<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 4, 1997
REGISTRATION NO. 33-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PERFORMANCE ASSET MANAGEMENT COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 33-0755516
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
4100 NEWPORT PLACE
SUITE 400
NEWPORT BEACH, CALIFORNIA 92660
(714) 261-9100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
VINCENT E. GALEWICK, PRESIDENT
PERFORMANCE ASSET MANAGEMENT COMPANY
4100 NEWPORT PLACE
SUITE 400
NEWPORT BEACH, CALIFORNIA 92660
(714) 261-9100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO: SOLICITATION AGENT:
THOMAS E. STEPP, JR., ESQ.
WHITE AND STEPP LLP
4100 NEWPORT PLACE
SUITE 800
NEWPORT BEACH, CALIFORNIA 92660
(714) 660-9700
INCOME NETWORK COMPANY
4100 NEWPORT PLACE
SUITE 400
NEWPORT BEACH, CALIFORNIA 92660
(714) 752-3500
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
=================================================================================================
PROPOSED PROPOSED
TITLE OF EACH CLASS AMOUNT MAXIMUM MAXIMUM
OF SECURITIES TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------
Common Stock............. 7,511,500 $10.00 $75,115,000 $22,762.12
=================================================================================================
</TABLE>
(1) Represents the maximum number of shares to be issued in exchange for the
Units of the Partnerships and shares of PCM pursuant to the Merger
Agreement.
(2) The filing fee has been computed based on the $10.00 per share exchange
value of the shares of common stock of Performance Asset Management Company
to be issued pursuant to the Merger Agreement.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
PERFORMANCE ASSET MANAGEMENT COMPANY
CROSS-REFERENCE SHEET
SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF FORM S-4
(A. INFORMATION ABOUT THE TRANSACTION)
<TABLE>
<CAPTION>
FORM S-4 REGISTRATION STATEMENT ITEM AND HEADING LOCATION IN PROSPECTUS
------------------------------------------------ ------------------------------------
<C> <S> <C>
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus.................. Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus...................................... Table of Contents; Available
Information; Incorporation of
Certain Documents by Reference
3. Risk Factors, Ratio of Earnings to Fixed
Charges, and Other Information.................. Summary; Risk Factors; Selected
Historical and Pro Forma Financial
Data and Comparative Per Share Data;
The Merger; Dissolutions and
Liquidations of the Partnerships;
Management's Discussion and Analysis
of Financial Condition and Results
of Operations; Pro Forma Condensed
Financial Information
4. Terms of the Transaction........................ Summary; The Merger; Dissolutions
and Liquidations of the
Partnerships; Determination of the
Exchange Value; Allocation of the
Shares; Voting Procedures; Summary
Comparison of Units and Common
Shares; Rights of Dissenting
Shareholders and Dissenting Limited
Partners; Merger Agreement
5. Pro Forma Financial Information................. Summary; Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Pro Forma
Condensed Financial Information
6. Material Contacts with the Company Being
Acquired........................................ Summary; The Merger; Dissolutions
and Liquidations of the
Partnerships; Principal Shareholders
and Limited Partners; Management;
Certain Relationships and Related
Transactions
7. Additional Information Required for Reoffering
by Persons and Parties Deemed to be
Underwriters.................................... Not Applicable
8. Interests of Named Experts and Counsel.......... Experts; Legal Matters
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities..................................... Limitation on Liability of Officers
and Directors of the Company
(B. INFORMATION ABOUT THE REGISTRANT)
10. Information with Respect to S-3 Registrants..... Not Applicable
11. Incorporation of Certain Information by
Reference....................................... Not Applicable
12. Information with Respect to S-2 or S-3
Registrants..................................... Not Applicable
13. Incorporation of Certain Information by
Reference....................................... Not Applicable
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
FORM S-4 REGISTRATION STATEMENT ITEM AND HEADING LOCATION IN PROSPECTUS
------------------------------------------------ ------------------------------------
<C> <S> <C>
14. Information with Respect to Registrants Other
than S-2 or S-3 Registrants..................... Summary; Risk Factors; Incorporation
of Certain Documents by Reference;
Description of the Common Shares;
Summary Comparison of Units and
Common Shares; Federal Income Tax
Considerations; Principal
Shareholders and Limited Partners;
Management
(C. INFORMATION ABOUT THE COMPANIES BEING ACQUIRED)
15. Information with Respect to S-3 Companies....... Not Applicable
16. Information with Respect to S-2 or S-3
Companies....................................... Not Applicable
17. Information with Respect to Companies Other Than
S-2 or S-3 Companies............................ Summary; Risk Factors; Incorporation
of Certain Documents by Reference;
Voting Procedures; Summary
Comparison of Existing Securities
and Common Shares; Rights of
Dissenting Limited Partners; Federal
Income Tax Considerations; Other Tax
Considerations
(D. VOTING AND MANAGEMENT INFORMATION)
18. Information if Proxies, Consents or
Authorizations are to be Solicited.............. Front Cover Page; Incorporation of
Certain Documents by Reference;
Summary; The Merger; Dissolutions
and Liquidations of the
Partnerships; Voting Procedures;
Summary Comparison of Existing
Securities and Common Shares; Rights
of Dissenting Limited Partners;
Management
19. Information if Proxies, Consents or
Authorizations are not to be Solicited or in an
Exchange Offer.................................. Certain Relationships and Related
Transactions
</TABLE>
<PAGE> 4
CAUTIONARY STATEMENT FOR PURPOSES
OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE LITIGATION REFORM ACT OF 1995
THIS DOCUMENT SPECIFIES FORWARD-LOOKING STATEMENTS OF MANAGEMENT OF THE
COMPANY. FORWARD-LOOKING STATEMENTS ARE STATEMENTS THAT ESTIMATE THE HAPPENING
OF FUTURE EVENTS, ARE NOT BASED ON HISTORICAL FACT AND ARE "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995. FORWARD-LOOKING STATEMENTS MAY BE IDENTIFIED BY THE USE OF
FORWARD-LOOKING TERMINOLOGY SUCH AS "POSSIBLE", "MAY", "WILL", "EXPECT",
"SHOULD", "COULD","ESTIMATE", "ANTICIPATE", "PROBABLE", "CONTINUE", OR SIMILAR
TERMS, VARIATIONS OF THOSE TERMS OR THE NEGATIVE OF THOSE TERMS. THE "RISK
FACTORS" SET FORTH IN THIS DOCUMENT CONSTITUTE CAUTIONARY STATEMENTS IDENTIFYING
IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE IN THE FORWARD-LOOKING STATEMENTS. THE FORWARD-LOOKING STATEMENTS
SPECIFIED IN THIS DOCUMENT HAVE BEEN COMPILED BY MANAGEMENT OF THE COMPANY ON
THE BASIS OF ASSUMPTIONS MADE BY MANAGEMENT AND CONSIDERED BY MANAGEMENT TO BE
REASONABLE. FUTURE OPERATING RESULTS OF THE COMPANY, HOWEVER, ARE IMPOSSIBLE TO
PREDICT AND NO REPRESENTATION, GUARANTY, OR WARRANTY IS TO BE INFERRED FROM
THOSE FORWARD-LOOKING STATEMENTS. THEREFORE, LIMITED PARTNERS ARE URGED TO
CONSULT WITH THEIR ADVISORS (THE OPINIONS OF WHICH MAY DIFFER FROM THOSE
SPECIFIED IN THOSE FORWARD-LOOKING STATEMENTS) WITH RESPECT TO THOSE ASSUMPTIONS
OR HYPOTHESES.
THE ASSUMPTIONS USED FOR PURPOSES OF THE FORWARD-LOOKING STATEMENTS
SPECIFIED IN THIS DOCUMENT REPRESENT ESTIMATES OF FUTURE EVENTS AND ARE SUBJECT
TO UNCERTAINTY AS TO POSSIBLE CHANGES IN ECONOMIC, LEGISLATIVE, INDUSTRY, AND
OTHER CIRCUMSTANCES. AS A RESULT, THE IDENTIFICATION AND INTERPRETATION OF DATA
AND OTHER INFORMATION AND THEIR USE IN DEVELOPING AND SELECTING ASSUMPTIONS FROM
AND AMONG REASONABLE ALTERNATIVES REQUIRE THE EXERCISE OF JUDGMENT. TO THE
EXTENT THAT THE ASSUMED EVENTS DO NOT OCCUR, THE OUTCOME MAY VARY SUBSTANTIALLY
FROM ANTICIPATED OR PROJECTED RESULTS, AND, ACCORDINGLY, NO OPINION IS EXPRESSED
ON THE ACHIEVABILITY OF THOSE FORWARD-LOOKING STATEMENTS.
IN ADDITION, THOSE FORWARD-LOOKING STATEMENTS HAVE BEEN COMPILED AS OF THE
DATE OF THIS DOCUMENT AND SHOULD BE EVALUATED WITH CONSIDERATION OF ANY CHANGES
OCCURRING AFTER THE DATE OF THIS DOCUMENT. NO ASSURANCE CAN BE GIVEN THAT ANY OF
THE ASSUMPTIONS RELATING TO THE FORWARD-LOOKING STATEMENTS SPECIFIED IN THIS
DOCUMENT ARE ACCURATE OR THAT THEY WILL PROVE TO BE APPLICABLE TO A PARTICULAR
LIMITED PARTNER. IT IS THE RESPONSIBILITY OF THE LIMITED PARTNERS AND THEIR
ADVISORS TO REVIEW THOSE FORWARD-LOOKING STATEMENTS TO CONSIDER THE ASSUMPTIONS
ON WHICH THOSE FORWARD-LOOKING STATEMENTS ARE BASED AND TO ASCERTAIN THEIR
REASONABLENESS.
<PAGE> 5
SUBJECT TO COMPLETION NOVEMBER 4, 1997
PRELIMINARY COPY
PERFORMANCE DEVELOPMENT, INC.
4100 NEWPORT PLACE
SUITE 400
NEWPORT BEACH, CALIFORNIA 92660
Dear Limited Partner:
I am pleased to announce that the Board of Directors of Performance
Development, Inc., a California corporation, as General Partner ("General
Partner") of your limited partnership ("Partnership"), has approved a proposal
for and on behalf of the Partnership to merge the Partnership with Performance
Asset Management Company, a Delaware corporation ("Company"), Performance
Capital Management, Inc., a California corporation ("PCM"), and other related
proposed transactions whereby the Company shall acquire, by merger, all of the
assets of PCM, the assets of the Partnership, and the assets of other affiliated
California limited partnerships ("Affiliated Partnerships"). For convenience,
the Partnership and the Affiliated Partnerships shall be referred to herein as
the "Partnerships". The proposed merger transaction contemplates that of the
Partnerships shall receive shares of $.001 par common stock of the Company in
exchange for the assets of the Partnerships. Additionally, by amending the
provisions of the Agreements of Limited Partnership for the Partnerships, the
Partnerships shall be wound up and dissolved and the shares of $.001 par value
common stock of the Company received by the Partnerships in exchange for their
assets shall be distributed to the General Partner and the limited partners of
the Partnerships ("Limited Partners"). The Partnerships are:
PERFORMANCE ASSET MANAGEMENT FUND, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP;
PERFORMANCE ASSET MANAGEMENT FUND II, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP;
PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP;
PERFORMANCE ASSET MANAGEMENT FUND IV, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP; AND
PERFORMANCE ASSET MANAGEMENT FUND V, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP.
The Partnerships shall cease to exist by operation of law upon completion
of their winding up and dissolution. Additionally, the shares of $.001 par value
common stock of the Company that you shall receive shall be registered for
trading in over-the-counter or other resale transactions (subject to some
restrictions) pursuant to the provisions of a Registration Statement on Form S-4
filed with the Securities and Exchange Commission.
In accordance with the Agreements of Limited Partnership of the
Partnerships, the General Partner hereby calls for a vote, without a meeting, of
the Limited Partners, and requests you, as a Limited Partner, consider and vote
upon a number of interrelated proposals that would permit the ultimate
conversion of interests in the Partnerships to corporate form by the merger of
the Partnerships with and into the Company. I have been informed by appropriate
advisors that this conversion to corporate form, as contemplated by the Merger
Proposal, is desirable so as to maximize the liquidity of the investments of the
Limited Partners.
These proposals represent the culmination of a great deal of thought and
effort during a period of many months by the General Partner and its legal,
financial, and accounting advisors, on the one hand, and the Company and its
legal, financial, and accounting advisors, on the other hand. The Board of
Directors of the Company has unanimously approved each of these proposals. The
Board of Directors of the General Partner
<PAGE> 6
has unanimously approved each of these proposals, subject to approval by the
Limited Partners, and has concluded that these proposals provide a number of
significant advantages that should enhance the value of the investments by the
Limited Partners in the future.
The Joint Consent Statement/Prospectus that is being provided to the
Limited Partners explains each element of these proposals in detail and attempts
to answer many of the questions you may have regarding these proposals. I urge
each of you to read this material carefully. You should not hesitate to call the
Information Agent at (888) 754-4145 with any questions you have about these
proposals.
I encourage each of you to complete and return the enclosed consent forms
in the enclosed envelope as soon as possible. The consent forms must be returned
no later than 12:00 P.M., Pacific Daylight Time, on , 1997. Thank
you for your patience and cooperation during the consent solicitation period.
Sincerely,
PERFORMANCE DEVELOPMENT, INC.,
a California corporation
Vincent E. Galewick,
Chairman of the Board of Directors
2
<PAGE> 7
NOTICE OF CALL FOR VOTE WITHOUT MEETING
TO: The limited partners ("Limited Partners") of the following California
limited partnerships
("Partnerships"):
PERFORMANCE ASSET MANAGEMENT FUND, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP;
PERFORMANCE ASSET MANAGEMENT FUND II, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP;
PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP;
PERFORMANCE ASSET MANAGEMENT FUND IV, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP; AND
PERFORMANCE ASSET MANAGEMENT FUND V, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP.
NOTICE IS HEREBY GIVEN that the Limited Partners are hereby called upon to
provide their votes upon the following matters pursuant to the Agreements of
Limited Partnership of the Partnerships in accordance with terms and provisions
of the enclosed Joint Consent Statement/Prospectus:
1. A proposal, as specified in the Joint Consent Statement/Prospectus,
to merge the Partnerships with Performance Asset Management Company, a
Delaware corporation ("Company"), and Performance Capital Management, Inc.,
a California corporation ("PCM"), as a result of which a series of
interrelated changes to the current organizational form of the
Partnerships, PCM and the Company would be implemented, including (a)
merging the Partnerships and PCM with and into the Company as a result of
which the Company would be the sole surviving entity ("Surviving
Corporation"); (b) terminating the legal existence of the Partnerships by
operation of law; and (c) exchanging each Limited Partner's interest and
the General Partner's interest in each Partnership for shares of $.001 par
value common stock of the Surviving Corporation ("Common Shares").
2. A proposal to consider such other matters as may be set forth in
the enclosed Joint Consent Statement/Prospectus.
The Limited Partners of the Partnerships of record at the close of business
on June 30, 1997, are entitled to notice of and to vote on the above matters in
accordance with the terms and provisions of the Joint Consent
Statement/Prospectus.
By order of the Board of Directors
of the General Partner
PERFORMANCE DEVELOPMENT, INC.,
a California corporation
Vincent E. Galewick, President
<PAGE> 8
IMPORTANT
THE CONSENT SOLICITATION PERIOD WILL CLOSE AT 12:00 P.M., PACIFIC TIME, ON
- ------------------, 1997. THE VOTES WILL THEN BE TABULATED ON THAT DATE. PLEASE
MARK, SIGN, DATE AND RETURN THE ENCLOSED LETTER OF TRANSMITTAL AND CONSENT
STATEMENT IN THE ENCLOSED SELF-ADDRESSED ENVELOPE ON OR BEFORE 12:00 P.M. ON
- ------------, 1997. TO ASSURE THAT YOUR UNITS ARE REPRESENTED IN THE VOTE, YOU
ARE URGED TO RETURN PROMPTLY THE COMPLETED LETTER OF TRANSMITTAL AND CONSENT
STATEMENT. YOU MAY WITHDRAW OR CHANGE YOUR CONSENT ONLY IN A WRITING WHICH IS
RECEIVED BY THE EXCHANGE AGENT PRIOR TO THE CLOSE OF THE SOLICITATION PERIOD SET
FORTH ABOVE.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT ON FORM S-4 RELATING TO THESE SECURITIES HAS BEEN FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD
NOR MAY OFFERS TO PURCHASE THESE SECURITIES BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT ON FORM S-4 BECOMES EFFECTIVE. THE JOINT CONSENT
STATEMENT/PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION
OF AN OFFER TO PURCHASE NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY
STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE> 9
SUBJECT TO COMPLETION NOVEMBER 4, 1997
PRELIMINARY COPY
PERFORMANCE ASSET MANAGEMENT COMPANY
4100 NEWPORT PLACE
SUITE 400
NEWPORT BEACH, CALIFORNIA 92660
, 1997
Dear Shareholder:
We are pleased to announce that the Board of Directors of Performance Asset
Management Company, a Delaware corporation ("Company"), has approved a proposal
to merge with Performance Capital Management, Inc., a California corporation
("PCM"), and certain California limited partnerships ("Partnerships"), and has
also approved other related proposed transactions whereby the Company would
acquire all of the assets of PCM and the Partnerships and issue to PCM and to
the Partnerships shares of the Company's $.001 par value common stock in
exchange for those assets. Additionally, PCM would be wound up and dissolved and
the shares of the Company's $.001 par value common stock received by PCM in
exchange for its assets shall be distributed by PCM to its shareholders.
Similarly, after the issuance by the Company of its $.001 par value common stock
to the Partnerships in exchange for their assets, the Partnerships shall be
wound up and dissolved and those shares of the Company's common stock shall be
distributed by the Partnerships to the General Partner (hereinafter defined) and
the limited partners ("Limited Partners") in exchange for their interests in the
Partnerships. The Partnerships are:
PERFORMANCE ASSET MANAGEMENT FUND, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP;
PERFORMANCE ASSET MANAGEMENT FUND II, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP;
PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP;
PERFORMANCE ASSET MANAGEMENT FUND IV, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP; AND
PERFORMANCE ASSET MANAGEMENT FUND V, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP.
PCM and the Partnerships would cease to exist by operation of law upon
completion of the proposed merger. Additionally, the shares of $.001 par value
common stock of the Company would then be registered and publicly tradeable
(subject to some restrictions) pursuant to appropriate filings with the
Securities and Exchange Commission.
In accordance with Section 228 of the Delaware General Corporation Law, the
Board of Directors of the Company hereby solicits the written consents of the
shareholders of the Company without a meeting to approve a number of
interrelated proposals that would permit the acquisition by the Company of the
assets of PCM and the Partnerships and the merger of the Partnerships and PCM
with and into the Company. We have been informed by our advisors that the Merger
Proposal is desirable so as to maximize the liquid value of investments in the
shares of the Company.
These proposals represent the culmination of a great deal of thought and
effort over a period of many months by (i) the general partner of the
Partnerships ("General Partner") and its legal, financial and accounting
advisors; (ii) PCM and its legal, financial and accounting advisors; and (iii)
the Company and the Company's legal, financial and accounting advisors. The
Boards of Directors of PCM and the Company have
<PAGE> 10
both unanimously approved each of these proposals. The Board of Directors of the
General Partner has unanimously approved each of these proposals, subject to
approval by the Limited Partners, and has concluded that these proposals provide
a number of significant advantages that should serve to enhance the value of the
investments by the shareholders of PCM, the shareholders of the Company, and the
Limited Partners during the coming years.
The Joint Consent Statement/Prospectus that is being provided to you
explain each element of the proposals in detail and attempt to answer many of
the questions you may have regarding those proposals. I urge each of you to read
this material carefully. Moreover, please call the Information Agent at (888)
754-4145 with any questions you have about the proposals.
I encourage each of you to complete and return the enclosed consent forms
in the enclosed envelope as soon as possible. The consent forms must be returned
no later than 12:00 P.M., Pacific Time, on , 1997. Thank you for
your patience and cooperation during the consent solicitation period.
Sincerely,
PERFORMANCE ASSET MANAGEMENT COMPANY,
a Delaware corporation
Vincent E. Galewick,
Chairman of the Board of Directors
2
<PAGE> 11
SOLICITATION OF WRITTEN CONSENTS WITHOUT MEETING
TO: The shareholders of Performance Asset Management Company:
NOTICE IS HEREBY GIVENthat the shareholders ("Shareholders") of Performance
Asset Management Company, a Delaware corporation ("Company"), are hereby
solicited to provide their written consents without a meeting regarding the
following matters pursuant to Section 228 of the Delaware General Corporation
Law in accordance with the terms and provisions of the enclosed Joint Consent
Statement/Prospectus:
1. A proposal to merge Performance Capital Management, Inc., a
California corporation ("PCM"), and certain California limited partnerships
("Partnerships") into the Company as a result of which a series of
interrelated changes to the current organizational form of PCM, the
Partnerships and the Company would be implemented, including (a) merging
PCM and the Partnerships with and into the Company, as a result of which
the Company would be the sole surviving entity ("Surviving Corporation");
(b) terminating the legal existence of PCM and the Partnerships by
operation of law; and (c) exchanging each shareholder's interest in PCM and
the General Partner's interest and each Limited Partner's interest in each
Partnership for shares of $.001 par value common stock of the Surviving
Corporation ("Common Shares").
2. A proposal to consider such other matters as may be set forth in
the enclosed Joint Consent Statement/Prospectus.
The shareholders of record at the close of business on June 30, 1997, are
entitled to notice of, and to vote on, the above matters in accordance with the
terms and provisions of the Joint Consent Statement/Prospectus.
By order of the Board of Directors of the
Company
PERFORMANCE ASSET MANAGEMENT COMPANY,
a Delaware corporation
Vincent E. Galewick, President
<PAGE> 12
IMPORTANT
THE CONSENT SOLICITATION PERIOD WILL CLOSE AT 12:00 P.M., PACIFIC TIME, ON
- ------------, 1997. THE VOTES WILL THEN BE TABULATED ON THAT DATE. PLEASE MARK,
SIGN, DATE AND RETURN THE ENCLOSED CONSENT STATEMENT IN THE ENCLOSED
SELF-ADDRESSED ENVELOPE ON OR BEFORE 12:00 P.M. ON
- ------------, 1997. TO ASSURE THAT YOUR SHARES ARE REPRESENTED IN THE VOTE, YOU
ARE URGED TO RETURN PROMPTLY THE COMPLETED CONSENT FORMS. YOU MAY WITHDRAW OR
CHANGE YOUR CONSENT ONLY IN A WRITING WHICH IS RECEIVED BY THE EXCHANGE AGENT
PRIOR TO THE CLOSE OF THE SOLICITATION PERIOD SET FORTH ABOVE.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT ON FORM S-4 RELATING TO THESE SECURITIES HAS BEEN FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD
NOR MAY OFFERS TO PURCHASE THESE SECURITIES BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT ON FORM S-4 BECOMES EFFECTIVE. THE JOINT CONSENT
STATEMENT/PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION
OF AN OFFER TO PURCHASE NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY
STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE> 13
SUBJECT TO COMPLETION NOVEMBER 4, 1997
PRELIMINARY COPY
PERFORMANCE CAPITAL MANAGEMENT, INC.
4100 NEWPORT PLACE
SUITE 400
NEWPORT BEACH, CALIFORNIA 92660
, 1997
Dear Shareholder:
We are pleased to announce that the Board of Directors of Performance
Capital Management, Inc., a California corporation ("PCM"), has approved a
proposal to merge with Performance Asset Management Company, a Delaware
corporation ("Company"), and certain California limited partnerships
("Partnerships"), and has also approved other related proposed transactions
whereby the Company would acquire all of the assets of PCM and the Partnerships
and issue to PCM and to the Partnerships shares of the Company's $.001 par value
common stock in exchange for those assets. Additionally, PCM would be wound up
and dissolved and the shares of the Company's $.001 par value common stock
received by PCM in exchange for its assets shall be distributed by PCM to its
shareholders. Similarly, after the issuance by the Company of its $.001 par
value common stock to the Partnerships in exchange for their assets, the
Partnerships shall be wound up and dissolved and those shares of the Company's
common stock shall be distributed by the Partnerships to the General Partner
(hereinafter defined) and the limited partners ("Limited Partners") in exchange
for their Partnership interests. The Partnerships are:
PERFORMANCE ASSET MANAGEMENT FUND, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP;
PERFORMANCE ASSET MANAGEMENT FUND II, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP;
PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP;
PERFORMANCE ASSET MANAGEMENT FUND IV, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP; AND
PERFORMANCE ASSET MANAGEMENT FUND V, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP.
PCM and the Partnerships would cease to exist by operation of law upon
completion of the proposed merger. Additionally, the shares of the Company's
$.001 par value common stock would then be registered and publicly tradeable
(subject to some restrictions) pursuant to appropriate filings with the
Securities and Exchange Commission.
In accordance with Section 603 of the California General Corporation Law,
PCM hereby solicits the written consents of its shareholders to approve a number
of interrelated proposals that would permit the acquisition by the Company of
the assets of PCM and the Partnerships and the merger of PCM and the
Partnerships with and into the Company. We have been informed by appropriate
advisors that the Merger Proposal is desirable so as to maximize the liquidity
of investments in the shares of PCM.
These proposals represent the culmination of a great deal of thought and
effort during a period of many months by (i) the general partner of the
Partnerships ("General Partner") and its legal, financial and accounting
advisors; (ii) PCM and its legal, financial and accounting advisors; and (iii)
the Company and the Company's legal, financial and accounting advisors. The
Boards of Directors of PCM and of the Company have both unanimously approved
each of these proposals. The Board of Directors of the General Partner has
unanimously approved each of these proposals, subject to approval by the Limited
Partners, and has concluded
<PAGE> 14
that these proposals provide a number of significant advantages that should
serve to enhance the value of the investments by the shareholders of PCM, the
shareholders of the Company, and the Limited Partners during the coming years.
The Joint Consent Statement/Prospectus that are being provided to you
explain each element of the proposals in detail and attempt to answer many of
the questions you may have regarding the proposals. I urge each of you to read
this material carefully. Moreover, please call the Information Agent at (888)
754-4145 with any questions you have about these proposals.
We encourage each of you to complete and return the enclosed consent forms
in the enclosed envelope as soon as possible. The consent forms must be returned
no later than 12:00 P.M., Pacific Time, on , 1997. Thank you for
your patience and cooperation during the consent solicitation period.
Sincerely,
PERFORMANCE CAPITAL MANAGEMENT, INC.,
a California corporation
Vincent E. Galewick,
Chairman of the Board of Directors
2
<PAGE> 15
SOLICITATION OF WRITTEN CONSENTS WITHOUT MEETING
TO: The shareholders of Performance Capital Management, Inc.:
NOTICE IS HEREBY GIVEN that the shareholders ("Shareholders") of
Performance Capital Management, Inc., a California corporation ("PCM"), are
hereby solicited to provide their written consents approving the following
matters without a meeting pursuant to Section 603 of the California General
Corporation Law in accordance with the terms and provisions of the enclosed
Joint Consent Statement/Prospectus:
1. A proposal to merge PCM and certain California limited partnerships
("Partnerships") into Performance Asset Management Company, a Delaware
corporation ("Company"), as a result of which a series of interrelated
changes to the current organizational form of PCM, the Partnerships and the
Company would be implemented, including (a) merging PCM and the
Partnerships with and into the Company, as a result of which the Company
would be the sole surviving entity ("Surviving Corporation"); (b)
terminating the legal existences of PCM and the Partnerships by operation
of law; and (c) exchanging each shareholder's interest in PCM and the
General Partner's and each Limited Partners interest in each Partnership
for shares of $.001 par value common stock of the Surviving Corporation
("Common Shares").
2. A proposal to consider such other matters as may be set forth in
the enclosed Joint Consent Statement/Prospectus.
The shareholders of record at the close of business on June 30, 1997, are
entitled to notice of, and to vote on, the above matters in accordance with the
terms and provisions of the Joint Consent Statement/Prospectus.
By order of the Board Of Directors of the
Company
PERFORMANCE CAPITAL MANAGEMENT, INC.,
a California corporation
Vincent E. Galewick, President
<PAGE> 16
IMPORTANT
THE CONSENT SOLICITATION PERIOD WILL CLOSE AT 12:00 P.M., PACIFIC TIME, ON
__________ , 1997. THE VOTES WILL THEN BE TABULATED ON THAT DATE. PLEASE MARK,
SIGN, DATE AND RETURN THE ENCLOSED CONSENT STATEMENT IN THE ENCLOSED
SELF-ADDRESSED ENVELOPE ON OR BEFORE 12:00 P.M. ON __________ , 1997. TO ASSURE
THAT YOUR SHARES ARE REPRESENTED IN THE VOTE, YOU ARE URGED TO RETURN PROMPTLY
THE COMPLETED CONSENT FORMS. YOU MAY WITHDRAW OR CHANGE YOUR CONSENT ONLY IN A
WRITING WHICH IS RECEIVED BY THE EXCHANGE AGENT PRIOR TO THE CLOSE OF THE
SOLICITATION PERIOD SET FORTH ABOVE.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT ON FORM S-4 RELATING TO THESE SECURITIES HAS BEEN FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD
NOR MAY OFFERS TO PURCHASE THESE SECURITIES BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT ON FORM S-4 BECOMES EFFECTIVE. THE JOINT CONSENT
STATEMENT/PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION
OF AN OFFER TO PURCHASE NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY
STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE> 17
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. The Joint Consent Statement/Prospectus shall not
constitute an offer to sell or the solicitation of an offer to buy nor
shall there be any sale of these securities in any State in which such
offer, solicitation or sale would be unlawful prior to registration or
qualification under the Securities laws of any such State.
SUBJECT TO COMPLETION, DATED NOVEMBER 4, 1997
PERFORMANCE ASSET MANAGEMENT COMPANY,
A DELAWARE CORPORATION;
PERFORMANCE CAPITAL MANAGEMENT, INC.,
A CALIFORNIA CORPORATION;
PERFORMANCE ASSET MANAGEMENT FUND, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP;
PERFORMANCE ASSET MANAGEMENT FUND II, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP;
PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP;
PERFORMANCE ASSET MANAGEMENT FUND IV, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP; AND
PERFORMANCE ASSET MANAGEMENT FUND V, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP.
JOINT CONSENT STATEMENT/PROSPECTUS
7,511,500 COMMON SHARES
$.001 PAR VALUE
SHAREHOLDERS AND LIMITED PARTNERS SHOULD CAREFULLY CONSIDER THE MATTERS SET
FORTH UNDER THE CAPTION "RISK FACTORS" BEGINNING ON PAGE 22.
This Joint Consent Statement/Prospectus is the joint consent statement of:
(i) Performance Asset Management Fund, Ltd., A California Limited Partnership
("PAM I"); (ii) Performance Asset Management Fund II, Ltd., A California Limited
Partnership ("PAM II"); (iii) Performance Asset Management Fund III, Ltd., A
California Limited Partnership ("PAM III"); (iv) Performance Asset Management
Fund IV, Ltd., A California Limited Partnership ("PAM IV"); (v) Performance
Asset Management Fund V, Ltd., A California Limited Partnership ("PAM V") (those
limited partnerships specified in Items (i) through (v), inclusive, are the
"Partnerships"); (vi) Performance Capital Management, Inc., a California
corporation ("PCM"); and (vii) Performance Asset Management Company, a Delaware
corporation ("Company"). This Joint Consent Statement/Prospectus is being
furnished to the limited partners of the Partnerships ("Limited Partners") and
the shareholders of PCM and the shareholders of the Company ("Shareholders"), in
each case of record as of June 30, 1997 ("Determination Date"), in connection
with the solicitation on behalf of the Board of Directors of the Company of the
written consents of the Limited Partners and the Shareholders (obtained without
meetings) to consider and approve a proposed merger of PCM and the Partnerships
with and into the Company ("Merger Proposal") pursuant to the Merger Agreement
and Plan of Reorganization dated as of October 31, 1997, between PCM, the
Partnerships and the Company ("Merger Agreement"), and to consider such other
matters as may be set forth in the enclosed Joint Consent Statement/Prospectus.
A vote in favor of the Merger Proposal would have the effect of a vote in
favor of a series of interrelated changes to the current organizational forms of
PCM, the Partnerships and the Company, including (a) merging PCM and the
Partnerships with and into the Company, as a result of which the Company would
be the sole surviving entity ("Surviving Corporation"); (b) terminating PCM's
legal existence and the Partnerships' legal existences by operation of law, and
(c) exchanging each Shareholder's interest in PCM and the General Partner's
interest and each Limited Partner's interest in each Partnership for an
appropriate number of shares of $.001 par value common stock of the Surviving
Corporation ("Common Shares" or "Merger Stock").
<PAGE> 18
One purpose of the Merger Proposal is to permit the Merger Stock eventually
to be eligible to be approved for quotation on a regional or national market
quotation system. No prediction can be made, however, as to the price at which
the Merger Stock will trade, or if it will trade at all. See "RISK
FACTORS -- Uncertainty Regarding Trading and Market Price for Common Shares."
The Board of Directors of the Company recommends that each Shareholder of
the Company consent to the Merger Proposal. The Board of Directors of PCM
recommends that each Shareholder of PCM consent to the Merger Proposal. The
Board of Directors of the General Partner recommends that each Limited Partner
of each Partnership consent to the Merger Proposal.
This Joint Consent Statement/Prospectus and the accompanying material and
consent forms will first be mailed to the Shareholders and Limited Partners on
or about .
------------------------
THE ABOVE MATTERS ARE SPECIFIED IN DETAIL IN THIS JOINT CONSENT
STATEMENT/PROSPECTUS. THE MERGER PROPOSAL AND RELATED TRANSACTIONS ARE COMPLEX.
THE SHAREHOLDERS AND LIMITED PARTNERS ARE STRONGLY URGED TO READ AND CONSIDER
CAREFULLY THIS JOINT CONSENT STATEMENT/PROSPECTUS IN ITS ENTIRETY, PARTICULARLY
THE MATTERS SPECIFIED IN THAT PORTION OF THIS JOINT CONSENT STATEMENT/PROSPECTUS
ENTITLED "RISK FACTORS."
THIS SOLICITATION OF CONSENT EXPIRES AT 12:00 P.M., PACIFIC TIME, ON
, 1997, UNLESS EXTENDED. NEITHER THE MERGER PROPOSAL AND RELATED TRANSACTIONS
NOR THESE SECURITIES HAVE BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS JOINT CONSENT STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE TRANSACTION DESCRIBED IN THIS JOINT CONSENT STATEMENT/PROSPECTUS WILL BE
SUBJECT TO THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS
AMENDED ("SECURITIES ACT").
------------------------
NO PERSON HAS BEEN AUTHORIZED TO FURNISH ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED OR INCORPORATED IN THIS JOINT CONSENT
STATEMENT/PROSPECTUS IN CONNECTION WITH THE MATTERS REFERRED TO HEREIN AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN SO AUTHORIZED BY THE COMPANY, PCM, THE GENERAL PARTNER OR THE
PARTNERSHIPS. THE DELIVERY OF THIS JOINT CONSENT STATEMENT/PROSPECTUS SHALL NOT,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. THIS JOINT CONSENT
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS JOINT CONSENT
STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A CONSENT STATEMENT, IN ANY
JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER, OR
SOLICITATION OF AN OFFER, OR CONSENT SOLICITATION IN SUCH JURISDICTION.
THE DATE OF THIS JOINT CONSENT STATEMENT/PROSPECTUS IS , 1997.
<PAGE> 19
This Joint Consent Statement/Prospectus does not constitute an offer to
sell or a solicitation of an offer to purchase any securities other than the
shares of the Merger Stock, nor does it constitute an offer to sell or a
solicitation of an offer to purchase any of the Merger Stock to any person in
any jurisdiction in which it is unlawful to make such an offer or solicitation
to such person. Neither the delivery of this Joint Consent Statement/Prospectus
nor any sale made hereunder shall under any circumstances imply that the
information contained herein is correct as of any time subsequent to the date
hereof.
ADDITIONAL INFORMATION
The Company has filed with the State of California Department of
Corporations ("Department") an Application for Qualification of Securities
("Application") under the California Corporate Securities Law of 1968, as
amended, with respect to the Merger Stock. This Joint Consent
Statement/Prospectus does not contain all the information set forth in the
Application. Copies of the exhibits and schedules attached to the Application
may be examined at the Department, 3700 Wilshire Boulevard, Los Angeles,
California. The Company has also filed with the Blue Sky regulators of the
various states in which the Limited Partners reside applications to register or
qualify the Merger Stock in those states. This Joint Consent
Statement/Prospectus does not contain all of the information set forth in those
applications. Copies of the exhibits and schedules attached to those
applications may be examined at the offices of those Blue Sky regulators.
The Company will be required to file reports and other information with the
Securities and Exchange Commission ("Commission") pursuant to the Securities
Exchange Act of 1934, as amended. Shareholders will receive annual reports
containing audited financial statements with a report thereon by the Company's
independent certified public accountants, and quarterly reports containing
unaudited financial information for each of the first three quarters of each
fiscal year.
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form S-4 ("Registration
Statement") under the Securities Act with the Commission relating to the Merger
Stock. As permitted by the rules and regulations of the Commission, this Joint
Consent Statement/Prospectus omits certain information, exhibits and
undertakings contained in the Registration Statement. For further information
pertaining to the Merger Stock reference is made to the Registration Statement,
including the exhibits filed as part thereof.
THIS JOINT CONSENT STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE
AVAILABLE UPON REQUEST FROM THE INFORMATION AGENT AT 4100 NEWPORT PLACE, SUITE
400, NEWPORT BEACH, CALIFORNIA 92660. IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUEST SHOULD BE MADE BY , 1997.
2
<PAGE> 20
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GLOSSARY............................................... 5
SUMMARY................................................ 7
Introduction......................................... 7
The Parties.......................................... 7
The Merger........................................... 10
Fairness Opinion..................................... 12
The Company.......................................... 14
Commencement and Cessation of "Nominally Foreign"
Status............................................. 17
Certain Advantages of the Merger Proposal and Related
Transactions....................................... 18
Certain Disadvantages of the Merger Proposal and
Related Transactions............................... 19
Summary Financial Information of the Partnerships.... 21
RISK FACTORS........................................... 22
No Operating History................................. 22
Risks Associated With Rapid Growth................... 22
Risks Associated With Future Acquisitions............ 22
Integration of Acquired Operations................... 23
Taxation............................................. 23
Significant Reduction in Distributions............... 23
Uncertainty Regarding Trading and Market Price of
Common Shares...................................... 24
Limited Public Market................................ 24
Potential Price Volatility........................... 24
Possible Dilution.................................... 24
Shares Eligible for Future Sale...................... 24
Control by Principal Shareholder; Anti-Takeover
Measures........................................... 25
Addition of Provisions That May Discourage Changes of
Control............................................ 25
Unknown Acquisitions................................. 25
Nature of Assets Acquired by Company................. 25
Unspecified Assets................................... 25
Speculative Investment............................... 25
Dependence on Management............................. 25
Dependence on Key Personnel.......................... 26
Dependence on Independent Contractors and
Consultants........................................ 26
Dependence on Labor Force............................ 26
Government Regulation................................ 26
Compliance with and Approval from Federal and State
Authorities........................................ 26
Additional Financing May Be Required................. 26
Uncertainty of Future Financial Results, Fluctuations
in Operating Results............................... 26
Limited Resources of the Company..................... 27
Substantial Competition.............................. 27
Limitation on Liability of Officers and Directors of
the Company........................................ 27
DISCLOSURE OF COMMISSION'S POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES....................... 27
No Limitation on Indebtedness........................ 27
Loss on Dissolution of the Company................... 27
Remuneration of Directors, Officers and Employees.... 27
Receipt of Compensation Regardless of
Profitability...................................... 28
Conflicts of Interest................................ 28
No Arm's Length Agreements........................... 28
Common Relationships................................. 28
<CAPTION>
PAGE
----
<S> <C>
Ability of the Company to Implement Its Business
Strategy........................................... 29
Risk of Business Interruption; Reliance on Computer
and Telecommunications Infrastructure.............. 29
Risks of Uninsured Loss; Acts of God................. 29
THE MERGER............................................. 29
Conditions of the Merger............................. 30
Effects of the Merger................................ 30
The Merger Agreement................................. 30
Approval by All of the Partnerships Is Required...... 30
Merger Stock Will Be Restricted...................... 31
Consummation of the Merger........................... 31
Costs of the Merger.................................. 31
Alternatives to the Merger........................... 32
Recommendations...................................... 32
DESCRIPTION OF THE COMMON SHARES....................... 33
Common Shares........................................ 33
Preferred Stock...................................... 33
Anti-Takeover Provisions of the Surviving
Corporation's Organizational Documents............. 33
Fair Price Provision................................. 34
Business Combinations................................ 35
Control Share Acquisitions........................... 35
Transactions with Interested Shareholders............ 35
Shareholder Action; Special Meetings................. 35
Number of Directors; Removal; Vacancies.............. 36
Shareholder Proposals and Nominations................ 36
Action by Shareholders Without a Meeting............. 36
Amendment of Bylaws.................................. 36
Indemnification of Officers and Directors............ 37
Delaware Anti-Takeover Law........................... 37
DETERMINATION OF EXCHANGE VALUE AND ALLOCATION OF
COMMON SHARES........................................ 37
Exchange Value....................................... 37
Fairness Opinion..................................... 37
Exchange of Shares................................... 38
PERFORMANCE ASSET MANAGEMENT COMPANY VALUATION
SUMMARY.............................................. 39
RESALE OF THE COMMON SHARES............................ 39
DISTRIBUTION POLICY.................................... 40
Historical Distributions of the Partnerships......... 40
BUSINESS AND ASSETS.................................... 40
The Partnerships and PCM............................. 40
Background of the Distressed Consumer Indebtedness
Industry........................................... 41
Bulk Portfolios...................................... 42
Acquisition and Analysis of Portfolios............... 42
Servicing and Collection............................. 42
VOTING PROCEDURES...................................... 43
Distribution of Solicitation Materials............... 43
No Special Meetings.................................. 43
Required Vote........................................ 43
Voting Procedures and Consents....................... 44
Completion Instructions.............................. 45
Withdrawal or Change of Vote......................... 45
Solicitation and Tabulation of Consents.............. 45
Failure of Limited Partners to Return Consent
Forms.............................................. 45
</TABLE>
3
<PAGE> 21
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Special Requirements for Certain Limited Partners or
Shareholders....................................... 45
Dissenting Limited Partners and Dissenting
Shareholders....................................... 46
SUMMARY COMPARISON OF UNITS AND COMMON SHARES.......... 47
Form of Organization and Purpose..................... 47
Length of Investment................................. 48
Properties and Diversification....................... 48
Additional Equity.................................... 49
Borrowing Policies................................... 49
Management Control................................... 50
Management Liability and Indemnification............. 51
Anti-Takeover Provisions............................. 52
Voting Rights........................................ 53
Compensation, Fees and Distributions................. 53
Liability of Investors............................... 54
Nature of Investment................................. 54
Potential Dilution of Payment Rights................. 55
Liquidity............................................ 55
Taxation............................................. 56
Passive v. Portfolio Income.......................... 56
Benefits from Distributions.......................... 56
Fiduciary Duties..................................... 57
Reporting Procedures................................. 57
State Taxation....................................... 57
RIGHTS OF DISSENTING SHAREHOLDERS AND DISSENTING
LIMITED PARTNERS..................................... 58
Dissenting Limited Partners and Appraisal Rights..... 58
Dissenting Shareholders and Appraisal Rights......... 59
FEDERAL INCOME TAX CONSIDERATIONS...................... 60
Introduction......................................... 60
Difference between Units and Common Shares........... 61
Limited Partners and Shareholders.................... 62
The Surviving Corporation and the Partnerships....... 62
OTHER TAX CONSIDERATIONS............................... 63
PRINCIPAL SHAREHOLDERS AND LIMITED PARTNERS............ 64
MANAGEMENT OF THE GENERAL PARTNER, PCM AND THE
COMPANY.............................................. 64
Additional Key Personnel............................. 66
SUMMARY COMPENSATION TABLE (PCM)....................... 67
SUMMARY COMPENSATION TABLE (GENERAL PARTNER)........... 68
Committees of the Board of Directors................. 68
Stock Option Plan.................................... 68
Stock Options Pursuant to Employment Relationships...
Indemnification Arrangements......................... 70
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......... 70
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................. 72
PAGE
----
Delinquent Consumer Indebtedness Business............ 72
Overview............................................. 73
PCM's Operations..................................... 74
Acquisition of Portfolios............................ 74
Servicing and Collections............................ 74
Employees............................................ 75
Expansion............................................ 75
RESULTS OF OPERATIONS.................................. 76
Overview............................................. 76
Partnership Revenues................................. 76
Other Partnership Income............................. 76
PCM's Revenues....................................... 76
Partnerships' Operating Costs and Expenses........... 76
Management and Other Fees Incurred by the
Partnerships....................................... 77
PCM's Operating Costs and Expenses................... 77
PCM's Liquidity and Capital Resources................ 78
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA AND
COMPARATIVE PER SHARE DATA........................... 80
PRO FORMA CONDENSED FINANCIAL INFORMATION.............. 81
EXPERTS................................................ 102
LEGAL MATTERS.......................................... 102
APPENDIX A -- AGREEMENT AND PLAN OF MERGER............. A-1
APPENDIX B -- SUPPLEMENT FOR PERFORMANCE ASSET
MANAGEMENT FUND, LTD., A CALIFORNIA LIMITED
PARTNERSHIP.......................................... B-1
APPENDIX C -- SUPPLEMENT FOR PERFORMANCE ASSET
MANAGEMENT FUND II, LTD., A CALIFORNIA LIMITED
PARTNERSHIP.......................................... C-1
APPENDIX D -- SUPPLEMENT FOR PERFORMANCE ASSET
MANAGEMENT FUND III, LTD., A CALIFORNIA LIMITED
PARTNERSHIP.......................................... D-1
APPENDIX E -- SUPPLEMENT FOR PERFORMANCE ASSET
MANAGEMENT FUND IV, LTD., A CALIFORNIA LIMITED
PARTNERSHIP.......................................... E-1
APPENDIX F -- SUPPLEMENT FOR PERFORMANCE ASSET
MANAGEMENT FUND V, LTD., A CALIFORNIA LIMITED
PARTNERSHIP.......................................... F-1
APPENDIX G -- FAIRNESS OPINION......................... G-1
APPENDIX H -- LETTER OF TRANSMITTAL AND CONSENT
STATEMENT (PAM I).................................... H-1
APPENDIX I -- LETTER OF TRANSMITTAL AND CONSENT
STATEMENT (PAM II)................................... I-1
APPENDIX J -- LETTER OF TRANSMITTAL AND CONSENT
STATEMENT (PAM III).................................. J-1
APPENDIX K -- LETTER OF TRANSMITTAL AND CONSENT
STATEMENT (PAM IV)................................... K-1
APPENDIX L -- LETTER OF TRANSMITTAL AND CONSENT
STATEMENT (PAM V).................................... L-1
APPENDIX M -- INDENTURE AGREEMENT...................... M-1
APPENDIX N -- UNSECURED SUBORDINATED DEBENTURE......... N-1
</TABLE>
4
<PAGE> 22
GLOSSARY OF TERMS
The following defined terms are in addition to those defined terms
specified elsewhere in this Joint Consent Statement/Prospectus and are deemed to
include the singular, as well as the plural, and the present tense, as well as
the past tense, and, when they appear in this Joint Consent
Statement/Prospectus, are defined as follows:
"AFFILIATE" shall mean (i) any Person who directly or indirectly
controls or is controlled by or under common control with another Person;
(ii) a Person owning or controlling 10% or more of the outstanding voting
securities of such other Person; (iii) any officer or director of such
other Person; or (iv) any Person who is an officer, director, general
partner, trustee, or holder of 10% or more of the voting securities or
beneficial interests of any of the foregoing.
"CALIFORNIA GENERAL CORPORATION LAW" shall mean the General
Corporation Law of the State of California, as amended.
"CLOSING DATE" shall mean the date on which all of the conditions
precedent to the obligations of each of the parties, as specified in the
Merger Agreement, shall have been satisfied or shall have been waived, and
further, on the date of the transfer of the Merger Stock pursuant to the
Merger Agreement.
"CODE" shall mean the United States Internal Revenue Code of 1986, as
amended.
"COMMISSION" shall mean the United States Securities and Exchange
Commission.
"COMPANY" shall mean Performance Asset Management Company, a Delaware
corporation.
"CONSENT FORM" shall mean the Letter of Transmittal and Consent
Statement.
"DELAWARE GENERAL CORPORATION LAW" shall mean the General Corporation
Law of the State of Delaware, as amended.
"DETERMINATION DATE" shall mean the date set by the Board of Directors
of the Company which shall serve as the record date to determine the
capital accounts of each Limited Partner and the Company Shareholders, PCM
Shareholders, and Limited Partners of record entitled to vote on the
proposed Merger. The Company currently has specified June 30, 1997, as the
Determination Date.
"DISSENTING LIMITED PARTNER" shall mean a holder of one or more Units
who casts a vote against the Merger Proposal.
"DISSENTING SHAREHOLDER" shall mean any shareholder of PCM or the
Company who exercises his or her dissenters' rights under the Delaware
General Corporation Law or the California General Corporation Law.
"EFFECTIVE DATE" shall mean the date the Registration Statement is
effective with the Commission and with any applicable state Blue Sky
regulatory agencies.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"EXCHANGE AGENT" shall mean U.S. Stock Transfer Corporation, 1745
Gardena Avenue, Glendale, California.
"EXCHANGE VALUE" shall mean the value determined by the Company, PCM
and the General Partner for Units, shares of PCM common stock and shares of
the Company's common stock, as reviewed and determined to be fair from a
financial point of view by the Fairness Analyst.
"FAIRNESS ANALYST" shall mean Willamette Management Associates, Inc.,
the independent analyst retained to furnish the Fairness Opinion.
"FAIRNESS OPINION" shall mean the determination by the Fairness
Analyst that the Exchange Value is fair from a financial standpoint to the
Partnerships.
"GAAP" shall mean United States' generally accepted accounting
principles as set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entities as
approved by a significant segment of the accounting profession in the
United States of America as in effect from time to time.
"GENERAL PARTNER" shall mean Performance Development, Inc., a
California corporation, the General Partner of the Partnerships.
"INFORMATION AGENT" shall mean that Person engaged by the Company to
provide certain consulting, administrative and clerical work in connection
with the Merger Proposal.
"IRS" shall mean the United States Internal Revenue Service.
"LIMITED PARTNER" or "LIMITED PARTNERS" shall mean a limited partner,
in the singular, or limited partners, in the plural, of any or all of the
Partnerships.
5
<PAGE> 23
"MERGER" shall mean the proposed merger of PCM and the Partnerships
with and into the Company pursuant to the Merger Agreement.
"MERGER AGREEMENT" shall mean the Merger Agreement and Plan of
Reorganization dated as of October 31, 1997 between and among the Company,
PCM and the Partnerships.
"MERGER PROPOSAL" shall mean the proposed Merger as specified in this
Prospectus.
"MERGER STOCK" shall mean the shares of $.001 par value common stock
of the Company issued in exchange for the assets, properties, rights,
interests, and liabilities of PCM and the Partnerships.
"PARTNERSHIP AGREEMENTS" shall mean the Agreements of Limited
Partnership of the Partnerships entered into by the General Partner and the
Limited Partners. "PARTNERSHIP AGREEMENT" shall mean any one of the
Partnership Agreements.
"PARTNERSHIPS" (i) Performance Asset Management Fund, Ltd., A
California Limited Partnership ("PAM I"); (ii) Performance Asset Management
Fund II, Ltd., A California Limited Partnership ("PAM II"); Performance
Asset Management Fund III, Ltd., A California Limited Partnership ("PAM
III"); Performance Asset Management Fund IV, Ltd., A California Limited
Partnership ("PAM IV"); and Performance Asset Management Fund V, Ltd., A
California Limited Partnership ("PAM V"). "PARTNERSHIP" shall mean any of
the Partnerships.
"PCM" shall mean Performance Capital Management, Inc., a California
corporation.
"PERSON" shall mean an individual, partnership, entity, corporation,
association, joint stock company, trust, joint venture, unincorporated
organization, or a governmental entity (or any department, agency, or
political subdivision thereof.)
"PROSPECTUS" shall mean this Joint Consent Statement/Prospectus dated
October 31, 1997, and any and all amendments and supplements thereto.
"REGISTRATION STATEMENT" shall mean the Registration Statement on Form
S-4 under the Securities Act filed with the Commission with respect to the
Merger Stock.
"RTC" shall mean the Resolution Trust Company.
"RULE 144" shall mean the rule promulgated under the Securities Act
that permits holders of restricted securities as well as Affiliates of an
issuer of securities, pursuant to certain conditions and subject to certain
restrictions, to sell their securities publicly without registration under
the Securities Act.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended
from time to time.
"SHAREHOLDERS" shall mean the holders of all issued and outstanding
shares of (i) no par common stock issued by PCM and (ii) $.001 par value
common stock issued by the Company. "SHAREHOLDER" shall mean any one of the
Shareholders.
"SOLICITATION AGENT" shall mean Income Network Company, a California
corporation, and an Affiliate of the Company, PCM and the General Partner,
which shall solicit the votes of the Limited Partners regarding the Merger
Proposal. Income Network Company is a Broker/Dealer fully registered with
the National Association of Securities Dealers, Inc.
"SOLICITATION MATERIALS" shall mean this Prospectus, together with the
accompanying appropriate Consent Forms, which are being distributed jointly
to the Limited Partners and the Shareholders to obtain their votes "for" or
"against" the Merger Proposal and related transactions.
"SOLICITATION PERIOD" shall mean the period during which the Limited
Partners and the Shareholders may vote "for" or "against" the Merger
Proposal. The Solicitation Period commences upon the delivery of the
Prospectus to the Limited Partners and the Shareholders and will continue
until the latter of (i) 30 calendar days after the initial delivery of the
Prospectus or (ii) such later date as may be designated by the Board of
Directors of the Company, the Board of Directors of PCM, and the General
Partner.
"SURVIVING CORPORATION" shall mean the corporation surviving after the
Merger is consummated, which shall be Performance Asset Management Company,
a Delaware corporation.
"THOMPSON-KILLEA ACT" shall mean the Thompson-Killea Limited
Partnership Act of 1992, as enacted in the State of California.
"TREASURY REGULATIONS" shall mean the United States Treasury
Regulations promulgated under the Code, as such Treasury Regulations may be
amended from time to time (including corresponding provisions of succeeding
regulations) whether in final, temporary or proposed form.
"TRUST" shall mean the Performance Asset Management Fund Trust created
by the General Partner, for and on behalf of the Partnerships, on December
8, 1995.
"UNITS" shall mean the interests in the Partnerships held by the
Limited Partners.
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SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY MORE DETAILED INFORMATION
AND FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS. SEE "GLOSSARY"
FOR THE DEFINITIONS OF CERTAIN TERMS USED IN THE PROSPECTUS.
ALL INFORMATION CONCERNING THE EXPECTED EXCHANGE VALUE AT $10.00 PER SHARE FOR
THE MERGER STOCK IS BASED ON A VALUATION DETERMINED TO BE FAIR BY WILLAMETTE
MANAGEMENT ASSOCIATES.
INTRODUCTION
This Prospectus is the joint consent statement of: (i) Performance Asset
Management Fund, Ltd., A California Limited Partnership; (ii) Performance Asset
Management Fund II, Ltd., A California Limited Partnership; (iii) Performance
Asset Management Fund III, Ltd., A California Limited Partnership; (iv)
Performance Asset Management Fund IV, Ltd., A California Limited Partnership;
(v) Performance Asset Management Fund V, Ltd., A California Limited Partnership
("Partnerships"); (vi) Performance Capital Management, Inc., a California
corporation ("PCM"); and (vii) Performance Asset Management Company, a Delaware
corporation ("Company").
THE PARTIES
THE COMPANY. Performance Asset Management Corporation is a Delaware
corporation and was incorporated on May 7, 1996. The Company has been inactive
since its formation. The Company currently has one holder of its voting $.001
par value common stock, which is Vincent E. Galewick. The Board of Directors of
the Company consists of 5 directors. The current directors of the Company are
Vincent E. Galewick, Michael Cushing and William Savage. There are 2 vacancies
on the Board of Directors. The Company is an Affiliate of (i) Performance
Development, Inc., a California corporation, which is the General Partner of the
Partnerships; (ii) PCM; and (iii) Income Network Company, a California
corporation and the Soliciting Agent of votes of the Limited Partners regarding
approval of the Merger Proposal. The address of the Company is 4100 Newport
Place, Suite 400, Newport Beach, California 92660 and its telephone number is
(714) 261-9100.
THE SURVIVING CORPORATION. After consummation of the Merger, the Company
will be the Surviving Corporation. If the Merger Proposal is approved by 75% in
interest of the holders of Units of each Partnership, PCM and the Partnerships
will cease to exist by operation of law upon completion of the Merger. The
Surviving Corporation will possess all of the assets, properties, rights and
privileges of the Company, PCM and the Partnerships existing on the Closing Date
and will be subject to all of their liabilities and obligations existing at such
time. The Surviving Corporation would acquire the interests of the Partnerships
and PCM in any and all joint ventures between PCM and the Partnerships existing
on the Closing Date. By operation of law, those joint ventures would then cease
to exist and the Surviving Corporation would own the assets of those joint
ventures. The address of the Surviving Corporation will be 4100 Newport Place,
Suite 400, Newport Beach, California 92660 and its telephone number will be
(714) 261-9100.
PCM. Performance Capital Management, Inc., a California corporation, was
incorporated in February, 1993 to perform services related to locating,
evaluating, negotiating, acquiring, servicing, and collecting distressed loan
portfolio assets. PCM currently has two holders of its no par value common
stock, Vincent E. Galewick, who holds 98.9% of such common stock and Michael
Cushing, who holds 1.1% of such common stock. PCM acquires portfolio assets from
third-party financial institutions and sells those portfolios to the
Partnerships and another similar California limited partnership, Performance
Asset Management Fund VI, Ltd., A California Limited Partnership ("PAM VI"),
which is an Affiliate of the Company, PCM, the General Partner, the
Partnerships, and the Solicitation Agent, at purchase prices generally equal to
PCM's cost plus an acquisition fee of up to approximately 36% , as provided in
the related purchase agreements. The Partnerships enter into joint ventures by
way of servicing agreements with PCM to collect and service the
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portfolio assets. The servicing agreements generally provide that all proceeds
generated from the collection of portfolio assets shall be shared by the
venturers in proportion to their respective percentage interests, generally, 55%
to 65% for the Partnerships and 35% to 45% for PCM. The Partnerships also
reimburse PCM for certain costs associated with the collection and servicing of
portfolio assets. PCM, the General Partner, the Solicitation Agent and the
Company have common shareholders, directors and officers. The address of PCM is
4100 Newport Place, Suite 400, Newport Beach, California 92660 and its telephone
number is (714) 261-7300.
GENERAL PARTNER. Performance Development, Inc., a California Corporation,
is the General Partner of the Partnerships and was incorporated in June, 1990.
The General Partner currently has one holder of its no par value common stock,
which is Vincent E. Galewick. The General Partner has been engaged in various
aspects of the distressed financial services industry since March, 1991. The
General Partner is an Affiliate of PCM, the Solicitation Agent and the Company.
The General Partner, PCM, the Solicitation Agent and the Company have common
shareholders, directors and officers. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS." The General Partner is also the general partner for other
California limited partnerships. The address of the General Partner is 4100
Newport Place, Suite 400, Newport Beach, California 92660 and its telephone
number is (714) 261-2400.
PERFORMANCE ASSET MANAGEMENT FUND, LTD., A CALIFORNIA LIMITED
PARTNERSHIP. Performance Asset Management Fund, Ltd., A California Limited
Partnership ("PAM I"), was formed on April 1, 1991, as a limited partnership in
California under the Revised Limited Partnership Act of the State of California,
as enacted and in effect on or after July 1, 1984. PAM I sold 1,052 Units at the
price of $5,000.00 per Unit. The total gross amount received by PAM I from
purchasers of its Units is $5,260,000. As of the Determination Date, PAM I had
369 Limited Partners. Units in PAM I were offered and sold pursuant to the
exemption from the registration requirement of the Securities Act provided by
the provisions of Regulation D promulgated pursuant thereto and similar
exemptions from registration and qualifications specified by the provisions of
the various states (Blue Sky) securities laws. PAM I was formed to provide
funding to acquire assets from federal banking and savings and loan agencies,
the Federal Deposit Insurance Corporation ("FDIC") and the Resolution Trust
Corporation ("RTC"), and other sources of distressed assets, for the purpose of
generating income and distributable cash from collecting on the assets or
reselling those assets. The assets in which PAM I has an interest consist
primarily of charged off credit card indebtedness acquired from some of the
nation's largest banks and lending institutions. The investment objectives of
PAM I are to (a) preserve and protect PAM I's invested capital; and (b) to
achieve income by purchase and collection or resale of FDIC and RTC assets and
distressed assets from other sources. The address and telephone number of PAM I
are the same as those of the General Partner.
PERFORMANCE ASSET MANAGEMENT FUND II, LTD., A CALIFORNIA LIMITED
PARTNERSHIP. Performance Asset Management Fund II, Ltd., A California Limited
Partnership ("PAM II"), was formed on April 1, 1992, as a limited partnership in
California under the Revised Limited Partnership Act of the State of California,
as enacted and in effect on or after July 1, 1984. PAM II sold 1,568 Units at
the price of $5,000.00 per Unit. The total gross amount received by PAM II from
purchasers of its Units is $7,840,000. As of the Determination Date, PAM II had
489 Limited Partners. Units in PAM II were offered and sold pursuant to the
exemption from the registration requirement of the Securities Act provided by
the provisions of Regulation D promulgated pursuant thereto and similar
exemptions from registration and qualifications specified by the provisions of
the various states (Blue Sky) securities laws. PAM II was formed to acquire
various assets from federal and state banking and savings and loan agencies, the
FDIC, the RTC, and other sources, for the purpose of generating income and
distributable cash from collecting any and all indebtedness evidenced by or
constituting those assets or selling or otherwise disposing of those assets. The
assets of the joint ventures in which PAM II has an interest consist primarily
of consumer debt acquired from some of the nation's largest banks and lending
institutions. The specific investment objectives of PAM II are to (a) preserve
and protect PAM II's invested capital; and (b) to achieve income by purchase and
collection or resale of FDIC and RTC assets and distressed assets from other
sources. The address and telephone number of PAM II's are the same as those of
the General Partner.
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PERFORMANCE ASSET MANAGEMENT FUND III, LTD., A CALIFORNIA LIMITED
PARTNERSHIP. Performance Asset Management Fund III, Ltd., A California Limited
Partnership ("PAM III"), was formed on September 25, 1992, as a limited
partnership in California under the Revised Limited Partnership Act of the State
of California, as enacted and in effect on or after July 1, 1984. PAM III sold
1,998 Units at the price of $5,000.00 per Unit. The total gross amount received
by PAM III from purchasers of its Units is $9,990,000. As of the Determination
Date, PAM III had 596 Limited Partners. Units in PAM III were offered and sold
pursuant to the exemption from the registration requirement of the Securities
Act provided by the provisions of Regulation D promulgated pursuant thereto and
similar exemptions from registration and qualifications specified by the
provisions of the various states (Blue Sky) securities laws. As a result of the
number of limited partners of PAM III and the total amount of PAM III's assets,
PAM III caused to be prepared and filed with the Commission a Registration
Statement on Form 10-SB and, as a result, PAM III is required to and does file
the periodic reports required by the provisions of the Exchange Act. PAM III was
formed to acquire various assets from federal and state banking and savings and
loan agencies, the FDIC, the RTC, and other sources, for the purpose of
generating income and distributable cash from collecting any and all
indebtedness evidenced by or constituting those assets or selling or otherwise
disposing of those assets. The assets in which PAM III has an interest consist
primarily of secured and unsecured commercial and consumer loans, credit card
debt, as well as real and personal property, loans, notes receivable, and other
indebtedness. The specific investment objectives of PAM III are to (a) preserve
and protect PAM III's invested capital; and (b) to realize income by the
acquisition, managing, operating, servicing and selling of assets acquired from
federal and state banking and savings and loan agencies, the FDIC, the RTC and
other sources. The address and telephone number of PAM III are the same as those
of the General Partner.
PERFORMANCE ASSET MANAGEMENT FUND IV, LTD., A CALIFORNIA LIMITED
PARTNERSHIP. Performance Asset Management Fund IV, Ltd., A California Limited
Partnership ("PAM IV"), was formed on April 1, 1993, as a limited partnership in
California under the Revised Limited Partnership Act of the State of California.
PAM IV sold 11,488 Units at the price of $2,500.00 per Unit. The total gross
amount received by PAM IV from purchasers of its Units is $28,720,000. As of the
Determination Date, PAM IV had 1,442 Limited Partners. The offer and sale of
Units of PAM IV were not registered pursuant to the provisions of the Securities
Act, as those Units were offered and sold in reliance on the exemption provided
by the provisions of Section 3(a)(10) of the Securities Act and Rule 147
promulgated pursuant thereto. Specifically, those Units were offered and sold in
a transaction which qualified for the intrastate exemption specified by the
provisions of that Section 3(a)(10). Those Units were offered and sold only to
residents of the State of California. The offer and sale of those Units were
qualified with the State of California Department of Corporations. As a result
of the number of limited partners of PAM IV and the total amount of PAM IV's
assets, this partnership caused to be prepared and filed with the Commission a
Registration Statement on Form 10-SB and, as a result, PAM IV is required to and
does file the periodic reports required by the provisions of the Exchange Act.
PAM IV was formed to acquire various assets from federal and state banking and
savings and loan agencies, the FDIC, the RTC, and other sources, for the purpose
of generating income and distributable cash from collecting any and all
indebtedness evidenced by or constituting those assets or selling or otherwise
disposing of those assets. The assets in which PAM IV has an interest consist
primarily of secured and unsecured commercial and consumer loans and real and
personal property, loans, notes and accounts receivable, and other indebtedness.
The specific investment objectives of PAM IV are to (a) preserve and protect PAM
IV's invested capital; and (b) realize income by the acquisition, managing,
operating, servicing and selling of assets acquired from federal and state
banking and savings and loan agencies, the FDIC , the RTC and other sources. The
address and telephone number of PAM IV are the same as those of the General
Partner.
PERFORMANCE ASSET MANAGEMENT FUND V, LTD., A CALIFORNIA LIMITED
PARTNERSHIP. Performance Asset Management Fund V, Ltd., A California Limited
Partnership ("PAM V"), was formed on May 1, 1994, as a limited partnership in
California pursuant to the Revised Limited Partnership Act of the State of
California. PAM V sold 1,194 Units at the price of $5,000.00 per Unit. The total
gross amount received by PAM V from purchasers of its Units is $5,970,000. As of
the Determination Date, PAM V had 305 Limited Partners. Units in PAM V were
offered and sold pursuant to the exemption from the registration requirement of
the Securities Act provided by the provisions of Regulation D promulgated
pursuant thereto and similar exemptions from registration and qualifications
specified by the provisions of the various states (Blue Sky) securities laws.
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PAM V was formed to acquire various assets from various sources, including, but
not limited to, federal and state banking and savings and loan agencies and
consumer finance lenders for the purpose of generating income and gains by
collecting, selling, or otherwise disposing of acquired assets. The assets in
which PAM V has an interest consist primarily of secured and unsecured
commercial and consumer loans, credit card obligations, real and personal
property loans, notes and accounts receivable, and other indebtedness. The
specific investment objectives of PAM V are to (a) preserve and protect PAM V's
invested capital; and (b) realize income and gains from the collecting,
managing, operating, servicing and selling of assets acquired from federal and
state banking and savings and loan agencies, consumer finance lenders and other
sources. The address and telephone number of PAM V are the same as those of the
General Partner.
PRESENT BUSINESS OF THE COMPANY. Since its formation, the Company has been
inactive.
PRESENT BUSINESS OF PCM AND THE PARTNERSHIPS. PCM and the Partnerships are
engaged in business in the financial services industry. PCM performs collection
and other services for the Partnerships and, as a result of various joint
ventures with the Partnerships, conducts the specific business of purchasing,
managing, servicing, collecting and selling discounted portfolios of debt
instruments and obligations. Those portfolios consist of instruments evidencing
secured and unsecured commercial and consumer loans, credit card debt, as well
as real and personal property, loans, notes receivable, and other indebtedness.
The various joint ventures either service and collect the underlying obligations
or sell the obligations, either individually or in portfolios. The Company, as
the Surviving Corporation, will continue to engage in the same business
conducted by PCM and the Partnerships with regard to the assets acquired by the
Surviving Corporation in the Merger.
THE MERGER
PURPOSE OF JOINT CONSENT STATEMENT/PROSPECTUS. This Prospectus is furnished
to (i) Limited Partners, (ii) Shareholders of PCM ("PCM Shareholders"), and
(iii) Shareholders of the Company ("Company Shareholders"), in each case of
record as of June 30, 1997 ("Determination Date"), in connection with the
solicitation on behalf of the Board of Directors of the Company ("Board of
Directors") of their written consents (obtained without special meetings) to
consider and approve the Merger Proposal.
A vote in favor of the Merger Proposal would have the effect of a vote in
favor of a series of interrelated changes to the current organizational forms of
PCM, the Partnerships and the Company. If, and only if, at least 75% of the
Units of each Partnership approves the Merger Proposal, and if, and only if, a
majority of PCM Shareholders and a majority of the Company Shareholders also
approve the Merger Proposal, and the Merger Proposal is approved by the
requisite federal and state regulatory agencies, the Merger will be consummated,
and the Limited Partners would cease to be limited partners and become Company
Shareholders, and the Company would own all of the former assets, properties,
rights and interests of PCM and the Partnerships. The General Partner would also
then become a Company Shareholder. The PCM Shareholders would also then become
Company Shareholders, and PCM would cease to exist by operation of law. The
Company would be the Surviving Corporation. The Merger Stock will be registered
in accordance with the provisions of the Securities Act pursuant to a
Registration Statement on Form S-4 filed by the Company with the Commission.
PURPOSE OF THE MERGER. The primary purpose of the Merger is to provide the
Limited Partners with the opportunity to participate in the growth of PCM while
also increasing the liquidity in their investments. Additional potential
benefits to the Company and its Shareholders include the possibility of greater
access to capital markets, greater flexibility regarding capital resources, the
potential to provide employees with incentive performance compensation,
including shares of the Company's $.001 par value common stock, the opportunity
to offer greater employee ownership, and more simplified record keeping,
accounting and tax reporting.
TERMS OF THE MERGER. Pursuant to the Merger Agreement, a true and correct
copy of which has been filed as an exhibit to the Registration Statement and
included in this Prospectus as Appendix A, upon the Closing Date, PCM and the
Partnerships (if 75% of the Units of each Partnership approves the Merger
Proposal) will merge with and into the Company, and the shareholders of PCM will
receive 4,452,300 Common Shares for their shares of PCM's common stock. The
Partnerships, collectively, will receive 3,059,200 Common Shares. Moreover,
pursuant to the Merger Agreement, the Limited Partners' Units and
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<PAGE> 28
the interest of the General Partner in the Partnerships, determined as of the
Determination Date, will be exchanged for shares of the Merger Stock, pursuant
to the Exchange Value, and cash will be paid for any resulting fractional
shares.
The General Partner has suspended distributions made by the Partnerships to
the Limited Partners from and after the Determination Date. This is necessary to
assure that the Limited Partners' capital accounts do not change after the
Determination Date. The Company has the authority to postpone the Determination
Date and establish a new Determination Date, in its sole and absolute
discretion. The Company may exercise this authority in the event that the
matters contemplated in this Prospectus are postponed for any reason.
Immediately after consummation of the Merger, the PCM Shareholders, the
General Partner, the Limited Partners and existing Company Shareholders will
hold 100% of the outstanding shares of the $.001 par value common stock of the
Surviving Corporation. The Merger Proposal is structured so that neither the PCM
Shareholders, the General Partner, the Limited Partners, nor the Company
Shareholders, on the one hand, nor the Company, on the other hand, should
recognize any taxable gain or loss in connection with the Merger. See "FEDERAL
INCOME TAX CONSIDERATIONS" and "CERTAIN STATE AND LOCAL INCOME TAX
CONSIDERATIONS."
The Merger Proposal is also structured to afford those Limited Partners who
dissent ("Dissenting Limited Partners") the dissenter's rights specified in the
Thompson-Killea Limited Partnership Protection Act of 1992 ("Thompson-Killea
Act"). The Thompson-Killea Act requires that the Dissenting Limited Partners
receive the appraised value of their Units in cash, freely tradeable securities,
or secured or unsecured debt instruments satisfying certain statutory
requirements or, in the alternative, receive or retain a security with
substantially the same terms and conditions as the security originally held by
them, i.e., units of limited partnership interests; provided, however, that the
receipt or retention of that security is not a step in a series of subsequent
transactions that directly or indirectly involves future combinations or
reorganizations of one or more "roll-up" participants. For these purposes, a
"roll-up" is defined as a transaction involving the combination or
reorganization of one or more limited partnerships, directly or indirectly, in
which some or all of the limited partners in any of such limited partnerships
will receive new securities, or securities in another entity. Securities
received or retained will be considered to have the same terms and conditions as
the security originally held if (a) there is no material adverse change to
Dissenting Limited Partners' rights, including, but not limited to, rights with
respect to voting, the business plan, or the investment, distribution,
management compensation and liquidation policies of the limited partnership or
resulting entity; and (b) the Dissenting Limited Partners receive the same
preferences, privileges, rights, and priorities as they had pursuant to the
security originally held.
The Company will satisfy this requirement by offering to purchase each
Dissenting Limited Partner's Units with an unsecured subordinated debenture
issued under an indenture, subject to the terms and conditions set forth in this
Prospectus. The Merger Proposal and the related transactions, including the
dissolutions and liquidations of the Partnerships ("Dissolutions" and
"Liquidations") are structured to comply with the other rights and privileges
provided by the Thompson-Killea Act. See "RIGHTS OF DISSENTING SHAREHOLDERS AND
LIMITED PARTNERS."
The Merger Proposal is structured so as to afford the PCM Shareholders and
Company Shareholders with the rights and privileges provided by provisions of
the California General Corporation Law pertaining to mergers (Chapter 11,
commencing with Section 1100) and the rights of dissenting shareholders
("Dissenting Shareholders") (Chapter 13, commencing with Section 1300), to the
extent applicable. Chapter 13 of the California General Corporation Law requires
that PCM and the Company, as to their respective Dissenting Shareholders, if
any, purchase for cash at their fair market value the shares of common stock
owned by dissenting PCM Shareholders and dissenting Company Shareholders,
respectively. See "RIGHTS OF DISSENTING SHAREHOLDERS AND LIMITED PARTNERS."
Certain provisions of the amended Certificate of Incorporation and the
Bylaws of the Company may have the effect of discouraging unsolicited takeover
proposals. These provisions include those which would require the approval of
two-thirds (2/3) of the Company Shareholders for certain actions, including
mergers, sales of all or substantially all of the Surviving Corporation's
assets, or the adoption of amendments to the Surviving Corporation's Certificate
of Incorporation or Bylaws; a fair price provision which would require a
potential
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acquiror to pay all Company Shareholders the highest price paid during a
specified time prior to the commencement of a tender offer; a control share
acquisition provision which would require Company Shareholder approval prior to
certain acquisitions of controlling portions of the Company's common stock; a
provision requiring certain shareholder or Board of Directors approval in the
event of transactions between the Company and certain interested shareholders;
and certain other provisions relating to the taking of action by shareholders.
See "DESCRIPTION OF THE COMMON SHARES -- Anti-Takeover Provisions of the
Surviving Corporation's Organizational Documents."
ELIMINATION OF CUMULATIVE VOTING. At such time as the Company (i) has
issued and outstanding equity securities listed on the (a) New York Stock
Exchange or (b) the American Stock Exchange or (ii) has issued and outstanding
securities designated as qualified for trading as a national market system
security on the National Association of Securities Dealers Automatic Quotation
System ("NASDAQ") (or any successor national market system) and has at least
eight hundred (800) holders of its equity securities as of the record date of
the Company's most recent annual meeting of shareholders, the Company shall be a
"listed corporation." At such time as the Company shall be a listed corporation
(i) the directors of the Company shall be divided into two (2) classes,
designated Class I and Class II. Each class shall consist, as nearly as may be
possible, of one-half of the total number of directors constituting the entire
Board of Directors. At such time as the directors are divided into two (2)
classes, the total number of directors constituting the entire Board of
Directors shall be seven (7). The term of each class of directors shall be two
(2) years. The term of the initial Class I directors shall terminate on the date
of the second (2nd) annual meeting of shareholders following the annual meeting
of shareholders at which those directors were elected; and the terms of the
initial Class II directors shall terminate on the date of the second (2nd)
annual meeting of shareholders following the annual meeting of shareholders at
which those directors were elected. At each annual meeting of shareholders
during a year in which the termination of the term of a class of directors
occurs, successors to that class of directors shall be elected for a two (2)
year term. If the number of directors is changed, any increase or decrease in
directorships shall be apportioned among the classes so as to maintain the
number of directors in each class as nearly equal as possible, and any
additional directors of any class elected to fill a vacancy resulting from an
increase in such class shall hold office only until the next election of
directors by the shareholders, but in no case will a decrease in the number of
directors shorten the term of any incumbent director. Directors shall hold
office until the annual meeting for the year in which their terms expire and
until their successors shall be elected and shall qualify, subject, however, to
prior death, resignation, retirement, disqualification or removal from office.
Any vacancy on the Board of Directors, howsoever resulting, may be filled by the
affirmative vote of a majority of the remaining directors then in office, even
if less than a quorum. Any director elected to fill a vacancy shall hold office
only until the next election of directors by the shareholders, and (ii) the
shareholders of the Company shall not be entitled to cumulate their votes for
directors of the Company.
FAIRNESS OPINION
NO LIMITATIONS IMPOSED ON SCOPE OF INVESTIGATION. Kelly & Company,
independent auditors for the Company and PCM, retained the services of the
Fairness Analyst to determine the fairness from a financial point of view of the
Exchange Value in connection with the Merger Proposal. There were no limitations
or restrictions placed on the scope of the Fairness Analyst's analysis, and the
Fairness Analyst performed its due diligence by, among other things, visiting
PCM's facilities in Newport Beach, California; interviewing the President and
Vice-President of PCM; interviewing the President, Chief Financial Officer,
Director of Business Development, and Secretary of the General Partner;
interviewing accountants employed by Kelly & Company; and interviewing counsel
to the various entities. The Fairness Analyst was allowed complete access to all
financial records of PCM, the General Partner, the Partnerships, and all service
providers to those entities, including privileged documents such as tax returns
and audit workpapers.
NO INSTRUCTIONS FROM GENERAL PARTNER, PCM OR THE COMPANY. Neither the
General Partner, PCM nor the Company provided instructions to the Fairness
Analyst. Kelly & Company instructed the Fairness Analyst to conduct an
independent investigation and analysis and thereafter render a written opinion
to Kelly & Company, as of the Determination Date, as to whether the Exchange
Value established by the General Partner, PCM and the Company regarding the
exchange of Units and shares of PCM common stock for
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Merger Stock is fair from a financial point of view to the Partnerships. Kelly &
Company also instructed the Fairness Analyst to prepare an opinion (i)
satisfying the requirements of the Thompson-Killea Act; and (ii) sufficient to
support an opinion regarding the fairness from a financial point of view of the
Merger Proposal and related transactions, addressing the fairness from a
financial point of view of the Merger Proposal and related transactions as a
whole and to each Partnership. Kelly & Company instructed the Fairness Analyst
to perform a due diligence investigation and analysis and to review all
pertinent documents, including, but not limited to, financial statements; tax
returns; audit work papers; banking records; balance sheets; income statements;
Commission reporting forms; corporate documents such as Certificates or Articles
of Incorporation, Bylaws and minutes; furniture and equipment schedules;
insurance policies and coverages; PCM and Partnership operating budgets and
financial forecasts through December 31, 2008; office leases; management
profiles; distressed loan portfolio stratification reports; and daily
productivity and cash collection reports. Kelly & Company also instructed the
Fairness Analyst to research industry sources and databases and economic outlook
sources regarding the financial services and distressed debt industry.
PROCEDURES FOLLOWED. As set forth above, the Fairness Analyst conducted a
complete independent investigation and analysis focusing on the fairness issues
relating to the "adequate consideration" rule. Adequate consideration is
generally understood to represent the fair market value of an asset.
Accordingly, in order to arrive at its opinion regarding the fairness from a
financial point of view of the exchange rate established for the Units, the
Fairness Analyst performed its research and analyses with the intent of
establishing whether the Limited Partners would receive at least fair market
value in exchange for their Units. "Fair market value" is defined as the price
at which an asset would change hands between a willing buyer and a willing
seller when the former is not under any compulsion to buy and the latter is not
under any compulsion to sell, both parties are able, as well as willing, to
trade, and both parties are well informed about the asset and the market for
that asset. the Fairness Analyst performed an analysis of the material features
and characteristics of the Partnerships and PCM, as well as an analysis of the
financial statements and results of operations of each entity. The Fairness
Analyst assumed that PCM will continue its current business plan and structure,
and made other reasonable assumptions and estimates regarding distressed debt
portfolio acquisition and pricing, operating expenses, and partnership
distribution policies.
DETERMINATION OF VALUES. The Company, PCM and the Partnerships have
determined the (i) Exchange Value and (ii) amounts specified in the table below
after considering advice from the Fairness Analyst and reviewing selected
financial information, both historical and forecasted. The Fairness Analyst
determined that the Exchange Value is fair from a financial standpoint to the
Partnerships. The total values for each of the Partnerships are:
<TABLE>
<CAPTION>
NAME OF PARTNERSHIP OR CORPORATION TOTAL VALUE
------------------------------------------------------------------------ -----------
<S> <C>
Performance Asset Management Fund, Ltd.,
A California Limited Partnership...................................... $ 934,000
Performance Asset Management Fund II, Ltd.,
A California Limited Partnership...................................... 3,112,000
Performance Asset Management Fund III, Ltd.,
A California Limited Partnership...................................... 6,000,000
Performance Asset Management Fund IV, Ltd.,
A California Limited Partnership...................................... 15,846,000
Performance Asset Management Fund V, Ltd.,
A California Limited Partnership...................................... 4,700,000
Performance Capital Management, Inc.,
a California corporation.............................................. 44,523,000
-----------
TOTAL......................................................... $75,115,000
==========
</TABLE>
BASIS FOR METHODS OF ARRIVING AT FINDINGS. The Company, PCM and the General
Partner valued the assets of their respective entities by determining the
combined value of each entity's assets, including the value of such entity's
cash receipts and the terminal value of such entity's distressed loan
portfolios. The Fairness Analyst considered before making the Fairness Opinion
the asset liquidation value of each entity and the allocation of assets of each
Partnership between the General Partner and the Limited Partners of such
13
<PAGE> 31
Partnership based on the such Partnership's Partnership Agreement. Additional
factors considered by the Fairness Analyst in making its fairness determination
included discount factors based on the age and composition of the various debt
portfolios and the Fairness Analyst's evaluation and analysis of the present
value of the respective cash receipts of each entity, as well as the historical
and projected collection costs of distressed loan portfolios.
THE COMPANY
DESCRIPTION OF THE COMPANY'S CAPITAL STOCK. The authorized capital of the
Company is 100,000,000 shares of voting common stock, $.001 par value per share,
and 10,000,000 shares of non-voting preferred stock, $.001 par value per share.
There are currently 1,000 common shares and 100,000 preferred shares
outstanding, held by Vincent Galewick, an Affiliate of PCM, the Solicitation
Agent and the General Partner. The shares of the Company's preferred stock owned
by Mr. Galewick are convertible to shares of the Company's common stock on a one
share of such preferred stock for 20 shares of such common stock basis. The
Company does not anticipate issuing any additional shares of preferred stock or
any other equity securities of any class, designation or series. The Company's
Certificate of Incorporation, which specifies the authorization for the
Company's capital stock, and the Company's Bylaws are attached as exhibits to
the Registration Statement. If 75% of the Units of each Partnership approves the
Merger Proposal, and after the Dissolutions and Liquidations of the Partnerships
and distribution by the Partnership to their Limited Partners of the Merger
Stock, there will be 7,512,500 shares of common stock issued and outstanding,
which will be owned by the Limited Partners, the PCM Shareholders, and the
Company Shareholders. There will also be 100,000 preferred shares owned by
Vincent E. Galewick. Upon distribution of the Merger Stock, the Partnerships and
PCM will wind up and dissolve.
After the Merger and the dissolution and liquidation of PCM and the
Partnerships, the issued and outstanding shares of Merger Stock will be validly
issued, fully paid and nonassessable. Holders of the Merger Stock will be
entitled to receive dividends from funds legally available therefor at such
times and in such amounts as the Board of Directors may from time to time
determine, in its sole and absolute discretion. See "RISK FACTORS -- Significant
Reduction in Distributions." The Company has no plans, at the current time, to
issue any additional preferred shares. The Merger Stock will be neither
redeemable nor convertible and the holders thereof will have no preemptive or
subscription rights to purchase any securities of the Company. Upon the
liquidation, dissolution or winding up of the Company, subject to the rights of
holders of any shares of preferred stock of the Company, holders of Common
Shares will be entitled to receive a pro rata distribution of the assets of the
Company which are legally available for distribution, after payment of all debts
and other liabilities of the Company. Each outstanding Common Share will be
entitled to one vote on all matters submitted to a vote of Company Shareholders.
RESALE OF THE MERGER STOCK COMMON SHARES. The shares of Merger Stock will
be registered under the Securities Act by the Registration Statement. The
registration of the Merger Stock in this manner should allow holders of the
Merger Stock to trade the Merger Stock without any restriction under the
Securities Act, if such holder is not an Affiliate of the Company, as defined by
Rule 144; provided, however, that various states also have registration
requirements which may restrict trading of the Merger Stock. Moreover, the
Company intends to stabilize the price of its common stock by restricting the
sale of the Merger Stock.
RESTRICTIONS ON RESALE OF MERGER STOCK. 25% of the Merger Stock will be
unrestricted immediately after the consummation of the Merger. 25% of the Merger
Stock will be restricted until the end of the Company's first full fiscal
quarter following the Closing Date. 25% of the Merger Stock will be restricted
until the end of the Company's second full fiscal quarter following the Closing
Date. The remaining 25% of the Merger Stock will be restricted until the end of
the Company's third full fiscal quarter following the Closing Date.
After the consummation of the Merger, the Common Shares may be made
available for trading on a regional or national stock exchange and, if the
Common Shares are eligible and accepted for such listing, there might be a
liquid market for selling the Common Shares and a readily determinable market
value for the
14
<PAGE> 32
Common Shares; provided, however, that the Common Shares are approved for
registration by the appropriate state securities regulatory agencies.
DISTRIBUTION POLICY. Holders of the Common Shares shall have the right to
receive dividends paid on the Common Shares, subject to the dividend policy of
the Company. The Company shall not pay any cash dividends on the Common Shares
or its preferred stock for the foreseeable future, as all available cash will be
utilized to continue the growth of the Company's business subsequent to the
Closing Date for the proximate future thereafter. The payment of any subsequent
cash dividends will be in the discretion of the Board of Directors and will
depend on the Company's results of operations, financial condition, contractual
restrictions and other factors deemed relevant by the Board of Directors.
BUSINESS AND ASSETS. PCM and the Partnerships are engaged in business in
the delinquent consumer indebtedness industry. Specifically, PCM and the
Partnerships engage in the business of purchasing discounted portfolios of
distressed financial debt instruments and obligations. Such portfolios typically
consist of instruments evidencing secured and unsecured commercial and consumer
loans, credit card debt, debt related to real and personal property, loans,
notes receivable, and other indebtedness. PCM and the Partnerships either
collect on the underlying obligations or sell the instruments alone or in
portfolios. The Company will engage in the same business.
The primary purpose for the formation of each Partnership was to generate
income and profits to such Partnership by utilizing net proceeds from the
offerings to purchase, hold, service, collect and dispose of various
debt-related assets. The Company will hold, manage, service, collect and dispose
of the distressed loan portfolios of the Partnerships in much the same manner as
did the Partnerships. Additionally, Company Shareholders will benefit from the
growth of the collection and servicing entity, PCM, which will also merge with
and into the Company.
VOTING PROCEDURES. Limited Partners, PCM Shareholders, and Company
Shareholders may only vote by returning the Solicitation Materials. Each Limited
Partner, PCM Shareholder and Company Shareholder should, therefore, complete and
return the completed Consent Form before the expiration of the Solicitation
Period.
Approval of the Merger Proposal will require the affirmative vote of 75% of
the Units entitled to vote in each Partnership, voting on a one-vote-per- Unit
basis. As of the Determination Date, none of the directors or executive officers
of the General Partner, or any of their Affiliates, held any Units and are,
therefore, not entitled to vote. See "VOTING PROCEDURES."
NOMINALLY FOREIGN CORPORATIONS. Certain foreign corporations are in a
special category, if they have characteristics of ownership and operation that
indicate that, while nominally foreign (not organized under California law),
they are in reality less than half foreign. For example, a corporation organized
under the laws of Delaware, such as the Company, may be subject to California
corporate regulatory statutes, if such corporation is owned and operated in
California. Corporations of this type are called "nominally foreign"
corporations and are subject to a number of the key provisions of the California
General Corporation Law applicable to domestic corporations. In general, the
provisions are those that are most important to the protection of rights of
shareholders and creditors. Because the Company may be classified as a nominally
foreign corporation, and to ensure that Company Shareholders' rights are fully
protected, the Company will undertake to comply with the key California state
statutes regulating, among other things, mergers, reorganizations, and
dissenters' rights.
TESTS TO DETERMINE FOREIGN CORPORATIONS SUBJECT TO CALIFORNIA LAWS. Section
2115 of the California General Corporation Law sets forth the factors which are
used to determine if a foreign corporation must comply with the key California
state statutes regulating corporations. Basically, a foreign corporation is
subject to California regulation if the average of its property factor, payroll
factor and sales factor (as these terms are defined in Sections 25129, 25132 and
25134 of the California Revenue and Taxation Code) is more than 50% during its
latest full income year and if more than one-half of its outstanding voting
securities are held of record by persons having addresses in California.
15
<PAGE> 33
CALIFORNIA LAWS WHICH SUPERSEDE FOREIGN LAWS FOR NOMINALLY FOREIGN
CORPORATIONS. The following chapters and sections of the California General
Corporation Law apply, to the EXCLUSION of the law of the state of
incorporation, to nominally foreign corporations:
Section 301 relating to annual election of directors;
Section 303 relating to removal of directors without cause;
Section 304 relating to removal of directors by court proceedings;
Section 305 subdivision (c) relating to filing of director vacancies
where less than a majority in office elected by shareholders;
Section 309 relating to directors' standard of care;
Section 316 (excluding paragraph (3), subdivision (a) and paragraph (3)
of subdivision (f)) relating to liability of directors for unlawful
distributions;
Section 317 relating to indemnification of directors, officers and
others;
Sections 500 to 505, inclusive, relating to limitations on corporate
distributions in cash or property);
Section 506 relating to liability of shareholder who receives unlawful
distribution;
Section 600, subdivisions (b) and (c) relating to requirement for annual
shareholders' meeting and remedy if same not timely held;
Section 708, subdivisions (a), (b) and (c) relating to shareholder's
right to cumulate votes at any election of directors;
Section 710 relating to supermajority vote requirement;
Section 1001 subdivision (d) relating to limitations on sale of assets;
Section 1101 (provisions following subdivision (e)) relating to
limitations on mergers;
Chapter 12 (commencing with Section 1200) relating to reorganizations;
Chapter 13 (commencing with Section 1300) relating to dissenters'
rights;
Sections 1500 and 1501 relating to records and reports;
Section 1508 relating to action by Attorney General; and
Chapter 16 (commencing with Section 1600) relating to rights of
inspection.
DIRECTORS. Election and removal of directors must be in accordance with the
California General Corporation Law. Unless the Company has divided its board of
directors into classes (which can only be done if the corporation's shares are
listed on a national market exchange -- see the portion of this Prospectus
entitled "Elimination of Cumulative Voting"), all directors must be elected at
each annual meeting for a one-year term. Directors can also be removed without
cause on approval of the outstanding shares. Directors are subject to the
California standard of care that directors must observe. This involves
requirements not only of good faith, but of inquiry and reasonable belief in the
competency of others on whom a director is relying. Therefore, while directors
may be held liable for unlawful "distributions," they are not obligated by
related California provisions applicable to loans or guaranties to officers,
directors, and certain others. The indemnity provisions of Section 317 of the
California General Corporation Law are also applicable.
DISTRIBUTIONS. Some California limitations on distributions of cash or
property apply to nominally foreign corporations, including the basic
limitations on dividends contained in Sections 500 through 505, inclusive, of
the California General Corporation Law and the personal liability of
shareholders who receive improper distributions with knowledge of such
impropriety. They do not include certain other provisions as to redemptions,
notices, and treasury shares.
SHAREHOLDER MEETINGS. Annual shareholders' meetings are required as
provided by Section 600(b) of the California General Corporation Law . The
remedies for failure to hold annual meetings also apply. Subject to the "listed
corporation" exemption, shareholders have the right to cumulative voting for
directors. (See the portion of this Prospectus entitled "Elimination of
Cumulative Voting") Shareholders who are residents of California have a right to
receive a report of the vote taken at any annual, regular, or special meeting of
16
<PAGE> 34
shareholders. The provisions of Section 710 of the California General
Corporation Law concerning supermajority vote requirements also apply.
SALES OF ASSETS, MERGERS AND REORGANIZATIONS. Board of Directors and/or
shareholder approval are required for sales of assets and reorganizations.
Dissenters' rights must be provided to shareholders in any reorganization.
Shareholders with the same type of shares must be treated equally in a merger.
RECORDS. Nominally foreign corporations are obligated by the basic
California requirements concerning keeping of books and records, minutes of all
meetings, and share registers. Directors of such a corporation have the absolute
right at any reasonable time to inspect all books, records and properties of the
corporation or its subsidiaries.
COMMENCEMENT AND CESSATION OF "NOMINALLY FOREIGN" STATUS
COMMENCEMENT. The nominal foreign corporation rules become applicable to
any foreign corporation only upon the first day of the first income year of such
corporation commencing on or after the 30th day after the filing by such a
report pursuant to Section 2108 of the California General Corporation Law
showing that the factors referred to in Section 2115(a) of the California
General Corporation Law have been satisfied.
CESSATION. The status of a corporation as a nominally foreign corporation
ceases at the end of any income year during which (i) an annual report has been
filed showing that at least one of the factors for such status is not satisfied
or (ii) a final order shall have been entered by a court of competent
jurisdiction declaring that one of the factors has not been satisfied.
EXEMPTIONS. Section 2115 of the California General Corporation Law does not
apply to any foreign corporation that has outstanding securities (i) listed on
the New York or American Stock Exchanges or (ii) designated as qualified for
trading as a national market security on NASDAQ (or any successor national
market system) if the corporation has at least 800 shareholders as of the record
date of its most recent annual meeting of shareholders.
There is also an exemption for any corporation if all the voting shares
(other than directors' qualifying shares) are owned directly or indirectly by
one or more corporations not subject to Section 2115 of the California General
Corporation Law .
The Company anticipates applying for listing on a regional or national
stock exchange after completion of the Merger; however, there can be no
assurance that the Company will be approved for listing.
Approval of the Merger Proposal will require the affirmative vote or, in
the alternative, written consents to such action, of a majority of the PCM
Shareholders entitled to vote, in accordance with the provisions of Section 1201
of the California General Corporation Law , and the Company Shareholders
entitled to vote, in accordance with the provisions of Section 228 of the
Delaware General Corporation Law. Additionally, approval of the Merger Proposal
will require the affirmative vote of 75% in interest of the Units of each
Partnership.
Only Company Shareholders, PCM Shareholders and Limited Partners as of the
close of business on the Determination Date will be entitled to notice of and to
vote in accordance with the Solicitation Materials. As of the Determination
Date, there were 17,259 Units outstanding and entitled to vote. None of the
Units were held by Affiliates of PCM or the General Partner. All voting shares
of PCM and the Company were held by Vincent E. Galewick.
If Units, PCM Shares or Company Shares are transferred after the
Determination Date but before the expiration of the Solicitation Period (and the
holders of the transferred shares or Units, respectively, become Company
Shareholders, PCM Shareholders or are admitted as substitute Limited Partners)
such substitution will terminate the right of the prior holder of the Units or
shares to vote regarding the Merger Proposal and related transactions, and any
votes as to the transferred interests must be made by the substitute Limited
Partner, new PCM Shareholder or new Company Shareholder. Solicitation Materials
will be sent to substitute
17
<PAGE> 35
Limited Partners (along with notice of their admission as substitute Limited
Partners), new PCM Shareholders and new Company Shareholders.
The Solicitation Period is the time period during which the Limited
Partners, PCM Shareholders and Company Shareholders may return their consents to
vote "for" or "against" the Merger Proposal and related transactions in
accordance with the Solicitation Materials. The Solicitation Period will
commence upon the delivery of the Solicitation Materials to the Limited
Partners, PCM Shareholders and Company Shareholders and will continue until
12:00 noon, Pacific Time, on . See "VOTING PROCEDURES."
Included with this Prospectus is a Consent Form. Limited Partners, PCM
Shareholders and Company Shareholders may mark the Consent Form to vote "for" or
"against" as to their participation in the Merger and related transactions. A
Limited Partner or Shareholder electing to vote "for" participation in the
Merger and related transactions must vote the Units owned by such Limited
Partner in each Partnership, and in the case of a shareholder, the shares owned
by such shareholder and entitled to vote.
A PARTNER OR SHAREHOLDER WHO SUBMITS A SIGNED CONSENT FORM BUT FAILS TO MAKE ONE
OR MORE OF THE ELECTIONS REQUIRED BY THE CONSENT FORM WILL BE DEEMED TO HAVE
VOTED "FOR" THE MERGER PROPOSAL AND RELATED TRANSACTIONS. IF THE CONSENT FORM IS
UNDATED, THE SIGNATURE OF THE LIMITED PARTNER OR SHAREHOLDER WILL BE AUTHORITY
FOR THE COMPANY TO ENTER THE DATE OF RECEIPT.
CONSENT OF A LIMITED PARTNER OR SHAREHOLDER (I.E., A VOTE "FOR") CONSTITUTES
APPROVAL OF THE MERGER PROPOSAL AND ALL THE MATTERS CONTEMPLATED IN THE RELATED
TRANSACTIONS.
ANY LIMITED PARTNER WHO FAILS TO SUBMIT A CONSENT FORM WILL BE CONCLUSIVELY
PRESUMED TO HAVE VOTED FOR THE MERGER PROPOSAL.
NO SPECIAL MEETINGS. Neither PCM, the Company, nor the General Partner has
scheduled or noticed, or intends to schedule or notice, any special meetings of
the PCM Shareholders, Company Shareholders or the Limited Partners to discuss or
vote upon the Solicitation Materials or the Merger Proposal and related
transactions. The General Partner intends to call for votes without meetings
pursuant to the provisions of each Partnership Agreement. PCM and the Company
intend to call for votes without meetings pursuant to Section 603 of the
California General Corporation Law and Section 228 of the Delaware General
Corporation Law, respectively.
PCM, the Company and the General Partner intend to actively solicit the
support of the respective Shareholders and the Limited Partners for the Merger
Proposal and related transactions, subject to federal and state securities laws,
by answering questions about the Merger Proposal and related transactions and
explaining the reasons for the recommendation that the Shareholders and Limited
Partners vote to approve the Merger Proposal and related transactions.
Additionally, the Company has entered into an agreement with the Solicitation
Agent, which is an Affiliate of PCM, the Company and the General Partner, to
solicit, but not influence, the votes of the Limited Partners regarding the
Merger Proposal.
CERTAIN ADVANTAGES OF THE MERGER PROPOSAL AND RELATED TRANSACTIONS
LIQUIDITY AND MARKET VALUATION. The Units and currently issued and
outstanding shares of common stock of PCM are not publicly traded and have
limited liquidity. The primary means of liquidity for holders of the Units has
been requesting the Partnerships to redeem their Units. Although the
Partnerships are not obligated to honor any such request, such redemptions have
occurred from time to time, using available cash to redeem Units at a percentage
of book value. As set forth above (see "Resale of the Common Shares"), after
consummation of the Merger, the Common Shares may be made eligible for trading
on a regional or national stock exchange and there may be a liquid market for
selling the Common Shares and a readily determinable market value for the Common
Shares. With a liquid market for Common Shares, Unit holders would no longer be
required to rely solely on the Partnerships as a source of liquidity, and the
Company would
18
<PAGE> 36
not be required to use its cash to provide such liquidity. Instead, it is
expected that holders of Common Shares will be able to sell their Common Shares
publicly from time to time, subject to certain restrictions, for their fair
market value. See "Restrictions on Resale of Merger Stock."
ACCESS TO EQUITY MARKETS. Although the Company currently has no plans for
any equity offerings, the existence of publicly traded equity securities is
expected to provide it with future access to the public equity markets.
GREATER FLEXIBILITY REGARDING CAPITAL RESOURCES. The Company will have
greater flexibility with respect to the use of capital resources because it will
not have to use available cash to purchase Common Shares. As discussed above,
the Partnerships have from time to time used their cash to redeem Units when
requested to do so by Limited Partners. There are also potential tax advantages
(and corresponding financial advantages) to conducting a business as a
corporation that should allow the Company greater flexibility with respect to
the management of its capital resources. Company Shareholders will defer the
payment of taxes on income earned by the Company until the Company distributes
such income in the form of dividends. Limited Partners, by contrast, are taxed
as soon as the Partnerships' earn income. Limited Partners are taxed on such
income at their individual federal tax rates, which may exceed the maximum
corporate federal tax rate. Therefore, the Surviving Corporation, as a
corporation, can accumulate income for business expansion without adversely
affecting a Shareholder's tax liability.
ACQUISITION CURRENCY. After consummation of the Merger, the Company may be
able to use shares of its common stock as consideration in its acquisition of
assets or other businesses. The use of readily tradeable equity securities as an
acquisition currency is advantageous because it may be more tax efficient to the
seller of a business than a cash transaction and it allows the Company to
consummate acquisitions without depleting cash resources. It also allows a
seller to continue to hold an equity interest in the business acquired by the
Company by equity ownership in the Company after such acquisition. The use of
common stock in acquisitions can also enable the Company to use advantageous
pooling accounting methods if certain conditions are satisfied.
INCENTIVE COMPENSATION. The availability of shares of the Company's common
stock will permit the Company to provide its key employees with equity based
incentive compensation. The Company believes providing equity based incentive
compensation by the use of common stock will allow broader employee
participation in the Company's equity, provide a more accurate measure of the
Company's performance as a result of common stock having a readily ascertainable
value, and provide the Company with more flexibility in designing equity based
incentive compensation. The Company believes that this method of compensation
conserves the Company's cash and promotes management stability.
GREATER EMPLOYEE OWNERSHIP. As a result of the complex tax reporting
requirements associated with being a limited partner and the administrative
burden placed on the Partnerships as a result of having a significant number of
additional limited partners, it has not been feasible for the Partnerships to
offer ownership opportunities to a broad range of employees. By having the
shares of its common stock available, however, the Company will be able to offer
ownership opportunities to all employees. The Board of Directors believes that
widespread employee ownership is in the best interests of the Company and
Company Shareholders.
SIMPLIFIED RECORD KEEPING, ACCOUNTING AND TAX REPORTING. Limited Partners
will no longer be burdened with the cumbersome and complex tax reporting
requirements imposed on them under federal and multiple state partnership tax
laws, or with the related record keeping and accounting requirements.
CERTAIN DISADVANTAGES OF THE MERGER PROPOSAL AND RELATED TRANSACTIONS
TAXATION. The Partnerships do not pay any federal income taxes. After
consummation of the Merger, the Surviving Corporation will be subject to federal
income tax. Shareholders of the Surviving Corporation will also be required to
pay federal income taxes on any dividends that they receive from the Surviving
Corporation and on any gain from the sale or exchange of their Common Shares.
Therefore, while in partnership form only one level of federal income tax is
imposed (i.e., on the Limited Partners) in corporate
19
<PAGE> 37
form two levels of federal income tax are imposed (i.e., one on the Surviving
Corporation and one on its shareholders to the extent they receive dividends or
recognize gain on the sale or exchange of shares). See "FEDERAL INCOME TAX
CONSIDERATIONS" and "CERTAIN STATE AND LOCAL INCOME TAX CONSIDERATIONS."
SIGNIFICANT REDUCTION IN DISTRIBUTIONS. The dividends distributed to the
Company shareholders after consummation of the Merger may be significantly less
that the distributions historically made to the Limited Partners. Moreover, the
Surviving Corporation shall not pay any cash dividends on its common stock or
preferred stock for the foreseeable future. See "Distribution Policy" and
"DISTRIBUTION POLICY -- HISTORICAL DISTRIBUTIONS OF THE PARTNERSHIPS."
UNCERTAINTY REGARDING TRADING AND MARKET PRICE OF COMMON SHARES. The Common
Shares may not immediately be listed or approved for listing on any regional or
national securities exchange or otherwise designated or approved for designation
upon notice of issuance as a national market system security on an interdealer
quotation system maintained by the National Association of Securities Dealers,
Inc. To the extent that the Common Shares may trade, trading prices for the
Common Shares will be influenced by many factors, including the market for the
Common Shares, the Company's dividend policy, the possibility of future sales of
Common Shares by the Company or its shareholders, investors' perception of the
Company and its businesses, and general economic and stock market conditions. No
prediction can be made as to the price at which the Common Shares will trade, if
they will trade at all. Limited Partners and PCM Shareholders have not
previously had access to an active trading market for the Units and shares of
PCM common stock, respectively. Therefore, it is possible that they may wish to
sell their Common Shares from time to time after the consummation of the Merger.
The sale of Common Shares after the consummation of the Merger might have an
adverse effect on the market price of the Common Shares; provided, however, to
mitigate as much as possible any such adverse effect, trading of the Common
Shares shall be limited during the first calendar year following the Closing
Date.
RECOMMENDATIONS. After considering the advantages and disadvantages of the
Merger Proposal described above, the Company, PCM and the General Partner
believe that the Merger Proposal is fair to, and in the best interests of, the
Company Shareholders, the PCM Shareholders and the Limited Partners. The Board
of Directors of the Company recommends that each of the Company Shareholders
vote to approve the Merger Proposal. The Board of Directors of PCM and of the
General Partner recommend that each PCM Shareholder and each Limited Partner,
respectively, vote to approve the Merger Proposal.
DISSENTING SHAREHOLDERS AND LIMITED PARTNERS. The Merger Proposal and
related transactions have been structured to afford dissenting PCM Shareholders,
dissenting Company Shareholders ("Dissenting Shareholders") and Dissenting
Limited Partners certain dissenters' rights. The rights applicable to Dissenting
Limited Partners are contained the Thompson-Killea Act recently enacted in
California. The Thompson-Killea Act requires that the Dissenting Limited
Partners receive either the appraised value of their Units or, in the
alternative, a substitute security equal in value to their Units. The Company
will satisfy this requirement by offering to purchase any Dissenting Limited
Partner's Units with an unsecured subordinated debenture issued under an
indenture. The Merger Proposal and related transactions have also been
structured to comply with the other protections afforded in the Thompson-Killea
Act.
Dissenting PCM Shareholders and Dissenting Company Shareholders,
respectively, while having no appraisal rights, have the right to request that
PCM or the Company, respectively, repurchase their respective shares. PCM and
the Company must provide their respective shareholders with a notice of approval
of the Merger Proposal and related transactions accompanied by a statement of
price in accordance with the Exchange Value determined to be fair by the
Fairness Opinion prepared by Willamette ("Fairness Opinion") to substantiate the
fair market value of their respective shares, as adjusted, on the day before the
Merger and related transactions were announced. The Dissenting Shareholders must
then perform certain acts to have their shares purchased by PCM or the Company.
Primarily, the Dissenting Shareholders must provide PCM or the Company with a
written request for purchase within 30 days of the date of mailing of the notice
of approval. Both PCM and the Company will rely upon the Exchange Value
determined to be fair by the Fairness Opinion to substantiate the fair market
value of the respective shares, as set forth above.
20
<PAGE> 38
DISSENTING LIMITED PARTNERS AND DISSENTING SHAREHOLDERS MUST CAREFULLY READ AND
FOLLOW THE DIRECTIONS SET FORTH AT THE SECTION OF THIS PROSPECTUS ENTITLED
"VOTING PROCEDURES -- DISSENTING LIMITED PARTNERS AND DISSENTING SHAREHOLDERS."
SUMMARY FINANCIAL INFORMATION OF THE PARTNERSHIPS
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
PAM I PAM II PAM III PAM IV PAM V
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash and Equivalents............ $ 283,232 $1,024,507 $ 775,755 $ 2,121,545 $1,731,112
Cash Held in Trust.............. 0 1,003,215 2,656,338 5,834,268 8,388
Investments in Distressed
Loan Portfolios, Net.......... 1,269,586 1,371,176 2,566,546 9,091,186 2,300,662
Receivable from West Capital.... 0 0 0 0 0
Due from Affiliates............. 56,483 82,114 56,039 136,022 351,718
Property and Equipment, net..... 0 0 0 0 0
Other Assets.................... 12,732 42,942 64,477 104,977 24,873
Organization Costs, net......... 0 585 923 3,454 2,486
---------- ---------- ---------- ---------- ----------
TOTAL ASSETS............... $1,622,033 $3,524,539 $6,120,078 $17,291,452 $4,419,239
========== ========== ========== ========== ==========
LIABILITIES:
Accounts Payable................ $ 41,378 $ 0 $ 715 $ 6,351 $ 599
Due to Affiliates............... 271,403 0 492,800 350,576 56,341
Note Payable to Affiliate....... 191,598 0 0 0 0
---------- ---------- ---------- ---------- ----------
TOTAL LIABILITIES.......... $ 504,379 $ 0 $ 493,515 $ 356,927 $ 56,940
========== ========== ========== ========== ==========
PARTNERS' CAPITAL:
General Partner:
Beginning Balance............. $ (359,171) $ (309,388) $ (322,499) $ (516,291) $ (43,718)
Distributions................. (17,483) (25,810) (35,775) (159,334) (19,966)
Net Income.................... 36,978 30,472 68,315 (73,217) (8,534)
Ending Balance................ (339,676) (304,726) (289,959) (748,842) (72,218)
Limited Partners:
Beginning Balance............. 1,284,183 3,790,045 5,597,599 19,815,741 4,720,419
Distributions................. (154,650) (230,023) (295,925) (1,433,425) (179,100)
Redemption of Units........... (5,000) (5,000) 0 (40,000) (30,000)
Net Income.................... 332,797 274,243 614,848 (658,949) (76,802)
Ending Balance................ 1,457,330 3,829,265 5,916,522 17,683,367 4,434,517
---------- ---------- ---------- ---------- ----------
Total Partners' Capital....... $1,117,654 $3,524,539 $5,626,563 $16,934,525 $4,362,299
========== ========== ========== ========== ==========
Total Liabilities and
Partners' Capital........ $1,622,033 $3,524,539 $6,120,078 $17,291,452 $4,419,239
========== ========== ========== ========== ==========
</TABLE>
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<PAGE> 39
RISK FACTORS
THE CONVERSION OF SHARES OF PCM'S COMMON STOCK AND UNITS TO MERGER STOCK
INVOLVES A SUBSTANTIAL NUMBER OF SIGNIFICANT RISKS, WHICH EACH PROSPECTIVE
HOLDER OF THE COMPANY'S SECURITIES SHOULD CONSIDER PRIOR TO MAKING A DECISION TO
APPROVE THE MERGER PROPOSAL. EACH PROSPECTIVE HOLDER OF THE COMPANY'S SECURITIES
SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, AS WELL AS OTHER RISK
FACTORS, WHICH MAY BE SPECIFIED BY THE PROVISIONS OF THIS PROSPECTUS. THIS
PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE ACTUAL RESULTS OF THE COMPANY MAY DIFFER MATERIALLY FROM THE
RESULTS SPECIFIED IN THE FORWARD-LOOKING STATEMENTS BECAUSE OF CERTAIN FACTORS,
INCLUDING THOSE SPECIFIED IN THE FOLLOWING RISK FACTORS AND ELSEWHERE IN THIS
PROSPECTUS. PROSPECTIVE HOLDERS OF THE COMPANY'S SECURITIES MUST BE PREPARED FOR
THE POSSIBLE LOSS OF THEIR ENTIRE INVESTMENTS IN THE COMPANY. THE ORDER IN WHICH
THE FOLLOWING RISK FACTORS ARE PRESENTED IS ARBITRARY, AND PROSPECTIVE HOLDERS
OF THE COMPANY'S SECURITIES SHOULD NOT CONCLUDE, BECAUSE OF THE ORDER OF
PRESENTATION OF THE FOLLOWING RISK FACTORS, THAT ONE RISK FACTOR IS MORE
SIGNIFICANT THAN ANOTHER RISK FACTOR.
IT IS IMPOSSIBLE TO PREDICT ACCURATELY THE RESULTS TO EITHER THE PCM
SHAREHOLDERS OR THE LIMITED PARTNERS OF A CONVERSION OF SHARES OF PCM'S COMMON
STOCK OR UNITS TO COMPANY SHARES, AS THE COMPANY DOES NOT HAVE AN OPERATING
HISTORY. MOREOVER, FUTURE CONDITIONS IN THE BANK AND THRIFT AND LENDING INDUSTRY
ARE UNFORESEEABLE, AND THE COMPANY MAY FACE SIGNIFICANT COMPETITION IN ACQUIRING
CERTAIN ASSETS. BEFORE VOTING ON THE MERGER PROPOSAL AND THE OTHER MATTERS TO BE
VOTED ON PURSUANT TO THE SOLICITATION MATERIALS, EACH LIMITED PARTNER AND EACH
PCM SHAREHOLDER SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS AND EACH SUCH
PERSON SHOULD CONSULT WITH THAT PERSON'S OWN LEGAL, TAX, AND FINANCIAL ADVISORS
WITH RESPECT THERETO.
NO OPERATING HISTORY. Since its formation, the Company has been inactive.
The only historical financial information presented in this Prospectus relates
to the business operations of the Partnerships and PCM.
RISKS ASSOCIATED WITH RAPID GROWTH. PCM and the Partnerships have
experienced significant growth during the past several years, which has placed
significant demands on their administrative, operational and financial
resources. After consummation of the Merger, the Company will seek to continue
such growth, which could place additional demands on its resources. Future
growth will depend on a number of factors, including the effective and timely
initiation and development of client relationships, the Company's ability to
maintain the quality of services previously provided to clients and the
recruitment, motivation and retention of qualified personnel. Sustaining growth
will also require the implementation of enhancements to the Company's
operational and financial systems and will require additional management,
operational and financial resources. There can be no assurance that the Company
will be able to manage its expanding operations effectively or that it will be
able to maintain or accelerate its growth, and any failure to do so could have a
materially adverse effect on the Company's business, results of operations and
financial condition. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS."
RISKS ASSOCIATED WITH FUTURE ACQUISITIONS. A primary element of the
Company's growth strategy is to pursue strategic acquisitions that expand or
complement the Company's business. These acquisitions include, but are not
limited to, the acquisition of additional discounted portfolios of debt
instruments and obligations. The Company will regularly review various strategic
acquisition opportunities and will periodically engage in discussions and
analysis regarding such possible acquisitions. Currently, the Company is not a
party to any agreements, understandings, arrangements or negotiations regarding
any material acquisitions; however,
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<PAGE> 40
negotiations may occur from time to time if appropriate opportunities arise.
There can be no assurance that the Company will be able to locate and identify
acquisition candidates on terms favorable to the Company or in a timely manner,
enter into acceptable agreements or close any such transactions. There can be no
assurance that the Company will be able to achieve its acquisition strategy, and
any failure to do so could have a material adverse effect on the Company's
business, financial condition, results of operations and ability to sustain
growth. In addition, the Company believes that it will compete for qualified
acquisition candidates with other, larger companies, consolidators or investors
in the discounted debt portfolio acquisition, collection and servicing industry.
Increased competition for such acquisition candidates could have the effect of
increasing the costs to the Company of pursuing this growth strategy or could
reduce the number of qualified candidates to be acquired. Future acquisitions
could require additional management and operational and financial resources.
There is no assurance that the Company will successfully integrate future
acquisitions into its business or that such operations will not divert
management's attention from the daily operations of the Company.
INTEGRATION OF ACQUIRED OPERATIONS. The Company intends to integrate the
operations of the Partnerships and PCM with its own operations. No assurance can
be given that the benefits expected from such integration will be realized. In
addition, the Company will be subject to the risks that the operations acquired
by the Merger, and any future acquisitions, if any, will not perform as expected
and that the earnings from such operations will not be sufficient to support the
capital expenditures needed to develop such operations in conformity with the
Company's business and growth strategies. Any delays or unexpected costs
incurred in connection with such integration could have a material adverse
effect on the Company's business, operating results or financial condition. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
TAXATION. The Partnerships do not pay any federal income taxes. After
consummation of the Merger, the Surviving Corporation will be subject to federal
income tax. Shareholders of the Surviving Corporation will also be required to
pay federal income taxes on any dividends that they may receive from the
Surviving Corporation and on any gain from the sale or exchange of Common
Shares. Therefore, while in partnership form only one level of federal income
tax is imposed (i.e., on the Limited Partners) in corporate form two levels of
federal income tax are imposed (i.e., one on the Surviving Corporation and one
on its shareholders to the extent they receive dividends or recognize gain on
the sale or exchange of shares). See "FEDERAL INCOME TAX CONSIDERATIONS" and
"OTHER TAX CONSIDERATIONS."
SIGNIFICANT REDUCTION IN DISTRIBUTIONS. The Partnerships historically made
monthly cash distributions to the Limited Partners until those distributions
were suspended in preparation for the Merger Proposal. The Company currently
anticipates that the Surviving Corporation will not pay cash dividends. See
"Distribution Policy" and "SUMMARY -- Disadvantages of the Merger and Related
Transactions."
In contrast to the Partnerships, the Surviving Corporation will be subject
to federal tax on its income. Holders of Common Shares will not be subject to
federal tax on such income, except to the extent dividends are paid. See
"FEDERAL INCOME TAX CONSIDERATIONS." Therefore, the Surviving Corporation is
expected to make significantly lower distributions, if any, than the
Partnerships have made. It is important to realize that the actual amount of
dividends, if any, to be paid will be determined by the Board of Directors, in
its sole and absolute discretion, generally taking into account a number of
factors, including operating performance, liquidity, capital requirements, and
the Company's business plan and growth strategies. There can be no assurance
that the Company's anticipated policy in regard to dividend payments will not be
modified by the Board of Directors.
DIVIDEND DISTRIBUTIONS BY THE COMPANY, IF ANY, WILL BE IN THE SOLE AND
ABSOLUTE DISCRETION OF THE COMPANY'S BOARD OF DIRECTORS AND WILL DEPEND ON A
NUMBER OF FACTORS, INCLUDING THE COMPANY'S CASH AVAILABLE FOR DISTRIBUTION, THE
COMPANY'S FINANCIAL CONDITION, THE COMPANY'S CAPITAL REQUIREMENTS, AND SUCH
OTHER FACTORS AS THE COMPANY'S BOARD OF DIRECTORS DEEMS RELEVANT.
23
<PAGE> 41
UNCERTAINTY REGARDING TRADING AND MARKET PRICE OF COMMON SHARES. The
Common Shares may not immediately be listed or approved for listing on any
regional or national securities exchange or otherwise designated or approved for
designation upon notice of issuance as a national market system security on an
interdealer quotation system maintained by the National Association of
Securities Dealers, Inc. To the extent that the Common Shares may trade, trading
prices for the Common Shares will be influenced by many factors, including the
market for the Common Shares, the Company's dividend policy, the possibility of
future sales of Common Shares by the Company or its Shareholders, investors'
perception of the Company and its businesses, and general economic and stock
market conditions. No prediction can be made as to the price at which the Common
Shares will trade, or if they will trade at all. Limited Partners and PCM
Shareholders have not previously had access to an active trading market for the
Units and shares of PCM's common stock, respectively. Therefore, it is possible
that they may wish to sell their Common Shares from time to time after
consummation of the Merger. There can be no assurance that the Company's efforts
to stabilize the price of the Common Shares by limiting the sale of Common
Shares issued in connection with the Merger will be successful. The sale of
Common Shares after the Merger might have an adverse effect on the market price
of the Common Shares. Moreover, various state regulatory agencies may require
further limitations on the transfer of the Common Shares. The transfer of
unrestricted Common Shares may require substantial fees to effect such
transfers.
LIMITED PUBLIC MARKET. There has been no public trading market for the
Company's securities. Although the Company intends to apply for listing of the
Common Shares on a regional or national securities exchange, there is no
assurance that the will be so listed. If the Common Shares are so listed, such a
listing provides no assurance that an active, liquid trading market will develop
for the Common Shares or, if developed, will be sustained.
POTENTIAL PRICE VOLATILITY. If a public market develops for the Common
Shares, there may be significant volatility in the market price of the Common
Shares. Period-to-period fluctuations in the Company's revenues and financial
results may have a significant impact on the perceived value of the Company and,
therefore, on the market price of the Common Shares. The price of the Common
Shares may be significantly affected by such factors as the financial results
and operating performance of the Company. Additionally, in recent years, the
stock market has experienced a high level of price and volume volatility and
market prices for many companies, particularly small and emerging growth
companies, have experienced significant price fluctuations not necessarily
related to the operating performance of those companies. The market price for
the Common Shares may be affected by general stock market volatility.
POSSIBLE DILUTION. The percentage interest of holders of Merger Stock in
the assets, liabilities, cash flow and results of operations of the Company, as
well as the percentage voting power of such holders, may be diluted if (i) the
Company has, prior to solicitation of consents to the Merger Proposal, issued
either preferred and common shares which are currently outstanding and held by
existing Shareholders of the Company, or (ii) the issuance of Common Shares in
any future public offering. In addition, the Surviving Corporation may issue
additional equity securities in the future (for example, in a public offering,
as specified above), which would dilute the percentage ownership of the then
current Shareholders. Under NASDAQ National Market rules, the Surviving
Corporation may not issue Common Shares equal to 20% or more of the then
outstanding Common Shares in connection with the acquisition of the shares or
assets of another entity without shareholder approval. Issuances of additional
Common Shares or preferred shares could adversely affect existing shareholders'
equity interests in the Surviving Corporation and the market price of the Common
Shares.
SHARES ELIGIBLE FOR FUTURE SALE. Sales of the Common Shares in the public
market after consummation of the Merger could adversely affect the market price
of the Common Shares and could impair the Company's future ability to raise
capital through the sale of equity securities. Upon consummation of the Merger,
the Company will have 7,512,500 shares of common stock outstanding. The
transfer, assignment, sale, conveyance, hypothecation, encumbrance, or other
alienation of the shares of the Merger Stock shall be limited. See the portion
of this Prospectus entitled "Merger Stock Will Be Restricted."
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<PAGE> 42
CONTROL BY PRINCIPAL SHAREHOLDER; ANTI-TAKEOVER MEASURES. If the Merger
Proposal is approved and the Merger is consummated, Vincent E. Galewick shall
beneficially own approximately 62% of the Common Shares. As a result, Vincent E.
Galewick, in his capacity as a shareholder of the Company would be able to
significantly influence or control many matters acquiring approval by the
shareholders of the Company, including the election of directors. The Company's
Certificate of Incorporation provides for preferred stock, the terms of which
may be fixed by the Board of Directors. Vincent E. Galewick owns 100,000 shares
of the Company's preferred stock, which is all of the issued and outstanding
shares of that preferred stock. Each share of that preferred stock is
convertible into 20 shares of the Company's common stock. Moreover, if the
Company becomes a "listed corporation", as that term is defined in the portion
of this Prospectus entitled "Elimination of Cumulative Voting", the directors of
the Company will be divided into 2 classes, and the holders of the Common Shares
will not be permitted to their cumulate votes for directors. Those provisions
could have the effect of delaying, deferring or preventing a change in control
of the Company.
ADDITION OF PROVISIONS THAT MAY DISCOURAGE CHANGES OF CONTROL. The
Surviving Corporation's organizational documents and Delaware law contain
provisions that may delay, defer or prevent a takeover attempt that a
shareholder might consider to be in such shareholder's best interest, including
offers that might result in a premium over the market price for Common Shares.
UNKNOWN ACQUISITIONS. The assets the Surviving Corporation may acquire
from time to time, other than the existing assets of PCM and the Partnerships,
are unknown at the present time. The Surviving Corporation will be responsible
for selecting those assets and the shareholders of the Surviving Corporation
will be relying upon the Surviving Corporation to select those assets.
NATURE OF ASSETS ACQUIRED BY COMPANY. The assets held by the Partnerships
and PCM and proposed to be acquired by the Company pursuant to the Merger
Proposal are, by their nature, non-performing. Specifically, those assets were
available for acquisition by the Partnerships and PCM because the obligors of
the indebtedness comprising those assets have failed to pay that indebtedness
and there is not sufficient security or collateral available for disposition
which would generate proceeds sufficient to pay that indebtedness. For that
reason, the assets which the Partnerships and PCM have acquired and the Company
intends to acquire by the Merger Proposal may be completely unproductive; that
is, those assets may generate no income to the Company.
UNSPECIFIED ASSETS. While the Company proposes to acquire the existing
assets of PCM and the Partnerships, the Company expects (as true with regard to
the current utilization of the assets of PCM and the Partnerships) to dispose of
certain of those assets from time to time and to purchase replacement assets.
The Company has not yet identified the specific assets which the Company may
from time to time acquire. With respect to the unspecified assets, there is no
information available to the Limited Partners as to the terms of the
acquisitions of those assets, the kind or type of those assets and other
relevant facts concerning those assets. As with PCM and the Partnerships, there
can be no assurance that the Company will be successful in obtaining suitable
assets which satisfy the Company's objectives, or that such assets will be
available, or can be acquired on attractive terms, or that any acquired asset
will increase in value or generate cash to the Company. Moreover, shareholders
of the Company must depend upon the ability of the officers and employees of the
Company to select and manage the assets.
SPECULATIVE INVESTMENT. The business objectives of the Company must be
considered speculative, and there is no assurance that the Company will satisfy
those objectives. No assurance can be given that Company Shareholders will
realize a return on their exchange of shares of common stock of PCM or Units for
Merger Stock, or that Company Shareholders will not ultimately lose their
investments in the Company completely. For this reason, each shareholder of PCM
and Limited Partner should read this Prospectus carefully and should consult
with that person's attorney, business advisor, or investment advisor.
DEPENDENCE ON MANAGEMENT. All decisions regarding management of the
Company's affairs will be made exclusively by the officers and directors of the
Company. Accordingly, no person should vote in favor of the Merger Proposal
unless that person has carefully evaluated the personal experience and business
performance of the officers and directors of the Company and is willing to
entrust all aspects of management to the officers and directors of the Company,
or their successors.
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<PAGE> 43
DEPENDENCE ON KEY PERSONNEL. The Company is dependent upon the efforts and
abilities of its senior management, particularly those of Vincent E. Galewick.
The loss of Mr. Galewick could have a material adverse affect on the business
and prospects of the Company. The officers of the Company believe that all
commercially reasonable efforts have been made to minimize the risks attendant
with such dependence on Mr. Galewick and the loss or departure of Mr. Galewick.
The General Partner currently maintains a key person life insurance policy in
the amount of $2,000,000 on Mr. Galewick and, if the Merger is consummated, the
Company anticipates maintaining such a policy on Mr. Galewick. Moreover, as the
prospective owner of a significant portion of the issued and outstanding common
stock of the Company, Mr. Galewick will have an incentive to remain with the
Company. However, there is no assurance that Mr. Galewick will remain with the
Company or that, if he should elect to leave the Company, his replacement would
cause the Company to operate profitably.
DEPENDENCE ON INDEPENDENT CONTRACTORS AND CONSULTANTS. The Company intends
to retain the services of independent contractors, consultants and managers to
select and manage assets acquired by the Company pursuant to the Merger
Proposal. Although the Company believes that such parties will perform in a
satisfactory manner and will have the ability to perform their duties, there is
no assurance those parties will be able to perform their responsibilities in a
manner satisfactory to the Company.
DEPENDENCE ON LABOR FORCE. The financial services industry, including the
business of purchasing, holding, servicing, collecting and selling discounted
portfolios of debt instruments and obligations, is labor intensive and subject
to significant personnel turnover. A significant turnover rate among the
Company's employees would increase the Company's recruiting and training costs
and could adversely impact the Company's costs in collecting discounted
portfolios. If the Company were unable to recruit and train a sufficient number
of employees, it would be forced to limit its growth or possibly curtail its
operations. Growth in the Company's business will require it to recruit and
train qualified personnel at an accelerated rate from time to time. There can be
no assurance that the Company will be able to continue to hire, train and retain
a sufficient number of qualified employees. Additionally, an increase in hourly
wages, costs of employee benefits or employment taxes could materially adversely
affect the Company.
GOVERNMENT REGULATION. The debt collection industry is regulated under
various federal and state statutes. In particular, the Company may be subject to
certain provisions of the federal Fair Debt Collection Practices Act which
establishes specific guidelines and procedures which debt collectors must follow
in communicating with consumer debtors, including the time, place, and manner of
such communications. The Company is also subject to the Fair Credit Reporting
Act which regulates the consumer credit reporting industry and which may impose
liability on the Company to the extent that the adverse credit information
reported on a consumer to a credit bureau is false or inaccurate. The accounts
receivable management business is also subject to state regulation, and some
states require that the Company be licensed as a debt collection company. The
failure to comply with applicable regulations and statutes could have a material
adverse effect on the Company. There can be no assurance that additional federal
or state legislation, or changes in regulatory implementation, would not limit
the activities of the Company in the future or significantly increase the cost
of regulatory compliance.
COMPLIANCE WITH AND APPROVAL FROM FEDERAL AND STATE AUTHORITIES. The
Merger Proposal and related transactions will not be consummated if any
moratorium on transactions of its type are imposed by federal, state or
regulatory authorities, or if any state Blue Sky or securities authority imposes
any restriction upon, or prohibits any aspect of the Merger Proposal and related
transactions, which in the judgment of the Company, renders the Merger Proposal
and related transactions undesirable or impractical.
ADDITIONAL FINANCING MAY BE REQUIRED. There is no assurance that
additional funds will be available from any source should they be needed by the
Company for expansion; and, if not available, the Company may not be able to
expand its operations as rapidly as if such financing were available.
UNCERTAINTY OF FUTURE FINANCIAL RESULTS, FLUCTUATIONS IN OPERATING
RESULTS. The results of operations of the Company may vary from period to
period due to a variety of factors, including, but not limited to, cost
increases from third-party manufacturers or suppliers, supply interruptions, the
availability and costs of raw materials, changes in marketing or sales
expenditures, acceptance of the services of the Company, competitive
26
<PAGE> 44
pricing pressures, and general economic and industry conditions that affect
demand in the various business operations of the Company.
LIMITED RESOURCES OF THE COMPANY. The Company believes it has the
financial resources to serve and satisfy its obligations to its shareholders,
including the commitment of the Company to meet the ongoing administrative and
business expenses of the Company. As with PCM and the General Partner in regard
to the Partnerships, a significant financial reversal for the Company could
adversely affect the ability of the Company to meet and satisfy typical business
obligations and to conduct the business of the Company with regard to the assets
acquired from the Partnerships and PCM.
SUBSTANTIAL COMPETITION. There is substantial competition for the
acquisition and management of certain assets. Numerous competitors have
resources and organizations which are substantially larger or greater than those
of the Company. Although the Company believes that its staff, facilities,
organization, and the assets and properties received from the Merger will be
sufficient to enable the Company to compete with other companies, there can be
no assurances that other companies will not preclude the ability of the Company
to acquire and manage assets.
LIMITATION ON LIABILITY OF OFFICERS AND DIRECTORS OF THE COMPANY. Section
145 of the Delaware General Corporation Law specifies that the Certificate of
Incorporation of a Delaware corporation may include a provision eliminating or
limiting the personal liability of a director or officer to that corporation or
its shareholders for damages for breach of fiduciary duty as a director or
officer, but such a provision must not eliminate or limit the liability of a
director or officer for (a) acts or omissions which involve intentional
misconduct, fraud, or a knowing violation of law; or (b) unlawful distributions
to stockholders. The Certificate of Incorporation of the Company includes a
provision eliminating or limiting the personal liability of the officers and
directors of the Company to the Company and its shareholders for damages for
breach of fiduciary duty as a director or officer. Moreover, the Company's
Bylaws provide certain indemnification to a controlling person, director or
officer which affects such a person's liability while acting in a corporate
capacity. The Company entered into various indemnification agreements with its
officers and directors, copies of which are attached to the Registration
Statement as exhibits thereto. Moreover, the Merger Agreement provides
indemnification for directors and officers of the Company. Accordingly, the
officers and directors of the Company may have no liability to the shareholders
of the Company for any mistakes or errors of judgment or for any act or
omission, unless such act or omission involves intentional misconduct, fraud, or
a knowing violation of law or results in unlawful distributions to the
shareholders of the Company.
DISCLOSURE OF COMMISSION'S POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE ACT MAY BE
PERMITTED TO DIRECTORS, OFFICERS OR PERSONS CONTROLLING THE COMPANY PURSUANT TO
THE FOREGOING PROVISIONS, THE COMPANY HAS BEEN INFORMED THAT IN THE OPINION OF
THE COMMISSION SUCH INDEMNIFICATION IS AGAINST PUBLIC POLICY AS EXPRESSED IN THE
ACT AND IS, THEREFORE, UNENFORCEABLE.
NO LIMITATION ON INDEBTEDNESS. The Certificate of Incorporation and Bylaws
of the Company do not contain any limitation on the amount or percentage of
indebtedness, funded or otherwise, the Company might incur. Accordingly, the
Company could become highly leveraged, resulting in an increase in debt service
that could adversely affect the Company's ability to make distributions to its
stockholders and result in an increased risk of default on its obligations.
LOSS ON DISSOLUTION OF THE COMPANY. In the event of a dissolution of the
Company, the proceeds realized from the liquidation of the Company's assets, if
any, will be distributed to holders of the Common Shares only after satisfaction
of claims of the Company's creditors and any holders of the Company's preferred
stock. The ability of a Company Shareholder to recover any monies whatsoever in
that event will depend on the amount of funds realized and the claims to be
satisfied therefrom.
REMUNERATION OF DIRECTORS, OFFICERS AND EMPLOYEES. Compensation received
by officers, directors and employees of the Company will be determined from time
to time by the Board of Directors. Officers, directors,
27
<PAGE> 45
and employees of the Company will be reimbursed for any out-of-pocket expenses
incurred on behalf of the Company.
RECEIPT OF COMPENSATION REGARDLESS OF PROFITABILITY. The officers,
directors and employees of the Company may receive significant compensation,
payments, and reimbursements regardless of whether the Company operates at a
profit or at a loss.
CONFLICTS OF INTEREST. The Company is affiliated with the Solicitation
Agent, PCM and the General Partner. The Company, the Solicitation Agent, PCM and
the General Partner share common shareholders, directors, officers and
employees. Several of the directors of the Company are employed independently of
the Company and those persons may continue to engage in other activities. The
persons serving as officers and directors of the Company shall have conflicts of
interest in allocating time, services, and functions between the other business
ventures in which those persons may be or become involved and, also, the affairs
of the Company. As a result, conflicts of interest between the Company and the
other activities of those persons may occur from time to time.
The Company will attempt to resolve any such conflicts of interest in favor
of the Company. The officers and directors of the Company are accountable to the
Company and the Company Shareholders as fiduciaries (subject to the restrictions
set forth in the paragraph headed "Limitation on Liability of Officers and
Directors of the Company" above), which requires that such officers and
directors exercise good faith and integrity in handling the Company's affairs.
Moreover, the officers and directors of the Company believe that the Company
will have sufficient staff, consultants, employees, agents, contractors, and
managers to adequately conduct the business of the Company.
The General Partner has not retained an unaffiliated representative to act
on behalf of the Limited Partners for purposes of negotiating the Merger
Proposal, nor has the Board of Directors of PCM retained an unaffiliated
representative to act on behalf of the shareholders of PCM for purposes of
negotiating the Merger Proposal. The General Partner and the Board of Directors
of PCM, respectively, do not believe retaining such a representative is
necessary because an unaffiliated third party, Willamette, has been retained to
provide a fairness opinion as to the fairness of the Merger Proposal to the
Company, PCM and the Partnerships. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."
NO ARM'S LENGTH AGREEMENTS. Certain agreements and arrangements, including
those relating to compensation and payments between the Company and its
Affiliates, are not the result of arm's length negotiations. (See "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS").
COMMON RELATIONSHIPS. The independent auditors for the Company are and may
continue to be the independent auditors for the Company's Affiliates. The
attorneys for the Company, White and Stepp LLP, are also the attorneys for PCM,
the General Partner and the Partnerships. Those attorneys are not, and have
never been, the attorneys for any Limited Partner, or for the Limited Partners
collectively. Joint representation of different parties creates certain
potential conflicts of interest, because the interests and objectives of the
various parties regarding certain issues relating to the conduct of the business
of the Company are, or may become, inconsistent with the interests and
objectives of each other.
White and Stepp LLP's representation of multiple interests has significant
implications, which each Limited Partner should consider. For example, rather
than vigorously asserting a single client's interest on an issue, it is probable
that White and Stepp LLP will balance interests between the parties represented.
Because different parties may have different talents, energy, personal goals,
and financial resources, aggressive advocacy for one party could result in more
favorable treatment for that party compared to the more even-handed approach
White and Stepp LLP will follow in representing multiple interests.
Each party to the Merger Proposal has been advised of the provisions of
Rule 3-310 of the Rules of Professional Conduct of the State Bar of California
and of the conflicts associated with the various interests of those parties, and
each such party has signed a waiver of the conflict of interests and a consent
to the multiple representation by White and Stepp LLP of each such party.
However, if any controversy occurs following the consummation of the Merger in
which the interests of the Company Shareholders appear to be in conflict with
the interests of the Company, other attorneys, as appropriate, may be retained
for one or all of the parties in
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connection with such controversy. Instances may occur where the interests of the
Company and its shareholders may diverge and in such instances a conflict of
interest may exist. Additionally, in the event of a dispute among the various
parties, including the shareholders of the Company, White and Stepp LLP may be
precluded from representing any party without first obtaining the consent of all
parties.
Each Limited Partner remains completely free to seek independent counsel at
any time and is urged to consult independently with his or her own accountants
and attorneys before voting on the Merger Proposal.
ABILITY OF THE COMPANY TO IMPLEMENT ITS BUSINESS STRATEGY. Although the
Company is committed to various strategies in the delinquent consumer
indebtedness industry, implementation of these strategies will depend in large
part on the ability of the Company to (i) maintain appropriate procedures,
policies and systems in regard to compliance with federal, state and local
regulatory agencies; (ii) hire, train, and retain skilled employees; (iii)
continue to operate profitably in the face of increasing competition; and (iv)
obtain adequate financing on favorable terms to fund the business and growth
strategies of the Company. The inability of the Company to obtain or maintain
any or all of these factors could impair the ability of the Company to implement
its business strategies successfully, which could have a material adverse effect
on the results of operations and financial condition of the Company.
RISK OF BUSINESS INTERRUPTION; RELIANCE ON COMPUTER AND TELECOMMUNICATIONS
INFRASTRUCTURE. The Company's success is dependent in large part on its
continued investment in sophisticated telecommunications and computer systems,
including predictive dialers, automated call distribution systems and digital
switching. The Company has made significant investments in the acquisition,
development, and maintenance of such technologies in an effort to remain
competitive and anticipates that such expenditures will be necessary on an
on-going basis. Moreover, computer and telecommunication technologies are
evolving rapidly and are characterized by short product lifecycles, which
requires the Company to anticipate technological developments. There can be no
assurance that the Company will be successful in anticipating, managing or
adopting such technological changes on a timely basis or that the Company will
have the capital resources available to invest in new technologies. In addition,
the Company's business is highly dependent on its computer and
telecommunications equipment and software systems, the temporary or permanent
loss of which, through physical damage or operating malfunction, could have a
material adverse effect on the Company's business. The Company's business is
materially dependent on service provided by various local and long distance
telephone companies. A significant increase in the cost of telephone services
that is not recoverable through an increase in the price of the Company's
services, or any significant interruption in telephone services, could have a
material adverse effect on the Company.
RISKS OF UNINSURED LOSS; ACTS OF GOD. The Company may carry comprehensive
liability and other business insurance of the types customarily carried by
similar businesses. However, there are certain types of extraordinary
occurrences which may be either uninsurable or not economically insurable. For
example, the Company is located in Southern California. In the event of a major
earthquake, the Company's telecommunications and computer systems could be
rendered inoperable for protracted periods of time, which would adversely affect
the Company's financial condition. In the event of a major civil disturbance,
the Company's operations could be adversely affected. Should such an uninsured
loss occur, the Company could lose significant revenues and financial
opportunities in amounts which would not be partially or fully compensated by
insurance proceeds.
THE MERGER
The Board of Directors, with the approval of the Board of Directors of PCM
and the approval of the General Partner, on behalf of the Partnerships, is
soliciting the consent of Limited Partners, PCM Shareholders and Company
Shareholders to approve the Merger Proposal.
On the Closing Date, PCM and the Partnerships (if, and only if, PCM, the
Company, and all of the Partnerships approve the Merger Proposal) will merge
with and into the Company. Pursuant to the Merger Agreement, the Partnerships
and PCM will receive the Merger Stock. The Merger Stock will be delivered by the
Company to the Partnerships and PCM. Subsequent thereto, the Partnerships and
PCM will be wound up
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and dissolved and, as part of that winding up and dissolution, the Partnerships
and PCM will distribute the Merger Stock to the partners of the Partnerships and
to the shareholders of PCM in a manner consistent with the Exchange Value. The
Exchange Value has been reviewed by Willamette and Willamette has determined
that the Exchange Value is fair to the Company, PCM and the Partnerships.
CONDITIONS OF THE MERGER. The Merger will not be consummated unless it
receives the requisite approval of the Limited Partners of each Partnership, the
approval of PCM Shareholders, the approval of existing Company Shareholders, and
any approvals required from any state or federal regulatory agency. Consummation
of the Merger is also subject to the receipt of the opinion described in
"FEDERAL INCOME TAX CONSIDERATIONS." Receipt of this opinion may be waived in
whole or in part by the Partnerships, PCM and the Company, in each respective
entity's sole discretion.
Prior to the consummation of the Merger, the obligations of the parties to
the Merger Agreement may be terminated at any time (including after approval of
the Merger Proposal by the Limited Partners and the respective shareholders) if,
among other things, (a) the Board of Directors of the General Partner, PCM or
the Company adopts a resolution terminating the Merger Agreement or (b) a final
injunction, order, or other action of a court or other governmental body
prevents the consummation of the Merger.
The Determination Date is June 30, 1997, a date determined by the Company.
The General Partner has suspended distributions by the Partnerships to the
Limited Partners effective as of the Determination Date. This was necessary to
assure that the Limited Partners' capital accounts did not change after the
Determination Date. The Company has the authority to postpone the Determination
Date and declare a new Determination Date, in its sole and absolute discretion.
The Company may postpone the Determination Date and declare a new Determination
Date if the matters contemplated in this Prospectus are postponed for any
reason.
EFFECTS OF THE MERGER. As a result of the Merger, all of the assets and
properties now held directly or indirectly by PCM and the Partnerships will be
acquired and held by the Surviving Corporation, and PCM and the Partnerships
will cease to exist by operation of law. The Surviving Corporation will possess
all of the assets, properties, rights and privileges, and will be subject to all
the liabilities and obligations, of PCM, the Partnerships and the Company
existing at the Closing Date. The directors and executive officers of the
Company on the Closing Date will be the directors and executive officers of the
Surviving Corporation.
THE MERGER AGREEMENT. The Merger Proposal will be consummated pursuant to
the Merger Agreement, if the Merger Proposal receives the requisite approval of
the Limited Partners of each Partnership, the approval of the PCM Shareholders,
the approval of the Company Shareholders, and if the other applicable conditions
to the Merger Proposal are satisfied or waived, including any approvals required
from any state or federal regulatory agency. The Merger Agreement is attached as
an exhibit to the Registration Statement and is incorporated by reference into
this Prospectus.
Until such time as the Merger Agreement has been approved and adopted by
all the parties thereto, it may be amended or terminated by the Board of
Directors of the General Partner, on behalf of any of the Partnerships; the
Board of Directors of PCM, on behalf of PCM; or the Board of Directors, on
behalf of the Company; provided, however, that at any time after the Merger
Proposal has been adopted by the appropriate shareholders or the Limited
Partners, the respective Boards of Directors may not amend, modify or supplement
the Merger Proposal to change the amount or kind of interests to be received by
the Limited Partners, the PCM Shareholders or the Company Shareholders or to
make any change if such change would, alone or in the aggregate, materially
adversely affect the Limited Partners or the PCM Shareholders.
APPROVAL BY ALL OF THE PARTNERSHIPS IS REQUIRED. The Merger may be
consummated only if all of the Partnerships approve the Merger Proposal. The
Merger Proposal provides that those Limited Partners that reject the Merger
Proposal shall not bear an unfair portion of the transaction costs of the Merger
Proposal. A Limited Partner which rejects the Merger Proposal shall not be
required to pay any of the costs of the Merger Proposal in accordance with the
provisions of Section 25014.7(e)(3) of the Thompson-Killea Act. The General
Partner, PCM and the Company have considered the possibility of approval of the
Merger Proposal and related transactions by less than all of the Partnerships,
and do not believe that the Merger can be fairly
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consummated unless all of the Partnerships approve the Merger Proposal because,
among other things, (i) it would be unduly burdensome or impossible to evaluate
and apportion the value of the various services provided to the Partnerships by
PCM, on the one hand, considering the complexity and scope of the various joint
ventures between the Partnerships and PCM, on the other hand; and (ii) if the
Merger Proposal is approved, PCM will cease to exist by operation of law, and
would no longer be available to provide the same services to a dissenting
Partnership. The General Partner and PCM have caused an independent auditor,
Kelly & Company, to engage an expert, Willamette, to render a fairness opinion
concerning the Merger. See "DETERMINATION OF THE EXCHANGE PRICE AND ALLOCATION
OF THE COMMON SHARES."
Each Limited Partner will be provided with a separate supplement pertaining
to each Partnership in which such Limited Partner has an interest. The
supplements include, among other things, brief descriptions of each material
risk and the effect of the Merger Proposal and related transactions as they may
pertain uniquely to such Partnership. Each Limited Partner is strongly urged to
carefully read and consider the appropriate supplement.
MERGER STOCK WILL BE RESTRICTED. To accomplish the purposes of the Merger,
the transfer, assignment, sale, conveyance, hypothecation, encumbrance, or other
alienation of the shares of the Merger Stock shall be restricted as follows: 25%
of the Merger Stock will be unrestricted immediately after the consummation of
the Merger. 25% of the Merger Stock will be restricted until the end of the
Company's first full fiscal quarter following the Closing Date. 25% of the
Merger Stock will be restricted until the end of the Company's second full
fiscal quarter following the Closing Date. The remaining 25% of the Merger Stock
will be restricted until the end of the Company's third full fiscal quarter
following the Closing Date.
CONSUMMATION OF THE MERGER. If the Merger Proposal is approved and the
other conditions of the Merger Proposal are waived or satisfied, the Closing
Date will be selected by agreement of the Board of Directors of the General
Partner, the Board of Directors of PCM and the Board of Directors. The Company
currently anticipates that the Merger will be consummated in March, 1998. Upon
consummation of the Merger, the Partnerships and PCM will receive from the
Company certificates evidencing and representing the Merger Stock. Subsequent
thereto, upon the winding up and dissolution of the Partnerships and PCM, the
General Partner, the Limited Partners and the PCM Shareholders will receive
certificates for their respective shares of the Merger Stock.
COSTS OF THE MERGER. For purposes of the Thompson-Killea Act, the costs of
the Merger will be divided into two categories: (i) transaction costs; and (ii)
solicitation expenses. Transaction costs are those costs of printing and mailing
the Prospectus and other documents; legal fees not related to the solicitation
of votes, consents, or tenders; financial advisory fees, investment banking
fees; appraisal fees; accounting fees; independent committee fees; travel
expenses; and all other fees related to the preparatory work of the Merger.
Transaction costs do not include (i) those costs would have otherwise been
incurred by the Partnerships in the ordinary course of business or (ii)
solicitation expenses. Solicitation expenses include direct marketing expenses,
such as telephone calls, broker dealer fact sheets, legal and other expenses
related to the solicitation of consents and direct solicitation compensation to
brokers and dealers.
In the event the Merger Proposal is rejected, the Limited Partners shall
not bear an unfair portion of the transaction costs of the Merger Proposal. In
the event the Merger Proposal is rejected, the transaction costs will be
apportioned between the Company and the Limited Partners according to the final
vote regarding the Merger Proposal as follows (i) the Company shall bear all
transaction costs in proportion to the number of votes of the Limited Partners
that vote to reject the Merger Proposal; and (ii) each Partnership shall bear
the transaction costs in proportion to the number of votes of the Limited
Partners of such Partnership that voted to approve the Merger Proposal.
In the event the Merger Proposal is rejected, the Company shall pay all of
the solicitation expenses. In the event the Merger Proposal is approved, the
Partnerships shall bear the transaction costs in proportion to the number of
votes of the Limited Partners that vote to approve the Merger Proposal. In the
event the Merger Proposal is approved, the Partnerships shall bear the
solicitation costs in proportion to the number of votes of the Limited Partners
that vote to approve the Merger Proposal.
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ALTERNATIVES TO THE MERGER
PCM, the Company and the General Partner have considered several
alternatives to the Merger Proposal and related transactions. Some of these
alternatives would not constitute a reorganization. In the mutual opinion of
PCM, the Company and the General Partner, the only viable alternatives not
constituting a reorganization involve some form of public offering of
securities. The General Partner has considered the possibility of a public
offering of all Units, which provides certain registration rights to the Limited
Partners. In the opinion of the General Partner, this possibility would fail to
provide the Limited Partners with the liquidity that the Merger Proposal might
provide, because of the unsatisfactory market for publicly traded limited
partnership units. PCM and the Company have also considered the possibility of
merging those two corporations without merging with any of the Partnerships and
thereafter making a public offering of shares in the Surviving Corporation. In
the event the Merger is not consummated, PCM and the Company may elect this
alternative.
PCM, the Company and the General Partner have considered several
alternatives to the Merger Proposal, each of which constitutes a reorganization.
The General Partner considered the possibility of selling all of the assets of
the Partnerships to the Company, and the Company considered purchasing all such
assets, in exchange for shares of common stock of the Company. PCM also
considered the possibility of selling all of its assets to the Company, and the
Company considered purchasing all such assets, in exchange for shares of common
stock of the Company. Alternatively, the General Partner considered winding up
and dissolving the Partnerships and distributing the proceeds of liquidation to
the Limited Partners. Additionally, the Board of Directors of PCM considered
winding up and dissolving PCM and distributing the proceeds of liquidation to
the PCM Shareholders. These possibilities were eliminated because of their
complexity and cost.
Moreover, the General Partner considered dissolving the Partnerships and
distributing the assets of the Partnerships to the Limited Partners, pursuant to
an agreement with the Company, which was considered by the Company, and pursuant
to which agreement the Company would purchase the assets from the Limited
Partners in exchange for shares of the Company's common stock, and thereafter
merging the Company with PCM. This possibility was also eliminated because of
its complexity and cost, and also because, with the type of assets held by the
Partnerships, even an "orderly liquidation" would result in a prohibitive
discount on the value of the debt portfolios.
PCM and the General Partner considered the results of continuing PCM and
the Partnerships in accordance with their current business plans and joint
venture agreements. PCM and the General Partner rejected this alternative
because the servicing entity, PCM, currently has the capacity to service
portfolios in excess of those owned by the Partnerships and has the potential
for significant growth. PCM has been offered access to commercial lines of
credit and its growth is not contingent upon a continuing relationship with the
Partnerships. After consummation of the Merger, Limited Partners who approve the
Merger Proposal will participate in this growth. Moreover, after consummation of
the Merger, the Company will be able to compete for available portfolios by
taking advantage of economies of scale not available to PCM and the Partnerships
acting individually.
PCM and the General Partner also considered going forward with the Merger
Proposal with the approval of less than all of the Partnerships, but rejected
this alternative because of economies of scale, the scope and complexity of
existing joint ventures between PCM and the Partnerships, and the economics of
purchasing, holding, servicing, collecting and selling distressed debt
portfolios. See "Approval by All of the Partnerships Is Required" above.
RECOMMENDATIONS. After considering the alternatives and the advantages and
disadvantages of the Merger Proposal described above, the Company, along with
PCM and the General Partner, believes that the Merger Proposal is fair to, and
in the best interests of, the Limited Partners, the PCM Shareholders, and
Company Shareholders. The Board of Directors recommends that each of the Company
Shareholders vote to approve the Merger Proposal. The Board of Directors of PCM
recommends that each PCM Shareholder vote to approve the Merger Proposal. The
Board of Directors of the General Partner recommends that each Limited Partner
vote to approve the Merger Proposal.
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DESCRIPTION OF THE COMMON SHARES
The authorized capital stock of the Company is (i) 100,000,000 shares of
$.001 par value common stock, 1,000 shares of which are issued and outstanding;
and (ii) 10,000,000 shares of $.001 par value preferred stock, of which 100,000
shares are held by Vincent E. Galewick. The shares of the Company's preferred
stock owned by Mr. Galewick are convertible to shares of the Company's common
stock on a one share of such preferred stock for 20 shares of such common stock
basis. All of the outstanding shares of the common stock and the preferred stock
are duly authorized, validly issued, fully paid and non assessable, and were not
issued in violation of the preemptive rights of any person. The Merger Stock, to
be issued upon effectiveness of the Merger, when issued in accordance with the
terms of the Merger Agreement, shall be duly authorized, validly issued, fully
paid and nonassessable. Other than as specified in Section 5.2 of the Merger
Agreement, there are no outstanding subscriptions, options, warrants, calls or
rights of any nature whatsoever issued or granted by, or obligating, the
Company, to purchase or otherwise acquire any shares of capital stock of the
Company, or other equity securities or equity interests of the Company or any
debt securities of the Company.
Upon consummation of the Merger there will be 7,511,500 Common Shares
outstanding, each of which will be owned by the General Partner, the Limited
Partners, the PCM Shareholders and the Company Shareholders. There will be
100,000 shares of the Company's preferred stock held by Vincent E. Galewick
outstanding upon consummation of the Merger.
The summary of the relevant provisions of the Certificate of Incorporation
and the amendment thereto and the Bylaws of the Company set forth below does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, all of the provisions of that Certificate of Incorporation and
those Bylaws.
COMMON SHARES. After the Merger, the Common Shares will be validly issued,
fully paid and nonassessable. Subject to any prior rights, if any such prior
rights exist as an operation of law, holders of the Common Shares will be
entitled to receive dividends, if any, out of assets legally available thereof
at such times and in such amount as the Board of Directors may from time to time
determine. See "RISK FACTORS -- Significant Reduction in Distributions." The
Common Shares will be neither redeemable nor convertible and the holders thereof
will have no preemptive or subscription rights to purchase any securities of the
Company. Upon the liquidation, dissolution or winding up of the Company, subject
to the rights of holders of the Company's preferred stock, holders of Common
Shares will be entitled to receive pro rata the assets of the Company which are
legally available for distribution, after payment of all debts and other
liabilities. Each outstanding Common Share will be entitled to one vote on all
matters submitted to a vote of Shareholders.
PREFERRED STOCK. The Company has no present intention to issue any shares
of its preferred stock. Therefore, the only shares of the Company's preferred
stock which shall be issued and outstanding after consummation of the Merger are
those 100,000 shares presently owned by Vincent E. Galewick.
ANTI-TAKEOVER PROVISIONS OF THE SURVIVING CORPORATION'S ORGANIZATIONAL
DOCUMENTS. The Company's Certificate of Incorporation, as amended, contains
several provisions that may make the acquisition of control of the Company by
means of a tender offer, open market purchase, proxy fight or otherwise more
difficult. The primary purpose of these provisions is not to prevent a takeover
of the Company. Rather, they are intended to deter coercive and unfair takeover
tactics, to provide time for the Board of Directors to negotiate on behalf of
Company Shareholders and to enhance the probability of continuity and stability
in the composition of the Board of Directors and in the strategies established
by the Board for maximizing long-term shareholder value.
The Company believes that, as a general rule, the interests of the Company
Shareholders would be best served if any change in control results from
negotiations by the Board of Directors based upon careful consideration of the
proposed terms, such as the price to be paid to Company Shareholders, the form
of consideration to be paid, the anticipated tax effects of the transaction, and
of certain long-term or strategic considerations, including the risk that the
Common Shares might be undervalued in the market at any given time and the risk
that an offer, although representing a premium to current market prices, may not
take into account the long-term values that are expected to be realized by the
Company's investments or by the Company's commitment to pursuing its business
with an emphasis on long-term relationships with customers,
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suppliers and employees. The Company believes that certain unsolicited
acquisitions would be inconsistent with the Company's fundamental values and
would have an adverse impact on the Company's long-term shareholder value which
the Company believes is based, in large part, on its long-term, enduring
relationships with its customers, suppliers, employees, owners and the
communities in which it conducts business.
To the extent that these provisions discourage takeover attempts, however,
they could deprive Company Shareholders of opportunities to realize takeover
premiums for their Common Shares. These provisions could also discourage
accumulations of large blocks of Common Shares, thus depriving Company
Shareholders of any advantages which large accumulations of Common Shares might
provide. Finally, while these provisions are commonplace among public companies,
there is a risk that the existence of these provisions will have an adverse
impact on the market price of the Common Shares, as certain potential investors
may have acquired the Common Shares, in part, to take advantage of such
potential takeover premiums, or might otherwise be discouraged from investing in
the Company by the existence of such anti-takeover provisions.
FAIR PRICE PROVISION. Article Nine of the Company's Certificate of
Incorporation, as amended, provides certain protections for Company Shareholders
in the event that a Person becomes a "controlling Person" and seeks to implement
a "business combination" of the Company with such Person. Article Nine requires
a special vote, in addition to whatever other vote may be required, of
two-thirds of the outstanding Common Shares not held by the controlling Person
in order to approve any such transaction. This special vote will not be
required, however, if a "minimum price per share" is to be paid to those holders
of Common Shares who do not vote in favor of the business combination and whose
proprietary interest will be terminated in connection with such business
combination and a consent statement is distributed for purposes of soliciting
Company Shareholder approval of the business combination. This special vote will
also not be required if the then current Board of Directors, by a vote of at
least two-thirds of the directors then in office, approves the proposed business
combination as being in the best interests of the Company.
A controlling Person is defined as any person who "beneficially owns" more
than 10% of the Common Shares. "Beneficially owns" is defined broadly to include
all forms of ownership and all types of arrangements that give a Person, either
directly or indirectly, actual or potential voting rights or investment decision
authority with respect to the Common Shares.
"Business combination" includes virtually every transaction between a
controlling Person (and certain Affiliates and associates) and the Company (or a
subsidiary of the Company) which would involve a combination of the business
operations or assets of such persons. The phrase also encompasses
reclassifications and recapitalizations involving the Common Shares while a
Person is a controlling Person.
"Minimum price per share" is defined as the higher of (i) the highest gross
per share price paid or agreed to be paid within three years of the record date
for the business combination to acquire any Common Share beneficially owned by a
controlling Person, or (ii) the highest per share market price of the Common
Shares during such three-year period.
By its terms, Article Nine cannot be amended, altered, changed or repealed
in any respect without the affirmative vote of the holders of at least
two-thirds of the outstanding Common Shares that are not owned by a controlling
Person. Article Nine is intended to prevent unfair pricing or other tactics that
might occur if a Person in control of the Company negotiates a business
combination with the Company. Under such circumstances, a controlling Person
could in effect control both sides of the negotiation. Article Nine is intended
to require the controlling Person to either negotiate directly with the
Company's Board of Directors and obtain the approval of the Board of Directors
or to offer a fair price to all Company Shareholders.
BUSINESS COMBINATIONS. Article Ten of the Company's Certificate of
Incorporation, as amended, provides that if a proposal is made that the Company
enter into a merger or consolidation with any other corporation (other than a
direct or indirect wholly-owned subsidiary of the Company), or sell or otherwise
dispose of all or substantially all of its assets or business in one transaction
or a series of transactions, or liquidate or dissolve, the affirmative vote of
the holders of not less than two-thirds of the outstanding voting shares of the
Company will be required for the approval of such proposal. The foregoing does
not apply to any such merger, consolidation, sale, disposition, liquidation or
dissolution which is approved by resolution of two-
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thirds of the directors of the Company then in office, if the majority of the
members of the Board of Directors adopting such resolution were members of the
Board of Directors prior to the public announcement of the proposed merger,
consolidation, sale, disposition, dissolution or liquidation and prior to the
public announcement of any transaction relating to such merger, consolidation,
sale, disposition, dissolution or liquidation. If such approval is granted, then
such transaction will only require such additional approval, if any, as is
otherwise required under the other articles of the Company's Certificate of
Incorporation and under law.
CONTROL SHARE ACQUISITIONS. Article Eleven of the Company's Certificate of
Incorporation, as amended, provides that any "control share acquisition" of
shares of the Company can only be made with the prior approval of the Company
Shareholders. A "control share acquisition" is defined as any acquisition of
shares of the Company that, when added to all other shares of the Company owned
by the acquiror, would entitle the acquiror to exercise levels of voting power
in the following ranges: one fifth or more but less than one third, one third or
more but less than a majority, and a majority.
The acquiror may make the proposed control share acquisition only if both
of the following occur: (i) the Company Shareholders authorize the acquisition
by an affirmative vote of (a) a majority of the voting power of the Company
represented at the meeting in person or by proxy and (b) a majority of the
portion of such voting power, excluding the voting power of Common Shares that
may be voted by the acquiror, by any officer of the corporation elected or
appointed by the directors, and by any employee of the Company who is also a
director; and (ii) the proposed control share acquisition is consummated no
later than 360 days following the Company Shareholders' authorization of the
control share acquisition.
Article Eleven does not apply to an acquisition of shares by any Company
Shareholder or group of Company Shareholders who were holders of Common Shares
immediately after the Merger or to any acquisition of shares by certain
Affiliates of any such Company Shareholder or group of Company Shareholders.
Article Eleven will begin to apply to such Company Shareholders and Affiliates,
however, from and after the point at which they collectively own less than 25%
of the Common Shares.
TRANSACTIONS WITH INTERESTED SHAREHOLDERS. Article Twelve of the Company's
Certificate of Incorporation, as amended, prevents an "interested shareholder"
(defined generally as a Person owning 10% or more of the Company's outstanding
voting shares) from engaging in an "interested shareholder transaction"
(generally, a merger, consolidation, sale, lease or other disposition of
substantial assets either by the Company to the interested shareholder or vice
versa, including certain reclassifications of the Common Shares, or a loan or
other financial benefit to the interested shareholder not shared pro rata with
other Company Shareholders) with the Company for three years following the date
that person became an interested shareholder unless (i) before that Person
became an interested shareholder, the Board of Directors of the Company approved
the transaction in which the interested shareholder became an Interested
Shareholder or (ii) the Board of Directors approves the interested shareholder
transaction.
Article Twelve does not apply to an acquisition of shares by any
shareholder or group of Company Shareholders who were holders of Common Shares
immediately after the Merger or to any acquisition of Common Shares by certain
Affiliates of any such shareholder or group of Company Shareholders. Article
Twelve will begin to apply to Company Shareholders and Affiliates, however, from
and after the point at which they collectively own less than 25% of the Common
Shares.
By its terms, Article Twelve cannot be amended, altered, changed or
repealed in any respect without the affirmative vote of the holders of at least
two-thirds of the outstanding Common Shares that are not owned by the interested
shareholder.
SHAREHOLDER ACTION; SPECIAL MEETINGS. Article Two, Section Two of the
Bylaws of the Company provides that a special meeting of the Company
Shareholders, for any purpose or purposes, unless otherwise prescribed by
statute, may be called at any time and shall be called by the President or
Secretary of the Company, upon the direction of the Board of Directors, or upon
the written request of a shareholder or shareholders of the Company holding of
record at least ten percent (10%) of the outstanding shares of the Company
entitled to vote at such a meeting. Article Two, Section Eleven of those Bylaws
provides that any action required or permitted to be taken at a meeting of the
Company Shareholders under any provisions of
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the Delaware General Corporation Law, the Certificate of Incorporation, or any
amendments thereto, or the Company's Bylaws may be taken without a meeting if
all of the Company Shareholders entitled to vote thereon consent in writing to
such action being taken, or, subject to the provisions of Section 228 of the
Delaware General Corporation Law, if the Company Shareholders who would have
been entitled to cast the minimum number of votes which would be necessary to
authorize such action at a meeting at which all of the Company Shareholders
entitled to vote thereon were present and voting shall consent in writing to
such action being taken.
NUMBER OF DIRECTORS; REMOVAL; VACANCIES. Article Three, Section Two of the
Bylaws of the Company provides that there shall be five (5) directors
constituting the Board of Directors. The directors shall be elected annually at
the annual meeting of the shareholders, and each director holds office until his
or her successor has been elected and qualified, until his or her death, until
he or she resigns, or until he or she shall has been removed. Any director
elected to fill a vacancy in the Board of Directors shall be deemed elected for
the unexpired portion of the term of his or her predecessor on the Board of
Directors. Each director, at the time of his or her election, shall be at least
eighteen (18) years of age.
The Bylaws of the Company also provide for two classes of directors at such
time as the Company becomes a "listed corporation." Additionally, those Bylaws
provide that at such time as the Company becomes a listed corporation, the
number of authorized directors of the Company shall, without additional action
of the Company's Shareholders, increase to seven. See "Elimination of Cumulative
Voting."
SHAREHOLDER PROPOSALS AND NOMINATIONS. The Bylaws of the Company establish
an advance notice procedure for shareholder proposals to be brought before an
annual or special meeting of Company Shareholders, including proposed
nominations of persons for election to the Board of Directors. To be properly
brought before any annual meeting of the Company Shareholders, business must be
either (i) specified in the notice of such meeting (or any supplement thereto)
given by or at the direction of the Board of Directors, (ii) otherwise be
properly brought before such meeting by or at the direction of the Board of
Directors, or (iii) otherwise be properly brought before such meeting by a
shareholder of the Company. In addition to any other applicable requirements,
including, but not limited to, requirements imposed by federal and state
securities laws pertaining to proxies or consents, for business to be properly
brought before any meeting by a shareholder, such shareholder must have given
timely notice thereof in writing to the Secretary of the Company. To be timely,
a shareholder's notice must be delivered to or mailed and received at the
principal executive offices of the Company not later than the close of business
on the 15th day following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure was made, whichever first occurs. A
shareholder's notice to the Secretary of the Company shall set forth as to each
matter such shareholder proposes to bring before any meeting of the shareholders
(i) a brief description of the business desired to be brought before the meeting
and the reasons for conducting such business at the meeting, (ii) the name and
record address of the shareholder proposing such business, (iii) the class and
number of shares of the Company which are beneficially owned by such
shareholder, and (iv) any material interests of such shareholder in such
business.
ACTION BY SHAREHOLDERS WITHOUT A MEETING. Any action required or permitted
to be taken at a meeting of the Company Shareholders under any provisions of the
Delaware General Corporation Law, the Company's Certificate of Incorporation, or
the Bylaws of the Company may be taken without a meeting if all of the Company
Shareholders entitled to vote thereon consent in writing to such action being
taken, or, subject to the provisions of Section 228 of the Delaware General
Corporation Law, if the Company Shareholders who would have been entitled to
cast the minimum number of votes which would be necessary to authorize such
action at a meeting at which all of the Company Shareholders entitled to vote
thereon were present and voting shall consent in writing to such action being
taken.
AMENDMENT OF BYLAWS. Certain provisions in the Bylaws of the Company may
only be amended or repealed by the affirmative vote of the holders of two-thirds
of the Common Shares entitled to vote thereon. These provisions make it more
difficult to amend the Bylaws of the Company for the purpose of gaining control
of the Company.
36
<PAGE> 54
INDEMNIFICATION OF OFFICERS AND DIRECTORS. The Certificate of
Incorporation and Bylaws of the Company permit the Company to indemnify its
officers and directors to the greatest extent permitted by the Delaware General
Corporation Law.
DELAWARE ANTI-TAKEOVER LAW. Section 203 of the Delaware General
Corporation Law ("Section 203") provides, in general, that a shareholder
acquiring more than 15% of the outstanding voting shares of a corporation
subject to the statute ("Interested Shareholder") but less than 85% of such
shares may not engage in certain "business combinations" with that corporation
for a period of three years subsequent to the date on which such shareholder
became an Interested Shareholder unless (i) prior to such date the Board of
Directors of such corporation approved either the business combination or the
transaction in which such shareholder became an Interested Shareholder, or (ii)
the business combination" is approved by such corporation's Board of Directors
and authorized by a vote of at least two-thirds of the outstanding voting stock
of such corporation not owned by the Interested Shareholder.
Section 203 defines the term "business combination" to encompass a wide
variety of transactions with or caused by an Interested Shareholder in which
such Interested Shareholder receives or could receive a benefit on other than a
pro rata basis with other shareholders, including mergers, certain asset sales,
certain issuances of additional shares to the Interested Shareholder,
transactions with the corporation which increase the proportionate interest of
the Interested Shareholder, or transactions in which the Interested Shareholder
receives certain other benefits.
DETERMINATION OF EXCHANGE VALUE AND ALLOCATION OF COMMON SHARES
EXCHANGE VALUE. The net equity values of PCM, the Company and the
Partnerships determined by PCM, the Company and the General Partner,
respectively, of all of the assets PCM, the Company and the Partnerships,
respectively, considered together and separately, together with the book value
of the other financial assets of such entities, have been used to establish the
Exchange Value. The Fairness Analyst has opined, by the Fairness Opinion, that
the Exchange Value is fair from a financial standpoint to the Partnerships. The
Fairness Analyst is unaffiliated with PCM, the Company, the General Partner and
each of their Affiliates. The Company's and PCM's independent auditors, Kelly &
Company, were referred to the Fairness Analyst by an accountant unaffiliated
with PCM, the Company, the General Partner and each of their Affiliates and with
whom neither PCM, the Company, the General Partner nor any of their Affiliates
has conducted any business. The Fairness Analyst was selected by Kelly & Company
entirely on the basis of the Fairness Analyst's qualifications.
The General Partner and PCM valued the assets and properties of the
Partnerships and PCM, respectively, as if sold in an orderly manner in a
reasonable period of time, plus or minus other balance sheet items, and less the
cost of sale. The valuation was conducted in accordance with the provisions of
Section 25014.7(b)(1) of the Thompson-Killea Act. The valuation was also
conducted in accordance with the provisions of Sections 1300 et seq. of the
California General Corporation Law pertaining the Dissenting Shareholders. The
compensation to Dissenting Limited Partners and Dissenting Shareholders entitled
to compensation for their Units and shares of common stock, respectively, is
based upon the Fairness Opinion. See "RIGHTS OF DISSENTING SHAREHOLDERS AND
DISSENTING LIMITED PARTNERS."
FAIRNESS OPINION. The Exchange Value was determined by the Company, PCM
and the General Partner, as was the consideration to be paid by the Company to
each Partnership for such Partnership's assets. The Fairness Analyst has
determined that the Exchange Value and such consideration are fair from a
financial point of view to each Partnership, as specified in the Fairness
Opinion. The compensation paid to the Fairness Analyst was not contingent upon
the findings of the fairness of Exchange Value, such consideration, the Merger
Proposal or the consummation or approval of the Merger Proposal or related
transactions. The Fairness Opinion relates to the fairness from a financial
point of view of the Merger Proposal and related transactions, addressing the
fairness from a financial point of view of the Merger Proposal and related
transactions as a whole and to each of the Partnerships. Because the Merger
Proposal is contingent upon the approval of the Merger Proposal by all of the
Partnerships, the Fairness Opinion did not consider possible combinations of
less than all of the Partnerships in the Merger.
37
<PAGE> 55
The Fairness Analyst considered all of the assets and properties of the
Partnerships, PCM, and the Company. The intangible assets of the Partnerships
and PCM consist of distressed financial debt instruments and obligations. The
Fairness Analyst also considered tangible assets of the Partnerships, PCM and
the Company. The tangible assets of the Partnerships and the Company were
determined to be negligible. The tangible assets of PCM were determined to be
more considerable and include furniture, computers and business equipment. The
aggregate value of the assets of the Partnerships is $30,591,514. The aggregate
value of the assets of PCM is $44,523,211.
The purpose of the Fairness Opinion is to confirm to the Company, PCM and
the General Partner the fairness from a financial point of view of the Merger
Proposal and related transactions to the Partnerships. Neither the Company, PCM,
nor the General Partner gave the Fairness Analyst any specific instructions
other than the instruction to the Fairness Analyst from Kelly & Company, PCM's
and the Company's independent auditors, to prepare a Fairness Opinion (i)
meeting the valuation requirements of the Thompson-Killea Act; and (ii)
potentially useful in meeting the valuation requirements of Sections 1300 et
seq. of the California General Corporation Law pertaining to Dissenting
Shareholders; and (iii) sufficient to support an opinion regarding the fairness
of the Merger Proposal and related transactions as a whole and to each
Partnership individually. Pursuant to the Thompson-Killea Act, the Units were
valued as if sold in an orderly manner in a reasonable period of time, plus or
minus other balance sheet items, and less the costs of sale. Pursuant to the
provisions of Section 1300 of the California General Corporation Law, the fair
market value of the shares held by Dissenting Shareholders shall be determined
as of the day before the first announcement of the terms of the Merger Proposal
and related transactions, excluding any appreciation or depreciation in
consequence of the proposed Merger Proposal or related transactions, but
adjusted for any stock split, reverse stock split or share dividend which
becomes effective thereafter.
The Fairness Opinion will not be updated. A copy of the Fairness Opinion is
attached as Appendix G to this Prospectus.
EXCHANGE OF SHARES. On the Closing Date, if the PCM Shareholders, the
Limited Partners of all of the Partnerships, and the existing Company
Shareholders approve the Merger Proposal, and subject to any restrictions on the
Merger Proposal imposed by any federal or state securities regulatory agency,
PCM and the Partnerships will merge with and into the Company. Pursuant to the
provisions of the Merger Agreement, on the Closing Date, the Merger Stock shall
be issued by the Company to the Partnerships and PCM in exchange for their
assets, properties, rights, interests and liabilities. Subsequent thereto, the
Partnerships and PCM shall be wound up and dissolved and, as part of such
dissolution, the Partnerships and PCM shall distribute to the General Partner
and the Limited Partners and the PCM Shareholders, respectively, the shares of
the Merger Stock. The Merger Agreement contemplates that the Limited Partner's
Units, and the interest of the General Partner in the Partnerships determined as
of Determination Date, will be exchanged for shares of Merger Stock pursuant to
the Exchange Value, and the General Partner and each Limited Partner shall be
paid cash for any fractional shares of Merger Stock.
38
<PAGE> 56
The following table summarizes the valuation conclusions of the General
Partner and PCM as to the Partnerships and PCM, respectively, based on 7,511,500
allocable shares of Merger Stock.
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE NUMBER OF
INDICATED VALUE INDICATED VALUE COMMON SHARES
(ROUNDED TO THE (ROUNDED TO THE ALLOCATED
NEAREST $1,000) NEAREST 1/10 OF 1%) TO ENTITY
--------------- ------------------- -------------
<S> <C> <C> <C>
PAM I................................ $ 934,000 1.2% 93,400
PAM II............................... 3,112,000 4.1 311,200
PAM III.............................. 6,000,000 8.0 600,000
PAM IV............................... 15,846,000 21.1 1,584,600
PAM V................................ 4,700,000 6.3 470,000
----------- ----- ---------
Sub-Total....................... $30,592,000 40.7% 3,059,200
----------- ----- ---------
PCM.................................. 44,523,000 59.3 4,452,300
----------- ----- ---------
Total........................... $75,115,000 100.0% 7,511,500
=========== ===== =========
</TABLE>
The Company shall promptly furnish a copy of the Fairness Opinion, without
charge, upon the request of any Limited Partner, PCM Shareholder or existing
Company Shareholder. All such requests should be addressed as follows:
Performance Asset Management Company
Attn: Information Agent -- Fairness Opinion
4100 Newport Place
Suite 400
Newport Beach, California 92660
RESALE OF THE COMMON SHARES
The Merger Stock will be registered under the Securities Act pursuant to
the Registration Statement of which this Prospectus is a part. The registration
of the Common Shares in this manner should allow holders of the Common Shares to
trade the Common Shares without any restriction under the Securities Act, if
such holder is not an "Affiliate" of the Company; provided, however, that
various states also have registration requirements which may restrict trading of
the Common Shares. Moreover, the Company intends to stabilize the price of the
Common Shares by limiting the sale of Merger Stock. See "Restriction on Resale
of Common Shares".
If a holder of Common Shares is an Affiliate of the Company, Rule 144, as
currently in effect, provides that such holder (together with all other persons
who may under such rule be aggregated with such holder) is entitled to sell,
within any three-month period, that number of Common Shares that does not exceed
the greater of (i) 1% of the then outstanding Common Shares or (ii) the average
weekly trading volume of the Common Shares during the four calendar weeks
preceding the date on which notice of sale (Form 144) is filed with the
Commission. Any such sale is also subject to (i) certain provisions relating to
the manner in which such sale must be made, (ii) notices that must be filed in
connection with any such sale, and (iii) the availability of current public
information about the Company.
The provisions of Rule 144 and related regulations under the Securities Act
are complex and the foregoing summary is not intended to be a complete
description thereof. Therefore, any holder of Common Shares that might be
considered to be an Affiliate of the Company should consult with his or her
legal counsel prior to selling any Common Shares.
One purpose of the Merger Proposal is to permit the Common Shares to be
eligible eventually for listing on a regional or national securities exchange.
No prediction can be made, however, as to the price at which the Common Shares
will trade or if they will trade at all. See "RISK FACTORS -- Uncertainty
Regarding Trading and Market Price for Common Shares."
39
<PAGE> 57
DISTRIBUTION POLICY
HISTORICAL DISTRIBUTIONS OF THE PARTNERSHIPS
Until distributions were suspended pursuant to the Merger Proposal, the
Partnerships made monthly cash distributions to Limited Partners. In 1996, the
total amounts distributed to Limited Partners were approximately as set forth as
follows:
<TABLE>
<CAPTION>
DISTRIBUTIONS
TOTAL TO THE
PARTNERSHIP DISTRIBUTIONS GENERAL PARTNER
---------------------------------------------------------- ------------- ---------------
<S> <C> <C>
Performance Asset Management Fund, Ltd.,.................. $ 172,133 $ 17,483
A California Limited Partnership
Performance Asset Management Fund II, Ltd.,............... $ 255,833 $ 25,810
A California Limited Partnership
Performance Asset Management Fund III, Ltd.,.............. $ 331,700 $ 35,775
A California Limited Partnership
Performance Asset Management Fund IV, Ltd.,............... $ 1,592,759 $ 159,334
A California Limited Partnership
Performance Asset Management Fund V, Ltd.,................ $ 199,066 $ 19,966
A California Limited Partnership
</TABLE>
The total amount distributed by all of the Partnerships in 1996 is
$2,551,491. All of the distributions by the Partnerships to Limited Partners
were cash distributions. The General Partner accrued the distributions set forth
above.
As opposed to the Partnership, the Surviving Corporation will be subject to
federal tax on its income. Holders of Common Shares will not be subject to
federal tax on such income, except to the extent dividends are paid. See
"FEDERAL INCOME TAX CONSIDERATIONS." Therefore, the Surviving Corporation is
expected to make significantly lower distributions than the Partnerships have
made.
The Company currently anticipates that the Surviving Corporation will not
pay cash dividends. However, this policy may change, and the amount of
dividends, if any, to be paid will be determined by the Board of Directors, in
its sole and absolute discretion, generally taking into account a number of
factors, including operating performance, liquidity and capital requirements.
There can be no assurance that any cash dividends will in fact be paid, just as
there can be no assurance that, if the Merger is not consummated, the
Partnership distributions will resume in previous amounts.
DISTRIBUTIONS BY THE COMPANY WILL BE AT THE DISCRETION OF THE BOARD OF DIRECTORS
AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE COMPANY'S ACTUAL CASH
AVAILABLE FOR DISTRIBUTION, THE COMPANY'S FINANCIAL CONDITION, THE COMPANY'S
CAPITAL REQUIREMENTS, AND SUCH OTHER FACTORS AS THE COMPANY'S BOARD OF DIRECTORS
DEEMS RELEVANT.
BUSINESS AND ASSETS
THE PARTNERSHIPS AND PCM. The Partnerships and PCM are engaged in the
delinquent consumer indebtedness industry. The Partnerships, by joint ventures
exclusively with PCM, and PCM, by joint ventures with the Partnerships and for
its own account, purchase, manage, service, collect and sell portfolios of
distressed financial debt instruments and obligations. These debt instruments
include secured and unsecured commercial and consumer loans, credit card debt,
real and personal property loans, notes receivable, and other indebtedness.
PCM is one of the largest purchasers of consumer debt in the industry, and,
to date, has purchased in excess of $1.5 billion of consumer debt. Acquired debt
portfolios have consisted of performing and non-performing consumer and auto
loans, auto deficiencies, judgments and charged off credit cards, as well as
other types of consumer debt. PCM has acquired debt portfolios from Chase
Manhattan Bank, Chemical Bank, Bank of America, First USA, GE Card Services,
Household Bank, the FDIC, and from other sources.
40
<PAGE> 58
As opposed to many other buyers of this type of charged-off debt, PCM collects
and services all of the portfolios it acquires, rather than using traditional
third-party servicing.
Since its formation, PCM has become a fully operational collection facility
employing more than 75 full time employees. PCM has acquired new computer
technology and equipment that will aid in the collection and servicing of
distressed loan portfolios. PCM utilizes proprietary collection software and a
"predictive dialing" telecommunications system which allows PCM collection
agents to dial up to 50,000 calls per day. PCM believes that this technology
provides PCM with significant technological advantages in its collection
operations. Moreover, PCM continues to develop new technology to assist in both
the due diligence process of evaluating portfolios prior to purchase and the
collection of portfolio obligations. PCM currently manages, services and
collects more than $1.3 billion in face value of distressed financial debt
instruments and obligations. PCM purchases approximately $25 million in face
value of collection accounts each month. Notwithstanding the foregoing face
value of collection accounts and portfolios, PCM typically purchases those
accounts and portfolios at significant discounts and the face value of any such
portfolio is not necessarily indicative of its actual value.
BACKGROUND OF THE DISTRESSED CONSUMER INDEBTEDNESS INDUSTRY. During the
past 10 years, the financial services industry, specifically the banking and
savings and loan industry, has undergone numerous changes due to significant
losses incurred throughout the last decade. The strain on the Federal Savings
and Loan Insurance Corporation ("FSLIC") as a result of those losses caused not
only the dissolution of the FSLIC, but, also, caused a massive government
bailout. Furthermore, the burden of insuring deposits in savings and loan
institutions was assigned to the FDIC. Billions of dollars in taxpayer loans
were granted to regulators to assist in paying depositors, as well as providing
the capital necessary to clean up the industry. In what may end up costing
taxpayers hundreds of billions of dollars, this situation, better known as the
"savings and loan crisis," forced the restructuring of the entire federal
banking and savings and loan industry.
In an attempt to curtail future losses, federal regulators revised existing
requirements and regulations relating to all federal institutions. Enforcement
of those revisions by regulators caused several mergers between institutions, as
well as the complete closure of others. An institution liquidating off-balance
sheet assets benefits to the extent that the proceeds from such a sale go
directly to the cash account on the balance sheet without the removal of an
on-balance sheet asset. Often, a sale of off-balance sheet assets may consist of
several similar assets being sold as a portfolio or in bulk.
The amount of debt available for sale in the industry continues to
increase. Financial institutions previously had forwarded all their accounts
after charge-off to collection agencies for further collection activity as
standard operating procedure. After being at an agency for six to twelve months,
accounts would be returned to the lender and then forwarded to another agency,
sometime as many as five times. In order to streamline operations and control
costs, many institutions are now looking towards the sale of some of these
accounts as a means to get immediate revenue for these accounts. Additionally,
not only does the total amount of debt continue to rise year after year, but the
percentage of those debts that becomes charged-off also continues to grow. These
factors continue to create market opportunities for the buyers of distressed
financial instruments as more institutions discover the advantages of selling
their debts.
BULK PORTFOLIOS. Typically, loans or accounts sold by the originating
lenders are sold in bulk portfolios that range in size from tens of thousands of
dollars to multi-hundred million dollars in outstanding principal balances.
These portfolio sales usually consist of a large quantity of charged off credit
card contracts, automobile deficiencies, secured and unsecured consumer
installment loans, commercial loans, and other forms of indebtedness. Although
only a small percent of the total outstanding principal balances of most
portfolios purchased can be collected, some can be purchased at discounts
sufficient enough that, coupled with aggressive servicing efforts, a profit can
be realized and PCM and the Partnerships' joint venture objectives can be
fulfilled. Should the opportunity present itself, and if profitable, PCM
attempts to sell certain acquired portfolios, or portions thereof, to various
third parties. Profits from such sales may be used to acquire additional assets
for PCM or the Partnerships' benefit.
In addition to purchasing assets from federal and state banking and savings
and loan institutions, PCM and the Partnerships have considered, and the Company
will continue to consider, other sources for
41
<PAGE> 59
purchasing distressed or discounted assets. These sources may include finance
companies, hospitals, collection agencies, insurance companies, credit unions
and any other businesses with accounts receivable.
The assets of the Partnerships consist of interests in numerous joint
ventures with PCM. The Partnerships have contributed their distressed financial
debt instruments and obligations, on a portfolio by portfolio basis, to joint
ventures with PCM. PCM has contributed its servicing and collection expertise to
those joint ventures. All of the assets acquired by the Partnerships have been
contributed to those joint ventures.
Among the types of assets that are held by the Partnerships and PCM, and
are proposed to be acquired by the Company pursuant to the Merger Proposal, are
performing and non-performing consumer installment loans, secured and unsecured
consumer and commercial loans, promissory notes and accounts receivable, real
and personal property loans and charged-off credit card contracts. Among these
assets, the Partnerships' primary focus is on nonperforming consumer installment
loans and credit card contracts that, with minimum expenditure, can provide the
greatest probability either to be settled or converted to a performing status.
These assets have normally been charged-off as losses due to the debtors'
delinquent payment histories and are usually held by lenders as off-balance
sheet assets.
ACQUISITION AND ANALYSIS OF PORTFOLIOS. PCM typically locates and acquires
distressed loan portfolios for itself or for resale to the Partnerships or
others. Because of previous transactions, PCM is recognized by those
institutions selling charged off consumer indebtedness as one of the largest
purchasers of distressed consumer indebtedness. Additionally, PCM maintains a
solicitation campaign directed at those institutions which, to date, have not
sold any distressed consumer loan portfolios. If the Merger is consummated, the
Company will rely on PCM's contacts and relationships and those of its
Affiliates for acquisitions of financial debt instruments.
Upon contacting or being contacted by a potential selling institution, PCM
requests that certain data be submitted to PCM on electronic media for due
diligence purposes. By utilizing the information contained on the furnished
media, PCM analyzes such information by checking for an array of information,
including data integrity, deciphering statutes by state and incorporating other
means to check individual debtor status. By completing the due diligence process
and considering other pertinent information on a potential portfolio, PCM can
approximate the value of such portfolio and extend a cost effective offer to
purchase such portfolio.
SERVICING AND COLLECTION. Once a portfolio is purchased, generating cash
from receivables involves a rigorous campaign to contact and find the maximum
number of individual debtors. PCM continuously utilizes state-of-the-art
technology in its collection operations, as well as various third party data
bases, in an attempt to locate individual debtors. PCM recently completed a
hardware and software conversion that provides it with one of the most advanced
computer processing capabilities currently in use in the consumer debt industry.
PCM's proprietary collection software system provides its collection agents with
fully integrated predictive dialing capabilities, providing collection agents
with live voices as the predictive dialer locates them. This eliminates the
collection agent's calls to answering machines, wrong numbers, and disconnected
numbers. Once a debtor is contacted, the collection agent begins negotiating
various payment and settlement options. These options range from payment in full
for all outstanding obligations to discount settlements and from short term
payment plans to refinancing the old debt. Normally, because the cost basis is
extremely low for each account, collection agents can offer more attractive
settlement and payment options to debtors than those debtors have been offered
by the originating lender or contingency collection firm.
Moreover, PCM's predictive dialing technology searches PCM's entire
database on an ongoing basis and allows each collection agent to produce his or
her own predictive dialing campaign to contact those debtors scheduled for
payment or further contact on specific accounts. This new technology also
provides PCM with the ability to capture every call that comes into PCM. By
capturing the phone number a debtor is calling from and attaching it to his or
her file, PCM creates additional information sources to contact the debtor, such
as determining the debtor's current place of employment.
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<PAGE> 60
VOTING PROCEDURES
DISTRIBUTION OF SOLICITATION MATERIALS. This Prospectus, together with the
accompanying appropriate Consent Form, constitute the Solicitation Materials
distributed jointly to the Limited Partners, the PCM Shareholders and the
Company Shareholders to obtain their votes "for" or "against" the Merger
Proposal and related transactions.
The Solicitation Period is the time period during which the Limited
Partners, PCM Shareholders and the Company Shareholders may return their Consent
Forms to vote "for" or "against" the Merger and related transactions. The
Solicitation Period will commence upon the delivery of the Solicitation
Materials to the Limited Partners (on or about ____) and will continue until
12:00 P.M., Pacific Time, on ______. See "VOTING PROCEDURES."
If a Limited Partner or shareholder has an interest in Units or shares of
PCM's common stock in more than one capacity (e.g., (i) as husband and wife,
(ii) individually, (iii) in trust, or (iv) in an IRA), that Limited Partner will
receive a separate Consent Form for each capacity.
The Consent Form consists of two parts. The first part is the Letter of
Transmittal, which highlights the Merger Proposal and the procedures for
completing the Consent Form. For a more detailed discussion of these procedures,
see "Voting Procedures and Consents" and "Completion Instructions" below. The
second part (the Limited Partner Consent) seeks consent to the Merger Proposal
and related transactions and certain related matters (including amendments to
the Partnership Agreements).
NO SPECIAL MEETINGS. Neither the Company, PCM, nor the General Partner has
scheduled or noticed, or intends to schedule or notice, any special meetings of
the PCM Shareholders, the existing Company Shareholders, or of the Limited
Partners to discuss or vote upon the Solicitation Materials or the Merger
Proposal and related transactions. The General Partner intends to call for a
vote of the Limited Partners without meetings pursuant to the provisions of the
Partnership Agreements. PCM intends to call for a vote of its shareholders
without meeting pursuant to Section 603 of the California General Corporation
Law. The Company intends to call for a vote of its shareholders without a
meeting pursuant to Section 228 of the Delaware General Corporation Law.
The Solicitation Agent has been retained by the Company to actively solicit
the votes of the Limited Partners regarding the Merger Proposal and related
transactions, subject to federal and state securities laws.
REQUIRED VOTE. To approve the Merger Proposal and related transactions,
(i) the Limited Partners holding at least 75% in interest of the Units in each
Partnership, and (ii) the General Partner of the Partnerships must approve the
Merger and related transactions. Further, a majority of the holders of
outstanding existing Common Shares entitled to vote must approve the Merger
Proposal, on behalf of the Company, and the holders of a majority in interest of
the outstanding shares of common stock issued by PCM must approve the Merger
Proposal, on behalf of PCM. Limited Partners may only vote by consent pursuant
to the Solicitation Materials. Each Limited Partner should, therefore, complete
and return the completed Consent Form before the expiration of the Solicitation
Period.
43
<PAGE> 61
The following table indicates the total Units outstanding with regard to
each Partnership and the Units of each Partnership owned by the Company, PCM,
the General Partner, or any of their Affiliates as of the Determination Date.
Some Units issued by the Partnerships have been redeemed.
<TABLE>
<CAPTION>
UNITS OWNED BY
THE COMPANY,
PCM, THE
GENERAL PARTNER
OR THEIR
PARTNERSHIP TOTAL UNITS AFFILIATES
------------------------------------------------------------- ----------- ---------------
<S> <C> <C>
Performance Asset Management Fund, Ltd.,
A California Limited Partnership........................... 1,049 0
Performance Asset Management Fund II, Ltd.,
A California Limited Partnership........................... 1,548 0
Performance Asset Management Fund III, Ltd.,
A California Limited Partnership........................... 1,998 0
Performance Asset Management Fund IV, Ltd.,
A California Limited Partnership........................... 11,470 0
Performance Asset Management Fund V, Ltd.,
A California Limited Partnership........................... 1,194 0
-
------
Total.............................................. 17,259 0
====== =
</TABLE>
VOTING PROCEDURES AND CONSENTS. Only Limited Partners, PCM Shareholders
and Company Shareholders of record as of the Determination Date will receive
notice of and be entitled to vote with respect to the Merger Proposal and
related transactions pursuant to the Consent Form. However, if Units or shares
of PCM's common stock or the existing Common Shares are transferred after the
Determination Date but before the expiration of the Solicitation Period (and the
holders of the transferred Units are admitted as substitute Limited Partners of
the Partnerships) such substitution will terminate the right of the prior holder
of the Units or such shares to vote regarding the Merger Proposal and related
transactions, and any votes as to the transferred interests must be made by the
substitute Limited Partner or new appropriate shareholder. Solicitation
Materials will be sent to substitute Limited Partners (along with notice of
their admission as substitute Limited Partners in the Partnerships) and new
Shareholders.
Included with this Prospectus is the Consent Form. Limited Partners may
mark the Consent Form to vote "for" or "against" as to his or her participation
in the Merger Proposal and related transactions. A Limited Partner electing to
vote "for" participation in the Merger Proposal and related transactions must
vote the Units owned by such Limited Partner.
A LIMITED PARTNER WHO SUBMITS A SIGNED CONSENT FORM BUT FAILS TO MAKE ONE OR
MORE OF THE ELECTIONS REQUIRED BY THE CONSENT FORM WILL BE DEEMED TO HAVE VOTED
"FOR" THE MERGER PROPOSAL AND RELATED TRANSACTIONS. IF THE CONSENT FORM IS
UNDATED, THE SIGNATURE OF THE LIMITED PARTNER WILL BE AUTHORITY FOR THE GENERAL
PARTNER TO ENTER THE DATE OF RECEIPT.
EACH PARTNER WHO FAILS TO PROVIDE THE EXCHANGE AGENT WITH A CONSENT FORM
REGARDING UNITS HELD BY THAT LIMITED PARTNER WILL BE CONCLUSIVELY PRESUMED TO
HAVE VOTED THOSE UNITS "FOR" THE MERGER PROPOSAL.
Any questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal (if permitted) of the Consent Forms will be
determined by the Exchange Agent, whose determination will be final and binding.
The Exchange Agent reserves the absolute right to reject any or all Consent
Forms that are not in proper form or the acceptance of which, in the opinion of
the Exchange Agent's counsel, would be unlawful. Unless waived, any
irregularities in connection with the Consent Forms must be cured within such
time as the Exchange Agent shall determine. Neither PCM, the Company, the
General Partner nor the Exchange Agent shall have any duty to give notification
of defects in such Consent Forms or shall incur liabilities for failure to give
such notification. The delivery of the Consent Forms will not be deemed to have
been made until such irregularities have been cured or waived.
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<PAGE> 62
COMPLETION INSTRUCTIONS. Each Limited Partner is requested to complete and
execute each part of the Consent Form in accordance with the instructions
contained therein. Once a Limited Partner has completed the Consent Form, that
Limited Partner must then sign and date it on the signature pages. If a Limited
Partner has questions regarding the Consent Form or how to complete it, that
Limited Partner may call the Information Agent at (888) 754-4145.
Each Limited Partner entitled to vote should deliver the executed Consent
Form at any time prior to 12:00 Noon, Pacific Time, on __________, to the
Exchange Agent at the following address:
U.S. Stock Transfer Corporation
1745 Gardena Avenue, Suite 200
Glendale, California 91204
Attn: PAMCO Roll-up
A self-addressed stamped envelope for return of the Consent Form has been
included with the Solicitation Materials. The Consent Forms will be effective
only upon actual receipt by the Exchange Agent at the address specified above.
The method of delivery of the Consent Form to the Exchange Agent is at the
election and risk of each Limited Partner, but if such delivery is by mail, it
is suggested that the Limited Partners use certified or registered mail return
receipt requested and that the mailing be made sufficiently in advance of 12:00
Noon, Pacific Time, __________ to permit delivery to the Exchange Agent prior to
the close of the Solicitation Period.
WITHDRAWAL OR CHANGE OF VOTE. ONCE DELIVERED TO AND ACCEPTED BY THE
EXCHANGE AGENT, CONSENT FORMS CONTINUE IN FULL FORCE AND EFFECT UNTIL REVOKED BY
THE PERSON EXECUTING THEM PRIOR TO THE VOTE PURSUANT THERETO.
A Consent Form may be revoked by a writing delivered to the Exchange Agent
stating that the Consent Form is revoked. It is extremely important to date each
Consent Form to determine the order of execution and priorities of Consent
Forms.
To revoke any Consent Form, a written or facsimile machine transmission
notice of withdrawal or change of vote must be timely received by the Exchange
Agent prior to the expiration of the Solicitation Period at its address set
forth under "Completion Instructions" above and must specify the name of the
person who executed the Consent Form that is to be revoked or changed and the
name of the registered holder, if different from that of the person who executed
the Consent Form.
SOLICITATION AND TABULATION OF CONSENTS. The Solicitation Agent will use
its best efforts to solicit Limited Partners to vote regarding the Merger
Proposal and related transactions; provided however, that the Solicitation Agent
will be paid the same amount regardless of whether the Limited Partners vote
affirmatively or negatively in the Merger Proposal and related transactions and
regardless of whether the Limited Partners approve or reject the Merger Proposal
and related transactions, all in accordance with provisions of Section
25014.7(h) of the Thompson-Killea Act. The Exchange Agent will be responsible
for receipt of the Consent Forms. The Exchange Agent and PCM's and the Company's
independent auditors, Kelly & Company, will tabulate the Consent Forms and the
final voting tabulation will be made available to the General Partner and any
Limited Partner upon request after the expiration of the Solicitation Period, in
accordance with the provisions of Section 25014.7(d)(4) of the Thompson-Killea
Act.
FAILURE OF LIMITED PARTNERS TO RETURN CONSENT FORMS. Pursuant to the
Partnership Agreements, each Limited Partner who fails to provide the Exchange
Agent with a Consent Form regarding units held by that Limited Partner will be
conclusively presumed to have voted those Units "for" the Merger Proposal. It is
the responsibility of the Limited Partners to provide their Consent Forms to the
Exchange Agent.
SPECIAL REQUIREMENTS FOR CERTAIN LIMITED PARTNERS OR SHAREHOLDERS. Some
Limited Partners may be entities rather than individuals, such as estates,
trusts, corporations, limited partnerships and general partnerships. With
respect to Consent Forms received on behalf of any such entity, the Exchange
Agent may elect, at its option, to require that each Consent Form be accompanied
by evidence (which may include an opinion of counsel acceptable to the Exchange
Agent) that such entity has met all requirements of its
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<PAGE> 63
governing instruments, such as applicable partnership agreements, and is
authorized to execute such Consent Form under the laws of the jurisdiction in
which such entity was organized.
DISSENTING LIMITED PARTNERS AND DISSENTING SHAREHOLDERS. The Merger
Proposal is also being structured to provide Limited Partners who dissent
("Dissenting Limited Partners") the dissenter's rights contained in the
Thompson-Killea Act. The Thompson-Killea Act requires that the Dissenting
Limited Partners receive the appraised value of their Units in the form of cash,
freely tradeable securities, or secured or unsecured debt instruments satisfying
certain statutory requirements or, in the alternative, receive or retain a
security with substantially the same terms and conditions as the security
originally held, provided that the receipt or retention of that security is not
a step in a series of subsequent transactions that directly or indirectly
involves future combinations or reorganizations of one or more roll-up
participants. Securities received or retained will be considered to have the
same terms and conditions as the security originally held if (i) there is no
material adverse change to Dissenting Limited Partners' rights, including, but
not limited to, rights with respect to voting, the business plan, or the
investment, distribution, management compensation and liquidation policies of
the respective Partnership or resulting entity; and (ii) the Dissenting Limited
Partners receive the same preferences, privileges, and priorities as they had
pursuant to the security originally held.
The Company is satisfying this requirement by offering to purchase the
Units of any Dissenting Limited Partner with an unsecured subordinated debenture
issued under an indenture. The Merger Proposal and the related transactions
discussed herein, including the dissolutions and liquidations of the respective
Partnerships ("Dissolutions" and "Liquidations") have also been structured to
comply with the other protections afforded by the Thompson-Killea Act. See
"RIGHTS OF DISSENTING SHAREHOLDERS AND DISSENTING LIMITED PARTNERS."
The Merger Proposal is structured so as to afford PCM Shareholders, and
existing Company Shareholders with the protections provided by provisions of the
California General Corporation Law pertaining to mergers (Chapter 11, commencing
with Section 1100) and the rights of dissenting shareholders ("Dissenting
Shareholders") (Chapter 13, commencing with Section 1300), to the extent
applicable. Chapter 13 of the California General Corporation Law requires that
PCM and the Company, as to their respective shareholders, purchase for cash at
their fair market value the shares of common stock owned by those shareholders
which are Dissenting Shareholders. See "RIGHTS OF DISSENTING SHAREHOLDERS AND
DISSENTING LIMITED PARTNERS."
A Dissenting Limited Partner or Dissenting Shareholder who perfects his or
her dissenter's rights as described below will be entitled to receive, in the
case of a Dissenting Limited Partner, an unsecured subordinated debenture, or,
in the case of a Dissenting Shareholder, cash at fair market value for his or
her shares. In the event either a Dissenting Limited Partner or a Dissenting
Shareholder ("Dissenting Party") elects to exercise his or her right to dissent,
such Dissenting Party must do the following to perfect his or her rights as a
Dissenting Limited Partner or Dissenting Shareholder:
(A) A Dissenting Party must file a written request for Dissenters' Rights
at 4100 Newport Place, Suite 400, Newport Beach, California 92660, attention:
Information Agent -- Dissenters' Rights, prior to the earlier of (i) the date
such Dissenting Party's completed Consent Form is received by the Company, or
(ii) the expiration of the Solicitation Period.
(B) The request must specify the number of Units, PCM Shares or existing
Common Shares for which the Dissenting Party is requesting dissenters' rights.
Only Persons who fail to vote in favor of the Merger Proposal and related
transactions can be Dissenting Parties. NEITHER THE DELIVERY OF A CONSENT FORM
DIRECTING A VOTE AGAINST THE MERGER PROPOSAL AND RELATED TRANSACTIONS NOR A
FAILURE TO VOTE FOR THE MERGER PROPOSAL AND RELATED TRANSACTIONS CONSTITUTES A
WRITTEN REQUEST FOR DISSENTERS' RIGHTS.
If PCM, the Company and all of the Partnerships approve the Merger Proposal
and related transactions, and the other conditions of the Merger Proposal and
related transactions are satisfied or waived so that the Merger can be
consummated, then a Dissenting Party who requests dissenters' rights and who
thereafter perfects his or her rights as a Dissenting Party will, in the case of
a Dissenting Limited Partner, be provided
46
<PAGE> 64
with an unsecured subordinated debenture or, in the case of a Dissenting
Shareholder, be sent a check within 30 days following the consummation of the
Merger for his or her interests in the amount as determined above.
LIMITED PARTNERS AND SHAREHOLDERS WISHING TO EXERCISE THEIR DISSENTERS' RIGHTS
ARE CAUTIONED THAT FAILURE TO FOLLOW THE ABOVE PROCEDURES PRECISELY MAY RESULT
IN THE LOSS OF DISSENTERS' RIGHTS.
COMPLIANCE WITH AND APPROVAL FROM FEDERAL AND STATE AUTHORITIES. The
Merger Proposal and related transactions will not be completed if any moratorium
on transactions similar to the Merger Proposal are imposed by federal, state or
regulatory authorities, or if any state Blue Sky or securities authority imposes
any restriction upon, or prohibits any aspect of, the transactions contemplated
by the Merger Proposal, which in the judgment of the Company, renders the Merger
Proposal and related transactions undesirable or impractical.
SUMMARY COMPARISON OF UNITS AND COMMON SHARES
The information below is intended to highlight a number of the significant
differences between the Partnerships (and the Units) and the Company (and the
Common Shares) relating to, among other things, form of organization, investment
objectives, policies and restrictions, asset diversification, capitalization,
management structure, compensation and fees, and investor rights, and compares
certain legal rights associated with the ownership of the Units and Common
Shares, respectively. These comparisons are intended to assist the Limited
Partners in understanding how their investments will be changed if, as a result
of the Merger and related transactions, their Units are exchanged for shares of
Merger Stock. Following some of the captioned portions is summary information
regarding the expected effects of the Merger Proposal and related transactions
upon Limited Partners receiving shares of Merger Stock in exchange for their
Units. THIS DISCUSSION IS SUMMARY IN NATURE AND DOES NOT CONSTITUTE A COMPLETE
DISCUSSION OF THESE MATTERS, AND LIMITED PARTNERS SHOULD CAREFULLY REVIEW THE
REMAINDER OF THIS PROSPECTUS, THE PARTNERSHIP AGREEMENTS AND THE CERTIFICATE OF
INCORPORATION AND BYLAWS OF THE COMPANY FILED AS EXHIBITS TO THE REGISTRATION
STATEMENT FOR ADDITIONAL IMPORTANT INFORMATION.
FORM OF ORGANIZATION AND PURPOSE
<TABLE>
<CAPTION>
THE PARTNERSHIPS THE COMPANY
- --------------------------------------------- ---------------------------------------------
<S> <C>
The Partnerships are limited partnerships The Company is a Delaware corporation. The
which were organized under the laws of the Company was formed to engage in the business
State of California. The Partnerships were of purchasing, holding, servicing, collecting
formed to acquire various distressed and selling portfolios consisting of
financial assets from various sources, distressed financial debt instruments and
including, but not limited to, federal and obligations. The Company has been treated as
state banking and savings and loan agencies a corporation for federal income tax
and consumer finance lenders and to generate purposes.
income and gains by collecting, selling, or
otherwise disposing of acquired assets. The
Partnerships have been treated as limited
partnerships for federal income tax purposes.
</TABLE>
COMPARISON. The Partnerships are limited partnerships organized under
California law. The Company is a Delaware corporation. For tax purposes, both
the Partnerships and the Company have been treated consistently with their
intended forms of organization.
47
<PAGE> 65
LENGTH OF INVESTMENT
<TABLE>
<CAPTION>
THE PARTNERSHIPS THE COMPANY
- --------------------------------------------- ---------------------------------------------
<S> <C>
A purchase of Units is a finite term The Company has a perpetual term and intends
investment with the Limited Partners to continue its operations for an indefinite
receiving regular cash distributions from the time period. The Company has no specific
Partnerships' net operating income and plans for disposition of the assets acquired
proceeds from liquidation of the by the Merger or those that may be
Partnerships' assets. The Partnerships will subsequently acquired. To the extent the
terminate no later than the following dates Company sells or refinances its assets, the
(as stated in the Partnership Agreements): net proceeds therefrom generally will be
PAM, no later than December 31, 2000; PAM II, retained by the Company for working capital
no later than December 31, 2005; PAM III, no and new investments, rather than being
later than December 31, 2005; PAM IV, no distributed to shareholders in the form of
later than December 31, 2005; and PAM V, no dividends. In contrast to the Partnerships,
later than December 31, 2007. the Company will be an entity which will take
advantage of future investment opportunities
that may be available in the distressed
financial services industry.
</TABLE>
COMPARISON. The Partnerships have finite terms of existence and are
structured to dissolve when the assets of the Partnerships are liquidated. In
contrast, shareholders of the Company may achieve liquidity of their investments
by trading the Common Shares in the secondary market, and the Company will
generally reinvest the proceeds of asset dispositions, if any, in new property
or other appropriate investments consistent with the Company's objectives.
PROPERTIES AND DIVERSIFICATION
<TABLE>
<CAPTION>
THE PARTNERSHIPS THE COMPANY
- --------------------------------------------- ---------------------------------------------
<S> <C>
The investment portfolios of the Partnerships The investment portfolio of the Company will
consist of distressed financial instruments consist primarily of distressed financial
and obligations. The Partnership Agreements instruments and obligations. The Certificate
provide that the purpose of the Partnerships of Incorporation of the Company permits it to
is to acquire assets from federal and state conduct any business other than the banking
banking and savings and loan agencies and business, the trust company business or the
various other sources in order to derive practice of a profession requiring a special
income from managing, servicing, operating or license or authorization and permitted to be
selling such assets or collecting monies due incorporated by the Delaware General
and payable from those assets. In addition, Corporation Law.
the Partnership Agreement of PAM V
contemplates that PAM V may, in addition to
the foregoing purpose, utilize a portion of
the net proceeds from the placement of its
Units to provide expansion capital for one or
more of that Partnership's servicing entities
and acquire an ownership interest therein.
</TABLE>
COMPARISON. The Partnership Agreements limit the Partnerships to
investments in certain types of assets. The Company is not so restricted. The
Company may be better able to diversify than the Partnerships.
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<PAGE> 66
ADDITIONAL EQUITY
<TABLE>
<CAPTION>
THE PARTNERSHIPS THE COMPANY
- --------------------------------------------- ---------------------------------------------
<S> <C>
The Partnership Agreements do not provide for The Board of Directors may issue, at its
the Partnerships to issue equity securities discretion, additional equity securities
other than Units issued to the Limited consisting of common stock or any other class
Partners. However, under California limited of capital stock (which may be classified and
partnership law applicable to the issued as a variety of equity securities,
Partnerships, with the consent of all including one or more classes of common
partners, the Partnerships may issue stock, at the discretion of the Board of
additional partnership interests in the Directors), provided that the total number of
circumstances of the admission of one or more shares issued does not exceed the authorized
additional Limited Partners. number of shares of capital stock set forth
in the Company's Certificate of
Incorporation. The Company expects to issue
approximately 7,511,500 Shares of Common
Stock in the Merger Proposal and related
transactions. The Certificate of
Incorporation of the Company authorizes the
issuance of only common stock and preferred
stock. The Company has no current plans to
issue any additional shares of preferred
stock other than the 100,000 shares of
preferred stock currently outstanding and
held by Vincent E. Galewick, and the Company
has no current plans to issue additional
shares of common stock or other equity
securities.
</TABLE>
COMPARISON. In contrast to the Partnerships, the Company has substantial
flexibility to raise equity through the sale of additional shares of common
stock or preferred stock or other securities to finance the business and affairs
of the Company.
BORROWING POLICIES
<TABLE>
<CAPTION>
THE PARTNERSHIPS THE COMPANY
- --------------------------------------------- ---------------------------------------------
<S> <C>
Generally, The General Partner, on behalf of The Company is permitted to borrow, on a
the Partnerships, is authorized to borrow secured or unsecured basis, funds to finance
money and, if security is required therefor, its business, without any limitations in its
to subject any Partnership property to any Certificate of Incorporation or Bylaws.
security device, on such terms and in such
amounts as the General Partner, in its sole
and absolute discretion, deems to be in the
best interest of such Partnership.
</TABLE>
COMPARISON. In conducting its business, the Company may incur indebtedness
to the extent deemed appropriate by the Board of Directors, while the
Partnerships may incur indebtedness to the extent deemed appropriate by the
General Partner.
49
<PAGE> 67
MANAGEMENT CONTROL
<TABLE>
<CAPTION>
THE PARTNERSHIPS THE COMPANY
- --------------------------------------------- ---------------------------------------------
<S> <C>
Pursuant to the Partnership Agreements, the The Board of Directors will have exclusive
General Partner is, subject to certain control over the Company's business and
limitations, vested with all management affairs subject only to the restrictions in
authority to conduct the business of the its Certificate of Incorporation and Bylaws.
Partnerships, including authority and The policies adopted by the Board of
responsibility for causing to occur all Directors may be altered or eliminated
executive, supervisory and administrative without a vote of the shareholders.
services rendered to the Partnerships. Under Accordingly, except for their vote in the
the Partnership Agreements, the Limited elections of directors, shareholders will
Partners have no right to participate in the have no control of the ordinary business
management and control of the Partnerships policies of the Company.
and have no influence in the affairs of the
Partnerships, except for certain limited
matters that may be submitted to a vote of
the Limited Partners under the terms of the
Partnership Agreements. In general, the
Limited Partners may, by a majority vote,
without the concurrence of the General
Partner (i) amend the Partnership Agreements;
(ii) remove the General Partner; (iii) elect
a new General Partner; (iv) approve or
disapprove the sale of all or substantially
all of the assets of the Partnerships; and
(v) dissolve the Partnerships. Moreover,
Limited Partners are entitled to vote upon,
and the General Partner may not undertake
without the concurrence of a majority vote of
the Limited Partners, amendments to the
Partnership Agreements affecting the rights
of the Limited Partners.
</TABLE>
COMPARISON. Notwithstanding any anti-takeover provisions pertaining to the
number of directors, because the Board of Directors will be elected each year by
the shareholders at the Company's annual meetings, the shareholders may have
greater control over the management of the Company than the Limited Partners
have over the Partnerships.
50
<PAGE> 68
MANAGEMENT LIABILITY AND INDEMNIFICATION
<TABLE>
<CAPTION>
THE PARTNERSHIPS THE COMPANY
- --------------------------------------------- ---------------------------------------------
<S> <C>
As a matter of California law, general The Company's Bylaws provide that the
partners have liability for the payment of liability of the Company's directors and
partnership obligations and debts, unless officers to the Company and its shareholders
limitations upon such liability are expressly for money damages is limited to the fullest
stated in the instrument or document extent permitted under Delaware General
evidencing the obligation. In general, the Corporation Law. The Company's Bylaws and
Partnership Agreements provide that the Delaware General Corporation Law provide
General Partner will not be liable to the broad indemnification to directors and
Partnerships or the Limited Partners for any officers and indemnify any person who is, or
loss suffered by the Partnerships which any personal representative of a deceased
arises out of any action or inaction of the person who was, a director or officer of the
General Partner, if the General Partner, in Company against any judgments, penalties,
good faith, determines that such course of settlements and reasonable expenses.
conduct was in the best interests of the
Partnerships and such course of conduct did
not constitute fraud, negligence or
misconduct of the General Partner. In
addition, the Partnership Agreements
indemnify the General Partner for any losses,
liabilities, expenses and amounts paid in
settlement of any claims sustained by it in
connection with the Partnerships, provided
that the same were not the result of fraud,
negligence or misconduct on the part of the
General Partner, and provided, further, that
the General Partner determines, in good
faith, that such course of action was in the
best interests of the Partnerships.
</TABLE>
COMPARISON. The General Partner generally has limited liability to the
Partnerships for acts or omissions undertaken by it when performed in good
faith, in a manner reasonably believed to be within the scope of its authority
and in the best interests of the Partnerships. In some cases, the General
Partner also has, under specified circumstances, a right to be reimbursed for
liability, loss, expenses and amounts incurred by the General Partner by virtue
of serving as General Partner. Although the standards are expressed somewhat
differently, there are similar limitations upon the liability of the directors
and officers of the Company when acing on behalf of the Company and upon the
rights of such persons to seek indemnification from the Company. The Company
believes that the scope of the liability and indemnification provisions in the
Company's Bylaws, while similar to those contained in the Partnership
Agreements, provides greater protection to the Company's directors and officers
against claims for personal liability than the protection afforded to the
General Partner under the Partnership Agreements.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES ACT OF
1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS CONTROLLING THE COMPANY
PURSUANT TO THE FOREGOING PROVISIONS, THE COMPANY HAS BEEN INFORMED THAT IN THE
OPINION OF THE SECURITIES AND EXCHANGE COMMISSION SUCH INDEMNIFICATION IS
AGAINST PUBLIC POLICY AS EXPRESSED IN SUCH ACT AND IS, THEREFORE, UNENFORCEABLE.
51
<PAGE> 69
ANTI-TAKEOVER PROVISIONS
<TABLE>
<CAPTION>
THE PARTNERSHIPS THE COMPANY
- --------------------------------------------- ---------------------------------------------
<S> <C>
Changes in management of the Partnerships can The Certificate of Incorporation, as amended,
only be effected by removal of the General and Bylaws of the Company contain a number of
Partner. The Limited Partners have a right to provisions that may have the effect of
vote on the removal of the General Partner. delaying or discouraging an unsolicited
In addition, due to transfer restrictions in coercive proposal for the acquisition of the
the Partnership Agreements, the General Company or the removal of incumbent
Partner may restrict transfers of the Units. management. These provisions include, among
Under the Partnership Agreements, an assignee others, (i) restrictions on business
of a Limited Partner interest may not become combinations with persons who acquire more
a substitute Limited Partner, entitling such than a certain percentage of Common Shares;
person to vote on a matter that may be (ii) restrictions on acquisition of Common
submitted to the Limited Partners for Shares which would provide the acquirer with
approval, unless the General Partner consents a controlling interest in the Company; (iii)
to such substitution. The General Partner may restrictions on transactions with Interested
exercise these rights of approval to deter, Shareholders or related parties, including
delay or hamper attempts by persons to officers and directors of the Company; (iv)
acquire a majority interest in the restrictions on shareholder actions without
Partnerships. meetings and notices of special meetings; (v)
restrictions on the number of directors and
the removal of directors; (vi) restrictions
on shareholder proposals and nominations;
(vii) restrictions on amendment of certain
provisions contained in the Company's Bylaws;
and (viii) indemnification of the officers
and directors of the Company.
</TABLE>
COMPARISON. Certain provisions of the Partnership Agreements and the
Certificate of Incorporation, as amended, and Bylaws of the Company could be
used to delay or deter coercive attempts to obtain control of the Partnerships
or the Company, respectively, in transactions not approved by the General
Partner, on behalf of the Partnerships, or the Board of Directors, on behalf of
the Company.
52
<PAGE> 70
VOTING RIGHTS
<TABLE>
<CAPTION>
THE PARTNERSHIPS THE COMPANY
- --------------------------------------------- ---------------------------------------------
<S> <C>
Generally, under the Partnership Agreements The Company will be managed and controlled by
and applicable California law, the Limited a Board of Directors. The directors are
Partners have voting rights only as to major elected by the shareholders at annual
Partnership transactions (e.g., amendment of meetings of the Company. Delaware General
the Partnership Agreements, removal of the Corporation Law requires that certain major
General Partner, election of a new General corporate transactions, including most
Partner, sale of all the assets of the amendments to the Company's Certificate of
Partnerships, and dissolution of the Incorporation, may not be consummated without
Partnerships). Otherwise, all decisions the approval of shareholders holding at least
relating to the operation and management of a majority of the outstanding voting stock
the Partnerships are made by the General entitled to vote. Notwithstanding the
Partner. foregoing, certain transactions, such as the
sale of all of the assets of the Company to
an Affiliate of the Company, must be approved
by at least 90% of the outstanding voting
stock entitled to vote. To the extent that
the Company will have outstanding shares held
of record by 100 or more persons, adoption of
additional anti-takeover provisions may
require a supermajority vote (i.e., two
thirds) to adopt. Subject to the provisions
of the Company's Certificate of
Incorporation, as amended, and Bylaws
regarding certain anti-takeover provisions
discussed at "Anti-Takeover Provisions,"
above, each share of the Company's common
stock will have one vote, and the Company's
Certificate of Incorporation, as amended,
permits the Board of Directors to classify
and issue capital stock in one or more
classes having voting power which may differ
from that of the Common Shares.
</TABLE>
COMPARISON. The Limited Partners have limited voting rights. The
shareholders of the Company will have voting rights that permit them to elect
the Board of Directors and to approve or disapprove certain major corporate
transactions.
COMPENSATION, FEES AND DISTRIBUTIONS
<TABLE>
<CAPTION>
THE PARTNERSHIPS THE COMPANY
- --------------------------------------------- ---------------------------------------------
<S> <C>
Generally, under the Partnership Agreements, The directors of the Company will receive
the General Partner receives compensation for compensation for their services as described
its management services to the Partnerships. herein under "Management of the General
Also, the General Partner has the same rights Partner and Company."
to distributions according to its respective
Partnership interests as the Limited
Partners. The General Partner also receives
reimbursement for expenses incurred by it for
the benefit of the Partnerships.
</TABLE>
COMPARISON. Under the Partnership Agreements, fees, distributions and
reimbursements are payable to the General Partner and its Affiliates. The
directors of the Company will receive compensation for their services as
described herein under "Management of the General Partner and Company."
53
<PAGE> 71
LIABILITY OF INVESTORS
<TABLE>
<CAPTION>
THE PARTNERSHIPS THE COMPANY
- --------------------------------------------- ---------------------------------------------
<S> <C>
Under the Partnership Agreements and pursuant Under Delaware General Corporation Law,
to California law, the liability of Limited shareholders are not personally liable for
Partners for the Partnerships' debts and the debts or obligations of the Company. The
obligations is limited to the amounts of Common Shares, upon issuance, will be fully
their investments in the respective paid and nonassessable.
Partnerships together with an interest in
undistributed income, if any. The Units are
fully paid and nonassessable. The General
Partner is liable for all of the debts and
obligations of the Partnerships.
</TABLE>
COMPARISON. The personal liability of the shareholders of the Company for
the debts and obligations of the Company is comparable to that of the Limited
Partners for the debts and obligations of the Partnerships.
NATURE OF INVESTMENT
<TABLE>
<CAPTION>
THE PARTNERSHIPS THE COMPANY
- --------------------------------------------- ---------------------------------------------
<S> <C>
The Units constitute equity interests The Common Shares constitute equity interests
entitling the Limited Partners to pro rata in the Company. Each shareholder will be
shares of cash distributions made by the entitled to a pro rata share of any dividends
Partnerships. The Partnerships generally or distributions paid with respect to the
maintain a policy of long-term ownership for Common Shares. The dividends payable to the
current cash receipts and long term shareholders are not fixed in amount and are
appreciation. The Partnership Agreements only paid if, when, and as declared by the
specify how the cash available for Board of Directors. The Company currently
distribution, whether arising from operations does not plan to pay any cash dividends on
or sales or refinancing, is to be shared the Common Shares or preferred stock for the
among the Limited Partners and the General foreseeable future, as all available cash
Partner. The distributions payable to the will be utilized to continue the growth of
Limited Partners are not fixed in amount and the Company's business subsequent to the
depend upon the operating results and net Closing Date for the proximate future
sale or refinancing proceeds available from thereafter. The payment of any subsequent
the disposition of the Partnerships' assets. cash dividends will be dependent upon the
Company's results of operations, financial
condition, contractual restrictions and other
factors deemed relevant by the Board of
Directors.
</TABLE>
COMPARISON. The Units and the Common Shares represent equity interests
entitling the holders thereof to participate financially in the growth and
income of the Partnerships, and the Company, respectively. Until distribution
payments were suspended pending the Merger Proposal, the Partnerships have
distributed available cash to the Limited Partners. Dividends payable by the
Company on its securities are payable at the discretion of the Board of
Directors. The Company does not currently anticipate that it will pay dividends
on the Common Shares.
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<PAGE> 72
POTENTIAL DILUTION OF PAYMENT RIGHTS
<TABLE>
<CAPTION>
THE PARTNERSHIPS THE COMPANY
- --------------------------------------------- ---------------------------------------------
<S> <C>
Because the Partnerships may issue additional The Board of Directors may issue, at its
equity securities only in limited discretion, additional shares of the
circumstances and only upon the unanimous Company's common stock and has the authority
consent of the Limited Partners, there is to issue from the authorized capital stock a
little chance for dilution of the Limited variety of other equity securities of the
Partners' share of cash available for Company with such powers, preferences, and
distribution. rights as the Board of Directors may at the
time designate. The issuance of additional
shares of either common stock, preferred
stock or other similar equity securities in
addition to the Merger Stock may result in
the dilution of the interests of the
shareholders of the Company.
</TABLE>
COMPARISON. The Limited Partners are not subject to dilution of the
Partnerships' cash available for distribution. The shareholders of the Company
will be subject to potential dilution if the Board of Directors, in its sole and
absolute discretion, decides to issue additional equity securities of the
Company. Furthermore, the Board of Directors will have the authority to issue
from the authorized capital stock a variety of other equity securities, which
may subject shareholders of the Company to additional dilution.
LIQUIDITY
<TABLE>
<CAPTION>
THE PARTNERSHIPS THE COMPANY
- --------------------------------------------- ---------------------------------------------
<S> <C>
The transfer of the Units is subject to a The Common Shares will be freely transferable
number of restrictions imposed by the once registered under the Securities Act. The
Partnership Agreements, which are designed in Company will attempt to list the Common
part to preserve the tax status of the Shares on a regional or national securities
Partnerships as "partnerships" under the exchange, although there is no guarantee or
Code. The transferee of a Limited Partner's assurance the Company will be able to list
interest in a Partnership does not have the the Common Shares on any regional or national
right to become a substitute Limited Partner market. If the Common Shares are so listed,
(entitling such person to vote on matters the Company anticipates a public market for
submitted to a vote of the Limited Partners the Common Shares to develop. The breadth and
of such Partnership) unless, among other strength of any such market, if it develops
things, such substitution is approved by the at all, will depend, among other things, upon
General Partner. the number of Common Shares outstanding, the
Company's financial results and prospects,
the general interest in the Company's and
other similar investments, and the Company's
dividend yield compared to that of other debt
and equity securities.
</TABLE>
COMPARISON. One of the primary objectives of the Merger Proposal is to
provide increased liquidity to the Limited Partners. The Common Shares may be
listed on a regional or national securities exchange, but there is no guarantee
or assurance that any Company security will be so listed. If so listed, a public
market for the Common Shares may develop. The breadth of such market cannot yet
be determined, but it is expected that the market for the Common Shares may be
broader than the current market, if any, for the Units.
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<PAGE> 73
TAXATION
<TABLE>
<CAPTION>
THE PARTNERSHIPS THE COMPANY
- --------------------------------------------- ---------------------------------------------
<S> <C>
The Partnerships are not subject to federal The Surviving Corporation will be subject to
income taxes. Instead each Limited Partner federal and state income taxes on income. The
includes his or her allocable share of maximum federal corporate tax rate is 39%. In
respective Partnership taxable income or loss addition, shareholders of the Company will be
in determining such Partner's individual subject to federal and state income taxes on
federal income tax liability. The maximum distributions of dividends or corporate
effective federal tax rate for individuals earnings. The maximum effective federal tax
under current law is 39.6%. However, upper rate for individuals under current law is
bracket individuals are subject to a phaseout 39.6%. However, upper bracket individuals are
of their personal exemptions, and a subject to a phaseout of their personal
restriction on itemized deductions, which in exemptions, and a restriction on itemized
combination in certain circumstances, can deductions, which in combination in certain
bring the actual maximum federal rate to more circumstances, can bring the actual maximum
than 47%. federal rate to more than 47%. See "FEDERAL
INCOME TAX CONSIDERATIONS" and "OTHER TAX
CONSIDERATIONS."
</TABLE>
COMPARISON. While in partnership form only one level of federal income tax
is imposed (i.e., on the Limited Partners), in corporate form two levels of
federal income tax are potentially imposed (i.e., one on the Surviving
Corporation and one on its shareholders to the extent they receive dividends or
recognize gain on the sale or exchange of shares). See "FEDERAL INCOME TAX
CONSIDERATIONS" and "CERTAIN STATE AND LOCAL INCOME TAX CONSIDERATIONS." See
also "SUMMARY -- Disadvantages of the Merger and Related Transactions."
PASSIVE VS. PORTFOLIO INCOME
<TABLE>
<CAPTION>
THE PARTNERSHIPS THE COMPANY
- --------------------------------------------- ---------------------------------------------
<S> <C>
As to the Limited Partners, income and loss Dividends paid by the Company to its
from the Partnerships generally are subject shareholders will be treated as "portfolio"
to the "passive activity" limitations. Under income and cannot be offset with losses from
the "passive activity" rules, income and loss "passive activities."
from the Partnerships generally can be offset
against income and loss from other
investments that constitute "passive
activities."
</TABLE>
BENEFITS FROM DISTRIBUTIONS
<TABLE>
<CAPTION>
THE PARTNERSHIPS THE COMPANY
- --------------------------------------------- ---------------------------------------------
<S> <C>
Cash distributions from the Partnerships are Distributions made by the Company to its
not taxable to the Limited Partners, except taxable domestic shareholders out of current
to the extent they exceed the Limited or accumulated earnings and profits will be
Partners' basis in the Units. ordinary income. Distributions that are
designated as capital gains dividends
generally will be taxed as long-term capital
gains. Distributions in excess of current or
accumulated earnings and profits will be
treated as a nontaxable return of basis to
the extent of a shareholder's adjusted basis
in his or her Common Shares, with the excess
taxed as capital gain.
</TABLE>
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<PAGE> 74
FIDUCIARY DUTIES
<TABLE>
<CAPTION>
THE PARTNERSHIPS THE COMPANY
- --------------------------------------------- ---------------------------------------------
<S> <C>
The General Partner is accountable as a Under Delaware General Corporation Law, the
fiduciary to the Partnerships and is required directors must perform their duties in good
to operate the businesses of the Partnerships faith, in a manner that they reasonably
for the benefit of all Limited Partners and believe to be in the best interests of the
not to perform any acts detrimental to the Company and with the care of an ordinarily
best interests of the Partnerships. However, prudent person in a similar situation.
the Partnership Agreements generally allow Directors of the Company who act in such a
the General Partner to conduct independent manner will generally not be liable to the
activities which may be competitive with the Company for monetary damages arising from
businesses of the Partnerships. their activities.
</TABLE>
COMPARISON. In both the Partnerships and the Company, the General Partner
of the Partnerships, and the Board of Directors of the Company, respectively,
owe fiduciary duties to their constituent parties. Some courts have interpreted
the fiduciary duties of members of a board of directors in the same way as the
duties of a general partner in a limited partnership. Other courts, however,
have indicated that the fiduciary obligations of a general partner to limited
partners are greater than those owed by a director to stockholders. Therefore,
although it is unclear whether, or to what extent, there are differences in such
fiduciary duties, it is possible that the fiduciary duties of the directors of
the Company to its shareholders may be less than those of the General Partner to
the Limited Partners.
REPORTING PROCEDURES
<TABLE>
<CAPTION>
THE PARTNERSHIPS THE COMPANY
- --------------------------------------------- ---------------------------------------------
<S> <C>
Each year, Limited Partners receive a Each year, shareholders will receive Form
Schedule K-1 tax form containing detailed tax 1099 used by corporations to report dividends
information for use in preparing their paid to their shareholders.
appropriate income tax returns.
</TABLE>
STATE TAXATION
<TABLE>
<CAPTION>
THE PARTNERSHIPS THE COMPANY
- --------------------------------------------- ---------------------------------------------
<S> <C>
Limited Partners are required in some cases Shareholders who are individuals generally
to file state income tax returns and, will not be required to file state income tax
sometimes, pay state income taxes in states returns or pay state income taxes outside of
in which the Partnerships own property, even their states of residence with respect to the
if they are not residents of those states. Company's operations and distributions
(although it is possible that the State of
California or other states may seek to impose
tax on nonresidents with respect to
distributions to nonresidents). The Company
may be required to pay state income taxes in
certain states.
</TABLE>
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<PAGE> 75
RIGHTS OF DISSENTING SHAREHOLDERS AND DISSENTING LIMITED PARTNERS
DISSENTING LIMITED PARTNERS AND APPRAISAL RIGHTS. The Thompson-Killea Act
provides Dissenting Limited Partners with certain rights to receive compensation
for their Units based on an appraisal of the Partnerships assets performed by an
independent appraiser unaffiliated with PCM, the General Partner or the Company
and which values those assets as if sold in an orderly manner in a reasonable
period of time, plus or minus other balance sheet items, and less the cost of
sale or refinancing. Compensation to Dissenting Limited Partners may be cash,
secured debt instruments, unsecured debt instruments, or freely tradeable
securities; provided, however, that:
(A) debt instruments used as compensation must provide for a trustee
and an indenture to protect the rights of the debt holders and provide a
rate of interest based upon, but not less than, the then applicable federal
rate as determined in accordance with Section 1274 of the Code;
(B) unsecured debt instruments used as compensation, in addition to
the above requirements, must limit total leverage to 70 percent of the
appraised value of the assets;
(C) all debt securities have a term no greater than seven years and
provide for prepayment with 80 percent of the net proceeds of any sale or
refinancing of the assets previously owned by the entity or any part
thereof; and
(D) freely tradeable securities used as compensation to Dissenting
Limited Partners must be issued by an issuer whose securities are listed on
a certified national securities exchange or designated as a national market
system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc., for at least one year prior to the
consummation of the Merger, and the number of securities to be received in
return for Units must be determined by an appraisal of applicable
Partnership assets, conducted in a manner consistent with the procedures
described above, in relation to the average last sale price of the freely
tradeable securities in the 20-day period following the consummation of the
Merger. If the issuer of the freely tradeable securities is affiliated with
PCM, the General Partner or the Company, newly issued securities to be
utilized as compensation to Dissenting Limited Partners shall not represent
more than 20 percent of the issued and outstanding shares of that class of
securities after giving effect to the issuance. For the purposes of the
preceding sentence, PCM, the General Partner or the Company is deemed
"affiliated" with the issuer of the freely tradeable securities if PCM, the
General Partner or the Company receives any material compensation from the
issuer or its Affiliates in conjunction with the Merger or related
transactions; provided, however, that PCM, the General Partner or the
Company may, under certain circumstances, receive payment for their equity
interests and other compensation.
Further, the Dissenting Limited Partners may, in lieu of the forgoing,
receive or retain a security with substantially the same terms and conditions as
the security originally held, i.e. the Units, provided that the receipt or
retention of that security is not a step in a series of subsequent transactions
that directly or indirectly through acquisition or otherwise involves future
combinations or reorganizations of one or more former Merger Proposal
participants. Securities received or retained will be considered to have the
same terms and conditions as the security originally held if:
(A) there is no material adverse change to the Dissenting Limited
Partners' rights, including, but not limited to, rights with respect to
voting, the business plan, or the investment, distribution, management
compensation, and liquidation policies of the Surviving Corporation.
(B) the Dissenting Limited Partners receive the same preferences,
privileges, and priorities as they had pursuant to the security originally
held.
The Company is satisfying this requirement by offering to purchase the
Units of any Dissenting Limited Partner with an unsecured subordinated debenture
issued under an indenture, the terms of which satisfy the requirements of the
Thompson-Killea Act. A specimen unsecured subordinated debenture is included as
Appendix N to the Prospectus. The indenture is included as Appendix M to the
Prospectus. The Merger Proposal and related transactions have also been
structured to comply with the other protections provided by
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<PAGE> 76
the Thompson-Killea Act. In the event a Limited Partner elects to exercise his
or her right to dissent, such Limited Partner must perform the acts set forth at
the portion of this Prospectus entitled "VOTING PROCEDURES -- Dissenting Limited
Partners." Generally, Dissenting Limited Partners must file a written
notification of their elections to dissent with the General Partner and request
that the General Partner purchase their Units with an unsecured subordinated
debenture.
DISSENTING LIMITED PARTNERS MAY HAVE OTHER RIGHTS NOT DISCUSSED ABOVE.
DISSENTING LIMITED PARTNERS SHOULD CONSULT WITH THEIR LEGAL COUNSEL AS TO ALL
SUCH MATTERS.
DISSENTING SHAREHOLDERS AND APPRAISAL RIGHTS. Pursuant to applicable
California law, Dissenting Shareholders of PCM and the Company are provided with
certain rights pertaining to corporate mergers and reorganizations. While
Dissenting Shareholders have no specific appraisal rights, they do have certain
repurchase rights. Sections 1300 et seq. of the California General Corporation
Law provide that each shareholder entitled to vote on the Merger Proposal and
related transactions who dissents may require the Company to purchase such
Dissenting Shareholder's shares for cash at their fair market value. The fair
market value of such Dissenting Shareholder's shares is to be determined as of
the day before the first announcement of the terms of the Merger Proposal and
related transactions, excluding any appreciation or depreciation in consequence
of the Merger Proposal or related transactions, but adjusted for any stock
split, reverse stock split or share dividend which becomes effective thereafter.
A shareholder must meet all of the following requirements in order to
qualify as a Dissenting Shareholder:
(A) The shares held by such shareholder must have been outstanding in
the name of such shareholder on the Determination Date.
(B) Those shares must not have been voted in favor of the Merger
Proposal or related transactions.
(C) If the Merger Proposal and related transactions are approved, the
Company will send all of its shareholders a notice of approval of the
Merger Proposal and related transactions accompanied by a statement of the
price determined by the Company to represent the fair market value of the
shares held by Dissenting Shareholders and a brief description of the
procedure to be followed if the Dissenting Shareholders desire to exercise
the Dissenting Shareholder's purchase rights. The statement of price shall
constitute an offer by the Company to purchase any shares determined to be
"Dissenting Shares" as defined at Sections 1300 et seq. of the California
General Corporation Law. Each Dissenting Shareholder must then make a
written demand on the Company that such Dissenting Shareholder desires to
exercise his or her purchase rights.
(D) THE DEMAND MUST BE RECEIVED BY THE EXCHANGE AGENT NO LATER THAN 30
DAYS AFTER THE DATE ON WHICH THE NOTICE OF APPROVAL WAS MAILED.
(E) The demand must state the number and class of shares of PCM's
Common Stock or the Company's Common Stock held of record by such
Dissenting Shareholder which such Dissenting Shareholder demands that the
Company purchase and must contain a statement of what such Dissenting
Shareholder claims to be the fair market value of such shares as of the day
before the announcement of the Merger Proposal and related transactions.
The statement by such Dissenting Shareholder shall constitute an offer by
such Dissenting Shareholder to sell those shares at such price.
(F) Each Dissenting Shareholder must, within 30 days after the date on
which the notice of approval was mailed, submit to the Company at the
address set forth herein the following: (1) if such Dissenting Shareholder
possesses actual certificates representing the dissenting shares, the
certificates representing the Dissenting Shares to be stamped or endorsed
with a statement that the applicable shares are, in fact, Dissenting Shares
or to be exchanged for certificates of appropriate denomination so stamped
or endorsed; or (2) if such Dissenting Shareholder possesses no such
certificates, written notice of the number of Dissenting Shares which such
Dissenting Shareholder demands that the Company purchase.
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<PAGE> 77
If the Company denies that the applicable shares are Dissenting Shares, or
if the Company and such Dissenting Shareholder cannot agree upon the fair market
value of the applicable shares, then such Dissenting
Shareholder demanding purchase or the Company may, within six months after the
date on which the notice of approval was mailed, but no later, file a complaint
in the Superior Court of Orange County to determine (i) whether the applicable
shares are Dissenting Shares, (ii) the fair market value of the applicable
shares, or (iii) both. While Dissenting Shareholders have no specific appraisal
rights, the court may appoint one or more impartial appraisers to determine the
fair market value of the applicable shares. Dissenting Shareholders continue to
have all of the rights and privileges incident to their shares, unless the
Dissenting Shares lose their status as Dissenting Shares, until the fair market
value of their shares is agreed upon or determined. A Dissenting Shareholder may
not withdraw a demand for purchase, unless the Company consents. Dissenting
Shares lose their status as Dissenting Shares upon the happening of: (i) the
Company abandons the Merger Proposal; (ii) the applicable shares are transferred
prior to their submission for endorsement as set forth above; (iii) the
Dissenting Shareholder and the Company do not agree upon the status of the
applicable shares as dissenting or upon the purchase price and neither files a
complaint within six months of the date the notice of approval was mailed as set
forth above; or (iv) the Company consents to the Dissenting Shareholder's
withdrawal of the demand for purchase. If the Company abandons the Merger
Proposal, it must pay on demand to any Dissenting Shareholder who has initiated
proceedings for purchase of Dissenting Shares in good faith all necessary
expenses incurred in such proceedings and reasonable attorneys' fees.
