<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 11, 1999
REGISTRATION NO. ___-_______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
BIKERS DREAM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 33-0140149
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
11631 STERLING AVENUE
RIVERSIDE, CALIFORNIA 92503
(909) 343-1883
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MR. HERM ROSENMAN, CHIEF EXECUTIVE OFFICER
11631 STERLING AVENUE
RIVERSIDE, CALIFORNIA 92503
(909) 343-1883
(NAME, ADDRESS, AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
--------------------------
COPIES OF COMMUNICATIONS TO:
HOWARD J. UNTERBERGER, ESQ.
CHRISTINA LYCOYANNIS, ESQ.
MILLER & HOLGUIN
1801 CENTURY PARK EAST, SEVENTH FLOOR
LOS ANGELES, CALIFORNIA 90067
(310) 556-1990
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
FROM TIME TO TIME AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT
IF THE ONLY SECURITIES BEING REGISTERED ON THIS FORM ARE BEING OFFERED
PURSUANT TO DIVIDEND OR INTEREST REINVESTMENT PLANS, PLEASE CHECK THE FOLLOWING
BOX. [ ]
IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE TO BE OFFERED ON
A DELAYED OR CONTINUOUS BASIS PURSUANT TO RULE 415 UNDER THE SECURITIES ACT OF
1933, OTHER THAN SECURITIES OFFERED ONLY IN CONNECTION WITH DIVIDEND OR INTEREST
REINVESTMENT PLANS, CHECK THE FOLLOWING BOX. [X]
IF THIS FORM IS FILED TO REGISTER ADDITIONAL SECURITIES FOR AN OFFERING
PURSUANT TO RULE 462(b) UNDER THE SECURITIES ACT, PLEASE CHECK THE FOLLOWING BOX
AND LIST THE SECURITIES ACT REGISTRATION STATEMENT NUMBER OF THE EARLIER
EFFECTIVE REGISTRATION STATEMENT FOR THE SAME OFFERING. [ ]
IF THIS FORM IS A POST-EFFECTIVE AMENDMENT FILED PURSUANT TO RULE 462(c)
UNDER THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND LIST THE SECURITIES ACT
REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE REGISTRATION STATEMENT
FOR THE SAME OFFERING. [ ]
<PAGE> 2
IF DELIVERY OF THE PROSPECTUS IS EXPECTED TO BE MADE PURSUANT TO RULE 434,
PLEASE CHECK THE FOLLOWING BOX. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===================================================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED TO BE REGISTERED PER UNIT OFFERING PRICE FEE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par value 3,330,601 shares(1) $3.64065(2) $12,125,552.53 $3,370.90
===================================================================================================================
</TABLE>
(1) Of this total, 272,499 shares are issuable upon exercise of Series E
Warrants, 343,750 shares are issuable upon exercise of Series F Warrants,
457,500 shares are issuable upon exercise of warrants issued by the Company
to an institutional lender, 914,640 shares are issuable upon conversion of
Series D Preferred Stock and 60,000 shares are issuable upon exercise of
warrants issued in connection with the Series D Preferred Stock. Also
registered hereunder are an indeterminate number of additional shares of
Common Stock which may become issuable by virtue of anti-dilution
provisions of warrants and preferred stock.
(2) Estimated solely for the purpose of calculating the registration fee, and
based, pursuant to Rule 457(c), on the average of the high and low prices
of the Registrant's Common Stock as reported by Nasdaq for February 9,
1999, which date is within 5 business days prior to the initial filing date
of this Registration Statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 3
PROSPECTUS
DATED FEBRUARY 11, 1999 SUBJECT TO COMPLETION
BIKERS DREAM, INC.
3,330,601 SHARES OF COMMON STOCK
Shareholders of Bikers Dream, Inc. (sometimes referred to in this
Prospectus as "Bikers Dream" or the "Company") named under the caption "Selling
Shareholders," from time to time, may offer and sell up to 3,330,601 shares
of Bikers Dream no par value common stock ("Common Stock"). The Selling
Shareholders acquired their shares from Bikers Dream previously or will acquire
such shares upon the exercise of warrants, or upon the conversion of convertible
preferred stock ("Preferred Stock").
The Selling Shareholders may, from time to time, offer their shares through
public or private transactions at prevailing market prices or privately
negotiated prices.
The Company's Common Stock is traded on the Nasdaq SmallCap Market System
("Nasdaq") under the symbol BIKR. On February 8, 1999, the last reported sale
price of the Company's Common Stock on Nasdaq was $3.7188.
--------------------------
ANINVESTMENT IN THESE SECURITIES IS RISKY. YOU SHOULD ONLY PURCHASE
THESE SHARES IF YOU CAN AFFORD TO LOSE YOUR ENTIRE INVESTMENT.
PLEASE SEE THE RISK FACTORS BEGINNING ON PAGE 2 TO
READ ABOUT CERTAIN FACTORS YOU SHOULD CONSIDER BEFORE BUYING
SHARES OF COMMON STOCK.
----------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF ACCURACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Prospectus is ____________, 1999
i
<PAGE> 4
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy and information
statements and other information with the Securities and Exchange Commission
("SEC"). Our SEC filings are available to the public over the Internet at the
SEC's web site at http://www.sec.gov. You may also read and copy any document we
file at the SEC's public reference rooms located at Room 1024, Judiciary Plaza,
450 5th Street, N.W., Washington, D.C. 20549, 7 World Trade Center, Suite 1300,
New York, New York 10048, and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. You may obtain information on the operation
of the SEC's public reference rooms by calling the SEC at 1-800-SEC-0330.
The SEC allows us to "incorporate by reference" the information we file
with them. This Prospectus incorporates important business and financial
information about Bikers Dream which is not included in or delivered with this
Prospectus. The information incorporated by reference is an important part of
this Prospectus, and information that we file later with the SEC will
automatically update and supersede this information.
We incorporate by reference the following documents:
- our Annual Report on Form 10-KSB for the year ended December 31,
1997, as filed on April 16, 1998 and amended by Form 10-KSB/A
filed on April 16, 1998;
- our Quarterly Report on Form 10-QSB for the period ended March
31, 1998, as filed on May 15, 1998;
- our Quarterly Report on Form 10-QSB for the period ended June
30, 1998, as filed on July 29, 1998;
- our Quarterly Report on Form 10-QSB for the period ended
September 30, 1998, as filed on November 23, 1998;
- our current report on Form 8-K filed on February 10, 1999;
- our Proxy Statement filed on July 8, 1998 in connection with
Bikers Dream's Annual Meeting of Stockholders on July 31, 1998;
- the description of our class of Common Stock as set forth under
Item 1 of our Form 8-A registration statement filed on March 17,
1987 and under "Description of Securities" in our Form S-18
registration statement No. 33-9879-LA filed on October 30, 1986,
together with the following updating information: (i) footnote 8
to the Consolidated Financial Statements in our Quarterly Report
on Form 10-QSB for the period ended September 30, 1996; (ii)
paragraph one of Item 2, Part II ("Changes in Securities"), of
our Quarterly Report on Form 10-QSB for the period ended
September 30, 1997; and (iii) footnote 11 to the Consolidated
Financial Statements our Quarterly Report on Form 10-QSB for the
period ended March 31, 1998; and
ii
<PAGE> 5
- future filings we make with the SEC under Sections 13(a), 13(c),
14 or 15(d) of the Securities Exchange Act of 1934 until all of
the shares offered by the Selling Shareholders have been sold.
You may obtain a copy of these filings, without charge, by writing or
calling us at:
Bikers Dream, Inc
11631 Sterling Avenue
Riverside, California 92503
Attention: Mr. Herm Rosenman
(909) 343-1883
If you would like to request these filings from us, please do so at least
five business days before you have to make an investment decision.
You should rely only on the information incorporated by reference or
provided in this Prospectus. We have not authorized anyone else to provide you
with different information. We are not making an offer of these securities in
any state where the offer is not permitted. You should not assume that the
information in this Prospectus or the documents incorporated by reference is
accurate as of any date other than on the front of those documents.
----------------------
iii
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Where You Can Find More Information...................................... ii
The Company.............................................................. 2
Risk Factors............................................................. 2
Resales by Selling Shareholders.......................................... 7
Plan of Distribution..................................................... 12
Legal Matters............................................................ 13
Experts.................................................................. 13
</TABLE>
NOTICE ABOUT FORWARD-LOOKING STATEMENTS
To the extent that the information presented in this Prospectus
discusses financial projections, information or expectations about our business
plans, results of operations, products or markets, or otherwise makes statements
about future events, such statements are forward-looking. Although we believe
that the expectations reflected in these forward-looking statements are based on
reasonable assumptions, there are a number of risks and uncertainties that could
cause actual results to differ materially from such forward-looking statements.
These include, among others, the risk factors described in the Prospectus
beginning on page 2. When considering such forward-looking statements, you
should keep in mind the risk factors and other cautionary statements in, and
incorporated by reference in, this Prospectus.
1
<PAGE> 7
THE COMPANY
Bikers Dream is a manufacturer, distributor and retailer of
quality-built, American heavyweight cruiser motorcycles. Our principal executive
offices are located at 11631 Sterling Avenue, Riverside, California 92503, and
our telephone number is (909) 343-1883.
RISK FACTORS
An investment in shares of the Company's Common Stock involves a high
degree of risk. You should carefully consider the following factors as well as
the other information contained and incorporated by reference in this Prospectus
before deciding to invest.
HISTORY OF OPERATING LOSSES AND ACCUMULATED DEFICITS
The Company has a history of operating losses and accumulated deficits.
Although the Company had net operating income of $162,000 for the nine months
ended September 30, 1998, the Company had net losses of approximately $5.1
million and $4 million for its fiscal years ended December 31, 1997 and 1996,
respectively. As of September 30, 1998, the Company's accumulated deficit was
approximately $11.8 million. The Company may not be able to achieve or maintain
profitability in the future. The Company's ability to improve its profitability
in future periods will depend upon the Company's ability to continue to expand
its dealer network and to increase its manufacturing capability on a
cost-effective basis.
UNCERTAINTIES ASSOCIATED WITH THE COMPANY'S MANUFACTURING OPERATIONS
In the nine months ended September 30, 1998, the Company derived
approximately 59% of its total revenues from its motorcycle manufacturing
operations. The Company expects that the percentage of revenues attributable to
its manufacturing operations will rise in future periods. The following are the
risks which the Company believes to be most significant with respect to its
manufacturing operations:
LIMITED EXPERIENCE WITH MANUFACTURING OPERATIONS. The Company entered
the motorcycle manufacturing business in 1997 through its acquisition of the
assets which now comprise the Company's 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. The Company's ability to sell the
motorcycles which it manufactures depends on sustained demand for the Company's
products. The Company manufactures heavyweight cruiser motorcycles. 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. The
Company believes that, within the heavyweight cruiser market, it can provide
superior styling and performance at a competitive price. However, the
2
<PAGE> 8
Company cannot ensure that demand for its products will be sufficient to enable
the Company to protect or increase its market share.
DEPENDENCE ON DEALER NETWORK. Motorcycles manufactured by the Company
are sold through the Company's six owned Bikers Dream Superstores, approximately
45 independently owned Bikers Dream Superstores and approximately 50 independent
Ultra Cycles dealers. Approximately 75% of the motorcycles sold by the Company
during the nine months ended September 30, 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. The Company believes that it will need
to continue to expand its independent dealer network in order to increase sales,
but may not be able to do so successfully.
COMPETITION. The market in which the Company competes is highly
competitive. The Company competes primarily based on product performance and
style, pricing, service and warranties. Harley-Davidson is by far the largest
seller of heavyweight cruisers. According to Harley-Davidson's 1997 Form 10-K,
it controls approximately 49% of the heavyweight market. The Company seeks to
avoid direct competition with Harley-Davidson by operating within a specialized
niche of the heavyweight market. Within this niche, the Company offers several
models not offered by Harley-Davidson and also offers enhanced customization and
higher performance. The Company's main competitors within this niche are Titan
Motorcycles, Big Dog Motorcycles and CMC (California Motorcycle Corp.). There
can be no assurance that these competitors will not expand their manufacturing
operations or that other motorcycle manufacturers will not enter this market.
UNCERTAINTIES ASSOCIATED WITH THE COMPANY'S RETAIL STORE OPERATIONS
DEMAND FOR THE COMPANY'S PRODUCTS. The Company depends on the continued
popularity of motorcycles and motorcycle related products to maintain sales
volume. Without sufficient sales volume, the Company's stores will lose the
benefit of economies of scale associated with the superstore concept.
COMPETITION. Company owned Superstores must compete with thousands of
motorcycle retail outlets throughout the United States which provide aftermarket
parts, services and accessories. Most of these competitors are small, privately
owned businesses. 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.
NEED FOR ADDITIONAL CAPITAL
Typically, the Company incurs manufacturing costs one to two months
before it receives payment for the finished product. As the Company expands its
operations, internally generated cash is not sufficient to meet the Company's
working capital needs, and the Company must obtain outside funding sources to
meet its liquidity and working capital needs. Thus, in October 1998, the Company
received a $300,000 bridge loan from Meyer, Duffy & Associates, an affiliate of
the Company, in order to provide for its short-term working capital needs, and
in February 1999, the Company completed an offering of $1.5 million 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
3
<PAGE> 9
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
this Registration Statement.
Although the Company believes it can, at its current level of
operations, adequately service its existing indebtedness and meet its working
capital needs by using available internal cash, the Company will require outside
sources of capital in addition to the proceeds from the sale of Series D
Preferred Stock 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. The Company 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 approximately six months. However, 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.
Any additional equity financing that the Company obtains may be
dilutive to shareholders, and any additional debt financing may impose
substantial restrictions on the Company's ability 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 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.
DEPENDENCE ON MANAGEMENT
The Company depends highly on the services of Herm Rosenman, its Chief
Executive Officer. The Company has entered into an employment agreement with Mr.
Rosenman which expires in 2001, 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.
FUTURE DILUTION
Significant dilution may occur if the Company issues additional shares
of Common Stock underlying outstanding shares of Preferred Stock, warrants and
options, as described below:
CONVERSION OF OUTSTANDING PREFERRED STOCK. As of February 8, 1999, the
Company had one share of Series A Preferred Stock, 702,194 shares of Series B
Preferred Stock, and 1,545 shares of Series D Preferred Stock outstanding. No
shares of Series C Preferred Stock are currently outstanding.
Series A Preferred Stock. The outstanding share of Series A
Preferred Stock is convertible into Common Stock pursuant to a formula. The
number of shares of Common Stock issuable upon conversion is equal to $175,000
divided by the Conversion Price. The Conversion Price is equal to 75% of the
greater of (i) the average closing bid price of the Common Stock for the last
ten trading days before the notice to convert, or (ii) the closing bid price of
the Common Stock on the last trading day before the notice to convert. However,
the Conversion Price may not be less than $1.50 per share or greater than $2.50
per share. As of February 8, 1999, the Conversion Price was $2.50 per share, and
the outstanding share of Series A Common Stock was convertible at that date into
70,000 shares of the Company's Common Stock.
4
<PAGE> 10
Series B Preferred Stock. Each outstanding share of Series B
Preferred Stock is convertible into one-fifth of one share of Common Stock. As
of February 8, 1999, the 702,194 outstanding shares of Series B Preferred Stock
were convertible into 140,439 shares of Common Stock.
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 may
not 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 (i.e., 19.9% of the Company's outstanding Common Stock as
of the date the Series D Preferred Stock was issued).
OUTSTANDING WARRANTS AND OPTIONS. As of February 8, 1999, 1,261,750
previously issued warrants were outstanding at an average exercise price of
$4.66. As of February 8, 1999, 983,907 options were outstanding at prices
ranging from $3.00 to $7.50, with an average exercise price of $3.75, and
501,857 of the options were fully vested.
POTENTIAL REDEMPTION OBLIGATION FOR SERIES D PREFERRED STOCK
The Company is required to redeem Series D Preferred Stock after an
Event of Default, as defined in the Series D Preferred Stock Certificate of
Determination. Events of Default include, among other things:
- Failure of the Company to pay dividends when required;
- 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;
- Failure to maintain a Nasdaq listing for the Company's Common
Stock;
- Failure to deliver Common Stock certificates in a timely fashion
after the conversion of Series D Preferred Stock; and
- Failure to obtain shareholder approval for the issuance of
Series D Preferred Stock and underlying common shares 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.
