<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the fiscal year ended December 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the transition period from _______ to ________
Commission File No. 0-15501
BIKERS DREAM, INC.
(Name of small business issuer in its charter)
California 33-0140149
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11631 Sterling Avenue, Riverside, California 92503
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (909) 343-1883
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock
Check whether the issuer (1) filed all reports required to be filed 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. Yes [X] No [ ]
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. The issuer had revenues
of $27,734,620 for the fiscal year ended December 31, 1998.
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days. (See definition of affiliate in Rule
12b-2 of the Exchange Act). The aggregate market value of the voting and
non-voting common equity held by non-affiliates on April 1, 1999 was
approximately $12,809,038 based on the closing price of the Company's Common
Stock on the Nasdaq SmallCap Market on that date.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. As of April 1, 1999, 5,157,590 shares
of the issuer's Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Not applicable
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL BUSINESS DEVELOPMENT
The Company, which was formerly known as HDL Communications, was incorporated in
California in October 1985. The Company was engaged in the publishing business
until June 1989, when it acquired Biker's Dream, Inc., a California corporation
engaged in the sales and service of used Harley-Davidson motorcycles. Prior to
its acquisition of Biker's Dream, Inc., the Company effected a 1 for
1,363.341473 reverse split of its outstanding Common Stock. After the
acquisition, Biker's Dream, Inc. was merged into HDL Communications and HDL
Communications changed its name to Bikers Dream, Inc. For accounting purposes,
Biker's Dream, Inc. is considered to be the acquirer of HDL Communications.
In September 1996, the Company formed a joint venture with Mull Acres
Investments, Inc. ("MAI"), whose Ultra Kustom Cycles division in Riverside,
California manufactured custom V-twin motorcycles and show-bikes. The joint
venture was formed to act as the exclusive distributor of Ultra Kustom Cycles
with exclusive rights to all direct retail sales of Ultra Kustom Cycles in
Southern California, Sacramento, California, and Dallas, Texas. In February
1997, the Company, through its wholly owned subsidiary, Ultra Acquisition
Corporation, a Nevada corporation ("UAC"), purchased from MAI certain assets,
including equipment and inventory, of MAI's Ultra Kustom Cycles and Ultra Kustom
Parts divisions that had been used in connection with the manufacture,
distribution and sale of motorcycles and motorcycle parts and accessories.
BUSINESS OF BIKERS DREAM
The Company operates in two divisions: Motorcycle Manufacturing and Distribution
and Retail Stores.
MOTORCYCLE MANUFACTURING AND DISTRIBUTION
The Company's Motorcycle Manufacturing and Distribution ("Motorcycle") division
consists of the Company's wholly-owned subsidiary, UAC. The Motorcycle division
designs, manufactures and sells "V" twin powered heavyweight cruiser
motorcycles. The Motorcycle division manufactures motorcycles at an assembly
facility in Riverside, California. Marketing, sales and administrative offices
are also located in Riverside, California. In February 1999, the Company entered
into a lease for a new 56,000 square foot assembly facility and administrative
offices in Mira Loma, California. The Company anticipates that it will vacate
the Riverside premises and move to the new Mira Loma headquarters by May 1999.
See Item 2 -- "Description of Property."
The Motorcycle division currently offers ten models under the Ultra Cycles name:
the "Groundpounder", the "Jackhammer", the "Patriot", the "Legacy", the
"Cruiser", the "Wide Series" I & II, the "Groundpounder ST", the "Jackhammer ST"
and the "Avenger." All Ultra Cycles models emphasize customized features,
including polished or painted 96 and 113 cubic inch high performance S&S motors,
custom gas tanks, fenders and paint schemes, and chrome and billet aluminum
accessories, as standard equipment. Through March 31, 1998, all Ultra Cycles
were sold with a twelve-month, twelve thousand-mile warranty. On April 1, 1998,
the Motorcycle division introduced a four-year, unlimited mileage warranty for
all models.
The major product categories for Ultra Kustom Parts are customized parts,
replacement parts and accessories. Parts in these product categories are
continually being developed and enhanced.
Distribution of Products; Dealer Network. The Motorcycle division distributes
its products through a distribution network of six owned Bikers Dream
Superstores, approximately 40 independently owned Bikers Dream Superstores and
approximately 65 independent Ultra Cycles dealers. In addition, the Company has
recently entered into a distribution agreement with Costco Companies Inc.
("Costco"), operator of 200 U.S. and 70 international warehouse-style consumer
buying outlets, pursuant to which Costco will conduct test marketing of Ultra
Cycles at selected Costco stores. The Company has marketed its dealer program
primarily by advertising in motorcycle and specialty magazines, trade shows and
industry gatherings. Each dealer receives an exclusive territory. The Company
provides dealers with product training and other operational assistance. In
addition, the Company provides its Bikers Dream Superstores with marketing
assistance.
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Market for Company's Products. Heavyweight cruiser motorcycles are in high
demand in the United States. According to the Motorcycle Industry Council's
reports, while annual overall motorcycle unit production in North America has
increased from roughly 300,000 units per year in 1994 to over 400,000 units per
year in 1998, heavyweight cruiser motorcycle sales (651 cc's) have grown from
82,000 units per year in 1994 to over 150,000 units per year in 1998. This
growth has been led by Harley-Davidson, Inc. which, according to its 1998 annual
report on Form 10-K, controls approximately 49.5% of the heavyweight motorcycle
market. Based on industry reports, the Company estimates the total retail sales
volume for the U.S. motorcycle market exceeds $5 billion annually (including
motorcycles, parts, accessories and service). According to such reports, the
heavyweight cruiser motorcycle segment, including related parts, accessories and
service, accounts for over 60% of the U.S. motorcycle market.
Competition. The U.S. heavyweight cruiser motorcycle market in which the Company
competes is highly competitive. The Company's major competitors generally have
substantially greater financial and marketing resources than those of the
Company. Many of the Company's principal competitors have greater sales volume
than the Company, have a larger number of distribution outlets and dealers, and
are more diversified than the Company.
The Company seeks to avoid direct competition with Harley-Davidson, the largest
seller of heavyweight cruiser motorcycles, by operating within a specialized
niche of the heavyweight market. Within this niche, the Company competes on the
basis of product performance and style, pricing, service and warranties. This
competitive strategy includes offering certain customized features (such as
polished or painted high-performance engines) at no additional charge over base
prices, as well as a four-year, unlimited mileage warranty for all models. The
main competitors within the Company's market niche are Titan Motorcycles, Big
Dog Motorcycles and CMC (California Motorcycle Corp.). There can be no assurance
that the Company's competitors will not expand their product lines or
manufacturing operations, or that other motorcycle manufacturers will not enter
this market.
RETAIL STORES
The Retail Stores division operates six Company-owned Bikers Dream Superstores
and licenses the Company's name, and use of its business model and operating
manuals, to its independently owned Bikers Dream Superstores and Ultra Cycles
dealers. The Company and licensed Superstores sell Ultra Cycles and other new
and used heavyweight cruiser motorcycles complemented by a full range of
after-market parts, accessories and service. The Company is not a licensed
Harley-Davidson dealer and does not sell new Harley-Davidson motorcycles.
The Company-owned Superstores are located in San Diego, Santa Ana and
Sacramento, California, Conover, North Carolina, and Dallas and Farmers Branch,
Texas. Approximately 40 independently owned, licensed Bikers Dream Superstores
and approximately 65 licensed, independent Ultra Cycles dealers located
throughout the United States serve markets not currently served by the
Company-owned Superstores.
The Retail Stores division also operates "Dream Wheels", which functions as a
mobile showroom. "Dream Wheels" is a 53-foot tractor/trailer which travels the
United States to promote and market the Company's dealers and Ultra Cycles brand
of motorcycles, accessories and apparel to motorcycle enthusiasts at nationally
acclaimed events such as Daytona Bike Week, Sturgis, Laconia and the Laughlin
River Run.
Each Superstore features a large showroom for the display of motorcycles and
merchandise, a warehouse for inventory and a repair and service department. The
showroom is organized to allow variations in location of the displays to
accommodate customer traffic flow within the store and heighten customer
interest. The service area houses a staff of mechanics and service personnel to
accommodate customer service and warranty needs. The forward area of the
showroom is reserved for the display of new Ultra Cycles as well as other
motorcycles carried for sale.
Larger Superstores are approximately 10,000 square feet in size, while smaller
Superstores are approximately 4,000 to 6,000 square feet. Management believes
the Bikers Dream Superstores compare favorably with many of the independent
retailers of heavyweight cruiser motorcycles. The independent Ultra Cycles
dealers are usually smaller shops, ranging in size from approximately 1,500 to
4,000 square feet, which limits space for display of motorcycles and
accessories.
The Company's Superstores stock and sell an extensive range of after-market
products for the motorcycle enthusiast. Many of these products are not offered
by independent motorcycle retailers, who typically carry a limited range of
products for a variety of motorcycles.
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The Company recently has launched testing of a fully interactive e-commerce web
site which the Company anticipates will be fully operational by May 1999. The
web site will enable consumers to purchase motorcycle parts, including the
Company's Ultra Kustom Parts, accessories and apparel. The site will also enable
consumers to view all models of Ultra Cycles, locate dealers and obtain credit
approvals for motorcycle purchases. Consumers located outside territories
covered by Bikers Dream Superstores and Ultra Cycle dealers will be able to
purchase motorcycles over the Internet.
The service department of each Superstore performs service work on most cruiser
motorcycles, including Ultra Cycles, Harley-Davidson and other heavyweight
cruiser motorcycles. The service department also performs safety checks on all
motorcycles sold and warranty work on authorized brands including Ultra. The
service department can also install parts and accessories sold in the
Superstore.
The market in which Bikers Dream Superstores compete is highly competitive. The
main sources of competition are Harley-Davidson and the licensed Harley-Davidson
motorcycle dealer network, which primarily sell new Harley-Davidson motorcycles,
accessories and parts. Other competitors include the 7,000+ motorcycle retail
outlets located throughout the United States which provide new and used
motorcycles, aftermarket parts, services and accessories. Competition could
increase if current competitors of the Company expand their retail facilities
and operations or new competitors with substantial capital and other resources
enter the retail market.
MATERIALS AND SUPPLIERS
The Company has supply arrangements with most of the major motorcycle
after-market parts and accessory suppliers. Under these arrangements, the
Company's Superstores, including dealers if they qualify, receive quantity
discounts, allowing the Superstores to purchase goods more affordably. Parts and
accessories are purchased from numerous suppliers, with no supplier, excluding
the Company's Motorcycle division and S&S, from which the Company purchases its
engines, accounting for more than 10% of sales. Management believes that the
loss of any supplier, other than S&S, would not have a material adverse effect
on the Company at present because other suppliers could be relied upon to meet
the Company's requirements at a comparable cost.
RESEARCH AND DEVELOPMENT
The Company has not expended a material amount during each of the past two
fiscal years on research and development efforts.
PATENTS, LICENSES AND TRADEMARKS
The Company has no patents issued and has several patents pending that relate to
performance oriented motorcycle components. The Company currently licenses the
"Bikers Dream" name for dealer use. The Company has obtained a service mark
registration in the United States for the mark "Bikers Dream." The Company is
also actively promoting national brand recognition for the Ultra Cycles name by
entering into strategic marketing and promotional agreements. These include a
recently signed deal with Speedvision, a 24-hour cable network, pursuant to
which Speedvision will provide extensive marketing support for the Ultra Cycles
brand.
REGULATION
The Company's operations are subject to regulation, supervision and licensing
under various federal, state and local statutes, ordinances and regulations.
Federal and state authorities have various environmental control requirements
relating to air and noise pollution which affect the business and operations of
the Company. The Company's motorcycles are subject to certification by the U.S.
EPA for compliance with applicable emissions and noise standards and by the
state of California Air Resources Board with respect to more stringent emissions
standards. The Company's motorcycle products also must comply with the National
Highway Traffic Safety Administration's standards. Management believes that it
maintains all requisite licenses and permits and is in compliance with all
applicable federal, state and local laws and regulations.
EMPLOYEES
As of December 31, 1998, the Company had 122 employees, all of which are full
time.
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ITEM 2. DESCRIPTION OF PROPERTY
The Company's operations are conducted in leased facilities located in
California, Texas and North Carolina. The following table describes the general
character of the existing facilities as of April 1, 1999:
<TABLE>
<CAPTION>
SQUARE LEASE APPROXIMATE
LOCATION PRIMARY FUNCTION FEET EXPIRES MONTHLY RENT
-------- ---------------- ---- ------- ------------
<S> <C> <C> <C> <C>
Mira Loma, CA(1) Motorcycle Assembly and 56,200 2004 $19,670
Executive Offices
Riverside, CA(1) Motorcycle Assembly and 20,487 1999 $ 9,115
Executive Offices
Riverside, CA(1) Administration 3,200 1998 $ 2,280
Sacramento, CA Retail Superstore 10,480 2000 $ 3,800
San Diego, CA Retail Superstore 6,935 2001 $ 5,710
Santa Ana, CA Retail Superstore 12,107 2003 $12,900
Conover, NC Retail Superstore 7,000 2001 $ 2,000
Dallas, TX Retail Superstore 5,000 2001 $ 2,500
Farmers Branch, TX Retail Superstore 10,000 1999 $ 8,100
</TABLE>
- ----------
(1) In order to accommodate the expansion of motorcycle production and
distribution in its Motorcycle division, the Company has entered into a
lease for a new 56,200 square foot assembly facility and administrative
offices in Mira Loma, California. The Company anticipates that it will
vacate the Riverside premises and move to the new Mira Loma headquarters
by May 1999. In the opinion of the Company's management, the facilities
are adequately covered by insurance.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved from time to time in litigation arising out of its
operations in the normal course of business. As of the date of this report, in
the opinion of the Company's management, liability, if any, under these actions
is adequately covered by insurance or will not have a material effect on the
Company's financial position or results of operations.
As described in the Company's latest Form 10-QSB for the period ended the
September 30, 1998, Donald Bogert, Brenda Bogert and Bikers Dream of North
Carolina, Inc. ("Bogert") filed an action against the Company on February 28,
1996, in the General Court of Justice, Superior Court Division, of Catawba
County, North Carolina claiming violation by the Company of the requirements of
the Federal Trade Commission Rules and the requirements of the North Carolina
Business Opportunity Sales Statute in connection with the Company's sale of a
franchise to Bogert in June 1994, as well as breach of contract. Bogert sought
recovery of all sums paid to the Company, a sum in excess of $10,000 for breach
of contract and a sum in excess of $10,000 for punitive damages. At the
Company's request, the action was removed to the United States District Court,
Western District of North Carolina in 1996. In
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December 1996, the court dismissed the case pursuant to a provision in the
franchise agreement regarding arbitration of disputes. The arbitration hearing
commenced in December 1997 and was continued in May 1998. A decision in the
arbitration was reached in June 1998, which required the Company to rescind the
franchise agreement. A total of $125,000 that was deposited by the Company into
an escrow account to cover the partial restitution in connection with the
rescission was paid to Bogert in January 1999. The Company also made additional
payments aggregating approximately $63,000 to Bogert in the first quarter of
1999. As of the date of this report, the Company remains obligated to make one
final payment in an amount to be determined, but in any event such payment will
not exceed $12,500. In connection with the resolution of the Bogert matter, in
January 1999 the Company assumed the operation of the Bogerts' former dealership
in Conover, North Carolina.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been traded since July 30, 1998 on The Nasdaq
SmallCap Market under the symbol "BIKR". Prior to such date, the Company's
Common Stock was traded in the over-the-counter market and quoted on the
National Association of Securities Dealers Electronic Bulletin Board ("OTC
Bulletin Board") under the same symbol. The following table reflects the high
and low bid prices of the Company's Common Stock, as reported by the OTC
Bulletin Board, from January 1, 1997 to July 30, 1998, and the high and low
closing sales prices of the Company's Common Stock, as reported by The Nasdaq
Stock Market, from July 30, 1998 through December 31, 1998, in each case as
adjusted for the reverse split of the Company's Common Stock effected on
February 5, 1998. The bid prices shown in the following table are inter-dealer
quotations without retail mark-ups, mark-downs or commissions, and may not
represent actual transactions. The high and low prices for the third quarter of
1998 occurred after July 30, 1998, and therefore the prices shown are the high
and low closing sales prices.
<TABLE>
<CAPTION>
1997 LOW HIGH
- ---- ----- -----
<S> <C> <C>
First Quarter $3.75 $10.78
Second Quarter $3.13 $ 9.22
Third Quarter $4.22 $ 8.59
Fourth Quarter $3.75 $ 5.00
</TABLE>
<TABLE>
<CAPTION>
1998 LOW HIGH
- ---- ----- -----
<S> <C> <C>
First Quarter $4.00 $4.20
Second Quarter $4.00 $4.44
Third Quarter $2.63 $5.34
Fourth Quarter $2.53 $6.84
</TABLE>
To date, the Company has not paid any cash dividends on its Common Stock and
does not expect to pay any dividends in the foreseeable future.
As of April 1, 1999, there were 1,315 shareholders of record of the Company's
Common Stock.
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) 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 access to such
information, and restrictions were placed on resales of the securities.
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<TABLE>
<CAPTION>
DATE TITLE AMOUNT CONSIDERATION PURCHASER
- ---- ----- ------ ------------- ---------
<S> <C> <C> <C> <C>
1/98 Options to purchase 92,000 Services Employees
Common Stock
3/98 Option to purchase 50,000 Consulting Consultant
Common Stock
3/98 Option to purchase 25,000 Waiver of rights Private investor
Common Stock
4/98 Options to purchase 25,000 Consulting Consultant
Common Stock
4/98 Options to purchase 16,000 Services Employees
Common Stock
4/98 Common Stock issued 35,000 $105,000 Private investor
upon exercise of
options
5/98 Options to purchase 15,000 Services Employee
Common Stock
5/98 Common Stock issued 33,000 $ 99,000 Private investor
upon exercise of
options
6/98 Warrants to purchase 370,000(1) Term loan Institutional lender
Common Stock
7/98 Options to purchase 25,000 Services Directors
Common Stock
9/98 Common Stock issued 20,000 $ 80,000 Private investor
upon exercise of
warrants
11/98 Option to purchase 30,000 Services Employee
Common Stock
1/99 Common Stock issued 15,000 $ 75,000 Private investor
upon exercise of
warrants
1/99 Common Stock issued 12,000 $ 36,000 Private investors
upon exercise of
options
1/99 Common Stock issued 73,500 $367,500 Private investors
upon exercise of
warrants
1/99 Common Stock issued 20,000 $ 60,000 Private investor
upon exercise of
options
</TABLE>
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<TABLE>
<CAPTION>
DATE TITLE AMOUNT CONSIDERATION PURCHASER
- ---- ----- ------ ------------- ---------
<S> <C> <C> <C> <C>
2/99 Preferred Stock 1,545(2) $1,500,000(2) Private investor
2/99 Warrants to Purchase 60,000(2) (2) Private investor
Common Stock
2/99 Common Stock 16,000(3) Termination of license Director agreement
</TABLE>
(1) In June 1998, the Company received a $4.5 million, 12% term loan from
Tandem Capital (the "Tandem loan"). In connection with the Tandem loan,
the Company issued Tandem Capital warrants expiring June 2003 to
purchase 370,000 shares of the Company's Common Stock at an initial
exercise price of $4-1/16 per share. The exercise price of the warrants
is reset annually on the anniversary of the closing of the Tandem loan
at the lesser of (i) $4-1/16 or (ii) the average closing bid price of
the Company's Common Stock for the 20 trading days immediately preceding
such anniversary. In addition, under the terms of the agreement
governing the Tandem loan, the Company is obligated to issue to Tandem
Capital on each anniversary of the closing date of the Tandem loan,
until the Tandem loan is paid in full, a warrant to purchase 200,000
additional shares of Common Stock at an exercise price equal to the
greater of (i) $4.00, or (ii) 80% of the average closing bid price of
the Company's Common Stock for the 20 days preceding such anniversary
date.
(2) In February 1999, the Company completed an offering of $1.5 million in
newly issued Series D Preferred Stock. The outstanding shares of Series
D Preferred Stock are convertible into Common Stock pursuant to a
formula. Each share of Series D Preferred Stock has a Stated Value of
$1,000. The number of shares of Common Stock issuable upon the
conversion of one share of Series D Preferred Stock is calculated by
adding $1,000 to the amount of accrued and unpaid dividends on such
share and dividing the resulting sum by the conversion price. The
conversion price is equal to the lesser of (i) 110% of the closing bid
price of the Common Stock on the last trading day before the date of
issuance of the share of Series D Preferred Stock being converted, or
(ii) 90% of the average of the four lowest closing bid prices of the
Common Stock during the last 22 trading days before the date of
conversion.
The 1,545 shares of Series D Preferred Stock currently outstanding could
be converted until April 7, 1999. The exact number of shares of Common
Stock into which currently outstanding Series D Preferred Stock may
ultimately be convertible will vary over time as the result of ongoing
changes in the trading price of the Company's Common Stock. Decreases in
the trading price of the Company's Common Stock are likely to result in
increases in the number of shares of Common Stock issuable upon
conversion. However, prior to the receipt of shareholder approval, the
maximum number of shares issuable upon conversion will not exceed
1,027,996. This number represents 19.9% of the Company's outstanding
Common Stock as of the date the Series D Preferred Stock was issued.
The Company issued warrants to the holders of the Series D Preferred
Stock enabling them to purchase a total of 60,000 shares of the
Company's Common Stock. The warrants may be exercised at any time until
February 5, 2004 at an exercise price of $4.125 per share.
The investors in the Series D Preferred Stock offering have committed to
purchase an additional $500,000 of Series D Preferred Stock and a total
of 15,000 additional warrants upon approval by the Company's
shareholders of the issuance of such additional Series D Preferred
Stock. The same investors have also committed to purchase an additional
$1 million in Series D Preferred Stock and another 25,000 warrants
following the later to occur of shareholder approval or the
effectiveness of a registration statement with respect to such shares.
(3) In February 1998, the Company entered into a license agreement with Big
Bike Boutique, Inc. ("BBB"), a company owned by Bruce Scott, a director
of the Company, pursuant to which the Company licensed its name to BBB
for the purpose of selling apparel and accessories. The agreement was
terminated in October 1998 pursuant to a termination of license
agreement and mutual release. In connection with the termination
agreement, the Company issued to Mr. Scott, in February 1999, 16,000
shares of Common Stock. See Item 12 -- "Certain Relationships and
Related Transactions."
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain matters discussed in this Annual Report on Form 10-KSB are
"forward-looking statements" intended to qualify for the safe harbors from
liability established by the Private Securities Litigation Reform Act of 1995.
These forward-looking statements can generally be identified as such because the
context of the statement will include words such as the Company "believes,"
"anticipates," "expects," "estimates," or words of similar meaning. Similarly,
references to the Company's future plans, objectives or goals are
forward-looking statements. Such forward-looking statements are subject to
certain risks and uncertainties which are described in close proximity to such
statements and under "Certain Trends and Uncertainties," below, and which could
cause actual results to differ materially from those anticipated as of the date
of this report. Shareholders, potential investors, and other readers are urged
to consider these factors in evaluating the forward-looking statements, and are
cautioned not to rely on such forward-looking statements. The forward-looking
statements included herein are only made as of the date of this report and the
Company undertakes no obligation to publicly update such forward-looking
statements to reflect subsequent events or circumstances.
GENERAL
From 1990 until 1996, the Company operated primarily as a motorcycle superstore
retailer. Prior to 1997 the Company was attempting to establish a network of
franchised Bikers Dream stores, but suspended such efforts at the end of 1996.
In 1997 the Company established its Motorcycle Manufacturing and Distribution
("Motorcycle") division by completing the acquisition of the motorcycle and
parts manufacturing assets of Ultra Kustom Cycles (see Item 1 - "Description of
Business - General Business Developments"). During 1997 and 1998 a significant
amount of the Company's resources were devoted to restructuring and
repositioning the Company from a retailer to a premier custom motorcycle
manufacturer and distributor. The franchising program was replaced by a rapidly
growing network of Bikers Dream Superstores and Ultra Cycles dealers. Bikers
Dream Superstore dealers are modeled after the Company-owned Superstores and are
located throughout the United States to service the markets not directly
serviced by large Company-owned Superstores.
RESULTS OF OPERATIONS
The Company conducts its operations through two operating divisions: Motorcycle
and Retail Stores. The Motorcycle division includes the manufacture of large
displacement "V" twin powered custom heavyweight cruiser motorcycles by the
Company at its Riverside, California facility and the sale of these motorcycles
to dealers in its independent dealer network and through its six Company-owned
Superstores. The Retail Stores division includes sales of motorcycles, parts and
accessories by the Company's Superstores.
In accordance with the Company's business plan, the Company's efforts are
currently focused primarily on the growth of the Motorcycle division through
increasing its manufacturing capability and the expansion of the Company's
independent dealer network. The Company expects that in future periods, an
increasing proportion of the Company's revenues will be derived from the
Motorcycle division.
The Company's operations are expected to be impacted by general seasonal trends
that it believes are characteristic of the motorcycle industry. The Company
historically has not been affected by seasonal trends because it began
manufacturing operations in February 1997, and by the fall and winter months of
1997 and early 1998, had sufficient dealer demand to absorb all of the
production the Company was able to achieve at that time. In 1998, however,
production was substantially increased to a point that the Company expects some
effect due to seasonal trends. The Company therefore expects higher revenues to
occur in the second and third quarters in future years.
COMPARISON OF THE FISCAL YEARS ENDED DECEMBER 31, 1998 AND 1997:
REVENUES. Total revenues for the fiscal year ended December 31, 1998, were
$27,735,000 as compared to $14,925,000 for the same period in 1997, representing
an increase of $12,810,000, or 86%.
After giving effect to the elimination of interdivisional charges of
$6,046,000, revenues attributable to the Company's Motorcycle and Retail
Stores divisions for the fiscal year ended December 31, 1998, were $15,853,000
and $11,881,000, respectively, as compared to $5,750,000 and $9,175,000 for the
fiscal year ended December 31, 1997.
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Sales to customers from the manufacturing division include 1,452 motorcycles
manufactured during the year, of which 356 were initially sold to our
Company-owned retail Superstores. Of those, 256 were then, in turn, sold to
retail consumers. Therefore, 1,352 units were ultimately sold to unaffiliated
customers during 1998. The increase in units sold was attributable to a larger
dealer network, which increased to approximately 100 dealers at April 15, 1999,
as compared to approximately 25 dealers as of December 31, 1997. All of the
active dealers within the Company's dealer network are located in the United
States.
Currently, the Company has the capacity to manufacture approximately 200 units
per month. The Company is pursuing a long-term strategy to significantly
increase motorcycle production capacity with a goal of having the capacity to
manufacture approximately 300 units a month by the end of 1999. The Company does
not expect that such an increased capacity can be supported by sales through the
Company's existing dealer network, and the Company's ability to increase sales
in accordance with its strategy is therefore dependent on the continued
expansion of the Company's dealer network. The Company also seeks to stimulate
demand for its motorcycles by additional marketing efforts, advertising through
different media and national advertising of its products, which the Company
believes will aid in attracting new dealers and will promote increased sales
from existing dealers. The Company expects that the number of units sold will
continue to rise in the foreseeable future, although no assurances can be given.
The increase in net sales in the Retail Stores division was attributable to a
20% increase in same store sales for the four Superstores which were operating
during the entire year, and the addition in August 1998, of a new Superstore in
the Deep Ellum, Dallas, Texas market. In January 1999 the Company assumed the
operation of a store in Conover, North Carolina formerly operated by one of the
Company's ex-franchises (see Item 3 --"Legal Proceedings"), bringing the total
number of Company owned Superstores to six. The Company's Superstores range in
size from 4,000 to 10,000 square feet and sell a product line which primarily
includes new Ultra Cycles manufactured by the Company, and used
Harley-Davidsons. The Company does not currently plan to open additional
Company-owned Superstores, although plans may change if an exceptional
opportunity arises.
COST OF GOODS SOLD/GROSS PROFIT. Cost of goods sold for the fiscal year ended
December 31, 1998, was $25,784,000 (i.e., 93% of revenues) compared to
$14,296,000 (i.e., 96% of revenues) for the comparable period a year earlier,
representing an increase of $11,488,000, or 80%. With revenues rising at a
faster rate than cost of goods sold, the Company's gross margin improved to 7%
from 4%, and gross profit increased by $1,322,000, to $1,951,000 for the fiscal
year ended December 31, 1998, from $629,000 for the comparable period a year
earlier.
The increase in gross margins is principally due to the increased production in
the Company's Motorcycle division, which permitted improved cost efficiencies.
Gross margins in the Motorcycle division were approximately 3.7% during the
fiscal year ended December 31, 1998, as compared to approximately 11.6% for the
Retail Stores division. Management believes that gross margins in the Motorcycle
division should continue to improve with increases in production, as the Company
expects to benefit from growing economies of scale.
Cost of goods sold for the fiscal year ended December 31, 1998 included
approximately $2,000,000 due to the recording of a charge during the fourth
quarter of the Company's 1998 fiscal year, resulting from the difference between
the Company's inventory total as of December 31, 1998 as shown in its internal
accounting records and a lesser amount observed in the physical inventory review
conducted in connection with the Company's annual audit. In order to determine
the reason or reasons for this difference, the Company is currently conducting a
review under the supervision of the Audit Committee of the Board of Directors of
its accounting systems, which underwent a complete systems conversion during the
second half of 1998. However, the specific causes of this difference have not
yet been determined. The Company will notify its insurance carriers of the
situation, and the Company believes that, should the Company verify that a
physical loss of inventory has actually occurred, then its insurance coverage
may provide for recovery of a substantial portion of the amount of this charge,
although no assurances can be given.
In light of the foregoing, the Company is implementing new inventory control
procedures on a going forward basis. The Company has engaged the services of an
independent, bonded warehouse company to take full control over all of the
Company's physical inventory functions. The services will commence effective
with the Company's move to its new production and corporate headquarters
facility, which will be completed in May 1999. At the time of the Company's
move, the bonded warehousemen will take possession of the Company's inventory
and a full physical inventory count will be taken. The bonded warehousemen will
record all receipts and issuances of inventory directly into the Company's
accounting system. In addition, beginning with the first fiscal quarter of 1999,
the Company will engage its independent auditors to perform a limited review of
its quarterly financial statements. Once the Company has identified the specific
causes of the inventory difference, further procedures will be implemented as
necessary to prevent a reoccurrence.
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Cost of goods sold for the fiscal year ended December 31, 1998 also includes, in
addition to the charge specifically referenced above, certain adjustments made
during the fourth quarter of the year which may pertain, in part, to operations
of the Company during prior quarters of the year. These adjustments include
approximately $679,000 of intercompany profit elimination and approximately
$350,000 of warranty expense.
As a consequence of the foregoing charges and adjustments, the gross margins of
the Company for the first three quarters of the fiscal year ended December 31,
1998 are lower than were shown in the Company's unaudited interim financial
statements for such periods.
EXPENSES. Selling, general and administrative expenses were $5,361,000 (i.e.,
19.3% of total revenues), for the fiscal year ended December 31, 1998, compared
to $4,584,000 (i.e., 30.7% of total revenues), for the fiscal year ended
December 31, 1997, representing an increase of $777,000, or 16.9%. Selling,
general, and administrative expenses consist primarily of corporate operating
expenses, professional fees, and salaries. The percentage increase in selling,
general and administrative expenses was substantially less than the percentage
increase in total revenues, reflecting improved utilization of corporate and
administrative personnel and some reduction in the labor force, offset by the
increased costs associated with increased Company operations.
Selling, general, and administrative expenses for the fiscal year ended December
31, 1998 reflect adjustments made during the fourth quarter of the year which
pertain, in part, to operations of the Company during prior quarters of the
year. These adjustments include approximately $85,000 for the accrual of legal
expenses and $65,000 representing a loan origination fee deemed to have been
incurred in connection with the restructuring and increase of a credit facility
with one of the Company's lenders.
Depreciation and amortization expense for the fiscal year ended December 31,
1998, totaled $542,000 compared to $462,000 for the for the same period in 1997.
The increase is attributable to a changing of the amortization period of
goodwill from a forty-year amortization period to a fifteen-year amortization
period.
As a consequence of the foregoing, the Company's operating loss was $3,953,000
for the fiscal year ended December 31, 1998, as compared to an operating loss of
$4,417,000 for the comparable period a year earlier.
OTHER EXPENSE (INCOME). Interest expense declined by $16,000, from $592,000 for
the fiscal year ended December 31, 1997, to $576,000 for the fiscal year ended
December 31, 1998. The decrease is primarily attributable to less debt
outstanding compared to the same period in 1997.
The Company recognized $730,000 of income during the fiscal year ended December
31, 1998 related to reacquisition of preferred stock, as compared to none during
the same period one year earlier. The preferred stock so reacquired consisted of
730,000 shares of Series B Convertible Preferred Stock being held in escrow in
order to secure obligations to the Company arising under a Mutual Release and
Settlement Agreement entered into by the Company in 1997 with Mull Acres
Investments, Inc. ("Mull Acres"). In the second fiscal quarter of 1998, the
Company determined that Mull Acres had violated the terms of the Mutual Release
and Settlement Agreement, thereby giving the Company the right to reacquire the
shares held in the escrow, which were effectively retired. The $730,000
recognized by the Company as income reflects the book value of the shares. A
total of approximately $110,000 in expenses incurred in connection with this
transaction are included within the Company's selling, general and
administrative expenses.
There is no material provision for income taxes in 1998. The Company has fully
reserved for the deferred tax asset related to its net operating loss
carry-forwards beginning in the second quarter of 1995. The Company's management
has concluded that, based upon its assessment of all available evidence, the
future benefit of this asset cannot be projected accurately at this time.
NET LOSS. For the fiscal year ended December 31, 1998, the Company reported a
net loss of $3,796,000, compared to a net loss of $5,118,000, for the comparable
period a year earlier. The improved profitability of $1,322,000 is the result of
the aforementioned increases in manufacturing and sales as well as improved
operating efficiencies.
The Company's ability to continue to improve its profitability in future periods
will depend upon a number of factors including, without limitation, continued
demand for heavyweight motorcycles, generally, and the Company's products,
specifically, the ability of the Company to continue the expansion of its dealer
network, and the ability of the Company to increase its manufacturing capability
on a cost-effective basis.
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While the Company does not expect inflation to have a material impact upon its
operating results, there can be no assurance that inflation will not affect the
Company's business in the future. The Company expects to mitigate inflationary
increases through securing additional purchase volume discounts as production
continues to increase, as well as selected price increases for its products.
GENERAL DISCUSSION OF LIQUIDITY AND CAPITAL RESOURCES
The Company utilizes its working capital primarily to finance the motorcycles
which it manufactures. Typically, manufacturing costs are incurred one to two
months prior to receipt of payment for the finished product. Although management
believes that the Company can, at its current level of operations, adequately
service its existing indebtedness and meet its working capital needs by using
available internal cash, as the manufacturing operations of the Company expand,
internally generated cash is not sufficient to meet the Company's working
capital needs. Accordingly, the Company has needed to look to outside funding
sources to address its liquidity and working capital needs. Historically, the
Company has addressed these needs primarily through private equity placements
and secured debt-financing arrangements with lenders.
In April 1998, the Company completed a private placement of Series C Convertible
Preferred Stock, which generated approximately $3.075 million in cash. In
addition, in June 1998, the Company completed a three-year senior secured loan
with Tandem Capital of Nashville, Tennessee. The amount of the loan is $4.5
million. The loan bears interest at 12% per annum and stipulates quarterly
payments. The Tandem loan is secured by a first lien on substantially all of the
Company's assets. In connection with this loan, Tandem also received 370,000
warrants to purchase the Company's Common Stock at an initial exercise price
equal to $4-1/16 payable in cash or in-kind by debt cancellation. The exercise
price of the warrants is reset annually on the anniversary of the closing of the
loan at the lesser of (i) $4-1/16 or (ii) the average closing bid price of the
Company's Common Stock for the 20 trading days immediately preceding such
anniversary. In addition, under the terms of the Tandem loan agreement, the
Company is obligated to issue to Tandem Capital on each anniversary of the
closing date of the loan, until the loan is paid in full, a warrant to purchase
200,000 additional shares of Common Stock at an exercise price equal to the
greater of (i) $4.00, or (ii) 80% of the average closing bid price of the
Company's Common Stock for the 20 days preceding such anniversary date. The
proceeds of the Tandem loan were used to repay $2.5 million of then-existing
long-term debt, with the remaining $2 million used to expand the Company's
motorcycle manufacturing operations.
In order to finance its current working capital needs, the Company is relying on
a $1.5 million inventory flooring line of credit which it obtained in May 1998
from Cana Capital Corporation ("Cana Capital"), a company owned by Bruce Scott,
a director of the Company, and a $300,000 bridge loan which it obtained in
October 1998 from MD Strategic L.P. ("MD Strategic"), a partnership in which Don
Duffy, a director of the Company, is a principal. Advances under the Cana
Capital line of credit bear interest at a rate of 2% or 5% over the prime rate,
depending on the type of advance. The MD Strategic loan is evidenced by an
unsecured note bearing interest at eighteen percent (18%) per annum and is due,
together with accrued interest, on the earlier of May 31, 1999 or upon receipt
by the Company of funds from a third-party lender.
In February 1999, the Company completed an offering of $1,500,000 in newly
issued Series D Preferred Stock. The investors in the Series D Preferred Stock
offering have committed to purchase an additional $500,000 of Series D Preferred
Stock upon approval by the Company's shareholders of the issuance of such
additional Series D Preferred Stock. The same investors have also committed to
purchase an additional $1 million in Series D Preferred Stock following the
later to occur of shareholder approval or the effectiveness of a registration
statement with respect to such shares.
The Company will require additional outside sources of capital to continue to
expand its manufacturing operations. The Company is currently negotiating an
inventory and receivables based line of credit of up to $10 million which will
be used to pay off all or part of its existing indebtedness to Tandem Capital,
Cana Capital and MD Strategic, and to finance its general business operations
and working capital needs. Management believes that such a credit facility,
combined with the proceeds of Series D Preferred Stock offerings, would provide
the Company with sufficient working capital for the current year. If the Company
does not obtain such a credit facility, the Company will be unable to meet its
expansion goals unless it obtains other debt or equity financing on acceptable
terms. The Company is continually in discussions with lenders and potential
equity partners regarding funding options to fuel the Company's growth strategy.
Any additional equity financing that the Company obtains may be dilutive to
shareholders, and any additional debt financing may impose substantial
restrictions on the ability of the Company to operate and raise additional
funds. The Board of Directors will determine the terms of any financing at the
appropriate time based upon management's good faith evaluation of the best
interests of
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<PAGE> 13
the Company and its shareholders. There can be no assurance that additional
capital will be available or that, if available, such capital will be made
available on satisfactory terms.
Cash used for operating activities totaled $7,687,000 for the fiscal year ended
December 31, 1998, as compared to cash used for operating activities of
$6,509,000 for the same period in 1997. The increase in cash used for operating
activities primarily resulted from increased manufacturing operations.
Significant working capital changes included an increase of $1,672,000 in
accounts receivable and an increase in inventories of $3,191,000 attributable to
an increase in production in the Motorcycle Manufacturing division, offset, in
part, by an increase in accounts payable of $1,463,000.
Cash used for investing activities totaled $175,000 during the fiscal year ended
December 31, 1998, as compared to cash used for investing activities of
$1,549,000 during the prior year's period. The decrease results from the
following: (1) slightly lower investment in property, plant, and equipment in
1998, and (2) the acquisition, in 1997, of the assets of the Ultra Kustom Cycles
and Ultra Kustom Parts divisions of Mull Acres Investments ("MAI"), offset by
the elimination, in conjunction with such acquisition, of the Company's
investment in a joint-venture with MAI.
Cash provided by financing activities totaled $7,884,000 million for the fiscal
year ended December 31, 1998, as compared to cash provided by financing
activities of $8,478,000 million during the prior year's period. Proceeds from
issuance of notes payable totaled $5,675,000 while payments on notes payable
totaled $2,617,000 for the fiscal year ended December 31, 1998. Net proceeds
from the issuance of preferred stock totaled $2,945,000 and the exercise of
previously outstanding stock warrants/options totaled $494,000 during the
period. Net proceeds from advances on related party financing agreements totaled
$1,486,000 during the period.
OUTLOOK
As the Company continues to pursue its growth strategy, additional financing
will be required principally for its motorcycle manufacturing operations. The
Company currently has the capacity to manufacture approximately 200 units per
month, with a goal of increasing capacity to over 300 units a month by the end
of 1999. The Company also intends to move by May 1999 to a new manufacturing
facility with approximately three times the manufacturing space it currently
possesses, with such a move expected to cost between $250,000 and $350,000.
Assuming that revenues generated by its Superstores do not materially decline,
the Company does not believe that working capital from external sources will be
needed for its Retail Store division. The Company does not currently plan to
open additional Company-owned Superstores, although such plans may change if an
exceptional opportunity arises.
Although the Company believes it can, at its current level of operations,
adequately service its existing indebtedness and meet its working capital needs
utilizing available internal cash, additional cash and/or credit availability
will be required to meet its manufacturing expansion goals. It is currently
expected that the Company's additional financing will be in the form of both
additional placements of equity and receivable- and inventory-based debt
financing; however, the Company will continue to evaluate financing alternatives
based upon changing market conditions. The Company believes that its available
cash and cash resources, combined with additional financing which it can
reasonably expect to obtain, will be sufficient to fund current activities.
There can be no assurances, however, that the Company will be able to meet its
expansion goals. Such expansion goals may not be met if, for example, the
Company is unable to raise additional equity capital or debt financing, the
Company experiences delays establishing a new manufacturing facility, or the
Company is unable (due to a lack of dealers or demand) to sell all of the
motorcycles which it may have the capacity to produce.
SEASONALITY
Generally, the Company's Motorcycle division exhibits a moderate level of
seasonality as dealer demand for motorcycles tends to increase in the second and
third quarters as motorcycle sales are greatest in the spring and summer months.
The Company's Retail Store division experiences seasonality in the second and
third quarters due to the peak in the riding season in the spring and summer.
INFLATION
The Company believes that the relatively moderate rates of inflation in recent
years have not had a significant impact on its net revenues or profitability.
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IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. Some of the
Company's computer programs that have data sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculations causing disruptions of operations including,
among other things, a temporary inability to process transactions, send
invoices, or engage in similar business activity.
Based on a recent assessment, the Company has determined that it may be required
to modify or replace certain portions of its software so that its computer
systems will properly utilize dates beyond December 31, 1999. The Company's
computer systems are entirely "PC" based utilizing "off-the-shelf" software
produced by a limited number of major software suppliers.
The Company has initiated formal communications with all of the significant
suppliers of its information technology ("IT") and non-IT systems in order to
receive assurances that both its IT and non-IT systems are Year 2000 compliant.
Based upon the responses received, the Company intends, during the first half of
1999, to run test transactions on all of its systems to confirm the Year 2000
operability of such systems. In the event that such testing reveals Year 2000
vulnerability, the Company believes that with modifications to existing systems
and conversions to new systems, the Year 2000 issue can be mitigated. The
Company believes that such communication, testing, and modifications and/or
replacements can be accomplished at an estimated cost of less than $20,000.
The Company has also initiated formal communications with all of its significant
vendors and large customers to determine to what extent the Company might be
vulnerable to those third parties' failure to remedy their own Year 2000 issue.
There can be no assurance that the systems of third parties will be timely
converted. The Company, however, has a relatively small number of significant
suppliers, and it believes that alternative suppliers will be available for all
required parts. The Company will continue to monitor the compliance activities
of its key suppliers up to the Year 2000, and if satisfactory assurances of
compliance cannot be received in a timely fashion, the Company expects to enter
into replacement arrangements with other vendors.
As the number of units held by a dealer at any one time may range from one to
fifteen, the Company believes that the ordering and invoicing process with such
dealers could, if necessary, be handled on a manual basis for a limited time
until compliance is obtained.
The most reasonably likely worst case scenario for the Company is the failure of
banking institutions, through which the Company clears its financial
transactions, to become Year 2000 compliant. In the event any such banking
institutions do not become Year 2000 compliant in a timely manner, the Company
may be unable to gain access to funds when needed or to pay its obligations when
due. The Company would be required to delay or defer financial transactions,
which could severely and adversely affect the Company's financial condition. To
the extent that operations could continue on a manual basis, there would be an
impact relating to the additional cost and delay associated with manual
processing.
Pending completion of its review and testing process, the Company does not yet
have a contingency plan as such. It is expected that such a plan will be
prepared by mid-1999. The Company has determined, however, that to the extent
any key supplier, vendor or customer of the Company cannot demonstrate such
person's Year 2000 compliance to the Company's satisfaction, and if short-term
manual back-up systems cannot be implemented without adversely affecting the
Company's operations, then the Company will seek to establish relationships with
other suppliers, vendors, or customers who can provide assurance of Year 2000
compliance.
CERTAIN TRENDS AND UNCERTAINTIES
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company is hereby filing cautionary
statements identifying important risk factors that could cause the Company's
actual results to differ materially from those projected in forward-looking
statements of the Company made by or on behalf of the Company.
The Company wishes to caution readers that these factors, among others, could
cause the Company's actual results to differ materially from those expressed in
any projected, estimated or forward-looking statements relating to the Company.
The following factors should be considered in conjunction with any discussion of
operations or results by the Company or its representatives, including any
forward-looking discussion, as well as comments contained in press releases,
presentations to securities analysts or investors, or other communications by
the Company.
In making these statements, the Company is not undertaking to address or update
each factor in future filings or communications regarding the Company's business
or results, and is not undertaking to address how any of these factors may have
caused changes to
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<PAGE> 15
discussions or information contained in previous filings or communications. In
addition, certain of these matters may have affected the Company's past results
and may affect future results.
History of Operating Losses and Accumulated Deficits May Affect Profitability;
Improvements in Profitability Dependent upon Ability to Expand Dealer Network
and Increase Manufacturing Capability. The Company has a history of operating
losses and accumulated deficits. The Company had net operating losses of
approximately $3.8 million, $5.1 million and $4 million for the fiscal years
ended December 31, 1998, 1997 and 1996, respectively. As of December 31, 1998,
the Company's accumulated deficit was approximately $15,787,000. The Company may
not be able to achieve or maintain profitability in the future. The ability of
the Company to improve its profitability in future periods will depend upon its
ability to continue to expand its dealer network and to increase its
manufacturing capability on a cost-effective basis.
Limited Experience with Manufacturing Operations. The Company entered the
motorcycle manufacturing business in 1997 through the acquisition of the assets
which now comprise its Ultra Cycles Division. Previously, the Company's
operations had involved only the operation of retail stores selling used
motorcycles and motorcycle parts and accessories. The Company's direct
experience with motorcycle manufacturing is therefore limited.
Demand for the Company's Products May Not be Sufficient to Enable the Company to
Protect or Increase Market Share. The Company manufactures heavyweight cruiser
motorcycles. According to industry research reports, the overall market for
heavyweight cruisers has grown by approximately 12% per year since 1996. The
base retail price of one of the Company's heavyweight cruisers ranges from
approximately $16,000 to $26,000. Motorcycles within this price range are luxury
goods and are therefore more susceptible to changes in popular fashion and
changes in economic conditions than lower priced motorcycles. Any reduction in
overall demand for heavyweight cruiser motorcycles may require the Company to
increase its share of the market in order to sustain or increase sales. However,
the Company cannot ensure that demand for its products will be sufficient to
enable the Company to protect or increase its market share. Without sufficient
sales volume, the Company's stores will also lose the benefit of economies of
scale associated with the superstore concept.
Expansion of Dealer Network Necessary to Maintain or Increase Sales. Motorcycles
manufactured by the Company are sold through its six owned Bikers Dream
Superstores, approximately 40 independently owned Bikers Dream Superstores and
approximately 65 independent Ultra Cycles dealers. Approximately 75% of the
motorcycles sold by the Company during the year ended December 31, 1998 were
sold through the independent dealer network. Dealers may not be able to maintain
or increase this level of sales of the Company's products. Management believes
that the Company will need to continue to expand its independent dealer network
in order to increase sales, but may not be able to do so successfully.
Loss of Services of Herm Rosenman May Have Material Adverse Effect. The Company
depends highly on the services of Herm Rosenman, its president and chief
executive officer. The Company entered into an employment agreement with Mr.
Rosenman which expires in 2002, but has not obtained key man insurance for Mr.
Rosenman. The loss of Mr. Rosenman could have a material adverse effect on the
Company and its results of operations.
Stock Price is Subject to Volatility. The stock market from time to time
experiences significant price and volume fluctuations, some of which are
unrelated to the operating performance of particular companies. The Company
believes that a number of factors can cause the price of its Common Stock to
fluctuate, perhaps substantially. These factors include, among others:
o Announcements of financial results and other developments
relating to the Company's business;
o Changes in the general state of the economy; and
o Changes in market analyst estimates and recommendations for the
Company Common Stock.
As an example, in late December 1998, the Company's stock price and trading
volume fluctuated significantly following announcement of the Company's plans to
engage in Internet related commerce.
Significant Decrease in Price of Common Stock Would Correspondingly Increase
Number of Shares Issuable Upon Conversion of Series D Preferred Stock and Cause
Greater Dilution. Significant downward fluctuations of the Company's stock price
may substantially increase the number of shares of Common Stock issuable upon
conversion of outstanding Series D Preferred Stock as a result of the conversion
formula which is tied to the market price of the Common Stock, thereby also
increasing the dilution to existing security holders of the Company. See
discussion in note (2) under Item 5 -- "Market for Common Stock and Related
Matters."
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The Ability of the Company to Continue Operations May be Materially Impaired if
the Company Does Not Have Sufficient Cash to Redeem Series D Preferred Stock
Upon a Mandatory Redemption. The Company is required to redeem Series D
Preferred Stock after an event triggering mandatory redemption pursuant to the
terms of the documents governing the terms of the Series D Preferred Stock.
Such triggering events include, among other things:
o Failure of the Company to pay dividends when required;
o Material breaches of the Company's agreements with purchasers of
Series D Preferred Stock, including failure to register the
Common Stock issuable upon conversion of Series D Preferred
Stock and failure to maintain the effectiveness of any such
registration;
o Failure to maintain a Nasdaq listing for the Company's Common
Stock;
o Failure to deliver Common Stock certificates in a timely fashion
after the conversion of Series D Preferred Stock; and
o Failure to obtain shareholder approval for the issuance of
Series D Preferred Stock and underlying shares of Common Stock
by September 30, 1999.
With respect to the last item listed above, the rules of the Nasdaq Stock Market
limit the number of shares of Common Stock which the Company can issue without
shareholder approval. Under these rules, without shareholder approval common
shares cannot be issued upon the conversion of Series D Preferred Stock in an
amount exceeding 19.9% of the number of common shares outstanding at the time
the Series D Preferred Stock was issued. At the time the Series D Preferred
Stock was issued, the Company had 5,165,810 shares of Common Stock outstanding,
thereby enabling the Company to issue up to 1,027,996 shares of Common Stock
without prior shareholder approval.
Given the formula used for the conversion of Series D Preferred Stock, the
number of shares issuable upon the conversion of all currently outstanding
Series D Preferred Stock will not exceed 1,027,996 as long as the trading price
of the Company's Common Stock is $1.68 or greater. If the trading price of the
Common Stock falls below $1.68, then the holders of Series D Preferred Stock
will have the right to redeem any shares of Series D Preferred Stock which
cannot be converted without violating the 19.9% limitation. Consequently,
significant downward fluctuations of the Company's stock price could also create
an obligation on the part of the Company to redeem shares of outstanding Series
D Preferred Stock, which could have a material adverse effect on our business
and financial condition.
It is unlikely that the Company will have sufficient cash to be able to redeem
Series D Preferred Stock if required to do so. As a result, the occurrence of an
event triggering mandatory redemption of the Series D Preferred Stock could
materially impair our ability to continue to operate our business.
Exercise of Outstanding Warrants and Options Would Result in Significant
Dilution; Obligations to Issue Additional Warrants. As of April 1, 1999,
1,199,250 previously issued warrants were outstanding at exercise prices ranging
from $4.00 to $5.00. As of April 1, 1999, 952,374 options were outstanding at
prices ranging from $3.00 to $7.50, and 575,334 of the options were fully
vested. The exercise of such warrants and options could result in significant
dilution to existing security holders of the Company. In addition, under the
terms of the agreement governing the Company's $4.5 million term loan from
Tandem Capital, the Company is obligated to issue to Tandem Capital on each
anniversary of the closing date of the term loan, until such loan is paid in
full, a warrant to purchase 200,000 additional shares of Common Stock at an
exercise price equal to the greater of (i) $4.00, or (ii) 80% of the average
closing bid price of the Company's Common Stock for the 20 days preceding such
anniversary date. (See discussion in note (1) under Item 5 -- "Market for Common
Stock and Related Matters.")
Possible Issuance of Additional Preferred Stock May Adversely Affect Rights of
Holders of Common Stock and May Render More Difficult Certain Anti-Takeover
Strategies in the Best Interest of Shareholders. As of April 1, 1999, the
Company had 703,740 shares of Preferred Stock outstanding. The Articles of
Incorporation of Bikers Dream permit the Board of Directors to designate the
terms of, and issue, up to 9,296,260 additional shares of Preferred Stock
without further shareholder approval. The issuance of additional shares of
Preferred Stock could adversely affect the rights of holders of Common Stock by,
among other things, establishing preferential dividends, liquidation rights and
voting power. In addition, the issuance of Preferred Stock might render more
difficult, and therefore discourage, an unsolicited takeover proposal such as a
tender offer, proxy contest or removal of incumbent management, even if such
actions would be in the best interest of the Company's shareholders.
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Other important risk factors that could cause the Company's actual results to
differ materially from those expressed or implied by the Company or on behalf of
the Company are discussed elsewhere within this Form 10-KSB in Item 1 --
"Description of Business", under the subheadings: "Motorcycle Manufacturing and
Distribution" and "Retail Stores", and Item 6 -- "Management's Discussion and
Analysis of Financial Condition and Results of Operations", under the
subheadings "General Discussion of Liquidity and Capital Resources", "Outlook",
"Seasonality", "Inflation" and "Impact of the Year 2000 Issue."
ITEM 7. FINANCIAL STATEMENTS
See financial statements appended to the back of this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS
The Company's directors and executive officers consist of the following persons:
<TABLE>
<CAPTION>
NAME OFFICE
- ---- ------
<S> <C>
Herm Rosenman CEO, President; Director
Donald J. Duffy Director
Humbert Powell Director
John K. Russell Director
Bruce Scott Director
Anne Todd Controller
</TABLE>
HERM ROSENMAN, age 51, has been the Company's president and chief executive
officer and a director since September 1997. At the annual meeting of the
shareholders of the Company in July 1998, he was appointed chairman of the board
of directors. From 1996 through 1997, Mr. Rosenman was a principal with Pacific
Consulting Group. From 1994 to 1997, Mr. Rosenman was the chief executive
officer of RadNet, a healthcare provider. From 1991 to 1995, he was the
President and chief executive officer of Ireland Coffee, an upscale coffee chain
he founded in a joint venture. From 1988 to 1991, Mr. Rosenman was the chief
financial officer of Rexene, a plastics and petrochemicals manufacturer. Prior
to 1988, Mr. Rosenman worked for Coopers & Lybrand for 20 years, 10 of which he
was a partner, where he served clients in many industries including
manufacturing, telecommunications, pharmaceuticals and construction. Mr.
Rosenman also serves on the board of directors of Integrated Intelligence Corp.,
a privately owned company, Mr. Rosenman received a
17
<PAGE> 18
B.B.A. from Pace University and an M.B.A. from the Wharton School of Business.
Mr. Rosenman is married to Diana Rosenman, Director of Marketing and Public
Relations of the Company. See Item 12 -- "Certain Relationships and Related
Transactions."
DONALD J. DUFFY, age 31, has been a director since December 1995 and is the
former chief executive officer of the Company. Until the last Annual Meeting
held in 1998, Mr. Duffy served as the chairman of the board of directors. Mr.
Duffy is a principal of Meyer, Duffy & Associates, Inc. ("Meyer, Duffy"), an
investment management and strategic consulting group based in New York which he
founded in September 1994. Meyer, Duffy is involved in the financing of
development stage private and public companies. From June 1992 to September
1994, Mr. Duffy was a senior analyst at Oak Hall Capital Advisors, specializing
in research and investments in retail, gaming and technology companies.
HUMBERT POWELL, III, age 60, has been a director since December 1995. Mr. Powell
has been an associate with Sanders, Morris and Mundy, an investment banker and
broker/dealer, since December 1996. Prior to joining Sanders, Morris and Mundy,
Mr. Powell held a variety of positions in corporate finance and investment
banking, including Chairman of Marleau, Lemire USA from 1995 to November 1996
and Senior Managing Director of Bear Stearns & Co. from 1984 to 1994. Mr. Powell
also serves on the Board of Directors of Osicom Technologies.
JOHN K. RUSSELL, age 48, has been a director since May 1997. Mr. Russell is
President of the Ducati Owners Club Northeast and owns and operates a fine arts
business. Mr. Russell has over twenty years of retail experience and an
extensive background managing, supervising and consulting in motorcycle related
businesses.
BRUCE A. SCOTT, age 52, has been a director since July 1998. Since January 1998,
Mr. Scott has been the President of Cana Capital Corporation, the Secretary and
Treasurer of Big Bike Boutique, a retail apparel distributor, the President of
Bikers Dream stores in Tampa Bay, Jacksonville, Panama City and Daytona, and the
President of Bay Honda, a motorcycle retailer. From December 1995 through
December 1997 Mr. Scott was the Senior Vice President of Republic Security
Services, a security system company which was, at the time, a division of
Republic Industries. From 1985 to 1995 Mr. Scott was the President of Scott
Alarm, a privately held security system company that was sold to Republic
Industries in 1995.
ANNE TODD, age 31, was named Controller and appointed corporate secretary in
1997. Ms. Todd was previously assistant controller for the Company from 1995 to
1997. Prior to joining the Company she was assistant controller for American
Standard from 1993 to 1995.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth certain summary information regarding
compensation paid by the Company for services rendered in all capacities during
the fiscal years ended December 31, 1998 and 1997, respectively, to the
Company's chief executive officer during the fiscal year ended December 31,
1998. Where applicable, the figures set forth below have been adjusted to
reflect the Company's reverse stock split effected as of February 5, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------
ANNUAL COMPENSATION SECURITIES
---------------------- RESTRICTED UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS STOCK AWARDS OPTIONS/SARS
--------------------------- ---- --------- ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Herm Rosenman, CEO/President(1) 1998 $180,000(2) 0(3) $ 76,875(5) 478,334(6)
1997 $ 45,000(2) 0 $158,646(4) 473,334(7)
</TABLE>
- -------------
(1) Herm Rosenman was appointed CEO and President in September 1997. No
other executive officer earned salary and bonus in excess of $100,000
during the fiscal year ended December 31, 1998.
(2) Under Mr. Rosenman's employment agreement with the Company, as amended,
commencing September 1, 1997, the Company has an obligation to pay him a
salary in monthly installments of $17,361 for the first, second and
third years of the agreement and not less than $20,000 for the fourth
and fifth years of the agreement. In accordance with the terms of the
employment agreement and as agreed to by the parties, the Company
deferred payment of $7,361 each month for the months of September and
October 1997, $4,861 each month for the months of November and December
1997 and $2,361 each month during the year of 1998. Further, pursuant to
the employment agreement, the Company is obligated to pay all amounts so
deferred in equal monthly installments throughout the remainder of the
term commencing January 1999, determined by dividing the total amount of
payments deferred by the total number of monthly payments remaining
during the term as of January 1, 1999. As of January 1, 1999, the total
amount deferred was $52,778.
18
<PAGE> 19
(3) On December 28, 1998, in lieu of a cash bonus (i) the vesting schedule
of 30,000 shares of restricted stock previously granted to Mr. Rosenman
in 1997 was changed; and (ii) the exercise price of certain options to
purchase Common Stock previously granted to Mr. Rosenman was reduced and
the vesting schedule for such options was changed. See also notes (4),
(5) and (6).
(4) Includes 667 shares of Common Stock granted in consideration of Mr.
Rosenman's services as a consultant to the Company that vested on August
1, 1997, and 30,000 shares granted as of September 1, 1997, pursuant to
Mr. Rosenman's stock grant and stock option agreement, of which 10,000
shares were originally scheduled to vest on each of September 1, 1998,
September 1, 1999 and September 1, 2000. As discussed in notes (3) and
(5), on December 28, 1998 the vesting dates for the first two allotments
of 10,000 shares (a total of 20,000 shares) were changed to January 1,
1999 and the vesting date for the last allotment of 10,000 shares was
changed to January 1, 2000. Dividends will be paid on such shares (when
issued and outstanding) only to the same extent, if any, that dividends
are paid on all other outstanding shares of Common Stock.
(5) As described in note (4), the vesting dates of the 30,000 shares
originally awarded to Mr. Rosenman in 1997 were changed on December 28,
1998, with 20,000 shares vesting on January 1, 1999 and 10,000 shares
vesting on January 1, 2000. In the table, this change in vesting dates
has been treated as the grant of a new restricted stock award of 30,000
shares in 1998; however, the 1998 award in effect simply replaces, and
is not cumulative with respect to, the prior award of 30,000 shares in
1997. The shares that vest on January 1, 2000 will vest only if Mr.
Rosenman is still employed by the Company on September 1, 1999. All of
the 30,000 shares, once vested, will not become issuable until September
1, 2000 or upon termination of Mr. Rosenman's employment, whichever
occurs first. Dividends on the 30,000 shares (when issued and
outstanding) will be paid only to the same extent, if any, that
dividends are paid on all other outstanding shares of Common Stock.
As of December 31, 1998, Mr. Rosenman held a total of 667 shares of
restricted stock awarded to him as compensation, and the total value of
such shares, based on the Nasdaq closing sales price for the Company's
Common Stock on that date, was $2,793.
(6) Includes non-qualified options to purchase 473,334 shares of Common
Stock that are reflected in this table as securities underlying options
originally granted in the fiscal year ended December 31, 1997. These
options are included in the table for 1998 because they were all
repriced on October 22, 1998 at an exercise price of $4.00 and
subsequently repriced on December 28, 1998 at an exercise price of
$3.00. The vesting schedule for 380,000 of these options was also
changed on December 28, 1998 as reflected in the table below entitled
Option Grants in the Fiscal Year Ended December 31, 1998. Also includes
options to purchase 5,000 shares of Common Stock granted in 1998 in
consideration of Mr. Rosenman's services as a director of the Company.
(7) Includes non-qualified options to purchase 3,334 shares of Common Stock
granted on August 1, 1997 in consideration of Mr. Rosenman's services as
a consultant to the Company and non-qualified options to purchase
470,000 shares of Common Stock granted on September 1, 1997, of which
460,000 options were granted pursuant to Mr. Rosenman's stock grant and
stock option agreement, as amended, and 10,000 options were granted in
consideration of Mr. Rosenman's services as a director of the Company.
STOCK OPTIONS
The following table sets forth certain information with respect to stock options
granted to the Company's Chief Executive Officer during the fiscal year ended
December 31, 1998.
19
<PAGE> 20
OPTION GRANTS IN THE FISCAL YEAR
ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN PRICE
NAME GRANTED 1998(10) ($/SHARE) EXPIRATION DATE
---- -------------- ------------- --------- ---------------
<S> <C> <C> <C> <C>
Herm Rosenman 13,334(1)(2) 2.11 $3.00 9/1/2002
Herm Rosenman 80,000(1)(3) 12.69 $3.00 9/1/2003
Herm Rosenman 80,000(1)(4) 12.69 $3.00 12/31/2003
Herm Rosenman 50,000(1)(5) 7.93 $3.00 12/31/2004
Herm Rosenman 50,000(1)(5)(6) 7.93 $3.00 12/31/2004
Herm Rosenman 50,000(1)(7) 7.93 $3.00 12/31/2005
Herm Rosenman 50,000(1)(6)(7) 7.93 $3.00 12/31/2005
Herm Rosenman 50,000(1)(8) 7.93 $3.00 12/31/2006
Herm Rosenman 50,000(1)(6)(8) 7.93 $3.00 12/31/2006
Herm Rosenman 5,000(9) 0.79 $3.75 7/31/2003
</TABLE>
- ------------------------------
(1) Includes non-qualified options to purchase the number of shares of
Common Stock stated in the table that were originally granted in August
and September 1997 but were repriced on October 22, 1998 at an exercise
price of $4.00 and, in lieu (partially) of a cash bonus, were
subsequently repriced on December 28, 1998 at an exercise price of
$3.00. The vesting schedule for 380,000 of these options was also
changed on December 28, 1998, as reflected in subsequent footnotes to
the table.
(2) These options are exercisable commencing September 1, 1997. Of these
options, 3,334 options were granted in consideration of Mr. Rosenman's
services as a consultant to the Company and 10,000 options were granted
in consideration of Mr. Rosenman's services as a director of the
Company.
(3) These options are exercisable commencing September 1, 1998.
(4) These options are exercisable commencing December 31, 1998.
(5) These options are exercisable commencing December 31, 1999.
(6) None of these options vest until 75% of the budget is achieved. These
options vest ratably with the percentage of budget achieved in excess of
75%. As 75% to 100% of the budget is achieved, 75% to 100% of these
options vest. The budget described in this footnote is the budget that
is submitted annually by Mr. Rosenman and the Company's management team,
and approved by the Board of Directors, subject to revision as approved
by the Board of Directors or an authorized committee thereof.
(7) These options are exercisable commencing December 31, 2000.
(8) These options are exercisable commencing December 31, 2001.
20
<PAGE> 21
(9) These options are exercisable commencing July 31, 1998. These options
were granted in consideration of Mr. Rosenman's services as a director
of the Company.
(10) Includes, for purposes of this table, the total number of options
granted to Herm Rosenman as a consultant and as a director.
The following table sets forth certain information as to the fiscal year-end
value of unexercised options of the Company's Chief Executive Officer. Mr.
Rosenman did not exercise any options during the fiscal year ended December 31,
1998.
AGGREGATE OPTION EXERCISES IN
FISCAL YEAR ENDED DECEMBER 31, 1998 AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN THE MONEY OPTIONS
SHARES OPTIONS AT 12/31/98 AT 12/31/98(1)
ACQUIRED ON VALUE ------------------------------ -----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Herm Rosenman 0 -- 178,334 300,000 $208,022 $356,250
</TABLE>
- ------------------------
(1) The value of the Company's Common Stock for the purposes of the
calculation was based upon the closing sales price for the Company's
Common Stock on December 31, 1998, as reported by The Nasdaq Stock
Market, minus the exercise price.
EMPLOYMENT AGREEMENTS AND REPRICING OF OPTIONS
The Company entered into a three year employment agreement with Herm Rosenman in
September 1997, pursuant to which Mr. Rosenman is employed as President and
Chief Executive Officer of the Company. The term of this agreement was extended
to five years by amendment in December 1997. Under the terms of this agreement,
as amended, Mr. Rosenman is to receive base compensation of $17,361 for each
month of the first, second and third years, and at least $20,000 for each month
of the fourth and fifth years, of the term. In accordance with the terms of the
employment agreement and as agreed to by the parties, the Company deferred
payment of $7,361 each month for the months of September and October 1997,
$4,861 each month for the months of November and December 1997 and $2,361 each
month during the year of 1998. Further, pursuant to the employment agreement,
the Company is obligated to pay all amounts so deferred in equal monthly
installments throughout the remainder of the term commencing January 1999,
determined by dividing the total amount of payments deferred by the total number
of monthly payments remaining during the term as of January 1, 1999. As of
January 1, 1999, the total amount deferred was $52,778. The Board may annually
review Mr. Rosenman's salary and, in its sole discretion, based upon such
factors as the Board may choose to consider, may increase such salary. Mr.
Rosenman is also eligible to participate in any bonus plans applicable to
executive officers of the Company as may be established by the Board. In
addition, the Company reimburses Mr. Rosenman for certain automobile expenses
and provides him with a motorcycle manufactured by the Company for his personal
use, and if Mr. Rosenman serves the full five year term of his employment
agreement, title to this motorcycle will be transferred to him at the end of the
term. In the event that Mr. Rosenman becomes physically or mentally disabled or
incapacitated during any period of the term, the Company will pay him his base
compensation less the aggregate amount of all income disability benefits that he
may, or may be entitled to, receive for such period. Mr. Rosenman's employment
agreement further provides that on the date of any termination without cause of
Mr. Rosenman's employment under his employment agreement arising from a change
in control, the Company is obligated to pay to Mr. Rosenman an amount equal to
18 months' salary, as determined according to the amount paid to Mr. Rosenman at
the time of termination, payable on a monthly basis.
In connection with Mr. Rosenman's employment agreement, the Company and Mr.
Rosenman entered into a stock grant and stock option agreement in December 1997.
Pursuant to the stock grant and stock option agreement, the Company agreed to
grant 30,000 shares of Common Stock (after giving effect to the reverse stock
split of the Company's Common Stock that was effected as of February 5, 1998) to
Mr. Rosenman, which shares would vest in equal allotments of 10,000 shares on
each of September 1, 1998, September 1, 1999 and September 1, 2000, provided
that Mr. Rosenman was still employed by the Company under his employment
agreement at each such vesting date. Under an amendment to the stock grant and
stock option agreement entered into in December 1998, the vesting dates for the
first two allotments of 10,000 shares (a total of 20,000 shares) were changed to
January 1, 1999, and the vesting date for the last allotment of 10,000 shares
was changed to January 1, 2000 in lieu, partially, of a cash bonus to Mr.
Rosenman. Once vested, none of the 30,000 shares are issuable until September 1,
2000 or upon termination of Mr. Rosenman's employment, whichever occurs first.
Under the original stock grant and stock option agreement, the Company agreed to
grant 460,000 options to Mr. Rosenman at an exercise price of $5.00 per share
(as adjusted for the reverse stock split of the Common Stock of the Company
effected as of February 5, 1998), which shares would vest in specified
allotments over a period of five years. In October 1998, these options, together
with 13,334 previously granted options, were canceled and new options were
issued at an exercise price of $4.00 per share, which price included a premium
of approximately 10% above the fair market value of the Common Stock as of the
date of approval by the Compensation Committee. The Compensation Committee
approved the reduction in the exercise price from $5.00 to $4.00 to more closely
reflect the market price of the Common Stock and thereby maintain the value of
the options as an incentive. As a result of this stock option repricing,
21
<PAGE> 22
the Company canceled a total of 473,334 stock options and granted the same
number of new stock options at the aforementioned exercise price of $4.00 per
share.
In December 1998, all 473,334 options were canceled and new options were issued
at an exercise price of $3.00 per share, which price includes a premium of
approximately 20% above the fair market value of the Common Stock as of the date
of approval by the Compensation Committee. In lieu, partially, of a cash bonus,
the Compensation Committee approved the reduction in the exercise price from
$4.00 to $3.00 per share to provide greater economic incentive to Mr. Rosenman
to remain with the Company and to avoid the expense to the Company of a cash or
stock bonus. As a result of this stock option repricing, the Company canceled a
total of 473,334 stock options and granted the same number of new stock options
at the aforementioned exercise price of $3.00 per share. Under the original
stock grant and stock option agreement, the vesting schedule for the 460,000
options granted thereunder provided (after giving effect to the reverse stock
split of the Company's Common Stock that was effected as of February 5, 1998)
for vesting of 80,000 options on September 1, 1998, 80,000 options on September
1, 1999 (of which 40,000 were performance-based options), and 100,000 options
(of which 50,000 were performance-based options) on each of September 1, 2000,
September 1, 2001 and September 1, 2002. Pursuant to the amendment to stock
grant and stock option agreement, this schedule was amended in December 1998 to
provide, in partial substitution for a cash bonus, for vesting of the remaining
then - unvested 380,000 options as follows: 80,000 options (of which 40,000
options were performance-based options) on December 31, 1998 and 100,000 options
(of which 50,000 options are performance-based options) on each of December 31,
1999, December 31, 2000 and December 31, 2001. All of the 80,000 options
scheduled to vest on December 31, 1998 (including the 40,000 performance-based
options) vested on such date.