DISSENTING SHAREHOLDERS MAY HAVE OTHER RIGHTS NOT DISCUSSED ABOVE. DISSENTING
SHAREHOLDERS SHOULD CONSULT WITH THEIR LEGAL COUNSEL AS TO ALL SUCH MATTERS.
FEDERAL INCOME TAX CONSIDERATIONS
INTRODUCTION. The following information is intended to provide the Limited
Partners and shareholders of PCM and the Company with a summary of all material
federal income tax consequences of general application to the Surviving
Corporation and Limited Partners associated with the Merger Proposal. This
summary does not comment on all tax matters that may affect the Partnerships,
the Surviving Corporation, the Limited Partners or those shareholders, including
any state, local, foreign or other matters, and does not consider various facts
or limitations applicable to any particular Limited Partner, or special tax
rules that may apply to certain Limited Partners or shareholders and may modify
or alter the results described herein.
Except as otherwise indicated, statements of legal conclusions regarding
tax treatments, tax effects or tax consequences present the opinions of John H.
Brainerd, Attorney at Law and tax counsel for the Surviving Corporation, based
on the Code and applicable Treasury Regulations thereunder, each as amended and
in effect on the date hereof, and on reported judicial decisions and published
positions of the Internal Revenue Service ("IRS"). No rulings have been
requested from the IRS concerning any of the matters described in this
Prospectus and the IRS will generally not issue rulings on transactions such as
the Merger Proposal. In some cases, particularly those as to which tax counsel's
opinion is qualified, there is a risk that the IRS will disagree with the
conclusions of tax counsel. The laws, regulations, administrative rulings and
judicial decisions that form the basis for conclusions with respect to the tax
consequences of the Merger Proposal are very complex and are subject to change
at any time.
The tax opinion of John H. Brainerd is filed as an exhibit to the
Registration Statement, of which this Prospectus constitutes a part. Upon
receipt of a written request of a Limited Partner (or such Limited Partner's
representative who has been so designated in writing) addressed to the
Information Agent at 4100 Newport Place, Suite 400, Newport Beach, California
92660, a copy of the tax opinion will be transmitted promptly, without charge,
by the General Partner.
The Limited Partners and shareholders should be aware that there is no
direct authority of general applicability governing the federal income tax
treatment of transactions such as the Merger Proposal that are structured as
partnership mergers, because this structure is an approach made available by
recent developments in partnership law. Therefore, in rendering his opinions,
John H. Brainerd has relied on authorities addressing the consequences of
analogous transactions that used similar structures. Accordingly, although
60
<PAGE> 78
there appears to be no controlling authority contrary to Mr. Brainerd's
conclusions, it is possible that the IRS would take a different position if it
reviewed the tax consequences of the Merger Proposal.
DIFFERENCES BETWEEN UNITS AND COMMON SHARES. A limited partnership is a
pass-through entity for federal income tax purposes. This means that a limited
partnership is not liable for federal income tax on its taxable income. Rather,
a limited partnership passes its income (or loss) through to its owners (i.e.,
general and limited partners) in proportion to their relative ownership
interests. This is known as allocating a partnership's income and loss. Many
items of income, gain, loss, and deduction are allocated separately to each
partner in proportion to such partner's interest in the partnership. The
character of each item passed through to a partner remains the same with the
partner as it was with the limited partnership. When income (or loss) is
allocated to a partner, such partner is taxed on that income (or may deduct that
loss). This tax is imposed on the partner regardless of whether the limited
partnership actually distributes any cash or property to that partner.
Therefore, generally it is the allocation, not the distribution, of income to a
partner that results in tax (or a deduction) for that partner. A partner has a
basis in the limited partnership interest he or she holds which is generally
equal to either the cost of that limited partnership interest if purchased, or
if not purchased, the amount of any cash or basis of any other property that
partner transferred to the limited partnership, increased (or decreased) by that
partner's share of the limited partnership's income (or loss) and decreased by
the amount of any cash (or the basis of any property) distributed to that
partner. Upon sale of his or her limited partnership interest, a partner
realizes gain equal to the amount received for the limited partnership interest
less that partner's basis in the limited partnership interest. The partner's
gain (or loss) upon sale is generally capital gain (or loss), but may be
characterized as ordinary gain (or loss) to the extent of that partner's share
of certain assets held by the limited partnership.
Because a limited partnership does not pay tax on income it earns (but
rather the general partner and limited partners pay tax on such income),
partners of a limited partnership are subject to only one level of federal
income tax on income earned in the business conducted by the limited
partnership. Accordingly, as owners of the Partnership, by their Units, Limited
Partners receive the federal income tax treatment just described. The number of
Units owned by a Limited Partner will determine the amount of income or loss
allocated to the Limited Partner by the applicable Partnership.
A corporation is a taxable entity and pays federal income tax at a maximum
rate of 39% on its taxable income. A shareholder of a corporation is generally
not taxed on any income earned by a corporation until that corporation
distributes either cash or property to that shareholder or that shareholder
sells or exchanges his or her shares at a gain. A corporation often makes
distributions to shareholders in proportion to their interests in the
corporation, but it need not do so. When cash or property is distributed, each
portion of the distribution will be characterized in one of the following three
ways: (i) as a dividend, (ii) as a capital gain, or (iii) as a return of
capital. The portion of a distribution treated as a dividend is taxed at
ordinary federal income tax rates, which, for individuals, range up to 39.6%.
However, upper bracket individuals are subject to a phaseout of their personal
exemptions, and a restriction on itemized deductions, which in combination in
certain circumstances, can bring the actual maximum federal rate to more than
47%. The portion treated as capital gain will generally be taxed at a maximum
28% rate. The portion treated as return of capital will not be taxed. The amount
of any distribution treated in any of the three alternative ways may differ for
each shareholder, and will depend upon the value of the cash and property
received, the percentage interest in the corporation owned by the shareholders
receiving distributions and each shareholder's basis in his or her shares.
Because corporations are taxable on their own taxable income, and because
shareholders may be taxed again on that same income if it is distributed to them
in the form of cash or property, or if that income is realized through the sale
or exchange of shares at a gain, there are two levels of potential tax upon
income earned by a corporation. A shareholder's basis in his or her shares is
generally equal to the cost of the shares if purchased, or, if not purchased,
the amount of any cash and basis of other property contributed to the
corporation, decreased by the amount of any distributions treated as a return of
capital. Upon a sale of shares, a shareholder's gain (or loss) will be equal to
the amount received for those shares less his or her basis in those shares. The
character of such gain (or loss) will generally be capital in nature. As holders
of interests in a corporation, the owners of any Common Shares will be subject
to the tax treatment just described.
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<PAGE> 79
As a holder of a Unit, a Limited Partner holds an interest in an entity
that earns income subject to only one level of federal income tax, whereas the
holder of a Common Share would hold an interest in an entity that earns income
subject to two potential levels of federal income tax.
There are, however, potential tax advantages (and corresponding financial
advantages) to conducting a business by a corporation. These include the ability
of shareholders to defer tax on income earned by the corporation until the
corporation distributes such income. Partners in a partnership, by contrast, are
taxed as soon as the partnership earns income. Partners pay such tax at their
individual federal tax rate, which may exceed the maximum federal corporate tax
rate. Alternatively, because shareholders pay no tax until they receive
distributions, the Surviving Corporation, as a corporation, may accumulate
income for business expansion without financially interfering with its
shareholders' abilities to pay their taxes.
LIMITED PARTNERS AND SHAREHOLDERS. Each Limited Partner will recognize
gain or loss resulting from the Merger as if the applicable Partnership had (i)
sold all of its assets to the Company for an amount equal to the value of the
shares received in the Merger, plus the liabilities of that Partnership assumed
in the Merger, and (ii) distributed the shares received in the Merger to that
Partnership's Limited Partners. A Limited Partner that receives cash (with
respect to Units) in lieu of fractional Common Shares or because of such Limited
Partner's exercise of dissenter's or similar rights under California law (with
respect to Units) may recognize gain depending upon such Limited Partner's
aggregate basis in the applicable Partnership prior to the Closing Date. The
aggregate basis of any Common Shares received in the Merger by a Limited Partner
in exchange for Units will equal the aggregate basis in such Units immediately
before the Merger, but may be decreased if cash is received by such Limited
Partner for such Units in lieu of fractional Common Shares. Such basis will be
prorated among all Common Shares received for such Units.
Limited Partners and shareholders will have a split holding period for each
Common Share received. A Common Share received in exchange for Units will have a
holding period that begins on the day following the Closing Date to the extent
that the value of such Common Share on such date is attributable to certain of
the Partnerships' assets (essentially, their ordinary income assets), and, to
the extent of any excess value, such Common Share will have a holding period
that includes the period the Units were held by the Limited Partners.
A holder of existing Common Shares who subsequently sells Common Shares
received in the Merger will recognize gain or loss measured by the difference
between the amount realized on such sale and his or her tax basis in the Common
Shares sold. Each Limited Partner who receives Common Shares in the Merger will
be required to file with his or her federal income tax return for the year in
which the Merger is consummated a statement that provides details relating to
his or her Units (which will be considered to be property transferred), the
Common Shares, and his or her share of any liabilities assumed by the Surviving
Corporation in the Merger. The Surviving Corporation will provide its
shareholders with information to assist them in preparing such a statement.
After the Merger is consummated, the income and deductions attributable to
the assets and liabilities of the Surviving Corporation will not be allocated to
the Surviving Corporation's shareholders. A shareholder of the Surviving
Corporation will be taxed only on dividends and other distributions received
from the Surviving Corporation, if any. Such distributions generally will be
taxable as dividends to the extent of any current or accumulated earnings and
profits of the Surviving Corporation. Any other distributions will be treated as
a nontaxable return of capital to the extent of such shareholder's basis in his
or her Common Shares and as capital gain to the extent of the remaining portion
of such distribution.
THE SURVIVING CORPORATION AND THE PARTNERSHIPS. The Partnerships will be
deemed to have transferred all their assets and liabilities to the Company and
to have received Common Shares of the Surviving Corporation (the Merger Stock)
in exchange, and then to have distributed those Common Shares to the Limited
Partners and the General Partner in complete liquidation. As a consequence, the
assets of the Partnerships should retain the same tax basis as they had prior to
the Merger, unless the Partnerships are required to recognize gain resulting
from the Merger.
The Surviving Corporation will not recognize gain or loss resulting from
the Merger, but the Surviving Corporation's tax basis in the assets acquired
from the Partnerships will equal the value of the Common Shares issued in the
Merger plus the amount of the Partnerships' liabilities assumed in the Merger,
and the
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<PAGE> 80
Surviving Corporation's holding period in the assets would begin the day after
the Closing Date. The Partnerships, on the other hand, will recognize gain or
loss resulting from the Merger in an amount equal to the amount by which the
value of the Common Shares received plus the amount of the Partnerships'
liabilities assumed exceeds (or is less than) their basis in the assets
transferred to the Company and the Limited Partners would be required to include
in their taxable incomes their distributive shares of the Partnerships' gain or
loss.
After consummation of the Merger, the Partnerships will cease to exist for
both state law and federal income tax purposes. The Surviving Corporation will
be taxed as a corporation on its taxable income. The income and deductions
attributable to the assets and liabilities received in the Merger will be
included in the Surviving Corporation's taxable income. The adjusted tax basis
of certain of the assets will be depreciable or amortizable for federal tax
purposes, thereby reducing the amount of the Surviving Corporation's income
subject to tax.
THE FOREGOING INFORMATION RELATES ONLY TO THE FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER PROPOSAL APPLICABLE TO LIMITED PARTNERS AND
SHAREHOLDERS GENERALLY. EACH LIMITED PARTNER AND SHAREHOLDER SHOULD CONSULT HIS
OR HER OWN TAX ADVISOR CONCERNING THE FEDERAL, STATE, LOCAL AND OTHER TAX
CONSEQUENCES OF THE MERGER PROPOSAL.
OTHER TAX CONSIDERATIONS
The following information is intended to provide the Limited Partners and
shareholders of PCM and the Company with a summary of certain material state and
local income tax consequences of general application to the Limited Partners and
the Surviving Corporation associated with the Merger Proposal. The following
information does not contemplate all tax matters that may affect the
Partnerships, the Surviving Corporation, the Limited Partners and the
shareholders of PCM and the Company, and does not consider various facts and
limitations applicable to any particular Limited Partner, or special tax rules
that may apply to certain Limited Partners and shareholders of PCM and the
Company that may modify the results described herein.
The following statements are not the subject of the tax opinion rendered,
and have not otherwise been passed upon by John H. Brainerd, Attorney at Law and
tax counsel for the Company. No rulings have been requested from any state or
local tax jurisdiction concerning any of the matters described in this
Prospectus.
A partnership is generally a pass-through entity for state and local income
tax purposes. This means that a partnership is not liable for state or local
income tax on its taxable income. In general, partners liable for federal income
tax are also liable for the state and local income taxes of the states and
taxing municipalities in which a partnership does business. These taxes are
generally based on a partner's share of federal taxable income from the
partnership, as allocated or apportioned among the various state and local
jurisdictions on the basis of the character of the income earned or on the basis
of sales made, payroll paid, and property owned in each jurisdiction. A partner
is also generally subject to tax on all income earned from that partner's
investment in the partnership in that partner's state and, if applicable, city
of residence. This tax may be offset by credits for taxes paid to other states
and municipalities. In general, interest income and capital gains earned by a
partnership are not subject to municipal income tax. As with federal income tax,
partners of a partnership are subject to only one level of state and local
income tax on income earned in the business conducted by that partnership. See
"FEDERAL INCOME TAX CONSIDERATIONS."
The Partnerships have filed composite state income tax returns for a number
of years on behalf of eligible and electing Limited Partners, for the purpose of
limiting each Limited Partner's compliance burden to that Limited Partner's
state of residence. The taxes paid by the Partnerships with these returns have
been charged to the participating Limited Partners' respective Partnership
capital accounts.
A corporation is a taxable entity and pays state and local income taxes at
rates which vary depending upon the identity of the states and municipalities in
which that corporation conducts its business. The business of the Surviving
Corporation is expected to be conducted in California, which imposes a tax on
income apportioned to California. A shareholder of a corporation is generally
not taxed on any income earned by that corporation until that corporation
distributes either cash or property to that shareholder or that shareholder
sells or exchanges shares of that corporation at a gain. See "FEDERAL INCOME TAX
CONSIDERA-
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TIONS." Dividends and capital gains are generally subject to tax only in that
shareholder's state of residence. Income from capital gains is generally taxed
at the same rates as other taxable income. Neither dividends nor capital gains
are generally taxable by taxing municipalities.
THE FOREGOING INFORMATION RELATES ONLY TO CERTAIN OF THE STATE AND LOCAL
INCOME TAX CONSEQUENCES OF THE MERGER PROPOSAL APPLICABLE TO LIMITED PARTNERS
AND SHAREHOLDERS GENERALLY. EACH LIMITED PARTNER AND SHAREHOLDER SHOULD CONSULT
HIS OR HER OWN TAX ADVISOR CONCERNING THE FEDERAL, STATE, LOCAL AND OTHER TAX
CONSEQUENCES OF THE MERGER PROPOSAL.
PRINCIPAL SHAREHOLDERS AND LIMITED PARTNERS
The following information is furnished as of June 30, 1997, with respect to
the issued and outstanding existing securities of the Company beneficially owned
by each director, the Chief Executive Officer, and the four other most highly
compensated executive officers of the Company; the directors and executive
officers of the Company as a group; and all beneficial owners of more than five
percent of the issued securities of the Company.
<TABLE>
<CAPTION>
COMMON SHARES
OUTSTANDING AFTER
UNITS EXISTING SECURITIES MERGER
------------------ ----------------------------------- --------------------
CAPITAL PERCENT NUMBER PERCENT NUMBER PERCENT
NAME ACCOUNT OF CLASS OF SHARES OF CLASS OF SHARES OF CLASS
- ------------------------------------ ------- -------- ------------------------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Vincent E. Galewick, director and
Chief Executive Officer........... 0 0 1,000 Common Shares 100%
Vincent E. Galewick, director and
Chief Executive Officer........... 0 0 100,000 Preferred Shares 100%
</TABLE>
MANAGEMENT OF THE GENERAL PARTNER, PCM AND THE COMPANY
PCM, the General Partner and the Company have a common director and common
executive officers, which are specified below.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------- --- ---------------------------------------------------------------
<S> <C> <C>
Vincent E. Galewick... 37 President and Secretary of PCM. President and Secretary of the
General Partner; Chief Executive Officer and President of the
Company. Director of PCM, and the General Partner. Chairman
of the Board of Directors of the Company.
Michael Cushing....... 38 Chief Financial Officer of PCM, the General Partner and the
Company; Secretary and Senior Vice President, Financial
Affairs of the Company. Director of the Company.
William Savage........ 54 Vice President of Operations for the Company. Director of the
Company.
Gary Fry.............. 30 Vice President of Business Development for the Company.
Ronald D. Collette.... 34 Vice President of Information Technologies for the Company.
</TABLE>
VINCENT E. GALEWICK is the President and Secretary of PCM. Mr. Galewick is
the President and Secretary of the General Partner and the President and Chief
Executive Officer of the Company. Mr. Galewick is also a director of the
Company, the sole director of PCM and the General Partner, and the principal
shareholder of PCM. Mr. Galewick is the sole shareholder of the General Partner
and the Company. Mr. Galewick has been involved in the securities industry for
more than 10 years focusing on the investment banking aspects.
In January 1993, Mr. Galewick created and established PCM for the purpose
of identifying potential portfolio acquisitions, performing due diligence in
conjunction with potential acquisition, portfolio acquisition negotiation, and
the ultimate collection and servicing of acquired portfolios by PCM and the
Partnerships. Mr. Galewick has been involved in more than 130 portfolio
acquisitions of various types of sizes totaling more
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<PAGE> 82
than $2 billion in original principal obligations. As a result of these
acquisitions, Mr. Galewick has developed numerous strategic and trusted
relationships with industry professionals which are of benefit to PCM and the
Partnerships and should be of benefit to the Company.
From February 1987, through January 1989, Mr. Galewick served as a
Registered Representative in the securities industry. In January, 1989, Mr.
Galewick became affiliated with Income Network Company, working as a Registered
Principal. Income Network Company is a member Broker/Dealer of the National
Association of Securities Dealers, Inc. and has been such a member since March
14, 1988. Mr. Galewick was promoted to a managing Registered Principal and, in
March of 1992, Mr. Galewick purchased Income Network Company. Income Network
Company is an Affiliate of PCM, the Company and the General Partner and
specializes in direct participation programs. Income Network Company is the
Solicitation Agent. Mr. Galewick is currently both the President, Secretary,
Chief Financial Officer, sole director and sole shareholder of Income Network
Company. Additionally, Mr. Galewick continues as a Registered Principal of
Income Network Company and holds Series 6, 22, 24, 39, 62 and 63 securities
licenses. Since his acquisition of Income Network Company, Mr. Galewick has
increased the number of Registered Representatives from 6 to, presently, more
than 20.
MICHAEL CUSHING is the Chief Financial Officer of PCM, the General Partner
and the Company. He is also Senior Vice President, Financial Affairs, Secretary
and a director of the Company. Mr. Cushing is a shareholder of PCM. He has been
affiliated with PCM since its formation in January, 1993. Mr. Cushing has been
involved with PCM's business development, planning and implementation of
corporate strategies for all of PCM's operations and acquisition programs. Mr.
Cushing was instrumental in the successful marketing of PCM as a buyer of debt
portfolios to the financial community as well as the design and application of
PCM's acquisition stratification programs. Mr. Cushing graduated from the
University of California at Santa Barbara with a Bachelor of Arts in Business
Economics. Mr. Cushing became licensed as a Certified Public Accountant in the
State of California while employed by the certified public accounting firm of
Coopers and Lybrand. His clients, while at Coopers and Lybrand, included real
estate, manufacturing, banking, service, and retail businesses.
From January of 1989, to November of 1991, Mr. Cushing served as Vice
President of Real Estate and Corporate Secretary for the Bay Plaza Company, a
master developer of a planned 1.4 million square foot, $240 million downtown
redevelopment project for the city of St. Petersburg, Florida ("Downtown
Redevelopment Project"). This company, also, was facility manager of a 1/4 mile
retail and entertainment pier complex with a 42,000 seat domed stadium, 8,500
seat arena and 2,000 seat fine arts theater for the city of St. Petersburg,
Florida. Mr. Cushing was responsible for all aspects of real estate operations
including asset and property management, investment analysis, financing,
acquisitions, dispositions, planning, and risk management. As Corporate
Secretary, Mr. Cushing was responsible for the maintenance of the company's
books and records.
From September of 1985, to January of 1989, Mr. Cushing was Senior Vice
President of the Elcor Companies, a national commercial real estate company.
This company served as an advisor and management company for Wespac Investors
Trust, a publicly traded Over-The-Counter real estate investment trust
("R.E.I.T.") with total assets in excess of $160,000,000 and approximately 5,000
shareholders. In addition to servicing the R.E.I.T., the company acquired, owned
and managed properties for its own accounts, as well as other third parties.
This company, also, owned 50% of the Downtown Redevelopment Project. Mr.
Cushing's responsibilities included overseeing all property and corporate
operations; performing all aspects of the disposition of R.E.I.T. assets;
placing, negotiating, and closing all property financing and workouts; and
overseeing the recovery of assets by bankruptcy and foreclosure proceedings.
From October of 1984, to September of 1985, Mr. Cushing was part of the
real estate acquisition team of Wespac Advisors, a national real estate
syndicator. His responsibilities included completion of acquisition and due
diligence documentation, negotiation of acquisition terms, and research of
markets and properties throughout the nation. This company provided the property
management and acquisition services for 3 publicly traded real estate investment
trusts with total assets in excess of $300,000,000.
WILLIAM SAVAGE is the Vice President of Operations and a director of the
Company. Mr. Savage has been with the Company since January 1997. Mr. Savage is
responsible for PCM's administration, portfolio
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<PAGE> 83
management, systems support, collecting and legal compliance of the collection
activities. Mr. Savage has overall responsibility for managing the technologies
and systems of PCM. Prior to coming to the Company and PCM, Mr. Savage was Vice
President of Operation of National Telephone & Communications, Inc. in Irvine,
California. ("NTC"). Mr. Savage was instrumental in taking NTC's revenue in 1994
of $11 million dollars to $106 million dollars in 1996. Prior to NTC, Mr. Savage
was Vice-President of Customer Service and Administration at Excel
Telecommunications in Dallas, Texas. Prior to Excel Telecommunications, Mr.
Savage was employed by Allnet Communication Services, Inc. in Bingham Farms,
Michigan ("Allnet"). For five years at Allnet, Mr. Savage held senior management
positions in Customer Service, Corporate Training, LEC Processing and as a
Project Manager for Information Systems.
Mr. Savage has a Bachelor of Arts degree in History from Michigan State
University, a Masters of Education degree from the College of William and Mary
and a Master of Science degree in Systems Management from the University of
Southern California.
GARY FRY is Vice President of Business Development for the Company. In that
capacity he is responsible for defining the Company's products and services,
marketing and sales distribution. Mr. Fry is also responsible for all vendor
relations with outside suppliers. Prior to joining the Company, Mr. Fry was a
Carrier Sales Executive for Worldcom, Inc. located in Jackson, Mississippi
("Worldcom") handling select accounts for the western United States.
Before entering carrier sales, Mr. Fry sold integrated voice and data
solutions to Fortune 500 corporations for Worldcom. His responsibilities
included sales, installation, and ongoing maintenance of Frame Relay, ATM, and
enhanced voice networks. Mr. Fry began his career in telecommunications as an
entry-level outside sales representative for Cable and Wireless Communications,
located in Vienna, Virginia. Mr. Fry's responsibilities included cold calling,
target marketing and telemarketing, and he earned various sales achievement
awards. Mr. Fry graduated in 1990 from West Virginia University in Morgantown,
West Virginia.
RONALD D. COLLETTE is Vice President of Information Technologies for the
Company. Mr. Collette has more than 13 years of experience with information
systems and has worked at Fortune 500 companies such as Ingram Micro,
Countrywide Mortgage Corporation, the RTC, and Fluor Daniel Incorporated.
As the western regional MIS Director of the RTC, Mr. Collette was
responsible for the oversight of data processing for the world's largest
servicer of deposits and savings, loans, and real estate. The scope of this
responsibility included information services activities for all of the business
functions and program areas within his geographical jurisdiction. Mr. Collette
has a background in business process reengineering and user requirements
analysis. Mr. Collette has a Bachelor of Science degree in Economics from
Arizona State University.
ADDITIONAL KEY PERSONNEL
EDDIE J. MALONEY, age 32, is Director of MIS for PCM and the Company. Mr.
Maloney joined PCM in June, 1994. Mr. Maloney studied government and politics at
George Mason University and graduated with honors at Computer Learning Center in
Fairfax, Virginia. Mr. Maloney provides integration solutions to the various
computer systems and administers all aspects of the networks at PCM, Income
Network Company, the Company and the General Partner. These include UNIX,
Novell, RDBMS, and Windows (all versions). Mr. Maloney supervises all in-house
data conversions and software development projects at PCM.
From September of 1990, to June 1994, Mr. Maloney served as a System's
Analyst and ISU Closing Director for the RTC in its California Office. Mr.
Maloney was one of the primary programmers for many of the RTC's nationwide
computer operations. Mr. Maloney's proficiency in programming languages includes
dBase, Rbase, Clipper, Access, Platinum, SAS, Basic, C, and Microsoft SQL. In
addition to software development, Mr. Maloney established and maintained Banyan
and Novell networks both in the field and at the RTC's California office.
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<PAGE> 84
Additionally, Mr. Maloney directed computer operations for RTC
conservatorships in California, Oregon, Washington, Hawaii, and Guam. These
operations ranged from daily operation to the sale of institutions with systems
ranging from small PC networks to multi-million dollar mainframes. These
conservatorships assets ranged from $10 million to $4 billion. Mr. Maloney
assisted the RTC's Investigative Division, which worked collectively with the
federal government to seize and secure financial institutions by uncovering
evidence used in convictions of the responsible individuals.
From February of 1987, to September of 1990, Mr. Maloney served as MIS
Director at Piedmont Federal Savings Bank in Virginia. During his employment, he
provided all in house programming utilizing DEC Assembly, Basic, COBOL,
StarStream (NCR) and dBase programming languages.
PATRICIA ANTHONY, age 58, is PCM's collection counsel. She supervises all
legal activities relating to PCM collection of portfolios, including litigation
matters within California and actions in other states. Ms. Anthony also
supervises and is liaison with out-of-state counsel for prosecuting and
defending actions outside the State of California. She files and oversees
levies, garnishments, repossessions, attachments, and other legal collection
procedures on behalf of PCM and the Partnerships.
Ms. Anthony is a graduate of Western State Law School and was admitted to
the California State Bar in September, 1978. From 1978 through 1983 she was a
partner in the law firm of Griffith and Anthony located in Costa Mesa,
California, a general practice specializing in collection actions and
enforcement of creditor's rights. From 1983 through 1995 she formed a
professional law corporation and continued her practice as a creditor's rights
attorney. In 1995, she became general counsel for PCM.
EXECUTIVE COMPENSATION. Vision Capital Services Corporation, a California
corporation and an Affiliate of PCM, the General Partner and the Company
("Vision") currently provides all management services to the joint ventures in
which the Partnerships and PCM hold their distressed financial debt instruments
and other obligations. See "Certain Relationships and Related Transactions." The
fees paid to Vision by those joint ventures include amounts equal to the
salaries and costs of all employee benefits, and other normal and routine
employee costs, paid or accrued on behalf of PCM's employees who are engaged in
furnishing services to those joint ventures. The following tables set forth the
compensation paid to PCM's Chief Executive Officer and the other four highest
paid executive officers, and the compensation paid to the General Partner's
Chief Executive Officer and the other four highest paid executive officers.
Vincent E. Galewick is the sole shareholder and director of Vision. Mr. Galewick
is the President and Secretary of Vision. Michael Cushing is the Chief Financial
Officer of Vision.
SUMMARY COMPENSATION TABLE (PCM)
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------------
NAME OTHER ANNUAL ALL OTHER
AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) COMPENSATION($)
- ------------------------------------- ----- --------- --------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Vincent E. Galewick, 1996 229,500 0 0 0
Chief Executive Officer 1995 153,000 0 0 0
1994 153,000 0 0 0
Michael Cushing, 1996 48,352 0 34,531(1) 34,531
Chief Financial Officer 1995 119,589 0 0 0
1994 124,631 0 0 0
</TABLE>
(1) Consulting fees paid on an independent contractor basis.
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<PAGE> 85
SUMMARY COMPENSATION TABLE (GENERAL PARTNER)
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------------
NAME OTHER ANNUAL ALL OTHER
AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) COMPENSATION($)
- ------------------------------------- ----- --------- --------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Vincent E. Galewick, 1996 40,500 0 0 0
Chief Executive Officer 1995 27,000 0 0 0
1994 27,000 0 0 0
Michael Cushing, 1996 14,627 0 0 0
Chief Financial Officer 1995 21,104 0 0 0
1994 21,994 0 0 0
</TABLE>
The executive officers of PCM and the General Partner also perform services
for other entities and receive compensation for those services from other
entities. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
COMMITTEES OF THE BOARD OF DIRECTORS. Upon consummation of the Merger, the
Board of Directors will establish a Compensation Committee and an Audit
Committee. The Compensation Committee will include at least two directors who
are "disinterested persons" within the meaning of Rule 16b-3, as amended from
time to time, under the Exchange Act and "outside directors" within the meaning
of Section 162(m) of the Code, and will have the authority to determine
compensation for the Company's executive officers and to administer the
Company's 1998 Stock Option Plan (defined below). Prior to the establishment of
the Compensation Committee, decisions concerning the compensation of executive
officers were made by Mr. Galewick, the Company's Chairman of the Board, Chief
Executive Officer and President. None of the executive officers of the Company
currently serve as a director or member of the Compensation Committee of another
entity or of any other committee of the board of directors of another entity
performing similar functions. See "Certain Relationships and Related Party
Transactions." The Audit Committee will have the authority to make
recommendations concerning the engagement of independent certified public
accountants, review with the independent certified public accountants the plans
and results of the audit engagement, approve professional services provided by
the independent certified public accountants, review the independence of the
independent certified public accountants, consider the range of audit and
non-audit fees and review the adequacy of the Company's internal accounting
controls.
STOCK OPTION PLAN. If the Merger is consummated, the Company anticipates
adopting a stock option plan (the "1998 Stock Option Plan"). The 1998 Stock
Option Plan will provide that it is to be administered by a committee of the
Board of Directors ("Option Committee") which will include at least two outside
directors. The Compensation Committee is expected to function as the Option
Committee. The Option Committee will have the authority, within limitations to
be set forth in the 1998 Stock Option Plan, to establish rules and regulations
concerning the 1998 Stock Option Plan, to determine the persons to whom options
may be granted, the number of shares of Common Stock to be covered by each
option, and the terms and provisions of the option to be granted. The Option
Committee will have the right to cancel any outstanding options and to issue new
options on such terms and upon such conditions as may be consented to by the
optionee affected.
A total of 1,000,000 shares are reserved for issuance under the 1998 Stock
Option Plan. The number of shares which may be granted under the 1998 Stock
Option Plan or under any outstanding options will be proportionately adjusted in
the event of any stock dividend or if the Common Shares shall be split,
converted, exchanged, reclassified or in any way substituted. Notwithstanding
any other provision of the 1998 Stock Option Plan, in the event of a
recapitalization, merger, consolidation, rights merger, separation,
reorganization or liquidation, or any other change in the Company's corporate
structure or outstanding shares, the Option Committee may make such equitable
adjustments to the number and class of shares available under the 1998 Stock
Option Plan or to any outstanding options as it shall deem appropriate to
prevent dilution or enlargement of rights. The maximum term of any option
granted pursuant to the 1998 Stock Option Plan is
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<PAGE> 86
ten years. In general, shares subject to options granted under the 1998 Stock
Option Plan which expire, terminate or are canceled without having been
exercised in full become available again for option grants.
The class of eligible persons under the 1998 Stock Option Plan will consist
of directors and employees of, and consultants to, the Company or a parent or
subsidiary thereof, as determined by the Option Committee, except that
Non-Employee Directors can also receive fixed grants of options under the terms
set forth in the 1998 Stock Option Plan. Options granted under the 1998 Stock
Option Plan may be incentive stock options ("ISOs") or non-qualified options, at
the discretion of the Option Committee; however, ISOs can only be granted to
employees of the Company or a parent or subsidiary. The 1998 Stock Option Plan
provides that the exercise price of an option (other than a non-employee
director's option) will be fixed by the Option Committee on the date of grant;
however, the exercise price of an ISO must be not less than the fair market
value of the Common Shares on the date of the grant. The exercise price of an
ISO granted to any participant who owns stock possessing more than 10% of the
total combined voting power of all classes of outstanding stock of the Company
must be at least equal to 110% of the fair market value of the Common Shares on
the date of grant. Any ISOs granted to such participants also must expire within
five years from the date of grant. Additionally, options granted under the 1998
Stock Option Plan will not be ISOs to the extent that the aggregate fair market
value of the shares with respect to which ISOs under the 1998 Stock Option Plan
(or under any other plan maintained by the Company or a parent or subsidiary
thereof) first become exercisable in any year exceeds $100,000. No options shall
be granted under the 1998 Stock Option Plan on or after the tenth anniversary of
the adoption of the 1998 Stock Option Plan.
Options will be non-transferable and non-assignable; provided, however,
that the estate of a deceased holder can exercise options. Options (other than
non-employee directors' options) are exercisable by the holder thereof subject
to terms fixed by the Option Committee. However, no option can be exercised
until at least six months after the date of grant.
Notwithstanding the above, an option will be exercisable immediately upon
the happening of (but in no event during the six-month period following the date
of grant or subsequent to the expiration of the term of an option) (i) the
holder's retirement on or after attainment of age 65; (ii) the holder's
disability or death; (iii) a "change of control" (as defined in the 1998 Stock
Option Plan) of the Company while the holder is in the employ or service of the
Company; or (iv) the occurrence of such special circumstances or events as the
Option Committee determines merits special consideration, except with respect to
non-employee directors' options. Under the 1998 Stock Option Plan, an option
holder generally will be permitted to pay the exercise price in cash, by check,
by delivery to the Company of Common Shares already owned by the holder or,
except with respect to non-employee directors' options, by such other method as
the Option Committee may permit from time to time.
If an option holder terminates employment with the Company or service as a
director of or consultant to the Company while holding an unexercised option,
the option will terminate 30 days after such termination of employment or
service unless the option holder exercises the option within such 30-day period.
However, all options held by a holder will terminate immediately if the
termination is a result of a breach of such holder's duties. If cessation of
employment or service is due to retirement on or after attainment of age 65,
disability or death, the option holder or such holder's successor-in-interest,
as the case may be, is permitted to exercise any option within three months
after retirement or within one year after disability or death.
The 1998 Stock Option Plan may be terminated and may be modified or amended
by the Option Committee or the Board of Directors at any time; provided,
however, that (i) no modification or amendment either increasing the aggregate
number of shares which may be issued under options or to any individual or
modifying the requirements as to eligibility to receive options will be
effective without stockholder approval within one year of the adoption of such
amendment and (ii) no such termination, modification or amendment of the 1998
Stock Option Plan will alter or affect the terms of any then outstanding options
without the consent of the holders thereof.
STOCK OPTIONS PURSUANT TO EMPLOYMENT RELATIONSHIPS. In addition to options
granted under the 1998 Stock Option Plan, the Company may grant options other
than those contemplated by the 1998 Stock Option Plan to employees, consultants
and other agents of the Company pursuant to their various compensation
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<PAGE> 87
arrangements with the Company. Any such options shall be approved by the Option
Committee and the Compensation Committee, as well as the Board of Directors.
INDEMNIFICATION ARRANGEMENTS. The Company has entered into indemnification
agreements pursuant to which it agrees to indemnify certain of its directors and
officers against judgments, claims, damages, losses and expenses incurred as a
result of the fact that any director or officer, in his or her capacity as such,
is made or threatened to be made a party to any litigation matter or proceeding.
Such persons will be indemnified to the fullest extent now or hereafter
permitted by the Delaware General Corporations Law. Those indemnification
agreements also provide for the advancement of certain expenses to such
directors and officers in connection with any such litigation matter or
proceeding. Also, the Company's Certificate of Incorporation, as amended, and
Bylaws provide for the indemnification of the Company's directors and officers
to the fullest extent permitted by the Delaware General Corporation Law. See
"Indemnification of Officers and Directors."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PCM, the Company, the General Partner, the Solicitation Agent, and their
Affiliates have certain common directors, officers and employees. The Company,
the General Partner, the Solicitation Agent and their Affiliates, except for
PCM, each have the same sole shareholder, which is Vincent E. Galewick. PCM has
two shareholders, who are Mr. Galewick and Michael Cushing; provided, however,
Mr. Galewick is the principal and controlling shareholder of PCM. The officers
and directors of PCM, the Company and the General Partner may have conflicts of
interest in allocating management time, services and functions between various
existing separate business ventures, including, but not limited to, the business
of the Company. The Partnerships have entered into various joint ventures with
PCM pursuant to which PCM provides collecting and servicing activities. The
joint venture agreements generally provide that all distributions are shared by
the venturers in proportion to their respective percentage interests. Moreover,
in addition to providing collection efforts on distressed loan portfolios, PCM
identifies and acquires distressed loan portfolios and other discounted
portfolios of financial debt instruments and obligations and sells them to the
Partnerships at negotiated prices.
On December 8, 1995, the General Partner on behalf of the Partnerships,
entered into with the Department the Performance Asset Management Fund Trust
Agreement ("Trust Agreement") which created the Trust. At the time the Trust was
created, the General Partner was contemplating the Merger and participating in
discussions with representatives of the Department regarding the Merger and the
Surviving Corporation.
In an effort to provide to the Department reasonable assurance that the
terms and conditions of the Merger would not be unfair, unjust and inequitable
to the Limited Partners, the General Partner established the Trust for the sole
exclusive purpose of keeping available for the benefit of the Partnerships and
the Limited Partners that amount of cash or similar liquid assets as would be
agreed upon by the General Partner, on behalf of the Partnerships, and the
Department.
The General Partner and the Company anticipate that the Trust will
terminate on the Closing Date; provided, however, pursuant to the provisions of
the Trust Agreement, the Trust shall terminate no later than August 16, 1998. In
the event the Trust is terminated on the Closing Date, as a result of the
consummation of the Merger, the assets of the Trust, as assets of the
Partnerships, shall be transferred to the Company, and the Partnerships shall
receive in exchange therefor shares of Merger Stock commensurate with their
respective allocated portion of those assets of the Trust. In the event the
Merger is not consummated for any reason whatsoever, on the termination of the
Trust, the assets held by the Trust shall be distributed to the Partnerships as
allocated by the General Partner, in its sole discretion.
Atlas Equity, Inc., a California corporation, and an Affiliate of PCM, the
Company, the General Partner, and the Solicitation Agent, does business using
the fictitious business name Performance Telecom.
The Company and Performance Telecom have common officers. Vincent E.
Galewick is the President, sole director and sole shareholder of Performance
Telecom. Michael Cushing is the Chief Financial Officer of Performance Telecom.
William Savage is the Vice President of Operations of Performance Telecom. Gary
Fry is the Vice President of Business Development for Performance Telecom.
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Performance Telecom is in the business of providing long-distance telephone
and related services. PCM utilizes the services of Performance Telecom in
connection with the conduct of PCM's business. Specifically, the long-distance
telephone calls made by collection agents of PCM in connection with servicing
and collecting the distressed loan portfolios owned by PCM and the Partnerships,
utilize the long-distance services provided by Performance Telecom.
The amount charged by Performance Telecom to PCM for those long-distance
services are not less favorable to PCM or more favorable to Performance Telecom
than those amounts which would be charged by unaffiliated parties in arms-length
transactions providing similar services in the same geographic location.
PCM's collection agents offer and promote the long-distance services of
Performance Telecom to the various debtors they contact, with the intent to
cause those debtors to use Performance Telecom as their long-distance service
provider. Those debtors which utilize Performance Telecom's long-distance
services are billed by Performance Telecom each month for (i) the cost of those
long-distance services and (ii) the amount that such debtor owes PCM and the
Partnerships for such month.
Performance Telecom collects the payment for both its long-distance
telephone services and the funds owed to PCM and the Partnership. Performance
Telecom then remits to PCM, for its own account and the Partnerships, those
funds collected by Performance Telecom for the benefit of PCM and the
Partnerships. Performance Telecom does not charge PCM for billing those debtors
and collecting the payments made for PCM and the Partnerships.
The Company anticipates that in the event the Merger is consummated, the
Company will enter into a similar relationship with Performance Telecom. PCM
anticipates that in the event the Merger is not consummated, its relationship
with Performance Telecom will continue.
The General Partner serves as the general partner of Performance Asset
Management Fund VI Ltd., A California Limited Partnership ("PAM VI"). PAM VI
commenced operations in April 1997 and General Partner anticipates that PAM VI
will raise $10 million through June 1998. Units in PAM VI are offered and sold
without registration required by the provisions of the Securities Act, pursuant
to an exemption from such registration provided by the provisions of Regulation
D promulgated pursuant to the provisions of the Securities Act. PAM VI will not
be a participant in the Merger; and, therefore, in the event the Merger is
consummated, PAM VI will continue to exist and the General Partner shall
continue to serve as its General Partner.
The Company anticipates that in the event the Merger is consummated, the
Company will provide portfolio acquisition, servicing and management services to
PAM VI on terms and conditions similar to those terms and conditions of the
servicing and collection relationships between PCM and the Partnerships.
In the event the Merger is consummated, Vision will not provide human
resources to the Company; but, rather, the Company shall hire as its employees
those Persons which have been providing human resources to PCM, the Partnerships
and the General Partner, as employees of Vision. It is anticipated by the
Company that in the event the Merger is consummated, those Persons may continue
to provide services to Affiliates of the General Partner and the Company;
provided, however, the Company shall not pay those Persons for those services;
but, rather, those Affiliates will pay those Persons for those services.
Wendy Galewick is the sister of Vincent E. Galewick. Vincent E. Galewick is
the (i) sole shareholder, sole director and President, Secretary and Chief
Financial Officer of the Solicitation Agent; (ii) sole shareholder, a director,
Chairman of the Board and Chief Executive Officer of the Company; (iii) sole
shareholder, sole director, President, Secretary and Treasurer of the General
Partner; and (iv) sole shareholder, a director, and President of PCM. Wendy
Galewick works for PCM as an office manager. The compensation Ms. Galewick
receives from PCM and the terms and conditions of her employment are not more
favorable to her than those terms and conditions which she could reasonably
obtain from equally qualified but unaffiliated employers. Additionally, in the
event the Merger is consummated, Ms. Galewick will be employed by the Company on
similar terms and conditions and for similar compensation.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DELINQUENT CONSUMER INDEBTEDNESS BUSINESS. The nonperforming or delinquent
segment of the consumer indebtedness industry, while relatively small as a
percentage of the $4.95 trillion total consumer indebtedness outstanding, has
now become a significant business opportunity. Several factors have contributed
to a recent increase in non-performing and charged-off consumer indebtedness.
Banks and non-bank finance companies redirected their commercial lending in the
early 1990's toward the consumer market.
The growth of this segment was certainly intensified by the low interest
rate environment and the mortgage refinance trend of the early 1990's, which
contributed to the temporary reduction of revolving indebtedness during this
time. In pursuit of greater market share and increased receivables, banks and
nonbank financial companies have been pursuing 2 methods for growth. Banks have
increased their preapproved mailings for credit card solicitations and increased
lending of all product types to subprime borrowers.
In 1995 there were about 2.7 billion credit card solicitations mailed to
consumers. Although response rates averaged a low 1.4%, this still resulted in
40 million new accounts. The average American now has 10 - 12 revolving charge
cards. As the balances on these cards increase and borrowers become
overleveraged, any problem in economic circumstances can cause default on the
resulting indebtedness.
The growth of the industry in lending to subprime borrowers has been
exponential, resulting in drastically lower prices and easier terms to
consumers, as more lenders compete for customers. The negative impact of the
easing of credit to this segment of the population is increased defaults, as
many of these borrowers become unable to pay their obligations.
Bad debt and chargeoffs are increasing. In addition to loan growth, credit
card issuers are experiencing the effect of adverse credit selection, as they
pursued portfolio growth.
The rate of credit losses has been masked by 3 factors, (i) rapid balance
growth which keeps chargeoff rates artificially low, (ii) sales of high-risk
portfolios by banks to nonbank financial institutions to avoid future
chargeoffs, and (iii) a significant increase in receivables generated by
convenience users now using their credit cards to earn frequent flier miles and
similar benefits.
The General Partner anticipates that loss rates will continue to increase
as new originations level off.
The accumulation of problem loans is causing lenders to consider
alternative methods for dealing with delinquent debt. Many have moved into the
secondary market to finance these loans. As was the case with the original
thrift industry crisis of the 1980s and the formation of the RTC in the early
1990s, a substantial secondary market has developed to purchase these loans as
lenders seek to reduce exposure to chargeoff loans, raise cash, and eliminate
costly collection operations.
The secondary market for charged-off loans began in 1983, with a sale by
Bank of America. The first auction of receivables was done in 1988. In the early
1990s, the RTC entered the market.
There was evidence of significant returns for early purchasers. This
attracted capital to the distressed-debt market, e.g., investors generally
associating with collection firms in joint ventures.
Supply from the RTC was plentiful for several years until the agency
dissolved in December 1995. Private distressed indebtedness is now being sold
both directly by credit originators and, also, through brokers.
Purchasers of nonperforming or charged-off consumer indebtedness fall into
3 general categories, (i) those who purchase and collect their own portfolios,
(ii) those who purchase and repackage to sell on a local or regional basis, and
(iii) those who purchase to securitize and service the indebtedness.
Of the $4.95 trillion of consumer indebtedness outstanding in 1995, there
was a chargeoff rate of about 2.97% -- or about $147 billion of chargeoffs -- as
estimated by the Federal Reserve. In the first quarter of 1996, there was
approximately $41.4 billion of distressed consumer indebtedness (delinquent 90
or more days) held by issuers. This does not include the several hundred of
billions of dollars previously charged off.
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The private sale of indebtedness developed significantly in the early
1990s. The first year that private sales topped the $1 billion mark was 1992.
The market doubled in 1993 and then again in 1994, when there were approximately
$4 billion in private sales.
1995 was a significant year in the secondary market for charged-off loans,
with more than $5 billion in advertised sales, plus numerous negotiated sales
and the final sales of the RTC. The fourth quarter of 1995 was marked by a
downward trend in pricing for these loans, because of the tremendous amount of
supply. Prices have now stabilized and even increased from mid-1995 amounts.
Although the market is more than 10 years old, in the opinion of the
Company, it is still inefficient, with the perceived values of portfolios still
quite varied. Determinants of the value of a portfolio include:
- The amount of time since chargeoff or last payment
- The historical cash received
- The size of portfolio and average account balance
- The location of borrowers and creditors
- The number of times the loan has been placed with collection agencies and
average settlement offered
- How the loan was originated and its original credit quality
- The type of debt
- The availability of documentation
- Provisions of the sale agreement, and the quality of data
The market also is affected by outsourcing (performance of services by
persons other than employees or similar agents). As banks aggressively reduce
their staffs, they are outsourcing many functions and the sale of chargeoffs is
consistent with this strategy. This could cause increased supply and the
availability of delinquent loans much earlier in the delinquency cycle.
The consolidation of the collection industry is another factor. In 1994
there were more than 4,000 collection agencies in the United States, many of
them small, family-owned businesses. There has been a significant amount of
merger and acquisition activity in the past 2 years, with the larger agencies
purchasing, both, smaller agencies and each other. The theory is that the larger
agencies can become more efficient, invest more in technology, and be lower cost
service providers to increase market share.
Those who have invested in advanced collection technology are able to
service more accounts with greater efficiency. This process is now under way and
expected to continue.
The secondary market for charged-off indebtedness, although quite recent,
has undergone major changes in the past few years. The Company anticipates that
this market will become more efficient and much larger in the next 4 to 5 years.
The bank consolidation and outsourcing trends should serve to increase
supply. The concurrent consolidation in the collection industry and the impact
of greater technology should provide certain entities with the opportunities to
establish themselves as market leaders.
Credit issuers may concentrate on loan generation and the active management
of early delinquencies. The secondary market may then be available to finance
nonperforming loans on a quick and efficient basis.
OVERVIEW. PCM and the Partnerships are engaged in the business of
purchasing discounted portfolios of distressed financial debt instruments and
obligations, and have completed acquisitions from institutions such as Chase
Manhattan Bank, Bank of America, Wells Fargo Bank, Chemical Bank, First USA, GE
Card Services, Household Bank, and the FDIC, among others. The portfolios
typically consist of unsecured consumer loans and credit card debt. In contrast
to many purchasers of charged-off debt portfolios, PCM, on its own behalf and on
behalf of the Partnerships, usually collects and services all of the portfolios
it acquires, rather than using traditional third-party servicing. The Company
will engage in the same business, but will
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analyze and purchase a wider range of portfolios, from portfolios which have
been previously placed with collection agencies to new accounts recently charged
off by the originating lender.
PCM'S OPERATIONS. PCM and the Partnerships have their primary operations in
Newport Beach, California. PCM is one of the largest purchasers of consumer
indebtedness in the industry. PCM currently manages, services and collects more
than $1.3 billion in face value of distressed indebtedness, and purchases
approximately $25 million in face value of additional indebtedness each month
from various financial institutions. PCM acquires indebtedness primarily for the
benefit of the Partnerships, and enters into servicing arrangements with the
Partnerships to participate in the proceeds from collection of that
indebtedness. PCM estimates that approximately 90% of all the work it performs
is for the benefit of the Partnerships.
ACQUISITION OF PORTFOLIOS. As specified above, PCM purchases portfolios
which consist primarily of charged-off credit card accounts and consumer loans,
such as auto loans and personal lines of credit originated by independent
third-party financial institutions located throughout the United States. The
Partnerships' investments in portfolios are carried at the lower of cost,
market, or estimated net realizable value. Amounts collected on the loans
acquired by the Partnerships are treated as a reduction to the carrying basis of
the related investment on an individual portfolio basis. Accordingly, income is
not recognized by the Partnerships until recovery of 100% of the carrying value
of the investment of the Partnerships on a portfolio by portfolio basis occurs.
Estimated net realizable value represents the estimate of the General Partner,
based upon the General Partner's experience, of the present value of future
collections. As a result of the distressed nature of the loans comprising the
portfolios, there is no assurance that the unpaid principal balances of those
loans will be collected. Any adjustments to the carrying value of the individual
portfolios are recorded in results of operations.
As of December 31, 1996, the Partnerships held portfolios consisting of the
following (amounts are "carrying amounts" consistent with GAAP):
PAM I held cash and equivalents (equivalents being all highly liquid
investments with a maturity of three months or less when purchase) of $283,232,
with $1,269,586 in net investments in distressed loan portfolios. PAM II held
cash and equivalents of $1,024,507 with $1,003,215 cash held in trust and
$1,371,176 in net investments in distressed loan portfolios. PAM III held cash
and equivalents of $775,755 with $2,656,338 cash held in trust and $2,566,546 in
net investments in distressed loan portfolios. PAM IV held cash and equivalents
of $2,121,545 with $5,834,268 cash held in trust and $9,091,186 in net
investments in distressed loan portfolios. PAM V held $1,731,112 in cash and
equivalents with $8,388 cash held in trust and $2,300,662 in net investments in
distressed loan portfolios.
The Company anticipates that the Company will continue PCM's current
business plan and structure. The Company anticipates entering into a revolving
borrowing facility with a third-party financial institution with an initial
borrowing capacity of $5 million to $25 million. Portfolio acquisitions by the
Company in 1998 may utilize a combination of available capital and borrowed
funds. The Company anticipates that its portfolio acquisitions will increase
monthly at a fixed rate of 2.5% beginning in 1999. The Company's anticipated
future growth is dependent upon the consummation of the Merger.
In the event the Merger is not consummated, the General Partner anticipates
that portfolio acquisitions by the Partnerships will occur uniformly based on
cash available to the Partnerships. Additionally, in such event, the General
Partner anticipates that the Partnerships will stop acquiring portfolios at
least 18 months prior to their respective termination dates, while collections
and portfolio account sales will continue until the termination of the
Partnerships.
SERVICING AND COLLECTIONS. Since its formation in February, 1993, PCM has
become a fully operational collection facility employing more than 75 full time
employees. PCM anticipates hiring additional collection personnel and plans to
employ up to 150 full time collection personnel by 1999; provided, however, no
assurance or guarantee can be given that the Company, in the even the Merger is
consummated, will employ that many full-time collection personnel by that date.
PCM is currently planning to consolidate its corporate offices with its
collection personnel in the same facilities to facilitate its long-term growth
plans. In that regard, PCM is currently engaged in discussions with
institutional lenders regarding PCM's obtaining its own credit
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line. PCM believes that PCM's access to commercial credit lines will improve
during the next two years. PCM recently completed a hardware and software
conversion that provides it with new computer technology and equipment that will
aid in the collection and servicing of the indebtedness. PCM utilizes
proprietary collection software and "predictive dialing" telecommunications
software which enables PCM's collection agents to dial as many as 50,000 calls
per day. This predictive dialing technology provides PCM's collection agents
with the ability to search PCM's entire database on an ongoing basis and also
allows for each collection agent to produce his or her own predictive dialing
campaign to contact those debtors scheduled for follow-up contact. This
technology also provides PCM with the ability to capture every call that comes
in to PCM. By capturing the phone number a debtor is calling from and attaching
it to his file, PCM has created additional information sources to reach the
debtor, such as his or her current place of employment. This also eliminates the
calls of collection agents to answering machines, wrong numbers, and
disconnected numbers. Once a debtor is contacted, the collection agent begins
negotiating various payment and settlement options. These options range from
payment in full for all outstanding obligations to discount settlements and from
short term payment plans to refinancing the old debt. Normally, because the cost
basis is extremely low for each account, collection agents can offer more
attractive settlement and payment options to individual debtors than those
debtors have been offered by the originating lender or contingent collection
firm.
In September, 1997, PCM installed a Northern Telecom Model 61C telephone
system. This system provides full-featured computer telephone integration
capability, automatic call distribution, automatic number identification, and
multiple office support, with growth capabilities which will support PCM's
planned expansion. PCM believes that this technology provides PCM with
significant technological advantages in its collection operations.
Servicing agreements between PCM and the Partnerships generally provide
that all proceeds generated from the collection of indebtedness shall be shared
generally 55% to 60% for the Partnerships and 40% to 45% for PCM. PCM is also
reimbursed by the Partnerships for certain costs associated with the collection
of indebtedness. Notwithstanding the foregoing face value of collection accounts
and portfolios, PCM typically purchases the accounts and portfolios at
significant discounts and the face value of any portfolio is not necessarily
indicative of its actual value.
EMPLOYEES. Neither PCM, the General Partner nor the Partnerships have any
employees. The human resources requirements of PCM, the General Partner and the
Partnerships are furnished by Vision. PCM, the General Partner and the
Partnerships, respectively, reimburse Vision for the fees and expenses of those
human resources. Fees and expenses paid by PCM, the General Partner and the
Partnerships, respectively, to Vision are not less favorable to PCM, the General
Partner and the Partnerships than those which would be paid by the Partnerships
and PCM to equally qualified but unaffiliated Persons in arms' length
transactions for similar services.
EXPANSION. The amount of distressed consumer loans has increased
significantly during the past two years, with credit card delinquencies and
charge-offs approaching levels experienced in the most recent recession. Banks
are increasingly selling nonperforming loans to third parties as an alternative
to servicing these loans themselves or managing the placement process. The
Company anticipates that growth in the delinquent consumer indebtedness industry
will continue. PCM, through Vision, has continued to increase the size of its
collection workforce. The Company anticipates adding a Corporate Collection
Manager to manage all collection supervisors beginning in January, 1998. The
Company also anticipates leasing additional offices to expand its collection
operations.
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RESULTS OF OPERATIONS
OVERVIEW. As specified below, neither PCM's overall financial conditions
nor the Partnerships' overall financial conditions as compared to December 31,
1996, have changed significantly. As of December 31, 1996, PCM had total assets
of $3,982,265 compared to total liabilities of $3,971,156. PAM I had total
assets of $1,622,033 compared to total liabilities of $504,379. PAM II had total
assets of $3,524,539 compared to total liabilities of $0.00. PAM III had total
assets of $6,120,078 compared to total liabilities of $493,515. PAM IV had total
assets of $17,291,452 compared to total liabilities of $356,927. PAM V had total
assets of $4,419,239 compared to total liabilities of $56,940.
PARTNERSHIP REVENUES. For the year ended December 31, 1996, the
Partnerships had net income and distributions consisting of the following:
PAM I had net income of $369,775 and distributions of $154,560. PAM II had
net income of $304,715 and distributions of $230,023. PAM III had net income of
$683,163 and distributions of $295,925. PAM IV had net loss of $732,166 and
distributions of $1,433,425. PAM V had net loss of $85,336 and distributions of
$179,100.
OTHER PARTNERSHIP INCOME. For the year ending December 31, 1996, each
Partnership earned the following additional income: PAM I earned $3,389 in
interest income and $755 in other income, for total additional income of $4,144.
PAM II earned $141,209 in interest income and $886 in other income for total
additional income of $142,095. PAM III earned $190,605 in interest income and no
other income. PAM IV earned $535,431 in interest income and $15,151 in other
income for total additional income of $550,582. PAM V earned $101,123 in
interest income and no other income.
PCM'S REVENUES. PCM's principal source of revenues consist of sales of
distressed portfolio assets, almost all of which have been sold to the
Partnerships. Portfolio sales decreased in 1995 by 52%, or $5,383,487. In 1995
PCM acquired and sold 17 portfolios for a total of $4,998,906 in sales proceeds,
as compared to 39 portfolios totaling $10,382,393 in sales proceeds for the
comparable period in 1994. This decrease in portfolio acquisition and sales
activity was caused by management's decision to focus the operational growth of
PCM in the collection and servicing areas. Accordingly, PCM experienced a
decrease in the percentage of total revenue attributed to portfolio sales to 68%
in 1995 from 87% in 1994. Revenue generated from PCM's collection and servicing
operations increased more than 49% or $769,973 during this same period and
contributed to 32% of total revenue in 1995 as compared to 13% for the
comparable period in 1994. Total revenues decreased 39% or $4,613,514 in 1995
from the comparable period in 1994.
Portfolio sales increased significantly in 1996, growing $7,050,321 or more
than 141% from the comparable period in 1995. This increase was primarily caused
by the acquisition of a large portfolio of credit card accounts from Chase
Manhattan Bank in August 1996 totalling approximately $638 million of original
principal balances. In addition, PCM acquired and sold 16 additional portfolios
during the year ended December 31, 1996, 15 of which were sold to the
Partnerships. PCM experienced a small increase in its percentage of total
revenue attributed to portfolio sales to 75% in 1996 from 68% in 1995. PCM also
continued to improve and increase revenues from its collection and servicing
activities in 1996. Revenue generated from collection and servicing activities
for the year ended December 31, 1996 increased $1,740,612 or almost 75% over the
comparable period in 1995. The continued increase in collection and servicing
revenues was due primarily to the refinements in PCM's servicing technology and
growth of PCM's collection staff, which grew from approximately 35 full time
collection representatives to 50 full time collection representatives by the end
of 1996. Revenue generated from collection and servicing activities decreased as
a percentage of total revenue to 25% in 1996 from 32% in 1995. For the year
ended December 31, 1996, PCM had portfolio sales of $12,049,227, collection
revenues of $3,458,403 and accrued portfolio servicing fees of $609,220. PCM had
interest income of $44,478 and a total net income of $97,724.
PARTNERSHIPS' OPERATING COSTS AND EXPENSES. For the year ended December 31,
1996, each Partnership incurred the following operating costs and expenses: PAM
I incurred collection expenses of $43,257; management fees expenses of $25,979;
professional fees of $96,527; amortization expenses of $665; and general and
administrative expenses of $6,369, for total operating expenses of $172,797. PAM
II incurred
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collection expenses of $67,854; management fees expenses of $75,464;
professional fees of $189,709; amortization expenses of $1,107; and general and
administrative expenses of $8,082, for total operating expenses of $342,216. PAM
III incurred collection expenses of $73,542; management fees expenses of
$51,425; professional fees of $254,453; amortization expenses of $1,155; and
general and administrative expenses of $11,782, for total operating expenses of
$392,357. PAM IV incurred collection expenses of $227,874; management fees
expenses of $221,422; professional fees of $959,297; amortization expenses of
$3,670; and general and administrative expenses of $20,832, for total operating
expenses of $1,433,095. PAM V incurred collection expenses of $72,423;
management fees expenses of $57,217; professional fees of $133,690; amortization
expenses of $1,034; and general and administrative expenses of $8,147, for total
operating expenses of $272,511.
MANAGEMENT AND OTHER FEES INCURRED BY THE PARTNERSHIPS. The General Partner
receives an annual and ongoing fee for management of the affairs of the
Partnerships from 2 to 3% of the net asset value of each Partnership's assets.
The net asset value of each Partnership's assets is defined as the total of (i)
the lower of the (a) market value, as determined by the General Partner on an
annual basis, or (b) cost to such Partnership of non-performing assets and (ii)
principal balances of performing assets. The management fee is earned by the
General Partner on an annual basis and has paid or accrued to the General
Partner pro rata.
Except for PAM IV, the General Partner has, and will continue to have, a
present and continuing 10% interest in each Partnership's allocations of net
income and loss, taxable income and loss, credits, deductions, and distributions
until the Limited Partners in such Partnership have received cash distributions
from such Partnership in an amount equal to 100% of their contributions to the
capital of such Partnership ("Capital Contributions"). Then the General Partner
shall receive 30% of those allocations. If the Limited Partners have received
cash distributions from such Partnership in an amount equal to 100% of their
Capital Contributions, the General Partner shall receive 30% of any
distributions upon liquidation of such Partnership. Otherwise, the General
Partner shall receive 10% of such distributions until the Limited Partners have
received cash distributions from such Partnership equal to 100% of their Capital
Contributions. The General Partner also has, and will continue to have, a
present and continuing 10% interest in allocations of net income and loss,
taxable income and loss, credits, and distributions of PAM IV, until the Limited
Partners in PAM IV have received cash contributions from PAM IV in an amount
equal (i) 100% of their Capital Contributions and (ii) an annual return equal to
6% of their unreturned Capital Contributions. Then the General Partner shall
receive 30% of those allocations. If the Limited Partners of PAM IV have
received cash distributions from PAM IV in an amount equal to (i) 100% of their
Capital Contributions and (ii) an annual return equal to 6% of their unreturned
Capital Contributions, the General Partner shall receive 30% of any
distributions upon liquidation of PAM IV. Otherwise the General Partner shall
receive 10% of such distributions until the Limited Partners of PAM IV have
received cash distributions from PAM IV equal to (i) 100% of their Capital
Contributions and (ii) 6% of their Capital Contributions. As of the date of this
Prospectus, none of the Limited Partners have received cash distributions from
any Partnership in an amount equal to 100% of their Capital Contributions.
Therefore, as of the date of this Prospectus, the General Partner is entitled to
receive 10% of the above allocations and distributions.
The General Partner and its Affiliates are reimbursed for reasonable and
necessary expenses paid or incurred by the General Partner and its Affiliates
regarding the operation of the Partnerships, including legal and accounting fees
and costs and fees of consultants, collection agencies, and other related
services.
PCM'S OPERATING COSTS AND EXPENSES. Significant operating expenses of PCM
include the costs of portfolios acquired, salaries and related expenses of
management and collections personnel, and professional and consulting expenses.
Costs of portfolios acquired include the costs of portfolios purchased from
third-party financial institutions. Salaries and related expenses include the
costs of human resource personnel provided by Vision. Professional and
consulting expenses include all legal, accounting and management consulting
expenses incurred from related and non-related entities.
Total operating expenses decreased by 40% or $4,911,611 in 1995 as compared
to the comparable period in 1994, and totalled approximately 100% of total
revenue in 1995 as compared to 103% for the comparable period in 1994. Costs of
portfolios acquired decreased $4,417,591 or 55% in 1995 as compared to 1994.
This
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decrease was due to the decrease in the number of portfolios acquired by PCM in
1995, which totalled 17 portfolios as compared to 39 portfolio acquisitions in
1994. However, the gross margin on the sale of portfolios increased in 1995 to
26.95% from 22.28% in 1994, which contributed to improvement in the results of
operations in 1995 from the comparable period in 1994. Costs of portfolios
acquired as a percentage of total revenue decreased to 50% in 1995 from 68% in
1994. Personnel and related expenses decreased 18% or $525,063 in 1995 as
compared to the similar period in 1994. This decrease in personnel expense
resulted from the reduction of PCM personnel outsourced in 1995 as compared to
1994. Personnel costs as a percentage of total revenue increased to 33% in 1995
from 24% in 1994. However, personnel costs as a percentage of collection and
servicing revenue decreased to 103% as compared to 188% in 1994. Professional
and consulting expenses did not increase significantly in 1995 as compared to
1994. However, these expenses did increase as a percentage of total revenue,
increasing to 9% of revenue as compared to 6% in 1994. All other expenses
remained relatively constant in 1995 as compared to the previous period in 1994.
Total operating expenses for PCM increased significantly in 1996,
increasing 119% to $16,050,418 in 1996 as compared to $7,344,522 in 1995, and
totalled approximately 99% of total revenue in 1996 as compared to 100% for the
comparable period in 1995. The total operating expenses for the year ended
December 31, 1996 were $8,725,019 in cost of portfolio sales; $3,473,232 in
personnel costs and related benefits costs; $2,920,523 in professional and
management fee expenses; and $482,657 in collection expenses, and $448,987 in
other general and administrative expense.
Costs of portfolios acquired increased $5,073,631 or 139% in 1996 as
compared to 1995. The increase was primarily attributed to the acquisition of a
large portfolio from Chase Manhattan Bank in August 1996 totalling $5,871,195.
PCM acquired 17 portfolios in each of 1995 and 1996. However, the gross margin
on the sale of portfolios increased to 27.58% in 1996 as compared to 26.95% in
1995, which contributed to the improvement in the results of operations in 1996
over 1995. This increase was the result of a portfolio sale to a third-party
purchaser in 1996 that resulted in a higher sale margin than customary portfolio
sales to the Partnerships. Costs of portfolios acquired as a percentage of total
revenues increased slightly to 54% of total revenue as compared to 50% in 1995.
Personnel expenses increased 45% or $1,070,094 in 1996 as compared to 1995.
This increase in personnel expenses was primarily attributed to the increased
number of collection agents utilized by PCM in 1996. The increase is also
attributed to the additional collection and servicing revenue generated in 1996
as compared to 1995 as a growing percentage of collection agent payroll is
commission-based. Personnel costs as a percentage of total revenue decreased to
22% of total revenue in 1996 as compared to 33% in 1995. In addition, personnel
costs as a percentage of collection and servicing revenue decreased to 85% as
compared to 103% of collection revenue in 1994. Professional and management
consulting fees increased 433% in 1996 to $2,920,523 from $673,545 in 1995. In
addition, professional fees increasing as a percentage of total revenue,
increased to 18% of revenue in 1996 as compared to 9% in 1995.
PCM'S LIQUIDITY AND CAPITAL RESOURCES. PCM's liquidity, including its
ability to access conventional credit sources, has significantly improved during
the last two years primarily due to (i) consistent management of cash, (ii)
implementation of effective cost cutting measures, (iii) successful portfolio
acquisition and collection efforts, and (iv) disposal of marginal or
non-producing loan portfolios. These changes should enable PCM to obtain capital
from traditional markets and credit from more conventional, and less costly,
sources.
Moreover, long and short term liquidity are expected to continue to improve
due to (i) PCM having entered into financing arrangements which will provide for
greater working and portfolio acquisition capital, and (ii) the generation of
new revenues from PAM VI.
As of June 30, 1997, PCM had assets totalling $2,915,500 of which
approximately 35% or $1,008,203 are cash and equivalent balances and 42% or
$1,237,079 are short-term receivables from the Partnerships and other
Affiliates.
PCM was initially funded through capital infusions from Vincent E.
Galewick, the founding shareholder. To date, PCM has funded all subsequent
operations through cash generated from operating activities of its
78
<PAGE> 96
business. PCM has remained profitable from operations since its formation and
management believes that it will continue to do so in the future periods, even
if the Merger Proposal is not approved.
In 1994 PCM generated cash receipts from operations of $377,726, financed
primarily from decreases in Affiliate receivables and payables, which were used
to acquire small portfolios of distressed debt obligations for its own account
and additional computer hardware and collection software to further enhance its
collection and servicing operations. Net cash increased $65,687 in 1994 to
$175,356 at December 31, 1994. In 1995 PCM generated cash receipts from
operations of $497,713, again, financed primarily from Affiliate payables, of
which approximately 28% was used to acquire additional operating equipment. Net
cash increased $240,918 in 1995 to $416,274 at December 31, 1995.
ANY FORWARD LOOKING STATEMENTS CONTAINED IN THIS PROSPECTUS HAVE BEEN
COMPILED ON THE BASIS OF ASSUMPTIONS MADE BY MANAGEMENT OF THE COMPANY AND
CONSIDERED TO BE REASONABLE. FUTURE OPERATING RESULTS OF THE COMPANY, HOWEVER,
ARE IMPOSSIBLE TO PREDICT AND NO REPRESENTATION OR WARRANTY REGARDING FUTURE
OPERATING RESULTS OF THE COMPANY IS TO BE INFERRED FROM ANY FORWARD LOOKING
STATEMENTS CONTAINED IN THIS PROSPECTUS.
79
<PAGE> 97
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
AND COMPARATIVE PER SHARE DATA
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Pro Forma Earnings to Fixed Charges...... N/A 1.19 N/A N/A N/A
------- ------- ------- ------- -------
Pro Forma Earnings Per Share............. $ .23 $ .00 $ (.09) $ .13 $ .05
------- ------- ------- ------- -------
</TABLE>
80
<PAGE> 98
PRO FORMA CONDENSED FINANCIAL INFORMATION
The following pro forma condensed financial information and explanatory
notes are presented to indicate the results of the Merger on the Company's
historical financial position and results of operations.
The Company and the Partnerships utilize GAAP. The accompanying unaudited
pro forma condensed financial information includes all adjustments which are, in
the opinion of the Company, necessary to present fairly the financial position
and results of operations for the periods presented.
The pro forma condensed financial information should be read and considered
in conjunction with the separate historical financial statements and notes
thereto of the Company included elsewhere herein.
81
<PAGE> 99
PERFORMANCE ASSET MANAGEMENT COMPANY
PRO FORMA FINANCIAL STATEMENTS
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
ADJUSTMENTS
AND
PCM PAM PAM II PAM III PAM IV PAM V ELIMINATIONS
---------- ---------- ---------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and equivalents............ $2,878,541 $ 283,232 $1,024,507 $ 775,755 $ 2,121,545 $ 1,731,112 $ 0
Cash held in trust.............. 0 0 1,003,215 2,656,338 5,834,268 8,388 0
Investments in distressed loan
portfolios, net............... 0 1,269,586 1,371,176 2,566,546 9,091,186 2,300,662 (8,450,762)
Receivable from West Capital.... 0 0 0 0 0 0 0
Due from affiliates............. 352,949 56,483 82,114 56,039 136,022 351,718 (623,120)
Loan to shareholder............. 0 0 0 0 0 0 0
Other assets.................... 47,580 12,732 42,942 64,477 104,977 24,873 0
Property and equipment, net..... 703,195 0 0 0 0 0 0
Organization costs, net......... 0 0 585 923 3,454 2,486 0
---------- ---------- ---------- ---------- ----------- ---------- -----------
Total Assets............ $3,982,265 $ 1,622,03 $3,524,539 $6,120,078 $17,291,452 $ 4,419,239 $(9,073,882)
========== ========== ========== ========== =========== ========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable................ 187,425 41,378 0 715 6,351 599 0
Due to affiliates............... 3,783,731 271,403 0 492,800 350,576 56,341 (644,209)
Note payable to affiliate....... 0 191,598 0 0 0 0 0
Deposits in escrow for investor
subscriptions................. 0 0 0 0 0 0 0
---------- ---------- ---------- ---------- ----------- ---------- -----------
Total liabilities....... 3,971,156 504,379 0 493,515 356,927 56,940 (644,209)
General partner's capital....... 0 (339,676) (304,726) (289,959) (748,842) (72,218) 125,272
Limited partners' capital....... 0 1,457,330 3,829,265 5,916,522 17,683,367 4,434,517 1,127,428
Common stock.................... 100 0 0 0 0 0 0
Retained earnings............... 11,009 0 0 0 0 0 (9,682,373)
---------- ---------- ---------- ---------- ----------- ---------- -----------
Total partners' capital
(shareholder's
equity)............... 11,109 1,117,654 3,524,539 5,626,563 16,934,525 4,362,299 (8,429,673)
---------- ---------- ---------- ---------- ----------- ---------- -----------
Total liabilities and
capital (equity)...... $3,982,265 $1,622,033 $3,524,539 $6,120,078 $17,291,239 $ 4,419,239 $(9,073,882)
========== ========== ========== ========== =========== ========== ===========
<CAPTION>
PRO FORMA
ADDITIONAL COMBINED PRO FORMA ADJUSTED
ADJUSTMENTS BALANCES RECLASSES BALANCES
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash and equivalents............ $ 8,814,692 $12,083,501 $20,898,193
Cash held in trust.............. 0 9,502,209 0 9,502,209
Investments in distressed loan
portfolios, net............... 8,148,394 5,424,819 13,573,213
Receivable from West Capital.... 0 0 0 0
Due from affiliates............. 3,445,271 3,857,476 1,298,378 5,155,854
Loan to shareholder............. 0 0 0 0
Other assets.................... 0 297,581 0 297,581
Property and equipment, net..... 0 703,195 0 703,195
Organization costs, net......... 7,448 (7,448) 0
---------- ----------- ----------- -----------
Total Assets............ $3,445,271 $31,330,995 $18,799,250 $50,130,245
========== =========== =========== ===========
Accounts payable................ 0 236,468 0 236,468
Due to affiliates............... 3,445,271 7,755,913 (7,755,913) 0
Note payable to affiliate....... 0 191,598 0 191,598
Deposits in escrow for investor
subscriptions................. 0 0 0 0
---------- ----------- ----------- -----------
Total liabilities....... 3,445,271 8,183,979 (7,755,913) 428,066
General partner's capital....... (1,630,149) 1,630,149 0
Limited partners' capital....... 34,448,429 (34,448,429) 0
Common stock.................... 100 47,954,649 47,954,749
Retained earnings............... (9,671,364) 11,418,794 1,747,430
---------- ----------- ----------- -----------
Total partners' capital
(shareholder's
equity)............... 0 23,147,016 26,555,163 49,702,179
---------- ----------- ----------- -----------
Total liabilities and
capital (equity)...... $3,445,271 $31,330,995 $18,799,250 $50,130,245
========== =========== =========== ===========
</TABLE>
82
<PAGE> 100
PERFORMANCE ASSET MANAGEMENT COMPANY
PRO FORMA FINANCIAL STATEMENTS
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
ADJUSTMENTS
AND
PCM PAM PAM II PAM III PAM IV PAM V ELIMINATIONS
----------- ---------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Portfolio sales.............. $12,049,227 $ 0 $ 0 $ 0 $ 0 $ 0 $(2,716,622)
Collection revenue........... 3,485,808 0 0 0 0 0 0
Servicing fees............... 609,220 0 0 0 0 0 441,693
Portfolio collections........ 0 1,290,544 1,707,090 4,725,191 5,235,693 1,202,048 0
Less: portfolio basis
recovery................. (27,405) (752,116) (1,202,254) (3,840,276) (5,085,346) (1,115,996) (737,367)
------------ ----------- ------------ ------------ ------------ ------------ ------------
Net investment
income............. 16,116,850 538,428 504,836 884,915 150,347 86,052 (3,895,682)
Cost of portfolio sales...... 8,725,019 0 0 0 0 0 0
Personnel and related
benefits................... 3,473,232 0 0 0 0 0 0
Professional and management
fees....................... 2,920,523 0 0 0 0 0
Collection expense........... 482,657 43,257 67,854 73,542 227,874 72,423 (441,693)
Management fee expense....... 0 25,979 75,464 51,425 221,422 57,217 0
Professional fees............ 0 96,527 189,709 254,453 959,297 133,690
Provision for portfolio
losses..................... 0 0 0 0 0 0 0
Amortization................. 0 665 1,107 1,155 3,670 1,034 0
G & A expense................ 448,987 6,369 8,082 11,782 20,832 8,147 (4,000)
------------ ----------- ------------ ------------ ------------ ------------ ------------
Total operating
expenses........... 16,050,418 172,797 342,216 392,357 1,433,095 272,511 (445,693)
------------ ----------- ------------ ------------ ------------ ------------ ------------
Income from
operations......... 66,432 365,631 162,620 492,558 (1,282,748) (186,459) (3,449,989)
Interest income (expense),
net........................ 44,478 3,389 141,209 190,605 535,431 101,123 0
Other income................. 0 755 886 0 15,151 0 0
------------ ----------- ------------ ------------ ------------ ------------ ------------
Income before provision for
income taxes............... 110,910 369,775 304,715 683,163 (732,166) (85,336) (3,449,989)
Provision for income taxes... 13,186 0 0 0 0 0 4,000
------------ ----------- ------------ ------------ ------------ ------------ ------------
Net income................... $ 97,724 $ 369,775 $ 304,715 $ 683,164 $ (732,166) $ (85,336) $(3,453,989)
============ =========== ============ ============ ============ ============ ============
<CAPTION>
PRO FORMA
ADDITIONAL COMBINED PRO FORMA ADJUSTED
ADJUSTMENTS BALANCES RECLASSES BALANCES
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Portfolio sales.............. $(8,725,019) $ 607,586 $ 0 $ 607,586
Collection revenue........... 2,418,095 5,903,903 0 5,903,903
Servicing fees............... 0 167,527 0 167,527
Portfolio collections........ (14,160,566) 0 0 0
Less: portfolio basis
recovery................. 11,742,471 (1,018,289) 1,018,289 0
------------ ------------ ------------ -----------
Net investment
income............. (8,725,019) 5,660,727 1,018,289 6,679,016
Cost of portfolio sales...... (8,725,019) 0 0 0
Personnel and related
benefits................... 3,473,232 (1,246,873) 2,226,359
Professional and management
fees....................... 1,537,149 4,500,929 (2,851,712) 1,649,217
Collection expense........... 0 508,636 0 508,636
Management fee expense....... 502,055 (502,055) 0
Professional fees............ (1,537,149) 0 0 0
Provision for portfolio
losses..................... 0 0 0 0
Amortization................. 7,631 (7,631) 0
G & A expense................ 0 500,199 0 500,199
------------ ------------ ------------ -----------
Total operating
expenses........... (8,725,019) 9,492,682 (4,608,271) 4,884,411
------------ ------------ ------------ -----------
Income from
operations......... 0 (3,831,955) 5,626,560 1,794,605
Interest income (expense),
net........................ 0 1,016,235 0 1,016,235
Other income................. 0 16,792 0 16,792
------------ ------------ ------------ -----------
Income before provision for
income taxes............... 0 (2,798,928) 5,626,560 2,827,632
Provision for income taxes... 17,186 1,114,000 1,131,186
------------ ------------ ------------ -----------
Net income................... $ 0 $(2,816,114) $ 4,512,560 $1,696,446
============ ============ ============ ===========
</TABLE>
83
<PAGE> 101
PERFORMANCE ASSET MANAGEMENT COMPANY
PRO FORMA FINANCIAL STATEMENTS
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PCM PAM PAM II PAM III PAM IV
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income......................................... $ 97,724 $ 369,775 $ 304,715 $ 683,163 $ (732,166)
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization..................................... 0 665 1,107 1,155 3,670
Depreciation..................................... 150,813 0 0 0 0
Gain on repurchase of ltd ptrshp units........... 0 0 0 0 0
Provision for portfolio losses................... 0 0 0 0 0
Decrease (increase) in assets:
Due from affiliates.............................. 5,234 (56,483) 117,268 (56,039) 544,709
Other assets..................................... 89,781 31,507 72,425 101,338 114,176
Increase (decrease) in liabilities:
Due to affiliates................................ 2,558,294 49,214 0 59,858 342,326
Accounts payable................................. 5,056 35,252 (1,743) (1,808) (38,872)
---------- ----------- ----------- ----------- -----------
Net cash provided by operating activities........ 2,906,902 429,930 493,772 787,667 233,843
---------- ----------- ----------- ----------- -----------
Cash flows provided by (used in) investing
activities:
Purchase of property and equipment................. (472,040) 0 0 0 0
Organization costs................................. 0 0 0 0 0
Recovery of portfolio basis........................ 27,405 752,116 1,202,254 3,840,276 5,085,346
Receivable from West Capital....................... 0 559,730 778,565 927,540 1,937,718
Cash held in trust................................. 0 4,221 168,654 (1,893,699) 412,939
Purchase of investments in dist loan ports......... 0 (1,315,611) (1,502,705) (2,764,469) (4,474,765)
---------- ----------- ----------- ----------- -----------
Net cash provided by investing activities........ (444,635) 456 646,768 109,648 2,961,238
---------- ----------- ----------- ----------- -----------
Cash flows provided by (used in) financing
activities:
Increase in payable to affiliate................... 0 14,684 0 0 0
Distributions to partners.......................... 0 (172,133) (255,833) (331,700) (1,592,759)
Redemption of partnership units.................... 0 (5,000) (5,000) 0 (40,000)
Contributions from limited partners................ 0 0 0 0
Deposits in escrow for investor subscriptions...... 0 0 0 0
Payments for offering expenses..................... 0 0 0 0
Loans to shareholder............................... 0 0 0 0
---------- ----------- ----------- ----------- -----------
Net cash used in financing activities............ 0 (162,449) (260,833) (331,700) (1,632,759)
---------- ----------- ----------- ----------- -----------
Net (decrease) increase in cash..................... 2,462,267 267,937 879,707 565,615 1,562,322
Cash at beginning of period......................... 416,274 15,295 144,800 210,140 559,223
---------- ----------- ----------- ----------- -----------
Cash at end of period............................... $2,878,541 $ 283,232 $ 1,024,507 $ 775,755 $ 2,121,545
========== =========== =========== =========== ===========
<CAPTION>
ADJUSTMENTS
AND ADDITIONAL COMBINED PRO FORMA
PAM V ELIMINATIONS ADJUSTMENTS BALANCES RECLASSES
----------- ------------ ----------- ----------- -----------
<S> <C>
Cash flows from operating activities:
Net income......................................... $ (85,336) $ (3,453,989) $(2,816,114) $ 4,512,560
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization..................................... 1,034 0 7,631 (7,631)
Depreciation..................................... 0 0 0 150,813 0
Gain on repurchase of ltd ptrshp units........... 0 0 0 0 0
Provision for portfolio losses................... 0 0 0 0 0
Decrease (increase) in assets:
Due from affiliates.............................. 272,529 0 827,218 (502,055)
Other assets..................................... 11,860 0 0 421,087 0
Increase (decrease) in liabilities:
Due to affiliates................................ 54,691 0 3,064,383 (4,356,953)
Accounts payable................................. (1,999) 0 (4,114) 0
--
----------- ----------- ----------- -----------
Net cash provided by operating activities........ 252,779 (3,453,989) 0 1,650,904 (354,079)
--
----------- ----------- ----------- -----------
Cash flows provided by (used in) investing
activities:
Purchase of property and equipment................. 0 0 0 (472,040) 0
Organization costs................................. 0 0 0 0 0
Recovery of portfolio basis........................ 1,115,996 737,367 12,760,760 (1,018,289)
Receivable from West Capital....................... 1,014,882 0 0 5,218,435 0
Cash held in trust................................. 1,005,813 0 0 (302,072) 0
Purchase of investments in dist loan ports......... (1,645,090) 2,716,622 0 (8,986,018) 0
--
----------- ----------- ----------- -----------
Net cash provided by investing activities........ 1,491,601 3,453,989 0 8,219,065 (1,018,289)
--
----------- ----------- ----------- -----------
Cash flows provided by (used in) financing
activities:
Increase in payable to affiliate................... 0 0 0 14,684 0
Distributions to partners.......................... (199,066) 0 (2,551,491) 2,551,491
Redemption of partnership units.................... (30,000) 0 (80,000) 80,000
Contributions from limited partners................ 0 0 0 0 0
Deposits in escrow for investor subscriptions...... 0 0 0 0 0
Payments for offering expenses..................... 0 0 0 0 0
Loans to shareholder............................... 0 0 0 0 0
--
----------- ----------- ----------- -----------
Net cash used in financing activities............ (229,066) 0 0 (2,616,807) 2,631,491
--
----------- ----------- ----------- -----------
Net (decrease) increase in cash..................... 1,515,314 0 0 7,253,162 1,259,123
Cash at beginning of period......................... 215,798 0 0 1,561,530 10,824,378
--
----------- ----------- ----------- -----------
Cash at end of period............................... $ 1,731,112 $ 0 $ 0 $ 8,814,692 $12,083,501
=========== =========== == =========== ===========
<CAPTION>
PRO FORMA
ADJUSTED
BALANCES
-----------
Cash flows from operating activities:
Net income......................................... $ 1,696,446
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization..................................... 0
Depreciation..................................... 150,813
Gain on repurchase of ltd ptrshp units........... 0
Provision for portfolio losses................... 0
Decrease (increase) in assets:
Due from affiliates.............................. 325,163
Other assets..................................... 421,087
Increase (decrease) in liabilities:
Due to affiliates................................ (1,292,570)
Accounts payable................................. (4,114)
-----------
Net cash provided by operating activities........ 1,296,825
-----------
Cash flows provided by (used in) investing
activities:
Purchase of property and equipment................. (472,040)
Organization costs................................. 0
Recovery of portfolio basis........................ 11,742,471
Receivable from West Capital....................... 5,218,435
Cash held in trust................................. (302,072)
Purchase of investments in dist loan ports......... (8,986,018)
-----------
Net cash provided by investing activities........ 7,200,776
-----------
Cash flows provided by (used in) financing
activities:
Increase in payable to affiliate................... 14,684
Distributions to partners.......................... 0
Redemption of partnership units.................... 0
Contributions from limited partners................ 0
Deposits in escrow for investor subscriptions...... 0
Payments for offering expenses..................... 0
Loans to shareholder............................... 0
-----------
Net cash used in financing activities............ 14,684
-----------
Net (decrease) increase in cash..................... 8,512,285
Cash at beginning of period......................... 12,385,908
-----------
Cash at end of period............................... $20,898,193
===========
</TABLE>
84
<PAGE> 102
PERFORMANCE ASSET MANAGEMENT COMPANY
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Performance Asset Management Company, a Delaware corporation ("Company"),
was formed on May 7, 1996. Performance Capital Management, Inc., a California
corporation ("PCM"), formed in January 1992 for the purpose of identifying,
analyzing, negotiating, acquiring, and servicing investments in distressed loan
portfolios. Vincent E. Galewick owns all of the issued and outstanding $.001 par
value common stock of the Company. Mr. Galewick and Michael Cushing own all of
the issued and outstanding no par common stock of PCM; provided, however, Mr.
Galewick is the principal and controlling shareholder of PCM.
Performance Development, Inc., a California corporation ("General
Partner"), is the General Partner of Performance Asset Management Fund, Ltd., a
California Limited Partnership ("PAM"); Performance Asset Management Fund II,
Ltd., a California Limited Partnership ("PAM II"); Performance Asset Management
Fund III, Ltd., a California Limited Partnership ("PAM III"); Performance Asset
Management Fund IV, Ltd., a California Limited Partnership ("PAM IV"); and
Performance Asset Management Fund V, Ltd., a California Limited Partnership
("PAM V") ("PAM Funds"). Mr. Galewick owns all of the issued and outstanding no
par common stock of the General Partner.
The General Partner is proposing a consolidation by merger of PCM with PAM,
PAM II, PAM III, PAM IV and PAM V into the Company ("Merger"). The PAM Funds are
each California limited partnerships formed and created to acquire, service and
collect investments in distressed consumer debts. Upon the completion of the
Merger, the Company will continue to acquire, service and collect investments in
distressed consumer debts and intends to use leveraged financing to acquire
additional investments.
Upon Merger, the General Partner and the limited partners ("Partners") will
receive shares of common stock in the Company in return for their partnership
interests in the PAM Funds. The Merger will be accounted for similar to a
pooling of interests and, therefore, no adjustment to the historical carrying
amount of assets and liabilities will be made.
Historical information for the PAM Funds and PCM as of and for the year
ended December 31, 1996 is based on audited financial statements which are
included elsewhere herein. The unaudited pro forma balance sheet and statement
of operations have been prepared assuming 100% partnership participation.
The unaudited pro forma balance sheet as of December 31, 1996, has been
prepared as if the transactions contemplated by the Merger had occurred on
December 31, 1996, and the accompanying unaudited pro forma statement of
operations and cash flows for the year ended December 31, 1996 have been
prepared as if the Merger had occurred on January 1, 1996.
The unaudited pro forma financial statements have been prepared by making
certain adjustments (Note 2) to the historical financial information of PCM and
the PAM Funds. The pro forma information presented is not indicative of the
result that would have occurred had the Merger occurred and the Company operated
as a single entity during the period presented, or of the future operations of
the PAM Funds.
2. PRO FORMA ADJUSTMENTS
The pro forma balance sheet includes the following adjustments and
reclassifications:
(a) Elimination of unamortized organization costs at December 31,
1996.
(b) The reallocation of partnership losses to capital of the Company.
(c) Reallocation of partnership capital for the exchange of
partnership units for shares of common stock of the Company.
The pro forma statements of operations and cash flows include the following
adjustments and reclassifications:
85
<PAGE> 103
PERFORMANCE ASSET MANAGEMENT COMPANY, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(1) Utilization of the variable amortization method for revenue
recognition and accounting for investments in distressed loan portfolios.
The PAM Funds have historically accounted for investments in distressed
loan portfolios using the cost recovery method.
(2) Upon Merger, the Company will terminate its human resource
service contract with an affiliate company. Under the present agreement,
PCM is charged a fee of 150% of current contracted services. In addition,
an estimate of 60% of current contracted services has been provided for in
the financial statements for anticipated management and overhead expenses.
(3) Upon Merger, the Company will terminate its present contractual
agreement with an affiliate which provides the affiliate with a fee upon
acquisition of investments in distressed loan portfolios from certain
third-party financial institutions. The fee is up to approximately 36% of
the underlying portfolio cost.
(4) The elimination of partnership management fees and charges. (See
Item (2)).
(5) Elimination of amortization of PAM Fund organization costs.
(6) Corporate taxes at an estimated blended rate for federal and
state tax purposes of 40% have been provided.
(7) Elimination of cash distributions to Partners.
(8) Elimination of redemption of partnership units to limited
partners.
86
<PAGE> 104
PERFORMANCE ASSET MANAGEMENT COMPANY
PRO FORMA FINANCIAL STATEMENTS
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1995
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
ADJUSTMENTS
AND
PCM PAM PAM II PAM III PAM IV PAM V ELIMINATIONS
---------- ---------- ---------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and equivalents............. $ 416,274 $ 15,295 $ 144,800 $ 210,140 $ 559,223 $ 215,798 $
Cash held in trust............... 0 4,221 1,171,869 762,639 6,247,207 1,014,201
Investments in distressed loan
portfolios, net................ 27,405 706,091 1,070,725 3,642,353 9,701,767 1,771,568 (4,996,773)
Receivable from West Capital..... 0 559,730 778,565 927,540 1,937,718 1,014,882 0
Due from affiliates.............. 358,183 0 201,632 0 680,731 624,247 (936,938)
Loan to shareholder.............. 0 0 0 0 0 0 0
Other assets..................... 137,361 44,239 115,367 165,815 219,153 36,733 0
Property and equipment, net...... 381,968 0 0 0 0 0 0
Organization costs, net.......... 0 665 1,692 2,078 7,124 3,520 0
---------- ---------- ---------- ---------- ----------- ---------- -----------
Total Assets............. $1,321,191 $1,330,241 $3,484,650 $5,710,565 $19,352,923 $4,680,949 $(5,933,711)
========= ========= ========= ========= ========== ========= ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable................. $ 182,369 $ 6,126 $ 1,743 $ 2,523 $ 45,223 $ 2,598 $
Due to affiliates................ 1,225,437 222,189 2,250 432,942 8,250 1,650 (958,027)
Note payable to affiliate........ 0 176,914 0 0 0 0 0
Deposits in escrow for investor
subscriptions.................. 0 0 0 0 0 0 0
---------- ---------- ---------- ---------- ----------- ---------- -----------
Total liabilities........ 1,407,806 405,229 3,993 435,465 53,473 4,248 (958,027)
General partner's capital........ 0 (359,171) (309,388) (322,499) (516,291) (43,718) 179,286
Limited partners' capital........ 0 1,284,183 3,790,045 5,597,599 19,815,741 4,720,419 1,613,565
Common stock..................... 100 0 0 0 0 0 0
Retained earnings................ (86,715) 0 0 0 0 0 (6,768,535)
---------- ---------- ---------- ---------- ----------- ---------- -----------
Total partners' capital
(shareholder's
equity)................ (86,615) 925,012 3,480,657 5,275,100 19,299,450 4,676,701 (4,975,684)
---------- ---------- ---------- ---------- ----------- ---------- -----------
Total liabilities and
capital (equity)....... $1,321,191 $1,330,241 $3,484,650 $5,710,565 $19,352,923 $4,680,949 $(5,933,711)
========= ========= ========= ========= ========== ========= ==========
<CAPTION>
PRO FORMA
ADDITIONAL COMBINED PRO FORMA ADJUSTED
ADJUSTMENTS BALANCES RECLASSES BALANCES
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash and equivalents............. $ $ 1,561,530 $10,824,378 $12,385,908
Cash held in trust............... 9,200,137 0 9,200,137
Investments in distressed loan
portfolios, net................ 11,923,136 4,406,530 16,329,666
Receivable from West Capital..... 5,218,435 0 5,218,435
Due from affiliates.............. 2,464,269 3,392,124 796,323 4,188,447
Loan to shareholder.............. 0 0 0 0
Other assets..................... 0 718,668 0 718,668
Property and equipment, net...... 0 381,968 0 381,968
Organization costs, net.......... 15,079 (15,079) 0
---------- ----------- ----------- -----------
Total Assets............. $2,464,269 $32,411,077 $16,012,152 $48,423,229
========= ========== ========== ==========
Accounts payable................. $ $ 240,582 $ $ 240,582
Due to affiliates................ 2,464,269 3,398,960 (3,398,960) 0
Note payable to affiliate........ 0 176,914 176,914
Deposits in escrow for investor
subscriptions.................. 0 0 0
---------- ----------- ----------- -----------
Total liabilities........ 2,464,269 3,816,456 (3,398,960) 417,496
General partner's capital........ (1,371,781) 1,371,781 0
Limited partners' capital........ 36,821,552 (36,821,552) 0
Common stock..................... 100 47,954,649 47,954,749
Retained earnings................ (6,855,250) 6,906,234 50,984
---------- ----------- ----------- -----------
0
Total partners' capital
(shareholder's
equity)................ 0 28,594,621 19,411,112 48,005,733
---------- ----------- ----------- -----------
Total liabilities and
capital (equity)....... $2,464,269 $32,411,077 $16,012,152 $48,423,229
========= ========== ========== ==========
</TABLE>
87
<PAGE> 105
PERFORMANCE ASSET MANAGEMENT COMPANY
PRO FORMA FINANCIAL STATEMENTS
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1995
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
ADJUSTMENTS
AND
PCM PAM PAM II PAM III PAM IV PAM V ELIMINATIONS
---------- --------- ---------- ----------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Portfolio sales.......... $4,998,906 $ 0 $ 0 $ 0 $ 0 $ 0 $ (1,347,518)
Collection revenue....... 1,395,550 0 0 0 0 0 0
Servicing fees........... 946,734 0 0 0 0 0 (306,607)
Portfolio collections.... 0 290,328 1,022,494 1,337,920 4,041,724 483,439
Less: portfolio basis
recovery............... (15,273) (109,531) (388,307) (1,132,402) (3,674,197) (483,439) (1,087,062)
---------- --------- ---------- ----------- ---------- --------- -----------
Net investment
income............. 7,325,917 180,797 634,187 205,518 367,527 0 (2,741,187)
Cost of portfolio
sales.................. 3,651,388 0 0 0 0 0 0
Personnel and related
benefits............... 2,403,138 0 0 0 0 0 0
Professional and
management fees........ 673,545 0 0 0 0 0 0
Collection expense....... 285,026 365 12,336 7,716 225,318 64,375 (306,607)
Management fee expense... 0 23,096 68,385 92,447 214,677 39,146 0
Professional fees........ 0 7,233 180,540 208,877 514,773 103,202 0
Provision for portfolio
losses................. 0 0 0 0 109,000 26,000 (135,000)
Amortization............. 0 798 1,107 1,157 3,669 1,031 0
G & A expense............ 331,425 2,947 3,345 3,183 21,532 2,629 (158)
---------- --------- ---------- ----------- ---------- --------- -----------
Total operating
expenses........... 7,344,522 34,439 265,713 313,380 1,088,969 236,383 (441,765)
---------- --------- ---------- ----------- ---------- --------- -----------
Income from
operations......... (18,605) 146,358 368,474 (107,862) (721,442) (236,383) (2,299,422)
Interest income
(expense), net......... 25,685 (13,294) 16,792 14,283 109,670 32,864 0
Other income............. 0 0 0 1,735 1,800 46 0
---------- --------- ---------- ----------- ---------- --------- -----------
Income before
provision for
income taxes....... 7,080 133,064 385,266 (91,844) (609,972) (203,473) (2,299,422)
Provision for income
taxes.................. 800 0 0 0 0 0 225
---------- --------- ---------- ----------- ---------- --------- -----------
Net income........... $ 6,280 $ 133,064 $ 385,266 $ (91,844) $ (609,972) $(203,473) $ (2,299,647)
========== ========= ========== =========== ========== ========= ===========
<CAPTION>
PRO FORMA
ADDITIONAL COMBINED PRO FORMA ADJUSTED
ADJUSTMENTS BALANCES RECLASSES BALANCES
----------- ----------- ----------- ----------
<S> <C<C> <C> <C> <C>
Portfolio sales.......... $(3,651,388) $ 0 $ $
Collection revenue....... 1,035,852 2,431,402 646,670 3,078,072
Servicing fees........... 640,127 640,127
Portfolio collections.... (7,175,905) 0
Less: portfolio basis
recovery............... 6,140,053 (750,158) 750,158
----------- ----------- ----------- ----------
Net investment
income............. (3,651,388) 2,321,371 1,396,828 3,718,199
Cost of portfolio
sales.................. (3,651,388) 0 $ 0 0
Personnel and related
benefits............... 2,403,138 $ (835,561) 1,567,577
Professional and
management fees........ 1,014,625 1,688,170 $ 0 1,688,170
Collection expense....... 0 288,529 $ 0 288,529
Management fee expense... 437,751 $ 437,751 (437,751)
Professional fees........ (1,014,625) 0 $ 0
Provision for portfolio
losses................. 0 0 $ 0
Amortization............. $ 7,762 (7,762)
G & A expense............ 364,903 (3,951) 360,952
----------- ----------- ----------- ----------
Total operating
expenses........... (3,651,388) 5,190,253 (1,285,025) 3,905,228
----------- ----------- ----------- ----------
Income from
operations......... 0 (2,868,882) 2,681,853 (187,029)
Interest income
(expense), net......... 0 186,000 0 186,000
Other income............. 0 3,581 0 3,581
----------- ----------- ----------- ----------
Income before
provision for
income taxes....... 0 (2,679,301) 2,681,853 2,552
Provision for income
taxes.................. 0 1,025 0 1,025
----------- ----------- ----------- ----------
Net income........... $ 0 $(2,680,326) $ 2,681,853 $ 1,527
=========== =========== =========== ==========
</TABLE>
88
<PAGE> 106
PERFORMANCE ASSET MANAGEMENT COMPANY
PRO FORMA FINANCIAL STATEMENT
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1995
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PCM PAM PAM II PAM III PAM IV PAM V
--------- --------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income........................................... $ 6,280 $ 133,064 $ 385,266 $ (91,844) $ (609,972) $ (203,473)
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization....................................... 0 798 1,107 1,157 3,669 1,031
Depreciation....................................... 81,454 0 0 0 0 0
Gain on repurchase of ltd ptrshp units............. 0 0 0 0 0 0
Provision for portfolio losses..................... 0 0 0 0 109,000 26,000
Decrease (increase) in assets:....................... 0 0 0 0 0 0
Due from affiliates................................ (382,072) 0 288,289 0 (304,681) (492,785)
Other assets....................................... 40,586 (44,239) (35,298) (64,236) (200,728) 23,234
Increase (decrease) in liabilities:
Due to affiliates.................................. 763,783 45,969 0 62,333 (501,507) (232,378)
Accounts payable................................... (12,318) (29,123) (537) (842) 25,296 1,798
-------- -------- ---------- -------- ----------- ----------
Net cash provided by operating activities.......... 497,713 106,469 638,827 (93,432) (1,478,923) (876,573)
-------- -------- ---------- -------- ----------- ----------
Cash flows provided by (used in) investing activities:
Purchase of property and equipment................... (138,610) 0 0 0 0 0
Organization costs................................... 0 0 0 0 0 (49)
Recovery of portfolio basis.......................... 15,273 109,531 388,307 1,132,402 3,674,197 483,439
Receivable from West Capital......................... 0 0 0 0 0 0
Cash held in trust................................... 0 (4,221) (1,171,869) (762,639) (6,247,207) (1,014,201)
Purchase of investments in dist loan ports........... 0 (5,463) (114,183) (366,122) (4,215,633) (1,911,199)
-------- -------- ---------- -------- ----------- ----------
Net cash provided by investing activities.......... (123,337) 99,847 (897,745) 3,641 (6,788,643) (2,442,010)
-------- -------- ---------- -------- ----------- ----------
Cash flows provided by (used in) financing activities:
Increase in payable to affiliate..................... 0 18,914 0 0 0 0
Distributions to partners............................ 0 (233,422) (344,389) (441,528) (1,719,383) (97,836)
Redemption of partnership units...................... 0 0 0 (10,000) 0 0
Contributions from limited partners.................. 0 0 0 0 5,803,524 3,025,000
Deposits in escrow for investor subscriptions........ 0 0 0 0 (260,000) (160,000)
Payments for offering expenses....................... 0 0 0 0 0 (453,700)
Loans to shareholder................................. (133,458) 0 0 0 0 0
-------- -------- ---------- -------- ----------- ----------
Net cash used in financing activities.............. (133,458) (214,508) (344,389) (451,528) 3,824,141 2,313,464
-------- -------- ---------- -------- ----------- ----------
Net (decrease) increase in cash....................... 240,918 (8,192) (603,307) (541,319) (4,443,425) (1,005,119)
Cash at beginning of period........................... 175,356 23,487 748,107 751,459 5,002,648 1,220,917
-------- -------- ---------- -------- ----------- ----------
Cash at end of period................................. $ 416,274 $ 15,295 $ 144,800 $ 210,140 $ 559,223 $ 215,798
======== ======== ========== ======== =========== ==========
<CAPTION>
ADJUSTMENTS PRO FORMA
AND ADDITIONAL COMBINED PRO FORMA ADJUSTED
ELIMINATIONS ADJUSTMENTS BALANCES RECLASSES BALANCES
----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income........................................... $(2,299,647)* $ 0 $(2,680,326) $ 2,681,853 $ 1,527
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization....................................... 0 0 7,762 (7,762) 0
Depreciation....................................... 0 0 81,454 0 81,454
Gain on repurchase of ltd ptrshp units............. 0 0 0 0 0
Provision for portfolio losses..................... (135,000) 0 0 0 0
Decrease (increase) in assets:....................... 0 0 0 0 0
Due from affiliates................................ 0 0 (891,249) (437,751) (1,329,000)
Other assets....................................... 0 0 (280,681) 0 (280,681)
Increase (decrease) in liabilities:
Due to affiliates.................................. 0 0 138,200 (1,117,394) (979,194)
Accounts payable................................... 0 0 (15,726) 0 (15,726)
----------- -------- ----------- ---------- ------------
Net cash provided by operating activities.......... (2,434,647) 0 (3,640,566) 1,118,946 (2,521,620)
----------- -------- ----------- ---------- ------------
Cash flows provided by (used in) investing activities:
Purchase of property and equipment................... 0 0 (138,610) 0 (138,610)
Organization costs................................... 0 0 (49) 49 0
Recovery of portfolio basis.......................... 1,087,062 0 0 6,890,211 (1,396,828)
Receivable from West Capital......................... 0 0 0 0 0
Cash held in trust................................... 0 0 (9,200,137) 0 (9,200,137)
Purchase of investments in dist loan ports........... 1,347,518 0 (5,265,082) 0 (5,265,082)
----------- -------- ----------- ---------- ------------
Net cash provided by investing activities.......... 2,434,580 0 (7,713,667) (1,396,779) (9,110,446)
----------- -------- ----------- ---------- ------------
Cash flows provided by (used in) financing activities:
Increase in payable to affiliate..................... 0 0 18,914 0 18,914
Distributions to partners............................ 0 0 (2,836,558) 2,836,558 0
Redemption of partnership units...................... 0 0 (10,000) 10,000 0
Contributions from limited partners.................. 0 (420,000) 8,408,524 0 8,408,524
Deposits in escrow for investor subscriptions........ 0 420,000 0 0 0
Payments for offering expenses....................... 0 0 (453,700) 0 (453,700)
Loans to shareholder................................. 0 0 (133,458) 0 (133,458)
----------- -------- ----------- ---------- ------------
Net cash used in financing activities.............. 0 0 4,993,722 2,846,558 7,840,280
----------- -------- ----------- ---------- ------------
Net (decrease) increase in cash....................... (67)* 0 (6,360,511) 2,568,725 (3,791,786)
Cash at beginning of period........................... 0 0 7,921,974 8,255,653 16,177,627
----------- -------- ----------- ---------- ------------
Cash at end of period................................. $ (67) $ 0 $ 1,561,463 $10,824,378 $12,385,841
=========== ======== =========== ========== ============
</TABLE>
89
<PAGE> 107
PERFORMANCE ASSET MANAGEMENT COMPANY
PRO FORMA FINANCIAL STATEMENTS
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1994
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
ADJUSTMENTS
AND
PCM PAM PAM II PAM III PAM IV PAM V ELIMINATIONS
-------- ---------- ---------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and equivalents.............. $175,356 $ 23,487 $ 748,107 $ 751,459 $ 5,002,648 $1,220,917 $ 0
Cash held in trust................ 0 0 0 0 0 0 0
Investments in distressed loan
portfolios, net................. 42,678 810,159 1,920,842 4,408,633 9,269,331 437,971 (2,697,193)
Receivable from West Capital...... 0 559,730 778,565 927,540 1,937,718 1,014,882 0
Due from affiliates............... 101 0 12,876 0 376,050 100,032 (467,970)
Loan to shareholder............... 96,620 0 0 0 0 0 0
Other assets...................... 177,947 0 80,069 101,579 18,425 23,234 0
Property and equipment, net....... 324,812 0 0 0 0 0 0
Organization costs, net........... 0 1,463 2,799 3,235 10,793 4,502 0
-------- ---------- ---------- ---------- ----------- ---------- -----------
Total Assets.............. $817,514 $1,394,839 $3,543,258 $6,192,446 $16,614,965 $2,801,538 $(3,165,163)
======== ========= ========= ========= ========== ========= ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable.................. $194,687 $ 35,249 $ 2,280 $ 3,365 $ 19,927 $ 800 $ 0
Due to affiliates................. 619,867 176,220 101,198 370,609 509,757 234,028 (489,059)
Note payable to affiliate......... 95,855 158,000 0 0 0 0 0
Deposits in escrow for investor
subscriptions................... 0 0 0 0 260,000 160,000 0
-------- ---------- ---------- ---------- ----------- ---------- -----------
Total liabilities......... 910,409 369,469 103,478 373,974 789,684 394,828 (489,059)
General partner's capital......... 0 (349,055) (313,476) (271,487) (282,936) (13,585) 140,591
Limited partners' capital......... 0 1,374,425 3,753,256 6,089,959 16,108,217 2,420,295 1,265,301
Common stock...................... 100 0 0 0 0 0 0
Retained earnings................. (92,995) 0 0 0 0 0 (4,081,996)
-------- ---------- ---------- ---------- ----------- ---------- -----------
Total partners' capital
(shareholder's
equity)................. (92,895) 1,025,370 3,439,780 5,818,472 15,825,281 2,406,710 (2,676,104)
-------- ---------- ---------- ---------- ----------- ---------- -----------
Total liabilities and
capital (equity)........ $817,514 $1,394,839 $3,543,258 $6,192,446 $16,614,965 $2,801,538 $(3,165,163)
======== ========= ========= ========= ========== ========= ==========
<CAPTION>
PRO FORMA
ADDITIONAL COMBINED PRO FORMA ADJUSTED
ADJUSTMENTS BALANCES ADJUSTMENTS BALANCES
--------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Cash and equivalents.............. $ $ 7,921,974 $ 8,255,653 $16,177,627
Cash held in trust................ 0 0 0
Investments in distressed loan
portfolios, net................. 14,192,421 3,009,702 17,202,123
Receivable from West Capital...... 5,218,435 0 5,218,435
Due from affiliates............... (379,661) (358,572) 358,572 0
Loan to shareholder............... 0 96,620 0 96,620
Other assets...................... 0 401,254 0 401,254
Property and equipment, net....... 0 324,812 0 324,812
Organization costs, net........... 0 22,792 (22,792) 0
--------- ----------- ------------ -----------
Total Assets.............. $(379,661) 27,819,736 $ 11,601,135 $39,420,871
========= ========== =========== ==========
Accounts payable.................. $ 0 $ 256,308 $ 0 $ 256,308
Due to affiliates................. (379,661) 1,142,959 (2,281,566) (1,138,607)
Note payable to affiliate......... 0 253,855 0 253,855
Deposits in escrow for investor
subscriptions................... 0 420,000 (420,000) 0
--------- ----------- ------------ -----------
Total liabilities......... (379,661) 2,073,122 (2,701,566) (628,444)
General partner's capital......... 0 (1,089,948) 1,089,948 0
Limited partners' capital......... 0 31,011,453 (31,011,453) 0
Common stock...................... 0 100 39,999,758 39,999,858
Retained earnings................. 0 (4,174,991) 4,224,448 49,457
--------- ----------- ------------ -----------
Total partners' capital
(shareholder's
equity)................. 0 25,746,614 14,302,701 40,049,315
--------- ----------- ------------ -----------
Total liabilities and
capital (equity)........ $(379,661) $27,819,736 $ 11,601,135 $39,420,871
========= ========== =========== ==========
</TABLE>
90
<PAGE> 108
PAMCO
PRO FORMA FINANCIAL STATEMENTS
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1994
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
ADJUSTMENTS
AND
PCM PAM PAM II PAM III PAM IV PAM V ELIMINATIONS
------------ -------- ---------- ----------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Portfolio sales................... $10,382,393 $ 0 $ 0 $ 0 $ 0 $ 0 $ (1,941,105)
Collection revenue................ 1,069,113 0 0 0 0 0 (607,781)
Servicing fees.................... 517,089 0 0 0 0 0 (514,363)
Portfolio collections............. 0 735,412 1,507,295 1,870,385 2,078,150 38,117 $ 0
Less: portfolio basis recovery.... (29,164) (530,204) (1,048,403) (1,854,725) (2,066,592) (38,117) 0
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net investment income......... 11,939,431 205,208 458,892 15,660 11,558 0 (3,063,249)
Cost of portfolio sales........... 8,068,979 0 0 0 0 0 0
Personnel and related benefits.... 2,928,201 0 0 0 0 0 0
Professional and management
fees............................ 682,154 0 0 0 0 0 0
Collection expense................ 280,136 0 27,191 12,076 525,073 59,052 (514,363)
Management fee expense............ 0 17,584 70,022 121,205 144,633 5,128 0
Professional fees................. 0 0 5,957 6,856 60,949 8,691 0
Provision for portfolio losses.... 0 0 0 0 405,000 54,000 (459,000)
Amortization...................... 0 798 1,107 1,157 3,605 617 0
G & A expense..................... 296,663 3,159 7,412 6,990 6,321 2,072 (4,000)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total operating
expenses................ 12,256,133 21,541 111,689 148,284 1,145,581 129,560 (977,363)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income from operations.... (316,702) 183,667 347,203 (132,624) (1,134,023) (129,560) (2,085,886)
Interest income (expense), net.... 725 (13,095) 22,912 9,437 96,928 9,542 0
Other income...................... 0 0 9,250 900 900 0 0
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before provision for
income taxes................ (315,977) 170,572 379,365 (122,287) (1,036,195) (120,018) (2,085,886)
Provision for income taxes........ 800 0 0 0 0 0 4,000
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income................ $ (316,777) $170,572 $ 379,365 $ (122,287) $(1,036,195) $ (120,018) $ (2,089,886)
========== ========== ========== ========== ========== ========== ==========
<CAPTION>
PRO FORMA
ADDITIONAL COMBINED PRO FORMA ADJUSTED
ADJUSTMENTS BALANCES RECLASSES BALANCES
----------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Portfolio sales................... $(8,068,979) $ 372,309 $ 0 $ 372,309
Collection revenue................ $ 877,878 1,339,210 906,385 2,245,595
Servicing fees.................... $ 0 2,726 0 2,726
Portfolio collections............. (6,229,359) 0 0 0
Less: portfolio basis recovery.... 5,351,481 (215,724) 215,724 0
---------- ---------- ---------- ----------
Net investment income......... (8,068,979) 1,498,521 1,122,109 2,620,630
Cost of portfolio sales........... (8,068,979) 0 0 0
Personnel and related benefits.... 2,928,201 (1,009,910) 1,918,291
Professional and management
fees............................ 82,453 764,607 0 764,607
Collection expense................ 0 389,165 0 389,165
Management fee expense............ 358,572 (358,572) 0
Professional fees................. (82,453) 0 0 0
Provision for portfolio losses.... 0 0 0 0
Amortization...................... (7,284) 0 0 0
G & A expense..................... 7,284 325,901 (2,165) 323,736
---------- ---------- ---------- ----------
Total operating
expenses................ (8,068,979) 4,766,446 (1,370,647) 3,395,799
---------- ---------- ---------- ----------
Income from operations.... 0 (3,267,925) 2,492,756 (775,169)
Interest income (expense), net.... 0 126,449 0 126,449
Other income...................... 11,050 (9,250) 1,800
---------- ---------- ---------- ----------
Income before provision for
income taxes................ 0 (3,130,426) 2,483,506 (646,920)
Provision for income taxes........ 0 4,800 0 4,800
---------- ---------- ---------- ----------
Net income................ $ 0 $(3,135,226) $2,483,506 $(651,720)
========== ========== ========== ==========
</TABLE>
91
<PAGE> 109
PERFORMANCE ASSET MANAGEMENT COMPANY
PRO FORMA FINANCIAL STATEMENTS
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1994
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PCM PAM PAM II PAM III PAM IV
--------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................................. $(316,777) $ 170,572 $ 379,365 $ (122,287) $(1,036,195)
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization............................................. 0 798 1,107 1,157 3,605
Depreciation............................................. 50,559 0 0 0 0
Gain on repurchase of ltd ptrshp units................... 0 0 (9,250) 0 0
Provision for portfolio losses........................... 0 0 0 0 405,000
Decrease (increase) in assets:............................. 0 0 0 0
Due from affiliates...................................... 526,530 111,857 76,912 8,695 (361,735)
Other assets............................................. (148,921) 121,268 238,071 (17,991) (18,425)
Increase (decrease) in liabilities:........................ 0 0 0 0 0
Due to affiliates........................................ 150,927 109,959 12,509 269,438 509,757
Accounts payable......................................... 115,408 23,531 (12,664) (7,304) 14,127
--------- --------- ----------- ----------- -----------
Net cash provided by operating activities............ 377,726 537,985 686,050 131,708 (483,866)
--------- --------- ----------- ----------- -----------
Cash flows provided by (used in) investing activities:
Purchase of property and equipment......................... (168,596) 0 0 0 0
Organization costs......................................... 0 0 0 0 0
Recovery of portfolio basis................................ 29,164 530,204 1,048,403 1,854,725 2,066,592
Receivable from West Capital............................... 0 (280,128) (401,259) (25,103) (1,937,718)
Cash held in trust......................................... 0 0 0 0 0
Purchase of investments in dist loan ports................. (71,842) (67,088) (854,139) (214,445) (9,804,990)
--------- --------- ----------- ----------- -----------
Net cash provided by investing activities............ (211,274) 182,988 (206,995) 1,615,177 (9,676,116)
Cash flows provided by (used in) financing activities:
Increase in payable to affiliate........................... (4,145) 158,000 0 0 0
Distributions to partners.................................. 0 (875,000) (1,271,778) (1,484,583) (1,704,784)
Redemption of partnership units............................ 0 0 (50,750) 0 0
Contributions from investors............................... 0 0 0 0 14,274,931
Deposits in escrow for investor subscriptions.............. 0 0 0 0 (32,500)
Payments for offering expenses............................. 0 0 0 0 0
Loans to shareholder....................................... (96,620) 0 0 0 0
--------- --------- ----------- ----------- -----------
Net cash used in financing activities................ (100,765) (717,000) (1,322,528) (1,484,583) 12,537,647
--------- --------- ----------- ----------- -----------
Net (decrease) increase in cash............................. 65,687 3,973 (843,473) 262,302 2,377,665
Cash at beginning of period................................. 109,669 19,514 1,591,580 489,157 2,624,983
--------- --------- ----------- ----------- -----------
Cash at end of period....................................... $ 175,356 $ 23,487 $ 748,107 $ 751,459 $ 5,002,648
========= ========= =========== =========== ===========
<CAPTION>
ADJUSTMENTS
AND ADDITIONAL COMBINED PRO FORMA
PAM V ELIMINATIONS ADJUSTMENTS BALANCES RECLASSES
----------- ----------- --------- ----------- -----------
<S> <C>
Cash flows from operating activities:
Net income................................................. $ (120,018) $(2,089,886)* $ 0 $(3,135,226) $ 2,483,506
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization............................................. 617 0 7,284 (7,284)
Depreciation............................................. 0 0 50,559 0
Gain on repurchase of ltd ptrshp units................... 0 0 0 (9,250) 9,250
Provision for portfolio losses........................... 54,000 (459,000) 0 0
Decrease (increase) in assets:............................. 0 0 0
Due from affiliates...................................... (90,389) 0 271,870 (358,572)
Other assets............................................. (23,234) 0 150,768 0
Increase (decrease) in liabilities:........................ 0 0
Due to affiliates........................................ 234,028 0 1,286,618 (1,549,075)
Accounts payable......................................... 800 0 0 133,898 0
----------- ----------- ---------- ----------- -----------
Net cash provided by operating activities............ 55,804 (2,548,886) 0 (1,243,479) 577,825
----------- ----------- ---------- ----------- -----------
Cash flows provided by (used in) investing activities:
Purchase of property and equipment......................... 0 0 0 (168,596) 0
Organization costs......................................... (5,119) 0 (5,119) 5,119
Recovery of portfolio basis................................ 38,117 607,781 6,174,986 (1,122,109)
Receivable from West Capital............................... (1,014,882) 0 0 (3,659,090) 0
Cash held in trust......................................... 0 0 0 0 0
Purchase of investments in dist loan ports................. (539,731) 1,941,105 0 (9,611,130) 0
----------- ----------- ---------- ----------- -----------
Net cash provided by investing activities............ (1,521,615) 2,548,886 0 (7,268,949) (1,116,990)
Cash flows provided by (used in) financing activities:
Increase in payable to affiliate........................... 0 0 0 153,855 0
Distributions to partners.................................. (15,833) 0 (5,351,978) 5,351,978
Redemption of partnership units............................ 0 0 (50,750) 50,750
Contributions from investors............................... 2,975,000 0 127,500 17,377,431 0
Deposits in escrow for investor subscriptions.............. 160,000 0 (127,500) 0 0
Payments for offering expenses............................. (432,439) 0 0 (432,439) 0
Loans to shareholder....................................... 0 0 0 (96,620) 0
----------- ----------- ---------- ----------- -----------
Net cash used in financing activities................ 2,686,728 0 0 11,599,499 5,402,728
----------- ----------- ---------- ----------- -----------
Net (decrease) increase in cash............................. 1,220,917 0 0 3,087,071 4,863,563
Cash at beginning of period................................. 0 0 4,834,903 3,392,090
----------- ----------- ---------- ----------- -----------
Cash at end of period....................................... $ 1,220,917 $ 0 $ 0 $ 7,921,974 $ 8,255,653
=========== =========== ========== =========== ===========
<CAPTION>
PRO FORMA
ADJUSTED
BALANCES
-----------
Cash flows from operating activities:
Net income................................................. $ (651,720)
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization............................................. 0
Depreciation............................................. 50,559
Gain on repurchase of ltd ptrshp units................... 0
Provision for portfolio losses........................... 0
Decrease (increase) in assets:............................. 0
Due from affiliates...................................... (86,702)
Other assets............................................. 150,768
Increase (decrease) in liabilities:........................ 0
Due to affiliates........................................ (262,457)
Accounts payable......................................... 133,898
-----------
Net cash provided by operating activities............ (665,654)
-----------
Cash flows provided by (used in) investing activities:
Purchase of property and equipment......................... (168,596)
Organization costs......................................... 0
Recovery of portfolio basis................................ 5,052,877
Receivable from West Capital............................... (3,659,090)
Cash held in trust......................................... 0
Purchase of investments in dist loan ports................. (9,611,130)
-----------
Net cash provided by investing activities............ (8,385,939)
Cash flows provided by (used in) financing activities:
Increase in payable to affiliate........................... 153,855
Distributions to partners.................................. 0
Redemption of partnership units............................ 0
Contributions from investors............................... 17,377,431
Deposits in escrow for investor subscriptions.............. 0
Payments for offering expenses............................. (432,439)
Loans to shareholder....................................... (96,620)
-----------
Net cash used in financing activities................ 17,002,227
-----------
Net (decrease) increase in cash............................. 7,950,634
Cash at beginning of period................................. 8,226,993
-----------
Cash at end of period....................................... $16,177,627
===========
</TABLE>
92
<PAGE> 110
PERFORMANCE ASSET MANAGEMENT COMPANY
PRO FORMA FINANCIAL STATEMENTS
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1993
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
ADJUSTMENTS
AND
PCM PAM PAM II PAM III PAM IV PAM V ELIMINATIONS
-------- ---------- ---------- ---------- ---------- ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and equivalents.................... $109,669 $ 19,514 $1,591,580 $ 489,157 $2,624,983 $0 $ 0
Cash held in trust...................... 0 0 0 0 0 0 0
Investments in distressed loan
portfolios, net....................... 0 1,273,275 2,115,107 6,048,913 1,935,931 0 (607,307)
Receivable from West Capital............ 0 279,602 93,617 902,437 0 0 0
Due from affiliates..................... 526,631 158,919 89,788 8,695 14,315 0 $ 21,089
Loan to shareholder..................... 0 0 0 0 0 0 0
Other assets............................ 29,026 121,268 601,828 83,588 0 0 0
Property and equipment, net............. 206,775 0 0 0 0 0 0
Organization costs, net................. 0 2,261 3,906 4,392 14,398 0 0
-------- ---------- ---------- ---------- ---------- -- ---------
Total Assets.................... $872,101 $1,854,839 $4,495,826 $7,537,182 $4,589,627 $0 $ (586,218)
======== ========== ========== ========== ========== == =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable........................ $ 79,279 $ 58,780 $ 14,944 $ 10,669 $ 5,800 0 0
Due to affiliates....................... 468,940 66,261 88,689 101,171 0 0 0
Note payable to affiliate............... 100,000 0 0 0 0 0 0
Deposits in escrow for investor
subscriptions......................... 0 0 0 0 292,500 0 0
-------- ---------- ---------- ---------- ---------- -- ---------
Total liabilities............... 648,219 125,041 103,633 111,840 298,300 0 0
General partner's capital............... 0 (278,612) (224,234) (110,875) (4,795) 0 66,134
Limited partners' capital............... 0 2,008,410 4,616,427 7,536,217 4,296,122 0 595,196
Common stock............................ 100 0 0 0 0 0 0
Retained earnings....................... 223,782 0 0 0 0 0 (1,247,548)
-------- ---------- ---------- ---------- ---------- -- ---------
Total partners' capital
(shareholder's equity)........ 223,882 1,729,798 4,392,193 7,425,342 4,291,327 0 (586,218)
-------- ---------- ---------- ---------- ---------- -- ---------
Total liabilities and capital
(equity)...................... $872,101 $1,854,839 $4,495,826 $7,537,182 $4,589,627 $0 $ (586,218)
======== ========== ========== ========== ========== == =========
<CAPTION>
PRO FORMA
ADDITIONAL COMBINED PRO FORMA ADJUSTED
ADJUSTMENTS BALANCES RECLASSES BALANCES
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash and equivalents.................... $ 4,834,903 $ 3,392,090 $ 8,226,993
Cash held in trust...................... 0 0 0
Investments in distressed loan
portfolios, net....................... 10,765,919 1,887,593 12,653,512
Receivable from West Capital............ 1,275,656 0 1,275,656
Due from affiliates..................... 7,430 826,867 0 826,867
Loan to shareholder..................... 0 0 0
Other assets............................ 835,710 0 835,710
Property and equipment, net............. 206,775 0 206,775
Organization costs, net................. 24,957 (24,957) 0
------ ----------- ----------- -----------
Total Assets.................... $ 7,430 $18,770,787 $ 5,254,726 $24,025,513
====== =========== =========== ===========
Accounts payable........................ 0 $ 169,472 0 $ 169,472
Due to affiliates....................... $ 7,430 732,491 ($ 732,491) 0
Note payable to affiliate............... 100,000 0 100,000
Deposits in escrow for investor
subscriptions......................... 292,500 (292,500) 0
------ ----------- ----------- -----------
Total liabilities............... 7,430 1,294,463 (1,024,991) 269,472
General partner's capital............... (552,382) 552,382 0
Limited partners' capital............... 19,052,372 (19,052,372) 0
Common stock............................ 100 23,054,765 23,054,865
Retained earnings....................... 0 (1,023,766) 1,724,942 701,176
------ ----------- ----------- -----------
Total partners' capital
(shareholder's equity)........ 0 17,476,324 6,279,717 23,756,041
------ ----------- ----------- -----------
Total liabilities and capital
(equity)...................... $ 7,430 $18,770,787 $ 5,254,726 $24,025,513
====== =========== =========== ===========
</TABLE>
93
<PAGE> 111
PERFORMANCE ASSET MANAGEMENT COMPANY
PRO FORMA FINANCIAL STATEMENTS
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1993
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
ADJUSTMENTS
AND
PCM PAM PAM II PAM III PAM IV PAM V ELIMINATIONS
---------- ----------- ----------- ---------- --------- ----- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Portfolio sales......................... $2,101,225 $ 0 $ 0 $ 0 $ 0 $ 0 $ (720,178)
Collection revenue...................... 323,569 0 0 0 0 0 0
Servicing fees.......................... 0 0 0 0 0 0 0
Portfolio collections................... 0 1,281,431 1,992,701 932,049 214,718 0 0
Less: portfolio basis recovery.......... 0 (1,139,182) (1,992,201) (932,049) (214,718) 0 (48,297)
---------- ----------- ----------- ------------ --------- -- ---------
Net investment income........... 2,424,794 142,249 500 0 0 0 (768,475)
---------- ----------- ----------- ------------ --------- -- ---------
Cost of portfolio sales................. 1,375,163 0 0 0 0 0 0
Personnel and related benefits.......... 626,377 0 0 0 0 0 0
Professional and management fees........ 32,663 0 0 0 0 0 0
Collection expense...................... 67,148 38,315 7,685 14,431 0 0 0
Management fee expense.................. 0 36,792 100,847 156,421 20,746 0 0
Professional fees....................... 0 13,368 13,528 16,126 0 0 0
Provision for portfolio losses.......... 0 0 0 0 0 0 0
Amortization............................ 0 798 1,107 1,144 20,827 0 0
G & A expense........................... 99,525 2,801 3,529 41,096 16,722 0 (3,200)
---------- ----------- ----------- ------------ --------- -- ---------
Total operating expenses........ 2,200,876 92,074 126,696 229,218 58,295 0 (3,200)
---------- ----------- ----------- ------------ --------- -- ---------
Income from operations.......... 223,918 50,175 (126,196) (229,218) (58,295) 0 (765,275)
Interest income (expense), net.......... 664 3,987 53,006 44,162 10,348 0 0
Other income............................ 0 2,000 10,111 5,250 0 0 0
---------- ----------- ----------- ------------ --------- -- ---------
Income before provision for
income taxes.................. 224,582 56,162 (63,079) (179,806) (47,947) 0 (765,275)
Provision for income taxes.............. 800 0 0 0 0 0 0
---------- ----------- ----------- ------------ --------- -- ---------
Net income...................... $ 223,782 $ 56,162 $ (63,079) $ (179,806) $ (47,947) $ 0 $ (765,275)
========== =========== =========== ============ ========= == =========
<CAPTION>
PRO FORMA
ADDITIONAL COMBINED PRO FORMA ADJUSTED
ADJUSTMENTS BALANCES RECLASSES BALANCES
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Portfolio sales......................... $(1,375,163) $ 5,884 $ 0 $ 5,884
Collection revenue...................... 94,452 418,021 1,887,593 2,305,614
Servicing fees.......................... 0 0 0
Portfolio collections................... (4,420,899) 0 0 0
Less: portfolio basis recovery.......... 4,326,447 0 0 0
----------- ---------- ---------- ----------
Net investment income........... (1,375,163) 423,905 1,887,593 2,311,498
----------- ---------- ---------- ----------
Cost of portfolio sales................. (1,375,163) 0 0 0
Personnel and related benefits.......... 626,377 0 626,377
Professional and management fees........ 43,022 75,685 0 75,685
Collection expense...................... 127,579 0 127,579
Management fee expense.................. 314,806 (314,806) 0
Professional fees....................... (43,022) 0 0 0
Provision for portfolio losses.......... 0 0 0
Amortization............................ (23,876) 0 0 0
G & A expense........................... 23,876 184,349 24,957 209,306
----------- ---------- ---------- ----------
Total operating expenses........ (1,375,163) 1,328,796 (289,849) 1,038,947
----------- ---------- ---------- ----------
Income from operations.......... 0 (904,891) 2,177,442 1,272,551
Interest income (expense), net.......... 112,167 0 112,167
Other income............................ 17,361 0 17,361
----------- ---------- ---------- ----------
Income before provision for
income taxes.................. (775,363) 2,177,442 1,402,079
Provision for income taxes.............. 800 452,500 453,300
----------- ---------- ---------- ----------
Net income...................... $ 0 $ (776,163) $1,724,942 $ 948,779
=========== ========== ========== ==========
</TABLE>
94
<PAGE> 112
PERFORMANCE ASSET MANAGEMENT COMPANY
PRO FORMA FINANCIAL STATEMENTS
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1993
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PCM PAM PAM II PAM III PAM IV
--------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................................... $ 223,782 $ 56,162 $ (63,079) $ (179,806) $ (47,947)
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization........................................... 0 798 1,107 1,144 20,827
Depreciation........................................... 14,615 0 0 0 0
Gain on repurchase of ltd ptrshp units................. 0 0 0 0 0
Provision for portfolio losses......................... 0 0 0 0 0
Decrease (increase) in assets:........................... 0 0 0 0 0
Due from affiliates.................................... (526,531) 138,261 (89,788) 182,863 (14,315)
Other assets........................................... (29,026) (8,496) (518,829) (83,588) (102,351)
Increase (decrease) in liabilities:...................... 0 0 0 0 0
Due to affiliates...................................... 468,940 66,261 2,569 101,171 0
Accounts payable....................................... 79,279 (245,961) 14,944 10,669 5,800
--------- ----------- ----------- ----------- -----------
Net cash provided by operating activities............ 231,059 7,025 (653,076) 32,453 (137,986)
--------- ----------- ----------- ----------- -----------
Cash flows provided by (used in) investing activities:
Purchase of property and equipment....................... (221,390) 0 0 0 0
Organization costs....................................... 0 0 0 (400) 0
Recovery of portfolio basis.............................. 0 1,139,182 1,992,201 932,049 214,718
Receivable from West Capital............................. 0 (113,097) 0 (902,437) 0
Cash held in trust....................................... 0 0 0 0 0
Purchase of investments in dist loan ports............... 0 (53,322) (354,485) (6,367,675) (2,150,649)
--------- ----------- ----------- ----------- -----------
Net cash provided by investing activities............ (221,390) 972,763 1,637,716 (6,338,463) (1,935,931)
--------- ----------- ----------- ----------- -----------
Cash flows provided by (used in) financing activities:
Increase in payable to affiliate......................... 100,000 0 0 0 0
Distributions to partners................................ 0 (1,400,000) (1,853,083) (923,767) (40,425)
Redemption of partnership units.......................... 0 (10,000) (35,000) 0 0
Contributions from limited partners...................... 0 0 0 6,680,777 4,446,825
Deposits in escrow for investor subscriptions............ 0 0 0 (322,000) 292,500
Payments for offering expenses........................... 0 0 0 0 0
Loans to shareholder..................................... 0 0 0 0 0
--------- ----------- ----------- ----------- -----------
Net cash used in financing activities................ 100,000 (1,410,000) (1,888,083) 5,435,010 4,698,900
--------- ----------- ----------- ----------- -----------
Net (decrease) increase in cash........................... 109,669 (430,212) (903,443) (871,000) 2,624,983
Cash at beginning of period............................... 0 449,726 2,495,023 1,360,157 0
--------- ----------- ----------- ----------- -----------
Cash at end of period..................................... $ 109,669 $ 19,514 $ 1,591,580 $ 489,157 $ 2,624,983
========= =========== =========== =========== ===========
<CAPTION>
ADJUSTMENTS
AND ADDITIONAL COMBINED PRO FORMA
PAM V ELIMINATIONS ADJUSTMENTS BALANCES RECLASSES
----- ----------- ----------- ----------- -----------
<S> <C>
Cash flows from operating activities:
Net income............................................... $0 $(768,475) $ $ (779,363) $ 1,728,142
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization........................................... 0 0 23,876 (23,876)
Depreciation........................................... 0 0 14,615 0
Gain on repurchase of ltd ptrshp units................. 0 0 0 0
Provision for portfolio losses......................... 0 0 0 0
Decrease (increase) in assets:........................... 0 0 0 0
Due from affiliates.................................... 0 (21,089) (330,599) 0
Other assets........................................... 0 0 (742,290) 0
Increase (decrease) in liabilities:...................... 0 0 0 0
Due to affiliates...................................... 0 0 638,941 (735,691)
Accounts payable....................................... 0 0 (135,269) 0
-- --------- ----------- ----------- -----------
Net cash provided by operating activities............ 0 (789,564) 0 (1,310,089) 968,575
-- --------- ----------- ----------- -----------
Cash flows provided by (used in) investing activities:
Purchase of property and equipment....................... 0 0 (221,390) 0
Organization costs....................................... 0 0 (400) 48,833
Recovery of portfolio basis.............................. 0 48,297 4,326,447 (1,887,593)
Receivable from West Capital............................. 0 0 (1,015,534) 0
Cash held in trust....................................... 0 0 0 0
Purchase of investments in dist loan ports............... 0 741,267 (8,184,864) 0
-- --------- ----------- ----------- -----------
Net cash provided by investing activities............ 0 789,564 0 (5,095,741) (1,838,760)
-- --------- ----------- ----------- -----------
Cash flows provided by (used in) financing activities:
Increase in payable to affiliate......................... 0 0 100,000 0
Distributions to partners................................ 0 0 (4,217,275) 4,217,275
Redemption of partnership units.......................... 0 0 (45,000) 45,000
Contributions from limited partners...................... 0 0 (29,500) 11,098,102 0
Deposits in escrow for investor subscriptions............ 0 0 29,500 0 0
Payments for offering expenses........................... 0 0 0 0
Loans to shareholder..................................... 0 0 0 0
-- --------- ----------- ----------- -----------
Net cash used in financing activities................ 0 0 0 6,935,827 4,262,275
-- --------- ----------- ----------- -----------
Net (decrease) increase in cash........................... 0 0 0 529,997 3,392,090
Cash at beginning of period............................... 0 4,304,906
-- --------- ----------- ----------- -----------
Cash at end of period..................................... $0 $ 0 $ 0 $ 4,834,903 $ 3,392,090
== ========= =========== =========== ===========
<CAPTION>
PRO FORMA
ADJUSTED
BALANCES
-----------
Cash flows from operating activities:
Net income............................................... $ 948,779
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization........................................... 0
Depreciation........................................... 14,615
Gain on repurchase of ltd ptrshp units................. 0
Provision for portfolio losses......................... 0
Decrease (increase) in assets:........................... 0
Due from affiliates.................................... (330,599)
Other assets........................................... (742,290)
Increase (decrease) in liabilities:...................... 0
Due to affiliates...................................... (96,750)
Accounts payable....................................... (135,269)
-----------
Net cash provided by operating activities............ (341,514)
-----------
Cash flows provided by (used in) investing activities:
Purchase of property and equipment....................... (221,390)
Organization costs....................................... 48,433
Recovery of portfolio basis.............................. 2,438,854
Receivable from West Capital............................. (1,015,534)
Cash held in trust....................................... 0
Purchase of investments in dist loan ports............... (8,184,864)
-----------
Net cash provided by investing activities............ (6,934,501)
-----------
Cash flows provided by (used in) financing activities:
Increase in payable to affiliate......................... 100,000
Distributions to partners................................ 0
Redemption of partnership units.......................... 0
Contributions from limited partners...................... 11,098,102
Deposits in escrow for investor subscriptions............ 0
Payments for offering expenses........................... 0
Loans to shareholder..................................... 0
-----------
Net cash used in financing activities................ 11,198,102
-----------
Net (decrease) increase in cash........................... 3,922,087
Cash at beginning of period............................... 4,304,906
-----------
Cash at end of period..................................... $ 8,226,993
===========
</TABLE>
95
<PAGE> 113
PERFORMANCE ASSET MANAGEMENT COMPANY
PRO FORMA FINANCIAL STATEMENTS
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1992
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
PAM PAM II PAM III PAM IV PAM V
--- ---------- ---------- ---------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Cash and equivalents........................................ $ 0 $ 449,726 $2,495,023 $1,360,157 $ 0 $ 0
Cash held in trust.......................................... 0 0 0 0 0 0
Investments in distressed loan portfolios, net.............. 0 2,359,135 3,752,823 613,287 0 0
Receivable from West Capital................................ 0 166,505 93,617 0 0 0
Due from affiliates......................................... 0 297,180 0 191,558 0 0
Loan to shareholder......................................... 0 0 0 0 0 0
Other assets................................................ 0 112,772 82,999 0 0 0
Property and equipment, net................................. 0 0 0 0 0 0
Organization costs, net..................................... 0 3,059 5,013 5,136 0 0
---------- ---------- ---------- -- --
Total Assets........................................ $ 0 $3,388,377 $6,429,475 $2,170,138 $ 0 $ 0
== ========== ========== ========== == ==
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable............................................ $ 0 $ 304,741 $ 0 $ 0 $ 0 $ 0
Due to affiliates........................................... 0 0 86,120 0 0 0
Note payable to affiliate................................... 0 0 0 0 0 0
Deposits in escrow for investor subscriptions............... 0 0 0 322,000 0 0
-- ---------- ---------- ---------- -- --
Total liabilities................................... 0 304,741 86,120 322,000 0 0
General partner's capital................................... 0 (143,702) (32,618) (517) 0 0
Limited partners' capital................................... 0 3,227,338 6,375,973 1,848,655 0 0
Common stock................................................ 0 0 0 0 0 0
Retained earnings........................................... 0 0 0 0 0 0
-- ---------- ---------- ---------- -- --
Total partners' capital (shareholder's equity)...... 0 3,083,636 6,343,355 1,848,138 0 0
-- ---------- ---------- ---------- -- --
Total liabilities and capital (equity).............. $ 0 $3,388,377 $6,429,475 $2,170,138 $ 0 $ 0
== ========== ========== ========== == ==
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA PRO FORMA PRO FORMA ADJUSTED
ELIMINATIONS ADJUSTMENTS RECLASSES BALANCES
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash and equivalents........................................ $ 0 $ 1,209,132 $ $ 5,514,038
Cash held in trust.......................................... 0 0
Investments in distressed loan portfolios, net.............. 0 $ 712,121 7,437,366
Receivable from West Capital................................ 0 0 260,122
Due from affiliates......................................... 0 0 48,051 536,789
Loan to shareholder......................................... 0 0 0
Other assets................................................ 0 0 195,771
Property and equipment, net................................. 0 0 0
Organization costs, net..................................... 0 0 13,208
-------- ---------- ----------- -----------
Total Assets........................................ $ 0 $ 1,921,253 $ 48,051 $13,909,243
======== ========== =========== ===========
LIABILITIES AND
Accounts payable............................................ $ 0 $ $ $ 304,741
Due to affiliates........................................... 0 ($ 134,171) 48,051 0
Note payable to affiliate................................... 0 0 0
Deposits in escrow for investor subscriptions............... 0 0 322,000
-------- ---------- ----------- -----------
Total liabilities................................... 0 (134,171) 48,051 578,690
General partner's capital................................... 42,666 134,171 0
Limited partners' capital................................... 383,996 1,207,532 (13,043,494) 0
Common stock................................................ 0 0 13,043,494 13,043,494
Retained earnings........................................... (426,662) 713,721 287,059
-------- ---------- ----------- -----------
Total partners' capital (shareholder's equity)...... 0 2,055,424 0 13,330,553
-------- ---------- ----------- -----------
Total liabilities and capital (equity).............. $ 0 $ 1,921,253 $ 48,051 $13,909,243
======== ========== =========== ===========
</TABLE>
96
<PAGE> 114
PERFORMANCE ASSET MANAGEMENT COMPANY
PRO FORMA FINANCIAL STATEMENTS
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1992
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PCM PAM PAM II PAM III PAM IV
--- ----------- ----------- ---------- ------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income........................................................... $0 $ (275,728) $ (42,012) $ (5,170) $0
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization....................................................... 0 798 521 250 0
Depreciation....................................................... 0 0 0 0 0
Gain on repurchase of ltd ptrshp units............................. 0 0 0 0 0
Provision for portfolio losses..................................... 0 182,257 0 0 0
Decrease (increase) in assets:....................................... 0 0 0 0 0
Due from affiliates................................................ 0 165,718 0 (191,558) 0
Other assets....................................................... 0 (107,852) (82,999) 0 0
Increase (decrease) in liabilities:.................................. 0 0 0 0 0
Due to affiliates.................................................. 0 0 86,120 0 0
Accounts payable................................................... 0 66,899 0 0 0
-- ----------- ----------- ---------- --
Net cash provided by operating activities.......................... 0 32,092 (38,370) (196,478) 0
-- ----------- ----------- ---------- --
Cash flows provided by (used in) investing activities:
Purchase of property and equipment................................... 0 0 0 0 0
Organization costs................................................... 0 0 (5,534) (5,386) 0
Recovery of portfolio basis.......................................... 0 1,350,653 208,872 0 0
Receivable from West Capital......................................... 0 (166,505) (93,617) 0 0
Cash held in trust................................................... 0 0 0 0 0
Purchase of investments in dist loan ports........................... 0 (3,186,537) (3,961,695) (613,287) 0
-- ----------- ----------- ---------- --
Net cash provided by investing activities.......................... 0 (2,002,389) (3,851,974) (618,673) 0
-- ----------- ----------- ---------- --
Cash flows provided by (used in) financing activities:
Increase in payable to affiliate..................................... 0 0 0 0 0
Distributions to partners............................................ 0 (1,057,536) (284,167) 0 0
Redemption of partnership units...................................... 0 0 0 0 0
Contributions from limited partners.................................. 0 2,217,717 6,669,534 1,853,308 0
Deposits in escrow for investor subscriptions........................ 0 0 0 322,000 0
Payments for offering expenses....................................... 0 0 0 0 0
Loans to shareholder................................................. 0 0 0 0 0
-- ----------- ----------- ---------- --
Net cash used in financing activities.............................. 0 1,160,181 6,385,367 2,175,308 0
-- ----------- ----------- ---------- --
Net (decrease) increase in cash........................................ 0 (810,116) 2,495,023 1,360,157 0
Cash at beginning of period............................................ 0 1,259,842 0 0 0
-- ----------- ----------- ---------- --
Cash at end of period.................................................. $0 $ 449,726 $ 2,495,023 $1,360,157 $0
== =========== =========== ========== ==
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA PRO FORMA ADJUSTED
PAM V ELIMINATIONS ADJUSTMENTS BALANCES
----- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income........................................................... $ 0 $0 $ 713,550 $ 390,640
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization....................................................... 0 0 0 1,569
Depreciation....................................................... 0 0 0 0
Gain on repurchase of ltd ptrshp units............................. 0 0 0 0
Provision for portfolio losses..................................... 0 0 (182,257) 0
Decrease (increase) in assets:....................................... 0
Due from affiliates................................................ 0 0 0 (25,840)
Other assets....................................................... 0 (190,851)
Increase (decrease) in liabilities:.................................. 0 0
Due to affiliates.................................................. 0 0 (134,171) (48,051)
Accounts payable................................................... 0 0 0 66,899
-- -- ---------- ----------
Net cash provided by operating activities.......................... 0 0 397,122 194,366
-- -- ---------- ----------
Cash flows provided by (used in) investing activities:
Purchase of property and equipment................................... 0 0 0 0
Organization costs................................................... 0 0 0 (10,920)
Recovery of portfolio basis.......................................... 0 0 (529,693) 1,029,832
Receivable from West Capital......................................... 0 0 0 (260,122)
Cash held in trust................................................... 0 0 0 0
Purchase of investments in dist loan ports........................... 0 0 0 (7,761,519)
-- -- ---------- ----------
Net cash provided by investing activities.......................... 0 0 (529,693) (7,002,729)
-- -- ---------- ----------
Cash flows provided by (used in) financing activities:
Increase in payable to affiliate..................................... 0 0 0 0
Distributions to partners............................................ 0 0 1,341,703 0
Redemption of partnership units...................................... 0 0 0 0
Contributions from limited partners.................................. 0 0 0 10,740,559
Deposits in escrow for investor subscriptions........................ 0 0 0 322,000
Payments for offering expenses....................................... 0 0 0 0
Loans to shareholder................................................. 0 0 0 0
-- -- ---------- ----------
Net cash used in financing activities.............................. 0 0 1,341,703 11,062,559
-- -- ---------- ----------
Net (decrease) increase in cash........................................ 0 0 1,209,132 4,254,196
Cash at beginning of period............................................ 0 1,259,842
-- -- ---------- ----------
Cash at end of period.................................................. $ 0 $0 $ 1,209,132 $5,514,038
== == ========== ==========
</TABLE>
97
<PAGE> 115
PERFORMANCE ASSET MANAGEMENT COMPANY
STATEMENTS OF OPERATIONS
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1992
<TABLE>
<CAPTION>
PRO
FORMA
PRO FORMA PRO FORMA PRO FORMA ADJUSTED
PCM PAM PAM II PAM III PAM IV PAM V ELIMINATIONS ADJUSTMENTS RECLASSES BALANCES
--- ----------- --------- ------- ------ ----- ------------ ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Portfolio
sales.......... 0 0 0 0 0 0 0 $ 0 0
Collection
revenue........ 0 0 0 0 0 0 0 $ 0 0
Servicing fees... 0 0 0 0 0 0 0 $ 0 0
Portfolio
collections.... $0 $ 1,350,653 $ 208,872 $ 0 $0 $ 0 0 $ 0 $(1,029,832) 529,693
Less: portfolio
basis
recovery....... 0 (1,350,653) (208,872) 0 0 0 0 529,693 1,029,832 0
-- --------- -------- ------- -- -- -- --------- ----------- --------
Net investment
income......... 0 0 0 0 0 0 0 529,693 529,693
Cost of portfolio
sales.......... 0 0 0 0 0 0 0 $ 0 0
Personnel and
related
benefits....... 0 0 0 0 0 0 0 $ 0 0
Professional and
management
fees........... 0 0 0 0 0 0 0 $ 0 0
Collection
expense........ 0 38,316 4,049 0 0 0 0 $ 0 42,365
Management fee
expense........ 0 54,659 63,935 2,373 0 0 0 $ 0 120,967
Professional
fees........... 0 12,109 0 0 0 0 0 $ 0 12,109
Provision for
portfolio
losses......... 0 182,257 0 0 0 0 0 $(182,257) 0
Amortization..... 0 798 521 250 0 0 0 $ 0 1,569
G & A expense.... 0 13,504 11,604 3,764 0 0 0 (2,400) 26,472
-- --------- -------- ------- -- -- -- --------- ----------- --------
Total
operating
expenses... 0 301,643 80,109 6,387 0 0 0 (184,657) 203,482
-- --------- -------- ------- -- -- -- --------- ----------- --------
Income
from
operations... 0 (301,643) (80,109) (6,387) 0 0 0 714,350 326,211
Interest income
(expense),
net............ 0 25,915 38,097 1,217 0 0 0 $ 0 65,229
Other income..... 0 0 0 0 0 0 0 0 0
-- --------- -------- ------- -- -- -- --------- ----------- --------
Income
before
provision
for
income
taxes... 0 (275,728) (42,012) (5,170) 0 0 0 714,350 391,440
Provision for
income taxes... 0 0 0 0 0 0 0 800 800
-- --------- -------- ------- -- -- -- --------- ----------- --------
Net
income... $0 $ (275,728) $ (42,012) $(5,170) $0 $ 0 $0 $ 713,550 $390,640
== ========= ======== ======= == == == ========= =========== ========
</TABLE>
98
<PAGE> 116
SELECTED HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
PERFORMANCE CAPITAL MANAGEMENT, INC.
Net revenue.................. $16,116,850 $ 7,325,917 $11,939,431 $ 2,424,794 --
Income (loss) from
operations................ 66,432 (18,605) (316,702) 223,918 --
Income (loss) from operations
per share................. $ 664.32 $ (186.05) $ (3,167.02) $ 2,239.18 --
Net income (loss)............ 97,724 6,280 (316,777) 223,782 --
Net cash from operations..... 2,906,902 497,713 377,726 231,059 --
Total assets................. 3,982,265 1,321,191 817,514 872,101 --
Cash distribution per
share..................... N/A N/A N/A N/A N/A
Book Value per share......... $ 111.09 -- -- -- --
PERFORMANCE ASSET MANAGEMENT FUND, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
Net revenue.................. 538,428 180,797 205,208 142,249 --
Income (loss) from
operations................ 365,631 146,358 183,667 50,175 (301,643)
Income (loss) from operations
per partnership unit...... $ 348.55 $ 139.39 $ 174.92 $ 47.79 $ (286.73)
Net income (loss)............ 369,775 133,064 170,572 56,162 (275,728)
Net cash from operations..... 429,930 106,469 537,985 7,025 32,092
Investments in distressed
loan portfolios........... 1,269,586 706,091 810,159 1,273,275 2,359,135
Total assets................. 1,622,033 1,330,241 1,394,839 1,854,839 3,388,377
Total cash distributions
declared.................. 154,650 210,000 787,500 1,260,000 951,782
Cash distribution per
partnership unit.......... $ 147.43 $ 200.00 $ 750.00 $ 1,200.00 $ 906.45
Book value per partnership
unit...................... $ 1,065.45
</TABLE>
99
<PAGE> 117
SELECTED HISTORICAL FINANCIAL DATA (CONTINUED)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
PERFORMANCE ASSET MANAGEMENT FUND II, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
Net revenue.................. 504,836 634,187 458,892 500 --
Income (loss) from
operations................ 162,620 368,474 347,203 (126,196) (80,109)
Income (loss) from operations
per partnership unit...... $ 104.98 $ 237.88 $ 224.15 $ (81.49) $ (51.71)
Net income (loss)............ 304,715 385,266 379,365 (63,079) (42,012)
Net cash from operations..... 493,772 638,827 686,050 (653,076) (38,370)
Investments in distressed
loan portfolios........... 1,371,176 1,070,725 1,920,842 2,115,107 3,752,823
Total assets................. 3,524,539 3,484,650 3,543,258 4,495,826 6,429,475
Total cash distributions
declared.................. 230,023 309,950 1,144,600 1,667,775 255,750
Cash distributions per
partnership unit.......... $ 148.59 $ 200.10 $ 738.93 $ 1,076.68 $ 165.10
Book value per partnership
unit...................... $ 2,276.83
PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
Net revenue.................. 884,915 205,518 15,660 -- --
Income (loss) from
operations................ 492,558 (107,862) (132,624) (229,218) (6,387)
Income (loss) from operations
per partnership unit...... $ 246.53 $ (53.98) $ (66.31) $ (114.72) $ (3.20)
Net income (loss)............ 683,163 (91,844) (122,287) (179,806) (5,170)
Net cash from operations..... 787,667 (93,432) 131,708 32,453 (196,478)
Investments in distressed
loan portfolios........... 2,566,546 3,642,353 4,408,633 6,048,913 613,287
Total assets................. 6,120,078 5,710,565 6,192,446 7,537,182 2,170,138
Total cash distributions
declared.................. 295,925 399,700 1,336,200 831,390 --
Cash distribution per
partnership unit.......... $ 148.11 $ 200.05 $ 668.77 $ 416.11 --
Book value per partnership
unit...................... $ 2,816.10
</TABLE>
100
<PAGE> 118
SELECTED HISTORICAL FINANCIAL DATA (CONTINUED)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
PERFORMANCE ASSET MANAGEMENT FUND IV, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
Net revenue.................. 150,347 367,527 11,558 -- --
Income (loss) from
operations................ (1,282,748) (721,442) (1,134,023) (57,945) --
Income (loss) from operations
per partnership unit...... $ (111.82) $ (62.80) $ (129.17) $ (28.31) --
Net income (loss)............ (732,166) (609,972) (1,036,195) (47,945) --
Net cash from operations..... 233,843 (1,478,923) (483,866) (139,000) --
Investments in distressed
loan portfolios........... 9,091,186 9,701,767 9,269,331 1,935,931 --
Total assets................. 17,291,452 19,352,923 16,614,965 4,656,753 --
Total cash distributions
declared.................. 1,433,425 1,547,025 1,530,263 40,425 --
Cash distribution per
partnership unit.......... $ 124.95 $ 134.66 $ 174.31 $ 19.75 --
Book value per partnership
unit...................... $ 1,476.16
PERFORMANCE ASSET MANAGEMENT FUND V, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
Net revenue.................. 86,052 -- -- -- --
Income (loss) from
operations................ (186,459) (236,383) (129,560) -- --
Income (loss) from operations
per partnership unit...... $ (156.16) $ (196.99) $ (217.75) -- --
Net income (loss)............ (85,336) (203,473) (120,018) -- --
Net cash from operations..... 252,779 (876,622) 55,804 -- --
Investments in distressed
loan portfolios........... 2,300,662 1,771,568 437,971 -- --
Total assets................. 4,419,239 4,680,949 2,801,538 -- --
Total cash distributions
declared.................. 179,100 88,050 14,250 -- --
Cash distribution per
partnership unit.......... $ 150.00 $ 73.38 $ 23.95 -- --
Book value per partnership
unit...................... $ 3,653.52
</TABLE>
101
<PAGE> 119
EXPERTS
ACCOUNTING. The consolidated financial statements of the Partnerships for
each of the three years in the period ended December 31, 1996, and the financial
statements of the Company at December 31, 1996 appearing in this Prospectus have
been audited by Kelly & Company, independent auditors for the Company and PCM,
as set forth in their reports thereon appearing elsewhere herein, and are
included in reliance upon the authority of Kelly & Company as experts in
accounting and auditing.
INTERESTS OF NAMED EXPERTS AND COUNSEL. None of the experts named in the
Registration Statement as having prepared or certified any part hereof,
including auditors and accountants, was employed for such purpose on a
contingent basis, or at the time of such preparation, certification or opinion
or at any time thereafter through the date of the effectiveness of the
Registration Statement or that part of the Registration Statement to which such
preparation, certification or opinion relates, had, or is to receive in
connection with the offering, a substantial interest, direct or indirect, in the
Company or any of its parents or subsidiaries or was connected with the Company
or any of its parents or subsidiaries as a promoter, managing underwriter (or
any principal underwriter, if there are no managing underwriters), voting
trustee, director, officer, or employee.
OTHER MATTERS. The Fairness Opinion was prepared as of the date set forth
herein by Willamette Management Associates, Inc., and is included in reliance
upon the authority of such firm as experts in valuation and business
consolidation matters.
LEGAL MATTERS
OPINION ON SECURITIES ACT MATTERS. In connection with the Merger Stock
certain legal matters under the Securities Act have been passed upon for the
Company by White and Stepp LLP, located at 4100 Newport Place, Suite 800,
Newport Beach, California 92660.
OPINION ON FEDERAL INCOME TAX MATTERS. The opinion referred to in "FEDERAL
INCOME TAX CONSIDERATIONS" has been rendered by John H. Brainerd,
Attorney-at-Law, 4100 Newport Beach, Suite 800, Newport Beach, California 92660.
LEGAL PROCEEDINGS. There are no legal actions pending against any of the
Partnerships or the Company nor are any such legal actions contemplated.
The General Partner, Income Network Company, and Vincent E. Galewick are
named as Defendants in a pending litigation matter entitled Margarita K. Kanne
and Louis H. Knoop v. Sundance Resources; Prospect Fund, 1991-II et al. In that
action the Plaintiffs allege violations of certain provisions of the California
Corporations Code and the Securities Act and common law fraud. The General
Partner, Income Network Company, and Mr. Galewick deny each and every such
allegation in that litigation matter and are defending that litigation matter
vigorously. The causes of action alleged in that litigation matter against the
defendants regarding those violations of the California Corporations Code and
the Securities Act were dismissed by summary adjudication entered in favor of
those defendants. It is the opinion of counsel for the General Partner that any
resolution of that litigation matter should not (i) affect the ability of the
General Partner to function as the General Partner and manage operations of the
Partnerships or (ii) materially and adversely affect the General Partner or the
Partnerships. Moreover, it is the opinion of counsel for the Company that any
resolution of that litigation matter should not materially and adversely effect
the (i) Company or (ii) the Merger.
102
<PAGE> 120
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
PERFORMANCE ASSET MANAGEMENT FUND, LTD.
FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
Report of Independent Auditors......................................................... F-4
Financial Statements
Balance Sheets....................................................................... F-5
Statements of Operations............................................................. F-6
Statements of Partners' Capital (Deficit)............................................ F-7
Statements of Cash Flows............................................................. F-8
Notes to Financial Statements.......................................................... F-9
FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
Report of Independent Auditors......................................................... F-15
Financial Statements of Performance Asset Management Fund, Ltd., A California Limited
Partnership:
Balance Sheets, December 31, 1996 and 1995........................................... F-16
Statements of Operations for the years ended December 31, 1996 and 1995.............. F-17
Statements of Partners' Capital (Deficit) for the years ended December 31, 1996 and
1995............................................................................... F-18
Statements of Cash Flows for the years ended December 31, 1996 and 1995.............. F-19
Notes to Financial Statements.......................................................... F-20
PERFORMANCE ASSET MANAGEMENT FUND II, LTD.
FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
Report of Independent Auditors......................................................... F-26
Financial Statements
Balance Sheets....................................................................... F-27
Statements of Operations............................................................. F-28
Statements of Partners' Capital (Deficit)............................................ F-29
Statements of Cash Flows............................................................. F-30
Notes to Financial Statements.......................................................... F-31
FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
Report of Independent Auditors......................................................... F-37
Financial Statements of Performance Asset Management Fund II, Ltd., A California
Limited Partnership:
Balance Sheets, December 31, 1996 and 1995........................................... F-38
Statements of Operations for the years ended December 31, 1996 and 1995.............. F-39
Statements of Partners' Capital (Deficit) for the years ended December 31, 1996 and
1995............................................................................... F-40
Statements of Cash Flows for the years ended December 31, 1996 and 1995.............. F-41
Notes to Financial Statements.......................................................... F-42
</TABLE>
F-1
<PAGE> 121
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
PERFORMANCE ASSET MANAGEMENT FUND III, LTD.
FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
Report of Independent Auditors......................................................... F-48
Financial Statements
Balance Sheets....................................................................... F-49
Statements of Operations............................................................. F-50
Statements of Partners' Capital (Deficit)............................................ F-51
Statements of Cash Flows............................................................. F-52
Notes to Financial Statements.......................................................... F-53
FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
Report of Independent Auditors......................................................... F-59
Financial Statements of Performance Asset Management Fund III, Ltd., A California
Limited Partnership:
Balance Sheets, December 31, 1996 and 1995........................................... F-60
Statements of Operations for the years ended December 31, 1996 and 1995.............. F-61
Statements of Partners' Capital (Deficit) for the years ended December 31, 1996 and
1995............................................................................... F-62
Statements of Cash Flows for the years ended December 31, 1996 and 1995.............. F-63
Notes to Financial Statements.......................................................... F-64
PERFORMANCE ASSET MANAGEMENT FUND IV, LTD.
FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
Report of Independent Auditors......................................................... F-69
Financial Statements
Balance Sheets....................................................................... F-70
Statements of Operations............................................................. F-71
Statements of Partners' Capital (Deficit)............................................ F-72
Statements of Cash Flows............................................................. F-73
Notes to Financial Statements.......................................................... F-74
FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
Report of Independent Auditors......................................................... F-80
Financial Statements of Performance Assets Management Fund IV, Ltd., A California
Limited Partnership:
Balance Sheets, December 31, 1996 and 1995........................................... F-81
Statements of Operations for the years ended December 31, 1996 and 1995.............. F-82
Statements of Partners' Capital (Deficit) for the years ended December 31, 1996 and
1995............................................................................... F-83
Statements of Cash Flows for the years ended December 31, 1996 and 1995.............. F-84
Notes to Financial Statements.......................................................... F-85
PERFORMANCE ASSET MANAGEMENT FUND V, LTD.
FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE PERIOD FROM INCEPTION,
APRIL 4, 1994 THROUGH DECEMBER 31, 1994
Report of Independent Auditors......................................................... F-91
Financial Statements
Balance Sheets....................................................................... F-92
Statements of Operations............................................................. F-93
Statements of Partners' Capital (Deficit)............................................ F-94
Statements of Cash Flows............................................................. F-95
Notes to Financial Statements.......................................................... F-96
</TABLE>
F-2
<PAGE> 122
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
FINANCIAL STATEMENTS ENDED DECEMBER 31, 1996 AND 1995
Report of Independent Auditors......................................................... F-102
Financial Statements of Performance Asset Management Fund V, Ltd., A California Limited
Partnership:
Balance Sheets, December 31, 1996 and 1995........................................... F-103
Statements of Operations for the years ended December 31, 1996 and 1995.............. F-104
Statements of Partners' Capital (Deficit) for the years ended December 31, 1996 and
1995............................................................................... F-105
Statements of Cash Flows for the years ended December 31, 1996 and 1995.............. F-106
Notes to Financial Statements.......................................................... F-107
PERFORMANCE CAPITAL MANAGEMENT, INC.
FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
Report of Independent Auditors......................................................... F-113
Financial Statements
Balance Sheets....................................................................... F-114
Statements of Operations............................................................. F-115
Statements of Shareholder's Deficit.................................................. F-116
Statements of Cash Flows............................................................. F-117
Notes to Financial Statements.......................................................... F-118
FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995
Report of Independent Auditors......................................................... F-124
Financial Statements of Performance Capital Management, Inc.:
Balance Sheets, December 31, 1996 and 1995........................................... F-125
Statements of Operations for the years ended December 31, 1996 and 1995.............. F-126
Statements of Shareholder's Equity (Deficit) for the years ended December 31, 1996
and 1995........................................................................... F-127
Statements of Cash Flows for the years ended December 31, 1996 and 1995.............. F-128
Notes to Financial Statements.......................................................... F-129
PERFORMANCE ASSET MANAGEMENT COMPANY
FINANCIAL STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1996
Report of Independent Auditors......................................................... F-134
Financial Statements of Performance Asset Management Company:
Balance Sheet, December 31, 1997..................................................... F-135
Statement of Operations as of and for the year ended December 31, 1996............... F-136
Statement of Shareholder's Deficit as of and for the year ended December 31, 1996.... F-137
Statement of Cash Flows as of and for the year ended December 31, 1996............... F-138
Notes to Financial Statements.......................................................... F-139
FINANCIAL STATEMENT AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
Balance Sheet, June 30, 1997 (Unaudited)............................................... F-140
Statement of Operations (Unaudited) as of and for the Six Months Ended June 30, 1997... F-141
Statement of Shareholder's Deficit (Unaudited) as of and for the Six Months Ended June
30, 1997............................................................................. F-142
Statement of Cash Flows (Unaudited) as of and for the Six Months Ended June 30, 1997... F-143
PRO FORMA FINANCIAL STATEMENTS AS OF AND FOR THE PERIOD ENDED JUNE 30, 1997.............. F-144
</TABLE>
F-3
<PAGE> 123
REPORT OF INDEPENDENT AUDITORS
To Performance Development Inc., General Partner
Performance Asset Management Fund, Ltd.,
A California Limited Partnership
We have audited the accompanying balance sheets of Performance Asset
Management Fund, Ltd., A California Limited Partnership ("Partnership") as of
December 31, 1995 and 1994, and the related statements of operations, partners'
capital (deficit) and cash flows for the years then ended. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Performance Asset Management
Fund, Ltd., A California Limited Partnership as of December 31, 1995 and 1994,
and the results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ KELLY & COMPANY
Newport Beach, California
August 13, 1996
F-4
<PAGE> 124
PERFORMANCE ASSET MANAGEMENT FUND, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Cash and equivalents................................................ $ 15,295 $ 23,487
Cash held in trust.................................................. 4,221 --
Investments in distressed loan portfolios, net...................... 706,091 810,159
Receivable from West Capital........................................ 559,730 559,730
Other receivables................................................... 44,239 --
Organization costs, net............................................. 665 1,463
---------- ----------
Total assets.............................................. $1,330,241 $1,394,839
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable.................................................... $ 6,126 $ 35,249
Due to affiliates................................................... 229,088 176,220
Note payable to affiliate........................................... 170,015 158,000
---------- ----------
Total liabilities......................................... 405,229 369,469
---------- ----------
Commitments and contingencies
Partners' capital................................................... 925,012 1,025,370
---------- ----------
Total liabilities and partners' capital................... $1,330,241 $1,394,839
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 125
PERFORMANCE ASSET MANAGEMENT FUND, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Portfolio collections.................................................. $290,328 $735,412
Less: portfolio basis recovery......................................... 109,531 530,204
-------- --------
Net investment income................................................ 180,797 205,208
-------- --------
Cost of operations:
Management fee expense............................................... 23,096 17,584
Collection expense................................................... 365 --
Professional fees.................................................... 7,233 --
Amortization......................................................... 798 798
General and administrative expense................................... 2,947 3,159
-------- --------
Total operating expenses..................................... 34,439 21,541
-------- --------
Income from operations................................................. 146,358 183,667
Other expense:
Interest, net........................................................ 13,294 13,095
-------- --------
Net income............................................................. $133,064 $170,572
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 126
PERFORMANCE ASSET MANAGEMENT FUND, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
--------- ---------- ----------
<S> <C> <C> <C>
Partners' capital (deficit), December 31, 1993......... $(278,612) $2,008,410 $1,729,798
Distributions........................................ (87,500) (787,500) (875,000)
Net income........................................... 17,057 153,515 170,572
-------- ---------- ----------
Partners' capital (deficit), December 31, 1994......... (349,055) 1,374,425 1,025,370
Distributions........................................ (23,422) (210,000) (233,422)
Net income........................................... 13,306 119,758 133,064
-------- ---------- ----------
Partners' capital (deficit), December 31, 1995......... $(359,171) $1,284,183 $ 925,012
======== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE> 127
PERFORMANCE ASSET MANAGEMENT FUND, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income......................................................... $ 133,064 $ 170,572
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization.................................................... 798 798
Decrease in due from affiliates................................. -- 111,857
(Increase) decrease in other receivables........................ (44,239) 121,268
(Increase) decrease in accounts payable......................... (29,123) 23,531
Increase in due to affiliates................................... 64,883 109,959
--------- ---------
Net cash provided by operating activities....................... 125,383 537,985
--------- ---------
Cash flows provided by (used in) investing activities:
Increase in cash held in trust..................................... (4,221) --
Increase in receivable from West Capital........................... -- (280,128)
Purchase of investments in distressed loan portfolios.............. (5,463) (67,088)
Recovery of portfolio basis........................................ 109,531 530,204
--------- ---------
Net cash provided by investing activities....................... 99,847 182,988
--------- ---------
Cash flows provided by (used in) financing activities:
Proceeds from note payable to affiliate............................ -- 158,000
Distributions to partners.......................................... (233,422) (875,000)
--------- ---------
Net cash used in financing activities........................... (233,422) (717,000)
--------- ---------
Net (decrease) increase in cash...................................... (8,192) 3,973
Cash at beginning of period.......................................... 23,487 19,514
--------- ---------
Cash at end of period................................................ $ 15,295 $ 23,487
========= =========
Supplemental Disclosure of Cash Flow Information
Cash paid for:
Franchise taxes.................................................... $ 800 $ 800
Interest........................................................... $ 8,000 --
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-8
<PAGE> 128
PERFORMANCE ASSET MANAGEMENT FUND, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Description of Business
Performance Asset Management Fund, Ltd., A California Limited Partnership
was formed on April 1, 1991, for the purpose of acquiring investments in or
direct ownership of distressed loan portfolios from financial institutions and
other sources. Interests in the Partnership were sold in a private placement
offering pursuant to Regulation D promulgated by the Securities and Exchange
Commission on a "best efforts" basis; however, the Partnership did not begin its
primary operations until July 1, 1991. The General Partner of the Partnership is
Performance Development, Inc., a California corporation ("PDI").
Profits, losses, and quarterly discretionary cash distributions are
allocated 90% to the limited partners and 10% to the General Partner until such
time as the limited partners have received a cash return equal to their
contributions to the capital of the Partnership. After the limited partners have
received a cash return equal to their contributions to the capital of the
Partnership, profits, losses, and quarterly discretionary cash distributions are
allocated 70% to the limited partners and 30% to the General Partner.
Cash and Equivalents
The Partnership defines cash equivalents as all highly liquid investments
with a maturity of three months or less when purchased. The Partnership
maintains cash balances at one bank where the aggregate balances of accounts at
the institution are insured by the Federal Deposit Insurance Corporation up to
$100,000.
Cash Held in Trust
The General Partner of the Partnership anticipates that the Partnership and
the PAM Funds (Note 3) may, in the future, be reorganized and merged with and
into one corporation. In an effort to accomplish that reorganization and merger
on terms and conditions consistent with the intent of the General Partner, on
December 12, 1995, the General Partner, on behalf of the Partnership and the PAM
Funds, and the State of California Department of Corporations entered into an
agreement pursuant to the provisions of which the Performance Asset Management
Fund Trust ("Trust") was created. The Trust was the recipient of a portion of
the funds resulting from the settlement of certain litigation between the
Partnership and its affiliates and West Capital Financial Services Corp.
("WCFSC") and its affiliates (Notes 4 and 8).
Investments in Distressed Loan Portfolios and Revenue Recognition
Investments in distressed loan portfolios are carried at the lower of cost,
market, or estimated net realizable value. Amounts collected on such loans are
treated as a reduction to the carrying basis of the related investment on an
individual portfolio basis. Accordingly, income is not recognized until 100%
recovery of the carrying value of the investment in each portfolio occurs.
Estimated net realizable value represents management's estimates, based on its
present plans and intentions, of the present value of future collections. Due to
the distressed nature of these investments, no interest is earned on outstanding
balances and there is no assurance that the unpaid principal balances will
ultimately be collected. Any adjustments to the carrying value of the individual
portfolios are recorded in the results of operations.
Organization Costs, Net
Organization costs include legal and other professional fees incurred
related to the initial organization of the Partnership. These costs are
capitalized and amortized using the straight-line method over five years.
Accumulated amortization at December 31, 1995 and 1994, totaled $3,325 and
$2,527, respectively.
F-9
<PAGE> 129
PERFORMANCE ASSET MANAGEMENT FUND, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
No provision for income taxes has been made in the financial statements,
except for the Partnership's minimum state franchise tax liability of $800. As a
partnership, the partners are taxed individually on their share of partnership
earnings and losses.
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reported
period. Actual results could differ from the estimates.
2. INVESTMENTS IN DISTRESSED LOAN PORTFOLIOS, NET
Investments in distressed loan portfolios consist primarily of charged-off
credit card accounts and consumer loan balances such as auto and personal lines
of credit, originated by independent third-party financial institutions located
throughout the United States. In addition, the Partnership also acquired certain
portfolios of default consumer debts which were rewritten under terms different
from the original obligation. The fair value of investments in distressed loan
portfolios was determined by discounting the estimated future cash collections
on such investments during the estimated portfolio holding period using a
discount rate commensurate with the risks involved.
At December 31, 1995 and 1994, investments in distressed loan portfolios
consisted of the following:
<TABLE>
<CAPTION>
1995
-----------------------
CARRYING FAIR
AMOUNT VALUE
-------- ----------
<S> <C> <C>
Credit card accounts................................. $287,551 $ 512,174
Consumer loans....................................... 418,540 503,742
-------- ----------
$706,091 $1,015,916
======== =========
</TABLE>
<TABLE>
<CAPTION>
1994
-----------------------
CARRYING FAIR
AMOUNT VALUE
-------- ----------
<S> <C> <C>
Credit card accounts................................. $343,585 $ 568,208
Consumer loans....................................... 466,574 547,674
-------- ----------
$810,159 $1,115,882
======== =========
</TABLE>
F-10
<PAGE> 130
PERFORMANCE ASSET MANAGEMENT FUND, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENTS IN DISTRESSED LOAN PORTFOLIOS, NET (CONTINUED)
At December 31, 1995 and 1994, the allowance for possible losses on
investments in specific distressed loan portfolios consisted of the following:
<TABLE>
<CAPTION>
1995
--------------------------------------------
INVESTMENT ALLOWANCE FOR CARRYING
BALANCE PORTFOLIO LOSSES AMOUNT
---------- ---------------- --------
<S> <C> <C> <C>
Credit card accounts............... $ 287,551 -- $287,551
Consumer loans..................... 695,348 $ (276,808) 418,540
---------- --------- --------
$ 982,899 $ (276,808) $706,091
========== ========= ========
</TABLE>
<TABLE>
<CAPTION>
1994
--------------------------------------------
INVESTMENT ALLOWANCE FOR CARRYING
BALANCE PORTFOLIO LOSSES AMOUNT
---------- ---------------- --------
<S> <C> <C> <C>
Credit card accounts............... $ 343,585 -- $343,585
Consumer loans..................... 743,382 $ (276,808) 466,574
---------- --------- --------
$1,086,967 $ (276,808) $810,159
========== ========= ========
</TABLE>
The Partnership's allowance for portfolio losses consisted of the following
at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Allowance for portfolio losses, beginning............ $(276,808) $(276,808)
Provision for portfolio losses..................... -- --
Recoveries......................................... -- --
--------- ---------
Allowance for portfolio losses, December 31.......... $(276,808) $(276,808)
========= =========
</TABLE>
The Partnership continuously evaluates the collectibility of distressed
loan balances, and adjusts the carrying value of the investments based on such
evaluations. At December 31, 1995 and 1994, the Partnership had two portfolios
which required an allowance of $276,808 to reduce investment balances to their
net realizable value.
3. RELATED PARTY TRANSACTIONS
The Partnership has entered into several fee and cost reimbursement
arrangements with affiliated corporations and limited partnerships controlled by
the General Partner and its sole shareholder, most of which are provided for and
documented by the limited partnership agreement and the offering prospectus. The
affiliated corporations are owned by one individual. The affiliated corporations
and other entities are identified below:
Affiliated Corporations:
Performance Development, Inc. ("PDI")
Income Network Company ("INC")
Performance Capital Management ("PCM")
Spectrum Capital Management Inc. ("SCM")
Other Affiliated Entities:
Performance Asset Management Funds II, III, IV, and V Ltd. ("PAM Funds")
F-11
<PAGE> 131
PERFORMANCE ASSET MANAGEMENT FUND, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. RELATED PARTY TRANSACTIONS (CONTINUED)
PDI was formed in June 1990 to engage in various aspects of the investment
banking industry. PDI is also the General Partner for the PAM Funds and various
other California limited partnerships. PDI, in accordance with the limited
partnership agreement and offering prospectus, is reimbursed for certain legal,
accounting, and other costs relating to the limited partnership. In addition,
the Partnership pays PDI an annual management fee of 2.0% of the net asset value
of the Partnership portfolio assets during the operating phase of the
Partnership in accordance with the provisions of the limited partnership
agreement. As the General Partner in the Partnership, PDI is also entitled to a
portion of periodic distributions to partners, in accordance with the provisions
of the limited partnership agreement.
PDI's management fees incurred and recorded by the Partnership totaled
$23,096 and $17,584 for the years ended December 31, 1995 and 1994,
respectively. The Partnership also accrued distributions to PDI of $23,422 and
$87,500 for the years ended December 31, 1995 and 1994, respectively. At
December 31, 1995 and 1994, the Partnership had amounts owed to PDI recorded as
amounts due to affiliates of $221,329 and $160,914, respectively.
INC was formed on February 1, 1988 and subsequently became a registered
broker-dealer and member of the National Association of Security Dealers, Inc.
and the Securities Investor Protection Corporation. INC's sole shareholder is
also the sole shareholder of the General Partner, PDI. INC, in accordance with
the limited partnership agreement and offering prospectus in prior years, was
paid commissions equal to 10% of Gross Proceeds.
PCM was formed in February 1993, and since its formation has performed
services for the Partnership and the PAM Funds relative to locating, evaluating,
negotiating, acquiring, servicing, and collecting distressed loan portfolio
assets. PCM acquires portfolio assets from third-parties and sells the
portfolios to the Partnership for amounts determined by the General Partner to
be reasonable, customary, and competitive in light of the size, type and
character of the acquired portfolio assets and consistent with the limited
partnership agreement The Partnership also enters into servicing agreements with
PCM to collect and service the acquired portfolios. The agreements generally
provide that all proceeds generated from the collection of portfolio assets will
be shared by the parties in proportion to their respective percentage interests,
generally, 55% to 60% for the Partnership and 40% to 45% for PCM. The
Partnership also reimburses PCM for certain costs incurred in the collection of
debts.
For the year ended December 31, 1995, the Partnership purchased one
portfolio from PCM, and paid no acquisition fees for the portfolio. Also, for
the year ended December 31, 1995, the Partnership incurred and reimbursed PCM
for collection costs of $365.
The Partnership had amounts owed to PCM for reimbursement of collection
expenses and other expenses totaling $860 and $101 recorded as due to affiliates
at December 31, 1995 and 1994, respectively.
SCM was formed in 1988 to provide personnel and human resource services to
both affiliated and non-affiliated entities. Prior to 1994, SCM performed and
earned fees related to asset location, research, due diligence, and acquisition
services provided for the Partnership.
On January 1, 1994, the Partnership entered into an agreement to borrow
$158,000 from SCM for future portfolio acquisitions. The agreement was evidenced
by a promissory note, which accrued interest at 8% per annum and required all
remaining principal and interest to be paid on or before June 30, 1995. On June
30, 1995, the Partnership renegotiated and extended the agreement's remaining
outstanding principal and interest on substantially the same terms through
December 31, 1996.
F-12
<PAGE> 132
PERFORMANCE ASSET MANAGEMENT FUND, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. RELATED PARTY TRANSACTIONS (CONTINUED)
During the years ended December 31, 1995 and 1994, the Partnership incurred
interest expense totaling $13,816 and $13,098, respectively. The Partnership had
amounts owed to SCM totaling $6,899 and $15,205 recorded as due to affiliates at
December 31, 1995 and 1994, respectively.
4. RECEIVABLE FROM WEST CAPITAL
On April 8, 1994, the General Partner, on behalf of the Partnership and the
PAM Funds, entered into a Stock Acquisition Agreement ("Stock Agreement") with
WCFSC, for the purpose of acquiring for the Partnership and its affiliates,
1,000 shares of no par common stock of WCFSC, which 1,000 shares would represent
50% of the then issued and outstanding no par common shares of WCFSC. The Stock
Agreement provided that the Partnership and the PAM Funds have credits for
approximately $1,881,950 due to the Partnership and certain PAM Funds from
WCFSC, plus cash in the amount of $1,970,000 payable during a five month period
subsequent to the date of the stock purchase transaction.
Certain differences of opinion developed between the General Partner and
WCFSC regarding the terms and conditions of the Stock Agreement. As a result,
the General Partner of the Partnership, for the benefit of the Partnership and
its affiliates, including the PAM Funds, commenced litigation against WCFSC and
certain of its affiliates ("WCFSC Dispute").
On February 8, 1996, the parties to the WCFSC Dispute entered into a
Settlement Agreement and Mutual General Release ("Settlement Agreement"). In May
1996 the parties consummated the transaction contemplated by the Settlement
Agreement and the Partnership and its affiliates received from WCFSC $15,750,000
in satisfaction of all claims of the Partnership and its affiliates against
WCFSC and its affiliates ("Note 8").
5. PARTNERS' CAPITAL
In years prior to 1994, the Partnership received proceeds from the sale of
limited partnership units that totaled $5,312,600. Such proceeds have been
recorded net of syndication costs and commissions paid to affiliates, and
reimbursement of certain offering costs incurred by the General Partner recorded
as follows:
<TABLE>
<S> <C>
Gross syndication proceeds.............................. $ 5,312,600
Commissions........................................... (531,260)
Syndication costs..................................... (159,378)
Offering costs........................................ (101,310)
-----------
Net syndication proceeds................................ 4,525,912
Repurchase of limited partnership units............... (10,000)
Cumulative distributions through 1993................. (2,457,536)
Cumulative losses through the year ended December 31,
1993............................................... (323,318)
-----------
Partners' capital, December 31, 1993.................... $ 1,729,798
===========
</TABLE>
During the years ended December 31, 1995 and 1994, the Partnership
distributed a total of $233,422 and $875,000, respectively, to the partners of
the Partnership. In June 1995 the limited partners voted to suspend partner
distributions in order to utilize cash to enhance the Partnership's operations.
To date the suspension of cash distributions is still in effect.
6. COMMITMENTS AND CONTINGENCIES
The General Partner has been named as a defendant in a suit that has been
filed but not served. It is the opinion of the General Partner that the suit is
without merit. The General Partner denies any wrongdoing in connection with this
matter and will vigorously defend this claim if the plaintiffs pursue this
action. The
F-13
<PAGE> 133
PERFORMANCE ASSET MANAGEMENT FUND, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
partnership agreement requires that the Partnership indemnify the General
Partner in certain instances. It is unclear at this time if the results of this
action would result in any cost to the Partnership.
7. FINANCIAL INSTRUMENTS
The Partnership estimates and discloses the fair values of financial
instruments under the provisions of SFAS No. 107, Disclosures About Fair Values
of Financial Instruments. In assessing the fair value of financial instruments,
the Partnership uses a number of methodologies and assumptions, which are based
on estimates of market conditions and risks existing at the balance sheet date.
Considerable judgment is required and used by management to evaluate and
interpret market data to develop the fair value estimations. Accordingly,
managements estimates are not necessarily indicative of the amounts that the
Partnership will ultimately realize. The use of different market assumptions and
methodologies may have a material effect on the estimated fair value amounts.
Estimated cash collections include management's best current estimates of
the amounts ultimately expected to be realized upon the collection efforts and
sales of existing investments in distressed loan portfolios. While the estimates
are primarily based on past and current collection results, future cash
collections are dependent upon a number of uncontrollable market and economic
factors. The amounts the Partnership will ultimately realize could differ
materially in the near term from the amounts assumed in arriving at the fair
values.
8. SUBSEQUENT EVENTS
On February 8, 1996, the General Partner of the Partnership, for itself and
on behalf of the Partnership and the Partnership's affiliates, entered into the
Settlement Agreement (Note 4). The Settlement Agreement was entered into for the
purpose of settling and resolving any and all disputes existing between the
various parties to the WCFSC Dispute. The Settlement Agreement resulted in the
dismissal of the WCFSC Dispute; release by all parties of the claims against
other respective parties, including those claims relating to the Stock Agreement
(Note 4); and assignment and transfer by the Partnership and its affiliates to
WCFSC of certain distressed loan portfolios.
The Settlement Agreement required that WCFSC pay to the Partnership and its
affiliates $15,750,000 in exchange for the general release by the Partnership
and its affiliates of WCFSC from the claims asserted in the WCFSC Dispute. The
Settlement Agreement also required the sale to WCFSC by the Partnership and its
affiliates of certain interests of the Partnership and its affiliates in certain
distressed loan portfolios, and the transfer by the Partnership and its
affiliates to WCFSC of various other assets and rights. In addition, the
Settlement Agreement also required the establishment of a defense fund in an
amount not to exceed $250,000 which will be available to pay legal costs and
fees incurred by WCFSC to defend any and all actions which may be brought by
limited partners in the Partnership and the PAM Funds.
The proceeds from the settlement were allocated to the Partnership and its
affiliates, including the PAM Funds, by the General Partner of the Partnership
in accordance with the respective interests of the Partnership and those
affiliates in those proceeds.
The Settlement Agreement was approved by 78.29% of the limited partners of
the Partnership; none of the limited partners of the Partnership disapproved of
the Settlement Agreement; and 21.71% of the limited partners of the Partnership
provided no responses regarding the approval of the Settlement Agreement.
Additionally, 91.12% of all the limited partners in the Partnership and the
PAM Funds in the aggregate executed general releases in favor of WCFSC. On April
10, 1996, WCFSC completed the payment of $15,750,000 for the benefit of the
Partnership and its affiliates, including the PAM Funds.
F-14
<PAGE> 134
REPORT OF INDEPENDENT AUDITORS
To the Partners of
Performance Asset Management Fund, Ltd.,
A California Limited Partnership
We have audited the accompanying balance sheets of Performance Asset
Management Fund, Ltd., A California Limited Partnership ("Partnership") as of
December 31, 1996 and 1995, and the related statements of operations, partners'
capital (deficit) and cash flows for the years then ended. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Performance Asset Management
Fund, Ltd., A California Limited Partnership as of December 31, 1996 and 1995,
and the results of its operations and its cash flows for the years then ended,
in conformity with generally accepted accounting principles.
/s/ KELLY & COMPANY
Newport Beach, California
February 21, 1997
F-15
<PAGE> 135
PERFORMANCE ASSET MANAGEMENT FUND, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Cash and equivalents................................................ $ 283,232 $ 15,295
Cash held in trust.................................................. -- 4,221
Investments in distressed loan portfolios, net...................... 1,269,586 706,091
Receivable from West Capital........................................ -- 559,730
Due from affiliates................................................. 56,483 --
Other assets........................................................ 12,732 44,239
Organization costs, net............................................. -- 665
---------- ----------
Total assets.............................................. $1,622,033 $1,330,241
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable.................................................... $ 41,378 $ 6,126
Due to affiliates................................................... 271,403 222,189
Note payable to affiliate........................................... 191,598 176,914
---------- ----------
Total liabilities......................................... 504,379 405,229
---------- ----------
Commitments and contingencies
Partners' capital................................................... 1,117,654 925,012
---------- ----------
Total liabilities and partners' capital............................. $1,622,033 $1,330,241
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-16
<PAGE> 136
PERFORMANCE ASSET MANAGEMENT FUND, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- --------
<S> <C> <C>
Portfolio collections................................................ $1,290,544 $290,328
Less: portfolio basis recovery....................................... 752,116 109,531
---------- --------
Net investment income.............................................. 538,428 180,797
---------- --------
Cost of operations:
Collection expense................................................. 43,257 365
Management fee expense............................................. 25,979 23,096
Professional fees.................................................. 96,527 7,233
Amortization....................................................... 665 798
General and administrative expense................................. 6,369 2,947
---------- --------
Total operating expenses........................................ 172,797 34,439
---------- --------
Income from operations............................................... 365,631 146,358
Other income (expense):
Interest income (expense), net..................................... 3,389 (13,294)
Other income....................................................... 755 --
---------- --------
Net income........................................................... $ 369,775 $133,064
========== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-17
<PAGE> 137
PERFORMANCE ASSET MANAGEMENT FUND, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
--------- ---------- ----------
<S> <C> <C> <C>
Balance, December 31, 1994............................. ($349,055) $1,374,425 $1,025,370
Distributions........................................ (23,422) (210,000) (233,422)
Net income........................................... 13,306 119,758 133,064
--------- ---------- ----------
Balance, December 31, 1995............................. (359,171) 1,284,183 925,012
Distributions........................................ (17,483) (154,650) (172,133)
Redemption of partnership units...................... -- (5,000) (5,000)
Net income........................................... 36,978 332,797 369,775
--------- ---------- ----------
Balance, December 31, 1996............................. ($339,676) $1,457,330 $1,117,654
========= ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-18
<PAGE> 138
PERFORMANCE ASSET MANAGEMENT FUND, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income....................................................... $ 369,775 $ 133,064
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization................................................ 665 798
Decrease (increase) in assets:
Other assets................................................ 31,507 (44,239)
Due from affiliates......................................... (56,483) --
Increase (decrease) in liabilities:
Due to affiliates........................................... 49,214 45,969
Accounts payable............................................ 35,252 (29,123)
----------- ---------
Net cash provided by operating activities..................... 429,930 106,469
----------- ---------
Cash flows provided by (used in) investing activities:
Recovery of portfolio basis...................................... 752,116 109,531
Receivable from West Capital..................................... 559,730 --
Cash held in trust............................................... 4,221 (4,221)
Purchase of investments in distressed loan portfolios............ (1,315,611) (5,463
----------- ---------
Net cash provided by investing activities..................... 456 99,847
----------- ---------
Cash flows provided by (used in) financing activities:
Increase in payable to affiliate................................. 14,684 18,914
Distributions to partners........................................ (172,133) (233,422)
Redemption of partnership units.................................. (5,000) --
----------- ---------
Net cash used in financing activities......................... (162,449) (214,508)
----------- ---------
Net (decrease) increase in cash.................................... 267,937 (8,192)
Cash at beginning of period...................................... 15,295 23,487
----------- ---------
Cash at end of period.............................................. $ 283,232 $ 15,295
=========== =========
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Franchise taxes.................................................. $ 800 $ 800
Interest......................................................... -- $ 8,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-19
<PAGE> 139
PERFORMANCE ASSET MANAGEMENT FUND, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Description of Business
Performance Asset Management Fund, Ltd., A California Limited Partnership
was formed in April 1991, for the purpose of acquiring investments in or direct
ownership of distressed loan portfolios from financial institutions and other
sources. Interests in the Partnership were sold in a private placement offering
pursuant to Regulation D promulgated by the Securities and Exchange Commission
on a "best efforts" basis; however, the Partnership did not begin its primary
operations until July 199 1. The General Partner is Performance Development,
Inc., a California corporation ("PDI").
Profits, losses, and cash distributions are allocated 90% to the limited
partners and IO% to the General Partner until such time as the limited partners
have been returned I 00% of their initial capital contributions to the
Partnership. Thereafter, Partnership profits, losses, and cash distributions are
allocated 70% to the limited partners and 30% to the General Partner.
Cash and Equivalents
The Partnership defines cash equivalents as all highly liquid investments
with a maturity of three months or less when purchased. The Partnership
maintains cash balances at one bank where certain balances of accounts at the
institution are insured by the Federal Deposit Insurance Corporation.
Cash Held in Trust
The General Partner anticipates that the Partnership and the PAM Funds
(Note 3) may, in the future, be reorganized and merged with and into one
corporation. In an effort to accomplish that reorganization and merger on terms
and conditions consistent with the intent of the General Partner, on December
12, 1995, the General Partner, on behalf of the Partnership and the PAM Funds,
and the State of California Department of Corporations entered into an agreement
pursuant to the provisions of which the Performance Asset Management Fund Trust
("Trust") was created. These funds are subject to the terms of the Trust
Agreement. The Trust was the recipient of a portion of the funds resulting from
a settlement of certain litigation between the Partnership and its affiliates
and West Capital Financial Services Corp. ("WCFSC") and its affiliates.
Investment in Distressed Loan Portfolios and Revenue Recognition
Investments in distressed loan portfolios are carried at the lower of cost,
market, or estimated net realizable value. Amounts collected are treated as a
reduction to the carrying basis of the related investment on an individual
portfolio basis. Accordingly, income is not recognized until 100% recovery of
the original cost of the investment in each portfolio occurs. Estimated net
realizable value represents management's estimates, based on its present plans
and intentions, of the present value of future collections. Due to the
distressed nature of these investments, no interest is earned on outstanding
balances, and there is no assurance that the unpaid principal balances will
ultimately be collected. Any adjustments to the carrying value of the individual
portfolios are recorded in the results of operations.
Organization Costs, Net
Organization costs include legal and other professional fees incurred
related to the initial organization of the Partnership. These costs are
capitalized and amortized using the straightline method over five years.
Accumulated amortization at December 31, 1996 and 1995 totaled $3,990 and
$3,325, respectively.
F-20
<PAGE> 140
PERFORMANCE ASSET MANAGEMENT FUND, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
No provision for income taxes has been made in the financial statements,
except for the Partnership's minimum state franchise tax liability of $800. All
partners are taxed individually on their share of the Partnership's earnings and
losses.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reported
period. Actual results could differ from the estimates.
Financial Statement Classification
Certain amounts within the 1995 financial statements have been reclassified
in order to conform with the 1996 financial statement presentation.
2. INVESTMENTS IN DISTRESSED LOAN PORTFOLIOS, NET
Investments in distressed loan portfolios consist primarily of charged-off
credit card accounts and consumer loan balances such as auto loans and personal
lines of credit, originated by independent third-party financial institutions
located throughout the United States. In addition, the Partnership acquired
portfolios of defaulted consumer debts which were rewritten under terms
different from the original obligation. The fair value of these investments was
determined by discounting the estimated future cash collections on such
investments during the estimated remaining portfolio holding period using a
discount rate commensurate with the risks involved.
At December 31, 1996 and 1995, investments in distressed loan portfolios
consisted of the following:
<TABLE>
<CAPTION>
1996
-------------------------
CARRYING FAIR
AMOUNT VALUE
---------- ----------
<S> <C> <C>
Credit card accounts................................ $ 912,597 $1,480,656
Consumer loans...................................... 356,989 425,479
---------- ----------
$1,269,586 $1,906,135
</TABLE>
<TABLE>
<CAPTION>
1995
-------------------------
CARRYING FAIR
AMOUNT VALUE
---------- ----------
<S> <C> <C>
Credit card accounts................................ $ 287,551 $ 512,174
Consumer loans...................................... 418,540 503,742
---------- ----------
$ 706,091 $1,015,916
========== ==========
</TABLE>
F-21
<PAGE> 141
PERFORMANCE ASSET MANAGEMENT FUND, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENTS IN DISTRESSED LOAN PORTFOLIOS, NET (CONTINUED)
At December 31, 1996 and 1995, the allowance for possible losses on
investments in specific distressed loan portfolios consisted of the following:
<TABLE>
<CAPTION>
1996
----------------------------------------------
INVESTMENT ALLOWANCE FOR CARRYING
BALANCE PORTFOLIO LOSSES AMOUNT
---------- ---------------- ----------
<S> <C> <C> <C>
Credit card accounts............. $ 925,024 -- $ 925,024
Consumer loans................... 621,370 $ (276,808) 344,562
---------- --------- ----------
$1,546,394 $ (276,808) $1,269,586
========== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
1995
--------------------------------------------
INVESTMENT ALLOWANCE FOR CARRYING
BALANCE PORTFOLIO LOSSES AMOUNT
---------- ---------------- --------
<S> <C> <C> <C>
Credit card accounts............... $ 287,551 -- $287,551
Consumer loans..................... 695,348 $ (276,808) 418,540
-------- --------- --------
$ 982,899 $ (276,808) $706,091
======== ========= ========
</TABLE>
The Partnership continuously evaluates the collectibility of distressed
loan balances, and adjusts the carrying value of the investments based on such
evaluations. The Partnership has recorded a reserve for possible losses on
investments in specific distressed loan portfolios of $276,808 as of December
31, 1996 and 1995.
3. RELATED PARTY TRANSACTIONS
The Partnership has entered into several fee and cost reimbursement
arrangements with affiliated corporations and limited partnerships controlled by
the General Partner and its sole shareholder, most of which are provided for and
documented by the limited partnership agreement and the offering prospectus. The
affiliated corporations are owned by one individual. The affiliated corporations
and other entities are identified below:
Affiliated Corporations:
Performance Development, Inc. ("PDI")
Performance Capital Management ("PCM")
Spectrum Capital Management, Inc. ("SCM")
Other Affiliated Entities:
Performance Asset Management Funds II, III, IV, and V Ltd. ("PAM
Funds")
PDI was formed in June 1990 to engage in various aspects of the investment
banking industry. PDI is also the General Partner for the PAM Funds and various
other California limited partnerships. PDl, in accordance with the limited
partnership agreement and offering prospectus, is reimbursed for certain legal,
accounting, and other costs relating to the limited partnership. In addition,
the Partnership pays PDI an annual management fee of 2.0% of the net asset value
of the Partnership portfolio assets during the operating phase of the
Partnership in accordance with the provisions of the limited partnership
agreement. As the General Partner in the Partnership, PDI is also entitled to a
portion of periodic distributions to partners, in accordance with the provisions
of the limited partnership agreement.
F-22
<PAGE> 142
PERFORMANCE ASSET MANAGEMENT FUND, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. RELATED PARTY TRANSACTIONS (CONTINUED)
PDI's management fees incurred and recorded by the Partnership totaled
$25,979 and $23,096 for the years ended December 31, 1996 and 1995,
respectively. The Partnership also accrued distributions payable to PDI of
$17,483 and $23,422 for the years ended December 31, 1996 and 1995,
respectively. At December 31, 1996 and 1995, the Partnership had amounts owed to
PDI recorded as amounts due to affiliates of $271,145 and $221,329,
respectively.
PCM was formed in February 1993, and since its formation has performed
services for the Partnership and the PAM Funds relative to locating, evaluating,
negotiating, acquiring, servicing, and collecting investments in distressed loan
portfolios. PCM acquires distressed loan portfolios from third-parties and sells
the portfolios to the Partnership for amounts determined by the General Partner
to be reasonable, customary, and competitive in light of the size, type and
character of the acquired portfolios and consistent with the limited partnership
agreement. The Partnership also enters into agreements for PCM to collect and
service the acquired portfolios. The agreements generally provide that all
proceeds generated from the collection of portfolio assets will be shared by the
parties in proportion to their respective percentage interests, generally, 55%
to 60% for the Partnership and 40% to 45% for PCM. The Partnership also
reimburses PCM for certain costs incurred in the collection of portfolio assets.
For the years ended December 31, 1996 and 1995, the Partnership purchased
two portfolios and one portfolio, respectively, from PCM and recorded
acquisition fees for those portfolios of $363,405 and $0, respectively. These
acquisition fees have been included in the carrying value of the related
investments. Also, for the years ended December 31, 1996 and 1995, the
Partnership incurred collection costs of $43,257 and $365, respectively.
The Partnership had amounts owed to PCM totaling $860 recorded as due to
affiliates at December 31, 1995. The Partnership had amounts due from PCM
totaling $56,483 recorded as due from affiliates at December 31, 1996.
SCM was formed in 1988 to provide personnel and human resource services to
both affiliated and non-affiliated entities. Prior to 1994, SCM performed and
earned fees related to asset location, research, due diligence, and acquisition
services provided for the Partnership.
On January 1, 1994, the Partnership entered into an agreement to borrow
$158,000 from SCM for future portfolio acquisitions. The agreement was evidenced
by a promissory note, which accrued interest at 8% per annum and required all
remaining principal and interest to be paid on or before June 30, 1995. On June
30, 1995, the Partnership renegotiated and extended the agreement's remaining
outstanding principal and interest on substantially the same terms and the
outstanding balance is due on demand.
On December 31, 1995, the Partnership entered into an agreement to
negotiate the outstanding principal and interest of $176,914 under substantially
the same terms and conditions of the previous note agreements. During the years
ended December 31, 1996 and 1995, the Partnership incurred interest expense
related to the note totaling $14,684 and $13,816, respectively.
4. SETTLEMENT WITH WEST CAPITAL FINANCIAL SERVICES CORP.
On April 8, 1994, the General Partner, on behalf of the Partnership and the
PAM Funds, entered into a Stock Acquisition Agreement ("Stock Agreement") with
WCFSC, for the purpose of acquiring for the Partnership and its affiliates,
1,000 shares of no par common stock of WCFSC, which 1,000 shares would represent
50% of the then issued and outstanding no par common shares of WCFSC. The Stock
Agreement provided that the Partnership and the PAM Funds have credits for
approximately $1,881,950 due to the
F-23
<PAGE> 143
PERFORMANCE ASSET MANAGEMENT FUND, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. SETTLEMENT WITH WEST CAPITAL FINANCIAL SERVICES CORP. (CONTINUED)
Partnership and certain PAM Funds from WCFSC, plus cash in the amount of
$1,970,000 payable during a five month period subsequent to the date of the
stock purchase transaction.
Certain differences of opinion developed between the General Partner and
WCFSC regarding the terms and conditions of the Stock Agreement. As a result,
the General Partner, for the benefit of the Partnership and its affiliates,
including the PAM Funds, commenced litigation against WCFSC and certain of its
affiliates ("WCFSC Dispute").
On February 8, 1996, the parties to the WCFSC Dispute entered into a
Settlement Agreement and Mutual General Release ("Settlement Agreement") for the
purpose of settling and resolving any and all disputes existing between the
various parties to the WCFSC Dispute. The Settlement Agreement resulted in the
dismissal of the WCFSC Dispute; release by all parties of the claims against
other respective parties, including those claims relating to the Stock
Agreement; and assignment and transfer by the Partnership and its affiliates to
WCFSC of certain distressed loan portfolios.
The Settlement Agreement required that WCFSC pay to the Partnership and its
affiliates $16,194,850 in exchange for the general release by the Partnership
and its affiliates of WCFSC from the claims asserted in the WCFSC Dispute. The
Settlement Agreement also required the sale to WCFSC by the Partnership and its
affiliates of certain interests of the Partnership and its affiliates in certain
distressed loan portfolios, and the transfer by the Partnership and its
affiliates to WCFSC of various other assets and rights. In addition, the
Settlement Agreement required the establishment of a defense fund of $250,000
which is available to pay legal costs and fees incurred by WCFSC to defend any
and all actions which may be brought by limited partners in the Partnership and
the PAM Funds. To date no such actions have been brought.
The proceeds from the Settlement Agreement were allocated to the
Partnership and its affiliates, including the PAM Funds, by PDI in accordance
with the respective interests of the Partnership and those affiliates.
Accordingly, the Partnership received $1,483,254 of the total settlement
proceeds.
The Settlement Agreement was approved by 78.29% of the limited partners of
the Partnership; none of the limited partners of the Partnership disapproved the
Settlement Agreement; and 21.71% of the limited partners of the Partnership
provided no responses regarding the approval of the Settlement Agreement.
Additionally, 91.12% of all the limited partners in the Partnership and the
PAM Funds in the aggregate executed general releases in favor of WCFSC.
5. PARTNERS' CAPITAL
In 1995 the limited partners voted to suspend partner distributions in
order to utilize cash to enhance the Partnership's operations. Cash
distributions were subsequently reinstated in 1996.
6. COMMITMENTS AND CONTINGENCIES
The General Partner has been named as a defendant in a suit that was filed
in early 1996 but to date has not been served. It is the opinion of the General
Partner that the suit is without merit. The General Partner denies any
wrongdoing in connection with this matter and will vigorously defend this claim
if the plaintiffs pursue this action. The partnership agreement requires that
the Partnership indemnify the General Partner in certain instances, and it is
unclear at this time if the results of this action would result in any cost to
the Partnership.
F-24
<PAGE> 144
PERFORMANCE ASSET MANAGEMENT FUND, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. FINANCIAL INSTRUMENTS
The Partnership estimates and discloses the fair values of financial
instruments under the provisions of the Statement of Financial Accounting
Standard No. 107, Disclosures About Fair Values of Financial Instruments. In
assessing the fair value of financial instruments, the Partnership uses a number
of methodologies and assumptions, which are based on the underlying quality of
the distressed loan portfolio, the cost of comparable capital, the estimates of
market conditions, and risks existing at the balance sheet date. Considerable
judgment is required and used by management to evaluate and interpret market
data to develop the fair value estimations. Accordingly, management's estimates
are not necessarily indicative of the amounts that the Partnership will
ultimately realize. The use of different market assumptions and methodologies
may have a material effect on the estimated fair value amounts.
Estimated cash collections include management's best present estimates of
the amounts ultimately expected to be realized upon the collection efforts and
disposition of existing investments in distressed loan portfolios. While the
estimates are primarily based on past collection results, future cash
collections are dependent upon a number of uncontrollable market and economic
factors. The amounts the Partnership will ultimately realize could differ
materially in the near term from the amounts assumed in arriving at the fair
values.
F-25
<PAGE> 145
REPORT OF INDEPENDENT AUDITORS
To Performance Development Inc., General Partner
Performance Asset Management Fund II, Ltd.,
A California Limited Partnership
We have audited the accompanying balance sheets of Performance Asset
Management Fund II, Ltd., A California Limited Partnership ("Partnership") as of
December 31, 1995 and 1994, and the related statements of operations, partners'
capital (deficit) and cash flows for the years then ended. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Performance Asset Management
Fund II, Ltd., A California Limited Partnership as of December 31, 1995 and
1994, and the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
/s/ KELLY & COMPANY
Newport Beach, California
August 13, 1996
F-26
<PAGE> 146
PERFORMANCE ASSET MANAGEMENT FUND II, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Cash and equivalents................................................ $ 144,800 $ 748,107
Cash held in trust.................................................. 1,171,869 --
Investments in distressed loan portfolios, net...................... 1,070,725 1,920,842
Receivable from West Capital........................................ 778,565 778,565
Due from affiliates................................................. 201,632 12,876
Other receivables................................................... 115,367 80,069
Organization costs, net............................................. 1,692 2,799
---------- ----------
Total assets.............................................. $3,484,650 $3,543,258
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable.................................................... $ 1,743 $ 2,280
Due to affiliates................................................... 2,250 101,198
---------- ----------
Total liabilities......................................... 3,993 103,478
---------- ----------
Commitments and contingencies
Partners' capital................................................... 3,480,657 3,439,780
---------- ----------
Total liabilities and partners' capital................... $3,484,650 $3,543,258
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-27
<PAGE> 147
PERFORMANCE ASSET MANAGEMENT FUND II, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Portfolio collections............................................... $1,022,494 $1,507,295
Less: portfolio basis recovery...................................... 388,307 1,048,403
---------- ----------
Net investment income..................................... 634,187 458,892
---------- ----------
Cost of operations:
Management fee expense............................................ 68,385 70,022
Collection expense................................................ 12,336 27,191
Professional fees................................................. 180,540 5,957
Amortization...................................................... 1,107 1,107
General and administrative expense................................ 3,345 7,412
---------- ----------
Total operating expenses.................................. 265,713 111,689
---------- ----------
Income from operations.............................................. 368,474 347,203
Other income:
Interest, net..................................................... 16,792 22,912
Other............................................................. -- 9,250
---------- ----------
Net income................................................ $ 385,266 $ 379,365
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-28
<PAGE> 148
PERFORMANCE ASSET MANAGEMENT FUND II, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
--------- ----------- -----------
<S> <C> <C> <C>
Partners' capital (deficit), December 31, 1993....... $(224,234) $ 4,616,427 $ 4,392,193
Repurchase of limited partnership units............ -- (60,000) (60,000)
Distributions...................................... (127,178) (1,144,600) (1,271,778)
Net income......................................... 37,936 341,429 379,365
--------- ----------- -----------
Partners' capital (deficit), December 31, 1994....... (313,476) 3,753,256 3,439,780
Distributions...................................... (34,439) (309,950) (344,389)
Net income......................................... 38,527 346,739 385,266
--------- ----------- -----------
Partners' capital (deficit), December 31, 1995....... $(309,388) $ 3,790,045 $ 3,480,657
========= =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-29
<PAGE> 149
PERFORMANCE ASSET MANAGEMENT FUND II, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income.................................................... $ 385,266 $ 379,365
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization............................................... 1,107 1,107
Gain on repurchase of limited partnership units............ -- (9,250)
(Increase) decrease in due from affiliates................. (188,756) 76,912
(Increase) decrease in other receivables................... (35,298) 238,071
Decrease in accounts payable............................... (537) (12,664)
Increase in due to affiliates.............................. 477,045 12,509
----------- -----------
Net cash provided by operating activities............. 638,827 686,050
----------- -----------
Cash flows provided by (used in) investing activities:
Increase in cash held in trust................................ (1,171,869) --
Increase in receivable from West Capital...................... -- (401,259)
Purchase of investments in distressed loan portfolios......... (114,183) (854,139)
Recovery of portfolio basis................................... 388,307 1,048,403
----------- -----------
Net cash used in investing activities................. $ (897,745) $ (206,995)
----------- -----------
Cash flows provided by (used in) financing activities:
Repurchase of limited partner units........................... -- (50,750)
Distributions to partners..................................... (344,389) (1,271,778)
----------- -----------
Net cash used in financing activities................. (344,389) (1,322,528)
----------- -----------
Net increase in cash............................................ (603,307) (843,473)
Cash at beginning of period..................................... 748,107 1,591,580
----------- -----------
Cash at end of period........................................... $ 144,800 $ 748,107
=========== ===========
Franchise taxes paid............................................ $ 800 $ 800
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-30
<PAGE> 150
PERFORMANCE ASSET MANAGEMENT FUND II, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Description of Business
Performance Asset Management Fund II, Ltd., A California Limited
Partnership was formed on April 21, 1992, for the purpose of acquiring
investments in or direct ownership of distressed loan portfolios from financial
institutions and other sources. Interests in the Partnership were sold in a
private placement offering pursuant to Regulation promulgated by the Securities
and Exchange Commission on a "best efforts" basis; however, the Partnership did
not begin its primary operations until May 29, 1992. The General Partner of the
Partnership is Performance Development, Inc., a California corporation ("PDI").
Profits, losses, and quarterly discretionary cash distributions are
allocated 90% to the limited partners and 10% to the General Partner until such
time as the limited partners have received a cash return equal to their
contributions to the capital of the Partnership. After the limited partners have
received a cash return equal to their contributions to the capital of the
Partnership, profits, losses, and quarterly discretionary cash distributions are
allocated 70% to the limited partners and 30% to the General Partner.
Cash and Equivalents
The Partnership defines cash equivalents as all highly liquid investments
with a maturity of three months or less when purchased. The Partnership
maintains cash balances at one bank where the aggregate balances of accounts at
the institution are insured by the Federal Deposit Insurance Corporation up to
$100,000. The uninsured portion of the cash balances totaled $44,800 and
$648,107 at December 31, 1995 and 1994, respectively.
Cash Held in Trust
The General Partner of the Partnership anticipates that the Partnership and
the PAM Funds (Note 3) may, in the future, be reorganized and merged with and
into one corporation. In an effort to accomplish that reorganization and merger
on terms and conditions consistent with the intent of the General Partner, on
December 12, 1995, the General Partner, on behalf of the Partnership and the PAM
Funds, and the State of California Department of Corporations entered into an
agreement pursuant to the provisions of which the Performance Asset Management
Fund Trust ("Trust") was created. The Trust was the recipient of a portion of
the funds resulting from the settlement of certain litigation between the
Partnership and its affiliates and West Capital Financial Services Corp.
("WCFSC") and its affiliates (Notes 4 and 8). The cash held in trust had a
Federal Deposit Insurance Corporation uninsured portion totaling $1,071,869 as
of December 31, 1995.
Investments in Distressed Loan Portfolios and Revenue Recognition
Investments in distressed loan portfolios are carried at the lower of cost,
market, or estimated net realizable value. Amounts collected on such loans are
treated as a reduction to the carrying basis of the related investment on an
individual portfolio basis. Accordingly, income is not recognized until 100%
recovery of the carrying value of the investment in each portfolio occurs.
Estimated net realizable value represents management's estimates, based on its
present plans and intentions, of the present value of future collections. Due to
the distressed nature of these investments, no interest is earned on outstanding
balances and there is no assurance that the unpaid principal balances will
ultimately be collected. Any adjustments to the carrying value of the individual
portfolios are recorded in the results of operations.
F-31
<PAGE> 151
PERFORMANCE ASSET MANAGEMENT FUND II, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Organization Costs, Net
Organization costs include legal and other professional fees incurred
related to the initial organization of the Partnership. These costs are
capitalized and amortized using the straight-line method over five years.
Accumulated amortization at December 31, 1995 and 1994, totaled $3,843 and
$2,736, respectively.
Income Taxes
No provision for income taxes has been made in the financial statements,
except for the Partnership's minimum state income tax liability of $800. As a
partnership, the partners are taxed individually on their share of partnership
earnings and losses.
Supplemental Non-Cash Disclosure
In 1995 the Partnership sold two distressed asset portfolios to PAM IV for
$575,993, which was equal to the remaining carrying value at December 31, 1995.
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reported
period. Actual results could differ from the estimates.
2. INVESTMENTS IN DISTRESSED LOAN PORTFOLIOS, NET
Investments in distressed loan portfolios consist primarily of charged-off
credit card accounts and consumer loan balances such as auto and personal lines
of credit, originated by independent third-party financial institutions located
throughout the United States. In addition, the Partnership also acquired certain
portfolios of default consumer debts which were rewritten under terms different
from the original obligation. The fair value of investments in distressed loan
portfolios was determined by discounting the estimated future cash collections
on such investments during the estimated portfolio holding period using a
discount rate commensurate with the risks involved.
At December 31, 1995 and 1994, investments in distressed loan portfolios
consisted of the following:
<TABLE>
<CAPTION>
1995
-------------------------
CARRYING
AMOUNT FAIR VALUE
---------- ----------
<S> <C> <C>
Credit card accounts................................ $ 254,681 $ 304,502
Performing rewritten accounts....................... 5,187 5,187
Consumer loans...................................... 810,857 810,857
---------- ----------
$1,070,725 $1,120,546
========== ==========
</TABLE>
F-32
<PAGE> 152
PERFORMANCE ASSET MANAGEMENT FUND II, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENTS IN DISTRESSED LOAN PORTFOLIOS, NET (CONTINUED)
<TABLE>
<CAPTION>
1994
-------------------------
CARRYING
AMOUNT FAIR VALUE
---------- ----------
<S> <C> <C>
Credit card accounts................................ $ 196,945 $ 304,502
Performing rewritten accounts....................... 10,319 10,318
90 day receivables.................................. 21,226 21,226
Consumer loans...................................... 1,692,353 1,692,353
---------- ----------
$1,920,842 $1,970,384
========== ==========
</TABLE>
The Partnership continuously evaluates the collectibility of distressed
loan balances, and adjusts the carrying value of the investments based on such
evaluations. The Partnership has recorded no provision for possible losses on
investments in specific distressed loan portfolios as of December 31, 1995 and
1994 (Note 7).
3. RELATED PARTY TRANSACTIONS
The Partnership has entered into several fee and cost reimbursement
arrangements with affiliated corporations and limited partnerships controlled by
the General Partner and its sole shareholder, most of which are provided for and
documented by the limited partnership agreement and the offering prospectus. The
affiliated corporations are owned by one individual. The affiliated corporations
and other entities are identified below:
Affiliated Corporations:
Performance Development, Inc. ("PDI")
Income Network Company ("INC")
Performance Capital Management ("PCM")
Spectrum Capital Management Inc. ("SCW")
Other Affiliated Entities:
Performance Asset Management Funds I, III, IV, and V Ltd. ("PAM
Funds")
PDI was formed in June 1990 to engage in various aspects of the investment
banking industry. PDI is also the General Partner for the PAM Funds and various
other California limited partnerships. PDI, in accordance with the limited
partnership agreement and offering prospectus, is reimbursed for certain legal,
accounting, and other costs relating to the limited partnership. In addition,
the Partnership pays PDI an annual management fee of 2.5% of the net asset value
of the Partnership portfolio assets during the operating phase of the
Partnership in accordance with the provisions of the limited partnership
agreement. As the General Partner in the Partnership, PDI is also entitled to a
portion of periodic distributions to partners, in accordance with the provisions
of the limited partnership agreement.
PDI's management fees incurred and recorded by the Partnership totaled
$68,385 and $70,022 for the years ended December 31, 1995 and 1994,
respectively. The Partnership also accrued distributions to PDI of $34,439 and
$127,178 for the years ended December 31, 1995 and 1994, respectively. On
December 31, 1995, the Partnership sold two portfolio assets with a remaining
carrying value of $588,632 to PAM IV for cash of $12,639 and a receivable
collectible from PDI for $575,993. At December 31, 1995, $148,374 of this
receivable remains unpaid and is recorded as amounts due from affiliates. At
December 31, 1994, the Partnership had amounts owed to PDI recorded as amounts
due to affiliates of $101,198.
F-33
<PAGE> 153
PERFORMANCE ASSET MANAGEMENT FUND II, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. RELATED PARTY TRANSACTIONS (CONTINUED)
INC was formed on February 1, 1988 and subsequently became a registered
broker-dealer and member of the National Association of Security Dealers, Inc.
and the Securities Investor Protection Corporation. INC's sole shareholder is
also the sole shareholder of the General Partner, PDI. INC, in accordance with
the limited partnership agreement and offering prospectus in prior years, was
paid commissions equal to 10% of Gross Proceeds.
As of December 31, 1995, the Partnership had amounts owed to INC of $2,250
for payments made on behalf of the partnership.
PCM was formed in February 1993, and since its formation has performed
services for the Partnership and the PAM Funds relative to locating, evaluating,
negotiating, acquiring, servicing, and collecting distressed loan portfolio
assets. PCM acquires portfolio assets from third-parties and sells the
portfolios to the Partnership for amounts determined by the General Partner to
be reasonable, customary, and competitive in light of the size, type, and
character of the acquired portfolio assets and consistent with the limited
partnership agreement. The Partnership also enters into servicing agreements
with PCM to collect and service the acquired portfolios. The agreements
generally provide that all proceeds generated from the collection of portfolio
assets will be shared by the parties in proportion to their respective
percentage interests, generally, 55% to 60% for the Partnership and 40% to 45%
for PCM. The Partnership also reimburses PCM for certain costs incurred in the
collection of debts.
For the years ended December 31, 1995 and 1994, the Partnership purchased
one and four portfolios from PCM and paid acquisition fees for those portfolios
of $30,225 and $178,678, respectively. Also, for the years ended December 31,
1995 and 1994, the Partnership incurred and reimbursed PCM, for collection costs
of $12,336 and $27,191, respectively.
The Partnership had amounts owed from PCM from collections of portfolio
proceeds of $9,008 and $12,876 recorded as due from affiliates at December 31,
1995 and 1994, respectively.
SCM was formed in 1988 to provide personnel and human resource services to
both affiliated and non-affiliated entities. Prior to 1994, SCM performed and
earned fees related to asset location, research, due diligence, and acquisition
services provided for the Partnership. The Partnership had amounts owed from SCM
for payment of services totaling $44,250 recorded as due from affiliates at
December 31, 1995.
4. RECEIVABLE FROM WEST CAPITAL
On April 8, 1994, the General Partner, on behalf of the Partnership and the
PAM Funds, entered into a Stock Acquisition Agreement ("Stock Agreement") with
WCFSC, for the purpose of acquiring for the Partnership and its affiliates,
1,000 shares of no par common stock of WCFSC, which 1,000 shares would represent
50% of the then issued and outstanding no par common shares of WCFSC. The Stock
Agreement provided that the Partnership and the PAM Funds have credits for
approximately $1,881,950 due to the Partnership and certain PAM Funds from
WCFSC, plus cash in the amount of $1,970,000 payable during a 5 month period
subsequent to the date of the stock purchase transaction.
Certain differences of opinion developed between the General Partner and
WCFSC regarding the terms and conditions of the Stock Agreement. As a result,
the General Partner of the Partnership, for the benefit of the Partnership and
its affiliates, including the PAM Funds, commenced litigation against WCFSC and
certain of its affiliates ("WCFSC Dispute").
On February 8, 1996, the parties to the WCFSC Dispute entered into a
Settlement Agreement and Mutual General Release ("Settlement Agreement"). In
May, 1996 the parties consummated the transaction contemplated by the Settlement
Agreement and the Partnership and its affiliates received from WCFSC
F-34
<PAGE> 154
PERFORMANCE ASSET MANAGEMENT FUND II, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. RECEIVABLE FROM WEST CAPITAL (CONTINUED)
$15,750,000 in satisfaction of all claims of the Partnership and its affiliates
against WCFSC and its affiliates ("Note 8").
5. PARTNERS' CAPITAL
In years prior to 1994, the Partnership received proceeds from the sale of
limited partnership units that totaled $10,000,000. Such proceeds have been
recorded net of syndication costs and commissions paid to affiliates, and
reimbursement of certain offering costs incurred by the General Partner recorded
as follows:
<TABLE>
<S> <C>
Gross syndication proceeds............................ $ 7,840,000
Commissions......................................... (784,000)
Syndication costs................................... (235,200)
Offering costs...................................... (151,266)
-----------
Net syndication proceeds.............................. 6,669,534
Repurchase of limited partnership units............. (35,000)
Cumulative distributions through 1993............... (2,137,250)
Cumulative losses through the year ended December
31, 1993......................................... (105,091)
-----------
Partners' capital, December 31, 1993.................. $ 4,392,193
===========
</TABLE>
During the years ended December 31, 1995 and 1994, the Partnership
distributed a total of $344,389 and $1,271,778, respectively, to the partners of
the Partnership. In June 1995 the limited partners voted to suspend partner
distributions in order to utilize cash to enhance the Partnership's operations.
To date the suspension of cash distributions is still in effect.
6. COMMITMENTS AND CONTINGENCIES
The General Partner has been named as a defendant in a suit that has been
filed but not served. It is the opinion of the General Partner that the suit is
without merit. The General Partner denies any wrongdoing in connection with this
matter and will vigorously defend this claim if the plaintiffs pursue this
action. The partnership agreement requires that the Partnership indemnify the
General Partner in certain instances. It is unclear at this time if the results
of this action would result in any cost to the Partnership.
7. FINANCIAL INSTRUMENTS
The Partnership estimates and discloses the fair values of financial
instruments under the provisions of SFAS No. 107, Disclosures About Fair Values
of Financial Instruments. In assessing the fair value of financial instruments,
the Partnership uses a number of methodologies and assumptions, which are based
on estimates of market conditions and risks existing at the balance sheet date.
Considerable judgment is required and used by management to evaluate and
interpret market data to develop the fair value estimations. Accordingly,
management's estimates are not necessarily indicative of the amounts that the
Partnership will ultimately realize. The use of different market assumptions and
methodologies may have a material effect on the estimated fair value amounts.
Estimated cash collections include management's best current estimates of
the amounts ultimately expected to be realized upon the collection efforts and
sales of existing investments in distressed loan portfolios. While the estimates
are primarily based on past and current collection results, future cash
collections are dependent upon a number of uncontrollable market and economic
factors. The amounts the
F-35
<PAGE> 155
PERFORMANCE ASSET MANAGEMENT FUND II, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. FINANCIAL INSTRUMENTS (CONTINUED)
Partnership will ultimately realize could differ materially in the near term
from the amounts assumed in arriving at the fair values.
8. SUBSEQUENT EVENTS
On February 8, 1996, the General Partner of the Partnership, for itself and
on behalf of the Partnership and the Partnership's affiliates, entered into the
Settlement Agreement (Note 4). The Settlement Agreement was entered into for the
purpose of settling and resolving any and all disputes existing between the
various parties to the WCFSC Dispute. The Settlement Agreement resulted in the
dismissal of the WCFSC Dispute; release by all parties of the claims against
other respective parties, including those claims relating to the Stock Agreement
(Note 4); and assignment and transfer by the Partnership and its affiliates to
WCFSC of certain distressed loan portfolios.
The Settlement Agreement required that WCFSC pay to the Partnership and its
affiliates $15,750,000 in exchange for the general release by the Partnership
and its affiliates of WCFSC from the claims asserted in the WCFSC Dispute. The
Settlement Agreement also required the sale to WCFSC by the Partnership and its
affiliates of certain interests of the Partnership and its affiliates in certain
distressed loan portfolios, and the transfer by the Partnership and its
affiliates to WCFSC of various other assets and rights. In addition, the
Settlement Agreement also required the establishment of a defense fund in an
amount not to exceed $250,000 which will be available to pay legal costs and
fees incurred by WCFSC to defend any and all actions which may be brought by
limited partners in the Partnership and the PAM Funds.
The proceeds from the settlement were allocated to the Partnership and its
affiliates, including the PAM Funds, by the General Partner of the Partnership
in accordance with the respective interests of the Partnership and those
affiliates in those proceeds.
The Settlement Agreement was approved by 85.12% of the limited partners of
the Partnership; only 0.71% of the limited partners of the Partnership
disapproved of the Settlement Agreement; and 14.17% of the limited partners of
the Partnership provided no responses regarding the approval of the Settlement
Agreement.
Additionally, 91.12% of all the limited partners in the Partnership and the
PAM Funds in the aggregate executed general releases in favor of WCFSC. On April
10, 1996, WCFSC completed the payment of $15,750,000 for the benefit of the
Partnership and its affiliates, including the PAM Funds.
F-36
<PAGE> 156
REPORT OF INDEPENDENT AUDITORS
To the Partners of
Performance Asset Management Fund II, Ltd.,
A California Limited Partnership
We have audited the accompanying balance sheets of Performance Asset
Management Fund II, Ltd., A California Limited Partnership ("Partnership") as of
December 31, 1996 and 1995, and the related statements of operations, partners'
capital (deficit) and cash flows for the years then ended. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Performance Asset Management
Fund II, Ltd., A California Limited Partnership as of December 31, 1996 and
1995, and the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
/s/ KELLY & COMPANY
Newport Beach, California
February 21, 1997
F-37
<PAGE> 157
PERFORMANCE ASSET MANAGEMENT FUND II, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Cash and equivalents................................................ $1,024,507 $ 144,800
Cash held in trust.................................................. 1,003,215 1,171,869
Investments in distressed loan portfolios, net...................... 1,371,176 1,070,725
Receivable from West Capital........................................ -- 778,565
Due from affiliates................................................. 82,114 201,632
Other assets........................................................ 42,942 115,367
Organization costs, net............................................. 585 1,692
---------- ----------
Total assets...................................................... $3,524,539 $3,484,650
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable.................................................... -- $ 1,743
Due to affiliates................................................... -- 2,250
---------- ----------
Total liabilities.............................................. -- 3,993
---------- ----------
Commitments and contingencies
Partners' capital................................................... $3,524,539 3,480,657
---------- ----------
Total liabilities and partners' capital............................. $3,524,539 $3,484,650
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-38
<PAGE> 158
PERFORMANCE ASSET MANAGEMENT FUND II, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Portfolio collections............................................... $1,707,090 $1,022,494
Less: portfolio basis recovery...................................... 1,202,254 388,307
---------- ----------
Net investment income............................................. 504,836 634,187
---------- ----------
Cost of operations:
Collection expense................................................ 67,854 12,336
Management fee expense............................................ 75,464 68,385
Professional fees................................................. 189,709 180,540
Amortization...................................................... 1,107 1,107
General and administrative expense................................ 8,082 3,345
---------- ----------
Total operating expenses....................................... 342,216 265,713
---------- ----------
Income from operations.............................................. 162,620 368,474
Other income:
Interest.......................................................... 141,209 16,792
Other............................................................. 886 --
---------- ----------
Net income.......................................................... $ 304,715 $ 385,266
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-39
<PAGE> 159
PERFORMANCE ASSET MANAGEMENT FUND II, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
--------- ---------- ----------
<S> <C> <C> <C>
Balance, December 31, 1994............................. $(313,476) $3,753,256 $3,439,780
Distributions........................................ (34,439) (309,950) (344,389)
Net income........................................... 38,527 346,739 385,266
--------- ---------- ----------
Balance, December 31, 1995............................. (309,388) 3,790,045 3,480,657
Distributions........................................ (25,810) (230,023) (255,833)
Redemption of partnership units...................... -- (5,000) (5,000)
Net income........................................... 30,472 274,243 304,715
--------- ---------- ----------
Balance, December 31, 1996............................. $(304,726) $3,829,265 $3,524,539
========= ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-40
<PAGE> 160
PERFORMANCE ASSET MANAGEMENT FUND II, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income...................................................... $ 304,715 $ 385,266
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization................................................. 1,107 1,107
Decrease (increase) in assets:
Other assets................................................. 72,425 (35,298)
Due from affiliates.......................................... 117,268 288,289
Increase (decrease) in liabilities:
Accounts payable............................................. (1,743) (537)
----------- -----------
Net cash provided by operating activities.................... 493,772 638,827
----------- -----------
Cash flows provided by (used in) investing activities:
Recovery of portfolio basis..................................... 1,202,254 388,307
Receivable from West Capital.................................... 778,565 --
Cash held in trust.............................................. 168,654 (1,171,869)
Purchase of investments in distressed loan portfolios........... (1,502,705) (114,183)
----------- -----------
Net cash provided by (used in) investing activities.......... 646,768 (897,745)
----------- -----------
Cash flows provided by (used in) financing activities:
Distributions to partners....................................... (255,833) (344,389)
Redemption of partnership units................................. (5,000) --
----------- -----------
Net cash used in financing activities........................ (260,833) (344,389)
----------- -----------
Net increase in cash.............................................. 879,707 (603,307)
Cash at beginning of period....................................... 144,800 748,107
----------- -----------
Cash at end of period............................................. $ 1,024,507 $ 144,800
=========== ===========
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Franchise taxes................................................. $800 $800
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-41
<PAGE> 161
PERFORMANCE ASSET MANAGEMENT FUND II, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Description of Business
Performance Asset Management Fund II, Ltd., A California Limited
Partnership was formed in April 1992, for the purpose of acquiring investments
in or direct ownership of distressed loan portfolios from financial institutions
and other sources. Interests in the Partnership were sold in a private placement
offering pursuant to Regulation D promulgated by the Securities and Exchange
Commission on a "best efforts" basis; however, the Partnership did not begin its
primary operations until May 1992. The General Partner is Performance
Development, Inc., a California corporation ("PDI").
Profits, losses, and cash distributions are allocated 90% to the limited
partners and 10% to the General Partner until such time as the limited partners
have been returned 100% of their initial capital contributions to the
Partnership. Thereafter, Partnership profits, losses, and cash distributions are
allocated 70% to the limited partners and 30% to the General Partner.
Cash and Equivalents
The Partnership defines cash equivalents as all highly liquid investments
with a maturity of three months or less when purchased. The Partnership
maintains its cash balances at one bank in accounts which, at times, may exceed
federally insured limits. The Partnership uses a cash management system whereby
idle cash balances are swept daily into a master account and invested in high
quality, short-term securities. The Partnership's management believes that these
cash balances are not subject to any significant credit risk due to the nature
of the investments and has not experienced any past losses with cash and
equivalent investments.
Cash Held in Trust
The General Partner anticipates that the Partnership and the PAM Funds
(Note 3) may, in the future, be reorganized and merged with and into one
corporation. In an effort to accomplish that reorganization and merger on terms
and conditions consistent with the intent of the General Partner, on December
12, 1995, the General Partner, on behalf of the Partnership and the PAM Funds,
and the State of California Department of Corporations entered into an agreement
pursuant to the provisions of which the Performance Asset Management Fund Trust
("Trust") was created. These funds are subject to the terms of the Trust
Agreement. The Trust was the recipient of a portion of the funds resulting from
a settlement of certain litigation between the Partnership and its affiliates
and West Capital Financial Services Corp. ("WCFSC") and its affiliates.
Investment in Distressed Loan Portfolios and Revenue Recognition
Investments in distressed loan portfolios are carried at the lower of cost,
market, or estimated net realizable value. Amounts collected are treated as a
reduction to the carrying basis of the related investment on an individual
portfolio basis. Accordingly, income is not recognized until 100% recovery of
the original cost of the investment in each portfolio occurs. Estimated net
realizable value represents management's estimates, based on its present plans
and intentions, of the present value of future collections. Due to the
distressed nature of these investments, no interest is earned on outstanding
balances, and there is no assurance that the unpaid principal balances will
ultimately be collected. Any adjustments to the carrying value of the individual
portfolios are recorded in the results of operations.
F-42
<PAGE> 162
PERFORMANCE ASSET MANAGEMENT FUND II, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Organization Costs, Net
Organization costs include legal and other professional fees incurred
related to the initial organization of the Partnership. These costs are
capitalized and amortized using the straight-line method over five years.
Accumulated amortization at December 31, 1996 and 1995 totaled $4,950 and
$3,843, respectively.
Income Taxes
No provision for income taxes has been made in the financial statements,
except for the Partnership's minimum state franchise tax liability of $800. All
partners are taxed individually on their share of the Partnership's earnings and
losses.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reported
period. Actual results could differ from the estimates.
Financial Statement Classification
Certain amounts within the 1995 financial statements have been reclassified
in order to conform with the 1996 financial statement presentation.
2. INVESTMENTS IN DISTRESSED LOAN PORTFOLIOS, NET
Investments in distressed loan portfolios consist primarily of charged-off
credit card accounts and consumer loan balances such as auto loans and personal
lines of credit, originated by independent third-party financial institutions
located throughout the United States. In addition, the Partnership acquired
portfolios of defaulted consumer debts which were rewritten under terms
different from the original obligation. The fair value of these investments was
determined by discounting the estimated future cash collections on such
investments during the estimated remaining portfolio holding period using a
discount rate commensurate with the risks involved.
At December 31, 1996 and 1995, investments in distressed loan portfolios
consisted of the following:
<TABLE>
<CAPTION>
1996
--------------------------
CARRYING FAIR
AMOUNT VALUE
---------- -----------
<S> <C> <C>
Credit card accounts................................ $1,305,291 $2,052,867
Consumer loans...................................... 65,885 82,052
---------- ----------
$1,371,176 $2,134,919
========== ==========
</TABLE>
F-43
<PAGE> 163
PERFORMANCE ASSET MANAGEMENT FUND II, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENTS IN DISTRESSED LOAN PORTFOLIOS, NET (CONTINUED)
<TABLE>
<CAPTION>
1995
--------------------------
CARRYING FAIR
AMOUNT VALUE
---------- -----------
<S> <C> <C>
Credit card accounts................................ $ 254,681 $304,502
Performing rewritten accounts....................... 5,187 5,187
Consumer loans...................................... 810,857 810,857
---------- ----------
$1,070,725 $1,120,546
========== ==========
</TABLE>
The Partnership continuously evaluates the collectibility of distressed
loan balances, and adjusts the carrying value of the investments based on such
evaluations. The Partnership has not recorded a reserve for possible losses in
distressed loan portfolios as of December 31, 1996 and 1995.
3. RELATED PARTY TRANSACTIONS
The Partnership has entered into several fee and cost reimbursement
arrangements with affiliated corporations and limited partnerships controlled by
the General Partner and its sole shareholder, most of which are provided for and
documented by the limited partnership agreement and the offering prospectus. The
affiliated corporations are owned by one individual. The affiliated corporations
and other entities are identified below:
Affiliated Corporations:
Performance Development, Inc. ("PDI")
Income Network Company ("INC")
Performance Capital Management ("PCM")
Spectrum Capital Management, Inc. ("SCM")
Other Affiliated Entities:
Performance Asset Management Fund, Ltd., and
Performance Asset Management Funds III, IV, and V Ltd. ("PAM Funds")
PDI was formed in June 1990 to engage in various aspects of the investment
banking industry. PDI is also the General Partner for the PAM Funds and various
other California limited partnerships. PDI, in accordance with the limited
partnership agreement and offering prospectus, is reimbursed for certain legal,
accounting, and other costs relating to the limited partnership. In addition,
the Partnership pays PDI an annual management fee of 2.5% of the net asset value
of the Partnership portfolio assets during the operating phase of the
Partnership in accordance with the provisions of the limited partnership
agreement. As the General Partner in the Partnership, PDI is also entitled to a
portion of periodic distributions to partners, in accordance with the provisions
of limited partnership agreement.
PDI's management fees incurred and recorded by the Partnership totaled
$75,464 and $68,385 for the years ended December 31, 1996 and 1995,
respectively. The Partnership also accrued distributions payable to PDI of
$25,810 and $34,439 for the years ended December 31, 1996 and 1995,
respectively. On December 31, 1995, the Partnership sold two portfolios with
remaining carrying values of $588,632 to PAM IV for cash of $12,639, and a
receivable collectible from PDI for $575,993. At December 31, 1996 and 1995, the
Partnership had amounts owed from PDI recorded as amounts due from affiliates of
$38,488 and $148,374, respectively.
F-44
<PAGE> 164
PERFORMANCE ASSET MANAGEMENT FUND II, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. RELATED PARTY TRANSACTIONS (CONTINUED)
INC was formed on February 1, 1988 and subsequently became a registered
broker-dealer and member of the National Association of Security Dealers, Inc.
and the Securities Investor Protection Corporation. INC's sole shareholder is
also the sole shareholder of the General Partner, PDI.
As of December 31, 1995, the Partnership had amounts owed to INC of $2,250
for payments made on behalf of the partnership.
PCM was formed in February 1993, and since its formation has performed
services for the Partnership and the PAM Funds relative to locating, evaluating,
negotiating, acquiring, servicing, and collecting investments in distressed loan
portfolios. PCM acquires distressed loan portfolios from third-parties and sells
the portfolios to the Partnership for amounts determined by the General Partner
to be reasonable, customary, and competitive in light of the size, type and
character of the acquired portfolios and consistent with the limited partnership
agreement. The Partnership also enters into agreements for PCM to collect and
service the acquired portfolios. The agreements generally provide that all
proceeds generated from the collection of portfolio assets will be shared by the
parties in proportion to their respective percentage interest, generally, 55% to
60% for the Partnership and 45% to 40% or PCM. The Partnership also reimburses
PCM for certain costs incurred in the collection of portfolio assets.
For the years ended December 31, 1996 and 1995, the Partnership purchased
two portfolios and one portfolio from PCM, and recorded acquisition fees for
these portfolios of $412,930 and $30,225, respectively. These acquisition fees
have been included in the carrying value of the related investments. Also, for
the years ended December 31, 1996 and 1995, the Partnership incurred collection
costs of $67,854 and $12,336, respectively.
The Partnership had amounts owed from PCM of $43,947 and $9,008 recorded as
due from affiliates at December 31, 1996 and 1995, respectively.
SCM was formed in 1988 to provide personnel and human resource services to
both affiliated and non-affiliated entities. Prior to 1994, SCM performed and
earned fees related to asset location, research, due diligence, and acquisition
services provided for the Partnership. The Partnership had amounts owed from SCM
totaling $44,250 recorded as due from affiliates at December 31, 1995. The
remaining balance was paid in April 1996.
4. SETTLEMENT WITH WEST CAPITAL FINANCIAL SERVICES CORP.
On April 8, 1994, the General Partner, on behalf of the Partnership and the
PAM Funds, entered into a Stock Acquisition Agreement ("Stock Agreement") with
WCFSC, for the purpose of acquiring for the Partnership and its affiliates,
1,000 shares of no par common stock of WCFSC, which 1,000 shares would represent
50% of the then issued and outstanding no par common shares of WCFSC. The Stock
Agreement provided that the Partnership and the PAM Funds have credits for
approximately $1,881,950 due to the Partnership and certain PAM Funds from
WCFSC, plus cash in the amount of $1,970,000 payable during a five month period
subsequent to the date of the stock purchase transaction.
