SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT UNDER TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): FEBRUARY 28, 1996
Commission File Number: 33-4734-D
RILEY INVESTMENTS, INC.
(FORMERLY PACE GROUP INTERNATIONAL, INC.)
(Exact Name of Registrant as Specified in its Charter)
OREGON 93-0950786
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1820 NORTH SHORE ROAD
LAKE OSWEGO, OREGON 97034
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code:
(503) 226-7223
PACE GROUP INTERNATIONAL, INC.
2020 S.W. FOURTH AVENUE
PORTLAND, OREGON 97201
(Former name, former address, and formal fiscal year, if changed since
last report)
ITEM 5. OTHER EVENTS
On February 28, 1996, Riley Investments, Inc., signed a letter of intent to
acquire Airfair Publishing, Inc., an Austin, Texas-based travel services group
that includes Airfair Magazine, Interline Representatives, and Interline TRAVEL.
In the combination, Riley intends to issue 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 Riley, whose name would be changed to "Airfair Publishing, Inc."
Airfair Publishing, Inc., was recently organized to complete the
acquisition of its three operating divisions serving the interline travel
community that includes approximately 500,000 active airline employees and their
families (including parents) as well as airline retirees that have free or
substantially discounted airfare travel privileges. Airfair Magazine is a full-
size, four-color travel magazine that has been published in the interline
marketplace for more than 25 years and features stories on interesting vacation
destinations, regular columns on cruises, tours, and resorts, departments with
useful devices for interliners, and current listings of discounted travel
information.
Interline Representatives, which has been marketing discount travel to the
interline community since 1974, recently targeted parents of interliners and
airline retirees, a segment of the market with relatively high levels of
disposable income. Interline TRAVEL, in business for five years, represents
more than 500 hotel and resort properties offering discounted rates to airline
employees and their families. These three divisions, now combined in Airfair
Publishing, preliminarily reported revenue of over $9.6 million for 1995,
subject to year end adjustment and audit verification.
Riley has no assets or operations, having disposed of its previous
operating activities relating to marketing English language training programs
and changed its name to Riley Investments, Inc., in November 1995.
The combination between Riley and Airfair Publishing is subject to the
review by each party of the business and financial condition of the other, the
negotiation of a definitive agreement, the satisfaction of certain legal,
accounting, and regulatory requirements, the approval of the details of the
transaction by the boards of directors of each company, and certain other
matters.
Interline TRAVEL was purchased by the founders of Airfair in late 1994. It
had been organized in 1990 to sell discounted hotel packages to airline
employees, their families, and friends traveling with them. Interline TRAVEL
periodically produces and distributes to airline employees in breakrooms and
other employee workplace areas approximately 1,000,000 copies of a brochure that
provides information about its products, customer services, and prices for a
variety of hotel packages. The brochure is distributed by over 600 airline
employees that serve as Interline representatives. Interline TRAVEL targets the
middle-income market for airline employee travel. It had revenues of $1.6
million and $2.3 million for 1994 and 1995, respectively, with significant
revenue growth expected for 1996.
Interline Representatives, Ltd., acquired early in 1996, is a 15-year old
travel company specializing in the sale to cruises to airline employees, their
families, and accompanying friends. Interline Representatives has an
experienced staff to support its activities. It had estimated 1995 revenue of
$7.5 million.
Airfair Publishing, Inc., has published Airfair Magazine, which delivers
information about discounted travel to airline employees and their families, for
approximately 25 years. The magazine is printed quarterly and distributed to
approximately 50,000 subscribers, paid and controlled. Interline TRAVEL was an
advertiser in Airfair Magazine before it was acquired, and it is anticipated
that Interline TRAVEL will expand its visibility through this publication. The
magazine is over 80% advertising, with many of the advertisers displaying the
800-number of either Interline Representatives or Interline TRAVEL as the number
to call to complete purchases, thus providing Airfair with revenue from both
advertising and travel sales. Airfair is focusing on a number of significant
improvements to the editorial content and circulation of this magazine.
By combining these three operations, Airfair intends to use the 600 airline
employees who double as Interline TRAVEL representatives to increase the
subscription base for the Airfair Magazine.
Airfair Magazine's creative and advertising staff is located in Boca Raton,
Florida. The reservation departments of Interline TRAVEL and Interline
Representatives have been consolidated into Airfair's Austin offices.
Industry sources estimate that there are approximately 550,000 U.S.-based
airline employees who, along with their families and friends, travel on airlines
for free, taking up to 10,000,000 passenger trips per year. In 1995, the
combined Airfair companies served less than 25,000 passengers.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
EXHIBITS
The following exhibits are included as part of this report:
SEC
Exhibit Referen
Number ce Title of Document Location
Number
1.01 1 Letter of intent between This
Riley Investments, Inc., and filing
Airfair Publishing, Inc.,
dated March 1, 1996
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
RILEY INVESTMENTS, INC.
