<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2000
Commission File Number: 000-24779
V-TWIN HOLDINGS, INC.
(formerly V-TWIN ACQUISITIONS, INC.)
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
District of Columbia 52-2110338
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1707 H St, NW #200
Washington DC 20006
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(703) 471-1823
- --------------------------------------------------------------------------------
(Issuer's telephone number)
Check whether the Issuer (1) filed all report required to be file by Section 13
or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
X YES NO
--- ---
State the number of shares outstanding of each of the Issuer's classes of common
equity, as of the latest practicable date: 4,062,833 common shares as of March
31, 2000.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Financial Statements F-1
Balance Sheets as of March 31, 2000
and June 30, 1999 F-2
Statements of Operations for the
Three Months Ended March 31, 2000 and 1999 F-3
Statements of Operations for the
Nine Months Ended March 31, 2000 and 1999 F-4
Statements of Stockholders' Equity F-5
Statements of Cash Flows
(for nine months ended March 31, 2000 and 1999) F-6
Notes To Financial Statements F-7 through F-11
2
<PAGE> 3
FINANCIAL STATEMENTS
In the opinon of the management of V-Twin Holdings, Inc. (the Company), the
accompanying unaudited Interim combined financial statements contain all
adjustments neccessary of a fair presentation of the Company's financial
condition as of March 31, 2000 and June 30, 1999, and the resulets of its
operations and cash flows for the three month and nine month periods ended March
31, 2000 and March 31, 1999.
The accompanying unaudited combined financial statements have been prepared
pursuant to the rules and regulations fo the Secuirties and Exchange Commission.
certain information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles,
have been condensed or omitted pursuant to those rules and regulations, although
the Company's management believes that the disclosures and information presented
are adequate and not misleading. Reference is made to the detailed financial
statement disclosures which should be read in conjunction with this report and
are contained in the notes to combined financial statements included in the
Company's Form 10-KSB filed December 2, 1999.
F-1
<PAGE> 4
V-TWIN ACQUISITIONS, INC. AND SUBSIDIARIES/AFFILIATE
COMBINED BALANCE SHEETS
MARCH 31, 2000 AND JUNE 30, 1999
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
March 31, 2000 June 30, 1999
-------------- -------------
<S> <C> <C>
Current Assets:
Cash and cash equilvalents $ 551,369 $ 220,460
Investments 157,580 125,000
Accounts receivable, net of allowance for
doubtful accounts of $53,158 @
June 30, 1999 460,847 61,068
Inventory, net 3,289,422 1,080,733
Other current assets 103,395 33,513
---------------- ---------------
Total current assets 4,562,613 1,520,744
Property and equipment, net 277,486 10,966
Goodwill 638,084 --
---------------- ---------------
TOTAL ASSETS $ 5,478,183 1,531,740
================ ===============
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, 2000 June 30, 1999
-------------- -------------
<S> <C> <C>
Current liabilities:
Short-term debt $ 2,807,494 $ 927,100
Lease commitments 40,864 --
Accounts payable 196,590 127,549
Accrued expenses 109,038 67,823
Customer deposits 52,839 50,781
--------------- --------------
Total current liabilities 3,206,825 1,173,253
=============== ==============
Note Payable 1,000,000 --
Commitments and contingencies -- --
Stockholders' equity:
Common Stock 4,062 3,600
Additional paid-in capital 1,914,038 568,000
Accumulated deficit (646,742) (213,113)
--------------- --------------
Total stockholders' equity 1,271,358 358,487
--------------- --------------
Total liabilities and stockholders' equity $ 5,478,183 $ 1,531,740
=============== ==============
</TABLE>
See Accompanying Notes To Combined Financial Statements
F-2
<PAGE> 5
V-TWIN ACQUISITIONS, INC. AND SUBSIDIARIES/AFFILIATE
COMBINED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND MARCH 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
March 31, 2000 March 31, 1999
----------------- -----------------
<S> <C> <C>
Revenues:
Sales Income $ 2,993,485 $ --
Service Income 238,283 --
--------------- ---------------
Total revenues 3,231,768 --
Cost of goods sold 2,492,069 --
--------------- ---------------
Gross margin 739,699 --
Operation expenses 957,175 5,000
Operating Loss (217,476) (5,000)
--------------- ---------------
Other income and expense:
Other income 50,102 --
Interest expense, net (18,377) --
---------------- ---------------
Net loss $ (185,751) $ (5,000)
================ ===============
Net loss per common share:
Basic and diluted $ (0.05) $ 0.00
Weighted average number
of outstanding common shares 3,856,000 3,200,000
</TABLE>
See accompanying notes to combined financial statements
F-3
<PAGE> 6
V-TWIN ACQUISITIONS, INC. AND SUBSIDIARIES/AFFILIATE
COMBINED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31, 2000 AND MARCH 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
March 31, 2000 March 31, 1999
----------------- -----------------
<S> <C> <C>
Revenues:
Sales income $ 5,244,909 $ --
Service income 422,933 --
---------------- ----------------
Total revenues 5,667,842 --
Cost of goods sold 4,202,851 --
----------------- -----------------
Gross margin 1,464,991 --
Operating expenses 1,903,801 29,148
Operating loss (438,810) (29,148)
----------------- -----------------
Other income and expense:
Other income 50,102 --
Interest expense, net (44,921) --
----------------- -----------------
Net loss $ (433,629) $ (29,148)
================= =================
Net loss per common share:
Basic and diluted $ (0.11) $ (0.01)
Weighted average number
of outstanding common shares 3,735,000 3,066,000
</TABLE>
See accompanying notes to combined financial statements
F-4
<PAGE> 7
V-TWIN ACQUISITIONS, INC. AND SUBSIDIARIES/AFFILIATE
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
AT JUNE 30, 1999 AND FOR THE NINE MONTHS ENDED MARCH 31, 2000
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Add. Paid Accumulated Total Stockholders'
------------ --------- ----------- ------------------
Shares Amount in Capital Deficit Equity
------ ------ ---------- ------- ------
<S> <C> <C> <C> <C> <C>
Balance June 30, 1999 3,600,100 $ 3,600 $ 568,000 $ (213,113) $ 358,487
==================================================================================================================
Issuance of common
stock at an average
price of $2.23 379,400 $ 379 $ 846,121 -- $ 846,500
Issuance of common
stock in connection
with the acquisition
of Biker's Dream stores 83,333 83 499,917 -- 500,000
Net loss for the
nine months ended
March 31, 2000 -- -- -- $ (433,629) $ (433,629)
==================================================================================================================
Balance March 31, 2000 4,062,833 $ 4,062 $1,914,038 $ (646,742) $1,271,358
==================================================================================================================
</TABLE>
See accompanying notes to combined financial statements
F-5
<PAGE> 8
V-TWIN ACQUISITIONS, INC. AND AFFILIATE
COMBINED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 2000 AND MARCH 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (433,629) $ (29,148)
Adjustments to reconcile net loss to
net cash used in operation activities --
Depreciation and amortization 22,357 --
Changes in operating assets and liabilities:
Decrease(Increase) in:
Accounts receivable (399,780) --
Inventory (234,430) --
Other current assets (36,425) --
Accounts payable 69,041 --
Accrued expenses 41,215 --
Customer deposits 2,058 --
----------- -----------
Net cash used in operating activities (969,593) (29,148)
----------- -----------
Cash flows from investing activities:
Additions to property and equipment (96,429) --
Deposit on purchase of fixed assets -- (50,000)
Increase in investments (32,580) --
----------- -----------
Net cash used in investing activities (129,009) (50,000)
----------- -----------
Cash flows from financing activities:
Net increase in short-term debt 583,011 --
Proceeds from sale of common stock 846,500 --
Proceeds from additional paid in
capital -- 50,000
----------- -----------
Net cash provided by financing
activities 1,429,511 50,000
----------- -----------
Net increase (decrease) in cash 330,909 (5,000)
Cash at beginning of period 220,460 26,000
----------- -----------
Cash at end of period $ 551,369 $ 21,000
=========== ===========
</TABLE>
See accompanying notes to combined financial statements
F-6
<PAGE> 9
V-TWIN ACQUISITIONS, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
(Unaudited)
1. Organization
V-Twin Holdings, Inc., formerly V-Twin Acquisitions, Inc. (the "Company"), was
organized under the laws of the District of Columbia on July 10, 1998. On July
10, 1998, the Company completed a merger with Commercial Indemnity Underwriters,
Inc. ("CIU") with the Company as the surviving entity. CIU, formerly known as
American Solid Fuel, Inc. ("ASFI"), was an inactive company until its merger
with the Company. ASFI was formed in August, 1988, and successfully completed a
public offering through an S-18 registration. CIU had no assets, liabilities,
income or expenditures from operations and accordingly, there was no historical
carry-over basis. The change of the Company name occurred by vote of the Board
of Directors and the Company anticipates the shareholders will approve this name
change at the next annual meeting of shareholders. The Company acquired the
assets and certain liabilities of five motorcycle dealerships from Ultra
Acquisition Company on January 31, 2000. The dealerships are located in Texas,
California and North Carolina. (See Note 3.)
V-Twin Acquisitions, Inc. of Virginia (the "Affiliate") is a privately held
corporation organized under the laws of Virginia on March 30, 1999 to own and
operate motorcycle dealerships in Virginia.
The Company formed CycleClick.com, LLC on March 24, 2000 to facilitate the
creation of an e-commerce and business to business website. CycleClick.com, LLC
is a wholly owned subsidiary of V-Twin Holdings, Inc.
The Company and the Virginia entity's financial statements are combined pursuant
to a Trust Agreement, incorporated by reference in the previously filed Form
10-KSB filed December 2, 1999, and certain accounting rules regarding
combination, while both entities remain separate legal entities.
2. Summary of Significant Accounting Policies
Basis of Presentation - The combined financial statements of the Company include
the accounts of its subsidiaries and those of its affiliate, V-Twin
Acquisitions, Inc. of Virginia. All significant intercompany balances and
transactions have been eliminated.
Accounting Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the associated amounts
of revenues and expenses during the period reported. Actual results could differ
from the estimates.
Allowance for Doubtful Accounts - The Company uses the allowance method of
recognizing bad debts. Specifically identified uncollectable accounts are
charged against the allowance.
Inventory Valuation - Inventory is valued at the lower of cost or market using
the average cost method. Obsolete or damaged goods are reduced to estimated net
realizable values.
Cash Equivalents - For purposes of the combined statements of cash flows, the
Company considers all highly liquid debt instruments purchased with a maturity
of three months or less to be cash equivalents.
Concentrations of Credit Risk - Financial instruments that potentially subject
the Company to a concentration of credit risk consist principally of temporary
cash investments and accounts receivable. The Company has cash investment
policies that restrict placement of these investments to financial institutions
that are evaluated as highly creditworthy. The carrying amount of accounts
receivable approximate their net realizable value.
Property and Equipment - Property and equipment are recorded at cost.
Depreciation expense of property and equipment is determined using the
straight-line method over the estimated useful lives of the assets, as follows:
<TABLE>
<CAPTION>
<S> <C>
Computer equipment...................................................... 5 years
Machinery and equipment................................................. 7 years
</TABLE>
Maintenance and repairs are charged to expense as incurred; major renewals and
improvements are capitalized. When items of property or equipment are sold or
retired, the related cost and accumulated depreciation are removed from the
accounts and any
F-7
<PAGE> 10
gain or loss is included in the results of operations.
Goodwill - The excess of the cost over the fair value of net tangible and
identifiable intangible assets acquired in the Bikers Dream transaction is
amortized on a straight line basis over a period of 20 years. Goodwill
amortization totaled $5,000 in the quarter ending March 31, 2000.
Income Taxes - Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted taxes expected to apply to taxable income
in the years in which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Dividend Policy - The Company has not paid any dividends since its inception.
Management does not anticipate declaring dividends in the foreseeable future.
Earnings Per Share - Basic earnings per share is computed by dividing net income
by the weighted average number of shares outstanding for the period. Diluted
earnings per share include the dilutive effect of stock options, warrants and
contingent shares.
New Accounting Standards - In April 1998, the Accounting Standards Executive
Committee (AcSEC) issued Statement of Position (SOP) 98-5, "Reporting on the
Costs of Start-Up Activities." This SOP is effective for fiscal year 2000 and
requires that start-up costs and organizational costs be expensed as incurred
and that such costs capitalized previously be expensed as a cumulative effect of
change in accounting principle. The Company does not believe that SOP 98-5 will
have a material impact on its financial position or results of operations when
such statement is adopted.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities" for fiscal years
beginning after June 15, 1999. SFAS No. 133 requires the recognition of all
derivatives in the consolidated and combined balance sheet as either assets or
liabilities measured at fair value. The Company will adopt SFAS No. 133
effective for the 2000 calendar year end. Additionally, the Company does not
expect the adoption of SFAS No. 133 to have a material impact on its financial
position or results of operations since it does not engage in hedging activities
or hold derivatives.
3. Acquisitions
In January 2000, the Company purchased from Ultra Acquisition Company the assets
and assumed certain liabilities of five retail motorcycle dealerships located in
Texas, California and North Carolina. At closing the consideration paid to Ultra
was 83,333 shares of common stock valued at $500,000 and the issuance of a note
payable for $1,000,000. The note matures in five years, carries interest at 5%
and is secured by the assets of the Bikers Dream stores. Payments of interest
and principal begin in May 2001. The acquisition was accounted for using the
purchase method under Accounting Principles Board Opinion No. 16, "Business
Combinations," ("APB Opinion 16") to record the purchase of the asset and
certain liabilities. The operating results of the acquired locations have been
included in the accompanying combined financial statements since the date of
acquisition. The purchase price has been allocated to the assets and liabilities
acquired based upon their respective fair market values. Based on the allocation
of the purchase price over the net assets acquired, goodwill of approximately
$643,000 was recorded. Such goodwill is being amortized on a straight-line basis
over 20 years.
The purchase price of the assets acquired and liabilities assumed from Ultra is
computed as follows:
<TABLE>
<CAPTION>
<S> <C>
Issuance of note payable $1,000,000
Fair value of common stock issued 500,000
----------
$1,500,000
</TABLE>
The purchase price is allocated as follows:
<TABLE>
<CAPTION>
<S> <C>
Inventory $1,974,000
Other current assets 33,000
Property and equipment 187,000
Goodwill 643,000
Liabilities assumed (1,337,000)
-----------
$1,500,000
</TABLE>
F-8
<PAGE> 11
APB Opinion 16 requires, for purchase business combinations, the presentation of
pro-forma combined results of operations for the current year and comparable
prior-year period as if the transaction had occurred at the beginning of the
period. The following unaudited pro-forma results of operations are not
necessarily indicative of actual future results of operations. Because the
Company was a start-up in the prior year and meaningful comparative financial
statements are not available, the pro-forma results are presented for the
current year only.
<TABLE>
<CAPTION>
Nine months ended
March 31, 2000
-----------------
<S> <C>
Revenue $ 12,840,000
Gross Margin $ 3,600,000
Net income (loss) before
Provision for income taxes $ 96,000
Net income (loss) $ 96,000
Net income (loss) per common and
Common equivalent share $ .03
</TABLE>
In April 1999, the Affiliate purchased the ongoing operations plus certain
assets and liabilities of a retail motorcycle dealership located in Herndon, Va.
The acquisition was accounted for as a purchase, and accordingly, the operating
results of the acquired company have been included in the accompanying combined
financial statements since the date of acquisition. The aggregate purchase price
was approximately $300,000 and has been allocated to the assets and liabilities
acquired based upon their respective fair market values. No good will was
recognized in connection with this transaction.
4. Investments
Investments consist of five certificates of deposit which serve as security for
five letters of credit required to obtain inventory floorplan financing. These
investments bear interest at 4.05% with one year terms and are expected to be
held to maturity. The carrying amounts reported in the combined balance sheet
for these financial instruments are at cost, which approximates fair market
value.
5. Inventory
Inventory consists of the following:
<TABLE>
<CAPTION>
Mar. 31, 2000 June 30, 1999
---------------------- ------------------------
<S> <C> <C>
Motorcycles and other vehicles .............. $ 2,516,623 $ 858,630
Parts and accessories .......................... 772,807 222,103
---------------------- ------------------------
$ 3,289,430 $ 1,080,733
====================== ========================
</TABLE>
6. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
Mar. 31, 2000 June 30, 1999
---------------------- -------------------------
<S> <C> <C>
Computer equipment .............................. $ 79,830 $ 6,662
Machinery and equipment ........................ 155,589 4,657
Leasehold improvements 59,416 --
---------------------- -------------------------
294,835 11,319
Less: accumulated depreciation ............... (17,348) (353)
---------------------- -------------------------
$ 277,487 $ 10,966
===================================================================================================================
</TABLE>
Depreciation expense for property and equipment was $16,995 for the nine months
ended March 31, 2000 and was $ 353 for the period from inception (July 10, 1998)
to June 30, 1999.
F-9
<PAGE> 12
7. Debt
In January 2000, in connection with the purchase of the motorcycle dealerships
from Ultra, the Company entered into a five year note payable. The note accrues
interest at 5% and is secured by the assets of the Bikers Dream stores. The note
is payable in sixteen installments of $62,500 of principle plus interest
beginning in May 2001.
The Company plans to finance its motorcycle inventories for the Biker Dream
stores through floorplan financing arrangements that are secured by underlying
motorcycle inventory and the assets of its subsidiaries. The Company does have a
current floor plan financing arrangement for its current inventory, but is
exploring other floor plan financing arrangements for additional inventory. The
Company has, from time to time, received short term repayment terms from
specific manufacturers and has received motorcycles on these terms
The Affiliate finances its motorcycle inventory through floor plan financing
arrangements that are secured by the underlying motorcycle inventory and the
assets of the Affiliate. Investments held by the Affiliate have been pledged as
additional security to the finance companies along with personal guarantees of
two officers and directors of the Affiliate. Finance terms range from prime to
prime plus five depending upon the number of days outstanding from the inception
date of the financing. Typically, the finance companies provide a 60 or 90 day
grace period before interest is charged or accrued.
8. Commitments and Contingencies
Lease Commitments
The Company has lease commitments for the five retail locations purchased in
January 2000 as a result of the assumption of the lease commitments in place
when it acquired the five locations. These commitments range from one month to
two and a half years. In addition, the monthly rental ranges from $2,200 to
$13,881.
The Affiliate entered into a ten -year lease agreement beginning May 1, 1999,
for office and retail space in Herndon, VA at an initial monthly rate of $8,850,
which increased to $9,895.00 on May 1, 2000. In November 1999, the Affiliate
also placed a security deposit of $7,850 to move its Springfield location. This
new location is currently under zoning approval and refurbishment by its
landlord. The Affiliate anticipates operating in this location by August 2000.
The lease for the current Springfield location is month to month.
Rent expense for the three months ended March 31, 2000 was $ 116,908 and for the
period from inception (July 10, 1998) to June 30, 1999 was $28,729.
9. Stockholders' Equity
Stockholders' equity is comprised of the following:
<TABLE>
<CAPTION>
3-31-00
-----------------
<S> <C>
Common stock
Company - .001 par; 25,000,000 shares authorized; 3,700,000
shares issued and outstanding ......................................... $ 4,062
Affiliate - .001 par - 100 shares, authorized, issued and
outstanding ................................................................ --
-----------------
Total common stock ............................................... $ 4,062
=================
Additional paid in capital
Company ...................................................................... 1,913,938
Affiliate ......................................................................... 100
-----------------
Total additional paid in capital ................................... $ 1,914,038
=================
Accumulated deficit
Company ...................................................................... (300,945)
Affiliate ......................................................................... (345,797)
-----------------
Total accumulated deficit ........................................ $ (646,742)
=================
</TABLE>
<TABLE>
<CAPTION>
6-30-99
-----------------
<S> <C>
Common stock
Company - .001 par; 25,000,000 shares authorized; 3,700,000
shares issued and outstanding ......................................... $ 3,600
Affiliate - .001 par - 100 shares, authorized, issued and
outstanding ................................................................ --
-----------------
Total common stock ............................................... $ 3,600
=================
Additional paid in capital
Company ...................................................................... 567,900
Affiliate ......................................................................... 100
-----------------
Total additional paid in capital ................................... $ 568,000
=================
Accumulated deficit
Company ...................................................................... (29,980)
Affiliate ......................................................................... (183,133)
-----------------
Total accumulated deficit ........................................ $ (213,113)
=================
</TABLE>
F-10
<PAGE> 13
Common Stock - In July 1998, the Company merged with Commercial Indemnity
Underwriters, Inc. (CIU). In connection with this merger, all outstanding shares
of CIU were exchanged for 808,727 Class A shares and 191,273 Class B shares. In
August 1998, the Company's shareholders approved a one for three (1:3) forward
stock split and the abolishment of the existing two classes of common stock
resulting in a singular unitary class of common stock. At September 30, 1999,
the Company had 25,000,000 common shares authorized and 3,700,000 common shares
issued and outstanding at a par value of $ .001 per share.
