SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): December 22, 1997
PACIFIC RIM ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-22808 95-4374983
- --------------- ------------------- -------------------
(State or other (Commission File No.) (IRS Employer
jurisdiction of Identification No.)
incorporation)
1661 East Camelback Road
Suite 245
Phoenix, AZ 85016
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(Address of principal executive office)
Registrant's telephone number, including area code: (602) 274-1299
----------------
401 City Avenue, Suite 319, Bala Cynwyd, PA 19004
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(Former name or former address, if changed since last report)
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ITEM 1: CHANGES IN CONTROL OF REGISTRANT
Description of Change in Control Transaction
On December 22, 1997, Pacific Rim Entertainment, Inc. (the "Company")
acquired Osage Computer Group, Inc. ("Osage") pursuant to the terms of a Merger
Agreement dated November 5, 1997 (the "Merger Agreement"), in a transaction that
resulted in a change in control of the Company. Upon the closing of the Merger,
through a wholly-owned subsidiary, the Company acquired 100% of the outstanding
capital stock of Osage in exchange for Merger consideration paid to the former
stockholders of Osage (the "Osage Stockholders") consisting of: (i) $500,000 in
cash; (ii) 900,000 newly-issued shares of Common Stock (subject to upward
adjustment in the event the trading price of the Company's Common Stock is below
$2.00 per share during an eighteen (18) month period following the Merger; (iii)
200,000 newly-issued shares of Common Stock; (iv) $1.5 million of Series B $3.00
Convertible Preferred Stock (the "Series B Shares"), which are convertible into
500,000 shares of Common Stock (subject to adjustment in the event that certain
performance criteria are not achieved subsequent to the Merger); and (v) options
with a term of six years that permit the purchase of 800,000 shares of Common
Stock, subject to an exercise price equal to the lower of: (a) $3.00 per share;
or (b) the average of the closing bid and ask prices of shares of the Company's
Common Stock on the principal exchange, automated quotation system or
over-the-counter market for the fifteen (15) trading days prior to the date upon
which any segment of the options vest (the "Options"). The Options vest pursuant
to certain performance criteria set forth in the Merger Agreement. For a further
description of the Common Stock, Series B Shares and Options issued to the Osage
Stockholders, see "Description of Securities Issued in the Merger."
Contemporaneous with the Merger, the Company completed a private
placement offering to accredited investors (the "Offering") of $3,660,000,
consisting of 122 shares of Series A $3.00 Convertible Preferred Stock (the
"Series A Shares"). The net proceeds of the Offering were used by the Company
to: (i) retire approximately $450,000 principal amount of bridge indebtedness;
(ii) pay the $500,000 cash component of the Merger consideration to the Osage
Stockholders; and (iii) finance the Company's strategic acquisition strategy.
See "Description of Osage Business."
Description of Osage Business
Founded in 1989, Osage is a provider of network computer solutions.
Osage markets a broad range of information technology services intended to
transform discrete hardware and software components into an integrated system.
Osage offers integration services which assist customers in dealing with issues
during the entire life cycle of their systems; including system architecture and
design, product acquisition, implementation, ongoing operational support, and
evolution in technology. Osage provides solutions to complex information
technology problems including system availability and performance,
UNIX/Microsoft Windows NT integration, client server database implementation,
electronic mail and messaging system and network security, and Internet/intranet
and world wide web application deployment.
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Osage's ability to deliver integrated solutions has enabled it to
establish a customer base ranging from relatively small companies to Fortune 500
and other mid-sized companies. Osage's customers represent a broad spectrum of
the industries in southwestern United States including semi-conductor
manufacturing, publishing, hospitality, distribution, military, education and
state and local government.
Osage believes there are many attractive acquisition candidates in its
industry because of the highly fragmented composition of the marketplace, the
industry participants' need for capital and their owners' desire for liquidity.
Following the Merger, the Company intends to pursue an aggressive acquisition
program to consolidate and enhance its position in its current market and to
acquire operations in new markets.
Initially, the Company intends to expand its business through
selective, strategic acquisitions of other companies with complementary
businesses in the revenue range of $5 million to $15 million. Management
believes that companies in this range of revenues may be receptive to the
Company's acquisition program since they are often too small to be identified as
acquisition targets of larger public companies or to independently attempt their
own public offerings. In particular, the Company intends to focus its
acquisition strategy on candidates who have a strong relationship with key
technology vendors, a proven record of delivering high-quality network computing
solutions and a customer base of large and mid-sized companies. The Company
intends to implement its strategic acquisition program with the net proceeds
available upon completion of its offering of the Series A Shares. Management
anticipates that a public trading market may commence for its securities and
that additional capital resources may be secured through the sale of debt or
equity securities, even though there can be no assurance that a trading market
will develop or that additional capital resources will become available to the
Company.
Management of the Company
Upon completion of the Merger, the existing officers of the Company
tendered their resignation from office, and were replaced by the existing
management of Osage. In addition, two of the directors of the Company tendered
their resignation from office and were replaced by designees of the holders of
the Series B Shares.
The Board of Directors and executive officers of the Company presently
consist of the following individuals:
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Name Age Position
---- --- --------
Jack R. Leadbeater 43 Chairman of the Board and Chief Executive
Officer
David S. Olson 40 Director, Chief Operating Officer and
President
Michael G. Glynn 41 Executive Vice President
Andrew P. Panzo 33 Director
Steven B. Rosner 46 Director
The following is a brief summary of the business experience of the
foregoing directors and executive officers.
Jack R. Leadbeater
Mr. Leadbeater became Chairman and Chief Executive Officer of the
Company upon the closing of the Merger with Osage on December 22, 1997. Mr.
Leadbeater remains President and Director of Osage, positions he has held since
1993. From 1987 to 1993, Mr. Leadbeater served as President of a privately held
computer systems integration company. Prior to 1987, Mr. Leadbeater was employed
by MAI Canada Ltd., where his responsibilities included the sales and management
of a regional office for this international manufacturer of mini-computers. Mr.
Leadbeater is a graduate of the University of Manitoba, Canada with a
Business/Commerce degree and a major in Marketing.
David S. Olson
Mr. Olson became Director, President and Chief Operating Officer of the
Company upon the closing of the Merger with Osage on December 22, 1997. Mr.
Olson remains a Director and Executive Vice-President/General Manager of Osage,
positions he has held since 1993. From 1989 to 1993, Mr. Olson served as an
Executive Vice-President of a privately held computer systems integration
company. Prior to 1989, he was employed by Sun Microsystems Canada Ltd., where
his responsibilities included sales as well as Sun Microsystems' overall market
development in the petroleum exploration market. Prior to joining Sun
Microsystems, Mr. Olson was an Account Manager at Digital Equipment, Canada
where he sold information processing technology to major national accounts in
the petroleum exploration market. Mr. Olson is a graduate of the University of
Calgary, Canada with a Bachelor of Science degree and a major in Computer
Science.
Michael G. Glynn
Mr. Glynn became an Executive Vice-President of the Company upon the
closing of the Merger of Osage on December 22, 1997. He has been nominated to
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serve as a Director. During 1997, Mr. Glynn served as Director of Sales for the
Southwest region of United States for Compuware, a publicly-traded software
manufacturer. From 1996 to 1997, Mr. Glynn served as Senior Vice President and
Chief Operating Officer of Prologic Management Systems, a publicly-traded
software development company. From 1993 to 1996, he was Director of Sales and
International Business Development at Access Technologies (formerly Access
Graphics, a division of Lockheed Martin), an aggregator of computer software and
hardware. From 1991 to 1993, Mr. Glynn served on the Football staff at the
University of Colorado. Mr. Glynn is a graduate from the University of Notre
Dame with a Bachelor of Arts degree in the Program of Liberal Studies and
Languages and a Master of Divinity degree. He is also continuing his graduate
work at Northwestern University's JL Kellogg Graduate School of Management.
Andrew P. Panzo
Mr. Panzo became a Director of the Company during December 1997. Mr.
Panzo is President of American Maple Leaf Financial Corporation in Philadelphia,
Pennsylvania, an investment banking firm which specializes in emerging growth
companies. He is also a director of The Eastwind Group, Inc., a public company.
Mr. Panzo is a graduate of the University of Connecticut and has a masters
degree in international business and finance from Temple University.
Steven B. Rosner
Mr. Rosner had been the President and a Director of the Company since
January 1997. He resigned his position as an officer effective upon the Merger
of Osage on December 22, 1997, however, remains a Director of the Company. Mr.
Rosner is an officer and director of several privately held corporations and is
the sole shareholder of SLD Capital Corporation, which specializes in providing
consulting and investment banking services. Previously, from 1984 to 1996, Mr.
Rosner served as President of Centaur Financial Corporation, an investment
banking firm. Mr. Rosner is a graduate of Tulane University.
Material Arrangements - Appointment of the Board of Directors
Provided that the Company continues to achieve the performance criteria
identified hereafter (see "Description of Securities Issued in the Merger -
Performance Criteria"), for a period of three years following the Merger, the
holders of the Series B Shares, including Messrs. Leadbeater and Olson, are
entitled to elect a majority of the Board of Directors, and to vote as a class
on all matters brought to a vote of stockholders. Accordingly, upon completion
of the Merger, the holders of the Series B Shares may appoint three designees to
the Company's Board of Directors. The remaining two (2) directors shall consist
of a designee of the Company's Board of Directors prior to the Merger (the
"Pacific Rim Designee") and an individual mutually selected by the Pacific Rim
Designee and the designee of the holders of the Series B Shares. As of the date
of this report, the Company's Board of Directors consists of four individuals.
The holders of the Series B Shares have appointed Michael Glynn as their third
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designee, however, his appointment is subject to effectiveness of an Information
Statement pursuant to Rule 14f-1 of the Securities Exchange Act of 1934. The
Company expects Mr. Glynn to be appointed during the first quarter of 1998.
Employment Arrangements
The Company has entered into employment agreements with each of Messrs.
Leadbeater, Olson and Glynn which will provide each with an annual salary of
$200,000. Each of Messrs. Leadbeater and Olson are employed for a term of three
years, with successive year-to-year renewals in the event that neither they, nor
the Company, elect to terminate the agreement after the initial term. Mr. Glynn
is employed for an initial term of one year, with successive year-to-year
renewals in the event that neither he nor the Company elects to terminate the
agreement. The employment agreements of Messrs. Leadbeater, Olson and Glynn
contain non-competition and non-solicitation provisions which survive their
actual employment for a term of one year. Mr. Glynn has been granted 200,000
shares under his employment arrangement; 100,000 of which vest at the end of his
first year of employment and the remainder of which vest at the end of his
second year of employment. Mr. Glynn has also been granted options to purchase
100,000 shares of Common Stock of the Company on the same terms and conditions
as those options granted to the Osage Stockholders in the Merger. See
"Description of Securities Issued in the Merger."
Description of the Securities Issued in the Merger
Common Stock
The Company is authorized to issue 10,000,000 shares of Common Stock,
$.01 par value per share, of which 4,820,000 shares are currently outstanding.
900,000 of the shares of Common Stock issued to the Osage Stockholders
in the Merger are subject to an upward adjustment to the extent that during any
of the six (6) consecutive three (3) month periods following the effectiveness
of a registration statement intended to be filed by the Company during 1998 (see
"Registration Rights"), the "Quarterly Value" of the Company's Common Stock, as
to 150,000 shares during each such applicable three (3) month period, is below
$2.00. The "Quarterly Value" shall be derived from a combination of: (i) sales
of shares of the Company's Common Stock by the Osage Stockholders in open market
transactions, upon which value shall be measured by the average per share sales
price; or (ii) to the extent that open market sales have not generated sales
proceeds to the Osage Stockholders of at least $300,000 (based upon the sale of
150,000 shares), then the remaining value (i.e., the difference between the sum
total of such sales and $300,000) shall be measured based upon the average of
the closing bid and ask prices of the Company's Common Stock on the principal
exchange, automated quotation system or over-the-counter market for the fifteen
trading days before the last trading day in each such respective three month
period (such last trading date hereinafter referred to as the "Valuation Date");
provided, however, that such average price is $2.00 or higher, and if the
average price is lower than $2.00, the value of such unsold shares shall be
measured based upon 85% of the aforesaid average closing bid and ask prices for
the fifteen trading days before the Valuation Date. Quarterly Value shall then
be determined by making separate non-cumulative computations on each of the
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respective Valuation Dates to determine how many shares of the Company's Common
Stock have been sold during the three month period, or would need to be sold
(assuming the sale) on such Valuation Dates, in order for the Osage Stockholders
to have yielded gross receipts of at least $300,000 upon the sale of 150,000
shares.
To the extent that a sale or deemed sale of 150,000 shares yields for
the Osage Stockholders less than $300,000 during any such applicable three month
period, then, and in that event, the Company would be required to issue to the
Osage Stockholders such number of additional shares of Common Stock as would
provide them with a yield of $300,000 on the sale or deemed sale of Common Stock
during the applicable three month period (the "Additional Shares"). The
Additional Shares may either be issued by the Company as newly issued shares of
Common Stock; or may be withdrawn from a voting trust of 1,500,000 shares
established by existing Company stockholders upon the closing of the Merger. See
"Principal Stockholders - Voting Trust." If, at the time Additional Shares are
required to be issued, the Company remains in compliance with the Performance
Criteria, the Additional Shares will be withdrawn from the Voting Trust. If,
however, the Company is not in compliance with the Performance Criteria, the
Additional Shares will be issued by the Company as newly issued shares of Common
Stock.
Series B $3.00 Convertible Preferred Stock
In connection with the Merger, the Company issued 50 shares of Series B
$3.00 Convertible Preferred Stock (the "Series B Shares") to the Osage
Stockholders. The salient features of the Series B Shares are as follows:
o Liquidation Preference
The Series B Shares shall have a liquidation preference of $30,000
per Share. The holders of the Series B Shares and the Series A Shares shall
share ratably in all liquidation proceeds. Accordingly, if the Company shall
liquidate or dissolve, after payment to all creditors, no distribution shall be
made to holders of the Common Stock, unless prior thereto holders of the Series
B Shares and the Series A Shares shall have received their respective
preferences upon liquidation.
o Dividends
Each holder of the Series B Shares shall be entitled to dividends
only when, as and if declared by the Board of Directors. Each holder of the
Series B Shares will share with the holders of the Common Stock, on an as
converted basis, any dividends declared on the Common Stock. The Company may, at
its sole election, pay any dividend in either cash or in shares of Common Stock,
based on the Conversion Rate (as hereafter defined) of the Series B Shares.
o Conversion
The holders of the Series B Shares have the right at any time to
convert the $1.5 million principal amount of the Series B Shares, plus any and
all accrued dividends thereon, into shares of the Company's Common Stock at a
conversion rate of $3.00 per share of Common Stock (the "Conversion Rate"),
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which is subject to adjustment provided that at the time of conversion the
Company remains in compliance with certain performance criteria set forth in the
Merger Agreement. See "Performance Criteria." As so adjusted, the Conversion
Rate shall be the lower of: (i) $3.00 per share of Common Stock; or (ii) the
average of the closing bid and ask prices of the Common Stock on the principal
exchange, automated quotation system or over-the-counter market for the 15
trading days prior to the date of conversion. On a per share basis, the 50
Series B Shares each convert into 10,000 shares of Common Stock, subject to the
adjustment feature identified above.
The number of shares of Common Stock into which each Series B Share
shall be convertible shall be subject to adjustment to protect against dilution
in the event the Company shall declare a stock dividend, make a distribution on
the Common Stock, divide or reclassify the outstanding shares of Common Stock.
o Voting Rights
The holders of Series B Shares are entitled to vote in the election
of directors by casting as many votes in total as equates to the total number of
shares that may be cast in the election of directors by the holders of Common
Stock, plus one; provided that the holders of the Series B Shares may only elect
a majority of the Board of Directors by voting for their own nominees. The
holders of the Series B Shares will also be entitled to vote as a class on all
matters brought to a vote of stockholders. The foregoing rights shall terminate
upon the earlier of: (i) the first date upon which the Company no longer
complies with the Performance Criteria; or (ii) the third anniversary of the
closing of the Merger Agreement. Upon termination of such rights, the holders of
the Series B Shares shall have no voting rights and their consent shall not be
required for the taking of any action except as required by law. See
"Performance Criteria."
o Redemption
The Series B Shares are not subject to redemption by the Company.
o Certificate of Designation
The terms described above are merely summaries of the salient
features of the Series B Shares. The actual terms are contained within a
definitive Certificate of Designation which has been filed with the Secretary of
State of Delaware and is attached as an exhibit to this Report.
Series A $3.00 Convertible Preferred Stock
In connection with the Merger, the Company concurrently closed upon an
offering of 122 shares consisting of $3,660,000 of Series A $3.00 Convertible
Preferred Stock (the "Series A Shares") in a private placement to accredited
investors. The salient features of the Series A Shares are as follows:
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o Liquidation Preference
The Series A Shares shall have a liquidation preference of $30,000
per Series A Share, plus any accrued dividends thereon. The holders of the
Series A Shares and the Series B Shares shall share ratably in all liquidation
preferences. Accordingly, if the Company shall liquidate or dissolve, after
payment to all creditors, no distribution shall be made to holders of the
Company's Common Stock, unless prior thereto holders of the Series A Shares and
the holders of the Series B Shares have received their respective liquidation
preferences.
o Dividends
The holders of the Series A Shares shall not be entitled to receive
dividends.
o Conversion
The holders of the Series A Shares have the right at any time to
convert the principal amount of the purchase price of the Series A Shares into
shares of Common Stock at a conversion rate (the "Conversion Rate") of $3.00 per
share of Common Stock. On a per share basis the 122 Series A Shares each convert
into 10,000 shares of Common Stock.
The number of shares of Common Stock into which each Series A Share
shall be convertible shall be subject to adjustment to protect against dilution
in the event the Company shall declare a stock dividend, make a distribution on
the Common Stock, divide or reclassify the outstanding shares of Common Stock.
o Voting Rights
Prior to the conversion of the Series A Shares, the holders thereof
shall have no voting rights.
o Redemption
Commencing six months from the date of the Merger, all, but not less
than all, of the Series A Shares may be redeemed at any time by the Company in
its sole discretion at $3.00 per Series A Share upon thirty (30) days' written
notice to the holders (the "Redemption Notice"), provided that at the time of
the Redemption Notice: (i) the average of the closing bid and ask prices of the
Company's Common Stock shall have exceeded $5.00 for the twenty (20) trading
days preceding the date of the Redemption Notice; (ii) the shares of Common
Stock issued or issuable upon conversion of the Series A Shares are subject to
an effective Registration Statement; and (iii) the Placement Agent of the
Offering shall have waived any restrictions upon the resale of such shares. See
"Restrictions upon Resale." The holders of the Series A Shares shall be entitled
to exercise their conversion option during said thirty (30) day notice period.
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o Certificate of Designation
The terms described above are merely summaries of the salient
features of the Series A Shares. The actual terms are contained within a
definitive Certificate of Designation which has been filed with the Secretary of
State of Delaware and is attached as an exhibit to this Report.
Performance Criteria
For the first three years following the Merger, the Company shall
remain in compliance with the Performance Criteria so long as during each of the
fiscal quarters in the first, second and third years thereafter, the Company
achieves earnings per share as reflected within its quarterly financial
statements as filed with the Securities and Exchange Commission of $.0125, $.025
and $.0375, respectively.
For the purposes of preserving the rights of the holders of the Series
B Shares relative to the election of directors and voting as a class on all
matters brought before stockholders, the Company shall remain in compliance with
the Performance Criteria so long as for the first three years following the
closing of the Merger, its annual audited financial statements reflect earnings
per share of $.05, $.10, and $.15, respectively. Failure to meet the Performance
Criteria in any of the first three years after the closing of the Merger results
in the termination of such rights.
Registration Rights
The Company has agreed that as soon as practicable after the closing of
the Merger, it will prepare and file, with the Securities and Exchange
Commission, and use its best efforts to have declared effective, a Registration
Statement on Form SB-2 or other equivalent form, pursuant to which the Company
shall register the potential resale of certain of its shares of Common Stock,
including shares of Common Stock issuable upon conversion of the Series A
Shares, Series B Shares and no less than 1,200,000 shares of Common Stock
outstanding prior to the Merger. The expenses of such registration will be borne
by the Company.
Notwithstanding the foregoing, the Company may delay filing the
Registration Statement, and may withhold efforts to cause the Registration
Statement to become effective, if the Company determines in good faith that such
registration might (i) interfere with or affect the negotiation or completion of
any transaction that is being contemplated by the Company (whether or not a
final decision has been made to undertake such transaction) at the time the
right to delay is exercised, or (ii) involve initial or continuing disclosure
obligations that might not be in the best interest of the Company's
stockholders. If, after the Registration Statement becomes effective, the
Company advises the holders of registered shares that the Company considers it
appropriate for the Registration Statement to be amended, the holders of such
shares shall suspend any further sales of their registered shares until the
Company advises them that the Registration Statement has been amended.
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Restrictions upon Resale
The Series A Shares and the shares of Common Stock issuable upon
conversion of the Series A Shares may not be transferred, sold, encumbered or
otherwise disposed of for a period of eighteen months after the closing of the
Merger without the prior written consent of the Placement Agent of the Offering.
The Series B Shares, the shares of Common Stock issuable upon
conversion of the Series B Shares and the shares of Common Stock issued as part
of the purchase price in the Merger, may not be transferred, sold, encumbered or
otherwise disposed of for a period of eighteen months after the closing of the
Merger without the prior written consent of the Pacific Rim Designee. However,
the historic stockholders of Osage shall be permitted to: (i) pledge such shares
as collateral for a loan from a financial institution provided that the lender
agrees to such restrictions upon resale; and (ii) transfer such shares to family
members by gift provided that the transferee agrees to such restrictions upon
resale. Once the shares are registered, and for a period of eighteen months
thereafter, resale of the shares by the Osage Stockholders shall be limited to
that number of shares on a quarterly basis that, upon sale in an ordinary
brokerage transaction, would yield net proceeds of $300,000. The shares of
Common Stock issued in connection with certain adjustments to the purchase price
shall not be subject to such restriction upon resale after such shares are
registered.
Principal Stockholders
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of December 22, 1997 with
respect to: (i) each person known by the Company to beneficially own 5% or more
of the Company's outstanding Common Stock; (ii) each of the Company's directors;
(iii) each of the Company's executive officers; and (iv) all directors and
executive officers of the Company as a group. Except as otherwise indicated,
each person set forth below has sole voting and investment power on the shares
reported.
<TABLE>
<CAPTION>
Number of Shares
Name Owned(1)(2) Percentage of Shares
- ---- ---------------- --------------------
<S> <C> <C>
Jack R. Leadbeater 664,000(3) 13.2%
1661 East Camelback Road, Suite 245
Phoenix, AZ 85016
David S. Olson 664,000(3) 13.2%
12829 East Jenan Drive
Scottsdale, AZ 85259
Michael G. Glynn -0-(4) 0%
1661 East Camelback Road, Suite 245
Phoenix, AZ 85016
</TABLE>
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<TABLE>
<S> <C> <C>
Godwin Finance Ltd. 350,000 7.26%
Whitehill House
Newby Road Industrial Estate
Newby Road
Hazel Grove
Stockport SK7 5DA
England
Steven B. Rosner 884,542(5) 18.35%
1220 Mirabeau Lane
Gladwynne, PA 19035
Synergy Group 250,000 5.18%
4725 E. Sunrise Drive
Suite 228
Tucson, AZ 85718
Andrew P. Panzo -0- -0-
2 Penn Center Plaza
Suite 605
Philadelphia, PA 19102
All officers and directors of the 1,328,000 26.4%
Company as a group (4 persons)
</TABLE>
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(1) The securities "beneficially owned" by an individual are determined in
accordance with the definition of "beneficial ownership" set forth in
the regulations promulgated under the Securities Exchange Act of 1934,
and, accordingly, may include securities owned by or for, among others,
the spouse and/or minor children of an individual and any other
relative who has the same home as such individual, as well as other
securities as to which the individual has or shares voting or
investment power or which each person has the right to acquire within
60 days after the date of this Report through the exercise of options,
or otherwise. Beneficial ownership may be disclaimed as to certain of
the securities. This table has been prepared based on 4,820,000 shares
of Common Stock outstanding.
(2) Assumes the sale and subsequent conversion into the shares of Common
Stock of the 122 Series A Shares offered hereby and the Series B
Shares. Prior to conversion, the holders of the Series B Shares,
including Messrs. Leadbeater and Olson, are entitled to elect a
majority of the Board of Directors, and to vote as a class on all
matters brought to a vote of stockholders for a period of three years
following the closing of the Merger. See "MANAGEMENT - Material Voting
Arrangements."
(3) Does not include options to purchase 332,000 shares of Common Stock to
be issued as part of the purchase price in connection with the Merger,
which will not have vested as of the closing of the Merger.
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(4) Does not include 200,000 shares of Common Stock being held by the
Company in escrow, which are subject to release at the rate of 100,000
shares on each of the first and second anniversary of the closing of
the Merger; provided, that Mr. Glynn is an employee of the Company at
time such shares are released. Does not include options to purchase
100,000 shares of Common Stock which will not have vested as of the
closing of the Merger.
(5) Includes the direct ownership of 192,850 shares and the indirect
ownership of 691,692 shares through Mr. Rosner's role as the sole
general partner of two Delaware limited partnerships.
- ---------------
Voting Trust
Upon the closing of the Merger, certain historic stockholders of the
Company have placed in a voting trust (the "Voting Trust") 1.5 million shares of
Common Stock with voting rights as to such shares vested in the holders of the
Series B Shares, including Messrs. Leadbeater and Olson. The Voting Trust shall
remain in effect until the earlier of: (i) the end of the 18th month following
the Merger; or (ii) such earlier date when all of its shares have either been
released to its beneficial owners or allocated in satisfaction of the purchase
price in the Merger. During every three month period during the term of the
Voting Trust in which no shares are issued in satisfaction of the purchase
price, 250,000 shares may be released to such historic stockholders of the
Company from the Voting Trust.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
As a result of the merger, the Company has assumed the historic
business of Osage. See ITEM 1 and the financial statements of Osage attached as
an exhibit to this Report.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired
(i) Financial Statements (audited) of Osage Computer Group, Inc.
for the years ended December 31, 1996 and 1995.
(ii) Financial Statements (unaudited) of Osage Computer Group,
Inc. for the nine (9) months ended September 30, 1997 and September 30, 1996.
(b) Proforma Financial Information
It is impracticable at the time of the filing of this Current
Report to provide the required financial information for Osage required by
Regulation S-X. Accordingly, the Company will file the required proforma
financial statements under cover of an Amendment to this Current Report on Form
8-K as soon as practicable, but in any event, not later than 60 days after the
date on which this Current Report must be filed with the Commission.
(c) Exhibits (referenced to Item 601 of Regulation S-K).
Exhibit
Number Title
- ------- -----
2.1 Agreement and Plan of Merger dated November 5, 1997 by and among
Pacific Rim Entertainment, Inc., PR Acquisition Corp. and Osage
Computer Group, Inc.
2.2 First Amendment to Agreement and Plan of Merger dated December 19,
1997
2.3 Certificate of Merger of Osage Computer Group, Inc. into PR
Acquisition Corp. (a wholly-owned subsidiary of Pacific Rim
Entertainment, Inc.)
3.3 Certificate of Designation, Preferences and Rights of Series A $3.00
Convertible Preferred Stock
3.4 Certificate of Designation, Preferences and Rights of Series B $3.00
Convertible Preferred Stock
4.1 Specimen of Series A $3.00 Convertible Preferred Stock
4.2 Specimen of Series B $3.00 Convertible Preferred Stock
9.1 Form of Voting Trust Agreement
10.1 Form of Stock Option (covering the grant of 800,000 options pursuant
to the Merger Agreement)
13
<PAGE>
10.2 Form of Employment Agreement of Jack Leadbeater
10.3 Form of Employment Agreement of David Olson
10.4 Form of Employment Agreement of Michael Glynn
10.5 Option to purchase 100,000 shares granted to Michael Glynn
10.6 Confidential Private Placement Memorandum dated November 24, 1997
relating to the offer and sale of $3,660,000 of Series A Preferred
Stock
10.7 Supplement No. 1 to Confidential Private Placement Memorandum dated
November 24, 1997 relating to the offer and sale of $3,660,000 of
Series A Preferred Stock
<PAGE>
OSAGE COMPUTER GROUP, INC.
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITOR'S REPORT
FOR THE YEARS ENDED
DECEMBER 31, 1996 AND 1995
<PAGE>
OSAGE COMPUTER GROUP, INC.
TABLE OF CONTENTS
PAGE
----
Independent Auditors' report ............................................ 1
Balance Sheets .......................................................... 2
Income statements ...................................................... 3
Statements of Changes in Retained Earnings .............................. 4
Statements of Cash Flows ............................................... 5
Notes to Financial Statements ........................................... 6-9
Supplemental Schedules .................................................. 11-12
<PAGE>
[LETTERHEAD OF PEARCE, GRAY & RUDD]
INDEPENDENT AUDITOR'S REPORT
To the Shareholders of
Osage Computer Group, Inc.
We have audited the balance sheets of Osage Computer Group, Inc. as of December
31, 1996 and 1995 and the statements of income, retained earnings and changes in
financial position for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of 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.
In our opinion, the statements of income, changes in financial position and
retained earnings for the years ended December 31, 1996 and 1995 are presented
in accordance with generally accepted accounting principles applied on a
consistent basis. Further, in our opinion, the balance sheets present fairly,
in all material respects, the financial position of the Company as of December
31, 1996 and 1995 in accordance with generally accepted accounting principles.
/s/ Pearce, Gray & Rudd
- -----------------------
Pearce, Gray & Rudd
March 24, 1997
<PAGE>
OSAGE COMPUTER GROUP, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Current assets
Cash $ 564 $ 25,874
Accounts receivable 1,939,347 1,351,669
Inventory 2,190 4,166
Prepaid expenses 45,534 16,366
Deferred maintenance contracts
expense (Note 1) 53,300 81,625
Due from shareholders -0- 959
---------- ----------
Total current assets 2,040,935 1,480,659
Fixed assets
Furniture and equipment
(Net of depreciation) 81,586 97,975
---------- ----------
Total fixed assets 81,586 97,975
Other assets
Investment (Note 8) 25,000 -0-
Deposits 2,000 3,200
---------- ----------
Total other assets 27,000 3,200
Total assets $2,149,521 $1,581,834
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank overdraft $ 41,311 $ -0-
Bank credit line (Note 7) -0- 110,000
Accounts payable trade 1,598,371 971,969
Accrued expenses 4,039 -0-
Deferred revenue - maintenance
contracts (Note 1) 67,730 92,347
Deferred corporate taxes payable (Note 1) 55,000 45,586
Payroll taxes payable 14,773 1,044
Sales tax payable 48,825 24,852
---------- ----------
Total current liabilities 1,830,049 1,245,798
Other liabilities
Due to parent company (Note 2) 154,263 192,355
Due to shareholders -0- 12,454
---------- ----------
Total other liabilities 154,263 204,809
Shareholders' equity
Common shares (Note 5) 5,041 5,041
Treasury shares (954) -0-
Retained earnings 161,122 126,186
---------- ----------
Total shareholders' equity 165,209 131,227
Total liabilities and
shareholders' equity $2,149,521 $1,581,834
========== ==========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
2
<PAGE>
OSAGE COMPUTER GROUP, INC.
INCOME STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND 1995
1996 1995
---------- ----------
INCOME
Sales
Hardware and software $9,195,640 $6,733,147
Maintenance and support 415,006 312,790
Consulting 215,530 221,123
Miscellaneous 28,903 124,909
---------- ----------
Total income 9,855,079 7,391,969
Cost of goods sold
Hardware and software 7,378,537 5,765,106
Maintenance and support 175,643 296,206
Consulting 72,441 129,983
Freight and delivery 11,890 19,892
Miscellaneous 2,964 4,643
---------- ----------
Total cost of goods sold 7,641,475 6,215,830
---------- ----------
Gross profit 2,213,604 1,176,139
EXPENSES
General and administrative 2,094,447 1,028,382
---------- ----------
Other income (expenses)
Interest income 3,537 -0-
Interest expense (29,767) (9,256)
Depreciation (48,527) (30,028)
---------- ----------
INCOME BEFORE INCOME TAXES 44,400 108,473
Deferred Federal and state income taxes
Increase in deferred taxes (9,464) (31,042)
---------- ----------
Net income $ 34,936 $ 77,431
========== ==========
The accompanying notes are an integral
part of these financial statements.
3
<PAGE>
OSAGE COMPUTER GROUP, INC.
STATEMENTS OF CHANGES IN RETAINED EARNINGS
DECEMBER 31, 1996 AND 1995
1996 1995
-------- --------
Retained earnings. beginning of year $126,186 $ 48,755
Net income for the year 34,936 77,431
-------- --------
Retained earnings, end of year $161,122 $126,186
======== ========
The accompanying notes are an integral
part of these financial statements.
4
<PAGE>
OSAGE COMPUTER GROUP, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 34,936 $ 77,431
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 48,527 30,028
(Increase) decrease in:
Trade accounts receivable (587,678) (799,144)
Inventories 1,976 9,559
Prepaid expenses and other assets 1,316 (2,000)
Increase (decrease) in:
Accounts payable 626,402 576,476
Accrued liabilities (33,422) 7,212
Deferred income taxes 9,414 31,042
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 101,471 (69,396)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of furniture, fixtures and equipment (32,138) (70,412)
Investments (25,000) -0-
Purchase of treasury stock (954) -0-
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES (58,092) (70,412)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of bank credit line (110,000) -0-
Proceeds from bank credit line 110,000
Sale of common stock 959
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES (110,000) 110,959
--------- ---------
NET INCREASE (DECREASE) IN CASH (66,621) (28,849)
CASH AT BEGINNING OF YEAR 25,874 54,723
--------- ---------
CASH AT END OF YEAR $ (40,747) $ 25,874
========= =========
The accompanying notes are an integral
part of these financial statements.
5
<PAGE>
OSAGE COMPUTER GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVENTORY
Inventory is stated at the lower of cost or market on a first-in
first-out basis. Inventory at December 31, 1996 and 1995 consisted of
computer software and equipment being returned to the vendor and
equipment delivered but not invoiced.
PROPERTY AND DEPRECIATION
Property and equipment are recorded at cost. Depreciation is provided
using the modified cost recovery system and on a straight-line method
over the estimated useful lives of the assets.
DEFERRED MAINTENANCE CONTRACTS-INCOME AND EXPENSE
Maintenance contracts are sold to customers for a fee. The service is
provided by an outside unrelated company. The customer is billed for
the service contract on a monthly, quarterly or annual basis. The
outside service provider bills Osage Computer Group, Inc. on a monthly
or quarterly basis for services provided. In order to match costs and
revenues the Company has elected to record the cost of the service
contracts sold as a prepaid expense with a contra liability account
recording the deferred revenue. Income and expenses are matched in the
period in which contracted services are required to be provided.
PREPAID EXPENSES
Prepaid expenses are expenses of a future period recorded in the
current period. Prepaid expenses consist of insurance deposits
representing the last period of the insurance contract, and advertising
and promotional expenses required to be paid in this year under
contracts to provide services in the subsequent year and the remaining
balance of a three year consulting contract, paid in advance.
6
<PAGE>
OSAGE COMPUTER GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
DEFERRED INCOME TAXES
Income taxes are reported on the cash basis. The amounts stated reflect
the taxes due for the current year based on an accrual basis and
represent the deferred income taxes payable.
ACCOUNTS RECEIVABLE
Also included in accounts receivable are monies receivable from the
equipment manufacturer of $131,528 and $71,497 for 1996 and 1995
respectively, that represents a percentage of sales to use for
promotional activities.
NOTE 2 DUE TO PARENT COMPANY
The Company has entered into an installment note with the parent
company to repay the initial funds loaned by the parent company. The
present agreeement requires semi-annual installments of $19,281 of
principle with interest at 8% simple interest.
NOTE 3 RELATED PARTY TRANSACTIONS
The income statements for the years 1996 and 1995 include the following
sales and purchases from related parties:
1996 1995
------ --------
Sales $ -0- $ -0-
Purchases -0- 228,830
------ --------
Total $ -0- $228,830
====== ========
NOTE 4 EMPLOYEE BENEFIT PLANS
DEFERRED COMPENSATION PLAN
During 1995 the Company established a 401(k) deferred compensation
plan. Plan participation and contributions are established under the
Plan agreement. The Company is not required to contribute to the Plan.
7
<PAGE>
OSAGE COMPUTER GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 4 EMPLOYEE BENEFIT PLANS (CONTINUED)
EMPLOYEE BENEFIT PLAN
The Company has also established a salary reduction plan under Section
125 of the Internal Revenue Code. Participants can reduce compensation
with pretax dollars to fund expenses such as medical insurance
premiums. Plan eligibility and participation are also established by a
plan document.
NOTE 5 COMMON STOCK
Osage Computer Group, Inc. is authorized to issue 10,000,000 shares of
common stock at one cent par value. In 1996, the company had a reverse
stock split of five to one shares of common stock. There are 2,000,000
shares issued and outstanding.
The Company is also authorized to issue 1,000,000 shares of preferred
stock. Presently, there are no preferred stock shares issued nor
outstanding.
NOTE 6 LEASES
The Company has signed a three year lease agreement for an office
suite. The lease requires payments of:
1995 $ 25,946
1996 $ 27,087
1997 $ 88,249
1998 $106,160
1999 $ 70,773
NOTE 7 LINE OF CREDIT
In February, 1995 the Company opened a $500,000 revolving line of
credit with a local bank. The line of credit requires the pledging of
accounts receivable and fixed assets as collateral. The balances due at
December 31, 1996 and 1995 was $0 and $110,000, respectively.
8
<PAGE>
OSAGE COMPUTER GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 8 INVESTMENT
During 1996, the Company agreed to invest in another company that
provides services to customers and other parties in a related industry
application. The first installment of $25,000 was paid in 1996 and a
second and final installment of $25,000 is due in 1997 to acquire 20%
of the other company. During the calendar year 1996, the investment
did record an allocated loss to Osage Computer Group, Inc. in the
amount of $15,334. At the present, the Board of Directors of both
corporations, are not able to compute the fair market value of this
investment. Accordingly, the accompanying financial statements
represent the initial investment only.
9
<PAGE>
SUPPLEMENTAL SCHEDULES
10
<PAGE>
OSAGE COMPUTER GROUP, INC.
BALANCE SHEETS
SUPPLEMENTAL INFORMATION
DECEMBER 31, 1996 AND 1995
1996 1995
---------- ----------
Cash
Biltmore Bank $ (41,311) $ 15,473
Bank One -0- 10,101
Petty cash 564 300
---------- ----------
Total $ (40,747) $ 25,874
========== ==========
Accounts receivable
Trade $1,807,819 $1,280,172
Other 131,528 71,497
---------- ----------
Total $1,939,347 $1,351,669
========== ==========
Furniture and equipment
Office hardware $ 150,219 $ 121,794
Computer software 12,273 8,800
Furniture/photocopier 8,337 8,097
Telephone system 2,893 2,893
Accumulated depreciation (92,136) (43,609)
---------- ----------
Total $ 81,586 $ 97,975
========== ==========
The accompanying notes are an integral
part of these financial statements.
11
<PAGE>
OSAGE COMPUTER GROUP
SCHEDULE OF EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
---------- ----------
GENERAL AND ADMINISTRATIVE EXPENSES - Schedule A
Accounting and legal services $ 76,094 $ 25,700
Administrative services 6,242 -0-
Auto and mileage 15,322 11,431
Bad debts -0- 4,530
Cleaning/utility expenses 25 -0-
Contractors 1,000 -0-
Conventions/trade shows 6,448 1,620
Equipment lease 20,567 -0-
Insurance 35,583 15,097
Management and salaries -0- 25,000
Management fees 93,622 127,350
Marketing 97,626 7,290
Memberships, dues and subscriptions 548 527
Miscellaneous 4,558 -0-
Moving expense 22,360 14,534
Office supplies 13,494 17,937
Payroll charges 2,274 -0-
Payroll taxes 67,847 34,721
Professional fees 15,790 14,135
Promotion 56,451 51,713
Rent 55,498 62,395
Salaries and commissions 1,385,624 445,540
Taxes - personal property 750 -0-
Telephone and pager services 47,762 47,010
Training courses 9,299 516
Travel 59,663 121,336
---------- ----------
Total general and administrative 2,094,447 1,028,382
---------- ----------
The accompanying notes are an integral
part of these financial statements.
12
<PAGE>
Osage Computer Group
Income Statement
<TABLE>
<CAPTION>
For The Period 9/01/97 To 9/30/97
---------------------------------
Current Ytd Current Comp Ytd Comp
Amount Amount Amount Amount
------- ------ ------------ --------
<S> <C> <C> <C> <C>
Revenue
Sales Hardware $1,824,121.52 $6,793,879.26 $805,269.00 $4,903,668.81
Sales Software 595,410.40 974,248.15 15,990.00 325,204.13
Sales Maintenance and Service 24,032.78 196,083.14 27,498.18 178,325.55
Configuration/Installation .00 .00 18,300.00 53,175.00
Project Management and Support .00 .00 24,900.00 70,575.00
Consulting 46,817.50 307,439.50 21,697.50 146,539.63
Other Income 49,159.70 193,254.71 15,198.64 181,288.41
------------- ------------- ----------- -------------
Total Income $2,539,541.90 $8,464,904.76 $928,853.32 $5,858,776.53
------------- ------------- ----------- -------------
Cost of Goods Sold
Cost of Sales - Hardware $1,557,509.03 $5,660,626.98 $694,439.48 $4,206,723.60
Cost of Goods - Software 554,546.63 848,398.98 13,656.37 229,097.10
Cost of Goods - Services 19,863.11 192,153.39 23,487.89 150,784.72
Cost of Goods - Consulting 1,625.94 (19,848.72) 11,505.94 30,123.94
Cost of Sales - Oracle .00 .00 208.00 2,752.00
Freight and Courier 867.97 11,882.15 774.47 10,404.99
------------- ------------- ----------- -------------
Total Cost of Goods Sold $2,124,412.68 $6,693,212.78 $744,072.15 $4,629,886.35
------------- ------------- ----------- -------------
Gross Profit 415,129.22 1,771,691.98 184,781.17 1,228,890.18
------------- ------------- ----------- -------------
Employment Expenses
Management Salaries 13,725.00 227,050.00 13,100.00 65,366.72
Salaries 73,202.86 595,616.10 56,350.18 400,924.96
Employer Payroll Costs 3,433.38 43,325.60 3,828.85 30,956.74
Other .00 4,042.61 178.58 5,182.83
------------- ------------- ----------- -------------
Total Employment Expenses 90,361.24 870,034.31 73,457.61 502,431.25
------------- ------------- ----------- -------------
Operating Profit $ 324,767.98 $ 901,657.67 $111,323.56 $ 726,458.93
------------- ------------- ----------- -------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
For The Period 9/01/97 To 9/30/97
---------------------------------
Current Ytd Current Comp Ytd Comp
Amount Amount Amount Amount
------- ------ ------------ --------
<S> <C> <C> <C> <C>
Sales and Administrative Expenses
Vehicle Expense 393.60 2,427.80 425.30 14,227.53
Rent 10,099.25 70,512.84 5,892.89 44,524.03
Administration Services 45.00 (13.46) .00 318.08
Telephone 4,210.26 35,546.21 3,931.14 28,997.06
Cellular and Paper 1,101.62 10,388.26 228.22 6,296.55
Office Supplies 3,517.05 18,648.26 177.01 8,164.05
Travel 8,761.40 54,638.34 3,985.15 40,888.25
Promotion 1,397.25 78,385.51 2,136.60 20,512.11
Marketing 331.31 34,881.01 7,456.83 83,616.28
Postage .00 1,539.34 521.88 1,549.51
Cleaning/Utilities 913.12 980.62 .00 25.00
Training/Courses (245.00) 7,788.00 .00 3,880.00
Professional Fees 781.75 46,209.15 306.44 15,227.24
Contractors .00 480.00 2,150.00 2,300.00
Bank/Finance Charges 5,018.68 18,398.13 1,436.70 28,850.00
Business/Property Taxes .00 167.59 49.00 553.13
Insurance - Benfits 2,587.58 52,702.34 1,627.90 18,793.02
Insurance - General/Liability 1,305.95 15,287.18 (53.96) 1,826.28
Accounting/Legal Services 12,602.40 61,866.94 9,018.70 41,922.13
Charitable Donations .00 1,902.00 .00 547.32
Depreciation Expense 4,200.00 37,800.00 4,110.00 29,352.00
Leases - Equipment 2,038.26 14,619.23 710.91 5,651.16
Moving Expense .00 5,217.50 6,616.55 16,764.79
Convention/Trade Shows 4,367.83 7,627.83 1,695.00 5,019.66
Memberships/Dues/Subscriptions 10,588.00 10,362.48 .00 548.00
Miscellaneous .00 143.25 .00 3,951.64
Salaries - Administrative 2,637.51 23,700.33 2,366.68 30,065.74
Employer Payroll Costs 394.18 13,772.57 1,201.37 14,632.16
Management Fees .00 .00 10,000.00 69,572.00
----------- ----------- ----------- -----------
Total Other Expenses 77,047.00 625,979.25 65,990.31 533,574.64
----------- ----------- ----------- -----------
Other Income
Interest Earnings Sweep A/C 178.51 3,043.94 1,226.31 1,662.59
----------- ----------- ----------- -----------
Total Other Income 178.51 3,043.94 1,226.31 1,662.59
=========== =========== =========== ===========
Total Expenses $ 76,868.49 $622,935.31 $ 64,764.00 $531,912.05
----------- ----------- ----------- -----------
Net Income $247,899.49 $278,722.36 $ 46,559.56 $194,546.88
=========== =========== =========== ===========
</TABLE>
<PAGE>
Osage Computer Group
Balance Sheet
Year-To-Date As Of Comparative As Of
9/30/97 9/30/96
------------------ -----------------
Assets
Current Assets
Bank $ 251,395.69 $ 203,357.39
Accounts Receivable - Trade 2,190,546.30 1,155,023.95
Accounts Receivable - Other 153,233.11 52,207.54
Inventory 5,785.38 (91,348.01)
Prepaid Expenses 160,475.18 134,718.51
------------- -------------
Current Assets $2,761,435.66 $1,453,959.38
------------- -------------
Fixed Assets
Fixed Asset Costs 190,335.28 179,052.27
Accumulated Depreciation 129,936.80 72,960.91
------------- -------------
Fixed Assets $ 60,398.48 $ 106,091.35
------------- -------------
Other Assets
------------- -------------
------------- -------------
Total Assets $2,821,834.14 $1,560,050.74
============= =============
Liabilities
Current Liabilities
Accounts payable - Trade 1,989,541.19 877,750.21
Accrued Liabilities 33,045.23 30,400.58
Deferred Revenue 149,218.72 83,252.31
Corporate Tax Payable 55,183.18 45,536.00
Wages and Benefits Payable 3,612.49 2,908.53
Sales Taxes Payable 124,319.49 20,999.91
------------- -------------
Current Liabilities $2,354,920.30 $1,060,847.54
Long Term Liabilities
Loans .00 (95.64)
Due to Parent Company 128,812.22 173,525.08
------------- -------------
Total Liabilities $2,483,732.52 $1,234,276.98
------------- -------------
Equity
Common Shares 5,041.18 5,041.18
Treasury Shares (106,783.84) .00
Net Income 278,722.36 194,546.88
Retained Earnings 161,121.92 126,185.70
------------- -------------
Total Equity $ 338,101.62 $ 325,773.76
------------- -------------
Total Liabilities and Equity $2,821,834.14 $1,560,050.74
============= =============
<PAGE>
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 thereunto duly authorized.
Dated: PACIFIC RIM ENTERTAINMENT, INC.
---------------------
By: /s/ Jack R. Leadbeater
-------------------------------------
Jack R. Leadbeater
Chief Executive Officer
15
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page Number in
Number Rule 0-3(b) Sequential
(Referenced to Numbering System
Item 601 of Where Exhibit Can
Reg. S-K) Exhibit Can Be Found
- -------------- ----------------------
<S> <C> <C>
2.1 Agreement and Plan of Merger dated November 5, 1997 by and among
Pacific Rim Entertainment, Inc., PR Acquisition Corp. and Osage
Computer Group, Inc.
2.2 First Amendment to Agreement and Plan of Merger dated December
19, 1997
2.3 Certificate of Merger of Osage Computer Group, Inc. into PR
Acquisition Corp. (a wholly-owned subsidiary of Pacific Rim
Entertainment, Inc.)
3.3 Certificate of Designation, Preferences and Rights of Series A
$3.00 Convertible Preferred Stock
3.4 Certificate of Designation, Preferences and Rights of Series B
$3.00 Convertible Preferred Stock
4.1 Specimen of Series A $3.00 Convertible Preferred Stock
4.2 Specimen of Series B $3.00 Convertible Preferred Stock
9.1 Form of Voting Trust Agreement
10.1 Form of Stock Option (covering the grant of 800,000 options
pursuant to the Merger Agreement)
10.2 Form of Employment Agreement of Jack Leadbeater
10.3 Form of Employment Agreement of David Olson
10.4 Form of Employment Agreement of Michael Glynn
</TABLE>
16
<PAGE>
<TABLE>
<S> <C> <C>
10.5 Option to purchase 100,000 shares granted to Michael Glynn
10.6 Confidential Private Placement Memorandum dated November
24, 1997 relating to the offer and sale of $3,660,000 of
Series A Preferred Stock
10.7 Supplement No. 1 to Confidential Private Placement Memorandum
dated November 24, 1997 relating to the offer and sale of
$3,660,000 of Series A Preferred Stock
</TABLE>
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
PACIFIC RIM ENTERTAINMENT, INC.
PR ACQUISITION CORP.
AND
OSAGE COMPUTER GROUP, INC.
Dated: November 5, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I: MERGER OF OSAGE WITH AND INTO SUB AND RELATED MATTERS.................................1
1.1 The Merger.................................................................................1
1.2 Conversion of Stock........................................................................3
1.3 Merger Consideration.......................................................................3
1.4 Additional Rights; Taking of Necessary Action; Further Action..............................7
1.5 Dissenters' Rights.........................................................................7
1.6 No Further Rights or Transfers.............................................................7
ARTICLE II: THE CLOSING..........................................................................7
2.1 Closing Date...............................................................................7
2.2 Closing Transactions.......................................................................8
ARTICLE III: CERTAIN CORPORATE ACTION...........................................................11
3.1 Osage Corporate Action....................................................................11
3.2 Acquiror Corporate Action.................................................................11
ARTICLE IV: REPRESENTATIONS AND WARRANTIES......................................................11
4.1 Representations and Warranties of Osage and the Osage Shareholders........................11
4.2 Representations and Warranties of Acquiror and the Sub....................................23
ARTICLE V: AGREEMENTS OF THE PARTIES............................................................28
5.1 Financing Transactions; Issuance of Securities of Acquiror prior to the Closing...........28
5.2 Disclosure Documents......................................................................28
5.3 Access to Information.....................................................................29
5.4 Confidentiality; No Solicitation..........................................................29
5.5 Interim Operations........................................................................31
5.6 Consents..................................................................................34
5.7 Filings...................................................................................34
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
5.8 All Reasonable Efforts...................................................................34
5.9 Public Announcements.....................................................................34
5.10 Notification of Certain Matters..........................................................35
5.11 Expenses.................................................................................35
5.12 Registration Rights......................................................................35
5.13 Documents at Closing.....................................................................39
5.14 Prohibition on Trading in Acquiror Stock.................................................39
5.15 Matters of Corporate Governance..........................................................39
5.16 Acknowledgment of Approvals..............................................................40
5.17 Production of Schedules and Exhibits.....................................................40
ARTICLE VI: CONDITIONS TO CONSUMMATION OF THE MERGER............................................40
6.1 Conditions to Obligations of Osage and the Osage Shareholders.............................40
6.2 Conditions to Acquiror's and the Sub's Obligations........................................42
ARTICLE VII: INDEMNIFICATION....................................................................43
7.1 Indemnification...........................................................................43
ARTICLE VIII: TERMINATION.......................................................................44
8.1 Termination...............................................................................44
8.2 Notice and Effect of Termination..........................................................45
8.3 Extension; Waiver.........................................................................45
8.4 Amendment and Modification................................................................46
ARTICLE IX: MISCELLANEOUS.......................................................................46
9.1 Survival of Representations and Warranties................................................46
9.2 Notices...................................................................................46
9.3 Entire Agreement; Assignment..............................................................47
</TABLE>
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<TABLE>
<S> <C>
9.4 Binding Effect; Benefit..................................................................47
9.5 Headings.................................................................................47
9.6 Counterparts.............................................................................48
9.7 Governing Law............................................................................48
9.8 Arbitration..............................................................................48
9.9 Severability.............................................................................48
9.10 Release and Discharge....................................................................48
9.11 Certain Definitions......................................................................48
</TABLE>
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EXHIBITS AND SCHEDULES
<TABLE>
<CAPTION>
EXHIBITS
<S> <C>
1.3(a)(iv) Certificate of Designation of Series B $3.00 Convertible Preferred Stock
1.3(a)(v) Form of Option Agreement
1.3(b)(vi) Form of Voting Trust
2.2(a)(ii) Investment Letter
5.1(a)(i) Summary of Terms of Series A $3.00 Convertible Preferred Stock
6.1(f) Summary of Terms of Employment
SCHEDULES
4.1(a) Articles of Incorporation and Bylaws of Osage and each Subsidiary
4.1(e) Financial Statements
4.1(f)(i) Location of Leased Property
4.1(f)(ii) Written Notice
4.1(h) Litigation
4.1(j)(i) Employee Benefit Plan
4.1(j)(ii) Employee Benefit Plan (for which Osage has obligation to contribute)
4.1(j)(iv) Material Employment Arrangements, Contracts, etc.
