Proposed Acquisitions - Proposed Change in Primary Business
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On January 13, 1998, the Company entered into a revised Letter Agreement
("Letter Agreement") to acquire all of the stock (the "Paisano Acquisition")
of specialty magazine publisher Paisano Publications, Inc. and certain of its
affiliates (collectively the "Paisano Companies"). The Paisano affiliates
include Easyriders of Columbus, Inc., an Ohio corporation, Easyriders
Franchising, Inc., a California corporation, Teresi, Inc., a California
corporation, Bros. Club, Inc., a California corporation, and Associated Rodeo
Riders on Wheels, a California corporation. The Letter Agreement provides
that the Paisano Acquisition consideration will consist of $23 million in
cash, the assumption of a $7 million note payable, a $10 million subordinated
Seller Note (the "Seller Note") and the issuance of approximately 9,900,000
shares of Newriders, Inc. common stock.
Concurrent with the closing of the Paisano Acquisition, the Company
expects to acquire all of the ownership interests of M & B Restaurants, LLC, a
Texas limited liability company ("M & B Restaurants") which is doing business
as El Paso Barbecue Company. M & B Restaurants is the owner of four El Paso
Barbecue restaurants located in the southwest. The Company is proposing to
acquire M & B Restaurants (the "El Paso Acquisition") in exchange for
approximately 2,970,000 shares of the Company's common stock and the
assumption of approximately $2.6 million in debt. The Company and M & B
Restaurants entered into a Letter of Intent ("Letter of Intent") covering the
El Paso Acquisition on October 7, 1997.
In connection with the Acquisitions, the Company proposes to merge with a
wholly owned subsidiary of a wholly owned subsidiary (the "Subsidiary") of the
Company to be formed (the "Merger") with the result that a subsidiary of the
Company will essentially replace the Company, and the shareholders of the
Company will become shareholders of the Subsidiary. References to the Company
which relate to the prospective period following completion of the
Acquisitions and the Merger should be deemed to be references to the
Subsidiary, assuming completion of the Acquisitions and the Merger.
The Paisano Acquisition and the El Paso Acquisition (collectively, the
"Acquisitions") are subject to certain conditions and contingencies stated in
the Letter Agreement and Letter of Intent. The Company is currently seeking
debt financing of approximately $40 million (the "Senior Credit Facility") to
fund the cash portion of the Paisano Acquisition and to repay certain other
indebtedness of the Company. The Acquisitions are subject to, among other
standard closing conditions, the consummation of the Senior Credit Facility,
satisfactory completion of due diligence, execution of definitive acquisition
agreements, audits of the companies to be acquired, and shareholder approval.
Failure to satisfy any of the conditions may result in the Acquisitions not
being consummated, or in substantial changes to the terms of either or both of
the Acquisitions, including, without limitation, the consideration to be paid
by the Company. The Company anticipates filing a registration statement
and/or proxy statement with the Securities and Exchange Commission in
connection with soliciting shareholder approval for and consummating the
Acquisitions.
The Company is currently negotiating definitive acquisition agreements
with respect to each proposed Acquisition. However, as of the date of this
report, definitive acquisition agreements have not yet been signed by the
parties.
The El Paso Acquisition involves a related party transaction. William E.
Prather, who (together with his wife) is currently a 51% owner and manager of
M & B Restaurants, LLC, has served as the Company's President and Chief
Executive Officer since October, 1997. John E. Martin, the Company's Chairman
of the Board of Directors, purchased the remaining 49% ownership interest of M
& B Restaurants, LLC from the other owner in March 1998 for $1,500,000 in
cash.
Upon the closing of the Acquisitions, the Company's Board of Directors is
proposed to be increased to nine members, of which Joe Teresi, owner of the
Paisano Companies, will select three. John E. Martin and Joe Teresi have
agreed that as long as any amount is owing to Mr. Teresi under the Seller
Note, that they will vote their shares of the Company's common stock in favor
of electing three director nominees selected by Mr. Teresi.
Mr. Teresi will remain Chairman of Paisano Publishing, Inc. under an
employment agreement for a period of time to be agreed to prior to completion
of the Paisano Acquisition, for a salary equal to that paid to Mr. Martin by
the Company during the agreed-upon period. The Letter of Intent relating to
the El Paso Acquisition provides that William Prather will be employed as the
Company's Chief Executive Officer for a period of five years at an annual
salary of $200,000.
Upon the closing of the Paisano Acquisition, the primary business of the
Paisano Companies shall become the primary business of the Company. The
Paisano Companies serve the motorcycle and tattoo markets. The Paisano
Companies' core business includes the publication of 11 special interest
magazines including Easyriders, the leading motorcycle magazine in the world.
Based on industry audits, the Paisano Companies' seven motorcycle titles
(including the trade publications, Eagle's Eye) have collective annual
circulation of 4.1 million copies representing an estimated 70% share of the
U.S. motorcycle magazine market. Additionally, the Paisano Companies' three
tattoo titles collectively represent over 80% of the U.S. tattoo magazine
market. In addition, the Paisano Companies have focused on several lines of
business that exploit the Easyriders name including (i) a line of apparel and
other products for the Harley Davidson and tattoo lifestyle customers; and
(ii) three Company-owned Easyriders stores and 28 franchises which sell
Easyriders apparel, customized new and pre-owned American-made motorcycles and
motorcycle accessories; and (iii) promotional events such as motorcycle shows,
motorcycle rodeos and charity rides.
Following completion of the Acquisitions, the Company plans on becoming
an international media, entertainment and products company serving an
international demographic group that enjoys the "freedom-of-the-road"
lifestyle surrounding the American-made cruiser motorcycle. To increase sales
of products and services to the motorcycle market and to improve the existing
operations of the Paisano Companies, the Company intends to focus on several
important strategies including: (i) increasing the quantity, quality and
distribution of the Company's retail products such as motorcycles, parts,
accessories and apparel; (ii) increasing its post-acquisition revenue by
increasing magazine advertising sales; (iii) restructuring and expanding the
Paisano Companies' franchise system; (iv) building additional restaurants
incorporating the "Easyriders" theme; and (v) expanding the Paisano Companies'
international offerings for motorcycle and tattoo lifestyle products and
services. |