During the nine months ended March 31, 2000 the Company issued an additional
279,000 shares of common stock to various investors at an average price of $2.44
per share. The proceeds of such issuances totaled $679,500. In August 1999,
100,000 warrants were exercised for $167,000 in cash, resulting in the issuance
of 100,000 restricted common shares of the Company.
In January 2000 the Company issued 83,333 shares of common stock, valued at $6
per share, in connection with the purchase of motorcycle dealerships from Ultra.
Warrants - Effective March 31, 2000, the Company issued warrants to purchase
70,000 restricted common shares at an exercise price of $3.50 per share. The
warrants are exercisable for a period of 60 months. Effective March 31, 2000,
the Company issued warrants to purchase 200,000 restricted common shares at an
exercise price of $9.50 per share. The warrants are exercisable for a one year
period.
In March 1999, the Company issued 600,000 shares of restricted common stock and
warrants to purchase 600,000 additional shares of restricted common stock. The
warrants are exercisable at $1.67 per share for a period of 54 months in
consideration for $400,000 in cash received. In August 1999, 100,000 of these
warrants were exercised for $167,000 in cash.
Additional Paid in Capital - During the period ended June 30, 1999, the Company
received cash consideration of $170,500 as additional paid-in-capital from
certain officers and directors of the Company.
10. Earnings Per Share
See Exhibit 11.
11. Related Party Transactions
Two officers and directors of the Affiliate also serve as officers and directors
of the Company. The two officers and directors of the Affiliate, owning
collectively 100% of the outstanding common stock of the Affiliate, have agreed
to pledge their shares pursuant to a trust agreement dated April 15, 1999, in
consideration for the purchase of key man life insurance.
In April 1999 the Company loaned the Affiliate $400,000 for purchase of certain
assets and liabilities of a motorcycle dealership and to provide working
capital. The loan evidenced via a promissory note is unsecured and is due and
payable in five years. Interest accrues at an annual rate of 10%. In August
1999, the Company loaned the Affiliate $167,000 for purchase of certain assets
and liabilities of a motorcycle dealership and to provide working capital. The
loan evidenced via a promissory note is unsecured and is due and payable in five
years. Interest accrues at an annual rate of 10%.
12. Supplemental Information to Statements of Cash Flows
Interest paid during the nine-month period ended March 31, 2000 was $72,507, and
from inception (July 10, 1998) to June 30, 1999 was $14,641. No federal or state
income taxes have been paid.
13. Subsequent events
In May 2000, the Affiliate entered into a secured note agreement with its two
owners, whereby it assigned the new note to the Company in payment of the
Affiliate's two outstanding notes with the Company. The new note is secured by
the owners' stock in the Affiliate and is due and payable in ten years. Interest
accrues at an annual rate of 10%.
F-11
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following information should be read in conjunction with the audited
financial statements and notes appearing elsewhere in this Form 10-QSB, as well
as those relating to the Form 10-KSB filed on December 2, 1999. The Company had
expenses prior to May 1999 with regards to its business development and
additional costs related to its requirements as a public company.
The Company is primarily engaged in the acquisition and management of motorcycle
dealerships and related businesses. Prior to January 31, 2000, the Company's
actions have been to complete its initial capitalization and the necessary SEC
filings to achieve public status and to identify various motorcycle dealerships
for acquisition. On January 31, 2000 the Company purchased certain assets and
assumed certain liabilities of five motorcycle dealerships. (See Note 3 to the
Combined Financial Statements). The Company continues to identify and review
other potential acquisitions. The Virginia entity sells motorcycles and related
service, parts and accessories. The Virginia entity initiated operations on May
1, 1999.
The Company and the Virginia entity's financial statements are combined pursuant
to a Trust Agreement, incorporated by reference in the previously filed Form
10-KSB filed December 2, 1999, and certain accounting rules regarding
combination, while both entities remain separate legal entities.
For purposes of this section, "Company" shall include both the public company
and the Virginia entity.
The total assets of the Company at June 30, 1999 were $1,531,740, and at March
31, 2000 were $5,478,183. The increase in the assets is due to the acquisition
of the assets of the five Bikers Dream locations undertaken by the Company in
January 2000 (hereinafter the "Bikers Dream transaction"). The new 2000 model
year motorcycle, ATV and personal watercraft units taken into inventory by the
Company during the period to provide additional inventory for the Company's
traditional busy season for certain stores (March through June) also increased
assets. In addition, in January 2000, the Company placed a $25,000 letter of
credit to secure an increase in a floor plan line to support one of its
motorcycle lines.
The Company's liabilities increased from $1,173,253 at June 30, 1999 to
$4,206,825 at March 31, 2000. This increase is primarily due to the Bikers Dream
transaction in which the Company entered into a $1,000,000 note payable and
assumed approximately $1,300,000 in short-term debt associated with the
purchased inventory. The remaining increase in the short-term debt is related to
the Company's increase in inventory, discussed above.
Total capital in consolidation was $358,487 at June 30, 1999, and at March 31,
2000 was $1,271,358. During the nine months ended March 31, 2000, the Company
issued 379,400 common shares for an aggregate price of $846,600. In addition,
the Company issued 83,333 shares of common stock as part of the purchase price
in the Bikers Dream transaction.
Total revenues for the three month period ending March 31, 2000 were $3,231,768
and for the three month period in 1999 total revenues were $ -0-. Gross profit
for the three month period ending March 31, 2000 was $739,699 and for March 31,
3
<PAGE> 15
1999 was $ -0-. The Company had a net loss for the three month period ended
March 31, 2000 of ($185,751) or ($0.05) per share and the net loss for the same
period in 1999 was ($5,000), or ($0.00) per share. The results of operations for
the quarter ending March 31, 2000 reflect two months of activity of the five
dealerships purchased in the Bikers Dream transaction.
Total revenues for the nine month period ending March 31, 2000 were $5,667,842
and were $ -0- for the same period in 1999, and gross profit for the nine month
period ending March 31, 2000 was $1,464,991, and for the same period in 1999 was
$ -0-. The Company had a net loss for the nine month period ended March 31, 2000
of ($433,629) or ($0.11) per share and the net loss for the same period in 1999
was ($29,148) or ($0.01) per share.
The increase in revenues and gross profits for the three and nine month periods
are attributed to the Bikers Dream transaction completed by the Company and
favorable weather conditions experienced by the Company in March 2000.
The Company's net loss for the three and nine months ending March 31, 2000 is
primarily attributable to certain corporate costs associated with the Bikers
Dream transaction, including accounting fees, legal expenses, and travel, as
well as other corporate and public company expenses. The combined net loss from
operations for its stores for the quarter and nine months ending March 31, 2000
accounts for approximately half of the Company's net loss for both periods.
The Company anticipates revenues to increase in the fourth quarter due to the
seasonality of its locations in Virginia and North Carolina, as well as the
restocking of new models of motorcycles at some of the Bikers Dream locations.
As of the date of this filing, the Company has reached dealer agreements with
American Ironhorse, Carefree Custom Cycles, Panzer Motorcycle Works, USA, Inc.,
Big Dog Motorcycles, LLC, and Confederate Motorcycles, Inc. Management believes
that these manufacturers will provide motorcycles with price points both above
and below the current Ultra motorcycles existant on the showroom floors. This
will help attract new customers to the retail locations.
Plan of Operation
The Company expects to have sufficient funds resulting from continuing
operations to satisfy its cash requirements for the next 12 months, in view of
positive sales trends found in March and April, 2000 in several of its retail
locations. The Company anticipates raising additional funds only to acquire
additional dealerships and to fund its e-commerce enterprise.
On January 31, 2000, the Company purchased the assets and assumed certain
liabilities for five (5) retail locations (the "Bikers Dream transaction" or the
"Bikers Dream stores") from Ultra Motorcycle Co. At closing, the consideration
paid to Ultra included the issuance of 83,333 restricted common shares and a
five year promissory note for $1,000,000. The $1,000,000 note bears interest at
5% and is secured by the assets of the Bikers Dream stores. The note is payable
commencing May 1, 2001 in sixteen (16) consecutive quarterly installments.
The assets that the Company purchased are new and used motorcycles, motorcycle
parts and accessories, service department equipment, office and other equipment
and deposits. The Company also assumed approximately $1,300,000 in debt. In
addition to the assets purchased, the Company also received the licensing rights
4
<PAGE> 16
to the trade name "Bikers Dream", and the Bikers Dream on-line superstore
(www.bikers-dream.com). The company recognized $643,000 in goodwill related to
this transaction. (See Note 3 to the Combined Financial Statements.)
Effective May 1, 1999 the Virginia entity purchased the assets of a two store
motorcycle dealership in the Washington, DC metropolitan area named Cycle Sport
Unlimited, Inc. More information regarding that acquisition is incorporated by
reference herein in the Form 10-KSB filing completed on December 2, 1999, at
pages 5 and 6, and the Form 10-QSB filing completed on December 10, 1999 at page
4.
The Company's goal of purchasing the assets and ongoing business of motorcycle
dealerships across the country and developing an integrated, national marketing
effort that leverages retail sales, direct marketing and the Internet has been
considerably furthered during the period ending March 31, 2000. As indicated
above, the Company purchased the assets and certain liabilities of five Bikers
Dream retail locations from Ultra Motorcycle Co. Additionally, the Company
signed an agreement with PurchasePro.com, LLC to create an e-commerce and
business to business website and created a wholly owned Delaware corporation,
CycleClick.com, LLC, to encompass this sector of its business.
Management is currently negotiating with several vendors so that CycleClick.com
can purchase products direct from the manufacturers and distributors at reduced
wholesale prices, as a result of the Company's aggregated purchasing power.
Management believes that a large audience of motorcycle riders will be attracted
to one of the two consumer oriented web sites: www.bikers-dream.com will serve
enthusiasts of heavy cruisers such as Harley-Davidson, Ultra, and other U.S.
made custom motorcycles; and www.sportbike.net will attract the sports bike
riders who own Japanese, US and European manufactured motorcycles.
Growth in the Motorcycle Industry
The Company found from research that the entire motorcycle industry is growing
considerably. The 1999 Motorcycle Statistical Annual prepared by the Motorcycle
Industry Council states that in 1998, 4,200,000 motorcycles were registered for
use on public roads, with 432,000 new motorcycles sold in the US, in comparison
to 356,000 new motorcycles sold in 1997. These motorcycle sales equal
approximately $3,500,000,000 in 1998. In 1999, there are approximately 13,833
retail outlets selling motorcycles and related products in the US, an 8%
increase over the 12,581 retail outlets reported by the 1998 Motorcycle
Statistical Annual. The 1999 Retail Outlet Profile Survey indicates that the
estimated average motorcycle sales and services for a franchised motorcycle
dealer was $1,522,400, compared to $254,5000 for a non-franchised dealer. At
this time, the Company operates franchised dealerships.
For more information regarding industry growth, please see the Form 10-SB/A-3
filed on February 19, 1999 at pages 7 through 9, and exhibits 99.2, 99.3, and
99.5 incorporated by reference in the Form 10-KSB filed December 2, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company anticipates meeting its working capital needs through operations and
the private placement of securities to accredited investors. It is also
investigating the possibility of other financing to provide additional
5
<PAGE> 17
acquisition capital and to further its acquisition program. Although it has not
made any arrangements or definitive agreements, it is contemplating both the
private placements of securities and/or a public offering.
During the period ending March 31, 2000, the Company issued warrants to purchase
70,000 restricted common shares at an exercise price of $3.50 per share. The
warrants are exercisable for a period of 60 months. Also during the same period,
the Company issued warrants to purchase 200,000 restricted common shares at an
exercise price of $9.50 per share. The warrants are exercisable for a one-year
period and were issued in exchange for work done on its B2B website.
In the opinion of management, inflation has not had a material effect on the
operations of the Company.
PRODUCTS AND MARKETS
The Company is primarily engaged in retail sales of new and used motorcycles,
ATV's and personal watercraft related parts and accessories, and the service of
these products.
Motorcycles, ATV's and personal watercraft and related parts and accessories are
products enjoying a rising consumer market. According to U.S. Government
reports, from 1992 through 1995, spending on recreational products grew at over
five percent per year and from 1994 through 1997 grew at three times the rate of
overall consumer spending.
There are several factors and changes in the motorcycle retailing industry which
the Company believes provide attractive consolidation opportunities for groups
with significant equity capital and managers experienced in identifying,
acquiring and professionally managing dealerships. The primary factor that the
Company believes provides a consolidation opportunity is that the motorcycle
retailing industry is very fragmented, with over 13,833 retail outlets in 1999.
The majority of these dealerships are privately owned and operated. Dealership
costs are growing as capital costs of opening new dealerships are increasing and
franchising costs require a dealer to carry substantial inventories. For many
dealers there are few alternative exit strategies other than selling to a
growing dealership group, especially for larger dealerships and dealership
owners nearing retirement. The Company believes that these factors may provide
attractive consolidation opportunities.
More information regarding the control of motorcycle manufacturers over
acquisitions and dealers can be found herein under the headings "Manufacturers'
Consent to Acquisitions and Market Expansion" and "Motorcycle Manufacturers'
Control Over Dealers".
MANUFACTURERS' CONSENT TO ACQUISITIONS AND MARKET EXPANSION
Some motorcycle manufacturers yield considerable control over the dealerships
that carry their brands through franchise agreements. If there is a change of
control in the dealership, a new dealer must obtain consent from each
manufacturer to continue to carry that manufacturer's brand of motorcycle. In
determining whether to approve changes of control, manufacturers may consider
any number of subjective factors. These may include the financial condition and
ownership structure of the new dealer. The manufacturers may impose conditions
6
<PAGE> 18
to the change of control, including limiting the number of such manufacturers'
franchised dealers that may be acquired by the new dealer. The manufacturers are
under no obligation to approve changes in control or acquisitions, to disclose
their reasons for accepting or rejecting an acquisition or by abiding by
objective and publicly disclosed measurements by which they approve changes in
control.
The ability of a future subsidiary and/or affiliate corporation to meet
manufacturers' requirements for approving future acquisitions will have a direct
bearing on the Company's ability to complete acquisitions and effect its growth
strategy. The Company can make no assurance that a manufacturer will not
terminate its dealer agreement, refuse to renew its dealer agreement, refuse to
approve future acquisitions, or take other action that could have a material
adverse effect on the Company's acquisition program.
The Company's growth strategy also includes acquiring non-franchised and/or
independent motorcycle dealerships that are not restrained by manufacturers'
dealer agreements.
MOTORCYCLE MANUFACTURERS' CONTROL OVER DEALERS
The major motorcycle manufacturers exercise significant control over the
operations of their franchised dealerships. In addition to yielding control over
changes in dealer ownership, many manufacturers control the dealer's geographic
selling area. In these cases, the dealer has an exclusive right to sell the
franchised manufacturers' products within a given protected geographical area.
The dealer may not promote or sell its products to customers residing outside of
its geographical area. The manufacturers also impose customer satisfaction and
market share goals. If a dealer fails the requirements of its dealer agreement,
then the manufacturer may (i) impose additional conditions in subsequent dealer
agreements; (ii) terminate its dealer agreement (iii) limit allocations of
inventory; (iv) reduce reimbursement rates for warranty work performed by the
dealer; and/or (v) deny approval of future acquisitions.
COMPETITION
The Company, as a consolidator of motorcycle dealerships, has no direct
competition. The Company knows of no other publicly traded company that conducts
business in acquiring and/or consolidating the retail motorcycle market. The
Company is aware of several large private companies whose business operates
around the acquisition and consolidation of motorcycle dealerships.
While the vast majority of motorcycle dealers are single store operations that
are family owned style dealership, there are several privately owned dealerships
that own multiple retail locations and seek to acquire additional locations.
Increased competition for acquisition candidates may increase purchase prices
for acquisitions to levels beyond the Company's financial capability or to
levels that would not result in the desired returns.
V-Twin's competitive position within the industry will be largely determined by
its ability to offer competitive motorcycle brands and models, and its ability
to offer value and service to its customers, both in the factory replacement
parts retail sector and in the service sector.
7
<PAGE> 19
DISTRIBUTION
The majority of the five Bikers Dream stores' motorcycles were purchased and
shipped directly to those locations from Ultra Motorcycle Company. During the
period ending March 31, 2000, the Company was reliant upon Ultra Motorcycle
Company to provide new motorcycles for sale in these locations. However, as of
the time of this filing, the Company has finalized dealer agreements with other
manufacturers to sell their motorcycles in some of the Bikers Dream locations.
These manufacturers are American Ironhorse, Carefree Custom Cycles, Panzer
Motorcycle Works, USA, Inc., Big Dog Motorcycles, LLC, and Confederate
Motorcycles, Inc. Additional sources of salable motorcycles available to these
locations include consignment sales, trade-in motorcycles taken at the time of
sale on a new motorcycle, and purchasing used inventory from auctions and
private persons. In addition to motorcycles, the Company purchases for resale
after market parts and accessories, such as side cars, wearing apparel, helmets,
saddlebags, custom exhausts, seats, handle bars, light bars, sissy bars, and
touring luggage.
The Company operates pursuant to franchise agreements between each motorcycle
manufacturer or their authorized distributor. Both are significantly dependent
on its relationship with such manufacturers for distribution (and subsequent
sales) of motorcycles and related products. Some manufacturers control many
aspects of a dealer's business, as described in the above section entitled
"Motorcycle Manufacturers' Control Over Dealers".
OPERATIONS
Many phases of the Company's operations are subject to influences outside their
control. Any singular factor, or combination of factors, could materially affect
its results. These factors include: the cost of goods, competitive pressures,
inflation, consumer debt levels, currency exchange fluctuations, trade
restrictions, changes in tariff and freight rates, interest rate fluctuations
and other capital market conditions.
Forward-looking statements that are made, or others make on its behalf, are
based on knowledge of the Company's business and the environment in which it
operates. However, because of the factors listed herein, actual results may
differ from those in the forward-looking statements. Consequently, all of the
forward-looking statements made herein are qualified by these and other
cautionary statements. The Company can make no assurance that the actual results
or developments it anticipates will be realized or, even if substantially
realized, that they will have the expected consequences to or effects on the
Company or its business or operations.
SEASONALITY
The Company does anticipate experiencing seasonal fluctuations in motorcycle
sales at some of its locations, as at least three of its locations are in
climates where harsh weather could hinder sales during colder months.
During the period ending March 31, 2000, the Company experienced increased sales
in its Virginia locations in March against its January and February sales due to
favorable weather conditions.
8
<PAGE> 20
GOVERNMENT REGULATION
Motorcycle sales are subject to certain government regulations. Motorcycles are
subject to the emissions and noise standards of the U.S. Environmental
Protection Agency and the more stringent emissions standards of various State
agencies. Motorcycles are also subject to the National Traffic and Motor Vehicle
Safety Act and the rules promulgated thereunder by the National Highway Traffic
Safety Administration. Federal, state and local authorities have adopted various
standards relating to air, water, helmet rules and noise pollution.
Additionally, the Federal Trade Commission applies regulations over franchised
businesses and dealerships. Any of these regulations may affect the Company's
operations as well as those of the motorcycle manufacturers. The Company's
facilities comply with all such regulations and standards, and that current
production levels of motorcycles will continue in line with the increasing
interest in motorcycles, ATVs and personal watercraft. The Company's locations
are subject to the laws of the Department of Motor Vehicles for the States of
California, Texas, North Carolina, and the Commonwealth of Virginia regarding
motorcycle dealerships.
EMPLOYEES
As of March 31, 2000, the Company had 64 full-time employees. The Company may
add home office supervisory, marketing and administrative staff as the Company
continues to grow. The Company provides its employees with health insurance. The
Company is not subject to any collective bargaining agreements.
CUSTOMER BASE
The Company is not dependent on any one major or any few select customers. The
Company's sales are the result of comprehensive advertising campaigns, referrals
and re-sales to old customers. The Company enjoys the benefit of its customers
who have purchased various items from its stores under the previous owner(s),
and the benefit of a nationwide brand name presence.