4.1(o) Intellectual Property
4.1(r)(i) Labor Relations; Employees
4.1(r)(ii) List of Employees
4.1(r)(v) Strikes, grievance proceedings, arbitrations, etc.
4.1(t) Suppliers and Clients
4.1(w) Absence of Certain Changes
4.2(a) Certificate of Incorporation and Bylaws of Acquiror and Sub
4.2(g) No Violations
4.2(i) Litigation
</TABLE>
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), is made and entered
into as of November 5, 1997, by and among PACIFIC RIM ENTERTAINMENT, INC., a
Delaware corporation ("Acquiror"), PR ACQUISITION CORP., a Delaware corporation
and wholly-owned subsidiary of Acquiror ("Sub"), OSAGE COMPUTER GROUP, INC., a
Arizona corporation ("Osage") and JACK LEADBEATER, DAVID OLSON, STEVE RIGBY,
CHRIS DONAHUE, DALE VAN DE VREDE FAMILY TRUST and RICK GUNTHER as the sole
shareholders of Osage (collectively the "Osage Shareholders").
Recitals
WHEREAS, Acquiror and Osage have determined that it is in the best
interests of their respective shareholders for Osage to merge with and into Sub
upon the terms and subject to the conditions set forth in this Agreement;
WHEREAS, the respective Boards of Directors of Acquiror and Osage have each
approved this Agreement and the consummation of the transactions contemplated
hereby and approved the execution and delivery of this Agreement; and
WHEREAS, for federal income tax purposes, it is intended that this merger
shall qualify as a tax-free reorganization under the provisions of Section 368
of the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the foregoing premises and
representations, warranties and agreements contained herein, and for good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
MERGER OF OSAGE WITH AND INTO SUB
AND RELATED MATTERS
1.1 The Merger.
(a) Upon the terms and conditions of this Agreement, at the "Effective
Time" (as defined herein), Osage shall be merged with and into the Sub (the
"Merger") in accordance with the provisions of the Arizona Business Corporation
Act ("ABCA") and the Delaware General Corporation Law (the "DGCL") and the
separate corporate existence of Osage shall cease, and the Sub shall continue as
the surviving corporation under the laws of the state of Delaware with the
corporate name "OSAGE COMPUTER GROUP, INC." (the "Surviving Corporation").
(b) The Merger shall become effective as of the filing of and receipt
of a certificate of merger (the "Certificate of Merger") with the Secretary of
State of Delaware and
<PAGE>
articles of merger (the "Articles of Merger") with the Arizona Corporate
Commission, in accordance with the provisions of Section 252 of the DGCL and
Section 10-123 of the ABCA, and the confirmation by the Certificate of Merger
that the Merger is effective as of such filing date. The date and time when the
Merger shall become effective is referred to herein as the "Effective Time."
(c) At the Effective Time:
(i) the Sub shall continue its existence under the laws of the
State of Delaware as the Surviving Corporation;
(ii) the separate corporate existence of Osage shall cease;
(iii) all rights, title and interests to all assets, whether
tangible or intangible and any property or property rights owned by Osage shall
be allocated to and vested in the Sub as the Surviving Corporation without
reversion or impairment, without further act or deed, and without any transfer
or assignment having occurred, but subject to any existing liens or other
encumbrances thereon, and all liabilities and obligations of Osage shall be
allocated to the Sub as the Surviving Corporation which shall be the primary
obligor therefor and, except as otherwise provided by law or contract, no other
party to the Merger, other than the Sub as the Surviving Corporation, shall be
liable therefor;
(iv) the Certificate of Incorporation of the Sub as in effect
immediately prior to the consummation of the Merger, other than the name of the
Sub which shall be changed to "OSAGE COMPUTER GROUP, INC." in connection with
the Merger, shall be the Certificate of Incorporation of the Surviving
Corporation, until thereafter amended as provided by law and such Certificate of
Incorporation;
(v) Each of Acquiror, Sub and Osage shall execute and deliver, and
file or cause to be filed with the Secretary of State of the State of Delaware,
the Certificate of Merger and with the Arizona Corporation Commission, the
Articles of Merger, with such amendments thereto as the parties hereto shall
deem mutually acceptable.
(vi) the Bylaws of the Sub, as in effect immediately prior to the
consummation of the Merger, shall be the Bylaws of the Surviving Corporation
until thereafter amended as provided by law and such Bylaws; and
(vii) the officers and directors of the Acquiror shall be nominated
and elected in accordance with the provisions of Sections 6.1(d) hereof.
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1.2 Conversion of Stock.
At the Effective Time, and without any action on the part of the
parties hereto, the Osage Shareholders or any other party:
(a) the shares representing 100% of the issued and outstanding common
stock of Osage ("Osage Common Stock") as of the Closing (other than "Dissenting
Shares", as defined herein) shall, by virtue of the Merger and without any
action on the part of any holder thereof, be converted into and represent the
right to receive, and shall be exchangeable for the merger consideration
identified at Section 1.3 hereafter (the "Merger Consideration);
(b) each share of capital stock of Osage held in treasury as of the
Effective Time shall, by virtue of the Merger, be canceled without payment of
any consideration therefor and without any conversion thereof;
(c) each share of common stock of the Sub that is issued and
outstanding as of the Effective Time shall continue to represent one share of
common stock of the Surviving Corporation after the Merger, which shares shall
thereafter constitute all of the issued and outstanding shares of capital stock
of the Surviving Corporation;
(d) Acquiror shall pay all charges and expenses, including those of any
exchange agent and the National Association of Securities Dealers, Inc., if any,
in connection with the issuance or exchange of the shares in connection with the
Merger;
(e) From and after the Effective Time, there shall be no transfers on
the stock transfer books of the Surviving Corporation of shares of Osage capital
stock (or any warrants or other rights to acquire any of the same) that were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, certificates for shares of Osage capital stock (or any warrants or other
rights to acquire any of the same) that were outstanding immediately prior to
the Effective Time, they shall be canceled and exchanged for the consideration
to be received therefor in connection with the Merger as provided in this
Agreement; and
(f) No fractional shares of stock shall be issued in the Merger, and
each holder of Osage Common Stock entitled to receive as part of the Merger
Consideration fractional shares shall receive that number of shares of stock
rounded to the nearest whole number.
1.3 Merger Consideration.
(a) The Merger Consideration consisting of the total purchase price
payable to the Osage Shareholders in connection with the acquisition by merger
of Osage shall be paid or delivered, as the case may be, upon the "Closing" (as
hereafter defined) and shall consist exclusively of the following:
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(i) $500,000 in cash, cashier's check or by wire transfer;
(ii) the delivery of 900,000 newly issued shares of Acquiror's
common stock, subject to the affirmative covenants relative to fair market value
identified at subsection 1.3(b) hereafter;
(iii) the delivery of 200,000 additional newly issued shares of
Acquiror's common stock ("collectively with the shares delivered pursuant to
subsection 1.3(a)(ii), the "Acquiror Common Stock"), which shall not be subject
to the affirmative covenants relative to fair market value identified at
subsection 1.3(b) hereafter;
(iv) the delivery of 50 newly issued shares of Series B $3.00
Convertible Preferred Stock, face amount $1.5 million (the "Acquiror Preferred
Stock"), subject to the terms and conditions set forth within the Certificate of
Designation attached hereto as Exhibit 1.3(a)(iv); and
(v) the delivery of 800,000 options, which options (the "Acquiror
Options") are to be granted for a period of six (6) years from the Closing at an
exercise price of the lower of: (i) $3.00 per share; or (ii) the average of the
closing bid and ask prices of the Acquiror Common Stock on the principal
exchange, automated quotation system or over-the-counter market for the 15
trading days prior to the date upon which any segment of the options vest (with
the recognition, however, that different exercise prices may be established for
different segments of the options since they may vest at different times). The
options will vest in the following manner: (x) 400,000 options will vest once
the Acquiror's audited financial statements reflect annual earnings for the
preceding year (commencing one (1) year after the Closing) of no less than $.20
per share; and (y) the remaining 400,000 options will vest once the Acquiror's
audited financial statements reflect annual earnings for the preceding year
(commencing one (1) year after the Closing) of no less than $.30 per share, with
the recognition that once the Acquiror achieves audited earnings per share of
$.30, all of the options vest.
(b) The 900,000 shares of the Acquiror Common Stock, identified at
subsection 1.3(a)(ii) above, may be increased (but not decreased) based upon the
determination of the quarterly value (the "Quarterly Value") of the Common Stock
of Acquiror for each of the six (6) consecutive three (3) month periods
following the effectiveness of the "Registration Statement," as hereafter
defined at Section 5.12 (the "Effective Date") (i.e., from the Effective Date
through the 18th month following the Effective Date). During each of the six (6)
consecutive three (3) month periods following the Effective Date, a
determination shall be made as to the Quarterly Value of the Acquiror Common
Stock, with the Acquiror agreeing that the Osage Shareholders should be able,
during each of such three (3) month periods, to yield gross proceeds (or deemed
gross proceeds) of $300,000 from the sale (or deemed sale) of no more than
150,000 shares of Acquiror Common Stock (i.e., to yield a deemed value of not
less than $2.00 per share).
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<PAGE>
(i) The Quarterly Value shall be derived from a combination of: (a)
sales of shares of Acquiror Common Stock by the Osage Shareholders in open
market transactions, upon which value shall be measured by the average per share
sales price; or (b) to the extent that open market sales have not generated
sales proceeds to the Osage Shareholders of at least $300,000, then the
remaining value (i.e., the difference between the sum total of such sales and
$300,000) shall be measured based upon the average of the closing bid and ask
prices of the Common Stock of Acquiror on the principal exchange, automated
quotation system or over-the-counter market, for the fifteen (15) trading days
before the last trading day in each respective three (3) month period (such last
trading date hereinafter referred to as the "Valuation Date"); provided,
however, that such average price is $2.00 or higher, and if the average price is
lower than $2.00, the value of such unsold shares shall be measured based upon
85% of the aforesaid average closing bid and ask prices for the fifteen (15)
trading days before the Valuation Date. Quarterly Value shall then be determined
by making a separate non-cumulative computation on each of the respective
Valuation Dates to determine how many shares of Acquiror Common Stock have been
sold during the three (3) month period, or would need to be sold (assuming a
sale) on such Valuation Dates, in order for the Osage Shareholders to have
yielded gross receipts of at least $300,000.
(ii) To the extent that more than 150,000 shares have been sold
during the three (3) month period, or would need to be sold on each of the
respective Valuation Dates, to yield $300,000 to the Osage Shareholders, then a
deficit would be created (the "Deficit") to the extent 150,000 is lower than the
number of Shares of Acquiror Common Stock sold or needed to be sold to yield
$300,000 during such period. By way of illustration, if during a three (3) month
period, the Osage Shareholders sold 150,000 shares at $1.00 and the average
price at the end of the three (3) month period was $5.00, then a sale of 30,000
shares at $5.00 per share is deemed to occur on the Valuation Date (to arrive at
gross proceeds of $300,000) and a Deficit of 30,000 shares is created. Likewise,
if during the three (3) month period, the Osage Shareholders sold 50,000 shares
at $5.00 and the average price at the end of the three (3) month period was
$1.00; then, computed at 85% of average market value, a sale of 58,824 shares
shall be deemed to occur on the Valuation Date (to arrive at deemed proceeds of
$300,000) and no Deficit is created since the Osage Shareholders were able to
obtain actual and deemed proceeds of $300,000 from the aggregate sale and deemed
sale of less than 150,000 shares. By way of further illustration, if no sales
are conducted during the three (3) month period and the shares of Acquiror
Common Stock are valued at $1.00 upon the Valuation Date, computed at 85% of
average market value, a Deficit to the extent of 202,941 shares is created,
rounded to the nearest whole number.
(iii) The determinaton of Quarterly Value is separate as to each of
the six (6) consecutive three (3) month periods.
(iv) If a Deficit is created based upon the Quarterly Value on the
respective Valuation Dates, additional shares of Acquiror Common Stock shall be
issued to the Osage Shareholders (in proportion to their share ownership as of
the Closing) within fifteen (15) days after completion of the financial
statements referred to in subsection 1.3(b)(v) hereafter.
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(v) The additional shares to be issued to satisfy a Deficit (the
"Additional Acquiror Common Stock") may either derive from Acquiror as newly
issued shares of Common Stock, or may be withdrawn from a pool of 1,500,000
shares of Common Stock of Acquiror deposited at the Closing in a voting trust
(the "Voting Trust") by certain of the existing Acquiror Stockholders. If
Acquiror's financial statements covering the most recent quarterly period ended
prior to the respective Valuation Dates, as the same are included within a
report filed with the Securities and Exchange Commission, reflect that Acquiror
has remained in compliance with the performance criteria identified at
subsection (vii) hereafter (the "Performance Criteria") during such quarterly
period, the Additional Acquiror Common Stock necessary to satisfy the Deficit
will be withdrawn from the Voting Trust. If Acquiror's financial statements
reflect, however, that Acquiror has not, during such same quarterly period,
remained in compliance with the Performance Criteria, then, and in that event,
the Additional Acquiror Common Stock necessary to satisfy the Deficit will be
issued by Acquiror as newly issued shares of Common Stock.
(vi) The operation of the Voting Trust will be governed by the
terms of a voting trust agreement (the "Voting Trust Agreement") executed by the
parties on or before the Closing, a form of which is attached hereto as Exhibit
1.3(b)(vi). The Voting Trust Agreement will provide, among other things, that
the Voting Trust shall only remain in effect until the earlier of: (i) the end
of the 18th month following the Effective Date; or (ii) at such earlier date
when all of the shares covered by it have been released to their beneficial
owners or allocated to the Osage Shareholders. During each of the three (3)
month periods following the Effective Date in which no Deficit arises, 250,000
shares shall be released from the Voting Trust.
(vii) For the purposes of subsection (v) hereof, Acquiror shall
remain in compliance with the Performance Criteria so long as during each of the
fiscal quarters for which a determination of a Deficit is necessary, it achieves
"earnings per share" (as reflected within the financial statements included
within a report filed with the Securities and Exchange Commission) as follows:
(x) $.0125 for each of the quarters for the first twelve (12) months after the
Closing; and (y) $.025 for each of the remaining quarters for which the
determination of a Deficit is necessary. For purposes hereof, failure to
maintain the Performance Criteria for any one particular quarter shall not
adversely affect the determinations thereunder for any subsequent quarter.
(c) The Merger Consideration shall be allocated among the Osage
Shareholders in the proportion of their share ownership of the outstanding
common stock of Osage at the Closing in accordance with the percentages
identified on the signature page hereof.
(d) The shares of Acquiror Common Stock and Acquiror Preferred Stock to
be delivered at the Closing, as well as any Additional Acquiror Common Stock,
when and if delivered, shall be fully paid and non-assessable and shall be free
and clear of all liens, levies and encumbrances except that all of such Acquiror
Common Stock, Additional Acquiror Common Stock and Acquiror Preferred Stock and
shares of Common Stock issuable upon conversion of
6
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the Acquiror Preferred Stock shall be "restricted securities" pursuant to Rule
144, promulgated under the Securities Act of 1933, as amended (the "Act").
1.4 Additional Rights; Taking of Necessary Action; Further Action.
Each of Acquiror, Sub, Osage and Osage Shareholders, respectively,
shall use their best efforts to take all such action as may be necessary and
appropriate to effectuate the Merger under the ABCA and DGCL as promptly as
possible, including, without limitation, the filing of the Certificate of Merger
and the Articles of Merger consistent with the terms of this Agreement. If at
any time after the Effective Time, any further action is necessary or desirable
to carry out the purposes of this Agreement and to vest in Sub as the Surviving
Corporation full right, title and possession to all assets, property, rights,
privileges, powers and franchises of Osage, the officers of such corporations
are fully authorized in the name of their corporations or otherwise, and
notwithstanding the Merger, to take, and shall take, all lawful and necessary
action.
1.5 Dissenters' Rights.
Each of Osage and the Osage Shareholders acknowledge that dissenters'
rights are available to each of the Osage Shareholders pursuant to Chapter 13 of
the ABCA and that (i) Osage has complied with the provisions of the ABCA in
notifying each Osage Shareholder of the availability of such rights; and (ii)
pursuant to the provisions of the ABCA, if the appropriate procedures and
guidelines are followed, any dissenting shareholder ("Dissenting Shareholders"),
in lieu of the Merger Consideration, shall be entitled to receive the fair value
of their shares in accordance with the provisions of Section 10-325 of the ABCA.
1.6 No Further Rights or Transfers.
At and after the Effective Time, the shares of capital stock of Osage
outstanding immediately prior to the Effective Time shall cease to provide the
Osage Shareholders thereof any rights as a shareholder of Osage or the Surviving
Corporation, except for the right to surrender the certificate or certificates
representing such shares and to receive the consideration to be received in the
Merger as provided in this Agreement.
ARTICLE II
THE CLOSING
2.1 Closing Date.
Subject to satisfaction or waiver of all conditions precedent set forth
in Section 6 of this Agreement, the closing of the Merger (the "Closing") shall
take place at the offices of Osage, 1661 East Camelback Road, Suite 245,
Phoenix, AZ 85016, at 10:00 a.m., local time on the later of: (i) the first
Business Day following the day upon which all appropriate Acquiror Corporate
Action and Osage Corporate Action has been taken in accordance with Section 3 of
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this Agreement; or (ii) the day on which the last of the conditions precedent
set forth in Section 6 of this Agreement is fulfilled or waived, or (b) at such
other time, date and place as the parties may agree, but in no event shall such
date be later than December 15, 1997, unless such date is extended by the mutual
written agreement of the parties.
2.2 Closing Transactions.
At the Closing, the following transactions shall occur, all of such
transactions being deemed to occur simultaneously:
(a) Osage and the Osage Shareholders will deliver, or shall cause to be
delivered, to the Acquiror and Sub, and shall take the following actions:
(i) The Osage Shareholders (other than Dissenting Shareholders)
shall surrender and deliver to the Sub as the Surviving Corporation the
certificate or certificates representing all of such shares of Osage Common
Stock;
(ii) The Osage Shareholders (other than Dissenting Shareholders)
shall, to the extent necessary to comply with applicable federal and state
securities laws (including, if applicable, Rule 145 promulgated under the Act),
execute and deliver at the Closing a copy of an Investment Letter in a form to
be mutually agreed by the parties at that time and attached to this Agreement as
Exhibit 2.2(a)(ii) ("Investment Letter");
(iii) Any outstanding shareholder agreements relating to Osage
Common Stock shall have been terminated and evidence of such termination
satisfactory to Acquiror shall have been delivered to Acquiror;
(iv) Osage and the Osage Shareholders shall execute and deliver,
and file or cause to be filed with the Arizona Corporation Commission, the
Articles of Merger with such amendments thereto as the parties hereto shall deem
mutually acceptable;
(v) A certificate shall be executed by Osage and the Osage
Shareholders to the effect that all representations and warranties made by Osage
and the Osage Shareholders under this Agreement are true and correct as of the
Closing, as though originally given to Acquiror and Sub on said date;
(vi) A certificate of good standing shall be delivered by Osage
from the Arizona Corporation Commission of the State of Arizona, dated at or
about the Closing, to the effect that such corporation is in good standing under
the laws of such state;
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(vii) An incumbency certificate shall be delivered by Osage signed
by all of the officers thereof dated at or about the Closing;
(viii) Certified Articles of Incorporation shall be delivered by
Osage dated at or about the Closing and a copy of the Bylaws of Osage certified
by the Secretary of Osage dated at or about the Closing;
(ix) Certified Board and shareholder resolutions shall be delivered
by the Secretary of Osage dated at or about the Closing authorizing the
transactions contemplated under this Agreement;
(x) The delivery of an opinion of counsel of Osage and the Osage
Shareholders in form and substance satisfactory to Acquiror and the Sub, a form
of which shall be agreed upon within fifteen (15) days of the date hereof; and
(xi) Each of the parties to this Agreement shall have otherwise
executed whatever documents and agreements, provided whatever consents or
approvals and taken all such actions as are required under this Agreement.
(b) Acquiror and Sub will deliver, or shall cause to be delivered, to
Osage and the Osage Shareholders, and shall take the following actions:
(i) Acquiror shall deliver or shall cause to be delivered to the
Osage Shareholders (other than Dissenting Shareholders) a certificate or
certificates representing the number of shares of Acquiror Common Stock,
Acquiror Preferred Stock and Acquiror Options as such holder is entitled to
receive in connection with the Merger;
(ii) Acquiror shall deliver or shall cause to be delivered to the
holders of Osage Common Stock, the cash component ($500,000) of the Merger
Consideration;
(iii) Acquiror and the Sub shall execute and deliver, and file or
cause to be filed with the Secretary of the State of Delaware, the Certificate
of Merger with such amendments thereto as the parties hereto shall deem mutually
acceptable;
(iv) Sub shall receive from the Secretary of State of Delaware a
final Certificate of Merger;
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(v) Each of the existing members of Acquiror's Board of Directors
will tender his resignation and nominate to the Board five (5) individuals
consisting of a majority (3 members) of designees of the holders of the Acquiror
Preferred Stock; one designee of the former Acquiror Board members ("Pacific Rim
Designee"); and a designee mutually acceptable to the holders of the Acquiror
Preferred Stock and Pacific Rim Designee. The newly constituted Board of
Directors will hold office in accordance with the DGCL and will appoint
executive officers in accordance with the DGCL;
(vi) A certificate shall be executed by the Acquiror's and Sub's
President to the effect that all representations and warranties of the Acquiror
and Sub under this Agreement are true and correct as of the Closing, as though
originally given to Osage on said date;
(vii) A certificate of good standing shall be delivered by Acquiror
and Sub from the Secretary of the State of Delaware dated at or about the
Closing that the Acquiror and Sub are in good standing under the laws of said
state;
(viii) An incumbency certificate shall be delivered by Acquiror and
Sub signed by all of the officers thereof dated at or about the Closing;
(ix) Certified Certificates of Incorporation shall be delivered by
Acquiror and Sub dated at or about the Closing, and a copy of the Bylaws of
Acquiror and Sub certified by the Secretary of Acquiror and Sub dated at or
about the Closing;
(x) Certified Board resolutions shall be delivered by the Secretary
of the Acquiror and Sub dated at or about the Closing authorizing the
transactions contemplated under this Agreement;
(xi) Acquiror will deliver Employment Agreements to Messrs.
Leadbeater and Olson upon the terms and conditions identified upon Exhibit
6.1(f) to this Agreement;
(xii) There shall be executed a Voting Trust Agreement upon the
terms and conditions identified upon Exhibit 1.3(b)(vi) to this Agreement;
(xiii) A Certificate of Designation shall be filed with the
Secretary of State of Delaware in accordance with the DGCL, designating the
terms of the Acquiror Preferred Stock and the Series A Preferred Stock;
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(xvi) The delivery of an opinion of counsel of Acquiror and the Sub
in form and substance satisfactory to Osage and the Osage Shareholders, a form
of which shall be agreed upon within fifteen (15) days of the date hereof; and
(xvii) Each of the parties to this Agreement shall have otherwise
executed whatever documents and agreements, provided whatever consents or
approvals and taken all such actions as are required under this Agreement.
ARTICLE III
CERTAIN CORPORATE ACTION
3.1 Osage Corporate Action.
Osage shall cause to occur all corporate action necessary to effect the
Merger and to consummate the other transactions contemplated hereby.
3.2 Acquiror Corporate Action.
Acquiror and the Sub shall cause to occur all corporate action
necessary on behalf of either of them to effect the Merger and to consummate the
other transactions contemplated hereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of Osage and the Osage Shareholders.
As a material inducement to Acquiror and Sub to execute this Agreement
and consummate the Merger and other transactions contemplated hereby, Osage and
the Osage Shareholders, jointly and severally, hereby make the following
representations and warranties to Acquiror and Sub. The representations and
warranties are true and correct in all material respects at this date, and will
be true and correct in all materials on the Closing as though made on and as of
such date.
(a) Corporate Existence and Power.
(i) Osage is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Arizona, and has all corporate
powers and all governmental licenses, authorizations, consents and approvals
required to carry on its business as now conducted, except where the failure to
have any of the foregoing would not have a Material Adverse Effect. Osage is
duly qualified to do business as a foreign corporation and is in good
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standing in each jurisdiction where the character of the property owned or
leased by it or the nature of its activities makes such qualification necessary,
except for those jurisdictions where the failure to be so qualified would not,
individually or in the aggregate, have a Material Adverse Effect. True, correct
and complete copies of the Articles of Incorporation and Bylaws of Osage as
amended to date are attached hereto as Schedule 4.1(a) and are made a part
hereof. There are currently no subsidiaries of Osage.
(b) Due Authorization. This Agreement has been duly authorized,
executed and delivered by Osage and the Osage Shareholders and constitutes a
valid and binding agreement of Osage and the Osage Shareholders, enforceable in
accordance with its terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency, moratorium, and other similar laws relating
to, limiting or affecting the enforcement of creditors rights generally or by
the application of equitable principles. As of the Closing all corporate action
on the part of Osage required under applicable law in order to consummate the
Merger will have occurred.
(c) No Contravention. The execution and delivery of the Agreement does
not, and the consummation of the transactions contemplated thereby will not: (i)
conflict with or result in any violation of any provision of the Articles of
Incorporation or Bylaws of Osage; or (ii) conflict with or result in any
violation or default (with or without notice or lapse of time, or both) under,
or give rise to a right of termination, cancellation or acceleration of a right
or obligation or loss under, any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Osage and the Osage Shareholders or their properties or assets, or
result in the creation or imposition of any mortgage, lien, pledge, charge or
security interest of any kind ("Encumbrance") on any assets of Osage, except
such as is not reasonably likely to have a Material Adverse Effect or prevent
Osage or the Osage Shareholders from consummating the transactions contemplated
by this Agreement. No consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, is required by or with respect to Osage in connection with the
execution and delivery of this Agreement by Osage and the Osage Shareholders or
the consummation by Osage and the Osage Shareholders of the transactions
contemplated hereby, except the filing of the Articles of Merger.
(d) Capitalization and Share Ownership. The authorized capital stock of
Osage consists solely of ten million (10,000,000) shares of common stock, no par
value per share ("Osage Common Stock"), and one million (1,000,000) shares of
preferred stock, no par value per share ("Osage Preferred Stock"). There are
currently outstanding (i) 2,000,000 shares of Osage Common Stock, (ii) no shares
of Osage Preferred Stock and (iii) no Osage Options. The outstanding shares of
capital stock of Osage have been duly authorized and validly issued and are
fully paid and nonassessable and free of preemptive rights. Except as set forth
in this Section 4.1(d), there are outstanding (A) no shares of capital stock or
other voting securities of Osage, (B) no securities of Osage convertible into or
exchangeable for shares of capital stock or voting
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securities of Osage and (C) no options, warrants or other rights to acquire from
Osage, and no obligation of Osage to issue, any capital stock, voting securities
or securities convertible into or exchangeable for capital stock or voting
securities of Osage, and there are no agreements or commitments to do any of the
foregoing. There are no voting trusts or voting agreements applicable to any
capital stock of Osage. The Osage Common Stock to be surrendered in the Merger
will be owned of record and beneficially, by the Osage Shareholders, free and
clear of all liens and encumbrances of any kind and nature, and have not been
sold, pledged, assigned or otherwise transferred. There are no agreements (other
than this Agreement) to sell, pledge, assign or otherwise transfer such
securities.
(e) Financial Statements. Attached as Schedule 4.1(e) are copies of
financial statements of Osage for the years ended December 31, 1996 and December
31, 1995 and accompanying notes, which were audited by Pearce, Grey and Rudd,
Mesa, Arizona. Also attached are unaudited interim financial statements of Osage
for the nine (9) month period ended September 30, 1997 (the "Interim Financial
Statements"). (The Audited Financial Statements and the Interim Financial
Statements shall be referred to collectively as the "Financial Statements").
Such Financial Statements have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
reported upon and fairly present in all material respects the financial position
of Osage as of the date thereof and the results of operations for the periods
then ended (subject to normal year-end adjustments).
(f) Real Properties.
(i) Osage currently leases real property at those locations
identified on Schedule 4.1(f)(i) hereto pursuant to the true, correct and
complete copies of the lease agreements attached to Schedule 4.1(f)(i). Osage
owns or leases no other real estate. None of the leasehold interests held by
Osage is subject to any Encumbrance, except (a) liens for ad valorem taxes not
yet due or being contested in good faith; and (b) contractual or statutory
mechanics or materialmen's liens or other statutory or common law Encumbrances
relating to obligations of Osage that are not delinquent or are being contested
in good faith. There are no Encumbrances which materially interfere with the
present use of such leasehold interests.
(ii) Except as described on Schedule 4.1(f)(ii) hereto, Osage has
not received any written notice from any governmental entity having jurisdiction
over Osage or over any of the real property leased by Osage of any violation by
Osage of any law, regulation or ordinance relating to zoning, environmental
matters, local building or fire codes or similar matters relating to any of the
real property leased by Osage or of any condemnation or eminent domain
proceeding.
(iii) Except such as has not had and is not reasonably likely to
have a Material Adverse Effect, all of the buildings leased by Osage and all
plumbing, HVAC, electrical, mechanical and similar systems are in good repair
and adequate for their current use, ordinary wear and tear excepted.
(iv) Except as described on Schedule 4.1(f)(iv), Osage is not a
party to any lease, sublease, lease assignment or other agreement for the use or
occupancy of any of the leasehold premises wherein Osage is the landlord,
sub-landlord or assignor, whether by name, as
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successor-in-interest or otherwise. There are no outstanding agreements with any
party to acquire the leasehold premises or any portion thereof or any interest
therein.
(v) All certificates of occupancy and all other licenses, permits,
authorizations, consents, certificates and approvals required by all
governmental authorities having jurisdiction over the leasehold premises
occupied by Osage have been issued, are fully paid for and are in full force and
effect, will survive the Closing and will not be invalidated, violated or
otherwise adversely affected by the Merger or the other transactions
contemplated by this Agreement.
(g) No Contingent Liabilities. Except as set forth in the Financial
Statements, at the Closing, Osage shall have no liabilities, whether related to
tax or non-tax matters, known or unknown, due or not yet due, liquidated or
unliquidated, fixed or contingent, determined or determinable in amount or
otherwise and, to the knowledge of Osage after due inquiry, there is no existing
condition, situation or set of circumstances which could reasonably be expected
to result in such a liability, except as and to the extent reflected on: (i) the
Financial Statements; (ii) this Agreement or any Schedule or Exhibit hereto; or
(iii) liabilities incurred since the date of the Financial Statements solely in
the ordinary course of business and as accurately reflected on the books and
records of Osage; provided, however, that no liability shall be incurred from
and after the date hereof which is in contravention of any negative covenant
contained herein and applicable to Osage.
(h) Litigation. Except as described on Schedule 4.1(h) hereto there is
no action, suit, investigation or proceeding (or, to the knowledge of Osage, any
basis therefor) pending against, or to the knowledge of Osage threatened,
against or affecting Osage or any of its properties before any court or
arbitrator or any governmental body, agency or official that (i) if adversely
determined against Osage, would have a Material Adverse Effect or (ii) in any
manner challenges or seeks to prevent, enjoin, alter or materially delay the
Merger or any of the other transactions contemplated by the Agreement.
(i) Taxes. Osage has timely filed all tax returns required to be filed
by it, or will timely file when due all tax returns required to be filed by it
between the date hereof and the Closing. Osage has paid in a timely fashion or
will pay when due in a timely fashion, all taxes required to be paid in respect
of the periods covered by such returns, and the books and the financial
statements of Osage reflect, or will reflect, adequate reserves for all taxes
payable by Osage which have been, or will be, accrued but are not yet due. Osage
is not delinquent in the payment of any material tax, assessment or governmental
charge. No deficiencies for any taxes have been proposed, asserted or assessed
against Osage, Osage and the Osage Shareholders are not aware of any facts which
would constitute the basis for the proposal or assertion of any such deficiency
and there is no action, suit, proceeding, audit or claim now pending or
threatened against Osage. All taxes which Osage is required by law to withhold
and collect have been duly withheld and collected, and have been timely paid
over to the proper authorities to the extent due and payable. For the purposes
of this Agreement, the term "tax" shall include all federal state, local and
foreign income, property, sales, excise and other taxes of any nature
whatsoever. Neither Osage nor any member of any affiliated or combined group of
which Osage is or has
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been a member has granted any extension or waiver of the limitation period
applicable to any tax returns. There are no Encumbrances for taxes upon the
assets of Osage, except Encumbrances for current taxes not yet due. There are no
tax sharing or tax allocation agreements to which Osage is now or ever has been
a party. Osage will not be required under Section 481(c) of the Internal Revenue
Code of 1986, as amended (the "Code"), to include any material adjustment in
taxable income for any period subsequent to the Merger. Osage (a) has not been a
member of an affiliated group filing a consolidated federal income tax return
(other than a group the common parent of which was Osage) and (b) has no
liability for the taxes of any person (other than Osage) under Treasury
Regulation Section 1.1502-6 (or any similar provision of state, local or foreign
law), as a transferee or successor, by contract or otherwise.
(j) ERISA.
(i) Schedule 4.1(j)(i) identifies each "employee benefit plan," as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), that is subject to any provision of ERISA, and either (i)
is maintained, administered or contributed to by Osage or any affiliate (as
defined below), (ii) covers any employee or former employee of Osage or any
affiliate or (iii) under which Osage or any affiliate has any liability. Copies
of such plans and, if applicable, related trust agreements) and all amendments
thereto and any written interpretations thereof have been furnished to Acquiror,
together, if applicable, with (x) the most recent annual reports (Form 5500
including, if applicable, Schedule B thereto) prepared in connection with any
such plan and (y) the most recent actuarial valuation report prepared in
connection with any such plan. Such plans are referred to collectively herein as
the "Employee Plans." Any Form 5500 for any plan year of any Employee Plan that
has not been filed, but for which the filing date has passed on the date of this
Agreement, shall be filed prior to the date of the Merger. For purposes of this
Section, "affiliate" of any Person means any other Person which, together with
such Person, would be treated as a single employer for any purpose under Section
414 of the Code.
(ii) Schedule 4.1(j)(ii) identifies all Employee Plans to which
Osage currently has any obligation to contribute. Osage is not a party to any
multiemployer plan as defined in Section 4001(a) (3) of ERISA ("Multiemployer
Plans"), and neither Osage nor any affiliate has any outstanding liability to
contribute to any Multiemployer Plan, for delinquent contributions or for
withdrawal liability pursuant to Section 4201 of ERISA.
(iii) There are no Employee Plans that are intended to be qualified
plans under Section 401(a) of the Code, except as may have been shown and
identified as such on the list referred to in subparagraphs (i) or (ii) above.
Each Employee Plan has been maintained in compliance with its terms and with the
requirements prescribed by any and all statutes, orders, rules and regulations
that are applicable to such Plan, other than any failure to comply that is not
reasonably likely to have a Material Adverse Effect.
(iv) Schedule 4.1(j)(iv) identifies each material employment,
severance or other similar contract, arrangement or policy and each plan or
arrangement (written or oral) providing for insurance coverage (including any
self-insured arrangements), workers' compensation, disability benefits,
supplemental unemployment benefits, vacation benefits,
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retirement benefits or for deferred compensation, profit-sharing, bonuses, stock
options, stock appreciation rights or other forms of incentive compensation or
post-retirement insurance, compensation or benefits that is not an Employee Plan
and (A) is entered into, maintained or contributed to, as the case may be by
Osage or any of its affiliates or (B) covers any employee or former employee of
Osage or any of its affiliates or (C) under which Osage or any affiliate has
liability. Such contracts, plans and arrangements as are described above, copies
of all of which have been furnished previously to Acquiror, are referred to
collectively herein as the "Benefit Arrangements." Each Benefit Arrangement has
been maintained in substantial compliance with its terms and with the
requirements prescribed by any and all statutes, orders, rules and regulations
that are applicable to such Benefit Arrangement other than any failure to comply
that is not reasonably likely to have a Material Adverse Effect.
(v) Neither Osage nor any affiliate has or maintains and has
maintained any Employee Plan or Benefit Arrangement providing post-retirement
health or medical benefits in respect of any active or former employee of Osage
or any affiliate or former affiliate, except as may be required pursuant to the
provisions of COBRA.
(vi) Osage is not a party to or subject to any union contract or
any express employment contract (other than as set forth on Schedule 4.1(j)(iv)
hereto) or arrangement providing for annual future compensation to any officer,
consultant, director or employee in excess of $100,000.
(k) Insurance Coverage. Schedule 4.1(k) sets forth a list of all Osage
key-man life insurance policies. Osage maintains insurance covering its assets,
business, equipment, properties, operations, employees, officers and directors
with such coverage, in such amounts, and with such deductibles and premiums as
are consistent with insurance coverage provided for other companies of
comparable size and in comparable industries. All of such policies are in full
force and effect and all premiums payable have been paid in full and Osage is in
full compliance with the terms and conditions of such policies. Osage has not
received any notice from any issuer of such policies of its intention to cancel
or refusal to renew any policy issued by it or of its intention to renew any
such policy based on a material increase in premium rates other than in the
ordinary course of business. None of such policies are subject to cancellation
by virtue of the Merger or the consummation of the other transactions
contemplated by this Agreement. There is no claim by Osage pending under any of
such policies as to which coverage has been questioned or denied.
(l) Compliance with Laws. Osage is not in violation of, and has not
violated, any applicable provisions of any laws, statues, ordinances or
regulations, other than as would not be reasonably likely to have a Material
Adverse Effect or constitute a felony. No such laws, statutes, ordinances or
regulations require or are reasonably expected to require capital expenditures
by Osage that are reasonably likely to have a Material Adverse Effect. Without
limiting the generality of the foregoing, Osage has all licenses, permits,
certificates and authorizations needed or required for the conduct of Osage's
business as presently conducted and for the use of its properties and premises
occupied by it, except where the failure to obtain a licenses, permit,
certificate or authorization would not have a Material Adverse Effect.
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(m) Investment Banking Fees. There is no investment banker, broker,
finder or other similar intermediary which has been retained by, or is
authorized by, Osage or the Osage Shareholders to act on its behalf who might be
entitled to any fee or commission from Osage, the Osage Shareholders, Acquiror
or the Sub or any of their respective affiliates upon consummation of the
transactions contemplated by this Agreement.
(n) Personal Property. Osage has good and valid title to all of its
personal property, tangible and intangible, reflected on the Financial
Statements and to all other personal property owned by it, free and clear of any
Encumbrance. Osage is the owner of all of its personal property now located in
or upon its leased premises and of all personal property which is used in the
operation of its business. All such equipment, furniture and fixtures and other
tangible personal property are in good operating condition and repair and do not
require any repairs other than normal routine maintenance to maintain such
property in good operating condition and repair. All inventory as reflected on
the Financial Statements is usable in the ordinary course of business free from
material defects. Osage owns no motor vehicles.
(o) Intellectual Property; Intangible Property. The corporate names of
Osage and the trade names and service marks listed on Schedule 4.1(o) are the
only names and service marks which are used by Osage in the operation of its
business (the "Names and Service Marks"). Osage has not done business and has
not been known by any other name other than by its Names and Service Marks.
Osage owns and has the exclusive right within Arizona to use all intellectual
property presently in use by it and necessary for the operation of its business
as now being conducted, which intellectual property includes, but is not limited
to, patents, trademarks, trade names, service marks, copyrights, trade secrets,
customer lists, inventions, formulas, methods, processes and other proprietary
information. There are no outstanding licenses or consents granting third
parties the right to use any intellectual property owned by Osage. No royalties
or fees are payable by Osage to any third party by reason of the use of any of
its intellectual property. Osage has received no notice of any adversely held
patent, invention, trademark, copyright, service mark or tradename of any
person, or any claims of any other person relating to any of the intellectual
property subject hereto, and to the knowledge of Osage, there is no reasonable
basis for any such charge or claim. There is no presently known threatened use
or encroachment of any such intellectual property.
(p) Accounts Receivable. Each of the accounts receivable of Osage
referred to on the Financial Statements constitutes a valid claim in the full
amount thereof against the debtor charged therewith on the books of Osage to
which each such account is payable and has been acquired in the ordinary course
of business. Each account receivable is fully collectible to the extent of the
face value thereof (less the amount of the allowance for the doubtful accounts
reflected on the Financial Statements) no later than ninety (90) days after such
account receivable is due. No account debtor has any valid setoff, deduction or
defense with respect thereto, and no account debtor has asserted any such
setoff, deduction or defense. There are no accounts receivable which arise
pursuant to an agreement with the United States Government or any agency or
instrumentality thereof.
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(q) Contracts, Leases, Agreements and Other Commitments. Osage is not a
party to or bound by any oral, written or implied contracts, agreements, leases,
powers of attorney, guaranties, surety arrangements or other commitments
excluding equipment and furniture leases entered into in the ordinary course of
business (which do not exceed $100,000 in liabilities or commitments in the
aggregate), except for the following (which are hereinafter collectively called
the "Corporation Agreements"):
(i) The leases and agreements described on Schedules 4.1(f),
4.1(j)(i) and (ii) and 4.1(r)(i); and
(ii) Agreements involving a maximum possible liability or
obligation on the part of Osage of less than Twenty-Five Thousand Dollars
($25,000) separately or less than One Hundred Thousand Dollars ($100,000) in the
aggregate.
The Corporation Agreements constitute all of the agreements and instruments
which are necessary and desirable to operate the business as currently conducted
by Osage. True, correct and complete copies of each Corporation Agreement
described and listed under subsection 4.1(q)(i) have been made available to
Acquiror within ten (10) business days prior to the date hereof. The term
"Corporation Agreement" excludes purchase orders entered into in the ordinary
course for personality or inventory which may be returned to the vendor without
penalty. All of the Corporation Agreements are valid, binding and enforceable
against the respective parties thereto in accordance with their respective
terms. Following the Merger, the Surviving Corporation shall become entitled to
all rights of Osage under such of the Corporation Agreements as if the Surviving
Corporation were the original party to such Corporation Agreements. All parties
to all of the Corporation Agreements have performed all obligations required to
be performed to date under such Corporation Agreements, and no party is in
default or in arrears under the terms thereof, and no condition exists or event
has occurred which, with the giving of notice or lapse of time or both, would
constitute a default thereunder. The consummation of this Agreement and the
Merger will not result in an impairment or termination of any of the rights of
Osage under any Corporation Agreement. None of the terms or provisions of any
Corporation Agreement materially adversely affects the business, prospects,
financial condition or results of operations of Osage.
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(r) Labor Relations; Employees.
(i) Set forth on Schedule 4.1(r)(i) is a list of:
(A) All collective bargaining agreements and other agreements
requiring arbitration of employment disputes, and any written amendments
thereto, as well as all arbitration awards decided under any such agreements,
and all oral assurances or modifications, past practices, and/or arrangements
made in relation thereto, to which Osage is a party or by which it is bound; and
(B) All employment agreements, and all severance agreements
which have not been fully performed, to which Osage is a party or by which it is
bound.
(ii) Set forth on Schedule 4.1(r)(ii) is a list of all key
management employees of Osage, broken down by location, together with their rate
of compensation and title.
(iii) Osage will deliver to Acquiror true and correct copies of all
of the documents referred to on Schedule 4.1(r)(i) hereof and all of the
personnel policies, employee and/or supervisor handbooks, procedures and forms
of employment applications relating to the employees of Osage.
(iv) There is no union representing or purporting to represent any
of the employees of Osage, and Osage is not subject to or currently negotiating
any collective bargaining agreements with any union representing or purporting
to represent the employees of any of the foregoing.
(v) Except as set forth on Schedule 4.1(r)(v):
(A) There are no strikes, slow downs or other work stoppages,
grievance proceedings, arbitrations, labor disputes or representation questions
pending or, to the best knowledge of Osage, threatened;
(B) Osage has complied in all material respects with all laws
relating to labor, employment and employment practices, including without
limitation, any provisions thereof relating to wages, hours and other terms of
employment, collective bargaining, nondiscrimination and the payment of social
security, unemployment compensation and similar taxes, and Osage is not (1)
liable for any arrearages of wages or any taxes or penalties for failure to
comply with any of the foregoing or (2) delinquent in the payment of any
severance, salary, bonus, commission or other direct or indirect compensation
for services performed by any employee to the date hereof, or any amount
required to be reimbursed to any employee or former employee; and
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(C) There are no charges, suits, actions, administrative
proceedings, investigations and/or claims pending or, to the knowledge of Osage,
threatened against any Osage, whether domestic or foreign, before any court,
governmental agency, department, board or instrumentality, or before any
arbitrator (collectively "Actions"), concerning or in any way relating to the
employees or employment practices of Osage, including, without limitation,
Actions involving unfair labor practices, wrongful discharge and/or any other
restrictions on the right of Osage to terminate its respective employees,
employment discrimination, occupational safety and health, and workers'
compensation.
(vi) There are no express or implied agreements, policies,
practices, or procedures, whether written or oral, pursuant to which any
employee of Osage is not terminable at will and except as required by law, no
employee is entitled to any benefit or to participate in any employee benefit
plan of Osage following such termination of employment.
(vii) Osage is not a party to any oral or written (A) agreement
with any executive officer or other key employee of Osage (1) the benefits of
which are contingent, or the terms of which are materially altered, upon the
occurrence of a transaction involving Osage of the nature of the transactions
contemplated by this Agreement, (2) providing any term of employment or
compensation guarantee extending for a period longer than one year, or (3)
providing severance benefits or other benefits after the termination of
employment of such executive officer or key employee regardless of the reason
for such termination of employment; or (B) agreement or plan which will remain
in effect after the Closing, including, without limitation, any stock option
plan, stock appreciation right plan, restricted stock plan or stock purchase
plan, any of the benefits of which will be increased, or the vesting of benefits
of which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which will
be calculated on the basis of any of the transactions contemplated by this
Agreement.
(s) Osage has not taken any action which requires or, taken together
with the transactions contemplated hereby, would require the giving of any
notice under the Worker Adjustment Retraining and Notification Act or any
comparable state or local law or regulation.
(t) Suppliers and Customers. Set forth on Schedule 4.1(t) is a list of
the five largest customers of Osage based on the percentage of revenue
represented by those customers for the fiscal year ended December 31, 1996 and
the five largest customers in terms of volume of contracts. The relationship of
Osage with its suppliers and customers are good commercial working relationships
and no supplier or customer of Osage has canceled, curtailed or otherwise
terminated or, to the knowledge of Osage, threatened to cancel or otherwise
terminate, his or its relationship with Osage. Osage has no knowledge, or reason
to believe, that the Merger or any other transaction contemplated hereby would
adversely affect any such supplier or customer relationship.
(u) Conflicting Interests. Except as set forth on Schedule 4.1(u), no
director, officer, employee or Osage Shareholder, and no relative or affiliate
of any of the foregoing (i) sells or purchases goods or services from Osage or
has any pecuniary interest in any supplier or
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client of any of the foregoing or in any other business enterprise with which
Osage conducts business or with which any of the foregoing is in competition, or
(ii) is indebted to Osage except for money borrowed and as set forth on the
Financial Statements.
(v) Environmental Protection. Neither Osage nor the Osage Shareholders
have been notified by any governmental authority, agency or third party, and
Osage and the Osage Shareholders have no knowledge, of any violation by Osage of
any Environmental Statute (as defined below). All registrations by Osage with,
licenses from or permits issued by governmental agencies pursuant to
environmental, health and safety laws are in full force and effect. The term
"Environmental Statutes" means all statutes, ordinances, regulations, orders and
requirements of common law concerning discharges to the air, soil, surface water
or groundwater and concerning the storage, treatment or disposal of any waste or
hazardous substance. There is no hazardous substance at any premises currently
or previously occupied by Osage. Osage has not received any notice or any
request for information, notice of claim, demand or other notification that it
may be potentially responsible with respect to any investigation or clean-up of
any threatened or actual release of hazardous substances. All hazardous wastes
and substances have been stored, treated, disposed of and transported in
conformance with all requirements applicable to such hazardous substances and
wastes.
(w) Absence of Certain Changes or Events. Except as and to the extent
set forth on the Financial Statements, to the extent contained in this
Agreement, or as set forth on Schedule 4.1(w), there has not been (i) any
material adverse change in the business, assets, properties, results of
operations, financial condition or prospects of Osage; (ii) any entry by Osage
into any material commitment or transaction which is not in the ordinary course
of business; (iii) any change by Osage in accounting principles or methods
except insofar as may be required by a change in generally accepted accounting
principles; (iv) any declaration, payment or setting aside for payment of any
dividends or other distributions (whether in cash, stock or property) in respect
of capital stock of Osage or any Subsidiary, or any direct or indirect
redemption, purchase or any other type of acquisition by Osage of any shares of
its capital stock or any other securities for an aggregate sum not in excess of
$5,000; (v) any agreement by Osage, whether in writing or otherwise, to take any
action which, if taken prior to the date of this Agreement, would have made any
representation or warranty in this Section 4.1 untrue or incorrect; (vi) any
acquisition of the assets of Osage, other than in the ordinary course of
business and consistent with past practice and not in excess of $5,000 in the
aggregate; or (vii) any execution of any agreement with any executive officer of
Osage providing for his or her employment, or any increase in the compensation
or in severance or termination benefits payable or to become payable by Osage to
its officers or key employees, or any material increase in benefits under any
collective bargaining agreement or in benefits under any bonus, pension, profit
sharing, deferred compensation, incentive compensation, stock ownership, stock
purchase, stock option, phantom stock, retirement, vacation, severance,
disability, death benefit, hospitalization, insurance or other plan or
arrangement or understanding (whether or not legally binding) providing benefits
to any present or former employee of Osage. Since the date of the Financial
Statements, there has not been and there is not threatened, any material adverse
change in financial condition, business, results of operations or prospects of
the business or any material
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physical damage or loss to any of the properties or assets of the business or to
the premises occupied in connection with the business, whether or not such loss
is covered by insurance.
(x) Investment Intent.
