overnight courier, and if by
regular US mail, on the 3rd day following deposit in the US mail, postage
prepaid. All notices shall be sent as follows:
If to Paisano: With a copy to:
-------------- ---------------
Paisano Publications, Inc. Mark Dodge, Esq.
Attention: Robert Davis Easyriders, Inc.
28210 Dorothy Drive 28210 Dorothy Drive
Agoura Hills, CA 91301 Agoura Hills, CA 93101
Facsimile: (818) 889-4726 Facsimile: (818) 735-6531
If to Green: If to Teresi:
------------ -------------
Bottom Line Marketing Joseph Teresi
530 Tymber Creek 2400 Laguna Drive
Ormond Beach, FL 32174 Ft. Lauderdale, FL 33316
Facsimile: (904) 615-8267 Facsimile: (954) 462-0223
5
<PAGE>
7.14 In the event of breach of this Agreement by Green, Paisano shall be
entitled to exercise any and all remedies at law or in equity available to it
pursuant to the laws of the State of California.
7.15 Effectiveness. This Agreement shall become effective as of the
-------------
Effective Date, as defined herein.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the
Effective Date.
PAISANO PUBLICATIONS, INC.
By:/s/ J. Robert Fabregas
---------------------------
Name: J. Robert Fabregas
------------------------
Title: EVP and Secretary /s/ John Green
------------------------ ------------------------
JOHN GREEN
Date: December 15, 1999
-------------------------
Date: 12-15-99
-------------------------
/s/ Joseph Teresi
- ------------------------------
JOSEPH TERESI
Date: 12/15/99
- ------------------------------
ACCEPTANCE AND AGREEMENT BY EASYRIDERS, INC.:
Section 4.1 of the foregoing Agreement imposes upon Easyriders, Inc. certain
obligations with respect to the Easyriders License Program (as defined in
Section 1.1). Easyriders, Inc. hereby accepts and agrees to perform the
obligations of it as set forth in said Section 4.1.
Easyriders, Inc.
By: /s/ J. Robert Fabregas
-----------------------
Name: J. Robert Fabregas
----------------------
Title: EVP and CFO
---------------------
6
<PAGE>
EXHIBIT 10.60
EVENTS LICENSE AND INVENTORY SALES AGREEMENT
THIS AGREEMENT ("Agreement") is made by and between Teresi, Inc., a
California corporation doing business as Easyriders Events at 28210 Dorothy
Drive, Agoura Hills, California 91301 ("Easyriders") and Paisano Publications,
Inc., a California corporation ("Paisano") on the one hand (collectively,
"Licensor"), and Action Promotions, Inc. ("Licensee"), as of the "Effective
Date" specified in section 12 below.
1. Recitals This Agreement is made with reference to the following material
--------
facts:
1.1 Paisano is the publisher of various magazines sold under the titles
("Titles") "Easyriders", "Biker", "Tattoo", "V-Twin", "VQ", "In the Wind", and
others (collectively, the "Magazines").
1.2 Paisano regularly sells and distributes apparel, accessories and other
merchandise (collectively, "Easyriders Merchandise") under various brand names,
including one or more Titles (the "Brand Names"). The Titles and Brand Names,
and all trademarks, logos, names, likenesses, visual representations and
commercial symbols related thereto which are the subject of this agreement are
listed on the attached Schedule 1.2, and, are hereinafter referred to as the
"Symbols".
1.3 Easyriders regularly organizes and produces, on an annual basis, a
series of consumer-oriented entertainment events (the "Events"). The Events are
marketed under one or more of the Symbols, and feature, among other things, the
sale of Easyriders Merchandise. In addition, Easyriders regularly organizes and
hosts a company pavilion (the "Easyriders Pavilion") at motorcycle industry
shows attended by both consumers and dealers.
1.4 Licensee desires to acquire the right to use the Symbols for certain
commercial purposes, namely to produce and manage the Events, and Licensor
desires to grant such rights to Licensee subject to the terms and conditions of
this Agreement.
1.5 Licensee further desires to insure a supply of Easyriders Merchandise
for re-sale at Events, the Easyriders Pavilion, other motorcycle themed
festivals and events as well as other authorized retail outlets, and Paisano
desires to sell such merchandise to Licensee, as provided herein.
2. License Subject to Licensor's right to terminate under Section 6,
-------
Licensor hereby grants to Licensee the following limited rights, which shall be
exclusive to Licensee during the Term, as provided below:
(a) To use the Symbols for the purpose of pursuing, under its
management and control, the business established by Licensor of
organizing and producing the Easyriders Events, marketed under the
name of the Symbols.
(b) To use the Symbols in conjunction with the sale, development,
marketing and distribution of Event-specific/Event-identified
Easyriders Merchandise which incorporates
<PAGE>
the name of such Event ("Event Merchandise"). The term "Event
Merchandise" shall not include any right to create, develop, promote,
market, license, sell or otherwise distribute publications in any
form, including but not limited to magazines, newsletters, books,
posters, calendars, videos, radio or televison programs, Internet
content, movies or any other expression or form of media publication.
(c) To enjoy all of the foregoing rights on a worldwide basis during
the Term, subject to any laws, regulations or other restrictions or
limitations arising from the intellectual property rights of third
parties.
3. Covenants Concerning License
----------------------------
3.1 Licensee shall have no right to directly or indirectly sell, market or
distribute Events Merchandise through any distribution channel other than at
Events, the Easyriders Pavilion, other motorcycle themed festivals and events as
well as such retail outlets as may specifically be approved by Licensor pursuant
to the provisions of Section 5.2. Licensor shall also have the right to pre-
approve and inspect all merchandise designs and samples for quality control and
other legitimate commercial purposes, provided, however, if Licensor does not
respond within 5 business days after receiving such merchandise designs and
sample(s), Licensor shall be deemed to have given it consent. Licensor, by
Licensor's authorized representatives, may at any time enter upon Licensee's
premises to determine whether the Events Merchandise is in accordance with
specifications approved by Licensor.
3.2 Licensor agrees to consider in good faith all proposals advanced by
Licensee to market and sell Events Merchandise through other distribution
channels but shall have no obligation to consent to, approve or compensate
Licensee for any such proposal absent a new written agreement containing terms
and conditions acceptable to both parties. Further, Licensor is not bound to
enter an agreement with Licensee and is free to evaluate and enter into an
agreement concerning such matters with another party without any obligation to
Licensee concerning the same.
3.3 In connection with the foregoing grant of rights and inconsideration of
Licensee entering into this Agreement, Paisano shall provide the following
advertising and editorial support to the Licensee's production of the Events:
1 full page and 2 one-third pages of 4-color ads (all content
provided by Licensee) in each issue of every related title
Paisano continues to publish. In this context, "related" means
the Paisano title or titles reasonably associated with the Event
in question, e.g. Easyriders for motorcycle shows and Tattoo for
tattoo-theme Events.
At Licensee's sole cost (including reimbursement for incremental
materials and labor incurred by Licensor), the right to put in
Regional inserts ("bind-
2
<PAGE>
ins" or "blow-ins") to support Events, in Licensee's discretion.
There shall be no charge, however, for the right to place these
inserts into magazines.
At Licensee's sole cost use of Licensor's third party mailing
house (which holds Licensor's confidential mailing list) solely
for purposes of mailing materials to Licensor's subscribers
promoting and marketing the Events. Licensor shall make no charge
to Licensee for Licencee's use of Licensor's confidential mailing
list.
Up to 2 editorial articles per year for each "category" of event,
e.g. Bike Show, Rodeo, Rock n' Blues, Tattoo.
3.4 In connection with the foregoing grant of rights, Licensee shall be
entitled to the use during the Term of all tangible assets of Licensor allocated
to Events. A list of the equipment related utilized in connection with the
Event("Event Equipment") is itemized on Exhibit "A" hereto. Licensee accepts
such Event Equipment on an "as is" basis and Licensee takes full responsibility
for the cost of maintenance and protection of same.
3.5 It is understood and agreed that the foregoing grant of rights does not
apply to Easyriders Pavilions, including without limitation Daytona Bike Week,
Daytona Biketoberfest, Myrtle Beach and Sturgis, nor does such grant apply to
the Eagles Eye trade show which Licensor plans to sponsor and launch as an
annual event commencing in February 2001. Licensor agrees, however, that it will
permit Licensee to submit a bid to produce each Easyriders Pavilion, and will
negotiate in good faith with Licensee for the purpose of attempting to reach an
agreement with Licensee in connection therewith. Licensee shall be permitted to
sell Easyriders Merchandise and Event Merchandise in each Easyriders Pavilion,
provided the same is permitted by the venue in question. In this regard,
Licensor agrees to permit Licensee to set-up five (5) 10' x 10' areas for
purposes of selling Easyriders' Merchandise and Event Merchandise.