RESEARCH AND DEVELOPMENT
The Company has conducted specific research required in connection with the
acquisition of motorcycle dealerships. Research and development is limited to a
study of the retail motorcycle industry, and finding, evaluating and negotiating
the purchase of independent motorcycle dealerships to be acquired. Research and
development is a critical factor to the Company's success. Sound business
decisions in finding and closing the purchase of acquisitions in the
unconsolidated motorcycle dealership market will lead to success for the Company
and its shareholders.
GROWTH STRATEGY
The Company intends to acquire motorcycle dealerships throughout the United
States. The Company seeks to acquire dealerships that have superior operating
managers and benefit from their market knowledge, customer base and local
reputation. By acquiring additional dealerships the Company will increase its
total consolidated sales and profits. These acquisitions should produce
opportunities for additional operating efficiencies, promote increased name
9
<PAGE> 21
recognition and provide the Company with better opportunities for repeat and
referral business. This will also allow for the Company to transfer product from
store to store to maximize sales while minimizing costs.
Once an acquisition or asset purchase has been completed, the Company intends to
review and potentially reorganize business operations, corporate infrastructure
and systems, and financial controls. Unforeseen expenses, difficulties, and
delays frequently encountered in connection with rapid expansion through
acquisitions could inhibit the Company's growth and negatively impact
profitability. At the time of this filing, the Company has centralized a
majority of its accounting functions at one of its locations.
While the Company feels that certain segments of the motorcycle industry may be
available for consolidation, there are several factors that are inherently
problematic in acquiring motorcycle dealerships. Some of these problems are the
fact that, typically, motorcycle dealerships have substandard accounting
practices and controls, and are typically not audited. V-Twin, as a consolidator
of dealerships, will sustain such problems and expenses as it conducts its asset
purchases and/or acquisitions to make such new affiliates and/or subsidiaries
able to comply with standard accounting practices.
The Company can make no assurance that suitable acquisition candidates will be
identified, that acquisitions of such candidates will be consummated, or that
the operations of any acquired businesses will be successfully integrated into
the Company's operations and managed profitably without substantial costs,
delays, or other operational or financial difficulties.
ANTI-TAKEOVER EFFECT OF ARTICLES AND BYLAW PROVISIONS
The Company's Articles of Incorporation provide that up to 50,000,000 shares of
common stock and 2,000,000 shares of preferred stock may be issued by the
Company from time to time in one or more series. On November 27, 1998, the
Board, authorized by the shareholders, merged these classes into one unitary
class with one vote per share.
V-Twin's Articles of Incorporation authorize the Board of Directors with various
rights, including the rights to (i) determine the rights, preferences,
privileges and restrictions granted to and imposed upon any unissued series of
preferred stock; (ii) fix the number of shares of any series of preferred stock
and the designation of any such series, without any vote or action by the
company's stockholders; (iii) authorize and issue preferred stock with voting or
conversion rights that could adversely affect the voting power or other rights
of the holders of common stock; (iv) issue preferred stock that could have the
effect of delaying, deferring or preventing a change in control of the company;
and (v) fix the number of directors in the bylaws with no minimum or maximum
number of directors required. the effect of these provisions may be to delay or
prevent a tender offer or takeover attempt that a stockholder might consider to
be in his best interest, including attempts that might result in a premium over
the market price for the shares held by the stockholders.
CHANGES IN CONSUMER SPENDING, ECONOMIC CONDITIONS OR TAX LAWS
The Company's operations depend upon a number of factors relating to or
affecting consumer spending for discretionary goods such as motorcycles. The
10
<PAGE> 22
Company's operations may be adversely affected by economic developments that
reduce consumer spending in its markets. In an economic downturn, consumer
discretionary spending levels generally decline. Rising interest rates could
have a negative impact on consumers' ability or willingness to finance
motorcycle purchases. Local influences, such as corporate downsizing and
military base closings, could adversely affect the Company's operations in
certain markets. Changes in federal and state tax laws, such as an imposition of
luxury taxes on leisure time products, also could influence consumers' decisions
to purchase products offered by the Company. These factors could adversely
affect the ability of the Company or future subsidiaries/affiliates to sell its
products. There can be no assurance that the Company could maintain its
profitability during any such period of adverse economic conditions or low
consumer confidence, and such a period could have a negative effect on the
Company's sales.
DILUTION THROUGH ISSUANCE OF STOCK
The Company's operating results may fluctuate substantially from quarter to
quarter due to the size, timing, and integration of any future acquisitions.
Consequently, operating results for any quarter may not be indicative of the
results that may be achieved for any subsequent quarter or for a full fiscal
year. These fluctuations could adversely affect the market price of the Common
Stock.
The Company's ability to grow by acquiring additional dealers will depend upon
several factors. These include (i) the availability of suitable acquisition
candidates at attractive purchase prices; (ii) its ability to compete
effectively for available acquisition opportunities; (iii) the availability of
funds or the market price of the Company's common stock; (iv) its ability to
obtain the requisite government licensing approvals; and (v) its ability to
obtain the necessary franchising agreements with manufacturers. Additionally,
one or more manufacturers may attempt to impose further restrictions on us in
connection with their approval of acquisitions.
FUTURE CAPITAL NEEDS; DEBT SERVICE REQUIREMENTS; POSSIBLE DILUTION THROUGH
ISSUANCE OF STOCK
The Company's future capital requirements will depend upon the size, timing, and
structure of future acquisitions and its working capital and general corporate
needs. To the extent that future acquisitions are wholly are partially financed
through common stock or securities convertible into or exercisable into common
stock, the voting power of existing stockholders will be diluted and earnings
per share could be reduced. The extent to which the Company will be able or
willing to use common stock for acquisitions will depend on the market value of
its common stock from time to time. It will also depend on the willingness of
potential sellers of dealerships to accept common stock as full or partial
consideration. The Company's growth could be materially limited if the Company
is unable to use its common stock as consideration in acquisitions, to generate
cash from operations, or to obtain additional debt or equity financing.
Any borrowings made to finance future acquisitions or for operations could make
the Company more vulnerable to a downturn in its operating results, a downturn
in economic conditions, or increases in interest rates on borrowings that are
subject to interest rate fluctuations. If the Company's cash flow from
11
<PAGE> 23
operations is insufficient to meet its debt service requirements, the Company
could be required to sell additional equity securities, refinance its
obligations, or dispose of assets in order to meet its debt service
requirements.
Additionally, it is likely that the Company and future subsidiaries/affiliates
must comply with financial and operational covenants of their current or future
credit arrangements. These covenants are likely to include limitations on both
capital expenditures and increases in indebtedness.
There can be no assurance that such financing will be available if and when
needed or will be available on terms acceptable to the Company or future
affiliates and/or subsidiaries. The failure to obtain sufficient financing on
favorable terms and conditions could have a material adverse effect on the
Company's growth prospects and its business, financial condition, and results of
operations.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are, at present, no legal proceedings in which the Company is involved,
either as plaintiff or defendant.
ITEM 2. CHANGES IN SECURITIES
The Company believes that the transactions described below in which securities
were sold were exempt from registration under the Securities Act of 1933 by
virtue of Section 4(2), Regulation D Section 504, and Rule 145 (a)(2) thereof as
transactions not involving any public offerings. In each transaction, the number
of investors was limited, the investors were provided with information about the
Company and/or given access to such information, and restrictions were placed on
resales of the securities.
<TABLE>
<CAPTION>
DATE TITLE AMOUNT CONSIDERATION PUCHASER
SHARES
<S> <C> <C> <C> <C>
3/00 Common Stock 265,500 $ 637,500 (1) Private investors
3/00 Common Stock 14,000 $ 42,000 (2) Advisers
</TABLE>
(1) Effective March 31, 2000, the Company issued 265,500 restricted common
shares to private investors.
(2) Effective March 31, 2000, the Company issued 14,000 restricted common shares
to legal and business advisers in lieu of cash payments. These issued shares
were valued at $3.00 per share and the value was expensed by the Company.
At the Company's annual meeting on August 31, 1998, the shareholders agreed to
authorize the Board of Directors to, within their discretion, abolish the
existence of the existing two classes of stock. The Board of Directors
12
<PAGE> 24
instituted this change at a Board meeting in November, 1998. Also, a one for
three (1:3) forward split in the common stock of the Company was authorized by
the shareholders of the corporation at the annual meeting, and this forward
split, as authorized by the shareholders, could be instituted by the Board of
Directors at its discretion, which was also done at a Board meeting in November,
1998.
The rights evidenced by any class of registered securities have not been
materially limited or qualified by the issuance or modification of any other
class of securities.
Information regarding previous sales of equity securities to private accredited
investors under the 4(2) exemption can be found in the Form 10-KSB filed
December 2, 1999 at page 4 and in the Notes to Financial Statements thereto
under paragraph 14 "Subsequent Events". No underwriter was utilized in that
transaction.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE.
ITEM 5. OTHER INFORMATION
In April 2000, the Company filed a US Patent and Trademark application under
Section 1(b) on behalf of CycleClick.com with regards to the creation of a
on-line store.
At a meeting of the Board of Directors on December 4, 1999, the Board elected to
change the name of the Company to V-Twin Holdings, Inc. The Board anticipates
this name change to be ratified by the shareholders of the corporation at the
next shareholders' meeting, scheduled to take place on August 31, 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS. The following exhibits are filed or incorporated by reference as
part of this report.
(10) Material contracts. Attached hereto.
(11) Statement re computation of per share earnings. Attached hereto.
(21) Subsidiaries/Affiliates of the Registrant. Attached hereto.
(27) Financial data schedule. Attached hereto.
(99) Additional Exhibits.(1)
(99.1) American Solid Fuel, Inc. S-18 effective notice dated August
2, 1989 and Prospectus.(1)
13
<PAGE> 25
(99.2) "The Motorcycle Industry" by Mike Paschke.(1)
(99.3) Reuters News Release-"Harley Rides Out US Motorcycle Boom".(1)
(99.4) Antitrust Law and Economic Review by Charles E. Mueller.(1)
(99.5) Cycle News - "In the Wind".(1)
(99.6) 1998 Yamaha Industry Comparison Data.(1)
(99.7) V-Twin control shareholders letters re: additional paid in
capital.(1)
(99.8) Form D - Notice of Sale of Securities Pursuant to Regulation D,
Section 4(6), and/or Uniform Limited Offering Exemption.(1)
(99.9) Trust Agreement.(2)
(99.10) Motorcycle Industry Council 1998 Annual Report (selected
pages). (2)
(99.11) Information Statement.(2)
(99.12) Motorcycle Industry Council 1999 Annual Report (selected pages).
(1) Previously filed as an exhibit to V-Twin's Form 10-SB and amendments
thereto filed on November 12, 1998 and February 19, 1999.
(2) Previously filed as an exhibit to V-Twin's Form 10-KSB filed on December
2, 1999.
(B) No reports on Form 8-K were filed during the quarter for which this report
is filed.
14
<PAGE> 26
SIGNATURE
In accordance with Section 12 of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
May 12, 2000
V-Twin Holdings, Inc.
/s/ RICHARD PAONE
- --------------------------------------
Richard Paone, President and Director
/s/ TED SCHWARTZBECK
- --------------------------------------
Ted Schwartzbeck, CEO and Chairman
/s/ JAY PIGNATELLO
- --------------------------------------
Jay Pignatello, Secretary and Director
15
<PAGE> 1
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") made and entered into
this 18th day of January 2000, by and between BIKERS DREAM, INC. ("Seller"), and
V-TWIN HOLDINGS, INC., a District of Columbia corporation ("Purchaser").
WHEREAS, Seller's retail stores division: (i) is engaged in the sale and
servicing of motorcycles to the general public at five Company-owned Bikers
Dream Superstores in Santa Ana, Sacramento and San Diego, California, Dallas,
Texas, and Conover, North Carolina (collectively, the "Company Superstores");
(ii) licenses the Seller's Intellectual Property (as defined below) and use of
its business model and operating manuals to its independently owned Bikers Dream
Superstores pursuant to the license agreements described in Schedule 1.1.9
hereto (collectively, the "License Agreements"); and (iii) operates an
e-commerce site under the domain name "bikers-dream.com" (the "Domain Name") for
the sale to the public of motorcycle parts, accessories and apparel (the
businesses referred to in clauses (i), (ii) and (iii) above are hereafter
collectively referred to as the "Retail Business"); and
WHEREAS, pursuant to the terms and subject to the conditions set forth
herein, Seller desires to sell to Purchaser, and Purchaser hereby desires to
acquire from Seller, certain assets relating to the operation of the Retail
Business, and Purchaser desires to assume certain liabilities in connection
therewith (including, without limitation, the assignment by Seller to Purchaser
of Seller's rights under the License Agreements and Seller's leases for the
Company Superstores, and the assumption by Purchaser of Seller's obligations
under said agreements); and
WHEREAS, pursuant to the terms and conditions set forth herein, after the
Settlement Date, Purchaser desires to continue to operate the Company
Superstores at the five locations described above and in connection therewith,
to enter into a Master Dealer Agreement with Seller relating to the distribution
of Seller's Ultra Brand of motorcyles.
NOW, THEREFORE, in consideration of the terms, covenants and conditions
contained herein, the parties agree as follows:
1. GENERAL TERMS OF SALE
1.1 Contract to Sell. Subject to the terms and conditions
set forth herein, Seller hereby agrees to sell, assign, transfer and deliver to
Purchaser, and Purchaser hereby agrees to purchase from Seller, the following
assets and properties (collectively, the "Assets"):
1.1.1 All goods, supplies, equipment and fixtures
(including trade fixtures, office machinery and equipment), used primarily in
the operation of the Company Superstores
<PAGE> 2
which are present at the Company Superstores as of the close of business on the
day before the Settlement Date (the "Fixed Assets");
1.1.2 All inventory of the Company Superstores as of
the Settlement Date consisting of new and used motorcycles, motorcycle parts,
clothing and accessories, up to the Fixed Value (as defined in Section 2.2
hereof) thereof as of the Settlement Date (the "Inventory");
1.1.3 The motor vehicles used in the operation of the
Company Superstores as described in Schedule 1.1.3 hereof;
1.1.4 All of Seller's right, title and interest in
contracts held by Seller with any of its suppliers or vendors to the Company
Superstores, to the extent that such agreements may be assignable or assumable;
1.1.5 All the intellectual property assets of Seller
set forth in Schedule 1.1.5, including the trade name "Bikers Dream" together
with the current logo and/or service mark and other right as the licensor (the
"Intellectual Property");
1.1.6 The right to the use of the assumed name "Bikers
Dream" and the existing telephone numbers of the Company Superstores, to the
extent such telephone numbers can be assigned to Purchaser;
1.1.7 All of Seller's right, title and interest in and
to the Domain Name and related Intellectual Property;
1.1.8 All of Seller's right, title and interest in and
to the domain name "bikersdream.com" (the "Disputed Domain Name") and related
Intellectual Property as set forth in and pursuant to Section 5.17.1 of this
Agreement;
1.1.9 All of Seller's right, title and interest under
the License Agreements, with the exception of any License Agreements under
dispute of any kind as of the date of this Agreement and disclosed in Schedule
1.1.9 (the "Disputed License Agreements");
1.1.10 All of Seller's right, title and interest as
lessee in and to the real property leases for each of the Company Superstores,
including the leases identified on Schedule 1.1.10 hereto;
1.1.11 All of Seller's right, title and interest in and
to the equipment leases for all equipment located on the premised of the Company
Superstores as of the Settlement Date, including without limitation the
equipment leases identified on Schedule 1.1.11 hereto, to the extent that such
agreements may be assignable or assumable.
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1.1.12 All prepaid deposits as set forth in Schedule
1.1.12 hereto.
1.2 Assumption of Liabilities and Obligations. On the
Settlement Date, Purchaser shall assume and agree to pay, perform and discharge:
(i) all liabilities and obligations whatsoever arising out of or in any way
related to the operation of the Retail Business after the Settlement Date; (ii)
Seller's liabilities under the License Agreements, the real property leases
described in Section 1.1.10 hereto, the equipment leases described in Section
1.1.11 hereto (to the extent that such agreements are assignable), liabilities
of Seller under any other contract assumed by Purchaser hereunder, and all
obligations under Seller's credit line with Cycle Capital Corporation; and (iii)
such other obligations and liabilities of Seller listed on Schedule 1.2 hereof
(collectively, the "Assumed Liabilities").
1.3 Excluded Obligations. Except as set forth in Section
1.2 above, Purchaser shall not assume or be responsible for, any liability,
obligation, debt or commitment of Seller.
1.4 Further Assurances. From time to time after the
Settlement Date, Seller will execute and deliver to Purchaser, or assist
Purchaser in obtaining, such further instruments of sale, transfer, conveyance,
assignment and delivery, consents and assurances as may be reasonably requested
by Purchaser in order to convey to Purchaser all right, title and interest of
Seller in and to the Assets or as otherwise may be expressly required by this
Agreement.
2. CONSIDERATION AND METHOD OF PAYMENT
2.1 Purchase Price. On the Settlement Date, as
consideration for the transfer of the Assets, Purchaser shall assume the Assumed
Liabilities pursuant to Section 1.2 and deliver to Seller the securities and
promissory note described in Sections 2.1.1 and 2.1.2 below (collectively, the
"Purchase Price"). The Purchase Price may be subject to adjustment after the
Settlement Date as set forth in Section 2.2.
2.1.1 Securities. The delivery to the Seller
83,333 restricted common voting shares of the Purchaser (the "Purchaser
Shares").
2.1.1.1 The Purchaser Shares shall be subject to
call and repurchase by Purchaser after the Settlement Date pursuant to the terms
of Section 5.10 hereof.
2.1.1.2 Subject to Purchaser's right to call and
repurchase set forth in Section 5.11 and Purchaser's right of first refusal set
forth in Section 5.12, Seller shall be entitled at any time to sell any or all
of its Purchaser Shares in a private offering made in accordance with applicable
federal and state securities laws, or in the public market if permitted by
applicable federal and state securities laws.
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<PAGE> 4
2.1.2 Promissory Note. The delivery by Purchaser
of a five (5) year promissory note in the amount of One Million Dollars
($1,000,000) to Seller in form and substance satisfactory to Purchaser and its
counsel.
2.1.2.1 The promissory note shall bear a simple
interest rate of 5%, and such interest shall not begin to accrue until after
twelve (12) months following the Settlement Date. Commencing on the date which
is fifteen (15) months after the Settlement Date, Purchaser shall make quarterly
payments of principal in the amount of $62,500 plus accrued interest, quarterly
in arrears, with the outstanding balance of all outstanding principal and
interest due on that date which is five (5) years from the Settlement Date.
2.1.2.2 In order to secure Purchaser's obligations
under the Note, Purchaser will grant to Seller effective as of the Settlement
Date a perfected security interest in all personal property of the Purchaser,
including without limitation the Assets and all after-acquired inventory
(including, without limitation, all new and used motorcycle inventory and all
parts inventory), subject only to the security interests, if any, granted by
Purchaser on new motorcycles to Cycle Capital Corporation and any other provider
of floor plan financing.
2.2 Adjustment of Purchase Price. The Purchase Price shall
be subject to adjustment as necessary after the Settlement Date, in the manner
prescribed by Section 2.2.3 hereof, in the event the Fixed Value of the Assets
as determined in accordance with Section 2.2.1 hereof does not equal $3,000,000.
2.2.1 Fixed Value of Assets. It is contemplated by the
parties that effective as of the Settlement Date, subject to the other terms and
conditions of this Agreement, Seller will sell, assign, transfer and deliver to
Purchaser, and Purchaser hereby agrees to purchase from Seller, Inventory having
a total value based on original purchase cost (as determined in accordance with
Section 2.2.2) as of the Settlement Date of $3,000,000. Said total of $3,000,000
is hereafter referred to as the "Fixed Value."
2.2.2 Determination of Original Purchase Cost.
The parties will determine the original purchase cost of the Inventory as
follows:
2.2.2.1 Original Purchase Cost of New and Used
Motorcycles. An itemized physical inventory of the new motorcycles and the used
motorcycles being transferred pursuant to this Agreement will be completed as of
the Settlement Date and on the Settlement Date Seller will deliver to Purchaser
an itemized listing of all such new and used motorcycles and the original
purchase cost thereof to the Company Superstores.