(i) Except with respect to the registration rights granted to the
Osage Shareholders pursuant to the terms of this Agreement, the shares of
Acquiror Common Stock are not being registered under the Act on the basis of the
statutory exemption provided by Section (4)2 thereof, relating to transactions
not involving a public offering, and the Acquiror's reliance on the statutory
exemption thereof is based in part on the representations contained in this
Agreement;
(ii) The Osage Shareholders represent (a) that they have reviewed
such quarterly, annual and periodic reports of the Acquiror as have been filed
with the Securities and Exchange Commission (the "Reports") and that they have
such knowledge and experience in financial and business matters that it is
capable of utilizing the information set forth therein, concerning Acquiror to
evaluate the risk of investing in the Acquiror; (b) that they have been advised
that the shares of Acquiror Common Stock to be issued to each of them by the
Acquiror will not be registered under the Act, except as otherwise provided in
this Agreement, and accordingly, the Osage Shareholders may only be able to sell
or otherwise dispose of such shares in accordance with Rule 144 or except as
otherwise provided in this Agreement; (c) that the shares of Acquiror Common
Stock will be held for investment and not with a view to, or for resale in
connection with the public offering or distribution thereof; (d) that the shares
of Acquiror Common Stock so issued will not be sold without registration thereof
under the Act (unless such shares are subject to registration or in the opinion
of counsel to the Acquiror an exemption from such registration is available), or
in violation of any law; and (e) that the certificate or certificates
representing the shares of Acquiror Common Stock to be issued will be imprinted
with a legend in form and substance substantially as follows:
'THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF REGISTRATION, OR THE
AVAILABILITY OF AN EXEMPTION FROM REGISTRATION, UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, BASED ON AN OPINION
LETTER OF COUNSEL FOR THE COMPANY OR A NO-ACTION LETTER FROM
THE SECURITIES AND EXCHANGE COMMISSION."
and Acquiror is hereby authorized to notify its transfer agent of the
status of the Shares and to take such other action including, but not limited
to, the placing of a "stop-transfer" order on the transfer agent's books and
records to assure compliance with the Act, as amended.
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(iii) Osage and the Osage Shareholders have been afforded the
opportunity to review and are familiar with the Reports and have based their
decision to invest solely on the information contained therein, and the
information contained within this Agreement and the associated exhibits and
schedules, and have not been furnished with any other literature, prospectus or
other information except as included in the Reports or this Agreement;
(iv) The Osage Shareholders are able to bear the economic risks of
an investment in the shares of Acquiror Common Stock and that their overall
commitment to their investments which are not readily marketable is not
disproportionate to their net worth; and
(v) The Osage Shareholders understand that no federal or state
agency has approved or disapproved the shares of Acquiror Common Stock and
Acquiror Preferred Stock, passed upon or endorsed the merits of the transfer of
such shares set forth within this Agreement or made any finding or determination
as to the fairness of such shares for investment.
(y) Statements And Other Documents Not Misleading. Neither this
Agreement, including all exhibits and schedules and other closing documents, nor
any other financial statement, document or other instrument heretofore or
hereafter furnished by Osage or the Osage Shareholders to Acquiror or Sub in
connection with the Merger or the other transactions contemplated hereby,
contains or will contain any untrue statement of any material fact or omit or
will omit to state any material fact required to be stated in order to make such
statement, information, document or other instruments, in light of the
circumstances in which they are made, not misleading. There is no fact known to
Osage or the Osage Shareholders which may have a Material Adverse Effect on the
business, prospects, financial condition or results of operations of Osage or of
any of its properties or assets which has not been set forth in this Agreement
as an exhibit or schedule hereto.
4.2 Representations and Warranties of Acquiror and the Sub.
As a material inducement to Osage and the Osage Shareholders to execute
this Agreement and to consummate the Merger and the other transactions
contemplated hereby, Acquiror and Sub hereby make the following representations
and warranties to Osage and the Osage Shareholders.
(a) Corporate Existence and Power. Acquiror is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware, and the Sub is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware. Each of Acquiror
and the Sub has all corporate powers and all governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted, except where the failure to have any of the foregoing would not have
a Material Adverse Effect. Each of Acquiror and the Sub is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
where the character of the property owned or leased by it or the nature of its
activities makes such qualification necessary, except for
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those jurisdictions where the failure to be so qualified would not, individually
or in the aggregate, have a Material Adverse Effect. Acquiror owns all of the
issued and outstanding shares of capital stock of the Sub, and there are no
other rights or obligations of Acquiror or the Sub to issue any other shares of
capital stock of the Sub. The Sub has conducted no business activity other than
in connection with the transactions contemplated by this Agreement. True,
complete and correct copies of the Articles of Incorporation and Bylaws of
Acquiror as amended to date are attached hereto as Schedule 4.2(a) and are made
a part hereof.
(b) Due Authorization. This Agreement has been duly authorized,
executed and delivered by Acquiror and the Sub and constitutes a valid and
binding agreement of Acquiror and the Sub, enforceable in accordance with its
terms, except as such enforcement may be limited by applicable bankruptcy,
insolvency, moratorium, and other similar laws relating to, limiting or
affecting the enforcement of creditors rights generally or by the application of
equitable principles. As of the Closing all corporate action on the part of
Acquiror and the Sub required under applicable law in order to consummate the
Merger will have occurred.
(c) No Contravention. The execution and delivery of the Agreement does
not, and the consummation of the transactions contemplated thereby will not (i)
conflict with or result in any violation of any provision of the Articles of
Incorporation or Bylaws of Acquiror or Sub or (ii) conflict with or result in
any violation or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
an right or obligation or to loss or a benefit under, any provision of the
charter or Bylaws of Acquiror or the Sub or any loan or credit agreement, note,
bond, mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Acquiror or its properties or
assets. or result in the creation or imposition of any Encumbrance on any asset
of Acquiror, except, only as to clause (ii) above, such as is not reasonably
likely to have a Material Adverse Effect or prevent Acquiror or Sub from
consummating the transactions contemplated by this Agreement. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any court, administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign, is required by or with
respect to Acquiror or the Sub in connection with the execution and delivery of
this Agreement by either of them or the consummation by either of them of the
transactions contemplated hereby, except the filing of the Certificate of Merger
with the Secretary of the State of Delaware.
(d) Capitalization.
(i) As of the Closing, the authorized capital stock of the Acquiror
shall consist solely of shares of common stock, par value $.01 per share
("Acquiror Common Stock"), of which no more than 3,520,000 shares of Acquiror
Common Stock will be outstanding as of the Closing except as permitted by
Section 5 and one thousand (1,000) shares of preferred stock, of which none are
currently outstanding. All outstanding shares of capital stock of Acquiror have
been duly authorized and validly issued and are fully paid and nonassessable and
free of preemptive rights, and upon the issuance of the shares of Acquiror
Common Stock and
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Acquiror Preferred Stock to be issued in the Merger, such shares will be duly
authorized, validly issued, fully paid and nonassessable shares of Acquiror
Common Stock and Acquiror Preferred Stock, respectively. Except as set forth in
its SEC Documents, as defined below, and except for the shares of Acquiror
Common Stock and Acquiror Preferred Stock and Acquiror Options to be issued in
connection with the Merger and the transactions relating thereto or permitted
hereby (including the private placement of $3,660,000 million of Series A $3.00
Convertible Preferred Stock), there will be outstanding (A) no shares of capital
stock or other voting securities of Acquiror, (B) no securities of Acquiror
convertible into or exchangeable for shares of capital stock or voting
securities of Acquiror and (C) no options, warrants or other rights to acquire
from Acquiror, and no obligation of Acquiror to issue, any capital stock, voting
securities or securities convertible into or exchangeable for capital stock or
voting securities of Acquiror and there are no agreements or commitments, to do
any of the foregoing.
(ii) Acquiror has a sufficient number of its authorized but
unissued shares of Acquiror Common Stock and Acquiror Preferred Stock to permit
it to issue the number of shares of Acquiror Common Stock and Acquiror Preferred
Stock due in connection with the Merger and the related transactions, as well as
all of Acquiror's other obligations to issue shares of Acquiror Common Stock
upon exercise of any option, warrant or other right to acquire the same.
(e) SEC Filings.
(i) As of the Closing, Acquiror shall have filed all of its Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q and, to the knowledge of
Acquiror, Current Reports on Form 8-K required pursuant to the Securities
Exchange Act of 1934 and upon request will make available to Osage and the Osage
Shareholders copies of its periodic reports filed pursuant to the Securities
Exchange Act of 1934, as well as its proxy or information statements relating to
meetings of, or actions taken without a meeting by the stockholders of Acquiror
held since 1994 and all of its other reports, statements, schedules and
registration statements filed with the Securities and Exchange Commission since
inception, other than pre-effective amendments to such registration statements.
The documents referred to in the preceding sentence are sometimes referred to
herein as the "SEC Documents."
(ii) As of its filing date, to the knowledge of Acquiror, each such
SEC Document did not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made therein,
in light of the circumstances under which they were made, not misleading.
(f) Financial Statements. The financial statements contained within the
SEC Documents fairly present in all material respects the results of operations,
retained earnings and changes in financial position, as the case may be, of the
Acquiror at and for the periods set forth therein (subject, in the case of
unaudited statements, to normal year-end audit adjustments which will not be
material to the Acquiror, taken as a whole, in amount or effect), in each case
in accordance with generally accepted accounting principles consistently applied
during the periods involved, except as may be noted therein. The books and
records, financial and other, of the
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Acquiror are, to the knowledge of the Acquiror, in all material respects
complete and correct and have been maintained in accordance with good business
and accounting practices.
(g) No Violations. Except as described on Schedule 4.2(g) hereto,
neither Acquiror or any of its subsidiaries has received any written notice from
any governmental entity having jurisdiction over it or over any of the real
property leased by it of any violation by Acquiror or any of its subsidiaries of
any law, regulation or ordinance relating to zoning, environmental matters,
local building or fire codes or similar matters relating to any of the real
property leased by Acquiror or any of its subsidiaries.
(h) No Contingent Liabilities. Except as set forth in the financial
statements referred to in Section 4.2(f) above, as of the Closing, Acquiror and
each of its subsidiaries shall have no liabilities, whether related to tax or
non-tax matters, known or unknown, due or not yet due, liquidated or
unliquidated, fixed or contingent, determined or determinable in amount or
otherwise and, to the knowledge of Acquiror after due inquiry, there is no
existing condition, situation or set of circumstances which could reasonably be
expected to result in such a liability except as and to the extent reflected on:
(i) the SEC Documents; (ii) this Agreement or any Schedule or Exhibit thereto;
or (iii) liabilities incurred since the date of the most recent SEC Document
solely in the ordinary course of business (or in connection with the
transactions contemplated hereby) and as accurately reflected on the books and
records of Acquiror; provided however, that no liability shall be incurred from
and after the date hereof which is in contravention of any negative covenant
contained herein and applicable to Acquiror.
(i) Litigation. Except as set forth in any of the SEC Documents or
Schedule 4.2(i), there is no action, suit, investigation or proceeding (or, to
the knowledge of Acquiror, any basis therefor) pending against, or to the
knowledge of Acquiror threatened, against or affecting Acquiror, any of its
subsidiaries or any of their properties before any court or arbitrator or any
governmental body, agency or official that (i) if adversely determined against
Acquiror, would have a Material Adverse Effect on Acquiror and its subsidiaries,
taken as a whole, or (ii) in any manner challenges or seeks to prevent, enjoin,
alter or materially delay the Merger or any of the other transactions
contemplated by the Agreement.
(j) Taxes. Acquiror and each of its subsidiaries have timely filed all
tax returns required to be filed by them, or will timely file when due all tax
returns required to be filed by them between the date hereof and the Closing.
Acquiror and each of its subsidiaries have paid in a timely fashion or will pay
when due in a timely fashion, all taxes required to be paid in respect of the
periods covered by such returns, and the books and the financial statements of
Acquiror and each of its subsidiaries reflect, or will reflect, adequate
reserves for all taxes payable by Acquiror and each of its subsidiaries which
have been, or will be, accrued but are not yet due. Acquiror and each of its
subsidiaries are not delinquent in the payment of any material tax, assessment
or governmental charge. No deficiencies for any taxes have been proposed,
asserted or assessed against Acquiror and each of its subsidiaries, Acquiror and
each of its subsidiaries are not aware of any facts which would constitute the
basis for the proposal or assertion of any such deficiency and there is no
action, suit, proceeding, audit or claim now
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pending, or to Acquiror's knowledge, threatened against Acquiror and each of its
subsidiaries. All taxes which Acquiror and each of its subsidiaries are required
by law to withhold and collect have been duly withheld and collected, and have
been timely paid over to the proper authorities to the extent due and payable.
For the purposes of this Agreement, the term "tax" shall include all federal
state, local and foreign income, property, sales, excise and other taxes of any
nature whatsoever. Neither Acquiror or any of its subsidiaries nor any member of
any affiliated or combined group of which Acquiror is or has been a member has
granted any extension or waiver of the limitation period applicable to any tax
returns. There are no Encumbrances for taxes upon the assets of Acquiror or any
of its subsidiaries, except Encumbrances for current taxes not yet due. There
are no tax sharing or tax allocation agreements to which Acquiror or any of its
subsidiaries is now or ever has been a party. Acquiror will not be required
under Section 481(c) of the Internal Revenue Code of 1986, as amended (the
"Code"), to include any material adjustment in taxable income for any period
subsequent to the Merger. None of Acquiror or its subsidiaries (A) has been a
member of an affiliated group filing a consolidated federal income tax return
(other than a group the common parent of which was Acquiror or a subsidiary of
Acquiror) and (b) has no liability for the taxes of any person (other than
Acquiror or any of its subsidiaries) under Treasury Regulation Section 1.1502-6
(or any similar provision of state, local or foreign law), as a transferee or
successor, by contract or otherwise.
(k) Compliance with Laws. To the best knowledge of Acquiror and Sub,
neither Acquiror nor any of its subsidiaries is in violation of, and has not
violated, any applicable provisions of any laws, statutes, ordinances or
regulations, other than as would not be reasonably likely to have a Material
Adverse Effect on Acquiror and its subsidiaries, taken as a whole, or constitute
a felony. No such laws, statutes, ordinances or regulations require or are
reasonably expected to require capital expenditures that are reasonably likely
to have a Material Adverse Effect on Acquiror and its subsidiaries, taken as a
whole. Without limiting the generality of the foregoing, Acquiror and Sub have
all licenses, permits, certificates and authorizations needed or required for
the conduct of Acquiror's or Sub's business as presently conducted and for the
use of its properties and premises occupied by it, except where the failure to
obtain a license, permit, certificate or authorization would not have a Material
Adverse Effect.
(l) Investment Banking Fees. There is no investment banker, broker,
finder or other similar intermediary which has been retained by, or is
authorized by, either Acquiror or the Sub to act on its behalf who might be
entitled to any fee or commission from Osage, the Osage Shareholders, Acquiror
or the Sub or any of their respective affiliates upon consummation of the
transactions contemplated by this Agreement.
(m) Statements And Other Documents Not Misleading. Neither this
Agreement, including all exhibits and schedules and other closing documents, nor
any other financial statement, document or other instrument heretofore or
hereafter furnished by Acquiror or Sub to Osage and the Osage Shareholders in
connection with the Merger or the other transactions contemplated hereby, or any
information furnished by Acquiror and Sub taken as a whole contains or will
contain any untrue statement of any material fact or omit or will omit to state
any material fact required to be stated in order to make such statement,
information,
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document or other instruments, in light of the circumstances in which they are
made, not misleading. There is no fact known to Acquiror and Sub taken as a
whole which may have a Material Adverse Effect on the business, prospects,
financial condition or results of operations of Acquiror and Sub taken as a
whole or of any of its properties or assets which has not been set forth in this
Agreement as an exhibit or schedule hereto.
ARTICLE V
AGREEMENTS OF THE PARTIES
5.1 Financing Transactions; Issuance of Securities of Acquiror prior to the
Closing.
(a) Between the date hereof and the Closing, Acquiror contemplates that
it will issue the following securities all in a manner in compliance with its
Certificate of Incorporation, By-Laws and the DGCL and in compliance with
applicable federal and state securities laws:
(i) Commencing as promptly as practicable after the date of this
Agreement, Acquiror shall commence a private offering to a limited number of
accredited investors in accordance with Rule 506 of Regulation D promulgated
under the Act of $3,660,000 of newly issued shares of Series A $3.00 Convertible
Preferred Stock upon terms and conditions summarized in Exhibit 5.1(a)(i); and
(ii) Additional shares of Acquiror Common Stock will be issued to
creditors and other accredited investors so that upon the Closing Acquiror shall
have outstanding no more than 3,520,000 shares of Common Stock;
5.2 Disclosure Documents.
Osage shall supply to Acquiror the necessary information in writing, or
cause the necessary information to be supplied in writing, relating to Osage for
inclusion in any document(s) to be prepared in connection with any of the
financing transactions identified within Section 5.1 hereof.
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5.3 Access to Information.
At all times prior to the Closing or the earlier termination of this
Agreement in accordance with the provisions of Section 7, and in each case
subject to Section 5.4 below, each of the parties hereto shall provide to the
other parties (and the other parties' authorized representatives) full access
during normal business hours and upon reasonable prior notice to the premises,
properties, books, records, assets, liabilities, operations, contracts,
personnel, financial information and other data and information of or relating
to such party (including without limitation all written proprietary and trade
secret information and documents, and other written information and documents
relating to intellectual property rights and matters), and will cooperate with
the other party in conducting its due diligence investigation of such party.
5.4 Confidentiality; No Solicitation.
(a) Confidentiality of Acquiror-Related Information. With respect to
information concerning Osage that is made available to Acquiror pursuant to the
terms of this Agreement, Acquiror agrees that, except in connection with the
private placement and other securities purchase agreements associated therewith,
it shall hold such information in strict confidence, shall not use such
information except for the sole purpose of evaluating the Merger and related
transactions and shall not disseminate or disclose any of such information other
than to its directors, officers, employees, shareholders, affiliates, agents and
representatives who need to know such information for the sole purpose of
evaluating the Merger and the related transactions (each of whom shall be
informed in writing by Acquiror of the confidential nature of such information
and directed by Acquiror in writing to treat such information confidentially).
If this Agreement is terminated pursuant to the provisions of Section 7,
Acquiror shall immediately return all such information, all copies thereof and
all information, all copies thereof and all information prepared by Acquiror
based upon the same; provided, however, that one copy of all such material may
be retained by Acquiror's outside legal counsel for purposes only of resolving
any disputes under this Agreement. The above limitations on use, dissemination
and disclosure shall not apply to information that (i) is learned by Acquiror
from a third party entitled to disclose it; (ii) become known publicly other
than through Acquiror or any party who received the same through Acquiror,
provided that Acquiror has no knowledge that the disclosing party was subject to
an obligation of confidentiality; (iii) is required by law or court order to be
disclosed by Acquiror; or (iv) is disclosed with the express prior written
consent thereto of Osage and the Osage Shareholders. Acquiror shall undertake
all necessary steps to ensure that the secrecy and confidentiality of such
information will be maintained in accordance with the provisions of this
paragraph (a). Notwithstanding anything contained herein to the contrary, in the
event a party is required by court order or subpoena to disclose information
which is otherwise deemed to be confidential or subject to the confidentiality
obligations hereunder, prior to such disclosure, the disclosing party shall: (i)
promptly notify the non-disclosing party and, if having received a court order
or subpoena, deliver a copy of the same to the non-disclosing party; (ii)
cooperate with the non-disclosing party, at the expense of the non-disclosing
party in obtaining a protective or similar order with respect to such
information; and (iii) provide only
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such of the confidential information as the disclosing party is advised by its
counsel is necessary to strictly comply with such court order or subpoena.
(b) Confidentiality of Osage-Related Information. With respect to
information concerning Acquiror that is made available to Osage and the Osage
Shareholders pursuant to the provisions of this Agreement, Osage and the Osage
Shareholders agree that they shall hold such information in strict confidence,
shall not use such information except for the sole purpose of evaluating the
Merger and the related transactions and shall not disseminate or disclose any of
such information other than to their directors, officers, employees,
shareholders, affiliates, agents and representatives who need to know such
information for the sole purpose of evaluating the Merger and the related
transactions (each of whom shall be informed in writing by Osage or the Osage
Shareholders of the confidential nature of such information and directed by such
party in writing to treat such information confidentially). If this Agreement is
terminated pursuant to the provisions of Section 7, Osage and the Osage
Shareholders agree to return immediately all such information, all copies
thereof and all information prepared by either of them based upon the same;
provided, however, that one copy of all such material may be retained by Osage's
outside legal counsel for purposes only of resolving any disputes under this
Agreement. The above limitations on use, dissemination and disclosure shall not
apply to information that (i) is learned by Osage or the Osage Shareholders from
a third party entitled to disclose it; (ii) becomes known publicly other than
through Osage, the Osage Shareholders or any party who received the same through
Osage or the Osage Shareholders, provided that Osage or the Osage Shareholders
have no knowledge that the disclosing party was subject to an obligation of
confidentiality; (iii) is required by law or court order to be disclosed by
Osage; or (iv) is disclosed with the express prior written consent thereto of
Acquiror. Osage or the Osage Shareholders agree to undertake all necessary steps
to ensure that the secrecy and confidentiality of such information will be
maintained in accordance with the provisions of this paragraph (b).
Notwithstanding any thing contained herein to the contrary, in the event a party
is required by court order or subpoena to disclose information which is
otherwise deemed to be confidential or subject to the confidentiality
obligations hereunder, prior to such disclosure, the disclosing party shall: (i)
promptly notify the non-disclosing party and, if having received a court order
or subpoena, deliver a copy of the same to the non-disclosing party; (ii)
cooperate with the non-disclosing party at the expense of the non-disclosing
party in obtaining a protective or similar order with respect to such
information; and (iii) provide only such of the confidential information as the
disclosing party is advised by its counsel is necessary to strictly comply with
such court order or subpoena.
(c) Nondisclosure. Neither Osage, the Osage Shareholders, the Sub or
Acquiror shall disclose to the public or to any third party the existence of
this Agreement or the transactions contemplated hereby or any other material
non-public information concerning or relating to the other party hereto, other
than with the express prior written consent of the other party hereto, except as
may be required by law or court order or to enforce the rights of such
disclosing party under this Agreement, in which event the contents of any
proposed disclosure shall be discussed with the other party before release;
provided, however, that notwithstanding anything to the contrary contained in
this Agreement, any party hereto may disclose this
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Agreement to any of its directors, officers, employees, shareholders,
affiliates, agents and representative who need to know such information for the
sole purpose of evaluating the Merger, and to any party whose consent is
required in connection with the Merger or this Agreement. The parties anticipate
issuing a mutually acceptable, joint press release announcing the execution of
this Agreement and the consummation of the Merger.
(d) No Solicitation. In consideration of the substantial expenditure of
time, effort and money to be undertaken by Acquiror in connection with the
transactions contemplated by this Agreement, the Osage Shareholders, Osage or
any affiliate thereof will not, prior to the earlier of the Closing, or ninety
(90) days after the termination of this Agreement, directly or indirectly,
through any officer, director, agent or otherwise: (i) solicit, initiate or
encourage the submission of inquiries, proposals or offers from any person or
entity relating to any acquisition or purchase of assets of or any equity
interest in Osage or any affiliate thereof or any tender offer (including a
self-tender offer), exchange offer, merger, consolidation, business combination,
sale of a substantial amount of assets or sale of securities, liquidation,
dissolution or similar transaction involving Osage or its affiliates (a
"Transaction Proposal"); (b) enter into or participate in any discussions or
negotiations regarding a Transaction Proposal, or furnish to any other person or
entity any information with respect to the business, properties or assets of
Osage or its affiliates in connection with a Transaction Proposal; or (c)
otherwise cooperate in any way with, or assist or participate in, facilitate or
encourage any effort or attempt by any other person to do or seek a Transaction
Proposal. Osage or the Osage Shareholders shall promptly notify Acquiror if any
such proposal or offer, or any inquiry or contact with any person or entity with
respect thereto is made.
5.5 Interim Operations.
During the period from the date of this Agreement and
continuing until the Closing:
(a) Interim Operations of Osage. Osage agrees (except as expressly
contemplated by this Agreement, including any Exhibits and Schedules hereto, or
to the extent that Acquiror shall otherwise consent in writing) that as to
Osage:
(i) Ordinary Course. Osage shall carry on its business in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted and, to the extent consistent with such business, use all
reasonable efforts to preserve intact its present business organization, keep
available the services of its present officers and employees and preserve its
relationships with customers, suppliers and others having business dealings with
it;
(ii) Dividends; Changes in Stock. Osage shall not and shall not
propose to (a) declare, set aside or pay any dividend, on, or make other
distributions in respect of, any of its capital stock, (b) split, combine or
reclassify any of its capital stock or issue, authorize or propose the issuance
of any other securities in respect of, in lieu of or in substitution
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for shares of its capital stock (c) redeem, repurchase or otherwise acquire any
shares of its capital stock or (d) otherwise change its capitalization.
(iii) Issuance of Securities. Except as contemplated by this
Agreement, Osage shall not sell, issue, pledge, authorize or propose the sale or
issuance of, pledge or purchase or propose the purchase of, any shares of its
capital stock of any class or securities convertible into, or rights, warrants
or options to acquire, any such shares or other convertible securities.
(iv) Governing Documents. Osage shall not amend its certificate of
incorporation or its Bylaws.
(v) No Dispositions. Osage shall not sell, lease, pledge, encumber
or otherwise dispose of or agree to sell, lease, pledge, encumber or otherwise
dispose of, any of its assets that are material or any other assets except in
the ordinary course of business consistent with prior practice.
(vi) Indebtedness. Osage shall not incur any indebtedness for
borrowed money or guarantee any such indebtedness or issue or sell any debt
securities of Osage or guarantee any debt securities of others other than in the
ordinary course of business consistent with prior practice.
(vii) Benefit Plans; Etc. Osage shall not adopt or amend in any
material respect any collective bargaining agreement or Employee Benefit Plan
(as defined herein).
(viii) Executive Compensation. Osage shall not grant to any
executive officer any increase in compensation or in severance or termination
pay, or enter into any employment agreement with any executive officer.
(ix) Acquisitions. Osage shall not acquire (by merger,
consolidation or acquisition of stock or assets or otherwise) any corporation,
partnership or other business organization or subdivision thereof, or make any
investment by either purchase of stock or securities, contributions to capital ,
property transfer or, except in the ordinary course of business, purchase of any
property or assets, of any other individual or entity.
(x) Tax Elections. Osage shall not make any material tax election
or settle or compromise any material federal, state, local or foreign tax
liability.
(xi) Waivers and Releases. Osage shall not waive, release, grant or
transfer any rights of material value or modify or change in any material
respect any Corporation Agreement other than in the ordinary course of business
and consistent with past practice.
(xii) Other Actions. Osage shall not enter into any agreement or
arrangement to do any of the foregoing. Osage shall not take any action, or fail
to take any action, that is reasonably likely to result in any of the
representations and warranties of Osage set forth in this Agreement becoming
untrue in any material respect.
(xiii) Permitted Distributions. Notwithstanding anything to the
contrary in this Agreement, on or before the Closing, Osage may make
distribution to the Osage
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Shareholders out of the normal course of business to pay accrued but unpaid
bonuses to Osage employees (principally Jack Leadbeater and David Olson) not to
exceed $400,000.
(b) Interim Operations of Acquiror and Sub. Acquiror and Sub jointly
and severally agree (except as expressly contemplated by this Agreement,
including any Exhibits and Schedules hereto, or to the extent that Osage and the
Osage Shareholders shall otherwise consent in writing or to the extent required
to permit Acquiror to meet its obligations under Section 5) that:
(i) Ordinary Course. Acquiror shall carry on its business in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted and, to the extent consistent with such business, use all
reasonable efforts to preserve intact its present business organization
(provided that such obligation shall not relate to the officers and employees of
Acquiror or any of its subsidiaries including the Sub) and preserve its
relationships with customers, suppliers and others having business dealings with
it. The Sub shall conduct no business activity other than in connection with the
transactions contemplated by this Agreement in connection with the Merger.
(ii) Dividends; Changes in Stock. Neither Acquiror nor the Sub
shall (and shall not propose to) (a) declare or pay any dividend, on, or make
other distributions in respect of, any of its capital stock, (b) split, combine
or reclassify any of its capital stock or issue, authorize or propose the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock, (c) repurchase or otherwise acquire any shares
of its capital stock or (d) otherwise change its capitalization.
(iii) Issuance of Securities. Except as provided for in Section 5,
neither Acquiror nor the Sub shall sell, issue, pledge, authorize or propose the
sale or issuance of, pledge or purchase or propose the purchase of, any shares
of its capital stock of any class or securities convertible into, or rights,
warrants or options to acquire, any such shares or other convertible securities.
(iv) No Dispositions. Acquiror shall not sell, lease, pledge,
encumber or otherwise dispose of, or agree to sell, lease, pledge, encumber or
otherwise dispose of, any of its assets that are material, or any other assets
except in the ordinary course of business consistent with prior practice.
(v) Indebtedness. Neither Acquiror nor the Sub shall incur any
indebtedness for borrowed money or guarantee any such indebtedness or issue or
sell any debt securities or guarantee any debt securities of others other than
in the ordinary course of business consistent with prior practice.
(vi) Benefit Plans, Etc. Neither Acquiror nor the Sub shall adopt
or amend in any material respect any collective bargaining agreement or Employee
Benefit Plan (as defined herein).
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(vii) Executive Compensation. Neither Acquiror nor the Sub shall
grant to any executive officer any increase in compensation, or enter into any
employment agreement with any executive officer, other than any of the same the
material terms of which have been disclosed to Osage on or before the date
hereof.
(viii) Other Actions. Neither Acquiror nor the Sub shall enter into
any agreement or arrangement to do any of the foregoing. Neither Acquiror nor
the Sub shall take any action, or fail to take any action, that is reasonably
likely to result in any of their representations and warranties set forth in
this Agreement becoming untrue in any material respect.
5.6 Consents.
Acquiror, Sub, Osage and the Osage Shareholders shall cooperate and use
their best efforts to obtain, prior to the Closing, all licenses, permits,
consents, approvals, authorizations, qualifications and orders of governmental
authorities and parties to contracts as are necessary for the consummation of
the transactions contemplated by this Agreement; provided, however, that no loan
agreement or contract for borrowed monies shall be repaid and no contract shall
be amended materially to increase the amount payable thereunder or otherwise to
be materially more burdensome in order to obtain any such consent, approval or
authorization without first obtaining the written approval of the other parties
hereto.
5.7 Filings.
Acquiror, the Sub, Osage and the Osage Shareholders shall, as promptly
as practicable, make any required filing, and any other required submissions,
under any law, statute, order rule or regulation with respect to the Merger and
the related transactions and shall cooperate with each other with respect to the
foregoing and any shareholder of the Acquiror who has an obligation to file a
Schedule 13D does so prior to the Closing.
5.8 All Reasonable Efforts.
Subject to the terms and conditions of this Agreement and to the
fiduciary duties and obligations of the boards of directors of the parties
hereto to their respective shareholders, as advised by their counsel, each of
the parties to this Agreement shall use all reasonable efforts to take, or cause
to be taken, all action and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations, or to remove any
injunctions or other impediments or delays, legal or otherwise, as soon as
reasonable practicable, to consummate the Merger and the other transactions
contemplated by this Agreement.
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5.9 Public Announcements.
Acquiror, the Sub, Osage and the Osage Shareholders shall consult with
each other before issuing any press release or otherwise making any public
statements with respect to the Merger, this agreement or the other transactions
contemplated by this Agreement and shall not issue any other press release or
make any other public statement without prior consultation with the other
parties, except as may be required by law or, with respect to Acquiror, by
obligations pursuant to any listing agreement with an national securities
exchange.
5.10 Notification of Certain Matters.
Osage and the Osage Shareholders shall give prompt notice to Acquiror,
and Acquiror and the Sub shall give prompt notice to Osage and the Osage
Shareholders, of (a) the occurrence or non-occurrence of any event, the
occurrence or non-occurrence of which would cause any of its representations or
warranties in this Agreement to be untrue or inaccurate in any material respect,
as to Osage and the Osage Shareholders, at or prior to the Closing, and, as to
Acquiror and Sub, as of the Closing and (b) any material failure of Osage and
the Osage Shareholders, on the one hand, or Acquiror or the Sub, on the other
hand, as the case may be, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by them under this Agreement;
provided, however, the delivery of any notice pursuant to this Section shall not
limit or otherwise affect the remedies available to the party receiving such
notice under this Agreement as expressly provided in this Agreement.
5.11 Expenses.
Except as otherwise expressly provided herein, all costs and expenses
incurred in connection with the Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses whether or not the
Merger is consummated.
5.12 Registration Rights.
(a) Promptly after the Closing of the Merger, the Acquiror shall use
its best efforts to prepare and file with the Securities and Exchange Commission
(the "SEC"), and use its best efforts to have declared effective, a registration
statement (the "Registration Statement") registering under the Act and the
securities statutes and regulations of certain states as provided herein, for
resale at market, the Acquiror Common Stock, the Additional Acquiror Common
Stock (to the extent then registrable) and the Shares of Common Stock issuable
upon conversion of the Acquiror Preferred Stock (collectively, the "Registrable
Securities") and thereafter, subject to the terms and conditions of this
Agreement, Acquiror shall use its best efforts to keep such Registration
Statement effective for a period of three (3) years. Restrictions on resale of
the Registrable Securities are identified at Section 5.12(j). From time to time,
the Acquiror shall amend or supplement such Registration Statement and the
prospectus contained therein as and to the extent necessary to comply with the
Act and any applicable state securities statute or regulation. In particular, to
the extent that it is determined that the Additional Acquiror Common Stock may
not be included within the Registration Statement. Acquiror agrees to amend
and/or
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update the Registration Statement at the end of the eighteenth month following
the Effective Date to include therein the resale of any such shares of
Additional Acquiror Common Stock. The parties acknowledge and understand that
the Acquiror also intends to include in such Registration Statement the resale
of the shares issuable upon conversion of the Acquiror's Series A $3.00
Convertible Preferred Stock in a mutually acceptable manner and 1,200,000 shares
of Common Stock of Acquiror outstanding as of the Merger. Additional shares may
be included within the Registration Statement upon the consent of Acquiror's
Board of Directors, including the affirmative approval of the Pacific Rim
Designee.
(b) Acquiror shall pay all expenses of the Acquiror relating to such
registration, other than brokerage or underwriting discounts or commissions, if
any.
(c) It shall be a condition precedent to the obligations of Acquiror
to take any action pursuant to this Section 5.12 that each of the holders of
Registrable Securities whose shares are so to be registered shall furnish to
Acquiror in a timely fashion such information regarding such holder, such
holder's Registrable Securities and such other factual information as shall be
reasonably required to effect the registration of such shares.
(d) To the maximum extent permitted by law, Acquiror shall indemnify
and hold harmless each such holder of Registrable Securities from and against
any and all claims, damages or liabilities, joint or several, to which such
holder becomes subject under the Act or under any other statute or at common law
or otherwise, and, except as hereinafter provided, will reimburse each such
holder for any legal or other expenses reasonably incurred by such holder in
connection with investigating or defending any actions, whether or not resulting
in any liability, insofar as such losses, claims, damages, expenses, liabilities
or actions arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the registration statement, in any
preliminary or amended preliminary prospectus or in the prospectus (or the
registration statement or prospectus as from time to time amended or supplement
by Acquiror) or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary in
order to make the statement therein not misleading in the circumstances in which
they were made, unless such untrue preliminary or amended preliminary prospectus
or prospectus in reliance upon and in conformity with information furnished in
writing to Acquiror in connection therewith by such holder expressly for use
therein. Promptly after receipt by any such holder of notice of the commencement
of any action in respect of which indemnity may be sought against Acquiror, such
holder shall notify Acquiror in writing of the commencement thereof, and,
subject to the provisions of this Section 5.12, Acquiror shall assume the
defense of such action (including the employment of counsel, who shall be
counsel reasonably satisfactory to such holder), and the payment of expenses
insofar as such action shall relate to any alleged liability in respect of which
indemnity may be sought against Acquiror. Acquiror shall not be liable to
indemnify any such holder for any settlement of any such action effected with
Acquiror's prior written consent. Acquiror shall not, except with the approval
of each party being indemnified under this Section 5.12, consent to entry of any
judgment or enter into any settlement of any claim or litigation in connection
with which provisions of this Section 5.12 have been applied which does not
include an unconditional
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term thereof the giving by such claimant or plaintiff to the parties being so
indemnified of a release from all liability in respect to such claim or
litigation.
(e) Each holder whose shares of Registrable Securities are registered
pursuant to the provisions of this Section 5.12 shall indemnify and hold
harmless Acquiror, each of its directors and each of its officers from and
against any and all claims, damages or liabilities, joint or several, to which
they or any of them may become subject under the Act or under any other statute
or at common law or otherwise, and, except as hereinafter provided, will
reimburse Acquiror and each director and officer for any legal or other expenses
reasonably incurred by them or any of them in connection with investigating or
defending any actions, whether or not resulting in any liability, insofar as
such losses, claims, damages, expenses, liabilities or actions arise out of or
are based upon any untrue statement or alleged untrue statement of a material
fact contained in the registration statement, in any preliminary or amended
preliminary prospectus or in the prospectus (or the registration statement or
prospectus as from time to time amended or supplemented) or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the statements
therein not misleading in the circumstances in which they were made, but only
insofar as any such statement or omission was made in reliance upon and in
conformity with information furnished in writing to Acquiror in connection
therewith by such holder expressly for use therein. Promptly after receipt of
notice of the commencement of any action in respect of which indemnity may be
sought against such holder, Acquiror shall notify such holder in writing of the
commencement thereof, and such holder shall, subject to the provisions of this
Section 5.12, assume the defense of such action (including the employment of
counsel, who shall be counsel reasonably satisfactory to Acquiror) and the
payment of expenses insofar as such action shall relate to any alleged liability
in respect of which indemnity may be sought against such holder. Such holder
shall not be liable to indemnify Acquiror, any director, officer or other person
for any settlement of any such action effected without such holder's consent.
Such holder shall not, except with the approval of the parties being indemnified
under this Section 5.12, consent to entry of any judgment or enter into any
settlement of any claim or litigation in connection with which provision of this
Section 5.12 have been applied which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to the parties being so
indemnified of a release from all liability in respect to such claim or
litigation. The liability of any such holder under this Section 5.12 shall be
limited to the aggregate price at which such holder's shares of Acquiror Common
Stock is sold.
(f) In connection with its obligations to register the Registrable
Securities as provided in this Section 5.12, Acquiror shall have no obligation:
(i) to assist or cooperate in the offering or disposition of such shares; (ii)
except as expressly provided in this Section 5.12, to indemnify or hold harmless
the holders of such securities being registered or any underwriter designated by
such holders; (iii) to obtain a commitment from an underwriter relative to the
sale of such shares; or (iv) to include such Registrable Securities within an
underwritten offering of Acquiror conducted on a firm basis.
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(g) If in the opinion of a lead or managing underwriter retained by
Acquiror to conduct an underwriting on a firm basis, the resale of such
Registrable Securities covered by the registration statement would have an
adverse effect upon the completion of an underwritten sale of securities, on
behalf of Acquiror, then, in that event, the holders of the Registrable
Securities to be included in such registration statement do hereby agree to the
restrictions upon resale requested by a managing underwriter.
(h) In connection with its obligations to register the Registrable
Securities as provided in this Section 5.12, Acquiror shall also:
(i) furnish to each holder of shares of Registrable Securities
that are registered or to be registered pursuant to the provisions of this
Section 5.12, such copies of each preliminary and final prospectus and any and
all supplements and such other documents as such holder may reasonably request
to facilitate the public offering of the shares of Registrable Securities.
(ii) use its best efforts to register or qualify such Registrable
Securities covered by such registration statement under the applicable
securities or "Blue Sky" laws of such jurisdiction in the United States as such
holder may reasonably request (not to exceed an aggregate of 10 such
jurisdictions); provided, however, that Acquiror shall not be obligated to
qualify to do business in any jurisdiction where it is not then so qualified or
to take any action that would subject it to the service of process in suits
other than those arising out of the offer or sale of the securities covered by
the registration statement in any jurisdiction where it is not then so subject;
and
(iii) furnish to each such holder upon request a copy of all
documents filed and all correspondence from and to the SEC in connection with
any such offering.
(i) The registration and other rights granted to the holders of
Registrable Securities in this Section 5.12 may not be assigned or transferred
by such holder without the prior written consent of Acquiror thereto.
(j) (i) Once the potential resale of the Registrable Securities are
registered, and for a period of eighteen (18) months thereafter, resale of the
Registrable Securities shall be limited to that number of shares of Common Stock
on a quarterly basis, that would, upon sale in an ordinary brokerage
transaction, yield to the sellers thereof net proceeds of $300,000. The resale
of the shares of Additional Acquiror Common Stock, once included within the
Regsitration Statement, shall be subject to no further restrictions upon resale.
(ii) Except as set forth in this Section 5.12, the holders of the
Registrable Securities may not transfer, sell, encumber or otherwise dispose of
the Registrable Securities for at least a period of eighteen (18) months
following the Closing without the consent of the Pacific Rim Designee with the
exception, however, that the holders of the Registrable Securities may
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(a) pledge the shares as collateral for a loan secured from a financial
institution provided that such lender agrees to be bound by the terms of any
such restrictions on resale and (b) transfer the shares to family members by
gift where the transferee agrees to be bound by the terms of any such
restrictions on resale.
5.13 Documents at Closing.
Each party to this Agreement agrees to execute and deliver at the
Closing those documents identified in Section 2.2.
5.14 Prohibition on Trading in Acquiror Stock.
Osage and the Osage Shareholders acknowledge that the United States
Securities Laws prohibit any person who has received material non-public
information concerning the matters which are the subject matter of this
Agreement from purchasing or selling the securities of the Acquiror, or from
communicating such information to any person under circumstances in which it is
reasonably foreseeable that such person is likely to purchase or sell securities
of the Acquiror. Accordingly, the Osage Shareholders agree that they will not
purchase or sell any securities of the Acquiror, or communicate such information
to any other person under circumstances in which it is reasonably foreseeable
that such person is likely to purchase or sell securities of the Acquiror, until
no earlier than 72 hours following the dissemination of a Current Report on Form
8-K to the SEC announcing the Closing pursuant to this Agreement.
5.15 Matters of Corporate Governance.
For that period during which the Osage Shareholders retain the voting
rights identified in Section 3 of the Certificate of Designation, Preference and
Rights of Series B $3.00 Convertible Preferred Stock, the Osage Shareholders
shall nominate to the Acquiror's Board of Directors the Pacific Rim Designee,
and any Board action undertaken during such period with respect to the
transactions identified below shall require the affirmative vote of a majority
of the Board of Directors which shall include the Pacific Rim Designee. These
transactions shall include:
(a) transactions between Acquiror and any interested party (including
all directors, officers, employees or stockholders beneficially owning more than
five percent (5%) of Acquiror's outstanding capital stock); or
(b) any modification to the terms of this Agreement or any other
closing agreements, schedules or exhibits.
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5.16 Acknowledgment of Approvals.
By virtue of their respective signatures to this Agreement, Acquiror,
Sub, Osage and the Osage Shareholders acknowledge their approval of this
Agreement and their consent to the consummation of the transactions identified
herein.
5.17 Production of Schedules and Exhibits.
Within fifteen (15) days of the execution of this Agreement each of
the parties hereto shall produce, to the extent not previously done, to the
other, all of the Schedules and Exhibits required to be produced pusuant to this
Agreement. The Schedules and Exhibits produced subsequent to the execution of
this Agreement, shall be given such force and effect as though such Schedules
and Exhibits were produced upon execution of this Agreement.
ARTICLE VI
CONDITIONS TO CONSUMMATION OF THE MERGER
6.1 Conditions to Obligations of Osage and the Osage Shareholders.
The obligations of Osage and the Osage Shareholders to consummate the
Merger and the other transactions contemplated to be consummated by it at the
Closing are subject to the satisfaction (or waiver by Osage and the Osage
Shareholders) at or prior to the Closing (or at such other time prior thereto as
may be expressly provided in this Agreement) of each of the following
conditions:
(a) The representations and warranties of Acquiror and the Sub set out
in this Agreement shall be true and correct in all material respects at and as
of the time of the Closing as though such representations and warranties were
made at and as of such time.
(b) Each of Acquiror and the Sub shall have complied in a timely manner
and in all material respects with the respective covenants and agreements set
out in this Agreement.
(c) The Merger shall have been approved by Acquiror and Sub in
accordance with the provisions of the DGCL. The Board of Directors of Acquiror
and the Board of Directors of Sub and Acquiror, as sole shareholder of Sub,
shall have approved the execution of this Agreement and the Merger thereby.
(d) On or before the Closing, the officers and directors of Acquiror
shall tender their immediate resignations from office and shall in conjunction
therewith increase the size of the Board of Directors to five (5) members and
shall nominate to Acquiror's Board of
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Directors three (3) individuals designated by the holders of the Acquiror
Preferred Stock, one (1) individual designated by the Acquiror's Board of
Directors (as such Board was constituted immediately prior to the Closing (the
"Pacific Rim Designee")) and one (1) individual designated by mutual agreement
of the holders of the Acquiror Preferred Stock and the Pacific Rim Designee. All
of such members shall be elected and shall hold such positions in accordance
with the DGCL. The officers of Acquiror shall be appointed by its newly elected
Board of Directors.
(e) Osage and the Osage Shareholders shall be reasonably satisfied that
the Merger results in a tax-free reorganization under Section 368 of the Code.
(f) Acquiror shall enter into an Employment Agreement with Messrs. Jack
Leadbeater and David Olson, substantially in accordance with the terms contained
within Exhibit 6.1(f).
(g) 1,500,000 shares of Acquiror's Common Stock shall be placed in a
voting trust pursuant to the terms of the Voting Trust Agreement attached hereto
as Exhibit 1.3(b)(vi).
(h) There shall be delivered to Osage and the Osage Shareholders an
officer's certificate of Acquiror and Sub to the effect that all of the
representations and warranties of Acquiror and Sub set forth herein are true and
complete in all material respects as of the Closing, and the Acquiror and Sub
have complied in all material respects with their covenants and agreements set
forth herein that are required to be complied with by the Closing.
(i) Osage shall have completed prior to the Closing, to its
satisfaction, a due diligence review of the financial condition, results of
operations, properties, assets, liabilities, business and prospects of Acquiror.
(j) Acquiror shall have discharged and settled all of its outstanding
indebtedness incurred by prior management with the exception of: (i) a bridge
loan in the principal amount of $450,000; and (ii) expenses incurred in
connection with this transaction not to exceed $100,000; and after completion of
the financing transactions identified in Section 5.1 shall, as of the Closing,
have a net worth of no less than $2,550,000.
(k) All director, shareholder, lender, lessor and other parties'
consents and approvals, as well as all filings with, and all necessary consents
or approvals of, all federal, state and local governmental authorities and
agencies, as are required under this Agreement, applicable law or any applicable
contract or agreement (other than as contemplated by this Agreement) to complete
the Merger shall have been secured.
(l) No statute, rule, regulation, executive order, decree, injunction
or restraining order shall have been enacted, entered, promulgated or enforced
by any court of competent jurisdiction or governmental authority that prohibits
or restricts the consummation of the Merger or the related transactions.
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6.2 Conditions to Acquiror's and the Sub's Obligations.
The obligations of Acquiror and the Sub to consummate the Merger and
the other transactions contemplated to be consummated by it at the Closing are
subject to the satisfaction (or waiver by Acquiror) at or prior to the Closing
(or at such other time prior thereto as may be expressly provided in this
Agreement) of each of the following conditions:
(a) The Osage Shareholders shall not have filed with Osage, prior to
the Osage shareholder meeting at which a vote is to be taken with respect to a
proposal to approve this Agreement, a written objection to such proposed action,
as required by Section 10-321 of the ABCA in order for such shareholder to
perfect the right to dissent from such proposed action.
(b) The representations and warranties of Osage and the Osage
Shareholders set out in this Agreement shall be true and correct in all material
respects at and as of the time of the Closing as though such representations and
warranties were made at and as of such time.
(c) Osage and the Osage Shareholders shall have complied in a timely
manner and in all material respects with its covenants and agreements set out in
this Agreement.
(d) Acquiror shall have successfully completed the financing
transactions identified in Section 5.1.
(e) There shall be delivered to Acquiror and Sub an officer's
certificate of Osage to the effect that all of the representations and
warranties of Osage set forth herein are true and complete in all respects as of
the Closing, and that Osage has complied in all material respects with covenants
and agreements set forth herein required to be complied with by the Closing; and
there shall be delivered to Acquiror and Sub a certificate signed by the Osage
Shareholders to the effect that the representations and warranties of the Osage
Shareholders set forth herein are true and correct in all material respects and
that the Osage Shareholders have complied in all material respects with its
covenants and agreements set forth herein required to be complied with by
Closing.
(f) Acquiror and Sub shall have completed prior to the Closing, to
their satisfaction, a due diligence review of the financial condition, results
of operations, properties, assets, liabilities, businesses and prospects of
Osage.
(g) All director, shareholder, lender, lessor and other parties'
consents and approvals, as well as all filings with, and all necessary consents
or approvals of, all federal, state and local governmental authorities and
agencies, as are required under this Agreement,
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applicable law or any applicable contract or agreement (other than as
contemplated by this Agreement) to complete the Merger shall have been secured.
(h) No statute, rule, regulation, executive order, decree, injunction
or restraining order shall have been enacted, entered, promulgated or enforced
by any court of competent jurisdiction or governmental authority that prohibits
or restricts the consummation of the Merger or the related transactions.
(i) Acquiror's and Sub's Board of Directors, and shareholders to the
extent necessary, shall have approved the Merger in accordance with the DGCL.
(j) The Board of Directors and Osage Shareholders shall have approved
the Merger in accordance with the ABCA.
ARTICLE VII
INDEMNIFICATION
7.1 Indemnification.
(a) Osage Shareholders. The Osage Shareholders shall indemnify, defend
and hold harmless Acquiror and Sub from and against any and all demands, claims,
actions or causes of action, judgments, assessments, losses, liabilities,
damages or penalties and reasonable attorneys' fees and related disbursements
(collectively, "Claims") incurred by Acquiror or Sub which arise out of or
result from a misrepresentation, breach of warranty, or breach of any covenant
of Osage or the Osage Shareholder contained herein or in the Schedules annexed
hereto or in any deed, exhibit, closing certificate, schedule or any ancillary
certificates or other documents or instruments furnished by Osage or the Osage
Shareholder pursuant hereto or in connection with the transactions contemplated
hereby or thereby.
(b) Acquiror and Sub. Acquiror and Sub shall indemnify, defend and hold
harmless Osage and the Osage Shareholders from and against any and all Claims,
as defined at subsection 7.1(a) above, incurred by Osage and/or the Osage
Shareholders which arise out of or result from a misrepresentation, breach of
warranty or breach of any covenant of Acquiror and Sub contained herein or in
the Schedules annexed hereto or in any deed, exhibit, closing certificate,
schedule or any ancillary certificates or other documents or instruments
furnished by Acquiror or the Sub pursuant hereto or in connection with the
transactions contemplated hereby or thereby.
(c) Methods of Asserting Claims for Indemnification. All claims for
indemnification under this Agreement shall be asserted as follows:
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(i) Third Party Claims. In the event that any Claim for which a
party (the "Indemnitee") would be entitled to indemnification under this
Agreement is asserted against or sought to be collected from the Indemnitee by a
third party the Indemnitee shall promptly notify the other party (the
"Indemnitor") of such Claim, specifying the nature thereof, the applicable
provision in this Agreement or other instrument under which the Claim arises,
and the amount or the estimated amount thereof (the "Claim Notice"). The
Indemnitor shall have thirty (30) days (or, if shorter, a period to a date not
less than ten (10) days prior to when a responsive pleading or other document is
required to be filed but in no event less than ten (10) days from delivery or
mailing of the Claim Notice) (the "Notice Period") to notify the Indemnitee (a)
whether or not it disputes the Claim and (b) if liability hereunder is not
disputed, whether or not it desires to defend the Indemnitee. If the Indemnitor
elects to defend by appropriate proceedings, such proceedings shall be promptly
settled or prosecuted to a final conclusion in such a manner as to avoid any
risk of damage to the Indemnitee; and all costs and expenses of such proceedings
and the amount of any judgment shall be paid by the Indemnitor.