5
<PAGE> 11
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 the Company's
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 of Default could materially impair the Company's ability
to continue to operate its business.
VOLATILITY OF STOCK PRICE
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 the Company's Common Stock to fluctuate, perhaps substantially.
These factors include, among others:
- Announcements of financial results and other developments
relating to the Company's business;
- Changes in the general state of the economy; and
- Changes in market analyst estimates and recommendations for the
Company's 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 downward fluctuations of the Company's stock price may
substantially increase the number of shares of Common Stock issuable upon
conversion of outstanding Preferred Stock.
SEASONALITY AND FLUCTUATION OF QUARTERLY RESULTS
The Company's results of operations vary from quarter to quarter
because of seasonal factors. The Company generally expects its sales to be
higher during the second and third quarters and lower during the first and
fourth quarters because consumers are more likely to purchase and use the
Company's products during periods of good weather.
6
<PAGE> 12
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. Environmental Protection Agency 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 must also comply with the National Highway Traffic
Safety Administration's standards. Management believes that the Company holds
all required licenses and permits and is in compliance with all applicable
federal, state and local laws and regulations.
NO DIVIDENDS
The Company has not paid any dividends on its Common Stock and does not
expect to pay any dividends in the foreseeable future.
POSSIBLE ISSUANCE OF ADDITIONAL PREFERRED STOCK; ANTI-TAKEOVER EFFECTS
As of the date of this Prospectus, the Company has 703,740 shares of
Preferred Stock outstanding. The Company's Articles of Incorporation 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.
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements which can be
identified by the use of words such as "intends," "anticipates," "believes,"
"estimates," "projects," "forecasts," "expects," "plans" and "proposes." The
statements in the "Risk Factors" section of this Prospectus are cautionary
statements which identify important factors that could cause actual results to
differ materially from those described in the forward-looking statements. All
forward-looking statements in this Prospectus are expressly qualified in their
entirety by the cautionary statements in the "Risk Factors" section and other
sections of this Prospectus.
RESALES BY SELLING SHAREHOLDERS
The Selling Shareholders are offering hereby a total of 3,330,601
shares of the Company's Common Stock. The following table sets forth as of the
date of this Prospectus, the name of each of the Selling Shareholders, the
number of shares of Common Stock that each such Selling Shareholder beneficially
owns as of February 11, 1999, the number of shares of Common Stock beneficially
owned by each Selling Shareholder that may be offered for sale from time to
7
<PAGE> 13
time by this Prospectus and the number of shares and percentage of Common Stock
to be held by each such Selling Shareholder assuming the sale of all the Common
Stock offered hereby.
Except as indicated, none of the Selling Shareholders has held any
position or office or had a material relationship with the Company or any of its
affiliates within the past three years other than as a result of the ownership
of the Company's Common Stock. The Company may amend or supplement this
Prospectus from time to time to update the disclosure set forth herein.
<TABLE>
<CAPTION>
SECURITIES SECURITIES
NAME OF BENEFICIALLY SECURITIES BENEFICIALLY
SELLING OWNED PRIOR TO OFFERED OWNED AFTER
SHAREHOLDER OFFERING(1) FOR SALE OFFERING(2)
------------- ---------------- ---------- ------------
<S> <C> <C> <C>
Bulldog Capital Partners 470,168 398,834(3) 0
Polaris Prime Directional Hedge 54,387 54,387(4) 0
MD Strategic L.P. 850,918 609,040(5) 0
MDV IV L.P. 164,010 164,010(6) 0
Peter Tapinis 9,501 9,501(7) 0
Mary Whalen 62,005 62,005(8) 0
Tom Scarola 9,501 9,501(9) 0
David Whalen 12,001 12,001(10) 0
Michael Whalen 12,001 12,001(11) 0
Michael Petrycki 19,002 19,002(12) 0
Castle Rock Partners 38,004 38,004(13) 0
Greg Brundage 8,849 8,849(14) 0
William James Bell 1993 Trust 47,505 47,505(15) 0
Craig McNab 38,004 38,004(16) 0
MNDA Partners 28,503 28,503(17) 0
Cruttenden Family, L.P. 37,787 37,787(18) 0
Robert London 113,361 113,361(19) 0
Jack Baker 10,000 10,000(20) 0
Steve Balog 5,000 5,000(21) 0
John Bay 5,000 5,000(22) 0
Dennis Cameroon 2,000 2,000(23) 0
Fred Frankle 1,000 1,000(24) 0
Fred Friedman 20,000 20,000(25) 0
</TABLE>
8
<PAGE> 14
<TABLE>
<CAPTION>
SECURITIES SECURITIES
NAME OF BENEFICIALLY SECURITIES BENEFICIALLY
SELLING OWNED PRIOR TO OFFERED OWNED AFTER
SHAREHOLDER OFFERING(1) FOR SALE OFFERING(2)
------------- ---------------- ---------- ------------
<S> <C> <C> <C>
Impley Investments 2,500 2,500(26) 0
Gavin Kleinknecht 1,500 1,500(27) 0
Keir Kleinknecht 1,500 1,500(28) 0
Peter Kleinknecht 1,000 1,000(29) 0
Sabrina Kleinknecht 1,500 1,500(30) 0
Robert Lavinia 5,000 5,000(31) 0
Len Lichter 10,000 10,000(32) 0
ADMN Associates 103,000 103,000(33) 0
Meyer Duffy Ventures III 20,000 20,000(34) 0
Boyce Wells Meyer Trust 7,500 7,500(35) 0
Ralph Rabman 1,000 1,000 0
Crossan Seibolt 2,500 2,500(36) 0
Stanton Weissenborn 5,000 5,000(37) 0
Leigh Welles 500 500(38) 0
Keith Zobrist 2,500 2,500(39) 0
Alexander Garrin 833 833(40) 0
Kristoffer Garrin 833 833(41) 0
Nicholas Garrin 833 833(42) 0
Tandem Capital 457,500 457,500 0
Austost Anstalt Schaan 323,050 323,050(43) 0
Tusk Investments, Inc. 323,050 323,050(43) 0
Nesher, Inc. 46,150 46,150(43) 0
Amro International, S.A. 184,600 184,600(43) 0
Guarantee & Finance, Corp. 46,150 46,150(43) 0
Settondown Capital 51,640 51,640(43) 0
International, Ltd.
Collinsville Holdings Ltd. 25,667 25,667 0
</TABLE>
(1) Based upon 5,165,810 shares of Common Stock outstanding as of February
11, 1999. Except as otherwise noted herein, the number and percentage of
shares beneficially owned is determined in accordance with Rule l3d-3 of
the Exchange Act, and the information is not necessarily indicative of
beneficial ownership for any other purpose. Under such rule, beneficial
ownership includes any shares as to which the individual has sole or
shared voting
9
<PAGE> 15
power or investment power and also any shares which the individual has
the right to acquire within 60 days of the date of this Prospectus
through the exercise of any stock option or other right. Unless
otherwise indicated in the footnotes, each person has sole voting and
investment power (or shares such powers with his or her spouse) with
respect to the shares shown as beneficially owned.
(2) Assumes the sale of all shares of Common Stock offered hereby.
(3) Includes 55,000 shares of Common Stock issuable upon the exercise of
Series F Warrants
(4) Includes 7,500 shares of Common Stock issuable upon the exercise of
Series F Warrants
(5) MD Strategic L.P. is an investment partnership of which Mr. Donald J.
Duffy, a director of the Company, is one of two general partners. Shares
beneficially owned by MD Strategic L.P. include 160,000 shares of Common
Stock issuable upon the exercise of Series F Warrants and 53,000 shares
of Common Stock issuable upon the exercise of Series E Warrants
(6) MDV IV L.P. is an investment partnership of which Mr. Donald J. Duffy, a
director of the Company, is one of two general partners. Shares
beneficially owned by MDV IV L.P. include 15,000 shares of Common Stock
issuable upon the exercise of Series F Warrants
(7) Includes 1,250 shares of Common Stock issuable upon the exercise of
Series F Warrants
(8) Includes 7,500 shares of Common Stock issuable upon the exercise of
Series F Warrants and 5,000 shares of Common Stock issuable upon
exercise of Series E Warrants
(9) Includes 1,250 shares of Common Stock issuable upon the exercise of
Series F Warrants
(10) Includes 1,250 shares of Common Stock issuable upon the exercise of
Series F Warrants, and 21,500 shares of Common Stock issuable upon the
exercise of Series E Warrants
(11) Includes 1,250 shares of Common Stock issuable upon the exercise of
Series F Warrants and 2,500 shares of Common Stock issuable upon the
exercise of Series E Warrants
(12) Includes 2,500 shares of Common Stock issuable upon the exercise of
Series F Warrants
(13) Includes 5,000 shares of Common Stock issuable upon the exercise of
Series F Warrants
(14) Includes 1,250 shares of Common Stock issuable upon the exercise of
Series F Warrants
(15) Includes 6,250 shares of Common Stock issuable upon the exercise of
Series F Warrants
(16) Includes 5,000 shares of Common Stock issuable upon the exercise of
Series F Warrants
(17) Includes 3,750 shares of Common Stock issuable upon the exercise of
Series F Warrants
(18) Includes 5,000 shares of Common Stock issuable upon the exercise of
Series F Warrants
10
<PAGE> 16
(19) Includes 15,000 shares of Common Stock issuable upon the exercise of
Series F Warrants
(20) Includes 10,000 shares of Common Stock issuable upon the exercise of the
Series E Warrants
(21) Includes 5,000 shares of Common Stock issuable upon the exercise of the
Series E Warrants
(22) Includes 5,000 shares of Common Stock issuable upon the exercise of the
Series E Warrants
(23) Includes 2,000 shares of Common Stock issuable upon the exercise of the
Series E Warrants
(24) Includes 1,000 shares of Common Stock issuable upon the exercise of the
Series E Warrants
(25) Includes 20,000 shares of Common Stock issuable upon the exercise of the
Series E Warrants
(26) Includes 2,500 shares of Common Stock issuable upon the exercise of the
Series E Warrants
(27) Includes 1,500 shares of Common Stock issuable upon the exercise of the
Series E Warrants
(28) Includes 1,500 shares of Common Stock issuable upon the exercise of the
Series E Warrants
(29) Includes 1,000 shares of Common Stock issuable upon the exercise of the
Series E Warrants
(30) Includes 1,500 shares of Common Stock issuable upon the exercise of the
Series E Warrants
(31) Includes 5,000 shares of Common Stock issuable upon the exercise of the
Series E Warrants
(32) Includes 10,000 shares of Common Stock issuable upon the exercise of the
Series E Warrants
(33) Includes 103,000 shares of Common Stock issuable upon the exercise of
the Series E Warrants
(34) Meyer Duffy Ventures III is an investment partnership of which Mr.
Donald J. Duffy, a director of the Company, is one of two general
partners. Shares beneficially owned by Meyer Duffy Ventures III include
20,000 shares of Common Stock issuable upon the exercise of the Series E
Warrants
(35) Includes 7,500 shares of Common Stock issuable upon the exercise of the
Series E Warrants
(36) Includes 2,500 shares of Common Stock issuable upon the exercise of the
Series E Warrants
(37) Includes 5,000 shares of Common Stock issuable upon the exercise of the
Series E Warrants
(38) Includes 500 shares of Common Stock issuable upon the exercise of the
Series E Warrants
(39) Includes 2,500 shares of Common Stock issuable upon the exercise of the
Series E Warrants
11
<PAGE> 17
(40) Includes 833 shares of Common Stock issuable upon the exercise of the
Series E Warrants
(41) Includes 833 shares of Common Stock issuable upon the exercise of the
Series E Warrants
(42) Includes 833 shares of Common Stock issuable upon the exercise of the
Series E Warrants
(43) Includes the following shares of Common Stock issuable upon the
conversion of Series D Preferred Stock: Austost Anstalt Schaan (310,
800); Tusk Investments, Inc. (310,800); Nesher, Inc. (44,400); Amro
International, S.A. (177,600); Guarantee & Finance Corp. (44,400); and
Settendown Capital International, Ltd. (26,640). Includes the following
shares of Common Stock issuable upon the exercise of Common Stock
Purchase Warrants issued in conjunction with Series D Preferred Stock:
Austost Anstalt Schaan (12,250); Tusk Investments, Inc. (12,250);
Nesher, Inc. (1,750); Amro International, S.A. (7,000); Guarantee &
Finance Corp. (1,750); and Settendown Capital International, Ltd.
(25,000). The number of shares of Common Stock shown as beneficially
owned prior to the offering by the Selling Shareholders holding Series D
Preferred Stock represents an estimate of the number of shares of Common
Stock to be offered by such Selling Shareholders. The actual number of
shares of Common Stock issuable upon conversion of the Series D
Preferred Stock is indeterminate, is subject to adjustment and could be
materially less or more than such estimated number depending on factors
which cannot be predicted by the Company at this time, including, among
other factors, the future market price of the Common Stock. The number
of shares of Series D Preferred Stock set forth in the table as issuable
to these Selling Shareholders represents 200% of the shares issuable to
such Selling Shareholders assuming conversion, as of February 4, 1999,
of all shares of Series D Preferred Stock calculated using an initial
assumed conversion price of $4.125 (which is 110% of the average closing
bid price for the trading day immediately preceding the date of issuance
of the shares of Series D Preferred Stock). The actual number of shares
of Common Stock issuable upon conversion of the Series D Preferred Stock
shall equal the sum of (A) the stated value of $1,000 per share (as
adjusted for any stock dividends, combinations or splits with respect to
such share) and (B) accrued and unpaid dividends on such share, divided
by (ii) the Conversion Price. The Conversion Price shall be equal to the
lesser of: (i) 110% of the average Closing Bid Price of the Company's
Common Stock for the trading day immediately preceding the date of the
issuance of the shares of Series D Preferred Stock; or (ii) at 90% of
the average of the four lowest Closing Bid Prices for the 22 trading
days immediately preceding the conversion of the respective shares of
Series D Preferred Stock. The Closing Bid Price shall mean the closing
bid price of the Company's Common Stock as reported by Nasdaq or the
principal exchange or market where traded. Such number of shares
issuable upon conversion of the Series D Preferred Stock may be less
than or greater than the number of shares shown as beneficially owned by
the Selling Shareholders or otherwise covered by this Prospectus.
PLAN OF DISTRIBUTION
The shares being offered hereby will be offered and sold by the Selling
Shareholders for their own accounts. The Company will not receive any of the
proceeds from the sale of the shares pursuant to this Prospectus. The Company
has agreed to bear the expenses of the registration of the shares, including
legal and accounting fees (other than fees of counsel, if any, retained
individually by the Selling Shareholders and any discounts or commissions
payable with respect to sales of the shares.
12
<PAGE> 18
The Selling Shareholders may offer and sell the Shares from time to
time in transactions in the over-the-counter market or in negotiated
transactions, at market prices prevailing at the time of sale or at negotiated
prices. The Selling Shareholders have advised the Company that they have not
entered into any agreements, understandings or arrangements with any
underwriters or broker-dealers regarding the sale of their shares, nor is there
an underwriter or coordinating broker acting in connection with the proposed
sale of shares by the Selling Shareholders. Sales may be made directly or to or
through broker-dealers who may receive compensation in the form of discounts,
concessions or commissions from the Selling Shareholders or the purchasers of
Shares for whom such broker-dealers may act as agent or to whom they may sell as
principal, or both (which compensation as to a particular broker-dealer may be
in excess of customary commissions).
The Selling Shareholders and any broker-dealers acting in connection
with the sale of the Shares hereunder may be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act of 1933 (the "Securities
Act"), and any commissions received by them and any profit realized by them on
the resale of the shares as principals may be deemed underwriting compensation
under the Securities Act.
The Company has agreed to indemnify certain of the Selling Shareholders
against liabilities they may incur as a result of any untrue statement of a
material fact in the Registration Statement of which this Prospectus forms a
part, or any omission herein or therein to state a material fact necessary in
order to make the statements made, in the light of the circumstances under which
they were made, not misleading. Such indemnification includes liabilities that
such Selling Shareholders may incur under the Securities Act. No such
indemnification must be given by the Company if the untrue statement or omission
was made in reliance upon and in conformity with information furnished in
writing to the Company by the Selling Shareholder for use in the Registration
Statement.
