UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1995
Commission File Number33-4734-D
RILEY INVESTMENTS, INC.
(FORMERLY PACE GROUP INTERNATIONAL, INC.)
(Exact name of registrant as specified in charter)
Oregon 93-0950876
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2020 S.W. Fourth Avenue, Portland, Oregon 97201
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (503) 266-7223
Securities registered pursuant to section 12(b) of the Act:
Title of Class Name of each exchange on which registered
None None
Securities registered pursuant to section 12(g) of the Act:
None
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes
o No x
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. o
State issuer's revenues for its most recent fiscal year: $1,498,263.
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock as of a specified date within the past 60
days: As of May 3, 1996, the aggregate market price of the voting stock held by
non-affiliates was approximately $603,134.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of May 3, 1996, the Company had
outstanding 386,702 shares of its common stock, par value $0.0001.
Documents Incorporated by Reference. None.
Transitional Small Business Disclosure
Format (Check one): Yes o No x
TABLE OF CONTENTS
Item Number and Caption
PART I
ITEM 1. BUSINESS
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION OR PLAN OF OPERATION
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
ITEM 10. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
SPECIAL NOTE
This annual report on Form 10-KSB for the year ended October 31, 1995, of
Riley Investments, Inc., formerly Pace Group International, Inc. (the
"Company"), is being filed after its due date contemporaneous with the filing of
other periodic reports reporting events occurring after October 31, 1995,
including the following:
1. Quarterly report on Form 10-QSB for the period ended December 31,
1995;
2. Current report on Form 8-K for an event occurring on February 28,
1996; and
3. Current report on Form 8-K for an event occurring on November 1, 1995.
Such other periodic reports and the information set forth therein should be read
in conjunction with this annual report on Form 10-KSB, which contains
information as of October 31, 1995, unless otherwise indicated.
PART I
ITEM 1. BUSINESS
Riley Investments, Inc. (the "Company"), was previously known as Pace Group
International, Inc., operated until November 1, 1995, through its then wholly-
owned subsidiary, Pace International Research, Inc. ("PIR"), which globally
marketed English language training programs ("ELT") developed by the Company's
founder, Edwin T. Cornelius, Jr.
On September 20, 1995, the Company approved a 15-to-one reverse split of
the issued and outstanding shares of common stock of the Company. Unless
otherwise indicated, all share and per-share amounts referred to herein have
been retroactively adjusted to give effect to such reverse split.
Despite the proprietary nature of its products, the Company continually
failed to generate net income since inception (except for the years 1991 and
1993), and as of October 31, 1995, had an accumulated deficit of $897,388.
Prior to fiscal year end, management and the board of directors of the Company
determined that a substantial infusion of new capital was necessary in order for
the Company to continue its business and operations. Additional capital was
also required for repayment of substantial debt owed to Mr. Cornelius,
president, director, and controlling shareholder. Because it was unlikely that
the Company could obtain the additional capital necessary to continue its
operations and to repay amounts owed to Mr. Cornelius, effective November 1,
1995, the Company completed a series of transactions whereby it exchanged
substantially all of its assets and liabilities to extinguish the debt owed to
Mr. Cornelius, such assets including the Company's operating assets and its
equity ownership of PIR, the wholly-owned subsidiary of the Company through
which its operations were conducted. These transactions were approved by the
shareholders of the Company on September 20, 1995. On such date, the
shareholders also approved the 15-to-1 reverse stock split discussed above and
an amendment to the Company's articles of incorporation to exempt the Company
from application of Oregon Control Share Laws, which allowed the Selling
Shareholders to sell a majority of the issued and outstanding shares of the
Company's common stock to Bridgeworks Capital, owned and operated by Mark T.
Waller ("Bridgeworks"). Following the consummation of the foregoing
transactions, Mr. Waller was appointed director and president of the Company,
the previous directors resigned, the Company possessed no operating assets and
was controlled by Bridgeworks. For a more detailed description of the
transactions, see ITEM 13. "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
Following completion of the above transactions, the Company began a search
to acquire an interest in a business opportunity in order for it to continue
existence and conduct operations. The Company was open to a business
opportunity in any industry or geographical area and was prepared, therefore, to
engage in essentially any business activity in any industry, including
industries such as service, finance, natural resources, manufacturing, high
technology, product development, medical, communications, and others.
Management had unrestricted discretion in seeking and participating in a
business opportunity, subject to the availability of such opportunities,
financing, economic conditions, and other factors.
As a result of the foregoing process, on February 28, 1996, the Company
entered into a letter of intent to acquire Airfair Publishing, Inc. ("Airfair"),
an Austin, Texas-based travel service group that includes Airfair Magazine,
Interline Representatives, and Interline TRAVEL, in exchange for the issuance of
an aggregate of 9,180,000 shares of common stock, which would represent
approximately 96% of the common stock to be outstanding after the transaction.
As part of the transaction, representatives of Airfair would assume control of
the board of directors and management of the Company, whose name would be
changed to "Airfair Publishing, Inc." See Current Report on Form 8-K for
February 28, 1996.
The proposed acquisition of Airfair is subject to a number of conditions,
including, without limitation, the satisfactory completion of an investigation
and review by each party of the business and financial condition of the other,
the negotiation and execution of mutually agreeable definitive agreements
containing, among other matters, customary representations and warranties of
each of the parties, the satisfaction of certain legal, accounting, and
regulatory requirements, the approval of the details of the transaction by the
respective boards of director of the parties, and certain other matters.
The Company has no employees or facilities. The Company's address is that
of its president, Mark Waller.
ITEM 2. PROPERTIES
The Company has no facilities, having assigned its lease to its previous
facilities as part of the disposition of its principal operating assets
effective November 1, 1995, as discussed in Item 1 above.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings, and no
material legal proceedings have been threatened by or, to the best of the
Company's knowledge, against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting of the shareholders of the Company was held September 20,
1995, at the offices of the Company in order for the shareholders to consider
certain matters that would facilitate disposition of the Company's assets and
liabilities and the transfer of controlling ownership the Company to
Bridgeworks. The special meeting was originally scheduled to be held June 20,
1995, pursuant to a proxy statement dated May 23, 1995, mailed to all then
shareholders of record by the Company, but was adjourned because a quorum of the
shareholders was not present. A supplemental notice dated September 7, 1995,
was mailed to all shareholders of record on August 21, 1995, giving notice of
the rescheduled meeting. On the record date for the special meeting, there were
a total of 5,800,531 shares of Company common stock issued and outstanding. Of
such shares, 2,905,486 were held by selling shareholders who intended to sell
the shares held to Bridgeworks Capital and 10,000 were held by Edwin T.
Cornelius, Jr., and his wife, Joanne K. Cornelius; such share, under applicable
Oregon laws, were not eligible to vote at the special meeting due to their
interest in the proposed transactions. See ITEM 12. "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS." Of the 2,885,045 shares entitled to vote on all matters
considered at the special meeting, 2,054,402 shares were represented in person
or by proxy. This was a sufficient number of shares to constitute a quorum. Of
the shares present and entitled to vote at the special meeting, 1,763,738 shares
voted "for" the items submitted to the shareholders and 290,664 shares voted
against such items. Accordingly, the following events and transactions were
approved by the shareholders at the special meeting:
1. Reverse Split. A 15 to 1 reverse stock split of the issued and
outstanding shares of common stock of the Company, reducing the issued and
outstanding shares from 5,800,531 to 386,702 shares.