COMPENSATION OF DIRECTORS
During the fiscal year ended December 31, 1998, no cash compensation was paid to
directors of the Company for their services as directors.
As partial consideration for Mr. Rosenman's services as a director of the
Company, the Company granted to Mr. Rosenman options to purchase 10,000 shares
of Common Stock at an exercise price of $5.00 per share, on September 1, 1997,
which were repriced at $4.00 per share on October 22, 1998 and repriced again at
$3.00 per share on December 28, 1998.
In October 1998, options to purchase 10,000 shares at a price of $7.90 that were
previously granted to Humbert Powell and options to purchase 10,000 shares at a
price of $7.05 that were previously granted to John Russell were canceled and
new options were issued to each of them at an exercise price of $4.00 per share,
which price includes a premium of approximately 10% above the fair market value
of the Common Stock as of the date of approval by the Compensation Committee.
The Compensation Committee approved the reductions in the exercise price from
$7.90 and $7.05 to $4.00 to more closely reflect the market price of the Common
Stock and thereby maintain the value of the options as an incentive. As a result
of this stock option repricing, the Company canceled a total of 20,000 stock
options and granted the same number of new stock options (10,000 options to each
of Humbert Powell and John Russell) at the aforementioned exercise price of
$4.00 per share.
In July 1998, the Company's stockholders approved a stock option plan (the
"Plan") that authorizes incentive stock options for employees (including
officers) and non-qualified stock options for non-employee directors and
consultants. A total of 50,000 shares of Common Stock were reserved for issuance
to directors upon exercise of options granted under the Plan.
Under the Plan, as of the date of their first election or appointment as
directors, each director of the Company is automatically granted non-qualified
stock options to purchase 5,000 shares of the Company's Common Stock, and
thereafter on each anniversary of their first election or appointment as
director, each director of the Company will automatically be granted
non-qualified stock options to purchase 2,000 shares of the Company's Common
Stock. Except as expressly authorized by the Plan, directors of the Company who
are members of the committee that administers the Plan are not otherwise
eligible to participate in the Plan. The exercise price for each non-qualified
stock option granted under the Plan is the fair market value of the Company's
Common Stock on the date of grant. Each such non-qualified stock option has a
term of five years, subject to earlier termination. If a holder of any
non-qualified stock option granted under the Plan no longer serves on the Board,
then the outstanding non-qualified stock options of such holder will expire one
year after such termination, or their stated expiration date, whichever occurs
first.
During the year ended December 31, 1998, the Company's five directors were each
awarded options under the Plan for the purchase of 5,000 shares of Common Stock,
all with an exercise price of $3.75 per share, none of which were exercised
during that year.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding ownership of the
Company's voting securities, which include its Common Stock, Series A Preferred
Stock and Series B Preferred Stock, as of April 14, 1999, by each director of
the Company, the chief executive officer of the Company, each person known by
the Company to be the beneficial owner of more than five percent of any class of
the Company's voting securities, and all of the directors and the chief
executive officer of the Company as a group, excluding in each case rights under
options or warrants not exercisable within 60 days. All persons named have sole
voting power and investment power over
22
<PAGE> 23
their shares except as otherwise noted. The figures set forth below have been
adjusted to reflect the Company's reverse stock split as of February 5, 1998.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF PERCENT OF
TITLE OF CLASS BENEFICIAL OWNER SHARES OWNED CLASS
- -------------- ------------------- ------------ -----------
<S> <C> <C> <C>
Common Stock Herm Rosenman(1) 205,001(2) 3.82%(3)
11631 Sterling Avenue
Riverside, CA 92503
Common Stock Donald Duffy(4) 1,403,643(5) 25.04%(3)
c/o Meyer, Duffy & Associates, Inc.
237 Park Avenue
New York, NY 10017
Common Stock MD Strategic L.P. 933,448(6) 17.38%(3)
c/o Meyer, Duffy & Associates, Inc.
237 Park Avenue
New York, NY 10017
Common Stock Humbert Powell, III(7) 15,000(8) *(3)
712 Fifth Avenue, 11th Floor
New York, NY 10019
Common Stock John K. Russell(9) 15,000(10) *(3)
11631 Sterling Avenue
Riverside, CA 92503
Common Stock Bruce Scott(11) 22,000(12) *(3)
11631 Sterling Avenue
Riverside, CA 92503
Common Stock Bulldog Capital Management 524,555(13) 10.17%(3)
Limited Partnership, Inc.
33 North Glendon Avenue
Suite 750
Clearwater, FL 33755
Common Stock Directors and Officers as a Group(5) 1,660,644 28.41%(3)
Series A Pfd. Stock Elizabeth M. Custer TTEE FBO 1 100%(14)(15)
William M. Custer
14 S. High Street
P.O. Box 673
New Albany, OH 43504
Series A Pfd. Stock Directors and Officers as a Group(5) 0 0%(15)
</TABLE>
23
<PAGE> 24
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF PERCENT OF
TITLE OF CLASS BENEFICIAL OWNER SHARES OWNED CLASS
- -------------- ------------------- ------------ -----------
<S> <C> <C> <C>
Series B Pfd. Stock Mull Acres Investments, Inc. 600,000 85.4%(16)(17)
c/o Furman Selz
230 Park Avenue
New York, NY 10169
Series B Pfd. Stock Len Lichter 102,194 14.6%(18)(17)
405 Park Avenue
New York, NY 10022
Series B Pfd. Stock Directors and Officers as a Group(5) 0 0%(17)
</TABLE>
- ----------
(1) Mr. Rosenman is a Director, President and CEO of the Company.
(2) Includes 667 shares of Common Stock received in consideration of
Mr. Rosenman's services as a consultant to the Company, and 20,000
shares granted pursuant to Mr. Rosenman's stock grant and stock option
agreement with the Company (20,000 of said shares are issuable on the
earlier of termination of employment or September 1, 2000). Mr. Rosenman
disclaims beneficial ownership of 20,000 of the shares described in the
immediately preceding sentence as they are not issuable until the
earlier of September 1, 2000 or the termination of his employment. Also
includes 178,334 shares underlying presently exercisable options. Does
not include: 10,000 shares granted to Mr. Rosenman pursuant to his stock
grant and stock option agreement with the Company which do not vest
until January 1, 2000. Also does not include 300,000 shares of Common
Stock underlying options issued to Mr. Rosenman which will not vest
within 60 days. Includes 6,000 shares underlying presently exercisable
options that were granted to Diana Rosenman, Mr. Rosenman's wife. Does
not include 10,000 shares of Common Stock issuable to Diana Rosenman
upon the exercise of options which will not vest within 60 days.
(3) Percent of class calculation based on 5,157,590 shares of Common Stock
outstanding as of April 14, 1999, plus number of shares of Common Stock,
if any, issuable to the named securityholders upon conversion of
preferred stock and/or exercise of options and warrants exercisable
within 60 days.
(4) Mr. Duffy is a Director of the Company.
(5) Includes (i) 11,193 shares of Common Stock owned by Mr. Duffy
individually, and (ii) 55,000 shares of Common Stock which Mr. Duffy has
the right to acquire upon the exercise of currently exercisable stock
options. Also includes an additional (x) 944,450 shares of Common Stock
which are held by various investment partnerships of which Mr. Duffy is
either a general partner or a member of the limited liability company
which serves as the general partner, including MD Strategic L.P., and a
corporation of which Mr. Duffy is an executive officer (collectively,
the "Investment Entities"), and as to which he shares voting and
investment power, and (y) 393,000 shares of Common Stock which the
Investment Entities have the right to acquire upon the exercise of
currently exercisable stock options and/or warrants. Mr. Duffy disclaims
beneficial ownership of all securities described in clauses (x) and (y).
(6) Includes (i) 720,448 shares of Common Stock owned by MD Strategic L.P.,
and (ii) 213,000 shares of Common Stock which MD Strategic L.P. has the
right to acquire upon the exercise of currently exercisable warrants.
Mr. Donald Duffy is a general partner of MD Strategic L.P. (see footnote
5 to this table).
(7) Mr. Powell is a director of the Company.
24
<PAGE> 25
(8) Issuable upon exercise of presently exercisable options.
(9) Mr. Russell is a director of the Company.
(10) Issuable upon exercise of presently exercisable options.
(11) Mr. Scott is a director of the Company.
(12) Includes: (i) 17,000 shares of Common Stock and (ii) 5,000 shares
issuable upon the exercise of currently exercisable options.
(13) Bulldog Capital Management Limited Partnership ("BCM"), Bulldog Capital
Partners Limited Partnership ("BCP"), Bulldog Capital Management,
Inc.("BCMI"), the general partner of BCM, and Ronald J. Pollack
("Pollack"), the controlling shareholder of BCMI, filed a Schedule 13G
on February 16, 1999 indicating that BCM, BCMI, and Pollack share voting
power and dispositive power with respect to 524,555 shares, and that
BCM, BCMI, Pollack and BCP share voting power and dispositive power with
respect to 470,168 shares. The Schedule 13G also states that, with
respect to those shares owned by BCM in its capacity as an investment
adviser, no individual client's holdings are more than 5% of the class.
The principal offices of BCM are located at 33 North Glendon Avenue,
Suite 750, Clearwater, Florida 33755.
(14) Represents less than 5% of the outstanding Common Stock of the Company
as of April 14, 1999, assuming conversion of said share of Series A
Preferred Stock to Common Stock on such date.
(15) Percent of class calculation based on one share of Series A Preferred
Stock outstanding as of April 14, 1999.
(16) Represents less than 5% of the outstanding Common Stock of the Company
as of April 14, 1999, assuming conversion of said 600,000 shares of
Series B Preferred Stock to Common Stock on such date.
(17) Percent of class calculation based on 702,194 shares of Series B
Preferred Stock outstanding as of April 14, 1999.
(18) Represents less than 5% of the outstanding Common Stock of the Company
as of April 14, 1999, assuming conversion of said 102,194 shares of
Series B Preferred Stock to Common Stock on such date.
* Represents less than 1% of the outstanding shares of Common Stock of the
Company as of April 14, 1999.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who beneficially own more than ten
percent of a registered class of the Company's equity securities ("reporting
persons"), to file with the Securities and Exchange Commission (the
"Commission") initial reports of ownership and reports of changes in ownership
of Common Stock and other equity securities of the Company. Reporting persons
are required by Commission regulations to furnish the Company with copies of all
Section 16(a) forms they file.
Except as described below, to the Company's knowledge, based solely on a review
of the copies of reports and amendments thereto on Forms 3, 4 and 5 furnished to
the Company by reporting persons during, and with respect to, its fiscal year
ended December 31, 1998, and on a review of written representations from
reporting persons to the Company that no other reports were required to be filed
for such fiscal year, all Section 16(a) filing requirements applicable to the
Company's directors, executive officers and greater than ten percent beneficial
owners during such period were satisfied in a timely manner, except that (i)
Anne Todd, who was appointed Principal Accounting Officer in 1998, failed to
timely file one report and (ii) Christopher Ebert who served as Chief Financial
Officer from June 22, 1998 to October 7, 1998, failed to timely file one report.
In addition, based on information available to the Company, it appears that (i)
Humbert Powell III, who was appointed as a director in 1995, failed to timely
file two reports, one of which related to one transaction and (ii) Donald Duffy
who was then the Co-Chief Executive Officer and a director of the Company,
failed to timely file three reports with regard to five transactions in 1997.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1996 and 1997, the Company incurred a total of $115,603 fees to Meyer,
Duffy & Associates, Inc. ("Meyer, Duffy"), for consulting services with respect
to capital raising. Mr. Don Duffy, a director of the Company, is a principal of
Meyer, Duffy. The fees were paid by the Company in May and June of 1998.
In private offerings in January and June of 1997, the Company sold $2,210,000
principal amount of 12% promissory notes and $2,710,000 principal amount of
9.75% promissory notes, respectively. MD Strategic L.P. ("MD Strategic"), PV II
L.P. ("PV II") and MD Ventures III ("MDV III"), partnerships in which Mr. Duffy
is a general partner, purchased an aggregate of $1,480,000 of such notes. In
August 1998, the notes held by the partnerships plus accrued interest thereon
were converted into a total of 1,559,742 shares of
25
<PAGE> 26
Series B Preferred Stock. These shares were subsequently converted into a total
of 311,950 shares of Common Stock (on a post reverse split basis).
In connection with the January 1997 issuance of the 12% promissory notes, the
Company issued 1,105,000 warrants ("C Warrants") to purchase an equivalent
number of shares of Common Stock (221,000 shares of Common Stock on a
post-reverse split basis). Of this number, a total of 375,000 C Warrants were
issued to MD Strategic and PV II. In September 1997, MD Strategic and PV II
received 275,000 shares of Common Stock (55,000 shares on a post reverse split
basis) upon the exercise of an equivalent number of warrants. PV II continues to
hold Series C Warrants entitling it to purchase 20,000 shares of Common Stock on
a post reverse split basis.
In connection with the June 1997 issuance of the 9.75% promissory notes, the
Company issued 1,367,501 warrants ("E Warrants") to purchase an equivalent
number of shares of Common Stock of the Company (273,500 shares of Common Stock
on a post reverse-split basis). Of this number, a total of 365,000 E Warrants
were issued to MD Strategic and MDV III. These warrants entitle MD Strategic and
MDV III to purchase a total of 73,000 shares of Common Stock on a post reverse
split basis.
In February 1998, pending the completion of the Company's Series C Preferred
Stock offering, the Company obtained unsecured bridge loans in the amounts of
$500,000 and $300,000, respectively, from MD Strategic and MDV IV, L.P. ("MDV
IV"), partnerships in which Mr. Duffy is a principal. Both loans bore interest
at 12%. MD Strategic and MDV IV also received a total of 150,000 warrants at an
exercise price $5.00 per share, pending completion of the Series C Preferred
Stock offering. In April 1998, MD Strategic was issued 48 units of Series C
Preferred Stock and 60,000 additional warrants for total consideration of $1.2
million consisting of $700,000 in cash and conversion of its $500,000 promissory
note. In August 1998, these 48 units were converted into 396,040 shares of
Common Stock. In April 1998, MDV IV was issued 12 units of Series C Preferred
Stock and 15,000 additional warrants in exchange for conversion of its $300,000
promissory note. In August 1998, these 12 units were converted into 99,010
shares of Common Stock.
On April 1, 1998, Meyer, Duffy entered into a Consulting Agreement with the
Company pursuant to the terms of which Meyer, Duffy agreed to provide the
Company consulting services with respect to capital raising and providing
industry research in exchange for a fee of $117,600 (payable in monthly
installments of $4,900 over a period of two years) and warrants to purchase
25,000 shares of Common Stock of the Company with an exercise price of $4.00 per
share.
In order to finance its current working capital needs, the Company is relying on
a $1.5 million inventory flooring line of credit which it obtained in May 1998
from Cana Capital Corporation ("Cana Capital"), a company owned by Bruce Scott,
a director of the Company, and a $300,000 loan which it obtained in October 1998
from MD Strategic. Advances under the Cana Capital line of credit bear interest
at a rate of 2% or 5% over the prime rate, depending on the type of advance. The
MD Strategic loan is evidenced by an unsecured note bearing interest at eighteen
percent (18%) per annum and is due, together with accrued interest, on the
earlier of May 31, 1999 or upon receipt by the Company of funds from a
third-party lender. The Company is in the process of negotiating a revolving
line of credit with an institutional lender and anticipates that it will
terminate the line of credit with Cana Capital Corporation and repay the MD
Strategic loan upon obtaining such financing.
In February 1998, the Company entered into a license agreement with Big Bike
Boutique, Inc. ("BBB"), a company owned by Bruce Scott, a director of the
Company and owner of four independently operated Bikers Dream dealerships,
pursuant to which the Company licensed its name to BBB for the purpose of
selling apparel and accessories. The agreement was terminated in October 1998
pursuant to a termination of license agreement and mutual release. In connection
with the termination agreement, the Company issued to Mr. Scott in February 1999
16,000 shares of Common Stock.
In September 1998, the Company entered into a sublease agreement and a repayment
agreement with Big Bike of Daytona, Inc. ("Big Bike"), a Florida corporation
owned by Mr. Scott. Pursuant to the terms of the sublease agreement, the Company
agreed to sublease to Big Bike, for an original term of three years (which term
is in the process of being extended to six years), premises to be used by Big
Bike for the operation of an independent motorcycle retail business. Under the
repayment agreement, the Company has agreed to reimburse Big Bike for a portion
of the cost of certain tenant improvements advanced by Big Bike; such
reimbursement is to be made by an offset by Big Bike against the rent otherwise
due under the sublease. All profits made by Big Bike on sales of motorcycles,
parts and other inventory consigned by the Company shall be applied to rent due
under the sublease until the amount paid under the sublease in any given year
equals the rent the Company is obligated to pay on the master lease for the
premises; thereafter, Big Bike is obligated to pay the Company half of net
profits on sales of consigned inventory from the Company. Total rent due under
the sublease is capped at the lesser of actual net profits from the sale of
consigned inventory from the Company or the amount owed by the Company under the
master lease.
The Company has entered into an employment agreement and a stock grant and stock
option agreement with Herm Rosenman, president and chief executive officer of
the Company. See Item 10 --"Executive Compensation."
In May 1998, the Company entered into a three year employment agreement with
Diana Rosenman pursuant to which Ms. Rosenman is employed as Director of
Marketing and Public Relations. Ms. Rosenman earns an annual minimum salary of
$110,000, subject to annual review by the Board's compensation committee. In
addition, the Company agreed to grant Ms. Rosenman an option to purchase 16,000
shares of the Company's Common Stock at $4.00 per share, vesting over a period
of three years. Upon termination other than
26
<PAGE> 27
for cause, Ms. Rosenman is entitled to payment equal to six months salary, based
on her then current rate of compensation. Ms. Rosenman is the wife of Herm
Rosenman, the Company's president and chief executive officer.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K.
a. List of Exhibits:
<TABLE>
<S> <C>
2.1 Agreement and Plan of Reorganization dated August 4, 1994
among HDL Communications (now known as Bikers Dream, Inc.),
Biker Dream, Inc. and the stockholders of Bikers Dream,
Inc., as amended by agreements dated November 11, 1994,
February 3, 1995 and February 20, 1995.(1)
3.1 Articles of Incorporation, as amended, of the
Company (formerly known as HDL Communications).(1)
3.1.1 Certificate of Amendment of Articles of Incorporation dated
June 21, 1996.(4)
3.1.2 Certificate of Correction of Certificate of Amendment of
Articles of Incorporation dated July 25, 1997.(5)
3.1.3 Certificate of Ownership of HDL Communications (now known as
Bikers Dream, Inc.).(1)
3.1.4 Certificate of Determination of Series B Convertible
Preferred Stock.(5)
3.1.5 Certificate of Determination of Series C Convertible
Preferred Stock.(7)
3.1.6 Certificate of Determination of Series D Convertible
Preferred Stock.(10)
3.2 Bylaws, as amended, of the Company.(1)
4.1 Form of Certificate of Common Stock of the Company.
4.2 Articles of Incorporation of Company, as amended (included
as Exhibits 3.1, 3.1.1, 3.1.2, 3.1.4, 3.1.5 and 3.1.6).
4.3 Bylaws, as amended, of the Company (included as Exhibit
3.2).
10.1 Lease dated August 5, 1993 between the Company and McFadden
Plaza.(1)
10.2 Lease dated November 1, 1994 between the Company and Valley
View Partnership.(1)
10.3 Lease dated February 8, 1995 between the Lily Company and
Jim Kinnicutt and Susan Rasmussen d/b/a Bikers Dream of
Sacramento.(4)
10.4 Lease dated October 30, 1996 between the Company and Inland
Industries.(4)
10.5 Form of Series D Preferred Stock Subscription Agreement.(10)
10.6 Consulting Agreement dated April 6, 1995 between the Company
and Meyer, Duffy & Associates.(1)
10.7 Consulting Agreement effective as of October 1, 1995 between
the Company and Meyer, Duffy & Associates.(1)
10.8 Amendment to Consulting Agreement and Stock Option Agreement
dated November 1, 1995, between the Company and Meyer Duffy
& Associates.(4)
10.9 The 1995 Incentive Stock Option Plan of the Company, as
amended.(2)+
10.10 The 1995 Non-Qualified Stock Option Plan of the Company, as
amended.(2)+
10.11 The 1995 Non-Qualified Directors' Stock Option Plan of the
Company, as amended.(2)+
10.12 1998 Stock Compensation Plan.(9)+
10.13 Bikers Dream, Inc. 1998 Stock Option Plan.(8)+
10.14 Promissory Note and Security Agreement dated February 14,
1996 between the Company and Green Tree Financial Servicing
Corporation.(4)
10.15 Promissory Note and Security Agreement dated December 28,
1995 between the Company and Green Tree Financial Servicing
Corporation.(4)
10.16 Stock Option Agreement dated September 13, 1996 between the
Company and Mull Acres Investments, Inc.(4)
10.17 Asset Purchase Agreement dated January 30, 1997 among the
Company, Ultra Acquisition Corp. and Mull Acres Investments,
Inc.(3)
10.18 Senior Subordinated Promissory Note of the Company dated
January 30, 1997 payable to Mull Acres Investments, Inc. in
the amount of $2,700,000.(4)
</TABLE>
27
<PAGE> 28
<TABLE>
<S> <C>
10.19 Security Agreement dated January 30, 1997 between the
Company and Mull Acres Investments, Inc.(4)
10.20 Lease dated February 12, 1996 between Mull Acres
Investments, Inc. and Lincoln Riverside Business Center.(4)
10.21 Lease dated October 11, 1996 between Mull Acres Investments,
Inc. and Lincoln Riverside Business Center.(4)
10.22 Note Conversion Agreement dated June 30, 1997 between the
Company and Mull Acres Investments, Inc.(6)
10.23 Employment Agreement dated August 31, 1997 between the
Company and Herm Rosenman.(6)+
10.24 Amendment to Employment Agreement dated August 31, 1997
between the Company and Herm Rosenman.(6)+
10.25 Stock Grant and Stock Option Agreement dated December 24,
1997 between the Company and Herm Rosenman.(6)+
10.26 Loan Agreement dated November 17, 1997 between the Company
and Sirrom Capital Corporation dba Tandem Capital.(6)
10.27 Form of 12% Convertible Promissory Note dated February 18,
1998 payable to the order of Meyer Duffy Ventures III in the
amount of $300,000.
10.28 Form of 12% Convertible Promissory Note dated February 18,
1998 payable to the order of MD Strategic L.P. in the amount
of $500,000.
10.29 Non-Negotiable Promissory Note dated October 13, 1998
payable to the order of MD Strategic L.P. in the amount of
$300,000.
10.30 Consulting Agreement dated April 1, 1998 between the Company
and Meyer Duffy & Associates.
10.31 Loan Agreement dated June 22, 1998 between Sirrom Capital
Corporation d/b/a Tandem Capital and the Company and Ultra
Acquisition Corporation as Borrowers.
10.31.1 12% Secured Promissory Note Due June 22, 2001 by the Company
and Ultra Acquisition Corporation payable to the order of
Sirrom Capital Corporation d/b/a Tandem Capital.
10.31.2 Stock Purchase Warrant by the Company dated June 22, 1998
issued by the Company to Sirrom Capital Corporation d/b/a
Tandem Capital.
10.31.3 Registration Rights Agreement dated as of June 22, 1998
between the Company and Sirrom Capital Corporation d/b/a
Tandem Capital.
10.31.4 Stock Purchase Warrant by Bikers Dream, Inc. dated November
17, 1997 issued by the Company to Sirrom Capital Corporation
d/b/a Tandem Capital.
10.31.5 Registration Rights Agreement dated as of November 17, 1997
between the Company and Sirrom Capital Corporation d/b/a
Tandem Capital.
10.32 Form of Loan and Security Agreement dated May 28, 1999 in
series of loan agreements between the Company and Cana
Capital Corporation in connection with loans to the Company
in an aggregate maximum principal amount of $1,500,000.
10.33 Form of Promissory Note dated May 28, 1999 in series of
promissory notes between the Company and Cana Capital
Corporation evidencing loans to the Company in an aggregate
maximum principal amount of $1,500,000
10.34 Form of Manufacturer's Recourse Agreement dated May 28, 1999
in series of agreements between the Company and Cana Capital
Corporation in connection with loans to the Company in an
aggregate maximum principal amount of $1,500,000.
10.35 Form of Program Letter dated May 28, 1999 in series of
agreements between the Company and Cana Capital Corporation
in connection with loans to the Company in an aggregate
maximum principal amount of $1,500,000.
10.36 Lease dated as of January 15, 1999 between LDT Company,
Carol M. Carson, David Carson and Tim Carson as Partners and
Bikers Dream International, together with addendum (relating
to Mira Loma facilities).
10.37 Sublease dated as of January 15, 1999 between PrimeLine
Products Company and Bikers Dream International and LDT
Company, Carol M. Carson, David Carson and Tim Carson,
together with addendum (relating to Mira Loma facilities).
10.38 Termination of License Agreement and Mutual Release dated as
of October 29, 1998 between the Company and Big Bike
Boutique, Inc.
</TABLE>
28
<PAGE> 29
<TABLE>
<S> <C>
10.39 Sublease Agreement dated September, 1998 between the Company
and Big Bike of Daytona, Inc.
10.40 Agreement dated September 10, 1998 between Bikers Dream,
Inc. and Big Bike of Daytona, Inc.
10.41 Amendment to Stock Grant and Stock Option Agreement dated as
of December 28, 1998 between the Company and Herm Rosenman.
21.1 List of subsidiaries.(2)
23.1 Consent of Independent Certified Public Accountants.
27 Financial Data Schedule.
</TABLE>
- ----------
(1) Incorporated by reference to the Company's Registration Statement on
Form SB-2 (Registration No. 33-92294) filed with the Commission on May
31, 1995 and Amendment No. 1 thereto filed with the Commission on
October 16, 1995.
(2) Incorporated by reference to the Company's Form 10-KSB dated April 12,
1996 for the fiscal year ended December 31, 1995 filed with the
Commission on April 15, 1996.
(3) Incorporated by reference to the Company's Form 8-K dated January 30,
1997 filed with the Commission on February 14, 1997.
(4) Incorporated by reference to the Company's Form 10-KSB for the fiscal
year ended December 31, 1996 filed with the Commission on April 15,
1997.
(5) Incorporated by reference to the Company's Form 10-QSB for the fiscal
quarter ended September 30, 1997 filed with the Commission on November
14, 1997.
(6) Incorporated by reference to the Company's Form 10-KSB for the fiscal
year ended December 31, 1997 filed with the Commission on April 15,
1998.
(7) Incorporated by reference to the Company's Form 10-QSB for the fiscal
quarter ended March 31, 1998 filed with the Commission on May 15, 1998.
(8) Incorporated by reference to the Company's proxy statement filed with
the Commission on July 8, 1998.
(9) Incorporated by reference to the Company's registration statement on
Form S-8 filed with the Commission on December 15, 1998.
(10) Incorporated by reference to the Company's registration statement on
Form S-3 filed with the Commission on February 11, 1999.
+ A compensatory plan or arrangement.
b. Reports on Form 8-K.
Not applicable.
29
<PAGE> 30
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Bikers Dream, Inc.
Dated: April 15, 1999 By: /s/ Herm Rosenman
-------------------------------------
Herm Rosenman, President/CEO
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
<S> <C>
/s/ Herm Rosenman April 15, 1999
- ---------------------------------------------------------
Herm Rosenman
President, CEO and Director (Principal Executive Officer)
/s/ Anne Todd April 15, 1999
- ---------------------------------------------------------
Anne Todd
Controller (Principal Financial and Accounting Officer)
/s/ Donald J. Duffy April 15, 1999
- ---------------------------------------------------------
Donald J. Duffy
Director
/s/ John Russell April 15, 1999
- ---------------------------------------------------------
John Russell
Director
/s/ Humbert Powell April 15, 1999
- ---------------------------------------------------------
Humbert Powell
Director
/s/ Bruce Scott April 15, 1999
- ---------------------------------------------------------
Bruce Scott
Director
</TABLE>
30
<PAGE> 31
BIKERS DREAM, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1997
<PAGE> 32
BIKERS DREAM, INC. AND SUBSIDIARIES
CONTENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Consolidated Balance Sheet 2 - 3
Consolidated Statements of Operations 4
Consolidated Statements of Shareholders' Equity 5 - 6
Consolidated Statements of Cash Flows 7 - 9
Notes to Consolidated Financial Statements 10 - 39
<PAGE> 33
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
Bikers Dream, Inc.
We have audited the accompanying consolidated balance sheet of Bikers Dream,
Inc. and subsidiaries as of December 31, 1998, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
two years in the period ended December 31, 1998. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Bikers Dream, Inc.
and subsidiaries as of December 31, 1998, and the consolidated results of their
operations and their consolidated cash flows for each of the two years in the
period ended December 31, 1998 in conformity with generally accepted accounting
principles.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
April 2, 1999
1
<PAGE> 34
BIKERS DREAM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 689,679
Marketable securities 200,634
Accounts receivable, net of allowance for doubtful accounts of $343,361 2,633,649
Other receivables 43,098
Notes receivable 6,143
Inventories 7,644,793
Prepaid expenses and other current assets 221,096
-----------
Total current assets 11,439,092
FURNITURE AND EQUIPMENT, net of accumulated depreciation and
amortization of $720,108 1,011,371
EXCESS COST OVER FAIR VALUE OF NET ASSETS ACQUIRED, net of accumulated
amortization of $479,084 3,270,271
DEBT ISSUANCE COSTS, net of accumulated amortization of $29,913 169,533
DEPOSITS AND OTHER ASSETS 488,516
-----------
TOTAL ASSETS $16,378,783
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 35
BIKERS DREAM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,083,338
Accrued expenses 1,179,540
Advances on financing agreements - related party 1,486,174
Current portion of notes payable 160,991
Current portion of capital lease obligations 36,833
Notes payable - related parties 300,000
------------
Total current liabilities 5,246,876
DEFERRED RENT 55,586
NOTES PAYABLE, less current portion 4,731,749
CAPITAL LEASE OBLIGATIONS, less current portion 54,735
------------
Total liabilities 10,088,946
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Series A, convertible preferred stock, no par value
liquidation preference of $175,000 per share
30 shares authorized
1 share issued and outstanding 157,500
Series B, convertible preferred stock, no par value
cumulative dividends, liquidation preference of $1 per share
8,000,000 shares authorized
702,194 shares issued and outstanding 702,194
Series C, convertible preferred stock, no par value
cumulative dividends, liquidation preference of $1 per share
300 shares authorized
0 shares issued and outstanding --
Common stock, no par value
25,000,000 shares authorized
5,112,926 issued and outstanding 21,306,671
Subscriptions receivable (90,000)
Accumulated deficit (15,786,528)
------------
Total shareholders' equity 6,289,837
------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 16,378,783
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 36
BIKERS DREAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
REVENUES
Product sales $ 27,606,964 $ 14,838,057
Financing contracts 127,656 86,930
------------ ------------
Total revenues 27,734,620 14,924,987
COST OF GOODS SOLD 25,783,689 14,296,108
------------ ------------
GROSS PROFIT 1,950,931 628,879
------------ ------------
EXPENSES
Selling, general, and administrative expenses 5,361,152 4,584,294
Depreciation and amortization 542,461 461,786
------------ ------------
Total expenses 5,903,613 5,046,080
------------ ------------
OPERATING LOSS (3,952,682) (4,417,201)
------------ ------------
OTHER INCOME (EXPENSE)
Interest expense (576,156) (592,076)
Gain on reacquisition of Series B preferred stock 730,000 --
Other expense, net 3,707 (107,707)
------------ ------------
Total other income (expense) 157,551 (699,783)
------------ ------------
LOSS BEFORE PROVISION FOR INCOME TAXES (3,795,131) (5,116,984)
PROVISION FOR INCOME TAXES 800 800
------------ ------------
NET LOSS $ (3,795,931) $ (5,117,784)
============ ============
BASIC LOSS PER SHARE $ (0.92) $ (2.54)
============ ============
DILUTED LOSS PER SHARE $ (0.92) $ (2.54)
============ ============
WEIGHTED-AVERAGE SHARES OUTSTANDING 4,125,309 2,018,075
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 37
BIKERS DREAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Series A, Convertible Series B, Convertible Series C, Convertible
Preferred Stock Preferred Stock Preferred Stock
----------------------------- ----------------------------- -----------------------------
Shares Amount Shares Amount Shares Amount
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 7 $ 1,102,500 -- $ -- -- $ --
DEBT INTEREST THEREON CONVERTED
TO EQUITY 6,481,385 6,481,385
ACCOUNTS PAYABLE AND ACCRUED
EXPENSES CONVERTED TO EQUITY
ISSUANCE OF COMMON STOCK TO
EMPLOYEES IN EXCHANGE FOR
SERVICES
EXERCISE OF OPTIONS FOR CASH
EXERCISE OF SERIES C WARRANTS
FOR CASH
CONVERSION OF SERIES A
CONVERTIBLE PREFERRED STOCK
TO COMMON STOCk (4) (630,000)
DIVIDENDS ON SERIES A
CONVERTIBLE PREFERRED STOCK
CONVERTED TO COMMON STOCK
DIVIDENDS ACCRUED ON PREFERRED
SHARES
NET LOSS
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1997 3 472,500 6,481,385 6,481,385 -- --
PRIVATE PLACEMENTS, net of cost 123 2,944,985
RELATED PARTY DEBT CONVERTED
TO EQUITY 32 800,000
ACCOUNTS PAYABLE AND ACCRUED
EXPENSES
CONVERSION OF SERIES A
PREFERRED STOCK (2) (315,000)
CONVERSION OF SERIES B
PREFERRED STOCK (5,049,191) (5,049,191)
CONVERSION OF SERIES C
PREFERRED STOCK (155) (3,744,985)
CONVERSION OF SERIES A
PREFERRED STOCK DIVIDEND
</TABLE>
<TABLE>
<CAPTION>
Common Stock
---------------------------- Subscriptions Accumulated
Shares Amount Receivable Deficit Total
------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 1,749,736 $ 7,477,913 $ -- $ (6,573,983) $ 2,006,430
DEBT INTEREST THEREON CONVERTED
TO EQUITY 274,000 1,370,000 7,851,385
ACCOUNTS PAYABLE AND ACCRUED
EXPENSES CONVERTED TO EQUITY 48,391 279,457 279,457
ISSUANCE OF COMMON STOCK TO
EMPLOYEES IN EXCHANGE FOR
SERVICES 4,333 32,750 32,750
EXERCISE OF OPTIONS FOR CASH 240,800 855,500 855,500
EXERCISE OF SERIES C WARRANTS
FOR CASH 125,000 484,375 484,375
CONVERSION OF SERIES A
CONVERTIBLE PREFERRED STOCK
TO COMMON STOCk 93,333 630,000 --
DIVIDENDS ON SERIES A
CONVERTIBLE PREFERRED STOCK
CONVERTED TO COMMON STOCK 9,333 70,000 70,000
DIVIDENDS ACCRUED ON PREFERRED
SHARES (298,830) (298,830)
NET LOSS (5,117,784) (5,117,784)
------------ ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1997 2,544,926 11,199,995 -- (11,990,597) 6,163,283
PRIVATE PLACEMENTS, net of cost 2,944,985
RELATED PARTY DEBT CONVERTED
TO EQUITY 800,000
ACCOUNTS PAYABLE AND ACCRUED
EXPENSES 57,062 250,000 250,000
CONVERSION OF SERIES A
PREFERRED STOCK 46,667 315,000 --
CONVERSION OF SERIES B
PREFERRED STOCK 1,009,838 5,049,191 --
CONVERSION OF SERIES C
PREFERRED STOCK 1,255,599 3,744,985 --
CONVERSION OF SERIES A
PREFERRED STOCK DIVIDEND 4,667 35,000 35,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 38
BIKERS DREAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Series A, Convertible Series B, Convertible Series C, Convertible
Preferred Stock Preferred Stock Preferred Stock
----------------------------- ----------------------------- -----------------------------
Shares Amount Shares Amount Shares Amount
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
EXERCISE OF SERIES D WARRANTS
FOR CASH $ $ $ $
EXERCISE OF SERIES F WARRANTS
FOR CASH
EXERCISE OF OPTIONS FOR CASH
EXERCISE OF OPTIONS FOR
SERVICES
SERIES B PREFERRED STOCK
REACQUIRED BY THE COMPANY
FROM MULL ACRES INVESTMENTS,
INC (730,000) (730,000)
NET LOSS
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1998 1 $ 157,500 702,194 $ 702,194 -- $ --
============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Common Stock
---------------------------- Subscriptions Accumulated
Shares Amount Receivable Deficit Total
------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
EXERCISE OF SERIES D WARRANTS
FOR CASH $ 20,000 $ 80,000 $ $ $ 80,000
EXERCISE OF SERIES F WARRANTS
FOR CASH 55,000 275,000 275,000
EXERCISE OF OPTIONS FOR CASH 76,167 228,500 (90,000) 138,500
EXERCISE OF OPTIONS FOR
SERVICES 43,000 129,000 129,000
SERIES B PREFERRED STOCK
REACQUIRED BY THE COMPANY
FROM MULL ACRES INVESTMENTS,
INC (730,000)
NET LOSS (3,795,931) (3,795,931)
------------ ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1998 5,112,926 $ 21,306,671 $ (90,000) $(15,786,528) $ 6,289,837
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 39
BIKERS DREAM, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(3,795,931) $(5,117,784)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 542,461 461,786
Issuance of common stock for services 129,000 32,750
Issuance of preferred stock for interest expense - 231,385
Gain on reacquisition of Series B preferred stock (730,000) -
(Increase) decrease in
Accounts receivable (1,672,379) (712,639)
Other receivables (43,098) -
Inventories (3,190,702) (1,542,965)
Prepaid expenses and other current assets (121,336) (18,222)
Deposits and other assets (284,624) (134,229)
Increase (decrease) in
Accounts payable 1,462,542 509,321
Accrued expenses 16,913 (218,451)
----------- -----------
Net cash used in operating activities (7,687,154) (6,509,048)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for purchases of furniture and equipment (189,092) (216,435)
Purchase of marketable securities (302) (200,000)
Purchase of Ultra Kustom Cycles - (1,100,000)
Increase in deferred rent (9,324) (2,627)
Other 23,895 (30,370)
----------- -----------
Net cash used in investing activities (174,823) (1,549,432)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of notes payable 4,575,000 7,420,000
Payments on notes payable (2,580,922) (108,773)
Payments on capital lease obligations (28,783) (25,278)
Proceeds from notes payable - related parties 1,100,000 -
Payments on notes payable - related parties (36,000) (48,000)
Advances on financing agreements - related party, net 1,486,174 -
Debt issuance costs (69,556) (99,977)
Exercise of Series C warrants - 484,375
Exercise of Series D warrants 80,000 -
Exercise of Series F warrants 275,000 -
Exercise of stock options 138,500 855,500
Private placements, net of offering costs 2,944,985 -
----------- -----------
Net cash provided by financing activities 7,884,398 8,477,847
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE> 40
BIKERS DREAM, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Net increase in cash and cash equivalents $ 22,421 $419,367
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 667,258 247,891
-------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $689,679 $667,258
======== ========
</TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
For the years ended December 31, 1998 and 1997, approximately $544,000 and
$550,000, respectively, of cash was paid for interest expense.
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the year ended December 31, 1997, the Company issued a note payable in
connection with the acquisition of Ultra Kustom Cycles in the amount of
$2,700,000.
During the year ended December 31, 1997, the Company converted notes payable of
$6,250,000 and $1,370,000 into 6,250,000 shares of Series B preferred stock and
274,000 shares of common stock, respectively.
During the year ended December 31, 1997, the Company paid dividends of $70,000,
compensation of $32,750, and interest expense of $231,385 by issuing 9,333 and
4,333 shares of common stock and 231,385 shares of Series B preferred stock,
respectively.
During the year ended December 31, 1997, the Company converted four shares of
Series A convertible preferred stock into 93,333 shares of common stock.
During the years ended December 31, 1998 and 1997, the Company converted
accounts payable of $50,000 and $279,457, respectively, into 14,286 and 48,391
shares, respectively, of common stock.
During the year ended December 31, 1998, the Company converted notes payable to
a related party of $800,000 into 32 shares of Series C preferred stock.
During the year ended December 31, 1998, the Company converted accrued expenses
of $200,000 into 42,776 shares of common stock.
During the year ended December 31, 1998, the Company converted two shares of
Series A convertible preferred stock into 46,667 shares of common stock.
During the year ended December 31, 1998, the Company converted 5,049,191 shares
of Series B convertible preferred stock into 1,009,838 shares of common stock.
The accompanying notes are an integral part of these financial statements.
8
<PAGE> 41
BIKERS DREAM, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES (CONTINUED)
During the year ended December 31, 1998, the Company converted 155 shares of
Series C convertible preferred stock into 1,255,599 shares of common stock.
During the year ended December 31, 1998, the Company paid dividends of $35,000
by issuing 4,667 shares of common stock.
During the year ended December 31, 1998, the Company acquired automobiles of
$62,588 for a note payable and a capitalized lease obligation of $20,208 and
$42,380, respectively.
During the year ended December 31, 1998, the Company recorded an exercise of
stock options of 30,000 in exchange for a subscription receivable of $90,000.
The accompanying notes are an integral part of these financial statements.
9
<PAGE> 42
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 1 - NATURE OF BUSINESS AND ORGANIZATION
Line of Business
Bikers Dream, Inc. (the "Company") is in the business of manufacturing
and selling new Ultra motorcycles and other new and used motorcycles,
parts, accessories, apparel, and service. The Company operates in two
business segments: 1) the Retail Division, which sells motorcycles,
parts and accessories, and services through the five Company-owned
retail stores located in California and Texas to individuals; and 2)
the Manufacturing Division, which manufactures Ultra motorcycles and
sells them to the Ultra motorcycle dealers located throughout the
United States and to the five Company-owned stores.
Organization
The Company was originally incorporated in 1985. As of March 13, 1995,
the Company acquired a publicly-traded dormant entity formerly known as
HDL Communications ("HDL"). After the acquisition, the Company was
merged into HDL, and HDL changed its name to Bikers Dream, Inc. At the
time of acquisition, there was no active trading market for the
Company's stock, and management of the Company and HDL determined in an
arm's length negotiation that the market value of the combined entities
was approximately $4,000,000 (or approximately $5.00 per share) which
was evidenced by the number of shares issued (820,000) in connection
with the acquisition as follows:
o 660,000 shares to former Company shareholders
o 60,000 shares to former HDL shareholders
o 100,000 shares to holders of $500,000 of convertible notes of HDL
who converted them into shares of the Company at a price of $5.00
per share immediately prior to the closing of the acquisition
At the time of the merger, HDL's assets and liabilities consisted of a
note receivable of $500,000 from the Company and notes payable in the
amount of $500,000. As the notes were converted into shares concurrent
with the acquisition, the 60,000 shares issued to former HDL
shareholders were issued in consideration for the public entity HDL.
The substance of the transaction was a recapitalization of the
Company's shares for those of HDL's shares. Shareholders' equity has
been restated to give retroactive recognition to the recapitalization
and has been treated as a stock split for all periods presented. In
addition, all references in the financial statements to number of
shares and per share amounts of the Company's common stock have been
restated.
The surviving company is in the business of manufacturing and selling
new Ultra Cycles and other new and used motorcycles, parts,
accessories, apparel, and service as described above under "Line of
Business."
10
<PAGE> 43
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 1 - NATURE OF BUSINESS AND ORGANIZATION (CONTINUED)
Organization (Continued)
In September 1996, the Company entered into an agreement with Mull
Acres Investments, Inc. ("Mull Acres") to become a member of Ultra
Bikers, LLC, a newly-formed California limited liability company (the
"LLC"). The Company contributed $1,525,000 in cash for a 49% interest
in the LLC, and Mull Acres received a 51% interest for its expertise in
the business of manufacturing, distributing, and selling custom
motorcycles.
The Company's investment in the LLC was loaned to the Ultra Kustom
Cycles division ("UKC") of Mull Acres to be used to manufacture
motorcycles and related parts and accessories. UKC sold the motorcycles
and related parts and accessories to the LLC at cost, and the LLC then
sold the motorcycles to the Company and unrelated parties. The
operations of UKC began substantially on September 19, 1996 after
receiving the necessary capital from the LLC to fund its production
activities.
On January 30, 1997, through its newly-created subsidiary, Ultra
Acquisition Corporation, the Company entered into an Asset Purchase
Agreement with Mull Acres to purchase the net assets, which included
the employee base and manufacturing expertise, of UKC for $3,800,000,
which consisted of $1,100,000 in cash and a note payable of $2,700,000.
After the close of the transaction, the LLC was dissolved, and the
Company owned 100% of the assets of UKC. The acquisition of UKC was
accounted for by the purchase method of accounting, and accordingly,
the purchase price has been allocated to the assets acquired based on
the estimated fair values at the date of the acquisition.
The estimated fair value of the assets purchased and liabilities
assumed at the acquisition date is summarized as follows:
<TABLE>
<S> <C>
Furniture and equipment $ 310,270
Other assets 108,928
Excess cost over fair value of net assets acquired 3,749,355
Other liabilities (368,553)
-----------
PURCHASE PRICE $ 3,800,000
===========
</TABLE>
On June 30, 1997, the Company and Mull Acres entered into an agreement
(the "Note Conversion Agreement"). Under the terms of the Note
Conversion Agreement, Mull Acres agreed to exercise 274,000 of its then
outstanding stock options to purchase the Company's common stock in
satisfaction of $1,370,000 of the note payable and to accept 1,330,000
of the Company's Series B convertible preferred stock in satisfaction
of the remaining principal balance due under the note payable.
11
<PAGE> 44
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 1 - NATURE OF BUSINESS AND ORGANIZATION (CONTINUED)
Organization (Continued)
In addition, on October 7, 1997, the Company, Mull Acres, and several
individuals affiliated with Mull Acres entered into another agreement
(the "Mutual Release and Settlement Agreement"). Under the terms of the
Mutual Release and Settlement Agreement, certain terms of the Asset
Purchase Agreement and Note Conversion Agreement were clarified and
modified. Some of the terms that were clarified and modified related to
non-competition, non-solicitation of customers, and non-interference
with the Company's employees by Mull Acres and certain specified
individuals affiliated with Mull Acres. To secure Mull Acres and the
individuals affiliated with Mull Acres performance under the Mutual
Release and Settlement Agreement, 730,000 shares of Series B
convertible preferred stock were retained by the Company in escrow.
During 1998, the management of the Company and its legal counsel
concluded that the individuals affiliated with Mull Acres violated the
terms of the Mutual Release and Settlement Agreement sufficiently
enough to allow the Company to reacquire the 730,000 shares of Series B
convertible preferred stock that were retained in escrow. The Company
reacquired and effectively retired the preferred shares. Since the
reacquisition was more than one year after the purchase date of UKC,
the Company did not adjust the excess cost over fair value of net
assets acquired related to the purchase of UKC, and instead recorded
the reacquisition of the 730,000 preferred shares as other income at
their book value of $730,000.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Bikers
Dream, Inc. and all of its wholly-owned subsidiaries (hereafter known
as the "Company"), including the accounts of Bikers Dream
International, Inc., Bikers Dream Distribution, Inc., Bikers Dream
Management Services, Inc., Bikers Dream Eagle Enterprises, Inc., and
Ultra Acquisition Corporation, dba Ultra Cycles. All significant
intercompany accounts and transactions are eliminated in consolidation.
Revenue Recognition
Product Sales
Revenue from the sale of motorcycles is recognized upon completion of
the sale agreement. Revenue from the sale of motorcycle parts is
recognized upon shipment to the customer.
Financing Income
Financing income is the Company's participation in finance contracts
for motorcycle sales. Revenue from financing income is recognized when
earned.
12
<PAGE> 45
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Superstore Pre-Opening Costs
All costs associated with opening a Company-owned and operated
superstore, with the exception of capitalized furniture, fixtures, and
equipment, are expensed when incurred.
Advertising Costs
Those costs associated with placement of advertisements in various
periodicals are expensed when the advertisement is run. Internal
development costs are expensed as incurred. Advertising costs for the
years ended December 31, 1998 and 1997 were $463,420 and $285,390,
respectively.
Catalog Costs
Internal costs associated with the development of mail order catalogs
are expensed as incurred. External costs, excluding printing, relating
to the development of the catalog are capitalized and amortized over 12
to 24 months from the first publication. Costs associated with printing
catalogs are inventoried when purchased and expensed as catalogs are
sold or distributed.
Income Taxes
The Company utilizes Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes," which requires the
recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred income
taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end based on enacted tax laws
and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances
are established, when necessary, to reduce deferred tax assets to the
amount expected to be realized. The provision for income taxes
represents the tax payable for the period and the change during the
period in deferred tax assets and liabilities.
Net Loss Per Share
For the year ended December 31, 1998, the Company adopted SFAS No. 128,
Earnings per Share." Basic loss per share is computed by dividing the
net loss by the weighted-average number of common shares available.
Diluted loss per share is computed similar to basic earnings per share
except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the
potential common shares had been issued and if the additional common
shares were dilutive. Since the Company had a net loss for 1998 and
1997, basic loss per share and diluted loss per share are the same.
Stock Split
Effective February 5, 1998, the Company effected a 1-for-5 reverse
stock split of its common stock. All shares and per share data have
been retroactively restated to reflect the stock split.
13
<PAGE> 46
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly-liquid investments purchased with original maturities of three
months or less to be cash equivalents.
Marketable Securities
The Company accounts for its investment in marketable securities in
accordance with SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." The Company's investments include mutual
funds which are classified as available-for-sale securities and are
stated at fair market value. At December 31, 1998, the market value of
these investments approximates cost under the specific-identification
method.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined by the specific identification method for finished
motorcycles and work-in-process inventories and the average cost method
for parts inventories. Finished goods include capitalized overhead
costs, which include primarily labor.
Furniture and Equipment
Furniture and equipment, including capitalized leases, are stated at
cost less accumulated depreciation and amortization. The Company
provides for depreciation and amortization using the straight-line
method over the estimated useful lives or the term of the lease,
whichever is the lesser, as follows:
<TABLE>
<S> <C>
Furniture and fixtures 7 years
Equipment 5 to 7 years
Computers 5 years
Autos and trucks 7 years
Leasehold improvements 7 years
</TABLE>
Deferred Rent
Deferred rent arises from rent abatements which are negotiated at the
beginning of certain property leases. The total amount of the base rent
payments is being charged to expense on the straight-line method over
the term of the lease. The Company has recorded deferred rent to
reflect the excess of rent expense over the cash payments since the
inception of the lease.
Debt Issuance Costs
Investment banking, broker, and other direct costs of obtaining new
long-term financing are capitalized and amortized over the term of the
corresponding indebtedness.
14
<PAGE> 47
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Concentration of Risk
The Company is operating in a growing market due to the current
nationwide popularity of custom motorcycles. Its future success is
dependent on the continuation of interest in the recreational
motorcycle industry.
Concentrations
For the years ended December 31, 1998 and 1997, the Company purchased
certain motorcycle parts primarily from a single vendor. There could be
a negative economic impact to the Company if conditions arise so that
the Company could no longer purchase the certain parts from the vendor.
Concentration of Credit Risk
Other financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables.
These concentrations are limited due to the large number of customers
comprising the Company's customer base and their dispersion across
different geographic regions. The Company performs ongoing credit
evaluations of customers and generally does not require collateral.
Allowances are maintained for potential credit losses, and such losses
have been within management's expectations. As of December 31, 1998,
the Company has no significant concentrations of credit risk.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements, as well as the reported amounts of
revenue and expenses during the reported period. Actual results could
differ from those estimates.
Warranty Costs
Included in other accrued expenses are accrued warranty costs.
Estimated future warranty obligations related to motorcycles and parts
are provided by charges to operations in the period in which the
related revenue from the sales of motorcycles or parts is recognized.
For the years ended December 31, 1998 and 1997, the provision for
warranty costs has not been materially different than actual warranty
costs.
Fair Value of Financial Instruments
The Company measures its financial assets and liabilities in accordance
with generally accepted accounting principles. For certain of the
Company's financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable, and accrued expenses, the
carrying amounts approximate fair value due to their short maturities.
The amounts shown for notes payable and long-term debt also approximate
fair value because current interest rates offered to the Company for
debt of similar maturities are substantially the same.
15
<PAGE> 48
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reclassifications
Certain amounts included in the 1997 financial statements have been
reclassified to conform with the 1998 presentation.
Excess of Cost over Fair Value of Net Assets Acquired
The excess of the purchase price over the estimated fair value of the
assets acquired has been recorded as excess cost over fair value of net
assets acquired, which is being amortized on a straight-line basis over
fifteen years. For the years ended December 31, 1998 and 1997,
amortization expense was $249,957 and $229,127, respectively. When
events and circumstances so indicate, all long-term assets, including
the excess cost over fair value of net assets acquired, are assessed
for recoverability based upon cash flow forecasts. As of December 31,
1998, the Company has not recognized any impairment losses.
Comprehensive Income
For the year ended December 31, 1998, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income." This statement establishes standards
for reporting comprehensive income and its components in a financial
statement. Comprehensive income as defined includes all changes in
equity (net assets) during a period from non-owner sources. Examples of
items to be included in comprehensive income, which are excluded from
net income, include foreign currency translation adjustments and
unrealized gains and losses on available-for-sale securities.
Comprehensive income is not presented in the Company's financials
statements since the Company did not have any of the items of
comprehensive income in any period presented.
Segment Reporting
The Company accounts for segments in accordance with SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information"
which requires that companies disclose "operating segments" based on
the way management desegregates the Company for internal operating
decisions. See Note 13 for further information about the Company's
segments.
Recently Issued Accounting Pronouncements
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," is effective for financial statements with fiscal years
beginning after June 15, 1999. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities. The Company does not expect adoption of SFAS No. 133 to
have a material effect, if any, on its financial position or results of
operations.
16
<PAGE> 49
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recently Issued Accounting Pronouncements (Continued)
SFAS No. 134, "Accounting for Mortgage-Backed Securities Retained after
the Securitization of Mortgage Loans Held for Sale by a Mortgage
Banking Enterprise," is effective for financial statements with the
first fiscal quarter beginning after December 15, 1998. The Company
does not expect adoption of SFAS No. 134 to have a material effect, if
any, on its financial position or results of operations.
SFAS No. 135, "Rescission of FASB Statement No. 75 and Technical
Corrections," is effective for financial statements with fiscal years
beginning February 1999. This statement is not applicable to the
Company.
NOTE 3 - CASH AND CASH EQUIVALENTS
The Company maintains cash deposits at several banks. Deposits at each
bank are insured by the Federal Deposit Insurance Corporation up to
$100,000. As of December 31, 1998, the uninsured portion amounted to
$627,581. The Company has not experienced any losses in such accounts
and believes it is not exposed to any significant credit risk on cash
and cash equivalents.
NOTE 4 - INVENTORIES
For the year ended December 31, 1998 and 1997, the Company provided
a reserve for obsolescence of $290,000 and $465,000, respectively.
Inventories at December 31, 1998 consisted of the following:
<TABLE>
<S> <C>
Parts $3,414,448
Finished motorcycles 4,230,345
----------
TOTAL $7,644,793
==========
</TABLE>
17
<PAGE> 50
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 5 - FURNITURE AND EQUIPMENT
Furniture and equipment at December 31, 1998 consisted of the
following:
<TABLE>
<S> <C>
Furniture and fixtures $ 179,749
Equipment 303,675
Computers 287,020
Autos and trucks 667,792
Leasehold improvements 293,243
----------
1,731,479
Less accumulated depreciation and amortization 720,108
----------
TOTAL $1,011,371
==========
</TABLE>
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Leases
The Company leases certain facilities for its motorcycle assembly
plant, executive offices, administration, and retail superstores under
long-term, non-cancelable operating lease agreements that expire
through October 2003. The facilities are located in California and
Texas. Future minimum aggregate lease payments under non-cancelable
operating leases with initial or remaining terms of one year or more at
December 31, 1998 were as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1999 $ 441,332
2000 323,999
2001 258,406
2002 153,996
2003 128,330
----------
TOTAL $1,306,063
==========
</TABLE>
Total rent expense incurred by the Company for the years ended December
31, 1998 and 1997 was $509,267 and $515,320, respectively.
See Note 17 for a significant lease entered into by the Company
subsequent to December 31, 1998.
18
<PAGE> 51
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 6 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Litigation
During July 1997, the Company settled a dispute over an employee
agreement matter in which the Company and its insurance company agreed
to pay $250,000 in cash and stock during 1997 and 1998. During 1997,
the Company's insurance company paid $50,000 in cash, and the remaining
balance of $200,000 was paid in 42,776 shares of the Company's common
stock during 1998.
On March 18, 1998, the Company and its co-defendants finalized a
settlement ("the Settlement") agreement with Harley-Davidson Motor
Company relating to certain trademark and other infringements and a
breach of a 1991 Consent Judgment. Under the terms of the Settlement,
the Company and its co-defendants are required to pay $400,000, of
which $300,000 was paid by insurance and $100,000 was paid by the
Company.
During 1998, the Company settled a lawsuit through arbitration, in
which the plaintiffs alleged that the Company violated the Federal
Trade Commission Rule and the requirements of the North Carolina
Business Opportunity Sales Statute in connection with the Company's
sale of a franchise to the plaintiffs in June 1994. The settlement
agreement required the Company to pay a total of approximately
$220,000, and in turn, the Company would receive the inventory,
equipment, and fixed assets of the dealership with an approximate fair
value of $200,000. In addition, as part of the arbitration agreement,
the Company would assume operation of the dealership. As of December
31, 1998, the Company had paid a total of approximately $156,000 and
had not yet assumed operation of the dealership.
The Company is also subject to various employee, warranty and other
claims, and proceedings which arise in the ordinary course of its
business. Although occasional adverse decisions (or settlements) may
occur, the Company believes that the final disposition of such matters
will not have a material adverse effect on the financial position or
results of operations of the Company.
As discussed in Note 1, the Company reacquired 730,000 shares of Series
B convertible preferred stock related to violations of the Mutual
Release and Settlement Agreement. To date, the parties involved have
not filed legal action with respect to the reacquisition, and
management of the Company and its legal counsel believe the likelihood
that the parties will prevail if they do pursue legal action to be
remote.
19
<PAGE> 52
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 6 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Employment Agreements
The Company has entered into three employment agreements, expiring
through October 31, 2001 with certain key employees of the Company.
These officers will receive aggregate annual salaries over the years as
follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1999 $ 468,333
2000 398,889
2001 161,667
----------
TOTAL $1,028,889
==========
</TABLE>
Other Commitments and Contingencies
As of December 31, 1998, the Company was in the progress of being
audited for compliance with the sales and use tax laws and regulations
in the State of California by the State Board of Equalization ("SBOE")
related to sales tax exemptions for re-sales and interstate sales.
Although the audit was in progress at December 31, 1998, preliminary
correspondence from the SBOE indicated that the Company could owe as
much as $155,000 as a result of the audit. The Company is vigorously
working with the SBOE to resolve the issues concerning the audit and
believes that it is more likely than not that the audit will not result
in an assessment. Accordingly, as of December 31, 1998, the Company has
not accrued any loss related to the sales tax audit.
During August 1998, the Company signed a letter of intent with two
individuals to purchase from the individuals technology that would be
used by the Company for the enhancement and development of proprietary
parts. Under the terms of the letter of intent, the Company would
purchase the technology for a total of $1,100,000 with $1,000,000 to be
paid over three years after the definitive agreement takes effect. As
of April 2, 1999, the terms of the definitive agreement were still in
process of being finalized. Under the terms of the letter of intent, in
the event the Company discontinues use of the technology either because
it fails to continue to perform as represented or does not achieve
reasonable acceptance in the market, the Company has the right to
discontinue payments and share ownership of the technology on a pro
rata basis with the individuals.
20
<PAGE> 53
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 7 - ADVANCES ON FINANCING AGREEMENTS - RELATED PARTY
In May 1998, the Company entered into five separate motorcycle
floor-plan financing agreements with Cana Capital Corporation ("CCC"),
a related party (see Note 14), for an aggregate total of $1,500,000.
Under the terms of the agreement, the Retail Division of the Company
can borrow on the facilities to finance the purchase of specific bikes
for its inventory. Repayments on the advances are the earlier of one
year after the advance is made or immediately after the specific bike
for which an advance was made is sold. The advances carry an interest
rate of 2% per annum over the prime rate, or 9.75% at December 31,
1998, for new motorcycles, and 5% per annum over the prime rate, or
12.75% at December 31, 1998, for used motorcycles. In addition, an
administrative fee of 0.25% is charged on outstanding advances. The
advances are secured by the Company's inventory, accounts receivable,
chattel paper, furniture and equipment, and general intangibles. At
December 31, 1998, advances on the credit facilities aggregated to
$1,486,174.
NOTE 8 - NOTES PAYABLE - RELATED PARTIES
During February 1998, the Company received $500,000 and $300,000
convertible bridge loans, bearing an interest rate of 12% each, payable
to two partnerships affiliated with Meyer Duffy & Associates, a related
party. During April 1998, these notes were converted into a total of 32
shares of the Company's Series C convertible preferred stock.
During October 1998, the Company issued a $300,000 note payable to MD
Strategic, LP, a partnership of which a director of the Company is a
principal. The note bears an interest rate of 18% per annum and is due
with all accrued interest on the earlier of May 31, 1999, or in full or
part upon earlier receipt of funds by the Company from any third-party
lender or investor. The note may be extended upon the option of the
payee. As of December 31, 1998, the outstanding principal balance on
the note was $300,000.
NOTE 9 - CAPITAL LEASE OBLIGATIONS
Capital lease obligations at December 31,1998 consisted of the
following:
<TABLE>
<S> <C>
Capitalized lease obligation payable to a finance company,
collateralized by certain computer equipment, requiring
principal and interest payments of $2,272 per month, with
interest at
20% per annum through May 2000 $34,765
Capitalized lease obligation payable to a finance company,
collateralized by certain computer equipment, requiring
principal and interest payments of $937 per month, with
interest at
16% per annum through December 2000 17,705
</TABLE>
21
<PAGE> 54
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 9 - CAPITAL LEASE OBLIGATIONS (CONTINUED)
<TABLE>
<S> <C>
Capitalized lease obligation payable to a finance company,
collateralized by a Ford truck, requiring principal and
interest payments of $643 per month, with interest at 8.2%
per annum through April 2002. $39,098
-------
91,568
Less current portion 36,833
-------
LONG-TERM PORTION $54,735
=======
</TABLE>
Minimum future payments for the capital lease obligations at December
31, 1998 are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1999 $ 46,226
2000 30,114
2001 7,716
2002 24,218
---------
108,274
Less amounts representing interest 16,706
---------
TOTAL $ 91,568
=========
</TABLE>
NOTE 10 - NOTES PAYABLE
Notes payable at December 31, 1998 consisted of the following:
<TABLE>
<S> <C>
Notepayable to Tandem Capital, dated June 1998, with interest
at 12% per annum, due and payable quarterly,
collateralized by a first lien on all assets of the
Company, and payable in June 2001. As more fully described
in Note 12, certain stock purchase warrants were issued in
connection with the $4,500,000 note payable to Tandem Capital. $4,500,000
Notepayable to bank assumed in conjunction with the
acquisition of a former franchise operation, guaranteed by
the Small Business Administration ("SBA") and
collateralized by all the assets of the Sacramento store,
with interest at prime plus 2.5% per annum, or 10.25% at
December 31, 1998, payable in monthly principal and interest
payments of $1,455 through April 2005. 80,341
</TABLE>
22
<PAGE> 55
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 10 - NOTES PAYABLE (CONTINUED)
<TABLE>
<S> <C>
Notepayable to a bank collateralized by the Company's
securities with the bank, with interest at prime plus
0.625% per annum, or 8.375% at December 31, 1998, payable
monthly through June 1999. $ 75,000
Notepayable to a finance company collateralized by a diesel
tractor, requiring principal and interest payments of
$1,870 per month, with interest at 10% per annum through
January 2001. 40,421
Notepayable to a finance company, collateralized by a
trailer, requiring principal and interest payments of
$5,739 per month, with interest at 10.75% per annum through
February 2001. 180,058
Notepayable to a finance company, collateralized by a Ford
truck, requiring principal and interest payments of $612
per month, with interest at 11% per annum through August 2001. 16,920
----------
4,892,740
Less current portion 160,991
----------
LONG-TERM PORTION $4,731,749
==========
</TABLE>
The following is a schedule by years of future maturities of notes
payable:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1999 $ 160,991
2000 95,553
2001 4,580,719
2002 20,289
2003 14,446
Thereafter 20,742
-----------
TOTAL $ 4,892,740
===========
</TABLE>
23
<PAGE> 56
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 11 - INCOME TAXES
The following table presents the current and deferred income tax
provision for federal and state income taxes for the years ended
December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Current
Federal $ $ -
State 800 800
---------- ----------
800 800
---------- ----------
Deferred
Federal - -
State - -
---------- ----------
- -
---------- ----------
PROVISION FOR INCOME TAXES $ 800 $ 800
========== ==========
</TABLE>
The tax effects of temporary differences which give rise to the
deferred tax provision (benefit) at December 31, 1998 and 1997
consisted of:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Furniture and equipment $ 34,339 $ (2,936)
Accrued liabilities 49,358 2,569
Accounts receivable allowance 241 82,943
Inventory reserve (40,855) 266,000
Net operating losses 1,257,981 1,566,566
Other (6,517) (1,047)
Valuation allowance (1,294,547) (1,914,095)
------------ ------------
TOTAL $ - $ -
============ ============
</TABLE>
The provision for income taxes differs from the amount that would
result from applying the federal statutory rate for the years ended
December 31, 1998 and 1997 as follows:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Statutory regular federal income tax rate (34.0)% (34.0)%
Change in valuation allowance 33.8 33.8
Other 0.2 0.2
------------ ------------
TOTAL -% -%
============ ============
</TABLE>
24
<PAGE> 57
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 11 - INCOME TAXES (CONTINUED)
The components of the deferred income tax assets (liabilities) as of
December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
State taxes $ (185,620) $ -
Furniture and equipment 854 (38,689)
Accrued expenses 299,858 34,527
Accounts receivable allowance 155,664 102,943
Inventory reserve 141,303 306,000
Net operating loss carryforwards 5,715,903 3,842,415
Other 26,777 25,964
----------- -----------
6,154,739 4,273,160
Valuation allowance 6,154,739 4,273,160
----------- -----------
TOTAL $ - $ -
=========== ===========
</TABLE>
As of December 31, 1998, the Company had net operating loss
carryforwards for federal and state income tax purposes of
approximately $15,500,000 and $4,800,000, respectively. The net
operating loss carryforwards begin expiring in 2007 and 1998,
respectively. The utilization of net operating loss carryforwards may
be limited due to the ownership change under the provisions of Internal
Revenue Code Section 382 and similar state provisions.
NOTE 12 - SHAREHOLDERS' EQUITY
Preferred Stock
The Company is authorized to issue preferred stock in series and to
determine the rights, preferences, privileges, and restrictions granted
to or imposed upon any wholly unissued series of preferred stock and to
fix the number of shares and designation of any such series.
Series A Convertible Preferred Stock
Each share of preferred stock pays annual dividends of 10% (based upon
a purchase price of $175,000 per unit) and is convertible at the option
of the holder, after the effective date of the registration statement
with respect to the common stock, into 10,000 shares of the Company's
common stock at a conversion rate of $17.50 per share. If at the time
of conversion 75% of the current bid price is less than $17.50 per
share, the holder will receive a greater number of shares, but in no
case will the conversion rate be less than $7.50 per share. In
addition, the Company may call for the conversion of the preferred
stock if the average closing price of the Company's common stock is
$37.50 per share for 10 consecutive trading days or any time after the
third anniversary of the private placement. In addition, the aggregate
liquidation preference is $175,000.
25
<PAGE> 58
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 12 - SHAREHOLDERS' EQUITY (CONTINUED)
Series A Convertible Preferred Stock (Continued)
In 1996, the Company sold seven units consisting of one unit of Series
A convertible preferred stock and 10,000 units of Series D warrants for
a price of $175,000 per unit. (Note: Series D warrants are described
below under "Stock Purchase Warrants.")
During 1997, accrued dividends of $70,000 on Series A convertible
preferred stock were converted into 9,333 shares of common stock. As of
December 31, 1998, cumulative per share dividends in arrears on
December 31, 1998 were 43,500 in the aggregate.
Series B Convertible Preferred Stock
Each share of Series B preferred stock is convertible at the option of
the holder. The preferred shares may be redeemed by the corporation at
the option of the Board of Directors on a pro rata basis at any time or
from time to time in whole or in part commencing one year after the
date of issuance at a redemption price of $1.125 per preferred share,
plus all accumulated and unpaid dividends. Dividends on the preferred
stock are cumulative and accrue whether or not declared on each
preferred share at the annual rate of $0.0975 per preferred share. At
December 31, 1998, accrued dividends on Series B preferred shares were
$211,330 in the aggregate. In addition, the aggregate liquidation
preference is $702,194.
As described in Note 1, on June 30, 1997, the Company entered into a
note conversion agreement with Mull Acres, and as part of the
agreement, the Company issued 1,330,000 shares of its Series B
convertible preferred stock in satisfaction of a portion of the
$2,700,000 note payable that the Company had with Mull Acres at the
time.
During September 1997, the Company converted a series of 12% notes
payable and 9.75% notes, with an aggregate principal balance of
$4,920,000 and accrued interest thereon of $232,000, into 4,920,000
shares of the Company's Series B convertible preferred stock.
Series C Convertible Preferred Stock
The Company is authorized to issue 300 shares of Series C convertible
preferred stock. Each share of the Company's Series C convertible
preferred stock is convertible, at the option of the holder, at any
time after the date of issuance (the "Conversion Date") into shares of
the Company's common stock. The price at which the preferred stock
converts into the Company's common stock (the "Conversion Price") is
determined by dividing $25,000 by the greater of: 1) 75% of the average
closing price of the Company's common stock for the 10 trading days
immediately preceding the Conversion Date, or 2) $2.50, provided,
however, that under no circumstances shall the Conversion Price exceed
$4.00. Under certain circumstances, the Conversion Price is subject to
adjustment. Each share shall be automatically converted into the
Company's common stock in the event the closing price equals or exceeds
$8.00 per share for any period of 20 consecutive days. Dividends are
cumulative and accrue whether or not declared on each share of Series C
of convertible preferred stock at an annual rate of $2.25 per preferred
share.