3.6 The parties acknowledge that the nature and quality of the Events, and
the number of Events per year, is of material interest to Licensor. Accordingly,
Licensee agrees that for each calendar year of the Term, it will notify Licensor
as soon as practicable of its schedule and plan for the Events of each ensuing
year, and allow Licensor an opportunity to reasonably consult with Licensee
concerning such plan.
3.7 During the Term, Licensee agrees to maintain in full force and effect,
with respect to each Event, the following minimum levels of insurance coverage.
As to Events: A policy of general and comprehensive liability
coverage, insuring against all manner of injuries and damages
arising out of the Events, in the sum of not less than $2 million
for each occurrence. Such policy or policies shall cover Licensee
and shall name Easyriders and Paisano as additional insureds.
3
<PAGE>
As to Event Equipment: A comprehensive policy providing coverage
for loss or damage to the Event Equipment as identified on
Exhibit "A", for the full replacement value thereof, which policy
shall name Easyriders and Paisano as additional insured.
All other insurance and permits required under federal, state and
local laws to operate the business of Licensee referred to
herein.
3.8 Should Licensor develop and launch any new Paisano magazine title it
shall notify Licensee and offer Licensee an option to include such new title as
a Symbol covered by the terms and conditions of this Agreement. Such offer shall
be in writing, and shall be exercisable for a period expiring 21 days following
the delivery of such notice. If Licensee fails to respond within such period, or
notifies Licensor of its intention not to exercise such option within such
period, then such option shall expire, and Licensor shall be free to offer such
new magazine title to any person or entity for the purpose of developing and
producing an event corresponding to the theme and/or title of such new
publication, or to itself develop and/or produce such an event.
3.9 Licensee shall indicate Licensor's ownership of the Symbols whenever
Licensee uses the Symbols in connection with the advertising, manufacture, or
sale of the Events Merchandise. Licensor will furnish Licensee with samples of
Licensor's trade dress and Labels, and Licensee will use only such trade dress
and labels in connection with the Events Merchandise unless otherwise directed
in writing by Licensor.
3.10 Licensee will comply with all laws applicable to the Symbols,
including compliance with marking requirements. Should Licensee fail to perform
Licensee's obligations under this Section, Licensor may perform them on
Licensee's behalf, without notice to Licensee and at Licensee's sole cost and
expense.
3.11 Although none of the rights granted to Licensee by this Agreement can
be assigned to others without Licensor's express written consent, Licensee is
permitted hereby to cause the Events Merchandise to be manufactured by others
for Licensee. In such event, the agreements between Licensee and Licensee's
subcontractors shall be subject to Licensor's written approval, which consent
shall not be unreasonably withheld, and shall provide that Licensor may enter
upon Licensee's subcontractors' premises to determine whether the Events
Merchandise is being produced in accordance with the terms and conditions of
this Agreement. Licensor agrees that Hot Action Sportswear, Inc. is pre-
approved as a subcontractor to manufacture all Events Merchandise as provided
for under this agreement.
3.12 Licensee acknowledges Licensor's exclusive right, title, and interest
in and to the Symbols and will not do anything that will in any way impair or
tend to impair any part of Licensor's right, title, and interest. In connection
with the use of the Symbols, Licensee will not represent that Licensee has any
ownership in the Symbols or in its registration. Use of the Symbols by Licensee
4
<PAGE>
will not create any right, title, or interest in or to the Symbols in favor of
Licensee. Licensee will not at any time, either during the term of this
Agreement or after it has ended, adopt or use any work or mark that is similar
to or confusing with the Symbols, without Licensor's prior written consent.
Further, Licensee agrees that in creating, developing, promoting, advertising,
marketing, producing and operating the Events it will not, by act or omission,
do anything or cause anything to be done directly or indirectly which will
reflect adversely upon Licensor or any of the Symbols, adversely affect the
reputation and goodwill of Licensor, or otherwise cause damage or harm to
Licensor or any affiliate thereof.
3.13 Licensee agrees to permit Licensor the right to set up and staff up to
five (5) 10' x 10' areas at each Event for the purpose of marketing the
publications and services of Licensor other than Easyriders Merchandise,
including without limitation, Easyriders Franchising (or any successor thereto),
Bros Club and magazine subscriptions. Licensor shall be responsible for all cost
related to the set up and operation of such sites. Licensor shall not sell,
offer for sale or distribute any Events Merchandise at such sites, or any
merchandise which is similar to Events Merchandise.
4. Royalties.
---------
4.1 In exchange for the foregoing grant of exclusive rights, Licensee shall
pay to Licensor the following consideration:
(a) A "Fixed Base Royalty" fee of Four Million Dollars ($4,000,000),
payable at the rate of One Hundred Thousand Dollars ($100,000) per calendar
quarter (or portion thereof), commencing September 1, 2000, and thereafter
for each of the 39 ensuing quarters (provided the Effective Date is no
later than the date provided for in section 5.1.
(b) Subject to the provisions of subsection 4.1 (c) below, an
additional yearly royalty (the "Gross Revenue Royalty") equal to the
greater of (i) $150,000 per year (pro-rated for calendar year 2000 in
----------
accordance with the Effective Date) (the "Minimum Royalty"), or (ii) five
percent (5%) of the Gross Event Revenue per year. "Gross Event Revenue"
shall include gate revenues, revenue from the sale of Event Merchandise,
all revenues from concessions, all ticket sales, and all other Event-
related revenues, excluding the sale of Easyriders Merchandise purchased at
dealer price, and sales tax collected under the applicable state law. Five
percent (5%)of the Gross Event Revenue shall be known as the "Percentage
Royalty." The Gross Revenue Royalty shall be payable quarterly commencing
ninety (90) days after Effective Date. If the Percentage Royalty is less
than the Minimum Royalty, only the Minimum Royalty shall be due. If the
Percentage Royalty is greater than the Minimum Royalty, Licensee shall pay
(i) the Minimum Royalty, plus (ii) an amount equal to the difference
between the Minimum Royalty and the Percentage Royalty.
(c) For purposes of subsection 4.1 (b) above, the Minimum Royalty
shall increase by a factor of 5% per year for every year thereafter during
the Term. For
5
<PAGE>
example, and by way of illustration only, the Minimum Royalty will be
$157,500 for Year 2, $165,357 for Year 3, and so on.
4.2 The Fixed Rate Royalty and Gross Revenue Royalty will hereinafter
collectively be known as License Royalty.
4.3 All such consideration due Licensor is due no later than 30 days after
the close of each respective quarterly period under this Agreement and interest
shall accrue upon any unpaid balance thereon at an annual rate of twelve percent
(12%) until such unpaid balance has been paid. Such rate of interest shall
increase to fifteen percent (15%) on any unpaid balance remaining outstanding in
excess of sixty (60) days.
4.4 Along with each royalty payment, Licensee shall provide Licensor a
statement ("Financial Report") showing the number of units of the Event
Merchandise sold by Licensee during the period covered by the royalty payment,
as well as Licensee's gross receipts for those sales and the computation of
royalties due to Licensor. Such Financial Report will be executed by the
President or Chief Financial Officer of Licensee and will contain a
representation that the financial information contained therein is to their best
knowledge and belief a true and accurate accounting of royalties due Licensor
for the quarter just ended.
4.5 Upon reasonable notice and at reasonable intervals, Licensor or its
auditors shall have the right to examine the books and records of Licensee at
Licensor's cost, provided, however, that if any such audit shows an underpayment
to Licensor of more than 5% as to any applicable royalty payment, Licensee shall
reimburse Licensor for the cost of such audit.
5. Licensee's Pre-Payment for Easyriders Merchandise and related Credit Terms.
---------------------------------------------------------------------------
5.1 Upon delivery to Licensor by no later than April 17, 2000 of (i) cash
in the sum of not less than $750,000 and (b) other consideration acceptable to
Licensor having a value of $750,000 as determined by Licensor, the Licensee
shall be deemed to own the right to a credit from Paisano towards the sale of
Easyriders Merchandise from Paisano to Licensee, or alternatively, as a credit
toward the License Royalty Fees (the "Credit"), in the sum of $1,500,000. The
Credit shall be applied first against the purchase of Easyriders Merchandise
supplied by Paisano to Licensee, and secondly, and only to the extent that
Paisano is unable to supply Easyriders Merchandise, the Credit shall be applied
against Licensee's License Royalty, as described in paragraph 4.