2. Exchange of Assets and Liabilities of the Company for Extinguishment
of Debt Owed Edwin T. Cornelius, Jr. As of October 31, 1995, the Company owed
Edwin T. Cornelius, Jr., the Company's founder, principal shareholder, and chief
executive officer, approximately $370,570, excluding unpaid salary, for amounts
advanced to the Company by Mr. Cornelius. Given the Company's continuing losses
and lack of operating capital, it was unlikely that such amount would have ever
been repaid. Further, the Company did not have sufficient resources to pay Mr.
Cornelius' salary. Therefore, the board of directors adopted a plan to exchange
substantially all of the assets and liabilities of the Company in settlement of
the obligations owed to Mr. Cornelius. On October 31, 1995, pursuant to an
Asset Transfer Agreement, the Company transferred all of its assets, including
all equipment, inventory, receivables, and all other assets of the Company,
excluding only corporate records to PIR, which assumed all liabilities and
obligations related to such assets including trade payables, bank debt, unpaid
taxes and wages, and all other outstanding liabilities related to the assets and
the operations of the Company. On November 1, 1995, pursuant to a Stock
Transfer Agreement, the Company transferred its right, title, and interest in
and to the shares of common stock of PIR to Mr. Cornelius in consideration of
his guaranty of payment of all liabilities and obligations of PIR, including the
liabilities and obligations assumed by it in connection with the transfer of
assets from the Company, and the release and discharge of all liabilities and
obligations owed to Mr. Cornelius. Following consummation of the foregoing, the
Company had no operating assets to continue operations.
3. Amendment of the Company's Articles of Incorporation to Opt out of
Oregon Revised Statutes Section Section 60,801-60,816. Oregon law restricts
the voting rights of control shares when a controlling block of an Oregon
corporation's stock is acquired. Voting rights are restored once the
acquisition is approved by the shareholders. In order to facilitate a smooth
transition from present conditions and attract new business opportunities for
the Company, Bridgeworks required that the articles of incorporation be amended
to opt out of Oregon Revised Statutes sections 60.801-60.816, as is permitted by
Oregon Revised Statute 70.804(1). Therefore, the shareholders approved
amendment to the articles of incorporation of the Company to opt out of such
provision of Oregon law.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The over-the-counter trading in the Company's common stock commenced in
September 1986, following completion of its initial public offering.
During the preceding two years, the common stock of the Company has been
quoted from time to time by a limited number of market makers. However, the
trading volume for the common stock was limited, likely resulting in significant
changes in the trading price of the common stock as a result of relatively minor
changes in supply and demand. Consequently, the price of the common stock in
the trading market has fluctuated dramatically over short periods as a result of
factors unrelated to the business activities of the Company. Only a very
limited number of transactions are believed to have occurred for significant
periods during the preceding two years. Because of the lack of specific
transaction information and the Company's belief that quotations available are
particularly sensitive to actual or perceived supply and demand of stock, there
can be no assurance that the quotations are reliable indicators of a trading
market for the common stock. In this limited market, brokers typically publish
no fixed quotations to purchase a minimum number of shares at a published price,
but express a willingness to buy or sell the securities and from time to time
complete transactions in the securities at negotiated prices.
On May 3, 1996, the average bid and asked prices for the Company's common
stock were approximately $2.25 and $4.00, respectively.
On May 3, 1996, the Company had approximately 400 shareholders.
The Company has not paid any dividends since its inception and presently
anticipates that earnings, if any, will be retained for development of the
Company's business.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION OR PLAN OF OPERATION
General
As discussed in ITEM 1. "BUSINESS" and ITEM 12. "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS," the Company disposed of all of its operating assets and
began seeking a business opportunity to pursue. Therefore, the following
discussion of results of operations for the last fiscal year or any prior period
is unrelated to the Company's future operations.
Liquidity and Capital Resources
The Company incurred a net loss of $133,220 for the year ended October 31,
1995, as compared to a net loss of $172,659 in 1994. The Company had a working
capital deficit of $441,198 for the year ended October 31, 1995, as compared to
a working capital deficit of $31,143 as of December 31, 1994. As the Company
currently has no assets, it may require an infusion of capital to pursue any
available business opportunity.
October 31,
-------------------------------------------
1995 1994 1993
------------ ------------ -----------
Current Assets $144,473 $345,830 $382,452
Current Liabilities 585,671 263,443 413,705
------- ------- -------
Working Capital (Deficit) $(441,198) $ 82,387 $ (31,143)
========== ========= ==========
Included in current liabilities are current portions of deferred revenues
which the Company has earned in the amounts of $284,611 in 1994 and $54,534 in
1993. Said sums are also included in current accounts receivable.
There was no proprietary ELT work in progress at October 31, 1995 and 1994.
Due to the lack of sales activities during the past years, adjustments to reduce
book inventories to net realizable value were made during the year ended October
31, 1993.
During the year ended October 31, 1994, the Company finalized the sale of
some surplus equipment for $7,588. It is noted that the remaining book value of
all capital items totals $117,327 at October 31, 1995.
If the acquisition of Airfair Publishing, Inc., is completed, the Company
anticipates that it will need initial capital to complete the acquisition and
related expenditures and that the combined enterprise will thereafter benefit
from additional capital to fund an expansion of its proposed activities. The
Company intends to seek up to $250,000 in short-term equity capital through the
sale of securities to complete reports to shareholders and to be filed with
regulatory authorities, to negotiate and document the terms of the proposed
acquisition with Airfair, and to defray related transitional expenses.
Thereafter, the combined enterprise may seek additional equity capital through
the subsequent sale of securities. The amount of additional capital that may be
required has not been determined but will be dependent on the nature and extent
of the proposed expansion program to be developed as the terms of the Airfair
acquisition are negotiated.
Results of Operations
As the following comparison discloses, there was an increase in total gross
revenues in 1995 compared to 1994 of $585,896. The increase in post-production
revenues of approximately 22%, or $201,000, was due mainly to the loss of one
client and the necessary restructure of studio rates given the current industry
trends. Royalty and license fees decreased in 1995 compared to 1994 by
approximately 80%, or $79,394, due mainly to completion and delivery of a
primary ELT series to foreign customers in 1993. Also, a royalty agreement with
a foreign licensee that had been renewed annually since 1987 at $100,000 was
reduced by 50% due to limited marketability. During the year ended October 31,
1995, sales of books and tapes increased by about 585% compared to 1994, mainly
as a result of concentrated marketing efforts in Latin America.
GROSS REVENUES
Year Ended October 31,
------------------------------------------
1995 1994 Change
------------ ------------ -----------
Post-production services $ 782,010 $711,826 $ 70,184
Royalties and license fees 19,434 98,828 (79,394)
Books and tapes 696,819 101,713 595,106
------- ------- -------
Total $1,498,263 $912,367 $585,896
========== ======== ========
Gross profit decreased by approximately $16,000 in 1995 compared to 1994,
and costs of revenue increased in 1995 by approximately $602,000, compared to
October 31, 1994. Direct labor costs increased by approximately $44,000 at
October 31, 1995, compared to 1994 due to additional staffing for multi-media
production and certain publishing operations. There were additional revision
costs of about $31,000 at October 31, 1995, over and above costs expensed in
1994 relating to the same product.
Marketing expenses were approximately $11,000 less at October 31, 1995,
than the same period of 1994, due mainly to office and outside service expenses.
General administration expenses were about $46,000 less at October 31,
1995, than in 1994, due mainly to office downsizing and reduction in direct
labor costs.