26
<PAGE> 59
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 12 - SHAREHOLDERS' EQUITY (CONTINUED)
Series C Convertible Preferred Stock (Continued)
In April 1998, the Company sold for cash, and through the conversion of
notes payable aggregating to $800,000 to a related party, 155 units,
each consisting of one unit of Series C convertible preferred stock and
1,250 units of Series F warrants for an aggregate price of $3,875,000
($25,000 per unit). (Note: Series F warrants are described below under
"Stock Purchase Warrants.") As of December 31, 1998, all 155 shares of
the Series C convertible preferred stock that were issued were
converted into the Company's common stock.
Common Stock
During the year ended December 31, 1997, the Company converted four
shares of Series A preferred stock into 93,333 shares of common stock.
During the year ended December 31, 1997, the Company converted
$4,920,000 of notes payable into 4,920,000 shares of Series B
convertible preferred stock. In addition, accrued interest of $231,385
relating to the above notes payable were converted into 231,385 shares
of Series B convertible preferred stock.
During the year ended December 31, 1997, the Company converted
$1,330,000 of notes payable due to Mull Acres into 1,330,000 shares of
Series B preferred stock.
During the year ended December 31, 1997, the Company converted
$1,370,000 of notes payable due to Mull Acres into 274,000 shares of
common stock.
During the year ended December 31, 1997, the Company converted accounts
payable and accrued expenses of $279,457 into 48,391 shares of common
stock.
During the year ended December 31, 1997, the Company issued 4,333
shares of common stock in exchange for services rendered valued at
$32,750 or $7.56 per share, which represents the fair market value
of the services rendered.
During the year ended December 31, 1997, 240,800 stock options were
exercised for cash of $855,500.
During the year ended December 31, 1997, Series C warrants were
exercised, whereby 125,000 shares of common stock were issued in
exchange for cash of $484,375.
During the year ended December 31, 1997, the Company issued 9,333
shares of common stock in exchange for accrued preferred stock
dividends of $70,000.
During the year ended December 31, 1998, the Company converted notes
payable to a related party of $800,000 into 32 shares of Series C
convertible preferred stock.
During the year ended December 31, 1998, the Company converted accounts
payable of $50,000 into 14,286 shares of common stock.
27
<PAGE> 60
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 12 - SHAREHOLDERS' EQUITY (CONTINUED)
Common Stock (Continued)
During the year ended December 31, 1998, the Company converted accrued
expenses of $200,000 into 42,776 shares of common stock.
During the year ended December 31, 1998, the Company converted two
shares of Series A convertible preferred stock into 46,667 shares of
common stock.
During the year ended December 31, 1998, the Company converted
5,049,191 shares of Series B convertible preferred stock into 1,009,838
shares of common stock.
During the year ended December 31, 1998, the Company converted 155
shares of Series C convertible preferred stock into 1,255,599 shares of
common stock.
During the year ended December 31, 1998, the Company completed a
private placement of Series C convertible preferred stock, selling 123
units at $25,000 per unit, for gross proceeds of $3,075,000.
The Company netted $2,944,985 after offering costs.
During the year ended December 31, 1998, Series D and Series F warrants
were exercised, whereby 20,000 and 55,000 shares, respectively, of
common stock were issued in exchange for cash of $80,000 and $275,000,
respectively.
During the year ended December 31, 1998, 46,167, stock options were
exercised for cash of $138,500. In addition, 30,000 shares of common
stock were issued in exchange for a subscription receivable of $90,000.
During the year ended December 31, 1998, the Company issued 43,000
shares of common stock in exchange for services rendered valued at
$129,000 or $3.00 per share, which represents the fair market value
of the services rendered.
During the year ended December 31, 1998, the Company issued 4,667
shares of common stock in exchange for accrued preferred stock
dividends of $35,000.
At December 31, 1998, common shares were reserved for issuance as
follows:
<TABLE>
<S> <C>
Assuming exercise or conversion of:
1995 Incentive Stock Option Plan 46,200
1995 Nonqualified Stock Option Plan 203,000
1995 Nonqualified Director's Stock Option Plan 128,000
Other stock options 709,187
Stock purchase warrants 1,497,750
Convertible preferred stock 163,772
---------
TOTAL 2,747,909
=========
</TABLE>
28
<PAGE> 61
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 12 - SHAREHOLDERS' EQUITY (CONTINUED)
Stock Purchase Warrants
At December 31, 1998, the Company had the following stock purchase
warrants outstanding:
1) Series C Warrants
In connection with the issuance of $2,210,000 of notes payable
during 1997, the holder of the notes received 221,000 Series C
warrants. Each warrant gives the holder the right to purchase
the Company's common stock. The exercise price of the warrants
was lowered to $3.875 during 1997, and subsequently in 1997,
125,000 of these warrants were exercised for $484,375. At
December 31, 1998, there were 96,000 Series C warrants
outstanding.
2) Series D Warrants
The holders of certain notes issued in June 1996 received
77,000 Series D warrants to purchase the Company's common
stock at an exercise price of $5.00 per share. The warrants
expire three years after issuance. In addition, the warrants
are callable if the Company's common stock closes at $7.50 per
share for 10 consecutive trading days after registration of
the preferred stock. During 1998, the Company lowered the
exercise price on Series D warrants from $5.00 per common
share to $4.00 per common share, and 20,000 Series D warrants
were exercised for a total of $80,000. At December 31, 1998,
there were 57,000 Series D warrants outstanding.
3) Series E Warrants
Under the terms of a series of 9.75% notes payable that were
issued in June 1997 with an aggregate principal of $2,710,000,
investors of the notes received an aggregate of 273,500 Series
E warrants to purchase common stock at a purchase price of
$5.00 per share. At December 31, 1998, there were 273,500
Series E warrants outstanding.
4) Series F Warrants
As part of the sale of the 155 shares convertible Series C
preferred stock sold in April 1998, the Company also issued an
aggregate of 193,750 Series F warrants (1,250 warrants per
preferred share). Each warrant entitles the holder to purchase
one share of the Company's stock at a purchase price of $5.00
per share. During 1998, 55,000 Series F warrants were
exercised for $275,000 in cash, leaving 138,750 Series F
warrants outstanding at December 31, 1998.
5) Other Warrants
Under the terms of a $2,500,000 loan agreement during 1997,
Tandem Capital received an initial Stock Purchase Warrant to
purchase up to 87,500 shares of the Company's common stock at
an exercise price of $5.00 per share, which is exercisable on
or before November 17, 2002. The warrant was outstanding at
December 31, 1998.
29
<PAGE> 62
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 12 - SHAREHOLDERS' EQUITY (CONTINUED)
Stock Purchase Warrants (Continued)
Other Warrants (Continued)
Additionally, as part of the above loan agreement, Tandem
Capital received a Stock Purchase Warrant to purchase 75,000
shares of the Company's common stock at an exercise price of
$5.25 per share, which is exercisable on or before June 1,
2003. At December 31, 1998, the warrant was outstanding.
Other Warrants
In connection with a $4,500,000 loan agreement during June 1998, Tandem
Capital received a stock purchase warrant to purchase up to 370,000
shares of the Company's common stock at $3.25 per share, at any time
during a five-year period beginning June 15, 1998. The exercise price
of the warrants is automatically reset on the first anniversary date of
closing date at the lesser of 1) $3.25 per share, or 2) the average
closing bid price of the Company's common stock for the 20 trading days
immediately preceding the anniversary date.
In addition, if the loan obligation is outstanding on the first
anniversary of the closing date or any anniversary date thereafter, the
Company shall grant Tandem Capital additional stock warrants to
purchase up to 200,000 shares of common stock at an exercise price
equal to the greater of 1) $4.00 per share, or 2) 80% of the average
closing bid price of the Company's common stock for the 20 trading days
preceding the anniversary date of the loan. The warrants are
exercisable for a five-year period beginning in June 1999.
Stock Option Plans
The Company has adopted five stock option plans, the 1995 Incentive
Stock Option Plan, the 1995 Non-Qualified Stock Option Plan, the 1995
Non-Qualified Directors' Stock Option Plan, the 1998 Stock Option Plan,
and the 1998 Stock Compensation Plan. The shares issued pursuant to the
plans are restricted shares until or unless registered by the Company.
In addition, the Company from time to time will issue nonqualified
stock options outside of these five plans.
Under the 1995 Incentive Stock Option Plan, options may be granted by
the Compensation Committee to its officers, key employees, and other
employees according to responsibility and length of service. Options
may not be granted to employees owning more than 10% of the total
combined voting power of the stock of the corporation. Options granted
under the plan shall be granted within 10 years of the date of the
adoption of the plan, and must be exercised within 10 years of the
grant. The aggregate number of shares that may be issued pursuant to
the plan is 100,000 over the life of the plan, and the aggregate fair
market value of the stock for exercise for the first time during any
calendar year is $100,000 per individual. The exercise price of the
options is determined by the Compensation Committee, but in any case
the exercise price may not be less than 100% of the fair market value
on the date of grant. Options vest pro rata over a four-year period.
30
<PAGE> 63
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 12 - SHAREHOLDERS' EQUITY (CONTINUED)
Stock Option Plans (Continued)
The 1995 Nonqualified Stock Plan provides for incentives to management,
executive personnel of the Company and others. The plan limits the
number of shares to 200,000, and the aggregate value of underlying
shares granted in any year for any single employee may not exceed
$100,000 in value. The option price is fixed by the bid price of the
Company's shares as quoted on NASDAQ or the Bulletin Board at the close
of business on the date of the grant. Options must be exercised within
10 years of the date of grant thereof and shall vest at such time or
times as the Board of Directors shall fix on the date of grant.
The 1995 Director's plan is a Nonqualified Plan and provides for 60,000
shares in total, 10,000 shares to be granted to each director on
assuming office. The underlying share price is determined by the bid
price on NASDAQ or the Bulletin Board on the date of the grant. The
options vest over a five-year period. Options must be exercised within
10 years of the date of grant.
Under the 1998 Stock Option Plan (the "1998 Plan"), options may be
granted by the Compensation Committee to officers, employees,
directors, and consultants. Options granted under the 1998 Plan may
either be incentive stock options or non-qualified stock options. The
aggregate number of shares that may be issued pursuant to the plan is
1,000,000 over the life of the plan, of which 50,000 shares shall be
issued to directors, 750,000 to employees as incentive stock options,
and 200,000 to non-employees as non-qualified stock options. No
incentive stock option may be granted to any person who owns more than
10% ("10% Shareholders") of the total combined voting power of all
classes of the Company's stock or of its parent, unless the exercise
price is at least equal to 110% of the fair market value on the date of
grant. Options may be granted under the 1998 Plan for terms of up to 10
years, except for incentive stock options granted to 10% shareholders,
which are limited to the five-year terms. No incentive stock options
may be granted to an optionee if the aggregate fair market value of the
stock with respect to which incentive stock options are exercisable by
the optionee in any calendar year under all such plans of the Company
and its affiliates exceeds $100,000.
The 1998 Stock Compensation Plan was adopted to provide the Company
with a means of compensating key employees, including directors and
consultants to the Company, for their services with shares of common
stock. The plan became effective April 1, 1998 and shall terminate on
March 31, 2008. It is administered by the Board of Directors, who is
authorized to award up to 150,000 shares of common stock for a value of
no less than par as consideration for services rendered. As of December
31, 1998, no options have been granted under the 1998 Stock
Compensation Plan.
31
<PAGE> 64
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 12 - SHAREHOLDERS' EQUITY (CONTINUED)
Stock Option Plans (Continued)
In addition to the stock options issued under the above plans, the
Company issued other stock options.
The following summarizes the stock option transactions under the stock
option plans:
<TABLE>
<CAPTION>
Weighted- Weighted-
Average Average
Incentive Granted Granted
Stock Price Other Price
Option Plan Per Share Options Per Share
----------- --------- ------- ---------
<S> <C> <C> <C> <C>
Outstanding, December
31, 1996 4,000 $ 8.75 717,000 $ 8.24
Granted - $ - 639,547 $ 3,72
Exercised - $ - (500,000) $ 8.25
Canceled (3,800) $ 8.75 (165,360) $ 8.96
------------ -------------
Outstanding, December
31, 1997 200 $ 8.75 691,187 $ 3.87
Granted 50,000 $ 4.00 - $ -
Exercised - $ - (112,000) $ 5.00
Canceled (4,000) $ 4.00 (40,480) $ 4.30
------------ -------------
OUTSTANDING,
DECEMBER 31, 1998 46,200 $ 4.02 538,707 $ 3.61
============ =============
EXERCISABLE AT
DECEMBER 31, 1998 6,500 191,557
============ =============
WEIGHTED-AVERAGE
REMAINING
CONTRACTUAL LIFE OF
OPTIONS OUTSTANDING
AT DECEMBER 31,
1998 4.2 YEARS 3.6 YEARS
============ =============
RANGE OF EXERCISE
PRICES OF OPTIONS
OUTSTANDING AT
DECEMBER 31,
1998 $4.00 - 8.75 $4.40 - 15.00
============ =============
</TABLE>
32
<PAGE> 65
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 12 - SHAREHOLDERS' EQUITY (CONTINUED)
Stock Option Plans (Continued)
<TABLE>
<CAPTION>
Weighted- Weighted- Weighted-
Non- Average Average Average
qualified Granted Non- Granted 1998 Granted
Directors Price qualified Price Stock Price
Option Per Option Per Option Per
Plan Share Plan Share Plan Share
--------- --------- --------- --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding December
31, 1996 128,000 $ 8.05 53,000 $ 8.85 - $ -
Canceled - $ - (23,000) $ 8.85 - $ -
----------- ----------- -----------
Outstanding, December
31, 1997 128,000 $ 8.05 30,000 $ 8.85 - $ -
Granted - $ - 175,000 $ 4.01 55,000 $ 3.68
Canceled - $ - (2,000) $ 5.00 - $ -
----------- ----------- -----------
OUTSTANDING, DECEMBER
31, 1998 128,000 $ 8.05 203,000 $ 4.72 55,000 $ 3.68
=========== =========== ===========
EXERCISABLE AT
DECEMBER 31, 1998 128,000 149,000 25,938
=========== =========== ===========
WEIGHTED-AVERAGE
REMAINING
CONTRACTUAL LIFE OF
OPTIONS OUTSTANDING
AT DECEMBER 31,
1998 6.4 YEARS 3.7 YEARS 4.7 YEARS
=========== =========== =========
RANGE OF EXERCISE
PRICES OF OPTIONS
OUTSTANDING AT
DECEMBER 31,
1998 $ 8.05 $ 4.00-8.85 $ 3.65-3.75
=========== ============= ============
</TABLE>
Stock Option Pricing
During the year ended December 31, 1998, all stock options were
repriced at an exercise price of $4.00.
On October 22, 1998, certain non-qualified options to purchase 473,334
shares of common stock, originally granted during the year ended
December 31, 1997, were repriced at an exercise price of $4.00.
Subsequently, these options were repriced on December 31, 1998 at an
exercise price of $3.00.
33
<PAGE> 66
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 12 - SHAREHOLDERS' EQUITY (CONTINUED)
Stock Option Plans (Continued)
The weighted-average remaining contractual life of the options
outstanding at December 31, 1998 is 4.1 years. The exercise prices of
the options outstanding at December 31, 1998 ranged from $3.65 to
$5.00, and information relating to these options is as follows:
<TABLE>
<CAPTION>
Weighted-
Average
Weighted- Price
Average of Options
Range of Remaining Outstanding
Exercise Stock Options Stock Options Contractual and
Prices Outstanding Exercisable Life Exercisable
-------- ------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
$ 3.65-4.50 284,000 155,438 3.6 years $ 4.00
$ 4.51-6.00 496,667 172,445 3.8 years $ 3.20
$ 6.01-10.00 185,240 168,312 6.0 years $ 8.20
$ 10.01-15.00 5,000 5,000 3.0 years $ 15.00
------- -------
970,907 501,195
======= =======
</TABLE>
The Company has adopted only the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." It applies Accounting
Principles Bulletin ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations in accounting for its
plans and does not recognize compensation expense for its stock-based
compensation plans other than for restricted stock and options issued
to outside third parties. If the Company had elected to recognize
compensation expense based upon the fair value at the grant date for
awards under these plans consistent with the methodology prescribed by
SFAS 123, the Company's net loss and loss per share would be reduced to
the pro forma amounts indicated below for the years ended December 31,
1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Net loss
As reported $ (3,795,931) $ (5,117,784)
Pro forma $ (4,380,708) $ (8,810,236)
Basic and diluted loss per common share
As reported $ (0.92) $ (2.54)
Pro forma $ (1.06) $ (4.37)
</TABLE>
34
<PAGE> 67
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 12 - SHAREHOLDERS' EQUITY (CONTINUED)
Stock Option Plans (Continued)
The fair value of these options was estimated at the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions for the years ended December 31, 1998 and
1997: dividend yields of 0% and 0%, respectively; expected volatility
of 99% and 99%, respectively; risk-free interest rates of 47% and 5.7%,
respectively; and expected lives of 2.95 and five years, respectively.
The weighted-average fair value of options granted during the years
ended December 31, 1998 and 1997 was $2.93 and $4.00, respectively, and
the weighted-average exercise price was $4.42 and $7.70, respectively.
For options granted during the year ended December 31, 1998 where the
exercise price equaled the stock price at the date of the grant, the
weighted-average fair value of such options was $2.85, and the
weighted-average exercise price of such options was $4.53. For options
granted during the year ended December 31, 1998 where the exercise
price was less than the stock price at the date of the grant, the
weighted-average fair value of such options was $3.45, and the
weighted-average exercise price of such options was $3.75. No options
were issued during the year ended December 31, 1998 where the exercise
price exceeded the stock price at the date of the grant.
NOTE 13 - SEGMENT INFORMATION
For internal reporting purposes, management desegregates the Company
into two divisions: 1) the Manufacturing Division and 2) the Retail
Division. Most corporate expenses, such as internal administrative
costs, legal expenses, and debt issuance costs, are included in the
Retail Division.
The following table summarizes of results two segments:
<TABLE>
<CAPTION>
December 31, 1998
---------------------------------------------------------------------------------
Retail Manufacturing
Division Division Eliminations Consolidated
------------ ------------ -------------- ------------
<S> <C> <C> <C> <C>
Sales to unaffiliated
customers $ 11,881,139 $ 15,853,481 $ - $ 27,734,620
Operating loss $ (2,402,909) $ (1,549,773) $ - $ (3,952,682)
Operating loss,
excluding amortization
of costs in excess of
assets $ (2,402,909) $ (1,299,816) $ - $ (3,702,725)
Identifiable assets $ 6,318,045 $ 11,198,957 $ (1,058,219) $ 16,458,783
Capital expenditures $ 154,597 $ 121,460 $ - $ 276,057
</TABLE>
35
<PAGE> 68
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 13 - SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
December 31, 1997
---------------------------------------------------------------------------------
Retail Manufacturing
Division Division Eliminations Consolidated
------------ ------------ -------------- ------------
<S> <C> <C> <C> <C>
Sales to unaffiliated
customers $ 9,174,641 $ 5,750,346 $ - $ 14,924,987
Operating loss $ (1,963,562) $ (2,453,639) $ - $ (4,417,201)
Operating loss,
excluding amortization
of costs in excess of
assets $ (1,963,562) $ (2,224,512) $ - $ (4,188,074)
Identifiable assets $ 4,708,520 $ 6,714,071 $ (133,550) $ 11,289,041
Capital expenditures $ 155,672 $ 106,455 $ - $ 262,127
</TABLE>
NOTE 14 - RELATED PARTY TRANSACTIONS
During 1998 and 1997, the Company incurred $220,248 and $193,800,
respectively, in legal fees and/or consulting fees from a law firm of
which Rowland W. Day, ll, a shareholder, a former member of the Board
of Directors, and former Co-Chairman of the Company, is a partner.
Accrued legal and consulting fees of $59,577 were converted into 11,915
shares of common stock during December 1997.
During the years ended December 31, 1998 and 1997 the Company engaged
the services of Meyer Duffy & Associates ("Meyer Duffy"), a management
consulting firm whose principal partner is a shareholder, a director,
and former Co-Chairman of the Company. Meyer Duffy was retained by the
Company to provide consulting, financial advisory, and investment
banking services. The latest written consulting agreement was
consummated and became effective January 1, 1998. Under the terms of
the agreement, Meyer Duffy would continue its consulting services and
services related raising capital for the Company for a two-year period
for $5,000 per month, and in addition, would receive a total of 75,000
options, exercisable at $4.00 per share.
In January 1997, the Company issued $2,210,000, 12% promissory notes
maturing January 1998. Several investment partnerships, of which Donald
Duffy is a 10% general partner, purchased a total of $750,000 of such
promissory notes. In September 1997, such promissory notes plus accrued
interest were converted into 750,000 shares of Series B convertible
preferred stock.
In July 1997, the Company issued $2,710,000, 9.75% promissory notes.
Several investment partnerships, of which Donald Duffy is a 10% general
partner, purchased a total of $730,000 of such promissory notes. In
September 1997, such promissory notes plus accrued interest were
converted into 730,000 shares of Series B convertible preferred stock.
36
<PAGE> 69
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 14 - RELATED PARTY TRANSACTIONS (CONTINUED)
In February 1998, the Company entered into a license agreement with
Bike Bike Boutique, Inc., ("BBB") a company owned by Bruce Scott, a
director of the Company, owner of four independently operated Bikers
Dream dealerships, and owner of CCC, pursuant to which the Company
licensed it name to BBB for the purpose of selling apparel and
accessories. The agreement was terminated in October 1998 pursuant to a
termination of license agreement and mutual release.
In September 1998, the Company entered into a sublease agreement and
repayment agreement with Big Bike of Daytona, Inc. ("Big Bike"), a
Florida Corporation owned by Bruce Scott. Pursuant to the terms of the
sublease agreement, the Company agreed to sublease to Big Bike the
rights to operate an independent motorcycle dealership at the facility
for an original term of three years. Under the repayment agreement, the
Company has agreed to reimburse Big Bike for a portion of the cost of
certain tenant improvements advanced by Bike Bike. The reimbursement is
to be made by an offset against the rent otherwise due under the
sublease. All profits made by Big Bike on sales of motorcycles, parts,
and other consigned inventory by the Company shall be applied to rent
due under the sublease until the amount paid under the sublease in any
given year equals the rent the Company is obligated to pay on the
master lease for the premises. Thereafter, Big Bike is obligated to pay
the Company half of its net profits on sales of consigned inventory
from the Company. Total rent due under the sublease is capped at the
lesser of actual net profits from the sale of consigned inventory from
the Company or the amount owed by the Company under the master lease.
Bruce Scott also owns three other motorcycle dealerships in the state
of Florida. Sales to these stores owned by him during 1998 were
$1,684,015. At December 31, 1998, the stores owned by Bruce Scott owed
the Company an aggregate of approximately $30,000 on trade accounts
receivable.
NOTE 15 - OTHER UNUSUAL ADJUSTMENTS
During the fourth quarter of 1998 the Company had the following
significant accounting adjustments:
1) A charge of approximately $2,000,000 to cost of goods sold,
resulting from the difference between the inventory quantities
per the Company's perpetual inventory records at December 31,
1998 to a lesser amount counted during the physical year-end
inventory. In order to determine the reason or reasons for the
difference, the Company is currently conducting a review of
its computerized accounting and inventory systems, which
underwent a complete systems conversion during the second half
of 1998. However, the specific causes for the difference have
not yet been determined. The Company will notify its insurance
carriers of the situation.
37
<PAGE> 70
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 15 - OTHER UNUSUAL ADJUSTMENTS (CONTINUED)
2) A charge of $679,000 to cost of goods sold for the elimination
of intercompany gross profit included in inventory that
resulted from the Retail Division purchasing motorcycles from
the Manufacturing Division at a price above the Manufacturing
Division's actual cost.
3) A charge of approximately $356,000 to cost of goods sold
related to the Company reconciling its intercompany warranty
receivable and payable balances and accruing warranty costs.
4) Recognition of $730,000 into other income for the
reacquisition of 730,000 shares of the Company's Series B
convertible preferred stock (see Note 1).
Management of the Company has not yet determined which quarters in 1998
that the above adjustments relate to.
NOTE 16 - YEAR 2000 ISSUE
The Company is conducting a comprehensive review of its computer
systems to identify the systems that could be affected by the Year 2000
Issue and is developing an implementation plan to resolve the Issue.
The Issue is whether computer systems will properly recognize
date-sensitive information when the year changes to 2000. Systems that
do not properly recognize such information could generate erroneous
data or cause a system to fail. The Company is dependent on computer
processing in the conduct of its business activities.
Based on the review of the computer systems, management does not
believe the cost of implementation will be material to the Company's
financial position and results of operations.
NOTE 17 - SUBSEQUENT EVENTS
In February 1999, the Company entered into a five-year lease to
relocate its corporate headquarters, manufacturing, warehouse, and
distribution facilities. The Company intends to move into the new
facility during the end of May 1999, and at that time, the lease will
commence. The lease payments will be $19,670 per month, subject to
increase to $21,356 after two years. The Company has an option to
extend the lease for five years.
38
<PAGE> 71
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 17 - SUBSEQUENT EVENTS (CONTINUED)
In February 1999, the Company sold 1,545 shares of its newly issued
Series D convertible preferred stock in a private placement offering
for $1,500,000. The outstanding shares of Series D convertible
preferred stock are convertible into common stock pursuant to a
formula. Each share of Series D convertible preferred stock has a
stated value of $1,000. The number of shares of common stock issuable
upon the conversion of one share of Series D preferred stock is
calculated by adding $1,000 to the amount of accrued and unpaid
dividends on such shares and dividing the resulting sum by the
conversion price. The conversion price is equal to the lesser of 1)
110% of the closing bid price of the common stock on the last trading
day before the date of issuance of the share of Series D preferred
stock being converted, or 2) 90% of the average of the four lowest
closing bid prices of the common stock during the last 22 trading days
before the date of conversion. In addition, as part of the offering,
the Company issued warrants to holders of the Series D convertible
preferred stock enabling them to purchase a total of 60,000 shares of
the Company's common stock that are exercisable at any time until
February 5, 2004 at $4.125 per share.
The investors of the Series D convertible preferred stock have also
committed to purchase an additional $500,000 of Series D convertible
preferred stock and a total of 15,000 additional warrants upon approval
by the Company's shareholders of the issuance of such additional Series
D convertible preferred stock. In addition, the same investors have
also committed to purchase an additional $1,000,000 of Series D
convertible preferred stock and another 25,000 warrants following the
later to occur of shareholder approval or the effectiveness of a
registration statement with respect to such shares.
As discussed in Note 6, during 1998, the Company settled a lawsuit
through arbitration related to the 1994 sale of a franchise to two
individuals, and among other terms included in the arbitration
agreement, the Company would assume operations of the motorcycle
dealership in Conover, North Carolina, which the Company did in January
1999. In addition to assuming the operations of the dealership, the
Company entered into a lease agreement for the facility that expires in
August 2001 and requires monthly rent payments of $2,000 per month.
During February 1999, the Company issued 16,000 shares to BBB as part
of the consideration for the termination agreement of a license
agreement (see Note 14). The fair market value of the shares at the
time of issuance was approximately $60,000.
39
<PAGE> 1
EXHIBIT 4.1
[Front of Certificate]
COMMON STOCK COMMON STOCK
NUMBER SHARES
- ------------------- -------------------
BIKERS DREAM, INC.
THESE SHARES REFLECT A 1:1,363.341473
REVERSE STOCK SPLIT
INCORPORATED UNDER THE LAWS SEE REVERSE FOR
OF THE STATE OF CALIFORNIA CERTAIN DEFINITIONS
THIS CERTIFIES THAT CUSIP 090008 20 2
is the record holder of
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK OF
BIKERS DREAM, INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon the surrender of this Certificate properly
endorsed.
This Certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
[SEAL]
BIKERS DREAM, INC.
CORPORATE
SEAL
1985
CALIFORNIA
/s/ Richard E. King, Jr. /s/ Dennis Campbell
SECRETARY President
[Vertical along right margin:]
COUNTERSIGNED AND REGISTERED:
AMERICAN SECURITIES TRANSFER, INC.
P.O. Box 1596
Denver, Colorado 80201
TRANSFER AGENT AND REGISTRAR
BY /s/ S. Smith
AUTHORIZED SIGNATURE
<PAGE> 2
[Reverse of Certificate]
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- _______________Custodian____________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right under Uniform Gifts to Minors
of survivorship and not as tenants Act_______________________________
in common (State)
UNIF TRF MIN ACT -- __________Custodian (until age________)
(Cust)
_____________ under Uniform Transfers
(Minor)
to Minors Act_______________________
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
- -------------------------------------------------------------------------
of the capital stock represented by the within certificate, and do hereby
irrevocably constitute and appoint
attorney
- -------------------------------------------------------------------------
to transfer the said stock on the books of the within named corporation with
full
Power of substitution in the premises.
DATED ______________________________
X
` ----------------------------------------
X
` ----------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAMES AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By:___________________________________________________________ THE SIGNATURE(S)
SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS,
SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM PURSUANT TO S.E.C. RULE 17Ad-15).
<PAGE> 1
EXHIBIT 10.27
THIS NOTE AND ANY SECURITIES ACQUIRED UPON THE CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES AND MAY
NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR
PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH
ACT AND SUCH LAWS. THIS NOTE IS ALSO SUBJECT TO RESTRICTIONS ON TRANSFER AS SET
FORTH HEREIN.
BIKERS DREAM, INC.
12.0% CONVERTIBLE PROMISSORY NOTE
$300,000 New York, New York
February 18, 1998
FOR VALUE RECEIVED, the undersigned, BIKERS DREAM, INC., a California
corporation (the "Company"), promises to pay to the order of Meyer Duffy
Ventures III, or its registered assigns (the "Holder"), the principal aggregate
sum of Three Hundred Thousand Dollars ($300,000), with interest from the date
hereof at the rate of 12.0% per annum on such principal amount, on the date
(subject to extension as hereinafter provided, the "Maturity Date") 60 days
after the date hereof, unless earlier converted into shares of the Company's
Securities (as defined below). The Maturity Date may be extended for up to 60
additional days by the Holder in its sole discretion by giving written notice of
such extension to the Company.
1. General.
Unless earlier deemed to have been converted, the principal of this Note
shall be payable in one installment, together with any accrued interest, on the
Maturity Date. Interest shall be computed on the basis of a 360-day year of 12
30-day months.
Subject to applicable law, upon and during the occurrence of an
Event of Default, this Note shall bear interest, from the date of the occurrence
of such Event of Default until such Event of Default is cured or waived or the
entire principal amount hereof paid in full, payable on demand (but not less
frequently than monthly) in immediately available funds, at a rate equal to 18%
per annum.
1. Conversion Rights. Commencing as of such time as the Company closes its next
succeeding round of equity or debt financing with aggregate gross proceeds of
not less than $2,000,000 (the "Financing"), the Holder shall have the right,
exercisable by giving written notice of such exercise to the Company at any time
prior to the payment in full of this Note in accordance with Section 1 above, to
convert the entire principal amount of this Note (or any
<PAGE> 2
portion thereof) plus all accrued interest thereon into the securities of the
Company ("Company Securities") issued in such Financing, at a price per share or
other unit equal to that of all other shares or units of Company Securities
issued in such Financing. In addition, following such conversion, the Holder
shall be entitled to registration rights equivalent to those afforded the other
investors in the Financing, on the same terms and conditions as are applicable
to such other investors, and the Company shall execute such documents or
instruments as may be necessary or appropriate to give effect to such rights
(provided, however, that the Company's failure to execute any such documents or
instruments shall not be deemed to alter or impair any such rights).
2. No Prepayment; Notice of Payment. This Note may not be prepaid by the Company
prior to the Maturity Date. Following the Maturity Date, the Company will give
the Holder at least 10 business days' written notice of its intention to pay
this Note, in order to permit the Holder to exercise its conversion rights under
Section 2 hereof.
3. Covenants. The Company covenants and agrees that, until this Note (including
any accrued and unpaid interest) is paid in full or converted as set forth
above:
(a) The Company shall preserve and maintain its corporate existence and, in the
aggregate, its rights and franchises.
(b) The Company shall comply, in all material respects, with all applicable
laws, rules, regulations and orders.
(c) The Company shall pay promptly when due (i) all taxes, assessments and
governmental charges imposed upon it or upon its property, and (ii) all claims
(including, without limitation, claims for labor, materials, supplies or
services) which might, if unpaid, become a Lien (as hereinafter defined) upon
its property, unless, in each case, the validity or amount thereof is being
contested in good faith by appropriate proceedings and the Company has
maintained adequate reserves in accordance with generally accepted accounting
principles consistently applied with respect thereto.
(d) The Company shall permit any representative of the Holder to visit and
inspect any property of the Company and its subsidiaries and to examine books
and records of the Company and its subsidiaries and to make copies and take
extracts therefrom, and to discuss the affairs, finances and accounts of the
Company and its subsidiaries with officers of the Company, all during reasonable
business hours, upon reasonable notice and as often as the Holder may reasonably
request, subject, in the case of any proprietary or confidential material, to
appropriate measures to ensure the confidentiality thereof.
(e) The Company shall maintain and keep, or cause to be maintained and kept, its
properties in all material respects in good repair, working order and condition,
and from time to time make or cause to be made all necessary repairs, renewals,
replacements and improvements so that the business carried on in connection
therewith may be properly and advantageously conducted at all times. The Company
shall conduct continuously and operate actively its business according to good
business practices.
- 2 -
<PAGE> 3
(f) The Company shall not merge into or consolidate with any other person, or
sell, lease or otherwise dispose of all or any substantial part of its property
or assets to any other person, other than a merger of any of the Subsidiaries
into the Company or any other subsidiary of the Company or a sale, lease or
other disposition of all or any substantial part of the property or assets by
any Subsidiaries to the Company or any other Subsidiary.
(g) The Company shall not create, incur, assume or suffer to exist, any Lien on
any of its property now owned or hereafter acquired to secure any indebtedness,
other than:
(i) Liens existing on the date hereof;
(ii) Liens for taxes not yet due or which are being contested in good faith by
appropriate acts and with respect to which adequate reserves in accordance with
generally accepted accounting principles consistently applied are being
maintained;
(iii) Statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, materialmen and other Liens imposed by law created in the ordinary
course of business for amounts not yet due or which are being contested in good
faith by appropriate acts and with respect to which adequate reserves in
accordance with generally accepted accounting principles consistently applied
are being maintained;
(iv) Easements, rights-of-way, restrictions and other similar charges or
encumbrances not interfering with the ordinary conduct of the business of the
Company or any of its Subsidiaries;
(v) Liens arising in connection with the financing of acquisitions of equipment,
inventory and other assets in connection with the Company's business; provided
such financings do not involve in excess of $50,000 in the aggregate at any one
time; or
(vi) Liens on properties or assets of a person existing at the time such person
becomes a Subsidiary or is combined or consolidated with or into the Company or
any Subsidiary, and not created in contemplation of such event.
For purposes of this Note, "Lien" means any mortgage, pledge, security
interest, encumbrance, lien, charge or deposit arrangement or other arrangement
having the practical effect of the foregoing and shall include the interest of a
vendor or lessor under any conditional sale agreement, capitalized lease or
other title retention agreement.
1. Defaults and Remedies.
(a) Events of Default. An "Event of Default" shall occur if:
the Company shall default in the payment of the principal of or interest
on this Note, when and as the same shall become due and payable, whether at
maturity or by acceleration or otherwise;
- 3 -
<PAGE> 4
the Company shall default in the due observance or performance of any
other covenant, condition or agreement on the part of the Company to be observed
or performed pursuant to the terms hereof (other than those referred to in
clause (i) of this Section 5(a)), and such default shall continue for 30 days
after the earlier of (A) the date the Company has knowledge of such default or
(B) the date written notice thereof, specifying such default and, if such
default is capable of being remedied, requesting that the same be remedied,
shall have been given to the Company by the Holder; or
an involuntary proceeding shall be commenced or an involuntary petition
shall be filed in a court of competent jurisdiction seeking (A) relief in
respect of the Company or any of its subsidiaries, or of a substantial part of
its property or assets, under applicable insolvency law in any State or under
Title 11 of the United States Code, as now constituted or hereafter amended, or
any other bankruptcy, insolvency, receivership or similar law, (B) the
appointment of a receiver, trustee, custodian, sequestrator, conservator or
similar official for the Company or any of its subsidiaries, or for a
substantial part of its property or assets, or (C) the winding up or liquidation
of the Company or any of its subsidiaries; and such proceeding or petition shall
continue undismissed for 30 days, or an order or decree approving or ordering
any of the foregoing shall be entered;
the Company or any of its subsidiaries shall (A) voluntarily commence
any proceeding or file any petition seeking relief under applicable insolvency
law in any State or Title 11 of the United States Code, as now constituted or
hereafter amended, or any other bankruptcy, insolvency, receivership or similar
law, (B) consent to the institution of, or fail to contest in a timely and
appropriate manner, any proceeding or the filing of any petition described in
paragraph (v) of this Section 5(a), (C) apply for or consent to the appointment
of a receiver, trustee, custodian, sequestrator, conservator or similar official
for the Company or any subsidiary, or for a substantial part of its property or
assets, (D) file an answer admitting the material allegations of a petition
filed against it in any such proceeding, (E) make a general assignment for the
benefit of creditors, (F) become unable, admit in writing its inability or fail
generally to pay its debts as they become due or (G) take any action for the
purpose of effecting any of the foregoing; or
the occurrence of any event or the existence of any condition that
results in the acceleration of the maturity of any indebtedness of the Company
for borrowed money, the principal of which indebtedness equals or exceeds
$100,000 or, by reason of the expiration of any applicable grace period or
otherwise, then enables the holder of such indebtedness or any person acting on
such holder's behalf to accelerate the maturity thereof.
(a) Acceleration. If an Event of Default occurs under Section 5(a), then the
outstanding principal of and all accrued interest on this Note shall
automatically become immediately due and payable, without presentment, demand,
protest or notice of any kind, all of which are expressly waived.
2. Suit for Enforcement.
(a) Upon the occurrence of any Event of Default, the Holder may proceed to
protect and enforce its rights by suit in equity, action at law or by other
appropriate proceeding, whether for the specific performance of any covenant or
agreement contained in this Note or in
- 4 -
<PAGE> 5
aid of the exercise of any power granted in this Note, or may proceed to enforce
the payment of this Note, or to enforce any other legal or equitable right of
the Holder.
(b) The Holder may direct the time, method and place of conducting any
proceeding for any remedy available to itself.
(c) In case of any default under this Note, the Company will pay to the Holder
such amount as shall be sufficient to cover the costs and expenses of such
Holder due to such default, including, without limitation, costs of collection
and reasonable fees, disbursements and other charges of counsel.
3. Remedies Cumulative. No remedy herein conferred upon the Holder is intended
to be exclusive of any other remedy and each and every such remedy shall be
cumulative and shall be in addition to every other remedy given hereunder or now
or hereafter existing at law or in equity or by statute or otherwise. To the
extent permitted by applicable law, the Company and the Holder severally waive
presentment for payment, demand, protest and notice of dishonor.
4. Holder; Transfer.
(a) The term "Holder" as used herein shall also include any Permitted Transferee
(as hereinafter defined) of this Note whose name has been recorded by the
Company in the register referred to in Section 8(b). The Holder and each
Permitted Transferee of this Note acknowledges that this Note has not been
registered under the Securities Act, and may be transferred only upon receipt by
the Company of an opinion of counsel, which opinion shall be satisfactory in
form and substance to the Company, stating that this Note may be transferred
without registration under the Securities Act in reliance on an exemption
therefrom. As used herein, a "Permitted Transferee" of a Holder shall mean (i)
(A) any person, that directly or indirectly controls, is controlled by or is
under common control with the Holder or with the holder of any Similar Notes,
(B) the holder of any Similar Notes, (C) with respect to a Holder that is a
corporation, the stockholders of such corporation, (D) with respect to a Holder
that is a limited partnership, the general or limited partners of such
partnership and (E) with respect to a Holder that is a limited liability
company, the members thereof.
(b) The Company shall maintain a register in its office for the purpose of
registering the Note and any transfer thereof, which register shall reflect and
identify, at all times, the ownership of any interest in the Note. Upon the
issuance of this Note, the Company shall record the name of the initial
purchaser of this Note in such register as the first Holder. Thereafter, the
Company shall duly record the name of a transferee on such register promptly
after receipt of notice of a transfer and of the opinion referred to in Section
8(a) above.
5. Definitions.
6. As used herein, unless the context otherwise requires, the following terms
have the following respective meanings:
7. Company: the meaning specified on the cover of this Note.
- 5 -
<PAGE> 6
8. Event of Default: the meaning specified in Section 5(a).
9. Holder: the holder or holders of this Note.
10. Lien: the meaning specified in Section 4(g).
11. Securities Act: the Securities Act of 1933, as amended, or any successor
Federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time. Reference to a particular section of
the Securities Act, shall include a reference to the comparable section, if any,
of any such successor Federal statute.
12. Similar Notes: any 12.0% Convertible Promissory Note (other than this Note)
of like tenor to this Note and issued on or about the date of this Note.
13. Subsidiary: any corporation or association (a) more than 50% (by number of
votes) owned by the Company by one or more of its Subsidiaries, or any other
business entity in which the Company or one or more of its Subsidiaries owns
more than a 50% interest in either the capital or profits of such business
entity, or (b) whose net earnings or portions thereof are consolidated with the
net earnings of the Company and are recorded in the books of the Company for
financial reporting purposes in accordance with generally accepted accounting
principles.
14. References in this Note to Sections and Schedules are to the Sections of and
Schedules to this Note.
15. Amendment: Waivers.
(a) No failure or delay on the part of the Holder in exercising any right, power
or remedy hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy.
The remedies provided for herein are cumulative and are not exclusive of any
remedies that may be available to the Company or the Holder at law, in equity or
otherwise.
(b) Any amendment, supplement or modification of or to any provision of this
Note, any waiver of any provision of this Note and any consent to any departure
by the Company from the terms of any provision of this Note, shall be effective
(i) only if it is made or given in writing and signed by the Company and the
Holder and (ii) only in the specific instance and for the specific purpose for
which made or given.
16. Payments. If the date on which any payment hereunder is required to be made
occurs on a Saturday, Sunday or legal holiday observed in the State of New York,
such payments shall be due and payable on the immediately succeeding date which
is not a Saturday, Sunday or legal holiday so observed.
17. Governing Law. This Note shall be governed by and construed in accordance
with the laws of the State of New York applicable to instruments made, delivered
and to be paid therein by a resident thereof.
- 6 -
<PAGE> 7
18. Consent to Jurisdiction. The Company hereby irrevocably consents to the
nonexclusive jurisdiction of the courts of the State of New York and of any
federal court located in such State in connection with any action or proceeding
arising out of or relating to this Note.
19. Severability. If any one or more of the provisions contained herein, or the
application thereof in any circumstance, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provisions hereof shall not be in any way impaired,
unless the provisions held invalid, illegal or unenforceable shall substantially
impair the benefits of the remaining provisions hereof.
BIKERS DREAM, INC.
By
--------------------------------------
Name:
Title:
- 7 -
<PAGE> 1
EXHIBIT 10.28
THIS NOTE AND ANY SECURITIES ACQUIRED UPON THE CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES AND MAY
NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR
PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH
ACT AND SUCH LAWS. THIS NOTE IS ALSO SUBJECT TO RESTRICTIONS ON TRANSFER AS SET
FORTH HEREIN.
BIKERS DREAM, INC.
12.0% CONVERTIBLE PROMISSORY NOTE
$500,000 New York, New York
February 18, 1998
FOR VALUE RECEIVED, the undersigned, BIKERS DREAM, INC., a California
corporation (the "Company"), promises to pay to the order of MD Strategic LP, or
its registered assigns (the "Holder"), the principal aggregate sum of Five
Hundred Thousand Dollars ($500,000), with interest from the date hereof at the
rate of 12.0% per annum on such principal amount, on the date (subject to
extension as hereinafter provided, the "Maturity Date") 60 days after the date
hereof, unless earlier converted into shares of the Company's Securities (as
defined below). The Maturity Date may be extended for up to 60 additional days
by the Holder in its sole discretion by giving written notice of such extension
to the Company.
1. General.
Unless earlier deemed to have been converted, the principal of this Note
shall be payable in one installment, together with any accrued interest, on the
Maturity Date. Interest shall be computed on the basis of a 360-day year of 12
30-day months.
Subject to applicable law, upon and during the occurrence of an Event of
Default, this Note shall bear interest, from the date of the occurrence of such
Event of Default until such Event of Default is cured or waived or the entire
principal amount hereof paid in full, payable on demand (but not less frequently
than monthly) in immediately available funds, at a rate equal to 18% per annum.
1. Conversion Rights. Commencing as of such time as the Company closes its next
succeeding round of equity or debt financing with aggregate gross proceeds of
not less than $2,000,000 (the "Financing"), the Holder shall have the right,
exercisable by giving written notice of such exercise to the Company at any time
prior to the payment in full of this Note in accordance with Section 1 above, to
convert the entire principal amount of this Note (or any
<PAGE> 2
portion thereof) plus all accrued interest thereon into the securities of the
Company ("Company Securities") issued in such Financing, at a price per share or
other unit equal to that of all other shares or units of Company Securities
issued in such Financing. In addition, following such conversion, the Holder
shall be entitled to registration rights equivalent to those afforded the other
investors in the Financing, on the same terms and conditions as are applicable
to such other investors, and the Company shall execute such documents or
instruments as may be necessary or appropriate to give effect to such rights
(provided, however, that the Company's failure to execute any such documents or
instruments shall not be deemed to alter or impair any such rights).
2. No Prepayment; Notice of Payment. This Note may not be prepaid by the Company
prior to the Maturity Date. Following the Maturity Date, the Company will give
the Holder at least 10 business days' written notice of its intention to pay
this Note, in order to permit the Holder to exercise its conversion rights under
Section 2 hereof.
3. Covenants. The Company covenants and agrees that, until this Note (including
any accrued and unpaid interest) is paid in full or converted as set forth
above:
(a) The Company shall preserve and maintain its corporate existence and, in the
aggregate, its rights and franchises.
(b) The Company shall comply, in all material respects, with all applicable
laws, rules, regulations and orders.
(c) The Company shall pay promptly when due (i) all taxes, assessments and
governmental charges imposed upon it or upon its property, and (ii) all claims
(including, without limitation, claims for labor, materials, supplies or
services) which might, if unpaid, become a Lien (as hereinafter defined) upon
its property, unless, in each case, the validity or amount thereof is being
contested in good faith by appropriate proceedings and the Company has
maintained adequate reserves in accordance with generally accepted accounting
principles consistently applied with respect thereto.
(d) The Company shall permit any representative of the Holder to visit and
inspect any property of the Company and its subsidiaries and to examine books
and records of the Company and its subsidiaries and to make copies and take
extracts therefrom, and to discuss the affairs, finances and accounts of the
Company and its subsidiaries with officers of the Company, all during reasonable
business hours, upon reasonable notice and as often as the Holder may reasonably
request, subject, in the case of any proprietary or confidential material, to
appropriate measures to ensure the confidentiality thereof.
(e) The Company shall maintain and keep, or cause to be maintained and kept, its
properties in all material respects in good repair, working order and condition,
and from time to time make or cause to be made all necessary repairs, renewals,
replacements and improvements so that the business carried on in connection
therewith may be properly and advantageously conducted at all times. The Company
shall conduct continuously and operate actively its business according to good
business practices.
- 2 -
<PAGE> 3
(f) The Company shall not merge into or consolidate with any other person, or
sell, lease or otherwise dispose of all or any substantial part of its property
or assets to any other person, other than a merger of any of the Subsidiaries
into the Company or any other subsidiary of the Company or a sale, lease or
other disposition of all or any substantial part of the property or assets by
any Subsidiaries to the Company or any other Subsidiary.
(g) The Company shall not create, incur, assume or suffer to exist, any Lien on
any of its property now owned or hereafter acquired to secure any indebtedness,
other than:
(i) Liens existing on the date hereof;
(ii) Liens for taxes not yet due or which are being contested in good faith by
appropriate acts and with respect to which adequate reserves in accordance with
generally accepted accounting principles consistently applied are being
maintained;
(iii) Statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, materialmen and other Liens imposed by law created in the ordinary
course of business for amounts not yet due or which are being contested in good
faith by appropriate acts and with respect to which adequate reserves in
accordance with generally accepted accounting principles consistently applied
are being maintained;
(iv) Easements, rights-of-way, restrictions and other similar charges or
encumbrances not interfering with the ordinary conduct of the business of the
Company or any of its Subsidiaries;
(v) Liens arising in connection with the financing of acquisitions of equipment,
inventory and other assets in connection with the Company's business; provided
such financings do not involve in excess of $50,000 in the aggregate at any one
time; or
(vi) Liens on properties or assets of a person existing at the time such person
becomes a Subsidiary or is combined or consolidated with or into the Company or
any Subsidiary, and not created in contemplation of such event.
For purposes of this Note, "Lien" means any mortgage, pledge, security
interest, encumbrance, lien, charge or deposit arrangement or other arrangement
having the practical effect of the foregoing and shall include the interest of a
vendor or lessor under any conditional sale agreement, capitalized lease or
other title retention agreement.
1. Defaults and Remedies.
(a) Events of Default. An "Event of Default" shall occur if:
the Company shall default in the payment of the principal of or interest
on this Note, when and as the same shall become due and payable, whether at
maturity or by acceleration or otherwise;
- 3 -
<PAGE> 4
the Company shall default in the due observance or performance of any
other covenant, condition or agreement on the part of the Company to be observed
or performed pursuant to the terms hereof (other than those referred to in
clause (i) of this Section 5(a)), and such default shall continue for 30 days
after the earlier of (A) the date the Company has knowledge of such default or
(B) the date written notice thereof, specifying such default and, if such
default is capable of being remedied, requesting that the same be remedied,
shall have been given to the Company by the Holder; or
an involuntary proceeding shall be commenced or an involuntary petition
shall be filed in a court of competent jurisdiction seeking (A) relief in
respect of the Company or any of its subsidiaries, or of a substantial part of
its property or assets, under applicable insolvency law in any State or under
Title 11 of the United States Code, as now constituted or hereafter amended, or
any other bankruptcy, insolvency, receivership or similar law, (B) the
appointment of a receiver, trustee, custodian, sequestrator, conservator or
similar official for the Company or any of its subsidiaries, or for a
substantial part of its property or assets, or (C) the winding up or liquidation
of the Company or any of its subsidiaries; and such proceeding or petition shall
continue undismissed for 30 days, or an order or decree approving or ordering
any of the foregoing shall be entered;
the Company or any of its subsidiaries shall (A) voluntarily commence
any proceeding or file any petition seeking relief under applicable insolvency
law in any State or Title 11 of the United States Code, as now constituted or
hereafter amended, or any other bankruptcy, insolvency, receivership or similar
law, (B) consent to the institution of, or fail to contest in a timely and
appropriate manner, any proceeding or the filing of any petition described in
paragraph (v) of this Section 5(a), (C) apply for or consent to the appointment
of a receiver, trustee, custodian, sequestrator, conservator or similar official
for the Company or any subsidiary, or for a substantial part of its property or
assets, (D) file an answer admitting the material allegations of a petition
filed against it in any such proceeding, (E) make a general assignment for the
benefit of creditors, (F) become unable, admit in writing its inability or fail
generally to pay its debts as they become due or (G) take any action for the
purpose of effecting any of the foregoing; or
the occurrence of any event or the existence of any condition that
results in the acceleration of the maturity of any indebtedness of the Company
for borrowed money, the principal of which indebtedness equals or exceeds
$100,000 or, by reason of the expiration of any applicable grace period or
otherwise, then enables the holder of such indebtedness or any person acting on
such holder's behalf to accelerate the maturity thereof.
(a) Acceleration. If an Event of Default occurs under Section 5(a), then the
outstanding principal of and all accrued interest on this Note shall
automatically become immediately due and payable, without presentment, demand,
protest or notice of any kind, all of which are expressly waived.
2. Suit for Enforcement.
(a) Upon the occurrence of any Event of Default, the Holder may proceed to
protect and enforce its rights by suit in equity, action at law or by other
appropriate proceeding, whether for the specific performance of any covenant or
agreement contained in this Note or in
- 4 -
<PAGE> 5
aid of the exercise of any power granted in this Note, or may proceed to enforce
the payment of this Note, or to enforce any other legal or equitable right of
the Holder.
(b) The Holder may direct the time, method and place of conducting any
proceeding for any remedy available to itself.
(c) In case of any default under this Note, the Company will pay to the Holder
such amount as shall be sufficient to cover the costs and expenses of such
Holder due to such default, including, without limitation, costs of collection
and reasonable fees, disbursements and other charges of counsel.
3. Remedies Cumulative. No remedy herein conferred upon the Holder is intended
to be exclusive of any other remedy and each and every such remedy shall be
cumulative and shall be in addition to every other remedy given hereunder or now
or hereafter existing at law or in equity or by statute or otherwise. To the
extent permitted by applicable law, the Company and the Holder severally waive
presentment for payment, demand, protest and notice of dishonor.
4. Holder; Transfer.
(a) The term "Holder" as used herein shall also include any Permitted Transferee
(as hereinafter defined) of this Note whose name has been recorded by the
Company in the register referred to in Section 8(b). The Holder and each
Permitted Transferee of this Note acknowledges that this Note has not been
registered under the Securities Act, and may be transferred only upon receipt by
the Company of an opinion of counsel, which opinion shall be satisfactory in
form and substance to the Company, stating that this Note may be transferred
without registration under the Securities Act in reliance on an exemption
therefrom. As used herein, a "Permitted Transferee" of a Holder shall mean (i)
(A) any person, that directly or indirectly controls, is controlled by or is
under common control with the Holder or with the holder of any Similar Notes,
(B) the holder of any Similar Notes, (C) with respect to a Holder that is a
corporation, the stockholders of such corporation, (D) with respect to a Holder
that is a limited partnership, the general or limited partners of such
partnership and (E) with respect to a Holder that is a limited liability
company, the members thereof.
(b) The Company shall maintain a register in its office for the purpose of
registering the Note and any transfer thereof, which register shall reflect and
identify, at all times, the ownership of any interest in the Note. Upon the
issuance of this Note, the Company shall record the name of the initial
purchaser of this Note in such register as the first Holder. Thereafter, the
Company shall duly record the name of a transferee on such register promptly
after receipt of notice of a transfer and of the opinion referred to in Section
8(a) above.
5. Definitions.
6. As used herein, unless the context otherwise requires, the following terms
have the following respective meanings:
7. Company: the meaning specified on the cover of this Note.
- 5 -
<PAGE> 6
8. Event of Default: the meaning specified in Section 5(a).
9. Holder: the holder or holders of this Note.
10. Lien: the meaning specified in Section 4(g).
11. Securities Act: the Securities Act of 1933, as amended, or any successor
Federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time. Reference to a particular section of
the Securities Act, shall include a reference to the comparable section, if any,
of any such successor Federal statute.
12. Similar Notes: any 12.0% Convertible Promissory Note (other than this Note)
of like tenor to this Note and issued on or about the date of this Note.
13. Subsidiary: any corporation or association (a) more than 50% (by number of
votes) owned by the Company by one or more of its Subsidiaries, or any other
business entity in which the Company or one or more of its Subsidiaries owns
more than a 50% interest in either the capital or profits of such business
entity, or (b) whose net earnings or portions thereof are consolidated with the
net earnings of the Company and are recorded in the books of the Company for
financial reporting purposes in accordance with generally accepted accounting
principles.
14. References in this Note to Sections and Schedules are to the Sections of and
Schedules to this Note.
15. Amendment: Waivers.
(a) No failure or delay on the part of the Holder in exercising any right, power
or remedy hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy.
The remedies provided for herein are cumulative and are not exclusive of any
remedies that may be available to the Company or the Holder at law, in equity or
otherwise.
(b) Any amendment, supplement or modification of or to any provision of this
Note, any waiver of any provision of this Note and any consent to any departure
by the Company from the terms of any provision of this Note, shall be effective
(i) only if it is made or given in writing and signed by the Company and the
Holder and (ii) only in the specific instance and for the specific purpose for
which made or given.
16. Payments. If the date on which any payment hereunder is required to be made
occurs on a Saturday, Sunday or legal holiday observed in the State of New York,
such payments shall be due and payable on the immediately succeeding date which
is not a Saturday, Sunday or legal holiday so observed.
17. Governing Law. This Note shall be governed by and construed in accordance
with the laws of the State of New York applicable to instruments made, delivered
and to be paid therein by a resident thereof.
- 6 -
<PAGE> 7
18. Consent to Jurisdiction. The Company hereby irrevocably consents to the
nonexclusive jurisdiction of the courts of the State of New York and of any
federal court located in such State in connection with any action or proceeding
arising out of or relating to this Note.
19. Severability. If any one or more of the provisions contained herein, or the
application thereof in any circumstance, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provisions hereof shall not be in any way impaired,
unless the provisions held invalid, illegal or unenforceable shall substantially
impair the benefits of the remaining provisions hereof.
BIKERS DREAM, INC.
By
-------------------------------------=
Name:
Title:
- 7 -
<PAGE> 1
EXHIBIT 10.29
NON-NEGOTIABLE PROMISSORY NOTE
$300,000 October 13, 1998
FOR VALUE RECEIVED, Bikers Dream, Inc. (the "Company"), hereby promises
to pay MD Strategic LP (the "Payee") at 237 Park Avenue, New York, New York
10017 (or at such other address as the Payee may notify the Company from time to
time), the principal sum of Three Hundred Thousand Dollars ($300,000) as the
outstanding principal amount hereof, whichever is less, in lawful money of the
United States of America and in immediately available funds, without set-off,
counterclaim or deduction of any kind, on November 12, 1998, and to pay interest
on the unpaid principal amount of this Note for the period commencing on the
date of this Note until this Note shall be paid in full at a rate equal to 18.0%
per annum. Principal and accrued interest on this Note shall be payable by
November 12, 1998 or next financing whichever event occurs first.
This Note shall have the following terms and conditions:
1. 4 points will be paid on the principal amount of this loan on
closing.
2. This Note may be extended with the option of the Payee.
3. Meyer, Duffy & Associates outstanding consulting bills through
October, 1998 will be brought current on closing of this loan.
4. This Note may be prepaid, in whole or in part, prior to the
Maturity Date. The indebtedness evidenced by this Note shall be
secured by all assets of the Company.
5. An "Event of Default" shall occur if one or more of the
following events shall occur and be continuing: (A) the Company
shall fail to pay the principal of the Note when due; (B) the
Company shall default in any material respect under the
Agreement, which default remains uncured 15 days after written
notice thereof from the holder hereof to the Company, (C) the
Company shall fail to pay any interest or any other amount
payable by it under this Note and such failure shall not be
fully remedied within ten days after the date when such amount
was due, (D) the Company shall (i) apply for or consent to the
appointment of, or taking possession by, a receiver, custodian,
trustee or liquidation of itself or of all or a substantial part
of its property, (ii) make a general assignment for the benefit
of its
<PAGE> 2
creditors, (iii) commence a voluntary case under any relevant
bankruptcy code or similar law relating to bankruptcy,
insolvency, reorganization, winding-up, or composition or
readjustment of debts, (iv) fail to controvert in a timely and
appropriate manner, or acquiesce in writing to, any petition
filed against it in an involuntary case under any relevant
bankruptcy code or similar law (as now or hereafter in effect),
or (v) admit in writing its inability to pay its debt generally
as they become due, or (vi) take any action for the purpose of
effecting any of the foregoing; or (E) a proceeding or case
shall be commenced, without the application or consent of the
Company, in any court of competent jurisdiction, seeking (i) its
liquidation, reorganization, dissolution or winding-up, or the
composition or readjustment of its debts, (ii) the appointment
of a trustee, receiver, custodian, liquidator or the like of the
Company or all or any substantial parts of its assets, or (iii)
similar relief in respect of the Company under any law relating
to bankruptcy, insolvency, reorganization, winding-up, or
composition or adjustment of debts, and such proceeding or case
shall continue undismissed, or an order, judgment or decree
approving or ordering any of the foregoing shall be entered and
continue unstayed and in effect, for a period of 60 days; or an
order for relief against the Company shall be entered in an
involuntary case under any relevant bankruptcy code or similar
law (as now or hereafter in effect).
6. THEREUPON, (1) in the case of an Event of Default other than one
referred to in clause (D) or (E) of the immediately preceding
paragraph, the Payee, by written notice to the Company, may
declare the principal amount then outstanding of and the accrued
interest on the Note and all other amounts payable by the
Company hereunder to be forthwith due and payable, whereupon
such amounts shall be immediately due and payable without
presentment, demand, protest or other formalities of any kind
(other than the notice expressly provided for above in the
subclause (1), all of which are hereby expressly waived by the
Company; and (2) in the case of an Event of Default referred to
in clause (D) or (E) of the immediately preceding paragraph, the
principal amount then outstanding of, and the accrued interest
on, the Note and all other amounts payable by the Company
hereunder shall become automatically immediately due and payable
without presentment, demand, protest or other formalities of any
kind, all of which are hereby expressly waived by the Company.
7. The Company agrees to pay all costs of collection and
enforcement of this Note.
8. This Note may be negotiated, assigned or transferred without the
consent of the Company.
2
<PAGE> 3
9. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
BIKERS DREAM, INC.
By: /s/ Herm Rosenman
-------------------------------------
Herm Rosenman
Chief Executive Officer
3
<PAGE> 1
EXHIBIT 10.30
CONSULTING AGREEMENT
The Consulting Agreement ("Agreement") is entered into this 1st day of April,
1998 and sets forth the understanding which has been reached between Meyer,
Duffy & Associates (the "Consultant") and Bikers Dream, Inc. (the "Company")
concerning certain consulting services.
I. PURPOSE: The Company hereby engages the Consultant for a minimum
two year term, effective 4/1/98, to render consulting advice to
the Company.
II. DUTIES OF THE CONSULTANT: During the term of the Agreement, the
Consultant shall use its best efforts to provide the Company
with such regular and customary management consulting as is
reasonably requested by the Company consistent with the
foregoing.
A. The Consultant's duties will include:
1. Assisting the Company in its efforts to raise
capital, formulating structures, introductions
to investment bankers, and negotiating deal
terms.
2. Providing industry research on the overall
motorcycle industry.
3. Such other capacity as reasonably requested by
the Company.
III. COMPENSATION AND TERMS: In consideration for the services
rendered by the Consultant to the Company pursuant to this
Agreement, the Company shall compensate the Consultant as
follows:
A. $4,900 per month for 2 years.
B. 25,000 warrants exercisable @ $4.00.
IV. THE CONSULTANTS SERVICES TO OTHERS: The Company acknowledges that
the Consultant and its affiliates are in the business of providing financial
services and consulting advice to others. Nothing herein shall be construed to
limit or restrict the Consultant in conducting such business with respect to
others, or in rendering such advice to others.
V. INDEMNIFICATION: The Company shall indemnify and hold Consultant
harmless to the fullest extent usual and customary in relationships of this
nature.
<PAGE> 2
VI. THE CONSULTANT AS INDEPENDENT CONTRACTOR: The Consultant shall
perform its services under the Agreement as an independent contractor and not as
an employee of the Company or an affiliate thereof.
VII. APPLICABLE LAW: The Agreement will be governed by and construed
under the laws of the state of New York.
The undersigned concur with the matters set forth in the foregoing
Agreement.
MEYER, DUFFY & ASSOCIATES
By: /s/ Eric Meyer
-------------------------------------
Eric Meyer
BIKERS DREAM, INC.
By: /s/ Herm Rosenman
-------------------------------------
Herm Rosenman
2
<PAGE> 1
EXHIBIT 10.31
LOAN AGREEMENT
BETWEEN
SIRROM CAPITAL CORPORATION
d/b/a
TANDEM CAPITAL
AND
BIKERS DREAM, INC.,
ULTRA ACQUISITION CORPORATION
AS BORROWERS
JUNE 22, 1998
<PAGE> 2
LOAN AGREEMENT
This LOAN AGREEMENT (the "Agreement ") entered into the 22nd day of June,
1998, by and between BIKERS DREAM, INC., a California corporation (the
"Company"), ULTRA ACQUISITION CORPORATION, a Nevada corporation (a "Co-Maker"),
and SIRROM CAPITAL CORPORATION d/b/a TANDEM CAPITAL, a Tennessee corporation
(the "Purchaser").
W I T N E S S E T H:
WHEREAS, the Company and each Co-Maker (each a "Borrower" and collectively
the "Borrowers") desires to obtain additional capital to refinance current
indebtedness outstanding to the Purchaser and for use in connection with its
business through the issue and sale of certain securities, and Purchaser is
willing to purchase such obligations from the Company and each Co- Maker, on the
terms and conditions set forth herein. Capitalized terms shall have the meanings
assigned by Section 11 unless otherwise defined herein.
NOW, THEREFORE, in mutual consideration of the premises and the respective
representations, warranties, covenants and agreements contained herein, the
parties agree as follows:
1. The Loan.
1.1 The Note. The Loan shall be evidenced by a Secured Promissory
Note or Notes of the Borrowers in favor of the Purchaser in the original
aggregate principal amount of Four Million Five Hundred Thousand Dollars
($4,500,000.00), to be dated the Closing Date, to bear interest from such date
at the rate of 12.00% per annum, payable quarterly by automatic debit on the
first day of each March, June, September and December in each year, commencing
September 1, 1998, and at maturity, to mature on June 22, 2001, and to bear such
other terms as are set forth in the form attached hereto as Exhibit A-l.
Interest on the Notes shall be computed on the basis of a 360-day year of twelve
30-day months. The Borrowers may prepay the indebtedness evidenced by the Notes
without premium or penalty and as provided by Section 1.2. The term "Note" and
"Notes" as used herein includes the Note in the form of Exhibit A-1 and any
other Note delivered pursuant to this Agreement.
1.2 Optional Prepayment.
(a) The Notes may be prepaid, at the Borrowers' option, in
whole at any time or in part from time to time, provided that in case of each
optional prepayment, the Company
<PAGE> 3
shall give written notice (the "Redemption Notice") to each holder of a Note to
be prepaid not less than 10 nor more than 20 Business Days prior to the date
fixed for such prepayment (the "Redemption Date"). The Redemption Notice shall
specify the Redemption Date, the aggregate principal amount of the Notes to be
prepaid on the Redemption Date, the principal amount of Notes held by such
holder to be prepaid on such date, and the Redemption Price, which shall be
equal to the sum of (A) the aggregate principal amount of the Notes called for
prepayment, plus (B) all accrued but unpaid interest on such Notes, plus (C)
interest on (i) any principal payment not paid when due, and (ii) any accrued
but unpaid interest not paid when due, at an annual rate of 19% (or, if less,
the maximum rate permitted by applicable law), plus (D) any expenses or costs of
collection to which the holder of the Notes is entitled pursuant to the Notes.
After the Redemption Notice is mailed, Notes called for prepayment shall become
due and payable on the Redemption Date at the Redemption Price.
(b) Neither the Borrowers nor any Affiliate of any Borrower,
directly or indirectly, may repurchase or make any offer to repurchase any Notes
unless the offer has been made to repurchase Notes, pro rata, from all holders
of the Notes at the same time and upon the same terms. If any Notes are
repurchased or otherwise acquired by the Borrowers or any Affiliate of any
Borrower, such Notes shall be deemed to be no longer outstanding for purposes of
any provisions of this Agreement.
1.3 Warrants. In consideration of the Purchaser's purchase of the
Notes, the Company shall grant to Purchaser the following Warrants.
(a) Initial Warrants. At the Closing, the Company shall grant,
issue, and deliver to Purchaser a Stock Purchase Warrant, dated the Closing
Date, in the form attached hereto as Exhibit A-2 (the "Initial Warrant"),
entitling Purchaser to purchase up to 370,000 Shares of the Company's Common
Stock at an initial Exercise Price of $4.0625 per Share, at any time and from
time to time during the five year period beginning on the Closing Date. The
Exercise Price of the Initial Warrants shall automatically be reset on the first
anniversary of the Closing Date at the lesser of (i) $4.0625, or (ii) the
average closing bid price of the Company's Common Stock for the 20 trading days
immediately preceding such anniversary, provided that no adjustment shall be
made which increases the then effective Exercise Price.
(b) Contingent Warrants. Until the indebtedness evidenced by
the Notes has been paid in full, on the anniversary of the Closing Date of each
year beginning on the anniversary of the Closing Date, in the year 1999, the
Company shall grant, issue, and deliver to Purchaser additional Stock Purchase
Warrants, in the form of Exhibit A-3 (the "Contingent Warrants"), each entitling
Purchaser to purchase up to 200,000 Shares of Common Stock at an initial
Exercise Price equal to the greater of (i) $4.00, or (ii) 80% of the average
closing bid price of the Company's Common Stock for the 20 trading days
preceding such anniversary date, at any
2
<PAGE> 4
time and from time to time during the five year period beginning on the date of
issue of such Contingent Warrant.
1.4 Commitment; Closing Date. Subject to the terms and conditions
hereof and on the basis of the representations and warranties hereinafter set
forth, the Borrowers agree to issue and sell to Purchaser, and Purchaser agrees
to purchase from the Borrowers, Notes (the "Notes") in the aggregate principal
amount of Four Million Five Hundred Thousand Dollars ($4,500,000.00) at a
purchase price equal to 100% of the principal amount thereof, at the Closing.
Delivery of the Notes (the "Closing") shall be made at the offices of Tandem
Capital, Inc., Nashville, Tennessee, against payment therefor by federal funds
wire transfer in immediately available funds and to the accounts and in the
amounts set forth in the Borrowers' wire instructions in the form of Exhibit B
hereto, at 10:00 A.M., Nashville time, on June 22, 1998, or such later date as
the Borrowers and Purchaser shall agree (the "Closing Date"). The Notes
delivered to Purchaser on the Closing Date shall be delivered to Purchaser in
the form of a single Note for the full amount of such purchase price (unless
different denominations are specified by Purchaser), registered on the books of
the Borrowers in Purchaser's name or in the name of such nominee as Purchaser
may specify and, with appropriate insertions, in the form attached hereto as
Exhibit A-1, all as Purchaser may specify at least 24 hours prior to the date
fixed for delivery.
1.5 Processing Fee. The Borrowers shall pay to Purchaser on or
before the Closing Date a processing fee of $52,500.00.
2. Representations and Warranties of the Borrowers. Each of the Borrowers
hereby represents and warrants to Purchaser as follows:
2.1 Corporate Status.
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of California, and has
the corporate power to own and operate its properties, to carry on its business
as now conducted and to enter into and to perform its obligations under this
Agreement, the Notes, the Registration Rights Agreement, and any other document
executed and delivered by the Borrowers in connection herewith or therewith
(collectively, the "Operative Documents"). The Company is qualified to do
business and is in good standing in each state or other jurisdiction in which
such qualification is necessary under applicable law, except where the failure
to so qualify would not have a Material Adverse Effect. Each Co-Maker is duly
organized, validly existing and in good standing under the laws of the state of
its organization, and has the corporate power to own and operate its properties,
to carry on its business as now conducted and to enter into and to perform its
obligations under the Operative Documents. Each Co-Maker is qualified to do
business and is in good standing in each state or other jurisdiction in which
such qualification is necessary under applicable law, except where the failure
to so qualify would not have a Material Adverse Effect.