(a) The purchase price of the Easyriders Merchandise shall be the
"Dealer's Price" as set forth in Paisano's dealer catalogue, as the same is
published from time-to-time, provided that (i) as to routine, standard
orders (i.e., not close- outs or bulk dispositions), the price charged to
Licensee shall not be greater than that charged to any other wholesale
buyer, and (ii) as to close-outs and bulk sales of discontinued items, the
price charged to Licensee
6
<PAGE>
shall be 2/3ds of Paisano's cost (subject to mutual negotiation in good
faith as to alternate terms).
(b) The Credit may be used only to acquire any and all merchandise
featured in Paisano's dealers catalog. All deliveries by Paisano shall be
FOB Licensor's warehouse in Agoura Hills, California (or wherever the same
may be located).
(c) In order to exercise the Credit, Licensee shall deliver to Paisano
a purchase order specifying the items to be acquired. Paisano agrees to
maintain reasonable levels of inventory, in its discretion, or at such
levels as may be determined by Licensee with the reasonable consent of
Paisano. Paisano shall have a commercially reasonable amount of time to
fulfill orders. Notwithstanding the foregoing, (i) Paisano shall not be
obliged to fill orders amounting to (i) more than Two Hundred Thousand
Dollars ($200,000) worth of Easyriders Merchandise during each 12 month
period following the Payment Date, or (ii) Seventy-five Thousand Dollars
($75,000) or more during any one month, and (ii) Licensee agrees to order a
minimum of Two Hundred Thousand Dollars ($200,000) worth of Easyriders
Merchandise during each 12 month period following the Payment Date. The
provisions of this subsection (c) shall apply only until the Merchandise
and Royalty Credit is exhausted.
5.2 The Easyriders Merchandise shall be sold by Licensee only at Events,
the Easyriders Pavilions, and other motorcycle themed festivals and events, as
well as such retail outlets as are specifically approved by Licensor in advance
and in its sole discretion. Licensee is hereby granted the right to sell
Easyriders Merchandise at Events, the Easyriders Pavilions, and other motorcycle
themed festivals and events,, subject to the requirement that Licensee shall
provide all booths, booth equipment, storage and signage, and shall otherwise be
responsible for all sales activities. In this regard, Licensee agrees to abide
by all standard and reasonable rules established by Easyriders and applicable
generally to Event and Pavilion participants. Licensee shall have no right to
market, sell or distribute Easyriders Merchandise through any other channel,
such as, without limitation, retail stores or direct sales (radio, television,
mail), unless prior written authority has been provided for by Licensor.
5.3 In determining what products to carry as Easyriders Merchandise, and
what Symbols to be used in connection therewith, Paisano agrees that it will
consider in good faith all recommendations of Licensee. During the Term,
Paisano agrees to carry Easyriders Merchandise in at least substantially similar
selection, quality and quantity as at present.
5.4 Should at any time Paisano fail to fulfill any purchase order placed
with them by the Licensee pursuant to 5.4(c) in a commercially reasonable amount
of time, and in no case longer than 30 days from the date of the purchase order,
then the face amount of that purchase order or orders shall be applied against
and deducted from the Licensee's next quarterly payment of the Licensee Royalty
payment as provided above in paragraph 4.1.
5.5. Should Paisano fail to supply Easyriders Merchandise to fulfill at
least 25% of the face value of purchase order(s) for two quarters in row, then
beginning with the next quarter, the
7
<PAGE>
Merchandise and Royalty Credit shall be applied against the Fixed Base Royalty
at Fifty Thousand Dollars ($50,000) per quarter until the Merchandise and
Royalty Credit is exhausted.
6. Representations and Warranties.
------------------------------
6.1 Representations and Warranties of Licensor. Licensor represents and
------------------------------------------
warrants to Licensee that:
(a) Licensor has the full and complete right to enter into and perform
the obligations of this Agreement, and to grant the rights specified in the
license above.
(b) Subject to the provisions of Section 3 10, exploitation of the
Symbols in the United States, as contemplated by this Agreement, will not
infringe upon any trademarks, service marks, license rights of intellectual
property interests of any other party.
(c) No party other than Licensee has the rights granted by this
Agreement.
6.2 Representations and Warranties of Licensee. Licensee represents and
------------------------------------------
warrants to Licensor that:
(a) The Events and/or Licensee's use of the Symbols will not disparage
or reflect adversely upon Licensor or the Symbols, hold Licensor or the
Symbols up to scorn or ridicule, damage the reputation and goodwill of
Licensor, or otherwise harm Licensor.
(b) Licensee has the full and complete authority to enter into and
perform the obligations of this Agreement, have the financial capacity to
perform as contemplated hereby and do so as principals and not as the
agents for any other person or entity.
(c) Licensee acknowledges that Licensor and the Symbols enjoy an
excellent reputation, that the Symbols constitute valuable intellectual
property of Licensor, and that improper use of the Symbols could cause
Licensor irreparable harm.
(d) Licensee will abide by all laws both in the United States and
other countries where violation of such laws could adversely affect the
image, reputation or financial condition of Licensor and/or its affiliates.
7. Term and Termination.
--------------------
7.1 Subject to the provisions of Section 3.6, the License granted hereby
shall be in effect for a period of 10 years following the Effective Date (the
"Term").
7.2 Licensor shall have the right, upon five (5) days advance notice, to
terminate this Agreement prior to expiration of the Term in the event that (a)
Licensee is adjudicated bankrupt or insolvent, or makes a general assignment for
the benefit of creditors, (b) Licensee materially
8
<PAGE>
breaches its obligations under this agreement, and if such breach is capable of
being cured, fails to cure the same within twenty (20) business days of receipt
of notice from Licensor which specifies the nature of the breach, or (c) in the
course or performing the obligations of this Agreement, Licensee engages in any
conduct deemed materially detrimental in the good faith opinion of Licensor to
the interests of Licensor such that continuation of this Agreement would not be
in the best business interests of Licensor.
7.3 For purposes of section 7.2, the term "material breach" shall mean any
default by Licensee in the performance of (a) and all sections hereof which
specify and/or limit Licensee's use of the Symbols, (b) Sections 3.1, 3.7, 3.8,
3.9, 6.2, 10, 11 and 15, (c) any default in payment as provided in Section 4,
and (d) any other obligation which, by reason of such default, substantially
prevents Licensor from realizing the overall benefits contemplated by this
Agreement, or is likely to cause such consequences.
8. Option to Extend.
----------------
8.1 Licensor hereby grants Licensee an option to extend this Agreement for
two additional terms of ten (10) years, upon the same terms provided for herein
except that as to Section 4, all payments required to be made by Licensee to
Licensor shall be adjusted to reflect any and all changes in the US Consumer
Price Index (CPI) as of the extension date, from the CPI as of the Effective
Date of this Agreement (or any renewal agreement). Additionally, Licensee shall
make no pre-payment for Easyriders Merchandise as provided in paragraph 5, in
any renewal term of this agreement.
8.2 In order to exercise such option to renew, Licensee shall deliver
notice thereof to Licensor as provided in section 12.13 below, not later than
180 days prior to the end of the Initial term.
9. Indemnification by Licensor In the event of any claim, demand, legal action
---------------------------
or other legal proceeding against Licensee, or any officer, director, employee
or agent of Licensee (collectively "Licensee Parties") which arises from, or
occurs by reason of any actual or alleged breach of the foregoing warranties by
Licensor, or any breach of this Agreement by Licensor, Licensor shall fully
indemnify and hold each Licensee Party harmless from any and all losses,
damages, awards, judgments, settlements, decrees and expenses, including,
without limitation, attorneys fees and costs, arising from or connected with
such claim, demand or legal action/proceeding, provided that in order to be
entitled to such indemnification, Licensee shall provide Licensor with timely
notice of the basis therefor, and thereafter cooperate with Licensor in the
defense of any such claim, demand or legal action/proceeding.
10. Indemnification by Licensee. In the event of any claim, demand, legal
---------------------------
action or other legal proceeding against Licensor, or any officer, director,
employee or agent of Licensor (collectively "Licensor Parties") which arises
from, or occurs by reason of any actual or alleged material breach of this
Agreement by Licensee, Licensee shall fully indemnify and hold each Licensor
Party harmless
9
<PAGE>
from any and all losses, damages, awards, judgments, settlements, decrees and
expenses, including, without limitation, attorneys fees and costs), arising from
or connected with such claim, demand or legal action/proceeding provided that in
order to be entitled to such indemnification, Licensor shall provide Licensee
with timely notice of the basis therefor, and thereafter cooperate with Licensee
in the defense of any such claim, demand or legal action/proceeding.