The Company has advised the Selling Shareholders of (i) the requirement
for delivery of this Prospectus in connection with any sale of the shares, and
(ii) the relevant cooling off period specified by Regulation M and restrictions
upon the Selling Shareholders' bidding for or purchasing securities of the
Company during the distribution of shares.
TRANSFER AGENT
The transfer agent for the Company's Common Stock is American
Securities Transfer, Incorporated, 1825 Lawrence Street, Suite 444, Denver,
Colorado 80202.
LEGAL MATTERS
Certain legal matters in connection with the issuance of the securities
offered hereby will be passed upon for the Company by Miller & Holguin,
attorneys at law, Los Angeles, California.
EXPERTS
The consolidated financial statements of the Company contained in the
Annual Report on Form 10-KSB/A of the Company for the year ended December 31,
1997 and incorporated in this Prospectus by reference, have been so included in
reliance on the report of Singer Lewak Greenbaum & Goldstein, LLP, independent
accountants, given on the authority of said firm as experts in accounting and
auditing.
13
<PAGE> 19
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Registrant estimates that expenses in connection with the
distribution described in this Registration Statement will be as shown below.
All expenses incurred with respect to the distribution, except for fees of
counsel, if any, retained individually by the Selling Shareholders and any
discounts or commissions payable with respect to sales of the shares, will be
paid by the Company. See "Plan of Distribution."
<TABLE>
<S> <C>
SEC registration fee.................................... $ 3,370.90
------------
Printing expenses....................................... 10,000.00
------------
Accounting fees and expenses............................ 0
------------
Legal fees and expenses................................. 10,000.00
------------
Miscellaneous........................................... 5,000.00
------------
Total........................................... $ 28,370.90
============
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The liability of the Registrant's officers and directors is or may be
affected in such capacity by the following:
Section 317 of the California General Corporation Law makes provision
for the indemnification of officers and directors in terms sufficiently broad to
include indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). The Amended and Restated Articles of
Incorporation of the Registrant authorize the Registrant to provide
indemnification of its officers, directors and agents for breach of duty to the
Registrant and its shareholders through bylaw provisions or indemnification
agreements, or both, in excess of the indemnification otherwise permitted by
California law, subject to certain limitations.
The Registrant's Bylaws provide for the indemnification of its officers
and directors to the fullest extent permitted by law. In addition, the
Registrant currently maintains directors' and officers' liability insurance and
has entered into indemnification agreements with its directors and certain of
its officers.
In addition, as permitted by Section 204(a)(10) of the California
General Corporation Law, the Amended and Restated Articles of Incorporation of
the Registrant provide that the liability of a director of the Registrant for
monetary damages shall be eliminated to the fullest extent permissible under
California law. However, as provided by California law, such limitation of
liability will not act to limit the liability of a director for (i) acts or
omissions that involve intentional misconduct or a knowing and culpable
violation of law, (ii) acts or omissions that a director believes to be contrary
to the best interest of the Registrant or its shareholders or that involve the
absence of good faith on the part of the director, (iii) any transaction from
which a director derived an improper personal benefit, (iv) acts or omissions
that show a reckless disregard for the director's duty to the Registrant
II-1
<PAGE> 20
or its shareholders in circumstances in which the director was aware or should
have been aware, in the ordinary course of performing a director's duties, of a
risk of serious injury to the Registrant or its shareholders, (v) acts or
omissions that constitute an unexcused pattern of inattention that amounts to an
abdication of the director's duty to the Registrant or its shareholders, (vi)
any improper transactions between a director and the Registrant in which the
director has a material financial interest or (vii) any unlawful distributions
to the shareholders of the Registrant or any unlawful loan of money or property
to, or a guarantee of the obligation of, any director of officer of the
Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
EXHIBITS
The following exhibits are filed or incorporated by reference as part of this
Registration Statement.
<TABLE>
<S> <C>
4.1 Articles of Incorporation, as amended(1)
4.2 Certificate of Amendment of Articles of Incorporation dated June
21, 1996(2)
4.3 Certificate of Correction of Certificate of Amendment of
Articles of Incorporation dated July 25, 1997(3)
4.4 Certificate of Determination of Series B Convertible Preferred
Stock(4)
4.5 Certificate of Determination of Series C Preferred Stock(5)
4.6 Certificate of Determination of Series D Preferred Stock
4.7 Bylaws of the Company(6)
4.9 Form of Series D Preferred Stock Subscription Agreement;
5.1 Form of Opinion of Miller & Holguin as to the legality of the
securities being registered (final signed opinion to be filed
by amendment)
23.1 Consent of Singer Lewak Greenbaum & Goldstein LLP
23.2 Consent of Miller & Holguin (included in its opinion filed as
Exhibit 5.1)
</TABLE>
- ---------
(1) Previously filed as an exhibit to the Company's registration statement
on Form SB-2 (No. 33-92294) filed with the Commission on May 31, 1995
(2) Previously filed as an exhibit to the Company's Form 10-KSB report filed
with the commission on April 15, 1997
(3) Previously filed as an exhibit to the Company's Form 10-QSB report filed
with the Commission on November 14, 1997
II-2
<PAGE> 21
(4) Previously filed as an exhibit to the Company's Form 10-QSB report filed
with the Commission on November 14, 1997
(5) Previously filed as an exhibit to the Company's Form 10-QSB report filed
with the Commission on May 15, 1998
(6) Previously filed as an exhibit to the Company's registration statement
on Form SB-2 (No. 33-92294) filed with the Commission on May 31, 1995
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes that it will:
(1) File, during any period in which offers or sales are
being made, a post-effective amendment to this
registration statement to include any additional or
changed material information on the plan of
distribution;
(2) For determining liability under the Securities Act,
treat each post-effective amendment as a new
registration statement of the securities offered, and
the offering of the securities at that time to be the
initial bona fide offering.
(3) File a post-effective amendment to remove from
registration any of the securities that remain unsold
at the end of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-3
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Riverside, State of California, on February 11, 1999.
BIKERS DREAM, INC.
Registrant
By: /s/ Herm Rosenman
---------------------------------------
Herm Rosenman
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
<S> <C> <C>
/s/ Herm Rosenman Chief Executive Officer February 11, 1999
- ------------------------------------ and Director
Herm Rosenman (Principal Executive Officer)
/s/ Donald J. Duffy Director February 11, 1999
- ------------------------------------
Donald J. Duffy
/s/ Humbert Powell III Director February 11, 1999
- ------------------------------------
Humbert Powell III
/s/ John Russell Director February 11, 1999
- ------------------------------------
John Russell
/s/ Bruce A. Scott Director February 11, 1999
- ------------------------------------
Bruce A. Scott
/s/ Anne Todd Controller February 11, 1999
- ------------------------------------ (Principal Financial and
Anne Todd Accounting Officer)
</TABLE>
II-4
<PAGE> 23
EXHIBITS INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE OF DOCUMENT
----------- -----------------
<S> <C>
4.1 Articles of Incorporation, as amended(1)
4.2 Certificate of Amendment of Articles of Incorporation
dated June 21, 1996(2)
4.3 Certificate of Correction of Certificate of Amendment of
Articles of Incorporation dated July 25, 1997(3)
4.4 Certificate of Determination of Series B Convertible Preferred
Stock(4)
4.5 Certificate of Determination of Series C Preferred Stock(5)
4.6 Certificate of Determination of Series D Preferred Stock
4.7 Bylaws of the Company(6)
4.9 Form of Series D Preferred Stock Subscription Agreement
5.1 Form of Opinion of Miller & Holguin as to the legality of
the securities being registered (final signed opinion to
be filed by amendment)
23.1 Consent of Singer Lewak Greenbaum & Goldstein LLP
23.2 Consent of Miller & Holguin (included in its opinion
filed as Exhibit 5.1)
</TABLE>
- ----------
(1) Previously filed as an exhibit to the Company's registration statement
on Form SB-2 (No. 33-92294) filed with the Commission on May 31, 1995
(2) Previously filed as an exhibit to the Company's Form 10-KSB report filed
with the Commission on April 15, 1997
(3) Previously filed as an exhibit to the Company's Form 10-QSB report filed
with the Commission on November 14, 1997
(4) Previously filed as an exhibit to the Company's Form 10-QSB report filed
with the Commission on November 14, 1997
(5) Previously filed as an exhibit to the Company's Form 10-QSB report filed
with the Commission on May 15, 1998
(6) Previously filed as an exhibit to the Company's registration statement
on Form SB-2 (No. 33-92294) filed with the Commission on May 31, 1995
II-5
<PAGE> 1
EXHIBIT 4.6
CERTIFICATE OF DETERMINATION
OF
BIKERS DREAM, INC.
Herm Rosenman and Anne Todd hereby certify that:
A. They are the chief executive officer and secretary, respectively, of
Bikers Dream, Inc., a California corporation.
B. The number of shares of Series D Convertible Preferred Stock is
3,500, none of which has been issued.
C. The board of directors duly adopted the following resolutions:
WHEREAS, the articles of incorporation authorize the Preferred Stock of
the corporation to be issued in series and authorize the board of directors 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, NOW THEREFORE IT IS:
RESOLVED, that the board of directors does hereby establish a new series
of Preferred Stock as follows:
1. Designation: Number of Shares. The designation of said series of
Preferred Stock shall be Series D 5% Cumulative Convertible Preferred Stock (the
"Series D Preferred Stock"). The number of shares of Series D Preferred Stock
shall be 3,500. Each share of Series D Preferred Stock shall have a stated value
equal to $1,000 (as adjusted for any stock dividends, combinations or splits
with respect to such shares) (the "Stated Value"), and a par value of $0.01 per
Series D Preferred Share.
2. Dividends.
(a) The Holders of outstanding shares of Series D Preferred Stock
shall be entitled to receive preferential dividends in cash out of any funds of
the Corporation legally available at the time for declaration of dividends
before any dividend or other distribution will be paid or declared and set apart
for payment on any shares of any Common Stock, Series A Preferred Stock, Series
B
1
<PAGE> 2
Convertible Preferred Stock, Series C Convertible Preferred Stock or other class
of stock presently authorized or to be authorized (the Common Stock, Series A
Preferred Stock, Series B Convertible Preferred Stock, Series C Convertible
Preferred Stock and such other stock being hereinafter collectively the "Junior
Stock") at the rate of 5% simple interest per annum on the Stated Value per
share payable quarterly commencing with the quarter ending March 31, 1999 when
as and if declared; provided however that dividend payments will be made in
additional fully paid and non assessable shares of Series D Preferred Stock at a
rate of one share of Series D Preferred Stock for each $1,000 of such dividend
not paid in cash, and the issuance of such additional shares shall constitute
full payment of such dividend. Dividends may be paid at the Company's option
with Series D Preferred Stock only if the Common Stock deliverable upon
conversion of such Series D Preferred Stock will have been included for public
resale in an effective registration statement filed with the Securities and
Exchange Commission on the dates such dividends are payable and paid to the
Holder, otherwise the dividend will be paid in cash.
(b) The dividends on the Series D Preferred Stock at the rates
provided above shall be cumulative whether or not earned so that if at any time
full cumulative dividends at the rate aforesaid on all shares of the Series D
Preferred Stock then outstanding from the date from and after which dividends
thereon are cumulative to the end of the quarterly dividend period next
preceding such time shall not have been paid or declared and set apart for
payment, or if the full dividend on all such outstanding Series D Preferred
Stock for the then current dividend period shall not have been paid or declared
and set apart for payment, the amount of the deficiency shall be paid or
declared and set apart for payment (but without interest thereon) before any sum
shall be set apart for or applied by the Corporation or a subsidiary of the
Corporation to the purchase, redemption or other acquisition of the Series D
Preferred Stock or any shares of any other class of stock ranking on a parity
with the Series D Preferred Stock ("Parity Stock") and before any dividend or
other distribution shall be paid or declared and set apart for payment on any
Junior Stock and before any sum shall be set aside for or applied to the
purchase, redemption or other acquisition of Junior Stock.
(c) Dividends on all shares of the Series D Preferred Stock shall
begin to accrue and be cumulative from and after the date of issuance thereof. A
dividend period shall be deemed to commence on the day following a quarterly
dividend payment date
2
<PAGE> 3
herein specified and to end on the next succeeding quarterly dividend payment
date herein specified.
3. Liquidation Rights.
(a) Upon the dissolution, liquidation or winding-up of the
Corporation, whether voluntary or involuntary, the Holders of the Series D
Preferred Stock shall be entitled to receive before any payment or distribution
shall be made on the Junior Stock (specifically including, without limitation,
Series A Preferred Stock, Series B Convertible Preferred Stock and Series C
Convertible Preferred Stock), out of the assets of the Corporation available for
distribution to stockholders, the Stated Value per share of Series D Preferred
Stock and all accrued and unpaid dividends to and including the date of payment
thereof. Upon the payment in full of all amounts due to Holders of the Series D
Preferred Stock the Holders of the Common Stock of the Corporation and any other
class of Junior Stock shall receive all remaining assets of the Corporation
legally available for distribution. If the assets of the Corporation available
for distribution to the Holders of the Series D Preferred Stock shall be
insufficient to permit payment in full of the amounts payable as aforesaid to
the Holders of Series D Preferred Stock upon such liquidation, dissolution or
winding-up, whether voluntary or involuntary, then all such assets of the
Corporation shall be distributed to the exclusion of the Holders of shares of
Junior Stock ratably among the Holders of the Series D Preferred Stock.
(b) Neither the purchase nor the redemption by the Corporation of
shares of any class of stock nor the merger or consolidation of the Corporation
with or into any other corporation or corporations nor the sale or transfer by
the Corporation of all or any part of its assets shall be deemed to be a
liquidation, dissolution or winding-up of the Corporation for the purposes of
this paragraph 3.
4. Conversion into Common Stock. Shares of Series D Preferred Stock
shall have the following conversion rights and obligations:
(a) Subject to the further provisions of this paragraph 4 each
Holder of shares of Series D Preferred Stock shall have the right at any time
and from time to time from the date on which
3
<PAGE> 4
shares of Series D Preferred Stock were issued, to convert such shares into
fully paid and non-assessable shares of Common Stock of the Corporation (as
defined in paragraph 4(i) below) determined in accordance with the Conversion
Price provided in paragraph 4(b) below (the "Conversion Price"); provided, that
the aggregate Stated Value to be converted shall be at least $10,000 (unless if
at the time of such conversion the aggregate Stated Value of all shares of
Series D Preferred Stock registered to the Holder is less than $10,000, then the
whole amount may be converted). All issued or accrued but unpaid dividends shall
be converted simultaneously with the conversion of principal amount of Stated
Value of Series D Preferred Stock being converted.
(b) The number of shares of Common Stock issuable upon conversion
of each share of Series D Preferred Stock shall equal (i) the sum of (A) the
Stated Value per share and (B) accrued and unpaid dividends on such share,
divided by (ii) the Conversion Price. The Conversion Price shall be equal to the
lesser of: (i) 110% of the average of the Closing Bid Price of the Corporation's
Common Stock for the trading day immediately preceding the date of issuance of
the shares of Series D Preferred Stock; or (ii) at 90% of the average of the
four lowest Closing Bid Prices for the 22 trading days immediately preceding the
conversion of the respective shares of Series D Preferred Stock. The Closing Bid
Price shall mean the closing bid price of the Corporation's Common Stock as
reported by NASDAQ or the principal exchange or market where traded.
(c) The Holder of any certificate for shares of Series D
Preferred Stock desiring to convert any of such shares may give notice of its
decision to convert the shares into common stock by delivering or telecopying an
executed and completed notice of conversion to the Corporation or the
Corporation's Transfer Agent and delivering within three business days
thereafter, the original notice of conversion and the certificate for the
Preferred Stock properly endorsed for or accompanied by duly executed
instruments of transfer (and such other transfer papers as said Transfer Agent
may reasonably require) to the Corporation or the Corporation's Transfer Agent.