3
<PAGE> 5
(b) Schedule 2.1(b) sets forth a complete list of each (i)
Subsidiary, and (ii) corporation, partnership, joint venture, limited liability
company or other business organization which is an Affiliate of the Company, in
which any Borrower owns, directly or indirectly, any capital stock or other
equity interest in excess of $1,000, which list shows the jurisdiction of
incorporation or other organization and the percentage of stock or other equity
interest of each such entity owned by the Company. Each such entity is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of incorporation or other organization as indicated on Schedule
2.1(b), each has all requisite power and authority and holds all material
licenses, permits and other required authorizations from government authorities
necessary to own its properties and assets and to conduct its business as now
being conducted, and each is qualified to do business and is in good standing in
every jurisdiction in which such qualification is necessary under applicable
law, except where the failure to so qualify would not have a Material Adverse
Effect. Except as set forth on Schedule 2.1(b), all of the outstanding shares of
capital stock, or other equity interest, of each such entity owned, directly or
indirectly, by any Borrower have been validly issued, are fully paid and
nonassessable, and are owned by the Borrower free and clear of all liens,
charges, security interests, or encumbrances.
2.2 Capitalization.
(a) The authorized capital stock of the Company consists of
(i) 10,000,000 shares of Preferred Stock, no par value, of which three shares of
Series A Preferred Stock, 943,463 shares of Series B Preferred Stock, and 155
shares of Series C Preferred Stock are issued and outstanding as of the date
hereof, and (ii) 25,000,000 shares of Common Stock, no par value, 2,814,107 of
which were issued and outstanding as of the date hereof. All shares of Common
Stock outstanding have been validly issued and are fully paid and nonassessable.
Except as set forth on Schedule 2.2(a), there are no statutory or contractual
preemptive rights, rights of first refusal, antidilution rights, or any similar
rights held by any party with respect to the issuance of the Notes.
(b) The Company has not granted, or agreed to grant or issue,
any options, warrants or rights to purchase or acquire from the Company any
shares of capital stock of the Company, there are no securities outstanding or
committed to be issued by the Company or any Subsidiary which are convertible
into or exchangeable for any shares of capital stock or other securities of the
Company, and there are no contracts, commitments, agreements, understandings,
arrangements or restrictions as to which the Company is a party, or by which it
is bound, relating to any shares of capital stock or other securities of the
Company, whether or not outstanding except for (i) the Notes and Warrants to be
issued pursuant to this Agreement, and (ii) such options, warrants and other
rights to acquire capital stock of the Company set forth on Schedule 2.2(b).
Except as set forth on Schedule 2.2(b), all such shares have been duly reserved
for issuance, have been duly and validly authorized, and upon issuance in
accordance
4
<PAGE> 6
with the terms of the respective instruments and receipt of payment therefor,
will be validly issued, fully paid, and nonassessable.
(c) The Common Stock issuable upon exercise of the Warrants
has been duly and validly reserved for issuance and, upon issuance in accordance
with, and upon receipt of the consideration required under, the terms of this
Agreement, the Notes, and the Warrants, will be duly and validly issued, fully
paid, and nonassessable and will be free of restrictions on transfer other than
restrictions under applicable state and federal securities laws.
2.3 Authorization. Except as set forth on Schedule 2.3, each of the
Borrowers has full legal right, power and authority to enter into and perform
its obligations under the Operative Documents without the consent or approval of
any other person, firm, governmental agency, or other legal entity, and any
required consents or approvals shall have been obtained prior to the Closing.
The execution and delivery of this Agreement, the issuance of the Notes
hereunder, the execution and delivery of each other document in connection
herewith or therewith to which any Borrower is a party, and the performance by
each Borrower of its obligations hereunder or thereunder, have been duly
authorized by all necessary corporate action properly taken, have received all
necessary governmental approvals, if any were required, and except as set forth
on Schedule 2.3 do not and will not contravene or conflict with (i) the articles
of incorporation or partnership or the bylaws or of any Borrower, (ii) any
material agreement to which any Borrower is a party or by which any of them or
any of their properties is bound, or constitute a default thereunder, or result
in the creation or imposition of any lien, charge, security interest, or
encumbrance of any nature upon any of the property or assets of any Borrower
pursuant to the terms of any such agreement or instrument, or (iii) violate any
provision of law or any applicable judgment, ordinance, regulation or order of
any court or governmental agency. The officer executing this Agreement, the
Notes, and any other document executed and delivered by any Borrower in
connection herewith or therewith, is duly authorized to act on behalf of such
Borrower.
2.4 Validity and Binding Effect. Each of the Operative Documents is
the legal, valid and binding obligation of the Borrowers, enforceable against
the Borrowers in accordance with its terms, subject to such limitations on
enforceability as may exist under equitable principles of law or the application
of bankruptcy or insolvency laws.
2.5 Contracts and Other Commitments. Other than as filed by the
Company with the Securities and Exchange Commission ("SEC") as an exhibit
pursuant to any of the SEC Reports (each such disclosed or filed agreement an
"Applicable Contract"), none of the Borrowers is bound by any material loans,
liens, pledges, security interests, agreements, indentures, or instruments
defining the rights of security holders under any securities or other financings
upon which any Borrower is obligated or by which any Borrower is bound.
5
<PAGE> 7
2.6 Litigation. Except as set forth on Schedule 2.6, there is no
litigation, arbitration, claim, proceeding or investigation pending or
threatened in writing to which any Borrower is a party or of which any of its
respective properties or assets is the subject which, if determined adversely to
the Borrower, would individually or in the aggregate have a Material Adverse
Effect.
2.7 Financial Statements. The consolidated financial statements of
the Company for the fiscal years ended December 31, 1997, December 31, 1996,
December 31, 1995; and the unaudited consolidated financial statements of the
Company and its Subsidiaries as of and for the five months ended May 31, 1998,
and the related notes, copies of which the Company previously has delivered to
Purchaser, fairly present the financial position, results of operations, cash
flows and changes in stockholders' equity of the Company, at the respective
dates of and for the periods to which they apply in such financial statements,
and have been prepared in accordance with generally accepted accounting
principles ("GAAP") consistently applied throughout the periods indicated,
subject, in the case of interim financial statements, to normal recurring
year-end adjustments (the effect of which will not, individually or in the
aggregate, be materially adverse) and the absence of notes (that, if presented,
would not differ materially from those included in the most recent audited
consolidated financial statements). No financial statements of any other
person(s) are required by GAAP to be included in the consolidated financial
statements of the Company.
2.8 SEC Reports. The Company's Common Stock is listed for trading on
the over the counter market and quoted on the National Association of Securities
Dealers Electronic Bulletin Board, and has been duly registered under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company
has filed all reports, registrations, proxy or information statements, and all
other documents, together with any amendments required to be made thereto,
required to be filed with the SEC under the Securities Act and the Exchange Act
(collectively, the "SEC Reports"). As of their respective dates, the SEC Reports
complied in all material respects with all rules and regulations promulgated by
the SEC and did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
2.9 Absence of Changes. Except as set forth on Schedule 2.9, since
December 31, 1997, (i) none of the Borrowers has incurred any liabilities or
obligations, direct or contingent, or entered into any transactions, not in the
ordinary course of business, that are material to the Company, (ii) none of the
Borrowers has purchased any of its outstanding capital stock or declared, or
paid any dividend or other distribution or payment in respect of its capital
stock, (iii) there has not been any material change in the authorized or issued
capital stock, long-term debt, or short-term debt of the Borrowers, and (iv)
there has not been any material
6
<PAGE> 8
adverse change in or affecting the business, operations, properties, assets, or
condition (financial or otherwise) of the Company.
2.10 No Defaults. Except as set forth on Schedule 2.10 and except
where a default or event of default does not constitute a Material Adverse
Event, no default or event of default by any Borrower exists under this
Agreement or any of the other Operative Documents, or under any Applicable
Contract, or other material instrument or agreement to which any Borrower is a
party or by which any Borrower or its respective properties are bound or, to the
knowledge of the Borrowers, affected, and to the knowledge of the Borrowers no
event has occurred and is continuing that with notice or the passage of time or
both would constitute a default or event of default thereunder.
2.11 Compliance With Law. The Borrowers are in compliance with all
foreign, federal, state or local laws, regulations, decrees and orders directly
applicable to them (including but not limited to the Foreign Corrupt Practices
Act, occupational and health standards and controls, antitrust, monopoly,
restraint of trade or unfair competition), except to the extent that
noncompliance, in the aggregate, does not constitute a Material Adverse Event.
2.12 Taxes. Except where failure to file would not constitute a
Material Adverse Event, the Borrowers have filed or caused to be filed all
federal, state and local income, excise and franchise tax returns for taxable
years ending during calendar years 1995, 1996, 1997, and 1998 required to be
filed (except for returns that have been appropriately extended), and have paid,
or provided for the payment of, all taxes shown to be due and payable on said
returns and all other taxes, impositions, assessments, fees or other charges
imposed on them by any governmental authority, agency or instrumentality, prior
to any delinquency with respect thereto (other than taxes, impositions,
assessments, fees and charges currently being contested in good faith by
appropriate proceedings, for which amounts have been reserved in accordance with
GAAP), and the Borrowers do not know of any proposed assessment for additional
taxes or any basis therefor. No tax liens have been filed against any of the
Borrowers or any of their properties.
2.13 Certain Transactions. Except as set forth in Schedule 2.13 and
in the SEC Reports, and except as to indebtedness incurred in the ordinary
course of business and approved by the Board of Directors of the Company, none
of the Borrowers is indebted, directly or indirectly, to any of its officers or
directors, or to their respective spouses or children, or to any of their
affiliates, in excess of an aggregate amount of $60,000, and none of such
officers or directors or any member of their immediate families or affiliates,
is indebted to any of the Borrowers in excess of an aggregate amount of $60,000,
or has any direct or indirect ownership interest in any firm or corporation with
which any Borrower is affiliated or with which any Borrower has a business
relationship, or any firm or corporation which competes with any Borrower.
Except as set forth in the proxy statements or other SEC Reports, no officer or
director
7
<PAGE> 9
of any Borrower or any member of their immediate families or affiliates is,
directly or indirectly, interested in any contract with any Borrower that would
require disclosure under Item 404 of Regulation S-K. No Borrower is a guarantor
or indemnitor of any indebtedness of any other person, firm or corporation
(except other Borrowers).
2.14 Title to Property. Each Borrower has good and marketable title
to all real and personal property owned by it, free and clear of all liens,
security interests, pledges, encumbrances, claims and restrictions of every kind
and nature whatsoever, except as disclosed on Schedule 2.14, and except for such
liens, security interests, pledges, encumbrances, claims and restrictions which
individually or in the aggregate are not material. Any real property and
buildings held under lease by any Borrower are held under valid existing and
enforceable leases, and to the best of the Borrowers' knowledge no default has
occurred or is continuing thereunder which might result in any Material Adverse
Effect.
2.15 Intellectual Property.
(a) Except as set forth in Schedule 2.15, or for items that
individually or in the aggregate do not constitute a Material Adverse Event, to
the Borrowers' knowledge, each of the Borrowers is the lawful owner or has a
valid right to use the proprietary information used in its business free and
clear of any claim, right, trademark, patent or copyright protection of any
third party; provided, however, that this paragraph (a) shall not be deemed to
include any representation regarding the absence of infringements or conflicts
with the rights of others, which representation is made only in paragraph (c)
hereof. As used herein, "proprietary information" includes without limitation
(i) any computer software and any documentation, inventions, and technical and
nontechnical data related thereto, and (ii) other documentation, inventions and
data related to patterns, plans, methods, techniques, drawings, finances,
customer lists, suppliers, products, special pricing and cost information,
designs, processes, procedures, formulas, research data owned or used by any
Borrower or marketing studies conducted by any Borrower, which the Borrowers
consider to be commercially important and competitively sensitive and which
generally has not been disclosed to third parties other than customers in the
ordinary course of business.
(b) Except as set forth in Schedule 2.15, or for items that
individually or in the aggregate do not constitute a Material Adverse Event, to
the Borrowers' knowledge, each of the Borrowers has good and marketable title to
or has a valid right to use all patents, trademarks, trade names, service marks,
copyrights or other intangible property rights, and registrations or
applications for registration thereof, owned by the Company or any Subsidiary or
used or required by such Borrower in the operation of its business as presently
being conducted; provided, however, that this paragraph (b) shall not be deemed
to include any representation regarding the absence of infringements or
conflicts with the rights of others, which representation is made only in
paragraph (c) hereof.
8
<PAGE> 10
(c) Except as disclosed on Schedule 2.15, none of the
Borrowers has any knowledge of any infringements or conflicts by any Borrower
with asserted rights of others with respect to copyrights, patents, trademarks,
service marks, trade names, trade secrets or other intangible property rights or
know-how, which constitute a Material Adverse Event. To the Borrowers'
knowledge, except for items that individually or in the aggregate do not
constitute a Material Adverse Event, no products or processes of the Borrowers
infringe or conflict with any rights of patent or copyright, or any discovery,
invention, product or process, that is the subject of a patent or copyright
application or registration known to any Borrower. Except for items that
individually or in the aggregate do not constitute a Material Adverse Event,
each Borrower follows such procedures as are necessary or appropriate to provide
reasonable protection of the Borrowers' trade secrets and proprietary rights in
intellectual property of all kinds. To the knowledge of the Borrowers, no person
employed by or affiliated with the Company or any Co-Maker has employed or
proposes to employ any trade secret or any information or documentation
proprietary to any former employer, and to the knowledge of the Borrowers, no
person employed by or affiliated with any Borrower has violated any confidential
relationship that such person may have had with any third person, in connection
with the development, manufacture or sale of any product or proposed product or
the development or sale of any service or proposed service of the Borrowers,
except for items that individually or in the aggregate do not constitute a
Material Adverse Event.
2.16 Environmental Matters. Each Borrower has duly complied in all
material respects with, and its business, operations, assets, equipment,
property, leaseholds or other facilities are in compliance in all material
respects with, the provisions of all federal, state and local environmental,
health, and safety laws, codes and ordinances, and all rules and regulations
promulgated thereunder, except to the extent that the violation thereof does not
constitute a Material Adverse Event. Each Borrower has been issued and will
maintain all required material federal, state and local permits, licenses,
certificates and approvals relating to (i) air emissions; (ii) discharges to
surface water or groundwater; (iii) noise emissions; (iv) solid or liquid waste
disposal; (v) the use, generation, storage, transportation or disposal of toxic
or hazardous substances or wastes (which shall include any and all such
materials listed in any federal, state or local law, code or ordinance and all
rules and regulations promulgated thereunder as hazardous or potentially
hazardous); or (vi) other environmental, health or safety matters, except to the
extent that the violation thereof does not constitute a Material Adverse Event.
No Borrower has received notice of, and no Borrower knows of, a material
violation of any federal, state or local environmental, health or safety laws,
codes or ordinances, and any rules or regulations promulgated thereunder with
respect to its businesses, operations, assets, equipment, property, leaseholds,
or other facilities. Except in accordance with a valid governmental permit,
license, certificate or approval, there has been no emission, spill, release or
discharge into or upon (i) the air; (ii) soils, or any improvements located
thereon; (iii) surface water or groundwater; or (iv) the sewer, septic system or
waste treatment, storage or disposal system servicing the premises, of any toxic
or hazardous substances or wastes at or from the premises of any Borrower,
except to the
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extent that the violation thereof does not constitute a Material Adverse Event.
To the best of its knowledge, none of the Borrowers has any material
indebtedness, obligation or liability (absolute or contingent, matured or not
matured), with respect to the storage, treatment, cleanup or disposal of any
solid wastes, hazardous wastes or other toxic or hazardous substances (including
without limitation any such indebtedness, obligation, or liability with respect
to any current regulation, law or statute regarding such storage, treatment,
cleanup or disposal).
2.17 Accounting Matters. The Borrowers maintain a system of internal
accounting controls sufficient to provide reasonable assurance that in all
material respects (i) transactions are executed in accordance with management's
general or specific authorization; (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with GAAP and to
maintain accountability for the assets of the Borrowers; (iii) access to the
assets of each Borrower is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability for
assets of the Borrowers is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
2.18 Distributions to Company. Except for limitations under
applicable law and under the Senior Credit Agreement, none of the other
Borrowers are currently prohibited, directly or indirectly, from paying any
dividends or making any other distributions to the Company or to any other
Borrower, from repaying to the Company or to any other Borrower any loans or
advances to such Borrower, or from transferring any of such Borrower's property
or assets to the Company or to any other Borrower.
2.19 Prior Sales. All offers and sales of the Company's capital
stock prior to the date hereof were at all relevant times (i) exempt from the
registration requirements of the Securities Act or were duly registered under
the Securities Act, and (ii) were duly registered or were the subject of an
available exemption from the registration requirements of all applicable state
securities or Blue Sky laws.
2.20 Regulatory Compliance. The conduct of the business and the
ownership of the assets of the Borrowers is not dependent on any license,
permit, approval, waiver or other authorization of any federal, state or local
governmental or regulatory body which the Borrowers have not obtained, except to
the extent that the absence thereof does not constitute a Material Adverse
Event. All material licenses, permits and authorizations held by the Borrowers
are in full force and effect.
2.21 Margin Regulations. No Borrower is engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock. No
proceeds received pursuant to this Agreement will be used to purchase or carry
any equity security of a class which is registered pursuant to Section 12 of the
Exchange Act.
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2.22 [Reserved.]
2.23 Limited Offering. Subject in part to the truth and accuracy of
Purchaser's representations set forth in this Agreement, the offer, sale and
issuance of the Notes is exempt from the registration requirements of the
Securities Act, and no Borrower nor any authorized agent acting on behalf of any
Borrower has taken or will take any action hereafter that would cause the loss
of such exemption.
2.24 Registration Obligations. Except as described in Schedule 2.24,
and except with respect to any registration statement on Form S-8 to be filed in
connection with the Company's stock option plan, the Company is not under any
obligation to register under the Securities Act or the Trust Indenture Act of
1939, as amended, any of its presently outstanding securities or any of its
securities that are proposed to be subsequently issued.
2.25 Insurance. Each of the Borrowers has maintained insurance
coverage with respect to their respective properties and business in such forms
and amounts and against such risks, casualties and contingencies as are
customary for companies of comparable size and condition (financial and
otherwise) engaged in the same or a similar business and owning and operating
similar properties.
2.26 Governmental Consents. No consent, approval, qualification,
order or authorization of, or filing with, any local, state, or federal
governmental authority is required on the part of the Borrowers in connection
with the their valid execution, delivery, or performance of this Agreement,
except such filings as have been made prior to the Closing, and except notices
of sale required to be filed with the Securities and Exchange Commission under
Regulation D of the Securities Act or such post-closing filings as may be
required under applicable state securities laws, which will be timely filed
within the applicable periods therefor.
2.27 Employees. To the best of the Borrowers' knowledge, there is no
strike, labor dispute or union organization activity pending or threatened
between any Borrower and its employees. None of the Borrowers' employees belongs
to any union or collective bargaining unit. Each Borrower has complied in all
material respects with all applicable state and federal equal opportunity and
other laws related to employment. To the best of the Borrowers' knowledge, no
employee of any Borrower is in violation of any material judgment, decree, or
order, or any term of any employment contract, patent disclosure agreement, or
other contract or agreement relating to the relationship of any such employee
with such Borrower or any other party because of the nature of the business
conducted or presently proposed to be conducted by the Borrowers or to the use
by the employee of his best efforts with respect to such business. Other than as
set forth on Schedule 2.27, no Borrower is a party to or bound by any material
employment contract, deferred compensation agreement, bonus plan, incentive
plan, profit sharing plan, or retirement agreement. To the best of the
Borrowers' knowledge, no officer or key employee, or any group
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of key employees, intends to terminate employment with any Borrower, nor does
any Borrower have a present intention to terminate the employment of any of the
foregoing. Subject to general principles related to wrongful termination of
employees, to applicable state law, and to existing employment contracts set
forth on Schedule 2.27, the employment of each officer and employee of the
Borrowers is terminable at will.
2.28 ERISA. Each Borrower is in compliance in all material respects
with all applicable provisions of Title IV of the Employee Retirement Income
Security Act of 1974, Pub. L. No.93-406, September 2, 1974, 88 Stat. 829,
29U.S.C.A. SS 1001 et seq. (1975), as amended from time to time ("ERISA").
Neither a reportable event nor a prohibited transaction (as defined in ERISA)
has occurred and is continuing with respect to any "pension plan" maintained by
any Borrower (as such term is defined in ERISA, a '"Plan"); no notice of intent
to terminate a Plan has been filed nor has any Plan been terminated; no
circumstances exist which constitute grounds entitling the Pension Benefit
Guaranty Corporation (together with any entity succeeding to or all of its
functions, the "PBGC") to institute proceedings to terminate, or appoint a
trustee to administer, a Plan, nor has the PBGC instituted any such proceedings;
no Borrower nor any commonly controlled entity (as defined in ERISA) has
completely or partially withdrawn from a multi employer plan (as defined in
ERISA). Each Borrower and each commonly controlled entity has met its minimum
funding requirements under ERISA with respect to all of its Plans and the
present fair market value of all Plan property exceeds the present value of all
vested benefits under each Plan, as determined on the most recent valuation date
of the Plan and in accordance with the provisions of ERISA and the regulations
thereunder for calculating the potential liability of the Borrower or any
commonly controlled entity to the PBGC or the Plan under Title IV or ERISA; and
no Borrower has incurred any liability to the PBGC under ERISA.
2.29 Fees/Commissions. Except as set forth on Schedule 2.29, no
Borrower has agreed to pay any finder's fee, commission, origination fee or
other fee or charge to any person or entity with respect to or as a result of
the consummation of the transactions contemplated hereunder, except for (i) the
processing fee due to Purchaser under Section 1.5, and (ii) reimbursement of
Purchaser's expenses under Section 12.1.
2.30 Survival. The representations and warranties of the Borrowers
contained in this Agreement are made as of the date hereof and shall survive
until this Agreement terminates in accordance with Section 12.5 hereof.
3. Representations and Warranties of Purchaser. The Purchaser hereby
represents to the Borrowers as follows:
3.1 Corporate Status. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of Tennessee
and has the corporate power to own and operate its properties, to carry on its
business as now conducted and to enter
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into and to perform its obligations under this Agreement and any other document
executed or delivered by Purchaser in connection herewith.
3.2 Authorization. Purchaser has full legal right, power and
authority to enter into and perform its obligations under this Agreement and any
other document executed and delivered by Purchaser in connection herewith,
without the consent or approval of any other person, firm, governmental agency
or other legal entity. The execution and delivery of this Agreement and any
other document executed and delivered by Purchaser in connection herewith, and
the performance by Purchaser of its obligations hereunder and/or thereunder are
within the corporate powers of Purchaser, have received all necessary
governmental approvals, if any were required, and do not and will not contravene
or conflict with (i) the Charter or Bylaws of Purchaser, (ii) any material
agreement to which Purchaser is a party or by which it or any of its properties
is bound, or constitute a default thereunder, or result in the creation or
imposition of any lien, charge, security interest or encumbrance of any nature
upon any of the property or assets of Purchaser pursuant to the terms of any
such agreement or instrument, or (iii) violate any provision of law or any
applicable judgment, ordinance, regulation or order of any court or governmental
agency. The officer(s) executing this Agreement and any other document executed
and delivered by Purchaser in connection herewith, is duly authorized to act on
behalf of Purchaser.
3.3 Validity and Binding Effect. This Agreement and any other
document executed and delivered by Purchaser in connection herewith have been
authorized by all requisite corporate action, and are the legal, valid and
binding obligations of the Purchaser, enforceable against it in accordance with
their respective terms, subject to such limitations on enforceability as may
exist under equitable principles of law or the application of bankruptcy or
insolvency laws.
3.4 Accredited Investor Investment Intent. Purchaser is a registered
investment company under the Investment Company Act and as such is an
"accredited investor" under Rule 501(a) under the Securities Act. Purchaser is
acquiring the Notes for its own account, for investment, and not with a view to
the distribution or resale thereof, in whole or in part, in violation of the
Securities Act or any applicable state securities law, and Purchaser has no
present intention of selling, negotiating or otherwise disposing of the Notes;
it being understood that Purchaser intends to transfer and assign the Notes and
all Purchaser's rights and obligations under this Agreement to one or more
wholly-owned Subsidiaries of Purchaser. Purchaser has relied solely upon an
independent investigation made by it and its representatives, if any, and has,
prior to the date hereof been given access to and the opportunity to examine all
books and records of the Company, and all material contracts and documents of
the Company. In making its investment decision to purchase the Notes, Purchaser
is not relying on any oral or written representations or assurances from the
Company or any other person or any representation of the Company or any other
person other than as set forth in this Agreement, or on any information
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other than that contained in the Company's SEC Reports. Purchaser has such
experience in business and financial matters that it is capable of evaluating
the risk of its investment and determining the suitability of its investment.
3.5 Survival. The representations and warranties of the Purchaser
contained in this Agreement shall survive until this Agreement terminates in
accordance with Section 12.5 hereof.
4. Conditions Precedent to the Obligations of Purchaser. The obligation of
Purchaser to purchase and pay for the Notes on the Closing Date shall be subject
to the satisfaction, on or before the Closing Date, of each of the conditions
set forth below. These conditions are for Purchaser's sole benefit and may be
waived by Purchaser at any time in its sole discretion.
4.1 Representations and Warranties. The representations and
warranties of the Borrowers contained in this Agreement and in any Schedule
hereto or any document or instrument delivered to Purchaser or its
representatives hereunder, shall have been true and correct when made and shall
be true and correct in all material respects as of the Closing Date as if made
on such date, except to the extent such representations and warranties expressly
relate to a specific date. Each of the Borrowers shall have duly performed all
of the covenants and agreements to be performed by it hereunder on or prior to
the Closing Date.
4.2 Officer's Certificate. The Borrowers shall have delivered to
Purchaser a certificate, dated the Closing Date, signed by the President of the
Company, substantially in the form attached hereto as Exhibit C.
4.3 Satisfactory Proceedings and President's Certificate. All
proceedings taken in connection with the transactions contemplated by this
Agreement, and all documents necessary to the consummation thereof, shall be
satisfactory in form and substance to Purchaser and Purchaser's counsel, and the
Borrowers shall have delivered to Purchaser a certificate, dated the Closing
Date, signed by the President of the Company, substantially in the form attached
hereto as Exhibit D.
4.4 Legal Opinion. Purchaser shall have received the opinion of
counsel for the Borrowers, dated the Closing Date, addressed to Purchaser, in
form and substance satisfactory to Purchaser's counsel, and covering the matters
set forth in Exhibit E hereto.
4.5 Authorization Agreement. The Borrowers shall have delivered to
Purchaser an Authorization Agreement for Pre-Authorized Payments (Debit), dated
the Closing Date, executed by a duly authorized officer, in the form attached
hereto as Exhibit F.
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4.6 Existence and Authority. The Borrowers shall have delivered to
Purchaser the following certificates of public officials, in each case as of a
date within ten days of the Closing Date:
(a) the certificate or articles of incorporation of the
Company and each of the Subsidiaries, certified by the Secretary of State or
other appropriate official in the jurisdiction by which each such entity is
incorporated; and
(b) a certificate as to the legal existence and good standing
of the Company and each of the Subsidiaries issued by the Secretary of State or
other appropriate official of the jurisdiction by which each such entity is
incorporated.
4.7 Delivery of Operative Documents. The Borrowers shall have
delivered to Purchaser the following documents, executed by the Borrowers and
dated the Closing Date:
(a) the Note;
(b) the Initial Warrant;
(c) the Security Agreement in the form of Exhibit G, executed
by the each of the Borrowers;
(d) the Financing Statements;
(e) Warrant Valuation Letter in the form of Exhibit H;
(f) Closing Statement in the form of Exhibit I; and
(g) Registration Rights Agreement between the Company and the
Purchaser in the form of Exhibit J.
4.8 Required Consents. Any consents or approvals required to be
obtained from any third party, including any holder of indebtedness or any
outstanding security of the Company, and any amendments of agreements which
shall be necessary to permit the consummation of the transactions contemplated
hereby on the respective Closing Date, shall have been obtained and all such
consents or amendments shall be satisfactory in form and substance to Purchaser
and Purchaser's counsel.
4.9 Waiver of Conditions. If on the Closing Date the Borrowers fail
to tender to Purchaser the Notes to be issued to Purchaser, or if the conditions
specified in this Section 4 have not been fulfilled, Purchaser may thereupon
elect to be relieved of all further obligations
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under this Agreement and shall (i) be paid the processing fee provided by
Section 1.5, and (ii) be paid the expense allowance provided by Section 12.1,
which processing fee and expense reimbursement shall be treated as liquidated
damages and as Purchaser's sole remedy if on the Closing Date the Borrowers fail
to tender to Purchaser the Notes or if the conditions specified in this Section
4 have not been fulfilled. Without limiting the foregoing, if the conditions
specified in this Section 4 have not been fulfilled, Purchaser may waive
compliance by the Borrowers with any such condition to such extent as Purchaser,
in Purchaser's sole discretion, may determine. Nothing in this Section 4.9 shall
operate to relieve any Borrower of any of its obligations hereunder, or to waive
any of Purchaser's rights against the Borrowers.
5. Covenants of the Borrowers. From and after the Closing Dates and
continuing so long as any amount remains unpaid on any of the Notes.
5.1 Use of Proceeds. The Borrowers shall use the proceeds of the
Notes for general corporate purposes, including acquisitions, working capital
and debt repayment.
5.2 Corporate Existence, Etc. Each Borrower shall preserve and keep
in force and effect its corporate existence and good standing in the state of
its organization, its qualification and good standing in each jurisdiction where
such qualification is required by applicable law except where the failure to so
qualify would not have a Material Adverse Effect, and all licenses and permits
necessary to the proper conduct of its business.
5.3 Maintenance of Properties, Etc. Each Borrower will maintain,
preserve and keep its properties and assets which are used or useful in the
conduct of its business (whether owned in fee or pursuant to a leasehold
interest) in good repair and working order, excepting normal wear and tear;' and
from time to time will make all necessary repairs, replacements, renewals and
additions required to maintain the efficiency thereof.
5.4 Nature of Business. None of the Borrowers will engage in any
business if, as a result, the general nature of the business, taken on a
consolidated basis, which would then be engaged in by the Company would be
substantially changed from the general nature of the business engaged in by the
Company on the date of this Agreement
5.5 Insurance. Each Borrower will maintain insurance coverage with
respect to their respective properties and business in such forms and amounts
and against such risks, casualties and contingencies as are customary for
corporations of comparable size and condition (financial and otherwise) engaged
in the same or a similar business and owning and operating similar properties.
5.6 Taxes, Claims for Labor and Materials. The Borrowers will
promptly pay and discharge (i) all lawful taxes, assessments and governmental
charges or levies imposed upon
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the respective property or business of the Borrowers, (ii) all trade accounts
payable in accordance with usual and customary business terms, and (iii) all
claims for work, labor or materials, which if unpaid might become a lien or
charge upon any property of a Borrower; provided, the Borrowers shall not be
required to pay any such tax, assessment, charge, levy, account payable or claim
if (i) the validity, applicability or amount thereof is being contested in good
faith by appropriate actions or proceedings which will prevent the forfeiture or
sale of any property of any Borrower or any material interference with the use
thereof by any Borrower, and (ii) each of the Borrowers shall set aside on its
books, reserves deemed by it to be adequate with respect thereto, and (iii)
failure to pay such item individually or in the aggregate would not constitute a
Material Adverse Event.
5.7 Compliance with Laws, Agreements, Etc. Except where failure to
do so does not and would not constitute a Material Adverse Event, each Borrower
shall maintain its business operations and property owned or used in connection
therewith in compliance with (i) all applicable federal, state and local laws,
regulations and ordinances, and such laws, regulations and ordinances of foreign
jurisdictions, governing such business operations and the use and ownership of
such property, and (ii) all agreements, licenses, franchises, indentures and
mortgages to which the it is a party or by which it or any of its properties is
bound.
5.8 ERISA Matters. If any Borrower has in effect, or hereafter
institutes, a pension plan that is subject to the requirements of Title IV of
ERISA (a "Plan"), then the following covenants shall be applicable during such
period as any such Plan shall be in effect: (i) throughout the existence of the
Plan, the Borrower's contributions under the Plan will meet the minimum funding
standards required by ERISA and the Borrower will not institute a distress
termination of the Plan; and (ii) the Borrower will send to Purchaser a copy of
any notice of a reportable event (as defined in ERISA) required by ERISA to be
filed with the Labor Department or the PBGC, at the time that such notice is so
filed.
5.9 Books and Records: Rights of Inspection. Each Borrower will keep
proper books of record and account in which entries will be made of all dealings
or transactions of or in relation to the business and affairs of the Borrower,
in accordance with GAAP consistently maintained. Each Borrower shall permit a
representative of Purchaser to visit any of its properties and inspect its books
and financial records, and will discuss its accounts, affairs and finances with
a representative of Purchaser, during normal business hours, at all such times
as Purchaser may reasonably request, and subject to Purchaser's execution of a
confidentiality agreement in form and substance reasonably acceptable to
Purchaser.
5.10 Reports. The Borrowers will furnish to Purchaser the following
information, which information shall be subject to confidential treatment by
Purchaser:
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(a) Monthly Statements. Within 30 days after the end of each
month, beginning the month of June, 1998, monthly internal financial reports
consisting of an unaudited consolidated balance sheet and an unaudited statement
of operations for the one-month period then ended;
(b) Quarterly Statements. As soon as available and in any
event within 45 days after the end of each quarterly fiscal period (except the
last) of each fiscal year, copies of:
(i) consolidated balance sheets of the Company as of the
close of the fiscal period then ended, setting forth in comparative form the
consolidated figures at the end of the preceding fiscal year,
(ii) consolidated statements of income of the Company
for the fiscal period then ended, setting forth in comparative form the
consolidated figures for the corresponding period of the preceding fiscal year,
and
(iii) consolidated statements of cash flows of the
Company for the portion of the fiscal year ending with such fiscal period,
setting forth in comparative form the consolidated figures for the corresponding
period of the preceding fiscal year,
all in reasonable detail and accompanied by a certificate of an authorized
financial officer of the Company that such financial statements fairly present
the financial condition and results of operations and cash flows of the Company
at and for the periods presented, subject to normal year-end adjustment;
provided, that delivery of the Company's quarterly report on Form 10-Q or Form
10-QSB as filed with the SEC shall be deemed satisfaction of the obligations
imposed by this Section 5.10(b);
(c) Annual Statements. As soon as available and in any event within
90 days after the close of each fiscal year of the Company, copies of:
(i) consolidated balance sheets of the Company as of the
close of such fiscal year, and
(ii) consolidated statements of income and consolidated
statements of changes in stockholders' equity and cash flows of the Company for
such fiscal year,
in each case setting forth in comparative form the consolidated figures for the
preceding fiscal year, all in reasonable detail and accompanied by an
unqualified report thereon of a firm of independent public accountants of
recognized national standing; provided, that delivery of the Company's annual
report on Form 10-K as filed with the SEC shall be deemed satisfaction of the
obligations imposed by this Section 5.10(c);
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(d) Special Audit Reports. Promptly upon receipt thereof, one
copy of each interim or special audit made by independent accountants of the
books of any Borrower;
(e) SEC and Other Reports. Promptly upon their becoming
available, one copy of each financial statement, report, notice or proxy
statement sent by the Company to stockholders generally and of each periodic or
current report, and any registration statement or prospectus filed by the
Company with any securities exchange or the SEC or any successor agency, and
copies of any orders in any proceedings to which any Borrower is a party, issued
by any governmental agency, federal or state, having jurisdiction over the
Borrower. Each Borrower specifically covenants to use reasonable commercial
efforts to timely file each such item required to be filed with the SEC and each
state requiring securities laws filings; and
(f) Requested Information. With reasonable promptness, such
financial data and other information relating to the business of the Borrowers
as Purchaser may from time to time reasonably request, subject to Purchaser's
duty of confidentiality.
5.11 Limitations on Debt and Obligations. Except as to
(i) Indebtedness existing on the date hereof and reflected on
(a) the Company's unaudited balance sheet as of May 31, 1998, or (b) Schedule
5.11, as the same Indebtedness may be extended or renewed (but not increased,
except to the extent of committed availability on the date hereof, but not
otherwise);
(ii) the Indebtedness incurred pursuant to the Notes;
(iii) accounts payable and other trade payables incurred in
the ordinary course of business;
(iv) purchase money indebtedness incurred in the purchase of
equipment and other property used by the Borrowers in the ordinary course of
business, such purchase money indebtedness not to exceed an aggregate additional
amount of principal and accrued interest thereon of $250,000 at any time
outstanding;
(v) obligations of any Borrower pursuant to capitalized
leases;
(vi) Indebtedness that refinances secured Indebtedness under
clause (i) above, provided that the collateral for such new Indebtedness is the
same type of collateral for the refinanced secured Indebtedness and the
aggregate principal amount of such Indebtedness does not exceed the maximum
principal amount outstanding and/or committed under the refinanced Indebtedness
plus interest accrued to the date of refinancing; and
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(vii) Indebtedness incurred in connection with the acquisition
of a business (including the assets of a business), provided such Indebtedness
is secured solely by the assets of the business so acquired, and is otherwise
nonrecourse to each of the Borrowers;
the Company shall not, on a consolidated basis, incur additional indebtedness
which is senior to or pari passu with the Notes without the prior written
consent of Purchaser.
5.12 Guaranties. Without the prior written consent of Purchaser, no
Borrower will become or be liable in respect of any Guaranty except Guaranties
by the Borrowers which are limited in maximum financial exposure to the amounts
set forth in, and are incurred in compliance with, the provisions of Section
5.11 of this Agreement.
5.13 Limitation on Liens. Without the prior written consent of
Purchaser, no Borrower will create or incur, or suffer to be incurred or to
exist, any mortgage, pledge, security interest, encumbrance, lien or charge of
any kind (collectively, "Liens") on its property or assets, whether now owned or
hereafter acquired, or upon any income or profits therefrom, or transfer any
property for the purpose of subjecting the same to the payment of obligations in
priority to the payment of its general creditors, or acquire or agree to acquire
any property or assets upon conditional sales agreement or other title retention
devices, except those Liens which exist as of the date hereof as set forth on
Schedule 2.14, Liens on accounts receivable and/or inventory of the Company
permitted by Section 5.11, Liens securing Indebtedness permitted by Section 5.11
(vi), and except:
(a) purchase money liens on and security interests in
equipment hereafter acquired securing Indebtedness permitted by Section 5.11
(iv) of this Agreement, provided that such liens and security interests attach
only to the equipment so acquired and do not encumber any other property of any
Borrower;
(b) liens for taxes (excluding federal and state income taxes)
not yet payable or being contested in good faith by appropriate proceedings and
for which reserves determined in accordance with GAAP have been provided on the
books of the Borrowers;
(c) mechanics', materialmen's, warehousemen's, landlords',
carriers' or other like liens arising in the ordinary course of business,
arising with respect to obligations which are not overdue for a period longer
than 90 days or which are being contested in good faith by appropriate
proceedings and for which reserves determined in accordance with GAAP have been
provided on the books of the Borrowers;
(d) deposits or pledges to secure the performance of bids,
tenders, contracts, leases, public or statutory obligations, surety or appeal
bonds or other deposits or
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pledges for purposes of a like general nature or given in the ordinary course of
business by a Borrower; and
(e) other encumbrances consisting of zoning restrictions,
easements, restrictions on the use of real property or minor irregularities in
the title thereto, which do not arise in connection with the borrowing of, or
any obligation for the payment of, money and which, in the aggregate, do not
materially detract from the value of the premises or the business, properties or
assets of any Borrower
5.14 Restricted Payments. Except as set forth on Schedule 5.14, no
Borrower shall, without the prior written consent of Purchaser and except as
hereinafter provided:
(a) declare or pay any dividends, either in cash or property,
on any shares of its capital stock of any class, except dividends or other
distributions payable solely in shares of Common Stock of the Company; or
(b) directly or indirectly, or through any Affiliate,
purchase, redeem or retire any shares of its capital stock of any class or any
warrants, rights or options to purchase or acquire any shares of its capital
stock (other than in exchange for or out of the net proceeds to the Borrower
from the substantially concurrent issue or sale of other shares of capital stock
or warrants, rights or options to purchase or acquire any shares of its capital
stock); or
(c) make any other payment or distribution, either directly or
indirectly or through any Subsidiary, in respect of its capital stock, provided,
that distributions from any Borrower to another Borrower, shall be permitted; or
(d) make any payment or distribution, either directly or
indirectly or through any Affiliate, with respect to any indebtedness of a
Borrower, to any Affiliate of the Borrower.
5.15 Investments. The Borrowers will not make any Investments
outside the ordinary course of business, without the prior written consent of
Purchaser, except:
(a) Investments in direct obligations of the United States of
America, or any agency or instrumentality of the United States of America, the
payment or guaranty of which constitutes a full faith and credit obligation of
the United States of America, in either case maturing in twelve months or less
from the date of acquisition thereof;
(b) Investments in certificates of deposit maturing within one
year from the date of origin, issued by a bank or trust company organized under
the laws of the United States or any state thereof, having capital, surplus and
undivided profits aggregating at least
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$100,000,000 and whose long-term certificates of deposit are, at the time of
acquisition thereof by Company or a Subsidiary, rated AA or better by Standard &
Poor's Corporation or AA or better by Moody's Investors Service, Inc.;
(c) Investments in commercial paper maturing in 270 days or
less from the date of issuance which, at the time of acquisition by the Company
or any Subsidiary, is accorded the highest rating by Standard & Poor's
Corporation, Moody's Investors Service, Inc. or another nationally recognized
credit rating agency of similar standing;
(d) Loans or advances in the usual and ordinary course of
business to officers, directors and employees for expenses (including moving
expenses related to a transfer) incidental to carrying on the business of the
Borrowers;
(e) receivables arising from the sale of goods and services in
the ordinary course of business;
(f) acquisitions, mergers, and consolidations permissible
under Section 5.16(a)(ii); and
(g) money market mutual funds of the quality offered by
Fidelity, T. Rowe Price, or similar organizations.
5.16 Mergers, Consolidations and Sales of Assets.
(a) Without the prior written consent of Purchaser, which
shall not be unreasonably withheld, no Borrower shall (i) consolidate with or be
a party to a merger or share exchange with any other corporation, or (ii) sell,
lease or otherwise dispose of all or any substantial part (as defined in
paragraph (d) of this Section 5.16) of its assets; provided, however, that:
(i) any Borrower may merge or consolidate with or into
the Company or any wholly-owned Subsidiary so long as in any merger or
consolidation involving the Company, the Company shall be the surviving or
continuing corporation; and
(ii) the Company may consolidate or merge with any other
corporation, or acquire all or a substantial portion of the assets or stock of
any other entity, provided that such corporation or entity is engaged primarily
in the Company's general line of business on a consolidated basis as conducted
on the date hereof, and further provided that (A) Company shall be the surviving
or continuing corporation, (B) at the time of such consolidation or merger or
acquisition and after giving effect thereto, no Default or Event of Default
shall have occurred and be continuing, (C) such consolidation or merger or
acquisition shall be deemed in
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the good faith estimate of the Board of Directors to be a consolidation or
merger or acquisition that will be accretive to earnings per share not later
than the second fiscal year following the consolidation or merger, and (D) such
consolidation or merger or acquisition shall be approved unanimously by the
Company's Board of Directors; and
(iii) any Borrower may sell, lease or otherwise dispose
of all or any substantial part of its assets to the Company or any other
Wholly-owned Subsidiary.
(b) Without the prior written consent of Purchaser, no
Borrower other than the Company shall issue or sell any shares of stock of any
class (including as "stock" for the purposes of this Section 5.16, any warrants,
rights or options to purchase or otherwise acquire stock or other securities
exchangeable for or convertible into stock) of such Borrower to any person other
than the Company or a Wholly-owned Subsidiary, except for the purpose of
qualifying directors.
(c) Without the prior written consent of Purchaser, the
Company will not sell, transfer or otherwise dispose of any shares of stock in
any Subsidiary (except to qualify directors) or any indebtedness of any
Subsidiary, and will not permit any Subsidiary to sell, transfer or otherwise
dispose of (except to the Company or a Wholly-owned Subsidiary) any shares of
stock or any indebtedness of any other Subsidiary, unless all of the following
conditions are met:
(i) simultaneously with such sale, transfer or
disposition, all shares of stock and all indebtedness of such Subsidiary at the
time owned by the Company and by every other Subsidiary shall be sold,
transferred or disposed of as an entirety;
(ii) the Board of Directors of the Company shall have
determined, as evidenced by a resolution thereof, that the retention of such
stock and indebtedness is no longer in the best interests of the Company;
(iii) such stock and Indebtedness is sold, transferred
or otherwise disposed of to a person, for a cash consideration and on terms
reasonably deemed by the Board of Directors to be adequate and satisfactory;
(iv) the Subsidiary being disposed of shall not have any
continuing investment in the Company or any other Subsidiary not being
simultaneously disposed of; and
(v) such sale or other disposition does not involve a
substantial part (as hereinafter defined) of the assets of the Company and its
Subsidiaries taken as a whole.
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<PAGE> 25
Provided, that, notwithstanding this Section 5.16(c), without the prior written
consent of Purchaser, no Borrower shall sell, transfer, or otherwise dispose of
any shares of stock or other equity interest of any other Borrower, or any
indebtedness of any other Borrower, except sales, transfers, or other
dispositions between Borrowers.
(d) As used in this Agreement, a sale, lease or other
disposition of assets shall be deemed to be a "substantial part" of the assets
of the Company and its Subsidiaries only if the book value of such assets, when
added to the book value of all other assets sold, leased or otherwise disposed
of by the Company and its Subsidiaries (other than in the ordinary course of
business and other than expressly permitted by this Section 5.16) during the
twelve month period ending on the date of such sale, lease or other disposition,
exceeds 25 percent of the consolidated net tangible assets of the Company and
its Subsidiaries determined as of the end of the immediately preceding fiscal
year.
5.17 Transactions with Affiliates. Except as set forth on Schedule
5.17, without the prior written consent of Purchaser, the Borrowers shall not
enter into or be a party to any transaction or arrangement with any officer,
director or Affiliate (including, without limitation, the purchase from, sale
to, or exchange of property with, or the rendering of any service by or for, any
Affiliate), except in the ordinary course of and pursuant to the reasonable
requirements of the Borrowers' business and upon fair and reasonable terms no
less favorable to the Borrowers than could be obtained in an arm's-length
transaction with a person other than an Affiliate, in each case as determined in
good faith by a majority of the disinterested directors of the Company.
5.18 Notice. The Borrowers shall promptly upon the discovery thereof
give written notice to Purchaser of (i) the occurrence of any Default or Event
of Default under this Agreement, (ii) the occurrence of any default or event of
default under any other material agreement providing for Indebtedness of any
Borrower or under any material capitalized lease obligation, (iii) any material
actions, suits or proceedings instituted by any person against any Borrower or
affecting any of their assets, or (iv) any investigation initiated by, or any
dispute between and any governmental regulatory body, on the one hand, and any
Borrower, on the other hand, which dispute might materially interfere with the
normal operations of the Borrowers; provided, however, that Purchaser shall not
disclose any such information provided in (iii) or (iv) above to any third party
other than Purchaser's counsel and except to the extent required by law or
otherwise authorized by the Company.
5.19 Board of Directors Observer Rights. For so long as the
Purchaser or any Affiliate of Purchaser owns Notes representing at least 25% of
the original principal amount of the Notes, the Company shall invite one
representative of Purchaser to attend, at the Company's expense, all meetings of
the Company's Board of Directors and all committees of the Company's Board of
Directors in a nonvoting observer capacity and, in this respect, shall provide
such representative copies of all notices and meeting agenda in advance of such
meetings and shall
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<PAGE> 26
permit such representative to review all documents and other materials provided
to directors at such meetings. The Company shall also provide Purchaser, in
advance, with copies of all actions proposed to be taken by the Board of
Directors in lieu of meeting. Purchaser shall execute a confidentiality and
nondisclosure agreement with respect to any information obtained by or provided
to Purchaser's representative.
5.20 Annual Plan. The Board of Directors shall adopt no later than
the thirtieth day of each fiscal year, a financial plan for the Company, which
shall include at least a projection of income and expenses (including capital
expenditures) and a projected cash flows statement for each fiscal period in
such fiscal year, and a projected balance sheet as of the end of each month in
such fiscal year (the "Annual Plan"). The Annual Plan may only be amended or
revised, in any material manner, with the approval of the Board of Directors.
5.21 Further Assurances. The Borrowers will take and cause to be
taken all actions reasonably requested by Purchaser to effect the transactions
contemplated by this Agreement and the other Operative Documents.
6. [Reserved.]
7. [Reserved.]
8. Restrictions on Transfer; Registration Rights.
8.1 Legends; Restrictions on Transfer. Neither the Notes, nor the
Warrants, nor the shares of Common Stock issuable upon exercise of Warrants have
been registered under the Securities Act or any state securities laws. Each Note
and Warrant issued pursuant to this Agreement and each stock certificate issued
upon exercise of Warrants shall bear a legend in substantially the following
form:
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES LAW. THESE SECURITIES MAY NOT BE
TRANSFERRED WITHOUT SUCH REGISTRATION OR EXEMPTION
THEREFROM.
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8.2 Registration Rights. The Purchaser shall be entitled to register
Common Stock issuable upon exercise of Warrants as provided in the Registration
Rights Agreement in the form of Exhibit J.
9. Events of Default; Remedies.
9.1 Events of Default. The occurrence of any one of the following
shall constitute an "Event of Default" under this Agreement:
(a) Default shall occur in the payment of interest on any Note
when the same shall have become due, provided, that any such default shall be
curable within two Business Days if the failure to make such payment when due
was caused by a financial institution's error in effecting an automatic debit
transaction against an account containing sufficient funds; or
(b) Default shall occur in the making of any payment of the
principal of any Note or the premium, if any, thereon at the expressed or any
accelerated maturity date or at any date fixed by the Borrowers for prepayment,
provided, that any such default shall be curable within two Business Days if the
failure to make such payment when due was caused by a financial institution's
error in effecting an automatic debit transaction against an account containing
sufficient funds; or
(c) Default shall be made in the payment of the principal of
or interest on any Indebtedness (other than the Notes) of any Borrower in excess
of $250,000 and such default shall continue beyond the period of grace, if any,
allowed with respect thereto; or
(d) [Reserved]; or
(e) Default shall occur in the observance or performance of
any covenant or agreement contained in Sections 5.11 through 5.20 hereof which
is not remedied within 30 days; or
(f) Default shall occur in the observance or performance of
any other provision of this Agreement which is not remedied within 30 days after
the earlier of (i) the date on which either any Borrower first obtains knowledge
of such default, and (ii) the date on which written notice thereof is given to
the Borrowers by the holder of any Note; or
(g) Any representation or warranty made by the Borrowers
herein, or made by any Borrower in any statement or certificate furnished by
such Borrower in connection with the consummation of the issuance and delivery
of the Notes or furnished by such Borrower pursuant hereto, is untrue in any
material respect as of the date of the issuance or making thereof
26
<PAGE> 28
and would have a Material Adverse Effect, subject to the limitations on survival
of Section 12.5; or
(h) Final judgments for the payment of money in uninsured
amounts aggregating in excess of $100,000, are outstanding against any Borrower
or against any property or assets of such Borrower and any one of such judgments
has remained unpaid, unvacated, unbonded or unstayed by appeal or otherwise for
a period of 30 days from the date of its entry; or
(i) Any Borrower becomes insolvent or bankrupt, is generally
not paying its debts as they become due or makes an assignment for the benefit
of creditors, or any Borrower applies for or consents to the appointment of a
custodian, trustee, liquidator, or receiver or for the major part of its
property; or
(j) A custodian, trustee, liquidator, or receiver is appointed
for any Borrower or for a substantial part of its property (as defined by
Section 5.16(d)) and is not discharged within 60 days after such appointment; or
(k) Bankruptcy, reorganization, arrangement or insolvency
proceedings, or other proceedings for relief under any bankruptcy or similar law
or laws for the relief of debtors, are instituted by or against any Borrower,
and are consented to or are not dismissed within 60 days after such institution;
or
(l) Herm Rosenman (President and Chief Executive Officer)
shall resign or be terminated, other than for cause and other than as a result
of death or disability, from his current offices and capacities with the
Company, and a successor acceptable to Purchaser shall not have been elected
within 90 days after such resignation or termination; provided, that if no such
successor 15 elected, an Event of Default shall be deemed to have occurred and
have been continuing from and after the date of such resignation or termination.
9.2 Remedies Upon Default.
(a) If an Event of Default shall occur, and for so long as
such Event of Default continues, the interest rate on the Notes shall increase
by 7% per annum, that is, to 19.00% per annum, until such Event of Default is
cured or waived.
(b) Purchaser shall be entitled to appoint an additional
representative to attend, at the Company's expense, all meetings of the
Company's Board of Directors and all committees of the Company's Board of
Directors in a nonvoting observer capacity and, in this respect, shall provide
such representative copies of all notices and meeting agenda in advance of such
meetings and shall permit such representative to review all documents and other
materials
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<PAGE> 29
provided to directors at such meetings. The Company shall also provide
Purchaser, in advance, with copies of all actions proposed to be taken by the
Board of Directors in lieu of meeting. Purchaser shall execute a confidentiality
and nondisclosure agreement with respect to any information obtained by or
provided to Purchaser's representative.
(c) When any Event of Default has occurred, or if the holder
of any Note or of any other evidence of indebtedness of the Company gives any
notice or takes any other action with respect to a reasonably claimed default,
the Company agrees to give notice within three Business Days of such event to
all holders of the Notes then outstanding.
9.3 Acceleration of Maturities. When any Event of Default described
in paragraph (a), (b) or (c) of Section 9.1 has occurred and is continuing, any
holder of any Note may, and when any Event of Default described in paragraphs
(d) through (i), inclusive, and (1) of Section 9.1 has occurred and is
continuing, the holder or holders of 50% or more of the principal amount of
Notes at the time outstanding may, by notice to the Borrowers, declare the
entire principal and all interest accrued on all Notes to be, and all Notes
shall thereupon become, forthwith due and payable, without any presentment,
demand, protest or other notice of any kind, all of which are hereby expressly
waived. When any Event of Default described in paragraph (j) or (k) of Section
9.1 has occurred, then all outstanding Notes shall immediately become due and
payable without presentment, demand or notice of any kind, all of which are
hereby expressly waived. Upon the Notes becoming due and payable as a result of
any Event of Default as aforesaid, the Borrowers will forthwith pay to the
holders of the Notes the entire principal and interest accrued on the Notes. No
course of dealing on the part of any Note holder nor any delay or failure on the
part of any Note holder to exercise any right shall operate as a waiver of such
right or otherwise prejudice such holder's rights, powers and remedies. Each
Borrower further agrees, to the fullest extent permitted by law, to pay to the
holder or holders of the Notes all costs and expenses, including reasonable
attorneys' fees, incurred by them in the collection of any Notes upon any Event
of Default hereunder or thereon.
9.4 Joint and Several Obligations. The obligations of the Borrowers
under this Agreement, the Notes, and the other Operative Documents, are joint
and several. Each of the Borrowers shall be fully responsible for payment and
performance of such obligations.
10. Amendments, Waivers and Consents.
10.1 Consent Required. Any term, covenant, agreement or condition of
this Agreement may, with the consent of the Company, be amended or compliance
therewith may be waived (either generally or in a particular instance and either
retroactively or prospectively), if the Company shall have obtained the consent
in writing of the holders of at least 50% in aggregate principal amount of
outstanding Notes; provided that without the written consent of the holders of
all of the Notes then outstanding, no such waiver, modification, alteration or
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<PAGE> 30
amendment shall be effective (i) which will change the time of payment of the
principal of or the interest on any Note or reduce the principal amount thereof
or change the rate of interest thereon, (ii) which will change any of the
provisions with respect to optional prepayments, or (iii) which will change the
percentage of holders of the Notes required to consent to any such amendment,
modification or waiver of any of the provisions of Section 9 or Section 10.
10.2 Solicitation of Note Holders. No Borrower shall, directly or
indirectly, pay or cause to be paid any remuneration, whether by way of
supplemental or additional interest, fee or otherwise, to any holder of the
Notes as consideration for or as an inducement to the entering into by any
holder of the Notes of any waiver or amendment of any of the terms and
provisions of this Agreement, unless such remuneration is concurrently offered,
on the same terms, ratably to the holders of all of the Notes then outstanding.
10.3 Effect of Amendment or Waiver. Any such amendment or waiver
shall apply equally to all of the holders of the Notes and shall be binding upon
them, upon each future holder of any Note, and upon the Borrowers, whether or
not such Note shall have been marked to indicate such amendment or waiver. No
such amendment or waiver shall extend to or affect any obligation not expressly
amended or waived or impair any right consequent thereon.
11. Interpretation of Agreement; Definitions.
11.1 Definitions. As used herein,
"Affiliate" means any person (i) which directly or indirectly through one
or more intermediaries controls, or is controlled by, or is under common control
with, the Company, (ii) which beneficially owns or holds 10 % or more of any
class of the Voting Stock of the Company, or (iii) 10 % or more of the Voting
Stock (or in the case of a person which is not a corporation, 10% or more of the
equity interest) of which is beneficially owned or held by the Company or a
Subsidiary.
"Business Day" means any day other than a Saturday, Sunday, or other day
on which banks in Tennessee or California are authorized to close.
"Change in Control" means (i) when any person or entity, including a
"group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934,
as amended, other than the Company or a wholly-owned subsidiary thereof or any
employee benefit plan of the Company or any of its subsidiaries, becomes the
beneficial owner of the Company's securities having 50% or more of the combined
voting power of the then outstanding securities of the Company that may be cast
for the election of directors of the Company (other than as a result of an
issuance of securities initiated by the Company in the ordinary course of
business), or (ii) two-thirds of the Company's Board of Directors is removed or
not re-elected.
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The term "control" (including the terms "controlling," "controlled by" and
"under common control") means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
person, whether through the ownership of Voting Stock, by contract, or
otherwise.
"Default" means any event or condition, the occurrence of which would,
with the lapse of time or the giving of notice, or both, constitute an Event of
Default as defined in Section 9.1.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time. References
to sections of ERISA shall be construed to also refer any successor sections.
"Exercise Price" means the Exercise Price per share of Common Stock
issuable upon exercise of the Warrants, as defined by the Initial Warrant and
the Contingent Warrants, as applicable.
"Fair Market Value" per share of common stock means (i) in the case of a
security listed or admitted to trading on any national securities exchange, the
last reported sale price, regular way (as determined in accordance with the
practices of such exchange), on each day, or if no sale takes place on any day,
the last reported sale price, regular way) as determined in accordance with the
practices of such exchange) on the immediately preceding trading day (and in the
case of a security traded on more than one national securities exchange, at such
price upon the exchange on which the volume of trading during the last calendar
year was the greatest), (ii) in the case of a security not then listed or
admitted to trading on any national securities exchange, the last reported 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, as reported by a reputable quotation
service designated by the Company, and (iii) in the case of a security not then
listed or admitted to trading on any securities exchange and as to which no such
reported sale price or bid and asked prices are available, the average of the
reported high bid and low asked prices on such day, as reported by a reputable
quotation service, or The Wall Street Journal, or if there are no bids and asked
prices on such day, the average of the high bid and low asked prices, as so
reported, on the most recent day (not more than 30 days prior to the date in
question) for which prices have been so reported.
"Guaranties" by any person means all obligations (other than endorsements
in the ordinary course of business of negotiable instruments for deposit or
collection) of such person guaranteeing, or in effect guaranteeing, any
Indebtedness, dividend or other obligation of any other person (the "primary
obligor") in any manner, whether directly or indirectly, including, without
limitation, all obligations incurred through an agreement, contingent or
otherwise, by such person: (i) to purchase such Indebtedness or obligation or
any property or assets constituting security therefor, (ii) to advance or supply
funds (A) for the purchase or payment of such
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<PAGE> 32
Indebtedness or obligation, (B)to maintain working capital or other balance
sheet condition or (C) otherwise to advance or make available funds for the
purchase or payment of such Indebtedness or obligation, or (iii) to lease
property or to purchase securities or other property or services primarily for
the purpose of assuring the owner of such Indebtedness or obligation of the
ability of the primary obligor to make payment of the Indebtedness or
obligation, or (iv) otherwise to assure the owner of the Indebtedness or
obligation of the primary obligor against loss in respect thereof. For the
purposes of all computations made under this Agreement, a Guaranty in respect of
any Indebtedness for borrowed money shall be deemed to be Indebtedness equal to
the principal amount of such Indebtedness for borrowed money which has been
guaranteed, and a Guaranty in respect of any other obligation or liability or
any dividend shall be deemed to be Indebtedness equal to the maximum aggregate
amount of such obligation, liability or dividend.
"Hazardous Substance" means any hazardous or toxic material, substance or
waste, pollutant or contaminant which is regulated under any statute, law,
ordinance, rule or regulation of any local, state, regional or Federal authority
having jurisdiction over the property of the Company and its Subsidiaries or its
use, including but not limited to any material, substance or waste which is: (i)
defined as a hazardous substance under Section 311 of the Federal Water
Pollution Control Act (33 U.S.C. SS 1317.1) as amended; (ii) regulated as a
hazardous waste under Section 1004 or Section 3001 of the Federal Solid Waste
Disposal Act, as amended by the Resource Conservation and Recovery Act (42
U.S.C. SS 6901 et seq.) as amended; (iii) defined as a hazardous substance under
Section 101 of the Comprehensive Environmental Response, Compensation and
Liability Act (42 U.S.C. SS 9601 et seq.) as amended; or (iv) defined or
regulated as a hazardous substance or hazardous waste under any rules or
regulations promulgated under any of the foregoing statutes.
"Indebtedness" of any person means and includes all obligations of such
person which in accordance with GAAP shall be classified upon a balance sheet of
such person as liabilities of such person, and in any event shall include all
(i) obligations of such person for borrowed money or which have been incurred in
connection with the acquisition of property or assets, (ii) obligations secured
by any lien or other charge upon property or assets owned by such person, even
though such person has not assumed or become liable for the payment of such
obligations, (iii) obligations created or arising under any conditional sale or
other title retention agreement with respect to property acquired by such
person, notwithstanding the fact that the rights and remedies of the seller,
lender or lessor under such agreement in the case of default are limited to
repossession or sale or property, (iv) capitalized rentals, and (v) Guaranties
of obligations of others of the character referred to in this definition.
"Investments" means all investments, in cash or by delivery of property
made, directly or indirectly in any person, whether by acquisition of shares of
capital stock, indebtedness or other obligations or securities or by loan,
advance, capital contribution or otherwise; provided, however
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<PAGE> 33
that "Investments" shall not mean or include routine investments in property to
be used or consumed in the ordinary course of business.
"Material Adverse Event" means any event or circumstance, or set of events
or circumstances, individually or collectively, that reasonably could be
expected to result in any (i) material adverse effect upon the validity or
enforceability of any of the Operative Documents, or (ii) material adverse
effect on the financial condition or results of operations of the Company and
its Subsidiaries, taken as a whole (either a "Material Adverse Effect"), or
(iii) material default or potential material default under any of the Operative
Documents.
"Person" means an individual, partnership, corporation, limited liability
company, joint venture, sole proprietorship, trust or any other unincorporated
organization or business association, and a government or government agency or
political subdivision thereof.
"Plan" means a "pension plan," as such term is defined in ERISA,
established or maintained by the Company or any ERISA Affiliate or as to which
the Company or any ERISA Affiliate contributed or is a member or otherwise may
have any liability.
"Registration Rights Agreement" means the Registration Rights Agreement
between the Company and the Purchaser of even date herewith.
"Security" has the same meaning as in Section 2(1) of the Securities Act
of 1933, as amended.
The term "subsidiary" means, as to any particular parent corporation, any
corporation of which more than 50% (by number of votes) of the Voting Stock
shall be owned by such parent corporation and/or one or more corporations which
are themselves subsidiaries of such parent corporation. The term "Subsidiary"
shall mean a subsidiary of the Company.
"Voting Stock" means securities of any class or classes the holders of
which are ordinarily, in the absence of contingencies, entitled to elect a
majority of the corporate directors (or persons performing similar functions).
"Warrants" means the Initial Warrant and the Contingent Warrants.
"Wholly-owned" when used in connection with any Subsidiary shall mean a
Subsidiary of which all of the issued and outstanding shares of stock (except
shares required as directors' qualifying shares) shall be owned by the Company
and/or one or more of its Subsidiaries.
11.2 Accounting Principles. Where the character or amount of any
asset or liability or item of income or expense is required to be determined or
any consolidation or other
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<PAGE> 34
accounting computation is required to be made for the purposes of this
Agreement, the same shall be done in accordance with GAAP, to the extent
applicable, except where such principles are inconsistent with the requirements
of this Agreement.
11.3 Directly or Indirectly. Where any provision in this Agreement
refers to action to be taken by any person, or which such person is prohibited
from taking such provision shall be applicable whether the action in question is
taken directly or indirectly by such person.
12. Miscellaneous.
12.1 Expenses, Stamp Tax Indemnity. Whether or not the transactions
herein contemplated shall be consummated, the Borrowers agree to pay to
Purchaser (i) Purchaser's out-of-pocket expenses in connection with the entering
into of this Agreement and the consummation of the transactions contemplated
hereby, including but not limited to the reasonable fees, expenses and
disbursements of Purchaser's counsel, and (ii) so long as Purchaser holds any of
the Notes, all such expenses relating to any amendment, waiver or consent
pursuant to the provisions hereof (whether or not the same are actually executed
and delivered), including, without limitation, any amendments, waivers or
consents resulting from any work-out, restructuring or similar proceedings
relating to the performance by any Borrower of its obligations under this
Agreement and the Notes. The Borrowers also agree to pay and hold Purchaser
harmless against any and all liability with respect to stamp and other taxes, if
any, which may be payable in connection with the execution and delivery of this
Agreement or the Notes, whether or not any Notes are then outstanding. The
Borrowers agree to protect and indemnify Purchaser against any liability for any
and all brokerage fees and commissions payable or claimed to be payable to any
person as a result of any actions of the Borrowers or their agents in connection
with the transactions contemplated by this Agreement.
12.2 Powers and Rights Not Waived; Remedies Cumulative. No delay or
failure on the part of the holder of any Note in the exercise of any power or
right shall operate as a waiver thereof; nor shall any single or partial
exercise of the same preclude any other or further exercise thereof; or the
exercise of any other power or right. The rights and remedies of the holder of
any Note are cumulative to and are not exclusive of any rights or remedies any
such holder would otherwise have, and no waiver or consent, given or extended
hereunder, shall extend to or affect any obligation or right not expressly
waived or consented to.
12.3 Notices. All communications provided for hereunder shall be in
writing and shall be delivered personally, or mailed by registered mail, or by
prepaid overnight air courier, or by facsimile communication, in each case
addressed:
33
<PAGE> 35
If to Purchaser: Tandem Capital, Inc.
500 Church Street, Suite 200
Nashville, Tennessee 37219
Attention: Craig Macnab
Facsimile No.: 615-726-1208
with a copy to: C. Christopher Trower, Esq.
3159 Rilman Road, N.W.
Atlanta, Georgia 30327-1503
Facsimile No.: 404-816-6854
If to Borrowers: Bikers Dream, Inc.
1420 Village Way
Santa Ana, California 92705
Attention: Herm Rosenman, President
Facsimile No.: 909-343-1610
with a copy to: Day Campbell & McGill
3070 Bristol Street, Suite 650
Costa Mesa, California 92626
Attention: Leonard J. McGill
Facsimile No.: 714-429-2901
or such other address as Purchaser or the subsequent holder of any Note
initially issued to Purchaser may designate to the Company in writing, or such
other address as the Company may in writing designate to Purchaser or to a
subsequent holder of the Note initially issued to Purchaser; provided, however,
that a notice sent by overnight air courier shall only be effective if delivered
at a street address designated for such purpose by such person and a notice sent
by facsimile communication shall only be effective if made by confirmed
transmission at a telephone number designated for such purpose by such person
or, in either case, as Purchaser or a subsequent holder of any Notes initially
issued to Purchaser may designate to the Company in writing or at a telephone
number herein set forth.
12.4 Assignments. This Agreement, the Notes and the other Operative
Documents may be endorsed, assigned and/or transferred in whole or in part by
Purchaser, and any such holder and/or assignee of the same shall succeed to and
be possessed of the rights and powers of Purchaser under all of the same to the
extent transferred and assigned; provided, however, that Purchaser shall not
make any such transfer to a competitor of the Company without the prior written
consent of the Company. No Borrower shall assign any of its rights or delegate
any of its duties under this Agreement or any of the other Operative Documents
by operation of
34
<PAGE> 36
law or otherwise without the prior express written consent of Purchaser, which
may be withheld in Purchaser's sole and unfettered discretion, and if the
Company obtains such consent, this Agreement and such other Operative Documents
shall be binding upon such assignee.
12.5 Survival of Covenants and Representations. All representations
and warranties made by the Borrowers or the Purchaser herein and in any
instruments or certificates delivered pursuant hereto shall survive for a period
of eighteen months following the respective Closing Date, except the
representations and warranties made in Sections 2.1, 2.2, 2.3, and 2.4 by the
Borrowers, and in Sections 3.1, 3.2, 3.3, and 3.4 by Purchaser, which shall
survive until payment in full of the principal amount of, all accrued but unpaid
interest under, and all expenses and other costs required to be paid by the
Borrowers under, the Notes. All covenants made by the Borrowers and the
Purchaser herein and in any instruments or certificates delivered pursuant
hereto shall survive the closing and the delivery of this Agreement and the
Notes, until the termination of this Agreement, which shall terminate and be of
no further force or effect upon the payment in full of the principal amount of,
all accrued but unpaid interest under, and all expenses and other costs required
to be paid by the Borrowers under, the Notes.
12.6 Severability. Should any part of this Agreement for any reason
be declared invalid or unenforceable, such decision shall not affect the
validity of any remaining portion, which remaining portion shall remain in force
and effect as if this Agreement had been executed with the invalid or
unenforceable portion thereof eliminated and it is hereby declared the intention
of the parties hereto that they would have executed the remaining portion of
this Agreement without including therein any such part, parts or portion which
may for any reason, be hereafter declared invalid or unenforceable.
12.7 Governing Law; Jurisdiction and Venue. This Agreement and the
Notes issued and sold hereunder shall be governed by and construed in accordance
with California law, without regard to its conflicts of law rules. The Borrowers
hereby consent to jurisdiction, service of process, and venue in the federal and
state courts having jurisdiction in the State of Tennessee or in the State of
California, for the purpose of any action arising out of any obligations under
this Agreement, and expressly waive jury trial and any and all objections as to
jurisdiction, service of process, and venue in such courts.
12.8 Captions; Counterparts. The descriptive headings of the various
Sections or parts of this Agreement are for convenience only and shall not
affect the meaning or construction of any of the provisions hereof. This
Agreement may be executed in counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
12.9 Confidentiality. Each party hereto agrees that, except with the
prior written permission of the other party hereto, it shall at all times keep
confidential and not divulge, furnish
35
<PAGE> 37
or make accessible to anyone any confidential information, knowledge or data
concerning or relating to the business or financial affairs of the other party
to which such party has been or shall become privy by reason of this Agreement,
discussions or negotiations relating to this Agreement, the performance of its
obligations hereunder or the ownership of the Note purchased hereunder, except
as such disclosure may be required by law, rule, or regulation, or by the rules
of any securities exchange or NASDAQ which may be applicable to the Company.