11. Assignment Neither party may assign, transfer or delegate all or any of the
----------
rights and obligations created by this Agreement without the express written
consent of the other party.
12. Effective Date The effective date of this Agreement is 12:01 a.m. Los
--------------
Angeles Time on the day on which both parties hereto have executed the same.
13. Other Covenants of the Parties.
------------------------------
13.1 In order to protect its interests concerning the Symbols, Licensor
shall have the right to reasonably approve the name of any entity formed by
Licensee to conduct its business. Licensee shall provide Licensor with
sufficient prior notice of its proposed name, and Licensor shall have a period
of fifteen (15) business days to approve. If Licensor fails to respond within
such period, its approval shall be deemed to have been given.
13.2 In the event of breach of this Agreement by Licensee, Licensor shall
be entitled to exercise any and all remedies at law or in equity available to it
pursuant to the laws of the State of California. In particular, Licensee
acknowledges that any breach of this Agreement concerning the permitted use of
the Symbols, or of Sections 3.6 and 3.10 would be likely to cause irreparable
harm to Licensor, as a consequence of which Licensor shall be entitled to
injunctive relief in the event of breach of any such provision.
13.3 Licensee shall be responsible to pay its own taxes and file
appropriate tax returns where required as a result of all activities pursued
under this Agreement and shall indemnify Licensor for any such Licensee taxes
(including interest or penalties) which may be imposed on Licensor as a result
of Licensee's noncompliance with this provision of the Agreement.
14. General Provisions.
------------------
14.1 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California. Any action brought by
either party arising out of this Agreement shall be brought in a court of
competent jurisdiction in the County of Los Angeles, California, and Licensee
hereby consents to the jurisdiction of such court for purposes of adjudicating
any and all disputes arising hereunder.
14.2 Further Assurances. Each party to this Agreement shall execute all
------------------
instruments and documents and take all actions as may be reasonably required to
effectuate this Agreement.
10
<PAGE>
14.3 Counterparts. This Agreement may be executed in counterparts, each
------------
of which shall be deemed an original and all of which together shall constitute
one document.
14.4 Time of Essence. Time and strict and punctual performance are of the
---------------
essence with respect to each provision of this Agreement.
14.5 Attorney's Fees. In the event any dispute arises between the parties
---------------
hereto to enforce or interpret the provisions of this Agreement, the prevailing
party in such action shall be entitled to recover from the other party all
reasonable costs, expenses, attorney's fees and costs actually incurred relating
to or arising from such action.
14.6 Modification. This Agreement may be modified only by a contract in
------------
writing executed by the party(ies) to this Agreement against whom enforcement of
such modifications is sought.
14.7 Headings. The headings of the sections of this Agreement have been
--------
included only for convenience, and shall not be deemed in any manner to modify
or limit any of the provisions of this Agreement, or be used in any manner in
the interpretation of this Agreement.
14.8 Prior Understanding. This Agreement contains the entire agreement
-------------------
between the parties to this Agreement with respect to the subject matter of this
Agreement, is intended as a final expression of such parties' agreement, is
intended as a complete and exclusive statement of the terms of such agreement,
and supersedes all negotiations, stipulations, understandings, agreements,
representations and warranties, if any, with respect to such subject matter,
which precede the execution of this Agreement.
14.9 Interpretation. Whenever the context so requires in this Agreement,
--------------
all words used in the plural (and vice versa), each gender shall be construed to
include any other genders, and the word "person" shall be construed to include a
natural person, a joint venture, a trust, an estate or any other entity. This
Agreement shall be deemed to have been created jointly by all of the parties and
shall be interpreted the same way as to all parties, without regard to which of
them may have actually drafted the instrument.
14.10 Partial Invalidity. Each provision of this Agreement shall be valid
------------------
and enforceable to the fullest extent permitted by law. If any provision of this
Agreement or the application of such provision to any person or circumstance
shall, to any extent, be invalid or unenforceable, the remainder of this
Agreement, or the application of such provision to persons or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected by such invalidity or unenforceability, unless such provision of such
application of such provision is essential to this Agreement.
14.11 Notices. Notices under this agreement shall be deemed effective
-------
upon receipt, if delivered by messenger, facsimile or overnight courier, and if
by regular US mail, on the 3rd day following deposit in the US mail, postage
prepaid. All notices shall be sent as follows:
11
<PAGE>
If to Easyriders or Paisano: With a copy to:
- --------------------------- --------------
Attention: J. Robert Fabregas Mark Dodge, Esq.
28210 Dorothy Drive Easyriders, Inc.
Agoura Hills, CA 91301 28210 Dorothy Drive
Facsimile: (818) 889-4726 Agoura Hills, CA 91301
Facsimile: (818) 735-6531
If to Licensee: With a copy to:
- -------------- --------------
Action Promotions, Inc. Michael Holihan, Esq.
Attention: Melissa Penland Holihan Diaz
306 Division Avenue, Bldg. 12 1101 North Lake Destiny Road, Suite 350
Ormond Beach, FL 32174 Maitland, FL 32751
Facsimile: (904) 673-8266 (407) 667-0020
14.12 Successors-in-Interest and Assigns. Subject to any restriction on
----------------------------------
transferability contained in this Agreement, this Agreement shall be binding
upon and shall inure to the benefit of the successors-in-interest and permitted
assigns of each party to this Agreement. Nothing in this Paragraph shall create
any rights enforceable by any person not a party to this Agreement., except for
the rights of the successors-in-interest and assigns of each party to this
Agreement, unless such rights are expressly granted in this Agreement to other
specifically identified persons.
14.13 Waiver. Any waiver of a default under this Agreement must be in
------
writing and shall not be a waiver of any other default concerning the same or
any other provision of this Agreement. No delay or omission in the exercise of
any right or remedy shall impair such right or remedy or be construed as a
waiver. A consent to or approval of any act shall not be deemed to waive or
render unnecessary consent to or approval of any other or subsequent act.
15. Confidentiality.
---------------
15.1 Licensee will have access to or learn certain information belonging to
Licensor that is proprietary and confidential. The term "Confidential
Information", as used throughout this Agreement, means any secret or proprietary
information relating directly to Licensor's business and that of Licensor's
affiliates, including, but not limited to, products, customer lists, pricing
policies, employment records and policies, operational methods, marketing plans
and strategies, product development techniques or plans, business acquisition
plans, new personnel acquisition plans, methods of manufacture, technical
processes, designs and design projects, inventions and research programs, trade
know-ho, trade secrets, specific software, algorithms, computer processing
systems, object and source codes, user manuals, systems documentation, and other
business and financial affairs of Licensor and its affiliated companies and
subsidiaries.
12
<PAGE>
15.2 Licensee will keep strictly confidential all Confidential Information
and will not, without Licensor's express written authorization, signed by one of
Licensor's authorized officers, use or sell, market or disclose any Confidential
Information to any third person, firm, corporation or association for any
purpose. Licensee further agrees that Licensee will not make any copies of the
Confidential Information except upon Licensor's written authorization, signed by
one of Licensor's authorized officers, and will not remove any copy or sample of
Confidential Information from the premises of Company without such
authorization.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as of
the Effective Date.
TERESI, INC. d.b.a. EASYRIDERS EVENTS PAISANO PUBLICATIONS, INC.
By: /s/ J. Robert Fabregas By: /s/ J. Robert Fabregas
---------------------------- --------------------------
Name: J. Robert Fabregas Name: J. Robert Fabregas
-------------------------- -------------------------
Title: Secretary Title: EVP and Secretary
------------------------- ------------------------
Date: 3/31/00 Date: 3/31/00
-------------------------- -------------------------
ACTION PROMOTIONS, INC.
By: /s/ Melissa Penland
----------------------------
Name: Melissa Penland
--------------------------
Title: President
-------------------------
Date: 3/31/2000
--------------------------
13
<PAGE>
Action Promotions, Inc.
307 Division Avenue, Building 12
Ormond Beach, Florida 32174
March 31, 2000
Paisano Publications, Inc.
Teresi, Inc.
Attention: Joseph Teresi
28210 Dorothy Drive
Agoura Hills, CA 91301
Gentlemen:
This letter will serve to amend and supplement the Events License and Inventory
Sales Agreement (the "Events Agreement") dated as of March 31, 2000 by and
between Paisano Publications, Inc. and Teresi, Inc. (collectively, "Company"),
and Action Promotions, Inc. ("API").
1. Section 5.1 of the Events Agreement is amended to provide that the $750,000
in cash to be paid by API shall be paid in two equal installments, the first on
March 31, 2000 in the sum of $375,000, and the second on or before April 17,
2000 in the sum of $375,000.