Certain differences of opinion developed between the General Partner and
WCFSC regarding the terms and conditions of the Stock Agreement. As a result,
the General Partner, for the benefit of the Partnership and its affiliates,
including the PAM Funds, commenced litigation against WCFSC and certain of its
affiliates ("WCFSC Dispute").
On February 8, 1996, the parties to the WCFSC Dispute entered into a
Settlement Agreement and Mutual General Release ("Settlement Agreement") for the
purpose of settling and resolving any and all disputes existing between the
various parties to the WCFSC Dispute. The Settlement Agreement resulted in
F-45
<PAGE> 165
PERFORMANCE ASSET MANAGEMENT FUND II, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. SETTLEMENT WITH WEST CAPITAL FINANCIAL SERVICES CORP. (CONTINUED)
the dismissal of the WCFSC Dispute; release by all parties of the claims against
other respective parties, including those claims relating to the Stock
Agreement; and assignment and transfer by the Partnership and its affiliates to
WCFSC of certain distressed loan portfolios.
The Settlement Agreement required that WCFSC pay to the Partnership and its
affiliates $16,194,850 in exchange for the general release by the Partnership
and its affiliates of WCFSC from the claims asserted in the WCFSC Dispute. The
Settlement Agreement also required the sale to WCFSC by the Partnership and its
affiliates of certain interests of the Partnership and its affiliates in certain
distressed loan portfolios, and the transfer by the Partnership and its
affiliates to WCFSC of various other assets and rights. In addition, the
Settlement Agreement also required the establishment of a defense fund of
$250,000 which is available to pay legal costs and fees incurred by WCFSC to
defend any and all actions which may be brought by limited partners in the
Partnership and the PAM Funds. To date no such actions have been brought.
The proceeds from the Settlement Agreement were allocated to the
Partnership and its affiliates, including the PAM Funds, by the General Partner
in accordance with the respective interests of the Partnership and those
affiliates. Accordingly, the Partnership received $2,529,949 of the total
settlement proceeds.
The Settlement Agreement was approved by 85.12% of the limited partners of
the Partnership; only 0.71% of the limited partners of the Partnership
disapproved of the Settlement Agreement; and 14.17% of the limited partners of
the Partnership provided no responses regarding the approval of the Settlement
Agreement.
Additionally, 91.12% of all the limited partners in the Partnership and the
PAM Funds in the aggregate executed general releases in favor of WCFSC.
5. PARTNERS' CAPITAL
In 1995 the limited partners voted to suspend partner distributions in
order to utilize cash to enhance the Partnership's operations. Cash
distributions were subsequently reinstated in 1996.
6. COMMITMENTS AND CONTINGENCIES
The General Partner has been named as a defendant in a suit that was filed
in early 1996 but to date has not been served. It is the opinion of the General
Partner that the suit is without merit. The General Partner denies any
wrongdoing in connection with this matter and will vigorously defend this claim
if the plaintiffs pursue this action. The partnership agreement requires that
the Partnership indemnify the General Partner in certain instances, and it is
unclear at this time if the results of this action would result in any cost to
the Partnership.
7. FINANCIAL INSTRUMENTS
The Partnership estimates and discloses the fair values of financial
instruments under the provisions of the Statement of Financial Accounting
Standard No. 107, Disclosures About Fair Values of Financial Instruments. In
assessing the fair value of financial instruments, the Partnership uses a number
of methodologies and assumptions, which are based on the underlying quality of
the distressed loan portfolio, the cost of comparable capital, the estimates of
market conditions, and risks existing at the balance sheet date. Considerable
judgment is required and used by management to evaluate and interpret market
data to develop the fair value estimations. Accordingly, management's estimates
are not necessarily indicative of the amounts that the Partnership will
ultimately realize. The use of different market assumptions and methodologies
may have a material effect on the estimated fair value amounts.
F-46
<PAGE> 166
PERFORMANCE ASSET MANAGEMENT FUND II, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. FINANCIAL INSTRUMENTS (CONTINUED)
Estimated cash collections include management's best present estimates of
the amounts ultimately expected to be realized upon the collection efforts and
disposition of existing investments in distressed loan portfolios. While the
estimates are primarily based on past collection results, future cash
collections are dependent upon a number of uncontrollable market and economic
factors. The amounts the Partnership will ultimately realize could differ
materially in the near term from the amounts assumed in arriving at the fair
values.
F-47
<PAGE> 167
REPORT OF INDEPENDENT AUDITORS
To Performance Development, Inc., General Partner
Performance Asset Management Fund III, Ltd.,
A California Limited Partnership
We have audited the accompanying balance sheets of Performance Asset
Management Fund III, Ltd., A California Limited Partnership ("Partnership") as
of December 31, 1995 and 1994, and the related statements of operations,
partners' capital (deficit) and cash flows for the years then ended. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Performance Asset Management
Fund III, Ltd., A California Limited Partnership as of December 31, 1995 and
1994, and the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
/s/ KELLY & COMPANY
Newport Beach, California
August 13, 1996
F-48
<PAGE> 168
PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Cash and equivalents................................................ $ 210,140 $ 751,459
Cash held in trust.................................................. 762,639 --
Investments in distressed loan portfolios, net...................... 3,642,353 4,408,633
Receivable from West Capital........................................ 927,540 927,540
Other receivables................................................... 165,815 101,579
Organization costs, net............................................. 2,078 3,235
---------- ----------
Total assets.............................................. $5,710,565 $6,192,446
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable.................................................... $ 2,523 $ 3,365
Due to affiliates................................................... 432,942 370,609
---------- ----------
Total liabilities......................................... 435,465 373,974
Commitments and contingencies
Partners' capital................................................... 5,275,100 5,818,472
---------- ----------
Total liabilities and partners' capital................... $5,710,565 $6,192,446
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-49
<PAGE> 169
PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Portfolio collections............................................... $1,337,920 $1,870,385
Less: portfolio basis recovery...................................... 1,132,402 1,854,725
---------- ----------
Net investment income..................................... 205,518 15,660
---------- ----------
Cost of operations:
Management fee expense............................................ 92,447 121,205
Collection expense................................................ 7,716 12,076
Professional fees................................................. 208,877 6,856
Amortization...................................................... 1,157 1,157
General and administrative expense................................ 3,183 6,990
---------- ----------
Total operating expenses.................................. 313,380 148,284
---------- ----------
Loss from operations................................................ (107,862) (132,624)
Other income:
Interest, net..................................................... 14,283 9,437
Other............................................................. 1,735 900
---------- ----------
Net loss............................................................ $ (91,844) $ (122,287)
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-50
<PAGE> 170
PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
--------- ----------- -----------
<S> <C> <C> <C>
Partners' capital (deficit), December 31, 1993....... $(110,875) $ 7,536,217 $ 7,425,342
Distributions...................................... (148,383) (1,336,200) (1,484,583)
Net loss........................................... (12,229) (110,058) (122,287)
--------- ---------- ----------
Partners' capital (deficit), December 31, 1994....... (271,487) 6,089,959 5,818,472
Redemption of partnership units.................... -- (10,000) (10,000)
Distributions...................................... (41,828) (399,700) (441,528)
Net loss........................................... (9,184) (82,660) (91,844)
--------- ---------- ----------
Partners' capital (deficit), December 31, 1995....... $(322,499) $ 5,597,599 $ 5,275,100
========= ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-51
<PAGE> 171
PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net loss........................................................ $ (91,844) $ (122,287)
Adjustments to reconcile net loss to net cash (used in) provided
by operating activities:
Gain on redemption of limited partnership units......... (1,485) --
Amortization............................................ 1,157 1,157
Decrease in due from affiliate.......................... -- 8,695
Increase in other receivables........................... (64,236) (17,991)
Decrease in accounts payable............................ (842) (7,304)
Increase in due to affiliates........................... 62,333 269,438
-------- --------
Net cash (used in) provided by operating activities..... (94,917) 131,708
-------- --------
Cash flows provided by (used in) investing activities:
Increase in cash held in trust.................................. (762,639) --
Increase in receivable from West Capital........................ -- (25,103)
Purchase of investments in distressed loan portfolios........... (160,605) (204,928)
Portfolio basis recovery........................................ 926,885 1,845,208
-------- --------
Net cash provided by investing activities............... $ 3,641 $1,615,177
-------- --------
Cash flows provided by (used in) financing activities:
Redemption of limited partnership units......................... (8,515) --
Distributions to partners....................................... (441,528) (1,484,583)
-------- --------
Net cash used in financing activities................... (450,043) (1,484,583)
-------- --------
Net (decrease) increase in cash................................... (541,319) 262,302
Cash at beginning of period....................................... 751,459 489,157
-------- --------
Cash at end of period............................................. $ 210,140 $ 751,459
======== ========
Franchise taxes paid......................................... $ 800 $ 800
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-52
<PAGE> 172
PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Description of Business
Performance Asset Management Fund III, Ltd., A California Limited
Partnership ("the Partnership") was formed on September 1, 1992, for the purpose
of acquiring distressed loan portfolios from financial institutions and other
sources. Interests in the Partnership were sold in a private placement offering
pursuant to Regulation D promulgated by the Securities and Exchange Commission
on a "best efforts" basis; however, the Partnership did not begin its primary
operations until October 1992. The General Partner of the Partnership is
Performance Development, Inc., a California corporation ("PDI").
Profits, losses, and quarterly discretionary cash distributions are
allocated 90% to the limited partners and 10% to the General Partner until such
time as the limited partners have received a cash return equal to their
contributions to the capital of the Partnership. After the limited partners have
received a cash return equal to their contributions to the capital of the
Partnership, profits, losses, and quarterly discretionary cash distributions are
allocated 70% to the limited partners and 30% to the General Partner.
Cash and Equivalents
The Partnership defines cash equivalents as all highly liquid investments
with a maturity of three months or less when purchased. The Partnership
maintains cash balances at one bank where the aggregate balances of accounts at
the institution are insured by the Federal Deposit Insurance Corporation up to
$100,000. The uninsured portion of the cash balances totaled $110,140 and
$651,459 at December 31, 1995 and 1994, respectively.
Cash Held in Trust
The General Partner of the Partnership anticipates that the Partnership and
the PAM Funds (Note 3) may, in the future, be reorganized and merged with and
into one corporation. In an effort to accomplish that reorganization and merger
on terms and conditions consistent with the intent of the General Partner, on
December 12, 1995, the General Partner, on behalf of the Partnership and the PAM
Funds, and the State of California Department of Corporations entered into an
agreement pursuant to the provisions of which the Performance Asset Management
Fund Trust ("Trust") was created. The Trust was the recipient of a portion of
the funds resulting from the settlement of certain litigation between the
Partnership and its affiliates and West Capital Financial Services Corp.
("WCFSC") and its affiliates (Notes 4 and 8). The uninsured portion of the cash
held in trust totaled $662,639 at December 31, 1995.
Investments in Distressed Loan Portfolios and Revenue Recognition
Investments in distressed loan portfolios are carried at the lower of cost,
market, or estimated net realizable value. Amounts collected on such loans are
treated as a reduction to the carrying basis of the related investment on an
individual portfolio basis. Accordingly, income is not recognized until 100%
recovery of the carrying value of the investment in each portfolio occurs.
Estimated net realizable value represents management's estimates, based on its
present plans and intentions, of the present value of future collections. Due to
the distressed nature of these investments, no interest is earned on outstanding
balances and there is no assurance that the unpaid principal balances will
ultimately be collected. Any adjustments to the carrying value of the individual
portfolios are recorded in the results of operations.
F-53
<PAGE> 173
PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Organization Costs, Net
Organization costs include legal and other professional fees incurred
related to the initial organization of the Partnership. These costs are
capitalized and amortized using the straight-line method over five years.
Accumulated amortization at December 31, 1995 and 1994, totaled $3,708 and
$2,551, respectively.
Income Taxes
The Partnership does not provide for federal income or state franchise
taxes except for the minimum annual state franchise tax of $800. As a
partnership, the partners are taxed individually on their share of partnership
earnings and losses.
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reported
period. Actual results could differ from the estimates.
2. INVESTMENTS IN DISTRESSED LOAN PORTFOLIOS
Investments in distressed loan portfolios consist primarily of charged-off
credit card accounts and consumer loan balances such as auto and personal lines
of credit, originated by independent third-party financial institutions located
throughout the United States. In addition, the Partnership also acquired certain
portfolios of default consumer debts which were rewritten under terms different
from the original obligation. The fair value of investments in distressed loan
portfolios was determined by discounting the estimated future cash collections
on such investments during the estimated portfolio holding period using a
discount rate commensurate with the risks involved.
At December 31, 1995, investments in distressed loan portfolios consisted
of the following:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
---------- ----------
<S> <C> <C>
Credit card accounts................................ $1,168,650 $1,223,117
Performing rewritten accounts....................... 1,952,735 1,952,735
Consumer loans...................................... 520,968 526,993
---------- ----------
$3,642,353 $3,702,845
========== ==========
</TABLE>
Due to the limited operating history of the Partnership, the Partnership
believed it was not practical to estimate and present the fair value of the
investments in distressed loan portfolios at December 31, 1994.
The Partnership continuously evaluates the collectibility of distressed
loan balances, and adjusts the carrying value of the investments based on such
evaluations. The Partnership has recorded no provision for possible losses on
investments in specific distressed loan portfolios as of December 31, 1995 and
1994 (Note 7).
3. RELATED PARTY TRANSACTIONS
The Partnership has entered into several fee and cost reimbursement
arrangements with affiliated corporations and limited partnerships controlled by
the General Partner and its sole shareholder, most of
F-54
<PAGE> 174
PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. RELATED PARTY TRANSACTIONS (CONTINUED)
which are provided for and documented by the limited partnership agreement and
the offering prospectus. The affiliated corporations are owned by one
individual. The affiliated corporations and other entities are identified below:
Affiliated Corporations:
Performance Development, Inc. ("PDI")
Income Network Company ("INC")
Performance Capital Management ("PCM")
Spectrum Capital Management, Inc. ("SCM")
Other Affiliated Entities:
Performance Asset Management Funds I, II, IV, and V Ltd. ("PAM Funds")
PDI was formed in June 1990 to engage in various aspects of the investment
banking industry. PDI is also the General Partner for the PAM Funds and various
other California limited partnerships. PDI in accordance with the limited
partnership agreement and offering prospectus, is reimbursed for certain legal,
accounting, and other costs relating to the limited partnership. In addition,
the Partnership pays PDI an annual management fee of 2.5% of the net asset value
of the Partnership portfolio assets during the operating phase of the
Partnership in accordance with the provisions of the limited partnership
agreement. As the General Partner in the Partnership, PDI is also entitled to a
portion of periodic distributions to partners, in accordance with the provisions
of the limited partnership agreement.
PDI's management fees incurred and recorded by the Partnership totaled
$92,447 and $121,205 for the years ended December 31, 1995 and 1994,
respectively. The Partnership also accrued distributions to PDI of $41,828 and
$148,383 for the years ended December 31, 1995 and 1994, respectively. At
December 31, 1995 and 1994, the Partnership had amounts owed to PDI recorded as
amounts due to affiliates of $420,681 and $370,609, respectively.
INC was formed on February 1, 1988 and subsequently became a registered
broker-dealer and member of the National Association of Security Dealers, Inc.
and the Securities Investor Protection Corporation. INC's sole shareholder is
also the sole shareholder of the General Partner, PDI. INC, in accordance with
the limited partnership agreement and offering prospectus in prior years, was
paid commissions equal to 10% of gross proceeds.
As of December 31, 1995, the Partnership had amounts owed to INC of $2,850
for payments made on behalf of the Partnership.
PCM was formed in February 1993, and since its formation has performed
services for the Partnership and the PAM Funds relative to locating, evaluating,
negotiating, acquiring, servicing, and collecting distressed loan portfolio
assets. PCM acquires portfolio assets from third-parties and sells the
portfolios to the Partnership for amounts determined by the General Partner to
be reasonable, customary, and competitive in light of the size, type, and
character of the acquired portfolio assets and consistent with the limited
partnership agreement. The Partnership also enters into servicing agreements
with PCM to collect and service the acquired portfolios. The agreements
generally provide that all proceeds generated from the collection of portfolio
assets will be shared by the parties in proportion to their respective
percentage interests, generally, 55% to 60% for the Partnership and 40% to 45%
for PCM. The Partnership also reimburses PCM for certain costs incurred in the
collection of debts.
For the year ended December 31, 1995, the Partnership purchased one
portfolio from PCM, and paid an acquisition fee for this portfolio of $42,513.
Also, for the years ended December 31, 1995 and 1994, the
F-55
<PAGE> 175
PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. RELATED PARTY TRANSACTIONS (CONTINUED)
Partnership incurred and reimbursed PCM for collection costs of $4,578 and $940,
respectively. The Partnership had amounts owed to PCM for collection costs of
$9,411 recorded as due to affiliates at December 31, 1995.
SCM was formed in 1988 to provide personnel and human resource services to
both affiliated and non-affiliated entities. Prior to 1994, SCM performed and
earned fees related to asset location, research, due diligence and acquisition
services provided for the Partnership.
4. RECEIVABLE FROM WEST CAPITAL
On April 8, 1994, the General Partner, on behalf of the Partnership and the
PAM Funds, entered into a Stock Acquisition Agreement ("Stock Agreement") with
WCFSC, for the purpose of acquiring for the Partnership and its affiliates,
1,000 shares of no par common stock of WCFSC, which 1,000 shares would represent
50% of the then issued and outstanding no par common shares of WCFSC. The Stock
Agreement provided that the Partnership and the PAM Funds have credits for
approximately $1,881,950 due to the Partnership and certain PAM Funds from
WCFSC, plus cash in the amount of $1,970,000 payable during a five month period
subsequent to the date of the stock purchase transaction.
Certain differences of opinion developed between the General Partner and
WCFSC regarding the terms and conditions of the Stock Agreement. As a result,
the General Partner of the Partnership, for the benefit of the Partnership and
its affiliates, including the PAM Funds, commenced litigation against WCFSC and
certain of its affiliates ("WCFSC Dispute").
On February 8, 1996, the parties to the WCFSC Dispute entered into a
Settlement Agreement and Mutual General Release ("Settlement Agreement"). In May
1996 the parties consummated the transaction contemplated by the Settlement
Agreement and the Partnership and its affiliates received from WCFSC $15,750,000
in satisfaction of all claims of the Partnership and its affiliates against
WCFSC and its affiliates (Note 8).
5. PARTNERS' CAPITAL
In years prior to 1994, the Partnership received proceeds from the sale of
limited partnership units that totaled $10,000,000. Such proceeds have been
recorded net of syndication costs and commissions paid to affiliates, and
reimbursement of certain offering costs incurred by the General Partner recorded
as follows:
<TABLE>
<S> <C>
Gross syndication proceeds.............................. $10,000,000
Commissions................................... (1,000,000)
Syndication costs............................. (300,000)
Offering costs................................ (165,915)
-----------
Net syndication proceeds................................ $ 8,534,085
1993 partner distributions.................... (923,767)
Cumulative losses through the year ended
December 31, 1993........................... (184,976)
-----------
Partners' capital, December 31, 1993.................... $ 7,425,342
==========
</TABLE>
During the years ended December 31, 1995 and 1994, the Partnership
distributed a total of $441,528 and $1,484,583, respectively, to the partners of
the Partnership. In June 1995 the limited partners voted to suspend partner
distributions in order to utilize cash to enhance the Partnership's operations.
To date the suspension of cash distributions is still in effect.
F-56
<PAGE> 176
PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. COMMITMENTS AND CONTINGENCIES
The General Partner has been named as a defendant in a suit that has been
filed but not served. It is the opinion of the General Partner that the suit is
without merit. The General Partner denies any wrongdoing in connection with this
matter and will vigorously defend this claim if the plaintiffs pursue this
action. The partnership agreement requires that the Partnership indemnify the
General Partner in certain instances. It is unclear at this time if the results
of this action would result in any cost to the Partnership.
7. FINANCIAL INSTRUMENTS
The Partnership estimates and discloses the fair values of financial
instruments under the provisions of SFAS No. 107, Disclosures About Fair Values
of Financial Instruments. In assessing the fair value of financial instruments,
the Partnership uses a number of methodologies and assumptions, which are based
on estimates of market conditions and risks existing at the balance sheet date.
Considerable judgment is required and used by management to evaluate and
interpret market data to develop the fair value estimations. Accordingly,
management's estimates are not necessarily indicative of the amounts that the
Partnership will ultimately realize. The use of different market assumptions and
methodologies may have a material effect on the estimated fair value amounts.
Estimated cash collections include management's best current estimates of
the amounts ultimately expected to be realized upon the collection efforts and
sales of existing investments in distressed loan portfolios. While the estimates
are primarily based on past and current collection results, future cash
collections are dependent upon a number of uncontrollable market and economic
factors. The amounts the Partnership will ultimately realize could differ
materially in the near term from the amounts assumed in arriving at the fair
values.
8. SUBSEQUENT EVENTS
On February 8, 1996, the General Partner of the Partnership, for itself and
on behalf of the Partnership and the Partnership's affiliates, entered into the
Settlement Agreement (Note 4). The Settlement Agreement was entered into for the
purpose of settling and resolving any and all disputes existing between the
various parties to the WCFSC Dispute. The Settlement Agreement resulted in the
dismissal of the WCFSC Dispute; release by all parties of the claims against
other respective parties, including those claims relating to the Stock Agreement
(Note 4); and assignment and transfer by the Partnership and its affiliates to
WCFSC of certain distressed loan portfolios.
The Settlement Agreement required that WCFSC pay to the Partnership and its
affiliates $15,750,000 in exchange for the general release by the Partnership
and its affiliates of WCFSC from the claims asserted in the WCFSC Dispute. The
Settlement Agreement also required the sale to WCFSC by the Partnership and its
affiliates of certain interests of the Partnership and its affiliates in certain
distressed loan portfolios, and the transfer by the Partnership and its
affiliates to WCFSC of various other assets and rights. In addition, the
Settlement Agreement also required the establishment of a defense fund in an
amount not to exceed $250,000 which will be available to pay legal costs and
fees incurred by WCFSC to defend any and all actions which may be brought by
limited partners in the Partnership and the PAM Funds.
The proceeds from the settlement were allocated to the Partnership and its
affiliates, including the PAM Funds, by the General Partner of the Partnership
in accordance with the respective interests of the Partnership and those
affiliates in those proceeds.
The Settlement Agreement was approved by 87.63% of the limited partners of
the Partnership; only 0.02% of the limited partners of the Partnership
disapproved of the Settlement Agreement; and 12.35% of the limited partners of
the Partnership provided no responses regarding the approval of the Settlement
Agreement.
F-57
<PAGE> 177
PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. SUBSEQUENT EVENTS (CONTINUED)
Additionally, 91.12% of all the limited partners in the Partnership and the
PAN Funds in the aggregate executed general releases in favor of WCFSC. On April
10, 1996, WCFSC completed the payment of $15,750,000 for the benefit of the
Partnership and its affiliates, including the PAM Funds.
F-58
<PAGE> 178
REPORT OF INDEPENDENT AUDITORS
To the Partners of
Performance Asset Management Fund III, Ltd.,
A California Limited Partnership
We have audited the accompanying balance sheets of Performance Asset
Management Fund III, Ltd., A California Limited Partnership ("Partnership") as
of December 31, 1996 and 1995, and the related statements of operations,
partners' capital (deficit) and cash flows for the years then ended. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Performance Asset Management
Fund III, Ltd., A California Limited Partnership as of December 31, 1996 and
1995, and the results of its operations and its cash flows for the years then
ended, in conformity with generally accepted accounting principles.
/s/ KELLY & COMPANY
Newport Beach, California
February 21, 1997
F-59
<PAGE> 179
PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Cash and equivalents................................................ $ 775,755 $ 210,140
Cash held in trust.................................................. 2,656,338 762,639
Investments in distressed loan portfolios, net...................... 2,566,546 3,642,353
Due from affiliate.................................................. 56,039 --
Receivable from West Capital........................................ -- 927,540
Other assets........................................................ 64,477 165,815
Organization costs, net............................................. 923 2,078
---------- ----------
Total assets.............................................. $6,120,078 $5,710,565
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable.................................................... $ 715 $ 2,523
Due to affiliates, net.............................................. 492,800 432,942
---------- ----------
Total liabilities......................................... 493,515 435,465
---------- ----------
Commitments and contingencies
Partners' capital................................................... 5,626,563 5,275,100
---------- ----------
Total liabilities and partners' capital................... $6,120,078 $5,710,565
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-60
<PAGE> 180
PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Portfolio collections............................................... $4,725,191 $1,337,920
Less: portfolio basis recovery...................................... 3,840,276 1,132,402
---------- ----------
Net investment income..................................... 884,915 205,518
---------- ----------
Cost of operations:
Collection expense................................................ 73,542 7,716
Management fee expense............................................ 51,425 92,447
Professional fees................................................. 254,453 208,877
Amortization...................................................... 1,155 1,157
General and administrative expense................................ 11,782 3,183
---------- ----------
Total operating expenses.................................. 392,357 313,380
---------- ----------
Income (loss) from operations....................................... 492,558 (107,862)
Other income:
Interest.......................................................... 190,605 14,283
Other income...................................................... -- 1,735
---------- ----------
Net income (loss)................................................... $ 683,163 $ (91,844)
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-61
<PAGE> 181
PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
--------- ---------- ----------
<S> <C> <C> <C>
Balance, December 31, 1994............................. $(271,487) $6,089,959 $5,818,472
Redemption of partnership units...................... -- (10,000) (10,000)
Distributions........................................ (41,828) (399,700) (441,528)
Net loss............................................. (9,184) (82,660) (91,844)
--------- ---------- ----------
Balance, December 31, 1995............................. (322,499) 5,597,599 5,275,100
Distributions........................................ (35,775) (295,925) (331,700)
Net income........................................... 68,315 614,848 683,163
--------- ---------- ----------
Balance, December 31, 1996............................. $(289,959) $5,916,522 $5,626,563
========= ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-62
<PAGE> 182
PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................ $ 683,163 ($ 91,844)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Amortization.................................................. 1,155 1,157
Decrease (increase) in assets:
Other assets................................................ 101,338 (64,236)
Due from affiliates......................................... (56,039) --
Increase (decrease) in liabilities:
Accounts payable............................................ (1,808) (842)
Due to affiliates........................................... 59,858 62,333
----------- ---------
Net cash provided by (used in) operating activities........... 787,667 (93,432)
----------- ---------
Cash flows provided by (used in) investing activities:
Recovery of portfolio basis...................................... 3,840,276 926,885
Receivable from West Capital..................................... 927,540 --
Cash held in trust............................................... (1,893,699) (762,639)
Purchase of investments in distressed loan portfolios............ (2,764,469) (160,605)
----------- ---------
Net cash provided by investing activities..................... 109,648 3,641
----------- ---------
Cash flows provided by (used in) financing activities:
Redemption of limited partnership units.......................... -- (10,000)
Distributions to partners........................................ (331,700) (441,528)
----------- ---------
Net cash used in financing activities......................... (331,700) (451,528)
----------- ---------
Net (decrease) increase in cash.................................... 565,615 (541,319)
Cash at beginning of period........................................ 210,140 751,459
----------- ---------
Cash at end of period.............................................. $ 775,755 $ 210,140
=========== =========
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Franchise taxes.................................................. $ 800 $ 800
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-63
<PAGE> 183
PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Description of Business
Performance Asset Management Fund III, Ltd., A California Limited
Partnership ("the Partnership") was formed in September 1992, for the purpose of
acquiring distressed loan portfolios from financial institutions and other
sources. Interests in the Partnership were sold in a private placement offering
pursuant to Regulation D promulgated by the Securities and Exchange Commission
on a "best efforts" basis; however, the Partnership did not begin its primary
operations until October 1992. The General Partner is Performance Development,
Inc., a California corporation ("PDI").
Profits, losses, and cash distributions are allocated 90% to the limited
partners and 10% to the General Partner until such time as the limited partners
have been returned 100% of their initial capital contributions to the
Partnership. Thereafter, Partnership profits, losses and cash distributions are
allocated 70% to the limited partners and 30% to the General Partner.
Cash and Equivalents
The Partnership defines cash equivalents as all highly liquid investments
with a maturity of three months or less when purchased. The Partnership
maintains its cash balances at one bank in accounts which, at times, may exceed
federally insured limits. The Partnership uses a cash management system whereby
idle cash balances are swept daily into a master account and invested in high
quality, short-term securities. The Partnership's management believes that these
cash balances are not subject to any significant credit risk due to the nature
of the investments and has not experienced any past losses with cash and
equivalent investments.
Cash Held in Trust
The General Partner anticipates that the Partnership and the PAM Funds
(Note 3) may, in the future, be reorganized and merged with and into one
corporation. In an effort to accomplish that reorganization and merger on terms
and conditions consistent with the intent of the General Partner, on December
12, 1995, the General Partner, on behalf of the Partnership and the PAM Funds,
and the State of California Department of Corporations entered into an agreement
pursuant to the provisions of which the Performance Asset Management Fund Trust
("Trust") was created. These funds are subject to the terms of the Trust
Agreement. The Trust was the recipient of a portion of the funds resulting from
the settlement of certain litigation between the Partnership and its affiliates
and West Capital Financial Services Corp. ("WCFSC") and its affiliates.
Investment in Distressed Loan Portfolios and Revenue Recognition
Investments in distressed loan portfolios are carried at the lower of cost,
market, or estimated net realizable value. Amounts collected on such loans are
treated as a reduction to the carrying basis of the related investment on an
individual portfolio basis. Accordingly, income is not recognized until 100%
recovery of original cost of the investment in each portfolio occurs. Estimated
net realizable value represents management's estimates, based on its present
plans and intentions, of the present value of future collections. Due to the
distressed nature of these investments, no interest is earned on outstanding
balances, and there is no assurance that the unpaid principal balances will
ultimately be collected. Any adjustments to the carrying value of the individual
portfolios are recorded in the results of operations.
F-64
<PAGE> 184
PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Organization Costs, Net
Organization costs include legal and other professional fees incurred
related to the initial organization of the Partnership. These costs are
capitalized and amortized using the straight-line method over five years.
Accumulated amortization at December 31, 1996 and 1995 totaled $4,863 and
$3,708, respectively.
Income Taxes
The Partnership does not provide for federal income or state franchise
taxes except for the minimum annual state franchise tax of $800. All partners
are taxed individually on their share of the Partnership's earnings and losses.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reported
period. Actual results could differ from the estimates.
Financial Statement Classification
Certain amounts within the 1995 financial statements have been reclassified
in order to conform with the 1996 financial statement presentation.
2. INVESTMENTS IN DISTRESSED LOAN PORTFOLIOS
Investments in distressed loan portfolios consist primarily of charged-off
credit card accounts and consumer loan balances such as auto loans and personal
lines of credit, originated by independent third-party financial institutions
located throughout the United States. In addition, the Partnership also acquired
portfolios of defaulted consumer debts which were rewritten under terms
different from the original obligation. The fair value of these investments was
determined by discounting the estimated future cash collections on such
investments during the estimated remaining portfolio holding period using a
discount rate commensurate with the risks involved.
At December 31, 1996 and 1995, investments in distressed loan portfolios
consisted of the following:
<TABLE>
<CAPTION>
1996
-------------------------
CARRYING FAIR
AMOUNT VALUE
---------- ----------
<S> <C> <C>
Credit card accounts................................ $2,566,546 $4,254,288
Consumer loans...................................... -- 1,236
---------- ----------
$2,566,546 $4,255,524
========== ==========
</TABLE>
F-65
<PAGE> 185
PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENTS IN DISTRESSED LOAN PORTFOLIOS (CONTINUED)
<TABLE>
<CAPTION>
1995
-------------------------
CARRYING FAIR
AMOUNT VALUE
---------- ----------
<S> <C> <C>
Credit card accounts................................ $1,168,650 $1,223,117
Performing rewritten accounts....................... 1,952,735 1,952,735
Consumer loans...................................... 520,968 526,993
---------- ----------
$3,642,353 $3,702,845
========== ==========
</TABLE>
The Partnership continuously evaluates the collectibility of distressed
loan balances, and adjusts the carrying value of the investments based on such
evaluations. The Partnership has not recorded a reserve for possible losses in
distressed loan portfolios as of December 31, 1996 and 1995.
3. RELATED PARTY TRANSACTIONS
The Partnership has entered into several fee and cost reimbursement
arrangements with affiliated corporations and limited partnerships controlled by
the General Partner and its sole shareholder, most of which are provided for and
documented by the limited partnership agreement and the offering prospectus. The
affiliated corporations are owned by one individual. The affiliated corporations
and other entities are identified below:
Affiliated Corporations:
Performance Development, Inc. ("PDI")
Income Network Company ("INC")
Performance Capital Management ("PCM").
Other Affiliated Entities:
Performance Asset Management Fund, Ltd., and
Performance Asset Management Funds II, IV, and V Ltd. ("PAM Funds")
PDI was formed in June 1990 to engage in various aspects of the investment
banking industry. PDI is also the General Partner for the PAM Funds and various
other California limited partnerships. PDI, in accordance with the limited
partnership agreement and offering prospectus, is reimbursed for certain legal,
accounting, and other costs relating to the limited partnership. In addition,
the Partnership pays PDI an annual management fee of 2.5% of the net asset value
of the Partnership portfolio assets during the operating phase of the
Partnership in accordance with the provisions of the limited partnership
agreement. As the General Partner in the Partnership, PDI is also entitled to a
portion of periodic distributions to partners, in accordance with the provisions
of limited partnership agreement.
PDI's management fees incurred and recorded by the Partnership totaled
$51,425 and $92,447 for the years ended December 31, 1996 and 1995,
respectively. The Partnership also accrued distributions payable to PDI of
$35,775 and $41,828 for the years ended December 31, 1996 and 1995,
respectively. At December 31, 1996 and 1995, the Partnership had amounts owed to
PDI recorded as amounts due to affiliates of $492,364 and $420,681,
respectively.
INC was formed in February 1988 and subsequently became a registered
broker-dealer and member of the National Association of Security Dealers, Inc.
and the Securities Investor Protection Corporation. INC's sole shareholder is
also the sole shareholder of the General Partner, PDI. INC, in accordance with
the limited
F-66
<PAGE> 186
PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. RELATED PARTY TRANSACTIONS (CONTINUED)
partnership agreement and offering prospectus in prior years, was paid
commissions equal to 10% of gross proceeds. As of December 31, 1995, the
Partnership had amounts owed to INC of $2,850 for payments made on behalf of the
Partnership.
PCM was formed in February 1993, and since its formation has performed
services for the Partnership and the PAM Funds relative to locating, evaluating,
negotiating, acquiring, servicing, and collecting investments in distressed loan
portfolios. PCM acquires distressed loan portfolios from third-parties and sells
the portfolios to the Partnership for amounts determined by the General Partner
to be reasonable, customary, and competitive in light of the size, type and
character of the acquired portfolios and consistent with the limited partnership
agreement. The Partnership also enters into agreements for PCM to collect and
service the acquired portfolios. The agreements generally provide that all
proceeds generated from the collection of portfolio assets will be shared by the
parties in proportion to their respective percentage interests, generally, 55%
to 60% for the Partnership and 45% to 40% for PCM. The Partnership also
reimburses PCM for certain costs incurred in the collection of portfolio assets.
For the years ended December 31, 1996 and 1995, the Partnership purchased
three portfolios and one portfolio, respectively, from PCM, and recorded
acquisition fees for these portfolios of $686,459 and $42,513, respectively.
These acquisition fees have been included in the carrying value of the related
investments. Also, for the years ended December 31, 1996 and 1995, the
Partnership incurred collection costs of $73,542 and $4,578, respectively.
The Partnership had amounts due from PCM of $56,039 recorded as due from
affiliates at December 31, 1996, and amounts owed to PCM of $9,411 recorded as
due to affiliates at December 31, 1995.
4. SETTLEMENT WITH WEST CAPITAL FINANCIAL SERVICES CORP.
On April 8, 1994, the General Partner, on behalf of the Partnership and the
PAM Funds, entered into a Stock Acquisition Agreement ("Stock Agreement") with
WCFSC, for the purpose of acquiring for the Partnership and its affiliates,
1,000 shares of no par common stock of WCFSC, which 1,000 shares would represent
50% of the then issued and outstanding no par common shares of WCFSC. The Stock
Agreement provided that the Partnership and the PAM Funds have credits for
approximately $1,881,950 due to the Partnership and certain PAM Funds from
WCFSC, plus cash in the amount of $1,970,000 payable during a five month period
subsequent to the date of the stock purchase transaction.
Certain differences of opinion developed between the General Partner and
WCFSC regarding the terms and conditions of the Stock Agreement. As a result,
the General Partner, for the benefit of the Partnership and its affiliates,
including the PAM Funds, commenced litigation against WCFSC and certain of its
affiliates ("WCFSC Dispute").
On February 8, 1996, the parties to the WCFSC Dispute entered into a
Settlement Agreement and Mutual General Release ("Settlement Agreement") for the
purpose of settling and resolving any and all disputes existing between the
various parties to the WCFSC Dispute. The Settlement Agreement resulted in the
dismissal of the WCFSC Dispute; release by all parties of the claims against
other respective parties, including those claims relating to the Stock
Agreement; and assignment and transfer by the Partnership and its affiliates to
WCFSC of certain distressed loan portfolios.
The Settlement Agreement required that WCFSC pay to the Partnership and its
affiliates $16,194,850 in exchange for the general release by the Partnership
and its affiliates of WCFSC from the claims asserted in the WCFSC Dispute. The
Settlement Agreement also required the sale to WCFSC by the Partnership and its
affiliates of certain interests of the Partnership and its affiliates in certain
distressed loan portfolios, and the
F-67
<PAGE> 187
PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. SETTLEMENT WITH WEST CAPITAL FINANCIAL SERVICES CORP. (CONTINUED)
transfer by the Partnership and its affiliates to WCFSC of various other assets
and rights. In addition, the Settlement Agreement also required the
establishment of a defense fund of $250,000 which is available to pay legal
costs and fees incurred by WCFSC to defend any and all actions which may be
brought by limited partners in the Partnership and the PAM Funds. To date no
such actions have been brought.
The proceeds from the Settlement Agreement were allocated to the
Partnership and its affiliates, including the PAM Funds, by PDI in accordance
with the respective interests of the Partnership and those affiliates.
Accordingly, the Partnership was allocated $5,727,315 of the total settlement
proceeds.
The Settlement Agreement was approved by 87.63% of the limited partners of
the Partnership; only 0.02% of all limited partners of the Partnership
disapproved of the Settlement Agreement; and 12.35% of the limited partners of
the Partnership provided no responses regarding the approval of the Settlement
Agreement.
Additionally, 91.12% of all the limited partners in the Partnership and the
PAM Funds in the aggregate executed general releases in favor of WCFSC.
5. PARTNERS' CAPITAL
In 1995 the limited partners voted to suspend partner distributions in
order to utilize cash to enhance the Partnership's operations. Cash
distributions were subsequently reinstated in 1996.
6. COMMITMENTS AND CONTINGENCIES
The General Partner has been named as a defendant in a suit that was filed
in early 1996 but to date has not been served. It is the opinion of the General
Partner that the suit is without merit. The General Partner denies any
wrongdoing in connection with this matter and will vigorously defend this claim
if the plaintiffs pursue this action. The partnership agreement requires that
the Partnership indemnify the General Partner in certain instances, and it is
unclear at this time if the results of this action would result in any cost to
the Partnership.
7. FINANCIAL INSTRUMENTS
The Partnership estimates and discloses the fair values of financial
instruments under the provisions of Statement of Financial Accounting Standard
No. 107, Disclosures About Fair Values of Financial Instruments. In assessing
the fair value of financial instruments, the Partnership uses a number of
methodologies and assumptions, which are based on the underlying quality of the
distressed loan portfolio, the cost of comparable capital, the estimates of
market conditions, and risks existing at the balance sheet date. Considerable
judgment is required and used by management to evaluate and interpret market
data to develop the fair value estimations. Accordingly, management's estimates
are not necessarily indicative of the amounts that the Partnership will
ultimately realize. The use of different market assumptions and methodologies
may have a material effect on the estimated fair value amounts.
Estimated cash collections include management's best present estimates of
the amounts ultimately expected to be realized upon the collection efforts and
disposition of existing investments in distressed loan portfolios. While the
estimates are primarily based on past and current collection results, future
cash collections are dependent upon a number of uncontrollable market and
economic factors. The amounts the Partnership will ultimately realize could
differ materially in the near term from the amounts assumed in arriving at the
fair values.
F-68
<PAGE> 188
REPORT OF INDEPENDENT AUDITORS
To the Partners of
Performance Asset Management Fund IV, Ltd.,
A California Limited Partnership
We have audited the accompanying balance sheets of Performance Asset
Management Fund IV, Ltd., A California Limited Partnership ("Partnership") as of
December 31, 1995 and 1994, and the related statements of operations, partners'
capital (deficit) and cash flows for the years then ended. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Performance Asset Management
Fund IV, Ltd., A California Limited Partnership as of December 31, 1995 and
1994, and the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
/s/ KELLY & COMPANY
Newport Beach, California
July 9, 1996
F-69
<PAGE> 189
PERFORMANCE ASSET MANAGEMENT FUND IV, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Cash and equivalents.............................................. $ 559,223 $ 5,002,648
Cash held in trust................................................ 6,247,207 --
Investments in distressed loan portfolios, net.................... 9,701,767 9,269,331
Receivable from West Capital...................................... 1,937,718 1,937,718
Due from affiliates............................................... 680,731 376,050
Other assets...................................................... 219,153 18,425
Organization costs, net........................................... 7,124 10,793
----------- -----------
Total assets............................................ $19,352,923 $16,614,965
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable.................................................. $ 45,223 $ 19,927
Due to affiliates................................................. 8,250 509,757
Deposits in escrow for investor subscriptions..................... -- 260,000
----------- -----------
Total liabilities....................................... 53,473 789,684
----------- -----------
Commitments and contingencies
Partners' capital................................................. 19,299,450 15,825,281
----------- -----------
Total liabilities and partners' capital................. $19,352,923 $16,614,965
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-70
<PAGE> 190
PERFORMANCE ASSET MANAGEMENT FUND IV, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---------- -----------
<S> <C> <C>
Portfolio collections.............................................. $4,041,724 $ 2,078,150
Less: portfolio basis recovery..................................... 3,674,197 2,066,592
---------- ----------
Net investment income.................................... 367,527 11,558
---------- ----------
Cost of operations:
Management fee expense........................................... 214,677 144,633
Collection expense............................................... 225,318 525,073
Provision for portfolio losses................................... 109,000 405,000
Professional fees................................................ 514,773 60,949
Amortization..................................................... 3,669 3,605
General and administrative expense............................... 21,532 6,321
---------- ----------
Total operating expenses................................. 1,088,969 1,145,581
---------- ----------
Loss from operations............................................... (721,442) (1,134,023)
Other income:
Interest, net.................................................... 109,670 96,928
Other............................................................ 1,800 900
---------- ----------
Net loss........................................................... $ (609,972) $(1,036,195)
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-71
<PAGE> 191
PERFORMANCE ASSET MANAGEMENT FUND IV, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
--------- ----------- -----------
<S> <C> <C> <C>
Partners' capital (deficit), December 31, 1993....... $ (4,795) $ 4,363,250 4,358,455
Contributions...................................... -- 14,207,805 14,207,805
Distributions...................................... (174,521) (1,530,263) (1,704,784)
Net loss........................................... (103,620) (932,575) (1,036,195)
--------- ----------- -----------
Partners' capital (deficit), December 31, 1994....... (282,936) 16,108,217 15,825,281
Contributions...................................... -- 5,803,524 5,803,524
Distributions...................................... (172,358) (1,547,025) (1,719,383)
Net loss........................................... (60,997) (548,975) (609,972)
--------- ----------- -----------
Partners' capital (deficit), December 31, 1995....... $(516,291) $19,815,741 $19,299,450
========= =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-72
<PAGE> 192
PERFORMANCE ASSET MANAGEMENT FUND IV, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net loss........................................................ $ (609,972) $(1,036,195)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Amortization................................................. 3,669 3,605
Provision for portfolio losses............................... 109,000 405,000
Increase in due from affiliate............................... (304,681) (361,735)
Increase in other assets..................................... (200,728) (18,425)
Increase in accounts payable................................. 25,296 14,127
(Decrease) increase in due to affiliates..................... (501,507) 509,757
----------- -----------
Net cash used in operating activities........................ (1,478,923) (483,866)
----------- -----------
Cash flows provided by (used in) investing activities:
Increase in cash held in trust.................................. (6,247,207) --
Increase in receivable from West Capital........................ -- (1,937,718)
Purchase of investments in distressed loan portfolios........... (4,215,633) (9,804,990)
Portfolio basis recovery........................................ 3,674,197 2,066,592
----------- -----------
Net cash used in investing activities........................ $(6,788,643) $(9,676,116)
----------- -----------
Cash flows provided by (used in) financing activities
Contributions from limited partners............................. 5,803,524 14,274,931
Distributions to partners....................................... (1,719,383) (1,704,784)
Decrease in deposits in escrow for investor subscriptions....... (260,000) (32,500)
----------- -----------
Net cash provided by financing activities.................... 3,824,141 12,537,647
----------- -----------
Net (decrease) increase in cash................................... (4,443,425) 2,377,665
Cash at beginning of period....................................... 5,002,648 2,624,983
----------- -----------
Cash at end of period............................................. $ 559,223 $ 5,002,648
=========== ===========
Income taxes paid............................................... $ 800 $ 800
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-73
<PAGE> 193
PERFORMANCE ASSET MANAGEMENT FUND IV, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Description of Business
Performance Asset Management Fund IV, Ltd., A California Limited
Partnership is a California limited partnership formed on October 21, 1992 for
the purpose of acquiring distressed loan portfolios from financial institutions
and other sources. Interests in the Partnership were sold in an intrastate
offering to residents of California, only pursuant to the provisions of Section
3(A)(11) of the Securities Act of 1933; however, the Partnership did not begin
its primary operations until March 8, 1993. The General Partner of the
Partnership is Performance Development, Inc., a California corporation ("PDI").
Profits, losses, and cash distributions are allocated 90% to the limited
partners and 10% to the General Partner until such time as the limited partners
have received a cash return equal to their contributions to the capital of the
Partnership plus an amount equal to 6% of those yet unpaid capital contributions
which will accumulate until recovery. After the limited partners have received a
cash return equal to their contributions to the capital of the Partnership plus
an amount equal to 6% of those capital contributions, their capital
contributions remain unreturned and which will accumulate until recovery,
profits, losses, and cash distributions are allocated 70% to the limited
partners and 30% to the General Partner.
Cash and Equivalents
The Partnership defines cash equivalents as all highly liquid investments
with a maturity of three months or less when purchased. The Partnership
maintains cash balances at one bank where the aggregate balances of accounts at
the institution are insured by the Federal Deposit Insurance Corporation up to
$100,000. The uninsured portion of the cash balances totaled $459,223 and
$4,902,643 at December 31, 1995 and 1994, respectively
Cash Held in Trust
The General Partner of the Partnership anticipates that the Partnership and
the PAM Funds may, in the future, be reorganized and merged with and into one
corporation. In an effort to accomplish that reorganization and merger on terms
and conditions consistent with the intent of the General Partner, on December
12, 1995, the General Partner, on behalf of the Partnership and the PAM Funds,
and the State of California Department of Corporations entered into an agreement
pursuant to the provisions of which the Performance Asset Management Fund Trust
("Trust") was created. The Trust was recipient of a portion of the funds
resulting from the settlement of certain litigation between the Partnership and
its affiliates, on the one hand, and West Capital Financial Services Corp.
("WCFSC") and its affiliates, on the other hand (Notes 4 and 9). The cash held
in trust had a Federal Deposit Insurance Corporation uninsured portion totaling
$6,147,207 as of December 31, 1995.
Investments in Distressed Loan Portfolios
Investments in distressed loan portfolios are carried at the lower of cost,
market, or estimated net realizable value. Amounts collected on such loans are
treated as a reduction to the carrying basis of the related investment on an
individual portfolio basis. Accordingly, income is not recognized until 100%
recovery of the carrying value of the investment on a portfolio-by-portfolio
basis occurs. Estimated net realizable value represents management's estimates,
based on its present plans and intentions, of the present value of future
collections. Due to the distressed nature of these investments, there is no
assurance that the unpaid principal balances will ultimately be collected. Any
adjustments to the carrying value of the individual portfolios are recorded in
the results of operations.
F-74
<PAGE> 194
PERFORMANCE ASSET MANAGEMENT FUND IV, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Organization Costs, Net
Organization costs include legal and other professional fees incurred
related to the initial organization of the Partnership. These costs are
capitalized and amortized using the straightline method over five years.
Accumulated amortization at December 31, 1995 and 1994, totaled $11,223 and
$7,554, respectively.
Income Taxes
No provision for income taxes has been made in the financial statements,
except for the Partnership's minimum state income tax liability of $800. All
profits and losses flow through to the partners and are recognized on their
respective income tax returns.
Supplemental Non-Cash Disclosure
In 1994 the Partnership recharacterized amounts totaling $67,126 previously
reported as organizational costs to offering costs, and recorded these amounts
as a reduction to partnership capital accordingly.
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reported
period. Actual results could differ from the estimates.
2. INVESTMENTS IN DISTRESSED LOAN PORTFOLIOS
Investments in distressed loan portfolios consist primarily of charged-off
credit card accounts and consumer loan balances such as auto and personal lines
of credit, originated by independent third-party financial institutions located
throughout the United States. In addition, the Partnership also acquired certain
portfolios of default consumer debts which were rewritten under terms different
from the original obligation. The fair value of investments in distressed loan
portfolios was determined by discounting the estimated future cash collections
on such investments during the estimated portfolio holding period using a
discount rate commensurate with the risks involved.
At December 31, 1995, investments in distressed loan portfolios consisted
of the following:
<TABLE>
<CAPTION>
1995
--------------------------
CARRYING FAIR
AMOUNT VALUE
---------- -----------
<S> <C> <C>
Credit card accounts............................... $5,857,955 $ 8,013,319
Performing rewritten accounts...................... 414,056 414,056
Consumer loans..................................... 2,984,756 4,552,847
Notes secured by Deeds of Trust.................... 445,000 445,000
---------- -----------
$9,701,767 $13,425,222
========== ===========
</TABLE>
Due to the limited operating history of the Partnership, the Partnership
believed it was not practical to estimate and present the fair value of the
investments in distressed loan portfolios at December 31, 1994.
F-75
<PAGE> 195
PERFORMANCE ASSET MANAGEMENT FUND IV, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENTS IN DISTRESSED LOAN PORTFOLIOS (CONTINUED)
The Partnership continuously evaluates the collectibility of distressed
loan balances, and adjusts the carrying value of the investments based on such
evaluations. The Partnership has recorded a reserve for possible losses on
investments in specific distressed loan portfolios of $109,000 and $405,000 for
the years ended December 31, 1995 and 1994, respectively (Note 8).
3. RELATED PARTY TRANSACTIONS
The Partnership has entered into several fee and cost reimbursement
arrangements with affiliated corporations and partnerships controlled by the
General Partner and its sole shareholder, most of which are provided for and
documented by the limited partnership agreement. The affiliated corporations are
all wholly-owned by one shareholder. The affiliated corporations and other
entities are identified below:
Performance Development, Inc. ("PDI")
Income Network Company ("INC")
Performance Capital Management ("PCM")
Performance Asset Management Funds I, II, III, and V Ltd. ("PAM
Funds")
PDI was formed in June 1990 to engage in various aspects of the investment
banking. PDI is also the General Partner for the PAM Funds and various other
California limited partnerships. PDI, in accordance with the limited partnership
agreement and offering prospectus, is paid 3% of all contributions by the
limited partners to the capital of the Partnership ("Gross Proceeds") as a
syndication fee, and is reimbursed for legal, accounting, and other costs
relating to the limited partnership offering up to 2% of Gross Proceeds. In
addition, the Partnership pays PDI an annual management fee of 2.5% of the net
asset value of the Partnership portfolio assets during the operating stage of
the Partnership in accordance with the provisions of the limited partnership
agreement. As the General Partner in the Partnership, PDI is also entitled to a
portion of periodic distributions to partners, in accordance with the provisions
of the limited partnership agreement.
During the years ended December 31, 1995 and 1994, the Partnership paid PDI
syndication fees of $201,825 and $506,100, respectively, which have been
accounted for as a reduction against the Gross Proceeds. The Partnership also
reimbursed PDI for offering expenses totaling $397,095 and $131,151 during the
years ended December 31, 1995 and 1994, respectively. PDI's management fees
incurred and recorded by the Partnership totaled $214,677 and $144,633 for the
years ended December 31, 1995 and 1994, respectively. The Partnership also paid
PDI distributions of $172,358 and $174,521 for the years ended December 31, 1995
and 1994, respectively. At December 31, 1994, the Partnership had amounts owed
to PDI recorded as amounts due to affiliates of $477,757.
At December 31, 1995, the partnership had amounts owed from PDI recorded as
amounts due from affiliates of $366,510 resulting from remitted collections from
WCFSC.
INC was formed on February 1, 1988 and subsequently became a registered
broker-dealer and member of the National Association of Security Dealers, Inc.
and the Securities Investor Protection Corporation. INC's sole shareholder is
also the sole shareholder of the General Partner, PDI. INC, in accordance with
the limited partnership agreement and offering prospectus, is paid commissions
equal to 10% of Gross Proceeds.
During the years ended December 31, 1995 and 1994, the Partnership paid INC
commissions of $636,000 and $1,719,000, respectively, which have been accounted
for as reductions against the Gross Proceeds. As of December 31, 1995 and 1994,
the Partnership had amounts owed to INC of $8,250 and $32,000, respectively, for
transactions described above.
PCM was formed in February 1993, and since its formation has performed
services for the Partnership relative to locating, evaluating, negotiating,
acquiring, servicing, and collecting distressed loan portfolio assets.
F-76
<PAGE> 196
PERFORMANCE ASSET MANAGEMENT FUND IV, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. RELATED PARTY TRANSACTIONS (CONTINUED)
PCM acquires portfolio assets from third-parties and sells the portfolios to the
Partnership for amounts determined by the General Partner to be reasonable,
customary, and competitive in light of the size, type, and character of the
acquired portfolio assets and consistent with the limited partnership agreement.
The Partnership also enters into servicing agreements with PCM to collect and
service the acquired portfolios. The agreements generally provide that all
proceeds generated from the collection of portfolio assets will be shared by the
parties in proportion to their respective percentage interests, generally, 55%
to 60% for the Partnership and 40% to 45% for PCM. The Partnership also
reimburses PCM for certain costs incurred in the collection of debts.
For the years ended December 31, 1995 and 1994, the Partnership purchased
seven and twenty portfolios from PCM, and paid acquisition fees for those
portfolios of $960,352 and $1,635,474, respectively. Also, for the years ended
December 31, 1995 and 1994, the Partnership reimbursed PCM for collection costs
of $225,318 and $427,180, respectively.
The Partnership had deposits held with PCM for future specific portfolio
acquisitions, and had amounts owed from PCM from collections of portfolio
proceeds of $314,221 and $376,050 recorded as due from affiliates at December
31, 1995 and 1994, respectively.
In 1995, the Partnership purchased two portfolios from an affiliated
partnership for $588,632, which was the carrying value of the portfolios on the
affiliated partnership's books.
4. RECEIVABLE FROM WEST CAPITAL
On April 8, 1994, the General Partner, on behalf of the Partnership and the
PAM Funds, entered into a Stock Acquisition Agreement ("Stock Agreement") with
WCFSC, for the purpose of acquiring for the Partnership and its affiliates,
1,000 shares of no par common stock of WCFSC, which 1,000 shares would represent
50% of the then issued and outstanding no par common shares of WCFSC. The Stock
Agreement provided that the Partnership and the PAM Funds have credits for
approximately $1,881,950 due to the Partnership and certain PAM Funds from
WCFSC, plus cash in the amount of $1,970,000 payable during a 5 month period
subsequent to the date of the stock purchase transaction.
Certain differences of opinion developed between the General Partner and
WCFSC regarding the terms and conditions of the Stock Agreement. As a result,
the General Partner of the Partnership, for the benefit of the Partnership and
its affiliates, including the PAM Funds, commenced litigation against WCFSC and
certain of its affiliates ("WCFSC Dispute").
On February 8, 1996, the parties to the WCFSC Dispute entered into a
Settlement Agreement and Mutual General Release ("Settlement Agreement"). In
May, 1996 the parties consummated the transaction contemplated by the Settlement
Agreement and the Partnership and its affiliates received from WCFSC $15,750,000
in satisfaction of all claims of the Partnership and its affiliates against
WCFSC and its affiliates ("Note 9").
5. DEPOSITS IN ESCROW
At December 31, 1994, the Partnership had $260,000 of cash held in an
escrow account which represents deposits for potential investor subscriptions
where the potential investor must be qualified and approved by the General
Partner prior to investment in the Partnership. At present all such
subscriptions have been either accepted or returned.
F-77
<PAGE> 197
PERFORMANCE ASSET MANAGEMENT FUND IV, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. PARTNERS' CAPITAL
During the years ended December 31, 1995 and 1994, the Partnership received
proceeds from the sale of limited partner units totaling $6,772,500 and
$16,830,000, respectively. Such proceeds are recorded net of syndication costs
and commissions paid to affiliates, and reimbursement of certain offering costs
incurred by the General Partner (Note 3).
During the years ended December 31, 1995 and 1994, the Partnership
distributed a total of $1,719,383 and $1,704,784 to the limited partners and
General Partner of the Partnership. In June 1995 the limited partners voted to
suspend partner distributions in order to utilize cash to enhance the
Partnership's operations.
7. COMMITMENTS AND CONTINGENCIES
Litigation
The General Partner has been named as a defendant in a suit that has been
filed but not served. It is the opinion of the General Partner that the suit is
without merit. The General Partner denies any wrongdoing in connection with this
matter and will vigorously defend this claim if the plaintiffs pursue this
action. The partnership agreement requires that the Partnership indemnify the
General Partner in certain instances. It is unclear at this time if the results
of this action would result in any cost to the partnership.
8. FINANCIAL INSTRUMENTS
The Partnership estimates and discloses the fair values of financial
instruments under the provisions of SFAS No. 107, Disclosures About Fair Values
of Financial Instruments. In assessing the fair value of financial instruments,
the Partnership uses a number of methodologies and assumptions, which are based
on estimates of market conditions and risks existing at the balance sheet date.
Considerable judgment is required and used by management to evaluate and
interpret market data to develop the fair value estimations. Accordingly,
management's estimates are not necessarily indicative of the amounts that the
Partnership will ultimately realize. The use of different market assumptions and
methodologies may have a material effect on the estimated fair value amounts.
Estimated cash collections include management's best current estimates of
the amounts ultimately expected to be realized upon the collection efforts and
sales of existing investments in distressed loan portfolios. While the estimates
are primarily based on past and current collection results, future cash
collections are dependent upon a number of uncontrollable market and economic
factors. The amounts the Partnership will ultimately realize could differ
materially in the near term from the amounts assumed in arriving at the fair
values.
9. SUBSEQUENT EVENTS
On February 8, 1996, the General Partner of the Partnership, for itself and
on behalf of the Partnership and the Partnership's affiliates, entered into the
Settlement Agreement (Note 4). The Settlement Agreement was entered into for the
purpose of settling and resolving any and all disputes existing between the
various parties to the WCFSC Dispute. The Settlement Agreement resulted in the
dismissal of the WCFSC Dispute; release by all parties of the claims against
other respective parties, including those claims relating to the Stock Agreement
(Note 3); and assignment and transfer by the Partnership and its affiliates to
WCFSC of certain distressed loan portfolios.
The Settlement Agreement required that WCFSC pay to the Partnership and its
affiliates $15,750,000 in exchange for the general release by the Partnership
and its affiliates of WCFSC from the claims asserted in the WCFSC Dispute. The
Settlement Agreement also required the sale to WCFSC by the Partnership and its
F-78
<PAGE> 198
PERFORMANCE ASSET MANAGEMENT FUND IV, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. SUBSEQUENT EVENTS (CONTINUED)
affiliates of certain interests of the Partnership and its affiliates in certain
distressed loan portfolios, and the transfer by the Partnership and its
affiliates to WCFSC of various other assets and rights. In addition, the
Settlement Agreement also required the establishment of a defense fund in an
amount not to exceed $250,000 which will be available to pay legal costs and
fees incurred by WCFSC to defend any and all actions which may be brought by
limited partners in the Partnership and the PAM Funds.
The proceeds from the settlement were allocated to the Partnership and its
affiliates, including the PAM Funds, by the General Partner of the Partnership
in accordance with the respective interests of the Partnership and those
affiliates in those proceeds.
The Settlement Agreement was approved by 88.7% of the limited partners of
the Partnership; only 0.58% of the limited partners of the Partnership
disapproved of the Settlement Agreement; and 10.7% of the limited partners of
the Partnership provided no responses regarding the approval of the Settlement
Agreement.
Additionally, 91.12% of all the limited partners in the Partnership and the
PAM Funds in the aggregate executed general releases in favor of WCFSC. On April
10, 1996, WCFSC completed the payment of $15,750,000 for the benefit of the
Partnership and its affiliates, including the PAM Funds.
The Partnership acquired six portfolios from PCM totaling $474,740, and
paid acquisition fees for those portfolios of approximately $110,000 subsequent
to December 31, 1995.
F-79
<PAGE> 199
REPORT OF INDEPENDENT AUDITORS
To the Partners of
Performance Asset Management Fund IV, Ltd.,
A California Limited Partnership
We have audited the accompanying balance sheets of Performance Asset
Management Fund IV, Ltd., A California Limited Partnership ("Partnership") as of
December 31, 1996 and 1995, and the related statements of operations, partners'
capital (deficit) and cash flows for the years then ended. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Performance Asset Management
Fund IV, Ltd., A California Limited Partnership as of December 31, 1996 and
1995, and the results of its operations and its cash flows for the years then
ended, in conformity with generally accepted accounting principles.
/s/ KELLY & COMPANY
Newport Beach, California
February 21, 1997
F-80
<PAGE> 200
PERFORMANCE ASSET MANAGEMENT FUND IV, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash and equivalents.............................................. $ 2,121,545 $ 559,223
Cash held in trust................................................ 5,834,268 6,247,207
Investments in distressed loan portfolios, net.................... 9,091,186 9,701,767
Receivable from West Capital...................................... -- 1,937,718
Due from affiliates............................................... 136,022 680,731
Other assets...................................................... 104,977 219,153
Organization costs, net........................................... 3,454 7,124
----------- -----------
Total assets............................................ $17,291,452 $19,352,923
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable.................................................. $ 6,351 $ 45,223
Due to affiliates................................................. 350,576 8,250
----------- -----------
Total liabilities....................................... 356,927 53,473
Commitments and contingencies
Partners' capital................................................. 16,934,525 19,299,450
----------- -----------
Total liabilities and partners' capital................. $17,291,452 $19,352,923
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-81
<PAGE> 201
PERFORMANCE ASSET MANAGEMENT FUND IV, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Portfolio collections.............................................. $ 5,235,693 $4,041,724
Less: portfolio basis recovery..................................... 5,085,346 3,674,197
----------- ----------
Net investment income.................................... 150,347 367,527
----------- ----------
Cost of operations:
Collection expense............................................... 227,874 225,318
Management fee expense........................................... 221,422 214,677
Professional fees................................................ 959,297 514,773
Provision for portfolio losses................................... -- 109,000
Amortization..................................................... 3,670 3,669
General and administrative expense............................... 20,832 21,532
----------- ----------
Total operating expenses................................. 1,433,095 1,088,969
----------- ----------
Loss from operations............................................... (1,282,748) (721,442)
Other income:
Interest......................................................... 535,431 109,670
Other............................................................ 15,151 1,800
----------- ----------
Net loss........................................................... $ (732,166) $ (609,972)
=========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-82
<PAGE> 202
PERFORMANCE ASSET MANAGEMENT FUND IV, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
--------- ----------- -----------
<S> <C> <C> <C>
Balance, December 31, 1994........................... $(282,936) $16,108,217 $15,825,281
Contributions...................................... -- 5,803,524 5,803,524
Distributions...................................... (172,358) (1,547,025) (1,719,383)
Net loss........................................... (60,997) (548,975) (609,972)
--------- ----------- -----------
Balance, December 31, 1995........................... (516,291) 19,815,741 19,299,450
Redemption of partnership units.................... -- (40,000) (40,000)
Distributions...................................... (159,334) (1,433,425) (1,592,759)
Net loss........................................... (73,217) (658,949) (732,166)
--------- ----------- -----------
Balance, December 31, 1996........................... $(748,842) $17,683,367 $16,934,525
========= =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-83
<PAGE> 203
PERFORMANCE ASSET MANAGEMENT FUND IV, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss..................................................... $ (732,166) $ (609,972)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Amortization.............................................. 3,670 3,669
Decrease (increase) in assets:
Due from affiliates....................................... 544,709 (304,681)
Other assets.............................................. 114,176 (200,728)
Provision for portfolio losses............................ -- 109,000
Increase (decrease) in liabilities:
Due to affiliates......................................... 342,326 (501,507)
Accounts payable.......................................... (38,872) 25,296
----------- ------------
Net cash provided by (used in) operating activities....... 233,843 (1,478,923)
----------- ------------
Cash flows provided by (used in) investing activities:
Recovery of portfolio basis.................................. 5,085,346 3,674,197
Receivable from West Capital................................. 1,937,718 --
Cash held in trust........................................... 412,939 (6,247,207)
Purchase of investments in distressed loan portfolios........ (4,474,765) (4,215,633)
----------- ------------
Net cash provided by (used in) investing activities.......... 2,961,238 (6,788,643)
----------- ------------
Cash flows provided by (used in) financing activities:
Distributions to partners.................................... (1,592,759) (1,719,383)
Redemption of partnership units.............................. (40,000) --
Contributions from limited partners.......................... -- 5,803,524
Deposits in escrow for investor subscriptions................ -- (260,000)
----------- ------------
Net cash provided by (used in) financing activities....... (1,632,759) 3,824,141
----------- ------------
Net increase (decrease) in cash.............................. 1,562,322 (4,443,425)
Cash at beginning of period.................................. 559,223 5,002,648
----------- ------------
Cash at end of period........................................ $ 2,121,545 $ 559,223
========== ===========
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Franchise taxes.............................................. $ 800 $ 800
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-84
<PAGE> 204
PERFORMANCE ASSET MANAGEMENT FUND IV, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Description of Business
Performance Asset Management Fund IV, Ltd., A California Limited
Partnership was formed in October 1992, for the purpose of acquiring investments
in or direct ownership of distressed loan portfolios from financial institutions
and other sources, Interests in the Partnership were sold in an intrastate
offering to residents of California, pursuant to the provisions of Section
3(A)(II) of the Securities Act of 1933; however, the Partnership did not begin
its primary operations until March 1993. The General Partner is Performance
Development, Inc., a California corporation ("PDI").
Profits, losses, and cash distributions are allocated 90% to the limited
partners and 10% to the General Partner until such time as the limited partners
have received cash equal to 100% of their contributions to the Partnership plus
an amount equal to 6% of those yet unpaid capital contributions which will
accumulate until recovery. Thereafter, Partnership profits, losses, and cash
distributions are allocated 70% to the limited partners and 30% to the General
Partner.
Cash and Equivalents
The Partnership defines cash equivalents as all highly liquid investments
with a maturity of three months or less when purchased. The Partnership
maintains its cash balances at one bank in accounts which, at times, may exceed
federally insured limits. The Partnership uses a cash management system whereby
idle cash balances are swept daily into a master account and invested in high
quality, short-term securities. The Partnership's management believes that these
cash balances are not subject to any significant credit risk due to the nature
of the investments and has not experienced any past losses with cash and
equivalent investments.
Cash Held in Trust
The General Partner anticipates that the Partnership and the PAM Funds
(Note 3) may, in the future, be reorganized and merged with and into one
corporation. In an effort to accomplish that reorganization and merger on terms
and conditions consistent with the intent of the General Partner, on December
12, 1995, the General Partner, on behalf of the Partnership and the PAM Funds,
and the State of California Department of Corporations entered into an agreement
pursuant to the provisions of which the Performance Asset Management Fund Trust
("Trust") was created. These funds are subject to the terms of the Trust
Agreement. The Trust was the recipient of a portion of the funds resulting from
a settlement of certain litigation between the Partnership and its affiliates
and West Capital Financial Services Corp. ("WCFSC") and its affiliates.
Investments in Distressed Loan Portfolios and Revenue Recognition
Investments in distressed loan portfolios are carried at the lower of cost,
market, or estimated net realizable value. Amounts collected are treated as a
reduction to the carrying basis of the related investment on an individual
portfolio basis. Accordingly, income is not recognized until 100% recovery of
the original cost of the investment in each portfolio occurs. Estimated net
realizable value represents management's estimates, based on its present plans
and intentions, of the present value of future collections. Due to the
distressed nature of these investments, no interest is earned on outstanding
balances, and there is no assurance that the unpaid principal balances will
ultimately be collected. Any adjustments to the carrying value of the individual
portfolios are recorded in the results of operations.
F-85
<PAGE> 205
PERFORMANCE ASSET MANAGEMENT FUND IV, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Organization Costs, Net
Organization costs include legal and other professional fees incurred
related to the initial organization of the Partnership. These costs are
capitalized and amortized using the straight-line method over five years.
Accumulated amortization at December 31, 1996 and 1995 totaled $14,893 and
$11,223, respectively.
Income Taxes
No provision for income taxes has been made in the financial statements,
except for the Partnership's minimum state franchise tax liability of $800. All
partners are taxed individually on their share of the Partnership's earnings and
losses.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reported
period. Actual results could differ from the estimates.
Financial Statement Classification
Certain amounts within the 1995 financial statements have been reclassified
in order to conform with the 1996 financial statement presentation.
2. INVESTMENTS IN DISTRESSED LOAN PORTFOLIOS, NET
Investments in distressed loan portfolios consist primarily of charged-off
credit card accounts and consumer loan balances such as auto loans and personal
lines of credit, originated by independent third-party financial institutions
located throughout the United States. In addition, the Partnership acquired
portfolios of defaulted consumer debts which were rewritten under terms
different from the original obligation. The fair value of these investments was
determined by discounting the estimated future cash collections on such
investments during the estimated remaining portfolio holding period using a
discount rate commensurate with the risks involved.
F-86
<PAGE> 206
PERFORMANCE ASSET MANAGEMENT FUND IV, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENTS IN DISTRESSED LOAN PORTFOLIOS, NET (CONTINUED)
At December 31, 1996 and 1995, investments in distressed loan portfolios
consisted of the following:
<TABLE>
<CAPTION>
1996
--------------------------
CARRYING FAIR
AMOUNT VALUE
---------- -----------
<S> <C> <C>
Credit card accounts............................... $6,947,644 $10,485,070
Consumer loans..................................... 1,795,999 3,050,595
Notes secured by Deeds of Trust.................... 347,543 347,543
---------- -----------
$9,091,186 $13,883,208
========== ===========
</TABLE>
<TABLE>
<CAPTION>
1995
---------------------------
CARRYING FAIR
AMOUNT VALUE
----------- -----------
<S> <C> <C>
Credit card accounts.............................. $ 5,857,955 $ 8,013,319
Performing rewritten accounts..................... 414,056 414,056
Consumer loans.................................... 2,984,756 4,552,847
Notes secured by Deeds of Trust................... 445,000 445,000
---------- -----------
$ 9,701,767 $13,425,222
========== ===========
</TABLE>
At December 31, 1996 and 1995, the allowance for possible losses on
investments in specific distressed loan portfolios consisted of the following:
<TABLE>
<CAPTION>
1996
-----------------------------------------------
INVESTMENT ALLOWANCE FOR CARRYING
BALANCE PORTFOLIO LOSSES AMOUNT
----------- ---------------- ----------
<S> <C> <C> <C>
Credit card accounts............. $ 7,461,644 $ (514,000) $6,947,644
Consumer loans................... 1,795,999 -- 1,795,999
Notes secured by Deeds of
Trust.......................... 347,543 -- 347,543
---------- --------- ----------
$9,605,186.. $ (514,000) $9,091,186
========== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
1995
-----------------------------------------------
INVESTMENT ALLOWANCE FOR CARRYING
BALANCE PORTFOLIO LOSSES AMOUNT
----------- ---------------- ----------
<S> <C> <C> <C>
Credit card accounts............. $ 6,371,955 $ (514,000) $5,857,955
Performing rewritten accounts.... 414,056 -- 414,056
Consumer loans................... 2,984,756 -- 2,984,756
Notes secured by Deeds of
Trust.......................... 445,000 -- 445,000
---------- --------- ----------
$10,215,767 $ (514,000) $9,701,767
========== ========= ==========
</TABLE>
The Partnership's allowance for portfolio losses consisted of the following
at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Allowance for portfolio losses, beginning.............. $514,000 $405,000
Provision for portfolio losses......................... -- 109,000
-------- --------
Allowance for portfolio losses, December 31............ $514,000 $514,000
======== ========
</TABLE>
F-87
<PAGE> 207
PERFORMANCE ASSET MANAGEMENT FUND IV, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENTS IN DISTRESSED LOAN PORTFOLIOS, NET (CONTINUED)
The Partnership continuously evaluates the collectibility of distressed
loan balances, and adjusts the carrying value of the investments based on such
evaluations. The Partnership has recorded a reserve for possible losses on
investments in specific distressed loan portfolios of $514,000 as of December
31, 1996 and 1995.
3. RELATED PARTY TRANSACTIONS
The Partnership has entered into several fee and cost reimbursement
arrangements with affiliated corporations and limited partnerships controlled by
the General Partner and its sole shareholder, most of which are provided for and
documented by the limited partnership agreement and the offering prospectus. The
affiliated corporations are owned by one individual. The affiliated corporations
and other entities are identified below:
Affiliated Corporations:
Performance Development, Inc. ("PDI")
Income Network Company ("INC")
Performance Capital Management ("PCM")
Other Affiliated Entities:
Performance Asset Management Fund, Ltd., and
Performance Asset Management Funds II, III, and V Ltd. ("PAM Funds")
PDI was formed in June 1990 to engage in various aspects of the investment
banking industry. PDI is also the General Partner for the PAM Funds and various
other California limited partnerships. PDI, in accordance with the limited
partnership agreement and offering prospectus, was paid 3.0% of all
contributions by the limited partners to the capital of the Partnership ("Gross
Proceeds") as a syndication fee, and is reimbursed for legal, accounting, and
other costs relating to the limited partnership offering up to 2.0% of Gross
Proceeds. In addition, the Partnership pays PDI an annual management fee of 2.5%
of the net asset value of the Partnership portfolio assets during the operating
stage of the Partnership in accordance with the provisions of the limited
partnership agreement. As the General Partner in the Partnership, PDI is also
entitled to a portion of periodic distributions to partners, in accordance with
the provisions of limited partnership agreement.
During the year ended December 31, 1995, the Partnership paid PDI
syndication fees of $201,825, which have been accounted for as a reduction
against the Gross Proceeds. The Partnership also reimbursed PDI for offering
expenses totaling $397,095 during the year ended December 31, 1995. PDI's
management fees incurred and recorded by the Partnership totaled $221,422 and
$214,677 for the years ended December 31, 1996 and 1995, respectively. The
Partnership also recorded capital distributions to PDI of $159,334 and $172,358
for the years ended December 31, 1996 and 1995, respectively.
At December 31, 1996, the Partnership had amounts owed to PDI recorded as
amounts due to affiliates of $349,497. At December 31, 1995, the Partnership had
amounts owed from PDI recorded as amounts due from affiliates of $366,510.
INC was formed in February 1, 1988 and subsequently became a registered
broker-dealer and member of the National Association of Security Dealers, Inc.
and the Securities Investor Protection Corporation. INC's sole shareholder is
also the sole shareholder of the General Partner, PDI. INC, in accordance with
the limited partnership agreement and offering prospectus, was paid commissions
equal to 10% of gross proceeds.
F-88
<PAGE> 208
PERFORMANCE ASSET MANAGEMENT FUND IV, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. RELATED PARTY TRANSACTIONS (CONTINUED)
During the year ended December 31, 1995, the Partnership paid INC
commissions of $636,000, which have been accounted for as reductions against the
Gross Proceeds. As of December 31, 1995, the Partnership had amounts owed to INC
of $8,250 recorded as due to affiliates.
PCM was formed in February 1993, and since its formation has performed
services for the Partnership relative to locating, evaluating, negotiating,
acquiring, servicing, and collecting investments in distressed loan portfolios.
PCM acquires distressed loan portfolios from third-parties and sells the
portfolios to the Partnership for amounts determined by the General Partner to
be reasonable, customary, and competitive in light of the size, type and
character of the acquired portfolios and consistent with the limited partnership
agreement. The Partnership also enters into agreements with PCM to collect and
service the acquired portfolios. The agreements generally provide that all
proceeds generated from the collection of portfolio assets will be shared by the
parties in proportion to their respective percentage interests, generally, 55%
to 60% for the Partnership and 45% to 40% for PCM. The Partnership also
reimburses PCM for certain costs incurred in the collection of portfolio assets.
For the years ended December 31, 1996 and 1995, the Partnership purchased
twelve portfolios and seven portfolios from PCM, and recorded acquisition fees
for these portfolios of $1,181,569 and $960,352, respectively. These acquisition
fees have been included in the carrying value of the related investments. Also,
for the years ended December 31, 1996 and 1995, the Partnership recorded
collection costs of $227,874 and $225,318, respectively.
The Partnership had amounts owed of $136,022 and $314,221 recorded as due
from affiliates at December 31, 1996 and 1995, respectively.
On December 31, 1995, the Partnership purchased two portfolios with
remaining carrying values of $588,632 from PAM II for cash of $12,639, and a
receivable collectible from PDI for $575,993.
4. SETTLEMENT WITH WEST CAPITAL FINANCIAL SERVICES CORP.
On April 8, 1994, the General Partner, on behalf of the Partnership and the
PAM Funds, entered into a Stock Acquisition Agreement ("Stock Agreement") with
WCFSC, for the purpose of acquiring for the Partnership and its affiliates,
1,000 shares of no par common stock of WCFSC, which 1,000 shares would represent
50% of the then issued and outstanding no par common shares of WCFSC. The Stock
Agreement provided that the Partnership and the PAM Funds have credits for
approximately $1,881,950 due to the Partnership and certain PAM Funds from
WCFSC, plus cash in the amount of $1,970,000 payable during a five month period
subsequent to the date of the stock purchase transaction.
Certain differences of opinion developed between the General Partner and
WCFSC regarding the terms and conditions of the Stock Agreement. As a result,
the General Partner, for the benefit of the Partnership and its affiliates,
including the PAM Funds, commenced litigation against WCFSC and certain of its
affiliates ("WCFSC Dispute").
On February 8, 1996, the parties to the WCFSC Dispute entered into a
Settlement Agreement and Mutual General Release ("Settlement Agreement") for the
purpose of settling and resolving any and all disputes existing between the
various parties to the WCFSC Dispute. The Settlement Agreement resulted in the
dismissal of the WCFSC Dispute; release by all parties of the claims against
other respective parties, including those claims relating to the Stock
Agreement; and assignment and transfer by the Partnership and its affiliates to
WCFSC of certain distressed loan portfolios.
The Settlement Agreement required that WCFSC pay to the Partnership and its
affiliates $16,194,850 in exchange for the general release by the Partnership
and its affiliates of WCFSC from the claims asserted in
F-89
<PAGE> 209
PERFORMANCE ASSET MANAGEMENT FUND IV, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. SETTLEMENT WITH WEST CAPITAL FINANCIAL SERVICES CORP. (CONTINUED)
the WCFSC Dispute. The Settlement Agreement also required the sale to WCFSC by
the Partnership and its affiliates of certain interests of the Partnership and
its affiliates in certain distressed loan portfolios, and the transfer by the
Partnership and its affiliates to WCFSC of various other assets and rights. In
addition, the Settlement Agreement also required the establishment of a defense
fund of $250,000 which is available to pay legal costs and fees incurred by
WCFSC to defend any and all actions which may be brought by limited partners in
the Partnership and the PAM Funds. To date no such actions have been brought.
The proceeds from the Settlement Agreement were allocated to the
Partnership and its affiliates, including the PAM Funds, by the General Partner
in accordance with the respective interests of the Partnership and those
affiliates. Accordingly, the Partnership received $4,304,815 of the total
settlement proceeds.
The Settlement Agreement was approved by 88.7% of the limited partners of
the Partnership; only 0.6% of the limited partners of the Partnership
disapproved of the Settlement Agreement; and 10.7% of the limited partners of
the Partnership provided no responses regarding the approval of the Settlement
Agreement.
Additionally, 91.12% of all the limited partners in the Partnership and the
PAM Funds in the aggregate executed general releases in favor of WCFSC.
5. PARTNERS' CAPITAL
In 1995 the limited partners voted to suspend partner distributions in
order to utilize cash to enhance the Partnership's operations. Cash
distributions were subsequently reinstated in 1996.
6. COMMITMENTS AND CONTINGENCIES
The General Partner has been named as a defendant in a suit that was filed
in early 1996 but to date has not been served. It is the opinion of the General
Partner that the suit is without merit. The General Partner denies any
wrongdoing in connection with this matter and will vigorously defend this claim
if the plaintiffs pursue this action. The partnership agreement requires that
the Partnership indemnify the General Partner in certain instances, and it is
unclear at this time if the results of this action would result in any cost to
the Partnership.
7. FINANCIAL INSTRUMENTS
The Partnership estimates and discloses the fair values of financial
instruments under the provisions of the Statement of Financial Accounting
Standard No. 107, Disclosures About Fair Values of Financial Instruments. In
assessing the fair value of financial instruments, the Partnership uses a number
of methodologies and assumptions, which are based on the underlying quality of
the distressed loan portfolio, the cost of comparable capital, the estimates of
market conditions, and risks existing at the balance sheet date. Considerable
judgment is required and used by management to evaluate and interpret market
data to develop the fair value estimations. Accordingly, management's estimates
are not necessarily indicative of the amounts that the Partnership will
ultimately realize. The use of different market assumptions and methodologies
may have a material effect on the estimated fair value amounts.
Estimated cash collections include management's best current estimates of
the amounts ultimately expected to be realized upon the collection efforts and
disposition of existing investments in distressed loan portfolios. While the
estimates are primarily based on past and current collection results, future
cash collections are dependent upon a number of uncontrollable market and
economic factors. The amounts the Partnership will ultimately realize could
differ materially in the near term from the amounts assumed in arriving at the
fair values.
F-90
<PAGE> 210
REPORT OF INDEPENDENT AUDITORS
To Performance Development, Inc., General Partner
Performance Asset Management Fund V, Ltd.,
A California Limited Partnership
We have audited the accompanying balance sheets of Performance Asset
Management Fund V, Ltd., A California Limited Partnership ("Partnership") as of
December 31, 1995 and 1994, and the related statements of operations, partners'
capital (deficit) and cash flows for the year ended December 31, 1995 and the
period from inception, April 4, 1994 through December 31, 1994. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Performance Asset Management
Fund V, Ltd., A California Limited Partnership as of December 31, 1995 and 1994,
and the results of its operations and its cash flows for the year ended December
31, 1995 and the period from inception, April 4, 1994, through December 31,
1994, in conformity with generally accepted accounting principles.
/s/ KELLY & COMPANY
Newport Beach, California
July 9, 1996
F-91
<PAGE> 211
PERFORMANCE ASSET MANAGEMENT FUND V, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Cash and equivalents $ 215,798 $ 1,220,917
Cash held in trust 1,014,201 --
Investments in distressed loan portfolios, net 1,771,568 437,971
Receivable from West Capital......................................... 1,014,882 1,014,882
Due from affiliates.................................................. 624,247 100,032
Other receivables.................................................... 36,733 23,234
Organization costs, net.............................................. 3,520 4,502
---------- ----------
Total assets............................................... $ 4,680.949 $ 2,801,538
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable..................................................... $ 2,598 $ 800
Due to affiliates.................................................... 1,650 234,028
Deposits in escrow for investor subscriptions........................ -- 160,000
---------- ----------
Total liabilities.......................................... 4,248 394,828
---------- ----------
Commitments and contingencies
Partners' capital.................................................... 4,676,701 2,406,710
---------- ----------
Total liabilities and partners' capital.................... $ 4,680,949 $ 2,801,538
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-92
<PAGE> 212
PERFORMANCE ASSET MANAGEMENT FUND V, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995, AND THE PERIOD
FROM INCEPTION, APRIL 4, 1994, THROUGH DECEMBER 31, 1994
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Portfolio collections................................................. $ 483,439 $ 38,117
Less: portfolio basis recovery........................................ 483,439 38,117
--------- ---------
Net investment income....................................... -- --
--------- ---------
Cost of operations:
Management fee expense.............................................. 39,146 5,128
Collection expense.................................................. 64,375 59,052
Provision for portfolio losses...................................... 26,000 54,000
Professional fees................................................... 103,202 8,691
Amortization........................................................ 1,031.... 617
General and administrative expense.................................. 2,629 2,072
--------- ---------
Total operating expenses.................................... 236,383 129,560
--------- ---------
Loss from operations.................................................. (236,383) (129,560)
Other income:
Interest, net....................................................... 32,864 9,542
Other............................................................... 46 --
--------- ---------
Net loss.............................................................. $(203,473) $(120,018)
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-93
<PAGE> 213
PERFORMANCE ASSET MANAGEMENT FUND V, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1995, AND
THE PERIOD FROM INCEPTION, APRIL 4, 1994, THROUGH DECEMBER 31, 1994
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------- ---------- ----------
<S> <C> <C> <C>
Partners' capital (deficit), at inception April 4,
1994.................................................. -- -- --
Contributions......................................... -- 2,542,561 $2,542,561
Distributions......................................... ($ 1,583) (14,250) (15,833)
Net loss.............................................. (12,002) (108,016) (120,018)
-------- ---------- ----------
Partners' capital (deficit), December 31, 1994.......... (13,585) 2,420,295 2,406,710
Contributions......................................... -- 2,571,300 2,571,300
Distributions......................................... (9,786) (88,050) (97,836)
Net loss.............................................. (20,347) (183,126) (203,473)
-------- ---------- ----------
Partners' capital (deficit), December 31, 1995.......... $(43,718) $4,720,419 $4,676,701
======== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-94
<PAGE> 214
PERFORMANCE ASSET MANAGEMENT FUND V, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995, AND
THE PERIOD FROM INCEPTION, APRIL 4, 1994, THROUGH DECEMBER 31, 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net loss........................................................ $ (203,473) $ (120,018)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Amortization................................................. 1,031 617
Provision for portfolio losses............................... 26,000 54,000
Increase in due from affiliate............................... (492,785) (90,389)
Decrease (increase) in other receivables..................... 23,234 (23,234)
Increase in accounts payable................................. 1,798 800
(Decrease) increase in due to affiliates..................... (232,378) 234,028
----------- -----------
Net cash (used in) provided by operating activities.......... (876,573) 55,804
----------- -----------
Cash flows provided by (used in) investing activities:
Increase in organization costs.................................. (49) (5,119)
Increase in cash held in trust.................................. (1,014,201) --
Increase in receivable from West Capital........................ -- (1,014,882)
Purchase of investments in distressed loan portfolios........... (1,843,039) (530,088)
Portfolio basis recovery........................................ 415,279 28,474
----------- -----------
Net cash used in investing activities........................ (2,442,010) (1,521,615)
----------- -----------
Cash flows provided by (used in) financing activities
Contributions from limited partners............................. 3,025,000 2,975,000
Payments for offering expenses.................................. (453,700) (432,439)
Distributions to partners....................................... (97,836) (15,833)
(Decrease) increase in deposits in escrow for investor
subscriptions................................................ (160,000) 160,000
----------- -----------
Net cash provided by financing activities.................... 2,313,464 2,686,728
----------- -----------
Net (decrease) increase in cash................................... (1,005,119) 1,220,917
Cash at beginning of period....................................... 1,220,917 --
----------- -----------
Cash at end of period............................................. $ 215,798 $ 1,220,917
=========== ===========
Income taxes paid............................................ $ 800 $ 800
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-95
<PAGE> 215
PERFORMANCE ASSET MANAGEMENT FUND V, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Description of Business
Performance Asset Management Fund V, Ltd., A California Limited Partnership
("the Partnership") was formed on April 4, 1994, for the purpose of acquiring
distressed loan portfolios from financial institutions and other sources.
Interests in the Partnership were sold in a private placement offering pursuant
to Regulation D promulgated by the Securities and Exchange Commission on a "best
efforts" basis; however, the Partnership did not begin its primary operations
until June 10, 1994. The General Partner of the Partnership is Performance
Development, Inc., a California corporation ("PDI").
Profits, losses, and quarterly discretionary cash distributions are
allocated 90% to the limited partners and 10% to the General Partner until such
time as the limited partners have received a cash return equal to their
contributions to the capital of the Partnership. After the limited partners have
received a cash return equal to their contributions to the capital of the
Partnership, profits, losses, and quarterly discretionary cash distributions are
allocated 70% to the limited partners and 30% to the General Partner.
Cash and Equivalents
The Partnership defines cash equivalents as all highly liquid investments
with a maturity of three months or less when purchased. The Partnership
maintains cash balances at one bank where the aggregate balances of accounts at
the institution are insured by the Federal Deposit Insurance Corporation up to
$100,000. The uninsured portion of the cash balances totaled $115,798 and
$1,120,917 at December 31, 1995 and 1994, respectively.
Cash Held in Trust
The General Partner of the Partnership anticipates that the Partnership and
the PAM Funds (Note 3) may, in the future, be reorganized and merged with and
into one corporation. In an effort to accomplish that reorganization and merger
on terms and conditions consistent with the intent of the General Partner, on
December 12, 1995, the General Partner, on behalf of the Partnership and the PAM
Funds, and the State of California Department of Corporations entered into an
agreement pursuant to the provisions of which the Performance Asset Management
Fund Trust ("Trust") was created. The Trust was the recipient of a portion of
the funds resulting from the settlement of certain litigation between the
Partnership and its affiliates and West Capital Financial Services Corp.
("WCFSC") and its affiliates (Notes 4 and 9). The uninsured portion of the cash
held in trust totaled $914,201 at December 31, 1995.
Investments in Distressed Loan Portfolios and Revenue Recognition
Investments in distressed loan portfolios are carried at the lower of cost,
market, or estimated net realizable value. Amounts collected on such loans are
treated as a reduction to the carrying basis of the related investment on an
individual portfolio basis. Accordingly, income is not recognized until 100%
recovery of the carrying value of the investment in each portfolio occurs.
Estimated net realizable value represents management's estimates, based on its
present plans and intentions, of the present value of future collections. Due to
the distressed nature of these investments, no interest is earned on outstanding
balances and there is no assurance that the unpaid principal balances will
ultimately be collected. Any adjustment to the carrying value of the individual
portfolios is recorded in the results of operations.
F-96
<PAGE> 216
PERFORMANCE ASSET MANAGEMENT FUND V, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Organization Costs, Net
Organization costs include legal and other professional fees incurred
related to the initial organization of the Partnership. These costs are
capitalized and amortized using the straight line method over five years.
Accumulated amortization at December 31, 1995 and 1994, totaled $1,648 and $617,
respectively.
Income Taxes
The partnership does not provide for federal income or state franchise
taxes except for the minimum annual state franchise tax of $800. As a
partnership, the partners are taxed individually on their share of partnership
earnings and losses.
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
periods. Actual results could differ from the estimates.
2. INVESTMENTS IN DISTRESSED LOAN PORTFOLIOS
Investments in distressed loan portfolios consist primarily of charged-off
credit card accounts and consumer loan balances such as auto and personal lines
of credit, originated by independent third-party financial institutions located
throughout the United States. In addition, the Partnership also acquired certain
portfolios of defaulted consumer debts which were rewritten under terms
different from the original obligation. The fair value of investments in
distressed loan portfolios was determined by discounting the estimated future
cash collections on such investments during the estimated portfolio holding
period using a discount rate commensurate with the risks involved.
At December 31, 1995, investments in distressed loan portfolios consisted
of the following:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
---------- ----------
<S> <C> <C>
Credit card accounts................................ $1,032,857 $1,678,279
Performing rewritten accounts....................... 105,089 105,089
Consumer loans...................................... 633,622 880,399
---------- ----------
$1,771,568 $2,663,767
========== ==========
</TABLE>
Due to the limited operating history of the Partnership, the Partnership
believed it was not practical to estimate and present the fair value of the
investments in distressed loan portfolios at December 31, 1994.
F-97
<PAGE> 217
PERFORMANCE ASSET MANAGEMENT FUND V, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENTS IN DISTRESSED LOAN PORTFOLIOS (CONTINUED)
At December 31, 1995 and 1994, the allowance for possible losses on
investments in specific distressed loan portfolios consisted of the following:
<TABLE>
<CAPTION>
1995
---------------------------------
INVESTMENT ALLOWANCE FOR CARRYING
BALANCE PORTFOLIO LOSSES AMOUNT
------------------ ---------------- ------------
<S> <C> <C> <C>
Credit card account........... $1,085,857 ($53,000) $ 1,032,857
Performing rewritten
accounts.................... 105,089 -- 105,089
Consumer loans................ 660,622 (27,000) 633,622
---------- -------- ----------
$1,851,568 $(80,000) $ 1,771,568
========== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
1994
--------------------------------------------
INVESTMENT ALLOWANCE FOR CARRYING
BALANCE PORTFOLIO LOSSES AMOUNT
---------- ---------------- --------
<S> <C> <C> <C>
Credit card account.................... $ 225,529 $(27,000) $198,529
Consumer loans......................... 266,442 (27,000) 239,442
-------- -------- --------
$ 491,971 $(54,000) $437,971
======== ======== ========
</TABLE>
The Partnership's allowance for portfolio losses consisted of the following
at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Allowance for portfolio losses, beginning................ $54,000 --
Provision for portfolio losses......................... 26,000 $54,000
Recoveries............................................. -- --
------- -------
Allowance for portfolio losses, December 31.............. $80,000 $54,000
======= =======
</TABLE>
The Partnership continuously evaluates the collectibility of distressed
loan balances, and adjusts the carrying value of the investments based on such
evaluations. At December 31, 1995 and 1994, the Partnership had four and three
specific portfolios, respectively, which required allowances to reduce
investment balances to their net realizable value. At December 31, 1995 and
1994, portfolio investment balances requiring allowance recognition totaled
$488,338 and $447, 517, respectively.
3. RELATED PARTY TRANSACTIONS
The Partnership has entered into several fee and cost reimbursement
arrangements with affiliated corporations and limited partnerships controlled by
the General Partner and its sole shareholder, most of which are provided for and
documented in the limited partnership agreement and the offering prospectus. The
affiliated corporations are owned by one individual. The affiliated corporations
and other affiliated entities are identified as follows:
Affiliated Corporations:
Performance Development, Inc. ("PDI")
Income Network Company ("INC")
Performance Capital Management ("PCM")
Other Affiliated Entities:
Performance Asset Management Funds I, II, III, and IV, Ltd. ("PAM
Funds")
F-98
<PAGE> 218
PERFORMANCE ASSET MANAGEMENT FUND V, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. RELATED PARTY TRANSACTIONS (CONTINUED)
PDI was formed in June 1990 to engage in various aspects of the investment
banking industry. PDI is also the General Partner for the PAM Funds and various
other California limited partnerships. PDI, in accordance with the limited
partnership agreement and offering prospectus, is paid 3% of all contributions
by the limited partners to the capital of the Partnership ("Gross Proceeds") as
a syndication fee, and is reimbursed for legal, accounting, and other costs
relating to the limited partnership offering up to 2% of Gross Proceeds. In
addition, the Partnership pays PDI an annual management fee of 2.5% of the net
asset value of the Partnership portfolio assets during the operating phase of
the Partnership in accordance with the provisions of the limited partnership
agreement. As the General Partner in the Partnership, PDI is also entitled to a
portion of periodic distributions to partners, in accordance with the provisions
of the limited partnership agreement.
During the year and period ended December 31, 1995 and 1994, the
Partnership paid PDI syndication fees of $90,750 and $89,250, respectively,
which have been accounted for as a reduction against the Gross Proceeds. The
Partnership also reimbursed PDI for offering expenses totaling $60,450 and
$45,689 during the year and period ended December 31, 1995 and 1994,
respectively. PDI's management fees incurred and recorded by the Partnership
totaled $39,146 and $5,128 for the year and period ended December 31, 1995 and
1994, respectively. The Partnership also accrued distributions to PDI of $9,786
and $1,583 for the year and period ended December 31, 1995 and 1994,
respectively. At December 31, 1994, the Partnership had amounts owed to PDI
recorded as amounts due to affiliates of $234,028.
INC was formed on February 1, 1988 and subsequently became a registered
broker-dealer and member of the National Association of Security Dealers, Inc.
and the Securities Investor Protection Corporation. INC's sole shareholder is
also the sole shareholder of the General Partner, PDI. INC, in accordance with
the limited partnership agreement and offering prospectus, is paid commissions
equal to 10% of Gross Proceeds.
During the year and period ended December 31, 1995 and 1994, the
Partnership recorded commissions payable to INC of $302,500 and $297,500,
respectively, which have been accounted for as reductions against the Gross
Proceeds. As of December 31, 1995, the Partnership had amounts owed to INC of
$1,650 for payments made by INC on behalf of the Partnership.
PCM was formed in February 1993, and since its formation has performed
services for the Partnership and the PAM Funds relative to locating, evaluating,
negotiating, acquiring, servicing, and collecting distressed loan portfolio
assets. PCM acquires portfolio assets from third-parties and sells the
portfolios to the Partnership for amounts determined by the General Partner to
be reasonable, customary, and competitive in light of the size, type, and
character of the acquired portfolio assets and consistent with the limited
partnership agreement. The Partnership also enters into servicing agreements
with PCM to collect and service the acquired portfolios. The agreements
generally provide that all proceeds generated from the collection of portfolio
assets will be shared by the parties in proportion to their respective
percentage interests, generally, 55% to 60% for the Partnership and 40% to 45%
for PCM. The Partnership also reimburses PCM for certain costs incurred in the
collection of debts.
For the year and period ended December 31, 1995 and 1994, the Partnership
purchased five and four portfolios from PCM, and paid acquisition fees for those
portfolios of $470,971 and $136,953, respectively. Also, for the year and period
ended December 31, 1995 and 1994, the Partnership incurred and reimbursed PCM
for collection costs of $64,375 and $59,052, respectively.
The Partnership had amounts owed from PCM from collections of portfolio
proceeds and advances for portfolio purchases of $624,247 and $100,032 recorded
as due from affiliates at December 31, 1995 and 1994, respectively.
F-99
<PAGE> 219
PERFORMANCE ASSET MANAGEMENT FUND V, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. RECEIVABLE FROM WEST CAPITAL
On April 8, 1994, the General Partner, on behalf of the Partnership and the
PAM Funds, entered into a Stock Acquisition Agreement ("Stock Agreement") with
WCFSC, for the purpose of acquiring for the Partnership and its affiliates,
1,000 shares of no par common stock of WCFSC, which 1,000 shares would represent
50% of the then issued and outstanding no par common shares of WCFSC. The Stock
Agreement provided that the Partnership and the PAM Funds have credits for
approximately $1,881,950 due to the Partnership and certain PAM Funds from
WCFSC, plus cash in the amount of $1,970,000 payable during a five month period
subsequent to the date of the stock purchase transaction.
Certain differences of opinion developed between the General Partner and
WCFSC regarding the terms and conditions of the Stock Agreement. As a result,
the General Partner of the Partnership, for the benefit of the Partnership and
its affiliates, including the PAM Funds, commenced litigation against WCFSC and
certain of its affiliates ("WCFSC Dispute").
On February 8, 1996, the parties to the WCFSC Dispute entered into a
Settlement Agreement and Mutual General Release ("Settlement Agreement"). In May
1996 the parties consummated the transaction contemplated by the Settlement
Agreement and the Partnership and its affiliates received from WCFSC $15,750,000
in satisfaction of all claims of the Partnership and its affiliates against
WCFSC and its affiliates ("Note 9").
5. DEPOSITS IN ESCROW
At December 31, 1994, the Partnership had $160,000 of cash held in an
escrow account which represents deposits for potential investor subscriptions
where the potential investor must be qualified and approved by the General
Partner prior to investment in the Partnership. At present all such
subscriptions have been either accepted or returned.
6. PARTNERS' CAPITAL
During the year and period ended December 31, 1995 and 1994, the
Partnership received proceeds from the sale of partner units totaling $3,025,000
and $2,975,000, respectively. Such proceeds are recorded net of syndication
costs and commissions paid to affiliates, and reimbursement of certain offering
costs incurred by the General Partner (Note 3) recorded as follows:
<TABLE>
<CAPTION>
1995 1994 TOTAL
---------- ---------- ----------
<S> <C> <C> <C>
Gross syndication proceeds............................. $3,025,000 $2,975,000 $6,000,000
Commissions.......................................... (302,500) (297,500) (600,000)
Syndication costs.................................... (90,750) (89,250) (180,000)
Offering costs....................................... (60,450) (45,689) (106,139)
---------- ---------- ----------
Net syndication proceeds............................... $2,571,300 $2,542,561 $5,113,861
========== ========== ==========
</TABLE>
During the year and period ended December 31, 1995 and 1994, the
Partnership distributed a total of $97,836 and $15,833, respectively to the
partners of the Partnership. In June 1995 the limited partners voted to suspend
partner distributions in order to utilize cash to enhance the Partnership's
operations. To date the suspension of cash distributions is still in effect.
7. COMMITMENTS AND CONTINGENCIES
The General Partner has been named as defendant in a suit that has been
filed but not served. It is the opinion of the General Partner that the suit is
without merit. The General Partner denies any wrongdoing in
F-100
<PAGE> 220
PERFORMANCE ASSET MANAGEMENT FUND V, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
connection with this matter and will vigorously defend this claim if the
plaintiffs pursue this action. The partnership agreement requires that the
Partnership indemnify the General Partner in certain instances. It is unclear at
this time if the results of this action would result in any cost to the
partnership.
8. FINANCIAL INSTRUMENTS
The Partnership estimates and discloses the fair values of financial
instruments under the provisions of SFAS No. 107, Disclosures About Fair Values
of Financial Instruments. In assessing the fair value of financial instruments,
the Partnership uses a number of methodologies and assumptions, which are based
on estimates of market conditions and risks existing at the balance sheet date.
Considerable judgment is required and used by management to evaluate and
interpret market data to develop the fair value estimations. Accordingly,
management's estimates are not necessarily indicative of the amounts that the
Partnership will ultimately realize. The use of different market assumptions and
methodologies may have a material effect on the estimated fair value amounts.
Estimated cash collections include management's best current estimates of
the amounts ultimately expected to be realized upon the collection efforts and
sales of existing investments in distressed loan portfolios. While the estimates
are primarily based on past and current collection results, future cash
collections are dependent upon a number of uncontrollable market and economic
factors. The amounts the Partnership will ultimately realize could differ
materially in the near term from the amounts assumed in arriving at the fair
values.
9. SUBSEQUENT EVENTS
On February 8, 1996, the General Partner of the Partnership, for itself and
on behalf of the Partnership and the Partnership's affiliates, entered into the
Settlement Agreement (Note 4). The Settlement Agreement was entered into for the
purpose of settling and resolving any and all disputes existing between the
various parties to the WCFSC Dispute. The Settlement Agreement resulted in the
dismissal of the WCFSC Dispute; release by all parties of the claims against
other respective parties, including those claims relating to the Stock Agreement
(Note 3); and assignment and transfer by the Partnership and its affiliates to
WCFSC of certain distressed loan portfolios.
The Settlement Agreement required that WCFSC pay to the Partnership and its
affiliates $15,750,000 in exchange for the general release by the Partnership
and its affiliates of WCFSC from the claims asserted in the WCFSC Dispute. The
Settlement Agreement also required the sale to WCFSC by the Partnership and its
affiliates of certain interests of the Partnership and its affiliates in certain
distressed loan portfolios, and the transfer by the Partnership and its
affiliates to WCFSC of various other assets and rights. In addition, the
Settlement Agreement also required the establishment of a defense fund in an
amount not to exceed $250,000 which will be available to pay legal costs and
fees incurred by WCFSC to defend any and all actions which may be brought by
limited partners of the Partnership and the other PAM Funds.
The proceeds from the settlement were allocated to the Partnership and its
affiliates, including the PAM Funds, by the General Partner of the Partnership
in accordance with the respective interests of the Partnership and those
affiliates in those proceeds.
The Settlement Agreement was approved by 89.75% of the limited partners of
the Partnership; none of the limited partners of the Partnership disapproved of
the Settlement Agreement; and 10.25% of the limited partners of the Partnership
provided no responses regarding the approval of the Settlement Agreement
Additionally, 91.12% of all the limited partners in the Partnership and the
PAM Funds in the aggregate executed general releases in favor of WCFSC. On April
10, 1996, WCFSC completed the payment of $15,750,000 for the benefit of the
Partnership and its affiliates, including the PAM Funds.
F-101
<PAGE> 221
REPORT OF INDEPENDENT AUDITORS
To the Partners of
Performance Asset Management Fund V, Ltd.,
A California Limited Partnership
We have audited the accompanying balance sheets of Performance Asset
Management Fund V, Ltd., A California Limited Partnership ("Partnership") as of
December 31, 1996 and 1995, and the related statements of operations, partners'
capital (deficit) and cash flows for the years then ended. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Performance Asset Management
Fund V, Ltd., A California Limited Partnership as of December 31, 1996 and 1995,
and the results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ KELLY & COMPANY
Newport Beach, California
February 21, 1997
F-102
<PAGE> 222
PERFORMANCE ASSET MANAGEMENT FUND V, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Cash and equivalents................................................ $1,731,112 $ 215,798
Cash held in trust.................................................. 8,388 1,014,201
Investments in distressed loan portfolios, net...................... 2,300,662 1,771,568
Receivable from West Capital........................................ -- 1,014,882
Due from affiliates................................................. 351,718 624,247
Other assets........................................................ 24,873 36,733
Organization costs, net............................................. 2,486 3,520
---------- ----------
Total assets.............................................. $4,419,239 $4,680,949
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable.................................................... $ 599 $ 2,598
Due to affiliates................................................... 56,341 1,650
---------- ----------
Total liabilities......................................... 56,940 4,248
========== ==========
Commitments and contingencies
Partners' capital................................................... 4,362,299 4,676,701
---------- ----------
Total liabilities and partners' capital................... $4,419,239 $4,680,949
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-103
<PAGE> 223
PERFORMANCE ASSET MANAGEMENT FUND V, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Portfolio collections............................................... $1,202,048 $ 483,439
Less: portfolio basis recovery...................................... 1,115,996 483,439
---------- ----------
Net investment income..................................... 86,052 --
---------- ----------
Cost of operations:
Collection expense................................................ 72,423 64,375
Management fee expense............................................ 57,217 39,146
Professional fees................................................. 133,690 103,202
Provision for portfolio losses.................................... -- 26,000
Amortization...................................................... 1,034 1,031
General and administrative expense................................ 8,147 2,629
---------- ----------
Total operating expenses.................................. 272,511 236,383
---------- ----------
Loss from operations................................................ (186,459) (236,383)
Other income:
Interest.......................................................... 101,123 32,864
Other income...................................................... -- 46
---------- ----------
Net loss............................................................ $ (85,336) $ (203,473)
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-104
<PAGE> 224
PERFORMANCE ASSET MANAGEMENT FUND V, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------- ---------- ----------
<S> <C> <C> <C>
Balance, December 31, 1994............................... $(13,585) $2,420,295 $2,406,710
Contributions.......................................... -- 2,571,300 2,571,300
Distributions.......................................... (9,786) (88,050) (97,836)
Net loss............................................... (20,347) (183,126) (203,473)
-------- ---------- ----------
Balance, December 31, 1995............................... (43,718) 4,720,419 4,676,701
Distributions.......................................... (19,966) (179,100) (199,066)
Redemption of partnership units........................ -- (30,000) (30,000)
Net loss............................................... (8,534) (76,802) (85,336)
-------- ---------- ----------
Balance, December 31, 1996............................... $(72,218) $4,434,517 $4,362,299
======== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-105
<PAGE> 225
PERFORMANCE ASSET MANAGEMENT FUND V, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash flows used in operating activities:
Net loss........................................................ $ (85,336) $ (203,473)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Amortization............................................... 1,034 982
Decrease (increase) in assets:
Other assets............................................... 11,860 23,234
Due from affiliate......................................... 272,529 (492,785)
Provision for portfolio losses............................. -- 26,000
Increase (decrease) in liabilities:
Due to affiliates.......................................... 54,691 (232,378)
Accounts payable........................................... (1,999) 1,798
----------- -----------
Net cash provided by (used in) operating activities........ 252,779 (876,622)
----------- -----------
Cash flows provided by (used in) investing activities:
Recovery of portfolio basis..................................... 1,115,996 415,279
Receivable from West Capital.................................... 1,014,882 --
Cash held in trust.............................................. 1,005,813 (1,014,201)
Purchase of investments in distressed loan portfolios........... (1,645,090) (1,843,039)
----------- -----------
Net cash provided by (used in) investing activities........ 1,491,601 (2,441,961)
----------- -----------
Cash flows provided by (used in) financing activities:
Redemption of partnership units................................. (30,000) 3,025,000
Distributions to partners....................................... (199,066) (97,836)
Deposits in escrow for investor subscriptions................... -- (160,000)
Payments for offering expenses.................................. -- (453,700)
----------- -----------
Net cash provided by (used in) financing activities........ (229,066) 2,313,464
----------- -----------
Net increase (decrease) in cash................................... 1,515,314 (1,005,119)
Cash at beginning of period....................................... 215,798 1,220,917
----------- -----------
Cash at end of period............................................. $ 1,731,112 $ 215,798
=========== ===========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<S> <C> <C>
Cash paid during the year for:
Franchise taxes................................................. $ 800 $ 800
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-106
<PAGE> 226
PERFORMANCE ASSET MANAGEMENT FUND V, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Description of Business
Performance Asset Management Fund V, Ltd., A California Limited Partnership
was formed in April 1994, for the purpose of acquiring distressed loan
portfolios from financial institutions and other sources. Interests in the
Partnership were sold in a private placement offering pursuant to Regulation D
promulgated by the Securities and Exchange Commission on a "best efforts" basis;
however, the Partnership did not begin its primary operations until July 1994.
The General Partner is Performance Development, Inc., a California corporation
("PDI").
Profits, losses, and cash distributions are allocated 90% to the limited
partners and 10% to the General Partner until such time as the limited partners
have been returned 100% of their initial capital contributions to the
Partnership. Thereafter, Partnership profits, losses, and cash distributions are
allocated 70% to the limited partners and 30% to the General Partner.
Cash and Equivalents
The Partnership defines cash equivalents as all highly liquid investments
with a maturity of three months or less when purchased. The Partnership
maintains its cash balances at one bank in accounts which, at times, may exceed
federally insured limits. The Partnership uses a cash management system whereby
idle cash balances are swept daily into a master account and invested in high
quality, short-term securities. The Partnership's management believes that these
cash balances are not subject to any significant credit risk due to the nature
of the investments and has not experienced any past losses with cash and
equivalent investments.
Cash Held in Trust
The General Partner of the Partnership anticipates that the Partnership and
the PAM Funds (Note 3) may, in the future, be reorganized and merged with and
into one corporation. In an effort to accomplish that reorganization and merger
on terms and conditions consistent with the intent of the General Partner, on
December 12, 1995, the General Partner, on behalf of the Partnership and the PAM
Funds, and the State of California Department of Corporations entered into an
agreement pursuant to the provisions of which the Performance Asset Management
Fund Trust ("Trust") was created. These funds are subject to the terms of the
Trust Agreement. The Trust was the recipient of a portion of the funds resulting
from a settlement of certain litigation between the Partnership and its
affiliates and West Capital Financial Services Corp. ("WCFSC") and its
affiliates.
Investment in Distressed Loan Portfolios and Revenue Recognition
Investments in distressed loan portfolios are carried at the lower of cost,
market, or estimated net realizable value. Amounts collected on such loans are
treated as a reduction to the carrying basis of the related investment on an
individual portfolio basis. Accordingly, income is not recognized until 100%
recovery of the carrying value of the investment in each portfolio occurs.
Estimated net realizable value represents management's estimates, based on its
present plans and intentions, of the present value of future collections. Due to
the distressed nature of these investments, no interest is earned on outstanding
balances, and there is no assurance that the unpaid principal balances will
ultimately be collected. Any adjustment to the carrying value of the individual
portfolios is recorded in the results of operations.
F-107
<PAGE> 227
PERFORMANCE ASSET MANAGEMENT FUND V, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Organization Costs, Net
Organization costs include legal and other professional fees incurred
related to the initial organization of the partnership. These costs are
capitalized and amortized using the straight-line method over five years.
Accumulated amortization at December 31, 1996 and 1995 totaled $2,684 and
$1,648, respectively.
Income Taxes
No provision for income taxes has been made in the financial statements,
except for the Partnership's minimum state franchise tax liability of $800. All
partners are taxed individually on their share of the Partnership's earnings and
losses.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reported
periods. Actual results could differ from the estimates.
Financial Statement Classification
Certain amounts within the 1995 financial statements have been reclassified
in order to conform with the 1996 financial statement presentation.
2. INVESTMENTS IN DISTRESSED LOAN PORTFOLIOS, NET
Investments in distressed loan portfolios consist primarily of charged-off
credit card accounts and consumer loan balances such as auto and personal lines
of credit, originated by independent third-party financial institutions located
throughout the United States. In addition, the Partnership also acquired certain
portfolios of defaulted consumer debts which were rewritten under terms
different from the original obligation. The fair value of investments in
distressed loan portfolios was determined by discounting the estimated future
cash collections on such investments during the estimated portfolio holding
period using a discount rate commensurate with the risks involved.
At December 31, 1996 and 1995, investments in distressed loan portfolios
consisted of the following:
<TABLE>
<CAPTION>
1996
-------------------------
CARRYING FAIR
AMOUNT VALUE
---------- ----------
<S> <C> <C>
Credit card accounts................................ $1,875,933 $2,788,322
Consumer loans...................................... 424,729 480,279
---------- ----------
$2,300,662 $3,268,601
========== ==========
</TABLE>
F-108
<PAGE> 228
PERFORMANCE ASSET MANAGEMENT FUND V, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENTS IN DISTRESSED LOAN PORTFOLIOS, NET (CONTINUED)
<TABLE>
<CAPTION>
1995
-------------------------
CARRYING FAIR
AMOUNT VALUE
---------- ----------
<S> <C> <C>
Credit card accounts................................ $1,032,857 $1,678,279
Performing rewritten accounts....................... 105,089 105,089
Consumer loans...................................... 633,622 880,399
---------- ----------
$1,771,568 $2,663,767
========== ==========
</TABLE>
At December 31, 1996 and 1995, the allowance for possible losses on
investments in specific distressed loan portfolios consisted of the following:
<TABLE>
<CAPTION>
1996
----------------------------------------------
INVESTMENT ALLOWANCE FOR CARRYING
BALANCE PORTFOLIO LOSSES AMOUNT
---------- ---------------- ----------
<S> <C> <C> <C>
Credit card accounts................ $1,928,933 $(53,000) $1,875,933
Consumer loans...................... 451,729 (27,000) 424,729
---------- -------- ----------
$2,380,662 $(80,000) $2,300,662
========== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
1995
----------------------------------------------
INVESTMENT ALLOWANCE FOR CARRYING
BALANCE PORTFOLIO LOSSES AMOUNT
---------- ---------------- ----------
<S> <C> <C> <C>
Credit card accounts................ $1,085,857 $(53,000) $1,032,857
Performing rewritten accounts....... 105,089 -- 105,089
Consumer loans...................... 660,622 (27,000) 633,622
---------- -------- ----------
$1,851,568 $(80,000) $1,771,568
========== ======== ==========
</TABLE>
The Partnership's allowance for portfolio losses consisted of the following
at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Allowance for portfolio losses, beginning................ $80,000 $54,000
Provision for portfolio losses........................... -- 26,000
------- -------
Allowance for portfolio losses, December 31.............. $80,000 $80,000
======= =======
</TABLE>
The Partnership continuously evaluates the collectibility of distressed
loan balances, and adjusts the carrying value of the investments based on such
evaluations. The Partnership has recorded a reserve for possible losses on
investments in specific distressed loan portfolios of $80,000 as of December 31,
1996 and 1995.
3. RELATED PARTY TRANSACTIONS
The Partnership has entered into several fee and cost reimbursement
arrangements with affiliated corporations and limited partnerships controlled by
the General Partner and its sole shareholder, most of which are provided for and
documented by the limited partnership agreement and the offering prospectus. The
affiliated corporations are owned by one individual. The affiliated corporations
and other entities are identified below:
Affiliated Corporations:
Performance Development, Inc. ("PDI")
F-109
<PAGE> 229
PERFORMANCE ASSET MANAGEMENT FUND V, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. RELATED PARTY TRANSACTIONS (CONTINUED)
Income Network Company ("INC")
Performance Capital Management ("PCM")
Other Affiliated Entities:
Performance Asset Management Fund, Ltd., and
Performance Asset Management Funds II, III, and IV Ltd. ("PAM Funds")
PDI was formed in June 1990 to engage in various aspects of the investment
banking industry. PDI is also the General Partner for the PAM Funds and various
other California limited partnerships. PDI, in accordance with the limited
partnership agreement and offering prospectus, was paid 3% of all contributions
by the limited partners to the capital of the Partnership ("Gross Proceeds") as
a syndication fee, and is reimbursed for legal, accounting, and other costs
relating to the limited partnership offering up to 2% of Gross Proceeds. In
addition, the Partnership pays PDI an annual management fee of 2.5% of the net
asset value of the Partnership portfolio assets during the operating phase of
the Partnership in accordance with the provisions of the limited partnership
agreement. As the General Partner in the Partnership, PDI is also entitled to a
portion of periodic distributions to partners, in accordance with the provisions
of limited partnership agreement.
During 1995, the Partnership paid PDI syndication fees of $90,750, which
have been accounted for as a reduction against the Gross Proceeds. The
Partnership also reimbursed PDI for offering expenses totaling $60,450 during
the year ended December 31, 1995. PDI's management fees incurred and recorded by
the Partnership totaled $57,217 and $39,146 for the years ended December 31,
1996 and 1995, respectively. The Partnership also recorded distributions payable
to PDI of $19,966 and $9,786 for the years ended December 31, 1996 and 1995,
respectively. At December 31, 1996, the Partnership had amounts owed to PDI
recorded as amounts due to affiliated of $56,124.
INC was formed in February 1988 and subsequently became a registered
broker-dealer and member of the National Association of Security Dealers, Inc.
and the Securities Investor Protection Corporation. INC's sole shareholder is
also the sole shareholder of the General Partner, PDI. INC, in accordance with
the limited partnership agreement and offering prospectus, is paid commissions
equal to 10% of Gross Proceeds.
During the year ended December 31, 1995, the Partnership recorded
commissions payable to INC of $302,500, which have been accounted for as
reductions against the Gross Proceeds. As of December 31, 1995, the Partnership
had amounts owed to INC of $1,650 for payments made by INC on behalf of the
Partnership.
PCM was formed in February 1993, and since its formation has performed
services for the Partnership and the PAM Funds relative to locating, evaluating,
negotiating, acquiring, servicing, and collecting investments in distressed loan
portfolio assets. PCM acquires distressed loan portfolios from third-parties and
sells the portfolios to the Partnership for amounts determined by the General
Partner to be reasonable, customary, and competitive in light of the size, type
and character of the acquired portfolios and consistent with the limited
partnership agreement. The Partnership also enters into agreements for PCM to
collect and service the acquired portfolios. The agreements generally provide
that all proceeds generated from the collection of portfolio assets will be
shared by the parties in proportion to their respective percentage interest,
generally, 55% to 60% for the Partnership and 45% to 40% for PCM. The
Partnership also reimburses PCM for certain costs incurred in the collection of
portfolio assets.
For the years ended December 31, 1996 and 1995, the Partnership purchased
two portfolios and five portfolios respectively, from PCM, and recorded
acquisition fees for these portfolios of $435,465 and $470,971, respectively.
These acquisition fees have been included in the carrying value of the related
investments. Also, for the years ended December 31, 1996 and 1995, the
Partnership incurred collection costs of $72,423 and $64,375, respectively.
F-110
<PAGE> 230
PERFORMANCE ASSET MANAGEMENT FUND V, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. RELATED PARTY TRANSACTIONS (CONTINUED)
The Partnership had amounts owed from PCM of $351,718 and $624,247 recorded
as due from affiliates at December 31, 1996 and 1995, respectively.
4. SETTLEMENT WITH WEST CAPITAL FINANCIAL SERVICES CORP.
On April 8, 1994, the General Partner, on behalf of the Partnership and the
PAM Funds, entered into a Stock Acquisition Agreement ("Stock Agreement") with
WCFSC, for the purpose of acquiring for the Partnership and its affiliates,
1,000 shares of no par common stock of WCFSC, which 1,000 shares would represent
50% of the then issued and outstanding no par common shares of WCFSC. The Stock
Agreement provided that the Partnership and the PAM Funds have credits for
approximately $1,881,950 due to the Partnership and certain PAM Funds from
WCFSC, plus cash in the amount of $1,970,000 payable during a five month period
subsequent to the date of the stock purchase transaction.
Certain differences of opinion developed between the General Partner and
WCFSC regarding the terms and conditions of the Stock Agreement. As a result,
the General Partner, for the benefit of the Partnership and its affiliates,
including the PAM Funds, commenced litigation against WCFSC and certain of its
affiliates ("WCFSC Dispute").
On February 8, 1996, the parties to the WCFSC Dispute entered into a
Settlement Agreement and Mutual General Release ("Settlement Agreement") for the
purpose of settling and resolving any and all disputes existing between the
various parties to the WCFSC Dispute. The Settlement Agreement resulted in the
dismissal of the WCFSC Dispute; release by all parties of the claims against
other respective parties, including those claims relating to the Stock
Agreement; and assignment and transfer by the Partnership and its affiliates to
WCFSC of certain distressed loan portfolios.
The Settlement Agreement required that WCFSC pay to the Partnership and its
affiliates $16,194,850 in exchange for the general release by the Partnership
and its affiliates of WCFSC from the claims asserted in the WCFSC Dispute. The
Settlement Agreement also required the sale to WCFSC by the Partnership and its
affiliates of certain interests of the Partnership and its affiliates in certain
distressed loan portfolios, and the transfer by the Partnership and its
affiliates to WCFSC of various other assets and rights. In addition, the
Settlement Agreement required the establishment of a defense fund of $250,000
which is available to pay legal costs and fees incurred by WCFSC to defend any
and all actions which may be brought by limited partners in the Partnership and
the PAM Funds. To date no such actions have been brought.
The proceeds from the Settlement Agreement were allocated to the
Partnership and its affiliates, including the PAM Funds, by PDI in accordance
with the respective interests of the Partnership and those affiliates.
Accordingly, the Partnership received $1,542,641 of the total settlement
proceeds.
The Settlement Agreement was approved by 89.75% of the limited partners of
the Partnership; none of the limited partners of the Partnership disapproved the
Settlement Agreement; and 10.25% of the limited partners of the Partnership
provided no responses regarding the approval of the Settlement Agreement.
Additionally, 91.12% of all the limited partners in the Partnership and the
PAM Funds in the aggregate, executed general releases in favor of WCFSC.
5. PARTNERS' CAPITAL
During the year ended December 31, 1995, the Partnership received proceeds
from the sale of partner units totaling and $3,025,000. Such proceeds are
recorded net of syndication costs and commissions paid to affiliates, and
reimbursement of certain offering costs incurred by the General Partner recorded
as follows:
F-111
<PAGE> 231
PERFORMANCE ASSET MANAGEMENT FUND V, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. PARTNERS' CAPITAL (CONTINUED)
<TABLE>
<CAPTION>
1995
----------
<S> <C>
Gross syndication proceeds....................................... $3,025,000
Commissions.................................................... (302,500)
Syndication costs.............................................. (90,750)
Offering costs................................................. (60,450)
----------
Net syndication proceeds......................................... $2,571,300
==========
</TABLE>
In 1995 the limited partners voted to suspend partner distributions in
order to utilize cash to enhance the Partnership's operations. Cash
distributions were subsequently reinstated in 1996.
6. COMMITMENTS AND CONTINGENCIES
The General Partner has been named as a defendant in a suit that was filed
in early 1996 but to date has not been served. It is the opinion of the General
Partner that the suit is without merit. The General Partner denies any
wrongdoing in connection with this matter and will vigorously defend this claim
if the plaintiffs pursue this action. The partnership agreement requires that
the Partnership indemnify the General Partner in certain instances, and it is
unclear at this time if the results of this action would result in any cost to
the Partnership.
7. FINANCIAL INSTRUMENTS
The Partnership estimates and discloses the fair values of financial
instruments under the provisions of Statement of Financial Accounting Standard
No. 107, Disclosures About Fair Values of Financial Instruments. In assessing
the fair value of financial instruments, the Partnership uses a number of
methodologies and assumptions, which are based on the underlying quality of the
distressed loan portfolio, the cost of comparable capital, the estimates of
market conditions, and risks existing at the balance sheet date. Considerable
judgment is required and used by management to evaluate and interpret market
data to develop the fair value estimations. Accordingly, management's estimates
are not necessarily indicative of the amounts that the Partnership will
ultimately realize, The use of different market assumptions and methodologies
may have a material effect on the estimated fair value amounts.
Estimated cash collections include management's best present estimates of
the amounts ultimately expected to be realized upon the collection efforts and
disposition of existing investments in distressed loan portfolios. While the
estimates are primarily based on past collections results, future cash
collections are dependent upon a number of uncontrollable market and economic
factors. The amounts the Partnership will ultimately realize could differ
materially in the near term from the amounts assumed in arriving at the fair
values.
F-112
<PAGE> 232
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Performance Capital Management, Inc.
We have audited the accompanying balance sheets of Performance Capital
Management, Inc. (the "Company") as of December 31, 1995 and 1994, and the
related statements of operations, shareholder's deficit and cash flows 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Performance Capital
Management, Inc. as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ KELLY & COMPANY
Newport Beach, California
September 6, 1996
F-113
<PAGE> 233
PERFORMANCE CAPITAL MANAGEMENT, INC.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS
<TABLE>
<CAPTION>
1995 1994
---------- --------
<S> <C> <C>
Cash and equivalents................................................. $ 416,274 $175,356
Due from affiliates.................................................. 358,183 101
Loan to shareholder.................................................. -- 96,620
Investments in distressed loan portfolios, net....................... 27,405 42,678
Property and equipment, net.......................................... 381,968 324,812
Other assets......................................................... 137,361 177,947
---------- --------
Total assets............................................... $1,321,191 $817,514
========== ========
LIABILITIES AND SHAREHOLDER'S DEFICIT
Accounts payable..................................................... $ 182,369 $194,687
Due to affiliates.................................................... 1,225,437 619,867
Loan from affiliate.................................................. -- 95,855
---------- --------
Total liabilities.......................................... 1,407,806 910,409
---------- --------
Commitments and contingencies
Shareholder's deficit:
Common stock (no par value; 100,000 shares authorized; 100 shares
issued and outstanding at December 31, 1995 and 1994)........... 100 100
Retained deficit................................................... (86,715) (92,995)
---------- --------
Total shareholder's deficit........................................ (86,615) (92,895)
---------- --------
Total liabilities and shareholder's deficit................ $1,321,191 $817,514
========== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-114
<PAGE> 234
PERFORMANCE CAPITAL MANAGEMENT, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---------- -----------
<S> <C> <C>
Revenue:
Portfolio sales.................................................. $4,998,906 $10,382,393
Collection revenue............................................... 1,380,277 1,039,949
Servicing fees................................................... 946,734 517,089
---------- -----------
7,325,917 11,939,431
---------- -----------
Expenses:
Cost of portfolio acquisitions................................... 3,651,388 8,068,979
Personnel and related benefits................................... 2,403,138 2,928,201
Professional and consulting expenses............................. 673,545 682,154
Collection expenses.............................................. 285,026 280,136
Other general and administrative expenses........................ 331,425 296,663
---------- -----------
Total operating expenses................................. 7,344,522 12,256,133
---------- -----------
Loss from operations..................................... (18,605) (316,702)
Other income:
Interest, net.................................................... 25,685 725
---------- -----------
Income (loss) before provision for income taxes.......... 7,080 (315,977)
Provision for income taxes......................................... 800 800
---------- -----------
Net income (loss)........................................ $ 6,280 $ (316,777)
========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-115
<PAGE> 235
PERFORMANCE CAPITAL MANAGEMENT, INC.
STATEMENTS OF SHAREHOLDER'S DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
RETAINED
COMMON COMMON EARNINGS
SHARES STOCK (DEFICIT) TOTAL
------ ------ --------- ---------
<S> <C> <C> <C> <C>
Balance, December 31, 1993...................... 100 $100 $ 223,782 $ 223,882
Net loss...................................... -- -- (316,777) (316,777)
--- ---- --------- ---------
Balance, December 31, 1994...................... 100 100 (92,995) (92,895)
Net income.................................... -- -- 6,280 6,280
--- ---- --------- ---------
Balance, December 31, 1995...................... 100 $100 $ (86,715) $ (86,615)
=== ==== ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-116
<PAGE> 236
PERFORMANCE CAPITAL MANAGEMENT, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income (loss).................................................. $ 6,280 $(316,777)
Adjustments to reconcile income (loss) to net cash provided by
operating activities:
Depreciation and amortization................................... 81,454 50,559
(Increase) decrease in due from affiliate....................... (382,072) 526,530
Decrease (increase) in other receivables........................ 44,887 (145,622)
Increase in other assets........................................ (4,301) (3,299)
(Decrease) increase in accounts payable......................... (12,318) 115,408
Increase in due to affiliate.................................... 763,783 150,927
-------- --------
Net cash provided by operating activities.................. 497,713 377,726
Cash flows provided by (used in) investing activities:
Purchase of property and equipment................................. (138,610) (168,596)
Purchase of investments in distressed loan portfolios.............. -- (71,842)
Recovery of portfolio basis........................................ 15,273 29,164
-------- --------
Net cash used in investing activities...................... (123,337) (211,274)
Cash flows used in financing activities:
Loans to shareholder............................................... (133,458) (96,620)
Repayment of loans from affiliates................................. -- (4,145)
-------- --------
Net cash used in financing activities...................... (133,458) (100,765)
-------- --------
Net increase in cash................................................. 240,918 65,687
Cash at beginning of period.......................................... 175,356 109,669
-------- --------
Cash at end of period................................................ $ 416,274 $ 175,356
======== ========
Supplemental Disclosure of Cash Flow Information
</TABLE>
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Cash paid during the year for:
Income taxes paid...................................................... $3,140 $1,600
Interest paid.......................................................... -- $5,993
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-117
<PAGE> 237
PERFORMANCE CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Description of Business
Performance Capital Management, Inc. (the "Company") was incorporated in
the State of California on January 17, 1992 for the purpose of identifying and
analyzing, negotiating, acquiring, and servicing investments in distressed
consumer loan portfolios. The Company, however, did not commence its primary
operations until May 1993. The Company acquires investments primarily for the
benefit of affiliate investors, and enters into servicing arrangements with such
affiliates to participate in the proceeds upon collection of debtor obligations.
The Company also acquires and services portfolios for its own account.
Revenue Recognition
Portfolio sales are recorded when all contractual benefits and obligations
are transferred, which normally occurs at the time of closing. Collection
revenues are recognized when received and servicing fees are recognized when
earned.
Cash and Equivalents
The Company defines cash equivalents as all highly liquid investments with
a maturity of three months or less when purchased. The Company maintains cash
balances at one bank where the aggregate balances of accounts at the institution
are insured by the Federal Deposit Insurance Corporation up to $100,000. The
uninsured portion of the cash balances totaled $213,472 and $716,051 at December
31, 1995 and 1994, respectively.
Investments in Distressed Loan Portfolios
Investments in distressed loan portfolios are carried at the lower of cost,
market, or estimated net realizable value. Amounts collected on such loans are
treated as a reduction to the carrying basis of the related investment on an
individual portfolio basis. Accordingly, income is not recognized until 100%
recovery of the carrying value of the investment in each portfolio occurs.
Estimated net realizable value represents management's estimates, based on its
present plans and intention, of the present value of future collections. Due to
the distressed nature of these investments, no interest is earned on outstanding
balances and there is no assurance that the unpaid principal balances will
ultimately be collected.
Property and equipment, net
Property and equipment are stated at cost. All additions and significant
improvements are capitalized; maintenance and repairs that do not extend asset
lives are charged against earnings. Gain or loss on disposition of assets is
reflected in earnings and the related asset costs and accumulated depreciation
are removed from the respective accounts. Depreciation and amortization is
computed using the straight-line method over the estimated useful lives of
related assets, which range from five to seven years.
Advertising Costs
Advertising costs are charged to earnings when incurred.
Income Taxes
The Company uses the liability method of accounting for income taxes.
Deferred income taxes are provided to reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for tax purposes, using enacted tax
rates in effect in the years in which the differences are expected to reverse.
F-118
<PAGE> 238
PERFORMANCE CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Financial Instruments
The Company estimates the fair values of financial instruments under the
provisions of SFAS No. 107, Disclosure About Fair Values of Financial
Instruments. In assessing the fair value of financial instruments, the Company
uses a number of methodologies and assumptions, which are based on estimates of
market conditions and risks existing at the balance sheet date. Considerable
judgment is required and used by management to evaluate and interpret market
data to develop the fair value estimations. Accordingly, management's estimates
are not necessarily indicative of the amounts that the Company will ultimately
realize. The use of different market assumptions and methodologies may affect
the estimated fair value amounts.
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenue and expenses during the reporting
period. Actual results could differ from the estimates.
2. NON-CASH INVESTING AND FINANCING ACTIVITY
In 1995, the Company assumed the responsibility to repay an affiliated
partnership on behalf of an affiliated company in exchange for the satisfaction
of an outstanding loan balance of $95,855 with the affiliate company (Note 5).
In addition, in 1995 an outstanding balance of $230,078 due from the Company's
shareholder was assumed by an affiliate company as partial satisfaction of
amounts owed to it by the Company (Note 5).
3. INVESTMENTS IN DISTRESSED LOAN PORTFOLIOS, NET
Investments in distressed loan portfolios consist primarily of charged-off
credit card accounts and consumer loan balances such as auto and personal lines
of credit, originated by independent third-party financial institutions located
throughout the United States. At December 31, 1995 and 1994, the Company had
interests in two portfolios with remaining carrying balances totaling $27,405
and $42,678, respectively.
In April 1996, the Company sold its interest in the portfolios in
conjunction with the Settlement Agreement (Note 9) for $234,285.
4. PROPERTY AND EQUIPMENT, NET
Property and equipment at December 31, 1995 and 1994 consisted of the
following:
<TABLE>
<CAPTION>
1995 1994
--------- --------
<S> <C> <C>
Computer equipment.................................... $ 294,137 $178,804
Computer software..................................... 33,255 33,255
Office equipment...................................... 43,832 43,831
Furniture and fixtures................................ 157,372 134,096
--------- --------
528,596 389,986
Less: accumulated depreciation and amortization....... (146,628) (65,174)
--------- --------
Property and equipment, net................. $ 381,968 $324,812
========= ========
</TABLE>
Depreciation and amortization expense for the years ended December 31, 1995
and 1994 totaled $81,454, and $50,559.
F-119
<PAGE> 239
PERFORMANCE CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. RELATED PARTY TRANSACTIONS
The Company has entered into several fee and cost reimbursement
arrangements with affiliated corporations and limited partnerships either
wholly-owned or controlled by the Company's sole shareholder, most of which are
provided for and documented by formal agreements. The affiliated corporations
and limited partnerships are identified below:
Affiliated Corporations:
Performance Development, Inc. ("PDI")
Spectrum Capital Management, Inc. ("SCM")
Atlas Equity, Inc. ("AEI")
Affiliated Limited Partnerships:
Performance Asset Management Funds (collectively, the "PAM Funds")
Performance Asset Management Fund, Ltd. ("PAM")
Performance Asset Management Fund II, Ltd. ("PAM II")
Performance Asset Management Fund III, Ltd. ("PAM III")
Performance Asset Management Fund IV, Ltd. ("PAM IV")
Performance Asset Management Fund V, Ltd. ("PAM V")
PDI was formed in June 1990 to engage in various aspects of the investment
banking industry. PDI is also the General Partner for the PAM Funds and various
other affiliated California limited partnerships. PDI incurs certain expenses
related to the operation of the Company on its behalf and is subsequently
reimbursed by the Company.
On October 1, 1993, the Company entered into an agreement to borrow
$100,000 from PDI to finance operations. The agreement accrued interest at 8%
per annum and was payable on demand. During the years ended December 31, 1995
and 1994, the Company incurred interest expense relating to the outstanding note
of $7,668, and $7,827, respectively. In December 1995, the Company satisfied
this obligation when it agreed to assume the responsibility to repay an
affiliated partnership on behalf of PDI, and accordingly, the Company has
amounts due from PDI recorded as due from affiliates totaling $347,913 at
December 31, 1995 relating to this transaction. At December 31, 1994, the
outstanding principal balance of $95,855 was recorded as a loan from affiliate,
and the accrued interest payable was recorded as an amount due to affiliates.
SCM was formed in 1988 and provides personnel and human resource services
to both affiliate and non-affiliate entities. Prior to 1994, SCM performed and
earned fees for certain services similar to those currently performed by PCM.
During 1993, the Company entered into a service agreement with SCM ("SCM
Agreement') whereby SCM provides certain human resource services to the Company.
The terms of the agreement provide for fees of 150% of gross wages of each
contract employee provided by SCM to the Company, with fee rate adjustments
subject to 30 day notice by either party. On January 1, 1996, a formal agreement
was entered into which extended the agreement for an additional 12 months on
substantially the same terms. During the years ended December 31, 1995 and 1994,
the Company incurred contract service expenses relating to the SCM Agreement of
$2,321,000 and $2,513,680, respectively. The Company had amounts owed to SCM
relating to unpaid contract expenses of $157,681 and $127,075 recorded as due to
affiliates at December 31, 1995 and 1994, respectively.
AEI is a California corporation formed in 1988 which provides services to
facilitate the operations of affiliate companies. The Company also does business
as Performance Communication Services ("PCS") and has participated in numerous
telecommunications ventures since its inception. At December 1, 1995, the
F-120
<PAGE> 240
PERFORMANCE CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. RELATED PARTY TRANSACTIONS (CONTINUED)
Company had an amount due to PCS for expenses paid on behalf of the Company of
$120,000 recorded as an amount due to affiliates.
The Company acquires portfolios of distressed assets from third-party
sellers and subsequently sells the portfolios to the PAM Funds for amounts
consistent with the respective PAM Funds limited partnerships agreements. In
addition, the Company also enters into servicing arrangements with the PAM Funds
to service the distressed asset portfolios. The arrangements generally provide
that all proceeds generated from the collection of portfolio assets will be
shared by the parties in proportion to the respective servicing arrangement,
generally, 55% to 60% for the PAM Funds and 45% to 40% for the Company. The
Company also earns servicing fees for reimbursement of certain collection costs
incurred by the Company.
In April 1994, the Company, on behalf of and for the benefit of the PAM
Funds, facilitated negotiations for an agreement to acquire 50% of the
outstanding common stock of an independent third-party servicer (Note 9) for
$5,218,436. The Company earned an acquisition fee of $732,600 for its services
related to this transaction which is recorded in portfolio sales.
For the year ended December 31, 1995, the Company sold one portfolio to
PAM, PAM II, and PAM III for $5,463, $114,184, $160,605, respectively. In
addition, the Company also sold seven and five portfolios to PAM IV and PAM V
for $3,142,259 and $1,576,395, respectively. For the year ended December 31,
1994, the Company sold three, twenty, and four portfolios to PAM II, PAM IV, and
PAM V for $674,871, $6,197,332, and $530,088, respectively.
During the year ended December 31, 1995, the Company earned collection fees
from PAM of $34,693; PAM II, $136,308; PAM III, $29,091; PAM IV, $1,144,313; and
PAM V, $186,513. During the year ended December 31, 1994, the Company earned
collection fees from PAM of $197,241; PAM II, $74,604; PAM III, $755; PAM IV,
$725,066; and PAM V, $25,412.
During the year ended December 31, 1995, the Company earned servicing fees
from PAM of $365; PAM II, $30,607; PAM III, $4,578; PAM IV, $225,318; and PAM V,
$64,375. During the year ended December 31, 1994, the Company earned servicing
fees from PAM II, $44,429; PAM III, $940; PAM IV, $427,180; and PAM V, $59,052.
The Company had amounts owed to PAM II, PAM IV and PAM V for unremitted
collection proceeds and portfolio deposits recorded as due to affiliates at
December 31, 1995 of $9,288, $314,221 and $624,247, respectively. The Company
had amounts owed to PAM II, PAM IV and PAM V for unremitted collection proceeds
and portfolio deposits recorded as due to affiliates at December 31, 1994 of
$12,876, $376,050 and $100,032, respectively.
The Company had amounts owed from PAM for outstanding servicing fees
totaling $860 and $101 recorded as due from affiliates at December 31, 1995, and
1994, respectively. The Company had amounts owed from PAM III totaling $9,411
recorded as due from affiliates at December 31, 1995.
At December 31, 1995 and 1994 the Company entered into an agreement with
the Company's sole shareholder. The agreement provided for the shareholder's
borrowings to be payable on demand at an interest rate of 8% per annum. During
the year ended December 31, 1995, the Company recorded interest income relating
to such borrowings of $14,360. At December 3l, 1995, the outstanding balance
from the shareholder was assumed by an affiliate Company as partial satisfaction
of amounts owed to it by the Company. At December 31, 1994, the outstanding
balance of $96,620 was recorded as a loan to shareholder.
F-121
<PAGE> 241
PERFORMANCE CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Current expense:
Federal..................................................... -- --
State....................................................... $800 $800
---- ----
Total provision for income taxes.............................. $800 $800
==== ====
</TABLE>
Significant components of the Company's deferred income tax liability are
as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Deferred income tax asset:
State taxes.......................................... $ 272 $ 272
Net operating loss................................... 43,518 46,312
-------- --------
Total deferred income tax assets....................... 43,790 46,584
Valuation allowance.................................... (43,790) (46,584)
-------- --------
Net deferred income tax assets......................... -- --
======== ========
</TABLE>
Deferred income tax assets result from temporary differences due primarily
to accruals and net operating loss carry-forwards.
The Company has net operating loss carryforwards for federal and state
income tax purposes of $86,716 and $150,909, respectively. The federal and state
net operating losses begin expiring in 2009 and 1999, respectively.
7. COMMITMENTS
The Company is a party to a real property lease executed by SCM, an
affiliate entity (Note 5). The Company has assumed primary responsibility for
paying the total monthly obligations pursuant to the terms of a sublet agreement
with SCM. The lease agreement terminates in August 1998 and requires future
minimum lease payments of the following:
<TABLE>
<S> <C>
1996.................................................... $ 87,151
1997.................................................... 91,659
1998.................................................... 63,109
--------
........................................................ $241,919
========
</TABLE>
Rent expenses under this agreement totaled $81,167 and $64,150 for the
years ended December 31, 1995 and 1994, respectively.
8. LITIGATION
Certain affiliates of the Company have been named as a defendant in a suit
that has been filed but not served. It is the opinion of the affiliates and the
Company that the suit is without merit. The affiliates deny any wrongdoing in
connection, with this matter and will vigorously defend this claim if the
plaintiffs pursue this action. It is unclear at this time if the results of this
action would result in any cost to the Company.
9. SUBSEQUENT EVENTS
On February 8, 1996, PD1, for itself and on behalf of the Company and the
PAM Funds, entered into an agreement ("Settlement Agreement") for the purpose of
settling and resolving any and all disputes existing
F-122
<PAGE> 242
PERFORMANCE CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. SUBSEQUENT EVENTS (CONTINUED)
between the various affiliate parties and an independent third-party servicer
("Servicer"), including release by all parties of claims against other
respective parties and assignments and transfer by the Company and the PAM Funds
to the Servicer of certain distressed loan portfolios.
On April 10, 1996, the Company received proceeds totaling $234,285 from the
sale of its remaining two distressed loan portfolios in conjunction with the
Settlement Agreement with the Servicer.
On August 31, 1996, the Company sold acquired portfolios to the PAM Funds
for $7,984,825.
F-123
<PAGE> 243
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Performance Capital Management, Inc.
We have audited the accompanying balance sheets of Performance Capital
Management, Inc. (the "Company") as of December 31, 1996 and 1995, and the
related statements of operations, shareholder's equity (deficit) and cash flows
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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Performance Capital
Management, Inc. as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ KELLY & COMPANY
Newport Beach, California
February 21, 1997
F-124
<PAGE> 244
PERFORMANCE CAPITAL MANAGEMENT, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Cash and equivalents................................................ $2,878,541 $ 416,274
Due from affiliates................................................. 352,949 358,183
Investments in distressed loan portfolios, net...................... -- 27,405
Property and equipment, net......................................... 703,195 381,968
Other assets........................................................ 47,580 137,361
---------- ----------
Total assets.............................................. $3,982,265 $1,321,191
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
Accounts payable.................................................... $ 187,425 $ 182,369
Due to affiliates................................................... 3,783,731 1,225,437
---------- ----------
Total liabilities.............................................. 3,971,156 1,407,806
---------- ----------
Commitments and contingencies
Shareholder's equity (deficit):
Common stock (no par value; 100,000 shares authorized; 100 shares
issued and outstanding at December 31, 1996 and 1995).......... 100 100
Retained earnings (deficit)....................................... 11,009 (86,715)
---------- ----------
Total shareholder's equity (deficit)........................... 11,109 (86,615)
---------- ----------
Total liabilities and shareholder's equity (deficit)...... $3,982,265 $1,321,191
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-125
<PAGE> 245
PERFORMANCE CAPITAL MANAGEMENT, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Revenue:
Portfolio sales.................................................. $12,049,227 $4,998,906
Collection revenue............................................... 3,458,403 1,380,277
Servicing fees................................................... 609,220 946,734
----------- ----------
16,116,850 7,325,917
----------- ----------
Expenses:
Cost of portfolio sales.......................................... 8,725,019 3,651,388
Personnel and related benefits................................... 3,473,232 2,403,138
Professional and management fees................................. 2,920,523 673,545
Collection expenses.............................................. 482,657 285,026
Other general and administrative expenses........................ 448,987 331,425
----------- ----------
Total operating expenses................................. 16,050,418 7,344,522
----------- ----------
Income (loss) from operations............................ 66,432 (18,605)
Other income (expense):
Interest, net.................................................... 44,478 25,685
----------- ----------
Income before provision for income taxes................. 110,910 7,080
Provision for income taxes......................................... 13,186 800
----------- ----------
Net income............................................... $ 97,724 $ 6,280
=========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-126
<PAGE> 246
PERFORMANCE CAPITAL MANAGEMENT, INC.
STATEMENTS OF SHAREHOLDER'S EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
RETAINED
COMMON COMMON EARNINGS
SHARES STOCK (DEFICIT) TOTAL
------ ------ -------- --------
<S> <C> <C> <C> <C>
Balance, December 31, 1994........................ 100 $100 $(92,995) $(92,895)
Net income...................................... -- -- 6,280 6,280
--- ---- ------- -------
Balance, December 31, 1995........................ 100 100 (86,715) (86,615)
Net income...................................... -- -- 97,724 97,724
--- ---- ------- -------
Balance, December 31, 1996........................ 100 $100 $ 11,009 $ 11,109
=== ==== ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-127
<PAGE> 247
PERFORMANCE CAPITAL MANAGEMENT, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income...................................................... $ 97,724 $ 6,280
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation................................................. 150,813 81,454
Decrease (increase) in assets:
Due from affiliate........................................... 5,234 (382,072)
Other assets................................................. 89,781 40,586
Increase (decrease) in liabilities:
Accounts payable............................................. 5,056 (12,318)
Due to affiliate............................................. 2,558,294 763,783
---------- ---------
Net cash provided by operating activities.................... 2,906,902 497,713
---------- ---------
Cash flows provided by (used in) investing activities:
Purchase of property and equipment.............................. (472,040) (138,610)
Recovery of portfolio basis..................................... 27,405 15,273
---------- ---------
Net cash used in investing activities........................... (444,635) (123,337)
---------- ---------
Cash flows used in financing activities:
Loans to shareholder............................................ -- (133,458)
---------- ---------
Net cash used in financing activities........................ -- (133,458)
---------- ---------
Net increase in cash.............................................. 2,462,267 240,918
Cash at beginning of year......................................... 416,274 175,356
---------- ---------
Cash at end of year............................................... $2,878,541 $ 416,274
========= =========
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Income taxes.................................................... $ 1,000 $ 3,140
Interest........................................................ $ 531 --
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-128
<PAGE> 248
PERFORMANCE CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Description of Business
Performance Capital Management, Inc. (the "Company") was incorporated in
January 1992 for the purpose of identifying, analyzing, negotiating, acquiring,
and servicing investments in distressed loan portfolios. The Company, however,
did not commence its primary operations until May 1993. The Company acquires
investments primarily for the benefit of affiliate investors, and enters into
servicing arrangements with such affiliates to participate in the proceeds upon
collection of debtor obligations. The Company also acquires and services
portfolios for its own account.
Revenue Recognition
Portfolio sales are recorded when all contractual benefits and obligations
are transferred, which normally occurs at the time of closing. Collection
revenues are recognized when received and servicing fees are recognized when
earned.
Cash and Equivalents
The Company defines cash equivalents as all highly liquid investments with
an original maturity of three months or less. The Company maintains its cash
balances at two banks in accounts which, at times, may exceed federally insured
limits. The Company uses a cash management system whereby idle cash balances are
swept daily into a master account and invested in high quality, short term
securities. The Company's management believes that these cash balances are not
subject to any significant credit risk due to the nature of the investments and
has not experienced any past losses with cash and equivalent investments.
Investments in Distressed Loan Portfolios
Investments in distressed loan portfolios are carried at the lower of cost,
market, or estimated net realizable value. Amounts collected are treated as a
reduction to the carrying basis of the related investment on an individual
portfolio basis. Accordingly, income is not recognized until 100% recovery of
the original cost of the investment in each portfolio occurs. Estimated net
realizable value represents management's estimates, based on its present plans
and intentions, of the present value of future collections. Due to the
distressed nature of these investments, no interest is earned on outstanding
balances, and there is no assurance that the unpaid principal balances will
ultimately be collected.
Property and Equipment
Property and equipment are recorded at cost and are depreciated using the
straight-line method over the estimated useful lives of related assets, which
range from five to seven years. Expenditures for normal maintenance and repairs
are charged to income, and significant improvements are capitalized. The cost
and related accumulated depreciation of assets are removed from the accounts
upon retirement or other disposition, and any resulting profit or loss is
reflected in the statement of operations
Advertising Costs
Advertising costs are charged to earnings when incurred.
Income Taxes
The Company accounts for deferred income taxes using the liability method
in accordance with Statement of Financial Accounting Standards No. 109. Deferred
income taxes are computed based on the tax liability or benefit in future years
of the reversal of temporary differences in the recognition of income or
F-129
<PAGE> 249
PERFORMANCE CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
deduction of expenses between financial and tax reporting purposes. The net
difference between tax expense and taxes currently payable is reflected in the
balance sheet as deferred taxes. Deferred tax assets and/or liabilities are
classified as current and noncurrent based on the classification of the related
asset or liability for financial reporting purposes, or based on the expected
reversal date for deferred taxes that are not related to an asset or liability.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenue and expenses during the reported
period. Actual results could differ from the estimates.
Financial Statement Classification
Certain amounts within the 1995 financial statements have been reclassified
in order to conform with the 1996 financial statement presentation.
2. NON-CASH INVESTING AND FINANCING ACTIVITIES
In 1995, the Company assumed the responsibility to repay an affiliated
partnership on behalf of an affiliated company in exchange for the satisfaction
of an outstanding loan balance of $95,855 with the affiliate company. In
addition, in 1995 an outstanding balance of $230,078 due from the Company's
shareholder was assumed by an affiliate company as partial satisfaction of
amounts owed to it by the Company.
3. INVESTMENTS IN DISTRESSED LOAN PORTFOLIOS, NET
Investments in distressed loan portfolios consist primarily of charged-off
credit card accounts and consumer loan balances such as auto loans and personal
lines of credit, originated by independent third-party financial institutions
located throughout the United States. At December 31, 1995, the Company had
interests in two portfolios with remaining carrying balances totaling $27,405.
In May 1996, the Company sold its interest in these distressed loan portfolios
in conjunction with the Settlement Agreement for $449,281.
4. PROPERTY AND EQUIPMENT, NET
Property and equipment consists of the following:
<TABLE>
<CAPTION>
1996 1995
----------- ---------
<S> <C> <C>
Computer equipment................................. $ 435,082 $ 294,137
Computer software.................................. 346,369 33,255
Office equipment................................... 45,932 43,832
Furniture and fixtures............................. 173,253 157,372
---------- ---------
1,000,636 528,596
Less: accumulated depreciation..................... (297,441) (146,628)
---------- ---------
Property and equipment, net.............. $ 703,195 $ 381,968
========== =========
</TABLE>
Depreciation expense for the years ended December 31, 1996 and 1995 totaled
$150,813 and $81,454, respectively.
F-130
<PAGE> 250
PERFORMANCE CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. RELATED PARTY TRANSACTIONS
The Company has entered into several fee and cost reimbursement
arrangements with affiliated corporations and limited partnerships either
wholly-owned or controlled by the Company's sole shareholder, most of which are
provided for and documented by formal agreements. The affiliated corporations
and limited partnerships are identified below:
Affiliated Corporations:
Performance Development, Inc. ("PDI")
Spectrum Capital Management, Inc. ("SCM")
Atlas Equity, Inc. ("AEI")
Affiliated Limited Partnerships:
Performance Asset Management Fund, Ltd., and
Performance Asset Management Funds II, III, IV, and V Ltd. ("PAM Funds")
PDI was formed in June 1990 to engage in various aspects of the investment
banking industry. PDI is also the General Partner for the PAM Funds and various
other California limited partnerships. PDI incurs certain expenses related to
the operation of the Company and is subsequently reimbursed by the Company.
During October 1993, the Company entered into an agreement to borrow
$100,000 from PDI to finance operations. The agreement accrued interest at 8%
per annum and was payable on demand. During the year ended December 31, 1995,
the Company incurred interest expense relating to the outstanding note of
$7,668. In December 1995, the Company satisfied this obligation when it agreed
to assume the responsibility to repay an affiliated partnership on behalf of
PDI, and accordingly, the Company has amounts due from PDI recorded as due from
affiliates totaling $338,051 and $347,913 at December 31, 1996 and 1995,
respectfully.
SCM was formed in 1988 and provides personnel and human resource services
to both affiliated and non-affiliated entities. Prior to 1994, SCM performed and
earned fees for certain services similar to those currently performed by PCM.
During 1993, the Company entered into an agreement with SCM ("SCM
Agreement") whereby SCM provides human resource services to the Company. The
terms of the agreement provide for fees of 150% of gross wages of each contract
employee provided by SCM to the Company, with fee rate adjustments subject to 30
day notice by either party. During the years ended December 31, 1996 and 1995,
the Company incurred contract service expenses relating to the SCM Agreement of
$3,463,535 and $2,321,000, respectively.
During 1996, SCM located and acquired the right to purchase certain
distressed loan portfolios from an unrelated third party. In order to induce SCM
to assign to the Company its right to acquire the distressed loan portfolios the
Company agreed to pay to SCM, all net profit from the sale or other disposition
of these distressed loan portfolios. However, the Company retains the right to
all profits generated from the collection of these distressed loan portfolios.
The Company had amounts owed to SCM of $3,139,522 and $157,681 recorded as
due to affiliates at December 31, 1996 and 1995, respectively.
AEI is a California corporation formed in 1988 which provides services to
facilitate the operations of affiliate companies. The Company also does business
as Performance Communication Services ("PCS") and has participated in numerous
telecommunications ventures since its inception. At December 31, 1995, the
Company had amounts due to PCS for expenses paid on behalf of the Company of
$120,000, recorded as an amount due to affiliates.
The Company acquires distressed loan portfolios from third-party sellers
and subsequently sells the portfolios to the PAM Funds for amounts consistent
with the respective PAM Funds' limited partnerships
F-131
<PAGE> 251
PERFORMANCE CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. RELATED PARTY TRANSACTIONS (CONTINUED)
agreements. In addition, the Company also enters into arrangements with the PAM
Funds to service the distressed loan portfolios. The arrangements generally
provide that all proceeds generated from the collection of distressed loan
portfolios will be shared by the parties in proportion to the respective
servicing arrangement, generally, 55% to 60% for the PAM Funds and 45% to 40%
for the Company. The Company also earns servicing fees as reimbursements of
collection costs incurred by the Company on behalf of the PAM Funds.
For the year ended December 31, 1996, the Company sold two portfolios to
PAM, PAM II, and PAM V for $1,315,610, $1,502,705, and $1,645,090, respectively.
In addition, the Company also sold three and twelve portfolios to PAM III and
PAM IV for $2,764,470 and $4,463,753, respectively. For the year ended December
31, 1995, the Company sold one portfolio to PAM, PAM II, and PAM III for $5,463,
$114,184, and $160,605, respectively. In addition, the Company also sold seven
and five portfolios to PAM IV and PAM V for $3,142,259 and $1,576,395,
respectively.
During the year ended December 31, 1996, the Company earned collection
revenue from PAM of $217,421; PAM II, $221,577; PAM III, $166,345; PAM IV,
$2,110,626; and PAM V, $477,498. During the year ended December 31, 1995, the
Company earned collection revenue from PAM of $34,693; PAM II, $136,308; PAM
III, $29,091; PAM IV, $1,144,313; and PAM V, $186,513.
During the year ended December 31, 1996, the Company earned servicing fees
from PAM, $43,509; PAM II, $67,720; PAM III, $81,560; PAM IV, $270,531; and PAM
V, $74,502. During the year ended December 31, 1995, the Company earned
servicing fees from PAM of $365; PAM II, $30,607; PAM III, $4,578; PAM IV,
$225,318; and PAM V, $64,375.
The Company had amounts owed to PAM, PAM II, PAM III, PAM IV and PAM V
recorded as due to affiliates at December 31, 1996 of $56,483, $43,947, $56,039,
$136,022, and $351,718, respectively. The Company had amounts owed to PAM II,
PAM IV and PAM V recorded as due to affiliates of $9,288, $314,221 and $624,247,
respectively, and amounts owed from PAM and PAM III totaling $860 and $9,411,
respectively, recorded as due from affiliates at December 31, 1995.
At December 31, 1994 the Company entered into an agreement with the
Company's sole shareholder. The agreement provided for the shareholder's
borrowings to be payable on demand at an interest rate of 8% per annum. During
the year ended December 31, 1995, the Company recorded interest income relating
to such borrowings of $14,360. At December 31, 1995, the outstanding balance
from the shareholder was assumed by an affiliate as partial satisfaction of
amounts owed to it by the Company.
6. INCOME TAXES
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1996 1995
------- ----
<S> <C> <C>
Current expense:
Federal.................................................. $ 4,748 --
State.................................................... 12,197 $800
------- ----
16,945 $800
------- ----
Deferred benefit:
Federal.................................................. (3,759) --
State.................................................... -- --
------- ----
(3,759) --
------- ----
Total provision for income taxes........................... $13,186 $800
======= ====
</TABLE>
F-132
<PAGE> 252
PERFORMANCE CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
Significant components of the Company's deferred income tax asset are as
follows:
<TABLE>
<CAPTION>
1996 1995
------ --------
<S> <C> <C>
Deferred income tax asset:
State taxes............................................ $3,759 $ 272
Net operating loss..................................... -- 43,518
------ --------
Total deferred income tax assets......................... 3,759 43,790
Valuation allowance...................................... -- (43,790)
------ --------
Net deferred income tax assets........................... $3,759 --
====== ========
</TABLE>
Deferred income tax assets result from temporary differences due to state
tax accruals, and the effective tax rate varies from the federal statutory rate
due primarily to state taxes.
7. COMMITMENTS AND CONTINGENCIES
Operating Lease
The Company is a party to a real property lease executed by SCM, an
affiliate entity. The Company has assumed primary responsibility for paying the
total monthly obligations pursuant to the terms of a sublet agreement with SCM.
The lease agreement terminates in August 1998 and requires future minimum lease
payments of the following:
<TABLE>
<S> <C>
1997...................................................... $ 91,659
1998...................................................... 63,109
--------
$154,768
========
</TABLE>
Rent expenses under this agreement totaled $85,875 and $81,167 for the
years ended December 31, 1996 and 1995, respectively.
Litigation
Certain affiliates of the Company have been named as a defendant in a suit
that was filed in early 1996 but to date has not been served. It is the opinion
of the affiliates and the Company that the suit is without merit. The affiliates
deny any wrongdoing in connection with this matter and will vigorously defend
this claim if the plaintiffs pursue this action. It is unclear at this time if
the results of this action would result in any cost to the Company.
8. SETTLEMENT AGREEMENT
On February 8, 1996, PD1, for itself and on behalf of the Company and the
PAM Funds, entered into an agreement ("Settlement Agreement") for the purpose of
settling and resolving any and all disputes existing between the various
affiliate parties and an independent third-party servicer ("Servicer"),
including release by all parties of claims against other respective parties and
assignments and transfer by the Company and the PAM Funds to the Servicer of
certain distressed loan portfolios. The Company received proceeds totaling
$606,877 in conjunction with the Settlement Agreement with the Servicer.
F-133
<PAGE> 253
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Performance Asset Management Company
We have audited the accompanying balance sheet of Performance Asset
Management Company as of December 31, 1996 and the related statements of
operations, shareholder's deficit and cash flows for the year ended December 31,
1996. 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 the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly,
in all material respects, the financial position of Performance Asset Management
Company as of December 31, 1996 and the results of its operations and cash flows
for the year then ended in conformity with generally accepted accounting
principles.
/s/ KELLY & COMPANY
Newport Beach, California
October 30, 1997
F-134
<PAGE> 254
PERFORMANCE ASSET MANAGEMENT COMPANY
BALANCE SHEET
DECEMBER 31, 1996
ASSETS
<TABLE>
<S> <C>
Current assets:
Accrued interest receivable...................................................... $ 828
-------
Total assets............................................................. $ 828
=======
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Income taxes payable............................................................. $ 920
Shareholder's deficit:
Preferred stock $.001 par value; 10,000,000 shares authorized, 100,000 shares
issued and outstanding at December 31, 1996................................... 100
Common stock $.001 par value; 100,000,000 shares authorized, 1,000 shares issued
and outstanding at December 31, 1996.......................................... 1
Additional paid in capital....................................................... 19,899
Notes receivable, shareholder.................................................... (20,000)
Retained deficit................................................................. (92)
-------
Total shareholder's deficit................................................... (92)
-------
Total liabilities and shareholder's deficit.............................. $ 828
=======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-135
<PAGE> 255
PERFORMANCE ASSET MANAGEMENT COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Revenues.............................................................................. --
Cost of sales......................................................................... --
----
Gross profit.......................................................................... --
Operating expenses.................................................................... --
----
Operating income...................................................................... --
Other income (expense):
Interest income..................................................................... $828
Income taxes........................................................................ (920)
----
Total other income (expense)..................................................... (92)
----
Loss before provision for income taxes................................................ (92)
Provision for income taxes............................................................ --
----
Net loss.................................................................... ($92)
====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-136
<PAGE> 256
PERFORMANCE ASSET MANAGEMENT COMPANY
STATEMENT OF SHAREHOLDER'S DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
ADDITIONAL NOTES
PREFERRED COMMON PREFERRED COMMON PAID-IN RECEIVABLE, RETAINED
SHARES SHARES STOCK STOCK CAPITAL SHAREHOLDER EARNINGS TOTAL
--------- ------ --------- ------ ---------- ----------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Formation of corporation.................. -- -- -- -- -- -- -- --
Issuance of stock....................... 1,000 1,000 $ 100 $1 $ 19,899 $ (20,000) -- --
Net loss................................ -- -- -- -- -- -- $(92) $(92)
-- --
---- ---- ------- -------- ----- -----
Balance, December 31, 1996................ 1,000 1,000 $ 100 $1 $ 19,899 $ (20,000) $(92) $(92)
==== ==== == == ======= ======== ===== =====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-137
<PAGE> 257
PERFORMANCE ASSET MANAGEMENT COMPANY
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss........................................................................... $ (92)
Decrease (increase) in assets:
Accrued interest receivable..................................................... (828)
Increase (decrease) in liabilities:
Income taxes payable............................................................ 920
------
Cash provided by operating activities.............................................. --
======
Cash flows used for investing activities:
Cash used in investing activities.................................................. --
------
Cash flows provided by financing activities:
Cash provided by financing activities.............................................. --
------
Net increase in cash............................................................... --
Cash at inception.................................................................... --
------
Cash at December 31, 1996............................................................ --
======
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Interest........................................................................ --
Income tax...................................................................... --
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-138
<PAGE> 258
PERFORMANCE ASSET MANAGEMENT COMPANY
NOTES TO FINANCIAL STATEMENT
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Performance Asset Management Company (the "Company") was incorporated in
the State of Delaware on May 7, 1996, and has been inactive.
Income Taxes
The Company accounts for deferred income taxes using the liability method
in accordance with Statement of Financial Accounting Standards No. 109 (SFAS No.
109). Deferred income taxes are computed based on the tax liability or benefit
in future years of the reversal of temporary differences in the recognition of
income or deduction of expenses between financial and tax reporting purposes.
The net difference between tax expense and taxes currently payable is reflected
in the financial statements as deferred taxes. Deferred tax assets and/or
liabilities are classified as current and noncurrent based on the classification
of the related asset or liability for financial reporting purposes, or based on
the expected reversal date for deferred taxes that are not related to an asset
or liability. For tax purposes the Company will be capitalizing all expenses
incurred during the development stage.
2. NOTE RECEIVABLE -- RELATED PARTY
Note receivable from related party at December 31, 1996, consists of the
following:
<TABLE>
<S> <C>
-------
Two notes receivable with face values of $10,000 each, at annual
interest rates of 7%, with principal and interest due on December
31, 1998......................................................... $20,000
=======
</TABLE>
3. INCOME TAXES
The components of the provision for income taxes for the period ended
December 31, 1996 are:
<TABLE>
<S> <C>
Current expense:
Federal.......................................................... $ 4
State............................................................ 916
----
Total provision.................................................... $ 920
====
</TABLE>
As of the balance sheet date the Company has no deferred income tax asset
or liability.
4. PREFERRED STOCK
The preferred stock has a conversion feature which provides that each share
is convertible to twenty shares of common stock with no cost of the conversion
and can be affected at any time.
F-139
<PAGE> 259
PERFORMANCE ASSET MANAGEMENT COMPANY
BALANCE SHEET (UNAUDITED)
JUNE 30, 1997
ASSETS
<TABLE>
<S> <C>
Current assets:
Accrued interest receivable...................................................... $ 1,551
------
Total assets............................................................. $ 1,551
======
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Income taxes payable............................................................. $ 1,720
Shareholder's deficit:
Preferred stock $.001 par value; 10,000,000 shares authorized, 100,000 shares
issued and outstanding at June 30, 1997....................................... 100
Common stock $.001 par value; 100,000,000 shares authorized, 1,000 shares issued
and outstanding at June 30, 1997.............................................. 1
Additional paid in capital....................................................... 19,899
Notes receivable, shareholder.................................................... (20,000)
Retained deficit................................................................. (169)
------
Total shareholder's deficit.............................................. (169)
------
Total liabilities and shareholder's deficit.............................. $ 1,551
======
</TABLE>
F-140
<PAGE> 260
PERFORMANCE ASSET MANAGEMENT COMPANY
STATEMENT OF OPERATIONS (UNAUDITED)
AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<S> <C>
Revenues.............................................................................. --
Cost of sales......................................................................... --
----
Gross profit.......................................................................... --
Operating expenses.................................................................... --
----
Operating income...................................................................... --
Other income (expense):
Interest income..................................................................... $723
Income taxes........................................................................ (800)
----
Total other income.................................................................... (77)
----
Loss before provision for income taxes................................................ (77)
----
Provision for income taxes............................................................ --
----
Net loss.............................................................................. $(77)
====
</TABLE>
F-141
<PAGE> 261
PERFORMANCE ASSET MANAGEMENT COMPANY
STATEMENT OF SHAREHOLDER'S DEFICIT (UNAUDITED)
AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
ADDITIONAL NOTE
PREFERRED COMMON PREFERRED COMMON PAID-IN RECEIVABLE, RETAINED
SHARES SHARES STOCK STOCK CAPITAL SHAREHOLDER EARNINGS TOTAL
--------- ------ --------- ------ ---------- ----------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Formation of corporation.......... -- -- -- -- -- -- -- --
Issuance of stock............... 100,000 1,000 $ 100 $1 $ 19,899 $ (20,000) -- --
Net loss........................ -- -- -- -- -- -- $ (92) $ (92)
-- --
----- ----- ------ -------- ----- -----
Balance, December 31, 1996........ 1,000 1,000 100 1 19,899 (20,000) (92) (92)
Net loss........................ -- -- -- -- -- -- (77) (77)
-- --
----- ----- ------ -------- ----- -----
Balance, June 30, 1997............ 1,000 1,000 $ 100 $1 $ 19,899 $ (20,000) $ (169) $(169)
===== ===== == == ====== ======== ===== =====
</TABLE>
F-142
<PAGE> 262
PERFORMANCE ASSET MANAGEMENT COMPANY
STATEMENT OF CASH FLOWS (UNAUDITED)
AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss........................................................................... $ (77)
Decrease (increase) in assets:
Accrued interest receivable..................................................... (723)
Increase (decrease) in liabilities:
Income taxes payable............................................................ 800
-----
Cash provided by operating activities........................................... --
-----
Cash flows used for investing activities:
Cash used in investing activities.................................................. --
-----
Cash flows provided by financing activities:
Cash provided by financing activities.............................................. --
-----
Net increase in cash............................................................... --
Cash at December 31, 1996............................................................ --
-----
Cash at June 30, 1997................................................................ --
-----
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Interest........................................................................... --
Income tax......................................................................... --
</TABLE>
F-143
<PAGE> 263
PERFORMANCE ASSET MANAGEMENT COMPANY
PRO FORMA FINANCIAL STATEMENTS
BALANCE SHEET
AS OF/FOR THE PERIOD ENDED JUNE 30, 1997
ASSETS
<TABLE>
<CAPTION>
ADJUSTMENTS
AND
PCM PAM PAM II PAM III PAM IV PAM V ELIMINATIONS
---------- ---------- ---------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and equivalents......... $1,009,336 $ 82,205 $1,283,708 $ 829,346 $ 3,032,196 $ 971,973 $ 0
Cash held in trust........... 0 (97,348) 441,613 2,091,560 5,144,273 (131,721) 0
Investments in distressed
loan portfolios, net....... 3,250 1,061,666 1,331,691 2,033,929 8,220,126 2,857,717 (9,864,937)
Accounts receivable.......... 660,887 66,630 98,257 0 0 248,067 0
Due from affiliates.......... 1,379,136 12,019 0 213,352 0 42,608 (246,890)
Loan to shareholder.......... 843 0 0 0 0 0 0
Other assets................. 27,439 12,732 42,942 64,480 104,977 24,873 0
Property and equipment,
net........................ 628,686 0 0 0 0 0 0
Organization costs, net...... 0 0 0 290 1,529 1,981 0
---------- ---------- ---------- ---------- ----------- ---------- ------------
Total Assets......... $3,709,577 $1,137,904 $3,198,211 $5,232,957 $16,503,101 $4,015,498 $(10,111,827)
========== ========== ========== ========== =========== ========== ============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable............. 1,339,985 333,727 104,589 8,469 11,862 147,307 0
Due to affiliates............ 2,313,510 0 169,799 326,492 1,765,633 0 (267,979)
Note payable to affiliate.... 0 199,390 0 0 0 0 0
Deposits in escrow for
investor subscriptions..... 0 0 0 0 0 0 0
---------- ---------- ---------- ---------- ----------- ---------- ------------
Total liabilities.... 3,653,495 533,117 274,388 334,961 1,777,495 147,307 (267,979)
General partner's capital.... 0 (337,817) (394,023) (362,696) (968,309) (121,749) 42,054
Limited partners' capital.... 0 942,604 3,317,846 5,260,692 15,693,915 3,989,940 378,451
Common stock................. 100 0 0 0 0 0 0
Retained earnings............ 55,982 0 0 0 0 0 (10,264,353)
---------- ---------- ---------- ---------- ----------- ---------- ------------
Total partners' capital
(shareholder's
equity)................ 56,082 604,787 2,923,823 4,897,996 14,725,606 3,868,191 (9,843,848)
---------- ---------- ---------- ---------- ----------- ---------- ------------
Total liabilities &
capital (equity)... $3,709,577 $1,137,904 $3,198,211 $5,232,957 $16,503,101 $4,015,498 $(10,111,827)
========== ========== ========== ========== =========== ========== ============
<CAPTION>
PRO FORMA
ADDITIONAL COMBINED PRO FORMA ADJUSTED
ADJUSTMENTS BALANCES RECLASSES BALANCES
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Cash and equivalents......... $ 7,208,764 $ 15,513,175 $22,721,939
Cash held in trust........... 7,448,377 0 7,448,377
Investments in distressed
loan portfolios, net....... 5,643,442 6,523,961 12,167,403
Accounts receivable.......... 1,073,841 0 1,073,841
Due from affiliates.......... 1,400,225 6,127,835 7,528,060
Loan to shareholder.......... 843 0 843
Other assets................. 277,443 0 277,443
Property and equipment,
net........................ 628,686 0 628,686
Organization costs, net...... 3,800 (3,800) 0
--
------------ ------------ -----------
Total Assets......... $ 0 $ 23,685,421 $ 28,161,171 $51,846,592
== ============ ============ ===========
Accounts payable............. 1,945,939 734,450 2,680,389
Due to affiliates............ 4,307,455 (4,307,455) 0
Note payable to affiliate.... 199,390 0 199,390
Deposits in escrow for
investor subscriptions..... 0 0 0
--
------------ ------------ -----------
Total liabilities.... 0 6,452,784 (3,573,005) 2,879,779
General partner's capital.... (2,142,540) 2,142,540 0
Limited partners' capital.... 29,583,448 (29,583,448) 0
Common stock................. 100 45,629,365 45,629,465
Retained earnings............ (10,208,371) 13,545,719 3,337,348
--
------------ ------------ -----------
Total partners' capital
(shareholder's
equity)................ 0 17,232,637 31,734,176 48,966,813
--
------------ ------------ -----------
Total liabilities &
capital (equity)... $ 0 $ 23,685,421 $ 28,161,171 $51,846,592
== ============ ============ ===========
</TABLE>
F-144
<PAGE> 264
PERFORMANCE ASSET MANAGEMENT COMPANY
PRO FORMA FINANCIAL STATEMENTS
AS OF/FOR THE PERIOD ENDED JUNE 30, 1997
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
ADJUSTMENTS
AND
PCM PAM PAM II PAM III PAM IV PAM V ELIMINATIONS
---------- --------- --------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Portfolio sales........................ $2,543,002 $ 0 $ 0 $ 0 $ 0 $ 0 $ (267,155)
Collection revenue..................... 5,343,416 0 0 0 0 0 0
Servicing fees......................... 296,737 0 0 0 0 0 0
Portfolio collections.................. 0 208,187 214,795 532,617 1,417,226 427,934 0
Less: portfolio basis recovery....... 0 (207,920) (214,795) (532,617) (1,391,732) (422,894) (1,147,020)
----------- --------- --------- --------- --------- --------- -----------
Net investment income.......... 8,183,155 267 0 0 25,494 5,040 (1,414,175)
Cost of portfolio sales................ 2,098,678 0 0 0 0 0 0
Personnel and related benefits......... 2,405,540 0 0 0 0 0 0
Professional and management fees....... 3,167,726 0 0 0 0 0 0
Collection expense..................... 217,684 20,569 38,124 29,275 167,889 41,063 0
Management fee expense................. 0 7,821 31,086 28,901 108,724 35,961 0
Professional fees...................... 73,632 121,866 43,975 71,758 165,793 49,225 0
Provision for portfolio losses......... 0 0 0 0 0 (173) 0
Amortization........................... 0 0 586 633 1,925 504 0
G & A expense.......................... 215,694 6,459 6,942 6,488 63,800 6,011 0
----------- --------- --------- --------- --------- --------- -----------
Total operating expenses....... 8,178,954 156,715 120,713 137,055 508,131 132,591 0
----------- --------- --------- --------- --------- --------- -----------
Income from operations......... 4,201 (156,448) (120,713) (137,055) (482,637) (127,551) (1,414,175)
Interest income (expense), net......... 23,457 (6,774) 43,766 75,604 188,640 31,052 0
Other income........................... 18,215 0 4,419 84 9,993 524 0
----------- --------- --------- --------- --------- --------- -----------
Income before provision for income
taxes................................ 45,873 (163,222) (72,528) (61,367) (284,004) (95,975) (1,414,175)
Provision for income taxes............. 800 0 0 0 0 0 0
----------- --------- --------- --------- --------- --------- -----------
Net income............................. $ 45,073 $(163,222) $ (72,528) $ (61,367) $ (284,004) $ (95,975) $(1,414,175)
=========== ========= ========= ========= ========= ========= ===========
<CAPTION>
PRO FORMA
ADDITIONAL COMBINED PRO FORMA ADJUSTED
ADJUSTMENTS BALANCES RECLASSES BALANCES
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Portfolio sales........................ $(2,098,678) $ 177,169 $ 0 $ 177,169
Collection revenue..................... (17,077) 5,326,339 0 5,326,339
Servicing fees......................... 296,737 0 296,737
Portfolio collections.................. (2,800,759) 0 0 0
Less: portfolio basis recovery....... 2,817,836 (1,099,142) 1,099,142 0
----------- ----------- ----------- ----------
Net investment income.......... (2,098,678) 4,701,103 1,099,142 5,800,245
Cost of portfolio sales................ (2,098,678) 0 0 0
Personnel and related benefits......... 2,405,540 (865,994) 1,539,546
Professional and management fees....... 526,249 3,693,975 0 3,693,975
Collection expense..................... 514,604 0 514,604
Management fee expense................. 212,493 (212,493) 0
Professional fees...................... (526,249) 0 0 0
Provision for portfolio losses......... (173) 0 (173)
Amortization........................... 3,648 (3,648) 0
G & A expense.......................... 305,394 0 305,394
----------- ----------- ----------- ----------
Total operating expenses....... (2,098,678) 7,135,481 (1,082,135) 6,053,346
----------- ----------- ----------- ----------
Income from operations......... 0 (2,434,378) 2,181,277 (253,101)
Interest income (expense), net......... 355,745 0 355,745
Other income........................... 33,235 0 33,235
----------- ----------- ----------- ----------
Income before provision for income
taxes................................ 0 (2,045,398) 2,181,277 135,879
Provision for income taxes............. 800 54,352 55,151
----------- ----------- ----------- ----------
Net income............................. $ 0 $(2,046,198) $ 2,126,926 $ 80,728
=========== =========== =========== ==========
</TABLE>
F-145
<PAGE> 265
PERFORMANCE ASSET MANAGEMENT COMPANY
PRO FORMA FINANCIAL STATEMENTS
STATEMENTS OF CASH FLOWS
(AS OF/FOR THE PERIOD ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
PCM PAM PAM II PAM III PAM IV
----------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.............................................. $ 45,073 $(163,222) ($ 72,528) $ (61,367) $ (284,004)
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization.......................................... 0 0 586 633 1,925
Depreciation.......................................... 99,127 0 0 0 0
Gain on repurchase of ltd ptrshp units................ 0 0 0 0 0
Provision for portfolio losses........................ 0 0 0 0 0
Decrease (increase) in assets:.......................... 0 0 0 0 0
Due from affiliates................................... (1,050,905) 44,464 82,175 (157,313) 136,022
Other assets.......................................... 20,141 0 0 (3) 0
Increase (decrease) in liabilities:..................... 0 0 0 0 0
Other liabilities:.................................... 0
Due to affiliates..................................... (1,470,221) (271,403) 169,799 (166,308) 1,415,057
Accounts payable...................................... 152,560 292,349 104,589 7,754 5,511
---------- -------- ---------- --------- ----------
Net cash provided by operating activities............. (1,204,225) (97,812) 284,621 (376,604) 1,274,511
---------- -------- ---------- --------- ----------
Cash flows provided by (used in) investing activities:... 0 0
Purchase of property and equipment...................... 0 0 0 0 0
Organization costs.................................... 0 0 0 0 0
Recovery of portfolio basis........................... 0 0 0 532,617 1,391,732
Accounts receivable................................... (660,887) (66,630) (98,257) 0 0
Cash held in trust.................................... 0 97,348 561,602 564,778 689,995
Purchase of investments in dist loan ports............ (3,250) 207,920 39,485 0 (520,672)
---------- -------- ---------- --------- ----------
Net cash provided by investing activities......... (664,137) 238,638 502,830 1,097,395 1,561,055
---------- -------- ---------- --------- ----------
Cash flows provided by (used in) financing activities:
Increase in payable to affiliate...................... 0 7,792 0 0 0
Distributions to partners............................. 0 (349,645) (503,250) (667,200) (1,909,915)
Redemption of partnership units....................... 0 0 (25,000) 0 (15,000)
Contributions from limited partners................... 0 0 0 0 0
Deposits in escrow for investor subscriptions......... 0 0 0 0 0
Payments for offering expenses........................ 0 0 0 0 0
Loans to shareholder.................................. (843) 0 0 0 0
---------- -------- ---------- --------- ----------
Net cash used in financing activities............. (843) (341,853) (528,250) (667,200) (1,924,915)
---------- -------- ---------- --------- ----------
Net (decrease) increase in cash.......................... (1,869,205) (201,027) 259,201 53,591 910,651
Cash at beginning of period.............................. 2,878,541 283,232 1,024,507 775,755 2,121,545
---------- -------- ---------- --------- ----------
Cash at end of period.................................... $ 1,009,336 $ 82,205 $1,283,708 $ 829,346 $ 3,032,196
========== ======== ========== ========= ==========
<CAPTION>
ADJUSTMENTS
AND ADDITIONAL COMBINED PRO FORMA
PAM V ELIMINATIONS ADJUSTMENTS BALANCES RECLASSES
--------- ------------- ----------- ----------- -----------
<S> <C>
Cash flows from operating activities:
Net income.............................................. $ (95,975) (1,414,175) $(2,046,198) 2,126,926
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization.......................................... 504 3,648 (3,648)
Depreciation.......................................... 0 0 99,127 0
Gain on repurchase of ltd ptrshp units................ 0 0 0
Provision for portfolio losses........................ 0 0 0 0
Decrease (increase) in assets:.......................... 0 0 0 0
Due from affiliates................................... 309,110 (824) (637,271) (212,493)
Other assets.......................................... 0 0 20,138 0
Increase (decrease) in liabilities:..................... 0 0 0 0
Other liabilities:.................................... 0 0
Due to affiliates..................................... (56,341) 267,979 (111,438) (1,250,111)
Accounts payable...................................... 146,708 0 1,709,471 0
--
-------- ---------- ---------- -----------
Net cash provided by operating activities............. 304,006 (1,147,020) 0 (962,523) 660,674
--
-------- ---------- ---------- -----------
Cash flows provided by (used in) investing activities:... 0
Purchase of property and equipment...................... 0 0 0 0
Organization costs.................................... 0 0 0 0
Recovery of portfolio basis........................... 0 1,147,020 3,071,369 0
Accounts receivable................................... (248,067) 0 (1,073,841) (1,099,142)
Cash held in trust.................................... 140,109 0 2,053,832 0
Purchase of investments in dist loan ports............ (557,055) 0 (833,572) 0
--
-------- ---------- ---------- -----------
Net cash provided by investing activities......... (665,013) 1,147,020 0 3,217,788 (1,099,142)
--
-------- ---------- ---------- -----------
Cash flows provided by (used in) financing activities:
Increase in payable to affiliate...................... 0 7,792
Distributions to partners............................. (398,132) 0 (3,828,142) 3,828,142
Redemption of partnership units....................... 0 0 (40,000) 40,000
Contributions from limited partners................... 0 0 0 0
Deposits in escrow for investor subscriptions......... 0 0 0 0
Payments for offering expenses........................ 0 0 0 0
Loans to shareholder.................................. 0 0 (843) 0
--
-------- ---------- ---------- -----------
Net cash used in financing activities............. (398,132) 0 0 (3,861,193) 3,868,142
--
-------- ---------- ---------- -----------
Net (decrease) increase in cash.......................... (759,139) 0 0 (1,605,926) 3,429,674
Cash at beginning of period.............................. 1,731,112 8,814,692 12,083,501
--
-------- ---------- ---------- -----------
Cash at end of period.................................... $ 971,973 $ 0 $ 0 $ 7,208,764 $15,513,175
======== ========== == ========== ===========
<CAPTION>
PRO FORMA
ADJUSTED
BALANCES
-----------
Cash flows from operating activities:
Net income.............................................. $ 80,728
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization.......................................... 0
Depreciation.......................................... 99,127
Gain on repurchase of ltd ptrshp units................ 0
Provision for portfolio losses........................ 0
Decrease (increase) in assets:.......................... 0
Due from affiliates................................... (849,764)
Other assets.......................................... 20,138
Increase (decrease) in liabilities:..................... 0
Other liabilities:.................................... 0
Due to affiliates..................................... (1,361,549)
Accounts payable...................................... 1,709,471
-----------
Net cash provided by operating activities............. (301,749)
-----------
Cash flows provided by (used in) investing activities:...
Purchase of property and equipment...................... 0
Organization costs.................................... 0
Recovery of portfolio basis........................... 3,071,369
Accounts receivable................................... (2,172,983)
Cash held in trust.................................... 2,053,832
Purchase of investments in dist loan ports............ (833,572)
-----------
Net cash provided by investing activities......... 2,118,646
-----------
Cash flows provided by (used in) financing activities:
Increase in payable to affiliate...................... 7,792
Distributions to partners............................. 0
Redemption of partnership units....................... 0
Contributions from limited partners................... 0
Deposits in escrow for investor subscriptions......... 0
Payments for offering expenses........................ 0
Loans to shareholder.................................. (843)
-----------
Net cash used in financing activities............. 6,949
-----------
Net (decrease) increase in cash.......................... 1,823,746
Cash at beginning of period.............................. 20,898,193
-----------
Cash at end of period.................................... $22,721,939
===========
</TABLE>
F-146
<PAGE> 266
APPENDIX A
MERGER AGREEMENT AND PLAN OF REORGANIZATION
APPENDIX B
SUPPLEMENT FOR
PERFORMANCE ASSET MANAGEMENT FUND, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
APPENDIX C
SUPPLEMENT FOR
PERFORMANCE ASSET MANAGEMENT FUND II, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
APPENDIX D
SUPPLEMENT FOR
PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
APPENDIX E
SUPPLEMENT FOR
PERFORMANCE ASSET MANAGEMENT FUND IV, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
APPENDIX F
SUPPLEMENT FOR
PERFORMANCE ASSET MANAGEMENT FUND V, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
APPENDIX G
FAIRNESS OPINION
APPENDIX H
LETTER OF TRANSMITTAL AND CONSENT STATEMENT FOR
LIMITED PARTNERS OF PERFORMANCE ASSET MANAGEMENT FUND, LTD.
APPENDIX I
LETTER OF TRANSMITTAL AND CONSENT STATEMENT FOR
LIMITED PARTNERS OF PERFORMANCE ASSET MANAGEMENT FUND II, LTD.
APPENDIX J
LETTER OF TRANSMITTAL AND CONSENT STATEMENT FOR
LIMITED PARTNERS OF PERFORMANCE ASSET MANAGEMENT FUND III, LTD.
APPENDIX K
LETTER OF TRANSMITTAL AND CONSENT STATEMENT FOR
LIMITED PARTNERS OF PERFORMANCE ASSET MANAGEMENT FUND IV, LTD.
APPENDIX L
LETTER OF TRANSMITTAL AND CONSENT STATEMENT FOR
LIMITED PARTNERS OF PERFORMANCE ASSET MANAGEMENT FUND V, LTD.
<PAGE> 267
APPENDIX A
MERGER AGREEMENT
AND PLAN OF REORGANIZATION
THIS MERGER AGREEMENT AND PLAN OF REORGANIZATION ("Agreement") is made and
entered into this 31st day of October, 1997, by and among (i) Performance Asset
Management Fund, Ltd., A California Limited Partnership ("PAM"); (ii)
Performance Asset Management Fund II, Ltd., A California Limited Partnership
("PAM II"); (iii) Performance Asset Management Fund III, Ltd., A California
Limited Partnership ("PAM III"); (iv) Performance Asset Management Fund IV,
Ltd., A California Limited Partnership ("PAM IV"); (v) Performance Asset
Management Fund V, Ltd., A California Limited Partnership ("PAM V"); (vi)
Performance Capital Management, Inc., a California corporation ("PCM"); and
(vii) Performance Asset Management Company, a Delaware corporation ("Company").
For convenience, PAM, PAM II, PAM III, PAM IV, and PAM V shall be referred to in
this Agreement as the "Partnerships" and any of them may be referred to in this
Agreement as a "Partnership".
RECITALS
A. The Board of Directors of the Company; the Board of Directors of PCM;
and the general partner of the Partnerships have each determined that a business
combination between the Company, PCM and the Partnerships is in the best
interests of their shareholders and partners, respectively, and presents an
opportunity for their respective businesses to achieve strategic and financial
benefits and, accordingly, have agreed to effect a plan of reorganization and
merger, on the terms and subject to conditions set forth herein.
B. The Partnerships, PCM and the Company, and each of them, desire that
there occur the reorganization and merger ("Merger") of the businesses of the
Partnerships and PCM, combining them with and into the Company by, among other
things:
(1) The transfer of all of the assets, properties, rights and
liabilities of the Partnerships and PCM to the Company ("Transfer");
(2) Merging PCM and the Partnerships with and into the Company, as a
result of which the Company will be the sole surviving entity;
(3) Terminating PCM's legal existence and the Partnerships' legal
existences by operation of law;
(4) Exchanging each shareholder's interest in PCM and each partner's
interest in each Partnership for $.001 par value common stock of the
Company ("Merger Stock"); and
(5) Adopting certain amendments to the Company's Certificate of
Incorporation and Bylaws which may have the effect of discouraging
unsolicited proposals to acquire control of the Company.
C. The Company, PCM and the Partnerships desire to make certain
representations, warranties and agreements in connection with the
reorganization.
NOW, THEREFORE, IN CONSIDERATION OF THE RECITALS SPECIFIED ABOVE THAT SHALL BE
DEEMED TO BE A SUBSTANTIVE PART OF THIS AGREEMENT, AND THE MUTUAL COVENANTS,
PROMISES, AGREEMENTS, REPRESENTATIONS AND WARRANTIES SPECIFIED IN THIS AGREEMENT
AND OTHER GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND SUFFICIENCY OF WHICH
ARE HEREBY ACKNOWLEDGED, WITH THE INTENT TO BE OBLIGATED LEGALLY AND EQUITABLY,
THE PARTIES DO HEREBY COVENANT, PROMISE, AGREE, REPRESENT AND WARRANT AS
FOLLOWS:
I. RECITALS; TRUE AND CORRECT
The above specified recitals are true and correct and, by this reference,
are made a part of this Agreement.
II. REORGANIZATION AND MERGER
2.1. MERGER. The Partnerships, PCM and the Company shall effect the
Transfer on the terms and subject to the conditions specified in this Agreement,
and in consideration of the Transfer, the Partnerships and PCM will receive the
Merger Stock. The Merger Stock will be delivered by the Company to the
A-1
<PAGE> 268
Partnerships and PCM, and the Partnerships and PCM will distribute the Merger
Stock to the partners of the Partnerships and to the shareholders of PCM in a
manner consistent with the value determined by the Company, PCM and the General
Partner of the Partnerships for limited partnership interests, shares of PCM
common stock and shares of the Company's common stock ("Exchange Value"),
pursuant to which the Company shall issue its common stock to effect the Merger.
The Exchange Value has been reviewed by Willamette Management Associates, Inc.
("Willamette") and Willamette has determined that the Exchange Value is fair to
the Company, PCM and the Partnerships. Upon distribution of the Merger Stock,
the Partnerships and PCM will dissolve.
2.2. CLOSING DATE. If all of the conditions precedent to the obligations
of each of the parties, as specified in this Agreement, shall have been
satisfied or shall have been waived, the Merger shall become effective on the
date ("Closing Date") of the Transfer. For state law purposes, the Merger shall
become effective upon the issuance of a certificate of merger by the Secretary
of State of the State of Delaware in accordance with Delaware law or at such
later time which the parties shall have agreed upon and designated in such
filings in accordance with applicable law.
2.3. SECURITIES OF THE COMPANY. The authorized capital stock of the
Company is (i) 100,000,000 shares of $.001 par value common stock ("Common
Stock"), 1,000 shares of which are issued and outstanding; and (ii) 10,000,000
shares of $.001 par value preferred stock ("Preferred Stock"), with such
designation, rights and preferences as may be determined from time to time by
the Board of Directors of the Company, of which 100,000 shares are issued and
outstanding.
2.4. REORGANIZATION STOCK. The manner and basis of issuing and
restrictions affecting the Merger Stock are as follows:
(a) At the Closing Date, the Partnerships shall receive the following
number of shares of Merger Stock:
(1) To PAM, 93,398 shares of Merger Stock, to be distributed to the
holders of that partnership's interests;
(2) To PAM II, 311,202 shares of Merger Stock, to be distributed to
the holders of that partnership's interests;
(3) To PAM III, 600,003 shares of Merger Stock, to be distributed to
the holders of that partnership's interests;
(4) To PAM IV, 1,584,596 shares of Merger Stock, to be distributed to
the holders of that partnership's interests; and
(5) To PAM V, 470,002 shares of Merger Stock, to be distributed to the
holders of that partnership's interests.
(b) At the Closing Date, PCM shall receive 4,452,299 shares of Merger
Stock, to be distributed to the shareholders of PCM.
(c) Each outstanding share of the Common Stock is entitled to one vote on
all matters submitted to a vote of shareholders. Shareholders have a right to
receive a report of the vote taken at any annual, regular, or special meeting of
shareholders. Shareholder approval is required for sales of all or substantially
all of the assets of the Company and reorganizations of the Company. Dissenters'
rights will be provided to dissenting shareholders in any reorganization
involving the Company. Shareholders with the same type of shares will be treated
equally in a merger involving the Company.
(d) Upon the liquidation, dissolution or winding up of the Company, holders
of the Common Stock will be entitled to receive pro rata the assets of the
Company which are legally available for distribution, after payment of all debts
and other liabilities. The voluntary sale, conveyance, lease, exchange or
transfer (for cash, shares of stock, securities or other consideration) of all
or substantially all the property or assets of the Company to, or a
consolidation or merger of the Company with, one or more other corporations
(whether or not the Company is the entity surviving such consolidation or
merger) will not be deemed to be a liquidation, dissolution or winding-up,
voluntary or involuntary.
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(e) Holders of the Common Stock shall have the right to receive dividends
paid on the Common Shares, subject to the dividend policy of the Company. The
Company shall not pay any cash dividends on the Common Stock or the Preferred
Stock for the foreseeable future, as all available cash will be utilized to
continue the growth of the Company's business subsequent to the Closing Date for
the proximate future thereafter. The payment of any subsequent cash dividends
will be in the discretion of the Board of Directors of the Company and will be
dependent upon the Company's results of operations, financial condition,
contractual restrictions and other factors deemed relevant by that Board of
Directors.
(f) No fractional shares of the Common Stock shall be issued as a result of
the Merger. In lieu of the issuance of any fractional shares of the Common Stock
as a result of the Merger, cash adjustments will be paid in respect of any
fractional shares that would otherwise be issuable, and the amount of such cash
adjustment shall be equal to such fractional proportion of a share of the Common
Stock.
(g) To accomplish the purposes of the Merger, the transfer, assignment,
sale, conveyance, hypothecation, encumbrance, or other alienation of the shares
of the Merger Stock shall be restricted as follows:
(1) 25% of the Merger Stock will be unrestricted immediately after the
consummation of the Merger;
(2) 25% of the Merger Stock will be restricted until the end of the
Company's first full fiscal quarter following the Closing Date;
(3) 25% of the Merger Stock will be restricted until the end of the
Company's second full fiscal quarter following the Closing Date;
(4) The remaining 25% of the Merger Stock will be restricted until the
end of the Company's third full fiscal quarter following the Closing Date.
(h) Any transfer, sale, assignment, sale, conveyance, hypothecation,
encumbrance, or alienation of the any of the shares of the Merger Stock, other
than according to the provisions of Section 2.4(g), shall be, and hereby is,
null and void and shall transfer to the purported transferee, purchaser,
assignee, pledgee, or encumbrance holder, no right, title or interest in or to
the restricted shares purported to be transferred, sold, assigned, hypothecated,
encumbered, or alienated.
(i) At such time as the Company (i) has issued and outstanding equity
securities listed on the (a) New York Stock Exchange or (b) the American Stock
Exchange or (ii) has issued and outstanding securities designated as qualified
for trading as a national market system security on the National Association of
Securities Dealers Automatic Quotation System (or any successor national market
system) and has at least eight hundred (800) holders of its equity securities as
of the record date of the Company's most recent annual meeting of shareholders,
the Company shall be a "listed corporation." At such time as the Company shall
be a listed corporation:
(1) The directors of the Company shall be divided into two (2)
classes, designated Class I and Class II. Each class shall consist, as
nearly as may be possible, of one-half of the total number of directors
constituting the entire Board of Directors. At such time as the directors
are divided into two (2) classes, the total number of directors
constituting the entire Board of Directors shall be seven (7). The term of
each class of directors shall be two (2) years. The term of the initial
Class I directors shall terminate on the date of the second (2nd) annual
meeting of shareholders following the annual meeting of shareholders at
which those directors were elected; and the terms of the initial Class II
directors shall terminate on the date of the second (2nd) annual meeting of
shareholders following the annual meeting of shareholders at which those
directors were elected. At each annual meeting of shareholders during a
year in which the termination of the term of a class of directors occurs,
successors to that class of directors shall be elected for a two (2) year
term. If the number of directors is changed, any increase or decrease in
directorships shall be apportioned among the classes so as to maintain the
number of directors in each class as nearly equal as possible, and any
additional directors of any class elected to fill a vacancy resulting from
an increase in such class shall hold office only until the next election of
directors by the shareholders, but in no case will a decrease in the number
of directors shorten the term of any incumbent director. Directors shall
hold office until the annual meeting for the year in which their terms
expire and
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until their successors shall be elected and shall qualify, subject,
however, to prior death, resignation, retirement, disqualification or
removal from office. Any vacancy on the Board of Directors, howsoever
resulting, may be filled by the affirmative vote of a majority of the
remaining directors then in office, even if less than a quorum. Any
director elected to fill a vacancy shall hold office only until the next
election of directors by the shareholders.
(2) The shareholders of the Company shall not be entitled to cumulate
their votes for directors of the Company.
2.5. EFFECT OF THE MERGER. As of the Closing Date, all of the following
shall occur:
(a) The corporate identity, existence, purposes, powers, franchises,
rights and immunities of the Company shall continue unaffected and
unimpaired by the Merger.
(b) The Company shall be liable for all of the obligations and
liabilities of the Partnerships and of PCM, including, without limitation,
obligations and liabilities (1) arising from employment agreements and (2)
owing to affiliates of PCM and the Partnerships.
(c) The rights, privileges, goodwill, inchoate rights, assets,
franchises and property, real, personal and mixed, and indebtedness due on
whatever account and all other things in action belonging to the
Partnerships shall be, and hereby are, bargained, conveyed, granted,
confirmed, transferred, assigned and set over to and vested in the Company,
without further act or deed.
(d) The rights, privileges, goodwill, inchoate rights, assets,
franchises and property, real, personal and mixed, and indebtedness due on
whatever account and all other things in action belonging to PCM shall be,
and they hereby are, bargained, conveyed, granted, confirmed, transferred,
assigned and set over to and vested in the Company, without further act or
deed.
(e) No claim pending at the Closing Date by or against the
Partnerships or PCM or any partner, stockholder, officer or director
thereof, shall abate or be discontinued by the Merger, but may be enforced,
prosecuted, settled or compromised as if the Merger had not occurred.
(f) All rights of employees and creditors and all liens upon the
property of the Partnerships and PCM shall be preserved unimpaired, limited
to the property affected by such liens at the Closing Date, and all the
indebtedness, liabilities and duties of the Partnerships and PCM shall
attach to the Company and shall be enforceable against the Company to the
same extent as if all such indebtedness, liabilities and duties had been
incurred or contracted by the Company.
(g) The Certificate of Incorporation of the Company, as in effect on
the Closing Date, shall continue to be the Certificate of Incorporation of
the Company, as it may be amended thereafter in accordance with the
provisions thereof and applicable laws.
(h) The Bylaws of the Company, as in effect on the Closing Date, shall
continue to be the Bylaws of the Company, without change or amendment until
such time, if ever, as they may be amended thereafter in accordance with
the provisions thereof and applicable laws.
(i) The directors of the Company immediately prior to the Closing Date
shall be the directors of the Company as of the Closing Date.
(j) The officers of the Company immediately prior to the Closing Date
shall be the officers of the Company as of the Closing Date.
2.6. DISCLOSURE SCHEDULE. The Disclosure Schedule dated even herewith
("Disclosure Schedule") specifies the matters required to be specified in the
Disclosure Schedule, as described elsewhere in this Agreement. The Disclosure
Schedule shall be deemed to be and is a part of this Agreement.
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III. REPRESENTATIONS AND WARRANTIES OF THE PARTNERSHIPS
Each Partnership represents and warrants to the Company and PCM as follows,
with the knowledge and understanding that the Company and PCM are relying
materially upon such representations and warranties:
3.1. ORGANIZATION AND STANDING. Such Partnership is a limited partnership
duly organized, validly existing and in good standing under the laws of the
State of California. Such Partnership has all requisite power to conduct its
business as that business is now conducted and is duly qualified to do business
as a foreign limited partnership and is in good standing in each jurisdiction
where such qualification is necessary under applicable law, except where the
failure to qualify (individually or in the aggregate) does not have any material
adverse effect on the assets, business or financial condition of such
Partnership, and all states in which such Partnership is qualified to do
business as of the date of this Agreement, are specified in the Disclosure
Schedule. Copies of such Partnership's Certificate of Limited Partnership
(certified by the Secretary of State of California), and the Agreement of
Limited Partnership of such Partnership, as amended to date, delivered to the
Company on date even with this Agreement, are true and complete copies of those
documents as now in effect. Except as otherwise set forth in the Disclosure
Schedule, such Partnership does not own any interest in any other limited
partnership, joint venture, corporation, business trust or similar entity.
3.2. CAPITALIZATION. The number of limited partnership interests
("Units") which are issued and outstanding for such Partnership are as set forth
in the Disclosure Schedule. All of such Units are duly authorized, validly
issued and outstanding, fully paid and nonassessable, and owned of record and
beneficially by the partners of such Partnership, in such amounts as are set
forth opposite their respective names thereon, and were not issued in violation
of the preemptive rights of any person. There are no subscriptions, options,
warrants, rights or calls or other commitments or agreements to which any
partner of such Partnership is a party or by which any such partner is
obligated, calling for any issuance, transfer, sale or other disposition of any
Units. There are no outstanding securities convertible or exchangeable, actually
or contingently, into Units.
3.3. AUTHORITY. This Agreement constitutes, and all other agreements
contemplated hereby will constitute, when executed and delivered by such
Partnership in accordance therewith, the valid and binding obligation of such
Partnership, enforceable in accordance with their respective terms, subject to
general principles of equity and bankruptcy or other laws relating to or
affecting the rights of creditors generally.
3.4. PROPERTIES. Except as set forth in the Disclosure Schedule, such
Partnership has good title to all of the assets and properties which it purports
to own as (i) presented on the balance sheet included in the Respective
Partnership Financial Statements (as hereinafter defined), or (ii) otherwise, or
thereafter acquired. Such Partnership is not in material default in the
performance of any of its joint venture agreements with PCM or any other party.
Neither the whole nor any material portion of the assets of such Partnership are
subject to any governmental decree or order to be sold or are being condemned,
expropriated or otherwise taken by any public authority with or without payment
of compensation therefor, nor, to the knowledge of the General Partner of such
Partnership, has any such condemnation, expropriation or taking been proposed.
None of the assets of such Partnership is subject to any restriction which would
prevent continuation of the use currently made thereof or materially adversely
affect the value thereof.
3.5. CONTRACTS. All contracts, agreements, licenses, leases, easements,
permits, rights of way, commitments, and understandings, written or oral,
connected with or relating in any respect to present or proposed future
operations of such Partnership (except employment or other agreements terminable
at will and other agreements which, in the aggregate, are not material to the
business, properties or prospects of those parties and except governmental
licenses, permits, authorizations, approvals and other matters referred to in
Section 3.16 of this Agreement), which would be required to be listed as
exhibits to an Annual Report on Form 10-K, if such Partnership is subject to the
reporting requirements of the Securities Exchange Act of 1934 ("Exchange Act")
(individually, a "Respective Partnership Contract" and, collectively, the
"Respective Partnership Contracts"), are listed and described in the Disclosure
Schedule. Subsequent to the consummation of the Merger, such Partnership shall
use its best efforts to cause the transfer to, and otherwise assign for the
benefit of, the Company, the Respective Partnership Contracts.
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3.6. LITIGATION. Except as disclosed in the Disclosure Schedule, to the
knowledge of the General Partner of such Partnership, there is no claim, action,
proceeding or investigation pending or threatened against or affecting such
Partnership before or by any court, arbitrator or governmental agency or
authority which, in the reasonable judgment of such General Partner, could have
any material adverse effect on such Partnership. There are no decrees,
injunctions or orders of any court, governmental department, agency or
arbitration outstanding against such Partnership.
3.7. TAXES. For purposes of this Agreement, (i) "Tax" (and, with
correlative meaning, "Taxes") shall mean any federal, state, local or foreign
income, alternative or add-on minimum business, employment franchise, occupancy,
payroll, property, sales, transfer, use, value added, withholding or other tax,
levy, impost, fee, imposition, assessment or similar charge, together with any
related addition to tax, interest, penalty or fine thereon; and (ii) "Returns"
shall mean all returns, including, without limitation, information returns and
other material information, reports and forms relating to Taxes or to any
benefit plans, to the knowledge of the General Partner of such Partnership:
(a) Such Partnership has duly filed all Returns required by any law or
regulation to be filed by such Partnership, except for extensions duly
obtained. All such Returns were, when filed, and are, accurate and complete
in all material respects and were prepared in conformity with applicable
laws and regulations in all material respects. Such Partnership has paid or
will pay in full or has adequately reserved against all Taxes otherwise
assessed against it through the Closing Date (as hereinafter defined), and
the assessment of any material amount of additional Taxes in excess of
those paid and reported is not reasonably expected.
(b) Such Partnership is not a party to any pending action or
proceeding by any governmental authority for the assessment of any Tax, and
no claim for assessment or collection of any Tax has been asserted against
such Partnership that has not been paid. There are no Tax liens upon the
assets (other than the lien of personal property taxes not yet due and
payable) of such Partnership. There is no valid basis, except as set forth
in the Disclosure Schedule, for any assessment, deficiency, notice, 30-day
letter or similar intention to assess any Tax to be issued to such
Partnership by any governmental authority.
3.8 COMPLIANCE WITH LAWS AND REGULATIONS. To the knowledge of the General
Partner of such Partnership, such Partnership is in compliance, in all material
respects, with all laws, rules, regulations, orders and requirements (federal,
state and local) applicable to it in all jurisdictions where the business of
such Partnership is currently conducted or to which such Partnership is
currently subject which have a material impact on such Partnership, including,
without limitation, all applicable civil rights and equal opportunity employment
laws and regulations, and all state and federal antitrust, antimonopolies and
fair trade practice laws and the federal Occupational Health and Safety Act.
Such Partnership does not know of any assertion by any party that such
Partnership is in violation of any such laws, rules, regulations, orders,
restrictions or requirements with respect to its current operations, and no
notice in that regard has been received by the General Partner of such
Partnership. To the knowledge of the General Partner of such Partnership, there
is not presently pending any proceeding, hearing or investigation with respect
to the adoption of amendments or modifications to existing laws, rules,
regulations, orders, restrictions or requirements which, if adopted, would
materially adversely affect the operations of such Partnership.
3.9. GOVERNMENTAL APPROVALS; CONSENTS. To the knowledge of the General
Partner of such Partnership, except for (i) the granting of effectiveness by the
Securities and Exchange Commission of the Merger; (ii) the approval and granting
of effectiveness by the appropriate various state securities regulators of the
Merger; (iii) the approval by the National Association of Securities Dealers,
Inc. of the Merger; and (iv) the reports required to be filed in the future by
such Partnership as a reporting company under the Exchange Act, no
authorization, license, permit, franchise, approval, order or consent of, and no
registration, declaration or filing by such Partnership with, any governmental
authority, federal, state, or local, is required in connection with such
Partnership, execution, delivery and performance of this Agreement. No consents
of any other parties are required to be received by or on the part of such
Partnership to enable such Partnership to enter into and carry out this
Agreement.
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3.10. CONDITION OF ASSETS. The equipment, fixtures, and other personal
property of such Partnership, are in good operating condition and repair
(ordinary wear and tear excepted) for the conduct of the business of such
Partnership as presently conducted.
3.11. NO BREACHES. To the knowledge of the General Partner of such
Partnership, the making and performance of this Agreement and the other
agreements contemplated hereby by such Partnership will not (i) conflict with or
violate the Certificate of Limited Partnership or Agreement of Limited
Partnership of such Partnership; (ii) violate any material laws, ordinances,
rules or regulations, or any order, writ, injunction or decree to which such
Partnership is a party or by which such Partnership, or any of its assets,
business, or operations may be obligated or affected; or (iii) result in any
breach or termination of, or constitute a default under, or constitute an event
which, with notice or lapse of time, or both, would become a default under, or
result in the creation of any encumbrance upon any asset of such Partnership, or
create any rights of termination, cancellation or acceleration in any person,
under any Respective Partnership Contract.
3.12. DISCLOSURE SCHEDULE COMPLETE. Such Partnership shall promptly one
or more supplements the Disclosure Schedule if any event occurs prior to the
Closing Date that would have been required to be disclosed had those events
existed at the time of executing this Agreement. The Disclosure Schedule, as
supplemented prior to the Closing Date, will contain a true, correct and
complete list and description of all items required to be set forth therein. The
Disclosure Schedule, as supplemented prior to the Closing Date, is expressly
incorporated herein by reference. Notwithstanding the foregoing, any such
supplement to the Disclosure Schedule following the date hereof shall not in any
way affect the right of PCM or the Company not to consummate the Merger as
specified later in this Agreement.
3.13. EMPLOYEES. Except as set forth in the Disclosure Schedule, none of
the persons providing human resource services to such Partnership is represented
by any labor union or collective bargaining unit and, to the knowledge of the
General Partner of such Partnership, no discussions or collective bargaining
negotiations are taking place with respect to such representation.
3.14. FINANCIAL STATEMENTS. To the knowledge of the General Partner of
such Partnership, the Disclosure Schedule contains audited balance sheets as of
December 31, 1996, and related statements of operations, statements of cash
flows and statements of partners' equity, for the one-year periods ended
December 31, 1996, and December 31, 1995, and compiled balance sheets as of June
30, 1997, and related statements of operations, statements of cash flows and
statement of partners' equity, for the six-month ended June 30, 1997
("Respective Partnership Financial Statements"). The Respective Partnership
Financial Statements present fairly, in all respects, the financial position and
results of operations of such Partnership as of the dates and periods indicated,
prepared in accordance with generally accepted accounting principles
consistently applied ("GAAP"). Without limiting the generality of the foregoing,
(i) there is no basis for any assertion against such Partnership as of the date
of the Respective Partnership Financial Statements of any material indebtedness,
liability or obligation of any nature not fully presented or reserved against in
the Respective Partnership Financial Statements; and (ii) there are no assets of
such Partnership as of the date of the Respective Partnership Financial
Statements, the value of which is overstated in the Respective Partnership
Financial Statements. Except as disclosed in the Respective Partnership
Financial Statements, such Partnership does not have any known contingent
liabilities, including liabilities for Taxes, forward or long-term commitments
or unrealized or anticipated losses from unfavorable commitments other than in
the ordinary course of business.
3.15. ABSENCE OF CERTAIN CHANGES OR EVENTS CHANGES OR EVENTS. Except as
set forth in the Disclosure Schedule, since December 31, 1996, there has not
been:
(a) any material adverse change in the financial condition,
properties, assets, liabilities or business or a decrease in net worth of
such Partnership;
(b) any material damage, destruction or loss of any material
properties of such Partnership, whether or not covered by insurance;
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(c) any material change in the manner in which the business of such
Partnership has been conducted, including, without limitation, collection
of accounts receivable and payment of accounts receivable;
(d) any change in the accounting principles, methods or practices or
any change in the depreciation or amortization policies or rates utilized
by such Partnership;
(e) any voluntary or involuntary sale, assignment, abandonment,
surrender, termination, transfer, license or other disposition, of any kind
or nature, of any property or right, including, without limitation, any
equipment, office equipment, accounts receivable, intangible assets, and
business records of such Partnership's Contracts, excepting only transfers
in accordance with past practices or collection of accounts receivable in
the ordinary course of business;
(f) any material change in the treatment and protection of trade
secrets or other confidential information of such Partnership;
(g) any material change in the business or contractual relationship of
such Partnership with any debtor, customer or supplier which might
reasonably be expected to materially and adversely affect the business or
prospects of such Partnership;
(h) any strike, material grievance proceeding or other labor dispute,
any union organizational activity or other occurrence, event or condition
of any similar character which might reasonably be expected to adversely
affect the business of such Partnership;
(i) any loan or advance by such Partnership to any party other than
indebtedness acquired in the ordinary course of business as conducted;
(j) any incurrence by such Partnership of debts, liabilities or
obligations of any nature whether accrued, absolute, contingent, direct,
indirect or inchoate, or otherwise, and whether due or to become due,
except:
(1) current liabilities incurred for services rendered in the
ordinary course of such Partnership's business and entered into at arms'
length;
(2) obligations incurred in the ordinary course of such
Partnership's business entered into at arms' length;
(3) liabilities on account of taxes and governmental charges, but
not penalties, interest or fines in respect thereof;
(4) obligations or liabilities incurred by virtue of the execution
of this Agreement; or
(5) liabilities pursuant to the litigation listed in the Disclosure
Schedule; or
(k) any agreement by such Partnership, whether written or oral, to do
any of the foregoing; and
(l) any occurrence not included in paragraphs (a) through (k),
inclusive, of this Section 3.15 which has resulted, or which the General
Partner of such Partnership has reason to believe, in its reasonable
judgment, might be expected to result, in a material adverse change in the
business or prospects of such Partnership.
3.16. GOVERNMENTAL LICENSES, PERMITS, AUTHORIZATIONS AND APPROVALS. To
the knowledge of the General Partner of such Partnership, such Partnership has
all governmental licenses, permits, authorizations and approvals necessary for
the conduct of its business as currently conducted ("Respective Partnership
Licenses and Permits"). The Disclosure Schedule includes a list of all
Respective Partnership Licenses and Permits. All Respective Partnership Licenses
and Permits are in full force and effect, and no proceedings for the suspension
or cancellation of any thereof is pending or threatened.
3.17. EMPLOYEE PLANS.
(a) For purposes of this Agreement, the following definitions apply:
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(1) "ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and any and all regulations promulgated thereunder;
(2) "Multi-employer Plan" means a plan, as defined in Section 3(37)
of ERISA, to which any Partnership or PCM contributes or is required to
contribute;
(3) "Employee Plan" means any pension, retirement, profit sharing,
deferred compensation, vacation, bonus, incentive, medical, vision,
dental, disability, life insurance or any other employee benefit plan as
defined in Section 3(3) of ERISA, other than a Multi-employer Plan, to
which any Partnership or PCM contributes, sponsors, maintains or
otherwise is obligated to with regard to any benefits on behalf of the
employees of such Partnership or PCM;
(4) "Employee Pension Plan" means any Employee Plan for the
provision of retirement income to employees or which results in the
deferral of income by employees extending to the termination of covered
employment or beyond as defined in Section 3(2) of ERISA;
(5) "Employee Welfare Plan" means any Employee Plan other than an
Employee Pension Plan; and
(6) "Compensation Arrangement" means any plan or compensation
arrangement other than an Employee Plan, whether written or unwritten,
which provides to employees of such Partnership or to former employees
of such Partnership, any compensation or other benefits, whether
deferred or not, in excess of base salary or wages, including, without
limitation, any bonus or incentive plan, stock rights plan, deferred
compensation arrangement, life insurance, stock purchase plan, severance
pay plan and any other employee fringe benefit plan.
(b) Such Partnership has no Employee Plans or Compensation Agreements.
3.18. BROKERS. Such Partnership shall indemnify and hold the Company and
PCM harmless from any claim by any broker or other person for commissions or
other compensation for causing the Merger to occur, where such claim is based on
the purported employment or authorization of such broker or other person by such
Partnership.
3.19. BUSINESS LOCATIONS. Such Partnership does not own, lease or
sublease any real or personal property in any state, except as set forth in the
Disclosure Schedule. Such Partnership does not have any places of business,
including, without limitation, executive offices or places where such
Partnership's books and records are kept, except as otherwise set forth in the
Disclosure Schedule.
3.20. INTELLECTUAL PROPERTY. The Disclosure Schedule lists all of the
such "Partnership's Intellectual Property" (as hereinafter defined) and which
constitutes a material patent, trade name, trademark, service mark or
application for any of the foregoing. "Intellectual" Property" means all of such
Partnership's right, title and interest in and to all patents, trade names,
assumed names, trademarks, service marks, and proprietary names, copyrights,
including any registration and pending applications for any such registration
for any of them, together with all the goodwill relating thereto and all other
intellectual property of such Partnership. Other than as disclosed in the
Disclosure Schedule, such Partnership does not have any licenses granted by or
to any person or other agreements to which any other person is a party, relating
in whole or in part to any of such Partnership's Intellectual Property. All of
the patents, trademark registrations and copyrights listed in the Disclosure
Schedule that are owned by such Partnership are valid and in full force and
effect. To the knowledge of the General Partner of such Partnership, none of the
parties to this Agreement are infringing upon, or otherwise violating, the
rights of any third party with respect to any of such Partnership's Intellectual
Property. No proceedings have been instituted against or claims received by such
Partnership, nor to the knowledge of the General Partner of such Partnership are
there any proceedings threatened alleging any such violation, nor does such
General Partner know of any valid basis for any such proceeding or claim. To the
knowledge of the General Partner of the such Partnership, there is no
infringement or other adverse claim against any of such Partnership's
Intellectual Property owned or used by such Partnership. To the best knowledge
of such General Partner, the use of software by such Partnership does not
violate or otherwise infringe upon the rights of any person.
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3.21. WARRANTIES. The Disclosure Schedule sets forth a true and complete
list of the forms of all express warranties and guaranties made by such
Partnership to third parties with respect to any services rendered by such
Partnership to those third parties or to other third parties.
3.22. CLIENTS AND SUPPLIERS. Except as set forth in the Disclosure
Schedule, the General Partner of such Partnership does not know or does not have
reason to believe that, either as a result of the Merger, or for any other
reason (exclusive of expiration of a contract upon the passage of time), any
present material client or supplier of such Partnership will not continue to
conduct business with such Partnership after the Closing Date in substantially
the same manner as it has conducted business prior thereto.
3.23. GOVERNMENTAL APPROVAL OF MERGER. To the knowledge of the General
Partner of such Partnership, other than those filings required pursuant to the
provisions of the Securities Act of 1933 ("Securities Act"), the Exchange Act
and applicable state securities and "Blue Sky" laws ("Regulatory Filings"), no
authorization, license, permit, franchise, approval, order or consent of, and no
registration, declaration or filing by such Partnership with any governmental
authority, federal, state or local, is required in connection with such
Partnership's execution, delivery and performance of this Agreement.
3.24. SECURITIES AND EXCHANGE COMMISSION DOCUMENTS. (a) Such Partnership
has made available or will make available to the Company prior to the Closing
Date, each registration statement, report, proxy statement or information
statement and all exhibits thereto prepared by such partnership or relating to
its properties, each in the form (including exhibits and any amendments thereto)
filed with the Securities and Exchange Commission ("Commission") ("Respective
Partnership Securities Filings"). The Respective Partnership Securities Filings,
which were or will be filed with the Commission in a timely manner, constitute
all forms, reports and documents required to be filed by such Partnership under
the Securities Act, the Exchange Act, applicable state securities and "Blue Sky"
laws, and the rules and regulations promulgated thereunder ("Securities Laws").
(b) To the knowledge of the General Partner of such Partnership, as of
their respective dates, the Respective Partnership Securities Filings (i)
complied as to form in all material respects with the applicable requirements of
the Securities Laws and (ii) did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements made therein, in the light of the circumstances under
which they were made, not misleading. To the knowledge of the General Partner of
such Partnership, each of the balance sheets of such Partnership included in or
incorporated by reference into the Respective Partnership Securities Filings
(including the related notes and schedules) fairly presents the financial
position of such Partnership as of its date and each of the statements of income
and cash flows of such Partnership included in or incorporated by reference into
the Respective Partnership Securities Filings (including any related notes and
schedules) fairly presents the results of operations and cash flows, as the case
may be, of such Partnership for the periods set forth therein (subject, in the
case of unaudited statements, to normal year-end audit adjustments which would
not be material in amount or effect), in each case in accordance with GAAP
during the periods involved, except as may be noted therein and except, in the
case of the unaudited statements, as permitted by the Securities Laws.
(c) Except as and to the extent set forth on the balance sheet of such
Partnership at June 30, 1997, including all notes thereto, or as set forth in
the Respective Partnership Securities Filings, such Partnership has no material
liabilities or obligations of any nature (whether accrued, absolute, contingent
or otherwise) that would be required to be presented or reserved against in, a
balance sheet of such Partnership or in the notes thereto, prepared in
accordance with GAAP, except liabilities arising in the ordinary course of
business since such date and which would not have a material adverse effect on
such Partnership.
3.25. NO OMISSIONS OR UNTRUE STATEMENTS. To the knowledge of the General
Partner of such Partnership, no representation or warranty made by such
Partnership to the Company or PCM in this Agreement or in any document relating
to such Partnership required to be delivered to the Company or PCM pursuant to
the terms of this Agreement contains or will contain any untrue statement of a
material fact, or omits or will omit to state a material fact necessary to make
the statements contained herein or therein not misleading as of the date hereof
and as of the Closing Date.
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3.26. CONVERTIBLE SECURITIES. uch Partnership has no outstanding options,
warrants or other securities exercisable for, or convertible into, Units of such
Partnership, the terms of which would require any anti-dilution adjustments by
reason of the consummation of the Merger.
3.27. RELATED PARTY TRANSACTIONS. Except as specified in the Disclosure
Schedule, there are no arrangements, agreements or contracts entered into by
such Partnership with (i) any consultant; (ii) any person who is an officer,
director or affiliate of the General Partner of such Partnership, any relative
of any of the foregoing, or any entity of which of any of the foregoing is an
affiliate; or (iii) any person who acquired Units in such Partnership in a
private placement transaction. The copies of such documents, all of which have
been or will be delivered or made available to the Company and PCM prior to the
Closing Date, are or will be true, complete and correct when delivered or made
available.
3.28. LABOR MATTERS. Such Partnership is not a party to, or obligated by,
any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor union organization. There is no unfair
labor practice or labor arbitration proceeding pending or, to the knowledge of
the General Partner of such Partnership, threatened against such Partnership
relating to its business, except for any such proceeding which would not have a
material adverse effect on such Partnership or its business. To the knowledge of
such General Partner, there are no organizational efforts with respect to a
collective bargaining unit presently being made or threatened involving those
persons who provide human resource services to such Partnership.
IV. REPRESENTATIONS AND WARRANTIES OF PCM
PCM represents and warrants to the Company and the Partnerships as follows,
with the knowledge and understanding that the Company and the Partnerships are
relying materially upon such representations and warranties:
4.1 ORGANIZATION AND STANDING. PCM is a corporation duly organized,
validly existing and in good standing under the laws of the State of California,
and has the corporate power to carry on its business as now conducted and to own
its assets and is duly qualified to do business as a foreign corporation and is
in good standing in each jurisdiction where the failure to qualify (individually
or in the aggregate) does not have any material adverse effect on the assets,
business or financial condition of PCM. The copies of the Articles of
Incorporation and Bylaws of PCM (certified by the Secretary of PCM) delivered to
the Partnerships and the Company herewith, are true and complete copies of those
documents as now in effect. Except as set forth in the Disclosure Schedule, PCM
does not own any capital stock in any other corporation, business trust or
similar entity, and is not engaged in a partnership, joint venture or similar
arrangement with any person or entity. The minute book of PCM contains accurate
records of all meetings of its incorporator, stockholders and Board of Directors
since its date of incorporation.
4.2. CAPITALIZATION. The authorized capital stock of PCM is 100,000
shares of common stock, 1,000 shares of which are issued and outstanding. All of
the outstanding shares of common stock are duly authorized, validly issued,
fully paid and nonassessable, and were not issued in violation of the preemptive
rights of any person. Other than as specified in this Section 4.2, there are no
outstanding subscriptions, options, warrants, calls or fights of any kind issued
or granted by, or obligating, PCM, to purchase or otherwise acquire any shares
of capital stock of PCM, or other equity securities or equity interests of PCM
or any debt securities of PCM.
4.3. AUTHORITY. This Agreement constitutes, and all other agreements
contemplated hereby will constitute, when executed and delivered by PCM in
accordance therewith, the valid and binding obligation of PCM, enforceable in
accordance with their respective terms, subject to general principles of equity
and bankruptcy or other laws relating to or affecting the rights of creditors
generally.
4.4. PROPERTIES. Except as set forth in the Disclosure Schedule, PCM has
good title to all of the assets and properties which it purports to own as (i)
presented on the balance sheet included in the PCM Financial Statements (as
hereinafter defined), or (ii) otherwise, or thereafter acquired. PCM has a valid
leasehold interest in all material property of which it is the lessee and each
such lease is valid, binding and
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enforceable against PCM and, to the best knowledge of PCM, the other parties
thereto are in accordance with its terms. Neither PCM nor the other parties
thereto are in material default in the performance of any material provisions
thereunder. Neither the whole nor any material portion of the assets of PCM are
subject to any governmental decree or order to be sold or are being condemned,
expropriated or otherwise taken by any public authority with or without payment
of compensation therefor, nor, to the best knowledge of PCM, has any such
condemnation, expropriation or taking been proposed. None of the assets of PCM
are subject to any restriction which would prevent continuation of the use
currently made thereof or materially adversely affect the value thereof.
4.5. CONTRACTS. All contracts, agreements, licenses, leases, easements,
permits, rights of way, commitments, and understandings, written or oral,
connected with or relating in any respect to present or proposed future
operations of PCM (except employment or other agreements terminable at will and
other agreements which, in the aggregate, are not material to the business,
properties or prospects of those parties and except governmental licenses,
permits, authorizations, approvals and other matters referred to in Section 4.16
of this Agreement), which would be required to be listed as exhibits to an
Annual Report on Form 10-K if PCM were subject to the reporting requirements of
the Exchange Act (individually, a "PCM Contract" and collectively, the "PCM
Contracts"), are listed and described in the Disclosure Schedule. Subsequent to
the consummation of the Merger, PCM shall use its best efforts to cause the
transfer to, and otherwise assign for the benefit of, the Company, the
Contracts.
4.6. LITIGATION. Except as disclosed in the Disclosure Schedule, to the
knowledge of PCM, there is no claim, action, proceeding or investigation pending
or threatened against or affecting PCM before or by any court, arbitrator or
governmental agency or authority which, in the reasonable judgment of PCM, could
have any materially adverse effect on PCM. There are no decrees, injunctions or
orders of any court, governmental department, agency or arbitration outstanding
against PCM.
4.7. TAXES. (a) To the knowledge of PCM, PCM has duly filed all Returns
required by any law or regulation to be filed by PCM, except for extensions duly
obtained. All such Returns were, when filed, and are, accurate and complete in
all material respects and were prepared in conformity with applicable laws and
regulations in all material respects. PCM has paid or will pay in full or has
adequately reserved against all Taxes otherwise assessed against it through the
Closing Date, and the assessment of any material amount of additional Taxes in
excess of those paid and reported is not reasonably expected.
(b) To the knowledge of PCM, PCM is not a party to any pending action or
proceeding by any governmental authority for the assessment of any Tax, and no
claim for assessment or collection of any Tax has been asserted against PCM that
has not been paid. There are no Tax liens upon the assets (other than the lien
of personal property taxes not yet due and payable) of PCM. There is no valid
basis, except as set forth in the Disclosure Schedule, for any assessment,
deficiency, notice, 30-day letter or similar intention to assess any Tax to be
issued to PCM by any governmental authority.
4.8. COMPLIANCE WITH LAWS AND REGULATIONS. To the knowledge of PCM, PCM
is in compliance, in all material respects, with all laws, rules, regulations,
orders and requirements (federal, state and local) applicable to it in all
jurisdictions where the business of PCM is currently conducted or to which PCM
is currently subject which have a material impact on PCM, including, without
limitation, all applicable civil rights and equal opportunity employment laws
and regulations, and all state and federal antitrust, antimonopolies and fair
trade practice laws and the federal Occupational Health and Safety Act. PCM does
not know of any assertion by any party that PCM is in violation of any such
laws, rules, regulations, orders, restrictions or requirements with respect to
its current operations, and no notice in that regard has been received by the
management of PCM. To the knowledge of PCM, there is not presently pending any
proceeding, hearing or investigation with respect to the adoption of amendments
or modifications to existing laws, rules, regulations, orders, restrictions or
requirements which, if adopted, would materially adversely affect the current
operations of PCM.
4.9. GOVERNMENTAL APPROVALS; CONSENTS. To the knowledge of PCM except for
(i) the granting of effectiveness by the Securities and Exchange Commission of
the Merger; (ii) the approval and granting of effectiveness by the appropriate
various state securities regulators of the Merger; (iii) the approval
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by the National Association of Securities Dealers, Inc. of the Merger; and (iv)
the reports required to be filed in the future by PCM as a reporting company
under the Exchange Act, no authorization, license, permit, franchise, approval,
order or consent of, and no registration, declaration or filing by PCM with, any
governmental authority, federal, state, or local, is required in connection with
PCM execution, delivery and performance of this Agreement. No consents of any
other parties are required to be received by or on the part of PCM to enable PCM
to enter into and carry out this Agreement.
4.10. CONDITION OF ASSETS. The equipment, fixtures, and other personal
property of PCM are in good operating condition and repair (ordinary wear and
tear excepted) for the conduct of the business of PCM as presently conducted.
4.11. NO BREACHES. To the knowledge of PCM, the making and performance of
this Agreement and the other agreements contemplated hereby by PCM will not (i)
conflict with or violate the Articles of Incorporation or By-laws of PCM; (ii)
violate any material laws, ordinances, rules or regulations, or any order, writ,
injunction or decree to which PCM is a party or by which any of its assets,
business, or operations may be obligated or affected; or (iii) result in any
breach or termination of, or constitute a default under, or constitute an event
which, with notice or lapse of time, or both, would become a default under, or
result in the creation of any encumbrance upon any asset of the PCM, or create
any rights of termination, cancellation or acceleration in any person, under any
PCM Contract.
4.12. DISCLOSURE SCHEDULE COMPLETE. PCM shall promptly supplement the
Disclosure Schedule if any event occurs prior to the Closing Date that would
have been required to be disclosed had those events existed at the time of
executing this Agreement. The Disclosure Schedule, as supplemented prior to the
Closing Date, will contain a true, correct and complete list and description of
all items required to be set forth therein. The Disclosure Schedule, as
supplemented prior to the Closing Date, is expressly incorporated herein by
reference. Notwithstanding the foregoing, any such supplement to the Disclosure
Schedule following the date hereof shall not in any way affect the Company's
right not to consummate the Merger, as specified later in this Agreement.
4.13. EMPLOYEES. Except as set forth in the Disclosure Schedule, none of
the persons providing human resource services to PCM is represented by any labor
union or collective bargaining unit and, to the best knowledge of PCM, no
discussions or collective bargaining negotiations are taking place with respect
to such representation.
4.14. FINANCIAL STATEMENTS. To the best knowledge of PCM, the Disclosure
Schedule contains audited balance sheets as of December 31, 1996, and related
statements of operations, statements of cash flows and statements of
shareholders' equity, respectively, for the one-year periods ended December 31,
1996, and December 31, 1995, and compiled balance sheets as of June 30, 1997,
and related statements of operations, statements of cash flows and statement of
shareholders' equity, respectively, for the six-month period ended June 30, 1997
("PCM Financial Statements"). The PCM Financial Statements present fairly, in
all respects, the financial position and results of operations of PCM as of the
dates and periods indicated, prepared in accordance with GAAP. Without limiting
the generality of the foregoing, (i) there is no basis for any assertion against
PCM as of the date of the PCM Financial Statements of any material debt,
liability or obligation of any nature not fully presented or reserved against in
the PCM Financial Statements; and (ii) there are no assets of PCM as of the date
of the PCM Financial Statements, the value of which is overstated in the PCM
Financial Statements. Except as disclosed in the PCM Financial Statements, PCM
does not have any known contingent liabilities, including liabilities for Taxes,
forward or long-term commitments or unrealized or anticipated losses from
unfavorable commitments other than in the ordinary course of business.
4.15. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in the
Disclosure Schedule, since December 31, 1996, there has not been:
(a) any material adverse change in the financial condition,
properties, assets, liabilities or business or a decrease in net worth of
PCM;
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(b) any material damage, destruction or loss of any material
properties of PCM, whether or not covered by insurance;
(c) any material change in the manner in which the business of PCM has
been conducted, including, without limitation, collection of accounts
receivable and payment of accounts receivable;
(d) any change in the accounting principles, methods or practices or
any change in the depreciation or amortization policies or rates utilized
by PCM;
(e) any voluntary or involuntary sale, assignment, abandonment,
surrender, termination, transfer, license or other disposition, of any kind
or nature, of any property or right, including, without limitation, any
equipment, office equipment, accounts receivable, intangible assets,
business records or PCM Contracts, excepting only transfers in accordance
with past practices or collection of accounts receivable in the ordinary
course of business;
(f) any material change in the treatment and protection of trade
secrets or other confidential information of PCM;
(g) any material change in the business or contractual relationship of
PCM with any customer or supplier which might reasonably be expected to
materially and adversely affect the business or prospects of PCM;
(h) any strike, material grievance proceeding or other labor dispute,
any union organizational activity or other occurrence, event or condition
of any similar character which might reasonably be expected to adversely
affect the business of PCM;
(i) any loan or advance by PCM to any party other than credit extended
in the ordinary course of business as previously conducted;
(j) any incurrence by PCM of indebtedness, liabilities or obligations
of any nature whether accrued, absolute, contingent, direct, indirect or
inchoate, or otherwise, and whether due or to become due, except:
(i) current liabilities incurred for services rendered in the
ordinary course of PCM's business and entered into at arms' length;
(ii) obligations incurred in the ordinary course of PCM's business
entered into at arms' length;
(iii) liabilities on account of taxes and governmental charges, but
not penalties, interest or fines in respect thereof;
(iv) obligations or liabilities incurred by virtue of the execution
of this Agreement; or
(v) liabilities pursuant to the litigation listed in the Disclosure
Schedule;
(k) any agreement by PCM, whether written or oral, to do any of the
foregoing; and
(l) any occurrence not included in paragraphs (a) through (k),
inclusive, of this Section 4.15 which has resulted, or which PCM has reason
to believe might be expected to result, in a material adverse change in the
business or prospects of PCM.
4.16. GOVERNMENTAL LICENSES, PERMITS, AUTHORIZATIONS AND APPROVALS. To
the best knowledge of PCM, PCM has all governmental licenses, permits,
authorizations and approvals necessary for the conduct of its business as
currently conducted ("PCM Licenses and Permits"). The Disclosure Schedule
includes a list of all PCM Licenses and Permits. All PCM Licenses and Permits
are in full force and effect, and no proceedings for the suspension or
cancellation of any thereof is pending or threatened.
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4.17. EMPLOYEE PLANS. (a) For purposes of this section, the definitions
set forth at length in Section 3.17(a) of this Agreement apply.
(b) PCM has no Employee Plans or Compensation Agreements.
4.18. BROKERS. PCM shall indemnify and hold the Company and the
Partnerships harmless from any claim by any broker or other person for
commissions or other compensation for causing the Merger to occur, the
transactions contemplated hereby, where such claim is based on the purported
employment or authorization of such broker or other person by PCM.
4.19. BUSINESS LOCATIONS. PCM does not own, lease or sublease any real or
personal property in any state except as set forth in the Disclosure Schedule.
PCM does not have any places of business, including, without limitation,
executive offices or places where PCM's books and records are kept, except as
otherwise set forth in the Disclosure Schedule.
4.20. INTELLECTUAL PROPERTY. The Disclosure Schedule lists all of PCM
Intellectual Property (as hereinafter defined) used by PCM which constitutes a
material patent, trade name, trademark, service mark or application for any of
the foregoing. "PCM Intellectual" Property" means all of PCM's right, title and
interest in and to all patents, trade names, assumed names, trademarks, service
marks, and proprietary names, copyrights, including any registration and pending
applications for any such registration for any of them, together with all the
goodwill relating thereto and all other intellectual property of PCM. Other than
as disclosed in the Disclosure Schedule, PCM does not have any licenses granted
by or to any person or other agreements to which any other person is a party,
relating in whole or in part to any PCM Intellectual Property. All of the
patents, trademark registrations and copyrights listed in the Disclosure
Schedule that are owned by PCM are valid and in full force and effect. To the
knowledge of PCM, PCM is not infringing upon, or otherwise violating, the rights
of any third party with respect to any PCM Intellectual Property. No proceedings
have been instituted against or claims received by PCM, nor to the knowledge of
PCM are there any proceedings threatened alleging any such vacation, nor does
PCM know of any valid basis for any such proceeding or claim. To the knowledge
of PCM, there is no infringement or other adverse claim against any of the PCM
Intellectual Property. To the knowledge of the management of PCM, the use of any
software by PCM does not violate or otherwise infringe upon the fights of any
third party.
4.21. WARRANTIES. The Disclosure Schedule sets forth a true and complete
list of the forms of all express warranties and guaranties made by PCM to third
parties with respect to any services rendered by PCM to those third parties or
to other third parties.
4.22. CLIENTS AND SUPPLIERS. Except as set forth in the Disclosure
Schedule, PCM does not know, and has no reason to believe that, either as a
result of the Merger or for any other reason (exclusive of expiration of a
contract upon the passage of time), any present material client or supplier of
PCM will not continue to conduct business with PCM after the Closing Date in
substantially the same manner as it has conducted business prior thereto.
4.23. GOVERNMENTAL APPROVAL OF MERGER. To the knowledge of the PCM, other
than those filings required pursuant to the provisions of the Securities Act of
1933 ("Securities Act"), the Securities Exchange Act of 1934 ("Exchange Act")
and applicable state securities and "Blue Sky" laws ("Regulatory Filings"), no
authorization, license, permit, franchise, approval, order or consent of, and no
registration, declaration or filing by PCM with any governmental authority,
federal, state or local, is required in connection with PCM's execution,
delivery and performance of this Agreement.
4.24. SECURITIES AND EXCHANGE COMMISSION DOCUMENTS. (a) PCM has made
available or will make available to the Company prior to the Closing Date, each
registration statement, report, proxy statement or information statement and all
exhibits thereto prepared by PCM or relating to its properties, each in the form
(including exhibits and any amendments thereto) filed with the Commission ("PCM
Securities Filings"). The PCM Securities Filings, which were or will be filed
with the Commission in a timely manner, constitute all forms, reports and
documents required to be filed by PCM under the Securities Laws.