12.10 Publicity. The Company and Purchaser shall consult with each
other in issuing any press releases or otherwise making public statements with
respect to the transactions contemplated hereby. No party shall issue any press
release or otherwise make any public statement without the prior written consent
of the other, which consent shall not be unreasonably withheld or delayed,
except as such disclosure may be required by law.
[rest of page intentionally left blank]
36
<PAGE> 38
WITNESS WHEREOF, the parties hereto have caused this Loan Agreement to be
executed and delivered by their duly authorized officers as of the date first
written above.
BIKERS DREAM, INC. ULTRA ACQUISITION CORPORATION
By: /s/ H. Rosenman By: /s/ H. Rosenman
--------------------------------- -------------------------------------
Title: President/CEO Title: President
SIRROM CAPITAL CORPORATION
d/b/a/ TANDEM CAPITAL
By: /s/ Mike Comegna
---------------------------------
Title: Vice President
37
<PAGE> 39
BIKERS DREAM, INC.
SCHEDULES
<TABLE>
<S> <C>
2.1(b): Ultra Acquisition Corp., a Nevada corporation
Bikers Dream International, Inc., a California corporation
Bikers Dream Eagle Enterprises, a California corporation
Bikers Dream Management Services, a California corporation
Bikers Dream Distribution, Inc., a California corporation
Each of the subsidiaries set forth above are wholly owned by
Bikers Dream, Inc.
In addition, the Company owns Ultra Bikers, LLC, a California
limited liability company for which dissolution proceedings have
begun.
2.2(a): None.
2.2(b): See attached.
2.3: None.
2.6: Bogert v. Bikers Dream, Inc.
Mull Acres v. Bikers Dream, Inc.
The Company entered into a settlement agreement with Jeff Simons
in July 1997 pursuant to which the Company was to register and
issue a number of shares of common stock. Insofar as the
registration statement pertaining to these shares, while filed,
has not yet been declared effective, Mr. Simons' counsel has
expressed dissatisfaction with the Company's performance under
the settlement agreement and has threatened to take legal action.
2.9: Since December 31, 1998, the Company has issued 275,262 shares of
common stock and 155 shares of Series C Preferred Stock.
On February 5, 1998, the Company effected a one for five reverse
split of its common stock.
The Company and Co-Maker have entered into flooring agreements
with CANA Capital.
2.10: None.
</TABLE>
<PAGE> 40
<TABLE>
<S> <C>
2.13: Diana Rosenman, the President's wife, is employed by the Company,
pursuant to an employment agreement, at an annual salary of
$110,000.
2.14: Landlord consent required for Riverside properties.
2.15: None.
2.24: Jeff Simons (registration statement on Form S-3 filed).
Mull Acres Investments, Inc.
All holders of Series B preferred. All holders of Series C
preferred.
Series C Warrants.
Series D Warrants.
Series E Warrants.
Series F Warrants.
Holders of certain options listed on Schedule 2.2(b), other than,
generally, options granted pursuant to stock option plans.
2.27: Herm Rosenman.
Diana Rosenman.
Christopher Ebert.
Drew Milburn.
Bruce Knight.
1995 Incentive Stock Option Plan.
1995 Non-Qualified Stock Option Plan.
1995 Non-Qualified Directors' Stock Option Plan.
2.29: Furman Selz receives 2%.
5.14: None.
5.17: None.
</TABLE>
2
<PAGE> 41
Schedule 2.2(b)
The Company has 155 shares of Series C Preferred Stock outstanding, convertible
as of June 9, 1998 into 1,291,667 shares of common stock.
The Company has 943,463 shares of Series B Preferred stock outstanding,
convertible as of June 9, 1998 into 943,463 shares of common stock.
The Company has three shares of Series A Preferred Stock outstanding,
convertible as of June 9, 1998 into 77,000 shares of common stock.
The Company has options outstanding to purchase 877,387 shares of common stock
(see attached schedule of options).
The Company has warrants outstanding to purchase 877,749 shares of common stock
(see attached schedule of warrants).
3
<PAGE> 1
EXHIBIT 10.31.1
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1993, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES LAW. THESE SECURITIES MAY NOT BE TRANSFERRED WITHOUT SUCH
REGISTRATION OR EXEMPTION THEREFROM.
BIKERS DREAM, INC.
ULTRA ACQUISITION CORPORATION
12% SECURED PROMISSORY NOTE DUE JUNE 22, 2001
$4,500,000.00 June 22, 1998
FOR VALUE RECEIVED, BIKERS DREAM, INC., a California corporation (the
"Company"), and ULTRA ACQUISITION CORPORATION, a Nevada corporation (a
"Co-Maker"), collectively the "Borrowers," jointly and severally promise to pay
to the order of SIRROM CAPITAL CORPORATION d/b/a/ TANDEM CAPITAL, a Tennessee
corporation ("Purchaser"), pursuant to the Loan Agreement (as hereinafter
defined) at such place as Purchaser may from time to time designate in writing,
in lawful money of the United States of America and in immediately available
funds, the principal sum of Four Million Five Hundred Thousand Dollars
($4,500,000.00) and any accrued but unpaid interest thereon.
This Note is referred to in and is executed and delivered pursuant to, a
Loan agreement dated of even date herewith between the Borrowers and Purchaser
(the "Loan Agreement"), to which reference is hereby made for a statement of the
terms and conditions under which this Note may be repaid and accelerated.
Capitalized terms not otherwise defined herein shall have the meanings ascribed
to them in the Loan Agreement.
Interest shall accrue from the date of issue of this Note at the rate of
12.00% per annum, payable quarterly by automatic debit on the first day of each
March, June, September and December, commencing September 1, 1998, and ending at
maturity, to mature on June 22, 2001.
Interest shall be computed on the basis of a 360-day year and the actual
number of days elapsed.
Any principal payment due under this Note not paid when due, whether at
stated maturity, by notice of repayment, by acceleration or otherwise, and any
accrued but unpaid interest not paid when due, shall, to the extent permitted by
applicable law, thereafter bear interest (compounded
<PAGE> 2
monthly and payable upon demand) at an annual rate of 19.00% in respect of such
principal and such unpaid interest until such unpaid amounts have been paid in
full (whether before or after judgment).
This Note is subject to prepayment or optional redemption by the
Borrowers as provided by the Loan Agreement. All payments made hereunder shall
be applied first to interest and then to outstanding principal.
If payment hereunder becomes due and payable on a Saturday, Sunday, or
other day on which banks in Tennessee or California are authorized to close, the
due date thereof shall be extended to the next succeeding business day.
Demand, presentment, protest, diligence, notice of dishonor, and any
other formality are hereby expressly waived by the Borrowers and any endorser or
guarantor.
If there is any default under this Note, and this Note is placed in the
hands of an attorney for collection, or is collected through any court,
including any bankruptcy court, each Borrower promises to pay to the order of
the holder hereof such holder's reasonable attorneys' fees and court costs
actually incurred in collecting or attempting to collect or securing or
attempting to secure this Note or enforcing the holder's rights with respect to
the Collateral, to the extent allowed by the laws of the State of California or
any state in which any Collateral is situated. The Borrowers hereby consent to
jurisdiction, service of process, and venue in the federal and state courts
having jurisdiction in the State of Tennessee or in the State of California, for
the purpose of any action arising out of any obligations hereunder, and
expressly waive jury trial and any and all objections as to jurisdiction,
service of process, and venue in such courts.
THIS NOTE HAS BEEN DELIVERED IN, AND SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF, THE STATE OF CALIFORNIA APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED THEREIN WITHOUT REGARD TO THE CONFLICTS OF
LAW PROVISIONS THEREOF.
The holder of this Note may, with or without notice to any party, and
without affecting the obligations of any maker, surety, guarantor, endorser,
accommodation party, or any other party to this Note (i) extend the time for
payment of either principal or interest from time to time, (ii) release or
discharge any one or more parties liable on this Note, (iii) suspend the right
to enforce this Note with respect to any persons, (iv) change, exchange, or
release any property in which the holder has any interest securing this Note,
(v) justifiably or otherwise, impair any of the Collateral or suspend the right
to enforce against any such Collateral, and (vi) at any time it deems it
necessary or proper, call for and, should it be made available, accept, as
additional security, the
2
<PAGE> 3
signature or signatures of additional parties or a security interest in property
of any kind or description or both.
This Note is subordinated to certain other indebtedness to the extent
and with the effect set forth in the Loan Agreement.
This Note is registered on the books of the Borrowers and is
transferable only by surrender thereof at the principal office of the Company or
such other address as the Company shall have advised the holder of the Note in
writing, duly endorsed or accompanied by a written instrument of transfer duly
executed by the registered holder of this Note or its attorney duly authorized
in writing. Payment of or on account of principal, premium, if any, and interest
on this Note shall be made only to or upon the order in writing of the
registered holder thereof.
Any provision herein, or in the Loan Agreement, or any other document
executed or delivered in connection herewith or therewith, or in any other
agreement or commitment, whether written or oral, expressed or implied, to the
contrary notwithstanding, neither the Purchaser nor any holder hereof shall in
any event be entitled to receive or collect, nor shall any amounts received
hereunder be credited, so that Purchaser or any holder hereof shall be paid, as
interest, a sum greater than the maximum amount permitted by applicable law to
be charged to the person primarily obligated to pay this Note at the time in
question. If any construction of this Note or the Loan Agreement, or any and all
other papers, agreements or commitments, indicate a different right given to
Purchaser or any holder hereof to ask for, demand, or receive any larger sum as
interest, such is a mistake in calculation or wording which this clause shall
override and control, it being the intention of the parties that this Note, the
Loan Agreement, and all other documents executed or delivered in connection
herewith shall in all ways comply with applicable law and proper adjustments
shall automatically be made accordingly. If Purchaser or any holder hereof ever
receives, collects, or applies as interest, any sum in excess of the maximum
amount permitted by applicable law, if any, such excess amount shall be applied
to the reduction of the unpaid principal balance of this Note, and if this Note
is paid in full, any remaining excess shall be paid to the Borrowers. In
determining whether or not the interest paid or payable, under any specific
contingency, exceeds the maximum amount permitted by applicable law, if any, the
Borrowers and any holder hereof shall, to the maximum extent permitted under
applicable law; (i) characterize any non-principal payment as an expense or fee
rather than as interest, and (ii) "spread" the total amount of interest
throughout the entire term of this Note.
[rest of page intentionally left blank]
3
<PAGE> 4
IN WITNESS WHEREOF, each Borrower has caused this Note to be executed in
its corporate name by the undersigned officer, thereunto duly authorized.
BIKERS DREAM, INC. ULTRA ACQUISITION CORPORATION
By: /s/ H. Rosenman By: /s/ H. Rosenman
---------------------------- ----------------------------
Title: President/CEO Title: President
---------------------------- ----------------------------
4
<PAGE> 1
EXHIBIT 10.31.2
SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES LAW. THESE SECURITIES MAY NOT BE TRANSFERRED WITHOUT SUCH
REGISTRATION OR EXEMPTION THEREFROM.
STOCK PURCHASE WARRANT
[Initial Warrant]
This Warrant is issued this 22d day of June, 1998, by BIKERS DREAM,
INC., a California corporation (the "Company"), to SIRROM CAPITAL CORPORATION
d/b/a TANDEM CAPITAL, a Tennessee corporation (SIRROM CAPITAL CORPORATION and
any subsequent assignee or transferee hereof are hereinafter referred to
collectively as "Holder" or "Holders"). Capitalized terms not defined herein
shall have the meanings assigned by the Loan Agreement referred to in Section 1.
Agreement:
1. Issuance of Warrant; Term. For and in consideration of Sirrom Capital
Corporation d/b/a Tandem Capital purchasing from the Company and other Borrowers
a Secured Promissory Note in the original principal amount of Four Million Five
Hundred Thousand Dollars ($4,500,000.00) (the "Note") pursuant to the terms of a
Loan Agreement dated June 22, 1998 (the "Loan Agreement"), and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company hereby grants to Holder the right to purchase at any
time and from time to time, in whole or in part, on or after June 22, 1998, up
to 370,000 Shares of the Company's Common Stock, no par value (the "Common
Stock). The shares of Common Stock issuable upon exercise of this Warrant are
hereinafter referred to as the "Shares." This Warrant shall be exercisable at
any time and from time to time from June 22, 1998, until 5:00 PM, Nashville
time, June 22, 2003.
2. Exercise Price. The exercise price (the "Exercise Price") per share
for which all or any of the Shares may be purchased shall be $4.0625 per Share,
and shall be further adjusted as provided herein. The Exercise Price shall
automatically be reset on the first anniversary of the Closing Date at the
lesser of (i) $4.0625, or (ii) the average closing bid price of the Company's
Common Stock for the 20 trading days immediately preceding such anniversary,
provided that no adjustment shall be made which increases the then effective
Exercise Price.
3. Exercise. This Warrant may be exercised by the Holder hereof as to
all or any increment or increments of 100 Shares (or the balance of the Shares
if less than such number), upon delivery of written notice of intent to exercise
to the Company at the address set forth in the
<PAGE> 2
Loan Agreement, or such other address as the Company shall designate in a
written notice to the Holder hereof, together with this Warrant and payment to
the Company of the aggregate Exercise Price of the Shares so purchased. The
Exercise Price shall be payable, at the option of the Holder, (i) by certified
or bank check, (ii) by the surrender of the Note or portion thereof having an
outstanding principal balance equal to the aggregate Exercise Price, or (iii) by
the surrender of a portion of this Warrant where the excess of (A) the Fair
Market Value of the Shares subject to the portion of this Warrant that is
surrendered (the "Surrendered Shares"), over (B) the aggregate Exercise Price of
the Surrendered Shares, is equal to the aggregate Exercise Price for the Shares
to be issued. Upon payment of the Exercise Price, the Holder shall be deemed to
be the holder of record of the Shares, notwithstanding that the stock transfer
books of the Company may then be closed or that certificates representing such
Shares may not then be actually delivered to the Holder. The Company shall as
promptly as practicable thereafter, and in any event within 15 days thereafter,
execute and deliver to the Holder of this Warrant a certificate or certificates
for the total number of whole Shares for which this Warrant is being exercised
in such names and denominations as are requested by such Holder. If this Warrant
shall be exercised with respect to less than all of the Shares, the Holder shall
be entitled upon surrender of the old Warrant to receive a new Warrant covering
the number of Shares in respect of which this Warrant shall not have been
exercised, which new Warrant shall in all other respects be identical to this
Warrant. The Company covenants and agrees that it will pay when due any and all
state and federal issue taxes which may be payable in respect of the issuance of
this Warrant or the issuance of any Shares upon exercise of this Warrant.
4. Covenants and Conditions. The above provisions are subject to the
following:
4.1 Restrictive Legend. Each certificate representing Shares
shall bear the following legend:
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAW.
THESE SECURITIES MAY NOT BE TRANSFERRED WITHOUT SUCH REGISTRATION
OR EXEMPTION THEREFROM.
4.2 Validity; Reservation of Shares. The Company covenants and
agrees that all Shares which may be issued upon exercise of this Warrant will,
upon issuance and payment therefor pursuant to this Warrant, be validly issued
and outstanding, fully paid and nonassessable, free from all taxes, liens,
charges and preemptive rights, if any, with respect thereto or to the issuance
thereof. The Company shall at all times reserve and keep available for issuance
upon the
2
<PAGE> 3
exercise of this Warrant such number of authorized but unissued shares of Common
Stock as will be sufficient to permit the exercise in full of this Warrant.
5. Transfer and Replacement of Warrant. Subject to the provisions of
Section 4, this Warrant may be transferred, in whole or in part, but only in
multiples of 10,000 Shares, to any person or business entity, by presentation of
the Warrant to the Company with written instructions for such transfer; provided
that the transferee is an accredited investor as defined in Regulation D of the
Securities Act of 1933, and in compliance with all applicable federal and state
securities laws. Upon such presentation for transfer, the Company shall promptly
execute and deliver a new Warrant or Warrants in the form hereof in the name of
the transferee or transferees and in the denominations specified in such
instructions. Upon receipt by the Company of evidence reasonably satisfactory to
it of the loss, theft or destruction of this Warrant, and of indemnity or
security reasonably satisfactory to it, or upon surrender of this Warrant if
mutilated, the Company will make and deliver a new Warrant of like tenor,
bearing the restrictive legend set forth above, in lieu of this Warrant. This
Warrant shall be promptly canceled by the Company upon the surrender hereof in
connection with any transfer or replacement. The Company shall pay all expenses
incurred by it in connection with the preparation, issuance and delivery of
Warrants under this Section.
6. Warrant Holder Not Shareholder; Rights Offering; Preemptive Rights.
Except as otherwise provided herein, this Warrant does not confer upon the
Holder, as such, any right whatsoever as a shareholder of the Company.
Notwithstanding the foregoing, if the Company should offer to all of the
Company's shareholders the right to purchase any securities of the Company, then
all shares of Common Stock that are then issuable upon exercise of this Warrant
shall be deemed to be outstanding and owned by the Holder and the Holder shall
be entitled to participate in such rights offering. The Company shall not grant
any preemptive rights with respect to any of its Common Stock without the prior
written consent of the Holder.
7. Adjustment of Number of Shares and Exercise Price.
7.1 Recapitalizations - Adjustment of Number of Shares. If all or
any portion of this Warrant shall be exercised subsequent to any transaction in
which the Company shall (i) pay a stock dividend or otherwise make a
distribution or distributions on shares of its Common Stock payable in shares of
its capital stock (whether payable in shares of its Common Stock or of capital
stock of any other class), (ii) subdivide outstanding shares of Common Stock
into a larger number of shares, (iii) combine outstanding shares of Common Stock
into a smaller number of shares, (iv) issue by reclassification of shares of
Common Stock any shares of capital stock of the Company, or (v) otherwise change
its capital structure, occurring after the date hereof, as a result of which
shares of Common Stock shall be changed into the same or a different number of
shares of the same or another class or classes of securities of the Company,
then the Holder exercising this Warrant shall receive, for the aggregate price
paid upon such exercise, the
3
<PAGE> 4
aggregate number and class of shares and such other securities which such Holder
would have received if this Warrant had been exercised immediately prior to the
record date for such transaction.
7.2 Mergers, Etc. - Adjustment of Number of Shares. If all or any
portion of this Warrant shall be exercised subsequent to any merger,
consolidation, exchange of shares, separation, reorganization, or liquidation of
the Company, or other similar event, occurring after the date hereof, as a
result of which Shares of Common Stock shall be changed into the same or a
different number of shares of the same or another class or classes of securities
of the Company or another entity, or the holders of Common Stock are entitled to
receive cash or other property, then the Holder exercising this Warrant shall
receive, for the aggregate price paid upon such exercise, the aggregate number
and class of shares, cash or other property which such Holder would have
received if this Warrant had been exercised immediately prior to such merger,
consolidation, exchange of shares, separation, reorganization or liquidation, or
other similar event.
7.3 Adjustment of Exercise Price Upon Issuance of Shares,
Warrants, Rights, Etc.
(a) Initial Exercise Price. The initial Exercise Price per
share shall be $4.0625. The Exercise Price shall automatically be reset on the
first anniversary of the Closing Date at the lesser of (i) $4.0625, or (ii) the
average closing bid price of the Company's Common Stock for the 20 trading days
immediately preceding such anniversary, provided that no adjustment shall be
made which increases the then effective Exercise Price.
(b) Recapitalizations. If the Company, at any time prior
to the expiration of this Warrant, shall (i) pay a stock dividend or otherwise
make a distribution or distributions on shares of its Common Stock payable in
shares of its capital stock (whether payable in shares of its Common Stock or of
capital stock of any class), (ii) subdivide outstanding shares of Common Stock
into a larger number of shares, (iii) combine outstanding shares of Common Stock
into a smaller number of shares, (iv) issue by reclassification of shares of
Common Stock any shares of capital stock of the Company, or (v) otherwise change
its capital structure, then the Exercise Price then in effect shall be
multiplied by a fraction of which the numerator shall be the number of shares of
Common Stock of the Company outstanding before such event and of which the
denominator shall be the number of shares of Common Stock outstanding after such
event. Such adjustment shall become effective immediately after the record date
in the case of a dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or
reclassification.
(c) Distributions of Warrants or Rights, Issuance of Stock
or Warrants at Less Than Fair Market Value. If the Company, at any time prior to
the expiration of this
4
<PAGE> 5
Warrant, shall (i) issue rights or warrants to all holders of Common Stock
entitling them to subscribe for or purchase shares of Common Stock at a price
per share less than the Fair Market Value of Common Stock at the record date
mentioned below, or (ii) issue additional Common Stock, or warrants, options, or
other securities convertible into Common Stock, at a price or exercise or
conversion price per share less than the Fair Market Value of the Common Stock
at the date of issuance or grant, the Exercise Price then in effect shall be
adjusted to equal (x) the sum of (A) the total number of shares of Common Stock
outstanding immediately prior to such issuance or grant, multiplied by the
Exercise Price then in effect, plus (B) the aggregate consideration to be paid
for such Common Stock or other securities, divided by (y) the sum of (C) the
total number of shares of Common Stock outstanding immediately prior to such
issuance or grant, plus (D) the number of shares of Common Stock or common stock
equivalents issued or granted. Provided, that no such adjustment shall be made
which has the effect of increasing the Exercise Price. Further provided, that
the adjustment provided by this Section 7.3(c) shall not apply to issuance of
securities pursuant to options, warrants, or conversion rights outstanding on
the date this Warrant is issued. Such adjustment shall be made whenever such
rights, warrants, Common Stock, or securities are issued, and shall become
effective immediately after (i) the record date for the determination of
stockholders entitled to receive such rights or warrants, or (ii) the issuance
of such Common Stock or common stock equivalents. Provided, that upon the
expiration of any right or warrant to purchase or convert into Common Stock the
issuance of which resulted in an adjustment in the Exercise Price pursuant to
this Section 7.3(c), if such right or warrant shall expire and shall not have
been exercised, the Exercise Price shall immediately upon such expiration be
recomputed and effective immediately upon such expiration be increased to the
price which it would have been (but reflecting any other adjustments in the
Exercise Price made pursuant to the provisions of this Section 7 after the
issuance of such rights or warrants) had the adjustment of the Exercise Price
made upon the issuance of such rights or warrants been made on the basis of
offering for subscription or purchase only that number of shares of Common Stock
actually purchased or obtained upon the exercise of such rights or warrants
actually exercised.
(d) Distributions of Warrants or Rights, Issuance of Stock
or Warrants at Less Than Exercise Price. If the Company, at any time prior to
the expiration of this Warrant, shall (i) issue rights or warrants to all
holders of Common Stock entitling them to subscribe for or purchase shares of
Common Stock at a price per share less than the Exercise Price then in effect,
or (ii) issue additional Common Stock, or warrants, options, or other securities
convertible into Common Stock, at a price or exercise or conversion price per
share less than the Exercise Price then in effect, the Exercise Price shall be
reset at such lesser amount. Further provided, that the adjustment provided by
this Section 7.3(d) shall not apply to issuance of securities pursuant to
options, warrants, or conversion rights outstanding on the date this Warrant is
issued. Such adjustment shall be made whenever such rights, warrants, Common
Stock, or securities are issued, and shall become effective immediately after
(i) the record date for the determination of stockholders entitled to receive
such rights or warrants, or (ii) the issuance of such Common
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<PAGE> 6
Stock or common stock equivalents. Provided, that upon the expiration of any
right or warrant to purchase or convert into Common Stock the issuance of which
resulted in an adjustment in the Exercise Price pursuant to this Section 7.3(d),
if such right or warrant shall expire and shall not have been exercised, the
Exercise Price shall immediately upon such expiration be recomputed and
effective immediately upon such expiration be increased to the price which it
would have been (but reflecting any other adjustments in the Exercise Price made
pursuant to the provisions of this Section 7 after the issuance of such rights
or warrants) had the adjustment of the Exercise Price made upon the issuance of
such rights or warrants been made on the basis of offering for subscription or
purchase only that number of shares of Common Stock actually purchased or
obtained upon the exercise of such rights or warrants actually exercised.
(e) Distributions of Other Property. If the Company, at
any time prior to the expiration of this Warrant, shall distribute to all
holders of Common Stock (and not to holders of Warrants on an as-exercised
basis) evidences of its indebtedness, or any of its assets, or rights or
warrants to subscribe for or purchase any security (excluding those referred to
in Section 7.3(c) or Section 7.3(d) above), the Exercise Price at which this
Warrant shall thereafter be exercisable shall be determined by multiplying the
Exercise Price in effect prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of which (x)
the denominator shall be the per share Fair Market Value of Common Stock
determined as of the record date mentioned above, and of which (y) the numerator
shall be such per share Fair Market Value of the Common Stock on such record
date less the then fair market value at such record date of the portion of such
evidence of indebtedness, assets, or rights or warrants so distributed
applicable to one outstanding share of Common Stock, as determined by the Board
of Directors of the Company in good faith; provided, however that in the event
of a distribution exceeding ten percent of the net assets of the Company, then
such fair market value shall be determined by a nationally recognized or major
regional investment banking firm or firm of independent certified public
accountants of recognized standing (which may be the firm that regularly
examines the financial statements of the Company) (an "Appraiser") selected in
good faith by the Holders of majority in interest of the Warrants; and provided,
further, that the Company, after receipt of the determination by such Appraiser
shall have the right to select an additional Appraiser, in which case the fair
market value shall be equal to the average of the determination by each such
Appraiser. Provided, that no such adjustment shall be made which has the effect
of increasing the Exercise Price. In either case the adjustments shall be
described in a statement provided to all Holders of Warrants. Such adjustment
shall be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
7.4 Other Adjustments, Etc.
(a) Rounding. All calculations under this Section 7 shall
be made to the nearest cent or the nearest 1/100th of a share, as the case may
be.
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<PAGE> 7
(b) Notice of Adjustments. Whenever the Exercise Price is
adjusted pursuant to this Section 7, the Company shall promptly mail to each
holder of Warrants, a notice setting forth the Exercise Price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment.
(c) Exercise After Reclassification, Merger, Share
Exchange, or Sale of Assets. In case of any reclassification of the Common
Stock, any consolidation or merger of the Company with or into another person,
any sale or transfer of all or substantially all of the assets of the Company,
or any compulsory share exchange pursuant to which share exchange the Common
Stock is converted into other securities, cash or property, then the holders of
Warrants shall have the right thereafter to purchase upon exercise of such
Warrants only the kind and amount of shares of stock and other securities and
property receivable upon or deemed to be held following such reclassification,
consolidation, merger, sale, transfer, or share exchange by a holder of the
number of shares of the Common Stock which the holder of this Warrant would have
received upon exercise of this Warrant immediately prior to such
reclassification, consolidation, merger, sale, transfer, or share exchange. The
terms of any such consolidation, merger, sale transfer or share exchange shall
include such terms so as to continue to give to the holder of this Warrant the
right to receive the securities or property set forth in this Section 7.4(c)
upon any exercise following such consolidation, merger, sale, transfer, or share
exchange. This provision shall similarly apply to successive reclassifications,
consolidations, mergers, sales, transfers, or share exchanges.
(d) Procedure for Other Adjustments. In case at any time
conditions shall arise by reason of action taken by the Company which in the
opinion of the Board of Directors of the Company are not adequately covered by
the other provisions hereof and which might materially and adversely affect the
rights of the holders of Warrants (different than or distinguished from the
effect generally on the rights of holders of any securities of the Company) or
in case at any time any such conditions are expected to arise in the opinion of
the Board of Directors of the Company by reason of any action contemplated by
the Company, an Appraiser selected by the holders of more than 50% of the
Warrants shall give its opinion as to the adjustment, if any (not inconsistent
with the standards established in this Section 7), of the Exercise Price
(including, if necessary, any adjustment as to the securities which may be
acquired upon exercise) and any distribution which is or would be required to
preserve without diluting the rights of the holders of the Warrants; provided,
however, that the Company, after receipt of the determination by such Appraiser,
shall have the right to select an additional Appraiser, in which case the
adjustment shall be equal to the average of the adjustments recommended by each
such Appraiser. The Board of Directors of the Company shall make the adjustment
recommended forthwith upon the receipt of such opinion or opinions or the taking
of any such action contemplated, as the case may be; provided, however, that no
such adjustment of the Exercise Price shall be made which in the opinion of the
Appraiser(s) giving the aforesaid opinion or opinions would result in an
increase of the Exercise Price then in effect.
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<PAGE> 8
(e) No Double Counting. Notwithstanding anything to the
contrary contained in this Warrant, to the extent that any adjustment is made
under the terms of this Section 7 to the Exercise Price or the number of shares
issuable hereunder, no further adjustment shall be made with respect to the
recapitalization, issuance of securities, or distribution requiring adjustment.
No adjustment shall be made with respect to the issuance of Common Stock upon
the exercise of rights for which an adjustment was made under Section 7.4(d), or
for any securities issued in connection with the Loan Agreement or the exercise
of any such securities.
(f) Definition of Fair Market Value. "Fair Market Value"
per share of common stock means (i) in the case of a security listed or admitted
to trading on any national securities exchange, the last reported sale price,
regular way (as determined in accordance with the practices of such exchange),
on each day, or if no sale takes place on any day, the last reported sale price,
regular way) as determined in accordance with the practices of such exchange) on
the immediately preceding trading day (and in the case of a security traded on
more than one national securities exchange, at such price upon the exchange on
which the volume of trading during the last calendar year was the greatest),
(ii) in the case of a security not then listed or admitted to trading on any
national securities exchange, the last reported 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, as reported by a reputable quotation service designated by the
Company, (iii) in the case of a security not then listed or admitted to trading
on any securities exchange and as to which no such reported sale price or bid
and asked prices are available, the average of the reported high bid and low
asked prices on such day, as reported by a reputable quotation service, or The
Wall Street Journal, or if there are no bids and asked prices on such day, the
average of the high bid and low asked prices, as so reported, on the most recent
day (not more than 30 days prior to the date in question) for which prices have
been so reported, and (iv) in the case of a security determined by the Company's
Board of Directors as not having an active quoted market or in the case of other
property, if the Common Stock is no longer publicly traded the fair market value
of a share of Common Stock or other property as determined by an Appraiser (as
defined in Section 7.3(e) above) selected in good faith by the holders more than
50% of the Warrants; provided, however, that the Company, after receipt of the
determination by such Appraiser, shall have the right to select an additional
Appraiser, in which case, the fair market value shall be equal to the average of
the determinations by each such Appraiser.
8. Certain Notices. If at any time the Company shall propose to (i)
declare any cash dividend upon its Common Stock; (ii) declare any dividend upon
its Common Stock payable in stock or make any special dividend or other
distribution to the holders of its Common Stock; (iii) offer for subscription to
the holders of any of its Common Stock any additional shares of stock in any
class or other rights; (iv) reorganize, or reclassify the capital stock of the
Company, or consolidate, merge or otherwise combine with, or sell all or
substantially all of its assets to another corporation; (v) voluntarily or
involuntarily dissolve, liquidate or wind up the affairs of the Company; or (vi)
redeem or purchase any shares of its capital stock or securities convertible
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<PAGE> 9
into its capital stock, then the Company shall give to the Holder of this
Warrant, by certified or registered mail, (i) at least 10 days' prior written
notice of the date on which the books of the Company shall close or a record
shall be taken for such dividend, distribution or subscription rights or for
determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, and (ii) in the case of such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least 15
days' prior written notice of the date when the same shall take place. Any
notice required by clause (i) shall also specify, in the case of any such
dividend, distribution or subscription rights, the date on which the holders of
Common Stock shall be entitled thereto, and any notice required by clause (ii)
shall specify the date on which the holders of Common Stock shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, as the case may be.
9. Article and Section Headings. Numbered and titled article and section
headings are for convenience only and shall not be construed as amplifying or
limiting any of the provisions of this Warrant.
10. Notice. Any and all notices, elections or demands permitted or
required to be made under this Warrant shall be in writing, signed by the party
giving such notice, election or demand and shall be delivered personally,
telecopied, telexed, or sent by certified mail or overnight via nationally
recognized courier service, to the other party at the address set forth below,
or at such other address as may be supplied in writing and of which receipt has
been acknowledged in writing. The date of personal delivery or telecopy; or the
date two business days after the date of mailing, or the date of the next
business day after delivery to a courier service, as the case may be, shall be
deemed to be the date of such notice, election or demand.
The address of the Holder is: Sirrom Capital Corporation d/b/a Tandem Capital
500 Church Street
Suite 200
Nashville, Tennessee 37219
Attention: Craig Macnab
Facsimile No.: (615) 726-1208
with a copy to: C. Christopher Trower, Esq.
3159 Rilman Road, N.W.
Atlanta, Georgia 30327-1503
Facsimile No.: (404) 816-6854
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<PAGE> 10
The address of the Company is: Bikers Dream, Inc.
1420 Village Way
Santa Ana, California 92705
Attention: President
Facsimile No.: 909-343-1610
with a copy to: Day Campbell & McGill
3070 Bristol Street -- Suite 650
Costa Mesa, California 92626
Attention: Leonard J. McGill, Esq.
Facsimile No.: 714-429-2901
11. Severability. If any provision of this Warrant or the application
thereof to any person or circumstances shall be invalid or unenforceable to any
extent, the remainder of this Warrant and the application of such provisions to
other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by law.
12. Entire Agreement. This Warrant between the Company and Holder
represents the entire agreement between the parties concerning the subject
matter hereof, and all oral discussions and prior agreement are merged herein.
13. Governing Law and Amendments. This Warrant shall be construed and
enforced under the laws of the State of California applicable to contracts to be
wholly performed in such State. No amendment or modification hereof shall be
effective except in a writing executed by each of the parties hereto.
14. Counterparts. This Warrant may be executed in any number of
counterparts and by different parties to this Warrant in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same Warrant.
15. Jurisdiction and Venue. The Company hereby consents to jurisdiction,
service of process, and venue in the courts of the State of Tennessee or the
State of California, for the purpose of any action arising out of any of its
obligations under this Warrant, and expressly waives jury trial and any and all
objections it may have as to jurisdiction, service of process, and venue in such
courts.
16. Equity Participation. This Warrant is issued in connection with the
Loan Agreement. It is intended that this Warrant constitute an equity
participation under and pursuant to T.C.A. Section 47-24-101, et. seq. and that
equity participation be permitted under said statutes and not constitute
interest on the Note. If under any circumstances whatsoever, fulfillment of any
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<PAGE> 11
obligation of this Warrant, the Loan Agreement, or any other agreement or
document executed in connection with the Loan Agreement, shall violate the
lawful limit of any applicable usury statute or any other applicable law with
regard to obligations of like character and amount, then the obligation to be
fulfilled shall be reduced to such lawful limit, such that in no event shall
there occur, under this Warrant, the Loan Agreement, or any other document or
instrument executed in connection with the Loan Agreement, any violation of such
lawful limit, but such obligation shall be fulfilled to the lawful limit. If any
sum is collected in excess of the lawful limit, such excess shall be applied to
reduce the principal amount of the Note.
IN WITNESS WHEREOF, the parties hereto have executed this Stock Purchase
Warrant this 22 day of June, 1998.
COMPANY: BIKERS DREAM, INC.
By: /s/ H. Rosenman
---------------------------------
Title: President/CEO
---------------------------------
HOLDER: SIRROM CAPITAL CORPORATION
d/b/a TANDEM CAPITAL
By: /s/ Mike Comegna
---------------------------------
Title: V.P.
---------------------------------
11
<PAGE> 1
EXHIBIT 10.31.3
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") dated this 22d day
of June, 1998, is by and between BIKERS DREAM, INC., a California corporation
(the "Company"), and SIRROM CAPITAL CORPORATION d/b/a TANDEM CAPITAL, a
Tennessee corporation (the "Holder"). Capitalized terms not otherwise defined
shall have the meanings assigned by Section 11 and by the Loan Agreement
referred to below.
W I T N E S S E T H:
WHEREAS, the Company, other Borrowers, and the Holder have entered into
a certain Loan Agreement (the "Loan Agreement") dated June 22, 1998 that
provides for, among other things, the Company to grant to Holder certain
registration rights with respect to shares of the Company's common stock, no par
value (the "Common Stock"), as set forth herein; and
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Demand Registration.
1.1 Demand Rights. At any time on or after the date hereof and
during the term of this Agreement, if the holders of at least 25% of the
Registrable Securities outstanding ("Initiating Holders") request in writing (a
"Demand Request") that the Company register an offering of Registrable
Securities under the Securities Act of 1933, as amended (the "Securities Act")
by underwriters selected by the Initiating Holders, subject to the approval of
the Company which approval shall not be unreasonably withheld, with anticipated
gross offering proceeds of at least $1,000,000 (or such lesser amount, at least
$500,000, sufficient to register the public sale of all remaining Registrable
Securities), the Company shall:
(i) promptly give Notice of the Demand Request to all
other holders of Registrable Securities; and
(ii) use its best efforts to effect the registration of
such Registrable Securities (together with all other Registrable Securities
specified in any written request received by the Company within 20 days after
the date of the Notice of Demand Request) in accordance with the intended method
of disposition thereof, and in accordance with the procedures set forth in
Section 6.
Provided, that if a Demand Request is made with respect to Registrable
Securities with anticipated gross offering proceeds of less than $2,000,000, the
Company may at its option
<PAGE> 2
repurchase such Registrable Securities at a purchase price per share equal to
the Fair Market Value per share (as defined in the Loan Agreement) of the
Company's Common Stock on the trading day immediately preceding the closing date
for the repurchase. The Company shall give written notice of its exercise of the
option within 15 days after receipt of such Demand Request. The notice shall
specify (i) a closing date not more than 60 days after the date of the notice,
and (ii) the place of closing. The repurchase price shall be paid at the closing
to the Initiating Holders, against delivery of certificates representing the
Registrable Securities, by wire transfer of immediately available funds.
1.2 Number of Demand Registrations. The holders of registration
rights under this Agreement shall be entitled to request one registration of
Registrable Securities during any consecutive twelve months during the term of
this Agreement pursuant to this Section 1 (each a "Demand Registration"); and
the Company shall pay all Registration Expenses in connection with each such
registration request. A registration shall not count towards the maximum of two
registration requests held by the Holder hereunder unless the registration
statement for such requested registration has become effective or such
registration is withdrawn at the request of the Holders. Provided, however, that
the Company in any event shall pay all Registration Expenses in connection with
any requested registration whether or not the registration statement becomes
effective (unless the failure to become effective is such as to require the
Initiating Holders to pay all Registration Expenses for such aborted or
withdrawn registration pursuant to Section 4 below, in which case such
Initiating Holders shall reimburse the Company for all such Registration
Expenses incurred and paid by the Company in connection with such registration).
1.3 Other Securities and Priority. The registration statement
filed pursuant to the Demand Request may, subject to the prior written consent
of the Initiating Holders, include other securities of the Company, whether sold
by the Company or other holders of the Company's securities, provided that all
Registrable Securities for which the Initiating Holders have requested
registration shall be covered by such registration statement and (in the case of
an underwritten offering) sold in such offering before any such other securities
are included and sold.
1.4 Limitations. The Company shall not be obligated to effect, or
to take any action to effect, any Demand Registration:
(i) in any jurisdiction in which the Company would be
required to execute a general consent to service of process, unless the Company
is already subject to service in such jurisdiction and except as may be required
by the Securities Act;
(ii) during the period beginning 45 days prior to the
Company's good faith estimate of the date of filing of, and ending 180 days
after the effective date of, a Company- initiated registration, provided that
the Company is actively employing in good faith all reasonable efforts to cause
such registration statement to become effective; or
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<PAGE> 3
(iii) if the Initiating Holders propose to dispose of
shares of Registrable Securities which may be immediately registered on Form S-3
pursuant to a request made under Section 3 hereof;
(iv) if the Company will be required to obtain an audit
(other than for its normal year-end audit) for such registration to become
effective.
1.5 Deferral of Registration. If in the good faith judgment of
the Board of Directors of the Company, the filing of a registration statement as
soon as practicable after receipt of the Demand Request would be materially
detrimental to the Company and the Board of Directors of the Company concludes,
as a result, that it is essential to defer the filing of such registration
statement at such time, the Company shall furnish to the Initiating Holders a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be materially
detrimental to the Company for such registration statement to be filed in the
near future and that it is essential to defer the filing of such registration
statement; and the Company shall have the right to defer such filing for a
period of not more than 120 days after receipt of the Demand Request of the
Initiating Holders, provided that the Company shall not defer its obligations in
this manner for more than an aggregate of 120 days in any twelve-month period,
and provided further that the Initiating Holders shall be entitled to withdraw
the request for registration within 30 days after receipt of such certificate
and, if such request is withdrawn, such registration shall not count as a
requested registration hereunder and the Company shall pay all Registration
Expenses incurred in connection with such withdrawn registration request.
1.6 Underwriting. The right of any other holders of Common Stock
to join in a request for registration shall be conditioned upon such holders'
participation in such registration on the same terms as the Initiating Holders
(unless otherwise agreed by a majority in interest of the Initiating Holders).
1.7 Inclusion of Other Securities. In any Demand Registration, if
the Company shall request inclusion of securities to be sold for its own
account, or if other persons entitled to initiate registrations shall request
inclusion in such registration, the Initiating Holders shall offer to include
such securities in the underwriting and may condition such offer on the
acceptance by the Company or such other persons of the provisions of this
Agreement and the underwriting agreement. The Company and all such other persons
proposing to distribute securities through such underwriting shall enter into an
underwriting agreement in customary form with the underwriters selected by a
majority in interest of the Initiating Holders subject to the approval of the
Company, which approval shall not be unreasonably withheld.
3
<PAGE> 4
2. Piggyback Registration.
2.1 Notice and Procedures. If the Company proposes to register
under the Securities Act any of its Common Stock for sale to the public, either
for its own account or for the account of other security holders (other than
holders of Registrable Securities), the Company will:
(i) promptly give written notice thereof to each holder of
Registrable Securities; and
(ii) use its best efforts to include in such registration
and in any underwriting involved therein, all Registrable Securities specified
in any written request from holders of Registrable Securities received by the
Company within 15 days after such notice.
2.2 Limitations. The provisions of this Section 2 shall not apply
to any registration relating solely to employee benefit plans (as defined under
Rule 405 of the Securities Act), or a registration relating solely to securities
issued in connection with an acquisition or merger, or a registration on any
registration form not available for registering the Registrable Securities for
sale to the public or that does not permit secondary sales.
2.3 Underwriting. The right of any holder of Registrable
Securities to participate in a piggyback registration shall be conditioned upon
such holder's agreement to enter into an underwriting agreement in customary
form with the underwriters selected by the Company.
2.4 Underwriters' Cutback. Notwithstanding any other provision of
this Section 2, if the underwriters of any Company-initiated piggyback
registration advise the Company of the need for an Underwriters' Cutback, the
underwriters may (subject to the limitations set forth below) limit the number
of Registrable Securities to be included in the registration and sold. The
Company shall advise all holders of securities requesting registration of the
Underwriters' Cutback, and the number of shares of securities that are entitled
to be included in the registration and underwriting shall be allocated first to
the Company for securities being sold for its own account and thereafter as set
forth in Section 9.
2.5 Other Provisions. If holders of Registrable Securities
request participation in a piggyback registration, the provisions of Section 1.4
shall apply to such registration, and if the piggyback registration is for an
underwritten offering, the provisions of Sections 1.6 and 1.7 shall also apply
to such registration. Notwithstanding the foregoing provisions, the Company may
withdraw any registration statement referred to in this Section 2 without
incurring any liability to the holders of the Registrable Securities.
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<PAGE> 5
3. Registration on Form S-3. If the Company is qualified for the use of
Form S-3, in addition to the demand and piggyback registration rights contained
in the foregoing provisions of this Agreement, the holders of the Registrable
Securities shall have the right to request registrations on Form S-3 or any
comparable or successor form. Each such request shall be in writing and shall
state the anticipated number of shares of Registrable Securities to be disposed
of, the anticipated gross proceeds of the offering, and the intended methods of
disposition of such shares by such holders, including whether sales are to be
made on a delayed or continuous basis pursuant to Rule 415. The Company shall
not be obligated to effect any registration pursuant to this Section 3 if (i)
the holders of Registrable Securities, together with the holders of any other
securities of the Company entitled to inclusion in such registration, propose to
sell Registrable Securities and such other shares of Common Stock (if any) on
Form S-3 at an aggregate price to the public of less than $500,000, or (ii) the
Company will be required to obtain an audit (other than for its normal year-end
audit) for such registration to become effective. Sections 1 .4(ii) and 1.5
shall apply to all requests for registration under this Section 3. The Company
shall only be required to effect two registrations of Registrable Securities
pursuant to this Section 3 in any consecutive twelve months, provided, however,
that if the offering is to be effected on a continuous or delayed basis pursuant
to Rule 415 (or any successor rule), and the registration statement is kept
effective for a period in excess of 180 days, then the Company shall not be
required to effect another registration under this Section 3 for a period of 90
days after such registration is no longer effective.
4. Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to this
Agreement, shall be borne by the Company; provided, however, that a holder of
Registrable Securities shall bear the Registration Expenses for any registration
process begun pursuant to Section 1 and subsequently withdrawn by such holder,
unless such withdrawal is based upon (i) material adverse information relating
to the Company that is different from the information known or available (upon
request from the Company or otherwise) to the Initiating Holders at the time of
the request for registration under Section 1, or (ii) material adverse changes
in the financial markets which result in a decline of at least 20 percent in the
public market price for the Company's Common Stock from the date of the request
to the date of such withdrawal. All Selling Expenses relating to securities
registered pursuant to this Agreement shall be borne by the holders of such
securities pro rata on the basis of the number of shares of securities so
registered on their behalf.
5. Holdback Agreements.
5.1 By Holders. If requested in writing by the Company and the
managing underwriter of an underwritten registered public offering of the Common
Stock of the Company under this Agreement by the Company or by any person other
than a Holder, the Holders of Registrable Securities shall agree not to sell or
otherwise transfer or dispose of any Common Stock of the Company held by such
holders (other than those included in the registration
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<PAGE> 6
statement) for a period not to exceed 180 days following the effective date of a
registration statement of the Company filed under the Securities Act, provided
that all officers and directors of the Company, all other holders of the
Registrable Securities, and all other holders of rights to registration of any
other security of the Company (unless such holders initiated the subject
registration), if they also register their shares in such offering, enter into
similar agreements identical in terms to that of the holders of Registrable
Securities.
5.2 By Company. In connection with any underwritten registration,
the Company shall not effect any public sale or distribution of its equity
securities, or any securities convertible into or exchangeable or exercisable
for such securities, during the seven days prior to and during the 90-day period
after the effective date of any underwritten registration pursuant to this
Agreement.
6. Registration Procedures. In the case of each registration effected by
the Company pursuant to this Agreement, the Company will use its best efforts to
effect the registration of Registrable Securities in accordance with the
intended method of disposition thereof, and pursuant thereto the Company shall
as expeditiously as possible:
(i) prepare and file a registration statement with respect to
such offering of Registrable Securities, and use its best efforts to cause such
registration statement to become effective,
(ii) notify each holder of Registrable Securities of the
effectiveness of each registration statement hereunder and prepare and file with
the Securities and Exchange Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a period of not less
than 90 days or until all Registrable Securities included in the registration
have been sold, whichever occurs first, and comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement during such period in accordance with the intended
methods of disposition set forth in such registration statement;
(iii) furnish to each seller of Registrable Securities such
number of copies of such registration statement, each amendment and supplement
thereto, the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such seller;
(iv) use its best efforts to register or qualify such Registrable
Securities (to the extent legally required) under such other securities or blue
sky laws of such jurisdictions as any seller reasonably requests and do any and
all other acts and things which may be reasonably
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<PAGE> 7
necessary or advisable to enable such seller to consummate the disposition in
such jurisdictions of the Registrable Securities owned by such seller;
(v) notify each seller of such Registrable Securities, at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not materially misleading, and, at the request of any such seller, the Company
shall prepare a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus shall not contain an untrue statement of a material fact or omit to
state any fact necessary to make the statements therein not materially
misleading;
(vi) cause all such Registrable Securities to be listed on each
securities exchange or automated quotation system, if any, on which similar
securities issued by the Company are then listed, or, if not, to secure NASDAQ
authorization for such Registrable Securities and to cause such securities to be
listed for trading on the over the counter market and quoted on the National
Association of Securities Dealers Electronic Bulletin Board;
(vii) provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such registration
statement;
(viii) enter into such customary agreements (including
underwriting agreements in customary form) and take all such other actions as
the holders of a majority of the Registrable Securities being sold or the
underwriters, if any, reasonably request in order to expedite or facilitate the
disposition of such Registrable Securities (excluding a stock split, stock
dividend, recapitalization, or combination of shares);
(ix) make available for inspection at reasonable times by any
seller of Registrable Securities, any underwriter participating in any
disposition pursuant to such registration statement and any attorney, accountant
or other agent retained by any such seller or underwriter, all financial and
other records, pertinent corporate documents and properties of the Company, and
cause the Company's officers, directors, employees and independent accountants
to supply all information reasonably requested by any such seller, underwriter,
attorney, accountant or agent in connection with such registration statement,
provided that any recipient of such records, documents or information executes
such confidentiality agreement as the Company reasonably requests;
(x) otherwise use its best efforts to comply with all applicable
rules and regulations of the Securities and Exchange Commission, and make
available to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve months beginning with
the first day of the Company's first full calendar quarter after the
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<PAGE> 8
effective date of the registration statement, which earning statement shall
satisfy the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder;
(xi) permit any holder of Registrable Securities which holder, in
its sole and exclusive judgment, might be deemed to be an underwriter or
controlling person of the Company, to participate in the preparation of such
registration or comparable statement and to require the insertion therein of
material, furnished to the Company in writing, which (i) with respect to matters
relating to such holder of Registrable Securities, should be included in the
reasonable judgment of such holder and its counsel, and (ii) with respect to
matters relating to the Company, should be included in the reasonable judgment
of such holder, subject in the case of clause (ii) to the approval of the
Company and any managing underwriter of the offering (which approval shall not
be unreasonably withheld); and
(xii) use its best efforts to cause such Registrable Securities
covered by such registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable the
sellers thereof to consummate the disposition of such Registrable Securities.
7. Indemnification.
7.1 By Company. The Company shall indemnify each holder of
Registrable Securities, each of its officers, directors, employees, agents, and
Affiliates, and each underwriter, and each of its officers, directors,
employees, agents, and Affiliates, against all expenses, claims, losses,
damages, and liabilities (or actions, proceedings, or settlements in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any prospectus (including any related
registration statement, notification, or the like) incident to any registration
under this Agreement, or based on any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, or any violation by the Company of the
Securities Act or any rule or regulation thereunder applicable to the Company
and relating to action or inaction required of the Company in connection with
any such registration, and will reimburse such persons for any reasonable legal
and any other expenses reasonably incurred in connection with investigating and
defending or settling any such claim, loss, damage, liability or action;
provided however, that the Company will not be liable in any such case to the
extent that any such claim, loss, damage, liability or expense arises out of or
is based on any untrue statement or omission based upon written information
furnished to the Company by such holder or underwriter and stated to be
specifically for use therein; provided, further, that the holders of Registrable
Securities shall consent to such indemnity defense being conducted by counsel to
the Company unless in the good faith opinion of counsel to Holder, Company's
counsel will be unable to effectively defend such holders due to a conflict of
interest, in which event, such defense may be conducted by counsel selected by
the holders of a majority of the Registrable Securities provided that the
Company will only be
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<PAGE> 9
obligated to pay for the reasonable fees and expenses owing to one such counsel.
It is agreed that the indemnity agreement contained in this Section shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability,
or action if such settlement is effected without the prior written consent of
the Company (which consent shall not be unreasonably withheld).
7.2 By Holders. In connection with the registration or sale of
shares of Registrable Securities pursuant to this Agreement, each holder whose
Registrable Securities are included in such registration being effected under
this Agreement, shall indemnify the Company, and each of its directors,
officers, employees, agents, and Affiliates, and each underwriter, and each of
its directors, officers, employees, agents, and Affiliates, against all
expenses, claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement or
prospectus, or any omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, and will reimburse such persons for any reasonable legal or any
other expenses reasonably incurred in connection with investigating or defending
any such clam, loss, damage, liability, or action, in each case to the extent,
but only to the extent, that such untrue statement (or alleged untrue statement)
or omission (or alleged omission) is made in such registration statement or
prospectus, in reliance upon and in conformity with written information
furnished to the Company by such holder of the Registrable Securities, and
stated to be specifically for use therein; provided, however, that the
obligations of such holder hereunder shall not apply to amounts paid in
settlement of any such claims, losses, damages, or liabilities if such
settlement is effected without the prior written consent of such holder, which
consent shall not be unreasonably withheld; and provided that in no event shall
any indemnity under this Section 7.2 exceed the net amount of proceeds from the
offering received by such holder.
7.3 Procedure. Each party entitled to indemnification under this
Section (the "Indemnified Party") shall give notice to the party or parties
required to provide indemnification (the "Indemnifying Party") promptly after
such Indemnified Party has actual knowledge of any claim as to which indemnity
may be sought, and shall permit the Indemnifying Party to assume the defense of
such claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or any
litigation resulting therefrom, shall be reasonably acceptable to the
Indemnified Party. Failure to give notice as provided herein shall not relieve
the Indemnifying Party of its obligations under this section to the extent such
failure is not prejudicial. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement that does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of an unconditional release from all liability in
respect to such claim or litigation. Each Indemnified Party shall furnish such
information regarding itself or the claim in question as an Indemnifying Party
may reasonably
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<PAGE> 10
request in writing and as shall be reasonably required in connection with
defense of such claim and litigation resulting therefrom.
7.4 Contribution. If the indemnification provided for in this
Section is held by a court of competent jurisdiction to be unavailable to an
Indemnified Party with respect to any loss, liability, claim, damage, or expense
referred to therein, then the Indemnifying Party, in lieu of indemnifying such
Indemnified Party hereunder, shall contribute to the amount paid or payable by
such Indemnified Party as a result of such loss, liability, claim, damage, or
expense in such proportion as is appropriate to reflect the relative fault of
the Indemnifying Party on the one hand and of the Indemnified Party on the other
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
7.5 Conflicting Provisions. Notwithstanding the foregoing, to the
extent that the provisions on indemnification and contribution contained in any
underwriting agreement entered into in connection with a registration are in
conflict with the foregoing provisions, the provisions of the underwriting
agreement shall control.
8. Information by Holder. Each holder of Registrable Securities shall
furnish to the Company in writing such information regarding such holder and the
distribution proposed by such holder as the Company or underwriters may
reasonably request in writing and as shall be reasonably required in connection
with any registration, qualification, or compliance referred to in this
Agreement in order to assure compliance with federal and applicable state
securities laws.
9. Allocation of Registration Opportunities. In any circumstance in
which all of the Registrable Securities and other outstanding shares of Common
Stock of the Company (the "Other Shares") requested and entitled to be included
in a demand registration cannot be so included as a result of limitations on the
aggregate number of shares of Registrable Securities and Other Shares that may
be so included, or in case of an Underwriters' Cutback, the number of shares of
Registrable Securities and Other Shares that may be so included shall be
allocated among the holders of Registrable Securities and other selling
stockholders pro rata on the basis of the number of shares of Registrable
Securities and Other Shares held by such holders and other selling stockholders,
subject to the Company's being required to comply in good faith with contractual
obligations outstanding as of the date of this Agreement which do not require
the holders of Other Shares to agree to such pro rata allocation, but provided
that if Registrable Securities are not allocated such pro rata participation
such demand registration shall not be counted toward the maximum of five demand
requests under Section 1.2. If any holder of
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<PAGE> 11
Registrable Securities or other selling stockholder does not request inclusion
of the maximum number of shares of Registrable Securities and Other Shares
allocated to him pursuant to this procedure, the remaining portion of his
allocation shall be reallocated among those requesting holders of Registrable
Securities and other selling stockholders whose allocations did not satisfy
their requests pro rata on the basis of the number of shares of Registrable
Securities and Other Shares held by such holders and other selling stockholders,
and this procedure shall be repeated until all of the shares of Registrable
Securities and Other Shares which may be included in the registration on behalf
of the holders of Registrable Securities and other selling stockholders have
been so allocated. Provided, however, the Company shall not limit the number of
Registrable Securities to be included in a registration pursuant to this
Agreement in order to include shares held by stockholders with no registration
rights or to include in that registration shares of stock issued to employees,
officers, directors, or consultants pursuant to any Company stock option plan,
and in such case all Registrable Securities covered by the registration shall be
sold before any such other securities are sold.
10. Survival of Rights. The right of any Holder of Registrable
Securities to request registration or inclusion in any registration pursuant to
this Agreement shall terminate on the earlier of (i) such date as all
Registrable Securities held by such Holder shall equal less than 25% of the
total Registrable Securities at such time, or (ii) ten years from the date a
Demand Request may first be made under Section 1.1.
11. Definitions. As used herein,
"Holder" means any person who holds Registrable Securities and
any holder of Registrable Securities to whom the registration rights conferred
by this Agreement have been transferred in compliance herewith.
"Initiating Holders" means holders of the Registrable Securities
who in the aggregate hold not less than 25 percent of the outstanding
Registrable Securities.
"Person" means an individual, partnership, corporation, limited
liability company, joint venture, sole proprietorship, trust or any other
unincorporated organization or business association, and a government or
government agency or political subdivision thereof.
"Register," "registered" and "registration" refers to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act of 1933 and applicable rules and regulations
thereunder, and such other actions as may be required to cause such registration
statement to become effective or with respect to registration, qualification or
compliance under applicable state securities laws.
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"Registration Expenses" means all expenses incurred in effecting
any registration pursuant to this Agreement, including, without limitation, all
registration, qualification, and filing fees, printing expenses, fees and
disbursements of custodians, fees and disbursements of counsel for the Company
and its independent certified public accountants, blue sky fees and expenses,
and reasonable fees and disbursements of one counsel chosen by the holders of a
majority of the Registrable Securities included in such registration, but shall
not include Selling Expenses.
"Registrable Securities" means shares of the Company's Common
Stock issued or issuable (i) upon exercise of the Warrants under the Loan
Agreement, and (ii) as a dividend or other distribution with respect to, or in
exchange for, or in replacement of, the shares referred to in clause (i);
provided, however, that shares shall cease to be Registrable Securities if and
when (x) they are sold pursuant to Rule 144 under the Securities Act or a
registration statement under the Securities Act, or (y) such shares are eligible
for resale pursuant to Rule 144 under the Securities Act without regard to any
volume limitations thereunder.
"Rule 144" means Rule 144 as promulgated by the SEC under the
Securities Act, as such Rule may be amended from time to time, or any similar
successor rule that may be promulgated by the SEC.
"Rule 145" means Rule 145 as promulgated by the SEC under the
Securities Act, as such Rule may be amended from time to time, or any similar
successor rule that may be promulgated by the SEC.
"Security" has the same meaning as in Section 2(1) of the
Securities of 1933, as amended.
"Selling Expenses" means all underwriting discounts,
underwriters' expenses, selling commissions, and stock transfer taxes applicable
to the sale of Registrable Securities, and fees and disbursements of counsel for
any Holder(s) (other than the fees and disbursements of one counsel for the
holders of Registrable Securities, as selling shareholders, included in
Registration Expenses).
"Underwriters' Cutback" means a reduction in the number of shares
to be included in any underwritten offering as the result of receipt of written
notice from the representative(s) of the underwriters to the effect that the
number of shares requested to be included in such registration exceeds the
number which, in the representative's judgment, can be sold in an orderly manner
in such offering within a price range acceptable to either the Company (in a
primary registration) or the majority of the holders initially requesting such
registration (in a secondary registration).
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"Warrants" means the Initial Warrant and the Contingent Warrants
as defined under the Loan Agreement.
12. Notice of Transfer. The registration rights granted to the Holder
hereunder may be transferred to any transferee of not less than 100,000
Registrable Securities (adjusted appropriately for stock splits, stock dividends
and the like) of Registrable Securities; provided, however, that the
registration rights of the initial Holder may be transferred to a wholly-owned
subsidiary of such Holder without regard to the number of Registrable Securities
transferred. Each such permitted transferee must agree in a written instrument
provided to the Company to be bound hereby and shall thereupon be deemed to be a
"Holder" for purposes hereunder.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be executed by their duly authorized officers as of the date
first above written.
BIKERS DREAM, INC.
By: /s/ H. Rosenman
---------------------------------
Name: Herm Rosenman
---------------------------------
Title: President/CEO
---------------------------------
SIRROM CAPITAL CORPORATION
d/b/a TANDEM CAPITAL
By: /s/ Mike Comegna
---------------------------------
Name: Mike Comegna
---------------------------------
Title: V.P.
---------------------------------
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EXHIBIT 10.31.4
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES LAW. THESE SECURITIES MAY NOT BE TRANSFERRED WITHOUT SUCH
REGISTRATION OR EXEMPTION THEREFROM.
STOCK PURCHASE WARRANT
This Warrant is issued this 17th day of November, 1997, by BIKERS DREAM,
INC., a California corporation (the "Company"), to SIRROM CAPITAL CORPORATION
d/b/a TANDEM CAPITAL, a Tennessee corporation (SIRROM CAPITAL CORPORATION and
any subsequent assignee or transferee hereof are hereinafter referred to
collectively as "Holder" or "Holders").
Agreement:
1. Issuance of Warrant; Term. For and in consideration of Sirrom Capital
Corporation d/b/a Tandem Capital making a Loan to the Company evidenced by a
Secured Promissory Note in the original principal amount of Two Million Five
Hundred Thousand Dollars ($2,500,000.00) (the "Note") pursuant to the terms of a
Loan Agreement of even date herewith (the "Loan Agreement"), and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company hereby grants to Holder the right to purchase at any
time and from time to time, in whole or in part, on or after November 17, 1997,
up to 437,500 shares of the Company's common stock, no par value (the "Common
Stock"). The shares of Common Stock issuable upon exercise of this Warrant are
hereinafter referred to as the "Shares." This Warrant shall be exercisable at
any time and from time to time from November 17, 1997, until November 17, 2002.
2. Exercise Price. The exercise price (the "Exercise Price") per share
for which all or any of the Shares may be purchased shall be equal to $1.00 per
share.
3. Exercise. This Warrant may be exercised by the Holder hereof (but
only on the conditions hereinafter set forth) as to all or any increment or
increments of 100 Shares (or the balance of the Shares if less than such
number), upon delivery of written notice of intent to exercise to the Company at
the following address: 1420 Village Way, Santa Ana, California, 92705, or such
other address as the Company shall designate in a written notice to the Holder
hereof, together with this Warrant and payment to the Company of the aggregate
Exercise Price of the Shares so purchased. The Exercise Price shall be payable,
at the option of the Holder, (i) by certified or bank check, (ii) by the
surrender of the Note or portion thereof having an outstanding principal balance
equal to the aggregate Exercise Price, or (iii) by the surrender of
<PAGE> 2
a portion of this Warrant where the excess of (A) the Fair Market Value of the
Shares subject to the portion of this Warrant that is surrendered (the
"Surrendered Shares"), over (B) the aggregate Exercise Price of the Surrendered
Shares, is equal to the aggregate Exercise Price for the Shares to be issued.
Upon payment of the Exercise Price, the Holder shall be deemed to be the holder
of record of the Shares, notwithstanding that the stock transfer books of the
Company may then be closed or that certificates representing such Shares may not
then be actually delivered to the Holder. The Company shall as promptly as
practicable thereafter, and in any event within 15 days thereafter, execute and
deliver to the Holder of this Warrant a certificate or certificates for the
total number of whole Shares for which this Warrant is being exercised in such
names and denominations as are requested by such Holder. If this Warrant shall
be exercised with respect to less than all of the Shares, the Holder shall be
entitled upon surrender of the old Warrant to receive a new Warrant covering the
number of Shares in respect of which this Warrant shall not have been exercised,
which new Warrant shall in all other respects be identical to this Warrant. The
Company covenants and agrees that it will pay when due any and all state and
federal issue taxes which may be payable in respect of the issuance of this
Warrant or the issuance of any Shares upon exercise of this Warrant.
4. Covenants and Conditions. The above provisions are subject to the
following:
4.1 Restrictive Legend. Each certificate representing Shares
shall bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE SECURITIES LAW, AND MAY NOT BE TRANSFERRED IN
THE ABSENCE OF (I) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 AND SUCH APPLICABLE STATE SECURITIES LAWS,
OR (II) AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
4.2 Validity; Reservation of Shares. The Company covenants and
agrees that all Shares which may be issued upon exercise of this Warrant will,
upon issuance and payment therefor, be legally and validly issued and
outstanding, fully paid and nonassessable, free from all taxes, liens, charges
and preemptive rights, if any, with respect thereto or to the issuance thereof.
The Company shall at all times reserve and keep available for issuance upon the
exercise of this Warrant such number of authorized but unissued shares of Common
Stock as will be sufficient to permit the exercise in full of this Warrant.
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<PAGE> 3
4.3 Issuance of Shares. The Company covenants and agrees that it
shall not issue or otherwise sell any shares of the Company's Common Stock at a
price per share below the Fair Market Value of such shares, without the prior
written consent of the Holder hereof, except pursuant to exercise of (i)
options, warrants or other rights outstanding as of the date hereof, or (ii)
options, warrants or other rights issued or granted subsequent to the date
hereof provided, however, the exercise price of such options, warrants or other
rights is not less than the Fair Market Value of the Common Stock at the date of
the grant. If the Company issues additional Common Stock, or warrants, options,
or other securities convertible into Common Stock, at a price or exercise price
less than the Fair Market Value of the Common Stock at the date of issuance or
grant, then the Exercise Price (initially, $1.00 per share) shall be adjusted to
equal (i) the sum of (A) the total number of shares of Common Stock outstanding
immediately prior to such issuance or grant, multiplied by the Exercise Price
then in effect, plus (B) the aggregate consideration to be paid for such Common
Stock or other securities, divided by (ii) the sum of (C) the total number of
shares of Common Stock outstanding immediately prior to such issuance or grant,
plus (D) the number of shares of Common Stock or common stock equivalents issued
or granted.
4.4 Definition of Fair Market Value. Fair Market Value per share
of Common Stock means (i) in the case of a security listed or admitted to
trading on any securities exchange, the last reported sale price, regular way
(as determined in accordance with the practices of such exchange), on such day,
or if no sale takes place on such day, the average of the closing bid and asked
prices on such day (and in the case of a security traded on more than one
national securities exchange, at such price or such average, upon the exchange
on which the volume of trading during the last calendar year was the greatest),
(ii) in the case of a security not then listed or admitted to trading on any
securities exchange, the last reported 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, as reported by a reputable quotation service designated by the Company,
(iii) in the case of a security not then listed or admitted to trading on any
securities exchange and as to which no such reported sale price or bid and asked
prices are available, the average of the reported high bid and low asked prices
on such day, as reported by a reputable quotation service, or the Wall Street
Journal, or if there are no bids and asked prices on such day, the average of
the high bid and low asked prices, as so reported, on the most recent day (not
more than 30 days prior to the date in question) for which prices have been so
reported, and (iv) in the case of a security determined by the Company's Board
of Directors as not having an active quoted market or in the case of other
property, such fair market value as shall in good faith be determined by the
Board of Directors.
5. Transfer and Replacement of Warrant. Subject to the provisions of
Section 4, this Warrant may be transferred, in whole or in part, to any person
or business entity, by presentation of the Warrant to the Company with written
instructions for such transfer. Upon such presentation for transfer, the Company
shall promptly execute and deliver a new Warrant or Warrants in the form hereof
in the name of the transferee or transferees and in the denominations
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<PAGE> 4
specified in such instructions. Upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft or destruction of this Warrant,
and of indemnity or security reasonably satisfactory to it, or upon surrender of
this Warrant if mutilated, the Company will make and deliver a new Warrant of
like tenor, in lieu of this Warrant. This Warrant shall be promptly canceled by
the Company upon the surrender hereof in connection with any transfer or
replacement. The Company shall pay all expenses incurred by it in connection
with the preparation, issuance and delivery of Warrants under this Section.
6. Warrant Holder Not Shareholder; Rights Offering; Preemptive Rights.
Except as otherwise provided herein, this Warrant does not confer upon the
Holder, as such, any right whatsoever as a shareholder of the Company.
Notwithstanding the foregoing, if the Company should offer to all of the
Company's shareholders the right to purchase any securities of the Company, then
all shares of Common Stock that are then issuable upon exercise of this Warrant
shall be deemed to be outstanding and owned by the Holder and the Holder shall
be entitled to participate in such rights offering. The Company shall not grant
any preemptive rights with respect to any of its Common Stock without the prior
written consent of the Holder.
7. Adjustment Upon Changes in Stock.
7.1 Recapitalizations. If all or any portion of this Warrant
shall be exercised subsequent to any stock split, stock dividend,
recapitalization, combination of shares of the Company, or other similar event,
occurring after the date hereof, then the Holder exercising this Warrant shall
receive, for the aggregate price paid upon such exercise, the aggregate number
and class of shares which such Holder would have received if this Warrant had
been exercised immediately prior to the record date for such stock split, stock
dividend, recapitalization, combination of shares, or other similar event. If an
adjustment under this Section 7.1, would create a fractional share of Common
Stock or a right to acquire a fractional share of Common Stock, such fractional
shares shall be disregarded and the number of shares subject to this Warrant
shall be the next higher number of shares, rounding all fractions upward.
Whenever there shall be an adjustment pursuant to this Section 7.1, the Company
shall forthwith notify the Holder or Holders of this Warrant of such adjustment,
setting forth in reasonable detail the event requiring the adjustment and the
method by which such adjustment was calculated.
7.2 Mergers, Etc. If all or any portion of this Warrant shall be
exercised subsequent to any merger, consolidation, exchange of shares,
separation, reorganization, or liquidation of the Company, or other similar
event, occurring after the date hereof, as a result of which Shares of Common
Stock shall be changed into the same or a different number of shares of the same
or another class or classes of securities of the Company or another entity, or
the holders of Common Stock are entitled to receive cash or other property, then
the Holder exercising this Warrant shall receive, for the aggregate price paid
upon such exercise, the aggregate number and class of shares, cash or other
property which such Holder would have
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<PAGE> 5
received if this Warrant had been exercised immediately prior to such merger,
consolidation, exchange of shares, separation, reorganization or liquidation, or
other similar event. If any adjustment under this Section 7.2 would create a
fractional share of Common Stock or a right to acquire a fractional share of
Common Stock, such fractional share shall be disregarded and the number of
shares subject to this Warrant shall be the next higher number of shares,
rounding all fractions upward. Whenever there shall be an adjustment pursuant to
this Section 7.2, the Company shall forthwith notify the Holder or Holders of
this Warrant of such adjustment, setting forth in reasonable detail the event
requiring the adjustment and the method by which such adjustment was calculated.
8. Certain Notices. If at any time the Company shall propose to (i)
declare any cash dividend upon its Common Stock; (ii) declare any dividend upon
its Common Stock payable in stock or make any special dividend or other
distribution to the holders of its Common Stock; (iii) offer for subscription to
the holders of any of its Common Stock any additional shares of stock in any
class or other rights; (iv) reorganize, or reclassify the capital stock of the
Company, or consolidate, merge or otherwise combine with, or sell all or
substantially all of its assets to another corporation; (v) voluntarily or
involuntarily dissolve, liquidate or wind up the affairs of the Company; or (vi)
redeem or purchase any shares of its capital stock or securities convertible
into its capital stock, then the Company shall give to the Holder of this
Warrant, by certified or registered mail, (i) at least 10 days' prior written
notice of the date on which the books of the Company shall close or a record
shall be taken for such dividend, distribution or subscription rights or for
determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, and (ii) in the case of such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least 20
days' prior written notice of the date when the same shall take place. Any
notice required by clause (i) shall also specify, in the case of any such
dividend, distribution or subscription rights, the date on which the holders of
Common Stock shall be entitled thereto, and any notice required by clause (ii)
shall specify the date on which the holders of Common Stock shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, as the case may be.