Dated: May 3, 1996 By /s/ Mark T. Waller
Mark T. Waller, President
RILEY INVESTMENTS, INC.
1820 North Shore Road
Lake Oswego, Oregon 97034
Telephone: (503) 635-9309
Telecopy: (503) 635-9911
February 28, 1996
LETTER OF INTENT
Mr. Matthew O'Hayer
1120 Capital of Texas Highway South
Building 3, Suite 300
Austin, Texas 78746
Dear Mr. O'Hayer:
In connection with our recent discussions, the purpose of this letter of
intent (this "Letter") is to set forth certain non-binding understandings and
certain binding agreements between Riley Investments, Inc., an Oregon
corporation ("Riley") and Airfair Publishing, Inc., a Delaware corporation
("Airfair"), with respect to the acquisition by Riley of Airfair, with the
effect that Airfair shall become a wholly-owned subsidiary of Riley.
Riley, formerly known as Pace Group International, Inc., is subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended,
pursuant to section 15(d) thereof (SEC File No. 33-4734-D) as a result of having
previously completed a public offering of securities pursuant to a registration
statement filed on Form S-18. Effective November 1, 1995, Riley disposed of all
of its operating assets, then held by a wholly-owned subsidiary, in exchange for
common stock, with the result that Riley currently has no activities or
operations and is essentially an inactive, publicly-held corporation with
nominal assets. Riley is currently preparing its annual report on Form 10-KSB
for the fiscal year ended October 31, 1995, and subsequent periodic reports that
may be due. Attached is a fact sheet that sets forth certain information
respecting the corporate structure and status of Riley. As of the date of this
letter, Riley has an aggregate of 386,000 shares of common stock issued and
outstanding.
Airfair is a newly organized corporation formed for the purpose of owning
as divisions, three operating entities, Interline Travel, Airfair Magazine, and
Interline Representatives, Limited. Airfair is now completing its organization
and share issuances so that immediately prior to the proposed reorganization
with Riley, Airfair will have an aggregate of 9,180,000 shares issued and
outstanding, consisting of 8,580,000 shares held by BEI Holding, Inc. ("BEI"),
and 600,000 shares held by the Airfair management group, some of whom are also
affiliated with and shareholders of BEI.
Based upon the foregoing, we provide as follows:
A. The following numbered paragraphs in this section A express our
understanding with respect to the matters described in them, but are expressly
understood not to constitute a complete statement of, or legally binding
agreement or commitment on the part of, either Riley or Airfair with respect to
the matters described in them:
1. The Transaction. On the terms and subject to the conditions to
be set forth in the definitive, legally binding, written agreement to be
negotiated between Riley and Airfair and, subject to the approval of their
respective boards of directors, to be executed by Riley and Airfair (the
"Agreement") Riley would acquire Airfair as a wholly-owned subsidiary in
exchange for an aggregate of 9,180,000 shares of Riley common stock,
issuable pro rata to the shareholders of Airfair in proportion to the
number of shares of Airfair common stock held by each of such shareholders
as of the closing date. Subject to adjustment to reflect the sale of
additional Riley stock as contemplated by subparagraph 17(b) of section B,
the shareholders of Airfair prior to the transaction would receive four
shares of Riley common stock for each share of Airfair previously held by
them. The transaction will be structured to qualify as a so-called "tax
free reorganization" under section 368(a)(1) of the Internal Revenue Code
of 1986, as amended. After giving effect to the foregoing issuance, the
persons owning all of the issued and outstanding shares of Airfair
immediately preceding the transaction would own approximately 96% of the
issued and outstanding shares of Riley immediately following the
transaction.
2. Approval by Shareholders of Riley. As quickly as practicable
following the closing, Riley would call a special meeting of its
shareholders to consider and take action on proposals to change the name of
Riley to Airfair Publishing, Inc., or such other name as may be available
and acceptable to Airfair and to approve an employee incentive plan, as
described below. In order to ensure approval of the matters submitted to
the shareholders for their consideration, at the closing, Mark T. Waller
("Waller") and John Detman, the newly elected directors of Riley, and BEI
shall execute and deliver to a mutually acceptable party their irrevocable
proxies or written consents voting in favor of or approving the proposed
shareholder action.
3. Restructured Board of Directors. At the time of closing, the
board of directors of Riley would be reorganized by expanding the board of
directors to consist of five persons and electing to the vacancies
resulting from such expansion designees of Airfair. Waller would remain a
director.