Commitments and Contingencies
On October 31, 1995, the Company transferred substantially all of its
assets to PIR, and PIR assumed all liabilities and obligations related to such
assets. On November 1, 1995, the Company transferred its stock ownership in PIR
to Edwin T. Cornelius, Jr., who personally guarantied the payment of all
liabilities and obligations of PIR to the Company, including all such amounts as
assumed by PIR in connection with the transfer of the Company's assets. It is
not expected, therefore, that the Company will continue to have any obligations
in connection with its previous operating activities or that any such
obligations or liabilities may arise. However, there can be no assurance of the
foregoing, and it is possible that the Company, at some point in the future, may
become obligated to pay amounts in connection with the assets transferred to and
liabilities assumed by PIR.
During 1987 two investors advanced the Company $525,000 pursuant to profit
sharing agreements in which such investors were entitled to share in profits
earned by the Company in a specified project known as the "Worldnet Project."
The Company is no longer engaged in developing the Worldnet Project and it is
not believed that any amounts are owed to the investors in connection with the
project. However, there can be no assurance that this is the case. This
contingent liability has been assumed by PIR and is personally guarantied by Mr.
Cornelius.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of the Company are included beginning immediately
following the signature page to this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no disagreements with accountants on accounting or
financial disclosure matters.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Executive Officers and Directors
The Company's articles of incorporation provide that the board of directors
be divided into three classes as nearly equal in number as possible. The term
of office of each director is three years and until such director's successor is
elected and qualified. Directors may be removed, with or without cause, at a
meeting of stockholders called expressly for that purpose, on the vote of the
holders of two-thirds of the shares entitled to vote on the election of
directors. Vacancies on the board of directors are filled by a majority of the
remaining directors. Officers are elected at the annual meeting of directors
and serve at the pleasure of the board of directors. All officers of the Company
are elected by the board of directors at the first meeting after each annual
meeting of the Company's shareholders and hold office until their death or until
they resign or are removed from office.
In anticipation of the disposition of the Company's operating assets and
the sale of a majority of the issued and outstanding common stock of the Company
by the Selling Shareholders, John A. Stirek, John F. Cramer, Jr., and Gordon R.
Jacobson resigned as directors of the Company effective May 23, 1995. See ITEM
13. "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." The sole remaining
directors, Edwin T. Cornelius, Jr., and Joanne K. Cornelius, resigned following
the sale of the common stock held by the Selling Shareholders to Bridgeworks.
Prior to such resignations, Mark T. Waller was appointed a director. Mr. Waller
is now the sole director and executive officer of the Company.
Mark Waller has served as a director and president of the Company since
November 1, 1995. Since 1990, Mr. Waller has been president and founder of
Bridgeworks Capital, a merchant banking firm which arranges public and private
financing for and provides public relations services to client companies.
Mr. Waller has served a broad spectrum of companies as an officer and/or
director since 1982, previous to which he was involved in the export/export
business since 1972. Mr. Waller has resided in Oregon since 1968.
ITEM 10. EXECUTIVE COMPENSATION
No executive officer of the Company received cash compensation from the
Company in excess of $60,000 during the period from November 1, 1994, through
October 31, 1995. The compensation to Edwin T. Cornelius, Jr., the chief
executive officer of the Company during the last three fiscal years, is as
follows:
Annual Compensation
(a) (b) (c)
Name and Principal
Position Year Salary
Ended ($)
Oct. 31
Edwin T. Cornelius, Jr.
1995 $22,500
CEO 1994 $17,520
1993 $30,000
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth, as of May 3, 1996, the name, address, and
share holdings of each person who owns of record, or was known by the Company to
own beneficially, 5% or more of the 368,702 shares of common stock currently
issued and outstanding. Mark Waller is the sole director and executive officer
of the Company.
Number of Percentage
Name of Person Shares of
Ownership
Mark T. Waller 193,699(1) 50.1%
(1) These shares were sold by the Selling Shareholders to Bridgeworks Capital,
owned and operated by Mark Waller, the sole director and executive officer
of the Company. See "ITEM 13: CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Exchange of Assets and Liabilities of the Company
for Extinguishment of Debt Owed Edwin T. Cornelius, Jr.
As of October 31, 1995, the Company owed Edwin T. Cornelius, Jr., the
Company's founder, principal shareholder, and chief executive officer,
approximately $407,000, excluding unpaid salary, for amounts advanced to the
Company by Mr. Cornelius. Given the Company's continuing losses and lack of
operating capital, it was unlikely that such amount would have ever been repaid.
Further, the Company did not have sufficient resources to pay Mr. Cornelius'
salary. Therefore, the board of directors adopted a plan to exchange
substantially all of the assets and liabilities of the Company in settlement of
the obligations owed to Mr. Cornelius. On October 31, 1995, pursuant to an
Asset Transfer Agreement, the Company transferred all of its assets, including
all equipment, inventory, receivables, and all other assets of the Company,
excluding only corporate records to PIR, which assumed all liabilities and
obligations related to such assets including trade payables, bank debt, unpaid
taxes and wages, and all other outstanding liabilities related to the assets and
the operations of the Company. On November 1, 1995, pursuant to a Stock
Transfer Agreement, the Company transferred its right, title, and interest in
and to the shares of common stock of PIR to Mr. Cornelius in consideration of
his guaranty of payment of all liabilities and obligations of PIR, including the
liabilities and obligations assumed by it in connection with the transfer of
assets from the Company, and the release and discharge of all liabilities and
obligations owed to Mr. Cornelius. Following consummation of the foregoing, the
Company had no operating assets to continue operations.
On November 1, 1995, Bridgeworks Capital, owned and operated by Mark
Waller, acquired 2,905,486 shares of common stock of the Company (193,699 shares
after giving effect to the 15-to-one reverse stock split) for $10.00 from Edwin
T. Cornelius, Jr., Joanne K. Cornelius, Edwin T. Cornelius, III, and James D.
Cornelius, (collectively, the "Selling Shareholders") pursuant to an option for
the purchase of such shares. Prior to such purchase, the shareholders of the
Company approved (a) the 15 to 1 reverse stock split, (b) the exchange of the
Company's assets and liabilities in consideration of the cancellation of the
obligations and liabilities owed Edwin T. Cornelius, Jr., and (c) the amendment
to the articles of incorporation to opt out of the Oregon statutes prohibiting
voting by controlling shares of an Oregon corporation when a controlling block
of such corporation's shares are acquired In connection with Mr. Waller's
purchase of a majority of the issued and outstanding shares of common stock of
the Company from the Selling Shareholders, Edwin T. Cornelius, Jr., and Joanne
Cornelius resigned as directors and officers of the Company after appointing
Mark Waller a director.
In addition to the shares sold to Bridgeworks, the Selling Shareholders
retained an aggregate of 480,914 shares of common stock (Edwin T. Cornelius,
Jr., and Joanne K. Cornelius each retained 5,000 shares and Edwin T. Cornelius
III and James D. Cornelius each retained 235,457 shares). Edwin T. Cornelius,
Jr., is founder of the Company and PIR. Joanne K. Cornelius is his wife, and
Edwin T. Cornelius, III, and James Cornelius are his sons.
See also current report on Form 8-K, dated February 28, 1996.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
The following exhibits are included as part of this report at the location
indicated:
EXHIBIT INDEX
SEC
Exhibit Reference
Number Number Title of Document Location
3.01 3 Restated Articles of Incorporation This Filing
of Pace Group International, Inc.