2.2.2.2 Original Purchase Cost of Motorcycle
Parts, Clothing and Accessories. An itemized physical inventory of the
motorcycle parts, clothing and accessories will be conducted as of December 31,
1999. This physical inventory will be updated as of the
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<PAGE> 5
Settlement Date based solely on Seller's books and records through such date.
Based on the results of the itemized physical inventory and the books and
records maintained by the Company after the physical inventory, all as referred
to above, the Seller will furnish to Purchaser, within 30 days after the
Settlement Date, the original purchase cost to the Seller of the motorcycle
parts, clothing and accessories as of the Settlement Date. At Purchaser's option
and upon reasonable notice to Seller prior to the Settlement Date, Purchaser or
Purchaser's agent (any such third party appointed by Purchaser shall be at
Purchaser's sole cost and expense) may be present during the itemized physical
inventory referred to above to verify the accuracy thereof.
2.2.3 Procedure for Adjustment of Purchase Price. After
the Settlement Date, the Purchase Price shall be adjusted as follows, based on
the summaries of original purchase cost furnished by Seller to Purchaser
pursuant to Sections 2.2.2.1 and 2.2.2.2:
2.2.3.1 Total Original Purchase Cost Exceeds
Fixed Value. (a) If the summaries of original purchase cost furnished by Seller
to Purchaser pursuant to Sections 2.2.2.1 and 2.2.2.2 indicate that the total
original purchase cost of all new and used motorcycles, motorcycle parts and
clothing and accessories transferred to Purchaser on the Settlement Date exceeds
the Fixed Value, then Purchaser shall have the option either (i) to return new
motorcycles to Seller such that the original purchase cost of the remaining new
and used motorcycles, motorcycle parts and clothing and accessories equals the
Fixed Value or (ii) pay Seller in cash the difference between the total original
purchase cost of such new and used motorcycles, motorcycle parts and clothing
and accessories and the Fixed Value.
2.2.3.2 Total Original Purchase Cost is Less than
Fixed Value. If the summaries of original purchase cost furnished by Seller to
Purchaser pursuant to Sections 2.2.2.1 and 2.2.2.2 indicate that the total
original purchase cost of all new and used motorcycles, motorcycle parts and
clothing and accessories transferred to Purchaser on the Settlement Date is less
than the Fixed Value, then Purchaser shall have the right to a reduction in the
Purchase Price based on the difference between the two amounts. Such reduction
in the Purchase Price shall be accomplished by a reduction in the number of
Purchaser Shares (for purposes of this adjustment, at a valuation of $6.00 per
share). Purchaser shall issue and deliver to Seller a new stock certificate
evidencing the new number of Purchaser Shares, whereupon Seller will promptly
deliver to Purchaser for cancellation the original stock certificate evidencing
the Purchaser Shares delivered to it on the Settlement Date.
2.2.4 Adjustment Due to Credits for Customer Deposits.
Prior to the Settlement Date, the Company Superstores will have accepted from
customers, deposits for credit against motorcycles and parts on order and
deposits for credit against the cost of repair work to be performed by such
Company Superstores (collectively, the "Customer Credits"). It is understood
that certain orders for motorcycles and parts and certain repair work will have
begun prior to the Settlement Date and such transactions will not be completed
until after the Settlement Date. If the aggregate of the Customer Credits
claimed by customers within the first three months after the
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<PAGE> 6
Settlement Date exceeds $25,000, then the Seller will make a cash payment to
Purchaser in the amount of such excess upon receipt of confirming documentation
from Purchaser reasonably satisfactory to Seller. If the aggregate of the
Customer Credit claimed by customers within the first three months after the
Settlement Date is less than $25,000, then Purchaser will make a cash payment to
Seller in the amount of such excess and, if requested by Seller, provide
confirming documentation reasonably satisfactory to Seller.
2.2.5 Adjustment Due to Proration of Rent, Utilities,
Etc. The rent for the Company Superstores under the real property leases
identified in Section 1.1.10 hereto, as well as any utilities and payments on
any service contracts, shall be prorated as of the Settlement Date. Any
difference owing by one party to the other in respect of such proration shall be
paid in cash within thirty (30) days after the Settlement Date.
2.3 Allocation of Purchase Price.
2.3.1 The allocation of the Purchase Price shall be as
follows:
<TABLE>
<CAPTION>
<S> <C>
Inventory $2,745,000
Leasehold improvements $200,000
Garage equipment $30,000
Deposits $25,000
</TABLE>
Each of the parties must report this transaction for
federal tax purposes in accordance with this allocation of the Purchase Price.
If the Purchase Price is adjusted after the Settlement Date pursuant to Section
2.2.3, then the parties agree to adjust the inventory figure up or down
accordingly.
3. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Purchaser as follows:
3.1 Authority. Seller has the full power and authority to
enter into this Agreement and to consummate the transactions described herein,
and no contract or agreement to which Seller is a party prevents it from
consummating the transaction described herein, nor is the consent of any third
party required, except as provided herein.
3.2 Good Standing. Seller is a corporation duly organized,
validly existing and in good standing under the laws of California, and has the
corporate power to own or lease the Assets now owned or leased by it and conduct
the Retail Business in the manner in which the Retail Business is now being
conducted. Seller is qualified to do business and is in good standing in the
states of Texas and North Carolina. Proof of good standing as of a reasonably
recent date will be provided on the Settlement Date.
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<PAGE> 7
3.3 Corporate Proceedings. All corporate proceedings
required by law or by the provisions of this Agreement to be taken by
Seller on or before the Settlement Date in connection with the execution and
delivery of this Agreement and the consummation of the transactions contemplated
thereby have been or will be duly and validly taken. Seller is not required to
obtain the consent of its shareholders in order to execute this Agreement and
consummate the transactions contemplated hereby.
3.4 Title. Seller represents and warrants to Purchaser that
the Seller has and on the Settlement Date will deliver to Purchaser, subject to
the conditions of this Agreement, title to the Assets free and clear of all
mortgages, pledges, liens, security interests, state taxes, federal taxes,
charges, conditional sales contracts and encumbrances whatsoever, with the
exception of security interests granted to Cana Capital Corporation, FINOVA
Mezzanine Capital (f/k/a Tandem Capital) and Cycle Capital Corporation, security
interests held by lessors of equipment, and with the exception of those items
listed in Schedule 3.4. Seller represents that it is not aware of any claims,
administrative actions, suits, litigation or anticipated claims, suits or
litigation which in the aggregate would have a material adverse effect on the
business or financial condition of the Retail Business.
3.5 Condition of Assets. In light of Purchaser's
opportunity to inspect and review the condition and status thereof, the Assets
are being purchased on an "as-is" basis AND SELLER HEREBY DISCLAIMS ALL
WARRANTIES WITH RESPECT TO THE ASSETS, INCLUDING WITHOUT LIMITATION WARRANTIES
OF MERCHANTABILITY AND FITNESS FOR ANY PARTICULAR PURPOSE, other than new
motorcycles covered by Seller's standard warranty and those warranties made by
parts manufacturers for the benefit of Seller, which warranties shall be
assigned by Seller to Purchaser.
3.6 Property Insurance. Schedule 3.6 sets forth a list of
all insurance policies and binders held by Seller related to the Retail
Business. Seller has made available correct and true copies of all such policies
and binders to Purchaser. Seller (i) is not in default of any material provision
contained in any such policy or binder and (ii) has not received notice of
cancellation or non-renewal of any such policy or binder. All of such insurance
is and will be on the Settlement Date, in full force and effect and all premiums
due and payable thereon have been or will be paid.
3.7 Sale of Assets Creates No Conflict. The execution,
delivery and performance of this Agreement and the consummation of the
transactions herein contemplated do not and will not conflict with, or result in
a breach of any term or provisions of, or constitute a default under, or result
in the creation of any lien or encumbrance upon the Assets pursuant to the
articles of incorporation, or bylaws of the Seller, or other organizational and
governing documents, or any contract, indenture, mortgage, deed of trust or
other instrument to which the Seller is a party or by which it is bound or to
which the Assets are subject, or any law, rule, regulation, judgment, order or
decree, except Seller's agreements with Cana Capital Corporation,
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<PAGE> 8
FINOVA Mezzanine Capital (f/k/a Tandem Capital), Cycle Capital Corporation, the
real property leases referred to in Section 1.1.10, the equipment leases
referred to in Section 1.1.11, the Disputed License Agreements, and as otherwise
disclosed in Schedule 3.7. All consents by third parties that are required to
prevent or eliminate every such conflict, breach, default, and encumbrance shall
have been validly obtained before the Settlement Date (other than the consent of
Cana Capital Corporation) and as of the Settlement Date shall be in full force
and effect and valid and sufficient for such purpose, or have otherwise been
provided for in Schedule 3.7.
3.8 License Compliance. To the best of the Seller's knowledge
and belief, the Company Superstores have all governmental licenses and permits
(federal, state and local) necessary to conduct their business as currently
conducted and have complied in all material respects with all laws, rules and
regulations and orders applicable to the conduct of their business as currently
conducted. Such licenses and permits are in full force and effect and there is
not pending or threatened any proceeding seeking to revoke or materially
limiting the scope of any such license or permit. Such licenses and permits are
described in Schedule 3.8.
3.9 Tax Warranty. To the best of Seller's knowledge and
belief, Seller has filed all federal, state (including sales and use taxes and
withholding, unemployment and payroll related taxes) and local tax returns
relating to the Retail Business as required by law and has paid, through the
applicable reporting period, all taxes, assessments, and penalties due and
payable.
3.10 Environmental Hazards. Sellers warrants that, to the best
of Seller's knowledge and belief, there is no violation by Seller at any Company
Superstore location of any hazardous waste law under federal, state or local
law. Except in compliance with the requisite laws, Seller has not generated,
stored or disposed of any hazardous waste at any such location. Seller has not
received any notice from any federal, state, county, municipal or other
governmental department, agency or authority concerning the existence at any
Company Superstore location of any petroleum product or other hazardous waste
discharge or seepage which have caused noncompliance with applicable laws and
regulation. The term "hazardous waste" shall mean any substance, material or
waste which is regulated by any federal, state or local governmental or
quasi-governmental authority, including, without being limited to, any
substance, material or waste defined, used or listed as a "hazardous waste,"
"extremely hazardous waste," "restricted hazardous waste," "hazardous
substance," "hazardous material," "toxic substances" or other similar or related
terms as defined, used or listed in the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended (42 U.S.C. Section 9601, et.
seq.), the Clear Air Act, as amended (42 U.S.C. Sections 7401, et. seq.), the
Clean Water Act, as amended (42 U.S.C. Sections 1251, et. seq.) and the
regulations adopted and publications promulgated pursuant thereto or any other
similar applicable federal, state or local law, rule, regulations or ordinance.
3.11 Zoning. To the best of Seller's knowledge and belief,
the zoning of each parcel of real property where a Company Superstore is
located permits the operation of the Retail
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<PAGE> 9
Business at each such location as such Retail Business is currently conducted by
Seller. Seller has not received notice of any proceeding which would affect the
present zoning classification of any of its Company Superstore locations.
3.12 Accuracy of Certain Records. Seller represents that, to
the best of Seller's knowledge and belief, the physical inventory reports of the
Company Superstores on the Counterman system as of December 31, 1999 and the
year-to-date actual reports of the Company Superstore operations as of September
30, 1999 previously furnished to Purchaser are accurate in all material
respects.
3.13 Brokerage Fee. Seller has not retained the services of a
real estate or business broker and no brokerage fee is due on this sale.
3.14 Employee Benefit Plans. Schedule 3.14 is a list of all of
Seller's pension, bonus, profit sharing, stock option, or other agreements
providing for employee benefits. To the best of Seller's knowledge, Seller is
not in default under any of these agreements or arrangements. All such
agreements and arrangements have been established and administered in accordance
with the applicable provisions of ERISA and the Internal Revenue Code.
3.15 Untrue Statement. None of the warranties made by
Seller hereunder contains or will contain any untrue statement of a material
fact, or omits to state a material fact necessary to prevent such warranties
from being misleading.
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER AND AFFILIATE
4.1 Authority. Purchaser has the full power and authority to
enter into this Agreement and to consummate the transactions described herein,
and no contract or agreement to which Purchaser is a party prevents it from
consummating the transaction described herein, nor is the consent of any third
party required, except as provided herein. Any such consent shall be obtained
prior to the Settlement Date.
4.2 Good Standing; Ownership of Affiliate. Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of the District of Columbia, and has the corporate power to enter into this
Agreement and the agreements and instruments contemplated thereby, acquire the
Assets pursuant to the terms of this Agreement, to own or lease the Assets and
to conduct the Retail Business in the manner in which the Retail Business is now
being conducted. Proof of good standing as of a reasonably recent date for each
corporation in all jurisdictions where Purchaser is incorporated and qualified
to do business will be provided on the Settlement Date. V-Twin Acquisitions,
Inc., a Virginia corporation ("Affiliate") is a privately held corporation owned
solely by Ted Schwartzenbeck and Jay Pignatello on behalf of Purchaser.
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<PAGE> 10
4.3 Corporate Proceedings. All corporate proceedings required
by law or by the provisions of this Agreement to be taken by Purchaser on or
before the Settlement Date in connection with the execution and delivery of this
Agreement and the consummation of the transactions contemplated thereby have
been or will be duly and validly taken. Purchaser is not required to obtain the
consent of its shareholders in order to execute this Agreement and consummate
the transactions contemplated hereby.
4.4 Reservation of Purchaser Shares. Purchaser has duly
authorized and reserved for issuance the Purchaser Shares issuable in accordance
with the terms of Section 2.1 hereof and such Purchaser Shares will be duly and
validly issued, fully paid and nonassessable. Such Purchaser Shares shall be
free from security interests, liens, claims, other encumbrances and preemptive
rights in favor of the holders of other shares of capital stock or other
securities of Purchaser.
4.5 Reservation of Additional Shares. Any Additional
Shares issued pursuant to Section 5.10 hereof will be duly authorized and
reserved for issuance. Such Additional Shares, when issued, will be duly and
validly issued, fully paid and nonassessable and shall be free from security
interests, liens, claims, other encumbrances and preemptive rights in favor of
the holders of other shares of capital stock or other securities of Purchaser.
4.6 Reporting Company. Purchaser is a publicly-held company
whose common stock is (and has been for the past 90 days) registered pursuant to
Section 12(g) of the Securities Exchange Act of 1934, as amended (the "1934
Act"). Purchaser's common stock is listed for trading on the OTC Bulletin Board.
Purchaser has not received any notice that its common stock will be delisted
from the OTC Bulletin Board or that Purchaser does not meet all requirements for
the continuation of such listing. Pursuant to the provisions of the 1934 Act,
Purchaser has timely filed all reports and other materials required to be filed
thereunder with the Securities and Exchange Commission during the preceding
twelve months.
4.7 Sale of Assets Creates No Conflict. The execution,
delivery and performance of this Agreement by Purchaser and the consummation of
the transactions herein contemplated (including without limitation the issuance
of the Purchaser Shares and the issuance of the Additional Shares as defined in
Section 5.10.1 hereof) do not and will not conflict with, or result in a breach
of any term or provisions of, or constitute a default under, or result in the
creation of any lien or encumbrance upon the Assets, pursuant to the articles of
incorporation, or bylaws of the Purchaser, or other organizational or governing
documents of Purchaser, or any contract, indenture, mortgage, deed of trust or
other instrument to which Purchaser is a party or by which it is bound or to
which Purchaser or Purchaser's assets are subject, or any law, rule, regulation,
judgment, order or decree applicable to Purchaser, except for the security
interest created in favor of Seller pursuant to the terms of this Agreement and
except as otherwise disclosed in Schedule 4.7. All consents by third parties
that are required to prevent or eliminate every such conflict, breach, default,
and encumbrance shall have been validly obtained before the
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<PAGE> 11
Settlement Date and as of the Settlement Date shall be in full force and effect
and valid and sufficient for such purpose, or have otherwise been provided for
in Schedule 4.7.
4.8 License Compliance. To the best of the Purchaser's
knowledge and belief, except as set forth in Schedule 4.8, the Purchaser has
acquired all governmental licenses, permits and approvals (federal, state and
local) necessary to conduct the Retail Business as currently conducted by Seller
and as proposed to be conducted by Purchaser (collectively, the "Licenses"; any
such Licenses which have not been obtained by Purchaser as disclosed in Schedule
4.8 are hereafter referred to as the "Pending Licenses") and has complied in all
material respects with all laws, rules and regulations and orders applicable to
the conduct of the Retail Business as proposed to be conducted by Purchaser
after the Settlement Date. The Licenses are in full force and effect and there
is not pending or threatened any proceeding seeking to revoke or materially
limiting the scope of any such Licenses. The Pending Licenses are described in
Schedule 4.8.
4.9 Consents and Approvals. Without limiting the generality
of the provisions of Section 4.8, no consent, approval, authorization or order
of any court, governmental agency or body or arbitrator having jurisdiction over
Purchaser or Affiliate, or any of its affiliates or NASDAQ or Purchaser's or
Affiliate's shareholders is required for execution of this Agreement, and all
other agreements entered into by Purchaser and Affiliate relating thereto,
including, without limitation issuance and sale of the promissory note referred
to in Section 2.1.2, the Purchaser Shares and the Additional Shares, and the
performance of Purchaser's and Affiliate's obligations hereunder.
4.10 Compliance with Securities Laws. The Purchaser Shares,
the Additional Shares and the promissory note issued pursuant to Section 2.1
hereof will either be registered under applicable federal and state securities
laws or such issuance will be exempt from registration pursuant to an
appropriate exemption under such laws. The issuance and exchange of Purchaser's
Common Stock contemplated by this Agreement, to the extent required, shall be
qualified with the California Commissioner of Corporations in accordance with
the California Corporate Securities Law and the Commissioner's rules and
regulations.
4.11 Brokerage Fee. Neither Purchaser nor Affiliate has
retained the services of any real estate or business broker and no brokerage fee
is due on the purchase of the Assets.
4.12 Untrue Statement. None of the warranties made by
Purchaser or Affiliate hereunder contains or will contain any untrue statement
of a material fact, or omits to state a material fact necessary to prevent such
warranties from being misleading.
5. COVENANTS AND FURTHER AGREEMENTS OF SELLER AND PURCHASER
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<PAGE> 12
5.1 Reliance Upon and Survival of Representations and
Warranties. Each of the parties hereto shall be entitled to rely upon the
representations and warranties of the other parties set forth herein or in any
schedule, exhibit, or other document delivered pursuant hereto. The
representations, warranties, covenants, and agreements of the parties shall be
true and accurate as of the Settlement Date and shall survive the Settlement
Date, except that the representations and warranties of Seller in Section 3
hereof and the representations and warranties of Purchaser in Section 4 hereof
shall, in each case, survive for a period of twelve months from the Settlement
Date.
5.2 Further Assurances. The parties hereto agree to execute
and deliver or cause to be executed and delivered at the settlement or at other
reasonable times and places such additional instruments as the other party
hereto may reasonably request for the purpose of carrying out this Agreement.
5.3 Bulk Sales Law. Purchaser waives compliance with the
provisions of the Uniform Commercial Code of California, Texas and North
Carolina relating to bulk transfers in connection with the sale of the Assets.
Nothing in this paragraph will stop or prevent either Seller or Purchaser from
asserting as a bar or defense to any action or proceeding brought under that law
that it does not apply to the sale contemplated under this Agreement.
5.4 Indemnification.
5.41 For Purchaser. Seller covenants and agrees to
indemnify and hold harmless the Purchaser from and against any loss, claim,
liability, obligation or expense (including reasonable attorneys' fees): (i)
incurred or sustained by Purchaser on account of any misrepresentation or breach
of any warranty, covenant, or agreement of Seller contained in this Agreement,
or made in connection with this Agreement, or at Settlement; or (ii) incurred or
sustained by Purchaser arising from Seller's failure to pay any Excluded
Obligation. Purchaser shall promptly notify Seller in writing of any claim
indemnified under this section within 90 days of the time Purchaser discovers or
should have discovered the existence of such claim and thereafter shall permit
Seller at its expense to participate in the negotiation and settlement of any
such claim and to join in the defense of any legal action arising therefrom.
Notwithstanding any term herein to the contrary, the indemnities relating to the
representations and warranties of Seller set forth in Section 3 hereof shall
terminate twelve months from the Settlement Date.