Each date on which a notice of conversion is delivered or telecopied to and
received by the Corporation or the Corporation's Transfer Agent in accordance
with the provisions hereof shall be deemed a Conversion Date. A form of Notice
of Conversion that may be employed by a Holder is annexed hereto as
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<PAGE> 5
Exhibit A. The Corporation will transmit the certificates representing the
shares of common stock issuable upon conversion of any Series D Preferred Stock
(together with the Series D Preferred Stock representing the shares not
converted) to the Holder via express courier, by electronic transfer or
otherwise, within seven business days after receipt by the Corporation of the
original notice of conversion and the Series D Preferred Stock representing the
shares to be converted ("Delivery Date"). The Holder of the shares so
surrendered for conversion shall be entitled to receive (except as otherwise
provided herein) on or before the Delivery Date a certificate or certificates
which shall be expressed to be fully paid and non-assessable for the number of
shares of Common Stock to which such Holder shall be entitled upon such
conversion registered in the name of such Holder. The Corporation is obligated
to deliver to the Holder simultaneously with the aforedescribed Common Stock,
additional Common Stock representing the conversion at the Conversion Price of
dividends accrued on the Series D Preferred Stock being converted. In the case
of any Series D Preferred Stock which is converted in part only the Holder of
shares of Series D Preferred Stock shall upon delivery of the certificate or
certificates representing Common Stock also receive a new share certificate
representing the unconverted portion of the shares of Series D Preferred Stock.
Nothing herein shall be construed to give any Holder of shares of Series D
Preferred Stock surrendering the same for conversion the right to receive any
additional shares of Common Stock or other property which results from an
adjustment in conversion rights under the provisions of paragraph (d) or (e) of
this paragraph 4 until Holders of Common Stock are entitled to receive the
shares or other property giving rise to the adjustment.
In the case of the exercise of the conversion rights set forth in
paragraph 4(a) the conversion privilege shall be deemed to have been exercised
and the shares of Common Stock issuable upon such conversion shall be deemed to
have been issued upon the date of receipt by the Corporation or Transfer Agent
of the Notice of Conversion. The person or entity entitled to receive Common
Stock issuable upon such conversion shall, on the date such conversion privilege
is deemed to have been exercised and thereafter, be treated for all purposes as
the record Holder of such Common Stock and shall on the same date cease to be
treated for any purpose as the record Holder of such shares of Series D
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<PAGE> 6
Preferred Stock so converted.
Notwithstanding the foregoing, if the stock transfer books are
closed on the date a Notice of Conversion is received by the Transfer Agent or
Corporation, the conversion privilege shall be deemed to have been exercised and
the person or entity shall be treated as a record Holder of shares of Common
Stock on the next succeeding date on which the transfer books are open, but the
Conversion Price shall be that in effect on the date such conversion privilege
was exercised. The Corporation shall not be required to deliver certificates for
shares of its Common Stock or new certificates for unconverted shares of its
Series D Preferred Stock while the stock transfer books for such respective
classes of stock are duly closed for any purpose; but the right of surrendering
shares of Series D Preferred Stock for conversion shall not be suspended during
any period that the stock transfer books of either of such classes of stock are
closed.
Upon the conversion of any shares of Series D Preferred Stock no
adjustment or payment shall be made with respect to such converted shares on
account of any dividend on the Common Stock, except that the Holder of such
converted shares shall be entitled to be paid any dividends declared on shares
of Common Stock after conversion thereof.
The Corporation shall be required, in connection with any
conversion of Series D Preferred Stock, and payment of dividends on Series D
Preferred Stock to issue a fraction of a share of its Series D Preferred Stock
and to deliver a stock certificate representing such fractional share.
The Corporation and Holder may not convert that amount of the
Series D Preferred Stock on a Conversion Date in connection with that number of
shares of Common Stock which would be in excess of the sum of (i) the number of
shares of Common Stock beneficially owned by the Subscriber and its affiliates
on such Conversion Date, and (ii) the number of shares of Common Stock issuable
upon the conversion of the Series D Preferred Stock with respect to which the
determination of this proviso is being made on such Conversion Date, which would
result in beneficial ownership by the Holder and its affiliates of more than
9.99% of the outstanding shares of Common Stock of the Corporation. For the
purposes of the proviso to the immediately preceding sentence, beneficial
ownership
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<PAGE> 7
shall be determined in accordance with Section 13(d) of the Securities Exchange
Act of 1934, as amended, and Regulation 13d-3 thereunder, except as otherwise
provided in clause (i) of such proviso.
(d) The Conversion Price shall be subject to adjustment from time to
time as follows:
(i) In case the Corporation shall at any time (A) declare any
dividend or distribution on its Common Stock or other securities of the
Corporation other than the Series D Preferred Stock, (B) split or subdivide the
outstanding Common Stock, (C) combine the outstanding Common Stock into a
smaller number of shares, or (D) issue by reclassification of its Common Stock
any shares or other securities of the Corporation, then in each such event the
Conversion Price shall be adjusted proportionately so that the Holders of Series
D Preferred Stock shall be entitled to receive the kind and number of shares or
other securities of the Corporation which such Holders would have owned or have
been entitled to receive after the happening of any of the events described
above had such shares of Series D Preferred Stock been converted immediately
prior to the happening of such event (or any record date with respect thereto).
Such adjustment shall be made whenever any of the events listed above shall
occur. An adjustment made to the Conversion pursuant to this paragraph 4(d)(i)
shall become effective immediately after the effective date of the event
retroactive to the record date, if any, for the event.
(e) (i) In case of any merger of the Corporation with or into any
other corporation (other than a merger in which the Corporation is the surviving
or continuing corporation and which does not result in any reclassification,
conversion, or change of the outstanding shares of Common Stock) then unless the
right to convert shares of Series D Preferred Stock shall have terminated, as
part of such merger lawful provision shall be made so that Holders of Series D
Preferred Stock shall thereafter have the right to convert each share of Series
D Preferred Stock into the kind and amount of shares of stock and/or other
securities or property receivable upon such merger by a Holder of the number of
shares of Common Stock into which such shares of Series D Preferred Stock might
have been converted immediately prior to such consolidation or merger. Such
provision shall also provide for adjustments which shall be as nearly equivalent
as may be practicable to the
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<PAGE> 8
adjustments provided for in paragraph (d) of this paragraph 4. The foregoing
provisions of this paragraph 4(e) shall similarly apply to successive mergers.
(ii) In case of any sale or conveyance to another person or
entity of the property of the Corporation as an entirety, or substantially as an
entirety, in connection with which shares or other securities or cash or other
property shall be issuable, distributable, payable, or deliverable for
outstanding shares of Common Stock, then, unless the right to convert such
shares shall have terminated, lawful provision shall be made so that the Holders
of Series D Preferred Stock shall thereafter have the right to convert each
share of the Series D Preferred Stock into the kind and amount of shares of
stock or other securities or property that shall be issuable, distributable,
payable, or deliverable upon such sale or conveyance with respect to each share
of Common Stock immediately prior to such conveyance.
(f) Whenever the number of shares to be issued upon conversion of the
Series D Preferred Stock is required to be adjusted as provided in this
paragraph 4, the Corporation shall forthwith compute the adjusted number of
shares to be so issued and prepare a certificate setting forth such adjusted
conversion amount and the facts upon which such adjustment is based, and such
certificate shall forthwith be filed with the Transfer Agent for the Series D
Preferred Stock and the Common Stock; and the Corporation shall mail to each
Holder of record of Series D Preferred Stock notice of such adjusted conversion
price.
(g) In case at any time the Corporation shall propose:
(i) to pay any dividend or distribution payable in shares upon
its Common Stock or make any distribution (other than cash dividends) to the
Holders of its Common Stock; or
(ii) to offer for subscription to the Holders of its Common
Stock any additional shares of any class or any other rights; or
(iii) any capital reorganization or reclassification of its
shares or the merger of the Corporation with another corporation (other than a
merger in which the Corporation is the surviving or continuing corporation and
which does not result in
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<PAGE> 9
any reclassification, conversion, or change of the outstanding shares of Common
Stock); or
(iv) the voluntary dissolution, liquidation or winding-up of the
Corporation;
then, and in any one or more of said cases, the Corporation shall cause at least
fifteen (15) days prior notice of the date on which (A) the books of the
Corporation shall close or a record be taken for such stock dividend,
distribution, or subscription rights, or (B) such capital reorganization,
reclassification, merger, dissolution, liquidation or winding-up shall take
place, as the case may be, to be mailed to the Transfer Agent for the Series D
Preferred Stock and for the Common Stock and to the Holders of record of the
Series D Preferred Stock.
(h) So long as any shares of Series D Preferred Stock shall remain
outstanding and the Holders thereof shall have the right to convert the same in
accordance with provisions of this paragraph 4 the Corporation shall at all
times reserve from the authorized and unissued shares of its Common Stock a
sufficient number of shares to provide for such conversions.
(i) The term Common Stock as used in this paragraph 4 shall mean the
no par value Common Stock of the Corporation as such stock is constituted at the
date of issuance thereof or as it may from time to time be changed or shares of
stock of any class of other securities and/or property into which the shares of
Series D Preferred Stock shall at any time become convertible pursuant to the
provisions of this paragraph 4.
(j) The Corporation shall pay the amount of any and all issue taxes
(but not income taxes) which may be imposed in respect of any issue or delivery
of stock upon the conversion of any shares of Series D Preferred Stock, but all
transfer taxes and income taxes that may be payable in respect of any change of
ownership of Series D Preferred Stock or any rights represented thereby or of
stock receivable upon conversion thereof shall be paid by the person or persons
surrendering such stock for conversion.
(k) Subject to the provisions of this Sections, if the Corporation at
any time shall issue any shares of Common Stock prior to the conversion of the
entire Stated Value of the Series D
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<PAGE> 10
Preferred Stock and dividends on such Series D Preferred Stock (otherwise than:
(i) as provided in paragraph (d) and (e) of this Paragraph 4; or (ii) pursuant
to options, warrants, or other obligations to issue shares outstanding on the
date hereof as described in writing to the Holder prior to the date of issuance
of Series D Preferred Stock to the Holder or in filings made by the Corporation
prior to the date hereof with the Securities and Exchange Commission including
all shares reserved for issuance pursuant to the Corporation's existing option
and stock plans or to employees or directors of the Corporation pursuant to a
stock incentive or other plan, which plan and which grant is approved by the
Board of Directors of the Corporation, [(i) and (ii) above are referred to as
the "Existing Option Obligations"]; or (iii) for a consideration less than the
Conversion Price that would be in effect at the time of such issue, then, and
thereafter successively upon each such issue, the Conversion Price shall be
reduced as follows: (y) the number of shares of Common Stock outstanding
immediately prior to such issue shall be multiplied by the Conversion Price in
effect at the time of such issue and the product shall be added to the aggregate
consideration, if any received by the Corporation upon such issue of additional
shares of Common Stock; and (z) the sum so obtained shall be divided by the
number of shares of Common Stock outstanding immediately after such issue.
Except for the existing Option Obligations and options that may be issued under
any employee incentive stock option and/or any qualified stock option plan
adopted by the Corporation, for purposes of this adjustment, the issuance of any
security of the Corporation carrying the right to convert such security into
shares of Common Stock or of any warrant, right, or option to purchase Common
Stock shall result in an adjustment to the Conversion Price upon the issuance of
shares of Common Stock upon exercise of such conversion or purchase rights.
(l) In the event a Holder shall elect to convert any shares of
Series D Preferred Stock as provided herein, the Corporation cannot refuse
conversion based on any claim that such Holder or any one associated or
affiliated with such Holder has been engaged in any violation of law, unless, an
injunction from a court, on notice, restraining and or enjoining conversion of
all or part of said shares of Series D Preferred Stock shall have been issued
and the Corporation posts a surety bond for the benefit of such Holder in the
amount of 125% of the Stated Value of the Series D Preferred Stock and dividends
sought to be converted, which is subject to the injunction, which bond shall
remain in effect until the completion of arbitration/litigation of the dispute
and the
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<PAGE> 11
proceeds of which shall be payable to such Holder in the event it obtains
judgment.
(m) In addition to any other rights available to the Holder, if
the Corporation fails to deliver to the Holder such certificate or certificates
pursuant to Section 4(c) by the Delivery Date and if after the Delivery Date the
Holder purchases (in an open market transaction or otherwise) shares of Common
Stock to deliver in satisfaction of a sale by such Holder of the Common Stock
which the Holder anticipated receiving upon such conversion (a "Buy-In"), then
the Corporation shall pay in cash to the Holder (in addition to any remedies
available to or elected by the Holder) the amount by which (A) the Holder's
total purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased exceeds (B) the aggregate Stated Value of the shares
of Series D Preferred Stock for which such conversion was not timely honored,
together with interest thereon at a rate of 15% per annum, accruing until such
amount and any accrued interest thereon is paid in full (which amount shall be
paid as liquidated damages and not as a penalty). For example, if the Holder
purchases shares of Common Stock having a total purchase price of $11,000 to
cover a Buy-In with respect to an attempted conversion of $10,000 of Stated
Value of Series D Preferred Stock, the Corporation shall be required to pay the
Holder $1,000, plus interest. The Holder shall provide the Corporation written
notice indicating the amounts payable to the Holder in respect of the Buy-In.
5. Mandatory Conversion.
(a) The shares of Series D Preferred Stock and dividends not
previously converted into shares of Common Stock shall be converted into shares
of Common Stock without further action of the Holder on the date that is two
years from the date of issuance thereof ("Mandatory Conversion Date"), at the
Conversion Price and on the conversion terms specified in paragraph 4(b).
Deliveries of Common Stock upon Mandatory Conversion shall be made as if the
Mandatory Conversion Date were a Conversion Date.
(b) Notice of conversion of Series D Preferred Stock by the
Corporation pursuant to this paragraph 5 shall be given by mail or in such other
manner as may be prescribed by resolution of the Board not less than thirty (30)
days prior to the Mandatory Conversion Date. As applicable, the notice shall
specify the number of shares to be converted, the date fixed for conversion,
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<PAGE> 12
and the conversion price per share.
(c) The Holder of any certificate for shares of Series D
Preferred Stock that is converted pursuant to this Section 5 shall surrender
such certificate at the principal office of any transfer agent for said stock
(the "Transfer Agent") properly endorsed for or accompanied by duly executed
instruments of transfer (and such other transfer papers as said Transfer Agent
may reasonably require). The Holder of the shares so surrendered for conversion
shall be entitled to receive (except as otherwise provided herein) a certificate
or certificates which shall be expressed to be fully paid and non-assessable for
the number of shares of Common Stock to which such Holder shall be entitled upon
such conversion registered in the name of such Holder.
(d) On and after the Mandatory Conversion Date and
notwithstanding that any certificate for shares of Series D Preferred Stock so
called for conversion shall not have been surrendered for cancellation, all
dividends on the Series D Preferred Stock called for conversion shall cease to
accrue and the shares represented thereby shall no longer be deemed outstanding
and all rights of the Holders thereof as Holders of the Corporation shall cease
and terminate, except the right to receive the shares of Common Stock upon
conversion as provided herein.
(e) In no event shall a Mandatory Conversion occur without the
consent of the Holder of Series D Preferred Stock at any time unless the Common
Stock to be delivered upon conversion will be upon delivery and thereafter
immediately resalable, without restrictive legend and upon such resale freely
transferable on the transfer books of the Corporation.
6. Voting Rights. The shares of Series D Preferred Stock shall not
have voting rights.
7. Redemption. The Corporation will have the option of redeeming the
Series D Preferred Stock ("Optional Redemption") by paying to the Holder a sum
of money equal to the Closing Bid Price
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<PAGE> 13
of the Common Stock on the date notice of redemption ("Notice of Redemption) is
given to a Holder ("Redemption Date") multiplied by the number of shares of
Common Stock that would be issued upon conversion of the designated amount of
Stated Value of Series D Preferred Stock being redeemed and the dividends
accrued thereon, at the Conversion Price that would be in effect on the
Redemption Date ("Redemption Amount") but in no event may the Redemption Amount
be less than 110% of the Stated Value of the Series D Preferred Stock being
redeemed plus the dollar amount of accrued dividends on the Series D Preferred
Stock being redeemed. A Notice of Redemption may not be given in connection with
any Series D Preferred Stock for which notice of conversion has been given by
the Holder either before or after receipt by the Holder of a Notice of
Redemption except that after receipt by the Holder of a Notice of Redemption the
Holder may elect by giving written notice to the Corporation within three (3)
business days of a Redemption Date to convert no more than ten percent of the
Series D Preferred Stock noticed in the Notice of Redemption. The Redemption
Amount (less any amount that may be converted by a Holder) must be paid in good
funds to the Holder no later than the fifth business day after the Redemption
Date. In the event the Corporation fails to pay the Redemption Amount by such
date, then the Redemption Notice will be null and void and the Corporation will
thereafter have no further right to effect an Optional Redemption. Any Notice of
Redemption must be given to all Holders of Series D Preferred Stock in
proportion to their holdings of Series D Preferred Stock on a Redemption Date.