4. Issuance of Options. After the closing, the reorganized board of
directors of Riley shall adopt one or more employee incentive plans
providing for the issuance of options to purchase not more than an
aggregate of 10% of the issued shares for terms not to exceed seven years,
exercisable at a price of not less than the fair market value of the shares
of Riley as of the date of grant. At the closing, Riley shall issue to
Waller four-year options to purchase an aggregate of 800,000 shares of
common stock of Riley at $1.00 per share and options to purchase not more
than 1,040,000 shares to the Airfair Management Group and such other key
employees as Airfair may designate. Riley will agree with the optionees to
file at the earliest practicable date a registration statement on Form S-8
covering the issuance of the common stock on exercise of the options
granted pursuant to such plan or plans.
5. Investment Community Relations. At or prior to the closing, Riley
and Waller shall enter into a mutually satisfactory agreement under which
Waller shall assist and cooperate with the surviving company following the
closing to establish quality working relationships with securities broker-
dealers and other members of the investment community under such separate
arrangements as may be mutually acceptable.
6. Representations and Warranties. The Agreement will contain usual
and customary representations, warranties, covenants, and other agreements
on behalf of the respective parties with respect to, by way of example, but
not only, the following matters:
(a) Authority to enter into and perform the respective
obligations under the Agreement;
(b) The ownership of their respective assets;
(c) Representations and warranties as to the conduct of their
respective businesses, the condition of the assets, and other
representations and warranties as are customary for commercial
transactions of a similar nature;
(d) Indemnification of the parties in the event of a breach of
the representations and warranties, which shall survive the closing;
and
(e) Such other matters as are usual and customary in the
circumstances.
The indemnification obligation of Riley shall be secured by the options to
be granted to Waller as noted in paragraph 4 above.
7. Conditions of Closing. The closing will be subject to usual and
customary conditions, including:
(a) Obtaining necessary consents or approvals of governmental
agencies or other third parties;
(b) Obtaining any necessary consents or approvals of Airfair's
or Riley's shareholders;
(c) The absence of pending or threatened litigation regarding
both Riley and Airfair;
(e) The approval of legal matters and the delivery of closing
certificates and other closing documentation;
(f) The filing by Riley of all reports required to be filed by
it at or prior to the closing date with the Securities and Exchange
Commission under the Securities Exchange Act of 1934;
(g) The completion by Airfair of audited consolidated financial
statements of Airfair and its predecessors, if any, meeting the
requirements of item 310 of Regulation SB promulgated by the
Securities and Exchange Commission; and
(h) Such other matters as are usual and customary in commercial
transactions of this nature.
8. Conduct of Business. The parties agree that from and after the
date of this Letter and until the closing, both parties shall conduct their
business in the ordinary course consistent with their normal operations and
shall use reasonable efforts to preserve their respective assets and good
will and value. Until the closing, neither party will sell or contract to
sell its respective assets or operations; lease, license, transfer, pledge,
or otherwise dispose of or encumber any assets used in its business; or
enter into any transaction outside the ordinary course of business or enter
into any other agreement that would frustrate the purposes and intent of
the proposed acquisition.
9. Closing Date. The parties intend that the transaction
contemplated hereby be closed at the earliest practicable date, but in any
event by April 30, 1996.
B. In recognition of the costs to be borne by Riley and Airfair in
pursuing this transaction and in further consideration of their mutual
undertakings as to the matters described herein, upon execution of this letter
by Airfair, the following numbered paragraphs under this section B will
constitute the legally binding and enforceable agreement of Riley and Airfair.
10. Costs. Whether or not the transaction contemplated hereby is
consummated, each of the parties hereto will pay its respective costs and
expenses associated with the negotiation, preparation, execution, and
delivery of the definitive agreements respecting the subject matter hereof
and the consummation of the transaction. Riley shall pay all costs
incurred prior to the closing for negotiating and documenting the
transaction contemplated by this letter and for filing all reports required
to be filed prior to the closing with the Securities and Exchange
Commission so that Riley will have no further liability therefor after the
closing. After closing the transaction, Riley, as the surviving company,
shall bear the costs of subsequent reports filed with the Securities and
Exchange Commission and all costs and expenses associated with the
registration of the shares issuable pursuant to the options referenced
above under to the Securities Act and the Securities Exchange Act.
11. Availability of Records. Subject to the terms of confidentiality
as set forth in paragraph 12 below, the parties agree to afford each
other's employees, auditors, legal counsel, and other authorized
representatives, reasonable access to their properties, records, and
personnel in order to inspect, investigate, and audit the business records
and operations of the other at their own respective cost and expense. The
parties agree to conduct any such inspection, investigation, and audit in a
reasonable manner, during regular business hours, so as not to disrupt the
normal function of the parties' businesses.