Notwithstanding the foregoing (subject, however, to the
last sentence of the preceding paragraph), in the event a third party asserts a
claim against Purchaser which is indemnified under this section, Purchaser may
elect, at Purchaser's sole option, to pay the obligation provided Purchaser
gives Seller at least five (5) days written notice of its intention to do so. At
the expiration of such period, Seller shall have the option to: (i) pay the
claim; (ii) authorize Purchaser to pay the claim, in which case Seller shall
promptly repay Purchaser upon demand by Purchaser, together with interest
thereon at the rate of ten percent (10%) per annum
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from the date of Purchaser's payment until repaid by Seller, or (iii) notify
Purchaser that the claim is subject to a bona fide contest, in which case Seller
shall diligently pursue resolution of such claim and Purchaser shall make no
payment for 60 days from the date of Seller's notice to Purchaser, or such
additional reasonable time (not to exceed 30 days) as may be requested by Seller
to resolve the matter.
5.4.2 For Seller. Purchaser covenants and agrees to
indemnify and hold harmless Seller from and against any loss, claim, liability,
obligation or expense (including reasonable attorneys' fees) (i) incurred or
sustained on account of any misrepresentation or breach of any warranty,
covenant or agreement of Purchaser contained in this Agreement or made in
connection herewith, or (ii) any non-fulfillment, non-performance, failure to
timely or fully perform or breach of any agreement or other obligation to be
performed by Purchaser relating to the Assumed Liabilities. Without limiting the
generality of the foregoing, Purchaser hereby indemnifies Seller from and
against any loss, claim, liability, obligation or expense (including reasonable
attorneys' fees) arising out of Purchaser's failure to obtain any of
governmental approvals or licenses required to operate the Retail Business.
Seller shall promptly notify Purchaser in writing of any claim indemnified under
this Section within 90 days of the time Seller discovers, or should have
discovered, the existence of such claim and thereafter shall permit Purchaser at
its expense to participate in the negotiation and settlement of any such claim
and to join in the defense of any legal action arising therefrom.
Notwithstanding any term herein to the contrary, the indemnities relating to the
representations and warranties of Purchaser set forth in Section 4 hereof shall
terminate twelve (12) months from the Settlement Date.
Notwithstanding the foregoing (subject, however, to the last
sentence of the preceding paragraph), in the event a third party asserts a claim
against Seller which is indemnified under this section, Seller may elect, at
Seller's sole option, to pay the obligation provided Seller gives Purchaser at
least five (5) days written notice of its intention to do so. At the expiration
of such period, Purchaser shall have the option to: (i) pay the claim; (ii)
authorize Seller to pay the claim, in which case Purchaser shall promptly repay
Seller upon demand by Seller, together with interest thereon at the rate of ten
percent (10%) per annum from the date of Seller's payment until repaid by
Purchaser, or (iii) notify Seller that the claim is subject to a bona fide
contest, in which case Purchaser shall diligently pursues resolution of such
claim and Seller shall make no payment for 60 days from the date of Purchaser's
notice to Seller, or such additional reasonable time (not to exceed 30 days) as
may be requested by Purchaser to resolve the matter.
5.5 Expenses. Each party shall pay its own expenses and
costs, including, without limitation, counsel fees and transfer taxes incurred
in connection with the consummation of this Agreement and the transactions
contemplated hereby, except as otherwise provided in this Agreement.
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5.6 Risk of Loss. In the event of any loss or damage to the
Assets at any time prior to Settlement, the risk of loss shall be borne by
Seller. Immediately after the Settlement Date, all risk of loss or damage shall
be borne by Purchaser.
5.7 Operation of Business Prior to Settlement. Seller hereby
agrees, from the date of execution of this Agreement until the Settlement Date,
that the Seller will use its best efforts (without making any commitments on
behalf of the Purchaser) to carry on the activities and operations of the
Company Superstores in substantially the same manner as has been customary in
the past and to preserve for the Purchaser the present relationships of each
Company Superstore with its employees, customers, and others having business
relations with such Company Superstores.
5.8 Insurance. To the extent possible without extra cost or
liability to Seller, Purchaser may elect to assume Seller's insurance as
described in Section 3.6. To that effect, Seller will use its best efforts to
make such assumption arrangements as are possible prior to the Settlement Date,
or use its best efforts to assist Purchaser in obtaining replacement coverage as
necessary, in order to protect the security interest of Seller pursuant to
Section 2.1.2.2 hereof and providers of floor plan financing to Purchaser.
5.9 Purchaser's Rights to Review Communications. After the
Settlement Date, the Purchaser shall have the right to open and read any letters
or mail addressed to the Seller if received at one of the Company Superstore
locations and to reply to any such letters that pertain to the conduct of the
business of the Company Superstores or the administration of the License
Agreements assigned pursuant to the terms of this Agreement in the same manner
that the Seller could have done had the sale not been made. Any such mail not
relating to the conduct of the business of the Company Superstores or the
administration of the License Agreements shall be promptly forwarded to the
Seller by the Purchaser. After the Settlement Date, Seller shall promptly
forward to Purchaser any mail received by it relating to the operation of the
Company Superstores.
5.10 Guarantee of Purchase Price.
5.10.1 If, on the Valuation Date, the Aggregate
Value of the Purchaser Shares is less than $1 million, then Purchaser shall at
its option, either: (i) duly authorize, issue and deliver to Seller that number
of additional shares of Purchaser's Common Stock ("Additional Shares") equal to
(a) the excess of $1 million over the Aggregate Value (the "Shortfall") (b)
divided by the Current Market Price, rounded down to the nearest whole number;
or (ii) deliver to Seller, by wire transfer, an amount up to the Shortfall in
immediately available funds ("Cash Payment") and duly authorize, issue and
deliver to Seller that number of Additional Shares which is calculated in the
manner described in Section 5.10.1(i) after subtracting the amount of the Cash
Payment from the $1 million amount appearing therein.
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Any Additional Shares to be issued pursuant to Section 5.10.1
shall be issued in the manner prescribed by Section 5.10.3. If, on the Valuation
Date, the Aggregate Value was calculated in accordance with Section
5.10.2.1(ii), then on the first business day after the Additional Shares are
issued, Purchaser shall file a pre-effective amendment adding the Additional
Shares to the registration statement filed by Purchaser pursuant to Section 5.13
hereof and request that the registration statement be made effective at the
earliest possible date.
If, on the Valuation Date, the Aggregate Value was calculated
in accordance with Section 5.10.2.1(i), and Seller's counsel determines that the
Additional Shares issued pursuant to the first paragraph of this Section 5.10.1
cannot be sold by Seller under Rule 144(k) immediately after issuance, then such
Additional Shares shall become subject to the registration rights provisions of
Section 5.13 hereof. In the event that, on the date that the Securities and
Exchange Commission notifies Purchaser that the Commission Staff will not review
any registration statement required to be filed by Purchaser pursuant to Section
5.13 hereof, or after having reviewed the registration statement, the Staff has
no further comments (the "Second Valuation Date"), the product of the Current
Market Price multiplied by the number of Additional Shares is less than the
original Shortfall, then Purchaser shall either make up the difference in a Cash
Payment or issue such extra number of Additional Shares such that the product of
the Current Market Price on the Second Valuation Date multiplied by all
Additional Shares being issued is equal to the original Shortfall. Any such
extra Additional Shares to be issued pursuant to this paragraph shall be issued
in the manner prescribed by Section 5.10.3. On the first business day after such
extra Additional Shares are issued, Purchaser shall file a pre-effective
amendment adding such extra Additional Shares to the registration statement
filed by Purchaser pursuant to Section 5.13 hereof and request that the
registration statement be made effective at the earliest possible date.
5.10.2 Definitions. For purposes of this Section
5.10, the following terms shall have the meanings set forth below:
5.10.2.1 "Valuation Date" shall be the first to
occur of the following of (i) if Rule 144 under the Act is available to Seller
for sales of the Purchaser Shares, the date on which Seller could sell the
Purchaser Shares under Rule 144(k); or (ii) the date that the Securities and
Exchange Commission notifies Purchaser that the Commission Staff will not review
any registration statement required to be filed by Purchaser pursuant to Section
5.13 hereof, or after having reviewed the registration statement, the Staff has
no further comments.
5.10.2.2 "Aggregate Value" shall mean (i) if the
Valuation Date is determined in accordance with Section 5.10.2.1(i), the sum of
(a) the gross proceeds from Seller's sales of the Purchaser Shares prior to the
date Rule 144(k) becomes available and (b) the number of Purchaser Shares held
by Seller on the date Rule 144(k) becomes available multiplied by the Current
Market Price and (ii) if the Valuation Date is determined in accordance with
Section
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5.10.2.1(ii), the product of the Current Market Price multiplied by the
number of Purchaser Shares.
5.10.2.3 "Current Market Price" shall mean, as of
any date of determination, the average of the daily market prices over a period
of 20 consecutive trading days before such date. The market price for each such
business day shall be the last sale price on such day on the principal
securities exchange on which the Common Stock is then listed or admitted to
trading, or, if no sale takes place on such day on any such exchange, the
average of the closing bid and asked prices on such day as officially quoted on
any such exchange, or if the Common Stock is not then listed or admitted on any
stock exchange, the market price for each such business day shall be the last
sale price on such day, or, if no sale takes place on such day, the average of
the closing bid and asked prices on such day in the over-the-counter market, in
either case as reported through NASDAQ, or, if such prices are not at the time
so reported, as furnished by any member of the National Association of
Securities Dealers, Inc. selected by Purchaser. If and so long as there shall be
no exchange or over-the-counter market for the Common Stock during the 20
business day period prior to the date on which Current Market Price is to be
determined, the Current Market Price shall be deemed to be the Fair Value of the
Common Stock.
5.10.2.4 For purposes of this Section, "Fair
Value" shall mean with respect to any security or other property, the fair value
thereof as of a date that is within fifteen (15) days of the date as of which
the determination is to be made, determined by an investment banking firm, firm
of certified public accountants or appraisal firm (which investment banking
firm, firm of certified public accountants or appraisal firm shall own no
securities of, and shall not be an affiliate, subsidiary or related person of,
either the Seller or Purchaser) of recognized national standing retained by
Purchaser and reasonably acceptable to Seller, and which determination is made
(a) under the assumption that all rights, warrants and options existing with
respect to any such securities have been exercised and (b) without regard to the
absence of a liquid or ready market for any such securities.
5.10.3 Issuance of Additional Shares. If
Purchaser shall be required by the terms of Section 5.10.1 hereof to deliver to
the Seller Additional Shares and/or available funds, as the case may be,
Purchaser shall deliver to Seller, within two (2) days after the Valuation Date,
written notice specifying the number of shares of Additional Shares and/or the
amount of available funds, as the case may be, to be delivered to Seller and the
calculations thereof made by Purchaser. The Additional Shares and/or available
funds, as the case may be, shall be delivered at a closing to be held not later
than five (5) business days after the Valuation Date or other date and time as
shall be agreed upon by the Seller and Purchaser (such date and time being
hereinafter called the "Additional Closing Date"). On the Additional Closing
Date, Purchaser will deliver to Seller one or more duly executed certificates
evidencing the aggregate number of Additional Shares specified by the
above-referenced written notice, dated the Additional Closing Date, registered
in the name of Seller or in the name of Seller's nominee and/or the amount of
immediately available funds specified by the above-referenced notice.
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5.10.4 Reservation of Shares. Purchaser shall
duly authorize and reserve for issuance the Additional Shares issuable in
accordance with the terms of Section 5.10.1 hereof and such Additional Shares
shall be free from preemptive rights in favor of the holders of other shares of
capital stock or other securities of Purchaser. Notwithstanding anything herein
to the contrary, if on the Valuation Date, Purchaser has not duly authorized and
reserved for issuance the Additional Shares pursuant to this Section 5.10.4,
Purchaser shall immediately take all further action necessary to duly authorize
and reserve for issuance such Additional Shares.
5.11 Right to Call and Repurchase Purchaser Shares. Subject
to the provisions of this Section 5.11, the Purchaser will have the right, at
any time and from time to time, to call and repurchase the Purchaser Shares in
whole or in part as follows, provided such Purchaser Shares have not previously
been sold by Seller in accordance with the provisions of this Agreement: (i) if
Purchaser gives written notice to Seller of its intent to repurchase said
shares within the first two (2) years after the Settlement Date, Purchaser
shall be entitled to purchase said shares at a price of $6.00 per share, (ii)
if Purchaser gives written notice to Seller of its intent to repurchase said
shares within the third year after the Settlement Date, Purchaser shall be
entitled to purchase said shares at a price of $7.00 per share, (iii) if
Purchaser gives written notice to Seller of its intent to repurchase said
shares within the fourth year after the Settlement Date, Purchaser shall be
entitled to purchase said shares at a price of $8.00 per share. Purchaser shall
not be entitled to call and repurchase any Purchaser Shares after the fourth
anniversary of the Settlement Date. Purchaser's notice shall state the number
of Purchaser Shares subject to the call, the applicable purchase price, and a
date and time (the "Call Closing Date") for consummation of the purchase no
more than thirty (30) days after Purchaser gives such notice. Upon the receipt
of such notice, the Seller shall thereupon have the obligation to sell the
Purchaser Shares subject to such notice, provided that the Call Closing Date
and payment for said shares occurs within thirty (30) days after such notice.
In the event the Call Closing does not occur within such thirty day period,
Seller shall have the option (i) to grant Purchaser such additional time as may
be requested by Purchaser to pay the purchase price or (ii) to cancel the sale,
in which case the Purchaser Shares which were the subject of Seller's notice
will not be subject to further call and repurchase under this Section.
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5.12 Right of First Refusal
5.12.1 Before any of the Purchaser Shares
may be sold or transferred by Seller, Seller shall first give written notice
thereof to Purchaser stating the proposed transferee, the number of Purchaser
Shares proposed to be transferred, the purchase price, if any (if such shares
are to be sold in the open market, the purchase price shall be deemed to be the
closing sale price of such Purchaser Shares on the date immediately preceding
the date of Purchaser's notice), and the terms of the proposed transaction. The
Purchaser shall thereupon have the option, but not the obligation, to acquire
any or all of the Purchaser Shares proposed to be transferred for the purchase
price stated in such notice. Within two (2) business days after the giving of
such notice by the Seller, the Purchaser shall give written notice to the Seller
stating whether or not it elects to exercise the option to purchase, the number
of Purchaser Shares, if any, it elects to purchase and a date and time (the
"Closing Date") for consummation of the purchase not more than ten (10) business
days after Purchaser gives its notice. Failure by the Purchaser to give such
notice within the two business day time period referred to above shall be deemed
an election by the Purchaser not to exercise its option to purchase with respect
to the Purchaser Shares described in the Seller's notice.
5.12.2 If the Purchaser elects not to exercise
its option to purchase the Purchaser Shares within the two business day time
period referred to above, or if Purchaser elects to purchase the Purchaser
Shares but such sale is not consummated by the Closing Date described in
Purchaser's notice, then the Seller may sell such Purchaser Shares on the same
terms and conditions as set forth in Seller's original notice (except that if
such notice provided that such shares were to be sold in the open market, Seller
shall not be bound to the purchase price set forth in Seller's original notice,
as long as such shares are sold in the open market), at any time after the
expiration of the two business day time period referred to above (in the case of
a non-exercise by Purchaser) or after the passing of the Closing Date described
in Purchaser's notice (in the case where Purchaser has notified Seller of its
intention to purchase the Shares but such sale is not consummated by said
Closing Date). If such shares are not sold by Seller within sixty (60) days,
then they shall become subject again to Purchaser's right of first refusal as
set forth in Section 5.12.1 above.
5.13 Registration Rights.
5.13.1 Piggyback Registration Rights. If at any
time during the Piggyback Registration Period (as defined in subsection 5.13.3
below), the Purchaser shall decide to register any of its Common Stock either
for its own account or the account of a shareholder or shareholders, under a
registration statement filed with the Securities and Exchange Commission under
the Securities Act of 1933 (the "Act") on a form which permits the inclusion of
the Registrable Securities (as hereafter defined), other than a registration on
Form S-8 in respect of shares of common stock of Purchaser issued pursuant to an
employee stock option plan and other
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than a registration in respect of shares of common stock issued by Purchaser in
connection with an acquisition (but then only to the extent the terms of such
acquisition prohibit inclusion of the Registrable Securities on any such
registration statement), the Purchaser shall: (i) give Seller twenty (20) days
prior written notice thereof (which shall include a list of the jurisdictions in
which the Purchaser intends to attempt to qualify such common shares under the
applicable blue sky or other state securities laws) (the "Registration Notice");
and (ii) include in such registration (and any related qualification under blue
sky laws or other compliance), all the Registrable Securities which the Seller
elects to have included therein and which are eligible to be included therein,
subject to the provisions herein. The Seller's election to have the Registrable
Securities included in any such registration shall be made in writing and
delivered to the Purchaser within twenty (20) days after receipt of the
Registration Notice (the "Registration Election").
5.13.2 Underwriting. If any registration under
Section 5.13.1 shall be underwritten in whole or in part, the Purchaser may
require that any Registrable Securities as to which the Seller exercises
registration rights be included in the underwriting on the same terms and
conditions as the securities otherwise being sold through the underwriters. The
registration rights granted to the Seller pursuant to this Section shall be
conditioned upon the Seller's participation in the underwriting and the
inclusion of the Registrable Securities in the underwritten offering to the
extent provided herein. All persons proposing to distribute their common shares
through such underwriting shall (together with the Purchaser) enter into an
underwriting agreement, which shall be in a customary form, with the underwriter
or underwriters which shall be selected by the Purchaser (the "Underwriter").
Notwithstanding any other provision of this Section to the contrary, if the
Underwriter determines that marketing factors require a limitation of the number
of common shares to be underwritten, the Underwriter may limit the number of
Registrable Securities to be included in the registration and underwriting;
provided that the Seller shall be entitled to include a pro rata portion of the
Registrable Securities in the registration and underwriting compared to the
total number of common shares to be included by other shareholders exercising
similar rights. The Purchaser shall advise the Seller as to the number of
Registrable Securities which shall be registered and underwritten pursuant
hereto as soon as reasonably possible after the Purchaser receives the
Registration Election. If the Seller disapproves of the terms of any such
underwriting, it may elect to withdraw therefrom by delivering a written notice
to the Purchaser and the Underwriter. Any Registrable Securities excluded
(whether voluntarily or involuntarily) or withdrawn from such registration and
underwriting shall be eligible to be included in any subsequent registration and
underwriting by the Purchaser as provided in Sections 5.13.1 and 5.13.2, and the
Seller shall have the same rights, duties and obligations in any subsequent
registration; provided that the registration statement to be filed in connection
therewith is to be filed during the Piggyback Registration Period.
5.13.3 Piggyback Registration Period. The
Piggyback Registration Period shall commence on the Settlement Date and shall
expire on that date which is four hundred fifty (450) days after the Settlement
Date.
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5.13.4 Demand Registration Rights. If, on the
date which is four hundred fifty (450) days after the Settlement Date, the
Seller has not sold all of the Registrable Securities and is not then able to
sell all of the Registrable Securities pursuant to an effective registration
statement or an exemption from registration under the Act (and any required
qualification or compliance or exemption therefrom under applicable blue sky
laws), the Seller shall have the right to require the Purchaser to file one
registration statement under the Act which registers all of the Registrable
Securities (the "Demand Right"). The Seller may exercise the Demand Right by
delivering written notice to the Purchaser not later than the date which is four
hundred eighty (480) days after the Settlement Date. After receiving such notice
from the Seller, the Purchaser shall file the required registration statement
with the Securities and Exchange Commission not later than the date which is six
hundred thirty (630) days after the Settlement Date and shall use its best
efforts to have the registration statement declared effective not later than the
date which is eight hundred ten (810) days after the Settlement Date. The
Purchaser shall keep the registration statement continuously effective and keep
the related prospectus continuously current and able to be used for sales of the
Registrable Securities for a period of two (2) years, or until such earlier time
that the Seller has sold all of the Registrable Securities.
5.13.5 Registration Information. In the case of
each registration, qualification, or compliance effected by the Purchaser
pursuant to the terms of this Agreement, the Purchaser shall keep the Seller
advised in writing as to the initiation, status and completion of each
registration, qualification and compliance.
5.13.6 Expenses of Registration. All costs,
expenses and fees incurred in connection with any registration, qualification or
compliance pursuant to this Agreement, including without limitation, all
registration, filing and qualification fees, printing costs and expenses, fees
and disbursements of counsel for the Purchaser, and expenses of any special
audits incidental to or required to be performed in connection with such
registration, shall be borne solely by the Purchaser; provided however, that the
Purchaser shall not be required to pay any of the Seller's legal fees,
underwriting fees, discounts, or commissions relating to the shares registered.