The minimum Redemption Amount must be no less than the sum that would be
realized by the Holder on the Redemption Date of a sale of the amount of Common
Stock receivable upon conversion of the amount of Series D Preferred Stock being
redeemed plus the dollar amount of accrued dividends on the Series D Preferred
Stock being redeemed but in no event may the Redemption Amount be less than 110%
of the Stated Value of the Series D Preferred Stock being redeemed plus the
dollar amount of accrued dividends on the Series D Preferred Stock being
redeemed.
8. Event of Default. The occurrence of any of the following events
of default ("Event of Default") shall, after the applicable period to cure the
Event of Default, cause the dividend rate of 5% described in paragraph 2 hereof
to become 10% from and after the occurrence of such event, and the Holder shall
have the option to require the Corporation to redeem the Series D Preferred
Stock held by such Holder by the immediate payment to the Holder by the
Corporation of a sum of money equal to the number of shares that would be
issuable upon conversion of an amount of Stated Valued and accrued dividends
designated by the Holder at the Conversion Price
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<PAGE> 14
in effect as of the trading day prior to the date notice is given to the
Corporation multiplied by the average closing ask price of the Corporation's
Common Stock on such date:
(a) The Corporation fails to pay any dividend payment required to
be paid pursuant to the terms of paragraph 2 hereof or the failure to timely pay
any other sum of money due to the Holder from the Company and such failure
continues for a period of ten (10) days after written notice to the Corporation
from the Holder.
(b) The Corporation breaches any material covenant, term or
condition of the Subscription Agreement entered into between the Corporation and
Holder relating to Series D Preferred Stock (the "Subscription Agreement") or in
this Certificate of Determination, and such breach continues for a period of
seven (7) days after written notice to the Corporation from the Holder.
(c) Any material representation or warranty of the Corporation
made in the Subscription Agreement, or in any agreement, statement or
certificate given in writing pursuant thereto shall be false or misleading.
(d) The Corporation shall make an assignment of a substantial
part of its property or business for the benefit of creditors, or apply for or
consent to the appointment of a receiver or trustee for it or for a substantial
part of its property or business, or such a receiver or trustee shall otherwise
be appointed.
(e) Any money judgment, confession of judgment, writ or similar
process shall be entered against the Corporation or its property or other assets
for more than $100,000, and is not vacated, satisfied, bonded or stayed within
45 days.
(f) Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings or relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Corporation.
(g) The failure to maintain a listing of the Common Stock on the
NASDAQ SmallCap Market (or successor market, if any).
(h) An order entered by a court of competent jurisdiction, or by
the Securities and Exchange Commission, or by the National Association of
Securities Dealers, preventing purchase and sale transactions in the
Corporation's Common Stock.
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(i) The Corporation's failure to timely deliver Common Stock to
the Holder pursuant to paragraph 4 hereof or the Subscription Agreement.
(j) The occurrence of a Non-Registration Event as described in
Section 10.4 of the Subscription Agreement, except as otherwise provided in the
Subscription Agreement.
(k) The occurrence of an Approval Default as that term is defined
in the Subscription Agreement, but such Event of Default shall apply only to
Series D Preferred that can not be converted into Common Stock.
(l) The occurrence of a Non-Effectiveness Event as described in
Section 10.4 of the Subscription Agreement that has occurred and is continuing
on September 1, 1999.
9. Status of Converted or Redeemed Stock. In case any shares of
Series D Preferred Stock shall be redeemed or otherwise repurchased or
reacquired, the shares so redeemed, converted, or reacquired shall resume the
status of authorized but unissued shares of Preferred Stock and shall no longer
be designated as Series D Preferred Stock.
10. Additional Restrictions. For as long as any shares of the Series
D Preferred Stock are outstanding, the Corporation will not issue any preferred
stock that is senior to the Series D Preferred Stock, and will not amend the
terms of the Series D Preferred Stock without the written consent of 80% in
interest of the Holders of the Series D Preferred Stock.
BIKERS DREAM, INC.
By: /s/ Herm Rosenman
----------------------------------
Herm Rosenman
By: /s/ Anne Todd
----------------------------------
Anne Todd
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<PAGE> 16
The undersigned declare under penalty of perjury under the laws of
California that they have read the foregoing certificate and know the contents
thereof and that the same is true of their own knowledge and that this
declaration was executed on January 26, 1999.
/s/ Herm Rosenman
------------------------------------
Herm Rosenman
/s/ Anne Todd
------------------------------------
Anne Todd
16
<PAGE> 17
EXHIBIT A
NOTICE OF CONVERSION
(To Be Executed By the Registered Holder in Order to Convert
the Series D Convertible Preferred Stock of Bikers Dream, Inc.)
The undersigned hereby irrevocably elects to convert $______________ of
the Stated Value of the above Series D Convertible Preferred Stock into shares
of Common Stock of Bikers Dream, Inc. (the "Corporation") according to the
conditions hereof, as of the date written below.
Date of Conversion:_______________________________________________
Applicable Conversion Price Per Share:____________________________
Conversion Price Calculated Pursuant to:
Section 4(b)(i):_________________ or 4(b)(ii)____________________
If pursuant to 4(b)(ii), the four dates and closing prices employed are:
(1)_____________/$______________ (2)______________/$____________
(3)_____________/$______________ (4)______________/$____________
Number of Common Shares Issuable Upon This Conversion:_____________
Signature:_________________________________________________________
Print Name:________________________________________________________
Address:___________________________________________________________
___________________________________________________________________
Deliveries Pursuant to this Notice of Conversion Should Be Made to:
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
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<PAGE> 1
EXHIBIT 4.9
SUBSCRIPTION AGREEMENT
Dear Subscriber:
You (the "Subscriber") hereby agree to purchase, and Bikers Dream, Inc.,
a California corporation (the "Company") hereby agrees to issue and to sell to
the Subscriber, the number of shares of Series D 5% Cumulative Convertible
Preferred Stock, $0.01 par value (the "Preferred Stock") convertible in
accordance with the terms thereof into shares of the Company's no par value
common stock (the "Company Shares") and Common Stock Purchase Warrants
("Warrants") as set forth on the signature page hereof for the aggregate
consideration as set forth on the signature page hereof ("Purchase Price"). The
Certificate of Determination of the Rights of the Preferred Stock is annexed
hereto as Exhibit A ("Certificate of Determination"). (The Company Shares are
sometimes referred to herein as the "Shares" or "Common Stock"). (The Preferred
Stock, the Company Shares, Warrants, Commission Shares and Common Stock Purchase
Warrants issuable to the Placement Agents ("Placement Warrants"), identified on
Schedule B hereto, and the Common Stock issuable upon exercise of the Warrants
and Placement Warrants are collectively referred to herein as, the
"Securities"). Upon acceptance of this Agreement by the Subscriber, the Company
shall issue and deliver to the Subscriber the Preferred Stock and Warrants
against payment, by federal funds (U.S.) wire transfer of the Purchase Price.
This Subscription Agreement and other similar Subscription Agreements and the
subscription agreements relating to Series D Preferred Stock to be issued in
connection with the Puts described in Section 11 hereof relate to the offering
of a maximum of 3,000 shares of Preferred Stock.
The following terms and conditions shall apply to this subscription.
1. Subscriber's Representations and Warranties. The Subscriber
hereby represents and warrants to and agrees with the Company that:
(a) Information on Company. The Subscriber has been furnished
with and has read the Company's Form 10-KSB for the year ended December 31, 1997
and subsequent Forms 10-QSB, each as
<PAGE> 2
filed with the U.S. Securities and Exchange Commission (the "Commission")
(collectively, with exhibits thereto, hereinafter referred to as the "Reports").
In addition, the Subscriber has received from the Company such other information
concerning its operations, financial condition and other matters as the
Subscriber has requested, and considered all factors the Subscriber deems
material in deciding on the advisability of investing in the Securities (such
information in writing is collectively, the "Other Written Information"). The
Company has provided Subscriber risk factors annexed hereto as Exhibit D.
(b) Information on Subscriber. The Subscriber is an "accredited
investor", as such term is defined in Regulation D promulgated by the Commission
under the Securities Act of 1933, as amended, is experienced in investments and
business matters, has made investments of a speculative nature and has purchased
securities of United States publicly-owned companies in private placements in
the past and, with its representatives, has such knowledge and experience in
financial, tax and other business matters as to enable the Subscriber to utilize
the information made available by the Company to evaluate the merits and risks
of and to make an informed investment decision with respect to the proposed
purchase, which represents a speculative investment. The Subscriber has the
authority and is duly and legally qualified to purchase and own the Securities.
The Subscriber is able to bear the risk of such investment for an indefinite
period and to afford a complete loss thereof.
(c) Purchase of Company Shares. On the Closing Date, the
Subscriber will purchase the Preferred Stock and Warrants for its own account
and not with a view to any distribution thereof.
(d) Compliance with Securities Act. The Subscriber understands
and agrees that the Securities have not been registered under the Securities Act
of 1933, as amended (the "1933 Act") by reason of their issuance in a
transaction that does not require registration under the 1933 Act, and that such
Securities must be held unless a subsequent disposition is registered under the
1933 Act or is exempt from such registration. The Subscriber agrees that if, in
the future, the Subscriber should decide to dispose of
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<PAGE> 3
any of the Securities acquired by it pursuant to this Agreement, the Subscriber
will do so only pursuant to a registration statement or by disposition exempt
from registration requirements under the 1933 Act.
(e) Preferred Stock and Company Shares Legend. The Preferred
Stock, Company Shares, the Commission Shares and the shares of Common Stock
issuable upon the exercise of the Warrants and Placement Warrants shall bear the
following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE SHARES MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO BIKERS DREAM, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED."
(f) Warrants Legend. The Warrants and Placement Warrants shall
bear the following legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND THE
COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT AND APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY
TO BIKERS DREAM, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
(g) Communication of Offer. The offer to sell the Securities was
directly communicated to the Subscriber. At no time was the Subscriber presented
with or solicited by any leaflet, newspaper or magazine article, radio or
television advertisement,
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or any other form of general advertising or solicited or invited to attend a
promotional meeting otherwise than in connection and concurrently with such
communicated offer.
(h) Subscriber's Reliance. The Subscriber acknowledges that the
Subscriber has not relied upon the Company or the Company's attorneys or
advisers for legal or tax advice, and has, if desired, in all cases sought the
advice of the Subscriber's own personal legal counsel and tax advisers.
(i) Regulatory Compliance. Subscriber agrees that Subscriber and
its affiliates will comply with all relevant rules and regulations of the
Securities Exchange Act of 1934, as amended, as they relate to short sales of
the Securities. As of the date hereof and as of the Closing Date, the Subscriber
and its affiliates will not have a short position in the Common Stock.
(j) Correctness of Representations. The Subscriber represents
that the foregoing representations and warranties are true and correct as of the
date hereof and, unless the Subscriber otherwise notifies the Company prior to
the Closing Date (as hereinafter defined), shall be true and correct as of the
Closing Date. The foregoing representations and warranties shall survive the
Closing Date.
2. Company Representations and Warranties. The Company represents
and warrants to and agrees with the Subscriber that:
(a) Due Incorporation. The Company and each of its subsidiaries
is a corporation duly organized, validly existing and in good standing under the
laws of the state of its incorporation and has the requisite corporate power to
own its properties and to carry on its business as now being conducted. The
Company and each of its subsidiaries is duly qualified as a foreign corporation
to do business and is in good standing in each jurisdiction where the nature of
the business conducted or property owned by it makes such qualification
necessary, other than those jurisdictions in which the failure to so qualify
would not have a material adverse effect on the business, operations or
prospects or condition (financial or otherwise) of the Company.
(b) Outstanding Stock. All issued and outstanding shares of
capital stock of the Company and each of its subsidiaries
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<PAGE> 5
has been duly authorized and validly issued and are fully paid and
non-assessable.
(c) Authority; Enforceability. This Agreement has been duly
authorized, executed and delivered by the Company and is a valid and binding
agreement enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights generally and
to general principles of equity; and the Company has full corporate power and
authority necessary to enter into this Agreement and to perform its obligations
hereunder and all other agreements entered into by the Company relating hereto.
(d) Additional Issuances. There are no outstanding agreements or
preemptive or similar rights affecting the Company's common stock and no
outstanding rights, warrants or options to acquire, or instruments convertible
into or exchangeable for, or agreements or understandings with respect to the
sale or issuance of any shares of common stock or equity of the Company or other
equity interest in any of the subsidiaries of the Company, except as described
in the Reports or Other Written Information.
(e) Consents. No consent, approval, authorization or order of
any court, governmental agency or body or arbitrator having jurisdiction over
the Company, or any of its affiliates or NASDAQ or the Company's Shareholders is
required for execution of this Agreement, and all other agreements entered into
by the Company relating thereto, including, without limitation issuance and sale
of the Securities, and the performance of the Company's obligations hereunder.
(f) No Violation or Conflict. Assuming the representations and
warranties of the Subscriber in Paragraph 1 are true and correct and the
Subscriber complies with its obligations under this Agreement, neither the
issuance and sale of the Securities nor the performance of its obligations under
this Agreement and all other agreements entered into by the Company relating
thereto by the Company will:
(i) violate, conflict with, result in a breach of, or
constitute a default (or an event which with the giving of notice or the lapse
of time or both would be reasonably likely to constitute a default) under (A)
the articles of incorporation,
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<PAGE> 6
charter or bylaws of the Company, or any of its affiliates, (B) to the Company's
knowledge, any decree, judgment, order, law, treaty, rule, regulation or
determination applicable to the Company, or any of its affiliates of any court,
governmental agency or body, or arbitrator having jurisdiction over the Company,
or any of its affiliates or over the properties or assets of the Company, or any
of its affiliates, (C) the terms of any bond, debenture, note or any other
evidence of indebtedness, or any agreement, stock option or other similar plan,
indenture, lease, mortgage, deed of trust or other instrument to which the
Company, or any of its affiliates is a party, by which the Company, or any of
its affiliates is bound, or to which any of the properties of the Company, or
any of its affiliates is subject, or (D) the terms of any "lock-up" or similar
provision of any underwriting or similar agreement to which the Company, or any
of its affiliates is a party; or
(ii) result in the creation or imposition of any lien,
charge or encumbrance upon the Securities or any of the assets of the Company,
or any of its affiliates.
(g) The Securities. The Securities upon issuance:
(i) are, or will be, free and clear of any security
interests, liens, claims or other encumbrances, subject to restrictions upon
transfer under the 1933 Act and State laws;
(ii) have been, or will be, duly and validly authorized and
on the date of issuance and on the Closing Date, as hereinafter defined, and the
date the Preferred Stock is converted, the Securities will be duly and validly
issued, fully paid and nonassessable (and if registered pursuant to the 1933
Act, and resold pursuant to an effective registration statement will be free
trading and unrestricted);
(iii) will not have been issued or sold in violation of any
preemptive or other similar rights of the holders of any securities of the
Company;
(iv) will not subject the holders thereof to personal
liability by reason of being such holders; and
(h) Litigation. There is no pending or, to the best knowledge of
the Company, threatened action, suit, proceeding
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<PAGE> 7
or investigation before any court, governmental agency or body, or arbitrator
having jurisdiction over the Company, or any of its affiliates that would affect
the execution by the Company or the performance by the Company of its
obligations under this Agreement, and all other agreements entered into by the
Company relating hereto.
(i) Reporting Company. The Company is a publicly-held company
whose common stock is (and has been for the past 90 days) registered pursuant to
Section 12(g) of the Securities Exchange Act of 1934, as amended (the "1934
Act"). The Company's Common Stock is listed for trading on the NASDAQ SmallCap
Market. Pursuant to the provisions of the 1934 Act, the Company has timely filed
all reports and other materials required to be filed thereunder with the
Securities and Exchange Commission during the preceding twelve months.
(j) No Market Manipulation. The Company has not taken, and will
not take, directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in stabilization or manipulation of
the price of the common stock of the Company to facilitate the sale or resale of
the Securities or affect the price at which the Securities may be issued.