3.02 3 Articles of Amendment to the This Filing
Articles of Incorporation of Pace
Group International, Inc.
3.03 3 Articles of Amendment to the This Filing
Articles of Incorporation of Pace
Group International, Inc.
3.04 3 Bylaws Incorporated
by reference
10.01 10 Stock Transfer Agreement dated Incorporated
November 1, 1995, between Edwin T. by
Cornelius, Jr., and Pace Group reference(1)
International, Inc.
10 02 10 Asset Transfer Agreement dated Incorporated
October 31, 1995, between Pace by
Group International, Inc., and reference(1)
Pace International Research, Inc.
10.03 10 Bill of Sale dated October 31, Incorporated
1995 by
reference(1)
10.04 10 Guaranty dated November 1, 1995, Incorporated
from Edwin T. Cornelius, Jr. by
reference(1)
(1) Incorporated by reference from the Company's current report on Form 8-K for
event occuring November 1, 1995.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Company has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, dated as of
the 3rd day of May, 1996.
RILEY INVESTMENTS, INC.
By /s/ Mark T. Waller
----------------------------
Mark T. Waller, President
(Principal Executive, Financial, and
Accounting Officer)
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the date indicated:
/s/ Mark T. Waller
------------------------------
Mark T. Waller, sole director
ISLER & CO.
OFFICES
PORTLAND
KLAMATH FALLS
EUGENE
MEDFORD
Independent Auditor's Report
----------------------------
December 13,1995
The Board of Directors
Riley Investments, Inc. (formerly
Pace Group International, Inc.)
Portland, Oregon
We have audited the accompanying consolidated balance sheets of Riley
Investments, Inc. (formerly Pace Group International, Inc. and Subsidiary) as of
October 31, 1995 and 1994, and the related consolidated statements of
operations, net capital deficiency and cash flows for each of the two years in
the period ended October 31,1995. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of Riley
Investments, Inc. (formerly Pace Group International, Inc. and its Subsidiary)
at October 31, 1995 and 1994, and the results of its operations and its cash
flows for each of the two years in the period ended October 31, 1995 in
conformity with generally accepted accounting principles.
As more fully described in Note 2, the Company transferred all assets
and its wholly owned subsidiary to the Company's majority shareholder effective
November 1, 1995.
/s/ Isler & Co., L.L.C.
FIRST INTERSTATE TOWER . 1300 S.W. FIFTH AVENUE . PORTLAND, OREGON 9720-5692 .
PHONE(503)224-5321-FAX(503)224-5505
RILEY INVESTMENTS, INC.
(formerly Pace Group International, Inc. and Subsidiary)
Consolidated Balance Sheets
October 31, 1995 and 1994
ASSETS 1995 1994
------ -------------- --------------
Current Assets:
Cash $ 36,562 $ 61,818
Accounts receivable,
less allowance for
doubtful accounts of 75,865 288,676
$5,000 ($17,000 in
1994)
Inventories 18,682 13,067
Prepaid expenses 466 6,103
Deposit 12,898 12,898
----------- -----------
Total current assets 144,473 382,562
----------- -----------
Property and equipment, at
cost:
Furniture and equipment 2,662,062 2,663,512
Less accumulated 2,554,735 2,445,167
----------- -----------
depreciation
Net property and 117,327 218,345
----------- -----------
equipment
Capitalized production -- 33,422
----------- -----------
costs
Total assets $ 261,800 $ 634,329
=========== ===========
Continued on next page.
RILEY INVESTMENTS, INC.
(formerly Pace Group International, Inc. and Subsidiary)
Consolidated Balance Sheets (Continued)
October 31. 1995 and 1994
LIABILITIES AND NET
CAPITAL DEFICIENCY 1995 1994
-------------- --------------
Current Liabilities:
Note payable $ 20,000 $ 20,000
Accounts payable 33,929 31,157
Accrued liabilities 120,467 40,908
Deferred revenues -- 284,611
Long-term debt due
within one year 40,705 37,029
Long-term debt to
related party due
within one year 370,570 --
----------- -----------
Total current
liabilities 585,671 413,705
----------- -----------
Long-term:
Long-term debt due after
one year 29,357 70,062
Long-term debt to
related party due
after one year -- 370,570
----------- -----------
29,357 440,632
----------- -----------
Contingency
Net capital deficiency
Common stock, $.0001 par
value; 16,000,000
shares authorized;
5,800,531 shares
issued and outstanding 580 580
Additional paid-in
capital 543,580 543,580
Retained deficit (897,388) (764,168)
------------ ------------
Net capital deficiency (353,228) (220,008)
------------ ------------
Total liabilities and
net capital deficiency $ 261,800 $ 634,329
=========== ===========
See accompanying notes to consolidated financial statements.
RILEY INVESTMENTS, INC.
(formerly Pace Group International, Inc. and Subsidiary)
Consolidated Statements of Operations
Years ended October 31 1995 and 1994
1995 1994
-------------- --------------
Revenues $1,498,263 $ 912,367
Cost of revenues 1,245,751 643,974
-------------- ---------------
Gross profit 252,412 268,393
-------------- ---------------
Operating expenses:
Marketing 74,677 85,284
General and
administrative 277,757 323,729
-------------- --------------
Total operating
expenses 352,434 409,013
-------------- --------------
Operating loss (100,022) (140,620)
Other income (expense):
Interest, net (33,198) (39,597)
Gain on disposal of
property and equipment -- 7,558
-------------- --------------
Total other income (33,198) (32,039)
-------------- --------------
(expense)
Net loss $ (133,220) $ (172,659)
============== ==============
Net loss per share $ (.02) $ (0.3)
============== =============
See accompanying notes to consolidated financial statements.
RILEY INVESTMENTS, INC.
(formerly Pace Group International Inc. and Subsidiary)
Consolidated Statements of Net Capital Deficiency
Years ended October 31 1995 and 1994
Additiona Net
Common l paid-in Retained capital
Stock capital deficit deficiency
Balance at October 31,
1993 $ 580 $543,580 $(591,509) $(47,349)
Net loss -- -- (172,659) (172,659)
---------- ---------- ---------- -----------
Balance at October 31,
1994 580 543,580 (764,168) (220,008)
Net loss -- -- (133,220) (133,220)
---------- ---------- ---------- ----------
Balance at October 31,
1995 $ 580 $543,580 $(897,388) $(353,228)
========== ========== =========== ===========
See accompanying notes to consolidated financial statements.
RILEY INVESTMENTS, INC.
(formerly Pace Group International, Inc. and Subsidiary)
Consolidated Statements of Cash Flows
Years ended October 31, 1995 and 1994
1995 1994
---------------- --------------
Cash flows from operating
activities:
Net loss $ (133,220) $ (172,659)
Adjustments to reconcile net
loss to net cash provided by
operating activities:
Depreciation and
amortization 101,568 124,409
Amortization of capitalized
production costs 33,422 27,265
Gain on disposal of property
and equipment -- (7,558)
Provision for losses on
accounts receivable 4,462 15,089
Changes in assets and
liabilities:
Receivables 208,349 (31,041)
Inventories 5,615 1,279
Prepaid expenses 5,637 (2,805)
Accounts payable 2,772 (11,840)
Accrued liabilities 79,559 6,706
Deferred revenues (284,611) 230,077
---------------- --------------
12,323 178,922
---------------- --------------
Cash flows from investing
activities:
Purchase of property and
equipment (550) (49,727)
Proceeds from sale of
equipment -- 7,558)
---------------- --------------
(550) (42,169)
---------------- --------------
Cash flows from financing
activities:
Proceeds from short-term debt -- 30,000
Principal payments on short-
term debt -- (10,000)
Principal payments on long-
term debt (37,029) (150,397)
---------------- --------------
(37,029) (130,397)
---------------- --------------
Net increase (decrease) in cash (25,256) 6,356
Cash at beginning of year 61,818 55,462
---------------- --------------
Cash at end of year $ 36,562 $ 61,818
================ ==============
Supplemental disclosure of cash
flow information:
Cash paid during the year for
interest $ 10,975 $ 15,558
See accompanying notes to consolidated financial statements.
