Copy from 10K
Recent Developments
On April 8, 1999, in order to alleviate a cashflow shortage at Easyriders
resulting from restrictions under the Credit Agreement on the distribution of
funds from the Paisano Companies to Easyriders, the Company raised additional
capital by selling shares of its Common Stock to John Martin and Joseph Teresi
for $1,500,000 each. The shares were sold to Messrs. Martin and Teresi at a 25%
discount from market price, market price being determined as the average daily
closing price of the Common Stock on the American Stock Exchange over a certain
number of consecutive trading days ending on and including April 8, 1999. Each
of Messrs. Martin and Teresi received 1,397,950 shares of Easyriders Common
Stock as a result of such purchases. Mr. Martin paid cash for his shares, and
Mr. Teresi paid for his shares by forgiving $75,000 of interest and $1,425,000
of principal owed to him by the Company. As a result of such sales, the total
number of shares of Easyriders Common Stock owned by Mr. Martin increased from
5,269,497 (22.3% of the outstanding number of shares of Easyriders Common Stock
on a fully diluted basis) immediately before such sales to 6,667,447 (25.2% of
the outstanding number of shares of Easyriders Common Stock on a fully diluted
basis) immediately after such sales, and the total number of shares of
Easyriders Common Stock owned by Mr. Teresi increased from 6,993,507 (29.6% of
the outstanding number of shares of Easyriders Common Stock on a fully diluted
basis) immediately before such sales to 8,391,457 (31.7% of the outstanding
number of shares of Easyriders Common Stock on a fully diluted basis)
immediately after such sales. $718,163 of the cash paid by Mr. Martin for his
shares was used to repay the principal of and accrued interest on amounts
borrowed by the Company from Messrs. Martin and Teresi (the "Bridge Note
Proceeds") on February 23, 1999, which Bridge Note Proceeds were used to make a
$500,000 prepayment on the Nomura Indebtedness and for working capital at the
Paisano Companies and Easyriders. The remainder of the cash paid by Mr. Martin
for his shares will be used by the Company for working capital purposes. The
sale of Easyriders Common Stock to Messrs. Martin and Teresi was unanimously
approved by the members of the Board of Directors (other than Messrs. Martin and
Teresi) after extensive consideration of the circumstances, including but not
limited to, the cash needs of the Company and the absence of any viable
alternative funding sources. The Board of Directors also received and relied
upon, a written opinion of Imperial Capital, LLC ("Imperial") that the
$1,500,000 cash paid by Mr. Martin for his shares and the $1,500,000 forgiveness
of interest and principal given by Mr. Teresi in exchange for his shares are
fair to the Company's stockholders from a financial point of view.
On April 15, 1999, the Lender agreed to waive defaults under the Credit
Agreement relating to restricted payments, maximum leverage ratios, minimum
consolidated EBITDA and minimum interest coverage ratios. In addition, the
Lender agreed to amend the Credit Agreement in order to loosen certain covenants
for the 1999 calendar year relating to the maintenance of required levels of
working capital and EBITDA, maximum leverage ratios and minimum interest
coverage ratios. In addition, the Credit Agreement was amended to provide that
the results of operations Easyriders Franchising, Inc. and Teresi, Inc., will
not be consolidated with the other Paisano Companies for purposes of calculating
compliance with certain financial maintenance tests. The Credit Agreement was
also amended to provide that
3
<PAGE>
excess cash flow (as defined in the Credit Agreement) be used to prepay the
Nomura Indebtedness on a monthly basis (as opposed to bi-annually as previously
provided in the Credit Agreement). In consideration of the foregoing waivers and
amendments, the Company agreed to reduce the exercise price on warrants to
purchase 355,920 shares of Easyriders Common Stock, issued to the Lender at the
time the Credit Agreement was originally entered into, from $3.00 to $1.625.
In accordance with the agreement pursuant to which the Company acquired the
Paisano Companies from Joseph Teresi, a post-closing adjustment was to be made
based upon the amount by which working capital of the Paisano Companies as of
the closing of the acquisition exceeded or was less than $4,537,000. Based upon
a closing date balance sheet prepared by the Company, the Company determined
that the working capital of the Paisano Companies as of the closing was less
than $4,537,000. Mr. Teresi disputed that determination. After protracted
negotiations, the Board of Directors of the Company agreed on March 19,1999 to
accept a payable from Mr. Teresi (the "Teresi Payable") in the amount of
$398,085 in satisfaction of the working capital adjustment. The Teresi Payable
does not bear interest and, subject to prior payment in the circumstances
described below, is due when the entire principal and interest on the
$13,000,000 of promissory notes (the "Seller Notes") issued by the Company to
Mr. Teresi as partial consideration for the acquisition of the Paisano Companies
has been paid in full. Certain aged receivables of the Company which have been
fully reserved by the Company have been identified (the "Receivables") and to
the extent collections are received on the Receivables, a percentage of such
collections will be credited against the Teresi Payable. In addition, if the
Company determines that the amount of a pension accrual with respect to pre-
Reorganization operations of the Paisano Companies should be decreased, the
Teresi Payable will be reduced by the amount of such decrease. Furthermore, to
the extent that certain fully reserved inventory of the Company is sold or used
by the Company for promotional purposes, the Teresi Payable will be reduced by
the amount of sale proceeds or value assigned by the Company to such promotional
use. Also, if the Company receives a refund of any portion of a specified
foreign tax payable by the Company, the Teresi Payable will be reduced by the
amount of such refund. From and after the time the Teresi Payable has been
reduced to zero, Mr. Teresi will be entitled to receive (in cash, or if any of
the Nomura Indebtedness is outstanding, in the form of a non-interest bearing
receivable from the Company) the applicable percentage of collections on the
Receivables and all amounts, if any, attributable to a reduction in such pension
accrual and the sale or promotional use of such inventory.
On March 31, 1999, Joseph Teresi waived the default which existed on that
date with respect to the non-payment of interest on a $3,000,000 promissory note
from the Company. In addition, Mr. Teresi agreed that between March 31, 1999
and March 31, 2000 he would not make any claim of default in connection with the
non-payment of interest or principal which were due as of March 31, 1999 or
which would accrue between March 31, 1999 and March 31, 2000 on the $3,000,000
promissory note and two $5,000,000 promissory notes given to Mr. Teresi as part
of the consideration for the acquisition from him of the Paisano Companies. |