(k) Information Concerning Company. The Reports and Other
Written Information contain all material information relating to the Company and
its operations and financial condition as of their respective dates which
information is required to be disclosed therein. Since the date of the financial
statements included in the Reports, and except as modified in the Other Written
Information, there has been no material adverse change in the Company's
business, financial condition or affairs not disclosed in the Reports. The
Reports and Other Written Information do not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
(l) Dilution. The number of Shares issuable upon conversion (as
hereinafter defined) may increase substantially in certain circumstances,
including, but not necessarily limited to, the circumstance wherein the trading
price of the Common Stock declines prior to conversion of the Preferred Stock.
The Company's executive officers and directors have studied and fully understand
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<PAGE> 8
the nature of the Securities being sold hereby and recognize that they have a
potential dilutive effect. The board of directors of the Company has concluded,
in its good faith business judgment, that such issuance is in the best interests
of the Company. The Company specifically acknowledges that its obligation to
issue the Shares upon conversion of the Preferred Stock and exercise of the
Warrants and Placement Warrants is binding upon the Company and enforceable,
except as otherwise described in this Subscription Agreement, regardless of the
dilution such issuance may have on the ownership interests of other shareholders
of the Company.
(m) Stop Transfer. The Securities are restricted securities as
of the date of this Agreement. The Company will not issue any stop transfer
order or other order impeding the sale and delivery of the Securities at such
time as the Securities are registered for public sale or an exemption from
registration is available.
(n) Defaults. Neither the Company nor any of its subsidiaries is
in violation of its Articles of Incorporation or ByLaws. Neither the Company nor
any of its subsidiaries is (i) in default under or in violation of any other
material agreement or instrument to which it is a party or by which it or any of
its properties are bound or affected, which default or violation would have a
material adverse effect on the Company, (ii) in default with respect to any
order of any court, arbitrator or governmental body or subject to or party to
any order of any court or governmental authority arising out of any action, suit
or proceeding under any statute or other law respecting antitrust, monopoly,
restraint of trade, unfair competition or similar matters, or (iii) to its
knowledge in violation of any statute, rule or regulation of any governmental
authority material to its business.
(o) No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offering of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the 1933 Act or any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations of
The NASDAQ SmallCap Market ("NASDAQ SmallCap"), as applicable, nor will the
Company or any of
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<PAGE> 9
its affiliates or subsidiaries take any action or steps that would cause the
offering of the Securities to be integrated with other offerings. The Company
has not conducted and will not conduct any offering other than the transactions
contemplated hereby that will be integrated with the issuance of the Securities
for purposes of Rule 4460(i) of the NASDAQ Stock Market, Inc.'s Marketplace
Rules.
(p) Use of Proceeds. The proceeds of the Subscriber funds to be
released to the Company will be used for working capital and for expenses of
this offering.
(q) No General Solicitation. Neither the Company, nor any of its
affiliates, nor to its knowledge, any person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D under the Act) in connection with the offer or sale of
the Securities.
(r) Listing. The Company's common stock is quoted on, and listed
for trading on NASDAQ SmallCap Market. The Company has not received any notice
from NASDAQ that its Common Stock will be delisted from NASDAQ or that the
Common Stock does not meet all requirements for the continuation of such
listing.
(s) S-3 Eligibility. The Company currently meets, and will take
all necessary action to continue to meet, the "registrant eligibility"
requirements set forth in the general instructions to Form S-3.
(t) Correctness of Representations. The Company represents that
the foregoing representations and warranties are true and correct as of the date
hereof in all material respects and, unless the Company otherwise notifies the
Subscriber prior to the Closing Date, shall be true and correct in all material
respects as of the Closing Date. The foregoing representations and warranties
shall survive the Closing Date.
3. Regulation D Offering. This Offering is being made pursuant to
the exemption from the registration provisions of the Securities Act of 1933, as
amended, afforded by Rule 506 of Regulation D promulgated thereunder. On the
Closing Date, the Company will provide an opinion acceptable to Subscriber from
the Company's legal counsel opining on the availability of the Regulation D
exemption as it relates to the offer and issuance of
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<PAGE> 10
the Securities. A form of the legal opinion is annexed hereto as Exhibit C. The
Company will provide, at the Company's expense, such other legal opinions in the
future as are reasonably necessary for the conversion of the Preferred Stock,
Commission Shares, Warrants and Placement Warrants.
4. Reissuance of Securities. The Company agrees to reissue
certificates representing the Securities without the legends set forth in
Sections 1(e) and 1(f) above at such time as (a) the holder thereof is permitted
to dispose of such Securities pursuant to Rule 144(k) under the Act, or (b) upon
resale subject to an effective registration statement after the Securities are
registered under the Act. The Company agrees to cooperate with the Subscriber in
connection with all resales pursuant to Rule 144(d) and Rule 144(k) and provide
legal opinions necessary to allow such resales provided the Company and its
counsel receive reasonably requested certifications from the Subscriber and
selling broker, if any.
5. Redemption. The Company may not redeem the Securities without the
consent of the holder of the Securities, except as described in the Certificate
of Determination.
6. Legal Fees/Commissions. The Company shall pay to counsel to the
Subscriber its fee of $15,000 for services rendered to the Subscriber in
reviewing this Agreement and other subscription agreements for the aggregate
subscription amounts of up to $1,500,000 and acting as escrow agent. The Company
will pay a cash commission of three percent (3%) of the Purchase Price
designated on the signature page hereto to certain Placement Agents identified
on Schedule B hereto. The cash commissions and legal fees will be payable out of
funds held pursuant to a Funds Escrow Agreement to be entered into by the
Company, Subscriber and an Escrow Agent. The Company will also issue and deliver
to the Placement Agents as additional compensation Preferred Stock of the
Company ("Commission Shares") and Placement Warrants designated on Schedule B
hereto. The Commissions will be issued to the Placement Agents only when, as,
and if the corresponding subscription amount is released from escrow to the
Company. All the representations, covenants, warranties and undertakings,
including but not limited to registration rights made or granted to or for the
benefit of the Subscriber and the terms described in Sections 9.1, 9.2, and 9.3
hereof are hereby also made and granted to the Placement Agents in
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<PAGE> 11
respect of the Commission Shares, Placement Warrants and Company Shares issuable
upon exercise of the Placement Warrants.
7.1. Covenants of the Company. The Company covenants and agrees
with the Subscriber as follows:
(a) The Company will advise the Subscriber, promptly after
it receives notice of issuance by the Securities and Exchange Commission, any
state securities commission or any other regulatory authority of any stop order
or of any order preventing or suspending any offering of any securities of the
Company, or of the suspension of the qualification of the common stock of the
Company for offering or sale in any jurisdiction, or the initiation of any
proceeding for any such purpose.
(b) The Company shall promptly secure the listing of the
Company Shares, Commission Shares and Common Stock issuable upon the exercise of
the Warrants and Placement Warrants upon each national securities exchange, or
automated quotation system, if any, upon which shares of Common Stock are then
listed (subject to official notice of issuance) and shall maintain such listing
so long as any other shares of Common Stock shall be so listed. The Company will
use its best efforts to maintain the listing and trading of its Common Stock on
NASDAQ SmallCap, and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the National
Association of Securities Dealers ("NASD") and such exchanges, as applicable.
The Company will provide the Subscriber copies of all notices it receives
notifying the Company of the actual delisting of the Common Stock on any
exchange or quotation system on which the Common Stock is listed.
(c) The Company shall notify the SEC, NASD and applicable
state authorities, in accordance with their requirements, of the transactions
contemplated by this Agreement, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Securities to the Subscriber
and Placement Agents and promptly provide copies thereof to Subscriber.
(d) Until at least three (3) years after the effectiveness
of the Registration Statement on Form S-3 or such other Registration Statement
described in Section 10.1(iv) hereof,
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<PAGE> 12
the Company will (i) cause its Common Stock to continue to be registered under
Sections 12(b) or 12(g) of the Exchange Act, (ii) comply in all respects with
its reporting and filing obligations under the Exchange Act, and (iii) comply
with all requirements related to any registration statement filed pursuant to
this Agreement. The Company will not take any action or file any document
(whether or not permitted by the Act or the Exchange Act or the rules
thereunder) to terminate or suspend such registration or to terminate or suspend
its reporting and filing obligations under said Acts until the later of (i)
three (3) years after the effective date of the Registration Statement on Form
S-3 or such other Registration Statement described in Section 10.1(iv) hereof,
or (ii) the sale by the Subscribers and Placement Agents of all the Company
Shares issuable by the Company pursuant to this Agreement. Until at least two
(2) years after the Warrants and Placement Warrants have been exercised, the
Company will use its commercial best efforts to continue the listing or trading
of its Common Stock on NASDAQ SmallCap and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
the NASD and NASDAQ.
(e) The Company and Subscriber agree that until the Company
either obtains shareholder approval of the issuance of the Securities, or an
exemption from NASDAQ's corporate governance rules as they may apply to the
Securities, and an opinion of counsel reasonably acceptable to Subscriber that
NASDAQ's corporate governance rules do not restrict the conversion of the
Preferred Stock, Commission Shares and exercise of the Warrants (the
"Approval"), the Subscriber may not receive upon conversion of the Preferred
Stock and exercise of the Warrants nor may the Placement Agents receive upon
conversion of the Commission Shares more than the number of Company Shares
designated on the signature page hereof and on Schedule B hereof ("Section
7.1(e) Shares") upon conversion of the Preferred Stock, and Commission Shares
and/or exercise of the Warrants. The Company represents that this number
together with the aggregate of such amounts designated for all investors in the
initial $1,500,000 offering to which this Subscription Agreement relates, and
the Commission Shares and Common Stock issuable upon exercise of the Warrants
and Placement Warrants is not greater than 19.9% of the shares of Company's
common stock outstanding on the Closing Date. The Company undertakes to obtain
the Approval required pursuant to the NASDAQ's corporate governance to allow
conversion of all the Preferred
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<PAGE> 13
Stock, Commission Shares and dividends thereon and exercise of all the Warrants
and Placement Warrants. The Company covenants to file the proxy statement
relating to the Approval with the Commission on the sooner of (i) seven (7) days
after the filing with the Commission of the Company's Form 10-K for the year
ended December 31, 1998, or (ii) April 23, 1999 ("Proxy Filing Date"). The
Company further covenants to obtain the Approval no later than September 30,
1999 ("Approval Date"). The Company's failure to file the proxy on or before the
Proxy Filing Date or the Company's failure to obtain the Approval on or before
the Approval Date (either being an "Approval Default") shall be deemed an Event
of Default pursuant to Section 8 of the Certificate of Determination, but only
to the extent of the Preferred Stock, Commission Shares and dividends thereon
that may not be converted due to the Company's failure to obtain such Approval.
(f) The Company undertakes to use the proceeds of the
Subscriber's funds for general working capital purposes, and expenses of this
offering.
8. Covenants of the Company and Subscriber Regarding
Indemnifications.
(a) The Company agrees to indemnify, hold harmless,
reimburse and defend Subscriber against any claim, cost, expense, liability,
obligation, loss or damage (including reasonable legal fees) of any nature,
incurred by or imposed upon Subscriber which results, arises out of or is based
upon (i) any misrepresentation by Company or breach of any warranty by Company
in this Agreement or in any Exhibits or Schedules attached hereto, or Reports or
other Written Information; or (ii) any breach or default in performance by
Company of any covenant or undertaking to be performed by Company hereunder, or
any other agreement entered into by the Company and Subscribers relating hereto.
(b) Subscriber agrees to indemnify, hold harmless, reimburse
and defend the Company at all times against any claim, cost, expense, liability,
obligation, loss or damage (including reasonable legal fees) of any nature,
incurred by or imposed upon the Company which results, arises out of or is based
upon (a) any misrepresentation by Subscriber in this Agreement or in any
Exhibits or Schedules attached hereto; or (b) any breach or default in
performance by Subscriber of any covenant or undertaking to be
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<PAGE> 14
performed by Subscriber hereunder, or any other agreement entered into by the
Company and Subscribers relating hereto.
9.1. Conversion.
(a) The Preferred Stock and accrued dividends will be
convertible according to the procedure set forth in the Certificate of
Determination except that the Preferred Stock (not including the Put securities)
will be convertible commencing sixty-one (61) days after the Closing Date.
(b) The Company understands that a delay in the delivery of
the Company Shares after Conversion, and delivery of Preferred Stock
certificates representing the unconverted balance of a Preferred Stock
certificate tendered for conversion beyond the date described for such delivery
set forth in the Certificate of Determination or Mandatory Conversion Date (as
that term is employed in the Certificate of Determination), or late delivery of
a Mandatory Redemption Payment (as defined herein), as the case may be, (each of
the foregoing a "Delivery Date") could result in economic loss to the
Subscriber. As compensation to the Subscriber for such loss, the Company agrees
to pay late payments to the Subscriber for late delivery of Shares upon
Conversion and late delivery of a Preferred Stock certificates for the
unconverted portion of a Preferred Stock or late delivery of a Mandatory
Redemption Payment in the amount of $100 per business day after the Delivery
Date for each $10,000 of Stated Value of Preferred Stock being converted and
Preferred Stock certificate remaining undelivered or Mandatory Redemption
Payment not paid. The Company shall pay any payments incurred under this Section
in immediately available funds upon demand. Furthermore, in addition to any
other remedies which may be available to the Subscriber, in the event that the
Company fails for any reason to effect delivery of the Shares within three
business days after the Delivery Date, the Subscriber will be entitled to revoke
the relevant Notice of Conversion by delivery of a notice of revocation to the
Company whereupon the Company and the Subscriber shall each be restored to their
respective positions immediately prior to the delivery of such notice of
revocation, except that late payment charges described above shall be payable
through the date notice of revocation is given to the Company.
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(c) Nothing contained herein or in any document referred to
herein or delivered in connection herewith shall be deemed to establish or
require the payment of a rate of interest or other charges in excess of the
maximum permitted by applicable law. In the event that the rate of interest or
dividends required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Company to the Subscriber and thus refunded to the
Company.
9.2. Mandatory Redemption. In the event the Company may not issue
Shares on a Delivery Date because such issuance and delivery would be contrary
to NASDAQ's Corporate Governance Rules, or for any other reason except in
relation to the Shares not deliverable pursuant to Section 9.3 of this
Subscription Agreement, then at the Subscriber's election, the Company must pay
to the Subscriber on the Delivery Date a sum of money determined by multiplying
the Stated Value of Preferred Stock not convertible by 110% together with
accrued but unpaid dividend thereon ("Mandatory Redemption Payment"). The
Mandatory Redemption Payment must be received by the Subscriber on the same date
as the Company Shares otherwise deliverable. Upon receipt of the Mandatory
Redemption Payment, the corresponding Preferred Stock will be canceled and no
longer outstanding, and if the Holder is in possession of the corresponding
Preferred Stock, same will be returned to the Company.
9.3. Maximum Conversion. The Company and Subscriber shall not be
entitled to convert on a Conversion Date or effect a Mandatory Conversion of
that amount of the Preferred Stock in connection with that number of shares of
Common Stock which would be in excess of the sum of (i) the number of shares of
Common Stock beneficially owned by the Subscriber and its affiliates on a
Conversion Date, and (ii) the number of shares of Common Stock issuable upon the
conversion of the Preferred Stock with respect to which the determination of
this proviso is being made on a Conversion Date, which would result in
beneficial ownership by the Subscriber and its affiliates of more than 9.99% of
the outstanding shares of Common Stock of the Company. For the purposes of the
proviso to the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and Regulation 13d-3 thereunder, except as otherwise provided
in clause (i) of such proviso.
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10.1. Registration Rights; Procedure; Indemnification.
(a) Registration Rights. The Company hereby grants the
following registration rights to holders of the Securities.
(i) On one occasion, for a period commencing September 1,
1999, but not later than three years from the date hereof, the Company, upon a
written request therefor from any record holder or holders of more than 50% of
the aggregate of the Company's Shares issued and issuable upon Conversion of the
Preferred Stock (the Securities and securities issued or issuable by virtue of
ownership of the Securities, and the Put Securities defined in Section
11.1(b)(i) hereof if actually issued, being, the "Registrable Securities"),
shall prepare and file with the SEC a registration statement under the Act
covering the Registrable Securities which are the subject of such request,
unless such Registrable Securities are the subject of an effective registration
statement. In addition, upon the receipt of such request, the Company shall
promptly give written notice to all other record holders of the Registrable
Securities that such registration statement is to be filed and shall include in
such registration statement Registrable Securities for which it has received
written requests within 10 days after the Company gives such written notice.