If the Indemnitee desires to participate in, but not control, any such
defense or settlement, it may do so at its sole cost and expense. If the
Indemnitor has disputed the Claim, as provided above, and shall not defend such
Claim, the Indemnitee shall have the right to control the defense or settlement
of such Claim, in its sole discretion, and shall be reimbursed by the Indemnitor
for its reasonable costs and expenses of such defense.
(ii) Non-Third Party Claims. In the event that the Indemnitee
should have a Claim for indemnification hereunder which does not involve a Claim
being asserted against it or sought to be collected by a third party, the
Indemnitee shall promptly send a Claim Notice with respect to such Claim to the
Indemnitor. If the Indemnitor does not notify the Indemnitee within the Notice
Period that it disputes such Claim, the Indemnitor shall pay the amount thereof
to the Indemnitee. If the Indemnitor disputes the amount of such Claim, the
controversy in question shall be submitted to arbitration pursuant to Section
9.8 hereafter.
ARTICLE VIII
TERMINATION
8.1 Termination.
This Agreement may be terminated and the Merger may be abandoned at any
time prior to the Closing:
(a) by mutual written consent of the board of directors of Acquiror,
the Sub, Osage and the Osage Shareholders:
(b) by any of Acquiror, the Sub, Osage or the Osage Shareholders:
44
<PAGE>
(i) if the Closing shall not have occurred on or before January 1,
1998; provided, however, that the right to terminate this Agreement under this
Section 8.1(b)(i) shall not be available to any party whose failure to fulfill
any obligation under this Agreement has been the cause of, or resulted in, the
failure of the Closing to occur on or before that date; or
(ii) if any court of competent jurisdiction, or any governmental
body, regulatory or administrative agency or commission having appropriate
jurisdiction shall have issued an order, decree or filing or taken any other
action restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement and such order, decree, ruling or other action
shall have become final and non-appealable.
(c) by Osage and the Osage Shareholders if any of the conditions
specified in Section 6.1 have not been met and the sole remedy of Osage and the
Osage Shareholders in that event, shall be either to waive such failure and
proceed to close hereunder, or to terminate this Agreement in which event
neither Osage and the Osage Shareholders nor Acquiror shall have any claim or
action against the other; or
(d) by Acquiror and Sub if any of the conditions specified in Section
6.2 have not been met and the sole remedy of Acquiror and Sub in that event,
shall be either to waive such failure and proceed to close hereunder, or to
terminate this Agreement in which event neither Acquiror and the Sub nor Osage
and the Osage Shareholders shall have any claim or action against the other.
8.2 Notice and Effect of Termination.
In the event of the termination and abandonment of this Agreement
pursuant to Section 8.1, written notice thereof shall forthwith be given to the
other party or parties specifying the provision pursuant to which such
termination is made, and this Agreement shall forthwith become void and have no
effect without any liability on the part of any party or its directors, officers
or shareholders, except for the provisions of this Section 8.2 and Sections 5.4,
5.9 and 5.11, which shall survive any termination of this Agreement. Nothing
contained in this Section 8.2 shall relieve any party from any liability for any
breach of this Agreement provided that the sole remedy available to Osage and
the Osage Shareholders for any breach of this Agreement by Acquiror or Sub shall
be as set forth in Section 6.1 hereof.
8.3 Extension; Waiver.
Any time prior to the Closing, the parties may (a) extend the time for
the performance of any of the obligations or other acts of any other party under
or relating to this Agreement; (b) waive any inaccuracies in the representations
or warranties by any other party or (c) waive compliance with any of the
agreements of any other party or with any conditions to its
45
<PAGE>
own obligations. Any agreement on the part of any other party to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party.
8.4 Amendment and Modification.
This Agreement may be amended, whether before or after the vote of the
Osage Shareholders or shareholders of Acquiror, by written agreement of
Acquiror, the Sub, Osage and the Osage Shareholders; provided, however, that
after the approval, if any, of this Agreement by the Osage Shareholders, no such
amendment shall reduce or change the consideration to be received by any Osage
Shareholder in connection with the Merger as set out in Section 1.3 hereof or
shall otherwise adversely affect the rights under this Agreement of the Osage
Shareholders without the approval of such adversely affected shareholders. This
Agreement may not be amended except by an instrument in writing signed on behalf
of Acquiror, the Sub, Osage and the Osage Shareholders.
ARTICLE IX
MISCELLANEOUS
9.1 Survival of Representations and Warranties.
The respective representations and warranties of Acquiror, the Sub,
Osage and the Osage Shareholders shall not be deemed waived or otherwise
affected by any investigation made by any party. Each representation and
warranty shall survive the Closing through all applicable statutes of
limitations.
9.2 Notices.
All notices requests, demands, waivers and other communications
required or permitted to be given under this Agreement shall be in writing and
shall be deemed to have been duly given on the date if delivered personally, or
upon the second business day after it shall have been deposited by certified or
registered mail with postage prepaid, or sent by telex, telegram or telecopier,
as follows (or at such other address or facsimile number for a party as shall be
specified by like notice):
(a) if to Osage, to it at: with a copy to:
Osage Computer Group Mark H. Weiss, Esquire
1661 E. Camelback Road Harry M. Weiss & Associates, P.C.
Suite 245 4204 North Brown Avenue
Phoenix, AZ 85016 Scottsdale, AZ 85251
Attn: Jack Leadbeater Fax: (602) 947-2663
Fax: (602) 274-1295
and
Burton M. Bentley, P.C.
7878 North 16th Street
Suite 110
Phoenix, AZ 85020
Fax: (602) 861-3230
(b) if to Acquiror or the Sub to it at: with a copy to:
Pacific Rim Entertainment, Inc. Stephen M. Cohen, Esquire
401 City Avenue, Suite 319 Buchanan Ingersoll, P.C.
Bala Cynwyd, PA 19004 Eleven Penn Center, 14th Floor
Attn: Steven Rosner Philadelphia, PA 19103
Fax: (610) 660-5905 Fax: (215) 665-8760
9.3 Entire Agreement; Assignment.
This Agreement, including all Exhibits and Schedules hereto,
constitutes the entire Agreement among the parties with respect to its subject
matter and supersedes all prior agreements and understandings, both written and
oral, among the parties or any of them with respect to such subject matter and
shall not be assigned by operation of law or otherwise.
9.4 Binding Effect; Benefit.
This Agreement shall inure to the benefit of and be binding upon the
parties and their respective successors and assigns. Nothing in this Agreement
is intended to confer on any person other than the parties to this Agreement or
their respective successors and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
9.5 Headings.
The descriptive headings of the sections of this Agreement are
inserted for convenience only, do not constitute a part of this Agreement and
shall not affect in any way the meaning or interpretation of this Agreement.
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<PAGE>
9.6 Counterparts.
This Agreement may be executed in two or more counterparts and
delivered via facsimile, each of which shall be deemed to be an original, and
all of which together shall be deemed to be one and the same instrument.
9.7 Governing Law.
This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware, without regard to the laws that might
otherwise govern under principles of conflicts of laws applicable thereto.
9.8 Arbitration.
If a dispute arises as to the interpretation of this Agreement, it
shall be decided finally in an arbitration proceeding conforming to the Rules of
the American Arbitration Association applicable to commercial arbitration then
in effect at the time of the dispute. The arbitration shall take place in
Phoenix, Arizona. The decision of the Arbitrators shall be conclusively binding
upon the parties and final, and such decision shall be enforceable as a judgment
in any court of competent jurisdiction. The parties shall share equally the
costs of the arbitration.
9.9 Severability.
If any term, provision, covenant or restriction of this Agreement is
held by a court of competent jurisdiction or other authority to be invalid,
void, unenforceable or against its regulatory policy, the remainder of this
Agreement shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.
9.10 Release and Discharge.
By virtue of their execution of this Agreement, as of the Closing and
thereafter, the Osage Shareholders hereby agree to release, remise and forever
discharge Osage from and against any and all debts, obligations, liabilities and
amounts owing from Osage to the Osage Shareholders prior to the Closing, and
Osage is not obligated to take any action or make any payments to third parties
on behalf of the Osage Shareholders.
9.11 Certain Definitions.
As used herein:
(a) "Affiliate" shall have the meanings ascribed to such term in Rule
12b-2 of the General Rules and Regulations under the Securities Exchange Act of
1934, as amended to date (the "Exchange Act");
(b) "Business Day" shall mean any day other than a Saturday, Sunday or
a day on which federally chartered financial institutions are not open for
business in the City of Phoenix, Arizona.
(c) "Knowledge" shall mean the actual current knowledge of the
executive management of the party to this Agreement to whom knowledge is
ascribed together with the knowledge such executive management should reasonably
be expected to have in the performance of its duties and responsibilities.
(d) "Material Adverse Effect" shall mean any adverse effect on the
business, condition (financial or otherwise) or results of operation of the
relevant party and its subsidiaries, if any, which is material to such party and
its subsidiaries, if any, taken as a whole;
(e) "Person" means any individual, corporation, partnership,
association, trust or other entity or organization, including a governmental or
political subdivision or any agency or institution thereof; and
(f) "Subsidiary" shall mean, when used with reference to an entity,
any corporation, a majority of the outstanding voting securities of which is
owned directly or indirectly, or a majority of the board of directors of which
may be elected, by such entity.
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<PAGE>
IN WITNESS WHEREOF, Acquiror, the Sub, Osage and the Osage Shareholders
have caused this Agreement to be signed by their respective officers hereunto
duly authorized, all as of the date first written above.
Attest: PACIFIC RIM ENTERTAINMENT, INC.
By: By: /s/ Steven B. Rosner
------------------------------ -----------------------------------
Name: Steven B. Rosner
Title: President
Attest: PR ACQUISITION CORP.
By: By: /s/ Steven B. Rosner
------------------------------ -----------------------------------
Name: Steven B. Rosner
Title: President
Attest: OSAGE COMPUTER GROUP, INC.
By: By: /s/ Jack R. Leadbeater
------------------------------ -----------------------------------
Name: Jack R. Leadbeater
Title: President
OSAGE SHAREHOLDERS:
Witness
/s/ Jack R. Leadbeater
- ---------------------------------- ------------------------------------
Name: Signature
----------------------------- Name: Jack R. Leadbeater
Address: Address:
-------------------------- ----------------------------
- ---------------------------------- ------------------------------------
Percentage of Ownership:
------------
Witness
/s/ David Olson
- ---------------------------------- ------------------------------------
Name: Signature
----------------------------- Name: David Olson
Address: Address:
-------------------------- ----------------------------
- ---------------------------------- ------------------------------------
Percentage of Ownership:
------------
50
<PAGE>
Witness
/s/ Steven Rigby
- ---------------------------------- ------------------------------------
Name: Signature
----------------------------- Name: Steven Rigby
Address: Address:
-------------------------- ----------------------------
- ---------------------------------- ------------------------------------
Percentage of Ownership:
------------
Witness
/s/ Chris Donahue
- ---------------------------------- ------------------------------------
Name: Signature
----------------------------- Name: Chris Donahue
Address: Address:
-------------------------- ----------------------------
- ---------------------------------- ------------------------------------
Percentage of Ownership:
------------
Witness
/s/ Dale Van de Vrede Family Trust
- ---------------------------------- ------------------------------------
Name: Signature
----------------------------- Name: Dale Van de Vrede Family Trust
Address: Address:
-------------------------- ----------------------------
- ---------------------------------- ------------------------------------
Percentage of Ownership:
------------
Witness
/s/ Rick Gunther
- ---------------------------------- ------------------------------------
Name: Signature
----------------------------- Name: Rick Gunther
Address: Address:
-------------------------- ----------------------------
- ---------------------------------- ------------------------------------
Percentage of Ownership:
------------
51
FIRST AMENDMENT
TO
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
PACIFIC RIM ENTERTAINMENT, INC.
PR ACQUISITION CORP.
AND
OSAGE COMPUTER GROUP, INC.
Dated: December 19, 1997
<PAGE>
This FIRST AMENDMENT to the AGREEMENT AND PLAN OF MERGER is made and
entered into as of December 19, 1997, by and among PACIFIC RIM ENTERTAINMENT,
INC., a Delaware corporation ("Acquiror"), PR ACQUISITION CORP., a Delaware
corporation and wholly owned subsidiary of Acquiror ("Sub") and OSAGE COMPUTER
GROUP, INC., a Arizona Corporation ("Osage").
Recitals:
WHEREAS, the parties to the Agreement and Plan of Merger dated November
5, 1997 (the "Merger Agreement") wish to amend the Merger Agreement in
accordance with the following terms and conditions.
NOW, THEREFORE, in consideration of the foregoing premises and
agreements contained herein, and for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
AGREEMENT OF THE PARTIES
1. Matters of Corporate Governance.
Section 5.15 of the Merger Agreement shall be amended to read as
follows:
"For that period for which the Osage Shareholders retain the voting
rights identified in Section 3 of the Certificate of Designation, Preference and
Rights of Series B $3.00 Convertible Preferred Stock, the Osage Shareholders
shall nominate to the Acquiror's Board of Directors the Pacific Rim Designee."
All other references in Section 5.15 of the Merger Agreement to the
contrary shall hereafter be null, void and of no further legal force and effect.
2. Computation of "Performance Criteria"
For all purposes identified within the Merger Agreement in which
reference is made to "Performance Criteria" or the earnings or net income of
Acquiror, any such reference shall be computed for all period after the
effective closing date of the Merger Agreement of December 19, 1997 (the
"Effective Closing Date") without any reduction for any deficit or losses
incurred by Acquiror prior to the Effective Closing Date.
3. Capitalized Terms
All capitalized terms referred to in this First Amendment to the
Agreement and Plan of Merger shall have the same meaning ascribed thereto as
contained within the Merger Agreement.
<PAGE>
4. Full Force and Effect
All other provisions in the Merger Agreement shall remain in full force
and effect except those identified within this First amendment to the Agreement
and Plan of Merger.
IN WITNESS WHEREOF, Acquiror, the Sub and Osage have caused this First
Amendment to the Agreement and Plan of Merger to be signed by their respective
officers hereunto duly authorized, all as of the date first written above.
Attest: PACIFIC RIM ENTERTAINMENT, INC.
By: By:
---------------------------- ---------------------------------
Name:
----------------------------
Title:
---------------------------
Attest: PR ACQUISITION CORP..
By: By:
---------------------------- ---------------------------------
Name:
----------------------------
Title:
---------------------------
Attest: OSAGE COMPUTER GROUP, INC.
By: By:
----------------------------- ---------------------------------
Name:
----------------------------
Title:
---------------------------
CERTIFICATE OF DESIGNATION,
PREFERENCES AND RIGHTS
of
SERIES A $3.00 Convertible Preferred Stock
of
PACIFIC RIM ENTERTAINMENT, INC.
Pursuant to Section 151(g) of the General Corporation Law
of the State of Delaware
Pacific Rim Entertainment, Inc., a Delaware corporation (the
"Company"), certifies that pursuant to the authority contained in its
Certificate of Incorporation, as amended, and in accordance with the provisions
of Section 151(g) of the General Corporation Law of the State of Delaware, its
Board of Directors (the "Board of Directors") in an action taken as of November
17, 1997, has duly adopted the following resolution amending a series of its
Preferred Stock, $.01 par value, designating a segment thereof as Series A $3.00
Convertible Preferred Stock:
WHEREAS, the Certificate of Incorporation of the Company presently
authorizes the issuance of 1,000 shares of Preferred Stock, $.01 par value, in
one or more series upon terms and conditions that are to be designated by the
Board of Directors;
WHEREAS, in order to accommodate a business purpose deemed proper by
the Board of Directors, i.e., to facilitate a private placement (the "Private
Placement") of securities in the amount of $3,660,000 which when completed will
generate additional working capital for the Company, the Board of Directors does
hereby seek to provide for the designation of segment of the Company's Preferred
Stock as "Series A $3.00 Convertible Preferred Stock;"
WHEREAS, the terms, conditions, voting rights, preferences, limitations
and special rights of the Series A $3.00 Convertible Preferred Stock in their
entirety are as provided herein.
NOW, THEREFORE, be it:
RESOLVED, that a series of the class of authorized Preferred Stock,
$.01 par value, of the Company hereinafter designated "Series A $3.00
Convertible Preferred Stock," be hereby created, and that the designation and
amount thereof and the voting powers, preferences and relative, participating
and other specials rights of the shares of such series, and the qualifications,
limitations or restrictions thereof are as follows:
<PAGE>
Section 1. Designation and Amount.
The shares of such series shall be designated as the "Series A $3.00
Convertible Preferred Stock" (the "Series A $3.00 Convertible Preferred Stock")
and the number of shares initially constituting such series shall be 200 which
may be issued in whole or fractional shares.
Section 2. Dividends and Distributions.
Except as required by law, each holder of shares of Series A $3.00
Convertible Preferred Stock shall not be entitled to receive dividends.
Section 3. Voting Rights.
Except as required by law, the holders of shares of Series A $3.00
Convertible Preferred Stock shall have no voting rights and their consent shall
not be required for the taking of any corporate action.
Section 4. Liquidation, Dissolution, Winding Up or Certain Mergers or
Consolidations.
(a) If the Company shall adopt a plan of liquidation or of
dissolution, or commence a voluntary case under the federal bankruptcy laws or
any other applicable state or federal bankruptcy, insolvency or similar law, or
consent to the entry of an order for relief in any involuntary case under such
law or to the appointment of a receiver, liquidator, assignee, custodian,
trustee or sequestrator (or similar official) of the Company or of any
substantial part of its property, or make an assignment for the benefit of its
creditors, or admit in writing its inability to pay its debts generally as they
become due and on account of such event the Company shall liquidate, dissolve or
wind up, or upon any other liquidation, dissolution or winding up of the
Company, or engage in a merger, plan of reorganization or consolidation in which
the Company is not the surviving corporation, then and in that event, no
distribution shall be made to the holders of shares of Common Stock or any other
capital stock of the Company ranking junior to the Series A $3.00 Convertible
Preferred Stock, the holders of the Series A $3.00 Convertible Preferred Stock
and the holders of the Company's Series B $3.00 Convertible Preferred Stock
shall have first received an amount in cash or equivalent value in securities or
other consideration equal to the "liquidation preferences" thereof. If upon any
liquidation, dissolution, winding up, merger, plan of reorganization or
consolidation, the amount so payable or distributable does not equal or exceed
the "liquidation preferences" of the Series A $3.00 Convertible Preferred Stock
and the Series B $3.00 Convertible Preferred Stock, then, and in that event, the
amount of cash so payable, and amount of securities or other consideration so
distributable, shall be shared ratably according to the respective "liquidation
preferences" of the holders of the Series A $3.00 Convertible Preferred Stock
and the holders of the Series B $3.00 Convertible Preferred Stock. After payment
in full of the "liquidation preferences" owed to the holders of the Series A
$3.00 Convertible Preferred Stock, the holders of the Common Stock shall be
entitled, to the exclusion of the holders of the Series A $3.00 Convertible
Preferred Stock and the holders of the Series B $3.00 Convertible Preferred
Stock, to share in all remaining assets of the Company in accordance with their
2
<PAGE>
respective interests. For the purposes hereof, the term "liquidation
preference(s)" shall mean $30,000 per share with respect to the Series A $3.00
Convertible Preferred Stock.
(b) Except as provided in subparagraph (a) above, neither the
consolidation, merger or other business combination of the Company with or into
any other person or persons in which the Company is the surviving corporation
nor the sale, lease, exchange or conveyance of all or any part of the property,
assets or business of the Company to a person or persons other than the holders
of the Company's Common Stock, shall be deemed to be a liquidation, dissolution
or winding up of the Company.
Section 5. Conversion.
(a) Subject to the provisions for adjustment hereinafter set forth,
each share of Series A $3.00 Convertible Preferred Stock shall be convertible in
the manner hereinafter set forth into fully paid and nonassessable shares of
Common Stock. Commencing upon issuance, the principal amount of the purchase
price of each share of Series A $3.00 Convertible Preferred Stock may, at the
option of the holder thereof, be converted at a rate (the "Conversion Rate")
equal to $3.00 per share of Common Stock.
(b) The number of shares of Common Stock into which each share of
Series A $3.00 Convertible Preferred Stock is convertible shall be subject to
adjustment from time to time as follows:
(i) In case the Company shall at any time or from time to time
declare a dividend, or make a distribution, on the outstanding shares of Common
Stock in shares of Common Stock or subdivide or reclassify the outstanding
shares of Common Stock into a greater number of shares or combine or reclassify
the outstanding shares of Common stock into a smaller number of shares of Common
Stock, and in each case,
(A) the number of shares of Common Stock into which each share
of Series A $3.00 Convertible Preferred Stock is convertible shall be adjusted
so that the holder of each share thereof shall be entitled to receive, upon the
conversion thereof, the number of shares of Common Stock which the holder of a
share of Series A $3.00 Convertible Preferred Stock would have been entitled to
receive after the happening of any of the events described above had such share
been converted immediately prior to the happening of such event or the record
date therefor, whichever is earlier; and
(B) an adjustment made pursuant to this clause (i) shall
become effective (I) in the case of any such dividend or distribution,
immediately after the close of business on the record date for the determination
of holders of shares of Common Stock entitled to receive such dividend or
distribution, or (II) in the case of any such subdivision, reclassification or
combination, at the close of business on the day upon which such corporate
action becomes effective.
(ii) In case the Company shall be a party to any transaction
(including, without limitation, a merger, consolidation, sale of all or
substantially all of the Company's assets or recapitalization of the Common
3
<PAGE>
Stock and excluding (X) any transaction to which clause (i) of this paragraph
(b) applied, and (Y) a merger or consolidation in which the Company is the
surviving corporation in which the previously outstanding Common Stock shall be
changed into or, pursuant to the operation of law or the terms of the
transaction to which the Company is a party, exchanged for different securities
of the Company or common stock or other securities of another corporation or
interests in a noncorporate entity or other property (including cash) or any
combination of any of the foregoing), then, as a condition of the consummation
of such transaction, in addition to the requirements of paragraph 4(a), lawful
and adequate provision shall be made so that each holder of shares of Series A
$3.00 Convertible Preferred Stock shall be entitled, upon conversion, to an
amount per share equal to (A) the aggregate amount of stock, securities, cash
and/or any other property (payable in kind), as the case may be, into which or
which each share of Common Stock is changed or exchanged times (B) the number of
shares of Common Stock into which a share of Series A $3.00 Convertible
Preferred Stock is convertible immediately prior to the consummation of such
transaction.
(c) In case the Company shall be a party to a transaction described
in subparagraph (b)(ii) above resulting in the change or exchange of the
Company's Common Stock then, from and after the date of announcement of the
pendency of such subparagraph (b)(ii) transaction until the effective date
thereof, each share of Series A $3.00 Convertible Preferred Stock may be
converted, at the option of the holder thereof, into shares of Common Stock on
the terms and conditions set forth in this Section 5, and if so converted during
such period, such holder shall be entitled to receive such consideration in
exchange for such holder's shares of Common Stock as if such holder had been the
holder of such shares of Common Stock as of the record date for such change or
exchange of the Common Stock.
(d) The holder of any shares of Series A $3.00 Convertible Preferred
Stock may exercise his right to convert such shares into shares of Common Stock
by surrendering for such purpose to the Company, at the offices of the Company,
at 1661 East Camelback Road, Suite 245, Phoenix, Arizona 85016, or any successor
location, a certificate or certificates representing the shares of Series A
$3.00 Convertible Preferred Stock to be converted with the form of election to
convert (the "Election to Convert") on the reverse side of the stock certificate
completed and executed as indicated, thereby stating that such holder elects to
convert all or a specified whole number of such shares in accordance with the
provisions of this Section 5 and specifying the name or names in which such
holder wishes the certificate or certificates for shares of Common Stock to be
issued. In case the Election to Convert shall specify a name or names other than
that of such holder, it shall be accompanied by payment of all transfer or other
taxes payable upon the issuance of shares of Common Stock in such name or names
that may be payable in respect of any issue or delivery of shares of Common
Stock on conversion of Series A $3.00 Convertible Preferred Stock pursuant
hereto. The Company will have no responsibility to pay any taxes with respect to
the Series A $3.00 Convertible Preferred Stock. As promptly as practicable, and
in any event within three Business Days after the surrender of such certificate
or certificates and the receipt of the Election to Convert, and, if applicable,
payment of all transfer or other taxes (or the demonstration to the satisfaction
of the Company that such taxes have been paid), the Company shall deliver or
cause to be delivered (i) certificates representing the number of validly
issued, fully paid and nonassessable full shares of Common stock to which the
holder of
4
<PAGE>
shares of Series A $3.00 Convertible Preferred Stock so converted shall be
entitled and (ii) if less than the full number of shares of Series A $3.00
Convertible Preferred Stock evidenced by the surrendered certificate or
certificates are being converted, a new certificate or certificates, of like
tenor, for the number of shares evidenced by such surrendered certificate or
certificates less the number of shares converted. Such conversion shall be
deemed to have been made at the close of business on the date of giving of the
Election to Convert and of such surrender of the certificate or certificates
representing the shares of Series A $3.00 Convertible Preferred Stock to be
converted so that the rights of the holder thereof as to the shares being
converted shall cease except for the right to receive shares of Common Stock in
accordance herewith, and the person entitled to receive the shares of Common
Stock shall be treated for all purposes as having become the record holder of
such shares of Common Stock at such time. The Company shall not be required to
convert, and no surrender of shares of Series A $3.00 Convertible Preferred
Stock shall be effective for that purpose, while the transfer books of the
Company for the Common Stock are closed for any purpose (but not for any period
in excess of 15 calendar days); but the surrender of shares of Series A $3.00
Convertible Preferred Stock for conversion during any period while such books
are so closed shall become effective for conversion immediately upon the
reopening of such books, as if the conversion had been made on the date such
shares of Series A $3.00 Convertible Preferred Stock were surrendered, and at
the conversion rate in effect at the date of such surrender.
(e) In connection with the conversion of any shares of Series A
$3.00 Convertible Preferred Stock, no fractions of shares of Common Stock shall
be issued, but in lieu thereof the Company shall pay a cash adjustment in
respect of such fractional interest in an amount equal to such fractional
interest multiplied by the Conversion Rate.
Section 6. Reports as to Adjustments.
Whenever the number of shares of Common Stock into which each share of
Series A $3.00 Convertible Preferred Stock is convertible is adjusted as
provided in Section 5 hereof, the Company shall promptly mail to the holders of
record of the outstanding shares of Series A $3.00 Convertible Preferred Stock
at their respective addresses as the same shall appear in the Company's stock
records a notice stating that the number of shares of Common Stock into which
the shares of Series A $3.00 Convertible Preferred Stock are convertible has
been adjusted and setting forth the new number of shares of Common Stock (or
describing the new stock, securities, cash or other property) into which each
share of Series A $3.00 Convertible Preferred Stock is convertible, as a result
of such adjustment, a brief statement of the facts requiring such adjustment and
the computation thereof, and when such adjustment became effective.
Section 7. Redemption.
(a) Commencing six (6) months from the date of this Certification of
Designations, all, but not less than all, of the shares of Series A $3.00
Convertible Preferred Stock may be redeemed at any time by the Company at its
sole discretion and election at $3.00 per share upon thirty days written notice
to the holders (the "Redemption Date"), provided that at the time of the
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<PAGE>
Redemption Notice: (i) the average closing "bid" and "ask" prices of the Common
Stock shall have exceeded $5.00 for the twenty (20) trading days preceding the
Redemption Notice; (ii) the shares of Common Stock issued or issuable upon
conversion of the Series A $3.00 Convertible Preferred Stock are subject to an
effective Registration Statement; and (iii) the Company's placement agent (the
"Placement Agent") for the Private Placement shall have waived any restrictions
upon resale of such shares. Holders shall be entitled to convert their shares of
Series A $3.00 Convertible Preferred Stock during the thirty (30) trading day
period commencing on the date of the Redemption Notice.
(b) The Redemption Notice shall be given in writing by the Company
to all holders of record within fifteen (15) days of the last consecutive
Trading Day by mail at such holder's address as it appears on the transfer books
of the Company, and the time of mailing such notice shall be deemed the time of
delivery. The Redemption Notice shall set forth the date of redemption. Such
notice shall be given to the holders not less than thirty (30) days prior to the
date of redemption. Commencing thirty (30) days after the date of the Redemption
Notice, the Company shall have the right to redeem, at any time, all of the
outstanding shares of Series A $3.00 Convertible Preferred Stock by paying
therefor in cash $3.00 per share.
(c) If the Company so elects, the Company shall provide for the
payment of the redemption price by depositing the requisite monies, with a bank
or trust company of adequate capitalization of its choice as Paying Agent on the
date specified for redemption (provided the Redemption Notice shall state the
name and address of such Paying Agent and the intention of the Company to
deposit and the availability of the moneys). All rights of the holders thereof
as shareholders of the Company, except the right to receive the applicable
redemption price (without interest) shall cease and terminate. Any interest
allowed on the moneys so deposited shall be paid to the Company. Any moneys (or
other consideration, if applicable) so deposited which shall remain unclaimed by
the holders of such Series A $3.00 Convertible Preferred Stock at the end of
three (3) years after the redemption date shall become the property of, and be
paid by such bank or trust company to, the Company.
Section 8. Registration Rights.
The Company has agreed that as soon as practicable after the closing of
the Merger, it will prepare and file, with the Securities and Exchange
Commission, and use its best efforts to have declared effective, a Registration
Statement on Form SB-2 or other equivalent form pursuant to which the Company
shall register the potential resale of the Common Stock issuable upon conversion
of the Series A $3.00 Convertible Preferred Stock. The expenses of such
registration will be borne by the Company.
Notwithstanding the foregoing, the Company may delay filing the
registration statement, and may withhold efforts to cause the registration
statement to become effective, if the Company determines in good faith that such
registration might (i) interfere with or affect the negotiation or completion of
any transaction that is being contemplated by the Company (whether or not a
final decision has been made to undertake such transaction) at the time the
right to delay is exercised, or (ii) involve initial or continuing disclosure
obligations that might not be in the best interest of the Company's
stockholders. If, after the registration statement becomes effective, the
Company advises
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<PAGE>
the holders of registered shares that the Company considers it appropriate for
the registration statement to be amended, the holders of such shares shall
suspend any further sales of their registered shares until the Company advises
them that the registration statement has been amended.
Each holder of Series A $3.00 Convertible Preferred Stock whose shares
are registered pursuant to the registration rights set forth herein shall
indemnify and hold harmless the Company, each of its directors and each of its
officers from and against any and all claims, damages or liabilities, joint or
several, to which they or any of them may become subject, including all legal
and other expenses, arising out of or in connection with any untrue statement or
alleged untrue statement of a material fact contained in the registration
statement, in any preliminary or amended preliminary prospectus or in the
prospectus (or the registration statement or prospectus as from time to time
amended or supplemented) or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary in order to make the statements therein not misleading in the
circumstances in which they were made, but only insofar as any such statement or
omission was made in reliance upon and in conformity with information furnished
in writing to the Company in connection therewith by such holder expressly for
use therein. The liability of any such holder shall be limited to the aggregate
price at which such holder's shares of the Company is sold.
In connection with the registration rights, the Company shall have no
obligation: (i) to assist or cooperate in the offering or disposition of such
shares of Common Stock; (ii) to indemnify or hold harmless the holders of the
securities being registered; (iii) to obtain a commitment from an underwriter
relative to the sale of such shares; or (iv) to include such shares of Common
Stock within an underwritten offering of the Company.
Section 9. Restriction Upon Resale.
The Series A $3.00 Convertible Preferred Stock and the shares of Common
Stock issuable upon conversion of the Series A $3.00 Convertible Preferred Stock
may not be transferred, sold, encumbered or otherwise disposed of for a period
of eighteen months after the closing of the Merger without the prior written
consent of the Placement Agent.
Section 10. Reacquired Shares.
Any shares of Series A $3.00 Convertible Preferred Stock converted,
purchased or otherwise acquired by the Company in any manner whatsoever shall be
retired and cancelled promptly after the acquisition thereof, and, if necessary
to provide for the lawful purchase of such shares, the capital represented by
such shares shall be reduced in accordance with the General Corporation Law of
the State of Delaware. All such shares shall upon their cancellation become
authorized but unissued shares of Preferred Stock, $.01 par value, of the
Company and may be reissued as part of another series of Preferred Stock, $.01
par value, of the Company.
7
<PAGE>
Section 11. Certain Definitions.
For the purposes of the Certificate of Designation of Series A $3.00
Convertible Preferred Stock which embodies this resolution:
"Business Day" means any day other than a Saturday, Sunday, or a day on
which banking institutions in the State of Delaware are authorized or obligated
by law or executive order to close.
"Trading Day" means a day on which the principal national securities
exchange on which the Common Stock is listed or admitted to trading is open for
the transaction of business or, if the Common Stock is not listed or admitted to
trading on any national securities exchange, any day other than a Saturday,
Sunday, or a day on which banking institutions in the State of Delaware are
authorized or obligated by law or executive order to close.
IN WITNESS WHEREOF, the Company has caused this Certificate of
Designation of Series A $3.00 Convertible Preferred Stock to be duly executed by
its President this ______ day of December, 1997.
PACIFIC RIM ENTERTAINMENT, INC.
By:
-----------------------------------
Steven B. Rosner, President
8
CERTIFICATE OF MERGER OF
OSAGE COMPUTER GROUP, INC.
INTO
PR ACQUISITION CORP.
The undersigned corporation organized and existing under and by virtue of
the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the name and state of incorporation of each of the constituent
corporations fo the merger is as follows:
Name State of Incorporation
PR Acquisition Group. Delaware
Osage Computer Group, Inc. Arizona
SECOND: That an Agreement and Plan of Merger between the parties to the
merger has been approved, adopted, certified, executed and acknowledged by
each of the constituent corporations in accordance with the requirements of
Section 252 of the General Corporation Law of the State of Delaware.
THIRD: That the surviving corporation of the merger is PR Acquisition Corp.
FOURTH: Article 1 of the Certificate of Incorporation of the surviving
corporation shall be amended to read as follows:
"1. The name of the corporation is Osage Computer Group, Inc."
FIFTH: That the executed Agreement and Plan of Merger is on file at the
principal place of business of the surviving corporation. The address of the
principal place of business of the surviving corporation is 1661 East Camelback
Road, Suite 245, Phoenix, Arizona 85016.
SIXTH: That a copy of the Agreement and Plan of Merger will be furnished by
the surviving corporation, on request and without cost to any stockholder of any
constituent corporation.
SEVENTH: The authorized capital stock for Osage Computer Group, Inc. is
10,000,000 shares of common stock, no par value per share; and 1,000,000 shares
of preferred stock, no par value per share.
<PAGE>
EIGHTH: The merger shall become effective upon the filing of this
Certificate of Merger with the State of Delaware.
IN WITNESS WHEREOF, PR Acquisition Corp. has caused the Certificate to be
signed by Steven B. Rosner, its authorized officer, this 18th day of
December, 1997.
PR ACQUISITION CORP.
By: Steven B. Rosner
------------------------
TITLE: Chief Executive Officer
CERTIFICATE OF DESIGNATION,
PREFERENCES AND RIGHTS
of
SERIES B $3.00 Convertible Preferred Stock
of
PACIFIC RIM ENTERTAINMENT, INC.
Pursuant to Section 151(g) of the General Corporation Law
of the State of Delaware
Pacific Rim Entertainment, Inc., a Delaware corporation (the
"Company"), certifies that pursuant to the authority contained in its
Certificate of Incorporation, as amended, and in accordance with the provisions
of Section 151(g) of the General Corporation Law of the State of Delaware, its
Board of Directors (the "Board of Directors") in an action taken as of November
17, 1997, has duly adopted the following resolution amending a series of its
Preferred Stock, $.01 par value, designating a segment thereof as Series B $3.00
Convertible Preferred Stock:
WHEREAS, the Certificate of Incorporation of the Company presently
authorizes the issuance of 1,000 shares of Preferred Stock, $.01 par value, in
one or more series upon terms and conditions that are to be designated by the
Board of Directors;
WHEREAS, in order to accommodate a business purpose deemed proper by
the Board of Directors to facilitate the acquisition by the Company of Osage
Computer Group, Inc. ("Osage") pursuant to the Merger Agreement by and among the
Company, PR Acquisition Corp., Osage and certain stockholders of Osage dated as
of November 5, 1997 (the "Merger Agreement"), the Board of Directors does hereby
seek to provide for the designation of a segment of the Company's Preferred
Stock as "Series B $3.00 Convertible Preferred Stock;" and
WHEREAS, the terms, conditions, voting rights, preferences, limitations
and special rights of the Series B $3.00 Convertible Preferred Stock in their
entirety are as provided herein.
NOW, THEREFORE, be it:
RESOLVED, that a series of the class of authorized Preferred Stock,
$.01 par value, of the Company hereinafter designated "Series B $3.00
Convertible Preferred Stock," be hereby created, and that the designation and
amount thereof and the voting powers, preferences and relative, participating
and other special rights of the shares of such series, and the qualifications,
limitations or restrictions thereof are as follows:
<PAGE>
Section 1. Designation and Amount.
The shares of such series shall be designated as the "Series B $3.00
Convertible Preferred Stock" (the "Series B $3.00 Convertible Preferred Stock")
and the number of shares initially constituting such series shall be 50 which
may be issued in whole or fractional shares.
Section 2. Dividends and Distributions.
(a) The holders of the Series B $3.00 Convertible Preferred Stock shall
only be entitled to receive, the Board of Directors shall be required to declare
and the Company shall be required to pay, out of funds legally available
therefor, an amount of dividends that would be payable to the holders of the
Series B $3.00 Convertible Preferred Stock as though then converted if, as and
when any dividends are declared by the Board of Directors on the Common Stock of
the Company. All other Company stock of any class except the Company's Series A
$3.00 Convertible Preferred Stock (the "Series A $3.00 Convertible Preferred
Stock") and the Series B $3.00 Convertible Preferred Stock shall be referred to
herein as "Other Stock." Dividend payments to the holders of the shares of
Series B $3.00 Convertible Preferred Stock shall be payable in cash by delivery
of a check to each entitled holder's address which is registered with the
Secretary of the Company.
(b) The holders of shares of Series B $3.00 Convertible Preferred Stock
shall not be entitled to receive any dividends or other distributions except as
provided in this Certificate of Designation of Series B $3.00 Convertible
Preferred Stock.
Section 3. Voting Rights.
(a) The holders of shares of Series B $3.00 Convertible Preferred Stock
shall be entitled to a number of votes in total that equal the total number of
votes to be cast by holders of all then issued and outstanding shares of Common
Stock, plus one vote in all elections of directors, such number of votes to be
allocated among the shares of Series B $3.00 Convertible Preferred Stock on a
pro rata and equivalent per share basis. Notwithstanding the foregoing,
recognizing that such number of votes shall represent the power to elect the
entire Board of Directors, the holders of the Series B $3.00 Convertible
Preferred Stock shall exercise such votes in the election of directors only to
elect a majority of the Board of Directors by voting for their own nominees, and
shall otherwise vote its shares of stock for nominees that are not designated by
the holders of the Series B $3.00 Convertible Preferred Stock but who are
appropriately nominated in accordance with paragraph (b) of this Section 3. The
Company shall not allow cumulative voting in the election of directors. In all
matters presented to stockholders of the Company for a vote, whether required by
applicable corporate law or otherwise, the Series B $3.00 Convertible Preferred
Stock shall be entitled to vote as a class.
(b) The holders of the Series B $3.00 Convertible Preferred Stock shall
be entitled to nominate a majority of the nominees to the Board of Directors in
all elections of directors. In addition, the holders of the Series B $3.00
Convertible Preferred Stock shall vote their shares for the nominee of the
members of the Board of Directors of the Company immediately prior to the
2
<PAGE>
closing of the Merger Agreement (the "Pacific Rim Designee") and a nominee
mutually acceptable to the holders of Series B $3.00 Convertible Preferred Stock
and the Pacific Rim Designee.
(c) The rights of the holders of the Series B $3.00 Convertible
Preferred Stock set forth in Sections 3(a) and (b) above shall terminate and be
of no further force and effect upon the earlier of: (i) the first date upon
which the Company no longer complies with the "Performance Criteria" set forth
in Section 8(b) hereof; or (ii) the third anniversary of the Closing of the
Merger Agreement. Upon termination of the rights set forth in Sections 3(a) and
(b) above, the holders of the Series B $3.00 Convertible Preferred Stock shall
have no voting rights and their consent shall not be required for the taking of
any action except as required by law.
Section 4. Liquidation, Dissolution, Winding Up or Certain Mergers or
Consolidations.
(a) If the Company shall adopt a plan of liquidation or of dissolution,
or commence a voluntary case under the federal bankruptcy laws or any other
applicable state or federal bankruptcy, insolvency or similar law, or consent to
the entry of an order for relief in any involuntary case under such law or to
the appointment of a receiver, liquidator, assignee, custodian, trustee or
sequestrator (or similar official) of the Company or of any substantial part of
its property, or make an assignment for the benefit of its creditors, or admit
in writing its inability to pay its debts generally as they become due and on
account of such event the Company shall liquidate, dissolve or wind up, or upon
any other liquidation, dissolution or winding up of the Company, or engage in a
merger, plan of reorganization or consolidation in which the Company is not the
surviving corporation, then and in that event, no distribution shall be made to
the holders of shares of Other Stock, unless, prior thereto, the holders of the
Series A $3.00 Convertible Preferred Stock and the holders of the Series B $3.00
Convertible Preferred Stock shall have first received an amount in cash or
equivalent value in securities or other consideration equal to the "liquidation
preferences" thereof. If upon any liquidation, dissolution, winding up, merger,
plan of reorganization or consolidation, the amount so payable or distributable
does not equal or exceed the "liquidation preferences" of the Series A $3.00
Convertible Preferred Stock and the Series B $3.00 Convertible Preferred Stock,
then, and in that event, the amount of cash so payable, and amount of securities
or other consideration so distributable, shall be shared ratably according to
the respective "liquidation preferences" due to the holders of the Series A
$3.00 Convertible Preferred Stock and the holders of the Series B $3.00
Convertible Preferred Stock. After payment in full of the "liquidation
preferences" owed to the holders of the Series A $3.00 Convertible Preferred
Stock and the holders of the Series B $3.00 Convertible Preferred Stock, the
holders of the Common Stock shall be entitled, to the exclusion of the holders
of the Series A $3.00 Convertible Preferred Stock and the holders of the Series
B $3.00 Convertible Preferred Stock, to share in all remaining assets of the
Company in accordance with their respective interests. For the purposes hereof,
the term "liquidation preference(s)" shall mean $30,000 per share with respect
to each of the Series A $3.00 Convertible Preferred Stock and the Series B $3.00
Convertible Preferred Stock, plus any and all accrued unpaid dividends thereon.
(b) Except as provided in subparagraph (a) above, neither the
consolidation, merger or other business combination of the Company with or into
3
<PAGE>
any other person or persons in which the Company is the surviving corporation
nor the sale, lease, exchange or conveyance of all or any part of the property,
assets or business of the Company to a person or persons other than the holders
of the Company's Common Stock, shall be deemed to be a liquidation, dissolution
or winding up of the Company.
Section 5. Conversion.
(a) Subject to the provisions for adjustment hereinafter set forth,
each share of Series B $3.00 Convertible Preferred Stock shall be convertible in
the manner hereinafter set forth into fully paid and nonassessable shares of
Common Stock. Commencing upon issuance, the principal amount ($30,000 per share)
of each share of Series B $3.00 Convertible Preferred Stock may, at the option
of the holder thereof, be converted at a rate (the "Conversion Rate") equal to
$3.00 per share of Common Stock provided, that during the period in which the
Company remains in compliance with the "Performance Criteria" set forth in
Section 8, the Conversion Rate shall be adjusted to the lower of: (i) $3.00 per
share of Common Stock; or (ii) the average of the closing bid and ask prices of
the Common Stock on the principal exchange, automated quotation system or
over-the-counter market for the fifteen (15) Trading Days prior to conversion.
(b) The number of shares of Common Stock into which each share of
Series B $3.00 Convertible Preferred Stock is convertible also shall be subject
to adjustment from time to time as follows:
(i) In case the Company shall at any time or from time to time
declare a dividend, or make a distribution, on the outstanding shares of Common
Stock in shares of Common Stock or subdivide or reclassify the outstanding
shares of Common Stock into a greater number of shares or combine or reclassify
the outstanding shares of Common Stock into a smaller number of shares of Common
Stock, and in each case,
(A) the number of shares of Common Stock into which each share of
Series B $3.00 Convertible Preferred Stock is convertible shall be adjusted so
that the holder of each share thereof shall be entitled to receive, upon the
conversion thereof, the number of shares of Common Stock which the holder of a
share of Series B $3.00 Convertible Preferred Stock would have been entitled to
receive after the happening of any of the events described above had such share
been converted immediately prior to the happening of such event or the record
date therefor, whichever is earlier; and
(B) an adjustment made pursuant to this clause (i) shall become
effective (I) in the case of any such dividend or distribution, immediately
after the close of business on the record date for the determination of holders
of shares of Common Stock entitled to receive such dividend or distribution, or
(II) in the case of any such subdivision, reclassification or combination, at
the close of business on the day upon which such corporate action becomes
effective.
(ii) In case the Company shall be a party to any transaction
(including, without limitation, a merger, consolidation, sale of all or
4
<PAGE>
substantially all of the Company's assets or recapitalization of the Common
Stock and excluding (X) any transaction to which clause (i) of this paragraph
(b) applied, and (Y) a merger or consolidation in which the Company is the
surviving corporation in which the previously outstanding Common Stock shall be
changed into or, pursuant to the operation of law or the terms of the
transaction to which the Company is a party, exchanged for different securities
of the Company or common stock or other securities of another corporation or
interests in a noncorporate entity or other property (including cash) or any
combination of any of the foregoing), then, as a condition of the consummation
of such transaction, in addition to the requirements of paragraph 4(a), lawful
and adequate provision shall be made so that each holder of shares of Series B
$3.00 Convertible Preferred Stock shall be entitled, upon conversion, to an
amount per share equal to (A) the aggregate amount of stock, securities, cash
and/or any other property (payable in kind), as the case may be, into which or
which each share of Common Stock is changed or exchanged times (B) the number of
shares of Common Stock into which a share of Series B $3.00 Convertible
Preferred Stock is convertible immediately prior to the consummation of such
transaction.
(c) In case the Company shall be a party to a transaction described
in subparagraph (b)(ii) above resulting in the change or exchange of the
Company's Common Stock then, from and after the date of announcement of the
pendency of such subparagraph (b)(ii) transaction until the effective date
thereof, each share of Series B $3.00 Convertible Preferred Stock may be
converted, at the option of the holder thereof, into shares of Common Stock on
the terms and conditions set forth in this Section 5, and if so converted during
such period, such holder shall be entitled to receive such consideration in
exchange for such holder's shares of Common Stock as if such holder had been the
holder of such shares of Common Stock as of the record date for such change or
exchange of the Common Stock.
(d) The holder of any shares of Series B $3.00 Convertible Preferred
Stock may exercise his right to convert such shares into shares of Common Stock
by surrendering for such purpose to the Company, at the offices of the Company,
at 1661 East Camelback Road, Suite 245, Phoenix, Arizona 85016, or any successor
location, a certificate or certificates representing the shares of Series B
$3.00 Convertible Preferred Stock to be converted with the form of election to
convert (the "Election to Convert") on the reverse side of the stock certificate
completed and executed as indicated, thereby stating that such holder elects to
convert all or a specified whole number of such shares in accordance with the
provisions of this Section 5 and specifying the name or names in which such
holder wishes the certificate or certificates for shares of Common Stock to be
issued. In case the Election to Convert shall specify a name or names other than
that of such holder, it shall be accompanied by payment of all transfer or other
taxes payable upon the issuance of shares of Common Stock in such name or names
that may be payable in respect of any issue or delivery of shares of Common
Stock on conversion of Series B $3.00 Convertible Preferred Stock pursuant
hereto. The Company will have no responsibility to pay any taxes with respect to
the Series B $3.00 Convertible Preferred Stock. As promptly as practicable, and
in any event within three Business Days after the surrender of such certificate
or certificates and the receipt of the Election to Convert, and, if applicable,
payment of all transfer or other taxes (or the demonstration to the satisfaction
of the Company that such taxes have been paid), the Company shall deliver or
cause to be delivered (i) certificates representing the number of validly
issued, fully paid and nonassessable full shares of Common stock to which the
holder of shares of Series B $3.00 Convertible Preferred Stock so converted
5
<PAGE>
shall be entitled and (ii) if less than the full number of shares of Series B
$3.00 Convertible Preferred Stock evidenced by the surrendered certificate or
certificates are being converted, a new certificate or certificates, of like
tenor, for the number of shares evidenced by such surrendered certificate or
certificates less the number of shares converted. Such conversion shall be
deemed to have been made at the close of business on the date of giving of the
Election to Convert and of such surrender of the certificate or certificates
representing the shares of Series B $3.00 Convertible Preferred Stock to be
converted so that the rights of the holder thereof as to the shares being
converted shall cease except for the right to receive shares of Common Stock in
accordance herewith, and the person entitled to receive the shares of Common
Stock shall be treated for all purposes as having become the record holder of
such shares of Common Stock at such time. The Company shall not be required to
convert, and no surrender of shares of Series B $3.00 Convertible Preferred
Stock shall be effective for that purpose, while the transfer books of the
Company for the Common Stock are closed for any purpose (but not for any period
in excess of 15 calendar days); but the surrender of shares of Series B $3.00
Convertible Preferred Stock for conversion during any period while such books
are so closed shall become effective for conversion immediately upon the
reopening of such books, as if the conversion had been made on the date such
shares of Series B $3.00 Convertible Preferred Stock were surrendered, and at
the conversion rate in effect at the date of such surrender.
(e) In connection with the conversion of any shares of Series B $3.00
Convertible Preferred Stock, no fractions of shares of Common Stock shall be
issued, but in lieu thereof the Company shall pay a cash adjustment in respect
of such fractional interest in an amount equal to such fractional interest
multiplied by the Conversion Rate.
Section 6. Reports as to Adjustments.
Whenever the number of shares of Common Stock into which each share of
Series B $3.00 Convertible Preferred Stock is convertible is adjusted as
provided in Section 5 hereof, the Company shall promptly mail to the holders of
record of the outstanding shares of Series B $3.00 Convertible Preferred Stock
at their respective addresses as the same shall appear in the Company's stock
records a notice stating that the number of shares of Common Stock into which
the shares of Series B $3.00 Convertible Preferred Stock are convertible has
been adjusted and setting forth the new number of shares of Common Stock (or
describing the new stock, securities, cash or other property) into which each
share of Series B $3.00 Convertible Preferred Stock is convertible, as a result
of such adjustment, a brief statement of the facts requiring such adjustment and
the computation thereof, and when such adjustment became effective.
Section 7. Redemption.
The Company shall not have the right to redeem all or any part of the
Series B $3.00 Convertible Preferred Stock.
6
<PAGE>
Section 8. Performance Criteria.
(a) For the purpose of determining the Conversion Rate set forth in
Section 5, for the first three years following the closing of the Merger
Agreement, the Company shall remain in compliance with the Performance Criteria
(the "Performance Criteria") so long as during each of the fiscal quarters in
the first, second and third years thereafter, the Company achieves earnings per
share as reflected within its quarterly financial statements as filed with the
Securities and Exchange Commission of $.0125, $.025 and $.0375, respectively.
However, the failure to meet the Performance Criteria for any particular quarter
will not adversely effect the computation of the Conversion Rate for any
subsequent quarter.