2. The Events Agreement is otherwise amended to include the following
supplemental agreements among the parties:
2.1 Effective April 1, 2000, responsibility for all future events as
contemplated by the Events Agreement shall become that of API, as provided for
in the Events Agreement, with the exception of the "Artistry in Ink" tattoo show
scheduled for May 28-29, 2000 (the "Tattoo Show"). Company shall be responsible
for producing the Tattoo Show, and shall be entitled to retain all revenues
realized thereby.
2.2 It is acknowledged that Company has expended funds for the purpose of
producing future events which are now the responsibility of API ("Future
Events"), as set forth on Exhibit A, attached hereto and made a part hereof by
this reference. The total amount of such expenditures shall be credited as a
payable to Company, to be settled in accordance with section 2.8 below.
2.3 To the extent that API continues on an interim basis to (a) utilize
personnel employed by the Company to work on Future Shows, and/or (b) utilize
the office facilities of Company, then API shall reimburse Company for the cost
thereof, as itemized on Exhibit B (employees) and Exhibit C (office facilities),
attached hereto and made a part hereof by this reference, provided that the
reimbursement for employees shall be at the rate of 90% of the figure set forth
on Exhibit B, and reimbursement for facilities is agreed to be at the rate of
$1,400 per month. Payment to Company shall be in accordance with section 2.8
below.
2.4 It is acknowledged that with respect to events already produced by
Company ("Past Events"), Company has incurred certain obligations which remain
unpaid, as set forth on Exhibit D, attached hereto and made a part hereof by
this reference. Company agrees to pay all such obligations (including all
others pertaining to Past Events not presently ascertained and the Tattoo Event)
and to hold API harmless therefrom.
2.5 It is acknowledged that the Company may be obligated to a stage
provider for two Future Events at an estimated total cost of up to $11,000 per
event. Any and all sums required to be paid to
<PAGE>
satisfy this obligation which do not inure to the benefit of API for Future
Events shall be the obligation of Company to be settled in accordance with
section 2.8.
2.6 It is acknowledged that Company's "Kodak All-in-One" and all property
listed on Exhibit E, attached hereto and made a part hereof by this reference,
with the exception of the "Sleds" constitutes property needed by API for
purposes of producing Future Events (the "Events Property"). Company shall use
commercially reasonable efforts to deliver such Events Property to API by no
later than April 30, 2000, for use by API in accordance with the Events
Agreement. If the Events Property cannot be delivered by such date, or such
later date as agreed to by API, then the value thereof, as set forth on Exhibit
E, shall be a credit to API to be settled in accordance with section 2.8. API
shall then be responsible for procuring replacement property at its own cost,
which replacement property shall be owned by Teresi Inc, to be used by API
subject to and in accordance with the Events Agreement.
2.7 By no later than April 30, 2000, Company shall convey to API full
title and ownership of the Dodge pick-up truck and Wells trailer currently in
Company's possession. In consideration therefor, API shall be responsible for
securing, at its sole cost and expense, replacement Sleds. In the event API
ceases to produce events under the Events Agreement, Company shall have the
right to purchase the Sleds so acquired by API for a price equal to the amount
paid out-of-pocket by API to obtain the existing Sleds or replacement Sleds.
2.8 All credits and inter-party obligations shall be accounted for and
settled, to the extent reasonable and practicable, on April 30, 2000, by an
equalizing payment by one party to the other. Either party may also elect to
pay such sum to the other as an addition to or deduction from the amounts due in
connection with sections 4 (merchandise credit) and 5 (royalties) under the
Events Agreement.
Please acknowledge your agreement with the foregoing by signing below and
returning a copy of such signed instrument to the undersigned.
Sincerely,
Action Promotions, Inc.
By: /s/ Melissa Penland
------------------------------------------------
Name and Title: Melissa Penland, President
------------------------------------
ACCEPTED AND AGREED TO this 31st day of March, 2000.
Paisano Publications, Inc. Teresi,Inc.
By: /s/ J. Robert Fabregas By: /s/ J. Robert Fabregas
----------------------------- -----------------------------
Name: J. Robert Fabregas Name: J. Robert Fabregas
----------------------------- ---------------------------
Title: EVP and Secretary Title: Secretary
---------------------------- --------------------------
2
<PAGE>
EXHIBIT 10.61
SIENA CAPITAL PARTNERS, L.P.
150 South Rodeo Drive, Suite 100
Beverly Hills, CA 90210
April 13, 2000
Joseph Teresi and John Martin
c/o Easyriders, Inc.
28210 Dorothy Drive
Agoura Hills, CA 91301
Re: Purchase of Loan by Joseph Teresi and John Martin from Siena
------------------------------------------------------------
Capital Partners, L.P.
----------------------
Gentlemen:
Joseph Teresi and John Martin, in their individual capacities (each a
"Purchaser" and collectively, the "Purchasers"), hereby agree, on the terms and
conditions hereof, to purchase from Siena Capital Partners, L.P. ("Seller"), and
Seller hereby agrees to sell to Purchasers, all of Seller's rights, titles and
interests in and to (i) that certain loan (the "Loan") in the principal amount
of $275,000 (the "Loan Amount") evidenced by that certain Increasing Rate
Secured Promissory Note (the "Note") dated as of October 13, 1999 in the
principal amount of the Loan Amount issued by Paisano Publications, Inc., a
California corporation ("Borrower") and payable to Seller, (ii) the Note, (iii)
that certain Securities Purchase Agreement dated October 14, 1999 between
Borrower and Seller (the "SPA"), (iv) that certain Warrant Agreement dated
October 14, 1999 between Seller and Easyriders, Inc. (the "Warrant Agreement"),
(v) that certain Common Stock Purchase Warrant issued by Easyriders, Inc. to
Seller dated October 13, 1999 (the "Warrant"), (v) that certain Pledge and
Guarantee Agreement dated October 14, 1999 between Newriders, Inc. and Seller
(the "Pledge"), and (vi) the other loan documents executed in connection with
the Loan (collectively (i) through (vi), the "Loan Documents").
1. Purchase Price:
--------------
The purchase price (the "Purchase Price") to be paid by each Purchaser for
the Loan shall be $137,500, which in total equals the Loan Amount. Seller
hereby directs Purchasers to pay the Purchase Price in immediately
available funds pursuant to disbursement instructions from the Seller to
Purchasers.
2. Closing:
-------
On the date hereof, Purchasers shall pay in immediately available funds the
amount of the Purchase Price in accordance with the disbursement
instructions referred to in paragraph 1
<PAGE>
above. Concurrently with Seller's receipt of the Purchase Price, the Seller
will sell the Loan to the Purchasers and will deliver to the Purchasers a
General Assignment and Assumption Agreement (the "General Assignment"), in
form acceptable to Seller. Seller shall thereafter promptly deliver to
Purchasers the original Note, Warrant and other Loan Documents.
3. Conditions to Closing:
---------------------
The Loan shall be sold by Seller to Purchasers subject to the payment by
Borrower to Seller on or before the date hereof of $6,860.19 in accrued
interest on the Loan through the date hereof.
4. Representations and Acknowledgements:
------------------------------------
(a) The Seller represents and warrants to the Purchasers that the
Seller is the sole owner and holder of the Loan. Notwithstanding the
foregoing, the Purchasers acknowledge that the Loan is subject to, and the
Purchasers agree to be bound by and accept the Loan subject to, that
certain Intercreditor and Subordination Agreement dated October 14, 1999
between Seller, Borrower, Easyriders, Inc. and Nomura Holding America, Inc.
(the "Intercreditor Agreement").
(b) This sale shall be "as is" and made without recourse,
representation or warranty (except as specifically set forth in this
Agreement). Without limiting the foregoing, Seller makes no representation
or warranty of any kind, express or implied, with respect to the Loan, the
Loan Documents, the financial condition of Borrower or the ability of
Borrower to perform pursuant to the terms of the Loan, the Note or any
other documents, evidencing, securing, guaranteeing or otherwise executed
in connection with the Loan. Purchaser hereby represents to Seller (i) that
it has performed an independent review and analysis of the adequacy and
sufficiency of, and approves of in all respects, the forms of the Note and
the other Loan Documents, and (ii) that it has independently performed its
own underwriting with respect to, and approves of in all respects, the
Loan, Borrower and the underlying transaction, including, without
limitation, the restrictions imposed by the Intercreditor Agreement.