Such other requesting record holders shall be deemed to have exercised their
demand registration right under this Section 10.1(i). As a condition precedent
to the inclusion of Registrable Securities, the holder thereof shall provide the
Company with such information as the Company reasonably requests. The obligation
of the Company under this Section 10.1(i) shall be limited to one registration
statement.
(ii) If the Company at any time proposes to register any
of its securities under the Act for sale to the public, whether for its own
account or for the account of other security holders or both, except with
respect to registration statements on Forms S-4, S-8 or another form not
available for registering the Registrable Securities for sale to the public,
provided the Registrable Securities are not otherwise registered for resale by
the Subscriber or Holder pursuant to an effective registration statement, each
such time it will give at least 30 days' prior written notice to the record
holder of the Registrable Securities of its intention so to do. Upon the written
request of the holder,
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received by the Company within 30 days after the giving of any such notice by
the Company, to register any of the Registrable Securities, the Company will
cause such Registrable Securities as to which registration shall have been so
requested to be included with the securities to be covered by the registration
statement proposed to be filed by the Company, all to the extent required to
permit the sale or other disposition of the Registrable Securities so registered
by the holder of such Registrable Securities (the "Seller"). In the event that
any registration pursuant to this Section 10.1(ii) shall be, in whole or in
part, an underwritten public offering of common stock of the Company, the number
of shares of Registrable Securities to be included in such an underwriting may
be reduced by the managing underwriter if and to the extent that the Company and
the underwriter shall reasonably be of the opinion that such inclusion would
adversely affect the marketing of the securities to be sold by the Company
therein; provided, however, that the Company shall notify the Seller in writing
of any such reduction. Notwithstanding the forgoing provisions, the Company may
withdraw any registration statement referred to in this Section 10.1(ii) without
thereby incurring any liability to the Seller.
(iii) If, at the time any written request for registration
is received by the Company pursuant to Section 10.1(i), the Company has
determined to proceed with the actual preparation and filing of a registration
statement under the 1933 Act in connection with the proposed offer and sale for
cash of any of its securities for the Company's own account, such written
request shall be deemed to have been given pursuant to Section 10.1(ii) rather
than Section 10.1(i), and the rights of the holders of Registrable Securities
covered by such written request shall be governed by Section 10.1(ii) except
that the Company or underwriter, if any, may not withdraw such registration or
limit the amount of Registrable Securities included in such registration.
(iv) The Company shall file with the Commission, on the
sooner of (y) seven (7) days after the filing with the Commission of the
Company's Form 10-K for the year ended December 31, 1998, or (z) April 23, 1999
(the "Filing Date"), and use its reasonable commercial efforts to cause to be
declared effective a Form S-3 registration statement (or such other form that it
is eligible to use) within ninety (90) days of the Closing Date in order to
register the Registrable Securities for resale and distribution under the Act.
The registration statement described
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in this paragraph must be declared effective by the Commission within 120 days
of the Closing Date (as defined herein) ("Effective Date"). The Company will
register not less than 14,800 shares of Common Stock in the S-3 registration
statement for each $25,000 of Stated Value of Preferred Stock subscribed for and
one share of Common Stock for each Commission Share and common share issuable
upon exercise of the Warrants and Placement Warrants. The Registrable Securities
shall be reserved and set aside exclusively for the benefit of the Subscriber
and Placement Agents, as the case may be, and not issued, employed or reserved
for anyone other than the Subscriber and Placement Agents, as the case may be.
Such registration statement will be promptly amended or additional registration
statements will be promptly filed by the Company as necessary to register
additional Company Shares to allow the public resale of all Common Stock
included in the actually issued Registrable Securities.
10.2. Registration Procedures. If and whenever the Company is
required by the provisions hereof to effect the registration of any shares of
Registrable Securities under the Act, the Company will, as expeditiously as
possible:
(a) prepare and file with the Commission a registration
statement with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for the period of the
distribution contemplated thereby (determined as herein provided), and promptly
provide to the holders of Registrable Securities copies of all filings;
(b) prepare and file with the 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 the period specified in paragraph (a) above and comply with the
provisions of the Act with respect to the disposition of all of the Registrable
Securities covered by such registration statement in accordance with the
Seller's intended method of disposition set forth in such registration statement
for such period;
(c) furnish to the Seller, and to each underwriter if any,
such number of copies of the registration statement and the prospectus included
therein (including each preliminary prospectus) as such persons reasonably may
request in order to facilitate the
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public sale or their disposition of the securities covered by such registration
statement;
(d) use its best efforts to register or qualify the
Seller's Registrable Securities covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the Seller and in the
case of an underwritten public offering, the managing underwriter shall
reasonably request, provided, however, that the Company shall not for any such
purpose be required to qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so qualified or to consent to
general service of process in any such jurisdiction;
(e) list the Registrable Securities covered by such
registration statement with any securities exchange on which the Common Stock of
the Company is then listed;
(f) immediately notify the Seller and each underwriter
under such registration statement at any time when a prospectus relating thereto
is required to be delivered under the Act, of the happening of any event of
which the Company has knowledge as a result of which the prospectus contained in
such registration statement, as then in effect, includes an untrue statement of
a material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances then existing;
(g) make available for inspection by the Seller, any
underwriter participating in any distribution pursuant to such registration
statement, and any attorney, accountant or other agent retained by the Seller or
underwriter, all publicly available, non-confidential financial and other
records, pertinent corporate documents and properties of the Company, and cause
the Company's officers, directors and employees to supply all publicly
available, non-confidential information reasonably requested by the seller,
underwriter, attorney, accountant or agent in connection with such registration
statement.
10.3. Provision of Documents.
(a) At the request of the Seller, provided a demand for
registration has been made pursuant to Section 10.1(i) or a request for
registration has been made pursuant to Section 10.1(ii), the Registrable
Securities will be included in a registration statement filed pursuant to this
Section 10. In the
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event of a firm commitment underwritten public offering in which the Registrable
Securities are so included, the lockup, if any, requested by the managing
underwriter may not exceed ninety (90) days after the effective date thereof.
(b) In connection with each registration hereunder, the
Seller will furnish to the Company in writing such information with respect to
itself and the proposed distribution by it as reasonably shall be necessary in
order to assure compliance with federal and applicable state securities laws. In
connection with each registration pursuant to Section 10.1(i) or 10.1(ii)
covering an underwritten public offering, the Company and the Seller agree to
enter into a written agreement with the managing underwriter in such form and
containing such provisions as are customary in the securities business for such
an arrangement between such underwriter and companies of the Company's size and
investment stature.
10.4. Non-Registration Events. The Company and the Subscriber
agree that the Seller will suffer damages if any registration statement required
under Section 10.1(i) or 10.1(ii) above is not filed within 60 days after
request by the Holder and not declared effective by the Commission within 120
days after such request [or the Filing Date and Effective Date, respectively, in
reference to the Registration Statement on Form S-3 or such other form described
in Section 10.1(iv)], and maintained in the manner and within the time periods
contemplated by Section 10 hereof, and it would not be feasible to ascertain the
extent of such damages with precision. Accordingly, if (i) the Registration
Statement described in Sections 10.1(i) or 10.1(ii) is not filed within 60 days
of such request, or is not declared effective by the Commission on or prior to
the date that is 120 days after such request, or (ii) the registration statement
on Form S-3 or such other form described in Section 10.1(iv) is not filed on or
before the Filing Date or not declared effective on or before the Effective
Date, or (iii) any registration statement described in Sections 10.1(i),
10.1(ii) or 10.1(iv) is filed and declared effective but shall thereafter cease
to be effective (without being succeeded immediately by an additional
registration statement filed and declared effective) for a period of time which
shall exceed 30 days in the aggregate per year but not more than 20 consecutive
calendar days (defined as a period of 365 days commencing on the date the
Registration Statement is declared effective) (each such event referred to in
clauses (i), (ii) and (iii) of this Section
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<PAGE> 21
10.4 is referred to herein as a "Non-Registration Event"), then, for so long as
such Non-Registration Event shall continue, the Company shall pay in cash as
Liquidated Damages to each holder of any Securities an amount equal to one (1%)
percent for the first thirty (30) days and two (2%) percent for each succeeding
thirty (30) days or part thereof, of the Purchase Price of the Preferred Stock
and Company Shares, the Stated Value of the Commission Shares or Company Shares
issued upon the conversion thereof, and the aggregate amount of the exercise
prices of the Warrants and Placement Warrants, whether or not exercised, then
owned of record by such holder as of the occurrence of such Non-Registration
Event. Payments to be made pursuant to this Section 10.4 shall be due and
payable immediately upon demand in immediately available funds. Upon the
occurrence of a Non-Registration Event, only in connection with the Preferred
Shares subscribed for hereunder (and not any Put Stock as defined herein)
related to the failure of the Registration Statement on Form S-3 or such other
form as described in Section 10.1(iv) hereof to be declared effective on or
before the Effective Date ("Non-Effectiveness Event"), then the Liquidated
Damages described above for the period from the Effective Date through August
30, 1999 shall be payable by the Company at the Subscriber's election, only by
either (y) the permanent reduction of the Conversion Price described in Section
4(b)(i) and 4(b)(ii) of the Certificate of Determination by one percent (1%) for
the first thirty (30) days and two (2%) percent for each succeeding thirty (30)
days or part thereof that such Non-Effectiveness Event continues, or (z) by the
delivery by the Company to the Subscriber of shares of Common Stock in an amount
determined by dividing the Liquidated Damage amount as calculated above by the
Conversion Price in effect on the first day of each thirty (30) day period
commencing on the date of occurrence of such Non-Effectiveness Event. The
Subscriber will notify the Company after August 30, 1999 as to which payment
provision of (y) or (z) above that the Subscriber elects. If the Subscriber
elects (z), the Common Shares must be delivered within ten (10) days of written
notification to the Company of Subscriber's election. Such shares are granted
all registration rights granted to the Subscriber in connection with the
Registrable Securities. The Company undertakes to include such shares in the
first registration statement to be filed in connection with the First Put or
Second Put as described in Section 11.1(b)(vi) hereof. The Subscriber agrees
that the occurrence of a Non-Effectiveness Event will not be deemed an Event of
Default pursuant to Section 8 of the Certificate of Determination unless such
Non-Effectiveness Event has occurred and is continuing on September 1, 1999. In
the event a mandatory payment for Preferred
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<PAGE> 22
Stock is demanded from the Company by the Holder of Preferred Stock, pursuant to
Section 8 of the Certificate of Determination, then the Liquidated Damages
described in this Section 10.4 shall no longer accrue from and after the date
the Holder receives the payment described in Section 8 of the Certificate of
Determination.
10.5. Expenses. All expenses incurred by the Company in complying
with Section 10, including, without limitation, all registration and filing
fees, printing expenses, fees and disbursements of counsel and independent
public accountants for the Company, fees and expenses (including counsel fees)
incurred in connection with complying with state securities or "blue sky" laws,
fees of the National Association of Securities Dealers, Inc., transfer taxes,
fees of transfer agents and registrars, fee of one counsel, if any, to represent
all the Sellers, and costs of insurance are called "Registration Expenses". All
underwriting discounts and selling commissions applicable to the sale of
Registrable Securities, including any fees and disbursements of any special
counsel to the Seller, are called "Selling Expenses". The Seller shall pay the
fees of its own additional counsel, if any.
The Company will pay all Registration Expenses in
connection with the registration statement under Section 10. All Selling
Expenses in connection with each registration statement under Section 10 shall
be borne by the Seller and may be apportioned among the Sellers in proportion to
the number of shares sold by the Seller relative to the number of shares sold
under such registration statement or as all Sellers thereunder may agree.
10.6. Indemnification and Contribution.
(a) In the event of a registration of any Registrable
Securities under the Act pursuant to Section 10, the Company will indemnify and
hold harmless the Seller, each officer of the Seller, each director of the
Seller, each underwriter of such Registrable Securities thereunder and each
other person, if any, who controls such Seller or underwriter within the meaning
of the 1933 Act, against any losses, claims, damages or liabilities, joint or
several, to which the Seller, or such underwriter or controlling person may
become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions
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in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in any registration
statement under which such Registrable Securities was registered under the Act
pursuant to Section 10, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the 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 the Seller, each such underwriter and each such controlling
person for any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Company will not be liable in any such case
if and to the extent that any such loss, claim, damage or liability arises out
of or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission so made in conformity with information furnished by any such
Seller, the underwriter or any such controlling person in writing specifically
for use in such registration statement or prospectus.
(b) In the event of a registration of any of the
Registrable Securities under the Act pursuant to Section 10, the Seller will
indemnify and hold harmless the Company, and each person, if any, who controls
the Company within the meaning of the Act, each officer of the Company who signs
the registration statement, each director of the Company, each underwriter and
each person who controls any underwriter within the meaning of the Act, against
all losses, claims, damages or liabilities, joint or several, to which the
Company or such officer, director, underwriter or controlling person may become
subject under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the registration statement under which such Registrable Securities were
registered under the Act pursuant to Section 10, any preliminary prospectus or
final prospectus contained therein, or any amendment or supplement thereof, or
arise out of or are based upon the 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 the Company and each such
officer, director, underwriter and
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<PAGE> 24
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action, provided, however, that the Seller will be liable hereunder
in any such case if and only to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in reliance upon and in
conformity with information pertaining to such Seller, as such, furnished in
writing to the Company by such Seller specifically for use in such registration
statement or prospectus, and provided, further, however, that the liability of
the Seller hereunder shall be limited to the proportion of any such loss, claim,
damage, liability or expense which is equal to the proportion that the public
offering price of the Registrable Securities sold by the Seller under such
registration statement bears to the total public offering price of all
securities sold thereunder, but not in any event to exceed the gross proceeds
received by the Seller from the sale of Registrable Securities covered by such
registration statement.
(c) Promptly after receipt by an indemnified party
hereunder of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party hereunder, notify the indemnifying party in writing thereof, but the
omission so to notify the indemnifying party shall not relieve it from any
liability which it may have to such indemnified party other than under this
Section 10.6(c) and shall only relieve it from any liability which it may have
to such indemnified party under this Section 10.6(c) if and to the extent the
indemnifying party is prejudiced by such omission. In case any such action shall
be brought against any indemnified party and it shall notify the indemnifying
party of the commencement thereof, the indemnifying party shall be entitled to
participate in and, to the extent it shall wish, to assume and undertake the
defense thereof with counsel satisfactory to such indemnified party, and, after
notice from the indemnifying party to such indemnified party of its election so
to assume and undertake the defense thereof, the indemnifying party shall not be
liable to such indemnified party under this Section 10.6(c) for any legal
expenses subsequently incurred by such indemnified party in connection with the
defense
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thereof other than reasonable costs of investigation and of liaison with counsel
so selected, provided, however, that, if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be reasonable
defenses available to it which are different from or additional to those
available to the indemnifying party or if the interests of the indemnified party
reasonably may be deemed to conflict with the interests of the indemnifying
party, the indemnified parties shall have the right to select one separate
counsel and to assume such legal defenses and otherwise to participate in the
defense of such action, with the reasonable expenses and fees of such separate
counsel and other expenses related to such participation to be reimbursed by the
indemnifying party as incurred.
(d) In order to provide for just and equitable
contribution in the event of joint liability under the Act in any case in which
either (i) the Seller, or any controlling person of the Seller, makes a claim
for indemnification pursuant to this Section 10.6 but it is judicially
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 10.6 provides for indemnification in
such case, or (ii) contribution under the Act may be required on the part of the
Seller or controlling person of the Seller in circumstances for which
indemnification is provided under this Section 10.6; then, and in each such
case, the Company and the Seller will contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after contribution
from others) in such proportion so that the Seller is responsible only for the
portion represented by the percentage that the public offering price of its
securities offered by the registration statement bears to the public offering
price of all securities offered by such registration statement, provided,
however, that, in any such case, (A) the Seller will not be required to
contribute any amount in excess of the public offering price of all such
securities offered by it pursuant to such registration statement; and (B) no
person or entity guilty of fraudulent misrepresentation (within the meaning of
Section 10(f) of the Act) will be entitled to contribution from any person or
entity who was not guilty of such fraudulent misrepresentation.
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11.1. Obligation To Purchase.