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(b) To the knowledge of PCM as of their respective dates, the PCM
Securities Filings (i) complied as to form in all material respects with the
applicable requirements of the Securities Laws and (ii) did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements made therein, in the light
of the circumstances under which they were made, not misleading. To the
knowledge of PCM, each of the balance sheets of PCM included in or incorporated
by reference into the PCM Securities Filings (including the related notes and
schedules) fairly presents the financial position of PCM as of its date and each
of the statements of income and cash flows of PCM included in or incorporated by
reference into the PCM Securities Filings (including any related notes and
schedules) fairly presents the results of operations and cash flows, as the case
may be, of PCM for the periods set forth therein (subject, in the case of
unaudited statements, to normal year-end audit adjustments which would not be
material in amount or effect), in each case in accordance with GAAP during the
periods involved, except as may be noted therein and except, in the case of the
unaudited statements, as permitted by the Securities Laws.
(c) Except as and to the extent set forth on the balance sheet of PCM at
June 30, 1997, including all notes thereto, or as set forth in the PCM
Securities Filings, PCM has no material liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise) that would be required to
be presented or reserved against in, a balance sheet of PCM or in the notes
thereto, prepared in accordance with GAAP, except liabilities arising in the
ordinary course of business since such date and which would not have a material
adverse effect on PCM.
4.25. NO OMISSIONS OR UNTRUE STATEMENTS. To the knowledge of PCM, no
representation or warranty made by PCM to the Company or the Partnerships in
this Agreement or in any document relating to the Merger required to be
delivered to the Company or the Partnerships by PCM pursuant to the terms of
this Agreement contains or will contain any untrue statement of a material fact,
or omits or will omit to state a material fact necessary to make the statements
contained herein or therein not misleading as of the date hereof and as of the
Closing Date.
4.26. CONVERTIBLE SECURITIES. CM has no outstanding options, warrants or
other securities exercisable for, or convertible into, shares of PCM's Common
Stock, the terms of which would require any anti-dilution adjustments by reason
of the consummation of the Merger.
4.27. RELATED PARTY TRANSACTIONS. Set forth in the Disclosure Schedule
will be a list of all arrangements, agreements and contracts entered into by PCM
with (i) any person who is an officer, director or affiliate of PCM, any
relative of any of the foregoing or any entity of which any of the foregoing is
an affiliate or (ii) any person who acquired securities issued by PCM in a
private placement transaction. The copies of such documents, all of which have
been or will be delivered or made available to the Company and the Partnerships
prior to Closing Date, are or will be true, complete and correct when delivered
or made available.
4.28. LABOR MATTERS. PCM is not a party to, or obligated by, any
collective bargaining agreement, contract or other agreement or understanding
with a labor union or labor union organization. There is no unfair labor
practice or labor arbitration proceeding pending or, to the knowledge of the
PCM, threatened against PCM relating to its business, except for any such
proceeding which would not have a material adverse effect on PCM or its
business. To the knowledge of PCM, there are no organizational efforts with
respect to a collective bargaining unit presently being made or threatened
involving those persons who provide human resource services to PCM.
V. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Partnerships and PCM, and each
of them, as follows, with the knowledge and understanding that the Partnerships
and PCM are each relying materially on such representations and warranties:
5.1. ORGANIZATION AND STANDING. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and has the corporate power to carry on its business as now conducted
and to own its assets and is duly qualified to do business as a foreign
corporation
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and is in good standing in each jurisdiction where the failure to qualify
(individually or in the aggregate) does not have any material adverse effect on
the assets, business or financial condition of the Company. The copies of the
Certificate of Incorporation and Bylaws of the Company (certified by the
Secretary of the Company), delivered to the Partnerships and PCM herewith, are
true and complete copies of those documents as now in effect. Except as set
forth in the Disclosure Schedule, the Company does not own any capital stock in
any other corporation, business trust or similar entity, and is not engaged in a
partnership, joint venture or similar arrangement with any person or entity. The
minute book of the Company contains accurate records of all meetings of its
incorporator, stockholders and Board of Directors since its date of
incorporation.
5.2. CAPITALIZATION. The authorized capital stock of the Company is (i)
100,000,000 shares of the Common Stock, 1,000 shares of which are issued and
outstanding; and (ii) 10,000,000 shares of the Preferred Stock, of which 100,000
shares are issued and outstanding. All of the outstanding shares of the Common
Stock and the Preferred Stock are duly authorized, validly issued, fully paid
and nonassessable, and were not issued in violation of the preemptive rights of
any person. The Merger Stock, to be issued upon effectiveness of the Merger,
when issued in accordance with the terms of this Agreement, shall be duly
authorized, validly issued, fully paid and nonassessable. Other than as
specified in this Section 5.2, there are no outstanding subscriptions, options,
warrants, calls or fights of any kind issued or granted by, or obligating, the
Company, to purchase or otherwise acquire any shares of capital stock of the
Company, or other equity securities or equity interests of the Company or any
debt securities of the Company.
5.3. AUTHORITY. The Company's Board of Directors has approved and adopted
this Agreement and the Merger. This Agreement constitutes, and all other
agreements contemplated hereby will constitute, when executed and delivered by
the Company in accordance herewith (and assuming due execution and delivery by
the other parties hereto), the valid and binding obligations of the Company,
enforceable in accordance with their respective terms, subject to general
principles of equity and bankruptcy or other laws relating to or affecting the
rights of creditors generally.
5.4. PROPERTIES. Except as set forth in the Disclosure Schedule, the
Company has good title to all of the assets and properties which it purports to
own as (i) presented on the balance sheet included in the Company's Financial
Statements (as hereinafter defined), (ii) or otherwise, or thereafter acquired.
The Company has a valid leasehold interest in all material property of which it
is the lessee and each such lease is valid, binding and enforceable against the
Company and, to the best knowledge of the Company, the other parties thereto are
in accordance with its terms. Neither the Company nor the other parties thereto
are in material default in the performance of any material provisions
thereunder. Neither the whole nor any material portion of the assets of the
Company are subject to any governmental decree or order to be sold or are being
condemned, expropriated or otherwise taken by any public authority with or
without payment of compensation therefor, nor, to the best knowledge of the
Company, has any such condemnation, expropriation or taking been proposed. None
of the assets of the Company are subject to any restriction which would prevent
continuation of the use currently made thereof or materially adversely affect
the value thereof.
5.5. CONTRACTS. All contracts, agreements, licenses, leases, easements,
permits, rights of way, commitments, and understandings, written or oral,
connected with or relating in any respect to present or proposed future
operations of the Company, except employment or other agreements terminable at
will and other agreements which, in the aggregate, are not material to the
business, properties or prospects of the Company and except governmental
licenses, permits, authorizations, approvals and other matters referred to in
Section 5.5, which would be required to be listed as exhibits to an Annual
Report on Form 10-K if the Company were subject to the reporting requirements of
the Exchange Act (individually, a "Company Contract" and collectively the
"Company Contracts"), are listed and described in the Disclosure Schedule. The
Company is the holder of, or party to, all of the Company Contracts. To the
knowledge of the Company, the Company Contracts are valid, binding and
enforceable by the signatory thereto against the other parties thereto in
accordance with their terms. Neither the Company nor any signatory thereto is in
default or breach of any material provision of the Company Contracts. The
Company's operation of its business has been, is, and will, between the date
hereof and the Closing Date, continue to be, consistent with the material terms
and conditions of the Company Contracts.
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5.6. LITIGATION. Except as disclosed in the Disclosure Schedule, to the
knowledge of the Company, there is no claim, action, proceeding or investigation
pending or, to the knowledge of the Company, threatened against or affecting the
Company before or by any court, arbitrator or governmental agency or authority
which could have a materially adverse effect on the Company. There are no
decrees, injunctions or orders of any court, governmental department, agency or
arbitration outstanding against the Company.
5.7. TAXES. (a) To the knowledge of the Company, the Company has duly
filed all Returns required by any law or regulation to be filed by it except for
extensions duly obtained. All such Returns were, when filed, and are, accurate
and complete in all material respects and were prepared in conformity with
applicable laws and regulations. The Company has paid or will pay in full or has
adequately reserved against all Taxes otherwise assessed against it through the
Closing Date, and the assessment of any material amount of additional Taxes in
excess of those paid and reported is not reasonably expected.
(b) The Company is not a party to any pending action or proceeding by any
governmental authority for the assessment of any Tax, and no claim for
assessment or collection of any Tax has been asserted against the Company that
has not been paid. There are no Tax liens upon the assets of the Company (other
than the lien of personal property taxes not yet due and payable). There is no
valid basis, except as set forth in the Disclosure Schedule, for any assessment,
deficiency, notice, 30-day letter or similar intention to assess any Tax to be
issued to the Company by any governmental authority.
5.8. COMPLIANCE WITH LAWS AND REGULATIONS. To the knowledge of the
Company, the Company is in compliance, in all material respects, with all laws,
rules, regulations, orders and requirements (federal, state, and local)
applicable to it in all jurisdictions in which the business of the Company is
currently conducted or to which the Company is currently subject, which may have
a material impact on the Company, including, without limitation, all applicable
civil rights and equal opportunity employment laws and regulations, all state
and federal antitrust, antimonopolies and fair trade practice laws and the
Federal Occupational Health and Safety Act. The Company does not know of any
assertion by any party that the Company is in violation of any such laws, rules,
regulations, orders, restrictions or requirements with respect to its current
operations, and no notice in that regard has been received by the Company. To
the knowledge of the Company, there is not presently pending any proceeding,
hearing or investigation with respect to the adoption of amendments or
modifications of existing laws, rules, regulations, orders, restrictions or
requirements which, if adopted, would materially adversely affect the current
operations of the Company.
5.9. GOVERNMENTAL APPROVAL; CONSENTS. To the knowledge of the Company,
except for (i) the granting of effectiveness by the Securities and Exchange
Commission of the Merger; (ii) the approval and granting of effectiveness by the
appropriate various state securities regulators of the Merger; (iii) the
approval by the National Association of Securities Dealers, Inc. of the Merger;
and (iv) the reports required to be filed in the future by the Company as a
reporting company under the Exchange Act, no authorization, license, permit,
franchise, approval, order or consent of, and no registration, declaration or
filing by the Company with, any governmental authority, federal, state, or
local, is required in connection with the Company's execution, delivery and
performance of this Agreement. No consents of any other parties are required to
be received by or on the part of the Company to enable the Company to enter into
and carry out this Agreement.
5.10. CONDITION OF ASSETS. The equipment, fixtures, and other personal
property of PCM are in good operating condition and repair (ordinary wear and
tear excepted) for the conduct of the business of PCM as presently conducted.
5.11. NO BREACHES. To the knowledge of the management of the Company, the
making and performance of this Agreement, including, without limitation, the
issuance by the Company of the Merger Stock, will not (i) conflict with the
Certificate of Incorporation or By-laws of the Company; (ii) violate any order,
writ, injunction, or decree applicable to the Company; or (iii) result in any
breach or termination of, or constitute a default under, or constitute an event
which, with notice or lapse of time, or both, would become a default under, or
result in the creation of any encumbrance upon any asset of the the Company, or
create any rights of termination, cancellation or acceleration in any person,
under, any agreement, arrangement or commitment, or violate any provisions of
any laws, ordinances, rules or regulations or any order, writ,
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injunction or decree to which the Company is a party or by which the Company or
any of its assets may be obligated.
5.12. DISCLOSURE SCHEDULE COMPLETE. The Company shall promptly supplement
the Disclosure Schedule if any event occurs prior to the Closing Date that would
have been required to be disclosed had those events existed at the time of
executing this Agreement. The Disclosure Schedule, as supplemented prior to the
Closing Date, will contain a true, correct and complete list and description of
all items required to be set forth therein. The Disclosure Schedule, as
supplemented prior to the Closing Date, is expressly incorporated herein by
reference. Notwithstanding the foregoing, any such supplement to the Disclosure
Schedule following the date hereof shall not in any way affect the Company's
right not to consummate the Merger, as set forth later in this Agreement.
5.13. EMPLOYEES. Except as set forth in the Disclosure Schedule, none of
the persons providing human resource services to the Company is represented by
any labor union or collective bargaining unit and, to the best knowledge of the
Company, no discussions or collective bargaining negotiations are taking place
with respect to such representation.
5.14. FINANCIAL STATEMENTS. To the knowledge of the Company, the
Disclosure Schedule contains audited balance sheets as of December 31, 1996, and
related statements of operations, statements of cash flows and statements of
stockholders' equity of the Company for the one-year period ended December 31,
1996, and compiled balance sheets as of June 30, 1997, and related statements of
operations, statements of cash flows and statement of stockholder' equity for
the six-month period ended June 30, 1997 ("Company Financial Statements"). The
Company Financial Statements present fairly, in all respects, the financial
position and results of operations of the Company as of the dates and periods
indicated, prepared in accordance with GAAP. Without limiting the generality of
the foregoing, (i) there is no basis for any assertion against the Company, as
of the date of the Company Financial Statements, of any material debt, liability
or obligation of any nature not fully presented or reserved against in the
Company Financial Statements; and (ii) there are no assets of the Company as of
the date of the Company Financial Statements, the value of which is overstated
in the Company Financial Statements. Except as disclosed in the Company
Financial Statements, the Company does have any known contingent liabilities,
including liabilities for Taxes, forward or long-term commitments or unrealized
or anticipated losses from unfavorable commitments other than in the ordinary
course of business.
5.15. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in the
Disclosure Schedule, since December 31, 1996, there has not been:
(a) any material adverse change in the financial condition,
properties, assets, liabilities or business or a decrease in net worth of
the Company;
(b) any material damage, destruction or loss of any material
properties of the Company, whether or not covered by insurance;
(c) any material change in the manner in which the business of the
Company has been conducted, including, without limitation, collection of
accounts receivable and payment of accounts receivable;
(d) any change in the accounting principles, methods or practices or
any change in the depreciation or amortization policies or rates utilized
by the Company;
(e) any voluntary or involuntary sale, assignment, abandonment,
surrender, termination, transfer, license or other disposition, of any kind
or nature, of any property or right, including, without limitation, any
equipment, office equipment, accounts receivable, intangible assets,
business records or the Company Contracts, excepting only transfers in
accordance with past practices or collection of accounts receivable in the
ordinary course of business;
(f) any material change in the treatment and protection of trade
secrets or other confidential information of the Company;
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(g) any material change in the business or contractual relationship of
the Company with any customer or supplier which might reasonably be
expected to materially and adversely affect the business or prospects of
the Company;
(h) any strike, material grievance proceeding or other labor dispute,
any union organizational activity or other occurrence, event or condition
of any similar character which might reasonably be expected to adversely
affect the business of the Company;
(i) any loan or advance by the Company to any party other than credit
extended in the ordinary course of business as previously conducted;
(j) any incurrence by the Company of indebtedness, liabilities or
obligations of any nature whether accrued, absolute, contingent, direct,
indirect or inchoate, or otherwise, and whether due or to become due,
except:
(i) current liabilities incurred for services rendered in the
ordinary course of the Company's business and entered into at arms'
length;
(ii) obligations incurred in the ordinary course of the Company's
business entered into at arms' length;
(iii) liabilities on account of taxes and governmental charges, but
not penalties, interest or fines in respect thereof;
(iv) obligations or liabilities incurred by virtue of the execution
of this Agreement; or
(v) liabilities pursuant to the litigation listed in the Disclosure
Schedule;
(k) any agreement by the Company, whether written or oral, to do any
of the foregoing; and
(l) any occurrence not included in paragraphs (a) through (k),
inclusive, of this Section 4.15 which has resulted, or which the Company
has reason to believe might be expected to result, in a material adverse
change in the business or prospects of the Company;
5.16. GOVERNMENTAL LICENSES, PERMITS, AUTHORIZATIONS AND APPROVALS. To
the best knowledge of the Company, the Company has all governmental licenses,
permits, authorizations and approvals necessary for the conduct of its business
as currently conducted ("Company Licenses and Permits"). The Disclosure Schedule
includes a list of all Company Licenses and Permits. All Company Licenses and
Permits are in full force and effect, and no proceedings for the suspension or
cancellation of any thereof is pending or threatened.
5.17. EMPLOYEE PLANS. (a) For purposes of this section, the definitions
set forth in Section 3.17(a) of this Agreement apply.
(b) The Company has no Employee Plans or Compensation Agreements.
5.18. BROKERS. The Company has not made any agreement or taken any action
with any person or taken any action which would cause any person to be entitled
to any agent's, broker's or finder's fee or commission in connection with the
Merger.
5.19. BUSINESS LOCATIONS. The Company does not own, lease or sublease any
real or personal property in any state except as set forth in the Disclosure
Schedule. The Company does not have any places of business, including, without
limitation, executive offices or places where the Company's books and records
are kept, except as otherwise set forth in the Disclosure Schedule.
5.20. INTELLECTUAL PROPERTY. The Disclosure Schedule lists all of the
Company Intellectual Property (as hereinafter defined) used by the Company which
constitutes a material patent, trade name, trademark, service mark or
application for any of the foregoing. "Company Intellectual" Property" means all
of the Company's right, title and interest in and to all patents, trade names,
assumed names, trademarks, service marks, and proprietary names, copyrights,
including any registration and pending applications for any such registration
for any of them, together with all the goodwill relating thereto and all other
intellectual
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property of the Company. Other than as disclosed in the Disclosure Schedule, the
Company does not have any licenses granted by or to any person or other
agreements to which any other person is a party, relating in whole or in part to
any Company Intellectual Property. All of the patents, trademark registrations
and copyrights listed in the Disclosure Schedule that are owned by the Company
are valid and in full force and effect. To the knowledge of the Company, the
Company is not infringing upon, or otherwise violating, the rights of any third
party with respect to any Company Intellectual Property. No proceedings have
been instituted against or claims received by the Company, nor to the knowledge
of the Company, are there any proceedings threatened alleging any such vacation,
nor does the Company know of any valid basis for any such proceeding or claim.
To the knowledge of the Company, there is no infringement or other adverse claim
against any of the Company Intellectual Property. To the knowledge of the
management of the Company, the use of any software by the Company does not
violate or otherwise infringe upon the fights of any third party.
5.21. WARRANTIES. The Disclosure Schedule sets forth a true and complete
list of the forms of all express warranties and guaranties made by the Company
to third parties with respect to any services rendered by the Company to those
third parties or to other third parties.
5.22. CLIENTS AND SUPPLIERS. Except as set forth in the Disclosure
Schedule, the Company does not know, and has no reason to believe that, either
as a result of the Merger or for any other reason (exclusive of expiration of a
contract upon the passage of time), any present material client or supplier of
the Company will not continue to conduct business with the Company after the
Closing Date in substantially the same manner as it has conducted business prior
thereto.
5.23. NO OMISSIONS OR UNTRUE STATEMENTS. No representation or warranty
made by the Company to the Partnerships and PCM in this Agreement or in any
other document, or in any other communication, written or oral, including,
without limitation, the documents required to be delivered to the Partnerships
and to PCM pursuant to the terms of this Agreement, contains or will contain any
untrue statement of a material fact, omits or will omit to state a material fact
necessary to make the statements contained herein or therein not misleading as
of the date hereof and as of the Closing Date.
5.24. CONVERTIBLE SECURITIES. The Company has no outstanding options,
warrants or other securities exercisable for, or convertible into, shares of the
Company's Common Stock, the terms of which would require any anti-dilution
adjustments by reason of the consummation of the Merger.
5.25. RELATED PARTY TRANSACTIONS. Set forth in the Disclosure Schedule
will be a list of all arrangements, agreements and contracts entered into by the
Company with (i) any person who is an officer, director or affiliate of the
Company, any relative of any of the foregoing or any entity of which any of the
foregoing is an affiliate or (ii) any person who acquired securities issued by
the Company in a private placement transaction. The copies of such documents,
all of which have been or will be delivered or made available to the Company and
the Partnerships prior to Closing Date, are or will be true, complete and
correct when delivered or made available.
5.26. LABOR MATTERS. The Company is not a party to, or obligated by, any
collective bargaining agreement, contract or other agreement or understanding
with a labor union or labor union organization. There is no unfair labor
practice or labor arbitration proceeding pending or, to the knowledge of the
Company, threatened against the Company relating to its business, except for any
such proceeding which would not have a material adverse effect on the Company or
its business. To the knowledge of the Company, there are no organizational
efforts with respect to a collective bargaining unit presently being made or
threatened involving those persons who provide human resource services to the
Company.
ARTICLE VI. COVENANTS
6.1. ACQUISITION PROPOSALS. Prior to the Closing, the parties each agree
(i) that none of them shall, and each of them shall direct and use its best
efforts to cause its respective officers, general partner, directors, employees,
agents, affiliates and representatives, including, without limitation, any
investment banker, attorney or accountant retained by it, as applicable, not to,
initiate, solicit or encourage, directly or indirectly, any inquiries or the
making or implementation of any proposal or offer, including, without
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limitation, any proposal or offer to its shareholders or limited partners, as
the case may be, with respect to a merger, acquisition, tender offer, exchange
offer, consolidation or similar transaction involving, or any purchase of all or
any significant portion of the assets or any equity securities (or any debt
securities convertible into equity securities) of, such party, other than the
Merger (any such proposal or offer being hereinafter referred to as an
"Acquisition Proposal") or engage in any negotiations concerning, or provide any
confidential information or data to, or have any discussions with, any person
relating to an Acquisition Proposal, or otherwise facilitate any effort or
attempt to make or implement an Acquisition Proposal; (ii) that it will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing and each will take the necessary steps to inform the
persons referred to above of the obligations undertaken in this Section 6.1; and
(iii) that it will notify the other parties immediately if any such inquiries or
proposals are received by, any such information is requested from, or any such
negotiations or discussions are sought to be initiated or continued with, it;
provided, however, that nothing contained in this Section 6.1 shall prohibit the
General Partner of any of the Partnerships from (A) furnishing information to,
or entering into discussions or negotiations with, any person or entity that
makes an unsolicited bona fide Acquisition Proposal, if, and only to the extent
that, (1) such General Partner determines in good faith that such action is
required for it to comply with its fiduciary duties to limited partners imposed
by law, (2) prior to furnishing such information to, or entering into
discussions or negotiations with, such person, such party provides written
notice to the other parties to the effect that it is furnishing information to,
or entering into discussions with, such person, and (3) subject to any
confidentiality agreement with such person, (which such party determined in good
faith was required to be executed in order for the General Partner to comply
with its fiduciary duties to limited partners imposed by law), such party keeps
the other parties informed of the status (but not the terms) of any such
discussions or negotiations; and (4) to the extent applicable, complying with
Rule 14e-2 promulgated under the Exchange Act with regard to an Acquisition
Proposal.
Nothing in this Section 6.1 shall (i) permit any party to terminate this
Agreement (except as specifically provided later in this Agreement); (ii) permit
any party to enter into any agreement with respect to an Acquisition Proposal
during the term of this Agreement because during the term of this Agreement, no
party shall enter into any agreement with any person that provides for, or in
any way facilitates, an Acquisition Proposal (other than a confidentiality
agreement in customary form); or (iii) affect any other obligation of any party
under this Agreement.
6.2. CONDUCT OF BUSINESSES. (a) Prior to the Closing Date, except as may
be set forth in the Disclosure Schedule or as contemplated by this Agreement,
unless all the other parties have consented in writing thereto, the parties:
(1) Shall use their reasonable efforts to preserve intact their
business organizations and goodwill and keep available services of their
respective officers and employees;
(2) Shall confer on a regular basis with one or more representatives
of the other parties to report operational matters of materiality and,
subject to Section 6.1, any proposals to engage in material transactions;
(3) Shall promptly notify the other parties of any material emergency
or other material change in the condition (financial or otherwise) of the
business, properties, assets or liabilities, or any material governmental
complaints, investigations or hearings (or communications indicating that
the same may be contemplated), or the breach in any material respect of any
representation, warranty, covenant or agreement contained herein;
(4) Shall not pay dividends or make distributions payable with respect
to the their equity securities; and
(5) Shall promptly deliver to the other parties true and correct
copies of any report, statement or schedule filed with the Commission
subsequent to the date of this Agreement.
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(b) Prior to the Closing Date, except as may be set forth in the Disclosure
Schedule, unless the other parties have consented (such consent not to be
unreasonably withheld or delayed) in writing thereto, each Partnership:
(1) Shall conduct its operations according to its usual, regular and
ordinary course in substantially the same manner as heretofore conducted;
(2) Shall not amend such Partnership's Agreement of Limited
Partnership;
(3) Shall not (A) except pursuant to the exercise of options,
warrants, conversion rights and other contractual rights existing on the
date hereof and disclosed pursuant to this Agreement, issue any equity or
debt securities, make any distribution, effect any recapitalization or
other similar transaction; (B) grant, confer or award any option, warrant,
conversion right or other right not existing on the date hereof to acquire
any interest in such Partnership; (C) increase any compensation or enter
into or amend any employment agreement with any of its present or future
officers or directors of the General Partner of such Partnership, or (D)
adopt any employee benefit plan;
(4) Shall not declare, set aside or make any distribution or payment
with respect to any interest in such Partnership or directly or indirectly
redeem, purchase or otherwise acquire any interest in such Partnership, or
make any commitment for any such action;
(5) Shall not sell or otherwise dispose of (i) any assets or
properties of such Partnership, or (ii) except in the ordinary course of
business, any of its other assets which are material, individually or in
the aggregate;
(6) Shall not make any loans, advances or capital contributions to, or
investments in, any other person;
(7) Shall not pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the
ordinary course of business consistent with past practice or in accordance
with their terms, of liabilities presented or reserved against in, or
contemplated by, Respective Partnership Financial Statements (or the notes
thereto) or incurred in the ordinary course of business consistent with
past practice;
(8) Shall not enter into any commitment which individually may result
in total payments or liability by or to it in excess of $250,000 in the
case of any one commitment or in excess of $500,000 for all commitments;
(9) Shall not enter into any commitment with any officer, director or
affiliate of such Partnership or its General Partner, except to the extent
the same occur in the ordinary course of business consistent with past
practice and would not have a material adverse effect on such Partnership
or its business.
(c) Prior to the Closing Date, except as may be set forth in the Disclosure
Schedule, unless the other parties have consented (such consent not to be
unreasonably withheld or delayed) in writing thereto, PCM:
(1) Shall conduct its operations according to their usual, regular and
ordinary course in substantially the same manner as heretofore conducted;
(2) Shall not amend its Articles of Incorporation or Bylaws, except as
contemplated by this Agreement;
(3) Shall not (A) except pursuant to the exercise of options,
warrants, conversion rights and other contractual rights (including
existing on the date hereof and disclosed pursuant to this Agreement, issue
any shares of its capital stock, effect any share split, reverse share
split, share dividend, recapitalization or other similar transaction, (B)
grant, confer or award any option, warrant, conversion right or other right
not existing on the date hereof to acquire any shares of its capital
shares, (C) amend any employment agreement with any of its present or
future officers or directors, or (D) adopt any employee benefit plan
(including any share option, share benefit or share purchase plan);
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(4) Shall not declare, set aside or pay any dividend or make any other
distribution or payment with respect to any shares of PCM's common stock or
directly or indirectly redeem, purchase or otherwise acquire any shares of
PCM's common stock or make any commitment for any such action;
(5) Except as will be set forth in the Disclosure Schedule, shall not
sell or otherwise dispose of any of its assets or properties, except in the
ordinary course of business;
(6) Shall not make any loans, advances or capital contributions to, or
investments in, any other person other than in connection with the sale of
properties;
(7) Shall not pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the
ordinary course of business consistent with past practice or in accordance
with their terms, of liabilities presented or reserved against in, or
contemplated by, the PCM Financial Statements (or the notes thereto) or
incurred in the ordinary course of business consistent with past practice;
(8) Shall not enter into any commitment which individually may result
in total payments or liability by or to it in excess of $250,000 in the
case of any one commitment or in excess of $500,000 for all commitments;
and
(9) Shall not enter into any commitment with any officer, director or
affiliate of PCM, except as herein or in the Disclosure Schedule and except
in the ordinary course of business.
(d) Prior to the Closing Date, except as may be set forth in the Disclosure
Schedule, unless the other parties have consented (such consent not to be
unreasonably withheld or delayed) in writing thereto, the Company:
(1) Shall conduct its operations according to their usual, regular and
ordinary course in substantially the same manner as heretofore conducted;
(2) Shall not amend its Certificate of Incorporation or Bylaws, except
as contemplated by this Agreement;
(3) Shall not (A) except pursuant to the exercise of options,
warrants, conversion rights and other contractual rights (including those
existing on the date hereof and disclosed pursuant to this Agreement, issue
any shares of its capital stock, effect any share split, reverse share
split, share dividend, recapitalization or other similar transaction, (B)
grant, confer or award any option, warrant, conversion right or other right
not existing on the date hereof to acquire any shares of its capital
shares, (C) amend any employment agreement with any of its present or
future officers or directors, or (D) adopt any new employee benefit plan
(including any share option, share benefit or share purchase plan);
(4) Shall not declare, set aside or pay any dividend or make any other
distribution or payment with respect to any shares of the Common Stock or
directly or indirectly redeem, purchase or otherwise acquire any shares of
the Common Stock or make any commitment for any such action;
(5) Except as will be set forth in the Disclosure Schedule, shall not
sell or otherwise dispose of any of its assets or properties, except in the
ordinary course of business;
(6) Shall not make any loans, advances or capital contributions to, or
investments in, any other person other than in connection with the sale of
properties;
(7) Shall not pay, discharge or satisfy any claims, liabilities or
obligations absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the
ordinary course of business consistent with past practice or in accordance
with their terms, of liabilities presented or reserved against in, or
contemplated by, the Company's Financial Statements (or the notes thereto)
or incurred in the ordinary course of business consistent with past
practice;
(8) Shall not enter into any commitment which individually may result
in total payments or liability by or to it in excess of $250,000 in the
case of any one commitment or in excess of $500,000 for all commitments;
and
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(9) Shall not enter into any commitment with any officer, director or
affiliate of the Company, except as specified herein or in the Disclosure
Schedule and except in the ordinary course of business.
For purposes of this Section 6.2, any consent shall be deemed to be
unreasonably delayed if notice of consent or withholding of consent is not
received within three (3) days of request. Further, if no response is received
by the end of business on such third day, the party receiving the request shall
be deemed to have consented to such action.
6.3. CONSENTS OF SHAREHOLDERS AND PARTNERS. Each party will take all
action necessary in accordance with applicable law and its organizational
documents to obtain the written consents of its shareholders or partners, as
applicable, as promptly as practicable to approve this Agreement and the Merger.
The Board of Directors of the Company, the Board of Directors of PCM and the
General Partner of the Partnerships shall each recommend such approval to their
shareholders and partners, respectively, and each party shall each take all
lawful action to solicit such approval, including, without limitation, timely
mailing the Consent Statement/Prospectus (as defined later in this Agreement);
provided, however, that such recommendation or solicitation is subject to any
action taken by, or upon authority of, the Board of Directors of the Company,
the Board of Directors of PCM, or the General Partner of the Partnerships, as
the case may be, in the exercise of its good faith judgment as to its fiduciary
duties to their shareholders or partners, as applicable, imposed by law.
6.4. FILINGS; OTHER ACTION. Subject to the terms and conditions herein
provided, the parties shall (a) use all reasonable efforts to cooperate with
each other in (i) determining which filings are required to be made prior to the
Closing Date with, and which consents, approvals, permits, or authorization are
required to be obtained prior to the Closing Date from governmental or
regulatory authorities of the United States and the various states in connection
with the execution and delivery of this Agreement and the consummation of the
Merger and (ii) timely making all such filings and timely seeking all such
consents, approvals, permits or authorizations; (b) use all reasonable efforts
to obtain in writing any consents required from third parties, in form
reasonably satisfactory to the parties, necessary to effectuate the Merger; and
(c) use all reasonable efforts to take, or cause to be taken, all other action
and do, or cause to be done, all other things necessary, proper or appropriate
to consummate and make effective the Merger. If, at any time after the Closing
Date, any further action is necessary or desirable to carry out the purpose of
this Agreement, the proper officers and directors of the Company and PCM and the
General Partner shall take all such necessary action.
6.5. INSPECTION OF RECORDS. From the date hereof to the Closing Date,
each party shall allow all designated officers, attorneys, accountants and other
representatives of the other parties access at all reasonable times to the
records and files, correspondence, audits and properties, as well as to all
information relating to commitments, contracts, titles and financial position,
or otherwise pertaining to the business and affairs of such party.
6.6. PUBLICITY. The parties shall, subject to their respective legal
obligations (including requirements of regulatory bodies), consult with each
other, and use reasonable efforts to agree upon the text of any press release
before issuing any such press release or otherwise making public statements with
respect to the transactions contemplated hereby and in making any filings with
any federal or state governmental or regulatory agency or with any national
securities exchange with respect thereto.
6.7. REGISTRATION STATEMENT. The parties shall cooperate and promptly
prepare and the Company shall file with the Commission as soon as practicable a
Registration Statement on Form S-4 ("Form S-4") under the Securities Act, with
respect to Merger Stock, a portion of which Registration Statement shall also
serve as the joint disclosure statement with respect to the meetings of the
shareholders and partners, as appropriate, of the parties in connection with the
Merger ("Consent Statement/Prospectus"). The respective parties will cause the
Consent Statement/Prospectus and the Form S-4 to comply as to form in all
material respects with the applicable provisions of the Securities Act, the
Exchange Act and the rules and regulations promulgated thereunder. PCM and the
Partnerships shall use all reasonable efforts, and will cooperate with the
Company to have the Form S-4 declared effective by the Commission as promptly as
practicable. The Company shall use its best efforts to obtain, prior to the
effective date of the Form S-4, all necessary state securities law or "Blue Sky"
permits or approvals required to carry out the Merger and will pay
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all expenses incident thereto. The Company agrees that the Consent
Statement/Prospectus and each amendment or supplement thereto, at the time of
mailing thereof, or, in the case of the Form S-4 and each amendment or
supplement thereto, at the time it is filed or becomes effective, will not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; provided,
however, that the foregoing shall not apply to the extent that any such untrue
statement of a material fact or omission to state a material fact was made by
the Company in reliance upon and in conformity with written information
concerning the other parties furnished to the Company by the other parties
specifically for use in the Consent Statement/Prospectus. PCM and the
Partnerships agree that the written information provided by them specifically
for inclusion in the Consent Statement/Prospectus and each amendment or
supplement thereto, at the time of mailing thereof, or, in the case of written
information provided by PCM and the Partnerships specifically for inclusion in
the Form S-4 or any amendments or supplement thereto, at the time it is filed or
becomes effective, will not include an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The Company will advise PCM and the Partnerships, promptly
after it receives notice thereof, of the time when the Form S-4 has become
effective or any supplement or amendment has been filed, the issuance of any
stop order, the suspension of the registration or qualification of the Merger in
any jurisdiction, or any request by the Commission for amendment of the Consent
Statement/Prospectus or the Form S-4 or comments thereon and responses thereto
or requests by the Commission for additional information.
6.8. FURTHER ACTION. Each party shall, subject to the fulfillment at or
before the Closing Date of each of the conditions of performances set forth
herein or the waiver thereof, perform such further acts and execute such
documents as may reasonably be required to effect the Merger.
6.9. INDEMNIFICATION. For a period of six years from and after the
Closing Date, the Company shall indemnify the partners, directors, officers, and
agents of the Partnerships and PCM, as appropriate, who at any time prior to the
Closing Date were entitled to indemnification under the Agreements of Limited
Partnership of the Partnerships or indemnification agreements existing on the
date hereof to the same extent as such partners, directors, officers and agents
are entitled to indemnification under such Agreements of Limited Partnership or
indemnification agreements in respect of actions or omissions occurring at or
prior to the Closing Date, including, without limitation, the Merger.
6.10. SURVIVAL OF OBLIGATIONS; ASSUMPTION OF PARTNERSHIP AND PCM
LIABILITIES BY THE COMPANY. All of the obligations of the Partnership and PCM
that are outstanding on the Closing Date shall survive the Merger and shall not
be merged therein. Upon the consummation of the Merger, such obligations shall
be assumed, automatically, by the Company; provided, however, that such
assumption shall not impose upon or expose the Company to any liability for
which any Partnership or PCM was not liable, and provided, further, that the
Company shall be entitled to the same defenses, offsets and counterclaims to
which such Partnership or PCM would have been entitled, but for the Merger.
6.11. THIRD PARTY CONSENTS. The parties shall take all necessary action
and will use their commercially reasonable efforts to obtain the consents and
applicable approvals from third parties that may be required to enable them to
carry out the Merger.
6.12. EFFORTS TO FULFILL CONDITIONS. The parties shall use their
reasonable efforts to insure that all conditions precedent to their obligations
hereunder are fulfilled at or prior to the Closing Date.
6.13. CHANGES IN REPRESENTATIONS AND WARRANTIES OF THE
PARTNERSHIPS. Between the date of this Agreement and the Closing Date, the
Partnerships shall not, directly or indirectly, enter into any transaction, take
any action, or by inaction permit an event to occur, which would result in any
of the representations and warranties of the Partnerships herein contained to be
not true and correct at and as of (a) the time immediately following the
occurrence of such transaction or event, or (b) the Closing Date. Each
Partnership shall promptly give written notice to the Company upon becoming
aware of (i) any fact which, if known on the date hereof, would have been
required to be set forth or disclosed pursuant to this Agreement; and (ii) any
impending or threatened breach in any material respect of any of the
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representations and warranties of such Partnerships contained in this Agreement
and, with respect to the latter, shall use all reasonable efforts to remedy
same.
6.14. CHANGES IN REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Between
the date of this Agreement and the Closing Date, the Company shall not, directly
or indirectly, enter into any transaction, take any action, or by inaction
permit an event to occur, which would result in any of the representations and
warranties of the Company herein contained to be not true and correct at and as
of (a) the time immediately following the occurrence of such transaction or
event; or (b) the Closing Date. The Company shall promptly give written notice
to the Partnerships and PCM upon becoming aware of (i) any fact which, if known
on the date hereof, would have been required to be set forth or disclosed
pursuant to this Agreement; and (ii) any impending or threatened breach in any
material respect of any of the representations and warranties of the Company
contained in this Agreement and, with respect to the latter, shall use all
reasonable efforts to remedy same.
6.15. CHANGES IN REPRESENTATIONS AND WARRANTIES OF PCM. Between the date
of this Agreement and the Closing Date, PCM shall not, directly or indirectly,
enter into any transaction, take any action or by inaction permit an event to
occur, which would result in any of the representations and warranties of PCM
herein contained to be not true and correct at and as of (a) the time
immediately following the occurrence of such transaction or event; or (b) the
Closing Date. PCM shall promptly give the written notice to the Partnerships and
the Company upon becoming aware of (i) any fact which, if known on the date
hereof, would have been required to be set forth or disclosed pursuant to this
Agreement; and (ii) any impending or threatened breach in any material
respective any of the representations and warranties of PCM contained in this
Agreement and, with respect to the latter, shall use all reasonable efforts to
remedy same.
6.16. COOPERATION OF THE PARTIES. The parties will cooperate with the
other party in supplying such information as may be reasonably requested by the
other in connection with obtaining consents or approvals to the to the Merger.
6.17. COSTS OF THE MERGER. or purposes of this Agreement, the costs of
the Merger shall be and hereby are divided into two categories. The first
category is transaction costs and the second category is solicitation expenses.
(a) Transaction costs are those costs of printing and mailing the Consent
Statement/Prospectus and other documents; legal fees not related to the
solicitation of votes, consents, or tenders; financial advisory fees, investment
banking fees; appraisal fees; accounting fees; independent committee fees;
travel expenses; and all other fees related to the preparatory work of the
Merger. Transactions costs do not include (i) those costs would have otherwise
been incurred by the Partnerships in the ordinary course of business or (ii)
solicitation expenses. Solicitation expenses include direct marketing expenses,
such as telephone calls, broker dealer fact sheets, legal and other expenses
related to the solicitation of consents and direct solicitation compensation to
brokers and dealers.
(b) In the event the Merger is rejected, the limited partners of the
Partnerships shall not bear an unfair portion of the transaction costs of the
Merger. In the event the Merger is rejected, the transaction costs will be
apportioned between the Company and the limited partners of the Partnerships
according to the final vote regarding the Merger as follows (i) the Company
shall bear all transaction costs in proportion to the number of votes of the
limited partners of the Partnerships that votes to reject the Merger; and (ii)
each Partnership shall bear the transaction costs in proportion to the number of
votes of the limited partners of such Partnership that voted to approve the
Merger.
(c) In the event the Merger is rejected, the Company shall pay all of the
solicitation expenses.
(d) In the event the Merger is approved, the Partnerships shall bear the
transaction costs in proportion to the number of votes of the limited partners
of the Partnerships that voted to approve the Merger.
(e) In the event the Merger is approved, the Partnerships shall bear the
solicitation costs in proportion to the number of votes of the limited partners
of the Partnerships that vote to approve the Merger.
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ARTICLE VII. CONDITIONS
7.1. CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE
REORGANIZATION. In addition to those other conditions specified elsewhere in
this Article VII, the respective obligation of each party to effect the Merger
shall be subject to the fulfillment at or prior to the Closing Date of the
following conditions:
(a) This Agreement and Merger shall have been approved in the manner
required by the Bylaws and Agreements of Limited Partnership of the Company
and PCM and the Partnerships, as appropriate, by applicable law or by
applicable regulations of any regulatory body, by the holders of the Common
Stock , by holders of PCM's common stock and by holders of Units in the
Partnerships entitled to vote thereon.
(b) None of the parties shall be subject to any order or injunction of
a court of competent jurisdiction which prohibits the consummation of the
Merger. In the event any such order or injunction shall have been issued,
each party agrees to use its reasonable efforts to have any such injunction
lifted.
(c) The Form S-4 shall have become effective and all necessary state
securities law or "Blue Sky" permits or approvals required to carry out the
Merger shall have been obtained and no stop order with respect to any of
the foregoing shall be in effect.
(d) All consents, authorizations, orders and approvals of (or filings
or registrations with) any governmental commission, board, other regulatory
body or third parties required in connection with the execution, delivery
and performance of this Agreement shall have been obtained or made, except
for filings in connection with the Merger and any other documents required
to be filed after the Closing Date and except where the failure to have
obtained or made any such consent, authorization, order, approval, filing
or registration would not have a material adverse effect on the business,
results of operations or financial condition of any party taken as a whole,
following the Closing Date.
7.2. CONDITIONS TO OBLIGATIONS OF THE PARTNERSHIPS TO EFFECT THE
REORGANIZATION. In addition to those other conditions specified elsewhere in
this Article VII, the obligations of the Partnerships to effect the Merger shall
be subject to the fulfillment at or prior to the Closing Date of the following
conditions, unless waived by each of the Partnerships:
(a) The Company and PCM shall have performed their agreements
contained in this Agreement required to be performed on or prior to the
Closing Date and the representations and warranties of the Company and PCM
contained in this Agreement shall be true and correct in all material
respects as of the Closing Date as if made on the Closing Date, and each
Partnership shall have received certificates of the President of the
Company and the President of PCM, dated the Closing Date, certifying to
such effect.
(b) Each Partnership shall have received the opinion of tax counsel
selected by the Company and approved by each Partnership, dated the Closing
Date, to the effect that the Merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a)(1)(A) of
the Code, and that each of the parties will be a party to that
reorganization within the meaning of Section 368(b) of the Code. In
rendering his opinion, said counsel shall be entitled to rely as to any
factual matter upon certificates given by executive officers of PCM and the
Company.
(c) From the date of the Agreement through the Closing Date, there
shall not have occurred any change in the financial condition, business or
operations of the Company, taken as a whole, that would have or would be
reasonably probable to have an material adverse effect on the Company or
PCM other than any such change that affects all parties in a substantially
similar manner.
(d) The opinion of Willamette addressed to the Partnerships that the
Merger is fair, from a financial point of view, to the partners of the
Partnerships shall not have been withdrawn or materially modified.
(e) The Partnerships shall have received the opinion of counsel
selected by the Company and approved by each Partnership dated the Closing
Date, as to such customary matters as the Partnerships may reasonably
request and such opinion shall be reasonably satisfactory to the
Partnerships.
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(f) The shareholders of the Company shall have approved this Agreement
and the Merger.
(g) The shareholders of PCM shall have approved this Agreement and the
Merger.
(h) The representations and warranties of the Company and PCM
contained in this Agreement (including the Disclosure Schedule) or any
schedule, certificate or other instrument delivered pursuant to the
provisions hereof or in connection with the Merger shall be true and
correct in all material respects at and as of the Closing Date (except for
such changes permitted by this Agreement) and shall be deemed to be made
again as of the Closing Date.
(i) No material adverse change shall have occurred subsequent to June
30, 1997, and the financial position, results of operations, assets,
liabilities or prospects of the Company or PCM nor shall any event or
circumstance have occurred which would result in a material adverse change
in the financial position, results of operations, assets, liabilities or
prospects of the Company or PCM within the reasonable discretion of each
Partnership.
(j) All documents and instruments delivered by the Company and PCM to
the Partnerships on the Closing Date shall be in form and substance
reasonably satisfactory to the Partnerships.
(k) On the Closing Date, the number of shares of common stock issued
by PCM and outstanding shall be set forth on the Disclosure Schedule. At
the Closing Date, the number of shares of Common Stock issued by the
Company and outstanding shall be as set forth in the Disclosure Schedule.
(l) No litigation seeking to enjoin the Merger or to obtain damages on
account hereof shall be pending, or to the knowledge of either the Company
or PCM, be threatened.
7.3. CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE
REORGANIZATION. In addition to those other conditions specified elsewhere in
this Article VII, the obligations of the Company to effect the Merger shall be
subject to the fulfillment at or prior to the Closing Date of the following
conditions, unless waived by the Company:
(a) The Partnerships and PCM shall have performed their agreements
contained in this Agreement required to be performed on or prior to the
Closing Date and the representations and warranties of the Partnerships and
PCM contained in this Agreement shall be true and correct in all material
respects as of the Closing Date as if made on the Closing Date, and the
Company shall have received certificates of the President of the General
Partner of each Partnership and the President of PCM dated the Closing
Date, certifying to such effect.
(b) From the date of this Agreement through the Closing Date, there
shall not have occurred any change in the financial condition, business or
operations of the Partnerships or PCM, taken as a whole, that would have or
would be reasonably probable to have an material adverse effect, other than
any such change that affects all parties in a substantially similar manner.
(c) The Company shall have received the opinion of counsel selected by
the Partnerships and approved by the Company, dated the Closing Date, as to
such customary matters as the Company may reasonably request and such
opinion to be reasonably satisfactory to the Company.
(d) The limited partners of all the Partnerships holding the required
number of Units shall have approved this Agreement and the Merger.
(e) The shareholders of the Company have approved this Agreement and
the Merger.
(f) The representations and warranties of the Company and PCM
contained in this Agreement (including the Disclosure Schedule) or any
schedule, certificate or other instrument delivered pursuant to the
provisions hereof or in connection with the Merger shall be true and
correct in all material respects at and as of the Closing Date (except for
such changes permitted by this Agreement) and shall be deemed to be made
again as of the Closing Date.
(g) No material adverse change shall have occurred subsequent to June
30, 1997, and the financial position, results of operations, assets,
liabilities or prospects of the Company or PCM nor shall any event
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or circumstance have occurred which would result in a material adverse
change in the financial position, results of operations, assets,
liabilities or prospects of the Company or PCM within the reasonable
discretion of each Partnership.
(h) All documents and instruments delivered by the Company and PCM to
the Partnerships on the Closing Date shall be in form and substance
reasonably satisfactory to the Partnerships.
(i) On the Closing Date, the number of shares of common stock issued
by PCM and outstanding shall be set forth on the Disclosure Schedule. At
the Closing Date, the number of limited partnership interests ("Units")
issued by each Partnership and outstanding shall be as set forth in the
Disclosure Schedule.
(j) No litigation seeking to enjoin the Merger or to obtain damages on
account hereof shall be pending, or to the knowledge of either the Company
or PCM, be threatened.
7.4. CONDITIONS TO OBLIGATION OF PCM TO EFFECT THE REORGANIZATION. In
addition to those other conditions specified elsewhere in this Article VII, the
obligations of PCM to effect the Merger shall be subject to the fulfillment at
or prior to the Closing Date of the following conditions, unless waived by PCM:
(a) The Partnerships and the Company shall have performed their
agreements contained in this Agreement required to be performed on or prior
to the Closing Date and the representations and warranties of the
Partnerships and the Company contained in this Agreement shall be true and
correct in all material respects as of the Closing Date as if made on the
Closing Date and PCM shall have received certificates of the President of
the General Partner of each Partnership and the President of the Company
dated the Closing Date, certifying to such effect.
(b) From the date of this Agreement through the Closing Date, there
shall not have occurred any change in the financial condition, business or
operations of the Partnerships or the Company, taken as a whole, that would
have or would be reasonably probable to have an material adverse effect,
other than any such change that affects all parties in a substantially
similar manner.
(c) The Company shall have received the opinion of counsel selected by
the Partnerships and approved by the Company dated the Closing Date, as to
such customary matters as the Company may reasonably request, such opinion
to be reasonably satisfactory to the Company.
(d) The limited partners of all the Partnerships holding the required
number of Units shall have approved this Agreement and the Merger.
(e) The representations and warranties of the Company and PCM
contained in this Agreement (including the Disclosure Schedule) or any
schedule, certificate or other instrument delivered pursuant to the
provisions hereof or in connection with the Merger shall be true and
correct in all material respects at and as of the Closing Date (except for
such changes permitted by this Agreement) and shall be deemed to be made
again as of the Closing Date.
(f) No material adverse change shall have occurred subsequent to June
30, 1997, and the financial position, results of operations, assets,
liabilities or prospects of the Company or PCM nor shall any event or
circumstance have occurred which would result in a material adverse change
in the financial position, results of operations, assets, liabilities or
prospects of the Company or PCM within the reasonable discretion of each
Partnership.
(g) All documents and instruments delivered by the Company and PCM to
the Partnerships on the Closing Date shall be in form and substance
reasonably satisfactory to the Partnerships.
(h) On the Closing Date, the number of shares of common stock issued
by PCM and outstanding shall be set forth on the Disclosure Schedule. At
the Closing Date, the number of Units issued by each Partnership and
outstanding shall be as set forth in the Disclosure Schedule.
(i) No litigation seeking to enjoin the Merger or to obtain damages on
account hereof shall be pending, or to the knowledge of either the Company
or PCM, be threatened.
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ARTICLE VIII. TERMINATION
8.1. TERMINATION BY MUTUAL CONSENT. his Agreement may be terminated and
the Merger may be abandoned at any time prior to the Closing Date, before or
after the approval of this Agreement by the partners of the Partnerships, the
shareholders of the Company, and the shareholders of PCM or by the mutual
written consent of the parties, with the prior approval of their respective
Boards of Directors and General Partner of the Partnerships.
8.2. TERMINATION BY ANY PARTY. This Agreement may be terminated and the
Merger may be abandoned by action of the General Partner of the Partnerships or
PCM or the Company if (i) the Merger shall not have been consummated by March
31, 1998, (ii) the approval of the Partnerships' partners shall not have been
obtained; (iii) the approval of the Company's shareholders shall not have been
obtained; (iv) the approval of PCM's shareholders shall not have been obtained;
(v) as a result of due diligence investigation by one of the parties, it is
determined in good faith by such party that certain facts or circumstances not
previously known by such party constitute a material adverse effect on the
business, results of operations or financial condition of the other party, (vi)
a United States federal or state court of competent jurisdiction or United
States federal or state governmental, regulatory or administrative agency or
commission shall have issued an order, decree or ruling or taken any other
action permanently restraining, enjoining or otherwise prohibiting the Merger
and such order, decree, ruling or other action shall have become final and non-
appealable, provided that the party seeking to terminate this Agreement pursuant
to this clause (vii) shall have used all reasonable efforts to remove such
order, decree, ruling or injunction, or (viii) any of the conditions set forth
in Article VII shall not have been satisfied, and provided, in the case of a
termination pursuant to clause (i) or (v) above, that the terminating party
shall not have breached in any material respect its obligations under this
Agreement in any manner that shall have proximately contributed to the
occurrence of the failure referred to in said clause. Each party each shall (i)
deliver its information required to complete the Disclosure Schedule to the
other parties not later than 5:00 P.M., Pacific Time, March 15, 1998, and (ii)
complete its due diligence investigations not later than 5:00 P.M., Pacific
Time, on February 28, 1998 (the period from the date of this Agreement through
February 28, 1998 being hereinafter referred to as the "Due Diligence Period").
Until the expiration of the Due Diligence Period, any party may terminate this
Agreement without liability or penalty due to (i) the discovery of a fact or
circumstance that reasonably could be expected to constitute a material adverse
effect on the business, results of operations or financial condition of any
other party, or (ii) the party's failure to receive a written fairness opinion
as described herein within seven business days from the date of execution of
this Agreement.
8.3. TERMINATION BY A PARTNERSHIP. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Closing Date, before or
after the adoption and approval by the partners of such Partnership, by action
of the General Partner of such Partnership, if (i) in the exercise of such
General Partner's good faith judgment as to its fiduciary duties to the partners
of such Partnership imposed by law, such General Partner determines that such
termination is required; (ii) the Company withdraws, materially modifies or
changes in a manner materially adverse to such Partnership its recommendations
to the Company's shareholders of this Agreement or the Merger; (iii) PCM
withdraws, materially modifies or changes in a manner material adverse to such
Partnership its recommendations to PCM's shareholders of this Agreement or the
Merger; (iv) there has been a breach by the Company of any representation or
warranty contained in this Agreement which would have or would be reasonably
probable to have a material adverse effect on the Company, and which breach is
not cured by March 31,1998; (v) there has been a breach by PCM of any
representation or warranty contained in this Agreement which would have or would
have been reasonably probable to have a material adverse effect on PCM, and
which breach is not cured by March 31, 1998; (vi) there has been a material
breach of any of the covenants or agreements set forth in this Agreement on the
part of the Company, which breach is not curable or, if curable, is not cured
within 30 days after written notice of such breach is given by such Partnership
to the Company; or (vii) there has been a material breach of any of the
covenants or agreements set forth in this Agreement on the part of PCM, which
breach is not curable or, if curable, is not cured within thirty (30) days after
written notice of such breach is given by the Partnership to PCM.
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8.4. TERMINATION BY THE COMPANY. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Closing Date, before or after
the approval by the shareholders of the Company, by action of the Company, if
(i) in the exercise of its good faith judgment as to its fiduciary duties to its
shareholders imposed by law, the Company determines that such termination is
required; (ii) the General Partner of a Partnership withdraws, materially
modifies or changes in a manner materially adverse to the Company its
recommendation to a Partnership's partners of this Agreement or the Merger;
(iii) PCM withdraws, materially modifies or changes in any manner materially
adverse to PCM its recommendation to PCM's shareholders of this Agreement or the
Merger; (iv) there has been a breach by a Partnership of any representation or
warranty contained in this Agreement which would have or would be reasonably
probable to have a material adverse effect on such Partnership, and which breach
is not cured by March 31, 1998; (v) there has been a breach by PCM of any
representation or warranty contained in this Agreement which would have or would
be reasonably probable to have a material adverse effect on PCM, and which
breach is not cured by March 31, 1998; (vi) there has been a material breach of
any of the covenants or agreements set forth in this Agreement on the part of a
Partnership, which breach is not curable or, if curable, is not cured within 30
days after written notice of such breach is given by the Company to such
Partnership; (vi) there has been a material breach of any of the covenants or
agreements set forth in this Agreement on the part of PCM, which breach is not
curable or, if curable, is not cured within thirty (30) days after written
notice of such breach is given by the Company to PCM.
8.5. TERMINATION BY PCM. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Closing Date, before or after the
approval by the shareholders of PCM, by action of PCM, if (i) in the exercise of
its good faith judgment as to its fiduciary duties to its shareholders imposed
by law, PCM determines that such termination is required; (ii) the General
Partner of a Partnership withdraws, materially modifies or changes in a manner
materially adverse to PCM its recommendation to a Partnership's partners of this
Agreement or the Merger; (iii) the Company withdraws, materially modifies or
changes in any manner materially adverse to PCM its recommendations to PCM's
shareholders of this Agreement or the Merger; (iv) there has been a breach by a
Partnership of any representation or warranty contained in this Agreement which
would have or would be reasonably probable to have a material adverse effect on
such Partnership, and which breach is not cured by March 31, 1998; (v) there has
been a breach by the Company of any representation or warranty contained in this
Agreement which would have or would be reasonably probable to have a material
adverse effect on the Company, and which breach is not cured by March 31, 1998;
(vi) there has been a material breach of any of the covenants or agreements set
forth in this Agreement on the part of a Partnership, which breach is not
curable or, if curable, is not cured within 30 days after written notice of such
breach is given by PCM to such Partnership; or (vi) there has been material
breach of any of the covenants or agreements set forth in this Agreement on the
part of the Company, which breach is not curable, or, if curable, is not cured
within thirty (30) days after written notice of such breach is given to PCM to
the Company.
8.6. EFFECT OF TERMINATION AND ABANDONMENT. In the event of termination
of this Agreement and the abandonment of the Merger pursuant to this Article
VIII, all obligations of the parties hereto shall terminate and no party shall
assert or pursue in any manner, directly or indirectly, any claim or cause of
action against any other party or any of its officers, directors or general
partners, as applicable, or their employees, agents or representatives, based in
whole or part upon the exercise by (i) the Company of its right to termination,
(ii) a Partnership of its right to termination, or (iii) PCM of its right to
termination. No termination of this Agreement, however, shall operate to release
any party from any liability to any other party incurred before the date of such
termination or from any liability resulting from any willful misrepresentation
made in connection with this Agreement, or willful breach hereof.
8.7. EFFECT OF WILLFUL VIOLATION. If any party willfully fails to perform
its duties and obligations under this Agreement, each nonbreaching party is
entitled to all remedies available to it at law or in equity and to recover its
expenses from the breaching party.
8.8. EXTENSION; WAIVER. At any time prior to the Closing Date, any party,
by action taken by its Board of Directors or General Partner, as applicable,
may, to the extent legally allowed, (i) extend the time for the performance of
any of the obligations or other acts of the other parties, (ii) waive any
inaccuracies in
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the representations and warranties made to such party contained herein or in any
document delivered pursuant hereto and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
IX. PARTNER AND STOCKHOLDER APPROVAL; CLOSING; CLOSING DELIVERIES
9.1. PARTNER AND STOCKHOLDER APPROVAL. (a) The affirmative vote of the
holders of at least seventy-five percent (75%)of all of the outstanding voting
rights of the Units of each Partnership is necessary for such Partnership to
approve and adopt the Merger. If a limited partner of a Partnership does not
consent to the Merger, but the Merger is approved by the requisite vote of other
limited partners in that Partnership, such limited partner may exercise
"Dissenter's Rights" as set forth in the Prospectus/Joint Proxy Statement
delivered to such limited partner, the terms of which are incorporated herein as
though set forth in their entirety.
(b) The Board of Directors of PCM, without dissent or abstention, has
approved the Merger. Moreover, all of the shareholders of PCM have approved this
Agreement and the Merger.
(c) The Board of Directors of the Company, without dissent or abstention,
has approved the Merger. Moreover, all of the shareholders of the Company have
approved this Agreement and the Merger.
9.2. CLOSING. Subject to the other provisions of this Agreement, the
parties shall hold a closing on (a) the Closing Date (or such later date as the
parties hereto may agree); or (b) the business day on which the last of the
conditions set forth in Article VII is fulfilled or waived at 10:00 a.m. at the
offices of the Company, or at such other time and place as the parties may
agree.
9.3. CLOSING DELIVERIES. (a) On the Closing Date, each Partnership shall
each deliver, or cause to be delivered, to PCM and the Company:
(1) a certificate, dated as of the Closing Date, to the effect that
the representations and warranties of such Partnerships contained in this
Agreement are true and correct in all material respects at and as of the
Closing Date and that such Partnership has complied with or performed in
all material respects all terms, covenants and conditions to be complied
with or performed by such Partnership on or prior to the Closing Date;
(2) a certificate, dated as of the Closing Date, executed by such
Partnership's General Partner, certifying the Certificate of Limited
Partnership and Agreement of limited partnership of such Partnership, and
further certifying that Partnership's limited partners have voted to
approve and authorize the execution and delivery of this Agreement, and the
consummation of the Merger.
(3) a resolution, dated as of the Closing Date, executed by the
directors of the General Partner of such Partnership, approving and
authorizing the execution and delivery of this Agreement, and the
consummation of the Merger;
(4) the books and records of such Partnership;
(5) documentation satisfactory to the Company evidencing the fact that
the signatories on all relevant bank accounts of such Partnership have been
changed to signatories designated by the Company;
(6) such other documents, at the Closing or subsequently, as may be
reasonably requested by the Company as necessary for the implementation and
consummation of this Agreement and the Merger; and
(7) an opinion of such Partnership's counsel in form and substance
reasonably satisfactory to the Company.
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<PAGE> 300
(b) On the Closing Date, the Company shall deliver, or cause to be
delivered, to the Partnerships and PCM:
(1) a certificate, dated as of the Closing Date, to the effect that
the representations and warranties of the Company contained in this
Agreement are true and correct in all material respects and that the
Company has complied with or performed in all material respects all terms,
covenants and conditions to be complied with or performed by the Company on
or prior to the Closing Date;
(2) a certificate, dated as of the Closing Date, executed by the
Secretary of the Company, certifying the Certificate of Incorporation and
Bylaws of the Company, the incumbency and signatures of the officers of the
Company and copies of the directors' resolutions of the Company approving
and authorizing the execution and delivery of this Agreement and the
consummation of the Merger;
(3) certificates representing the Merger Stock issuable upon
consummation of the Merger; and
(4) an opinion of the Company's counsel in form and substance
reasonably satisfactory to the Partnerships and PCM.
(c) On the Closing Date, PCM shall deliver or cause to be delivered, to the
Partnerships and the Company;
(1) a certificate, dated as of the Closing Date, to the effect that
the representations and warranties of PCM contained in this Agreement are
true and correct in all material respects and that PCM has complied with or
performed in all material respects all terms, covenants and conditions to
be complied with or performed by PCM on or before the Closing Date;
(2) a certificate, dated as of the Closing Date, executed by the
Secretary of PCM, certifying the Articles of Incorporation and Bylaws of
PCM, the incumbency and signatures of the officers of PCM and copies of the
directors resolutions of PCM approving and authorizing the execution and
delivery of this Agreement and the consummation of the Merger;
(3) the books and records of PCM;
(4) documentations satisfactory to the Company evidencing the fact
that the signatories on all relevant bank accounts of PCM have been changed
to signatory designated by the Company; and
(5) an opinion of PCM's counsel in form and substance reasonably
satisfactory to the Company.
X. INDEMNIFICATION
10.1. BY THE PARTNERSHIPS AND PCM. Each Partnership shall indemnify,
defend and hold the Company and PCM, their directors, officers, shareholders,
attorneys, agents and affiliates, harmless from and against any and all losses,
costs, liabilities, damages, and expenses, including legal and other expenses
incident thereto, of every kind, nature and description ("Losses") that result
from or arise out of (i) the breach of any representation or warranty of such
Partnership set forth in this Agreement or in any certificate delivered to the
Company or PCM pursuant hereto; or (ii) the breach of any of the covenants of
such Partnership contained in or arising out of this Agreement or the Merger.
10.2. BY THE COMPANY. The Company shall indemnify, defend, and hold the
Partnerships (and the General Partner and the limited partners of the
Partnerships, as well as the agents, representatives, accountants and attorneys
of the Partnerships) and PCM (and the officers, directors, agents,
representatives, accountants, attorneys and shareholders of PCM) harmless from
and against any and all losses or damages of any kind that arise out of (i) the
breach of any representation or warranty of the Company set forth in this
Agreement or in any certificate delivered to the Partnerships or PCM; or (ii)
the breach of any of the covenants of the Company contained in or arising out of
this Agreement or the transactions contemplated hereby.
10.3. BY PCM. PCM shall indemnify, defend, and hold the Partnerships (and
the General Partner and the limited partners of the Partnerships, as well as the
agents, representatives, accountants and attorneys of the
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<PAGE> 301
Partnerships) and the Company (and the officers, directors, agents,
representatives, accountants, attorneys and shareholders of the Company)
harmless from and against any and all losses or damages of any kind that arise
out of (i) the breach of any representation or warranty of PCM set forth in this
Agreement or in any certificate delivered to the Partnerships or the Company, or
(ii) the breach of any of the covenants of PCM contained in or arising out of
this Agreement or the transactions contemplated hereby.
10.4. CLAIMS PROCEDURE. Should any claim be asserted against a party
entitled to indemnification under this article ("Indemnitee"), the Indemnitee
shall promptly notify the party obligated to make indemnification
("Indemnitor"); provided, however, that any delay or failure in notifying the
Indemnitor shall not affect the Indemnitor's liabilityunder this article if such
delay or failure was not prejudicial to the Indemnitor. The Indemnitor, upon
receipt of such notice, shall assume the defense thereof with counsel reasonably
satisfactory to the Indemnitee and the Indemnitee shall extend reasonable
cooperation to the Indemnitor in connection with such defense. No settlement of
any such claim shall be made without the consent of the Indemnitor and
Indemnitee. Such consent not to be unreasonably withheld or delayed, nor shall
any such settlement be made by the Indemnitor which does not provide for the
absolute, complete and unconditional release of the Indemnitee from such claim.
In the event that the Indemnitor shall fail, within a reasonable time, to defend
a claim, the Indemnitee shall have the fight to assume the defense thereof
without prejudice to its rights to indemnification hereunder.
10.5. LIMITATIONS ON LIABILITIES. Neither the Partnerships nor PCM nor
the Company shall be liable hereunder as a result of any misrepresentation or
breach of such party's representations, warranties or covenants contained in
this Agreement unless and until the losses or damages incurred by the
Partnerships, PCM or the Company, as the case may be, as a result of such
misrepresentations or breaches under this Agreement shall exceed, in the
aggregate, $50,000 (in which case the party liable therefor shall be liable for
the entire amount of such claims, including the first $50,000).
XI. MISCELLANEOUS
11.1. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. All
statements contained in this Agreement or in any certificate delivered by or on
behalf of each Partnership or PCM or the Company pursuant hereto or in
connection with the Merger shall be deemed representations, warranties and
covenants by such Partnership, PCM or the Company, as the case may be,
hereunder. All representations, warranties and covenants made by each
Partnership, PCM or the Company in this Agreement, or pursuant hereto, shall
survive for a period of two (2) years subsequent to the Closing.
11.2. NONDISCLOSURE. (a) No Partnership shall at any time after the date
of this Agreement, without the consent of the Company (except as may be required
by law), divulge, furnish to or make accessible to any person (other than to
such Partnership's representatives as part of such Partnership's due diligence
or investigation) any knowledge or information with respect to confidential or
secret processes, inventions, discoveries, improvements, formulae, plans,
material, devices or ideas or know-how, whether patentable or not, with respect
to any confidential or secret aspects (including, without limitation, customers
or suppliers) ("Confidential Information") of the Company.
(b) The Company will not at any time after the date of this Agreement,
without the consent of PCM (except as may be required by law), use, divulge,
furnish to or make accessible to any person any Confidential Information (other
than to the Company's representatives as part of the Company's due diligence or
corporate investigation) of PCM.
(c) PCM shall not at any time after the date of this Agreement, without the
consent of the Company (except as may be required by law), divulge, furnish to
or make assessable to any person (other than to PCM's representatives as part of
PCM's representatives due diligence or investigation) any Confidential
Information of the Company.
(d) No Partnership shall not at any time after the date of this Agreement,
without the consent of PCM (except as may be required by law), divulge, furnish
to or make assessable to any person (other than to such
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<PAGE> 302
Partnership's representatives as part of such Partnership's due diligence or
investigation) any Confidential Information of PCM.
(e) PCM shall not at any time after the date of this Agreement, without the
consent of the Company (except as may be required by law), use, divulge, furnish
to or make assessable to any person (other than to PCM's representatives as part
of its due diligence or investigation) any Confidential Information of the
Company.
(f) The Company will not at any time after the date of this Agreement,
without the consent of such Partnership (except as may be required by law), use,
divulge, furnish to or make assessable to any person (other than to the
Company's representatives as part of the Company's due diligence or
investigation) any knowledge or information with respect to the Confidential
Information of any Partnership.
(g) The covenants set forth in this Section 11.2 shall terminate in the
event the Merger is consummated.
(h) Any information, which (i) at or prior to the time of disclosure by (A)
a Partnership, (B) PCM or (C) the Company was generally available to the public
through no breach of this covenant; (ii) was available to the public on a
nonconfidential basis prior to its disclosure by (D) a Partnership, (E) PCM or
(F) the Company; or (iii) was made available to the public from a third party,
provided that such third party did not obtain or disseminate such information in
breach of any legal obligation to (A) a Partnership, (B) PCM or (C) the Company,
shall not be deemed Confidential Information for purposes hereof, and the
undertakings in this covenant with respect to Confidential Information shall not
apply thereto.
11.3. SUCCESSION AND ASSIGNMENTS; THIRD PARTY BENEFICIARIES. This
Agreement may not be assigned (either voluntarily or involuntarily) by any party
hereto without the express written consent of the other party. Any attempted
assignment in violation of this section shall be void and ineffective for all
purposes. In the event of an assignment permitted by this section, this
Agreement shall obligate the heirs, successors and assigns of the parties
hereto. Except as expressly set forth in this section, there shall be no third
party beneficiaries of this Agreement.
11.4. NOTICES. All notices, requests, demands or other communications
with respect to this Agreement shall be in writing and shall be (i) sent by
facsimile transmission; (ii) sent by the United States Postal Service,
registered or certified mail, return receipt requested; or (iii) personally
delivered by a nationally recognized express overnight courier service, charges
prepaid, to the following addresses (or such other addresses as the parties may
specify from time to time in accordance with this Section):
If to the Partnerships: Performance Asset Management Fund, Ltd.
4100 Newport Place, Suite 400
Newport Beach, California 92660
Facsimile: 714-752-3535
Performance Asset Management Fund II, Ltd.
4100 Newport Place, Suite 400
Newport Beach, California 92660
Facsimile: 714-752-3535
Performance Asset Management Fund III, Ltd.
4100 Newport Place, Suite 400
Newport Beach, California 92660
Facsimile: 714-752-3535
Performance Asset Management Fund IV, Ltd.
4100 Newport Place, Suite 400
Newport Beach, California 92660
Facsimile: 714-752-3535
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<PAGE> 303
Performance Asset Management Fund V, Ltd.
4100 Newport Place, Suite 400
Newport Beach, California 92660
Facsimile: 714-752-3535
If to PCM: Performance Capital Management, Inc.
4100 Newport Place, Suite 400
Newport Beach, California 92660
Facsimile: 714-752-3535
If to the Company: Performance Asset Management Company
4100 Newport Place, Suite 400
Newport Beach, California 92660
Facsimile: 714-752-3535
Any such notice shall, when sent in accordance with the preceding sentence,
be deemed to have been given and received on the earliest of (i) the day
delivered to such address or sent by facsimile transmission, (ii) the third
(3rd) business day following the date deposited with the United States Postal
Service, or (iii) twenty-four (24) hours after shipment by such courier service.
11.4. CONSTRUCTION. This Agreement shall be construed and enforced in
accordance with the laws of the State of California.
11.5. COUNTERPARTS. This Agreement may be executed in three or more
counterparts, each of which shall be deemed an original, but all of which shall
together constitute one and the same Agreement.
11.6. NO IMPLIED WAIVER; REMEDIES. No failure or delay on the part of the
parties hereto to exercise any right, power or privilege hereunder or under any
instrument executed pursuant hereto shall operate as a waiver, nor shall any
single or partial exercise of any right, power or privilege preclude any other
or further exercise thereof or the exercise of any other right, power or
privilege. All rights, powers and privileges granted herein shall be in addition
to other rights and remedies to which the parties may be entitled at law or in
equity.
11.7. ENTIRE AGREEMENT. This Agreement, including the Exhibits and
Schedules attached hereto, sets forth the entire understanding of the parties
with respect to the subject matter hereof, and it incorporates and merges any
and all previous communications, understandings, oral or written, as to the
subject matter hereof, and cannot be amended or changed except in writing,
signed by the parties.
11.8. HEADINGS. The headings of the sections of this Agreement, where
employed, are for the convenience of reference only and do not form a part
hereof and in no way modify, interpret or construe the meanings of the parties.
11.9. SEVERABILITY. To the extent that any provision of this Agreement
shall be invalid or unenforceable, it shall be considered deleted therefrom and
the remainder of such provision and of this Agreement shall be unaffected and
shall continue in full force and effect.
11.10. PUBLIC DISCLOSURE. From and after the date hereof through the
Closing Date, no party shall issue a press release or any other public
announcement with respect to the Merger without the prior consent of the other
parties, which consent shall not be unreasonably withheld or delayed.
11.11. NON-RECOURSE. The officers, directors, nor shareholders of the
Company or PCM shall be personally obligated or have any personal liability
hereunder. The Partnerships will not seek recourse or commence any action
against any of the shareholders of AIP or any of their personal assets, and will
not commence any action for money judgments against any of the directors or
officers of the Company or PCM or seek recourse against any of their personal
assets, for the performance or payment of any obligation of the Company or PCM
hereunder or thereunder. The partners of the Partnerships shall not be
personally obligated or have any personal liability hereunder. Neither PCM nor
the Company will seek recourse or commence any action against any of the
partners of the Partnerships or any of their personal assets, and will not
commence
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<PAGE> 304
any action for money judgments against any of the directors or officers of the
General Partner of any Partnership or seek recourse against any of their
personal assets, for the performance or payment of any obligation of any
Partnership hereunder or thereunder.
THE PARTIES TO THIS AGREEMENT HAVE READ THIS AGREEMENT, HAVE HAD THE OPPORTUNITY
TO CONSULT WITH INDEPENDENT COUNSEL OF THEIR OWN CHOICE, AND UNDERSTAND EACH OF
THE PROVISIONS OF THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first above written.
Performance Asset Management Company,
a Delaware corporation
By: ________________________________________
Vincent Galewick, Chairman of the Board
<TABLE>
<S> <C>
(Signature) (Signature)
(Title) Director (Title) Director
(Date), 1997 (Date), 1997
(Signature) (Signature)
(Title) Director (Title) Director
(Date) , 1997 (Date) , 1997
</TABLE>
Performance Capital Management, Inc.,
a California corporation
<TABLE>
<S> <C>
By:
Vincent Galewick, Chairman of the Board
(Signature) (Signature)
(Title) Director (Title) Director
(Date), 1997 (Date), 1997
(Signature) (Signature)
(Title) Director (Title) Director
(Date) , 1997 (Date) , 1997
Performance Asset Management Fund, Performance Asset Management Fund II,
A California Limited Partnership A California Limited Partnership
By: By:
Vincent E. Galewick, Vincent E. Galewick,
President of the General Partner President of the General Partner
</TABLE>
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<PAGE> 305
<TABLE>
<S> <C>
Performance Asset Management Fund III, Performance Asset Management Fund IV,
A California Limited Partnership A California Limited Partnership
By: By:
Vincent E. Galewick, Vincent E. Galewick,
President of the General Partner President of the General Partner
</TABLE>
Performance Asset Management Fund V,
A California Limited Partnership
By: ___________________________________________
Vincent E. Galewick,
President of the General Partner
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<PAGE> 306
APPENDIX B
SUPPLEMENT FOR
PERFORMANCE ASSET MANAGEMENT FUND, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
(S-K REG. 229.902)
NOTICE TO LIMITED PARTNERS OF PERFORMANCE ASSET MANAGEMENT FUND, LTD., A
CALIFORNIA LIMITED PARTNERSHIP:
This separate partnership supplement highlights information that addresses
certain matters presented in the prospectus ("Prospectus") as they relate to
Performance Asset Management Fund, Ltd., A California Limited Partnership
("Partnership") and its limited partners ("Limited Partners"), regarding a
proposed merger ("Merger") of the Partnership and other limited partnerships
("Other Partnerships") and Performance Capital Management, Inc., a California
corporation ("PCM"), with and into Performance Asset Management Company, a
Delaware corporation ("Company"). Similar supplements have been prepared for the
Other Partnerships. The effects of the Merger may differ for the limited
partners in the Other Partnerships. If you want to obtain a supplement for any
of the Other Partnerships, please call the Information Agent at (714) 261-7300,
or send a written request to Performance Development, Inc., Attn: Information
Agent, 4100 Newport Place, Suite 400, Newport Beach, California 92660.
Supplements for any of the Other Partnerships will be provided without charge to
any Limited Partner. All defined terms used in this Supplement shall have the
same definitions as specified in the Prospectus.
The Partnership was formed on April 1, 1991, as a limited partnership in
California under the Revised Limited Partnership Act of the State of California,
as enacted and in effect on or after July 1, 1984. The Partnership sold 1,049
limited partnership interests ("Units") at the price of $5,000.00 per Unit. The
total amount received by the Partnership from purchasers of its Units is
$5,245,000.00. As of the Determination Date the Partnership had 369 Limited
Partners. The Partnership termination date is December 31, 2000, unless sooner
terminated.
SELECTED FINANCIAL INFORMATION. The following chart provides a historical
summary of gross collections and partner distributions for the Partnerships from
the date of formation of each Partnership through June 30, 1997:
<TABLE>
<CAPTION>
COST OF
PORTFOLIOS ORIGINAL PORTFOLIO PORTFOLIOS GROSS PARTNER
PARTNERSHIP ACQUIRED FACE VALUE ACQUIRED COLLECTIONS* DISTRIBUTIONS**
------------------------ ---------- ------------------ -------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
PAM I(1)................ 16 $ 305,438,442 $ 4,932,616 $ 5,526,429 $ 3,678,632
PAM II(2)............... 19 433,632,566 6,230,345 8,749,682 4,059,775
PAM III(3).............. 21 521,408,657 9,685,926 7,826,584 3,463,815
PAM IV(4)............... 57 709,008,534 20,416,167 20,014,508 6,269,988
PAM V(5)................ 12 209,901,705 4,997,992 2,889,555 639,600
--- ------------- ----------- ----------- -----------
Total.............. 125 $ 2,179,389,904 $ 46,263,046 $ 45,006,758 $18,111,810
=== ============= =========== =========== ===========
</TABLE>
- ---------------
* Gross collections include any sale of accounts and collection activity
through June 30, 1997
** Through June 30, 1997
(1) The Partnership ("PAM I")
(2) Performance Asset Management Fund II, Ltd., A California Limited Partnership
("PAM II").
(3) Performance Asset Management Fund III, Ltd., A California Limited
Partnership ("PAM III").
(4) Performance Asset Management Fund IV, Ltd., A California Limited Partnership
("PAM IV").
(5) Performance Asset Management Fund V, Ltd., A California Limited Partnership
("PAM V").
Each Limited Partner should thoroughly review the selected financial
statements included in the portions of the Prospectus "RESULTS OF OPERATIONS,"
"SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA AND COMPARATIVE PER SHARE
DATA," "PRO FORMA CONDENSED
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<PAGE> 307
FINANCIAL INFORMATION," and the financial statements of the Company, PCM and the
Partnerships included in the Prospectus.
The Partnership has continued to invest in distressed loan portfolios. As
set forth above, these portfolios consist primarily of charged-off credit card
accounts and consumer loan balances such as auto and personal lines of credit
originated by independent third-party financial institutions located throughout
the United States. In addition, the Partnership also acquired certain portfolios
of default consumer debts which were rewritten under terms different from the
original obligation. In 1994 the Partnership spent $67,088 on such purchases. In
1995, the Partnership spent $5,463 on such purchases. In 1996, the Partnership
spent $1,315,611 on such purchases. Collections on investments in distressed
loan portfolios were $735,412 in 1994, $290,328 in 1995 and $1,290,544 in 1996.
In 1994, 1995 and 1996, investments in distressed loan portfolios consisted
of the following (amounts are carrying amounts):
<TABLE>
<CAPTION>
TYPE OF PORTFOLIO 1994 1995 1996
---------------------------------------- -------- -------- ----------
<S> <C> <C> <C>
Credit Card Accounts.................... $343,585 $287,551 $ 912,597
Consumer Loans.......................... $466,574 $418,540 $ 356,989
-------- -------- ----------
Totals........................ $810,159 $706,091 $1,269,586
======== ======== ==========
</TABLE>
In 1994, the Partnership recorded net investment income of $205,208 and
interest income of $13,095. Operating expenses for the Partnership consist of
management fee expense of $17,584; amortization expense of $798; and general and
administrative expenses of $3,159; for total operating expenses of $21,541.
Therefore, the Partnership recorded net income of $170,572 for 1994.
In 1995, the Partnership recorded net investment income of $180,797 and
interest income of $13,294. Operating expenses for the Partnership consist of
management fee expense of $23,096; collection expense of $365; professional fees
of $7,233; amortization expense of $798; and general and administrative expenses
of $2,947; for total operating expenses of $34,439. Therefore, the Partnership
recorded net income of $133,064 for 1995.
In 1996, the Partnership recorded net investment income of $538,428, net
interest income of $3,389 and other income of $755. Operating expenses for the
Partnership consist of management fee expense of $25,979; collection expense of
$43,257; professional fees of $96,527; amortization expense of $665; and general
and administrative expenses of $6,369; for total operating expenses of $172,797.
Therefore, the Partnership recorded net income of $369,775 for 1996.
APPRAISED VALUE OF ASSETS HELD BY THE PARTNERSHIP. As of December 31 of
each of the years specified in the following table, the Partnership held the
following assets:
<TABLE>
<CAPTION>
ASSET 1994 1995 1996
------------------------------------------------ -------- -------- ----------
<S> <C> <C> <C>
Cash and equivalents............................ $ 23,487 $ 15,295 $ 283,232
Cash held in trust.............................. -- $ 4,221 --
Investment in Distressed Loan Portfolios........ $810,159 $706,091 $1,269,586
Receivable from Unaffiliated Service
Provider(1)................................... $559,730 $559,730 --
Due from Affiliates............................. -- -- $ 56,483
Other Assets.................................... -- $ 44,239 $ 12,732
Organization Costs, Net......................... $ 1,463 $ 665 --
</TABLE>
- ---------------
(1) West Capital Financial Services Corp., a California corporation.
The Partnership defines cash equivalents as all highly liquid investments
with a maturity of three months or less when purchased. The Partnership
maintains cash balances at one bank and aggregate accounts at the institution
are insured by the Federal Deposit Insurance Corporation up to $100,000.
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<PAGE> 308
COMPENSATION TO THE GENERAL PARTNER AND AFFILIATES FOR THE LAST THREE
FISCAL YEARS. The following table sets forth the compensation paid to the
General Partner and its Affiliates for the last three fiscal years and the most
recently completed interim period.
<TABLE>
<CAPTION>
1994 1995 1996 1997*
-------- -------- -------- --------
<S> <C> <C> <C> <C>
General Partner
Management Fees..................... $ 17,584 $ 23,096 $ 25,979 $ 7,821
Distribution........................ $ 87,500 $ 23,422 $ 17,483 $ 34,944
PCM
Acquisition fees.................... -- -- $363,405 --
Collection fees..................... $ 12,608 $ 10,989 $216,796 $163,214
------- ------- -------- -------
Total....................... $117,692 $ 57,507 $623,663 $205,979
======= ======= ======== =======
</TABLE>
- ---------------
* Through June 30, 1997
The following table sets forth the compensation that would have been paid
to the General Partner and its Affiliates if the compensation and distributions
structure to be in effect after the Merger had been in effect during the last
three fiscal years.
<TABLE>
<CAPTION>
ENTITY 1994 1995 1996
------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
General Partner...................... $ 0 $ 0 $ 0
Income Network Company............... 0 0 0
Performance Capital Management,
Inc. .............................. 0 0 0
---------- ---------- ----------
Total........................... $ 0 $ 0 $ 0
========= ========= =========
</TABLE>
As stated above, the Partnership enters into various joint ventures with
Performance Capital Management, Inc., a California corporation and an Affiliate
of the General Partner. Vincent E. Galewick owns all of the issued and
outstanding common stock of the following Affiliates:
Performance Development, Inc., a California corporation ("PDI") (the
General Partner)
Income Network Company, Inc., a California corporation ("INC")
Performance Capital Management, Inc., a California corporation ("PCM")
The Other Partnerships:
PAM II, PAM III, PAM IV, PAM V (PAM I through PAM V, inclusive, are the
"PAM Funds")
PDI was formed in June, 1990 to engage in various aspects of the distressed
loan industry. PDI is the General Partner for all the PAM Funds and certain
other California limited partnerships. PDI's management fees incurred and
recorded by the Partnership totalled $17,574, $23,096 and $25,979 for the years
ended December 31, 1994, 1995, and 1996, respectively. The Partnership also
accrued distributions to PDI of $87,500 and $23,422 for the years ended December
31, 1994 and 1995, respectively and $17,483 for the year ended December 31,
1996. At December 31, 1994 and 1995, the Partnership had amounts owed to PDI
recorded as amounts due to Affiliates of $160,914 and $221,329, respectively,
and $271,145 for the year ended December 31, 1996.
INC was formed on February 1, 1988 as a registered Broker-Dealer and member
of the National Association of Security Dealers, Inc. and the Securities
Investor Protection Corporation. The sole shareholder of INC, Vincent E.
Galewick, is also the sole shareholder of the General Partner, and PDI. INC, in
accordance with the Agreement of Limited Partnership for the Partnership and
offering memorandum of the Partnership, was paid commissions equal to 10% of
gross proceeds received from the offer and sale of the Units. INC is the
Solicitation Agent.
PCM was formed in February, 1993 to perform services related to locating,
evaluating, negotiating, acquiring and collecting distressed loan portfolio
assets. PCM acquires portfolio assets from third-party financial institutions
and sells the portfolios to the Partnership and the Other Partnerships at cost
plus an acquisition fee of approximately 30% to 37% as provided in the related
purchase agreement. The Partnership
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also enters into servicing agreements with PCM to collect and service the
portfolio activity. Those agreements generally provide that all proceeds
generated from the collection of portfolio assets shall be shared by the
venturers in proportion to their respective percentage interests, generally, 55%
to 60% for the Partnership and 40% to 45% for PCM. The Partnership also
reimburses PCM for certain costs associated with the collection of portfolio
proceeds.
Moreover, in addition to providing collection efforts on distressed loan
portfolios to the Partnership, PCM identifies and acquires distressed loan
portfolios and other discounted portfolios of financial debt instruments and
obligations and sells them to the Partnership and the Other Partnerships at
negotiated prices.
For the years ended December 31, 1995 and 1996, the Partnership purchased
one portfolio and two portfolios, respectively, from PCM and recorded
acquisition fees for these portfolios of $0 and $363,405, respectively. These
acquisition fees have been included in the carrying value of the related
investments. Also, for the years ended December 31, 1995 and 1996, the
Partnership incurred and reimbursed PCM for collection costs of $365 and
$43,257, respectively.
The Partnership had amounts owed to PCM from reimbursement of collection
expenses and other expenses totaling $101 and $860 recorded as due to Affiliates
at December 31, 1994 and 1995, respectively. For the year ended December 31,
1996 the Partnership had amounts owed from PCM of $56,483 recorded as due from
Affiliates.
DISTRIBUTIONS AND DIVIDENDS. The Partnership has made quarterly cash
distributions to the Limited Partners, which distributions terminated effective
as of June 30, 1997. The following table specifies the cash distributions,
including those cash distributions which represent a return of capital, made to
the Limited Partners during each of the last five fiscal years and most recently
completed interim period.
<TABLE>
<CAPTION>
GENERAL LIMITED
TOTAL PARTNER PARTNER
YEAR DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS
--------------------------------------- ------------- ------------ ------------
<S> <C> <C> <C>
1992................................... $ 1,057,536 $105,754 $ 951,782
1993................................... $ 1,400,000 $140,000 $ 1,260,000
1994................................... $ 875,000 $ 87,500 $ 787,500
1995................................... $ 233,422 $ 23,422 $ 210,000
1996................................... $ 172,133 $ 17,483 $ 154,650
June 30, 1997.......................... $ 208,644 $ 34,944 $ 173,700
</TABLE>
PERFORMANCE ASSET MANAGEMENT FUND, LTD.
PER UNIT DATA
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Units outstanding at year end.................. 1,049 1,050 1,050 1,050 1,052
Earnings (loss) per Unit....................... 352.50 126.73 162.45 53.49 (262.10)
Book value per Unit............................ 1,546.27 1,266.90 1,328.42 1,766.51 3,220.89
Assigned value for Merger Stock................ $890.37/unit
Annual return of capital distributions per
Unit......................................... 147.43 200.00 750.00 1,200.00 904.74
Cumulative return of capital distributions per
Unit......................................... 3,206.80 3,056.46 2,856.46 2,106.46 904.74
</TABLE>
REASONS FOR THE MERGER PROPOSAL
LIQUIDITY AND MARKET VALUATION. Units are not publicly traded and have
limited liquidity. The primary means of liquidity for holders of Units is to
request the Partnership to redeem the Units. Although the Partnership is not
obligated to honor any such request, such redemptions have occurred from time to
time, using available cash to redeem the Units at a percentage of book value.
After consummation of the Merger, however, the Company expects to qualify the
Common Shares for listing and trading on a regional or national
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securities exchange. At that time, there is expected to be a potential liquid
market for selling the Common Shares and a readily determinable market value for
the Common Shares. With a liquid market for Common Shares, equity holders would
not be required to rely solely on the Company as a source of liquidity, and the
Company will not be required to use its cash to provide such liquidity. Instead,
it is expected that holders of Common Shares will be able to sell their Common
Shares publicly from time to time, subject to certain restrictions, for their
fair market value.
The Company and the General Partner believe that the Merger is necessary to
realize the full benefit of a public trading market. The Company believes that
corporate equity securities are more favorably valued than comparable limited
partnership interests, because a partnership with publicly traded limited
partnership interests is generally taxed as if it were a corporation and because
many institutional investors will not invest in a business organized as a
partnership, even if it is not taxed as a corporation.
ACCESS TO EQUITY MARKETS. Although the Company currently has no plans for
additional equity offerings, the existence of publicly traded equity securities
is expected to provide it with future access to the public equity markets.
GREATER FLEXIBILITY REGARDING CAPITAL RESOURCES. The Company will have
greater flexibility with respect to the use of capital resources because it will
not have to use available cash to redeem Common Shares. As discussed above, the
Partnership has from time to time used its cash to redeem Units when requested
to do so by Limited Partners. There are also potential tax advantages (and
corresponding financial advantages) to conducting a business as a corporation
that should allow the Company greater flexibility with respect to the management
of its capital resources. Shareholders will defer the payment of taxes on income
earned by the Company until the Company distributes such income in the form of
dividends. Limited Partners, by contrast, are taxed as soon as the Partnership
earns income. Limited Partners are taxed on such income at their individual
federal tax rates, which may exceed the maximum corporate federal tax rate.
Therefore, the Surviving Corporation as a corporation can accumulate income for
business expansion without adversely affecting a shareholder's tax liabilities.
ACQUISITION CURRENCY. The Company may be able to use shares of its common
stock as consideration in its acquisition of other businesses. The use of
readily tradeable equity securities as an acquisition currency is advantageous
because it may be more tax efficient to the seller of a business than a cash
transaction and it allows the Company to consummate acquisitions without
depleting cash resources. It also allows a seller to continue to hold an equity
interest in the business acquired by the Company by equity ownership in the
Company after such acquisition. The use of common stock in acquisitions can also
enable the Company to use advantageous pooling accounting methods if certain
conditions are satisfied.
INCENTIVE COMPENSATION. The availability of shares of the Company's common
stock will permit the Company to provide its key employees with equity based
incentive compensation. The Company believes providing equity based incentive
compensation by the use of common stock will allow broader employee
participation in the Company's equity, provide a more accurate measure of the
Company's performance as a result of common stock having a readily ascertainable
value, and provide the Company with more flexibility in designing equity based
incentive compensation. The Company currently intends to adopt an employee stock
plan during or immediately after the first quarter of fiscal 1998, if the Merger
is consummated.
GREATER EMPLOYEE OWNERSHIP. As a result of the complex tax reporting
requirements associated with being a limited partner and the administrative
burden placed on the Partnerships as a result of having a significant number of
limited partners, it has not been feasible for the Partnership to offer
ownership opportunities to a broad range of employees. By having the shares of
its common stock available, however, the Company will be able to offer ownership
opportunities to all employees. The Board of Directors believes that wide-spread
employee ownership is in the best interests of the Company and its shareholders.
REDUCTION OF TAX REPORTING REQUIREMENTS AND COSTS. In contrast to the
Partnership, the Surviving Corporation will not be required to compute and
report tax information on an individual shareholder basis, and individual
shareholders will not be required to include information regarding the Surviving
Corporation's operations on their personal tax returns. Therefore, the Merger
will eliminate the complex partnership tax
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reporting requirements for Limited Partners imposed on them under federal and
multiple state partnership tax laws and may eliminate certain costs and delays
that individual Limited Partners currently may be forced to incur in connection
with the preparation of their individual tax returns. However, as a corporation,
the Surviving Corporation will be subject to income tax and shareholders will
also be required to pay income tax on any dividends they receive, and on any
gain recognized upon the sale or exchange of shares. See the sections entitled
"FEDERAL INCOME TAX CONSIDERATIONS" and "CERTAIN STATE AND LOCAL INCOME TAX
CONSIDERATIONS" in the Prospectus.
EFFECTS OF THE MERGER
As a result of the Merger, all of the assets now held directly or
indirectly by PCM and the Partnership will be held by the Surviving Corporation
and PCM and the Partnership will cease to exist by operation of law. The
Surviving Corporation will possess all of the assets, properties, rights and
privileges, and will be subject to all the liabilities and obligations, of PCM,
the Partnerships and the Company existing on the Closing Date.
The following is a brief description of each material risk and effect of
the Merger Proposal including, but not limited to, federal income tax
consequences, for Limited Partners. Also included is a brief discussion of the
effect of the Merger Proposal on the Partnership's financial condition and
results of operations. Pro forma financial information based on the
participation of the Partnership in the Merger is set forth in the Prospectus
under the heading entitled "SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA AND
COMPARATIVE PER SHARE DATA."
THE MERGER. Upon the Closing Date, PCM and the Partnership (if, and only
if, all of the Partnerships approve the Merger Proposal, and subject to other
conditions precedent to the Merger specified in the Prospectus) will merge with
and into the Company and pursuant to the Merger Agreement, all of the Units
existing at the Closing Date will be converted into Common Shares in accordance
with an Exchange Value determined to be fair by the Fairness Opinion prepared by
Willamette Management Associates, Inc. ("Fairness Analyst") (the Fairness
Opinion is attached to the Prospectus as Appendix G). The Fairness Opinion
provides that each Limited Partner's Units, calculated as of the Determination
Date, will be converted into Common Shares pursuant to the Exchange Value, with
cash being paid for any fractional shares based on the book value of Common
Shares on the Determination Date.
The Determination Date is a date set by the Board of Directors. At this
time, the Board of Directors expects that the Determination Date will be June
30, 1997. To accommodate the Merger, the General Partner suspended distributions
by the Partnership to the Limited Partners, effective as of the Determination
Date. This is necessary to assure that the Limited Partners' capital accounts do
not change after the Determination Date. The Board of Directors will have the
authority to postpone the Determination Date and declare a new Determination
Date, in its discretion. The Board of Directors might postpone the Determination
Date and declare a new Determination Date, if the matters contemplated in the
Merger Proposal are postponed for any reason.
EFFECT OF THE MERGER ON CASH DISTRIBUTIONS. Until June 30, 1997, the
Partnership made cash distributions to Limited Partners. The Company currently
anticipates that the Surviving Corporation will not pay cash dividends. However,
this policy may change, as the actual amount of dividends, if any, to be paid
will be determined by the Board of Directors in its sole discretion, generally
taking into account a number of factors, including operating performance,
liquidity and capital requirements. There can be no assurances that any cash
dividends will be paid, just as there can be no assurances that Partnership
distributions will continue at previous levels.
DISTRIBUTIONS BY THE COMPANY, IF ANY, WILL BE AT THE DISCRETION OF THE BOARD OF
DIRECTORS AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE COMPANY'S ACTUAL
CASH AVAILABLE FOR DISTRIBUTION, THE COMPANY'S FINANCIAL CONDITION, THE
COMPANY'S CAPITAL REQUIREMENTS, AND SUCH OTHER FACTORS AS THE COMPANY'S BOARD OF
DIRECTORS DEEMS RELEVANT.
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<PAGE> 312
THE MERGER AGREEMENT. The Merger will be consummated pursuant to the Merger
Agreement if the Merger Proposal set forth in the Prospectus receives the
requisite approval of the Limited Partners of each Partnership, the approval of
the PCM Shareholders, and the approval of the Company Shareholders, and if the
other applicable conditions to the Merger are satisfied or waived, including any
approvals required from any state or federal regulatory agency. The Merger
Agreement is designated as Exhibit 2 to the Registration Statement and is
included in the Prospectus as Appendix A.
Until such time as the Merger Agreement has been approved and adopted by
all the parties thereto, it may be amended or terminated by the Board of
Directors of the General Partner, on behalf of any of the Partnerships, the
Board of Directors of PCM, on behalf of PCM, or the Board of Directors, on
behalf of the Company; provided, however, that at any time after the Merger
Agreement has been adopted by the Shareholders or the Limited Partners, the
respective Boards of Directors may not amend, modify or supplement the Merger
Agreement to change the amount or kind of interests to be received by the
Limited Partners, the PCM Shareholders or the Company Shareholders or to make
any change if such change would, alone or in the aggregate, materially adversely
affect the Limited Partners or the PCM Shareholders.
APPROVAL BY ALL OF THE LIMITED PARTNERSHIPS IS REQUIRED. The Merger
Proposal may be consummated only if all of the Partnerships approve the Merger
Proposal. The Merger Agreement provides that Limited Partners that reject the
Merger Proposal shall not bear an unfair portion of the transaction costs of the
Merger. A Partnership which rejects the Merger Proposal shall not be required to
pay any of the costs of the Merger in accordance with the provisions of Section
25014.7(e)(3) of the Thompson-Killea Act. The General Partner, PCM and the
Company have considered the possibility of approval of the Merger Proposal and
related transactions by less than all of the Partnerships, and do not believe
that the Merger can be fairly consummated unless all of the Partnerships approve
the Merger Proposal because, among other things, (i) it would be unduly
burdensome or impossible to evaluate and apportion the value of the various
services provided to the Partnerships by PCM considering the complexity and
scope of the various joint ventures between the Partnerships and PCM; and (ii)
if the Merger Proposal is approved, PCM will cease to exist by operation of law,
and would no longer be available to provide the same services to a dissenting
Partnership. The General Partner and PCM have engaged an expert, Willamette
Management Associates, to render a Fairness Opinion concerning the Merger
Proposal. See the section entitled "DETERMINATION OF THE EXCHANGE PRICE AND
ALLOCATION OF THE COMMON SHARES" in the Prospectus.
CONDITIONS OF THE MERGER. The Merger will not be consummated unless the
Merger Proposal receives the requisite approval of the Limited Partners of each
Partnership, the approval of PCM Shareholders, the approval of existing Company
Shareholders, and the approval of the requisite state and federal regulatory
agencies. Consummation of the Merger is also subject to the receipt of the
opinion described in the section entitled "FEDERAL INCOME TAX CONSIDERATIONS" in
the Prospectus. Receipt of this opinion may be waived in whole or in part by the
Partnerships, PCM and the Company in each respective entity's sole discretion.
Prior to the consummation of the Merger, the obligations of the parties to
the Merger Agreement may be terminated at any time (including after approval of
the Merger by the Limited Partners and the respective Shareholders) if, among
other things, (a) the General Partner, PCM or the Company adopts a resolution
terminating the Merger Agreement or (b) a final injunction, order, or other
action of a court or other governmental body prevents the consummation of the
Merger.
COMPLETING THE MERGER. If the Merger Proposal is approved and the other
conditions of the Merger Agreement are waived or satisfied, the Closing Date
will be selected by agreement of the General Partner, PCM and the Company. Upon
consummation of the Merger, the Limited Partners and PCM Shareholders will be
entitled to receive certificates for Common Shares issued in exchange for their
Units and shares of PCM's common stock, respectively.
COSTS OF THE MERGER. For purposes of the Thompson-Killea Act, the costs of
the Merger will be divided into two categories, (i) transaction costs; and (ii)
solicitation expenses. Transaction costs are defined as the costs of printing
and mailing the Prospectus, or other documents; legal fees not related to the
solicitation of votes or tenders; financial advisory fees; investment banking
fees; valuation fees; accounting fees; independent
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<PAGE> 313
committee expenses; travel expenses; and all other fees related to the
preparatory work of the transaction, but not including costs that would have
otherwise been incurred by the Partnership in the ordinary course of business,
or solicitation expenses. Solicitation expenses include direct marketing
expenses such as telephone calls, broker-dealer fact sheets, legal and other
fees related to the solicitation, as well as direct solicitation compensation to
brokers and dealers.
The Company estimates that the total costs and expenses of the Merger will
be approximately $1,400,000 if consummated and $1,200,000 if not consummated.
The Company estimates that the total solicitation expenses will be approximately
$600,000. This amount will be incurred whether or not the Merger is consummated.
The remainder of the costs and expenses estimated for consummation or
non-consummation will be attributable to transaction costs.
The Merger Agreement provides that Limited Partners that reject the Merger
Proposal shall not bear an unfair portion of the transaction costs of the
Merger. Should the Merger Proposal be rejected by all of the Partnerships, the
transaction costs will be apportioned between the Company and the rejecting
Partnerships according to the final vote on the Merger Proposal as follows: (i)
the Company shall bear all transaction costs in proportion to the number of
votes of the Limited Partners of that Partnership to reject the Merger Proposal;
(ii) the rejecting Limited Partnerships shall bear transaction costs in
proportion to the number of votes of Limited Partners of each Partnership to
approve the Merger Proposal. Should the Merger Proposal be approved by one or
more Partnerships and rejected by at least one Partnership, each Partnership
rejecting the Merger Proposal shall not be required to pay any of the costs of
the Merger in accordance with the provisions of Section 25014.7(e)(3) of the
Thompson-Killea Act. Further, In the event that the Merger Proposal is rejected
by all of the Partnerships, the Company shall pay all of the solicitation
expenses in accordance with the provisions of Section 25014.7(g) of the
Thompson-Killea Act.
In 1996, the total approximate amounts distributed to the partners of each
Partnership are as set forth on the following table:
<TABLE>
<CAPTION>
DISTRIBUTIONS TO THE DISTRIBUTIONS TO THE
PARTNERSHIP LIMITED PARTNERS GENERAL PARTNER
------------------------------------------------ --------------------- ---------------------
<S> <C> <C>
Performance Asset Management Fund, Ltd.,
A California Limited Partnership.............. $ 154,650 $ 17,483
Performance Asset Management Fund II, Ltd.,
A California Limited Partnership.............. $ 230,023 $ 25,810
Performance Asset Management Fund III, Ltd.,
A California Limited Partnership.............. $ 295,925 $ 35,775
Performance Asset Management Fund IV, Ltd.,
A California Limited Partnership.............. $ 1,433,425 $ 159,334
Performance Asset Management Fund V, Ltd.,
A California Limited Partnership.............. $ 179,100 $ 19,966
</TABLE>
The total amount distributed by all of the Partnerships was $2,551,491. All
of the distributions to the Limited Partners were in the form of cash
distributions. Some of the distributions to the General Partner were accrued.
In contrast to the Partnership, the Surviving Corporation will itself be
subject to federal tax on its income. Holders of Common Shares will not be
subject to federal tax on such income except to the extent dividends are paid.
See the section entitled "FEDERAL INCOME TAX CONSIDERATIONS" in the Prospectus.
The Surviving Corporation is expected to make significantly lower distributions,
if any, than the Partnership has made.
There can be no assurance that the Merger will achieve any of the benefits
and objectives described above. In addition, certain possible disadvantages and
other risks and special considerations associated with the Merger exist as
described in the section entitled "RISK FACTORS" in the Prospectus. Limited
Partners should analyze the Merger Proposal and related transactions in light of
all the matters discussed in the Prospectus.
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<PAGE> 314
ALTERNATIVES TO THE MERGER
PCM, the Company and the General Partner have considered several
alternatives to the Merger Proposal and related transactions. Some of these
alternatives would not constitute a reorganization. In the mutual opinion of
PCM, the Company and the General Partner, the only viable alternatives not
constituting a reorganization involve some form of public offering of
securities. The General Partner has considered the possibility of a public
offering of all Units which would provide certain registration rights to the
Limited Partners. In the opinion of the General Partner, this possibility would
fail to provide the Limited Partners with the liquidity that the Merger Proposal
might provide because of the unsatisfactory market for publicly traded limited
partnership units. PCM and the Company have also considered the possibility of
merging those two corporations without merging with any of the Partnerships and
thereafter making a public offering of shares in the Surviving Corporation. In
the event the Merger is not consummated, PCM and the Company may elect this
alternative.
PCM, the Company and the General Partner have considered several
alternatives to the Merger Proposal, each of which constitutes a reorganization.
The General Partner considered the possibility of selling all of the assets of
the Partnership to the Company, and the Company considered purchasing all such
assets, in exchange for shares of the Company. PCM also considered the
possibility of selling all of its assets to the Company, and the Company
considered purchasing all such assets, in exchange for shares of the Company.
Alternatively, the General Partner considered winding up and dissolving the
Partnership and distributing the proceeds of the liquidation to the Limited
Partners. Additionally, the Board of Directors of PCM considered winding up and
dissolving PCM and distributing the proceeds of liquidation to the PCM
Shareholders. These possibilities were eliminated because of their complexity
and cost.
Moreover, the General Partner considered dissolving the Partnership and
distributing the assets of the Partnership to the Limited Partners pursuant to
an agreement with the Company, which was considered by the Company, and pursuant
to which agreement the Company would purchase the assets from the individual
Limited Partners in exchange for shares of the Company's common stock, and
thereafter merging the Company with PCM. This possibility was also eliminated
because of its complexity and cost, and also because, with the type of assets
held by the Partnership, even an "orderly liquidation" would result in a
prohibitive discount on the value of the debt portfolios.
PCM and the General Partner considered the results of continuing PCM and
the Partnership in accordance with their current business plans and joint
venture agreements. PCM and the General Partner rejected this alternative
because the servicing entity, PCM, currently has the capacity to service
portfolios in excess of those owned by the Partnership and has the potential for
significant growth. PCM has been offered access to commercial lines of credit
and its growth is not contingent upon a continuing relationship with the
Partnership. After consummation of the Merger, Limited Partners who approve the
Merger Proposal will participate in this growth. Moreover, after the
consummation of Merger, the Company will be able to compete for available
portfolios by taking advantage of economies of scale not available to either PCM
or the Partnership acting individually.
PCM and the General Partner also considered going forward with the Merger
Proposal with the approval of less than all of the Partnerships, but rejected
this alternative because of economies of scale, the scope and complexity of
existing joint ventures between PCM and the Partnership, and the economics of
purchasing, holding, servicing, collecting and selling distressed debt
portfolios. See "Approval by All of the Limited Partnerships Is Required" above.
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<PAGE> 315
EXCHANGE VALUE AND FAIRNESS OPINION
BASES FOR THE GENERAL PARTNER'S BELIEF AS TO FAIRNESS. The Fairness Opinion
is discussed at length in the section entitled "Fairness Opinion" in the
Prospectus. The General Partner believes that the Merger Proposal is fair to the
Limited Partners because the General Partner believes that the Merger will
provide Limited Partners with liquidity in their investments and more simplified
tax reporting. The General Partner believes that the Merger will provide the
Company with greater access to capital markets, greater flexibility regarding
capital resources, the potential to provide employees with incentive performance
compensation, including shares of the Company's $.001 par value common stock,
and the opportunity to offer greater employee ownership in the Company.
NO LIMITATIONS IMPOSED ON SCOPE OF INVESTIGATION. Kelly & Company, PCM's
and the Company's independent auditors, retained the Fairness Analyst to
determine the fairness from a financial point of view of the Exchange Value in
connection with the Merger Proposal. There were no limitations or restrictions
placed on the scope of the Fairness Analyst's analysis and investigation, and
the Fairness Analyst performed a complete due diligence examination by, among
other things, visiting PCM's facilities in Newport Beach, California;
interviewing the President and Vice-President of PCM; interviewing the
President, Chief Financial Officer, Director of Business Development, and
Secretary of the General Partner; interviewing CPAs employed by Kelly & Company;
and interviewing counsel to the various entities. The Fairness Analyst was
allowed full access to all financial records of PCM, the General Partner, the
Partnerships, and all service providers to those entities, including privileged
documents such as tax returns and audit workpapers.
NO INSTRUCTIONS FROM GENERAL PARTNER, PCM OR THE COMPANY. Neither the
General Partner, PCM nor the Company provided instructions to the Fairness
Analyst. Kelly & Company instructed the Fairness Analyst to conduct an
independent investigation, and thereafter render a written opinion to Kelly &
Company, as of the Determination Date, as to whether the Exchange Value
established by the General Partner, PCM and the Company is fair from a financial
point of view to the Partnerships. Kelly & Company also instructed the Fairness
Analyst to prepare a Fairness Opinion (i) satisfying the valuation requirements
of the Thompson-Killea Act; (ii) potentially useful in meeting the valuation
requirements of Sections 1300 et seq. of the California General Corporation Law
pertaining to Dissenting Shareholders; and (iii) sufficient to support an
opinion regarding the fairness from a financial point of view of the Merger
Proposal and related transactions, addressing the fairness from a financial
point of view of the Merger and related transactions as a whole and to each of
the Partnerships. Kelly & Company instructed the Fairness Analyst to perform a
due diligence investigation and to review all pertinent documents, including,
but not limited to, financial statements; tax returns; audit work papers;
banking records; balance sheets; income statements; Securities and Exchange
Commission reporting forms; corporate documents such as Certificates or Articles
of Incorporation, Bylaws and minutes; furniture and equipment schedules;
insurance policies and coverages; PCM and Partnership operating budgets through
December 31, 2008; office leases; management profiles; portfolio stratification
reports; and daily productivity reports. Kelly & Company also instructed the
Fairness Analyst to research industry sources and databases and economic outlook
sources regarding the financial services and distressed debt industry.
PROCEDURES FOLLOWED. As set forth above, the Fairness Analyst conducted a
complete independent investigation focusing on the valuation issues relating to
the "adequate consideration" rule. Adequate consideration is generally
understood to represent the fair market of an asset. Accordingly, in order to
arrive at
its opinion regarding the fairness from a financial point of view of the
exchange rate established for the Units, the Fairness Analyst performed its
research and analyses with the intent of establishing whether the Limited
Partners would receive at least fair market value in exchange for their Units.
"Fair market value" is defined as the price at which an asset would change hands
between a willing buyer and a willing seller when the former is not under any
compulsion to buy and the latter is not under any compulsion to sell, both
parties are able, as well as willing, to trade, and both parties are well
informed about the asset and the market for that asset. The Fairness Analyst
performed an analysis of the material features and characteristics of the
Partnerships and PCM, as well as an analysis of the financial statements and
results of operations of each entity. The Fairness Analyst assumed that PCM will
continue its current business plan and structure, and made other reasonable
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assumptions and estimates regarding distressed loan portfolio acquisition and
pricing, operating expenses, and partnership distribution policies.
DETERMINATIONS. The Company, PCM and the General Partner determined the
total indicated values for PCM and for each of the Partnerships as set forth in
the following table:
<TABLE>
<CAPTION>
NAME OF PARTNERSHIP OR CORPORATION TOTAL VALUE
---------------------------------------------------------------------- -----------
<S> <C>
Performance Asset Management Fund, Ltd.,
A California Limited Partnership.................................... $ 934,000
Performance Asset Management Fund II, Ltd.,
A California Limited Partnership.................................... $ 3,112,000
Performance Asset Management Fund III, Ltd.,
A California Limited Partnership.................................... $ 6,000,000
Performance Asset Management Fund IV, Ltd.,
A California Limited Partnership.................................... $15,846,000
Performance Asset Management Fund V, Ltd.,
A California Limited Partnership.................................... $ 4,700,000
Performance Capital Management, Inc.,
a California corporation............................................ $44,523,000
</TABLE>
BASIS FOR METHODS OF ARRIVING AT FINDINGS AND RECOMMENDATIONS. The Fairness
Analyst valued the assets of each entity by determining the combined value of
such entity's assets, including the value of each entity's cash flows and the
terminal value of such entity's distressed loan portfolios. The Fairness Analyst
determined the asset liquidation value of each entity and calculated the
allocation of assets of each Partnership between the General Partner and the
Limited Partners of each Partnership based on such Partnership's Partnership
Agreement. Additional factors considered by the Fairness Analyst in making its
valuation include discount factors based on the age and composition of the
various distressed loan portfolios and the Fairness Analyst's determination of
the present value of the respective cash receipts of each entity, as well as the
historical and projected collection costs of distressed loan portfolios.
DETERMINATION OF EXCHANGE VALUE AND ALLOCATION OF COMMON SHARES
EXCHANGE VALUE. The net equity values determined by PCM, the Company and
the General Partner and reviewed by the Fairness Analyst of all of the assets of
the Partnerships, PCM and the Company, considered together and separately,
together with the book value of the other financial assets of such entities,
have been used to establish the Exchange Value. The Fairness Analyst is
unaffiliated with neither the Company, PCM nor the General Partner. PCM's and
the Company's independent auditors, Kelly & Company, were referred to the
Fairness Analyst by an accountant unaffiliated with neither PCM, the Company or
the General Partner and with whom neither PCM, the Company nor the General
Partner has conducted any business. The Fairness Analyst was selected by Kelly &
Company entirely on the basis of the its qualifications.
The General Partner and PCM valued the assets of the Partnership and PCM,
respectively, as if sold in an orderly manner in a reasonable period of time,
plus or minus other balance sheet items, and less the cost of sale. The
valuation was conducted in accordance with the provisions of Section
25014.7(b)(1) of the Thompson-Killea Act. The valuation was also conducted in
accordance with the provisions of Sections 1300 et seq. of the California
General Corporation Law pertaining the Dissenting Shareholders. The compensation
to dissenting Limited Partners and Shareholders entitled to compensation for
their Units or shares is based upon the valuation described above. See the
section entitled "RIGHTS OF DISSENTING SHAREHOLDERS AND DISSENTING LIMITED
PARTNERS" in the Prospectus.
The purpose of the Fairness Opinion is to confirm to the Company, PCM and
the General Partner the fairness from a financial point of view of the Merger
Proposal and related transactions to the Partnerships. Neither the Company, PCM,
nor the General Partner gave the Fairness Analyst any specific instructions
other than the instruction from Kelly & Company, PCM's and the Company's
independent auditors, to prepare a fairness opinion (i) meeting the valuation
requirements of the Thompson-Killea Act; and (ii) potentially useful in meeting
the valuation requirements of Sections 1300 et seq. of the California General
Corporation
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Law pertaining to Dissenting Shareholders; and (iii) sufficient to support an
opinion regarding the fairness of the Merger Proposal and related transactions,
addressing the fairness from a financial point of view of the Merger Proposal
and related transactions as a whole and to each of the Partnerships. Pursuant to
the Thompson-Killea Act, the Units were valued as if sold in an orderly manner
in a reasonable period of time, plus or minus other balance sheet items, and
less the costs of sale. Pursuant to the provisions of Section 1300 of the
California General Corporation Law, the fair market value of the Dissenting
Shares shall be determined as of the day before the first announcement of the
terms of the Merger Proposal and related transactions, excluding any
appreciation or depreciation in consequence of the Merger Proposal or related
transactions, but adjusted for any stock split, reverse stock split or share
dividend which becomes effective thereafter. The Fairness Opinion will not be
updated.
FAIRNESS OPINION. The Exchange Value was determined by PCM, the Company and
the General Partner, as was the consideration to be paid. The Fairness Analyst
has determined that the Exchange Value and such consideration are fair from a
financial point of view to each Partnership, as specified in the Fairness
Opinion. The compensation paid to the Fairness Analyst was not contingent upon
the findings of the fairness of the Exchange Value, such consideration or the
Merger or the consummation or approval of the Merger Proposal or related
transactions. The Fairness Opinion relates to the fairness from a financial
point of view of the Merger Proposal and related transactions, addressing the
fairness from a financial point of view of the Merger Proposal and related
transactions as a whole and to each of the Partnerships. Because the Merger is
contingent upon the approval of the Merger Proposal by all of the Partnerships,
PCM, and the Company, the Fairness Opinion did not consider possible
combinations of less than all of the Partnerships in the Merger.
The Fairness Opinion takes into account all of the assets of each of the
Partnerships, PCM, and the Company. The intangible assets of the Partnerships
and PCM consist of distressed financial debt instruments and obligations.
Willamette also considered tangible assets of the Partnerships, PCM and the
Company. The tangible assets of the Partnerships and the Company were determined
to be negligible. The tangible assets of PCM were determined to be more
considerable and include furniture, computers and business equipment. The
aggregate appraised value of the assets of the Partnerships is $30,592,000. The
aggregate value of the assets of PCM is $44,523,000.
EXCHANGE OF SHARES. On the Closing Date, if the PCM Shareholders, the
Limited Partners of all five Partnerships, and the Company Shareholders approve
the Merger Proposal, PCM and the Partnerships will merge with and into the
Company. Pursuant to the Merger Agreement, all of the Units of the Limited
Partners at the Closing Date will be converted into Common Shares in accordance
with an exchange ratio which provides that each $10.00 in a Limited Partner's
capital account, calculated as of the Determination Date, will be converted into
one Common Share, with cash being paid for any fractional shares based on the
value of Common Shares on the Determination Date.
The following table summarizes the valuation conclusions of the General
Partner and PCM, as to the Partnerships and PCM, respectively, based on
7,511,500 allocable shares of Merger Stock:
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE NUMBER OF
INDICATED VALUE INDICATED VALUE COMMON SHARES
(ROUNDED TO THE (ROUNDED TO THE ALLOCATED
NEAREST $1,000) NEAREST 1/10 OF 1%) TO ENTITY
--------------- ------------------- -------------
<S> <C> <C> <C>
PAM I................................ $ 934,000 1.2% 93,398
PAM II............................... 3,112,000 4.1 311,202
PAM III.............................. 6,000,000 8.0 600,003
PAM IV............................... 15,846,000 21.1 1,584,596
PAM V................................ 4,700,000 6.3 470,002
----------- ----- ---------
Sub-Total....................... $30,592,000 40.7% 3,059,201
----------- ----- ---------
PCM.................................. 44,523,000 59.3 4,452,299
----------- ----- ---------
Total........................... $75,115,000 100.0% 7,511,500
=========== ===== =========
</TABLE>
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The Company shall promptly furnish a copy of the Fairness Opinion, without
charge, upon the request of any Limited Partner, PCM Shareholder or Company
Shareholder. All such requests should be addressed as follows: Performance Asset
Management Company, Attn: Information Agent -- Fairness Opinion, 4100 Newport
Place, Suite 400, Newport Beach, California 92660.
POTENTIAL RISKS AND ADVERSE EFFECTS
THE MERGER AND ACQUISITION OF SHARES OF THE COMPANY'S COMMON STOCK INVOLVES
VARIOUS RISKS, AND LIMITED PARTNERS SHOULD CAREFULLY CONSIDER THE MATTERS
DISCUSSED UNDER THE SECTION ENTITLED "RISK FACTORS" IN THE PROSPECTUS, INCLUDING
THE FOLLOWING:
*TAX CONSEQUENCES. The Partnerships do not pay any federal income taxes.
After consummation of the Merger, the Surviving Corporation will be subject to
federal income tax. Shareholders of the Surviving Corporation will also be
required to pay federal income taxes on any dividends that they may receive from
the Surviving Corporation and on any gain from the sale or exchange of Common
Shares. Therefore, while in partnership form only one level of federal income
tax is imposed (i.e., on the Limited Partners), in corporate form two levels of
federal income tax are imposed (i.e., one on the Surviving Corporation and one
on its shareholders to the extent they receive dividends or recognize gain on
the sale or exchange of shares). See the portions entitled "FEDERAL INCOME TAX
CONSIDERATIONS" and "OTHER TAX CONSIDERATIONS" in the Prospectus.
*SIGNIFICANT REDUCTION IN DISTRIBUTIONS. The dividends distributed to
shareholders of the Surviving Corporation may be significantly less that the
current distributions to the Limited Partners. The Company currently does not
anticipate making any dividend payments on the Common Shares. See the portion
entitled "RISK FACTORS" in the Prospectus.
*NON-PERFORMING ASSETS. Many of the assets held by the Partnerships which
may be acquired by the Company are, by their nature, non-performing.
Specifically, those assets were originally available for purchase by the
Partnerships because the obligors of the indebtedness comprising those assets
failed to pay on those debt obligations and there is not sufficient security or
collateral available for disposition from which to generate proceeds sufficient
to pay those debt obligations. For that reason, the assets which the
Partnerships have acquired and the Company intends to acquire by the Merger may
be completely unproductive; that is, those assets may generate no income to the
Company. See the portion entitled "BUSINESS AND ASSETS" in the Prospectus.
*UNSPECIFIED ASSETS. The Company may, from time to time, change its asset
portfolio by disposing of certain assets and replace the same with newly
acquired assets. The assets may, in that sense, be unspecified. See the section
entitled "BUSINESS AND ASSETS" in the Prospectus.
*SPECULATIVE BUSINESS. The Company's business objectives, similar to those
of the Partnerships, must be considered speculative and there is no assurance
that the Company will satisfy those objectives. No assurances can be given that
Limited Partners will realize a return on their exchange of Units for shares of
Merger Stock. See the section entitled "RISK FACTORS" in the Prospectus.
*RESTRICTIONS ON TRANSFER OF COMMON SHARES. The Common Shares may not be
freely transferable if the shareholder is deemed an Affiliate of the Company, as
that term is defined herein. Further, no public market for the Common Shares
exists. To accomplish the purposes of the Merger, the transfer, assignment,
sale, conveyance, hypothecation, encumbrance or other alienation of the Merger
Stock will be restricted. 25% of the Merger Stock will be unrestricted
immediately after the consummation of the Merger. 25% of the Merger Stock will
be restricted until the end of the Company's first full fiscal quarter following
the Closing Date. 25% of the Merger Stock will be restricted until the end of
the Company's second full fiscal quarter following the Closing Date. The
remaining 25% of the Merger Stock will be restricted until the end of the
Company's third full fiscal quarter following the Closing Date. Accordingly, the
Common Shares should only be acquired as a long term investment. See the
portions entitled "RESALE OF THE COMMON
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SHARES," "DESCRIPTION OF THE COMMON SHARES," and "Merger Stock Will Be
Restricted" in the Prospectus.
*UNCERTAINTY REGARDING TRADING AND MARKET PRICE OF COMMON SHARES. The
Common Shares may not be listed or approved for listing on any regional or
national securities exchange or otherwise designated or approved for designation
upon notice of issuance as a regional or national market system security. See
the portion entitled "RISK FACTORS" in the Prospectus.
*SUBSTANTIAL FEES. The Merger and related transactions may involve the
payment of substantial fees and compensation to the General Partner, PCM, the
Company and their Affiliates. Further, the management of the Company will be
entitled to receive certain significant fees, compensation, payments and
reimbursements regardless of whether the Company operates at a profit or loss.
See the portion entitled "MANAGEMENT OF THE COMPANY" in the Prospectus.
*CONFLICTS OF INTEREST. The Company, PCM and the General Partner are
subject to various conflicts of interest. See the portion entitled "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS" in the Prospectus.
*POTENTIAL PRICE VOLATILITY. If a public market develops for the Common
Shares, there may be significant volatility in the market price of the Common
Shares. Additionally, in recent years, the stock market has experienced a high
level of price and volume volatility and market prices for many companies,
particularly small and emerging growth companies, have experienced significant
price fluctuations not necessarily related to the operating performance of those
companies. The market price for the Common Shares may be affected by general
stock market volatility. See the section entitled "RISK FACTORS" in the
Prospectus.
*POSSIBLE DILUTION. The percentage interest of holders of Merger Stock in
the assets, liabilities, cash flow and results of operations of the Company, as
well as the percentage voting power of such holders, may be diluted in several
ways. See the portion entitled "RISK FACTORS" in the Prospectus.
RIGHTS OF DISSENTING LIMITED PARTNERS
DISSENTING LIMITED PARTNER RIGHTS. The Thompson-Killea Act provides
Dissenting Limited Partners with certain rights to receive compensation for
their Units based on a valuation of the Partnership's assets performed by an
independent party unaffiliated with the General Partner or the Company and which
values the assets as if sold in an orderly manner in a reasonable period of
time, plus or minus other balance sheet items, and less the cost of sale or
refinancing. Compensation to Dissenting Limited Partners may be cash, secured
debt instruments, unsecured debt instruments, or freely tradeable securities;
provided, however, that:
(A) debt instruments used as compensation must provide for a trustee
and an indenture to protect the rights of the debt holders and provide a
rate of interest based upon, but not less than, the then applicable federal
interest rate as determined in accordance with Section 1274 of the Code;
(B) unsecured debt instruments used as compensation, in addition to
the above requirements, must limit total leverage to 70 percent of the
appraised value of the assets;
(C) all debt securities have a term no greater than seven years and
provide for prepayment with 80 percent of the net proceeds of any sale or
refinancing of the assets previously owned by the entity or any part
thereof; and
(D) freely tradeable securities used as compensation to Dissenting
Limited Partners must be issued by an issuer whose securities are listed on
a certified national securities exchange or designated as a national market
system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc., for at least one year prior to the
transaction, and the number of securities to be received in return for
Units must be determined by a valuation of limited partnership assets,
conducted in a manner consistent with the procedures described above, in
relation to the average last sale price of the freely tradeable securities
in the 20-day period following the consummation of the Merger. If the
issuer of the freely tradeable securities is affiliated with PCM, the
General Partner or the Company, newly issued
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securities to be utilized as compensation to Dissenting Limited Partners
shall not represent more than 20 percent of the issued and outstanding
shares of that class of securities after giving effect to the issuance. For
the purposes of the preceding sentence, neither PCM, the General Partner
nor the Company is deemed "affiliated" with the issuer of the freely
tradeable securities if PCM, the General Partner nor the Company receives
any material compensation from the issuer or its Affiliates in conjunction
with the Merger Proposal or related transactions; provided, however, that
PCM, the General Partner and Company may, under certain circumstances,
receive payment for their equity interests and other compensation.
Further, the Limited Partners may, in lieu of the forgoing, receive or
retain a security with substantially the same terms and conditions as the
security originally held, i.e. the units in a limited partnership similar to the
Partnership, provided that the receipt or retention of that security is not a
step in a series of subsequent transactions that directly or indirectly through
acquisition or otherwise involves future combinations or reorganizations of one
or more former Merger participants. Securities received or retained will be
considered to have the same terms and conditions as the security originally held
if:
(A) There is no material adverse change to the Dissenting Limited
Partners' rights, including, but not limited to, rights with respect to
voting, the business plan, or the investment, distribution, management
compensation, and liquidation policies of the Surviving Corporation.
(B) The Dissenting Limited Partners receive the same preferences,
privileges, and priorities as they had pursuant to the security originally
held.
The Company is satisfying this requirement by offering to purchase the
Units of any Dissenting Limited Partner with an unsecured subordinated debenture
issued under an indenture in conformity with the Thompson-Killea Act. The Merger
Proposal and related transactions have also been structured to comply with the
other protections afforded by the Thompson-Killea Act. In the event a Limited
Partner elects to exercise his or her right to dissent, such Limited Partner
must perform the acts set forth at the portion of the Prospectus entitled
"VOTING PROCEDURES -- Dissenting Limited Partners." Generally, Dissenting
Limited Partners must file a written notification of their election to dissent
with the General Partner and request a substitute security from the General
Partner.
See the portion entitled "RIGHTS OF DISSENTING SHAREHOLDERS AND LIMITED
PARTNERS" in the Prospectus.
A Dissenting Limited Partner who perfects his or her dissenter's rights as
described below will be entitled to receive an unsecured subordinated debenture
for the fair exchange value of that Dissenting Limited Partner's Units. In the
event a Dissenting Limited Partner elects to exercise his or her right to
dissent, such Dissenting Limited Partner must do the following to perfect his or
her rights as a Dissenting Limited Partner:
(A) Such Dissenting Limited Partner must file a written request with
the Company at 4100 Newport Place, Suite 400, Newport Beach, California
92660, attention: Information Agent -- Dissenters' Rights, prior to the
earlier of (i) the date such Dissenting Limited Partner's completed Consent
Form is received by the Exchange Agent, or (ii) the expiration of the
Solicitation Period.
(B) The request must state the number of Units for which the
Dissenting Limited Partner is requesting dissenters' rights. Only persons
who fail to vote in favor of the Merger Proposal and related transactions
can be Dissenting Limited Partners. NEITHER THE DELIVERY OF A CONSENT FORM
DIRECTING A VOTE AGAINST THE MERGER PROPOSAL AND RELATED TRANSACTIONS NOR A
FAILURE TO VOTE FOR THE MERGER PROPOSAL AND RELATED TRANSACTIONS
CONSTITUTES A WRITTEN REQUEST FOR DISSENTERS' RIGHTS.
If PCM, the Company and all of the Partnerships approve the Merger Proposal
and related transactions, and the other conditions of the Merger Proposal and
related transactions are satisfied so that the Merger is consummated, then a
Dissenting Limited Partner who requests dissenters' rights and who thereafter
perfects his or her rights as a Dissenting Limited Partner will be provided with
an unsecured subordinated debenture
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within 30 days following the consummation of the Merger and related transactions
for his or her Units in the amount as determined above.
LIMITED PARTNERS WISHING TO EXERCISE THEIR DISSENTERS' RIGHTS ARE CAUTIONED THAT
FAILURE TO FOLLOW THE ABOVE PROCEDURES PRECISELY MAY RESULT IN THE LOSS OF
DISSENTERS' RIGHTS.
COMPLIANCE WITH AND APPROVAL FROM FEDERAL AND STATE AUTHORITIES. The Merger
Proposal and related transactions will not be completed if any moratorium on
transactions of its type are imposed by federal, state or regulatory authorities
or if any state Blue Sky or securities authority imposes any restriction upon,
or prohibits any aspect of, the transactions contemplated by the Merger Proposal
and related transactions, which in the judgment of the Company, renders the
Merger Proposal and related transactions undesirable or impractical.
COMPARISON OF UNITS AND COMMON SHARES. The portion entitled "Summary
Comparison of Units and Common Shares" in the Prospectus highlights a number of
the significant differences between the Partnerships (and the Units) and the
Company (and the Common Shares) relating to, among other things, form of
organization, investment objectives, policies and restrictions, asset
diversification, capitalization, management structure compensation and fees, and
investor rights, and compares certain legal rights associated with the ownership
of the Units and Common Shares, respectively. These comparisons are intended to
assist the Limited Partners in understanding how their investments will be
changed if, as a result of the Merger and related transactions, their Units are
exchanged for Common Shares.
FEDERAL INCOME TAX CONSIDERATIONS
INTRODUCTION. The following information is intended to provide to Limited
Partners with a summary of all material federal income tax consequences of
general application to the Surviving Corporation and Limited Partners associated
with the Merger Proposal. This summary does not comment on all tax matters that
may affect the Partnership, the Surviving Corporation and the Limited Partners,
including any state, local, foreign or other matters, and does not consider
various facts or limitations applicable to any particular Limited Partner, or
special tax rules that may apply to certain Limited Partners and may modify or
alter the results described herein.
Except as otherwise indicated, statements of legal conclusions regarding
tax treatments, tax effects or tax consequences present the opinions of John
Brainerd, Attorney-at-Law and tax counsel retained to provide a tax opinion
relating to the Merger Proposal, based on the Code and applicable Treasury
Regulations, each as amended and in effect on the date hereof, and on reported
judicial decisions and published positions of the Internal Revenue Service
("IRS"). No rulings have been requested from the IRS concerning any of the
matters described in the Prospectus and the IRS will generally not issue rulings
on transactions such as the Merger Proposal. In some cases, particularly those
as to which tax counsel's opinion is qualified, there is a risk that the IRS
will disagree with the conclusions of tax counsel. The laws, regulations,
administrative rulings and judicial decisions that form the basis for
conclusions with respect to the tax consequences of the Merger Proposal are very
complex and are subject to change at any time.
The tax opinion of John Brainerd is filed as an exhibit to the Registration
Statement. Upon receipt of a written request of a Limited Partner (or such
Limited Partner's representative who has been so designated in writing)
addressed to the Company, at 4100 Newport Place, Suite 400, Newport Beach,
California 92660, attention: Corporate Secretary, a copy of the tax opinion will
be transmitted promptly, without charge, by the Company.
Limited Partners should be aware that there is no direct authority of
general applicability governing the federal income tax treatment of transactions
such as the Merger Proposal that are structured as partnership mergers, because
this structure is an approach made available by recent developments in
partnership law. Therefore, in rendering its opinions, tax counsel has relied on
authorities addressing the consequences of analogous transactions that used
similar structures. Accordingly, although there appears to be no controlling
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authority contrary to tax counsel's conclusions, it is possible that the IRS
would take a different position if it addressed the tax consequences of the
Merger Proposal.
DIFFERENCES BETWEEN UNITS AND COMMON SHARES. A limited partnership is a
pass-through entity for federal income tax purposes. This means that a limited
partnership is not liable for federal income tax on its taxable income. Rather,
a limited partnership passes its income (or loss) through to its owners (i.e.,
general and limited partners) in proportion to their relative ownership
interests. This is known as allocating a partnership's income and loss. Many
items of income, gain, loss, and deduction are allocated separately to each
partner in proportion to such partner's interest. The character of each item
passed through to a partner remains the same with the partner as it was with the
limited partnership. When income (or loss) is allocated to a partner, such
partner is taxed on that income (or may deduct that loss). This tax is imposed
on the partner regardless of whether the limited partnership actually
distributes any cash or property to the partner. Therefore, generally it is the
allocation, not the distribution, of income to a partner that results in tax (or
a deduction) for that partner. A partner has a basis in the limited partnership
interest he or she holds which is generally equal to either the cost of the
limited partnership interest if purchased, or if not purchased, the amount of
any cash or basis of any other property that partner transferred to the limited
partnership, increased (or decreased) by that partner's share of the limited
partnership's income (or loss) and decreased by the amount of any cash (or the
basis of any property) distributed to that partner. Upon sale of his or her
limited partnership interest, a partner realizes gain equal to the amount
received for the limited partnership interest less the partner's basis in the
limited partnership interest. The partner's gain (or loss) upon sale is
generally capital, but may be characterized as ordinary to the extent of the
partner's share of certain assets held by the limited partnership.
Because a limited partnership does not pay tax on income it earns (but
rather the General Partner and Limited Partners pay tax on such income),
partners of a limited partnership are subject to only one level of federal
income tax on income earned in the business conducted by the Partnership. As
owners of the Partnership through their Units, Limited Partners receive the
federal income tax treatment just described. The number of Units owned by a
Limited Partner will determine the amount of income or loss allocated to the
partner by the applicable Partnership.
A corporation is a taxable entity and pays federal income tax at a maximum
rate of 39% on its taxable income. A shareholder of a corporation is generally
not taxed on any income earned by a corporation until the corporation
distributes either cash or property to the shareholder or the shareholder sells
or exchanges his or her stock at a gain. A corporation often makes distributions
to shareholders in proportion to their interests in the corporation, but it need
not do so. When cash or property is distributed, each portion of the
distribution will be characterized in one of the following three ways: (i) as a
dividend, (ii) as a capital gain, or (iii) as a return of capital. The portion
of a distribution treated as a dividend is taxed at ordinary federal income tax
rates, which, for individuals, range up to 39.6%. However, upper bracket
individuals are subject to a phaseout of their personal exemptions, and a
restriction on itemized deductions, which in combination in certain
circumstances, can bring the actual maximum federal rate to more than 47%. The
portion treated as capital gain will generally be taxed at a maximum 28% rate.
The portion treated as return of capital will not be taxed. The amount of any
distribution treated in any of the three alternative ways may differ for each
shareholder, and will depend upon the value of the cash and property received,
the percentage interest in the corporation owned by the shareholders receiving
the distribution, and each shareholder's basis in his or her shares. Because
corporations are taxable on their own taxable income, and because shareholders
may be taxed again on that same income if it is distributed to them in the form
of cash or property or it is realized through the sale or exchange of shares of
stock at a gain, there are two levels of potential tax upon income earned by a
corporation. A shareholder's basis in his or her stock is generally equal to the
cost of the stock if purchased, or, if not purchased, the amount of any cash and
basis of other property contributed to the corporation, decreased by the amount
of any distributions treated as a return of capital under the rules discussed
above. Upon a sale of stock, a shareholder's gain (or loss) will be equal to the
amount received for the stock less his or her basis in that stock. The character
of such gain (or loss) will generally be capital in nature. As holders of
interests in a corporation, the owners of any Common Shares will be subject to
the tax treatment just described.
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As a holder of a Unit, a Limited Partner holds an interest in an entity
that earns income subject to only one level of federal income tax, whereas the
holder of a Common Share would hold an interest in an entity that earns income
subject to two potential levels of federal income tax.
There are, however, potential tax advantages (and corresponding financial
advantages) to conducting a business by a corporation. These include the ability
of shareholders to defer tax on income earned by the corporation until the
corporation distributes such income. Partners in a partnership, by contrast, are
taxed as soon as the partnership earns income. Partners pay such tax at their
individual federal tax rate, which may exceed the maximum federal corporate tax
rate. Alternatively, because shareholders pay no tax until they receive
distributions, the Surviving Corporation, as a corporation, may accumulate
income for business expansion without financially interfering with its
shareholders' ability to pay their taxes.
LIMITED PARTNERS. Each Limited Partner will recognize gain or loss
resulting from the Merger as if the Partnership had (a) sold all of its assets
to the Company for an amount equal to the value of the shares received in the
Merger, plus the liabilities of the Partnership assumed in the Merger, and (b)
distributed the shares received in the Merger to the Limited Partners. A Limited
Partner who receives cash (with respect to Units) in lieu of fractional Common
Shares or who receives an unsecured subordinated debenture because of such
Limited Partner's exercise of appraisal or similar rights under California law
(with respect to Units) may recognize gain depending upon such Limited Partner's
aggregate basis in the Partnership prior to the Merger. The aggregate basis of
any Common Shares received in the Merger by a Limited Partner in exchange for
Units will equal the aggregate basis in such Units immediately before the
Merger, but may be decreased if cash is received by such Limited Partner for
such Units in lieu of fractional Common Shares. Such basis will be prorated
among all Common Shares received for such Units.
A Common Share received in exchange for Units will have a holding period
that begins on the day following the Merger to the extent that the value of such
Common Share on such date is attributable to certain of the Partnership's assets
(essentially its ordinary income assets), and to the extent of any excess value,
such Common Share will have a holding period that includes the period the Units
were held by the Limited Partners.
A holder of Units who subsequently sells the Common Shares received in the
Merger will recognize gain or loss measured by the difference between the amount
realized on such sale and his or her tax basis in the shares sold. Each Limited
Partner who receives Common Shares in the Merger will be required to file with
his or her federal income tax return for the year in which the Merger is
consummated a statement that provides details relating to his or her Limited
Partnership interest (which will be considered to be property transferred), the
Common Shares, and his or her share of any liabilities assumed by the Surviving
Corporation in the Merger. The Surviving Corporation will provide shareholders
with information to assist them in preparing such a statement.
After the Merger, the income and deductions attributable to the assets and
liabilities of the Surviving Corporation will not be allocated to the Surviving
Corporation's shareholders. A shareholder will be taxed only on dividends and
other distributions received from the Surviving Corporation, if any. Such
distributions generally will be taxable as dividends to the extent of any
current or accumulated earnings and profits of the Surviving Corporation. Any
other distributions will be treated as a nontaxable return of capital to the
extent of the shareholder's basis in his or her Common Shares and as capital
gain to the extent of the remaining portion of such distribution.
THE SURVIVING CORPORATION AND THE PARTNERSHIP. The Partnership will be
deemed to have transferred all its assets and liabilities to the Company and to
have received Common Shares in exchange, and then to have distributed those
shares to the General Partner and the Limited Partners in complete liquidation.
As a consequence, the assets of the Partnership will retain the same tax basis
as they had prior to the Merger unless the Partnership is required to recognize
gain resulting from the Merger. The Surviving Corporation's tax basis in the
assets acquired from the Partnership would equal the value of the Common Shares
issued in the Merger plus the amount of the Partnership's liabilities assumed in
the Merger, and the Surviving Corporation's holding period in the assets would
begin the day after the Merger takes effect. The Partnership, on the other hand,
would recognize gain or loss resulting from the Merger in an amount equal to the
amount by which the
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value of the Common Shares received plus the amount of the Partnership's
liabilities assumed exceeds (or is less than) its basis in the assets
transferred and the General Partner and the Limited Partners would be required
to include in their taxable income their distributive shares of the
Partnership's gain or loss.
After the Merger becomes effective, the Partnership will cease to exist for
both state law and federal income tax purposes. The Surviving Corporation will
be taxed as a corporation on its taxable income. The income and deductions
attributable to the assets and liabilities received in the Merger will be
included in the Surviving Corporation's taxable income. The adjusted tax basis
of certain of the assets will be depreciable or amortizable for federal tax
purposes, thereby reducing the amount of the Surviving Corporation's income
subject to tax.
THE FOREGOING DISCUSSION ADDRESSES ONLY THE FEDERAL INCOME TAX CONSEQUENCES OF
THE MERGER PROPOSAL APPLICABLE TO LIMITED PARTNERS GENERALLY. EACH LIMITED
PARTNER AND SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR CONCERNING THE
FEDERAL, STATE, LOCAL AND OTHER TAX CONSEQUENCES OF THE MERGER PROPOSAL.
OTHER TAX CONSIDERATIONS. The following information is intended to provide
Limited Partners with a summary of certain material state and local income tax
consequences of general application to the Limited Partners and the Surviving
Corporation associated with the Merger Proposal. This information does not
present all tax matters that may affect the Partnership, the Surviving
Corporation and the Limited Partners, and does not consider various facts and
limitations applicable to any particular Limited Partner, or special tax rules
that may apply to certain Limited Partners that may modify the results described
herein.
The following statements are not the subject of John Brainerd's tax opinion
and have not otherwise been passed upon by Mr. Brainerd. No rulings have been
requested from any state or local tax jurisdiction concerning any of the matters
described in the Prospectus.
A limited partnership is generally a pass-through entity for state and
local income tax purposes. This means that a limited partnership is not liable
for state or local income tax on its taxable income. In general, partners liable
for federal income tax are also liable for the state and local income taxes of
the states and taxing municipalities in which a limited partnership does
business. These taxes are generally based on a partner's allocated share of
federal taxable income from the limited partnership as allocated or apportioned
among the various state and local jurisdictions on the basis of the character of
the income earned or on the basis of sales made, payroll paid, and property
owned in each jurisdiction. A partner is also generally subject to tax on all
income earned from that partner's investment in the limited partnership in the
partner's state and, if applicable, city or village of residence. This tax may
be offset by credits for taxes paid to other states and municipalities. In
general, interest income and capital gains earned by a limited partnership are
not subject to municipal income tax. As with federal income tax, partners of a
limited partnership are subject to only one level of state and local income tax
on income earned in the business conducted by the limited partnership. See the
section entitled "FEDERAL INCOME TAX CONSIDERATIONS" in the Prospectus.
The Partnerships have filed composite state income tax returns for a number
of years on behalf of eligible and electing Limited Partners for the purpose of
limiting each Limited Partner's compliance burden to that Limited Partner's
state of residence. The taxes paid by the Partnership with these returns have
been charged to the participating Limited Partners' capital accounts.
A corporation is a taxable entity and pays state and local income taxes at
rates which vary depending upon the identity of the states and cities in which
the corporation conducts its business. The business of the Surviving Corporation
is expected to be conducted in California, which imposes a tax on income
apportioned to California. A shareholder of a corporation is generally not taxed
on any income earned by a corporation until the corporation distributes either
cash or property to the shareholder or the shareholder sells or exchanges shares
of stock at a gain. See the section entitled "FEDERAL INCOME TAX CONSIDERATIONS"
in the Prospectus. Dividends and capital gains are generally subject to tax only
in the shareholder's state of residence. Income from capital gains is generally
taxed at the same rates as other taxable income. Neither dividends nor capital
gains are generally taxable by taxing municipalities.
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THE FOREGOING DISCUSSION ADDRESSES ONLY CERTAIN OF THE STATE AND LOCAL INCOME
TAX CONSEQUENCES OF THE MERGER PROPOSAL APPLICABLE TO LIMITED PARTNERS
GENERALLY. EACH LIMITED PARTNER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR
CONCERNING THE FEDERAL, STATE, LOCAL AND OTHER TAX CONSEQUENCES OF THE MERGER
PROPOSAL.
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APPENDIX C
SUPPLEMENT FOR
PERFORMANCE ASSET MANAGEMENT FUND II, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
(S-K REG. 229.902)
NOTICE TO LIMITED PARTNERS OF PERFORMANCE ASSET MANAGEMENT FUND II, LTD., A
CALIFORNIA LIMITED PARTNERSHIP:
This separate partnership supplement highlights information that addresses
certain matters presented in the prospectus ("Prospectus") as they relate to
Performance Asset Management Fund II, Ltd., A California Limited Partnership
("Partnership") and its limited partners ("Limited Partners"), regarding a
proposed merger ("Merger") of the Partnership and other limited partnerships
("Other Partnerships") and Performance Capital Management, Inc., a California
corporation ("PCM"), with and into Performance Asset Management Company, a
Delaware corporation ("Company"). Similar supplements have been prepared for the
Other Partnerships. The effects of the Merger may differ for the limited
partners in the Other Partnerships. If you want to obtain a supplement for any
of the Other Partnerships, please call the Information Agent at (714) 261-7300,
or send a written request to Performance Development, Inc., Attn: Information
Agent, 4100 Newport Place, Suite 400, Newport Beach, California 92660.
Supplements for any of the Other Partnerships will be provided without charge to
any Limited Partner. All defined terms used in this Supplement shall have the
same definitions as specified in the Prospectus.
The Partnership was formed on April 1, 1992, as a limited partnership in
California under the Revised Limited Partnership Act of the State of California,
as enacted and in effect on or after July 1, 1984. This Partnership sold 1,548
Units at the price of $5,000.00 per Unit. The total gross amount received by
this Partnership from purchasers of its Units is $7,740,000.00. As of the
Determination Date this Partnership had 489 Limited Partners. The Partnership
termination date is December 31, 2005, unless sooner terminated.
SELECTED FINANCIAL INFORMATION. The following chart provides a historical
summary of gross collections and partner distributions for the Partnerships from
the date of formation of each Partnership through June 30, 1997:
<TABLE>
<CAPTION>
COST OF
PORTFOLIOS ORIGINAL PORTFOLIO PORTFOLIOS GROSS PARTNER
PARTNERSHIP ACQUIRED FACE VALUE ACQUIRED COLLECTIONS* DISTRIBUTIONS**
------------------------ ---------- ------------------ -------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
PAM I(1)................ 16 $ 305,438,442 $ 4,932,616 $ 5,526,429 $ 3,678,632
PAM II(2)............... 19 433,632,566 6,230,345 8,749,682 4,059,775
PAM III(3).............. 21 521,408,657 9,685,926 7,826,584 3,463,815
PAM IV(4)............... 57 709,008,534 20,416,167 20,014,508 6,269,988
PAM V(5)................ 12 209,901,705 4,997,992 2,889,555 639,600
--- ------------- ----------- ----------- -----------
Total.............. 125 $ 2,179,389,904 $ 46,263,046 $ 45,006,758 $18,111,810
=== ============= =========== =========== ===========
</TABLE>
- ---------------
* Gross collections include any sale of accounts and collection activity
through June 30, 1997
** Through June 30, 1997
(1) Performance Asset Management Fund, Ltd., A California Limited Partnership
("PAM I").
(2) The Partnership ("PAM II").
(3) Performance Asset Management Fund III, Ltd., A California Limited
Partnership ("PAM III").
(4) Performance Asset Management Fund IV, Ltd., A California Limited Partnership
("PAM IV").
(5) Performance Asset Management Fund V, Ltd., A California Limited Partnership
("PAM V").
Each Limited Partner should thoroughly review the selected financial
statements included in the portions of the Prospectus "RESULTS OF OPERATIONS,"
"SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA AND COMPARATIVE PER SHARE
DATA," "PRO FORMA CONDENSED FINANCIAL INFORMATION," and the financial statements
of the Company, PCM and the Partnerships included in the Prospectus.
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The Partnership has continued to invest in distressed loan portfolios. As
set forth above, these portfolios consist primarily of charged-off credit card
accounts and consumer loan balances such as auto and personal lines of credit
originated by independent third-party financial institutions located throughout
the United States. In addition, the Partnership also acquired certain portfolios
of default consumer debts which were rewritten under terms different from the
original obligation. In 1994 the Partnership spent $854,139 on such purchases.
In 1995, the Partnership spent $114,183 on such purchases. In 1996, the
Partnership spent $1,502,705 on such purchases. Collections on investments in
distressed loan portfolios were $1,507,295 in 1994, $1,022,494 in 1995 and
$1,707,090 in 1996.
In 1994, 1995 and 1996, investments in distressed loan portfolios consisted
of the following (amounts are carrying amounts):
<TABLE>
<CAPTION>
TYPE OF PORTFOLIO 1994 1995 1996
----------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Credit Card Accounts........................... $ 196,945 $ 254,681 $1,305,291
Performing Rewritten Accounts.................. 10,319 5,187 --
Consumer Loans................................. 1,692,353 810,857 65,885
Trade Receivables.............................. 21,226 -- --
---------- ---------- ----------
Totals............................... $1,920,843 $1,070,725 $1,371,176
========== ========== ==========
</TABLE>
In 1994, the Partnership recorded net investment income of $458,892,
additional income in the form of interest income of $22,912 and other income of
$9,250. Operating expenses for the Partnership consists of the following:
management fee expense of $70,022; collection expense of $27,191; professional
fees of $5,957; amortization expense of $1,107; and general and administrative
expenses of $7,412; for total operating expenses of $111,689. Thus, the
Partnership recorded net income of $379,365 for 1994.
In 1995, the Partnership recorded net investment income of $634,187, and
interest income of $16,792. Operating expenses for the Partnership consists of
the following: management fee expense of $68,385; collection expense of $12,336;
professional fees of $180,540; amortization expense of $1,107; and general and
administrative expenses of $3,345; for total operating expenses of $265,713.
Thus, the Partnership recorded net income of $385,266 for 1995.
In 1996, the Partnership recorded net investment income of $504,836, net
interest income of $141,209 and other income of $886. Operating expenses for the
Partnership consists of the following: management fee expense of $75,464;
collection expense of $67,854; professional fees of $189,709; amortization
expense of $1,107; and general and administrative expenses of $8,082; for total
operating expenses of $342,216. Thus, the Partnership recorded net income of
$304,715 for 1996.
APPRAISED VALUE OF ASSETS HELD BY THE PARTNERSHIP. As of December 31 of
each of the years specified in the following table, the Partnership held the
following assets:
<TABLE>
<CAPTION>
ASSET 1994 1995 1996
----------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Cash and equivalents........................... $ 748,107 $ 144,800 $1,024,507
Cash held in trust............................. -- $1,171,869 $1,003,215
Investment in Distressed Loan Portfolios....... $1,920,842 $1,070,725 $1,371,176
Receivable from Unaffiliated Service
Provider(1).................................. $ 778,565 $ 778,565 --
Due from Affiliates............................ $ 12,876 $ 201,632 $ 82,114
Other Assets................................... $ 80,069 $ 115,367 $ 42,942
Organization Costs, Net........................ $ 2,799 $ 1,692 $ 585
</TABLE>
- ---------------
(1) West Capital Financial Services Corp., a California corporation.
The Partnership defines cash equivalents as all highly liquid investments
with a maturity of three months or less when purchased. The Partnership
maintains cash balances at one bank and aggregate accounts at the institution
are insured by the Federal Deposit Insurance Corporation up to $100,000.
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<PAGE> 328
COMPENSATION TO THE GENERAL PARTNER AND AFFILIATES FOR THE LAST THREE
FISCAL YEARS. The following table sets forth the compensation paid to the
General Partner and its affiliates for the last three fiscal years and the most
recently completed interim period.
<TABLE>
<CAPTION>
1994 1995 1996 1997*
-------- -------- -------- --------
<S> <C> <C> <C> <C>
General Partner
Management Fees....................... $ 70,022 $ 68,385 $ 75,464 $ 31,086
Distribution.......................... 127,178 34,439 25,810 51,572
PCM
Acquisition fees...................... 178,678 30,225 412,930 46,405
Collection fees....................... 74,605 136,309 216,973 153,711
------- ------- -------
Total......................... $450,483 $269,358 $731,177 $282,774
======= ======= =======
</TABLE>
- ---------------
* Through June 30, 1997
The following table sets forth the compensation that would have been paid
to the General Partner and its Affiliates if the compensation and distributions
structure to be in effect after the roll-up transaction had been in effect
during the last three fiscal years.
<TABLE>
<CAPTION>
ENTITY 1994 1995 1996
------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
General Partner (PDI)................ $ 0 $ 0 $ 0
INC.................................. 0 0 0
PCM ................................. 0 0 0
---------- ---------- ----------
Total........................... $ 0 $ 0 $ 0
========= ========= =========
</TABLE>
As stated above, the Partnership enters into various joint ventures with
Performance Capital Management, Inc., a California corporation and an Affiliate
of the General Partner. Vincent E. Galewick owns all of the issued and
outstanding common stock of the following Affiliates:
Performance Development, Inc., a California corporation ("PDI") (the
"General Partner")
Income Network Company, Inc., a California Corporation ("INC")
Performance Capital Management, Inc., a California corporation ("PCM")
The Other Partnerships:
PAM I, PAM III, PAM IV, PAM V (PAM I through PAM V, inclusive, are the "PAM
Funds")
PDI was formed in June, 1990 to engage in various aspects of the distressed
loan industry. PDI is also the general partner for the PAM Funds and various
other California limited partnerships. PDI's management fees incurred and
recorded by the Partnership totalled $70,022, $68,385 and $75,464 for the years
ended December 31, 1994, 1995, and 1996, respectively. The Partnership also
accrued distributions to PDI of $127,178 and $34,439 for the years ended
December 31, 1994 and 1995, respectively and $25,810 for the year ended December
31, 1996. At December 31, 1994, the Partnership had amounts owed to PDI recorded
as amounts due to affiliates of $101,198. At December 31, 1995 and 1996, the
Partnership had amounts owed to PDI recorded as amounts due from affiliates of
$148,374 and $38,488, respectively.
INC was formed on February 1, 1988 as a registered broker-dealer and member
of the National Association of Security Dealers and the Securities Investor
Protection Corporation. The Company's sole shareholder, Vincent E. Galewick, is
also the sole shareholder of the General Partner, PDI. INC, in accordance with
the limited partnership agreement and offering prospectus of the Partnership, is
paid commissions of 10% of Gross Proceeds. As of December 31, 1995, the
Partnership had amounts owed to INC of $2,250 for payments made on behalf of the
partnership.
PCM was formed in February, 1993 to perform services related to locating,
evaluating, negotiating, acquiring and collecting distressed loan portfolio
assets. PCM acquires portfolio assets from third-party financial institutions
and sells the portfolios to the Partnership at cost plus an acquisition fee of
approximately
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<PAGE> 329
30% to 37% as provided in the related purchase agreement. The Partnership also
enters into servicing agreements with PCM to collect and service the portfolio
activity. The agreements generally provide that all proceeds generated from the
collection of portfolio assets shall be shared by the venturers in proportion to
their respective percentage interests, generally, 55% to 60% for the Partnership
and 40% to 45% for PCM. The Partnership also reimburses PCM for certain costs
associated with the collection of portfolio proceeds.
Moreover, in addition to providing collection efforts on distressed loan
portfolios to the Partnership, PCM identifies and acquires distressed loan
portfolios and other discounted portfolios of financial debt instruments and
obligations and sells them to the Partnership and other affiliates at negotiated
prices.
For the years ended December 31, 1994 and 1995, the Partnership purchased
four portfolios and one portfolio, respectively, from PCM and recorded
acquisition fees for these portfolios of $178,678 and $30,225, respectively. For
the year ended December 31, 1996, the Partnership purchased two portfolios from
PCM and recorded acquisition fees for these portfolios of $412,930. These
acquisition fees have been included in the carrying value of the related
investments. Also, for the years ended December 31, 1994, 1995 and 1996, the
Partnership incurred and reimbursed PCM for collection costs of $27,191,
$12,336, and $67,854, respectively.
The Partnership had amounts owed from PCM from collections of portfolio
proceeds of $12,876 and $9,008 recorded as due from affiliates at December 31,
1994 and 1995, respectively. For the year ended December 31, 1996 the
Partnership had amounts owed from PCM of $43,947 recorded as due from
affiliates.
DISTRIBUTIONS AND DIVIDENDS. The Partnership has made quarterly cash
distributions to Limited Partners, which distributions terminated effective as
of June 30, 1997. The following table specifies the cash distributions,
including those cash distributions which represent a return of capital, made to
Limited Partners in the Partnership during each of the last five fiscal years
and most recently completed interim period.
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNER
YEAR TOTAL DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS
-------------------------------- ------------------- ------------- -------------
<S> <C> <C> <C>
1992............................ $ 284,167 $ 28,417 $ 255,750
1993............................ $ 1,853,083 $ 185,308 $ 1,667,775
1994............................ $ 1,271,778 $ 127,178 $ 1,144,600
1995............................ $ 344,389 $ 34,439 $ 309,950
1996............................ $ 255,833 $ 25,810 $ 230,023
June 30, 1997................... $ 503,248 $ 51,573 $ 451,675
</TABLE>
PERFORMANCE ASSET MANAGEMENT FUND II, LTD.
PER UNIT DATA
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Partnership units outstanding at year end...... 1,548 1,549 1,549 1,561 1,568
Earnings (loss) per unit....................... 196.84 248.72 244.91 (40.41) (26.79)
Book value per unit............................ 2,276.83 2,249.61 2,287.45 2,880.09 4,100.43
Assigned value for roll-up per unit............ $2,010.34/unit
Annual return of capital distributions per
unit......................................... 148.59 200.10 738.93 1,068.40 163.11
Cumulative return of capital distributions per
unit......................................... 2,330.81 2,180.81 1,980.71 1,232.24 163.11
</TABLE>
REASONS FOR THE MERGER PROPOSAL
LIQUIDITY AND MARKET VALUATION. Units are not publicly traded and have
limited liquidity. The primary means of liquidity for holders of Units is to
request the Partnership to redeem the Units. Although the Partnership is not
obligated to honor any such request, such redemptions have occurred from time to
time, using available cash to redeem the Units at a percentage of book value.
After consummation of the Merger, however, the Company expects to qualify the
Common Shares for listing and trading on a regional or national
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securities exchange. At that time, there is expected to be a potential liquid
market for selling the Common Shares and a readily determinable market value for
the Common Shares. With a liquid market for Common Shares, equity holders would
not be required to rely solely on the Company as a source of liquidity, and the
Company will not be required to use its cash to provide such liquidity. Instead,
it is expected that holders of Common Shares will be able to sell their Common
Shares publicly from time to time, subject to certain restrictions, for their
fair market value.
The Company and the General Partner believe that the Merger is necessary to
realize the full benefit of a public trading market. The Company believes that
corporate equity securities are more favorably valued than comparable limited
partnership interests, because a partnership with publicly traded limited
partnership interests is generally taxed as if it were a corporation and because
many institutional investors will not invest in a business organized as a
partnership, even if it is not taxed as a corporation.
ACCESS TO EQUITY MARKETS. Although the Company currently has no plans for
additional equity offerings, the existence of publicly traded equity securities
is expected to provide it with future access to the public equity markets.
GREATER FLEXIBILITY REGARDING CAPITAL RESOURCES. The Company will have
greater flexibility with respect to the use of capital resources because it will
not have to use available cash to redeem Common Shares. As discussed above, the
Partnership has from time to time used its cash to redeem Units when requested
to do so by Limited Partners. There are also potential tax advantages (and
corresponding financial advantages) to conducting a business as a corporation
that should allow the Company greater flexibility with respect to the management
of its capital resources. Shareholders will defer the payment of taxes on income
earned by the Company until the Company distributes such income in the form of
dividends. Limited Partners, by contrast, are taxed as soon as the Partnership
earns income. Limited Partners are taxed on such income at their individual
federal tax rates, which may exceed the maximum corporate federal tax rate.
Therefore, the Surviving Corporation as a corporation can accumulate income for
business expansion without adversely affecting a shareholder's tax liabilities.
ACQUISITION CURRENCY. The Company may be able to use shares of its common
stock as consideration in its acquisition of other businesses. The use of
readily tradeable equity securities as an acquisition currency is advantageous
because it may be more tax efficient to the seller of a business than a cash
transaction and it allows the Company to consummate acquisitions without
depleting cash resources. It also allows a seller to continue to hold an equity
interest in the business acquired by the Company by equity ownership in the
Company after such acquisition. The use of common stock in acquisitions can also
enable the Company to use advantageous pooling accounting methods if certain
conditions are satisfied.
INCENTIVE COMPENSATION. The availability of shares of the Company's common
stock will permit the Company to provide its key employees with equity based
incentive compensation. The Company believes providing equity based incentive
compensation by the use of common stock will allow broader employee
participation in the Company's equity, provide a more accurate measure of the
Company's performance as a result of common stock having a readily ascertainable
value, and provide the Company with more flexibility in designing equity based
incentive compensation. The Company currently intends to adopt an employee stock
plan during or immediately after the first quarter of fiscal 1998, if the Merger
is consummated.
GREATER EMPLOYEE OWNERSHIP. As a result of the complex tax reporting
requirements associated with being a limited partner and the administrative
burden placed on the Partnerships as a result of having a significant number of
limited partners, it has not been feasible for the Partnership to offer
ownership opportunities to a broad range of employees. By having the shares of
its common stock available, however, the Company will be able to offer ownership
opportunities to all employees. The Board of Directors believes that wide-spread
employee ownership is in the best interests of the Company and its shareholders.
REDUCTION OF TAX REPORTING REQUIREMENTS AND COSTS. In contrast to the
Partnership, the Surviving Corporation will not be required to compute and
report tax information on an individual shareholder basis, and individual
shareholders will not be required to include information regarding the Surviving
Corporation's operations on their personal tax returns. Therefore, the Merger
will eliminate the complex partnership tax
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<PAGE> 331
reporting requirements for Limited Partners imposed on them under federal and
multiple state partnership tax laws and may eliminate certain costs and delays
that individual Limited Partners currently may be forced to incur in connection
with the preparation of their individual tax returns. However, as a corporation,
the Surviving Corporation will be subject to income tax and shareholders will
also be required to pay income tax on any dividends they receive, and on any
gain recognized upon the sale or exchange of shares. See the sections entitled
"FEDERAL INCOME TAX CONSIDERATIONS" and "CERTAIN STATE AND LOCAL INCOME TAX
CONSIDERATIONS" in the Prospectus.
EFFECTS OF THE MERGER
As a result of the Merger, all of the assets now held directly or
indirectly by PCM and the Partnership will be held by the Surviving Corporation
and PCM and the Partnership will cease to exist by operation of law. The
Surviving Corporation will possess all of the assets, properties, rights and
privileges, and will be subject to all the liabilities and obligations, of PCM,
the Partnerships and the Company existing on the Closing Date.
The following is a brief description of each material risk and effect of
the Merger Proposal including, but not limited to, federal income tax
consequences, for Limited Partners. Also included is a brief discussion of the
effect of the Merger Proposal on the Partnership's financial condition and
results of operations. Pro forma financial information based on the
participation of the Partnership in the Merger is set forth in the Prospectus
under the heading entitled "SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA AND
COMPARATIVE PER SHARE DATA."
THE MERGER. Upon the Closing Date, PCM and the Partnership (if, and only
if, all of the Partnerships approve the Merger Proposal, and subject to other
conditions precedent to the Merger specified in the Prospectus) will merge with
and into the Company and pursuant to the Merger Agreement, all of the Units
existing at the Closing Date will be converted into Common Shares in accordance
with an Exchange Value determined to be fair by the Fairness Opinion prepared by
Willamette Management Associates, Inc. ("Fairness Analyst") (the Fairness
Opinion is attached to the Prospectus as Appendix G). The Fairness Opinion
provides that each Limited Partner's Units, calculated as of the Determination
Date, will be converted into Common Shares pursuant to the Exchange Value, with
cash being paid for any fractional shares based on the book value of Common
Shares on the Determination Date.
The Determination Date is a date set by the Board of Directors. At this
time, the Board of Directors expects that the Determination Date will be June
30, 1997. To accommodate the Merger, the General Partner suspended distributions
by the Partnership to the Limited Partners, effective as of the Determination
Date. This is necessary to assure that the Limited Partners' capital accounts do
not change after the Determination Date. The Board of Directors will have the
authority to postpone the Determination Date and declare a new Determination
Date, in its discretion. The Board of Directors might postpone the Determination
Date and declare a new Determination Date, if the matters contemplated in the
Merger Proposal are postponed for any reason.
EFFECT OF THE MERGER ON CASH DISTRIBUTIONS. Until June 30, 1997, the
Partnership made cash distributions to Limited Partners. The Company currently
anticipates that the Surviving Corporation will not pay cash dividends. However,
this policy may change, as the actual amount of dividends, if any, to be paid
will be determined by the Board of Directors in its sole discretion, generally
taking into account a number of factors, including operating performance,
liquidity and capital requirements. There can be no assurances that any cash
dividends will be paid, just as there can be no assurances that Partnership
distributions will continue at previous levels.
DISTRIBUTIONS BY THE COMPANY, IF ANY, WILL BE AT THE DISCRETION OF THE BOARD OF
DIRECTORS AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE COMPANY'S ACTUAL
CASH AVAILABLE FOR DISTRIBUTION, THE COMPANY'S FINANCIAL CONDITION, THE
COMPANY'S CAPITAL REQUIREMENTS, AND SUCH OTHER FACTORS AS THE COMPANY'S BOARD OF
DIRECTORS DEEMS RELEVANT.
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<PAGE> 332
THE MERGER AGREEMENT. The Merger will be consummated pursuant to the Merger
Agreement if the Merger Proposal set forth in the Prospectus receives the
requisite approval of the Limited Partners of each Partnership, the approval of
the PCM Shareholders, and the approval of the Company Shareholders, and if the
other applicable conditions to the Merger are satisfied or waived, including any
approvals required from any state or federal regulatory agency. The Merger
Agreement is designated as Exhibit 2 to the Registration Statement and is
included in the Prospectus as Appendix A.
Until such time as the Merger Agreement has been approved and adopted by
all the parties thereto, it may be amended or terminated by the Board of
Directors of the General Partner, on behalf of any of the Partnerships, the
Board of Directors of PCM, on behalf of PCM, or the Board of Directors, on
behalf of the Company; provided, however, that at any time after the Merger
Agreement has been adopted by the Shareholders or the Limited Partners, the
respective Boards of Directors may not amend, modify or supplement the Merger
Agreement to change the amount or kind of interests to be received by the
Limited Partners, the PCM Shareholders or the Company Shareholders or to make
any change if such change would, alone or in the aggregate, materially adversely
affect the Limited Partners or the PCM Shareholders.
APPROVAL BY ALL OF THE LIMITED PARTNERSHIPS IS REQUIRED. The Merger
Proposal may be consummated only if all of the Partnerships approve the Merger
Proposal. The Merger Agreement provides that Limited Partners that reject the
Merger Proposal shall not bear an unfair portion of the transaction costs of the
Merger. A Partnership which rejects the Merger Proposal shall not be required to
pay any of the costs of the Merger in accordance with the provisions of Section
25014.7(e)(3) of the Thompson-Killea Act. The General Partner, PCM and the
Company have considered the possibility of approval of the Merger Proposal and
related transactions by less than all of the Partnerships, and do not believe
that the Merger can be fairly consummated unless all of the Partnerships approve
the Merger Proposal because, among other things, (i) it would be unduly
burdensome or impossible to evaluate and apportion the value of the various
services provided to the Partnerships by PCM considering the complexity and
scope of the various joint ventures between the Partnerships and PCM; and (ii)
if the Merger Proposal is approved, PCM will cease to exist by operation of law,
and would no longer be available to provide the same services to a dissenting
Partnership. The General Partner and PCM have engaged an expert, Willamette
Management Associates, to render a Fairness Opinion concerning the Merger
Proposal. See the section entitled "DETERMINATION OF THE EXCHANGE PRICE AND
ALLOCATION OF THE COMMON SHARES" in the Prospectus.
CONDITIONS OF THE MERGER. The Merger will not be consummated unless the
Merger Proposal receives the requisite approval of the Limited Partners of each
Partnership, the approval of PCM Shareholders, the approval of existing Company
Shareholders, and the approval of the requisite state and federal regulatory
agencies. Consummation of the Merger is also subject to the receipt of the
opinion described in the section entitled "FEDERAL INCOME TAX CONSIDERATIONS" in
the Prospectus. Receipt of this opinion may be waived in whole or in part by the
Partnerships, PCM and the Company in each respective entity's sole discretion.
Prior to the consummation of the Merger, the obligations of the parties to
the Merger Agreement may be terminated at any time (including after approval of
the Merger by the Limited Partners and the respective Shareholders) if, among
other things, (a) the General Partner, PCM or the Company adopts a resolution
terminating the Merger Agreement or (b) a final injunction, order, or other
action of a court or other governmental body prevents the consummation of the
Merger.
COMPLETING THE MERGER. If the Merger Proposal is approved and the other
conditions of the Merger Agreement are waived or satisfied, the Closing Date
will be selected by agreement of the General Partner, PCM and the Company. Upon
consummation of the Merger, the Limited Partners and PCM Shareholders will be
entitled to receive certificates for Common Shares issued in exchange for their
Units and shares of PCM's common stock, respectively.
COSTS OF THE MERGER. For purposes of the Thompson-Killea Act, the costs of
the Merger will be divided into two categories, (i) transaction costs; and (ii)
solicitation expenses. Transaction costs are defined as the costs of printing
and mailing the Prospectus, or other documents; legal fees not related to the
solicitation of votes or tenders; financial advisory fees; investment banking
fees; valuation fees; accounting fees; independent
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committee expenses; travel expenses; and all other fees related to the
preparatory work of the transaction, but not including costs that would have
otherwise been incurred by the Partnership in the ordinary course of business,
or solicitation expenses. Solicitation expenses include direct marketing
expenses such as telephone calls, broker-dealer fact sheets, legal and other
fees related to the solicitation, as well as direct solicitation compensation to
brokers and dealers.
The Company estimates that the total costs and expenses of the Merger will
be approximately $1,400,000 if consummated and $1,200,000 if not consummated.
The Company estimates that the total solicitation expenses will be approximately
$600,000. This amount will be incurred whether or not the Merger is consummated.
The remainder of the costs and expenses estimated for consummation or
non-consummation will be attributable to transaction costs.
The Merger Agreement provides that Limited Partners that reject the Merger
Proposal shall not bear an unfair portion of the transaction costs of the
Merger. Should the Merger Proposal be rejected by all of the Partnerships, the
transaction costs will be apportioned between the Company and the rejecting
Partnerships according to the final vote on the Merger Proposal as follows: (i)
the Company shall bear all transaction costs in proportion to the number of
votes of the Limited Partners of that Partnership to reject the Merger Proposal;
(ii) the rejecting Limited Partnerships shall bear transaction costs in
proportion to the number of votes of Limited Partners of each Partnership to
approve the Merger Proposal. Should the Merger Proposal be approved by one or
more Partnerships and rejected by at least one Partnership, each Partnership
rejecting the Merger Proposal shall not be required to pay any of the costs of
the Merger in accordance with the provisions of Section 25014.7(e)(3) of the
Thompson-Killea Act. Further, In the event that the Merger Proposal is rejected
by all of the Partnerships, the Company shall pay all of the solicitation
expenses in accordance with the provisions of Section 25014.7(g) of the
Thompson-Killea Act.
In 1996, the total approximate amounts distributed to the partners of each
Partnership are as set forth on the following table:
<TABLE>
<CAPTION>
DISTRIBUTIONS TO THE DISTRIBUTIONS TO THE
PARTNERSHIP LIMITED PARTNERS GENERAL PARTNER
------------------------------------------------ --------------------- ---------------------
<S> <C> <C>
Performance Asset Management Fund, Ltd.,
A California Limited Partnership.............. $ 154,650 $ 17,483
Performance Asset Management Fund II, Ltd.,
A California Limited Partnership.............. $ 230,023 $ 25,810
Performance Asset Management Fund III, Ltd.,
A California Limited Partnership.............. $ 295,925 $ 35,775
Performance Asset Management Fund IV, Ltd.,
A California Limited Partnership.............. $ 1,433,425 $ 159,334
Performance Asset Management Fund V, Ltd.,
A California Limited Partnership.............. $ 179,100 $ 19,966
</TABLE>
The total amount distributed by all of the Partnerships was $2,551,491. All
of the distributions to the Limited Partners were in the form of cash
distributions. Some of the distributions to the General Partner were accrued.
In contrast to the Partnership, the Surviving Corporation will itself be
subject to federal tax on its income. Holders of Common Shares will not be
subject to federal tax on such income except to the extent dividends are paid.
See the section entitled "FEDERAL INCOME TAX CONSIDERATIONS" in the Prospectus.
The Surviving Corporation is expected to make significantly lower distributions,
if any, than the Partnership has made.
There can be no assurance that the Merger will achieve any of the benefits
and objectives described above. In addition, certain possible disadvantages and
other risks and special considerations associated with the Merger exist as
described in the section entitled "RISK FACTORS" in the Prospectus. Limited
Partners should analyze the Merger Proposal and related transactions in light of
all the matters discussed in the Prospectus.
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ALTERNATIVES TO THE MERGER
PCM, the Company and the General Partner have considered several
alternatives to the Merger Proposal and related transactions. Some of these
alternatives would not constitute a reorganization. In the mutual opinion of
PCM, the Company and the General Partner, the only viable alternatives not
constituting a reorganization involve some form of public offering of
securities. The General Partner has considered the possibility of a public
offering of all Units which would provide certain registration rights to the
Limited Partners. In the opinion of the General Partner, this possibility would
fail to provide the Limited Partners with the liquidity that the Merger Proposal
might provide because of the unsatisfactory market for publicly traded limited
partnership units. PCM and the Company have also considered the possibility of
merging those two corporations without merging with any of the Partnerships and
thereafter making a public offering of shares in the Surviving Corporation. In
the event the Merger is not consummated, PCM and the Company may elect this
alternative.
PCM, the Company and the General Partner have considered several
alternatives to the Merger Proposal, each of which constitutes a reorganization.
The General Partner considered the possibility of selling all of the assets of
the Partnership to the Company, and the Company considered purchasing all such
assets, in exchange for shares of the Company. PCM also considered the
possibility of selling all of its assets to the Company, and the Company
considered purchasing all such assets, in exchange for shares of the Company.
Alternatively, the General Partner considered winding up and dissolving the
Partnership and distributing the proceeds of the liquidation to the Limited
Partners. Additionally, the Board of Directors of PCM considered winding up and
dissolving PCM and distributing the proceeds of liquidation to the PCM
Shareholders. These possibilities were eliminated because of their complexity
and cost.
Moreover, the General Partner considered dissolving the Partnership and
distributing the assets of the Partnership to the Limited Partners pursuant to
an agreement with the Company, which was considered by the Company, and pursuant
to which agreement the Company would purchase the assets from the individual
Limited Partners in exchange for shares of the Company's common stock, and
thereafter merging the Company with PCM. This possibility was also eliminated
because of its complexity and cost, and also because, with the type of assets
held by the Partnership, even an "orderly liquidation" would result in a
prohibitive discount on the value of the debt portfolios.
PCM and the General Partner considered the results of continuing PCM and
the Partnership in accordance with their current business plans and joint
venture agreements. PCM and the General Partner rejected this alternative
because the servicing entity, PCM, currently has the capacity to service
portfolios in excess of those owned by the Partnership and has the potential for
significant growth. PCM has been offered access to commercial lines of credit
and its growth is not contingent upon a continuing relationship with the
Partnership. After consummation of the Merger, Limited Partners who approve the
Merger Proposal will participate in this growth. Moreover, after the
consummation of Merger, the Company will be able to compete for available
portfolios by taking advantage of economies of scale not available to either PCM
or the Partnership acting individually.
PCM and the General Partner also considered going forward with the Merger
Proposal with the approval of less than all of the Partnerships, but rejected
this alternative because of economies of scale, the scope and complexity of
existing joint ventures between PCM and the Partnership, and the economics of
purchasing, holding, servicing, collecting and selling distressed debt
portfolios. See "Approval by All of the Limited Partnerships Is Required" above.
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EXCHANGE VALUE AND FAIRNESS OPINION
BASES FOR THE GENERAL PARTNER'S BELIEF AS TO FAIRNESS. The Fairness Opinion
is discussed at length in the section entitled "Fairness Opinion" in the
Prospectus. The General Partner believes that the Merger Proposal is fair to the
Limited Partners because the General Partner believes that the Merger will
provide Limited Partners with liquidity in their investments and more simplified
tax reporting. The General Partner believes that the Merger will provide the
Company with greater access to capital markets, greater flexibility regarding
capital resources, the potential to provide employees with incentive performance
compensation, including shares of the Company's $.001 par value common stock,
and the opportunity to offer greater employee ownership in the Company.
NO LIMITATIONS IMPOSED ON SCOPE OF INVESTIGATION. Kelly & Company, PCM's
and the Company's independent auditors, retained the Fairness Analyst to
determine the fairness from a financial point of view of the Exchange Value in
connection with the Merger Proposal. There were no limitations or restrictions
placed on the scope of the Fairness Analyst's analysis and investigation, and
the Fairness Analyst performed a complete due diligence examination by, among
other things, visiting PCM's facilities in Newport Beach, California;
interviewing the President and Vice-President of PCM; interviewing the
President, Chief Financial Officer, Director of Business Development, and
Secretary of the General Partner; interviewing CPAs employed by Kelly & Company;
and interviewing counsel to the various entities. The Fairness Analyst was
allowed full access to all financial records of PCM, the General Partner, the
Partnerships, and all service providers to those entities, including privileged
documents such as tax returns and audit workpapers.
NO INSTRUCTIONS FROM GENERAL PARTNER, PCM OR THE COMPANY. Neither the
General Partner, PCM nor the Company provided instructions to the Fairness
Analyst. Kelly & Company instructed the Fairness Analyst to conduct an
independent investigation, and thereafter render a written opinion to Kelly &
Company, as of the Determination Date, as to whether the Exchange Value
established by the General Partner, PCM and the Company is fair from a financial
point of view to the Partnerships. Kelly & Company also instructed the Fairness
Analyst to prepare a Fairness Opinion (i) satisfying the valuation requirements
of the Thompson-Killea Act; (ii) potentially useful in meeting the valuation
requirements of Sections 1300 et seq. of the California General Corporation Law
pertaining to Dissenting Shareholders; and (iii) sufficient to support an
opinion regarding the fairness from a financial point of view of the Merger
Proposal and related transactions, addressing the fairness from a financial
point of view of the Merger and related transactions as a whole and to each of
the Partnerships. Kelly & Company instructed the Fairness Analyst to perform a
due diligence investigation and to review all pertinent documents, including,
but not limited to financial statements; tax returns; audit work papers; banking
records; balance sheets; income statements; Securities and Exchange Commission
reporting forms; corporate documents such as Certificates or Articles of
Incorporation, Bylaws and minutes; furniture and equipment schedules; insurance
policies and coverages; PCM and Partnership operating budgets through December
31, 2008; office leases; management profiles; portfolio stratification reports;
and daily productivity reports. Kelly & Company also instructed the Fairness
Analyst to research industry sources and databases and economic outlook sources
regarding the financial services and distressed debt industry.
PROCEDURES FOLLOWED. As set forth above, the Fairness Analyst conducted a
complete independent investigation focusing on the valuation issues relating to
the "adequate consideration" rule. Adequate consideration is generally
understood to represent the fair market of an asset. Accordingly, in order to
arrive at its opinion regarding the fairness from a financial point of view of
the exchange rate established for the Units, the Fairness Analyst performed its
research and analyses with the intent of establishing whether the Limited
Partners would receive at least fair market value in exchange for their Units.
"Fair market value" is defined as the price at which an asset would change hands
between a willing buyer and a willing seller when the former is not under any
compulsion to buy and the latter is not under any compulsion to sell, both
parties are able, as well as willing, to trade, and both parties are well
informed about the asset and the market for that asset. The Fairness Analyst
performed an analysis of the material features and characteristics of the
Partnerships and PCM, as well as an analysis of the financial statements and
results of operations of each entity. The Fairness Analyst assumed that PCM will
continue its current business plan and structure, and made other reasonable
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assumptions and estimates regarding distressed loan portfolio acquisition and
pricing, operating expenses, and partnership distribution policies.
DETERMINATIONS. The Company, PCM and the General Partner determined the
total indicated values for PCM and for each of the Partnerships as set forth in
the following table:
<TABLE>
<CAPTION>
NAME OF PARTNERSHIP OR CORPORATION TOTAL VALUE
---------------------------------------------------------------------- -----------
<S> <C>
Performance Asset Management Fund, Ltd.,
A California Limited Partnership.................................... $ 934,000
Performance Asset Management Fund II, Ltd.,
A California Limited Partnership.................................... $ 3,112,000
Performance Asset Management Fund III, Ltd.,
A California Limited Partnership.................................... $ 6,000,000
Performance Asset Management Fund IV, Ltd.,
A California Limited Partnership.................................... $15,846,000
Performance Asset Management Fund V, Ltd.,
A California Limited Partnership.................................... $ 4,700,000
Performance Capital Management, Inc.,
a California corporation............................................ $44,523,000
</TABLE>
BASIS FOR METHODS OF ARRIVING AT FINDINGS AND RECOMMENDATIONS. The Fairness
Analyst valued the assets of each entity by determining the combined value of
such entity's assets, including the value of each entity's cash flows and the
terminal value of such entity's distressed loan portfolios. The Fairness Analyst
determined the asset liquidation value of each entity and calculated the
allocation of assets of each Partnership between the General Partner and the
Limited Partners of each Partnership based on such Partnership's Partnership
Agreement. Additional factors considered by the Fairness Analyst in making its
valuation include discount factors based on the age and composition of the
various distressed loan portfolios and the Fairness Analyst's determination of
the present value of the respective cash receipts of each entity, as well as the
historical and projected collection costs of distressed loan portfolios.
DETERMINATION OF EXCHANGE VALUE AND ALLOCATION OF COMMON SHARES
EXCHANGE VALUE. The net equity values determined by PCM, the Company and
the General Partner and reviewed by the Fairness Analyst of all of the assets of
the Partnerships, PCM and the Company, considered together and separately,
together with the book value of the other financial assets of such entities,
have been used to establish the Exchange Value. The Fairness Analyst is
unaffiliated with neither the Company, PCM nor the General Partner. PCM's and
the Company's independent auditors, Kelly & Company, were referred to the
Fairness Analyst by an accountant unaffiliated with neither PCM, the Company or
the General Partner and with whom neither PCM, the Company nor the General
Partner has conducted any business. The Fairness Analyst was selected by Kelly &
Company entirely on the basis of the its qualifications.
The General Partner and PCM valued the assets of the Partnership and PCM,
respectively, as if sold in an orderly manner in a reasonable period of time,
plus or minus other balance sheet items, and less the cost of sale. The
valuation was conducted in accordance with the provisions of Section
25014.7(b)(1) of the Thompson-Killea Act. The valuation was also conducted in
accordance with the provisions of Sections 1300 et seq. of the California
General Corporation Law pertaining the Dissenting Shareholders. The compensation
to dissenting Limited Partners and Shareholders entitled to compensation for
their Units or shares is based upon the valuation described above. See the
section entitled "RIGHTS OF DISSENTING SHAREHOLDERS AND DISSENTING LIMITED
PARTNERS" in the Prospectus.
The purpose of the Fairness Opinion is to confirm to the Company, PCM and
the General Partner the fairness from a financial point of view of the Merger
Proposal and related transactions to the Partnerships. Neither the Company, PCM,
nor the General Partner gave the Fairness Analyst any specific instructions
other than the instruction from Kelly & Company, PCM's and the Company's
independent auditors, to prepare a fairness opinion (i) meeting the valuation
requirements of the Thompson-Killea Act; and (ii) potentially useful in meeting
the valuation requirements of Sections 1300 et seq. of the California General
Corporation
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Law pertaining to Dissenting Shareholders; and (iii) sufficient to support an
opinion regarding the fairness of the Merger Proposal and related transactions,
addressing the fairness from a financial point of view of the Merger Proposal
and related transactions as a whole and to each of the Partnerships. Pursuant to
the Thompson-Killea Act, the Units were valued as if sold in an orderly manner
in a reasonable period of time, plus or minus other balance sheet items, and
less the costs of sale. Pursuant to the provisions of Section 1300 of the
California General Corporation Law, the fair market value of the Dissenting
Shares shall be determined as of the day before the first announcement of the
terms of the Merger Proposal and related transactions, excluding any
appreciation or depreciation in consequence of the Merger Proposal or related
transactions, but adjusted for any stock split, reverse stock split or share
dividend which becomes effective thereafter. The Fairness Opinion will not be
updated.
FAIRNESS OPINION. The Exchange Value was determined by PCM, the Company and
the General Partner, as was the consideration to be paid by the Company to each
Partnership for such Partnership's assets. The Fairness Analyst has determined
that the Exchange Value and such consideration are fair from a financial point
of view to each Partnership, as specified in the Fairness Opinion. The
compensation paid to the Fairness Analyst was not contingent upon the findings
of the fairness of the Exchange Value, such consideration or the Merger Proposal
or the consummation or approval of the Merger Proposal or related transactions.
The Fairness Opinion relates to the fairness from a financial point of view of
the Merger Proposal and related transactions, addressing the fairness from a
financial point of view of the Merger Proposal and related transactions as a
whole and to each of the Partnerships. Because the Merger is contingent upon the
approval of the Merger Proposal by all of the Partnerships, PCM, and the
Company, the Fairness Opinion did not consider possible combinations of less
than all of the Partnerships in the Merger.
The Fairness Analyst considered all of the assets of each of the
Partnerships, PCM, and the Company. The intangible assets of the Partnerships
and PCM consist of distressed financial debt instruments and obligations. The
Fairness Analyst also considered tangible assets of the Partnerships, PCM and
the Company. The tangible assets of the Partnerships and the Company were
determined to be negligible. The tangible assets of PCM were determined to be
more considerable and include furniture, computers and business equipment. The
aggregate appraised value of the assets of the Partnerships is $30,592,000. The
aggregate value of the assets of PCM is $44,523,000.
EXCHANGE OF SHARES. On the Closing Date, if the PCM Shareholders, the
Limited Partners of all five Partnerships, and the Company Shareholders approve
the Merger Proposal, PCM and the Partnerships will merge with and into the
Company. Pursuant to the Merger Agreement, all of the Units of the Limited
Partners at the Closing Date will be converted into Common Shares in accordance
with an exchange ratio which provides that each $10.00 in a Limited Partner's
capital account, calculated as of the Determination Date, will be converted into
one Common Share, with cash being paid for any fractional shares based on the
value of Common Shares on the Determination Date.
The following table summarizes the valuation conclusions of the General
Partner and PCM as to the Partnerships and PCM, respectively, based on 7,511,500
allocable shares of Merger Stock:
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE NUMBER OF
INDICATED VALUE INDICATED VALUE COMMON SHARES
(ROUNDED TO THE (ROUNDED TO THE ALLOCATED
NEAREST $1,000) NEAREST 1/10 OF 1%) TO ENTITY
--------------- ------------------- -------------
<S> <C> <C> <C>
PAM I................................ $ 934,000 1.2% 93,398
PAM II............................... 3,112,000 4.1 311,202
PAM III.............................. 6,000,000 8.0 600,003
PAM IV............................... 15,846,000 21.1 1,584,596
PAM V................................ 4,700,000 6.3 470,002
----------- ----- ---------
Sub-Total....................... $30,592,000 40.7% 3,059,201
----------- ----- ---------
PCM.................................. 44,523,000 59.3 4,452,299
----------- ----- ---------
Total........................... $75,115,000 100.0% 7,511,500
=========== ===== =========
</TABLE>
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The Company shall promptly furnish a copy of the Fairness Opinion, without
charge, upon the request of any Limited Partner, PCM Shareholder or Company
Shareholder. All such requests should be addressed as follows: Performance Asset
Management Company, Attn: Information Agent -- Fairness Opinion, 4100 Newport
Place, Suite 400, Newport Beach, California 92660.
POTENTIAL RISKS AND ADVERSE EFFECTS
THE MERGER AND ACQUISITION OF SHARES OF THE COMPANY'S COMMON STOCK INVOLVES
VARIOUS RISKS, AND LIMITED PARTNERS SHOULD CAREFULLY CONSIDER THE MATTERS
DISCUSSED UNDER THE SECTION ENTITLED "RISK FACTORS" IN THE PROSPECTUS, INCLUDING
THE FOLLOWING:
*TAX CONSEQUENCES. The Partnerships do not pay any federal income taxes.
After consummation of the Merger, the Surviving Corporation will be subject to
federal income tax. Shareholders of the Surviving Corporation will also be
required to pay federal income taxes on any dividends that they may receive from
the Surviving Corporation and on any gain from the sale or exchange of Common
Shares. Therefore, while in partnership form only one level of federal income
tax is imposed (i.e., on the Limited Partners), in corporate form two levels of
federal income tax are imposed (i.e., one on the Surviving Corporation and one
on its shareholders to the extent they receive dividends or recognize gain on
the sale or exchange of shares). See the portions entitled "FEDERAL INCOME TAX
CONSIDERATIONS" and "OTHER TAX CONSIDERATIONS" in the Prospectus.
*SIGNIFICANT REDUCTION IN DISTRIBUTIONS. The dividends distributed to
shareholders of the Surviving Corporation may be significantly less that the
current distributions to the Limited Partners. The Company currently does not
anticipate making any dividend payments on the Common Shares. See the portion
entitled "RISK FACTORS" in the Prospectus.
*NON-PERFORMING ASSETS. Many of the assets held by the Partnerships which
may be acquired by the Company are, by their nature, non-performing.
Specifically, those assets were originally available for purchase by the
Partnerships because the obligors of the indebtedness comprising those assets
failed to pay on those debt obligations and there is not sufficient security or
collateral available for disposition from which to generate proceeds sufficient
to pay those debt obligations. For that reason, the assets which the
Partnerships have acquired and the Company intends to acquire by the Merger may
be completely unproductive; that is, those assets may generate no income to the
Company. See the portion entitled "BUSINESS AND ASSETS" in the Prospectus.
*UNSPECIFIED ASSETS. The Company may, from time to time, change its asset
portfolio by disposing of certain assets and replace the same with newly
acquired assets. The assets may, in that sense, be unspecified. See the section
entitled "BUSINESS AND ASSETS" in the Prospectus.
*SPECULATIVE BUSINESS. The Company's business objectives, similar to those
of the Partnerships, must be considered speculative and there is no assurance
that the Company will satisfy those objectives. No assurances can be given that
Limited Partners will realize a return on their exchange of Units for shares of
Merger Stock. See the section entitled "RISK FACTORS" in the Prospectus.
*RESTRICTIONS ON TRANSFER OF COMMON SHARES. The Common Shares may not be
freely transferable if the shareholder is deemed an Affiliate of the Company, as
that term is defined herein. Further, no public market for the Common Shares
exists. To accomplish the purposes of the Merger, the transfer, assignment,
sale, conveyance, hypothecation, encumbrance or other alienation of the Merger
Stock will be restricted. 25% of the Merger Stock will be unrestricted
immediately after the consummation of the Merger. 25% of the Merger Stock will
be restricted until the end of the Company's first full fiscal quarter following
the Closing Date. 25% of the Merger Stock will be restricted until the end of
the Company's second full fiscal quarter following the Closing Date. The
remaining 25% of the Merger Stock will be restricted until the end of the
Company's third full fiscal quarter following the Closing Date. Accordingly, the
Common Shares should only be acquired as a long term investment. See the
portions entitled "RESALE OF THE COMMON
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<PAGE> 339
SHARES," "DESCRIPTION OF THE COMMON SHARES," and "Merger Stock Will Be
Restricted" in the Prospectus.
*UNCERTAINTY REGARDING TRADING AND MARKET PRICE OF COMMON SHARES. The
Common Shares may not be listed or approved for listing on any regional or
national securities exchange or otherwise designated or approved for designation
upon notice of issuance as a regional or national market system security. See
the portion entitled "RISK FACTORS" in the Prospectus.
*SUBSTANTIAL FEES. The Merger and related transactions may involve the
payment of substantial fees and compensation to the General Partner, PCM, the
Company and their Affiliates. Further, the management of the Company will be
entitled to receive certain significant fees, compensation, payments and
reimbursements regardless of whether the Company operates at a profit or loss.
See the portion entitled "MANAGEMENT OF THE COMPANY" in the Prospectus.
*CONFLICTS OF INTEREST. The Company, PCM and the General Partner are
subject to various conflicts of interest. See the portion entitled "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS" in the Prospectus.
*POTENTIAL PRICE VOLATILITY. If a public market develops for the Common
Shares, there may be significant volatility in the market price of the Common
Shares. Additionally, in recent years, the stock market has experienced a high
level of price and volume volatility and market prices for many companies,
particularly small and emerging growth companies, have experienced significant
price fluctuations not necessarily related to the operating performance of those
companies. The market price for the Common Shares may be affected by general
stock market volatility. See the section entitled "RISK FACTORS" in the
Prospectus.
*POSSIBLE DILUTION. The percentage interest of holders of Merger Stock in
the assets, liabilities, cash flow and results of operations of the Company, as
well as the percentage voting power of such holders, may be diluted in several
ways. See the portion entitled "RISK FACTORS" in the Prospectus.
RIGHTS OF DISSENTING LIMITED PARTNERS
DISSENTING LIMITED PARTNER RIGHTS. The Thompson-Killea Act provides
Dissenting Limited Partners with certain rights to receive compensation for
their Units based on a valuation of the Partnership's assets performed by an
independent party unaffiliated with the General Partner or the Company and which
values the assets as if sold in an orderly manner in a reasonable period of
time, plus or minus other balance sheet items, and less the cost of sale or
refinancing. Compensation to Dissenting Limited Partners may be cash, secured
debt instruments, unsecured debt instruments, or freely tradeable securities;
provided, however, that:
(A) debt instruments used as compensation must provide for a trustee
and an indenture to protect the rights of the debt holders and provide a
rate of interest based upon, but not less than, the then applicable federal
interest rate as determined in accordance with Section 1274 of the Code;
(B) unsecured debt instruments used as compensation, in addition to
the above requirements, must limit total leverage to 70 percent of the
appraised value of the assets;
(C) all debt securities have a term no greater than seven years and
provide for prepayment with 80 percent of the net proceeds of any sale or
refinancing of the assets previously owned by the entity or any part
thereof; and
(D) freely tradeable securities used as compensation to Dissenting
Limited Partners must be issued by an issuer whose securities are listed on
a certified national securities exchange or designated as a national market
system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc., for at least one year prior to the
transaction, and the number of securities to be received in return for
Units must be determined by a valuation of limited partnership assets,
conducted in a manner consistent with the procedures described above, in
relation to the average last sale price of the freely tradeable securities
in the 20-day period following the consummation of the Merger. If the
issuer of the freely tradeable securities is affiliated with PCM, the
General Partner or the Company, newly issued
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securities to be utilized as compensation to Dissenting Limited Partners
shall not represent more than 20 percent of the issued and outstanding
shares of that class of securities after giving effect to the issuance. For
the purposes of the preceding sentence, neither PCM, the General Partner
nor the Company is deemed "affiliated" with the issuer of the freely
tradeable securities if PCM, the General Partner nor the Company receives
any material compensation from the issuer or its Affiliates in conjunction
with the Merger Proposal or related transactions; provided, however, that
PCM, the General Partner and Company may, under certain circumstances,
receive payment for their equity interests and other compensation.
Further, the Limited Partners may, in lieu of the forgoing, receive or
retain a security with substantially the same terms and conditions as the
security originally held, i.e. the units in a limited partnership similar to the
Partnership, provided that the receipt or retention of that security is not a
step in a series of subsequent transactions that directly or indirectly through
acquisition or otherwise involves future combinations or reorganizations of one
or more former Merger participants. Securities received or retained will be
considered to have the same terms and conditions as the security originally held
if:
(A) There is no material adverse change to the Dissenting Limited
Partners' rights, including, but not limited to, rights with respect to
voting, the business plan, or the investment, distribution, management
compensation, and liquidation policies of the Surviving Corporation.
(B) The Dissenting Limited Partners receive the same preferences,
privileges, and priorities as they had pursuant to the security originally
held.
The Company is satisfying this requirement by offering to purchase the
Units of any Dissenting Limited Partner with an unsecured subordinated debenture
issued under an indenture in conformity with the Thompson-Killea Act. The Merger
Proposal and related transactions have also been structured to comply with the
other protections afforded by the Thompson-Killea Act. In the event a Limited
Partner elects to exercise his or her right to dissent, such Limited Partner
must perform the acts set forth at the portion of the Prospectus entitled
"VOTING PROCEDURES -- Dissenting Limited Partners." Generally, Dissenting
Limited Partners must file a written notification of their election to dissent
with the General Partner and request a substitute security from the General
Partner.
See the portion entitled "RIGHTS OF DISSENTING SHAREHOLDERS AND LIMITED
PARTNERS" in the Prospectus.
A Dissenting Limited Partner who perfects his or her dissenter's rights as
described below will be entitled to receive an unsecured subordinated debenture
for the fair exchange value of that Dissenting Limited Partner's Units. In the
event a Dissenting Limited Partner elects to exercise his or her right to
dissent, such Dissenting Limited Partner must do the following to perfect his or
her rights as a Dissenting Limited Partner:
(A) Such Dissenting Limited Partner must file a written request with
the Company at 4100 Newport Place, Suite 400, Newport Beach, California
92660, attention: Information Agent -- Dissenters' Rights, prior to the
earlier of (i) the date such Dissenting Limited Partner's completed Consent
Form is received by the Exchange Agent, or (ii) the expiration of the
Solicitation Period.
(B) The request must state the number of Units for which the
Dissenting Limited Partner is requesting dissenters' rights. Only persons
who fail to vote in favor of the Merger Proposal and related transactions
can be Dissenting Limited Partners. NEITHER THE DELIVERY OF A CONSENT FORM
DIRECTING A VOTE AGAINST THE MERGER PROPOSAL AND RELATED TRANSACTIONS NOR A
FAILURE TO VOTE FOR THE MERGER PROPOSAL AND RELATED TRANSACTIONS
CONSTITUTES A WRITTEN REQUEST FOR DISSENTERS' RIGHTS.
If PCM, the Company and all of the Partnerships approve the Merger Proposal
and related transactions, and the other conditions of the Merger Proposal and
related transactions are satisfied so that the Merger is consummated, then a
Dissenting Limited Partner who requests dissenters' rights and who thereafter
perfects his or her rights as a Dissenting Limited Partner will be provided with
an unsecured subordinated debenture
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within 30 days following the consummation of the Merger and related transactions
for his or her Units in the amount as determined above.
LIMITED PARTNERS WISHING TO EXERCISE THEIR DISSENTERS' RIGHTS ARE CAUTIONED THAT
FAILURE TO FOLLOW THE ABOVE PROCEDURES PRECISELY MAY RESULT IN THE LOSS OF
DISSENTERS' RIGHTS.
COMPLIANCE WITH AND APPROVAL FROM FEDERAL AND STATE AUTHORITIES. The Merger
Proposal and related transactions will not be completed if any moratorium on
transactions of its type are imposed by federal, state or regulatory authorities
or if any state Blue Sky or securities authority imposes any restriction upon,
or prohibits any aspect of, the transactions contemplated by the Merger Proposal
and related transactions, which in the judgment of the Company, renders the
Merger Proposal and related transactions undesirable or impractical.
COMPARISON OF UNITS AND COMMON SHARES. The portion entitled "Summary
Comparison of Units and Common Shares" in the Prospectus highlights a number of
the significant differences between the Partnerships (and the Units) and the
Company (and the Common Shares) relating to, among other things, form of
organization, investment objectives, policies and restrictions, asset
diversification, capitalization, management structure compensation and fees, and
investor rights, and compares certain legal rights associated with the ownership
of the Units and Common Shares, respectively. These comparisons are intended to
assist the Limited Partners in understanding how their investments will be
changed if, as a result of the Merger and related transactions, their Units are
exchanged for Common Shares.
FEDERAL INCOME TAX CONSIDERATIONS
INTRODUCTION. The following information is intended to provide to Limited
Partners with a summary of all material federal income tax consequences of
general application to the Surviving Corporation and Limited Partners associated
with the Merger Proposal. This summary does not comment on all tax matters that
may affect the Partnership, the Surviving Corporation and the Limited Partners,
including any state, local, foreign or other matters, and does not consider
various facts or limitations applicable to any particular Limited Partner, or
special tax rules that may apply to certain Limited Partners and may modify or
alter the results described herein.
Except as otherwise indicated, statements of legal conclusions regarding
tax treatments, tax effects or tax consequences present the opinions of John
Brainerd, Attorney-at-Law and tax counsel retained to provide a tax opinion
relating to the Merger Proposal, based on the Code and applicable Treasury
Regulations, each as amended and in effect on the date hereof, and on reported
judicial decisions and published positions of the Internal Revenue Service
("IRS"). No rulings have been requested from the IRS concerning any of the
matters described in the Prospectus and the IRS will generally not issue rulings
on transactions such as the Merger Proposal. In some cases, particularly those
as to which tax counsel's opinion is qualified, there is a risk that the IRS
will disagree with the conclusions of tax counsel. The laws, regulations,
administrative rulings and judicial decisions that form the basis for
conclusions with respect to the tax consequences of the Merger Proposal are very
complex and are subject to change at any time.
The tax opinion of John Brainerd is filed as an exhibit to the Registration
Statement. Upon receipt of a written request of a Limited Partner (or such
Limited Partner's representative who has been so designated in writing)
addressed to the Company, at 4100 Newport Place, Suite 400, Newport Beach,
California 92660, attention: Corporate Secretary, a copy of the tax opinion will
be transmitted promptly, without charge, by the Company.
Limited Partners should be aware that there is no direct authority of
general applicability governing the federal income tax treatment of transactions
such as the Merger Proposal that are structured as partnership mergers, because
this structure is an approach made available by recent developments in
partnership law. Therefore, in rendering its opinions, tax counsel has relied on
authorities addressing the consequences of analogous transactions that used
similar structures. Accordingly, although there appears to be no controlling
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authority contrary to tax counsel's conclusions, it is possible that the IRS
would take a different position if it addressed the tax consequences of the
Merger Proposal.
DIFFERENCES BETWEEN UNITS AND COMMON SHARES. A limited partnership is a
pass-through entity for federal income tax purposes. This means that a limited
partnership is not liable for federal income tax on its taxable income. Rather,
a limited partnership passes its income (or loss) through to its owners (i.e.,
general and limited partners) in proportion to their relative ownership
interests. This is known as allocating a partnership's income and loss. Many
items of income, gain, loss, and deduction are allocated separately to each
partner in proportion to such partner's interest. The character of each item
passed through to a partner remains the same with the partner as it was with the
limited partnership. When income (or loss) is allocated to a partner, such
partner is taxed on that income (or may deduct that loss). This tax is imposed
on the partner regardless of whether the limited partnership actually
distributes any cash or property to the partner. Therefore, generally it is the
allocation, not the distribution, of income to a partner that results in tax (or
a deduction) for that partner. A partner has a basis in the limited partnership
interest he or she holds which is generally equal to either the cost of the
limited partnership interest if purchased, or if not purchased, the amount of
any cash or basis of any other property that partner transferred to the limited
partnership, increased (or decreased) by that partner's share of the limited
partnership's income (or loss) and decreased by the amount of any cash (or the
basis of any property) distributed to that partner. Upon sale of his or her
limited partnership interest, a partner realizes gain equal to the amount
received for the limited partnership interest less the partner's basis in the
limited partnership interest. The partner's gain (or loss) upon sale is
generally capital, but may be characterized as ordinary to the extent of the
partner's share of certain assets held by the limited partnership.
Because a limited partnership does not pay tax on income it earns (but
rather the General Partner and Limited Partners pay tax on such income),
partners of a limited partnership are subject to only one level of federal
income tax on income earned in the business conducted by the Partnership. As
owners of the Partnership through their Units, Limited Partners receive the
federal income tax treatment just described. The number of Units owned by a
Limited Partner will determine the amount of income or loss allocated to the
partner by the applicable Partnership.
A corporation is a taxable entity and pays federal income tax at a maximum
rate of 39% on its taxable income. A shareholder of a corporation is generally
not taxed on any income earned by a corporation until the corporation
distributes either cash or property to the shareholder or the shareholder sells
or exchanges his or her stock at a gain. A corporation often makes distributions
to shareholders in proportion to their interests in the corporation, but it need
not do so. When cash or property is distributed, each portion of the
distribution will be characterized in one of the following three ways: (i) as a
dividend, (ii) as a capital gain, or (iii) as a return of capital. The portion
of a distribution treated as a dividend is taxed at ordinary federal income tax
rates, which, for individuals, range up to 39.6%. However, upper bracket
individuals are subject to a phaseout of their personal exemptions, and a
restriction on itemized deductions, which in combination in certain
circumstances, can bring the actual maximum federal rate to more than 47%. The
portion treated as capital gain will generally be taxed at a maximum 28% rate.
The portion treated as return of capital will not be taxed. The amount of any
distribution treated in any of the three alternative ways may differ for each
shareholder, and will depend upon the value of the cash and property received,
the percentage interest in the corporation owned by the shareholders receiving
the distribution, and each shareholder's basis in his or her shares. Because
corporations are taxable on their own taxable income, and because shareholders
may be taxed again on that same income if it is distributed to them in the form
of cash or property or it is realized through the sale or exchange of shares of
stock at a gain, there are two levels of potential tax upon income earned by a
corporation. A shareholder's basis in his or her stock is generally equal to the
cost of the stock if purchased, or, if not purchased, the amount of any cash and
basis of other property contributed to the corporation, decreased by the amount
of any distributions treated as a return of capital under the rules discussed
above. Upon a sale of stock, a shareholder's gain (or loss) will be equal to the
amount received for the stock less his or her basis in that stock. The character
of such gain (or loss) will generally be capital in nature. As holders of
interests in a corporation, the owners of any Common Shares will be subject to
the tax treatment just described.
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As a holder of a Unit, a Limited Partner holds an interest in an entity
that earns income subject to only one level of federal income tax, whereas the
holder of a Common Share would hold an interest in an entity that earns income
subject to two potential levels of federal income tax.
There are, however, potential tax advantages (and corresponding financial
advantages) to conducting a business by a corporation. These include the ability
of shareholders to defer tax on income earned by the corporation until the
corporation distributes such income. Partners in a partnership, by contrast, are
taxed as soon as the partnership earns income. Partners pay such tax at their
individual federal tax rate, which may exceed the maximum federal corporate tax
rate. Alternatively, because shareholders pay no tax until they receive
distributions, the Surviving Corporation, as a corporation, may accumulate
income for business expansion without financially interfering with its
shareholders' ability to pay their taxes.
LIMITED PARTNERS. Each Limited Partner will recognize gain or loss
resulting from the Merger as if the Partnership had (a) sold all of its assets
to the Company for an amount equal to the value of the shares received in the
Merger, plus the liabilities of the Partnership assumed in the Merger, and (b)
distributed the shares received in the Merger to the Limited Partners. A Limited
Partner who receives cash (with respect to Units) in lieu of fractional Common
Shares or who receives an unsecured subordinated debenture because of such
Limited Partner's exercise of appraisal or similar rights under California law
(with respect to Units) may recognize gain depending upon such Limited Partner's
aggregate basis in the Partnership prior to the Merger. The aggregate basis of
any Common Shares received in the Merger by a Limited Partner in exchange for
Units will equal the aggregate basis in such Units immediately before the
Merger, but may be decreased if cash is received by such Limited Partner for
such Units in lieu of fractional Common Shares. Such basis will be prorated
among all Common Shares received for such Units.
A Common Share received in exchange for Units will have a holding period
that begins on the day following the Merger to the extent that the value of such
Common Share on such date is attributable to certain of the Partnership's assets
(essentially its ordinary income assets), and to the extent of any excess value,
such Common Share will have a holding period that includes the period the Units
were held by the Limited Partners.
A holder of Units who subsequently sells the Common Shares received in the
Merger will recognize gain or loss measured by the difference between the amount
realized on such sale and his or her tax basis in the shares sold. Each Limited
Partner who receives Common Shares in the Merger will be required to file with
his or her federal income tax return for the year in which the Merger is
consummated a statement that provides details relating to his or her Limited
Partnership interest (which will be considered to be property transferred), the
Common Shares, and his or her share of any liabilities assumed by the Surviving
Corporation in the Merger. The Surviving Corporation will provide shareholders
with information to assist them in preparing such a statement.
After the Merger, the income and deductions attributable to the assets and
liabilities of the Surviving Corporation will not be allocated to the Surviving
Corporation's shareholders. A shareholder will be taxed only on dividends and
other distributions received from the Surviving Corporation, if any. Such
distributions generally will be taxable as dividends to the extent of any
current or accumulated earnings and profits of the Surviving Corporation. Any
other distributions will be treated as a nontaxable return of capital to the
extent of the shareholder's basis in his or her Common Shares and as capital
gain to the extent of the remaining portion of such distribution.
THE SURVIVING CORPORATION AND THE PARTNERSHIP. The Partnership will be
deemed to have transferred all its assets and liabilities to the Company and to
have received Common Shares in exchange, and then to have distributed those
shares to the General Partner and the Limited Partners in complete liquidation.
As a consequence, the assets of the Partnership will retain the same tax basis
as they had prior to the Merger unless the Partnership is required to recognize
gain resulting from the Merger. The Surviving Corporation's tax basis in the
assets acquired from the Partnership would equal the value of the Common Shares
issued in the Merger plus the amount of the Partnership's liabilities assumed in
the Merger, and the Surviving Corporation's holding period in the assets would
begin the day after the Merger takes effect. The Partnership, on the other hand,
would recognize gain or loss resulting from the Merger in an amount equal to the
amount by which the
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value of the Common Shares received plus the amount of the Partnership's
liabilities assumed exceeds (or is less than) its basis in the assets
transferred and the General Partner and the Limited Partners would be required
to include in their taxable income their distributive shares of the
Partnership's gain or loss.
After the Merger becomes effective, the Partnership will cease to exist for
both state law and federal income tax purposes. The Surviving Corporation will
be taxed as a corporation on its taxable income. The income and deductions
attributable to the assets and liabilities received in the Merger will be
included in the Surviving Corporation's taxable income. The adjusted tax basis
of certain of the assets will be depreciable or amortizable for federal tax
purposes, thereby reducing the amount of the Surviving Corporation's income
subject to tax.
THE FOREGOING DISCUSSION ADDRESSES ONLY THE FEDERAL INCOME TAX CONSEQUENCES OF
THE MERGER PROPOSAL APPLICABLE TO LIMITED PARTNERS GENERALLY. EACH LIMITED
PARTNER AND SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR CONCERNING THE
FEDERAL, STATE, LOCAL AND OTHER TAX CONSEQUENCES OF THE MERGER PROPOSAL.
OTHER TAX CONSIDERATIONS. The following information is intended to provide
Limited Partners with a summary of certain material state and local income tax
consequences of general application to the Limited Partners and the Surviving
Corporation associated with the Merger Proposal. This information does not
present all tax matters that may affect the Partnership, the Surviving
Corporation and the Limited Partners, and does not consider various facts and
limitations applicable to any particular Limited Partner, or special tax rules
that may apply to certain Limited Partners that may modify the results described
herein.
The following statements are not the subject of John Brainerd's tax opinion
and have not otherwise been passed upon by Mr. Brainerd. No rulings have been
requested from any state or local tax jurisdiction concerning any of the matters
described in the Prospectus.
A limited partnership is generally a pass-through entity for state and
local income tax purposes. This means that a limited partnership is not liable
for state or local income tax on its taxable income. In general, partners liable
for federal income tax are also liable for the state and local income taxes of
the states and taxing municipalities in which a limited partnership does
business. These taxes are generally based on a partner's allocated share of
federal taxable income from the limited partnership as allocated or apportioned
among the various state and local jurisdictions on the basis of the character of
the income earned or on the basis of sales made, payroll paid, and property
owned in each jurisdiction. A partner is also generally subject to tax on all
income earned from that partner's investment in the limited partnership in the
partner's state and, if applicable, city or village of residence. This tax may
be offset by credits for taxes paid to other states and municipalities. In
general, interest income and capital gains earned by a limited partnership are
not subject to municipal income tax. As with federal income tax, partners of a
limited partnership are subject to only one level of state and local income tax
on income earned in the business conducted by the limited partnership. See the
section entitled "FEDERAL INCOME TAX CONSIDERATIONS" in the Prospectus.
The Partnerships have filed composite state income tax returns for a number
of years on behalf of eligible and electing Limited Partners for the purpose of
limiting each Limited Partner's compliance burden to that Limited Partner's
state of residence. The taxes paid by the Partnership with these returns have
been charged to the participating Limited Partners' capital accounts.
A corporation is a taxable entity and pays state and local income taxes at
rates which vary depending upon the identity of the states and cities in which
the corporation conducts its business. The business of the Surviving Corporation
is expected to be conducted in California, which imposes a tax on income
apportioned to California. A shareholder of a corporation is generally not taxed
on any income earned by a corporation until the corporation distributes either
cash or property to the shareholder or the shareholder sells or exchanges shares
of stock at a gain. See the section entitled "FEDERAL INCOME TAX CONSIDERATIONS"
in the Prospectus. Dividends and capital gains are generally subject to tax only
in the shareholder's state of residence. Income from capital gains is generally
taxed at the same rates as other taxable income. Neither dividends nor capital
gains are generally taxable by taxing municipalities.
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THE FOREGOING DISCUSSION ADDRESSES ONLY CERTAIN OF THE STATE AND LOCAL INCOME
TAX CONSEQUENCES OF THE MERGER PROPOSAL APPLICABLE TO LIMITED PARTNERS
GENERALLY. EACH LIMITED PARTNER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR
CONCERNING THE FEDERAL, STATE, LOCAL AND OTHER TAX CONSEQUENCES OF THE MERGER
PROPOSAL.
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APPENDIX D
SUPPLEMENT FOR
PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
(S-K REG. 229.902)
NOTICE TO LIMITED PARTNERS OF PERFORMANCE ASSET MANAGEMENT FUND III, LTD., A
CALIFORNIA LIMITED PARTNERSHIP:
This separate partnership supplement highlights information that addresses
certain matters presented in the prospectus ("Prospectus") as they relate to
Performance Asset Management Fund III, Ltd., A California Limited Partnership
("Partnership") and its limited partners ("Limited Partners"), regarding a
proposed merger ("Merger") of the Partnership and other limited partnerships
("Other Partnerships") and Performance Capital Management, Inc., a California
corporation ("PCM"), with and into Performance Asset Management Company, a
Delaware corporation ("Company"). Similar supplements have been prepared for the
Other Partnerships. The effects of the Merger may differ for the limited
partners in the Other Partnerships. If you want to obtain a supplement for any
of the Other Partnerships, please call the Information Agent at (714) 261-7300,
or send a written request to Performance Development, Inc., Attn: Information
Agent, 4100 Newport Place, Suite 400, Newport Beach, California 92660.
Supplements for any of the Other Partnerships will be provided without charge to
any Limited Partner. All defined terms used in this Supplement shall have the
same definitions as specified in the Prospectus.
The Partnership was formed on September 25, 1992, as a limited partnership
in California under the Revised Limited Partnership Act of the State of
California, as enacted and in effect on or after July 1, 1984. This Partnership
sold 1,980 Units at the price of $5,000.00 per Unit. The total gross amount
received by this Partnership from purchasers of its Units is $9,990,000.00. As
of the Determination Date, this Partnership had 596 Limited Partners. The
Partnership termination date is December 31, 2005, unless sooner terminated.
SELECTED FINANCIAL INFORMATION. The following chart provides a historical
summary of gross collections and partner distributions for the Partnerships from
the date of formation of each Partnership through June 30, 1997:
<TABLE>
<CAPTION>
COST OF
PORTFOLIOS ORIGINAL PORTFOLIO PORTFOLIOS GROSS PARTNER
PARTNERSHIP ACQUIRED FACE VALUE ACQUIRED COLLECTIONS* DISTRIBUTIONS**
------------------------ ---------- ------------------ -------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
PAM I(1)................ 16 $ 305,438,442 $ 4,932,616 $ 5,526,429 $ 3,678,632
PAM II(2)............... 19 433,632,566 6,230,345 8,749,682 4,059,775
PAM III(3).............. 21 521,408,657 9,685,926 7,826,584 3,463,815
PAM IV(4)............... 57 709,008,534 20,416,167 20,014,508 6,269,988
PAM V(5)................ 12 209,901,705 4,997,992 2,889,555 639,600
--- ------------- ----------- ----------- -----------
Total.............. 125 $ 2,179,389,904 $ 46,263,046 $ 45,006,758 $18,111,810
=== ============= =========== =========== ===========
</TABLE>
- ---------------
* Gross collections include any sale of accounts and collection activity
through June 30, 1997
** Through June 30, 1997
(1) Performance Asset Management Fund, Ltd., A California Limited Partnership
("PAM I").
(2) Performance Asset Management Fund II, Ltd., A California Limited Partnership
("PAM II").
(3) The Partnership ("PAM III").
(4) Performance Asset Management Fund IV, Ltd., A California Limited Partnership
("PAM IV").
(5) Performance Asset Management Fund V, Ltd., A California Limited Partnership
("PAM V").
Each Limited Partner should thoroughly review the selected financial
statements included in the portions of the Prospectus "RESULTS OF OPERATIONS,"
"SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA AND COMPARATIVE PER SHARE
DATA," "PRO FORMA CONDENSED FINANCIAL INFORMATION," and the financial statements
of the Company, PCM and the Partnerships included in the Prospectus.
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<PAGE> 347
The Partnership has continued to invest in distressed loan portfolios. As
set forth above, these portfolios consist primarily of charged-off credit card
accounts and consumer loan balances such as auto and personal lines of credit
originated by independent third-party financial institutions located throughout
the United States. In addition, the Partnership also acquired certain portfolios
of default consumer debts which were rewritten under terms different from the
original obligation. In 1994 the Partnership spent $204,928 on such purchases.
In 1995, the Partnership spent $160,605 on such purchases. In 1996, the
Partnership spent $2,764,469 on such purchases. Collections on investments in
distressed loan portfolios were $1,870,385 in 1994, $1,337,920 in 1995 and
$4,725,191 in 1996.
In 1994, 1995 and 1996, investments in distressed loan portfolios consisted
of the following (amounts are carrying amounts):
<TABLE>
<CAPTION>
TYPE OF PORTFOLIO 1994 1995 1996
----------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Credit Card Accounts........................... $3,043,207 $1,168,650 $2,566,546
Performing Rewritten Accounts.................. $ 46,017 $1,952,735 --
Consumer Loans................................. $1,310,633 $ 520,968 --
Trade Receivables.............................. $ 8,004 -- --
---------- ---------- ----------
Totals............................... $4,407,861 $3,642,353 $2,566,546
========== ========== ==========
</TABLE>
In 1994, the Partnership recorded net investment income of $15,660, net
interest income of $9,437, and other income of $900. Operating expenses for the
Partnership consists of the following: management fee expense of $121,205;
collection expense of $12,076; professional fees of $6,856; amortization expense
of $1,157; and general and administrative expenses of $6,990; for total
operating expenses of $148,284. Thus, the Partnership recorded a net loss of
$122,287 for 1994.
In 1995, the Partnership recorded net investment income of $205,518, net
interest income of $14,283, and other income of $1,735. Operating expenses for
the Partnership consists of the following: management fee expense of $92,447;
collection expense of $7,716; professional fees of $208,877; amortization
expense of $1,157; and general and administrative expenses of $3,183; for total
operating expenses of $313,380. Thus, the Partnership recorded a net loss of
$91,844 for 1995.
In 1996, the Partnership recorded net investment income of $884,915 and net
interest income of $190,605. Operating expenses for the Partnership consists of
the following: management fee expense of $51,425; collection expense of $73,542;
professional fees of $254,453; amortization expense of $1,155; and general and
administrative expenses of $11,782; for total operating expenses of $392,357.
Thus, the Partnership recorded net income of $683,163 for 1996.
APPRAISED VALUE OF ASSETS HELD BY THE PARTNERSHIP. As of December 31 of
each of the years specified in the following table, the Partnership held the
following assets:
<TABLE>
<CAPTION>
ASSET 1994 1995 1996
----------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Cash and equivalents........................... $ 751,459 $ 210,140 $ 775,755
Cash held in trust............................. -- $ 762,639 $2,656,338
Investment in Distressed Loan Portfolios....... $4,408,633 $3,642,353 $2,566,546
Receivable from Unaffiliated Service
Provider(1).................................. $ 927,540 $ 927,540 --
Due from Affiliates............................ -- -- $ 56,039
Other Assets................................... $ 101,579 $ 165,815 $ 64,477
Organization Costs, Net........................ $ 3,235 $ 2,078 $ 923
</TABLE>
- ---------------
(1) West Capital Financial Services Corp., a California Corporation.
The Partnership defines cash equivalents as all highly liquid investments
with a maturity of three months or less when purchased. The Partnership
maintains cash balances at one bank and aggregate accounts at the institution
are insured by the Federal Deposit Insurance Corporation up to $100,000.
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<PAGE> 348
COMPENSATION TO THE GENERAL PARTNER AND AFFILIATES FOR THE LAST THREE
FISCAL YEARS. The following table sets forth the compensation paid to the
General Partner and its affiliates for the last three fiscal years and the most
recently completed interim period.
<TABLE>
<CAPTION>
1994 1995 1996 1997*
---------- -------- ---------- ----------
<S> <C> <C> <C> <C>
General Partner
Management Fees.................. $ 121,205 $ 92,447 $ 51,425 $ 28,901
Distribution..................... $ 148,383 $ 41,828 $ 35,775 $ 66,600
PCM
Acquisition fees................. -- $ 42,513 $ 686,459 --
Collection fees.................. 755 29,091 165,204 353,060
---------- -------- ---------- ----------
Total.................... $ 270,343 $205,879 $ 938,863 $ 448,561
========= ======== ========= =========
</TABLE>
- ---------------
* Through June 30, 1997
The following table sets forth the compensation that would have been paid
to the General Partner and its Affiliates if the compensation and distributions
structure to be in effect after the roll-up transaction had been in effect
during the last three fiscal years.
<TABLE>
<CAPTION>
ENTITY 1994 1995 1996
------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
General Partner (PDI)................ $ 0 $ 0 $ 0
INC.................................. 0 0 0
PCM ................................. 0 0 0
---------- ---------- ----------
Total........................... $ 0 $ 0 $ 0
========= ========= =========
</TABLE>
As stated above, the Partnership enters into various joint ventures with
Performance Capital Management, Inc., a California corporation and an Affiliate
of the General Partner. Vincent E. Galewick owns all of the issued and
outstanding stock of the following Affiliates:
Performance Development, Inc., a California corporation ("PDI") (the
"General Partner")
Income Network Company, Inc., a California corporation ("INC")
Performance Capital Management, Inc., a California Corporation ("PCM")
The Other Partnerships:
PAM I, PAM II, PAM IV, PAM V (PAM I through PAM V, inclusive, are the "PAM
Funds")
PDI was formed in June, 1990 to engage in various aspects of the distressed
loan industry. PDI is also the general partner for the PAM Funds and various
other California limited partnerships. For the years ended December 31, 1994 and
1995, the Partnership paid PDI for management fees incurred and recorded by the
Partnership totalled $121,205 and $92,447, respectively, and $51,425 for the
year ended December 31, 1996. The Partnership also accrued distributions to PDI
of $148,383 and $41,828 for the years ended December 31, 1994 and 1995,
respectively and $35,775 for the year ended December 31, 1996. At December 31,
1994, 1995, and 1996 the Partnership had amounts owed to PDI recorded as amounts
due to affiliates of $370,609, $420,681, and $492,364 respectively.
INC was formed on February 1, 1988 as a registered broker-dealer and member
of the National Association of Security Dealers and the Securities Investor
Protection Corporation. The Company's sole shareholder, Vincent E. Galewick, is
also the sole shareholder of the General Partner, PDI. INC, in accordance with
the limited partnership agreement and offering prospectus of the Partnership, is
paid commissions of 10% of sales of Partnership Units to limited partner
investors. As of December 31, 1995, the Partnership had amounts owed to INC of
$2,850 for payments made on behalf of the Partnership.
PCM was formed in February, 1993 to perform services related to locating,
evaluating, negotiating, acquiring and collecting distressed loan portfolio
assets. PCM acquires portfolio assets from third-party financial institutions
and sells the portfolios to the Partnership at cost plus an acquisition fee of
approximately 30% to 37% as provided in the related purchase agreement. The
Partnership also enters into servicing
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<PAGE> 349
agreements with PCM to collect and service the portfolio activity. The
agreements generally provide that all proceeds generated from the collection of
portfolio assets shall be shared by the venturers in proportion to their
respective percentage interests, generally, 55% to 60% for the Partnership and
40% to 45% for PCM. The Partnership also reimburses PCM for certain costs
associated with the collection of portfolio proceeds.
Moreover, in addition to providing collection efforts on distressed loan
portfolios to the Partnership, PCM identifies and acquires distressed loan
portfolios and other discounted portfolios of financial debt instruments and
obligations and sells them to the Partnership and other affiliates at negotiated
prices.
For the years ended December 31, 1995 and 1996, the Partnership purchased
one portfolio and three portfolios, respectively, from PCM and recorded
acquisition fees for these portfolios of $42,513 and $686,459, respectively.
These acquisition fees have been included in the carrying value of the related
investments. Also, for the years ended December 31, 1994, 1995 and 1996, the
Partnership incurred and reimbursed PCM for collection costs of $940, $4,578,
and $73,542, respectively.
The Partnership had amounts owed to PCM of $9,411 recorded as due to
affiliates at December 31, 1995, and amounts due from PCM of $56,039 recorded as
due from affiliates at December 31, 1996.
DISTRIBUTIONS AND DIVIDENDS. The Partnership has made quarterly cash
distributions to the Limited Partners, which distributions terminated effective
as of June 30, 1997. The following table specifies the cash distributions,
including those cash distributions which represent a return of capital, made to
Limited Partners in the Partnership during each of the last five fiscal years
and most recently completed interim period.
<TABLE>
<CAPTION>
GENERAL LIMITED
TOTAL PARTNER PARTNER
YEAR DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS
----------------------------------------------- ------------- ------------- -------------
<S> <C> <C> <C>
1992........................................... -- -- --
1993........................................... $ 923,767 $ 92,377 $ 831,390
1994........................................... $ 1,484,583 $ 148,383 $ 1,336,200
1995........................................... $ 441,528 $ 41,828 $ 399,700
1996........................................... $ 331,700 $ 35,775 $ 295,925
June 30, 1997.................................. $ 667,200 $ 66,600 $ 600,600
</TABLE>
PERFORMANCE ASSET MANAGEMENT FUND III, LTD.
PER UNIT DATA
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Partnership units outstanding at year end...... 1,998 1,998 2,000 2,000 437
Earnings (loss) per unit....................... 341.92 (45.97) (61.14) (89.90) (11.83)
Book value per unit............................ 3,063.10 2,858.14 3,096.22 3,768.59 4,965.99
Assigned value for roll-up per unit............ $3,003/unit
Annual return of capital distributions per
unit......................................... 148.11 200.05 668.10 415.70 0.00
Cumulative return of capital distributions per
unit......................................... 1,433.04 1,284.93 1,083.80 415.70 0.00
</TABLE>
REASONS FOR THE MERGER PROPOSAL
LIQUIDITY AND MARKET VALUATION. Units are not publicly traded and have
limited liquidity. The primary means of liquidity for holders of Units is to
request the Partnership to redeem the Units. Although the Partnership is not
obligated to honor any such request, such redemptions have occurred from time to
time, using available cash to redeem the Units at a percentage of book value.
After consummation of the Merger, however, the Company expects to qualify the
Common Shares for listing and trading on a regional or national securities
exchange. At that time, there is expected to be a potential liquid market for
selling the Common Shares and a readily determinable market value for the Common
Shares. With a liquid market for Common Shares, equity holders would not be
required to rely solely on the Company as a source of liquidity, and the
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Company will not be required to use its cash to provide such liquidity. Instead,
it is expected that holders of Common Shares will be able to sell their Common
Shares publicly from time to time, subject to certain restrictions, for their
fair market value.
The Company and the General Partner believe that the Merger is necessary to
realize the full benefit of a public trading market. The Company believes that
corporate equity securities are more favorably valued than comparable limited
partnership interests, because a partnership with publicly traded limited
partnership interests is generally taxed as if it were a corporation and because
many institutional investors will not invest in a business organized as a
partnership, even if it is not taxed as a corporation.
ACCESS TO EQUITY MARKETS. Although the Company currently has no plans for
additional equity offerings, the existence of publicly traded equity securities
is expected to provide it with future access to the public equity markets.
GREATER FLEXIBILITY REGARDING CAPITAL RESOURCES. The Company will have
greater flexibility with respect to the use of capital resources because it will
not have to use available cash to redeem Common Shares. As discussed above, the
Partnership has from time to time used its cash to redeem Units when requested
to do so by Limited Partners. There are also potential tax advantages (and
corresponding financial advantages) to conducting a business as a corporation
that should allow the Company greater flexibility with respect to the management
of its capital resources. Shareholders will defer the payment of taxes on income
earned by the Company until the Company distributes such income in the form of
dividends. Limited Partners, by contrast, are taxed as soon as the Partnership
earns income. Limited Partners are taxed on such income at their individual
federal tax rates, which may exceed the maximum corporate federal tax rate.
Therefore, the Surviving Corporation as a corporation can accumulate income for
business expansion without adversely affecting a shareholder's tax liabilities.
ACQUISITION CURRENCY. The Company may be able to use shares of its common
stock as consideration in its acquisition of other businesses. The use of
readily tradeable equity securities as an acquisition currency is advantageous
because it may be more tax efficient to the seller of a business than a cash
transaction and it allows the Company to consummate acquisitions without
depleting cash resources. It also allows a seller to continue to hold an equity
interest in the business acquired by the Company by equity ownership in the
Company after such acquisition. The use of common stock in acquisitions can also
enable the Company to use advantageous pooling accounting methods if certain
conditions are satisfied.
INCENTIVE COMPENSATION. The availability of shares of the Company's common
stock will permit the Company to provide its key employees with equity based
incentive compensation. The Company believes providing equity based incentive
compensation by the use of common stock will allow broader employee
participation in the Company's equity, provide a more accurate measure of the
Company's performance as a result of common stock having a readily ascertainable
value, and provide the Company with more flexibility in designing equity based
incentive compensation. The Company currently intends to adopt an employee stock
plan during or immediately after the first quarter of fiscal 1998, if the Merger
is consummated.
GREATER EMPLOYEE OWNERSHIP. As a result of the complex tax reporting
requirements associated with being a limited partner and the administrative
burden placed on the Partnerships as a result of having a significant number of
limited partners, it has not been feasible for the Partnership to offer
ownership opportunities to a broad range of employees. By having the shares of
its common stock available, however, the Company will be able to offer ownership
opportunities to all employees. The Board of Directors believes that wide-spread
employee ownership is in the best interests of the Company and its shareholders.
REDUCTION OF TAX REPORTING REQUIREMENTS AND COSTS. In contrast to the
Partnership, the Surviving Corporation will not be required to compute and
report tax information on an individual shareholder basis, and individual
shareholders will not be required to include information regarding the Surviving
Corporation's operations on their personal tax returns. Therefore, the Merger
will eliminate the complex partnership tax reporting requirements for Limited
Partners imposed on them under federal and multiple state partnership tax laws
and may eliminate certain costs and delays that individual Limited Partners
currently may be forced to incur in connection with the preparation of their
individual tax returns. However, as a corporation, the
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Surviving Corporation will be subject to income tax and shareholders will also
be required to pay income tax on any dividends they receive, and on any gain
recognized upon the sale or exchange of shares. See the sections entitled
"FEDERAL INCOME TAX CONSIDERATIONS" and "CERTAIN STATE AND LOCAL INCOME TAX
CONSIDERATIONS" in the Prospectus.
EFFECTS OF THE MERGER
As a result of the Merger, all of the assets now held directly or
indirectly by PCM and the Partnership will be held by the Surviving Corporation
and PCM and the Partnership will cease to exist by operation of law. The
Surviving Corporation will possess all of the assets, properties, rights and
privileges, and will be subject to all the liabilities and obligations, of PCM,
the Partnerships and the Company existing on the Closing Date.
The following is a brief description of each material risk and effect of
the Merger Proposal including, but not limited to, federal income tax
consequences, for Limited Partners. Also included is a brief discussion of the
effect of the Merger Proposal on the Partnership's financial condition and
results of operations. Pro forma financial information based on the
participation of the Partnership in the Merger is set forth in the Prospectus
under the heading entitled "SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA AND
COMPARATIVE PER SHARE DATA."
THE MERGER. Upon the Closing Date, PCM and the Partnership (if, and only
if, all of the Partnerships approve the Merger Proposal, and subject to other
conditions precedent to the Merger specified in the Prospectus) will merge with
and into the Company and pursuant to the Merger Agreement, all of the Units
existing at the Closing Date will be converted into Common Shares in accordance
with an Exchange Value determined to be fair by the Fairness Opinion prepared by
Willamette Management Associates, Inc. ("Fairness Analyst") (the Fairness
Opinion is attached to the Prospectus as Appendix G). The Fairness Opinion
provides that each Limited Partner's Units, calculated as of the Determination
Date, will be converted into Common Shares pursuant to the Exchange Value, with
cash being paid for any fractional shares based on the book value of Common
Shares on the Determination Date.
The Determination Date is a date set by the Board of Directors. At this
time, the Board of Directors expects that the Determination Date will be June
30, 1997. To accommodate the Merger, the General Partner suspended distributions
by the Partnership to the Limited Partners, effective as of the Determination
Date. This is necessary to assure that the Limited Partners' capital accounts do
not change after the Determination Date. The Board of Directors will have the
authority to postpone the Determination Date and declare a new Determination
Date, in its discretion. The Board of Directors might postpone the Determination
Date and declare a new Determination Date, if the matters contemplated in the
Merger Proposal are postponed for any reason.
EFFECT OF THE MERGER ON CASH DISTRIBUTIONS. Until June 30, 1997, the
Partnership made cash distributions to Limited Partners. The Company currently
anticipates that the Surviving Corporation will not pay cash dividends. However,
this policy may change, as the actual amount of dividends, if any, to be paid
will be determined by the Board of Directors in its sole discretion, generally
taking into account a number of factors, including operating performance,
liquidity and capital requirements. There can be no assurances that any cash
dividends will be paid, just as there can be no assurances that Partnership
distributions will continue at previous levels.
DISTRIBUTIONS BY THE COMPANY, IF ANY, WILL BE AT THE DISCRETION OF THE BOARD OF
DIRECTORS AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE COMPANY'S ACTUAL
CASH AVAILABLE FOR DISTRIBUTION, THE COMPANY'S FINANCIAL CONDITION, THE
COMPANY'S CAPITAL REQUIREMENTS, AND SUCH OTHER FACTORS AS THE COMPANY'S BOARD OF
DIRECTORS DEEMS RELEVANT.
THE MERGER AGREEMENT. The Merger will be consummated pursuant to the Merger
Agreement if the Merger Proposal set forth in the Prospectus receives the
requisite approval of the Limited Partners of each Partnership, the approval of
the PCM Shareholders, and the approval of the Company Shareholders, and if the
other applicable conditions to the Merger are satisfied or waived, including any
approvals required from
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any state or federal regulatory agency. The Merger Agreement is designated as
Exhibit 2 to the Registration Statement and is included in the Prospectus as
Appendix A.
Until such time as the Merger Agreement has been approved and adopted by
all the parties thereto, it may be amended or terminated by the Board of
Directors of the General Partner, on behalf of any of the Partnerships, the
Board of Directors of PCM, on behalf of PCM, or the Board of Directors, on
behalf of the Company; provided, however, that at any time after the Merger
Agreement has been adopted by the Shareholders or the Limited Partners, the
respective Boards of Directors may not amend, modify or supplement the Merger
Agreement to change the amount or kind of interests to be received by the
Limited Partners, the PCM Shareholders or the Company Shareholders or to make
any change if such change would, alone or in the aggregate, materially adversely
affect the Limited Partners or the PCM Shareholders.
APPROVAL BY ALL OF THE LIMITED PARTNERSHIPS IS REQUIRED. The Merger
Proposal may be consummated only if all of the Partnerships approve the Merger
Proposal. The Merger Agreement provides that Limited Partners that reject the
Merger Proposal shall not bear an unfair portion of the transaction costs of the
Merger. A Partnership which rejects the Merger Proposal shall not be required to
pay any of the costs of the Merger in accordance with the provisions of Section
25014.7(e)(3) of the Thompson-Killea Act. The General Partner, PCM and the
Company have considered the possibility of approval of the Merger Proposal and
related transactions by less than all of the Partnerships, and do not believe
that the Merger can be fairly consummated unless all of the Partnerships approve
the Merger Proposal because, among other things, (i) it would be unduly
burdensome or impossible to evaluate and apportion the value of the various
services provided to the Partnerships by PCM considering the complexity and
scope of the various joint ventures between the Partnerships and PCM; and (ii)
if the Merger Proposal is approved, PCM will cease to exist by operation of law,
and would no longer be available to provide the same services to a dissenting
Partnership. The General Partner and PCM have engaged an expert, Willamette
Management Associates, to render a Fairness Opinion concerning the Merger
Proposal. See the section entitled "DETERMINATION OF THE EXCHANGE PRICE AND
ALLOCATION OF THE COMMON SHARES" in the Prospectus.
CONDITIONS OF THE MERGER. The Merger will not be consummated unless the
Merger Proposal receives the requisite approval of the Limited Partners of each
Partnership, the approval of PCM Shareholders, the approval of existing Company
Shareholders, and the approval of the requisite state and federal regulatory
agencies. Consummation of the Merger is also subject to the receipt of the
opinion described in the section entitled "FEDERAL INCOME TAX CONSIDERATIONS" in
the Prospectus. Receipt of this opinion may be waived in whole or in part by the
Partnerships, PCM and the Company in each respective entity's sole discretion.
Prior to the consummation of the Merger, the obligations of the parties to
the Merger Agreement may be terminated at any time (including after approval of
the Merger by the Limited Partners and the respective Shareholders) if, among
other things, (a) the General Partner, PCM or the Company adopts a resolution
terminating the Merger Agreement or (b) a final injunction, order, or other
action of a court or other governmental body prevents the consummation of the
Merger.
COMPLETING THE MERGER. If the Merger Proposal is approved and the other
conditions of the Merger Agreement are waived or satisfied, the Closing Date
will be selected by agreement of the General Partner, PCM and the Company. Upon
consummation of the Merger, the Limited Partners and PCM Shareholders will be
entitled to receive certificates for Common Shares issued in exchange for their
Units and shares of PCM's common stock, respectively.
COSTS OF THE MERGER. For purposes of the Thompson-Killea Act, the costs of
the Merger will be divided into two categories, (i) transaction costs; and (ii)
solicitation expenses. Transaction costs are defined as the costs of printing
and mailing the Prospectus, or other documents; legal fees not related to the
solicitation of votes or tenders; financial advisory fees; investment banking
fees; valuation fees; accounting fees; independent committee expenses; travel
expenses; and all other fees related to the preparatory work of the transaction,
but not including costs that would have otherwise been incurred by the
Partnership in the ordinary course of business, or solicitation expenses.
Solicitation expenses include direct marketing expenses such as telephone
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calls, broker-dealer fact sheets, legal and other fees related to the
solicitation, as well as direct solicitation compensation to brokers and
dealers.
The Company estimates that the total costs and expenses of the Merger will
be approximately $1,400,000 if consummated and $1,200,000 if not consummated.
The Company estimates that the total solicitation expenses will be approximately
$600,000. This amount will be incurred whether or not the Merger is consummated.
The remainder of the costs and expenses estimated for consummation or
non-consummation will be attributable to transaction costs.