5. Indemnification:
---------------
(a) Each Purchaser agrees (in proportion to their respective share of
the Loan acquired) to indemnify, defend and hold harmless Seller from and
against any and all liabilities, costs (including attorneys' fees and
litigation costs), losses, damages, penalties, actions, suits or claims
(collectively, "Claims") which may be imposed upon, suffered by or asserted
against Seller, arising out of or in any way related to (i) any
discussions, negotiations or agreements between the Purchaser (or any of
its affiliates) and the Borrower with respect to the Loan, (ii) the
origination, ownership or sale of the Loan, including, without limitation,
any Claims relating to or arising out of the Intercreditor Agreement, (iii)
Purchaser's breach of any of the representations, warranties or covenants
contained herein or (iv) a breach of any of Purchaser's obligations under
this Agreement.
<PAGE>
(b) Seller agrees to indemnify, defend and hold harmless Purchasers
from and against any and all liabilities, costs (including attorneys' fees
and litigation costs), losses, damages, penalties, actions, suits or claims
which may be imposed upon, suffered by or asserted against Purchasers,
arising out of or in any way related to (i) Seller's breach of any of the
representations and warranties contained in Paragraph 4(a) herein or (ii) a
breach of any of Seller's obligations under this Agreement.
6. Fees and Expenses:
-----------------
Except as otherwise provided herein, each party hereto shall pay its own
expenses in connection with the purchase and sale of the Loan.
7. Severability Clause:
-------------------
Any part, provision, representation or warranty of this Agreement which is
prohibited or which is held to be void or unenforceable by a court shall be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. Any part, provision,
representation or warranty of this Agreement which is prohibited or
unenforceable or is held to be void or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction as to the Loan shall not invalidate or render unenforceable
such provision in any other jurisdiction. To the extent permitted by
applicable law, the parties hereto waive any provision of law which
prohibits or renders void or unenforceable any provision hereof.
8. Counterparts:
------------
This Agreement may be executed simultaneously in any number of
counterparts. Each counterparts shall be deemed to be an original, and all
such counterparts shall constitute one and the same instrument.
9. Governing Law:
-------------
This Agreement shall be construed in accordance with the laws of the State
of California and the obligations, rights and remedies of the parties
hereunder shall be determined in accordance with the laws of the State of
California except for conflict of laws provisions.
<PAGE>
10. Successors and Assigns: Assignment of Purchase Agreement:
---------------------------------------------------------
This Agreement shall bind and inure to the benefit of and be enforceable by
Seller and Purchasers and the respective successors and assigns of Seller
and Purchasers. Neither party may assign its interest under this Agreement
to a third party without the written consent of the other party.
Notwithstanding the foregoing, each Purchaser may assign its rights
hereunder in conjunction with Purchaser's sale of the Loan to any
subsequent purchaser of the Loan.
11. Waivers; Other Agreements:
-------------------------
No term or provision of this Agreement may be waived or modified unless
such waiver or modification is in writing and signed by the party against
whom such waiver or modification is sought to be enforced.
12. Survival:
--------
All covenants, agreements, representations and warranties contained in this
Agreement shall survive the execution and delivery hereof.
Kindly acknowledge receipt and acceptance of this Agreement by signing and
promptly returning to Seller the enclosed duplicate copy of this Agreement to
acknowledge Purchasers' acceptance of the terms and conditions hereof.
Very truly yours,
SIENA CAPITAL PARTNERS, L.P.
/s/ Jason Reese
By:____________________________
Name: Jason Reese
Title: President
RECEIPT AND ACCEPTANCE OF THIS AGREEMENT IS HEREBY ACKNOWLEDGED as of this
13th day of April, 2000.
/s/ Joseph Teresi
________________________________
Joseph Teresi
/s/ John Martin
________________________________
John Martin
<PAGE>
EXHIBIT 10.62
GENERAL
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS GENERAL ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Agreement") is entered
into as of April 13, 2000, by and between SIENA CAPITAL PARTNERS, L.P. (the
"Assignor") and JOSEPH TERESI and JOHN MARTIN, in their individual capacities
(each an "Assignee" and collectively, the "Assignees").
WHEREAS, Assignor and PAISANO PUBLICATIONS, a California corporation
("Borrower") entered into that certain Securities Purchase Agreement (the
"Securities Purchase Agreement"), dated as of October 14, 1999, pursuant to
which Assignor made a loan (the "Loan") to Borrower in the original principal
amount of $275,000 (the "Loan Amount");
WHEREAS, the Loan is evidenced by that certain Increasing Rate Secured
Promissory Note (the "Note") issued by Borrower in the principal amount of the
Loan Amount; and
WHEREAS, Assignor wishes to sell, assign and transfer all of its rights,
titles and interests in and to the Loan, the Note, the Securities Purchase
Agreement, the Warrant Agreement and the Warrants and the other Loan Documents
(all as defined in the Securities Purchase Agreement) to Assignees.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Assignees and Assignor hereby
agree as follows:
Section 1. Definitions. Capitalized terms used and not otherwise defined
-----------
herein shall have the meanings ascribed to them in the Securities Purchase
Agreement.
Section 2. Assignment of Loan. The Assignor hereby absolutely sells,
------------------
transfers, assigns and conveys to Assignee, without recourse and without
representation or warranty of any kind, all of its rights, titles and interests
in and to the Loan, including, without limitation, all of its rights, titles and
interests in and to the Note, the Warrant Agreement, the Warrants, the
Securities Purchase Agreement and the other Loan Documents.
Section 3. Assumption of Obligations. Assignees hereby assume any and all
-------------------------
obligations of Assignor under the Securities Purchase Agreement and the other
Loan Documents to the extent of their respective share of the Loan purchased.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement as
of the date first above written.
Assignor:
--------
SIENA CAPITAL PARTNERS, L.P.
/s/ Jason Reese
By: _______________________________
Name: Jason Reese
Title: President
Assignees:
---------
/s/ Joseph Teresi
___________________________________
Joseph Teresi
/s/ John Martin
___________________________________
John Martin
<PAGE>
EXHIBIT 10.63
SECOND AMENDMENT AND WAIVER UNDER
---------------------------------
NOTE AND WARRANT PURCHASE AGREEMENT
-----------------------------------
SECOND AMENDMENT AND WAIVER, dated as of April 12, 2000 (this "Amendment"),
---------
to the Note and Warrant Purchase Agreement referred to below by and among
EASYRIDERS, INC. (the "Parent"), PAISANO PUBLICATIONS, INC. (as successor by
------
merger with Easyriders Sub II, Inc.) (the "Company") and NOMURA HOLDING AMERICA
-------
INC. (the "Purchaser").
---------
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Parent, the Company and the Purchaser are parties to that
certain Note and Warrant Purchase Agreement, dated as of September 23, 1998 (as
amended, supplemented or otherwise modified from time to time prior to the date
hereof, the "Note Purchase Agreement");
-----------------------
WHEREAS, the Purchaser has agreed to amend certain provisions of, and to
waive certain violations of, the Note Purchase Agreement, in the manner, and on
the terms and conditions, provided for herein;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt, adequacy and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. Definitions. Capitalized terms not otherwise defined herein shall have
-----------
the meanings ascribed to them in the Note Purchase Agreement.
2. Amendments. The Note Purchase Agreement is hereby amended as of the
----------
Amendment Effective Date (as hereinafter defined) as follows:
(a) The definition of "Capital Expenditures" set forth in Section 1.1 of
--------------------
the Note Purchase Agreement is hereby amended by inserting at the end thereof
the following new sentence:
"For purposes of Section 10.18(e), in the case of any fiscal quarter ending
on a date earlier than December 31, 2000, the Capital Expenditures made
during the period of four consecutive fiscal quarters then ended shall be
determined on the basis of a pro forma calculation as follows: (1) for the
fiscal quarter ending March 31, 2000, the pro forma Capital Expenditures
shall equal the actual Capital Expenditures for such quarter (the "First
Quarter Capital Expenditures") multiplied by four; (2) for the fiscal
quarter ending June 30, 2000, the pro forma Capital Expenditures for the
period of four consecutive fiscal quarters then ended shall equal the sum
of the actual Capital Expenditures for such fiscal quarter plus
<PAGE>
three times the First Quarter Capital Expenditures; and (3) for the fiscal
quarter ending September 30, 2000, the pro forma Capital Expenditures for
the period of four consecutive fiscal quarters then ended shall equal the
sum of the actual Capital Expenditures for such fiscal quarter, plus the
actual Capital Expenditures for the fiscal quarter ending June 30, 2000,
plus two times the First Quarter Capital Expenditures."