9. Article and Section Headings. Numbered and titled article and section
headings are for convenience only and shall not be construed as amplifying or
limiting any of the provisions of this Warrant.
10. Notice. Any and all notices, elections or demands permitted or
required to be made under this Warrant shall be in writing, signed by the party
giving such notice, election or demand and shall be delivered personally,
telecopied, telexed, or sent by certified mail or overnight via nationally
recognized courier service, to the other party at the address set forth below,
or at such other address as may be supplied in writing and of which receipt has
been
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acknowledged in writing. The date of personal delivery or telecopy; or the date
two business days after the date of mailing, or the date of the next business
day after delivery to a courier service, as the case may be, shall be deemed to
be the date of such notice, election or demand.
The address of the Holder is: Sirrom Capital Corporation d/b/a Tandem Capital
500 Church Street
Suite 200
Nashville, Tennessee 37219
Attention: Craig Macnab
Facsimile No.: (615) 726-1208
with a copy to: C. Christopher Trower, Esq.
3159 Rilman Road, N.W.
Atlanta, Georgia 30327-1503
Facsimile No.: (404) 816-6854
The address of the Company is: Bikers Dream, Inc.
1420 Village Way
Santa Ana, California 92705
Attention: President
Facsimile No.: 909-343-1610
with a copy to: Day Campbell & McGill
3070 Bristol Street -- Suite 650
Costa Mesa, California 92626
Attention: Leonard J. McGill
Facsimile No.: 714-429-2901
11. Severability. If any provision of this Warrant or the application
thereof to any person or circumstances shall be invalid or unenforceable to any
extent, the remainder of this Warrant and the application of such provisions to
other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by law.
12. Entire Agreement. This Warrant between the Company and Holder
represents the entire agreement between the parties concerning the subject
matter hereof, and all oral discussions and prior agreement are merged herein.
13. Governing Law and Amendments. This Warrant shall be construed and
enforced under the laws of the State of California applicable to contracts to be
wholly performed in such State. No amendment or modification hereof shall be
effective except in a writing executed by each of the parties hereto.
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14. Counterparts. This Warrant may be executed in any number of
counterparts and by different parties to this Warrant in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same Warrant.
15. Jurisdiction and Venue. The Company hereby consents to jurisdiction,
service of process, and venue in the courts of the State of Tennessee, for the
purpose of any action arising out of any of its obligations under this Warrant,
and expressly waives any and all objections it may have as to jurisdiction,
service of process, and venue in such courts.
16. Equity Participation. This Warrant is issued in connection with the
Loan Agreement. It is intended that this Warrant constitute an equity
participation under and pursuant to T.C.A. Section 47- 24-101, et. seq. and that
equity participation be permitted under said statutes and not constitute
interest on the Note. If under any circumstances whatsoever, fulfillment of any
obligation of this Warrant, the Loan Agreement, or any other agreement or
document executed in connection with the Loan Agreement, shall violate the
lawful limit of any applicable usury statute or any other applicable law with
regard to obligations of like character and amount, then the obligation to be
fulfilled shall be reduced to such lawful limit, such that in no event shall
there occur, under this Warrant, the Loan Agreement, or any other document or
instrument executed in connection with the Loan Agreement, any violation of such
lawful limit, but such obligation shall be fulfilled to the lawful limit. If any
sum is collected in excess of the lawful limit, such excess shall be applied to
reduce the principal amount of the Note.
IN WITNESS WHEREOF, the parties hereto have executed this Stock Purchase
Warrant this 17th day of November, 1997.
COMPANY: BIKERS DREAM, INC.
By: /s/ H. Rosenman
-----------------------------
Title: CEO
-----------------------------
HOLDER: SIRROM CAPITAL CORPORATION
d/b/a TANDEM CAPITAL
By: /s/ Craig Macnab
-----------------------------
Title: Vice-President
-----------------------------
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<PAGE> 1
EXHIBIT 10.31.5
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") dated this 17th day
of November, 1997, is by and between BIKERS DREAM, INC., a California
corporation (the "Company"), and SIRROM CAPITAL CORPORATION d/b/a TANDEM
CAPITAL, a Tennessee corporation (the "Holder"). Capitalized terms not otherwise
defined shall have the meanings assigned by Section 11.
W I T N E S S E T H:
WHEREAS, the Company and the Holder have entered into a certain Loan
Agreement (the "Loan Agreement") of even date herewith that provides for, among
other things, the Company to grant to Holder certain registration rights with
respect to shares of the Company's common stock, no par value (the "Common
Stock"), as set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Demand Registration.
1.1 Demand Rights. At any time on or after the earlier of (i)
March 31, 1998, or (ii) the date of the Company's 1997 audited financial
statements (which date shall be the date of the accompanying letter of the
Company's independent accountants) and during the term of this Agreement, if the
holders of at least 25% of the Registrable Securities outstanding ("Initiating
Holders") request in writing (a "Demand Request") that the Company register an
offering of Registrable Securities under the Securities Act of 1933, as amended
(the "Securities Act") by underwriters selected by the Initiating Holders,
subject to the approval of the Company which approval shall not be unreasonably
withheld, with anticipated gross offering proceeds of at least $200,000 (or such
lesser amount, at least $100,000, sufficient to register the public sale of all
remaining Registrable Securities), the Company shall:
(i) promptly give Notice of the Demand Request to all other
holders of Registrable Securities; and
(ii) use its best efforts to effect the registration and
sale of such Registrable Securities, together with all other Registrable
Securities specified in any written request received by the Company within 20
days after the date of the Notice of Demand Request, in accordance with the
intended method of disposition thereof, and in accordance with the procedures
set forth in Section 6.
<PAGE> 2
Provided, that if a Demand Request is made, the Company may at its option
repurchase all but not less than all of the Registrable Securities covered by
such Demand Request, at a purchase price per share equal to the Fair Market
Value (as defined in the Loan Agreement) of the Company's Common Stock on the
trading day immediately preceding the closing date for the repurchase. The
Company shall give written notice of its exercise of the option within 10 days
after receipt of such Demand Request. The notice shall specify (i) a closing
date not more than 30 days after the date of the notice, and (ii) the place of
closing. The repurchase price shall be paid at the closing to the Initiating
Holders, against delivery of certificates representing the Registrable
Securities, by wire transfer of immediately available funds.
1.2 Number of Demand Registrations. The holders of registration
rights under this Agreement shall be entitled to request an aggregate of five
registrations of Registrable Securities pursuant to this Section 1; and the
Company shall pay all Registration Expenses in connection with each such
registration request. The Company shall not be required to effect more than one
registration pursuant to Section 1.1 in any twelve month period. A registration
shall not count towards the maximum of five registration requests held by the
Holder hereunder unless the registration statement for such requested
registration has become effective and an offering closed in which all
Registrable Securities requested to be included in such registration by the
Initiating Holders shall have been sold. Provided, however, that the Company in
any event shall pay all Registration Expenses in connection with any requested
registration whether or not the registration statement becomes effective (unless
the failure to become effective is such as to require the Initiating Holders to
pay all Registration Expenses for such aborted or withdrawn registration
pursuant to Section 4 below, in which case (i) such Initiating Holders shall
reimburse the Company for all such Registration Expenses incurred and paid by
the Company in connection with such registration, and (ii) such withdrawn
request shall not count as a requested registration hereunder). Further
provided, that if (i) the Initiating Holders withdraw from or abort more than
one registration in any consecutive 12-month period, and (ii) the Initiating
Holders are required to pay Registration Expenses pursuant to Section 4 for more
than one such withdrawn or aborted registration, only one such registration
shall not be counted.
1.3 Other Securities and Priority. The registration statement
filed pursuant to the Demand Request may, subject to the prior written consent
of the Initiating Holders, include other securities of the Company, provided
that all Registrable Securities for which the Initiating Holders have requested
registration shall be covered by such registration statement and sold in such
offering before any such other securities are included and sold.
1.4 Limitations. The Company shall not be obligated to effect, or
to take any action to effect, any demand registration:
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<PAGE> 3
(i) in any jurisdiction in which the Company would be
required to execute a general consent to service of process, unless the Company
is already subject to service in such jurisdiction and except as may be required
by the Securities Act;
(ii) during the period beginning 45 days prior to the
Company's good faith estimate of the date of filing of, and ending 180 days
after the effective date of, a Company- initiated registration, provided that
the Company is actively employing in good faith all reasonable efforts to cause
such registration statement to become effective; or
(iii) if the Initiating Holders propose to dispose of
shares of Registrable Securities which may be immediately registered on Form S-3
pursuant to a request made under Section 3 hereof.
1.5 Deferral of Registration. If in the good faith judgment of
the Board of Directors of the Company, the filing of a registration statement as
soon as practicable after receipt of the Demand Request would be materially
detrimental to the Company and the Board of Directors of the Company concludes,
as a result, that it is advisable to defer the filing of such registration
statement at such time, in which case the Company shall furnish to the
Initiating Holders a certificate signed by the President of the Company stating
that in the good faith judgment of the Board of Directors of the Company, it
would be materially detrimental to the Company for such registration statement
to be filed in the near future and that it is advisable to defer the filing of
such registration statement, then the Company shall have the right to defer such
filing for a period of not more than 120 days after receipt of the Demand
Request of the Initiating Holders, provided that the Company shall not defer its
obligations in this manner for more than an aggregate of 120 days in any
twelve-month period, and provided further that the Initiating Holders shall be
entitled to withdraw the request for registration within 30 days after receipt
of such certificate and, if such request is withdrawn, such registration shall
not count as a requested registration hereunder and the Company shall pay all
Registration Expenses incurred in connection with such withdrawn registration
request.
1.6 Underwriting. The right of any other holders of Registrable
Securities to join in a request for registration shall be conditioned upon such
holders' participation in such registration on the same terms as the Initiating
Holders (unless otherwise agreed by a majority in interest of the Initiating
Holders).
1.7 Inclusion of Other Securities. In any demand registration, if
the Company shall request inclusion of securities to be sold for its own
account, or if other persons entitled to incidental registrations shall request
inclusion in such registration, the Initiating Holders shall offer to include
such securities in the underwriting and may condition such offer on the
acceptance by the Company or such other persons of the provisions of this
Agreement and the underwriting. The Company and all such other persons proposing
to distribute securities through
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<PAGE> 4
such underwriting shall enter into an underwriting agreement in customary form
with the underwriters selected by a majority in interest of the Initiating
Holders subject to the approval of the Company, which approval will not be
unreasonably withheld.
2. Piggyback Registration.
2.1 Notice and Procedures. If the Company proposes to register
under the Securities Act any of its Common Stock for sale to the public, either
for its own account or for the account of other security holders (other than
holders of Registrable Securities), the Company will:
(i) promptly give written notice thereof to each holder
of Registrable Securities; and
(ii) use its best efforts to include in such
registration and in any underwriting involved therein, all Registrable
Securities specified in any written request from holders of Registrable
Securities received by the Company within 15 days after such notice.
2.2 Limitations. The provisions of this Section 2 shall not apply
to any registration relating solely to employee benefit plans (as defined under
Rule 405 of the Securities Act), or a registration relating solely to securities
issued in connection with an acquisition or merger, or a registration on any
registration form not available for registering the Registrable Securities for
sale to the public or that does not permit secondary sales.
2.3 Underwriting. The right of any holder of Registrable
Securities to participate in a piggyback registration shall be conditioned upon
such holder's agreement to enter into an underwriting agreement in customary
form with the underwriters selected by the Company.
2.4 Underwriters' Cutback. Notwithstanding any other provision of
this Section 2, if the underwriters of any piggyback registration advise the
Company of the need for an Underwriters' Cutback, the underwriters may (subject
to the limitations set forth below) limit the number of Registrable Securities
to be included in the registration and sold. The Company shall advise all
holders of securities requesting registration of the Underwriters' Cutback, and
the number of shares of securities that are entitled to be included in the
registration and underwriting shall be allocated first to the Company for
securities being sold for its own account and thereafter as set forth in Section
9.
2.5 Other Provisions. If holders of Registrable Securities
request participation in a piggyback registration, the provisions of Section 1.4
shall apply to such registration, and if the piggyback registration is for an
underwritten offering, the provisions of Sections 1.6 and 1.7
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<PAGE> 5
shall also apply to such registration. Notwithstanding the foregoing provisions,
the Company may withdraw any registration statement referred to in this Section
2 without incurring any liability to the holders of the Registrable Securities.
3. Registration on Form S-3. After the Company has qualified for the use
of Form S-3, and for so long as the Company continues to be so qualified, in
addition to the rights contained in the foregoing provisions of this Agreement,
the holders of the Registrable Securities shall have the right to request
registrations on Form S-3 or any comparable or successor form. Each such request
shall be in writing and shall state the anticipated number of shares of
Registrable Securities to be disposed of, the anticipated gross proceeds of the
offering, and the intended methods of disposition of such shares by such
holders, including whether sales are to be made on a delayed or continuous basis
pursuant to Rule 415. The Company shall not be obligated to effect any
registration pursuant to this Section 3 if (i) the holders of Registrable
Securities, together with the holders of any other securities of the Company
entitled to inclusion in such registration, propose to sell Registrable
Securities and such other shares of Common Stock (if any) on Form S-3 at an
aggregate price to the public of less than $50,000, or (ii) the Company will be
required to obtain an audit (other than for its normal year-end audit) for such
registration to become effective. Sections 1.4(ii) and 1.5 shall apply to all
requests for registration under this Section 3. The Company shall only be
required to effect one registration of Registrable Securities pursuant to this
Section 3 in each calendar year.
4. Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to this
Agreement, shall be borne by the Company; provided, however, that a holder of
Registrable Securities shall bear the Registration Expenses for any registration
process begun pursuant to Section 1 and subsequently withdrawn by such holder,
unless such withdrawal is based upon (i) material adverse information relating
to the Company that is different from the information known or available (upon
request from the Company or otherwise) to the Initiating Holders at the time of
the request for registration under Section 1, or (ii) material adverse changes
in the financial markets which result in a decline of at least 20 percent in the
public market price for the Company's Common Stock from the date of the request
to the date of such withdrawal. All Selling Expenses relating to securities
registered pursuant to this Agreement shall be borne by the holders of such
securities pro rata on the basis of the number of shares of securities so
registered on their behalf.
5. Holdback Agreements.
5.1 By Holders. If requested in writing by the Company and the
managing underwriter of an underwritten registered public offering under this
Agreement by the Company of its Common Stock, the holders of Registrable
Securities shall agree not to sell or otherwise transfer or dispose of any
Common Stock of the Company held by such holders (other than those included in
the registration statement) for a period not to exceed 180 days following the
effective
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<PAGE> 6
date of a registration statement of the Company filed under the Securities Act,
provided that all officers and directors of the Company, all other holders of
the Registrable Securities, and all other holders of rights to registration of
any other security of the Company, if they also register their shares in such
offering, enter into similar agreements identical in terms to that of the
holders of Registrable Securities.
5.2 By Company. In connection with any underwritten registration,
the Company shall not effect any public sale or distribution of its equity
securities, or any securities convertible into or exchangeable or exercisable
for such securities, during the seven days prior to and during the 90-day period
after the effective date of any underwritten registration pursuant to this
Agreement.
6. Registration Procedures. In the case of each registration effected by
the Company pursuant to this Agreement, the Company will use its best efforts to
effect the registration and sale of Registrable Securities in accordance with
the intended method of disposition thereof, and pursuant thereto the Company
shall as expeditiously as possible:
(i) prepare and file a registration statement with respect to
such offering of Registrable Securities, and use its best efforts to cause such
registration statement to become effective,
(ii) notify each holder of Registrable Securities of the
effectiveness of each registration statement hereunder and prepare and file with
the Securities and Exchange Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a period of not less
than 90 days or until all Registrable Securities included in the registration
have been sold, whichever occurs first, and comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement during such period in accordance with the intended
methods of disposition the sellers thereof set forth in such registration
statement;
(iii) furnish to each seller of Registrable Securities such
number of copies of such registration statement, each amendment and supplement
thereto, the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such seller;
(iv) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
any seller reasonably requests and do any and all other acts and things which
may be reasonably necessary or advisable to enable
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<PAGE> 7
such seller to consummate the disposition in such jurisdictions of the
Registrable Securities owned by such seller;
(v) notify each seller of such Registrable Securities, at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits any fact necessary to make there statements therein
not misleading, and, at the request of any such seller, the Company shall
prepare a supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Registrable Securities, such prospectus
shall not contain an untrue statement of a material fact or omit to state any
fact necessary to make the statements therein not misleading;
(vi) cause all such Registrable Securities to be listed on each
securities exchange, if any, on which similar securities issued by the Company
are then listed; or, if not so listed, to be listed on the NASD automated
quotation system and, if listed on the NASD automated quotation system, use its
best efforts to secure designation of all such Registrable Securities covered by
such registration statement as a NASDAQ "national market system security" within
the meaning of Rule 11a2-1 of the Securities and Exchange Commission; or, if not
so listed, to secure NASDAQ authorization for such Registrable Securities and to
cause such securities to be listed for trading on the over-the-counter market
and quoted on the National Association of Securities Dealers Electronic Bulletin
Board;
(vii) provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such registration
statement;
(viii) enter into such customary agreements (including
underwriting agreements in customary form) and take all such other actions as
the holders of a majority of the Registrable Securities being sold or the
underwriters, if any, reasonably request in order to expedite or facilitate the
disposition of such Registrable Securities (not including effecting a stock
split or combination of shares);
(ix) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other agent retained by
any such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors, employees and independent accountants to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement, provided
that any recipient of such records, documents or information executes such
confidentiality agreement as the Company reasonably requests;
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<PAGE> 8
(x) otherwise use its best efforts to comply with all applicable
rules and regulations of the Securities and Exchange Commission, and make
available to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve months beginning with
the first day of the Company's first full calendar quarter after the effective
date of the registration statement, which earning statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;
(xi) permit any holder of Registrable Securities which holder, in
its reasonable judgment, might be deemed to be an underwriter or controlling
person of the Company, to participate in the preparation of such registration or
comparable statement and to require the insertion therein of material, furnished
to the Company in writing, which (i) with respect to matters relating to such
holder of Registrable Securities, should be included in the reasonable judgment
of such holder and its counsel, and (ii) with respect to matters relating to the
Company, should be included in the reasonable judgment of such holder, subject
in the case of clause (ii) to the approval of the Company and any managing
underwriter of the offering (which approval shall not be unreasonably withheld);
and
(xii) use its best efforts to cause such Registrable Securities
covered by such registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable the
sellers thereof to consummate the disposition of such Registrable Securities.
7. Indemnification.
7.1 By Company. The Company shall indemnify each holder of
Registrable Securities, each of its officers, directors, employees, agents, and
Affiliates, and each underwriter, and each of its officers, directors,
employees, agents, and Affiliates, against all expenses, claims, losses,
damages, and liabilities (or actions, proceedings, or settlements in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any prospectus (including any related
registration statement, notification, or the like) incident to any registration
under this Agreement, or based on any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, or any violation by the Company of the
Securities Act or any rule or regulation thereunder applicable to the Company
and relating to action or inaction required of the Company in connection with
any such registration, and will reimburse such persons for any legal and any
other expenses reasonably incurred in connection with investigating and
defending or settling any such claim, loss, damage, liability or action;
provided however, that the Company will not be liable in any such case to the
extent that any such claim, loss, damage, liability or expense arises out of or
is based on any untrue statement or omission based upon written information
furnished to the Company by such holder or underwriter and stated to be
specifically for use therein; provided, further, however, that the holders of
Registrable Securities shall consent to such
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indemnity defense being conducted by counsel to the Company unless in the good
faith opinion of counsel to Holder, Company's counsel will be unable to
effectively defend such holders due to a conflict of interest, in which event,
such defense may be conducted by counsel selected by the holders of a majority
of the Registrable Securities provided that the Company will only be obligated
to pay for the fees and expenses owing to one such counsel. It is agreed that
the indemnity agreement contained in this Section shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the prior written consent of the Company (which
consent shall not be unreasonably withheld).
7.2 By Holders. In connection with the registration or sale of
shares of Registrable Securities pursuant to this Agreement, each holder whose
Registrable Securities are included in such registration being effected under
this Agreement, shall indemnify the Company, and each of its directors,
officers, employees, agents, and Affiliates, and each underwriter, and each of
its directors, officers, employees, agents, and Affiliates, against all claims
losses, damages and liabilities (or actions in respect thereof) arising out of
or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any such registration statement or prospectus, or any omission
(or alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and will
reimburse such persons for any legal or any other expenses reasonably incurred
in connection with investigating or defending any such claim, loss, damage,
liability, or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement or prospectus, in reliance upon
and in conformity with written information furnished to the Company by such
holder of the Registrable Securities, and stated to be specifically for use
therein; provided, however, that the obligations of such holder hereunder shall
not apply to amounts paid in settlement of any such claims, losses, damages, or
liabilities if such settlement is effected without the prior written consent of
such holder, which consent shall not be unreasonably withheld; and provided that
in no event shall any indemnity under this Section 7.2 exceed the net amount of
proceeds from the offering received by such holder.
7.3 Procedure. Each party entitled to indemnification under this
Section (the "Indemnified Party") shall give notice to the party or parties
required to provide indemnification (the "Indemnifying Party") promptly after
such Indemnified Party has actual knowledge of any claim as to which indemnity
may be sought, and shall permit the Indemnifying Party to assume the defense of
such claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or any
litigation resulting therefrom, shall be reasonably acceptable to the
Indemnified Party. Failure to give notice as provided herein shall not relieve
the Indemnifying Party of its obligations under this section to the extent such
failure is not prejudicial. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement that does not
include as an unconditional term thereof the
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giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect to such claim or litigation. Each Indemnified Party
shall furnish such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be reasonably
required in connection with defense of such claim and litigation resulting
therefrom.
7.4 Contribution. If the indemnification provided for in this
Section is held by a court of competent jurisdiction to be unavailable to an
Indemnified Party with respect to any loss, liability, claim, damage, or expense
referred to therein, then the Indemnifying Party, in lieu of indemnifying such
Indemnified Party hereunder, shall contribute to the amount paid or payable by
such Indemnified Party as a result of such loss, liability, claim, damage, or
expense in such proportion as is appropriate to reflect the relative fault of
the Indemnifying Party on the one hand and of the Indemnified Party on the other
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
7.5 Conflicting Provisions. Notwithstanding the foregoing, to the
extent that the provisions on indemnification and contribution contained in any
underwriting agreement entered into in connection with a registration are in
conflict with the foregoing provisions, the provisions of the underwriting
agreement shall control.
8. Information by Holder. Each holder of Registrable Securities shall
furnish to the Company in writing such information regarding such holder and the
distribution proposed by such holder as the Company or underwriters may
reasonably request in writing and as shall be reasonably required in connection
with any registration, qualification, or compliance referred to in this
Agreement in order to assure compliance with federal and applicable state
securities laws.
9. Allocation of Registration Opportunities. In any circumstance in
which all of the Registrable Securities and other outstanding shares of Common
Stock of the Company (the "Other Shares") requested and entitled to be included
in a demand registration cannot be so included as a result of limitations on the
aggregate number of shares of Registrable Securities and Other Shares that may
be so included, or in case of an Underwriters' Cutback, the number of shares of
Registrable Securities and Other Shares that may be so included shall be
allocated among the holders of Registrable Securities and other selling
stockholders pro rata on the basis of the number of shares of Registrable
Securities and Other Shares held by such holders and other selling stockholders,
subject to the Company's being required to comply in good faith with contractual
obligations outstanding as of the date of this Agreement which do not require
the
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holders of Other Shares to agree to such pro rata allocation, but provided that
if Registrable Securities are not allocated such pro rata participation such
demand registration shall not be counted toward the maximum of five demand
requests under Section 1.2. If any holder of Registrable Securities or other
selling stockholder does not request inclusion of the maximum number of shares
of Registrable Securities and Other Shares allocated to him pursuant to this
procedure, the remaining portion of his allocation shall be reallocated among
those requesting holders of Registrable Securities and other selling
stockholders whose allocations did not satisfy their requests pro rata on the
basis of the number of shares of Registrable Securities and Other Shares held by
such holders and other selling stockholders, and this procedure shall be
repeated until all of the shares of Registrable Securities and Other Shares
which may be included in the registration on behalf of the holders of
Registrable Securities and other selling stockholders have been so allocated.
Provided, however, the Company shall not limit the number of Registrable
Securities to be included in a registration pursuant to this Agreement in order
to include shares held by stockholders with no registration rights or to include
in that registration shares of stock issued to employees, officers, directors,
or consultants pursuant to any Company stock option plan, and in such case all
Registrable Securities covered by the registration shall be sold before any such
other securities are sold.
10. Survival of Rights. The right of any holder of Registrable
Securities to request registration or inclusion in any registration pursuant to
this Agreement shall terminate on the earlier of (i) such date as all shares of
Registrable Securities held by Holder shall equal less than 25% of the
outstanding Registrable Securities, or (ii) seven years from the date a Demand
Request may first be made under Section 1.1.
11. Definitions. As used herein,
"Loan Agreement" means the Loan Agreement between the Company and
Sirrom Capital Corporation d/b/a Tandem Capital dated November
_________________, 1997.
"Holder" means any person who holds Registrable Securities and
any holder of Registrable Securities to whom the registration rights conferred
by this Agreement have been transferred in compliance herewith.
"Initiating Holders" means holders of the Registrable Securities
who in the aggregate hold not less than 25 percent of the outstanding
Registrable Securities.
"Person" means an individual, corporation, partnership, limited
liability company, joint venture, sole proprietorship, trust or other entity,
business association or organization.
"Register," "registered" and "registration" refers to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act of 1933 and
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applicable rules and regulations thereunder, and such other actions as may be
required to cause such registration statement to become effective or with
respect to registration, qualification or compliance under applicable state
securities laws.
"Registration Expenses" means all expenses incurred in effecting
any registration pursuant to this Agreement, including, without limitation, all
registration, qualification, and filing fees, printing expenses, fees and
disbursements of custodians, fees and disbursements of counsel for the Company
and its independent certified public accountants, blue sky fees and expenses,
and reasonable fees and disbursements of one counsel chosen by the holders of a
majority of the Registrable Securities included in such registration, but shall
not include Selling Expenses.
"Registrable Securities" means shares of the Company's Common
Stock issued or issuable (i) upon exercise of the Warrants, and (ii) as a
dividend or other distribution with respect to, or in exchange for, or in
replacement of, the shares referred to in clause (i); provided, however, that
shares shall cease to be Registrable Securities if and when (x) they are sold
pursuant to Rule 144 under the Securities Act or a registration statement under
the Securities Act, or (y) such shares are eligible for resale pursuant to Rule
144 under the Securities Act without regard to any volume limitations
thereunder.
"Rule 144" means Rule 144 as promulgated by the SEC under the
Securities Act, as such Rule may be amended from time to time, or any similar
successor rule that may be promulgated by the SEC.
"Rule 145" means Rule 145 as promulgated by the SEC under the
Securities Act, as such Rule may be amended from time to time, or any similar
successor rule that may be promulgated by the SEC.
"Security" has the same meaning as in Section 2(1) of the
Securities of 1933, as amended.
"Selling Expenses" means all underwriting discounts, selling
commissions and stock transfer taxes applicable to the sale of Registrable
Securities, and fees and disbursements of counsel for any stockholder (other
than the fees and disbursements of one counsel for the holders of Registrable
Securities, as selling stockholders, included in Registration Expenses).
"Underwriters' Cutback" means a reduction in the number of shares
to be included in any underwritten offering as the result of receipt of written
notice from the representative(s) of the underwriters to the effect that the
number of shares requested to be included in such registration exceeds the
number which, in the representative's judgment, can be sold in an orderly manner
in such offering within a price range acceptable to either the Company (in a
primary
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registration) or the majority of the holders initially requesting such
registration (in a secondary registration).
"Warrants" means the Initial Warrant and the Additional Warrant
issued by the Company to Holder pursuant to the Loan Agreement.
12. Notice of Transfer. The registration rights granted to the Holder
hereunder may be transferred to any transferee of not less than 100,000 shares
(adjusted appropriately for stock splits, stock dividends and the like) of
Registrable Securities; provided, however, that the registration rights of the
Holder may be transferred to a wholly-owned subsidiary of the Holder without
regard to the number of shares transferred. Each such permitted transferee must
agree in a written instrument provided to the Company to be bound hereby and
shall thereupon be deemed to be a "Holder" for purposes hereunder.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be executed by their duly authorized officers as of the date
first above written.
BIKERS DREAM, INC.
By: /s/ H. Rosenman
--------------------------------
Name:
--------------------------------
Title: CEO
--------------------------------
SIRROM CAPITAL CORPORATION
d/b/a TANDEM CAPITAL
By: /s/ Craig Macnab
--------------------------------
Name: Craig Macnab
--------------------------------
Title: Vice-President
--------------------------------
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EXHIBIT 10.32
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement ("Agreement") is entered into this 28th
day of May, 1999 ("Effective Date"), by and between CANA CAPITAL CORPORATION, a
Florida corporation ("CCC"), and Bikers Dream, Inc. ("Dealer").
W I T N E S S E T H:
WHEREAS, Dealer owns and operates a retail Biker's Dream(R) dealership
located at ________________________________________, and engages in the business
of purchasing new and used motorcycles for resale from such location; and
WHEREAS, Dealer has requested CCC to provide floor plan financing to
Dealer subject to the terms and conditions of this Agreement; and
WHEREAS, CCC is willing to extend floor plan financing to Dealer subject
to the terms and conditions hereof.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the extension of credit to Dealer evidenced hereby, and for other
good and valuable considerations, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
1. Definitions. As used in this Agreement, the following capitalized terms
shall have the following meanings:
(a) "Advance" means an extension of credit hereunder.
(b) "Affiliate" means any person that (i) directly or indirectly
controls, is controlled by or is under common control with Dealer, (ii) directly
or indirectly owns 5% or more of Dealer, (iii) is a director, partner, manager,
or officer of Dealer or an affiliate of Dealer, or (iv) any natural person
related to Dealer or an affiliate of dealer.
(c) "Agreement" shall mean this Agreement, the Program Letters, and
any Transaction Statements issued by CCC from time to time.
(d) "Collateral" means the following property or interests in
property of Dealer, whether now or hereafter existing, owned, licensed, leased,
consigned, acquired, or arising and wherever located: (i) inventory, accounts,
chattel paper, documents, equipment, fixtures, furniture, furnishings,
receivables, machinery, general intangibles and instruments (including without
limitation and whether or not included in the foregoing, Seller Credits,
Manufacturer's Statements or Certificates of Origin, deposit accounts, and
certificates of deposit) and all books, records, disks, and tapes relating to
the foregoing, (ii) all accessions, accessories, substitutions,
<PAGE> 2
and replacements to or of the foregoing, and (iii) all proceeds and products of
the foregoing.
(e) "Indebtedness" means all present and future indebtedness and
obligations of Dealer to CCC or to any person CCC directly or indirectly
controls, is controlled by, or is under common control with CCC (a "CCC
Affiliate"), whether or not arising under this Agreement, of whatever kind, now
due or to become due, absolute or contingent, and whether joint, several or
joint and several, including, without limitation, any indebtedness and
obligations arising under guaranty agreements.
(f) "Prime Inventory" means inventory which has been financed in
whole or in part by an Advance, whether or not such Advance is outstanding.
(g) "Prime Rate" shall mean for any calendar month the highest
"prime rate" published in the "Money Rates" column of the Wall Street Journal on
the first business day of such month.
(h) "Program Letter" means each written agreement entitled "Program
Letter," as from time to time amended, between CCC and Dealer with respect to
this Agreement.
(i) "Seller Credits" means all of Dealer's rights to any price
protection payments, rebates, discounts, credits, factory holdbacks, incentive
payments, and other amounts which at any time are due Dealer from a Seller with
respect to, or in connection with, any inventory acquired from such Seller.
(j) "Transaction Statement" means a statement which, at CCC's
option, may be issued by CCC to Dealer from time to time which identifies the
Prime Inventory financed and/ or the Advance made and the terms and conditions
of repayment thereof.
The terms "accessions," "account," "chattel paper," "deposit account,"
"document," "equipment," "fixture," and "inventory" shall have the respective
meanings set forth in the Florida Uniform Commercial Code.
All other terms defined herein shall have the meanings set forth herein.
2. Advances and Approvals.
(a) Dealer may from time to time apply to CCC, directly or in the
manner provided in subparagraph (b) immediately below, for an Advance under this
Agreement; provided, however, that any such Advance (i) for new motorcycles
shall not exceed 100% percent of the purchase price stated on the manufacturer's
invoices to Dealer, and (ii) in the case of used motorcycles, shall not exceed,
for Harley-Davidson, 130% of clean trade-in, for all others, 100% of clean
trade-in, of such motorcycles' loan value. In any event, the aggregate unpaid
balance of all Advances to Dealer shall not exceed the sum of
$__________________, or such different
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amount as CCC shall establish from time to time in writing.
(b) Whenever any person from whom Dealer purchases or may purchase
inventory or who advises CCC that it has sold, or may sell, inventory to Dealer
(a "Seller") requests, whether in writing or by electronic transmission, that
CCC finance, or confirm that it will finance (an "Approval"), the acquisition of
inventory by Dealer from such Seller, such request shall constitute an
application by Dealer for an Advance equal to the purchase price of such
inventory (or such lesser amount actually financed by CCC) as set forth on the
manufacturer's invoice. Dealer shall be obligated for all obligations incurred
by CCC on account of the issuance of each Approval. Whenever CCC makes such an
Advance, it may be paid directly by CCC to such Seller, except CCC may offset
any amount owed by such Seller to CCC, including without limitation any
discount, payment, or other benefit owed by such Seller to CCC ("CCC's Offset"),
all of which shall be the exclusive property of CCC.
(c) Each and every Advance or Approval shall be made in the sole and
absolute discretion of CCC, and nothing herein shall be construed to create a
legal obligation on the part of CCC to issue any Approval or make any Advance.
If CCC decides in its sole and absolute discretion to issue an Approval or make
an Advance, the Approval or Advance may be in the amount requested or a lesser
amount, and made upon such conditions as may CCC determine.
(d) Any manufacturer's invoice received by CCC from a Seller
pertaining to inventory shipped or to be shipped to Dealer, shall be presumptive
evidence that CCC has financed the acquisition of such inventory for Dealer and
that the amount of such invoice is the original principal amount of Dealer's
obligation to CCC on account of such inventory.
(e) CCC shall furnish to Dealer a Transaction Statement with respect
to each Advance made hereunder, which Transaction Statement shall be deemed
accepted by Dealer with respect to the indebtedness described therein unless
Dealer notifies CCC in writing within five (5) calendar days after receipt
thereof.
(f) Dealer will execute from time to time as requested by CCC such
other documents (including trust receipts) as may be reasonably necessary to
confirm Dealer's indebtedness to CCC or to perfect (or to continue perfection
of) CCC's security interest in the Collateral.
3. Grant and Perfection of Security Interest.
(a) Dealer hereby grants to CCC a first priority security interest
in all of the Collateral as security for all Indebtedness. Dealer shall provide
CCC from time to time for so long as any Indebtedness is outstanding such
financing statements, certificates of origin or title, and other documents in
form and substance satisfactory to CCC to establish and maintain a first
priority perfected security interest in the Collateral.
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4. Representations and Warranties of Dealer.
Dealer represents and warrants to CCC that at the time of execution of
this Agreement and at the time of each Approval and each Advance, unless Dealer
has given written notice to the contrary to CCC prior to such Approval or
Advance, that:
(a) Dealer is an S-Corporation in good standing in the state of
Pennsylvania, and does not conduct business under any fictitious name or trade
name or from any location except as listed in paragraph 22 below.
(b) Dealer has all necessary authority to enter into and perform
this Agreement and the transactions contemplated herein.
(c) Except with respect to the obligations of Dealer set forth in
this Agreement, Dealer has full right, title, and interest in and to the
Collateral, free and clear of all liens, encumbrances, and security interests
whatsoever.
(d) The execution of this Agreement by Dealer and the performance of
its obligations hereunder does not conflict with, or cause or give rise to a
breach of, or constitute an event of default under any agreement or contract to
which Dealer is a party or by which any of its assets or securities may be
bound.
(e) All information supplied by Dealer to CCC, including any
financial, credit or accounting statements or application for credit, in
connection with the Agreement is true, correct and complete.
5. Deliveries by Dealer. Prior to acceptance of this Agreement by CCC,
Dealer shall execute and deliver (as the case may be) to CCC the following:
(a) A certified copy of the Articles of Incorporation of Dealer (or
similar organizational document), together with a copy of Dealer's bylaws (or
similar governing instrument) certified by an authorized officer of Dealer to be
true and correct, and in full force and effect as of the date hereof.
(b) A Certificate of Good Standing (or similar certificate) of
Dealer issued by the Secretary of State of the state of Dealer's organization.
(c) A copy of the resolutions of the Board of Directors (or similar
managing body) of Dealer authorizing the execution, delivery, and performance of
this Agreement and the transactions contemplated hereby, and certified by a duly
authorized officer or agent of Dealer to be true, correct, and in full force and
effect as of the date hereof.
(d) A revolving line of credit promissory note in favor of CCC
evidencing the
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aggregate amount of Advances authorized hereunder.
(e) Releases of any existing liens or encumbrances on the
Collateral, except for the security interest of CCC created hereby.
6. Covenants of Dealer.
(a) Until sold at retail in the ordinary course of business pursuant
to the terms hereof, Dealer shall own all Prime Inventory free and clear of all
liens, security interests, claims, and other encumbrances, other than the
security interest granted to CCC herein, whether arising by agreement or
operation of law ("Liens").
(b) Dealer shall (i) keep all Collateral only at the locations
described in paragraph 22 below, and keep all tangible Collateral in good order,
repair, and operating condition and insured as required herein; (ii) promptly
file all tax returns required by federal, state or local law, and promptly pay
all taxes, fees, and other governmental charges for which is Dealer is liable,
including without limitation, all governmental charges against the Collateral;
(iii) permit CCC, without notice, to inspect the Collateral during normal
business hours and at any other time CCC deems desirable; (iv) keep complete and
accurate records of its business, including inventory and sales, and permit CCC
to inspect and copy such records upon request; (v) furnish CCC with such
additional information regarding the Collateral and Dealer's business and
financial condition as CCC may from time to time reasonably request; and (vi)
immediately notify CCC of any material adverse change in Dealer's prospects,
business, operations or conditions (financial or otherwise) or in the
Collateral.
(c) Dealer shall not (i) use (except for demonstration for sale),
rent, lease, sell, transfer, consign or dispose of any or all of the Collateral
except for sales of inventory at retail in the ordinary course of Dealer's
business; (ii) sell inventory to an affiliate; (iii) engage in any other
material transaction not in the ordinary course of Dealer's business; (iv)
change its business in any material manner or enter into any reorganization,
consolidation, merger, or sell all, or substantially all, of its assets without
the prior written consent of CCC; (v) change its name or conduct business under
a fictitious name or trade name, other than described in paragraph 22 below; or
(vi) finance on a secured basis with any third party the acquisition of
inventory of the same brand as any inventory financed or to be financed by CCC
without the prior written consent of CCC.
(d) Dealer shall hold IN TRUST (and separate and apart from Dealer's
other funds) for the benefit of CCC all proceeds from the sale of any of the
Prime Inventory financed by an Advance until complete payment of all
Indebtedness due CCC with respect to the Prime Inventory sold.
(e) Dealer shall furnish to CCC the following information regarding
its business and financial condition:
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(i) As soon as available, and in any event within 120 days
after the end of each fiscal year of Dealer, audited financial statements of
Dealer, including an audited balance sheet and audited statements of income and
cash flow, certified by the independent accountants of Dealer in accordance with
generally accepted accounting principals consistently applied and fairly
presenting the financial condition, cash flows, and results of operations of
Dealer for the period indicated in such statements; and
(ii) Within 45 days after the end of each fiscal quarter,
unaudited balance sheets and statements of income and cash flow showing the
financial conditions and results of operations of Dealer as of the end of such
fiscal quarter, and certified by the chief financial officer of Dealer as fairly
representing the financial portion, cash flows, and results of operations of
Dealer for the period indicated in such statements.
(f) Dealer will use any Advances received directly from CCC only for
the acquisition of Prime Inventory in the ordinary course of business.
7. Payment by Dealer to CCC.
(a) Dealer shall immediately pay to CCC the amount of any Advance
made to finance the acquisition of any item of Prime Inventory upon the earlier
of (i) the sale of such item, in which event Dealer shall hold the entire sale
proceeds therefrom IN TRUST for CCC until paid to CCC, in the same form as
received, separate and apart from Dealer's other funds and property, (ii) the
"Due in Full Date" with respect to such Advance, which date shall be 365 days
after such Advance was made unless otherwise provided for in the Agreement, or
(iii) the date such item has been damaged or destroyed, is returned to a Seller,
or is otherwise removed from the locations described in paragraph 22 below
without CCC's prior written consent. An Advance made to finance the acquisition
of a number of items of inventory shall be allocated among such items in
proportion to Seller's respective invoice prices therefor at the time of sale to
Dealer.
(b) CCC, in its sole and absolute discretion, may by written notice
to Dealer authorize Dealer to pay CCC on a scheduled liquidation program in
whole or in part or discontinue any such program at any time. While a scheduled
liquidation program is in effect, payments on Advances shall be applied on
Advances in the order billed.
(c) Anything in this Agreement to the contrary notwithstanding,
Dealer shall, at CCC's request, immediately pay to CCC the amount necessary to
reduce the sum of outstanding Approvals with respect to inventory received by
Dealer, Advances, and accrued Charges to an amount which does not exceed the
aggregate invoice price of Prime Inventory in Dealer's possession.
(d) Dealer shall pay all Indebtedness, fees, charges and interest
(collectively, "Charges") with respect to each Advance in accordance with the
terms of this Agreement. Dealer shall pay CCC its customary Charge for any check
or item which is returned to CCC. All
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Charges shall be paid by Dealer monthly within 10 calendar days after the month
in which such Charges accrue, and interest on each Advance and principal
Indebtedness related thereto shall be computed each calendar month on the sum of
the daily balances thereof during such month divided by 30 and, in the case
where a monthly rate of interest is provided for, multiplied by the monthly rate
provided for in the Agreement; or, in the case where an annual rate of interest
on an Advance shall begin to accrue on the earlier of (i) the ship date referred
to in the Seller's Invoice; or (ii) the date such Advance is entered by CCC as a
receivable on its books, or (iii) the date CCC makes such Advance ( the "Start
Date"). For the purpose of computing Charges, (i) any payment received by CCC
shall be deemed credited 3 business days thereafter; provided, however, if CCC
has furnished Dealer a form of remittance to be completed and returned with
payments, such payment shall not be deemed credited until the completed
remittance with respect to such payment is received by CCC; (ii) any payment
received by CCC after noon where payment is to be made shall be deemed received
by CCC on the next business day, and (iii) Charges not paid when due, at the
option of CCC, shall become principal Indebtedness and shall bear interest at
the highest interest rate allowable by law from time to time after the due date
thereof (the "Default Rate").
(e) Dealer and CCC agree that the terms of any Advance made by CCC
under the Agreement, including but not limited to the due date, curtailments,
Due In Full Date, and the amount of Charges may vary from time to time and can
not always be agreed upon in advance because such terms depend, in part, upon
the availability and/or the amount of a fee paid by Seller to CCC for financing
of inventory hereunder and other incentives provided by Sellers or buying
groups, CCC's floor planning volume with certain Sellers or with Dealer, and
other economic factors which vary from time to time. Accordingly, Dealer agrees
to pay each Advance and related Charges in accordance with this Agreement.
Dealer agrees that the terms and conditions stated in each Transaction Statement
shall be accepted as to the Advance identified therein if not objected to in
writing by Dealer within five (5) business days after the date of such
statement. If Dealer objects, then where applicable the Advance shall be subject
to the terms and conditions of the most recently accepted Transaction Statement
related to an Advance covering the same model of Prime Inventory, and, if there
is no such previously accepted Transaction Statement, Dealer agrees that in
addition to any other right or remedy CCC may have under this Agreement, the
disputed Advance shall be due and payable within 15 days after the date of such
Advance and interest shall accrue thereon at the rate of 18% per annum.
(f) All payments shall be made at such place as CCC shall from time
to time designate, and unless otherwise provided in the Agreement or if Dealer
is in default, all payments and other amounts received by CCC pursuant to the
Agreement, including without limitation insurance proceeds and proceeds of
Seller Credits, shall be applied to Indebtedness, whether or not due, in such
order as CCC in its sole and absolute discretion shall determine.
8. Insurance. Dealer shall assume all risk of loss, damage to, or
destruction of Collateral so long as any Indebtedness is outstanding from time
to time. Dealer shall keep all tangible Collateral insured for its full
replacement value against all insurable risks under policies
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delivered to CCC and issued by insurers satisfactory to CCC with loss payable to
CCC. All such policies shall be subject to cancellation or change only upon 20
days written notice to CCC. CCC is authorized, but not required, to act as
attorney-in-fact for Dealer in adjusting and settling any insurance claim under
any such policy and in endorsing any checks or drafts drawn by insurers. Dealer
shall promptly remit to CCC, in the form received, together with all necessary
endorsements, all proceeds of such insurance which Dealer may receive on account
of the Collateral. CCC, at its election, shall either apply any proceeds of
insurance it may receive toward payment of Indebtedness or pay such proceeds to
Dealer.
9. Power of Attorney. Dealer authorizes CCC to execute or endorse on
behalf of Dealer any instruments, chattel paper, certificate of title,
manufacturer statements of origin, financing statements and amendments thereto,
or other writings with respect to the Collateral evidencing financing under this
Agreement, or evidencing or perfecting the security interest granted hereby, as
attorney-in-fact for Dealer. This power of attorney and the other powers of
attorney granted herein are irrevocable and coupled with an interest.
10. Credit Information. Dealer authorizes CCC to investigate or make
inquires of former or current creditors of Dealer or other persons and provide
to any creditors or other persons throughout the terms of this Agreement.
11. Default. The occurrence of one or more of any of the following events
shall constitute a material default by Dealer (a "Default"): (a) Dealer shall
fail to pay any Indebtedness when due or any remittance for Indebtedness is
dishonored when first presented for payment; (b) any representation made to CCC
by Dealer or by guarantor, surety, issuer of a letter of credit or any person
other than Dealer primarily or secondarily liable with respect to any
Indebtedness (a "Guarantor") shall not be true when made or Dealer or any
Guarantor shall breach any warranty or agreement to or with CCC; (c) Dealer or
any Guarantor shall die, become insolvent or generally fail to pay its debts as
they become due or, if a business, shall cease to do business as a going
concern; (d) any guaranty, letter or credit, or other obligation of a Guarantor
to CCC with respect to any Indebtedness or Collateral shall terminate or not be
renewed prior to its stated expiration or maturity; (e) Dealer or any Guarantor
shall make an assignment for the benefit of creditors, or commerce a proceeding
under any bankruptcy, reorganization, arrangement, insolvency, receivership,
dissolution, dissolution or liquidation statute or similar law of any
jurisdiction, or any such proceeding shall be commenced against Dealer or
Guaranty or any of their respective assets (an "Automatic Default"); (f) a
material adverse change shall occur in the business, operations or condition
(financial or otherwise) of Dealer or any Guarantor or with respect to the
Collateral; (g) any debt for borrowed money of, or guaranteed by, Dealer or any
Guarantor becomes due by acceleration or otherwise prior to its due date by
reason of a default; or (h) CCC, in good faith, and with a reasonable basis
therefore, determines the prospect of payment of any Indebtedness is impaired or
deems itself insecure.
12. CCC's Rights and Remedies Upon Default. Upon the occurrence of a
Default, CCC shall have all rights and remedies of a secured party under the
Florida Uniform Commercial
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Code and other applicable law and all rights and remedies set forth in this
Agreement, and may terminate this Agreement and any outstanding Approvals
immediately and/or declare any and all Indebtedness immediately due and payable
without notice or demand. Dealer waives notice of intent to accelerate, and
acceleration of, the Indebtedness, all of which shall accrue interest at the
Default Rate until paid in full. CCC may enter any premises of Dealer, with or
without process of law, without force, to search for, take possession of, and
remove the Collateral, or any part thereof. If CCC requests, Dealer shall cease
disposition of and shall assemble the Collateral and make it available to CCC,
at Dealer's expense, at a convenient place or places designated by CCC. CCC may
take possession of the Collateral or any part thereof on Dealer's premises and
cause it to remain there at Dealer's expense, pending sale or other disposition.
Dealer agrees that the sale of inventory by CCC to a person who is liable to CCC
under a guaranty, endorsement, repurchase agreement or the like shall not be
deemed to be a transfer subject to Florida Statutes Section 679.504(5) or any
other applicable law , and Dealer waives any provision of such laws to that
effect. Dealer agrees that repurchases of inventory by a Seller pursuant to a
repurchasing agreement with CCC shall be a commercially reasonable method of
disposition. Dealer shall be liable to CCC for any deficiency resulting from
CCC's disposition, including without limitation, a repurchase by a Seller,
regardless of any subsequent disposition thereof. Dealer is not a beneficiary
of, and has no right to require CCC to enforce, any repurchase agreement. Any
notice of a disposition shall be deemed reasonably and properly given if given
to Dealer at least 10 calendar days before such disposition. If Dealer fails to
perform any of its obligations under this Agreement, CCC may perform the same in
any form or manner which CCC, in its sole and absolute discretion, deems
necessary or desirable, and all monies paid by CCC in connection therewith shall
be additional Indebtedness and shall be immediately due and payable without
notice together with interest payable on demand at the Default Rate. All of
CCC's rights and remedies shall be cumulative. At CCC's request, or without
request in the event of an Automatic Default, Dealer shall pay all Seller
Credits to CCC as soon as the same are received for application to Indebtedness.
Dealer authorizes CCC to collect such amounts directly from Seller and, upon
request of CCC, shall instruct Seller to pay CCC directly.
13. Dealer's Claims Against Sellers. Dealer shall not assert against CCC
any claim or defense Dealer may have against any Seller, whether for breach or
warranty, misrepresentation, failure to ship, lack of authority, or otherwise,
including without limitation claims or defenses based upon charge backs, credit
memos, rebates, price protection payments, or returns. Any such claims or
defense or other claims or defense Dealer might have against Seller shall not
affect Dealer's liabilities or obligations to CCC.
14. Notices. All notices to be given under the Agreement shall be in
writing and shall be delivered either personally, by deposit with a reputable
overnight courier with charges prepaid, or by deposit in the United States mail,
first-class postage prepaid or provided for, and addressed to Dealer or CCC, as
the case may be, at the address described on the signature page hereto, at such
other address designated by such party by notice to the other. Any notice,
including but not limited to any Transaction Statement, shall be deemed to have
been given upon delivery in the case of personal delivery, one business day
after deposit with an overnight courier, or two (2)
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<PAGE> 10
calendar days after deposit in the United States Mail. Notwithstanding anything
to the contrary herein, CCC shall be permitted to send any Transaction Statement
to Dealer by facsimile.
15. Term and Termination. Unless sooner terminated as provided herein or
by at least 30 calendar days prior written notice from either party to the
other, the term of this Agreement shall be one year and from year to year
thereafter; provided, however, CCC may terminate the Agreement immediately by
notice to Dealer in the whole or only with respect to certain product lines if
Dealer shall lose or relinquish any right to sell or deal in any product line of
Prime Inventory or if Dealer fails to pay an Advance due to an objection to the
terms of any Transaction Statement and CCC determines that the Transaction
Statement does not contain a bona fide error. Upon termination of this
Agreement, all Indebtedness (or, if this Agreement is terminated only with
respect to certain product lines, the Indebtedness relative to such product
lines) shall become immediately due and payable without notice or demand. Upon
any termination, Dealer shall remain fully liable to CCC for all Indebtedness
and Charges arising prior to or after termination, and all of CCC's rights and
remedies and its security interest shall continue until all Indebtedness is paid
and all obligations of Dealer are performed in full. If CCC makes Advances in
reliance on a repurchase agreement from a Seller, it may cease making such
Advances if it has any concern as to whether such repurchase agreement will
cover future Advances or be performed by such Seller. No provision of this
Agreement shall be construed to obligate CCC to make any Advances.
16. Submission to Jurisdiction; Waiver of Bond. Dealer hereby expressly
consents to jurisdiction of any local, state, or federal court located within
the state of Florida, and waives any objection which Dealer may have based on
improper venue or forum non conveniens to the conduct of any action or
proceeding in any such court and waives personal service of any and all process
upon it, and consents that all such service of process be made by mail or
messenger directed to it in the same manner as provided for notice to Dealer
herein. Nothing contained in this section shall affect the right of CCC to serve
legal process in any other manner permitted by law or affect the right of CCC to
bring any action or proceeding against Dealer or its property in the courts of
any other jurisdiction. Dealer waives, to the extent permitted by law, any bond
or surety or security upon such bond which might, but for this waiver, be
required of CCC.
17. Governing Law. This agreement shall be construed in all respects in
accordance with, and governed by, the internal laws of the state of Florida.
18. Jury Waiver. Each of the parties hereto waives any right to a trial by
jury on any claim, demand, action, cause of action or counterclaim arising under
or in any way related to this Agreement and the transactions contemplated
herein.
19. Savings Provisions. In no event, whether by reason of acceleration of
the maturity of the Indebtedness or otherwise, shall Charges contracted for,
charged, received, paid or agreed to be paid to CCC exceed the maximum amount
permissible under applicable law. If, from any circumstances whatsoever, Charges
would otherwise be payable to CCC in excess of the
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<PAGE> 11
maximum lawful amount, the charges shall be reduced to the maximum amount
permitted under applicable law; and, if from any circumstance, CCC shall have
received anything of value deemed interest by applicable law in excess of the
maximum lawful amount, an amount equal to any excess of interest shall be
applied to the reduction of the principal amount of Indebtedness and not to the
payment of Charges, or if such excessive interest exceeds the unpaid balance of
the principal amount of Indebtedness, such excess shall be refunded to Dealer.
20. Limitation of Remedies and Damages. CCC and Dealer agree that in the
event there is any dispute relating or arising in connection with this
Agreement, the aggrieved party shall not be entitled to punitive or
consequential damages in connection with any action arising under or in any way
related to this Agreement.
21. Miscellaneous.
(a) Time is of the essence in the performance of Dealer's
obligations under this Agreement. Any waiver by CCC of a default shall only be
effective if in a writing signed by CCC and any waiver of a Default in a
particular instance or of a particular Default shall not be a waiver of the
other Defaults or of the same kind of Default at another time. No modification
of the Agreement shall bind CCC unless in writing signed by CCC.
(b) This Agreement shall insure to the benefit of CCC and its
successors and assigns and may be assigned by CCC in whole or in part.
References to CCC shall be deemed to refer to CCC and its successors and
assigns. Dealer may not assign this Agreement without the prior written consent
of CCC. This Agreement shall be binding upon the parties hereto and their
respective heirs, personal representative, successors and assigns.
(c) In the event any legal action is brought by any party hereto to
enforce any of the terms and conditions of this Agreement, then the prevailing
party shall be entitled to recover its costs and reasonable attorneys' fees.
22. Business Locations and Trade Names. The following set forth all of
Dealer's locations and all fictitious names or trade names under which Dealer is
doing business at such location:
11
<PAGE> 12
23. Effectiveness. This Agreement shall not become a contract until
accepted by CCC in Florida by execution hereof.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
Effective Date.
Signed and sealed in the presence of:
BIKERS DREAM, INC., CANA CAPITAL CORPORATION,
a California corporation a Florida corporation
- ----------------------------------- ----------------------------------------
Printed: Printed
--------------------------- ---------------------------------
Its:
------------------------------------
- ----------------------------------- Address: 9543 Sunbeam Center Drive
Printed: Jacksonville, Florida 32257
---------------------------
As to Cana Capital Corporation
" CCC"
---------------------------------------,
a
---------------------------------------
Printed: Printed
--------------------------- ---------------------------------
Its:
------------------------------------
- -----------------------------------
Printed: Address:
--------------------------- --------------------------------
"DEALER"
12
<PAGE> 1
EXHIBIT 10.33
PROMISSORY NOTE
$ MAY 28, 1998
---------------
FOR VALUE RECEIVED BIKERS DREAM, INC., A CALIFORNIA CORPORATION
("Borrower"), promises to pay to the order of CANA CAPITAL CORPORATION, a
Florida corporation ("Lender"), and its successors and assigns, the principal
sum of________ DOLLARS ($______), OR THE AGGREGATE PRINCIPAL AMOUNT OUTSTANDING
of all advances pursuant to that certain Loan and Security Agreement between
Borrower and Lender of even date herewith ("Agreement"), whichever is less,
together with interest on the principal balance outstanding from date until
maturity at the rate from time to time established under the terms of said
Agreement, both principal and interest being payable in lawful money of the
United States of America at 9543 Sunbeam Center Drive, Jacksonville, Florida
32257, or at such other address as Lender may from time to time specify by
written notice to Borrower, said principal and interest to be paid at such times
and in such manner as set forth under the terms of the Agreement.
Advances under this Note shall be made in such amounts and in accordance
with the procedures described in the Agreement. Payment of this Note is secured
by a security interest in all the Borrower's assets described in the Agreement
and a Guaranty, all as of the date hereof (collectively, the "Loan Documents").
A default under any of the Loan Documents shall constitute a default hereunder.
Anything in this Note, the Loan Documents, or any other agreements between
Borrower and Lender to the contrary notwithstanding, if for any circumstances
whatever fulfillment of any of the foregoing documents or agreements at the time
performance of said provision shall be due shall involve transcending the limit
of validity prescribed by the usury laws of the state of Florida or any other
law of the state of Florida, as the same may be preempted by federal law or
statutes, then ipso facto the obligation to be fulfilled shall be reduced to the
limit of such validity so that in no event shall exaction be possible under this
Note or any of the aforesaid documents or agreements securing the same in excess
of the limit of such validity, but such obligation shall be fulfilled to the
limit of such validity and if under any circumstances whatsoever interest in
excess of the limit of such validity will have been paid by the Borrower,
endorsers or guarantors, in connection with the extension of credit evidenced by
this Note, such excess shall be applied by Lender to the unpaid principal
balance of this Note or refunded to the Borrower, endorsers or guarantors, as
the case may be, the manner of handling such excess to be at Lender's election
and/or in case any such excess interest has accrued, Lender shall eliminate such
excess interest so that under no circumstances shall interest thereon or on the
loan evidenced by the aforesaid documents or agreements securing this Note
exceed the maximum rate allowed by the laws of the state of Florida, as the same
may be preempted by federal law or statutes.
If default be made in the payment of any sums hereunder for a period of
more than five (5) business days or in the performance of any agreements
contained herein, or if an event of default shall have occurred under any of the
Loan Documents, then, at the option of the Lender, the entire principal sum then
remaining unpaid, with accrued interest, shall immediately become due and
payable without any notice other than as may be required under the terms of the
Agreement, and said principal sum and said accrued interest shall both bear
interest at the default rate set forth in the Agreement
<PAGE> 2
from such time until paid. Failure to exercise this option shall not constitute
a waiver of the right to exercise the same at any other time.
In the event the Lender or any holder hereof shall retain or engage an
attorney to collect or enforce or protect its interests with respect to this
Note or the Loan Documents, then Borrower shall pay all of the costs and
expenses of such collection, enforcement or protection, including reasonable
attorney's fees, whether or not suit is instituted, and including reasonable
attorneys' fees incurred on appeal or in any bankruptcy proceeding.
The Borrower and any endorsers and guarantors hereof, for themselves,
their heirs, legal representatives, successors and assigns, respectively, hereby
expressly waive presentment, demand for payment, notice of dishonor, protest,
notice of non-payment, and diligence in collection, and consent that the time of
all payments or any part thereof may be extended, modified, renewed or postponed
by the Lender, and further consent that the real or personal security or any
part thereof may be released, exchanged, added to, or substituted by the Lender,
without in anywise modifying, altering, releasing, affecting, or limiting their
respective liability or the lien of any security instrument, and agree that the
Lender shall not be required first to institute any suit, or to exhaust any of
its remedies against the Borrower or any other person or party liable hereunder,
in order to enforce payment of this Note.
This Note may not be changed, modified or terminated orally, but only by
an agreement in writing, signed by the party charged therewith.
This Note is to be construed and enforced according to the laws of the
state of Florida.
This Note shall be binding upon the successors and assigns of the Borrower
and shall inure to the benefit of the Lender, its successors, endorsees and
assigns. If any term or provision of this Note shall be held invalid, illegal or
unenforceable, the validity of all other terms and provisions thereof shall in
no way be affected thereby.
Signed and sealed in the presence of:
Print:
-----------------------------
By:
-----------------------------
Print:
"BORROWER(S)"
2
<PAGE> 1
EXHIBIT 10.34
MANUFACTURER'S RECOURSE AGREEMENT
This Manufacturer's Recourse Agreement ("Recourse Agreement") is entered
into on May 28, 1998, by and between CANA CAPITAL CORPORATION, A FLORIDA
CORPORATION ("CCC") and BIKERS DREAM, INC., A CALIFORNIA CORPORATION ("DEALER").
W I T N E S S E T H:
WHEREAS, Bikers Dream, by and through its wholly owned subsidiary, Ultra
Acquisition Corp., a Nevada corporation d/b/a Ultra Kustom Cycles, is engaged in
the business of manufacturing new motorcycles and customizing used motorcycles
for sale at the wholesale level; and
WHEREAS, Bikers Dream (or its subsidiaries) has developed a distinctive
business concept for selling, customizing, and/or repairing new and used
motorcycles and related products and accessories through a retail network of
dealers using the name Bikers Dream(R) ("Dealers"); and
WHEREAS, Bikers Dream desires to facilitate the wholesale distribution of
its new and used motorcycles to its Dealers; and
WHEREAS, CCC desires to assist Bikers Dream in the wholesale distribution
of Bikers Dream's new and used motorcycles by providing floor plan financing to
certain Dealers; and
WHEREAS, Bikers Dream deems it necessary and desirable to assume certain
liabilities and obligations in connection with the extension of credit by CCC to
certain Dealers for the acquisition of new and used motorcycle inventory.
NOW, THEREFORE, in consideration of the mutual covenants and promises set
forth herein, the extension of credit to certain Dealers, and for other good and
valuable considerations, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. DEFINITIONS. As used in this Recourse Agreement, the following
capitalized terms shall have the following meanings:
(a) "APPROVAL" shall mean CCC's agreement, whether in writing or by
electronic transmission, to finance the sale of Inventory by Bikers Dream to a
Dealer.
(b) "DEALER" shall mean any person or entity which buys Inventory at
wholesale from Bikers Dream pursuant to a valid Dealer Agreement other than any
Dealer in which CCC (or any shareholder of CCC) owns a majority of the issued
and outstanding stock of such Dealer.
(c) "INVENTORY" shall mean all new and used motorcycles sold at
wholesale from time to time by Bikers Dream to a Dealer pursuant to financing
(in whole or in part) provided by CCC.
<PAGE> 2
(d) "INVOICE" shall mean an invoice, bill of sale, or other
evidence, whether in writing or electronically transmitted, of the sale or
delivery of Inventory by Bikers Dream to Dealer.
(e) "WHOLESALE INSTRUMENT" shall mean an Invoice, billing statement,
inventory schedule, or other evidence of Indebtedness, including the books and
records of CCC, arising out of the financing by CCC of an Invoice.
2. DEALER FLOORPLANNING.
If Bikers Dream requests an Approval or sends to CCC an Invoice,
then the Dealer related to such Approval or Invoice shall be eligible for
wholesale financing, and CCC may, from time to time in its sole and absolute
discretion, issue such Approvals and advance against such Invoices, as provided
herein. If CCC issues an Approval, then Bikers Dream shall deliver an original
Invoice to CCC. Provided CCC receives the Invoice with thirty (30) calendar days
of the date CCC issued the Approval, then CCC shall pay Bikers Dream the amount
of the Invoice, subject to the terms of the financing program then in effect
between Bikers Dream and CCC. If the Invoice is not received within said thirty
(30) day period, or is not acceptable in form or content, then CCC has the
right, without notice to Bikers Dream, to cancel the Approval related to said
Invoice. Prior to funding any Approval, CCC has the right to cancel said
Approval upon oral or written notice to Bikers Dream should Dealer be in default
of any of its obligations to CCC and provided that Bikers Dream has not shipped
Inventory in reliance on CCC's Approval. Advances on Invoices and Approvals for
such advances issued by CCC as provided hereunder shall constitute an acceptance
of the terms and conditions hereof by Bikers Dream and CCC as to each such
advance, and no other act or notice shall be required on the part of CCC or
Bikers Dream to entitle such advances and Approvals to the benefits of this
Recourse Agreement.
In any event, upon CCC's funding of an Approval or payment to Bikers
Dream of the amount represented by any Invoice, then Bikers Dream shall deliver
to CCC either (i) the manufacturer's statement or certificate of origin related
to such Invoice in the case of new motorcycles, or (ii) the certificate of title
related to such Invoice in the case of used motorcycles. CCC may deduct, set
off, withhold and/or apply any sums or payments due from Bikers Dream to CCC
under this Recourse Agreement against any sums or payments due from CCC (or any
affiliate of CCC) to Bikers Dream.
3. REPRESENTATIONS AND WARRANTIES OF BIKERS DREAM.
Bikers Dream hereby represents and warrants to CCC as of the date
hereof, and thereafter at the time of any Approval of and/or advance against any
Invoices by CCC, as follows:
(a) Bikers Dream is a corporation duly organized, validly
existing, and in good standing under the laws of the state of California with
full power and authority to conduct its business as it is now being conducted.
2
<PAGE> 3
(b) This Recourse Agreement constitutes the legal, valid, and
binding obligation of Bikers Dream, and is enforceable against it in accordance
with its terms.
(c) Bikers Dream has the absolute and unrestricted right,
power, and authority to execute and deliver this Recourse Agreement and to
perform its obligations hereunder.
(d) Neither the execution and delivery of this Recourse
Agreement nor the consummation of any of the transactions contemplated hereunder
will directly or indirectly contravene, conflict with, or result in a violation
or breach of any document, agreement, contract, or other instrument to which
Bikers Dream is a party.
(e) All Dealers with whom Bikers Dream (or any subsidiary of
Bikers Dream) has entered into a Dealer Agreement are listed by name and address
in Exhibit "A" hereto and all such Dealer Agreements are in full force and
effect and there are no defaults on the part of any Dealer with respect thereto.
(f) All Invoices issued by Bikers Dream represent valid
obligations of its Dealers, are legally enforceable such Dealers according to
their terms, and relate to bonafide, original sales of Inventory by Bikers Dream
to such Dealers without any claim, set off, or defense to payment by Dealer.
(g) Bikers Dream's title to all Inventory is free and clear of
all liens and encumbrances upon the sale or transfer of such Inventory to any
Dealer.
(h) The Inventory is of the kind, quality, and condition
represented, or warranted to Dealer and meets or exceeds all applicable federal,
state and local safety, construction and other standards.
4. COVENANTS OF BIKERS DREAM. Bikers Dream covenants with CCC as follows:
(a) All Inventory financed by CCC shall be subject to applicable
product warranties of Bikers Dream, and Bikers Dream agrees to perform, or cause
to be performed, all repairs, modifications and/or other acts required by Bikers
Dream pursuant to said product warranties. All expenses of performance under
this section shall be paid by Bikers Dream.
(b) If Bikers Dream accepts the return from Dealer of any Inventory
covered by a Wholesale Instrument, and whether or not any substitution is made
for such returned Inventory, Bikers Dream will reimburse CCC for the full
original amount of the Invoice within thirty (30) calendar days of the return.
In the event that Dealer shall be entitled to the payment by Bikers Dream of any
rebates, reserves or incentives, Bikers Dream shall advise CCC of the amount and
nature of the payment and shall obtain CCC's approval prior to remitting such
funds to Dealer.
3
<PAGE> 4
(c) Bikers Dream shall deliver to CCC the manufacturer's statement
(or certificate) of origin or title certificate, as the case may be, upon CCC's
funding of an Approval or payment of an Invoice.
(d) Bikers Dream shall promptly notify CCC in writing in the event
(i) any Dealer is in breach of any Dealer Agreement then in effect between
Bikers Dream and such Dealer, or (ii) any Dealer Agreement is terminated by
Bikers Dream or such Dealer for any reason whatsoever.
5. INDEMNIFICATION. Bikers Dream covenants and agrees to indemnify and
hold harmless CCC from and against any and all losses, damages, costs, and
expenses (including a reasonable attorneys' fee) which may be due CCC with
respect to any obligation on the part of any Dealer which is owned or controlled
by, or an affiliate of, Bikers Dream. The provisions of this paragraph shall
survive any expiration or termination of this Recourse Agreement or any
agreement entered into between CCC and such Dealer.
6. WAIVERS.
(a) Bikers Dream waives notice of non-payment, protest, and dishonor
of any Wholesale Instrument, notice of CCC's acceptance of this Recourse
Agreement, and all other notice to which Bikers Dream might otherwise be
entitled by law. CCC may, at any time and from time to time, without notice to
or further consent of Bikers Dream, renew and extend the time of payment of
Wholesale Instruments and compromise or adjust claims on Wholesale Instruments
or Inventory covered thereby and waive or modify performance of such terms and
conditions of its financing arrangement with Dealers in CCC's sole and absolute
discretion, and no such renewal, extension, compromise, adjustment, waiver, or
modification shall affect the liability of Bikers Dream hereunder.
(b) The failure of CCC at any time to require performance by Bikers
Dream of any provision of this Recourse Agreement shall in no way affect the
right of CCC to require performance of that provision. Any waiver by either
party of any breach of any provision of this Recourse Agreement shall not be
construed as a waiver of any continuing or succeeding breach of any such
provision, or a waiver of any right under this Recourse Agreement.
7. MISCELLANEOUS.
(a) Bikers Dream may not assign or transfer any of its rights under
this Recourse Agreement without the prior written consent of CCC, which consent
may be withheld for any reason whatsoever.
(b) No modification or amendment to this Recourse Agreement shall be
valid or binding unless in writing and executed by the party charged therewith.
This Recourse Agreement shall not be deemed to create a joint venture,
partnership, or agency relationship between Bikers Dream and CCC.
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<PAGE> 5
(c) All obligations and duties of Bikers Dream hereunder shall apply
to any successor interest to Bikers Dream by virtue of any consolidation,
merger, or other reorganization.
(d) All notices to be given under this Recourse Agreement shall be
in writing and shall be delivered either personally, by deposit with a reputable
overnight courier with charges prepaid, or by deposit in the United States mail,
first-class postage prepaid or provided for, and addressed to Bikers Dream or
CCC, as the case may be, at the address described on the signature page hereto,
at such other address designated by such party by notice to the other. Any
notice shall be deemed to have been given upon delivery in the case of personal
delivery, one business day after deposit with an overnight courier, or two (2)
calendar days after deposit in the United States Mail.
(e) This Recourse Agreement shall be governed by and construed in
accordance with the internal laws of the state of Florida and any action to
enforce, construe, or interpret any of the terms and conditions hereof shall, at
CCC's option, be brought in a court of competent jurisdiction located in Duval
County, Florida.