The Merger Agreement provides that Limited Partners that reject the Merger
Proposal shall not bear an unfair portion of the transaction costs of the
Merger. Should the Merger Proposal be rejected by all of the Partnerships, the
transaction costs will be apportioned between the Company and the rejecting
Partnerships according to the final vote on the Merger Proposal as follows: (i)
the Company shall bear all transaction costs in proportion to the number of
votes of the Limited Partners of that Partnership to reject the Merger Proposal;
(ii) the rejecting Limited Partnerships shall bear transaction costs in
proportion to the number of votes of Limited Partners of each Partnership to
approve the Merger Proposal. Should the Merger Proposal be approved by one or
more Partnerships and rejected by at least one Partnership, each Partnership
rejecting the Merger Proposal shall not be required to pay any of the costs of
the Merger in accordance with the provisions of Section 25014.7(e)(3) of the
Thompson-Killea Act. Further, In the event that the Merger Proposal is rejected
by all of the Partnerships, the Company shall pay all of the solicitation
expenses in accordance with the provisions of Section 25014.7(g) of the
Thompson-Killea Act.
In 1996, the total approximate amounts distributed to the partners of each
Partnership are as set forth on the following table:
<TABLE>
<CAPTION>
DISTRIBUTIONS TO THE DISTRIBUTIONS TO THE
PARTNERSHIP LIMITED PARTNERS GENERAL PARTNER
------------------------------------------------ --------------------- ---------------------
<S> <C> <C>
Performance Asset Management Fund, Ltd.,
A California Limited Partnership.............. $ 154,650 $ 17,483
Performance Asset Management Fund II, Ltd.,
A California Limited Partnership.............. $ 230,023 $ 25,810
Performance Asset Management Fund III, Ltd.,
A California Limited Partnership.............. $ 295,925 $ 35,775
Performance Asset Management Fund IV, Ltd.,
A California Limited Partnership.............. $ 1,433,425 $ 159,334
Performance Asset Management Fund V, Ltd.,
A California Limited Partnership.............. $ 179,100 $ 19,966
</TABLE>
The total amount distributed by all of the Partnerships was $2,551,491. All
of the distributions to the Limited Partners were in the form of cash
distributions. Some of the distributions to the General Partner were accrued.
In contrast to the Partnership, the Surviving Corporation will itself be
subject to federal tax on its income. Holders of Common Shares will not be
subject to federal tax on such income except to the extent dividends are paid.
See the section entitled "FEDERAL INCOME TAX CONSIDERATIONS" in the Prospectus.
The Surviving Corporation is expected to make significantly lower distributions,
if any, than the Partnership has made.
There can be no assurance that the Merger will achieve any of the benefits
and objectives described above. In addition, certain possible disadvantages and
other risks and special considerations associated with the Merger exist as
described in the section entitled "RISK FACTORS" in the Prospectus. Limited
Partners should analyze the Merger Proposal and related transactions in light of
all the matters discussed in the Prospectus.
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ALTERNATIVES TO THE MERGER
PCM, the Company and the General Partner have considered several
alternatives to the Merger Proposal and related transactions. Some of these
alternatives would not constitute a reorganization. In the mutual opinion of
PCM, the Company and the General Partner, the only viable alternatives not
constituting a reorganization involve some form of public offering of
securities. The General Partner has considered the possibility of a public
offering of all Units which would provide certain registration rights to the
Limited Partners. In the opinion of the General Partner, this possibility would
fail to provide the Limited Partners with the liquidity that the Merger Proposal
might provide because of the unsatisfactory market for publicly traded limited
partnership units. PCM and the Company have also considered the possibility of
merging those two corporations without merging with any of the Partnerships and
thereafter making a public offering of shares in the Surviving Corporation. In
the event the Merger is not consummated, PCM and the Company may elect this
alternative.
PCM, the Company and the General Partner have considered several
alternatives to the Merger Proposal, each of which constitutes a reorganization.
The General Partner considered the possibility of selling all of the assets of
the Partnership to the Company, and the Company considered purchasing all such
assets, in exchange for shares of the Company. PCM also considered the
possibility of selling all of its assets to the Company, and the Company
considered purchasing all such assets, in exchange for shares of the Company.
Alternatively, the General Partner considered winding up and dissolving the
Partnership and distributing the proceeds of the liquidation to the Limited
Partners. Additionally, the Board of Directors of PCM considered winding up and
dissolving PCM and distributing the proceeds of liquidation to the PCM
Shareholders. These possibilities were eliminated because of their complexity
and cost.
Moreover, the General Partner considered dissolving the Partnership and
distributing the assets of the Partnership to the Limited Partners pursuant to
an agreement with the Company, which was considered by the Company, and pursuant
to which agreement the Company would purchase the assets from the individual
Limited Partners in exchange for shares of the Company's common stock, and
thereafter merging the Company with PCM. This possibility was also eliminated
because of its complexity and cost, and also because, with the type of assets
held by the Partnership, even an "orderly liquidation" would result in a
prohibitive discount on the value of the debt portfolios.
PCM and the General Partner considered the results of continuing PCM and
the Partnership in accordance with their current business plans and joint
venture agreements. PCM and the General Partner rejected this alternative
because the servicing entity, PCM, currently has the capacity to service
portfolios in excess of those owned by the Partnership and has the potential for
significant growth. PCM has been offered access to commercial lines of credit
and its growth is not contingent upon a continuing relationship with the
Partnership. After consummation of the Merger, Limited Partners who approve the
Merger Proposal will participate in this growth. Moreover, after the
consummation of Merger, the Company will be able to compete for available
portfolios by taking advantage of economies of scale not available to either PCM
or the Partnership acting individually.
PCM and the General Partner also considered going forward with the Merger
Proposal with the approval of less than all of the Partnerships, but rejected
this alternative because of economies of scale, the scope and complexity of
existing joint ventures between PCM and the Partnership, and the economics of
purchasing, holding, servicing, collecting and selling distressed debt
portfolios. See "Approval by All of the Limited Partnerships Is Required" above.
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<PAGE> 355
EXCHANGE VALUE AND FAIRNESS OPINION
BASES FOR THE GENERAL PARTNER'S BELIEF AS TO FAIRNESS. The Fairness Opinion
is discussed at length in the section entitled "Fairness Opinion" in the
Prospectus. The General Partner believes that the Merger Proposal is fair to the
Limited Partners because the General Partner believes that the Merger will
provide Limited Partners with liquidity in their investments and more simplified
tax reporting. The General Partner believes that the Merger will provide the
Company with greater access to capital markets, greater flexibility regarding
capital resources, the potential to provide employees with incentive performance
compensation, including shares of the Company's $.001 par value common stock,
and the opportunity to offer greater employee ownership in the Company.
NO LIMITATIONS IMPOSED ON SCOPE OF INVESTIGATION. Kelly & Company, PCM's
and the Company's independent auditors, retained the Fairness Analyst to
determine the fairness from a financial point of view of the Exchange Value in
connection with the Merger Proposal. There were no limitations or restrictions
placed on the scope of the Fairness Analyst's analysis and investigation, and
the Fairness Analyst performed a complete due diligence examination by, among
other things, visiting PCM's facilities in Newport Beach, California;
interviewing the President and Vice-President of PCM; interviewing the
President, Chief Financial Officer, Director of Business Development, and
Secretary of the General Partner; interviewing CPAs employed by Kelly & Company;
and interviewing counsel to the various entities. The Fairness Analyst was
allowed full access to all financial records of PCM, the General Partner, the
Partnerships, and all service providers to those entities, including privileged
documents such as tax returns and audit workpapers.
NO INSTRUCTIONS FROM GENERAL PARTNER, PCM OR THE COMPANY. Neither the
General Partner, PCM nor the Company provided instructions to the Fairness
Analyst. Kelly & Company instructed the Fairness Analyst to conduct an
independent investigation, and thereafter render a written opinion to Kelly &
Company, as of the Determination Date, as to whether the Exchange Value
established by the General Partner, PCM and the Company is fair from a financial
point of view to the Partnerships. Kelly & Company also instructed the Fairness
Analyst to prepare a Fairness Opinion (i) satisfying the valuation requirements
of the Thompson-Killea Act; (ii) potentially useful in meeting the valuation
requirements of Sections 1300 et seq. of the California General Corporation Law
pertaining to Dissenting Shareholders; and (iii) sufficient to support an
opinion regarding the fairness from a financial point of view of the Merger
Proposal and related transactions, addressing the fairness from a financial
point of view of the Merger and related transactions as a whole and to each of
the Partnerships. Kelly & Company instructed the Fairness Analyst to perform a
due diligence investigation and to review all pertinent documents, including,
but not limited to financial statements; tax returns; audit work papers; banking
records; balance sheets; income statements; Securities and Exchange Commission
reporting forms; corporate documents such as Certificates or Articles of
Incorporation, Bylaws and minutes; furniture and equipment schedules; insurance
policies and coverages; PCM and Partnership operating budgets through December
31, 2008; office leases; management profiles; portfolio stratification reports;
and daily productivity reports. Kelly & Company also instructed the Fairness
Analyst to research industry sources and databases and economic outlook sources
regarding the financial services and distressed debt industry.
PROCEDURES FOLLOWED. As set forth above, the Fairness Analyst conducted a
complete independent investigation focusing on the valuation issues relating to
the "adequate consideration" rule. Adequate consideration is generally
understood to represent the fair market of an asset. Accordingly, in order to
arrive at its opinion regarding the fairness from a financial point of view of
the exchange rate established for the Units, the Fairness Analyst performed its
research and analyses with the intent of establishing whether the Limited
Partners would receive at least fair market value in exchange for their Units.
"Fair market value" is defined as the price at which an asset would change hands
between a willing buyer and a willing seller when the former is not under any
compulsion to buy and the latter is not under any compulsion to sell, both
parties are able, as well as willing, to trade, and both parties are well
informed about the asset and the market for that asset. The Fairness Analyst
performed an analysis of the material features and characteristics of the
Partnerships and PCM, as well as an analysis of the financial statements and
results of operations of each entity. The Fairness Analyst assumed that PCM will
continue its current business plan and structure, and made other reasonable
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assumptions and estimates regarding distressed loan portfolio acquisition and
pricing, operating expenses, and partnership distribution policies.
DETERMINATIONS. The Company, PCM and the General Partner determined the
total indicated values for PCM and for each of the Partnerships as set forth in
the following table:
<TABLE>
<CAPTION>
NAME OF PARTNERSHIP OR CORPORATION TOTAL VALUE
---------------------------------------------------------------------- -----------
<S> <C>
Performance Asset Management Fund, Ltd.,
A California Limited Partnership.................................... $ 934,000
Performance Asset Management Fund II, Ltd.,
A California Limited Partnership.................................... $ 3,112,000
Performance Asset Management Fund III, Ltd.,
A California Limited Partnership.................................... $ 6,000,000
Performance Asset Management Fund IV, Ltd.,
A California Limited Partnership.................................... $15,846,000
Performance Asset Management Fund V, Ltd.,
A California Limited Partnership.................................... $ 4,700,000
Performance Capital Management, Inc.,
a California corporation............................................ $44,523,000
</TABLE>
BASIS FOR METHODS OF ARRIVING AT FINDINGS AND RECOMMENDATIONS. The Fairness
Analyst valued the assets of each entity by determining the combined value of
such entity's assets, including the value of each entity's cash flows and the
terminal value of such entity's distressed loan portfolios. The Fairness Analyst
determined the asset liquidation value of each entity and calculated the
allocation of assets of each Partnership between the General Partner and the
Limited Partners of each Partnership based on such Partnership's Partnership
Agreement. Additional factors considered by the Fairness Analyst in making its
valuation include discount factors based on the age and composition of the
various distressed loan portfolios and the Fairness Analyst's determination of
the present value of the respective cash receipts of each entity, as well as the
historical and projected collection costs of distressed loan portfolios.
DETERMINATION OF EXCHANGE VALUE AND ALLOCATION OF COMMON SHARES
EXCHANGE VALUE. The net equity values determined by PCM, the Company and
the General Partner and reviewed by the Fairness Analyst of all of the assets of
the Partnerships, PCM and the Company, considered together and separately,
together with the book value of the other financial assets of such entities,
have been used to establish the Exchange Value. The Fairness Analyst is
unaffiliated with neither the Company, PCM nor the General Partner. PCM's and
the Company's independent auditors, Kelly & Company, were referred to the
Fairness Analyst by an accountant unaffiliated with neither PCM, the Company or
the General Partner and with whom neither PCM, the Company nor the General
Partner has conducted any business. The Fairness Analyst was selected by Kelly &
Company entirely on the basis of the its qualifications.
The General Partner and PCM valued the assets of the Partnership and PCM,
respectively, as if sold in an orderly manner in a reasonable period of time,
plus or minus other balance sheet items, and less the cost of sale. The
valuation was conducted in accordance with the provisions of Section
25014.7(b)(1) of the Thompson-Killea Act. The valuation was also conducted in
accordance with the provisions of Sections 1300 et seq. of the California
General Corporation Law pertaining the Dissenting Shareholders. The compensation
to dissenting Limited Partners and Shareholders entitled to compensation for
their Units or shares is based upon the valuation described above. See the
section entitled "RIGHTS OF DISSENTING SHAREHOLDERS AND DISSENTING LIMITED
PARTNERS" in the Prospectus.
The purpose of the Fairness Opinion is to confirm to the Company, PCM and
the General Partner the fairness from a financial point of view of the Merger
Proposal and related transactions to the Partnerships. Neither the Company, PCM,
nor the General Partner gave the Fairness Analyst any specific instructions
other than the instruction from Kelly & Company, PCM's and the Company's
independent auditors, to prepare a fairness opinion (i) meeting the valuation
requirements of the Thompson-Killea Act; and (ii) potentially useful in meeting
the valuation requirements of Sections 1300 et seq. of the California General
Corporation
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Law pertaining to Dissenting Shareholders; and (iii) sufficient to support an
opinion regarding the fairness of the Merger Proposal and related transactions,
addressing the fairness from a financial point of view of the Merger Proposal
and related transactions as a whole and to each of the Partnerships. Pursuant to
the Thompson-Killea Act, the Units were valued as if sold in an orderly manner
in a reasonable period of time, plus or minus other balance sheet items, and
less the costs of sale. Pursuant to the provisions of Section 1300 of the
California General Corporation Law, the fair market value of the Dissenting
Shares shall be determined as of the day before the first announcement of the
terms of the Merger Proposal and related transactions, excluding any
appreciation or depreciation in consequence of the Merger Proposal or related
transactions, but adjusted for any stock split, reverse stock split or share
dividend which becomes effective thereafter. The Fairness Opinion will not be
updated.
FAIRNESS OPINION. The Exchange Value was determined by PCM, the Company and
the General Partner, as was the consideration to be paid by the Company to each
Partnership for such Partnership's assets. The Fairness Analyst has determined
that the Exchange Value and such consideration are fair from a financial point
of view to each Partnership, as specified in the Fairness Opinion. The
compensation paid to the Fairness Analyst was not contingent upon the findings
of the fairness of the Exchange Value, such consideration or the Merger Proposal
or the consummation or approval of the Merger Proposal or related transactions.
The Fairness Opinion relates to the fairness from a financial point of view of
the Merger Proposal and related transactions, addressing the fairness from a
financial point of view of the Merger Proposal and related transactions as a
whole and to each of the Partnerships. Because the Merger is contingent upon the
approval of the Merger Proposal by all of the Partnerships, PCM, and the
Company, the Fairness Opinion did not consider possible combinations of less
than all of the Partnerships in the Merger.
The Fairness Analyst considered all of the assets of each of the
Partnerships, PCM, and the Company. The intangible assets of the Partnerships
and PCM consist of distressed financial debt instruments and obligations. The
Fairness Analyst also considered tangible assets of the Partnerships, PCM and
the Company. The tangible assets of the Partnerships and the Company were
determined to be negligible. The tangible assets of PCM were determined to be
more considerable and include furniture, computers and business equipment. The
aggregate appraised value of the assets of the Partnerships is $30,592,000. The
aggregate value of the assets of PCM is $44,523,000.
EXCHANGE OF SHARES. On the Closing Date, if the PCM Shareholders, the
Limited Partners of all five Partnerships, and the Company Shareholders approve
the Merger Proposal, PCM and the Partnerships will merge with and into the
Company. Pursuant to the Merger Agreement, all of the Units of the Limited
Partners at the Closing Date will be converted into Common Shares in accordance
with an exchange ratio which provides that each $10.00 in a Limited Partner's
capital account, calculated as of the Determination Date, will be converted into
one Common Share, with cash being paid for any fractional shares based on the
value of Common Shares on the Determination Date.
The following table summarizes the valuation conclusions of the General
Partner and PCM as to the Partnerships and PCM, respectively, based on 7,511,500
allocable shares of Merger Stock:
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE NUMBER OF
INDICATED VALUE INDICATED VALUE COMMON SHARES
(ROUNDED TO THE (ROUNDED TO THE ALLOCATED
NEAREST $1,000) NEAREST 1/10 OF 1%) TO ENTITY
--------------- ------------------- -------------
<S> <C> <C> <C>
PAM I................................ $ 934,000 1.2% 93,398
PAM II............................... 3,112,000 4.1 311,202
PAM III.............................. 6,000,000 8.0 600,003
PAM IV............................... 15,846,000 21.1 1,584,596
PAM V................................ 4,700,000 6.3 470,002
----------- ----- ---------
Sub-Total....................... $30,592,000 40.7% 3,059,201
----------- ----- ---------
PCM.................................. 44,523,000 59.3 4,452,299
----------- ----- ---------
Total........................... $75,115,000 100.0% 7,511,500
=========== ===== =========
</TABLE>
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The Company shall promptly furnish a copy of the Fairness Opinion, without
charge, upon the request of any Limited Partner, PCM Shareholder or Company
Shareholder. All such requests should be addressed as follows: Performance Asset
Management Company, Attn: Information Agent -- Fairness Opinion, 4100 Newport
Place, Suite 400, Newport Beach, California 92660.
POTENTIAL RISKS AND ADVERSE EFFECTS
THE MERGER AND ACQUISITION OF SHARES OF THE COMPANY'S COMMON STOCK INVOLVES
VARIOUS RISKS, AND LIMITED PARTNERS SHOULD CAREFULLY CONSIDER THE MATTERS
DISCUSSED UNDER THE SECTION ENTITLED "RISK FACTORS" IN THE PROSPECTUS, INCLUDING
THE FOLLOWING:
*TAX CONSEQUENCES. The Partnerships do not pay any federal income taxes.
After consummation of the Merger, the Surviving Corporation will be subject to
federal income tax. Shareholders of the Surviving Corporation will also be
required to pay federal income taxes on any dividends that they may receive from
the Surviving Corporation and on any gain from the sale or exchange of Common
Shares. Therefore, while in partnership form only one level of federal income
tax is imposed (i.e., on the Limited Partners), in corporate form two levels of
federal income tax are imposed (i.e., one on the Surviving Corporation and one
on its shareholders to the extent they receive dividends or recognize gain on
the sale or exchange of shares). See the portions entitled "FEDERAL INCOME TAX
CONSIDERATIONS" and "OTHER TAX CONSIDERATIONS" in the Prospectus.
*SIGNIFICANT REDUCTION IN DISTRIBUTIONS. The dividends distributed to
shareholders of the Surviving Corporation may be significantly less that the
current distributions to the Limited Partners. The Company currently does not
anticipate making any dividend payments on the Common Shares. See the portion
entitled "RISK FACTORS" in the Prospectus.
*NON-PERFORMING ASSETS. Many of the assets held by the Partnerships which
may be acquired by the Company are, by their nature, non-performing.
Specifically, those assets were originally available for purchase by the
Partnerships because the obligors of the indebtedness comprising those assets
failed to pay on those debt obligations and there is not sufficient security or
collateral available for disposition from which to generate proceeds sufficient
to pay those debt obligations. For that reason, the assets which the
Partnerships have acquired and the Company intends to acquire by the Merger may
be completely unproductive; that is, those assets may generate no income to the
Company. See the portion entitled "BUSINESS AND ASSETS" in the Prospectus.
*UNSPECIFIED ASSETS. The Company may, from time to time, change its asset
portfolio by disposing of certain assets and replace the same with newly
acquired assets. The assets may, in that sense, be unspecified. See the section
entitled "BUSINESS AND ASSETS" in the Prospectus.
*SPECULATIVE BUSINESS. The Company's business objectives, similar to those
of the Partnerships, must be considered speculative and there is no assurance
that the Company will satisfy those objectives. No assurances can be given that
Limited Partners will realize a return on their exchange of Units for shares of
Merger Stock. See the section entitled "RISK FACTORS" in the Prospectus.
*RESTRICTIONS ON TRANSFER OF COMMON SHARES. The Common Shares may not be
freely transferable if the shareholder is deemed an Affiliate of the Company, as
that term is defined herein. Further, no public market for the Common Shares
exists. To accomplish the purposes of the Merger, the transfer, assignment,
sale, conveyance, hypothecation, encumbrance or other alienation of the Merger
Stock will be restricted. 25% of the Merger Stock will be unrestricted
immediately after the consummation of the Merger. 25% of the Merger Stock will
be restricted until the end of the Company's first full fiscal quarter following
the Closing Date. 25% of the Merger Stock will be restricted until the end of
the Company's second full fiscal quarter following the Closing Date. The
remaining 25% of the Merger Stock will be restricted until the end of the
Company's third full fiscal quarter following the Closing Date. Accordingly, the
Common Shares should only be acquired as a long term investment. See the
portions entitled "RESALE OF THE COMMON
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SHARES," "DESCRIPTION OF THE COMMON SHARES," and "Merger Stock Will Be
Restricted" in the Prospectus.
*UNCERTAINTY REGARDING TRADING AND MARKET PRICE OF COMMON SHARES. The
Common Shares may not be listed or approved for listing on any regional or
national securities exchange or otherwise designated or approved for designation
upon notice of issuance as a regional or national market system security. See
the portion entitled "RISK FACTORS" in the Prospectus.
*SUBSTANTIAL FEES. The Merger and related transactions may involve the
payment of substantial fees and compensation to the General Partner, PCM, the
Company and their Affiliates. Further, the management of the Company will be
entitled to receive certain significant fees, compensation, payments and
reimbursements regardless of whether the Company operates at a profit or loss.
See the portion entitled "MANAGEMENT OF THE COMPANY" in the Prospectus.
*CONFLICTS OF INTEREST. The Company, PCM and the General Partner are
subject to various conflicts of interest. See the portion entitled "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS" in the Prospectus.
*POTENTIAL PRICE VOLATILITY. If a public market develops for the Common
Shares, there may be significant volatility in the market price of the Common
Shares. Additionally, in recent years, the stock market has experienced a high
level of price and volume volatility and market prices for many companies,
particularly small and emerging growth companies, have experienced significant
price fluctuations not necessarily related to the operating performance of those
companies. The market price for the Common Shares may be affected by general
stock market volatility. See the section entitled "RISK FACTORS" in the
Prospectus.
*POSSIBLE DILUTION. The percentage interest of holders of Merger Stock in
the assets, liabilities, cash flow and results of operations of the Company, as
well as the percentage voting power of such holders, may be diluted in several
ways. See the portion entitled "RISK FACTORS" in the Prospectus.
RIGHTS OF DISSENTING LIMITED PARTNERS
DISSENTING LIMITED PARTNER RIGHTS. The Thompson-Killea Act provides
Dissenting Limited Partners with certain rights to receive compensation for
their Units based on a valuation of the Partnership's assets performed by an
independent party unaffiliated with the General Partner or the Company and which
values the assets as if sold in an orderly manner in a reasonable period of
time, plus or minus other balance sheet items, and less the cost of sale or
refinancing. Compensation to Dissenting Limited Partners may be cash, secured
debt instruments, unsecured debt instruments, or freely tradeable securities;
provided, however, that:
(A) debt instruments used as compensation must provide for a trustee
and an indenture to protect the rights of the debt holders and provide a
rate of interest based upon, but not less than, the then applicable federal
interest rate as determined in accordance with Section 1274 of the Code;
(B) unsecured debt instruments used as compensation, in addition to
the above requirements, must limit total leverage to 70 percent of the
appraised value of the assets;
(C) all debt securities have a term no greater than seven years and
provide for prepayment with 80 percent of the net proceeds of any sale or
refinancing of the assets previously owned by the entity or any part
thereof; and
(D) freely tradeable securities used as compensation to Dissenting
Limited Partners must be issued by an issuer whose securities are listed on
a certified national securities exchange or designated as a national market
system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc., for at least one year prior to the
transaction, and the number of securities to be received in return for
Units must be determined by a valuation of limited partnership assets,
conducted in a manner consistent with the procedures described above, in
relation to the average last sale price of the freely tradeable securities
in the 20-day period following the consummation of the Merger. If the
issuer of the freely tradeable securities is affiliated with PCM, the
General Partner or the Company, newly issued
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securities to be utilized as compensation to Dissenting Limited Partners
shall not represent more than 20 percent of the issued and outstanding
shares of that class of securities after giving effect to the issuance. For
the purposes of the preceding sentence, neither PCM, the General Partner
nor the Company is deemed "affiliated" with the issuer of the freely
tradeable securities if PCM, the General Partner nor the Company receives
any material compensation from the issuer or its Affiliates in conjunction
with the Merger Proposal or related transactions; provided, however, that
PCM, the General Partner and Company may, under certain circumstances,
receive payment for their equity interests and other compensation.
Further, the Limited Partners may, in lieu of the forgoing, receive or
retain a security with substantially the same terms and conditions as the
security originally held, i.e. the units in a limited partnership similar to the
Partnership, provided that the receipt or retention of that security is not a
step in a series of subsequent transactions that directly or indirectly through
acquisition or otherwise involves future combinations or reorganizations of one
or more former Merger participants. Securities received or retained will be
considered to have the same terms and conditions as the security originally held
if:
(A) There is no material adverse change to the Dissenting Limited
Partners' rights, including, but not limited to, rights with respect to
voting, the business plan, or the investment, distribution, management
compensation, and liquidation policies of the Surviving Corporation.
(B) The Dissenting Limited Partners receive the same preferences,
privileges, and priorities as they had pursuant to the security originally
held.
The Company is satisfying this requirement by offering to purchase the
Units of any Dissenting Limited Partner with an unsecured subordinated debenture
issued under an indenture in conformity with the Thompson-Killea Act. The Merger
Proposal and related transactions have also been structured to comply with the
other protections afforded by the Thompson-Killea Act. In the event a Limited
Partner elects to exercise his or her right to dissent, such Limited Partner
must perform the acts set forth at the portion of the Prospectus entitled
"VOTING PROCEDURES -- Dissenting Limited Partners." Generally, Dissenting
Limited Partners must file a written notification of their election to dissent
with the General Partner and request a substitute security from the General
Partner.
See the portion entitled "RIGHTS OF DISSENTING SHAREHOLDERS AND LIMITED
PARTNERS" in the Prospectus.
A Dissenting Limited Partner who perfects his or her dissenter's rights as
described below will be entitled to receive an unsecured subordinated debenture
for the fair exchange value of that Dissenting Limited Partner's Units. In the
event a Dissenting Limited Partner elects to exercise his or her right to
dissent, such Dissenting Limited Partner must do the following to perfect his or
her rights as a Dissenting Limited Partner:
(A) Such Dissenting Limited Partner must file a written request with
the Company at 4100 Newport Place, Suite 400, Newport Beach, California
92660, attention: Information Agent -- Dissenters' Rights, prior to the
earlier of (i) the date such Dissenting Limited Partner's completed Consent
Form is received by the Exchange Agent, or (ii) the expiration of the
Solicitation Period.
(B) The request must state the number of Units for which the
Dissenting Limited Partner is requesting dissenters' rights. Only persons
who fail to vote in favor of the Merger Proposal and related transactions
can be Dissenting Limited Partners. NEITHER THE DELIVERY OF A CONSENT FORM
DIRECTING A VOTE AGAINST THE MERGER PROPOSAL AND RELATED TRANSACTIONS NOR A
FAILURE TO VOTE FOR THE MERGER PROPOSAL AND RELATED TRANSACTIONS
CONSTITUTES A WRITTEN REQUEST FOR DISSENTERS' RIGHTS.
If PCM, the Company and all of the Partnerships approve the Merger Proposal
and related transactions, and the other conditions of the Merger Proposal and
related transactions are satisfied so that the Merger is consummated, then a
Dissenting Limited Partner who requests dissenters' rights and who thereafter
perfects his or her rights as a Dissenting Limited Partner will be provided with
an unsecured subordinated debenture
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within 30 days following the consummation of the Merger and related transactions
for his or her Units in the amount as determined above.
LIMITED PARTNERS WISHING TO EXERCISE THEIR DISSENTERS' RIGHTS ARE CAUTIONED THAT
FAILURE TO FOLLOW THE ABOVE PROCEDURES PRECISELY MAY RESULT IN THE LOSS OF
DISSENTERS' RIGHTS.
COMPLIANCE WITH AND APPROVAL FROM FEDERAL AND STATE AUTHORITIES. The Merger
Proposal and related transactions will not be completed if any moratorium on
transactions of its type are imposed by federal, state or regulatory authorities
or if any state Blue Sky or securities authority imposes any restriction upon,
or prohibits any aspect of, the transactions contemplated by the Merger Proposal
and related transactions, which in the judgment of the Company, renders the
Merger Proposal and related transactions undesirable or impractical.
COMPARISON OF UNITS AND COMMON SHARES. The portion entitled "Summary
Comparison of Units and Common Shares" in the Prospectus highlights a number of
the significant differences between the Partnerships (and the Units) and the
Company (and the Common Shares) relating to, among other things, form of
organization, investment objectives, policies and restrictions, asset
diversification, capitalization, management structure compensation and fees, and
investor rights, and compares certain legal rights associated with the ownership
of the Units and Common Shares, respectively. These comparisons are intended to
assist the Limited Partners in understanding how their investments will be
changed if, as a result of the Merger and related transactions, their Units are
exchanged for Common Shares.
FEDERAL INCOME TAX CONSIDERATIONS
INTRODUCTION. The following information is intended to provide to Limited
Partners with a summary of all material federal income tax consequences of
general application to the Surviving Corporation and Limited Partners associated
with the Merger Proposal. This summary does not comment on all tax matters that
may affect the Partnership, the Surviving Corporation and the Limited Partners,
including any state, local, foreign or other matters, and does not consider
various facts or limitations applicable to any particular Limited Partner, or
special tax rules that may apply to certain Limited Partners and may modify or
alter the results described herein.
Except as otherwise indicated, statements of legal conclusions regarding
tax treatments, tax effects or tax consequences present the opinions of John
Brainerd, Attorney-at-Law and tax counsel retained to provide a tax opinion
relating to the Merger Proposal, based on the Code and applicable Treasury
Regulations, each as amended and in effect on the date hereof, and on reported
judicial decisions and published positions of the Internal Revenue Service
("IRS"). No rulings have been requested from the IRS concerning any of the
matters described in the Prospectus and the IRS will generally not issue rulings
on transactions such as the Merger Proposal. In some cases, particularly those
as to which tax counsel's opinion is qualified, there is a risk that the IRS
will disagree with the conclusions of tax counsel. The laws, regulations,
administrative rulings and judicial decisions that form the basis for
conclusions with respect to the tax consequences of the Merger Proposal are very
complex and are subject to change at any time.
The tax opinion of John Brainerd is filed as an exhibit to the Registration
Statement. Upon receipt of a written request of a Limited Partner (or such
Limited Partner's representative who has been so designated in writing)
addressed to the Company, at 4100 Newport Place, Suite 400, Newport Beach,
California 92660, attention: Corporate Secretary, a copy of the tax opinion will
be transmitted promptly, without charge, by the Company.
Limited Partners should be aware that there is no direct authority of
general applicability governing the federal income tax treatment of transactions
such as the Merger Proposal that are structured as partnership mergers, because
this structure is an approach made available by recent developments in
partnership law. Therefore, in rendering its opinions, tax counsel has relied on
authorities addressing the consequences of analogous transactions that used
similar structures. Accordingly, although there appears to be no controlling
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authority contrary to tax counsel's conclusions, it is possible that the IRS
would take a different position if it addressed the tax consequences of the
Merger Proposal.
DIFFERENCES BETWEEN UNITS AND COMMON SHARES. A limited partnership is a
pass-through entity for federal income tax purposes. This means that a limited
partnership is not liable for federal income tax on its taxable income. Rather,
a limited partnership passes its income (or loss) through to its owners (i.e.,
general and limited partners) in proportion to their relative ownership
interests. This is known as allocating a partnership's income and loss. Many
items of income, gain, loss, and deduction are allocated separately to each
partner in proportion to such partner's interest. The character of each item
passed through to a partner remains the same with the partner as it was with the
limited partnership. When income (or loss) is allocated to a partner, such
partner is taxed on that income (or may deduct that loss). This tax is imposed
on the partner regardless of whether the limited partnership actually
distributes any cash or property to the partner. Therefore, generally it is the
allocation, not the distribution, of income to a partner that results in tax (or
a deduction) for that partner. A partner has a basis in the limited partnership
interest he or she holds which is generally equal to either the cost of the
limited partnership interest if purchased, or if not purchased, the amount of
any cash or basis of any other property that partner transferred to the limited
partnership, increased (or decreased) by that partner's share of the limited
partnership's income (or loss) and decreased by the amount of any cash (or the
basis of any property) distributed to that partner. Upon sale of his or her
limited partnership interest, a partner realizes gain equal to the amount
received for the limited partnership interest less the partner's basis in the
limited partnership interest. The partner's gain (or loss) upon sale is
generally capital, but may be characterized as ordinary to the extent of the
partner's share of certain assets held by the limited partnership.
Because a limited partnership does not pay tax on income it earns (but
rather the General Partner and Limited Partners pay tax on such income),
partners of a limited partnership are subject to only one level of federal
income tax on income earned in the business conducted by the Partnership. As
owners of the Partnership through their Units, Limited Partners receive the
federal income tax treatment just described. The number of Units owned by a
Limited Partner will determine the amount of income or loss allocated to the
partner by the applicable Partnership.
A corporation is a taxable entity and pays federal income tax at a maximum
rate of 39% on its taxable income. A shareholder of a corporation is generally
not taxed on any income earned by a corporation until the corporation
distributes either cash or property to the shareholder or the shareholder sells
or exchanges his or her stock at a gain. A corporation often makes distributions
to shareholders in proportion to their interests in the corporation, but it need
not do so. When cash or property is distributed, each portion of the
distribution will be characterized in one of the following three ways: (i) as a
dividend, (ii) as a capital gain, or (iii) as a return of capital. The portion
of a distribution treated as a dividend is taxed at ordinary federal income tax
rates, which, for individuals, range up to 39.6%. However, upper bracket
individuals are subject to a phaseout of their personal exemptions, and a
restriction on itemized deductions, which in combination in certain
circumstances, can bring the actual maximum federal rate to more than 47%. The
portion treated as capital gain will generally be taxed at a maximum 28% rate.
The portion treated as return of capital will not be taxed. The amount of any
distribution treated in any of the three alternative ways may differ for each
shareholder, and will depend upon the value of the cash and property received,
the percentage interest in the corporation owned by the shareholders receiving
the distribution, and each shareholder's basis in his or her shares. Because
corporations are taxable on their own taxable income, and because shareholders
may be taxed again on that same income if it is distributed to them in the form
of cash or property or it is realized through the sale or exchange of shares of
stock at a gain, there are two levels of potential tax upon income earned by a
corporation. A shareholder's basis in his or her stock is generally equal to the
cost of the stock if purchased, or, if not purchased, the amount of any cash and
basis of other property contributed to the corporation, decreased by the amount
of any distributions treated as a return of capital under the rules discussed
above. Upon a sale of stock, a shareholder's gain (or loss) will be equal to the
amount received for the stock less his or her basis in that stock. The character
of such gain (or loss) will generally be capital in nature. As holders of
interests in a corporation, the owners of any Common Shares will be subject to
the tax treatment just described.
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As a holder of a Unit, a Limited Partner holds an interest in an entity
that earns income subject to only one level of federal income tax, whereas the
holder of a Common Share would hold an interest in an entity that earns income
subject to two potential levels of federal income tax.
There are, however, potential tax advantages (and corresponding financial
advantages) to conducting a business by a corporation. These include the ability
of shareholders to defer tax on income earned by the corporation until the
corporation distributes such income. Partners in a partnership, by contrast, are
taxed as soon as the partnership earns income. Partners pay such tax at their
individual federal tax rate, which may exceed the maximum federal corporate tax
rate. Alternatively, because shareholders pay no tax until they receive
distributions, the Surviving Corporation, as a corporation, may accumulate
income for business expansion without financially interfering with its
shareholders' ability to pay their taxes.
LIMITED PARTNERS. Each Limited Partner will recognize gain or loss
resulting from the Merger as if the Partnership had (a) sold all of its assets
to the Company for an amount equal to the value of the shares received in the
Merger, plus the liabilities of the Partnership assumed in the Merger, and (b)
distributed the shares received in the Merger to the Limited Partners. A Limited
Partner who receives cash (with respect to Units) in lieu of fractional Common
Shares or who receives an unsecured subordinated debenture because of such
Limited Partner's exercise of appraisal or similar rights under California law
(with respect to Units) may recognize gain depending upon such Limited Partner's
aggregate basis in the Partnership prior to the Merger. The aggregate basis of
any Common Shares received in the Merger by a Limited Partner in exchange for
Units will equal the aggregate basis in such Units immediately before the
Merger, but may be decreased if cash is received by such Limited Partner for
such Units in lieu of fractional Common Shares. Such basis will be prorated
among all Common Shares received for such Units.
A Common Share received in exchange for Units will have a holding period
that begins on the day following the Merger to the extent that the value of such
Common Share on such date is attributable to certain of the Partnership's assets
(essentially its ordinary income assets), and to the extent of any excess value,
such Common Share will have a holding period that includes the period the Units
were held by the Limited Partners.
A holder of Units who subsequently sells the Common Shares received in the
Merger will recognize gain or loss measured by the difference between the amount
realized on such sale and his or her tax basis in the shares sold. Each Limited
Partner who receives Common Shares in the Merger will be required to file with
his or her federal income tax return for the year in which the Merger is
consummated a statement that provides details relating to his or her Limited
Partnership interest (which will be considered to be property transferred), the
Common Shares, and his or her share of any liabilities assumed by the Surviving
Corporation in the Merger. The Surviving Corporation will provide shareholders
with information to assist them in preparing such a statement.
After the Merger, the income and deductions attributable to the assets and
liabilities of the Surviving Corporation will not be allocated to the Surviving
Corporation's shareholders. A shareholder will be taxed only on dividends and
other distributions received from the Surviving Corporation, if any. Such
distributions generally will be taxable as dividends to the extent of any
current or accumulated earnings and profits of the Surviving Corporation. Any
other distributions will be treated as a nontaxable return of capital to the
extent of the shareholder's basis in his or her Common Shares and as capital
gain to the extent of the remaining portion of such distribution.
THE SURVIVING CORPORATION AND THE PARTNERSHIP. The Partnership will be
deemed to have transferred all its assets and liabilities to the Company and to
have received Common Shares in exchange, and then to have distributed those
shares to the General Partner and the Limited Partners in complete liquidation.
As a consequence, the assets of the Partnership will retain the same tax basis
as they had prior to the Merger unless the Partnership is required to recognize
gain resulting from the Merger. The Surviving Corporation's tax basis in the
assets acquired from the Partnership would equal the value of the Common Shares
issued in the Merger plus the amount of the Partnership's liabilities assumed in
the Merger, and the Surviving Corporation's holding period in the assets would
begin the day after the Merger takes effect. The Partnership, on the other hand,
would recognize gain or loss resulting from the Merger in an amount equal to the
amount by which the
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<PAGE> 364
value of the Common Shares received plus the amount of the Partnership's
liabilities assumed exceeds (or is less than) its basis in the assets
transferred and the General Partner and the Limited Partners would be required
to include in their taxable income their distributive shares of the
Partnership's gain or loss.
After the Merger becomes effective, the Partnership will cease to exist for
both state law and federal income tax purposes. The Surviving Corporation will
be taxed as a corporation on its taxable income. The income and deductions
attributable to the assets and liabilities received in the Merger will be
included in the Surviving Corporation's taxable income. The adjusted tax basis
of certain of the assets will be depreciable or amortizable for federal tax
purposes, thereby reducing the amount of the Surviving Corporation's income
subject to tax.
THE FOREGOING DISCUSSION ADDRESSES ONLY THE FEDERAL INCOME TAX CONSEQUENCES OF
THE MERGER PROPOSAL APPLICABLE TO LIMITED PARTNERS GENERALLY. EACH LIMITED
PARTNER AND SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR CONCERNING THE
FEDERAL, STATE, LOCAL AND OTHER TAX CONSEQUENCES OF THE MERGER PROPOSAL.
OTHER TAX CONSIDERATIONS. The following information is intended to provide
Limited Partners with a summary of certain material state and local income tax
consequences of general application to the Limited Partners and the Surviving
Corporation associated with the Merger Proposal. This information does not
present all tax matters that may affect the Partnership, the Surviving
Corporation and the Limited Partners, and does not consider various facts and
limitations applicable to any particular Limited Partner, or special tax rules
that may apply to certain Limited Partners that may modify the results described
herein.
The following statements are not the subject of John Brainerd's tax opinion
and have not otherwise been passed upon by Mr. Brainerd. No rulings have been
requested from any state or local tax jurisdiction concerning any of the matters
described in the Prospectus.
A limited partnership is generally a pass-through entity for state and
local income tax purposes. This means that a limited partnership is not liable
for state or local income tax on its taxable income. In general, partners liable
for federal income tax are also liable for the state and local income taxes of
the states and taxing municipalities in which a limited partnership does
business. These taxes are generally based on a partner's allocated share of
federal taxable income from the limited partnership as allocated or apportioned
among the various state and local jurisdictions on the basis of the character of
the income earned or on the basis of sales made, payroll paid, and property
owned in each jurisdiction. A partner is also generally subject to tax on all
income earned from that partner's investment in the limited partnership in the
partner's state and, if applicable, city or village of residence. This tax may
be offset by credits for taxes paid to other states and municipalities. In
general, interest income and capital gains earned by a limited partnership are
not subject to municipal income tax. As with federal income tax, partners of a
limited partnership are subject to only one level of state and local income tax
on income earned in the business conducted by the limited partnership. See the
section entitled "FEDERAL INCOME TAX CONSIDERATIONS" in the Prospectus.
The Partnerships have filed composite state income tax returns for a number
of years on behalf of eligible and electing Limited Partners for the purpose of
limiting each Limited Partner's compliance burden to that Limited Partner's
state of residence. The taxes paid by the Partnership with these returns have
been charged to the participating Limited Partners' capital accounts.
A corporation is a taxable entity and pays state and local income taxes at
rates which vary depending upon the identity of the states and cities in which
the corporation conducts its business. The business of the Surviving Corporation
is expected to be conducted in California, which imposes a tax on income
apportioned to California. A shareholder of a corporation is generally not taxed
on any income earned by a corporation until the corporation distributes either
cash or property to the shareholder or the shareholder sells or exchanges shares
of stock at a gain. See the section entitled "FEDERAL INCOME TAX CONSIDERATIONS"
in the Prospectus. Dividends and capital gains are generally subject to tax only
in the shareholder's state of residence. Income from capital gains is generally
taxed at the same rates as other taxable income. Neither dividends nor capital
gains are generally taxable by taxing municipalities.
D-19
<PAGE> 365
THE FOREGOING DISCUSSION ADDRESSES ONLY CERTAIN OF THE STATE AND LOCAL INCOME
TAX CONSEQUENCES OF THE MERGER PROPOSAL APPLICABLE TO LIMITED PARTNERS
GENERALLY. EACH LIMITED PARTNER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR
CONCERNING THE FEDERAL, STATE, LOCAL AND OTHER TAX CONSEQUENCES OF THE MERGER
PROPOSAL.
D-20
<PAGE> 366
APPENDIX E
SUPPLEMENT FOR
PERFORMANCE ASSET MANAGEMENT FUND IV, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
(S-K REG. 229.902)
NOTICE TO LIMITED PARTNERS OF PERFORMANCE ASSET MANAGEMENT FUND IV, LTD., A
CALIFORNIA LIMITED PARTNERSHIP:
This separate partnership supplement highlights information that addresses
certain matters presented in the prospectus ("Prospectus") as they relate to
Performance Asset Management Fund IV, Ltd., A California Limited Partnership
("Partnership") and its limited partners ("Limited Partners"), regarding a
proposed merger ("Merger") of the Partnership and other limited partnerships
("Other Partnerships") and Performance Capital Management, Inc., a California
corporation ("PCM"), with and into Performance Asset Management Company, a
Delaware corporation ("Company"). Similar supplements have been prepared for the
Other Partnerships. The effects of the Merger may differ for the limited
partners in the Other Partnerships. If you want to obtain a supplement for any
of the Other Partnerships, please call the Information Agent at (714) 261-7300,
or send a written request to Performance Development, Inc., Attn: Information
Agent, 4100 Newport Place, Suite 400, Newport Beach, California 92660.
Supplements for any of the Other Partnerships will be provided without charge to
any Limited Partner. All defined terms used in this Supplement shall have the
same definitions as specified in the Prospectus.
THE PARTNERSHIP. The Partnership was formed on April 1, 1993, as a limited
partnership in California under the Revised Limited Partnership Act of the State
of California. The Partnership sold 11,470 Units at the price of $2,500.00 per
Unit. The total gross amount received by this Partnership from purchasers of its
Units was $28,675,000. As of the Determination Date this Partnership had 1,442
Limited Partners. The Partnership termination date is December 31, 2005, unless
sooner terminated.
SELECTED FINANCIAL INFORMATION. The following chart provides a historical
summary of gross collections and partner distributions for the Partnerships from
the date of formation of each Partnership through June 30, 1997:
<TABLE>
<CAPTION>
COST OF
PORTFOLIOS ORIGINAL PORTFOLIO PORTFOLIOS GROSS PARTNER
PARTNERSHIP ACQUIRED FACE VALUE ACQUIRED COLLECTIONS* DISTRIBUTIONS**
------------------------ ---------- ------------------ -------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
PAM I(1)................ 16 $ 305,438,442 $ 4,932,616 $ 5,526,429 $ 3,678,632
PAM II(2)............... 19 433,632,566 6,230,345 8,749,682 4,059,775
PAM III(3).............. 21 521,408,657 9,685,926 7,826,584 3,463,815
PAM IV(4)............... 57 709,008,534 20,416,167 20,014,508 6,269,988
PAM V(5)................ 12 209,901,705 4,997,992 2,889,555 639,600
--- ------------- ----------- ----------- -----------
Total.............. 125 $ 2,179,389,904 $ 46,263,046 $ 45,006,758 $18,111,810
=== ============= =========== =========== ===========
</TABLE>
- ---------------
* Gross collections include any sale of accounts and collection activity
through June 30, 1997
** Through June 30, 1997
(1) Performance Asset Management Fund, Ltd., A California Limited Partnership
("PAM I").
(2) Performance Asset Management Fund II, Ltd., A California Limited Partnership
("PAM II").
(3) Performance Asset Management Fund III, Ltd., A California Limited
Partnership ("PAM III").
(4) The Partnership ("PAM IV").
(5) Performance Asset Management Fund V, Ltd., A California Limited Partnership
("PAM V").
Each Limited Partner should thoroughly review the selected financial
statements included in the portions of the Prospectus "RESULTS OF OPERATIONS,"
"SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA AND COMPARATIVE PER SHARE
DATA," "PRO FORMA CONDENSED FINANCIAL INFORMATION," and the financial statements
of the Company, PCM and the Partnerships included in the Prospectus.
E-1
<PAGE> 367
The Partnership has continued to invest in distressed loan portfolios. As
set forth above, these portfolios consist primarily of charged-off credit card
accounts and consumer loan balances such as auto and personal lines of credit
originated by independent third-party financial institutions located throughout
the United States. In addition, the Partnership also acquired certain portfolios
of default consumer debts which were rewritten under terms different from the
original obligation. In 1994, the Partnership spent $9,804,992 on such
purchases. In 1995, the Partnership spent $4,215,633 on such purchases. In 1996,
the Partnership spent $4,474,765 on such purchases. Collections on investments
in distressed loan portfolios were $2,078,150 in 1994, $4,041,724 in 1995 and
$5,235,693 in 1996.
In 1994, 1995 and 1996, investments in distressed loan portfolios consisted
of the following (amounts are carrying amounts):
<TABLE>
<CAPTION>
TYPE OF PORTFOLIO 1994 1995 1996
-------------------------------------------- ---------- ----------- ----------
<S> <C> <C> <C>
Credit Card Accounts........................ $5,894,375 $ 5,857,955 $6,947,644
Performing Rewritten Accounts............... 1,230,121 414,056 0
Consumer Loans.............................. 1,275,696 2,984,756 1,795,999
Trade Receivable Accounts................... 869,140 0 0
Notes Secured by Deeds of Trust............. 0 445,000 347,543
---------- ----------- ----------
Totals............................ $9,269,332 $ 9,701,767 $9,091,186
========= ========== =========
</TABLE>
In 1994, the Partnership received investment income of $11,558, additional
income in the form of net interest of $96,928, and miscellaneous income in the
amount of $900. Against this, the Partnership had operating expenses as follows:
management fee expenses of $144,633; collection expenses of $525,073;
professional fees of $60,949; amortization expense of $3,605; general and
administrative expenses of $6,321; and provision for portfolio losses of
$405,000; for total operating expenses of $1,145,581. Thus, the Partnership's
net loss for 1994 was $1,036,195.
In 1995, the Partnership received investment income of $367,527, additional
income in the form of net interest of $109,670, and miscellaneous income in the
amount of $1,800. Against this, the Partnership had operating expenses as
follows: management fee expenses of $214,677; collection expenses of $225,318;
professional fees of $514,773; amortization expense of $3,669; general and
administrative expenses of $21,532; and provision for portfolio losses of
$109,000; for total operating expenses of $1,088,969. Thus, the Partnership's
net loss for 1995 was $609,972.
In 1996, the Partnership received investment income of $150,347, additional
income in the form of net interest of $535,431, and miscellaneous income in the
amount of $15,151. Against this, the Partnership had operating expenses as
follows: management fee expenses of $221,422; collection expenses of $227,874;
professional fees of $959,297; amortization expense of $3,670; and general and
administrative expenses of $20,832; for total operating expenses of $1,433,095.
Thus, the Partnership's net loss for 1996 was $732,166.
APPRAISED VALUE OF ASSETS HELD BY THE PARTNERSHIP. As of December 31st of
each of the years specified in the following table, the Partnership held the
following assets:
<TABLE>
<CAPTION>
ASSET 1994 1995 1996
--------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Cash and equivalents......................... $5,002,648 $ 559,223 $2,121,545
Restricted Cash Held In Trust................ N/A $6,247,207 $5,834,268
Investment in Distressed Loan Portfolios..... $9,269,331 $9,701,767 $9,091,186
Receivable From Unaffiliated Service
Provider(1)................................ $1,937,718 $1,937,718 $ 0
Due From Affiliates.......................... $ 376,050 $ 680,731 $ 136,022
Other Assets................................. $ 18,425 $ 219,153 $ 104,977
Organization Costs, Net...................... $ 10,793 $ 7,124 $ 3,454
</TABLE>
- ---------------
(1) West Capital Financial Services Corp., a California corporation.
The Partnership defines cash equivalents as all highly liquid investments
with a maturity of three months or less when purchased. The Partnership
maintains cash balances at one bank and aggregate accounts at the institution
are insured by the Federal Deposit Insurance Corporation up to $100,000.
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<PAGE> 368
COMPENSATION TO THE GENERAL PARTNER AND AFFILIATES FOR THE LAST THREE
FISCAL YEARS. The following table sets forth the compensation paid by to General
Partner and its Affiliates for the last three fiscal years and the most recently
completed interim period:
<TABLE>
<CAPTION>
ENTITY 1994 1995 1996 1997*
---------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
General Partner
Management fees....................... $ 144,633 $ 214,677 $ 221,422 $ 108,724
Distribution.......................... 174,521 172,358 159,334 191,067
Syndication........................... 506,100 201,825 0 0
PCM
Acquisition fees...................... 1,635,474 960,352 1,181,569 24,794
Collection fees....................... 725,066 1,144,313 1,991,083 1,034,059
INC
Commissions........................... 1,719,000 636,000 0 0
---------- ---------- ---------- ----------
Total......................... $4,904,794 $3,329,525 $3,553,408 $1,358,644
========= ========= ========= =========
</TABLE>
- ---------------
* Through June 30, 1997
The following table sets forth the compensation that would have been paid
to the General Partner and its Affiliates if the compensation and distributions
structure to be in effect after the roll-up transaction had been in effect
during the last three fiscal years.
<TABLE>
<CAPTION>
ENTITY 1994 1995 1996
----------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
General Partner (PDI).......................... $ 0 $ 0 $ 0
INC............................................ 1,719,000 636,000 0
PCM............................................ 0 0 0
---------- ---------- ----------
Total..................................... $1,719,000 $ 636,000 $ 0
========= ========= =========
</TABLE>
As stated above, the Partnership enters into various joint ventures with
Performance Capital Management, Inc., a California corporation and an Affiliate
of the General Partner. Vincent E. Galewick owns all of the issued and
outstanding stock of the following Affiliates:
Performance Development, Inc., a California corporation ("PDI") (the
General Partner)
Income Network Company, Inc., a California corporation ("INC")
Performance Capital Management, Inc., a California corporation ("PCM")
The Other Partnerships:
PAM I, PAM II, PAM III, PAM V (PAM I through PAM V, inclusive, are the "PAM
Funds")
PDI was formed in June, 1990 to engage in various aspects of the distressed
loan industry. PDI is also the general partner for the PAM Funds and various
other California limited partnerships. During the fiscal years ended 1994, 1995
and 1996, the Partnership paid PDI syndication fees of $506,100, $201,825 and $0
respectively, which have been accounted for as a reduction against the gross
proceeds of the offering. The Partnership also reimbursed PDI for offering
expenses totalling $189,105 during the year ended December 31, 1994. PDI's
management fees incurred and recorded by the Partnership totalled $144,633 and
$214,677 for the years ended December 31, 1994 and 1995, respectively, and
$221,422 for the year ended December 31, 1996. The Partnership also paid PDI
distributions of $174,521 and $172,358 for the years ended December 31, 1994 and
1995, respectively and $159,334 for the year ended December 31, 1996. At year
end December 31, 1996 the Partnership had amounts owed to PDI recorded as
amounts due to affiliates of $349,497.
The Partnership reimbursed PDI for certain syndication costs in connection
with the limited partnership offering during both 1994 and 1995. At December 31,
1994, the Partnership had amounts owed to PDI recorded as amounts due to
affiliates of $477,757. At December 31, 1995, the Partnership had amounts owed
from PDI recorded as amounts due from affiliates of $366,510. At December 31,
1996 the Partnership had amounts owed to PDI recorded as amounts due to
affiliates of $349,497.
E-3
<PAGE> 369
INC was formed on February 1, 1988 as a registered broker-dealer and member
of the National Association of Security Dealers and the Securities Investor
Protection Corporation. The Company's sole shareholder, Vincent E. Galewick, is
also the sole shareholder of the General Partner, PDI. INC, in accordance with
the limited partnership agreement and offering prospectus of the Partnership, is
paid commissions of 10% of sales of Partnership Units to limited partner
investors.
During the years ended December 31, 1994 and 1995, the Partnership paid INC
commissions of $1,719,000 and $636,000, respectively, which have been accounted
for as reductions against the gross proceeds of the offering. At December 31,
1994 and 1995, the Partnership had amounts owed to INC of $32,000 and $8,250,
respectively, for transactions described above.
PCM was formed in February, 1993 to perform services related to locating,
evaluating, negotiating, acquiring and collecting distressed loan portfolio
assets. PCM acquires portfolio assets from third-party financial institutions
and sells the portfolios to the Partnership at cost plus an acquisition fee of
approximately 30% to 37% as provided in the related purchase agreement. The
Partnership also enters into servicing agreements with PCM to collect and
service the portfolio activity. The agreements generally provide that all
proceeds generated from the collection of portfolio assets shall be shared by
the venturers in proportion to their respective percentage interests, generally,
55% to 60% for the Partnership and 40% to 45% for PCM. The Partnership also
reimburses PCM for certain costs associated with the collection of portfolio
proceeds.
Moreover, in addition to providing collection efforts on distressed loan
portfolios to the Partnership, PCM identifies and acquires distressed loan
portfolios and other discounted portfolios of financial debt instruments and
obligations and sells them to the Partnership and other Affiliates at negotiated
prices.
For the years ended December 31, 1994 and 1995, the Partnership purchased
twenty seven portfolios from PCM, and paid acquisition fees for those portfolios
of $1,635,474 and $960,352 respectively. For the year ended December 31, 1996,
the Partnership purchased 12 portfolios from PCM, and paid acquisition fees for
those portfolios of $1,181,569. Also, for the years ended December 31, 1994 and
1995, the Partnership reimbursed PCM for collection costs of $427,180 and
$225,318, respectively, while for the year ended December 31, 1996, the
Partnership reimbursed PCM for collection costs of $227,874. At December 31,
1994 and 1995, the Partnership had amounts owed from PCM recorded as Due from
Affiliates of $376,050 and $314,221, respectively, for the transactions
described above. At December 31, 1996, amounts owed from PCM recorded as Due
from Affiliates for acquisition fees and collection cost reimbursements totalled
$136,022.
DISTRIBUTIONS AND DIVIDENDS. The Partnership has made quarterly cash
distributions to the Limited Partners, which distributions terminated effective
as of June 30, 1997.
The following table specifies the cash distributions, including those cash
distributions which represent a return of capital, made to Limited Partners in
the Partnership during each of the last five fiscal years and most recently
completed interim period.
<TABLE>
<CAPTION>
DISTRIBUTIONS DISTRIBUTIONS
TOTAL TO THE TO THE
YEAR DISTRIBUTIONS GENERAL PARTNER LIMITED PARTNERS
---------------------------------------------- ------------- --------------- ----------------
<S> <C> <C> <C>
1993.......................................... $ 40,425 $ 0 $ 40,425
1994.......................................... $ 1,704,784 $ 174,521 $1,530,263
1995.......................................... $ 1,719,383 $ 172,358 $1,547,025
1996.......................................... $ 1,592,759 $ 159,334 $1,433,425
1997*......................................... $ 1,624,168 $ 191,068 $1,433,100
</TABLE>
- ---------------
* Through June, 1997.
As the above chart reflects, in 1994, the total amount distributed to
Limited Partners of the Partnership was approximately $1,530,263. In 1995, the
total amount distributed to Limited Partners of the Partnership was
approximately $1,547,025. In 1996, the total amount distributed to Limited
Partners of the Partnership was approximately $1,433,425.
E-4
<PAGE> 370
In 1996, the total amounts distributed to Limited Partners of each Limited
Partnership were approximately as set forth on the following table:
<TABLE>
<CAPTION>
DISTRIBUTIONS TO THE
COMPANY OR THE
TOTAL GENERAL PARTNER OR
PARTNERSHIP DISTRIBUTIONS THEIR AFFILIATES
--------------------------------------------------------- ------------- --------------------
<S> <C> <C>
Performance Asset Management Fund, Ltd.,
A California Limited Partnership....................... $ 172,133 $ 17,483
Performance Asset Management Fund II, Ltd.,
A California Limited Partnership....................... $ 255,833 $ 25,810
Performance Asset Management Fund III, Ltd.,
A California Limited Partnership....................... $ 331,700 $ 35,775
Performance Asset Management Fund IV, Ltd.,
A California Limited Partnership....................... $ 1,592,759 $159,334
Performance Asset Management Fund V, Ltd.,
A California Limited Partnership....................... $ 199,066 $ 19,966
</TABLE>
The total amount distributed by all of the Partnerships was $2,551,491. All
of the distributions to the limited partners were in the form of cash
distributions. Some of the distributions to the General Partner were accrued.
PERFORMANCE ASSET MANAGEMENT FUND IV, LTD.
PER UNIT DATA
<TABLE>
<S> <C> <C> <C> <C>
Partnership units outstanding at year end....... 11,472 11,488 8,779 2,047
Earnings (loss) per unit........................ (63.82) (53.10) (118.03) (23.42)
Book value per unit............................. 1,507.27 1,684.62 1,892.58 2,274.69
Assigned value for roll-up per unit............. $1,381.52/unit
Annual return of capital distributions per
unit.......................................... 124.95 134.66 174.77 17.77
Cumulative return of capital distributions per
unit.......................................... 396.72 271.39 178.91 17.77
</TABLE>
REASONS FOR THE MERGER PROPOSAL
LIQUIDITY AND MARKET VALUATION. Units are not publicly traded and have
limited liquidity. The primary means of liquidity for holders of Units is to
request the Partnership to redeem the Units. Although the Partnership is not
obligated to honor any such request, such redemptions have occurred from time to
time, using available cash to redeem the Units at a percentage of book value.
After consummation of the Merger, however, the Company expects to qualify the
Common Shares for listing and trading on a regional or national securities
exchange. At that time, there is expected to be a potential liquid market for
selling the Common Shares and a readily determinable market value for the Common
Shares. With a liquid market for Common Shares, equity holders would not be
required to rely solely on the Company as a source of liquidity, and the Company
will not be required to use its cash to provide such liquidity. Instead, it is
expected that holders of Common Shares will be able to sell their Common Shares
publicly from time to time, subject to certain restrictions, for their fair
market value.
The Company and the General Partner believe that the Merger is necessary to
realize the full benefit of a public trading market. The Company believes that
corporate equity securities are more favorably valued than comparable limited
partnership interests, because a partnership with publicly traded limited
partnership interests is generally taxed as if it were a corporation and because
many institutional investors will not invest in a business organized as a
partnership, even if it is not taxed as a corporation.
ACCESS TO EQUITY MARKETS. Although the Company currently has no plans for
additional equity offerings, the existence of publicly traded equity securities
is expected to provide it with future access to the public equity markets.
E-5
<PAGE> 371
GREATER FLEXIBILITY REGARDING CAPITAL RESOURCES. The Company will have
greater flexibility with respect to the use of capital resources because it will
not have to use available cash to redeem Common Shares. As discussed above, the
Partnership has from time to time used its cash to redeem Units when requested
to do so by Limited Partners. There are also potential tax advantages (and
corresponding financial advantages) to conducting a business as a corporation
that should allow the Company greater flexibility with respect to the management
of its capital resources. Shareholders will defer the payment of taxes on income
earned by the Company until the Company distributes such income in the form of
dividends. Limited Partners, by contrast, are taxed as soon as the Partnership
earns income. Limited Partners are taxed on such income at their individual
federal tax rates, which may exceed the maximum corporate federal tax rate.
Therefore, the Surviving Corporation as a corporation can accumulate income for
business expansion without adversely affecting a shareholder's tax liabilities.
ACQUISITION CURRENCY. The Company may be able to use shares of its common
stock as consideration in its acquisition of other businesses. The use of
readily tradeable equity securities as an acquisition currency is advantageous
because it may be more tax efficient to the seller of a business than a cash
transaction and it allows the Company to consummate acquisitions without
depleting cash resources. It also allows a seller to continue to hold an equity
interest in the business acquired by the Company by equity ownership in the
Company after such acquisition. The use of common stock in acquisitions can also
enable the Company to use advantageous pooling accounting methods if certain
conditions are satisfied.
INCENTIVE COMPENSATION. The availability of shares of the Company's common
stock will permit the Company to provide its key employees with equity based
incentive compensation. The Company believes providing equity based incentive
compensation by the use of common stock will allow broader employee
participation in the Company's equity, provide a more accurate measure of the
Company's performance as a result of common stock having a readily ascertainable
value, and provide the Company with more flexibility in designing equity based
incentive compensation. The Company currently intends to adopt an employee stock
plan during or immediately after the first quarter of fiscal 1998, if the Merger
is consummated.
GREATER EMPLOYEE OWNERSHIP. As a result of the complex tax reporting
requirements associated with being a limited partner and the administrative
burden placed on the Partnerships as a result of having a significant number of
limited partners, it has not been feasible for the Partnership to offer
ownership opportunities to a broad range of employees. By having the shares of
its common stock available, however, the Company will be able to offer ownership
opportunities to all employees. The Board of Directors believes that wide-spread
employee ownership is in the best interests of the Company and its shareholders.
REDUCTION OF TAX REPORTING REQUIREMENTS AND COSTS. In contrast to the
Partnership, the Surviving Corporation will not be required to compute and
report tax information on an individual shareholder basis, and individual
shareholders will not be required to include information regarding the Surviving
Corporation's operations on their personal tax returns. Therefore, the Merger
will eliminate the complex partnership tax reporting requirements for Limited
Partners imposed on them under federal and multiple state partnership tax laws
and may eliminate certain costs and delays that individual Limited Partners
currently may be forced to incur in connection with the preparation of their
individual tax returns. However, as a corporation, the Surviving Corporation
will be subject to income tax and shareholders will also be required to pay
income tax on any dividends they receive, and on any gain recognized upon the
sale or exchange of shares. See the sections entitled "FEDERAL INCOME TAX
CONSIDERATIONS" and "CERTAIN STATE AND LOCAL INCOME TAX CONSIDERATIONS" in the
Prospectus.
EFFECTS OF THE MERGER
As a result of the Merger, all of the assets now held directly or
indirectly by PCM and the Partnership will be held by the Surviving Corporation
and PCM and the Partnership will cease to exist by operation of law. The
Surviving Corporation will possess all of the assets, properties, rights and
privileges, and will be subject to all the liabilities and obligations, of PCM,
the Partnerships and the Company existing on the Closing Date.
E-6
<PAGE> 372
The following is a brief description of each material risk and effect of
the Merger Proposal including, but not limited to, federal income tax
consequences, for Limited Partners. Also included is a brief discussion of the
effect of the Merger Proposal on the Partnership's financial condition and
results of operations. Pro forma financial information based on the
participation of the Partnership in the Merger is set forth in the Prospectus
under the heading entitled "SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA AND
COMPARATIVE PER SHARE DATA."
THE MERGER. Upon the Closing Date, PCM and the Partnership (if, and only
if, all of the Partnerships approve the Merger Proposal, and subject to other
conditions precedent to the Merger specified in the Prospectus) will merge with
and into the Company and pursuant to the Merger Agreement, all of the Units
existing at the Closing Date will be converted into Common Shares in accordance
with an Exchange Value determined to be fair by the Fairness Opinion prepared by
Willamette Management Associates, Inc. ("Fairness Analyst") (the Fairness
Opinion is attached to the Prospectus as Appendix G). The Fairness Opinion
provides that each Limited Partner's Units, calculated as of the Determination
Date, will be converted into Common Shares pursuant to the Exchange Value, with
cash being paid for any fractional shares based on the book value of Common
Shares on the Determination Date.
The Determination Date is a date set by the Board of Directors. At this
time, the Board of Directors expects that the Determination Date will be June
30, 1997. To accommodate the Merger, the General Partner suspended distributions
by the Partnership to the Limited Partners, effective as of the Determination
Date. This is necessary to assure that the Limited Partners' capital accounts do
not change after the Determination Date. The Board of Directors will have the
authority to postpone the Determination Date and declare a new Determination
Date, in its discretion. The Board of Directors might postpone the Determination
Date and declare a new Determination Date, if the matters contemplated in the
Merger Proposal are postponed for any reason.
EFFECT OF THE MERGER ON CASH DISTRIBUTIONS. Until June 30, 1997, the
Partnership made cash distributions to Limited Partners. The Company currently
anticipates that the Surviving Corporation will not pay cash dividends. However,
this policy may change, as the actual amount of dividends, if any, to be paid
will be determined by the Board of Directors in its sole discretion, generally
taking into account a number of factors, including operating performance,
liquidity and capital requirements. There can be no assurances that any cash
dividends will be paid, just as there can be no assurances that Partnership
distributions will continue at previous levels.
DISTRIBUTIONS BY THE COMPANY, IF ANY, WILL BE AT THE DISCRETION OF THE BOARD OF
DIRECTORS AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE COMPANY'S ACTUAL
CASH AVAILABLE FOR DISTRIBUTION, THE COMPANY'S FINANCIAL CONDITION, THE
COMPANY'S CAPITAL REQUIREMENTS, AND SUCH OTHER FACTORS AS THE COMPANY'S BOARD OF
DIRECTORS DEEMS RELEVANT.
THE MERGER AGREEMENT. The Merger will be consummated pursuant to the Merger
Agreement if the Merger Proposal set forth in the Prospectus receives the
requisite approval of the Limited Partners of each Partnership, the approval of
the PCM Shareholders, and the approval of the Company Shareholders, and if the
other applicable conditions to the Merger are satisfied or waived, including any
approvals required from any state or federal regulatory agency. The Merger
Agreement is designated as Exhibit 2 to the Registration Statement and is
included in the Prospectus as Appendix A.
Until such time as the Merger Agreement has been approved and adopted by
all the parties thereto, it may be amended or terminated by the Board of
Directors of the General Partner, on behalf of any of the Partnerships, the
Board of Directors of PCM, on behalf of PCM, or the Board of Directors, on
behalf of the Company; provided, however, that at any time after the Merger
Agreement has been adopted by the Shareholders or the Limited Partners, the
respective Boards of Directors may not amend, modify or supplement the Merger
Agreement to change the amount or kind of interests to be received by the
Limited Partners, the PCM Shareholders or the Company Shareholders or to make
any change if such change would, alone or in the aggregate, materially adversely
affect the Limited Partners or the PCM Shareholders.
E-7
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APPROVAL BY ALL OF THE LIMITED PARTNERSHIPS IS REQUIRED. The Merger
Proposal may be consummated only if all of the Partnerships approve the Merger
Proposal. The Merger Agreement provides that Limited Partners that reject the
Merger Proposal shall not bear an unfair portion of the transaction costs of the
Merger. A Partnership which rejects the Merger Proposal shall not be required to
pay any of the costs of the Merger in accordance with the provisions of Section
25014.7(e)(3) of the Thompson-Killea Act. The General Partner, PCM and the
Company have considered the possibility of approval of the Merger Proposal and
related transactions by less than all of the Partnerships, and do not believe
that the Merger can be fairly consummated unless all of the Partnerships approve
the Merger Proposal because, among other things, (i) it would be unduly
burdensome or impossible to evaluate and apportion the value of the various
services provided to the Partnerships by PCM considering the complexity and
scope of the various joint ventures between the Partnerships and PCM; and (ii)
if the Merger Proposal is approved, PCM will cease to exist by operation of law,
and would no longer be available to provide the same services to a dissenting
Partnership. The General Partner and PCM have engaged an expert, Willamette
Management Associates, to render a Fairness Opinion concerning the Merger
Proposal. See the section entitled "DETERMINATION OF THE EXCHANGE PRICE AND
ALLOCATION OF THE COMMON SHARES" in the Prospectus.
CONDITIONS OF THE MERGER. The Merger will not be consummated unless the
Merger Proposal receives the requisite approval of the Limited Partners of each
Partnership, the approval of PCM Shareholders, the approval of existing Company
Shareholders, and the approval of the requisite state and federal regulatory
agencies. Consummation of the Merger is also subject to the receipt of the
opinion described in the section entitled "FEDERAL INCOME TAX CONSIDERATIONS" in
the Prospectus. Receipt of this opinion may be waived in whole or in part by the
Partnerships, PCM and the Company in each respective entity's sole discretion.
Prior to the consummation of the Merger, the obligations of the parties to
the Merger Agreement may be terminated at any time (including after approval of
the Merger by the Limited Partners and the respective Shareholders) if, among
other things, (a) the General Partner, PCM or the Company adopts a resolution
terminating the Merger Agreement or (b) a final injunction, order, or other
action of a court or other governmental body prevents the consummation of the
Merger.
COMPLETING THE MERGER. If the Merger Proposal is approved and the other
conditions of the Merger Agreement are waived or satisfied, the Closing Date
will be selected by agreement of the General Partner, PCM and the Company. Upon
consummation of the Merger, the Limited Partners and PCM Shareholders will be
entitled to receive certificates for Common Shares issued in exchange for their
Units and shares of PCM's common stock, respectively.
COSTS OF THE MERGER. For purposes of the Thompson-Killea Act, the costs of
the Merger will be divided into two categories, (i) transaction costs; and (ii)
solicitation expenses. Transaction costs are defined as the costs of printing
and mailing the Prospectus, or other documents; legal fees not related to the
solicitation of votes or tenders; financial advisory fees; investment banking
fees; valuation fees; accounting fees; independent committee expenses; travel
expenses; and all other fees related to the preparatory work of the transaction,
but not including costs that would have otherwise been incurred by the
Partnership in the ordinary course of business, or solicitation expenses.
Solicitation expenses include direct marketing expenses such as telephone calls,
broker-dealer fact sheets, legal and other fees related to the solicitation, as
well as direct solicitation compensation to brokers and dealers.
The Company estimates that the total costs and expenses of the Merger will
be approximately $1,400,000 if consummated and $1,200,000 if not consummated.
The Company estimates that the total solicitation expenses will be approximately
$600,000. This amount will be incurred whether or not the Merger is consummated.
The remainder of the costs and expenses estimated for consummation or
non-consummation will be attributable to transaction costs.
The Merger Agreement provides that Limited Partners that reject the Merger
Proposal shall not bear an unfair portion of the transaction costs of the
Merger. Should the Merger Proposal be rejected by all of the Partnerships, the
transaction costs will be apportioned between the Company and the rejecting
Partnerships according to the final vote on the Merger Proposal as follows: (i)
the Company shall bear all transaction costs
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in proportion to the number of votes of the Limited Partners of that Partnership
to reject the Merger Proposal; (ii) the rejecting Limited Partnerships shall
bear transaction costs in proportion to the number of votes of Limited Partners
of each Partnership to approve the Merger Proposal. Should the Merger Proposal
be approved by one or more Partnerships and rejected by at least one
Partnership, each Partnership rejecting the Merger Proposal shall not be
required to pay any of the costs of the Merger in accordance with the provisions
of Section 25014.7(e)(3) of the Thompson-Killea Act. Further, In the event that
the Merger Proposal is rejected by all of the Partnerships, the Company shall
pay all of the solicitation expenses in accordance with the provisions of
Section 25014.7(g) of the Thompson-Killea Act.
In 1996, the total approximate amounts distributed to the partners of each
Partnership are as set forth on the following table:
<TABLE>
<CAPTION>
DISTRIBUTIONS TO THE DISTRIBUTIONS TO THE
PARTNERSHIP LIMITED PARTNERS GENERAL PARTNER
------------------------------------------------ --------------------- ---------------------
<S> <C> <C>
Performance Asset Management Fund, Ltd.,
A California Limited Partnership.............. $ 154,650 $ 17,483
Performance Asset Management Fund II, Ltd.,
A California Limited Partnership.............. $ 230,023 $ 25,810
Performance Asset Management Fund III, Ltd.,
A California Limited Partnership.............. $ 295,925 $ 35,775
Performance Asset Management Fund IV, Ltd.,
A California Limited Partnership.............. $ 1,433,425 $ 159,334
Performance Asset Management Fund V, Ltd.,
A California Limited Partnership.............. $ 179,100 $ 19,966
</TABLE>
The total amount distributed by all of the Partnerships was $2,551,491. All
of the distributions to the Limited Partners were in the form of cash
distributions. Some of the distributions to the General Partner were accrued.
In contrast to the Partnership, the Surviving Corporation will itself be
subject to federal tax on its income. Holders of Common Shares will not be
subject to federal tax on such income except to the extent dividends are paid.
See the section entitled "FEDERAL INCOME TAX CONSIDERATIONS" in the Prospectus.
The Surviving Corporation is expected to make significantly lower distributions,
if any, than the Partnership has made.
There can be no assurance that the Merger will achieve any of the benefits
and objectives described above. In addition, certain possible disadvantages and
other risks and special considerations associated with the Merger exist as
described in the section entitled "RISK FACTORS" in the Prospectus. Limited
Partners should analyze the Merger Proposal and related transactions in light of
all the matters discussed in the Prospectus.
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ALTERNATIVES TO THE MERGER
PCM, the Company and the General Partner have considered several
alternatives to the Merger Proposal and related transactions. Some of these
alternatives would not constitute a reorganization. In the mutual opinion of
PCM, the Company and the General Partner, the only viable alternatives not
constituting a reorganization involve some form of public offering of
securities. The General Partner has considered the possibility of a public
offering of all Units which would provide certain registration rights to the
Limited Partners. In the opinion of the General Partner, this possibility would
fail to provide the Limited Partners with the liquidity that the Merger Proposal
might provide because of the unsatisfactory market for publicly traded limited
partnership units. PCM and the Company have also considered the possibility of
merging those two corporations without merging with any of the Partnerships and
thereafter making a public offering of shares in the Surviving Corporation. In
the event the Merger is not consummated, PCM and the Company may elect this
alternative.
PCM, the Company and the General Partner have considered several
alternatives to the Merger Proposal, each of which constitutes a reorganization.
The General Partner considered the possibility of selling all of the assets of
the Partnership to the Company, and the Company considered purchasing all such
assets, in exchange for shares of the Company. PCM also considered the
possibility of selling all of its assets to the Company, and the Company
considered purchasing all such assets, in exchange for shares of the Company.
Alternatively, the General Partner considered winding up and dissolving the
Partnership and distributing the proceeds of the liquidation to the Limited
Partners. Additionally, the Board of Directors of PCM considered winding up and
dissolving PCM and distributing the proceeds of liquidation to the PCM
Shareholders. These possibilities were eliminated because of their complexity
and cost.
Moreover, the General Partner considered dissolving the Partnership and
distributing the assets of the Partnership to the Limited Partners pursuant to
an agreement with the Company, which was considered by the Company, and pursuant
to which agreement the Company would purchase the assets from the individual
Limited Partners in exchange for shares of the Company's common stock, and
thereafter merging the Company with PCM. This possibility was also eliminated
because of its complexity and cost, and also because, with the type of assets
held by the Partnership, even an "orderly liquidation" would result in a
prohibitive discount on the value of the debt portfolios.
PCM and the General Partner considered the results of continuing PCM and
the Partnership in accordance with their current business plans and joint
venture agreements. PCM and the General Partner rejected this alternative
because the servicing entity, PCM, currently has the capacity to service
portfolios in excess of those owned by the Partnership and has the potential for
significant growth. PCM has been offered access to commercial lines of credit
and its growth is not contingent upon a continuing relationship with the
Partnership. After consummation of the Merger, Limited Partners who approve the
Merger Proposal will participate in this growth. Moreover, after the
consummation of Merger, the Company will be able to compete for available
portfolios by taking advantage of economies of scale not available to either PCM
or the Partnership acting individually.
PCM and the General Partner also considered going forward with the Merger
Proposal with the approval of less than all of the Partnerships, but rejected
this alternative because of economies of scale, the scope and complexity of
existing joint ventures between PCM and the Partnership, and the economics of
purchasing, holding, servicing, collecting and selling distressed debt
portfolios. See "Approval by All of the Limited Partnerships Is Required" above.
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<PAGE> 376
EXCHANGE VALUE AND FAIRNESS OPINION
BASES FOR THE GENERAL PARTNER'S BELIEF AS TO FAIRNESS. The Fairness Opinion
is discussed at length in the section entitled "Fairness Opinion" in the
Prospectus. The General Partner believes that the Merger Proposal is fair to the
Limited Partners because the General Partner believes that the Merger will
provide Limited Partners with liquidity in their investments and more simplified
tax reporting. The General Partner believes that the Merger will provide the
Company with greater access to capital markets, greater flexibility regarding
capital resources, the potential to provide employees with incentive performance
compensation, including shares of the Company's $.001 par value common stock,
and the opportunity to offer greater employee ownership in the Company.
NO LIMITATIONS IMPOSED ON SCOPE OF INVESTIGATION. Kelly & Company, PCM's
and the Company's independent auditors, retained the Fairness Analyst to
determine the fairness from a financial point of view of the Exchange Value in
connection with the Merger Proposal. There were no limitations or restrictions
placed on the scope of the Fairness Analyst's analysis and investigation, and
the Fairness Analyst performed a complete due diligence examination by, among
other things, visiting PCM's facilities in Newport Beach, California;
interviewing the President and Vice-President of PCM; interviewing the
President, Chief Financial Officer, Director of Business Development, and
Secretary of the General Partner; interviewing CPAs employed by Kelly & Company;
and interviewing counsel to the various entities. The Fairness Analyst was
allowed full access to all financial records of PCM, the General Partner, the
Partnerships, and all service providers to those entities, including privileged
documents such as tax returns and audit workpapers.
NO INSTRUCTIONS FROM GENERAL PARTNER, PCM OR THE COMPANY. Neither the
General Partner, PCM nor the Company provided instructions to the Fairness
Analyst. Kelly & Company instructed the Fairness Analyst to conduct an
independent investigation, and thereafter render a written opinion to Kelly &
Company, as of the Determination Date, as to whether the Exchange Value
established by the General Partner, PCM and the Company is fair from a financial
point of view to the Partnerships. Kelly & Company also instructed the Fairness
Analyst to prepare a Fairness Opinion (i) satisfying the valuation requirements
of the Thompson-Killea Act; (ii) potentially useful in meeting the valuation
requirements of Sections 1300 et seq. of the California General Corporation Law
pertaining to Dissenting Shareholders; and (iii) sufficient to support an
opinion regarding the fairness from a financial point of view of the Merger
Proposal and related transactions, addressing the fairness from a financial
point of view of the Merger and related transactions as a whole and to each of
the Partnerships. Kelly & Company instructed the Fairness Analyst to perform a
due diligence investigation and to review all pertinent documents, including,
but not limited to financial statements; tax returns; audit work papers; banking
records; balance sheets; income statements; Securities and Exchange Commission
reporting forms; corporate documents such as Certificates or Articles of
Incorporation, Bylaws and minutes; furniture and equipment schedules; insurance
policies and coverages; PCM and Partnership operating budgets through December
31, 2008; office leases; management profiles; portfolio stratification reports;
and daily productivity reports. Kelly & Company also instructed the Fairness
Analyst to research industry sources and databases and economic outlook sources
regarding the financial services and distressed debt industry.
PROCEDURES FOLLOWED. As set forth above, the Fairness Analyst conducted a
complete independent investigation focusing on the valuation issues relating to
the "adequate consideration" rule. Adequate consideration is generally
understood to represent the fair market of an asset. Accordingly, in order to
arrive at its opinion regarding the fairness from a financial point of view of
the exchange rate established for the Units, the Fairness Analyst performed its
research and analyses with the intent of establishing whether the Limited
Partners would receive at least fair market value in exchange for their Units.
"Fair market value" is defined as the price at which an asset would change hands
between a willing buyer and a willing seller when the former is not under any
compulsion to buy and the latter is not under any compulsion to sell, both
parties are able, as well as willing, to trade, and both parties are well
informed about the asset and the market for that asset. The Fairness Analyst
performed an analysis of the material features and characteristics of the
Partnerships and PCM, as well as an analysis of the financial statements and
results of operations of each entity. The Fairness Analyst assumed that PCM will
continue its current business plan and structure, and made other reasonable
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assumptions and estimates regarding distressed loan portfolio acquisition and
pricing, operating expenses, and partnership distribution policies.
DETERMINATIONS. The Company, PCM and the General Partner determined the
total indicated values for PCM and for each of the Partnerships as set forth in
the following table:
<TABLE>
<CAPTION>
NAME OF PARTNERSHIP OR CORPORATION TOTAL VALUE
---------------------------------------------------------------------- -----------
<S> <C>
Performance Asset Management Fund, Ltd.,
A California Limited Partnership.................................... $ 934,000
Performance Asset Management Fund II, Ltd.,
A California Limited Partnership.................................... $ 3,112,000
Performance Asset Management Fund III, Ltd.,
A California Limited Partnership.................................... $ 6,000,000
Performance Asset Management Fund IV, Ltd.,
A California Limited Partnership.................................... $15,846,000
Performance Asset Management Fund V, Ltd.,
A California Limited Partnership.................................... $ 4,700,000
Performance Capital Management, Inc.,
a California corporation............................................ $44,523,000
</TABLE>
BASIS FOR METHODS OF ARRIVING AT FINDINGS AND RECOMMENDATIONS. The Fairness
Analyst valued the assets of each entity by determining the combined value of
such entity's assets, including the value of each entity's cash flows and the
terminal value of such entity's distressed loan portfolios. The Fairness Analyst
determined the asset liquidation value of each entity and calculated the
allocation of assets of each Partnership between the General Partner and the
Limited Partners of each Partnership based on such Partnership's Partnership
Agreement. Additional factors considered by the Fairness Analyst in making its
valuation include discount factors based on the age and composition of the
various distressed loan portfolios and the Fairness Analyst's determination of
the present value of the respective cash receipts of each entity, as well as the
historical and projected collection costs of distressed loan portfolios.
DETERMINATION OF EXCHANGE VALUE AND ALLOCATION OF COMMON SHARES
EXCHANGE VALUE. The net equity values determined by PCM, the Company and
the General Partner and reviewed by the Fairness Analyst of all of the assets of
the Partnerships, PCM and the Company, considered together and separately,
together with the book value of the other financial assets of such entities,
have been used to establish the Exchange Value. The Fairness Analyst is
unaffiliated with neither the Company, PCM nor the General Partner. PCM's and
the Company's independent auditors, Kelly & Company, were referred to the
Fairness Analyst by an accountant unaffiliated with neither PCM, the Company or
the General Partner and with whom neither PCM, the Company nor the General
Partner has conducted any business. The Fairness Analyst was selected by Kelly &
Company entirely on the basis of the its qualifications.
The General Partner and PCM valued the assets of the Partnership and PCM,
respectively, as if sold in an orderly manner in a reasonable period of time,
plus or minus other balance sheet items, and less the cost of sale. The
valuation was conducted in accordance with the provisions of Section
25014.7(b)(1) of the Thompson-Killea Act. The valuation was also conducted in
accordance with the provisions of Sections 1300 et seq. of the California
General Corporation Law pertaining the Dissenting Shareholders. The compensation
to dissenting Limited Partners and Shareholders entitled to compensation for
their Units or shares is based upon the valuation described above. See the
section entitled "RIGHTS OF DISSENTING SHAREHOLDERS AND DISSENTING LIMITED
PARTNERS" in the Prospectus.
The purpose of the Fairness Opinion is to confirm to the Company, PCM and
the General Partner the fairness from a financial point of view of the Merger
Proposal and related transactions to the Partnerships. Neither the Company, PCM,
nor the General Partner gave the Fairness Analyst any specific instructions
other than the instruction from Kelly & Company, PCM's and the Company's
independent auditors, to prepare a fairness opinion (i) meeting the valuation
requirements of the Thompson-Killea Act; and (ii) potentially useful in meeting
the valuation requirements of Sections 1300 et seq. of the California General
Corporation
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<PAGE> 378
Law pertaining to Dissenting Shareholders; and (iii) sufficient to support an
opinion regarding the fairness of the Merger Proposal and related transactions,
addressing the fairness from a financial point of view of the Merger Proposal
and related transactions as a whole and to each of the Partnerships. Pursuant to
the Thompson-Killea Act, the Units were valued as if sold in an orderly manner
in a reasonable period of time, plus or minus other balance sheet items, and
less the costs of sale. Pursuant to the provisions of Section 1300 of the
California General Corporation Law, the fair market value of the Dissenting
Shares shall be determined as of the day before the first announcement of the
terms of the Merger Proposal and related transactions, excluding any
appreciation or depreciation in consequence of the Merger Proposal or related
transactions, but adjusted for any stock split, reverse stock split or share
dividend which becomes effective thereafter. The Fairness Opinion will not be
updated.
FAIRNESS OPINION. The Exchange Value was determined by PCM, the Company and
the General Partner, as was the consideration to be paid by the Company to each
Partnership for such Partnership's assets. The Fairness Analyst has determined
that the Exchange Value and such consideration are fair from a financial point
of view to each Partnership, as specified in the Fairness Opinion. The
compensation paid to the Fairness Analyst was not contingent upon the findings
of the fairness of the Exchange Value, such consideration or the Merger Proposal
or the consummation or approval of the Merger Proposal or related transactions.
The Fairness Opinion relates to the fairness from a financial point of view of
the Merger Proposal and related transactions, addressing the fairness from a
financial point of view of the Merger Proposal and related transactions as a
whole and to each of the Partnerships. Because the Merger is contingent upon the
approval of the Merger Proposal by all of the Partnerships, PCM, and the
Company, the Fairness Opinion did not consider possible combinations of less
than all of the Partnerships in the Merger.
The Fairness Analyst considered all of the assets of each of the
Partnerships, PCM, and the Company. The intangible assets of the Partnerships
and PCM consist of distressed financial debt instruments and obligations. The
Fairness Analyst also considered tangible assets of the Partnerships, PCM and
the Company. The tangible assets of the Partnerships and the Company were
determined to be negligible. The tangible assets of PCM were determined to be
more considerable and include furniture, computers and business equipment. The
aggregate appraised value of the assets of the Partnerships is $30,592,000. The
aggregate value of the assets of PCM is $44,523,000.
EXCHANGE OF SHARES. On the Closing Date, if the PCM Shareholders, the
Limited Partners of all five Partnerships, and the Company Shareholders approve
the Merger Proposal, PCM and the Partnerships will merge with and into the
Company. Pursuant to the Merger Agreement, all of the Units of the Limited
Partners at the Closing Date will be converted into Common Shares in accordance
with an exchange ratio which provides that each $10.00 in a Limited Partner's
capital account, calculated as of the Determination Date, will be converted into
one Common Share, with cash being paid for any fractional shares based on the
value of Common Shares on the Determination Date.
The following table summarizes the valuation conclusions of the General
Partner and PCM as to the Partnerships and PCM, respectively, based on 7,511,500
allocable shares of Merger Stock:
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE NUMBER OF
INDICATED VALUE INDICATED VALUE COMMON SHARES
(ROUNDED TO THE (ROUNDED TO THE ALLOCATED
NEAREST $1,000) NEAREST 1/10 OF 1%) TO ENTITY
--------------- ------------------- -------------
<S> <C> <C> <C>
PAM I................................ $ 934,000 1.2% 93,398
PAM II............................... 3,112,000 4.1 311,202
PAM III.............................. 6,000,000 8.0 600,003
PAM IV............................... 15,846,000 21.1 1,584,596
PAM V................................ 4,700,000 6.3 470,002
----------- ----- ---------
Sub-Total....................... $30,592,000 40.7% 3,059,201
----------- ----- ---------
PCM.................................. 44,523,000 59.3 4,452,299
----------- ----- ---------
Total........................... $75,115,000 100.0% 7,511,500
=========== ===== =========
</TABLE>
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The Company shall promptly furnish a copy of the Fairness Opinion, without
charge, upon the request of any Limited Partner, PCM Shareholder or Company
Shareholder. All such requests should be addressed as follows: Performance Asset
Management Company, Attn: Information Agent -- Fairness Opinion, 4100 Newport
Place, Suite 400, Newport Beach, California 92660.
POTENTIAL RISKS AND ADVERSE EFFECTS
THE MERGER AND ACQUISITION OF SHARES OF THE COMPANY'S COMMON STOCK INVOLVES
VARIOUS RISKS, AND LIMITED PARTNERS SHOULD CAREFULLY CONSIDER THE MATTERS
DISCUSSED UNDER THE SECTION ENTITLED "RISK FACTORS" IN THE PROSPECTUS, INCLUDING
THE FOLLOWING:
*TAX CONSEQUENCES. The Partnerships do not pay any federal income taxes.
After consummation of the Merger, the Surviving Corporation will be subject to
federal income tax. Shareholders of the Surviving Corporation will also be
required to pay federal income taxes on any dividends that they may receive from
the Surviving Corporation and on any gain from the sale or exchange of Common
Shares. Therefore, while in partnership form only one level of federal income
tax is imposed (i.e., on the Limited Partners), in corporate form two levels of
federal income tax are imposed (i.e., one on the Surviving Corporation and one
on its shareholders to the extent they receive dividends or recognize gain on
the sale or exchange of shares). See the portions entitled "FEDERAL INCOME TAX
CONSIDERATIONS" and "OTHER TAX CONSIDERATIONS" in the Prospectus.
*SIGNIFICANT REDUCTION IN DISTRIBUTIONS. The dividends distributed to
shareholders of the Surviving Corporation may be significantly less that the
current distributions to the Limited Partners. The Company currently does not
anticipate making any dividend payments on the Common Shares. See the portion
entitled "RISK FACTORS" in the Prospectus.
*NON-PERFORMING ASSETS. Many of the assets held by the Partnerships which
may be acquired by the Company are, by their nature, non-performing.
Specifically, those assets were originally available for purchase by the
Partnerships because the obligors of the indebtedness comprising those assets
failed to pay on those debt obligations and there is not sufficient security or
collateral available for disposition from which to generate proceeds sufficient
to pay those debt obligations. For that reason, the assets which the
Partnerships have acquired and the Company intends to acquire by the Merger may
be completely unproductive; that is, those assets may generate no income to the
Company. See the portion entitled "BUSINESS AND ASSETS" in the Prospectus.
*UNSPECIFIED ASSETS. The Company may, from time to time, change its asset
portfolio by disposing of certain assets and replace the same with newly
acquired assets. The assets may, in that sense, be unspecified. See the section
entitled "BUSINESS AND ASSETS" in the Prospectus.
*SPECULATIVE BUSINESS. The Company's business objectives, similar to those
of the Partnerships, must be considered speculative and there is no assurance
that the Company will satisfy those objectives. No assurances can be given that
Limited Partners will realize a return on their exchange of Units for shares of
Merger Stock. See the section entitled "RISK FACTORS" in the Prospectus.
*RESTRICTIONS ON TRANSFER OF COMMON SHARES. The Common Shares may not be
freely transferable if the shareholder is deemed an Affiliate of the Company, as
that term is defined herein. Further, no public market for the Common Shares
exists. To accomplish the purposes of the Merger, the transfer, assignment,
sale, conveyance, hypothecation, encumbrance or other alienation of the Merger
Stock will be restricted. 25% of the Merger Stock will be unrestricted
immediately after the consummation of the Merger. 25% of the Merger Stock will
be restricted until the end of the Company's first full fiscal quarter following
the Closing Date. 25% of the Merger Stock will be restricted until the end of
the Company's second full fiscal quarter following the Closing Date. The
remaining 25% of the Merger Stock will be restricted until the end of the
Company's third full fiscal quarter following the Closing Date. Accordingly, the
Common Shares should only be acquired as a long term investment. See the
portions entitled "RESALE OF THE COMMON
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<PAGE> 380
SHARES," "DESCRIPTION OF THE COMMON SHARES," and "Merger Stock Will Be
Restricted" in the Prospectus.
*UNCERTAINTY REGARDING TRADING AND MARKET PRICE OF COMMON SHARES. The
Common Shares may not be listed or approved for listing on any regional or
national securities exchange or otherwise designated or approved for designation
upon notice of issuance as a regional or national market system security. See
the portion entitled "RISK FACTORS" in the Prospectus.
*SUBSTANTIAL FEES. The Merger and related transactions may involve the
payment of substantial fees and compensation to the General Partner, PCM, the
Company and their Affiliates. Further, the management of the Company will be
entitled to receive certain significant fees, compensation, payments and
reimbursements regardless of whether the Company operates at a profit or loss.
See the portion entitled "MANAGEMENT OF THE COMPANY" in the Prospectus.
*CONFLICTS OF INTEREST. The Company, PCM and the General Partner are
subject to various conflicts of interest. See the portion entitled "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS" in the Prospectus.
*POTENTIAL PRICE VOLATILITY. If a public market develops for the Common
Shares, there may be significant volatility in the market price of the Common
Shares. Additionally, in recent years, the stock market has experienced a high
level of price and volume volatility and market prices for many companies,
particularly small and emerging growth companies, have experienced significant
price fluctuations not necessarily related to the operating performance of those
companies. The market price for the Common Shares may be affected by general
stock market volatility. See the section entitled "RISK FACTORS" in the
Prospectus.
*POSSIBLE DILUTION. The percentage interest of holders of Merger Stock in
the assets, liabilities, cash flow and results of operations of the Company, as
well as the percentage voting power of such holders, may be diluted in several
ways. See the portion entitled "RISK FACTORS" in the Prospectus.
RIGHTS OF DISSENTING LIMITED PARTNERS
DISSENTING LIMITED PARTNER RIGHTS. The Thompson-Killea Act provides
Dissenting Limited Partners with certain rights to receive compensation for
their Units based on a valuation of the Partnership's assets performed by an
independent party unaffiliated with the General Partner or the Company and which
values the assets as if sold in an orderly manner in a reasonable period of
time, plus or minus other balance sheet items, and less the cost of sale or
refinancing. Compensation to Dissenting Limited Partners may be cash, secured
debt instruments, unsecured debt instruments, or freely tradeable securities;
provided, however, that:
(A) debt instruments used as compensation must provide for a trustee
and an indenture to protect the rights of the debt holders and provide a
rate of interest based upon, but not less than, the then applicable federal
interest rate as determined in accordance with Section 1274 of the Code;
(B) unsecured debt instruments used as compensation, in addition to
the above requirements, must limit total leverage to 70 percent of the
appraised value of the assets;
(C) all debt securities have a term no greater than seven years and
provide for prepayment with 80 percent of the net proceeds of any sale or
refinancing of the assets previously owned by the entity or any part
thereof; and
(D) freely tradeable securities used as compensation to Dissenting
Limited Partners must be issued by an issuer whose securities are listed on
a certified national securities exchange or designated as a national market
system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc., for at least one year prior to the
transaction, and the number of securities to be received in return for
Units must be determined by a valuation of limited partnership assets,
conducted in a manner consistent with the procedures described above, in
relation to the average last sale price of the freely tradeable securities
in the 20-day period following the consummation of the Merger. If the
issuer of the freely tradeable securities is affiliated with PCM, the
General Partner or the Company, newly issued
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<PAGE> 381
securities to be utilized as compensation to Dissenting Limited Partners
shall not represent more than 20 percent of the issued and outstanding
shares of that class of securities after giving effect to the issuance. For
the purposes of the preceding sentence, neither PCM, the General Partner
nor the Company is deemed "affiliated" with the issuer of the freely
tradeable securities if PCM, the General Partner nor the Company receives
any material compensation from the issuer or its Affiliates in conjunction
with the Merger Proposal or related transactions; provided, however, that
PCM, the General Partner and Company may, under certain circumstances,
receive payment for their equity interests and other compensation.
Further, the Limited Partners may, in lieu of the forgoing, receive or
retain a security with substantially the same terms and conditions as the
security originally held, i.e. the units in a limited partnership similar to the
Partnership, provided that the receipt or retention of that security is not a
step in a series of subsequent transactions that directly or indirectly through
acquisition or otherwise involves future combinations or reorganizations of one
or more former Merger participants. Securities received or retained will be
considered to have the same terms and conditions as the security originally held
if:
(A) There is no material adverse change to the Dissenting Limited
Partners' rights, including, but not limited to, rights with respect to
voting, the business plan, or the investment, distribution, management
compensation, and liquidation policies of the Surviving Corporation.
(B) The Dissenting Limited Partners receive the same preferences,
privileges, and priorities as they had pursuant to the security originally
held.
The Company is satisfying this requirement by offering to purchase the
Units of any Dissenting Limited Partner with an unsecured subordinated debenture
issued under an indenture in conformity with the Thompson-Killea Act. The Merger
Proposal and related transactions have also been structured to comply with the
other protections afforded by the Thompson-Killea Act. In the event a Limited
Partner elects to exercise his or her right to dissent, such Limited Partner
must perform the acts set forth at the portion of the Prospectus entitled
"VOTING PROCEDURES -- Dissenting Limited Partners." Generally, Dissenting
Limited Partners must file a written notification of their election to dissent
with the General Partner and request a substitute security from the General
Partner.
See the portion entitled "RIGHTS OF DISSENTING SHAREHOLDERS AND DISSENTING
LIMITED PARTNERS" in the Prospectus.
A Dissenting Limited Partner who perfects his or her dissenter's rights as
described below will be entitled to receive an unsecured subordinated debenture
for the fair exchange value of that Dissenting Limited Partner's Units. In the
event a Dissenting Limited Partner elects to exercise his or her right to
dissent, such Dissenting Limited Partner must do the following to perfect his or
her rights as a Dissenting Limited Partner:
(A) Such Dissenting Limited Partner must file a written request with
the Company at 4100 Newport Place, Suite 400, Newport Beach, California
92660, attention: Information Agent -- Dissenters' Rights, prior to the
earlier of (i) the date such Dissenting Limited Partner's completed Consent
Form is received by the Exchange Agent, or (ii) the expiration of the
Solicitation Period.
(B) The request must state the number of Units for which the
Dissenting Limited Partner is requesting dissenters' rights. Only persons
who fail to vote in favor of the Merger Proposal and related transactions
can be Dissenting Limited Partners. NEITHER THE DELIVERY OF A CONSENT FORM
DIRECTING A VOTE AGAINST THE MERGER PROPOSAL AND RELATED TRANSACTIONS NOR A
FAILURE TO VOTE FOR THE MERGER PROPOSAL AND RELATED TRANSACTIONS
CONSTITUTES A WRITTEN REQUEST FOR DISSENTERS' RIGHTS.
If PCM, the Company and all of the Partnerships approve the Merger Proposal
and related transactions, and the other conditions of the Merger Proposal and
related transactions are satisfied so that the Merger is consummated, then a
Dissenting Limited Partner who requests dissenters' rights and who thereafter
perfects his or her rights as a Dissenting Limited Partner will be provided with
an unsecured subordinated debenture
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<PAGE> 382
within 30 days following the consummation of the Merger and related transactions
for his or her Units in the amount as determined above.
LIMITED PARTNERS WISHING TO EXERCISE THEIR DISSENTERS' RIGHTS ARE CAUTIONED THAT
FAILURE TO FOLLOW THE ABOVE PROCEDURES PRECISELY MAY RESULT IN THE LOSS OF
DISSENTERS' RIGHTS.
COMPLIANCE WITH AND APPROVAL FROM FEDERAL AND STATE AUTHORITIES. The Merger
Proposal and related transactions will not be completed if any moratorium on
transactions of its type are imposed by federal, state or regulatory authorities
or if any state Blue Sky or securities authority imposes any restriction upon,
or prohibits any aspect of, the transactions contemplated by the Merger Proposal
and related transactions, which in the judgment of the Company, renders the
Merger Proposal and related transactions undesirable or impractical.
COMPARISON OF UNITS AND COMMON SHARES. The portion entitled "Summary
Comparison of Units and Common Shares" in the Prospectus highlights a number of
the significant differences between the Partnerships (and the Units) and the
Company (and the Common Shares) relating to, among other things, form of
organization, investment objectives, policies and restrictions, asset
diversification, capitalization, management structure compensation and fees, and
investor rights, and compares certain legal rights associated with the ownership
of the Units and Common Shares, respectively. These comparisons are intended to
assist the Limited Partners in understanding how their investments will be
changed if, as a result of the Merger and related transactions, their Units are
exchanged for Common Shares.
FEDERAL INCOME TAX CONSIDERATIONS
INTRODUCTION. The following information is intended to provide to Limited
Partners with a summary of all material federal income tax consequences of
general application to the Surviving Corporation and Limited Partners associated
with the Merger Proposal. This summary does not comment on all tax matters that
may affect the Partnership, the Surviving Corporation and the Limited Partners,
including any state, local, foreign or other matters, and does not consider
various facts or limitations applicable to any particular Limited Partner, or
special tax rules that may apply to certain Limited Partners and may modify or
alter the results described herein.
Except as otherwise indicated, statements of legal conclusions regarding
tax treatments, tax effects or tax consequences present the opinions of John
Brainerd, Attorney-at-Law and tax counsel retained to provide a tax opinion
relating to the Merger Proposal, based on the Code and applicable Treasury
Regulations, each as amended and in effect on the date hereof, and on reported
judicial decisions and published positions of the Internal Revenue Service
("IRS"). No rulings have been requested from the IRS concerning any of the
matters described in the Prospectus and the IRS will generally not issue rulings
on transactions such as the Merger Proposal. In some cases, particularly those
as to which tax counsel's opinion is qualified, there is a risk that the IRS
will disagree with the conclusions of tax counsel. The laws, regulations,
administrative rulings and judicial decisions that form the basis for
conclusions with respect to the tax consequences of the Merger Proposal are very
complex and are subject to change at any time.
The tax opinion of John Brainerd is filed as an exhibit to the Registration
Statement. Upon receipt of a written request of a Limited Partner (or such
Limited Partner's representative who has been so designated in writing)
addressed to the Company, at 4100 Newport Place, Suite 400, Newport Beach,
California 92660, attention: Corporate Secretary, a copy of the tax opinion will
be transmitted promptly, without charge, by the Company.
Limited Partners should be aware that there is no direct authority of
general applicability governing the federal income tax treatment of transactions
such as the Merger Proposal that are structured as partnership mergers, because
this structure is an approach made available by recent developments in
partnership law. Therefore, in rendering its opinions, tax counsel has relied on
authorities addressing the consequences of analogous transactions that used
similar structures. Accordingly, although there appears to be no controlling
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<PAGE> 383
authority contrary to tax counsel's conclusions, it is possible that the IRS
would take a different position if it addressed the tax consequences of the
Merger Proposal.
DIFFERENCES BETWEEN UNITS AND COMMON SHARES. A limited partnership is a
pass-through entity for federal income tax purposes. This means that a limited
partnership is not liable for federal income tax on its taxable income. Rather,
a limited partnership passes its income (or loss) through to its owners (i.e.,
general and limited partners) in proportion to their relative ownership
interests. This is known as allocating a partnership's income and loss. Many
items of income, gain, loss, and deduction are allocated separately to each
partner in proportion to such partner's interest. The character of each item
passed through to a partner remains the same with the partner as it was with the
limited partnership. When income (or loss) is allocated to a partner, such
partner is taxed on that income (or may deduct that loss). This tax is imposed
on the partner regardless of whether the limited partnership actually
distributes any cash or property to the partner. Therefore, generally it is the
allocation, not the distribution, of income to a partner that results in tax (or
a deduction) for that partner. A partner has a basis in the limited partnership
interest he or she holds which is generally equal to either the cost of the
limited partnership interest if purchased, or if not purchased, the amount of
any cash or basis of any other property that partner transferred to the limited
partnership, increased (or decreased) by that partner's share of the limited
partnership's income (or loss) and decreased by the amount of any cash (or the
basis of any property) distributed to that partner. Upon sale of his or her
limited partnership interest, a partner realizes gain equal to the amount
received for the limited partnership interest less the partner's basis in the
limited partnership interest. The partner's gain (or loss) upon sale is
generally capital, but may be characterized as ordinary to the extent of the
partner's share of certain assets held by the limited partnership.
Because a limited partnership does not pay tax on income it earns (but
rather the General Partner and Limited Partners pay tax on such income),
partners of a limited partnership are subject to only one level of federal
income tax on income earned in the business conducted by the Partnership. As
owners of the Partnership through their Units, Limited Partners receive the
federal income tax treatment just described. The number of Units owned by a
Limited Partner will determine the amount of income or loss allocated to the
partner by the applicable Partnership.
A corporation is a taxable entity and pays federal income tax at a maximum
rate of 39% on its taxable income. A shareholder of a corporation is generally
not taxed on any income earned by a corporation until the corporation
distributes either cash or property to the shareholder or the shareholder sells
or exchanges his or her stock at a gain. A corporation often makes distributions
to shareholders in proportion to their interests in the corporation, but it need
not do so. When cash or property is distributed, each portion of the
distribution will be characterized in one of the following three ways: (i) as a
dividend, (ii) as a capital gain, or (iii) as a return of capital. The portion
of a distribution treated as a dividend is taxed at ordinary federal income tax
rates, which, for individuals, range up to 39.6%. However, upper bracket
individuals are subject to a phaseout of their personal exemptions, and a
restriction on itemized deductions, which in combination in certain
circumstances, can bring the actual maximum federal rate to more than 47%. The
portion treated as capital gain will generally be taxed at a maximum 28% rate.
The portion treated as return of capital will not be taxed. The amount of any
distribution treated in any of the three alternative ways may differ for each
shareholder, and will depend upon the value of the cash and property received,
the percentage interest in the corporation owned by the shareholders receiving
the distribution, and each shareholder's basis in his or her shares. Because
corporations are taxable on their own taxable income, and because shareholders
may be taxed again on that same income if it is distributed to them in the form
of cash or property or it is realized through the sale or exchange of shares of
stock at a gain, there are two levels of potential tax upon income earned by a
corporation. A shareholder's basis in his or her stock is generally equal to the
cost of the stock if purchased, or, if not purchased, the amount of any cash and
basis of other property contributed to the corporation, decreased by the amount
of any distributions treated as a return of capital under the rules discussed
above. Upon a sale of stock, a shareholder's gain (or loss) will be equal to the
amount received for the stock less his or her basis in that stock. The character
of such gain (or loss) will generally be capital in nature. As holders of
interests in a corporation, the owners of any Common Shares will be subject to
the tax treatment just described.
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<PAGE> 384
As a holder of a Unit, a Limited Partner holds an interest in an entity
that earns income subject to only one level of federal income tax, whereas the
holder of a Common Share would hold an interest in an entity that earns income
subject to two potential levels of federal income tax.
There are, however, potential tax advantages (and corresponding financial
advantages) to conducting a business by a corporation. These include the ability
of shareholders to defer tax on income earned by the corporation until the
corporation distributes such income. Partners in a partnership, by contrast, are
taxed as soon as the partnership earns income. Partners pay such tax at their
individual federal tax rate, which may exceed the maximum federal corporate tax
rate. Alternatively, because shareholders pay no tax until they receive
distributions, the Surviving Corporation, as a corporation, may accumulate
income for business expansion without financially interfering with its
shareholders' ability to pay their taxes.
LIMITED PARTNERS. Each Limited Partner will recognize gain or loss
resulting from the Merger as if the Partnership had (a) sold all of its assets
to the Company for an amount equal to the value of the shares received in the
Merger, plus the liabilities of the Partnership assumed in the Merger, and (b)
distributed the shares received in the Merger to the Limited Partners. A Limited
Partner who receives cash (with respect to Units) in lieu of fractional Common
Shares or who receives an unsecured subordinated debenture because of such
Limited Partner's exercise of appraisal or similar rights under California law
(with respect to Units) may recognize gain depending upon such Limited Partner's
aggregate basis in the Partnership prior to the Merger. The aggregate basis of
any Common Shares received in the Merger by a Limited Partner in exchange for
Units will equal the aggregate basis in such Units immediately before the
Merger, but may be decreased if cash is received by such Limited Partner for
such Units in lieu of fractional Common Shares. Such basis will be prorated
among all Common Shares received for such Units.
A Common Share received in exchange for Units will have a holding period
that begins on the day following the Merger to the extent that the value of such
Common Share on such date is attributable to certain of the Partnership's assets
(essentially its ordinary income assets), and to the extent of any excess value,
such Common Share will have a holding period that includes the period the Units
were held by the Limited Partners.
A holder of Units who subsequently sells the Common Shares received in the
Merger will recognize gain or loss measured by the difference between the amount
realized on such sale and his or her tax basis in the shares sold. Each Limited
Partner who receives Common Shares in the Merger will be required to file with
his or her federal income tax return for the year in which the Merger is
consummated a statement that provides details relating to his or her Limited
Partnership interest (which will be considered to be property transferred), the
Common Shares, and his or her share of any liabilities assumed by the Surviving
Corporation in the Merger. The Surviving Corporation will provide shareholders
with information to assist them in preparing such a statement.
After the Merger, the income and deductions attributable to the assets and
liabilities of the Surviving Corporation will not be allocated to the Surviving
Corporation's shareholders. A shareholder will be taxed only on dividends and
other distributions received from the Surviving Corporation, if any. Such
distributions generally will be taxable as dividends to the extent of any
current or accumulated earnings and profits of the Surviving Corporation. Any
other distributions will be treated as a nontaxable return of capital to the
extent of the shareholder's basis in his or her Common Shares and as capital
gain to the extent of the remaining portion of such distribution.
THE SURVIVING CORPORATION AND THE PARTNERSHIP. The Partnership will be
deemed to have transferred all its assets and liabilities to the Company and to
have received Common Shares in exchange, and then to have distributed those
shares to the General Partner and the Limited Partners in complete liquidation.
As a consequence, the assets of the Partnership will retain the same tax basis
as they had prior to the Merger unless the Partnership is required to recognize
gain resulting from the Merger. The Surviving Corporation's tax basis in the
assets acquired from the Partnership would equal the value of the Common Shares
issued in the Merger plus the amount of the Partnership's liabilities assumed in
the Merger, and the Surviving Corporation's holding period in the assets would
begin the day after the Merger takes effect. The Partnership, on the other hand,
would recognize gain or loss resulting from the Merger in an amount equal to the
amount by which the
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<PAGE> 385
value of the Common Shares received plus the amount of the Partnership's
liabilities assumed exceeds (or is less than) its basis in the assets
transferred and the General Partner and the Limited Partners would be required
to include in their taxable income their distributive shares of the
Partnership's gain or loss.
After the Merger becomes effective, the Partnership will cease to exist for
both state law and federal income tax purposes. The Surviving Corporation will
be taxed as a corporation on its taxable income. The income and deductions
attributable to the assets and liabilities received in the Merger will be
included in the Surviving Corporation's taxable income. The adjusted tax basis
of certain of the assets will be depreciable or amortizable for federal tax
purposes, thereby reducing the amount of the Surviving Corporation's income
subject to tax.
THE FOREGOING DISCUSSION ADDRESSES ONLY THE FEDERAL INCOME TAX CONSEQUENCES OF
THE MERGER PROPOSAL APPLICABLE TO LIMITED PARTNERS GENERALLY. EACH LIMITED
PARTNER AND SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR CONCERNING THE
FEDERAL, STATE, LOCAL AND OTHER TAX CONSEQUENCES OF THE MERGER PROPOSAL.
OTHER TAX CONSIDERATIONS. The following information is intended to provide
Limited Partners with a summary of certain material state and local income tax
consequences of general application to the Limited Partners and the Surviving
Corporation associated with the Merger Proposal. This information does not
present all tax matters that may affect the Partnership, the Surviving
Corporation and the Limited Partners, and does not consider various facts and
limitations applicable to any particular Limited Partner, or special tax rules
that may apply to certain Limited Partners that may modify the results described
herein.
The following statements are not the subject of John Brainerd's tax opinion
and have not otherwise been passed upon by Mr. Brainerd. No rulings have been
requested from any state or local tax jurisdiction concerning any of the matters
described in the Prospectus.
A limited partnership is generally a pass-through entity for state and
local income tax purposes. This means that a limited partnership is not liable
for state or local income tax on its taxable income. In general, partners liable
for federal income tax are also liable for the state and local income taxes of
the states and taxing municipalities in which a limited partnership does
business. These taxes are generally based on a partner's allocated share of
federal taxable income from the limited partnership as allocated or apportioned
among the various state and local jurisdictions on the basis of the character of
the income earned or on the basis of sales made, payroll paid, and property
owned in each jurisdiction. A partner is also generally subject to tax on all
income earned from that partner's investment in the limited partnership in the
partner's state and, if applicable, city or village of residence. This tax may
be offset by credits for taxes paid to other states and municipalities. In
general, interest income and capital gains earned by a limited partnership are
not subject to municipal income tax. As with federal income tax, partners of a
limited partnership are subject to only one level of state and local income tax
on income earned in the business conducted by the limited partnership. See the
section entitled "FEDERAL INCOME TAX CONSIDERATIONS" in the Prospectus.
The Partnerships have filed composite state income tax returns for a number
of years on behalf of eligible and electing Limited Partners for the purpose of
limiting each Limited Partner's compliance burden to that Limited Partner's
state of residence. The taxes paid by the Partnership with these returns have
been charged to the participating Limited Partners' capital accounts.
A corporation is a taxable entity and pays state and local income taxes at
rates which vary depending upon the identity of the states and cities in which
the corporation conducts its business. The business of the Surviving Corporation
is expected to be conducted in California, which imposes a tax on income
apportioned to California. A shareholder of a corporation is generally not taxed
on any income earned by a corporation until the corporation distributes either
cash or property to the shareholder or the shareholder sells or exchanges shares
of stock at a gain. See the section entitled "FEDERAL INCOME TAX CONSIDERATIONS"
in the Prospectus. Dividends and capital gains are generally subject to tax only
in the shareholder's state of residence. Income from capital gains is generally
taxed at the same rates as other taxable income. Neither dividends nor capital
gains are generally taxable by taxing municipalities.
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<PAGE> 386
THE FOREGOING DISCUSSION ADDRESSES ONLY CERTAIN OF THE STATE AND LOCAL INCOME
TAX CONSEQUENCES OF THE MERGER PROPOSAL APPLICABLE TO LIMITED PARTNERS
GENERALLY. EACH LIMITED PARTNER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR
CONCERNING THE FEDERAL, STATE, LOCAL AND OTHER TAX CONSEQUENCES OF THE MERGER
PROPOSAL.
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<PAGE> 387
APPENDIX F
SUPPLEMENT FOR
PERFORMANCE ASSET MANAGEMENT FUND V, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
(S-K REG. 229.902)
NOTICE TO LIMITED PARTNERS OF PERFORMANCE ASSET MANAGEMENT FUND V, LTD., A
CALIFORNIA LIMITED PARTNERSHIP:
This separate partnership supplement highlights information that addresses
certain matters presented in the prospectus ("Prospectus") as they relate to
Performance Asset Management Fund V, Ltd., A California Limited Partnership
("Partnership") and its limited partners ("Limited Partners"), regarding a
proposed merger ("Merger") of the Partnership and other limited partnerships
("Other Partnerships") and Performance Capital Management, Inc., a California
corporation ("PCM"), with and into Performance Asset Management Company, a
Delaware corporation ("Company"). Similar supplements have been prepared for the
Other Partnerships. The effects of the Merger may differ for the limited
partners in the Other Partnerships. If you want to obtain a supplement for any
of the Other Partnerships, please call the Information Agent at (714) 261-7300,
or send a written request to Performance Development, Inc., Attn: Information
Agent, 4100 Newport Place, Suite 400, Newport Beach, California 92660.
Supplements for any of the Other Partnerships will be provided without charge to
any Limited Partner. All defined terms used in this Supplement shall have the
same definitions as specified in the Prospectus.
The Partnership was formed on May 1, 1994, as a limited partnership in
California pursuant to the Revised Limited Partnership Act of the State of
California. This Partnership sold 1,149 Units at the price of $5,000.00 per
Unit. The total gross amount received by this Partnership from purchasers of its
Units is $5,970,000. As of the Determination Date this Partnership had 305
Limited Partners. The Partnership termination date is December 31, 2007, unless
sooner terminated.
SELECTED FINANCIAL INFORMATION. The following chart provides a historical
summary of gross collections and partner distributions for the Partnerships from
the date of formation of each Partnership through June 30, 1997:
<TABLE>
<CAPTION>
COST OF
PORTFOLIOS ORIGINAL PORTFOLIO PORTFOLIOS GROSS PARTNER
PARTNERSHIP ACQUIRED FACE VALUE ACQUIRED COLLECTIONS* DISTRIBUTIONS**
------------------------ ---------- ------------------ -------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
PAM I(1)................ 16 $ 305,438,442 $ 4,932,616 $ 5,526,429 $ 3,678,632
PAM II(2)............... 19 433,632,566 6,230,345 8,749,682 4,059,775
PAM III(3).............. 21 521,408,657 9,685,926 7,826,584 3,463,815
PAM IV(4)............... 57 709,008,534 20,416,167 20,014,508 6,269,988
PAM V(5)................ 12 209,901,705 4,997,992 2,889,555 639,600
--- ------------- ----------- ----------- -----------
Total.............. 125 $ 2,179,389,904 $ 46,263,046 $ 45,006,758 $18,111,810
=== ============= =========== =========== ===========
</TABLE>
- ---------------
* Gross collections include any sale of accounts and collection activity
through June 30, 1997
** Through June 30, 1997
(1) Performance Asset Management Fund, Ltd., A California Limited Partnership
("PAM I").
(2) Performance Asset Management Fund II, Ltd., A California Limited Partnership
("PAM II").
(3) Performance Asset Management Fund III, Ltd., A California Limited
Partnership ("PAM III").
(4) Performance Asset Management Fund IV, Ltd., A California Limited Partnership
("PAM IV").
(5) The Partnership ("PAM V").
Each Limited Partner should thoroughly review the selected financial
statements included in the portions of the Prospectus "RESULTS OF OPERATIONS,"
"SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA AND COMPARATIVE PER SHARE
DATA," "PRO FORMA CONDENSED FINANCIAL INFORMATION," and the financial statements
of the Company, PCM and the Partnerships included in the Prospectus.
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<PAGE> 388
The Partnership has continued to invest in distressed loan portfolios. As
set forth above, these portfolios consist primarily of charged-off credit card
accounts and consumer loan balances such as auto and personal lines of credit
originated by independent third-party financial institutions located throughout
the United States. In addition, the Partnership also acquired certain portfolios
of default consumer debts which were rewritten under terms different from the
original obligation. In 1994 the Partnership spent $530,088 on such purchases.
In 1995, the Partnership spent $1,843,039 on such purchases. In 1996, the
Partnership spent $1,645,090 on such purchases. Collections on investments in
distressed loan portfolios were $38,117 in 1994, $483,439 in 1995 and $1,202,048
in 1996.
In 1994, 1995 and 1996, investments in distressed loan portfolios consisted
of the following (amounts are carrying amounts):
<TABLE>
<CAPTION>
TYPE OF PORTFOLIO 1994 1995 1996
------------------------------------------------ -------- ---------- ----------
<S> <C> <C> <C>
Credit Card Accounts............................ $283,658 $1,032,857 $1,875,933
Performing Rewritten Accounts................... -- $ 105,089 --
Consumer Loans.................................. $154,075 $ 633,622 $ 424,729
-------- ---------- ----------
Totals................................ $437,733 $1,771,568 $2,300,662
======== ========== ==========
</TABLE>
In 1994, the Partnership recorded net interest income of $9,542. Operating
expenses for the Partnership consists of the following: management fee expense
of $5.128; collection expense of $59,052; professional fees of $8,691; provision
for portfolio losses of $54,000; amortization expense of $617; and general and
administrative expenses of $2,072; for total operating expenses of $129,560.
Thus, the Partnership recorded a net loss of $120,018 for 1994.
In 1995, the Partnership recorded net interest income of $32,864, and other
income of $46. Operating expenses for the Partnership consists of the following:
management fee expense of $39,146; collection expense of $64,375; professional
fees of $103,202; a provision for portfolio losses of $103,202; amortization
expense of $1,031; and general and administrative expenses of $2,629; for total
operating expenses of $236,383. Thus, the Partnership recorded a net loss of
$203,473 for 1995.
In 1996, the Partnership recorded net investment income of $86,052 and net
interest income of $101,123. Operating expenses for the Partnership consists of
the following: management fee expense of $57,217; collection expense of $72,423;
professional fees of $133,690; amortization expense of $1,034; and general and
administrative expenses of $8,147; for total operating expenses of $272,511.
Thus, the Partnership recorded a net loss of $85,336 for 1996.
APPRAISED VALUE OF ASSETS HELD BY THE PARTNERSHIP. As of December 31 of
each of the years specified in the following table, the Partnership held the
following assets:
<TABLE>
<CAPTION>
ASSET 1994 1995 1996
----------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Cash and equivalents........................... $1,220,917 $ 215,798 $1,731,112
Cash held in trust............................. -- $1,014,201 $ 8,388
Investment in Distressed Loan Portfolios....... $ 437,971 $1,771,568 $2,300,662
Receivable from Unaffiliated Service
Provider(1).................................. $1,014,882 $1,014,882 --
Due from Affiliates............................ $ 100,032 $ 624,247 $ 351,718
Other Assets................................... $ 23,234 $ 36,733 $ 24,873
Organization Costs, Net........................ $ 4,502 $ 3,520 $ 2,486
</TABLE>
- ---------------
(1) West Capital Financial Services Corp., a California corporation.
The Partnership defines cash equivalents as all highly liquid investments
with a maturity of three months or less when purchased. The Partnership
maintains cash balances at one bank and aggregate accounts at the institution
are insured by the Federal Deposit Insurance Corporation up to $100,000.
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<PAGE> 389
COMPENSATION TO THE GENERAL PARTNER AND AFFILIATES FOR THE LAST THREE
FISCAL YEARS. The following table sets forth the compensation paid to the
General Partner and its affiliates for the last three fiscal years and the most
recently completed interim period.
<TABLE>
<CAPTION>
1994 1995 1996 1997*
-------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
General Partner
Management Fees.................... $ 5,128 $ 39,146 $ 57,217 $ 35,961
Distribution....................... $ 1,583 $ 9,786 $ 19,966 $ 39,933
Syndication........................ $ 89,250 $ 90,750 $ -- $ --
PCM
Acquisition fees................... $136,953 $ 470,971 $ 435,465 $ 195,955
Collection fees.................... $ 25,412 $ 186,513 $ 442,422 $ 298,214
INC
Commissions........................ $297,500 $ 302,500 $ -- $ --
--------- --------- --------- ---------
Total...................... $555,826 $1,099,666 $ 955,070 $ 570,063
========= ========= ========= =========
</TABLE>
- ---------------
* Through June 31, 1997
The following table sets forth the compensation that would have been paid
to the General Partner and its Affiliates if the compensation and distributions
structure to be in effect after the roll-up transaction had been in effect
during the last three fiscal years.
<TABLE>
<CAPTION>
ENTITY 1994 1995 1996
----------------------------------------- -------- -------- --------
<S> <C> <C> <C>
General Partner (PDI).................... $ 0 $ 0 $ 0
INC...................................... 297,500 302,500 0
PCM...................................... 0 0 0
-------- -------- --------
Total............................... $297,500 $302,500 $ 0
======== ======== ========
</TABLE>
As stated above, the Partnership enters into various joint ventures with
Performance Capital Management, Inc., a California corporation and an Affiliate
of the General Partner. Vincent E. Galewick owns all of the issued and
outstanding stock of the following Affiliates:
Performance Development, Inc., a California corporation ("PDI") (the
General Partner)
Income Network Company, Inc., a California corporation ("INC")
Performance Capital Management, Inc., a California corporation ("PCM")
The Other Partnerships:
PAM I, PAM II, PAM III, PAM IV (PAM I through PAM V, inclusive, are the
"PAM Funds")
PDI was formed in June, 1990 to engage in various aspects of the distressed
loan industry. PDI is also the general partner for the PAM Funds and various
other California limited partnerships. For the years ended December 31, 1994 and
1995, the Partnership paid PDI syndication fees of $89,250 and $90,750,
respectively, which have been accounted for as a reduction against the Gross
Proceeds. The Partnership also reimbursed PDI for offering expenses totalled
$45,689 and $60,450 during the year and period ended December 31, 1994 and 1995,
respectively. PDI's management fees incurred and recorded by the Partnership
totaling $5,128, $39,146 and $57,217 for the years ended December 31, 1994,
1995, and 1996, respectively. The Partnership also accrued distributions to PDI
of $1,583 and $9,786 for the years ended December 31, 1994 and 1995,
respectively and $19,966 for the year ended December 31, 1996. At December 31,
1994 and 1996 the Partnership had amounts owed to PDI recorded as amounts due to
affiliates of $234,028 and $56,124, respectively.
INC was formed on February 1, 1988 as a registered broker-dealer and member
of the National Association of Security Dealers and the Securities Investor
Protection Corporation. The Company's sole shareholder, Vincent E. Galewick, is
also the sole shareholder of the General Partners, PDI. INC, in
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<PAGE> 390
accordance with the limited partnership agreement and offering prospectus of the
Partnership, is paid commissions of 10% of Gross Proceeds.
During the year and period ended December 31, 1994 and 1995, the
Partnership recorded commissions payable to INC of $297,500 and $302,500,
respectively, which have been accounted for as reductions against the Gross
Proceeds. As of December 31, 1995, the Partnership had amounts owed to INC of
$1,650 for payments made on behalf of the Partnership.
PCM was formed in February, 1993 to perform services related to locating,
evaluating, negotiating, acquiring and collecting distressed loan portfolio
assets. PCM acquires portfolio assets from third-party financial institutions
and sells the portfolios to the Partnership at cost plus an acquisition fee of
approximately 30% to 37% as provided in the related purchase agreement. The
Partnership also enters into servicing agreements with PCM to collect and
service the portfolio activity. The agreements generally provide that all
proceeds generated from the collection of portfolio assets shall be shared by
the venturers in proportion to their respective percentage interests, generally,
55% to 60% for the Partnership and 40% to 45% for PCM. The Partnership also
reimburses PCM for certain costs associated with the collection of portfolio
proceeds.
Moreover, in addition to providing collection efforts on distressed loan
portfolios to the Partnership, PCM identifies and acquires distressed loan
portfolios and other discounted portfolios of financial debt instruments and
obligations and sells them to the Partnership and other affiliates at negotiated
prices.
For the years ended December 31, 1994 and 1995, the Partnership purchased
four portfolio and five portfolios, respectively, from PCM and recorded
acquisition fees for these portfolios of $136,953 and $470,971, respectively.
For the year ended December 31, 1996, the Partnership purchased two portfolios
from PCM and recorded acquisition fees for these portfolios of $435,465. These
acquisition fees have been included in the carrying value of the related
investments. Also, for the years ended December 31, 1994, 1995 and 1996, the
Partnership incurred and reimbursed PCM for collection costs of $59,052,
$64,375, and $72,423, respectively.
The Partnership had amounts owed from PCM from collections of portfolio
proceeds and advances for portfolio purchases of $100,032 and $624,247 recorded
as due from affiliates at December 31, 1994 and 1995, respectively. For the year
ended December 31, 1996 the Partnership had amounts owed from PCM of $351,718
recorded as due from affiliates.
DISTRIBUTIONS AND DIVIDENDS. The Partnership has made quarterly cash
distributions to Limited Partners, which distributions terminated effective as
of the Determination Date.
The following table specifies the cash distributions, including those cash
distributions which represent a return of capital, made to Limited Partners in
the Partnership during each of the last five fiscal years and most recently
completed interim period.
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNER
YEAR TOTAL DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS
-------------------------------- ------------------- ------------- -------------
<S> <C> <C> <C>
1992............................ -- -- --
1993............................ $ 15,833 $ 1,583 $ 14,250
1994............................ $ 97,836 $ 9,786 $ 88,050
1995............................ $ 441,528 $41,828 $ 399,700
1996............................ $ 199,066 $19,966 $ 179,100
June 30, 1997................... $ 398,133 $39,933 $ 358,200
</TABLE>
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<PAGE> 391
PERFORMANCE ASSET MANAGEMENT FUND V, LTD.
PER UNIT DATA
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Partnership units outstanding at year end.................... 1,194 1,200 595
Earnings (loss) per unit..................................... (71.47) (169.56) (201.71)
Book value per unit.......................................... 3,701.21 3,900.79 4,708.47
Assigned value for roll-up per unit.......................... $3,936.35/unit
Annual return of capital distributions per unit.............. 150.00 73.38 23.95
Cumulative return of capital distributions per unit.......... 235.68 85.25 23.95
</TABLE>
REASONS FOR THE MERGER PROPOSAL
LIQUIDITY AND MARKET VALUATION. Units are not publicly traded and have
limited liquidity. The primary means of liquidity for holders of Units is to
request the Partnership to redeem the Units. Although the Partnership is not
obligated to honor any such request, such redemptions have occurred from time to
time, using available cash to redeem the Units at a percentage of book value.
After consummation of the Merger, however, the Company expects to qualify the
Common Shares for listing and trading on a regional or national securities
exchange. At that time, there is expected to be a potential liquid market for
selling the Common Shares and a readily determinable market value for the Common
Shares. With a liquid market for Common Shares, equity holders would not be
required to rely solely on the Company as a source of liquidity, and the Company
will not be required to use its cash to provide such liquidity. Instead, it is
expected that holders of Common Shares will be able to sell their Common Shares
publicly from time to time, subject to certain restrictions, for their fair
market value.
The Company and the General Partner believe that the Merger is necessary to
realize the full benefit of a public trading market. The Company believes that
corporate equity securities are more favorably valued than comparable limited
partnership interests, because a partnership with publicly traded limited
partnership interests is generally taxed as if it were a corporation and because
many institutional investors will not invest in a business organized as a
partnership, even if it is not taxed as a corporation.
ACCESS TO EQUITY MARKETS. Although the Company currently has no plans for
additional equity offerings, the existence of publicly traded equity securities
is expected to provide it with future access to the public equity markets.
GREATER FLEXIBILITY REGARDING CAPITAL RESOURCES. The Company will have
greater flexibility with respect to the use of capital resources because it will
not have to use available cash to redeem Common Shares. As discussed above, the
Partnership has from time to time used its cash to redeem Units when requested
to do so by Limited Partners. There are also potential tax advantages (and
corresponding financial advantages) to conducting a business as a corporation
that should allow the Company greater flexibility with respect to the management
of its capital resources. Shareholders will defer the payment of taxes on income
earned by the Company until the Company distributes such income in the form of
dividends. Limited Partners, by contrast, are taxed as soon as the Partnership
earns income. Limited Partners are taxed on such income at their individual
federal tax rates, which may exceed the maximum corporate federal tax rate.
Therefore, the Surviving Corporation as a corporation can accumulate income for
business expansion without adversely affecting a shareholder's tax liabilities.
ACQUISITION CURRENCY. The Company may be able to use shares of its common
stock as consideration in its acquisition of other businesses. The use of
readily tradeable equity securities as an acquisition currency is advantageous
because it may be more tax efficient to the seller of a business than a cash
transaction and it allows the Company to consummate acquisitions without
depleting cash resources. It also allows a seller to continue to hold an equity
interest in the business acquired by the Company by equity ownership in the
Company after such acquisition. The use of common stock in acquisitions can also
enable the Company to use advantageous pooling accounting methods if certain
conditions are satisfied.
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<PAGE> 392
INCENTIVE COMPENSATION. The availability of shares of the Company's common
stock will permit the Company to provide its key employees with equity based
incentive compensation. The Company believes providing equity based incentive
compensation by the use of common stock will allow broader employee
participation in the Company's equity, provide a more accurate measure of the
Company's performance as a result of common stock having a readily ascertainable
value, and provide the Company with more flexibility in designing equity based
incentive compensation. The Company currently intends to adopt an employee stock
plan during or immediately after the first quarter of fiscal 1998, if the Merger
is consummated.
GREATER EMPLOYEE OWNERSHIP. As a result of the complex tax reporting
requirements associated with being a limited partner and the administrative
burden placed on the Partnerships as a result of having a significant number of
limited partners, it has not been feasible for the Partnership to offer
ownership opportunities to a broad range of employees. By having the shares of
its common stock available, however, the Company will be able to offer ownership
opportunities to all employees. The Board of Directors believes that wide-spread
employee ownership is in the best interests of the Company and its shareholders.
REDUCTION OF TAX REPORTING REQUIREMENTS AND COSTS. In contrast to the
Partnership, the Surviving Corporation will not be required to compute and
report tax information on an individual shareholder basis, and individual
shareholders will not be required to include information regarding the Surviving
Corporation's operations on their personal tax returns. Therefore, the Merger
will eliminate the complex partnership tax reporting requirements for Limited
Partners imposed on them under federal and multiple state partnership tax laws
and may eliminate certain costs and delays that individual Limited Partners
currently may be forced to incur in connection with the preparation of their
individual tax returns. However, as a corporation, the Surviving Corporation
will be subject to income tax and shareholders will also be required to pay
income tax on any dividends they receive, and on any gain recognized upon the
sale or exchange of shares. See the sections entitled "FEDERAL INCOME TAX
CONSIDERATIONS" and "CERTAIN STATE AND LOCAL INCOME TAX CONSIDERATIONS" in the
Prospectus.
EFFECTS OF THE MERGER
As a result of the Merger, all of the assets now held directly or
indirectly by PCM and the Partnership will be held by the Surviving Corporation
and PCM and the Partnership will cease to exist by operation of law. The
Surviving Corporation will possess all of the assets, properties, rights and
privileges, and will be subject to all the liabilities and obligations, of PCM,
the Partnerships and the Company existing on the Closing Date.
The following is a brief description of each material risk and effect of
the Merger Proposal including, but not limited to, federal income tax
consequences, for Limited Partners. Also included is a brief discussion of the
effect of the Merger Proposal on the Partnership's financial condition and
results of operations. Pro forma financial information based on the
participation of the Partnership in the Merger is set forth in the Prospectus
under the heading entitled "SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA AND
COMPARATIVE PER SHARE DATA."
THE MERGER. Upon the Closing Date, PCM and the Partnership (if, and only
if, all of the Partnerships approve the Merger Proposal, and subject to other
conditions precedent to the Merger specified in the Prospectus) will merge with
and into the Company and pursuant to the Merger Agreement, all of the Units
existing at the Closing Date will be converted into Common Shares in accordance
with an Exchange Value determined to be fair by the Fairness Opinion prepared by
Willamette Management Associates, Inc. ("Fairness Analyst") (the Fairness
Opinion is attached to the Prospectus as Appendix G). The Fairness Opinion
provides that each Limited Partner's Units, calculated as of the Determination
Date, will be converted into Common Shares pursuant to the Exchange Value, with
cash being paid for any fractional shares based on the book value of Common
Shares on the Determination Date.
The Determination Date is a date set by the Board of Directors. At this
time, the Board of Directors expects that the Determination Date will be June
30, 1997. To accommodate the Merger, the General Partner suspended distributions
by the Partnership to the Limited Partners, effective as of the Determination
Date. This is necessary to assure that the Limited Partners' capital accounts do
not change after the Determination
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<PAGE> 393
Date. The Board of Directors will have the authority to postpone the
Determination Date and declare a new Determination Date, in its discretion. The
Board of Directors might postpone the Determination Date and declare a new
Determination Date, if the matters contemplated in the Merger Proposal are
postponed for any reason.
EFFECT OF THE MERGER ON CASH DISTRIBUTIONS. Until June 30, 1997, the
Partnership made cash distributions to Limited Partners. The Company currently
anticipates that the Surviving Corporation will not pay cash dividends. However,
this policy may change, as the actual amount of dividends, if any, to be paid
will be determined by the Board of Directors in its sole discretion, generally
taking into account a number of factors, including operating performance,
liquidity and capital requirements. There can be no assurances that any cash
dividends will be paid, just as there can be no assurances that Partnership
distributions will continue at previous levels.
DISTRIBUTIONS BY THE COMPANY, IF ANY, WILL BE AT THE DISCRETION OF THE BOARD OF
DIRECTORS AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE COMPANY'S ACTUAL
CASH AVAILABLE FOR DISTRIBUTION, THE COMPANY'S FINANCIAL CONDITION, THE
COMPANY'S CAPITAL REQUIREMENTS, AND SUCH OTHER FACTORS AS THE COMPANY'S BOARD OF
DIRECTORS DEEMS RELEVANT.
THE MERGER AGREEMENT. The Merger will be consummated pursuant to the Merger
Agreement if the Merger Proposal set forth in the Prospectus receives the
requisite approval of the Limited Partners of each Partnership, the approval of
the PCM Shareholders, and the approval of the Company Shareholders, and if the
other applicable conditions to the Merger are satisfied or waived, including any
approvals required from any state or federal regulatory agency. The Merger
Agreement is designated as Exhibit 2 to the Registration Statement and is
included in the Prospectus as Appendix A.
Until such time as the Merger Agreement has been approved and adopted by
all the parties thereto, it may be amended or terminated by the Board of
Directors of the General Partner, on behalf of any of the Partnerships, the
Board of Directors of PCM, on behalf of PCM, or the Board of Directors, on
behalf of the Company; provided, however, that at any time after the Merger
Agreement has been adopted by the Shareholders or the Limited Partners, the
respective Boards of Directors may not amend, modify or supplement the Merger
Agreement to change the amount or kind of interests to be received by the
Limited Partners, the PCM Shareholders or the Company Shareholders or to make
any change if such change would, alone or in the aggregate, materially adversely
affect the Limited Partners or the PCM Shareholders.
APPROVAL BY ALL OF THE LIMITED PARTNERSHIPS IS REQUIRED. The Merger
Proposal may be consummated only if all of the Partnerships approve the Merger
Proposal. The Merger Agreement provides that Limited Partners that reject the
Merger Proposal shall not bear an unfair portion of the transaction costs of the
Merger. A Partnership which rejects the Merger Proposal shall not be required to
pay any of the costs of the Merger in accordance with the provisions of Section
25014.7(e)(3) of the Thompson-Killea Act. The General Partner, PCM and the
Company have considered the possibility of approval of the Merger Proposal and
related transactions by less than all of the Partnerships, and do not believe
that the Merger can be fairly consummated unless all of the Partnerships approve
the Merger Proposal because, among other things, (i) it would be unduly
burdensome or impossible to evaluate and apportion the value of the various
services provided to the Partnerships by PCM considering the complexity and
scope of the various joint ventures between the Partnerships and PCM; and (ii)
if the Merger Proposal is approved, PCM will cease to exist by operation of law,
and would no longer be available to provide the same services to a dissenting
Partnership. The General Partner and PCM have engaged an expert, Willamette
Management Associates, to render a Fairness Opinion concerning the Merger
Proposal. See the section entitled "DETERMINATION OF THE EXCHANGE PRICE AND
ALLOCATION OF THE COMMON SHARES" in the Prospectus.
CONDITIONS OF THE MERGER. The Merger will not be consummated unless the
Merger Proposal receives the requisite approval of the Limited Partners of each
Partnership, the approval of PCM Shareholders, the approval of existing Company
Shareholders, and the approval of the requisite state and federal regulatory
agencies. Consummation of the Merger is also subject to the receipt of the
opinion described in the section entitled "FEDERAL INCOME TAX CONSIDERATIONS" in
the Prospectus. Receipt of this opinion may
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<PAGE> 394
be waived in whole or in part by the Partnerships, PCM and the Company in each
respective entity's sole discretion.
Prior to the consummation of the Merger, the obligations of the parties to
the Merger Agreement may be terminated at any time (including after approval of
the Merger by the Limited Partners and the respective Shareholders) if, among
other things, (a) the General Partner, PCM or the Company adopts a resolution
terminating the Merger Agreement or (b) a final injunction, order, or other
action of a court or other governmental body prevents the consummation of the
Merger.
COMPLETING THE MERGER. If the Merger Proposal is approved and the other
conditions of the Merger Agreement are waived or satisfied, the Closing Date
will be selected by agreement of the General Partner, PCM and the Company. Upon
consummation of the Merger, the Limited Partners and PCM Shareholders will be
entitled to receive certificates for Common Shares issued in exchange for their
Units and shares of PCM's common stock, respectively.
COSTS OF THE MERGER. For purposes of the Thompson-Killea Act, the costs of
the Merger will be divided into two categories, (i) transaction costs; and (ii)
solicitation expenses. Transaction costs are defined as the costs of printing
and mailing the Prospectus, or other documents; legal fees not related to the
solicitation of votes or tenders; financial advisory fees; investment banking
fees; valuation fees; accounting fees; independent committee expenses; travel
expenses; and all other fees related to the preparatory work of the transaction,
but not including costs that would have otherwise been incurred by the
Partnership in the ordinary course of business, or solicitation expenses.
Solicitation expenses include direct marketing expenses such as telephone calls,
broker-dealer fact sheets, legal and other fees related to the solicitation, as
well as direct solicitation compensation to brokers and dealers.
The Company estimates that the total costs and expenses of the Merger will
be approximately $1,400,000 if consummated and $1,200,000 if not consummated.
The Company estimates that the total solicitation expenses will be approximately
$600,000. This amount will be incurred whether or not the Merger is consummated.
The remainder of the costs and expenses estimated for consummation or
non-consummation will be attributable to transaction costs.
The Merger Agreement provides that Limited Partners that reject the Merger
Proposal shall not bear an unfair portion of the transaction costs of the
Merger. Should the Merger Proposal be rejected by all of the Partnerships, the
transaction costs will be apportioned between the Company and the rejecting
Partnerships according to the final vote on the Merger Proposal as follows: (i)
the Company shall bear all transaction costs in proportion to the number of
votes of the Limited Partners of that Partnership to reject the Merger Proposal;
(ii) the rejecting Limited Partnerships shall bear transaction costs in
proportion to the number of votes of Limited Partners of each Partnership to
approve the Merger Proposal. Should the Merger Proposal be approved by one or
more Partnerships and rejected by at least one Partnership, each Partnership
rejecting the Merger Proposal shall not be required to pay any of the costs of
the Merger in accordance with the provisions of Section 25014.7(e)(3) of the
Thompson-Killea Act. Further, In the event that the Merger Proposal is rejected
by all of the Partnerships, the Company shall pay all of the solicitation
expenses in accordance with the provisions of Section 25014.7(g) of the
Thompson-Killea Act.
F-8
<PAGE> 395
In 1996, the total approximate amounts distributed to the partners of each
Partnership are as set forth on the following table:
<TABLE>
<CAPTION>
DISTRIBUTIONS TO THE DISTRIBUTIONS TO THE
PARTNERSHIP LIMITED PARTNERS GENERAL PARTNER
------------------------------------------------ --------------------- ---------------------
<S> <C> <C>
Performance Asset Management Fund, Ltd.,
A California Limited Partnership.............. $ 154,650 $ 17,483
Performance Asset Management Fund II, Ltd.,
A California Limited Partnership.............. $ 230,023 $ 25,810
Performance Asset Management Fund III, Ltd.,
A California Limited Partnership.............. $ 295,925 $ 35,775
Performance Asset Management Fund IV, Ltd.,
A California Limited Partnership.............. $ 1,433,425 $ 159,334
Performance Asset Management Fund V, Ltd.,
A California Limited Partnership.............. $ 179,100 $ 19,966
</TABLE>
The total amount distributed by all of the Partnerships was $2,551,491. All
of the distributions to the Limited Partners were in the form of cash
distributions. Some of the distributions to the General Partner were accrued.
In contrast to the Partnership, the Surviving Corporation will itself be
subject to federal tax on its income. Holders of Common Shares will not be
subject to federal tax on such income except to the extent dividends are paid.
See the section entitled "FEDERAL INCOME TAX CONSIDERATIONS" in the Prospectus.
The Surviving Corporation is expected to make significantly lower distributions,
if any, than the Partnership has made.
There can be no assurance that the Merger will achieve any of the benefits
and objectives described above. In addition, certain possible disadvantages and
other risks and special considerations associated with the Merger exist as
described in the section entitled "RISK FACTORS" in the Prospectus. Limited
Partners should analyze the Merger Proposal and related transactions in light of
all the matters discussed in the Prospectus.
F-9
<PAGE> 396
ALTERNATIVES TO THE MERGER
PCM, the Company and the General Partner have considered several
alternatives to the Merger Proposal and related transactions. Some of these
alternatives would not constitute a reorganization. In the mutual opinion of
PCM, the Company and the General Partner, the only viable alternatives not
constituting a reorganization involve some form of public offering of
securities. The General Partner has considered the possibility of a public
offering of all Units which would provide certain registration rights to the
Limited Partners. In the opinion of the General Partner, this possibility would
fail to provide the Limited Partners with the liquidity that the Merger Proposal
might provide because of the unsatisfactory market for publicly traded limited
partnership units. PCM and the Company have also considered the possibility of
merging those two corporations without merging with any of the Partnerships and
thereafter making a public offering of shares in the Surviving Corporation. In
the event the Merger is not consummated, PCM and the Company may elect this
alternative.
PCM, the Company and the General Partner have considered several
alternatives to the Merger Proposal, each of which constitutes a reorganization.
The General Partner considered the possibility of selling all of the assets of
the Partnership to the Company, and the Company considered purchasing all such
assets, in exchange for shares of the Company. PCM also considered the
possibility of selling all of its assets to the Company, and the Company
considered purchasing all such assets, in exchange for shares of the Company.
Alternatively, the General Partner considered winding up and dissolving the
Partnership and distributing the proceeds of the liquidation to the Limited
Partners. Additionally, the Board of Directors of PCM considered winding up and
dissolving PCM and distributing the proceeds of liquidation to the PCM
Shareholders. These possibilities were eliminated because of their complexity
and cost.
Moreover, the General Partner considered dissolving the Partnership and
distributing the assets of the Partnership to the Limited Partners pursuant to
an agreement with the Company, which was considered by the Company, and pursuant
to which agreement the Company would purchase the assets from the individual
Limited Partners in exchange for shares of the Company's common stock, and
thereafter merging the Company with PCM. This possibility was also eliminated
because of its complexity and cost, and also because, with the type of assets
held by the Partnership, even an "orderly liquidation" would result in a
prohibitive discount on the value of the debt portfolios.
PCM and the General Partner considered the results of continuing PCM and
the Partnership in accordance with their current business plans and joint
venture agreements. PCM and the General Partner rejected this alternative
because the servicing entity, PCM, currently has the capacity to service
portfolios in excess of those owned by the Partnership and has the potential for
significant growth. PCM has been offered access to commercial lines of credit
and its growth is not contingent upon a continuing relationship with the
Partnership. After consummation of the Merger, Limited Partners who approve the
Merger Proposal will participate in this growth. Moreover, after the
consummation of Merger, the Company will be able to compete for available
portfolios by taking advantage of economies of scale not available to either PCM
or the Partnership acting individually.
PCM and the General Partner also considered going forward with the Merger
Proposal with the approval of less than all of the Partnerships, but rejected
this alternative because of economies of scale, the scope and complexity of
existing joint ventures between PCM and the Partnership, and the economics of
purchasing, holding, servicing, collecting and selling distressed debt
portfolios. See "Approval by All of the Limited Partnerships Is Required" above.
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<PAGE> 397
EXCHANGE VALUE AND FAIRNESS OPINION
BASES FOR THE GENERAL PARTNER'S BELIEF AS TO FAIRNESS. The Fairness Opinion
is discussed at length in the section entitled "Fairness Opinion" in the
Prospectus. The General Partner believes that the Merger Proposal is fair to the
Limited Partners because the General Partner believes that the Merger will
provide Limited Partners with liquidity in their investments and more simplified
tax reporting. The General Partner believes that the Merger will provide the
Company with greater access to capital markets, greater flexibility regarding
capital resources, the potential to provide employees with incentive performance
compensation, including shares of the Company's $.001 par value common stock,
and the opportunity to offer greater employee ownership in the Company.
NO LIMITATIONS IMPOSED ON SCOPE OF INVESTIGATION. Kelly & Company, PCM's
and the Company's independent auditors, retained the Fairness Analyst to
determine the fairness from a financial point of view of the Exchange Value in
connection with the Merger Proposal. There were no limitations or restrictions
placed on the scope of the Fairness Analyst's analysis and investigation, and
the Fairness Analyst performed a complete due diligence examination by, among
other things, visiting PCM's facilities in Newport Beach, California;
interviewing the President and Vice-President of PCM; interviewing the
President, Chief Financial Officer, Director of Business Development, and
Secretary of the General Partner; interviewing CPAs employed by Kelly & Company;
and interviewing counsel to the various entities. The Fairness Analyst was
allowed full access to all financial records of PCM, the General Partner, the
Partnerships, and all service providers to those entities, including privileged
documents such as tax returns and audit workpapers.
NO INSTRUCTIONS FROM GENERAL PARTNER, PCM OR THE COMPANY. Neither the
General Partner, PCM nor the Company provided instructions to the Fairness
Analyst. Kelly & Company instructed the Fairness Analyst to conduct an
independent investigation, and thereafter render a written opinion to Kelly &
Company, as of the Determination Date, as to whether the Exchange Value
established by the General Partner, PCM and the Company is fair from a financial
point of view to the Partnerships. Kelly & Company also instructed the Fairness
Analyst to prepare a Fairness Opinion (i) satisfying the valuation requirements
of the Thompson-Killea Act; (ii) potentially useful in meeting the valuation
requirements of Sections 1300 et seq. of the California General Corporation Law
pertaining to Dissenting Shareholders; and (iii) sufficient to support an
opinion regarding the fairness from a financial point of view of the Merger
Proposal and related transactions, addressing the fairness from a financial
point of view of the Merger and related transactions as a whole and to each of
the Partnerships. Kelly & Company instructed the Fairness Analyst to perform a
due diligence investigation and to review all pertinent documents, including,
but not limited to, financial statements; tax returns; audit work papers;
banking records; balance sheets; income statements; Securities and Exchange
Commission reporting forms; corporate documents such as Certificates or Articles
of Incorporation, Bylaws and minutes; furniture and equipment schedules;
insurance policies and coverages; PCM and Partnership operating budgets through
December 31, 2008; office leases; management profiles; portfolio stratification
reports; and daily productivity reports. Kelly & Company also instructed the
Fairness Analyst to research industry sources and databases and economic outlook
sources regarding the financial services and distressed debt industry.
PROCEDURES FOLLOWED. As set forth above, the Fairness Analyst conducted a
complete independent investigation focusing on the valuation issues relating to
the "adequate consideration" rule. Adequate consideration is generally
understood to represent the fair market of an asset. Accordingly, in order to
arrive at its opinion regarding the fairness from a financial point of view of
the exchange rate established for the Units, the Fairness Analyst performed its
research and analyses with the intent of establishing whether the Limited
Partners would receive at least fair market value in exchange for their Units.
"Fair market value" is defined as the price at which an asset would change hands
between a willing buyer and a willing seller when the former is not under any
compulsion to buy and the latter is not under any compulsion to sell, both
parties are able, as well as willing, to trade, and both parties are well
informed about the asset and the market for that asset. The Fairness Analyst
performed an analysis of the material features and characteristics of the
Partnerships and PCM, as well as an analysis of the financial statements and
results of operations of each entity. The Fairness Analyst assumed that PCM will
continue its current business plan and structure, and made other reasonable
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<PAGE> 398
assumptions and estimates regarding distressed loan portfolio acquisition and
pricing, operating expenses, and partnership distribution policies.
DETERMINATIONS. The Company, PCM and the General Partner determined the
total indicated values for PCM and for each of the Partnerships as set forth in
the following table:
<TABLE>
<CAPTION>
NAME OF PARTNERSHIP OR CORPORATION TOTAL VALUE
---------------------------------------------------------------------- -----------
<S> <C>
Performance Asset Management Fund, Ltd.,
A California Limited Partnership.................................... $ 934,000
Performance Asset Management Fund II, Ltd.,
A California Limited Partnership.................................... $ 3,112,000
Performance Asset Management Fund III, Ltd.,
A California Limited Partnership.................................... $ 6,000,000
Performance Asset Management Fund IV, Ltd.,
A California Limited Partnership.................................... $15,846,000
Performance Asset Management Fund V, Ltd.,
A California Limited Partnership.................................... $ 4,700,000
Performance Capital Management, Inc.,
a California corporation............................................ $44,523,000
</TABLE>
BASIS FOR METHODS OF ARRIVING AT FINDINGS AND RECOMMENDATIONS. The Fairness
Analyst valued the assets of each entity by determining the combined value of
such entity's assets, including the value of each entity's cash flows and the
terminal value of such entity's distressed loan portfolios. The Fairness Analyst
determined the asset liquidation value of each entity and calculated the
allocation of assets of each Partnership between the General Partner and the
Limited Partners of each Partnership based on such Partnership's Partnership
Agreement. Additional factors considered by the Fairness Analyst in making its
valuation include discount factors based on the age and composition of the
various distressed loan portfolios and the Fairness Analyst's determination of
the present value of the respective cash receipts of each entity, as well as the
historical and projected collection costs of distressed loan portfolios.
DETERMINATION OF EXCHANGE VALUE AND ALLOCATION OF COMMON SHARES
EXCHANGE VALUE. The net equity values determined by PCM, the Company and
the General Partner and reviewed by the Fairness Analyst of all of the assets of
the Partnerships, PCM and the Company, considered together and separately,
together with the book value of the other financial assets of such entities,
have been used to establish the Exchange Value. The Fairness Analyst is
unaffiliated with neither the Company, PCM nor the General Partner. PCM's and
the Company's independent auditors, Kelly & Company, were referred to the
Fairness Analyst by an accountant unaffiliated with neither PCM, the Company or
the General Partner and with whom neither PCM, the Company nor the General
Partner has conducted any business. The Fairness Analyst was selected by Kelly &
Company entirely on the basis of the its qualifications.
The General Partner and PCM valued the assets of the Partnership and PCM,
respectively, as if sold in an orderly manner in a reasonable period of time,
plus or minus other balance sheet items, and less the cost of sale. The
valuation was conducted in accordance with the provisions of Section
25014.7(b)(1) of the Thompson-Killea Act. The valuation was also conducted in
accordance with the provisions of Sections 1300 et seq. of the California
General Corporation Law pertaining the Dissenting Shareholders. The compensation
to dissenting Limited Partners and Shareholders entitled to compensation for
their Units or shares is based upon the valuation described above. See the
section entitled "RIGHTS OF DISSENTING SHAREHOLDERS AND DISSENTING LIMITED
PARTNERS" in the Prospectus.
The purpose of the Fairness Opinion is to confirm to the Company, PCM and
the General Partner the fairness from a financial point of view of the Merger
Proposal and related transactions to the Partnerships. Neither the Company, PCM,
nor the General Partner gave the Fairness Analyst any specific instructions
other than the instruction from Kelly & Company, PCM's and the Company's
independent auditors, to prepare a fairness opinion (i) meeting the valuation
requirements of the Thompson-Killea Act; and (ii) potentially useful in meeting
the valuation requirements of Sections 1300 et seq. of the California General
Corporation
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Law pertaining to Dissenting Shareholders; and (iii) sufficient to support an
opinion regarding the fairness of the Merger Proposal and related transactions,
addressing the fairness from a financial point of view of the Merger Proposal
and related transactions as a whole and to each of the Partnerships. Pursuant to
the Thompson-Killea Act, the Units were valued as if sold in an orderly manner
in a reasonable period of time, plus or minus other balance sheet items, and
less the costs of sale. Pursuant to the provisions of Section 1300 of the
California General Corporation Law, the fair market value of the Dissenting
Shares shall be determined as of the day before the first announcement of the
terms of the Merger Proposal and related transactions, excluding any
appreciation or depreciation in consequence of the Merger Proposal or related
transactions, but adjusted for any stock split, reverse stock split or share
dividend which becomes effective thereafter. The Fairness Opinion will not be
updated.
FAIRNESS OPINION. The Exchange Value was determined by PCM, the Company and
the General Partner, as was the consideration to be paid by the Company to each
Partnership for such Partnership's assets. The Fairness Analyst has determined
that the Exchange Value and such consideration are fair from a financial point
of view to each Partnership, as specified in the Fairness Opinion. The
compensation paid to the Fairness Analyst was not contingent upon the findings
of the fairness of the Exchange Value, such consideration or the Merger Proposal
or the consummation or approval of the Merger Proposal or related transactions.
The Fairness Opinion relates to the fairness from a financial point of view of
the Merger Proposal and related transactions, addressing the fairness from a
financial point of view of the Merger Proposal and related transactions as a
whole and to each of the Partnerships. Because the Merger is contingent upon the
approval of the Merger Proposal by all of the Partnerships, PCM, and the
Company, the Fairness Opinion did not consider possible combinations of less
than all of the Partnerships in the Merger.
The Fairness Analyst considered all of the assets of each of the
Partnerships, PCM, and the Company. The intangible assets of the Partnerships
and PCM consist of distressed financial debt instruments and obligations. The
Fairness Analyst also considered tangible assets of the Partnerships, PCM and
the Company. The tangible assets of the Partnerships and the Company were
determined to be negligible. The tangible assets of PCM were determined to be
more considerable and include furniture, computers and business equipment. The
aggregate appraised value of the assets of the Partnerships is $30,592,000. The
aggregate value of the assets of PCM is $44,523,000.
EXCHANGE OF SHARES. On the Closing Date, if the PCM Shareholders, the
Limited Partners of all five Partnerships, and the Company Shareholders approve
the Merger Proposal, PCM and the Partnerships will merge with and into the
Company. Pursuant to the Merger Agreement, all of the Units of the Limited
Partners at the Closing Date will be converted into Common Shares in accordance
with an exchange ratio which provides that each $10.00 in a Limited Partner's
capital account, calculated as of the Determination Date, will be converted into
one Common Share, with cash being paid for any fractional shares based on the
value of Common Shares on the Determination Date.
The following table summarizes the valuation conclusions of the General
Partner and PCM as to the Partnerships and PCM, respectively, based on 7,511,500
allocable shares of Merger Stock:
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE NUMBER OF
INDICATED VALUE INDICATED VALUE COMMON SHARES
(ROUNDED TO THE (ROUNDED TO THE ALLOCATED
NEAREST $1,000) NEAREST 1/10 OF 1%) TO ENTITY
--------------- ------------------- -------------
<S> <C> <C> <C>
PAM I................................ $ 934,000 1.2% 93,398
PAM II............................... 3,112,000 4.1 311,202
PAM III.............................. 6,000,000 8.0 600,003
PAM IV............................... 15,846,000 21.1 1,584,596
PAM V................................ 4,700,000 6.3 470,002
----------- ----- ---------
Sub-Total....................... $30,592,000 40.7% 3,059,201
----------- ----- ---------
PCM.................................. 44,523,000 59.3 4,452,299
----------- ----- ---------
Total........................... $75,115,000 100.0% 7,511,500
=========== ===== =========
</TABLE>
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<PAGE> 400
The Company shall promptly furnish a copy of the Fairness Opinion, without
charge, upon the request of any Limited Partner, PCM Shareholder or Company
Shareholder. All such requests should be addressed as follows: Performance Asset
Management Company, Attn: Information Agent -- Fairness Opinion, 4100 Newport
Place, Suite 400, Newport Beach, California 92660.
POTENTIAL RISKS AND ADVERSE EFFECTS
THE MERGER AND ACQUISITION OF SHARES OF THE COMPANY'S COMMON STOCK INVOLVES
VARIOUS RISKS, AND LIMITED PARTNERS SHOULD CAREFULLY CONSIDER THE MATTERS
DISCUSSED UNDER THE SECTION ENTITLED "RISK FACTORS" IN THE PROSPECTUS, INCLUDING
THE FOLLOWING:
*TAX CONSEQUENCES. The Partnerships do not pay any federal income taxes.
After consummation of the Merger, the Surviving Corporation will be subject to
federal income tax. Shareholders of the Surviving Corporation will also be
required to pay federal income taxes on any dividends that they may receive from
the Surviving Corporation and on any gain from the sale or exchange of Common
Shares. Therefore, while in partnership form only one level of federal income
tax is imposed (i.e., on the Limited Partners), in corporate form two levels of
federal income tax are imposed (i.e., one on the Surviving Corporation and one
on its shareholders to the extent they receive dividends or recognize gain on
the sale or exchange of shares). See the portions entitled "FEDERAL INCOME TAX
CONSIDERATIONS" and "OTHER TAX CONSIDERATIONS" in the Prospectus.
*SIGNIFICANT REDUCTION IN DISTRIBUTIONS. The dividends distributed to
shareholders of the Surviving Corporation may be significantly less that the
current distributions to the Limited Partners. The Company currently does not
anticipate making any dividend payments on the Common Shares. See the portion
entitled "RISK FACTORS" in the Prospectus.
*NON-PERFORMING ASSETS. Many of the assets held by the Partnerships which
may be acquired by the Company are, by their nature, non-performing.
Specifically, those assets were originally available for purchase by the
Partnerships because the obligors of the indebtedness comprising those assets
failed to pay on those debt obligations and there is not sufficient security or
collateral available for disposition from which to generate proceeds sufficient
to pay those debt obligations. For that reason, the assets which the
Partnerships have acquired and the Company intends to acquire by the Merger may
be completely unproductive; that is, those assets may generate no income to the
Company. See the portion entitled "BUSINESS AND ASSETS" in the Prospectus.
*UNSPECIFIED ASSETS. The Company may, from time to time, change its asset
portfolio by disposing of certain assets and replace the same with newly
acquired assets. The assets may, in that sense, be unspecified. See the section
entitled "BUSINESS AND ASSETS" in the Prospectus.
*SPECULATIVE BUSINESS. The Company's business objectives, similar to those
of the Partnerships, must be considered speculative and there is no assurance
that the Company will satisfy those objectives. No assurances can be given that
Limited Partners will realize a return on their exchange of Units for shares of
Merger Stock. See the section entitled "RISK FACTORS" in the Prospectus.
*RESTRICTIONS ON TRANSFER OF COMMON SHARES. The Common Shares may not be
freely transferable if the shareholder is deemed an Affiliate of the Company, as
that term is defined herein. Further, no public market for the Common Shares
exists. To accomplish the purposes of the Merger, the transfer, assignment,
sale, conveyance, hypothecation, encumbrance or other alienation of the Merger
Stock will be restricted. 25% of the Merger Stock will be unrestricted
immediately after the consummation of the Merger. 25% of the Merger Stock will
be restricted until the end of the Company's first full fiscal quarter following
the Closing Date. 25% of the Merger Stock will be restricted until the end of
the Company's second full fiscal quarter following the Closing Date. The
remaining 25% of the Merger Stock will be restricted until the end of the
Company's third full fiscal quarter following the Closing Date. Accordingly, the
Common Shares should only be acquired as a long term investment. See the
portions entitled "RESALE OF THE COMMON
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<PAGE> 401
SHARES," "DESCRIPTION OF THE COMMON SHARES," and "Merger Stock Will Be
Restricted" in the Prospectus.
*UNCERTAINTY REGARDING TRADING AND MARKET PRICE OF COMMON SHARES. The
Common Shares may not be listed or approved for listing on any regional or
national securities exchange or otherwise designated or approved for designation
upon notice of issuance as a regional or national market system security. See
the portion entitled "RISK FACTORS" in the Prospectus.
*SUBSTANTIAL FEES. The Merger and related transactions may involve the
payment of substantial fees and compensation to the General Partner, PCM, the
Company and their Affiliates. Further, the management of the Company will be
entitled to receive certain significant fees, compensation, payments and
reimbursements regardless of whether the Company operates at a profit or loss.
See the portion entitled "MANAGEMENT OF THE COMPANY" in the Prospectus.
*CONFLICTS OF INTEREST. The Company, PCM and the General Partner are
subject to various conflicts of interest. See the portion entitled "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS" in the Prospectus.
*POTENTIAL PRICE VOLATILITY. If a public market develops for the Common
Shares, there may be significant volatility in the market price of the Common
Shares. Additionally, in recent years, the stock market has experienced a high
level of price and volume volatility and market prices for many companies,
particularly small and emerging growth companies, have experienced significant
price fluctuations not necessarily related to the operating performance of those
companies. The market price for the Common Shares may be affected by general
stock market volatility. See the section entitled "RISK FACTORS" in the
Prospectus.
*POSSIBLE DILUTION. The percentage interest of holders of Merger Stock in
the assets, liabilities, cash flow and results of operations of the Company, as
well as the percentage voting power of such holders, may be diluted in several
ways. See the portion entitled "RISK FACTORS" in the Prospectus.
RIGHTS OF DISSENTING LIMITED PARTNERS
DISSENTING LIMITED PARTNER RIGHTS. The Thompson-Killea Act provides
Dissenting Limited Partners with certain rights to receive compensation for
their Units based on a valuation of the Partnership's assets performed by an
independent party unaffiliated with the General Partner or the Company and which
values the assets as if sold in an orderly manner in a reasonable period of
time, plus or minus other balance sheet items, and less the cost of sale or
refinancing. Compensation to Dissenting Limited Partners may be cash, secured
debt instruments, unsecured debt instruments, or freely tradeable securities;
provided, however, that:
(A) debt instruments used as compensation must provide for a trustee
and an indenture to protect the rights of the debt holders and provide a
rate of interest based upon, but not less than, the then applicable federal
interest rate as determined in accordance with Section 1274 of the Code;
(B) unsecured debt instruments used as compensation, in addition to
the above requirements, must limit total leverage to 70 percent of the
appraised value of the assets;
(C) all debt securities have a term no greater than seven years and
provide for prepayment with 80 percent of the net proceeds of any sale or
refinancing of the assets previously owned by the entity or any part
thereof; and
(D) freely tradeable securities used as compensation to Dissenting
Limited Partners must be issued by an issuer whose securities are listed on
a certified national securities exchange or designated as a national market
system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc., for at least one year prior to the
transaction, and the number of securities to be received in return for
Units must be determined by a valuation of limited partnership assets,
conducted in a manner consistent with the procedures described above, in
relation to the average last sale price of the freely tradeable securities
in the 20-day period following the consummation of the Merger. If the
issuer of the freely tradeable securities is affiliated with PCM, the
General Partner or the Company, newly issued
F-15
<PAGE> 402
securities to be utilized as compensation to Dissenting Limited Partners
shall not represent more than 20 percent of the issued and outstanding
shares of that class of securities after giving effect to the issuance. For
the purposes of the preceding sentence, neither PCM, the General Partner
nor the Company is deemed "affiliated" with the issuer of the freely
tradeable securities if PCM, the General Partner nor the Company receives
any material compensation from the issuer or its Affiliates in conjunction
with the Merger Proposal or related transactions; provided, however, that
PCM, the General Partner and Company may, under certain circumstances,
receive payment for their equity interests and other compensation.
Further, the Limited Partners may, in lieu of the forgoing, receive or
retain a security with substantially the same terms and conditions as the
security originally held, i.e. the units in a limited partnership similar to the
Partnership, provided that the receipt or retention of that security is not a
step in a series of subsequent transactions that directly or indirectly through
acquisition or otherwise involves future combinations or reorganizations of one
or more former Merger participants. Securities received or retained will be
considered to have the same terms and conditions as the security originally held
if:
(A) There is no material adverse change to the Dissenting Limited
Partners' rights, including, but not limited to, rights with respect to
voting, the business plan, or the investment, distribution, management
compensation, and liquidation policies of the Surviving Corporation.
(B) The Dissenting Limited Partners receive the same preferences,
privileges, and priorities as they had pursuant to the security originally
held.
The Company is satisfying this requirement by offering to purchase the
Units of any Dissenting Limited Partner with an unsecured subordinated debenture
issued under an indenture in conformity with the Thompson-Killea Act. The Merger
Proposal and related transactions have also been structured to comply with the
other protections afforded by the Thompson-Killea Act. In the event a Limited
Partner elects to exercise his or her right to dissent, such Limited Partner
must perform the acts set forth at the portion of the Prospectus entitled
"VOTING PROCEDURES -- Dissenting Limited Partners." Generally, Dissenting
Limited Partners must file a written notification of their election to dissent
with the General Partner and request a substitute security from the General
Partner.
See the portion entitled "RIGHTS OF DISSENTING SHAREHOLDERS AND LIMITED
PARTNERS" in the Prospectus.
A Dissenting Limited Partner who perfects his or her dissenter's rights as
described below will be entitled to receive an unsecured subordinated debenture
for the fair exchange value of that Dissenting Limited Partner's Units. In the
event a Dissenting Limited Partner elects to exercise his or her right to
dissent, such Dissenting Limited Partner must do the following to perfect his or
her rights as a Dissenting Limited Partner:
(A) Such Dissenting Limited Partner must file a written request with
the Company at 4100 Newport Place, Suite 400, Newport Beach, California
92660, attention: Information Agent -- Dissenters' Rights, prior to the
earlier of (i) the date such Dissenting Limited Partner's completed Consent
Form is received by the Exchange Agent, or (ii) the expiration of the
Solicitation Period.
(B) The request must state the number of Units for which the
Dissenting Limited Partner is requesting dissenters' rights. Only persons
who fail to vote in favor of the Merger Proposal and related transactions
can be Dissenting Limited Partners. NEITHER THE DELIVERY OF A CONSENT FORM
DIRECTING A VOTE AGAINST THE MERGER PROPOSAL AND RELATED TRANSACTIONS NOR A
FAILURE TO VOTE FOR THE MERGER PROPOSAL AND RELATED TRANSACTIONS
CONSTITUTES A WRITTEN REQUEST FOR DISSENTERS' RIGHTS.
If PCM, the Company and all of the Partnerships approve the Merger Proposal
and related transactions, and the other conditions of the Merger Proposal and
related transactions are satisfied so that the Merger is consummated, then a
Dissenting Limited Partner who requests dissenters' rights and who thereafter
perfects his or her rights as a Dissenting Limited Partner will be provided with
an unsecured subordinated debenture
F-16
<PAGE> 403
within 30 days following the consummation of the Merger and related transactions
for his or her Units in the amount as determined above.
LIMITED PARTNERS WISHING TO EXERCISE THEIR DISSENTERS' RIGHTS ARE CAUTIONED THAT
FAILURE TO FOLLOW THE ABOVE PROCEDURES PRECISELY MAY RESULT IN THE LOSS OF
DISSENTERS' RIGHTS.
COMPLIANCE WITH AND APPROVAL FROM FEDERAL AND STATE AUTHORITIES. The Merger
Proposal and related transactions will not be completed if any moratorium on
transactions of its type are imposed by federal, state or regulatory authorities
or if any state Blue Sky or securities authority imposes any restriction upon,
or prohibits any aspect of, the transactions contemplated by the Merger Proposal
and related transactions, which in the judgment of the Company, renders the
Merger Proposal and related transactions undesirable or impractical.
COMPARISON OF UNITS AND COMMON SHARES. The portion entitled "Summary
Comparison of Units and Common Shares" in the Prospectus highlights a number of
the significant differences between the Partnerships (and the Units) and the
Company (and the Common Shares) relating to, among other things, form of
organization, investment objectives, policies and restrictions, asset
diversification, capitalization, management structure compensation and fees, and
investor rights, and compares certain legal rights associated with the ownership
of the Units and Common Shares, respectively. These comparisons are intended to
assist the Limited Partners in understanding how their investments will be
changed if, as a result of the Merger and related transactions, their Units are
exchanged for Common Shares.
FEDERAL INCOME TAX CONSIDERATIONS
INTRODUCTION. The following information is intended to provide to Limited
Partners with a summary of all material federal income tax consequences of
general application to the Surviving Corporation and Limited Partners associated
with the Merger Proposal. This summary does not comment on all tax matters that
may affect the Partnership, the Surviving Corporation and the Limited Partners,
including any state, local, foreign or other matters, and does not consider
various facts or limitations applicable to any particular Limited Partner, or
special tax rules that may apply to certain Limited Partners and may modify or
alter the results described herein.
Except as otherwise indicated, statements of legal conclusions regarding
tax treatments, tax effects or tax consequences present the opinions of John
Brainerd, Attorney-at-Law and tax counsel retained to provide a tax opinion
relating to the Merger Proposal, based on the Code and applicable Treasury
Regulations, each as amended and in effect on the date hereof, and on reported
judicial decisions and published positions of the Internal Revenue Service
("IRS"). No rulings have been requested from the IRS concerning any of the
matters described in the Prospectus and the IRS will generally not issue rulings
on transactions such as the Merger Proposal. In some cases, particularly those
as to which tax counsel's opinion is qualified, there is a risk that the IRS
will disagree with the conclusions of tax counsel. The laws, regulations,
administrative rulings and judicial decisions that form the basis for
conclusions with respect to the tax consequences of the Merger Proposal are very
complex and are subject to change at any time.
The tax opinion of John Brainerd is filed as an exhibit to the Registration
Statement. Upon receipt of a written request of a Limited Partner (or such
Limited Partner's representative who has been so designated in writing)
addressed to the Company, at 4100 Newport Place, Suite 400, Newport Beach,
California 92660, attention: Corporate Secretary, a copy of the tax opinion will
be transmitted promptly, without charge, by the Company.
Limited Partners should be aware that there is no direct authority of
general applicability governing the federal income tax treatment of transactions
such as the Merger Proposal that are structured as partnership mergers, because
this structure is an approach made available by recent developments in
partnership law. Therefore, in rendering its opinions, tax counsel has relied on
authorities addressing the consequences of analogous transactions that used
similar structures. Accordingly, although there appears to be no controlling
F-17
<PAGE> 404
authority contrary to tax counsel's conclusions, it is possible that the IRS
would take a different position if it addressed the tax consequences of the
Merger Proposal.
DIFFERENCES BETWEEN UNITS AND COMMON SHARES. A limited partnership is a
pass-through entity for federal income tax purposes. This means that a limited
partnership is not liable for federal income tax on its taxable income. Rather,
a limited partnership passes its income (or loss) through to its owners (i.e.,
general and limited partners) in proportion to their relative ownership
interests. This is known as allocating a partnership's income and loss. Many
items of income, gain, loss, and deduction are allocated separately to each
partner in proportion to such partner's interest. The character of each item
passed through to a partner remains the same with the partner as it was with the
limited partnership. When income (or loss) is allocated to a partner, such
partner is taxed on that income (or may deduct that loss). This tax is imposed
on the partner regardless of whether the limited partnership actually
distributes any cash or property to the partner. Therefore, generally it is the
allocation, not the distribution, of income to a partner that results in tax (or
a deduction) for that partner. A partner has a basis in the limited partnership
interest he or she holds which is generally equal to either the cost of the
limited partnership interest if purchased, or if not purchased, the amount of
any cash or basis of any other property that partner transferred to the limited
partnership, increased (or decreased) by that partner's share of the limited
partnership's income (or loss) and decreased by the amount of any cash (or the
basis of any property) distributed to that partner. Upon sale of his or her
limited partnership interest, a partner realizes gain equal to the amount
received for the limited partnership interest less the partner's basis in the
limited partnership interest. The partner's gain (or loss) upon sale is
generally capital, but may be characterized as ordinary to the extent of the
partner's share of certain assets held by the limited partnership.
Because a limited partnership does not pay tax on income it earns (but
rather the General Partner and Limited Partners pay tax on such income),
partners of a limited partnership are subject to only one level of federal
income tax on income earned in the business conducted by the Partnership. As
owners of the Partnership through their Units, Limited Partners receive the
federal income tax treatment just described. The number of Units owned by a
Limited Partner will determine the amount of income or loss allocated to the
partner by the applicable Partnership.
A corporation is a taxable entity and pays federal income tax at a maximum
rate of 39% on its taxable income. A shareholder of a corporation is generally
not taxed on any income earned by a corporation until the corporation
distributes either cash or property to the shareholder or the shareholder sells
or exchanges his or her stock at a gain. A corporation often makes distributions
to shareholders in proportion to their interests in the corporation, but it need
not do so. When cash or property is distributed, each portion of the
distribution will be characterized in one of the following three ways: (i) as a
dividend, (ii) as a capital gain, or (iii) as a return of capital. The portion
of a distribution treated as a dividend is taxed at ordinary federal income tax
rates, which, for individuals, range up to 39.6%. However, upper bracket
individuals are subject to a phaseout of their personal exemptions, and a
restriction on itemized deductions, which in combination in certain
circumstances, can bring the actual maximum federal rate to more than 47%. The
portion treated as capital gain will generally be taxed at a maximum 28% rate.
The portion treated as return of capital will not be taxed. The amount of any
distribution treated in any of the three alternative ways may differ for each
shareholder, and will depend upon the value of the cash and property received,
the percentage interest in the corporation owned by the shareholders receiving
the distribution, and each shareholder's basis in his or her shares. Because
corporations are taxable on their own taxable income, and because shareholders
may be taxed again on that same income if it is distributed to them in the form
of cash or property or it is realized through the sale or exchange of shares of
stock at a gain, there are two levels of potential tax upon income earned by a
corporation. A shareholder's basis in his or her stock is generally equal to the
cost of the stock if purchased, or, if not purchased, the amount of any cash and
basis of other property contributed to the corporation, decreased by the amount
of any distributions treated as a return of capital under the rules discussed
above. Upon a sale of stock, a shareholder's gain (or loss) will be equal to the
amount received for the stock less his or her basis in that stock. The character
of such gain (or loss) will generally be capital in nature. As holders of
interests in a corporation, the owners of any Common Shares will be subject to
the tax treatment just described.
F-18
<PAGE> 405
As a holder of a Unit, a Limited Partner holds an interest in an entity
that earns income subject to only one level of federal income tax, whereas the
holder of a Common Share would hold an interest in an entity that earns income
subject to two potential levels of federal income tax.
There are, however, potential tax advantages (and corresponding financial
advantages) to conducting a business by a corporation. These include the ability
of shareholders to defer tax on income earned by the corporation until the
corporation distributes such income. Partners in a partnership, by contrast, are
taxed as soon as the partnership earns income. Partners pay such tax at their
individual federal tax rate, which may exceed the maximum federal corporate tax
rate. Alternatively, because shareholders pay no tax until they receive
distributions, the Surviving Corporation, as a corporation, may accumulate
income for business expansion without financially interfering with its
shareholders' ability to pay their taxes.
LIMITED PARTNERS. Each Limited Partner will recognize gain or loss
resulting from the Merger as if the Partnership had (a) sold all of its assets
to the Company for an amount equal to the value of the shares received in the
Merger, plus the liabilities of the Partnership assumed in the Merger, and (b)
distributed the shares received in the Merger to the Limited Partners. A Limited
Partner who receives cash (with respect to Units) in lieu of fractional Common
Shares or who receives an unsecured subordinated debenture because of such
Limited Partner's exercise of appraisal or similar rights under California law
(with respect to Units) may recognize gain depending upon such Limited Partner's
aggregate basis in the Partnership prior to the Merger. The aggregate basis of
any Common Shares received in the Merger by a Limited Partner in exchange for
Units will equal the aggregate basis in such Units immediately before the
Merger, but may be decreased if cash is received by such Limited Partner for
such Units in lieu of fractional Common Shares. Such basis will be prorated
among all Common Shares received for such Units.
A Common Share received in exchange for Units will have a holding period
that begins on the day following the Merger to the extent that the value of such
Common Share on such date is attributable to certain of the Partnership's assets
(essentially its ordinary income assets), and to the extent of any excess value,
such Common Share will have a holding period that includes the period the Units
were held by the Limited Partners.
A holder of Units who subsequently sells the Common Shares received in the
Merger will recognize gain or loss measured by the difference between the amount
realized on such sale and his or her tax basis in the shares sold. Each Limited
Partner who receives Common Shares in the Merger will be required to file with
his or her federal income tax return for the year in which the Merger is
consummated a statement that provides details relating to his or her Limited
Partnership interest (which will be considered to be property transferred), the
Common Shares, and his or her share of any liabilities assumed by the Surviving
Corporation in the Merger. The Surviving Corporation will provide shareholders
with information to assist them in preparing such a statement.
After the Merger, the income and deductions attributable to the assets and
liabilities of the Surviving Corporation will not be allocated to the Surviving
Corporation's shareholders. A shareholder will be taxed only on dividends and
other distributions received from the Surviving Corporation, if any. Such
distributions generally will be taxable as dividends to the extent of any
current or accumulated earnings and profits of the Surviving Corporation. Any
other distributions will be treated as a nontaxable return of capital to the
extent of the shareholder's basis in his or her Common Shares and as capital
gain to the extent of the remaining portion of such distribution.
THE SURVIVING CORPORATION AND THE PARTNERSHIP. The Partnership will be
deemed to have transferred all its assets and liabilities to the Company and to
have received Common Shares in exchange, and then to have distributed those
shares to the General Partner and the Limited Partners in complete liquidation.
As a consequence, the assets of the Partnership will retain the same tax basis
as they had prior to the Merger unless the Partnership is required to recognize
gain resulting from the Merger. The Surviving Corporation's tax basis in the
assets acquired from the Partnership would equal the value of the Common Shares
issued in the Merger plus the amount of the Partnership's liabilities assumed in
the Merger, and the Surviving Corporation's holding period in the assets would
begin the day after the Merger takes effect. The Partnership, on the other hand,
would recognize gain or loss resulting from the Merger in an amount equal to the
amount by which the
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<PAGE> 406
value of the Common Shares received plus the amount of the Partnership's
liabilities assumed exceeds (or is less than) its basis in the assets
transferred and the General Partner and the Limited Partners would be required
to include in their taxable income their distributive shares of the
Partnership's gain or loss.
After the Merger becomes effective, the Partnership will cease to exist for
both state law and federal income tax purposes. The Surviving Corporation will
be taxed as a corporation on its taxable income. The income and deductions
attributable to the assets and liabilities received in the Merger will be
included in the Surviving Corporation's taxable income. The adjusted tax basis
of certain of the assets will be depreciable or amortizable for federal tax
purposes, thereby reducing the amount of the Surviving Corporation's income
subject to tax.
THE FOREGOING DISCUSSION ADDRESSES ONLY THE FEDERAL INCOME TAX CONSEQUENCES OF
THE MERGER PROPOSAL APPLICABLE TO LIMITED PARTNERS GENERALLY. EACH LIMITED
PARTNER AND SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR CONCERNING THE
FEDERAL, STATE, LOCAL AND OTHER TAX CONSEQUENCES OF THE MERGER PROPOSAL.
OTHER TAX CONSIDERATIONS. The following information is intended to provide
Limited Partners with a summary of certain material state and local income tax
consequences of general application to the Limited Partners and the Surviving
Corporation associated with the Merger Proposal. This information does not
present all tax matters that may affect the Partnership, the Surviving
Corporation and the Limited Partners, and does not consider various facts and
limitations applicable to any particular Limited Partner, or special tax rules
that may apply to certain Limited Partners that may modify the results described
herein.
The following statements are not the subject of John Brainerd's tax opinion
and have not otherwise been passed upon by Mr. Brainerd. No rulings have been
requested from any state or local tax jurisdiction concerning any of the matters
described in the Prospectus.
A limited partnership is generally a pass-through entity for state and
local income tax purposes. This means that a limited partnership is not liable
for state or local income tax on its taxable income. In general, partners liable
for federal income tax are also liable for the state and local income taxes of
the states and taxing municipalities in which a limited partnership does
business. These taxes are generally based on a partner's allocated share of
federal taxable income from the limited partnership as allocated or apportioned
among the various state and local jurisdictions on the basis of the character of
the income earned or on the basis of sales made, payroll paid, and property
owned in each jurisdiction. A partner is also generally subject to tax on all
income earned from that partner's investment in the limited partnership in the
partner's state and, if applicable, city or village of residence. This tax may
be offset by credits for taxes paid to other states and municipalities. In
general, interest income and capital gains earned by a limited partnership are
not subject to municipal income tax. As with federal income tax, partners of a
limited partnership are subject to only one level of state and local income tax
on income earned in the business conducted by the limited partnership. See the
section entitled "FEDERAL INCOME TAX CONSIDERATIONS" in the Prospectus.
The Partnerships have filed composite state income tax returns for a number
of years on behalf of eligible and electing Limited Partners for the purpose of
limiting each Limited Partner's compliance burden to that Limited Partner's
state of residence. The taxes paid by the Partnership with these returns have
been charged to the participating Limited Partners' capital accounts.
A corporation is a taxable entity and pays state and local income taxes at
rates which vary depending upon the identity of the states and cities in which
the corporation conducts its business. The business of the Surviving Corporation
is expected to be conducted in California, which imposes a tax on income
apportioned to California. A shareholder of a corporation is generally not taxed
on any income earned by a corporation until the corporation distributes either
cash or property to the shareholder or the shareholder sells or exchanges shares
of stock at a gain. See the section entitled "FEDERAL INCOME TAX CONSIDERATIONS"
in the Prospectus. Dividends and capital gains are generally subject to tax only
in the shareholder's state of residence. Income from capital gains is generally
taxed at the same rates as other taxable income. Neither dividends nor capital
gains are generally taxable by taxing municipalities.
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<PAGE> 407
THE FOREGOING DISCUSSION ADDRESSES ONLY CERTAIN OF THE STATE AND LOCAL INCOME
TAX CONSEQUENCES OF THE MERGER PROPOSAL APPLICABLE TO LIMITED PARTNERS
GENERALLY. EACH LIMITED PARTNER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR
CONCERNING THE FEDERAL, STATE, LOCAL AND OTHER TAX CONSEQUENCES OF THE MERGER
PROPOSAL.
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APPENDIX G
November 3, 1997
Board of Directors
Performance Development, Inc.
4100 Newport Place, Suite 400
Newport Beach, California 92660
Gentlemen:
Kelly & Company, the independent certified public accounting firm which
reviews and audits certain financial statements of the Partnerships (hereinafter
defined) and who was retained by Performance Development, Inc., a California
corporation and the General Partner of the Partnerships (the "General Partner"),
has retained Willamette Management Associates, Inc. ("WMA"), to act as its
independent fairness analyst in connection with the proposed merger involving
Performance Asset Management Company, a Delaware corporation (the "Company");
Performance Asset Management Fund, Ltd., A California Limited Partnership;
Performance Asset Management Fund II, Ltd., A California Limited Partnership;
Performance Asset Management Fund III, Ltd., a California Limited Partnership;
Performance Asset Management Fund IV, Ltd., A California Limited Partnership;
and Performance Asset Management Fund V, A California Limited Partnership (the
"Partnerships"); and Performance Capital Management, Inc., a California
corporation ("PCM"),(the "Merger Proposal"). In our capacity as independent
fairness analyst, you have specifically asked us to render a written opinion
(the "Fairness Opinion"), as of June 30, 1997, as to whether:
the exchange value established by management at the Company regarding the
exchange of limited partnership units (the "Units") in each of the Partnerships
into shares of stock (the "Shares") in the Company is fair, from a financial
point of view, to the Partnerships.
WMA, established in 1969, is one of the nation's leading independent
financial advisory and business valuation firms. WMA's principal business is the
valuation of businesses and business interests, including both privately held
and publicly traded companies, for all purposes, including mergers and
acquisitions, divestitures, public offerings, gift and estate taxes, employee
stock ownership plans, corporate and partnership recapitalizations, dissolutions
and other objectives.
In accordance with recognized professional ethics, our professional fees
for this service are not contingent upon the opinion expressed herein, and
neither WMA, nor any of its employees has a present or intended financial
interest in the Partnerships, the General Partner, PCM or the Company.
We have not been requested to, and, therefore, did not: (i) select the
method of determining the allocations for the Shares or establish the
allocations (management of the Company, PCM, and the General Partner initiated
and structured the consolidation, selected the method of determining the
allocations and established the allocation ratios); (ii) make any recommendation
to the limited partners of the Partnerships ("Limited Partners"), the General
Partner, the Company, or PCM with respect to whether to approve or reject the
Merger Proposal; (iii) express any opinion as to (a) the impact of the Merger
Proposal with respect to the combination of the Partnerships or ratios of Shares
issued; (b) the tax consequences of the Merger Proposal for owners of the
Partnerships, the General Partner, PCM, or the Company; (c) the potential
capital structure of the Company or its impact on the financial performance or
the Shares; or (d) whether or not alternative methods of determining the
relative amounts of Shares would have also provided fair results or results
substantially similar to those of the allocation methodology used.
Further, we are not expressing any opinion herein as to (i) the fairness of
any terms of the Merger Proposal (other than the fairness of the allocations),
or the amounts or allocations of Merger Proposal costs or the amounts of Merger
Proposal costs borne by the Limited Partners; (ii) the prices at which Shares
may trade following the Merger or the trading value of the Shares to be received
compared with the current fair market value of the Partnerships' portfolios or
other assets if currently liquidated; or (iii) alternatives to the Merger
Proposal.
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Description of the Merger Proposal
It is our understanding that the Board of Directors of the General Partner
has approved a proposal for and on behalf of the Partnerships to merge the
Partnerships and PCM with and into the Company, whereby the Company shall
acquire, by the Merger Proposal, all of the assets of PCM and the assets of the
Partnerships. Further, the Merger Proposal contemplates that the Limited
Partners of the Partnerships and the shareholders of PCM shall ultimately
receive shares of common stock of the Company in exchange for their Units and
shares of common stock in PCM, respectively, and that the Partnerships and PCM
will wind up and dissolve.
PCM and the Partnerships are engaged in business in the financial services
industry. Specifically, PCM and the Partnerships engage in the business of
buying, servicing, and reselling discounted portfolios of distressed financial
debt instruments and obligations. Such portfolios typically consist of
distressed loan instruments evidencing secured and unsecured commercial and
consumer loan credit card debt, debt related to real and personal property,
loans, notes receivable, and other indebtedness. PCM and the Partnerships either
collect on the underlying obligations or sell the instruments alone or in
portfolios. The Company will engage in the same business.
We have been advised by the General Partner that (i) 3,059,201 shares of
common stock of the Company, par value $.001 will be allocated to the
Partnerships as a group in exchange for the net assets of such Partnerships upon
consummation of the consolidation; (ii) 4,452,299 shares of common stock of the
Company will be allocated to PCM in exchange for its assets and related and
affiliated credit collection and servicing businesses; (iii) the Partnerships
will be merged with and into the Company and the Shares allocable to each
Partnership will be distributed to its partners in accordance with the
provisions of the Agreement of Limited Partnership for such Partnership
("Partnership Agreement") with respect to distributions upon liquidation; (iv)
PCM will be merged into the Company and Shares distributed to PCM's shareholders
upon PCM's liquidation.
Description of Fairness Opinion Analysis
In undertaking this engagement, our focus was directed to the valuation
issues relating to the adequate consideration rule. "Adequate consideration" is
generally understood to represent the fair market value of an asset.
Accordingly, and in order to arrive at our opinion regarding the fairness, from
a financial point of view, of the exchange ratio established for the Units of
each of the Partnerships, we performed our research, procedures, and analyses
with the intent of establishing whether, based on the exchange ratio proposed by
management at the Company, the Limited Partners would receive at least fair
market value in exchange for Units transferred. That is,in order for the Merger
Proposal to be fair from a financial point of view to the Limited Partners of
each Partnership, the fair market value of the Shares received by each of the
Limited Partners must be equal to, or greater than, the fair market value of the
Units exchanged as of June 30, 1997.
For purposes of this assignment, fair market value is defined as the price
at which an asset would change hands between a willing buyer and a willing
seller when the former is not under any compulsion to buy and the latter is not
under any compulsion to sell, both parties are able, as well as willing, to
trade, and both parties are well-informed about the asset and the market for
that asset.
In arriving at the opinion set forth below, we have:
1. Reviewed relevant Partnership and corporate documents and records;
2. Reviewed the Registration Statement on Form S-4 ("Registration
Statement") filed by the Company with the Securities and Exchange Commission;
3. Reviewed the audited financial statements of the Partnerships for each
Partnership's 1996 fiscal year end and the unaudited financial statements for
the six months ended June 30, 1997;
4. Reviewed the audited financial statements of PCM for calendar years 1994
through 1996, and the unaudited financial statements for the six months ended
June 30, 1997;
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5. Reviewed the pro forma balance sheet for the Company included in the
Registration Statement as of June 30, 1997, and the statement of operations for
the years ended December 31, 1996, 1995 and 1994, and the six months ended June
30, 1997, prepared by PCM and the Partnerships;
6. Reviewed certain operating and financial information relating to the
business, financial condition, and results of operations of the Partnerships,
and discussed with the General Partner and management of PCM the operations,
business plans, current and expected conditions in the distressed debt segment
of the financial services industry (including market conditions for
sales/acquisitions of distressed debt portfolios of the type owned by the
Partnerships), and the historical financial statements, budgets and future
prospects of the Partnerships and PCM;
7. Reviewed and analyzed the methodology used by the General Partner, PCM,
and the Company to allocate Shares between the Partnerships, as a group, and
PCM, and separately between the Partnerships;
8. Reviewed financial positions, financial operating results, and related
pricing indicators as of June 30, 1997 regarding entities operating within the
credit collections segment of the financial services industry.
To evaluate the fairness from a financial point of view of the allocation
of shares between the Partnerships as a group and PCM we considered (i) the
combined estimated fair market value of the Partnerships as a group in
comparison with the estimated fair market value of PCM; (ii) going concern,
assumed perpetual life of PCM relative to the finite life of each Partnership as
established in each Partnership Agreement; (iii) historical and projected cash
flow relating to the distressed debt portfolios maintained by each Partnership;
(iv) historical cash flow of PCM; (v) Performance Capital Management, Inc.
Financial and Operating Budget for the Years Ending December 31, 1997 through
2001, prepared by management of PCM; (vi) the General Partner's estimated net
realizable values of distressed debt portfolios maintained by each Partnership
as of December 31, 1996; and (v) historical results of operations for PCM for
calendar years 1994 through 1996.
To evaluate the fairness from a financial point of view of the allocation
of shares among the Partnerships, we noted that such allocations are based upon
the estimated net asset values of the Partnerships as of June 30, 1997, and that
such net asset values are based, in part, upon the estimated fair market value
of existing distressed debt portfolios, increased for other net assets of the
Partnerships, and reduced for other net liabilities and a pro-rata share of
appropriate Merger Proposal costs, as of June 30, 1997.
In rendering this opinion, we have relied, without independent
verification, on the accuracy and completeness of all financial and other
information contained in the Registration Statement or that was otherwise
publicly available or furnished or otherwise communicated to us. We have not
made an independent evaluation or appraisal of the other financial and
non-financial assets, or the liabilities, of the Partnerships. We have also
relied on the accuracy and completeness of the balance sheet value
determinations of the Partnerships, and all other adjustments made to the
Partnership valuations to arrive at the respective net asset values and net
asset value per Unit. We have also relied on the assurance of the General
Partner, the Partnerships, PCM, and the Company that: (i) the calculations made
to determine Share allocations, allocations among the Partnerships, and
allocations between the General Partner and the Limited Partners are consistent
with each Partnership's Partnership Agreement; (ii) any financial projections or
pro forma statements or adjustments provided to us were reasonably prepared or
adjusted on bases consistent with actual historical experience or reflected the
best currently available estimates and good faith judgments; (iii) no material
changes have occurred in the value of the Partnerships between June 30, 1997 and
the date of this Opinion; and (iv) PCM, the General Partner and the Company are
not aware of any information or facts regarding the Partnerships that would
cause the information supplied to us to be incomplete or misleading.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. WMA has
advised the Partnerships that its entire analysis must be considered as a whole
and that selecting portions of its analyses and the factors considered by it,
without considering all analyses and facts, could create an incomplete view of
the evaluation process underlying the Fairness Opinion.
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Based upon and subject to the foregoing, it is our opinion that, as of the
date of the information considered in this analysis, (i) the allocation of the
Shares offered to the Partnerships pursuant to the Merger Proposal among PCM and
the Partnerships as a group, and (ii) the allocation of shares among the
Partnerships, is fair to the Partnerships, from a financial point of view.
This Fairness Opinion is solely for the use and benefit of the General
Partner to assist in decision making regarding the satisfactory fulfillment of
fiduciary duties and responsibilities to the Limited Partners as delineated in
Section 8.3, "Rights, Authority, Power, Responsibilities and Duties of the
General Partner,", specifically with regard to "Rights, Powers, and Voting
Rights of the Limited Partners,", and "Termination, Liquidation, and Dissolution
of the Partnership," as addressed in Section 9.3 and Section 12, respectively,
of each Partnership Agreement.
Very truly yours,
/s/
Willamette Management Associates, Inc.
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APPENDIX H
THIS CONSENT IS BEING SOLICITED BY PERFORMANCE DEVELOPMENT, INC., IN ITS
CAPACITY AS GENERAL PARTNER, FOR AND ON BEHALF OF THE BOARD OF DIRECTORS OF
PERFORMANCE ASSET MANAGEMENT COMPANY, A DELAWARE CORPORATION ("COMPANY").
PERFORMANCE DEVELOPMENT, INC.
LETTER OF TRANSMITTAL
AND CONSENT STATEMENT
FOR
LIMITED PARTNERS OF
PERFORMANCE ASSET MANAGEMENT FUND, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
THE DATE OF THIS CONSENT STATEMENT IS .
Capitalized terms used but not defined herein have the meanings given to
them in the Prospectus dated October 31, 1997, and which is part of the
Registration Statement on Form S-4 filed by the Company with the Securities and
Exchange Commission, as supplemented or amended ("Prospectus"). General
instructions are included in Part VI.
This Letter of Transmittal and Consent Statement provides Limited Partners
with the opportunity to vote "for" or "against" the Merger Proposal.
This Letter of Transmittal and Consent Statement must be received by the
Exchange Agent on or before 5:00 p.m. Pacific Time, on , 1997, unless
the Merger Proposal is extended. To vote "for" the Merger Proposal or vote
"against" the Merger Proposal, please complete this Letter of Transmittal and
Consent Statement in accordance with the instructions in Items IV, V and VI, and
send or deliver the completed Letter of Transmittal and Consent Statement to the
Exchange Agent.
Adoption of the Merger Proposal requires consent by Limited Partners
holding 75% of the Units in the Partnership. Assuming consummation of the Merger
Proposal, at such time as the Partnership is wound up and dissolved, all of the
partners of the Partnership, whether or not they consent to the Merger Proposal,
will receive the same number of shares of the Company's common stock they would
have received had they consented to the Merger Proposal, except that Limited
Partners exercising their dissenters' rights may receive an unsecured
subordinated debenture issued under an indenture. See Part V below.
EXCHANGE AGENT: U.S. STOCK TRANSFER CORPORATION
By Mail or By Hand:
U.S. Stock Transfer Corporation
1745 Gardena Avenue, Suite 200
Glendale, California 91204
Attn: PAMCO Roll-up
Delivery of this Letter of Transmittal and Consent Statement is at the risk of
the Limited Partners. If sent by U.S. Mail, it is recommended that Limited
Partners use certified mail, return receipt requested.
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<PAGE> 413
PART I
NAME AND ADDRESS OF LIMITED PARTNER
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
PART II
DESCRIPTION OF UNITS
Specified below with respect to your Units are (i) the number of Units held
of record, (ii) the Exchange Value attributable to your Units and (iii) the
number of Company Shares which will be distributed by the Partnership to you in
exchange for your Units.
<TABLE>
<CAPTION>
UNITS EXCHANGE VALUE COMMON SHARES
- ------------------ ------------------ ------------------
<S> <C> <C>
- ------------------ ------------------ ------------------
</TABLE>
PART III
REPRESENTATIONS, WARRANTIES, COVENANTS AND POWER OF ATTORNEY
A Limited Partner checking the "for" box and signing Part IV below
("Consenting Limited Partner") hereby accepts the Merger Proposal on the terms
and subject to the conditions set forth in the Prospectus, receipt of a copy of
which is hereby acknowledged, thereby consenting to the Merger Proposal.
A Limited Partner checking the "against" box and signing Part IV below
("Non-Consenting Limited Partner") and which does not desire to exercise his or
her dissenters' rights pursuant to Part V below hereby (i) acknowledges receipt
of the Prospectus and, (ii) assuming adoption of the Merger Proposal, will
accept from the Partnership his or her allocable portion of the Company's shares
of common stock distributed by the Partnership on its winding up and
dissolution.
The undersigned Limited Partner represents and warrants to the Company
that, as of the Closing Date, (i) he or she has not disposed of or agreed to
dispose of his or her Units, other than pursuant to the Merger Proposal; (ii) he
or she has full legal right, power and authority to convey his or her Units
pursuant to the Merger Proposal; (iii) he or she has received and reviewed a
copy of the Prospectus; and (iv) he or she is qualified to make decisions with
respect to investments presenting an investment decision similar to that
involved in the Merger Proposal. All representations, warranties and covenants
contained herein shall survive the Closing Date and all other transactions
contemplated by this Letter of Transmittal and the Prospectus.
In connection with the solicitation of written consents of Limited Partners
in the Partnership, each Consenting Limited Partner below hereby (i) represents
and warrants to the General Partner that he or she has full legal right, power
and authority to execute a written consent with respect to the Merger Proposal;
(ii) consents to the adoption of the Merger Proposal, as described in the
Prospectus; and (iii) consents to the amendment of the Partnership Agreement to
facilitate the closing and consummation of the Merger.
The undersigned Limited Partner hereby irrevocably appoints the General
Partner or any designee of the General Partner, with full power of substitution,
as his or her true and lawful attorney-in-fact, in his or her name, place and
stead, to execute on his or her behalf any additional documents necessary to
close and consummate the Merger and the withdrawal and transfer of the assets
underlying his or her Units. This power of attorney shall become effective upon
the closing and consummation of the Merger, shall be deemed coupled with an
interest, shall be irrevocable, is granted in consideration of the Company
Shares which he or she shall receive on the winding up and dissolution of the
Partnership, shall survive his or her death, incapacity, dissolution or
termination of the existence and shall obligate his or her heirs, legal
representatives, successors or assigns.
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The following information must be completed in order to entitle the
Soliciting Agent to receive compensation in connection with the Merger Proposal.
- ------------------------------------------------------
Name of Account Executive
(Please Print)
PART IV
ALL LIMITED PARTNERS
(EXCEPT DISSENTING PARTNERS. SEE PART V)
LIMITED PARTNERS ELECTING TO EXERCISE DISSENTERS' RIGHTS
SHOULD INSTEAD COMPLETE PART V.
Consent to the Merger Proposal being submitted by the General Partner and
consent to approve and adopt the Amendment to the Partnership Agreement:
[ ] For [ ] Against
SIGNATURE BOX
(NOT FOR DISSENTING LIMITED PARTNERS. SEE PART V)
Please sign exactly as your name is printed in Part I above, unless printed
incorrectly. When signing as a general partner, corporate officer,
attorney-in-fact, executor, administrator, trustee or guardian, please give full
title and send proper evidence of authority with this consent. For joint owners,
each joint owner must sign.
- ------------------------------------------------------
Full Name of Limited Partner
(Please Print)
- ------------------------------------------------------
Full Name of Co-owner, if any
(Please Print)
- ------------------------------------------------------
Signature of Limited Partner
- ------------------------------------------------------
Signature of Limited Partner
- ------------------------------------------------------
Signature of Co-owner, if any
Business Telephone: ( )
- ------------------------
Home Telephone: ( )
- ---------------------------
Dated
- ---------------------------------------, 1997
IF THE LIMITED PARTNER FAILS TO INDICATE WHETHER CONSENT TO THE MERGER PROPOSAL
IS GIVEN OR WITHHELD, CONSENT WILL BE CONCLUSIVELY PRESUMED TO BE GIVEN.
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<PAGE> 415
PART V
DISSENTING LIMITED PARTNERS
COMPLETE ONLY IF YOU WISH TO EXERCISE YOUR DISSENTERS' RIGHTS.
The Dissenting Limited Partner signing in this Part V withholds his or her
consent to the Merger Proposal and to adoption of the Amendment to the
Partnership Agreement. By signing this Part V, a Dissenting Limited Partner
hereby exercises his or her dissenter's rights and will be deemed to have made
the representations, warranties and covenants (other than the consent to the
adoption of the Merger Proposal) set forth in Part III above, and he or she will
receive, pursuant to those dissenter's rights, an unsecured subordinated
debenture issued under an indenture in an amount equal to the Exchange Value of
such Dissenting Limited Partner's Units.
SIGNATURE BOX
(ONLY FOR DISSENTING LIMITED PARTNERS.)
Please sign exactly as your name is printed in Part I above, unless printed
incorrectly. When signing as a general partner, corporate officer,
attorney-in-fact, executor, administrator, trustee or guardian, please give full
title and send proper evidence of authority with this consent. For joint owners,
each joint owner must sign.
- ------------------------------------------------------
Full Name of Limited Partner
(Please Print)
- ------------------------------------------------------
Full Name of Co-owner, if any
(Please Print)
- ------------------------------------------------------
Signature of Limited Partner
- ------------------------------------------------------
Signature of Limited Partner
- ------------------------------------------------------
Signature of Co-owner, if any
Business Telephone: ( )
- ------------------------
Home Telephone: ( )
- ---------------------------
Dated
- ---------------------------------------, 1997
PART VI
INSTRUCTIONS
1. PREVIOUSLY TRANSFERRED INTERESTS. If a Limited Partner has
transferred, whether by sale, gift, death or otherwise, the beneficial ownership
of any Units of which he or she has been named a holder of record in this Letter
of Transmittal and Consent Statement without previously notifying the General
Partner or complying with the procedures set forth in the Partnership Agreement
for transferring his or her Units, he or she should notify the General Partner
of that fact and identify the Units transferred, the date of transfer and the
name, address and tax identification number of the assignee. The General Partner
will then send such Limited Partner and the assignee revised Letters of
Transmittal and Consent Statement and request from such Limited Partner or
assignee such other documents as the General Partner may require in order to
facilitate the closing and consummation of the Merger.
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2. PARTICIPATION IN EXCHANGE. To be entitled to receive Company Shares on
the winding up and dissolution of the Partnership, even if consent to the Merger
Proposal is withheld, a Limited Partner must deliver one copy of this Letter of
Transmittal and Consent Statement, completed, dated and signed in the Signature
Box in Part IV. Delivery of this Letter of Transmittal and Consent Statement is
at the risk of the Limited Partner. A consent will be effective only when this
Letter of Transmittal and Consent Statement is actually received by the Exchange
Agent. The Letter of Transmittal and Consent Statement must be received by the
Exchange Agent on or before 5:00 p.m. Pacific Time, on unless the
Merger Proposal is extended, in which event the Letter of Transmittal and
Consent Statement must be received by the latest time and date on which the
Merger Proposal, as so extended, will expire.
3. SIGNATURES. This Letter of Transmittal and Consent Statement must be
signed by the Limited Partner whose name appears in Part I of this Letter of
Transmittal and Consent Statement. If the Units are held in the names of two or
more persons, all such persons must sign this Letter of Transmittal and Consent
Statement. With respect to Units held by entities such as trusts, joint
ventures, limited partnerships or general partnerships, the Exchange Agent may
require that this Letter of Transmittal and Consent Statement be accompanied by
evidence acceptable to the Exchange Agent that the entity has satisfied all
requirements of its governing instruments, such as applicable partnership or
joint venture agreements, and that the person signing this Letter of Transmittal
and Consent Statement is authorized to sign for the Limited Partner under the
laws of the jurisdiction in which the entity was organized.
TO PARTICIPATE IN THE PROPOSED MERGER, A LIMITED PARTNER MUST SIGN IN THE
SIGNATURE BLOCK IN PART IV (OR PART V FOR DISSENTERS) EVEN IF HE OR SHE OBJECTS
TO THE MERGER PROPOSAL AND ELECTS TO WITHHOLD HIS CONSENT TO THE MERGER
PROPOSAL, A LIMITED PARTNER WILL NOT RECEIVE COMPANY SHARES UNTIL A SIGNED
LETTER OF TRANSMITTAL AND CONSENT STATEMENT IS RETURNED.
4. CONDITIONAL TENDERS. No alternative, conditional or contingent
consents will be accepted.
5. WITHDRAWAL OR REVOCATION OF CONSENTS. A Consent Statement may be
withdrawn or revoked by a writing delivered to the Exchange Agent prior to the
date that the votes of the Limited Partners are counted stating that such
Consent Statement is revoked.
6. VALIDITY OF CONSENTS. All questions on the validity, form, eligibility
(including time of receipt) and acceptance of Units will be determined by the
Exchange Agent, in its sole and absolute discretion, and its determination will
be final and binding. The Exchange Agent reserves the right to waive any
irregularities or conditions on the manner of consent. Any irregularities in
connection with consents must be cured within such time as the Exchange Agent,
in its sole and absolute discretion, shall determine unless waived by it.
Consents will be deemed not to have been made until any irregularities have been
cured or waived. Any Letter of Transmittal and Consent Statement which is not
properly completed and executed, and as to which irregularities are not cured or
waived, will be returned by the Exchange Agent to the Limited Partner as soon as
practicable. The Exchange Agent is under no duty to give notification of defects
in consents and will not incur any liability for failure to give notification.
The Exchange Agent will not accept consents of less than all of a Limited
Partner's Units.
7. CONSENTS TO PROPOSAL. Only Persons who are holders of record of Units
on the Determination Date may vote on (i) the Merger Proposal and (ii) to
approve and adopt the proposed amendment to the Partnership Agreement.
8. DISSENTERS' RIGHTS. Non-Consenting Limited Partners have limited
dissenters' rights in accordance with the requirements for rollup transactions.
By signing Part V, Dissenting Limited Partners will be deemed to exercise their
dissenters' rights and will receive an unsecured subordinated debenture issued
under an indenture. Each Dissenting Limited Partner will also be deemed to have
sold his or her Units to the Company at the Exchange Value, payment of which
will be made pursuant to the provisions of the indenture.
Specified below is the proposed amendment ("Amendment") to the Partnership
Agreement. This Amendment shall be effective upon the acceptance of written
consents from Limited Partners holding not less than 75% of the Units approving
and adopting the Merger Proposal and the Amendment. If the Amendment
H-5
<PAGE> 417
becomes effective, it will become a separate article of the Partnership
Agreement and shall be placed immediately after the last article specified in
the Partnership Agreement.
PROPOSED AMENDMENT
Notwithstanding any provisions of this Agreement to the contrary, it is
hereby agreed as follows:
1. DEFINITIONS. Except as defined in this Agreement or this article, each
capitalized term used herein shall, for the purposes of this article, have the
meaning ascribed to it in the Prospectus of Performance Asset Management
Company, a Delaware corporation ("Company"), dated October 31, 1997, which is
part of a Registration Statement on Form S-4 filed by the Company with the
Securities and Exchange Commission on November 3, 1997, ("Prospectus").
2. ELIMINATION OF RESTRICTIONS. No provision of this Agreement shall
prohibit, limit or prevent (i) the transfer and conveyance of all the assets and
liabilities of the Partnership to the Company in exchange for certain of the
Company's shares of $.001 par value common stock ("Partnership Merger Stock") in
accordance with the terms of the Prospectus or otherwise, or (ii) the
distribution of the Partnership Merger Stock to the General Partner and the
Limited Partners, in exchange for their interests in the Partnership, upon the
winding up and dissolution of the Partnership. In addition, no consent of the
Partnership or any Partner, opinion of counsel or other procedure shall be
required in order to enable any Partner, the Partnership or the Company to
effect any such transfer and distribution.
3. EXCHANGE OF PARTNERSHIP ASSETS AND LIABILITIES FOR SUBJECT SHARES. On
the Closing Date, the Partnership shall transfer and convey all Partnership's
assets and liabilities to the Company in exchange for the Partnership Merger
Stock, pursuant to and in accordance with the terms of the Prospectus.
4. ELECTION TO DISSOLVE. Immediately after consummation of the issuance
of the Partnership Merger Stock, the Partnership shall be wound up and
dissolved. Upon the dissolution of the Partnership, the business and affairs of
the Partnership shall be terminated and wound up and, as soon as practicable
thereafter, any and all Partnership Merger Stock held by the Partnership shall
be distributed in kind to the Partners (or their assignees) with each Partner
(or his or her assignee) to receive a whole number of shares of Partnership
Merger Stock equal to the value of his or her interest in the Partnership
determined by the Exchange Value. Each Partner shall be paid cash for any
fractional shares of Partnership Merger Stock.
5. AUTHORITY OF GENERAL PARTNER. The General Partner shall execute,
acknowledge, verify, deliver, file and record, for and in the name of the
Partnership, any and all documents and shall do and perform all acts required by
applicable law or that it deems necessary or desirable in order to give effect
to this article and the transactions contemplated herein, including, but not
limited to, the dissolution, termination, winding-up and distribution
contemplated by Section 4 of this article.
6. THIS ARTICLE CONTROLLING. The provisions of this article shall prevail
and control over all other provisions of this Agreement.
Except as herein expressly amended, all other terms and provisions of the
Certificate and this Agreement shall remain in full force and effect.
H-6
<PAGE> 418
APPENDIX I
THIS CONSENT IS BEING SOLICITED BY PERFORMANCE DEVELOPMENT, INC., IN ITS
CAPACITY AS GENERAL PARTNER, FOR AND ON BEHALF OF THE BOARD OF DIRECTORS OF
PERFORMANCE ASSET MANAGEMENT COMPANY, A DELAWARE CORPORATION ("COMPANY").
PERFORMANCE DEVELOPMENT, INC.
LETTER OF TRANSMITTAL
AND CONSENT STATEMENT
FOR
LIMITED PARTNERS OF
PERFORMANCE ASSET MANAGEMENT FUND II, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
THE DATE OF THIS CONSENT STATEMENT IS .
Capitalized terms used but not defined herein have the meanings given to
them in the Prospectus dated October 31, 1997, and which is part of the
Registration Statement on Form S-4 filed by the Company with the Securities and
Exchange Commission, as supplemented or amended ("Prospectus"). General
instructions are included in Part VI.
This Letter of Transmittal and Consent Statement provides Limited Partners
with the opportunity to vote "for" or "against" the Merger Proposal.
This Letter of Transmittal and Consent Statement must be received by the
Exchange Agent on or before 5:00 p.m. Pacific Time, on , 1997, unless
the Merger Proposal is extended. To vote "for" the Merger Proposal or vote
"against" the Merger Proposal, please complete this Letter of Transmittal and
Consent Statement in accordance with the instructions in Items IV, V and VI, and
send or deliver the completed Letter of Transmittal and Consent Statement to the
Exchange Agent.
Adoption of the Merger Proposal requires consent by Limited Partners
holding 75% of the Units in the Partnership. Assuming consummation of the Merger
Proposal, at such time as the Partnership is wound up and dissolved, all of the
partners of the Partnership, whether or not they consent to the Merger Proposal,
will receive the same number of shares of the Company's common stock they would
have received had they consented to the Merger Proposal, except that Limited
Partners exercising their dissenters' rights may receive an unsecured
subordinated debenture issued under an indenture. See Part V below.
EXCHANGE AGENT: U.S. STOCK TRANSFER CORPORATION
By Mail or By Hand:
U.S. Stock Transfer Corporation
1745 Gardena Avenue, Suite 200
Glendale, California 91204
Attn: PAMCO Roll-up
Delivery of this Letter of Transmittal and Consent Statement is at the risk of
the Limited Partners. If sent by U.S. Mail, it is recommended that Limited
Partners use certified mail, return receipt requested.
I-1
<PAGE> 419
PART I
NAME AND ADDRESS OF LIMITED PARTNER
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
PART II
DESCRIPTION OF UNITS
Specified below with respect to your Units are (i) the number of Units held
of record, (ii) the Exchange Value attributable to your Units and (iii) the
number of Company Shares which will be distributed by the Partnership to you in
exchange for your Units.
<TABLE>
<CAPTION>
UNITS EXCHANGE VALUE COMMON SHARES
- ------------------ ------------------ ------------------
<S> <C> <C>
- ------------------ ------------------ ------------------
</TABLE>
PART III
REPRESENTATIONS, WARRANTIES, COVENANTS AND POWER OF ATTORNEY
A Limited Partner checking the "for" box and signing Part IV below
("Consenting Limited Partner") hereby accepts the Merger Proposal on the terms
and subject to the conditions set forth in the Prospectus, receipt of a copy of
which is hereby acknowledged, thereby consenting to the Merger Proposal.
A Limited Partner checking the "against" box and signing Part IV below
("Non-Consenting Limited Partner") and which does not desire to exercise his or
her dissenters' rights pursuant to Part V below hereby (i) acknowledges receipt
of the Prospectus and, (ii) assuming adoption of the Merger Proposal, will
accept from the Partnership his or her allocable portion of the Company's shares
of common stock distributed by the Partnership on its winding up and
dissolution.
The undersigned Limited Partner represents and warrants to the Company
that, as of the Closing Date, (i) he or she has not disposed of or agreed to
dispose of his or her Units, other than pursuant to the Merger Proposal; (ii) he
or she has full legal right, power and authority to convey his or her Units
pursuant to the Merger Proposal; (iii) he or she has received and reviewed a
copy of the Prospectus; and (iv) he or she is qualified to make decisions with
respect to investments presenting an investment decision similar to that
involved in the Merger Proposal. All representations, warranties and covenants
contained herein shall survive the Closing Date and all other transactions
contemplated by this Letter of Transmittal and the Prospectus.
In connection with the solicitation of written consents of Limited Partners
in the Partnership, each Consenting Limited Partner below hereby (i) represents
and warrants to the General Partner that he or she has full legal right, power
and authority to execute a written consent with respect to the Merger Proposal;
(ii) consents to the adoption of the Merger Proposal, as described in the
Prospectus; and (iii) consents to the amendment of the Partnership Agreement to
facilitate the closing and consummation of the Merger.
The undersigned Limited Partner hereby irrevocably appoints the General
Partner or any designee of the General Partner, with full power of substitution,
as his or her true and lawful attorney-in-fact, in his or her name, place and
stead, to execute on his or her behalf any additional documents necessary to
close and consummate the Merger and the withdrawal and transfer of the assets
underlying his or her Units. This power of attorney shall become effective upon
the closing and consummation of the Merger, shall be deemed coupled with an
interest, shall be irrevocable, is granted in consideration of the Company
Shares which he or she shall receive on the winding up and dissolution of the
Partnership, shall survive his or her death, incapacity, dissolution or
termination of the existence and shall obligate his or her heirs, legal
representatives, successors or assigns.
I-2
<PAGE> 420
The following information must be completed in order to entitle the
Soliciting Agent to receive compensation in connection with the Merger Proposal.
- ------------------------------------------------------
Name of Account Executive
(Please Print)
PART IV
ALL LIMITED PARTNERS
(EXCEPT DISSENTING PARTNERS. SEE PART V)
LIMITED PARTNERS ELECTING TO EXERCISE DISSENTERS' RIGHTS
SHOULD INSTEAD COMPLETE PART V.
Consent to the Merger Proposal being submitted by the General Partner and
consent to approve and adopt the Amendment to the Partnership Agreement:
[ ] For [ ] Against
SIGNATURE BOX
(NOT FOR DISSENTING LIMITED PARTNERS. SEE PART V)
Please sign exactly as your name is printed in Part I above, unless printed
incorrectly. When signing as a general partner, corporate officer,
attorney-in-fact, executor, administrator, trustee or guardian, please give full
title and send proper evidence of authority with this consent. For joint owners,
each joint owner must sign.
- ------------------------------------------------------
Full Name of Limited Partner
(Please Print)
- ------------------------------------------------------
Full Name of Co-owner, if any
(Please Print)
- ------------------------------------------------------
Signature of Limited Partner
- ------------------------------------------------------
Signature of Limited Partner
- ------------------------------------------------------
Signature of Co-owner, if any
Business Telephone: ( )
- ------------------------
Home Telephone: ( )
- ---------------------------
Dated
- ---------------------------------------, 1997
IF THE LIMITED PARTNER FAILS TO INDICATE WHETHER CONSENT TO THE MERGER PROPOSAL
IS GIVEN OR WITHHELD, CONSENT WILL BE CONCLUSIVELY PRESUMED TO BE GIVEN.
I-3
<PAGE> 421
PART V
DISSENTING LIMITED PARTNERS
COMPLETE ONLY IF YOU WISH TO EXERCISE YOUR DISSENTERS' RIGHTS.
The Dissenting Limited Partner signing in this Part V withholds his or her
consent to the Merger Proposal and to adoption of the Amendment to the
Partnership Agreement. By signing this Part V, a Dissenting Limited Partner
hereby exercises his or her dissenter's rights and will be deemed to have made
the representations, warranties and covenants (other than the consent to the
adoption of the Merger Proposal) set forth in Part III above, and he or she will
receive, pursuant to those dissenter's rights, an unsecured subordinated
debenture issued under an indenture in an amount equal to the Exchange Value of
such Dissenting Limited Partner's Units.
SIGNATURE BOX
(ONLY FOR DISSENTING LIMITED PARTNERS.)
Please sign exactly as your name is printed in Part I above, unless printed
incorrectly. When signing as a general partner, corporate officer,
attorney-in-fact, executor, administrator, trustee or guardian, please give full
title and send proper evidence of authority with this consent. For joint owners,
each joint owner must sign.
- ------------------------------------------------------
Full Name of Limited Partner
(Please Print)
- ------------------------------------------------------
Full Name of Co-owner, if any
(Please Print)
- ------------------------------------------------------
Signature of Limited Partner
- ------------------------------------------------------
Signature of Limited Partner
- ------------------------------------------------------
Signature of Co-owner, if any
Business Telephone: ( )
- ------------------------
Home Telephone: ( )
- ---------------------------
Dated
- ---------------------------------------, 1997
PART VI
INSTRUCTIONS
1. PREVIOUSLY TRANSFERRED INTERESTS. If a Limited Partner has
transferred, whether by sale, gift, death or otherwise, the beneficial ownership
of any Units of which he or she has been named a holder of record in this Letter
of Transmittal and Consent Statement without previously notifying the General
Partner or complying with the procedures set forth in the Partnership Agreement
for transferring his or her Units, he or she should notify the General Partner
of that fact and identify the Units transferred, the date of transfer and the
name, address and tax identification number of the assignee. The General Partner
will then send such Limited Partner and the assignee revised Letters of
Transmittal and Consent Statement and request from such Limited Partner or
assignee such other documents as the General Partner may require in order to
facilitate the closing and consummation of the Merger.
I-4
<PAGE> 422
2. PARTICIPATION IN EXCHANGE. To be entitled to receive Company Shares on
the winding up and dissolution of the Partnership, even if consent to the Merger
Proposal is withheld, a Limited Partner must deliver one copy of this Letter of
Transmittal and Consent Statement, completed, dated and signed in the Signature
Box in Part IV. Delivery of this Letter of Transmittal and Consent Statement is
at the risk of the Limited Partner. A consent will be effective only when this
Letter of Transmittal and Consent Statement is actually received by the Exchange
Agent. The Letter of Transmittal and Consent Statement must be received by the
Exchange Agent on or before 5:00 p.m. Pacific Time, on unless the
Merger Proposal is extended, in which event the Letter of Transmittal and
Consent Statement must be received by the latest time and date on which the
Merger Proposal, as so extended, will expire.
3. SIGNATURES. This Letter of Transmittal and Consent Statement must be
signed by the Limited Partner whose name appears in Part I of this Letter of
Transmittal and Consent Statement. If the Units are held in the names of two or
more persons, all such persons must sign this Letter of Transmittal and Consent
Statement. With respect to Units held by entities such as trusts, joint
ventures, limited partnerships or general partnerships, the Exchange Agent may
require that this Letter of Transmittal and Consent Statement be accompanied by
evidence acceptable to the Exchange Agent that the entity has satisfied all
requirements of its governing instruments, such as applicable partnership or
joint venture agreements, and that the person signing this Letter of Transmittal
and Consent Statement is authorized to sign for the Limited Partner under the
laws of the jurisdiction in which the entity was organized.
TO PARTICIPATE IN THE PROPOSED MERGER, A LIMITED PARTNER MUST SIGN IN THE
SIGNATURE BLOCK IN PART IV (OR PART V FOR DISSENTERS) EVEN IF HE OR SHE OBJECTS
TO THE MERGER PROPOSAL AND ELECTS TO WITHHOLD HIS CONSENT TO THE MERGER
PROPOSAL, A LIMITED PARTNER WILL NOT RECEIVE COMPANY SHARES UNTIL A SIGNED
LETTER OF TRANSMITTAL AND CONSENT STATEMENT IS RETURNED.
4. CONDITIONAL TENDERS. No alternative, conditional or contingent
consents will be accepted.
5. WITHDRAWAL OR REVOCATION OF CONSENTS. A Consent Statement may be
withdrawn or revoked by a writing delivered to the Exchange Agent prior to the
date that the votes of the Limited Partners are counted stating that such
Consent Statement is revoked.
6. VALIDITY OF CONSENTS. All questions on the validity, form, eligibility
(including time of receipt) and acceptance of Units will be determined by the
Exchange Agent, in its sole and absolute discretion, and its determination will
be final and binding. The Exchange Agent reserves the right to waive any
irregularities or conditions on the manner of consent. Any irregularities in
connection with consents must be cured within such time as the Exchange Agent,
in its sole and absolute discretion, shall determine unless waived by it.
Consents will be deemed not to have been made until any irregularities have been
cured or waived. Any Letter of Transmittal and Consent Statement which is not
properly completed and executed, and as to which irregularities are not cured or
waived, will be returned by the Exchange Agent to the Limited Partner as soon as
practicable. The Exchange Agent is under no duty to give notification of defects
in consents and will not incur any liability for failure to give notification.
The Exchange Agent will not accept consents of less than all of a Limited
Partner's Units.
7. CONSENTS TO PROPOSAL. Only Persons who are holders of record of Units
on the Determination Date may vote on (i) the Merger Proposal and (ii) to
approve and adopt the proposed amendment to the Partnership Agreement.
8. DISSENTERS' RIGHTS. Non-Consenting Limited Partners have limited
dissenters' rights in accordance with the requirements for rollup transactions.
By signing Part V, Dissenting Limited Partners will be deemed to exercise their
dissenters' rights and will receive an unsecured subordinated debenture issued
under an indenture. Each Dissenting Limited Partner will also be deemed to have
sold his or her Units to the Company at the Exchange Value, payment of which
will be made pursuant to the provisions of the indenture.
Specified below is the proposed amendment ("Amendment") to the Partnership
Agreement. This Amendment shall be effective upon the acceptance of written
consents from Limited Partners holding not less than 75% of the Units approving
and adopting the Merger Proposal and the Amendment. If the Amendment
I-5
<PAGE> 423
becomes effective, it will become a separate article of the Partnership
Agreement and shall be placed immediately after the last article specified in
the Partnership Agreement.
PROPOSED AMENDMENT
Notwithstanding any provisions of this Agreement to the contrary, it is
hereby agreed as follows:
1. DEFINITIONS. Except as defined in this Agreement or this article, each
capitalized term used herein shall, for the purposes of this article, have the
meaning ascribed to it in the Prospectus of Performance Asset Management
Company, a Delaware corporation ("Company"), dated October 31, 1997, which is
part of a Registration Statement on Form S-4 filed by the Company with the
Securities and Exchange Commission on November 3, 1997, ("Prospectus").
2. ELIMINATION OF RESTRICTIONS. No provision of this Agreement shall
prohibit, limit or prevent (i) the transfer and conveyance of all the assets and
liabilities of the Partnership to the Company in exchange for certain of the
Company's shares of $.001 par value common stock ("Partnership Merger Stock") in
accordance with the terms of the Prospectus or otherwise, or (ii) the
distribution of the Partnership Merger Stock to the General Partner and the
Limited Partners, in exchange for their interests in the Partnership, upon the
winding up and dissolution of the Partnership. In addition, no consent of the
Partnership or any Partner, opinion of counsel or other procedure shall be
required in order to enable any Partner, the Partnership or the Company to
effect any such transfer and distribution.
3. EXCHANGE OF PARTNERSHIP ASSETS AND LIABILITIES FOR SUBJECT SHARES. On
the Closing Date, the Partnership shall transfer and convey all Partnership's
assets and liabilities to the Company in exchange for the Partnership Merger
Stock, pursuant to and in accordance with the terms of the Prospectus.
4. ELECTION TO DISSOLVE. Immediately after consummation of the issuance
of the Partnership Merger Stock, the Partnership shall be wound up and
dissolved. Upon the dissolution of the Partnership, the business and affairs of
the Partnership shall be terminated and wound up and, as soon as practicable
thereafter, any and all Partnership Merger Stock held by the Partnership shall
be distributed in kind to the Partners (or their assignees) with each Partner
(or his or her assignee) to receive a whole number of shares of Partnership
Merger Stock equal to the value of his or her interest in the Partnership
determined by the Exchange Value. Each Partner shall be paid cash for any
fractional shares of Partnership Merger Stock.
5. AUTHORITY OF GENERAL PARTNER. The General Partner shall execute,
acknowledge, verify, deliver, file and record, for and in the name of the
Partnership, any and all documents and shall do and perform all acts required by
applicable law or that it deems necessary or desirable in order to give effect
to this article and the transactions contemplated herein, including, but not
limited to, the dissolution, termination, winding-up and distribution
contemplated by Section 4 of this article.
6. THIS ARTICLE CONTROLLING. The provisions of this article shall prevail
and control over all other provisions of this Agreement.
Except as herein expressly amended, all other terms and provisions of the
Certificate and this Agreement shall remain in full force and effect.
I-6
<PAGE> 424
APPENDIX J
THIS CONSENT IS BEING SOLICITED BY PERFORMANCE DEVELOPMENT, INC., IN ITS
CAPACITY AS GENERAL PARTNER, FOR AND ON BEHALF OF THE BOARD OF DIRECTORS OF
PERFORMANCE ASSET MANAGEMENT COMPANY, A DELAWARE CORPORATION ("COMPANY").
PERFORMANCE DEVELOPMENT, INC.
LETTER OF TRANSMITTAL
AND CONSENT STATEMENT
FOR
LIMITED PARTNERS OF
PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
THE DATE OF THIS CONSENT STATEMENT IS .
Capitalized terms used but not defined herein have the meanings given to
them in the Prospectus dated October 31, 1997, and which is part of the
Registration Statement on Form S-4 filed by the Company with the Securities and
Exchange Commission, as supplemented or amended ("Prospectus"). General
instructions are included in Part VI.
This Letter of Transmittal and Consent Statement provides Limited Partners
with the opportunity to vote "for" or "against" the Merger Proposal.
This Letter of Transmittal and Consent Statement must be received by the
Exchange Agent on or before 5:00 p.m. Pacific Time, on , 1997, unless
the Merger Proposal is extended. To vote "for" the Merger Proposal or vote
"against" the Merger Proposal, please complete this Letter of Transmittal and
Consent Statement in accordance with the instructions in Items IV, V and VI, and
send or deliver the completed Letter of Transmittal and Consent Statement to the
Exchange Agent.
Adoption of the Merger Proposal requires consent by Limited Partners
holding 75% of the Units in the Partnership. Assuming consummation of the Merger
Proposal, at such time as the Partnership is wound up and dissolved, all of the
partners of the Partnership, whether or not they consent to the Merger Proposal,
will receive the same number of shares of the Company's common stock they would
have received had they consented to the Merger Proposal, except that Limited
Partners exercising their dissenters' rights may receive an unsecured
subordinated debenture issued under an indenture. See Part V below.
EXCHANGE AGENT: U.S. STOCK TRANSFER CORPORATION
By Mail or By Hand:
U.S. Stock Transfer Corporation
1745 Gardena Avenue, Suite 200
Glendale, California 91204
Attn: PAMCO Roll-up
Delivery of this Letter of Transmittal and Consent Statement is at the risk of
the Limited Partners. If sent by U.S. Mail, it is recommended that Limited
Partners use certified mail, return receipt requested.
J-1
<PAGE> 425
PART I
NAME AND ADDRESS OF LIMITED PARTNER
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
PART II
DESCRIPTION OF UNITS
Specified below with respect to your Units are (i) the number of Units held
of record, (ii) the Exchange Value attributable to your Units and (iii) the
number of Company Shares which will be distributed by the Partnership to you in
exchange for your Units.
<TABLE>
<CAPTION>
UNITS EXCHANGE VALUE COMMON SHARES
- ------------------ ------------------ ------------------
<S> <C> <C>
- ------------------ ------------------ ------------------
</TABLE>
PART III
REPRESENTATIONS, WARRANTIES, COVENANTS AND POWER OF ATTORNEY
A Limited Partner checking the "for" box and signing Part IV below
("Consenting Limited Partner") hereby accepts the Merger Proposal on the terms
and subject to the conditions set forth in the Prospectus, receipt of a copy of
which is hereby acknowledged, thereby consenting to the Merger Proposal.
A Limited Partner checking the "against" box and signing Part IV below
("Non-Consenting Limited Partner") and which does not desire to exercise his or
her dissenters' rights pursuant to Part V below hereby (i) acknowledges receipt
of the Prospectus and, (ii) assuming adoption of the Merger Proposal, will
accept from the Partnership his or her allocable portion of the Company's shares
of common stock distributed by the Partnership on its winding up and
dissolution.
The undersigned Limited Partner represents and warrants to the Company
that, as of the Closing Date, (i) he or she has not disposed of or agreed to
dispose of his or her Units, other than pursuant to the Merger Proposal; (ii) he
or she has full legal right, power and authority to convey his or her Units
pursuant to the Merger Proposal; (iii) he or she has received and reviewed a
copy of the Prospectus; and (iv) he or she is qualified to make decisions with
respect to investments presenting an investment decision similar to that
involved in the Merger Proposal. All representations, warranties and covenants
contained herein shall survive the Closing Date and all other transactions
contemplated by this Letter of Transmittal and the Prospectus.
In connection with the solicitation of written consents of Limited Partners
in the Partnership, each Consenting Limited Partner below hereby (i) represents
and warrants to the General Partner that he or she has full legal right, power
and authority to execute a written consent with respect to the Merger Proposal;
(ii) consents to the adoption of the Merger Proposal, as described in the
Prospectus; and (iii) consents to the amendment of the Partnership Agreement to
facilitate the closing and consummation of the Merger.
The undersigned Limited Partner hereby irrevocably appoints the General
Partner or any designee of the General Partner, with full power of substitution,
as his or her true and lawful attorney-in-fact, in his or her name, place and
stead, to execute on his or her behalf any additional documents necessary to
close and consummate the Merger and the withdrawal and transfer of the assets
underlying his or her Units. This power of attorney shall become effective upon
the closing and consummation of the Merger, shall be deemed coupled with an
interest, shall be irrevocable, is granted in consideration of the Company
Shares which he or she shall receive on the winding up and dissolution of the
Partnership, shall survive his or her death, incapacity, dissolution or
termination of the existence and shall obligate his or her heirs, legal
representatives, successors or assigns.
J-2
<PAGE> 426
The following information must be completed in order to entitle the
Soliciting Agent to receive compensation in connection with the Merger Proposal.
- ------------------------------------------------------
Name of Account Executive
(Please Print)
PART IV
ALL LIMITED PARTNERS
(EXCEPT DISSENTING PARTNERS. SEE PART V)
LIMITED PARTNERS ELECTING TO EXERCISE DISSENTERS' RIGHTS
SHOULD INSTEAD COMPLETE PART V.
Consent to the Merger Proposal being submitted by the General Partner and
consent to approve and adopt the Amendment to the Partnership Agreement:
[ ] For [ ] Against
SIGNATURE BOX
(NOT FOR DISSENTING LIMITED PARTNERS. SEE PART V)
Please sign exactly as your name is printed in Part I above, unless printed
incorrectly. When signing as a general partner, corporate officer,
attorney-in-fact, executor, administrator, trustee or guardian, please give full
title and send proper evidence of authority with this consent. For joint owners,
each joint owner must sign.
- ------------------------------------------------------
Full Name of Limited Partner
(Please Print)
- ------------------------------------------------------
Full Name of Co-owner, if any
(Please Print)
- ------------------------------------------------------
Signature of Limited Partner
- ------------------------------------------------------
Signature of Limited Partner
- ------------------------------------------------------
Signature of Co-owner, if any
Business Telephone: ( )
- ------------------------
Home Telephone: ( )
- ---------------------------
Dated
- ---------------------------------------, 1997
IF THE LIMITED PARTNER FAILS TO INDICATE WHETHER CONSENT TO THE MERGER PROPOSAL
IS GIVEN OR WITHHELD, CONSENT WILL BE CONCLUSIVELY PRESUMED TO BE GIVEN.
J-3
<PAGE> 427
PART V
DISSENTING LIMITED PARTNERS
COMPLETE ONLY IF YOU WISH TO EXERCISE YOUR DISSENTERS' RIGHTS.
The Dissenting Limited Partner signing in this Part V withholds his or her
consent to the Merger Proposal and to adoption of the Amendment to the
Partnership Agreement. By signing this Part V, a Dissenting Limited Partner
hereby exercises his or her dissenter's rights and will be deemed to have made
the representations, warranties and covenants (other than the consent to the
adoption of the Merger Proposal) set forth in Part III above, and he or she will
receive, pursuant to those dissenter's rights, an unsecured subordinated
debenture issued under an indenture in an amount equal to the Exchange Value of
such Dissenting Limited Partner's Units.
SIGNATURE BOX
(ONLY FOR DISSENTING LIMITED PARTNERS.)
Please sign exactly as your name is printed in Part I above, unless printed
incorrectly. When signing as a general partner, corporate officer,
attorney-in-fact, executor, administrator, trustee or guardian, please give full
title and send proper evidence of authority with this consent. For joint owners,
each joint owner must sign.
- ------------------------------------------------------
Full Name of Limited Partner
(Please Print)
- ------------------------------------------------------
Full Name of Co-owner, if any
(Please Print)
- ------------------------------------------------------
Signature of Limited Partner
- ------------------------------------------------------
Signature of Limited Partner
- ------------------------------------------------------
Signature of Co-owner, if any
Business Telephone: ( )
- ------------------------
Home Telephone: ( )
- ---------------------------
Dated
- ---------------------------------------, 1997
PART VI
INSTRUCTIONS
1. PREVIOUSLY TRANSFERRED INTERESTS. If a Limited Partner has
transferred, whether by sale, gift, death or otherwise, the beneficial ownership
of any Units of which he or she has been named a holder of record in this Letter
of Transmittal and Consent Statement without previously notifying the General
Partner or complying with the procedures set forth in the Partnership Agreement
for transferring his or her Units, he or she should notify the General Partner
of that fact and identify the Units transferred, the date of transfer and the
name, address and tax identification number of the assignee. The General Partner
will then send such Limited Partner and the assignee revised Letters of
Transmittal and Consent Statement and request from such Limited Partner or
assignee such other documents as the General Partner may require in order to
facilitate the closing and consummation of the Merger.