(b) The definition of "Consolidated EBITDA" set forth in Section 1.1
-------------------
of the Note Purchase Agreement is hereby amended by inserting at the end thereof
the following new sentence:
"For purposes of Sections 10.18(c), (d) and (e), in the case of any fiscal
quarter ending on a date earlier than December 31, 2000, the Consolidated
EBITDA for the period of four consecutive fiscal quarters then ended shall
be determined on the basis of a pro forma calculation as follows: (1) for
the fiscal quarter ending March 31, 2000, the pro forma Consolidated EBITDA
shall equal the actual Consolidated EBITDA for such quarter (the "First
Quarter Consolidated EBITDA") multiplied by four; (2) for the fiscal
quarter ending June 30, 2000, the pro forma Consolidated EBITDA for the
period of four consecutive fiscal quarters then ended shall equal the sum
of the actual Consolidated EBITDA for such fiscal quarter plus three times
the First Quarter Consolidated EBITDA; and (3) for the fiscal quarter
ending September 30, 2000, the pro forma Consolidated EBITDA for the period
of four consecutive fiscal quarters then ended shall equal the sum of the
actual Consolidated EBITDA for such fiscal quarter, plus the actual
Consolidated EBITDA for the fiscal quarter ending June 30, 2000, plus two
times the First Quarter Consolidated EBITDA."
(c) The definition of "Consolidated Interest Expense" set forth in
-----------------------------
Section 1.1 of the Note Purchase Agreement is hereby amended by inserting at the
end thereof the following new sentence:
"For purposes of Section 10.18(e), in the case of any fiscal quarter ending
on a date earlier than December 31, 2000, the Consolidated Interest Expense
for the period of four consecutive fiscal quarters then ended shall be
determined on the basis of a pro forma calculation as follows: (1) for the
fiscal quarter ending March 31, 2000, the pro forma Consolidated Interest
Expense shall equal the actual Consolidated Interest Expense for such
quarter (the "First Quarter Consolidated Interest Expense") multiplied by
four; (2) for the fiscal quarter ending June 30, 2000, the pro forma
Consolidated Interest Expense for the period of four consecutive fiscal
quarters then ended shall equal the sum of the actual Consolidated Interest
Expense for such fiscal quarter plus three times the First Quarter
Consolidated Interest Expense; and (3) for the fiscal quarter ending
September 30, 2000, the pro forma Consolidated Interest Expense for the
period of four consecutive fiscal quarters then ended shall equal the sum
of the actual Consolidated Interest Expense for the fiscal quarter, plus
the actual Consolidated Interest Expense for the fiscal quarter ending
June 30, 2000, plus two times the First Quarter Consolidated Interest
Expense."
-2-
<PAGE>
(d) Section 10.18(a) of the Note Agreement is hereby amended by
deleting the text "(w) for the fiscal quarter ended March 31, 1999, $1,100,000,
(x) for the fiscal quarter ended June 30, 1999, $1,200,000, (y) for the fiscal
quarter ended September 30, 1999, $2,000,000, and (z) for the fiscal quarter
ended December 31, 1999 and for each fiscal quarter thereafter, $4,500,000"
appearing therein and inserting in lieu thereof the next text "$3,200,000."
(e) Section 10.18(b) of the Note Purchase Agreement is hereby amended
by deleting the amount "$22,500,000" appearing therein and inserting in lieu
thereof the amount "$16,000,000".
(f) Section 10.18(c) of the Note Purchase Agreement is hereby amended
by deleting such Section in its entirety and inserting in lieu thereof the
following new Section 10.18(c):
"(c) Maintenance of Leverage Ratio. The Company shall not permit the
-----------------------------
ratio of (i) Consolidated Total Indebtedness (other than the Subordinated
Seller Notes) as of each date set forth below to (ii) Consolidated EBITDA,
of the Paisano Group for the four consecutive fiscal quarters of the
Paisano Group ended on such date to exceed the corresponding amount set
forth opposite such date:
<TABLE>
<CAPTION>
Fiscal Quarter Ended: Ratio
-------------------- -----
<S> <C>
March 31, 2000 12.0:1.00
June 30, 2000 9.5:1.00
September 30, 2000 8.0:1.00
December 31, 2000 7.0:1.00
March 31, 2001 3.1:1.00
June 30, 2001 3.0:1.00
September 30, 2001 3.0:1.00
</TABLE>
(g) Section 10.18(d) of the Note Purchase Agreement is hereby amended
by deleting such Section in its entirety and inserting in lieu thereof the
following new Section 10.18(d):
"(d) Minimum Consolidated EBITDA. The Company shall not permit the
---------------------------
Consolidated EBITDA of the Paisano Group, measured as of each date set
forth below for the period of four consecutive full fiscal quarters of the
Paisano Group ended on such date, to be less than the corresponding amount
set forth opposite such date:
<PAGE>
Measuring Date Amount
-------------- ------
March 31, 2000 $2,000,000
June 30, 2000 $2,500,000
September 30, 2000 $3,000,000
December 31, 2000 $3,500,000
March 31, 2001 $7,000,000
June 30, 2001 $7,400,000
September 30, 2001 $7,800,000
(h) Section 10.18(e) of the Note Purchase Agreement is hereby amended
by deleting such Section in its entirety and inserting in lieu thereof the
following new Section 10.18(e):
(e) Maintenance of Interest Coverage Ratio. The Company will not
--------------------------------------
permit the ratio of (i) Consolidated EBITDA less Capital Expenditures made
during any period of determination, in each case, of the Paisano Group to
(ii) Consolidated Interest Expense of the Paisano Group, measured as of each
date set forth below for the period of four consecutive full fiscal quarters
of the Paisano Group ended on such date, to be less than the ratio set forth
opposite such date:
Fiscal Quarter Ended Ratio
-------------------- -----
March 31, 2000 0.70:1.00
June 30, 2000 0.85:1.00
September 30, 2000 1.05:1.00
December 31, 2000 1.15:1.00
March 31, 2001 3.50:1.00
June 30, 2001 3.50:1.00
September 30, 2001 3.50:1.00
3. Waiver. The Purchaser hereby waives all Events of Default
------
resulting solely out of (x) the failure of the Company to comply with Sections
10.18(c), (d) and (e) of the Note Purchase Agreement for the period ended
September 30, 1999, and (y) the failure of the Company to comply with Sections
10.10, 10.11 and 10.18(a), (b), (c), (d) and (e) of the Note Purchase Agreement
for the period ended December 31, 1999.
4. Representations and Warranties. To induce the Purchaser to enter
------------------------------
into this Amendment, each of the Parent and the Company, jointly and severally,
hereby represents and warrants to the Purchaser that:
-4-
<PAGE>
(a) Corporate Power. The execution, the delivery and performance of
---------------
this Amendment are within its corporate power and have been duly authorized by
all necessary corporate and shareholder action.
(b) Due Execution and Delivery. This Amendment has been duly executed
--------------------------
and delivered by or on behalf of each of the Parent and the Company.
(c) Binding Effect. This Amendment constitutes a legal, valid and
--------------
binding obligation of each of the Parent and the Company enforceable against
such Person, in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' rights generally and by general equitable
principles (whether enforcement is sought by proceedings in equity or at law).
(d) No Defaults. No Default or Event of Default has occurred and is
-----------
continuing after giving to the waivers set forth in Section 3 hereof.
(e) Representations and Warranties True. Except as modified by the
-----------------------------------
Disclosure Schedules attached hereto, the representations and warranties of the
Parent and the Company contained in the Note Purchase Agreement and each other
Note Document (including without limitation the Note Documents delivered
pursuant to this Amendment) shall be true and correct on and as of the Amendment
Effective Date with the same effect as if such representations and warranties
had been made on and as of such date, except that any such representation or
warranty which is expressly made only as of a specified date need be true only
as of such date.
5. Outstanding Indebtedness: Waiver of Claims. Each of the Parent
------------------------------------------
and the Company hereby acknowledges and agrees that as of March 31, 2000 the
aggregate outstanding principal amounts of the Revolving Notes and the Term
Notes are $4,700,000 and $16,295,588, respectively, and that such principal
amounts are payable pursuant to the Note Purchase Agreement without defense,
offset, withholding, counterclaim or deduction of any kind. Each of the Parent
and the Company hereby waives, releases, remises and forever discharges the
Purchaser and each other Indemnitee from any and all actions, causes of action,
suits, losses, liabilities and damages of any kind or character, known or
unknown, which either the Parent or the Company ever had, now has or might
hereafter have against the Purchaser or any other Indemnitee which relates,
directly or indirectly, to any acts or omissions of the Purchaser or any other
Indemnitee on or prior to the date hereof.