(f) Each of the parties hereto waives any right to a trial by jury
on any claim, demand, action, cause of action or counterclaim arising under or
in any way related to this Recourse Agreement and the transactions contemplated
herein.
(g) Any amounts not paid when due under this Recourse Agreement
shall accrue interest at the rate of 18% per annum until paid in full.
(h) In the event any legal action is brought by any party hereto to
enforce any of the terms and conditions of this Recourse Agreement, then the
prevailing party shall be entitled to recover its costs and reasonable
attorneys' fees.
(i) Either party hereto may cancel this Recourse Agreement at any
time upon thirty (30) days prior written notice; provided, however, that no such
termination shall in any manner affect, limit, or modify the obligations of
Bikers Dream with respect to Invoices approved or advanced against by CCC prior
to the effective date of termination, or other obligations incurred prior to
such date.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Recourse Agreement
to be executed as of the Effective Date.
Signed and sealed in the presence of:
CANA CAPITAL CORPORATION, BIKERS DREAM, INC.,
A FLORIDA CORPORATION A CALIFORNIA CORPORATION
- ---------------------------------- ----------------------------------------
Printed: Printed:
-------------------------- --------------------------------
Its: Its:
------------------------------ ------------------------------------
Printed: Printed:
-------------------------- --------------------------------
As to Cana Capital Corporation:
9543 Sunbeam Center
Jacksonville, Florida 32257
Attn: Mr. Bruce A. Scott
6
<PAGE> 1
EXHIBIT 10.35
PROGRAM LETTER
This Program Letter is executed and delivered pursuant to the Loan and
Security Agreement previously entered into between Bikers Dream, Inc. ("Dealer")
and Cana Capital Corporation, a Florida corporation ("CCC"), as amended from
time to time. All terms not defined herein shall have the same meaning herein as
in the Agreement.
1. Credit Limit(s): The aggregate amount of Advances and Approvals
outstanding at any time shall not exceed the sum of $ ____________.
2. Place of Payment: All payments due CCC shall be sent via either: (i) U.
S. Mail or overnight delivery to: 9543 Sunbeam Center Drive, Jacksonville,
Florida 32257; or (ii) ACH/Wire Transfer to Compass Bank, Account No.
___________, ABA Routing No. ______, and your CCC Customer No. ______________.
3. Financing Program; Principal and Charges: Until changed as provided in
the Agreement, the following financing programs shall be in effect with the
respect to the following product line(s) and Dealer agrees to pay principal and
interest with respect to each Advance and Charge as follows:
(a) Financing Program: Pay as Sold.
(b) Product Line(s): New and Used Motorcycles.
(c) Principal Payments: Pursuant to the Agreement, Dealer is
required to pay each Advance made to finance the purchase of any item of
inventory upon the earlier of (i) sale of such item, or (ii) Due in Full Date.
The Due in Full Date with respect to each Advance is 365 days after its Start
Date.
(d) Common Due Dates: When no Default has occurred and is
continuing, Dealer may cumulate payments due in any week and pay all cumulated
amounts to CCC weekly.
(e) Interest: With respect to new vehicles, interest shall accrue
from the Start Date at a per annum rate equal to 2% over the Prime Rate. With
respect to used vehicles, interest shall accrue from the Start Date at a per
annum rate equal to 5% over the Prime Rate. Overdue principal shall bear
interest until paid in full at the Default Rate.
(f) Administrative Fee: Dealer shall pay to CCC and administrative
fee every 30 days at a rate equal to .25% of the outstanding balance from time
to time of all Advances and Charges due CCC. All overdue administrative fees
shall bear interest until paid in full at the Default Rate.
<PAGE> 2
4. Transaction Statements: Anything to the contrary notwithstanding,
Dealer acknowledges and agrees that the rates of interest and repayment terms
applicable to each Advance made to or on behalf of Dealer by CCC shall be
governed by the Transaction Statement sent by CCC to Dealer related to the
Advance, until such Advance is paid in full to CCC.
5. Affirmation of Representations and Warranties: Dealer hereby
acknowledges, agrees, and affirms that each of the representations and
warranties of Dealer set forth in the Agreement are true and correct as of the
date hereof.
6. Effective Date: This Program Letter shall not become a contract until
executed and delivered by Dealer and accepted by CCC in Florida. Acceptance may
be by facsimile signature. Dealer waives notice of acceptance.
Very truly yours,
CANA CAPITAL CORPORATION
Accepted and Agreed:
BIKERS DREAM, Inc.,
a California corporation
By:
--------------------------------
Its:
--------------------------------
"DEALER"
Accepted in Florida:
CANA CAPITAL CORPORATION,
a Florida corporation
By:
--------------------------------
Its:
--------------------------------
"CCC"
2
<PAGE> 1
EXHIBIT 10.36
[LOGO] AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE -- GROSS
(DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS)
1. BASIC PROVISIONS ("BASIC PROVISIONS")
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes
only, January 15, 1999, is made by and between LDT Company, Carol M. Carson,
David Carson and Tim Carson as Partners ("LESSOR") and Biker's Dream
International, a California corporation ("LESSEE"), (collectively the "PARTIES,"
or individually A "PARTY").
1.2 PREMISES: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known as 3810 Wacker Dr. Mira Loma, located in the County of Riverside, State of
California, and generally described as (describe briefly the nature of the
property and, if applicable, the "PROJECT", if the property is located within a
Project) an approximate 56,200 square foot industrial building on approximately
4.79 acres. Parcel No. 156-210-021 ("PREMISES"). (See also Paragraph 2).
1.3 TERM: Three years and Five months ("ORIGINAL TERM") commencing
September 26, 2000 ("COMMENCEMENT DATE") and ending February 29, 2004
("EXPIRATION DATE"). (See also Paragraph 3)
1.4 EARLY POSSESSION: September 26, 2000 ("EARLY POSSESSION DATE").
(See also Paragraphs 3.2 and 3.3)
1.5 BASE RENT: $19,670 per month ("BASE RENT"), payable on the First
day of each month commencing September 26, 2000. (See also Paragraph 4)
[x] If this box is checked, there are provisions in this Lease for the Base Rent
to be adjusted.
1.6 BASE RENT PAID UPON EXECUTION: $ per Sub-Lease agreement
attached hereto, receipt of which is hereby acknowledged by Lessor as Base Rent
for the period per Sub-Lease agreement attached hereto, receipt of which is
hereby acknowledged by Lessor.
1.7 SECURITY DEPOSIT: $ per Sub-Lease agreement attached hereto,
receipt of which is hereby acknowledged by Lessor ("SECURITY DEPOSIT"). (See
also Paragraph 5)
1.8 AGREED USE: Manufacture, warehouse and distribution of
specialized motorcycles, parts and related uses. (See also Paragraph 6)
1.9 INSURING PARTY: Lessor is the "INSURING PARTY". The Annual "Base
Premium" is $ N/A. (See also Paragraph 8)
1.10 REAL ESTATE BROKERS: (See also Paragraph 15)
(a) REPRESENTATION: The following real estate brokers
(collectively, the "BROKERS") and brokerage relationships exist in this
transaction (check applicable boxes):
[x] Lee & Associates represents Lessor exclusively ("LESSOR'S BROKER");
[x] Lee & Associates represents Lessee exclusively ("LESSEE'S BROKER"); or
[ ] represents both Lessor and Lessee ("DUAL AGENCY").
(b) PAYMENT TO BROKERS: Upon execution and delivery of this
Lease by both Parties, Lessor shall pay to the Broker the fee agreed to in their
separate written agreement (or if there is no such agreement, the sum of 3% of
the total Base Rent for the brokerage services rendered by said Broker).
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to
be guaranteed by None ("GUARANTOR"). (See also Paragraph 37)
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 1 through 5 and Exhibits Addendum and Site Plan, all of
which constitute a part of this Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby
leases from Lessor, the Premises, for the term, at the rental, and upon all of
the terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of size set forth in this Lease, or that may have
been used in calculating rental, is an approximation which the Parties agree is
reasonable and the rental based thereon is not subject to revision whether or
not the actual size is more or less.
2.2 CONDITION. Lessor shall deliver the Premises broom clean and
free of debris on the Commencement Date or the Early Possession Date, whichever
first occurs ("START DATE"), and warrants that the existing electrical,
plumbing, fire sprinkler, lighting, heating, ventilating and air conditioning
systems ("HVAC"), loading doors, if any, and all other such elements of the
building, in the Premises, other than those constructed by Lessee, shall be in
good operating condition on said date and that the surface and structural
elements of the roof, bearing walls and foundation of any buildings on the
Premises (the "BUILDING") shall be free of material defects. If a non-compliance
with said warranty exists as of the Start Date, Lessor shall, except as
otherwise provided in this Lease, promptly after receipt of written notice from
Lessee setting forth with specificity the nature and extent of such
non-compliance, rectify same at Lessor's expense. If, after the Start Date,
Lessee does not give Lessor written notice of any non-compliance with this
warranty within (i) six (6) months as to the HVAC systems or (ii) thirty (30)
days as to the remaining systems and other elements of the Building, correction
of such non-compliance shall be the obligation of Lessee at Lessee's sole cost
and expense, except for the roof, foundations, and bearing walls which are
handled as provided in Paragraph 7.
2.3 COMPLIANCE. Lessor warrants that the improvements on the
Premises comply with all applicable laws, covenants or restrictions of record,
building codes, regulations and ordinances ("APPLICABLE REQUIREMENTS") in effect
on the Start Date. Said warranty does not apply to the use to which Lessee will
put the Premises or to any Alterations or Utility Installations (as defined in
Paragraph 7.3(a)) made or to be made by Lessee. NOTE: Lessee is responsible for
determining whether or not the zoning is appropriate for Lessee's intended use,
and acknowledges that past uses of the Premises may no longer be allowed. If the
Premises do not comply with said warranty, Lessor shall, except as otherwise
provided, promptly after receipt of written notice from Lessee setting forth
with specificity the nature and extent of such non-compliance, rectify the same
at Lessor's expense. If Lessee does not give Lessor written notice of a
non-compliance with this warranty within six (6) months following the Start
Date, correction of that non-compliance shall be the obligation of Lessee at
Lessee's sole cost and expense. If the Applicable Requirements are hereafter
changed (as opposed to being in existence at the Start Date, which is addressed
in Paragraph 6.2(e) below) so as to require during the term of this Lease the
construction of an addition to or an alteration of the Building, the remediation
of any Hazardous Substance, or the reinforcement or other physical modification
of the Building ("CAPITAL EXPENDITURE"), Lessor and Lessee shall allocate the
cost of such work as follows:
(a) Subject to Paragraph 2.3(c) below, if such Capital
Expenditures are required as a result of the specific and unique use of the
Premises by Lessee as compared with uses by tenants in general, Lessee shall be
fully responsible for the cost thereof, provided, however, that if such Capital
Expenditure is required during the last two (2) years of this Lease and the cost
thereof exceeds six (6) months' Base Rent, Lessee may instead terminate this
Lease unless Lessor notifies Lessee, in writing, within ten (10) days after
receipt of Lessee's termination notice that Lessor has elected to pay the
difference between the actual cost thereof and the amount equal to six (6)
months' Base Rent. If Lessee elects termination, Lessee shall immediately cease
the use of the Premises which requires such Capital Expenditure and deliver to
Lessor written notice specifying a termination date at least ninety (90) days
thereafter. Such termination date shall, however,
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in no event be earlier than the last day that Lessee could legally utilize the
Premises without commencing such Capital Expenditure.
(b) If such Capital Expenditure is not the result of the
specific and unique use of the Premises by Lessee (such as, governmentally
mandated seismic modifications), then Lessor and Lessee shall allocate the
obligation to pay for such costs pursuant to the provisions of Paragraph 7.1(c);
provided, however, that if such Capital Expenditure is required during the last
two years of this Lease or if Lessor reasonably determines that it is not
economically feasible to pay its share thereof, Lessor shall have the option to
terminate this Lease upon ninety (90) days prior written notice to Lessee unless
Lessee notifies Lessor, in writing, within ten (10) days after receipt of
Lessor's termination notice that Lessee will pay for such Capital Expenditure.
If Lessor does not elect to terminate, and fails to tender its share of any such
Capital Expenditure, Lessee may advance such funds and deduct same, with
Interest, from Rent until Lessor's share of such costs have been fully paid. If
Lessee is unable to finance Lessor's share, or if the balance of the Rent due
and payable for the remainder of this Lease is not sufficient to fully reimburse
Lessee on an offset basis, Lessee shall have the right to terminate this Lease
upon thirty (30) days written notice to Lessor.
(c) Notwithstanding the above, the provisions concerning Capital
Expenditures are intended to apply only to non-voluntary, unexpected, and new
Applicable Requirements. If the Capital Expenditures are instead triggered by
Lessee as a result of an actual or proposed change in use, change in intensity
of use, or modification to the Premises then, and in that event, Lessee shall be
fully responsible for the cost thereof, and Lessee shall not have any right to
terminate this Lease.
2.4 ACKNOWLEDGEMENTS. Lessee acknowledges that: (a) it has been
advised by Lessor and/or Brokers to satisfy itself with respect to the condition
of the Premises (including but not limited to the electrical, HVAC and fire
sprinkler systems, security, environmental aspects, and compliance with
Applicable Requirements), and their suitability for Lessee's intended use, (b)
Lessee has made such investigation as it deems necessary with reference to such
matters and assumes all responsibility therefor as the same relate to its
occupancy of the Premises, and (c) neither Lessor, Lessor's agents, nor any
Broker has made any oral or written representations or warranties with respect
to said matters other than as set forth in this Lease. In addition, Lessor
acknowledges that: (a) Broker has made no representations, promises or
warranties concerning Lessee's ability to honor the Lease or suitability to
occupy the Premises, and (b) it is Lessor's sole responsibility to investigate
the financial capability and/or suitability of all proposed tenants.
2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in
Paragraph 2 shall be of no force or effect if immediately prior to the Start
Date Lessee was the owner or occupant of the Premises. In such event, Lessee
shall be responsible for any necessary corrective work.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term
of this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent shall
be abated for the period of such early possession. All other terms of this Lease
shall, however, be in effect during such period. Any such early possession shall
not affect the Expiration Date.
3.3 DELAY IN POSSESSION. Lessor agrees to use its best commercially
reasonable efforts to deliver possession of the Premises to Lessee by the
Commencement Date. If, despite said efforts, Lessor is unable to deliver
possession as agreed, Lessor shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Lease. Lessee shall not, however,
be obligated to pay Rent or perform its other obligations until it receives
possession of the Premises. If possession is not delivered within sixty (60)
days after the Commencement Date, Lessee may, at its option, by notice in
writing within ten (10) days after the end of such sixty (60) day period, cancel
this Lease, in which event the Parties shall be discharged from all obligations
hereunder. If such written notice is not received by Lessor within said ten (10)
day period, Lessee's right to cancel shall terminate. Except as otherwise
provided, if possession is not tendered to Lessee by the Start Date and Lessee
does not terminate this Lease, as aforesaid, any period of rent abatement that
Lessee would otherwise have enjoyed shall run from the date of delivery of
possession and continue for a period equal to what Lessee would otherwise have
enjoyed under the terms hereof, but minus any days of delay caused by the acts
or omissions of Lessee. If possession of the Premises is not delivered within
four (4) months after the Commencement Date, this Lease shall terminate unless
other agreements are reached between Lessor and Lessee, in writing.
3.4 LESSEE COMPLIANCE. Lessor shall not be required to tender
possession of the Premises to Lessee until Lessee complies with its obligation
to provide evidence of insurance (Paragraph 8.5). Pending delivery of such
evidence, Lessee shall be required to perform all of its obligations under this
Lease from and after the Start Date, including the payment of Rent,
notwithstanding Lessor's election to withhold possession pending receipt of such
evidence of insurance. Further, if Lessee is required to perform any other
conditions prior to or concurrent with the Start Date, the Start Date shall
occur but Lessor may elect to withhold possession until such conditions are
satisfied.
4. RENT.
4.1. RENT DEFINED. All monetary obligations of Lessee to Lessor under
the terms of this Lease (except for the Security Deposit) are deemed to be rent
("RENT").
4.2 PAYMENT. Lessee shall cause payment of Rent to be received by
Lessor in lawful money of the United States, without offset or deduction (except
as specifically permitted in this Lease), on or before the day on which it is
due. Rent for any period during the term hereof which is for less than one (1)
full calendar month shall be prorated based upon the actual number of days of
said month. Payment of Rent shall be made to Lessor at its address stated herein
or to such other persons or place as Lessor may from time to time designate in
writing. Acceptance of a payment which is less than the amount then due shall
not be a waiver of Lessor's rights to the balance of such Rent, regardless of
Lessor's endorsement of any check so stating.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
the Security Deposit as security for Lessee's faithful performance of its
obligations under this Lease. If Lessee fails to pay Rent, or otherwise Defaults
under this Lease, Lessor may use, apply or retain all or any portion of said
Security Deposit for the payment of any amount due Lessor or to reimburse or
compensate Lessor for any liability, expense, loss or damage which Lessor may
suffer or incur by reason thereof. If Lessor uses or applies all or any portion
of said Security Deposit, Lessee shall within ten (10) days after written
request therefor deposit monies with Lessor sufficient to restore said Security
Deposit to the full amount required by this Lease. If the Base Rent increases
during the term of this Lease, Lessee shall, upon written request from Lessor,
deposit additional monies with Lessor so that the total amount of the Security
Deposit shall at all times bear the same proportion to the increased Base Rent
as the initial Security Deposit bore to the initial Base Rent. Should the Agreed
Use be amended to accommodate a material change in the business of Lessee or to
accommodate a sublessee or assignee, Lessor shall have the right to increase the
Security Deposit to the extent necessary, in Lessor's reasonable judgment, to
account for any increased wear and tear that the Premises may suffer as a result
thereof. If a change in control of Lessee occurs during this Lease and following
such change the financial condition of Lessee is, in Lessor's reasonable
judgment, significantly reduced, Lessee shall deposit such additional monies
with Lessor as shall be sufficient to cause the Security Deposit to be at a
commercially reasonable level based on said change in financial condition.
Lessor shall not be required to keep the Security Deposit separate from its
general accounts. Within fourteen (14) days after the expiration or termination
of this Lease, if Lessor elects to apply the Security Deposit only to unpaid
Rent, and otherwise within thirty (30) days after the Premises have been vacated
pursuant to Paragraph 7.4(c) below, Lessor shall return that portion of the
Security Deposit not used or applied by Lessor. No part of the Security Deposit
shall be considered to be held in trust, to bear interest or to be prepayment
for any monies to be paid by Lessee under this Lease.
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the
Agreed Use, or any other legal use which is reasonably comparable thereto, and
for no other purpose. Lessee shall not use or permit the use of the Premises in
a manner that is unlawful, creates damage, waste or a nuisance, or that disturbs
owners and/or occupants of, or causes damage to neighboring properties. Lessor
shall not unreasonably withhold or delay its consent to any written request for
a modification of the Agreed Use, so long as the same will not impair the
structural integrity of the improvements on the Premises or the mechanical or
electrical systems therein, or is not significantly more burdensome to the
Premises. If Lessor elects to withhold consent, Lessor shall within five (5)
business days after such request give written notification of same, which notice
shall include an explanation of Lessor's objections to the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS
SUBSTANCE" as used in this Lease shall mean any product, substance, or waste
whose presence, use, manufacture, disposal, transportation, or release, either
by itself or in combination with other materials expected to be on the Premises,
is either: (i) potentially injurious to the public health, safety or welfare,
the environment or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for potential liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substances shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, and/or crude oil or any products, by-products or fractions
thereof. Lessee shall not engage in any activity in or on the Premises which
constitutes a Reportable Use of Hazardous Substances without the express prior
written consent of Lessor and timely compliance (at Lessee's expense) with all
Applicable Requirements. "REPORTABLE USE" shall mean (i) the installation or use
of any above or below ground storage tank, (ii) the generation, possession,
storage, use, transportation, or disposal of a Hazardous Substance that requires
a permit from, or with respect to which a report, notice, registration or
business plan is required to be filed with, any governmental authority, and/or
(iii) the presence at the Premises of a Hazardous Substance with respect to
which any Applicable Requirements requires that a notice be given to persons
entering or occupying the Premises or neighboring properties. Notwithstanding
the foregoing, Lessee may use any ordinary and customary materials reasonably
required to be used in the normal course of the Agreed Use, so long as such use
is in compliance with all Applicable Requirements, is not a Reportable Use, and
does not expose the Premises or neighboring property to any
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meaningful risk of contamination or damage or expose Lessor to any liability
therefor. In addition, Lessor may condition its consent to any Reportable Use
upon receiving such additional assurances as Lessor reasonably deems necessary
to protect itself, the public, the Premises and/or the environment against
damage, contamination, injury and/or liability, including, but not limited to,
the installation (and removal on or before Lease expiration or termination) of
protective modifications (such as concrete encasements) and/or increasing the
Security Deposit.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable
cause to believe, that a Hazardous Substance has come to be located in, on,
under or about the Premises, other than as previously consented to by Lessor,
Lessee shall immediately give written notice of such fact to Lessor, and provide
Lessor with a copy of any report, notice, claim or other documentation which it
has concerning the presence of such Hazardous Substance.
(c) LESSEE REMEDIATION. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under, or about the
Premises (including through the plumbing or sanitary sewer system) and shall
promptly, at Lessee's expense, take all investigatory and/or remedial action
reasonably recommended, whether or not formally ordered or required, for the
cleanup of any contamination of, and for the maintenance, security and/or
monitoring of the Premises or neighboring properties, that was caused or
materially contributed to by Lessee, or pertaining to or involving any Hazardous
Substance brought onto the Premises during the term of this Lease, by or for
Lessee, or any third party.
(d) LESSEE INDEMNIFICATION. Lessee shall indemnify, defend and
hold Lessor, its agents, employees, lenders and ground lessor, if any, harmless
from and against any and all loss of rents and/or damages, liabilities,
judgments, claims, expenses, penalties, and attorneys' and consultants' fees
arising out of or involving any Hazardous Substance brought onto the Premises by
or for Lessee, or any third party (provided, however, that Lessee shall have no
liability under this Lease with respect to underground migration of any
Hazardous Substance under the Premises from adjacent properties). Lessee's
obligations shall include, but not be limited to, the effects of any
contamination or injury to person, property or the environment created or
suffered by Lessee, and the cost of investigation, removal, remediation,
restoration and/or abatement, and shall survive the expiration or termination of
this Lease. NO TERMINATION, CANCELLATION OR RELEASE AGREEMENT ENTERED INTO BY
LESSOR AND LESSEE SHALL RELEASE LESSEE FROM ITS OBLIGATIONS UNDER THIS LEASE
WITH RESPECT TO HAZARDOUS SUBSTANCES, UNLESS SPECIFICALLY SO AGREED BY LESSOR IN
WRITING AT THE TIME OF SUCH AGREEMENT.
(e) LESSOR INDEMNIFICATION. Lessor and its successors and
assigns shall indemnify, defend, reimburse and hold Lessee, its employees and
lenders, harmless from and against any and all environmental damages, including
the cost of remediation, which existed as a result of Hazardous Substances on
the Premises prior to the Start Date or which are caused by the gross negligence
or willful misconduct of Lessor, its agents or employees. Lessor's obligations,
as and when required by the Applicable Requirements, shall include, but not be
limited to, the cost of investigation, removal, remediation, restoration and/or
abatement, and shall survive the expiration or termination of this Lease.
(f) INVESTIGATIONS AND REMEDIATIONS. Lessor shall retain the
responsibility and pay for any investigations or remediation measures required
by governmental entities having jurisdiction with respect to the existence of
Hazardous Substances on the Premises prior to the Start Date, unless such
remediation measure is required as a result of Lessee's use (including
alterations) of the Premises, in which event Lessee shall be responsible for
such payment. Lessee shall cooperate fully in any such activities at the request
of Lessor, including allowing Lessor and Lessor's agents to have reasonable
access to the Premises at reasonable times in order to carry out Lessor's
investigative and remedial responsibilities.
(g) LESSOR TERMINATION OPTION. If a Hazardous Substance
Condition occurs during the term of this Lease, unless Lessee is legally
responsible therefor (in which case Lessee shall make the investigation and
remediation thereof required by the Applicable Requirements and this Lease shall
continue in full force and effect, but subject to Lessor's rights under
Paragraph 6.2(d) and Paragraph 13), Lessor may, at Lessor's option, either (i)
investigate and remediate such Hazardous Substance Condition, if required, as
soon as reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) if the estimated cost to remediate
such condition exceeds twelve (12) times the then monthly Base Rent or $100,000,
whichever is greater, give written notice to Lessee, within thirty (30) days
after receipt by Lessor of knowledge of the occurrence of such Hazardous
Substance Condition, of Lessor's desire to terminate this Lease as of the date
sixty (60) days following the date of such notice. In the event Lessor elects to
give a termination notice, Lessee may, within ten (10) days thereafter, give
written notice to Lessor of Lessee's commitment to pay the amount by which the
cost of the remediation of such Hazardous Substance Condition exceeds an amount
equal to twelve (12) times the then monthly Base Rent or $100,000, whichever is
greater. Lessee shall provide Lessor with said funds or satisfactory assurance
thereof within thirty (30) days following such commitment. In such event, this
Lease shall continue in full force and effect, and Lessor shall proceed to make
such remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds or
assurance thereof within the time provided, this Lease shall terminate as of the
date specified in Lessor's notice of termination.
6.3 LESSEE'S COMPLIANCE WITH APPLICABLE REQUIREMENTS. Except as
otherwise provided in this Lease, Lessee shall, at Lessee's sole expense, fully,
diligently and in a timely manner, materially comply with all Applicable
Requirements, the requirements of any applicable fire insurance underwriter or
rating bureau, and the recommendations of Lessor's engineers and/or consultants
which relate in any manner to the Premises, without regard to whether said
requirements are now in effect or become effective after the Start Date. Lessee
shall, within ten (10) days after receipt of Lessor's written request, provide
Lessor with copies of all permits and other documents, and other information
evidencing Lessee's compliance with any Applicable Requirements specified by
Lessor, and shall immediately upon receipt, notify Lessor in writing (with
copies of any documents involved) of any threatened or actual claim, notice,
citation, warning, complaint or report pertaining to or involving the failure of
Lessee or the Premises to comply with any Applicable Requirements.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's "Lender" (as defined
in Paragraph 30 below) and consultants shall have the right to enter into
Premises at any time, in the case of an emergency, and otherwise at reasonable
times, for the purpose of inspecting the condition of the Premises and for
verifying compliance by Lessee with this Lease. The cost of any such inspections
shall be paid by Lessor, unless a violation of Applicable Requirements, or a
contamination is found to exist or be imminent, or the inspection is requested
or ordered by a governmental authority. In such case, Lessee shall upon request
reimburse Lessor for the cost of such inspections, so long as such inspection is
reasonably related to the violation or contamination.
7. MAINTENANCE; REPAIRS, UTILITY INSTALLATIONS; TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) IN GENERAL. Subject to the provisions of Paragraph 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
6.3 (Lessee's Compliance with Applicable Requirements), 7.2 (Lessor's
Obligations), 9 (Damage and Destruction), and 14 (Condemnation), Lessee shall,
at Lessee's sole expense, keep the Premises, Utility Installations, and
Alterations in good order, condition and repair (whether or not the portion of
the Premises requiring repairs, or the means of repairing the same, are
reasonably or readily accessible to Lessee, and whether or not the need for such
repairs occurs as a result of Lessee's use, any prior use, the elements or the
age of such portion of the Premises), including, but not limited to, all
equipment or facilities, such as plumbing, heating, ventilating,
air-conditioning, electrical, lighting facilities, boilers, pressure vessels,
fire protection system, fixtures, walls (interior and exterior), ceilings,
floors, windows, doors, skylights, landscaping, driveways, parking lots, fences,
signs, sidewalks and parkways located in, on, or adjacent to the Premises.
Lessee is also responsible for keeping the roof and roof drainage clean and free
of debris. Lessor shall keep the surface and structural elements of the roof,
foundations, and bearing walls in good repair (see Paragraph 7.2). Lessee, in
keeping the Premises in good order, condition and repair, shall exercise and
perform good maintenance practices. Lessee's obligations shall include
restorations, replacements or renewals when necessary to keep the Premises and
all improvements thereon or a part thereof in good order, condition and state of
repair. Lessee shall, during the term of this Lease, keep the exterior
appearance of the Building in a first-class condition (including, e.g., graffiti
removal) consistent with the exterior appearance of other similar facilities of
comparable age and size in the vicinity, including, when necessary, the exterior
repainting of the Building.
(b) SERVICE CONTRACTS. Lessee shall, at Lessee's sole option and
expense, procure and maintain contracts, with copies to Lessor, in customary
form and substance for, and with contractors specializing and experienced in the
maintenance of the following equipment and improvements ("Basic Elements"), if
any, if and when installed on the Premises: (i) HVAC equipment, (ii) boiler and
pressure vessels, (iii) fire extinguishing systems, including fire alarm and/or
smoke detection, (iv) landscaping and irrigation systems, (v) driveways and
parking lots, (vi) clarifiers, (vii) basic utility feed to the perimeter of the
Building, and (viii) any other equipment, if reasonably required by Lessor.
(c) REPLACEMENT. Subject to Lessee's indemnification of Lessor
as set forth in Paragraph 8.7 below, and without relieving Lessee of liability
resulting from Lessee's failure to exercise and perform good maintenance
practices, if the Basic Elements described in Paragraph 7.1(b) cannot be
repaired other than at a cost which is in excess of 50% of the cost of replacing
such Basic Elements, then such Basic Elements shall be replaced by Lessor, and
the cost thereof shall be prorated between the Parties and Lessee shall only be
obligated to pay, each month during the remainder of the term of this Lease, on
the date on which Base Rent is due, an amount equal to the product of
multiplying the cost of such replacement by a fraction, the numerator of which
is one, and the denominator of which is the number of months of the useful life
of such replacement as such useful life is specified pursuant to Federal income
tax regulations or guidelines for depreciation thereof (including interest on
the unamortized balance as is then commercially reasonable in the judgment of
Lessor's accountants), with Lessee reserving the right to prepay its obligation
at any time.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs
2.2 (Condition), 2.3 (Compliance with Covenants, Restrictions and Building
Code), 9 (Damage or Destruction) and 14 (Condemnation), it is intended by the
Parties hereto that Lessor have no obligation, in any manner whatsoever, to
repair
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and maintain the Premises, or the equipment therein, all of which obligations
are intended to be that of the Lessee, except for the surface and structural
elements of the roof, foundations and bearing walls, the repair of which shall
be the responsibility of Lessor upon receipt of written notice that such a
repair is necessary. It is the intention of the Parties that the terms of this
Lease govern the respective obligations of the Parties as to maintenance and
repair of the Premises, and they expressly waive the benefit of any statute now
or hereafter in effect to the extent it is inconsistent with the terms of this
Lease.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY
INSTALLATIONS" refers to all floor and window coverings, air lines, power
panels, electrical distribution, security and fire protection systems and signs,
communication systems, lighting fixtures, HVAC equipment, plumbing, and fencing
in or on the Premises. The term "TRADE FIXTURES" shall mean Lessee's machinery
and equipment that can be removed without doing material damage to the Premises.
The term "ALTERATIONS" shall mean any modification of the improvements, other
than Utility Installations or Trade Fixtures, whether by addition or deletion.
"LESSEE OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make any Alterations or
Utility Installations to the Premises without Lessor's prior written consent.
Lessee may, however, make non-structural Utility Installations to the interior
of the Premises (excluding the roof) without such consent but upon notice to
Lessor, as long as they are not visible from the outside, do not involve
puncturing, relocating or removing the roof or any existing walls, and the
cumulative cost thereof during this Lease as extended does not exceed $50,000 in
the aggregate or $10,000 in any one year.
(b) CONSENT. Any Alterations or Utility Installations that
Lessee shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with detailed plans. Consent shall be deemed
conditioned upon Lessee's: (i) acquiring all applicable governmental permits,
(ii) furnishing Lessor with copies of both the permits and the plans and
specifications prior to commencement of the work, and (iii) compliance with all
conditions of said permits and other Applicable Requirements in a prompt and
expeditious manner. Any Alterations or Utility Installations shall be performed
in a workmanlike manner with good and sufficient materials. Lessee shall
promptly upon completion furnish Lessor with as-built plans and specifications.
For work which costs an amount equal to the greater of one month's Base Rent, or
$10,000, Lessor may condition its consent upon Lessee providing a lien and
completion bond in an amount equal to one and one-half times the estimated cost
of such Alteration or Utility Installation and/or upon Lessee's posting an
additional Security Deposit with Lessor.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for
labor or materials furnished or alleged to have been furnished to or for Lessee
at or for use on the Premises, which claims are or may be secured by any
mechanic's or materialmen's lien against the Premises or any interest therein.
Lessee shall give Lessor not less than ten (10) days' notice prior to the
commencement of any work in, on or about the Premises, and Lessor shall have the
right to post notices of non-responsibility. If Lessee shall contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend and protect itself, Lessor and the Premises against the same and
shall pay and satisfy any such adverse judgment that may be rendered thereon
before the enforcement thereof. If Lessor shall require, Lessee shall furnish a
surety bond in an amount equal to one and one-half times the amount of such
contested lien, claim or demand, indemnifying Lessor against liability for the
same. If Lessor elects to participate in any such action, Lessee shall pay
Lessor's attorneys' fees and costs.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require removal or
elect ownership as hereinafter provided, all Alterations and Utility
Installations made by Lessee shall be the property of Lessee, but considered a
part of the Premises. Lessor may, at any time, elect in writing to be the owner
of all or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per Paragraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
termination of this Lease, become the property of Lessor and be surrendered by
Lessee with the Premises.
(b) REMOVAL. By delivery to Lessee of written notice from Lessor
not earlier than ninety (90) and not later than thirty (30) days prior to the
end of the term of this Lease, Lessor may require that any or all Lessee Owned
Alterations or Utility Installations be removed by the expiration or termination
of this Lease. Lessor may require the removal at any time of all or any part of
any Lessee Owned Alterations or Utility Installations made without the required
consent.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises
by the Expiration Date or any earlier termination date, with all of the
improvements, parts and surfaces thereof broom clean and free of debris, and in
good operating order, condition and state of repair, ordinary wear and tear
excepted. "Ordinary wear and tear" shall not include any damage or deterioration
that would have been prevented by good maintenance practice. Lessee shall repair
any damage occasioned by the installation, maintenance or removal of Trade
Fixtures, Lessee Owned Alterations and/or Utility Installations, furnishings,
and equipment as well as the removal of any storage tank installed by or for
Lessee, and the removal, replacement, or remediation of any soil, material or
groundwater contaminated by Lessee. Trade Fixtures shall remain the property of
Lessee and shall be removed by Lessee. The failure by Lessee to timely vacate
the Premises pursuant to this Paragraph 7.4(c) without the express written
consent of Lessor shall constitute a holdover under the provisions of Paragraph
26 below.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT OF PREMIUM INCREASES
(a) Lessee shall pay to Lessor any insurance cost increase
("INSURANCE COST INCREASE") occurring during the term of this Lease. "Insurance
Cost Increase" is defined as any increase in the actual cost of the insurance
required under Paragraphs 8.2(b), 8.3(a) and 8.3(b) ("REQUIRED INSURANCE"), over
and above the Base Premium as hereinafter defined calculated on an annual basis.
"Insurance Cost Increase" shall include but not be limited to increases
resulting from the nature of Lessee's occupancy, any act or omission of Lessee,
requirements of the holder of mortgage or deed of trust covering the Premises,
increased valuation of the Premises and/or a premium rate increase. The Parties
are encouraged to fill in the Base Premium in Paragraph 1.9 with a reasonable
premium for the Required Insurance based on the Agreed Use of the Premises. If
the Parties fail to insert a dollar amount in Paragraph 1.9, then the Base
Premium shall be the lowest annual premium reasonably obtainable for the
Required Insurance as of the commencement of the Original Term for the Agreed
Use of the Premises. In no event, however, shall Lessee be responsible for any
portion of the increase in the premium cost attributable to liability insurance
carried by Lessor under Paragraph 8.1(b) in excess of $2,000,000 per occurrence.
(b) Lessee shall pay any such Insurance Cost Increase to Lessor
within thirty (30) days after receipt by Lessee of a copy of the premium
statement or other reasonable evidence of the amount due. If the insurance
policies maintained hereunder cover other property besides the Premises, Lessor
shall also deliver to Lessee a statement of the amount of such Insurance Cost
Increase attributable only to the Premises showing in reasonable detail the
manner in which such amount was computed. Premiums for policy periods commencing
prior to, or extending beyond the term of this Lease, shall be prorated to
correspond to the term of this Lease.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force a
Commercial General Liability Policy of Insurance protecting Lessee and Lessor
against claims for bodily injury, personal injury and property damage based upon
or arising out of the ownership, use, occupancy or maintenance of the Premises
and all areas appurtenant thereto. Such insurance shall be on an occurrence
basis providing single limit coverage in an amount not less than $2,000,000 per
occurrence with an "ADDITIONAL INSURED-MANAGERS OR LESSORS OF PREMISES
ENDORSEMENT" and contain the "AMENDMENT OF THE POLLUTION EXCLUSION ENDORSEMENT"
for damage caused by heat, smoke or fumes from a hostile fire. The Policy shall
not contain any intra-insured exclusions as between insured persons or
organizations, but shall include coverage for liability assumed under this Lease
as an "insured contract" for the performance of Lessee's indemnity obligations
under this Lease. The limits of said insurance shall not, however, limit the
liability of Lessee nor relieve Lessee of any obligation hereunder. All
insurance carried by Lessee shall be primary to and not contributory with any
similar insurance carried by Lessor, whose insurance shall be considered excess
insurance only.
(b) CARRIED BY LESSOR. Lessor shall maintain liability insurance
as described in Paragraph 8.2(a), in addition to, and not in lieu of, the
insurance required to be maintained by Lessee. Lessee shall not be named as an
additional insured therein.
8.3 PROPERTY INSURANCE - BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain
and keep in force a policy or policies in the name of Lessor, with loss payable
to Lessor, any groundlessor, and to any Lender(s) insuring loss or damage to the
Premises. The amount of such insurance shall be equal to the full replacement
cost of the Premises, as the same shall exist from time to time, or the amount
required by any Lenders, but in no event more than the commercially reasonable
and available insurable value thereof. If Lessor is the Insuring Party, however,
Lessee Owned Alterations and Utility Installations, Trade Fixtures, and Lessee's
personal property shall be insured by Lessee under Paragraph 8.4 rather than by
Lessor. If the coverage is available and commercially appropriate, such policy
or policies shall insure against all risks of direct physical loss or damage
(except the perils of flood and/or earthquake unless required by a Lender or
included in the Base Premium), including coverage for debris removal and the
enforcement of any Applicable Requirements requiring the upgrading, demolition,
reconstruction or replacement of any portion of the Premises as the result of a
covered loss. Said policy or policies shall also contain an agreed valuation
provision in lieu of any coinsurance clause, waiver of subrogation, and
inflation guard protection causing an increase in the annual property insurance
coverage amount by a factor of not less than the adjusted U.S. Department of
Labor Consumer Price Index for All Urban Consumers for the city nearest to where
the Premises are located.
(b) RENTAL VALUE. The Insuring Party shall obtain and keep in
force a policy or policies in the name of Lessor, with loss payable to Lessor
and any Lender, insuring the loss of the full Rent for one (1) year. Said
insurance shall provide that in the event the Lease is terminated by reason of
an insured loss, the period of indemnity for such coverage shall be extended
beyond the date of the completion of repairs or replacement of the Premises, to
provide for one full year's loss of Rent from the date of any such loss. Said
insurance shall contain an agreed valuation provision in lieu of any coinsurance
clause, and the amount of
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coverage shall be adjusted annually to reflect the projected Rent otherwise
payable by Lessee, for the next twelve (12) month period.
(c) ADJACENT PREMISES. If the Premises are part of a larger
building, or of a group of buildings owned by Lessor which are adjacent to the
Premises, the Lessee shall pay for any increase in the premiums for the property
insurance of such building or buildings if said increase is caused by Lessee's
acts, omissions, use or occupancy of the Premises.
8.4 LESSEE'S PROPERTY/BUSINESS INTERRUPTION INSURANCE.
(a) PROPERTY DAMAGE. Lessee shall obtain and maintain insurance
coverage on all of Lessee's personal property, Trade Fixtures, and Lessee Owned
Alterations and Utility Installations. Such insurance shall be full replacement
cost coverage with a deductible of not to exceed $1,000 per occurrence. The
proceeds from any such insurance shall be used by Lessee for the replacement of
personal property, Trade Fixtures and Lessee Owned Alterations and Utility
Installations. Lessee shall provide Lessor with written evidence that such
insurance is in force.
(b) BUSINESS INTERRUPTION. Lessee shall obtain and maintain loss
of income and extra expense insurance in amounts as will reimburse Lessee for
direct or indirect loss of earnings attributable to all perils commonly insured
against by prudent lessees in the business of Lessee or attributable to
prevention of access to the Premises as a result of such perils.
(c) NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no
representation that the limits or forms of coverage of insurance specified
herein are adequate to cover Lessee's property, business operations or
obligations under this Lease.
8.5 INSURANCE POLICIES. Insurance required herein shall be by
companies duly licensed or admitted to transact business in the state where the
Premises are located, and maintaining during the policy term a "General
Policyholders Rating" of at least B+, V, as set forth in the most current issue
of "Best's Insurance Guide", or such other rating as may be required by a
Lender. Lessee shall not do or permit to be done anything which invalidates the
required insurance policies. Lessee shall, prior to the Start Date, deliver to
Lessor certified copies of policies of such insurance or certificates evidencing
the existence and amounts of the required insurance. No such policy shall be
cancelable or subject to modification except after thirty (30) days prior
written notice to Lessor. Lessee shall, at least thirty (30) days prior to the
expiration of such policies, furnish Lessor with evidence of renewals or
"insurance binders" evidencing renewal thereof, or Lessor may order such
insurance and charge the cost thereof to Lessee, which amount shall be payable
by Lessee to Lessor upon demand. Such policies shall be for a term of at least
one year, or the length of the remaining term of this Lease, whichever is less.
If either Party shall fail to procure and maintain the insurance required to be
carried by it, the other Party may, but shall not be required to, procure and
maintain the same.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and waive
their entire right to recover damages against the other, for loss of or damage
to its property arising out of or incident to the perils required to be insured
against herein. The effect of such releases and waivers is not limited by the
amount of insurance carried or required, or by any deductibles applicable
hereto. The Parties agree to have their respective property damage insurance
carriers waive any right to subrogation that such companies may have against
Lessor or Lessee, as the case may be, so long as the insurance is not
invalidated thereby.
8.7 INDEMNITY. Except for Lessor's gross negligence or willful
misconduct, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
liens, judgments, penalties, attorneys' and consultants' fees, expenses and/or
liabilities arising out of, involving, or in connection with, the use and/or
occupancy of the Premises by Lessee. If any action or proceeding is brought
against Lessor by reason of any of the foregoing matters, Lessee shall upon
notice defend the same at Lessee's expense by counsel reasonably satisfactory to
Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not
have first paid any such claim in order to be defended or indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable
for injury or damage to the person or goods, wares, merchandise or other
property of Lessee, Lessee's employees, contractors, invitees, customers, or any
other person in or about the Premises, whether such damage or injury is caused
by or results from fire, steam, electricity, gas, water or rain, or from the
breakage, leakage, obstruction or other defects of pipes, fire sprinklers,
wires, appliances, plumbing, HVAC or lighting fixtures, or from any other cause,
whether the said injury or damage results from conditions arising upon the
Premises or upon other portions of the Building of which the Premises are a
part, or from other sources or places. Lessor shall not be liable for any
damages arising from any act or neglect of any other tenant of Lessor.
Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall under
no circumstances be liable for injury to Lessee's business or for any loss of
income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction
to the improvements on the Premises, other than Lessee Owned Alterations,
Utility Installations and Trade Fixtures, which can reasonably be repaired in
six (6) months or less from the date of the damage or destruction. Lessor shall
notify Lessee in writing within thirty (30) days from the date of the damage or
destruction as to whether or not the damage is Partial or Total.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or
destruction to the Premises, other than Lessee Owned Alterations and Utility
Installations and Trade Fixtures, which cannot reasonably be repaired in six (6)
months or less from the date of the damage or destruction. Lessor shall notify
Lessee in writing within thirty (30) days from the date of the damage or
destruction as to whether or not the damage is Partial or Total.
(c) "INSURED LOSS" shall mean damage or destruction to
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations and Trade Fixtures, which was caused by an event required to be
covered by the insurance described in Paragraph 8.3(a), irrespective of any
deductible amounts or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild
the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of Applicable Requirements, and
without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PARTIAL DAMAGE - INSURED LOSS. If a Premises Partial Damage that
is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such
damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect; provided, however, that Lessee shall, at Lessor's
election, make the repair of any damage or destruction the total cost to repair
of which is $10,000 or less, and, in such event, Lessor shall make any
applicable insurance proceeds available to Lessee on a reasonable basis for that
purpose. Notwithstanding the foregoing, if the required insurance was not in
force or the insurance proceeds are not sufficient to effect such repair, the
Insuring Party shall promptly contribute the shortage in proceeds as and when
required to complete said repairs. In the event, however, such shortage was due
to the fact that, by reason of the unique nature of the improvements, full
replacement cost insurance coverage was not commercially reasonable and
available, Lessor shall have no obligation to pay for the shortage in insurance
proceeds or to fully restore the unique aspects of the Premises unless Lessee
provides Lessor with the funds to cover same, or adequate assurance thereof,
within ten (10) days following receipt of written notice of such shortage and
request therefor. If Lessor receives said funds or adequate assurance thereof
within said ten (10) day period, the party responsible for making the repairs
shall complete them as soon as reasonably possible and this Lease shall remain
in full force and effect. If such funds or assurance are not received, Lessor
may nevertheless elect by written notice to Lessee within ten (10) days
thereafter to: (i) make such restoration and repair as is commercially
reasonable with Lessor paying any shortage in proceeds, in which case this Lease
shall remain in full force and effect; or (ii) have this Lease terminate thirty
(30) days thereafter. Lessee shall not be entitled to reimbursement of any funds
contributed by Lessee to repair any such damage or destruction. Premises Partial
Damage due to flood or earthquake shall be subject to Paragraph 9.3,
notwithstanding that there may be some insurance coverage, but the net proceeds
of any such insurance shall be made available for the repairs if made by either
Party.
9.3 PARTIAL DAMAGE - UNINSURED LOSS. If a Premises Partial Damage
that is not an Insured Loss occurs, unless caused by a negligent or willful act
of Lessee (in which event Lessee shall make the repairs at Lessee's expense),
Lessor may either: (i) repair such damage as soon as reasonably possible at
Lessor's expense, in which event this Lease shall continue in full force and
effect, or (ii) terminate this Lease by giving written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
damage. Such termination shall be effective sixty (60) days following the date
of such notice. In the event Lessor elects to terminate this Lease, Lessee shall
have the right within ten (10) days after receipt of the termination notice to
give written notice to Lessor of Lessee's commitment to pay for the repair of
such damage without reimbursement from Lessor. Lessee shall provide Lessor with
said funds or satisfactory assurance thereof within thirty (30) days after
making such commitment. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such repairs as soon as reasonably
possible after the required funds are available. If Lessee does not make the
required commitment, this Lease shall terminate as of the date specified in the
termination notice.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof,
if a Premises Total Destruction occurs, this Lease shall terminate sixty (60)
days following such Destruction. If the damage or destruction was caused by the
gross negligence or willful misconduct of Lessee, Lessor shall have the right to
recover Lessor's damages from Lessee, except as provided in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months of this Lease there is damage for which the cost to repair exceeds one
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(1) month's Base Rent, whether or not an Insured Loss, Lessor may terminate this
Lease effective sixty (60) days following the date of occurrence of such damage
by giving a written termination notice to Lessee within thirty (30) days after
the date of occurrence of such damage. Notwithstanding the foregoing, if Lessee
at that time has an exercisable option to extend this Lease or to purchase the
Premises, then Lessee may preserve this Lease by, (a) exercising such option and
(b) providing Lessor with any shortage in insurance proceeds (or adequate
assurance thereof) needed to make the repairs on or before the earlier of (i)
the date which is ten days after Lessee's receipt of Lessor's written notice
purporting to terminate this Lease, or (ii) the day prior to the date upon which
such option expires. If Lessee duly exercises such option during such period and
provides Lessor with funds (or adequate assurance thereof) to cover any shortage
in insurance proceeds, Lessor shall, at Lessor's commercially reasonable
expense, repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option and
provide such funds or assurance during such period, then this Lease shall
terminate on the date specified in the termination notice and Lessee's option
shall be extinguished.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) ABATEMENT. In the event of Premises Partial Damage or
Premises Total Destruction or a Hazardous Substance Condition for which Lessee
is not responsible under this Lease, the Rent payable by Lessee for the period
required for the repair, remediation or restoration of such damage shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired, but not to exceed the proceeds received from the Rental Value
insurance. All other obligations of Lessee hereunder shall be performed by
Lessee, and Lessor shall have no liability for any such damage, destruction,
remediation, repair or restoration except as provided herein.
(b) REMEDIES. If Lessor shall be obligated to repair or restore
the Premises and does not commence, in a substantial and meaningful way, such
repair or restoration within ninety (90) days after such obligation shall
accrue, Lessee may, at any time prior to the commencement of such repair or
restoration, give written notice to Lessor and to any Lenders of which Lessee
has actual notice, of Lessee's election to terminate this Lease on a date not
less than sixty (60) days following the giving of such notice. If Lessee gives
such notice and such repair or restoration is not commenced within thirty (30)
days thereafter, this Lease shall terminate as of the date specified in said
notice. If the repair or restoration is commenced within said thirty (30) days,
this Lease shall continue in full force and effect. "COMMENCE" shall mean either
the unconditional authorization of the preparation of the required plans, or the
beginning of the actual work on the Premises, whichever first occurs.
9.7 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be
made concerning advance Base Rent and any other advance payments made by Lessee
to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's
Security Deposit as has not been, or is not then required to be, used by Lessor.
9.8 WAIVE STATUTES. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
with respect to the termination of this Lease and hereby waive the provisions of
any present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term
"REAL PROPERTY TAXES" shall include any form of assessment; real estate,
general, special, ordinary or extraordinary, or rental levy or tax (other than
inheritance, personal income or estate taxes); improvement bond; and/or license
fee imposed upon or levied against any legal or equitable interest of Lessor in
the Premises, Lessor's right to other income therefrom, and/or Lessor's business
of leasing, by any authority having the direct or indirect power to tax and
where the funds are generated with reference to the Building address and where
the proceeds so generated are to be applied by the city, county or other local
taxing authority of a jurisdiction within which the Premises are located. The
term "REAL PROPERTY TAXES" shall also include any tax, fee, levy, assessment or
charge, or any increase therein, imposed by reason of events occurring during
the term of this Lease, including, but not limited to, a change in the ownership
of the Premises.
10.2
(a) PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes
applicable to the Premises provided, however, that Lessee shall pay to Lessor
the amount, if any, by which Real Property Taxes applicable to the Premises
increase over the fiscal tax year during which the Commencement Date occurs
("TAX INCREASE"). Subject to Paragraph 10.2(b), payment of any such Tax Increase
shall be made by Lessee to Lessor within thirty (30) days after receipt of
Lessor's written statement setting forth the amount due and the computation
thereof. If any such taxes shall cover any period of time prior to or after the
expiration or termination of this Lease, Lessee's share of such taxes shall be
prorated to cover only that portion of the tax bill applicable to the period
that this Lease is in effect.
(b) ADVANCE PAYMENT. In the event Lessee incurs a late charge on
any Rent payment, Lessor may, at Lessor's option, estimate the current Real
Property Taxes, and require that the Tax Increase be paid in advance to Lessor
by Lessee, either: (i) in a lump sum amount equal to the amount due, at least
twenty (20) days prior to the applicable delinquency date; or (ii) monthly in
advance with the payment of the Base Rent. If Lessor elects to require payment
monthly in advance, the monthly payment shall be an amount equal to the amount
of the estimated installment of the Tax Increase divided by the number of months
remaining before the month in which said installment becomes delinquent. When
the actual amount of the applicable Tax Increase is known, the amount of such
equal monthly advance payments shall be adjusted as required to provide the
funds needed to pay the applicable Tax Increase. If the amount collected by
Lessor is insufficient to pay the Tax Increase when due, Lessee shall pay
Lessor, upon demand, such additional sums as are necessary to pay such
obligations. All monies paid to Lessor under this Paragraph may be intermingled
with other monies of Lessor and shall not bear interest. In the event of a
Breach by Lessee in the performance of its obligations under this Lease, then
any balance of funds paid to Lessor under the provisions of this Paragraph may,
at the option of Lessor, be treated as an additional Security Deposit.
(c) ADDITIONAL IMPROVEMENTS. Notwithstanding anything to the
contrary in this Paragraph 10.2, Lessee shall pay to Lessor upon demand therefor
the entirety of any increase in Real Property Taxes assessed by reason of
Alterations or Utility Installations placed upon the Premises by Lessee or at
Lessee's request.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Tax Increase for all
of the land and improvements included within the tax parcel assessed, such
proportion to be conclusively determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available.
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay, prior to delinquency,
all taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee. When possible, Lessee shall cause such property to be assessed and
billed separately from the real property of Lessor. If any of Lessee's said
personal property shall be assessed with Lessor's real property, Lessee shall
pay Lessor the taxes attributable to Lessee's property within ten (10) days
after receipt of a written statement.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or encumber (collectively, "ASSIGN OR ASSIGNMENT") or sublet
all or any part of Lessee's interest in this Lease or in the Premises without
Lessor's prior written consent.
(b) A change in the control of Lessee shall constitute an
assignment requiring consent. The transfer, on a cumulative basis, of
twenty-five percent (25%) or more of the voting control of Lessee shall
constitute a change in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction,
or series of transactions (by way of merger, sale, acquisition, financing,
transfer, leveraged buy-out or otherwise), whether or not a formal assignment or
hypothecation of this Lease or Lessee's assets occurs, which results or will
result in a reduction of the Net Worth of Lessee by an amount greater than
twenty-five percent (25%) of such Net Worth as it was represented at the time of
the execution of this Lease or at the time of the most recent assignment to
which Lessor has consented, or as it exists immediately prior to said
transaction or transactions constituting such reduction, whichever was or is
greater, shall be considered an assignment of this Lease to which Lessor may
withhold its consent. "NET WORTH OF LESSEE" shall mean the net worth of Lessee
(excluding any guarantors) established under generally accepted accounting
principles.
(d) An assignment or subletting without consent shall, at
Lessor's option, be a Default curable after notice per Paragraph 13.1(c), or a
noncurable Breach without the necessity of any notice and grace period. If
Lessor elects to treat such unapproved assignment or subletting as a noncurable
Breach, Lessor may either: (i) terminate this Lease, or (ii) upon thirty (30)
days written notice, increase the monthly Base Rent to one hundred ten percent
(110%) of the Base Rent then in effect. Further, in the event of such Breach and
rental adjustment, (i) the purchase price of any option to purchase the Premises
held by Lessee shall be subject to similar adjustment to one hundred ten percent
(110%) of the price previously in effect, and (ii) all fixed and non-fixed
rental adjustments scheduled during the remainder of the Lease term shall be
increased to one hundred ten percent (110%) of the scheduled adjusted rent.
(e) Lessee's remedy for any breach of Paragraph 12.1 by Lessor
shall be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not: (i) be effective without the express written assumption by such
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assignee or sublessee of the obligations of Lessee under this Lease; (ii)
release Lessee of any obligations hereunder; or (iii) alter the primary
liability of Lessee for the payment of Rent or for the performance of any other
obligations to be performed by Lessee.
(b) Lessor may accept Rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval of
an assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of Rent or performance shall constitute a waiver or estoppel
of Lessor's right to exercise its remedies for Lessee's Default or Breach.
(c) Lessor's consent to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting.
(d) In the event of any Default or Breach by Lessee, Lessor may
proceed directly against Lessee, any Guarantors or anyone else responsible for
the performance of Lessee's obligations under this Lease, including any assignee
or sublessee, without first exhausting Lessor's remedies against any other
person or entity responsible therefore to Lessor, or any security held by
Lessor.
(e) Each request for consent to an assignment or subletting
shall be in writing, accompanied by information relevant to Lessor's
determination as to the financial and operational responsibility and
appropriateness of the proposed assignee or sublessee, including but not limited
to the intended use and/or required modification of the Premises, if any,
together with a fee of $1,000 or ten percent (10%) of the current monthly Base
Rent applicable to the portion of the Premises which is the subject of the
proposed assignment or sublease, whichever is greater, as consideration for
Lessor's considering and processing said request. Lessee agrees to provide
Lessor with such other or additional information and/or documentation as may be
reasonably requested.
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be deemed to
have assumed and agreed to conform and comply with each and every term,
covenant, condition and obligation herein to be observed or performed by Lessee
during the term of said assignment or sublease, other than such obligations as
are contrary to or inconsistent with provisions of an assignment or sublease to
which Lessor has specifically consented to in writing.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of
Lessee's interest in all Rent payable on any sublease, and Lessor may collect
such Rent and apply same toward Lessee's obligations under this Lease; provided,
however, that until a Breach shall occur in the performance of Lessee's
obligations, Lessee may collect said Rent. Lessor shall not, by reason of the
foregoing or any assignment of such sublease, nor by reason of the collection of
Rent, be deemed liable to the sublessee for any failure of Lessee to perform and
comply with any of Lessee's obligations to such sublessee. Lessee hereby
irrevocably authorizes and directs any such sublessee, upon receipt of a written
notice from Lessor stating that a Breach exists in the performance of Lessee's
obligations under this Lease, to pay to Lessor all Rent due and to become due
under the sublease. Sublessee shall rely upon any such notice from Lessor and
shall pay all Rents to Lessor without any obligation or right to inquire as to
whether such Breach exists, notwithstanding any claim from Lessee to the
contrary.
(b) In the event of a Breach by Lessee, Lessor may, at its
option, require sublessee to attorn to Lessor, in which event Lessor shall
undertake the obligations of the sublessor under such sublease from the time of
the exercise of said option to the expiration of such sublease; provided,
however, Lessor shall not be liable for any prepaid rents or security deposit
paid by such sublessee to such sublessor or for any prior Defaults or Breaches
of such sublessor.
(c) Any matter requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor.
(d) No sublessee shall further assign or sublet all or any part
of the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or
Breach by Lessee to the sublessee, who shall have the right to cure the Default
of Lessee within the grace period, if any, specified in such notice. The
sublessee shall have a right of reimbursement and offset from and against Lessee
for any such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. A "DEFAULT" is defined as a failure by the
Lessee to comply with or perform any of the terms, covenants, conditions or
rules under this Lease. A "BREACH" is defined as the occurrence of one or more
of the following Defaults, and the failure of Lessee to cure such Default within
any applicable grace period:
(a) The abandonment of the Premises; or the vacating of the
Premises without providing a commercially reasonable level of security, and/or
Security Deposit or where the coverage of the property insurance described in
Paragraph 8.3 is jeopardized as a result thereof, or without providing
reasonable assurances to minimize potential vandalism.
(b) The failure of Lessee to make any payment of Rent or any
Security Deposit required to be made by Lessee hereunder, whether to Lessor or
to a third party, when due, to provide reasonable evidence of insurance or
surety bond, or to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of three
(3) business days following written notice to Lessee.
(c) The failure by Lessee to provide (i) reasonable written
evidence of compliance with Applicable Requirements, (ii) the service contracts,
(iii) the rescission of an unauthorized assignment or subletting, (iv) a Tenancy
Statement, (v) a requested subordination, (vi) evidence concerning any guaranty
and/or Guarantor, (vii) any document requested under Paragraph 42 (easements),
or (viii) any other documentation or information which Lessor may reasonably
require of Lessee under the terms of this Lease, where any such failure
continues for a period of ten (10) days following written notice to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions
or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
other than those described in subparagraphs 13.1(a), (b) or (c), above, where
such Default continues for a period of thirty (30) days after written notice;
provided, however, that if the nature of Lessee's Default is such that more than
thirty (30) days are reasonably required for its cure, then it shall not be
deemed to be a Breach if Lessee commences such cure within said thirty (30) day
period and thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the
making of any general arrangement or assignment for the benefit of creditors;
(ii) becoming a "DEBTOR" as defined in 11 U.S.C. Section 101 or any successor
statute thereto (unless, in the case of a petition filed against Lessee, the
same is dismissed within sixty (60) days); (iii) the appointment of a trustee or
receiver to take possession of substantially all of Lessee's assets located at
the Premises or of Lessee's interest in this Lease, where possession is not
restored to Lessee within thirty (30) days; or (iv) the attachment, execution or
other judicial seizure of substantially all of Lessee's assets located at the
Premises or of Lessee's interest in this Lease, where such seizure is not
discharged within thirty (30) days; provided, however, in the event that any
provision of this subparagraph 13.1 (e) is contrary to any applicable law, such
provision shall be of no force or effect, and not affect the validity of the
remaining provisions.
(f) The discovery that any financial statement of Lessee or of
any Guarantor given to Lessor was materially false.
(g) If the performance of Lessee's obligations under this Lease
is guaranteed: (i) the death of a Guarantor; (ii) the termination of a
Guarantor's liability with respect to this Lease other than in accordance with
the terms of such guaranty; (iii) a Guarantor's becoming insolvent or the
subject of a bankruptcy filing; (iv) a Guarantor's refusal to honor the
guaranty; or (v) a Guarantor's breach of its guaranty obligation on an
anticipatory basis, and Lessee's failure, within sixty (60) days following
written notice of any such event, to provide written alternative assurance or
security, which, when coupled with the then existing resources of Lessee, equals
or exceeds the combined financial resources of Lessee and the Guarantors that
existed at the time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any of its affirmative
duties or obligations, within ten (10) days after written notice (or in case of
an emergency, without notice), Lessor may, at its option, perform such duty or
obligation on Lessee's behalf, including, but not limited to, the obtaining of
reasonably required bonds, insurance policies, or governmental licenses, permits
or approvals. The costs and expenses of any such performance by Lessor shall be
due and payable by Lessee upon receipt of invoice therefor. If any check given
to Lessor by Lessee shall not be honored by the bank upon which it is drawn,
Lessor, at its option, may require all future payments to be made by Lessee to
be by cashier's check. In the event of a Breach, Lessor may, with or without
further notice or demand, and without limiting Lessor in the exercise of any
right or remedy which Lessor may have by reason of such Breach:
(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession to Lessor. In such event Lessor shall be
entitled to recover from Lessee: (i) the unpaid Rent which had been earned at
the time of termination; (ii) the worth at the time of award of the amount by
which the unpaid rent which would have been earned after termination until the
time of award exceeds the amount of such rental loss that the Lessee proves
could have been reasonably avoided; (iii) the worth at the time of award of the
amount by which the unpaid rent for the balance of the term after the time of
award exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including, but not limited to, the cost of
recovering possession of the Premises, expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorneys' fees,
and that portion of any leasing commission paid by Lessor in connection with
this Lease applicable to the unexpired term of this Lease. The worth at the time
of award of the amount referred to in provision (iii) of the immediately
preceding sentence shall be computed by discounting such amount at the discount
rate of the Federal Reserve Bank of the District within which the Premises are
located at the time of award plus one percent (1%). Efforts by Lessor to
mitigate damages caused by Lessee's Breach of this Lease shall not waive
Lessor's right to recover damages under Paragraph 12. If termination of this
Lease is obtained through the provisional remedy of unlawful detainer, Lessor
shall have the right to recover in such proceeding any unpaid Rent and damages
as are recoverable therein, or Lessor may reserve the right to recover all or
any part thereof in a separate suit. If a
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notice and grace period required under Paragraph 13.1 was not previously given,
a notice to pay rent or quit, or to perform or quit given to Lessee under the
unlawful detainer statute shall also constitute the notice required by Paragraph
13.1. In such case, the applicable grace period required by Paragraph 13.1 and
the unlawful detainer statute shall run concurrently, and the failure of Lessee
to cure the Default within the greater of the two such grace periods shall
constitute both an unlawful detainer and a Breach of this Lease entitling Lessor
to the remedies provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession and
recover the Rent as it becomes due, in which event Lessee may sublet or assign,
subject only to reasonable limitations. Acts of maintenance, efforts to relet,
and/or the appointment of a receiver to protect the Lessor's interests, shall
not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available under the
laws or judicial decisions of the state wherein the Premises are located. The
expiration or termination of this Lease and/or the termination of Lessee's right
to possession shall not relieve Lessee from liability under any indemnity
provisions of this Lease as to matters occurring or accruing during the term
hereof or by reason of Lessee's occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE. Any agreement for free or abated rent or
other charges, or for the giving or paying by Lessor to or for Lessee of any
cash or other bonus, inducement or consideration for Lessee's entering into this
Lease, all of which concessions are hereinafter referred to as "INDUCEMENT
PROVISIONS," shall be deemed conditioned upon Lessee's full and faithful
performance of all of the terms, covenants and conditions of this Lease. Upon
Breach of this Lease by Lessee, any such Inducement Provision shall
automatically be deemed deleted from this Lease and of no further force or
effect, and any rent, other charge, bonus, inducement or consideration
theretofore abated, given or paid by Lessor under such an inducement Provision
shall be immediately due and payable by Lessee to Lessor, notwithstanding any
subsequent cure of said Breach by Lessee. The acceptance by Lessor of rent or
the cure of the Breach which initiated the operation of this paragraph shall not
be deemed a waiver by Lessor of the provisions of this paragraph unless
specifically so stated in writing by Lessor at the time of such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee of Rent will cause Lessor to incur costs not contemplated by this Lease,
the exact amount of which will be extremely difficult to ascertain. Such costs
include, but are not limited to, processing and accounting charges, and late
charges which may be imposed upon Lessor by any Lender. Accordingly, if any Rent
shall not be received by Lessor within five (5) days after such amount shall be
due, then, without any requirement for notice to Lessee, Lessee shall pay to
Lessor a one-time late charge equal to ten percent (10%) of each such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of such late
payment. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent the exercise of any of the other rights and remedies granted hereunder.
In the event that a late charge is payable hereunder, whether or not collected,
for three (3) consecutive installments of Base Rent, then notwithstanding any
provision of this Lease to the contrary, Base Rent shall, at Lessor's option,
become due and payable quarterly in advance.
13.5 INTEREST. Any monetary payment due Lessor hereunder, other than
late charges, not received by Lessor, when due as to scheduled payments (such as
Base Rent) or within thirty (30) days following the date on which it was due for
non-scheduled payment, shall bear interest from the date when due, as to
scheduled payments, or the thirty-first (31st) day after it was due as to
non-scheduled payments. The interest ("INTEREST") charged shall be equal to the
prime rate reported in the Wall Street Journal as published closest prior to the
date when due plus four percent (4%), but shall not exceed the maximum rate
allowed by law. Interest is payable in addition to the potential late charge
provided for in Paragraph 13.4.
13.6 BREACH BY LESSOR.
(a) NOTICE OF BREACH. Lessor shall not be deemed in breach of
this Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and any Lender whose name and address shall have been furnished Lessee in
writing for such purpose, of written notice specifying wherein such obligation
of Lessor has not been performed; provided, however, that if the nature of
Lessor's obligation is such that more than thirty (30) days are reasonably
required for its performance, then Lessor shall not be in breach if performance
is commenced within such thirty (30) day period and thereafter diligently
pursued to completion.
(b) PERFORMANCE BY LESSEE ON BEHALF OF LESSOR. In the event that
neither Lessor nor Lender cures said breach within thirty (30) days after
receipt of said written notice, or if having commenced said cure they do not
diligently pursue it to completion, then Lessee may elect to cure said breach at
Lessee's expense and offset from Rent an amount equal to the greater of one
month's Base Rent or the Security Deposit, and to pay an excess of such expense
under protest, reserving Lessee's right to reimbursement from Lessor. Lessee
shall document the cost of said cure and supply said documentation to Lessor.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(collectively "CONDEMNATION"), this Lease shall terminate as to the part taken
as of the date the condemning authority takes title or possession, whichever
first occurs. If more than ten percent (10%) of any building portion of the
premises, or more than twenty-five percent (25%) of the land area portion of the
premises not occupied by any building, is taken by Condemnation, Lessee may, at
Lessee's option, to be exercised in writing within ten (10) days after Lessor
shall have given Lessee written notice of such taking (or in the absence of such
notice, within ten (10) days after the condemning authority shall have taken
possession) terminate this Lease as of the date the condemning authority takes
such possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining, except that the Base Rent shall be reduced in proportion
to the reduction in utility of the Premises caused by such Condemnation.
Condemnation awards and/or payments shall be the property of Lessor, whether
such award shall be made as compensation for diminution in value of the
leasehold, the value of the part taken, or for severance damages; provided,
however, that Lessee shall be entitled to any compensation for Lessee's
relocation expenses, loss of business goodwill and/or Trade Fixtures, without
regard to whether or not this Lease is terminated pursuant to the provisions of
this Paragraph. All Alterations and Utility Installations made to the Premises
by Lessee, for purposes of Condemnation only, shall be considered the property
of the Lessee and Lessee shall be entitled to any and all compensation which is
payable therefor. In the event that this Lease is not terminated by reason of
the Condemnation, Lessor shall repair any damage to the Premises caused by such
Condemnation.
15. BROKERS' FEE.
15.3 REPRESENTATIONS AND INDEMNITIES OF BROKER RELATIONSHIPS. Lessee
and Lessor each represent and warrant to the other that it has had no dealings
with any person, firm, broker or finder (other than the Brokers, if any) in
connection with this Lease, and that no one other than said named Brokers is
entitled to any commission or finder's fee in connection herewith. Lessee and
Lessor do each hereby agree to indemnify, protect, defend and hold the other
harmless from and against liability for compensation or charges which may be
claimed by any such unnamed broker, finder or other similar party by reason of
any dealings or actions of the indemnifying Party, including any costs,
expenses, and/or attorneys' fees reasonably incurred with respect thereto.
16. ESTOPPEL CERTIFICATES.
(a) Each Party (as "RESPONDING PARTY") shall within ten (10)
days after written notice from the other Party (the "REQUESTING PARTY") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "ESTOPPEL CERTIFICATE" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
(b) If the Responding Party shall fail to execute or deliver the
Estoppel Certificate within such ten day period, the Requesting Party may
execute an Estoppel Certificate stating that: (i) the Lease is in full force and
effect without modification except as may be represented by the Requesting
Party; (ii) there are no uncured defaults in the Requesting Party's performance;
and (iii) if Lessor is the Requesting Party, not more than one month's rent has
been paid in advance. Prospective purchasers and encumbrancers may rely upon the
Requesting Party's Estoppel Certificate, and the Responding Party shall be
estopped from denying the truth of the facts contained in said Certificate.
(c) If Lessor desires to finance, refinance, or sell the
Premises, or any part thereof, Lessee and all Guarantors shall deliver to any
potential lender or purchaser designated by Lessor such financial statements as
may be reasonably required by such lender or purchaser, including, but not
limited to, Lessee's financial statements for the past three (3) years. All such
financial statements shall be received by Lessor and such lender or purchaser in
confidence and shall be
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used only for the purposes herein set forth.