5.13.7 Definition of Registrable Securities. The
term "Registrable Securities" shall mean the Purchaser Shares, the Additional
Shares and/or any securities issued by Purchaser in exchange therefor, or as a
result of a stock dividend, stock split or reverse stock split in connection
therewith. Notwithstanding anything herein to the contrary, the Purchaser shall
not be required to have any Registrable Securities registered if (i) such
securities are already the subject of an effective registration statement or
(ii) in the opinion of either counsel for the Purchaser, knowledgeable and
experienced in Federal securities matters (said counsel to be acceptable to the
holder of the Registrable Securities in the reasonable judgement of the holder),
or counsel for the holder, knowledgeable and experienced in Federal securities
matters (said counsel to be acceptable to the Purchaser in the Purchaser's
reasonable judgement), the holder may lawfully sell publicly, at the time and in
the manner the holder proposes to sell the
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Registrable Securities, all of the Registrable Securities proposed to be sold
without registering the sale under the Act, whether pursuant to an exemption
from registration available under Section 4(1) of the Act, Rule 144 or Rule
144(k) under the Act, or otherwise.
5.13.8 Information by Seller. The Seller shall
furnish to the Purchaser, at the Seller's own expense and in writing, such
information regarding the Seller and the distribution proposed to be made by the
Seller as the Purchaser may request in connection with any registration,
qualification or compliance referred to in this Agreement. Furthermore, the
Seller agrees to cooperate fully with the Purchaser in the preparation and
filing of any registration statement which includes any Purchaser Shares or
Additional Shares owned by the Seller.
5.13.9 Cooperation and Idemnification. The
Seller agrees to indemnify and hold harmless the Purchaser, each of its
directors, and each of its officers who has signed any registration statement
filed by Purchaser pursuant to this Agreement (or any amendment thereof) and
each person, if any, who controls the Purchaser, within the meaning of the Act,
against any losses, damages or liabilities to which the Purchaser, or any such
director, officer or controlling person of the Purchaser may become subject
under such Act or otherwise, insofar as said losses, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in such registration
statement (or any amendment thereof) or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading; that
such indemnity shall apply only to the extent that such untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with information furnished by the Seller for use in the
preparation thereof. The Seller agrees to reimburse the Purchaser and any such
director, officer or controlling person for any legal or other expenses
reasonably incurred in connection with any such loss, damage or liability. The
Purchaser agrees to indemnify and hold harmless the Seller, each of its
directors, each of its officers, and each person, if any, who controls Seller,
within the meaning of the Act, against any losses, damages or liabilities to
which the Seller, or any such director, officer or controlling person of the
Seller may become subject under the Act or otherwise insofar as said losses,
damages or liabilities (or actions in respect thereof), arise out of or are
based upon any untrue statement or alleged untrue statement of material fact
contained in such registration statement (or any amendment thereof) or arise out
of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading; but such indemnity shall apply only to the extent that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with information furnished
by any person or entity other than the Seller for use in the preparation
thereof.
5.13.10 Right of Seller to Put Shares. If, on
the date which is eight hundred ten (810) days after Settlement Date, the Seller
has not sold all of the Registrable Securities and is not then able to sell all
of the Registrable Securities pursuant to an effective
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registration statement or an exemption from registration under the Act (and any
required qualification or compliance or exemption therefrom under applicable
blue sky laws), then the Seller shall have the option, by written notice to
Purchaser to be given on or before the date which is eight hundred forty (840)
days after the Settlement Date, to require Purchaser to purchase from Seller any
remaining Registrable Securities held by Seller at a purchase price of $6 per
share. The closing date for such sale shall occur no later than 30 days after
Seller gives such notice to Purchaser. Without limiting the generality of the
foregoing, in the event Purchaser shall fail to maintain the listing of any
Purchaser Shares or Additional Shares upon the OTC Bulletin Board or the NASDAQ
Small Cap Market for so long as Seller shall continue to hold any Purchaser
Shares or Additional Shares, then Seller shall have the option, by written
notice to Purchaser to be given within sixty (60) days after the later of
Seller's receipt of Purchaser's notice of such delisting given pursuant to
Section 5.14 or Seller's acquiring actual knowledge of such delisting, to
require Purchaser to purchase from Seller any remaining Additional Shares or
Purchaser Shares held by Seller at a purchase price of $6 per share. The closing
date for such sale shall occur no later than thirty (30) days after Seller gives
such notice to Purchaser.
5.13.11 Prohibition on Short Sales; Manner of
Sale. Seller agrees that while Seller holds any Purchaser Shares, Seller will
not, directly or through an affiliate, establish or hold, in any manner or by
any means, a short position in Purchaser's Common Stock. Seller agrees that any
sales of the Purchaser Shares in the market will be done in consultation with
Purchaser and in an orderly fashion to minimize, to the extent practicable,
downward pressure on the price of Purchaser's Common Stock.
5.14 Maintenance of OTC Bulletin Board Listing. Purchaser
shall use its best efforts to continue to maintain, in the case of the Purchaser
Shares, and shall promptly secure, in the case of any Additional Shares issued
pursuant to this Agreement, the listing of such shares upon the OTC Bulletin
Board or the NASDAQ SmallCap market and shall maintain such listing so long as
Seller shall continue to hold any Purchaser Shares or any Additional Shares.
Purchaser will comply in all respects with the Purchaser's reporting, filing and
other obligations under the bylaws or rules of the OTC Bulletin Board and the
National Association of Securities Dealers ("NASD"), as applicable. Purchaser
will provide Seller copies of all notices it receives notifying Purchaser of the
delisting of its common stock from the OTC Bulleting Board or any exchange or
quotation system on which its common stock is listed.
5.15 Continuation of Registration Under Exchange Act. After
the Settlement Date, Purchaser will (i) cause its common stock to continue to be
registered under Sections 12(b) or 12(g) of the Exchange Act, (ii) comply in all
respects with its reporting and filing obligations under the Exchange Act, and
(iii) comply with all requirements related to any registration statement filed
pursuant to this Agreement.
5.16 License Agreement Under Dispute. Seller shall have no
obligation on the Settlement Date to transfer to Purchaser any of Seller's
rights under the Disputed License
22
<PAGE> 23
Agreements. Nothing herein shall restrict Seller's ability to take any action it
deems appropriate in connection with the settlement of any dispute relating to
any of said Disputed License Agreements, including, without limitation,
terminating any such agreements. In the event that the dispute relating to any
such License Agreement is fully and finally resolved, Seller will transfer to
Purchaser all of Seller's right, title and interest under such Disputed License
Agreement to Purchaser, provided that:(i) in connection with such resolution,
the Disputed License Agreement has not otherwise been terminated and (ii) such
assignment is permitted by the terms of the Disputed License Agreement; and
(iii) such assignment would not violate or otherwise create a conflict under any
settlement agreement or arrangement entered into in connection with the
resolution of such dispute. Seller shall have no affirmative obligation to
obtain the consent of any dealer who is a party to such Disputed License
Agreement to the assignment of such agreement to Purchaser. Purchaser shall have
no right to any proceeds of any award or settlement received by Seller in
connection with the resolution or disposition of any dispute relating to a
Disputed License Agreement.
5.17 Disputed Domain Name; Use of E-Mail Address.
5.17.1 As of the date hereof, Seller does not
have, and as of the Settlement Date, will not have, any rights to the Disputed
Domain Name. On the Settlement Date, Seller will assign to Purchaser any claim
it may have to the Disputed Domain Name and Purchaser shall be entitled after
the Settlement Date to pursue any such claim.
5.17.2 Notwithstanding the transfer of the Domain
Name hereunder pursuant to the terms and conditions of this Agreement, Purchaser
hereby agrees that Seller shall be allowed for a period of ninety (90) days
after the Settlement Date, to use the email address "@bikers-dream.com" for
Seller's employees. Seller shall make arrangements after the Settlement Date to
change Seller's email address on or prior to the expiration of such ninety (90)
day period.
5.18 Master Dealership Agreement. Pursuant to a Master
Dealership Agreement ("Master Dealership Agreement") in form and substance
satisfactory to Seller and its counsel, Purchaser shall become a dealer of
Seller's brand of Ultra motorcycles and parts at the five Company Superstore
locations, and Affiliate shall become a dealer of Seller's brand of Ultra
motorcycles and parts locations at Affiliate's location in Herndon and
Springfield, Virginia. The execution of the Master Dealership Agreement is a
condition precedent to closing pursuant to Section 6 hereof. Additional stores
opened by Purchaser and Affiliate after the Settlement Date shall be subject to
the Master Dealer Agreement on such terms and conditions as shall be acceptable
to both parties.
5.19 Non-Interference with Existing Ultra Dealers. The parties
hereby acknowledge that the dealers who are parties to the License Agreements
may also be party to a separate Ultra Cycles dealer agreement between the Seller
and each such dealer. Purchaser
23
<PAGE> 24
agrees that after the Settlement Date, Purchaser will not, and shall not permit
Affiliate or any other affiliate or subsidiary of Purchaser to, directly or
indirectly, attempt to interfere in any manner with Seller's Ultra Cycle dealer
agreements in effect as of the Settlement Date, including, without limitation,
inducing or attempting to influence any party to such agreement to terminate
such Agreement or to violate the provisions of such agreement.
5.20 Notification of New Store Openings. After the Settlement
Date, Purchaser hereby agrees, and agrees to cause Affiliate or any other
affiliate or subsidiary of Purchaser, to give prompt written notice to Seller of
its intent to enter into license agreements with new dealers for the use of the
"Bikers Dream" name and/or related Intellectual Property, whereupon Seller shall
be afforded a reasonable opportunity to solicit any such new dealers for the
purpose of entering into an Ultra Cycles dealer agreement. In the event Seller
enters into an Ultra Cycles dealer agreement with any such dealer, Purchaser
agrees that it shall not, and shall not permit Affiliate or any affiliate or
subsidiary of Purchaser to, directly or indirectly, attempt to interfere in any
manner with such Ultra Cycle dealer agreement, including, without limitation,
inducing or attempting to influence any party to such agreement to terminate
such Agreement or to violate the provisions of such agreement.
5.21 Confidentiality. Purchaser shall not, nor shall
Purchaser permit Affiliate or any other affiliate or subsidiary of Purchaser to,
at any time use for Purchaser's, Affiliate's or any such other affiliate's or
subsidiary's benefit, or disclose, communicate or divulge to, or use for the
direct or indirect benefit of any person or entity, any confidential information
of Seller acquired by Purchaser, Affiliate or any such other affiliate or
subsidiary, including, without limitation, Seller's business methods, business
policies, procedures, techniques, research or development projects or results;
historical or projected financial information, budgets, trade secrets or other
knowledge or processes of or developed by Seller; any names and addresses of
customers or clients or any data on or relating to past, present or prospective
Seller customers or clients; or any other confidential information relating to
or dealing with the business, operations or activities of Seller, excepting in
each case information otherwise lawfully known generally by, or readily
accessible to, the trade or the general public.
5.22 Merchant Accounts. Purchaser shall apply for merchant
credit card accounts in its own name promptly after the Settlement Date. For a
period not to exceed ninety (90) days after the Settlement Date, Seller shall,
to the extent permitted under agreements governing its existing merchant
accounts, allow Purchaser to use such merchant accounts to process transactions
at the Company Superstores, and Seller shall promptly remit to Purchaser all
amounts received in respect of such transactions.
5.23 Governmental Approvals and Licenses. Purchaser shall
promptly and diligently apply for and obtain, not later than one hundred eighty
three (183) days after the Settlement Date, all Pending Licenses necessary for
the operation of the Retail Business. Seller shall give Purchaser such
assistance in obtaining the Pending Licenses as reasonably requested by
24
<PAGE> 25
Purchaser. Purchaser shall keep Seller informed of all material developments
during the application process and shall promptly notify Seller as each such
Pending License is obtained.
5.24 Publicity. All notices to third parties and all other
publicity concerning the transactions contemplated in this Agreement will be
jointly planned and coordinated by and between Seller and Purchaser. Neither
party will act unilaterally in this regard without the prior written approval of
the other; however, this approval will not be unreasonably withheld.
5.25 Financial Information. Seller agrees to provide to
Purchaser such financial and other information as Purchaser shall reasonably
request in connection with Purchaser's preparation of a report on Form 8-K with
respect to its acquisition of the Retail Business.
60 SETTLEMENT
6.1 Settlement Date. The transfer of possession of the Assets
by Seller to Purchaser (the "Settlement") will take place at the offices of
Seller's counsel, Miller & Holguin, at 1801 Century Park East, Los Angeles,
California, at 10:00 a.m. local time, on January 29, 2000, or such other time
and place as Seller and Purchaser may agree to in writing. That date, or if the
Settlement is advanced or postponed under this paragraph, then the date to which
it is advanced or postponed, is called the Settlement Date. If on the Settlement
Date (1) any condition to Settlement set forth in this Section 6 is not
satisfied or (2) without limiting the generality of (1) above, Seller has been
unable to obtain all other waivers and consents of private parties and
governmental agencies required by this agreement, then either Purchaser or
Seller, on written notice, may postpone the Settlement to a time not later than
10:00 a.m. local time, on February 29, 2000 and the other party shall be
obligated to proceed with the Settlement on such date. If the Settlement does
not occur by February 29, 2000, this Agreement will automatically terminate
unless both parties agree in writing to an extension. Upon such termination of
this Agreement, each party shall return all records and documents received from
the other, and each party shall be released from all other duties, obligation
and liability to the other, with the exception of the confidentiality provisions
of Section 5.19 hereof.
6.2 Delivery. On the Settlement Date, Seller shall deliver
or cause to be delivered to such escrow agent as shall be reasonably acceptable
to Seller and Purchaser ("Escrow Agent") such assignments, third party consents,
instruments and documents required to be delivered by Seller under this
Agreement or which counsel for Purchaser or Escrow Agent may reasonably request
for the purpose of settling this Agreement. At Settlement, Purchaser shall
deliver to Escrow Agent the Purchaser Shares and the promissory note referred to
in Section 2.1.2 and shall deliver all other assignments, third party consents,
instruments and documents required to be delivered by Purchaser under this
Agreement or which counsel for Seller or Escrow Agent may reasonably request for
the purpose of settling this Agreement.
25
<PAGE> 26
6.3 Method of Payment. If a cash payment is made,
Purchaser shall make payment by certified check, cashier's check or wire
transfer.
6.4 Bill of Sale. Seller shall deliver to Escrow
Agent on the Settlement Date a Bill of Sale for the Assets in the form and
substance reasonably satisfactory to Purchaser and its counsel.
6.5 Recording Fees. The recording fees shall be paid
by Purchaser.
6.6 Conditions Precedent to Settlement by Purchaser. The
obligations of Purchaser contemplated herein are subject to the satisfaction, at
or before the Settlement Date, of all of the conditions set out herein below.
6.6.1 Accuracy of and Certificate as to
Representations and Warranties. The representations and warranties of Seller
contained herein and in all documents to be delivered pursuant hereto shall be
true and correct in all material respect as of the Settlement Date, as if made
at such time, and Purchaser shall have received from Seller a certificate, dated
as of the Settlement Date and signed by an executive officer of Seller,
certifying that all such representations and warranties of Seller remain true
and correct as of the Settlement Date.
6.6.2 Compliance with Convenants. Seller shall
have performed and complied with all covenants, agreements and conditions
required by this Agreement to be performed by Seller.
6.6.3 Action/Proceeding. No court shall have
issued an order effective against a party to restrain or prohibit the
transactions herein contemplated.
6.6.4 Corporate Authorization. Seller shall
deliver to Escrow Agent certified copies of all appropriate resolutions of
Seller's Board of Directors authorizing the transaction contemplated by this
Agreement.
6.6.5 Consents. Seller shall have obtained from
all third parties all consents required to be obtained by it prior to the
Settlement Date pursuant to Section 3.7 and delivered such consents to Escrow
Agent.
6.6.6 Lease Assignment. Seller shall have
obtained and delivered to Escrow Agent assignments of all of its interest under
the leases for the Company Superstore locations which are described in Section
1.1.10 and Seller shall be released from liability thereunder. Seller is
negotiating a new lease for the existing Dallas location and a possible
alternative location. The terms of the new Dallas lease shall be reasonably
acceptable to Purchaser. The landlord shall consent to the assignment, and such
consent will be delivered to Escrow Agent on the Settlement Date.
26
<PAGE> 27
6.6.7 Assignment of License Agreements.
Seller shall execute and deliver to Escrow Agent an assignment to Purchaser of
all of its interest in the License Agreements, which are in force on the date of
this Agreement and identified in Schedule 1.1.9, with the exception of the
Disputed License Agreements.
6.6.8 Bill of Sale. Seller shall deliver to
Escrow Agent the Bill of Sale referred to in Section 6.4.
6.6.9 Master Dealer Agreement. Seller,
Purchaser and Affiliate shall enter into a dealer agreement for the sale of
Ultra motorcycles at the five Company Superstore locations and at Affiliate's
two Virginia dealerships, in form and substance satisfactory to Purchaser and
its counsel.
6.6.10 Additional Instruments of Transfer.
Seller shall execute and deliver to Escrow Agent such further instruments of
sale, transfer, conveyance, assignment and delivery, consents and assurances as
may be reasonably requested by Purchaser in order to convey to Purchaser all
right, title and interest of Seller in and to the Assets.
6.6.11 Operating Agreement and Escrow Agreement.
Seller and Purchaser shall execute an Operating Agreement and Escrow Agreement
in each case, in form and substance satisfactory to Purchaser and its counsel.
6.7 Conditions Precedent to Settlement by Seller. The
obligations of Seller contemplated herein are subject to the satisfaction, at
or before the Settlement, of all of the conditions set out herein below.
6.7.1 Accuracy of and Certificate as to
Representations and Warranties. The representations and warranties of Purchaser
contained herein and in all documents to be delivered pursuant hereto shall be
true and correct in all material respects as of the Settlement Date, as if made
at such time, and Seller shall have received from Purchaser a certificate, dated
as of the Settlement Date and signed by an executive officer of Purchaser,
certifying that all such representations and warranties of Purchaser remain true
and correct as of the Settlement Date. Without limiting the generality of the
foregoing, Seller hereby acknowledges that, as of the Settlement Date, Purchaser
will not have the Pending Licenses and, subject to the satisfaction of all other
conditions to Settlement set forth in this Section 6.7.1, Seller hereby waives
compliance by Purchaser with the provisions of Section 4.8 insofar as such
waiver relates solely to the failure of Purchaser to obtain the Pending
Licenses.
6.7.2 Compliance with Covenants. Purchaser
shall have performed and complied with all covenants, agreements and conditions
required by this Agreement to be performed by Purchaser.
27
<PAGE> 28
6.7.3 Action/Proceeding. No court shall have
issued an order effective against a party to restrain or prohibit the
transactions herein contemplated.
6.7.4. Corporate Authorization. Purchaser and
Affiliate shall deliver to Escrow Agent certified copies of all appropriate
resolutions of Purchaser's and Affiliate's Board of Directors authorizing the
transactions contemplated by this Agreement and the Master Dealership Agreement.
6.7.5 Consents. Purchaser and Affiliate
shall have obtained from all third parties all consents required to be obtained
by it prior to the Settlement Date pursuant to Section 4.7.
6.7.6 Note. Purchaser shall have executed
the Note in form and substance satisfactory to Seller and its counsel and
delivered the Note to Escrow Agent.
6.7.7 Security Agreement. Purchaser shall
have executed and delivered to Escrow Agent the Security Agreement in form and
substance satisfactory to Seller and its counsel.
6.7.8 Assumption of Liabilities. Purchaser
shall have executed and delivered to Seller an assumption of liabilities in
form and substance satisfactory to Seller and its counsel.
6.7.9 Floor Plan Financing. Without limiting
the generality of Section 6.7.8, Purchaser shall have assumed the existing floor
plan debt held by Cycle Capital Corp. pursuant to an assumption in form and
substance satisfactory to Seller and its counsel, and shall have delivered such
assumption to Escrow Agent.
6.7.10 Master Dealer Agreement. Seller,
Purchaser and Affiliate shall enter into a dealer agreement for the sale of
Ultra motorcycles at the five Company Superstore locations and at Affiliate's
two Virginia dealerships, in form and substance satisfactory to Seller and its
counsel.