<PAGE>
RILEY INVESTMENTS, INC
(formerly Pace Group International, Inc. and Subsidiary)
Notes to Consolidated Financial Statements
October 31, 1995 and 1994
Note 1 - Significant accounting policies
- ----------------------------------------
Description of business
- -----------------------
Pace Group International, Inc., was incorporated in October, 1987
under the laws of the State of Oregon. On September 20, 1995, the stockholders
approved a name change of the company to Riley Investments, Inc. (the
"Company"). The Company owns 100% of Pace International Research, Inc. ("PIR").
The Company produces, develops and finishes English-Language-Training (ELT)
programs for worldwide sale, distribution or licensing in the form of
audio/video tapes and desktop publishing text materials. PIR also provides
audio/video post production services for commercial and industrial enterprises.
Basis of consolidation
- ----------------------
The consolidated financial statements include the accounts of the
Company and PIR. All significant intercompany accounts and transactions have
been eliminated.
Inventories
- -----------
Inventories, consisting of instructional textbooks and video tapes,
are stated at the lower of cost (first-in, first-out) or market.
Depreciation and amortization
- -----------------------------
Depreciation of furniture and equipment is computed using
straight-line and accelerated methods over estimated useful lives of five to
seven years.
Capitalized production costs
- ----------------------------
Costs associated with the production of video, audio and printed ELT
products are capitalized as either inventories or capitalized production costs.
The latter costs are generally amortized in the same ratio that current gross
revenues bear to anticipated total gross revenues for each product. In some
instances the original estimates of gross revenues may be revised as the sales
pattern evolves.
<PAGE>
RILEY INVESTMENTS, INC.
(formerly Pace Group Intentional, Inc. and Subsidiary)
Notes to Consolidated Financial Statements (Continued)
October 31, 1995 and 1994
Note 1 - Significant accounting policies (continued)
- ----------------------------------------------------
Revenue and cost recognition
- ----------------------------
Revenues from sales of products are recognized at the time products
are delivered. Revenues from services rendered are recognized as they are
performed. The Company receives royalties on the sale of educational materials
pursuant to the terms of certain licensing agreements. Royalties are recognized
as income when earned pursuant to the agreements.
Licensees also pay a fee for the right to distribute the Company's
products in designated territories. Recognition of income from these payments is
deferred until the period in which the materials are delivered and accepted by
the licensee in accordance with the terms of the license agreement.
Profit sharing plan
- -------------------
The Company has a profit sharing plan which qualifies under Section
401(K) of the Internal Revenue Code. Under the plan, eligible employees may
contribute up to the limit under Treasury Code Section 402(g).
Income taxes
- ------------
Certain items of income and expense are recognized for income tax
purposes in periods different from those in which such items are recognized for
financial reporting purposes. These items include advance royalty and license
fee income, production costs and depreciation expense. Tax credits have been
applied as a reduction of income tax expense on the flow-through method.
Loss per share
- --------------
For purposes of computing net loss per share, weighted average common
shares outstanding were 5,800,531 for each of the two years in the period ended
October 31, 1995.
Note 2 - Stock purchase agreement
- ---------------------------------
In connection with an Asset Transfer Agreement on October 31, 1995,
substantially all of the assets and liabilities of Pace Group International Inc.
were transferred to PIR. This transfer had no effect on the consolidated
financial statements as of October 31, 1995.
RILEY INVESTMENTS, INC.
(formerly Pace Group International, Inc. and Subsidiary)
Notes to Consolidated Financial Statements (Continued)
October 31, 1995 and 1994
Note 2 - Stock purchase agreement (continued)
- ---------------------------------------------
In connection with a Stock Transfer Agreement effective November 1,
1995, the company transferred all of the outstanding common stock of Pace
Intentional Research to Edwin T. Cornelius, Jr. the Company's majority
shareholder. As consideration for the stock, Edwin T. Cornelius, Jr. agreed to
indemnify and hold the Company harmless for any and all of the obligations
assumed.
By vote of the stockholders on September 20, 1995, the Company's
Articles of Incorporation are to be amended to provide for a 15 to 1 reverse
stock split of outstanding shares after October 31, 1995. Per share amounts in
the accompanying financial statements for the year ended October 31, 1995 have
not been adjusted for the approved split.
Note 3 - Business segments
- --------------------------
The Company develops, produces and finalizes ELT programs and also
provides audio/video post-production services. The following table indicates the
relative amounts of net sales and operating loss of the Company by this product
and this service for the years ended October 31, 1995 and 1994.
1995 1994
---------------- --------------
Revenues:
Post-production services $ 782,010 $ 711,826
ELT products:
Books and audio/video tapes 696,819 101,713
License fees 149 42,149
Royalties 19,285 56,679
---------------- --------------
Total revenues $ 1,498,263 $ 912,367
================ ==============
Operating loss:
Post-production services $ 22,360 $ (31,443)
ELT products (122,382) (109,177)
---------------- --------------
Total operating loss $ (100,022) $ (140,620)
<PAGE> ================ ==============
RILEY INVESTMENTS, INC.
(formerly Pace Group Intentional, Inc. and Subsidiary)
Notes to Consolidated Financial Statements (Continued)
October 31, 1995 and 1994
Note 4 - Accrued liabilities
- ----------------------------
Accrued liabilities consisted of the following at October 31, 1995 and 1994:
1995 1994
---------------- --------------
Accrued interest to
shareholder $ 51,880 $ 25,940
Payroll taxes and employee
benefits 40,869 9,073
Property taxes 1,821 2,436
Production advances 8,191 --
Other 17,706 3,459
---------------- --------------
$ 112,276 $ 40,908
================ ==============
Note 5 - Note payable
- ---------------------
Note payable consisted of borrowing against a $50,000 revolving credit line with
United States National Bank of Oregon. These borrowings bear interest at prime
plus 3% (11.75% per annum at October 31, 1995) and are collateralized by all
chattel paper, accounts, contract rights, and
general intangibles of the Company.
Note 6 - Long-term debt
- -----------------------
Long-term debt consisted of the following at October 31, 1995 and 1994:
1995 1994
---------------- --------------
Note payable to officer and
stockholder, interest at 7%
per annum, due November 1,
1995 $ 370,570 $ 370,570
Note payable in 60 monthly
installments of $3,802,
interest at 9.5% per annum
collateralized by video
equipment 70,062 107,091
---------------- --------------
440,632 477,661
Less amount due within one 411,275 37,029
---------------- --------------
year
$ 29,357 $ 440,632
================ ==============
Annual maturities of long-term debt for years ending after October 31, 1995 are
as
1996 $411,275
1997 29,357
----------
$440,632
========
Interest expense attributed to related party long-term debt was
approximately $25,940 for the year ended October 31, 1995 and 1994.