17. DEFINITION OF LESSOR. The term "LESSOR" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises, or, if
this is a sublease, of the Lessee's interest in the prior lease. In the event of
a transfer of Lessor's title or interest in the Premises or this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor. Except as provided in Paragraph 15, upon such
transfer or assignment and delivery of the Security Deposit, as aforesaid, the
prior Lessor shall be relieved of all liability with respect to the obligations
and/or covenants under this Lease thereafter to be performed by the Lessor.
Subject to the foregoing, the obligations and/or covenants in this Lease to be
performed by the Lessor shall be binding only upon the Lessor as hereinabove
defined. Notwithstanding the above, and subject to the provisions of Paragraph
20 below, the original Lessor under this Lease, and all subsequent holders of
the Lessor's interest in this Lease shall remain liable and responsible with
regard to the potential duties and liabilities of Lessor pertaining to Hazardous
Substances as outlined in Paragraph 6 above.
18. SEVERABILITY. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. DAYS. Unless otherwise specifically indicated to the contrary, the word
"days" as used in this Lease shall mean and refer to calendar days.
20. LIMITATION ON LIABILITY. Subject to the provisions of Paragraph 17
above, the obligations of Lessor under this Lease shall not constitute personal
obligations of Lessor, the individual partners of Lessor or its or their
individual partners, directors, officers or shareholders, and Lessee shall look
to the Premises, and to no other assets of Lessor, for the satisfaction of any
liability of Lessor with respect to this Lease, and shall not seek recourse
against the individual partners of Lessor, or its or their individual partners,
directors, officers or shareholders, or any of their personal assets for such
satisfaction.
21. TIME OF ESSENCE. Time is of the essence with respect to the performance
of all obligations to be performed or observed by the Parties under this Lease.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party. The liability (including court costs and Attorneys'
fees), of any Broker with respect to negotiation, execution, delivery or
performance by either Lessor or Lessee under this Lease or any amendment or
modification hereto shall be limited to an amount up to the fee received by such
Broker pursuant to this Lease; provided, however, that the foregoing limitation
on each Broker's liability shall not be applicable to any gross negligence or
willful misconduct of such Broker.
23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted by this
Lease shall be in writing and may be delivered in person (by hand or by courier)
or may be sent by regular, certified or registered mail or U.S. Postal Service
Express Mail, with postage prepaid, or by facsimile transmission, and shall be
deemed sufficiently given if served in a manner specified in this Paragraph 23.
The addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notices. Either Party may by written
notice to the other specify a different address for notice, except that upon
Lessee's taking possession of the Premises, the Premises shall constitute
Lessee's address for notice. A copy of all notices to Lessor shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate in writing.
23.2 DATE OF NOTICE. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is shown, the postmark thereon. If sent
by regular mail the notice shall be deemed given forty-eight (48) hours after
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantee next day delivery shall be deemed given twenty-four (24) hours after
delivery of the same to the Postal Service or courier. Notices transmitted by
facsimile transmission or similar means shall be deemed delivered upon telephone
confirmation of receipt, provided a copy is also delivered via delivery or mail.
If notice is received on a Saturday, Sunday or legal holiday, it shall be deemed
received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or of any other term, covenant or condition hereof. Lessor's
consent to, or approval of, any act shall not be deemed to render unnecessary
the obtaining of Lessor's consent to, or approval of, any subsequent or similar
act by Lessee, or be construed as the basis of an estoppel to enforce the
provision or provisions of this Lease requiring such consent. The acceptance of
Rent by Lessor shall not be a waiver of any Default or Breach by Lessee. Any
payment by Lessee may be accepted by Lessor on account of monies or damages due
Lessor, notwithstanding any qualifying statements or conditions made by Lessee
in connection therewith, which such statements and/or conditions shall be of no
force or effect whatsoever unless specifically agreed to in writing by Lessor at
or before the time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or termination of this Lease.
In the event that Lessee holds over, then the Base Rent shall be increased to
one hundred fifty percent (150%) of the Base Rent applicable during the month
immediately preceding the expiration or termination. Nothing contained herein
shall be construed as consent by Lessor to any holding over by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS; CONSTRUCTION OF AGREEMENT. All provisions of
this Lease to be observed or performed by Lessee are both covenants and
conditions. In construing this Lease, all headings and titles are for the
convenience of the Parties only and shall not be considered a part of this
Lease. Whenever required by the context, the singular shall include the plural
and vice versa. This Lease shall not be construed as if prepared by one of the
Parties, but rather according to its fair meaning as a whole, as if both Parties
had prepared it.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
Parties, excluding Lessee's personal representatives, their personal
representatives, successors and assigns and be governed by the laws of the State
in which the Premises are located. Any litigation between the Parties hereto
concerning this Lease shall be initiated in the county in which the Premises are
located.
30. SUBORDINATION; ATTORNMENT NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "SECURITY DEVICE"), now or
hereafter placed upon the Premises, to any and all advances made on the security
thereof, and to all renewals, modifications, and extensions thereof. Lessee
agrees that the holders of any such Security Devices (in this Lease together
referred to as "Lessor's Lender") shall have no liability or obligation to
perform any of the obligations of Lessor under this Lease. Any Lender may elect
to have this Lease and/or any Option granted hereby superior to the lien of its
Security Device by giving written notice thereof to Lessee, whereupon this Lease
and such Options shall be deemed prior to such Security Device, notwithstanding
the relative dates of the documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of
Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who
acquires ownership of the Premises by reason of a foreclosure of a Security
Device, and that in the event of such foreclosure, such new owner shall not: (i)
be liable for any act or omission of any prior lessor or with respect to events
occurring prior to acquisition of ownership; (ii) be subject to any offsets or
defenses which Lessee might have against any prior lessor; or (iii) be bound by
prepayment of more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into
by Lessor after the execution of this Lease, Lessee's subordination of this
Lease shall be subject to receiving a commercially reasonable non-disturbance
agreement (a "NON-DISTURBANCE AGREEMENT") from the Lender which Non-Disturbance
Agreement provides that Lessee's possession of the Premises, and this Lease,
including any options to extend the term hereof, will not be disturbed so long
as Lessee is not in Breach hereof and attorns to the record owner of the
Premises. Further, within sixty (60) days after the execution of this Lease,
Lessor shall use its commercially reasonable efforts to obtain a Non-Disturbance
Agreement from the holder of any pre-existing Security Device which is secured
by the Premises. In the event that Lessor is unable to provide the
Non-Disturbance Agreement within said sixty (60) days, then Lessee may, at
Lessee's option, directly contact Lessor's lender and attempt to negotiate for
the execution and delivery of a Non-Disturbance Agreement.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30
shall be effective without the execution of any further documents; provided,
however, that, upon written request from Lessor or a Lender in connection with a
sale, financing or refinancing of the Premises, Lessee and Lessor shall execute
such further writings as may be reasonably required to separately document any
subordination, attornment and/or Non-Disturbance Agreement provided for herein.
31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding
involving the Premises to enforce the terms hereof or to declare rights
hereunder, the Prevailing Party (as hereafter defined) in any such proceeding,
action, or appeal thereon, shall be entitled to reasonable attorneys' fees. Such
fees may be awarded in the same suit or recovered in a separate suit, whether or
not such action or proceeding is pursued to decision or judgment. The term,
"PREVAILING PARTY" shall include, without limitation, a Party or Broker who
substantially obtains or defeats the relief sought, as the case may be, whether
by compromise, settlement, judgment, or the abandonment by the other Party or
Broker of its claim or defense. The attorneys' fees award shall not be computed
in accordance with
Page 9 of 11
<PAGE> 10
any court fee schedule, but shall be such as to fully reimburse all attorneys'
fees reasonably incurred. In addition, Lessor shall be entitled to attorneys'
fees, costs and expenses incurred in the preparation and service of notices of
Default and consultations in connection therewith, whether or not a legal action
is subsequently commenced in connection with such Default or resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises as Lessor may deem necessary.
All such activities shall be without abatement of rent or liability to Lessee.
Lessor may at any time place on the Premises any ordinary "FOR SALE" signs and
Lessor may during the last six (6) months of the term hereof place on the
Premises any ordinary "FOR LEASE" signs. Lessee may at any time place on or
about the Premises any ordinary "FOR SUBLEASE" sign.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, any
auction upon the Premises without Lessor's prior written consent. Lessor shall
not be obligated to exercise any standard of reasonableness in determining
whether to permit an auction.
34. SIGNS. Except for ordinary "For Sublease" signs, Lessee shall not place
any sign upon the Premises without Lessor's prior written consent. All signs
must comply with all Applicable Requirements.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, that Lessor may elect to continue any one or all
existing subtenancies. Lessor's failure within ten (10) days following any such
event to elect to the contrary by written notice to the holder of any such
lesser interest, shall constitute Lessor's election to have such event
constitute the termination of such interest.
36. CONSENTS. Except as otherwise provided herein, wherever in this Lease
the consent of a Party is required to an act by or for the other Party, such
consent shall not be unreasonably withheld or delayed. Lessor's actual
reasonable costs and expenses (including but not limited to architects',
attorneys', engineers' and other consultants' fees) incurred in the
consideration of, or response to, a request by Lessee for any Lessor consent,
including but not limited to consents to an assignment, a subletting or the
presence or use of a Hazardous Substance, shall be paid by Lessee upon receipt
of an invoice and supporting documentation therefor. Lessor's consent to any
act, assignment or subletting shall not constitute an acknowledgment that no
Default or Breach by Lessee of this Lease exists, nor shall such consent be
deemed a waiver of any then existing Default or Breach, except as may be
otherwise specifically stated in writing by Lessor at the time of such consent.
The failure to specify herein any particular condition to Lessor's consent shall
not preclude the imposition by Lessor at the time of consent of such further or
other conditions as are then reasonable with reference to the particular matter
for which consent is being given. In the event that either Party disagrees with
any determination made by the other hereunder and reasonably requests the
reasons for such determination, the determining party shall furnish its reasons
in writing and in reasonable detail within ten (10) business days following such
request.
37. GUARANTOR.
37.1 EXECUTION. The Guarantors, if any, shall each execute a guaranty
in the form most recently published by the American Industrial Real Estate
Association, and each such Guarantor shall have the same obligations as Lessee
under this Lease.
37.2 DEFAULT. It shall constitute a Default of the Lessee if any
Guarantor fails or refuses, upon request to provide: (a) evidence of the
execution of the guaranty, including the authority of the party signing on
Guarantor's behalf to obligate Guarantor, and in the case of a corporate
Guarantor, a certified copy of a resolution of its board of directors
authorizing the making of such guaranty, (b) current financial statements, (c) a
Tenancy Statement, or (d) written confirmation that the guaranty is still in
effect.
38. QUIET POSSESSION. Subject to payment by Lessee of the Rent and
performance of all of the covenants, conditions and provisions on Lessee's part
to be observed and performed under this Lease, Lessee shall have quiet
possession and quiet enjoyment of the Premises during the term hereof.
39. OPTIONS.
39.1 DEFINITION. "OPTION" shall mean: (a) the right to extend the
term of or renew this Lease or to extend or renew any lease that Lessee has on
other property of Lessor; (b) the right of first refusal or first offer to lease
either the Premises or other property of Lessor; (c) the right to purchase or
the right of first refusal to purchase the Premises or other property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to
Lessee in this Lease is personal to the original Lessee, and cannot be assigned
or exercised by anyone other than said original Lessee and only while the
original Lessee is in full possession of the Premises and, if requested by
Lessor, with Lessee certifying that Lessee has no intention of thereafter
assigning or subletting.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple
options to extend or renew this Lease, a later Option cannot be exercised unless
the prior Options have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option: (i)
during the period commencing with the giving of any notice of Default and
continuing until said Default is cured; (ii) during the period of time any Rent
is unpaid (without regard to whether notice thereof is given Lessee); (iii)
during the time Lessee is in Breach of this Lease; or (iv) in the event that
Lessee has been given three (3) or more notices of separate Default, whether or
not the Defaults are cured, during the twelve (12) month period immediately
preceding the exercise of the Option.
(b) The period of time within which an Option may be
exercised shall not be extended or enlarged by reason of Lessee's inability to
exercise an Option because of the provisions of Paragraph 39.4(a).
(c) An Option shall terminate and be of no further force or
effect, notwithstanding Lessee's due and timely exercise of the Option, if,
after such exercise and prior to the commencement of the extended term, (i)
Lessee fails to pay Rent for a period of thirty (30) days after such Rent
becomes due (without any necessity of Lessor to give notice thereof), (ii)
Lessor gives to Lessee three (3) or more notices of separate Default during any
twelve (12) month period, whether or not the Defaults are cured, or (iii) if
Lessee commits a Breach of this Lease.
40. MULTIPLE BUILDINGS. If the Premises are a part of a group of buildings
controlled by Lessor, Lessee agrees that it will observe all reasonable rules
and regulations which Lessor may make from time to time for the management,
safety, and care of said properties, including the care and cleanliness of the
grounds and including the parking, loading and unloading of vehicles, and that
Lessee will pay its fair share of common expenses incurred in connection
therewith.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to
any amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment and there shall survive the right
on the part of said Party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said Party
to pay such sum or any part thereof, said Party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay.
44. AUTHORITY. If either Party hereto is a corporation, trust, limited
liability company, partnership, or similar entity, each individual executing
this Lease on behalf of such entity represents and warrants that he or she is
duly authorized to execute and deliver this Lease on its behalf. Each Party
shall, within thirty (30) days after request, deliver to the other party
satisfactory evidence of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions.
46. OFFER. Preparation of this Lease by either Party or their agent and
submission of same to the other Party shall not be deemed an offer to lease to
the other Party. This Lease is not intended to be binding until executed and
delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by a Lender in connection with the obtaining of normal financing or
refinancing of the Premises.
48. MULTIPLE PARTIES. If more than one person or entity is named herein as
either Lessor or Lessee, such multiple Parties shall have joint and several
responsibility to comply with the terms of this Lease.
49. MEDIATION AND ARBITRATION OF DISPUTES. An Addendum requiring the
Mediation and/or the Arbitration of all disputes between the Parties and/or
Brokers arising out of this Lease [ ] IS [ ] IS NOT attached to this Lease.
Page 10 of 11
<PAGE> 11
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT
RELATES. THE PARTIES ARE URGED TO:
1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE.
2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION
OF THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED
TO: THE POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE
PREMISES, THE STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND
OPERATING SYSTEMS, AND THE SUITABILITY OF THE PREMISES FOR LESSEE'S
INTENDED USE.
WARNING: IF THE PREMISES IS LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN
PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE
STATE IN WHICH THE PREMISES IS LOCATED.
The Parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
<TABLE>
<S> <C>
Executed at: Ontario, California Executed at: Riverside, California
------------------------ --------------------------
on: 2/23/99 on: 2/3/99
--------------------------------- --------------------------
by LESSOR: by LESSEE:
LDT Company, Carol M. Carson, Biker's Dream International
- ------------------------------------- ---------------------------------------
David Carson and Tim Carson as
- ------------------------------------- ---------------------------------------
Partners
- ------------------------------------- ---------------------------------------
By: /s/ Tim Carson By: /s/ H. Rosenman /s/ Ann Todd
- ------------------------------------- ---------------------------------------
Name Printed: Tim Carson Name Printed: H. Rosenman, Anne Todd
----------------------- -------------------------
Title: Managing Partner Title: President Corporate Secretary
------------------------------ --------------------------------
By: By:
Name Printed: Carol M. Carson Name Printed:
----------------------- -------------------------
Title: Vice President Title:
------------------------------ --------------------------------
Address: P O Box 628 Ontario, 91728 Address: 3810 Wacker Dr., Mira Loma
---------------------------- ------------------------------
- ------------------------------------- ---------------------------------------
Telephone: ( ) Telephone: ( )
--- --------------------- --- -----------------------
Facsimile: ( ) Facsimile: ( )
--- --------------------- --- -----------------------
Federal ID No. Federal ID No.
---------------------- ------------------------
</TABLE>
NOTE: These forms are often modified to meet changing requirements of law and
industry needs. Always write or call to make sure you are utilizing the
most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 So.
Flower Street, Suite 600, Los Angeles, California 90017. (213) 687-8777.
Fax No. (213) 687-8616
Page 11 of 11
<PAGE> 12
ADDENDUM TO
STANDARD INDUSTRIAL/COMMERCIAL
SINGLE-LESSEE LEASE - GROSS
Dated: January 15, 1999
By and Between
LDT COMPANY; CAROL M. CARSON, DAVID CARSON AND TIM CARSON AS PARTNERS ("LESSOR")
AND BIKER'S DREAM INTERNATIONAL, A CALIFORNIA CORPORATION ("LESSEE")
- --------------------------------------------------------------------------------
The following additional terms and conditions are hereby incorporated into the
above referenced lease as if set forth in full therein.
1. RENT SCHEDULE
The rent schedule for the term of the Lease shall be:
<TABLE>
<S> <C>
September 26, 2000 - February 28, 2001 $19,670.00 per month, industrial gross
March 1, 2001 - February 28, 2002 $21,356.00 per month, industrial gross
March 1, 2002 - February 28, 2003 $21,356.00 per month, industrial gross
March 1, 2003 - February 29, 2004 $21,356.00 per month, industrial gross
</TABLE>
2. POSSESSION AND COMMENCEMENT
Commencement of the Lease shall be September 26, 2000. Lessee will have
been in possession of the Premises from March 1, 1999 under a Sub-Lease
agreement dated January 15, 1999, and shall continue occupancy upon the
expiration of the Sub-Lease agreement.
3. CONDITION OF PREMISES
Provided that Sublessor has corrected any deficiencies noted per Paragraph
6.2 and Paragraph 4 of the Addendum to Sublease dated January 15, 1999,
Lessee accepts possession of the Premises and commencement of the Lease in
the condition existing upon execution of the Sub-Lease agreement dated
January 15, 1999.
4. OPTION TO RENEW
a. Lessee is to have the Option to Renew the Lease for an additional
five (5) year term on the same terms and conditions except that no
rent abatement shall be afforded and rent shall escalate each year
commencing with the first month after the expiration of the initial
term of the Lease, by an amount equal to three percent (3%) of the
prior year's rent. Lessee to notify the Lessor no sooner than one
hundred eighty days and no later than ninety days prior to the
expiration of the Lease term, of their intent to exercise their
Option to Renew.
b. Lessee shall have no right to exercise the Option to Renew during
any period when Lessee is in default under this Lease, and the
period of time within which Lessee may exercise the Option shall not
be enlarged or extended by reason of Lessee's inability to exercise
as a result of the foregoing prohibition. Time is of the essence,
and if Lessee fails to exercise the Option by written notice within
the above time period for exercise, the Option shall expire and be
of no further force or effect, and the Lease shall terminate at the
end of the original Term.
5. MISCELLANEOUS
a. The Lease is conditioned upon execution of a Sub-Lease agreement
being executed between PrimeLine Products Company for the term March
1, 1999 through September 25, 2000.
b. The Lessor shall retain all sign rights, income and the right to
lease future sites only to Sign and Cell Tower companies in the
unimproved yard area, so long as they do not interfere with the
operations of the Lessee.
c. Pursuant to Paragraph 6.2, 7.3 and 7.4 of this lease, Lessor hereby
consents to installation of the following trade fixtures and
alterations and Lessee's removal of same upon expiration or
termination of this Lease.
<PAGE> 13
Addendum
January 15, 1999
Page 2
TRADE FIXTURES
1. Additional lighting in the factory
2. Compressed air system, including compressor(s), air lines, etc.
3. Paint facility, including building annex, paint booth(s) and all
related equipment
4. Fencing and racking inside the building
ALTERATIONS
1. Office along the northeast-most wall of the building
2. Assembly "clean room" to be constructed within the southeast section
of the building
3. Connections/equipment necessary to provide power from the
transformer located on the south property line to the building annex
All terms of the Lease shall remain unchanged except as specifically modified
herein.
LESSOR: LESSEE:
LDT COMPANY, BIKER'S DREAM INTERNATIONAL
Carol M. Carson, David Carson a California corporation
and Tim Carson as Partners
By: /s/ Tim Carson By: /s/ H. Rosenman
-------------------------------- -------------------------------------
Tim Carson
Its: Managing Partner Its: President
Date: 2/23/99 Date: 2/3/99
By: /s/ Anne Todd
Its: Corporate Secretary
Date: 2/3/99
Note: Lessor has received and reviewed rough drawings of Lessee's Proposed
Alterations and Trade Fixtures. These rough drawings have been approved in
concept. However, Lessor shall retain the right to review and approve all Trade
Fixtures and Alterations at such time as final detailed plans and specifications
are prepared and submitted to Lessor.
<PAGE> 1
EXHIBIT 10.37
[LOGO] AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD SUBLEASE
(Short-form to be used with post 1995 AIR leases)
1. PARTIES. This Sublease, dated, for reference purposes only, January
15, 1999, is made by and between PrimeLine Products Company, a California
corporation ("SUBLESSOR") and Biker's Dream International, a California
corporation ("SUBLESSEE").
2. PREMISES. Sublessor hereby subleases to Sublessee and Sublessee
hereby subleases from Sublessor for the term, at the rental, and upon all of the
conditions set forth herein, that certain real property, including all
improvements therein, and commonly known by the street address of 3810 Wacker
Drive, Mira Loma located in the County of Riverside, State of California and
generally described as (describe briefly the nature of the property) an
approximate 56,200 square foot industrial building on approximately 4.79 acres.
Parcel No.: 156-210-021 ("Premises").
3. TERM.
3.1 TERM. The term of this Sublease shall be for 19 months
commencing on March 1, 1999 and ending on September 25, 2000 unless sooner
terminated pursuant to any provision hereof.
3.2 DELAY IN COMMENCEMENT. Sublessor agrees to use its best
commercially reasonable efforts to deliver possession of the Premises by the
commencement date. If, despite said efforts, Sublessor is unable to deliver
possession as agreed, the rights and obligations of Sublessor and Sublessee
shall be as set forth in Paragraph 3.3 of the Master Lease (as modified by
Paragraph 7.3 of this Sublease).
4. RENT.
4.1 BASE RENT. Sublessee shall pay jointly to Sublessor and Master
Lessor as Base Rent for the Premises equal monthly payments of $19,670.00 in
advance, on the first day of each month of the term hereof. Sublessee shall pay
Sublessor upon the execution hereof $19,670.00 as Base Rent for March 1-31,
1999, which shall be a gross lease rate and not include any pass-through Base
Rent for any period during the term hereof which is for less than one month
shall be a pro rata portion of the monthly installment.
4.2 RENT DEFINED. All monetary obligations of Sublessee to
Sublessor under the terms of this Sublease (except for the Security Deposit) are
deemed to be rent ("RENT"). Rent shall be payable in lawful money of the United
States to Sublessor at the address stated herein or to such other persons or at
such other places as Sublessor may designate in writing.
5. SECURITY DEPOSIT. Sublessee shall deposit jointly with Sublessor and
Master Lessor upon execution hereof $20,000.00 as security for Sublessee's
faithful performance of Sublessee's obligations hereunder. The rights and
obligations of Sublessor and Sublessee as to said Security Deposit shall be as
set forth in Paragraph 5 of the Master Lease (as modified by Paragraph 7.3 of
this Sublease).
6. USE.
6.1 AGREED USE. The Premises shall be used and occupied only for
Manufacture, warehouse and distribution of specialized motorcycles, parts and
related uses, and for no other purpose.
6.2 COMPLIANCE. Sublessor warrants that the improvements on the
Premises comply with all applicable covenants or restrictions of record and
applicable building codes, regulations and ordinances ("APPLICABLE
REQUIREMENTS") in effect on the commencement date. Said warranty does not apply
to the use to which Sublessee will put the Premises or to any alterations or
utility installations made or to be made by Sublessee. NOTE: Sublessee is
responsible for determining whether or not the zoning is appropriate for its
intended use, and acknowledges that past uses of the Premises may no longer be
allowed. If the Premises do not comply with said warranty, or in the event that
the Applicable Requirements are hereafter changed, the rights and obligations of
Sublessor and Sublessee shall be as provided in Paragraph 2.3 of the Master
Lease (as modified by Paragraph 7.3 of this Sublease).
6.3 ACCEPTANCE OF PREMISES AND LESSEE. Sublessee acknowledges
that:
(a) it has been advised by Brokers to satisfy itself
with respect to the condition of the Premises (including but not limited to the
electrical, HVAC and fire sprinkler systems, security, environmental aspects,
and compliance with Applicable Requirements), and their suitability for
Sublessee's intended use,
(b) Sublessee has made such investigation as it deems
necessary with reference to such matters and assumes all responsibility therefor
as the same relate to its occupancy of the Premises, and
(c) neither Sublessor, Sublessor's agents, nor any
Broker has made any oral or written representations or warranties with respect
to said matters other than as set forth in this Sublease.
In addition, Sublessor acknowledges that:
(a) Broker has made no representations, promises or
warranties concerning Sublessee's ability to honor the Sublease or suitability
to occupy the Premises, and
(b) it is Sublessor's sole responsibility to investigate
the financial capability and/or suitability of all proposed tenants.
7. MASTER LEASE
7.1 Sublessor is the lessee of the Premises by virtue of a
lease, hereinafter the "MASTER LEASE", a copy of which is attached hereto marked
Exhibit 1, wherein LDT Company, Carol M. Carson, David Carson and Tim Carson as
Partners is the lessor, hereinafter the "MASTER LESSOR"
7.2 This Sublease is and shall be at all times subject and
subordinate to the Master Lease.
7.3 The terms, conditions and respective obligations of Sublessor
and Sublessee to each other under this Sublease shall be the terms and
conditions of the Master Lease except for those provisions of the Master Lease
which are directly contradicted by this Sublease in which event the terms of
this Sublease document shall control over the Master Lease. Therefore, for the
purposes of this Sublease, wherever in the Master Lease the word "Lessor" is
used it shall be deemed to mean the Sublessor herein and wherever in the Master
Lease the word "Lessee" is used it shall be deemed to mean the Sublessee herein.
7.4 During the term of this Sublease and for all periods subsequent
for obligations which have arisen prior to the termination of this Sublease,
Sublessee does hereby expressly assume and agree to perform and comply with, for
the benefit of Sublessor and Master Lessor, each and every obligation of
Sublessor under the Master Lease except for the following paragraphs which are
excluded therefrom:
-------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Page 1 of 3
<PAGE> 2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7.5 The obligations that Sublessee has assumed under paragraph 7.4
hereof are hereinafter referred to as the "SUBLESSEE'S ASSUMED OBLIGATIONS". The
obligations that Sublessee has not assumed under paragraph 7.4 hereof are
hereinafter referred to as the "SUBLESSOR'S REMAINING OBLIGATIONS".
7.6 Sublessee shall hold Sublessor free and harmless from all
liability, judgments, costs, damages, claims or demands, including reasonable
attorneys' fees, arising out of Sublessee's failure to comply with or perform
Sublessee's Assumed Obligations.
7.7 Sublessor agrees to maintain the Master Lease during the entire
term of this Sublease, subject, however, to any earlier termination of the
Master Lease without the fault of the Sublessor, and to comply with or perform
Sublessor's Remaining Obligations and to hold Sublessee free and harmless from
all liability, judgments, costs, damages, claims or demands arising out of
Sublessor's failure to comply with or perform Sublessor's Remaining Obligations.
7.8 Sublessor represents to Sublessee that the Master Lease is in
full force and effect and that no default exists on the part of any Party to the
Master Lease.
8. ASSIGNMENT OF SUBLEASE AND DEFAULT.
8.1 Sublessor hereby assigns and transfers to Master Lessor the
Sublessor's interest in this Sublease, subject however to the provisions of
Paragraph 8.2 hereof.
8.2 Master Lessor, by executing this document, agrees that until a
Default shall occur in the performance of Sublessor's Obligations under the
Master Lease, that Sublessor may receive, collect and enjoy the Rent accruing
under this Sublease. However, if Sublessor shall Default in the performance of
its obligations to Master Lessor then Master Lessor may, at its option, receive
and collect, directly from Sublessee, all Rent owing and to be owed under this
Sublease. Master Lessor shall not, by reason of this assignment of the Sublease
nor by reason of the collection of the Rent from the Sublessee, be deemed liable
to Sublessee for any failure of the Sublessor to perform and comply with
Sublessor's Remaining Obligations.
8.3 Sublessor hereby irrevocably authorizes and directs Sublessee
upon receipt of any written notice from the Master Lessor stating that a Default
exists in the performance of Sublessor's obligations under the Master Lease, to
pay to Master Lessor the Rent due and to become due under the Sublease.
Sublessor agrees that Sublessee shall have the right to rely upon any such
statement and request from Master Lessor, and that Sublessee shall pay such Rent
to Master Lessor without any obligation or right to inquire as to whether such
Default exists and notwithstanding any notice from or claim from Sublessor to
the contrary and Sublessor shall have no right or claim against Sublessee for
any such Rent so paid by Sublessee.
8.4 No changes or modifications shall be made to this Sublease
without the consent of Master Lessor.
9. CONSENT OF MASTER LESSOR.
9.1 In the event that the Master Lease requires that Sublessor
obtain the consent of Master Lessor to any subletting by Sublessor then, this
Sublease shall not be effective unless, within ten days of the date hereof,
Master Lessor signs this Sublease thereby giving its consent to this Subletting.
9.2 In the event that the obligations of the Sublessor under the
Master Lease have been guaranteed by third parties then neither this Sublease,
nor the Master Lessor's consent, shall be effective unless, within 10 days of
the date hereof, said guarantors sign this Sublease thereby giving their consent
to this Sublease.
9.3 In the event that Master Lessor does give such consent then:
(a) Such consent shall not release Sublessor of its obligations
or alter the primary liability of Sublessor to pay the Rent and perform and
comply with all of the obligations of Sublessor to be performed under the Master
Lease.
(b) The acceptance of Rent by Master Lessor from Sublessee or
anyone else liable under the Master Lease shall not be deemed a waiver by Master
Lessor of any provisions of the Master Lease.
(c) The consent to this Sublease shall not constitute a consent
to any subsequent subletting or assignment.
(d) In the event of any Default of Sublessor under the Master
Lease, Master Lessor may proceed directly against Sublessor, any guarantors or
anyone else liable under the Master Lease or this Sublease without first
exhausting Master Lessor's remedies against any other person or entity liable
thereon to Master Lessor.
(e) Master Lessor may consent to subsequent sublettings and
assignments of the Master Lease or this Sublease or any amendments or
modifications thereto without notifying Sublessor or any one else liable under
the Master Lease and without obtaining their consent and such action shall not
relieve such persons from liability.
(f) In the event that Sublessor shall Default in its obligations
under the Master Lease, then Master Lessor, at its option and without being
obligated to do so, may require Sublessee to attorn to Master Lessor in which
event Master Lessor shall undertake the obligations of Sublessor under this
Sublease from the time of the exercise of said option to termination of this
Sublease but Master Lessor shall not be liable for any prepaid Rent nor any
Security Deposit paid by Sublessee, nor shall Master Lessor be liable for any
other Defaults of the Sublessor under the Sublease.
9.4 The signatures of the Master Lessor and any Guarantors of
Sublessor at the end of this document shall constitute their consent to the
terms of this Sublease.
9.5 Master Lessor acknowledges that, to the best of Master Lessor's
knowledge, no Default presently exists under the Master Lease of obligations to
be performed by Sublessor and that the Master Lease is in full force and effect.
9.6 In the event that Sublessor Defaults under its obligations to
be performed under the Master Lease by Sublessor, Master Lessor agrees to
deliver to Sublessee a copy of any such notice of default. Sublessee shall have
the right to cure any Default of Sublessor described in any notice of default
within ten days after service of such notice of default on Sublessee. If such
Default is cured by Sublessee then Sublessee shall have the right of
reimbursement and offset from and against Sublessor.
10. BROKERS FEE.
10.1 Upon execution hereof by all parties, Sublessor shall pay to
Lee & Associates a licensed real estate broker, ("BROKER"), a fee as set forth
in a separate agreement between Sublessor and Broker, or in the event there is
no such separate agreement, the sum of $ per separate agreement for brokerage
services rendered by Broker to Sublessor in this transaction.
11. ATTORNEY'S FEES. If any party or the Broker named herein brings an
action to enforce the terms hereof or to declare rights hereunder, the
prevailing party in any such action, on trial and appeal, shall be entitled to
his reasonable attorney's fees to be paid by the losing party as fixed by the
Court.
12. ADDITIONAL PROVISIONS. [If there are no additional provisions, draw
a line from this point to the next printed word after the space left here. If
there are additional provisions place the same here.]
Page 2 of 3
<PAGE> 3
ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY REAL ESTATE BROKER AS TO THE LEGAL
SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS SUBLEASE OR THE
TRANSACTION TO WHICH IT RELATES. THE PARTIES ARE URGED TO:
1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
SUBLEASE.
2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE
PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE POSSIBLE
PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PROPERTY, THE STRUCTURAL
INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND THE SUITABILITY
OF THE PREMISES FOR SUBLESSEE'S INTENDED USE.
WARNING: IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN CALIFORNIA,
CERTAIN PROVISIONS OF THE SUBLEASE MAY NEED TO BE REVISED TO COMPLY WITH THE
LAWS OF THE STATE IN WHICH THE PROPERTY IS LOCATED.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Executed at: San Bernardino, California Primeline Products Company
-------------------------------------- --------------------------------------------
on: By /s/ R. Crowther
----------------------------------------------- ------------------------------------------
Address: 5405 Industrial Parkway, San Bernardino By
------------------------------------------ ------------------------------------------
"Sublessor" (Corporate Seal)
Executed at: Riverside, California Biker's Dream International
-------------------------------------- --------------------------------------------
on: By /s/ H. Rosenman
----------------------------------------------- ------------------------------------------
Address: 11631 Sterling Avenue, Riverside By /s/ Anne Todd
------------------------------------------ ------------------------------------------
"Sublessee" (Corporate Seal)
Executed at: Ontario, California LTD Company, Carl M. Carson, David Carson
-------------------------------------- --------------------------------------------
and Tim Carson, as partners
on: 2/23/99 By /s/ Tim Carson
----------------------------------------------- ------------------------------------------
Address: P.O. Box 628, Ontario By
------------------------------------------ ------------------------------------------
"Master Lessor" (Corporate Seal)
</TABLE>
NOTE: THESE FORMS ARE OFTEN MODIFIED TO MEET CHANGING REQUIREMENTS OF LAW AND
NEEDS OF THE INDUSTRY. ALWAYS WRITE OR CALL TO MAKE SURE YOU ARE UTILIZING THE
MOST CURRENT FORM: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 SOUTH FLOWER
ST., SUITE 600, LOS ANGELES, CA 90017.
(213) 687-8777.
Page 3 of 3
<PAGE> 4
ADDENDUM TO
STANDARD SUBLEASE
Dated: January 15, 1999
By and Between
PRIMELINE PRODUCTS COMPANY ("SUB-LESSOR"); BIKER'S DREAM INTERNATIONAL
("SUB-LESSEE") AND LDT COMPANY - CAROL M. CARSON, DAVID CARSON AND TIM CARSON AS
PARTNERS ("MASTER LESSOR")
- --------------------------------------------------------------------------------
The following additional terms and conditions are hereby incorporated into the
above referenced lease as if set forth in full therein.
1. RENT SCHEDULE
The rent schedule for the term of the Sub-Lease shall be:
March 1, 1999 - February 29, 2000 $19,670.00 per month, industrial gross
March 1, 2000 - September 25, 2000 $19,670.00 per month, industrial
gross (as prorated)
Sub-Lessor shall defer the rental amounts due for months two (2), five (5)
and nine (9) of the Sub-lease subject to the provisions of Paragraph 2
below.
2. RENT CONCESSIONS
Notwithstanding the foregoing, Sub-Lessor does hereby grant to Sub-Lessee
the right to defer the basic rental portion of rents which would otherwise
be due under the Sub-Lease for the periods shown in Paragraph 1 above
under the following terms and conditions:
2.1 The abatement and forgiveness of rent shall be effective upon the
execution of the Sub-Lease by Sub-Lessor, Sub-Lessee and Master
Lessor, and upon payment of rent and security deposits as stipulated
in the Sub-Lease, and shall continue for the time and in the amount
as set forth hereinabove.
2.2 If at the date of expiration of the Sub-Lease, Sub-Lessee has paid
to Sub-Lessor all sums due pursuant to the terms of the Sub-Lease,
then the rent which has previously been deferred will be forgiven as
of the date of expiration of the Sub-Lease.
2.3 At any time the Sub-Lessee should be in default and has not timely
cured under the Sub-Lease, Sub-Lessor may declare the accrued amount
of abated and forgiven rent to be then due and payable and include
the amount of the abated and forgiven rent in any action for
collection of rent in the same manner as if the rent had not been
abated and forgiven.
2.4 This right of rent deferment and conditional forgiveness is given in
consideration of the execution of the Sub-Lease.
3. POSSESSION AND COMMENCEMENT
Commencement of the Sub-Lease shall be March 1, 1999. Sub-Lessor shall
deliver possession to Sub-Lessee on or before February 15, 1999.
Sub-Lessee may occupy the premises during this period without the payment
of rent, but subject to the other provisions of the Sub-Lease and Master
Lease.
4. CONDITION OF PREMISES
Sub-Lessee herewith accepts possession of the Premises in the condition
existing upon execution of the Sub-Lease and subject to Paragraph 6.2 of
the Sub-Lease, and Paragraphs 2.2, 2.3, 7.2, 7.3 and 7.4 of the Master
Lease dated September 25, 1997 by and between Master Lessor and Sublessor.
Possession shall be delivered upon receipt by Sub-Lessor of initial rent,
security deposit and insurance binders as stipulated in the Sub-Lease and
Master Lease. Sublessee is not responsible for any pre-existing conditions
created by Sublessor nor for the removal or correction of same upon
expiration or termination of the Sublease or Master Lease, including
alterations, modifications or toxic substances.
7
<PAGE> 5
ADDENDUM
January 15, 1999
Page 2
5. MISCELLANEOUS
5.1 The Sub-Lease is conditioned upon execution of a new Lease between
LDT Company, Carol M. Carson, David Carson and Tim Carson, as
Partners and Biker's Dream International, a California corporation
for the term September 26, 2000 through February 29, 2004, which
will include an option to renew for an additional five (5) year
term.
5.2 The Master Lessor shall retain all sign rights, income and the right
to lease future sites only to Sign and Cell Tower companies in the
unimproved yard area, provided that they do not interfere with the
operations of the Sublessee.
5.3 Upon expiration of the Sub-Lease, all rents and security deposits
shall be pro-rated and forwarded to Lessor, pursuant to the terms of
the Lease agreement between Lessor and Lessee referenced in
Paragraph 5.1 above.
5.4 Pursuant to Paragraph 6.2, 7.3 and 7.4 of this lease,
Sublessor/Master Lessor hereby consents to installation of the
following trade fixtures and alterations and Sublessee's/Lessee's
removal of same upon expiration or termination of the new Lease
referenced in Paragraph 5.1.
TRADE FIXTURES
1. Additional lighting in the factory
2. Compressed air system, including compressor(s), air lines,
etc.
3. Paint facility, including building annex, paint booth(s) and
all related equipment
4. Fencing and racking inside the building
ALTERATIONS
1. Office along the northeast-most wall of the building
2. Assembly "clean room" to be constructed within the southeast
section of the building
3. Connections/equipment necessary to provide power from the
transformer located on the south property line to the building
annex
All terms of the Sub-Lease shall remain unchanged except as specifically
modified herein.
SUB-LESSOR: SUB-LESSEE:
PRIMELINE PRODUCTS COMPANY BIKER'S DREAM INTERNATIONAL
a California corporation a California corporation
By: /s/ Richard Crowther By: /s/ Herm Rosenman
-------------------------------- -------------------------------------
Richard Crowther
Its: President Its: President
Date: 2/10/99 Date: 2/3/99
By: /s/ Anne Todd
Its: Corporate Secretary
Date: 2/3/99
<PAGE> 6
ADDENDUM
January 15, 1999
Page 3
MASTER LESSOR
LDT COMPANY, CAROL M. CARSON, DAVID CARSON AND TIM CARSON, AS PARTNERS
By: /s/ Tim Carson
------------------------------
Tim Carson
Date: 2/23/99
Note: Master Lessor has received and reviewed rough drawings of Sub-Lessee's
Proposed Alterations and Trade Fixtures. These rough drawings have been approved
in concept. However, Master Lessor shall retain the right to review and approve
all Trade Fixtures and Alterations at such time as final detailed plans and
specifications are prepared and submitted to Master Lessor.
<PAGE> 1
EXHIBIT 10.38
TERMINATION OF LICENSE AGREEMENT
AND MUTUAL RELEASE
This Termination of License Agreement and Mutual Release (the "Agreement")
is entered into as of the 29th day of October, 1998, between Bikers Dream, Inc.,
a California corporation, and Big Bike Boutique, Inc., a Florida corporation.
The parties to this agreement entered into a License Agreement which was
executed on the 10th day of April, 1998, by Bikers Dream, Inc. and on the 4th
day of May, 1998 by Big Bike Boutique, Inc.
1. For good and valuable consideration, as more specifically delineated
hereinbelow, the receipt and sufficiency of which is hereby acknowledged, the
parties to this Agreement, pursuant to Paragraph 10(b) of the License Agreement,
hereby agree to terminate the License Agreement, without recourse, as of the
29th day of October, 1998. After the termination date, neither Big Bike
Boutique, Inc. nor Bruce Scott shall have any trade rights to the mark and shall
not have the right to manufacture any product bearing the mark for any purpose,
including retail sale.
2. In consideration for the termination of the License Agreement, Big Bike
Boutique, Inc. shall transfer at lease $35,619.75 of inventory, valued at Big
Bike Boutique, Inc.'s original cost, from its warehouse located at 9543 Sunbeam
Center Drive, Jacksonville, Florida. A schedule of inventory is attached hereto
as Exhibit "A". Said merchandise shall be shipped at the expense of Big Bike
Boutique, Inc. to Bikers Dream, Inc. at the address referenced below, or to such
other address as indicated by written instructions.
3. As further consideration for this Agreement, Bikers Dream, Inc. does
hereby grant $60,000.00 of the shares of common stock to Bikers Dream, Inc.,
based upon the average value
<PAGE> 2
of such stock for the five (5) day period preceding the date of this Agreement.
Bikers Dream, Inc. shall issue, transfer and deliver piggyback rights for
registered shares of Bikers Dream, Inc. stock. Registered shares shall be
delivered immediately upon their availability.
4. MUTUAL RELEASE
For good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, as more specifically delineated hereinabove, each
of the undersigned, for themselves, their heirs, representatives, subsidiaries,
successors, and assigns, do hereby fully release and discharge all persons
executing these presents, their heirs, representatives, successors and assigns,
together with their agents, servants, and employees (hereinafter referred to as
the "Released Parties") of and from any and every claim, demand, or cause of
action whatsoever which each of the undersigned parties now has, or may
hereafter have, against said Released Parties, and any of them, as a result of
the following acts, events, contracts, agreements or documents, to with: All
claims which arose or which could have arisen as a result of the License
Agreement which is referenced hereinabove.
This is a mutual release intended by the parties to terminate all disputes
between them with respect to all matters pertaining to the acts, events,
contracts, agreements or documents described herein and it is intended that from
the date of these presents none of the parties to this release shall have any
claim against any of the others by reason thereof.
It is agreed and understood that no promise or agreement not expressed
herein or in writing has been made; this Release is not executed in reliance
upon any statement or representation made by said Released Parties, or any of
them; or by any person employed by or representing them, or any of them; that
this Release is given in full compromise, settlement and
2
<PAGE> 3
satisfaction of any and every claim, demand or cause of action, including all
claims, demands and causes of action for or on account of all damages and
consequences thereof which may hereafter become known, develop or accrue, as
well as those already known, developed or accrued; that the delivery of this
Release and its acceptance is not to be construed as an admission of liability,
all liability being expressly denied by said Released Parties.
5. MISCELLANEOUS
a. The prevailing party shall be entitled to recover from the
non-prevailing party all costs and expenses (including but not limited to costs
of travel and reasonable attorneys' fees) incurred by the prevailing party on
any action brought to enforce or construe any of the terms of this Agreement,
including matters on appeal and litigation in bankruptcy courts.
b. This Agreement shall be governed by and construed in accordance
with the internal laws of the State of Florida, and any action to enforce or
construe any of its terms shall be brought in a court of competent jurisdiction
located in Riverside, California.
c. This Agreement contains the complete understanding and agreement
of the parties hereto with respect to the subject matter hereof.
d. If any provision of this Agreement, the deletion of which would
not adversely affect the receipt of any material benefit by any party to this
Agreement or substantially increase the burden of any party to this Agreement,
is held to be invalid or unenforceable to any extent, then the remainder of this
Agreement will remain in full force and effect.
e. This Agreement may be executed in counterparts, and a signature
transmitted by facsimile shall be binding against the executing party.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the Effective Date.
BIKERS DREAM, INC.,
a California corporation
Dated: October 29, 1998 By: /s/ H. Rosenman
-------------------------------------
Print: Herman Rosenman
----------------------------------
Its: President and CEO
------------------------------------
Address: 11631 Sterling Avenue
Riverside, CA 92503
BIG BIKE BOUTIQUE, INC.,
a Florida corporation
Dated: _______________________, 1998 By: /s/ Bruce A. Scott
-------------------------------------
Print: Bruce A. Scott
----------------------------------
Its: President and CEO
------------------------------------
Address: 9543 Sunbeam Ctr. Dr.
Jacksonville, FL 32257
4
<PAGE> 1
EXHIBIT 10.39
SUB-LEASE AGREEMENT
1. PARTIES: This Sub-Lease, made this _____ day of September 1998, by and
between BIKER'S DREAM, INC., hereinafter referred to as "Lessor" or "Biker's
Dream" and BIG BIKE OF DAYTONA, INC., hereinafter referred to as the "Lessee" or
"Big Bike."
2. PREMISES: Lessor, in consideration of the rents to be paid by Lessee, does
hereby sub- lease to Lessee, the premises described in the Business Lease (the"
Lease") attached hereto as Exhibit "A."
3. TERM: The term of this Sub-Lease shall be for the same term as the Lease.
Lessee shall have the sole right, in its sole discretion, to elect any renewal
term pursuant to the terms of the Lease. Absent such election, Lessee shall have
no liability upon the Lease or this Sub-Lease.
4. RENT: Lessee agrees to pay Lessor annual rent in the amount as delineated in
that certain Agreement executed between the parties.
5. USE: Lessee shall enjoy all use and enjoyment of the leasehold premises as
provided for in the Lease.
5.1 The leases premises shall be used and occupied only as a motorcycle
and motorcycle related products retail store.
6. Big Bike shall purchase all insurance required in the Lease.
7. Biker's Dream shall pay real estate taxes, which shall be treated as
additional rent under the Agreement.
8. Biker's Dream shall perform all initial repairs to the building. Thereafter,
Big Bike shall undertake all maintenance as required by the Lease.
9. Big Bike shall be responsible for signs.
10. DEFAULT:
10.1 If the Lessee fails to pay any installment of rent within 10 days
after it becomes payable hereunder and after demand has been made therefor, or
if the Lessee fails to maintain in full force and effect any insurance required
by the terms hereof, or the Lessee fails to observe and perform any other
provisions, covenant, or condition of this Sub-Lease required to be observed and
performed by the Lessee, within 10 days after the Lessor shall have given notice
to the Lessee of the failure of the Lessee to observe and perform the same, or
if the Lessee abandons or vacates the premises during the term of this
Sub-Lease, and in any such event, immediately or at any time
<PAGE> 2
thereafter, at the option of the Lessor, Lessor shall have the right to
immediately re-enter and take possession of the premises and declare this
Sub-Lease to be terminated, in which event this SubLease, all rights of the
Lessee, and all duties of the Lessor shall immediately cease and terminate, and
the Lessor may possess and enjoy the premises as though this Sub-Lease had never
been made, without prejudice, however, to any and all rights of action against
the Sub-Lease the Lessor may have for rent, damages, or breach of covenant, in
respect to which the Lessee shall remain and continue liable notwithstanding
such termination.
10.2 If a petition in bankruptcy shall be filed by Lessee, or, if the
Lessee shall be adjudicated a bankrupt, or made as assignment for the benefit of
creditors, or if the interests of the Lessee shall be sold under execution or
other legal process, the same, as if the Sub-Lease had not be made, and shall
thereupon have the right to cancel this Sub-Lease, without prejudice, however,
to the right of the Lessor to recover all unpaid rent for the period up to the
time of entry. In case of any such entry, the Lessor shall relet the demised
premises from time to time during the remainder of the term of this Sub-Lease
for the highest rent obtainable, and may recover from the Lessee any deficiency
between such amount and the rent herein reserved.
10.3 If Biker's Dream defaults under the Lease, then Big Bike shall have
the option to terminate this Sub-Lease.
11. NOTICES: Notices or other communications required or permitted to be given
hereunder shall be in writing and shall be deemed to be sufficiently given and
received when personally delivered, when mailed by a nationally recognized
overnight courier service and requiring a signed receipt on delivery, or when
mailed in certified or registered form, postage prepaid, return receipt
requested, and addressed to the appropriate address set forth in the signature
pages of the Agreement, or to such other address after notification in writing
is given to the other party pursuant to the terms hereof.
12. CONSTRUCTION:
12.1 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Florida, and any action to
enforce or construe any of its terms shall be brought, at Big Bike's election,
in a court of competent jurisdiction located in Duval County, Florida.
12.2 Captions. The titles and captions are not a part of this Sub-Lease
and in no way define, describe, extend, or limit the scope or intent of any
provision of this Sub-Lease.
12.3 Entire Agreement. This Sub-Lease contains the entire understanding
between the parties to this Sub-Lease. No representation was made by or on
behalf of any party that is not contained in this Sub-Lease, and that in
entering into this Sub-Lease no party relied upon any representation not
contained in this Agreement.
2
<PAGE> 3
12.4 Agreement Freely Bargained. This Sub-Lease has been freely
bargained and negotiated amongst the parties hereto and will not be construed
more favorably against the party causing the same to be prepared.
12.5 Severability. If any provision of this Sub-Lease, the deletion of
which would not adversely affect the receipt of any material benefit by any
party to this Sub-Lease or substantially increase the burden of any party to
this Sub-Lease, is held to be invalid or unenforceable to any extent, then the
remainder of this Sub-Lease will remain in full force and effect.
12.6 Gender. Unless the context clearly indicates otherwise, wherever
referenced in this Sub-Lease the singular number includes the plural, the plural
the singular, and the use of any gender included all gender.
12.7 Time of Essence. Time is of the essence.
12.8 Computation of Time. In computing any time period set forth in this
Sub-Lease, the day of the act, event, or default from which the designated
period of time begins to run will not be computed. The last day of the computed
period will be included, unless the last day is a Saturday, Sunday or legal
holiday under the laws of the United States or the State of Florida, in which
event the period will run until the end of the next day which is not a Saturday,
Sunday or legal holiday. Intermediate Saturdays, Sundays and Holidays will be
computed. A day will be deemed over at 5 p.m. Eastern Standard time (or daylight
savings time if in effect).
Notwithstanding anything herein otherwise provided, in the event that
one of the parties fails to perform anything herein to be performed of
accomplished by that party within the time herein set forth, then all times
designated for performance or action required of the other party will be
extended for a like number of days.
12.9 Counterparts. This Sub-Lease may be executed in two or more
counterparts, each of which shall be and be taken to be an original, and all
collectively deemed one instrument.
13. ATTORNEYS FEES: In any dispute arising from this Sub-Lease or in any action
taken to enforce the terms of this Sub-Lease, the prevailing party will be
entitled to recover all costs including reasonable attorney's fees (through
appeal, if necessary) from the other party.
14. RECORDING: This Sub-Lease shall not be recorded. Lessee agrees to execute
and Lessor may record a memorandum of lease in order to comply with the Florida
Mechanics' Lien Law.
15. LESSOR'S WAIVER: The Lessor hereby agrees to waive its right to distrain (a)
upon trade equipment, inventory or chattels owned by Lessee or the occupant of
the premises and situated upon the premises, and (b) any and all decals, signs,
logos, descriptive literature and any
3
<PAGE> 4
other printed material bearing the name of Big Bike of Daytona, Inc. Such waiver
shall not, however, apply to the building and improvements to be erected upon
the premises.
IN WITNESS WHEREOF, this Sub-Lease has been duly executed by the parties
hereto as of the day and year first above written.
Lessor: BIKER'S DREAM, INC.
a California corporation
/s/ Kraig Kavanagh By: /s/ H. Rosenman
As to Lessor Name: H. Rosenman
Its: Chairman & CEO
/s/ Drew Milburn
As to Lessor
Lessee: BIG BIKE OF DAYTONA, INC.
By:
- ---------------------------------- --------------------------------------
As to Lessee Name: Bruce Scott
Its: President
By: /s/ Matt Fenner
- ---------------------------------- -----------------------------------
As to Lessee Matt Fenner, CFO
for Bruce Scott
4
<PAGE> 1
EXHIBIT 10.40
AGREEMENT
This Agreement ("Agreement") is entered into as of the 10th day of
September, 1998 ("Effective Date") between BIKER'S DREAM, INC., a California
corporation ("Biker's Dream") and BIG BIKE OF DAYTONA, INC., a Florida
corporation ("Big Bike").
Background: Biker's Dream is the owner of a distinctive business concept
for selling, customizing, and repairing previously owned Harley-Davidson
motorcycles, and for selling motorcycle products, merchandise, collectibles,
clothing, jewelry, Ultra Motorcycles, and accessories through a network of
dealers operating in retail locations. Big Bike is a licensee of Biker's Dream,
Inc.
Subject to the terms and conditions of this Agreement, Biker's Dream
wishes to provide financing to Big Bike for the opening and operation of a
retail store in Daytona Beach, Florida.
Accordingly, in consideration of the foregoing and the mutual covenants
set forth herein, the parties agree as follows:
1. Lease. Biker's Dream will lease retail space in Daytona Beach and
Sublease the space to Big Bike, subject to the following terms:
a. Biker's Dream has entered a Lease which is attached hereto as
Exhibit "A" incorporated herein.
b. Biker's Dream and Big Bike have entered into a Sub-Lease which
is attached hereto as Exhibit "B" and incorporated herein.
c. Biker's Dream, shall also pay all utilities associated with
the retail store.
d. The terms and conditions governing the Sub-Lease will require
payments to be made after each Bike Week, and after each Biketoberfest. The
amount due under the SubLease shall be determined by net profits, or the amount
paid by Biker's Dream for rent and utilities, whichever amount is less.
e. Big Bike shall be required to pay net profits to Biker's Dream
within thirty (30) days of the conclusion of each Bike Week and Biketoberfest.
For the purposes of this Agreement, "net profits" shall be defined to mean
profits net of costs and commissions.
f. One hundred per cent (100%) of net profits from sales
generated from inventory (parts, as well as motorcycles) consigned by Biker's
Dream, shall be paid to Biker's Dream, within thirty (30) days of the end of
each month, until the amount due under the SubLease for a given year equals the
amount paid by Biker's Dream under the Lease for rent and utilities for that
year, then prior to the commencement of the next anniversary of the Lease, Big
<PAGE> 2
Bike shall pay one-half (1/2) of the net profits on sales to Biker's Dream, for
net profits over and above the amount due under the Sub-Lease. For the purposes
of this paragraph, the term "net profits" for the sale of motorcycles shall be
defined as the amount of the retail sale of a motorcycle, minus the actual
dealer invoice price for the particular motorcycle, and minus fifteen percent
(15%) of the difference between the retail sales price and the dealer invoice
price. For the purposes of this paragraph, the term "net profits" for the sale
of parts shall be the retail sales price minus the purchase price, and minus
five per cent (5%) of the retail sales price.
g. Big Bike shall retain all profits generated other than from
items consigned by Biker's Dream.
h. Big Bike shall pay for the initial Tenant improvements and
build-out of the retail space. Big Bike shall supply copies of all invoices for
Tenant improvements to Biker's Dream. Big Bike shall deduct from accumulated
rent and utilities due under the Sub-Lease all amounts paid for permanent
improvements to the retail space. Up to one-third of the amount paid for
permanent improvements shall be deducted from the rent due following
Biketoberfest 1998. One half of the remaining amount paid for permanent
improvements shall deducted from the rent due following Bike Week 1999. The
remaining amount paid for permanent improvements shall be deducted from the rent
due following Biketoberfest 1999. Permanent improvements shall include, but not
be limited to the cost of electrical, lighting, plumbing, painting, permanent
counters, permanent awnings, permanent window treatments and office build-out.
Big Bike shall not be entitled to a deduction for non-permanent improvements,
including all non-permanent improvements which may be utilized in other Biker's
Dream facilities.
2. Representations and warranties of Biker's Dream. Biker's Dream hereby
represents and warrants to Big Bike as follows:
a. Biker's Dream is a corporation duly organized, validly
existing and in good standing under the laws of the State of California and has
full right, power and authority to enter into this Agreement and to perform all
of its obligations hereunder.
b. Biker's Dream is financially capable of satisfying all of the
monetary obligations required in this Agreement.
c. There are no actions or proceedings pending or threatened
which in any way jeopardize or impair the ability of Biker's Dream to satisfy
the obligations contained within this Agreement.
d. The representations and warranties contained in this Agreement
shall survive the execution and delivery hereof.
3. Representations and Warranties of Big Bike. Big Bike represents and
warrants to Biker's Dream that:
2
<PAGE> 3
a. Big Bike is a corporation duly organized, validly existing and
in good standing under the laws of the State of Florida and has full right,
power and authority to enter into this Agreement and to perform all of its
obligations hereunder.
b. The execution and performance by Big Bike of this Agreement
shall not cause a breach of any agreement or contract to which Big Bike is a
party.
c. There are no actions or proceedings pending or threatened
which in any way jeopardize or impair the ability of Biker's Dream to satisfy
the obligations contained within this Agreement.
d. The representations and warranties contained in this Agreement
shall survive the execution and delivery hereof.
4. Relationship of Parties. Nothing is this Agreement shall be deemed to
constitute either party hereto as an agent, legal representative, joint
venturer, partner, employee or servant of the other party for any purpose
whatsoever. It is understood between the parties hereto that each party is
independent of the other and is in no way authorized to make any contract,
agreement, warranty, or representation on behalf of the other party, or to
create any obligation (whether express or implied) on behalf of the other party.
Notwithstanding anything to the contrary, Big Bike shall not incur or become
liable for any expense, obligation, cost, claim, or demand made upon Biker's
Dream in connection with the transactions contemplated by this Agreement, or any
contract, agreement, or other document entered into between Biker's Dream and
any third party.
5. Indemnification by Biker's Dream. Biker's Dream covenants and agrees
tp indemnify and hold harmless Big Bike from and against any and all losses,
costs, claims, demands, damages, expenses, judgments, awards, or liabilities
(including reasonable attorneys' fees) arising out of or relating to (i) any
claim of third persons against Big Bike involving the business relationship as
defined by the terms of this Agreement, or (ii) any breach or inaccuracy of any
covenant, representation or warranty by Biker's Dream contained in this
Agreement, or (iii) any breach of this Agreement by Biker's Dream. The
provisions of this paragraph shall survive any expiration or termination of this
Agreement.
6. Indemnification by Big Bike. Big Bike covenants and agrees to
indemnify and hold harmless Biker's Dream from and against any and all losses,
costs, claims, demands, damages, expenses, judgments, awards, or liabilities
(including reasonable attorneys' fees) arising out of or relating to (i) any
claim of third persons against Biker's Dream involving the business relationship
as defined by the terms of this Agreement, or (ii) any breach or inadequacy of
any covenant, representation or warranty by Big Bike contained in this
Agreement, or (iii) any breach of this Agreement by Big Bike. The provisions of
this paragraph shall survive any expiration or termination of this Agreement.
3
<PAGE> 4
7. Termination.
a. Term. The term of this Agreement shall commence as of the
Effective Date and shall continue until the expiration of the Lease, which is
attached hereto as Exhibit "A", including any and all renewal terms. Big Bike
shall have the sole right to elect any renewal term, and absent such election
shall have no liability upon the Lease or Sub-Lease (three years).
b. Termination Upon Breach. This Agreement may be terminated by
either party in the event of a material breach of this Agreement by the other
party, by written notice to the breaching party; provided, however, that the
party in breach shall have twenty (20) days from the date such notice is
delivered to cure such breach to the reasonable satisfaction of the
non-breaching party.
8. Additional Agreements.
a. Non-Compete. Biker's Dream agrees that during the term of this
Agreement, neither Biker's Dream, nor any of its principals, officers,
directors, stockholders, employees or agents shall engage, directly or
indirectly, either as a principal, agent, proprietor, partner, stockholder,
director, officer, employee, consultant, joint venturer, or otherwise shall
participate in any manner, in the sale of products sold by Biker's Dream under
the name Biker's Dream or allow any other entity to sell Ultra Motorcycles or
operate under the name Biker's Dream within the boundaries of Volusia County,
Florida. The parties intend that this non-compete shall be construed as a series
of separate covenants, one for each separate legal jurisdiction in which this
covenant applies. If a court shall refuse to enforce any of the separate
covenants included herein, then such unenforceability shall be deemed eliminated
from these provisions to the extent necessary to permit the remaining separate
covenants to be enforced. Notwithstanding the foregoing, it is the intent and
agreement of Biker's Dream and Big Bike that these covenants be given the
maximum force, effect, and application permissible under applicable law. Biker's
Dream further acknowledges and consents that Big Bike shall be entitled to
injunctive relief (without bond) prohibiting any conduct by Biker's Dream in
violation of this Agreement in addition to any other remedies which may be
available to Big Bike. In the event this Agreement is terminated by Big Bike due
to Biker's Dream's material breach as contemplated under paragraph 7(b) hereof,
then the period of time during which Biker's Dream is prohibited from engaging
in the Permitted uses in connection with its Business shall be extended by the
length of time remaining until the Agreement would otherwise naturally expire
pursuant to paragraph 7(a).
b. Covenants of Biker's Dream. Biker's Dream covenants with Big
Bike during the term of this Agreement as follows:
i. Biker's Dream shall assist Big Bike, as and when
reasonably requested, in recommending and/or facilitating initial contact with
any manufacturers of the goods and items contemplated by the scope of this
Agreement.
4
<PAGE> 5
ii. Biker's Dream shall assist Big Bike, when reasonably
requested, in identifying and making initial contact with all Biker's Dream
Motorcycle Dealerships with whom Biker's Dream may have contact with from time
to time during the term of this Agreement.
c. Covenants of Big Bike. Big Bike covenants with Biker's Dream
during the term of this Agreement as follows:
i. Big Bike shall use its reasonable efforts to preserve
the good will associated with Biker's Dream and will not at any time do or cause
to be done any act or thing contesting or in any way impairing any part of
Biker's Dream's right, title and interest in its business.
ii. Big Bike shall keep true and accurate records of all
cash receipts of merchandise in such forms as shall be adequate to permit
Biker's Dream to verify the accuracy of the fees required to be made hereunder.
All such records shall be made available to Biker's Dream at reasonable times
during regular business hours for inspection to verify the computation of the
payments; provided, however, that any such inspection shall be at the sole cost
and expense of Biker's Dream.
iii. Big Bike shall use its best efforts to sell the
motorcycles consigned to it by Biker's Dream.
9. Miscellaneous.
a. No Assignment. The rights and obligations of the parties under
this Agreement shall not be assigned, transferred, sublicensed, encumbered or
otherwise alienated, either voluntarily or by operation of law, without the
prior written consent of the other party, which consent shall not be
unreasonably withheld.
b. Amendment. This Agreement shall not be waived, modified or
changed in any manner except by a writing signed by both parties.
c. Notice. Notices or other communications required or permitted
to be given hereunder shall be in writing and shall be deemed to be sufficiently
given and received when personally delivered, when mailed by a nationally
recognized overnight courier service and requiring a signed receipt on delivery,
or when mailed in certified or registered form, postage prepaid, return receipt
requested, and addressed to the appropriate address set forth in the signature
pages of this Agreement, or to such other address after notification in writing
is given to the other party pursuant to the terms hereof.
d. Governing Law. This Agreement shall be governed by and
construed in accordance with internal laws of the State of Florida, and any
action to enforce or construe any
5
<PAGE> 6
of its terms shall be brought, at Big Bike's election, in a court of competent
jurisdiction located in Duval County, Florida.
e. Operation of Store. Big Bike shall have and maintain exclusive
control in all facets of the operation of the retail store. Biker's Dream shall
have no control in the operation of the retail store. At all times, Big Bike
will display such advertising and literature as is provided and forwarded by
Biker's Dream. The retail store shall sell all lines of motorcycles, subject to
the approval of Biker's Dream, as required in the Biker's Dream Superstore
Agreement. Big Bike Motorcycle Rentals, Inc. may rent any brand of motorcycle.
f. The terms of the Ultra Cycle Dealer Agreement, and the Biker's
Dream, Inc. Dealer Agreement entered between Biker's Dream and Big Bike with
respect to the operation of the retail store in Daytona Beach, Florida are
incorporated herein by reference. The terms of this Agreement shall control in
the event of conflict.
g. Entire Agreement. This Agreement contains the complete
understanding and agreement of the parties hereto with respect to the subject
matter hereof.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the Effective Date.
BIKER'S DREAM, INC.
a California corporation
Dated: 10/16, 1998 By: /s/ H. Rosenman
-----------------------------------
Print: H. Rosenman
-----------------------------------
Its: CEO
-----------------------------------
Address: 11631 Sterling Avenue
--------------------------------
Riverside, CA 92503
-----------------------------------
BIG BIKE OF DAYTONA, INC.
a Florida corporation
Dated: 10/16, 1998 By: /s/ Matt Fenner
-----------------------------------
Print: Matt Fenner
-----------------------------------
Its: CFO
-----------------------------------
Address: 9543 Sunbeam Center
--------------------------------
Jacksonville, Fla 32257
-----------------------------------
7
<PAGE> 1
Exhibit 10.41
AMENDMENT TO STOCK GRANT
AND
STOCK OPTION AGREEMENT
This AMENDMENT TO STOCK GRANT AND STOCK OPTION AGREEMENT ("Amendment")
is entered into as of December 28, 1998, by and between Bikers Dream, Inc., a
California corporation ("Company") and Herm Rosenman ("Optionee"). The parties
to this Amendment are hereinafter sometimes referred collectively as the
"Parties".
RECITALS;
WHEREAS, the Parties have entered into a Stock Grant and Stock Option
Agreement dated as of December 24, 1997 (the "Agreement"); and
WHEREAS, the Parties wish to amend the Agreement in order to revise the
terms and conditions under which Optionee will receive stock grants and stock
options, as well as to correctly reflect the Company's 1998 one-for-five reverse
stock split;
NOW, THEREFORE, in consideration of the above recitals, the promises and
the mutual representations, warranties, covenants and agreements herein
contained, the Parties hereby agree as follows:
1. Amendment of Agreement. The Agreement is hereby amended as set
forth below.
(a) Section 1 of the Agreement is hereby amended in full as
follows:
"1. Stock Grant. Company shall grant Optionee up to 30,000
shares of the Company's restricted common stock, to vest in a 20,000
share allotment on January 1, 1999 and a 10,000 share allotment on
January 1, 2000. The allotment of 20,000 shares vesting on January 1,
1999 shall vest whether or not Optionee is then employed by the
Company as of January 1, 1999; however, the allotment of 10,000
shares vesting on January 1, 2000 shall vest only if Optionee is
still employed by the company pursuant to his Employment Agreement as
of September 1, 1999; further provided that, subject to prior vesting
as described herein, none of these 30,000 shares shall be issuable
until September 1, 2000 or upon termination, whichever occurs first.
(b) Section 2. In order to reflect the Company's one-for-five
reverse stock split, the reference to "2,300,000 shares" in Section 2 is hereby
amended to read "460,000 shares" and, in order to reflect both the reverse stock
split and an adjustment of the exercise price of the options to reflect the
current market price of the Company's stock as of the date of this Amendment,
the reference to "an exercise price of $1.00 per share" is hereby amended to
read "an exercise price of $3.00 per share".
<PAGE> 2
(c) Schedule A. Schedule A of the Agreement is hereby amended in
full as set forth on Schedule A attached hereto.
2. Existing Agreement. Except as otherwise amended or modified herein or
hereby, the provisions of the Agreement are hereby reaffirmed and shall remain
in full force and effect.
IN WITNESS WHEREOF, each of the Parties has caused this Amendment to
Stock Grant and Stock Option Agreement to be executed and delivered as of the
date first above written.
BIKERS DREAM, INC.
By: /s/ Anne Todd
-------------------------------------
Name: Anne Todd
Title: Corporate Secretary
OPTIONEE
H. Rosenman
----------------------------------------
Herm Rosenman
2
<PAGE> 3
SCHEDULE A
VESTING SCHEDULE
1. The Option will vest as to the number of shares listed in the
"Automatic Vesting" column on the indicated date. The Option will vest as to the
number of shares indicated under the Performance Options column as indicated in
paragraph 2.
<TABLE>
<CAPTION>
Date Automatic Vesting Performance Options
---- ----------------- -------------------
<S> <C> <C>
September 1, 1998 80,000 --
December 31, 1998 40,000 40,000
December 31, 1999 50,000 50,000
December 31, 2000 50,000 50,000
December 31, 2001 50,000 50,000
</TABLE>
2. The Performance Options will vest as follows:
<TABLE>
<CAPTION>
% of Budget Achieved % of Performance Options Vesting
-------------------- --------------------------------
<S> <C>
up to 75% 0%
75% to 100% 75% to 100%
</TABLE>
The Performance Options will vest ratably with the percentage of budget
achieved in excess of 75%.
The budget referenced herein is the budget which shall be submitted
annually by Mr. Rosenman and the management team, and approved by the Board of
Directors, subject to revision as approved by the Board of Directors or an
authorized committee thereof.
3
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated April 2, 1999 accompanying the consolidated
financial statements included in the Annual Report of Bikers Dream, Inc. on
Form 10-KSB for the year ended December 31, 1998. We hereby consent to the
incorporation by reference of said report in the Registration Statements of
Bikers Dream, Inc. on Forms S-3 (#333-72167, dated February 11, 1999),
S-8 (#333-68971, dated December 15, 1998), S-8 (#333-32639, dated August 1,
1997), S-3/A (#333-17829, dated May 23, 1997) and S-8 (#333-26719, dated
May 8, 1997).
/s/ SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
April 15, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 689,679
<SECURITIES> 200,634
<RECEIVABLES> 3,026,251
<ALLOWANCES> 343,361
<INVENTORY> 7,644,793
<CURRENT-ASSETS> 11,439,092
<PP&E> 1,731,479
<DEPRECIATION> 720,108
<TOTAL-ASSETS> 16,378,783
<CURRENT-LIABILITIES> 5,246,876
<BONDS> 0
0
859,694
<COMMON> 21,306,671
<OTHER-SE> (15,876,527)
<TOTAL-LIABILITY-AND-EQUITY> 16,378,783
<SALES> 27,606,964
<TOTAL-REVENUES> 27,734,620
<CGS> 25,783,689
<TOTAL-COSTS> 25,783,689
<OTHER-EXPENSES> 5,903,613
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (576,156)
<INCOME-PRETAX> (3,795,131)
<INCOME-TAX> 800
<INCOME-CONTINUING> (3,795,931)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,795,931)
<EPS-PRIMARY> (0.92)
<EPS-DILUTED> (0.92)
</TABLE>