J-4
<PAGE> 428
2. PARTICIPATION IN EXCHANGE. To be entitled to receive Company Shares on
the winding up and dissolution of the Partnership, even if consent to the Merger
Proposal is withheld, a Limited Partner must deliver one copy of this Letter of
Transmittal and Consent Statement, completed, dated and signed in the Signature
Box in Part IV. Delivery of this Letter of Transmittal and Consent Statement is
at the risk of the Limited Partner. A consent will be effective only when this
Letter of Transmittal and Consent Statement is actually received by the Exchange
Agent. The Letter of Transmittal and Consent Statement must be received by the
Exchange Agent on or before 5:00 p.m. Pacific Time, on unless the
Merger Proposal is extended, in which event the Letter of Transmittal and
Consent Statement must be received by the latest time and date on which the
Merger Proposal, as so extended, will expire.
3. SIGNATURES. This Letter of Transmittal and Consent Statement must be
signed by the Limited Partner whose name appears in Part I of this Letter of
Transmittal and Consent Statement. If the Units are held in the names of two or
more persons, all such persons must sign this Letter of Transmittal and Consent
Statement. With respect to Units held by entities such as trusts, joint
ventures, limited partnerships or general partnerships, the Exchange Agent may
require that this Letter of Transmittal and Consent Statement be accompanied by
evidence acceptable to the Exchange Agent that the entity has satisfied all
requirements of its governing instruments, such as applicable partnership or
joint venture agreements, and that the person signing this Letter of Transmittal
and Consent Statement is authorized to sign for the Limited Partner under the
laws of the jurisdiction in which the entity was organized.
TO PARTICIPATE IN THE PROPOSED MERGER, A LIMITED PARTNER MUST SIGN IN THE
SIGNATURE BLOCK IN PART IV (OR PART V FOR DISSENTERS) EVEN IF HE OR SHE OBJECTS
TO THE MERGER PROPOSAL AND ELECTS TO WITHHOLD HIS CONSENT TO THE MERGER
PROPOSAL, A LIMITED PARTNER WILL NOT RECEIVE COMPANY SHARES UNTIL A SIGNED
LETTER OF TRANSMITTAL AND CONSENT STATEMENT IS RETURNED.
4. CONDITIONAL TENDERS. No alternative, conditional or contingent
consents will be accepted.
5. WITHDRAWAL OR REVOCATION OF CONSENTS. A Consent Statement may be
withdrawn or revoked by a writing delivered to the Exchange Agent prior to the
date that the votes of the Limited Partners are counted stating that such
Consent Statement is revoked.
6. VALIDITY OF CONSENTS. All questions on the validity, form, eligibility
(including time of receipt) and acceptance of Units will be determined by the
Exchange Agent, in its sole and absolute discretion, and its determination will
be final and binding. The Exchange Agent reserves the right to waive any
irregularities or conditions on the manner of consent. Any irregularities in
connection with consents must be cured within such time as the Exchange Agent,
in its sole and absolute discretion, shall determine unless waived by it.
Consents will be deemed not to have been made until any irregularities have been
cured or waived. Any Letter of Transmittal and Consent Statement which is not
properly completed and executed, and as to which irregularities are not cured or
waived, will be returned by the Exchange Agent to the Limited Partner as soon as
practicable. The Exchange Agent is under no duty to give notification of defects
in consents and will not incur any liability for failure to give notification.
The Exchange Agent will not accept consents of less than all of a Limited
Partner's Units.
7. CONSENTS TO PROPOSAL. Only Persons who are holders of record of Units
on the Determination Date may vote on (i) the Merger Proposal and (ii) to
approve and adopt the proposed amendment to the Partnership Agreement.
8. DISSENTERS' RIGHTS. Non-Consenting Limited Partners have limited
dissenters' rights in accordance with the requirements for rollup transactions.
By signing Part V, Dissenting Limited Partners will be deemed to exercise their
dissenters' rights and will receive an unsecured subordinated debenture issued
under an indenture. Each Dissenting Limited Partner will also be deemed to have
sold his or her Units to the Company at the Exchange Value, payment of which
will be made pursuant to the provisions of the indenture.
Specified below is the proposed amendment ("Amendment") to the Partnership
Agreement. This Amendment shall be effective upon the acceptance of written
consents from Limited Partners holding not less than 75% of the Units approving
and adopting the Merger Proposal and the Amendment. If the Amendment
J-5
<PAGE> 429
becomes effective, it will become a separate article of the Partnership
Agreement and shall be placed immediately after the last article specified in
the Partnership Agreement.
PROPOSED AMENDMENT
Notwithstanding any provisions of this Agreement to the contrary, it is
hereby agreed as follows:
1. DEFINITIONS. Except as defined in this Agreement or this article, each
capitalized term used herein shall, for the purposes of this article, have the
meaning ascribed to it in the Prospectus of Performance Asset Management
Company, a Delaware corporation ("Company"), dated October 31, 1997, which is
part of a Registration Statement on Form S-4 filed by the Company with the
Securities and Exchange Commission on November 3, 1997, ("Prospectus").
2. ELIMINATION OF RESTRICTIONS. No provision of this Agreement shall
prohibit, limit or prevent (i) the transfer and conveyance of all the assets and
liabilities of the Partnership to the Company in exchange for certain of the
Company's shares of $.001 par value common stock ("Partnership Merger Stock") in
accordance with the terms of the Prospectus or otherwise, or (ii) the
distribution of the Partnership Merger Stock to the General Partner and the
Limited Partners, in exchange for their interests in the Partnership, upon the
winding up and dissolution of the Partnership. In addition, no consent of the
Partnership or any Partner, opinion of counsel or other procedure shall be
required in order to enable any Partner, the Partnership or the Company to
effect any such transfer and distribution.
3. EXCHANGE OF PARTNERSHIP ASSETS AND LIABILITIES FOR SUBJECT SHARES. On
the Closing Date, the Partnership shall transfer and convey all Partnership's
assets and liabilities to the Company in exchange for the Partnership Merger
Stock, pursuant to and in accordance with the terms of the Prospectus.
4. ELECTION TO DISSOLVE. Immediately after consummation of the issuance
of the Partnership Merger Stock, the Partnership shall be wound up and
dissolved. Upon the dissolution of the Partnership, the business and affairs of
the Partnership shall be terminated and wound up and, as soon as practicable
thereafter, any and all Partnership Merger Stock held by the Partnership shall
be distributed in kind to the Partners (or their assignees) with each Partner
(or his or her assignee) to receive a whole number of shares of Partnership
Merger Stock equal to the value of his or her interest in the Partnership
determined by the Exchange Value. Each Partner shall be paid cash for any
fractional shares of Partnership Merger Stock.
5. AUTHORITY OF GENERAL PARTNER. The General Partner shall execute,
acknowledge, verify, deliver, file and record, for and in the name of the
Partnership, any and all documents and shall do and perform all acts required by
applicable law or that it deems necessary or desirable in order to give effect
to this article and the transactions contemplated herein, including, but not
limited to, the dissolution, termination, winding-up and distribution
contemplated by Section 4 of this article.
6. THIS ARTICLE CONTROLLING. The provisions of this article shall prevail
and control over all other provisions of this Agreement.
Except as herein expressly amended, all other terms and provisions of the
Certificate and this Agreement shall remain in full force and effect.
J-6
<PAGE> 430
APPENDIX K
THIS CONSENT IS BEING SOLICITED BY PERFORMANCE DEVELOPMENT, INC., IN ITS
CAPACITY AS GENERAL PARTNER, FOR AND ON BEHALF OF THE BOARD OF DIRECTORS OF
PERFORMANCE ASSET MANAGEMENT COMPANY, A DELAWARE CORPORATION ("COMPANY").
PERFORMANCE DEVELOPMENT, INC.
LETTER OF TRANSMITTAL
AND CONSENT STATEMENT
FOR
LIMITED PARTNERS OF
PERFORMANCE ASSET MANAGEMENT FUND IV, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
THE DATE OF THIS CONSENT STATEMENT IS .
Capitalized terms used but not defined herein have the meanings given to
them in the Prospectus dated October 31, 1997, and which is part of the
Registration Statement on Form S-4 filed by the Company with the Securities and
Exchange Commission, as supplemented or amended ("Prospectus"). General
instructions are included in Part VI.
This Letter of Transmittal and Consent Statement provides Limited Partners
with the opportunity to vote "for" or "against" the Merger Proposal.
This Letter of Transmittal and Consent Statement must be received by the
Exchange Agent on or before 5:00 p.m. Pacific Time, on , 1997, unless
the Merger Proposal is extended. To vote "for" the Merger Proposal or vote
"against" the Merger Proposal, please complete this Letter of Transmittal and
Consent Statement in accordance with the instructions in Items IV, V and VI, and
send or deliver the completed Letter of Transmittal and Consent Statement to the
Exchange Agent.
Adoption of the Merger Proposal requires consent by Limited Partners
holding 75% of the Units in the Partnership. Assuming consummation of the Merger
Proposal, at such time as the Partnership is wound up and dissolved, all of the
partners of the Partnership, whether or not they consent to the Merger Proposal,
will receive the same number of shares of the Company's common stock they would
have received had they consented to the Merger Proposal, except that Limited
Partners exercising their dissenters' rights may receive an unsecured
subordinated debenture issued under an indenture. See Part V below.
EXCHANGE AGENT: U.S. STOCK TRANSFER CORPORATION
By Mail or By Hand:
U.S. Stock Transfer Corporation
1745 Gardena Avenue, Suite 200
Glendale, California 91204
Attn: PAMCO Roll-up
Delivery of this Letter of Transmittal and Consent Statement is at the risk of
the Limited Partners. If sent by U.S. Mail, it is recommended that Limited
Partners use certified mail, return receipt requested.
K-1
<PAGE> 431
PART I
NAME AND ADDRESS OF LIMITED PARTNER
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
PART II
DESCRIPTION OF UNITS
Specified below with respect to your Units are (i) the number of Units held
of record, (ii) the Exchange Value attributable to your Units and (iii) the
number of Company Shares which will be distributed by the Partnership to you in
exchange for your Units.
<TABLE>
<CAPTION>
UNITS EXCHANGE VALUE COMMON SHARES
- ------------------ ------------------ ------------------
<S> <C> <C>
- ------------------ ------------------ ------------------
</TABLE>
PART III
REPRESENTATIONS, WARRANTIES, COVENANTS AND POWER OF ATTORNEY
A Limited Partner checking the "for" box and signing Part IV below
("Consenting Limited Partner") hereby accepts the Merger Proposal on the terms
and subject to the conditions set forth in the Prospectus, receipt of a copy of
which is hereby acknowledged, thereby consenting to the Merger Proposal.
A Limited Partner checking the "against" box and signing Part IV below
("Non-Consenting Limited Partner") and which does not desire to exercise his or
her dissenters' rights pursuant to Part V below hereby (i) acknowledges receipt
of the Prospectus and, (ii) assuming adoption of the Merger Proposal, will
accept from the Partnership his or her allocable portion of the Company's shares
of common stock distributed by the Partnership on its winding up and
dissolution.
The undersigned Limited Partner represents and warrants to the Company
that, as of the Closing Date, (i) he or she has not disposed of or agreed to
dispose of his or her Units, other than pursuant to the Merger Proposal; (ii) he
or she has full legal right, power and authority to convey his or her Units
pursuant to the Merger Proposal; (iii) he or she has received and reviewed a
copy of the Prospectus; and (iv) he or she is qualified to make decisions with
respect to investments presenting an investment decision similar to that
involved in the Merger Proposal. All representations, warranties and covenants
contained herein shall survive the Closing Date and all other transactions
contemplated by this Letter of Transmittal and the Prospectus.
In connection with the solicitation of written consents of Limited Partners
in the Partnership, each Consenting Limited Partner below hereby (i) represents
and warrants to the General Partner that he or she has full legal right, power
and authority to execute a written consent with respect to the Merger Proposal;
(ii) consents to the adoption of the Merger Proposal, as described in the
Prospectus; and (iii) consents to the amendment of the Partnership Agreement to
facilitate the closing and consummation of the Merger.
The undersigned Limited Partner hereby irrevocably appoints the General
Partner or any designee of the General Partner, with full power of substitution,
as his or her true and lawful attorney-in-fact, in his or her name, place and
stead, to execute on his or her behalf any additional documents necessary to
close and consummate the Merger and the withdrawal and transfer of the assets
underlying his or her Units. This power of attorney shall become effective upon
the closing and consummation of the Merger, shall be deemed coupled with an
interest, shall be irrevocable, is granted in consideration of the Company
Shares which he or she shall receive on the winding up and dissolution of the
Partnership, shall survive his or her death, incapacity, dissolution or
termination of the existence and shall obligate his or her heirs, legal
representatives, successors or assigns.
K-2
<PAGE> 432
The following information must be completed in order to entitle the
Soliciting Agent to receive compensation in connection with the Merger Proposal.
- ------------------------------------------------------
Name of Account Executive
(Please Print)
PART IV
ALL LIMITED PARTNERS
(EXCEPT DISSENTING PARTNERS. SEE PART V)
LIMITED PARTNERS ELECTING TO EXERCISE DISSENTERS' RIGHTS
SHOULD INSTEAD COMPLETE PART V.
Consent to the Merger Proposal being submitted by the General Partner and
consent to approve and adopt the Amendment to the Partnership Agreement:
[ ] For [ ] Against
SIGNATURE BOX
(NOT FOR DISSENTING LIMITED PARTNERS. SEE PART V)
Please sign exactly as your name is printed in Part I above, unless printed
incorrectly. When signing as a general partner, corporate officer,
attorney-in-fact, executor, administrator, trustee or guardian, please give full
title and send proper evidence of authority with this consent. For joint owners,
each joint owner must sign.
- ------------------------------------------------------
Full Name of Limited Partner
(Please Print)
- ------------------------------------------------------
Full Name of Co-owner, if any
(Please Print)
- ------------------------------------------------------
Signature of Limited Partner
- ------------------------------------------------------
Signature of Limited Partner
- ------------------------------------------------------
Signature of Co-owner, if any
Business Telephone: ( )
- ------------------------
Home Telephone: ( )
- ---------------------------
Dated
- ---------------------------------------, 1997
IF THE LIMITED PARTNER FAILS TO INDICATE WHETHER CONSENT TO THE MERGER PROPOSAL
IS GIVEN OR WITHHELD, CONSENT WILL BE CONCLUSIVELY PRESUMED TO BE GIVEN.
K-3
<PAGE> 433
PART V
DISSENTING LIMITED PARTNERS
COMPLETE ONLY IF YOU WISH TO EXERCISE YOUR DISSENTERS' RIGHTS.
The Dissenting Limited Partner signing in this Part V withholds his or her
consent to the Merger Proposal and to adoption of the Amendment to the
Partnership Agreement. By signing this Part V, a Dissenting Limited Partner
hereby exercises his or her dissenter's rights and will be deemed to have made
the representations, warranties and covenants (other than the consent to the
adoption of the Merger Proposal) set forth in Part III above, and he or she will
receive, pursuant to those dissenter's rights, an unsecured subordinated
debenture issued under an indenture in an amount equal to the Exchange Value of
such Dissenting Limited Partner's Units.
SIGNATURE BOX
(ONLY FOR DISSENTING LIMITED PARTNERS.)
Please sign exactly as your name is printed in Part I above, unless printed
incorrectly. When signing as a general partner, corporate officer,
attorney-in-fact, executor, administrator, trustee or guardian, please give full
title and send proper evidence of authority with this consent. For joint owners,
each joint owner must sign.
- ------------------------------------------------------
Full Name of Limited Partner
(Please Print)
- ------------------------------------------------------
Full Name of Co-owner, if any
(Please Print)
- ------------------------------------------------------
Signature of Limited Partner
- ------------------------------------------------------
Signature of Limited Partner
- ------------------------------------------------------
Signature of Co-owner, if any
Business Telephone: ( )
- ------------------------
Home Telephone: ( )
- ---------------------------
Dated
- ---------------------------------------, 1997
PART VI
INSTRUCTIONS
1. PREVIOUSLY TRANSFERRED INTERESTS. If a Limited Partner has
transferred, whether by sale, gift, death or otherwise, the beneficial ownership
of any Units of which he or she has been named a holder of record in this Letter
of Transmittal and Consent Statement without previously notifying the General
Partner or complying with the procedures set forth in the Partnership Agreement
for transferring his or her Units, he or she should notify the General Partner
of that fact and identify the Units transferred, the date of transfer and the
name, address and tax identification number of the assignee. The General Partner
will then send such Limited Partner and the assignee revised Letters of
Transmittal and Consent Statement and request from such Limited Partner or
assignee such other documents as the General Partner may require in order to
facilitate the closing and consummation of the Merger.
K-4
<PAGE> 434
2. PARTICIPATION IN EXCHANGE. To be entitled to receive Company Shares on
the winding up and dissolution of the Partnership, even if consent to the Merger
Proposal is withheld, a Limited Partner must deliver one copy of this Letter of
Transmittal and Consent Statement, completed, dated and signed in the Signature
Box in Part IV. Delivery of this Letter of Transmittal and Consent Statement is
at the risk of the Limited Partner. A consent will be effective only when this
Letter of Transmittal and Consent Statement is actually received by the Exchange
Agent. The Letter of Transmittal and Consent Statement must be received by the
Exchange Agent on or before 5:00 p.m. Pacific Time, on unless the
Merger Proposal is extended, in which event the Letter of Transmittal and
Consent Statement must be received by the latest time and date on which the
Merger Proposal, as so extended, will expire.
3. SIGNATURES. This Letter of Transmittal and Consent Statement must be
signed by the Limited Partner whose name appears in Part I of this Letter of
Transmittal and Consent Statement. If the Units are held in the names of two or
more persons, all such persons must sign this Letter of Transmittal and Consent
Statement. With respect to Units held by entities such as trusts, joint
ventures, limited partnerships or general partnerships, the Exchange Agent may
require that this Letter of Transmittal and Consent Statement be accompanied by
evidence acceptable to the Exchange Agent that the entity has satisfied all
requirements of its governing instruments, such as applicable partnership or
joint venture agreements, and that the person signing this Letter of Transmittal
and Consent Statement is authorized to sign for the Limited Partner under the
laws of the jurisdiction in which the entity was organized.
TO PARTICIPATE IN THE PROPOSED MERGER, A LIMITED PARTNER MUST SIGN IN THE
SIGNATURE BLOCK IN PART IV (OR PART V FOR DISSENTERS) EVEN IF HE OR SHE OBJECTS
TO THE MERGER PROPOSAL AND ELECTS TO WITHHOLD HIS CONSENT TO THE MERGER
PROPOSAL, A LIMITED PARTNER WILL NOT RECEIVE COMPANY SHARES UNTIL A SIGNED
LETTER OF TRANSMITTAL AND CONSENT STATEMENT IS RETURNED.
4. CONDITIONAL TENDERS. No alternative, conditional or contingent
consents will be accepted.
5. WITHDRAWAL OR REVOCATION OF CONSENTS. A Consent Statement may be
withdrawn or revoked by a writing delivered to the Exchange Agent prior to the
date that the votes of the Limited Partners are counted stating that such
Consent Statement is revoked.
6. VALIDITY OF CONSENTS. All questions on the validity, form, eligibility
(including time of receipt) and acceptance of Units will be determined by the
Exchange Agent, in its sole and absolute discretion, and its determination will
be final and binding. The Exchange Agent reserves the right to waive any
irregularities or conditions on the manner of consent. Any irregularities in
connection with consents must be cured within such time as the Exchange Agent,
in its sole and absolute discretion, shall determine unless waived by it.
Consents will be deemed not to have been made until any irregularities have been
cured or waived. Any Letter of Transmittal and Consent Statement which is not
properly completed and executed, and as to which irregularities are not cured or
waived, will be returned by the Exchange Agent to the Limited Partner as soon as
practicable. The Exchange Agent is under no duty to give notification of defects
in consents and will not incur any liability for failure to give notification.
The Exchange Agent will not accept consents of less than all of a Limited
Partner's Units.
7. CONSENTS TO PROPOSAL. Only Persons who are holders of record of Units
on the Determination Date may vote on (i) the Merger Proposal and (ii) to
approve and adopt the proposed amendment to the Partnership Agreement.
8. DISSENTERS' RIGHTS. Non-Consenting Limited Partners have limited
dissenters' rights in accordance with the requirements for rollup transactions.
By signing Part V, Dissenting Limited Partners will be deemed to exercise their
dissenters' rights and will receive an unsecured subordinated debenture issued
under an indenture. Each Dissenting Limited Partner will also be deemed to have
sold his or her Units to the Company at the Exchange Value, payment of which
will be made pursuant to the provisions of the indenture.
Specified below is the proposed amendment ("Amendment") to the Partnership
Agreement. This Amendment shall be effective upon the acceptance of written
consents from Limited Partners holding not less than 75% of the Units approving
and adopting the Merger Proposal and the Amendment. If the Amendment
K-5
<PAGE> 435
becomes effective, it will become a separate article of the Partnership
Agreement and shall be placed immediately after the last article specified in
the Partnership Agreement.
PROPOSED AMENDMENT
Notwithstanding any provisions of this Agreement to the contrary, it is
hereby agreed as follows:
1. DEFINITIONS. Except as defined in this Agreement or this article, each
capitalized term used herein shall, for the purposes of this article, have the
meaning ascribed to it in the Prospectus of Performance Asset Management
Company, a Delaware corporation ("Company"), dated October 31, 1997, which is
part of a Registration Statement on Form S-4 filed by the Company with the
Securities and Exchange Commission on November 3, 1997, ("Prospectus").
2. ELIMINATION OF RESTRICTIONS. No provision of this Agreement shall
prohibit, limit or prevent (i) the transfer and conveyance of all the assets and
liabilities of the Partnership to the Company in exchange for certain of the
Company's shares of $.001 par value common stock ("Partnership Merger Stock") in
accordance with the terms of the Prospectus or otherwise, or (ii) the
distribution of the Partnership Merger Stock to the General Partner and the
Limited Partners, in exchange for their interests in the Partnership, upon the
winding up and dissolution of the Partnership. In addition, no consent of the
Partnership or any Partner, opinion of counsel or other procedure shall be
required in order to enable any Partner, the Partnership or the Company to
effect any such transfer and distribution.
3. EXCHANGE OF PARTNERSHIP ASSETS AND LIABILITIES FOR SUBJECT SHARES. On
the Closing Date, the Partnership shall transfer and convey all Partnership's
assets and liabilities to the Company in exchange for the Partnership Merger
Stock, pursuant to and in accordance with the terms of the Prospectus.
4. ELECTION TO DISSOLVE. Immediately after consummation of the issuance
of the Partnership Merger Stock, the Partnership shall be wound up and
dissolved. Upon the dissolution of the Partnership, the business and affairs of
the Partnership shall be terminated and wound up and, as soon as practicable
thereafter, any and all Partnership Merger Stock held by the Partnership shall
be distributed in kind to the Partners (or their assignees) with each Partner
(or his or her assignee) to receive a whole number of shares of Partnership
Merger Stock equal to the value of his or her interest in the Partnership
determined by the Exchange Value. Each Partner shall be paid cash for any
fractional shares of Partnership Merger Stock.
5. AUTHORITY OF GENERAL PARTNER. The General Partner shall execute,
acknowledge, verify, deliver, file and record, for and in the name of the
Partnership, any and all documents and shall do and perform all acts required by
applicable law or that it deems necessary or desirable in order to give effect
to this article and the transactions contemplated herein, including, but not
limited to, the dissolution, termination, winding-up and distribution
contemplated by Section 4 of this article.
6. THIS ARTICLE CONTROLLING. The provisions of this article shall prevail
and control over all other provisions of this Agreement.
Except as herein expressly amended, all other terms and provisions of the
Certificate and this Agreement shall remain in full force and effect.
K-6
<PAGE> 436
APPENDIX L
THIS CONSENT IS BEING SOLICITED BY PERFORMANCE DEVELOPMENT, INC., IN ITS
CAPACITY AS GENERAL PARTNER, FOR AND ON BEHALF OF THE BOARD OF DIRECTORS OF
PERFORMANCE ASSET MANAGEMENT COMPANY, A DELAWARE CORPORATION ("COMPANY").
PERFORMANCE DEVELOPMENT, INC.
LETTER OF TRANSMITTAL
AND CONSENT STATEMENT
FOR
LIMITED PARTNERS OF
PERFORMANCE ASSET MANAGEMENT FUND V, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
THE DATE OF THIS CONSENT STATEMENT IS .
Capitalized terms used but not defined herein have the meanings given to
them in the Prospectus dated October 31, 1997, and which is part of the
Registration Statement on Form S-4 filed by the Company with the Securities and
Exchange Commission, as supplemented or amended ("Prospectus"). General
instructions are included in Part VI.
This Letter of Transmittal and Consent Statement provides Limited Partners
with the opportunity to vote "for" or "against" the Merger Proposal.
This Letter of Transmittal and Consent Statement must be received by the
Exchange Agent on or before 5:00 p.m. Pacific Time, on , 1997, unless
the Merger Proposal is extended. To vote "for" the Merger Proposal or vote
"against" the Merger Proposal, please complete this Letter of Transmittal and
Consent Statement in accordance with the instructions in Items IV, V and VI, and
send or deliver the completed Letter of Transmittal and Consent Statement to the
Exchange Agent.
Adoption of the Merger Proposal requires consent by Limited Partners
holding 75% of the Units in the Partnership. Assuming consummation of the Merger
Proposal, at such time as the Partnership is wound up and dissolved, all of the
partners of the Partnership, whether or not they consent to the Merger Proposal,
will receive the same number of shares of the Company's common stock they would
have received had they consented to the Merger Proposal, except that Limited
Partners exercising their dissenters' rights may receive an unsecured
subordinated debenture issued under an indenture. See Part V below.
EXCHANGE AGENT: U.S. STOCK TRANSFER CORPORATION
By Mail or By Hand:
U.S. Stock Transfer Corporation
1745 Gardena Avenue, Suite 200
Glendale, California 91204
Attn: PAMCO Roll-up
Delivery of this Letter of Transmittal and Consent Statement is at the risk of
the Limited Partners. If sent by U.S. Mail, it is recommended that Limited
Partners use certified mail, return receipt requested.
L-1
<PAGE> 437
PART I
NAME AND ADDRESS OF LIMITED PARTNER
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
PART II
DESCRIPTION OF UNITS
Specified below with respect to your Units are (i) the number of Units held
of record, (ii) the Exchange Value attributable to your Units and (iii) the
number of Company Shares which will be distributed by the Partnership to you in
exchange for your Units.
<TABLE>
<CAPTION>
UNITS EXCHANGE VALUE COMMON SHARES
- ------------------ ------------------ ------------------
<S> <C> <C>
- ------------------ ------------------ ------------------
</TABLE>
PART III
REPRESENTATIONS, WARRANTIES, COVENANTS AND POWER OF ATTORNEY
A Limited Partner checking the "for" box and signing Part IV below
("Consenting Limited Partner") hereby accepts the Merger Proposal on the terms
and subject to the conditions set forth in the Prospectus, receipt of a copy of
which is hereby acknowledged, thereby consenting to the Merger Proposal.
A Limited Partner checking the "against" box and signing Part IV below
("Non-Consenting Limited Partner") and which does not desire to exercise his or
her dissenters' rights pursuant to Part V below hereby (i) acknowledges receipt
of the Prospectus and, (ii) assuming adoption of the Merger Proposal, will
accept from the Partnership his or her allocable portion of the Company's shares
of common stock distributed by the Partnership on its winding up and
dissolution.
The undersigned Limited Partner represents and warrants to the Company
that, as of the Closing Date, (i) he or she has not disposed of or agreed to
dispose of his or her Units, other than pursuant to the Merger Proposal; (ii) he
or she has full legal right, power and authority to convey his or her Units
pursuant to the Merger Proposal; (iii) he or she has received and reviewed a
copy of the Prospectus; and (iv) he or she is qualified to make decisions with
respect to investments presenting an investment decision similar to that
involved in the Merger Proposal. All representations, warranties and covenants
contained herein shall survive the Closing Date and all other transactions
contemplated by this Letter of Transmittal and the Prospectus.
In connection with the solicitation of written consents of Limited Partners
in the Partnership, each Consenting Limited Partner below hereby (i) represents
and warrants to the General Partner that he or she has full legal right, power
and authority to execute a written consent with respect to the Merger Proposal;
(ii) consents to the adoption of the Merger Proposal, as described in the
Prospectus; and (iii) consents to the amendment of the Partnership Agreement to
facilitate the closing and consummation of the Merger.
The undersigned Limited Partner hereby irrevocably appoints the General
Partner or any designee of the General Partner, with full power of substitution,
as his or her true and lawful attorney-in-fact, in his or her name, place and
stead, to execute on his or her behalf any additional documents necessary to
close and consummate the Merger and the withdrawal and transfer of the assets
underlying his or her Units. This power of attorney shall become effective upon
the closing and consummation of the Merger, shall be deemed coupled with an
interest, shall be irrevocable, is granted in consideration of the Company
Shares which he or she shall receive on the winding up and dissolution of the
Partnership, shall survive his or her death, incapacity, dissolution or
termination of the existence and shall obligate his or her heirs, legal
representatives, successors or assigns.
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The following information must be completed in order to entitle the
Soliciting Agent to receive compensation in connection with the Merger Proposal.
- ------------------------------------------------------
Name of Account Executive
(Please Print)
PART IV
ALL LIMITED PARTNERS
(EXCEPT DISSENTING PARTNERS. SEE PART V)
LIMITED PARTNERS ELECTING TO EXERCISE DISSENTERS' RIGHTS
SHOULD INSTEAD COMPLETE PART V.
Consent to the Merger Proposal being submitted by the General Partner and
consent to approve and adopt the Amendment to the Partnership Agreement:
[ ] For [ ] Against
SIGNATURE BOX
(NOT FOR DISSENTING LIMITED PARTNERS. SEE PART V)
Please sign exactly as your name is printed in Part I above, unless printed
incorrectly. When signing as a general partner, corporate officer,
attorney-in-fact, executor, administrator, trustee or guardian, please give full
title and send proper evidence of authority with this consent. For joint owners,
each joint owner must sign.
- ------------------------------------------------------
Full Name of Limited Partner
(Please Print)
- ------------------------------------------------------
Full Name of Co-owner, if any
(Please Print)
- ------------------------------------------------------
Signature of Limited Partner
- ------------------------------------------------------
Signature of Limited Partner
- ------------------------------------------------------
Signature of Co-owner, if any
Business Telephone: ( )
- ------------------------
Home Telephone: ( )
- ---------------------------
Dated
- ---------------------------------------, 1997
IF THE LIMITED PARTNER FAILS TO INDICATE WHETHER CONSENT TO THE MERGER PROPOSAL
IS GIVEN OR WITHHELD, CONSENT WILL BE CONCLUSIVELY PRESUMED TO BE GIVEN.
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PART V
DISSENTING LIMITED PARTNERS
COMPLETE ONLY IF YOU WISH TO EXERCISE YOUR DISSENTERS' RIGHTS.
The Dissenting Limited Partner signing in this Part V withholds his or her
consent to the Merger Proposal and to adoption of the Amendment to the
Partnership Agreement. By signing this Part V, a Dissenting Limited Partner
hereby exercises his or her dissenter's rights and will be deemed to have made
the representations, warranties and covenants (other than the consent to the
adoption of the Merger Proposal) set forth in Part III above, and he or she will
receive, pursuant to those dissenter's rights, an unsecured subordinated
debenture issued under an indenture in an amount equal to the Exchange Value of
such Dissenting Limited Partner's Units.
SIGNATURE BOX
(ONLY FOR DISSENTING LIMITED PARTNERS.)
Please sign exactly as your name is printed in Part I above, unless printed
incorrectly. When signing as a general partner, corporate officer,
attorney-in-fact, executor, administrator, trustee or guardian, please give full
title and send proper evidence of authority with this consent. For joint owners,
each joint owner must sign.
- ------------------------------------------------------
Full Name of Limited Partner
(Please Print)
- ------------------------------------------------------
Full Name of Co-owner, if any
(Please Print)
- ------------------------------------------------------
Signature of Limited Partner
- ------------------------------------------------------
Signature of Limited Partner
- ------------------------------------------------------
Signature of Co-owner, if any
Business Telephone: ( )
- ------------------------
Home Telephone: ( )
- ---------------------------
Dated
- ---------------------------------------, 1997
PART VI
INSTRUCTIONS
1. PREVIOUSLY TRANSFERRED INTERESTS. If a Limited Partner has
transferred, whether by sale, gift, death or otherwise, the beneficial ownership
of any Units of which he or she has been named a holder of record in this Letter
of Transmittal and Consent Statement without previously notifying the General
Partner or complying with the procedures set forth in the Partnership Agreement
for transferring his or her Units, he or she should notify the General Partner
of that fact and identify the Units transferred, the date of transfer and the
name, address and tax identification number of the assignee. The General Partner
will then send such Limited Partner and the assignee revised Letters of
Transmittal and Consent Statement and request from such Limited Partner or
assignee such other documents as the General Partner may require in order to
facilitate the closing and consummation of the Merger.
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2. PARTICIPATION IN EXCHANGE. To be entitled to receive Company Shares on
the winding up and dissolution of the Partnership, even if consent to the Merger
Proposal is withheld, a Limited Partner must deliver one copy of this Letter of
Transmittal and Consent Statement, completed, dated and signed in the Signature
Box in Part IV. Delivery of this Letter of Transmittal and Consent Statement is
at the risk of the Limited Partner. A consent will be effective only when this
Letter of Transmittal and Consent Statement is actually received by the Exchange
Agent. The Letter of Transmittal and Consent Statement must be received by the
Exchange Agent on or before 5:00 p.m. Pacific Time, on unless the
Merger Proposal is extended, in which event the Letter of Transmittal and
Consent Statement must be received by the latest time and date on which the
Merger Proposal, as so extended, will expire.
3. SIGNATURES. This Letter of Transmittal and Consent Statement must be
signed by the Limited Partner whose name appears in Part I of this Letter of
Transmittal and Consent Statement. If the Units are held in the names of two or
more persons, all such persons must sign this Letter of Transmittal and Consent
Statement. With respect to Units held by entities such as trusts, joint
ventures, limited partnerships or general partnerships, the Exchange Agent may
require that this Letter of Transmittal and Consent Statement be accompanied by
evidence acceptable to the Exchange Agent that the entity has satisfied all
requirements of its governing instruments, such as applicable partnership or
joint venture agreements, and that the person signing this Letter of Transmittal
and Consent Statement is authorized to sign for the Limited Partner under the
laws of the jurisdiction in which the entity was organized.
TO PARTICIPATE IN THE PROPOSED MERGER, A LIMITED PARTNER MUST SIGN IN THE
SIGNATURE BLOCK IN PART IV (OR PART V FOR DISSENTERS) EVEN IF HE OR SHE OBJECTS
TO THE MERGER PROPOSAL AND ELECTS TO WITHHOLD HIS CONSENT TO THE MERGER
PROPOSAL, A LIMITED PARTNER WILL NOT RECEIVE COMPANY SHARES UNTIL A SIGNED
LETTER OF TRANSMITTAL AND CONSENT STATEMENT IS RETURNED.
4. CONDITIONAL TENDERS. No alternative, conditional or contingent
consents will be accepted.
5. WITHDRAWAL OR REVOCATION OF CONSENTS. A Consent Statement may be
withdrawn or revoked by a writing delivered to the Exchange Agent prior to the
date that the votes of the Limited Partners are counted stating that such
Consent Statement is revoked.
6. VALIDITY OF CONSENTS. All questions on the validity, form, eligibility
(including time of receipt) and acceptance of Units will be determined by the
Exchange Agent, in its sole and absolute discretion, and its determination will
be final and binding. The Exchange Agent reserves the right to waive any
irregularities or conditions on the manner of consent. Any irregularities in
connection with consents must be cured within such time as the Exchange Agent,
in its sole and absolute discretion, shall determine unless waived by it.
Consents will be deemed not to have been made until any irregularities have been
cured or waived. Any Letter of Transmittal and Consent Statement which is not
properly completed and executed, and as to which irregularities are not cured or
waived, will be returned by the Exchange Agent to the Limited Partner as soon as
practicable. The Exchange Agent is under no duty to give notification of defects
in consents and will not incur any liability for failure to give notification.
The Exchange Agent will not accept consents of less than all of a Limited
Partner's Units.
7. CONSENTS TO PROPOSAL. Only Persons who are holders of record of Units
on the Determination Date may vote on (i) the Merger Proposal and (ii) to
approve and adopt the proposed amendment to the Partnership Agreement.
8. DISSENTERS' RIGHTS. Non-Consenting Limited Partners have limited
dissenters' rights in accordance with the requirements for rollup transactions.
By signing Part V, Dissenting Limited Partners will be deemed to exercise their
dissenters' rights and will receive an unsecured subordinated debenture issued
under an indenture. Each Dissenting Limited Partner will also be deemed to have
sold his or her Units to the Company at the Exchange Value, payment of which
will be made pursuant to the provisions of the indenture.
Specified below is the proposed amendment ("Amendment") to the Partnership
Agreement. This Amendment shall be effective upon the acceptance of written
consents from Limited Partners holding not less than 75% of the Units approving
and adopting the Merger Proposal and the Amendment. If the Amendment
L-5
<PAGE> 441
becomes effective, it will become a separate article of the Partnership
Agreement and shall be placed immediately after the last article specified in
the Partnership Agreement.
PROPOSED AMENDMENT
Notwithstanding any provisions of this Agreement to the contrary, it is
hereby agreed as follows:
1. DEFINITIONS. Except as defined in this Agreement or this article, each
capitalized term used herein shall, for the purposes of this article, have the
meaning ascribed to it in the Prospectus of Performance Asset Management
Company, a Delaware corporation ("Company"), dated October 31, 1997, which is
part of a Registration Statement on Form S-4 filed by the Company with the
Securities and Exchange Commission on November 3, 1997, ("Prospectus").
2. ELIMINATION OF RESTRICTIONS. No provision of this Agreement shall
prohibit, limit or prevent (i) the transfer and conveyance of all the assets and
liabilities of the Partnership to the Company in exchange for certain of the
Company's shares of $.001 par value common stock ("Partnership Merger Stock") in
accordance with the terms of the Prospectus or otherwise, or (ii) the
distribution of the Partnership Merger Stock to the General Partner and the
Limited Partners, in exchange for their interests in the Partnership, upon the
winding up and dissolution of the Partnership. In addition, no consent of the
Partnership or any Partner, opinion of counsel or other procedure shall be
required in order to enable any Partner, the Partnership or the Company to
effect any such transfer and distribution.
3. EXCHANGE OF PARTNERSHIP ASSETS AND LIABILITIES FOR SUBJECT SHARES. On
the Closing Date, the Partnership shall transfer and convey all Partnership's
assets and liabilities to the Company in exchange for the Partnership Merger
Stock, pursuant to and in accordance with the terms of the Prospectus.
4. ELECTION TO DISSOLVE. Immediately after consummation of the issuance
of the Partnership Merger Stock, the Partnership shall be wound up and
dissolved. Upon the dissolution of the Partnership, the business and affairs of
the Partnership shall be terminated and wound up and, as soon as practicable
thereafter, any and all Partnership Merger Stock held by the Partnership shall
be distributed in kind to the Partners (or their assignees) with each Partner
(or his or her assignee) to receive a whole number of shares of Partnership
Merger Stock equal to the value of his or her interest in the Partnership
determined by the Exchange Value. Each Partner shall be paid cash for any
fractional shares of Partnership Merger Stock.
5. AUTHORITY OF GENERAL PARTNER. The General Partner shall execute,
acknowledge, verify, deliver, file and record, for and in the name of the
Partnership, any and all documents and shall do and perform all acts required by
applicable law or that it deems necessary or desirable in order to give effect
to this article and the transactions contemplated herein, including, but not
limited to, the dissolution, termination, winding-up and distribution
contemplated by Section 4 of this article.
6. THIS ARTICLE CONTROLLING. The provisions of this article shall prevail
and control over all other provisions of this Agreement.
Except as herein expressly amended, all other terms and provisions of the
Certificate and this Agreement shall remain in full force and effect.
L-6
<PAGE> 442
APPENDIX M
================================================================================
PERFORMANCE ASSET MANAGEMENT COMPANY,
A DELAWARE CORPORATION
AND
---------------------------------------------------------------, TRUSTEE
INDENTURE
DATED AS OF OCTOBER 31, 1997
================================================================================
<PAGE> 443
TABLE OF CONTENTS
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ARTICLE 1
DEFINITIONS
Section 1.01. Certain Terms Defined.................................................. M-1
ARTICLE 2
SECURITIES
Section 2.01. Forms Generally........................................................ M-3
Section 2.02. Form of Trustee's Certificate of Authentication........................ M-4
Section 2.03. Amount Unlimited; Certain Terms of Securities.......................... M-4
Section 2.04. Authentication and Delivery of Securities.............................. M-4
Section 2.05. Execution of Securities................................................ M-5
Section 2.06. Certificate of Authentication.......................................... M-5
Section 2.07. Denomination and Date of Securities; Payments of Interest.............. M-5
Section 2.08. Registration, Transfer and Exchange.................................... M-6
Section 2.09. Mutilated, Defaced, Destroyed, Lost and Stolen Securities.............. M-6
Section 2.10. Cancellation of Securities; Destruction Thereof........................ M-7
Section 2.11. Temporary Securities................................................... M-7
ARTICLE 3
COVENANTS OF THE ISSUER AND THE TRUSTEE
Section 3.01. Payment of Principal and Interest...................................... M-7
Section 3.02. Offices for Payments................................................... M-7
Section 3.03. Appointment to Fill a Vacancy in Office of Trustee..................... M-7
Section 3.04. Paying Agents.......................................................... M-8
Section 3.05. Certificate of the Issuer.............................................. M-8
Section 3.06. Securityholders Lists.................................................. M-8
Section 3.07. Reports by the Issuer.................................................. M-8
Section 3.08. Reports by the Trustee................................................. M-8
ARTICLE 4
REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS ON EVENT OF DEFAULT
Section 4.01. Event of Default Defined; Acceleration of Maturity; Waiver of
Default................................................................ M-9
Section 4.02. Collection of Indebtedness by Trustee; Trustee May Prove Debt.......... M-10
Section 4.03. Application of Proceeds................................................ M-11
Section 4.04. Suits for Enforcement.................................................. M-12
Section 4.05. Restoration of Rights on Abandonment of Proceedings.................... M-12
Section 4.06. Limitations on Suits by Securityholders................................ M-12
Section 4.07. Unconditional Right of Securityholders to Institute Certain Suits...... M-13
Section 4.08. Powers and Remedies Cumulative; Delay or Omission Not Waiver of
Default................................................................ M-13
Section 4.09. Control by Securityholders............................................. M-13
Section 4.10. Waiver of Past Defaults................................................ M-13
Section 4.11. Trustee to Give Notice of Default, But May Withhold in Certain
Circumstances.......................................................... M-13
Section 4.12. Right of Court to Require Filing of Undertaking to Pay Costs........... M-14
</TABLE>
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ARTICLE 5
CONCERNING THE TRUSTEE
Section 5.01. Duties and Responsibilities of the Trustee; During Default; Prior to
Default................................................................ M-14
Section 5.02. Certain Rights of the Trustee.......................................... M-15
Section 5.03. Trustee Not Responsible for Recitals, Disposition of Securities or
Application of Proceeds Thereof........................................ M-15
Section 5.04. Trustee and Agents May Hold Securities; Collections.................... M-16
Section 5.05. Moneys Held by Trustee................................................. M-16
Section 5.06. Compensation and Indemnification of Trustee and Its Prior Claim........ M-16
Section 5.07. Right of Trustee to Rely on Officers' Certificate...................... M-16
Section 5.08. Resignation and Removal; Appointment of Successor Trustee.............. M-16
Section 5.09. Acceptance of Appointment by Successor Trustee......................... M-17
ARTICLE 6
CONCERNING THE SECURITYHOLDERS
Section 6.01. Evidence of Action Taken by Securityholders............................ M-18
Section 6.02. Proof of Execution of Instruments and of Holding of Securities; Record
Date................................................................... M-18
Section 6.03. Holders to Be Treated as Owners........................................ M-18
Section 6.04. Securities Owned by Issuer Deemed Not Outstanding...................... M-18
Section 6.05. Right of Revocation of Action Taken.................................... M-19
ARTICLE 7
SUPPLEMENTAL INDENTURES
Section 7.01. Supplemental Indentures Without Consent of Securityholders............. M-19
Section 7.02. Supplemental Indentures with Consent of Securityholders................ M-20
Section 7.03. Effect of Supplemental Indenture....................................... M-21
Section 7.04. Documents to Be Given to Trustee....................................... M-21
Section 7.05. Notation on Securities in Respect of Supplemental Indentures........... M-21
ARTICLE 8
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
Section 8.01. Issuer May Consolidate on Certain Terms................................ M-21
Section 8.02. Successor Entity Substituted........................................... M-22
Section 8.03. Opinion of Counsel to Trustee.......................................... M-22
ARTICLE 9
SATISFACTION AND DISCHARGE OF INDENTURE; UNCLAIMED MONEYS
Section 9.01. Defeasance Within One Year of Payment.................................. M-22
Section 9.02. Defeasance............................................................. M-23
Section 9.03. Covenant Defeasance.................................................... M-23
Section 9.04. Application of Trust Money............................................. M-24
Section 9.05. Repayment to Issuer.................................................... M-24
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ARTICLE 10
MISCELLANEOUS PROVISIONS
Section 10.01. Incorporators, Stockholders, Officers and Directors of Issuer and
Issuer Exempt from Individual Liability................................ M-24
Section 10.02. Provisions of Indenture for the Sole Benefit of Parties and
Securityholders........................................................ M-25
Section 10.03. Successors and Assigns of Issuer Bound by Indenture.................... M-25
Section 10.04. Notices and Demands on Issuer, Trustee and Securityholder.............. M-25
Section 10.05. Officers' Certificates and Opinions of Counsel; Statements to Be
Contained Therein...................................................... M-25
Section 10.06. Payments Due on Saturdays, Sundays and Holidays........................ M-26
Section 10.07. Conflict of Any Provision of Indenture with Trust Indenture Act of
1939................................................................... M-26
Section 10.08. California Law to Govern............................................... M-26
Section 10.09. Counterparts........................................................... M-26
Section 10.10. Effect of Headings..................................................... M-26
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THIS INDENTURE, dated as of October 31, 1997 between Performance Asset
Management Company, a Delaware corporation ("Issuer"), and
("Trustee"),
W I T N E S S E T H:
WHEREAS, the Issuer has duly authorized the issue from time to time of its
unsecured debentures, notes or other evidences of indebtedness to be issued in
one or more series ("Securities") up to such principal amount or amounts as may
from time to time be authorized in accordance with the terms of this Indenture
and to provide, among other things, for the authentication, delivery and
administration thereof, the Issuer has duly authorized the execution and
delivery of this Indenture; and
WHEREAS, all things necessary to make this Indenture a valid indenture and
agreement according to its terms have been done;
NOW, THEREFORE:
In consideration of the premises and the purchase of the Securities by the
holders thereof, the Issuer and the Trustee mutually covenant and agree for the
equal and proportionate benefit of the respective holders from time to time of
the Securities as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. Certain Terms Defined. (a) The following terms (except as
otherwise expressly provided or unless the context otherwise clearly requires)
for all purposes of this Indenture and of any indenture supplemental hereto
shall have the respective meanings specified in this section. All other terms
used in this Indenture that are defined in the Trust Indenture Act of 1939 or
the definitions of which in the Securities Act of 1933 are referred to in the
Trust Indenture Act of 1939, including terms defined therein by reference to the
Securities Act of 1933 (except as herein otherwise expressly provided or unless
the context otherwise clearly requires), shall have the meanings assigned to
such terms in said Trust Indenture Act and in said Securities Act as in force at
the date of this Indenture. All accounting terms used herein and not expressly
defined shall have the meanings assigned to such terms in accordance with
generally accepted accounting principles, and the term "generally accepted
accounting principles" means such accounting principles as are generally
accepted at the time of any computation. The words "herein," "hereof" and
"hereunder" and other words of similar import refer to this Indenture as a whole
and not to any particular article, section or other subdivision. The terms
defined in this article have the meanings assigned to them in this article and
include the plural as well as the singular.
"Board of Directors" means the Board of Directors of the Issuer or any
committee of such Board duly authorized to act hereunder.
"Business Day" means, with respect to any Security, a day that in New York
City or the city (or in any of the cities, if more than one) in which amounts
are payable, as specified in the form of such Security, is not a day on which
banking institutions are authorized by law or regulation to close.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Securities Exchange Act of 1934, or if at
any time after the execution and delivery of this Indenture such Commission is
not existing and performing the duties now assigned to it under the Trust
Indenture Act of 1939, then the body performing such duties on such date.
"Determination Date" means the date set by the Board of Directors to
evaluate each Dissenting Limited Partner's capital account.
"Dissenting Limited Partner" shall mean a holder of a beneficial interest
in a limited partnership that is subject to a roll-up transaction who casts a
vote against the roll-up transaction, except that for purposes of an exchange or
tender offer dissenting limited partner means any person who files a dissent
from the terms of the
M-1
<PAGE> 447
transaction with the party responsible for tabulating the votes or tenders, to
be received in connection with the transaction during the period in which the
offer is outstanding.
"Event of Default" means any event or condition specified as such in
Section 4.01 or in any Officers' Certificate or indenture supplemental hereto
establishing the terms of any series of Securities.
"Holder", "Holder of Securities", "Securityholder" or other similar terms
mean the registered holder of any Security.
"Indenture" means this instrument as originally executed and delivered or,
if amended or supplemented as herein provided, as so amended or supplemented or
both, and shall include the forms and terms of particular series of Securities
established as contemplated hereunder.
"Interest" means the interest rate provided by the Issuer's Unsecured
Subordinated Debentures due January 31, 2005, which interest shall be equal to
120% of the applicable federal rate as determined in accordance with Section
1274 of the Internal Revenue Code of 1986, as from time to time amended.
"Issuer" means (except as otherwise provided in Article 5) Performance
Asset Management Company, a Delaware corporation, and, subject to Article 8, its
successors and assigns.
"Merger" means the proposed merger of PCM and the Partnerships with and
into the Company pursuant to that Agreement and Plan of Merger dated as of
, 1997 between PCM, the Partnerships and the Issuer.
"Officers' Certificate" means a certificate signed by (i) the chairman of
the Board of Directors or the president or any vice president and (ii) the
treasurer or the secretary or any assistant secretary of the Issuer and
delivered to the Trustee. Each such certificate shall comply with Section 314 of
the Trust Indenture Act of 1939 and include the statements provided for in
Section 10.05 of this Indenture.
"Opinion of Counsel" means an opinion in writing signed by legal counsel
who may be an employee of or counsel to the Issuer. Each such opinion shall
comply with Section 314 of the Trust Indenture Act of 1939 and include the
statements provided for in Section 10.05 of this Indenture, if and to the extent
required hereby.
"Original Issue Date" of any Security (or portion thereof) means the
earlier of (a) the date of such Security or (b) the date of any Security (or
portion thereof) for which such Security was issued (directly or indirectly) on
registration of transfer, exchange or substitution.
"Outstanding," when used with reference to Securities, shall, subject to
the provisions of Section 6.04 of this Indenture, mean, as of any particular
time, all Securities authenticated and delivered by the Trustee under this
Indenture, except
(a) Securities theretofore canceled by the Trustee or delivered to the
Trustee for cancellation;
(b) Securities, or portions thereof, for the payment or redemption of
which moneys in the necessary amount shall have been deposited in trust
with the Trustee or with any paying agent (other than the Issuer) or shall
have been set aside, segregated and held in trust by the Issuer for the
holders of such Securities (if the Issuer shall act as its own paying
agent), provided that if such Securities, or portions thereof, are to be
redeemed prior to the maturity thereof, notice of such redemption shall
have been given as herein provided, or provision satisfactory to the
Trustee shall have been made for giving such notice; and
(c) Securities in substitution for which other Securities shall have
been authenticated and delivered, or which shall have been paid, pursuant
to the terms of Section 2.09 of this Indenture (except with respect to any
such Security as to which proof satisfactory to the Trustee is presented
that such Security is held by a person in whose hands such Security is a
legal, valid and binding obligation of the Issuer).
"Partnerships" means (i) Performance Asset Management Fund, Ltd., A
California Limited Partnership; (ii) Performance Asset Management Fund II, Ltd.,
A California Limited Partnership; (iii) Performance Asset Management Fund III,
Ltd., A California Limited Partnership; (iv) Performance Asset Management
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<PAGE> 448
Fund IV, Ltd., A California Limited Partnership; and (v) Performance Asset
Management Fund V, Ltd., A California Limited Partnership.
"PCM" means Performance Capital Management, Inc., a California corporation
and an affiliate of the Issuer.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Security" or "Securities" means the Issuer's Unsecured Subordinated
Debentures due January 31, 2005, or, as the case may be, Unsecured Subordinated
Debentures that have been authenticated and delivered under this Indenture.
"Security Register" has the meaning specified in Section 2.08 of this
Indenture.
"Senior Debt" means the principal of, interest on and other amounts due on
indebtedness of the Issuer, whether outstanding on the closing date of the
Merger or thereafter created, incurred, assumed or guaranteed by the Issuer;
unless, in the instrument creating or evidencing or pursuant to which
indebtedness is outstanding, it is expressly provided that such indebtedness is
not senior in right of payment to the Unsecured Subordinated Debentures. Senior
Debt includes, with respect to the obligations described above, interest
accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Issuer, whether or not post-filing interest is
allowed in such proceedings at the rate specified in the instrument governing
the relevant obligation. Senior Debt also includes disbursements and advances
made by the Trustee in regard to the exercise of his duties under this
Indenture. Notwithstanding anything to the contrary in the foregoing, Senior
Debt shall not include: (a) indebtedness of or amount owed by the Issuer for
compensation to employees, or for goods, services or materials purchased in the
ordinary course of business; (b) indebtedness of the Issuer to a subsidiary or
affiliate of the Issuer or any officer, director or employee of the Issuer; (c)
any liability for federal, state, local or other taxes, owed or owing by the
Issuer; or (d) indebtedness evidenced by any other class of securities of the
Issuer.
"Trust Indenture Act of 1939" (except as otherwise provided in Sections
7.01 and 7.02 of this Indenture) means the Trust Indenture Act of 1939 as in
force at the date as of which this Indenture was originally executed.
"Trust Office" means the office of the Trustee at which the corporate trust
business of the Trustee shall, at any particular time, be principally
administered, which office is, at the date as of which this Indenture is dated,
located at .
"Trustee" means the Person identified as "Trustee" in the first paragraph
hereof and, subject to the provisions of Article 5 of this Indenture, shall also
include any successor trustee.
"Yield to Maturity" means the yield to maturity on a series of securities,
calculated at the time of issuance of such series, or, if applicable, at the
most recent redetermination of interest on such series, and calculated in
accordance with accepted financial practice.
ARTICLE 2
SECURITIES
SECTION 2.01. Forms Generally. The Securities shall be substantially in
such form (not inconsistent with this Indenture) as shall be established by or
pursuant to a resolution of the Board of Directors or in one or more indentures
supplemental hereto, in each case with such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by this
Indenture and may have imprinted or otherwise reproduced thereon such legend or
legends or endorsements, not inconsistent with the provisions of this Indenture,
as may be required to comply with any law or with any rules or regulations
pursuant thereto, or with any rules of any securities exchange or to conform to
general usage, all as may be determined by the officers executing such
Securities, as evidenced by their execution of the Securities.
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The definitive Securities shall be printed, lithographed or engraved on
steel engraved borders or may be produced in any other manner, all as determined
by the officers executing such Securities, as evidenced by their execution of
such Securities.
SECTION 2.02. Form of Trustee's Certificate of Authentication. The
Trustee's certificate of authentication on all Securities shall be in
substantially the following form:
This is one of the Debentures referred to in the above-mentioned Indenture.
--------------------------------------
as Trustee
By
--------------------------------------
Trustee
SECTION 2.03. Amount Unlimited; Certain Terms of Securities. The aggregate
principal amount of Securities which may be authenticated and delivered under
this Indenture is unlimited.
The Securities shall be issued in one series. Securities shall be Senior
Debt subordinated in right of payment to capital of the Issuer. Pursuant to a
resolution of the Board of Directors:
(1) the title of the Securities of the series shall be "Unsecured
Subordinated Debenture Due January 31, 2005";
(2) the price at which such Securities will be issued shall be the
total amount of the capital account, as of the Determination Date, of any
dissenting limited partner who perfects his dissenter's rights pursuant to
the terms of the Merger;
(3) the date on which the principal of the Securities is payable shall
be January 31, 2005, which date or dates may be fixed or extendible;
(4) the rate or rates at which the Securities shall bear interest
shall be a variable interest rate equal to the federal rate as determined
in accordance with Section 1274 of the Internal Revenue Code of 1986,
payable on January 1 and July 1 of each year and based on a 365-day year.
(5) the Securities shall be issued within 30 days of the closing date
of the Merger.
SECTION 2.04. Authentication and Delivery of Securities. At any time and
from time to time after the execution and delivery of this Indenture, the Issuer
may deliver Securities executed by the Issuer to the Trustee for authentication,
and the Trustee shall thereupon authenticate and deliver such Securities to or
upon the written order of the Issuer. In authenticating such Securities and
accepting the additional responsibilities under this Indenture in relation to
such Securities the Trustee shall be entitled to receive prior to the first
authentication of any Securities of such Series, and (subject to Section 5.01 of
this Indenture) shall be fully protected in relying upon:
(1) a certified copy of any resolution or resolutions of the Board of
Directors relating to such Securities, in each case certified by the
Secretary or an Assistant Secretary of the Issuer;
(2) an Officers' Certificate setting forth the form and terms of the
Securities as required pursuant to Section 2.01 and 2.03 of this Indenture,
respectively and prepared in accordance with Section 10.05 of this
Indenture; or
(3) an Opinion of Counsel, prepared in accordance with Section 10.05
of this Indenture, to the effect that
(a) the form or forms and terms of such Securities have been
established by or pursuant to a resolution of the Board of Directors in
conformity with the provisions of this Indenture;
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(b) such Securities, when authenticated and delivered by the
Trustee and issued by the Issuer in the manner and subject to any
conditions specified in such Opinion of Counsel, will constitute valid
and binding obligations of the Issuer; and
(c) covering such other matters as the Trustee may reasonably
request.
SECTION 2.05. Execution of Securities. The Securities shall be signed on
behalf of the Issuer by both (a) the chairman of the Board of Directors or any
vice chairman of the Board of Directors or the president or any vice president
of the General Partner of the Partnerships and (b) the treasurer or any
assistant treasurer or secretary or any assistant secretary. Such signatures may
be the manual or facsimile signatures of the present or any future such
officers. Typographical and other minor errors or defects in any such
reproduction of any such signature shall not affect the validity or
enforceability of any Security that has been duly authenticated and delivered by
the Trustee.
In case any officer of the Issuer who shall have signed any of the
Securities shall cease to be such officer before the Security so signed shall be
authenticated and delivered by the Trustee or disposed of by the Issuer, such
Security nevertheless may be authenticated and delivered or disposed of as
though the person who signed such Security had not ceased to be such officer of
the Issuer, and any Security may be signed on behalf of the Issuer by such
persons as, at the actual date of the execution of such Security, shall be the
proper officers of the Issuer, although at the date of the execution and
delivery of this Indenture any such person was not such an officer.
SECTION 2.06. Certificate of Authentication. Only such Securities as shall
bear thereon a certificate of authentication substantially in the form
hereinbefore recited, executed by the Trustee by the manual signature of one of
its authorized officers or signatories, shall be entitled to the benefits of
this Indenture or be valid or obligatory for any purpose. Such certificate by
the Trustee upon any Security executed by the Issuer shall be conclusive
evidence that the Security so authenticated has been duly authenticated and
delivered hereunder and that the holder is entitled to the benefits of this
Indenture.
SECTION 2.07. Denomination and Date of Securities; Payments of
Interest. The Securities shall be issuable as registered securities without
coupons and in denominations as shall be specified as contemplated by Section
2.03 of this Indenture. In the absence of any such specification with respect to
the Securities, the Securities shall be issuable in denominations of $10.00 and
any multiple thereof. The Securities shall be numbered, lettered, or otherwise
distinguished in such manner or in accordance with such plan as the officers of
the Issuer executing the same may determine with the approval of the Trustee as
evidenced by the execution and authentication thereof.
Each Security shall be dated the date of its authentication and shall bear
interest, if any, from the date and shall be payable on the dates, in each case,
which shall be specified as contemplated by Section 2.03 of this Indenture.
The person in whose name any Security is registered at the close of
business on any record date with respect to any interest payment date shall be
entitled to receive the interest, if any, payable on such interest payment date
notwithstanding any transfer or exchange of such Security subsequent to the
record date and prior to such interest payment date, except if and to the extent
the Issuer shall default in the payment of the interest due on such interest
payment date in which case such defaulted interest shall be paid to the persons
in whose names Outstanding Securities are registered at the close of business on
a subsequent record date (which shall be not less than five Business Days prior
to the date of payment of such defaulted interest) established by notice given
by mail by or on behalf of the Issuer to the holders of Securities not less than
15 days preceding such subsequent record date. The term "record date" as used
with respect to any interest payment date (except a date for payment of
defaulted interest) shall mean the date specified as such in the terms of the
Securities, or, if no such date is so specified, if such interest payment date
is the first day of a calendar month, the fifteenth day of the next preceding
calendar month or, if such interest payment date is the fifteenth day of a
calendar month, the first day of such calendar month, whether or not such record
date is a Business Day.
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SECTION 2.08. Registration, Transfer and Exchange. The Issuer will keep or
cause to be kept at each office or agency to be maintained for the purpose as
provided in Section 3.02 of this Indenture a register or registers ("Security
Register") in which, subject to such reasonable regulations as it may prescribe,
it will register, and will register the transfer of, Securities as in this
article provided. The Security Register shall be in written form in the English
language or in any other form capable of being converted into such form within a
reasonable time. At all reasonable times the Security Register shall be open for
inspection by the Trustee.
Upon due presentation for registration of transfer of any Security at any
such office or agency to be maintained for the purpose as provided in Section
3.02 of this Indenture, the Issuer shall execute and the Trustee shall
authenticate and deliver in the name of the transferee or transferees a new
Security or Securities in authorized denominations for a like aggregate
principal amount.
All Securities presented for registration of transfer, exchange, redemption
or payment shall (if so required by the Issuer or the Trustee) be duly endorsed
by, or be accompanied by a written instrument or instruments of transfer in form
satisfactory to the Issuer and the Trustee duly executed by, the holder or his
attorney duly authorized in writing.
The Issuer may require payment of an amount sufficient to pay any tax or
other governmental charge that may be imposed in connection with any exchange or
registration of transfer of Securities. No service charge shall be made for any
such transaction.
All Securities issued upon any transfer or exchange of Securities shall be
valid obligations of the Issuer, evidencing the same debt, and entitled to the
same benefits under this Indenture, as the Securities surrendered upon such
transfer or exchange.
SECTION 2.09. Mutilated, Defaced, Destroyed, Lost and Stolen Securities. In
case any temporary or definitive Security shall become mutilated, defaced or be
destroyed, lost or stolen, the Issuer in its discretion may execute, and upon
the written request of any officer of the Issuer, the Trustee shall authenticate
and deliver, a new Security, bearing a number not contemporaneously outstanding,
in exchange and substitution for the mutilated or defaced Security, or in lieu
of and substitution for the Security so destroyed, lost or stolen. In every case
the applicant for a substitute Security shall furnish to the Issuer and to the
Trustee and any agent of the Issuer or the Trustee such security or indemnity as
may be required by them to indemnify and defend and to save each of them
harmless and, in every case of destruction, loss or theft, evidence to their
satisfaction of the destruction, loss or theft of such Security and of the
ownership thereof.
Upon the issuance of any substitute Security, the Issuer may require the
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in relation thereto and any other expenses (including the fees
and expenses of the Trustee) connected therewith. In case any Security which has
matured or is about to mature shall become mutilated or defaced or be destroyed,
lost or stolen, the Issuer may instead of issuing a substitute Security, pay or
authorize the payment of the same (without surrender thereof except in the case
of a mutilated or defaced Security), if the applicant for such payment shall
furnish to the Issuer and to the Trustee and any agent of the Issuer or the
Trustee such security or indemnity as any of them may require to save each of
them harmless, and, in every case of destruction, loss or theft, the applicant
shall also furnish to the Issuer and the Trustee and any agent of the Issuer or
the Trustee evidence to their satisfaction of the destruction, loss or theft of
such Security and of the ownership thereof.
Every substitute Security issued pursuant to the provisions of this Section
by virtue of the fact that any such Security is destroyed, lost or stolen shall
constitute an additional contractual obligation of the Issuer, whether or not
the destroyed, lost or stolen Security shall be at any time enforceable by
anyone and shall be entitled to all the benefits of (but shall be subject to all
the limitations of rights set forth in) this Indenture equally and
proportionately with any and all other Securities duly authenticated and
delivered hereunder. All Securities shall be held and owned upon the express
condition that, to the extent permitted by law, the foregoing provisions are
exclusive with respect to the replacement or payment of mutilated, defaced or
destroyed, lost or stolen Securities and shall preclude any and all other rights
or remedies notwithstanding any law or statute existing or hereafter enacted to
the contrary with respect to the replacement or payment of negotiable
instruments or other securities without their surrender.
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SECTION 2.10. Cancellation of Securities; Destruction Thereof. All
Securities surrendered for payment, redemption, registration of transfer or
exchange, if surrendered to the Issuer or any agent of the Issuer or the
Trustee, shall be delivered to the Trustee for cancellation or, if surrendered
to the Trustee, shall be canceled by it; and no Securities shall be issued in
lieu thereof except as expressly permitted by any of the provisions of this
Indenture. The Trustee shall destroy canceled Securities held by it and deliver
a certificate of destruction to the Issuer. If the Issuer shall acquire any of
the Securities, such acquisition shall not operate as a redemption or
satisfaction of the indebtedness represented by such Securities unless and until
the same are delivered to the Trustee for cancellation.
SECTION 2.11. Temporary Securities. Pending the preparation of definitive
Securities, the Issuer may execute and the Trustee shall authenticate and
deliver temporary Securities (printed, lithographed, typewritten or otherwise
reproduced, in each case in form satisfactory to the Trustee). Temporary
Securities shall be issuable as registered Securities without coupons, of any
authorized denomination, and substantially in the form of the definitive
Securities but with such omissions, insertions and variations as may be
appropriate for temporary Securities, all as may be determined by the Issuer
with the concurrence of the Trustee. Temporary Securities may contain such
reference to any provisions of this Indenture as may be appropriate. Every
temporary Security shall be executed by the Issuer and be authenticated by the
Trustee upon the same conditions and in substantially the same manner, and with
like effect, as the definitive Securities. Without unreasonable delay the Issuer
shall execute and shall furnish definitive Securities and thereupon temporary
Securities may be surrendered in exchange therefor without charge at each office
or agency to be maintained by the Issuer for that purpose pursuant to Section
3.02 of this Indenture, and the Trustee shall authenticate and deliver in
exchange for such temporary Securities the same aggregate principal amount of
definitive Securities of authorized denominations. Until so exchanged, the
temporary Securities shall be entitled to the same benefits under this Indenture
as definitive Securities.
ARTICLE 3
COVENANTS OF THE ISSUER AND THE TRUSTEE
SECTION 3.01. Payment of Principal and Interest. The Issuer covenants and
agrees for the benefit of the Securities that it will duly and punctually pay or
cause to be paid the principal of, and interest on, each of the Securities at
the place or places, at the respective times and in the manner provided in such
Securities. Each installment of interest on the Securities may be paid by
mailing checks for such interest payable to or upon the written order of the
holders of Securities entitled thereto as they shall appear on the registry
books of the Issuer.
SECTION 3.02. Offices for Payments. So long as any of the Securities remain
outstanding, the Issuer will maintain in the United States, the following: an
office or agency (a) where the Securities may be presented for payment, (b)
where the Securities may be presented for registration of transfer and for
exchange as in this Indenture provided and (c) where notices and demands to or
upon the Issuer in respect of the Securities or of this Indenture may be served.
The Issuer will give to the Trustee written notice of the location of any such
office or agency and of any change of location thereof. Unless otherwise
specified in accordance with Section 2.03 of this Indenture, the Issuer hereby
initially designates the Trust Office, as the office to be maintained by it for
each such purpose. In case the Issuer shall fail to so designate or maintain any
such office or agency or shall fail to give such notice of the location or of
any change in the location thereof, presentations and demands may be made and
notices may be served at the Trust Office.
SECTION 3.03. Appointment to Fill a Vacancy in Office of Trustee. The
Issuer, whenever necessary to avoid or fill a vacancy in the office of Trustee,
will appoint, in the manner provided in Section 5.08 of this Indenture, a
Trustee, so that there shall at all times be a Trustee with respect to the
Securities hereunder.
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SECTION 3.04. Paying Agents. Whenever the Issuer shall appoint a paying
agent other than the Trustee with respect to the Securities, he will cause such
paying agent to execute and deliver to the Trustee an instrument in which such
agent shall agree with the Trustee, subject to the provisions of this section:
(a) that it will hold all amounts received by it as such agent for the
payment of the principal of or interest on the Securities of such series
(whether such amounts have been paid to it by the Issuer or by any other
obligor on the Securities of such series) in trust for the benefit of the
holders of the Securities or of the Trustee,
(b) that it will give the Trustee notice of any failure by the Issuer
(or by any other obligor on the Securities) to make any payment of the
principal of or interest on the Securities when the same shall be due and
payable, and
(c) that it will pay any such amounts so held in trust by it to the
Trustee upon the Trustee's written request at any time during the
continuance of the failure referred to in clause (b) above.
The Issuer will, on or prior to each due date of the principal of or
interest on the Securities, deposit with the paying agent an amount sufficient
to pay such principal or interest so becoming due, and (unless such paying agent
is the Trustee) the Issuer will promptly notify the Trustee of any failure to
take such action.
If the Issuer shall act as its own paying agent with respect to the
Securities, it will, on or before each due date of the principal of or interest
on the Securities, set aside, segregate and hold in trust for the benefit of the
holders of the Securities an amount sufficient to pay such principal or interest
so becoming due. The Issuer will promptly notify the Trustee of any failure to
take such action.
Anything in this section to the contrary notwithstanding, the Issuer may at
any time, for the purpose of obtaining a satisfaction and discharge with respect
to the Securities hereunder, or for any other reason, pay or cause to be paid to
the Trustee all amounts held in trust by the Issuer or any paying agent
hereunder, as required by this Section, such amounts to be held by the Trustee
upon the trusts herein contained.
Anything in this Section to the contrary notwithstanding, the agreement to
hold amounts in trust as provided in this Section is subject to the provisions
of Section 9.03 and 9.04 of this Indenture.
SECTION 3.05. Certificate of the Issuer. The Issuer will furnish to the
Trustee on or before April 30 in each year (beginning with the first April 30 to
occur after the initial issuance of Securities under this Indenture) a brief
certificate (which need not comply with Section 10.05 of this Indenture) from
the principal executive, financial or accounting officer of the Issuer as to his
or her knowledge of the Issuer's compliance with all conditions and covenants
under the Indenture (such compliance to be determined without regard to any
period of grace or requirement of notice provided under the Indenture) which
certificate shall comply with the Trust Indenture Act of 1939.
SECTION 3.06. Securityholders Lists. If and so long as the Trustee shall
not be the Security registrar for the Securities, the Issuer will furnish or
cause to be furnished to the Trustee a list in such form as the Trustee may
reasonably require of the names and addresses of the holders of the Securities
pursuant to Section 312 of the Trust Indenture Act of 1939, (a) semi-annually
not more than 15 days after each record date for the payment of interest on such
Securities, as hereinabove specified, as of such record date, and (b) at such
other times as the Trustee may request in writing, within thirty days after
receipt by the Issuer of any such request as of a date not more than 15 days
prior to the time such information is furnished.
SECTION 3.07. Reports by the Issuer. The Issuer covenants to file with the
Trustee, within 15 days after the Issuer is required to file the same with the
Commission, copies of the annual reports and of the information, documents, and
other reports which the Issuer may be required to file with the Commission
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934.
SECTION 3.08. Reports by the Trustee. Any Trustee's report required under
Section 313(a) of the Trust Indenture Act of 1939 shall be transmitted on or
before July 15 in each year following the date hereof, so long as any Securities
are outstanding hereunder, and shall be dated as of a date convenient to the
Trustee no more than 60 nor less than 45 days prior thereto. A copy of each such
report shall, at the time of such
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transmission to Holders, be filed by the Trustee with each stock exchange, if
any, upon which any Securities are listed, with the Commission and with the
Issuer. The Issuer will notify the Trustee if and when any Securities are listed
on any stock exchange.
ARTICLE 4
REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS ON EVENT OF DEFAULT
SECTION 4.01. Event of Default Defined; Acceleration of Maturity; Waiver of
Default. "Event of Default" with respect to Securities wherever used herein,
means each one of the following events which shall have occurred and be
continuing (whatever the reason for such Event of Default and whether it shall
be voluntary or involuntary or be effected by operation of law or pursuant to
any judgment, decree or order of any court or any order, rule or regulation of
any administrative or governmental agency):
(a) default in the payment of all or any part of the principal on any
of the Securities as and when the same shall become due and payable either
at maturity, or otherwise; or
(b) default in the payment of any installment of interest upon any of
the Securities as and when the same shall become due and payable, and
continuance of such default for a period of 30 days; or
(c) default in the performance, or breach, of any covenant or warranty
of the Issuer in respect of the Securities (other than a covenant or
warranty in respect of the Securities a default in whose performance or
whose breach is elsewhere in this Section specifically dealt with), and
continuance of such default or breach for a period of 60 days after there
has been given, by registered or certified mail, to the Issuer by the
Trustee or to the Issuer and the Trustee by the Holders of at least 25% in
principal amount of the Outstanding Securities affected thereby, a written
notice specifying such default or breach and requiring it to be remedied
and stating that such notice is a "Notice of Default" hereunder; or
(d) the Issuer shall commence a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
consent to the entry of an order for relief in an involuntary case under
any such law, or consent to the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee or sequestrator (or
similar official) of the Issuer or for any substantial part of its
property, or make any general assignment for the benefit of creditors; or
(e) a court having jurisdiction shall enter a decree or order for
relief in respect of the Issuer in an involuntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
appointing a receiver, liquidator, assignee, custodian, trustee or
sequestrator (or similar official) of the Issuer or for any substantial
part of its property or ordering the winding up or liquidation of its
affairs, and such decree or order shall remain unstayed and in effect for a
period of 60 consecutive days; or
(f) any other Event of Default provided in the resolution of the Board
of Directors under which the Securities are issued or in the form of
Security.
If an Event of Default described in clauses (a) or (b) above occurs and is
continuing with respect to the Securities, then, and in each and every such
case, unless the principal of the Securities shall have already become due and
payable, either the Trustee or the holders of not less than 25% in aggregate
principal amount of the Securities then Outstanding hereunder by notice in
writing to the Issuer (and to the Trustee if given by Securityholders), may
declare the entire principal of all Securities and the interest accrued thereon,
if any, to be due and payable immediately, and upon any such declaration the
same shall become immediately due and payable. If an Event of Default described
in clause (c) or (f) occurs and is continuing with respect to the Securities,
then and in each and every such case, unless the principal of all the Securities
shall have already become due and payable, either the Trustee or the Holders of
not less than 25% in aggregate principal amount of all Securities then
Outstanding hereunder, by notice in writing to the Issuer (and to the Trustee if
given by Securityholders), may declare the entire principal of all such
Securities then Outstanding and interest accrued thereon, if any, to be due and
payable immediately, and upon any such declaration the same shall become
immediately due and payable. If an Event of Default described in clause (d) or
(e) occurs and is continuing, then, and in each and every such case, unless the
principal amount of all the Securities shall have already
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become due and payable, the principal amount of all the Securities then
Outstanding and interest accrued thereon, if any, shall be and become due and
payable immediately, without notice or other action by any Holder or the
Trustee, to the full extent permitted by applicable law.
The foregoing provisions, however, are subject to the condition that if, at
any time after the principal of the Securities shall have been so declared due
and payable, and before any judgment or decree for the payment of the moneys due
shall have been obtained or entered as hereinafter provided, the Issuer shall
pay or shall deposit with the Trustee an amount sufficient to pay all matured
installments of interest upon all the Securities and the principal of any and
all Securities which shall have become due otherwise than by acceleration (with
interest upon such principal and, to the extent that payment of such interest is
enforceable under applicable law, on overdue installments of interest, at the
same rate as the rate of interest specified in the Securities to the date of
such payment or deposit) and such amount as shall be sufficient to cover
reasonable compensation to the Trustee, its agents, attorneys and counsel, and
all other expenses and liabilities incurred, and all advances made, by the
Trustee except as a result of negligence or bad faith, and if any and all Events
of Default, other than the non-payment of the principal of Securities which
shall have become due by acceleration, shall have been cured, waived or
otherwise remedied as provided herein -- then and in every such case the holders
of a majority in aggregate principal amount of all the Outstanding Securities
that have been accelerated, by written notice to the Issuer and to the Trustee,
may waive all defaults with respect to the Securities and rescind and annul such
declaration and its consequences, but no such waiver or rescission and annulment
shall extend to or shall affect any subsequent default or shall impair any right
consequent thereon.
SECTION 4.02. Collection of Indebtedness by Trustee; Trustee May Prove
Debt. The Issuer covenants that (a) in case default shall be made in the payment
of any installment of interest on any of the Securities when such interest shall
have become due and payable, and such default shall have continued for a period
of 30 days or (b) in case default shall be made in the payment of all or any
part of the principal of any of the Securities when the same shall have become
due and payable, whether upon maturity of the Securities of such series or
otherwise -- then upon demand of the Trustee, the Issuer will pay to the Trustee
for the benefit of the Holders of the Securities the whole amount that then
shall have become due and payable on all Securities for principal or interest,
as the case may be (with interest to the date of such payment upon the overdue
principal and, to the extent that payment of such interest is enforceable under
applicable law, on overdue installments of interest at the same rate as the rate
of interest specified in the Securities); and in addition thereto, such further
amount as shall be sufficient to cover the costs and expenses of collection,
including reasonable compensation to the Trustee and each predecessor Trustee,
their respective agents, attorneys and counsel, and any expenses and liabilities
incurred, and all advances made, by the Trustee and each predecessor Trustee
except as a result of its negligence or bad faith.
Until such demand is made by the Trustee, the Issuer may pay the principal
of and interest on the Securities to the registered holders, whether or not the
principal of and interest on the Securities of such series be overdue.
In case the Issuer shall fail forthwith to pay such amounts upon such
demand, the Trustee, in its own name and as trustee of an express trust, shall
be entitled and empowered to institute any action or proceedings at law or in
equity for the collection of the sums so due and unpaid, and may prosecute any
such action or proceedings to judgment or final decree, and may enforce any such
judgment or final decree against the Issuer or other obligor upon such
Securities and collect in the manner provided by law out of the property of the
Issuer or other obligor upon such Securities, wherever situated, the moneys
adjudged or decreed to be payable.
In case there shall be pending proceedings relative to the Issuer or any
other obligor upon the Securities under Title 11 of the United States Code or
any other applicable Federal or state bankruptcy, insolvency or other similar
law, or in case a receiver, assignee or trustee in bankruptcy or reorganization,
liquidator, sequestrator or similar official shall have been appointed for or
taken possession of the Issuer or its property or such other obligor, or in case
of any other comparable judicial proceedings relative to the Issuer or other
obligor upon the Securities of any series, or to the creditors or property of
the Issuer or such other obligor, the Trustee, irrespective of whether the
principal of any Securities shall then be due and payable as therein expressed
or by declaration or otherwise and irrespective of whether the Trustee shall
have made any demand
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pursuant to the provisions of this Section, shall be entitled and empowered, by
intervention in such proceedings or otherwise:
(a) to file and prove a claim or claims for the whole amount of
principal and interest owing and unpaid in respect of the Securities, and
to file such other papers or documents as may be necessary or advisable in
order to have the claims of the Trustee (including any claim for reasonable
compensation to the Trustee and each predecessor Trustee, and their
respective agents, attorneys and counsel, and for reimbursement of all
expenses and liabilities incurred, and all advances made, by the Trustee
and each predecessor Trustee, except as a result of negligence or bad
faith) and of the Securityholders allowed in any judicial proceedings
relative to the Issuer or other obligor upon the Securities, or to the
creditors or property of the Issuer or such other obligor,
(b) unless prohibited by applicable law and regulations, to vote on
behalf of the holders of the Securities in any election of a trustee or a
standby trustee in arrangement, reorganization, liquidation or other
bankruptcy or insolvency proceedings or person performing similar functions
in comparable proceedings, and
(c) to collect and receive any moneys or other property payable or
deliverable on any such claims, and to distribute all amounts received with
respect to the claims of the Securityholders and of the Trustee on their
behalf; and any trustee, receiver, or liquidator, custodian or other
similar official is hereby authorized by each of the Securityholders to
make payments to the Trustee, and, in the event that the Trustee shall
consent to the making of payments directly to the Securityholders, to pay
to the Trustee such amounts as shall be sufficient to cover reasonable
compensation to the Trustee, each predecessor Trustee and their respective
agents, attorneys and counsel, and all other expenses and liabilities
incurred, and all advances made, by the Trustee and each predecessor
Trustee except as a result of negligence or bad faith and all other amounts
due to the Trustee or any predecessor Trustee pursuant to Section 5.06.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or vote for or accept or adopt on behalf of any
Securityholder any plan or reorganization, arrangement, adjustment or
composition affecting the Securities or the rights of any Holder thereof,
or to authorize the Trustee to vote in respect of the claim of any
Securityholder in any such proceeding except, as aforesaid, to vote for the
election of a trustee in bankruptcy or similar person.
All rights of action and of asserting claims under this Indenture, or
under any of the Securities, may be enforced by the Trustee without the
possession of any of the Securities or the production thereof on any trial
or other proceedings relative thereto, and any such action or proceedings
instituted by the Trustee shall be brought in its own name as trustee of an
express trust, and any recovery of judgment, subject to the payment of the
expenses, disbursements and compensation of the Trustee, each predecessor
Trustee and their respective agents and attorneys, shall be for the ratable
benefit of the holders of the Securities in respect of which such action
was taken.
In any proceedings brought by the Trustee (and also any proceedings
involving the interpretation of any provision of this Indenture to which the
Trustee shall be a party) the Trustee shall be held to represent all the holders
of the Securities in respect to which such action was taken, and it shall not be
necessary to make any holders of such Securities parties to any such
proceedings.
SECTION 4.03. Application of Proceeds. Any moneys collected by the Trustee
pursuant to this Article in respect of Securities shall be applied in the
following order at the date or dates fixed by the Trustee and, in case of the
distribution of such moneys on account of principal or interest, upon
presentation of the several Securities in respect of which monies have been
collected and stamping (or otherwise noting) thereon the payment, or issuing
Securities in reduced principal amounts in exchange for the presented Securities
if only partially paid, or upon surrender thereof if fully paid:
FIRST: To the payment of costs and expenses applicable to such
Securities in respect of which monies have been collected, including
reasonable compensation to the Trustee and each predecessor Trustee and
their respective agents, attorneys and counsel and of all expenses and
liabilities incurred, and all advances made, by the Trustee and each
predecessor Trustee except as a result of negligence or bad
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faith, and all other amounts due to the Trustee or any predecessor Trustee
pursuant to Section 5.06 of this Indenture;
SECOND: In case the principal of the Securities in respect of which
moneys have been collected shall not have become and be then due and
payable, to the payment of interest on the Securities in default in the
order of the maturity of the installments of such interest, with interest
(to the extent that such interest has been collected by the Trustee) upon
the overdue installments of interest at the same rate as the rate of
interest specified in such Securities, such payments to be made ratably to
the persons entitled thereto, without discrimination or preference;
THIRD: In case the principal of the Securities in respect of which
moneys have been collected shall have become and shall be then due and
payable, to the payment of the whole amount then owing and unpaid upon all
the Securities for principal and interest, with interest upon the overdue
principal, and (to the extent that such interest has been collected by the
Trustee) upon overdue installments of interest at the same rate as the rate
of interest specified in the Securities; and in case such moneys shall be
insufficient to pay in full the whole amount so due and unpaid upon the
Securities, then to the payment of such principal and interest, without
preference or priority of principal over interest, or of interest over
principal, or of any installment of interest over any other installment of
interest, or of any Security over any other Security, ratably to the
aggregate of such principal and accrued and unpaid interest or yield to
maturity; and
FOURTH: To the payment of the remainder, if any, to the Issuer or any
other person lawfully entitled thereto.
SECTION 4.04. Suits for Enforcement. In case an Event of Default has
occurred, has not been waived and is continuing, the Trustee may in his
discretion proceed to protect and enforce the rights vested in him by this
Indenture by such appropriate judicial proceedings as the Trustee shall deem
most effectual to protect and enforce any of such rights, either at law or in
equity or in bankruptcy or otherwise, whether for the specific enforcement of
any covenant or agreement contained in this Indenture or in aid of the exercise
of any power granted in this Indenture or to enforce any other legal or
equitable right vested in the Trustee by this Indenture or by law.
SECTION 4.05. Restoration of Rights on Abandonment of Proceedings. In case
the Trustee shall have proceeded to enforce any right under this Indenture and
such proceedings shall have been discontinued or abandoned for any reason, or
shall have been determined adversely to the Trustee, then and in every such case
the Issuer, the Trustee and the Holders of Securities shall be restored
respectively to their former positions and rights hereunder, and all rights,
remedies and powers of the Issuer, the Trustee and the Securityholders shall
continue as though no such proceedings had been taken.
SECTION 4.06. Limitations on Litigation by Securityholders. No holder of
any Security shall have any right by virtue or by availing of any provision of
this Indenture to institute any action or proceeding at law or in equity or in
bankruptcy or otherwise upon or under or with respect to this Indenture, or for
the appointment of a trustee, receiver, liquidator, custodian or other similar
official or for any other remedy hereunder, unless such holder previously shall
have given to the Trustee written notice of default and of the continuance
thereof, as hereinbefore provided, and unless also the holders of not less than
25% in aggregate principal amount of the Securities then outstanding shall have
made written request upon the Trustee to institute such action or proceedings in
his own name as trustee hereunder and shall have offered to the Trustee such
reasonable indemnity as he may require against the costs, expenses and
liabilities to be incurred therein or thereby and the Trustee for 60 days after
his receipt of such notice, request and offer of indemnity shall have failed to
institute any such action or proceeding and no direction inconsistent with such
written request shall have been given to the Trustee pursuant to Section 4.09
during such 60-day period; it being understood and intended, and being expressly
covenanted by the taker and Holder of every Security with every other taker and
Holder and the Trustee, that no one or more Holders of Securities shall have any
right in any manner whatever by virtue or by availing of any provision of this
Indenture to affect, disturb or prejudice the rights of any other such Holder of
Securities, or to obtain or seek to obtain priority over or preference to any
other such Holder or to enforce any right under this Indenture, except in the
manner herein provided and for the equal, ratable and
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common benefit of all Holders of Securities. For the protection and enforcement
of the provisions of this Section, each and every Securityholder and the Trustee
shall be entitled to such relief as can be given either at law or in equity.
SECTION 4.07. Unconditional Right of Securityholders to Institute Certain
Litigation. Notwithstanding any other provision in this Indenture and any
provision of any Security, the right of any Holder of any Security to receive
payment of the principal of and interest on such Security on or after the
respective due dates expressed in such Security, or to institute suit for the
enforcement of any such payment on or after such respective dates, shall not be
impaired or affected without the consent of such Holder.
SECTION 4.08. Powers and Remedies Cumulative; Delay or Omission Not Waiver
of Default. Except as provided in Section 4.06 of this Indenture, no right or
remedy herein conferred upon or reserved to the Trustee or to the
Securityholders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
No delay or omission of the Trustee or of any Securityholder to exercise
any right or power accruing upon any Event of Default occurring and continuing
as aforesaid shall impair any such right or power or shall be construed to be a
waiver of any such Event of Default or an acquiescence therein; and, subject to
Section 4.06 of this Indenture, every power and remedy given by this Indenture
or by law to the Trustee or to the Securityholders may be exercised from time to
time, and as often as shall be deemed expedient, by the Trustee or by the
Securityholders.
SECTION 4.09. Control by Securityholders. The Holders of a majority in
aggregate principal amount of the Securities at the time outstanding shall have
the right to direct the time, method, and place of conducting any proceeding for
any remedy available to the Trustee, or exercising any trust or power conferred
on the Trustee with respect to the Securities by this Indenture; provided that
such direction shall not be otherwise than in accordance with law and the
provisions of this Indenture and provided further that (subject to the
provisions of Section 5.01 of this Indenture) the Trustee shall have the right
to decline to follow any such direction if the Trustee, being advised by
counsel, shall determine that the action or proceeding so directed may not
lawfully be taken or if the Trustee in good faith shall determine that the
action or proceedings so directed would involve the Trustee in personal
liability or if the Trustee in good faith shall so determine that the actions or
forebearances specified in or pursuant to such direction would be unduly
prejudicial to the interests of Holders of the Securities not joining in the
giving of said direction, it being understood that (subject to Section 5.01 of
this Indenture) the Trustee shall have no duty to ascertain whether or not such
actions or forebearances are unduly prejudicial to such Holders.
Nothing in this Indenture shall impair the right of the Trustee in his
discretion to take any action deemed proper by the Trustee and which is not
inconsistent with such direction or directions by Securityholders.
SECTION 4.10. Waiver of Past Defaults. Subject to Sections 4.01, 4.07 and
7.02 of this Indenture, the Holders of a majority in aggregate principal amount
of the Outstanding Securities may on behalf of the Holders of all the Securities
waive any past default or Event of Default and its consequences, except a
default in respect of a covenant or provision hereof which cannot be modified or
amended without the consent of each Holder affected as provided in Section 7.02
of this Indenture or a default or Event of Default in the payment of principal
or interest as specified in clauses (a), (b) and (c) of Section 4.01 of this
Indenture.
Upon any such waiver, such default shall cease to exist and be deemed to
have been cured and not to have occurred, and any Event of Default arising
therefrom shall be deemed to have been cured, and not to have occurred for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or Event of Default or impair any right consequent thereon.
SECTION 4.11. Trustee to Give Notice of Default, But May Withhold in
Certain Circumstances. The Trustee shall give to the Securityholders, as the
names and addresses of such Holders appear on the registry books, notice by mail
of all defaults known to the Trustee which have occurred with respect to the
Securities,
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such notice to be transmitted within 90 days after the occurrence thereof,
unless such defaults shall have been cured before the giving of such notice (the
term "default" or "defaults" for the purposes of this Section being hereby
defined to mean any event or condition which is, or with notice or lapse of time
or both would become, an Event of Default); provided that, except in the case of
default in the payment of the principal of or interest on any of the Securities,
the Trustee shall be protected in withholding such notice if and so long as the
Trustee in good faith determines that the withholding of such notice is in the
interests of the Securityholders.
SECTION 4.12. Right of Court to Require Filing of Undertaking to Pay
Costs. All parties to this Indenture agree, and each Holder of any Security by
his acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture or in any suit against the Trustee for any action taken, suffered
or omitted by it as Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this section shall not apply to any suit instituted by the
Trustee, to any suit instituted pursuant to Section 4.07 of this Indenture or by
any Securityholder or group of Securityholders holding in the aggregate more
than 10% in aggregate principal amount of the Securities.
ARTICLE 5
CONCERNING THE TRUSTEE
SECTION 5.01. Duties and Responsibilities of the Trustee; During Default;
Prior to Default. With respect to the Holders of the Securities issued
hereunder, the Trustee, prior to the occurrence of an Event of Default with
respect to the Securities and after the curing or waiving of all Events of
Default which may have occurred with respect to the Securities, undertakes to
perform such duties and only such duties as are specifically set forth in this
Indenture. In case an Event of Default with respect to the Securities has
occurred (which has not been cured or waived) the Trustee shall exercise such of
the rights and powers vested in him by this Indenture, and use the same degree
of care and skill in their exercise, as a prudent man would exercise or use
under the circumstances in the conduct of his own affairs.
No provision of this Indenture shall be construed to relieve the Trustee
from liability for his own negligent action, his own negligent failure to act or
his own wilful misconduct, except that
(a) prior to the occurrence of an Event of Default with respect to the
Securities and after the curing or waiving of all such Events of Default
with respect to the Securities which may have occurred:
(i) the duties and obligations of the Trustee with respect to the
Securities shall be determined solely by the express provisions of this
Indenture, and the Trustee shall not be liable except for the
performance of such duties and obligations as are specifically set forth
in this Indenture, and no implied covenants or obligations shall be read
into this Indenture against the Trustee; and
(ii) in the absence of bad faith on the part of the Trustee, the
Trustee may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any statements,
certificates or opinions furnished to the Trustee and conforming to the
requirements of this Indenture; but in the case of any such statements,
certificates or opinions which by any provision hereof are specifically
required to be furnished to the Trustee, the Trustee shall be under a
duty to examine the same to determine whether or not they conform to the
requirements of this Indenture;
(b) the Trustee shall not be liable for any error of judgment made in
good faith by him, unless it shall be proved that the Trustee was negligent
in ascertaining the pertinent facts; and
(c) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by him in good faith in accordance with the
direction of the holders pursuant to Section 4.09 of this Indenture
relating to the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred
upon the Trustee, under this Indenture.
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None of the provisions contained in this Indenture shall require the
Trustee to expend or risk his own funds or otherwise incur personal financial
liability in the performance of any of his duties or in the exercise of any of
his rights or powers, if there shall be reasonable ground for believing that the
repayment of such funds or adequate indemnity against such liability is not
reasonably assured to him.
The provisions of this Section 5.01 are in furtherance of and subject to
Sections 315 and 316 of the Trust Indenture Act of 1939. Whether or not therein
expressly so provided, every provision of this Indenture relating to the conduct
or affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section 5.01.
SECTION 5.02. Certain Rights of the Trustee. In furtherance of and subject
to the Trust Indenture Act of 1939, and subject to Section 5.01 of this
Indenture:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, Officers' Certificate or any
other certificate, statement, instrument, opinion, report, notice, request,
consent, order, bond, debenture, note, coupon, security or other paper or
document believed by him to be genuine and to have been signed or presented
by the proper party or parties;
(b) any request, direction, order or demand of the Issuer mentioned
herein shall be sufficiently evidenced by an Officers' Certificate (unless
other evidence in respect thereof be herein specifically prescribed); and
any resolution of the Board of Directors may be evidenced to the Trustee by
a copy thereof certified by the secretary or an assistant secretary of the
Issuer;
(c) the Trustee may consult with counsel and any advice or Opinion of
Counsel shall be full and complete authorization and protection in respect
of any action taken, suffered or omitted to be taken by him hereunder in
good faith and in accordance with such advice or Opinion of Counsel;
(d) the Trustee shall be under no obligation to exercise any of the
trusts or powers vested in him by this Indenture at the request, order or
direction of any of the Securityholders pursuant to the provisions of this
Indenture, unless such Securityholders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred therein or thereby;
(e) the Trustee shall not be liable for any action taken or omitted by
him in good faith and believed by him to be authorized or within the
discretion, rights or powers conferred upon him by this Indenture;
(f) prior to the occurrence of an Event of Default and after the
curing or waiving of all Events of Default, the Trustee shall not be bound
to make any investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion, report, notice,
request, consent, order, approval, appraisal, bond, debenture, note,
coupon, security, or other paper or document unless requested in writing so
to do by the holders of not less than a majority in aggregate principal
amount of the Securities then outstanding; provided that, if the payment
within a reasonable time to the Trustee of the costs, expenses or
liabilities likely to be incurred by him in the making of such
investigation is, in the opinion of the Trustee, not reasonably assured to
the Trustee by the security afforded to him by the terms of this Indenture,
the Trustee may require reasonable indemnity against such expenses or
liabilities as a condition to proceeding; the reasonable expenses of every
such investigation shall be paid by the Issuer or, if paid by the Trustee
or any predecessor trustee, shall be repaid by the Issuer upon demand;
provided, further, that the Trustee, in his discretion, may make such
further inquiry or investigation into such facts or matters as he may see
fit, and, if the Trustee shall determine to make such further inquiry or
investigation, he shall be entitled to examine the books, records and
premises of the Issuer, relevant to the facts or matters that are the
subject of his inquiry, personally or by agent or attorney; and
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys not regularly in his employ and the Trustee shall not be
responsible for any misconduct or negligence on the part of any such agent
or attorney appointed with due care by him hereunder.
SECTION 5.03. Trustee Not Responsible for Recitals, Disposition of
Securities or Application of Proceeds Thereof. The recitals contained herein and
in the Securities, except the Trustee's certificates of authentica-
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tion, shall be taken as the statements of the Issuer, and the Trustee assumes no
responsibility for the correctness of the same. The Trustee makes no
representation as to the validity or sufficiency of this Indenture or of the
Securities. The Trustee shall not be accountable for the use or application by
the Issuer of any of the Securities or of the proceeds thereof.
SECTION 5.04. Trustee and Agents May Hold Securities; Collections. The
Trustee or any agent of the Issuer or the Trustee, in his individual or any
other capacity, may become the owner or pledgee of Securities with the same
rights he would have if he were not the Trustee or such agent and may otherwise
deal with the Issuer and receive, collect, hold and retain collections from the
Issuer with the same rights he would have if he were not the Trustee or such
agent.
SECTION 5.05. Moneys Held by Trustee. Subject to the provisions of Section
9.04 of this Indenture, all moneys received by the Trustee shall, until used or
applied as herein provided, be held in trust for the purposes for which they
were received, but need not be segregated from other funds except to the extent
required by mandatory provisions of law. Neither the Trustee nor any agent of
the Issuer or the Trustee shall be under any liability for interest on any
moneys received by such party hereunder.
SECTION 5.06. Compensation and Indemnification of Trustee and His Prior
Claim. The Issuer covenants and agrees to pay to the Trustee from time to time,
and the Trustee shall be entitled to, reasonable compensation (which shall not
be limited by any provision of law in regard to the compensation of a trustee of
an express trust) and the Issuer covenants and agrees to pay or reimburse the
Trustee and each predecessor Trustee upon his request for all reasonable
expenses, disbursements and advances incurred or made by or on behalf of him in
accordance with any of the provisions of this Indenture (including the
reasonable compensation and the expenses and disbursements of his counsel and of
all agents and other persons not regularly in his employ) except to the extent
any such expense, disbursement or advance may arise from his negligence or bad
faith. The Issuer also covenants to indemnify the Trustee and each predecessor
Trustee for, and to hold him harmless against, any loss, liability or expense
arising out of or in connection with the acceptance or administration of this
Indenture or the trusts hereunder and the performance of his duties hereunder,
including the costs and expenses of defending himself against or investigating
any claim of liability arising hereunder, except to the extent such loss
liability or expense is due to the negligence or bad faith of the Trustee or
such predecessor Trustee. The obligations of the Issuer under this section to
compensate and indemnify the Trustee and each predecessor Trustee and to pay or
reimburse the Trustee and each predecessor Trustee for expenses, disbursements
and advances shall constitute additional indebtedness hereunder and shall
survive the satisfaction and discharge of this Indenture. Such additional
indebtedness shall be a senior claim to that of the Securities upon all property
and funds held or collected by the Trustee as such, except funds held in trust
for the benefit of the holders of particular Securities, and the Securities are
hereby subordinated to such senior claim.
SECTION 5.07. Right of Trustee to Rely on Officers' Certificate. Subject to
Sections 5.01 and 5.02 of this Indenture, whenever in the administration of the
trusts of this Indenture the Trustee shall deem it necessary or desirable that a
matter be proved or established prior to taking or suffering or omitting any
action hereunder, such matter (unless other evidence in respect thereof be
herein specifically prescribed) may, in the absence of negligence or bad faith
on the part of the Trustee, be deemed to be conclusively proved and established
by an Officers' Certificate delivered to the Trustee, and such certificate, in
the absence of negligence or bad faith on the part of the Trustee, shall be full
warrant to the Trustee for any action taken, suffered or omitted by him under
the provisions of this Indenture upon the faith thereof.
SECTION 5.08. Resignation and Removal; Appointment of Successor
Trustee. (a) The Trustee, or any trustee or trustees hereafter appointed, may at
any time resign with respect to this Indenture by giving written notice of
resignation to the Issuer and by mailing notice thereof by first class mail to
Holders of the Securities at their last addresses as they shall appear on the
Security Register. Upon receiving such notice of resignation, the Issuer shall
promptly appoint a successor trustee or trustees by written instrument in
duplicate, executed by authority of the Board of Directors, one copy of which
instrument shall be delivered to the resigning Trustee and one copy to the
successor trustee or trustees; provided, however, that, unless a bank or trust
company shall be appointed as successor trustee, the successor trustee shall be
appointed only with the
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approval of the California Commissioner of Corporations pursuant to 10
California Administrative Code Section 260.140.5.
If no successor trustee shall have been so appointed and have accepted
appointment within 30 days after the mailing of such notice of resignation, the
resigning trustee may petition any court of competent jurisdiction for the
appointment of a successor trustee, or any Securityholder who has been a bona
fide Holder of a Security or Securities for at least six months may, subject to
the provisions of Section 4.12 of this Indenture, on behalf of himself and all
others similarly situated, petition any such court for the appointment of a
successor trustee. Such court may thereupon, after such notice, if any, as it
may deem proper and prescribe, appoint a successor trustee.
(b) In case at any time any of the following shall occur:
(i) the Trustee shall fail to comply with the provisions of Section
310(b) of the Trust Indenture Act of 1939 with respect to the Securities
after written request therefor by the Issuer or by any Securityholder who
has been a bona fide Holder of a Security or Securities for at least six
months; or
(ii) the Trustee shall cease to be eligible in accordance with the
provisions of Section 310(a) of the Trust Indenture Act of 1939 and shall
fail to resign after written request therefor by the Issuer or by any
Securityholder; or
(iii) the Trustee shall become incapable of acting with respect to the
Securities, or shall be adjudged a bankrupt or insolvent, or a receiver or
liquidator of the Trustee or of his property shall be appointed, or any
public officer shall take charge or control of the Trustee or of his
property or affairs for the purpose of rehabilitation, conservation or
liquidation;
then, in any such case, the Issuer may remove the Trustee with respect to the
Securities and appoint a successor trustee for such Securities by written
instrument, in duplicate, executed by order of the Board of Directors of the
Issuer, one copy of which instrument shall be delivered to the Trustee so
removed and one copy to the successor trustee, or, subject to Section 315(e) of
the Trust Indenture Act of 1939, any Securityholder who has been a bona fide
Holder of a Security or Securities for at least six months may on behalf of
himself and all others similarly situated, petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
trustee with respect to the Securities. Such court may thereupon, after such
notice, if any, as it may deem proper and prescribe, remove the Trustee and
appoint a successor trustee.
(c) The Holders of a majority in aggregate principal amount of the
Securities at the time outstanding may at any time remove the Trustee with
respect to the Securities and appoint a successor trustee with respect to the
Securities by delivering to the Trustee so removed, to the successor trustee so
appointed and to the Issuer the evidence provided for in Section 6.01 of this
Indenture of the action in that regard taken by the Securityholders.
(d) Any resignation or removal of the Trustee and any appointment of a
successor trustee pursuant to any of the provisions of this Section 5.08 shall
become effective upon acceptance of appointment by the successor trustee as
provided in Section 5.09 of this Indenture.
SECTION 5.09. Acceptance of Appointment by Successor Trustee. Any successor
trustee appointed as provided in Section 5.08 of this Indenture shall execute
and deliver to the Issuer and to his predecessor trustee an instrument accepting
such appointment hereunder, and thereupon the resignation or removal of the
predecessor trustee shall become effective and such successor trustee, without
any further act, deed or conveyance, shall become vested with all rights,
powers, duties and obligations with respect to such series of his predecessor
hereunder, with like effect as if originally named as trustee for such series
hereunder; but, nevertheless, on the written request of the Issuer or of the
successor trustee, upon payment of his charges then unpaid, the trustee ceasing
to act shall, subject to Section 9.04 of this Indenture, pay over to the
successor trustee all moneys at the time held by him hereunder and shall execute
and deliver an instrument transferring to such successor trustee all such
rights, powers, duties and obligations. Upon request of any such successor
trustee, the Issuer shall execute any and all instruments in writing for more
fully and certainly vesting in and
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confirming to such successor trustee all such rights and powers. Any trustee
ceasing to act shall, nevertheless, retain a prior claim upon all property or
funds held or collected by such trustee to secure any amounts then due him
pursuant to the provisions of Section 5.06 of this Indenture.
Upon acceptance of appointment by any successor trustee as provided in this
Section 5.09, the Issuer shall mail notice thereof by first-class mail to the
Holders of Securities at their last addresses as they shall appear in the
Security Register. If the acceptance of appointment is substantially
contemporaneous with the resignation, then the notice called for by the
preceding sentence may be combined with the notice called for by Section 5.08 of
this Indenture. If the Issuer fails to mail such notice within ten days after
acceptance of appointment by the successor trustee, the successor trustee shall
cause such notice to be mailed at the expense of the Issuer.
ARTICLE 6
CONCERNING THE SECURITYHOLDERS
SECTION 6.01. Evidence of Action Taken by Securityholders. Any request,
demand, authorization, direction, notice, consent, waiver or other action
provided by this Indenture to be given or taken by a specified percentage in
principal amount of the Securityholders may be embodied in and evidenced by one
or more instruments with substantially similar terms and conditions signed by
such specified percentage of Securityholders in person or by agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee. Proof of execution of any instrument or of a writing appointing
any such agent shall be sufficient for any purpose of this Indenture and
(subject to Sections 5.01 and 5.02 of this Indenture) conclusive in favor of the
Trustee and the Issuer, if made in the manner provided in this article.
SECTION 6.02. Proof of Execution of Instruments and of Holding of
Securities; Record Date. Subject to Sections 5.01 and 5.02 of this Indenture,
the execution of any instrument by a Securityholder or his agent or proxy may be
proved in accordance with such reasonable rules and regulations as may be
prescribed by the Trustee or in such manner as shall be satisfactory to the
Trustee. The holding of Securities shall be proved by the Security Register or
by a certificate of the registrar thereof. The Issuer may set a record date for
purposes of determining the identity of holders of Securities entitled to vote
or consent to any action referred to in Section 6.01 of this Indenture, which
record date may be set at any time or from time to time by notice to the
Trustee, for any date or dates (in the case of any adjournment or
reconsideration) not more than 60 days nor less than five days prior to the
proposed date of such vote or consent, and thereafter, notwithstanding any other
provisions hereof, only holders of Securities of record on such record date
shall be entitled to so vote or give such consent or revoke such vote or
consent.
SECTION 6.03. Holders to Be Treated as Owners. The Issuer, the Trustee and
any agent of the Issuer or the Trustee may deem and treat the person in whose
name any Security shall be registered upon the Security Register for such series
as the absolute owner of such Security (whether or not such Security shall be
overdue and notwithstanding any notation of ownership or other writing thereon)
for the purpose of receiving payment of or on account of the principal of and,
subject to the provisions of this Indenture, interest on such Security and for
all other purposes; and neither the Issuer nor the Trustee nor any agent of the
Issuer or the Trustee shall be affected by any notice to the contrary. All such
payments so made to any such person, or upon his order, shall be valid, and, to
the extent of the sum or sums so paid, effectual to satisfy and discharge the
liability for moneys payable upon any such Security.
SECTION 6.04. Securities Owned by Issuer Deemed Not Outstanding. In
determining whether the Holders of the requisite aggregate principal amount of
Outstanding Securities have concurred in any direction, consent or waiver under
this Indenture, Securities which are owned by the Issuer or any other obligor on
the Securities with respect to which such determination is being made or by any
person directly or indirectly controlling or controlled by or under direct or
indirect common control with the Issuer or any other obligor on the Securities
with respect to which such determination is being made shall be disregarded and
deemed not to be Outstanding for the purpose of any such determination, except
that for the purpose of determining whether
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the Trustee shall be protected in relying on any such direction, consent or
waiver only Securities which the Trustee knows are so owned shall be so
disregarded. Securities so owned which have been pledged in good faith may be
regarded as Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Securities and that
the pledgee is not the Issuer or any other obligor upon the Securities or any
person directly or indirectly controlling or controlled by or under direct or
indirect common control with the Issuer or any other obligor on the Securities.
In case of a dispute as to such right, the advice of counsel shall be full
protection in respect of any decision made by the Trustee in accordance with
such advice. Upon request of the Trustee, the Issuer shall furnish to the
Trustee promptly an Officers' Certificate listing and identifying all
Securities, if any, known by the Issuer to be owned or held by or for the
account of any of the above-described persons; and, subject to Sections 5.01 and
5.02 of this Indenture, the Trustee shall be entitled to accept such Officers'
Certificate as conclusive evidence of the facts therein set forth and of the
fact that all Securities not listed therein are Outstanding for the purpose of
any such determination.
SECTION 6.05. Right of Revocation of Action Taken. At any time prior to
(but not after) the evidencing to the Trustee, as provided in Section 6.01 of
this Indenture, of the taking of any action by the Holders of the percentage in
aggregate principal amount of the Securities specified in this Indenture in
connection with such action, any Holder of a Security the serial number of which
is shown by the evidence to be included among the serial numbers of the
Securities the Holders of which have consented to such action may, by filing
written notice at the Trust Office and upon proof of holding as provided in this
Article, revoke such action so far as concerns such Security. Except as
aforesaid any such action taken by the Holder of any Security shall be
conclusive and binding upon such Holder and upon all future Holders and owners
of such Security and of any Securities issued in exchange or substitution
therefor, irrespective of whether or not any notation in regard thereto is made
upon any such Security. Any action taken by the Holders of the percentage in
aggregate principal amount of the Securities specified in this Indenture in
connection with such action shall be conclusively binding upon the Issuer, the
Trustee and the Holders of all the Securities affected by such action.
ARTICLE 7
SUPPLEMENTAL INDENTURES
SECTION 7.01. Supplemental Indentures Without Consent of
Securityholders. The Issuer, when authorized by a resolution of the Board of
Directors, and the Trustee may from time to time and at any time enter into an
indenture or indentures supplemental hereto for one or more of the following
purposes:
(a) to convey, transfer, assign, mortgage or pledge to the Trustee as
security for the Securities of one or more series any property or assets;
(b) to evidence the succession of another entity to the Issuer, or
successive successions, and the assumption by the successor entity of the
covenants, agreements and obligations of the Issuer pursuant to Article 8
of this Indenture;
(c) to add to the covenants of the Issuer such further covenants,
restrictions, conditions or provisions as the Board of Directors and the
Trustee shall consider to be for the protection of the Holders of
Securities, and to make the occurrence, or the occurrence and continuance,
of a default in any such additional covenants, restrictions, conditions or
provisions an Event of Default permitting the enforcement of all or any of
the several remedies provided in this Indenture as herein set forth;
provided, that in respect of any such additional covenant, restriction,
condition or provision such supplemental indenture may provide for a
particular period of grace after default (which period may be shorter or
longer than that allowed in the case of other defaults) or may provide for
an immediate enforcement upon such an Event of Default or may limit the
remedies available to the Trustee upon such an Event of Default or may
limit the right of the Holders of a majority in aggregate principal amount
of the Securities to waive such an Event of Default;
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(d) to cure any ambiguity or to correct or supplement any provision
contained herein or in any supplemental indenture which may be defective or
inconsistent with any other provision contained herein or in any
supplemental indenture; or to make such other provisions in regard to
matters or questions arising under this Indenture or under any supplemental
indenture as the Board of Directors may deem necessary or desirable and
which shall not adversely affect the interests of the Holders of the
Securities in any material respect;
(e) to modify the form and terms of Securities as specified by
Sections 2.01 and 2.03 of this Indenture;
(f) to evidence and provide for the acceptance of appointment
hereunder by a successor trustee with respect to the Securities and to add
to or change any of the provisions of this Indenture as shall be necessary
to provide for or facilitate the administration of the trusts hereunder by
more than one trustee, pursuant to the requirements of Section 5.09 of this
Indenture;
(g) to permit or facilitate the issuance of Securities in global form
or bearer form or to provide for uncertificated Securities to be issued;
(h) to change or eliminate any provision contained herein, provided
that any such change or elimination shall become effective only when there
are no Securities outstanding created prior to the execution of any
supplemental indenture which are entitled to the benefit of such provision;
and
(i) to amend or supplement any provision contained herein, which was
required to be contained herein in order for this Indenture to be qualified
under the Trust Indenture Act of 1939, if the Trust Indenture Act of 1939
or regulations thereunder change what is so required to be included in
qualified indentures, in any manner not inconsistent with what then may be
required for such qualification.
The Trustee is hereby authorized to join with the Issuer in the execution
of any such supplemental indenture, to make any additional appropriate
agreements and stipulations which may be therein contained and to accept the
conveyance, transfer, assignment, mortgage or pledge of any property thereunder,
but the Trustee shall not be obligated to enter into any such supplemental
indenture which affects the Trustee's own rights, duties or immunities under
this Indenture or otherwise.
Any supplemental indenture authorized by the provisions of this Section may
be executed without the consent of the Holders of any of the Securities at the
time outstanding, notwithstanding any of the provisions of Section 7.02 of this
Indenture.
SECTION 7.02. Supplemental Indentures with Consent of Securityholders. With
the consent (evidenced as provided in Article 6 of this Indenture) of the
Holders of not less than a majority in aggregate principal amount of the
Securities at the time Outstanding, the Issuer, when authorized by a resolution
of its Board of Directors, and the Trustee may, from time to time and at any
time, enter into an indenture or indentures supplemental hereto for the purpose
of adding any provisions to or changing in any manner or eliminating any of the
provisions of this Indenture or of any supplemental indenture or of modifying in
any manner the rights of the Holders of the Securities of each such series;
provided, that no such supplemental indenture shall (a) extend the final
maturity of any Security, or reduce the principal amount thereof, or reduce the
rate or extend the time of payment of interest thereon, or reduce any amount
payable on redemption thereof, or impair or affect the right of any
Securityholder to institute suit for the payment thereof or, if the Securities
provide therefor, any right of repayment at the option of the Securityholder
without the consent of the Holder of each Security so affected, or (b) reduce
the aforesaid percentage of Securities, the consent of the Holders of which is
required for any such supplemental indenture, without the consent of the Holders
of each Security so offered, or (c) reduce the percentage of Securities
necessary to consent to waive any past default under this Indenture to less than
a majority, without the consent of the Holders of each Security so affected, or
(d) modify any of the provisions of this Section 7.02 of this Indenture, except
to increase any such percentage or to provide that certain other provisions of
this Indenture cannot be modified or waived without the consent of the Holder of
each Security affected thereby, provided, however, that this clause shall not be
deemed to require the consent of any Holder with respect to changes in the
references to "the Trustee" and concomitant
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changes in this Section, or the deletion of this proviso, in accordance with the
requirements of Sections 5.08, 5.09, 5.10 and 7.02 of this Indenture.
Upon the request of the Issuer, accompanied by a copy of a resolution of
the Board of Directors certified by the secretary or an assistant secretary of
the Issuer authorizing the execution of any such supplemental indenture, and
upon the filing with the Trustee of evidence of the consent of Securityholders
as aforesaid and other documents, if any, required by Section 6.01 of this
Indenture, the Trustee shall join with the Issuer in the execution of such
supplemental indenture unless such supplemental indenture affects the Trustee's
own rights, duties or immunities under this Indenture or otherwise, in which
case the Trustee may in his discretion, but shall not be obligated to, enter
into such supplemental indenture.
It shall not be necessary for the consent of the Securityholders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such consent shall approve the substance thereof.
Promptly after the execution by the Issuer and the Trustee of any
supplemental indenture pursuant to the provisions of this Section, the Issuer
shall mail a notice thereof by first class mail to the Holders of Securities at
their addresses as they shall appear on the registry books of the Issuer,
setting forth in general terms the substance of such supplemental indenture. Any
failure of the Issuer to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such supplemental
indenture.
SECTION 7.03. Effect of Supplemental Indenture. Upon the execution of any
supplemental indenture pursuant to the provisions hereof, this Indenture shall
be and be deemed to be modified and amended in accordance therewith and the
respective rights, limitations of rights, obligations, duties and immunities
under this Indenture of the Trustee, the Issuer and the Holders of Securities
shall thereafter be determined, exercised and enforced hereunder subject in all
respects to such modifications and amendments, and all the terms and conditions
of any such supplemental indenture shall be deemed to be part of the terms and
conditions of this Indenture for any and all purposes.
SECTION 7.04. Documents to Be Given to Trustee. The Trustee, subject to the
provisions of Sections 5.01 and 5.02 of this Indenture, may receive an Officers'
Certificate and an Opinion of Counsel as conclusive evidence that any
supplemental indenture executed pursuant to this Article 7 complies with the
applicable provisions of this Indenture.
SECTION 7.05. Notation on Securities in Respect of Supplemental
Indentures. Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to the provisions of this article may bear a
notation in form approved by the Trustee as to any matter provided for by such
supplemental indenture or as to any action taken at any such meeting. If the
Issuer or the Trustee shall so determine, new Securities so modified as to
conform, in the opinion of the Trustee and the Board of Directors, to any
modification of this Indenture contained in any such supplemental indenture may
be prepared by the Issuer, authenticated by the Trustee and delivered in
exchange for the Securities then outstanding.
ARTICLE 8
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
SECTION 8.01. Issuer May Consolidate, on Certain Terms. The Issuer
covenants that it will not merge or consolidate with any other entity or sell or
convey all or substantially all of its assets to any Person, unless (i) either
the Issuer shall be the continuing entity, or the successor entity or the Person
which acquires by sale or conveyance substantially all the assets of the Issuer
(if other than the Issuer) shall be an entity organized under the laws of the
United States of America or any State thereof and shall expressly assume the due
and punctual payment of the principal of and interest on all the Securities,
according to their tenor, and the due and punctual performance and observance of
all of the covenants and conditions of this Indenture to be performed or
observed by the Issuer, by supplemental indenture (complying with Article 7 of
this Indenture), executed and delivered to the Trustee by such corporation, and
(ii) after giving effect to such merger or
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consolidation, or such sale or conveyance, no Event of Default, and no event
which, after notice or lapse of time or both would become an Event of Default,
shall have occurred and be continuing.
SECTION 8.02. Successor Entity Substituted. In case of any such
consolidation, merger, sale or conveyance, and following such an assumption by
the successor entity, such successor entity shall succeed to and be substituted
for the Issuer, with the same effect as if it had been named herein. Such
successor entity may cause to be signed, and may issue either in its own name or
in the name of the Issuer prior to such succession any or all of the Securities
issuable hereunder which theretofore shall not have been signed by the Issuer
and delivered to the Trustee; and, upon the order of such successor entity
instead of the Issuer and subject to all the terms, conditions and limitations
in this Indenture prescribed, the Trustee shall authenticate and shall deliver
any Securities which previously shall have been signed and delivered by the
officers of the Issuer to the Trustee for authentication, and any Securities
which such successor entity thereafter shall cause to be signed and delivered to
the Trustee for that purpose. All of the Securities so issued shall in all
respects have the same legal rank and benefit under this Indenture as the
Securities theretofore or thereafter issued in accordance with the terms of this
Indenture as though all of such Securities had been issued at the date of the
execution hereof.
In case of any such consolidation, merger, sale, lease or conveyance such
changes in phraseology and form (but not in substance) may be made in the
Securities thereafter to be issued as may be appropriate.
In the event of any such sale or conveyance (other than a conveyance by way
of lease) and upon any such assumption by a successor entity, the Issuer or any
successor entity which shall theretofore have become such in the manner
described in this Article 8 shall be discharged from all obligations and
covenants under this Indenture and the Securities and may be liquidated and
dissolved.
SECTION 8.03. Opinion of Counsel to Trustee. The Trustee, subject to the
provisions of Sections 5.01 and 5.02 of this Indenture, may receive an Opinion
of Counsel, prepared in accordance with Section 10.05 of this Indenture, as
conclusive evidence that any such consolidation, merger, sale, lease or
conveyance, and any such assumption, and any such liquidation or dissolution,
complies with the applicable provisions of this Indenture.
ARTICLE 9
SATISFACTION AND DISCHARGE OF INDENTURE; UNCLAIMED MONEYS
SECTION 9.01. Defeasance Within One Year of Payment. Except as otherwise
provided in this Section 9.01, the Issuer may terminate its obligations under
the Securities and this Indenture with respect to Securities if:
(i) all Securities previously authenticated and delivered (other than
destroyed, lost or wrongfully taken Securities that have been replaced or
Securities that are paid pursuant to Section 3.01 of this Indenture or
Securities for whose payment money or securities have theretofore been held
in trust and thereafter repaid to the Issuer, as provided in Section 9.05
of this Indenture) have been delivered to the Trustee for cancellation and
the Issuer has paid all sums payable by it hereunder; or
(ii) (A) the Securities mature within one year or all of them are to
be called for redemption within one year under arrangements satisfactory to
the Trustee for giving the notice of redemption, (B) the Issuer irrevocably
deposits in trust with the Trustee, as trust funds solely for the benefit
of the Holders of such Securities, for that purpose, money sufficient
without consideration of any reinvestment, to pay principal of and interest
on the Securities to maturity or redemption, as the case may be, and to pay
all other sums payable by it hereunder, and (C) the Issuer delivers to the
Trustee an Officers' Certificate and an Opinion of Counsel, in each case
stating that all conditions precedent provided for herein relating to the
satisfaction and discharge of this Indenture with respect to the Securities
and of the Securities themselves have been complied with.
With respect to the foregoing clause (i), only the Issuer's obligations
under Section 5.06 in respect of the Securities shall survive. With respect to
the foregoing clause (ii), only the Issuer's obligations in Sections 2.02, 2.05,
2.06, 2.07, 2.08, 2.09, 2.10, 3.02, 3.04, 5.06, 5.08 and 9.05 of this Indenture
in respect of the
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Securities shall survive until the Securities are no longer outstanding.
Thereafter, only the Issuer's obligations in Sections 5.06 and 9.05 of this
Indenture in respect of the Securities shall survive. After any such irrevocable
deposit, the Trustee upon request shall acknowledge in writing the discharge of
the Issuer's obligations under the Securities and this Indenture with respect to
the Securities except for those surviving obligations specified above.
SECTION 9.02. Defeasance. When and if the Issuer will be deemed to have
paid and will be discharged from any and all obligations in respect of the
Securities, the provisions of this Indenture will, except as provided below, no
longer be in effect with respect to the Securities. The Trustee, at the expense
of the Issuer, shall execute proper instruments acknowledging the same and the
Securities will no longer be Outstanding pursuant to this Indenture; provided
that the following conditions shall have been satisfied:
(a) the Issuer has irrevocably deposited in trust with the Trustee as
trust funds solely for the benefit of the Holders of the Securities of such
series, for payment of the principal of and interest on the Securities of
such series, money without consideration of any reinvestment and after
payment of all federal, state and local taxes or other charges and
assessments in respect thereof payable by the Trustee, to pay and discharge
the principal of and accrued interest on the Outstanding Securities to
maturity or earlier redemption (irrevocably provided for under arrangements
satisfactory to the Trustee), as the case may be;
(b) such deposit will not result in a breach or violation of, or
constitute a default under, this Indenture or any other material agreement
or instrument to which the Issuer is a party or by which it is bound;
(c) no event which, with the giving of notice or lapse of time, would
become an Event of Default with respect to the Securities shall have
occurred and be continuing on the date of such deposit;
(d) the Issuer has delivered to the Trustee (1) either (x) a ruling
directed to the Trustee received from the Internal Revenue Service to the
effect that the Holders of the Securities will not recognize income, gain
or loss for federal income tax purposes as a result of the Issuer's
exercise of its option under this Section 9.02 and will be subject to
federal income tax on the same amount and in the same manner and at the
same times as would have been the case if such option had not been
exercised or (y) an Opinion of Counsel to the same effect as the ruling
described in clause (x) above and (2) an Opinion of Counsel to the effect
that the Holders of the Securities have a valid perfected first security
interest in the trust funds subject to no prior liens under the Uniform
Commercial Code; and
(e) the Issuer has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, in each case stating that all conditions
precedent provided for herein relating to the defeasance contemplated by
this Section 9.02 of the Securities of such series have been complied with.
The Issuer's obligations in Sections 2.02, 2.05, 2.06, 2.07, 2.08, 2.09,
2.10, 3.02, 3.04, 5.06, 5.08 and 9.05 of this Indenture with respect to the
Securities shall survive until such Securities are no longer outstanding.
Thereafter, only the Issuer's obligations in Sections 5.06 and 9.05 of this
Indenture shall survive.
SECTION 9.03. Covenant Defeasance. The Issuer may omit to comply with any
term, provision or condition set forth in Article 3 of this Indenture (or any
other specific covenant relating to the Securities provided for in a Board
Resolution or supplemental indenture pursuant to Section 2.03 of this Indenture
which may by its terms be defeased pursuant to this Section 9.03), and such
omission shall be deemed not to be an Event of Default under clauses (d) or (f)
of Section 4.01 of this Indenture, with respect to the Outstanding Securities
if:
(i) the Issuer has irrevocably deposited in trust with the Trustee as
trust funds solely for the benefit of the Holders of the Securities of such
series, for payment of the principal of and interest, if any, on the
Securities of such series, money without consideration of any reinvestment
and after payment of all federal, state and local taxes or other charges
and assessments in respect thereof payable by the Trustee, to pay and
discharge the principal of and interest on the Outstanding Securities to
maturity or earlier
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redemption (irrevocably provided for under arrangements satisfactory to the
Trustee), as the case may be;
(ii) such deposit will not result in a breach or violation of, or
constitute a default under, this Indenture or any other material agreement
or instrument to which the Issuer is a party or by which it is bound;
(iii) no event which, with the giving of notice or lapse of time,
would become an Event of Default with respect to the Securities of such
series shall have occurred and be continuing on the date of such deposit;
(iv) the Issuer has delivered to the Trustee an Opinion of Counsel to
the effect that (A) the Holders of the Securities will not recognize
income, gain or loss for federal income tax purposes as a result of the
Issuer's exercise of its option under this Section 9.03 and will be subject
to federal income tax on the same amount and in the same manner and at the
same times as would have been the case if such option had not been
exercised and (B) such Holders have a valid perfected first security
interest in the trust funds subject to no prior liens under the Uniform
Commercial Code; and
(v) the Issuer has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, in each case stating that all conditions
precedent provided for herein relating to the covenant defeasance
contemplated by this Section 9.03 of the Securities of such series have
been complied with.
SECTION 9.04. Application of Trust Money. Subject to Section 9.05 of this
Indenture, the Trustee or Paying Agent shall hold in trust money deposited with
him pursuant to Sections 9.01, 9.02 or 9.03 of this Indenture, as the case may
be, in respect of the Securities and shall apply the deposited money in
accordance with the Securities and this Indenture to the payment of principal of
and interest on the Securities; but such money need not be segregated from other
funds except to the extent required by law.
SECTION 9.05. Repayment to Issuer. Subject to Sections 5.06, 9.01, 9.02 and
9.03 of this Indenture, the Trustee and each Paying Agent shall promptly pay to
the Issuer upon request set forth in an Officers' Certificate any excess money
held by them at any time and thereupon shall be relieved from all liability with
respect to such money. The Trustee and any Paying Agent shall pay to the Issuer
upon written request any money held by them under this Indenture that remains
unclaimed for two years; provided that the Trustee or such Paying Agent before
being required to make any payment may cause to be published at the expense of
the Issuer once in a newspaper of general circulation in The City of New York
(which will, if practicable, be The Wall Street Journal (Eastern Edition))
published in the English language at least once a day for at least five days in
each calendar week or mail to each Holder entitled to such money at such
Holder's address (as set forth in the Security Register) notice that such money
remains unclaimed and that after a date specified therein (which shall be at
least 30 days from the date of such publication or mailing) any unclaimed
balance of such money then remaining will be repaid to the Issuer. After payment
to the Issuer, Holders entitled to such money must look to the Issuer for
payment as general creditors unless an applicable law designates another Person,
and all liability of the Trustee and such Paying Agent with respect to such
money shall cease.
ARTICLE 10
MISCELLANEOUS PROVISIONS
SECTION 10.01. Incorporators, Stockholders, Officers and Directors of
ISSUER and Issuer Exempt from Individual Liability. No recourse under or upon
any obligation, covenant or agreement contained in this Indenture, or in any
Security, or because of any indebtedness evidenced thereby, shall be had against
any incorporator, as such or against any past, present or future stockholder,
officer or director, as such, of the Issuer or the Issuer or of any successor,
either directly or through the Issuer or any successor, under any rule of law,
statute or constitutional provision or by the enforcement of any assessment or
by any legal or equitable proceeding or otherwise, all such liability being
expressly waived and released by the acceptance of the Securities by the holders
thereof and as part of the consideration for the issue of the Securities.
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SECTION 10.02. Provisions of Indenture for the Sole Benefit of Parties and
Securityholders. Nothing in this Indenture or in the Securities, expressed or
implied, shall give or be construed to give to any person, firm or corporation,
other than the parties hereto and their successors and the Holders of the
Securities, any legal or equitable right, remedy or claim under this Indenture
or under any covenant or provision herein contained, all such covenants and
provisions being for the sole benefit of the parties hereto and their successors
and of the Holders of the Securities.
SECTION 10.03. Successors and Assigns of Issuer Obligated by Indenture. All
the covenants, stipulations, promises and agreements in this Indenture contained
by or in behalf of the Issuer shall bind its successors and assigns, whether so
expressed or not.
SECTION 10.04. Notices and Demands on Issuer, Trustee and
Securityholder. Any notice or demand which by any provision of this Indenture is
required or permitted to be given or served by the Trustee or by the Holders of
Securities to or on the Issuer may be given or served by being deposited postage
prepaid, first-class mail (except as otherwise specifically provided herein)
addressed (until another address of the Issuer is filed by the Issuer with the
Trustee) to Performance Asset Management Company, 4100 Newport Place, Suite 400,
Newport Beach, California 92660. Any notice, direction, request or demand by the
Issuer or any Securityholder to or upon the Trustee shall be deemed to have been
sufficiently given or made, for all purposes, if given or made at the Trust
Office.
Where this Indenture provides for notice to Holders, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed, first-class postage prepaid, to each Holder entitled thereto, at his
last address as it appears in the Security Register. In any case where notice to
Holders is given by mail, neither the failure to mail such notice, nor any
defect in any notice so mailed, to any particular Holder shall affect the
sufficiency of such notice with respect to other Holders. Where this Indenture
provides for notice in any manner, such notice may be waived in writing by the
person entitled to receive such notice, either before or after the event, and
such waiver shall be the equivalent of such notice. Waivers of notice by Holders
shall be filed with the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such waiver.
In case, by reason of the suspension of or irregularities in regular mail
service, it shall be impracticable to mail notice to the Issuer and
Securityholders when such notice is required to be given pursuant to any
provision of this Indenture, then any manner of giving such notice as shall be
satisfactory to the Trustee shall be deemed to be a sufficient giving of such
notice.
SECTION 10.05. Officers' Certificates and Opinions of Counsel; Statements
to Be Contained Therein. Upon any application or demand by the Issuer to the
Trustee to take any action under any of the provisions of this Indenture, the
Issuer shall furnish to the Trustee an Officers' Certificate stating that all
conditions precedent provided for in this Indenture relating to the proposed
action have been complied with and an Opinion of Counsel stating that in the
opinion of such counsel all such conditions precedent have been complied with,
except that in the case of any such application or demand as to which the
furnishing of such documents is specifically required by any provision of this
Indenture relating to such particular application or demand, no additional
certificate or opinion need be furnished.
Each certificate or opinion provided for in this Indenture and delivered to
the Trustee with respect to compliance with a condition or covenant provided for
in this Indenture shall include (a) a statement that the person making such
certificate or opinion has read such covenant or condition, (b) a brief
statement as to the nature and scope of the examination or investigation upon
which the statements or opinions contained in such certificate or opinion are
based, (c) a statement that, in the opinion of such person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with and (d) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.
Any certificate, statement or opinion of an officer of the Issuer may be
based, insofar as it relates to legal matters, upon a certificate or opinion of
or representations by counsel, unless such officer knows that the certificate or
opinion or representations with respect to the matters upon which his
certificate, statement or
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opinion may be based as aforesaid are erroneous, or in the exercise of
reasonable care should know that the same are erroneous. Any certificate,
statement or opinion of counsel may be based, insofar as it relates to factual
matters, on information with respect to which is in the possession of the
Issuer, upon the certificate, statement or opinion of or representations by an
officer of officers of the Issuer, unless such counsel knows that the
certificate, statement or opinion or representations with respect to the matters
upon which his certificate, statement or opinion may be based as aforesaid are
erroneous, or in the exercise of reasonable care should know that the same are
erroneous.
Any certificate, statement or opinion of an officer of the Issuer or of
counsel may be based, insofar as it relates to accounting matters, upon a
certificate or opinion of or representations by an accountant or firm of
accountants in the employ of the Issuer, unless such officer or counsel, as the
case may be, knows that the certificate or opinion or representations with
respect to the accounting matters upon which his certificate, statement or
opinion may be based as aforesaid are erroneous, or in the exercise of
reasonable care should know that the same are erroneous.
Any certificate or opinion of any independent firm of public accountants
filed with the Trustee shall contain a statement that such firm is independent.
SECTION 10.06. Payments Due on Saturdays, Sundays and Holidays. If the date
of maturity of interest on or principal of the Securities or the date fixed for
redemption or repayment of any such Security shall not be a Business Day, then
payment of interest or principal need not be made on such date, but may be made
on the next succeeding Business Day with the same force and effect as if made on
the date of maturity or the date fixed for redemption, and no interest shall
accrue for the period from and after such date.
SECTION 10.07. Conflict of Any Provision of Indenture with Trust Indenture
Act of 1939. If and to the extent that any provision of this Indenture limits,
qualifies or conflicts with another provision included in this Indenture by
operation of Sections 310 to 317, inclusive, of the Trust Indenture Act of 1939
(an "incorporated provision"), such incorporated provision shall control.
SECTION 10.08. California Law to Govern. This Indenture and each Security
shall be deemed to be a contract under the laws of the State of California, and
for all purposes shall be construed in accordance with the laws of such State,
except as may otherwise be required by mandatory provisions of law.
SECTION 10.09. Counterparts. This Indenture may be executed in any number
of counterparts, each of which shall be an original; but such counterparts shall
together constitute but one and the same instrument.
SECTION 10.10. Effect of Headings. The article and section headings herein
and the Table of Contents are for convenience only and shall not affect the
construction hereof.
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<PAGE> 472
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed and attested, all as of October 31, 1997.
PERFORMANCE ASSET MANAGEMENT COMPANY,
a Delaware Corporation
By:
------------------------------------
Its: Chief Executive Officer
By:
------------------------------------
Its: Secretary
Attest:
By:
--------------------------------------------------------
By:
---------------------------------
Trustee
Attest:
By:
--------------------------------------------------------
M-27
<PAGE> 473
APPENDIX N
PERFORMANCE ASSET MANAGEMENT COMPANY
A DELAWARE CORPORATION
UNSECURED SUBORDINATED DEBENTURE
DUE JANUARY 31, 2005
Performance Asset Management Company, a Delaware corporation ("Issuer"),
and any successors or assigns, for value received, promises to pay to
, or to registered assigns, the principal amount of , on
presentation and surrender of this Debenture on January 31, 2005, and to pay
interest on that principal sum from January 31, 1998, at a variable interest
rate equal to 120% of the applicable federal rate as determined in accordance
with Section 1274 of the Internal Revenue Code of 1986, payable on January 1 and
July 1 of each year and based on a 365-day year, until that sum has been paid.
Payment of the principal and interest on this Debenture will be made at the
office of the Issuer in Newport Beach, California.
THE SECURITIES EVIDENCED, REPRESENTED AND CONTEMPLATED BY THE PROVISIONS OF
THIS DEBENTURE HAVE NOT BEEN REGISTERED PURSUANT TO THE PROVISIONS OF THE
SECURITIES ACT OF 1933 ("ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE
RESOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED UNTIL (1) THE
COMPANY HAS RECEIVED FROM COUNSEL AN OPINION SATISFACTORY TO THE COMPANY THAT
SUCH TRANSFER CAN BE MADE WITHOUT COMPLIANCE WITH THE REGISTRATION PROVISIONS OF
THE ACT, OR (2) A REGISTRATION STATEMENT FILED BY THE COMPANY IS DECLARED
EFFECTIVE OR ANY AND ALL ACTION NECESSARY TO PERFECT AN EXEMPTION IS COMPLETED.
Reference is made to the further provisions of this Debenture set forth in
the Indenture under which this Debenture is issued ("Indenture") and such
further provisions in the Indenture shall for all purposes have the same effect
as though fully set forth herein. This Debenture shall not be entitled to any
benefit under the Indenture, or become valid or obligatory for any purpose,
until the certificate of authentication on this Debenture is signed on behalf of
the Trustee.
IN WITNESS WHEREOF, the Company has caused this Debenture to be executed in
its corporate name by the signature of its Chief Executive Officer and attested
by the signature of its Secretary.
Date: PERFORMANCE ASSET MANAGEMENT
COMPANY
By:
------------------------------------
Vincent Galewick
Its: Chairman of the Board of
Directors
By:
------------------------------------
Michael Cushing
Its: Secretary
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Debentures referred to in the above-mentioned Indenture.
, as Trustee,
By:
------------------------------------
Trustee
N-1
<PAGE> 474
This Debenture is one of a duly authorized issue of Debentures from the
Issuer and any successor designated as its Unsecured Subordinated Debentures due
January 31, 2005 ("Debentures"), all issued or to be issued under an Indenture
dated as of October 31, 1997, between the Issuer and , as trustee
("Trustee") ("Indenture"). Reference is made to the Indenture for a
specification of the rights and limitations of rights of the holders of the
Debentures under the Indenture; and the rights, duties, and immunities of the
Trustee under the Indenture. Each holder of this Debenture, by accepting it,
agrees to be and shall be obligated by the provisions of the Indenture.
SUBORDINATION. The indebtedness evidenced by the Debentures is, to the
extent provided in the Indenture, subordinate and subject in right of payment to
the prior payment in full of all Senior Debt. The term "Senior Debt" means the
principal of, interest on and other amounts due on indebtedness of the Issuer,
whether outstanding on the closing date of the Merger or thereafter created,
incurred, assumed or guaranteed by the Issuer; unless, in the instrument
creating or evidencing or pursuant to which indebtedness is outstanding, it is
expressly provided that such indebtedness is not senior in right of payment to
the Debentures. Senior Debt includes, with respect to the obligations described
above, interest accruing on or after the filing of any petition in bankruptcy or
for reorganization relating to the Issuer, whether or not post-filing interest
in allowed in such proceedings at the rate specified in the instrument governing
the relevant obligation, as well as all expenses and reimbursements due the
Trustee. Notwithstanding anything to the contrary in the foregoing, Senior Debt
shall not include (a) indebtedness of or amount owed by the Issuer for
compensation to employees, or for goods, services or materials purchased in the
ordinary course of business; (b) indebtedness of the Issuer to a subsidiary or
affiliate of the Issuer or any officer, director or employee of the Issuer; (c)
any liability for federal, state, local or other taxes, owed or owing by the
Issuer; or (d) indebtedness evidenced by any other class of securities of the
Issuer.
PAYMENTS UNDER DEBENTURE. Interest only shall be payable semiannually
beginning on June 1, 1998 and continuing thereafter on the first day of calendar
months December and June of each calendar year until the principal is paid in
full. On January 31, 2005, all amounts remaining unpaid under this Debenture
shall be due and payable.
DEFAULT. If an Event of Default, as defined in the Indenture, occurs, the
principal of all Debentures then outstanding under the Indenture may be declared
due and payable on the conditions, in the manner, and with the effect provided
in the Indenture.
PREPAYMENT. The Issuer may prepay this Debenture without premium or
penalty. In the event that there are net proceeds derived from any sale or
refinancing of the assets previously owned by (name of
Partnership), 80% of the net proceeds of any sale or refinancing of those assets
shall be paid to the holders of Debentures whose interests in such limited
partnership were purchased with the Debentures. Any such payment shall be
applied against the outstanding principal on the Debentures.
CURRENCY. All amounts specified by the provisions of this Debenture are in
United States Dollars.
N-2
<PAGE> 475
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
There are provisions in the Partnership Agreements which specify that the
General Partner shall have no liability to the Partnerships for any loss
occurring because of any act or omission by the General Partner; provided,
however, that the General Partner's conduct was in the best interest of the
respective Partnership; and, provided, further, that the General Partner's
conduct did not constitute fraud, bad faith, gross misconduct or gross
negligence. As a result, Limited Partners may have a more limited right of
action in certain circumstances than they would in the absence of such a
provision in the Partnership Agreements.
The Partnership Agreements, also, provide, to the extent permitted by law,
that the Partnerships shall indemnify the General Partner against liability and
related expenses (including attorney's fees) incurred in dealings with third
parties; provided, however, the conduct of the General Partner is consistent
with the standards described in the preceding paragraph. A successful claim for
such indemnification would deplete Partnership assets by the amount of that
claim. The General Partner is not indemnified against liabilities occurring
pursuant to the provisions of the Securities Act of 1933. The Partnerships do
not and shall not pay for any insurance insuring the liability of the General
Partner or any other persons for actions or omissions for which indemnification
is not permitted by the Partnership Agreements; provided, however, the General
Partner may be an additional insured party on policies obtained for the benefit
of the Partnerships to the extent there is no additional cost to the
Partnerships or decrease in the insurance proceeds payable to the Partnerships.
Section 145 of the Delaware General Corporation Law specifies that the
Certificate of Incorporation of a Delaware corporation may include a provision
eliminating or limiting the personal liability of a director or officer to that
corporation or its stockholders for damages for breach of fiduciary duty as a
director or officer, but such a provision must not eliminate or limit the
liability of a director or officer for (a) acts or omissions which involve
intentional misconduct, fraud, or a knowing violation of law; or (b) unlawful
distributions to stockholders. The Certificate of Incorporation of the Company,
as amended, includes a provision eliminating or limiting the personal liability
of the officers and directors of the Company to the Company and its shareholders
for damages for breach of fiduciary duty as a director or officer. Moreover, the
Company's Bylaws provide certain indemnity to a controlling person, director or
officer which affects such a person's liability while acting in a corporate
capacity. The Company has entered into various indemnification agreements with
its officers and directors, copies of which are attached to the Registration
Statement as exhibits thereto. Furthermore, the Merger Agreement provides
indemnification for directors and officers of the Company. Accordingly, the
officers and directors of the Company may have no liability to the shareholders
of the Company for any mistakes or errors of judgment or for any act or
omission, unless such act or omission involves intentional misconduct, fraud, or
a knowing violation of law or results in unlawful distributions to the
shareholders of the Company. The Company believes that the scope of the
liability and indemnification provisions contained, in the aggregate, in the
Company's Bylaws, Certificate of Incorporation, as amended, and the Merger
Agreement, while similar to those contained in the Partnership Agreements,
provides greater protection to the Company's directors and officers against
claims for personal liability than the protection afforded to the General
Partner under the Partnership Agreements.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES ACT OF
1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS CONTROLLING THE COMPANY
PURSUANT TO THE FOREGOING PROVISIONS, THE COMPANY HAS BEEN INFORMED THAT IN THE
OPINION OF THE SECURITIES AND EXCHANGE COMMISSION SUCH INDEMNIFICATION IS
AGAINST PUBLIC POLICY AS EXPRESSED IN THE ACT AND IS, THEREFORE, UNENFORCEABLE.
II-1
<PAGE> 476
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Each exhibit attached hereto is listed according to the number assigned to
it in the exhibit table specified in Regulation S-K Item 601(a)(2).
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------
<C> <S>
1 Soliciting Agent Agreement
2 Agreement and Plan of Merger (Included as Appendix A to Joint Consent
Statement/Prospectus and incorporated herein by reference)
3.1 Certificate of Incorporation, as amended, for Performance Asset Management Company
3.1.1 Certificate of Amendment of Certificate of Incorporation of Performance Asset
Management Company
3.2 Articles of Incorporation for Performance Capital Management, Inc.
3.3 Restated Articles of Incorporation for Performance Capital Management, Inc.
3.4 Amended and Restated Bylaws of Performance Capital Management, Inc.
3.5 Bylaws of Performance Asset Management Company
4.1 Indenture Agreement (included as Appendix M to Joint Consent Statement/Prospectus
and incorporated herein by reference)
4.2 Unsecured Subordinated Debenture (included as Appendix N to Joint Consent
Statement/Prospectus and incorporated herein by reference)
4.3 Certificate of Designations, Preferences, and Relative Rights, Qualifications and
Restrictions of the Series A Convertible Preferred Stock of Performance Asset
Management Company
5 Form of Opinion re: Legality
6 Not required
7 Not required
8 Opinion re: Tax Matters*
9 Voting Trust Agreement (not applicable)
10.1 Agreement for Indemnification with PCM (Fry)
10.2 Agreement for Indemnification with PCM (Collette)
10.3 Agreement for Indemnification with PCM (Savage)
10.4 Agreement for Indemnification with PCM (Cushing)
10.5 Agreement for Indemnification with PCM (Galewick)
10.6 Agreement for Indemnification with PDI (Cushing)
10.7 Agreement for Indemnification with PDI (Galewick)
10.8 Joint Venture Agreement (PCM and PAM)
10.9 Joint Venture Agreement (PCM and PAM II)
10.10 Joint Venture Agreement (PCM and PAM III)
10.11 Amended and Restated Joint Venture Agreement (PCM and PAM)
10.12 Amended and Restated Joint Venture Agreement (PCM and PAM II)
10.13 Amended and Restated Joint Venture Agreement (PCM and PAM III)
10.14 Amended and Restated Joint Venture Agreement (PCM and PAM IV)
10.15 Amended and Restated Joint Venture Agreement (PCM and PAM V)
10.16 Indemnification Agreement (the Company and Savage)
10.17 Indemnification Agreement (the Company and Cushing)
10.18 Indemnification Agreement (the Company and Galewick)
</TABLE>
II-2
<PAGE> 477
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------
<C> <S>
11 Statement re: Computation of Per Share Earnings
12 Statement re: Computation of Ratios
13 Annual report to Security Holders (not applicable)
14 Not required
15 Letter re: Unaudited Interim Financial Information
16 Letter re: Change in Certifying Accountant (not applicable)
17 Not required
18 Not required
19 Not required
20 Not required
21 Subsidiaries of the Registrant(not applicable)
22 Not required
23.1 Independent Auditor's Consent
23.2 Consent of Independent Financial Advisor
24 Power of Attorney (Included on Page II-5)
25 Statement of Eligibility of Trustee(s)*
26 Invitation for Competitive Bids (not applicable)
27 Financial Data Schedule
28 Not required
99.1 Agreement of Limited Partnership of Performance Asset Management Fund, Ltd., a
California Limited Partnership
99.2 Agreement of Limited Partnership of Performance Asset Management Fund II, Ltd., a
California Limited Partnership
99.3 Agreement of Limited Partnership of Performance Asset Management Fund III, Ltd., a
California Limited Partnership
99.4 Agreement of Limited Partnership of Performance Asset Management Fund IV, Ltd., a
California Limited Partnership
99.5 Agreement of Limited Partnership of Performance Asset Management Fund V, Ltd., a
California Limited Partnership
99.6 Certificate of Limited Partnership of Performance Asset Management Fund, Ltd., a
California Limited Partnership
99.7 Certificate of Limited Partnership of Performance Asset Management Fund II, Ltd., a
California Limited Partnership
99.8. Certificate of Limited Partnership of Performance Asset Management Fund III, Ltd.,
a California Limited Partnership
99.9 Certificate of Limited Partnership of Performance Asset Management Fund IV, Ltd., a
California Limited Partnership
99.10 Certificate of Limited Partnership of Performance Asset Management Fund V, Ltd., a
California Limited Partnership
</TABLE>
- ---------------
* To be Filed by Amendment
II-3
<PAGE> 478
ITEM 22. UNDERTAKINGS
UNDERTAKINGS
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Registration Statement of Form S-4, within one
business day of receipt of such request, and to send the incorporated documents
by first class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the Effective Date of this
Registration Statement on Form S-4 through the date of responding to the
request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and being
acquired involved therein, that was not the subject of and included in this
Registration Statement on Form S-4 when it became effective.
The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
undersigned registrant undertakes that such reoffering prospectus will contain
the information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
The undersigned registrant hereby undertakes that every prospectus (i) that
is filed pursuant to paragraph (1) immediately preceding, or (ii) that purports
to meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 145, will be filed as
part of an amendment to this Registration Statement on Form S-4 and will not be
used until such amendment is effective, and that, for purposes of determining
any liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to provide to the Exchange
Agent on the Closing Date certificates in such denominations and registered in
such names as required by the Exchange Agent to permit prompt delivery.
II-4
<PAGE> 479
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Newport Beach, State of California, on November 4,
1997.
Performance Asset Management Company
By: /s/ VINCENT E. GALEWICK
------------------------------------
Vincent E. Galewick
Chairman and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby authorizes and appoints
Vincent E. Galewick as attorney-in-fact and agent, acting alone, with full
powers of substitution, to sign on his behalf, individually and in the
capacities stated below, and to file any and all amendments, including
post-effective amendments, to this registration statement and exhibits and other
documents in connection therewith, with Securities and Exchange Commission,
granting to said attorney-in-fact and agent full power and authority to perform
any other act on behalf of the undersigned required to be done in the premises.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------- -------------------------- -----------------
<C> <S> <C>
/s/ VINCENT E. GALEWICK Chairman of the Board, November 4, 1997
- ----------------------------------------------- Chief Executive Officer,
Vincent E. Galewick and President
/s/ MICHAEL CUSHING Director, Executive Vice November 4, 1997
- ----------------------------------------------- President and Chief
Michael Cushing Financial Officer
/s/ WILLIAM SAVAGE Director, Vice President November 4, 1997
- ----------------------------------------------- of Operations
William Savage
</TABLE>
II-5
<PAGE> 480
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ --------------------------------------------------------------------------- ------------
<C> <S> <C>
1 Soliciting Agent Agreement.................................................
2 Agreement and Plan of Merger (Included as Appendix A to Joint Consent
Statement/Prospectus and incorporated herein by reference).................
3.1 Certificate of Incorporation, as amended, for Performance Asset Management
Company....................................................................
3.1.1 Certificate of Amendment of Certificate of Incorporation of Performance
Asset Management Company...................................................
3.2 Articles of Incorporation for Performance Capital Management, Inc..........
3.3 Restated Articles of Incorporation for Performance Capital Management,
Inc........................................................................
3.4 Amended and Restated Bylaws of Performance Capital Management, Inc.........
3.5 Bylaws of Performance Asset Management Company.............................
4.1 Indenture Agreement (included as Appendix M to Joint Consent
Statement/Prospectus and incorporated herein by reference).................
4.2 Unsecured Subordinated Debenture (included as Appendix N to Joint Consent
Statement/Prospectus and incorporated herein by reference).................
4.3 Certificate of Designations, Preferences, and Relative Rights,
Qualifications and Restrictions of the Series A Convertible Preferred Stock
of Performance Asset Management Company....................................
5 Form of Opinion re: Legality...............................................
6 Not required...............................................................
7 Not required...............................................................
8 Opinion re: Tax Matters*...................................................
9 Voting Trust Agreement (not applicable)....................................
10.1 Agreement for Indemnification with PCM (Fry)...............................
10.2 Agreement for Indemnification with PCM (Collette)..........................
10.3 Agreement for Indemnification with PCM (Savage)............................
10.4 Agreement for Indemnification with PCM (Cushing)...........................
10.5 Agreement for Indemnification with PCM (Galewick)..........................
10.6 Agreement for Indemnification with PDI (Cushing)...........................
10.7 Agreement for Indemnification with PDI (Galewick)..........................
10.8 Joint Venture Agreement (PCM and PAM)......................................
10.9 Joint Venture Agreement (PCM and PAM II)...................................
10.10 Joint Venture Agreement (PCM and PAM III)..................................
10.11 Amended and Restated Joint Venture Agreement (PCM and PAM).................
10.12 Amended and Restated Joint Venture Agreement (PCM and PAM II)..............
10.13 Amended and Restated Joint Venture Agreement (PCM and PAM III).............
10.14 Amended and Restated Joint Venture Agreement (PCM and PAM IV)..............
10.15 Amended and Restated Joint Venture Agreement (PCM and PAM V)...............
10.16 Indemnification Agreement (the Company and Savage).........................
10.17 Indemnification Agreement (the Company and Cushing)........................
</TABLE>
<PAGE> 481
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ --------------------------------------------------------------------------- ------------
<C> <S> <C>
10.18 Indemnification Agreement (the Company and Galewick).......................
11 Statement re: Computation of Per Share Earnings............................
12 Statement re: Computation of Ratios........................................
13 Annual report to Security Holders (not applicable).........................
14 Not required...............................................................
15 Letter re: Unaudited Interim Financial Information.........................
16 Letter re: Change in Certifying Accountant (not applicable)................
17 Not required...............................................................
18 Not required...............................................................
19 Not required...............................................................
20 Not required...............................................................
21 Subsidiaries of the Registrant(not applicable).............................
22 Not required...............................................................
23.1 Independent Auditor's Consent..............................................
23.2 Consent of Independent Financial Advisor...................................
24 Power of Attorney (Included on Page II-5)..................................
25 Statement of Eligibility of Trustee(s)*....................................
26 Invitation for Competitive Bids (not applicable)...........................
27 Financial Data Schedule....................................................
28 Not required...............................................................
99.1 Agreement of Limited Partnership of Performance Asset Management Fund,
Ltd., a California Limited Partnership.....................................
99.2 Agreement of Limited Partnership of Performance Asset Management Fund II,
Ltd., a California Limited Partnership.....................................
99.3 Agreement of Limited Partnership of Performance Asset Management Fund III,
Ltd., a California Limited Partnership.....................................
99.4 Agreement of Limited Partnership of Performance Asset Management Fund IV,
Ltd., a California Limited Partnership.....................................
99.5 Agreement of Limited Partnership of Performance Asset Management Fund V,
Ltd., a California Limited Partnership.....................................
99.6 Certificate of Limited Partnership of Performance Asset Management Fund,
Ltd., a California Limited Partnership.....................................
99.7 Certificate of Limited Partnership of Performance Asset Management Fund II,
Ltd., a California Limited Partnership.....................................
99.8. Certificate of Limited Partnership of Performance Asset Management Fund
III, Ltd., a California Limited Partnership................................
99.9 Certificate of Limited Partnership of Performance Asset Management Fund IV,
Ltd., a California Limited Partnership.....................................
99.10 Certificate of Limited Partnership of Performance Asset Management Fund V,
Ltd., a California Limited Partnership.....................................
</TABLE>
- ---------------
* To be Filed by Amendment
<PAGE> 1
EXHIBIT 1.1
PERFORMANCE ASSET MANAGEMENT COMPANY
SOLICITATION OF VOTES
SOLICITING AGENT AGREEMENT
October ___, 1997
Income Network Company
4100 Newport Place, Suite 400
Newport Beach, California 92660
Gentlemen and Ladies:
Performance Asset Management Fund, Ltd., A California Limited
Partnership; Performance Asset Management Fund II, Ltd., A California Limited
Partnership; Performance Asset Management Fund III, Ltd., A California Limited
Partnership; Performance Asset Management Fund IV, Ltd., A California Limited
Partnership; Performance Asset Management Fund V, Ltd., A California Limited
Partnership ("Partnerships"), and Performance Capital Management, Inc., a
California corporation ("PCM") are participating in a transaction whereby, upon
the satisfaction of certain conditions, each of the Partnerships and PCM will
merge with and into Performance Asset Management Company, a Delaware corporation
("Company"). In connection with the Merger (as defined below) the Company is
offering up to approximately _______________ shares of its Common Stock, $.01
par value per share ("Shares") in exchange for the assets of the Partnerships
and PCM.
The limited partners of the Partnerships are referred to herein as the
"Limited Partners." The solicitation of votes with respect to the Merger is
referred to herein as the "Solicitation." Capitalized terms used herein, not
otherwise defined, shall have the meanings given them in the Joint Consent
Statement/Prospectus (as defined below).
The above-described transaction shall take place on the terms and
subject to the conditions set forth in the Merger Agreement and Plan of
Reorganization between the Company, PCM and the Partnerships dated
________________. ("Merger Agreement"). The Solicitation will be made by means
of the Joint Consent Statement/Prospectus.
The Company proposes to retain you as soliciting agent ("Soliciting
Agent") for the purpose of soliciting votes of the Limited Partners for the
approval of the Merger. If votes approving the Merger are received from the (a)
Limited Partners holding greater than 75% of the interests of each Partnership
("Units"); (b) shareholders holding a majority in interest of the no par voting
common stock of PCM; (c) shareholders holding
1
<PAGE> 2
a majority in interest of the $.001 par value common stock of the Company; and
(d) the conditions to the Merger as specified in the Merger Agreement are
satisfied, the Partnerships, PCM and the Company will close and consummate the
Merger.
The Company hereby confirms its agreement with you as follows:
1. REGISTRATION STATEMENT AND JOINT CONSENT STATEMENT/PROSPECTUS. The
Company has prepared and filed with the Securities and Exchange Commission
("Commission") pursuant to the Securities Act of 1933, as amended ("Securities
Act"), a Registration Statement on Form S-4 (No. ______________), including a
Joint Consent Statement/Prospectus with respect to the Shares (which
Registration Statement, at the time it is declared effective, is referred to
herein as the "Registration Statement"). As used in this Agreement, the term
"Joint Consent Statement/Prospectus" means the Joint Consent
Statement/Prospectus for the Shares and the solicitation of votes included in
the Registration Statement; provided, however, that if the Company subsequently
files any Joint Consent Statement/Prospectus or supplements pursuant to Rule
424(b) under the Securities Act in connection with the Merger, the terms "Joint
Consent Statement/Prospectus" and "Supplement" shall also mean the Joint Consent
Statement/Prospectus and supplement(s) in the forms so filed.
2. SOLICITATION. The Company shall, as soon as practicable after the
Registration Statement shall have become effective under the Securities Act,
commence the Solicitation by mailing copies of the Solicitation Materials (as
defined below) to the record and beneficial owners of the Units (the time of
commencement of such mailing being referred to herein as the "Time of Mailing").
The materials to be distributed to the beneficial owners and record holders will
consist of a Letter of Transmittal and Consent Form and will be accompanied by
the Joint Consent Statement/Prospectus. Such documents, any other documents
relating to the Solicitation distributed by or on behalf of the Company to the
Limited Partners or to the Soliciting Agent for distribution to the Limited
Partners and any public announcements or advertisements relating to the
Solicitation, are referred to herein collectively as the "Solicitation
Materials." The Registration Statement and the Solicitation Materials are
collectively referred to herein as the "Offering Materials." The Solicitation
shall expire upon the earlier of the termination of this Agreement in accordance
with its terms, the Closing Date (as hereinafter defined) or March 31, 1998. As
used in this Agreement, the term "Expiration Date" shall refer to the date that
the Solicitation expires.
3. AGREEMENT TO ACT AS SOLICITING AGENT. The Company hereby appoints
you to act as Soliciting Agent and authorizes you and, on the basis of the
agreements, representations and warranties herein contained, you agree to act as
such in
2
<PAGE> 3
connection with the Merger. The Company authorizes you to solicit consents
during the period from the date hereof to the Expiration Date. You are
authorized to use only the Solicitation Materials.
4. INDEPENDENT CONTRACTOR. You will act hereunder as an independent
contractor, and nothing herein will constitute you as an agent of the Company in
connection with the Solicitation; provided, however, that the Company hereby
authorizes you to act as its agent in making the Solicitation on its behalf to
residents of any state or non-federal jurisdiction of the United States in which
you are registered or licensed as a broker-dealer and as to which such
registration or licensing is necessary to comply with Blue Sky Laws (defined
below). Nothing contained in this Agreement will constitute you as a partner of,
or a joint venturer or member of a syndicate or group with, the Company in
connection with the Solicitation.
5. LIMITATIONS ON AUTHORITY. You are not authorized by the Company to
give any information or make any representations in connection with the
Solicitation, other than those contained in the Joint Consent
Statement/Prospectus and the Solicitation Materials. You agree not to publish,
circulate or otherwise use any other advertisement or solicitation material
without the prior written approval of the Company and counsel to the Company.
6. COMPENSATION AND EXPENSES. You shall be entitled to receive a fee
from the Company equal to 2% of the aggregate Exchange Value of Units held by
Limited Partners who return a completed Letter of Transmittal, whether the
Limited Partner votes for or against the Merger Proposal. Regardless of whether
or not the Merger is consummated, the Partnerships and the Company will
reimburse you as Soliciting Agent for all reasonable out-of-pocket expenses
(including advertising expenses, the reasonable fees and expenses of counsel,
printing and traveling expenses and postage, telegraph and telephone charges)
incurred in connection with the Solicitation pursuant to the terms of the Merger
Agreement. If the Merger is not consummated for any reason, the Partnerships and
the Company will make such reimbursement as soon as practicable after the
Expiration Date pursuant to the terms of the Merger Agreement. You agree that
each of the Partnerships and the Company shall be liable to reimburse you
pursuant to this Section 6 only on the proportionate basis set forth in the
Merger Agreement. The obligations of the Partnerships and the Company pursuant
to this Section 6 and Section 8(d) hereof shall be joint but not several.
7. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SOLICITING AGENT.
You represent and warrant to, and covenant with, the Company as follows:
A. You are a member in good standing of the National Association of
Securities Dealers, Inc. ("NASD").
3
<PAGE> 4
B. You will solicit Limited Partners' consents only in the states and
U.S. territories in which the Company believes, as described in the Blue Sky
memorandum, that such a solicitation can legally be made and in which you are
qualified to so act and such solicitation shall be made subject to any
conditions set forth in the Blue Sky memorandum.
C. Solicitation and other activities by you will be undertaken only in
compliance with the Securities Act, the Securities Exchange Act of 1934, as
amended ("Exchange Act"), all applicable rules and regulations of the NASD,
including, but not limited to, the Rules of Fair Practice, all applicable Blue
Sky laws, all other applicable laws, rules and regulations and the provisions of
this Agreement.
D. You agree to comply, to the extent applicable, with the provisions
of Rule 15c2-8 under the Exchange Act.
8. COVENANTS OF THE COMPANY. The Company covenants and agrees with you
that:
A. The Company will notify you promptly of any proposed extension,
modification, withdrawal or termination of the Solicitation.
B. The Company will, when and as requested by you, use its best efforts
necessary to permit or qualify the Solicitation under the securities laws of
each jurisdiction in which Limited Partners reside ("Blue Sky Laws") and to
maintain the right to participate in the Solicitation in such jurisdictions
beginning with the Time of Mailing. The Company will also arrange for the
preparation of a Blue Sky memorandum indicating under what circumstances the
Solicitation may be made pursuant to the Blue Sky Laws. The Blue Sky memorandum
shall not constitute Solicitation Materials as that term is used herein.
C. The Company will furnish or will cause to be furnished to you
without charge copies of the Offering Materials and all amendments of and
supplements thereto, in each case as soon as available and in such quantities as
you shall reasonably request.
D. In addition to the payments provided for in Section 6 above, and
except as described in the Joint Consent Statement/Prospectus or in this
Agreement as being paid by persons other than the Partnerships or the Company,
the Partnerships and the Company will pay all expenses of the Merger, pursuant
to the terms of the Merger
4
<PAGE> 5
Agreement, including, but not limited to, expenses incurred in connection with
the following:
(1) the preparation, printing and filing of the Registration Statement,
the Offering Materials, the certificates representing the Shares
and any amendments of or supplements to any such documents;
(2) the printing and furnishing of such documents transmitting the
Solicitation Materials to the Limited Partners (including costs of
mailing, personalizing and shipment);
(3) the initial and continuing registration or qualification of the
Solicitation under the Blue Sky Laws as required herein, including
the reasonable fees and expenses of counsel, and all filing fees in
connection therewith;
(4) any filing with the NASD;
(5) the advertisements authorized by you and the Company and printed in
connection with the Merger; and
(6) the reasonable fees and disbursements of counsel and accountants
for the Partnerships and the Company.
9. INDEMNIFICATION. A. The Soliciting Agent shall indemnify, defend and
hold harmless the Company, the Partnerships and PCM, and each of them, and each
of their affiliates and their officers, directors, partners, accountants,
attorneys, employees and agents and each person, if any, who controls such
entities within the meaning of the Securities Act, and any similar provisions of
any applicable state securities law ("Indemnified Parties"), against all losses,
claims, damages, liabilities and expenses, including reasonable legal and other
expenses in investigating or defending any such losses, claims, damages,
liabilities or expenses, which they or any of them may incur, including, but not
limited to, alleged violations of the Securities Act, the Exchange Act, or any
state securities act (collectively, "Losses"), arising out of the breach by the
Soliciting Agent of any of the terms and conditions of this Agreement.
B. If any action is brought against any Indemnified Party in respect of
which indemnity may be sought from the Soliciting Agent pursuant to the
provisions of this Agreement, such Indemnified Party shall promptly notify the
Soliciting Agent of such action in writing and the Soliciting Agent shall assume
the defense thereof, including the
5
<PAGE> 6
employment of counsel and the payment of all expenses. Such Indemnified Party
shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party unless (i) the employment
thereof has been specifically authorized by the Soliciting Agent in writing,
(ii) the Soliciting Agent has failed to assume such defense and so employ
counsel, or (iii) the named parties to any such proceeding (including any
impleaded parties) include both the Soliciting Agent and such Indemnified Party,
and the Company or such Indemnified Party shall have been advised by counsel
that there may be one or more legal defenses available to it which are different
from or in addition to those available to the Soliciting Agent.
C. The Company shall indemnify, defend and hold harmless the Soliciting
Agent and its affiliates and their officers, directors, partners, attorneys,
accountants, employees and agents and each person, if any, who controls the
Soliciting Agent within the meaning of the Securities Act, and any similar
provisions of any applicable state securities law, against any and all Losses
arising out of or based upon the breach by the Company of any of the terms and
conditions of this Agreement or arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in the
Offering Materials, in any application prepared or approved by the Company and
filed with any state regulatory agencies in order to register or qualify the
Shares under the securities laws thereof, or arising out of or based upon any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements made therein not misleading,
except insofar as such Losses arise out of or are based upon any such untrue
statement or omission or allegation thereof made in reliance upon and in
conformity with information relating to the Soliciting Agent furnished by the
Soliciting Agent expressly for use in connection therewith.
D. If any action shall be brought against the Soliciting Agent or any
other person in respect of which indemnity may be sought from the Company
pursuant to the provisions of this Agreement, the Soliciting Agent or such other
person shall promptly notify the Company of such action in writing and the
Company shall assume the defense thereof, including the employment of counsel
and the payment of all expenses. The Soliciting Agent or such other person shall
have the right to employ separate counsel in any such action and participate in
the defense thereof, but the fees and expenses of such counsel shall be at the
Soliciting Agent's or such other person's expense unless (i) the employment
therewith has been specifically authorized by the Company in writing, (ii) the
Company has failed to assume such defense and so employ counsel, or (iii) the
named parties to any such proceeding (including any impleaded parties) include
both the Soliciting Agent or such other person and the Company, and the
Soliciting Agent or such other person shall have been advised by counsel that
there may be one or more legal
6
<PAGE> 7
defenses available to it which are different from or in addition to those
available to the Company.
10. EFFECTIVE DATE AND TERMINATION OF AGREEMENT. A. This Agreement
shall become effective at 9:00 A.M., Pacific Time, on the first full business
day following the date hereof. Until this Agreement is effective, it may be
terminated by the Company by giving notice as hereinafter provided to you, or by
you by giving notice as hereinafter provided to the Company, except that the
provisions of Sections 6, 8 and 9 hereof shall at all times be effective. Any
termination of this Agreement pursuant to this Section 10 shall be without
liability on the part of the Company or you, except that the provisions of
Sections 6, 8 and 9 hereof shall at all times be effective.
B. The Company shall have the right to terminate this Agreement by
giving written notice at any time at or prior to the Closing Date, if any event
shall occur or any matter shall be brought to its attention that, in its
judgment, materially affects, whether adversely or otherwise, the Company or the
Merger or if any of the conditions to the Merger as set forth in the Joint
Consent Statement/Prospectus or the Merger Agreement are not satisfied. Any such
termination shall be without liability on the part of the Company or you, except
that the provisions of Sections 6, 8 and 9 hereof shall at all times be
effective. If the Company elects to terminate this Agreement pursuant to this
section, it shall notify you promptly by telephone, facsimile machine or
telegraph, confirmed promptly by letter.
11. CLOSING; MERGER AND DELIVERY OF THE SHARES. Subject to satisfaction
of the conditions set forth in the Joint Consent Statement/Prospectus and the
Merger Agreement, the closing of the Merger shall take place at the offices of
the Company at 10:00 a.m. on a date not later than March 31, 1998, such date
being herein referred to as the "Closing Date." On or before the Closing Date,
the Company shall cause to be delivered a sufficient number of duly executed and
authenticated certificates representing and evidencing the Shares with
instructions for the registrar and transfer agent to distribute them to the
respective persons entitled thereto as soon as practicable.
12. NOTICES. Any notice or demand required or permitted to be given or
made to or upon any party pursuant hereto shall be deemed to have been duly
given or made for all purposes (a) if in writing and delivered by hand or sent
by certified or registered mail, postage prepaid, return receipt requested, or
(b) if given by telephone or sent by telegram, facsimile machine, telex or other
electronic means and followed by a written copy delivered or sent in the manner
provided in clause (a), to such party at the following address:
7
<PAGE> 8
To the Company: Performance Asset Management Company
4100 Newport Place, Suite 400
Newport Beach, California 92660
Telecopier: 714.752.3535
To you: Income Network Company
4100 Newport Place, Suite 400
Newport Beach, California 92660
Telecopier: 714.752.3535
or to such other address as any party hereto may, at any time, or from time to
time, direct by notice given to the other parties in accordance with this
Section 12. The date of giving or making of any such notice or demand shall be
the earlier of the date of actual receipt or three (3) business days after such
notice or demand is sent, or, if given or sent in accordance with clause (b),
the earlier of the date of actual receipt of such notice or demand or the
business day next following the day such notice of demand is actually
transmitted.
13. SURVIVAL OF CERTAIN REPRESENTATIONS AND OBLIGATIONS. The respective
representations, warranties, covenants and agreements made pursuant to this
Agreement will remain in full force and effect, regardless of any investigation
or statement as to the results thereof made by or on behalf of you, or the
Company, or any controlling person of any of the foregoing. The obligations of
the parties hereto under Sections 6, 8 and 9 hereof will survive termination of
this Agreement.
14. CONSTRUCTION. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California without regard to
principles of conflicts of law.
15. SAVINGS CLAUSE. In the event any provision of this Agreement is
determined to be unenforceable by a court of competent jurisdiction, the
remaining provisions of this Agreement shall continue in full force and effect.
8
<PAGE> 9
If the foregoing terms correctly set forth our agreement, please
confirm this by signing and returning to us the duplicate copy of this letter.
Thereupon, this letter shall constitute our agreement on the subject matter
herein.
Very truly yours,
PERFORMANCE ASSET MANAGEMENT COMPANY,
a Delaware corporation
By: _________________________________
Confirmed and Agreed to:
INCOME NETWORK COMPANY,
a California corporation
By: _________________________________
9
<PAGE> 1
EXHIBIT 3.1
PAGE 1
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "PERFORMANCE ASSET MANAGEMENT COMPANY", FILED IN THIS OFFICE
ON THE SEVENTH DAY OF MAY, A.D. 1996, AT 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
/s/ EDWARD J. FREEL
[SEAL] -----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 7937145
DATE: 05-07-96
<PAGE> 2
CERTIFICATE OF INCORPORATION
OF
PERFORMANCE ASSET MANAGEMENT COMPANY
FIRST. The name of this corporation shall be:
PERFORMANCE ASSET MANAGEMENT COMPANY
SECOND. Its registered office in the State of Delaware is to be located
at 1013 Centre Road, in the City of Wilmington, County of New Castle and its
registered agent at such address is CORPORATION SERVICE COMPANY.
THIRD. The purpose or purposes of the corporation shall be:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH. The total number of shares of stock which this corporation is
authorized to issue is:
One hundred million (100,000,000) shares of common stock with a par
value of $.001 and ten million (10,000,000) shares of preferred stock with a par
value of $.001.
FIFTH. The name and address of the incorporator is as follows:
Evelyn F. Wright
Corporation Service Company
1013 Centre Road
Wilmington, DE 19805
SIXTH. The Board of Directors shall have the power to adopt, amend or
repeal the by-laws.
<PAGE> 3
SEVENTH. No director shall be personally liable to the Corporation or
its stockholders for monetary damages for any breach of fiduciary duty by such
director as a director. Notwithstanding the foregoing sentence, a director shall
be liable to the extent provided by applicable law, (i) for breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) pursuant to Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which the director derived an
improper personal benefit. No amendment to or repeal of this Article Seventh
shall apply to or have any effect on the liability or alleged liability of any
director of the Corporation for or with respect to any acts or omissions of such
director occurring prior to such amendment.
IN WITNESS WHEREOF, the undersigned, being the incorporator
hereinbefore named, has executed, signed and acknowledged this certificate of
incorporation this seventh day of May, A.D., 1996.
/s/ EVELYN F. WRIGHT
----------------------------
Evelyn F. Wright
Incorporator
<PAGE> 4
ACTION OF SOLE INCORPORATOR
PERFORMANCE ASSET MANAGEMENT COMPANY
The undersigned, without a meeting, being the sole incorporator of the
Corporation, does hereby elect the persons listed below to serve as directors of
the corporation until the first annual meeting of shareholders and until their
successors are elected and qualify:
VINCENT E. GALEWICK
/s/ EVELYN F. WRIGHT
----------------------------
Evelyn F. Wright
Incorporator
Dated: May 7,1996
<PAGE> 1
EXHIBIT 3.1.1
PERFORMANCE ASSET MANAGEMENT CORPORATION
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
Performance Asset Management Corporation, a corporation organized and
existing pursuant to the provisions and by virtue of the General Corporation Law
of the State of Delaware, does hereby certify:
First: That the members of the Board of Directors of this corporation, by
unanimous written consent of those members, adopted a resolution proposing and
declaring advisable the following amendment to the Certificate of Incorporation
of this corporation:
RESOLVED, that the Certificate of Incorporation of this corporation shall
be, and hereby is, amended by adding Article 8, Article 9, Article 10, Article
11 and Article 12 so that, as amended, those Articles shall be, and hereby are,
as follows:
8. All of any part of the shares of the preferred or common stock
of this corporation may be issued by this corporation from time to
time and for such consideration as may be determined and fixed by
the Board of Directors of this corporation, as provided by law,
with due regard to the interests of the existing shareholders of
this corporation; and when such consideration has been received by
this corporation, those shares shall be deemed fully paid and
non-assessable.
The Board of Directors of this corporation is authorized,
subject to limitations prescribed by law and the provisions of
this article, to provide for the issuance of shares of the
preferred stock of this corporation in series, and by filing a
certificate pursuant to the applicable law of the State of
Delaware, to establish from time to time the number of shares of
such preferred stock to be included in each such series, and to
determine the designations, powers, preferences, and rights of the
shares of each such series and the qualifications, limitations, or
restrictions thereof.
1
<PAGE> 2
The authority of the Board of Directors with respect to
each such series shall include, but not be limited to,
determination of the following:
(a) The number of shares constituting that series and the
distinctive designation of that series;
(b) The dividend rate, if any, for the shares of that
series, whether dividends shall be cumulative, and, if so, from
which date or dates, and the relative rights of priority, if any,
of payment of dividends for shares of that series;
(c) Whether that series shall have voting rights, in
addition to the voting rights provided by law, and, if so, the
terms of those voting rights;
(d) Whether that series shall have conversion privileges,
and, if so, the terms and conditions of such conversion, including
provision for adjustment of the conversion rate in those events as
the Board of Directors shall determine;
(e) Whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of such
redemption, including the date or dates upon or after which those
shares shall be redeemable, and the amount per share payable in
case of redemption, which amount may vary in different conditions
and at different redemption dates;
(f) Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the
terms and amount of that sinking fund;
(g) The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up
this corporation, and the relative rights of priority, if any, for
payment of shares of that series; and
(h) Any other relative rights, preferences and limitations
of that series.
2
<PAGE> 3
9. In the event that a person becomes a "Controlling Person", as
defined herein, and seeks to implement a "Business Combination" of
the Company with such person, there shall be a special vote, in
addition to whatever other vote may be required, of two-thirds of
the outstanding Common Shares not held by the Controlling Person
in order to approve any such transaction. This special vote will
not be required, however, if a "Minimum Price Per Share" is to be
paid to those holders of Common Shares who do not vote in favor of
the Business Combination and whose proprietary interest will be
terminated in connection with such Business Combination and a
proxy statement is distributed for purposes of soliciting
Shareholder approval of the Business Combination. This special
vote will also not be required if the then current Board of
Directors, by a vote of at least two-thirds of the directors then
in office, approves the proposed Business Combination as being in
the best interests of the Company.
A Controlling Person is defined as any person who
"Beneficially Owns" more than 10% of the Company's Common Shares.
"Beneficially Owns" is defined broadly to include all forms of
ownership and all types of arrangements that give a person, either
directly or indirectly, actual or potential voting rights or
investment decision authority with respect to the Company's common
shares.
"Business Combination" includes virtually every transaction
between a Controlling Person (and certain affiliates and
associates) and the Company (or a subsidiary of the Company) which
would involve a combination of the business operations or assets
of such persons. The phrase also encompasses reclassifications and
recapitalizations involving the Company's Common Shares while a
person is a Controlling Person.
"Minimum Price Per Share" is defined as the higher of (i)
the highest gross per share price paid or agreed to be paid within
three years of the record date for the Business Combination to
acquire any Common Share of the Company Beneficially Owned by a
Controlling Person, or (ii) the highest per share market price of
the Common Shares during such three-year period.
This Article Nine cannot be amended, altered, changed or
repealed in any respect without the affirmative vote of the
holders of at least two-thirds of the outstanding Common Shares
that are not owned by a Controlling Person. This Article Nine is
intended to prevent unfair pricing or other tactics that might
occur if a person in control of the Company
3
<PAGE> 4
negotiates a Business Combination with the Company. Under such
circumstances, a Controlling Person could in effect control both
sides of the negotiation. This Article Nine is meant to require
the Controlling Person to either negotiate directly with the
Company's Board of Directors and obtain the Board's approval or to
offer a fair price to all Shareholders.
10. If, at any time, a proposal is made that the Company enter
into a merger or consolidation with any other corporation (other
than a direct or indirect wholly-owned subsidiary of the Company),
or sell or otherwise dispose of all or substantially all of its
assets or business in one transaction or a series of transactions,
or liquidate or dissolve, the affirmative vote of the holders of
not less than two-thirds of the outstanding voting shares of the
Company will be required for the approval of such proposal.
The foregoing does not apply to any such merger,
consolidation, sale, disposition, liquidation or dissolution which
is approved by resolution of two-thirds of the directors of the
Company then in office, if the majority of the members of the
Board of Directors adopting such resolution were members of the
Board of Directors prior to the public announcement of the
proposed merger, consolidation, sale, disposition, dissolution or
liquidation and prior to the public announcement of any
transaction relating to such merger, consolidation, sale,
disposition, dissolution or liquidation. If such approval is
granted, then such transaction will only require such additional
approval, if any, as is otherwise required under the other
Articles of the Certificate of Incorporation and under law.
11. Any "Control Share Acquisition" of shares of the Company can
only be made with the prior approval of the Company's
Shareholders. A "Control Share Acquisition" is defined as any
acquisition of shares of the Company that, when added to all other
shares of the Company owned by the acquiror, would entitle the
acquiror to exercise levels of voting power in the following
ranges: one fifth or more but less than one third, one third or
more but less than a majority, and a majority.
The acquiror may make the proposed Control Share
Acquisition only if both of the following occur: (i) the
Shareholders of the Company authorize the acquisition by an
affirmative vote of (a) a majority of the voting power of the
Company represented at the meeting in person or by proxy and (b) a
majority of the portion of such voting power, excluding the voting
power of Shares that may be voted by the acquiror, by any officer
of the corporation elected or appointed by the directors, and by
any
4
<PAGE> 5
employee of the Company who is also a director; and (ii) the
proposed Control Share Acquisition is consummated no later than
360 days following the Shareholders' authorization of the control
share acquisition.
This Article Eleven does not apply to an acquisition of
Shares by any Shareholder or group of Shareholders who were
holders of Common Shares immediately after the Merger or to any
acquisition of Shares by certain affiliates of any such
Shareholder or group of Shareholders. This Article Eleven will
begin to apply to such Shareholders and affiliates, however, from
and after the point at which they collectively own less than 25%
of the Company's outstanding voting shares.
12. No person owning 10% or more of the Company's outstanding
voting shares ("Interested Shareholder") may engage in any
"Interested Shareholder Transaction" (generally, a merger,
consolidation, sale, lease or other disposition of substantial
assets either by the Company to the Interested Shareholder or vice
versa, including certain reclassifications of the Company's
Shares, or a loan or other financial benefit to the interested
Shareholder not shared pro rata with other Shareholders) with the
Company for three years following the date that person became an
Interested Shareholder unless (i) before that person became an
Interested Shareholder, the Board of Directors of the Company
approved the transaction in which the Interested Shareholder
became an Interested Shareholder or (ii) the Board approves the
Interested Shareholder Transaction.
This Article Twelve does not apply to an acquisition of
Shares by any shareholder or group of shareholders who were
holders of Common Shares immediately after the Merger or to any
acquisition of Shares by certain affiliates of any such
shareholder or group of shareholders. This Article Twelve will
begin to apply to such shareholders and affiliates, however, from
and after the point at which they collectively own less than 25%
of the Company's outstanding voting shares.
This Article Twelve cannot be amended, altered, changed or
repealed in any respect without the affirmative vote of the
holders of at least two-thirds of the outstanding Common Shares
that are not owned by the Interested Shareholder.
5
<PAGE> 6
Second: The holders of a majority of the issued and outstanding shares of
common stock of this corporation, which are the only shares entitled to a vote
regarding the amendment specified by this Certificate, approved such amendment
at the annual meeting of the shareholders of this corporation, which meeting was
held on June 30, 1997.
Third: That the amendment specified by this Certificate was duly adopted
in accordance with the applicable provisions of Section 242 of Title 8 of the
Delaware Code of 1953.
IN WITNESS WHEREOF, Performance Asset Management Company has caused its
corporate seal to be affixed to this Certificate, and this Certificate to be
signed by Vincent Galewick, its Chairman of the Board and its Secretary, this
30th day of June, 1997.
PERFORMANCE ASSET
MANAGEMENT CORPORATION
By:
--------------------------------
Vincent Galewick
Chairman of the Board/Secretary
6
<PAGE> 1
EXHIBIT 3.2
ARTICLES OF INCORPORATION
OF
PERFORMANCE CAPITAL MANAGEMENT, INC.
ARTICLE I:
1.1 Name. The name of the corporation is Performance Capital Management,
Inc.
ARTICLE II:
2.1 Purpose. The Purpose of the corporation is to engage in any lawful
act or activity for which a corporation may be organized under the General
Corporation Law of California other than the banking business, the trust company
business, or the practice of a profession permitted to be incorporated by the
California Corporations Code.
ARTICLE III:
3.1 Agent. The initial agent for the corporation for service of process
is: Vincent Galewick, 2749 Vista Bluff, Orange, CA.
ARTICLE IV:
4.1 Principal Office. The county in the state of California where the
principal office for the transaction of business of this corporation is to be
located in the County of Orange, California.
ARTICLE V:
5.1 Classes of shares. The corporation is authorized to issue one
hundred thousand (100,000) shares in only one class of shares.
ARTICLE VI:
7.1 Number of Directors. The number of directors of this corporation
shall be one (1).
<PAGE> 2
Date: JAN 16 1992
/s/ VINCENT E. GALEWICK
--------------------------------------
Vincent E. Galewick
The undersigned declares that he is the incorporator who has executed
these Article of Incorporation and hereby declares that this instrument is the
act and deed of the undersigned.
Executed at Irvine, California on 1/16/92
---------------------------------------
/s/ VINCENT E. GALEWICK
--------------------------------------
Vincent E. Galewick
<PAGE> 1
EXHIBIT 3.3
RESTATED ARTICLES OF INCORPORATION
OF
PERFORMANCE CAPITAL MANAGEMENT, INC.
Vincent E. Galewick certifies:
1 . He is the President and Secretary of Performance Capital Management,
Inc., a California corporation.
2. The Articles of Incorporation of Performance Capital Management, Inc.
as amended to the filing date of this certificate, which specify amendments to
Article III, Article IV, Article V and Article VI, are amended and restated to
specify as follows (with the omissions mandated by the provisions of Section
910(c) of the California Corporations Code):
I. NAME
The name of the corporation is PERFORMANCE CAPITAL MANAGEMENT, INC.
II. PURPOSE
The purpose of the corporation is to engage in any lawful act or
activity for which a corporation may be organized pursuant to the
General Corporation Law of California other than the banking business,
the trust company business, or the practice of a profession permitted to
be incorporated by the California Corporations Code.
III. STOCK
The corporation is authorized to issue only one (1) class of
shares, which shall be designated "common shares," having a total of one
hundred thousand (100,000) shares.
IV. LIMITATION ON DIRECTORS' LIABILITY
In any action for breach of directors' duties pursuant to
Section 309 of the California Corporations Code, the liability of the
directors of the corporation for monetary damages shall be eliminated to
the fullest extent permissible pursuant to California law.
V. INDEMNIFICATION OF AGENTS
Corporate agents, as that term is defined by the provisions of
Section 317 of the California Corporations Code, may be indemnified for
breach of duty to the corporation and the corporation's stockholders by
bylaw, agreement, or otherwise in excess of the indemnification
<PAGE> 2
permitted by the provisions of Section 317 of the California
Corporations Code. However, there shall be no indemnification of any
agent in circumstances expressly prohibited by the provisions of Section
317 of the California Corporations Code, or for any of the following
acts, omissions, or transactions, from which a director may not be
relieved of liability pursuant to the provisions of Section 204(a)(10)
of the California Corporations Code:
(1) Acts or omissions that involve intentional misconduct or a
knowing and culpable violation of law;
(2) Acts or omissions that an agent believes to be contrary to
the best interests of the corporation or the corporation's shareholders
or that involve the absence of good faith on the part of that agent;
(3) Any transaction from which an agent derived an improper
personal benefit;
(4) Acts or omissions that indicate a reckless disregard for an
agent's duty to the corporation or the corporation's shareholders in
circumstances in which that agent was aware or should have been aware,
in the ordinary course of performing that agent's duties, of a risk of
serious injury to the corporation or the corporation's shareholders;
(5) Acts of omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the agent's duty to the
corporation or the corporation's shareholders;
(6) Transactions between corporation and directors that are
prohibited by the provisions of Section 310 of the California
Corporations Code;
(7) Distributions, loans, and guaranties pursuant to the
provisions of Section 316 of the California Corporations Code;
(8) Acts or omissions that occurred prior to the date when the
provisions become effective; or
(9) Acts or omissions made by an officer in that capacity,
notwithstanding that officer is, also, a director or that officer's
actions, if negligent or improper, have been ratified by the directors
of the corporation.
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<PAGE> 3
VI. NUMBER OF SHAREHOLDERS
The corporation's issued and outstanding shares shall be held of
record by not more than thirty-five (35) persons. The corporation is a
"close" corporation.
3. The Articles of Incorporation of Performance Capital Management, Inc.
as amended and restated in this certificate, have been approved by a resolution
of the Board of Directors of Performance Capital Management, Inc. dated March 8,
1993.
4. The Restated Articles of Incorporation specified above have been
approved by the required shareholder vote in accordance with the provisions of
Section 902 of the California Corporations Code. The corporation has one class
of shares designated "common." The total number of outstanding shares entitled
to vote with respect to the amendment and restatement of the Articles of
Incorporation is ____________________. The percentage vote required entitled to
vote is fifty-one percent (51%). The number of shares voting in favor of that
amendment and restated Articles of Incorporation was______________________,
which exceeded the vote required.
Date: March _____, 1993
-------------------------------------
Vincent E. Galewick, President
Date: March _____, 1993
-------------------------------------
Vincent E. Galewick, Secretary
The undersigned declares under penalty of perjury that the matters set
forth in this Certificate are true and correct of his own knowledge, and that
this declaration was executed on the date opposite the signature of the
undersigned at Costa Mesa, California.
Date: March ______, 1993
------------------------------------
Vincent E. Galewick
3
<PAGE> 1
EXHIBIT 3.4
BYLAWS
OF
PERFORMANCE CAPITAL MANAGEMENT, INC.
<PAGE> 2
BYLAWS
OF
PERFORMANCE CAPITAL MANAGEMENT, INC.,
a California corporation
<TABLE>
<S> <C> <C>
ARTICLE I. OFFICES................................................................................1
Section 1.01 Principal Executive Office.......................................1
Section 1.02 Other Offices....................................................1
ARTICLE II. DIRECTORS.............................................................................1
Section 2.01 Definitions......................................................1
Section 2.02 Responsibility of Board..........................................1
Section 2.03 Number of Directors..............................................2
Section 2.04 Election and Term of Office......................................2
Section 2.05 Resignation......................................................2
Section 2.06 Vacancies........................................................2
Section 2.07 Filling Vacancies................................................3
Section 2.08 Call of Meetings.................................................4
Section 2.09 Place of Meetings................................................4
Section 2.10 Time of Regular Meetings.........................................4
Section 2.11 Notice of Meetings...............................................4
Section 2.12 Waiver of Notice.................................................5
Section 2.13 Quorum...........................................................5
Section 2.14 Transactions of Board............................................5
Section 2.15 Withdrawal of Quorum.............................................5
Section 2.16 Adjournment......................................................5
Section 2.17 Conduct of Meetings..............................................5
Section 2.18 Telephone Participation..........................................6
Section 2.19 Action Without Meeting...........................................6
Section 2.20 Duties of Directors..............................................6
Section 2.21 Compensation.....................................................7
Section 2.22 Transactions With Corporation....................................7
Section 2.23 Liability of Directors...........................................8
Section 2.24 Indemnification..................................................9
Section 2.25 Power to Indemnify..............................................10
Section 2.26 Expenses of Successful Agent....................................11
Section 2.27 Determination Indemnification is Proper.........................11
Section 2.28 Advance of Expenses.............................................11
Section 2.29 Indemnification not Exclusive...................................11
Section 2.30 Limitation on Indemnification...................................12
Section 2.31 Insurance.......................................................12
Section 2.32 Board Committees................................................13
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE III. DETERMINING SHAREHOLDERS OF RECORD..................................................14
Section 3.01 Record Date Fixed by Board......................................14
ARTICLE IV. SHAREHOLDERS' MEETINGS...............................................................15
Section 4.01 Place of Meetings...............................................15
Section 4.02 Annual Meeting..................................................15
Section 4.03 Notice of Meetings..............................................16
Section 4.04 Calling of Special Meetings.....................................17
Section 4.05 Quorum of Shareholders..........................................17
Section 4.06 Effect of Vote..................................................18
Section 4.07 Election of Directors...........................................18
Section 4.08 Votes Per Share.................................................18
Section 4.09 Voting Multiple Shares..........................................18
Section 4.10 Cumulative Voting...............................................18
Section 4.11 Voting of Shares by Fiduciaries, Minors, or Entities............19
Section 4.12 Proxies.........................................................20
Section 4.13 Voting Agreement and Trust......................................24
Section 4.14 Inspectors of Election..........................................25
Section 4.15 Conduct of Meetings.............................................25
Section 4.16 Order of Business...............................................26
Section 4.17 Action Without a Meeting........................................26
ARTICLE V. OFFICERS..............................................................................27
Section 5.01 Number and Titles...............................................27
Section 5.02 Appointment.....................................................27
Section 5.03 Other Officers..................................................27
Section 5.04 Removal and Resignation.........................................27
Section 5.05 Vacancies.......................................................28
Section 5.06 Chairman of the Board...........................................28
Section 5.07 President.......................................................28
Section 5.08 Vice President..................................................29
Section 5.09 Secretary.......................................................29
Section 5.10 Assistant Secretary.............................................31
Section 5.11 Chief Financial Officer.........................................31
Section 5.12 Assistant Treasurer.............................................33
Section 5.13 Compensation....................................................33
ARTICLE VI. EXECUTION OF INSTRUMENTS AND DEPOSIT OF FUNDS........................................33
Section 6.01 Limitations.....................................................33
Section 6.02 Execution of Instruments and Papers.............................33
Section 6.03 Signing of Checks...............................................33
Section 6.04 Deposit and Withdrawal of Funds.................................34
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE VII. ISSUANCE OF SHARES AND SHARE CERTIFICATES...........................................34
Section 7.01 Authority to Issue..............................................34
Section 7.02 Fractional Shares...............................................35
Section 7.03 Partly Paid Shares..............................................35
Section 7.04 Options.........................................................36
Section 7.05 Pre-emptive Rights..............................................36
Section 7.06 Employee Plans..................................................37
Section 7.07 Certificates of Determination...................................37
Section 7.08 Shareholders Right to Share Certificate.........................38
Section 7.09 Contents of Certificate.........................................39
Section 7.10 Exchange of Certificates........................................40
Section 7.11 Lost, Stolen, or Destroyed Certificate; Issuance of
New Certificate.................................................40
Section 7.12 Alternative System In Lieu of Certificates.....................40
ARTICLE VIII. TRANSFER OF SHARES.................................................................41
Section 8.01 Duty of Corporation.............................................41
Section 8.02 Non-liability of Corporation....................................41
Section 8.03 Liability of Corporation........................................42
Section 8.04 Liability on Transfer of Partly Paid Shares.....................42
ARTICLE IX. CORPORATE RECORDS, REPORTS AND SEAL..................................................43
Section 9.01 Minutes of Meetings.............................................43
Section 9.02 Books and Records of Account....................................43
Section 9.03 Record of Shareholders..........................................43
Section 9.04 Shareholder's Right to Inspect Record
of Shareholders by Written Demand
of Holders of Specified Percentage of Shares....................43
Section 9.05 Shareholder's Right to Inspect Books of Account
and Minutes.....................................................44
Section 9.06 Inspection by Directors.........................................44
Section 9.07 Annual Report...................................................44
Section 9.08 Special Financial Statements to Shareholders....................45
Section 9.09 Corporate Seal..................................................46
ARTICLE X. CERTIFICATION, INSPECTION, AND AMENDMENT OF BYLAWS....................................46
Section 10.01 Inspection and Certification of Bylaws..........................46
Section 10.02 Adoption, Amendment, Repeal of Bylaws
by Shareholders.................................................46
Section 10.03 Adoption, Amendment, Repeal of Bylaws
by Directors....................................................46
ARTICLE XI. CONSTRUCTION OF BYLAWS...............................................................47
ARTICLE XII. CERTIFICATE OF SECRETARY ............................................................48
</TABLE>
iii
<PAGE> 5
BYLAWS
OF
PERFORMANCE CAPITAL MANAGEMENT, INC.,
a California corporation
ARTICLE I
OFFICES
Section 1.01. Principal Executive Office. The principal executive office
of the corporation shall be located at such place as the Board of Directors may
from time to time designate.
Section 1.02. Other Offices. The corporation, also, may have offices at
such other places, within or without the State of California, where the
corporation is qualified to do business, as the Board of Directors may from time
to time designate or the business of the corporation may require.
ARTICLE II.
DIRECTORS
Section 2.01. Definitions.
(a) Articles. As used in these Bylaws, the word "Articles" shall be
defined as, and shall mean, the Articles of Incorporation of the corporation, as
amended from time to time.
(b) Board. As used in these Bylaws, the word "Board" shall be defined
as, and shall mean, the Board of Directors of the corporation.
(c) Code. As used in these Bylaws, the word "Code" shall be defined as,
and shall mean, the California Corporations Code, as amended from time to time.
(d) Directors. As used in these Bylaws, the word "Directors", in
relation to any power or duty requiring collective action, shall be defined as,
and shall mean, the Board.
(e) Law. As used in these Bylaws, the word "Law" shall be defined as,
and shall mean, the General Corporation Law as enacted in the State of
California as amended from time to time and as specified in Division I of the
Code.
Section 2.02. Responsibility of Board. Subject to the provisions of the
Law and to any limitations in the Articles relating to action required to be
approved by the shareholders, as that term is defined in Section 153 of the
Code, or by the outstanding shares, as that term is defined in Section 152 of
the Code, or by a less than majority vote of a class or series of preferred
shares, as set forth in Section 402.5 of the Code, the business and affairs of
the corporation shall be managed, and all corporate powers shall be exercised,
by or pursuant to the direction of the Board. The Board may delegate the
management of the day-to-day operation of the business of the corporation to a
management company or other person; provided, however, the business and affairs
of the corporation shall be managed, and all corporate powers shall be
exercised, pursuant to the ultimate direction of the Board.
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Section 2.03. Number of Directors.
(a) Variable Board. The number of directors of the corporation shall be
not less than three (3) or more than five (5). The exact number of directors
within these limits shall be fixed by approval of the Board in the same manner
provided in these Bylaws for the amendment hereof.
(b) Change in Board. After shares have been issued, a bylaw specifying
or changing a fixed number of directors or the maximum or minimum number of
directors or changing from a fixed to a variable Board, or vice versa, may be
adopted only by approval of the outstanding shares, as that term is defined in
Section 152 of the Code; provided, however, a bylaw reducing the minimum number
to a number less than five (5) cannot be adopted if the votes cast against the
adoption of such bylaw at a meeting of shareholders or the shares not consenting
in the case of action by written consent are equal to more than sixteen and two
thirds percent (16-2/3%) of the outstanding shares entitled to vote.
(c) Less than Three (3) Shareholders. Notwithstanding any other
provision of this Section 2.03, (i) before shares are issued, the number of
directors may be one (1) director; (ii) before shares are issued, the number of
directors may be two (2) directors; (iii) if the number of shareholders of the
corporation is one (1), there may be one (1) director, or there may be two (2)
directors; and (iv) if the number of shareholders of the corporation is two (2),
there may be two (2) directors.
(d) Exact Number. The exact number of directors shall be one (1) until
changed as provided in this Section 2.03.
Section 2.04. Election and Term of Office. At each annual meeting of
shareholders directors shall be elected to hold office until the next annual
meeting of shareholders, but if any such annual meeting is not held or the
directors are not elected thereat, the directors may be elected at any special
meeting of shareholders held for that purpose. Each director, including a
director elected to fill a vacancy (see Section 2.07 of these Bylaws), shall
hold office until the expiration of the term for which that director is elected
and until a successor has been elected and qualified.
Section 2.05. Resignation. Any director may resign effective on giving
written notice to the Chairman of the Board, if any, the President, the
Secretary, or the Board, unless such notice specifies a later time for the
effectiveness of such resignation. If such resignation is effective at a future
time, a successor may be elected to take office when such resignation becomes
effective.
Section 2.06. Vacancies.
(a) Defined. A vacancy on the Board occurs when any authorized position
of director is not filled by a duly elected director, whether caused by death,
resignation, removal, change in the authorized number of directors (by the Board
or the shareholders), or otherwise.
(b) Declaration of Vacancy by Board. The Board may declare vacant the
office of a director who has been declared of unsound mind by order of a court
of competent jurisdiction, or convicted of a felony.
(c) Removal of Director by Shares. Any and all of the directors may be
removed without cause if such removal is approved by the outstanding shares, as
that term is defined in Section 152 of the Code, subject to the following:
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<PAGE> 7
(1) No director may be removed (unless the entire Board is removed)
when the votes cast against removal, or not consenting in writing
in the case of action by written consent, would be sufficient to
elect such director if voted cumulatively at an election at which
the same total number of votes were cast (or, if such action is
taken by written consent, all shares entitled to vote were voted)
and the entire number of directors authorized at the time of such
director's most recent election were then being elected; and
(2) When by the provisions of the Articles the holders of the shares
of any class or series, voting as a class or series, are entitled
to elect one or more directors, any director so elected may be
removed only by the applicable vote of the holders of the shares
of that class or series.
(d) Removal by Court. Shareholders holding at least ten percent (10%) of
the number of outstanding shares of any class of the corporation may sue in the
superior court of the county in which the principal executive office of the
corporation is located to remove from office any director in case of fraudulent
or dishonest acts or gross abuse of authority or discretion with reference to
the corporation and may bar from reelection any director removed for a period
prescribed by the court. In such case, the corporation must be made a party to
the action.
(e) Reduction of Authorized Number of Directors. Any reduction of the
authorized number of directors shall not remove any director prior to the
expiration of such director's term of office.
(f) Provisions Exclusive. Except as provided in Paragraphs (a) through
(d), inclusive, of this Section 2.06, no director may be removed from office
prior to the expiration of such director's term of office.
Section 2.07. Filling Vacancies.
(a) The Board. Except as otherwise provided in the Articles or in these
Bylaws, and except for a vacancy created by the removal of a director as
provided in Section 2.06 of these Bylaws, vacancies on the Board may be filled
by approval of the Board pursuant to Section 151 of the Code or, if the number
of directors then in office is less than a quorum, by (1) the unanimous written
consent of the directors then in office, (2) the affirmative vote of a majority
of the directors then in office at a meeting held pursuant to notice or waivers
of notice complying with Section 3.07 of the Code, or (3) a sole remaining
director.
(b) By Shareholders. Unless the Articles or a bylaw adopted by the
shareholders provide vacancies occurring in the Board by reason of the removal
of directors may be filled by the Board, those vacancies may be filled only by
approval of the shareholders, as that term is defined in Section 153 of the
Code. Moreover, the shareholders may elect a director at any time to fill any
vacancy not filled by the directors and any such election by written consent
shall require the consent of a majority of the outstanding shares entitled to
vote; provided, however, no director shall be elected by written consent to fill
a vacancy created by removal of any director except by the unanimous written
consent of all shares entitled to vote for the election of directors.
(c) By Special Meeting. If, after the filling of any vacancy by the
directors, the directors
3
<PAGE> 8
then in office who have been elected by the shareholders shall constitute less
than a majority of the directors then in office, any holder or holders of an
aggregate of five percent (5%) or more of the total number of shares at the time
outstanding having the right to vote for such directors may call a special
meeting of the shareholders, or apply to the superior court of the county in
which the principal executive office of the corporation is located for an order
that a special meeting of shareholders of the corporation be held to elect the
entire Board. The term of office of any director shall terminate on that
election of a successor.
Section 2.08. Call of Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board or the Vice Chairman of the
Board, if there be such officers, or by the President, or any Vice President, or
the Secretary, or the Treasurer, or any director of the corporation. Special
meetings of any Board committee may be called by the Chairman thereof or any two
members thereof.
Section 2.09. Place of Meetings. Regular meetings of the Board of
Directors and of all Board committees shall be held at the principal executive
office of the corporation. Special meetings of the Board and of all Board
committees shall be held at the location specified in the notice of the meeting
or, in the absence of such specification, at the principal executive office of
the corporation. The Board is authorized to designate, from time to time, by
duly adopted resolution, a place or places other than those specified above as
the place for regular or special meetings of the Board and of all Board
committees.
Section 2.10. Time of Regular Meetings. The regular annual meeting of
the Board shall be held immediately following each annual meeting of the
shareholders, at the same place of that meeting of shareholders.
Section 2.11. Notice of Meetings.
(a) Regular Meetings. The regular annual meeting of the Board may be
held without call or notice.
(b) Special Meetings. Notice of the time and place of any special
meeting of the Board or of any Board committee must be in writing and delivered
personally to each director or Board committee member, as the case may be or
sent to each director or Board committee member, as the case may be, by first
class mail, postage prepaid, or by telegram, charges prepaid, addressed to such
director or member, as the case may be, at such director's or member's, as the
case may be, address of such address is shown on the records of the corporation
or, if not so shown, at the place where the meetings of the Board or the Board
committees are held regularly. Notice by mail or telegraph must be deposited in
the United States mail or delivered to the telegraph company in the place where
the corporation's principal executive office is located at least forty-eight
(48) hours prior to the time such meeting is to be held. Notice delivered in
person must be so delivered at least twenty-four (24) hours prior to the time
such meeting is held. Notice given as herein provided shall constitute due and
legal notice to such director or member, as the case may be.
(c) Entry of Service of Notice. The fact of service of notice, showing
that such notice was given in the manner provided above, shall be entered in the
minutes of the proceedings of the Board or Board committee, as the case may be,
and such entry, if the minutes are approved at a subsequent meeting of the Board
or Board committee, shall be conclusive regarding the issue of service.
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<PAGE> 9
(d) Registration of Address for Notice. Each director shall register
with the Secretary of the corporation such director's address, and notices of
meetings mailed or telegraphed to such address shall be valid notices thereof.
Section 2.12. Waiver of Notice. Notice of any meeting need not be given
to any director who signs a waiver of notice, or a consent to holding such
meeting or an approval of the minutes thereof, whether before after such
meeting, or who attends such meeting without protesting, prior to such meeting
or at the commencement of such meeting, the lack of notice to such director. Any
waiver of notice need not specify the purpose of the meeting. All waivers,
consents, and approvals of minutes shall be filed with the corporate records or
made a part of the minutes of the meeting to which those waivers, consents and
approvals pertain.
Section 2.13. Quorum. A majority of the authorized number of directors
constitutes a quorum of the Board for the transaction of business.
Section 2.14. Transactions of Board. Except as otherwise provided by
law, or in the Articles, or in these Bylaws, every act or decision done or made
by a majority of the directors present at a meeting duly held at which a quorum
is present is the act of the Board, subject to the provisions of Sections 2.22
and 2.27 of these Bylaws.
Section 2.15. Withdrawal of Quorum. Any meeting at which a quorum is
present initially may continue to transact business notwithstanding the
withdrawal of directors, if any action taken is approved by, at least, a
majority of the required quorum for such meeting.
Section 2.16. Adjournment. A majority of the directors present, whether
or not a quorum is present, may adjourn any meeting to another time and place.
If such meeting is adjourned for more than twenty-four (24) hours, however,
notice of the adjournment to another time or place must be given to the
directors who were not present at the time of the adjournment no later than
twenty-four (24) hours prior to the time of the adjourned meeting.
Section 2.17. Conduct of Meetings.
(a) Board. Meetings of the Board shall be presided over by the Chairman
of the Board, or in his absence, by the President of the corporation or, if he
be not present, by any Vice President of the corporation, and, if no such
officer is present, by any director chosen by a majority of the directors
present. The Secretary, or an Assistant Secretary, if any, of the corporation
shall attend and take minutes of such meetings. In the absence of such officer,
the presiding officer shall designate some person present to take minutes of the
meeting.
(b) Board Committee Meetings. Meetings of Board committees, if any,
shall be presided over by the respective chairmen of those committees or, in the
absence of such officer, by any member chosen by a majority of the members
present. Minutes of such meetings shall be taken by the secretary of the
committee if there be such an officer or, if there be not or in such officer's
absence, by the person designated by the chairman or acting chairman of the
committee.
(c) Procedure. The precedence of, and procedure on, motions and other
procedural matters at such meetings shall be governed so far as practicable by
Robert's Rules of Order insofar as such rules are not inconsistent with law,
with the Articles, with these Bylaws, or with Board resolutions.
5
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(d) Order of Business. The order of business at such meetings shall be
as follows, unless the notice of such meeting provides otherwise:
(1) Call to order;
(2) Announcement of a quorum;
(3) Reading, or waiver thereof, and approval of minutes of the
previous meeting;
(4) Announcements;
(5) Reports of officers;
(6) Report of committees;
(7) Reports of officers;
(8) New business (such as election of officers, declaration of
dividends, and so forth); and
(9) Adjournment.
Section 2.18. Telephone Participation. Members of the Board may
participate in any meeting by the use of conference telephone or similar
communications equipment so long as all members participating in such meeting
can hear one another. Participation in a meeting in this manner constitutes
presence in person at such meeting.
Section 2.19. Action Without Meeting. Any action required or permitted
to be taken by the Board or by any Board committee as the case may be may be
taken without a meeting, if all members of the Board or Board committee, shall
consent individually or collectively in writing to such action. Such written
consent or consents shall be filed with the minutes of the proceedings of the
Board or Board committee, as the case may be, and such action by written consent
shall have the same force and effect as a unanimous vote of such directors or
such members.
Section 2.20 Duties of Directors.
(a) Good Faith Performance. Each director shall perform in good faith
the duties of a director, including duties as a member of any committee of the
Board on which such director may serve, and in a manner such director believes
to be in the best interests of the corporation and the corporation's
shareholders and with such care, including reasonable inquiry, as an ordinarily
prudent person, in a similar situation, would use in similar circumstances.
(b) Right to Rely. In performing his duties, each director shall be
entitled, so long as in any such case such director acts in good faith after
reasonable inquiry when the need for such inquiry is indicated by the
circumstances and without knowledge that would cause such reliance to be
unwarranted, to rely on information, opinions, reports, or statements, including
financial statements and other financial data, in each case prepared or
presented by any of the following:
(1) One or more officers or employees of the corporation whom such
director believes to be reliable and competent in the matters presented;
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(2) Counsel, independent accountants, or other persons as to matters
which such director believes to be within such person's
professional or expert competence; or
(3) A committee on the Board on which such director does not serve,
as to matters within such committee's designated authority, which
committee such director believes to merit confidence.
(c) Liability. A person who performs the duties of a director in
accordance with Paragraphs (a) and (b) of this Section 2.20 shall have no
liability based on any alleged failure to discharge such person's obligation as
a director.
Section 2.21. Compensation. Directors shall not receive any stated
salary for their services as directors but, for such meeting(s) as the Board may
determine and by resolution of the Board, a fixed fee, with or without expenses
of attendance, may be allowed for attendance at such meeting(s). Nothing herein
contained shall be construed to preclude any director from serving the
corporation in any other capacity as an officer, agent, employee, or otherwise,
and receiving compensation therefor.
Section 2.22. Transactions With Corporation.
(a) Material Financial Interest. No contract or other transaction
between the corporation and one or more of the directors of the corporation, or
between the corporation and any other corporation, firm, or association in which
one or more of the directors of the corporation, has a material financial
interest, is either void or voidable because such director or directors or such
other corporation, firm, or association is a party or because such director or
directors is present at the meeting of the Board or Board committee which
authorizes, approves, or ratifies such contract or transaction, if:
(1) The material facts of such contract or transaction and of such
director's interest are fully disclosed or known to the
shareholders and such contract or transaction is approved by the
shareholders, as that term is defined in Section 153 of the Code,
in good faith, and the shares owned by the interested director or
directors are not voted thereon;
(2) The material facts of such contract or transaction and of such
director's interest are fully disclosed or known to the Board or
Board committee, and the Board or Board committee authorizes,
approves, or ratifies such contract or transaction in good faith
by a vote sufficient without counting the vote of the interested
director or directors and such contract or transaction is just
and reasonable as to the corporation at the time such contract or
transaction is authorized, approved, or ratified; or
(3) As to contracts or transactions not approved as provided in
Sub-Paragraphs (1) and (2) of this Paragraph (a), the person
asserting the validity of such contract or transaction sustains
the burden of proving such contract or transaction was just and
reasonable as to the corporation at the time such contract or
transaction was authorized, approved, or ratified.
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A mere common directorship does not constitute a material financial interest
within the meaning of the above provisions. Nor is a director interested, within
the meaning of the above provisions, in a resolution fixing the compensation of
another director as a director, officer, or employee of the corporation,
notwithstanding the fact the first director, also, is receiving compensation
from the corporation.
(b) Affiliated Associations. No contract or other transaction between
the corporation and any other corporation or association of which one or more of
the directors of the corporation is a director is either void or voidable
because such director or directors is present at the Board or Board committee
meeting which authorizes, approves, or ratifies such contract or transaction,
if:
(1) The material facts of such contract or transaction and of such
director's other directorship are fully disclosed or known to the
Board or Board committee, and the Board or Board committee
authorizes, approves, or ratifies such contract or transaction in
good faith by vote sufficient without counting the vote of the
common director or directors, or such contract or transaction is
approved by the shareholders, as that term is defined in Section
153 of the Code, in good faith; or
(2) As to contracts or transactions not approved as provided in
Sub-Paragraph (1) of this Paragraph (b), such contract or
transaction is just and reasonable as to the corporation at the
time such contract or transaction is authorized, approved, or
ratified.
This provision does not apply to contracts or transactions contemplated by
Paragraph (a) of this Section 2.22.
(c) Determining Quorum. Interested or common directors may be counted
in determining the presence of a quorum at a meeting of the Board
or Board committee which authorizes, approves, or ratifies such a
contract or transaction.
Section 2.23. Liability of Directors.
(a) Distributions. Subject to the provisions of Section 2.20 of these
Bylaws, directors who approve any of the following corporate actions shall be
jointly and severally liable to the corporation for the benefit of all of the
creditors or shareholders entitled to institute an action pursuant to Section
316(c) of the Code:
(1) The making of any distribution to the shareholders of the
corporation, as that term is defined in Section 166 of the Code,
to the extent such distribution is contrary to the provisions of
Sections 500 to 503, inclusive, of the Code;
(2) The distribution to shareholders of the corporation of assets
after institution of dissolution proceedings of the corporation,
if any, without paying or providing adequately for all known
liabilities of the corporation, excluding any claims not filed by
creditors within the time limit set forth in the notice given to
creditors pursuant to Sections 1800 and 2011, inclusive, of the
Code; or
(3) The making of any loan or guaranty contrary to the provisions of
Section 315 of the Code.
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(b) Abstention. A director who is present at a meeting of the Board, or
any Board committee, at which any action specified in Paragraph (a) of this
Section 2.23 is taken and who abstains from voting shall be considered to have
approved such action.
(c) Subrogation. Directors liable pursuant to the provisions of this
Section 2.23 shall be entitled to be subrogated to the rights of the
corporation:
(1) With respect to Sub-Paragraph (1) of Paragraph (a) of this
Section 2.23, against shareholders who received such
distribution;
(2) With respect to Sub-Paragraph (2) of Paragraph (a) of this
Section 2.23, against shareholders who received such distribution
of assets; and
(3) With respect to Sub-Paragraph (3) of Paragraph (a) of this
Section 2.23, against the person who received such loan guaranty.
(d) Statutory Limitation For Other Liability. No director shall have
personal liability for monetary damages in any action brought by or in the right
of the corporation for breach of such director's duties to the corporation and
the shareholders, as set forth in Section 2.20 of these Bylaws; provided,
however, the liability of any director of the corporation shall not be
eliminated:
(1) For acts or omissions which involve intentional misconduct or a
knowing and culpable violation of law;
(2) For acts or omissions which a director believed to be contrary to
the best interests of the corporation or the shareholders or
which involve the absence of good faith on the part of such
director;
(3) For any transaction from which a director derived an improper
personal benefit;
(4) For acts, or omissions which show a reckless disregard for such
director's duties to the corporation or the shareholders in
circumstances in which such director was aware, or should have
been aware, in the ordinary course of performing the duties of a
director, of a risk of serious injury to the corporation or the
shareholders;
(5) For acts or omissions which constitute an unexcused pattern of
inattention which amounts to an abdication of the duties of such
director to the corporation or the shareholders;
(6) Pursuant to the provisions of Section 310 of the Code; or
(7) Pursuant to the provisions of Section 316 of the Code.
Section 2.24. Indemnification.
(a) "Agent" Defined. For the purposes of Sections 2.25 to 2.31,
inclusive, of these Bylaws, the word "agent" shall be defined as, and shall
mean, any person who is or was a director, officer, employee, or other agent of
the corporation, or is or was serving at the request of the
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corporation as a director, officer, employee, or agent of another foreign or
domestic corporation, partnership, joint venture, trust, or other enterprise, or
was a director, officer, employee, or agent of a foreign or domestic corporation
which was a predecessor corporation of the corporation or of another enterprise
at the request of such predecessor corporation.
(b) "Proceeding" and "Expenses" Defined. For the purposes of Sections
2.25 to 2.31, inclusive, of these Bylaws, the word "proceeding" shall be defined
as, and shall mean, any threatened, pending, or completed action or proceeding,
whether civil, criminal, administrative, or investigative; and the word
"expenses" includes, without limitation, attorneys' fees and any expenses of
establishing a right to indemnification pursuant to the provisions of Section
2.26 or Paragraph (c) of Section 2.27 of these Bylaws.
Section 2.25. Power to Indemnify.
(a) Criminal Proceedings. The corporation shall have the power to
indemnify any person who was or is a party or is threatened to be made a party
to any proceeding (other than an action by or in the right of the corporation to
procure a judgment in the corporation's favor) by reason of the fact such person
is or was an agent of the corporation against expenses, judgments, fines,
settlements, and other amounts actually incurred regarding such proceeding if
such person acted in good faith and in a manner such person believed reasonably
to be in the best interests of the corporation and the shareholders and, in the
case of a criminal proceeding, had no reasonable cause to believe such conduct
by such person was unlawful. The termination of any proceeding by judgment,
order, settlement, conviction, or by a plea of nolo contendere or the equivalent
thereto, of itself, shall not create a presumption such person did not act in
good faith and in a manner which such person believed reasonably to be in the
best interests of the corporation and the shareholders, or such person had
reasonable cause to believe such person's conduct was unlawful.
(b) Other Proceedings. The corporation shall have the power to indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending, or completed action by or in the right of the corporation
to procure a judgment in the corporation's favor by reason of the fact such
person is or was an agent of the corporation, against expenses actually and
reasonably incurred by such person regarding the defense or settlement of such
action if such person acted in good faith, and in a manner such person believed
to be in the best interests of the corporation and the shareholders and with
such care, including reasonable inquiry, as an ordinary prudent person, in a
similar situation, would use in similar circumstances. No indemnification shall
be made pursuant to this paragraph, however:
(1) For any claim, issue, or matter as to which such person shall
have been adjudged to be liable to the corporation in the
performance of such person's duty to the corporation and the
shareholders, unless and only to the extent the court in which
such proceeding was or is pending shall determine on application,
considering all the circumstances of the case, such person is
fairly and reasonably entitled to indemnification for expenses
and then only to the extent which such court shall determine;
(2) For amounts paid in settling or otherwise disposing of a pending
action, without court approval; or
(3) For expenses incurred in defending a pending action which is
settled or otherwise disposed of without court approval.
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Section 2.26. Expenses of Successful Agent. To the extent an agent of
the corporation has been successful on the merits in the defense of any
proceeding described in Section 2.25 of these Bylaws or in the defense of any
claim, issue, or matter therein, such agent shall be indemnified against
expenses actually and reasonably incurred by such agent in such defense.
Section 2.27. Determination Indemnification Is Proper. Except as
provided in Section 2.26 of these Bylaws, any indemnification pursuant to
Sections 2.25 to 2.30, inclusive, of these Bylaws shall be made by the
corporation only if authorized in the specific case, on a determination
indemnification of the agent is proper in the circumstances because such agent
has complied with the applicable standard of conduct set forth in Section 2.25
of these Bylaws, by any of the following:
(a) Director Approval. A majority vote of a quorum of the directors
consisting of directors who are not parties to such proceeding;
(b) Written Opinion of Counsel. If such a quorum of directors is not
obtainable, by independent legal counsel in a written opinion;
(c) Shareholder Approval. Approval of the shareholders, as that term
is defined in Section 153 of the Code, and the shares owned by
the person to be indemnified shall not be entitled to vote
thereon; or
(d) Court Approval. The court in which such proceeding is or was
pending on application made by the corporation or the agent or
the attorney or other person rendering services in connection
with the defense, whether or not such application by the agent,
attorney, or other is opposed by the corporation.
Section 2.28. Advance of Expenses. Expenses incurred in defending any
proceeding may be advanced by the corporation prior to the final disposition of
such proceeding on receipt of an undertaking by or on behalf of the agent to
repay such amount, if it shall be determined ultimately such agent is not
entitled to be indemnified as authorized by the provisions of Sections 2.25 to
2.30, inclusive, of these Bylaws.
Section 2.29. Indemnification not Exclusive. The indemnification
provided by the provisions of Sections 2.24 to 2.31, inclusive, of these Bylaws
shall not be deemed exclusive of any additional rights to indemnification for
breach of duty to the corporation and the shareholders while acting in the
capacity of a director or officer of the corporation to the extent the
additional rights to indemnification are authorized in a provision of the
Articles adopted pursuant to Paragraph (11) of Subdivision (a) of Section 204 of
the Code. The indemnification provided by Sections 2.24 to 2.30, inclusive, of
these Bylaws for acts, omissions, or transactions while acting in the capacity
of, or while serving as, a director or officer of the corporation but not
involving breach of duty to the corporation and the shareholders, shall not be
deemed exclusive of any other rights to which the person seeking indemnification
may be entitled pursuant to any bylaw, agreement, vote of shareholders or
disinterested directors or otherwise, both as to action in an official capacity
and as to action in another capacity while holding such office, to the extent
such additional rights to indemnification are authorized in the Articles. A
provision of the Articles authorizing indemnification "in excess of that
otherwise permitted by the provisions of Section 317 of the Code" or "to the
fullest extent permissible
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pursuant to California law" or the substantial equivalent thereof shall be
construed to be a provision for additional indemnification for breach of duty to
the corporation and the shareholders as referred to in, and with the limitations
required by, the provisions of Paragraph (11) of Subdivision (a) of Section 204
of the Code and a provision for additional indemnification as referred to
hereinabove. The rights to indemnification pursuant hereto shall continue for a
person who has ceased to be a director, officer, employee, or agent and shall
inure to the benefit of the heirs, executors and administrators of such person.
Nothing in this section, however, shall affect any right to indemnification to
which persons other than such directors and officers may be entitled by contract
or otherwise.
Section 2.30. Limitation on Indemnification. No indemnification or
advance shall be made pursuant to the provisions of Sections 2.25 to 2.28,
inclusive, of these Bylaws, except as provided in Section 2.26 or Paragraph (c)
of Section 2.27 of these Bylaws in any circumstances where it appears:
(a) Inconsistent With Corporate Authority or Action. It would be
inconsistent with a provision of the Articles, these Bylaws, a
resolution of the shareholders, or an agreement in effect at the
time of the accrual of the alleged cause of action, which is
asserted in the proceeding in which the expenses were incurred or
other amounts were paid, and which prohibits or otherwise limits
indemnification; or
(b) Inconsistent With Court Order. It would be inconsistent with any
condition imposed by a court expressly in approving a settlement.
Section 2.31. Insurance. The corporation shall have the power to
purchase and maintain insurance on behalf of any agent against any liability
asserted against, or incurred by, the agent in such capacity or existing because
of such agent's status as such, whether or not the corporation would have the
power to indemnify such agent against such liability pursuant to the provisions
of Sections 2.24 to 2.30, inclusive, of these Bylaws. The fact the corporation
owns all or a portion of the shares of the company issuing a policy of insurance
shall not cause this Section 2.31 to be inapplicable, if either of the following
conditions is satisfied:
(a) If the Articles authorize indemnification in excess of that
authorized by the provisions of Sections 2.24 to 2.30, inclusive
of these Bylaws, and the insurance provided by this Section 2.31
is limited as indemnification is required to be limited by
Paragraph (11) of Subdivision (a) of Section 204 of the Code; or
(b) (1) The company issuing the insurance policy is organized,
licensed, and operated in a manner which complies with the
insurance laws and regulations applicable to such company's
jurisdiction of organization;
(2) The company issuing the insurance policy provides procedures
for processing claims which do not permit such company to be
subject to the direct control of the corporation; and
(3) The policy issued provides for some manner of risk sharing
between the issuer and the purchaser of the policy, on one
hand, and some unaffiliated person or persons, on the other
hand, such as by providing for more than one unaffiliated
owner of the company issuing the policy or by providing a
portion of the coverage furnished shall be obtained from
some unaffiliated insurer or reinsurer.
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Risk sharing may be undertaken by providing for more than one unaffiliated owner
of the Company issuing the policy, or by providing a portion of the coverage
furnished shall be obtained from some unaffiliated insurer or reinsurer.
Section 2.32. Board Committees.
(a) Board Action Required. The Board, by resolution adopted by a
majority of the authorized number of directors, may designate one (1) or more
committees, each consisting of two (2) or more directors, to serve at the
pleasure of the Board. The Board may designate one (1) or more directors as
alternate members of any committee, who may replace any absent member at any
meeting of such committee. The appointment of members or alternate members of a
committee shall require the vote of a majority of the authorized number of
directors.
(b) Authority of Committee. Any such committee referred to in Paragraph
(a) to this Section 2.30, to the extent provided in such Board resolution or in
these Bylaws, shall have all the authority of the Board, except regarding:
(1) The approval, of any action for which the law also requires
shareholders approval, as that term is defined in Section 153 of
the Code, or approval of the outstanding shares, as that term is
defined in Section 152 of the Code;
(2) The filling of vacancies on the Board or in any committee;
(3) The fixing of compensation of the directors for serving on the
Board or on any committee;
(4) The amendment or repeal of these Bylaws or the adoption of new
bylaws;
(5) The amendment or repeal of any resolution of the Board which be
the express terms of such resolution is not so amendable or
repealable;
(6) A distribution to the shareholders of the corporation, as defined
in Section 166 of the Code, except at a rate or in a periodic
amount or within a price range set forth in the Articles or
determined by the Board; and
(7) The appointment of other committees of the Board or the members
thereof.
(c) Membership of Presiding Officer. The Chairman of the Board, if there
be such officer, and, if none, the President of the corporation shall be an ex
officio member of each Board committee so appointed.
(d) Conduct of Committee Meetings. The Board may prescribe the manner in
which committee proceedings are conducted or authorize the committee to do so.
Regular meetings of any such committee shall be held at the time and place
specified in any resolution duly adopted by the Board or, in the absence
thereof, by such committee. On failure to designate the place, such meetings
shall be held at the principal executive office of the corporation. Special
meetings of any committee
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may be called by the chairman or any two members of such committee, or by the
Chairman of the Board, if there be such an officer, or, if none, by the
President of the corporation, by written notice to the members and shall be held
at the time and place specified in the notice or, on failure to specify the
place, at the principal executive office of the corporation. Notice of such
meetings shall be given in the same manner as is required by these Bylaws for
the giving of notice of Board meetings. A majority of the authorized number of
members of any committee shall constitute a quorum of such committee for the
transaction of business. Minutes shall be kept of each committee meeting. The
original or a copy of such minutes, certified by the committee chairman or such
other person as such chairman shall designate, shall be delivered to the
Secretary of the corporation for placement in the corporation's minute book and
a copy shall be retained by the committee. The transactions of any meeting of
any committee, however called and noticed or wherever held, shall be as valid as
though had at a meeting duly held after regular call and notice if a quorum be
present and if, either before or after the meeting, each of the members not
present signs a written waiver of notice or a consent to the holding of such
meeting, or an approval of the minutes thereof. All such waivers, consents, or
approvals shall be made a part of the minutes of the appropriate meetings. Any
action required or permitted to be taken by any Board committee may be taken
without a meeting, if all members of such committee shall consent in writing
individually or collectively to such action and such written consent or consents
are filed with the minutes of the proceedings of such committee.
(e) Vacancies in Committees. Vacancies in any committee may be filled by
the Board only.
(f) Applicability of Other Sections. The provisions of Sections 2.08 to
2.16, inclusive, and of Sections 2.18 and 2.19 of this Article II apply to such
committees, mutatis mutandis.
ARTICLE III.
DETERMINING SHAREHOLDERS OF RECORD
Section 3.01. Record Date Fixed by Board.
(a) Limits of Dates. In order that the corporation may determine the
shareholders entitled to notice of any meeting or to vote, or entitled to
receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights regarding any other lawful action,
the Board may fix, in advance, a record date, which shall not be more than sixty
(60) nor less than ten (10) days prior to the date of such meeting nor more than
sixty (60) days prior to any of the aforementioned actions.
(b) Record Date Not Fixed. If no record date is fixed:
(1) The record date for determining shareholders entitled to notice
of, or to vote at, a meeting of shareholders shall be the close
of business on the business day next preceding the day on which
notice is given or, if such notice is waived, at the close of
business on the business day next preceding the day on which such
meeting is held;
(2) The record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting (see
Section 4.16 of these Bylaws) when no prior action by the Board
has been taken, shall be the day on which the first written
consent is given; and
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(3) The record date for determining shareholders for any other
purpose shall be the close of business on the day on which the
Board adopts the resolution relating thereto, or the sixtieth
(60th) day prior to the date of such other action, whichever is
later.
(c) Record Date for Adjourned Meeting. A determination of shareholders
of record entitled to notice of, or to vote at, a meeting of shareholders shall
apply to any adjournment of such meeting unless the Board fixes a new record
date for the adjourned meeting. However, the Board must fix a new record date if
such meeting is adjourned for more than forty-five (45) days from the date set
for the original meeting.
(d) Rights of Shareholders of Record. Shareholders at the close of
business on the record date are entitled to notice and to vote or to receive the
dividend, distribution, or allotment or rights, or to exercise the rights, as
the case may be, notwithstanding any transfer of any shares on the books of the
corporation after such record date, except as otherwise provided by law, or in
the Articles or by agreement.
ARTICLE IV.
SHAREHOLDERS' MEETINGS
Section 4.01. Place of Meetings. Meetings of shareholders shall be at
any place within or without the State of California designated in the notice of
the meeting or by resolution of the Board. In the absence of any such
designation or resolution, shareholders meetings shall be held at the principal
executive office of the corporation.
Section 4.02. Annual Meeting.
(a) Date, Place and Time. The annual meeting of the shareholders shall
be held at the principal executive office of the corporation at 10:00 a.m., on
the first Wednesday in March in each year, if not a legal holiday, and if a
legal holiday, on the next business day following; provided, however, any annual
meeting may be adjourned as provided by these Bylaws. If the annual meeting of
shareholders shall not be held on the date above specified, the Board shall
cause a meeting in lieu thereof to be held as soon thereafter as convenient and,
in any case, not later than sixty (60) days after the date designated above, and
any business transacted, or election held, at such meeting shall be as valid as
if transacted or held at the annual meeting. At the annual meeting directors
shall be elected, reports of the affairs of the corporation shall be considered,
and any other business may be transacted which is within the powers of the
shareholders.
(b) Adjournment. Any meeting of the shareholders may adjourn by the vote
of a majority of the shares represented either in person or by proxy to another
time or place or from day to day or time to time until the business of such
meeting is completed or, if a quorum is not and was not present in person or by
proxy, until a quorum shall attend. Any adjournment and the reason for it shall
be recorded in the minutes of such meeting. At the adjourned meeting, the
corporation may transact any business which might have been transacted at the
original meeting.
(c) Failure to Hold. If there is a failure to hold an annual meeting for
a period of sixty (60) days after the date designated therefor as provided in
Paragraph (a) of this Section 4.02, any shareholder may apply to the superior
court of the county in which the principal executive office of the corporation
is located for an order compelling the corporation to hold such a meeting. The
shares
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represented at the meeting so held, either in person or by proxy, and entitled
to vote thereat shall constitute a quorum for the purpose of such a meeting,
notwithstanding any provision of the Articles, these Bylaws, or the law to the
contrary.
Section 4.03. Notice of Meetings.
(a) Written Notice. Whenever shareholders are required or permitted to
take any action at a meeting, a written notice of such meeting shall be given to
each shareholder entitled to vote thereat, subject to the provisions of
Paragraph (f) of this Section 4.03.
(b) Method of Giving Notice of Meeting or Report. Notice of a
shareholders' meeting or any report shall be given either personally or by
first-class mail, postage prepaid, or other means of written communication,
addressed to each shareholder at the address of such shareholder appearing on
the books of the corporation or given by such shareholder to the corporation for
the purpose of notice; or if no such address appears or is given, at the place
where the principal executive office of the corporation is located or by
publication at least once in a newspaper of general circulation in the county in
which the principal executive office of the corporation is located. Such notice
or report shall be deemed to have been given at the time when delivered
personally or deposited in the mail or sent by other means of written
communication. If any notice or report addressed to any shareholder at the
address of such shareholder appearing on the books of the corporation is
returned to the corporation by United States Postal Service marked to indicate
the United States Postal Service is unable to deliver to such shareholder such
notice or report at such address, all future notices or reports shall be deemed
to have been duly given without further mailing if such notice or report shall
be available for such shareholder on written demand of such shareholder at the
principal executive office of the corporation for a period of one (1) year from
the date of giving to all other shareholders such notice or report.
(c) Time of Notice. Notice of any meeting of the shareholders shall be
sent by first-class mail to each shareholder entitled thereto not less than ten
(10) nor more than sixty (60) days before the date of such meeting; provided,
however, at any time the corporation has outstanding shares held of record by
five hundred (500) or more persons (determined by the provisions of Section 605
of the Code) on the record date for such shareholders' meeting, notice may be
sent by third-class mail, if sent not less than thirty (30) days before the date
of such meeting.
(d) Contents of Notice. The notice of any meeting of the shareholders
shall state the place, date, and hour of such meeting and: (1) in the case of a
special meeting, the general nature of the business to be transacted, and no
other business may be transacted; or (2) in the case of an annual meeting, those
matters which the Board, at the time of the mailing of the notice, intends to
present for action by the shareholders, but any proper matter may be presented
at such meeting for such action; provided, however, any shareholder approval at
a meeting, other than unanimous approval by those entitled to vote, pursuant to
Section 310 (relating to contracts and transactions between the corporation and
any director or legal entity in which a director has a material financial
interest (see Section 2.22 of these Bylaws)), Section 902 (relating to amendment
of the Articles), Section 1201 (relating to reorganizations), Section 1900
(relating to voluntary dissolution), and Section 2007 (relating to voluntary
dissolution) of the Code shall be valid only if the general nature of the
proposal so approved was stated in the notice of such meeting or in any written
waiver of notice. The notice of any meeting at which directors are to be elected
must include the names of nominees intended at the time of such notice to be
presented by the Board for election.
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(e) Notice of Adjourned Meeting. When a shareholders' meeting is
adjourned to another time or place, notice need not be given of the adjourned
meeting if the time and place thereof are announced at the meeting at which such
adjournment is taken; provided, however, if such adjournment is for more than
forty-five (45) days, or if after such adjournment, a new record date is fixed
for such adjourned meeting, notice of such adjourned meeting must be given to
each shareholder of record entitled to vote at such meeting. At such adjourned
meeting the corporation may transact any business which might have been
transacted at the original meeting.
(f) Waiver of Notice and Other Defects. The transactions of any meeting
of shareholders, however called and noticed and wherever held, are as valid as
though had at meeting duly held after regular call and notice, if a quorum (see
Section 4.05 of these Bylaws) is present either in person or by proxy and if,
either before or after such meeting, each of the persons entitled to vote, not
present in person or by proxy, signs a written waiver of notice, or a consent to
the holding of such meeting, or an approval of the minutes thereof. All such
waivers, consents, and approvals must be filed with the corporate records or
made a part of the minutes of such meeting. Except as provided in Paragraph (d)
of this Section 4.03 and unless otherwise provided in the Articles, neither the
business to be transacted nor the purpose of any regular or special meeting of
shareholders must be specified in any written waiver of notice, consent to the
holding of such meeting, or approval of the minutes of such meeting. Attendance
by a person at any such meeting also constitutes a waiver of notice to such
person, if such person fails to object at the beginning of such meeting to the
transaction of business because such meeting was not called or convened
lawfully, but such attendance does not constitute a waiver of the right to
object to the consideration of matters required to be included in such notice
but not so included, if the objection is expressly made at such meeting.
Section 4.04. Calling of Special Meetings.
(a) Notice. On written request to the Chairman of the Board, if any, or
the President, or a Vice President, or the Secretary by any person (other than
the Board) entitled to call a special meeting of shareholders (see Paragraph (b)
of this Section 4.04), the officer forthwith must cause to be given to the
shareholders entitled to vote notice a meeting will be held at a time requested
by the person or persons calling the meeting not less than thirty-five (35) nor
more than sixty (60) days after receipt of such request. If such notice is not
given within twenty (20) days after receipt of such request, the person or
persons entitled to call such meeting may give such notice or that person or
those persons may apply to the superior court of the county in which the
principal executive office of the corporation is located for an order, after
notice to the corporation giving the corporation an opportunity to be heard,
summarily ordering the giving of notice of the requested special meeting or more
than a majority of the shares entitled to vote at such meeting.
(b) Persons Entitled to Call Special Meetings. Special meetings of the
shareholders may be called by the Board, the Chairman of the Board, if any; the
President; the Secretary and Chief Financial Office, acting jointly; the holders
of shares entitled to cast not less than ten percent (10%) of the votes at such
meeting; or by any three (3) directors.
Section 4.05. Quorum of Shareholders.
(a) Definition of Quorum. A majority of the shares entitled to vote,
represented in person or by proxy, shall constitute a quorum at a meeting of the
shareholders; provided, however, whenever shares are disqualified by law from
voting on any matter, such shares shall not be considered
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outstanding for the determination of a quorum at any meeting to act on that
matter pursuant to any other provision of law, the Articles, or these Bylaws.
The provisions of this Section 4.05 notwithstanding, in no event shall a quorum
consist of less than one third (1/3) of the shares entitled to vote at such
meeting.
(b) Loss of Quorum. The shareholders present at a duly called or held
meeting at which a quorum is present may continue to transact business until
adjournment notwithstanding the withdrawal of enough shareholders to leave less
than a quorum, if any action taken (other than adjournment) is approved by at
least a majority of the shares required to constitute a quorum.
(c) Adjournment for Lack of Quorum. In the absence of a quorum, any
meeting of shareholders may be adjourned from time to time by the vote of a
majority of the shares represented either in person or by proxy, but no other
business may be transacted, except as provided in Paragraph (b) of this Section
4.05.
Section 4.06. Effect of Vote. If a quorum is present, the affirmative
vote of the majority of the shares represented at a duly held meeting and
entitled to vote on any matter at which a quorum is present (which shares voting
affirmatively, also, constitute, at least, a majority of the required quorum)
shall be the act of the shareholders, unless the vote of a greater number or
voting by classes is required by law or the Articles, and except as provided in
Paragraph (a) of Section 4.05 of these Bylaws; provided, however, whenever
shares are disqualified by law from voting on any matter, such shares shall not
be considered outstanding for the determination of the required vote to approve
action on such matter pursuant to any other provision of law, or the Articles or
these Bylaws.
Section 4.07. Election of Directors. Elections for directors are not
required to be by ballot unless a shareholder demands election by ballot at the
meeting and before the voting begins. In any election for directors, the
candidates receiving the highest number of votes of the shares entitled to be
voted therefor up to the number of directors to be elected by such shares shall
be elected.
Section 4.08. Votes Per Share. Except as provided in Section 4.09 of
these Bylaws and except as may otherwise be provided in the Articles, each
outstanding share, regardless of class, shall be entitled to one vote on each
matter submitted to a vote of shareholders.
Section 4.09. Voting Multiple Shares. Any holder of shares entitled to
vote on any matter may vote part of such shares in favor of such matter and
refrain from voting the remaining shares or vote such remaining shares against
such matter other than elections to office, but, if a shareholder fails to
specify the number of shares being voted affirmatively, it will be presumed
conclusively such shareholder's approving is for all shares such shareholder is
entitled to vote.
Section 4.10. Cumulative Voting. Every shareholder entitled to vote at
any election of directors may cumulate votes and give one (1) candidate a number
of votes equal to the number of directors to be elected multiplied by the number
of votes to which such shareholder's shares are entitled, or distribute such
shares on the same principle among as many candidates as such shareholder shall
determine to be appropriate. However, no shareholder shall be entitled to
cumulate votes for any one (1) or more candidates (i.e., cast for any one (1) or
more candidates a number of votes greater than the number of such shareholder's
shares) unless such candidate's name or candidates names have been placed in
nomination prior to the voting and such shareholder has given notice at the
meeting prior to the voting of such shareholder's intention to cumulate votes.
If any one (1)
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shareholder has given such notice, all shareholders may cumulate their votes for
candidates in nomination.