<PAGE>
RILEY INVESTMENTS, INC.
(formerly Pace Group International, Inc. and Subsidiary)
Notes to Consolidated Financial Statements (Continued)
October 31. 1995 and 1994
Note 7 - Income taxes
- ---------------------
The deferred tax asset comprised the following at October 31, 1995 and 1994:
1995 1994
-------------- ------------
Excess of financial accounting
over tax depreciation $ 50,926 $ 36,468
Accrual of shareholder
indebtedness interest 19,899 9,950
Allowance for doubtful accounts -- 6,521
Net operating loss and tax
credit carryforward 186,970 190,223
-------------- ------------
257,795 243,162
Less valuation allowance 257,795 243,162
-------------- ------------
$ -- $ --
============== ============
At October 31, 1995, the Company had net operating loss carryforwards
of approximately $180,000 available for federal income tax reporting purposes
and $940,000, available for state income tax reporting purposes that expire at
various dates through the year 2010. The Company also has investment tax credit
carryovers of approximately $75,000 which expires in the years 2000 and 2001,
and foreign tax credit carryovers of approximately $10,000 which expires in the
year 1997.
Note 8- Long-term leases
- ------------------------
The Company has operating leases with minimum annual lease rentals for
the years ending October 31 as follows:
1996 $144,381
1997 144,381
1998 84,222
---------
$372,984
=======
Rental expense, including common area costs, for the year ended October 31, 1995
was approximately $141,000 ($144,000 for 1994).
RILEY INVESTMENTS, INC.
(formerly Pace Group International, Inc. and Subsidiary)
Notes to Consolidated Financial Statements (Continued)
October 31, 1995 and 1994
Note 9 - Contingency
- --------------------
During 1987, the Company was advanced $525,000 by two investors
pursuant to profit-sharing agreements which provided that the investors share in
the profits of a specified project known as the "Worldnet Project". Under the
term of the profit-sharing agreements, the investors are entitled to receive all
of the profits, as defined by the agreements, from the Worldnet Project until
paid in full.
Thereafter, the investors are entitled to receive 70% of the profits
until they receive a 300% return and 50% of the profits until they receive a
700% return on their original investments, at which time their investments in
the Worldnet Project will terminate. Under the terms of one of the
profit-sharing agreements, the Company has granted the investor a security
interest in inventories and accounts receivable of the Worldnet Project. As of
October 31, 1995, no profits have been realized from the Worldnet Project.
Accordingly, the Company has not accrued any amount due under the profit-sharing
agreements in the accompanying financial statements.
Note 10 - Significant customers
- -------------------------------
One domestic customer accounted for approximately 29% of revenues in
1995 and 25% of revenues in 1994. Reimbursements from a foreign co-production
partner accounted for approximately 15% of revenues in 1995. Management does not
believe that the Company is economically dependent upon any single customer.
Revenues from foreign countries (primarily Japan) aggregated
approximately $224,000 for the year ended October 31,1995. Foreign sales were
not significant for the year ended October 31, 1994.
The Company's policy is to perform on-going credit evaluations of its
customers and generally does not require collateral. The Company maintains
reserves for potential credit losses and such losses have been within
RESTATED ARTICLES OF INCORPORATION
OF
PACE GROUP INTERNATIONAL INC
ARTICLE I
NAME
The name of the corporation is Pace Group International, Inc.
ARTICLE II
PURPOSES AND POWERS
The purpose for which the corporation is organized is to engage in any
lawful activity for which a corporation may be organized under the Oregon
Business Corporation Act, including, but not limited to, engaging in the
production, publication and distribution of educational materials in the form of
text books or other printed material, audio and video tapes and discs and such
other communication methods and techniques as may be developed in the future,
and the corporation shall have the same powers as an individual to do all things
necessary or convenient to carry out its business and affairs including but not
limited to the powers specified in the Oregon Business Corporation Act or which
may be hereafter granted by such law.
ARTICLE III
AUTHORIZED CAPITAL STOCK
A. Authorized Classes of Shares. The aggregate number of shares of all
----------------------------
classes which the corporation shall have authority to issue is four hundred ten
million (410,000,000) divided into two classes, as follows:
Ten million (10,000,000) shares of stock which shall have such preferences,
limitations and relative rights as are set forth in these Articles or in an
amendment to these Articles either by action of the shareholders or by the Board
of Directors pursuant to Section G of this Article III (hereinafter referred to
as "Preferred Stock"); and
Four hundred million ( 400, 000, 000 ) shares of common stock which,
subject to the voting rights, if any, of the Preferred Stock which may be
outstanding, shall together have unlimited voting rights and, subject to the
liquidation rights, if any, of the Preferred Stock which may be outstanding,
shall together be entitled to receive the net assets of the corporation upon
dissolution (hereinafter referred to as "Common Stock").
Except as otherwise may be provided with respect to Preferred Stock in an
amendment to these Articles by action of the shareholders or by the board of
Directors pursuant to Section G of this Article III, all shares of a class shall
have preferences, limitations and relative rights identical to those of all
other shares of the same class.
B. Voting Rights. Except as otherwise provided by the Oregon Business
-------------
Corporation Act or in an amendment to these Articles either by shareholder
action or by the Board of Directors pursuant to Section G of this Article III,
no shares shall have the right to vote as a separate voting group and each
outstanding share of Common Stock shall have one (l) vote and each outstanding
share of Preferred Stock shall have one ( 1 ) vote if such Preferred Stock is
not convertible into Common Stock or, if such Preferred Stock is convertible
into Common Stock, one ( 1) vote for each share of Common Stock which such
Preferred Stock may be converted into as of the record date for such vote
"Nonvoting shares of preferred Stock shall nonetheless have such voting rights
as are required by the Oregon Business Corporation Act. Holders of shares of
Common Stock and Preferred Stock shall not have the right to cumulate votes in
the election of directors.
C. Dividends. Subject to the prior and participating rights of any
---------
Preferred Stock at the time outstanding, the holders of Common Stock shall be
entitled to receive, when and as declared by the Board of Directors, out of any
assets of the corporation legally available therefor, such dividends as may be
declared from time to time by the Board of Directors. Nothing herein shall be
construed as obligation the Board of Directors to at any time declare any
dividend even though the corporation may have assets legally available to pay
such a dividend.
D. Redemption. Subject to any provision to the contrary contained in
----------
amendments to these Articles either by action of the shareholders or by the
Board of Directors pursuant to Section G of this Article III, the corporation
may repurchase its shares of Common Stock or Preferred Stock even though the
distribution made in connection with such repurchase would cause the difference
between the corporation' s total assets and its total liabilities to be less
than the amount that would be needed to satisfy the preferential liquidation
rights of all outstanding shares of classes or series of stock with liquidation
rights which are superior to those of the shares being repurchased by the
corporation were to be dissolved at the time of such repurchase.
E. Limitation. Subject to the prior and participating rights of any
----------
Preferred Stock at the time outstanding' upon the liquidation, dissolution or
winding up of the corporation, the net assets of the corporation after having
discharged or made adequate provision for discharging all of its liabilities,
shall be distributed to the holders of the Common Stock according to their
interests.
F. Preemptive Rights. No holder of any shares of Common Stock or
-----------------
Preferred Stock shall be entitled to any preemptive right to purchase or
subscribe for any unissued or treasury shares of the corporation.