6. Effectiveness. This Amendment shall become effective as of April
-------------
12, 2000 (the "Amendment Effective Date") only upon satisfaction in full in the
------------------------
judgement of the Purchaser of each of the following conditions on or prior to
April 14, 2000:
(a) Amendment. The Purchaser shall have received four (4) original
---------
copies of this Amendment duly executed and delivered by the Parent and the
Company.
<PAGE>
(b) Representations and Warranties True. The representations and
-----------------------------------
warranties of the Parent and the Company contained in this Amendment shall be
true and correct on and as of the Amendment Effective Date.
(c) Proceedings Satisfactory. All corporate and other proceedings
------------------------
taken or to be taken in connection with the transactions contemplated hereby and
all documents incident thereto shall be reasonably satisfactory in form and
substance to the Purchaser and its special counsel, and the Purchaser and its
special counsel shall have received all such counterpart originals or certified
or other copies of such documents as they may reasonably request, including:
(i) certified copies of resolutions of the Board of Directors
of the Parent and the Company authorizing the execution, delivery and
performance of this Amendment and the Second Amendment to Warrant; and
(ii) certificates as to the incumbency and signatures of each of
the officers of the Parent and the Company who shall execute this Amendment
and the Second Amendment to Warrant on behalf of such Person.
(d) Fees. On or before the Amendment Effective Date, the Company
----
shall have paid to the Purchaser all costs and expenses owing in connection with
the preparation of this Amendment (including, without limitation, any legal fees
and expenses.)
(e) Amendment to Warrant. The Purchaser shall have received four (4)
--------------------
original copies of the Second Amendment to Warrant, in the form attached hereto
as Exhibit A, duly executed by the Parent and the Purchaser.
7. No Other Amendments/Waivers. Except as expressly modified in
---------------------------
Section 2 hereof, the Note Purchase Agreement shall be unmodified and shall
continue to be in full force and effect in accordance with its terms. In
addition, except as expressly provided in Section 3 hereof, this Amendment shall
not be deemed a waiver of any term or condition of the Note Purchase Agreement
or any Note Document and shall not be deemed to prejudice any right or rights
which the Purchaser may now have or may have in the future under or in
connection with the Note Purchase Agreement or any Note Document or any of the
instruments or agreements referred to therein, as the same may be amended from
time to time.
8. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, CONSTRUED AND
-------------
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
9. Counterparts. This Amendment may be executed by the parties
------------
hereto on any number of separate counterparts and all of said counterparts taken
together shall be deemed to constitute one and the same instrument.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered as of the day and year first above written.
EASYRIDERS, INC.
By: /s/ J. Robert Fabregas
---------------------------------
Name: J. Robert Fabregas
Title: Chief Financial Officer
PAISANO PUBLICATIONS, INC. (as
successor by merger with EASYRIDERS
SUB II, INC.)
BY: /s/ Robert J. Davis
----------------------------------
Name: Robert J. Davis
Title: Treasurer
NOMURA HOLDING AMERICA INC.
By: /s/ Joseph R. Schmuckler
----------------------------------
Name: Joseph R. Schmuckler
Title: Chief Operating Officer
Each of the undersigned hereby acknowledges
and consents to the amendments, consents and
waivers to the Note Purchase Agreement
effected by this Amendment and hereby
confirms and agrees that its obligations under
the Note Documents shall continue without
any diminution thereof and shall remain in full
force and effect without amendment or
modification on and after the effectiveness of
this Amendment.
<PAGE>
ACKNOWLEDGED, CONSENTED and
AGREED to as of the date first written above.
EASYRIDERS OF COLUMBUS, INC.
By: /s/ Robert J. Davis
--------------------------------
Name: Robert J. Davis
Title: Treasurer
EASYRIDERS FRANCHISING, INC.
By: /s/ Robert J. Davis
--------------------------------
Name: Robert J. Davis
Title: Treasurer
TERESI, INC.
By: /s/ Robert J. Davis
--------------------------------
Name: Robert J. Davis
Title: Treasurer
BROS CLUB, INC.
By: /s/ Robert J. Davis
--------------------------------
Name: Robert J. Davis
Title: Treasurer
ASSOCIATED RODEO RIDERS ON WHEELS
By: /s/ Robert J. Davis
--------------------------------
Name: Robert J. Davis
Title: Treasurer
<PAGE>
EXHIBIT A
SECOND AMENDMENT TO WARRANT
---------------------------
THIS SECOND AMENDMENT, dated as of April 12, 2000 (this "Amendment"), to
---------
the Warrant referred to below by and between EASYRIDERS, INC., a Delaware
corporation (the "Issuer"), and NOMURA HOLDING AMERICA INC., a Delaware
------
corporation (the "Holder").
------
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Issuer has executed a Warrant to Purchase Shares of Common
Stock, dated September 23, 1998 (as amended, supplemented or otherwise modified
from time to time prior to the date hereof, the "Warrant"), in favor of the
-------
Holder; and
WHEREAS, the Holder has agreed to amend the Warrant in the manner, and on
the terms and conditions, provided for herein.
NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt, adequacy and sufficiency of which are
hereby acknowledged, the parties to this Amendment hereby agree as follows:
1. Definitions. Capitalized terms not otherwise defined herein shall have
-----------
the meanings ascribed to them in the Warrant.
2. Amendment. The definition of "Warrant Price" set forth in Section 7
--------- -------------
of the Warrant is hereby amended and restated in its entirety to read as
follows:
"Warrant Price" means the lesser of (x) $1.625 and (y) the lowest Three Day
Average (as defined below) prior to such date, in each case, subject to
such other prices as shall result from the adjustments specified in Section
4 hereof. The term "Three Day Average" means, for any day, the average of
the daily market prices (determined in accordance with the definition of
"Current Market Price" herein; provided if at any time the Common Stock is
--------
not listed on any domestic exchange or quoted in the domestic over-the-
counter-market "daily market prices" shall be the Current Market Price as
defined in the last four sentences of the definition of "Current Market
Price" herein) of the Common Stock for the period of three (3) consecutive
trading days ending one day preceding such date."
3. No Other Amendments. Except as expressly provided herein, (i) the
-------------------
Warrant shall be unmodified and shall continue to be in full force and effect
in accordance with its terms, and (ii) this Amendment shall not be deemed a
waiver of any term or condition of the Warrant and shall not be deemed to
prejudice any right or rights
<PAGE>
which the Holder may now have or may have in the future under or in connection
with the Warrant or the Registration Rights Agreement, as the same may be
amended from time to time.
4. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
-------------
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
5. Counterparts. This Amendment may be executed by the parties
------------
hereto on any number of separate counterparts and all of said counterparts taken
together shall be deemed to constitute one the same instrument.
(SIGNATURE PAGE FOLLOWS)
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered as of the day and year first above written.
Issuer:
------
EASYRIDERS, INC.
By: /s/ J. Robert Fabregas
------------------------------
Name: J. Robert Fabregas
Title: EVP & CFO
Holder:
------
NOMURA HOLDING AMERICA INC.
By: /s/ Joseph R. Schmuckler
------------------------------
Name: Joseph R. Schmuckler
Title: Chief Operating Officer
<PAGE>
EXHIBIT 21
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Name Jurisdiction of Incorporation
---- -----------------------------
<S> <C>
Paisano Publications, Inc. California
Easyriders Franchising, Inc. California
Teresi, Inc. California
Associated Rodeo Riders on Wheels, Inc. California
Easyriders of Columbus, Inc. Ohio
Bros. Club, Inc. California
M&B Restaurants, L.C. Texas
Newriders, Inc. Nevada
Easyriders Licensing, Inc. California
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF EASYRIDERS, INC. AS OF AND FOR THE YEAR
ENDED DECEMBER 31, 1999 INCLUDED IN THIS REPORT ON FORM 10-K AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 734,856
<SECURITIES> 0
<RECEIVABLES> 3,952,713
<ALLOWANCES> 645,212
<INVENTORY> 2,994,832
<CURRENT-ASSETS> 8,708,711
<PP&E> 6,429,392
<DEPRECIATION> 1,115,071
<TOTAL-ASSETS> 75,745,908
<CURRENT-LIABILITIES> 17,059,451
<BONDS> 1,000,000
0
0
<COMMON> 23,056
<OTHER-SE> 19,598,684
<TOTAL-LIABILITY-AND-EQUITY> 75,745,908
<SALES> 44,496,402
<TOTAL-REVENUES> 44,496,402
<CGS> 37,012,329
<TOTAL-COSTS> 18,081,125
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,782,187
<INCOME-PRETAX> (14,092,058)
<INCOME-TAX> 11,500
<INCOME-CONTINUING> (14,103,558)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,103,558)
<EPS-BASIC> (.65)
<EPS-DILUTED> (.65)
</TABLE>