Section 4.11. Voting of Shares by Fiduciaries, Minors, or Entities.
(a) Voting Rights. The rights of the persons specified in this Section
4.11 to vote shares are governed by the provisions of this Section 4.11.
(b) Personal Representative. Except as provided in Paragraph (i) of this
Section 4.11, shares held by an administrator, executor, guardian, conservator,
or custodian may be voted by such holder, either in person or by proxy, without
a transfer of such shares into such holder's name.
(c) Trustee. Shares registered in the name of a trustee may be voted by
such trustee, either in person or by proxy, but no trustee shall be entitled to
vote shares held without a transfer of such shares into such trustee's name.
(d) Receiver. Shares registered in the name of a receiver may be voted
by such receiver. Shares held by, or pursuant to the control of, a receiver may
be voted by such receiver without such shares being transferred into such
receiver's name, if authority to so vote such shares is contained in the court
order appointing such receiver.
(e) Pledgee. Subject to the provisions of Section 4.12 of these Bylaws
and except where otherwise agreed in writing by and between the parties, a
shareholder whose shares are pledged shall be entitled to vote such shares until
such shares have been transferred into the name of the pledgee, and thereafter
the pledgee shall be entitled to vote the shares so transferred.
(f) Minor. Shares registered in the name of a minor may be voted and the
corporation may treat all rights incident thereto as exercisable by such minor,
in person or by proxy, whether or not the corporation has notice, actual or
constructive, of the non-age, unless a guardian of such minor's property has
been appointed and written notice of such appointment has been given to the
corporation.
(g) Attorney-in-Fact. If authorized to vote such shares by the
provisions of the appropriate power of attorney by which the attorney-in-fact
was appointed, shares held by, or in the control of, an attorney-in-fact may be
voted and the corporation may treat all rights incident thereto as exercisable
by such attorney-in-fact, in person or by proxy, without the transfer of such
shares into the name of such attorney-in-fact.
(h) Corporation. Shares standing in the name of another corporation,
domestic or foreign, may be voted by such officer, agent, or proxyholder as the
bylaws of such other corporation may prescribe or, in the absence of such a
provision, as the Board of Directors of such other corporation may determine or,
in the absence of such determination, by the Chairman of the Board, President,
or any Vice President of such other corporation, or by any other person
authorized to do so by the Chairman of the Board, President or any Vice
President of such other corporation. Shares which are purported to be voted or
any proxy purported to be executed in the name of a corporation (whether or not
any title of the persons signing is indicated) shall be presumed to be voted or
the proxy executed in accordance with the foregoing provisions, unless the
contrary is shown.
(i) Subsidiary. Shares of the corporation owned by any subsidiary of the
corporation shall not be entitled to vote on any matter.
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(j) Corporate Fiduciary. Shares held by the corporation in a fiduciary
capacity, and shares of the corporation held in a fiduciary capacity by any
subsidiary of the corporation, if any, shall not be entitled to vote on any
matter, except to the extent the settlor or beneficial owner possesses and
exercises a right to vote or to give the corporation binding instructions how to
vote such shares, or where there are one (1) or more co-trustees who are not
affected by the prohibition of this Paragraph (j), in which case such shares may
be voted by such co-trustees as if such co-trustees were the sole trustee.
(k) Shares in Names of Two or More Persons. If shares are registered in
the names of two (2) or more persons, whether fiduciaries, members of a
partnership, joint tenants, tenants in common, husband and wife as community
property, tenants by the entirety, voting trustees, persons entitled to vote
pursuant to a shareholder's voting agreement, or otherwise, or if two (2) or
more persons (including proxyholders) have the same fiduciary relationship
regarding the same shares, unless the Secretary is given written notice to the
contrary and is furnished with a copy of the instrument or order appointing such
persons or creating the relationship wherein such relationship is so provided,
the acts of such persons regarding voting of such shares shall have the
following effects:
(1) If only one (1) person votes, such act obligates all;
(2) If more than one (1) person vote, the act of the majority so
voting obligates all; or
(3) If more than one (1) person vote, but such vote is split evenly
on any particular matter, each fraction may vote such shares
proportionately.
If the instrument so filed or the registration of such shares indicates any such
tenancy is held in unequal interests, a majority or even split for the purpose
of the above shall be a majority or even split in interest.
Section 4.12. Proxies.
(a) Authorization. Every person entitled to vote shares may authorize
another person or persons to act by proxy with respect to such shares. Except as
otherwise provided by written agreement between the parties, the record holder
of shares which a person holds as pledgee or otherwise as security or which
belongs to another person must issue to the pledgor or to the owner of such
shares, on demand therefor and payment of necessary expenses thereof, a proxy to
vote or take other action thereon.
(b) Presumptive Validity. Any proxy purporting to be executed in
accordance with this Section 4.12 shall be valid presumptively.
(c) Duration of Proxy. No proxy shall be valid after the expiration of
eleven (11) months from the date thereof unless otherwise provided in such
proxy. Every proxy shall continue in full force and effect until revoked by the
person executing such proxy prior to the vote pursuant thereto, except as
provided in Paragraphs (f) and (g) of this Section 4.12. The dates contained on
the forms of proxy shall determine presumptively the order of execution thereof,
regardless of the postmark dates on the envelopes in which such forms of proxy
are mailed.
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(d) Death or Incapacity of Maker. A proxy is not revoked by the death or
incapacity of the maker thereof, unless (except as provided in Paragraph (f) of
this Section 4.12), before the vote is counted, written notice of such death or
incapacity is received by the corporation.
(e) Revocation of Proxy. Revocation of a proxy is effected by a writing
delivered to the corporation stating such proxy is revoked or by a subsequent
proxy executed, or by attendance at the meeting and voting in person, by the
person executing such proxy.
(f) Proxy Providing for Irrevocability. A proxy which states such proxy
is irrevocable is irrevocable for the period specified therein (notwithstanding
paragraph (d) of this Section 4.12) when such proxy is held by any of the
following or a nominee of any of the following:
(1) a pledgee;
(2) A person who has purchased or agreed to purchase or holds an
option to purchase the shares described by such proxy or a person
who has sold a portion of such person's shares in the corporation
to the maker of such proxy;
(3) A creditor or creditors of the corporation or a shareholder who
extended or continued credit to the corporation or such
shareholder in consideration of such proxy, if such proxy
specifies such proxy was given in consideration of such extension
or continuation of credit and the name of the person so extending
or continuing credit;
(4) A person who has contracted to perform services as an employee of
the corporation, if a proxy is required by the contract or
employment, and if such proxy states such proxy was given in
consideration of such contract of employment, the name of the
employee, and the period for which such employment was
contracted;
(5) A beneficiary of a trust with respect to shares held by such
trust; and
(6) A person designated by, or pursuant to, an agreement pursuant to
Section 706 of the Code, relating to a voting agreement between
shareholders (see Paragraph (a) of Section 4.13 of these Bylaws).
In addition, a proxy may be made irrevocable (notwithstanding Paragraph (d) of
this Section 4.12), if such proxy is given to secure the performance of a duty
or to protect a title, either legal or equitable, until the happening of events
which, by the terms of such proxy, discharge the obligations secured by such
proxy.
(g) Validity of Proxies. Subject to the provisions of the Articles or
any law, statute, or regulation to the contrary, in the event of a proxy contest
involving the solicitation of proxies for any annual or special meeting of the
shareholders for rival candidates or opposing or proposing action proposed or
opposed, as the case may be, by another group of shareholders soliciting
proxies, the following presumptions shall be followed in determining the
authenticity or validity of proxies filed with the corporation:
(1) Proxies bearing no handwritten or handprinted signature are
presumptively invalid, except facsimile signatures may be
accepted from securities brokers or dealers and by
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banks and trust companies, and such facsimile signatures are
presumptively valid in the absence of evidence of lack of
authenticity or authorization;
(2) Proxies are presumptively valid whether or not dated and whether
signed in either pencil or ink and whether or not there are
slight changes or variations in spelling as between the
registered name of the shareholder and such shareholder's written
signature provided the name as signed is phonetically similar to
the name as registered;
(3) The addition of an address different from that appearing on the
record of shareholders or the addition or omission of titles such
as "Mr.," "Mrs.," "Miss," "Ms.," or "Dr." shall not invalidate a
proxy;
(4) A proxy shall be presumed valid in the event initials are
substituted for the first or middle names of the registered
holders or where the names are used in the signature and only
initials appear in the record of shareholders, and names or
initials may be added or omitted or substituted for the first or
middle initial of a name;
(5) The addition or omission of "Jr." or "Sr." or roman or arabic
numerals after the signature shall not render a proxy
presumptively invalid. However, the substitution after the
signature of "Jr." for "Sr." or roman or arabic numerals which
are different from those appearing in the record of shareholders
shall render the proxy presumptively invalid;
(6) A proxy signed in the shareholder's name by a person other than
such shareholder is presumptively invalid in the absence of
evidence the signer was authorized to act for such shareholder.
Proxies executed by trustees, pledgees, fiduciaries, guardians,
administrators or executors, signed in their own names and
indicating the capacity in which they make the proxy are
presumptively valid notwithstanding the shares are not registered
in their names in the record of shareholders. If the vote offered
by the proxy of any such person is challenged, it shall be the
duty of the proxy holder to establish the authority of the maker;
(7) If the shares are registered in the name of a trustee, pledgee,
fiduciary, guardian, executor, or administrator in the record of
shareholders, the proxy of such a person shall be presumptively
valid regardless of the addition or omission of wording in the
proxy designating such capacity;
(8) Proxies for shares registered in the name of a partnership are
presumptively valid, if signed in the partnership name only, or
by one (1) of the partners whose name appears in the partnership
name, or by a general partner or other person indicating on the
proxy such person has authority to execute such proxy;
(9) Proxies representing shares registered in the name of a
corporation, unincorporated association, or other organization or
entity are presumptively valid, if signed in the registered name
or by a person purporting to act with such authority;
(10) If more than one (1) proxy is executed by a stockbroker, dealer,
or other custodian, all such proxies are presumptively valid and
shall be considered applicable to different
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shares registered in the name of the proxy maker; provided,
however, the total number of proxies does not exceed the total
number of shares standing in the maker's name, and if such be the
case, the first proxy filed after proxies have been issued for
all of the shares registered in the maker's name shall revoke the
first proxy filed by the maker and subsequent proxies shall be
treated accordingly, and provided no proxy executed by such a
maker revokes specifically the prior proxies by specific language
in addition to that appearing on the proxy forms; and
(11) If a proxy bears a legible date, such proxy will be presumed to
have been executed on such date. If the proxy bears no legible date such
proxy will be presumed to have been executed on the date of the postmark
of the envelope in which such proxy was transmitted, and in the absence
of evidence of such a postmark, such proxy will be presumed to have been
executed on the date such proxy was received by the corporation.
Insofar as such votes are not clearly inconsistent with any law, regulation,
article, bylaw, resolution, or other pertinent matter, votes representing all of
the shares of the corporation are presumptively valid. If evidence to the
contrary is presented, the burden of proving the invalidity shall be upon the
person offering such evidence.
Notwithstanding the presumptions of validity or invalidity of a proxy or such
proxy's execution contained herein, evidence of actual validity or invalidity
may be accepted or rejected in determining the question of validity in the
discretion of the Chairman of the Board, if any, the President or the Secretary,
or inspectors of election. The amount of evidence for or against validity, also,
shall be in the discretion of the Chairman of the Board, if any, the President
or the Secretary, or inspectors of election. However, nothing contained herein
shall be construed to require investigation or a request for additional
information or evidence prior to or after the determination to accept or reject
the vote.
(h) When Irrevocable Proxy is Revocable. Notwithstanding the period of
irrevocability specified in a proxy as provided in Paragraph (f) of this Section
4.12, such proxy becomes revocable when the pledge is redeemed, the option or
agreement to purchase is terminated, the seller no longer owns any shares of the
corporation or dies, the debt of the corporation or the shareholder is paid, the
period of employment for which, provision is made in the contract of employment
has terminated, the person ceases to be a beneficiary of the trust, or the
agreement pursuant to Section 706 of the Code has terminated.
A proxy may be revoked, notwithstanding any provision making such proxy
irrevocable, by a transferee of the shares described in such proxy without
knowledge of the existence of such provision unless the existence of such proxy
and such proxy's irrevocability appears, in the case of certified securities, on
the certificate representing such securities, or in the case of uncertificated
securities, on the initial transaction statement and written statements.
(i) Form of Proxy or Written Consent. Any form of proxy or written
consent (see Section 4.17 of these Bylaws) distributed to ten (10) or more
shareholders, if the outstanding shares are held of record by one hundred (100)
or more persons, as determined pursuant to the provisions of Section 605 of the
Code, must provide the opportunity on such form of proxy or written consent to
specify a choice between approval and disapproval of each matter or group of
related matters intended to be acted on at the meeting for which such proxy is
solicited or by such written consent, other than elections to office, and must
provide, subject to reasonable specified conditions, where the person
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solicited specifies a choice with respect to any such matter, the shares
described in such proxy or written consent will be voted in accordance
therewith.
Every form of proxy or written consent, which provides an opportunity to specify
approval or disapproval with respect to any proposal, must also contain an
appropriate space marked "abstain," whereby a shareholder may indicate a desire
to abstain from voting such shareholder's shares described in such proxy or
written consent for a particular proposal. A proxy marked "abstain" by such
shareholder with respect to a particular proposal shall not be voted either for
or against such proposal. In any election of directors, any form of proxy in
which the directors to be voted on are named therein as candidates and which is
marked by a shareholder "withhold" or otherwise marked in a manner indicating
the authority to vote for the election of directors is withheld shall not be
voted for the election of any director.
Failure to comply with this Paragraph (i) does not invalidate any corporate
action taken, but may be the basis for challenging any proxy at a meeting and
any shareholder may sue in the superior court of the county in which the
principal executive of the corporation is located to compel compliance
therewith.
(j) Directors' Determination of Execution and Use of Proxies. The Board,
in advance of any annual or special meeting of the shareholders, may prescribe
additional regulations concerning the manner of execution and filing of proxies,
and the validation of the same, which are intended to be voted at any such
meeting.
Section 4.13. Voting Agreement and Trust.
(a) Any two (2) or more shareholders, in a written agreement signed by
such shareholders, may provide, in exercising any voting rights, the shares held
by such shareholders shall be voted as provided in such agreement, or as such
shareholders may agree, or as determined in accordance with a procedure agreed
on by such shareholders, and such shareholders may transfer the shares specified
in such agreement to a third party or parties with authority to vote such shares
in accordance with the terms of such agreement. However, such agreement shall
terminate if and when the corporation ceases to be a close corporation, except
if such agreement so provides, such agreement shall continue to the extent such
agreement is enforceable apart from the above provisions.
(b) Voting Trust. Shares may be transferred by written agreement to
trustees in order to confer on such trustees the right to vote and otherwise
represent such shares for such period of time, not exceeding ten (10) years, as
may be specified in such agreement. At any time within two (2) years prior to
the time of expiration of any voting trust agreement as originally fixed or as
last extended as provided in this paragraph, one (1) or more beneficiaries
identified by the provisions of such voting trust agreement, by written
agreement and with the written consent of the voting trustee or trustees, may
extend the duration of such voting trust agreement with respect to the shares of
such beneficiaries for an additional period not exceeding ten (10) years from
the expiration date of the trust as originally fixed or as last extended as
provided in this paragraph. A duplicate of such voting trust agreement and any
extension thereof must be filed with the Secretary and shall be open to
inspection by a shareholder, a holder of a voting trust certificate, or the
agent of either, on the same terms as the record of shareholders is open to
inspection.
(c) Effect of Section. This section of the Bylaws is not intended to
validate any voting or
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other agreement among shareholders or any irrevocable proxy meeting the
requirements of Paragraph (f) of Section 4.12 of these Bylaws.
Section 4.14. Inspectors of Election.
(a) Appointment. In advance of any meeting of shareholders, the Board
may appoint inspectors of election to act at such meeting and any adjournment
thereof. If inspectors of election are not so appointed, or if any persons so
appointed fail to appear or refuse to act, the chairman of any meeting of
shareholders may, and on the request of any shareholder or a shareholder's proxy
must, appoint inspectors of election (or persons to replace those who so fail or
refuse) at such meeting.
(b) Number. The number of inspectors shall be either one (1) or three
(3). If the inspector or inspectors are appointed at a meeting on the request of
one (1) or more shareholders or proxies, the majority of shares represented in
person or by proxy shall determine whether one (1) or three (3) inspectors are
to be appointed.
(c) Duties. The inspector or inspectors of election shall:
(1) Determine the number of shares outstanding and the voting power
of each, the shares represented at the meeting, the existence of
a quorum, and the authenticity, validity, and effect of proxies;
(2) Receive votes, ballots, or consents;
(3) Hear and determine all challenges and questions regarding the
right to vote;
(4) Count and tabulate all votes or consents;
(5) Determine when the polls shall close;
(6) Determine the result of the election;
(7) Do such acts as may be proper to conduct the election or vote
with fairness to all shareholders; and
(8) Perform his or their duties impartially, in good faith, to the
best of his or their ability and as expeditiously as is
practical.
(d) Decision, Act, or Certificate. If there are three (3) inspectors of
election, the decision, act, or certificate of a majority is effective in all
respects as the decision, act, or certificate of all inspectors. Any report or
certificate made by the inspectors of election is prima facie evidence of the
facts stated in such report or certificate.
Section 4.15. Conduct of Meetings. Shareholders, meetings shall be
presided over by the President or, in his absence, by any Vice President, or, if
no such officer is present, by a chairman chosen at the meeting by a majority of
the voting shares represented in person or by proxy. The Secretary or, in his
absence, an Assistant Secretary, or, if no such officer is present, a person
designated by the presiding officer, shall act as Secretary of the meeting. The
precedence of, and
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procedure on, motions and other procedural matters at such meetings shall be
governed by Robert's Rules of Order insofar as such rules are not inconsistent
with the Law, the Articles, or with these Bylaws.
Section 4.16. Order of Business. The order of business at all annual
meetings, and so far as practicable at special meetings, of the shareholders
shall be as follows:
(1) Call to order;
(2) Proof of due notice of the meeting by the Secretary;
(3) Roll call;
(4) Presentation and examination of proxies;
(5) Announcement of a quorum;
(6) Reading, or waiver thereof, and approval of the minutes of the
previous meeting;
(7) Announcements;
(8) Reports of officers;
(9) Reports of committees;
(10) Election of directors;
(11) Old, or unfinished, business;
(12) New business; and
(13) Adjournment.
Section 4.17. Action Without a Meeting.
(a) When Authorized. Unless otherwise provided in the Articles, any
action which may be taken at any annual or special meeting of shareholders may
be taken without a meeting and without prior notice, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
shares having not less than the minimum number of votes that would be necessary
to authorize such vote at a meeting at which all shares entitled to vote thereon
were present and voted; provided, however, directors may not be elected by
written consent except by the unanimous written consent of all shares entitled
to vote for the election of directors.
(b) Notice of Shareholders Approval. Unless the consents of all
shareholders entitled to vote have been solicited in writing, notice to those
shareholders entitled to vote who have not consented in writing must be given as
follows:
(1) Notice of any shareholder approval pursuant to Section 310
(relating to contract or
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transaction between a corporation and such corporation's
directors or legal entity in which one or more of such
corporation's directors has a material financial interest (see
Section 2.22 of these Bylaws)), Section 317 (regarding
indemnification by a corporation of such corporation's directors,
officers, employees, or agents because of court, administrative,
or investigative proceedings (see Sections 2.24 to 2.31,
inclusive, of these Bylaws)), Section 1201 (regarding a plan of
distribution on dissolution) of the Code without a meeting by
less than unanimous written consent must be given, at least, ten
(10) days before the consummation of the action authorized by
such approval; and
(2) Prompt notice must be given of the taking of any other corporate
action approved by shareholders without a meeting by less than
unanimous written consent.
Paragraph (b) of Section 4.03 of these Bylaws, relating to the method of giving
notice, applies to the notice provided by this Section 4.17.
(c) Revocation of Consent. Any shareholder giving a written consent, or
such shareholder's proxyholder, or a transferee of such shareholder's shares, or
a personal representative of such shareholder, or the respective proxyholders of
those persons, may revoke such consent by a writing received by the corporation
prior to the time written consents of the number of shares required to authorize
the proposed action have been filed with the Secretary, but may not do so
thereafter. Such revocation is effective on the date of receipt by the Secretary
of such revocation.
ARTICLE V.
OFFICERS
Section 5.01. Number and Titles. The officers of the corporation shall
be a President, a Vice President, a Secretary, and a Chief Financial Officer.
The corporation, also, may have, at the discretion of the Board, a Chairman of
the Board, a Vice Chairman of the Board, one or more additional Vice Presidents,
one or more Assistant Secretaries, one or more Assistant Treasurers, and such
other officers as may be appointed in accordance with the provisions of Section
5.03 of this Article V. One person may hold two (2) or more offices, except one
person may not be both President and Vice President or both President and
Secretary. In the Board's discretion, the Board may leave unfilled for any
period the Board may determine any office except the offices of President,
Secretary and Chief Financial Officer.
Section 5.02. Appointment. The officers of the corporation, except such
officers as may be appointed in accordance with provisions of Section 5.03 or
Section 5.05 of this Article V, shall be chosen annually by the Board and each
shall hold office until his successor shall be appointed or until he shall
resign, be removed from office as provided in Section 5.04 of this Article V, or
become otherwise disqualified to serve.
Section 5.03. Other Officers. The Board may appoint such other officers
as may be necessary to enable the corporation to sign instruments and share
certificates. Each such officer shall hold office for such period, have such
authority, and perform such duties as the Board, by resolution, may from time to
time determine.
Section 5.04. Removal and Resignation. Any officer may be removed,
either with or without cause, subject to any rights of such officer pursuant to
any employment contract with the corporation,
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by the vote of the Board at any regular or special meeting of the Board or by
the unanimous written consent of the directors then in office without meeting.
Any officer may resign at any time without prejudice to any rights of the
corporation pursuant any contract to which such officer is a party by giving
written notice to the Chairman of the Board, if any, or to the President, or to
the Secretary of the corporation. Any such resignation shall take effect on the
date such notice is received unless a later effective date is specified therein,
in which case such resignation is effective on the specified date. Unless
otherwise specified in said notice, acceptance of such resignation by the Board
shall not be necessary to make such resignation effective. Resignation from
office, however, does not ipso facto constitute resignation from the Board.
Section 5.05. Vacancies. If the office of the President, Secretary, or
Chief Financial Officer becomes vacant by reason of death, resignation, removal,
or otherwise, the Board shall forthwith fill such vacancy by appointing a
successor officer who shall hold such office for the unexpired term. If any
other office becomes vacant, the Board, in the Board's discretion, may leave
such office unfilled for such period as the Board may determine or the Board may
appoint a successor officer to fill the vacancy as in this Section 5.05
provided.
Section 5.06. Chairman of the Board. The Chairman of the Board, if there
be such an officer and, if present, shall preside at all meetings of the Board
and exercise and perform such other powers and duties as may from time to time
be assigned to him by the Board or prescribed by law or by these Bylaws. When so
directed by the Board, that Chairman, with the Secretary or Assistant Secretary,
if any, or the Chief Financial Officer or Assistant Treasurer, if any, shall
sign all share certificates and such signatures on such certificates may be
facsimiles.
Section 5.07. President. Subject to such supervisory powers, if any, as
may be given by the Board to the Chairman of the Board, if there be such an
officer, the President shall be the chief executive officer of the corporation
and, except as otherwise provided in these Bylaws, shall have general
supervision, direction, and control of the business and officers of the
corporation; the general powers and duties of management usually vested in the
office of President of a corporation; and such other powers and duties as may be
prescribed by the Board or by these Bylaws. Within this authority, and in the
course of his duties, the President shall:
(a) Meetings. Preside at all meetings of the shareholders and, in the
absence of the Chairman of the Board, if any, at all meetings of the Board, and
shall be ex officio a member of all Board committees.
(b) Share Certificates. Except when otherwise directed by the Board,
sign, with the Secretary or an Assistant Secretary, if any, or the Chief
Financial Officer or an Assistant Treasurer, if any, all share certificates of
the corporation and the President's signature on such certificates may be
facsimile.
(c) Instruments. Sign corporate instruments on behalf of the corporation
as provided in Section 6.02 of these Bylaws.
(d) Hire and Fire Employees. Subject to direction from the Board,
appoint and remove, employ and discharge, and prescribe the duties and fix the
compensation of all agents and employees of the corporation other than the duly
appointed officers. These functions, however, may be delegated by the President,
or the Board, to specified persons in the various levels of management of the
corporation.
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(e) Voting Shares of Other Corporations. Unless otherwise directed by
the Board and subject to the Board's control, attend in person and, unless
prohibited by law, act and vote, on behalf of the corporation, at all meetings
of the shareholders of any other corporation in which the corporation holds
shares.
5.08. Vice President. In the absence or disability of the President, the
Vice President, or the Vice Presidents if there are more than one (1) in order
of their rank as fixed by the Board or, if not ranked, the Vice President
designated by the Board, shall have all the powers of, and be subject to all the
restrictions on, the President. The Vice President or Vice Presidents shall have
such other powers and perform such other duties as from time to time may be
prescribed by the Board or by these Bylaws.
Section 5.09. Secretary. The Secretary shall:
(a) Seal. Have custody of the corporate seal and shall affix such seal
to all corporate instruments in all appropriate circumstances.
(b) Records, Reports, and Statements. Have custody of the records of the
corporation and make certain the books, reports, statements, certificates, and
all other documents and records required by law are kept and filed properly.
(c) Notices. Make certain all notices are duly given in accordance with
the provisions of these Bylaws or as required by law. In case of the Secretary's
absence, disability, or neglect or refusal to act, such notices may be given and
served or caused to be served by an Assistant Secretary, if any, or by the
President or a Vice President, or by the Board.
(d) Minutes. Act as Secretary at all meetings of shareholders and of the
Board and record, or cause to be recorded, in the minute book of the corporation
all actions taken at such meetings. In case of the Secretary's absence,
disability, or neglect or refusal to act, this duty may be performed by an
Assistant Secretary, if any, or such other person as may be appointed by the
person presiding at any such meeting.
(e) Minute Book. Keep in a book to be kept for that purpose written
minutes of the proceedings of the shareholders, Board and Board committees which
book shall be kept at the principal executive office of the corporation.
(f) Articles of Incorporation. Keep in a minute book of the corporation
the original or a copy of the Articles, certified by the Secretary of State,
with all amendments thereof to date.
(g) Bylaws. Keep at the corporation's principal executive office the
original or a copy of these Bylaws as amended to date, which shall be open to
inspection by the shareholders at all reasonable times during usual business
hours.
(h) Record of Shareholders. Keep at the corporation's principal
executive office a record of the corporation's shareholders, or if the record is
kept at the office of the corporation's transfer agent or registrar, a duplicate
record of such shareholders specifying the names and addresses of all
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such shareholders and the number and class of shares held by each such
shareholder.
(i) Certify Records. When requested to do so by the Board, or any
director individually, or Board committee, or the President or other officer of
the corporation, or when so required by law, certify as a true copy a copy of
the Bylaws of the corporation, or of the minutes of any meeting of the
incorporators, shareholders, directors, Board committee, or other, or of any
resolution adopted by the Board, a Board committee, or the shareholders. This
duty may be performed by any Assistant Secretary, if any.
(j) Share Certificates. Sign, with the Chairman of the Board, if any, or
the President or Vice President, all share certificates of the corporation. In
lieu of signing by the Secretary, such certificates may be signed by an
Assistant Secretary, if any, or by the Chief Financial Officer or by an
Assistant Treasurer, if any, of the corporation and such signatures on such
certificates may be facsimiles.
(k) Exhibit Record of Shareholders. Exhibit during usual business hours
for inspection and copying the record of shareholders:
(1) To any shareholder or shareholders holding, at least, five
percent (5%) in the aggregate of the outstanding, voting shares
of the corporation on five (5) business days prior written demand
on the corporation; and
(2) To any shareholder or holder of a voting trust certificate on
written demand on the corporation for a purpose reasonably
related to such holder's interests as a shareholder or holder of
a voting trust certificate.
Any inspection and copying pursuant to the provisions of this Paragraph (k) may
be made in person or by agent or by attorney.
(l) Exhibit Minutes to Shareholder. On the written demand on the
corporation of any shareholder or holder of a voting trust certificate, exhibit
for inspection, at any reasonable time during usual business hours, to such
shareholder or holder of such voting trust certificate for a purpose reasonably
related to such holder's interests as a shareholder or as the holder of such
voting trust certificate, or to such holder's agent or attorney, the minutes of
any proceedings of the shareholders, the Board, or Board committee, and any
accounting books and records in the Secretary's custody.
This right of inspection includes the right to copy and make extracts.
(m) Exhibit Records to Director. Exhibit, at any reasonable time, to any
director who so requests, or to such director's agent or attorney, for
inspection any and all books, records, and documents of every kind of the
corporation which by these Bylaws the Secretary is charged with maintaining and
keeping or which are in the Secretary's custody. This right of inspection
includes the right to copy and make extracts.
(n) Other Duties. Perform any and all other functions and duties that
may be specified in other sections of these Bylaws, and, in general, perform all
the duties incident to the office of Secretary of a corporation and such other
duties as may from time to time be assigned by the Board.
(o) Absence of Secretary. In case of the Secretary's absence,
disability, or refusal or
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neglect to act, an Assistant Secretary, if any, or if there be none, the Chief
Financial Officer acting as Assistant Secretary may perform all of the functions
and duties of the Secretary. In case of the absence, disability, or refusal or
neglect to act of such Assistant Secretary or Chief Financial officer, as the
case may be, as well as of the Secretary, then any person authorized by the
President or Vice President or by the Board shall perform the functions and
duties of the Secretary.
Section 5.10. Assistant Secretary. If the Board appoints one (1) or more
Assistant Secretaries, then, at the request of the Secretary or in case of the
Secretary's absence or disability, the Assistant Secretary, or, if there is more
than one (1), the Assistant Secretary designated by the Secretary, shall perform
all the duties of the Secretary, and when so acting shall have all the powers
of, and be subject to all the restrictions on, the Secretary. The Assistant
Secretary or Assistant Secretaries, also shall perform such other duties as from
time to time may be assigned to them by the Board or by the Secretary.
Section 5.11. Chief Financial Officer. The Chief Financial Officer
shall:
(a) Funds - Custody and Deposit. Have charge and custody of, and be
responsible for, all funds and securities of the corporation, and deposit all
such funds and securities in the name of the corporation in such banks, trust
companies, or other depositories as shall be selected by the Board.
(b) Funds - Receipt. Receive, and give receipt for, monies due and
payable to the corporation from any source whatever.
(c) Funds - Disbursement. Disburse or cause to be disbursed, the funds
of the corporation as may be directed by the Board, taking proper vouchers for
all such disbursements.
(d) Maintain Accounts. Keep and maintain adequate and correct books and
records of account either in written form or in any other form capable of being
converted into written form.
(e) Reports to President and Directors. Furnish to the President and
directors, whenever requested by them, an account of all transactions as Chief
Financial Officer and of the financial condition of the corporation.
(f) Financial Reports to Shareholders.
(1) Prepare, or cause to be prepared, the balance sheet, income
statement, and statement of changes in the corporation's
financial position for the fiscal year to be included in the
annual report, if any, to shareholders and either cause such
financial reports to be accompanied by any report of independent
accountants regarding such financial statements or, if there is
no such report, certify such financial reports were prepared
without audit from the books and records of the corporation;
(2) On the written request of any shareholder or shareholders
holding, at least, five percent (5%) of the outstanding shares of
any class prepare, or cause to be prepared, and deliver or mail
to the person(s) making such request within thirty (30) days
after the date of such request an income statement of the
corporation for the three-month, six-month or nine-month period
of the current fiscal year ended more than thirty (30) days prior
to the date of such request and a balance sheet of the
corporation as of the end
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of such period and, in addition, if no annual report for the last
fiscal year was sent to shareholders, the financial statements
required by Sub-Paragraph (1) of this Paragraph (f);
(3) Keep on file in the corporation's principal executive office for
a period of twelve (12) months a copy of the financial statements
described in Sub-Paragraph (2) of this Paragraph (f) and exhibit
such financial statements at all reasonable times to any
shareholder demanding an examination thereof or mail a copy of
such financial statements to such shareholder;
(4) Either cause the quarterly income statements and balance sheets
referred to in Sub- Paragraph (2) of this Paragraph (f) to be
accompanied by the report of independent accountants retained by
the corporation regarding such financial statements or, if there
is no such report, certify such financial statements were
prepared without audit from the books and records of the
corporation; and
(5) Prepare the financial statements described in this Paragraph (f),
or have such financial statements prepared, in accordance with
generally accepted accounting principles applied on a consistent
basis.
(g) Exhibit Accounts to Shareholders. On the written demand on the
corporation of any shareholder or holder of a voting trust certificate, exhibit
for inspection, at any reasonable time during usual business hours, to such
shareholder or holder of such voting trust certificate, for a purpose reasonably
related to such holder's interests as a shareholder or as the holder of such
voting trust certificate, or to such holder's agent or attorney, any or all of
the accounting books and records of the corporation. This right of inspection
includes the right to copy and make extracts.
(h) Exhibit Accounts to Directors. Exhibit for inspection at any
reasonable time, to any director of the corporation who so requests, or to such
director's agent or attorney, any and all books, records and documents of every
kind which the Chief Financial Officer is charged by these Bylaws with
maintaining or keeping or which are in the custody of the Chief Financial
Officer. This right of inspection includes the right to copy and make extracts.
(i) Bond. If required by the Board or the President, give to the
corporation a bond in an amount, with one or more sureties or a surety company,
satisfactory to the Board, for the faithful performance of the duties as Chief
Financial Officer and for the restoration to the corporation, in the event of
the Chief Financial Officer's death, resignation, retirement, or removal from
office, of all books, papers, vouchers, money, and other property of whatever
kind in the possession of or in the control of the Chief Financial officer and
which belong to the corporation.
(j) Share Certificates. Sign, with the Chairman of the Board, if any, or
the President or a Vice President, all share certificates of the corporation. In
lieu of signing by the Chief Financial Officer, such certificates may be signed
by an Assistant Treasurer, if any, or by the Secretary or by an Assistant
Secretary, if any, of the corporation. Signatures on such certificates may be
facsimiles.
(k) Other Duties. Perform any and all other functions and duties
required of the Chief Financial Officer that may be specified in other sections
of these Bylaws and, in general, perform all the duties incident to the office
of Chief Financial Officer of a corporation and such other duties as from time
to time may be assigned by the Board.
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(l) Absence of Chief Financial Officer. In case of the Chief Financial
Officer's absence, disability, or refusal or neglect to act, an Assistant
Treasurer, if any, or if there be none, the Secretary acting as Assistant
Treasurer, may perform all of the functions and duties of the Chief Financial
Officer. In case of the absence, disability, or refusal or neglect to act of
such Assistant Treasurer or Secretary, as the case may be, as well as of the
Chief Financial Officer, then any person authorized by the President or Vice
President or by the Board shall perform the functions and duties of the Chief
Financial Officer.
Section 5.12. Assistant Treasurer. If the Board appoints one or more
Assistant Treasurers, and if so required by the Board, each such Assistant
Treasurer shall give a bond for the faithful discharge of his respective duties
in such amounts, and with such sureties, as the Board shall require. At the
request of the Chief Financial Officer, or in case of the Chief Financial
Officer's absence or disability, the Assistant Treasurer, or, if there is more
than one, the Assistant Treasurer designated by the Chief Financial Officer or,
in the absence of such designation, by the Board, shall perform all the duties
of the Chief Financial Officer and, when so acting, shall have all the powers
of, and be subject to all the restrictions on, the Chief Financial Officer. The
Assistant Treasurer or Assistant Treasurers, also, shall perform such other
duties as may from time to time be assigned by the Board or by the Chief
Financial Officer.
Section 5.13. Compensation. The officers of the corporation shall
receive such compensation as shall be fixed from time to time by the Board and
no officer shall be prevented from receiving such compensation by reason of the
fact, if such be the case, such officer, also, is a director of the corporation.
ARTICLE VI.
EXECUTION OF INSTRUMENTS AND DEPOSIT OF FUNDS
Section 6.01. Limitations. Except as otherwise provided in these Bylaws,
the Board, by duly adopted resolution, may authorize any officer or agent of the
corporation to enter into any contract, or to execute and deliver any
instrument, in the name, and on behalf, of the corporation. Such authorization
may be general or may be confined to specified purposes. Unless so authorized
expressly, no officer, agent, or employee shall have any power or authority to
obligate the corporation by any contract or engagement or to pledge the
corporation's credit or to render the corporation liable pecuniarily for any
purpose or in any amount.
Section 6.02. Execution of Instruments and Papers. Unless otherwise
expressly required by the Board or by law, deeds and other conveyances,
promissory notes, deed of trust, mortgages, and other evidences of indebtedness
of the corporation, and share certificates shall be executed, signed, or
endorsed, as the case may be, by the Chairman of the Board, if any, or by the
President or a Vice President of the corporation and by the Chief Financial
Officer or any Assistant Treasurer or the Secretary or any Assistant Secretary
of the corporation. Only signatures on share certificates may be facsimiles.
Section 6.03. Signing of Checks. All checks, drafts, or other orders for
the payment of money issued in the name of the corporation shall be signed by
such person or persons and in such manner as shall be determined from time to
time by resolution of the Board.
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Section 6.04. Deposit and Withdrawal of Funds.
(a) Deposit of Funds. All funds of the corporation, including all
checks, drafts, or other orders for the payment of money payable to the
corporation, shall be deposited by the Chief Financial Officer from time to time
to the credit of the corporation with such banks, trust companies, or other
depositories as the Board may select or as may be selected by any Board
committee, officer, or agent of the corporation to whom such power may be
delegated by the Board from time to time. All checks, drafts, or other orders
for the payment of money requiring endorsement by the corporation before deposit
shall be endorsed "for deposit only" by handstamped impression in the name of
the corporation.
(b) Withdrawal of Funds. The withdrawal of funds from any such account
may be made only by check signed as provided in Section 6.03 of this Article VI.
ARTICLE VII.
ISSUANCE OF SHARES AND SHARE CERTIFICATES
Section 7.01. Authority to Issue.
(a) Types of Shares. The corporation may issue one or more classes or
series of shares or both, with full, limited, or no voting rights and with such
other rights, preferences, privileges, and restrictions as are stated or
authorized in the Articles. However, no denial or limitation of voting rights
shall be effective unless at the time one (1) or more classes or series of
outstanding shares or debt securities, singly or in the aggregate, are entitled
to full voting rights; and no denial or limitation of dividend or liquidation
rights shall be effective unless at the time one (1) or more classes or series
of outstanding shares, singly or in the aggregate, are entitled to unlimited
dividend and liquidation rights.
(b) Equality of Rights. All shares of any one (1) class shall have the
same voting, conversion, redemption and other rights, preferences, privileges,
and restrictions, unless such class is divided into series. If a class is
divided into series, all the shares of any one (1) series shall have the same
voting, conversion, redemption and other rights, preferences, privileges, and
restrictions.
(c) Consideration. Shares may be issued for such consideration as is
determined from time to time by the Board, consisting of any or all of the
following:
(1) Money paid;
(2) Labor performed;
(3) Services actually rendered to the corporation or for the benefit
of the corporation or in the formation or the reorganization of
the corporation;
(4) Debts or securities canceled; and
(5) Tangible or intangible property actually received either by the
corporation or by any wholly owned subsidiary of the corporation.
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Neither promissory notes of the purchaser (unless adequately secured by
collateral other than the shares acquired or unless permitted by Section 7.06 of
this Article VII) nor future services shall constitute payment or part payment
of shares of the corporation.
When shares are issued for any consideration, other than money, the Board must
state by resolution the Board's determination of the fair value of the
consideration to the corporation in monetary terms. In the absence of fraud in
the transaction, the judgment of the Board as to the value of the consideration
for shares shall be conclusive.
(d) Share Dividend; Reclassification of Shares. Shares, also, may be
issued as a share dividend or pursuant to a stock split, reverse stock split,
reclassification of outstanding shares for shares of another class, conversion
of outstanding shares into shares of another class, exchange of outstanding
shares for shares of another class, or any other change affecting outstanding
shares.
(e) Compliance with Securities Law. The corporation shall not offer to
sell or sell any security issued by the corporation, whether or not by
underwriters, until such offer or sale has been qualified by the California
Commissioner of Corporations ("Commissioner") as required by the California
Securities Law and the rules and regulations of the Commissioner, unless such
security or transaction is exempted from such qualification and, in such case,
there has been compliance with the applicable statutes, rules and regulations.
(f) Payment for Shares. Every subscriber for shares and every person to
whom shares are issued originally shall be liable to the corporation for the
full consideration agreed to be paid for such shares. The full agreed
consideration shall be paid prior to, or concurrently with, the issuance of such
shares, unless such shares are issued as partly paid pursuant to Section 7.03 of
this Article VII, in which case the consideration shall be paid in accordance
with the agreement of subscription or purchase.
(g) Shares as Deemed Fully Paid. Except as provided in Section 7.03 of
this Article VII, shares issued as provided in Paragraphs (c) and (d) of this
Section 7.01 shall be declared and taken to be fully paid stock and not liable
for any further call, nor shall the holder thereof be liable for any additional
payments pursuant to the provisions of the Law.
Section 7.02. Fractional Shares. The corporation shall not issue
fractions of a share either originally or on transfer, but, in connection with
the original issuance of shares, shall pay in cash the fair value, as determined
by the Board, of fractions of a share as of the time when those persons entitled
to receive such fractions are determined; provided, however, the corporation
shall not pay cash for fractional shares if such action would result in the
cancellation of more than ten percent (10%) of the outstanding shares of any
class.
Section 7.03. Partly Paid Shares.
(a) Authority to Issue. The corporation, if the Board so determines, may
issue the whole or any part of the corporation's shares as partly paid and
subject to call for the remainder of the consideration to be paid for such
shares. If shares are so issued, the corporation, on the declaration of any
dividend on fully paid shares, shall declare a dividend on partly paid shares of
the same class, but only in an amount which is calculated by multiplying the
amount of such dividend by that fraction, the numerator of which fraction shall
be the amount of consideration partly paid for such shares as of
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the date of record for the determination of those shareholders entitled to such
dividend and the denominator of which fraction shall be the total amount of
consideration to be paid for such shares.
(b) Conditions of Issue. The corporation may issue the corporation's
shares prior to full payment and permit deferred payment arrangements pursuant
to the following conditions:
(1) Not less than twenty-five percent (25%) of the aggregate price
shall be payable forthwith in cash;
(2) The balance of the aggregate price shall be payable within one
(1) year from the date of sale and, if the portion of the
aggregate price that is payable forthwith in cash is less than
forty percent (40%) of the aggregate price, that balance shall be
payable in equal monthly installments over a period not to exceed
one (1) year from the date of sale;
(3) The sale shall be pursuant to a subscription agreement setting
forth the terms of payment, or the balance of the aggregate price
shall be represented by one or more promissory notes;
(4) The shares sold shall be issued in the name of the purchaser, or
the purchaser's designee, but shall be retained by the
corporation as collateral for the unpaid balance of the aggregate
price;
(5) The corporation may not discount or assign the promissory note or
notes, or the corporation's rights pursuant to the subscription
agreement, unless the net cash proceeds to the corporation
therefrom is equal to not less than the offering price of the
shares, after deducting the authorized selling expenses;
(6) The certificates evidencing the shares shall state the total
amount of the consideration to be paid for the shares, the amount
paid, and the terms of payment; and
(7) As a condition of the transfer on the books of the corporation of
those shares, all installments of the purchase or subscription
price shall be paid before such transfer.
(c) Liability of Subscriber. A subscriber to partly paid shares is
liable to the corporation as provided in Paragraph (e) of Section 7.01 of this
Article VII, but a person holding such shares as a pledgee, executor,
administrator, guardian, trustee, receiver, or in any unpaid or fiduciary
capacity is not personally liable for any unpaid balance, although the estate
and funds of such fiduciary or representative are liable for any unpaid balance
of the subscription price and such shares are subject to sale therefor.
Section 7.04. Options. Either regarding the issue, subscription, or sale
of any of the corporation's shares, bonds, debentures, notes, or other
securities, or independently thereof, the corporation, if so determined by the
Board, may grant options to purchase or subscribe for shares of any class or
series on such terms and conditions as the Board may deem appropriate. Option
rights may be transferable or non-transferable and may be separable or
inseparable from other securities of the corporation, as determined by the
Board.
Section 7.05. Pre-emptive Rights. Unless prohibited by the Articles or
any agreement to
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which the corporation is a party, the Board may issue shares, options, or
securities having conversion or option rights without first offering to the
shareholders of the corporation such shares, options or securities.
Section 7.06. Employee Plans.
(a) Authority to Adopt. The corporation, on terms and conditions
authorized herein, may establish and operate a stock purchase plan, or plans,
providing for the issue and sale, or for the granting of options for the
purchase, of the corporation's unissued shares, or of issued shares purchased or
to be purchased or acquired, to employees or directors of the corporation or of
any subsidiary or parent of the corporation or to a trustee on behalf thereof.
Such a plan may specify the consideration for the payment of those shares in
installments, or at one time, and for aiding any eligible persons in paying for
those shares by compensation or services rendered, promissory notes, or
otherwise. Any plan, before becoming effective, must be approved or authorized
by the Board.
(b) Includable Features. A plan may include, among other things,
provisions determining or providing for the determination by the Board, or any
Board committee, of: (i) eligibility of directors and employees to participate;
(ii) the number and class of shares that may be subscribed for or for which
options may be granted pursuant to the plan; (iii) the time and method of
payment for the shares; (iv) the price or prices at which the shares shall be
issued or sold; (v) whether or not title to the shares shall be reserved to the
corporation until fully paid for; (vi) the effect of the death of a director or
employee participating in the plan, or the termination of a participating
person's employment, including whether there shall be any option or obligation
on the part of the corporation to repurchase the shares; (vii) restrictions, if
any, upon the transfer of the shares, and the time limits and termination of the
plan; (viii) termination, continuation, or adjustments of the rights of
participating directors and employees on the happening of specified
contingencies, including increase or decrease in the number of issued shares of
the class covered by the plan without receipt of consideration by the
corporation or any exchange of shares of that class for stock or securities of
another corporation pursuant to a reorganization or merger, consolidation or
dissolution of the corporation; (ix) amendment, termination, interpretation, and
administration of the plan by the Board or any Board committee; and (x) any
other matters, not repugnant to law or to the Articles, that may be included in
the plan.
Section 7.07. Certificates of Determination.
(a) Execution of Officer's Certificates. Before the corporation issues
any share of any class or series of which the rights, preferences, privileges,
and restrictions, or any of them, or the number of shares constituting any
series or the designation of such series, are not set forth in the Articles but
are fixed in a resolution adopted by the Board, pursuant to authority given in
the Articles, an officers certificate, as that term is defined in Section 173 of
the Code, setting forth a copy of said resolution, the number of shares of the
class or series and stating none of the shares of the class or series has been
issued, shall be executed and filed in the office of the California Secretary of
State.
(b) Change in Rights. After any certificate of determination, as
provided in Paragraph (a) of this Section 7.07, has been filed in the office of
the California Secretary of State, but before the corporation has issued any
shares of the class or series described in that certificate, the Board may alter
or revoke any right, preference, privilege, or restriction fixed or determined
by the resolution set forth in that certificate by the adoption of another
resolution appropriate, for that purpose and the
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execution and filing of an officers certificate, as that term is defined in
Section 173 of the Code, setting forth a copy of such other resolution and
stating none of the shares of the class or the series affected has been issued.
After shares of a class or series have been issued, the provisions of the
resolution set forth in a certificate of determination may be amended only by
the adoption and approval of an amendment in accordance with the provisions of
Sections 902, 903, or 904 of the Code, and the filing of a certificate of
amendment pursuant to the provisions of Sections 905 and 908 of the Code.
However, a certificate to increase or decrease the number of shares of series,
also, may be filed as permitted by the provisions of 401(c) of the Code, as set
forth in Paragraph (c) of this Section 7.07.
When the Board effects a change in rights, the provision of the original
certificate of determination which has been amended must be identified in the
amendment in accordance with the provisions of Section 907(a) of the Code.
(c) Changing Number of Shares of Series. After any certificate of
determination has been filed in the office of the California Secretary of State,
the Board may increase or decrease the number of shares constituting any series
by the adoption of a resolution appropriate for that purpose and the execution
and filing in, the office of the California Secretary of State of an officers
certificate, as that term is defined in Section 173 of the Code, setting forth a
copy of such resolution, the number of shares of the series then outstanding,
and the increase or decrease in the number of shares constituting such series.
In the event the Board increases or decreases the number of shares constituting
any series in this manner, the provision of the original certificate of
determination which has been amended must be identified in the amendment in
accordance with the provisions of Section 907(a) of the Code. In the event the
number of shares in a series is decreased to zero, the certificate of
determination which established that series shall be presumed conclusively to
have been amended to provide such series is no longer an authorized series of
the corporation.
Section 7.08. Shareholders' Right to Share Certificate.
(a) Fully Paid Shares. Every holder of shares in the corporation shall
be entitled to have a certificate signed in the name of the corporation by the
Chairman of the Board, if any, or the President or Vice President and by the
Chief Financial Officer or an Assistant Treasurer, if any, or the Secretary or
any Assistant Secretary, if any, certifying the number of shares and the class
or series of shares owned by such shareholder. Any or all of the signatures on
the certificate may be facsimile. In case any officer, transfer agent, or
registrar who has signed, or whose facsimile signature has been placed on, a
certificate shall have ceased to be such officer, transfer agent, or registrar
before such certificate is issued, such certificate may be issued by the
corporation with the same effect as if such person were such officer, transfer
agent, or registrar at the date of issue.
(b) Partly Paid Shares. If the corporation issues partly paid shares,
the corporation must issue certificates for such shares as provided in Paragraph
(a) of this Section 7.08.
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Section 7.09. Contents of Certificate.
(a) Classified Shares. The certificate shall contain the matter
specified in Paragraph (a) of Section 7.08 of this Article VII. In addition, if
the shares of the corporation are classified or if any class of shares has two
(2) or more series, there shall appear on the certificate or, in the case of
uncertificated securities, the initial transaction statement and written
statements, one (1) of the following:
(1) A statement of the rights, preferences, privileges, and
restrictions granted to, or imposed on, each class or series of
shares authorized to be issued and on the holders thereof;
(2) A summary of such rights, preferences, privileges, and
restrictions with reference to the provisions of the Articles and
any certificates of determination establishing the same; or
(3) A statement setting forth the office or agency of the corporation
from which shareholders may obtain, on request and without
charge, a copy of the statement referred to in Sub-Paragraph (1)
of this Paragraph (a).
(b) Restrictions on Shares. Also, there shall appear on such
certificate, the initial transaction statement, and written statements (unless
stated or summarized pursuant to Sub-Paragraph (1) or Sub-Paragraph (2) of
Paragraph (a) of this Section 7.09) the statements required by all of the
following sub-paragraphs to the extent applicable:
(1) The fact such shares are subject to restrictions on transfer;
(2) If such shares are assessable or are not fully paid, a statement
such shares are assessable or, in the case of partly paid shares,
the total amount of the consideration to be paid therefor and the
amount paid thereon;
(3) The fact such shares are subject to a voting agreement pursuant
to Section 706(a) of the Code or an irrevocable proxy pursuant to
Section 705(e) of the Code or restrictions on voting rights
contractually imposed by the corporation;
(4) The fact such shares are redeemable; and
(5) The fact such shares are convertible and the period for
conversion.
(c) Close Corporation Legend. If this corporation is a "close"
corporation, the following conspicuous legend must also appear on the face of
the certificate: "This corporation is a close corporation. The number of holders
of record of this corporation's shares of all classes cannot exceed thirty-five
(35). Any attempted voluntary inter vivos transfer which would violate this
requirement is void. Refer to the Articles, Bylaws and any agreements on file
with the Secretary of this corporation for additional restrictions." Any
attempted voluntary inter vivos transfer of the shares of the corporation which
would result in the number of holders of record of the corporation's shares
exceeding the maximum number specified in the Articles is void if the
certificate evidencing such shares contains the foregoing legend.
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Section 7.10. Exchange of Certificates.
(a) On Amendment of Articles of Incorporation or Otherwise. If the
Articles are amended in any way affecting the statements contained in the
certificates for outstanding shares, or it becomes desirable for any reason, in
the discretion of the Board, to cancel any outstanding certificate for shares
and issue a new certificate therefor conforming to the rights of the holder, the
Board may order any holders of outstanding certificates for shares to surrender
and exchange such certificates for new certificates within a reasonable time to
be fixed by the Board.
(b) Contents of Order. The order may provide a holder of any
certificates so ordered to be surrendered is not entitled to vote or to receive
dividends or exercise any of the other rights of a shareholder until such holder
has complied with such order, but such order shall operate to suspend such
rights only after notice and until compliance. The obligation of surrender of
any outstanding certificates, also, may be enforced by the corporation by civil
action.
Section 7.11. Lost, Stolen, or Destroyed Certificate; Issuance of New
Certificate.
(a) Issuance of New Certificate. The corporation may issue a new share
certificate or a new certificate for any other security in the place of any
certificate theretofore issued by the corporation, alleged to have been lost,
stolen, or destroyed. The corporation may required the owner of such lost,
stolen or destroyed certificate, or such owner's legal representative to give
the corporation a bond (or other adequate security) sufficient to indemnify the
corporation against any claim that may be made against the corporation
(including any expense or liability) because of the alleged loss, theft, or
destruction of any such certificate or the issuance of such new certificate.
(b) Purchase by Bona Fide Purchaser. If after a new security has been
issued for a lost, destroyed, or stolen security, a bona fide purchaser of the
original security presents such original security for registration or transfer,
the corporation must register the transfer unless such registration would result
in over issue, in which event the corporation's liability shall be that set
forth in the last paragraph of Section 8.03 of the Article VIII of these Bylaws.
In addition to any rights pursuant to such indemnity bond, the corporation may
recover the new security from the person to whom such new security was issued or
any person taking from such issuee except a bona fide purchaser.
Section 7.12. Alternative System in Lieu of Certificates.
Notwithstanding the provisions of Paragraph (a) of Section 7.08 of this Article
VII, the corporation may adopt a system of issuance, recordation, and transfer
of the corporation's shares by electronic or other means not involving any
issuance of certificates, including provisions for notice to purchasers in
substitution for the required statements on the certificates pursuant to the
provisions of Paragraphs (a) and (b) of Section 7.09 of this Article VII, which
system has been approved by the United States Securities and Exchange
Commission, or which is authorized in any statute of the United States, or is in
accordance with the provisions of Division 8 of the California Commercial Code.
Any system so adopted shall not become effective as to issued and outstanding
certificated securities until the certificates therefor have been surrendered to
the corporation.
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ARTICLE VIII.
TRANSFER OF SHARES
Section 8.01. Duty of Corporation. When a security in registered form is
presented to the corporation with a request to register transfer thereof, the
corporation shall have a duty to register the transfer as required, if all the
following have occurred:
(a) Security Endorsed. The security is endorsed by the appropriate
person or persons;
(b) Assurance of Endorsement. Reasonable assurance is given those
endorsements are genuine and effective;
(c) No Adverse Claims. The corporation has no duty to inquire into
adverse claims or has discharged any such duty; and
(d) Collection of Taxes. There has been compliance with any and all
applicable laws relating to the collection of taxes.
Section 8.02. Non-liability of Corporation.
(a) Registration of Transfer. Except as otherwise provided in any law
relating to the collection of taxes, the corporation shall not be liable to the
owner or any other person suffering loss as result of the registration of a
transfer of a security if:
(1) There were on or with such security the necessary endorsements;
and
(2) The corporation had no duty to inquire into adverse claims or has
discharged any such duty.
(b) Shares Held in Joint Tenancy, by Minor, Incompetent, or Married
Persons. Neither the corporation nor the corporation's transfer agent or
registrar shall be liable:
(1) For transferring or causing to be transferred on the books of the
corporation to the surviving joint tenant or tenants any share or
shares or other securities issued to two (2) or more person in
joint tenancy, whether or not such transfer is made with actual
or constructive knowledge of the existence of any understanding,
agreement, condition, or evidence such shares or securities were
held other than in joint tenancy or of a breach of trust by any
joint tenant;
(2) To a minor or incompetent person in whose name shares are of
record on the corporation's books or to any transferee or
transferor thereof either for transferring such shares on the
corporation's books at the request of such minor or incompetent
or for the recognition of, or dealing with, such minor or
incompetent as a shareholder, whether or not the corporation,
transfer agent, or registrar had notice, actual or constructive,
of the non-age or incompetence, unless a guardian or conservator
of the property of such minor or incompetent has been appointed
and the corporation, transfer agent, or registrar has received
written notice thereof;
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(3) To any married person or to any transferee of such person for
transferring shares on the corporation's books at the request of
the person in whose name such shares are registered, without the
signature of such person's spouse and regardless of whether the
registration indicates such shares are community property, in the
same manner as if such person were unmarried; or
(4) For transferring or causing to be transferred on the books of the
corporation shares or other securities pursuant to a judgment or
an order of a court which has been set aside, modified or
reversed unless, prior to the registration of the transfer on the
books of the corporation, written notice is served upon the
corporation or the corporation's transfer agent in the manner
provided by law for the service of a summons in a civil action,
stating an appeal or other further court proceeding has been,
oris to be, taken from or with regard to such judgment or order.
After the service of such notice neither the corporation nor the
corporation's transfer agent has any duty to register the
requested transfer until the corporation or the corporation's
transfer agent has received a certificate of the county clerk in
the county in which such judgment or order was entered or made,
showing such judgment or order has become final.
(c) Failure to Notify Corporation of Lost, Destroyed, or Stolen
Security. Where a security has been lost, apparently destroyed, or wrongfully
taken and the owner fails to notify the corporation of that fact within a
reasonable time after such owner has notice thereof and the corporation
registers a transfer of such security before receiving such notification, such
owner is precluded from asserting against the corporation any claim for
registering the transfer or any claim to a new security.
Section 8.03. Liability of Corporation. Where the corporation has
registered a transfer of a security to a person not entitled to such security,
the corporation, on demand, shall deliver a similar security to the true owner
unless:
(a) Necessary Endorsements. The registration was pursuant to
Paragraph (a) of Section 8.02 of this Article VIII; or
(b) Estoppel and Waiver. The owner is precluded from asserting
any claim for registering the transfer as provided in
Paragraph (c) of Section 8.02 of this Article VIII; or
(c) Overissue. Such delivery would result in overissue.
In this latter case, if an identical security which does not constitute an
overissue is reasonably available for purchase, the person entitled to such
issue may compel the corporation to purchase and deliver to such person such
identical security against surrender of the security, if any, which such person
holds; or if such a security is not available for purchase, such person may
recover from the corporation the purchase price such person or the last
purchaser for value paid for such security with interest from the date of the
demand for such recovery until the date of payment thereof.
Section 8.04. Liability on Transfer of Partly Paid Shares.
(a) Good Faith Purchaser. A transferee of shares of which the full
agreed consideration has not been paid to the corporation, who
acquired such shares in good faith, without knowledge such
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shares were not paid in full or to the extent stated on the certificate
representing such shares or, in the case of uncertificated securities, on the
applicable initial transaction statement, is liable only for the amount shown by
such certificate or statement to be unpaid on the shares represented thereby,
until such transferee transfers the shares to a person who becomes liable
therefor; provided, however, the transferor shall remain personally liable if so
provided on the certificate or statement or agreed upon in writing. The
liability of any holder of such shares who derives title from such a transferee
and who is not a party to any fraud affecting the issue of such shares is the
same as that of the transferee from whom title was derived.
(b) Purchaser with Knowledge. Every transferee of partly paid shares who
acquired such shares pursuant to a certificate or initial statement showing the
fact of part payment, and every transferee of such shares (other than a
transferee who derives title from a holder in good faith without knowledge and
who is not a party to any fraud affecting the issue of such shares) who acquired
such shares with actual knowledge the full agreed consideration had not been
paid to the extent stated on the certificate therefor or initial transaction
statement, is liable personally to the corporation for installments of the
amount unpaid becoming due until such shares are transferred to a person who
becomes liable therefor.
(c) Transferor. In either case mentioned in Paragraph (a) or (b) of this
Section 8.04, the transferor of such shares shall remain liable personally for
the unpaid consideration, if so provided in the certificate, initial transaction
statement, or written statement, or agreed on in writing.
ARTICLE IX.
CORPORATE RECORDS, REPORTS AND SEAL
Section 9.01. Minutes of Meetings. The corporation shall keep minutes in
written form of the proceedings of the corporation's shareholders, Board, and
Board committees.
Section 9.02. Books and Records of Account. The corporation shall keep
adequate and correct books and records of account either in written form or in
any other form capable of being converted into written form.
Section 9.03. Record of Shareholders. The corporation shall keep at the
corporation's principal executive office, or at the office of the corporation's
transfer agent or registrar, a record of the corporation's shareholders, giving
the names and addresses of all such shareholders and the number and class of
shares held by each. Such record must be kept either in written form or in any
other form capable of being converted into written form.
Section 9.04. Shareholder's Right to Inspect Record of Shareholders by
Written Demand of Holders of Specified Percentage of Shares.
(a) Five Percent Shareholder. A shareholder or shareholders
holding, at least, five percent (5%) in the aggregate of the outstanding voting
shares of the corporation shall have an absolute right to:
(1) Inspect and copy the record of shareholders, names and
addresses and shareholdings during usual business hours on five (5)
business days' prior written demand on the corporation; and
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(2) Obtain from the corporation's transfer agent, on
written demand and on the tender of such transfer agent's usual charges
for such a list (the amount of which charges shall be stated to such
shareholder or shareholders by the transfer agent on request), a list of
shareholders' names and addresses, who are entitled to vote for the
election of directors, and the shares held by the shareholders of the
corporation, as of the most recent record date for which such list has
been compiled or as of the date specified by such shareholder or
shareholders subsequent to the date of such demand. Such list must be
made available on or before the later of five (5) business days after
such demand is received or the date specified therein as the date as of
which such list is to be compiled. The corporation shall have the
responsibility to cause such transfer agent to comply with this
requirement.
(b) By Written Demand of Any Shareholders. The record of
shareholders, also, shall be open to inspection and copying by any shareholder
or holder of a voting trust certificate at any time during usual business hours
on written demand therefor on the corporation by such shareholder or holder of a
voting trust certificate, for a purpose reasonably related to such holder's
interests as a shareholder or holder of a voting trust certificate.
(c) Inspection by Agent or Attorney. Any inspection and copying
pursuant to this Section 9.04 may be made in person or by an agent or an
attorney.
Section 9.05. Shareholder's Right to Inspect Books of Account and
Minutes. The accounting books and records and minutes of proceedings of the
shareholders, Board, and Board committees of the corporation shall be open to
inspection on the written demand therefor on the corporation by any shareholder
or holder of a voting trust certificate at any reasonable time during usual
business hours, for a purpose reasonably related to such holder's interests as a
shareholder or as the holder of such voting trust certificate. Such inspection
may be made in person or by an agent or an attorney, and the right of inspection
includes the right to copy and make extracts.
Section 9.06. Inspection by Directors. Every director of the corporation
shall have absolute right at any reasonable time to inspect and copy all books,
records, and documents of every kind and to inspect the physical properties of
the corporation. The inspection may be made in person or by an agent or an
attorney, and the right of inspection includes the right to copy and make
extracts.
Section 9.07. Annual Report.
(a) When Waived. Any other provision of these Bylaws notwithstanding, no
annual report shall be prepared or sent to shareholders during any time the
corporation has less than one hundred (100) holders of record of the
corporation's shares determined as provided in Section 605 of the Code.
(b) When Required. If the corporation should have one hundred (100) or
more holders of record of the corporation's shares determined as provided in
Section 605 of the Code, the Board shall cause an annual report to be sent to
the shareholders not later than one hundred twenty (120) days after the close of
the fiscal year for which such annual report is prepared and at least fifteen
(15) days prior to the annual meeting of shareholders to be held during the next
fiscal year; provided, however, such annual report may be sent by third-class
mail, if such annual report is sent to shareholders, at least, thirty-five (35)
days prior to such annual meeting.
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(c) Contents.
(1) The annual report shall contain a balance sheet as of the end of
the fiscal year and an income statement and statement of changes
in financial position for such fiscal year, accompanied by any
report of independent accountants or, if there is no such report,
the certificate of an authorized officer of the corporation such
financial statements were prepared without audit from the books
and records of the corporation.
(2) In addition, if the corporation is either not subject to the
reporting requirements of Section 13 of the Securities and
Exchange Act of 1934 ("Act"), or is exempted from such reporting
requirements by Section 12(g)(2) of the Act, the annual report
shall also describe briefly both of the following:
(i) Any transaction (excluding compensation of officers and
directors) during the previous fiscal year involving an
amount in excess of Forty Thousand Dollars ($40,000.00)
(other than contracts let at competitive bid or services
rendered at prices regulated by law) to which the
corporation is or was a party and in which any director or
officer of the corporation or any holder of more than ten
(10) percent of the outstanding voting shares of the
corporation has or had a direct or indirect material
interest, identifying the person and identifying such
person's relationship to the corporation, the nature of
such person's interest in the transaction and, if
practicable, the amount of such interest; provided,
however, in the case of a transaction with a partnership
of which such person is a partner, only the interest of
the partnership need be stated; and provided, further,
however, no such report need made in the case of
transactions approved by the shareholders, as that term is
defined in Section 153 of the Code (see Section 2.22 of
these Bylaws).
(ii) The amount and circumstances of any indemnification or
advances aggregating more than Ten Thousand Dollars
($10,000.00) paid during such fiscal year to any officer
or director of the corporation pursuant to Section 317 of
the Code (see Sections 2.24 through 2.30, inclusive, of
these Bylaws); provided, however, no such report need be
made in the case of indemnification approved by the
shareholders, as that term is defined in Section 153 of
the Code, pursuant to Section 317(e)(2) of the Code (see
Section 2.27 of these Bylaws).
Section 9.08. Special Financial Statements to Shareholders.
(a) Five Percent Shareholder. Any shareholder or shareholders holding,
at least, five percent (5%) of the outstanding shares of any class of the
corporation may make a written request to the corporation for an income
statement of the corporation for the three-month, six-month, or nine-month
period of the corporation for the current fiscal year ended more than thirty
(30) days prior to the date of such request and a balance sheet of the
corporation as of the end of such period and, in addition, if no annual report
for the last fiscal year has been sent to the shareholders, the financial
statements and information required by Paragraph (c) of Section 9.07 of this
Article IX for the last fiscal year. Such financial statements must be delivered
or mailed to the person making such request within thirty (30) days thereafter.
A copy of such financial statements shall be kept on file in the principal
executive office of the corporation for twelve (12) months and such financial
statements shall
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be exhibited at all reasonable times to any shareholder demanding an examination
thereof or a copy shall be mailed to such shareholder.
(b) Written Demand of Any Shareholder. The corporation, on the written
request of any shareholder, shall mail to such shareholder a copy of the last
annual, semi-annual, or quarterly income statement which the corporation has
prepared and a balance sheet as of the end of that period.
(c) Certification of Financial Statements. The quarterly income
statements and balance sheets referred to this Section 9.08 shall be accompanied
by the report thereon, if any, of the independent accountants engaged by the
corporation or, if there is no such report, the certificate of an authorized
officer of the corporation such financial statements were prepared without audit
from the books and records of the corporation.
Section 9.09. Corporate Seal. The Board shall adopt a corporate seal
which shall consist of two (2) concentric circles containing the words
Performance Capital Management, Inc." and in the center of such circles the
words "Incorporated" and "California" together with the date of incorporation of
the corporation. The Secretary of the corporation shall have custody of such
seal and affix such seal, in appropriate cases, to all corporate documents.
Failure to affix such seal, however, does not affect the validity of any
document.
ARTICLE X
CERTIFICATION, INSPECTION, AND AMENDMENT OF BYLAWS
Section 10.01. Inspection and Certification of Bylaws. The corporation
shall keep at the corporation's principal executive office in California the
original or a copy of these Bylaws as amended to date, which shall be open to
inspection by the shareholders at all reasonable times during usual business
hours. The original or a copy of these Bylaws certified to be a true and correct
copy by a person purporting to be the Secretary or an Assistant Secretary, if
any, of the corporation is prima facie evidence of the adoption of these Bylaws
and of the matters stated therein.
Section 10.02. Adoption, Amendment, Repeal of Bylaws by Shareholders.
These Bylaws, from time to time and at any time, may be amended or repealed and
new or additional bylaws adopted, by approval of the outstanding shares of the
corporation, as that term is defined in Section 152 of the Code; provided,
however, such new or additional bylaws may not contain any provision in conflict
with the Law or with the Articles and; provided, further, however, a bylaw
reducing the number of directors to a number less than five (5) (see Section
2.03 of Article II of these Bylaws) cannot be adopted if the votes cast against
such bylaw's adoption at a meeting of shareholders of the shares not consenting
in the case of action by written consent are equal to more than sixteen and
two-thirds percent (16 2/3%) of the outstanding shares entitled to vote.
Section 10.03. Adoption, Amendment, Repeal of Bylaws by Directors.
Subject to the right of the outstanding shares to adopt, amend, or repeal bylaws
(see Section 10.02 of these Bylaws) and any restrictions imposed by the Articles
on the power of the Board to adopt, amend, or repeal bylaws, these Bylaws, from
time to time and at any time, may be amended or repealed, and new or additional
bylaws adopted, by approval of the Board; provided, however, such bylaws may not
contain any provision in conflict with the Law or with the Articles and;
provided, further, however, after shares are issued any bylaw changing the
number of directors or changing from fixed to a variable Board may be adopted
only be approval of the outstanding shares of the corporation, as that term is
defined in Section 152 of the Code.
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XI.
CONSTRUCTION OF BYLAWS
Unless otherwise stated in these Bylaws or unless the context otherwise
requires, the definitions contained in the Law shall govern the construction of
these Bylaws. Without limiting the generality of the foregoing, the masculine
gender includes the feminine and neuter genders, and vice versa; the singular
includes the plural, and vice versa; and the word "person" shall include
individual, company, sole proprietorship, corporation, joint venture,
association, joint stock company, fraternal order, cooperative, league, club,
society, organization, trust, estate, governmental agency, political subdivision
or authority, firm, municipality, congregation, partnership, or other form of
entity.
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CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
1. I am the Secretary of Performance Capital Management, Inc., a
California corporation; and
2. The foregoing Bylaws, consisting of eleven (11) articles and
forty-seven (47) pages, constitute the Bylaws of said corporation
as duly approved and adopted by vote of the directors of said
corporation, as set forth in that certain Unanimous Written
Consent of Directors to Corporate Action Without First Meeting
dated even herewith.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the
seal of the corporation this _____ day of _____________
---------------------------------------
Secretary
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EXHIBIT 3.5
BYLAWS
OF
PERFORMANCE ASSET MANAGEMENT COMPANY
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of Performance Asset
Management Company ("Corporation") shall be maintained at such locations within
the State of Delaware as the Board of Directors from time to time shall
designate. The Corporation shall maintain in charge of such registered office an
agent upon whom process against the Corporation may be served.
SECTION 2. OTHER OFFICES. The Corporation may also have an office or
offices at such other place or places, either within or without the State of
Delaware, as the Board of Directors from time to time may determine or the
business of the Corporation may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
SECTION 1. ANNUAL MEETINGS. Subject to the provisions of these Bylaws, the
annual meeting of the shareholders for the election of directors and for the
transaction of such other business as may properly come before such meeting
shall be held on such date and at such time as shall be designated by the Board
of Directors and stated in the notice of such meeting. If the election for
directors shall not be held on the day designated therefor or at any adjournment
thereof, the directors shall cause such election to be held at a special meeting
of the shareholders as soon thereafter as may be convenient. At such special
meeting, subject to the provisions of these Bylaws, the shareholders may elect
the directors and transact any other business with the same force and effect as
at an annual meeting duly called and held.
SECTION 2. SPECIAL MEETINGS. A special meeting of the shareholders for any
purpose or purposes, unless otherwise prescribed by statute, may be called at
any time and shall be called by the President or Secretary, upon the direction
of the Board of Directors, or upon the written request of a shareholder or
shareholders holding of record at least ten percent (10%) of the outstanding
shares of the Corporation entitled to vote at such a meeting.
SECTION 3. PLACE OF MEETINGS. All meetings of the shareholders shall be
held at the principal place of business of the Corporation or at such other
place, within or without
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the State of Delaware, as shall be designated by the Board of Directors and
stated in the notice of each such meeting.
SECTION 4. NOTICE OF MEETINGS. Except as otherwise provided by law, notice
of each meeting of the shareholders, whether annual, special, or adjourned,
shall be given, not less than ten (10) days nor more than sixty (60) days before
the day on which such meeting is to be held, to each shareholder of record
entitled to vote at such meeting by delivering a written or printed notice
thereof to such shareholder personally, by facsimile machine, or by mailing such
notice in a postage prepaid envelope addressed to such shareholder at the post
office address furnished by such shareholder to the Secretary for such purpose,
or, if such shareholder shall not have furnished to the Secretary an address for
such purpose, then at the address of such shareholder last known to the
Secretary. Except when expressly required by law, no publication of any notice
of a meeting of shareholders shall be required. Notice of any meeting of
shareholders shall not be required to be given to any shareholder who shall
attend such meeting in person or by proxy. If any shareholder shall in person or
by proxy waive notice, in writing, of such meeting, whether before or after such
meeting, notice thereof need not be given to such shareholder. Notice of any
adjourned meeting of the shareholders shall not be required to be given, except
when expressly required by law.
SECTION 5. QUORUM. At each meeting of the shareholders, the presence in
person or by proxy of shareholders holding of record a majority of the
outstanding shares entitled to vote at such meeting shall be necessary and
sufficient to constitute a quorum for the transaction of business. In the
absence of a quorum, the shareholders entitled to vote who are present in person
or by proxy at the time and place of any meeting, or, if no shareholder entitled
to vote is so present in person or by proxy, any officer entitled to preside at
or act as secretary of such meeting may adjourn such meeting from time to time,
without notice other than an announcement at such meeting, until a quorum shall
be present. At any such adjourned meeting at which a quorum may be present, any
business may be transacted which might have been transacted at the meeting as
originally called.
SECTION 6. ORGANIZATION. At every meeting of the shareholders, the
President, or, in his or her absence, a Vice President, or, in the absence of
the President and all of the Vice Presidents, a chairman chosen by a majority in
interest of the shareholders present in person or by proxy and entitled to vote
thereat, shall act as chairman. The Secretary, or, in his or her absence, an
Assistant Secretary, shall act as secretary at all meetings of the shareholders.
In the absence from any such meeting of the Secretary or an Assistant Secretary,
the chairman may appoint any person to act as secretary of such meeting.
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SECTION 7. BUSINESS AND ORDER OF BUSINESS. Subject to the provisions of
these Bylaws, at each meeting of the shareholders, such business may be
transacted as may properly be brought before such meeting.
SECTION 8. VOTING. At each meeting of the shareholders, each shareholder
shall be entitled to one vote in person or by proxy for each share of the
Corporation having voting rights registered in his or her name on the books of
the Corporation at the close of business on the day next preceding the day on
which notice of such meeting was given, or, if no notice was given, on the day
next preceding the day on which such meeting is held, except when, pursuant to
the provisions of Section 7 of Article VII of these Bylaws, a date shall have
been fixed as a record date for the determination of the shareholders entitled
to vote. Any shareholder entitled to vote may vote in person or by proxy in
writing; provided, however, that no proxy shall be valid after eleven (11)
months after the date of its execution, unless otherwise provided therein. The
presence at any meeting of any shareholder who has given a proxy shall not
revoke such proxy, unless such shareholder shall file written notice of such
revocation with the secretary of such meeting prior to the voting of such proxy.
At each meeting of the shareholders, all matters other than those the
manner of deciding of which is expressly regulated by statute, the Certificate
of Incorporation, or these Bylaws, shall be decided by a majority of the votes
cast by the holders of shares entitled to vote thereon.
The Board of Directors, in advance of any meeting of the shareholders, or
the chairman of such meeting, at such meeting, may appoint one or more
inspectors of election to act at such meeting or any adjournment thereof, but no
inspectors need be appointed unless expressly requested at such meeting by a
shareholder entitled to vote thereat.
SECTION 9. CONDUCT OF MEETINGS OF SHAREHOLDERS. Meetings of the
shareholders shall generally follow reasonable and fair procedure. Subject to
the foregoing, the conduct of any meeting and the determination of procedure and
rules shall be within the absolute discretion of the chairman, and there shall
be no appeal from any ruling of the chairman with respect to procedure or rules.
Accordingly, in any meeting of the shareholders, or part thereof, the chairman
shall have the absolute power to determine appropriate rules or to dispense with
theretofore prevailing rules. Without limiting the foregoing, the following
rules shall apply:
(a) Within his or her sole discretion, the chairman of a meeting may
adjourn such meeting by declaring such meeting adjourned. Upon his or
her doing so, such meeting shall be immediately adjourned.
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(b) The chairman may ask or require that anyone who is not a bona fide
shareholder or proxy leave a meeting.
(c) A resolution or motion shall be considered for vote only if proposed
by a shareholder or duly authorized proxy, and seconded by a person,
who is a shareholder or a duly authorized proxy, other than the person
who proposed the resolution or motion. The chairman may propose any
motion for vote.
(d) The chairman of a meeting may impose any reasonable limits with
respect to participation by shareholders in a meeting, including, but
not limited to, limits on the amount of time at the meeting taken up
by the remarks or questions or any shareholder, limits on the numbers
of questions per shareholder, and limits as to the subject matter and
timing of questions and remarks by shareholders.
Notwithstanding anything in these Bylaws to the contrary, no business shall
be conducted at any meeting of the shareholders except in accordance with the
procedures set forth in this Section 9; provided, however, that nothing in this
Section 9 shall be deemed to preclude discussion by any shareholder as to any
business properly brought before any meeting.
The chairman shall, if the facts warrant, determine, and declare at any
meeting of the shareholders that business was not properly brought before such
meeting in accordance with the provisions of this Section 9, and if he or she
should so determine, he or she shall so declare to such meeting and any such
business not properly brought before such meeting shall not be transacted.
SECTION 10. ADVANCE NOTICE OF SHAREHOLDER PROPOSED BUSINESS AT ANY MEETING
OF THE SHAREHOLDERS. To be properly brought before any annual meeting of the
shareholders, business must be either (a) specified in the notice of such
meeting (or any supplement thereto) given by or at the direction of the Board of
Directors, (b) otherwise properly brought before such meeting by or at the
direction of the Board of Directors, or (c) otherwise properly brought before
such meeting by a shareholder. In addition to any other applicable requirements,
including, but not limited to, requirements imposed by federal and state
securities laws pertaining to proxies, for business to be properly brought
before any meeting by a shareholder, such shareholder must have given timely
notice thereof in writing to the Secretary. To be timely, shareholder's notice
must be delivered to or mailed and received at the principal executive offices
of the Corporation not later than the close of business on the 15th day
following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure was made, whichever first occurs. A
shareholder's notice to the Secretary shall set forth as to each
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matter such shareholder proposes to bring before any meeting of the shareholders
(i) a brief description of the business desired to be brought before the meeting
and the reasons for conducting such business at the meeting, (ii) the name and
record address of the shareholder proposing such business, (iii) the class and
number of shares of the Corporation which are beneficially owned by such
shareholder, and (iv) any material interests of such shareholder in such
business.
Notwithstanding anything in these Bylaws to the contrary, no business shall
be conducted at any annual meeting except in accordance with the procedures set
forth in this Section 10. The chairman of such annual meeting shall, if the
facts warrant, determine and declare to the meeting that business was not
properly brought before such meeting and in accordance with the provisions of
this Section 10, and if he or she should so determine, he or she shall so
declare to such meeting and any such business not properly brought before such
meeting shall not be transacted.
SECTION 11. ACTION BY SHAREHOLDERS WITHOUT A MEETING. Any action required
or permitted to be taken at a meeting of the shareholders under any provisions
of the Delaware General Corporation Law, the Certificate of Incorporation, or
these Bylaws may be taken without a meeting if all of the shareholders entitled
to vote thereon consent in writing to such action being taken, or, subject to
the provisions of Section 228 of the Delaware General Corporation Law, if the
shareholders who would have been entitled to cast the minimum number of votes
which would be necessary to authorize such action at a meeting at which all of
the shareholders entitled to vote thereon were present and voting shall consent
in writing to such action being taken. Whenever action of the Corporation is so
taken, the consents of the shareholders consenting thereto shall be filed with
the minutes of proceedings of the shareholders.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The property, affairs, and business of the
Corporation shall be managed by the Board of Directors.
SECTION 2. NUMBER, QUALIFICATIONS, AND TERM OF OFFICE. (a) Subject to the
provisions of Paragraph (b) of this Section 2, there shall be five (5) directors
constituting the Board of Directors. The directors shall be elected annually at
the annual meeting of the shareholders. Each director shall hold office until
his or her successor shall have been elected and qualified, until his or her
death, until he or she shall have resigned in the manner set forth in Section 13
of this Article III, or until he or she shall have been removed in the manner
set forth in Section 14 of this Article III, whichever shall first occur. Any
director elected to fill a vacancy in the Board of Directors shall be deemed
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elected for the unexpired portion of the term of his or her predecessor on the
Board of Directors. Each director, at the time of his or her election, shall be
at least eighteen (18) years of age.
(b) At such time as the Corporation (i) has issued and outstanding equity
securities listed on the (a) New York Stock Exchange or (b) the American Stock
Exchange or (ii) has issued and outstanding securities designated as qualified
for trading as a national market system security on the National Association of
Securities Dealers Automatic Quotation System (or any successor national market
system) and has at least eight hundred (800) holders of its equity securities as
of the record date of the Corporation's most recent annual meeting of
shareholders the Corporation shall be a "listed corporation." Any other
provision of these Bylaws notwithstanding, at such time as the Corporation
becomes a listed corporation, the directors of the Corporation shall be divided
into two (2) classes, designated Class I and Class II. Each class shall consist,
as nearly as may be possible, of one-half of the total number of directors
constituting the entire Board of Directors. At such time as the directors are
divided into two (2) classes, the total number of directors constituting the
entire Board of Directors shall be seven (7). The term of each class of
directors shall be two (2) years. The term of the initial Class I directors
shall terminate on the date of the second (2nd) annual meeting of shareholders
following the annual meeting of shareholders at which those directors were
elected; and the terms of the initial Class II directors shall terminate on the
date of the second (2nd) annual meeting of shareholders following the annual
meeting of shareholders at which those directors were elected. At each annual
meeting of shareholders during a year in which the termination of the term of a
class of directors occurs, successors to that class of directors shall be
elected for a two (2) year term. If the number of directors is changed, any
increase or decrease in directorships shall be apportioned among the classes so
as to maintain the number of directors in each class as nearly equal as
possible, and any additional directors of any class elected to fill a vacancy
resulting from an increase in such class shall hold office only until the next
election of directors by the shareholders, but in no case will a decrease in the
number of directors shorten the term of any incumbent director. Directors shall
hold office until the annual meeting for the year in which their terms expire
and until their successors shall be elected and shall qualify, subject, however,
to prior death, resignation, retirement, disqualification or removal from
office. Any vacancy on the Board of Directors, howsoever resulting, may be
filled by the affirmative vote of a majority of the remaining directors then in
office, even if less than a quorum. Any director elected to fill a vacancy shall
hold office only until the next election of directors by the shareholders.
SECTION 3. NOMINATION OF DIRECTORS. (a) Only persons who are nominated in
accordance with the procedures set forth in this section shall be eligible for
election as directors. The Board of Directors, or a duly appointed committee
thereof, shall act as
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a nominating committee for selecting nominees for election as directors. Except
in the case of a nominee substituted as a result of the death or incapacity of a
nominee of the nominating committee, the nominating committee shall deliver
written nominations to the Secretary at least ninety (90) days prior to the
appropriate date of the previous meeting of shareholders called for election of
directors. Provided such nominating committee makes such nominations, no
nominations for directors, except those made by the nominating committee, shall
be voted upon at the annual meeting unless other nominations by shareholders are
made in accordance with the provisions of this section. No person shall be
elected as a director of the Corporation unless nominated in accordance with the
procedures set forth in this section. Ballots specifying the names of all
persons nominated by the nominating committee and by shareholders shall be
provided for use at the annual meeting.
(b) Nominations of persons for election to the Board of Directors of the
Corporation at an annual meeting of shareholders may be made by any shareholder
entitled to vote for the election of directors at such meeting who complies with
the procedures set forth in this section. Such nominations, other than those
made by the Board of Directors or a nominating committee thereof, shall be made
pursuant to timely notice in writing to the Secretary as set forth in this
section. To be timely, a shareholder's notice shall be delivered to or received
at the principal executive offices of the Corporation not less than ninety (90)
days prior to the appropriate anniversary date of the previous meeting of
shareholders of the Corporation called for the election of directors. Each such
shareholder's notice shall set forth (1) the name and address of the shareholder
who intends to make the nomination and of the person or persons to be nominated;
(2) a representation that the shareholder is a holder of record of stock of the
Corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting to nominate the person or persons specified in the
notice; (3) a description of all arrangements or understandings between the
shareholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by
the shareholder; (4) such other information regarding each nominee proposed by
such shareholder as would be required to be disclosed in solicitations of
proxies with respect to nominees for election as directors, pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended, including,
but not limited to, information required to be disclosed by Items 4, 5, 6, and 7
of Schedule 14A; (5) the consent of each nominee to serve as director of the
Corporation if so elected; and (6) the class and number of shares of stock of
the Corporation which are beneficially owned by such shareholder on the date of
such shareholder notice and, to the extent known, by any other shareholders
known by such shareholder to be supporting such nominees on the date of such
shareholder notice. At the request of the Board of Directors, any person
nominated by the Board of Directors, or a nominating committee thereof, for
election as a director shall furnish to the Secretary
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that information required to be set forth in a shareholder's notice of
nomination which pertains to the nominee together with the required written
consents, each as described herein.
(c) The Board of Directors may reject any nomination by a shareholder not
timely made in accordance with the requirements of this section. If the Board of
Directors , or a designated committee thereof, determines that the information
provided in a shareholder's notice does not satisfy the informational
requirements of this section in any material aspect, the Secretary shall notify
such shareholder of the deficiency in the notice. The shareholder shall have an
opportunity to cure the deficiency by providing additional information to the
Secretary within such period of time, not to exceed five (5) days from the date
such deficiency notice is given to the shareholder, as the Board of Directors or
such committee shall reasonably determine. If the deficiency is not cured within
such period, or if the Board of Directors or such committee reasonably
determines that the additional information provided by the shareholder, together
with information previously provided, does not satisfy the requirements of this
section in any material respect, then the Board of Directors may reject such
shareholder's nomination. The Secretary shall notify a shareholder in writing
whether his or her nomination has been made in accordance with the time and
informational requirements of this section. Notwithstanding the procedures set
forth in this section, if neither the Board of Directors nor such committee
makes a determination as to the validity of any nominations by a shareholder,
the chairman of such annual meeting shall determine and declare at such annual
meeting whether the nomination was made in accordance with the terms of this
section. If such chairman determines a nomination was made in accordance with
the terms of this section, he or she shall so declare at such annual meeting and
ballots shall be provided for use at the annual meeting with respect to such
nominee. If such chairman determines that a nomination was not made in
accordance with this section, he or she shall so declare at the annual meeting
and defective nomination shall be disregarded.
SECTION 4. ELECTION OF DIRECTORS. (a) At each meeting of the shareholders
for the election of directors, the directors shall be chosen by a plurality of
the votes cast at such election by the holders of shares entitled to vote
thereon. The vote for directors need not be by ballot, unless demanded by a
shareholder entitled to vote thereon at such election and before the voting
begins.
(b) At such time as the Corporation becomes a listed corporation, the
shareholders shall not be entitled to cumulate their votes for directors.
SECTION 5. ANNUAL MEETINGS. The annual meeting of the Board of Directors
shall be held in each year immediately after the annual meeting of shareholders,
at such place as the Board of Directors from time to time may fix and, if so
held, no notice of such meeting need be given.
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SECTION 6. REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held at such times as the Board of Directors shall determine. If any
day fixed for a regular meeting shall be a legal holiday at the place where the
meeting is to be held, then the meeting which would otherwise be held on that
day shall be held at said place at the same hour on the next succeeding business
day that is not a legal holiday. Notice of regular meetings need not be given.
SECTION 7. SPECIAL MEETINGS. Special meetings of the Board of Directors
shall be held whenever called by the President or any one (1) director. Notice
of each such meeting shall be mailed to each director, addressed to him or her
at his or her residence or usual place of business, at least five (5) days
before the day on which such meeting is to be held, or shall be sent to him or
her at such place by facsimile machine, telegraph, cable, telex, or the
equivalent, or be delivered personally or by telephone, not later than the day
preceding the day on which such meeting is to be held, except that in the event
of an emergency, the President may direct that shorter notice of a special
meeting be given personally or by facsimile machine, telephone, telegraph,
cable, telex, or the equivalent. Neither the business to be transacted nor the
purpose of any such meeting need be specified in such notice. Notice of any
meeting of the Board of Directors need not be given, however, if waived in
writing or by facsimile machine, telegraph, telex, cable, or the equivalent,
either before or after such meeting, or, at the meeting. Any meeting of the
Board of Directors shall be a legal meeting without any notice having been
given, if all the directors shall be present thereat.
SECTION 8. PLACE OF MEETING. Meetings of the Board of Directors may be held
at such place or places within or without the State of Delaware as the Board of
Directors from time to time may designate.
SECTION 9. QUORUM AND MANNER OF ACTING. A majority of the directors shall
be required to constitute a quorum for the transaction of business at any
meeting. The act of a majority of the directors present at any meeting while a
quorum is present shall be an act of the Board of Directors. In the absence of a
quorum, a majority of the directors present may adjourn any meeting from time to
time until a quorum be had. Notice of any adjourned meeting shall be given, in
the same manner as notice of special meetings is required to be given, as set
forth in these Bylaws. The directors shall act only as a board and the
individual directors shall have no power as such.
SECTION 10. ACTION BY WRITTEN CONSENT. Any action required or permitted to
be taken at any meeting of the Board of Directors or any committee thereof may
be taken without a meeting if, prior or subsequent to such action, all members
of the Board of
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Directors or of such committee, as the case may be, consent thereto in writing
and such written consents are filed with the minutes of the proceedings of the
Board of Directors or such committee. Such consent shall have the same effect as
a unanimous vote of the Board of Directors or such committee for all purposes
and may be stated as such in any certificate or other document.
SECTION 11. ORGANIZATION. At each meeting of the Board of Directors, the
President or, in his or her absence, a chairman chosen by a majority of the
directors present, shall act as chairman. The Secretary, or, in his or her
absence, an Assistant Secretary, or, in the absence of the Secretary and the
Assistant Secretaries, any person appointed by the chairman, shall act as
secretary of such meeting.
SECTION 12. ORDER OF BUSINESS. At all meetings of the Board of Directors
business may be transacted in such order as the Chairman of the Board of
Directors may determine.
SECTION 13. RESIGNATIONS. Any director of the Corporation may resign at any
time by giving written notice to the President or to the Secretary. The
resignation of any director shall take effect at the time specified therein and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make such resignation effective.
SECTION 14. REMOVAL OF DIRECTORS. Any director may be removed at any time,
either with or without cause, by the shareholders at any regular or special
meeting of the shareholders and the vacancy in the Board of Directors caused
thereby may be filled by the shareholders at the same meeting.
SECTION 15. VACANCIES. In addition to a vacancy occurring by removal by the
shareholders, as contemplated by Section 14 of these Bylaws, a vacancy in the
Board of Directors shall occur upon the happening of any of the following
events:
(a) a director dies or resigns:
(b) the shareholders fail to elect the number of directors authorized to
be elected at any meeting of shareholders at which any director is to
be elected;
(c) the Board of Directors by resolution have elected to increase the
number of directors;
(d) the Board of Directors declare vacant the office of any director for
such cause as the Board may determine; or
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(e) the Corporation becomes a listed corporation (as contemplated by the
provisions of Section 2(b) of Article III of these Bylaws;
(f) a vacancy occurs for any other reason. Any vacancy occurring in the
Board of Directors shall be filled by a majority of the remaining
members of the Board of Directors, though less than a quorum, and each
person so elected shall hold office until the next annual meeting of
shareholders and until his or her successor is duly elected and has
qualified.
SECTION 16. COMPENSATION. The directors shall receive no compensation for
their services as directors.
SECTION 17. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS.
The Corporation shall indemnify each director, officer, employee and agent of
the Corporation, as amended by the provisions of Section 145 of the Delaware
General Corporation Law, as set forth in Article VI of these Bylaws.
SECTION 18. BOARD COMMITTEES. (a) The Board of Directors may be resolution
adopted by a majority of the entire Board of Directors designate an Executive
Committee of one or more directors. Each member of the Executive Committee shall
holder office until the first meeting of the Board of Directors after the annual
meeting of shareholders next following his or her election and until his or her
successor is elected and qualified, or until his or her death, resignation or
removal, or until he or she shall cease to be a director.
(b) During the intervals between the meetings of the Board of Directors,
the Executive Committee may exercise all the authority of the Board of
Directors; provided, however, that the Executive Committee shall not have the
power to amend or repeal any resolution of the Board of Directors that by its
terms shall not be subject to amendment or repeal by the Executive Committee,
and the Executive Committee shall not have the authority of the Board of
Directors in reference to (1) approving or proposing to shareholders action
required to be approved by shareholders; (2) filling vacancies on the Board of
Directors or on any of its committees; (3) amending the Certificate of
Incorporation; (4) adopting, amending or repealing bylaws; or (5) approving a
plan of merger or share exchange not requiring shareholder approval.
(c) The Executive Committee shall meet from time to time on call of the
Chairman of the Board of Directors or of any two (2) or more members of the
Executive Committee. Meetings of the Executive Committee may be held at such
place or places,
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within or without the State of Delaware, as the Executive Committee shall
determine or as may be specified or fixed in the respective notices or waivers
of such meetings. The Executive Committee may fix its own rules of procedures,
including provision for notice of its meetings. It shall keep a record of its
proceedings and shall report these proceedings to the Board of Directors at the
meeting thereof held next after they have been taken, and all such proceedings
shall be subject to revision or alternation by the Board of Directors except to
the extent that action shall have been taken pursuant to or in reliance upon
such proceedings prior to any such revision or alternation.
(d) The Executive Committee shall act by majority vote of its members;
provided, however, the provisions of Section 20 of these Bylaws notwithstanding,
that contracts or transactions of and by the Corporation in which officers or
directors of the Corporation are interested shall require the affirmative vote
of majority of the disinterested members of the Executive Committee, at a
meeting of the Executive Committee at which the material facts as to the
interest and as to the contract or transaction are disclosed or knownprior to
the vote. the Executive Committee
(e) Members of the Executive Committee may participate in committee
proceedings by means of conference telephone or similar communications equipment
by means of which all persons participating in the proceedings can hear each
other, and such participation shall constitute presence in person at such
proceedings.
(f) The Board of Directors, by resolution adopted in accordance with
Paragraph (a) of this section, may designate one or more directors as alternate
members of the Executive Committee who may act in the place and stead of any
absent member or members at any meeting of said committee.
(g) The Board of Directors, by resolution adopted by a majority of the
entire Board of Directors, may designate one or more additional committees, each
committee to consist of two (2) or more of the directors, which shall have such
name or names and shall have and may exercise such powers of the Board of
Directors, except the powers denied to the Executive Committee, as may be
determined from time to time by the Board of Directors. Such committees shall
provide for their own rules of procedure, subject to the same restrictions
thereon as provided above for the Executive Committee.
(h) The Board of Directors shall have the power at any time to remove any
member of any committee, with or without cause, and to fill vacancies in and to
dissolve any such committee.
SECTION 19. PROVISION CONCERNING INTERESTED TRANSACTIONS. Any contract or
other transaction between the Corporation and (i) any director, or (ii) any
corporation,
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unincorporated association, business trust, estate, partnership, trust, joint
venture, individual or other legal entity ("Legal Entity") (A) in which any
director has a material financial interest or is a general partner, or (B) of
which any director is a director, officer, or trustee (collectively, a "Conflict
Transaction"), shall be valid for all purposes, if the material facts of such
Conflict Transaction and such director's interest were disclosed or known to the
Board of Directors, a committee with authority to act thereon, or the
shareholders entitled to vote thereon, and the Board of Directors, such
committee, or such shareholders authorized, approved, or ratified such Conflict
Transaction. A Conflict Transaction shall be authorized, approved or ratified:
(a) By the Board or Directors or such committee, if it receives
affirmative vote of majority of the directors who have no interest in
the Conflict Transaction, notwithstanding the fact that such majority
may not constitute a quorum or a majority of the Board of Directors or
such committee or a majority of the directors present at such meeting,
and notwithstanding the presence or vote of any director who does have
such an interest; provided, however, that no Conflict Transaction may
be authorized, approved or ratified by a single director; or
(b) By such shareholders, if such Conflict Transaction receives the vote
of a majority of the shares entitled vote, in which vote shares owned
or voted under the control of any director who, or of any Legal Entity
that, has an interest in the Conflict Transaction may be counted. This
section shall not be construed to require authorization, ratification
or approval by the shareholders of any Conflict Transaction, or to
invalidate any Conflict Transaction that would otherwise be valid
under the common and statutory law applicable thereto.
SECTION 20. TELEPHONIC MEETING. Unless restricted by the Certificate of
Incorporation, any one or more members of the Board of Directors may participate
in a meeting of the Board of Directors by means of a conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other. Participation by such means shall constitute
presence in person at a meeting.
ARTICLE IV
OFFICERS
SECTION 1. NUMBER. The officers of the Corporation shall be a President, a
Treasurer, and a Secretary, and, in the discretion of the Board of Directors,
one or more Vice Presidents.
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SECTION 2. ELECTION, QUALIFICATIONS, AND TERMS OF OFFICE. The officers
shall be elected annually by the Board of Directors. Each officer shall hold
office until his or her successor shall have been elected and qualified, or
until his or her earlier death, resignation, or removal in the manner provided
in these Bylaws. Any person may hold more than one office.
SECTION 3. RESIGNATIONS. Any officer may resign at any time by giving
written notice of such resignation to the Board of Directors, the President, or
the Secretary. Unless otherwise specified in such written notice, such
resignation shall take effect upon receipt of the notice thereof by the Board of
Directors or any such officer.
SECTION 4. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification, or any other cause shall be filled for
the unexpired portion of the term by the Board of Directors.
SECTION 5. THE PRESIDENT. The President shall be the chief executive
officer of the Corporation. Subject to the direction of the Board of Directors,
the President shall have general charge of the business affairs and property of
the Corporation and general supervision over its officers and agents. If
present, the President shall preside at all meetings of shareholders and at all
meetings of the Board of Directors. The President shall see that all orders and
resolutions of the Board of Directors are carried into effect. The President may
sign, with any other officer "hereunto authorized, share certificates of the
Corporation, the issuance of which shall have been duly authorized, and may sign
and execute, in the name of the Corporation, deeds, mortgages, bonds, contracts,
agreements, and other instruments duly authorized by the Board of Directors,
except in these instances where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent.
From time to time, the President shall report to the Board of Directors all
matters within his or her knowledge which the interests of the Corporation may
require to be brought to their attention. The President shall also perform such
other duties as are given to him or her by these Bylaws or as from time to time
may be assigned to him or her by the Board of Directors.
SECTION 6. THE SECRETARY. The Secretary shall (a) record all the
proceedings of the meetings of the shareholders and Board of Directors in a book
or books to be kept for that purpose; (b) cause all notices to be duly given in
accordance with the provisions of these Bylaws and as required by statute; (c)
be custodian of the records and of the seal of the Corporation and cause such
seal to be affixed to all certificates representing shares of the Corporation
prior to the issuance thereof and to all instruments the execution of which on
behalf of the Corporation under its seal shall have been duly authorized; (d)
see that the lists, books, reports, statements, certificates, and other
documents and records required by statute are properly kept and filed; (e) have
charge of the share record books
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of the Corporation and cause the same to be kept in such manner as to show at
any time the amount of shares of the Corporation issued and outstanding, the
names and addresses of the holders of record thereof, the number of shares held
by each, and the date when each became such holder of record; (f) perform the
duties required of him or her under Section 9 of Article II of these Bylaws; (g)
sign (unless the Treasurer shall sign) certificates representing shares of the
Corporation, the issuance of which shall have been duly authorized; and (h) in
general, perform all duties incident to the office of Secretary and such other
duties as are given to him or her by these Bylaws or as from time to time may be
assigned to him or her by the Board of Directors or the President.
SECTION 7. THE CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall
(a) have charge of and supervision over and by responsible for the funds,
securities, receipts, and disbursements of the Corporation; (b) cause the moneys
and other valuable effects of the Corporation to be deposited in the name and to
the credit of the Corporation in such banks or trust companies, or with such
bankers or other depositories, as shall be selected in accordance with Section 3
of Article V of these Bylaws or to be otherwise dealt with in such manner as the
Board of Directors may direct; (c) cause the funds of the Corporation to be
disbursed by checks or drafts upon the authorized depositories of the
Corporation and cause to be taken and preserved proper vouchers for all moneys
disbursed; (d) render to the Board of Directors or the President, whenever
requested, a statement of the financial condition of the Corporation and of all
his or her transactions as Chief Financial Officer; (e) cause to be kept, at the
principal office of the Corporation or at such other office (within or without
the State of Delaware) as shall be designated by the Board of Directors, correct
books of account of all its business and transactions; (f) sign (unless the
Secretary shall sign) certificates representing shares of the Corporation, the
issuance of which shall have been duly authorized; and (g) in general, perform
all duties incident to the office of Treasurer and such other duties as are
given to him or her by these Bylaws or as from time to time may be assigned to
him or her by the Board of Directors or the President.
SECTION 8. THE VICE PRESIDENTS. At the request of the President, any Vice
President shall perform all the duties of the President and, when so acting,
shall have all the powers of and be subject to all restrictions upon the
President. Any Vice President may also sign, with any other officer thereunto
duly authorized, share certificates of the Corporation, the issuance of which
shall have been duly authorized, and may sign and execute in the name of the
Corporation, deeds, mortgages, bonds, contracts, agreements, and other
instruments duly authorized by the Board of Directors, except in those instances
where the signing and execution thereof shall be expressly delegated by the
Board of Directors to some other officer or agent. Each Vice President shall
perform such other duties as are given to him or her by these Bylaws or as from
time to time may be assigned to him or her by the Board of Directors or the
President.
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SECTION 9. SALARIES. The salaries of the officers of the Corporation shall
be fixed from time to time by the Board of Directors. No officer shall be
prevented from receiving such salary by reason of the fact that he or she is
also a director of the Corporation.
SECTION 10. SURETY BONDS. In the event the Board of Directors shall so
require, any officer or agent of the Corporation shall execute a bond to the
Corporation, in such amount and with such surety or sureties as the Board of
Directors may direct, conditioned upon the faithful discharge of his or her
duties.
ARTICLE V
CONTRACTS AND FINANCIAL MATTERS
SECTION 1. EXECUTION OF CONTRACTS. The President or any Vice President,
subject to the approval of the Board of Directors, may enter into any contract
or execute and deliver any instrument in the name and on behalf of the
Corporation. Such authorization may be general or restricted to specific
instances.
SECTION 2. CHECKS AND DRAFTS. All checks, drafts, or other orders for the
payment of money and all notes or other evidences of indebtedness issued in the
name of the Corporation shall be signed by such officer or officers or agent or
agents of the Corporation as shall be thereunto so authorized from time to time
by resolution of the Board of Directors.
SECTION 3. DEPOSITS. All funds of the Corporation not otherwise employed
shall be deposited from time to time to its credit in such banks or trust
companies or with such bankers or other depositaries as the Board of Directors
may select or as may be selected by any officer or officers or agent or agents
authorized so to do by the Board of Directors. Endorsements for deposit to the
credit of the Corporation in any of its duly authorized depositaries shall be
made in such manner as the Board of Directors from time to time may determine.
SECTION 4. GENERAL AND SPECIAL BANK ACCOUNTS. The Board of Directors may
authorize from time to time the opening and keeping of general and special bank
accounts with such banks, trust companies, or other depositaries as the Board of
Directors may designate and may make such special rules and regulations with
respect thereto, not inconsistent with the provisions of these Bylaws, as the
Board of Directors may deem expedient.
SECTION 5. LOANS. No loans or advances shall be contracted on behalf of the
Corporation and no negotiable paper shall be issued in its name, unless and
except as authorized by the Board of Directors. Such authorization may be
general or restricted to
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specific instances. Any officer or agent of the Corporation thereunto so
authorized may effect loans and advances for the Corporation and for such loans
and advances may make, execute, and deliver promissory notes, bonds, or other
evidences of indebtedness of the Corporation. Any officer or agent of the
Corporation thereunto so authorized may pledge, hypothecate, or transfer, as
security for the payment of any and all loans, advances, indebtedness, and
liabilities of the Corporation, any and all stocks, bonds, other securities, and
other personal property at any time held by the Corporation and, to that end,
may endorse, assign, and deliver the same and do every act and shine necessary
or proper in connection therewith.
SECTION 6. PROXIES. Proxies to vote with respect to shares of stock of
other corporations owned by or standing in the name of the Corporation may be
executed and delivered from time to time on behalf of the Corporation by such
person or persons as shall be thereunto authorized from time to time by the
Board of Directors.
ARTICLE VI
INDEMNIFICATION AND INSURANCE
SECTION 1. RIGHT TO INDEMNIFICATION. Each person who was or is made a party
or is threatened to be made a party to or is involved in any pending,
threatened, or completed civil, criminal, administrative, or arbitration action,
suit, or proceeding, or any appeal therein or any inquiry or investigation which
could lead to such action, suit, or proceeding ("proceeding"), by reason of his
or her being or having been a director, officer, employee, or agent of the
Corporation or of any constituent corporation absorbed by the Corporation in a
consolidation or merger or by reason of his or her being or having been a
director, officer, trustee, employee, or agent of any other corporation
(domestic or foreign) or of any partnership, joint venture, sole proprietorship,
trust, employee benefit plan, or such enterprise (whether or not for profit),
serving as such at the request of the Corporation or of any such constituent
corporation, or the legal representative of any such director, officer, trustee,
employee, or agent, shall be indemnified and held harmless by the Corporation to
the fullest extent permitted by the Delaware General Corporation Law, as the
same exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than the Delaware General Corporation Law
permitted prior to such amendment), from and against any and all reasonable
costs, disbursements, and attorney's fees, and any and all amounts paid or
incurred in satisfaction of settlements, judgments, fines, and penalties,
incurred or suffered in connection with any such proceeding, and such
indemnification shall continue as to a person who has ceased to be a director,
officer, trustee, employee, or agent and shall inure to the benefit of his or
her heirs, executors, administrators, and assigns; provided, however, that,
except as provided in Section 2 of this Article VI, the
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Corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person only if
such proceeding (or part thereof) was specifically authorized by the Board of
Directors of the Corporation. The right to indemnification specified in this
Article VI shall be a contract right and shall include the right to be paid by
the Corporation the expenses incurred in connection with any proceeding in
advance of the final disposition of such proceeding as authorized by the Board
of Directors; provided, however; that, if the Delaware General Corporation Law
so requires, the payment of such expenses in advance of the final disposition of
a proceeding shall be made only upon receipt by the Corporation of an
undertaking, by or on behalf of such director, officer, employee, or agent, to
repay all amounts so advanced unless it shall ultimately be determined that such
person is entitled to be indemnified under this article or otherwise.
SECTION 2. RIGHT OF CLAIMANT TO BRING SUIT. If a claim made under Section 1
of this Article VI is not paid in full by the Corporation within thirty (30)
days after a written request has been received by the Corporation, the claimant
may, at any time thereafter, apply to a court for an award of indemnification by
the Corporation for the unpaid amount of the claim and, if successful on the
merits or otherwise in connection with any proceeding or in the defense of any
claim, issue, or matter therein, the claimant shall also be entitled to be paid
by the Corporation for any and all expenses incurred or suffered in connection
with such proceeding. It shall be a defense to any such action (other than an
action brought to enforce a claim for the advancement of expenses incurred in
connection with any proceeding where the required undertaking, if any, has been
tendered to the Corporation) that the claimant has not satisfied the standard of
conduct which makes it permissible under the Delaware General Corporation Law
for the Corporation to indemnify the claimant for the amount claimed, but the
burden of proving such defense shall be on the Corporation. Neither the failure
of the Corporation (including its Board of Directors, its independent legal
counsel, or its shareholders) to have made a determination prior to the
commencement of such proceeding that indemnification of the claimant is proper
in the circumstances because he or she has satisfied the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors, its
independent legal counsel, or its shareholders) that the claimant has not
satisfied such applicable standard of conduct, nor the termination of any
proceeding by judgment, order, settlement, or conviction, or upon a plea of nolo
contendere or its equivalent, shall be a defense to the action or create a
presumption that the claimant has not satisfied the applicable standard of
conduct.
SECTION 3. NONEXCLUSIVITY OF RIGHTS. The right to indemnification and
advance of expenses provided by or granted pursuant to this Article VI shall not
exclude or be exclusive of any other rights to which any person may be entitled
under the Certificate
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of Incorporation of the Corporation, these Bylaws, any agreement, vote of
shareholders, or otherwise; provided, however, that no indemnification shall be
made to or on behalf of such person if a judgment or other final adjudication
adverse to such person establishes that such person has not satisfied the
applicable standard of conduct required to be satisfied under the Delaware
General Corporation Law.
SECTION 4. INSURANCE. The Corporation may purchase and maintain insurance
on behalf of any director, officer, employee, or agent of the Corporation, or of
another corporation, partnership, joint venture, trust, employee benefit plan,
or other enterprise, against any expenses incurred in any proceeding and against
any liabilities asserted against him or her by reason of such person's being or
having been such a director, officer, employee, or agent, whether or not the
Corporation would have the power to indemnify such person against such expenses
and liabilities under the provisions of this Article VI or otherwise.
ARTICLE VII
SHARES AND THEIR TRANSFER
SECTION 1. SHARE CERTIFICATES. Every holder of shares of the Corporation
shall be entitled to have a certificate, signed by the President or a Vice
president and either the Treasurer or the Secretary, certifying the number of
shares owned by him or her in the Corporation. In case any officer of the
Corporation who has signed any such certificate shall cease to be such officer,
for whatever cause, before the certificate shall have been delivered by the
Corporation, the certificate shall be deemed to have been adopted by the
Corporation, unless the Board of Directors shall otherwise determine prior to
the issuance and delivery thereof, and may be issued and delivered as though the
person who signed it had not ceased to be such officer of the Corporation.
Certificates representing shares of the Corporation shall be in such form as
shall be approved by the Board of Directors. There shall be entered upon the
share record books of the Corporation, at the time of issuance of each share,
the number of the certificate issued, the name and address of the person owning
the shares represented thereby, the number of shares, and the date of issuance
thereof. Every certificate exchanged or returned to the Corporation shall be
marked "cancelled" with the date of cancellation.
SECTION 2. SHARE RECORD BOOKS. The share record books and the blank share
certificate books shall be kept by the Secretary, or by any officer or agent
designated by the Board of Directors.
SECTION 3. ADDRESSES OF SHAREHOLDERS. Each shareholder shall designate to
the Secretary of the Corporation an address at which notices of meetings and all
other corporate notices may be served, delivered, or mailed to such shareholder
and, if any
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shareholder shall fail to designate such address, all corporate notices (whether
served or delivered by the Secretary, another shareholder, or any other person)
may be served upon such shareholder by mail directed to him or her at his or her
last known post office address.
SECTION 4. TRANSFERS OF SHARES. Transfers of shares of the Corporation
shall be made on the books of the Corporation by the holder or record thereof or
by his or her attorney thereunto duly authorized by a power of attorney duly
executed in writing and filed with the Secretary and on surrender of the
certificate or certificates representing such shares. The Corporation shall be
entitled to treat the holder of record of any shares as the absolute owner
thereof for all purposes and, accordingly, shall not be obligated to recognize
any legal, equitable, or other claim to or interest in such shares on the part
of any other person, whether or not it or they shall have express of other
notice thereof, except as otherwise expressly provided by statute; provided,
however, that whenever any transfer of shares shall be made for collateral or
security and not absolutely and written notice thereof shall be given to the
Secretary, such fact shall be expressed in the entry of the transfer.
Notwithstanding anything to the contrary contained in these Bylaws, the
Corporation shall not be required or permitted to make any transfer of shares of
the Corporation which, if made, would violate the provisions of any agreement
restricting the transfer of shares of the Corporation to which the Corporation
shall be a party; provided, however, that the restriction upon the transfer of
the shares represented by any share certificate shall be set forth or referred
to upon the certificate.
SECTION 5. REGULATIONS. Subject to the provisions of this Article VII, the
Board of Directors may make such rules and regulations as it may deem expedient
concerning the issuance, transfer, and registration of certificates for shares
of the Corporation.
SECTION 6. LOST, DESTROYED, AND MUTILATED CERTIFICATES. The holder of any
shares shall immediately notify the Corporation of any loss, destruction, or
mutilation of the certificate therefor and the Board of Directors, in its
discretion, may cause to be issued to him or her a new certificate or
certificates upon surrender of the mutilated certificate or, in case of loss or
destruction of the certificate, upon satisfactory proof of such loss or
destruction. The Board of Directors, in its discretion, may require the owner of
the lost or destroyed certificate or his or her legal representative to give the
Corporation a bond, in such amount (not exceeding twice the value of such
shares) and with such surety or sureties as it may direct, to indemnify the
Corporation against any claim that may be made against it on account of the
alleged loss or destruction of any such certificate.
SECTION 7. FIXING OF RECORD DATES. The Board of Directors shall have the
power to fix in advance a date, not more than sixty (60) nor less than ten (10)
days, preceding the date of any meeting of shareholders, the date for the
payment of any dividend or
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allotment of any right, the date when any change, conversion, or exchange of
shares shall go into effect, or for the purpose of any other action, as a record
date for the determination of the shareholders entitled to notice of and to vote
at any such meeting, entitled to receive payment of any such dividend or
allotment of any right, entitled to exercise the rights in respect to any such
change, conversion, or exchange of shares, or entitled to participate in or be
entitled to the benefit of any such other action. Whenever a record date has
been so fixed, only shareholders of record on such date shall be entitled to
notice of and to vote at such meeting, to receive payment of any such dividend
or allotment of any right, to exercise such rights in respect to any such
change, conversion, or exchange of shares, or to participate in or be entitled
to the benefit of any such other action.
ARTICLE VIII
DIVIDENDS AND SURPLUS
Subject to any restrictions imposed by statute, the Board of Directors from
time to time, in its discretion, may fix and vary the amount of the working
capital of the Corporation and determine what, if any, dividends shall be
declared and paid to the shareholders out of the surplus of the Corporation. The
Board of Directors, in its discretion, may use and apply any surplus in
purchasing or acquiring any of the shares of the Corporation in accordance with
law or any of its bonds, debentures, or other obligations, or from time to time
may set aside from such surplus such amount or amounts as it, in its absolute
discretion, may deem proper as a reserve fund to meet contingencies or for
equalizing dividends, for the purpose of maintaining or increasing the property
or business of the Corporation, or for any other purposes it may deem consistent
with the best interest of the Corporation. All such surplus, until actually
declared in dividends or used and applied as aforesaid, shall be deemed to be so
set aside by the Board of Directors for one or more of said purposes.
ARTICLE IX
CORPORATION SEAL
The Corporation shall have a corporate seal which shall be in circular
form, shall bear the name of the Corporation and the words and figures denoting
its organization under the laws of the State of and the year thereof and
otherwise shall be in such form as shall be approved from time to time by the
Board of Directors.
ARTICLE X
FISCAL YEAR
The fiscal year of the Corporation shall be fixed by resolution of the
Board of Directors.
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ARTICLE XI
ACCOUNTANTS
The Board of Directors of the Corporation from time to time shall designate
the independent accountants of the Corporation.
ARTICLE XII
AMENDMENTS
All Bylaws of the Corporation shall be subject to amendment, alteration, or
repeal, and new Bylaws not inconsistent with any provision of the Certificate of
Incorporation of the Corporation or any provision of law may be made, by the
shareholders or by the Board of Directors, except as otherwise expressly
required by statute. Any Bylaw adopted, amended, or repealed by the shareholders
may be amended or repealed by the Board of Directors, unless the resolution of
the shareholders adopting such Bylaw expressly reserves the right to amend or
repeal it only to the shareholders.
ARTICLE XIII
FORCE AND EFFECT
These Bylaws are subject to the provisions of the Delaware General
Corporation Law and the Certificate of Incorporation, as the same may be amended
from time to time. If any provision in these Bylaws is inconsistent with an
express provision of either of the Delaware General Corporation Law or the
Certificate of Incorporation, the provision of the Delaware General Corporation
Law or the Certificate of Incorporation, as the case may be, shall govern,
prevail and control the extent of such inconsistency.
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EXHIBIT 4.3
CERTIFICATE OF DESIGNATIONS, PREFERENCES,
AND RELATIVE RIGHTS, QUALIFICATIONS AND
RESTRICTIONS OF THE SERIES A CONVERTIBLE
PREFERRED STOCK OF
PERFORMANCE CAPITAL MANAGEMENT COMPANY
--------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
-------------
Performance Asset Management Company, a corporation organized and existing
pursuant to and by virtue of, the provisions of the General Corporation Law of
the State of Delaware, certifies as follows:
The undersigned, Vincent E. Galewick, hereby certifies that:
1. He is the duly elected and acting President and Secretary of Performance
Asset Management Company, a Delaware corporation ("Corporation");
2. WHEREAS, the Certificate of Incorporation of the Corporation, as
amended, authorizes the issuance of 10,000,000 shares of Preferred Stock, par
value $.001 per share ("Preferred Shares"), and, additionally, authorizes the
issuance of shares of Preferred Stock from time to time in one or more series as
may from time to time be determined by the Board of Directors, each of those
series to be distinctly designated, and on such terms and for such consideration
as shall be determined by the Board of Directors of the Corporation, and,
additionally, grants to the Board of Directors of the Corporation the authority
to determine by resolution or resolutions adopted prior to the issuance of any
shares of a particular series of Preferred Stock, the voting powers, if any, and
the designations, privileges, powers, preferences and rights of the shares of
each such series and the qualifications, limitations and restrictions thereof;
and
3. WHEREAS, the Board of Directors of the Corporation, pursuant to action
taken by written consent of the sole director on May 29, 1996, has duly adopted
the following resolutions authorizing the creation of and issuance of a series
of that Preferred Stock to be known as Series A Convertible Preferred Stock;
NOW, THEREFORE, IT IS:
RESOLVED, the Board of Directors of the Corporation hereby determines and
fixes the number, designations, preferences, privileges, rights and limitations
of another series of the Preferred Shares on the terms and with the provisions
herein specified:
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1. DESIGNATION. A series of Preferred Stock of the Corporation is hereby
designated "Series A Convertible Preferred Stock" ("Series A Convertible
Preferred Stock"), consisting initially of 100,000 shares. The Series A
Convertible Preferred Stock shall have a par value of $.001 per share.
2. PARITY WITH COMMON STOCK. Shares of the Series A Convertible Preferred
Stock shall have parity with and rank equal to the Corporation's Common Stock,
$.001 par value per share ("Common Stock"), with respect to the payment of
dividends and upon liquidation. Other classes of Preferred Shares shall be
subordinated to and shall rank junior to the Series A Convertible Preferred
Stock with respect thereto; provided, however, that holders of Series A
Convertible Preferred Stock, by vote or written consent of the holders of
sixty-six and two-thirds percent (66 2/3%) or more of the then outstanding
Series A Convertible Preferred Stock, may elect from time to time to allow other
series or classes of Preferred Shares to rank senior to the Series A Convertible
Preferred Stock with respect to dividends, assets or liquidation.
3. VOTING RIGHTS. Except as specified in Sections 2 and 6 hereof, the
holders of Series A Convertible Preferred Stock shall not have any voting
powers, either general or special.
4. CONVERSION.
4.1. VOLUNTARY CONVERSION. (a) Each share of Series A Convertible
Preferred Stock shall be convertible, at the option of the holder thereof, at
any time after the date of issuance of the Series A Convertible Preferred Stock
at the office of the Corporation or if the Corporation shall have appointed a
transfer agent for the Series A Convertible Preferred Stock, at the office of
such transfer agent, into twenty (20) fully paid and nonassessable share of
Common Stock.
(b) Each share of Series A Convertible Preferred Stock shall
automatically be converted into twenty (20) fully paid and nonassessable share
of the Corporation's Common Stock (i) upon a Change in Control (as hereinafter
defined) of the aggregate number of shares of Common Stock outstanding as of the
date on which the first share of Series A Convertible Preferred Stock was
issued, during any twelve (12) month period, and (ii) upon the sale of all or
substantially all of the assets of the Corporation.
(c) For purposes of this Section 4.1, the term "Change in Control"
shall mean the direct or indirect acquisition by any "person" (as that term is
defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended)
of the direct or indirect beneficial ownership of more than ten percent (10%) of
the aggregate number of shares of Common Stock outstanding as of the date on
which the first share of Series A Convertible Preferred Stock was issued
4.2. MECHANICS OF CONVERSION. No fractional shares of Common Stock
shall be issued upon any conversion of Series A Convertible Preferred Stock. In
lieu of any fractional shares to which the holder would otherwise be entitled,
the Corporation shall pay cash equal to such fraction. Before any holder of
Series A Convertible Preferred Stock shall be entitled to
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convert the same into full shares of Common Stock and to receive certificates
therefor, the holder shall surrender the certificate or certificates
representing and evidencing the Series A Convertible Preferred Stock, duly
endorsed, at the office of the Corporation, or if the Corporation shall have
appointed a transfer agent for the Series A Convertible Preferred Stock, at the
office of such transfer agent, and shall give written notice to the Corporation
at either such office that the holder elects to convert the same. The person or
persons entitled to receive the shares of Common Stock issuable upon any such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on such date.
4.3. ADJUSTMENTS FOR SUBDIVISIONS, COMBINATIONS OR CONSOLIDATIONS OF
COMMON STOCK. If the outstanding shares of Common Stock are subdivided (by stock
split, stock dividend or otherwise), into a greater number of shares of Common
Stock, the number of shares of Common Stock into which each share of Series A
Convertible Preferred Stock may be converted shall, concurrently with the
effectiveness of such subdivision, be proportionately increased. In the event
the outstanding shares of Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of Common Stock,
the number of shares of Common Stock which each share of Series A Convertible
Preferred Stock may be converted into shall, concurrently with the effectiveness
of such combination or consolidation, be proportionately decreased.
4.4. ADJUSTMENTS FOR STOCK DIVIDENDS AND OTHER DISTRIBUTIONS. If the
Corporation at any time or from time to time makes, or fixes a record date for
the determination of holders of Common Stock entitled to receive any
distribution (excluding any repurchases of securities by the Corporation not
made on a pro rata basis from all holders of any class of the Corporation's
securities) payable in property or in securities of the Corporation other than
shares of Common Stock, and other than as otherwise adjusted in this Section 4,
then and in each such event the holders of Series A Convertible Preferred Stock
shall receive at the time of such distribution, the amount of property or the
number of securities of the Corporation that they would have received had their
Series A Convertible Preferred Stock been converted into Common Stock on the
date of such event.
4.5. ADJUSTMENTS FOR RECLASSIFICATION, EXCHANGE AND SUBSTITUTION. Upon
any liquidation, dissolution or winding up of the Corporation, if the Common
Stock issuable upon conversion of the Series A Convertible Preferred Stock is
changed into the same or a different number of shares of any other class or
classes of stock, whether by capital reorganization, reclassification or
otherwise (other than a subdivision or combination of shares provided for
above), the number of shares of Common Stock into which each share of Series A
Convertible Preferred Stock may be converted shall, concurrently with the
effectiveness of such reorganization or reclassification, be proportionately
adjusted such that the Series A Convertible Preferred Stock shall be convertible
into, in lieu of the number of shares of Common Stock which the holders would
otherwise have been entitled to receive, a number of shares of such other class
or classes of stock equivalent to the number of shares of Common Stock that
would have been subject to receipt by the holders upon conversion of the Series
A Convertible Preferred Stock immediately before the change.
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4.6. REORGANIZATION, MERGERS, CONSOLIDATIONS OR SALES OF ASSETS. If at
any time or from time to time there is a capital reorganization of the Common
Stock (other than a subdivision, combination, consolidation, reclassification,
substitution or exchange of shares provided for elsewhere in this Section 4), or
a merger or consolidation of the Corporation with or into another corporation,
or the sale of all or substantially all of the Corporation's properties and
assets to any other person, then, as a part of such reorganization, merger,
consolidation, or sale, provision shall be made so that the holders of the
Series A Convertible Preferred Stock shall thereafter be entitled to receive
upon conversion of the Series A Convertible Preferred Stock, the number of
shares of stock or other securities or property of the Corporation, or of the
successor corporation resulting from such merger or consolidation or sale, to
which a holder of Common Stock deliverable upon conversion would have been
entitled on such capital reorganization, merger, consolidation, or sale. In any
such case, appropriate adjustment shall be made in the application of the
provisions of this Section 4 with respect to the rights of the holders of she
Series A Convertible Preferred Stock after the reorganization, merger,
consolidation, or sale to the end that the provisions of this Section 4 shall be
applicable after that event as nearly equivalent as may be practicable.
4.7. NO IMPAIRMENT. Except as provided in Section 5, the Corporation
will not, by amendment of its Certificate of Incorporation or by any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the taking of all
such action as may be necessary or appropriate in order to protect the
conversion rights of the holders of the Series A Convertible Preferred Stock
against impairment.
4.8. CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the number of shares of Common Stock which each
share of Series A Convertible Preferred Stock may be converted into pursuant to
this Section 4, the Corporation at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and furnish to
each holder of Series A Convertible Preferred Stock a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based.
4.9. NOTICES OF RECORD DATE. If the Corporation proposes at any time
to:
(a) offer for subscription pro rata to the holders of any class or
series of its capital stock any additional shares of capital stock of any class
or series or other rights;
(b) effect any reclassification or recapitalization of its Common
Stock outstanding involving a change in the Common Stock; or
(c) merge or consolidate with or into any other corporation, or sell,
lease or convey all or substantially all its property or business, or to
liquidate, dissolve or wind up;
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then, in connection with each such event, this Corporation shall send to the
holders of the Series A Convertible Preferred Stock at least twenty (20) days
prior written notice of the date when the same shall take place (and specifying
the date on which the holders of Common Stock shall be entitled to exchange
their Common Stock for securities or other property deliverable upon the
occurrence of such event).
Each such written notice shall be delivered personally or given by first
class mail, postage prepaid, addressed to the holders of the Series A
Convertible Preferred Stock at the address for each such holder as shown on the
books of this Corporation.
5. STATUS OF CONVERTED STOCK. If any shares of Series A Convertible
Preferred Stock are repurchased or converted pursuant to Section 4, the shares
so repurchased or converted shall be retired and shall thereafter have the
status of authorized and unissued shares of Preferred Shares which may be
reissued by the Corporation at any time as shares of any series of Preferred
Shares.
6. RESTRICTIONS AND LIMITATIONS
(a) At such time as any shares of Series A Convertible Preferred Stock
remain outstanding, the Corporation shall not, without the vote or written
consent of the holders of at least sixty-six and two-thirds percent (66 2/3 %)
of the then outstanding shares of Series A Convertible Preferred Stock:
(i) Redeem, purchase or otherwise acquire for value, any share or
shares of Series A Convertible Preferred Stock, otherwise than by
conversion in accordance with Section 4;
(ii) Redeem, purchase or otherwise acquire any of the Common
Stock; provided, however, that this restriction shall not apply to the
repurchase of shares of Common Stock from employees, officers,
directors, consultants or other persons performing services for the
Corporation or any subsidiary of the Corporation pursuant to
agreements pursuant to which the Corporation has the option to
repurchase such shares at cost upon the occurrence of certain events,
such as the termination of employment;
(iii) Authorize or issue, or obligate itself to issue, any other
equity security (including any security convertible into or
exercisable for any equity security) senior to or on a parity with the
Series A Convertible Preferred Stock as to dividend or redemption
rights and liquidation preferences;
(iv) Effect any sale, lease, assignment, transfer, or other
conveyance of all or substantially all of the assets of the
Corporation or any of its subsidiaries, or any consolidation or merger
involving the Corporation or any of its subsidiaries, or any
reclassification or other change of any stock, or any recapitalization
of the Corporation; or
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(v) Increase or decrease (other than by conversion) the total
number of authorized shares of Series A Convertible Preferred Stock.
(b) The Corporation shall not amend its Certificate of Incorporation
without the approval, by vote or written consent, by the holders of 66 2/3% of
the Series A Convertible Preferred Stock, if such amendment would amend, modify,
annul, supersede, or otherwise change any of the rights, preferences, privileges
of, or limitations provided for herein for the benefit of any shares of the
Series A Convertible Preferred Stock. Without limiting the generality of the
preceding sentence, the Corporation will not amend its Certificate of
Incorporation without the approval by the holders of sixty-six and two-thirds
percent (66 2/3%) of the Series A Convertible Preferred Stock, if such amendment
would:
(i) Change the rights of the holders of the Series A Convertible
Preferred Stock as to the payment of dividends in relation to the
holders of any other capital stock of the Corporation;
(ii) Reduce the amount payable to the holders of the Series A
Convertible Preferred Stock upon the voluntary or involuntary
liquidation, dissolution, or winding up the Corporation, or change the
liquidation preferences of the holders of the Series A Convertible
Preferred Stock in relation to the rights upon liquidation of the
holders of any other capital stock of the Corporation;
(iii) Make the Series A Convertible Preferred Stock redeemable as
the option of the Corporation, or
(iv) Cancel or modify the conversion rights of the Series A
Convertible Preferred Stock provided for in Section 4.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designations, Preferences and Relative Rights, Qualifications and Restrictions
of the Series A Convertible Preferred Stock to be duly executed by its Chief
Executive Officer and attested to by its Secretary and has caused its corporate
seal to be affixed hereto, this 29th day of May, 1996.
--------------------------------
Vincent E. Galewick,
Chief Executive Officer
ATTEST:
--------------------------------
Vincent E. Galewick, Secretary
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The undersigned, Vincent E. Galewick, the President and Secretary of
Performance Asset Management Company, a Delaware corporation, declares under
penalty of perjury under the laws of the State of California that the matters
set out in the foregoing Certificate are true of his own knowledge.
Executed at Newport Beach, California on May 29, 1996.
-----------------------------
Vincent E. Galewick,
President
-----------------------------
Vincent E. Galewick,
Secretary
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EXHIBIT 5
FORM OF OPINION OF WHITE AND STEPP LLP
Performance Asset Management Company
4100 Newport Place, Suite 400
Newport Beach, California 92660
Re: Merger transaction
Gentlemen:
We have acted as counsel for Performance Asset Management Company, a Delaware
corporation ("Company"), regarding the registration under the Securities Act of
1933, as amended, of up to 7,511,500 shares of $.001 par value common stock of
the Company ("Shares"), to be issued to (i) Performance Asset Management Fund,
Ltd., A California Limited Partnership ("PAM"); (ii) Performance Asset
Management Fund II, Ltd., A California Limited Partnership ("PAM II"); (iii)
Performance Asset Management Fund III, Ltd., A California Limited Partnership
("PAM III"); (iv) Performance Asset Management Fund IV, Ltd., A California
Limited Partnership ("PAM IV"); (v) Performance Asset Management Fund V, Ltd., A
California Limited Partnership ("PAM V"); and (vi) Performance Capital
Management, Inc., a California corporation ("PCM"). PAM I, PAM II, PAM III, PAM
IV, and PAM V are the "Partnerships". The Shares shall be issued in exchange for
the assignment by the Partnerships and PCM to the Company of their assets and
the assumption by the Company of their liabilities and obligations. In that
regard, we have examined the Certificate of Incorporation and all amendments
thereto, the Bylaws and the directors' and stockholders' minutes, and the
Registration Statement on Form S-4 filed with the Securities and Exchange
Commission ("Registration Statement"), and exhibits thereto, and such other
documents that we have deemed necessary for the opinion hereinafter expressed.
We are of the opinion that the Shares are validly authorized and upon their
issuance, as contemplated by the Registration Statement, will be legally issued,
fully paid, and non-assessable.
We hereby consent to the reference to White and Stepp LLP appearing under the
heading "Legal Matters" in the Registration Statement and any amendments thereto
and the Prospectus of the Company relating to the proposed issuance of the
Shares.
WHITE AND STEPP LLP
By: Thomas E. Stepp, Jr.
<PAGE> 1
EXHIBIT 10.1
AGREEMENT FOR INDEMNIFICATION
THIS AGREEMENT FOR INDEMNIFICATION ("Agreement") is made and entered
into in duplicate as of the 1st day of July, 1997, by and between Performance
Capital Management, Inc., a California corporation ("Corporation"), and Gary Fry
("Indemnitee").
RECITALS
A. The Corporation and the Indemnitee understand and agree that
interpretations of statutes, regulations, court opinions, and the Corporation's
Articles of Incorporation and Bylaws, are too uncertain to provide the
Corporation's officers with adequate or reliable advance knowledge or guidance
with respect to the legal risks and potential liabilities to which they may
become exposed personally as a result of performing, in good faith, their duties
as officers of and for the Corporation.
B. The Corporation and the Indemnitee are aware of the substantial
increase in the number of litigation matters filed against corporate officers
regarding their activities in such capacities and by reason of their status as
such.
C. The Corporation and the Indemnitee are aware that the cost of
defending those litigation matters, whether or not meritorious, is typically
either beyond the financial resources of the officers of the Corporation or far
exceed the limited benefits of serving as an officer of and for the Corporation.
D. The Corporation and the Indemnitee are aware that the legal risks and
potential officer liabilities, or the very threat thereof, and the resulting
substantial time endured and fees and expenses incurred in defending against
such litigation matters, have no reasonable logical relationship to the amount
of compensation received by the Corporation's officers. These factors (i) cause
a significant deterrent to, and (ii) induce increased reluctance on the part of,
experienced and capable persons to serve as officers of the Corporation.
E. The Corporation has investigated the availability and deficiency of
liability insurance to provide its officers with adequate protection against the
foregoing legal risks and potential liabilities. The Corporation has concluded
that such insurance does not provide adequate protection to the Corporation's
officers. Therefore, it would be in the best interests of the Corporation and
its shareholders to contract with the Corporation's officers, including the
Indemnitee, to indemnify those officers, to the most complete
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extent permitted by law, against personal liability for actions taken in the
good faith performance of their duties to the Corporation.
F. The provisions of Section 317 of the Corporations Code ("Code")
specify circumstances regarding the mandatory and permissive indemnification by
a California corporation of the officers (among other persons) of that
corporation, and those provisions (i) require indemnification in certain
circumstances, (ii) permit indemnification in other circumstances, and (iii)
prohibit indemnification in some circumstances.
G. The members of the Board of Directors of the Corporation have
determined, after careful consideration and investigation of the various options
available, that the provisions of this Agreement are reasonable, prudent, and
necessary to promote and ensure the best interests of the Corporation and its
shareholders. The provisions of the Agreement are intended to (i) induce and
encourage significantly experienced and capable persons such as the Indemnitee
to serve as officers of the Corporation; (ii) encourage such persons to resist
what they consider to be unjustifiable litigation matters and claims made
against them regarding the good faith performance of their duties to the
Corporation, secure in the knowledge that certain expenses, costs, and
liabilities incurred by them in their defense of such litigation matters will be
borne and paid by the Corporation and that they will receive the maximum
protection against such risks and liabilities as legally may be made available
to them; and (iii) encourage officers of the Corporation to exercise their best
business judgment regarding matters which will be submitted to them for
consideration, without undue concern for the risk that claims may be made
against them because they are officers of the Corporation.
H. The Corporation desires to cause the Indemnitee to continue to serve
as Vice President and Chief Financial Officer of the Corporation free from
concern for unpredictable, inappropriate, or unreasonable legal risk and
personal liabilities by reason of his acting in good faith in the performance of
his duties to the Corporation. The Indemnitee desires to continue to serve as
Vice President and Chief Financial Officer of the Corporation, provided, and on
the express condition, that he is furnished with the indemnification specified
by the provisions of this Agreement.
NOW, THEREFORE, IN CONSIDERATION OF THE FOREGOING RECITALS, PREMISES, PROMISES,
COVENANTS, AGREEMENTS, AND UNDERTAKINGS SPECIFIED BY THE PROVISIONS OF THIS
AGREEMENT AND FOR OTHER GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND
SUFFICIENCY OF WHICH ARE HEREBY ACKNOWLEDGED, WITH THE INTENT TO BE OBLIGATED
LEGALLY AND EQUITABLY, THE PARTIES TO THIS AGREEMENT AGREE WITH EACH OTHER AS
FOLLOWS:
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1. DEFINITIONS. For the purposes of this Agreement, the following words
and terms shall be defined as follows:
(a) The term "Proceeding" does and shall include any threatened,
pending, or completed action, inquiry, lawsuit, litigation
matter, or proceeding, whether commenced in the name of the
Corporation, or otherwise, and whether civil, criminal,
administrative, or investigative in nature, including, but not
limited to, actions, inquiries, investigations, litigation
matters, or proceedings commenced pursuant to or predicated on
the provisions of the Securities Act of 1933, as amended; the
Securities Exchange Act of 1934, as amended; their respective
state counterparts; and any rule or regulation promulgated
pursuant thereto, in which the Indemnitee may be, or may have
been involved as, a party, or otherwise (other than plaintiff
against the Corporation), because of (i) the fact that the
Indemnitee is or was an Agent of the Corporation, (ii) any action
taken by the Indemnitee, or (iii) any inaction by the Indemnitee
while he is or was functioning as such an Agent.
(b) The term "Expenses" includes, but is not limited to, expenses of
investigations, judicial or administrative proceedings or
appeals, court costs, attorneys' fees, and disbursements and any
expenses of establishing a right to indemnification pursuant to
applicable law or the provisions of Paragraph 7 of this
Agreement. "Expenses" does not and shall not include the amounts
of any judgments, fines, or penalties assessed against the
Indemnitee or amounts paid in settlement of a proceeding by or on
behalf of the Indemnitee.
(c) References to "other enterprise" does and shall include each
limited liability company of and for which the Corporation is the
Manager; references to "serving at the request of the
Corporation" does and shall include any service by the Indemnitee
as Vice President and Chief Financial Officer of the Corporation
which imposes duties on, or involves services by, the Indemnitee
while functioning as such Vice President and Chief Financial
Officer with respect to any such limited liability company, its
members, or beneficiaries; and if the Indemnitee acts in good
faith and in a manner he reasonably believes to be in the best
interests of the members and beneficiaries of such limited
liability company, the Indemnitee shall be deemed to have acted
in a manner "not opposed to the best interests of the
Corporation," as that phrase is contemplated by the provisions of
this Agreement.
(d) For the purposes of this Agreement, the Indemnitee shall be
deemed to have
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been acting as an "Agent" if he was functioning in his capacity
as (i) Vice President of the Corporation, (ii) Chief Financial
Officer of the Corporation, (iii) a member of a committee of the
Board of Directors of the Corporation, or (iv) a representative
or agent of any other enterprise at the request of the
Corporation, whether or not he is functioning in such capacity at
the time any liability or expense is incurred for which
indemnification or reimbursement can be provided pursuant to the
provisions of this Agreement.
(e) The term "Applicable Standard" means that the Indemnitee acted in
good faith and in a manner that the Indemnitee reasonably
believed to be in the best interests of the Corporation; except
that in a criminal proceeding, the Indemnitee must also have had
no reasonable cause to believe that the Indemnitee's conduct was
unlawful. The termination of any Proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or any
equivalent procedure shall not, of itself, create any
presumption, or establish, that the Indemnitee did not satisfy
the "Applicable Standard."
(f) "Independent Legal Counsel" does and shall include any law firm
selected by the regular counsel for the Corporation from a list
of law firms which satisfy reasonable criteria established by the
Board of Directors of the Corporation; provided, however, such
law firm has not represented the Corporation, the Indemnitee, or
any person controlled by the Indemnitee within the preceding 24
calendar months.
(g) The term "Estate" does and shall include the following terms as
are understood in California law:
(1) The duly appointed and qualified executor, executrix,
administrator, administratrix, administrator with the Will
annexed, or administratrix with the Will annexed, of the
estate of the Indemnitee;
(2) The surviving joint tenant of the Indemnitee when capital
stock of the Corporation are owned by the Indemnitee and a
person who is not active in the business of the
Corporation as joint tenants;
(3) Any other person who, because of the community property or
other law of any jurisdiction, may acquire without formal
probate proceedings any right, title, or interest in or to
capital stock of the Corporation of the Indemnitee by
reason of the death of the Indemnitee; or
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(4) A irrevocable living or grantor's trust for the benefit of
the Indemnitee.
2. AGREEMENT TO SERVE. The Indemnitee shall serve or continue to serve
as Vice President and Chief Financial Officer of the Corporation at the will of
the members of the Board of Directors of the Corporation and the Corporation's
shareholders, or pursuant to the provisions of separate contract, as the case
may be, for such time as he is duly elected or appointed, and until such time as
he tenders his resignation in writing or he is removed.
3. INDEMNITY IN THIRD PARTY PROCEEDINGS. The Corporation shall indemnify
the Indemnitee, if the Indemnitee is made a party to or threatened to be made a
party to, or otherwise involved in, any Proceeding (other than a Proceeding
which is an action by or in the right of the Corporation to procure a judgment
in its favor), by reason of the fact that the Indemnitee is or was an Agent of
the Corporation. The indemnification contemplated by the provisions of this
Paragraph 3 shall apply, and be limited, to and against all Expenses, judgments,
fines, penalties, settlements, and other amounts, actually and reasonably
incurred by the Indemnitee in connection with the defense or settlement of any
such Proceeding; provided, however, it is determined pursuant to the provisions
of Paragraph 7 of this Agreement or by the court in which such Proceeding is or
was pending that the Indemnitee satisfied the Applicable Standard.
4. INDEMNITY IN PROCEEDINGS BY OR IN THE NAME OF THE CORPORATION. The
Corporation shall indemnify the Indemnitee, if the Indemnitee is made a party
to, or threatened to be made a party to, or otherwise involved in, any
Proceeding which is an action by or in the right of the Corporation to procure a
judgment in the Corporation's favor because the Indemnitee is or was an Agent of
the Corporation. The indemnification contemplated by the provisions of this
Paragraph 4 shall apply, and be limited, to and against all Expenses actually
and reasonably incurred by the Indemnitee in connection with the defense or
settlement of such Proceeding, but only if:
(a) the Indemnitee satisfies the Applicable Standard (except that the
Indemnitee's belief regarding the best interests the Corporation
or other enterprise need not have been reasonable);
(b) the Indemnitee acted with such care, including reasonable
inquiry, as an ordinarily prudent person in a similar
circumstance would use; and
(c) the Proceeding is not settled or otherwise disposed of without
approval of the Corporation.
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<PAGE> 6
No indemnification shall be made pursuant to the provisions of this
Paragraph 4 for any claim, issue, or matter as to which the Indemnitee shall
have been adjudged to be liable to the Corporation in the performance of the
Indemnitee's duty to the Corporation, unless, and only to the extent that, the
court in which such Proceeding is or was pending shall determine upon
application that, considering all the circumstances of such Proceeding, the
Indemnitee is fairly and reasonably entitled to indemnification for the
Expenses, which such court shall determine.
5. EXPENSES OF SUCCESSFUL INDEMNITEE. Notwithstanding any other
provision of this Agreement, to the extent that the Indemnitee has been
successful on the merits in defense of any Proceeding or in defense of any
claim, issue, or matter in such Proceeding, including the dismissal of such
Proceeding or portion thereof without prejudice, the Indemnitee shall be
indemnified by the Corporation from and against all Expenses actually and
reasonably incurred in connection with such Proceeding.
6. ADVANCES OF EXPENSES. The Expenses incurred by the Indemnitee in any
Proceeding shall be advanced by the Corporation prior to the final disposition
of such Proceeding at the written request of the Indemnitee, but only if the
Indemnitee shall undertake to repay such advances, unless and to the extent that
it is ultimately determined that the Indemnitee is entitled to indemnification.
Any advance required pursuant to the provisions of this Paragraph 6 shall be
deemed to have been approved by the members of the Board of Directors of the
Corporation to the extent the provisions of this Agreement have been approved by
the members of that Board of Directors. In determining whether or not to make an
advance pursuant to the provisions of this Paragraph 6, the ability of the
Indemnitee to repay any such advance shall not be a factor. In a Proceeding
commenced by the Corporation directly, in its own right (as distinguished from a
Proceeding commenced derivatively or by any receiver or trustee), the
Corporation shall have the discretion not to make the advance contemplated by
the provisions of this Paragraph 6, if independent counsel advises in writing
that the Corporation has probable cause to believe, and the Corporation does, in
fact, believe, that the Indemnitee did not act in good faith with regard to the
subject matter of such Proceeding or a material portion of such Proceeding.
7. RIGHT OF THE INDEMNITEE TO INDEMNIFICATION UPON APPLICATION;
PROCEDURE UPON APPLICATION. Any indemnification or advance contemplated by the
provisions of this Agreement shall be made no later than 30 calendar days after
receipt by the Corporation of a written request of the Indemnitee in accordance
with the provisions of Paragraph 11 of this Agreement. In all other situations,
indemnification shall be made by the Corporation only if authorized in the
specific situation, upon a determination that indemnification of the Indemnitee
is proper according to the circumstances and the provisions of this Agreement
by:
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(a) a majority vote of a quorum of the members of the Board of
Directors of the Corporation (or a duly constituted committee of
that Board of Directors), consisting of directors who are not
parties to the Proceeding at issue;
(b) approval of the shareholders of the Corporation (as defined by
the provisions of Section 153 of the Code), and any voting shares
of the Corporation held by the Indemnitee shall not be entitled
to vote regarding such indemnification;
(c) the court in which the Proceeding at issue is or was pending,
upon application made by the Corporation or made by (i) the
Indemnitee or (ii) any person rendering services regarding the
Indemnitee's defense, whether or not the Corporation opposes such
application; or
(d) to the extent permitted by law and as expressed by independent
legal counsel in a written opinion.
The right to indemnification or advances contemplated by the provisions
of this Agreement shall be enforceable by the Indemnitee in any court of
competent jurisdiction. The burden of proving that such indemnification or
advances is not appropriate shall be on the Corporation. Neither the failure of
the Corporation (including the members of its Board of Directors or independent
legal counsel) to make a determination prior to the commencement of any action
to determine whether such indemnification or advances is appropriate in the
particular circumstances because the Indemnitee has satisfied the Applicable
Standard, nor a determination by the Corporation (including the members of its
Board of Directors or independent legal counsel) that the Indemnitee has not
satisfied such Applicable Standard, shall be a defense to such action or create
a presumption that the Indemnitee has not satisfied the Applicable Standard. The
Indemnitee's Expenses incurred in connection with successfully establishing his
right to such indemnification or advances, in whole or in part, in any
Proceeding shall also be indemnified by the Corporation; provided, however, that
if the Indemnitee is only partially successful, only an equitably allocated
portion of such Expenses shall be indemnified by the Corporation.
If the Indemnitee is entitled to indemnification by the Corporation for
some or a portion of the Expenses, judgments, fines, or penalties actually and
reasonably incurred by the Indemnitee in the investigation, defense, appeal, or
settlement of any Proceeding but not, however, for the total amount of the
Expenses, the Corporation shall nevertheless indemnify the Indemnitee for the
portion (determined on an equitable basis) of those Expenses, judgments, fines,
or penalties to which the Indemnitee is entitled.
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The Corporation's obligations to advance or indemnify the Indemnitee
pursuant to the provisions of this Agreement shall be deemed satisfied to the
extent of any payments made by an insurer for or on behalf of the Corporation or
the Indemnitee.
8. INDEMNIFICATION PURSUANT TO THIS AGREEMENT IS NOT EXCLUSIVE. The
indemnification contemplated by the provisions of this Agreement shall not be
deemed exclusive of any other rights to which the Indemnitee may be entitled
pursuant to the provisions of the Articles of Incorporation or Bylaws of the
Corporation, or any agreement, vote of shareholders, or disinterested directors,
the General Corporation Law of the State of California, or otherwise, both as to
action in his official capacity as Vice President and Chief Financial Officer of
the Corporation and as to action in any other capacity while serving as Vice
President and Chief Financial Officer of the Corporation. The indemnification
contemplated by the provisions of this Agreement shall continue as to the
Indemnitee although he may have ceased to be an officer of the Corporation and
shall inure to the benefit of the heirs and personal representatives of the
Indemnitee, including the Estate of the Indemnitee.
9. LIMITATIONS. The Corporation shall not be obligated pursuant to the
provisions of this Agreement to make any payment in connection with any claim
made against the Indemnitee:
(a) for which payment is made to the Indemnitee pursuant to the
provisions of a valid and collectible insurance policy, except
with respect to any excess beyond the amount of payments pursuant
to the provisions of such policy;
(b) for which the Indemnitee is indemnified by the Corporation
otherwise than pursuant to the provisions of this Agreement;
(c) based upon or attributable to the Indemnitee gaining any personal
profit or advantage to which he was not legally entitled;
(d) for an accounting of profits made from the purchase or sale by
the Indemnitee of securities of the Corporation within the
meaning of Section 16(b) of the Securities Exchange Act of 1934
and amendments thereto or similar provisions of any state
statutory law or common law;
(e) resulting from or contributed to by the active and deliberate
dishonesty of the Indemnitee; provided, however, the Indemnitee
shall be indemnified by the Corporation to the extent otherwise
specified by the provisions of this Agreement as to any claims
for which a litigation action may be commenced against the
Indemnitee because of any alleged dishonesty on his
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part, unless a judgment or other final adjudication of such
litigation action adverse to the Indemnitee shall establish that
he committed acts of active and deliberate dishonesty with an
actual dishonest purpose and intent, which acts were material to
the litigation action so adjudicated;
(f) for omissions or acts committed in bad faith or which involve
intentional misconduct or a knowing violation of law;
(g) for any omission or act that the Indemnitee believed at the time
of his action to be contrary to, or inconsistent with, the best
interests of both the Corporation and its shareholders, or
(h) for any transaction from which the Indemnitee derived an improper
personal economic benefit in a capacity other than as a
shareholder of the Corporation.
10. SEVERABILITY. In the event any part of this Agreement, for any
reason, is determined to be invalid, such determination shall not affect the
validity of any remaining portion of this Agreement, which remaining portion
shall remain in complete force and effect as if this Agreement had been executed
with the invalid portion of this Agreement eliminated. It is hereby declared the
intention of the parties that the parties would have executed the remaining
portion of this Agreement without including any such part, parts or portion
which, for any reason, hereafter may be determined to be invalid.
11. NOTICES. The Indemnitee shall, as a condition precedent to his right
to be indemnified pursuant to the provisions of this Agreement, provide to the
Corporation notice in writing within 20 calendar days after he becomes aware of
any claim made against him for which he believes, or should reasonably believe,
indemnification will or could be sought pursuant to the provisions of this
Agreement. All notices, requests, demands, and other communications
(collectively, "notices") contemplated or required by the provisions of this
Agreement shall be in writing (including communications by telephone, telex, or
telecommunication facilities providing facsimile transmission) and mailed
(postage prepaid and return receipt requested), telegraphed, telexed,
transmitted or personally served to each party at the address for such party
specified below such party's signature to this Agreement or at such other
address as such party may designate in a written notice to the other party in
compliance with the provisions of this paragraph. All notices shall be effective
when received; provided, however receipt shall be deemed to be effective 2
business days of any properly addressed notice having been deposited in the
mail, 24 hours from the time electronic transmission was made, or upon actual
receipt of electronic delivery, whichever occurs first.
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12. PARTIES IN INTEREST. No provision of this Agreement is intended to,
nor shall any such provision, confer any right or remedies pursuant to or by
reason of the provisions of this Agreement to any person other than the parties
to this Agreement and their respective successors and assigns, including the
Estate of the Indemnitee, nor is any provision of in this Agreement intended to
relieve or discharge the obligation or liability of any third party to any party
to this Agreement. No provision of this Agreement shall provide any third person
any right of subrogation or action against any party to this Agreement.
13. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and obligate the undersigned parties and their respective successors and assigns
(including the Estate of the Indemnitee). Whenever, in this Agreement, a
reference to any party is made, such reference shall be deemed to include a
reference to the successors and assigns of such party; provided, however,
neither this paragraph nor any other portion of this Agreement shall be
interpreted to constitute a consent to any assignment or transfer other than
pursuant to and in accordance with the other provisions of this Agreement.
Neither party shall assign, transfer or delegate that party's rights,
responsibilities, duties or obligation created by the provisions of this
Agreement to any other person without the prior written consent of the other
party.
14. CAPTIONS AND INTERPRETATION. Captions of the paragraphs of this
Agreement are for convenience and reference only, and the words specified in
those captions shall in no way be held to explain, modify, amplify or aid in the
interpretation, construction or meaning of the terms, conditions and provisions
of this Agreement. The language and all parts to this Agreement, in all cases,
shall be construed in accordance with the fair meaning of that language and
those parts and as if that language and those parts were prepared by both
parties and not strictly for or against any party.
15. NUMBER AND GENDER. Whenever the singular number is used in this
Agreement, and when required by the context, the same shall include the plural,
and vice versa; the masculine gender shall include the feminine and the neuter
genders, and vice versa; and the word "person" shall include corporation, firm,
trust, estate, joint venture, governmental agency, sole proprietorship,
political subdivision, organization, fraternal order, club, league, joint stock
company, society, municipality, association, partnership or other form of
entity.
16. EXECUTION IN COUNTERPARTS. This Agreement shall be prepared in
multiple copies and forwarded to each of the parties for execution. This
Agreement shall become effective when counsel for the Corporation receives a
copy or copies of this Agreement executed by the parties in the names as those
names appear at the end of this Agreement. All of the signatures of the parties
may be affixed to one copy or to separate copies of
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this Agreement and when all such copies are received, and signed by all the
parties, those copies shall constitute one agreement which is not otherwise
separable or divisible. Counsel for the Corporation shall keep all of such
signed copies and shall conform one copy to show all of those signatures and the
dates thereof and shall mail a copy of such conformed copy to each of the
parties within thirty (30) days after the receipt by such counsel of the last
signed copy, and shall cause one such conformed copy to be filed in the
principal office of such counsel.
17. ENTIRE AGREEMENT. This Agreement is the final written expression and
the complete and exclusive statement of all the agreements, conditions,
promises, representations, warranties and covenants between the parties with
respect to the subject matter of this Agreement, and this Agreement supersedes
all prior or contemporaneous agreements, negotiations, representations,
warranties, covenants, understandings and discussions by and between and among
the parties, their respective representatives, and any other person, with
respect to the subject matter specified in this Agreement. This Agreement may be
amended only by an instrument in writing which expressly refers to this
Agreement and specifically states that that instrument is intended to amend this
Agreement and is signed by each of the parties. Nothing specified in any exhibit
attached to this Agreement shall supersede or annul the terms and provisions of
this Agreement, unless the matter specified in such exhibit shall expressly so
provide to the contrary, and in the event of any ambiguity in meaning or
understanding between this Agreement proper and the appended exhibits, the
provisions of this Agreement shall prevail and control. Each of the parties
represents, warrants and covenants that in executing this Agreement that party
has relied solely on the terms, conditions and provisions specified in this
Agreement. Each of the parties additionally represents, warrants and covenants
that in executing and delivering this Agreement such party has placed no
reliance whatsoever on any statement, representation, warranty, covenant or
promise of the other party, or any other person, not specified expressly in this
Agreement, or upon the failure of any party or any other person to make any
statement, representation, warranty, covenant or disclosure of any nature
whatsoever. The parties have included this paragraph to preclude (i) any claim
that any party was in any manner whatsoever induced fraudulently to enter into,
execute and deliver this Agreement, and (ii) the introduction of parol evidence
to vary, interpret, supplement or contradict the terms, conditions and
provisions of this Agreement.
18. GOVERNING LAW. This Agreement shall be deemed to have been entered
into in the County of Orange, State of California, and all questions concerning
the validity, interpretation, or performance of any of the terms, conditions and
provisions of this Agreement or of any of the rights or obligations of the
parties shall be governed by, and resolved in accordance with, the laws of the
State of California, without regard to conflicts of law principles. Any and all
actions or proceedings, at law or in equity, to
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enforce or interpret the provisions of this Agreement shall be litigated in
courts having situs within the County of Orange, State of California. No claim,
demand, action, proceeding, litigation, hearing, motion or lawsuit resulting
from or with respect to this Agreement shall be commenced or prosecuted in any
jurisdiction other than the State of California, and any judgment,
determination, finding or conclusion reached or rendered in any other
jurisdiction shall be null and void. Each party hereby consents expressly to the
jurisdiction of any local, state or federal court located within the State of
California and consents that any service of process in such action or proceeding
may be made by personal service upon such party wherever such party may be then
located, or by certified or registered mail directed to such party at such
party's last known address.
19. GOVERNMENT REGULATIONS. The transactions and relationship
contemplated by the provisions of this Agreement are, and shall remain, subject
to any and all present and future orders, rules and regulations of any duly
constituted authority or agency having jurisdiction of those transactions and
that relationship.
20. FURTHER ASSURANCES. The parties shall from time to time sign and
deliver any further instruments and take any further actions as may be necessary
to effectuate the intent and purposes of this Agreement.
21. ALL CONSENTS IN WRITING. In any instance in which any party shall be
requested to consent to or approve of any matter with respect to which that
party's consent or approval is required by any of the provisions of this
Agreement, such consent or approval shall be furnished in writing.
22. ATTORNEYS' FEES. In the event any party shall institute any action
or proceeding to enforce any provision of this Agreement to seek relief from any
violation of this Agreement, or to otherwise obtain any judgment or order
relating to or resulting from the subject matter of this Agreement, the
prevailing party shall be entitled to receive from the losing party such
prevailing party's actual attorneys' fees and costs incurred to prosecute or
defend such action or proceeding, including, but not limited to, actual
attorneys' fees and costs incurred preparatory to such prosecution and defense.
Moreover, while a court of competent jurisdiction may assist in determining
whether or not the fees actually incurred are reasonable in the circumstances
then existing, that court is not be governed by any judicially or legislatively
established fee schedule, and such fees and costs are to include those as may be
incurred on appeal of any issue and all of which fees and costs shall be
included as part of any judgment, by cost bill or otherwise, and where
applicable, any appellate decision rendered in or resulting from such action or
proceeding. For purposes of this Agreement, in any action or proceeding
instituted by a party, the prevailing party shall be that party in any such
action or proceeding (i) in whose favor a judgment is entered, or (ii) prior to
trial, hearing or judgment any other
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party shall pay all or any portion of amounts claimed by the party seeking
payment, or such other party shall eliminate the condition, cease the act, or
otherwise cure the act of commission or omission claimed by the party initiating
such action or proceeding.
23. RESERVATION OF RIGHTS. The failure of any party at any time or times
hereafter to require strict performance by any other party of any of the
warranties, representations, covenants, terms, conditions and provisions
specified in this Agreement shall not waive, affect of diminish any right of
such party failing to require strict performance to demand strict compliance and
performance therewith and with respect to any other provisions, warranties,
terms, and conditions specified in this Agreement. Any waiver of any default
shall not waive or affect any other default, whether prior or subsequent
thereto, and whether the same or of a different type. None of the
representations, warranties, covenants, conditions, provisions and terms
specified in this Agreement shall be deemed to have been waived by any act or
knowledge of any party, its agents, trustees, officers, or employees and any
such waiver shall be made only by an instrument in writing, signed by the
waiving party and directed to any non-waiving party specifying such waiver, and
each party reserves such party's rights to insist upon strict compliance
herewith at all times.
24. PURPOSE OF COVENANTS. All covenants made by each party shall be
deemed made for the purpose of inducing the other party to enter into and
execute this Agreement. The representations, warranties, and covenants specified
in this Agreement shall survive any investigation by either party whether before
or after the execution of this Agreement.
25. CONCURRENT REMEDIES. No right or remedy specified in this Agreement
conferred on or reserved to the parties is exclusive of any other right or
remedy specified in this Agreement or by law or equity provided or permitted;
but each such right and remedy shall be cumulative of, and in addition to, every
other right and remedy specified in this Agreement or now or hereafter existing
at law or in equity or by statute or otherwise, and may be enforced concurrently
therewith or from time to time. The termination of this Agreement for any reason
whatsoever shall not prejudice any right or remedy which any party may have,
either at law, in equity, or pursuant to the provisions of this Agreement.
26. FORCE MAJEURE. If any party is rendered unable, completely or
partially, by the occurrence of an event of "force majeure" (hereinafter
defined) to perform such party's obligations created by the provisions of this
Agreement, such party shall give to the other party prompt written notice of the
event of "force majeure" with reasonably complete particulars concerning such
event; thereupon, the obligations of the party giving such notice, so far as
those obligations are affected by the event of "force majeure," shall
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be suspended during, but no longer than, the continuance of the event of "force
majeure." The party affected by such event of "force majeure" shall use all
reasonable diligence to resolve, eliminate and terminate the event of "force
majeure" as quickly as practicable. The term "force majeure," as contemplated by
the provisions of this Paragraph 27 means any act of God, strike, lockout or
other industrial disturbance, act of the public enemy, war blockage, public
riot, lightening, fire, storm, flood explosion, governmental action, earthquake,
governmental delay, restraint or inaction, unavailability or equipment, and any
other cause or event, whether of the kind enumerated specifically herein, or
otherwise, which is not within the control of the party claiming such
suspension.
27. CONSENT TO AGREEMENT. By executing this Agreement, each party, for
itself represents such party has read or caused to be read this Agreement in all
particulars, and consents to the rights, conditions, duties and responsibilities
imposed upon such party as specified in this Agreement. Each party represents,
warrants and covenants that such party executes and delivers this Agreement of
its own free will and with no threat, undue influence, menace, coercion or
duress, whether economic or physical. Moreover, each party represents, warrants,
and covenants that such party executes this Agreement acting on such party's own
independent judgment and upon the advice of such party's counsel.
IN WITNESS WHEREOF the parties have executed this Agreement for
Indemnification in duplicate and in multiple counterparts, each of which shall
have the force and effect of an original, on the date specified in the preamble
of this Agreement.
PERFORMANCE CAPITAL
MANAGEMENT, INC.,
a California corporation
By:
-------------------------------- --------------------------------------
Gary Fry
Its: 4100 Newport Place, Suite 400
-------------------------------- Newport Beach, California 92660
Facsimile number 714.752.3535
4100 Newport Place, Suite 400
Newport Beach, California 92660
Facsimile number 714.752.3535
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EXHIBIT 10.2
AGREEMENT FOR INDEMNIFICATION
THIS AGREEMENT FOR INDEMNIFICATION ("Agreement") is made and entered into
in duplicate as of the 1st day of July, 1997, by and between Performance Capital
Management, Inc., a California corporation ("Corporation"), and Ronald D.
Collette ("Indemnitee").
RECITALS
A. The Corporation and the Indemnitee understand and agree that
interpretations of statutes, regulations, court opinions, and the Corporation's
Articles of Incorporation and Bylaws, are too uncertain to provide the
Corporation's officers with adequate or reliable advance knowledge or guidance
with respect to the legal risks and potential liabilities to which they may
become exposed personally as a result of performing, in good faith, their duties
as officers of and for the Corporation.
B. The Corporation and the Indemnitee are aware of the substantial
increase in the number of litigation matters filed against corporate officers
regarding their activities in such capacities and by reason of their status as
such.
C. The Corporation and the Indemnitee are aware that the cost of defending
those litigation matters, whether or not meritorious, is typically either beyond
the financial resources of the officers of the Corporation or far exceed the
limited benefits of serving as an officer of and for the Corporation.
D. The Corporation and the Indemnitee are aware that the legal risks and
potential officer liabilities, or the very threat thereof, and the resulting
substantial time endured and fees and expenses incurred in defending against
such litigation matters, have no reasonable logical relationship to the amount
of compensation received by the Corporation's officers. These factors (i) cause
a significant deterrent to, and (ii) induce increased reluctance on the part of,
experienced and capable persons to serve as officers of the Corporation.
E. The Corporation has investigated the availability and deficiency of
liability insurance to provide its officers with adequate protection against the
foregoing legal risks and potential liabilities. The Corporation has concluded
that such insurance does not provide adequate protection to the Corporation's
officers. Therefore, it would be in the best interests of the Corporation and
its shareholders to contract with the Corporation's officers, including the
Indemnitee, to indemnify those officers, to the most complete
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extent permitted by law, against personal liability for actions taken in the
good faith performance of their duties to the Corporation.
F. The provisions of Section 317 of the Corporations Code ("Code") specify
circumstances regarding the mandatory and permissive indemnification by a
California corporation of the officers (among other persons) of that
corporation, and those provisions (i) require indemnification in certain
circumstances, (ii) permit indemnification in other circumstances, and (iii)
prohibit indemnification in some circumstances.
G. The members of the Board of Directors of the Corporation have
determined, after careful consideration and investigation of the various options
available, that the provisions of this Agreement are reasonable, prudent, and
necessary to promote and ensure the best interests of the Corporation and its
shareholders. The provisions of the Agreement are intended to (i) induce and
encourage significantly experienced and capable persons such as the Indemnitee
to serve as officers of the Corporation; (ii) encourage such persons to resist
what they consider to be unjustifiable litigation matters and claims made
against them regarding the good faith performance of their duties to the
Corporation, secure in the knowledge that certain expenses, costs, and
liabilities incurred by them in their defense of such litigation matters will be
borne and paid by the Corporation and that they will receive the maximum
protection against such risks and liabilities as legally may be made available
to them; and (iii) encourage officers of the Corporation to exercise their best
business judgment regarding matters which will be submitted to them for
consideration, without undue concern for the risk that claims may be made
against them because they are officers of the Corporation.
H. The Corporation desires to cause the Indemnitee to continue to serve as
Vice President and Chief Financial Officer of the Corporation free from concern
for unpredictable, inappropriate, or unreasonable legal risk and personal
liabilities by reason of his acting in good faith in the performance of his
duties to the Corporation. The Indemnitee desires to continue to serve as Vice
President and Chief Financial Officer of the Corporation, provided, and on the
express condition, that he is furnished with the indemnification specified by
the provisions of this Agreement.
NOW, THEREFORE, IN CONSIDERATION OF THE FOREGOING RECITALS, PREMISES, PROMISES,
COVENANTS, AGREEMENTS, AND UNDERTAKINGS SPECIFIED BY THE PROVISIONS OF THIS
AGREEMENT AND FOR OTHER GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND
SUFFICIENCY OF WHICH ARE HEREBY ACKNOWLEDGED, WITH THE INTENT TO BE OBLIGATED
LEGALLY AND EQUITABLY, THE PARTIES TO THIS AGREEMENT AGREE WITH EACH OTHER AS
FOLLOWS:
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1. DEFINITIONS. For the purposes of this Agreement, the following words
and terms shall be defined as follows:
(a) The term "Proceeding" does and shall include any threatened, pending,
or completed action, inquiry, lawsuit, litigation matter, or
proceeding, whether commenced in the name of the Corporation, or
otherwise, and whether civil, criminal, administrative, or
investigative in nature, including, but not limited to, actions,
inquiries, investigations, litigation matters, or proceedings
commenced pursuant to or predicated on the provisions of the
Securities Act of 1933, as amended; the Securities Exchange Act of
1934, as amended; their respective state counterparts; and any rule
or regulation promulgated pursuant thereto, in which the Indemnitee
may be, or may have been involved as, a party, or otherwise (other
than plaintiff against the Corporation), because of (i) the fact that
the Indemnitee is or was an Agent of the Corporation, (ii) any action
taken by the Indemnitee, or (iii) any inaction by the Indemnitee
while he is or was functioning as such an Agent.
(b) The term "Expenses" includes, but is not limited to, expenses of
investigations, judicial or administrative proceedings or appeals,
court costs, attorneys' fees, and disbursements and any expenses of
establishing a right to indemnification pursuant to applicable law or
the provisions of Paragraph 7 of this Agreement. "Expenses" does not
and shall not include the amounts of any judgments, fines, or
penalties assessed against the Indemnitee or amounts paid in
settlement of a proceeding by or on behalf of the Indemnitee.
(c) References to "other enterprise" does and shall include each limited
liability company of and for which the Corporation is the Manager;
references to "serving at the request of the Corporation" does and
shall include any service by the Indemnitee as Vice President and
Chief Financial Officer of the Corporation which imposes duties on,
or involves services by, the Indemnitee while functioning as such
Vice President and Chief Financial Officer with respect to any such
limited liability company, its members, or beneficiaries; and if the
Indemnitee acts in good faith and in a manner he reasonably believes
to be in the best interests of the members and beneficiaries of such
limited liability company, the Indemnitee shall be deemed to have
acted in a manner "not opposed to the best interests of the
Corporation," as that phrase is contemplated by the provisions of
this Agreement.
(d) For the purposes of this Agreement, the Indemnitee shall be deemed to
have
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been acting as an "Agent" if he was functioning in his capacity as
(i) Vice President of the Corporation, (ii) Chief Financial Officer
of the Corporation, (iii) a member of a committee of the Board of
Directors of the Corporation, or (iv) a representative or agent of
any other enterprise at the request of the Corporation, whether or
not he is functioning in such capacity at the time any liability or
expense is incurred for which indemnification or reimbursement can be
provided pursuant to the provisions of this Agreement.
(e) The term "Applicable Standard" means that the Indemnitee acted in
good faith and in a manner that the Indemnitee reasonably believed to
be in the best interests of the Corporation; except that in a
criminal proceeding, the Indemnitee must also have had no reasonable
cause to believe that the Indemnitee's conduct was unlawful. The
termination of any Proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or any equivalent
procedure shall not, of itself, create any presumption, or establish,
that the Indemnitee did not satisfy the "Applicable Standard."
(f) "Independent Legal Counsel" does and shall include any law firm
selected by the regular counsel for the Corporation from a list of
law firms which satisfy reasonable criteria established by the Board
of Directors of the Corporation; provided, however, such law firm has
not represented the Corporation, the Indemnitee, or any person
controlled by the Indemnitee within the preceding 24 calendar months.
(g) The term "Estate" does and shall include the following terms as are
understood in California law:
(1) The duly appointed and qualified executor, executrix,
administrator, administratrix, administrator with the Will
annexed, or administratrix with the Will annexed, of the
estate of the Indemnitee;
(2) The surviving joint tenant of the Indemnitee when capital
stock of the Corporation are owned by the Indemnitee and a
person who is not active in the business of the Corporation as
joint tenants;
(3) Any other person who, because of the community property or
other law of any jurisdiction, may acquire without formal
probate proceedings any right, title, or interest in or to
capital stock of the Corporation of the Indemnitee by reason
of the death of the Indemnitee; or
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(4) A irrevocable living or grantor's trust for the benefit of the
Indemnitee.
2. AGREEMENT TO SERVE. The Indemnitee shall serve or continue to serve as
Vice President and Chief Financial Officer of the Corporation at the will of the
members of the Board of Directors of the Corporation and the Corporation's
shareholders, or pursuant to the provisions of separate contract, as the case
may be, for such time as he is duly elected or appointed, and until such time as
he tenders his resignation in writing or he is removed.
3. INDEMNITY IN THIRD PARTY PROCEEDINGS. The Corporation shall indemnify
the Indemnitee, if the Indemnitee is made a party to or threatened to be made a
party to, or otherwise involved in, any Proceeding (other than a Proceeding
which is an action by or in the right of the Corporation to procure a judgment
in its favor), by reason of the fact that the Indemnitee is or was an Agent of
the Corporation. The indemnification contemplated by the provisions of this
Paragraph 3 shall apply, and be limited, to and against all Expenses, judgments,
fines, penalties, settlements, and other amounts, actually and reasonably
incurred by the Indemnitee in connection with the defense or settlement of any
such Proceeding; provided, however, it is determined pursuant to the provisions
of Paragraph 7 of this Agreement or by the court in which such Proceeding is or
was pending that the Indemnitee satisfied the Applicable Standard.
4. INDEMNITY IN PROCEEDINGS BY OR IN THE NAME OF THE CORPORATION. The
Corporation shall indemnify the Indemnitee, if the Indemnitee is made a party
to, or threatened to be made a party to, or otherwise involved in, any
Proceeding which is an action by or in the right of the Corporation to procure a
judgment in the Corporation's favor because the Indemnitee is or was an Agent of
the Corporation. The indemnification contemplated by the provisions of this
Paragraph 4 shall apply, and be limited, to and against all Expenses actually
and reasonably incurred by the Indemnitee in connection with the defense or
settlement of such Proceeding, but only if:
(a) the Indemnitee satisfies the Applicable Standard (except that the
Indemnitee's belief regarding the best interests the Corporation or
other enterprise need not have been reasonable);
(b) the Indemnitee acted with such care, including reasonable inquiry,
as an ordinarily prudent person in a similar circumstance would use;
and
(c) the Proceeding is not settled or otherwise disposed of without
approval of the Corporation.
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No indemnification shall be made pursuant to the provisions of this
Paragraph 4 for any claim, issue, or matter as to which the Indemnitee shall
have been adjudged to be liable to the Corporation in the performance of the
Indemnitee's duty to the Corporation, unless, and only to the extent that, the
court in which such Proceeding is or was pending shall determine upon
application that, considering all the circumstances of such Proceeding, the
Indemnitee is fairly and reasonably entitled to indemnification for the
Expenses, which such court shall determine.
5. EXPENSES OF SUCCESSFUL INDEMNITEE. Notwithstanding any other provision
of this Agreement, to the extent that the Indemnitee has been successful on the
merits in defense of any Proceeding or in defense of any claim, issue, or matter
in such Proceeding, including the dismissal of such Proceeding or portion
thereof without prejudice, the Indemnitee shall be indemnified by the
Corporation from and against all Expenses actually and reasonably incurred in
connection with such Proceeding.
6. ADVANCES OF EXPENSES. The Expenses incurred by the Indemnitee in any
Proceeding shall be advanced by the Corporation prior to the final disposition
of such Proceeding at the written request of the Indemnitee, but only if the
Indemnitee shall undertake to repay such advances, unless and to the extent that
it is ultimately determined that the Indemnitee is entitled to indemnification.
Any advance required pursuant to the provisions of this Paragraph 6 shall be
deemed to have been approved by the members of the Board of Directors of the
Corporation to the extent the provisions of this Agreement have been approved by
the members of that Board of Directors. In determining whether or not to make an
advance pursuant to the provisions of this Paragraph 6, the ability of the
Indemnitee to repay any such advance shall not be a factor. In a Proceeding
commenced by the Corporation directly, in its own right (as distinguished from a
Proceeding commenced derivatively or by any receiver or trustee), the
Corporation shall have the discretion not to make the advance contemplated by
the provisions of this Paragraph 6, if independent counsel advises in writing
that the Corporation has probable cause to believe, and the Corporation does, in
fact, believe, that the Indemnitee did not act in good faith with regard to the
subject matter of such Proceeding or a material portion of such Proceeding.
7. RIGHT OF THE INDEMNITEE TO INDEMNIFICATION UPON APPLICATION; PROCEDURE
UPON APPLICATION. Any indemnification or advance contemplated by the provisions
of this Agreement shall be made no later than 30 calendar days after receipt by
the Corporation of a written request of the Indemnitee in accordance with the
provisions of Paragraph 11 of this Agreement. In all other situations,
indemnification shall be made by the Corporation only if authorized in the
specific situation, upon a determination that indemnification of the Indemnitee
is proper according to the circumstances and the provisions of this Agreement
by:
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(a) a majority vote of a quorum of the members of the Board of Directors
of the Corporation (or a duly constituted committee of that Board of
Directors), consisting of directors who are not parties to the
Proceeding at issue;
(b) approval of the shareholders of the Corporation (as defined by the
provisions of Section 153 of the Code), and any voting shares of the
Corporation held by the Indemnitee shall not be entitled to vote
regarding such indemnification;
(c) the court in which the Proceeding at issue is or was pending, upon
application made by the Corporation or made by (i) the Indemnitee or
(ii) any person rendering services regarding the Indemnitee's
defense, whether or not the Corporation opposes such application; or
(d) to the extent permitted by law and as expressed by independent legal
counsel in a written opinion.
The right to indemnification or advances contemplated by the provisions of
this Agreement shall be enforceable by the Indemnitee in any court of competent
jurisdiction. The burden of proving that such indemnification or advances is not
appropriate shall be on the Corporation. Neither the failure of the Corporation
(including the members of its Board of Directors or independent legal counsel)
to make a determination prior to the commencement of any action to determine
whether such indemnification or advances is appropriate in the particular
circumstances because the Indemnitee has satisfied the Applicable Standard, nor
a determination by the Corporation (including the members of its Board of
Directors or independent legal counsel) that the Indemnitee has not satisfied
such Applicable Standard, shall be a defense to such action or create a
presumption that the Indemnitee has not satisfied the Applicable Standard. The
Indemnitee's Expenses incurred in connection with successfully establishing his
right to such indemnification or advances, in whole or in part, in any
Proceeding shall also be indemnified by the Corporation; provided, however, that
if the Indemnitee is only partially successful, only an equitably allocated
portion of such Expenses shall be indemnified by the Corporation.
If the Indemnitee is entitled to indemnification by the Corporation for
some or a portion of the Expenses, judgments, fines, or penalties actually and
reasonably incurred by the Indemnitee in the investigation, defense, appeal, or
settlement of any Proceeding but not, however, for the total amount of the
Expenses, the Corporation shall nevertheless indemnify the Indemnitee for the
portion (determined on an equitable basis) of those Expenses, judgments, fines,
or penalties to which the Indemnitee is entitled.
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The Corporation's obligations to advance or indemnify the Indemnitee
pursuant to the provisions of this Agreement shall be deemed satisfied to the
extent of any payments made by an insurer for or on behalf of the Corporation or
the Indemnitee.
8. INDEMNIFICATION PURSUANT TO THIS AGREEMENT IS NOT EXCLUSIVE. The
indemnification contemplated by the provisions of this Agreement shall not be
deemed exclusive of any other rights to which the Indemnitee may be entitled
pursuant to the provisions of the Articles of Incorporation or Bylaws of the
Corporation, or any agreement, vote of shareholders, or disinterested directors,
the General Corporation Law of the State of California, or otherwise, both as to
action in his official capacity as Vice President and Chief Financial Officer of
the Corporation and as to action in any other capacity while serving as Vice
President and Chief Financial Officer of the Corporation. The indemnification
contemplated by the provisions of this Agreement shall continue as to the
Indemnitee although he may have ceased to be an officer of the Corporation and
shall inure to the benefit of the heirs and personal representatives of the
Indemnitee, including the Estate of the Indemnitee.
9. LIMITATIONS. The Corporation shall not be obligated pursuant to the
provisions of this Agreement to make any payment in connection with any claim
made against the Indemnitee:
(a) for which payment is made to the Indemnitee pursuant to the
provisions of a valid and collectible insurance policy, except with
respect to any excess beyond the amount of payments pursuant to the
provisions of such policy;
(b) for which the Indemnitee is indemnified by the Corporation otherwise
than pursuant to the provisions of this Agreement;
(c) based upon or attributable to the Indemnitee gaining any personal
profit or advantage to which he was not legally entitled;
(d) for an accounting of profits made from the purchase or sale by the
Indemnitee of securities of the Corporation within the meaning of
Section 16(b) of the Securities Exchange Act of 1934 and amendments
thereto or similar provisions of any state statutory law or common
law;
(e) resulting from or contributed to by the active and deliberate
dishonesty of the Indemnitee; provided, however, the Indemnitee
shall be indemnified by the Corporation to the extent otherwise
specified by the provisions of this Agreement as to any claims for
which a litigation action may be commenced against the Indemnitee
because of any alleged dishonesty on his
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part, unless a judgment or other final adjudication of such
litigation action adverse to the Indemnitee shall establish that he
committed acts of active and deliberate dishonesty with an actual
dishonest purpose and intent, which acts were material to the
litigation action so adjudicated;
(f) for omissions or acts committed in bad faith or which involve
intentional misconduct or a knowing violation of law;
(g) for any omission or act that the Indemnitee believed at the time of
his action to be contrary to, or inconsistent with, the best
interests of both the Corporation and its shareholders, or
(h) for any transaction from which the Indemnitee derived an improper
personal economic benefit in a capacity other than as a shareholder
of the Corporation.
10. SEVERABILITY. In the event any part of this Agreement, for any reason,
is determined to be invalid, such determination shall not affect the validity of
any remaining portion of this Agreement, which remaining portion shall remain in
complete force and effect as if this Agreement had been executed with the
invalid portion of this Agreement eliminated. It is hereby declared the
intention of the parties that the parties would have executed the remaining
portion of this Agreement without including any such part, parts or portion
which, for any reason, hereafter may be determined to be invalid.
11. NOTICES. The Indemnitee shall, as a condition precedent to his right
to be indemnified pursuant to the provisions of this Agreement, provide to the
Corporation notice in writing within 20 calendar days after he becomes aware of
any claim made against him for which he believes, or should reasonably believe,
indemnification will or could be sought pursuant to the provisions of this
Agreement. All notices, requests, demands, and other communications
(collectively, "notices") contemplated or required by the provisions of this
Agreement shall be in writing (including communications by telephone, telex, or
telecommunication facilities providing facsimile transmission) and mailed
(postage prepaid and return receipt requested), telegraphed, telexed,
transmitted or personally served to each party at the address for such party
specified below such party's signature to this Agreement or at such other
address as such party may designate in a written notice to the other party in
compliance with the provisions of this paragraph. All notices shall be effective
when received; provided, however receipt shall be deemed to be effective 2
business days of any properly addressed notice having been deposited in the
mail, 24 hours from the time electronic transmission was made, or upon actual
receipt of electronic delivery, whichever occurs first.
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12. PARTIES IN INTEREST. No provision of this Agreement is intended to,
nor shall any such provision, confer any right or remedies pursuant to or by
reason of the provisions of this Agreement to any person other than the parties
to this Agreement and their respective successors and assigns, including the
Estate of the Indemnitee, nor is any provision of in this Agreement intended to
relieve or discharge the obligation or liability of any third party to any party
to this Agreement. No provision of this Agreement shall provide any third person
any right of subrogation or action against any party to this Agreement.
13. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and obligate the undersigned parties and their respective successors and assigns
(including the Estate of the Indemnitee). Whenever, in this Agreement, a
reference to any party is made, such reference shall be deemed to include a
reference to the successors and assigns of such party; provided, however,
neither this paragraph nor any other portion of this Agreement shall be
interpreted to constitute a consent to any assignment or transfer other than
pursuant to and in accordance with the other provisions of this Agreement.
Neither party shall assign, transfer or delegate that party's rights,
responsibilities, duties or obligation created by the provisions of this
Agreement to any other person without the prior written consent of the other
party.
14. CAPTIONS AND INTERPRETATION. Captions of the paragraphs of this
Agreement are for convenience and reference only, and the words specified in
those captions shall in no way be held to explain, modify, amplify or aid in the
interpretation, construction or meaning of the terms, conditions and provisions
of this Agreement. The language and all parts to this Agreement, in all cases,
shall be construed in accordance with the fair meaning of that language and
those parts and as if that language and those parts were prepared by both
parties and not strictly for or against any party.
15. NUMBER AND GENDER. Whenever the singular number is used in this
Agreement, and when required by the context, the same shall include the plural,
and vice versa; the masculine gender shall include the feminine and the neuter
genders, and vice versa; and the word "person" shall include corporation, firm,
trust, estate, joint venture, governmental agency, sole proprietorship,
political subdivision, organization, fraternal order, club, league, joint stock
company, society, municipality, association, partnership or other form of
entity.
16. EXECUTION IN COUNTERPARTS. This Agreement shall be prepared in
multiple copies and forwarded to each of the parties for execution. This
Agreement shall become effective when counsel for the Corporation receives a
copy or copies of this Agreement executed by the parties in the names as those
names appear at the end of this Agreement. All of the signatures of the parties
may be affixed to one copy or to separate copies of
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this Agreement and when all such copies are received, and signed by all the
parties, those copies shall constitute one agreement which is not otherwise
separable or divisible. Counsel for the Corporation shall keep all of such
signed copies and shall conform one copy to show all of those signatures and the
dates thereof and shall mail a copy of such conformed copy to each of the
parties within thirty (30) days after the receipt by such counsel of the last
signed copy, and shall cause one such conformed copy to be filed in the
principal office of such counsel.
17. ENTIRE AGREEMENT. This Agreement is the final written expression and
the complete and exclusive statement of all the agreements, conditions,
promises, representations, warranties and covenants between the parties with
respect to the subject matter of this Agreement, and this Agreement supersedes
all prior or contemporaneous agreements, negotiations, representations,
warranties, covenants, understandings and discussions by and between and among
the parties, their respective representatives, and any other person, with
respect to the subject matter specified in this Agreement. This Agreement may be
amended only by an instrument in writing which expressly refers to this
Agreement and specifically states that that instrument is intended to amend this
Agreement and is signed by each of the parties. Nothing specified in any exhibit
attached to this Agreement shall supersede or annul the terms and provisions of
this Agreement, unless the matter specified in such exhibit shall expressly so
provide to the contrary, and in the event of any ambiguity in meaning or
understanding between this Agreement proper and the appended exhibits, the
provisions of this Agreement shall prevail and control. Each of the parties
represents, warrants and covenants that in executing this Agreement that party
has relied solely on the terms, conditions and provisions specified in this
Agreement. Each of the parties additionally represents, warrants and covenants
that in executing and delivering this Agreement such party has placed no
reliance whatsoever on any statement, representation, warranty, covenant or
promise of the other party, or any other person, not specified expressly in this
Agreement, or upon the failure of any party or any other person to make any
statement, representation, warranty, covenant or disclosure of any nature
whatsoever. The parties have included this paragraph to preclude (i) any claim
that any party was in any manner whatsoever induced fraudulently to enter into,
execute and deliver this Agreement, and (ii) the introduction of parol evidence
to vary, interpret, supplement or contradict the terms, conditions and
provisions of this Agreement.
18. GOVERNING LAW. This Agreement shall be deemed to have been entered
into in the County of Orange, State of California, and all questions concerning
the validity, interpretation, or performance of any of the terms, conditions and
provisions of this Agreement or of any of the rights or obligations of the
parties shall be governed by, and resolved in accordance with, the laws of the
State of California, without regard to conflicts of law principles. Any and all
actions or proceedings, at law or in equity, to
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enforce or interpret the provisions of this Agreement shall be litigated in
courts having situs within the County of Orange, State of California. No claim,
demand, action, proceeding, litigation, hearing, motion or lawsuit resulting
from or with respect to this Agreement shall be commenced or prosecuted in any
jurisdiction other than the State of California, and any judgment,
determination, finding or conclusion reached or rendered in any other
jurisdiction shall be null and void. Each party hereby consents expressly to the
jurisdiction of any local, state or federal court located within the State of
California and consents that any service of process in such action or proceeding
may be made by personal service upon such party wherever such party may be then
located, or by certified or registered mail directed to such party at such
party's last known address.
19. GOVERNMENT REGULATIONS. The transactions and relationship contemplated
by the provisions of this Agreement are, and shall remain, subject to any and
all present and future orders, rules and regulations of any duly constituted
authority or agency having jurisdiction of those transactions and that
relationship.
20. FURTHER ASSURANCES. The parties shall from time to time sign and
deliver any further instruments and take any further actions as may be necessary
to effectuate the intent and purposes of this Agreement.
21. ALL CONSENTS IN WRITING. In any instance in which any party shall be
requested to consent to or approve of any matter with respect to which that
party's consent or approval is required by any of the provisions of this
Agreement, such consent or approval shall be furnished in writing.
22. ATTORNEYS' FEES. In the event any party shall institute any action or
proceeding to enforce any provision of this Agreement to seek relief from any
violation of this Agreement, or to otherwise obtain any judgment or order
relating to or resulting from the subject matter of this Agreement, the
prevailing party shall be entitled to receive from the losing party such
prevailing party's actual attorneys' fees and costs incurred to prosecute or
defend such action or proceeding, including, but not limited to, actual
attorneys' fees and costs incurred preparatory to such prosecution and defense.
Moreover, while a court of competent jurisdiction may assist in determining
whether or not the fees actually incurred are reasonable in the circumstances
then existing, that court is not be governed by any judicially or legislatively
established fee schedule, and such fees and costs are to include those as may be
incurred on appeal of any issue and all of which fees and costs shall be
included as part of any judgment, by cost bill or otherwise, and where
applicable, any appellate decision rendered in or resulting from such action or
proceeding. For purposes of this Agreement, in any action or proceeding
instituted by a party, the prevailing party shall be that party in any such
action or proceeding (i) in whose favor a judgment is entered, or (ii) prior to
trial, hearing or judgment any other
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party shall pay all or any portion of amounts claimed by the party seeking
payment, or such other party shall eliminate the condition, cease the act, or
otherwise cure the act of commission or omission claimed by the party initiating
such action or proceeding.
23. RESERVATION OF RIGHTS. The failure of any party at any time or times
hereafter to require strict performance by any other party of any of the
warranties, representations, covenants, terms, conditions and provisions
specified in this Agreement shall not waive, affect of diminish any right of
such party failing to require strict performance to demand strict compliance and
performance therewith and with respect to any other provisions, warranties,
terms, and conditions specified in this Agreement. Any waiver of any default
shall not waive or affect any other default, whether prior or subsequent
thereto, and whether the same or of a different type. None of the
representations, warranties, covenants, conditions, provisions and terms
specified in this Agreement shall be deemed to have been waived by any act or
knowledge of any party, its agents, trustees, officers, or employees and any
such waiver shall be made only by an instrument in writing, signed by the
waiving party and directed to any non-waiving party specifying such waiver, and
each party reserves such party's rights to insist upon strict compliance
herewith at all times.
24. PURPOSE OF COVENANTS. All covenants made by each party shall be deemed
made for the purpose of inducing the other party to enter into and execute this
Agreement. The representations, warranties, and covenants specified in this
Agreement shall survive any investigation by either party whether before or
after the execution of this Agreement.
25. CONCURRENT REMEDIES. No right or remedy specified in this Agreement
conferred on or reserved to the parties is exclusive of any other right or
remedy specified in this Agreement or by law or equity provided or permitted;
but each such right and remedy shall be cumulative of, and in addition to, every
other right and remedy specified in this Agreement or now or hereafter existing
at law or in equity or by statute or otherwise, and may be enforced concurrently
therewith or from time to time. The termination of this Agreement for any reason
whatsoever shall not prejudice any right or remedy which any party may have,
either at law, in equity, or pursuant to the provisions of this Agreement.
26. FORCE MAJEURE. If any party is rendered unable, completely or
partially, by the occurrence of an event of "force majeure" (hereinafter
defined) to perform such party's obligations created by the provisions of this
Agreement, such party shall give to the other party prompt written notice of the
event of "force majeure" with reasonably complete particulars concerning such
event; thereupon, the obligations of the party giving such notice, so far as
those obligations are affected by the event of "force majeure," shall
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be suspended during, but no longer than, the continuance of the event of "force
majeure." The party affected by such event of "force majeure" shall use all
reasonable diligence to resolve, eliminate and terminate the event of "force
majeure" as quickly as practicable. The term "force majeure," as contemplated by
the provisions of this Paragraph 27 means any act of God, strike, lockout or
other industrial disturbance, act of the public enemy, war blockage, public
riot, lightening, fire, storm, flood explosion, governmental action, earthquake,
governmental delay, restraint or inaction, unavailability or equipment, and any
other cause or event, whether of the kind enumerated specifically herein, or
otherwise, which is not within the control of the party claiming such
suspension.
27. CONSENT TO AGREEMENT. By executing this Agreement, each party, for
itself represents such party has read or caused to be read this Agreement in all
particulars, and consents to the rights, conditions, duties and responsibilities
imposed upon such party as specified in this Agreement. Each party represents,
warrants and covenants that such party executes and delivers this Agreement of
its own free will and with no threat, undue influence, menace, coercion or
duress, whether economic or physical. Moreover, each party represents, warrants,
and covenants that such party executes this Agreement acting on such party's own
independent judgment and upon the advice of such party's counsel.
IN WITNESS WHEREOF the parties have executed this Agreement for
Indemnification in duplicate and in multiple counterparts, each of which shall
have the force and effect of an original, on the date specified in the preamble
of this Agreement.
PERFORMANCE CAPITAL
MANAGEMENT, INC.,
a California corporation
By:
-------------------------------- --------------------------------------
Ronald D. Collette
Its: 4100 Newport Place, Suite 400
-------------------------------- Newport Beach, California 92660
Facsimile number 714.752.3535
4100 Newport Place, Suite 400
Newport Beach, California 92660
Facsimile number 714.752.3535
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EXHIBIT 10.3
AGREEMENT FOR INDEMNIFICATION
THIS AGREEMENT FOR INDEMNIFICATION ("Agreement") is made and entered into
in duplicate as of the 1st day of July, 1997, by and between Performance Capital
Management, Inc., a California corporation ("Corporation"), and William Savage,
an officer and a director of the Corporation ("Indemnitee").
RECITALS
A. The Corporation and the Indemnitee understand and agree that
interpretations of statutes, regulations, court opinions, and the Corporation's
Articles of Incorporation and Bylaws, are too uncertain to provide the
Corporation's directors and officers with adequate or reliable advance knowledge
or guidance with respect to the legal risks and potential liabilities to which
they may become exposed personally as a result of performing, in good faith,
their duties as officers and directors of and for the Corporation.
B. The Corporation and the Indemnitee are aware of the substantial
increase in the number of litigation matters filed against corporate officers
and directors regarding their activities in such capacities and by reason of
their status as such.
C. The Corporation and the Indemnitee are aware that the cost of defending
those litigation matters, whether or not meritorious, is typically either beyond
the financial resources of the officers and directors of the Corporation or far
exceed the limited benefits of serving as an officer and a director of and for
the Corporation.
D. The Corporation and the Indemnitee are aware that the legal risks and
potential officer and director liabilities, or the very threat thereof, and the
resulting substantial time endured and fees and expenses incurred in defending
against such litigation matters, have no reasonable logical relationship to the
amount of compensation received by the Corporation's officers and directors.
These factors (i) cause a significant deterrent to, and (ii) induce increased
reluctance on the part of, experienced and capable persons to serve as officers
and directors of the Corporation.
E. The Corporation has investigated the availability and deficiency of
liability insurance to provide its officers and directors with adequate
protection against the foregoing legal risks and potential liabilities. The
Corporation has concluded that such insurance does not provide adequate
protection to the Corporation's officers and directors. Therefore, it would be
in the best interests of the Corporation and its shareholders to
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contract with the Corporation's officers and directors, including the
Indemnitee, to indemnify those officers and directors, to the most complete
extent permitted by law, against personal liability for actions taken in the
good faith performance of their duties to the Corporation.
F. The provisions of Section 317 of the Corporations Code ("Code") specify
circumstances regarding the mandatory and permissive indemnification by a
California corporation of the officers and directors (among other persons) of
that corporation, and those provisions (i) require indemnification in certain
circumstances, (ii) permit indemnification in other circumstances, and (iii)
prohibit indemnification in some circumstances.
G. The members of the Board of Directors of the Corporation have
determined, after careful consideration and investigation of the various options
available, that the provisions of this Agreement are reasonable, prudent, and
necessary to promote and ensure the best interests of the Corporation and its
shareholders. The provisions of the Agreement are intended to (i) induce and
encourage significantly experienced and capable persons such as the Indemnitee
to serve as officers and directors of the Corporation; (ii) encourage such
persons to resist what they consider to be unjustifiable litigation matters and
claims made against them regarding the good faith performance of their duties to
the Corporation, secure in the knowledge that certain expenses, costs, and
liabilities incurred by them in their defense of such litigation matters will be
borne and paid by the Corporation and that they will receive the maximum
protection against such risks and liabilities as legally may be made available
to them; and (iii) encourage officers and directors of the Corporation to
exercise their best business judgment regarding matters which will be submitted
to them for consideration, without undue concern for the risk that claims may be
made against them because they are officers and directors of the Corporation.
H. The Corporation desires to cause the Indemnitee to continue to serve as
an officer and director of the Corporation free from concern for unpredictable,
inappropriate, or unreasonable legal risk and personal liabilities by reason of
his acting in good faith in the performance of his duties to the Corporation.
The Indemnitee desires to continue to serve as an officer and director of the
Corporation, provided, and on the express condition, that he is furnished with
the indemnification specified by the provisions of this Agreement.
NOW, THEREFORE, IN CONSIDERATION OF THE FOREGOING RECITALS, PREMISES, PROMISES,
COVENANTS, AGREEMENTS, AND UNDERTAKINGS SPECIFIED BY THE PROVISIONS OF THIS
AGREEMENT AND FOR OTHER GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND
SUFFICIENCY
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OF WHICH ARE HEREBY ACKNOWLEDGED, WITH THE INTENT TO BE OBLIGATED LEGALLY AND
EQUITABLY, THE PARTIES TO THIS AGREEMENT AGREE WITH EACH OTHER AS FOLLOWS:
1. DEFINITIONS. For the purposes of this Agreement, the following words
and terms shall be defined as follows:
(a) The term "Proceeding" does and shall include any threatened,
pending, or completed action, inquiry, lawsuit, litigation matter,
or proceeding, whether commenced in the name of the Corporation, or
otherwise, and whether civil, criminal, administrative, or
investigative in nature, including, but not limited to, actions,
inquiries, investigations, litigation matters, or proceedings
commenced pursuant to or predicated on the provisions of the
Securities Act of 1933, as amended; the Securities Exchange Act of
1934, as amended; their respective state counterparts; and any rule
or regulation promulgated pursuant thereto, in which the Indemnitee
may be, or may have been involved as, a party, or otherwise (other
than plaintiff against the Corporation), because of (i) the fact
that the Indemnitee is or was an Agent of the Corporation, (ii) any
action taken by the Indemnitee, or (iii) any inaction by the
Indemnitee while he is or was functioning as such an Agent.
(b) The term "Expenses" includes, but is not limited to, expenses of
investigations, judicial or administrative proceedings or appeals,
court costs, attorneys' fees, and disbursements and any expenses of
establishing a right to indemnification pursuant to applicable law
or the provisions of Paragraph 7 of this Agreement. "Expenses" does
not and shall not include the amounts of any judgments, fines, or
penalties assessed against the Indemnitee or amounts paid in
settlement of a proceeding by or on behalf of the Indemnitee.
(c) References to "other enterprise" does and shall include each limited
liability company of and for which the Corporation is the Manager
references to "serving at the request of the Corporation" does and
shall include any service by the Indemnitee as an officer or
director of the Corporation which imposes duties on, or involves
services by the Indemnitee while functioning as such officer or
director with respect to any such limited liability company, its
members, or beneficiaries; and if the Indemnitee acts in good faith
and in a manner he reasonably believes to be in the best interests
of the members and beneficiaries of such limited liability company,
the Indemnitee shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation," as that phrase is
contemplated by the provisions of this Agreement.
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(d) For the purposes of this Agreement, the Indemnitee shall be deemed
to have been acting as an "Agent" if he was functioning in his
capacity as (i) an officer or director of the Corporation, (ii) a
member of a committee of the Board of Directors of the Corporation,
or (iii) a representative or agent of any other enterprise at the
request of the Corporation, whether or not he is functioning in such
capacity at the time any liability or expense is incurred for which
indemnification or reimbursement can be provided pursuant to the
provisions of this Agreement.
(e) The term "Applicable Standard" means that the Indemnitee acted in
good faith and in a manner that the Indemnitee reasonably believed
to be in the best interests of the Corporation; except that in a
criminal proceeding, the Indemnitee must also have had no reasonable
cause to believe that the Indemnitee's conduct was unlawful. The
termination of any Proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or any equivalent
procedure shall not, of itself, create any presumption, or
establish, that the Indemnitee did not satisfy the "Applicable
Standard."
(f) "Independent Legal Counsel" shall include any law firm selected by
the regular counsel for the Corporation from a list of law firms
which satisfy reasonable criteria established by the Board of
Directors of the Corporation; provided, however, such law firm has
not represented the Corporation, the Indemnitee, or any person
controlled by the Indemnitee within the preceding 24 calendar
months.
(g) The term "Estate" shall include the following terms as are
understood in California law:
(1) The duly appointed and qualified executor, executrix,
administrator, administratrix, administrator with the Will
annexed, or administratrix with the Will annexed, of the
estate of a decedent;
(2) The surviving joint tenant of a decedent, when Common Shares
are owned by a decedent and a person who is not active in the
business of the Company as joint tenants;
(3) Any other person who, because of the community property or
other law of any jurisdiction, may acquire without formal
probate proceedings any right, title, or interest in or to the
Common Shares of a decedent by reason of the death of such
decedent; or
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(4) A irrevocable living or grantor's trust for the benefit of a
deceased Shareholder.
2. AGREEMENT TO SERVE. The Indemnitee shall serve or continue to serve as
an officer and director of the Corporation at the will of the members of the
Board of Directors of the Corporation and the Corporation's shareholders, or
pursuant to the provisions of separate contract, as the case may be, for such
time as he is duly elected or appointed, and until such time as he tenders his
resignation in writing or he is removed.
3. INDEMNITY IN THIRD PARTY PROCEEDINGS. The Corporation shall indemnify
the Indemnitee, if the Indemnitee is made a party to or threatened to be made a
party to, or otherwise involved in, any Proceeding (other than a Proceeding
which is an action by or in the right of the Corporation to procure a judgment
in its favor), by reason of the fact that the Indemnitee is or was an Agent of
the Corporation. The indemnification contemplated by the provisions of this
Paragraph 3 shall apply, and be limited, to and against all Expenses, judgments,
fines, penalties, settlements, and other amounts, actually and reasonably
incurred by the Indemnitee in connection with the defense or settlement of any
such Proceeding; provided, however, it is determined pursuant to the provisions
of Paragraph 7 of this Agreement or by the court in which such Proceeding is or
was pending that the Indemnitee satisfied the Applicable Standard.
4. INDEMNITY IN PROCEEDINGS BY OR IN THE NAME OF THE CORPORATION. The
Corporation shall indemnify the Indemnitee, if the Indemnitee is made a party
to, or threatened to be made a party to, or otherwise involved in, any
Proceeding which is an action by or in the right of the Corporation to procure a
judgment in the Corporation's favor because the Indemnitee is or was an Agent of
the Corporation. The indemnification contemplated by the provisions of this
Paragraph 4 shall apply, and be limited, to and against all Expenses actually
and reasonably incurred by the Indemnitee in connection with the defense or
settlement of such Proceeding, but only if:
(a) the Indemnitee satisfies the Applicable Standard (except that the
Indemnitee's belief regarding the best interests the Corporation or
other enterprise need not have been reasonable);
(b) the Indemnitee acted with such care, including reasonable inquiry,
as an ordinarily prudent person in a similar circumstance would use;
and
(c) the Proceeding is not settled or otherwise disposed of without
approval of the Corporation.
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No indemnification shall be made pursuant to the provisions of this
Paragraph 4 for any claim, issue, or matter as to which the Indemnitee shall
have been adjudged to be liable to the Corporation in the performance of the
Indemnitee's duty to the Corporation, unless, and only to the extent that, the
court in which such Proceeding is or was pending shall determine upon
application that, considering all the circumstances of such Proceeding, the
Indemnitee is fairly and reasonably entitled to indemnification for the
Expenses, which such court shall determine.
5. EXPENSES OF SUCCESSFUL INDEMNITEE. Notwithstanding any other provision
of this Agreement, to the extent that the Indemnitee has been successful on the
merits in defense of any Proceeding or in defense of any claim, issue, or matter
in such Proceeding, including the dismissal of such Proceeding or portion
thereof without prejudice, the Indemnitee shall be indemnified by the
Corporation from and against all Expenses actually and reasonably incurred in
connection with such Proceeding.
6. ADVANCES OF EXPENSES. The Expenses incurred by the Indemnitee in any
Proceeding shall be advanced by the Corporation prior to the final disposition
of such Proceeding at the written request of the Indemnitee, but only if the
Indemnitee shall undertake to repay such advances, unless and to the extent that
it is ultimately determined that the Indemnitee is entitled to indemnification.
Any advance required pursuant to the provisions of this Paragraph 6 shall be
deemed to have been approved by the members of the Board of Directors of the
Corporation to the extent the provisions of this Agreement have been approved by
the members of that Board of Directors. In determining whether or not to make an
advance pursuant to the provisions of this Paragraph 6, the ability of the
Indemnitee to repay any such advance shall not be a factor. In a Proceeding
commenced by the Corporation directly, in its own right (as distinguished from a
Proceeding commenced derivatively or by any receiver or trustee), the
Corporation shall have the discretion not to make the advance contemplated by
the provisions of this Paragraph 6, if independent counsel advises in writing
that the Corporation has probable cause to believe, and the Corporation does, in
fact, believe, that the Indemnitee did not act in good faith with regard to the
subject matter of such Proceeding or a material portion of such Proceeding.
7. RIGHT OF THE INDEMNITEE TO INDEMNIFICATION UPON APPLICATION; PROCEDURE
UPON APPLICATION. Any indemnification or advance contemplated by the provisions
of this Agreement shall be made no later than 30 calendar days after receipt by
the Corporation of a written request of the Indemnitee in accordance with the
provisions of Paragraph 11 of this Agreement. In all other situations,
indemnification shall be made by the Corporation only if authorized in the
specific situation, upon a determination that
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indemnification of the Indemnitee is proper according to the circumstances and
the provisions of this Agreement by:
(a) a majority vote of a quorum of the members of the Board of Directors
of the Corporation (or a duly constituted committee of that Board of
Directors), consisting of directors who are not parties to the
Proceeding at issue;
(b) approval of the shareholders of the Corporation (as defined by the
provisions of Section 153 of the Code), and any voting shares of the
Corporation held by the Indemnitee shall not be entitled to vote
regarding such indemnification;
(c) the court in which the Proceeding at issue is or was pending, upon
application made by the Corporation or made by (i) the Indemnitee or
(ii) any person rendering services in connection with the
Indemnitee's defense, whether or not the Corporation opposes such
application; or
(d) to the extent permitted by law and as expressed by independent legal
counsel in a written opinion.
The right to indemnification or advances contemplated by the provisions of
this Agreement shall be enforceable by the Indemnitee in any court of competent
jurisdiction. The burden of proving that such indemnification or advances is not
appropriate shall be on the Corporation. Neither the failure of the Corporation
(including the members of its Board of Directors or independent legal counsel)
to make a determination prior to the commencement of any action to determine
whether such indemnification or advances is appropriate in the particular
circumstances because the Indemnitee has satisfied the Applicable Standard, nor
a determination by the Corporation (including the members of its Board of
Directors or independent legal counsel) that the Indemnitee has not satisfied
such Applicable Standard, shall be a defense to such action or create a
presumption that the Indemnitee has not satisfied the Applicable Standard. The
Indemnitee's Expenses incurred in connection with successfully establishing his
right to such indemnification or advances, in whole or in part, in any
Proceeding shall also be indemnified by the Corporation; provided, however, that
if the Indemnitee is only partially successful, only an equitably allocated
portion of such Expenses shall be indemnified by the Corporation.
If the Indemnitee is entitled to indemnification by the Corporation for
some or a portion of the Expenses, judgments, fines, or penalties actually and
reasonably incurred by the Indemnitee in the investigation, defense, appeal, or
settlement of any Proceeding but not, however, for the total amount of the
Expenses, the Corporation shall nevertheless
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indemnify the Indemnitee for the portion (determined on an equitable basis) of
those Expenses, judgments, fines, or penalties to which the Indemnitee is
entitled.
The Corporation's obligations to advance or indemnify the Indemnitee
pursuant to the provisions of this Agreement shall be deemed satisfied to the
extent of any payments made by an insurer for or on behalf of the Corporation or
the Indemnitee.
8. INDEMNIFICATION PURSUANT TO THIS AGREEMENT IS NOT EXCLUSIVE. The
indemnification contemplated by the provisions of this Agreement shall not be
deemed exclusive of any other rights to which the Indemnitee may be entitled
pursuant to the provisions of the Articles of Incorporation or Bylaws of the
Corporation, or any agreement, vote of shareholders, or disinterested directors,
the General Corporation Law of the State of California, or otherwise, both as to
action in his official capacities as an officer and director of the Corporation
and as to action in any other capacity while serving as an officer or director
of the Corporation. The indemnification contemplated by the provisions of this
Agreement shall continue as to the Indemnitee although he may have ceased to be
a director or officer of the Corporation and shall inure to the benefit of the
heirs and personal representatives of the Indemnitee, including the Estate of
the Indemnitee.
9. LIMITATIONS. The Corporation shall not be obligated pursuant to the
provisions of this Agreement to make any payment in connection with any claim
made against the Indemnitee:
(a) for which payment is made to the Indemnitee pursuant to the
provisions of a valid and collectible insurance policy, except with
respect to any excess beyond the amount of payments pursuant to the
provisions of such policy;
(b) for which the Indemnitee is indemnified by the Corporation otherwise
than pursuant to the provisions of this Agreement;
(c) based upon or attributable to the Indemnitee gaining any personal
profit or advantage to which he was not legally entitled;
(d) for an accounting of profits made from the purchase or sale by the
Indemnitee of securities of the Corporation within the meaning of
Section 16(b) of the Securities Exchange Act of 1934 and amendments
thereto or similar provisions of any state statutory law or common
law;
(e) resulting from or contributed to by the active and deliberate
dishonesty of the Indemnitee; provided, however, the Indemnitee
shall be indemnified by
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the Corporation to the extent otherwise specified by the provisions
of this Agreement as to any claims for which a litigation action may
be commenced against the Indemnitee because of any alleged
dishonesty on his part, unless a judgment or other final
adjudication of such litigation action adverse to the Indemnitee
shall establish that he committed acts of active and deliberate
dishonesty with an actual dishonest purpose and intent, which acts
were material to the litigation action so adjudicated;
(f) for omissions or acts committed in bad faith or which involve
intentional misconduct or a knowing violation of law;
(g) for any omission or act that the Indemnitee believed at the time of
his action to be contrary to, or inconsistent with, the best
interests of both the Corporation and its shareholders, or
(h) for any transaction from which the Indemnitee derived an improper
personal economic benefit in a capacity other than as a shareholder
of the Corporation.
10. SEVERABILITY. In the event any part of this Agreement, for any reason,
is determined to be invalid, such determination shall not affect the validity of
any remaining portion of this Agreement, which remaining portion shall remain in
complete force and effect as if this Agreement had been executed with the
invalid portion of this Agreement eliminated. It is hereby declared the
intention of the parties that the parties would have executed the remaining
portion of this Agreement without including any such part, parts or portion
which, for any reason, hereafter may be determined to be invalid.
11. NOTICES. The Indemnitee shall, as a condition precedent to his right
to be indemnified pursuant to the provisions of this Agreement, provide to the
Corporation notice in writing within 20 calendar days after he becomes aware of
any claim made against him for which he believes, or should reasonably believe,
indemnification will or could be sought pursuant to the provisions of this
Agreement. All notices, requests, demands, and other communications
(collectively, "notices") contemplated or required by the provisions of this
Agreement shall be in writing (including communications by telephone, telex, or
telecommunication facilities providing facsimile transmission) and mailed
(postage prepaid and return receipt requested), telegraphed, telexed,
transmitted or personally served to each party at the address for such party
specified below such party's signature to this Agreement or at such other
address as such party may designate in a written notice to the other party in
compliance with the provisions of this paragraph. All notices shall be effective
when received; provided, however receipt shall be deemed to be effective 2
business days of any properly addressed notice having been deposited
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in the mail, 24 hours from the time electronic transmission was made, or upon
actual receipt of electronic delivery, whichever occurs first.
12. PARTIES IN INTEREST. No provisions of this Agreement is intended to,
nor shall any such provision confer any right or remedies pursuant to or by
reason of the provisions of this Agreement to any persons other than the parties
to this Agreement and their respective successors and assigns, including the
Estate of the Indemnitee, nor is any provision of in this Agreement intended to
relieve or discharge the obligation or liability of any third party to any party
to this Agreement. No provision of this Agreement shall provide any third person
any right of subrogation or action against any party to this Agreement.
13. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and obligate the undersigned parties and their respective successors and
assigns. Whenever, in this Agreement, a reference to any party is made, such
reference shall be deemed to include a reference to the successors and assigns
of such party; provided, however, neither this paragraph nor any other portion
of this Agreement shall be interpreted to constitute a consent to any assignment
or transfer other than pursuant to and in accordance with the other provisions
of this Agreement. Neither party shall assign, transfer or delegate that party's
rights, responsibilities, duties or obligation created by the provisions of this
Agreement to any other person without the prior written consent of the other
party.
14. CAPTIONS AND INTERPRETATION. Captions of the paragraphs of this
Agreement are for convenience and reference only, and the words specified in
those captions shall in no way be held to explain, modify, amplify or aid in the
interpretation, construction or meaning of the terms, conditions and provisions
of this Agreement. The language and all parts to this Agreement, in all cases,
shall be construed in accordance with the fair meaning of that language and
those parts and as if that language and those parts were prepared by both
parties and not strictly for or against any party.
15. NUMBER AND GENDER. Whenever the singular number is used in this
Agreement, and when required by the context, the same shall include the plural,
and vice versa; the masculine gender shall include the feminine and the neuter
genders, and vice versa; and the word "person" shall include corporation, firm,
trust, estate, joint venture, governmental agency, sole proprietorship,
political subdivision, organization, fraternal order, club, league, joint stock
company, society, municipality, association, partnership or other form of
entity.
16. EXECUTION IN COUNTERPARTS. This Agreement shall be prepared in
multiple copies and forwarded to each of the parties for execution. This
Agreement shall become
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effective when counsel for the Corporation receives a copy or copies of this
Agreement executed by the parties in the names as those names appear at the end
of this Agreement. All of the signatures of the parties may be affixed to one
copy or to separate copies of this Agreement and when all such copies are
received, and signed by all the parties, those copies shall constitute one
agreement which is not otherwise separable or divisible. Counsel for the
Corporation shall keep all of such signed copies and shall conform one copy to
show all of those signatures and the dates thereof and shall mail a copy of such
conformed copy to each of the parties within thirty (30) days after the receipt
by such counsel of the last signed copy, and shall cause one such conformed copy
to be filed in the principal office of such counsel.
17. ENTIRE AGREEMENT. This Agreement is the final written expression and
the complete and exclusive statement of all the agreements, conditions,
promises, representations, warranties and covenants between the parties with
respect to the subject matter of this Agreement, and this Agreement supersedes
all prior or contemporaneous agreements, negotiations, representations,
warranties, covenants, understandings and discussions by and between and among
the parties, their respective representatives, and any other person, with
respect to the subject matter specified in this Agreement. This Agreement may be
amended only by an instrument in writing which expressly refers to this
Agreement and specifically states that that instrument is intended to amend this
Agreement and is signed by each of the parties. Nothing specified in any exhibit
attached to this Agreement shall supersede or annul the terms and provisions of
this Agreement, unless the matter specified in such exhibit shall expressly so
provide to the contrary, and in the event of any ambiguity in meaning or
understanding between this Agreement proper and the appended exhibits, the
provisions of this Agreement shall prevail and control. Each of the parties
represents, warrants and covenants that in executing this Agreement that party
has relied solely on the terms, conditions and provisions specified in this
Agreement. Each of the parties additionally represents, warrants and covenants
that in executing and delivering this Agreement such party has placed no
reliance whatsoever on any statement, representation, warranty, covenant or
promise of the other party, or any other person, not specified expressly in this
Agreement, or upon the failure of any party or any other person to make any
statement, representation, warranty, covenant or disclosure of any nature
whatsoever. The parties have included this paragraph to preclude (i) any claim
that any party was in any manner whatsoever induced fraudulently to enter into,
execute and deliver this Agreement, and (ii) the introduction of parol evidence
to vary, interpret, supplement or contradict the terms, conditions and
provisions of this Agreement.
18. GOVERNING LAW. This Agreement shall be deemed to have been entered
into in the County of Orange, State of California, and all questions concerning
the validity, interpretation, or performance of any of the terms, conditions and
provisions of this
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Agreement or of any of the rights or obligations of the parties shall be
governed by, and resolved in accordance with, the laws of the State of
California, without regard to conflicts of law principles. Any and all actions
or proceedings, at law or in equity, to enforce or interpret the provisions of
this Agreement shall be litigated in courts having situs within the County of
Orange, State of California. No claim, demand, action, proceeding, litigation,
hearing, motion or lawsuit resulting from or with respect to this Agreement
shall be commenced or prosecuted in any jurisdiction other than the State of
California, and any judgment, determination, finding or conclusion reached or
rendered in any other jurisdiction shall be null and void. Each party hereby
consents expressly to the jurisdiction of any local, state or federal court
located within the State of California and consents that any service of process
in such action or proceeding may be made by personal service upon such party
wherever such party may be then located, or by certified or registered mail
directed to such party at such party's last known address.
19. GOVERNMENT REGULATIONS. The transactions and relationship contemplated
by the provisions of this Agreement are, and shall remain, subject to any and
all present and future orders, rules and regulations of any duly constituted
authority or agency having jurisdiction of those transactions and that
relationship.
20. FURTHER ASSURANCES. The parties shall from time to time sign and
deliver any further instruments and take any further actions as may be necessary
to effectuate the intent and purposes of this Agreement.
21. ALL CONSENTS IN WRITING. In any instance in which any party shall be
requested to consent to or approve of any matter with respect to which that
party's consent or approval is required by any of the provisions of this
Agreement, such consent or approval shall be furnished in writing.
22. ATTORNEYS' FEES. In the event any party shall institute any action or
proceeding to enforce any provision of this Agreement to seek relief from any
violation of this Agreement, or to otherwise obtain any judgment or order
relating to or resulting from the subject matter of this Agreement, the
prevailing party shall be entitled to receive from the losing party such
prevailing party's actual attorneys' fees and costs incurred to prosecute or
defend such action or proceeding, including, but not limited to, actual
attorneys' fees and costs incurred preparatory to such prosecution and defense.
Moreover, while a court of competent jurisdiction may assist in determining
whether or not the fees actually incurred are reasonable in the circumstances
then existing, that court is not be governed by any judicially or legislatively
established fee schedule, and such fees and costs are to include those as may be
incurred on appeal of any issue and all of which fees and costs shall be
included as part of any judgment, by cost bill or otherwise, and where
applicable, any appellate decision rendered in or resulting from such action or
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proceeding. For purposes of this Agreement, in any action or proceeding
instituted by a party, the prevailing party shall be that party in any such
action or proceeding (i) in whose favor a judgment is entered, or (ii) prior to
trial, hearing or judgment any other party shall pay all or any portion of
amounts claimed by the party seeking payment, or such other party shall
eliminate the condition, cease the act, or otherwise cure the act of commission
or omission claimed by the party initiating such action or proceeding.
23. RESERVATION OF RIGHTS. The failure of any party at any time or times
hereafter to require strict performance by any other party of any of the
warranties, representations, covenants, terms, conditions and provisions
specified in this Agreement shall not waive, affect of diminish any right of
such party failing to require strict performance to demand strict compliance and
performance therewith and with respect to any other provisions, warranties,
terms, and conditions specified in this Agreement. Any waiver of any default
shall not waive or affect any other default, whether prior or subsequent
thereto, and whether the same or of a different type. None of the
representations, warranties, covenants, conditions, provisions and terms
specified in this Agreement shall be deemed to have been waived by any act or
knowledge of any party, its agents, trustees, officers, or employees and any
such waiver shall be made only by an instrument in writing, signed by the
waiving party and directed to any non-waiving party specifying such waiver, and
each party reserves such party's rights to insist upon strict compliance
herewith at all times.
24. PURPOSE OF COVENANTS. All covenants made by each party shall be deemed
made for the purpose of inducing the other party to enter into and execute this
Agreement. The representations, warranties, and covenants specified in this
Agreement shall survive any investigation by either party whether before or
after the execution of this Agreement.
25. CONCURRENT REMEDIES. No right or remedy specified in this Agreement
conferred on or reserved to the parties is exclusive of any other right or
remedy specified in this Agreement or by law or equity provided or permitted;
but each such right and remedy shall be cumulative of, and in addition to, every
other right and remedy specified in this Agreement or now or hereafter existing
at law or in equity or by statute or otherwise, and may be enforced concurrently
therewith or from time to time. The termination of this Agreement for any reason
whatsoever shall not prejudice any right or remedy which any party may have,
either at law, in equity, or pursuant to the provisions of this Agreement.
26. FORCE MAJEURE. If any party is rendered unable, completely or
partially, by the occurrence of an event of "force majeure" (hereinafter
defined) to perform such party's obligations created by the provisions of this
Agreement, such party shall give to
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the other party prompt written notice of the event of "force majeure" with
reasonably complete particulars concerning such event; thereupon, the
obligations of the party giving such notice, so far as those obligations are
affected by the event of "force majeure," shall be suspended during, but no
longer than, the continuance of the event of "force majeure." The party affected
by such event of "force majeure" shall use all reasonable diligence to resolve,
eliminate and terminate the event of "force majeure" as quickly as practicable.
The term "force majeure," as contemplated by the provisions of this Paragraph 27
means any act of God, strike, lockout or other industrial disturbance, act of
the public enemy, war blockage, public riot, lightening, fire, storm, flood
explosion, governmental action, earthquake, governmental delay, restraint or
inaction, unavailability or equipment, and any other cause or event, whether of
the kind enumerated specifically herein, or otherwise, which is not within the
control of the party claiming such suspension.
27. CONSENT TO AGREEMENT. By executing this Agreement, each party, for
itself represents such party has read or caused to be read this Agreement in all
particulars, and consents to the rights, conditions, duties and responsibilities
imposed upon such party as specified in this Agreement. Each party represents,
warrants and covenants that such party executes and delivers this Agreement of
its own free will and with no threat, undue influence, menace, coercion or
duress, whether economic or physical. Moreover, each party represents, warrants,
and covenants that such party executes this Agreement acting on such party's own
independent judgment and upon the advice of such party's counsel.
IN WITNESS WHEREOF the parties have executed this Agreement for
Indemnification in duplicate and in multiple counterparts, each of which shall
have the force and effect of an original, on the date specified in the preamble
of this Agreement.
PERFORMANCE CAPITAL
MANAGEMENT, INC.,
a California corporation
By:
-------------------------------- --------------------------------------
William Savage
Its: 4100 Newport Place, Suite 400
-------------------------------- Newport Beach, California 92660
Facsimile number 714.752.3535
4100 Newport Place, Suite 400
Newport Beach, California 92660
Facsimile number 714.752.3535
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EXHIBIT 10.4
AGREEMENT FOR INDEMNIFICATION
THIS AGREEMENT FOR INDEMNIFICATION ("Agreement") is made and entered into
in duplicate as of the 1st day of July, 1997, by and between Performance Capital
Management, Inc., a California corporation ("Corporation"), and Michael A.
Cushing, an officer and a director of the Corporation ("Indemnitee").
RECITALS
A. The Corporation and the Indemnitee understand and agree that
interpretations of statutes, regulations, court opinions, and the Corporation's
Articles of Incorporation and Bylaws, are too uncertain to provide the
Corporation's directors and officers with adequate or reliable advance knowledge
or guidance with respect to the legal risks and potential liabilities to which
they may become exposed personally as a result of performing, in good faith,
their duties as officers and directors of and for the Corporation.
B. The Corporation and the Indemnitee are aware of the substantial
increase in the number of litigation matters filed against corporate officers
and directors regarding their activities in such capacities and by reason of
their status as such.
C. The Corporation and the Indemnitee are aware that the cost of defending
those litigation matters, whether or not meritorious, is typically either beyond
the financial resources of the officers and directors of the Corporation or far
exceed the limited benefits of serving as an officer and a director of and for
the Corporation.
D. The Corporation and the Indemnitee are aware that the legal risks and
potential officer and director liabilities, or the very threat thereof, and the
resulting substantial time endured and fees and expenses incurred in defending
against such litigation matters, have no reasonable logical relationship to the
amount of compensation received by the Corporation's officers and directors.
These factors (i) cause a significant deterrent to, and (ii) induce increased
reluctance on the part of, experienced and capable persons to serve as officers
and directors of the Corporation.
E. The Corporation has investigated the availability and deficiency of
liability insurance to provide its officers and directors with adequate
protection against the foregoing legal risks and potential liabilities. The
Corporation has concluded that such insurance does not provide adequate
protection to the Corporation's officers and directors. Therefore, it would be
in the best interests of the Corporation and its shareholders to
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contract with the Corporation's officers and directors, including the
Indemnitee, to indemnify those officers and directors, to the most complete
extent permitted by law, against personal liability for actions taken in the
good faith performance of their duties to the Corporation.
F. The provisions of Section 317 of the Corporations Code ("Code") specify
circumstances regarding the mandatory and permissive indemnification by a
California corporation of the officers and directors (among other persons) of
that corporation, and those provisions (i) require indemnification in certain
circumstances, (ii) permit indemnification in other circumstances, and (iii)
prohibit indemnification in some circumstances.
G. The members of the Board of Directors of the Corporation have
determined, after careful consideration and investigation of the various options
available, that the provisions of this Agreement are reasonable, prudent, and
necessary to promote and ensure the best interests of the Corporation and its
shareholders. The provisions of the Agreement are intended to (i) induce and
encourage significantly experienced and capable persons such as the Indemnitee
to serve as officers and directors of the Corporation; (ii) encourage such
persons to resist what they consider to be unjustifiable litigation matters and
claims made against them regarding the good faith performance of their duties to
the Corporation, secure in the knowledge that certain expenses, costs, and
liabilities incurred by them in their defense of such litigation matters will be
borne and paid by the Corporation and that they will receive the maximum
protection against such risks and liabilities as legally may be made available
to them; and (iii) encourage officers and directors of the Corporation to
exercise their best business judgment regarding matters which will be submitted
to them for consideration, without undue concern for the risk that claims may be
made against them because they are officers and directors of the Corporation.
H. The Corporation desires to cause the Indemnitee to continue to serve as
an officer and director of the Corporation free from concern for unpredictable,
inappropriate, or unreasonable legal risk and personal liabilities by reason of
his acting in good faith in the performance of his duties to the Corporation.
The Indemnitee desires to continue to serve as an officer and director of the
Corporation, provided, and on the express condition, that he is furnished with
the indemnification specified by the provisions of this Agreement.
NOW, THEREFORE, IN CONSIDERATION OF THE FOREGOING RECITALS, PREMISES, PROMISES,
COVENANTS, AGREEMENTS, AND UNDERTAKINGS SPECIFIED BY THE PROVISIONS OF THIS
AGREEMENT AND FOR OTHER GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND
SUFFICIENCY
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OF WHICH ARE HEREBY ACKNOWLEDGED, WITH THE INTENT TO BE OBLIGATED LEGALLY AND
EQUITABLY, THE PARTIES TO THIS AGREEMENT AGREE WITH EACH OTHER AS FOLLOWS:
1. DEFINITIONS. For the purposes of this Agreement, the following words
and terms shall be defined as follows:
(a) The term "Proceeding" does and shall include any threatened,
pending, or completed action, inquiry, lawsuit, litigation matter,
or proceeding, whether commenced in the name of the Corporation, or
otherwise, and whether civil, criminal, administrative, or
investigative in nature, including, but not limited to, actions,
inquiries, investigations, litigation matters, or proceedings
commenced pursuant to or predicated on the provisions of the
Securities Act of 1933, as amended; the Securities Exchange Act of
1934, as amended; their respective state counterparts; and any rule
or regulation promulgated pursuant thereto, in which the Indemnitee
may be, or may have been involved as, a party, or otherwise (other
than plaintiff against the Corporation), because of (i) the fact
that the Indemnitee is or was an Agent of the Corporation, (ii) any
action taken by the Indemnitee, or (iii) any inaction by the
Indemnitee while he is or was functioning as such an Agent.
(b) The term "Expenses" includes, but is not limited to, expenses of
investigations, judicial or administrative proceedings or appeals,
court costs, attorneys' fees, and disbursements and any expenses of
establishing a right to indemnification pursuant to applicable law
or the provisions of Paragraph 7 of this Agreement. "Expenses" does
not and shall not include the amounts of any judgments, fines, or
penalties assessed against the Indemnitee or amounts paid in
settlement of a proceeding by or on behalf of the Indemnitee.
(c) References to "other enterprise" does and shall include each limited
liability company of and for which the Corporation is the Manager
references to "serving at the request of the Corporation" does and
shall include any service by the Indemnitee as an officer or
director of the Corporation which imposes duties on, or involves
services by the Indemnitee while functioning as such officer or
director with respect to any such limited liability company, its
members, or beneficiaries; and if the Indemnitee acts in good faith
and in a manner he reasonably believes to be in the best interests
of the members and beneficiaries of such limited liability company,
the Indemnitee shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation," as that phrase is
contemplated by the provisions of this Agreement.
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(d) For the purposes of this Agreement, the Indemnitee shall be deemed
to have been acting as an "Agent" if he was functioning in his
capacity as (i) an officer or director of the Corporation, (ii) a
member of a committee of the Board of Directors of the Corporation,
or (iii) a representative or agent of any other enterprise at the
request of the Corporation, whether or not he is functioning in such
capacity at the time any liability or expense is incurred for which
indemnification or reimbursement can be provided pursuant to the
provisions of this Agreement.
(e) The term "Applicable Standard" means that the Indemnitee acted in
good faith and in a manner that the Indemnitee reasonably believed
to be in the best interests of the Corporation; except that in a
criminal proceeding, the Indemnitee must also have had no reasonable
cause to believe that the Indemnitee's conduct was unlawful. The
termination of any Proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or any equivalent
procedure shall not, of itself, create any presumption, or
establish, that the Indemnitee did not satisfy the "Applicable
Standard."
(f) "Independent Legal Counsel" shall include any law firm selected by
the regular counsel for the Corporation from a list of law firms
which satisfy reasonable criteria established by the Board of
Directors of the Corporation; provided, however, such law firm has
not represented the Corporation, the Indemnitee, or any person
controlled by the Indemnitee within the preceding 24 calendar
months.
(g) The term "Estate" shall include the following terms as are
understood in California law:
(1) The duly appointed and qualified executor, executrix,
administrator, administratrix, administrator with the Will
annexed, or administratrix with the Will annexed, of the
estate of a decedent;
(2) The surviving joint tenant of a decedent, when Common Shares
are owned by a decedent and a person who is not active in the
business of the Company as joint tenants;
(3) Any other person who, because of the community property or
other law of any jurisdiction, may acquire without formal
probate proceedings any right, title, or interest in or to the
Common Shares of a decedent by reason of the death of such
decedent; or
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(4) A irrevocable living or grantor's trust for the benefit of a
deceased Shareholder.
2. AGREEMENT TO SERVE. The Indemnitee shall serve or continue to serve as
an officer and director of the Corporation at the will of the members of the
Board of Directors of the Corporation and the Corporation's shareholders, or
pursuant to the provisions of separate contract, as the case may be, for such
time as he is duly elected or appointed, and until such time as he tenders his
resignation in writing or he is removed.
3. INDEMNITY IN THIRD PARTY PROCEEDINGS. The Corporation shall indemnify
the Indemnitee, if the Indemnitee is made a party to or threatened to be made a
party to, or otherwise involved in, any Proceeding (other than a Proceeding
which is an action by or in the right of the Corporation to procure a judgment
in its favor), by reason of the fact that the Indemnitee is or was an Agent of
the Corporation. The indemnification contemplated by the provisions of this
Paragraph 3 shall apply, and be limited, to and against all Expenses, judgments,
fines, penalties, settlements, and other amounts, actually and reasonably
incurred by the Indemnitee in connection with the defense or settlement of any
such Proceeding; provided, however, it is determined pursuant to the provisions
of Paragraph 7 of this Agreement or by the court in which such Proceeding is or
was pending that the Indemnitee satisfied the Applicable Standard.
4. INDEMNITY IN PROCEEDINGS BY OR IN THE NAME OF THE CORPORATION. The
Corporation shall indemnify the Indemnitee, if the Indemnitee is made a party
to, or threatened to be made a party to, or otherwise involved in, any
Proceeding which is an action by or in the right of the Corporation to procure a
judgment in the Corporation's favor because the Indemnitee is or was an Agent of
the Corporation. The indemnification contemplated by the provisions of this
Paragraph 4 shall apply, and be limited, to and against all Expenses actually
and reasonably incurred by the Indemnitee in connection with the defense or
settlement of such Proceeding, but only if:
(a) the Indemnitee satisfies the Applicable Standard (except that the
Indemnitee's belief regarding the best interests the Corporation or
other enterprise need not have been reasonable);
(b) the Indemnitee acted with such care, including reasonable inquiry,
as an ordinarily prudent person in a similar circumstance would use;
and
(c) the Proceeding is not settled or otherwise disposed of without
approval of the Corporation.
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No indemnification shall be made pursuant to the provisions of this
Paragraph 4 for any claim, issue, or matter as to which the Indemnitee shall
have been adjudged to be liable to the Corporation in the performance of the
Indemnitee's duty to the Corporation, unless, and only to the extent that, the
court in which such Proceeding is or was pending shall determine upon
application that, considering all the circumstances of such Proceeding, the
Indemnitee is fairly and reasonably entitled to indemnification for the
Expenses, which such court shall determine.
5. EXPENSES OF SUCCESSFUL INDEMNITEE. Notwithstanding any other provision
of this Agreement, to the extent that the Indemnitee has been successful on the
merits in defense of any Proceeding or in defense of any claim, issue, or matter
in such Proceeding, including the dismissal of such Proceeding or portion
thereof without prejudice, the Indemnitee shall be indemnified by the
Corporation from and against all Expenses actually and reasonably incurred in
connection with such Proceeding.
6. ADVANCES OF EXPENSES. The Expenses incurred by the Indemnitee in any
Proceeding shall be advanced by the Corporation prior to the final disposition
of such Proceeding at the written request of the Indemnitee, but only if the
Indemnitee shall undertake to repay such advances, unless and to the extent that
it is ultimately determined that the Indemnitee is entitled to indemnification.
Any advance required pursuant to the provisions of this Paragraph 6 shall be
deemed to have been approved by the members of the Board of Directors of the
Corporation to the extent the provisions of this Agreement have been approved by
the members of that Board of Directors. In determining whether or not to make an
advance pursuant to the provisions of this Paragraph 6, the ability of the
Indemnitee to repay any such advance shall not be a factor. In a Proceeding
commenced by the Corporation directly, in its own right (as distinguished from a
Proceeding commenced derivatively or by any receiver or trustee), the
Corporation shall have the discretion not to make the advance contemplated by
the provisions of this Paragraph 6, if independent counsel advises in writing
that the Corporation has probable cause to believe, and the Corporation does, in
fact, believe, that the Indemnitee did not act in good faith with regard to the
subject matter of such Proceeding or a material portion of such Proceeding.
7. RIGHT OF THE INDEMNITEE TO INDEMNIFICATION UPON APPLICATION; PROCEDURE
UPON APPLICATION. Any indemnification or advance contemplated by the provisions
of this Agreement shall be made no later than 30 calendar days after receipt by
the Corporation of a written request of the Indemnitee in accordance with the
provisions of Paragraph 11 of this Agreement. In all other situations,
indemnification shall be made by the Corporation only if authorized in the
specific situation, upon a determination that
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indemnification of the Indemnitee is proper according to the circumstances and
the provisions of this Agreement by:
(a) a majority vote of a quorum of the members of the Board of Directors
of the Corporation (or a duly constituted committee of that Board of
Directors), consisting of directors who are not parties to the
Proceeding at issue;
(b) approval of the shareholders of the Corporation (as defined by the
provisions of Section 153 of the Code), and any voting shares of the
Corporation held by the Indemnitee shall not be entitled to vote
regarding such indemnification;
(c) the court in which the Proceeding at issue is or was pending, upon
application made by the Corporation or made by (i) the Indemnitee or
(ii) any person rendering services in connection with the
Indemnitee's defense, whether or not the Corporation opposes such
application; or
(d) to the extent permitted by law and as expressed by independent legal
counsel in a written opinion.
The right to indemnification or advances contemplated by the provisions of
this Agreement shall be enforceable by the Indemnitee in any court of competent
jurisdiction. The burden of proving that such indemnification or advances is not
appropriate shall be on the Corporation. Neither the failure of the Corporation
(including the members of its Board of Directors or independent legal counsel)
to make a determination prior to the commencement of any action to determine
whether such indemnification or advances is appropriate in the particular
circumstances because the Indemnitee has satisfied the Applicable Standard, nor
a determination by the Corporation (including the members of its Board of
Directors or independent legal counsel) that the Indemnitee has not satisfied
such Applicable Standard, shall be a defense to such action or create a
presumption that the Indemnitee has not satisfied the Applicable Standard. The
Indemnitee's Expenses incurred in connection with successfully establishing his
right to such indemnification or advances, in whole or in part, in any
Proceeding shall also be indemnified by the Corporation; provided, however, that
if the Indemnitee is only partially successful, only an equitably allocated
portion of such Expenses shall be indemnified by the Corporation.
If the Indemnitee is entitled to indemnification by the Corporation for
some or a portion of the Expenses, judgments, fines, or penalties actually and
reasonably incurred by the Indemnitee in the investigation, defense, appeal, or
settlement of any Proceeding but not, however, for the total amount of the
Expenses, the Corporation shall nevertheless
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indemnify the Indemnitee for the portion (determined on an equitable basis) of
those Expenses, judgments, fines, or penalties to which the Indemnitee is
entitled.
The Corporation's obligations to advance or indemnify the Indemnitee
pursuant to the provisions of this Agreement shall be deemed satisfied to the
extent of any payments made by an insurer for or on behalf of the Corporation or
the Indemnitee.
8. INDEMNIFICATION PURSUANT TO THIS AGREEMENT IS NOT EXCLUSIVE. The
indemnification contemplated by the provisions of this Agreement shall not be
deemed exclusive of any other rights to which the Indemnitee may be entitled
pursuant to the provisions of the Articles of Incorporation or Bylaws of the
Corporation, or any agreement, vote of shareholders, or disinterested directors,
the General Corporation Law of the State of California, or otherwise, both as to
action in his official capacities as an officer and director of the Corporation
and as to action in any other capacity while serving as an officer or director
of the Corporation. The indemnification contemplated by the provisions of this
Agreement shall continue as to the Indemnitee although he may have ceased to be
a director or officer of the Corporation and shall inure to the benefit of the
heirs and personal representatives of the Indemnitee, including the Estate of
the Indemnitee.
9. LIMITATIONS. The Corporation shall not be obligated pursuant to the
provisions of this Agreement to make any payment in connection with any claim
made against the Indemnitee:
(a) for which payment is made to the Indemnitee pursuant to the
provisions of a valid and collectible insurance policy, except with
respect to any excess beyond the amount of payments pursuant to the
provisions of such policy;
(b) for which the Indemnitee is indemnified by the Corporation otherwise
than pursuant to the provisions of this Agreement;
(c) based upon or attributable to the Indemnitee gaining any personal
profit or advantage to which he was not legally entitled;
(d) for an accounting of profits made from the purchase or sale by the
Indemnitee of securities of the Corporation within the meaning of
Section 16(b) of the Securities Exchange Act of 1934 and amendments
thereto or similar provisions of any state statutory law or common
law;
(e) resulting from or contributed to by the active and deliberate
dishonesty of the Indemnitee; provided, however, the Indemnitee
shall be indemnified by
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the Corporation to the extent otherwise specified by the provisions
of this Agreement as to any claims for which a litigation action may
be commenced against the Indemnitee because of any alleged
dishonesty on his part, unless a judgment or other final
adjudication of such litigation action adverse to the Indemnitee
shall establish that he committed acts of active and deliberate
dishonesty with an actual dishonest purpose and intent, which acts
were material to the litigation action so adjudicated;
(f) for omissions or acts committed in bad faith or which involve
intentional misconduct or a knowing violation of law;
(g) for any omission or act that the Indemnitee believed at the time of
his action to be contrary to, or inconsistent with, the best
interests of both the Corporation and its shareholders, or
(h) for any transaction from which the Indemnitee derived an improper
personal economic benefit in a capacity other than as a shareholder
of the Corporation.