G. Preferences, Limitations and Relative Rights of Preferred Stock. The
---------------------------------------------------------------
Board of Directors is expressly authorized to, from time to time by resolution
duly adopted, determine the preferences, limitations and relative rights of the
Preferred Stock as a whole or of one or more series of Preferred Stock. Such a
determination may include the following:
1. Voting. The voting rights of the shares including whether the
------
shares have special, conditional or limited voting rights or a statement to the
effect that the shares are nonvoting except to the extent voting rights are
required by the Oregon Business Corporation Act;
2 . Dividends. The dividend rate and preference, if any, and
---------
statements as to whether or not the shares will participate in dividends
declared on the Common Stock and whether such dividends will be cumulative,
noncumulative or partially cumulative;
3. Liquidations. The amount of liquidation preference, if any, and
-------------
a statement as to whether or not and if so when the shares will participate with
the Common Stock in liquidating distributions;
4 . Redemption . Whether the shares are redeemable at the option of
-----------
the corporation, the shareholder or another person Or upon the occurrence of a
designated event for cash or indebtedness in a designated amount or in an amount
determined by a designated formula or by reference to an extrinsic: event or
data, and statements as to the terms and conditions of such a redemption, if
any, and the procedures for effecting such a redemption and whether or not and
if so where and in what manner a sinking fund is to be created for the purpose
of funding any such redemption;
5. Conversion. Whether the shares are convertible at the option of
----------
the corporation, the shareholder or another person or upon the occurrence of a
designated event for other securities of the corporation in a designated amount
or in an amount determined by a designated formula or by reference to an
extrinsic event or data and statements as to the terms and conditions of such a
conversion, if any, and the procedures for effecting such a conversion; and
6. Other Terms. Such other preferences, limitations and relative
-----------
rights as the Board of Directors may determine. Any series of Preferred Stock
established by the Board of Directors shall include a designation of the series
so as to distinguish that series from all other series of Preferred Stock or
undesignated Preferred Stock. The resolution o Pounds the Board of Directors
establishing a series of Preferred Stock shall sot forth the number of shares to
be included in such series and all shares of such series which are thereafter
redeemed, converted, or, if so provided in the resolution, remain unissued on a
designated date or on the occurrence of an event shall cease to be of such
series and become undesignated Preferred Stock. All shares of a series shall
have preferences, limitations and relative rights identical to those of all
other shares of the same series. Any determination of the preferences,
limitations and relative rights of the Preferred Stock as a whole or of one or
more series of Preferred Stock by the Board of Directors shall constitute
articles of amendment to these Articles of Incorporation and shall become
effective without shareholder action upon filing as prescribed by the Oregon
Business Corporation Act. No shares of Preferred Stock or any series thereof
shall be issued by the corporation prior to the filing of articles of amendment
determining the preferences, limitations and relative rights of such shares.
ARTICLE IV
BOARD OF DIRECTORS
The number of directors of the corporation shall be as provided in the
corporation's bylaws. The names of directors constituting the initial Board of
Directors of the corporation shall be as elected by the incorporator at the
organizational meeting of the corporation.
ARTICLE V
LIMITATIONS ON LIABILITY OF DIRECTORS
No director of the corporation shall be personally liable to the
corporation or its stockholders for monetary damages for conduct as a director,
except that this provision shall not eliminate or limit the liability of a
director for any act or omission occurring prior to the date of adoption of this
Article and that this provision shall not eliminate or limit the liability of a
director for (a) any breach of the director's duty of loyalty to the corporation
or its stockholders; (b) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (c) any distribution to
shareholders which is unlawful under the Oregon Business Corporation Act or
successor statute; or (d) any transaction from which the director derived an
improper personal benefit. No amendment to or repeal of this section shall
apply to or have any effect on the liability or alleged liability of any
director of the corporation for or with respect to any acts or omissions prior
to such amendment or repeal.
If the Oregon Business Corporation Act is amended to authorize the further
elimination or limitation of the liability of directors, then the liability of a
director of the corporation shall be eliminated or limited to the fullest extent
permitted by the Oregon Business Corporation Act, as so amended.
ARTICLE VI
INDEMNIFICATION
A. Non-Derivative Actions. Subject to the provisions of Sections C and F
----------------------
below, the corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative, or investigative
(including all appeals) (other that an action by or in the right of the
corporation), by reason of or arising from the fact that the person is or was a
director or officer of the corporation or one of its subsidiaries, or is or was
serving at the request of the corporation as a director, officer, partner, or
trustee of another foregoing or domestic corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, against reasonable
expenses (including attorney's fees), judgments, fines, penalties, excise taxes
assessed with respect to any employee benefit plan and amounts paid in
settlement actually and reasonably incurred by the person to be indemnified in
connection with such action, suit or proceeding if the person acted in good
faith, did nor engage in intentional misconduct, and, with respect to any
criminal action or proceeding, did not know the conduct was unlawful. The
termination of any action,
suit or proceeding by judgment, order, settlement, conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, create a presumption
that the person did not act in good faith or, with respect to any criminal
action or proceeding, that the person knew that the conduct was unlawful .
B. Derivative Actions. Subject to the provisions of Sections C and F
------------------
below, the corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit ( including all appeals) by or in the right of the corporation to procure a
judgment in its favor by reason of or arising from the fact that the person is
or was a director or officer of the corporation or one of its subsidiaries, or
is or was serving at the request of the corporation as a director, officer,
partner, or trustee of another foreign or domestic corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, against
reasonable expenses (including attorneys' fees ) actually incurred by the person
to be indemnified in connection with the defense or settlement of such action or
suit if the person acted in good faith, provided, however, that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for deliberate
misconduct in the performance of that person's duty to the corporation, for any
transaction in which the person received an improper personal benefit, for any
breach of the duty of loyalty to the corporation, or for any distribution to
shareholders which is unlawful under the Oregon Business Corporation Act, or
successor statute, unless and only to the extent that the court in which such
action or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the court shall deem proper.
C. Determination of Right to Indemnification in Certain Cases. Subject
----------------------------------------------------------
to the provisions of Section E and F of below, indemnification under Sections A
and B of this Article shall not be made by the Corporation unless it is
expressly determined that indemnification of the person who is or was an officer
or director, or is or was serving at the request of the corporation as a
director, officer, partner, or trustee of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, is proper in the circumstances because the person has met the
applicable standard of conduct set forth in Sections A or B. That determination
may be made by any of the following:
(a ) By the Board of
directors by majority vote or a quorum consisting of directors [that] are not or
were not parties to the action, suit or proceeding;
(b) If a quorum cannot be obtained under paragraph (a) of this
subsection, by majority vote of a committee duly designated by the Board of
Directors consisting solely of two or more directors not at the time parties to
the proceeding (directors who are parties to the proceeding may participate in
designation of the committee);
(c) By special legal counsel selected by the Board of Directors or
its committee in the manner prescribed in (a) or ( b) or, if a quorum of the
Board of Directors cannot be obtained under (a) and a committee cannot be
designated under (b) the special legal counsel shall be selected by majority
vote of the full Board of Directors, including directors who are parties to the
proceeding;
(d) By the shareholders; or
(e) By a court of competent jurisdiction.