(b) For the purposes of preserving the rights of the holders of the
Series B $3.00 Convertible Preferred Stock relative to the election of directors
and voting as a class on all matters brought before stockholders set forth in
Section 3(a) hereof, the Company shall remain in compliance with the Performance
Criteria so long as for the first three years following the Merger, its annual
audited financial statements reflect earnings per share of $.05, $.10, and $.15,
respectively. Failure to meet the Performance Criteria in any of the first three
years after the closing of the Merger Agreement shall result in the termination
of the rights of the holders of the Series B $3.00 Convertible Preferred Stock
set forth in Sections 3(a) and (b) hereof.
Section 9. Registration Rights.
The holders of the Series B $3.00 Convertible Preferred Stock shall
have the registration rights as set forth in the Merger Agreement.
Section 10. Reacquired Shares.
Any shares of Series B $3.00 Convertible Preferred Stock converted,
purchased or otherwise acquired by the Company in any manner whatsoever shall be
retired and cancelled promptly after the acquisition thereof, and, if necessary
to provide for the lawful purchase of such shares, the capital represented by
such shares shall be reduced in accordance with the General Corporation Law of
the State of Delaware. All such shares shall upon their cancellation become
authorized but unissued shares of Preferred Stock, $.01 par value, of the
Company and may be reissued as part of another series of Preferred Stock, $.01
par value, of the Company.
Section 11. Certain Definitions.
For the purposes of the Certificate of Designation of Series B $3.00
Convertible Preferred Stock which embodies this resolution:
"Business Day" means any day other than a Saturday, Sunday, or a day on
which banking institutions in the State of Delaware are authorized or obligated
by law or executive order to close.
"Trading Day" means a day on which the principal national securities
exchange on which the Common Stock is listed or admitted to trading is open for
7
<PAGE>
the transaction of business or, if the Common Stock is not listed or admitted to
trading on any national securities exchange, any day other than a Saturday,
Sunday, or a day on which banking institutions in the State of Delaware are
authorized or obligated by law or executive order to close.
IN WITNESS WHEREOF, the Company has caused this Certificate of
Designation of Series B $3.00 Convertible Preferred Stock to be duly executed by
its President this ______ day of December, 1997.
PACIFIC RIM ENTERTAINMENT, INC.
By:
---------------------------------------
Steven B. Rosner, President
8
SEE LEGEND ON REVERSE SIDE
NUMBER SHARES
PACIFIC RIM ENTERTAINMENT, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
10,000,000 SHARES COMMON STOCK SERIES A $3.00 CONVERTIBLE PREFERRED STOCK
Par Value $0.01 Per Share Par Value $0.01 Per Share
SERIES B $3.00 CONVERTIBLE PREFERRED STOCK
Par Value $0.01 Per Share
SPECIMEN
THIS CERTIFIES THAT _____________________________________________________ is the
owner of ________________________________________ shares of the SERIES A $3.00
CONVERTIBLE PREFERRED STOCK of PACIFIC RIM ENTERTAINMENT, INC., fully paid and
non-assessable, transferable only on the books of the Corporation in person or
by Attorney upon surrender of this Certificate properly endorsed.
The corporation will furnish without charge to each stockholder who so
requests, a statement of the powers, designations, preferences and relative,
participating, optional, or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunder
affixed this _________________________________________________________________
day of ___________________________ A.D. 19____.
- ------------------------------- ---------------------------------
SECRETARY/ASSISTANT SECRETARY PRESIDENT
M. BURR KEIM, PHILA.
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE
SECURITIES LAWS. THESE SECURITIES MAY NOT BE OFFERED, SOLD, MORTGAGED, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT, OR AN OPINION OF COUNSEL
OR OTHER EVIDENCE SATISFACTORY TO THE CORPORATION THAT REGISTRATION IS NOT
REQUIRED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS.
TRANSFERABILITY IS FURTHER LIMITED BY THE TERMS OF A SUBSCRIPTION AGREEMENT TO
WHICH THE COMPANY IS A PARTY.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A CERTIFICATE OF
DESIGNATION, PREFERENCES AND RIGHTS OF SERIES A PREFERRED STOCK ("CERTIFICATE OF
DESIGNATION"), WHICH WAS FILED WITH THE DELAWARE SECRETARY OF STATE ON DECEMBER
19, 1997, AS SUPPLEMENTED OR AMENDED. A COPY OF THE CERTIFICATE OF DESIGNATION
AS MAY BE SO SUPPLEMENTED OR AMENDED SHALL BE PROVIDED TO THE HOLDER HEREOF
WITHOUT CHARGE UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY AT THE
PRINCIPAL OFFICE OF THE COMPANY.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - .............Custodian...........under
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of survivorship Uniform Gifts to Minors Act.............
and not as tenants in common (State)
Additional abbreviations may also be used though not in the above list.
</TABLE>
For Valued Received,______hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
--------------------------------------
| |
| |
-------------------------------------- ---------------------------------------
------------------------------------------------------------------------------
Shares represented by the within Certificate, and do hereby irrevocably
constitute and appoint _______________________________________________ Attorney
to transfer the said Shares on the books of the within named Corporation with
full power of substitution in the premises.
Dated ________________________ 19___
In presence of
_________________________________________
______________________________________
NOTICE. THE SIGNATURE OF THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
<PAGE>
SEE LEGEND ON REVERSE SIDE
NUMBER SHARES
PACIFIC RIM ENTERTAINMENT, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
10,000,000 SHARES COMMON STOCK SERIES A $3.00 CONVERTIBLE PREFERRED STOCK
Par Value $0.01 Per Share Par Value $0.01 Per Share
SERIES B $3.00 CONVERTIBLE PREFERRED STOCK
Par Value $0.01 Per Share
SPECIMEN
THIS CERTIFIES THAT _____________________________________________________ is the
owner of ________________________________________ shares of the SERIES B $3.00
CONVERTIBLE PREFERRED STOCK of PACIFIC RIM ENTERTAINMENT, INC., fully paid and
non-assessable, transferable only on the books of the Corporation in person or
by Attorney upon surrender of this Certificate properly endorsed.
The corporation will furnish without charge to each stockholder who so
requests, a statement of the powers, designations, preferences and relative,
participating, optional, or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunder
affixed this _________________________________________________________________
day of ___________________________ A.D. 19____.
- ------------------------------- ---------------------------------
SECRETARY/ASSISTANT SECRETARY PRESIDENT
M. BURR KEIM, PHILA.
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE
SECURITIES LAWS. THESE SECURITIES MAY NOT BE OFFERED, SOLD, MORTGAGED, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT, OR AN OPINION OF COUNSEL
OR OTHER EVIDENCE SATISFACTORY TO THE CORPORATION THAT REGISTRATION IS NOT
REQUIRED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS.
TRANSFERABILITY IS FURTHER LIMITED BY THE TERMS OF A SUBSCRIPTION AGREEMENT TO
WHICH THE COMPANY IS A PARTY.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A CERTIFICATE OF
DESIGNATION, PREFERENCES AND RIGHTS OF SERIES A PREFERRED STOCK ("CERTIFICATE OF
DESIGNATION"), WHICH WAS FILED WITH THE DELAWARE SECRETARY OF STATE ON DECEMBER
19, 1997, AS SUPPLEMENTED OR AMENDED. A COPY OF THE CERTIFICATE OF DESIGNATION
AS MAY BE SO SUPPLEMENTED OR AMENDED SHALL BE PROVIDED TO THE HOLDER HEREOF
WITHOUT CHARGE UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY AT THE
PRINCIPAL OFFICE OF THE COMPANY.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - .............Custodian...........under
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of survivorship Uniform Gifts to Minors Act.............
and not as tenants in common (State)
Additional abbreviations may also be used though not in the above list.
</TABLE>
For Valued Received,______hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
--------------------------------------
| |
| |
-------------------------------------- ---------------------------------------
------------------------------------------------------------------------------
Shares represented by the within Certificate, and do hereby irrevocably
constitute and appoint _______________________________________________ Attorney
to transfer the said Shares on the books of the within named Corporation with
full power of substitution in the premises.
Dated ________________________ 19___
In presence of
_________________________________________
______________________________________
NOTICE. THE SIGNATURE OF THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
<PAGE>
VOTING TRUST AGREEMENT
This Agreement is entered into on ___________, 1997, by and among
____________, ("Trustee"), Pacific Rim Entertainment, Inc. (the "Corporation")
and the Stockholders of the Corporation as set forth on Schedule I attached
hereto and made a part hereof (the "Stockholders").
WHEREAS, the Stockholders each own shares of the Common Stock of the
Corporation; and
WHEREAS, pursuant to a Merger Agreement dated November 5, 1997 (the
"Merger Agreement") between the Corporation, PR Acquisition Corp., a Delaware
corporation (the "Sub"), Osage Computer Group, Inc., an Arizona corporation
("Osage") and certain stockholders of Osage (the "Osage Shareholders"), the
Stockholders have agreed to place certain shares of their Common Stock of the
Corporation in a voting trust upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto do
hereby bind themselves and their heirs, executors, administrators and permitted
assigns, and the Trustee does hereby bind himself, and agree as set forth below.
All capitalized terms not defined herein shall have the meaning ascribed thereto
in the Merger Agreement.
1. Transfer of Stock to Trustee. Each of the Stockholders hereby
transfers and assigns to the Trustee the number of shares of the Corporation's
Common Stock set forth opposite his or her name on Schedule I attached hereto
(the "Trust Shares") and hereby authorizes and directs the Corporation's
transfer agent, upon receipt of a copy of this Agreement, to transfer the Trust
Shares from the named Stockholders into the name of the Trustee as "Voting
Trustee" on the books of the Corporation. The Trustee shall hold the Trust
Shares for the benefit of the Stockholders under the terms and conditions of
this Agreement.
2. Issuance of Voting Trust Certificates. Upon receipt of the
certificates representing the Trust Shares, the Trustee shall issue to each of
the Stockholders a Voting Trust Certificate, in the form attached hereto as
Exhibit "A", for the number of Trust Shares transferred by the Stockholder to
the Trustee. The Trustee shall keep a list of all Trust Shares transferred to
him hereunder, and a list of all Voting Trust Certificates issued, which records
shall include the names and addresses of all Voting Trust Certificate holders
and the number of shares represented by each Certificate.
3. Transfer of Voting Trust Certificates. Each Voting Trust Certificate
shall not be transferable during the term of this Agreement without the consent
of the Board of Directors of the Corporation. The Voting Trust Certificates
shall be deemed to represent shares beneficially owned by the respective
Stockholders.
<PAGE>
4. Trustee to Vote Stock. The Trustee shall vote the Trust Shares in
person or by proxy at all meetings of the Stockholders of the Corporation, and
in all proceedings wherein the vote or written consent of Stockholders may be
required or authorized by law. The Trustee shall vote the Trust Shares for the
election of such directors, and in favor of or against any resolution or
proposed action presented at any meeting or requiring the consent of the
Corporation's stockholders, as directed in writing by the holders of the
Corporation's Series B $3.00 Convertible Preferred Stock.
5. Dividends.
(a) All cash dividends or other distributions which may accrue as to
the Trust Shares shall be paid directly to the Stockholders in proportion to the
number of Trust Shares beneficially owned by them as shown on the outstanding
Voting Trust Certificates.
(b) All stock dividends which may accrue to the Trust Shares shall
be placed in the Trust and held by the Trustee and administered in the same
manner as all other Trust Shares.
6. Release of Trust Shares. The Trust Shares shall be released from
this Agreement, and the Trustee shall transfer the Trust Shares to the
respective Stockholders or the Osage Shareholders, as follows:
(a) Pursuant to Section 1.3(b)(v) of the Merger Agreement, in the
event that shares of Additional Acquiror Common Stock are required to be issued
to the Osage Shareholders to satisfy a Deficit, and the Corporation's financial
statements covering the most recent three month period ended prior to the
respective Valuation Dates, as the same are included within a report filed with
the Securities and Exchange Commission, reflect that the Corporation has
remained in compliance with the performance criteria (the "Performance
Criteria") identified at subsection 1.3(b)(viii) of the Merger Agreement during
such three month period, the Trustee shall promptly release the Trust Shares to
the Osage Shareholders in an amount equal to the shares of Additional Acquiror
Common Stock necessary to satisfy the Deficit. The Stockholders hereby authorize
and direct the transfer agent and the Trustee, upon receipt of written direction
from the Corporation's Board of Directors, to transfer and release such Trust
Shares in an amount necessary to satisfy the Deficit (determined on a pro rata
basis among the Stockholders with stock held in the Voting Trust) to the Osage
Shareholders in satisfaction of the Merger Consideration.
(b) Notwithstanding the foregoing, to the extent that during any
three month period no Deficit arises, 250,000 of the Trust Shares shall be
released to the Stockholders (distributed on a pro rata basis) based upon the
total number of shares of such Stockholders that are held in the Voting Trust.
Upon release from the Trust, the transfer agent is hereby directed and
authorized to transfer the Trust Shares back into the name of the respective
Stockholders or as otherwise directed in writing by such Stockholder(s).
7. Indemnification. The Corporation and the Stockholders hereby agree
to indemnify and hold the Trustee harmless from any loss, expense or damages
2
<PAGE>
which he may sustain by reason of anything he may lawfully do under the terms of
this Agreement except for any loss, expense or damages resulting from willful
misconduct and gross negligence of the Trustee.
8. Term. This Voting Trust Agreement shall terminate upon the earlier
of: (i) the eighteen-month anniversary of the Effective Date of the Registration
Statement; or (ii) such earlier date when all the Trust Shares have been
released to the Stockholders or allocated to the Osage Shareholders in
satisfaction of a Deficit.
9. Miscellaneous.
(a) Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof.
It supersedes all prior negotiations, letters and understandings relating to the
subject matter hereof.
(b) Amendment. This Agreement may not be amended, supplemented or
modified in whole or in part except by an instrument in writing signed by the
party or parties against whom enforcement of any such amendment, supplement or
modification is sought.
(c) Governing Law. This Agreement shall be construed in accordance
with and governed by the laws of the State of Delaware.
(d) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
(e) Binding Effect. The provisions of this Agreement shall be
binding upon and inure to the benefit of each of the parties and their
respective legal representatives, successors and assigns.
(f) Transfer Cost. All transfer and other costs of the Trustee
directly related to the administration of this Agreement shall be borne equally
by the Corporation and the Stockholders.
(g) Deposit of Trust Shares. In the event of any dispute by or among
some or all of the parties to this Voting Trust Agreement, which may result in
conflicting instructions being given to Trustee, or in the event that the
Trustee is uncertain how to interpret the instructions which may be received, or
the parties hereto shall fail to properly instruct Trustee, then and in either
of such events, Trustee may refuse to follow any instructions received and may
interplead as a stakeholder in any Arizona court of competent jurisdiction
within Maricopa County, Arizona, and may deposit with the Clerk of such court
each and all of the certificates representing Trust Shares which have been
entrusted to Trustee, and upon making such deposit, Trustee shall be relieved of
all responsibilities or duties hereunder, or in the event Trustee is joined in
any action by any person to a law suit commenced in which any of the parties
hereto may be a plaintiff or defendant, or concerning the property entrusted to
Trustee, then in that event, Trustee may likewise deposit into court whatever
may be in his possession belonging to
3
<PAGE>
the parties hereto and such action shall relieve Trustee of any further or other
responsibilities or duties hereunder; and further provided that the parties
hereto shall be jointly and severally liable for all Trustee's fees or
attorney's fees and court costs in connection therewith, and all such monies
owed to the Trustee shall bear interest at the rate of twelve percent (12%) per
annum from the date incurred until paid.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
PACIFIC RIM ENTERTAINMENT, INC.
By:
------------------------------------
Name: Steven B. Rosner
Title: President
STOCKHOLDERS
---------------------------------------
---------------------------------------
---------------------------------------
---------------------------------------
TRUSTEE:
---------------------------------------
Name:
Title:
4
<PAGE>
SCHEDULE I
Stockholder No. of Shares Certificate No.
- ----------- ------------- ---------------
<PAGE>
EXHIBIT "A"
VOTING TRUST CERTIFICATE
PACIFIC RIM ENTERTAINMENT, INC.
- ------------------------------- ----------------------------
Voting Trust Certificate Number Number of Shares Represented
VOTING TRUST CERTIFICATE
THIS CERTIFIES THAT _______________ is the legal and beneficial owner
of shares of the Common Stock of Pacific Rim Entertainment, Inc., a Delaware
corporation (the "Corporation"), said shares having been deposited with the
undersigned Trustee in accordance with a Voting Trust Agreement entered into by
certain Stockholders of the Corporation and the Trustee named hereunder, dated
as of __________, 1997, copies of which are filed in the registered office of
the Corporation in the State of Delaware and in the Corporation's principal
offices at 1661 East Camelback Road, Suite 245, Phoenix, Arizona 85016. This
Voting Trust Certificate is issued in accordance with the terms of the Voting
Trust Agreement and is subject to the provisions thereof.
TRUSTEE
[ ]
------------------------------
Dated: By:
----------------------- ----------------------------
Name:
Title:
Certificate No. 1997-1
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.
THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF REGISTRATION, OR THE AVAILABILITY OF EXEMPTION FROM REGISTRATION,
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, BASED ON AN OPINION LETTER OF
COUNSEL SATISFACTORY TO THE COMPANY OR A NO-ACTION LETTER FROM THE SECURITIES
AND EXCHANGE COMMISSION."
FORM OF
OPTION TO PURCHASE COMMON STOCK
OF
PACIFIC RIM ENTERTAINMENT, INC.
Void after December 19, 2003
This certifies that, for value received, ________________ ("Holder"),
is entitled, subject to the terms set forth below, to purchase from Pacific Rim
Entertainment, Inc. (the "Company"), a Delaware corporation, shares of the
Common Stock of the Company (the "Shares"), as constituted on the date hereof
(the "Option Issue Date"), with the Notice of Exercise attached hereto duly
executed, and simultaneous payment therefor in lawful money of the United
States, at the Exercise Price as set forth in Section 2 below. The number,
character and Exercise Price of the shares are subject to adjustment as provided
below.
1. Term of Option. Subject to compliance with the vesting provisions
identified at Paragraph 2.3 hereafter, this Option shall be exercisable, in
whole or in part, during the term commencing on the Option Issue Date and ending
at 5:00 p.m. on December 19, 2003, and shall be void thereafter.
2. Exercise Price, Number of Shares and Vesting Provisions.
2.1 Exercise Price. The Exercise Price at which this Option, or
portion thereof, may be exercised shall be fixed upon the date such Option, or
portion thereof vests pursuant to Paragraph 2.3 hereof. Such Exercise Price
shall be the lower of: (i) $3.00 per share; or (ii) the average of the closing
bid and ask prices of the Company's Common Stock on the principal exchange,
automated quotation system or over-the-counter market for the 15 trading days
prior to the date upon which this Option, or portion thereof, vests pursuant to
Paragraph 2.3 hereof, as adjusted pursuant to Section 11 hereof.
2.2 Number of Shares. The number of shares of the Company's Common
Stock, $.01 par value per share ("Common Stock") which may be purchased pursuant
to this Option shall be [_________] shares, as adjusted pursuant to Section 11
hereof.
2.3 Vesting. The Options granted hereunder shall vest in accordance
with the following schedule:
<PAGE>
(i) 50% provided Holder remains continuously employed by the
Company and once the Company's audited financial statements reflect annual
earnings for the preceding year commencing December 31, 1998 of no less than
$.20 per share;
(ii) 50% provided Holder remains continuously employed by the
Company and once the Company's audited financial statements reflect annual
earnings for the preceding year (commencing December 31, 1998) of no less than
$.30 per share; provided, however, that once the Company achieves audited
earnings per share of $.30 all options shall vest.
2.4. Death of Holder and Termination.
(a) If the Holder shall die while in the employ of the Company,
his estate, personal representatives, or beneficiary shall have the right,
subject to the provisions of this Paragraph 2 hereof, to exercise the Option
(only to the extent that the Holder would have been entitled to do so as of the
date of his death) at any time within twelve (12) months from the date of his
death.
(b) In the event Holder's employment by the Company is
terminated or Holder voluntarily terminates his employment with the Company,
Holder shall have 30 days in which to exercise the Option (only to the extent
that the Holder would have been entitled to do so as of the date of his
termination) and thereafter, Holder's right in and to the Option shall lapse and
terminate.
3. Exercise of Option.
(a) The Exercise Price shall either be payable in cash or by bank or
certified check; or by cashless exercise through the delivery by the Holder to
the Company of shares of the Company's Common Stock for which Holder is the
record and beneficial owner, or a withholding by the Company of shares of Common
Stock that Holder is otherwise entitled to receive upon exercise of the Option
or by any combination thereof. If shares of common stock of the Company are
tendered or withheld as payment of the Exercise Price, the value of such shares
shall be their "market value" as of the trading date immediately preceding the
date of exercise. The "market value" shall be:
(i) If the Company's common stock is traded in the
over-the-counter market and not on any national securities exchange nor in the
NASDAQ Reporting System, the market value shall be the average of the mean
between the last bid and ask prices per share, as reported by the National
Quotation Bureau, Inc., or an equivalent generally accepted reporting service,
or if not so reported, the average of the closing bid and asked prices for a
share as furnished to the Company by any member of the National Association of
Securities Dealers, Inc., selected by the Company for that purpose.
(ii) If the Company's common stock is traded on a national
securities exchange or in the NASDAQ Reporting System, the market value shall be
either (1) the simple average of the high and low prices at which a share of the
Company's common stock traded, as
2
<PAGE>
quoted on the NASDAQ-NMS or its other principal exchange, or (2) the price of
the last sale of a share of common stock as similarly quoted, whichever is
higher, and rounding out such figure to the next higher multiple of 12.5 cents
(unless the figure is already a multiple of 12.5 cents).
If such tender would result in an issuance of a whole number of shares and a
fractional share of Common Stock, the value of such fractional share shall be
paid to the Company in cash or by check by the Holder.
(b) The purchase rights represented by this Option are exercisable
by the Holder in whole or in part, at any time, or from time to time, by the
surrender of this Option and the Notice of Exercise annexed hereto duly
completed and executed on behalf of the Holder, at the office of the Company (or
such other office or agency of the Company as it may designate by notice in
writing to the Holder at the address of the Holder appearing on the books of the
Company).
(c) This Option shall be deemed to have been exercised immediately
prior to the close of business on the date of its surrender for exercise as
provided above, and the person entitled to receive the shares of Common Stock
issuable upon such exercise shall be treated for all purposes as the holder of
record of such shares as of the close of business on such date. As promptly as
practicable on or after such date and in any event within ten (10) days
thereafter, the Company at its expense shall issue and deliver to the person or
persons entitled to receive the same a certificate or certificates for the
number of shares issuable upon such exercise. In the event that this Option is
exercised in part, the Company at its expense will execute and deliver a new
Option of like tenor exercisable for the number of shares for which this Option
may then be exercised.
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this Option.
In lieu of any fractional share to which the Holder would otherwise be entitled,
the Company shall make a cash payment equal to the Exercise Price multiplied by
such fraction.
5. Replacement of Option. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Option and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and substance to the Company
or, in the case of mutilation, on surrender and cancellation of this Option, the
Company at its expense shall execute and deliver, in lieu of this Option, a new
Option of like tenor and amount.
6. Rights of Stockholder. Except as otherwise contemplated herein, the
Holder shall not be entitled to vote or receive dividends or be deemed the
holder of Common Stock or any other securities of the Company that may at any
time be issuable on the exercise hereof for any purpose, nor shall anything
contained herein be construed to confer upon the Holder, as such, any of the
rights of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issuance of stock,
3
<PAGE>
reclassification of stock, change of par value, or change of stock to no par
value, consolidation, merger, conveyance or otherwise) or to receive notice of
meetings, or to receive dividends or subscription rights or otherwise until the
Option shall have been exercised as provided herein.
7. Transfer of Option.
7.1. Non-Transferability. Prior to vesting in accordance with
paragraph 2 herein, the Option shall not be assigned, transferred, pledged or
hypothecated in any way, nor subject to execution, attachment or similar
process, otherwise than by will or by the laws of descent and distribution. To
the extent the Options have vested, transfers thereof which comply with the
remaining provisions of this paragraph 7 may be undertaken upon the prior
written consent of the Company, which consent shall not be unreasonably
withheld. Any attempted assignment, transfer, pledge, hypothecation or other
disposition of the Option contrary to the provisions hereof, and the levy of an
execution, attachment, or similar process upon the Option, shall be null and
void and without effect.
7.2. Exchange of Option Upon a Transfer. On surrender of this Option
for exchange, properly endorsed, the Company at its expense shall issue to or on
the order of the Holder a new Option or Options of like tenor, in the name of
the Holder or as the Holder (on payment by the Holder of any applicable transfer
taxes) may direct, of the number of shares issuable upon exercise hereof.
7.3. Compliance with Securities Laws; Restrictions on Transfers.
(a) The Holder of this Option, by acceptance hereof,
acknowledges that this Option and the Shares to be issued upon exercise hereof
are being acquired solely for the Holder's own account and not as a nominee for
any other party, and for investment (unless such shares are subject to resale
pursuant to an effective prospectus), and that the Holder will not offer, sell
or otherwise dispose of this Option or any Shares to be issued upon exercise
hereof except under circumstances that will not result in a violation of
applicable federal and state securities laws. Upon exercise of this Option, the
Holder shall, if requested by the Company, confirm in writing, in a form
satisfactory to the Company, that the shares of Common Stock so purchased are
being acquired solely for the Holder's own account and not as a nominee for any
other party, for investment (unless such shares are subject to resale pursuant
to an effective prospectus), and not with a view toward distribution or resale.
(b) Neither this Option nor any share of Common Stock issued
upon exercise of this Option may be offered for sale or sold, or otherwise
transferred or sold in any transaction which would constitute a sale thereof
within the meaning of the Securities Act of 1933, as amended (the "1933 Act"),
unless (i) such security has been registered for sale under the 1933 Act and
registered or qualified under applicable state securities laws relating to the
offer an sale of securities, or (ii) exemptions from the registration
requirements of the 1933 Act and the registration or qualification requirements
of all such state securities laws are available and the Company shall have
received an opinion of counsel satisfactory to the Company that the proposed
sale or other disposition of such securities may be effected without
registration under the 1933 Act and would not result in any violation of any
applicable state securities laws relating
4
<PAGE>
to the registration or qualification of securities for sale, such counsel and
such opinion to be satisfactory to the Company.
(c) All Shares issued upon exercise hereof shall be stamped or
imprinted with a legend in substantially the following form (in addition to any
legend required by state securities laws).
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE
SECURITIES LAWS. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF REGISTRATION, OR THE AVAILABILITY OF EXEMPTION
FROM REGISTRATION, UNDER THE SECURITIES ACT OF 1933, AS AMENDED, BASED ON AN
OPINION LETTER OF COUNSEL SATISFACTORY TO THE COMPANY OR A NO-ACTION LETTER FROM
THE SECURITIES AND EXCHANGE COMMISSION."
(d) Holder recognizes that investing in the Option and the
Common Stock involves a high degree of risk, and Holder is in a financial
position to hold the Option and the Common Stock indefinitely and is able to
bear the economic risk and withstand a complete loss of its investment in the
Option and the Common Stock. The Holder is a sophisticated investor and is
capable of evaluating the merits and risks of investing in the Company. The
Holder has had an opportunity to discuss the Company's business, management and
financial affairs with the Company's management, has been given full and
complete access to information concerning the Company, and has utilized such
access to its satisfaction for the purpose of obtaining information or verifying
information and has had the opportunity to inspect the Company's operation.
Holder has had the opportunity to ask questions of, and receive answers from the
management of the Company (and any person acting on its behalf) concerning the
Option and the Common Stock and the agreements and transactions contemplated
hereby, and to obtain any additional information as Holder may have requested in
making its investment decision.
(e) Holder acknowledges and represents: (i) that he has been
afforded the opportunity to review and is familiar with the quarterly, annual
and periodic reports of the Company and has based his decision to invest solely
on the information contained therein and has not been furnished with any other
literature, prospectus or other information except as included in such reports;
(ii) he is at least 21 years of age; (iii) he has adequate means of providing
for his current needs and personal contingencies; (iv) he has no need for
liquidity for his investment in the Option or Common Stock; (v) he maintains his
domicile and is not a transient or temporary resident at the address on the
books and records of the Company; (vi) all of his investments and commitments to
non-liquid assets and similar investments are, after his acquisition of the
Option and Common Stock, will be reasonable in relation to his net worth and
current needs; (vii) he understands that no federal or state agency has approved
or disapproved the Option or Common Stock or made any finding or determination
as to the fairness of the Option and Common Stock for investment; and (viii) he
recognizes that the Common Stock is presently eligible for trading on the
National Market System of the NASDAQ Stock Market, however, that the Company has
made no representations, warranties, or assurances as to the future trading
value of the Common Stock, whether a public market will continue to exist for
5
<PAGE>
the resale of the Common Stock, or whether the Common Stock can be sold at a
price reflective of past trading history at any time in the future.
8. Reservation and Issuance of Stock.
(a) The Company covenants that during the term that this Option is
exercisable, the Company will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of the shares
upon the exercise of this Option, and from time to time will take all steps
necessary to amend its Certificate of Incorporation to provide sufficient
reserves of shares of Common Stock issuable upon the exercise of the Option.
(b) The Company further covenants that all shares of Common Stock
issuable upon the due exercise of this Option will be free and clear from all
taxes or liens, charges and security interests created by the Company with
respect to the issuance thereof, however, the Company shall not be obligated or
liable for the payment of any taxes, liens or charges of Holder, or any other
party contemplated by paragraph 7, incurred in connection with the issuance of
this Option or the Common Stock upon the due exercise of this Option. The
Company agrees that its issuance of this Option shall constitute full authority
to its officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for the shares of Common Stock upon
the exercise of this Option. The Common Stock issuable upon the due exercise of
this Option, will, upon issuance in accordance with the terms hereof, be duly
authorized, validly issued, fully paid and non-assessable.
9. Notices.
(a) Whenever the Exercise Price or number of shares purchasable
hereunder shall be adjusted pursuant to Section 11 hereof, the Company shall
issue a certificate signed by its Chief Financial Officer setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated, and the Exercise
Price and number of shares purchasable hereunder after giving effect to such
adjustment, and shall cause a copy of such certificate to be mailed (by
first-class mail, postage prepaid) to the Holder of this Option.
(b) All notices, advices and communications under this Option shall
be deemed to have been given, (i) in the case of personal delivery, on the date
of such delivery and (ii) in the case of mailing, on the third business day
following the date of such mailing, addressed as follows:
If to the Company:
Pacific Rim Entertainment, Inc.
1661 East Camelback Road
Suite 345
Phoenix, AR 85016
6
<PAGE>
and to the Holder:
at the address of the Holder appearing on the books of the
Company or the Company's transfer agent, if any.
Either of the Company or the Holder may from time to time change the
address to which notices to it are to be mailed hereunder by notice in
accordance with the provisions of this Paragraph 9.
10. Amendments.
(a) Any term of this Option may be amended with the written consent
of the Company and the Holder. Any amendment effected in accordance with this
Section 10 shall be binding upon the Holder, each future holder and the Company.
(b) No waivers of, or exceptions to, any term, condition or
provision of this Option, in any one or more instances, shall be deemed to be,
or construed as, a further or continuing waiver of any such term, condition or
provision.
11. Adjustments. The number of Shares of Common Stock purchasable
hereunder and the Exercise Price is subject to adjustment from time to time upon
the occurrence of certain events, as follows:
11.1. Reorganization, Merger or Sale of Assets. If at any time
while this Option, or any portion thereof, is outstanding and unexpired there
shall be (i) a reorganization (other than a combination, reclassification,
exchange or subdivision of shares otherwise provided for herein), (ii) a merger
or consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a merger in which the Company is the
surviving entity but the shares of the Company's capital stock outstanding
immediately prior to the merger are converted by virtue of the merger into other
property, whether in the form of securities, cash or otherwise, or (iii) a sale
or transfer of substantially all of the Company's properties and assets as, or
substantially as, an entirety to any other person, then, as a part of such
reorganization, merger, consolidation, sale or transfer, lawful provision shall
be made so that the holder of this Option shall upon such reorganization,
merger, consolidation or sale or transfer, have the right by exercising such
Option, to purchase the kind and number of shares of Common Stock or other
securities or property (including cash) otherwise receivable upon such
reorganization, merger, consolidation or sale or transfer by a holder of the
number of shares of Common Stock that might have been purchased upon exercise of
such Option immediately prior to such reorganization, merger, consolidation or
sale or transfer. The foregoing provisions of this Section 11.1 shall similarly
apply to successive reorganizations, consolidations, mergers, sales and
transfers and to the stock or securities of any other corporation that are at
the time receivable upon the exercise of this Option. If the per-share
consideration payable to the Holder hereof for shares in connection with any
such transaction is in a form other than cash or marketable securities, then the
value of such consideration shall be determined in good faith by the Company's
Board of Directors. In all events, appropriate adjustment (as determined in good
7
<PAGE>
faith by the Company's Board of Directors) shall be made in the application of
the provisions of this Option with respect to the rights and interests of the
Holder after the transaction, to the end that the provisions of this Option
shall be applicable after that event, as near as reasonably may be, in relation
to any shares or other property deliverable after that event upon exercise of
this Option.
11.2. Reclassification. If the Company, at any time while this
Option, or any portion thereof, remains outstanding and unexpired, by
reclassification of securities or otherwise, shall change any of the securities
as to which purchase rights under this Option exist into the same or a different
number of securities of any other class or classes, this Option shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable as the result of such change with respect to the securities that
were subject to the purchase rights under this Option immediately prior to such
reclassification or other change and the Exercise Price therefor shall be
appropriately adjusted, all subject to further adjustment as provided in this
Section 11.
11.3. Split, Subdivision or Combination of Shares. If the Company
at any time while this Option, or any portion thereof, remains outstanding and
unexpired shall split, subdivide or combine the securities as to which purchase
rights under this Option exist, into a different number of securities of the
same class, the Exercise Price and the number of shares issuable upon exercise
of this Option shall be proportionately adjusted.
11.4. Adjustments for Dividends in Stock or Other Securities or
Property. If while this Option, or any portion hereof, remains outstanding and
unexpired the holders of the securities as to which purchase rights under this
Option exist at the time shall have received, or, on or after the record date
fixed for the determination of eligible Stockholders, shall have become entitled
to receive, without payment therefor, other or additional stock or other
securities or property (other than cash) of the Company by way of dividend, then
and in each case, this Option shall represent the right to acquire, in addition
to the number of shares of the security receivable upon exercise of this Option,
and without payment of any additional consideration therefor, the amount of such
other or additional stock or other securities or property (other than cash) of
the Company that such holder would hold on the date of such exercise had it been
the holder of record of the security receivable upon exercise of this Option on
the date hereof and had thereafter, during the period from the date hereof to
and including the date of such exercise, retained such shares and/or all other
additional stock, other securities or property available by this Option as
aforesaid during such period.
11.5 The Company will not, by any voluntary action, avoid or seek
to avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Company, but will at all times in good faith assist
in the carrying out of all the provisions of this Section 11 and in the taking
of all such action as may be necessary or appropriate in order to protect the
rights of the Holders of this Option against impairment.
12. Severability. Whenever possible, each provision of this Option
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision
8
<PAGE>
of this Option is held to be invalid, illegal or unenforceable in any respect
under any applicable law or rule in any jurisdiction, such invalidity,
illegality or unenforceability shall not affect the validity, legality or
enforceability of any other provision of this Option in such jurisdiction or
affect the validity, legality or enforceability of any provision in any other
jurisdiction, but this Option shall be reformed, construed and enforced in such
jurisdiction as if such invalid, illegal or unenforceable provision had never
been contained herein.
13. Governing Law. The corporate law of the State of Delaware shall
govern all issues and questions concerning the relative rights of the Company
and its stockholders. All other questions concerning the construction, validity,
interpretation and enforceability of this Option and the exhibits and schedules
hereto shall be governed by, and construed in accordance with, the laws of the
State of Delaware, without giving effect to any choice of law or conflict of law
rules or provisions (whether of the State of Delaware or any other jurisdiction)
that would cause the application of the laws of any jurisdiction other than the
State of Delaware.
14. Jurisdiction. The Holder and the Company agree to submit to
personal jurisdiction and to waive any objection as to venue in the federal or
state courts in the City in which the headquarters of the Company is located,
which as of the date hereof is San Diego, California. Service of process on the
Company or the Holder in any action arising out of or relating to this Option
shall be effective if mailed to such party at the address listed in Section 9
hereof.
15. Arbitration. If a dispute arises as to interpretation of this
Option, it shall be decided finally by three arbitrators in an arbitration
proceeding conforming to the Rules of the American Arbitration Association
applicable to commercial arbitration. The arbitrators shall be appointed as
follows: one by the Company, one by the Holder and the third by the said two
arbitrators, or, if they cannot agree, then the third arbitrator shall be
appointed by the American Arbitration Association. The third arbitrator shall be
chairman of the panel and shall be impartial. The arbitration shall take place
in the City in which the headquarters of the Company is located, which as of the
date hereof is Phoenix, Arizona. The decision of a majority of the Arbitrators
shall be conclusively binding upon the parties and final, and such decision
shall be enforceable as a judgment in any court of competent jurisdiction. Each
party shall pay the fees and expenses of the arbitrator appointed by it, its
counsel and its witnesses. The parties shall share equally the fees and expenses
of the impartial arbitrator.
16. Corporate Power; Authorization; Enforceable Obligations. The
execution, delivery and performance by the Company of this Agreement: (i) are
within the Company's corporate power; (ii) have been duly authorized by all
necessary or proper corporate action; (iii) are not in contravention of the
Company's certificate of incorporation or by-laws; (iv) will not violate in any
material respect, any law or regulation, including any and all Federal and state
securities laws, or any order or decree of any court or governmental
instrumentality; and (v) will not, in any material respect, conflict with or
result in the breach or termination of, or constitute a default under any
agreement or other material instrument to which the Company is a party or by
which the Company is bound.
9
<PAGE>
17. Successors and Assigns. This Option shall inure to the benefit of
and be binding on the respective successors, assigns and legal representatives
of the Holder and the Company.
IN WITNESS WHEREOF, the Company has caused this Option to be executed
by its officers thereunto duly authorized.
Dated: December __, 1997
PACIFIC RIM ENTERTAINMENT, INC.
BY: BY:
------------------------------- ---------------------------------
[ ] Steven B. Rosner, Chief Executive
--------------------
Accepted and Acknowledged
By:
------------------------------
10
<PAGE>
NOTICE OF EXERCISE
TO: [ ]
------------------------
(1) The undersigned hereby elects to purchase _______ shares of Common
Stock of Pacific Rim Entertainment, Inc. pursuant to the terms of the attached
Option, and tenders herewith payment of the purchase price for such shares in
full.
(2) In exercising this Option, the undersigned hereby confirms and
acknowledges that the shares of Common Stock to be issued upon conversion
thereof are being acquired solely for the account of the undersigned and not as
a nominee for any other party, and for investment (unless such shares are
subject to resale pursuant to an effective prospectus), and that the undersigned
will not offer, sell or otherwise dispose of any such shares of Common Stock
except under circumstances that will not result in a violation of the Securities
Act of 1933, as amended, or any state securities laws.
(3) Please issue a certificate or certificates representing said shares
of Common Stock in the name of the undersigned or in such other name as is
specified below:
-----------------------------------
(Name)
-----------------------------------
(Name)
- ---------------------------------- -----------------------------------
(Date) (Signature)
11
<PAGE>
EMPLOYMENT AGREEMENT
This Agreement is made and entered into at Phoenix, Arizona, effective
as of December 22, 1997 by and between Pacific Rim Entertainment, Inc., a
Delaware corporation (hereinafter referred to as "Employer") and Jack
Leadbeater, a resident of Maricopa County, Arizona (hereinafter referred to as
"Employee"), whose respective addresses appear below.
IN CONSIDERATION of the mutual promises of the parties, and other
valuable consideration, the parties agree as follows:
1. Term.
The Employer does hereby employ and retain the services of Employee for
a term of three (3) years commencing December 22, 1997 and ending December 21,
2000 (hereinafter "Initial Term"). The Initial Term shall be automatically
extended and renewed for successive one-year periods (each year beyond the
Initial Term referred to as an "Extended Term") upon the terms and conditions
set forth in this Agreement, however, the Agreement may be terminated by either
party hereto provided no less than sixty (60) days notice is given prior to the
scheduled expiration of the Initial Term or Extended Term, whichever the case
may be.
2. Duties.
During the Term of Employment, Employee shall act as Chairman of the
Board and Chief Executive Officer of Employer and shall be responsible for the
day-to-day operation of the business of Employer. Said Employee shall devote his
full productive time, energies and abilities to the proper and efficient
operation of the business of Employer and its subsidiaries under and in
accordance with the direction of the Employer's Board of Directors as may be
made in good faith, notwithstanding that Employee may also serve as a Director
of Employer.
3. Compensation.
The full compensation and remuneration of Employee for the services
provided for herein during each year of employment hereunder, shall be as
follows:
a) an annual base salary in the sum of Two Hundred Thousand Dollars
($200,000), payable in monthly installments of Sixteen Thousand Six Hundred
Sixty Six Dollars and 67/100 ($16,666.67), which salary if unpaid for any reason
shall accrue cumulatively from month to month plus 10% interest per annum on the
unpaid portion;
b) interim and annual bonuses in such amounts and upon such terms and
conditions as may be determined by the Employer's Board of Directors from time
to time; and
c) an annual cost of living increase of five percent (5%) of the
preceding year's annual base salary.
4. Fringe Benefits.
a) Employee shall be entitled, subject to the terms and conditions of
particular plans and programs adopted by the Board of Directors, to all fringe
benefits afforded to other senior executives of the Employer including but not
by way of limitation, the right to participate in any pension, stock option,
retirement, major medical, group health, disability, accident and life
insurance, and other employee benefit programs made generally available, from
time to time, by the Employer.
b) During the term of this Agreement, Employer shall include Employee
and his family in family health insurance coverage provided for executive level
employees of Employer, and shall pay one hundred percent (100%) of all health
insurance premiums.
c) As additional salary, Employer shall reimburse Employee for
Employee's entire monthly premium cost to purchase a disability insurance policy
that shall pay to Employee the sum of $10,000 per month in the event of
Employee's disability as defined in said policy.
5. Termination.
Employer shall have the right to terminate this Agreement by written
notice after which such termination, Employer shall have no further obligations
hereunder other than the payment of accrued base salary and reimbursement of
accrued expenses, upon the occurrence of any of the following events or
circumstances:
a) death of Employee;
b) if Employee is unable, for reasons of illness, disability or similar
causes, to carry out or perform the duties required of him hereunder
continuously for three (3) months or intermittently for an aggregate of one
hundred twenty (120) days in a calendar year during the term of this Agreement;
or
c) if Employee is terminated for "cause" for any of the following
events: (i) any act or omission perpetrated as the result of gross negligence or
with intent to harm the Employer or any of its affiliates or subsidiaries, or
the business of either; (ii) commission of a felony for which Employee is
convicted by a court of law; (iii) perpetration of a dishonest act or a common
law fraud against the Employer or any of its affiliates or subsidiaries, found
by a court of law; (iv) the continued refusal to follow the directives of the
2
<PAGE>
Board of Directors of Employer which are made in good faith and not contrary to
law; (v) if Employee has so conducted himself (whether in connection with his
employment or otherwise) as to render Employee unfit to serve as an officer or a
trusted employee of Employer or has violated or broken any of the covenants or
obligations imposed on Employee by the Agreement; and
d) in the Event of termination for cause, Employer shall give Employee
notice of the facts or circumstances constituting same and a reasonable
opportunity to cure, rectify or reverse such facts of circumstances, if
applicable, and to present evidence to the Board of Directors in mitigation
thereof.
6. Discoveries and Inventions.
Employee, in partial consideration of his employment and salary to be
paid to him, hereby agrees to disclose promptly to Employer, or any subsidiary,
parent, or affiliated company or its nominees, each and every discovery,
improvement and/or invention made, conceived and/or developed by him whether
during working hours or otherwise, during the entire period of his said
employment, which discoveries, improvements and/or inventions are capable of use
in any way in connection with the business of the Employer and for the same
consideration, Employee does hereby grant and convey to Employer or its nominee,
the entire right, title and interest, domestic and foreign, or such lesser
interests as such Employer at its option in any particular case may choose to
accept, in and to reach or all of said discoveries, improvements and/or
inventions; and he does further agree to sign all applications for patents or
copyrights, and to execute and deliver all assignments and other documents, and
to perform all acts and do all things necessary to make this Agreement and the
said grant and conveyance effective with respect to particular discoveries,
improvements and/or inventions.
7. Expenses.
(a) Employee is authorized to incur reasonable expenses for promoting
the business of Employer, including expenses for entertainment, travel, and
similar items. Employer will reimburse Employee for all such expenses upon the
presentation by Employee, from time to time, of an itemized account of such
expenditures, but only to the extent that such expenses are deductible to
Employer pursuant to the U.S. Internal Revenue Code.
(b) Employer will furnish Employee with a suitable late model
automobile for Employee's full time use and benefit and will pay all maintenance
and insurance premiums.
8. Vacation.
Employee shall be entitled each year to a vacation of approximately
four (4) weeks, during which time his compensation shall be paid in full.
3
<PAGE>
9. Confidential Information.
a) Employee acknowledges and agrees that all confidential information,
trade secrets, names of customers, suppliers, financial, accounting or
administrative information, business procedures or other information or
knowledge which is made known to Employee during the course of his employment by
Employer which is confidential and the property of the Employer;
b) Employee agrees that during the term of his employment by Employer,
and at all times thereafter forever, except in the ordinary course of fulfilling
Employee's assigned duties and obligations, Employee shall not, without the
prior express, written consent of the Employer, publish, disclose or make known
to anyone, or make any use of or authorize, assist, or enable anyone else to
publish or disclose or make use of, any confidential information or Employer
property, including, but not limited to, trade secrets, names of customers,
suppliers, financial, accounting or administrative information, business
procedures or any other information or knowledge which becomes known to Employee
as the result of or during his employment by the Employer.
10. Other Termination Provisions.
Notwithstanding anything herein contained to the contrary, Employer may
terminate this Agreement upon thirty (30) days' written notice to Employee upon
the happening of any of the following events:
a) the sale by Employer of substantially all of its assets;
b) a bona fide decision by Employer to terminate its business and
liquidate its assets; or
c) the merger or consolidation of Employer in a transaction in which
the shareholders of Employer receive less than fifty percent (50%) of the
outstanding voting shares of the new or continuing corporation.
11. Life and Disability Insurance.
During the Initial Term or any Extended Term, Employer shall insure
the life of Employee for such amount as the parties shall mutually agree upon.
The amount of such insurance shall be not less than One Million Dollars
($1,000,000). The premiums on such insurance shall be the obligation of
Employer, which shall be the owner of said policy. Upon Employee's death,
one-half (1/2) of the face value ($500,000) shall be paid to Employer, and the
other one-half ($500,000) to the Employee's estate.
4
<PAGE>
12. Indemnification.
In the event that Employee shall personally guarantee any loan(s) of
Employer, Employer may not terminate this Agreement until said loan(s) has been
paid in full or Employee is released from any personal liability pursuant to
said guarantee(s), and notwithstanding anything herein to the contrary, Employer
does hereby indemnify and agree to hold Employee harmless from and against all
losses, claims and expenses which Employee may sustain by reason of any
guarantee(s) executed by Employee for the benefit of Employer, including
reasonable attorneys' fees in defending against same.
13. Negative Covenant.
For a period of one (1) year following termination of this Agreement
due to expiration of the Term, or for any other reason identified in Paragraph 5
or Paragraph 10 hereof, Employee will not, on his own behalf or as partner,
officer, director, employee, consultant, or stockholder (holding more than ten
percent (10%) of the issued and outstanding stock of any firm or company) of any
other business, either directly or indirectly, solicit customers of Employer, or
any affiliates or subsidiaries of Employer (for the purposes of this Paragraph
13, defined in the aggregate as the "Company"), or perform any work, services,
or labor for or on behalf of any firm or company engaged in any business
competitive with or similar to the business of the Company in any state or
foreign country where the Company does business. Accordingly, the Company is
granted the right by Employee to apply to any court of competent jurisdiction
for one or more temporary or permanent injunctions enjoining Employee, his
agents and employees, from violating the provisions of this Agreement and/or
from continuing to breach such provisions. The negative covenant imposed, shall
not be effective for any purpose whatsoever if Employee is terminated without
cause.
14. Miscellaneous.
a) Entire Agreement. This Agreement embodies the entire agreement
between the parties hereto relative to the subject matter hereof and shall not
be modified, changed or altered in any respect except in writing signed by both
parties to this Agreement.
b) Benefits. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective next of kin, legatees,
administrators, executors, legal representatives, successors and permitted
assigns.
c) Attorneys Fees. In the event either party is required to obtain the
services of any attorney to enforce the provisions of this Agreement, the
prevailing party shall be entitled to its reasonable costs and attorney's fees
including expert witness fees, and costs of investigation.
d) Illegal Contract. In case any provision of this Agreement shall be
held invalid, illegal or unenforceable, in whole or in part, neither the
5
<PAGE>
validity of the remaining part of such provision, nor the validity of any other
provision of this Agreement shall in any way be affected thereby.
e) Waiver. A waiver of any breach of this Agreement, or of any of the
terms or conditions by either party thereto, shall not be deemed a waiver of any
repetition of such breach or in any way affect any other terms or conditions
hereof. No waiver shall be valid or binding unless it shall be in writing signed
by the parties.
f) Binding Effect. This Agreement, when executed by one duly
authorized officer of the corporation, shall bind the corporation and its
successors and assigns.
g) Successors and Assigns. Unless otherwise provided for, this
Agreement shall be binding upon and inure to the benefit of the parties hereto,
and their respective successors in interest and assigns, but in no event shall
any party be relieved of its obligations hereunder without the express written
consent of each other party.
h) Governing Law. This Agreement shall be governed by, the laws of the
State of Arizona. Each party hereby expressly and irrevocably consents to the
jurisdiction of the Arizona courts, and any action hereunder may be commenced
and tried only in a court of competent jurisdiction located in Maricopa County,
Arizona.
i) Time. Time is of the essence of this Agreement and each and every
provision hereof. Any extension of time granted for the performance of any duty
under this Agreement shall not be considered an extension of time for the
performance of any other duty under this Agreement.
j) Notices. Any notice to any party under this Agreement shall be in
writing, shall be effective on the earlier of (i) the date when received by such
party, or (ii) the date which is three (3) days after mailing (postage prepaid)
by certified or registered mail, return receipt requested, to the address of
such party set forth as follows:
To: EMPLOYER
President
Pacific Rim Entertainment, Inc.
1661 E. Camelback Road, Suite 245
Phoenix AZ 85016
6
<PAGE>
With a copy to:
Burton M. Bentley, Esq.
7878 N. 16th Street, Suite #110
Phoenix, Arizona 85020
To: EMPLOYEE
Jack Leadbeater
1661 E. Camelback Road, Suite 245
Phoenix AZ 85016
k) Additional Acts and Documents. Each party hereto agrees to do all
such things and take all such actions, and to make, execute and deliver such
other documents and instruments, as shall be reasonably requested to carry out
the provisions, intent and purpose of this Agreement.
l) Guarantee of Payment. Employer will cause Osage Computer Group,
Inc. to ratify the terms and conditions of this Agreement and guarantee the
payment of all sums hereunder.
IN WITNESS WHEREOF the parties hereto have duly executed this
Agreement the day and year first above written.
EMPLOYER:
PACIFIC RIM ENTERTAINMENT, INC.
By:
-----------------------------
Its: President
7
<PAGE>
EMPLOYEE:
--------------------------------
Jack Leadbeater
Ratified and Agreed:
OSAGE COMPUTER GROUP, INC.