(a) The Subscriber agrees to purchase from the Company up to
the additional shares of Preferred Stock ("First Put Stock" and "Second Put
Stock", collectively "Put Stock") and up to the Warrants ("First Put Warrants"
and "Second Put Warrants", collectively "Put Warrants") described on the
signature page hereof for up to the aggregate consideration designated on the
signature page hereof (the "First Put" and the "Second Put").
(b) The agreement to purchase the Put Stock is contingent on
the following:
(i) The Company obtaining on or before the Approval Date,
the Approval described in Section 7.1(e) above in relation to all the
Securities, the Put Stock, Common Stock issuable upon conversion of the Put
Stock and dividends payable thereon, the Put Warrants and Common Stock issuable
upon exercise of the Put Warrants, and the Put Commissions (as hereinafter
defined) (the "Put Securities"), and the non-occurrence of an Approval Default
as described in Section 7.1(e) above.
(ii) As of the date the Approval is obtained, and the Put
Date (as hereinafter defined), the Company will be a full reporting company with
the class of Shares registered pursuant to Section 12(g) of the Securities
Exchange Act of 1934.
(iii) The Closing Bid Price (as defined in the Certificate
of Determination) for the five trading days prior to a Put Date will not be less
than $1.50.
(iv) No material adverse change in the Company's business
or business prospects shall have occurred. Material adverse change is defined as
any effect on the business, operations, properties, prospects, or financial
condition of the Company that is material and adverse to the Company and its
subsidiaries and affiliates, taken as a whole, and/or any condition,
circumstance, or situation that would prohibit or otherwise interfere with the
ability of the Company to enter into and perform any of its obligations under
this Agreement, or any
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other agreement entered into or to be entered into in connection herewith, in
any material respect.
(v) The non-occurrence (whether or not continuing) of an
Event of Default as described in Section 8 of the Certificate of Determination.
(vi) The execution and delivery to the Subscriber of a
subscription agreement substantially similar to this Subscription Agreement
containing substantially similar terms as this Subscription Agreement (not
including this Section 11). The aforedescribed subscription agreement to be
delivered in connection with the exercise of the First Put and Second Put must
include a section similar to Section 10 of this Subscription Agreement, however,
the corresponding required Filing Date and Effective Date of the S-3
registration statement described in Section 10.1(iv) of this Subscription
Agreement will be thirty (30) days from the First Put Closing Date (as defined
herein), for the First Put or from the Second Put Closing Date (as defined
herein) for the Second Put (for Filing Date) and the sooner of (y) ten (10) days
from the date the Company receives notice of "no review" from the Commission or
ninety (90) days from the First Put Closing Date for the First Put, or (z)
ninety (90) days from the Second Put Closing Date for the Second Put, (for
effectiveness), respectively. Liquidated damages described in Section 10.4
hereof will accrue from the aforedescribed Filing Date and Effective Date
relating to the securities issuable in connection with the First Put and Second
Put.
(vii) The Company's compliance with the listing
requirements of the NASDAQ SmallCap Market or such successor market, and the
Company's not having received notice from the NASDAQ SmallCap Market (or
successor market, if any) that the Company is not in compliance with the
requirements for continued listing.
(viii) The execution by the Company and delivery to the
Subscriber of all documents reasonably necessary to memorialize the rights and
obligations of each of the parties in relation to the Put, as set forth in this
Agreement.
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(c) The exercise of the Second Put is further contingent on
the declaration of effectiveness by the Securities and Exchange Commission and
the continued effectiveness of the Registration Statement on Form S-3 described
in Section 10.1(iv) hereof relating to the Registrable Securities and the
Company's ability to issue upon resale of the Common Stock which is issuable
upon conversion of the First Put Stock, exercise of the First Put Warrants and
Put Commissions relating to the First Put, pursuant to an effective registration
statement, with such Common Stock, upon resale, being unlegended freely
transferable Common Stock.
11.2. Exercise of Put.
(a) The Company's right to exercise the First Put expires
one week after the obtainment of the Approval described in Section 7.1(e). The
Company's right to exercise the Second Put expires seven (7) days after the
later of the effective date of the registration statement on Form S-3 relating
to the Registrable Securities described in Section 10.1(iv) above, and timely
obtainment of the Approval described in Section 7.1(e).
(b) The First Put and Second Put may be exercised by the
Company by the giving to the Subscriber of a written notice of exercise ("Put
Notice") during the respective exercise periods of the First Put and Second Put
in relation to all the subject Put Securities. The date a Put Notice is given is
a Put Date. The Put Notice must be accompanied by the original legal opinion
described in Section 7.1(e), executed subscription agreements described in
Section 11.1(b)(vi), and original legal opinion in substantially similar form as
Exhibit C hereto relating to the Put Securities for which a Put Notice is given.
(c) Unless otherwise agreed to by the Subscribers, Put
Notices must be given to all Subscribers in proportion to the amounts agreed to
be purchased by all Subscribers undertaking to purchase Put Shares in the
$1,500,000 offering to which this Subscription Agreement relates. The aggregate
amount of all such Put Notices may not exceed $1,500,000.
(d) Payment by the Subscriber in relation to a Put Notice
relating to the First Put must be made within seven
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(7) days of receipt of a Put Notice. Payment will be made against delivery to
the Subscriber or an escrow agent to be agreed upon by the Company and
Subscriber, of the First Put Stock, First Put Warrants, the subscription
agreement described in Section 11.1(b) above, legal opinions described in
Section 11.2(b) above, and delivery to the Placement Agents of the Put
Commissions relating to the First Put.
(e) Payment by the Subscriber in relation to a Put Notice
relating to the Second Put may be made as follows: (x) on the later of seven (7)
days after receipt by the Subscriber of a Put Notice or up to thirty (30) days
after the effective date of the registration statement relating to the First Put
Securities ("First Put Effective Date") if the trading volume of the Company's
Common Stock for the twenty-two (22) trading days prior to the First Put
Effective Date is not less than $400,000 per day as reported by the NASDAQ
SmallCap Market with a Closing bid price of not less than $1.00 during such
twenty-two (22) day period; (y) on the later of seven (7) days after receipt by
the Subscriber of a Put Notice or up to sixty (60) days after the First Put
Effective Date if the trading volume of the Company's Common Stock for the
twenty-two (22) trading days prior to the First Put Effective Date is not less
than $200,000 per day as reported by the NASDAQ SmallCap Market with a Closing
bid price of not less than $1.00 during such twenty-two (22) day period; (z) on
the later of seven (7) days after receipt by the Subscriber of a Put Notice or
up to one hundred (100) days after the First Put Effective Date if the trading
volume of the Company's Common Stock for the twenty-two (22) trading days prior
to the First Put Effective Date is not less than $35,000 per day as reported by
the NASDAQ SmallCap Market with a Closing bid price of not less than $1.00
during such twenty-two (22) day period. Payment will be made against delivery to
the Subscriber or an escrow agent to be agreed upon by the Company and
Subscriber, of the Second Put Stock, Second Put Warrants, the subscription
agreement described in Section 11.1(b) above, legal opinions described in
Section 11.2(b) above, and delivery to the Placement Agents of the Put
Commissions relating to the Second Put.
11.3. Put Warrants.
(a) The First Put Warrants and Put Commission Warrants (as
defined herein) payable in connection therewith will
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be identical to the Warrants except that the per share exercise price of the
underlying Common Shares shall be equal to 110% of the Closing Bid Price of the
Common Stock on the day a Put Notice is given in connection with the First Put.
The First Put Warrants will be exercisable commencing on the date a Put Notice
is given in connection with the First Put and for five years thereafter.
(b) The Second Put Warrants and Put Commission Warrants (as
defined herein) payable in connection therewith will be identical to the
Warrants except that the per share exercise price of the underlying Common
Shares shall be equal to 115% of the Closing Bid Price of the Common Stock on
the day a Put Notice is given in connection with the Second Put. The Second Put
Warrants will be exercisable commencing on the date a Put Notice is given in
connection with the Second Put and for five years thereafter.
11.4. Put Commissions. The Placement Agents identified on
Schedule B hereto shall receive commissions in connection with the exercise of
the First Put and Second Put as follows: (i) cash equal to three (3%) percent of
the purchase price of the Put Stock, as set forth on the signature page hereto;
(ii) Preferred Stock having a Stated Value equal to three (3%) percent of the
purchase price of the Put Stock as set forth on the signature page hereto; and
(iii) one First Put Warrant or one Second Put Warrant for each $60 of First Put
purchase price or Second Put purchase price paid by a Subscriber in connection
with the First Put or Second Put. Collectively, the foregoing are referred to as
Put Commissions. Put Commissions shall be payable only in connection with the
First Put Purchase Price and Second Put Purchase Price actually paid by a
Subscriber. It is a precondition to the exercise of a Put that the Put
Commissions be paid and that the attorney for the Subscriber receive a payment
equal to one (1%) percent of the Put purchase price.
12. Miscellaneous.
(a) Notices. All notices or other communications given or
made hereunder shall be in writing and shall be personally delivered or deemed
delivered the first business day after being telecopied (provided that a copy is
delivered by first class mail) to the party to receive the same at its address
set forth below or
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to such other address as either party shall hereafter give to the other by
notice duly made under this Section: (i) if to the Company, to Bikers Dream,
Inc., 11631 Sterling Avenue, Riverside, California 92503, Attn: Herm Rosenman,
CEO, telecopier number: (909) 343-1610, with a copy by telecopier only to Miller
& Holguin, Attn: Howard J. Unterberger, Esq., 1801 Century Park East, Seventh
Floor, Los Angeles, California 90067, telecopier number: (310) 557-2205, and
(ii) if to the Subscriber, to the name, address and telecopy number set forth on
the signature page hereto, with a copy by telecopier only to Grushko & Mittman,
Attn: Edward M. Grushko, Esq., 277 Broadway, Suite 801, New York, New York
10007, telecopier number: (212) 227-5865. Any notice that may be given pursuant
to this Agreement, or any document delivered in connection with the foregoing
may be given by the Subscriber on the first business day after the observance
dates in the United States of America by Orthodox Jewry of Rosh Hashanah, Yom
Kippur, the first two days of the Feast of Tabernacles, Shemini Atzeret Simchat
Torah, the first two and final two days of Passover and Pentecost, with such
notice to be deemed given and effective, at the election of the Subscriber on a
holiday date that precedes such notice. Any notice received by the Subscriber on
any of the aforedescribed holidays may be deemed by the Subscriber to be
received and effective as if such notice had been received on the first business
day after the holiday.
(b) Closing. The consummation of the transactions
contemplated herein shall take place at the offices of Grushko & Mittman, 277
Broadway, Suite 801, New York, New York 10007, upon the satisfaction of all
conditions to Closing set forth in this Agreement. The closing date shall be the
date that subscriber funds representing the net amount due the Company from the
Purchase Price are transmitted by wire transfer to the Company (the "Closing
Date"). The closing date for the First Put and Second Put shall be the
respective dates on which Subscriber funds representing the net amount due the
Company from the First Put Purchase Price and Second Put Purchase Price,
respectively due, transmitted by wire transfer to the Company ("First Put
Closing Date", "Second Put Closing Date").
(c) Entire Agreement; Assignment. This Agreement represents
the entire agreement between the parties hereto with respect to the subject
matter hereof and may be amended only by a
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<PAGE> 32
writing executed by both parties. No right or obligation of either party shall
be assigned by that party without prior notice to and the written consent of the
other party.
(d) Execution. This Agreement may be executed by facsimile
transmission, and in counterparts, each of which will be deemed an original.
(e) Law Governing this Agreement. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
without regard to principles of conflicts of laws. Any action brought by either
party against the other concerning the transactions contemplated by this
Agreement shall be brought only in the state courts of New York or in the
federal courts located in the state of New York. Both parties and the
individuals executing this Agreement and other agreements on behalf of the
Company agree to submit to the jurisdiction of such courts and waive trial by
jury. The prevailing party shall be entitled to recover from the other party its
reasonable attorney's fees and costs. In the event that any provision of this
Agreement or any other agreement delivered in connection herewith is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of any agreement.
(f) Specific Enforcement, Consent to Jurisdiction. The
Company and Subscriber acknowledge and agree that irreparable damage would occur
in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement and
to enforce specifically the terms and provisions hereof or thereof, this being
in addition to any other remedy to which any of them may be entitled by law or
equity. Subject to Section 12(e) hereof, each of the Company and Subscriber
hereby waives, and agrees not to assert in any such suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of such court,
that the
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<PAGE> 33
suit, action or proceeding is brought in an inconvenient forum or that the venue
of the suit, action or proceeding is improper. Nothing in this Section shall
affect or limit any right to serve process in any other manner permitted by law.
(g) Automatic Termination. This Agreement shall
automatically terminate without any further action of either party hereto if the
Closing shall not have occurred by the tenth (10th) business day following the
date this Agreement is accepted by the Subscriber.
33
<PAGE> 34
Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it shall
become a binding agreement between us.
BIKERS DREAM, INC.
By:________________________________
Herm Rosenman, CEO
Dated: January ____, 1999
Purchase Price:________________
Preferred Shares Purchased:_____(at $1,000 per share)
Common Stock Purchase Warrants:____________
Section 7.1(e) Shares:____________
ACCEPTED: Dated as of January ____, 1999
FIRST PUT
First Put Stock:_________Preferred Shares
First Put Warrants:____________
First Put Purchase Price:__________
SECOND PUT
Second Put Stock:__________Preferred Shares
Second Put Warrants:_______________
Second Put Purchase Price:_______________
[Name of Subscriber]
34
<PAGE> 35
SCHEDULE B TO SUBSCRIPTION AGREEMENT
<TABLE>
<CAPTION>
=========================================================================================================
PLACEMENT AGENT CASH COMMISSION PLACEMENT COMMISSION SECTION 7.1(e)
WARRANTS SHARES SHARES
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LIBRA FINANCE S.A. $13,500.00 -0- -0- -0-
P.O. Box 4603
Zurich, Switzerland
Fax: 011-411-201-6262
- ---------------------------------------------------------------------------------------------------------
SETTONDOWN CAPITAL INTERNATIONAL, $30,000.00 25,000 45 28,613
LTD.
600 California Street, 14th Floor
San Francisco, CA 94108
Fax: 415-835-8320
- ---------------------------------------------------------------------------------------------------------
TALBIA $ 1,500.00 -0- -0- -0-
c/o Ragnall House
18 Peel Road
Douglas, Isle of Man
1M1 4L2, United Kingdom
Fax: 011-972-36120639
- ---------------------------------------------------------------------------------------------------------
TOTALS $45,000.00 25,000 45 28,613
=========================================================================================================
</TABLE>
35
<PAGE> 1
EXHIBIT 5.1
February 11, 1999
Bikers Dream, Inc.
11631 Sterling Avenue
Riverside, CA 92503
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
Our opinion has been requested in connection with the Registration
Statement to which this opinion is filed as an exhibit.
We have examined the Registration Statement and have examined, and have
relied as to matters of fact upon, the originals or copies, certified or
otherwise identified to our satisfaction, of such corporate records, agreements,
documents and other instruments and such certificates or comparable documents of
public officials and of officers and representatives of the Company, and have
made such other and further investigations, as we have deemed relevant and
necessary as a basis for the opinion hereinafter set forth. Based on and subject
to the above, it is our opinion that of the total 3,330,601 shares of common
stock being registered, 1,282,212 shares which are currently outstanding are
duly authorized, legally issued, fully paid and non-assessable, and 2,048,389
shares when issued as contemplated under the terms of the warrants and the
convertible preferred stock governing their issuance, will be duly authorized,
legally issued, fully paid and non-assessable.
We are members of the Bar of the State of California and we do not
express any opinion herein concerning any law other than the law of the State of
California and the federal law of the United States.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the heading "Legal
Matters" in the prospectus forming a part of the Registration Statement.
Very truly yours,
MILLER & HOLGUIN
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated April 14, 1998, accompanying the consolidated
financial statements included in the Annual Report of Bikers Dream, Inc. on Form
10-KSB for the year ended December 31, 1997. We hereby consent to the
incorporation by reference of said report in the Registration Statement of
Bikers Dream, Inc. on Form S-3 and to the use of our name as it appears under
the caption "Experts."
/s/ SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
- ---------------------------------------------
Singer Lewak Greenbaum & Goldstein LLP
Los Angeles, California
February 11, 1999