D. Indemnification of Persons Other then Officers or Directors. Subject
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to the provisions of Section F, in the event any person not included with the
group of persons referred to or in Sections A and B of this Article was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding of a type referred to in Sections A or B of
this Article by reason of or arising from the fact that such person is or was an
employee or agent ( including an attorney) of the corporation or one of its
subsidiaries, or is or was serving at the request of the corporation as an
employee or agent (including an attorney) of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, the Board of Directors of the corporation by a majority vote of a
quorum (whether or not such quorum consists in whole or in part of directors who
were parties to such action, suit or proceeding) or the stockholders of the
corporation by a majority vote of the outstanding shares may, but shall not be
required to, grant to such person a right of indemnification to the extent
described in Sections A or B of this Article as if the person were an officer or
director referred to therein, provided that such person meets the applicable
standard of conduct set forth in such Sections. Furthermore, the Board of
Directors may designate by resolution in advance of any action, suit or
proceeding, those employees or agents (including attorneys) who shall have all
rights of indemnification granted to officers and directors under this Article .
E. Successful Defense. Notwithstanding any other provision of Sections A,
------------------
B, C, or D of this Article, but subject to the provisions of Section F, to the
extent a director, officer, employee or agent (including an attorney) is
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Sections A, B or D of this Article, or in defense of
any claim, issue or matter therein, that person shall be indemnified against
expenses (including attorneys's fees) actually and reasonably incurred by him in
connection therewith.
F. Condition Precedent to Indemnification Under Sections A, B or D. Any
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person who desires to receive the benefits otherwise conferred by Sections A, B
or D of this Article shall promptly notify the corporation that the person has
been named a defendant to an action, suit or proceeding of a type referred to in
Sections A, B or D and intends to rely upon the right of indemnification
described in Sections A, B or C of this Article. The notice shall be in writing
and mailed, via registered or certified mail, return receipt requested, to the
President of the corporation at the executive offices of the corporation or, in
the event the notice is from the President, to the registered agent of the
corporation. Failure to give the notice required hereby shall entitle the Board
of Directors of the corporation by a majority vote of a quorum (consisting of
directors who, insofar as indemnity of officers or directors is concerned, were
not parties to such action, suit or proceeding, but who, insofar as indemnity of
employees or agents is concerned, may or may not have been parties ) or the
stockholders of the corporation by a majority of the votes entitled to be cast
by holders of shares of the corporation's stock which have unlimited voting
rights of the corporation to make a determination that such a failure was
prejudicial to the Corporation in the circumstances and that, therefore, the
right to indemnification referred to in Sections A, B or D of this Article shall
be denied in its entirety or reduced in amount.
G. Advances for Expenses. Expenses incurred by a person indemnified
---------------------
hereunder in defending a civil, criminal, administrative or investigative
action, suit or proceeding ( including all appeals) or threat thereof, may be
paid by the corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of such person to
repay such expenses if it shall ultimately be determined that the person is not
entitled to be indemnified by the corporation and a written affirmation of the
person's good faith belief that he or she has met the applicable standard of
conduct. The undertaking must be a general personal obligation of the party
receiving the advances but need not be secured and may be accepted without
reference to financial ability to make repayment.
H. Insurance. The corporation may purchase and maintain insurance on
---------
behalf of any person who is or was a director, officer, employee or agent of the
corporation or one of its subsidiaries or is or was serving at the request of
the corporation as a director, officer, partner, trustee, employee or agent of
another foreign or domestic corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise against any liability asserted against
and incurred by that person in any such capacity, or arising out of his status
as such, whether or not the corporation would have the power to indemnify that
person against such liability under the provisions of this Article or under the
Oregon Business Corporation Act.
I. Purpose and Exclusivity. The indemnification referred to in the
-----------------------
various Sections of this Article shall be deemed to be in addition to and not in
lieu of any other rights to which those indemnified may be entitled under any
statute, rule of law or equity, agreement, vote of the stockholders or board of
Directors or otherwise. The corporation is authorized to enter into agreements
of indemnification. The purpose of this Article is to augment the provisions of
the Oregon Business Corporation Act dealing with indemnification.
J. Severability. If any of the provisions of this Article is found, in
------------
any action, suit or proceeding, to be invalid or ineffective, the validity and
the effect of the remaining provisions shall not be affected.
DATED this day of , 1987.
----- ---------------------
Edwin T. Cornelius, Jr.
ARTICLES OF AMENDMENT TO
THE ARTICLES OF INCORPORATION OF
PACE GROUP INTERNATIONAL, INC.
Pursuant to ORS 60.444, the undersigned corporation hereby submits for
filing the following Articles of Amendment to its Articles of Incorporation:
1. The name of the corporation is Pace Group International, Inc.
2. The Articles of Incorporation are amended as follows:
Section VIII. Reverse Stock Split. The number of the corporation's issued
and outstanding shares of common stock shall be reduced from 5,800,531 to
386,702, more or less, by exchanging one new share for every fifteen shares
outstanding as of May 17, 1995. Any fractional shares created by such
reverse stock split will be replaced by script which shall provide that the
holder of such script is prohibited from exercising any rights of a
shareholder, including the right to vote, receive dividends or participate
in the assets of the corporation upon liquidation. Such script will be
issued upon the condition that the script will become void if not exchanged
for full shares within 30 days. Upon surrendering enough script to equal a
full share, any person shall receive in exchange therefor one full share of
common stock.
Section VII. ORS 60.801-60.816 Do Not Apply. The provisions of ORS
60.801-60.816, which govern control share acquisitions, do not apply to
acquisitions of the corporation's voting shares. Any voting shares that
were control shares prior to this amendment shall cease to be considered
control shares.
3. The amendments were approved by vote of shareholders on September 20,
1995. On the record date of August 21, 1995, there were a total of 5,800,531
shares of common stock outstanding, of which 2,885,045 were entitled to vote.
1,763,738 shares were voted in favor of the amendments, and 290,664 shares were
voted against.
4. Procedure for completing the reverse split. Upon the effective date of
this amendment, shareholders will be asked to exchange their certificates for
new certificates evidencing a 15 for 1 reverse split. Any fractional shares
created by the reverse split will be exchanged for script which will become void
if not exchanged for full shares within 30 days.
PACE GROUP INTERNATIONAL, INC.
/s/ Edwin T. Cornelius
------------------------------
Edwin T. Cornelius, Jr. President
Person to contact about this filing:
Thomas M. Johnson
A. Richard Vial & Associates, P.C.
5285 SW Meadows Road, Suite 350
Lake Oswego, OR 97035
ARTICLES OF AMENDMENT TO
THE ARTICLES OF INCORPORATION OF
PACE GROUP INTERNATIONAL, INC.
Pursuant to ORS 60.444, the undersigned corporation hereby submits for
filing the following Articles of Amendment to its Articles of Incorporation:
1. The name of the corporation is registered with the State of Oregon as
PACE,GROUP INTERNATIONAL, INC.
2. The articles of incorporation are amended as follows:
ARTICLE I.
Name
----
The name of the Corporation shall be RILEY INVESTMENTS, INC., and the
duration of the Corporation shall be perpetual.
3. The amendments were approved by vote of shareholders on September 20,
1995. On the record date of August 21, 1995, there were a total of 5,800,531
shares of common stock outstanding, of which 2,885,045 were entitled to vote.
1,763,738 shares were voted in favor of the amendments, and 290,664 shares were
voted against.
PACE GROUP INTERNATIONAL, INC.
/s/ Edwin T. Cornelius
------------------------------
Edwin T. Cornelius, Jr. President
Person to contact about this filing:
Thomas M. Johnson
A. Richard Vial & Associates, P.C.
5285 SW Meadows Road, Suite 350
Lake Oswego, OR 97035