By:
--------------------------
8
EMPLOYMENT AGREEMENT
This Agreement is made and entered into at Phoenix, Arizona, effective
as of December 22, 1997, by and between Pacific Rim Entertainment, Inc., a
Delaware corporation (hereinafter referred to as "Employer") and David Olson, a
resident of Maricopa County, Arizona (hereinafter referred to as "Employee"),
whose respective addresses appear below.
IN CONSIDERATION of the mutual promises of the parties, and other
valuable consideration, the parties agree as follows:
1. Term.
The Employer does hereby employ and retain the services of Employee for
a term of three (3) years commencing December 22, 1997 and ending December 21,
2000 (hereinafter "Initial Term"). The Initial Term shall be automatically
extended and renewed for successive one-year periods (each year beyond the
Initial Term referred to as an "Extended Term") upon the terms and conditions
set forth in this Agreement, however, the Agreement may be terminated by either
party hereto provided no less than sixty (60) days notice is given prior to the
scheduled expiration of the Initial Term or Extended Term, whichever the case
may be.
2. Duties.
During the Term of Employment, Employee shall act as President and
Chief Operating Officer of the Employer and shall be responsible for the
day-to-day operation of the business of Employer. Said Employee shall devote his
full productive time, energies and abilities to the proper and efficient
operation of the business of Employer and its subsidiaries under and in
accordance with the direction of the Employer's Board of Directors as may be
made in good faith, notwithstanding that Employee may also serve as a Director
of Employer.
3. Compensation.
The full compensation and remuneration of Employee for the services
provided for herein during each year of employment hereunder, shall be as
follows:
a) an annual base salary in the sum of Two Hundred Thousand Dollars
($200,000), payable in monthly installments of Sixteen Thousand Six Hundred
Sixty Six Dollars and 67/100 ($16,666.67), which salary if unpaid for any reason
shall accrue cumulatively from month to month plus 10% interest per annum on the
unpaid portion;
b) interim and annual bonuses in such amounts and upon such terms and
conditions as may be determined by the Employer's Board of Directors from time
to time; and
<PAGE>
c) an annual cost of living increase of five percent (5%) of the
preceding year's annual base salary.
4. Fringe Benefits.
a) Employee shall be entitled, subject to the terms and conditions of
particular plans and programs adopted by the Board of Directors, to all fringe
benefits afforded to other senior executives of the Employer, including but not
by way of limitation, the right to participate in any pension, stock option,
retirement, major medical, group health, disability, accident and life
insurance, and other employee benefit programs made generally available, from
time to time, by Employer.
b) During the term of this Agreement, Employer shall include Employee
and his family in family health insurance coverage provided for executive level
employees of Employer, and shall pay one hundred percent (100%) of all health
insurance premiums.
c) As additional salary, Employer shall reimburse Employee for
Employee's entire monthly premium cost to purchase a disability insurance policy
that shall pay to Employee the sum of $10,000 per month in the event of
Employee's disability as defined in said policy.
5. Termination.
Employer shall have the right to terminate this Agreement by written
notice after which such termination, Employer shall have no further obligations
hereunder other than the payment of accrued base salary and reimbursement of
accrued expenses, upon the occurrence of any of the following events or
circumstances:
a) death of Employee;
b) if Employee is unable, for reasons of illness, disability or similar
causes, to carry out or perform the duties required of him hereunder
continuously for three (3) months or intermittently for an aggregate of one
hundred twenty (120) days in a calendar year during the term of this Agreement;
or
c) if Employee is terminated for "cause" for any of the following
events: (i) any act or omission perpetrated as the result of gross negligence or
with intent to harm the Employer or any of its affiliates or subsidiaries, or
the business of either; (ii) commission of a felony for which Employee is
convicted by a court of law; (iii) perpetration of a dishonest act or a common
law fraud against the Employer or any of its affiliates or subsidiaries, found
by a court of law; (iv) the continued refusal to follow the directives of the
2
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Board of Directors of Employer which are made in good faith and not contrary to
law; (v) if Employee has so conducted himself (whether in connection with his
employment or otherwise) as to render Employee unfit to serve as an officer or a
trusted employee of Employer or has violated or broken any of the covenants or
obligations imposed on Employee by the Agreement; and
d) in the Event of termination for cause, Employer shall give Employee
notice of the facts or circumstances constituting same and a reasonable
opportunity to cure, rectify or reverse such facts of circumstances, if
applicable, and to present evidence to the Board of Directors in mitigation
thereof.
6. Discoveries and Inventions.
Employee, in partial consideration of his employment and salary to be
paid to him, hereby agrees to disclose promptly to Employer, or any subsidiary,
parent, or affiliated company or its nominees, each and every discovery,
improvement and/or invention made, conceived and/or developed by him whether
during working hours or otherwise, during the entire period of his said
employment, which discoveries, improvements and/or inventions are capable of use
in any way in connection with the business of the Employer and for the same
consideration, Employee does hereby grant and convey to Employer or its nominee,
the entire right, title and interest, domestic and foreign, or such lesser
interests as such Employer at its option in any particular case may choose to
accept, in and to reach or all of said discoveries, improvements and/or
inventions; and he does further agree to sign all applications for patents or
copyrights, and to execute and deliver all assignments and other documents, and
to perform all acts and do all things necessary to make this Agreement and the
said grant and conveyance effective with respect to particular discoveries,
improvements and/or inventions.
7. Expenses.
(a) Employee is authorized to incur reasonable expenses for promoting
the business of Employer, including expenses for entertainment, travel, and
similar items. Employer will reimburse Employee for all such expenses upon the
presentation by Employee, from time to time, of an itemized account of such
expenditures, but only to the extent that such expenses are deductible to the
Employer pursuant to the U.S. Internal Revenue Code.
(b) Employer will furnish Employee with a suitable late model
automobile for Employee's full time use and benefit and will pay all maintenance
and insurance premiums.
8. Vacation.
Employee shall be entitled each year to a vacation of approximately
four (4) weeks, during which time his compensation shall be paid in full.
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9. Confidential Information.
a) Employee acknowledges and agrees that all confidential information,
trade secrets, names of customers, suppliers, financial, accounting or
administrative information, business procedures or other information or
knowledge which is made known to Employee during the course of his employment by
Employer or is confidential and the property of the Employer.
b) Employee agrees that during the term of his employment by Employer,
and at all times thereafter forever, except in the ordinary course of fulfilling
Employee's assigned duties and obligations, Employee shall not, without the
prior express, written consent of the Employer, publish, disclose or make known
to anyone, or make any use of or authorize, assist, or enable anyone else to
publish or disclose or make use of, any confidential information or Employer
property, including, but not limited to, trade secrets, names of customers,
suppliers, financial, accounting or administrative information, business
procedures or any other information or knowledge which becomes known to Employee
as the result of or during his employment by the Employer.
10. Other Termination Provisions.
Notwithstanding anything herein contained to the contrary, Employer may
terminate this Agreement upon thirty (30) days' written notice to Employee upon
the happening of any of the following events:
a) the sale by Employer of substantially all of its assets;
b) a bona fide decision by Employer to terminate its business and
liquidate its assets; or
c) the merger or consolidation of Employer in a transaction in which
the shareholders of Employer receive less than fifty percent (50%) of the
outstanding voting shares of the new or continuing corporation.
11. Life and Disability Insurance.
During the Initial Term or any Extended Term, Employer shall insure the
life of Employee for such amount as the parties shall mutually agree upon. The
amount of such insurance shall be not less than One Million Dollars
($1,000,000). The premiums on such insurance shall be the obligation of
Employer, which shall be the owner of said policy. Upon Employee's death,
one-half (1/2) of the face value ($500,000) shall be paid to Employer, and the
other one-half ($500,000) to the Employee's estate.
4
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12. Indemnification.
In the event that Employee shall personally guarantee any loan(s) of
Employer, Employer may not terminate this Agreement until said loan(s) has been
paid in full or Employee is released from any personal liability pursuant to
said guarantee(s), and notwithstanding anything herein to the contrary, Employer
does hereby indemnify and agree to hold Employee harmless from and against all
losses, claims and expenses which Employee may sustain by reason of any
guarantee(s) executed by Employee for the benefit of Employer, including
reasonable attorneys' fees in defending against same.
13. Negative Covenant. For a period of one (1) year following
termination of this Agreement due to expiration of the Term, or for any other
reason identified in Paragraph 5 or Paragraph 10 hereof, Employee will not, on
his own behalf or as partner, officer, director, employee, consultant, or
stockholder (holding more than ten percent (10%) of the issued and outstanding
stock of any firm or company) of any other business, either directly or
indirectly, solicit customers of the Employer, or any affiliates or subsidiaries
of Employer (for the purposes of this Paragraph 13 defined in the aggregate as
the "Company"), or perform any work, services, or labor for or on behalf of any
firm or company engaged in any business competitive with or similar to the
business of the Company in any state or foreign country where the Company does
business. Accordingly, the Company is granted the right by Employee to apply to
any court of competent jurisdiction for one or more temporary or permanent
injunctions enjoining Employee, his agents and employees, from violating the
provisions of this Agreement and/or from continuing to breach such provisions.
The negative covenant imposed, shall not be effective for any purpose whatsoever
if Employee is terminated without cause.
14. Miscellaneous.
a) Entire Agreement. This Agreement embodies the entire agreement
between the parties hereto relative to the subject matter hereof and shall not
be modified, changed or altered in any respect except in writing signed by both
parties to this Agreement.
b) Benefits. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective next of kin, legatees,
administrators, executors, legal representatives, successors and permitted
assigns.
c) Attorneys Fees. In the event either party is required to obtain the
services of any attorney to enforce the provisions of this Agreement, the
prevailing party shall be entitled to its reasonable costs and attorney's fees
including expert witness fees, and costs of investigation.
d) Illegal Contract. In case any provision of this Agreement shall be
held invalid, illegal or unenforceable, in whole or in part, neither the
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<PAGE>
validity of the remaining part of such provision, nor the validity of any other
provision of this Agreement shall in any way be affected thereby.
e) Waiver. A waiver of any breach of this Agreement, or of any of the
terms or conditions by either party thereto, shall not be deemed a waiver of any
repetition of such breach or in any way affect any other terms or conditions
hereof. No waiver shall be valid or binding unless it shall be in writing signed
by the parties.
f) Binding Effect. This Agreement, when executed by one duly authorized
officer of the corporation, shall bind the corporation and its successors and
assigns.
g) Successors and Assigns. Unless otherwise provided for, this
Agreement shall be binding upon and inure to the benefit of the parties hereto,
and their respective successors in interest and assigns, but in no event shall
any party be relieved of its obligations hereunder without the express written
consent of each other party.
h) Governing Law. This Agreement shall be governed by, the laws of the
State of Arizona. Each party hereby expressly and irrevocably consents to the
jurisdiction of the Arizona courts, and any action hereunder may be commenced
and tried only in a court of competent jurisdiction located in Maricopa County,
Arizona.
i) Time. Time is of the essence of this Agreement and each and every
provision hereof. Any extension of time granted for the performance of any duty
under this Agreement shall not be considered an extension of time for the
performance of any other duty under this Agreement.
j) Notices. Any notice to any party under this Agreement shall be in
writing, shall be effective on the earlier of (i) the date when received by such
party, or (ii) the date which is three (3) days after mailing (postage prepaid)
by certified or registered mail, return receipt requested, to the address of
such party set forth as follows:
To: EMPLOYER
President
Pacific Rim Entertainment, Inc.
1661 E. Camelback Road, Suite 245
Phoenix AZ 85016
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With a copy to:
Burton M. Bentley, Esq.
7878 N. 16th Street, Suite #110
Phoenix, Arizona 85020
To: EMPLOYEE
David Olson
1661 E. Camelback Road, Suite 245
Phoenix AZ 85016
k) Additional Acts and Documents. Each party hereto agrees to do all
such things and take all such actions, and to make, execute and deliver such
other documents and instruments, as shall be reasonably requested to carry out
the provisions, intent and purpose of this Agreement.
l) Guarantee of Payment. Employer will cause Osage Computer Group, Inc.
to notify the terms and conditions of this Agreement and guarantee the payment
of all sums hereunder.
IN WITNESS WHEREOF the parties hereto have duly executed this Agreement
the day and year first above written.
EMPLOYER:
PACIFIC RIM ENTERTAINMENT, INC.
By:
------------------------------
Its: Chief Executive Officer
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EMPLOYEE:
--------------------------------
David Olson
Ratified and Agreed:
OSAGE COMPUTER GROUP, INC.
By:
------------------------------
8
EMPLOYMENT AGREEMENT
This Agreement is made and entered into at Phoenix, Arizona, effective
as of December 22, 1997, by and between Pacific Rim Entertainment, Inc., a
Delaware corporation (hereinafter referred to as "Employer") and Michael Glynn,
a resident of Pima County, Arizona (hereinafter referred to as "Employee"),
whose respective addresses appear below.
IN CONSIDERATION of the mutual promises of the parties, and other
valuable consideration, the parties agree as follows:
1. Term.
The Employer does hereby employ and retain the services of
Employee for a term of one (1) year commencing December 22, 1997 and ending
December 21, 1998 (hereinafter "Initial Term"). The Initial Term shall be
automatically extended and renewed for successive one-year periods (each year
beyond the Initial Term referred to as an "Extended Term") upon such terms and
conditions as are set forth within this Agreement, however, the Agreement may be
terminated by either party hereto provided no less than sixty (60) days notice
is given prior to the scheduled expiration of the Initial Term or Extended Term,
whichever the case may be.
2. Duties.
During the term of employment, Employee shall be employed as
Executive Vice-President of Employer and shall in that capacity share
responsibility for the day-to-day operations of the business of Employer
together with the Employer's Chief Executive Officer and Chief Operating
Officer, and shall undertake whatever other tasks as shall in good faith be
assigned to him by the Employer's Chief Executive Officer or by Employer's Board
of Directors. Said Employee shall devote his full productive time, energies and
abilities to the proper and efficient operation of the business of Employer
under and in accordance with the direction of the Employer's Chief Executive
Officer and Board of Directors, as may be made in good faith, notwithstanding
that Employee may also serve as a Director of Employer.
3A. Compensation.
The full compensation and remuneration of Employee for the
services provided for herein during each year of employment hereunder, shall be
as follows:
a) an annual base salary in the sum of Two Hundred Thousand
Dollars ($200,000), payable in monthly installments of Sixteen Thousand Six
Hundred Sixty Six Dollars and 67/100 ($16,666.67), which salary if unpaid for
any reason shall accrue cumulatively from month to month plus 10% interest per
annum on the unpaid portion;
b) interim and annual bonuses in such amounts and upon such
terms and conditions as may be determined by the Employer's Board of Directors
from time to time; and
c) an annual cost of living increase of five percent (5%) of
the preceding year's annual base salary.
d) Common Stock Options (the "Employment Options") to purchase
an aggregate of One Hundred Thousand (100,000) Options, one-half (/ /) of
which (50,000 Options) shall be subject to vesting pursuant to the provisions of
section 2.3(i), and one-half (/ /) (50,000 Options) shall be subject to
vesting pursuant to the provisions of 2.3(ii) of that certain Option to Purchase
Common Stock of Pacific Rim Entertainment, Inc. ("Option Agreement"), a true
copy of which Option Agreement has been delivered to Employee, and a true copy
of which is attached hereto as Exhibit "A"; and Employee is subject to and
agrees to be bound by all of the terms, conditions and provisions of said Option
Agreement as though Employee were named therein as "Holder", and the issuance of
options to Employee is fully conditioned upon the issuance thereof to the Holder
subject to all contingencies stated in said Option Agreement.
e) 200,000 shares of Employer's common stock (the "Employment
Shares"), one half (/ /) of which shall vest and be delivered to Employee at
the end of Employee's first complete annual anniversary of employment with
Employer and one-half (/ /) of which shall vest and be delivered to Employee
at the end of Employee's second complete annual anniversary of employment with
Employer.
f) Notwithstanding anything to the contrary contained herein,
in the event that Employees' employment is terminated hereunder at any time
prior to the first annual anniversary of employment with Employer, for any
reason other than those reasons identified within paragraph 5(c) hereafter,
then, and in that event, upon the first annual anniversary of employment,
notwithstanding any prior termination in accordance with the terms identified
above, Employee shall vest in that number of Employment Options and Employment
Shares as he would have been entitled to had he otherwise remained an employee
through the first annual anniversary of employment.
g) In the event that Employee remains employed by Employer
beyond the first annual anniversary of employment, and his employment is
terminated hereunder at any time prior to the second annual anniversary of
employment with Employer, for any reason other than those reasons identified
within paragraph 5(c) hereafter, then, and in that event, upon the second annual
anniversary of employment, Employee shall vest in and to that number of
Employment Shares and Employment Options as he would have otherwise be entitled
had he remained employed through the second annual anniversary of employment
with Employer.
3B. Severance Arrangements.
If for any reason other than those reasons identified within
paragraph 5 and paragraph 10 of this Agreement, Employee's employment is
terminated by Employer prior to the second annual anniversary of employment,
then, and in that event, Employee shall be entitled to continue to receive the
salary payments and other covered benefits provided for in this Agreement, as
severance benefits and in complete settlement of all amounts due hereunder, for
the longer of: (i) the scheduled expiration of the current term of employment,
or (ii) 6 months.
4. Fringe Benefits.
a) Employee shall be entitled, subject to the terms and
conditions of particular plans and programs adopted by the Board of Directors,
to all fringe benefits afforded to other senior executives of the Employer,
including but not by way of limitation, the right to participate in any pension,
stock option, retirement, major medical, group health, disability, accident and
life insurance, and other employee benefit programs made generally available,
from time to time, by the Employer.
b) During the term of this Agreement, Employer shall include
Employee and his family in family health insurance coverage provided for
executive level employees of Employer, and shall pay one hundred percent (100%)
of all health insurance premiums.
c) As additional salary, Employer shall reimburse Employee for
Employee's entire monthly premium cost to purchase a disability insurance
policy, if available on terms deemed by Employer to be commercially reasonable,
that shall pay to Employee the sum of $10,000 per month until age sixty-five
(65), in the event of Employee's disability as defined in said policy.
5. Termination.
Employer shall have the right to terminate this Agreement by
thirty (30) days written notice after which such termination, Employer shall
have no further obligations hereunder other than the payment of accrued base
salary and reimbursement of accrued expenses, upon the occurrence of any of the
following events or circumstances:
a) death of Employee;
b) if Employee is unable, for reasons of illness, disability
or similar causes, to carry out or perform the duties required of him hereunder
continuously for three (3) months or intermittently for an aggregate of one
hundred twenty (120) days in a calendar year during the term of this Agreement;
or
c) if Employee is terminated for "cause" for any of the
following events: (i) any act or omission perpetrated as the result of gross
negligence or with intent to harm the Employer or Osage or any of its
affiliates, or the business of either; (ii) commission of a felony for which
Employee is convicted by a court of law; (iii) perpetration of a dishonest act
or a common law fraud against the Employer or Osage, or any of its affiliates,
found by a court of law; (iv) the continued refusal to follow the directives of
the Board of Directors Employer or Osage which are made in good faith and not
contrary to law; (v) if Employee has so conducted himself (whether in connection
with his employment or otherwise) as to render Employee unfit to serve as an
officer or a trusted employee of Employer or Osage or has violated or broken any
of the covenants or obligations imposed on Employee by the Agreement; and
d) in the Event of termination for cause, Employer shall give
Employee prompt notice of the facts or circumstances constituting same and a
period of sixty (60) days in which to cure, rectify or reverse such facts of
circumstances, if applicable, and to present evidence to the Board of Directors
in mitigation thereof.
6. Discoveries and Inventions.
Employee, in partial consideration of his employment and
salary to be paid to him, hereby agrees to disclose promptly to Employer, or any
subsidiary, parent, or affiliated company or its nominees, each and every
discovery, improvement and/or invention made, conceived and/or developed by him
whether during working hours or otherwise, during the entire period of his said
employment, which discoveries, improvements and/or inventions are capable of use
in any way in connection with the business of the Employer and for the same
consideration, Employee does hereby grant and convey to Employer or its nominee,
the entire right, title and interest, domestic and foreign, or such lesser
interests as such Employer at its option in any particular case may choose to
accept, in and to reach or all of said discoveries, improvements and/or
inventions; and he does further agree to sign all applications for patents or
copyrights, and to execute and deliver all assignments and other documents, and
to perform all acts and do all things necessary to make this Agreement and the
said grant and conveyance effective with respect to particular discoveries,
improvements and/or inventions.
7. Expenses.
(a) Employee is authorized to incur reasonable expenses for
promoting the business of Employer, including expenses for entertainment,
travel, and similar items. Employer will reimburse Employee for all such
expenses upon the presentation by Employee, from time to time, of an itemized
account of such expenditures.
(b) Employer will furnish Employee with a suitable late model
automobile for Employee's full time use and benefit and will pay all maintenance
and insurance premiums.
(c) Employer agrees to promptly reimburse Employee, through
payments to Employee's attorney at O'Connor & Cavanagh, Tucson, Arizona, the
amount of $11,546.46 consisting of counsel fees and repayments to the prior
employer of Employee.
8. Vacation.
Employee shall be entitled each year to a vacation of up to
four (4) weeks, during which time his compensation shall be paid in full.
Employee shall use his best efforts, however, not to schedule any such vacations
at a time when either the Chief Executive Officer of Employer is also on
vacation or is otherwise out of the office. Furthermore, Employee shall not,
without the consent of Employer, schedule a vacation of more than two (2) weeks
in any three (3) month period.
9. Confidential Information.
a) Employee acknowledges and agrees that all confidential
information, trade secrets, names of customers, suppliers, financial, accounting
or administrative information, business procedures or other information or
knowledge which is made known to Employee during the course of his employment by
Employer or Osage is confidential and the property of the Employer;
b) Employee agrees that during the term of his employment by
Employer, and at all times thereafter forever, except in the ordinary course of
fulfilling Employee's assigned duties and obligations, Employee shall not,
without the prior express, written consent of the Employer, publish, disclose or
make known to anyone, or make any use of or authorize, assist, or enable anyone
else to publish or disclose or make use of, any confidential information or
Employer property, including, but not limited to, trade secrets, names of
customers, suppliers, financial, accounting or administrative information,
business procedures or any other information or knowledge which becomes known to
Employee as the result of or during his employment by the Employer.
10. Other Termination Provisions.
Notwithstanding anything herein contained to the contrary,
Employer may terminate this Agreement upon thirty (30) days' written notice to
Employee upon the happening of any of the following events:
a) the sale by Employer of substantially all of its assets;
b) a bona fide decision by Employer to terminate its business
and liquidate its assets; or
c) the merger or consolidation of Employer in a transaction in
which the shareholders of Employer receive less than fifty percent (50%) of the
outstanding voting shares of the new or continuing corporation.
11. Life and Disability Insurance.
During the Initial Term or any Extended Term, Employer shall
insure the life of Employee for such amount as the parties shall mutually agree
upon. The amount of such insurance shall be One Million Dollars ($1,000,000).
The premiums on such insurance shall be the obligation of Employer, which shall
be the owner of said policy. Upon Employee's death, one-half (1/2) of the face
value ($500,000) shall be paid to Employer, and the other one-half ($500,000) to
the Employee's designated beneficiary.
12. Indemnification.
In the event that Employee shall personally guarantee any
loan(s) of Employer, Employer may not terminate this Agreement until said
loan(s) has been paid in full or Employee is released from any personal
liability pursuant to said guarantee(s), and notwithstanding anything herein to
the contrary, Employer does hereby indemnify and agree to hold Employee harmless
from and against all losses, claims and expenses which Employee may sustain by
reason of any guarantee(s) executed by Employee for the benefit of Employer,
including reasonable attorneys' fees in defending against same.
13. Negative Covenant. Provided Employee has remained employed by
Employer for a consecutive period of three (3) years from the date hereof, then,
and in that event, for a period of one (1) year following termination of this
Agreement either due to expiration of the Term, or for any other reason
identified in Paragraph 5(c) hereof, Employee will not, on his own behalf or as
partner, officer, director, employee, consultant, or stockholder (holding more
than ten percent (10%) of the issued and outstanding stock of any firm or
company) of any other business, either directly or indirectly, solicit any
"active customers" of Employer, or any affiliates or subsidiaries of Employer
(for the purposes of this Paragraph 13, defined in the aggregate as the
"Company"), or perform any work, services, or labor for or on behalf of any firm
or company engaged in any business competitive with or similar to the business
of the Company in any state or foreign country where the Company does business.
Accordingly, the Company is granted the right by Employee to apply to any court
of competent jurisdiction for one or more temporary or permanent injunctions
enjoining Employee, his agents and employees, from violating the provisions of
this Agreement and/or from continuing to breach such provisions. The negative
covenant imposed, shall not be effective for any purpose whatsoever if Employee
is terminated without cause. If Employee voluntarily terminates his employment
at any time during the Term of this Agreement, then, and in that event, Employee
will not on his own behalf or as a partner, officer, director, employee,
consultant, or stockholder (holding more than 10% of the issued and outstanding
stock of any firm or company) of any business, either directly or indirectly,
solicit "active customers" of the Company for a period of one year following the
date of such voluntary termination of employment. For the purposes of this
paragraph 13, the term "active customer" shall mean any current customers of the
Company, or any customers of the Company within the twelve preceding months.
14. Commercially Reasonable Terms.
This employment agreement requires Employer to secure
insurance coverage for Employee relative to: (i) Health (paragraph 4); (ii)
Automobile (paragraph 7(b)); (iii) Life (paragraph 11(a)); and (iv) Disability
(paragraph 11(b)). Notwithstanding anything to the contrary contained herein,
Employer's obligation shall only extend to the securing of insurance coverage on
commercially reasonable terms covering levels of risks that are determined to be
"standard" within the industry. Should Employer be unable to secure the agreed
upon coverage on these terms, Employer's only obligation is to notify Employee
of its inability to do so and provide Employee with an opportunity to identify
satisfactory coverage on such terms; or if Employee is unable to identify
appropriate coverage, Employer's responsibility under this employment agreement
will be to permit Employee to secure his own insurance coverage and to reimburse
him that amount that is determined to be commercially reasonable covering
standard levels of risk.
15. Registration of Shares.
Employee has been advised that the Employer intends to use its
best efforts to file a registration statement with the Securities and Exchange
Commission during 1998, the purpose of which is to register the resale of
certain shares of its common stock, including the Employment Shares and the
shares underlying the Employment Options (even though these shares may remain
subject to vesting conditions). Employee also recognizes that as a part of such
registration process, he will be requested to execute a lock-up letter
restricting his ability to sell the shares, notwithstanding any such
registration event. Employer agrees that if for any reason Employee's employment
is terminated (for other than those reasons identified within paragraph 5(c) of
this Agreement) prior to the expiration of any lock-up period restricting the
resale of the Employment Shares or Employment Options (or shares of common stock
issuable upon exercise of such options) then, and in that event, Employer agrees
to waive and release Employee from any and all such restrictions upon resale
other than those to which he is subject under federal and state securities laws.
16. Miscellaneous.
a) Entire Agreement. This Agreement embodies the entire
agreement between the parties hereto relative to the subject matter hereof and
shall not be modified, changed or altered in any respect except in writing
signed by both parties to this Agreement.
b) Benefits. This Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective next of kin, legatees,
administrators, executors, legal representatives, successors and permitted
assigns.
c) Attorneys Fees. In the event either party is required to
obtain the services of any attorney to enforce the provisions of this Agreement,
the prevailing party shall be entitled to its reasonable costs and attorney's
fees including expert witness fees, and costs of investigation.
d) Illegal Contract. In case any provision of this Agreement
shall be held invalid, illegal or unenforceable, in whole or in part, neither
the validity of the remaining part of such provision, nor the validity of any
other provision of this Agreement shall in any way be affected thereby.
e) Waiver. A waiver of any breach of this Agreement, or of any
of the terms or conditions by either party thereto, shall not be deemed a waiver
of any repetition of such breach or in any way affect any other terms or
conditions hereof. No waiver shall be valid or binding unless it shall be in
writing signed by the parties.
f) Binding Effect. This Agreement, when executed by one duly
authorized officer of the corporation, shall bind the corporation and its
successors and assigns.
g) Successors and Assigns. Unless otherwise provided for, this
Agreement shall be binding upon and inure to the benefit of the parties hereto,
and their respective successors in interest and assigns, but in no event shall
any party be relieved of its obligations hereunder without the express written
consent of each other party.
h) Governing Law. This Agreement shall be governed by, the
laws of the State of Arizona. Each party hereby expressly and irrevocably
consents to the jurisdiction of the Arizona courts, and any action hereunder may
be commenced and tried only in a court of competent jurisdiction located in
Maricopa County, Arizona.
i) Time. Time is of the essence of this Agreement and each and
every provision hereof. Any extension of time granted for the performance of any
duty under this Agreement shall not be considered an extension of time for the
performance of any other duty under this Agreement.
j) Notices. Any notice to any party under this Agreement shall
be in writing, shall be effective on the earlier of (i) the date when received
by such party, or (ii) the date which is three (3) days after mailing (postage
prepaid) by certified or registered mail, return receipt requested, to the
address of such party set forth as follows:
To: EMPLOYER
President
Pacific Rim Entertainment, Inc.
1661 E. Camelback Road, Suite 245
Phoenix AZ 85016
With a copy to:
Burton M. Bentley, Esq.
7878 N. 16th Street, Suite #110
Phoenix, Arizona 85020
To: EMPLOYEE
Michael Glynn
6451 North Via Del Emigrado
Tucson, Arizona 85750
k) Additional Acts and Documents. Each party hereto agrees to
do all such things and take all such actions, and to make, execute and deliver
such other documents and instruments, as shall be reasonably requested to carry
out the provisions, intent and purpose of this Agreement.
l) Directors and Officers Insurance. Employer agrees to use
its best efforts to secure, as promptly as possible, an insurance policy
covering the acts of the directors and officers, on whatever terms as are deemed
commercially reasonable.
m) Northwestern University Graduate School of Management. The
Company shall pay the full amount of tuition, plus all related travel, lodging
and meal expenses, plus such time off from work as may be reasonably required by
Northwestern University, for Employee to complete the Northwestern University
Graduate School Management Program. Employee may enroll in the program beginning
no sooner than September, 1998, and not later than the semester which begins in
or about September, 2000. Notwithstanding the foregoing, in the event Employee
voluntarily terminates his employment with Employer or is terminated for cause
pursuant to paragraph 5(c) of this Agreement, Employer shall have no further
obligation under this paragraph.
n) Resignation as Director. In the event Employee either
voluntarily terminates his employment hereunder, or is terminated by Employer
pursuant to paragraph 5(c) hereunder, then, in either of those events, Employee
shall be deemed to have offered his resignation as a member of the Board of
Directors of Employer without any further notification to or from Employee, and
without any formal letter of resignation beyond his signature at the end of this
Agreement which shall provide such notification.
IN WITNESS WHEREOF the parties hereto have duly executed this Agreement
the day and year first above written.
EMPLOYER:
PACIFIC RIM ENTERTAINMENT, INC.
By: _______________________________
Its: President
EMPLOYEE:
----------------------------------
Michael Glynn
Certificate No. 1997-7
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.
THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF REGISTRATION, OR THE AVAILABILITY OF EXEMPTION FROM REGISTRATION,
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, BASED ON AN OPINION LETTER OF
COUNSEL SATISFACTORY TO THE COMPANY OR A NO-ACTION LETTER FROM THE SECURITIES
AND EXCHANGE COMMISSION."
OPTION TO PURCHASE COMMON STOCK
OF
PACIFIC RIM ENTERTAINMENT, INC.
Void after December 19, 2003
This certifies that, for value received, Michael G. Glynn ("Holder"),
is entitled, subject to the terms set forth below, to purchase from Pacific Rim
Entertainment, Inc. (the "Company"), a Delaware corporation, shares of the
Common Stock of the Company (the "Shares"), as constituted on the date hereof
(the "Option Issue Date"), with the Notice of Exercise attached hereto duly
executed, and simultaneous payment therefor in lawful money of the United
States, at the Exercise Price as set forth in Section 2 below. The number,
character and Exercise Price of the shares are subject to adjustment as provided
below.
1. Term of Option. Subject to compliance with the vesting provisions
identified at Paragraph 2.3 hereafter, this Option shall be exercisable, in
whole or in part, during the term commencing on the Option Issue Date and ending
at 5:00 p.m. on December 19, 2003, and shall be void thereafter.
2. Exercise Price, Number of Shares and Vesting Provisions.
2.1 Exercise Price. The Exercise Price at which this Option, or
portion thereof, may be exercised shall be fixed upon the date such Option, or
portion thereof vests pursuant to Paragraph 2.3 hereof. Such Exercise Price
shall be the lower of: (i) $3.00 per share; or (ii) the average of the closing
bid and ask prices of the Company's Common Stock on the principal exchange,
automated quotation system or over-the counter market for the 15 trading days
prior to the date upon which this Option, or portion thereof, vests pursuant to
Paragraph 2.3 hereof, as adjusted pursuant to Section 11 hereof.
2.2 Number of Shares. The number of shares of the Company's Common
Stock, $.01 par value per share ("Common Stock") which may be purchased pursuant
to this Option shall be 100,000 shares, as adjusted pursuant to Section 11
hereof.
2.3 Vesting. The Options granted hereunder shall vest in accordance
with the following schedule:
(i) 50% provided Holder [remains continuously employed by
the Company] and once the Company's audited financial statements reflect annual
earnings for the preceding year commencing December 31, 1998 of no less than
$.20 per share;
(ii) 50% provided Holder remains continuously employed by
the Company and once the Company's audited financial statements reflect annual
earnings for the preceding year (commencing December 31, 1998) of no less than
$.30 per share; provided, however, that once the Company achieves audited
earnings per share of $.30 all options shall vest.
2.4. Death of Holder and Termination.
(a) If the Holder shall die while in the employ of the Company,
his estate, personal representatives, or beneficiary shall have the right,
subject to the provisions of this Paragraph 2 hereof, to exercise the Option
(only to the extent that the Holder would have been entitled to do so as of the
date of his death) at any time within twelve (12) months from the date of his
death.
(b) In the event Holder voluntarily terminates his employment
with the Company, Holder shall have 30 days in which to exercise the Option
(only to the extent that the Holder would have been entitled to do so as of the
date of his termination) and thereafter, Holder's right in and to the Option
shall lapse and terminate.
(c) In the event Holder's employment is terminated by the
Company at any time prior to the first annual anniversary of Holder's employment
with the Company, for any reason other than those reasons identified in
Paragraph 5(c) of the Holder's then effective employment agreement with the
Company, then, and in that event, Holder shall have a period of thirty (30) days
following the date that would have otherwise been his first annual anniversary
of employment within which to exercise the option (only to the extent that the
Holder would have been entitled to do so as of the first annual anniversary of
employment) and thereafter, Holder's right in and to the Option shall lapse and
terminate.
(d) In the event Holder remains employed with the Company
beyond the first annual anniversary of employment, and his employment is
terminated by the Company at any time prior to the second annual anniversary of
Holder's employment with the Company, for any reason other than those reasons
identified in Paragraph 5(c) of the Holder's employment agreement, then, and in
that event, Holder shall have a period of thirty (30) days following the date
that would have otherwise been his second annual anniversary of employment
within which to exercise the option (only to the extent that the Holder would
have been entitled to do so as of the second annual anniversary of employment)
and thereafter, Holder's rights in and to the Option shall lapse and terminate.
3. Exercise of Option.
(a) The Exercise Price shall either be payable in cash or by
bank or certified check; or by cashless exercise through the delivery by the
Holder to the Company of shares of the Company's Common Stock for which Holder
is the record and beneficial owner, or a withholding by the Company of shares of
Common Stock that Holder is otherwise entitled to receive upon exercise of the
Option or by any combination thereof. If shares of common stock of the Company
are tendered or withheld as payment of the Exercise Price, the value of such
shares shall be their "market value" as of the trading date immediately
preceding the date of exercise. The "market value" shall be:
(i) If the Company's common stock is traded in the
over-the-counter market and not on any national securities exchange nor in the
NASDAQ Reporting System, the market value shall be the average of the mean
between the last bid and ask prices per share, as reported by the National
Quotation Bureau, Inc., or an equivalent generally accepted reporting service,
or if not so reported, the average of the closing bid and asked prices for a
share as furnished to the Company by any member of the National Association of
Securities Dealers, Inc., selected by the Company for that purpose.
(ii) If the Company's common stock is traded on a national
securities exchange or in the NASDAQ Reporting System, the market value shall be
either (1) the simple average of the high and low prices at which a share of the
Company's common stock traded, as quoted on the NASDAQ-NMS or its other
principal exchange, or (2) the price of the last sale of a share of common stock
as similarly quoted, whichever is higher, and rounding out such figure to the
next higher multiple of 12.5 cents (unless the figure is already a multiple of
12.5 cents).
If such tender would result in an issuance of a whole number of shares and a
fractional share of Common Stock, the value of such fractional share shall be
paid to the Company in cash or by check by the Holder.
(b) The purchase rights represented by this Option are
exercisable by the Holder in whole or in part, at any time, or from time to
time, by the surrender of this Option and the Notice of Exercise annexed hereto
duly completed and executed on behalf of the Holder, at the office of the
Company (or such other office or agency of the Company as it may designate by
notice in writing to the Holder at the address of the Holder appearing on the
books of the Company).
(c) This Option shall be deemed to have been exercised
immediately prior to the close of business on the date of its surrender for
exercise as provided above, and the person entitled to receive the shares of
Common Stock issuable upon such exercise shall be treated for all purposes as
the holder of record of such shares as of the close of business on such date. As
promptly as practicable on or after such date and in any event within ten (10)
days thereafter, the Company at its expense shall issue and deliver to the
person or persons entitled to receive the same a certificate or certificates for
the number of shares issuable upon such exercise. In the event that this Option
is exercised in part, the Company at its expense will execute and deliver a new
Option of like tenor exercisable for the number of shares for which this Option
may then be exercised.
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this Option.
In lieu of any fractional share to which the Holder would otherwise be entitled,
the Company shall make a cash payment equal to the Exercise Price multiplied by
such fraction.
5. Replacement of Option. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Option and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and substance to the Company
or, in the case of mutilation, on surrender and cancellation of this Option, the
Company at its expense shall execute and deliver, in lieu of this Option, a new
Option of like tenor and amount.
6. Rights of Stockholder. Except as otherwise contemplated herein, the
Holder shall not be entitled to vote or receive dividends or be deemed the
holder of Common Stock or any other securities of the Company that may at any
time be issuable on the exercise hereof for any purpose, nor shall anything
contained herein be construed to confer upon the Holder, as such, any of the
rights of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issuance of stock, reclassification of stock, change of par
value, or change of stock to no par value, consolidation, merger, conveyance or
otherwise) or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until the Option shall have been exercised as
provided herein.
7. Transfer of Option.
7.1. Non-Transferability. Prior to vesting in accordance with
paragraph 2 herein, the Option shall not be assigned, transferred, pledged or
hypothecated in any way, nor subject to execution, attachment or similar
process, otherwise than by will or by the laws of descent and distribution. To
the extent the Options have vested, transfers thereof which comply with the
remaining provisions of this paragraph 7 may be undertaken upon the prior
written consent of the Company, which consent shall not be unreasonably
withheld. Any attempted assignment, transfer, pledge, hypothecation or other
disposition of the Option contrary to the provisions hereof, and the levy of an
execution, attachment, or similar process upon the Option, shall be null and
void and without effect.
7.2. Exchange of Option Upon a Transfer. On surrender of this
Option for exchange, properly endorsed, the Company at its expense shall issue
to or on the order of the Holder a new Option or Options of like tenor, in the
name of the Holder or as the Holder (on payment by the Holder of any applicable
transfer taxes) may direct, of the number of shares issuable upon exercise
hereof.
7.3. Compliance with Securities Laws; Restrictions on
Transfers.
(a) The Holder of this Option, by acceptance hereof,
acknowledges that this Option and the Shares to be issued upon exercise hereof
are being acquired solely for the Holder's own account and not as a nominee for
any other party, and for investment (unless such shares are subject to resale
pursuant to an effective prospectus), and that the Holder will not offer, sell
or otherwise dispose of this Option or any Shares to be issued upon exercise
hereof except under circumstances that will not result in a violation of
applicable federal and state securities laws. Upon exercise of this Option, the
Holder shall, if requested by the Company, confirm in writing, in a form
satisfactory to the Company, that the shares of Common Stock so purchased are
being acquired solely for the Holder's own account and not as a nominee for any
other party, for investment (unless such shares are subject to resale pursuant
to an effective prospectus), and not with a view toward distribution or resale.
(b) Neither this Option nor any share of Common Stock issued
upon exercise of this Option may be offered for sale or sold, or otherwise
transferred or sold in any transaction which would constitute a sale thereof
within the meaning of the Securities Act of 1933, as amended (the "1933 Act"),
unless (i) such security has been registered for sale under the 1933 Act and
registered or qualified under applicable state securities laws relating to the
offer an sale of securities, or (ii) exemptions from the registration
requirements of the 1933 Act and the registration or qualification requirements
of all such state securities laws are available and the Company shall have
received an opinion of counsel satisfactory to the Company that the proposed
sale or other disposition of such securities may be effected without
registration under the 1933 Act and would not result in any violation of any
applicable state securities laws relating to the registration or qualification
of securities for sale, such counsel and such opinion to be satisfactory to the
Company.
(c) All Shares issued upon exercise hereof shall be stamped or
imprinted with a legend in substantially the following form (in addition to any
legend required by state securities laws).
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE
SECURITIES LAWS. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF REGISTRATION, OR THE AVAILABILITY OF EXEMPTION
FROM REGISTRATION, UNDER THE SECURITIES ACT OF 1933, AS AMENDED, BASED ON AN
OPINION LETTER OF COUNSEL SATISFACTORY TO THE COMPANY OR A NO-ACTION LETTER FROM
THE SECURITIES AND EXCHANGE COMMISSION."
(d) Holder recognizes that investing in the Option and the
Common Stock involves a high degree of risk, and Holder is in a financial
position to hold the Option and the Common Stock indefinitely and is able to
bear the economic risk and withstand a complete loss of its investment in the
Option and the Common Stock. The Holder is a sophisticated investor and is
capable of evaluating the merits and risks of investing in the Company. The
Holder has had an opportunity to discuss the Company's business, management and
financial affairs with the Company's management, has been given full and
complete access to information concerning the Company, and has utilized such
access to its satisfaction for the purpose of obtaining information or verifying
information and has had the opportunity to inspect the Company's operation.
Holder has had the opportunity to ask questions of, and receive answers from the
management of the Company (and any person acting on its behalf) concerning the
Option and the Common Stock and the agreements and transactions contemplated
hereby, and to obtain any additional information as Holder may have requested in
making its investment decision.
(e) Holder acknowledges and represents: (i) that he has been
afforded the opportunity to review and is familiar with the quarterly, annual
and periodic reports of the Company and has based his decision to invest solely
on the information contained therein and has not been furnished with any other
literature, prospectus or other information except as included in such reports;
(ii) he is at least 21 years of age; (iii) he has adequate means of providing
for his current needs and personal contingencies; (iv) he has no need for
liquidity for his investment in the Option or Common Stock; (v) he maintains his
domicile and is not a transient or temporary resident at the address on the
books and records of the Company; (vi) all of his investments and commitments to
non-liquid assets and similar investments are, after his acquisition of the
Option and Common Stock, will be reasonable in relation to his net worth and
current needs; (vii) he understands that no federal or state agency has approved
or disapproved the Option or Common Stock or made any finding or determination
as to the fairness of the Option and Common Stock for investment; and (viii) he
recognizes that the Common Stock is presently eligible for trading on the
National Market System of the NASDAQ Stock Market, however, that the Company has
made no representations, warranties, or assurances as to the future trading
value of the Common Stock, whether a public market will continue to exist for
the resale of the Common Stock, or whether the Common Stock can be sold at a
price reflective of past trading history at any time in the future.
8. Reservation and Issuance of Stock.
(a) The Company covenants that during the term that this Option
is exercisable, the Company will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of the shares
upon the exercise of this Option, and from time to time will take all steps
necessary to amend its Certificate of Incorporation to provide sufficient
reserves of shares of Common Stock issuable upon the exercise of the Option.
(b) The Company further covenants that all shares of Common
Stock issuable upon the due exercise of this Option will be free and clear from
all taxes or liens, charges and security interests created by the Company with
respect to the issuance thereof, however, the Company shall not be obligated or
liable for the payment of any taxes, liens or charges of Holder, or any other
party contemplated by paragraph 7, incurred in connection with the issuance of
this Option or the Common Stock upon the due exercise of this Option. The
Company agrees that its issuance of this Option shall constitute full authority
to its officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for the shares of Common Stock upon
the exercise of this Option. The Common Stock issuable upon the due exercise of
this Option, will, upon issuance in accordance with the terms hereof, be duly
authorized, validly issued, fully paid and non-assessable.
9. Notices.
(a) Whenever the Exercise Price or number of shares purchasable
hereunder shall be adjusted pursuant to Section 11 hereof, the Company shall
issue a certificate signed by its Chief Financial Officer setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated, and the Exercise
Price and number of shares purchasable hereunder after giving effect to such
adjustment, and shall cause a copy of such certificate to be mailed (by
first-class mail, postage prepaid) to the Holder of this Option.
(b) All notices, advices and communications under this Option
shall be deemed to have been given, (i) in the case of personal delivery, on the
date of such delivery and (ii) in the case of mailing, on the third business day
following the date of such mailing, addressed as follows:
If to the Company:
Pacific Rim Entertainment, Inc.
1661 East Camelback Road
Suite 345
Phoenix, AR 85016
and to the Holder:
at the address of the Holder appearing on the books
of the Company or the Company's
transfer agent, if any.
Either of the Company or the Holder may from time to time change the
address to which notices to it are to be mailed hereunder by notice in
accordance with the provisions of this Paragraph 9.
10. Amendments.
(a) Any term of this Option may be amended with the written
consent of the Company and the Holder. Any amendment effected in accordance with
this Section 10 shall be binding upon the Holder, each future holder and the
Company.
(b) No waivers of, or exceptions to, any term, condition or
provision of this Option, in any one or more instances, shall be deemed to be,
or construed as, a further or continuing waiver of any such term, condition or
provision.
11. Adjustments. The number of Shares of Common Stock purchasable
hereunder and the Exercise Price is subject to adjustment from time to time upon
the occurrence of certain events, as follows:
11.1. Reorganization, Merger or Sale of Assets. If at any time
while this Option, or any portion thereof, is outstanding and unexpired there
shall be (i) a reorganization (other than a combination, reclassification,
exchange or subdivision of shares otherwise provided for herein), (ii) a merger
or consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a merger in which the Company is the
surviving entity but the shares of the Company's capital stock outstanding
immediately prior to the merger are converted by virtue of the merger into other
property, whether in the form of securities, cash or otherwise, or (iii) a sale
or transfer of substantially all of the Company's properties and assets as, or
substantially as, an entirety to any other person, then, as a part of such
reorganization, merger, consolidation, sale or transfer, lawful provision shall
be made so that the holder of this Option shall upon such reorganization,
merger, consolidation or sale or transfer, have the right by exercising such
Option, to purchase the kind and number of shares of Common Stock or other
securities or property (including cash) otherwise receivable upon such
reorganization, merger, consolidation or sale or transfer by a holder of the
number of shares of Common Stock that might have been purchased upon exercise of
such Option immediately prior to such reorganization, merger, consolidation or
sale or transfer. The foregoing provisions of this Section 11.1 shall similarly
apply to successive reorganizations, consolidations, mergers, sales and
transfers and to the stock or securities of any other corporation that are at
the time receivable upon the exercise of this Option. If the per-share
consideration payable to the Holder hereof for shares in connection with any
such transaction is in a form other than cash or marketable securities, then the
value of such consideration shall be determined in good faith by the Company's
Board of Directors. In all events, appropriate adjustment (as determined in good
faith by the Company's Board of Directors) shall be made in the application of
the provisions of this Option with respect to the rights and interests of the
Holder after the transaction, to the end that the provisions of this Option
shall be applicable after that event, as near as reasonably may be, in relation
to any shares or other property deliverable after that event upon exercise of
this Option.
11.2. Reclassification. If the Company, at any time while this
Option, or any portion thereof, remains outstanding and unexpired, by
reclassification of securities or otherwise, shall change any of the securities
as to which purchase rights under this Option exist into the same or a different
number of securities of any other class or classes, this Option shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable as the result of such change with respect to the securities that
were subject to the purchase rights under this Option immediately prior to such
reclassification or other change and the Exercise Price therefor shall be
appropriately adjusted, all subject to further adjustment as provided in this
Section 11.
11.3. Split, Subdivision or Combination of Shares. If the
Company at any time while this Option, or any portion thereof, remains
outstanding and unexpired shall split, subdivide or combine the securities as to
which purchase rights under this Option exist, into a different number of
securities of the same class, the Exercise Price and the number of shares
issuable upon exercise of this Option shall be proportionately adjusted.
11.4. Adjustments for Dividends in Stock or Other Securities
or Property. If while this Option, or any portion hereof, remains outstanding
and unexpired the holders of the securities as to which purchase rights under
this Option exist at the time shall have received, or, on or after the record
date fixed for the determination of eligible Stockholders, shall have become
entitled to receive, without payment therefor, other or additional stock or
other securities or property (other than cash) of the Company by way of
dividend, then and in each case, this Option shall represent the right to
acquire, in addition to the number of shares of the security receivable upon
exercise of this Option, and without payment of any additional consideration
therefor, the amount of such other or additional stock or other securities or
property (other than cash) of the Company that such holder would hold on the
date of such exercise had it been the holder of record of the security
receivable upon exercise of this Option on the date hereof and had thereafter,
during the period from the date hereof to and including the date of such
exercise, retained such shares and/or all other additional stock, other
securities or property available by this Option as aforesaid during such period.
11.5 The Company will not, by any voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Company, but will at all times in good faith
assist in the carrying out of all the provisions of this Section 11 and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the Holders of this Option against impairment.
12. Severability. Whenever possible, each provision of this Option
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Option is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
the validity, legality or enforceability of any other provision of this Option
in such jurisdiction or affect the validity, legality or enforceability of any
provision in any other jurisdiction, but this Option shall be reformed,
construed and enforced in such jurisdiction as if such invalid, illegal or
unenforceable provision had never been contained herein.
13. Governing Law. The corporate law of the State of Delaware shall
govern all issues and questions concerning the relative rights of the Company
and its stockholders. All other questions concerning the construction, validity,
interpretation and enforceability of this Option and the exhibits and schedules
hereto shall be governed by, and construed in accordance with, the laws of the
State of Delaware, without giving effect to any choice of law or conflict of law
rules or provisions (whether of the State of Delaware or any other jurisdiction)
that would cause the application of the laws of any jurisdiction other than the
State of Delaware.
14. Jurisdiction. The Holder and the Company agree to submit to
personal jurisdiction and to waive any objection as to venue in the federal or
state courts in the City in which the headquarters of the Company is located,
which as of the date hereof is San Diego, California. Service of process on the
Company or the Holder in any action arising out of or relating to this Option
shall be effective if mailed to such party at the address listed in Section 9
hereof.
15. Arbitration. If a dispute arises as to interpretation of this
Option, it shall be decided finally by three arbitrators in an arbitration
proceeding conforming to the Rules of the American Arbitration Association
applicable to commercial arbitration. The arbitrators shall be appointed as
follows: one by the Company, one by the Holder and the third by the said two
arbitrators, or, if they cannot agree, then the third arbitrator shall be
appointed by the American Arbitration Association. The third arbitrator shall be
chairman of the panel and shall be impartial. The arbitration shall take place
in the City in which the headquarters of the Company is located, which as of the
date hereof is Phoenix, Arizona. The decision of a majority of the Arbitrators
shall be conclusively binding upon the parties and final, and such decision
shall be enforceable as a judgment in any court of competent jurisdiction. Each
party shall pay the fees and expenses of the arbitrator appointed by it, its
counsel and its witnesses. The parties shall share equally the fees and expenses
of the impartial arbitrator.