6.7.11 Resale Certificate. Purchaser shall
deliver to Seller a Resale Certificate (relating to sales taxes) in form and
substance satisfactory to Seller and its counsel.
6.7.12 Operating Agreement; Escrow Agreement.
Seller and Purchaser shall execute an Operating Agreement and an Escrow
Agreement, in each case in form and substance satisfactory to Seller and its
counsel (including, without limitation, satisfactory indemnification
provisions). Without limiting the generality of the foregoing, Seller and its
counsel shall be satisfied that the execution and performance of such Operating
Agreement by
28
<PAGE> 29
Seller and Purchaser shall not cause Seller to be in violation of any rule or
regulation of any governmental agency or licensing authority with jurisdiction
over the operations of the Retail Business, including, without limitation, any
motor vehicle licensing authority.
6.8 Mutual Covenant to Restructure Transaction. In the
event Seller's counsel believes, pursuant to Section 6.7.12, that the
transactions contemplated by the Operating Agreement, may cause Seller to
violate a rule or regulation of any governmental agency or licensing authority,
Purchaser and Seller covenant to use best efforts to restructure the
transaction in such a way so as to bring it into compliance with applicable law
and to use best efforts to close the transaction by the Settlement Date.
6.9 Transfer of Title; Release of Settlement Documents
from Escrow. On the earlier of (i) the date on which Purchaser obtains the
Pending Licenses or (ii) one hundred eighty three (183) days from the
Settlement Date, the Operating Agreement shall terminate and the parties shall
jointly instruct Escrow Agent to release (A) to Seller, the Purchaser Shares
and the promissory note referred to in Section 2.1.2 and (B) to Purchaser, the
bill of sale, assignments, consents and releases of third parties, and any
other instruments of transfer delivered by Seller to Escrow Agent pursuant to
Section 6.6.
70 DEFAULT BY PURCHASER OR SELLER
7.1 Instances of Purchaser Default. Purchaser Default
shall occur in any of the following instances:
7.1.1 Failure to Perform. Purchaser fails to perform
any obligation imposed by this Agreement or any Ancillary Document, and does
not correct or commence and diligently pursue correction of such failure within
fifteen (15) days after written notice from Seller specifying the manner in
which Purchaser is in default.
7.1.2 Insolvency. Purchaser becomes insolvent, a
receiver is appointed to take possession of all or a substantial part of
Purchaser's properties, Purchaser makes an assignment for the benefit of
creditors or files a voluntary petition in bankruptcy, or Purchaser is the
subject of an involuntary petition in bankruptcy, which is not dismissed within
sixty (60) calendar days.
7.1.3 Default on Underlying Agreements and Assumed
Obligations. Any default by Purchaser under the Assumed Liabilities or any
other agreement made pursuant to this Agreement not cured within any grace
period provided herein.
7.2 Instances of Seller Default. Seller Default shall
occur in the following instances:
29
<PAGE> 30
7.2.1 Failure to Perform. Seller fails
to perform any obligation imposed by this Agreement, or any of the Ancillary
Documents, including, without limitation, the Master Dealership Agreement.
7.3 Seller's and Purchaser's Remedies Upon
Default. In the event of Seller's or Purchaser's default, Seller and Purchaser
shall have all the rights and remedies granted to them by agreement and by the
laws of the State of New York.
7.4 Remedies Cumulative. The remedies accorded
Seller hereunder are cumulative and concurrent and shall be in addition to any
other rights or remedies by law or equity. Seller shall have the right to
enforce one or more remedies hereunder, successively or concurrently, and such
action shall not operate or estop or prevent Seller from pursuing any further or
other remedy hereunder or which is permitted by law or equity.
80 MISCELLANEOUS
8.1 Binding Effect. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto, their
respective successors, heirs, assigns and devisees.
8.2 Integration. This Agreement and the other
agreements and instruments entered into by the parties in connection with the
transactions contemplated by this Agreement (collectively the "Ancillary
Documents") constitute the entire agreement between the parties relating to the
subject matter hereof. This Agreement and the Ancillary Documents supersede
prior memoranda and all other prior documents made by the parties in connection
with the transaction described herein. Oral agreements and understandings of the
parties, if any, regarding the subject matter of this Agreement have been
integrated herein. Neither this Agreement nor the Ancillary Documents may not be
modified or altered except by written agreement signed by all parties.
8.3 Notice. Any notice or other communication
required or permitted hereunder shall be sufficiently given if sent (i) by mail,
first-class postage prepaid, certified return receipt requested, (ii) overnight
courier or (iii) fax (with a copy first-class postage prepaid, certified return
receipt requested), in each case addressed as follows:
8.3.1 If to Purchaser, addressed to:
V-Twin Holdings, Inc.
c/o AIME
611 Broadway, Suite 308
New York, NY 10012
Attn: Richard Paone
Telephone: 212-539-0768
Fax: 212-358-0189
30
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8.3.2 If to Seller, addressed to:
Bikers Dream, Inc.
3810 Wacker Drive
Mira Loma, CA 91752
Attn: Herm Rosenman
Telephone: 909-360-2500
Fax: 909-360-2525
In the case of (i), notices shall be deemed received on the second business day
after deposit of the same in the United States mail, properly addressed and
postage prepaid, in the case of (ii), notices shall be deemed received on the
second business day after delivery to the courier, properly addressed and
shipping prepaid and in the case of (iii), notices shall be deemed given upon
receipt by the sending party of the fax "answer back" or confirmation sheet.
8.4 Time is of Essence. Time is of the essence
in this Agreement.
8.5 Choice of Law, Jurisdiction and Attorney's
Fee's. This Agreement shall be governed by and construed under the laws of the
State New York.
8.6 Severability. If any clause, provision or
section of this Agreement shall be held illegal or invalid by any court, the
illegality or invalidity of such clause, provision or section shall not affect
the remainder of this Agreement which shall be construed and enforced as if such
illegal or invalid clause, provision or section had not been contained in this
Agreement. If any agreement or obligation contained in this Agreement is held to
be in violation of law, then such agreement or obligation shall be deemed to be
the agreement or obligation of the respective party hereto only to the extent
permitted by law.
8.7 Assignment. Purchaser shall not sell,
assign or transfer an interest in this Agreement or in any instrument executed
in connection herewith, without prior consent of Seller. Seller shall not
unreasonably withhold consent.
8.8 Waiver. Failure of either party, at any
time, to require performance hereunder of any provision herein contained shall
in no way affect the right of a party to enforce the same, nor shall any waiver
by either party of any breach of any provision hereof be held to be a waiver of
a succeeding breach of any provision, or as a waiver of the provision itself.
8.9 Counterparts. This agreement may be
executed simultaneously in one or more counterparts, each of which will be
considered an original, but all of which together will constitute one and the
same instrument. Such counterparts may be signed by facsimile signatures.
31
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8.10 Number, Gender and Captions. As used
herein, the singular shall include the plural and the Plural the singular. The
masculine and the neuter shall include the masculine, feminine and neuter as the
context requires. All captions used herein are intended solely for convenience
of reference, and shall in no way limit any of the provisions of this Agreement.
8.11 Section Headings. The various Section
headings are inserted for convenience of reference only, and shall not affect
the meaning or interpretation of this Agreement or any section thereof.
8.12 Board Director. For so long as the
promissory note referred to in Section 2.1.2, or not less than a total of 20,000
Purchaser Shares and Additional Shares are held by Seller, Seller may appoint a
member to the Purchaser's board, and that person must be approved by the
Purchaser's existing board members, which consent shall not be unreasonably
withheld. It is hereby agreed that Herm Rosenman, President and Chief Executive
Officer of Seller, is acceptable to the board of directors of Purchaser.
8.13 Opportunity to Consult with Counsel. BY ITS
EXECUTION HEREOF, EACH PARTY REPRESENTS THAT IT HAS CONSULTED WITH ITS LEGAL
COUNSEL REGARDING THE TERMS OF THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
HEREBY AND SUCH COUNSEL HAS HAD AN OPPORTUNITY TO MAKE SUCH COMMENTS OR
REVISIONS AS HE OR SHE DEEMS APPROPRIATE OR ADVISABLE.
32
<PAGE> 33
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their representative duly authorized officers.
SELLER
BIKERS DREAM, INC.,
a California Corporation
By: /s/ Herm Rosenman
--------------------------------------
Herm Rosenman, Chairman and CEO
PURCHASER
V-TWIN HOLDINGS, INC.,
a District of Columbia Corporation
By: /s/ Richard J. Paone
--------------------------------------
Richard J. Paone, President
33
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
1. GENERAL TERMS OF SALE..........................................................................................1
---------------------
1.1 Contract to Sell...................................................................................1
----------------
1.2 Assumption of Liabilities and Obligations..........................................................3
-----------------------------------------
1.3 Excluded Obligations...............................................................................3
--------------------
1.4 Further Assurances.................................................................................3
------------------
2. CONSIDERATION AND METHOD OF PAYMENT............................................................................3
-----------------------------------
2.1 Purchase Price.....................................................................................3
--------------
2.1.1 Securities.............................................................................3
2.1.2 Promissory Note........................................................................4
2.2 Adjustment of Purchase Price.......................................................................4
----------------------------
2.2.1 Fixed Value of Assets..................................................................4
---------------------
2.2.2 Determination of Original Purchase Cost................................................4
---------------------------------------
2.2.2.1 Original Purchase Cost of New and Used Motorcycles.............................4
2.2.2.2 Original Purchase Cost of Motorcycle Parts, Clothing and Accessories...........5
2.2.3 Procedure for Adjustment of Purchase Price.............................................5
2.2.3.1 Total Original Purchase Cost Exceeds Fixed Value...............................5
2.2.3.2 Total Original Purchase Cost is Less than Fixed Value..........................5
2.2.4 Adjustment Due to Credits for Customer Deposits........................................5
2.2.5 Adjustment Due to Proration of Rent, Utilities, Etc....................................6
2.3 Allocation of Purchase Price.......................................................................6
----------------------------
3. REPRESENTATIONS AND WARRANTIES OF SELLER.......................................................................6
----------------------------------------
3.1 Authority..........................................................................................6
---------
3.2 Good Standing......................................................................................7
-------------
3.3 Corporate Proceedings..............................................................................7
---------------------
3.4 Title..............................................................................................7
-----
3.5 Condition of Assets................................................................................7
-------------------
3.6 Property Insurance.................................................................................7
------------------
3.7 Sale of Assets Creates No Conflict.................................................................8
----------------------------------
3.8 License Compliance.................................................................................8
------------------
3.9 Tax Warranty.......................................................................................8
------------
3.10 Environmental Hazards..............................................................................8
---------------------
3.11 Zoning.............................................................................................9
------
3.12 Accuracy of Certain Records........................................................................9
---------------------------
3.13 Brokerage Fee......................................................................................9
-------------
</TABLE>
xxxiv
<PAGE> 35
<TABLE>
<CAPTION>
<S> <C> <C>
3.14 Employee Benefit Plans.............................................................................9
----------------------
3.15 Untrue Statement...................................................................................9
----------------
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER AND AFFILIATE......................................................9
---------------------------------------------------------
4.1 Authority..........................................................................................9
---------
4.2 Good Standing; Ownership of Affiliate.............................................................10
-------------------------------------
4.3 Corporate Proceedings.............................................................................10
---------------------
4.4 Reservation of Purchaser Shares...................................................................10
-------------------------------
4.5 Reservation of Additional Shares..................................................................10
--------------------------------
4.6 Reporting Company.................................................................................10
-----------------
4.7 Sale of Assets Creates No Conflict................................................................10
----------------------------------
4.8 License Compliance................................................................................11
------------------
4.9 Consents and Approvals............................................................................11
----------------------
4.10 Compliance with Securities Laws...................................................................11
-------------------------------
4.11 Brokerage Fee.....................................................................................12
-------------
4.12 Untrue Statement..................................................................................12
----------------
5. COVENANTS AND FURTHER AGREEMENTS OF SELLER AND PURCHASER......................................................12
--------------------------------------------------------
5.1 Reliance Upon and Survival of Representations and Warranties......................................12
------------------------------------------------------------
5.2 Further Assurances................................................................................12
------------------
5.3 Bulk Sales Law....................................................................................12
--------------
5.4 Indemnification...................................................................................12
---------------
5.4.1 For Purchaser.........................................................................12
5.4.2 For Seller............................................................................13
5.5 Expenses..........................................................................................14
--------
5.6 Risk of Loss......................................................................................14
------------
5.7 Operation of Business Prior to Settlement.........................................................14
-----------------------------------------
5.8 Insurance.........................................................................................14
---------
5.9 Purchaser's Rights to Review Communications.......................................................14
-------------------------------------------
5.10 Guarantee of Purchase Price.......................................................................15
---------------------------
5.10.4 Reservation of Shares.....................................................................17
---------------------
5.11 Right to Call and Repurchase Purchaser Shares.....................................................17
---------------------------------------------
5.12 Right of First Refusal............................................................................18
----------------------
5.13 Registration Rights...............................................................................18
-------------------
5.13.1 Piggyback Registration Rights.............................................................18
5.13.2 Underwriting..............................................................................19
5.13.3 Piggyback Registration Period.............................................................20
5.13.4 Demand Registration Rights................................................................20
5.13.5 Registration Information..................................................................20
5.13.6 Expenses of Registration..................................................................20
5.13.7 Definition of Registrable Securities.......................................................20
</TABLE>
xxxv
<PAGE> 36
<TABLE>
<CAPTION>
<S> <C> <C>
5.13.8 Information by Seller.....................................................................21
5.13.9 Cooperation and Indemnification...........................................................21
5.13.10 Right of Seller to Put Shares.............................................................22
5.13.11 Prohibition on Short Sales; Manner of Sale................................................22
5.14 Maintenance of OTC Bulletin Board Listing.................................................22
5.15 Continuation of Registration Under Exchange Act...................................................22
-----------------------------------------------
5.16 License Agreements Under Dispute..................................................................23
--------------------------------
5.17 Disputed Domain Name; Use of E-Mail Address.......................................................23
-------------------------------------------
5.18 Master Dealership Agreement.......................................................................23
---------------------------
5.19 Non-Interference with Existing Ultra Dealers......................................................24
--------------------------------------------
5.20 Notification of New Store Openings................................................................24
----------------------------------
5.21 Confidentiality...................................................................................24
---------------
5.22 Merchant Accounts.................................................................................24
-----------------
5.23 Governmental Approvals and Licenses...............................................................25
-----------------------------------
5.24 Publicity.........................................................................................25
---------
5.25 Financial Information.............................................................................25
---------------------
6. SETTLEMENT....................................................................................................25
6.1 Settlement Date...................................................................................25
---------------
6.2 Delivery..........................................................................................25
--------
6.3 Method of Payment.................................................................................26
-----------------
6.4 Bill of Sale......................................................................................26
------------
6.5 Recording Fees....................................................................................26
--------------
6.6 Conditions Precedent to Settlement by Purchaser...................................................26
-----------------------------------------------
6.6.1 Accuracy of and Certificate as to Representations and Warranties......................26
----------------------------------------------------------------
6.6.2 Compliance with Covenants.............................................................26
-------------------------
6.6.3 Action/Proceeding.....................................................................26
-----------------
6.6.4 Corporate Authorization...............................................................26
-----------------------
6.6.5 Consents..............................................................................27
--------
6.6.6 Lease Assignment......................................................................27
----------------
6.6.7 Assignment of License Agreements......................................................27
--------------------------------
6.6.8 Bill of Sale..........................................................................27
------------
6.6.9 Master Dealer Agreement...............................................................27
-----------------------
6.6.10 Additional Instruments of Transfer....................................................27
----------------------------------
6.6.11 Operating Agreement and Escrow Agreement..............................................27
----------------------------------------
6.7 Conditions Precedent to Settlement by Seller......................................................27
--------------------------------------------
6.7.1 Accuracy of and Certificate as to Representations and Warranties......................27
----------------------------------------------------------------
6.7.2 Compliance with Covenants.............................................................28
-------------------------
6.7.3 Action/Proceeding.....................................................................28
-----------------
6.7.4 Corporate Authorization...............................................................28
-----------------------
6.7.5 Consents..............................................................................28
--------
</TABLE>
xxxvi
<PAGE> 37
<TABLE>
<CAPTION>
<S> <C> <C>
6.7.6 Note. ................................................................................28
----
6.7.7 Security Agreement....................................................................28
------------------
6.7.8 Assumption of Liabilities.............................................................28
-------------------------
6.7.9 Floor Plan Financing..................................................................28
--------------------
6.7.10 Master Dealer Agreement...............................................................29
-----------------------
6.7.11 Resale Certificate....................................................................29
------------------
6.7.12 Operating Agreement; Escrow Agreement.................................................29
-------------------------------------
6.8 Mutual Covenant to Restructure Transaction........................................................29
------------------------------------------
6.9 Transfer of Title; Release of Settlement Documents from Escrow....................................29
--------------------------------------------------------------
7. DEFAULT BY PURCHASER OR SELLER................................................................................29
------------------------------
7.1 Instances of Purchaser Default....................................................................29
------------------------------
7.1.1 Failure to Perform....................................................................29
7.1.2 Insolvency............................................................................30
7.1.3 Default on Underlying Agreements and Assumed Obligations..............................30
7.2 Instances of Seller Default.......................................................................30
---------------------------
7.2.1 Failure to Perform....................................................................30
------------------
7.3 Seller's and Purchaser's Remedies Upon Default....................................................30
----------------------------------------------
7.4 Remedies Cumulative...............................................................................30
-------------------
8. MISCELLANEOUS.................................................................................................30
-------------
8.1 Binding Effect....................................................................................30
--------------
8.2 Integration.......................................................................................30
-----------
8.3 Notice............................................................................................31
------
8.4 Time is of Essence................................................................................31
------------------
8.5 Choice of Law, Jurisdiction and Attorneys' Fees...................................................31
-----------------------------------------------
8.6 Severability......................................................................................31
------------
8.7 Assignment........................................................................................32
----------
8.8 Waiver............................................................................................32
------
8.9 Counterparts......................................................................................32
------------
8.11 Section Headings..................................................................................32
----------------
8.12 Board Director....................................................................................32
--------------
8.13 Opportunity to Consult with Counsel...............................................................32
-----------------------------------
</TABLE>
xxxvii
<PAGE> 1
(11) Statement re: Computation of per Share Earnings
V-TWIN HOLDINGS, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
===========================================================================================================
THREE MONTHS THREE MONTHS
ENDED MAR. 31, ENDED MAR. 31,
2000 1999
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Shares Outstanding .......................................... 4,062,833 3,000,000
Weighted average shares outstanding ......................... 4,062,833 3,000,000
Net Income (Loss) ........................................... $ (185,751) $ (5,000)
Total Net Income (Loss) Available for Common Stockholders' .. $ (185,751) $ (5,000)
=========== ===========
Basic and Diluted Earnings (Loss) Per Share:
Earnings (Loss) Per Share ................................... $ (0.05) $ 0.00
=========== ===========
</TABLE>
V-TWIN HOLDINGS, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
FOR THE NINE MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
============================================================================================================
NINE MONTHS NINE MONTHS
ENDED MAR. 31, ENDED MAR. 31,
2000 1999
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Shares Outstanding .......................................... 4,062,833 3,000,000
Weighted average shares outstanding ......................... 4,062,833 3,000,000
Net Income (Loss) ........................................... $ (433,629) $ (29,148)
Total Net Income (Loss) Available for Common Stockholders' .. $ (433,629) $ (29,148)
=========== ===========
Basic and Diluted Earnings (Loss) Per Share:
Earnings (Loss) Per Share ................................... $ (0.11) $ (0.01)
=========== ===========
</TABLE>
<PAGE> 1
(21) Subsidiaries/Affiliates of the Registrant.