13. Confidentiality. During the course of the due diligence review,
both Riley and Airfair will receive confidential and proprietary
information about the other. Riley and Airfair agree that each of them
shall at all times take all reasonable and necessary steps to safeguard the
confidentiality and proprietary information of the other party disclosed by
or on behalf of that party in connection with the proposed transaction,
that such information will be used solely for the purpose of evaluating the
proposed transaction, and that such information will not be disclosed to
any third party without the prior written consent of the other party to the
proposed transaction; provided, however, that the parties may disclose
information which at the time of disclosure is part of the public knowledge
and readily accessible to third parties or information which is required by
law to be disclosed. In the event the transaction contemplated hereby is
not consummated, both parties agree to return all documents (and copies
thereof) containing such confidential information to each other (or certify
to each other as to the destruction of such document and copies) and to
continue to maintain the confidentiality for all disclosed information.
While we prepare definitive documents, the parties agree to keep the
existence of the relationship and the plans to complete the transaction
confidential, except as necessary to engage professional advisors. You
acknowledge, however, that Riley is subject to the disclosure requirements
of the Securities Exchange Act and agrees that Riley can make such
announcements as are required by such Act; provided, however, that Riley
shall consult with Airfair as to content and form of any such disclosure
prior to making any such announcements. Riley will provide Airfair with
copies of any proposed public disclosures related to the transaction a
reasonable time in advance of any proposed release so that Airfair will
have the opportunity to comment.
14. No Transactions in Securities. During the pendency of the
transaction or the termination of substantive negotiations, neither Airfair
nor Riley nor any of their respective officers, directors, or affiliates
shall, directly or indirectly, purchase or sell, or acquire or dispose of
rights to purchase or sell, Riley common stock in the public trading market
for such stock.
15. Limitation on Third Party Contacts by Airfair. In consideration
of Riley's expenditure of funds towards the investigation of Airfair and
the negotiation of a definitive agreement respecting the transaction,
Airfair, its shareholders, and their respective affiliates will not enter
into any discussions, negotiations, arrangements, or understandings with
any third party with respect to the sale of Airfair, its business, or
assets or any joint venture or similar transaction involving Airfair, its
business, or assets. Airfair hereby represents to Riley that neither
Airfair nor any affiliate has entered into any agreement or understanding
with any third-party, which agreement or understanding is in effect on the
date hereof, regarding a transaction other than in the ordinary course of
business involving Airfair, its business, its stock, or its assets.
16. Limitation on Third Party Contacts by Riley. In consideration of
Airfair's expenditure of funds towards the investigation of Riley and the
negotiation of a definitive agreement respecting the proposed transaction,
Riley, its shareholders, and their respective affiliates will not enter
into any discussions, negotiations, arrangements, or understandings with
any third party with respect to the sale of Riley, its business, or assets
or any joint venture or similar transaction involving Riley, its business,
or assets. Riley hereby represents to Airfair that neither Riley nor any
affiliate has entered into any agreement or understanding with any third
party, which agreement or understanding is in effect on the date hereof,
regarding a transaction other than in the ordinary course of business
involving Riley, its business, its stock, or its assets.
17. Conduct of Activities. Except as otherwise contemplated hereby,
pending the execution and delivery of definitive agreements respecting the
subject matter hereof, or April 30, 1996, whichever occurs first, the
parties agree:
(a) To conduct their respective businesses in the ordinary
course; and
(b) Without the prior written consent of the other, each party
shall not (i) change its capital structure, including, but without
limitation, by reclassifying its outstanding securities or by issuing
additional shares of capital stock, securities convertible into shares
of capital stock, or other agreements, rights, or options exercisable
for or convertible into shares of capital stock, (ii) declare or issue
any dividends (in cash or securities) on any shares of capital stock
or pursuant to any agreements or arrangements, (iii) incur any bank
indebtedness, other than pursuant to bank lines of credit previously
established; provided that, any such permitted indebtedness shall be
incurred only in connection with the conduct of its business in the
ordinary course, or (iv) sell or otherwise dispose of any material
assets.
Notwithstanding the foregoing, with the consent of Airfair, Riley shall be
permitted to sell additional shares of common stock to provide funds for
the costs of this transaction and interim loans to Airfair to fund its
recent acquisitions.
If the foregoing is consistent with your understanding, please so indicate
in the space provided on a copy of this letter and return such executed copy to
me.
Sincerely,
RILEY INVESTMENTS, INC.
/s/
Mark T. Waller, President
The foregoing is accepted and agreed to this 1ST day of March, 1996:
AIRFAIR PUBLISHING, INC.
/s/
Joseph S. Juba, President