16. Corporate Power; Authorization; Enforceable Obligations. The
execution, delivery and performance by the Company of this Agreement: (i) are
within the Company's corporate power; (ii) have been duly authorized by all
necessary or proper corporate action; (iii) are not in contravention of the
Company's certificate of incorporation or by-laws; (iv) will not violate in any
material respect, any law or regulation, including any and all Federal and state
securities laws, or any order or decree of any court or governmental
instrumentality; and (v) will not, in any material respect, conflict with or
result in the breach or termination of, or constitute a default under any
agreement or other material instrument to which the Company is a party or by
which the Company is bound.
17. Successors and Assigns. This Option shall inure to the benefit of
and be binding on the respective successors, assigns and legal representatives
of the Holder and the Company.
IN WITNESS WHEREOF, the Company has caused this Option to be executed
by its officers thereunto duly authorized.
Dated: ______________________
PACIFIC RIM ENTERTAINMENT, INC.
BY:_________________________________
Jack Leadbeater
Chief Executive Officer
Accepted and Acknowledged
By:_____________________________
Michael G. Glynn
<PAGE>
NOTICE OF EXERCISE
TO: [_____________________________]
(1) The undersigned hereby elects to purchase _______ shares of Common
Stock of Pacific Rim Entertainment, Inc. pursuant to the terms of the attached
Option, and tenders herewith payment of the purchase price for such shares in
full.
(2) In exercising this Option, the undersigned hereby confirms and
acknowledges that the shares of Common Stock to be issued upon conversion
thereof are being acquired solely for the account of the undersigned and not as
a nominee for any other party, and for investment (unless such shares are
subject to resale pursuant to an effective prospectus), and that the undersigned
will not offer, sell or otherwise dispose of any such shares of Common Stock
except under circumstances that will not result in a violation of the Securities
Act of 1933, as amended, or any state securities laws.
(3) Please issue a certificate or certificates representing said shares
of Common Stock in the name of the undersigned or in such other name as is
specified below:
-----------------------------------
(Name)
-----------------------------------
(Name)
- -------------------------- -----------------------------------
(Date) (Signature)
CONFIDENTIAL PRIVATE OFFERING MEMORANDUM
PACIFIC RIM ENTERTAINMENT, INC.
(a Delaware corporation)
-----------------------------------
$3,660,000
Series A $3.00 Convertible Preferred Stock
at a Purchase Price of $30,000 Per Share
-----------------------------------
This Confidential Private Offering Memorandum relates to a "best
efforts" offering solely to accredited investors to be undertaken by Pacific Rim
Entertainment, Inc. (the "Offering") of 122 shares of its newly-designated
Series A $3.00 Convertible Preferred Stock (the "Series A Shares") at a purchase
price of $30,000 per Share for an aggregate offering price of $3,660,000.
--------------------------------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK
SEE "RISK FACTORS."
-------------------------------------------
November 24, 1997
-------------------------------------------
- ------------------------ ------------------------ ----------------------
Name of Offeree Memorandum Number Date distributed
<PAGE>
TABLE OF CONTENTS
IMPORTANT CONSIDERATIONS..................................................... 1
SUMMARY...................................................................... 7
THE COMPANY.................................................................. 13
DESCRIPTION OF MERGER........................................................ 21
THE OFFERING................................................................. 22
RISK FACTORS................................................................. 24
USE OF PROCEEDS.............................................................. 28
MARKET FOR COMMON STOCK AND REDEEMABLE WARRANTS AND
RELATED STOCKHOLDER MATTERS.................................................. 29
MANAGEMENT................................................................... 30
PRINCIPAL STOCKHOLDERS....................................................... 34
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................... 36
DESCRIPTION OF SECURITIES.................................................... 37
SUITABILITY STANDARDS - WHO SHOULD INVEST.................................... 43
ADDITIONAL INFORMATION....................................................... 46
EXHIBIT INDEX
Exhibit A - Form of Securities Subscription Agreement
Exhibit B - Audited Financial Statements of Osage Computer Group, Inc.
for the fiscal years ended December 31, 1996 and 1995 and
unaudited interim financial statements for the ten months
ended October 31, 1997
Exhibit C - Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1996 of Pacific Rim Entertainment,
Inc. and Quarterly Report on Form 10-QSB for the
period ended June 30, 1997
Exhibit D - Form of Certificate of Designation of Series A Preferred
Stock
Exhibit E - Form of Certificate of Designation of Series B Preferred
Stock
Exhibit F - Merger Agreement by and among Pacific Rim Entertainment,
Inc., PR Acquisition Corp., and Osage Computer Group, Inc.
<PAGE>
IMPORTANT CONSIDERATIONS
PURCHASE OF THE SECURITIES DESCRIBED HEREIN INVOLVES A HIGH DEGREE OF RISK AND
SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD TO SUSTAIN A TOTAL LOSS OF
THEIR INVESTMENT. PROSPECTIVE PURCHASERS SHOULD CAREFULLY CONSIDER THE
DISCUSSION UNDER THE CAPTION "RISK FACTORS."
----------------------------------------
THE OFFERING AND THE SECURITIES OFFERED HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND
MAY NOT BE OFFERED OR SOLD EXCEPT TO A LIMITED NUMBER OF "ACCREDITED INVESTORS"
(AS DEFINED IN RULE 501(A) UNDER THE SECURITIES ACT). PROSPECTIVE PURCHASERS ARE
HEREBY NOTIFIED THAT THE ISSUER MAY BE RELYING ON THE EXEMPTIONS FROM THE
PROVISIONS OF SECTION 5 OF THE SECURITIES ACT. IN ADDITION, THIS OFFERING HAS
NOT BEEN REGISTERED UNDER THE SECURITIES LAWS OF ANY STATE IN RELIANCE ON
EXEMPTIONS FROM REGISTRATION FOUND IN THE RESPECTIVE SECURITIES LAWS OF SUCH
STATES. ACCORDINGLY, PURCHASERS OF THE SECURITIES OFFERED HEREBY MAY NOT SELL OR
OTHERWISE TRANSFER SUCH SECURITIES EXCEPT PURSUANT TO REGISTRATION UNDER THE
SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR EXEMPTIONS THEREFROM.
THE CERTIFICATES EVIDENCING THE SECURITIES WILL BEAR A RESTRICTIVE LEGEND TO THE
FOREGOING EFFECT AND EACH INVESTOR MUST SIGN AN INVESTMENT REPRESENTATION
CONSISTENT WITH THE FOREGOING.
----------------------------------------
THERE IS CURRENTLY NO PUBLIC OR OTHER MARKET FOR THE SECURITIES AND THERE CAN BE
NO ASSURANCE THAT A PUBLIC OR OTHER MARKET WILL DEVELOP. INVESTORS SHOULD BE
AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISK OF THE INVESTMENT
FOR AN INDEFINITE PERIOD OF TIME.
----------------------------------------
PRIOR TO CONSUMMATION OF THE PURCHASE AND SALE OF ANY SECURITIES, THE COMPANY
INVITES AND ENCOURAGES PROSPECTIVE INVESTORS TO ASK QUESTIONS OF AND RECEIVE
ANSWERS FROM THE COMPANY CONCERNING THE TERMS AND CONDITIONS OF THIS OFFERING
AND REGARDING THE COMPANY AND TO OBTAIN ADDITIONAL INFORMATION AND DOCUMENTS TO
THE EXTENT THAT THE COMPANY POSSESSES SUCH INFORMATION OR CAN ACQUIRE IT WITHOUT
UNREASONABLE EFFORT OR EXPENSE. NO PERSONS OTHER THAN THE PRESIDENT AND THE
CHIEF FINANCIAL OFFICER OF THE COMPANY HAVE BEEN AUTHORIZED TO GIVE ANY
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INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
MEMORANDUM, AND IF GIVEN OR MADE BY ANY OTHER PERSON, SUCH INFORMATION HAS NOT
BEEN AUTHORIZED BY THE COMPANY AND MUST NOT BE RELIED UPON IN ANY MANNER.
----------------------------------------
THE SECURITIES OFFERED ARE SUBJECT TO THE PROVISIONS OF A SUBSCRIPTION
AGREEMENT, WHICH EACH INVESTOR PURCHASING SECURITIES WILL BE REQUIRED TO EXECUTE
PRIOR TO THE PURCHASE OF ANY SECURITIES. ANY PURCHASE OF SECURITIES SHOULD BE
MADE ONLY AFTER A COMPLETE AND THOROUGH REVIEW OF THE PROVISIONS OF SUCH
AGREEMENT. IN THE EVENT THAT ANY OF THE TERMS, CONDITIONS OR OTHER PROVISIONS OF
SUCH AGREEMENT ARE INCONSISTENT WITH OR CONTRARY TO THE DESCRIPTIONS OR TERMS
CONTAINED IN THIS MEMORANDUM, SUCH AGREEMENT WILL CONTROL.
----------------------------------------
INVESTORS WHO PURCHASE THE SECURITIES AND RESELL THEM OR ANY PART OF THEM, MAY
BE DEEMED TO BE "UNDERWRITERS" UNDER SECTION 2(3) OF THE SECURITIES ACT AND MAY
BE SUBJECT TO ALL LIABILITIES IMPOSED UPON "UNDERWRITERS" UNDER SUCH SECURITIES
ACT IN CONNECTION WITH THE RESALE OF THE SECURITIES.
----------------------------------------
THIS MEMORANDUM IS PROVIDED IN CONNECTION WITH THE PRIVATE PLACEMENT OF THE
SECURITIES DESCRIBED HEREIN AND MAY NOT BE REPRODUCED OR USED FOR ANY OTHER
PURPOSE. EACH RECIPIENT OF THIS MEMORANDUM AGREES THAT ALL OF THE INFORMATION
CONTAINED HEREIN IS OF A CONFIDENTIAL NATURE, THAT HE WILL TREAT SUCH
INFORMATION IN A CONFIDENTIAL MANNER, AND THAT HE WILL NOT, DIRECTLY OR
INDIRECTLY, DISCLOSE OR PERMIT HIS AGENTS OR AFFILIATES TO DISCLOSE ANY OF SUCH
INFORMATION WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMPANY. IF THE RECIPIENT
DECIDES NOT TO PURSUE FURTHER INVESTIGATION OF THE PROPOSED PRIVATE PLACEMENT,
THE RECIPIENT AGREES TO RETURN THIS MEMORANDUM AND ANY ACCOMPANYING
DOCUMENTATION TO THE COMPANY.
----------------------------------------
THE SECURITIES DESCRIBED HEREIN WILL BE OFFERED SOLELY TO ACCREDITED INVESTORS
IN RELIANCE ON REGULATIONS UNDER THE SECURITIES ACT. THE COMPANY RESERVES THE
RIGHT TO WITHDRAW OR MODIFY ANY OFFER IT MAY MAKE PRIOR TO THE TIME, IF ANY,
WHEN ALL OF THE SECURITIES DESCRIBED HEREIN HAVE BEEN ISSUED, AND TO ACCEPT OR
REJECT ANY SUBSCRIPTION, IN WHOLE OR IN PART, AT ITS SOLE DISCRETION.
----------------------------------------
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<PAGE>
THIS MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES IN ANY JURISDICTION IN WHICH AN OFFER IS NOT AUTHORIZED OR
TO ANY INDIVIDUAL WHO DOES NOT POSSESS THE QUALIFICATIONS DESCRIBED IN THE
MEMORANDUM.
----------------------------------------
EACH INVESTOR, BY HIS ACCEPTANCE OF THE SECURITIES DESCRIBED HEREIN, REPRESENTS,
ACKNOWLEDGES AND AGREES THAT : (1) HE IS PURCHASING "RESTRICTED" SECURITIES
WHICH HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT; AND (2) HE WILL NOT
OFFER, SELL, TRANSFER, PLEDGE, HYPOTHECATE OR OTHERWISE DISPOSE OF ANY SUCH
SECURITIES EXCEPT AS APPROVED BY THE COMPANY'S BOARD OF DIRECTORS AND, IN THE
OPINION OF COUNSEL FOR OR SATISFACTORY TO THE COMPANY, PURSUANT TO AN EXEMPTION
FROM OR IN ACCORDANCE WITH THE REGISTRATION REQUIREMENTS UNDER THE SECURITIES
ACT, AND IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE STATE OR OTHER
SECURITIES LAWS.
----------------------------------------
THE DELIVERY OF A MEMORANDUM SHALL NOT BE DEEMED TO CONSTITUTE AN OFFER OR
SOLICITATION OF AN OFFER TO ANYONE OR ANY ENTITY IN ANY JURISDICTION IN WHICH
SUCH AN OFFER OR SOLICITATION IS NOT AUTHORIZED.
----------------------------------------
THIS MEMORANDUM CONTAINS SUMMARIES, BELIEVED BY THE COMPANY TO BE ACCURATE, OF
CERTAIN DOCUMENTS, BUT REFERENCE IS HEREBY MADE TO SUCH DOCUMENTS FOR COMPLETE
INFORMATION CONTAINED THEREIN. COPIES OF SUCH DOCUMENTS ARE AVAILABLE ON A
CONFIDENTIAL BASIS AT THE OFFICES OF THE COMPANY LISTED BELOW. ALL SUCH
SUMMARIES ARE QUALIFIED IN THEIR ENTIRETY BY THIS REFERENCE.
----------------------------------------
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF
THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS
INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE
SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING
AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS
DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
3
<PAGE>
----------------------------------------
PROSPECTIVE INVESTORS ARE NOT TO CONSTRUE THE CONTENTS OF THIS MEMORANDUM AS
LEGAL OR TAX ADVICE. EACH INVESTOR SHOULD CONSULT THEIR COUNSEL, ACCOUNTANT OR
BUSINESS ADVISER AS TO LEGAL, TAX AND RELATED MATTERS CONCERNING INVESTMENT IN
THE SECURITIES OFFERED HEREBY.
----------------------------------------
NEITHER THE DELIVERY OF THIS MEMORANDUM AT ANY TIME NOR ANY DISTRIBUTION OF
SECURITIES OFFERED HEREBY SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN (INCLUDING IN
THE EXHIBITS HERETO) OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF;
PRIOR TO THE FINAL CLOSING DATE INVESTORS WILL BE NOTIFIED AS TO ANY MATERIAL
CHANGES IN THE INFORMATION CONTAINED HEREIN.
----------------------------------------
CONNECTICUT
THE SECURITIES HAVE NOT BEEN REGISTERED UNDER SECTION 36-425 OF THE
CONNECTICUT UNIFORM SECURITIES ACT BUT WILL BE SOLD IN RELIANCE ON AN EXEMPTION
FROM SUCH REGISTRATION SET FORTH IN SECTION 36-490(b)(9)(a) OF SAID ACT AND
REGULATIONS PROMULGATED THEREUNDER. THE SHARES CANNOT BE RESOLD WITHOUT
REGISTRATION UNDER SECTION 36-485 OF SAID ACT OR AN EXEMPTION FROM REGISTRATION
PURSUANT TO SECTION 36-490 OF SAID ACT.
DELAWARE
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE DELAWARE SECURITIES
ACT AND ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND SALE PURSUANT
THERETO.
FLORIDA
PURSUANT TO SECTION 517.061(11)(a)(5) OF THE FLORIDA STATUTE, WHEN
SALES ARE MADE TO FIVE OR MORE PERSONS IN FLORIDA, FLORIDA INVESTORS HAVE A
THREE DAY RIGHT OF RESCISSION. IF A FLORIDA RESIDENT HAS EXECUTED A SUBSCRIPTION
AGREEMENT, HE MAY ELECT, WITHIN THREE BUSINESS DAYS AFTER SIGNING THE
SUBSCRIPTION AGREEMENT, TO WITHDRAW FROM THE SUBSCRIPTION AGREEMENT OT RECEIVE A
FULL REFUND AND RETURN (WITHOUT INTEREST) OF ANY MONEY PAID BY HIM. A FLORIDA
RESIDENT'S WITHDRAWAL WILL BE WITHOUT ANY FURTHER LIABILITY TO ANY PERSON. TO
ACCOMPLISH SUCH WITHDRAWAL, A FLORIDA RESIDENT NEED ONLY SEND A LETTER OR
4
<PAGE>
TELEGRAM TO THE COMPANY AT THE ADDRESS SET FORTH IN THIS MEMORANDUM INDICATING
HIS INTENTION TO WITHDRAW. SUCH LETTER OR TELEGRAM MUST BE SENT AND POSTMARKED
PRIOR TO THE END OF THE AFOREMENTIONED THIRD BUSINESS DAY. IF A FLORIDA RESIDENT
SENDS A LETTER, IT IS PRUDENT TO SEND IT BY CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, TO INSURE THAT IT IS RECEIVED AND ALSO TO EVIDENCE THE TIME AND DATE
WHEN IT IS MAILED. SHOULD A FLORIDA RESIDENT MAKE THIS REQUEST ORALLY, HE SHOULD
ASK FOR WRITTEN CONFIRMATION THAT HIS REQUEST HAS BEEN RECEIVED.
NEW JERSEY
THIS PRIVATE PLACEMENT MEMORANDUM HAS NOT BEEN FILED WITH OR REVIEWED
BY THE NEW JERSEY BUREAU OF SECURITIES OR THE DEPARTMENT OF LAW AND PUBLIC
SAFETY OF THE STATE OF NEW JERSEY PRIOR TO ITS ISSUANCE AND USE. NEITHER THE
ATTORNEY GENERAL OF THE STATE OF NEW JERSEY NOR THE BUREAU OF SECURITIES HAS
PASSED ON OR ENDORSED THE MERITS OF THE MEMORANDUM (OR THE PRIVATE OFFERING
CONTAINED HEREIN). ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
NEW YORK
THIS PRIVATE PLACEMENT MEMORANDUM HAS NOT BEEN REVIEWED BY THE ATTORNEY
GENERAL OF THE STATE OF NEW YORK PRIOR TO ITS ISSUANCE AND USE. THE ATTORNEY
GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THE
MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
PENNSYLVANIA
UNDER THE PROVISIONS OF SECTION 207(M) OF THE PENNSYLVANIA SECURITIES
ACT OF 1972, A PENNSYLVANIA RESIDENT WHO ACCEPTS AN OFFER TO PURCHASE SECURITIES
EXEMPTED FROM REGISTRATION BY SECTION 203(D) DIRECTLY FROM AN ISSUER OR
AFFILIATE OF AN ISSUER SHALL HAVE THE RIGHT TO WITHDRAW HIS ACCEPTANCE WITHOUT
INCURRING ANY LIABILITY TO THE SELLER OR ANY OTHER PERSON WITHIN TWO BUSINESS
DAYS FROM THE DATE OF RECEIPT BY THE ISSUER OF HIS WRITTEN BINDING CONTRACT OF
PURCHASE OR, IN THE CASE OF A TRANSACTION IN WHICH THERE IS NO WRITTEN BIDING
CONTRACT OF PURCHASE, WITHIN TWO BUSINESS DAYS AFTER HE MAKES THE INITIAL
PAYMENT FOR THE SECURITIES BEING OFFERED.
EACH PERSON ENTITLED TO EXERCISE THE RIGHT TO WITHDRAW GRANTED BY
SECTION 207(M), AND WHO WISHES TO EXERCISE SUCH RIGHT, MUST WITHIN THE
AFOREMENTIONED TWO BUSINESS DAYS CAUSE A WRITTEN NOTICE OR TELEGRAM TO BE SENT
TO THE COMPANY AT THE ADDRESS PROVIDED IN THE CONFIDENTIAL MEMORANDUM INDICATING
HIS INTENTION TO WITHDRAW. SUCH LETTER OR TELEGRAM MUST BE SENT AND POSTMARKED
5
<PAGE>
ON OR PRIOR TO THE AFOREMENTIONED SECOND BUSINESS DAY. IF YOU ARE SENDING A
LETTER, IT IS PRUDENT TO SENT IT BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO
ENSURE THAT IT IS RECEIVED AND ALSO TO EVIDENCE THE TIME WHEN IT WAS MAILED.
SHOULD YOU MAKE THIS REQUEST ORALLY, YOU MUST ASK FOR WRITTEN CONFIRMATION THAT
YOUR REQUEST HAS BEEN RECEIVED. AN INVESTOR RESIDING IN PENNSYLVANIA MAY NOT
SELL HIS SECURITIES WITHIN TWELVE MONTHS AFTER THE DATE OF THIS PURCHASE.
6
<PAGE>
SUMMARY
The Company: Pacific Rim Entertainment, Inc. (the "Company"
or "Pacific Rim") is presently an inactive
public corporation, which was organized under
the laws of Delaware in 1992. From 1992 through
1996, Pacific Rim had been engaged principally
in the animated film production business. After
several years of losses following its initial
public offering in 1993, Pacific Rim suspended
its business operations in 1996 and has since
then remained inactive while seeking to
identify business opportunities that would
capitalize on its status of a public
corporation through a strategic business
combination with a private operating company.
As a consequence of a recently executed merger
agreement (the "Merger Agreement"), the Company
has agreed to acquire Osage Computer Group,
Inc. ("Osage"), an Arizona-based company which
provides client/server information technology
products, services and support.
The Merger: Pursuant to the Merger Agreement, Osage will be
merged (the "Merger") into PR Acquisition
Corp., a newly created, wholly-owned subsidiary
of the Company (the "Sub") in consideration for
a purchase price consisting of: (i) $500,000 in
cash; (ii) 900,000 newly-issued shares of
Common Stock (subject to upward adjustment);
(iii) 200,000 newly-issued shares of Common
Stock; (iv) options to purchase 800,000 shares
of Common Stock; and (v) $1.5 million face
amount of newly-designated Series B $3.00
Convertible Preferred Stock ("Series B
Shares"), which is convertible into 500,000
shares of Common Stock. Closing of the Merger
is contingent upon the completion of several
conditions, including: (i) the completion of
this Offering; (ii) the settlement and
discharge of the Company's prior indebtedness
such that the Company shall have at least
$2,550,000 in cash on deposit after this
Offering; and (iii) the completion of a due
diligence review by each of the parties to the
Merger. See "DESCRIPTION OF THE MERGER."
Upon completion of the Merger, the Sub will
assume the historic operations of Osage and
will change its name to "Osage Computer Group,
Inc."
7
<PAGE>
Historic Operations of Osage: Founded in 1989, Osage is a provider of network
computing solutions. Osage markets a broad
range of information technology services
intended to transform discrete hardware and
software components into an integrated system.
Osage offers integration services which assist
customers in dealing with issues during the
entire life cycle of their systems, including
system architecture and design, product
acquisition, implementation, ongoing
operational support, and evolutions in
technology. Osage provides solutions to complex
information technology problems including
system availability and performance,
UNIX/Microsoft Windows NT integration, client
server database implementation, electronic mail
and messaging, system and network security, and
Internet/intranet and world wide web
application deployment.
Osage's ability to deliver integrated solutions
is principally attributable to its technical
expertise and its value-added reseller
relationships with industry-leading vendors of
information technology products such as Sun
Microsystems, Oracle and Netscape. To date,
most of its revenues have been derived from the
resale of products. Osage has also established
relationships with leading aggregators of
computer hardware and software products. These
relationships enable it to provide its clients
with competitive product pricing, ready product
availability and services such as electronic
product ordering, product configuration and
testing and product warehousing and delivery.
Osage's customer base varies in range from
relatively small companies to Fortune 500 and
other large and mid-sized companies in various
industries in the southwestern United States
including semi-conductor manufacturing,
publishing, hospitality, distribution,
military, education, and state and local
government.
Growing numbers of technology users and vendors
are turning away from direct sales towards the
indirect "value-added channel" consisting of
systems integrators and value-added resellers
such as Osage. The total estimated market for
the "value-added channel," including hardware,
software, systems integration services and
support, increased from $90 billion in 1994 to
$130 billion in 1996. Management believes that
8
<PAGE>
as technology users and technology vendors
increase their reliance on the "value-added
channel" the market will continue to grow.
Management believes that the in-house resources
of value-added resellers with certain
industry-leading technology vendors provide
them with access to resources such as technical
training, technical documentation, evaluation
units and leading-edge industry information.
These resources represent significant value to
large and mid-sized companies that typically do
not maintain such in-house resources
themselves. Management also believes that
reduced cost, increased productivity and
broader sales coverage, particularly in the
burgeoning middle market, is motivating
technology vendors to sell their products
through the value-added channel. Given these
market forces, management believes that
value-added resellers such as Osage will be
well positioned to capitalize on anticipated
growth in the industry.
Strategic Objectives: Given the size and highly fragmented
composition of the industry, the Company
believes there is an opportunity to implement a
market roll-up program through the selective,
strategic acquisitions of other companies with
complementary businesses in a revenue range of
$5 million to $15 million. Management believes
that companies in this range of revenues may be
receptive to the Company's acquisition program
as often they are too small to be identified as
acquisition targets of larger public companies
or to independently attempt their own public
offering. In particular, the Company intends to
focus its acquisition strategy on candidates
which have strong relationships with key
technology vendors, a proven record of
delivering high-quality network computing
solutions, a customer base of large and
mid-sized companies and which may benefit from
the Company's anticipated access to sources of
financing and long-term growth strategy.
Although management is confident that following
the completion of this Offering the Company
will be in a position to commence its
acquisition program, any such acquisition
program will likely be dependent upon, among
other factors, the Company's ability to secure
additional financing through the sale of debt
or equity securities, and the development of an
active trading market for the Company's
securities, neither of which can be assured.
See "RISK FACTORS."
9
<PAGE>
The Offering: Shares Being Offered: This Memorandum relates
to the offer and sale of 122 shares of the
Company's Series A $3.00 Convertible Preferred
Stock at a Purchase Price of $30,000 per share.
The closing of the Offering is conditioned upon
the consummation of the Merger.
Terms of Series A Shares:
o Conversion. The holder is entitled to convert
the principal amount of the purchase price of
the Series A Shares into shares of the
Company's Common Stock at a conversion rate
of $3.00 per share, subject to adjustment.
o Dividends. The holders of the Series A
Shares are not entitled to any dividends.
o Liquidation Preference. The Series A Shares
shall have a liquidation preference of
$30,000 per Share, senior to the interests of
the holders of the Common Stock. The holders
of the Series A Shares will share ratably
with the holders of the Series B Shares any
liquidation preferences.
o Voting Rights. Prior to conversion, the
holders of the Series A Shares shall have no
voting rights.
o Redemption. Commencing six months from the
date of the Closing of this Offering, all,
but not less than all, of the Series A Shares
may be redeemed at any time by the Company at
its sole discretion of $3.00 per Series A
Share upon thirty (30) days' written notice
to the holders (the "Redemption Date"),
provided that at the time of the Redemption
Notice: (i) the average of the closing bid
and ask prices of the Company's Common Stock
shall have exceeded $5.00 for the twenty (20)
trading days preceding the date of the
Redemption Notice; (ii) the shares of Common
Stock issued or issuable upon conversion of
the Series A Shares are subject to an
effective Registration Statement; and (iii)
the Placement Agent shall have waived any
restrictions upon the resale of such shares.
See "Restrictions Upon Resale." The holders
of the Series A Shares shall be entitled to
exercise their conversion option during said
thirty (30) day notice period.
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<PAGE>
o Registration Rights. The Company shall use
its best efforts to prepare and file a
registration statement as soon as practicable
following the Offering registering the
potential resale of the shares of Common
Stock issuable upon conversion of the Series
A Shares. See "DESCRIPTION OF
SECURITIES-Registration Rights."
Capitalization:
Total number of shares of Common
Stock outstanding before Offering: 3,720,000
Total number of shares of Common
Stock outstanding after the
Offering:(1) 6,540,000
---------------------
(1) Assumes the conversion of the Series A
Shares into shares of Common Stock at a
conversion rate of $3.00 per share of Common
Stock. Under certain conditions, the conversion
price may be subject to reduction. See
"DESCRIPTION OF SECURITIES." Also assumes the
issuance of 1.1 million shares of Common Stock
and the conversion of $1.5 million face amount
of Series B Shares into 500,000 shares of
Common Stock in connection with the Merger.
Does not include the issuance of 800,000 shares
upon the exercise of certain options issued as
part of the purchase price.
----------------------
Use of Proceeds: The Company intends to use the estimated net
proceeds of approximately $3,194,000 of this
Offering for the repayment of existing
indebtedness, future acquisitions, payment of
the cash component of the purchase price in the
Merger and for general working capital
purposes. See "USE OF PROCEEDS."
Financial Information: Attached as Exhibit "B" are the financial
statements (audited) of Osage for the fiscal
years ended December 31, 1996 and 1995 and
unaudited interim financial statements for the
ten months ended October 31, 1997.
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<PAGE>
Attached as Exhibit "C" are the Annual Report
on Form 10-KSB of Pacific Rim for the fiscal
year ended December 31, 1996 and the Quarterly
Report on Form 10-QSB of the period ended June
30, 1997.
Risk Factors: An investment in the Series A Shares involves
a high degree of risk. The Series A Shares are
a suitable investment only for those investors
who can afford a total loss of their
investment. Prospective investors are strongly
encouraged to review carefully both "RISK
FACTORS" and "SUITABILITY STANDARDS - WHO
SHOULD INVEST."
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<PAGE>
THE COMPANY
Background
Pacific Rim Entertainment, Inc. (the "Company" or "Pacific Rim") is
presently an inactive public corporation, which was organized under the laws of
Delaware in 1992. From 1992 through 1996, the Company had been engaged
principally in the animated film production business. After several years of
losses following its initial public offering in 1993, the Company suspended its
business operations in 1996 and has since then remained inactive while seeking
to identify business opportunities that would capitalize on its status as a
public corporation through a strategic business combination with a private
operating company. As a consequence of the recently executed Merger Agreement,
the Company has agreed to acquire Osage Computer Group, Inc. ("Osage"), an
Arizona-based company which provides client/server information technology
products, services and support. See "Historic Operations of Osage." Attached
hereto as Exhibit "C" is the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1996 and the Quarterly Report on Form 10-QSB for
the period ended June 30, 1997.
Historic Operations of Osage
Founded in 1989, Osage is a provider of network computing solutions.
Osage markets a broad range of information technology services intended to
transform discrete hardware and software components into an integrated system.
Osage offers integration services which assist customers in dealing with issues
during the entire life cycle of their systems; including system architecture and
design, product acquisition, implementation, ongoing operational support, and
evolutions in technology. Osage provides solutions to complex information
technology problems including system availability and performance,
UNIX/Microsoft Windows NT integration, client server database implementation,
electronic mail and messaging, system and network security, and
Internet/intranet and world wide web application deployment.
Osage's ability to deliver integrated solutions has enabled it to
establish a customer base ranging from relatively small companies to Fortune 500
and other mid-sized companies. Osage's customers represents a broad spectrum of
the industries in southwestern United States including semi-conductor
manufacturing, publishing, hospitality, distribution, military, education, and
state and local government.
Management believes that its success is attributed principally to its
technical expertise, marketplace relationships, vendor alliances, direct sales
strategy and customer service orientation. The Company intends to grow primarily
through the acquisition of other value-added reseller businesses with similar
characteristics to Osage, and leveraging the common pool of resources created by
such acquisitions.
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<PAGE>
Industry Background
Dealing with the forces of change such as eroding profit margins,
shrinking business cycles and increased global competition has become a central
issue for businesses. Organizations of all sizes have recognized information
technology as being a competitive advantage in coping with such market forces.
These organizations have also realized that systems built on networked
technology, including client server databases, IP based networks and the
Internet/intranet systems can be more effective in enabling this competitive
advantage than are legacy systems built on older technology.
The increasingly complex nature and rapid change in technology has
created increased demand for companies with the expertise to design, integrate,
implement and manage the technology. Growing numbers of technology users and
vendors are turning away from direct sales towards the indirect value-added
channel consisting of systems integrators and value-added resellers such as
Osage. The total estimated market for the "value-added channel", including
hardware, software, systems integration services and support, increased from $90
billion in 1994 to $130 billion in 1996. Management believes that as technology
users and technology vendors increase their reliance on the "value-added
channel" the market will continue to grow.
Management further believes that the relationships of value-added
resellers with certain industry-leading technology vendors provide them with
access to resources such as technical training, technical documentation,
evaluation units and leading-edge industry information. These resources
represent significant value to large and mid-sized companies that typically do
not maintain such in-house resources. Management also believes that reduced
cost, increased productivity and broader sales coverage, particularly in the
burgeoning middle market, is motivating technology vendors to sell their
products through the value-added channel. Given these market forces, management
believes that value-added resellers such as Osage will be well positioned to
capitalize on anticipated growth in the industry.
Business Strategy
The Company's objective is to provide clients with comprehensive
information technology products, services and support. Management plans to
achieve this goal through a combination of growth through acquisition and
accelerated internal growth. After the Merger, the Company intends to carryout
the following strategies.
Expanding New and Existing Markets through Acquisitions: The Company
contemplates pursuing an aggressive acquisition strategy to enhance its position
in its current market and acquire operations in new markets. In particular, the
Company will focus its acquisition strategy on candidates that have a proven
record of delivering high-quality technical services, a customer base of large
and mid-sized companies and which may benefit from the Company's anticipated
access to sources of financing and long-term growth strategy. Upon completion of
the Merger, the Company expects to create a public trading market for its
securities and utilize the resources readily available to public companies.
Management believes that after the Merger, the Company will have many
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<PAGE>
acquisition opportunities in a fragmented market and be able to offer the
management of these acquisition candidates an opportunity to continue operating
their respective businesses as well as to participate in a company with a growth
strategy and liquid trading market for its securities. The Company looks forward
to expanding into new and existing markets by acquiring well-established
value-added resellers that are leaders in their regional markets. Given the size
and highly fragmented composition of the industry, the Company believes that
there is an opportunity to implement a market roll-up program within the
value-added reseller industry.
Accelerating Internal Growth: A key component of the Company's strategy is to
accelerate internal growth of Osage's existing business as well as the existing
business of its acquisitions. The Company expects that internal growth can be
accelerated by:
Applying Additional Resources to Current Operations. The value-added
reseller organizations which the Company expects to acquire are
primarily small, privately held companies. The Company intends to
facilitate internal growth of these acquisitions by providing them with
access to the Company's capital resources and technical expertise in
product procurement and integration services.
Leverage Additional Opportunity Through the Collective Skill Set. While
the collective skills of the acquired companies may have a high degree
of overlap there will also be technical and market areas which are
unique to particular companies. The Company intends to create an
environment in which each of the acquired companies is able to
cross-leverage their unique skills and markets for the benefit of the
entire organization. Management considers that this will result in
increased operating efficiencies without proportionate increases in
administrative costs.
Increase Services Revenues. After the Merger, the Company plans to
implement a marketing initiative designed to increase services revenues
through the development of standardized service packages. The Company
intends to create standardized service packages in several areas,
including systems administration, database administration, security and
systems and network performance tuning. Management believes that such
service packages will make the Company's products and services more
cost-effective and accessible to customers as well as increase the
Company's profit margins.
Development of Identity. After the Merger, the Company intends to
produce marketing materials and develop the market image and reputation
of "Osage Computer Group, Inc." as a "national organization" of
regional companies, with the goal of providing business opportunities
which would not normally be available to a regional company.
Acquisition Strategy
The Company believes there are many attractive acquisition candidates
in its industry because of the highly fragmented composition of the marketplace,
the industry participants' need for capital and their owners' desire for
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liquidity. The Company intends to pursue an aggressive acquisition program to
consolidate and enhance its position in its current market and to acquire
operations in new markets.
Initially, the Company intends to expand its business through
selective, strategic acquisitions of other companies with complementary
businesses in a revenue range of $5 million to $15 million. Management believes
that companies in this range of revenues may be receptive to the Company's
acquisition program as often they are too small to be identified as acquisition
targets of larger public companies or to independently attempt their own public
offerings. In particular, the Company intends to focus its acquisition strategy
on candidates which have a strong relationship with key technology vendors, a
proven record of delivering high-quality network computing solutions, a customer
base of large and mid-sized companies and which may benefit from the Company's
anticipated access to sources of financing and long-term growth strategy
Management believes that this Offering will position the Company to commence
such an acquisition program.
Upon completion of this Offering, management anticipates that a public
trading market may commence for its securities and that additional capital
resources may be secured through the sale of debt or equity securities, even
though there can be no assurances that a trading market will develop or that
additional capital resources will become available to the Company. See "RISK
FACTORS."
The Company believes it can successfully implement its acquisition
strategy due to: (i) the highly fragmented composition of the market; (ii) its
strategy for creating a national company, which should enhance the acquired
company's ability to compete in its local and regional market through an
expansion of offered services and lower operating costs; (iii) the additional
capital available for internal growth; (iv) the potential for increased
profitability as a result of the Company's centralization of certain
administrative functions, greater purchasing power, and economies of scale; (v)
its financial strength and visibility as a public corporation; (vi) a
decentralized management strategy, which should, in most cases, enable the
acquired company's management to remain involved in the operation of the
Company; and (vii) the ability to utilize its experienced management in
identifying acquisition opportunities.
A "platform acquisition" is defined by management as one that creates a
significant presence for the Company in a new geographic market. The Company
intends, where possible, to make a platform acquisition in a targeted market by
acquiring an established, high quality local company. The Company will retain
the management as well as the operating, sales and technical personnel of a
platform acquisition to maintain continuity of operations and customer service.
The Company will seek to increase an acquired company's revenues and improve its
profitability by implementing the Company's operating strategies for internal
growth.
A "tuck-in" acquisition on the other hand will more likely occur in an
existing market, will be smaller than a platform acquisition and will enable the
Company to offer additional services or expand into secondary markets within the
region already served. When justified by the size and business line of an
existing market acquisition, the Company expects to retain the management, along
with the operating, sales and technical personnel of the acquired company
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while seeking to improve that company's profitability by implementing the
Company's operating strategies. The Company also contemplates effecting tuck-in
acquisitions of small companies or individual systems integration operations in
existing markets. In most instances, operations acquired by tuck-in acquisition
can be integrated into the Company's existing operations in that market,
resulting in elimination of duplicative overhead and operating costs. The
Company currently has no binding agreements to effect any acquisition and its
not now engaged in any active negotiations to acquire any company. There can be
no assurance that the Company's acquisition program will be successful, and the
Company cannot predict when, if ever, it will make an acquisition.
Products and Services
Osage is a provider of network computing solutions. Osage markets a
broad range of information technology services intended to transform discrete
hardware and software components into an integrated system. Osage offers
integration services which assist customers in dealing with issues during the
entire life cycle of their systems, including system architecture and design,
product acquisition, implementation, ongoing operational support, and evolutions
in technology. Osage provides solutions to complex information technology
problems including system availability and performance, UNIX/Microsoft Windows
NT integration, client server database implementation, electronic mail and
messaging, system and network security, and Internet/intranet and world wide web
application deployment.
Products
Osage's ability to deliver integrated solutions is principally
attributable to its technical expertise and its value-added reseller agreements
with industry-leading vendors of information technology products such as Sun
Microsystems, Oracle and Netscape. To date, most of its revenues have been
derived from the resale of products from these vendors. Additional sales are
accrued to small, niche vendors whose products augment those of the three major
vendors in areas such as backup management, security and tape libraries. Osage
has also established relationships with leading aggregators of computer hardware
and software products. These agreements enable Osage to provide its clients with
competitive product pricing, ready product availability and services such as
electronic product ordering, product configuration and testing and product
warehousing and delivery.
Systems Integration
Osage's strategy is to combine market-leading products with its highly
skilled technical personnel to deliver comprehensive information technology
solutions to new and existing clients. Osage believes that its ability to
provide a broad range of technical services and product sales, coupled with the
strength of its customer base positions it to grow in the information
technologies services marketplace.
The services which Osage offers assist customers in dealing with issues
across the entire life cycle of their systems architecture and design, product
acquisition, implementation, on-going operational support, and end of life
technology refresh planning. Osage provides solutions to complex information
technology problems including system availability and performance,
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UNIX/Microsoft Windows NT integration, client server database implementation,
electronic mail and messaging, system and network security, and
Internet/intranet and world wide web application deployment.
After the Merger, the Company plans to implement a marketing initiative
designed to increase services revenues through the development of standardized
service packages. The Company intends to create standardized service packages in
several areas, including systems administration, database administration,
security and systems and network performance tuning. Management believes that
such service packages will make the Company's products and services more
cost-effective and accessible to customers as well as increase the Company's
profit margins.
Osage's staff of systems engineers is a vital component of its ability
to deliver a value-added solution to the customer and makes Osage an attractive
business partner. Osage utilizes an "augment and mentor" approach to the
delivery of professional services. It augments a customer's internal staff with
systems engineers to accomplish the more complex aspects of the project in the
near term and thereafter the systems engineers mentor the customer's staff from
time to time during normal, ongoing operations. This allows Osage to command
premium rates for its consultants and allows the customer to operate more
efficiently and economically with a reduced staff. Management believes that this
enhances Osage's value as a business partner by offering the customer a
value-added alternative to outsourcing the customer's operations on a permanent
basis.
Osage focuses on ensuring that its technical staff achieve and maintain
the highest levels of authorization available for its product set.
Management believes that as many large and mid-sized corporations
continue to increase their utilization of networked information technology they
will increase their reliance on business partners that deliver reliable,
cost-effective system solutions. Management believes that its highly experienced
systems engineers will enable the Company to be such a partner.
Sales and Marketing
Osage currently focuses its marketing and sales efforts on referrals
from vendors and major corporations through its direct sales and marketing
staff. Osage believes that its direct sales and support, including having
salespersons serve as client-relationship managers, lead to better account
penetration and management, better communications and long-term relationships
with its clients and more opportunities for follow-on sales of products and
services to its existing client base. To date, Osage has focused its sales and
marketing efforts on large and mid-sized customers within the southwestern
United States, principally Arizona.
As part of its business strategy, after the Merger the Company intends
to expand the size of Osage's sales and marketing staff. Historically, Osage has
conducted limited marketing. Most efforts have been through referrals from
vendors and direct sales calls made by individual sales personnel. Each
salesperson's compensation is commission-based. Sales personnel derive sales
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leads from individual business contacts, the marketing department's efforts and
from customer referrals from suppliers and vendors, many of whom receive
requests from clients seeking an authorized reseller to design and install their
new systems.
Osage benefits from the name recognition of the products that it sells
and has successfully utilized its relationships with vendors and manufacturers
to build strong product and service sales. Management expects to continue to
utilize these relationships. Additional business opportunities with some of its
major clients may develop as a result of the Merger and the implementation of
the Company's acquisition strategy.
Osage intends to hire additional sales and service personnel as its
business grows. Osage's sales and marketing focus continues to be
technology-driven, with systems engineers participating with direct sales
personnel as part of a team approach to sales and marketing of products and
services. Sales personnel also participate in training programs designed to
introduce new products and new versions of existing products and to provide
industry information and sales technique instruction. Management believes that
it maintains a competitive advantage by continually educating its sales force on
the latest technologies and through the increased role of high-level engineers
in the sales process.
In addition, management has plans to develop a marketing department
dedicated to facilitating the sales process. External marketing efforts would
continue to include brochures, direct mail programs, formulation of marketing
strategies designed to create new business opportunities, development of sales
presentation materials and follow-up of prospects introduced to Osage by its
existing clients and vendors.
Competition
The information technology value-added channel is comprised of a large
number of participants and is subject to rapid change and intense competition.
The Company will face competition from system integrators, value-added
resellers, local and regional network services firms, telecommunications
providers, network equipment vendors and computer system vendors, many of which
have significantly greater financial, technical and marketing resources and
greater name recognition and generate greater revenue than Osage does. Osage
expects to continue to face, additional competition from new entrants into its
markets. Increased competition may result in price reductions, fewer client
projects, underutilization of Company employees, reduced operating margins and
loss of market share, any of which could materially adversely effect its
business, operating results and financial condition. There can be no assurance
that after the Merger the Company will be able to compete successfully against
current or future competitors. The failure of the Company to compete
successfully would have a material adverse effect on its business, operating
results and financial condition.
Facilities
Upon completion of the Merger, the executive offices of the Company
will be located at the historic headquarters of Osage in Phoenix, Arizona. Osage
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will continue to lease approximately 8,900 square feet of space at an annual
rate of $138,000, payable at $11,500 monthly. The lease expires in August 1999.
Osage also leases 1,000 square feet of space in Tucson, Arizona at an annual
rate of $12,000 payable at $1,000 monthly. That lease expires in June 2002.
Personnel
Upon completion of the Merger, the Company will have approximately 15
full-time employees. Six of these employees are highly skilled engineers most of
whom are located on customer premises. The Company anticipates that it will
utilize contract labor to complete its staffing requirements after the Merger.
None of the Company's employees are, or upon the Merger will become, subject to
a collective bargaining agreement.
Legal Proceedings
The Company is currently not a party to any material litigation.
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DESCRIPTION OF MERGER
On November 5, 1997, Pacific Rim and PR Acquisition Corp., a Delaware
corporation and newly formed, wholly-owned subsidiary of Pacific Rim (the "Sub")
entered into a Merger Agreement with Osage. Pursuant to the Merger Agreement,
Pacific Rim will acquire 100% of the outstanding capital stock of Osage through
a merger of Osage with and into the Sub. The purchase price for the acquisition
of 100% of the stock of Osage, payable by Pacific Rim to the stockholders of
Osage at the closing of the Merger, consists of (i) $500,000 in cash, (ii)
900,000 newly-issued shares of Common Stock of Pacific Rim (subject to upward
adjustments in the event that the price of Pacific Rim's stock falls below $2.00
per share during the 18 month period following the Merger; (iii) 200,000
newly-issued shares of Common Stock; (iv) options to purchase 800,000 shares of
Common Stock; and (v) approximately $1.5 million face amount of Series B Shares,
which are convertible into 500,000 shares of Common Stock (subject to certain
adjustments in the event that certain performance criteria are not met by the
Company subsequent to the Merger). The options described in subparagraph (iv)
above shall have a term of six years and an exercise price equal to the lower
of: (i) $3.00 per share; or (ii) the average of the closing bid and ask price of
the Company's Common Stock on the principal exchange, automated quotation system
or over-the-counter market for the 15 trading days prior to the date upon which
any segment of the options vest. The options vest pursuant to certain
performance criteria set forth in the Merger Agreement. The Merger Agreement is
attached hereto as Exhibit "F." See "DESCRIPTION OF SECURITIES - Performance
Criteria."
In connection with the Merger, Pacific Rim also agreed to enter into
certain employment agreements with Messrs. Leadbeater, Olson and Glynn. Pursuant
to the employment agreement with Mr. Glynn, he will be granted options to
purchase 100,000 shares of Common Stock. See "MANAGEMENT - Employment
Arrangements and Stock Options." Pacific Rim and the historic stockholders of
Osage have agreed to enter into certain voting arrangements pursuant to which
the holders of the Series B Shares shall have voting control over up to 3.1
million shares of Common Stock and the election of a majority of the Board of
Directors. See "MANAGEMENT Directors and Executive Officers and Material Voting
Arrangements." In addition, prior to the Merger, Osage will be entitled to make
a distribution to pay accrued but unpaid bonuses to Osage employees in an amount
not to exceed $400,000.
Prior to the Merger certain conditions precedent must be satisfied,
including, but not limited to: (i) the completion of this Offering; (ii) the
settlement and discharge of the Company's prior indebtedness such that the
Company shall have at least $2,550,000 in cash on deposit after this Offering;
and (iii) each of the parties to the Merger shall complete a due diligence
review. Effective upon completion of the Merger, the Sub shall assume the
historic operations of Osage, and change its name to "Osage Computer Group,
Inc."
The Merger is scheduled to close on December 15, 1997, however, such
closing may be extended by mutual agreements of the parties. The Offering is
intended to close concurrently with the Merger and the proceeds of the Offering
shall only be released from escrow upon the completion of the Merger. If the
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Merger is not completed by its terms, the Placement Agent shall return all funds
to the respective subscribers and all Series A Shares held in escrow in respect
thereof will be canceled. See "RISK FACTORS."
THE OFFERING
This Memorandum relates to a "best efforts" offering to be undertaken
by the Company of 122 shares of its newly-designated Series A $3.00 Convertible
Preferred Stock (the "Series A Shares") at a price of $30,000 per Series A
Share. The Company has the right, in its sole discretion, to increase the size
of this Offering without the consent of or notification to the existing
subscribers hereto.
The Series A Shares subject to the Offering will be offered and sold
only to "accredited investors" who satisfy certain suitability standards. See
"SUITABILITY STANDARDS - WHO SHOULD INVEST." The minimum subscription shall be
for two Series A Shares. The Company has the right, in its sole discretion, to
increase or decrease the minimum subscription amount. The Series A Shares shall
be offered through the placement agent designated by the Company (the "Placement
Agent") pursuant to a placement agreement under which the Placement Agent will
undertake to use its best efforts to sell the Series A Shares. The Placement
Agent will receive selling commissions of up to 10% of the price of the Series A
Shares. The Placement Agent may select other selling agents who are registered
with the Securities and Exchange Commission and are members in good standing of
the National Association of Securities Dealers, Inc. to participate in placing
the Series A Shares and who shall be reallowed all or a portion of the sales
commissions payable to the Placement Agent.
The Series A Shares will be issued and sold pursuant to a Securities
Subscription Agreement the form of which is attached hereto as Exhibit "A"
between the Company and each subscriber (the "Subscription Agreement"). A
Subscription Agreement is not binding on the Company unless and until accepted
by the Company, which acceptance or rejection is in the Company's sole
discretion. The Company may allocate to the subscriber fewer than the number of
Series A Shares for which he has subscribed. In the event a subscription is not
accepted by the Company, the proceeds of such subscription will be promptly
refunded in full to the subscriber, without the deduction of any costs and
without interest.
All funds received for subscriptions for Series A Shares will be placed
by the Placement Agent in a separate escrow account in an independent financial
institution no later than 12:00 noon of the next business day following receipt
until such time as the Offering is subscribed for and the closing conditions
under the Merger have been met.
Upon acceptance by the Company of subscriptions for 122 Series A
Shares, the Company shall hold the closing (the "Closing") and at such time
shall admit as stockholders all subscribers whose subscriptions have been
received and accepted. The funds representing all subscriptions will be released
from escrow only upon the effectiveness of the Merger to be used for the
purposes set forth in this Memorandum. Upon effectiveness of the Merger, the
Series A Shares subscribed for shall be issued to the respective subscribers.
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Subscriptions for the 122 Series A Shares must be received within the
"Offering Period" which shall terminate upon the closing date of the Merger,
which is presently scheduled for December 15, 1997, or such later date as the
parties to the Merger Agreement shall agree, but in no event later than February
15, 1998. If the Offering is not completed prior to the termination of the
Offering Period or the Merger shall not be completed, the Company shall return
all funds to the respective subscribers without the deduction of any costs and
without interest within 15 days after the termination of the Offering and cancel
all Series A Shares held in the escrow account in respect thereof.
The Series A Shares and the shares of Common Stock underlying the
Series A Shares are "restricted securities" as that term is defined in Rule 144
promulgated under the Securities Act and may not be sold except in compliance
with said Rule pursuant to registration under the Securities Act or pursuant to
exemption therefrom.
The Company has agreed that as soon as practicable after the Merger, it
will prepare and file, with the Securities and Exchange Commission, and use its
best efforts to have declared effective, a Registration Statement pursuant to
which it shall register the potential resale of the shares issued in connection
with the Merger and the shares issuable upon conversion of the Series A Shares.
See "DESCRIPTION OF SECURITIES - Registration Rights."
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RISK FACTORS
An investment in the Series A Shares involves a high degree of risk.