V-Twin Holdings (CA), Inc. - Subsidiary
CycleClick.com, LLC - Subsidiary
V-Twin Acquisitions, Inc. of Virginia - Affiliate
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 551,369
<SECURITIES> 157,580
<RECEIVABLES> 460,847
<ALLOWANCES> 0
<INVENTORY> 3,289,422
<CURRENT-ASSETS> 4,562,613
<PP&E> 294,835
<DEPRECIATION> 17,348
<TOTAL-ASSETS> 5,478,183
<CURRENT-LIABILITIES> 3,206,825
<BONDS> 0
0
0
<COMMON> 4,062
<OTHER-SE> 1,267,296
<TOTAL-LIABILITY-AND-EQUITY> 5,478,183
<SALES> 5,244,909
<TOTAL-REVENUES> 5,667,842
<CGS> 4,202,851
<TOTAL-COSTS> 4,202,851
<OTHER-EXPENSES> 1,903,801
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44,921
<INCOME-PRETAX> (433,629)
<INCOME-TAX> 0
<INCOME-CONTINUING> (433,629)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (433,629)
<EPS-BASIC> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
<PAGE> 1
1999 Motorcycle
Statistical Annual
[MOTORCYCLE INDUSTRY COUNCIL LOGO]
<PAGE> 2
MARKET SHARE - NEW MOTORCYCLE SALES
[Market Share - New Motorcycles: 1998 PIE CHART]
Market Share - New Motorcycles: 1997-1998
<TABLE>
<CAPTION>
---------------- -----------------
1998 1997
---------------- -----------------
MARKET MARKET
BRAND RANK SHARE RANK SHARE
=========================================================
<S> <C> <C> <C> <C>
Honda 1 27.0% 1 27.9%
Harley-Davidson 2 26.2% 2 27.1%
Yamaha 3 15.6% 3 13.6%
Kawasaki 4 12.4% 4 13.0%
Suzuki 5 12.1% 5 13.0%
BMW 6 1.7% 6 1.7%
All Others - 5.0% - 3.7%
</TABLE>
THE NATION'S SIX LEADING BRANDS ACCOUNTED FOR 95% OF THE NEW MOTORCYCLE UNIT
SALES IN 1998.
AN ESTIMATED 432,000 NEW MOTORCYCLES WERE SOLD IN THE UNITED STATES IN 1998
COMPARED TO 356,000 IN 1997.
NOTE:
INCLUDES ALL TWO-WHEELED MOTORCYCLES AND SCOOTERS. EXCLUDES MOPEDS AND
ALL-TERRAIN VEHICLES (ATVS). BUELL INCLUDED IN HARLEY-DAVIDSON TOTALS. "ALL
OTHERS" INCLUDES DUCATI, KTM, TRIUMPH, VICTORY AND BRANDS WHO CURRENTLY
DISTRIBUTE IN THE U.S.
SOURCE:
1998 MIC RETAIL SALES REPORT, MOTORCYCLE INDUSTRY COUNCIL, INC., IRVINE,
CALIFORNIA, JANUARY, 1999 AND INFORMATION PROVIDED BY U.S. DISTRIBUTORS.
4
<PAGE> 3
NEW MOTORCYCLE RETAIL SALES
AN ESTIMATED 432,000 NEW MOTORCYCLE UNITS WERE SOLD IN 1998. 69% WERE ON-HIGHWAY
MOTORCYCLES.
DUAL MOTORCYCLES REPRESENTED 3% AND OFF-HIGHWAY MOTOR-CYCLES COMPRISED 28% OF
THE NEW RETAIL UNITS SOLD IN 1998.
NEW MOTORCYCLE RETAIL SALES EQUALED AN ESTIMATED 3.5 BILLION DOLLARS IN 1998.
ON-HIGHWAY MOTORCYCLES ACCOUNTED FOR 86%, WHILE OFF-HIGHWAY MOTORCYCLES AND DUAL
MOTORCYCLES REPRESENTED 12% AND 2% RESPECTIVELY.
NOTE:
ON-HIGHWAY INCLUDES SCOOTERS AND EXCLUDES MOPEDS. OFF-HIGHWAY INCLUDES
COMPETITION MOTORCYCLES, AND EXCLUDES ATVs.
SEE PAGE 1 FOR MODEL TYPE DEFINITIONS.
THE ESTIMATED RETAIL DOLLAR VOLUME IS BASED ON THE MANUFACTURER'S "SUGGESTED
RETAIL PRICE" PER MODEL IN THE MIC RETAIL SALES REPORT.
SOURCE:
UNIT AND RETAIL DOLLAR SALES ESTIMATES PRIOR TO 1990 WERE DERIVED FROM MOTOR-
CYCLE IMPORT, PRODUCTION, WHOLESALE, INVENTORY, AND NEW REGISTRATION STATISTICS.
1990 AND SUBSEQUENT ESTIMATES ARE BASED ON THE MIC RETAIL SALES REPORT
AND NEW REGISTRATION STATISTICS.
Estimated New Retail Sales Units by Model Type: 1982-1998
<TABLE>
<CAPTION>
--------------------------------------------
MODEL TYPE
--------------------------------------------
TOTAL ON-HIGHWAY DUAL OFF-HIGHWAY
UNITS UNITS UNITS UNITS
YEAR (000'S) (000'S) (000'S) (000'S)
================================================================================
<S> <C> <C> <C> <C>
1998 432 298 13 121
1997 356 247 13 96
1996 330 228 14 88
1995 309 214 16 79
- --------------------------------------------------------------------------------
1994 306 210 18 78
1993 293 201 16 76
1992 278 186 17 75
1991 280 190 16 74
- --------------------------------------------------------------------------------
1990 303 208 18 77
1989 315 227 18 70
1988 420 310 25 85
1987 565 438 27 100
- --------------------------------------------------------------------------------
1986 595 440 30 125
1985 710 520 45 145
1984 755 550 55 150
1983 760 550 55 155
- --------------------------------------------------------------------------------
1982 740 520 55 165
</TABLE>
Estimated New Retail Sales Dollars by Model Type: 1982-1998
<TABLE>
<CAPTION>
---------------------------------------
MODEL TYPE
---------------------------------------
TOTAL ON-HIGHWAY DUAL OFF-HIGHWAY
DOLLARS DOLLARS DOLLARS DOLLARS
YEAR ($000,000'S) ($000,000'S) ($000,000'S) ($000,000'S)
=======================================================================
<S> <C> <C> <C> <C>
1998 $ 3,547 $ 3,068 $ 64 $ 415
1997 2,892 2,494 62 336
1996 2,517 2,149 64 304
1995 2,184 1,863 68 253
- -----------------------------------------------------------------------
1994 2,006 1,701 72 233
1993 1,771 1,511 52 208
1992 1,526 1,281 52 193
1991 1,335 1,114 43 178
- -----------------------------------------------------------------------
1990 1,330 1,103 45 182
1989 1,247 1,028 44 175
1988 1,495 1,248 56 191
1987 1,594 1,348 53 193
- -----------------------------------------------------------------------
1986 1,585 1,322 53 210
1985 1,798 1,508 72 218
1984 1,989 1,691 86 212
1983 1,753 1,468 74 211
- -----------------------------------------------------------------------
1982 1,670 1,389 74 207
</TABLE>
5
<PAGE> 4
MOTORCYCLE RETAIL OUTLETS
IN 1999, 13,833 RETAIL OUTLETS SOLD MOTORCYCLES AND RELATED PRODUCTS IN THE U.S.
THESE RETAIL OUTLETS EMPLOYED AN ESTIMATED 101,069 EMPLOYEES AT AN ANNUAL
PAYROLL OF $2.4 BILLION.
IN 1999, 38% OF THE RETAIL OUTLETS WERE FRANCHISED TO SELL NEW MOTORCYCLES,
SCOOTERS OR ALL-TERRAIN VEHICLES (ATVs).
ABOUT THREE-FIFTHS (62%) OF THE 1999 RETAIL OUTLETS SPECIALIZED IN MOTORCYCLE
RELATED PARTS, ACCESSORIES, RIDING APPAREL, USED VEHICLES OR SERVICE, BUT WERE
NOT FRANCHISED TO SELL NEW MOTORCYCLES, SCOOTERS OR ATVs.
NOTE:
A FRANCHISED MOTORCYCLE OUTLET IS DEFINED AS A MOTORCYCLE RETAIL OUTLET
FRANCHISED TO SELL NEW MOTORCYCLES, SCOOTERS OR ALL-TERRAIN VEHICLES (ATVs). A
NON-FRANCHISED MOTORCYCLE OUTLET IS DEFINED AS A MOTORCYCLE RETAIL OUTLET
SPECIALIZING IN THE SALE OF EITHER MOTORCYCLE RELATED PARTS, ACCESSORIES, RIDING
APPAREL, USED VEHICLES OR SERVICE, BUT NOT FRANCHISED TO SELL NEW MOTORCYCLES,
SCOOTERS OR ATVs. BECAUSE OF DIFFERENCES IN LIST SOURCES, DIRECT COMPARISONS
SHOULD NOT BE MADE BETWEEN THE NUMBER OF OUTLETS EACH YEAR.
SOURCE:
1999 MOTORCYCLE RETAIL OUTLET AUDIT, MOTORCYCLE INDUSTRY COUNCIL, INC., IRVINE,
CALIFORNIA, AUGUST 1999.
1999 MOTORCYCLE RETAIL OUTLET PROFILE SURVEY, MOTORCYCLE INDUSTRY COUNCIL, INC.,
IRVINE, CALIFORNIA, NOVEMBER 1999.
Retail Outlets by State: 1999
<TABLE>
<CAPTION>
------------------------------- ------------------------------ ---------------------------------
1999 FRANCHISED 1999 NON-FRANCHISED 1999 TOTAL
MOTORCYCLE RETAIL OUTLETS MOTORCYCLE RETAIL OUTLETS MOTORCYCLE RETAIL OUTLETS
------------------------------- ------------------------------ ---------------------------------
No. of No. OF EMPLOYEE No. of No. of EMPLOYEE No. of No. of EMPLOYEE
OUTLETS EMPLOYEES PAYROLL OUTLETS EMPLOYEES PAYROLL OUTLETS EMPLOYEES PAYROLL
STATE ($000's) ($000's) ($000's)
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Alabama 91 1,347 $ 41,695 89 258 $ 4,250 180 1,605 $ 45,945
Alaska 61 744 18,688 19 1986 2,001 80 830 20,689
Arizona 67 817 20,526 143 644 15,059 210 1,461 35,585
Arkansas 102 1,510 46,735 96 278 4,584 198 1,788 51,319
California 327 3,989 100,179 857 3,857 90,247 1,184 7,846 190,426
- ----------------------------------------------------------------------------------------------------------------------------------
Colorado 97 1,183 29,717 157 707 16,533 254 1,890 46,250
Connecticut 38 475 11,947 91 373 7,104 129 848 19,051
Delaware 6 75 1,886 21 86 1,639 27 161 3,525
Dist. of Col. 0 0 0 1 4 78 1 4 78
Florida 169 2,501 77,434 431 1,250 20,582 600 3,751 98,016
- ----------------------------------------------------------------------------------------------------------------------------------
Georgia 124 1,835 56,815 154 447 7,354 278 2,282 64,169
Hawaii 10 122 3,064 42 189 4,423 52 311 7,487
Idaho 79 964 24,202 51 230 5,371 130 1,194 29,573
Illinois 208 2,704 62,479 343 1,098 16,553 551 3,802 79,032
Indiana 119 1,547 35,745 313 1,002 15,105 432 2,549 50,850
- ----------------------------------------------------------------------------------------------------------------------------------
Iowa 105 1,365 31,540 146 467 7,046 251 1,832 38,586
Kansas 76 988 22,829 85 272 4,102 161 1,260 26,931
Kentucky 99 1,465 45,361 135 392 6,447 234 1,857 51,808
Louisiana 95 1,406 43,528 90 261 4,298 185 1,667 47,826
Maine 78 975 24,523 59 242 4,606 137 1,217 29,129
- ----------------------------------------------------------------------------------------------------------------------------------
Maryland 43 538 13,519 122 500 9,524 165 1,038 23,043
Mass 67 838 21,065 156 640 12,179 223 1,478 33,244
Michigan 236 3,068 70,890 300 960 14,478 536 4,028 85,368
Minnesota 236 3,068 70,890 193 618 9,314 429 3,686 80,204
Mississippi 82 1,214 37,571 67 194 3,200 149 1,408 40,771
- ----------------------------------------------------------------------------------------------------------------------------------
Missouri 124 1,612 37,247 182 582 8,783 306 2,194 46,030
Montana 70 854 21,445 46 207 4,844 116 1,061 26,289
Nebraska 65 845 19,525 41 131 1,979 106 976 21,504
Nevada 33 403 10,110 59 266 6,213 92 669 16,323
New Hamp. 55 688 17,292 89 365 6,948 144 1,053 24,240
- ----------------------------------------------------------------------------------------------------------------------------------
New Jersey 71 888 22,323 225 923 17,565 296 1,811 39,888
New Mexico 42 512 12,867 65 293 6,845 107 805 19,712
New York 268 3,350 84,260 495 2,030 38,644 763 5,380 122,904
N. Carolina 152 2,250 69,645 216 626 10,315 368 2,876 79,960
N. Dakota 65 845 19,525 22 70 1,062 87 915 20,587
- ----------------------------------------------------------------------------------------------------------------------------------
Ohio 185 2,405 55,570 592 1,894 28,570 777 4,299 84,140
Oklahoma 72 1,066 32,990 86 249 4,107 158 ,315 37,097
Oregon 86 1,049 26,347 133 599 14,006 219 1,648 40,353
Penn 242 3,025 76,086 494 2,025 38,566 736 5,050 114,652
Rhode Isl. 8 100 2,515 30 123 2,342 38 223 4,857
- ----------------------------------------------------------------------------------------------------------------------------------
S. Carolina 65 962 29,782 126 365 6,017 191 1,327 35,799
S. Dakota 44 572 13,217 40 128 1,930 84 700 15,147
Tennessee 112 1,658 51,317 208 603 9,933 320 2,261 61,250
Texas 277 4,100 126,918 453 1,314 21,633 730 5,414 148,551
Utah 72 878 22,058 50 225 5,265 122 1,103 27,323
- ----------------------------------------------------------------------------------------------------------------------------------
Vermont 41 513 12,891 27 111 2,108 68 624 14,999
Virginia 100 1,480 45,819 132 383 6,304 232 1,863 52,123
Washington 98 1,196 30,023 151 680 15,901 249 1,876 45,924
West Virginia 55 688 17,292 93 381 7,260 148 1,069 24,552
Wisconsin 235 3,055 70,589 275 880 13,271 510 3,935 83,860
- ----------------------------------------------------------------------------------------------------------------------------------
Wyoming 55 671 16,850 35 158 3,686 90 829 20,536
U.S. TOTAL 5,307 70,403 $1,857,331 8,526 30,666 $ 570,174 13,833 101,069 $2,427,505
</TABLE>
7
<PAGE> 5
Motorcycle Retail Outlet Profile
1998 Retail Sales Volume by U.S. Motorcycle Outlets
<TABLE>
<CAPTION>
FRANCHISED NON-FRANCHISED ALL MOTORCYCLE
M/C OUTLETS % of M/C OUTLETS % of OUTLETS % of
($000'S) TOTAL ($000'S) TOTAL ($000'S) TOTAL
=================================================================================================
<S> <C> <C> <C> <C> <C> <C>
New Motorcycles $3,547,000 57.6% $ 0 0.0% $3,547,000 44.1%
Used Motorcycles 923,700 15.0% 354,300 18.8% 1,278,000 15.9%
Parts, Accessories
& Riding Apparel 1,243,900 20.2% 1,253,200 66.5% 2,497,100 31.0%
Service Labor 344,900 5.6% 273,300 14.5% 618,200 7.7%
Other Motorcycle
Related Sales 98,500 1.6% 3,800 0.2% 102,300 1.3%
------ ---- ----- ---- ------- ----
TOTAL MOTORCYCLE
RELATED SALES $6,158,000 100.0% $1,884,600 100.0% $8,042,600 100.0%
</TABLE>
Note: Comparisons cannot be made with prior or subsequent years due to
revisions in new vehicle sales estimates and differences in dealer
sources. ATV related sales are not included.
1998 Motorcycle Retail Outlet Profile Survey
<TABLE>
<CAPTION>
AVERAGE AVERAGE
FRANCHISED NON-FRANCHISED
MOTORCYCLE OUTLET MOTORCYCLE OUTLET
===================================================================================
<S> <C> <C>
TOTAL MOTORCYCLE RELATED SALES AND SERVICES $1,522,400 $254,500
---------- --------
New Vehicle Sales 840,100 N/A
Used Vehicle Sales 281,600 48,100
Parts, Accessories & Riding Apparel 294,800 169,100
Service Labor 82,100 36,800
Other Related Sales 23,800 500
NUMBER OF EMPLOYEES 13.2 3.6
---- ---
Full-Time 11.2 2.5
Part-Time 2.0 1.1
EMPLOYEE PAYROLL $ 351,300 $ 68,100
(including owners and mgr's salary
and advances)
YEARS AT SAME LOCATION 17 13
(Under current & previous ownership)
YEARS UNDER CURRENT OWNERSHIP 17 14
(Whether or not at this location)
ADVERTISING & PROMOTIONAL EXPENDITURES $ 20,500 $ 1,000
</TABLE>
NOTE: REPRESENTS AVERAGE DISTRIBUTION OF SALES BY ALL NON-FRANCHISED OUTLETS
COMBINED AND MAY NOT BE TYPICAL OF INDIVIDUAL MOTORCYCLE PARTS,
ACCESSORY OR SERVICE OUTLETS. ATV RELATED SALES ARE NOT INCLUDED. SEE
PAGE 7 FOR OUTLET DEFINITIONS.
SOURCE: 1998 MOTORCYCLE RETAIL OUTLET AUDIT MOTORCYCLE INDUSTRY COUNCIL, INC.,
IRVINE, CALIFORNIA, AUGUST 1998.
1999 MOTORCYCLE RETAIL OUTLET PROFILE SURVEY, MOTORCYCLE INDUSTRY
COUNCIL, INC., IRVINE, CALIFORNIA, NOVEMBER 1999.
IN 1998 THERE WERE $8.0 BILLION IN RETAIL SALES GENERATED BY ALL FRANCHISED AND
NON-FRANCHISED MOTORCYCLE RETAIL OUTLETS.
SALES BY FRANCHISED OUTLETS ACCOUNTED FOR $6.1 BILLION OF THE TOTAL RETAIL SALES
VOLUME, COMPARED TO $1.9 BILLION FOR NON-FRANCHISED OUTLETS.
AT $3.5 BILLION, SALES OF NEW MOTORCYCLES REPRESENTED NEARLY HALF (44%) OF TOTAL
RETAIL SALES IN 1998.
FROM THE 1999 RETAIL OUTLET PROFILE SURVEY, THE ESTIMATED AVERAGE MOTORCYCLE
RELATED SALES AND SERVICES FOR A FRANCHISED MOTORCYCLE OUTLET WAS $1,522,400
COMPARED TO $254,500 FOR A NON-FRANCHISED OUTLET.
FRANCHISED MOTORCYCLE OUTLETS HAD BEEN IN BUSINESS AT THE SAME LOCATION IN 1998
FOR AN AVERAGE OF 17 YEARS. NON-FRANCHISED OUTLETS HAD BEEN AT THE SAME LOCATION
AN AVERAGE OF 13 YEARS.
8
<PAGE> 6
TOTAL REGISTRATIONS
IN 1998, 4.2 MILLION MOTOR-CYCLES WERE REGISTERED FOR USE ON PUBLIC ROADS (SOME
TITLES FOR OFF-HIGHWAY MOTORCYCLES AND ATVs ARE INCLUDED).
MOTORCYCLE REGISTRATIONS ACCOUNTED FOR 2.0% OF ALL MOTOR VEHICLES REGISTERED FOR
USE ON PUBLIC ROADS IN THE U.S. IN 1998.
Total U.S. Motorcycle Registrations: 1945-1998
[Total U.S. Motorcycle Registrations BAR CHART]
<TABLE>
<CAPTION>
Total
Motorcycle
Year Registrations
===========================
<S> <C>
1998 4,175,568
1995 3,949,000
1990 4,088,000
1985 5,216,000
1980 5,681,000
1975 4,964,000
1970 2,815,000
1965 1,382,000
1960 575,000
1955 450,000
1950 454,000
1945 198,000
</TABLE>
NOTE:
INCLUDES FIRST-TIME REGISTRATIONS AND RENEWALS. SOME STATES INCLUDE THE TITLING
OF OFF-HIGHWAY MOTORCYCLES AND ALL-TERRAIN VEHICLES (ATVs) IN THEIR REGISTRATION
TOTALS.
SOURCE:
U.S. DEPARTMENT OF TRANSPORTATION, FEDERAL HIGHWAY ADMINISTRATION FOR 1945-1975
MOTORCYCLE REGISTRATIONS. MOTORCYCLE SAFETY FOUNDATION, IRVINE, CALIFORNIA, FOR
1980 AND SUBSEQUENT YEAR MOTORCYCLE REGISTRATIONS.
9
