Pac Rim to Issue Debt Securities, Stock Warrants

Pac Rim Holding Corp., a Woodland Hills workers’ compensation insurer, said it will issue $20 million of convertible debt securities to an investment partnership. The company also will issue warrants to purchase 3.8 million shares of its common stock to the partnership.

The partnership, PRAC Ltd., is controlled by Richard Pickup of Newport Beach, who controls 9.9% of Pac Rim’s outstanding shares through various investment entities. If all the debentures are converted and the warrants exercised, PRAC and Pickup would control a majority of Pac Rim’s common stock, the company said.

Pac Rim said about $16.8 million of the proceeds from issuing debt would be used to increase the capital of its Pacific Rim Assurance Co. subsidiary. Concerns over the company’s capital level have resulted in a deterioration of its ability to do business since April 1, and Pac Rim expects to report a first-quarter operating loss, it said.

The agreement calls for the transaction, which is subject to regulatory and stockholder approval, to be completed by June 30. If one party breaches the agreement it must pay $1.5 million in liquidated damages, and Pac Rim must pay an equal amount if it enters a competing agreement with another investor.

The convertible debt, or debentures, will carry an 8% interest rate and will be due in five years. The debentures are convertible into shares of Pac Rim common stock at $2.75 a share. The warrants will allow PRAC to acquire 1.5 million shares of Pac Rim common stock at an exercise price of $2.50 each, another 1.5 million shares at $3 apiece, and 800,000 shares at $3.50 a share.

PRAC also has an option to buy another $5 million in convertible debentures and additional warrants before June 30.