The Series A Shares are a suitable investment only for those investors who can
afford a total loss of their investment. The following is a list of risk factors
which each investor should carefully consider before making a decision to
purchase Series A Shares:
1. Risks Related to Acquisition Strategy. Once additional financial
resources are available to it, the Company intends to grow primarily through the
acquisition of additional value-added reseller businesses. Increased competition
for acquisition candidates may develop, in which event there may be fewer
acquisition opportunities available to the Company as well as higher acquisition
prices. There can be no assurance that the Company will be able to identify,
acquire or profitably manage additional businesses or successfully integrate
acquired businesses, if any, into the Company without substantial costs, delays
or other operational or financial problems. Further, acquisitions involve a
number of risks, including possible adverse effects on the Company's operating
results, diversion of management resources, failure to retain key personnel,
risks associated with unanticipated liabilities and amortization of acquired
intangible assets, some or all of which could have a material adverse effect on
the Company's business, financial condition and results of operations.
Performance of, or other problems at, a single acquired company could have an
adverse effect on the Company's national sales and marketing initiative. In
addition, there can be no assurance that the Company or other value-added
reseller businesses acquired in the future will achieve anticipated revenues and
earnings.
2. Need for Additional Financing; Risks Related to Acquisition
Financing. Upon completion of this Offering and the Merger, management believes
that the Company will have sufficient capital to initiate its acquisition
strategy in the near term. However, it is anticipated that in order to pursue
the Company's acquisition strategy in the long term, the Company will continue
to require additional financing, which the Company intends to obtain through a
combination of traditional financing, the issuance of its shares and the
placement of debt and equity securities. Provided the Merger occurs and a liquid
trading market develops, the Company intends to finance some portion of its
future acquisitions by using shares of its Common Stock for all or a substantial
portion of the consideration to be paid. In the event that the Common Stock does
not attain or maintain a sufficient market value, or potential acquisition
candidates are otherwise unwilling to accept Common Stock as part of the
consideration for the sale of their businesses, the Company may be required to
utilize more of its cash resources, if available, in order to initiate and
maintain its acquisition program. If the Company does not have sufficient cash
resources, its growth could be limited unless it is able to obtain additional
capital through debt or equity financings.
3. Dilution Upon Merger. On a pro forma basis, assuming the completion
of the Offering, the Company would have net tangible book value of approximately
$3.57 million or $.55 per share, on a fully diluted basis. "Full dilution"
assumes that all of the Series A Shares and the Series B Shares are converted
into Common Stock. Accordingly, the investors in this Offering will incur an
immediate substantial dilution of approximately $2.45 per share in their
investment. After the Merger, the Company may still require additional financing
to fund its acquisition strategy which may entail the issuance of additional
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shares of Common Stock or common stock equivalents, which would have the effect
of further increasing the number of shares outstanding. See "Need for Additional
Financing; Risks Related to Acquisition Financing." In connection with other
business matters deemed appropriate by the Company's management, there can be no
assurance that the Company will not, in fact, undertake the issuance of more
shares of Common Stock without notice to the then existing stockholders. This
may be done in order to, among others, facilitate a business combination,
acquire assets or stock of another business, compensate employees or consultants
or independent insurance agents or for other valid business reasons in the
discretion of the Company's Board of Directors.
4. Substantial Reliance on Key Customers. Osage's customer base has
been and continues to be highly concentrated, with its top customer accounting
for 46% and 66% of net sales in the fiscal year ended December 31, 1996 and the
ten months ended October 31, 1997, respectively. Based upon historical and
recent results and existing relationships with customers, the Company believes
that a substantial portion of its net sales and gross profits will continue to
be derived from sales to the Company's largest customers. There are no ongoing
written commitments by such customers to purchase products from the Company. The
Company has service contracts with many of its large customers to provide
systems integration and other services. In general, such service contracts are
project-based and terminable upon relatively short notice. There can be no
assurance that the Company's service customers will continue to enter into
service contracts with the Company or that existing contracts will not be
terminated. All product sales by the Company are made on a purchase order basis.
A significant reduction in orders from any of the Company's largest customers
could have a material adverse effect on the Company's results of operations.
There can be no assurance that the Company's largest customers will continue to
place orders with the Company or that orders by such customers will continue at
their previous levels.
5. Dependence on Key Personnel. The success of the Company for the
foreseeable future will depend largely on the continued services of its key
executive officers and leading salespersons. The Company is particularly
dependent upon Jack Leadbeater, Chief Executive Officer of the Company and David
Olson, Chief Operating Officer of the Company, because of their industry
knowledge, marketing skills and relationships with major vendors and customers.
As part of the Merger, they will enter into an employment agreement which
contains a non-competition covenant that extends for a possible period of up to
12 months following termination of employment. After the Merger, the Company
will maintain, and is the beneficiary of, life insurance policies each in the
amount of $250,000 on the lives of Messrs. Leadbeater and Olson. There can be no
assurance that the departure of such key personnel would not have a material
adverse effect on the Company's results of operations. Furthermore, there can be
no assurance that the Company will be successful in attracting and retaining the
personnel it requires to conduct its operations or to meet its future needs to
accommodate growth successfully.
6. Competitive Market for Technical Personnel. The Company's success
will depend in part on its ability to attract, hire, train and retain qualified
managerial, technical and sales and marketing personnel, particularly for
systems integration and support services. Competition for such personnel is
intense. There can be no assurance that the Company will be successful in
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attracting and retaining the technical personnel it requires to conduct and
expand its operations successfully. The Company's results of operations could be
materially adversely affected if the Company were unable to attract, hire, train
and retain qualified personnel.
7. Dependence on Suppliers. The Company's business will depend upon an
adequate supply of hardware, software products and computer systems at
competitive prices and on reasonable terms for resale by the Company.
Consequently, the Company's results of operations are dependent, in part, upon
the demand for, price of, technical capabilities of and quality of the products
available for resale. The Company's principal suppliers will be Sun
Microsystems, Oracle, Netscape and Microsoft.
To mitigate against a risk of product shortage, the Company will
procure some hardware and software products from multiple sources for the
products its sells. Some products are available from only a single source, as
manufacturers elect to provide direct relationship with system integrators.
Osage has supply contracts with its vendors and purchases hardware and software
products, and computer systems on a purchase order basis. As a result, there can
be no assurance that such products will continue to be available as required by
the Company at prices or on terms acceptable to the Company.
Although Osage has not experienced significant problems with its
suppliers in the past, there can be no assurance that such relationships will
continue or that, in the event of a termination of its relationships with its
suppliers, it would be able to obtain alternative sources of supply for most
products without a material disruption in the Company's ability to provide
products to its customers. Any material disruption of the Company's supply of
products would have a material adverse effect on the Company's results of
operations.
8. Dependence on Continued Authorization to Resell and Provide
Manufacturer-Authorized Services. The Company's future success in both product
sales and services and support offerings will depend largely on its continued
status as an approved reseller of products and its continued authorization as a
service provider. With respect to many of the Company's hardware and software
product sales, the Company maintains the highest levels of sales and service
authorizations with many industry-leading manufacturers, including Sun
Microsystems, Oracle, Netscape and Microsoft. Without such sales and service
authorizations, the Company would be unable to provide the range of products and
services currently offered by the Company. In general, the agreements between
the Company and such manufacturers include termination provisions ranging from
immediate termination to termination upon 90 days prior written notice. In
addition, many of such agreements are based upon the Company's ability to sell a
certain volume of manufacturers product. There can be no assurance that such
manufacturers will continue to authorize the Company as an approved reseller or
service provider.
9. Arbitrary Offering Price. The offering price of the Series A Shares
offered hereby has been arbitrarily determined by Pacific Rim without the
benefit of an arm's-length negotiation and is not based upon
generally-recognized criteria, such as earnings, price per share, net book
value, etc. There can be no assurances that the offering price is representative
of the actual value of the Series A Shares.
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10. Dividends. No dividends have been paid by Pacific Rim since
inception and the payment of dividends is not contemplated in the foreseeable
future. The payment of future dividends will be directly dependent upon the
earnings of the Company, its financial needs and other similarly unpredictable
factors. Earnings, if any, are expected to be retained to finance and develop
the Company's business.
11. No Legal or Tax Advice. The Purchasers hereof should consult with
their respective counsel, accountant or business adviser as to legal, tax and
related matters concerning investment in the Series A Shares offered hereby. An
investment in the Series A Shares may involve certain material federal and state
tax consequences.
12. Registration Rights; Restrictions Upon Resale. The Series A Shares
and the Common Stock issuable upon conversion of the Series A Shares have not
been registered under the Securities Act or any state securities or blue-sky law
and subscribers may not sell or otherwise transfer such securities except
pursuant to registration under the Securities Act and any applicable state
securities laws or exemptions therefrom. Because of such restrictions, a
subscriber for the Series A Shares must bear the economic risks of such
investment for an indefinite period of time.
The Company has offered certain registration rights to the purchasers
of the Series A Shares included within this Offering. See "DESCRIPTION OF
SECURITIES - Registration Rights." The Company's obligation in this regard,
however, is to facilitate the effectiveness of such a Registration Statement
with the Securities and Exchange Commission as promptly as possible. There can
be no absolute assurance as to when effectiveness of such Registration Statement
will be granted, if at all. In connection with such registration, the Company
shall have no obligation: (i) to assist or cooperate in the offering or
disposition of such securities; (ii) to indemnify or hold harmless the holders
of such securities; (iii) to obtain a commitment from an underwriter relative to
the sale of such securities; or (iv) to include such securities within an
underwritten offering undertaken by the Company.
Notwithstanding the registration rights offered to purchasers of the
Series A Shares, for a period of eighteen months from the closing of the Merger,
the Series A Shares and the Common Stock issuable upon conversion of the Series
A Shares may not be transferred, sold or otherwise disposed of without the prior
written consent of the Placement Agent. See "DESCRIPTION OF SECURITIES -
Restrictions Upon Resale." There can be no assurances that the Placement Agent
will consent to the resale of such shares prior to the termination of such
period. A subscriber must bear the economic risks of such investment for at
least such eighteen-month period. There can be no assurances that a trading
market will exist for such shares upon the termination of such restrictions upon
sale.
13. No Public Market. Although, the Company's Common Stock is listed
for trading on the OTC Electronic Bulletin Board, there is currently no
significant public trading market for the common stock of Pacific Rim. Although
the Company has agreed to register the resale of some portion of the shares of
Common Stock issuable upon conversion of the Series A Shares as soon as
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<PAGE>
practicable after the Closing of the Offering, there can be no assurances that a
regular trading market will ever develop for the Common Stock of the Company.
14. Substantial Voting Power of Principal Stockholders. Upon completion
of this Offering, the historic stockholders of Osage will have voting control
over up to 3.1 million shares of Common Stock. In addition, pursuant to the
terms of the Merger Agreement, the historic stockholders of Osage as the holders
of the Series B Shares are entitled to elect a majority of the Board of
Directors subject to certain performance criteria. See "Material Voting
Arrangements."
15. Intense Competition. The Company encounters intense competition
from numerous other systems integration companies. Many of the Company's
competitors are larger and have greater financial and other resources and are
better known to consumers than the Company. There can be no assurance that the
Company will be able to continue to compete successfully in its markets.
16. Unaudited Financial Statements. The unaudited financial statements
of Osage for the ten months ended October 31, 1997 are attached hereto as
Exhibit "B." The unaudited financial statements of Pacific Rim for the six
months ended June 30, 1997 are attached hereto as Exhibit "C." Although
management believes that the unaudited financial statements included therein
fairly present the financial position of such companies as of such date, no
assurance can be given that the Company's independent auditors in connection
with the preparation of an audit of such period may not recommend adjustments to
such financial statements which adjustments may be material.
USE OF PROCEEDS
Pacific Rim estimates that after deducting fixed offering expenses of
$100,000 and selling commissions of up to $366,000, the net proceeds of the
Offering will be approximately $3,194,000.
The Company anticipates that the net proceeds of the Offering will be
retained and utilized as follows: (i) $500,000 for the payment of the cash
portion for the purchase price in the Merger; (ii) $100,000 for expenses
incurred in connection with the Merger; (iii) approximately $450,000 for
repayment of the principal amount of certain existing bridge financing, plus any
interest accrued thereon as of the closing of the Merger; and (iv) the remainder
to be used to finance future growth and the Company's acquisition strategy.
28
<PAGE>
MARKET FOR COMMON STOCK AND
REDEEMABLE WARRANTS AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock and Redeemable Warrants are listed on the
NASDAQ OTC Bulletin Board under the symbols TOON and TOONW, respectively. The
following table sets forth the range of the high and low sale prices as reported
by The NASDAQ Stock Market. These ranges are shown for the fiscal year ended
December 1995. There has been no active trading market for the Company's Common
Stock subsequent to the end of the third quarter of 1995. There has been active
trading market for the Company's Common Stock and Redeemable Warrants subsequent
to the end of the first quarter of 1995.
Common Stock(1)
---------------
High Low
---- ---
1995
- ----
1st Quarter $3.25 $0.625
2nd Quarter 2.75 1.00
3rd Quarter .25 .0625
4th Quarter no quotes no quotes
Redeemable Warrants(1)
----------------------
High Low
---- ---
1995
- ----
1st Quarter $0.125 $0.325
2nd Quarter no quotes no quotes
3rd Quarter no quotes no quotes
4th Quarter no quotes no quotes
- -------------------
(1) All per share data reflect the cumulative effect of a 1 for 10 and a 1
for 20 reverse stock split.
The most recent available closing price for the Common Stock was $.25
as of October 24, 1997. No quotes were available on the Redeemable Warrants.
Record Holders
As of November 24, 1997, there were approximately 150 holders of record
of the Common Stock and approximately 89 holders of record of the Redeemable
Warrants.
Dividends
The Company has never paid any cash dividends on its Common Stock and
has no intention to pay any cash dividends on its Common Stock in the
foreseeable future. The declaration and payment of dividends is subject to the
discretion of the Board of Directors and to certain limitations under the
General Corporation Law of the State of Delaware. The timing, amount and form of
dividends, if any, will depend, among other things, on the Company's results of
operations, financial condition, cash requirements and other factors deemed
relevant by the Board of Directors.
29
<PAGE>
MANAGEMENT
Directors and Executive Officers of the Company
Upon completion of the Merger, the Company's Board of Directors will
consist of five directors, three of whom shall be designees of the holders of
the Series B Shares, one of whom shall be the designee of the Company's present
Board of Directors (the "Pacific Rim Designee") and one of whom shall be the
designee of both groups. The holders of the Series B Shares will have the right
to elect the majority of the Board of Directors. See "DESCRIPTION OF SECURITIES
- - Series B $3.00 Convertible Preferred Stock." For a period of two years after
the Merger, certain transactions, including related party transactions and
modifications of the Merger Agreement, will require the affirmative vote of the
majority of the Board, including the Pacific Rim Designee.
Upon completion of the Merger, the individuals who have agreed to serve
as members of the Board of Directors and executive officers of the Company and
their respective positions with the Company are set forth below:
Name Age Position
---- --- --------
Jack R. Leadbeater 43 Chairman of the Board and Chief Executive
Officer of Pacific Rim and Osage
David S. Olson 40 Director, Chief Operating Officer and
President of Pacific Rim and Osage
Michael G. Glynn 41 Director, Executive Vice President of
Pacific Rim
The Pacific Rim Designee and the remaining member of the Board of
Directors have not yet been determined.
The following is a brief summary of the business experience of the
foregoing directors and executive officers. See "MANAGEMENT - Material Voting
Arrangements" and "RISK FACTORS."
Jack R. Leadbeater
In 1993, Mr. Leadbeater became President of Osage. From 1987 to 1995,
he served as President of DCS Systems, Ltd., a systems integration company
("DCS"), where his responsibilities and accomplishments included the development
of DCS into a systems integration company with revenues in excess of $20 million
per year. From 1983 to 1987, Mr. Leadbeater was employed by MAI Canada Ltd.,
where his responsibilities included the sales and management of a regional
30
<PAGE>
office for this international manufacturer of mini-computers. Mr. Leadbeater is
a graduate of the University of Manitoba, Canada with a Business/Commerce degree
and a major in Marketing.
David S. Olson
In 1993, Mr. Olson became Executive Vice President/General Manager of
Osage. In 1988, he founded a software development company which subsequently was
acquired by DCS in 1989. From 1989 to 1995, Mr. Olson served as Executive Vice
President of DCS. From 1985 to 1988, he was employed by Sun Microsystems Canada
Ltd., where his responsibilities included sales as well as Sun Microsystems'
overall market development in the petroleum exploration market. Prior to joining
Sun Microsystems, Mr. Olson was an Account Manager at Digital Equipment, Canada
where he sold information processing technology to major national accounts in
the petroleum exploration market. Mr. Olson is a graduate of the University of
Calgary, Canada with a Bachelor of Science degree and a major in Computer
Science.
Michael G. Glynn
Mr. Glynn has agreed to join the Company upon the closing of the Merger
as Executive Vice President and Director. He has over twenty years of management
experience in strategic planning, development, sales and marketing in a broad
range of industries. Since July 1997, Mr. Glynn has served as Director of Sales
for the Southwest region of United States for Compuware, a public-traded
software manufacturer. From 1996 to June 1997, Mr. Glynn served as Senior Vice
President and Chief Operating Officer of Prologic Management Systems, a
public-traded software development company which has engaged in an acquisition
strategy involving the purchase of value-added resellers and systems
integrators. From 1993 to 1996, he was Director of Sales and Director of
International Business Development at Access Technologies (formerly Access
Graphics, a division of Lockheed Martin), an aggregator of computer software and
hardware. From 1991 to 1993, Mr. Glynn took a brief hiatus from business and
joined Bill McCartney's National Championships Football staff at the University
of Colorado. Mr. Glynn is a graduate from the University of Notre Dame with a
Bachelor of Arts degree in the Program of Liberal Studies and Languages and a
Masters of Divinity degree. He is also continuing his graduate work at
Northwestern University's JL Kellogg Graduate School of Management.
Executive Compensation
Upon completion of the Merger, the compensation of the executive
officers of the Company will be as follows:
31
<PAGE>
<TABLE>
<CAPTION>
Annual Cash
Name Position Compensation Stock Options
---- -------- ------------ -------------
<S> <C> <C> <C>
Jack R. Leadbeater Chairman of the Board and $200,000 *(1)
Chief Executive Officer of
Pacific Rim and Osage
David S. Olson Director, Chief Operating $200,000 *(1)
Officer and President of
Pacific Rim and Osage
Michael G. Glynn Director and Executive Vice $200,000 100,000
President
</TABLE>
- -----------------
(1) Does not include options to purchase 332,000 shares of Common Stock issued
as part of the purchase price in the Merger.
Employment Arrangements
Pursuant to the Merger Agreement, the Company will enter into
employment agreements with each of Messrs. Leadbeater, Olson and Glynn which
will provide for an annual salary of $200,000. The term of each employment
agreement is for three (3) years. Messrs. Leadbeater, Olson and Glynn will also
enter into non-competition and non-solicitation agreements with the Company
which shall survive their actual employment by a term of one year. Pursuant to
Mr. Glynn's employment agreement, he will also be granted options to purchase
100,000 shares of Common Stock. See "Stock Options."
Stock Options
In March 1994, the Company adopted the 1994 Stock Option Plan. The plan
provides for the issuance of both "Incentive Stock Options" as well as
"Nonqualified Options" to be issued to consultants and others. An aggregate of
100,000 shares of Common Stock were reserved for issuance under this plan. No
options have been granted under this plan since inception.
Also, the Company adopted the "Outside Directors Stock Option Plan"
pursuant to which options to purchase an aggregate of 2,500 shares of Common
Stock have been authorized on an annual basis to each outside director who has
served during the immediately preceding year. No options have been granted under
this plan since inception.
As part of the purchase price in the Merger, the Company granted the
historic stockholders of Osage options to purchase 800,000 shares of Common
Stock. Such options shall have a term of six years and an exercise price equal
to the lower of: (i) $3.00 per share; or (ii) the average of the closing bid and
ask price of the Company's Common Stock on the principal exchange, automated
quotation system or over-the-counter market for the 15 trading days prior to the
date upon which any segment of the options vest. The options vest pursuant to
certain performance criteria set forth in the Merger Agreement. See the copy of
32
<PAGE>
the Merger Agreement attached hereto as Exhibit "F." Under the terms of his
employment agreement, Mr. Glynn will be granted options to purchase 100,000
shares of Common Stock.
Material Voting Arrangements
Provided that the Company continues to achieve the performance criteria
identified in the Merger Agreement, for a period of three years following the
Merger the holders of the Series B Shares, including Messrs. Leadbeater and
Olson, are entitled to elect a majority of the Board of Directors, and to vote
as a class on all matters brought to a vote of stockholders. See "DESCRIPTION OF
SECURITIES - Series B $3.00 Convertible Preferred Stock."
Upon the closing of the Merger, certain historic stockholders of the
Company shall place in a voting trust (the "Voting Trust") 1.5 million shares of
Common Stock with voting rights as to such shares vested in the holders of the
Series B Shares, including Messrs. Leadbeater and Olson. The Voting Trust shall
remain in effect until the earlier of: (i) the end of the 18th month following
the Merger; or (ii) such earlier date when all of its shares have either been
released to its beneficial owners or allocated in satisfaction of the purchase
price in the Merger. See the Merger Agreement attached hereto as Exhibit "F."
During every three month period during the term of the Voting Trust in which no
shares are issued in satisfaction of the purchase price, 250,000 shares may be
released to such historic stockholders of the Company from the Voting Trust.
33
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of the date of this Memorandum, the
record ownership, before and after the Offering, of each officer and director
and all officers and directors as a group and of each holder of 5% or more of
the outstanding shares of the Common Stock of the Company.
<TABLE>
<CAPTION>
Number of Shares Owned(1) Percentage of Shares
------------------------------------- -----------------------------------
Name Before Offering After Offering(2) Before Offering After Offering(2)
- ---- --------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C>
Jack R. Leadbeater -0- 664,000(3) 0% 10.15%
1661 East Camelback
Road, Suite 245
Phoenix, AZ 85016
David S. Olson -0- 664,000(3) 0% 10.15%
12829 East Jenan Drive
Scottsdale, AZ 85259
Michael G. Glynn -0- -0-(4) 0% 0%
1661 East Camelback
Road, Suite 245
Phoenix, AZ 85016
David Daniels 200,000 200,000 5.38% 3.06%
3807 Loch Glen Court
Houston, TX 77059
Godwin Finance Ltd. 350,000 350,000 9.41% 5.35%
Whitehill House
Newby Road Industrial
Estate
Newby Road
Hazel Grove
Stockport SK7 5DA
England
InterBanc Mortgage 200,000 200,000 5.38% 3.06%
Services, Inc.
901 Lake Destiny Drive,
Suite 139
Maitland, FL 32751
Steven B. Rosner 1,162,850 1,162,850 31.26% 17.78%
1220 Mirabeau Lane
Gladwynne, PA 19035
Synergy Group 250,000 250,000 6.72% 3.82%
4725 E. Sunrise Drive
Suite 228
Tucson, AZ 85718
All officers and -0- 1,328,000 0% 20.31%
directors of the Company
as a group (3 persons)(6)
</TABLE>
34
<PAGE>
- ---------------
(1) The securities "beneficially owned" by an individual are determined in
accordance with the definition of "beneficial ownership" set forth in
the regulations promulgated under the Securities Exchange Act of 1934,
and, accordingly, may include securities owned by or for, among others,
the spouse and/or minor children of an individual and any other
relative who has the same home as such individual, as well as other
securities as to which the individual has or shares voting or
investment power or which each person has the right to acquire within
60 days after the date of this Memorandum through the exercise of
options, or otherwise. Beneficial ownership may be disclaimed as to
certain of the securities. This table has been prepared based on
3,720,000 shares of Common Stock outstanding before the Offering and
6,540,000 shares of Common Stock outstanding after the Offering. The
shares reflected as outstanding after the Offering include the shares
issued to the historic stockholders of Osage in the Merger.
(2) Assumes the sale and subsequent conversion into the shares of Common
Stock of the 122 Series A Shares offered hereby and the Series B
Shares. Prior to conversion, the holders of the Series B Shares,
including Messrs. Leadbeater and Olson, are entitled to elect a
majority of the Board of Directors, and to vote as a class on all
matters brought to a vote of stockholders for a period of three years
following the closing of the Merger. See "MANAGEMENT - Material Voting
Arrangements."
(3) Does not include options to purchase 332,000 shares of Common Stock to
be issued as part of the purchase price in connection with the Merger,
which will not have vested as of the closing of the Merger.
(4) Does not include 200,000 shares of Common Stock being held by the
Company in escrow, which are subject to release at the rate of 100,000
shares on each of the first and second anniversary of the closing of
the Merger; provided, that Mr. Glynn is an employee of the Company at
time such shares are released. Does not include options to purchase
100,000 shares of Common Stock which will not have vested as of the
closing of the Merger.
(5) Includes 660,000 shares of Common Stock held by PRE Investors, L.P., a
Pennsylvania limited partnership of which Mr. Rosner is the general
partner.
(6) Does not include the officers and directors of the Company that have
agreed to resign upon the closing of the Merger.
- ---------------
35
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Employment Arrangements
Upon closing of the Merger, the Company will enter into certain
employment agreements with Messrs. Leadbeater, Olson and Glynn. The terms of Mr.
Glynn's employment agreement include the grant of options to purchase 100,000
shares of Common Stock. See "MANAGEMENT - Employment Arrangements."
36
<PAGE>
DESCRIPTION OF SECURITIES
Common Stock
Pacific Rim is authorized to issue 10,000,000 shares of Common Stock,
$.01 par value per share, of which 3,720,000 are currently outstanding.
Holders of Common Stock have equal rights to receive dividends when, as
and if declared by the Board of Directors, out of funds legally available
therefor. Holders of Common Stock have one vote for each share held of record
and do not have cumulative voting rights.
Holders of Common Stock are entitled upon liquidation of the Company to
share ratably in the net assets available for distribution, subject to the
rights, if any, of holders of any preferred stock then outstanding. Shares of
Common Stock are not redeemable and have no pre-emptive or similar rights. All
outstanding shares of Common Stock are fully paid and non-assessable.
Preferred Stock
Within the limits and restrictions contained in the Certificate of
Incorporation, the Board of Directors has the authority, without further action
by the stockholders, to issue up to 1,000 shares of Preferred Stock, $.01 par
value per share (the "Preferred Stock"), in one or more series, and to fix, as
to any such series, the dividend rate, redemption prices, preferences on
liquidation or dissolution, sinking fund terms, if any, conversion rights,
voting rights, and any other preference or special rights and qualifications.
Series A $3.00 Convertible Preferred Stock
The Board of Directors has authorized the designation of a series of
Preferred Stock as Series A $3.00 Convertible Preferred Stock, with such rights
and preferences as are described in the following summary.
o Liquidation Preference
The Series A Shares shall have a liquidation preference of $30,000 per
Series A Share, plus any accrued dividends thereon. The holders of the Series A
Shares and the Series B Shares shall share ratably in all liquidation
preferences. Accordingly, if the Company shall liquidate or dissolve, after
payment to all creditors, no distribution shall be made to holders of the
Company's Common Stock, unless prior thereto holders of the Series A Shares and
the holders of the Series B Shares have received $30,000 per share.
o Dividends
The holders of the Series A Shares shall not be entitled to receive
dividends.
37
<PAGE>
o Conversion
The holders of the Series A Shares have the right at any time to
convert the principal amount of the purchase price of the Series A Shares into
shares of Common Stock at a conversion rate (the "Conversion Rate") of $3.00 per
share of Common Stock.
The number of shares of Common Stock into which each Series A Share
shall be convertible shall be subject to adjustment to protect against dilution
in the event the Company shall declare a stock dividend, make a distribution on
the Common Stock, divide or reclassify the outstanding shares of Common Stock.
o Voting Rights
Prior to the conversion of the Series A Shares, the holders thereof
shall have no voting rights.
o Redemption
Commencing six months from the date of the Closing of this Offering,
all, but not less than all, of the Series A Shares may be redeemed at any time
by the Company at its sole discretion at $3.00 per Series A Share upon thirty
(30) days' written notice to the holders (the "Redemption Date"), provided that
at the time of the Redemption Notice: (i) the average of the closing bid and ask
prices of the Company's Common Stock shall have exceeded $5.00 for the twenty
(20) trading days preceding the date of the Redemption Notice; (ii) the shares
of Common Stock issued or issuable upon conversion of the Series A Shares and
subject to an effective Registration Statement; and (iii) the Placement Agent
shall have waived any restrictions upon the resale of such shares. See
"Restrictions upon Resale." The holders of the Series A Shares shall be entitled
to exercise their conversion option during said thirty (30) day notice period.
o Certificate of Designation
The terms described above are merely summaries of the salient features
of the Series A Shares. The actual terms are contained within a definitive
Certificate of Designation which will be filed with the Delaware Secretary of
State upon the completion of the Offering. A form of the Certificate of
Designation has been attached as Exhibit "D" to this Memorandum.
Series B $3.00 Convertible Preferred Stock
The Board of Directors has authorized the designation of a series of
Preferred Stock as Series B $3.00 Convertible Preferred Stock, with such rights
and preferences as are described below in the following summary.
o Liquidation Preference
The Series B Shares shall have a liquidation preference of $30,000 per
Share. The holders of the Series B Shares and the Series A Shares shall share
ratably in all liquidation preferences. Accordingly, if the Company shall
liquidate or dissolve, after payment to all creditors, and payment of the
38
<PAGE>
liquidation preference to the holders of the Series A Shares, no distribution
shall be made to holders of the Common Stock, unless prior thereto holders of
the Series B Shares and the holders of the Series A Shares shall have received
$30,000 per share.
o Dividends
Each holder of the Series B Shares shall be entitled to dividends only
when, as and if declared by the Board of Directors. Each holder of the Series B
Shares will share with the holders of the Common Stock, on an as converted
basis, any dividends declared on the Common Stock. The Company may, at its sole
election, pay any dividend in either cash or in shares of Common Stock, based on
the Conversion Rate (as hereafter defined) of the Series B Shares.
o Conversion
The holders of the Series B Shares have the right at any time to
convert the $1.5 million principal amount of the shares, plus any and all
accrued dividends thereon, into shares of the Company's Common Stock at a
conversion rate of $3.00 per share of Common Stock (the "Conversion Rate"),
which is subject to adjustment provided that at the time of conversion the
Company remains in compliance with certain performance criteria set forth in the
Merger Agreement. See "Performance Criteria." As so adjusted, the Conversion
Rate shall be the lower of: (i) $3.00 per share of Common Stock; or (ii) the
average of the closing bid and ask prices of the Common Stock on the principal
exchange, automated quotation system or over-the-counter market for the 15
trading days prior to the date of conversion.
The number of shares of Common Stock into which each Series B Share
shall be convertible shall be subject to adjustment to protect against dilution
in the event the Company shall declare a stock dividend, make a distribution on
the Common Stock, divide or reclassify the outstanding shares of Common Stock.
o Voting Rights
The holders of Series B Shares are entitled to vote in the election of
directors by casting as many votes in total as equates to the total number of
shares that may be cast in the election of directors by the holders of Common
Stock, plus one; provided that the holders of the Series B Shares may only elect
a majority of the Board of Directors by voting for their own nominees. The
holders of the Series B Shares will also be entitled to vote as a class on all
matters brought to a vote of stockholders. The foregoing rights of the holders
of the Series B Shares shall terminate upon the earlier of: (i) the first date
upon which the Company no longer complies with the Performance Criteria; or (ii)
the third anniversary of the closing of the Merger Agreement. Upon termination
of such rights, the holders of the Series B Shares shall have no voting rights
and their consent shall not be required for the taking of any action except as
required by law. See "Performance Criteria."
39
<PAGE>
o Redemption
The Series B Shares are not subject to redemption by the Company.
o Certificate of Designation
The terms described above are merely summaries of the salient features
of the Series B Shares. The actual terms are contained within a definitive
Certificate of Designation which will be filed with the Delaware Secretary of
State upon the completion of the Offering. A form of the Certificate of
Designation has been attached as Exhibit "E" to this Memorandum.
Redeemable Warrants
In connection with its initial public offering ("IPO") in November 1993
and other financing arrangements, the Company has issued 2,310,000 redeemable
warrants (the "Redeemable Warrants"), of which 11,554 were outstanding as of the
date of this Memorandum. The Redeemable Warrants can be redeemed by the Company
at a price of $0.05 per warrant commencing November 10, 1994, following any
period in which, for 20 consecutive trading days, the closing bid price of the
Company's Common Stock is equal to or greater than 200% of the IPO price, as
adjusted (initially $10.00 per share). After giving effect to certain 1 for 10
and 1 for 20 reverse stock splits, the exercise and call prices of the
Redeemable Warrants are $1,000 and $10 per warrant, respectively.
Performance Criteria
For the first three years following the Merger, the Company shall
remain in compliance with the Performance Criteria so long as during each of the
fiscal quarters in the first, second and third years thereafter, the Company
achieves earnings per share as reflected within its quarterly financial
statements as filed with the Securities and Exchange Commission of $.0125, $.025
and $.0375, respectively. The 900,000 shares of Common Stock deliverable to the
historic stockholders of Osage as part of the purchase price in the Merger is
subject to upward adjustment based upon the stock price of the Company's Common
Stock. If the Company remains in compliance with the Performance Criteria, such
additional shares of Common Stock will be issued from the Voting Trust. If the
Company fails to remain in compliance with the Performance Criteria, the
additional shares necessary to satisfy such upward adjustment will be issued by
the Company. See "DESCRIPTION OF MERGER" and "MANAGEMENT - Material Voting
Arrangements."
For the purposes of preserving the rights of the holders of the Series
B Shares relative to the election of directors and voting as a class on all
matters brought before stockholders, the Company shall remain in compliance with
the Performance Criteria so long as for the first three years following the
closing of the Merger, its annual audited financial statements reflect earnings
per share of $.05, $.10, and $.15, respectively. Failure to meet the Performance
Criteria in any of the first three years after the closing of the Merger results
40
<PAGE>
in the termination of such rights of holders of the Series B Shares. See
"MANAGEMENT - Material Voting Arrangements." For the purpose of determining the
Conversion Rate of the Series B Shares, no adjustment in favor of the holders to
the Conversion Rate shall be made if the Company fails to meet such Performance
Criteria. However, the failure to meet the Performance Criteria for any
particular quarter will not adversely effect the computation of the Conversion
Rate for any subsequent quarter. See "DESCRIPTION OF SECURITIES - Series B $3.00
Convertible Stock."
Registration Rights
The Company has agreed that as soon as practicable after the closing of
the Merger, it will prepare and file, with the Securities and Exchange
Commission, and use its best efforts to have declared effective, a Registration
Statement on Form SB-2 or other equivalent form pursuant to which the Company
shall register the potential resale of the Common Stock issuable upon conversion
of the Series A Shares. The Company has also agreed to include in such
Registration Statement the shares issuable upon conversion of the Series B
Shares, the Common Stock issued in connection with the Merger and 1,200,000
shares of Common Stock outstanding prior to the Merger. The expenses of such
registration will be borne by the Company.
Notwithstanding the foregoing, the Company may delay filing the
registration statement, and may withhold efforts to cause the registration
statement to become effective, if the Company determines in good faith that such
registration might (i) interfere with or affect the negotiation or completion of
any transaction that is being contemplated by the Company (whether or not a
final decision has been made to undertake such transaction) at the time the
right to delay is exercised, or (ii) involve initial or continuing disclosure
obligations that might not be in the best interest of the Company's
stockholders. If, after the registration statement becomes effective, the
Company advises the holders of registered shares that the Company considers it
appropriate for the registration statement to be amended, the holders of such
shares shall suspend any further sales of their registered shares until the
Company advises them that the registration statement has been amended.
Each holder of Series A Shares whose shares are registered pursuant to
the registration rights set forth herein shall indemnify and hold harmless the
Company, each of its directors and each of its officers from and against any and
all claims, damages or liabilities, joint or several, to which they or any of
them may become subject, including all legal and other expenses, arising out of
or in connection with any untrue statement or alleged untrue statement of a
material fact contained in the registration statement, in any preliminary or
amended preliminary prospectus or in the prospectus (or the registration
statement or prospectus as from time to time amended or supplemented) or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading in the circumstances in which they were made,
but only insofar as any such statement or omission was made in reliance upon and
in conformity with information furnished in writing to the Company in connection
therewith by such holder expressly for use therein. The liability of any such
holder shall be limited to the aggregate price at which such holder's shares of
the Company is sold.
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<PAGE>
In connection with the registration rights, the Company shall have no
obligation: (i) to assist or cooperate in the offering or disposition of such
shares of Common Stock; (ii) to indemnify or hold harmless the holders of the
securities being registered; (iii) to obtain a commitment from an underwriter
relative to the sale of such shares; or (iv) to include such shares of Common
Stock within an underwritten offering of the Company.
Restrictions upon Resale
The Series A Shares and the shares of Common Stock issuable upon
conversion of the Series A Shares may not be transferred, sold, encumbered or
otherwise disposed of for a period of eighteen months after the closing of the
Merger without the prior written consent of the Placement Agent.
The Series B Shares, the shares of Common Stock issuable upon
conversion of the Series B Shares and the shares of Common Stock issued as part
of the purchase price in the Merger, may not be transferred, sold, encumbered or
otherwise disposed of for a period of eighteen months after the closing of the
Merger without the prior written consent of the Pacific Rim Designee. However,
the historic stockholders of Osage shall be permitted to: (i) pledge such shares
as collateral for a loan from a financial institution provided that the lender
agrees to such restrictions upon resale; and (ii) transfer such shares to family
members by gift provided that the transferee agrees to such restrictions upon
resale. Once the shares are registered, and for a period of eighteen months
thereafter, resale of the shares by the historic stockholders of Osage shall be
limited to that number of shares on a quarterly basis that, upon sale in an
ordinary brokerage transaction, would yield net proceeds of $300,000. The shares
of Common Stock issued in connection with certain adjustments to the purchase
price shall not be subject to such restriction upon resale after such shares are
registered.
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<PAGE>
SUITABILITY STANDARDS - WHO SHOULD INVEST
INVESTMENT IN THE SHARES INVOLVES A HIGH DEGREE OF RISK AND IS SUITABLE
ONLY FOR PERSONS OF SUBSTANTIAL FINANCIAL RESOURCES WHO HAVE NO NEED FOR
LIQUIDITY IN THEIR INVESTMENT.
The Company has adopted as a general investor suitability standard the
requirement that each subscriber for Series A Shares represent in writing that
the subscriber: (a) is acquiring the Series A Shares for investment and not with
a view to resale or distribution; (b) can bear the economic risk of losing their
entire investment; (c) their overall commitment to investments which are not
readily marketable is not disproportionate to their net worth, and an investment
in the Series A Shares will not cause such overall commitment to become
excessive; (d) has adequate means of providing for their current needs and
personal contingencies and has no need for liquidity in this investment in the
Series A Shares; (e) has evaluated all the risks of investment in the Company;
and (f) has such knowledge and experience in financial and business matters as
to be capable of evaluating the merits and risks of investing in the Company or
is relying on their own purchaser representative, in making an investment
decision. Subscriptions will not necessarily be accepted in the order in which
received.
In addition, all subscribers for Series A Shares must be "accredited
investors," as defined in Rule 501 of Regulation D under the Securities Act, by
meeting any of the following conditions:
(i) has an individual income in excess of $200,000 in each of the two
most recent years or joint income with his or her subscriber spouse in excess of
$300,000 in each of those years, and he or she reasonably expects an income in
excess of the aforesaid levels in the current year; or
(ii) he or she has an individual net worth, or a joint net worth with
his or her spouse, at the time of his or her purchase, in excess of $1,000,000
(net worth for these purposes includes homes, home furnishings and automobiles);
or
(iii) he or she otherwise satisfies the Company that he or she is an
accredited investor, as defined in Rule 501 under the Securities Act.
Other categories of investors included within the definition of
accredited investor include the following: certain institutional investors,
including certain banks, whether acting in their individual or fiduciary
capacities; certain insurance companies; federally registered investment
companies; business development companies, (as defined under the Investment
Company Act of 1940); Small Business Investment Companies licensed by the Small
Business Administration; certain employee benefit plans; private business
development companies, (as defined in the Investment Advisers Act of 1940); tax
exempt organizations (as defined in Section 501(c)(3) of the Internal Revenue
Code of 1986, as amended) with total assets in excess of $5,000,000; entities in
which all the equity owners are accredited investors; and certain affiliates of
the Company.
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<PAGE>
A partnership subscriber, which satisfies the requirements set forth in
clauses (a) through (f) above shall satisfy the suitability standards if it is
an accredited investor by reason of clause (iii) above, or if all of its
partners are accredited investors. A corporate subscriber, which satisfies the
requirements set forth in clauses (a) through (f) above shall satisfy the
investor suitability standards if it is an accredited investor by reason of
clause (iii) above, or if all of its stockholders are accredited investors.
The suitability standards referred to above represent minimum
suitability requirements for prospective purchasers and the satisfaction of such
standards by a prospective purchaser does not necessarily mean that the Shares
are a suitable investment for such purchaser. The Company may, in circumstances
it deems appropriate, modify such requirements. The Company may also reject
subscriptions for whatever reasons, in its sole discretion, it deems
appropriate.
Subscriptions will not necessarily be accepted in the order in which
received. Subscribers who are residents of certain states may be required to
meet certain additional suitability standards.
THE ACCEPTANCE OF A SUBSCRIPTION FOR SERIES A SHARES BY THE COMPANY
DOES NOT CONSTITUTE A DETERMINATION BY THE COMPANY THAT AN INVESTMENT IN THE
SHARES IS SUITABLE FOR A PROSPECTIVE INVESTOR. THE FINAL DETERMINATION OF THE
SUITABILITY OF INVESTMENT IN THE SHARES MUST BE MADE BY THE PROSPECTIVE INVESTOR
AND HIS OR HER ADVISERS.
Subscription Procedure
Investors may subscribe for the Series A Shares offered hereby by
obtaining a copy of the Subscription Agreement from the Placement Agent and
signing and returning to the Placement Agent the Subscription Agreement prior to
the earlier of: (i) the termination of the Offering Period; or (ii) such earlier
date as the Company may establish, in its discretion, for the completion of the
Offering. The Company will indicate its acceptance of an investor's subscription
by signing both copies of the Subscription Agreement and returning one copy to
the investor. The form of Subscription Agreement and related materials are
attached hereto as Exhibit "A."
Securities Laws Considerations
The Series A Shares offered hereby have not been registered under the
Securities Act or under the securities laws of any state. The Subscription
Agreement will contain various representations and warranties on the part of
each subscriber which will be relied upon to ensure that exemptions from
registration under the Securities Act and any applicable state securities laws
will be applicable to this offering. To further ensure compliance by the Company
with the securities laws, each investor will be required to agree in the
Subscription Agreement that they will not sell or otherwise transfer the Series
A Share except (a) pursuant to registration under the Securities Act; (b) in
accordance with an opinion of counsel satisfactory to the Company or no-action
44
<PAGE>
letters from the Securities and Exchange Commission prior to such transfer to
the effect that registration under the Securities Act is not required in
connection with the transaction resulting in such transfer; or (c) to his or her
estate, his legal representative in the case of disability, or any member of his
or her immediate family. A legend will be placed on all certificates
representing the Series A Shares stating that the securities represented thereby
have not been registered under the Securities Act or any applicable state
securities laws or and stating that the transferability of such securities is
subject to the provisions of the Subscription Agreement. A notation to the same
effect will also be made in the appropriate records of the Company and the
records of the Company's transfer agent.
45
<PAGE>
ADDITIONAL INFORMATION
In addition to carefully considering the information contained in the
offering materials, prospective investors are urged to request additional
information or copies of relevant documents as they may deem necessary or
advisable in evaluating this Offering.
Investors interested in meeting with the Company's officers to ask
questions about the Company's business and affairs should contact the Company to
arrange such a meeting. All requests for information or to arrange a meeting
should be directed to the attention of the Chief Executive Officer of the
Company or the Placement Agent.
46
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number
-------
<S> <C>
Form of Securities Subscription Agreement A
Audited Financial Statements of Osage Computer Group, Inc. for the
fiscal years ended December 31, 1996 and 1995 and unaudited interim
financial statements for the ten months ended October 31, 1997 B
Annual Report on Form 10-KSB for the fiscal year ended December 31, 1996
of Pacific Rim Entertainment, Inc. and Quarterly Report on Form 10-QSB
for the period ended June 30, 1997 C
Form of Certificate of Designation of Series A Preferred Stock D
Form of Certificate of Designation of Series B Preferred Stock E
Merger Agreement by and among Pacific Rim Entertainment, Inc., PR
Acquisition Corp., and Osage Computer Group, Inc. F
</TABLE>
<PAGE>
PACIFIC RIM ENTERTAINMENT, INC.
FIRST SUPPLEMENT TO THE
CONFIDENTIAL PRIVATE OFFERING MEMORANDUM
DATED NOVEMBER 24, 1997
Dated: December 18, 1997
<PAGE>
THIS FIRST SUPPLEMENT (THE "SUPPLEMENT") TO THE COMPANY'S CONFIDENTIAL PRIVATE
OFFERING MEMORANDUM DATED NOVEMBER 24, 1997 (THE "MEMORANDUM") AND ALL DOCUMENTS
DELIVERED IN CONNECTION THEREWITH ARE SUBMITTED ON A CONFIDENTIAL BASIS FOR USE
BY A LIMITED NUMBER OF PROSPECTIVE INVESTORS SOLELY IN CONNECTION WITH THEIR
CONSIDERATION OF AN INVESTMENT IN THE PACIFIC RIM ENTERTAINMENT, INC. SECURITIES
DESCRIBED IN THE MEMORANDUM. THIS SUPPLEMENT SHOULD BE READ IN CONNECTION WITH
THE MEMORANDUM, THE EXHIBITS THERETO AND ANY MATERIALS DISTRIBUTED IN CONNECTION
THEREWITH. NO PERSON HAS BEEN AUTHORIZED TO MAKE REPRESENTATIONS OR GIVE ANY
INFORMATION WITH RESPECT TO THE SECURITIES OFFERED HEREBY OTHER THAN THOSE
CONTAINED IN THE MEMORANDUM AND THOSE INCLUDED HEREIN. TERMS USED IN THIS
SUPPLEMENT AND NOT DEFINED HEREIN SHALL HAVE THE MEANING ASCRIBED THERETO IN THE
MEMORANDUM.
1. The Company - Acquisition Strategy. One of the fundamental business
strategies of Osage Computer Group, Inc. ("Osage") following the Merger is to
expand its business through selective, strategic acquisitions of other companies
with complementary businesses in a revenue range of $5 million to $15 million.
Management of Osage believes that companies in this range of revenues may be
receptive to an acquisition program since they are likely to be too small to be
identified as acquisition targets of larger public companies or to independently
attempt their own public offerings. In particular, Osage intends to focus its
acquisition strategy on candidates who have a strong relationship with key
technology vendors, a proven record of delivering a high-quality network
computing solutions, a customer base of large and mid-sized companies and which
may benefit from the Company's anticipated access to sources of financing and
long-term growth strategy.
At the time of the Memorandum, Osage was not in active negotiations to
acquire any business. However, since the date of the Memorandum, Osage has
executed three non-binding letters of intent that relate to acquisitions that
may occur following the completion of the Merger.
Alphabetical references will be made to the target companies since
confidentiality provisions within the various letters of intend prohibit
disclosure of company names and certain company information.
The first letter of intent relates to the acquisition of Company A, a
systems integrator with an emphasis on delivering the sale of sophisticated
computer products. Formed in 1991, Company A focuses on delivering systems
utilizing high margin products and services to small, medium and large
businesses with an emphasis on the internet security market. The company's
solutions revolve around products from manufacturers such as Sun Microsystems,
Cisco Systems, Microsoft, Netscape Communications, and Internet Security
Systems.
According to information provided by Company A, which has not yet been
subject to verification or audit by Osage, Company A expects to realize revenues
of approximately $7,000,000 for its fiscal year ending January 31, 1998.
<PAGE>
Under the terms of this letter of intent, Osage intends to acquire 100%
of the issued and outstanding stock of Company A in exchange for $200,000 in
cash, $900,000 in Company stock upon the closing and an additional $1,000,000 in
earn-out shares of Company stock at the one year anniversary of the closing,
based upon the performance of Company A during the one year period.
The second letter of intent relates the acquisition of "Company B," a
value-added reseller of fully integrated computer systems and networks. Founded
in 1984, Company B offers products from a number of manufacturers, including,
Sun Microsystems, Oracle, Netscape and Microsoft. In addition to its product
offerings, Company B also provides consulting services for enterprise-wide
systems and data management, as well as specialized applications for internet
and intranet communication.
According to information provided by Company B, which has not yet been
subject to verification or audit by Osage, Company B realized sales revenues of
approximately $9.4 million for the fiscal year ended July 31, 1997.
Under the terms of this letter of intent, Osage will acquire 100% of
the issued and outstanding stock of Company B in exchange for $750,000 in cash,
$2,000,000 in Company stock upon the closing and an additional $1,250,000 in
earn-out shares of Company stock upon the one year anniversary of the closing,
based upon the performance of Company B during the one year period.
The third letter of intent relates to the acquisition of Company C, a
complex computer and network systems integrator. Founded in 1991, Company C has
extensive experience with a number of information technology products including
those from Sun Microsystems, Oracle, Hewlett-Packard and Microsoft. Company C
has specialized focus in the vertical markets of manufacturing and distribution,
medical, and enterprise resource planning systems.
According to information provided by Company C, which has not yet been
subject to verification or audit by Osage, Company C expects to realize sales
revenues of approximately $5.5 million for the fiscal year ending December 31,
1997.
Under the terms of this letter of intent, Osage will acquire 100% of
the issued and outstanding stock of Company C in exchange for $475,000 in cash,
$1,500,000 in convertible preferred stock upon the closing and an additional
$1,350,000 in earn-out shares of Company stock upon each of the first two
anniversaries of the closing, based upon the performance of Company B over the
two year period.
A combination of the various target companies and Osage, each at
existing levels of revenues (based upon revenue information provided by the
target companies, not yet subject to verification or audit), will result in the
Company, on a consolidated basis, achieving revenues of approximately $35
million for 1998. If, however, all of the target companies achieve the level of
growth necessary to satisfy the performance criteria that would permit the
distribution of the earn-out shares for 1998, the consolidated revenues of the
Company for 1998 may approximate $55 million. Notwithstanding the Company's
potential level of revenues, sufficient information, however, is not yet
available to estimate the consolidated earnings of the Company. Accordingly,
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<PAGE>
there can be no assurances that the growth in revenues will lead to similar
growth in net income, or that the consolidation of the companies can occur on a
basis that produces levels of net income that are deemed suitable to the
investment community.
The Company's estimates of revenue assume that: (i) all of the
acquisitions will occur within the first quarter of 1998 upon the terms and
conditions established within the letters of intent; and (ii) revenue levels of
the target companies are within the ranges represented by the management of the
target companies, even though this information has not yet been subject to
verification or audit by the Company or Osage.
The letters of intent described above are merely non-binding
indications of interest, and are not intended to create a contractual or legally
binding obligation on either party. According, there can be no assurances that
the acquisitions will occur upon the terms and conditions contemplated by the
parties, if at all.
2. Principal Stockholders.
The table in the Memorandum identifies Steven B. Rosner as a Principal
Stockholder of the Company. Mr. Rosner is currently a director and officer of
the Company. The information with respect to Mr. Rosner is hereby revised to
indicate that Mr. Rosner is the beneficial owner of 884,542 shares of Common
Stock. This includes the direct ownership of 192,850 Shares of Common Stock and
the indirect ownership of 691,692 Shares of Common Stock.(1)
The undersigned has reviewed and acknowledged the terms of this First
Supplement to the Confidential Private Offering Memorandum of Pacific Rim
Entertainment, Inc. dated November 24, 1997.
SUBSCRIBER:
---------------------------------------
Signature
---------------------------------------
[Print Name]
Dated:
------------------
- --------
(1) Indirect ownership through Mr. Rosner's role as the General Partner of PRE
Investors, L.P., a Limited Partnership that owns 641,692 shares; and through his
role as general partner of Diversified Investment Fund, L.P., a Limited
Partnership that owns 50,000 shares.
3