10. SEVERABILITY. In the event any part of this Agreement, for any reason,
is determined to be invalid, such determination shall not affect the validity of
any remaining portion of this Agreement, which remaining portion shall remain in
complete force and effect as if this Agreement had been executed with the
invalid portion of this Agreement eliminated. It is hereby declared the
intention of the parties that the parties would have executed the remaining
portion of this Agreement without including any such part, parts or portion
which, for any reason, hereafter may be determined to be invalid.
11. NOTICES. The Indemnitee shall, as a condition precedent to his right
to be indemnified pursuant to the provisions of this Agreement, provide to the
Corporation notice in writing within 20 calendar days after he becomes aware of
any claim made against him for which he believes, or should reasonably believe,
indemnification will or could be sought pursuant to the provisions of this
Agreement. All notices, requests, demands, and other communications
(collectively, "notices") contemplated or required by the provisions of this
Agreement shall be in writing (including communications by telephone, telex, or
telecommunication facilities providing facsimile transmission) and mailed
(postage prepaid and return receipt requested), telegraphed, telexed,
transmitted or personally served to each party at the address for such party
specified below such party's signature to this Agreement or at such other
address as such party may designate in a written notice to the other party in
compliance with the provisions of this paragraph. All notices shall be effective
when received; provided, however receipt shall be deemed to be effective 2
business days of any properly addressed notice having been deposited
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in the mail, 24 hours from the time electronic transmission was made, or upon
actual receipt of electronic delivery, whichever occurs first.
12. PARTIES IN INTEREST. No provisions of this Agreement is intended to,
nor shall any such provision confer any right or remedies pursuant to or by
reason of the provisions of this Agreement to any persons other than the parties
to this Agreement and their respective successors and assigns, including the
Estate of the Indemnitee, nor is any provision of in this Agreement intended to
relieve or discharge the obligation or liability of any third party to any party
to this Agreement. No provision of this Agreement shall provide any third person
any right of subrogation or action against any party to this Agreement.
13. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and obligate the undersigned parties and their respective successors and
assigns. Whenever, in this Agreement, a reference to any party is made, such
reference shall be deemed to include a reference to the successors and assigns
of such party; provided, however, neither this paragraph nor any other portion
of this Agreement shall be interpreted to constitute a consent to any assignment
or transfer other than pursuant to and in accordance with the other provisions
of this Agreement. Neither party shall assign, transfer or delegate that party's
rights, responsibilities, duties or obligation created by the provisions of this
Agreement to any other person without the prior written consent of the other
party.
14. CAPTIONS AND INTERPRETATION. Captions of the paragraphs of this
Agreement are for convenience and reference only, and the words specified in
those captions shall in no way be held to explain, modify, amplify or aid in the
interpretation, construction or meaning of the terms, conditions and provisions
of this Agreement. The language and all parts to this Agreement, in all cases,
shall be construed in accordance with the fair meaning of that language and
those parts and as if that language and those parts were prepared by both
parties and not strictly for or against any party.
15. NUMBER AND GENDER. Whenever the singular number is used in this
Agreement, and when required by the context, the same shall include the plural,
and vice versa; the masculine gender shall include the feminine and the neuter
genders, and vice versa; and the word "person" shall include corporation, firm,
trust, estate, joint venture, governmental agency, sole proprietorship,
political subdivision, organization, fraternal order, club, league, joint stock
company, society, municipality, association, partnership or other form of
entity.
16. EXECUTION IN COUNTERPARTS. This Agreement shall be prepared in
multiple copies and forwarded to each of the parties for execution. This
Agreement shall become
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effective when counsel for the Corporation receives a copy or copies of this
Agreement executed by the parties in the names as those names appear at the end
of this Agreement. All of the signatures of the parties may be affixed to one
copy or to separate copies of this Agreement and when all such copies are
received, and signed by all the parties, those copies shall constitute one
agreement which is not otherwise separable or divisible. Counsel for the
Corporation shall keep all of such signed copies and shall conform one copy to
show all of those signatures and the dates thereof and shall mail a copy of such
conformed copy to each of the parties within thirty (30) days after the receipt
by such counsel of the last signed copy, and shall cause one such conformed copy
to be filed in the principal office of such counsel.
17. ENTIRE AGREEMENT. This Agreement is the final written expression and
the complete and exclusive statement of all the agreements, conditions,
promises, representations, warranties and covenants between the parties with
respect to the subject matter of this Agreement, and this Agreement supersedes
all prior or contemporaneous agreements, negotiations, representations,
warranties, covenants, understandings and discussions by and between and among
the parties, their respective representatives, and any other person, with
respect to the subject matter specified in this Agreement. This Agreement may be
amended only by an instrument in writing which expressly refers to this
Agreement and specifically states that that instrument is intended to amend this
Agreement and is signed by each of the parties. Nothing specified in any exhibit
attached to this Agreement shall supersede or annul the terms and provisions of
this Agreement, unless the matter specified in such exhibit shall expressly so
provide to the contrary, and in the event of any ambiguity in meaning or
understanding between this Agreement proper and the appended exhibits, the
provisions of this Agreement shall prevail and control. Each of the parties
represents, warrants and covenants that in executing this Agreement that party
has relied solely on the terms, conditions and provisions specified in this
Agreement. Each of the parties additionally represents, warrants and covenants
that in executing and delivering this Agreement such party has placed no
reliance whatsoever on any statement, representation, warranty, covenant or
promise of the other party, or any other person, not specified expressly in this
Agreement, or upon the failure of any party or any other person to make any
statement, representation, warranty, covenant or disclosure of any nature
whatsoever. The parties have included this paragraph to preclude (i) any claim
that any party was in any manner whatsoever induced fraudulently to enter into,
execute and deliver this Agreement, and (ii) the introduction of parol evidence
to vary, interpret, supplement or contradict the terms, conditions and
provisions of this Agreement.
18. GOVERNING LAW. This Agreement shall be deemed to have been entered
into in the County of Orange, State of California, and all questions concerning
the validity, interpretation, or performance of any of the terms, conditions and
provisions of this
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Agreement or of any of the rights or obligations of the parties shall be
governed by, and resolved in accordance with, the laws of the State of
California, without regard to conflicts of law principles. Any and all actions
or proceedings, at law or in equity, to enforce or interpret the provisions of
this Agreement shall be litigated in courts having situs within the County of
Orange, State of California. No claim, demand, action, proceeding, litigation,
hearing, motion or lawsuit resulting from or with respect to this Agreement
shall be commenced or prosecuted in any jurisdiction other than the State of
California, and any judgment, determination, finding or conclusion reached or
rendered in any other jurisdiction shall be null and void. Each party hereby
consents expressly to the jurisdiction of any local, state or federal court
located within the State of California and consents that any service of process
in such action or proceeding may be made by personal service upon such party
wherever such party may be then located, or by certified or registered mail
directed to such party at such party's last known address.
19. GOVERNMENT REGULATIONS. The transactions and relationship contemplated
by the provisions of this Agreement are, and shall remain, subject to any and
all present and future orders, rules and regulations of any duly constituted
authority or agency having jurisdiction of those transactions and that
relationship.
20. FURTHER ASSURANCES. The parties shall from time to time sign and
deliver any further instruments and take any further actions as may be necessary
to effectuate the intent and purposes of this Agreement.
21. ALL CONSENTS IN WRITING. In any instance in which any party shall be
requested to consent to or approve of any matter with respect to which that
party's consent or approval is required by any of the provisions of this
Agreement, such consent or approval shall be furnished in writing.
22. ATTORNEYS' FEES. In the event any party shall institute any action or
proceeding to enforce any provision of this Agreement to seek relief from any
violation of this Agreement, or to otherwise obtain any judgment or order
relating to or resulting from the subject matter of this Agreement, the
prevailing party shall be entitled to receive from the losing party such
prevailing party's actual attorneys' fees and costs incurred to prosecute or
defend such action or proceeding, including, but not limited to, actual
attorneys' fees and costs incurred preparatory to such prosecution and defense.
Moreover, while a court of competent jurisdiction may assist in determining
whether or not the fees actually incurred are reasonable in the circumstances
then existing, that court is not be governed by any judicially or legislatively
established fee schedule, and such fees and costs are to include those as may be
incurred on appeal of any issue and all of which fees and costs shall be
included as part of any judgment, by cost bill or otherwise, and where
applicable, any appellate decision rendered in or resulting from such action or
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proceeding. For purposes of this Agreement, in any action or proceeding
instituted by a party, the prevailing party shall be that party in any such
action or proceeding (i) in whose favor a judgment is entered, or (ii) prior to
trial, hearing or judgment any other party shall pay all or any portion of
amounts claimed by the party seeking payment, or such other party shall
eliminate the condition, cease the act, or otherwise cure the act of commission
or omission claimed by the party initiating such action or proceeding.
23. RESERVATION OF RIGHTS. The failure of any party at any time or times
hereafter to require strict performance by any other party of any of the
warranties, representations, covenants, terms, conditions and provisions
specified in this Agreement shall not waive, affect of diminish any right of
such party failing to require strict performance to demand strict compliance and
performance therewith and with respect to any other provisions, warranties,
terms, and conditions specified in this Agreement. Any waiver of any default
shall not waive or affect any other default, whether prior or subsequent
thereto, and whether the same or of a different type. None of the
representations, warranties, covenants, conditions, provisions and terms
specified in this Agreement shall be deemed to have been waived by any act or
knowledge of any party, its agents, trustees, officers, or employees and any
such waiver shall be made only by an instrument in writing, signed by the
waiving party and directed to any non-waiving party specifying such waiver, and
each party reserves such party's rights to insist upon strict compliance
herewith at all times.
24. PURPOSE OF COVENANTS. All covenants made by each party shall be deemed
made for the purpose of inducing the other party to enter into and execute this
Agreement. The representations, warranties, and covenants specified in this
Agreement shall survive any investigation by either party whether before or
after the execution of this Agreement.
25. CONCURRENT REMEDIES. No right or remedy specified in this Agreement
conferred on or reserved to the parties is exclusive of any other right or
remedy specified in this Agreement or by law or equity provided or permitted;
but each such right and remedy shall be cumulative of, and in addition to, every
other right and remedy specified in this Agreement or now or hereafter existing
at law or in equity or by statute or otherwise, and may be enforced concurrently
therewith or from time to time. The termination of this Agreement for any reason
whatsoever shall not prejudice any right or remedy which any party may have,
either at law, in equity, or pursuant to the provisions of this Agreement.
26. FORCE MAJEURE. If any party is rendered unable, completely or
partially, by the occurrence of an event of "force majeure" (hereinafter
defined) to perform such party's obligations created by the provisions of this
Agreement, such party shall give to
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the other party prompt written notice of the event of "force majeure" with
reasonably complete particulars concerning such event; thereupon, the
obligations of the party giving such notice, so far as those obligations are
affected by the event of "force majeure," shall be suspended during, but no
longer than, the continuance of the event of "force majeure." The party affected
by such event of "force majeure" shall use all reasonable diligence to resolve,
eliminate and terminate the event of "force majeure" as quickly as practicable.
The term "force majeure," as contemplated by the provisions of this Paragraph 27
means any act of God, strike, lockout or other industrial disturbance, act of
the public enemy, war blockage, public riot, lightening, fire, storm, flood
explosion, governmental action, earthquake, governmental delay, restraint or
inaction, unavailability or equipment, and any other cause or event, whether of
the kind enumerated specifically herein, or otherwise, which is not within the
control of the party claiming such suspension.
27. CONSENT TO AGREEMENT. By executing this Agreement, each party, for
itself represents such party has read or caused to be read this Agreement in all
particulars, and consents to the rights, conditions, duties and responsibilities
imposed upon such party as specified in this Agreement. Each party represents,
warrants and covenants that such party executes and delivers this Agreement of
its own free will and with no threat, undue influence, menace, coercion or
duress, whether economic or physical. Moreover, each party represents, warrants,
and covenants that such party executes this Agreement acting on such party's own
independent judgment and upon the advice of such party's counsel.
IN WITNESS WHEREOF the parties have executed this Agreement for
Indemnification in duplicate and in multiple counterparts, each of which shall
have the force and effect of an original, on the date specified in the preamble
of this Agreement.
PERFORMANCE CAPITAL
MANAGEMENT, INC.,
a California corporation
By:
-------------------------------- --------------------------------------
Michael A. Cushing
Its: 4100 Newport Place, Suite 400
-------------------------------- Newport Beach, California 92660
Facsimile number 714.752.3535
4100 Newport Place, Suite 400
Newport Beach, California 92660
Facsimile number 714.752.3535
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EXHIBIT 10.5
AGREEMENT FOR INDEMNIFICATION
THIS AGREEMENT FOR INDEMNIFICATION ("Agreement") is made and entered into
in duplicate as of the 1st day of July, 1997, by and between Performance Capital
Management, Inc., a California corporation ("Corporation"), and Vincent E.
Galewick, an officer and a director of the Corporation ("Indemnitee").
RECITALS
A. The Corporation and the Indemnitee understand and agree that
interpretations of statutes, regulations, court opinions, and the Corporation's
Articles of Incorporation and Bylaws, are too uncertain to provide the
Corporation's directors and officers with adequate or reliable advance knowledge
or guidance with respect to the legal risks and potential liabilities to which
they may become exposed personally as a result of performing, in good faith,
their duties as officers and directors of and for the Corporation.
B. The Corporation and the Indemnitee are aware of the substantial
increase in the number of litigation matters filed against corporate officers
and directors regarding their activities in such capacities and by reason of
their status as such.
C. The Corporation and the Indemnitee are aware that the cost of defending
those litigation matters, whether or not meritorious, is typically either beyond
the financial resources of the officers and directors of the Corporation or far
exceed the limited benefits of serving as an officer and a director of and for
the Corporation.
D. The Corporation and the Indemnitee are aware that the legal risks and
potential officer and director liabilities, or the very threat thereof, and the
resulting substantial time endured and fees and expenses incurred in defending
against such litigation matters, have no reasonable logical relationship to the
amount of compensation received by the Corporation's officers and directors.
These factors (i) cause a significant deterrent to, and (ii) induce increased
reluctance on the part of, experienced and capable persons to serve as officers
and directors of the Corporation.
E. The Corporation has investigated the availability and deficiency of
liability insurance to provide its officers and directors with adequate
protection against the foregoing legal risks and potential liabilities. The
Corporation has concluded that such insurance does not provide adequate
protection to the Corporation's officers and directors. Therefore, it would be
in the best interests of the Corporation and its shareholders to
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contract with the Corporation's officers and directors, including the
Indemnitee, to indemnify those officers and directors, to the most complete
extent permitted by law, against personal liability for actions taken in the
good faith performance of their duties to the Corporation.
F. The provisions of Section 317 of the Corporations Code ("Code") specify
circumstances regarding the mandatory and permissive indemnification by a
California corporation of the officers and directors (among other persons) of
that corporation, and those provisions (i) require indemnification in certain
circumstances, (ii) permit indemnification in other circumstances, and (iii)
prohibit indemnification in some circumstances.
G. The members of the Board of Directors of the Corporation have
determined, after careful consideration and investigation of the various options
available, that the provisions of this Agreement are reasonable, prudent, and
necessary to promote and ensure the best interests of the Corporation and its
shareholders. The provisions of the Agreement are intended to (i) induce and
encourage significantly experienced and capable persons such as the Indemnitee
to serve as officers and directors of the Corporation; (ii) encourage such
persons to resist what they consider to be unjustifiable litigation matters and
claims made against them regarding the good faith performance of their duties to
the Corporation, secure in the knowledge that certain expenses, costs, and
liabilities incurred by them in their defense of such litigation matters will be
borne and paid by the Corporation and that they will receive the maximum
protection against such risks and liabilities as legally may be made available
to them; and (iii) encourage officers and directors of the Corporation to
exercise their best business judgment regarding matters which will be submitted
to them for consideration, without undue concern for the risk that claims may be
made against them because they are officers and directors of the Corporation.
H. The Corporation desires to cause the Indemnitee to continue to serve as
an officer and director of the Corporation free from concern for unpredictable,
inappropriate, or unreasonable legal risk and personal liabilities by reason of
his acting in good faith in the performance of his duties to the Corporation.
The Indemnitee desires to continue to serve as an officer and director of the
Corporation, provided, and on the express condition, that he is furnished with
the indemnification specified by the provisions of this Agreement.
NOW, THEREFORE, IN CONSIDERATION OF THE FOREGOING RECITALS, PREMISES, PROMISES,
COVENANTS, AGREEMENTS, AND UNDERTAKINGS SPECIFIED BY THE PROVISIONS OF THIS
AGREEMENT AND FOR OTHER GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND
SUFFICIENCY
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OF WHICH ARE HEREBY ACKNOWLEDGED, WITH THE INTENT TO BE OBLIGATED LEGALLY AND
EQUITABLY, THE PARTIES TO THIS AGREEMENT AGREE WITH EACH OTHER AS FOLLOWS:
1. DEFINITIONS. For the purposes of this Agreement, the following words
and terms shall be defined as follows:
(a) The term "Proceeding" does and shall include any threatened,
pending, or completed action, inquiry, lawsuit, litigation matter,
or proceeding, whether commenced in the name of the Corporation, or
otherwise, and whether civil, criminal, administrative, or
investigative in nature, including, but not limited to, actions,
inquiries, investigations, litigation matters, or proceedings
commenced pursuant to or predicated on the provisions of the
Securities Act of 1933, as amended; the Securities Exchange Act of
1934, as amended; their respective state counterparts; and any rule
or regulation promulgated pursuant thereto, in which the Indemnitee
may be, or may have been involved as, a party, or otherwise (other
than plaintiff against the Corporation), because of (i) the fact
that the Indemnitee is or was an Agent of the Corporation, (ii) any
action taken by the Indemnitee, or (iii) any inaction by the
Indemnitee while he is or was functioning as such an Agent.
(b) The term "Expenses" includes, but is not limited to, expenses of
investigations, judicial or administrative proceedings or appeals,
court costs, attorneys' fees, and disbursements and any expenses of
establishing a right to indemnification pursuant to applicable law
or the provisions of Paragraph 7 of this Agreement. "Expenses" does
not and shall not include the amounts of any judgments, fines, or
penalties assessed against the Indemnitee or amounts paid in
settlement of a proceeding by or on behalf of the Indemnitee.
(c) References to "other enterprise" does and shall include each limited
liability company of and for which the Corporation is the Manager
references to "serving at the request of the Corporation" does and
shall include any service by the Indemnitee as an officer or
director of the Corporation which imposes duties on, or involves
services by the Indemnitee while functioning as such officer or
director with respect to any such limited liability company, its
members, or beneficiaries; and if the Indemnitee acts in good faith
and in a manner he reasonably believes to be in the best interests
of the members and beneficiaries of such limited liability company,
the Indemnitee shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation," as that phrase is
contemplated by the provisions of this Agreement.
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(d) For the purposes of this Agreement, the Indemnitee shall be deemed
to have been acting as an "Agent" if he was functioning in his
capacity as (i) an officer or director of the Corporation, (ii) a
member of a committee of the Board of Directors of the Corporation,
or (iii) a representative or agent of any other enterprise at the
request of the Corporation, whether or not he is functioning in such
capacity at the time any liability or expense is incurred for which
indemnification or reimbursement can be provided pursuant to the
provisions of this Agreement.
(e) The term "Applicable Standard" means that the Indemnitee acted in
good faith and in a manner that the Indemnitee reasonably believed
to be in the best interests of the Corporation; except that in a
criminal proceeding, the Indemnitee must also have had no reasonable
cause to believe that the Indemnitee's conduct was unlawful. The
termination of any Proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or any equivalent
procedure shall not, of itself, create any presumption, or
establish, that the Indemnitee did not satisfy the "Applicable
Standard."
(f) "Independent Legal Counsel" shall include any law firm selected by
the regular counsel for the Corporation from a list of law firms
which satisfy reasonable criteria established by the Board of
Directors of the Corporation; provided, however, such law firm has
not represented the Corporation, the Indemnitee, or any person
controlled by the Indemnitee within the preceding 24 calendar
months.
(g) The term "Estate" shall include the following terms as are
understood in California law:
(1) The duly appointed and qualified executor, executrix,
administrator, administratrix, administrator with the Will
annexed, or administratrix with the Will annexed, of the
estate of a decedent;
(2) The surviving joint tenant of a decedent, when Common Shares
are owned by a decedent and a person who is not active in the
business of the Company as joint tenants;
(3) Any other person who, because of the community property or
other law of any jurisdiction, may acquire without formal
probate proceedings any right, title, or interest in or to the
Common Shares of a decedent by reason of the death of such
decedent; or
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(4) A irrevocable living or grantor's trust for the benefit of a
deceased Shareholder.
2. AGREEMENT TO SERVE. The Indemnitee shall serve or continue to serve as
an officer and director of the Corporation at the will of the members of the
Board of Directors of the Corporation and the Corporation's shareholders, or
pursuant to the provisions of separate contract, as the case may be, for such
time as he is duly elected or appointed, and until such time as he tenders his
resignation in writing or he is removed.
3. INDEMNITY IN THIRD PARTY PROCEEDINGS. The Corporation shall indemnify
the Indemnitee, if the Indemnitee is made a party to or threatened to be made a
party to, or otherwise involved in, any Proceeding (other than a Proceeding
which is an action by or in the right of the Corporation to procure a judgment
in its favor), by reason of the fact that the Indemnitee is or was an Agent of
the Corporation. The indemnification contemplated by the provisions of this
Paragraph 3 shall apply, and be limited, to and against all Expenses, judgments,
fines, penalties, settlements, and other amounts, actually and reasonably
incurred by the Indemnitee in connection with the defense or settlement of any
such Proceeding; provided, however, it is determined pursuant to the provisions
of Paragraph 7 of this Agreement or by the court in which such Proceeding is or
was pending that the Indemnitee satisfied the Applicable Standard.
4. INDEMNITY IN PROCEEDINGS BY OR IN THE NAME OF THE CORPORATION. The
Corporation shall indemnify the Indemnitee, if the Indemnitee is made a party
to, or threatened to be made a party to, or otherwise involved in, any
Proceeding which is an action by or in the right of the Corporation to procure a
judgment in the Corporation's favor because the Indemnitee is or was an Agent of
the Corporation. The indemnification contemplated by the provisions of this
Paragraph 4 shall apply, and be limited, to and against all Expenses actually
and reasonably incurred by the Indemnitee in connection with the defense or
settlement of such Proceeding, but only if:
(a) the Indemnitee satisfies the Applicable Standard (except that the
Indemnitee's belief regarding the best interests the Corporation or
other enterprise need not have been reasonable);
(b) the Indemnitee acted with such care, including reasonable inquiry,
as an ordinarily prudent person in a similar circumstance would use;
and
(c) the Proceeding is not settled or otherwise disposed of without
approval of the Corporation.
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No indemnification shall be made pursuant to the provisions of this
Paragraph 4 for any claim, issue, or matter as to which the Indemnitee shall
have been adjudged to be liable to the Corporation in the performance of the
Indemnitee's duty to the Corporation, unless, and only to the extent that, the
court in which such Proceeding is or was pending shall determine upon
application that, considering all the circumstances of such Proceeding, the
Indemnitee is fairly and reasonably entitled to indemnification for the
Expenses, which such court shall determine.
5. EXPENSES OF SUCCESSFUL INDEMNITEE. Notwithstanding any other provision
of this Agreement, to the extent that the Indemnitee has been successful on the
merits in defense of any Proceeding or in defense of any claim, issue, or matter
in such Proceeding, including the dismissal of such Proceeding or portion
thereof without prejudice, the Indemnitee shall be indemnified by the
Corporation from and against all Expenses actually and reasonably incurred in
connection with such Proceeding.
6. ADVANCES OF EXPENSES. The Expenses incurred by the Indemnitee in any
Proceeding shall be advanced by the Corporation prior to the final disposition
of such Proceeding at the written request of the Indemnitee, but only if the
Indemnitee shall undertake to repay such advances, unless and to the extent that
it is ultimately determined that the Indemnitee is entitled to indemnification.
Any advance required pursuant to the provisions of this Paragraph 6 shall be
deemed to have been approved by the members of the Board of Directors of the
Corporation to the extent the provisions of this Agreement have been approved by
the members of that Board of Directors. In determining whether or not to make an
advance pursuant to the provisions of this Paragraph 6, the ability of the
Indemnitee to repay any such advance shall not be a factor. In a Proceeding
commenced by the Corporation directly, in its own right (as distinguished from a
Proceeding commenced derivatively or by any receiver or trustee), the
Corporation shall have the discretion not to make the advance contemplated by
the provisions of this Paragraph 6, if independent counsel advises in writing
that the Corporation has probable cause to believe, and the Corporation does, in
fact, believe, that the Indemnitee did not act in good faith with regard to the
subject matter of such Proceeding or a material portion of such Proceeding.
7. RIGHT OF THE INDEMNITEE TO INDEMNIFICATION UPON APPLICATION; PROCEDURE
UPON APPLICATION. Any indemnification or advance contemplated by the provisions
of this Agreement shall be made no later than 30 calendar days after receipt by
the Corporation of a written request of the Indemnitee in accordance with the
provisions of Paragraph 11 of this Agreement. In all other situations,
indemnification shall be made by the Corporation only if authorized in the
specific situation, upon a determination that
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indemnification of the Indemnitee is proper according to the circumstances and
the provisions of this Agreement by:
(a) a majority vote of a quorum of the members of the Board of Directors
of the Corporation (or a duly constituted committee of that Board of
Directors), consisting of directors who are not parties to the
Proceeding at issue;
(b) approval of the shareholders of the Corporation (as defined by the
provisions of Section 153 of the Code), and any voting shares of the
Corporation held by the Indemnitee shall not be entitled to vote
regarding such indemnification;
(c) the court in which the Proceeding at issue is or was pending, upon
application made by the Corporation or made by (i) the Indemnitee or
(ii) any person rendering services in connection with the
Indemnitee's defense, whether or not the Corporation opposes such
application; or
(d) to the extent permitted by law and as expressed by independent legal
counsel in a written opinion.
The right to indemnification or advances contemplated by the provisions of
this Agreement shall be enforceable by the Indemnitee in any court of competent
jurisdiction. The burden of proving that such indemnification or advances is not
appropriate shall be on the Corporation. Neither the failure of the Corporation
(including the members of its Board of Directors or independent legal counsel)
to make a determination prior to the commencement of any action to determine
whether such indemnification or advances is appropriate in the particular
circumstances because the Indemnitee has satisfied the Applicable Standard, nor
a determination by the Corporation (including the members of its Board of
Directors or independent legal counsel) that the Indemnitee has not satisfied
such Applicable Standard, shall be a defense to such action or create a
presumption that the Indemnitee has not satisfied the Applicable Standard. The
Indemnitee's Expenses incurred in connection with successfully establishing his
right to such indemnification or advances, in whole or in part, in any
Proceeding shall also be indemnified by the Corporation; provided, however, that
if the Indemnitee is only partially successful, only an equitably allocated
portion of such Expenses shall be indemnified by the Corporation.
If the Indemnitee is entitled to indemnification by the Corporation for
some or a portion of the Expenses, judgments, fines, or penalties actually and
reasonably incurred by the Indemnitee in the investigation, defense, appeal, or
settlement of any Proceeding but not, however, for the total amount of the
Expenses, the Corporation shall nevertheless
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indemnify the Indemnitee for the portion (determined on an equitable basis) of
those Expenses, judgments, fines, or penalties to which the Indemnitee is
entitled.
The Corporation's obligations to advance or indemnify the Indemnitee
pursuant to the provisions of this Agreement shall be deemed satisfied to the
extent of any payments made by an insurer for or on behalf of the Corporation or
the Indemnitee.
8. INDEMNIFICATION PURSUANT TO THIS AGREEMENT IS NOT EXCLUSIVE. The
indemnification contemplated by the provisions of this Agreement shall not be
deemed exclusive of any other rights to which the Indemnitee may be entitled
pursuant to the provisions of the Articles of Incorporation or Bylaws of the
Corporation, or any agreement, vote of shareholders, or disinterested directors,
the General Corporation Law of the State of California, or otherwise, both as to
action in his official capacities as an officer and director of the Corporation
and as to action in any other capacity while serving as an officer or director
of the Corporation. The indemnification contemplated by the provisions of this
Agreement shall continue as to the Indemnitee although he may have ceased to be
a director or officer of the Corporation and shall inure to the benefit of the
heirs and personal representatives of the Indemnitee, including the Estate of
the Indemnitee.
9. LIMITATIONS. The Corporation shall not be obligated pursuant to the
provisions of this Agreement to make any payment in connection with any claim
made against the Indemnitee:
(a) for which payment is made to the Indemnitee pursuant to the
provisions of a valid and collectible insurance policy, except with
respect to any excess beyond the amount of payments pursuant to the
provisions of such policy;
(b) for which the Indemnitee is indemnified by the Corporation otherwise
than pursuant to the provisions of this Agreement;
(c) based upon or attributable to the Indemnitee gaining any personal
profit or advantage to which he was not legally entitled;
(d) for an accounting of profits made from the purchase or sale by the
Indemnitee of securities of the Corporation within the meaning of
Section 16(b) of the Securities Exchange Act of 1934 and amendments
thereto or similar provisions of any state statutory law or common
law;
(e) resulting from or contributed to by the active and deliberate
dishonesty of the Indemnitee; provided, however, the Indemnitee
shall be indemnified by
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the Corporation to the extent otherwise specified by the provisions
of this Agreement as to any claims for which a litigation action may
be commenced against the Indemnitee because of any alleged
dishonesty on his part, unless a judgment or other final
adjudication of such litigation action adverse to the Indemnitee
shall establish that he committed acts of active and deliberate
dishonesty with an actual dishonest purpose and intent, which acts
were material to the litigation action so adjudicated;
(f) for omissions or acts committed in bad faith or which involve
intentional misconduct or a knowing violation of law;
(g) for any omission or act that the Indemnitee believed at the time of
his action to be contrary to, or inconsistent with, the best
interests of both the Corporation and its shareholders, or
(h) for any transaction from which the Indemnitee derived an improper
personal economic benefit in a capacity other than as a shareholder
of the Corporation.
10. SEVERABILITY. In the event any part of this Agreement, for any reason,
is determined to be invalid, such determination shall not affect the validity of
any remaining portion of this Agreement, which remaining portion shall remain in
complete force and effect as if this Agreement had been executed with the
invalid portion of this Agreement eliminated. It is hereby declared the
intention of the parties that the parties would have executed the remaining
portion of this Agreement without including any such part, parts or portion
which, for any reason, hereafter may be determined to be invalid.
11. NOTICES. The Indemnitee shall, as a condition precedent to his right
to be indemnified pursuant to the provisions of this Agreement, provide to the
Corporation notice in writing within 20 calendar days after he becomes aware of
any claim made against him for which he believes, or should reasonably believe,
indemnification will or could be sought pursuant to the provisions of this
Agreement. All notices, requests, demands, and other communications
(collectively, "notices") contemplated or required by the provisions of this
Agreement shall be in writing (including communications by telephone, telex, or
telecommunication facilities providing facsimile transmission) and mailed
(postage prepaid and return receipt requested), telegraphed, telexed,
transmitted or personally served to each party at the address for such party
specified below such party's signature to this Agreement or at such other
address as such party may designate in a written notice to the other party in
compliance with the provisions of this paragraph. All notices shall be effective
when received; provided, however receipt shall be deemed to be effective 2
business days of any properly addressed notice having been deposited
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in the mail, 24 hours from the time electronic transmission was made, or upon
actual receipt of electronic delivery, whichever occurs first.
12. PARTIES IN INTEREST. No provisions of this Agreement is intended to,
nor shall any such provision confer any right or remedies pursuant to or by
reason of the provisions of this Agreement to any persons other than the parties
to this Agreement and their respective successors and assigns, including the
Estate of the Indemnitee, nor is any provision of in this Agreement intended to
relieve or discharge the obligation or liability of any third party to any party
to this Agreement. No provision of this Agreement shall provide any third person
any right of subrogation or action against any party to this Agreement.
13. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and obligate the undersigned parties and their respective successors and
assigns. Whenever, in this Agreement, a reference to any party is made, such
reference shall be deemed to include a reference to the successors and assigns
of such party; provided, however, neither this paragraph nor any other portion
of this Agreement shall be interpreted to constitute a consent to any assignment
or transfer other than pursuant to and in accordance with the other provisions
of this Agreement. Neither party shall assign, transfer or delegate that party's
rights, responsibilities, duties or obligation created by the provisions of this
Agreement to any other person without the prior written consent of the other
party.
14. CAPTIONS AND INTERPRETATION. Captions of the paragraphs of this
Agreement are for convenience and reference only, and the words specified in
those captions shall in no way be held to explain, modify, amplify or aid in the
interpretation, construction or meaning of the terms, conditions and provisions
of this Agreement. The language and all parts to this Agreement, in all cases,
shall be construed in accordance with the fair meaning of that language and
those parts and as if that language and those parts were prepared by both
parties and not strictly for or against any party.
15. NUMBER AND GENDER. Whenever the singular number is used in this
Agreement, and when required by the context, the same shall include the plural,
and vice versa; the masculine gender shall include the feminine and the neuter
genders, and vice versa; and the word "person" shall include corporation, firm,
trust, estate, joint venture, governmental agency, sole proprietorship,
political subdivision, organization, fraternal order, club, league, joint stock
company, society, municipality, association, partnership or other form of
entity.
16. EXECUTION IN COUNTERPARTS. This Agreement shall be prepared in
multiple copies and forwarded to each of the parties for execution. This
Agreement shall become
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effective when counsel for the Corporation receives a copy or copies of this
Agreement executed by the parties in the names as those names appear at the end
of this Agreement. All of the signatures of the parties may be affixed to one
copy or to separate copies of this Agreement and when all such copies are
received, and signed by all the parties, those copies shall constitute one
agreement which is not otherwise separable or divisible. Counsel for the
Corporation shall keep all of such signed copies and shall conform one copy to
show all of those signatures and the dates thereof and shall mail a copy of such
conformed copy to each of the parties within thirty (30) days after the receipt
by such counsel of the last signed copy, and shall cause one such conformed copy
to be filed in the principal office of such counsel.
17. ENTIRE AGREEMENT. This Agreement is the final written expression and
the complete and exclusive statement of all the agreements, conditions,
promises, representations, warranties and covenants between the parties with
respect to the subject matter of this Agreement, and this Agreement supersedes
all prior or contemporaneous agreements, negotiations, representations,
warranties, covenants, understandings and discussions by and between and among
the parties, their respective representatives, and any other person, with
respect to the subject matter specified in this Agreement. This Agreement may be
amended only by an instrument in writing which expressly refers to this
Agreement and specifically states that that instrument is intended to amend this
Agreement and is signed by each of the parties. Nothing specified in any exhibit
attached to this Agreement shall supersede or annul the terms and provisions of
this Agreement, unless the matter specified in such exhibit shall expressly so
provide to the contrary, and in the event of any ambiguity in meaning or
understanding between this Agreement proper and the appended exhibits, the
provisions of this Agreement shall prevail and control. Each of the parties
represents, warrants and covenants that in executing this Agreement that party
has relied solely on the terms, conditions and provisions specified in this
Agreement. Each of the parties additionally represents, warrants and covenants
that in executing and delivering this Agreement such party has placed no
reliance whatsoever on any statement, representation, warranty, covenant or
promise of the other party, or any other person, not specified expressly in this
Agreement, or upon the failure of any party or any other person to make any
statement, representation, warranty, covenant or disclosure of any nature
whatsoever. The parties have included this paragraph to preclude (i) any claim
that any party was in any manner whatsoever induced fraudulently to enter into,
execute and deliver this Agreement, and (ii) the introduction of parol evidence
to vary, interpret, supplement or contradict the terms, conditions and
provisions of this Agreement.
18. GOVERNING LAW. This Agreement shall be deemed to have been entered
into in the County of Orange, State of California, and all questions concerning
the validity, interpretation, or performance of any of the terms, conditions and
provisions of this
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Agreement or of any of the rights or obligations of the parties shall be
governed by, and resolved in accordance with, the laws of the State of
California, without regard to conflicts of law principles. Any and all actions
or proceedings, at law or in equity, to enforce or interpret the provisions of
this Agreement shall be litigated in courts having situs within the County of
Orange, State of California. No claim, demand, action, proceeding, litigation,
hearing, motion or lawsuit resulting from or with respect to this Agreement
shall be commenced or prosecuted in any jurisdiction other than the State of
California, and any judgment, determination, finding or conclusion reached or
rendered in any other jurisdiction shall be null and void. Each party hereby
consents expressly to the jurisdiction of any local, state or federal court
located within the State of California and consents that any service of process
in such action or proceeding may be made by personal service upon such party
wherever such party may be then located, or by certified or registered mail
directed to such party at such party's last known address.
19. GOVERNMENT REGULATIONS. The transactions and relationship contemplated
by the provisions of this Agreement are, and shall remain, subject to any and
all present and future orders, rules and regulations of any duly constituted
authority or agency having jurisdiction of those transactions and that
relationship.
20. FURTHER ASSURANCES. The parties shall from time to time sign and
deliver any further instruments and take any further actions as may be necessary
to effectuate the intent and purposes of this Agreement.
21. ALL CONSENTS IN WRITING. In any instance in which any party shall be
requested to consent to or approve of any matter with respect to which that
party's consent or approval is required by any of the provisions of this
Agreement, such consent or approval shall be furnished in writing.
22. ATTORNEYS' FEES. In the event any party shall institute any action or
proceeding to enforce any provision of this Agreement to seek relief from any
violation of this Agreement, or to otherwise obtain any judgment or order
relating to or resulting from the subject matter of this Agreement, the
prevailing party shall be entitled to receive from the losing party such
prevailing party's actual attorneys' fees and costs incurred to prosecute or
defend such action or proceeding, including, but not limited to, actual
attorneys' fees and costs incurred preparatory to such prosecution and defense.
Moreover, while a court of competent jurisdiction may assist in determining
whether or not the fees actually incurred are reasonable in the circumstances
then existing, that court is not be governed by any judicially or legislatively
established fee schedule, and such fees and costs are to include those as may be
incurred on appeal of any issue and all of which fees and costs shall be
included as part of any judgment, by cost bill or otherwise, and where
applicable, any appellate decision rendered in or resulting from such action or
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proceeding. For purposes of this Agreement, in any action or proceeding
instituted by a party, the prevailing party shall be that party in any such
action or proceeding (i) in whose favor a judgment is entered, or (ii) prior to
trial, hearing or judgment any other party shall pay all or any portion of
amounts claimed by the party seeking payment, or such other party shall
eliminate the condition, cease the act, or otherwise cure the act of commission
or omission claimed by the party initiating such action or proceeding.
23. RESERVATION OF RIGHTS. The failure of any party at any time or times
hereafter to require strict performance by any other party of any of the
warranties, representations, covenants, terms, conditions and provisions
specified in this Agreement shall not waive, affect of diminish any right of
such party failing to require strict performance to demand strict compliance and
performance therewith and with respect to any other provisions, warranties,
terms, and conditions specified in this Agreement. Any waiver of any default
shall not waive or affect any other default, whether prior or subsequent
thereto, and whether the same or of a different type. None of the
representations, warranties, covenants, conditions, provisions and terms
specified in this Agreement shall be deemed to have been waived by any act or
knowledge of any party, its agents, trustees, officers, or employees and any
such waiver shall be made only by an instrument in writing, signed by the
waiving party and directed to any non-waiving party specifying such waiver, and
each party reserves such party's rights to insist upon strict compliance
herewith at all times.
24. PURPOSE OF COVENANTS. All covenants made by each party shall be deemed
made for the purpose of inducing the other party to enter into and execute this
Agreement. The representations, warranties, and covenants specified in this
Agreement shall survive any investigation by either party whether before or
after the execution of this Agreement.
25. CONCURRENT REMEDIES. No right or remedy specified in this Agreement
conferred on or reserved to the parties is exclusive of any other right or
remedy specified in this Agreement or by law or equity provided or permitted;
but each such right and remedy shall be cumulative of, and in addition to, every
other right and remedy specified in this Agreement or now or hereafter existing
at law or in equity or by statute or otherwise, and may be enforced concurrently
therewith or from time to time. The termination of this Agreement for any reason
whatsoever shall not prejudice any right or remedy which any party may have,
either at law, in equity, or pursuant to the provisions of this Agreement.
26. FORCE MAJEURE. If any party is rendered unable, completely or
partially, by the occurrence of an event of "force majeure" (hereinafter
defined) to perform such party's obligations created by the provisions of this
Agreement, such party shall give to
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the other party prompt written notice of the event of "force majeure" with
reasonably complete particulars concerning such event; thereupon, the
obligations of the party giving such notice, so far as those obligations are
affected by the event of "force majeure," shall be suspended during, but no
longer than, the continuance of the event of "force majeure." The party affected
by such event of "force majeure" shall use all reasonable diligence to resolve,
eliminate and terminate the event of "force majeure" as quickly as practicable.
The term "force majeure," as contemplated by the provisions of this Paragraph 27
means any act of God, strike, lockout or other industrial disturbance, act of
the public enemy, war blockage, public riot, lightening, fire, storm, flood
explosion, governmental action, earthquake, governmental delay, restraint or
inaction, unavailability or equipment, and any other cause or event, whether of
the kind enumerated specifically herein, or otherwise, which is not within the
control of the party claiming such suspension.
27. CONSENT TO AGREEMENT. By executing this Agreement, each party, for
itself represents such party has read or caused to be read this Agreement in all
particulars, and consents to the rights, conditions, duties and responsibilities
imposed upon such party as specified in this Agreement. Each party represents,
warrants and covenants that such party executes and delivers this Agreement of
its own free will and with no threat, undue influence, menace, coercion or
duress, whether economic or physical. Moreover, each party represents, warrants,
and covenants that such party executes this Agreement acting on such party's own
independent judgment and upon the advice of such party's counsel.
IN WITNESS WHEREOF the parties have executed this Agreement for
Indemnification in duplicate and in multiple counterparts, each of which shall
have the force and effect of an original, on the date specified in the preamble
of this Agreement.
PERFORMANCE CAPITAL
MANAGEMENT, INC.,
a California corporation
By:
-------------------------------- --------------------------------------
Vincent E. Galewick
Its: 4100 Newport Place, Suite 400
-------------------------------- Newport Beach, California 92660
Facsimile number 714.752.3535
4100 Newport Place, Suite 400
Newport Beach, California 92660
Facsimile number 714.752.3535
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EXHIBIT 10.6
AGREEMENT FOR INDEMNIFICATION
THIS AGREEMENT FOR INDEMNIFICATION ("Agreement") is made and entered into
in duplicate as of the 1st day of July, 1997, by and between Performance
Development, Inc., a California corporation ("Corporation"), and Michael A.
Cushing, an officer and a director of the Corporation ("Indemnitee").
RECITALS
A. The Corporation and the Indemnitee understand and agree that
interpretations of statutes, regulations, court opinions, and the Corporation's
Articles of Incorporation and Bylaws, are too uncertain to provide the
Corporation's directors and officers with adequate or reliable advance knowledge
or guidance with respect to the legal risks and potential liabilities to which
they may become exposed personally as a result of performing, in good faith,
their duties as officers and directors of and for the Corporation.
B. The Corporation and the Indemnitee are aware of the substantial
increase in the number of litigation matters filed against corporate officers
and directors regarding their activities in such capacities and by reason of
their status as such.
C. The Corporation and the Indemnitee are aware that the cost of defending
those litigation matters, whether or not meritorious, is typically either beyond
the financial resources of the officers and directors of the Corporation or far
exceed the limited benefits of serving as an officer and a director of and for
the Corporation.
D. The Corporation and the Indemnitee are aware that the legal risks and
potential officer and director liabilities, or the very threat thereof, and the
resulting substantial time endured and fees and expenses incurred in defending
against such litigation matters, have no reasonable logical relationship to the
amount of compensation received by the Corporation's officers and directors.
These factors (i) cause a significant deterrent to, and (ii) induce increased
reluctance on the part of, experienced and capable persons to serve as officers
and directors of the Corporation.
E. The Corporation has investigated the availability and deficiency of
liability insurance to provide its officers and directors with adequate
protection against the foregoing legal risks and potential liabilities. The
Corporation has concluded that such insurance does not provide adequate
protection to the Corporation's officers and directors. Therefore, it would be
in the best interests of the Corporation and its shareholders to
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contract with the Corporation's officers and directors, including the
Indemnitee, to indemnify those officers and directors, to the most complete
extent permitted by law, against personal liability for actions taken in the
good faith performance of their duties to the Corporation.
F. The provisions of Section 317 of the Corporations Code ("Code") specify
circumstances regarding the mandatory and permissive indemnification by a
California corporation of the officers and directors (among other persons) of
that corporation, and those provisions (i) require indemnification in certain
circumstances, (ii) permit indemnification in other circumstances, and (iii)
prohibit indemnification in some circumstances.
G. The members of the Board of Directors of the Corporation have
determined, after careful consideration and investigation of the various options
available, that the provisions of this Agreement are reasonable, prudent, and
necessary to promote and ensure the best interests of the Corporation and its
shareholders. The provisions of the Agreement are intended to (i) induce and
encourage significantly experienced and capable persons such as the Indemnitee
to serve as officers and directors of the Corporation; (ii) encourage such
persons to resist what they consider to be unjustifiable litigation matters and
claims made against them regarding the good faith performance of their duties to
the Corporation, secure in the knowledge that certain expenses, costs, and
liabilities incurred by them in their defense of such litigation matters will be
borne and paid by the Corporation and that they will receive the maximum
protection against such risks and liabilities as legally may be made available
to them; and (iii) encourage officers and directors of the Corporation to
exercise their best business judgment regarding matters which will be submitted
to them for consideration, without undue concern for the risk that claims may be
made against them because they are officers and directors of the Corporation.
H. The Corporation desires to cause the Indemnitee to continue to serve as
an officer and director of the Corporation free from concern for unpredictable,
inappropriate, or unreasonable legal risk and personal liabilities by reason of
his acting in good faith in the performance of his duties to the Corporation.
The Indemnitee desires to continue to serve as an officer and director of the
Corporation, provided, and on the express condition, that he is furnished with
the indemnification specified by the provisions of this Agreement.
NOW, THEREFORE, IN CONSIDERATION OF THE FOREGOING RECITALS, PREMISES, PROMISES,
COVENANTS, AGREEMENTS, AND UNDERTAKINGS SPECIFIED BY THE PROVISIONS OF THIS
AGREEMENT AND FOR OTHER GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND
SUFFICIENCY
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OF WHICH ARE HEREBY ACKNOWLEDGED, WITH THE INTENT TO BE OBLIGATED LEGALLY AND
EQUITABLY, THE PARTIES TO THIS AGREEMENT AGREE WITH EACH OTHER AS FOLLOWS:
1. DEFINITIONS. For the purposes of this Agreement, the following words
and terms shall be defined as follows:
(a) The term "Proceeding" does and shall include any threatened,
pending, or completed action, inquiry, lawsuit, litigation matter,
or proceeding, whether commenced in the name of the Corporation, or
otherwise, and whether civil, criminal, administrative, or
investigative in nature, including, but not limited to, actions,
inquiries, investigations, litigation matters, or proceedings
commenced pursuant to or predicated on the provisions of the
Securities Act of 1933, as amended; the Securities Exchange Act of
1934, as amended; their respective state counterparts; and any rule
or regulation promulgated pursuant thereto, in which the Indemnitee
may be, or may have been involved as, a party, or otherwise (other
than plaintiff against the Corporation), because of (i) the fact
that the Indemnitee is or was an Agent of the Corporation, (ii) any
action taken by the Indemnitee, or (iii) any inaction by the
Indemnitee while he is or was functioning as such an Agent.
(b) The term "Expenses" includes, but is not limited to, expenses of
investigations, judicial or administrative proceedings or appeals,
court costs, attorneys' fees, and disbursements and any expenses of
establishing a right to indemnification pursuant to applicable law
or the provisions of Paragraph 7 of this Agreement. "Expenses" does
not and shall not include the amounts of any judgments, fines, or
penalties assessed against the Indemnitee or amounts paid in
settlement of a proceeding by or on behalf of the Indemnitee.
(c) References to "other enterprise" does and shall include each limited
liability company of and for which the Corporation is the Manager
references to "serving at the request of the Corporation" does and
shall include any service by the Indemnitee as an officer or
director of the Corporation which imposes duties on, or involves
services by the Indemnitee while functioning as such officer or
director with respect to any such limited liability company, its
members, or beneficiaries; and if the Indemnitee acts in good faith
and in a manner he reasonably believes to be in the best interests
of the members and beneficiaries of such limited liability company,
the Indemnitee shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation," as that phrase is
contemplated by the provisions of this Agreement.
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(d) For the purposes of this Agreement, the Indemnitee shall be deemed
to have been acting as an "Agent" if he was functioning in his
capacity as (i) an officer or director of the Corporation, (ii) a
member of a committee of the Board of Directors of the Corporation,
or (iii) a representative or agent of any other enterprise at the
request of the Corporation, whether or not he is functioning in such
capacity at the time any liability or expense is incurred for which
indemnification or reimbursement can be provided pursuant to the
provisions of this Agreement.
(e) The term "Applicable Standard" means that the Indemnitee acted in
good faith and in a manner that the Indemnitee reasonably believed
to be in the best interests of the Corporation; except that in a
criminal proceeding, the Indemnitee must also have had no reasonable
cause to believe that the Indemnitee's conduct was unlawful. The
termination of any Proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or any equivalent
procedure shall not, of itself, create any presumption, or
establish, that the Indemnitee did not satisfy the "Applicable
Standard."
(f) "Independent Legal Counsel" shall include any law firm selected by
the regular counsel for the Corporation from a list of law firms
which satisfy reasonable criteria established by the Board of
Directors of the Corporation; provided, however, such law firm has
not represented the Corporation, the Indemnitee, or any person
controlled by the Indemnitee within the preceding 24 calendar
months.
(g) The term "Estate" shall include the following terms as are
understood in California law:
(1) The duly appointed and qualified executor, executrix,
administrator, administratrix, administrator with the Will
annexed, or administratrix with the Will annexed, of the
estate of a decedent;
(2) The surviving joint tenant of a decedent, when Common Shares
are owned by a decedent and a person who is not active in the
business of the Company as joint tenants;
(3) Any other person who, because of the community property or
other law of any jurisdiction, may acquire without formal
probate proceedings any right, title, or interest in or to the
Common Shares of a decedent by reason of the death of such
decedent; or
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(4) A irrevocable living or grantor's trust for the benefit of a
deceased Shareholder.
2. AGREEMENT TO SERVE. The Indemnitee shall serve or continue to serve as
an officer and director of the Corporation at the will of the members of the
Board of Directors of the Corporation and the Corporation's shareholders, or
pursuant to the provisions of separate contract, as the case may be, for such
time as he is duly elected or appointed, and until such time as he tenders his
resignation in writing or he is removed.
3. INDEMNITY IN THIRD PARTY PROCEEDINGS. The Corporation shall indemnify
the Indemnitee, if the Indemnitee is made a party to or threatened to be made a
party to, or otherwise involved in, any Proceeding (other than a Proceeding
which is an action by or in the right of the Corporation to procure a judgment
in its favor), by reason of the fact that the Indemnitee is or was an Agent of
the Corporation. The indemnification contemplated by the provisions of this
Paragraph 3 shall apply, and be limited, to and against all Expenses, judgments,
fines, penalties, settlements, and other amounts, actually and reasonably
incurred by the Indemnitee in connection with the defense or settlement of any
such Proceeding; provided, however, it is determined pursuant to the provisions
of Paragraph 7 of this Agreement or by the court in which such Proceeding is or
was pending that the Indemnitee satisfied the Applicable Standard.
4. INDEMNITY IN PROCEEDINGS BY OR IN THE NAME OF THE CORPORATION. The
Corporation shall indemnify the Indemnitee, if the Indemnitee is made a party
to, or threatened to be made a party to, or otherwise involved in, any
Proceeding which is an action by or in the right of the Corporation to procure a
judgment in the Corporation's favor because the Indemnitee is or was an Agent of
the Corporation. The indemnification contemplated by the provisions of this
Paragraph 4 shall apply, and be limited, to and against all Expenses actually
and reasonably incurred by the Indemnitee in connection with the defense or
settlement of such Proceeding, but only if:
(a) the Indemnitee satisfies the Applicable Standard (except that the
Indemnitee's belief regarding the best interests the Corporation or
other enterprise need not have been reasonable);
(b) the Indemnitee acted with such care, including reasonable inquiry,
as an ordinarily prudent person in a similar circumstance would use;
and
(c) the Proceeding is not settled or otherwise disposed of without
approval of the Corporation.
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No indemnification shall be made pursuant to the provisions of this
Paragraph 4 for any claim, issue, or matter as to which the Indemnitee shall
have been adjudged to be liable to the Corporation in the performance of the
Indemnitee's duty to the Corporation, unless, and only to the extent that, the
court in which such Proceeding is or was pending shall determine upon
application that, considering all the circumstances of such Proceeding, the
Indemnitee is fairly and reasonably entitled to indemnification for the
Expenses, which such court shall determine.
5. EXPENSES OF SUCCESSFUL INDEMNITEE. Notwithstanding any other provision
of this Agreement, to the extent that the Indemnitee has been successful on the
merits in defense of any Proceeding or in defense of any claim, issue, or matter
in such Proceeding, including the dismissal of such Proceeding or portion
thereof without prejudice, the Indemnitee shall be indemnified by the
Corporation from and against all Expenses actually and reasonably incurred in
connection with such Proceeding.
6. ADVANCES OF EXPENSES. The Expenses incurred by the Indemnitee in any
Proceeding shall be advanced by the Corporation prior to the final disposition
of such Proceeding at the written request of the Indemnitee, but only if the
Indemnitee shall undertake to repay such advances, unless and to the extent that
it is ultimately determined that the Indemnitee is entitled to indemnification.
Any advance required pursuant to the provisions of this Paragraph 6 shall be
deemed to have been approved by the members of the Board of Directors of the
Corporation to the extent the provisions of this Agreement have been approved by
the members of that Board of Directors. In determining whether or not to make an
advance pursuant to the provisions of this Paragraph 6, the ability of the
Indemnitee to repay any such advance shall not be a factor. In a Proceeding
commenced by the Corporation directly, in its own right (as distinguished from a
Proceeding commenced derivatively or by any receiver or trustee), the
Corporation shall have the discretion not to make the advance contemplated by
the provisions of this Paragraph 6, if independent counsel advises in writing
that the Corporation has probable cause to believe, and the Corporation does, in
fact, believe, that the Indemnitee did not act in good faith with regard to the
subject matter of such Proceeding or a material portion of such Proceeding.
7. RIGHT OF THE INDEMNITEE TO INDEMNIFICATION UPON APPLICATION; PROCEDURE
UPON APPLICATION. Any indemnification or advance contemplated by the provisions
of this Agreement shall be made no later than 30 calendar days after receipt by
the Corporation of a written request of the Indemnitee in accordance with the
provisions of Paragraph 11 of this Agreement. In all other situations,
indemnification shall be made by the Corporation only if authorized in the
specific situation, upon a determination that
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indemnification of the Indemnitee is proper according to the circumstances and
the provisions of this Agreement by:
(a) a majority vote of a quorum of the members of the Board of Directors
of the Corporation (or a duly constituted committee of that Board of
Directors), consisting of directors who are not parties to the
Proceeding at issue;
(b) approval of the shareholders of the Corporation (as defined by the
provisions of Section 153 of the Code), and any voting shares of the
Corporation held by the Indemnitee shall not be entitled to vote
regarding such indemnification;
(c) the court in which the Proceeding at issue is or was pending, upon
application made by the Corporation or made by (i) the Indemnitee or
(ii) any person rendering services in connection with the
Indemnitee's defense, whether or not the Corporation opposes such
application; or
(d) to the extent permitted by law and as expressed by independent legal
counsel in a written opinion.
The right to indemnification or advances contemplated by the provisions of
this Agreement shall be enforceable by the Indemnitee in any court of competent
jurisdiction. The burden of proving that such indemnification or advances is not
appropriate shall be on the Corporation. Neither the failure of the Corporation
(including the members of its Board of Directors or independent legal counsel)
to make a determination prior to the commencement of any action to determine
whether such indemnification or advances is appropriate in the particular
circumstances because the Indemnitee has satisfied the Applicable Standard, nor
a determination by the Corporation (including the members of its Board of
Directors or independent legal counsel) that the Indemnitee has not satisfied
such Applicable Standard, shall be a defense to such action or create a
presumption that the Indemnitee has not satisfied the Applicable Standard. The
Indemnitee's Expenses incurred in connection with successfully establishing his
right to such indemnification or advances, in whole or in part, in any
Proceeding shall also be indemnified by the Corporation; provided, however, that
if the Indemnitee is only partially successful, only an equitably allocated
portion of such Expenses shall be indemnified by the Corporation.
If the Indemnitee is entitled to indemnification by the Corporation for
some or a portion of the Expenses, judgments, fines, or penalties actually and
reasonably incurred by the Indemnitee in the investigation, defense, appeal, or
settlement of any Proceeding but not, however, for the total amount of the
Expenses, the Corporation shall nevertheless
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indemnify the Indemnitee for the portion (determined on an equitable basis) of
those Expenses, judgments, fines, or penalties to which the Indemnitee is
entitled.
The Corporation's obligations to advance or indemnify the Indemnitee
pursuant to the provisions of this Agreement shall be deemed satisfied to the
extent of any payments made by an insurer for or on behalf of the Corporation or
the Indemnitee.
8. INDEMNIFICATION PURSUANT TO THIS AGREEMENT IS NOT EXCLUSIVE. The
indemnification contemplated by the provisions of this Agreement shall not be
deemed exclusive of any other rights to which the Indemnitee may be entitled
pursuant to the provisions of the Articles of Incorporation or Bylaws of the
Corporation, or any agreement, vote of shareholders, or disinterested directors,
the General Corporation Law of the State of California, or otherwise, both as to
action in his official capacities as an officer and director of the Corporation
and as to action in any other capacity while serving as an officer or director
of the Corporation. The indemnification contemplated by the provisions of this
Agreement shall continue as to the Indemnitee although he may have ceased to be
a director or officer of the Corporation and shall inure to the benefit of the
heirs and personal representatives of the Indemnitee, including the Estate of
the Indemnitee.
9. LIMITATIONS. The Corporation shall not be obligated pursuant to the
provisions of this Agreement to make any payment in connection with any claim
made against the Indemnitee:
(a) for which payment is made to the Indemnitee pursuant to the
provisions of a valid and collectible insurance policy, except with
respect to any excess beyond the amount of payments pursuant to the
provisions of such policy;
(b) for which the Indemnitee is indemnified by the Corporation otherwise
than pursuant to the provisions of this Agreement;
(c) based upon or attributable to the Indemnitee gaining any personal
profit or advantage to which he was not legally entitled;
(d) for an accounting of profits made from the purchase or sale by the
Indemnitee of securities of the Corporation within the meaning of
Section 16(b) of the Securities Exchange Act of 1934 and amendments
thereto or similar provisions of any state statutory law or common
law;
(e) resulting from or contributed to by the active and deliberate
dishonesty of the Indemnitee; provided, however, the Indemnitee
shall be indemnified by
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the Corporation to the extent otherwise specified by the provisions
of this Agreement as to any claims for which a litigation action may
be commenced against the Indemnitee because of any alleged
dishonesty on his part, unless a judgment or other final
adjudication of such litigation action adverse to the Indemnitee
shall establish that he committed acts of active and deliberate
dishonesty with an actual dishonest purpose and intent, which acts
were material to the litigation action so adjudicated;
(f) for omissions or acts committed in bad faith or which involve
intentional misconduct or a knowing violation of law;
(g) for any omission or act that the Indemnitee believed at the time of
his action to be contrary to, or inconsistent with, the best
interests of both the Corporation and its shareholders, or
(h) for any transaction from which the Indemnitee derived an improper
personal economic benefit in a capacity other than as a shareholder
of the Corporation.
10. SEVERABILITY. In the event any part of this Agreement, for any reason,
is determined to be invalid, such determination shall not affect the validity of
any remaining portion of this Agreement, which remaining portion shall remain in
complete force and effect as if this Agreement had been executed with the
invalid portion of this Agreement eliminated. It is hereby declared the
intention of the parties that the parties would have executed the remaining
portion of this Agreement without including any such part, parts or portion
which, for any reason, hereafter may be determined to be invalid.
11. NOTICES. The Indemnitee shall, as a condition precedent to his right
to be indemnified pursuant to the provisions of this Agreement, provide to the
Corporation notice in writing within 20 calendar days after he becomes aware of
any claim made against him for which he believes, or should reasonably believe,
indemnification will or could be sought pursuant to the provisions of this
Agreement. All notices, requests, demands, and other communications
(collectively, "notices") contemplated or required by the provisions of this
Agreement shall be in writing (including communications by telephone, telex, or
telecommunication facilities providing facsimile transmission) and mailed
(postage prepaid and return receipt requested), telegraphed, telexed,
transmitted or personally served to each party at the address for such party
specified below such party's signature to this Agreement or at such other
address as such party may designate in a written notice to the other party in
compliance with the provisions of this paragraph. All notices shall be effective
when received; provided, however receipt shall be deemed to be effective 2
business days of any properly addressed notice having been deposited
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in the mail, 24 hours from the time electronic transmission was made, or upon
actual receipt of electronic delivery, whichever occurs first.
12. PARTIES IN INTEREST. No provisions of this Agreement is intended to,
nor shall any such provision confer any right or remedies pursuant to or by
reason of the provisions of this Agreement to any persons other than the parties
to this Agreement and their respective successors and assigns, including the
Estate of the Indemnitee, nor is any provision of in this Agreement intended to
relieve or discharge the obligation or liability of any third party to any party
to this Agreement. No provision of this Agreement shall provide any third person
any right of subrogation or action against any party to this Agreement.
13. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and obligate the undersigned parties and their respective successors and
assigns. Whenever, in this Agreement, a reference to any party is made, such
reference shall be deemed to include a reference to the successors and assigns
of such party; provided, however, neither this paragraph nor any other portion
of this Agreement shall be interpreted to constitute a consent to any assignment
or transfer other than pursuant to and in accordance with the other provisions
of this Agreement. Neither party shall assign, transfer or delegate that party's
rights, responsibilities, duties or obligation created by the provisions of this
Agreement to any other person without the prior written consent of the other
party.
14. CAPTIONS AND INTERPRETATION. Captions of the paragraphs of this
Agreement are for convenience and reference only, and the words specified in
those captions shall in no way be held to explain, modify, amplify or aid in the
interpretation, construction or meaning of the terms, conditions and provisions
of this Agreement. The language and all parts to this Agreement, in all cases,
shall be construed in accordance with the fair meaning of that language and
those parts and as if that language and those parts were prepared by both
parties and not strictly for or against any party.
15. NUMBER AND GENDER. Whenever the singular number is used in this
Agreement, and when required by the context, the same shall include the plural,
and vice versa; the masculine gender shall include the feminine and the neuter
genders, and vice versa; and the word "person" shall include corporation, firm,
trust, estate, joint venture, governmental agency, sole proprietorship,
political subdivision, organization, fraternal order, club, league, joint stock
company, society, municipality, association, partnership or other form of
entity.
16. EXECUTION IN COUNTERPARTS. This Agreement shall be prepared in
multiple copies and forwarded to each of the parties for execution. This
Agreement shall become
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effective when counsel for the Corporation receives a copy or copies of this
Agreement executed by the parties in the names as those names appear at the end
of this Agreement. All of the signatures of the parties may be affixed to one
copy or to separate copies of this Agreement and when all such copies are
received, and signed by all the parties, those copies shall constitute one
agreement which is not otherwise separable or divisible. Counsel for the
Corporation shall keep all of such signed copies and shall conform one copy to
show all of those signatures and the dates thereof and shall mail a copy of such
conformed copy to each of the parties within thirty (30) days after the receipt
by such counsel of the last signed copy, and shall cause one such conformed copy
to be filed in the principal office of such counsel.
17. ENTIRE AGREEMENT. This Agreement is the final written expression and
the complete and exclusive statement of all the agreements, conditions,
promises, representations, warranties and covenants between the parties with
respect to the subject matter of this Agreement, and this Agreement supersedes
all prior or contemporaneous agreements, negotiations, representations,
warranties, covenants, understandings and discussions by and between and among
the parties, their respective representatives, and any other person, with
respect to the subject matter specified in this Agreement. This Agreement may be
amended only by an instrument in writing which expressly refers to this
Agreement and specifically states that that instrument is intended to amend this
Agreement and is signed by each of the parties. Nothing specified in any exhibit
attached to this Agreement shall supersede or annul the terms and provisions of
this Agreement, unless the matter specified in such exhibit shall expressly so
provide to the contrary, and in the event of any ambiguity in meaning or
understanding between this Agreement proper and the appended exhibits, the
provisions of this Agreement shall prevail and control. Each of the parties
represents, warrants and covenants that in executing this Agreement that party
has relied solely on the terms, conditions and provisions specified in this
Agreement. Each of the parties additionally represents, warrants and covenants
that in executing and delivering this Agreement such party has placed no
reliance whatsoever on any statement, representation, warranty, covenant or
promise of the other party, or any other person, not specified expressly in this
Agreement, or upon the failure of any party or any other person to make any
statement, representation, warranty, covenant or disclosure of any nature
whatsoever. The parties have included this paragraph to preclude (i) any claim
that any party was in any manner whatsoever induced fraudulently to enter into,
execute and deliver this Agreement, and (ii) the introduction of parol evidence
to vary, interpret, supplement or contradict the terms, conditions and
provisions of this Agreement.
18. GOVERNING LAW. This Agreement shall be deemed to have been entered
into in the County of Orange, State of California, and all questions concerning
the validity, interpretation, or performance of any of the terms, conditions and
provisions of this
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Agreement or of any of the rights or obligations of the parties shall be
governed by, and resolved in accordance with, the laws of the State of
California, without regard to conflicts of law principles. Any and all actions
or proceedings, at law or in equity, to enforce or interpret the provisions of
this Agreement shall be litigated in courts having situs within the County of
Orange, State of California. No claim, demand, action, proceeding, litigation,
hearing, motion or lawsuit resulting from or with respect to this Agreement
shall be commenced or prosecuted in any jurisdiction other than the State of
California, and any judgment, determination, finding or conclusion reached or
rendered in any other jurisdiction shall be null and void. Each party hereby
consents expressly to the jurisdiction of any local, state or federal court
located within the State of California and consents that any service of process
in such action or proceeding may be made by personal service upon such party
wherever such party may be then located, or by certified or registered mail
directed to such party at such party's last known address.
19. GOVERNMENT REGULATIONS. The transactions and relationship contemplated
by the provisions of this Agreement are, and shall remain, subject to any and
all present and future orders, rules and regulations of any duly constituted
authority or agency having jurisdiction of those transactions and that
relationship.
20. FURTHER ASSURANCES. The parties shall from time to time sign and
deliver any further instruments and take any further actions as may be necessary
to effectuate the intent and purposes of this Agreement.
21. ALL CONSENTS IN WRITING. In any instance in which any party shall be
requested to consent to or approve of any matter with respect to which that
party's consent or approval is required by any of the provisions of this
Agreement, such consent or approval shall be furnished in writing.
22. ATTORNEYS' FEES. In the event any party shall institute any action or
proceeding to enforce any provision of this Agreement to seek relief from any
violation of this Agreement, or to otherwise obtain any judgment or order
relating to or resulting from the subject matter of this Agreement, the
prevailing party shall be entitled to receive from the losing party such
prevailing party's actual attorneys' fees and costs incurred to prosecute or
defend such action or proceeding, including, but not limited to, actual
attorneys' fees and costs incurred preparatory to such prosecution and defense.
Moreover, while a court of competent jurisdiction may assist in determining
whether or not the fees actually incurred are reasonable in the circumstances
then existing, that court is not be governed by any judicially or legislatively
established fee schedule, and such fees and costs are to include those as may be
incurred on appeal of any issue and all of which fees and costs shall be
included as part of any judgment, by cost bill or otherwise, and where
applicable, any appellate decision rendered in or resulting from such action or
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proceeding. For purposes of this Agreement, in any action or proceeding
instituted by a party, the prevailing party shall be that party in any such
action or proceeding (i) in whose favor a judgment is entered, or (ii) prior to
trial, hearing or judgment any other party shall pay all or any portion of
amounts claimed by the party seeking payment, or such other party shall
eliminate the condition, cease the act, or otherwise cure the act of commission
or omission claimed by the party initiating such action or proceeding.
23. RESERVATION OF RIGHTS. The failure of any party at any time or times
hereafter to require strict performance by any other party of any of the
warranties, representations, covenants, terms, conditions and provisions
specified in this Agreement shall not waive, affect of diminish any right of
such party failing to require strict performance to demand strict compliance and
performance therewith and with respect to any other provisions, warranties,
terms, and conditions specified in this Agreement. Any waiver of any default
shall not waive or affect any other default, whether prior or subsequent
thereto, and whether the same or of a different type. None of the
representations, warranties, covenants, conditions, provisions and terms
specified in this Agreement shall be deemed to have been waived by any act or
knowledge of any party, its agents, trustees, officers, or employees and any
such waiver shall be made only by an instrument in writing, signed by the
waiving party and directed to any non-waiving party specifying such waiver, and
each party reserves such party's rights to insist upon strict compliance
herewith at all times.
24. PURPOSE OF COVENANTS. All covenants made by each party shall be deemed
made for the purpose of inducing the other party to enter into and execute this
Agreement. The representations, warranties, and covenants specified in this
Agreement shall survive any investigation by either party whether before or
after the execution of this Agreement.
25. CONCURRENT REMEDIES. No right or remedy specified in this Agreement
conferred on or reserved to the parties is exclusive of any other right or
remedy specified in this Agreement or by law or equity provided or permitted;
but each such right and remedy shall be cumulative of, and in addition to, every
other right and remedy specified in this Agreement or now or hereafter existing
at law or in equity or by statute or otherwise, and may be enforced concurrently
therewith or from time to time. The termination of this Agreement for any reason
whatsoever shall not prejudice any right or remedy which any party may have,
either at law, in equity, or pursuant to the provisions of this Agreement.
26. FORCE MAJEURE. If any party is rendered unable, completely or
partially, by the occurrence of an event of "force majeure" (hereinafter
defined) to perform such party's obligations created by the provisions of this
Agreement, such party shall give to
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the other party prompt written notice of the event of "force majeure" with
reasonably complete particulars concerning such event; thereupon, the
obligations of the party giving such notice, so far as those obligations are
affected by the event of "force majeure," shall be suspended during, but no
longer than, the continuance of the event of "force majeure." The party affected
by such event of "force majeure" shall use all reasonable diligence to resolve,
eliminate and terminate the event of "force majeure" as quickly as practicable.
The term "force majeure," as contemplated by the provisions of this Paragraph 27
means any act of God, strike, lockout or other industrial disturbance, act of
the public enemy, war blockage, public riot, lightening, fire, storm, flood
explosion, governmental action, earthquake, governmental delay, restraint or
inaction, unavailability or equipment, and any other cause or event, whether of
the kind enumerated specifically herein, or otherwise, which is not within the
control of the party claiming such suspension.
27. CONSENT TO AGREEMENT. By executing this Agreement, each party, for
itself represents such party has read or caused to be read this Agreement in all
particulars, and consents to the rights, conditions, duties and responsibilities
imposed upon such party as specified in this Agreement. Each party represents,
warrants and covenants that such party executes and delivers this Agreement of
its own free will and with no threat, undue influence, menace, coercion or
duress, whether economic or physical. Moreover, each party represents, warrants,
and covenants that such party executes this Agreement acting on such party's own
independent judgment and upon the advice of such party's counsel.
IN WITNESS WHEREOF the parties have executed this Agreement for
Indemnification in duplicate and in multiple counterparts, each of which shall
have the force and effect of an original, on the date specified in the preamble
of this Agreement.
PERFORMANCE DEVELOPMENT, INC.,
a California corporation
By:
-------------------------------- --------------------------------------
Michael A. Cushing
Its: 4100 Newport Place, Suite 400
-------------------------------- Newport Beach, California 92660
Facsimile number 714.752.3535
4100 Newport Place, Suite 400
Newport Beach, California 92660
Facsimile number 714.752.3535
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EXHIBIT 10.7
AGREEMENT FOR INDEMNIFICATION
THIS AGREEMENT FOR INDEMNIFICATION ("Agreement") is made and entered into
in duplicate as of the 1st day of July, 1997, by and between Performance
Development, Inc., a California corporation ("Corporation"), and Vincent E.
Galewick, an officer and a director of the Corporation ("Indemnitee").
RECITALS
A. The Corporation and the Indemnitee understand and agree that
interpretations of statutes, regulations, court opinions, and the Corporation's
Articles of Incorporation and Bylaws, are too uncertain to provide the
Corporation's directors and officers with adequate or reliable advance knowledge
or guidance with respect to the legal risks and potential liabilities to which
they may become exposed personally as a result of performing, in good faith,
their duties as officers and directors of and for the Corporation.
B. The Corporation and the Indemnitee are aware of the substantial
increase in the number of litigation matters filed against corporate officers
and directors regarding their activities in such capacities and by reason of
their status as such.
C. The Corporation and the Indemnitee are aware that the cost of defending
those litigation matters, whether or not meritorious, is typically either beyond
the financial resources of the officers and directors of the Corporation or far
exceed the limited benefits of serving as an officer and a director of and for
the Corporation.
D. The Corporation and the Indemnitee are aware that the legal risks and
potential officer and director liabilities, or the very threat thereof, and the
resulting substantial time endured and fees and expenses incurred in defending
against such litigation matters, have no reasonable logical relationship to the
amount of compensation received by the Corporation's officers and directors.
These factors (i) cause a significant deterrent to, and (ii) induce increased
reluctance on the part of, experienced and capable persons to serve as officers
and directors of the Corporation.
E. The Corporation has investigated the availability and deficiency of
liability insurance to provide its officers and directors with adequate
protection against the foregoing legal risks and potential liabilities. The
Corporation has concluded that such insurance does not provide adequate
protection to the Corporation's officers and directors. Therefore, it would be
in the best interests of the Corporation and its shareholders to
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contract with the Corporation's officers and directors, including the
Indemnitee, to indemnify those officers and directors, to the most complete
extent permitted by law, against personal liability for actions taken in the
good faith performance of their duties to the Corporation.
F. The provisions of Section 317 of the Corporations Code ("Code") specify
circumstances regarding the mandatory and permissive indemnification by a
California corporation of the officers and directors (among other persons) of
that corporation, and those provisions (i) require indemnification in certain
circumstances, (ii) permit indemnification in other circumstances, and (iii)
prohibit indemnification in some circumstances.
G. The members of the Board of Directors of the Corporation have
determined, after careful consideration and investigation of the various options
available, that the provisions of this Agreement are reasonable, prudent, and
necessary to promote and ensure the best interests of the Corporation and its
shareholders. The provisions of the Agreement are intended to (i) induce and
encourage significantly experienced and capable persons such as the Indemnitee
to serve as officers and directors of the Corporation; (ii) encourage such
persons to resist what they consider to be unjustifiable litigation matters and
claims made against them regarding the good faith performance of their duties to
the Corporation, secure in the knowledge that certain expenses, costs, and
liabilities incurred by them in their defense of such litigation matters will be
borne and paid by the Corporation and that they will receive the maximum
protection against such risks and liabilities as legally may be made available
to them; and (iii) encourage officers and directors of the Corporation to
exercise their best business judgment regarding matters which will be submitted
to them for consideration, without undue concern for the risk that claims may be
made against them because they are officers and directors of the Corporation.
H. The Corporation desires to cause the Indemnitee to continue to serve as
an officer and director of the Corporation free from concern for unpredictable,
inappropriate, or unreasonable legal risk and personal liabilities by reason of
his acting in good faith in the performance of his duties to the Corporation.
The Indemnitee desires to continue to serve as an officer and director of the
Corporation, provided, and on the express condition, that he is furnished with
the indemnification specified by the provisions of this Agreement.
NOW, THEREFORE, IN CONSIDERATION OF THE FOREGOING RECITALS, PREMISES, PROMISES,
COVENANTS, AGREEMENTS, AND UNDERTAKINGS SPECIFIED BY THE PROVISIONS OF THIS
AGREEMENT AND FOR OTHER GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND
SUFFICIENCY
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OF WHICH ARE HEREBY ACKNOWLEDGED, WITH THE INTENT TO BE OBLIGATED LEGALLY AND
EQUITABLY, THE PARTIES TO THIS AGREEMENT AGREE WITH EACH OTHER AS FOLLOWS:
1. DEFINITIONS. For the purposes of this Agreement, the following words
and terms shall be defined as follows:
(a) The term "Proceeding" does and shall include any threatened,
pending, or completed action, inquiry, lawsuit, litigation matter,
or proceeding, whether commenced in the name of the Corporation, or
otherwise, and whether civil, criminal, administrative, or
investigative in nature, including, but not limited to, actions,
inquiries, investigations, litigation matters, or proceedings
commenced pursuant to or predicated on the provisions of the
Securities Act of 1933, as amended; the Securities Exchange Act of
1934, as amended; their respective state counterparts; and any rule
or regulation promulgated pursuant thereto, in which the Indemnitee
may be, or may have been involved as, a party, or otherwise (other
than plaintiff against the Corporation), because of (i) the fact
that the Indemnitee is or was an Agent of the Corporation, (ii) any
action taken by the Indemnitee, or (iii) any inaction by the
Indemnitee while he is or was functioning as such an Agent.
(b) The term "Expenses" includes, but is not limited to, expenses of
investigations, judicial or administrative proceedings or appeals,
court costs, attorneys' fees, and disbursements and any expenses of
establishing a right to indemnification pursuant to applicable law
or the provisions of Paragraph 7 of this Agreement. "Expenses" does
not and shall not include the amounts of any judgments, fines, or
penalties assessed against the Indemnitee or amounts paid in
settlement of a proceeding by or on behalf of the Indemnitee.
(c) References to "other enterprise" does and shall include each limited
liability company of and for which the Corporation is the Manager
references to "serving at the request of the Corporation" does and
shall include any service by the Indemnitee as an officer or
director of the Corporation which imposes duties on, or involves
services by the Indemnitee while functioning as such officer or
director with respect to any such limited liability company, its
members, or beneficiaries; and if the Indemnitee acts in good faith
and in a manner he reasonably believes to be in the best interests
of the members and beneficiaries of such limited liability company,
the Indemnitee shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation," as that phrase is
contemplated by the provisions of this Agreement.
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(d) For the purposes of this Agreement, the Indemnitee shall be deemed
to have been acting as an "Agent" if he was functioning in his
capacity as (i) an officer or director of the Corporation, (ii) a
member of a committee of the Board of Directors of the Corporation,
or (iii) a representative or agent of any other enterprise at the
request of the Corporation, whether or not he is functioning in such
capacity at the time any liability or expense is incurred for which
indemnification or reimbursement can be provided pursuant to the
provisions of this Agreement.
(e) The term "Applicable Standard" means that the Indemnitee acted in
good faith and in a manner that the Indemnitee reasonably believed
to be in the best interests of the Corporation; except that in a
criminal proceeding, the Indemnitee must also have had no reasonable
cause to believe that the Indemnitee's conduct was unlawful. The
termination of any Proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or any equivalent
procedure shall not, of itself, create any presumption, or
establish, that the Indemnitee did not satisfy the "Applicable
Standard."
(f) "Independent Legal Counsel" shall include any law firm selected by
the regular counsel for the Corporation from a list of law firms
which satisfy reasonable criteria established by the Board of
Directors of the Corporation; provided, however, such law firm has
not represented the Corporation, the Indemnitee, or any person
controlled by the Indemnitee within the preceding 24 calendar
months.
(g) The term "Estate" shall include the following terms as are
understood in California law:
(1) The duly appointed and qualified executor, executrix,
administrator, administratrix, administrator with the Will
annexed, or administratrix with the Will annexed, of the
estate of a decedent;
(2) The surviving joint tenant of a decedent, when Common Shares
are owned by a decedent and a person who is not active in the
business of the Company as joint tenants;
(3) Any other person who, because of the community property or
other law of any jurisdiction, may acquire without formal
probate proceedings any right, title, or interest in or to the
Common Shares of a decedent by reason of the death of such
decedent; or
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(4) A irrevocable living or grantor's trust for the benefit of a
deceased Shareholder.
2. AGREEMENT TO SERVE. The Indemnitee shall serve or continue to serve as
an officer and director of the Corporation at the will of the members of the
Board of Directors of the Corporation and the Corporation's shareholders, or
pursuant to the provisions of separate contract, as the case may be, for such
time as he is duly elected or appointed, and until such time as he tenders his
resignation in writing or he is removed.
3. INDEMNITY IN THIRD PARTY PROCEEDINGS. The Corporation shall indemnify
the Indemnitee, if the Indemnitee is made a party to or threatened to be made a
party to, or otherwise involved in, any Proceeding (other than a Proceeding
which is an action by or in the right of the Corporation to procure a judgment
in its favor), by reason of the fact that the Indemnitee is or was an Agent of
the Corporation. The indemnification contemplated by the provisions of this
Paragraph 3 shall apply, and be limited, to and against all Expenses, judgments,
fines, penalties, settlements, and other amounts, actually and reasonably
incurred by the Indemnitee in connection with the defense or settlement of any
such Proceeding; provided, however, it is determined pursuant to the provisions
of Paragraph 7 of this Agreement or by the court in which such Proceeding is or
was pending that the Indemnitee satisfied the Applicable Standard.
4. INDEMNITY IN PROCEEDINGS BY OR IN THE NAME OF THE CORPORATION. The
Corporation shall indemnify the Indemnitee, if the Indemnitee is made a party
to, or threatened to be made a party to, or otherwise involved in, any
Proceeding which is an action by or in the right of the Corporation to procure a
judgment in the Corporation's favor because the Indemnitee is or was an Agent of
the Corporation. The indemnification contemplated by the provisions of this
Paragraph 4 shall apply, and be limited, to and against all Expenses actually
and reasonably incurred by the Indemnitee in connection with the defense or
settlement of such Proceeding, but only if:
(a) the Indemnitee satisfies the Applicable Standard (except that the
Indemnitee's belief regarding the best interests the Corporation or
other enterprise need not have been reasonable);
(b) the Indemnitee acted with such care, including reasonable inquiry,
as an ordinarily prudent person in a similar circumstance would use;
and
(c) the Proceeding is not settled or otherwise disposed of without
approval of the Corporation.
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No indemnification shall be made pursuant to the provisions of this
Paragraph 4 for any claim, issue, or matter as to which the Indemnitee shall
have been adjudged to be liable to the Corporation in the performance of the
Indemnitee's duty to the Corporation, unless, and only to the extent that, the
court in which such Proceeding is or was pending shall determine upon
application that, considering all the circumstances of such Proceeding, the
Indemnitee is fairly and reasonably entitled to indemnification for the
Expenses, which such court shall determine.
5. EXPENSES OF SUCCESSFUL INDEMNITEE. Notwithstanding any other provision
of this Agreement, to the extent that the Indemnitee has been successful on the
merits in defense of any Proceeding or in defense of any claim, issue, or matter
in such Proceeding, including the dismissal of such Proceeding or portion
thereof without prejudice, the Indemnitee shall be indemnified by the
Corporation from and against all Expenses actually and reasonably incurred in
connection with such Proceeding.
6. ADVANCES OF EXPENSES. The Expenses incurred by the Indemnitee in any
Proceeding shall be advanced by the Corporation prior to the final disposition
of such Proceeding at the written request of the Indemnitee, but only if the
Indemnitee shall undertake to repay such advances, unless and to the extent that
it is ultimately determined that the Indemnitee is entitled to indemnification.
Any advance required pursuant to the provisions of this Paragraph 6 shall be
deemed to have been approved by the members of the Board of Directors of the
Corporation to the extent the provisions of this Agreement have been approved by
the members of that Board of Directors. In determining whether or not to make an
advance pursuant to the provisions of this Paragraph 6, the ability of the
Indemnitee to repay any such advance shall not be a factor. In a Proceeding
commenced by the Corporation directly, in its own right (as distinguished from a
Proceeding commenced derivatively or by any receiver or trustee), the
Corporation shall have the discretion not to make the advance contemplated by
the provisions of this Paragraph 6, if independent counsel advises in writing
that the Corporation has probable cause to believe, and the Corporation does, in
fact, believe, that the Indemnitee did not act in good faith with regard to the
subject matter of such Proceeding or a material portion of such Proceeding.
7. RIGHT OF THE INDEMNITEE TO INDEMNIFICATION UPON APPLICATION; PROCEDURE
UPON APPLICATION. Any indemnification or advance contemplated by the provisions
of this Agreement shall be made no later than 30 calendar days after receipt by
the Corporation of a written request of the Indemnitee in accordance with the
provisions of Paragraph 11 of this Agreement. In all other situations,
indemnification shall be made by the Corporation only if authorized in the
specific situation, upon a determination that
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indemnification of the Indemnitee is proper according to the circumstances and
the provisions of this Agreement by:
(a) a majority vote of a quorum of the members of the Board of Directors
of the Corporation (or a duly constituted committee of that Board of
Directors), consisting of directors who are not parties to the
Proceeding at issue;
(b) approval of the shareholders of the Corporation (as defined by the
provisions of Section 153 of the Code), and any voting shares of the
Corporation held by the Indemnitee shall not be entitled to vote
regarding such indemnification;
(c) the court in which the Proceeding at issue is or was pending, upon
application made by the Corporation or made by (i) the Indemnitee or
(ii) any person rendering services in connection with the
Indemnitee's defense, whether or not the Corporation opposes such
application; or
(d) to the extent permitted by law and as expressed by independent legal
counsel in a written opinion.
The right to indemnification or advances contemplated by the provisions of
this Agreement shall be enforceable by the Indemnitee in any court of competent
jurisdiction. The burden of proving that such indemnification or advances is not
appropriate shall be on the Corporation. Neither the failure of the Corporation
(including the members of its Board of Directors or independent legal counsel)
to make a determination prior to the commencement of any action to determine
whether such indemnification or advances is appropriate in the particular
circumstances because the Indemnitee has satisfied the Applicable Standard, nor
a determination by the Corporation (including the members of its Board of
Directors or independent legal counsel) that the Indemnitee has not satisfied
such Applicable Standard, shall be a defense to such action or create a
presumption that the Indemnitee has not satisfied the Applicable Standard. The
Indemnitee's Expenses incurred in connection with successfully establishing his
right to such indemnification or advances, in whole or in part, in any
Proceeding shall also be indemnified by the Corporation; provided, however, that
if the Indemnitee is only partially successful, only an equitably allocated
portion of such Expenses shall be indemnified by the Corporation.
If the Indemnitee is entitled to indemnification by the Corporation for
some or a portion of the Expenses, judgments, fines, or penalties actually and
reasonably incurred by the Indemnitee in the investigation, defense, appeal, or
settlement of any Proceeding but not, however, for the total amount of the
Expenses, the Corporation shall nevertheless
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indemnify the Indemnitee for the portion (determined on an equitable basis) of
those Expenses, judgments, fines, or penalties to which the Indemnitee is
entitled.
The Corporation's obligations to advance or indemnify the Indemnitee
pursuant to the provisions of this Agreement shall be deemed satisfied to the
extent of any payments made by an insurer for or on behalf of the Corporation or
the Indemnitee.
8. INDEMNIFICATION PURSUANT TO THIS AGREEMENT IS NOT EXCLUSIVE. The
indemnification contemplated by the provisions of this Agreement shall not be
deemed exclusive of any other rights to which the Indemnitee may be entitled
pursuant to the provisions of the Articles of Incorporation or Bylaws of the
Corporation, or any agreement, vote of shareholders, or disinterested directors,
the General Corporation Law of the State of California, or otherwise, both as to
action in his official capacities as an officer and director of the Corporation
and as to action in any other capacity while serving as an officer or director
of the Corporation. The indemnification contemplated by the provisions of this
Agreement shall continue as to the Indemnitee although he may have ceased to be
a director or officer of the Corporation and shall inure to the benefit of the
heirs and personal representatives of the Indemnitee, including the Estate of
the Indemnitee.
9. LIMITATIONS. The Corporation shall not be obligated pursuant to the
provisions of this Agreement to make any payment in connection with any claim
made against the Indemnitee:
(a) for which payment is made to the Indemnitee pursuant to the
provisions of a valid and collectible insurance policy, except with
respect to any excess beyond the amount of payments pursuant to the
provisions of such policy;
(b) for which the Indemnitee is indemnified by the Corporation otherwise
than pursuant to the provisions of this Agreement;
(c) based upon or attributable to the Indemnitee gaining any personal
profit or advantage to which he was not legally entitled;
(d) for an accounting of profits made from the purchase or sale by the
Indemnitee of securities of the Corporation within the meaning of
Section 16(b) of the Securities Exchange Act of 1934 and amendments
thereto or similar provisions of any state statutory law or common
law;
(e) resulting from or contributed to by the active and deliberate
dishonesty of the Indemnitee; provided, however, the Indemnitee
shall be indemnified by
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the Corporation to the extent otherwise specified by the provisions
of this Agreement as to any claims for which a litigation action may
be commenced against the Indemnitee because of any alleged
dishonesty on his part, unless a judgment or other final
adjudication of such litigation action adverse to the Indemnitee
shall establish that he committed acts of active and deliberate
dishonesty with an actual dishonest purpose and intent, which acts
were material to the litigation action so adjudicated;
(f) for omissions or acts committed in bad faith or which involve
intentional misconduct or a knowing violation of law;
(g) for any omission or act that the Indemnitee believed at the time of
his action to be contrary to, or inconsistent with, the best
interests of both the Corporation and its shareholders, or
(h) for any transaction from which the Indemnitee derived an improper
personal economic benefit in a capacity other than as a shareholder
of the Corporation.
10. SEVERABILITY. In the event any part of this Agreement, for any reason,
is determined to be invalid, such determination shall not affect the validity of
any remaining portion of this Agreement, which remaining portion shall remain in
complete force and effect as if this Agreement had been executed with the
invalid portion of this Agreement eliminated. It is hereby declared the
intention of the parties that the parties would have executed the remaining
portion of this Agreement without including any such part, parts or portion
which, for any reason, hereafter may be determined to be invalid.
11. NOTICES. The Indemnitee shall, as a condition precedent to his right
to be indemnified pursuant to the provisions of this Agreement, provide to the
Corporation notice in writing within 20 calendar days after he becomes aware of
any claim made against him for which he believes, or should reasonably believe,
indemnification will or could be sought pursuant to the provisions of this
Agreement. All notices, requests, demands, and other communications
(collectively, "notices") contemplated or required by the provisions of this
Agreement shall be in writing (including communications by telephone, telex, or
telecommunication facilities providing facsimile transmission) and mailed
(postage prepaid and return receipt requested), telegraphed, telexed,
transmitted or personally served to each party at the address for such party
specified below such party's signature to this Agreement or at such other
address as such party may designate in a written notice to the other party in
compliance with the provisions of this paragraph. All notices shall be effective
when received; provided, however receipt shall be deemed to be effective 2
business days of any properly addressed notice having been deposited
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in the mail, 24 hours from the time electronic transmission was made, or upon
actual receipt of electronic delivery, whichever occurs first.
12. PARTIES IN INTEREST. No provisions of this Agreement is intended to,
nor shall any such provision confer any right or remedies pursuant to or by
reason of the provisions of this Agreement to any persons other than the parties
to this Agreement and their respective successors and assigns, including the
Estate of the Indemnitee, nor is any provision of in this Agreement intended to
relieve or discharge the obligation or liability of any third party to any party
to this Agreement. No provision of this Agreement shall provide any third person
any right of subrogation or action against any party to this Agreement.
13. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and obligate the undersigned parties and their respective successors and
assigns. Whenever, in this Agreement, a reference to any party is made, such
reference shall be deemed to include a reference to the successors and assigns
of such party; provided, however, neither this paragraph nor any other portion
of this Agreement shall be interpreted to constitute a consent to any assignment
or transfer other than pursuant to and in accordance with the other provisions
of this Agreement. Neither party shall assign, transfer or delegate that party's
rights, responsibilities, duties or obligation created by the provisions of this
Agreement to any other person without the prior written consent of the other
party.
14. CAPTIONS AND INTERPRETATION. Captions of the paragraphs of this
Agreement are for convenience and reference only, and the words specified in
those captions shall in no way be held to explain, modify, amplify or aid in the
interpretation, construction or meaning of the terms, conditions and provisions
of this Agreement. The language and all parts to this Agreement, in all cases,
shall be construed in accordance with the fair meaning of that language and
those parts and as if that language and those parts were prepared by both
parties and not strictly for or against any party.
15. NUMBER AND GENDER. Whenever the singular number is used in this
Agreement, and when required by the context, the same shall include the plural,
and vice versa; the masculine gender shall include the feminine and the neuter
genders, and vice versa; and the word "person" shall include corporation, firm,
trust, estate, joint venture, governmental agency, sole proprietorship,
political subdivision, organization, fraternal order, club, league, joint stock
company, society, municipality, association, partnership or other form of
entity.
16. EXECUTION IN COUNTERPARTS. This Agreement shall be prepared in
multiple copies and forwarded to each of the parties for execution. This
Agreement shall become
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effective when counsel for the Corporation receives a copy or copies of this
Agreement executed by the parties in the names as those names appear at the end
of this Agreement. All of the signatures of the parties may be affixed to one
copy or to separate copies of this Agreement and when all such copies are
received, and signed by all the parties, those copies shall constitute one
agreement which is not otherwise separable or divisible. Counsel for the
Corporation shall keep all of such signed copies and shall conform one copy to
show all of those signatures and the dates thereof and shall mail a copy of such
conformed copy to each of the parties within thirty (30) days after the receipt
by such counsel of the last signed copy, and shall cause one such conformed copy
to be filed in the principal office of such counsel.
17. ENTIRE AGREEMENT. This Agreement is the final written expression and
the complete and exclusive statement of all the agreements, conditions,
promises, representations, warranties and covenants between the parties with
respect to the subject matter of this Agreement, and this Agreement supersedes
all prior or contemporaneous agreements, negotiations, representations,
warranties, covenants, understandings and discussions by and between and among
the parties, their respective representatives, and any other person, with
respect to the subject matter specified in this Agreement. This Agreement may be
amended only by an instrument in writing which expressly refers to this
Agreement and specifically states that that instrument is intended to amend this
Agreement and is signed by each of the parties. Nothing specified in any exhibit
attached to this Agreement shall supersede or annul the terms and provisions of
this Agreement, unless the matter specified in such exhibit shall expressly so
provide to the contrary, and in the event of any ambiguity in meaning or
understanding between this Agreement proper and the appended exhibits, the
provisions of this Agreement shall prevail and control. Each of the parties
represents, warrants and covenants that in executing this Agreement that party
has relied solely on the terms, conditions and provisions specified in this
Agreement. Each of the parties additionally represents, warrants and covenants
that in executing and delivering this Agreement such party has placed no
reliance whatsoever on any statement, representation, warranty, covenant or
promise of the other party, or any other person, not specified expressly in this
Agreement, or upon the failure of any party or any other person to make any
statement, representation, warranty, covenant or disclosure of any nature
whatsoever. The parties have included this paragraph to preclude (i) any claim
that any party was in any manner whatsoever induced fraudulently to enter into,
execute and deliver this Agreement, and (ii) the introduction of parol evidence
to vary, interpret, supplement or contradict the terms, conditions and
provisions of this Agreement.
18. GOVERNING LAW. This Agreement shall be deemed to have been entered
into in the County of Orange, State of California, and all questions concerning
the validity, interpretation, or performance of any of the terms, conditions and
provisions of this
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Agreement or of any of the rights or obligations of the parties shall be
governed by, and resolved in accordance with, the laws of the State of
California, without regard to conflicts of law principles. Any and all actions
or proceedings, at law or in equity, to enforce or interpret the provisions of
this Agreement shall be litigated in courts having situs within the County of
Orange, State of California. No claim, demand, action, proceeding, litigation,
hearing, motion or lawsuit resulting from or with respect to this Agreement
shall be commenced or prosecuted in any jurisdiction other than the State of
California, and any judgment, determination, finding or conclusion reached or
rendered in any other jurisdiction shall be null and void. Each party hereby
consents expressly to the jurisdiction of any local, state or federal court
located within the State of California and consents that any service of process
in such action or proceeding may be made by personal service upon such party
wherever such party may be then located, or by certified or registered mail
directed to such party at such party's last known address.
19. GOVERNMENT REGULATIONS. The transactions and relationship contemplated
by the provisions of this Agreement are, and shall remain, subject to any and
all present and future orders, rules and regulations of any duly constituted
authority or agency having jurisdiction of those transactions and that
relationship.
20. FURTHER ASSURANCES. The parties shall from time to time sign and
deliver any further instruments and take any further actions as may be necessary
to effectuate the intent and purposes of this Agreement.
21. ALL CONSENTS IN WRITING. In any instance in which any party shall be
requested to consent to or approve of any matter with respect to which that
party's consent or approval is required by any of the provisions of this
Agreement, such consent or approval shall be furnished in writing.
22. ATTORNEYS' FEES. In the event any party shall institute any action or
proceeding to enforce any provision of this Agreement to seek relief from any
violation of this Agreement, or to otherwise obtain any judgment or order
relating to or resulting from the subject matter of this Agreement, the
prevailing party shall be entitled to receive from the losing party such
prevailing party's actual attorneys' fees and costs incurred to prosecute or
defend such action or proceeding, including, but not limited to, actual
attorneys' fees and costs incurred preparatory to such prosecution and defense.
Moreover, while a court of competent jurisdiction may assist in determining
whether or not the fees actually incurred are reasonable in the circumstances
then existing, that court is not be governed by any judicially or legislatively
established fee schedule, and such fees and costs are to include those as may be
incurred on appeal of any issue and all of which fees and costs shall be
included as part of any judgment, by cost bill or otherwise, and where
applicable, any appellate decision rendered in or resulting from such action or
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proceeding. For purposes of this Agreement, in any action or proceeding
instituted by a party, the prevailing party shall be that party in any such
action or proceeding (i) in whose favor a judgment is entered, or (ii) prior to
trial, hearing or judgment any other party shall pay all or any portion of
amounts claimed by the party seeking payment, or such other party shall
eliminate the condition, cease the act, or otherwise cure the act of commission
or omission claimed by the party initiating such action or proceeding.
23. RESERVATION OF RIGHTS. The failure of any party at any time or times
hereafter to require strict performance by any other party of any of the
warranties, representations, covenants, terms, conditions and provisions
specified in this Agreement shall not waive, affect of diminish any right of
such party failing to require strict performance to demand strict compliance and
performance therewith and with respect to any other provisions, warranties,
terms, and conditions specified in this Agreement. Any waiver of any default
shall not waive or affect any other default, whether prior or subsequent
thereto, and whether the same or of a different type. None of the
representations, warranties, covenants, conditions, provisions and terms
specified in this Agreement shall be deemed to have been waived by any act or
knowledge of any party, its agents, trustees, officers, or employees and any
such waiver shall be made only by an instrument in writing, signed by the
waiving party and directed to any non-waiving party specifying such waiver, and
each party reserves such party's rights to insist upon strict compliance
herewith at all times.
24. PURPOSE OF COVENANTS. All covenants made by each party shall be deemed
made for the purpose of inducing the other party to enter into and execute this
Agreement. The representations, warranties, and covenants specified in this
Agreement shall survive any investigation by either party whether before or
after the execution of this Agreement.
25. CONCURRENT REMEDIES. No right or remedy specified in this Agreement
conferred on or reserved to the parties is exclusive of any other right or
remedy specified in this Agreement or by law or equity provided or permitted;
but each such right and remedy shall be cumulative of, and in addition to, every
other right and remedy specified in this Agreement or now or hereafter existing
at law or in equity or by statute or otherwise, and may be enforced concurrently
therewith or from time to time. The termination of this Agreement for any reason
whatsoever shall not prejudice any right or remedy which any party may have,
either at law, in equity, or pursuant to the provisions of this Agreement.
26. FORCE MAJEURE. If any party is rendered unable, completely or
partially, by the occurrence of an event of "force majeure" (hereinafter
defined) to perform such party's obligations created by the provisions of this
Agreement, such party shall give to
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the other party prompt written notice of the event of "force majeure" with
reasonably complete particulars concerning such event; thereupon, the
obligations of the party giving such notice, so far as those obligations are
affected by the event of "force majeure," shall be suspended during, but no
longer than, the continuance of the event of "force majeure." The party affected
by such event of "force majeure" shall use all reasonable diligence to resolve,
eliminate and terminate the event of "force majeure" as quickly as practicable.
The term "force majeure," as contemplated by the provisions of this Paragraph 27
means any act of God, strike, lockout or other industrial disturbance, act of
the public enemy, war blockage, public riot, lightening, fire, storm, flood
explosion, governmental action, earthquake, governmental delay, restraint or
inaction, unavailability or equipment, and any other cause or event, whether of
the kind enumerated specifically herein, or otherwise, which is not within the
control of the party claiming such suspension.
27. CONSENT TO AGREEMENT. By executing this Agreement, each party, for
itself represents such party has read or caused to be read this Agreement in all
particulars, and consents to the rights, conditions, duties and responsibilities
imposed upon such party as specified in this Agreement. Each party represents,
warrants and covenants that such party executes and delivers this Agreement of
its own free will and with no threat, undue influence, menace, coercion or
duress, whether economic or physical. Moreover, each party represents, warrants,
and covenants that such party executes this Agreement acting on such party's own
independent judgment and upon the advice of such party's counsel.
IN WITNESS WHEREOF the parties have executed this Agreement for
Indemnification in duplicate and in multiple counterparts, each of which shall
have the force and effect of an original, on the date specified in the preamble
of this Agreement.
PERFORMANCE DEVELOPMENT, INC.,
a California corporation
By:
-------------------------------- --------------------------------------
Vincent E. Galewick
Its: 4100 Newport Place, Suite 400
-------------------------------- Newport Beach, California 92660
Facsimile number 714.752.3535
4100 Newport Place, Suite 400
Newport Beach, California 92660
Facsimile number 714.752.3535
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EXHIBIT 10.8
JOINT VENTURE AGREEMENT
This JOINT VENTURE AGREEMENT is made and entered into by and between the
undersigned parties consisting of PERFORMANCE CAPITAL MANAGEMENT, a California
Corporation (hereinafter sometimes referred to as "PERFORMANCE" OR "PCM") and
PERFORMANCE ASSET MANAGEMENT FUND, LTD., a California Limited Partnership,
(hereinafter sometimes referred to as "PAMF").
WITNESSETH
WHEREAS, PAMF is a limited partnership formed for the purpose of
generating income and cash flow from various retail contract assets acquired
from lenders and other creditors and desires to develop and maintain a dedicated
collections and servicing capacity to efficiently collect on such assets while
also limiting the legal ability for such collection services; and
WHEREAS, PERFORMANCE is a collections and servicing entity with the
expertise to perform such services;
THEREFORE THE PARTIES HEREBY AGREE AS FOLLOWS:
ARTICLE 1.1 FORMATION OF JOINT VENTURE
SECTION 1.1 FORMATION OF JOINT VENTURE. PERFORMANCE and PAMF hereby form
a Joint Venture (the "Joint Venture" or "Venture") for the limited purposes and
scope hereinafter set forth. The parties are sometimes referred to herein as the
"Venturers," in the plural, and "Venturer," in the singular.
SECTION 1.2 NAME OF JOINT VENTURE. The affairs of the Joint Venture
shall be conducted solely under the name "PCM/PAMF, J.V. LANDMARK" and such name
shall be used at all times in connection with the Joint Venture's affairs. This
Joint Venture shall be governed by and interpreted in accordance with the laws
of the State of California.
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SECTION 1.3 The purpose of this Joint Venture shall be to facilitate
collections of charged off retail sales contracts and credit card contracts
assets ("Contract Assets") purchased from various lenders, or sell, enforce,
foreclose upon, and take any and all actions necessary. Convenient or expedient
to maximize income and other benefits to be derived by the Joint Venture in
compliance with all applicable requirements of law. From time to time the Joint
Venture shall also purchase from lenders and other sources cash flow generating
Contract Assets in order to produce income for the Joint Venture. The Joint
Venture shall not engage in any other business or economic activity nor acquire
or own any type of property unrelated to the Joint Venture purpose except with
the prior written approval of all Venturers.
(b) Except as otherwise expressly and specifically provided in this
Agreement, as between the parties hereto, the obligations of the Venturers under
this Agreement shall be, in every case, several and shall not be, or be
construed to be, either joint or joint and several, and, except as otherwise
expressly provided in this Agreement, none of the Venturers shall have any
authority to act for, or to assume any obligations or responsibility on behalf
of, any other Venturer or the Joint Venture. It is not the purpose or intention
of this Agreement to create, and this Agreement shall never be construed as
creating, a general business partnership or any other relationship whereby,
except as otherwise expressly provided in this Agreement, any party hereto shall
be held liable for the contracts or acts, of either omission or commission, of
any other party hereto.
SECTION 1.4 PLACE OF BUSINESS The principal office and place of business
of the Joint Venture shall be: 15641 Red Hill, Suite 205, Tustin, CA 92680.
ARTICLE 2. MANAGEMENT OF THE VENTURE
SECTION 2.1 MANAGEMENT. All matters relating to the policies and
management of the Joint Venture and the conduct of business operation and
affairs of the Joint Venture shall be determined by unanimous approval of the
Venturers except to the extent, if any, that specific authority may from time to
time be granted in writing by the Venturers to any employed personnel of the
Joint Venture or any other party.
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SECTION 2.2 REPRESENTATIVES OF VENTURERS. In order to facilitate the
management and operation of the Joint Venture, each Venturer shall designate a
representative as the party authorized on behalf of such Venturer to make
decisions with respect to the Joint Venture. Each other Venturer shall be
entitled to rely upon the authority of such designated representative until
advised in writing by the other Venturer. The designated representative of
PERFORMANCE shall be Larry Curran II, and the designated representative of PAMF
shall be Vincent Galewick. Because of its specialized expertise in the purchase
and collections of Contract Assets, the representatives of the Venturers
designate PERFORMANCE:
(1) To collect revenues due or to become due to the Venture
and deposit such revenues in a bank clearing or trust
account or bank accounts (as selected by the Venturers);
(2) To exclusively assign accounts for collections to third
parties including but not limited to, outside collection
agencies and to hire attorneys from time to time to assist
in such efforts. Further, in connection with the authority
granted herein to PCM, PCM shall also have the right to
assign, transfer, or convey a portion of its ownership
interest in the Joint Venture to such third parties;
(3) To make such contracts, if any, relating to the conduct of
the business as they shall deem advisable;
(4) To negotiate and deal with regulatory authorities relative
to matters involving the business and affairs of the Joint
Venture;
(5) To prepare and deliver to each other Venturer periodic
reports, not less frequently than monthly, showing results
of operation of the Joint Venture for such period,
including cash receipts of the Joint Venture and
distribution of all funds of the Joint Venture; and
(6) To take such other action, to make all other routine
day-to-day decisions of the Joint Venture, and to perform
such other services as are necessary, customary or
appropriate for engaging in the economic activity
constituting the purpose of the Joint Venture referred to
in Section 1.3 of this Agreement.
In no event shall any Venturer have the right to incur any indebtedness on the
part of the Joint Venture without the prior written consent of the other
Venturers.
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<PAGE> 4
SECTION 2.3 UNAUTHORIZED ACTS. If any Venturer purports to do any act on
behalf of the Joint Venturer or to bind the Joint Venture and such action is
outside the authority of such Venturer as established under this Agreement, then
such Venturer shall be deemed to have breached this Agreement and, in addition
to all other liabilities of such Venturer thereby resulting, such Venturer
shall, at such Venturer's own cost and expense, indemnify and hold harmless the
other Venturers and the Joint Venture from all claims, causes of action, costs,
expenses, obligations and liabilities thereby arising.
ARTICLE 3. ACCOUNTING AND DISTRIBUTIONS
SECTION 3.1 ACCOUNTING. The Joint Venture shall keep and maintain
adequate books of account and other financial records on the cash basis, in
accordance with generally accepted accounting principles, consistently applied.
Such books of account and other records shall be open to inspection by any
Venturer at any time during reasonable business hours.
SECTION 3.2 PROFITS AND LOSSES; DISTRIBUTIONS.
(a) All profits and losses of the Joint Venture shall respectively be
shared and borne by the Venturers in proportion to the respective Percentage
Interests (Exhibit "A" attached hereto) owned by each of the Venturers
determined as of the last day of the particular fiscal year of the Joint Venture
with respect to which such profits or losses were recognized.
(b) All "Distributable Funds" (as hereinafter defined) of the Joint
Venture from time to time on hand shall be distributed as follows:
(1) 55% to PAMF and 45% to PERFORMANCE.
The term "Distributable Funds," as used herein, means the amount (if any), on
any date, of cash collected on behalf of the Joint Venture, less fees for
collections services deducted by PCM and any funds set aside for operations.
SECTION 3.3 ALLOCATION OF INCOME, CREDITS, DEDUCTIONS, GAINS AND LOSSES.
For accounting and federal and state income tax purposes, all income,
deductions, credits, gains and losses of the Joint Venture shall be allocated to
the Venturers in proportion to their respective Percentage Interest owned as of
the last day of the relevant fiscal year with respect to which such allocation
is to be made.
4
<PAGE> 5
SECTION 3.4 COMPENSATION TO ANY VENTURER.
(a) Except as set forth in 3.4(b) and except as may hereafter be
expressly authorized in writing by all of the Venturers, neither any Venturer,
shall be entitled to receive, directly or indirectly, any compensation,
commission or other payment from or on account of, or in connection with, the
performance of any service for the Joint Venture, or be entitled to
reimbursement for overhead costs or similar expenses relating to any service
performed for the Joint Venture by such party.
(b) Subject to the provision of Article 2, PCM hereby agrees to collect
all amounts owed to the Joint Venture by the obligers under the Contract Assets
and to prepare monthly reports (in a form similar to the report attached hereto
as Exhibit "C", which is attached hereto and made a part hereof for all
purposes) detailing the cash receipts of the Joint Venture and the distribution
of all funds of the Joint Venture. PCM shall be entitled to forty percent (40%)
of the montly revenues collected and received by the Joint Venture ("Collection
Fees") from the Contract Assets plus payment for collection services (such as
dunning letters, account loading, credit report inquiry, computerized account,
etc.) so long as PCM collects all amount owing to the Joint Venture by the
obligers under the Contracts Assets, including, without limitation, arranging
for employees of PCM, and not employees of the Joint Venture, to collect such
revenues. On accounts referred for litigation or assigned to a third party
collection entity, PCm shall be entitled to sixty percent (60%) of the montly
revenues collected and received by the Joint Venture on such accounts. PCM
agrees to indemnify PAMF from all claims or causes of action arising out of
PCM's collection of revenues on behalf of the Joint Venture.
ARTICLE 4. CAPITAL CONTRIBUTIONS; FORECLOSURE
SECTION 4.1 CAPITAL CONTRIBUTIONS. The Venturers have contributed to the
Joint Venture, as their respective original capital contributions, the credit
card conctracts shown on Exhibit "A" attached hereto, and, accordingly, the
capital account of each respective Venturer has been credited with the amount of
such particular Venturer's capital contribution and the Percentage Interests in
the Venture thereby acquired by the various Venturers are as shown on Exhibit
"A" attached hereto.
5
<PAGE> 6
ARTICLE 5. ASSIGNMENTS
SECTION 5.1 PROHIBITED ASSIGNMENTS. Without the consent of all other
Venturers, no interest in this Joint Venture or rights under this Agreement may
be sold, assigned, transferred, mortgaged, encumbered, hypothecated, or disposed
of in any manner; and except as so provided, any attempt to take any such action
and any such purported sale, assignment, transfer, mortgage encumbrance,
hypothecation or other disposition shall be void.
ARTICLE 6. TERM
SECTION 6.1 TERM. The Joint Venture and this Agreement shall remain in
full force and effect from the date hereof until termination of the Venture in
accordance with the provisions hereof. The Joint Venture shall terminate upon
the earlier to occur of any of the following:
(1) December 31, 1996; or
(2) The voluntary dissolution of the Joint Venture by the vote of the
holders of a majority of the Percentage Interests in the Venture.
ARTICLE 7. GENERAL
SECTION 7.1 NOTICES. Any and all notices permitted or required to be
given under the terms of this Agreement shall be in writing and may be served
by: (a) registered or certified mail, return receipt requested, postage prepaid,
and addressed to the party to be notified at the appropriate address specified
below; (b) delivering the same in person to such party, or by prepaid telegram,
addressed to the party to be notified at said address; (c) delivery by Federal
Express or other nationally recognized courier service, addressed to the party
to be notified at such address; or (d) telecopy (provided that such telecopy is
confirmed by mail or other delivery in the manner previously described). Notice
given by certified mail as aforesaid shall be deemed given and received three
(3) days after mailing , whether or not acutally received. Any notice given in
any other above authorized manner shall be deemed received upon actual receipt;
but shall also be deemed received upon attempted delivery if such delivery is
not accepted. The addresses of the parties are as follows:
6
<PAGE> 7
If to PERFORMANCE: Performance Capital Management
15641 Red Hill
Suite 205
Tustin, CA 92680
Telecopy: (714) 566-1234
If to PAM : Performance Asset Management Fund, Ltd.
4100 Newport Place
Suite 400
Newport Beach, CA 92660
Attention: Vincent Galewick
The addresses of any party may be changed by notice given in the manner
provided in this Section.
SECTION 7.2 ENTIRE AGREEMENT. This Agreement contains the entire
agreement between the parties hereto relative to the formation, operation,
governance and other aspects of the Joint Venture hereby formed. No variation,
modification, or change of this Agreement shall be binding upon any party hereto
unless set forth in a document duly executed by such party (or duly authorized
agent of such party) and all other Venturers.
SECTION 7.3 SEVERABILITY. If any provision of this Agreement or
application thereof to any person of circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the application
of such provision to other persons or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
SECTION 7.4 BINDING AGREEMENT. This Agreement shall inure to the benefit
of and be binding upon the undersigned parties and their respective successors
and assigns. Whenever, in this instrument, a reference to any party is made,
such reference shall be deemed to include a reference to the successors and
assigns of such party, however, neither this Section nor any other portion of
this Agreement shall be interpreted to constitute a consent to any assignments
or transfer other than pursuant to and in accordance with the other provisions
of this Agreement.
7
<PAGE> 8
Executed in multiple counterparts, each of which shall have the force
and effect of an original, this the 5th day of December, 1991 ("Effective Date")
PERFORMANCE
By:
---------------------------------------------
Larry Curran II, Director of Marketing
Performance Capital Management
Address: 15641 Red Hill
Suite 205
Tustin, CA 92680
Telephone: (714)566-1212
PAMF
By:
--------------------------------------
Vincent Galewick, President
Performance Asset Management Fund, Ltd.
Performance Development, Inc., General Partner
Address: 4100 Newport Place
Suite 400
Newport Beach, CA 92660
Telephone: (714) 752-3500
8
<PAGE> 9
EXHIBIT "A"
<TABLE>
<CAPTION>
ORIGINAL
CAPITAL PERCENTAGE
NAME OF VENTURER CONTRIBUTION INTEREST
- --------------- ------------ ----------
<S> <C> <C>
PAM [$104,036.57 ] [ 100%]
PCM [$ 0.00 ] [ 0%]
</TABLE>
<PAGE> 1
EXHIBIT 10.9
JOINT VENTURE AGREEMENT
This JOINT VENTURE AGREEMENT is made and entered into by and between the
undersigned parties consisting of PERFORMANCE CAPITAL MANAGEMENT, a California
Corporation (hereinafter sometimes referred to as "PERFORMANCE" OR "PCM") and
PERFORMANCE ASSET MANAGEMENT FUND II, LTD., a California Limited Partnership,
(hereinafter sometimes referred to as "PAMF II").
WITNESSETH
WHEREAS, PAMF is a limited partnership formed for the purpose of
generating income and cash flow from various retail contract assets acquired
from lenders and other creditors and desires to develop and maintain a dedicated
collections and servicing capacity to efficiently collect on such assets while
also limiting the legal ability for such collection services; and
WHEREAS, PERFORMANCE is a collections and servicing entity with the
expertise to perform such services;
THEREFORE THE PARTIES HEREBY AGREE AS FOLLOWS:
ARTICLE 1.1 FORMATION OF JOINT VENTURE SECTION 1.1
FORMATION OF JOINT VENTURE. PERFORMANCE and PAMF II hereby form
a Joint Venture (the "Joint Venture" or "Venture") for the limited purposes and
scope hereinafter set forth. The parties are sometimes referred to herein as the
"Venturers," in the plural, and "Venturer," in the singular.
SECTION 1.2 NAME OF JOINT VENTURE. The affairs of the Joint Venture
shall be conducted solely under the name "PCM/PAMF II, J.V. Pool 23" and such
name shall be used at all times in connection with the Joint Venture's affairs.
This Joint Venture shall be governed by and interpreted in accordance with the
laws of the State of California.
1
<PAGE> 2
SECTION 1.3 The purpose of this Joint Venture shall be to facilitate
collections of charged off retail sales contracts and credit card contracts
assets ("Contract Assets") purchased from various lenders, or sell, enforce,
foreclose upon, and take any and all actions necessary. Convenient or expedient
to maximize income and other benefits to be derived by the Joint Venture in
compliance with all applicable requirements of law. From time to time the Joint
Venture shall also purchase from lenders and other sources cash flow generating
Contract Assets in order to produce income for the Joint Venture. The Joint
Venture shall not engage in any other business or economic activity nor acquire
or own any type of property unrelated to the Joint Venture purpose except with
the prior written approval of all Venturers.
(b) Except as otherwise expressly and specifically provided in this
Agreement, as between the parties hereto, the obligations of the Venturers under
this Agreement shall be, in every case, several and shall not be, or be
construed to be, either joint or joint and several, and, except as otherwise
expressly provided in this Agreement, none of the Venturers shall have any
authority to act for, or to assume any obligations or responsibility on behalf
of, any other Venturer or the Joint Venture. It is not the purpose or intention
of this Agreement to create, and this Agreement shall never be construed as
creating, a general business partnership or any other relationship whereby,
except as otherwise expressly provided in this Agreement, any party hereto shall
be held liable for the contracts or acts, of either omission or commission, of
any other party hereto.
SECTION 1.4 PLACE OF BUSINESS The principal office and place of business
of the Joint Venture shall be: 15641 Red Hill, Suite 205, Tustin, CA 92680.
ARTICLE 2. MANAGEMENT OF THE VENTURE
SECTION 2.1 MANAGEMENT. All matters relating to the policies and
management of the Joint Venture and the conduct of business operation and
affairs of the Joint Venture shall be determined by unanimous approval of the
Venturers except to the extent, if any, that specific authority may from time to
time be granted in writing by the Venturers to any employed personnel of the
Joint Venture or any other party.
SECTION 2.2 REPRESENTATIVES OF VENTURERS. In order to facilitate the
management and operation of the Joint Venture, each Venturer shall designate a
representative as the party authorized on behalf of such Venturer to make
decisions with respect to the Joint Venture. Each other Venturer
2
<PAGE> 3
shall be entitled to rely upon the authority of such designated representative
until advised in writing by the other Venturer. The designated representative of
PERFORMANCE shall be Larry Curran II, and the designated representative of PAMF
II shall be Vincent Galewick. Because of its specialized expertise in the
purchase and collections of Contract Assets, the representatives of the
Venturers designate PERFORMANCE:
(1) To collect revenues due or to become due to the Venture
and deposit such revenues in a bank clearing or trust
account or bank accounts (as selected by the Venturers);
(2) To exclusively assign accounts for collections to third
parties including but not limited to, outside collection
agencies and to hire attorneys from time to time to assist
in such efforts. Further, in connection with the authority
granted herein to PCM, PCM shall also have the right to
assign, transfer, or convey a portion of its ownership
interest in the Joint Venture to such third parties;
(3) To make such contracts, if any, relating to the conduct of
the business as they shall deem advisable;
(4) To negotiate and deal with regulatory authorities relative
to matters involving the business and affairs of the Joint
Venture;
(5) To prepare and deliver to each other Venturer periodic
reports, not less frequently than monthly, showing results
of operation of the Joint Venture for such period,
including cash receipts of the Joint Venture and
distribution of all funds of the Joint Venture; and
(6) To take such other action, to make all other routine
day-to-day decisions of the Joint Venture, and to perform
such other services as are necessary, customary or
appropriate for engaging in the economic activity
constituting the purpose of the Joint Venture referred to
in Section 1.3 of this Agreement.
In no event shall any Venturer have the right to incur any indebtedness on the
part of the Joint Venture without the prior written consent of the other
Venturers.
SECTION 2.3 UNAUTHORIZED ACTS. If any Venturer purports to do any act on
behalf of the Joint Venturer or to bind the Joint Venture and such action is
outside the authority of such Venturer as established under this Agreement, then
such Venturer shall be deemed to have breached this Agreement and, in addition
to all other liabilities of such Venturer thereby resulting, such Venturer
3
<PAGE> 4
shall, at such Venturer's own cost and expense, indemnify and hold harmless the
other Venturers and the Joint Venture from all claims, causes of action, costs,
expenses, obligations and liabilities thereby arising.
ARTICLE 3. ACCOUNTING AND DISTRIBUTIONS
SECTION 3.1 ACCOUNTING. The Joint Venture shall keep and maintain
adequate books of account and other financial records on the cash basis, in
accordance with generally accepted accounting principles, consistently applied.
Such books of account and other records shall be open to inspection by any
Venturer at any time during reasonable business hours.
SECTION 3.2 PROFITS AND LOSSES; DISTRIBUTIONS.
(a) All profits and losses of the Joint Venture shall respectively be
shared and borne by the Venturers in proportion to the respective Percentage
Interests (Exhibit "A" attached hereto) owned by each of the Venturers
determined as of the last day of the particular fiscal year of the Joint Venture
with respect to which such profits or losses were recognized.
(b) All "Distributable Funds" (as hereinafter defined) of the Joint
Venture from time to time on hand shall be distributed as follows:
(1) 55% to PAMF II and 45% to PERFORMANCE.
The term "Distributable Funds," as used herein, means the amount (if any), on
any date, of cash collected on behalf of the Joint Venture, less fees for
collections services deducted by PCM and any funds set aside for operations.
SECTION 3.3 ALLOCATION OF INCOME, CREDITS, DEDUCTIONS, GAINS AND LOSSES.
For accounting and federal and state income tax purposes, all income,
deductions, credits, gains and losses of the Joint Venture shall be allocated to
the Venturers in proportion to their respective Percentage Interest owned as of
the last day of the relevant fiscal year with respect to which such allocation
is to be made.
SECTION 3.4 COMPENSATION TO ANY VENTURER.
(a) Except as set forth in 3.4(b) and except as may hereafter be
expressly authorized in writing by all of the Venturers, neither any Venturer,
shall be entitled to receive, directly or indirectly, any compensation,
commission or other payment from or on account of, or in connection
4
<PAGE> 5
with, the performance of any service for the Joint Venture, or be entitled to
reimbursement for overhead costs or similar expenses relating to any service
performed for the Joint Venture by such party.
(b) Subject to the provision of Article 2, PCM hereby agrees to collect
all amounts owed to the Joint Venture by the obligers under the Contract Assets
and to prepare monthly reports (in a form similar to the report attached hereto
as Exhibit "C", which is attached hereto and made a part hereof for all
purposes) detailing the cash receipts of the Joint Venture and the distribution
of all funds of the Joint Venture. PCM shall be entitled to forty-five percent
(45%) of the monthly revenues collected and received by the Joint Venture
("Collection Fees") from the Contract Assets plus payment for collection
services (such as dunning letters, account loading, credit report inquiry,
computerized account, etc.) so long as PCM collects all amount owing to the
Joint Venture by the obligers under the Contracts Assets, including, without
limitation, arranging for employees of PCM, and not employees of the Joint
Venture, to collect such revenues. On accounts referred for litigation or
assigned to a third party collection entity, PCM shall be entitled to fifty-five
percent (55%) of the monthly revenues collected and received by the Joint
Venture on such accounts. PCM agrees to indemnify PAMF II from all claims or
causes of action arising out of PCM's collection of revenues on behalf of the
Joint Venture.
ARTICLE 4. CAPITAL CONTRIBUTIONS; FORECLOSURE
SECTION 4.1 CAPITAL CONTRIBUTIONS. The Venturers have contributed to the
Joint Venture, as their respective original capital contributions, the credit
card contracts shown on Exhibit "A" attached hereto, and, accordingly, the
capital account of each respective Venturer has been credited with the amount of
such particular Venturer's capital contribution and the Percentage Interests in
the Venture thereby acquired by the various Venturers are as shown on Exhibit
"A" attached hereto. ARTICLE 5. ASSIGNMENTS
SECTION 5.1 PROHIBITED ASSIGNMENTS. Without the consent of all other
Venturers, no interest in this Joint Venture or rights under this Agreement may
be sold, assigned, transferred, mortgaged, encumbered, hypothecated, or disposed
of in any manner; and except as so provided, any attempt
5
<PAGE> 6
to take any such action and any such purported sale, assignment, transfer,
mortgage encumbrance, hypothecation or other disposition shall be void.
ARTICLE 6. TERM
SECTION 6.1 TERM. The Joint Venture and this Agreement shall remain in
full force and effect from the date hereof until termination of the Venture in
accordance with the provisions hereof. The Joint Venture shall terminate upon
the earlier to occur of any of the following:
(1) December 31, 2002; or
(2) The voluntary dissolution of the Joint Venture by the vote of the
holders of a majority of the Percentage Interests in the Venture.
6
<PAGE> 7
ARTICLE 7. GENERAL
SECTION 7.1 NOTICES. Any and all notices permitted or required to be
given under the terms of this Agreement shall be in writing and may be served
by: (a) registered or certified mail, return receipt requested, postage prepaid,
and addressed to the party to be notified at the appropriate address specified
below; (b) delivering the same in person to such party, or by prepaid telegram,
addressed to the party to be notified at said address; (c) delivery by Federal
Express or other nationally recognized courier service, addressed to the party
to be notified at such address; or (d) telecopy (provided that such telecopy is
confirmed by mail or other delivery in the manner previously described). Notice
given by certified mail as aforesaid shall be deemed given and received three
(3) days after mailing , whether or not actually received. Any notice given in
any other above authorized manner shall be deemed received upon actual receipt;
but shall also be deemed received upon attempted delivery if such delivery is
not accepted. The addresses of the parties are as follows:
If to PERFORMANCE: Performance Capital Management
15641 Red Hill
Suite 205
Tustin, CA 92680
Telecopy: (714) 566-1234
If to PAMF II: Performance Asset Management Fund II, Ltd.
4100 Newport Place
Suite 400
Newport Beach, CA 92660
Attention: Vincent Galewick
The addresses of any party may be changed by notice given in the manner
provided in this Section.
SECTION 7.2 ENTIRE AGREEMENT. This Agreement contains the entire
agreement between the parties hereto relative to the formation, operation,
governance and other aspects of the Joint Venture hereby formed. No variation,
modification, or change of this Agreement shall be binding upon any party hereto
unless set forth in a document duly executed by such party (or duly authorized
agent of such party) and all other Venturers.
7
<PAGE> 8
SECTION 7.3 SEVERABILITY. If any provision of this Agreement or
application thereof to any person of circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the application
of such provision to other persons or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
SECTION 7.4 BINDING AGREEMENT. This Agreement shall inure to the benefit
of and be binding upon the undersigned parties and their respective successors
and assigns. Whenever, in this instrument, a reference to any party is made,
such reference shall be deemed to include a reference to the successors and
assigns of such party, however, neither this Section nor any other portion of
this Agreement shall be interpreted to constitute a consent to any assignments
or transfer other than pursuant to and in accordance with the other provisions
of this Agreement.
8
<PAGE> 9
Executed in multiple counterparts, each of which shall have the force
and effect of an original, this the 20th day of March, 1997 ("Effective Date")
PERFORMANCE
By:
-----------------------------------
Vincent E. Galewick, President
Performance Capital Management
Address: 15641 Red Hill
Suite 205
Tustin, CA 92680
Telephone: (714)566-1212
PAMF II
By:
-----------------------------------
Vincent Galewick, President
Performance Asset Management Fund II
Performance Development, Inc., General Partner
Address: 4100 Newport Place
Suite 400
Newport Beach, CA 92660
Telephone: (714) 752-3500
9
<PAGE> 10
EXHIBIT "A"
<TABLE>
<CAPTION>
ORIGINAL
CAPITAL PERCENTAGE
NAME OF VENTURER CONTRIBUTION INTEREST
- ---------------- ------------ ----------
<S> <C> <C>
PAMF II [$175,309.44] [55%]
PCM [$ 0] [45%]
</TABLE>
collection services
10
<PAGE> 1
EXHIBIT 10.10
JOINT VENTURE AGREEMENT
This JOINT VENTURE AGREEMENT is made and entered into by and between the
undersigned parties consisting of PERFORMANCE CAPITAL MANAGEMENT, a California
Corporation (hereinafter sometimes referred to as "PERFORMANCE" OR "PCM") and
PERFORMANCE ASSET MANAGEMENT FUND III, LTD., a California Limited Partnership,
(hereinafter sometimes referred to as "PAMF III").
WITNESSETH
WHEREAS, PAMF III is a limited partnership formed for the purpose of
generating income and cash flow from various retail contract assets acquired
from lenders and other creditors and desires to develop and maintain a dedicated
collections and servicing capacity to efficiently collect on such assets while
also limiting the legal ability for such collection services; and
WHEREAS, PERFORMANCE is a collections and servicing entity with the
expertise to perform such services;
THEREFORE THE PARTIES HEREBY AGREE AS FOLLOWS:
ARTICLE 1.1 FORMATION OF JOINT VENTURE
SECTION 1.1 FORMATION OF JOINT VENTURE. PERFORMANCE and PAMF III hereby
form a Joint Venture (the "Joint Venture" or "Venture") for the limited purposes
and scope hereinafter set forth. The parties are sometimes referred to herein as
the "Venturers," in the plural, and "Venturer," in the singular.
SECTION 1.2 NAME OF JOINT VENTURE. The affairs of the Joint Venture
shall be conducted solely under the name "PCM/PAMF III, J.V. Pool 21 " and such
name shall be used at all times in connection with the Joint Venture's affairs.
This Joint Venture shall be governed by and interpreted in accordance with the
laws of the State of California.
1
<PAGE> 2
SECTION 1.3 PURPOSE. The purpose of this Joint Venture shall be to
facilitate collections of charged off retail sales contracts and credit card
contracts assets ("Contract Assets") purchased from various lenders, or sell,
enforce, foreclose upon, and take any and all actions necessary, convenient or
expedient to maximize income and other benefits to be derived by the Joint
Venture in compliance with all applicable requirements of law. From time to time
the Joint Venture shall also purchase from lenders and other sources cash flow
generating Contract Assets in order to produce income for the Joint Venture. The
Joint Venture shall not engage in any other business or economic activity nor
acquire or own any type of property unrelated to the purposes set forth above
except with the prior written approval of all Venturers.
(b) No Venturer shall have any right or power to act for or assume any
obligations or responsibility on behalf of any other Venturer for any purpose
whatsoever and, except as otherwise expressly provided in this Agreement,
neither Venturer shall be liable for the contracts or acts (of either omission
or commission) of the other Venturer. It is not the purpose or intention of this
Agreement to create, and this Agreement shall never be construed as creating, a
general business partnerships or any other relationship except for the specific
purpose set forth herein.
SECTION 1.4 PLACE OF BUSINESS The principal office and place of business
of the Joint Venture shall be: 15641 Red Hill, Suite 205, Tustin, CA 92680.
ARTICLE 2. MANAGEMENT OF THE VENTURE
SECTION 2.1 MANAGEMENT. Except as otherwise provided herein, all matters
relating to the policies and management of the Joint Venture and the conduct of
business operation and affairs of the Joint Venture shall be determined by
unanimous approval of the Venturers except to the extent, if any, that specific
authority may from time to time be granted in writing by the Venturers to any
employed personnel of the Joint Venture or any other party. Notwithstanding the
foregoing, PERFORMANCE shall be authorized and empowered to take such actions
and enter into such agreements on behalf of the Joint Venture as are more
particularly described in
2
<PAGE> 3
Section 2.2, below. All persons and entities dealing with the Joint Venture with
respect to such matters may rely on documents executed by PERFORMANCE alone in
connection with such matters.
SECTION 2.2 REPRESENTATIVES OF VENTURERS. In order to facilitate the
management and operation of the Joint Venture, each Venturer shall designate a
representative as the party authorized on behalf of such Venturer to make
decisions with respect to the Joint Venture. Each other Venturer shall be
entitled to rely upon the authority of such designated representative until
informed in writing to the contrary by the other Venturer. The designated
representative of PERFORMANCE shall be Vincent E. Galewick, and the designated
representative of PAMF III shall be Vincent Galewick. Because of its specialized
expertise in the purchase and collections of Contract Assets, the
representatives of the Venturers designate PERFORMANCE:
(1) To collect revenues due or to become due to the Venture
and deposit such revenues in a bank clearing or trust
account or bank accounts (as selected by the Venturers);
(2) To exclusively assign accounts for collections to third
parties including but not limited to, outside collection
agencies and to hire attorneys from time to time to assist
in such efforts. Further, in connection with the authority
granted herein to PCM, PCM shall also have the right to
assign, transfer, or convey a portion of its ownership
interest in the Joint Venture to such third parties;
(3) To make such contracts, if any, relating to the conduct of
the business as they shall deem advisable;
(4) To negotiate and deal with regulatory authorities relative
to matters involving the business and affairs of the Joint
Venture;
(5) To prepare and deliver to each other Venturer periodic
reports, not less frequently than monthly, showing results
of operation of the Joint Venture for such period,
including cash receipts of the Joint Venture and
distribution of all funds of the Joint Venture; and
(6) To take such other action, to make all other routine
day-to-day decisions of the Joint Venture, and to perform
such other services as are necessary, customary or
appropriate for engaging in the economic
3
<PAGE> 4
activity constituting the purpose of the Joint Venture
referred to in Section 1.3 of this Agreement.
(7) To borrow funds for the benefit of the Joint Venture and
to secure such borrowing by granting security interests,
assignments, pledges or to otherwise hypothecate the
Contract Assets as security for such loans;
(8) To sell, transfer, assign or otherwise liquidate all or
any portion of the Contract Assets on such terms as
PERFORMANCE, in its sole discretion, deems in the best
interest of the Joint Venture; and
(9) To admit additional joint ventures in exchange for
contributions of cash, equity or other value to and for
the benefit of the Joint Venture conditioned, however,
upon such new venturer executing a written agreement to be
bound by all of the terms hereof.
SECTION 2.3 UNAUTHORIZED ACTS. If any Venturer purports to do any act on
behalf of the Joint Venturer or to bind the Joint Venture other than in strict
compliance with the terms of this Agreement, such Venturer shall be deemed to
have breached this Agreement and, in addition to all other liabilities of such
Venturer thereby resulting, such Venturer shall, at such Venturer's own cost and
expense, indemnify and hold harmless the other Venturers and the Joint Venture
from all claims, causes of action, costs, expenses, obligations and liabilities
thereby arising.
ARTICLE 3. ACCOUNTING AND DISTRIBUTIONS
SECTION 3.1 ACCOUNTING. The Joint Venture shall keep and maintain
adequate books of account and other financial records on the cash basis, in
accordance with generally accepted accounting principles to be consistently
applied. Such books of account and other records shall be open to inspection by
any Venturer at any time during reasonable business hours.
SECTION 3.2 DISTRIBUTIONS. All "Distributable Funds" (as hereinafter
defined) of the Joint Venture from time to time on hand shall be distributed as
follows:
(a) With respect to Distributable funds generated from payments
collected under the Contract Assets, such Distributable Funds
shall be distributed between the Joint
4
<PAGE> 5
Venturers in the following ratio: 55% to PAMF III and 45% to
PERFORMANCE.
(b) With respect to Distributable Funds generated from the sale or
other disposition of Contract Assets, such Distributable Funds
shall be distributed between the Joint Ventures in the following
ratio: 88% to PAMF III and 12% to PERFORMANCE.
The term "Distributable Funds," as used herein, means the amount (if
any) on any date, of cash collected on behalf of the Joint Venture less
reasonable reserves, current expenses and expenses incurred but not yet
disbursed.
SECTION 3.3 ALLOCATION OF INCOME, CREDITS, DEDUCTIONS, GAINS AND LOSSES.
For accounting and federal and state income tax purposes, all income,
deductions, credits, gains and losses of the Joint Venture shall be allocated to
the Venturers as of the last day of the relevant fiscal year with respect to
which such allocation is to be made as follows:
(a) With respect to items of income, credits, deductions, gains and
losses generated from payments collected under the Contract
Assets, such items shall be allocated between the Joint Venturers
in the following ratio: 55% to PAMF III and 45% to PERFORMANCE.
(b) With respect to items of income, credits, deductions, gains and
losses generated from the sale or other disposition of Contract
Assets, such items shall be distributed between the Joint
Venturers in the following ratio: 88% to PAMF III and 12% to
PERFORMANCE.
SECTION 3.4 COMPENSATION TO ANY VENTURER.
(a) Except as set forth in 3.4(b) and except as may hereafter be
expressly authorized in writing by all of the Venturers, neither any Venturer,
shall be entitled to receive, directly or indirectly, any compensation,
commission or other payment from or on account of, or in connection with, the
performance of any service for the Joint Venture, or be entitled to
reimbursement for overhead costs or similar expenses relating to any service
performed for the Joint Venture by such party.
5
<PAGE> 6
(b) Subject to the provision of Article 2, PERFORMANCE hereby agrees to
utilize its best reasonable efforts to collect all amounts owned to the Joint
Venture by the obligers under the Contract Assets and to prepare monthly reports
(in a form similar to the report attached hereto as Exhibit "B", which is
attached hereto and made a part hereof for all purposes) detailing the cash
receipts of the Joint Venture and the distribution of all funds of the Joint
Venture. Notwithstanding anything to the contrary contained herein, PERFORMANCE
shall be entitled to payment for all actual collection services provided to the
Joint Venture (such as dunning letters, account loading, credit report inquiry,
computerized account, etc.) so long as PERFORMANCE uses its best reasonable
efforts to collect the amounts owing to the Joint Venture by the obligers under
the Contract Assets, including, without limitation, arranging for employees of
PERFORMANCE to collect such revenues. In addition, PERFORMANCE shall be entitled
to reimbursement for actual expenses incurred in connection with the sale of any
assets of the Joint Venture. On accounts referred for litigation or assigned to
a third party collection entity, PERFORMANCE shall be entitled to an additional
five (5%) percent of the total monthly revenues collected and received by the
Joint Venture on such accounts as reimbursement for the additional costs and
expenses incurred by PERFORMANCE in connection with such collection efforts and
such amounts shall be in addition to actual expenses paid to attorneys and third
party collection entities. The Joint Venture agrees to indemnify PERFORMANCE as
provided in Article 7, below from all claims or causes of action arising out of
PERFORMANCE's collection of or attempts to collect revenues on behalf of the
Joint Venture. The Venturers acknowledge and understand that the Contract Assets
consists of accounts charged off as uncollectible or bad debts by others and
that it is expected that a large portion of the face amount of the Contract
Assets will not and cannot be collected and that the acquisition price of the
Contract Assets reflects the foregoing risk.
6
<PAGE> 7
ARTICLE 4. CAPITAL CONTRIBUTIONS; FORECLOSURE
SECTION 4.1 CAPITAL CONTRIBUTIONS. The Venturers have contributed to the
Joint Venture, as their respective original capital contributions, the credit
card contracts shown on Exhibit "A" attached hereto, and, accordingly, the
capital account of each respective Venturer has been credited with the amount of
such particular Venturer's capital contribution and the Percentage Interests in
the Venture thereby acquired by the various Venturers are as shown on Exhibit
"A" attached hereto.
ARTICLE 5. ASSIGNMENTS
SECTION 5.1 PROHIBITED ASSIGNMENTS. Except as otherwise provided,
without the consent of all other Venturers, no interest in this Joint Venture or
rights under this Agreement may be sold, assigned, transferred, mortgaged,
encumbered, hypothecated, or disposed of in any manner; and except as so
provided, any attempt to take any such action and any such purported sale,
assignment, transfer, mortgage encumbrance, hypothecation or other disposition
shall be void.
ARTICLE 6. TERM
SECTION 6.1 TERM. The Joint Venture and this Agreement shall remain in
full force and effect from the date hereof until termination of the Venture in
accordance with the provisions hereof. The Joint Venture shall terminate upon
the earlier to occur of any of the following:
(1) December 31, 2006; or
(2) The voluntary dissolution of the Joint Venture by the vote of the
holders of a majority of the Percentage Interests in the Venture;
or
(3) The insolvency of any Venturer or the filing of a voluntary or
involuntary petition under any Chapter of the United States
Bankruptcy Code or any similar state statute naming an Venturer
as debtor or any assignment for benefit of creditors by any
Venturer.
7
<PAGE> 8
ARTICLE 7. INDEMNIFICATIONS
SECTION 7.1 INDEMNIFICATION OF PERFORMANCE. The Joint Venture shall
indemnify and defend PERFORMANCE, its agents, employees, affiliated entities and
individuals, officers and directors (collectively referred to as PERFORMANCE in
this Section) in connection with any threatened, pending, or completed action,
lawsuit or proceeding including arbitration or other means of dispute
resolution, against any and all costs, expenses (including attorneys fees),
costs of investigation, fines, judgments, amounts paid in settlement, actually
and reasonably incurred by PERFORMANCE in connection with such action, lawsuit
or proceeding if in connection with the actions allegedly giving rise to the
claims upon which the action, lawsuit or proceeding is based PERFORMANCE acted
in good faith in a manner it reasonably believed to be in or not adverse to the
best interest of the Joint Venture.
ARTICLE 8. GENERAL
SECTION 8.1 NOTICES. Any and all notices permitted or required to be
given under the terms of this Agreement shall be in writing and may be served
by: (a) registered or certified mail, return receipt requested, postage prepaid,
and addressed to the party to be notified at the appropriate address specified
below; (b) delivering the same in person to such party, or by prepaid telegram,
addressed to the party to be notified at said address; (c) delivery by Federal
Express or other nationally recognized courier service, addressed to the party
to be notified at such address; or (d) telecopy (provided that such telecopy is
confirmed by mail or other delivery in the manner previously described). Notice
given by certified mail as aforesaid shall be deemed given and received three
(3) days after mailing , whether or not actually received. Any notice given in
any other above authorized manner shall be deemed received upon actual receipt;
but shall also be deemed received upon attempted delivery if such delivery is
not accepted. The addresses of the parties are as follows:
If to PERFORMANCE: Performance Capital Management
15641 Red Hill
Suite 205
Tustin, CA 92680
Telecopy: (714) 566-1234
8
<PAGE> 9
If to PAMF III: Performance Asset Management Fund III, Ltd.
4100 Newport Place
Suite 400
Newport Beach, CA 92660
Attention: Vincent Galewick
The addresses of any party may be changed by notice given in the manner
provided in this Section.
SECTION 8.2 ENTIRE AGREEMENT. This Agreement contains the entire
agreement between the parties hereto relative to the formation, operation,
governance and other aspects of the Joint Venture hereby formed. No variation,
modification, or change of this Agreement shall be binding upon any party hereto
unless set forth in a document duly executed by such party (or duly authorized
agent of such party) and all other Venturers.
SECTION 8.3 SEVERABILITY. If any provision of this Agreement or
application thereof to any person of circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the application
of such provision to other persons or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
SECTION 8.4 BINDING AGREEMENT. This Agreement shall inure to the benefit
of and be binding upon the undersigned parties and their respective successors
and assigns. Whenever, in this instrument, a reference to any party is made,
such reference shall be deemed to include a reference to the successors and
assigns of such party, however, neither this Section nor any other portion of
this Agreement shall be interpreted to constitute a consent to any assignments
or transfer other than pursuant to and in accordance with the other provisions
of this Agreement.
SECTION 8.5 ATTORNEY'S FEES. If any party hereto commences an action,
including arbitration or other form of dispute resolution, against any other
party hereto to enforce any of the terms hereof or because of the breach by any
party hereto of any of the terms hereof, the losing or defaulting party shall
pay the prevailing party reasonable attorney's fees, costs and expenses incurred
in connection with the prosection or defense of such action (whether by
9
<PAGE> 10
arbitration or in court of law), and in connection with any action to collect
any judgment rendered thereunder.
Executed in multiple counterparts, each of which shall have the force
and effect of an original, this the 18th day of December, 1996 ("Effective
Date")
PERFORMANCE
By:
------------------------------------
Vincent E. Galewick, President
Performance Capital Management
Address: 15641 Red Hill
Suite 205
Tustin, CA 92680
Telephone: (714)566-1212
PAMF III
By:
Vincent Galewick, President
Performance Asset Management Fund III
Performance Development, Inc., General Partner
Address: 4100 Newport Place
Suite 400
Newport Beach, CA 92660
Telephone: (714) 752-3535
10
<PAGE> 11
EXHIBIT "A"
<TABLE>
<CAPTION>
ORIGINAL
CAPITAL PERCENTAGE
NAME OF VENTURER CONTRIBUTION INTEREST
- ---------------- ------------ ----------
<S> <C> <C>
PAMF III [$700,292.50] [55%]
PCM [$ 0] [45%]
</TABLE>
11
<PAGE> 12
EXHIBIT B
(FORM OF MONTHLY REPORT ON COLLECTIONS)
12
<PAGE> 13
SCHEDULE A
(SCHEDULE OF CONTRACT ASSETS)
13
<PAGE> 1
EXHIBIT 10.11
AMENDED AND RESTATED
JOINT VENTURE AGREEMENT
OF
PERFORMANCE ASSET MANAGEMENT FUND, LTD.
(a California Joint Venture)
This AMENDED AND RESTATED JOINT VENTURE AGREEMENT ("Agreement") is made
and entered into by and between PERFORMANCE CAPITAL MANAGEMENT, a California
corporation ("PCM") and PERFORMANCE ASSET MANAGEMENT FUND, LTD., a California
Limited Partnership ("PAMF") as of September 1, 1996. The Joint Venture created
hereby is sometimes referred to hereafter as the "Venture" and the parties are
sometimes referred to as "Venturers."
RECITALS
A. PAMF is a limited partnership formed for the purpose of generating
income and cash flow from various charged off retail sales contracts and credit
card contracts assets ("Contract Assets") acquired from lenders and other
creditors and desires to develop and maintain a dedicated collections and
servicing capacity to efficiently collect on the Contract Assets.
B. PCM is a collections and servicing entity with the expertise to perform
the collection and servicing of assets such as the Contract Assets.
C. The Venturers have entered into a series of joint ventures on
essentially identical terms with respect to a number of portfolios of Contract
Assets. The dates of prior joint venture agreements and portfolios of Contract
Assets are identified on Exhibit "A" hereto.
D. By this Agreement, the Venturers wish to amend and restate in a single
document the terms and conditions of their relationship which terms and
conditions will govern such relationship with respect to all Contract Assets
currently owned as well as all Contract Assets acquired in the future, if any.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. FORMATION OF JOINT VENTURE. The Venturers have formed the Venture for
the limited purposes and scope set forth below and hereby amend, restate and
incorporate the terms of all prior agreements between them.
2. NAME OF THE JOINT VENTURE. The affairs of the Venture shall be
conducted under the name of "PAMF J.V." and such name shall be used at all times
in connection with the Venture's affairs. The Venture shall be governed by and
interpreted in accordance with the laws of the State of California. PCM is
hereby authorized to prepare and file such fictitious business name statements
and/or statements of partnership as PCM deems appropriate or required.
3. PURPOSE. The purpose of the Venture shall be to facilitate the
collection of Contract Assets purchased from various lenders and/or other
sources from time to time
<PAGE> 2
during the term of the Venture, and to sell, enforce, foreclose upon, and take
any and all actions necessary, convenient or expedient to maximize income and
other benefits to be derived by the Venture from the Contract Assets in
compliance with all applicable requirements of law. The Venture shall not engage
in any other business or economic activity nor acquire or own any type of
property unrelated to the purposes set forth above except with the prior written
approval of both Venturers.
4. GENERAL LIMITATIONS ON AUTHORITY OF Venturers. No Venturer shall have
any right or power to act for or assume any obligations or responsibility on
behalf of any other Venturer for any purpose whatsoever except as specifically
and expressly provided in this Agreement and neither Venturer shall be liable
for the contracts or acts (of either omission or commission) of the other
Venturer other than those taken on behalf of the Venture and specifically
authorized by the terms of this Agreement. It is not the purpose or intention of
this Agreement to create, and this Agreement shall never be construed as
creating, a general business partnership or any other relationship except for
the specific purposes set forth herein.
5. PLACE OF BUSINESS. The principal office and place of business of the
Venture shall be: 15641 Red Hill, Suite 205, Tustin, California 92680.
6. MANAGEMENT. Except as otherwise provided herein, all matters relating
to the policies and management of the Venture and the conduct of business
operation and affairs of the Venture shall be determined by unanimous approval
of the Venturers except to the extent, if any, that specific authority may from
time to time be granted in writing by the Venturers to any employed personnel of
the Venture or any other party. Notwithstanding the foregoing, PCM shall be
authorized and empowered to take such actions and enter into such agreements on
behalf of the Venture as are more particularly described in Section 7, below.
All persons and entities dealing with the Venture with respect to such matters
may rely on documents executed by PCM alone in connection with such matters.
7. REPRESENTATIVES OF VENTURERS. In order to facilitate the management and
operation of the Venture, each Venturer shall designate a representative as the
party authorized on behalf of such Venturer to make decisions with respect to
the Venture. The other Venturer shall be entitled to rely upon the authority of
such designated representative until informed in writing to the contrary by the
other Venturer. The designated representative of PCM shall be Vincent E.
Galewick, and the designated representative of PAMF shall be Vincent E.
Galewick. Because of its specialized expertise in the purchase and collections
of Contract Assets, the representatives of the Venturers designate PCM:
A. To collect revenues due or to become due to the Venture and
deposit such revenues in a bank clearing or trust account or bank accounts (as
selected by the Venturers);
2
<PAGE> 3
B. To exclusively assign accounts for collections to third parties
including but not limited to, outside collection agencies and to hire attorneys
from time to time to assist in such efforts. Further, in connection with the
authority granted herein to PCM, PCM shall also have the right to assign,
transfer, or convey a portion of its ownership interest in the Venture to such
third parties;
C. To make such contracts, if any, relating to the conduct of the
business as they shall deem advisable;
D. To negotiate and deal with regulatory authorities relative to
matters involving the business and affairs of the Venture;
E. To prepare and deliver to each other Venturer periodic reports,
not less frequently than monthly, showing results of operation of the Venture
and distribution of all funds of the Venture;
F. To take such other action, to make all other routine day-to-day
decisions of the Venture, and to Perform such other services as are necessary,
customary or appropriate for engaging in the economic activity constituting the
purpose of the Venture referred to in Section 3 of this Agreement;
G. To borrow funds for the benefit of the Venture and to secure
such borrowing by granting security interests, assignments, pledges or to
otherwise hypothecate the Contract Assets as security for such loans;
H. To sell, transfer, assign or otherwise liquidate all or any
portion of the Contract Assets on such terms as PCM, in its sole discretion,
deems in the best interest of the Venture; and
I. To admit additional Venturers in exchange for contributions of
cash, equity or other value to and for the benefit of the Venture conditioned,
however, upon such new venturer executing a written agreement to be bound by all
of the terms hereof.
8. UNAUTHORIZED ACTS. If any Venturer purports to do any act on behalf of
the Venturer or to bind the Venture other than in strict compliance with the
terms of this Agreement, such Venturer shall be deemed to have breached this
Agreement and, in addition to all other liabilities of such Venturer thereby
resulting, such Venturer shall, at such Venturer's own cost and expense,
indemnify and hold harmless the other Venturers and the Venture from all claims,
causes of action, costs, expenses, obligations and liabilities thereby arising.
9. ACCOUNTING. The Venture shall keep and maintain adequate books of
account and other financial records on a cash basis, in accordance with
generally accepted accounting principles that consistently applied. Such books
of account and other records shall be open to inspection by any Venturer at any
time during reasonable business hours.
3
<PAGE> 4
10. DISTRIBUTIONS. All "Distributable Funds" (as hereinafter defined) of
the Venture from time to time on hand shall be distributed as follows:
A. With respect to Distributable Funds generated from payments
collected under the Contract Assets, such Distributable Funds shall be
distributed between the Venturers in the following ratio: 55% to PAMF and 45% to
PCM; or as noted on Exhibit A.
B. With respect to Distributable Funds generated from the sale or
other disposition of Contract Assets, such Distributable Funds shall be
distributed between the Venturers in the following ratio: 85% to PAMF and 15% to
PCM.
The term "Distributable Funds," as used herein, means the amount (if any),
on any date, of cash collected on behalf of the Venture either from the
collection, sale or other disposition of Contract Assets less reasonable
reserves, current expenses and expenses incurred but not yet disbursed.
11. ALLOCATION OF INCOME, CREDITS, DEDUCTIONS, GAINS AND LOSSES. For
accounting and federal and state income tax purposes, all income, deductions,
credits, gains and losses of the Venture shall be allocated to the Venturers as
of the last day of the relevant fiscal year with respect to which such
allocation is to be made as follows:
A. With respect to items of income, credits, deductions, gains and
losses generated from payments collected under the Contract Assets, such items
shall be allocated between the Venturers in the following ratio: 55% to PAMF and
45% to PCM; or as noted on Exhibit A.
B. With respect to items of income, credits, deductions, gains and
losses generated from the sale or other disposition of Contract Assets, such
items shall be distributed between the Venturers in the following ratio: 85% to
PAMF and 15% to PCM.
12. COMPENSATION TO VENTURERS. Except as set forth herein and except as
may hereafter be expressly authorized in writing by all of the Venturers,
neither Venturer shall be entitled to receive, directly or indirectly, any
compensation, commission or other payment from or on account of, or in
connection with, the performance of any service for the Venture, or be entitled
to reimbursement for overhead costs or similar expenses relating to any service
performed for the Venture by such party.
13. BEST EFFORTS. PCM hereby agrees to utilize its best reasonable efforts
to collect all amounts owed to the Venture by the obligors under the Contract
Assets and to prepare monthly reports (in a form similar to the report attached
hereto as Exhibit "B", which is attached hereto and made a part hereof for all
purposes) detailing the cash receipts of the Venture and the distribution of all
funds of the Venture. Notwithstanding anything to the contrary contained herein,
PCM shall be entitled to payment for all actual collection services provided to
the Venture (such as dunning letters, account loading, credit report inquiry,
computerized account, etc.) so long as PCM uses its best reasonable
4
<PAGE> 5
efforts to collect the amounts owing to the Venture by the obligers under the
Contract Assets, including, without limitation, arranging for employees of PCM
to collect such revenues. In addition, PCM shall be entitled to reimbursement
for actual expenses incurred in connection with the sale of any assets of the
Venture. On accounts referred for litigation or assigned to a third party
collection entity, PCM shall be entitled to an additional five percent (5%) of
the total monthly revenues collected and received by the Venture on such
accounts as reimbursement for the additional costs and expenses incurred by PCM
in connection with such collection efforts and such amounts shall be in addition
to actual expenses paid to attorneys and third party collection entities. The
Venture agrees to indemnify PCM as provided below from all claims or causes of
action arising out of PCM's collection of or attempts to collect revenues on
behalf of the Venture. The Venturers acknowledge and understand that the
Contract Assets consist of accounts charged off as uncollectible or bad debts by
others and that it is expected that a large portion of the face amount of the
Contract Assets will not and cannot be collected and that the acquisition price
of the Contract Assets reflects the foregoing risk.
14. CAPITAL CONTRIBUTIONS. The Venturers have contributed to the
Venture, as their respective original capital contributions, the Contract
Assets, and, accordingly, the capital account of each respective Venturer has
been credited with the amount of such particular Venturer's capital contribution
and the Percentage Interests in the Venture thereby acquired by the various
Venturers.
15. PROHIBITED ASSIGNMENTS. Except as otherwise provided, without the
consent of all other Venturers, no interest in this Venture or rights under this
Agreement may be sold, assigned, transferred, mortgaged, encumbered,
hypothecated, or disposed of in any manner; and except as so provided, any
attempt to take any such action and such purported sale, assignment, transfer,
mortgage encumbrance, hypothecation or other disposition shall be void.
16. TERM. The Venture and this Agreement shall remain in full force and
effect from the date hereof until termination of the Venture in accordance with
the provisions hereof. The Venture shall terminate upon the earlier to occur of
any of the following:
A. December 31, 2005; or
B. The voluntary dissolution of the Venture by the vote of the
holders of a majority of the Percentage Interests in the Venture; or
C. The insolvency of any Venturer or the filing of a voluntary or
involuntary petition under any Chapter of the United States Bankruptcy Code or
any similar state statute naming an Venturer as debtor or any assignment for
benefit of creditors by any Venturer.
17. INDEMNIFICATION of PCM. The Venture shall indemnify and defend PCM,
its agents, employees, affiliated entities and individuals, officers and
directors (collectively
5
<PAGE> 6
referred to as PCM in this Section) in connection with any threatened, pending
or completed action, lawsuit or proceeding including arbitration or other means
of dispute resolution, against any and all costs, expenses (including attorneys
fees), costs of investigation, fines, judgments, amounts paid in settlement,
actually and reasonably incurred by PCM in connection with such action, lawsuit
or proceeding if in connection with the actions allegedly giving rise to the
claims upon which the action, lawsuit or proceeding is based PCM acted in good
faith in a manner it reasonably believed to be in or not adverse to the best
interest of the Venture.
18. GENERAL MATTERS.
18.1 NOTICES. Any and all notices permitted or required to be given
under the terms of this Agreement shall be in writing and may be served by: (a)
registered or certified mail, return receipt requested, postage prepaid, and
addressed to the party to be notified at the appropriate address specified
below; (b) delivering the same in person to such party, or by prepaid telegram,
addressed to the party to be notified at said address; (c) delivery by Federal
Express or other nationally recognized courier service, addressed to the party
to be notified at such address; or (d) telecopy (provided that such telecopy is
confirmed by mail or other delivery in the manner previously described). Notice
given by certified mail as a fore said shall be deemed given and received three
(3) days after mailing, whether or not actually received. Any notice given in
any other above authorized manner shall be deemed received upon actual receipt;
but shall also be deemed received upon attempted delivery if such delivery is
not accepted. The addresses of the parties are as follows:
IF TO PCM: Performance Capital Management
Attn: Vincent E. Galewick
15641 Red Hill
Suite 205
Tustin, CA. 92680
Telecopy: (714) 566-1234
IF TO PAMF: Performance Asset Management Fund, Ltd.
Performance Development, Inc.,
General Partner
4100 Newport Place
Suite 400
Newport Beach, CA. 92660
Attention: Vincent Galewick
Telecopy: (714) 752-3510
The addresses of any party may be changed by notice given in the manner
provided in this Section.
18.2 ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties hereto relative to the formation, operation, governance and
other aspects of the Venture hereby formed. No variation, modification, or
change of this
6
<PAGE> 7
Agreement shall be binding upon any party hereto unless set forth in a document
duly executed by such party (or duly authorized agent of such party) and all
other Venturers.
18.3 SEVERABILITY. If any provision of this Agreement or
application thereof to any person of circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the application
of such provision to other persons or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
18.4 BINDING AGREEMENT. This Agreement shall inure to the benefit
of and be binding upon the undersigned parties and their respective successors
and assigns. Whenever, in this instrument, a reference to any party is made,
such reference shall be deemed to include a reference to the successors and
assigns of such party, however, neither this Section nor any other portion of
this Agreement shall be interpreted to constitute a consent to any assignments
or transfer other than pursuant to and in accordance with the other provisions
of this Agreement.
18.5 ATTORNEYS' FEES. If any party hereto commences an action,
including arbitration or other form of dispute resolution, against any other
party hereto to enforce any of the terms hereof or because of the breach by any
party hereto of any of the terms hereof, the losing or defaulting party shall
pay the prevailing party reasonable attorneys' fees, costs and expenses incurred
in connection with the prosecution or defense of such action (whether by
arbitration or in court of law), and in connection with any action to collect
any judgment rendered thereunder.
This Agreement may be executed in multiple counterparts, each of which
shall have the force and effect of an original, as of the date first set forth
above ("Effective Date").
PERFORMANCE CAPITAL MANAGEMENT,
A CALIFORNIA CORPORATION
By: /s/ VINCENT E. GALEWICK
-------------------------------------
Vincent E. Galewick, President
PERFORMANCE ASSET MANAGEMENT
FUND, LTD., A CALIFORNIA LIMITED
PARTNERSHIP
By: /s/ VINCENT E. GALEWICK
-------------------------------------
Vincent E. Galewick, President
7
<PAGE> 8
EXHIBIT "A"
<TABLE>
<CAPTION>
DATE PARTNERSHIP CODE CORPORATION COMMENTS
<S> <C> <C> <C> <C>
08/29/91 PAM I PCM Far Western Bank
10/22/91 PAM I PCM Far Western Bank
12/05/91 PAM I PCM Landmark
01/15/92 PAM I PCM Personal Finance
06/22/93 PAM I PC063/2063 PCM Centennial Thrift
06/11/96 PAM I P1P2BF PCM Berkley Fed. Bank
08/30/96 PAM I PICM16 PCM Chase Manhattan
</TABLE>
<PAGE> 9
EXHIBIT "B"
(form of Monthly Report on Collections)
<PAGE> 1
EXHIBIT 10.12
AMENDED AND RESTATED
JOINT VENTURE AGREEMENT
OF
PERFORMANCE ASSET MANAGEMENT FUND II, LTD.
(a California Joint Venture)
This AMENDED AND RESTATED JOINT VENTURE AGREEMENT ("Agreement") is made and
entered into by and between PERFORMANCE CAPITAL MANAGEMENT, a California
corporation ("PCM") and PERFORMANCE ASSET MANAGEMENT FUND II, LTD., a California
Limited Partnership ("PAM II") as of September 1, 1996. The Joint Venture
created hereby is sometimes referred to hereafter as the "Venture" and the
parties are sometimes referred to as "Venturers."
RECITALS
A. PAM II is a limited partnership formed for the purpose of generating
income and cash flow from various charged off retail sales contracts and credit
card contracts assets ("Contract Assets") acquired from lenders and other
creditors and desires to develop and maintain a dedicated collections and
servicing capacity to efficiently collect on the Contract Assets.
B. PCM is a collections and servicing entity with the expertise to perform
the collection and servicing of assets such as the Contract Assets.
C. The Venturers have entered into a series of joint ventures on
essentially identical terms with respect to a number of portfolios of Contract
Assets. The dates of prior joint venture agreements and portfolios of Contract
Assets are identified on Exhibit "A" hereto.
D. By this Agreement, the Venturers wish to amend and restate in a single
document the terms and conditions of their relationship which terms and
conditions will govern such relationship with respect to all Contract Assets
currently owned as well as all Contract Assets acquired in the future, if any.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. FORMATION OF JOINT VENTURE. The Venturers have formed the Venture for
the limited purposes and scope set forth below and hereby amend, restate and
incorporate the terms of all prior agreements between them.
2. NAME OF THE JOINT VENTURE. The affairs of the Venture shall be conducted
under the name of "PAM II J.V." and such name shall be used at all times in
connection with the Venture's affairs. The Venture shall be governed by and
interpreted in accordance with the laws of the State of California. PCM is
hereby authorized to prepare and file such fictitious business name statements
and/or statements of partnership as PCM deems appropriate or required.
<PAGE> 2
3. PURPOSE. The purpose of the Venture shall be to facilitate the
collection of Contract Assets purchased from various lenders and/or other
sources from time to time during the term of the Venture, and to sell, enforce,
foreclose upon, and take any and all actions necessary, convenient or expedient
to maximize income and other benefits to be derived by the Venture from the
Contract Assets in compliance with all applicable requirements of law. The
Venture shall not engage in any other business or economic activity nor acquire
or own any type of property unrelated to the purposes set forth above except
with the prior written approval of both Venturers.
4. GENERAL LIMITATIONS ON AUTHORITY OF Venturers. No Venturer shall have
any right or power to act for or assume any obligations or responsibility on
behalf of any other Venturer for any purpose whatsoever except as specifically
and expressly provided in this Agreement and neither Venturer shall be liable
for the contracts or acts (of either omission or commission) of the other
Venturer other than those taken on behalf of the Venture and specifically
authorized by the terms of this Agreement. It is not the purpose or intention of
this Agreement to create, and this Agreement shall never be construed as
creating, a general business partnership or any other relationship except for
the specific purposes set forth herein.
5. PLACE OF BUSINESS. The principal office and place of business of the
Venture shall be: 15641 Red Hill, Suite 205, Tustin, California 92680.
6. MANAGEMENT. Except as otherwise provided herein, all matters relating to
the policies and management of the Venture and the conduct of business operation
and affairs of the Venture shall be determined by unanimous approval of the
Venturers except to the extent, if any, that specific authority may from time to
time be granted in writing by the Venturers to any employed personnel of the
Venture or any other party. Notwithstanding the foregoing, PCM shall be
authorized and empowered to take such actions and enter into such agreements on
behalf of the Venture as are more particularly described in Section 7, below.
All persons and entities dealing with the Venture with respect to such matters
may rely on documents executed by PCM alone in connection with such matters.
7. REPRESENTATIVES OF VENTURERS. In order to facilitate the management and
operation of the Venture, each Venturer shall designate a representative as the
party authorized on behalf of such Venturer to make decisions with respect to
the Venture. The other Venturer shall be entitled to rely upon the authority of
such designated representative until informed in writing to the contrary by the
other Venturer. The designated representative of PCM shall be Vincent E.
Galewick, and the designated representative of PAM II shall be Vincent E.
Galewick. Because of its specialized expertise in the purchase and collections
of Contract Assets, the representatives of the Venturers designate PCM:
A. To collect revenues due or to become due to the Venture and
deposit such revenues in a bank clearing or trust account or bank accounts (as
selected by the Venturers);
2
<PAGE> 3
B. To exclusively assign accounts for collections to third parties
including but not limited to, outside collection agencies and to hire attorneys
from time to time to assist in such efforts. Further, in connection with the
authority granted herein to PCM, PCM shall also have the right to assign,
transfer, or convey a portion of its ownership interest in the Venture to such
third parties;
C. To make such contracts, if any, relating to the conduct of the
business as they shall deem advisable;
D. To negotiate and deal with regulatory authorities relative to
matters involving the business and affairs of the Venture;
E. To prepare and deliver to each other Venturer periodic reports,
not less frequently than monthly, showing results of operation of the Venture
and distribution of all funds of the Venture;
F. To take such other action, to make all other routine day-to-day
decisions of the Venture, and to Perform such other services as are necessary,
customary or appropriate for engaging in the economic activity constituting the
purpose of the Venture referred to in Section 3 of this Agreement;
G. To borrow funds for the benefit of the Venture and to secure such
borrowing by granting security interests, assignments, pledges or to otherwise
hypothecate the Contract Assets as security for such loans;
H. To sell, transfer, assign or otherwise liquidate all or any
portion of the Contract Assets on such terms as PCM, in its sole discretion,
deems in the best interest of the Venture; and
I. To admit additional Venturers in exchange for contributions of
cash, equity or other value to and for the benefit of the Venture conditioned,
however, upon such new venturer executing a written agreement to be bound by all
of the terms hereof.
8. UNAUTHORIZED ACTS. If any Venturer purports to do any act on behalf of
the Venturer or to bind the Venture other than in strict compliance with the
terms of this Agreement, such Venturer shall be deemed to have breached this
Agreement and, in addition to all other liabilities of such Venturer thereby
resulting, such Venturer shall, at such Venturer's own cost and expense,
indemnify and hold harmless the other Venturers and the Venture from all claims,
causes of action, costs, expenses, obligations and liabilities thereby arising.
9. ACCOUNTING. The Venture shall keep and maintain adequate books of
account and other financial records on a cash basis, in accordance with
generally accepted accounting principles that consistently applied. Such books
of account and other records shall be open to inspection by any Venturer at any
time during reasonable business hours.
3
<PAGE> 4
10. DISTRIBUTIONS. All "Distributable Funds" (as hereinafter defined ) of
the Venture from time to time on hand shall be distributed as follows:
A. With respect to Distributable Funds generated from payments
collected under the Contract Assets, such Distributable Funds shall be
distributed between the Venturers in the following ratio: 55% to PAM II and 45%
to PCM; or as noted on Exhibit A.
B. With respect to Distributable Funds generated from the sale or
other disposition of Contract Assets, such Distributable Funds shall be
distributed between the Venturers in the following ratio: 85% to PAM II and 15%
to PCM.
The term "Distributable Funds," as used herein, means the amount (if any),
on any date, of cash collected on behalf of the Venture either from the
collection, sale or other disposition of Contract Assets less reasonable
reserves, current expenses and expenses incurred but not yet disbursed.
11. ALLOCATION OF INCOME, CREDITS, DEDUCTIONS, GAINS AND LOSSES. For
accounting and federal and state income tax purposes, all income, deductions,
credits, gains and losses of the Venture shall be allocated to the Ventureres as
of the last day of the relevant fiscal year with respect to which such
allocation is to be made as follows:
A. With respect to items of income, credits, deductions, gains and
losses generated from payments collected under the Contract Assets, such items
shall be allocated between the Venturers in the following ratio: 55% to PAM II
and 45% to PCM; or as noted on Exhibit A.
B. With respect to items of income, credits, deductions, gains and
losses generated from the sale or other disposition of Contract Assets, such
items shall be distributed between the Venturers in the following ratio: 85% to
PAM II and 15% to PCM.
12. COMPENSATION TO VENTURERS. Except as set forth herein and except as may
hereafter be expressly authorized in writing by all of the Venturers, neither
Venturer shall be entitled to receive, directly or indirectly, any compensation,
commission or other payment from or on account of, or in connection with, the
performance of any service for the Venture, or be entitled to reimbursement for
overhead costs or similar expenses relating to any service performed for the
Venture by such party.
13. BEST EFFORTS. PCM hereby agrees to utilize its best reasonable efforts
to collect all amounts owed to the Venture by the obligors under the Contract
Assets and to prepare monthly reports (in a form similar to the report attached
hereto as Exhibit "B", which is attached hereto and made a part hereof for all
purposes) detailing the cash receipts of the Venture and the distribution of all
funds of the Venture. Notwithstanding anything to the contrary contained herein,
PCM shall be entitled to payment for all actual collection services provided to
the Venture (such as dunning letters, account loading,
4
<PAGE> 5
credit report inquiry, computerized account, etc.) so long as PCM uses its best
reasonable efforts to collect the amounts owing to the Venture by the obligors
under the Contract Assets, including, without limitation, arranging for
employees of PCM to collect such revenues. In addition, PCM shall be entitled to
reimbursement for actual expenses incurred in connection with the sale of any
assets of the Venture. On accounts referred for litigation or assigned to a
third party collection entity, PCM shall be entitled to an additional five
percent (5%) of the total monthly revenues collected and received by the Venture
on such accounts as reimbursement for the additional costs and expenses incurred
by PCM in connection with such collection efforts and such amounts shall be in
addition to actual expenses paid to attorneys and third party collection
entities. The Venture agrees to indemnify PCM as provided below from all claims
or causes of action arising out of PCM's collection of or attempts to collect
revenues on behalf of the Venture. The Venturers acknowledge and understand that
the Contract Assets consist of accounts charged off as uncollectible or bad
debts by others and that it is expected that a large portion of the face amount
of the Contract Assets will not and cannot be collected and that the acquisition
price of the Contract Assets reflects the foregoing risk.
14. CAPITAL CONTRIBUTIONS. The Venturers have contributed to the Venture,
as their respective original capital contributions, the Contract Assets, and,
accordingly, the capital account of each respective Venturer has been credited
with the amount of such particular Venturer's capital contribution and the
Percentage Interests in the Venture thereby acquired by the various Venturers.
15. PROHIBITED ASSIGNMENTS. Except as otherwise provided, without the
consent of all other Venturers, no interest in this Venture or rights under this
Agreement may be sold, assigned, transferred, mortgaged, encumbered,
hypothecated, or disposed of in any manner; and except as so provided, any
attempt to take any such action and such purported sale, assignment, transfer,
mortgage encumbrance, hypothecation or other disposition shall be void.
16. TERM. The Venture and this Agreement shall remain in full force and
effect from the date hereof until termination of the Venture in accordance with
the provisions hereof. The Venture shall terminate upon the earlier to occur of
any of the following:
A. December 31, 2005; or
B. The voluntary dissolution of the Venture by the vote of the
holders of a majority of the Percentage Interests in the Venture; or
C. The insolvency of any Venturer or the filing of a voluntary or
involuntary petition under any Chapter of the United States Bankruptcy Code or
any similar state statute naming an Venturer as debtor or any assignment for
benefit of creditors by any Venturer.
5
<PAGE> 6
17. INDEMNIFICATION of PCM. The Venture shall indemnify and defend PCM, its
agents, employees, affiliated entities and individuals, officers and directors
(collectively referred to as PCM in this Section) in connection with any
threatened, pending or completed action, lawsuit or proceeding including
arbitration or other means of dispute resolution, against any and all costs,
expenses (including attorneys fees), costs of investigation, fines, judgments,
amounts paid in settlement, actually and reasonably incurred by PCM in
connection with such action, lawsuit or proceeding if in connection with the
actions allegedly giving rise to the claims upon which the action, lawsuit or
proceeding is based PCM acted in good faith in a manner it reasonably believed
to be in or not adverse to the best interest of the Venture.
18. GENERAL MATTERS.
18.1 NOTICES. Any and all notices permitted or required to be given
under the terms of this Agreement shall be in writing and may be served by: (a)
registered or certified mail, return receipt requested, postage prepaid, and
addressed to the party to be notified at the appropriate address specified
below; (b) delivering the same in person to such party, or by prepaid telegram,
addressed to the party to be notified at said address; (c) delivery by Federal
Express or other nationally recognized courier service, addressed to the party
to be notified at such address; or (d) telecopy (provided that such telecopy is
confirmed by mail or other delivery in the manner previously described). Notice
given by certified mail as a fore said shall be deemed given and received three
(3) days after mailing, whether or not actually received. Any notice given in
any other above authorized manner shall be deemed received upon actual receipt;
but shall also be deemed received upon attempted delivery if such delivery is
not accepted. The addresses of the parties are as follows:
IF TO PCM: Performance Capital Management
Attn: Vincent E. Galewick
15641 Red Hill
Suite 205
Tustin, CA. 92680
Telecopy: (714) 566-1234
IF TO PAM II: Performance Asset Management Fund II, Ltd.
Performance Development, Inc., General Partner
4100 Newport Place
Suite 400
Newport Beach, CA. 92660
Attention: Vincent Galewick
Telecopy: (714) 752-3510
The addresses of any party may be changed by notice given in the manner
provided in this Section.
18.2 ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties hereto relative to the formation, operation, governance and
other
6
<PAGE> 7
aspects of the Venture hereby formed. No variation, modification, or change Of
this Agreement shall be binding upon any party hereto unless set forth in a
document duly executed by such party (or duly authorized agent of such party)
and all other Venturers.
18.3 SEVERABILITY. If any provision of this Agreement or application
thereof to any person of circumstance shall be invalid or unenforceable to any
extent, the remainder of this Agreement and the application of such provision to
other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by law.
18.4 BINDING AGREEMENT. This Agreement shall inure to the benefit of
and be binding upon the undersigned parties and their respective successors and
assigns. Whenever, in this instrument, a reference to any party is made, such
reference shall be deemed to include a reference to the successors and assigns
of such party, however, neither this Section nor any other portion of this
Agreement shall be interpreted to constitute a consent to any assignments or
transfer other than pursuant to and in accordance with the other provisions of
this Agreement.
18.5 ATTORNEYS' FEES. If any party hereto commences an action,
including arbitration or other form of dispute resolution, against any other
party hereto to enforce any of the terms hereof or because of the breach by any
party hereto of any of the terms hereof, the losing or defaulting party shall
pay the prevailing party reasonable attorneys' fees, costs and expenses incurred
in connection with the prosecution or defense of such action (whether by
arbitration or in court of law), and in connection with any action to collect
any judgment rendered thereunder.
This Agreement may be executed in multiple counterparts, each of which
shall have the force and effect of an original, as of the date above ("Effective
Date")
PERFORMANCE CAPITAL MANAGEMENT,
A CALIFORNIA CORPORATION
By: /s/ VINCENT E. GALEWICK
-------------------------------------
Vincent E. Galewick, President
PERFORMANCE ASSET MANAGEMENT
FUND II, LTD., A CALIFORNIA LIMITED
PARTNERSHIP
By: /s/ VINCENT E. GALEWICK
-------------------------------------
Vincent E. Galewick, President
7
<PAGE> 8
EXHIBIT "A"
<TABLE>
<CAPTION>
DATE PARTNERSHIP CODE CORPORATION COMMENTS
<S> <C> <C> <C> <C>
12/28/93 PAM II PCH123 PCM Chemical Bank
01/27/94 PAM II PGC014 PCM Gulf/Chemical Bank
09/28/94 PAM II P2FU15 PCM First USA
11/07/94 PAM II P2CC16 PCM Comm. Credit Corp.
10/31/95 PAM II P2FU18 PCM First USA
06/11/96 PAM II P1P2BF PCM Berkley Fed. Bank
08/30/96 PAM II P2CM22 PCM Chase Manhattan
</TABLE>
<PAGE> 9
EXHIBIT "B"
(form of Monthly Report on Collections)
<PAGE> 1
EXHIBIT 10.13
AMENDED AND RESTATED
JOINT VENTURE AGREEMENT
OF
PERFORMANCE ASSET MANAGEMENT FUND III, LTD.
(a California Joint Venture)
This AMENDED AND RESTATED JOINT VENTURE AGREEMENT ("Agreement") is made
and entered into by and between PERFORMANCE CAPITAL MANAGEMENT, a California
corporation ("PCM") and PERFORMANCE ASSET MANAGEMENT FUND III, LTD., a
California Limited Partnership ("PAM III") as of September 1, 1996. The Joint
Venture created hereby is sometimes referred to hereafter as the "Venture" and
the parties are sometimes referred to as "Venturers."
RECITALS
A. PAM III is a limited partnership formed for the purpose of generating
income and cash flow from various charged off retail sales contracts and credit
card contracts assets ("Contract Assets") acquired from lenders and other
creditors and desires to develop and maintain a dedicated collections and
servicing capacity to efficiently collect on the Contract Assets.
B. PCM is a collections and servicing entity with the expertise to perform
the collection and servicing of assets such as the Contract Assets.
C. The Venturers have entered into a series of joint ventures on
essentially identical terms with respect to a number of portfolios of Contract
Assets. The dates of prior joint venture agreements and portfolios of Contract
Assets are identified on Exhibit "A" hereto.
D. By this Agreement, the Venturers wish to amend and restate in a single
document the terms and conditions of their relationship which terms and
conditions will govern such relationship with respect to all Contract Assets
currently owned as well as in all Contract Assets acquired in the future, if
any.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. FORMATION OF JOINT VENTURE. The Venturers have formed the Venture for
the limited purposes and scope set forth below and hereby amend, restate and
incorporate the terms of all prior agreements between them.
2. NAME OF THE JOINT VENTURE. The affairs of the Venture shall be
conducted under the name of "PAM III J.V." and such name shall be used at all
times in connection with the Venture's affairs. The Venture shall be governed by
and interpreted in accordance with the laws of the State of California. PCM is
hereby authorized to prepare and file such fictitious business name statements
and/or statements of partnership as PCM deems appropriate or required.
<PAGE> 2
3. PURPOSE. The purpose of the Venture shall be to facilitate the
collection of Contract Assets purchased from various lenders and/or other
sources from time to time during the term of the Venture, and to sell, enforce,
foreclose upon, and take any and all actions necessary, convenient or expedient
to maximize income and other benefits to be derived by the Venture from the
Contract Assets in compliance with all applicable requirements of law. The
Venture shall not engage in any other business or economic activity nor acquire
or own any type of property unrelated to the purposes set forth above except
with the prior written approval of both Venturers.
4. GENERAL LIMITATIONS ON AUTHORITY OF VENTURERS. No Venturer shall have
any right or power to act for or assume any obligations or responsibility on
behalf of any other Venturer for any purpose whatsoever except as specifically
and expressly provided in this Agreement and neither Venturer shall be liable
for the contracts or acts (of either omission or commission) of the other
Venturer other than those taken on behalf of the Venture and specifically
authorized by the terms of this Agreement. It is not the purpose or intention of
this Agreement to create, and this Agreement shall never be construed as
creating, a general business partnership or any other relationship except for
the specific purposes set forth herein.
5. PLACE OF BUSINESS. The principal office and place of business of the
Venture shall be: 15641 Red Hill, Suite 205, Tustin, California 92680.
6. MANAGEMENT. Except as otherwise provided herein, all matters relating
to the policies and management of the Venture and the conduct of business
operation and affairs of the Venture shall be determined by unanimous approval
of the Venturers except to the extent, if any, that specific authority may from
time to time be granted in writing by the Venturers to any employed personnel of
the Venture or any other party. Notwithstanding the foregoing, PCM shall be
authorized and empowered to take such actions and enter into such agreements on
behalf of the Venture as are more particularly described in Section 7, below.
All persons and entities dealing with the Venture with respect to such matters
may rely on documents executed by PCM alone in connection with such matters.
7. REPRESENTATIVES OF VENTURERS. In order to facilitate the management
and operation of the Venture, each Venturer shall designate a representative as
the party authorized on behalf of such Venturer to make decisions with respect
to the Venture. The other Venturer shall be entitled to rely upon the authority
of such designated representative until informed in writing to the contrary by
the other Venturer. The designated representative of PCM shall be Vincent E.
Galewick, and the designated representative of PAM III shall be Vincent E.
Galewick. Because of its specialized expertise in the purchase and collections
of Contract Assets, the representatives of the Venturers designate PCM:
A. To collect revenues due or to become due to the Venture and
deposit such revenues in a bank clearing or trust account or bank accounts (as
selected by the Venturers);
2
<PAGE> 3
B. To exclusively assign accounts for collections to third parties
including but not limited to, outside collection agencies and to hire attorneys
from time to time to assist in such efforts. Further, in connection with the
authority granted herein to PCM, PCM shall also have the right to assign,
transfer, or convey a portion of its ownership interest in the Venture to such
third parties;
C. To make such contracts, if any, relating to the conduct of the
business as they shall deem advisable;
D. To negotiate and deal with regulatory authorities relative to
matters involving the business and affairs of the Venture;
E. To prepare and deliver to each other Venturer periodic reports,
not less frequently than monthly, showing results of operation of the Venture
and distribution of all funds of the Venture;
F. To take such other action, to make all other routine day-to-day
decisions of the Venture, and to Perform such other services as are necessary,
customary or appropriate for engaging in the economic activity constituting the
purpose of the Venture referred to in Section 3 of this Agreement;
G. To borrow funds for the benefit of the Venture and to secure such
borrowing by granting security interests, assignments, pledges or to otherwise
hypothecate the Contract Assets as security for such loans;
H. To sell, transfer, assign or otherwise liquidate all or any
portion of the Contract Assets on such terms as PCM, in its sole discretion,
deems in the best interest of the Venture; and
I. To admit additional Venturers in exchange for contributions of
cash, equity or other value to and for the benefit of the Venture conditioned,
however, upon such new venturer executing a written agreement to be bound by all
of the terms hereof.
8. UNAUTHORIZED ACTS. If any Venturer purports to do any act on behalf
of the Venturer or to bind the Venture other than in strict compliance with the
terms of this Agreement, such Venturer shall be deemed to have breached this
Agreement and, in addition to all other liabilities of such Venturer thereby
resulting, such Venturer shall, at such Venturer's own cost and expense,
indemnify and hold harmless the other Venturers and the Venture from all claims,
causes of action, costs, expenses, obligations and liabilities thereby arising.
9. ACCOUNTING. The Venture shall keep and maintain adequate books of
account and other financial records on a cash basis, in accordance with
generally accepted accounting principles that consistently applied. Such books
of account and other records shall be open to inspection by any Venturer at any
time during reasonable business hours.
3
<PAGE> 4
10. DISTRIBUTIONS. All "Distributable Funds" (as hereinafter defined of
the Venture from time to time on hand shall be distributed as follows:
A. With respect to Distributable Funds generated from payments
collected under the Contract Assets, such Distributable Funds shall be
distributed between the Venturers in the following ratio: 55% to PAM III and 45%
to PCM; or as noted on Exhibit A.
B. With respect to Distributable Funds generated from the sale or
other disposition of Contract Assets, such Distributable Funds shall be
distributed between the Venturers in the following ratio: 85% to PAM III and 15%
to PCM.
The term "Distributable Funds," as used herein, means the amount (if
any), on any date, of cash collected on behalf of the Venture either from the
collection, sale or other disposition of Contract Assets less reasonable
reserves, current expenses and expenses incurred but not yet disbursed.
11. ALLOCATION OF INCOME, CREDITS, DEDUCTIONS, GAINS AND LOSSES. For
accounting and federal and state income tax purposes, all income, deductions,
credits, gains and losses of the Venture shall be allocated to the Venturers as
of the last day of the relevant fiscal year with respect to which such
allocation is to be made as follows:
A. With respect to items of income, credits, deductions, gains and
losses generated from payments collected under the Contract Assets, such items
shall be allocated between the Venturers in the following ratio: 55% to PAM III
and 45% to PCM; or as noted on Exhibit A.
B. With respect to items of income, credits, deductions, gains and
losses generated from the sale or other disposition of Contract Assets, such
items shall be distributed between the Venturers in the following ratio: 85% to
PAM III and 15% to PCM.
12. COMPENSATION TO VENTURERS. Except as set forth herein and except as
may hereafter be expressly authorized in writing by all of the Venturers,
neither Venturer shall be entitled to receive, directly or indirectly, any
compensation, commission or other payment from or on account of, or in
connection with, the performance of any service for the Venture, or be entitled
to reimbursement for overhead costs or similar expenses relating to any service
performed for the Venture by such party.
13. BEST EFFORTS. PCM hereby agrees to utilize its best reasonable
efforts to collect all amounts owed to the Venture by the obligors under the
Contract Assets and to prepare monthly reports (in a form similar to the report
attached hereto as Exhibit "B", which is attached hereto and made a part hereof
for all purposes) detailing the cash receipts of the Venture and the
distribution of all funds of the Venture. Notwithstanding anything to the
contrary contained herein, PCM shall be entitled to payment for all actual
collection services provided to the Venture (such as dunning letters, account
loading,
4
<PAGE> 5
credit report inquiry, computerized account, etc.) so long as PCM uses its best
reasonable efforts to collect the amounts owing to the Venture by the obligors
under the Contract Assets, including, without limitation, arranging for
employees of PCM to collect such revenues. In addition, PCM shall be entitled to
reimbursement for actual expenses incurred in connection with the sale of any
assets of the Venture. On accounts referred for litigation or assigned to a
third party collection entity, PCM shall be entitled to an additional five
percent (5%) of the total monthly revenues collected and received by the Venture
on such accounts as reimbursement for the additional costs and expenses incurred
by PCM in connection with such collection efforts and such amounts shall be in
addition to actual expenses paid to attorneys and third party collection
entities. The Venture agrees to indemnify PCM as provided below from all claims
or causes of action arising out of PCM's collection of or attempts to collect
revenues on behalf of the Venture. The Venturers acknowledge and understand that
the Contract Assets consist of accounts charged off as uncollectible or bad
debts by others and that it is expected that a large portion of the face amount
of the Contract Assets will not and cannot be collected and that the acquisition
price of the Contract Assets reflects the foregoing risk.
14. CAPITAL CONTRIBUTIONS. The Venturers have contributed to the
Venture, as their respective original capital contributions, the Contract
Assets, and, accordingly, the capital account of each respective Venturer has
been credited with the amount of such particular Venturer's capital contribution
and the Percentage Interests in the Venture thereby acquired by the various
Venturers.
15. PROHIBITED ASSIGNMENTS. Except as otherwise provided, without the
consent of all other Venturers, no interest in this Venture or rights under this
Agreement may be sold, assigned, transferred, mortgaged, encumbered,
hypothecated, or disposed of in any manner; and except as so provided, any
attempt to take any such action and such purported sale, assignment, transfer,
mortgage encumbrance, hypothecation or other disposition shall be void.
16. TERM. The Venture and this Agreement shall remain in full force and
effect from the date hereof until termination of the Venture in accordance with
the provisions hereof. The Venture shall terminate upon the earlier to occur of
any of the following:
A. December 31, 2005; or
B. The voluntary dissolution of the Venture by the vote of the
holders of a majority of the Percentage Interests in the Venture; or
C. The insolvency of any Venturer or the filing of a voluntary or
involuntary petition under any Chapter of the United States Bankruptcy Code or
any similar state statute naming an Venturer as debtor or any assignment for
benefit of creditors by any Venturer.
5
<PAGE> 6
17. INDEMNIFICATION OF PCM. The Venture shall indemnify and defend PCM,
its agents, employees, affiliated entities and individuals, officers and
directors (collectively referred to as PCM in this Section) in connection with
any threatened, pending or completed action, lawsuit or proceeding including
arbitration or other means of dispute resolution, against any and all costs,
expenses (including attorneys fees), costs of investigation, fines, judgments,
amounts paid in settlement, actually and reasonably incurred by PCM in
connection with such action, lawsuit or proceeding if in connection with the
actions allegedly giving rise to the claims upon which the action, lawsuit or
proceeding is based PCM acted in good faith in a manner it reasonably believed
to be in or not adverse to the best interest of the Venture.
18. GENERAL MATTERS.
18.1 NOTICES. Any and all notices permitted or required to be given
under the terms of this Agreement shall be in writing and may be served by: (a)
registered or certified mail, return receipt requested, postage prepaid, and
addressed to the party to be notified at the appropriate address specified
below; (b) delivering the same in person to such party, or by prepaid telegram,
addressed to the party to be notified at said address; (c) delivery by Federal
Express or other nationally recognized courier service, addressed to the party
to be notified at such address; or (d) telecopy (provided that such telecopy is
confirmed by mail or other delivery in the manner previously described). Notice
given by certified mail as aforesaid shall be deemed given and received three
(3) days after mailing, whether or not actually received. Any notice given in
any other above authorized manner shall be deemed received upon actual receipt;
but shall also be deemed received upon attempted delivery if such delivery is
not accepted. The addresses of the parties are as follows:
IF TO PCM: Performance Capital Management
Attn: Vincent E. Galewick
15641 Red Hill
Suite 205
Tustin, CA. 92680
Telecopy: (714) 566-1234
IF TO PAM III: Performance Asset Management Fund III, Ltd.
Performance Development, Inc., General Partner
4100 Newport Place
Suite 400
Newport Beach, CA. 92660
Attention: Vincent Galewick
Telecopy: (714) 752-3510
The addresses of any party may be changed by notice given in the manner
provided in this Section.
6
<PAGE> 7
18.2 ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties hereto relative to the formation, operation, governance and
other aspects of the Venture hereby formed. No variation, modification, or
change of this Agreement shall be binding upon any party hereto unless set forth
in a document duly executed by such party (or duly authorized agent of such
party) and all other Venturers.
18.3 SEVERABILITY. If any provision of this Agreement or application
thereof to any person of circumstance shall be invalid or unenforceable to any
extent, the remainder of this Agreement and the application of such provision to
other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by law.
18.4 BINDING AGREEMENT. This Agreement shall inure to the benefit of
and be binding upon the undersigned parties and their respective successors and
assigns. Whenever, in this instrument, a reference to any party is made, such
reference shall be deemed to include a reference to the successors and assigns
of such party, however, neither this Section nor any other portion of this
Agreement shall be interpreted to constitute a consent to any assignments or
transfer other than pursuant to and in accordance with the other provisions of
this Agreement.
18.5 ATTORNEYS' FEES. If any party hereto commences an action,
including arbitration or other form of dispute resolution, against any other
party hereto to enforce any of the terms hereof or because of the breach by any
party hereto of any of the terms hereof, the losing or defaulting party shall
pay the prevailing party reasonable attorneys' fees, costs and expenses incurred
in connection with the prosecution or defense of such action (whether by
arbitration or in court of law), and in connection with any action to collect
any judgment rendered thereunder.
This Agreement may be executed in multiple counterparts, each of which
shall have the force and effect of an original, as of the date first set forth
above ("Effective Date").
PERFORMANCE CAPITAL MANAGEMENT,
A CALIFORNIA CORPORATION
By: /s/ VINCENT E. GALEWICK
-------------------------------------
Vincent E. Galewick, President
PERFORMANCE ASSET MANAGEMENT
FUND III, LTD., A CALIFORNIA LIMITED
PARTNERSHIP
By: /s/ VINCENT E. GALEWICK
-------------------------------------
Vincent E. Galewick, President
7
<PAGE> 8
EXHIBIT "A"
<TABLE>
<CAPTION>
DATE PARTNERSHIP CODE CORPORATION COMMENTS
<S> <C> <C> <C> <C>
01/22/93 PAM III HRSI PCM HRSI
02/10/95 PAM III P3CB18 PCM Chemical Bank
08/30/96 PAM III P3CM19 PCM Chase Manhattan
11/25/96 PAM III P3CM20 PCM Chase Manhattan
</TABLE>
<PAGE> 9
EXHIBIT "B"
(form of Monthly Report on Collections)
<PAGE> 1
EXHIBIT 10.14
AMENDED AND RESTATED
JOINT VENTURE AGREEMENT
OF
PERFORMANCE ASSET MANAGEMENT FUND IV, LTD.
(a California Joint Venture)
This AMENDED AND RESTATED JOINT VENTURE AGREEMENT ("Agreement") is
made and entered into by and between PERFORMANCE CAPITAL MANAGEMENT, a
California corporation ("PCM") and PERFORMANCE ASSET MANAGEMENT FUND IV, LTD.,
a California Limited Partnership ("PAM IV") as of September 1, 1996. The Joint
Venture created hereby is sometimes referred to hereafter as the "Venture" and
the parties are sometimes referred to as "Venturers."
RECITALS
A. PAM IV is a limited partnership formed for the purpose of
generating income and cash flow from various charged off retail sales contracts
and credit card contracts assets ("Contract Assets") acquired from lenders and
other creditors and desires to develop and maintain a dedicated collections and
servicing capacity to efficiently collect on the Contract Assets.
B. PCM is a collections and servicing entity with the expertise
to perform the collection and servicing of assets such as the Contract Assets.
C. The Venturers have entered into a series of joint ventures on
essentially identical terms with respect to a number of portfolios of Contract
Assets. The dates of prior joint venture agreements and portfolios of Contract
Assets are identified on Exhibit "A" hereto.
D. By this Agreement, the Venturers wish to amend and restate in
a single document the terms and conditions of their relationship which terms
and conditions will govern such relationship with respect to all Contract
Assets currently owned as well as all Contract Assets acquired in the future,
if any.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. FORMATION OF JOINT VENTURE. The Venturers have formed the
Venture for the limited purposes and scope set forth below and hereby amend,
restate and incorporate the terms of all prior agreements between them.
2. NAME OF THE JOINT VENTURE. The affairs of the Venture shall
be conducted under the name of "PAM IV J.V." and such name shall be used at all
times in connection with the Venture's affairs. The Venture shall be governed
by and interpreted in accordance with the laws of the State of California. PCM
is hereby authorized to prepare and file such fictitious business name
statements and/or statements of partnership as PCM deems appropriate or
required.
<PAGE> 2
3. PURPOSE. The purpose of the Venture shall be to facilitate the
collection of Contract Assets purchased from various lenders and/or other
sources from time to time during the term of the Venture, and to sell, enforce,
foreclose upon, and take any and all actions necessary, convenient or expedient
to maximize income and other benefits to be derived by the Venture from the
Contract Assets in compliance with all applicable requirements of law. The
Venture shall not engage in any other business or economic activity nor acquire
or own any type of property unrelated to the purposes set forth above except
with the prior written approval of both Venturers.
4. General Limitations on Authority of Venturers. No Venturer
shall have any right or power to act for or assume any obligations or
responsibility on behalf of any other Venturer for any purpose whatsoever
except as specifically and expressly provided in this Agreement and neither
Venturer shall be liable for the contracts or acts (of either omission or
commission) of the other Venturer other than those taken on behalf of the
Venture and specifically authorized by the terms of this Agreement. It is not
the purpose or intention of this Agreement to create, and this Agreement shall
never be construed as creating, a general business partnership or any other
relationship except for the specific purposes set forth herein.
5. PLACE OF BUSINESS. The principal office and place of business
of the Venture shall be: 15641 Red Hill, Suite 205, Tustin, California 92680.
6. MANAGEMENT. Except as otherwise provided herein, all matters
relating to the policies and management of the Venture and the conduct of
business operation and affairs of the Venture shall be determined by unanimous
approval of the Venturers except to the extent, if any, that specific authority
may from time to time be granted in writing by the Venturers to any employed
personnel of the Venture or any other party. Notwithstanding the foregoing,
PCM shall be authorized and empowered to take such actions and enter into such
agreements on behalf of the Venture as are more particularly described in
Section 7, below. All persons and entities dealing with the Venture with
respect to such matters may rely on documents executed by PCM alone in
connection with such matters.
7. REPRESENTATIVES OF VENTURERS. In order to facilitate the
management and operation of the Venture, each Venturer shall designate a
representative as the party authorized on behalf of such Venturer to make
decisions with respect to the Venture. The other Venturer shall be entitled to
rely upon the authority of such designated representative until informed in
writing to the contrary by the other Venturer. The designated representative
of PCM shall be Vincent E. Galewick, and the designated representative of PAM
IV shall be Vincent E. Galewick. Because of its specialized expertise in the
purchase and collections of Contract Assets, the representatives of the
Venturers designate PCM:
A. To collect revenues due or to become due to the
Venture and deposit such revenues in a bank clearing or trust account or bank
accounts (as selected by the Venturers);
2
<PAGE> 3
B. To exclusively assign accounts for collections to
third parties including but not limited to, outside collection agencies and to
hire attorneys from time to time to assist in such efforts. Further, in
connection with the authority granted herein to PCM, PCM shall also have the
right to assign, transfer, or convey a portion of its ownership interest in the
Venture to such third parties;
C. To make such contracts, if any, relating to the
conduct of the business as they shall deem advisable;
D. To negotiate and deal with regulatory authorities
relative to matters involving the business and affairs of the Venture;
E. To prepare and deliver to each other Venturer
periodic reports, not less frequently than monthly, showing results of
operation of the Venture and distribution of all funds of the Venture;
F. To take such other action, to make all other routine
day-to-day decisions of the Venture, and to Perform such other services as are
necessary, customary or appropriate for engaging in the economic activity
constituting the purpose of the Venture referred to in Section 3 of this
Agreement;
G. To borrow funds for the benefit of the Venture and to
secure such borrowing by granting security interests, assignments, pledges or
to otherwise hypothecate the Contract Assets as security for such loans;
H. To sell, transfer, assign or otherwise liquidate all
or any portion of the Contract Assets on such terms as PCM, in its sole
discretion, deems in the best interest of the Venture; and
I. To admit additional Venturers in exchange for
contributions of cash, equity or other value to and for the benefit of the
Venture conditioned, however, upon such new venturer executing a written
agreement to be bound by all of the terms hereof.
8. UNAUTHORIZED ACTS. If any Venturer purports to do any act on
behalf of the Venturer or to bind the Venture other than in strict compliance
with the terms of this Agreement, such Venturer shall be deemed to have
breached this Agreement and, in addition to all other liabilities of such
Venturer thereby resulting, such Venturer shall, at such Venturer's own cost
and expense, indemnify and hold harmless the other Venturers and the Venture
from all claims, causes of action, costs, expenses, obligations and liabilities
thereby arising.
9. ACCOUNTING. The Venture shall keep and maintain adequate
books of account and other financial records on a cash basis, in accordance
with generally accepted accounting principles that consistently applied. Such
books of account and other records shall be open to inspection by any Venturer
at any time during reasonable business hours.
3
<PAGE> 4
10. DISTRIBUTIONS. All "Distributable Funds" (as hereinafter
defined ) of the Venture from time to time on hand shall be distributed as
follows:
A. With respect to Distributable Funds generated from
payments collected under the Contract Assets, such Distributable Funds shall be
distributed between the Venturers in the following ratio: 55% to PAM IV and
45% to PCM; or as noted on Exhibit A.
B. With respect to Distributable Funds generated from
the sale or other disposition of Contract Assets, such Distributable Funds
shall be distributed between the Venturers in the following ratio: 85% to PAM
IV and 15% to PCM.
The term "Distributable Funds," as used herein, means the amount (if
any), on any date, of cash collected on behalf of the Venture either from the
collection, sale or other disposition of Contract Assets less reasonable
reserves, current expenses and expenses incurred but not yet disbursed.
11. ALLOCATION OF INCOME, CREDITS, DEDUCTIONS, GAINS AND LOSSES.
For accounting and federal and state income tax purposes, all income,
deductions, credits, gains and losses of the Venture shall be allocated to the
Ventureres as of the last day of the relevant fiscal year with respect to which
such allocation is to be made as follows:
A. With respect to items of income, credits, deductions,
gains and losses generated from payments collected under the Contract Assets,
such items shall be allocated between the Venturers in the following ratio: 55%
to PAM IV and 45% to PCM; or as noted on Exhibit A.
B. With respect to items of income, credits, deductions,
gains and losses generated from the sale or other disposition of Contract
Assets, such items shall be distributed between the Venturers in the following
ratio: 85% to PAM IV and 15% to PCM.
12. COMPENSATION TO VENTURERS. Except as set forth herein and
except as may hereafter be expressly authorized in writing by all of the
Venturers, neither Venturer shall be entitled to receive, directly or
indirectly, any compensation, commission or other payment from or on account
of, or in connection with, the performance of any service for the Venture, or
be entitled to reimbursement for overhead costs or similar expenses relating to
any service performed for the Venture by such party.
13. BEST EFFORTS. PCM hereby agrees to utilize its best
reasonable efforts to collect all amounts owed to the Venture by the obligors
under the Contract Assets and to prepare monthly reports (in a form similar to
the report attached hereto as Exhibit "B", which is attached hereto and made a
part hereof for all purposes) detailing the cash receipts of the Venture and
the distribution of all funds of the Venture. Notwithstanding anything to the
contrary contained herein, PCM shall be entitled to payment for all actual
collection services provided to the Venture (such as dunning letters, account
loading,
4
<PAGE> 5
credit report inquiry, computerized account, etc.) so long as PCM uses its best
reasonable efforts to collect the amounts owing to the Venture by the obligors
under the Contract Assets, including, without limitation, arranging for
employees of PCM to collect such revenues. In addition, PCM shall be entitled
to reimbursement for actual expenses incurred in connection with the sale of
any assets of the Venture. On accounts referred for litigation or assigned to
a third party collection entity, PCM shall be entitled to an additional five
percent (5%) of the total monthly revenues collected and received by the
Venture on such accounts as reimbursement for the additional costs and expenses
incurred by PCM in connection with such collection efforts and such amounts
shall be in addition to actual expenses paid to attorneys and third party
collection entities. The Venture agrees to indemnify PCM as provided below
from all claims or causes of action arising out of PCM's collection of or
attempts to collect revenues on behalf of the Venture. The Venturers
acknowledge and understand that the Contract Assets consist of accounts charged
off as uncollectible or bad debts by others and that it is expected that a
large portion of the face amount of the Contract Assets will not and cannot be
collected and that the acquisition price of the Contract Assets reflects the
foregoing risk.
14. CAPITAL CONTRIBUTIONS. The Venturers have contributed to the
Venture, as their respective original capital contributions, the Contract
Assets, and, accordingly, the capital account of each respective Venturer has
been credited with the amount of such particular Venturer's capital
contribution and the Percentage Interests in the Venture thereby acquired by
the various Venturers.
15. PROHIBITED ASSIGNMENTS. Except as otherwise provided, without
the consent of all other Venturers, no interest in this Venture or rights under
this Agreement may be sold, assigned, transferred, mortgaged, encumbered,
hypothecated, or disposed of in any manner; and except as so provided, any
attempt to take any such action and such purported sale, assignment, transfer,
mortgage encumbrance, hypothecation or other disposition shall be void.
16. TERM. The Venture and this Agreement shall remain in full
force and effect from the date hereof until termination of the Venture in
accordance with the provisions hereof. The Venture shall terminate upon the
earlier to occur of any of the following:
A. December 31, 2005; or
B. The voluntary dissolution of the Venture by the vote
of the holders of a majority of the Percentage Interests in the Venture; or
C. The insolvency of any Venturer or the filing of a
voluntary or involuntary petition under any Chapter of the United States
Bankruptcy Code or any similar state statute naming an Venturer as debtor or
any assignment for benefit of creditors by any Venturer.
5
<PAGE> 6
17. INDEMNIFICATION OF PCM. The Venture shall indemnify and defend
PCM, its agents, employees, affiliated entities and individuals, officers and
directors (collectively referred to as PCM in this Section) in connection with
any threatened, pending or completed action, lawsuit or proceeding including
arbitration or other means of dispute resolution, against any and all costs,
expenses (including attorneys fees), costs of investigation, fines, judgments,
amounts paid in settlement, actually and reasonably incurred by PCM in
connection with such action, lawsuit or proceeding if in connection with the
actions allegedly giving rise to the claims upon which the action, lawsuit or
proceeding is based PCM acted in good faith in a manner it reasonably believed
to be in or not adverse to the best interest of the Venture.
18. GENERAL MATTERS.
18.1 NOTICES. Any and all notices permitted or required
to be given under the terms of this Agreement shall be in writing and may be
served by: (a) registered or certified mail, return receipt requested, postage
prepaid, and addressed to the party to be notified at the appropriate address
specified below; (b) delivering the same in person to such party, or by prepaid
telegram, addressed to the party to be notified at said address; (c) delivery
by Federal Express or other nationally recognized courier service, addressed to
the party to be notified at such address; or (d) telecopy (provided that such
telecopy is confirmed by mail or other delivery in the manner previously
described). Notice given by certified mail as a fore said shall be deemed
given and received three (3) days after mailing, whether or not actually
received. Any notice given in any other above authorized manner shall be
deemed received upon actual receipt; but shall also be deemed received upon
attempted delivery if such delivery is not accepted. The addresses of the
parties are as follows:
IF TO PCM: Performance Capital Management
Attn: Vincent E. Galewick
15641 Red Hill
Suite 205
Tustin, CA. 92680
Telecopy: (714) 566-1234
IF TO PAM IV: Performance Asset Management Fund IV, Ltd.
Performance Development, Inc., General Partner
4100 Newport Place
Suite 400
Newport Beach, CA. 92660
Attention: Vincent Galewick
Telecopy: (714) 752-3510
The addresses of any party may be changed by notice given in the
manner provided in this Section.
18.2 ENTIRE AGREEMENT. This Agreement contains the entire
agreement between the parties hereto relative to the formation, operation,
governance and other
6
<PAGE> 7
aspects of the Venture hereby formed. No variation, modification, or change of
this Agreement shall be binding upon any party hereto unless set forth in a
document duly executed by such party (or duly authorized agent of such party)
and all other Venturers.
18.3 SEVERABILITY. If any provision of this Agreement or
application thereof to any person of circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the
application of such provision to other persons or circumstances shall not be
affected thereby and shall be enforced to the greatest extent permitted by law.
18.4 BINDING AGREEMENT. This Agreement shall inure to the
benefit of and be binding upon the undersigned parties and their respective
successors and assigns. Whenever, in this instrument, a reference to any party
is made, such reference shall be deemed to include a reference to the
successors and assigns of such party, however, neither this Section nor any
other portion of this Agreement shall be interpreted to constitute a consent to
any assignments or transfer other than pursuant to and in accordance with the
other provisions of this Agreement.
18.5 ATTORNEYS' FEES. If any party hereto commences an
action, including arbitration or other form of dispute resolution, against any
other party hereto to enforce any of the terms hereof or because of the breach
by any party hereto of any of the terms hereof, the losing or defaulting party
shall pay the prevailing party reasonable attorneys' fees, costs and expenses
incurred in connection with the prosecution or defense of such action (whether
by arbitration or in court of law), and in connection with any action to
collect any judgment rendered thereunder.
This Agreement may be executed in multiple counterparts, each of which
shall have the force and effect of an original, as of the date first set forth
above ("Effective Date").
PERFORMANCE CAPITAL MANAGEMENT,
A CALIFORNIA CORPORATION
By: [SIG]
--------------------------------
Vincent E. Galewick, President
PERFORMANCE ASSET MANAGEMENT
FUND IV, LTD., A CALIFORNIA LIMITED
PARTNERSHIP
BY: PERFORMANCE DEVELOPMENT, INC.,
GENERAL PARTNER
By: [SIG]
--------------------------------
Vincent Galewick, President
7
<PAGE> 8
#EXHIBIT "A"
OF THE
AMENDED AND RESTATED
JOINT VENTURE AGREEMENT
DATED 09/01/96
PERFORMANCE ASSET MANAGEMENT FUND IV, LTD.
<TABLE>
<CAPTION>
DATE PARTNERSHIP CODE CORPORATION COMMENTS
<S> <C> <C> <C> <C>
09/26/93 PAM IV PH2083/3083 PCM HRSI
09/28/93 PAM IV PCH103 PCM CHEMICAL BANK
10/20/96 PAM IV PHF113 PCM HOUSEHOLD FIN.
10/27/93 PAM IV PCH3N3 PCM CHEMICAL BANK
11/23/93 PAM IV PHF123 PCM HOUSEHOLD FIN.
11/30/93 PAM IV PCH2N3 PCM CHEMICAL BANK
02/01/94 PAM IV PCH014 PCM CHEMICAL BANK
02/25/94 PAM IV PFU024 PCM FIRST USA
02/28/94 PAM IV PCH024 PCM CHEMICAL BANK
03/30/94 PAM IV PCH034 PCM CHEMICAL BANK
03/31/94 PAM IV PHR034 PCM HRSI
04/27/94 PAM IV PCH044 PCM CHEMICAL BANK
05/25/94 PAM IV P4CB15 PCM CHEMICAL BANK
05/31/94 PAM IV P4FU16 PCM FIRST USA
06/01/94 PAM IV P4HF17 PCM HOUSEHOLD FIN.
06/28/94 PAM IV P4CB20 PCM CHEMICAL BANK
07/27/94 PAM IV P4CB21 PCM CHEMICAL BANK
08/24/94 PAM IV P4CB24 PCM CHEMICAL BANK
09/30/94 PAM IV P4CB26 PCM CHEMICAL BANK
10/04/94 PAM IV P4GE27 PCM GENERAL ELEC.
10/31/94 PAM IV P4CB28 PCM CHEMICAL BANK
11/29/94 PAM IV P4CB30 PCM CHEMICAL BANK
11/30/94 PAM IV P4CB31 PCM CHEMICAL BANK
12/23/94 PAM IV P4CB34 PCM CHEMICAL BANK
12/23/94 PAM IV P4CB35 PCM CHEMICAL BANK
01/24/95 PAM IV P4BA36 PCM BANK OF AMER.
03/10/95 PAM IV P4CC38 PCM COMM. CRED.
09/05/95 PAM IV P4FU39 PCM FIRST USA
09/23/95 PAM IV P4FU40 PCM FIRST USA
10/11/95 PAM IV P4AG41 PCM AMER. GENERAL
11/15/95 PAM IV P4KF42 PCM KENT FINANCIAL
11/27/95 PAM IV P4FU43 PCM FIRST USA
01/03/96 PAM IV P4FU44 PCM FIRST USA
02/13/96 PAM IV P4FU45 PCM FIRST USA
03/08/96 PAM IV P4FU48 PCM FIRST USA
03/28/96 PAM IV P4FU49 PCM FIRST USA
03/25/96 PAM IV P4SF50 PCM SEAFIRST BANK
04/29/96 PAM IV P4FU51 PCM FIRST USA
08/30/96 PAM IV P4CM52 PCM CHASE MANHATT.
08/30/96 PAM IV P4CM53 PCM CHASE MANHATT.
11/26/96 PAM IV P4CM54 PCM CHASE MANHATT.
</TABLE>
8
<PAGE> 9
<TABLE>
<S> <C> <C> <C> <C>
12/18/96 PAM IV P4CM55 PCM CHASE MANHATT.
12/18/96 PAM IV P4LV56 PCM LEVITZ
12/27/96 PAM IV P4CM57 PCM CHASE MANHATT.
06/19/97 PAM IV P4CM58 PCM CHASE MANHATT.
</TABLE>
9
<PAGE> 10
EXHIBIT "B"
(form of Monthly Report on Collections)
<PAGE> 1
EXHIBIT 10.15
AMENDED AND RESTATED
JOINT VENTURE AGREEMENT
OF
PERFORMANCE ASSET MANAGEMENT FUND V, LTD.
(a California Joint Venture)
This AMENDED AND RESTATED JOINT VENTURE AGREEMENT ("Agreement") is made and
entered into by and between PERFORMANCE CAPITAL MANAGEMENT, a California
corporation ("PCM") and PERFORMANCE ASSET MANAGEMENT FUND V, LTD., a California
Limited Partnership ("PAM V") as of September 1, 1996. The Joint Venture created
hereby is sometimes referred to hereafter as the "Venture" and the parties are
sometimes referred to as "Venturers."
RECITALS
A. PAM V is a limited partnership formed for the purpose of generating
income and cash flow from various charged off retail sales contracts and credit
card contracts assets ("Contract Assets") acquired from lenders and other
creditors and desires to develop and maintain a dedicated collections and
servicing capacity to efficiently collect on the Contract Assets.
B. PCM is a collections and servicing entity with the expertise to perform
the collection and servicing of assets such as the Contract Assets.
C. The Venturers have entered into a series of joint ventures on
essentially identical terms with respect to a number of portfolios of Contract
Assets. The dates of prior joint venture agreements and portfolios of Contract
Assets are identified on Exhibit "A" hereto.
D. By this Agreement, the Venturers wish to amend and restate in a single
document the terms and conditions of their relationship which terms and
conditions will govern such relationship with respect to all Contract Assets
currently owned as well as all Contract Assets acquired in the future, if any.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. FORMATION OF JOINT VENTURE. The Venturers have formed the Venture for
the limited purposes and scope set forth below and hereby amend, restate and
incorporate the terms of all prior agreements between them.
2. NAME OF THE JOINT VENTURE. The affairs of the Venture shall be conducted
under the name of "PAM V J.V." and such name shall be used at all times in
connection with the Venture's affairs. The Venture shall be governed by and
interpreted in accordance with the laws of the State of California. PCM is
hereby authorized to prepare and file such fictitious business name statements
and/or statements of partnership as PCM deems appropriate or required.
<PAGE> 2
3. PURPOSE. The purpose of the Venture shall be to facilitate the
collection of Contract Assets purchased from various lenders and/or other
sources from time to time during the term of the Venture, and to sell, enforce,
foreclose upon, and take any and all actions necessary, convenient or expedient
to maximize income and other benefits to be derived by the Venture from the
Contract Assets in compliance with all applicable requirements of law. The
Venture shall not engage in any other business or economic activity nor acquire
or own any type of property unrelated to the purposes set forth above except
with the prior written approval of both Venturers.
4. GENERAL LIMITATIONS ON AUTHORITY OF VENTURERS. No Venturer shall have
any right or power to act for or assume any obligations or responsibility on
behalf of any other Venturer for any purpose whatsoever except as specifically
and expressly provided in this Agreement and neither Venturer shall be liable
for the contracts or acts (of either omission or commission) of the other
Venturer other than those taken on behalf of the Venture and specifically
authorized by the terms of this Agreement. It is not the purpose or intention of
this Agreement to create, and this Agreement shall never be construed as
creating, a general business partnership or any other relationship except for
the specific purposes set forth herein.
5. PLACE OF BUSINESS. The principal office and place of business of the
Venture shall be: 15641 Red Hill, Suite 205, Tustin, California 92680.
6. MANAGEMENT. Except as otherwise provided herein, all matters relating
to the policies and management of the Venture and the conduct of business
operation and affairs of the Venture shall be determined by unanimous approval
of the Venturers except to the extent, if any, that specific authority may from
time to time be granted in writing by the Venturers to any employed personnel of
the Venture or any other party. Notwithstanding the foregoing, PCM shall be
authorized and empowered to take such actions and enter into such agreements on
behalf of the Venture as are more particularly described in Section 7, below.
All persons and entities dealing with the Venture with respect to such matters
may rely on documents executed by PCM alone in connection with such matters.
7. REPRESENTATIVES OF VENTURERS. In order to facilitate the management and
operation of the Venture, each Venturer shall designate a representative as the
party authorized on behalf of such Venturer to make decisions with respect to
the Venture. The other Venturer shall be entitled to rely upon the authority of
such designated representative until informed in writing to the contrary by the
other Venturer. The designated representative of PCM shall be Vincent E.
Galewick, and the designated representative of PAM V shall be Vincent E.
Galewick. Because of its specialized expertise in the purchase and collections
of Contract Assets, the representatives of the Venturers designate PCM:
A. To collect revenues due or to become due to the Venture and
deposit such revenues in a bank clearing or trust account or bank accounts (as
selected by the Venturers);
2
<PAGE> 3
B. To exclusively assign accounts for collections to third parties
including but not limited to, outside collection agencies and to hire attorneys
from time to time to assist in such efforts. Further, in connection with the
authority granted herein to PCM, PCM shall also have the right to assign,
transfer, or convey a portion of its ownership interest in the Venture to such
third parties;
C. To make such contracts, if any, relating to the conduct of the
business as they shall deem advisable;
D. To negotiate and deal with regulatory authorities relative to
matters involving the business and affairs of the Venture;
E. To prepare and deliver to each other Venturer periodic reports,
not less frequently than monthly, showing results of operation of the Venture
and distribution of all funds of the Venture;
F. To take such other action, to make all other routine day-to-day
decisions of the Venture, and to Perform such other services as are necessary,
customary or appropriate for engaging in the economic activity constituting the
purpose of the Venture referred to in Section 3 of this Agreement;
G. To borrow funds for the benefit of the Venture and to secure such
borrowing by granting security interests, assignments, pledges or to otherwise
hypothecate the Contract Assets as security for such loans;
H. To sell, transfer, assign or otherwise liquidate all or any
portion of the Contract Assets on such terms as PCM, in its sole discretion,
deems in the best interest of the Venture; and
I. To admit additional Venturers in exchange for contributions of
cash, equity or other value to and for the benefit of the Venture conditioned,
however, upon such new venturer executing a written agreement to be bound by all
of the terms hereof.
8. UNAUTHORIZED ACTS. If any Venturer purports to do any act on behalf of
the Venturer or to bind the Venture other than in strict compliance with the
terms of this Agreement, such Venturer shall be deemed to have breached this
Agreement and, in addition to all other liabilities of such Venturer thereby
resulting, such Venturer shall, at such Venturer's own cost and expense,
indemnify and hold harmless the other Venturers and the Venture from all claims,
causes of action, costs, expenses, obligations and liabilities thereby arising.
9. ACCOUNTING. The Venture shall keep and maintain adequate books of
account and other financial records on a cash basis, in accordance with
generally accepted accounting principles that consistently applied. Such books
of account and other records shall be open to inspection by any Venturer at any
time during reasonable business hours.
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<PAGE> 4
10. DISTRIBUTIONS. All "Distributable Funds" (as hereinafter defined) of
the Venture from time to time on hand shall be distributed as follows:
A. With respect to Distributable Funds generated from payments
collected under the Contract Assets, such Distributable Funds shall be
distributed between the Venturers in the following ratio: 55% to PAM V and 45%
to PCM; or as noted on Exhibit A.
B. With respect to Distributable Funds generated from the sale or
other disposition of Contract Assets, such Distributable Funds shall be
distributed between the Venturers in the following ratio: 85% to PAM V and 15%
to PCM.
The term "Distributable Funds," as used herein, means the amount (if any),
on any date, of cash collected on behalf of the Venture; either from the
collection, sale or other disposition of Contract Assets less reasonable
reserves, current expenses and expenses incurred but not yet disbursed.
11. ALLOCATION OF INCOME, CREDITS, DEDUCTIONS, GAINS AND LOSSES. For
accounting and federal and state income tax purposes, all income, deductions,
credits, gains and losses of the Venture shall be allocated to the Venturers as
of the last day of the relevant fiscal year with respect to which such
allocation is to be made as follows:
A. With respect to items of income, credits, deductions, gains and
losses generated from payments collected under the Contract Assets, such items
shall be allocated between the Venturers in the following ratio: 55% to PAM V
and 45% to PCM; or as noted on Exhibit A.
B. With respect to items of income, credits, deductions, gains and
losses generated from the sale or other disposition of Contract Assets, such
items shall be distributed between the Venturers in the following ratio: 85% to
PAM V and 15% to PCM. 12.
12. COMPENSATION TO VENTURERS. Except as set forth herein and except as
may hereafter be expressly authorized in writing by all of the Venturers,
neither Venturer shall be entitled to receive, directly or indirectly, any
compensation, commission or other payment from or on account of, or in
connection with, the performance of any service for the Venture, or be entitled
to reimbursement for overhead costs or similar expenses relating to any service
performed for the Venture by such party.
13. BEST EFFORTS. PCM hereby agrees to utilize its best reasonable efforts
to collect all amounts owed to the Venture by the obligors under the Contract
Assets and to prepare monthly reports (in a form similar to the report attached
hereto as Exhibit "B", which is attached hereto and made a part hereof for all
purposes) detailing the cash receipts of the Venture and the distribution of all
funds of the Venture. Notwithstanding anything to the contrary contained herein,
PCM shall be entitled to payment for all actual collection services provided to
the Venture (such as dunning letters, account loading,
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<PAGE> 5
credit report inquiry, computerized account, etc.) so long as PCM uses its best
reasonable efforts to collect the amounts owing to the Venture by the obligors
under the Contract Assets, including, without limitation, arranging for
employees of PCM to collect such revenues. In addition, PCM shall be entitled to
reimbursement for actual expenses incurred in connection with the sale of any
assets of the Venture. On accounts referred for litigation or assigned to a
third party collection entity, PCM shall be entitled to an additional five
percent (5%) of the total monthly revenues collected and received by the Venture
on such accounts as reimbursement for the additional costs and expenses incurred
by PCM in connection with such collection efforts and such amounts shall be in
addition to actual expenses paid to attorneys and third party collection
entities. The Venture agrees to indemnify PCM as provided below from all claims
or causes of action arising out of PCM's collection of or attempts to collect
revenues on behalf of the Venture. The Venturers acknowledge and understand that
the Contract Assets consist of accounts charged off as uncollectible or bad
debts by others and that it is expected that a large portion of the face amount
of the Contract Assets will not and cannot be collected and that the acquisition
price of the Contract Assets reflects the foregoing risk.
14. CAPITAL CONTRIBUTIONS. The Venturers have contributed to the Venture,
as their respective original capital contributions, the Contract Assets, and,
accordingly, the capital account of each respective Venturer has been credited
with the amount of such particular Venturer's capital contribution and the
Percentage Interests in the Venture thereby acquired by the various Venturers.
15. PROHIBITED ASSIGNMENTS. Except as otherwise provided, without the
consent of all other Venturers, no interest in this Venture or rights under this
Agreement may be sold, assigned, transferred, mortgaged, encumbered,
hypothecated, or disposed of in any manner; and except as so provided, any
attempt to take any such action and such purported sale, assignment, transfer,
mortgage encumbrance, hypothecation or other disposition shall be void.
16. TERM. The Venture and this Agreement shall remain in full force and
effect from the date hereof until termination of the Venture in accordance with
the provisions hereof. The Venture shall terminate upon the earlier to occur of
any of the following:
A. December 31, 2005; or
B. The voluntary dissolution of the Venture by the vote of the
holders of a majority of the Percentage Interests in the Venture; or
C. The insolvency of any Venturer or the filing of a voluntary or
involuntary petition under any Chapter of the United States Bankruptcy Code or
any similar state statute naming an Venturer as debtor or any assignment for
benefit of creditors by any Venturer.
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17. INDEMNIFICATION of PCM. The Venture shall indemnify and defend PCM,
its agents, employees, affiliated entities and individuals, officers and
directors (collectively referred to as PCM in this Section) in connection with
any threatened, pending or completed action, lawsuit or proceeding including
arbitration or other means of dispute resolution, against any and all costs,
expenses (including attorneys fees), costs of investigation, fines, judgments,
amounts paid in settlement, actually and reasonably incurred by PCM in
connection with such action, lawsuit or proceeding if in connection with the
actions allegedly giving rise to the claims upon which the action, lawsuit or
proceeding is based PCM acted in good faith in a manner it reasonably believed
to be in or not adverse to the best interest of the Venture.
18. GENERAL MATTERS.
18.1 NOTICES. Any and all notices permitted or required to be given
under the terms of this Agreement shall be in writing and may be served by: (a)
registered or certified mail, return receipt requested, postage prepaid, and
addressed to the party to be notified at the appropriate address specified
below; (b) delivering the same in person to such party, or by prepaid telegram,
addressed to the party to be notified at said address; (c) delivery by Federal
Express or other nationally recognized courier service, addressed to the party
to be notified at such address; or (d) telecopy (provided that such telecopy is
confirmed by mail or other delivery in the manner previously described). Notice
given by certified mail as aforesaid shall be deemed given and received three
(3) days after mailing, whether or not actually received. Any notice given in
any other above authorized manner shall be deemed received upon actual receipt;
but shall also be deemed received upon attempted delivery if such delivery is
not accepted. The addresses of the parties are as follows:
IF TO PCM: Performance Capital Management
Attn: Vincent E. Galewick
15641 Red Hill
Suite 205
Tustin, CA. 92680
Telecopy: (714) 566-1234
IF TO PAM V: Performance Asset Management Fund V, Ltd.
Performance Development, Inc., General Partner
4100 Newport Place
Suite 400
Newport Beach, CA. 92660
Attention: Vincent Galewick
Telecopy: (714) 752-3510
The addresses of any party may be changed by notice given in the manner
provided in this Section.
18.2 ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties hereto relative to the formation, operation, governance and
other
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aspects of the Venture hereby formed. No variation, modification, or change of
this Agreement shall be binding upon any party hereto unless set forth in a
document duly executed by such party (or duly authorized agent of such party)
and all other Venturers.
18.3 SEVERABILITY. If any provision of this Agreement or application
thereof to any person of circumstance shall be invalid or unenforceable to any
extent, the remainder of this Agreement and the application of such provision to
other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by law.
18.4 BINDING AGREEMENT. This Agreement shall inure to the benefit of
and be binding upon the undersigned parties and their respective successors and
assigns. Whenever, in this instrument, a reference to any party is made, such
reference shall be deemed to include a reference to the successors and assigns
of such party, however, neither this Section nor any other portion of this
Agreement shall be interpreted to constitute a consent to any assignments or
transfer other than pursuant to and in accordance with the other provisions of
this Agreement.
18.5 ATTORNEYS' Fees. If any party hereto commences an action,
including arbitration or other form of dispute resolution, against any other
party hereto to enforce any of the terms hereof or because of the breach by any
party hereto of any of the terms hereof, the losing or defaulting party shall
pay the prevailing party reasonable attorneys' fees, costs and expenses incurred
in connection with the prosecution or defense of such action (whether by
arbitration or in court of law), and in connection with any action to collect
any judgment rendered thereunder.
This Agreement may be executed in multiple counterparts, each of which
shall have the force and effect of an original, as of the date first set forth
above ("Effective Date").
PERFORMANCE CAPITAL MANAGEMENT,
A CALIFORNIA CORPORATION
By: /s/ VINCENT E. GALEWICK
-------------------------------------
Vincent E. Galewick, President
PERFORMANCE ASSET MANAGEMENT
FUND V, LTD., A CALIFORNIA LIMITED
PARTNERSHIP
By: /s/ VINCENT E. GALEWICK
-------------------------------------
Vincent E. Galewick, President
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<PAGE> 8
EXHIBIT "A"
<TABLE>
<CAPTION>
DATE PARTNERSHIP CODE CORPORATION COMMENTS
<S> <C> <C> <C> <C>
08/25/94 PAM V P5ST01 PCM SouthTrust
08/29/94 PAM V P5CB02 PCM Chemical Bank
08/29/94 PAM V P5HR03 PCM HRSI
10/13/94 PAM V P5CB04 PCM Chemical Bank
01/24/95 PAM V P5BA05 PCM Bank of America
03/28/95 PAM V P5SF07 PCM Seafirst Bank
04/26/95 PAM V P5CB08 PCM Chemical Bank
07/28/95 PAM V P5FU09 PCM First USA
10/11/95 PAM V P5AG10 PCM American General
08/30/96 PAM V P5CM11 PCM Chase Manhattan
11/25/96 PAM V P5CM12 PCM Chase Manhattan
</TABLE>
<PAGE> 9
EXHIBIT "B"
(form of Monthly Report on Collections)
<PAGE> 1
EXHIBIT 10.16
PERFORMANCE ASSET MANAGEMENT COMPANY
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT ("Agreement"), is made and entered into
in duplicate as of the ____ day of __________, 1997, by and between Performance
Asset Management Company, a Delaware corporation ("Corporation"), and William
Savage ("Indemnitee").
RECITALS
A. Indemnitee is currently serving as a director and officer of the
Corporation and in another Corporate Status (hereinafter defined) and Indemnitee
is willing, subject to, among other things, the Corporation's execution and
performance of this Agreement, to continue in or assume such capacities; and
B. The Bylaws of the Corporation provide that the Corporation shall
indemnify and advance Expenses (hereinafter defined) to all directors and
officers of the Corporation in the manner set forth therein and to the fullest
extent permitted by applicable law, and to such greater extent as applicable law
may thereafter permit, and the Corporation's Certificate of Incorporation
provides for limitation of liability for directors; and
C. In order to induce Indemnitee to provide services as contemplated
hereby, the Corporation has deemed it to be in its best interest to enter into
this Agreement with Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's agreement to provide services
to the Corporation and certain of its affiliates as contemplated hereby, the
mutual agreements contained herein and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
stipulate and agree as follows:
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<PAGE> 2
ARTICLE I
CERTAIN DEFINITIONS
As used herein, the following words and terms shall have the following
respective meanings (whether singular or plural):
"Change of Control" means a change in control of the Corporation after
both the date of the closing of any initial public offering ("IPO") of the
Corporation's $.01 par value Common Stock to the public for cash that has been
registered using a registration statement that has been filed with and declared
effective by the Securities and Exchange Commission and after the date
Indemnitee acquired his Corporate Status, which shall be deemed to have occurred
in any one of the following circumstances occurring after such date (i) there
shall have occurred an event required to be reported with respect to the
Corporation in response to Item 6(e) of Schedule 14A of Regulation 14A (or in
response to any similar item or any similar schedule or form) promulgated under
the Securities Exchange Act of 1934, as amended ("Exchange Act"), whether or not
the Corporation is then subject to such reporting requirement; (ii) any "person"
(as such term is used in Sections 13(d) and 14(d) of the Exchange Act) shall
have become the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Corporation representing 40%
or more of the combined voting power of the Corporation's then outstanding
voting securities without prior approval of at least two-thirds of the members
of the Board of Directors in office immediately prior to such person attaining
such percentage interest; (iii) the Corporation is a party to a merger,
consolidation, sale of assets or other reorganization, or a proxy contest, as a
consequence of which members of the Board of Directors in office immediately
prior to such transaction or event constitute less than a majority of the Board
of Directors thereafter; or (iv) during any period of two consecutive years,
persons who at the beginning of such period constituted the Board of Directors
(including, for this purpose, any new director whose election or nomination for
election by the Corporation's stockholders was approved by a vote of at least
two-thirds of the directors then still in office who were directors at the
beginning of such period) cease for any reason to constitute at least a majority
of the Board of Directors.
"Corporate Status" describes the status of Indemnitee as a director,
officer, employee, agent or fiduciary of the Corporation or of any other
corporation, partnership, limited liability company, association, joint venture,
trust, employee benefit plan or other enterprise that Indemnitee is or was
serving at the request of the Corporation.
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<PAGE> 3
"Court" means any court of competent jurisdiction.
"DGCL" means the Delaware General Corporation Law.
"Expenses" shall include all reasonable attorneys' fees, retainers,
court costs, filing fees, transcript costs, fees of experts, witness fees,
travel expenses, duplicating costs, printing and binding costs, telephone
charges, postage, delivery service fees, and all other disbursements or expenses
of the types customarily incurred in connection with prosecuting, defending,
preparing to prosecute or defend, investigating, or being or preparing to be a
witness in a Proceeding.
"Independent Counsel" means a law firm, or a member of a law firm, that
is experienced in matters of corporation law and neither presently is, nor in
the five years previous to his selection or appointment has been, retained to
represent (i) the Corporation or Indemnitee in any matter material to either
such party or (ii) any other party to the Proceeding resulting in a claim for
indemnification hereunder.
"Matter" is a claim, a material issue or a substantial request for
relief.
"Proceeding" includes any action, litigation, arbitration, alternate
dispute resolution procedure, investigation, administrative hearing or any other
proceeding, whether civil, criminal, administrative or investigative, except one
initiated by Indemnitee pursuant to Section 6.1 of this Agreement to enforce his
rights under this Agreement.
ARTICLE II
SERVICES BY INDEMNITEE
Section 2.1. SERVICES BY INDEMNITEE. Indemnitee agrees to serve or
continue to serve in his current capacity or capacities as a director, officer,
employee, agent or fiduciary of the Corporation. Indemnitee also agrees to
serve, as the Corporation may request from time to time, as a director, officer,
employee, agent or fiduciary of any other corporation, partnership, limited
liability company, association, joint venture, trust or other enterprise in
which the Corporation has an interest. Indemnitee and the Corporation each
acknowledge that they have entered into this Agreement as a means of inducing
Indemnitee to serve the Corporation in such capacities. Indemnitee may at any
time and for any reason resign from such capacity or capacities (subject to any
other contractual obligation or any obligation imposed by operation of law). The
Corporation shall have no obligation under this Agreement to continue Indemnitee
in any such capacity for any period of time and shall not be precluded by the
provisions of this Agreement from removing Indemnitee from any such capacity at
any time.
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<PAGE> 4
ARTICLE III
INDEMNIFICATION
Section 3.1. GENERAL. The Corporation shall, to the fullest extent
permitted by applicable law in effect on the date hereof, and to such greater
extent as applicable law may thereafter permit, indemnify and hold Indemnitee
harmless from and against any and all losses, liabilities, claims, damages and,
subject to Section 3.2, Expenses whatsoever occurring because of any event or
occurrence related to the fact that Indemnitee is or was a director or officer
of the Corporation or is or was serving in another Corporate Status.
Section 3.2. EXPENSES. If Indemnitee is, by reason of his Corporate
Status a party to and is successful, on the merits or otherwise, in any
Proceeding, he shall be indemnified against all Expenses actually and reasonably
incurred by him or on his behalf in connection therewith. If Indemnitee is not
wholly successful in such Proceeding but is successful, on the merits or
otherwise, as to any Matter in such Proceeding, the Corporation shall indemnify
Indemnitee against all Expenses actually and reasonably incurred by him or on
his behalf relating to such Matter. The termination of any Matter in such a
Proceeding by dismissal, with or without prejudice, shall be deemed to be a
successful result as to such Matter. To the extent that the Indemnitee is, by
reason of his Corporate Status, a witness in any Proceeding, he shall be
indemnified against all Expenses actually and reasonably incurred by him or on
his behalf in connection therewith.
ARTICLE IV
ADVANCEMENT OF EXPENSES
Section 4.1. ADVANCES. In the event of any threatened or pending
Proceeding in which Indemnitee is a party or is involved and that may give rise
to a right of indemnification under this Agreement, following written request to
the Corporation by Indemnitee, the Corporation shall promptly pay to Indemnitee
amounts to pay Expenses reasonably incurred by Indemnitee in such Proceeding in
advance of its final disposition upon the receipt by the Corporation of (i) a
written undertaking executed by or on behalf of Indemnitee providing that
Indemnitee will repay the advance if it shall ultimately be determined that
Indemnitee is not entitled to be indemnified by the Corporation as provided in
this Agreement and (ii) satisfactory evidence as to the amount of such Expenses.
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<PAGE> 5
Section 4.2. REPAYMENT OF ADVANCES OR OTHER EXPENSES. Indemnitee shall
reimburse the Corporation for all Expenses paid by the Corporation in defending
any Proceeding against Indemnitee in the event and only to the extent that it
shall be determined pursuant to the provisions of this Agreement or by final
judgment or other final adjudication under the provisions of any applicable law
that Indemnitee is not entitled to be indemnified by the Corporation for such
Expenses.
ARTICLE V
PROCEDURE FOR DETERMINATION OF ENTITLEMENT
TO INDEMNIFICATION
Section 5.1. REQUEST FOR INDEMNIFICATION. To obtain indemnification,
Indemnitee shall submit to the Secretary of the Corporation a written claim or
request. Such written claim or request shall contain sufficient information to
reasonably inform the Corporation about the nature and extent of the
indemnification or advance sought by Indemnitee. The Secretary of the
Corporation shall promptly advise the Board of Directors of such request.
Section 5.2. DETERMINATION OF ENTITLEMENT; NO CHANGE OF CONTROL. If
there has been no Change of Control at the time the request for indemnification
is submitted, Indemnitee's entitlement to indemnification shall be determined in
accordance with Section 145(d) of the DGCL. If entitlement to indemnification is
to be determined by Independent Counsel, the Corporation shall furnish notice to
Indemnitee within 10 days after receipt of the request for indemnification,
specifying the identity and address of Independent Counsel. The Indemnitee may,
within 14 days after receipt of such written notice of selection, deliver to the
Corporation a written objection to such selection. Such objection may be
asserted only on the ground that the Independent Counsel so selected does not
satisfy the requirements of Independent Counsel and the objection shall set
forth with particularity the factual basis for such assertion. If there is an
objection to the selection of Independent Counsel, either the Corporation or
Indemnitee may petition the Court for a determination that the objection is
without a reasonable basis or for the appointment of Independent Counsel
selected by the Court.
Section 5.3. DETERMINATION OF ENTITLEMENT; CHANGE OF CONTROL. If there
has been a Change of Control at the time the request for indemnification is
submitted, Indemnitee's entitlement to indemnification shall be determined in a
written opinion by Independent Counsel selected by Indemnitee. Indemnitee shall
give the Corporation written notice advising of the identity and address of the
Independent Counsel so selected.
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<PAGE> 6
The Corporation may, within seven days after receipt of such written notice of
selection, deliver to the Indemnitee a written objection to such selection.
Indemnitee may, within five days after the receipt of such objection from the
Corporation, submit the name of another Independent Counsel and the Corporation
may, within seven days after receipt of such written notice of selection,
deliver to the Indemnitee a written objection to such selection. Any objections
referred to in this Section 5.3 may be asserted only for the reason that the
Independent Counsel so selected does not satisfy the requirements of Independent
Counsel and such objection shall set forth with particularity the factual basis
for such assertion. Indemnitee may petition the Court for a determination that
the Corporation's objection to the first or second selection of Independent
Counsel is without a reasonable basis or for the appointment as Independent
Counsel of a person selected by the Court.
Section 5.4. PROCEDURES OF INDEPENDENT COUNSEL. If a Change of Control
shall have occurred before the request for indemnification is sent by
Indemnitee, Indemnitee shall be presumed (except as otherwise expressly provided
in this Agreement) to be entitled to indemnification upon submission of a
request for indemnification in accordance with Section 5.1 of this Agreement,
and thereafter the Corporation shall have the burden of proof to overcome the
presumption in reaching a determination contrary to the presumption. The
presumption shall be used by Independent Counsel as a basis for a determination
of entitlement to indemnification, unless the Corporation provides information
sufficient to overcome such presumption by clear and convincing evidence or the
investigation, review and analysis of Independent Counsel convinces him by clear
and convincing evidence that the presumption should not apply.
Except in the event that the determination of entitlement to
indemnification is to be made by Independent Counsel, if the person or persons
empowered under Section 5.2 or Section 5.3 of this Agreement to determine
entitlement to indemnification shall not have made and furnished to Indemnitee
in writing a determination within 60 days after receipt by the Corporation of
the request therefor, the requisite determination of entitlement to
indemnification shall be deemed to have been made and Indemnitee shall be
entitled to such indemnification, unless Indemnitee knowingly misrepresented a
material fact in connection with the request for indemnification or such
indemnification is prohibited by applicable law. The termination of any
Proceeding or of any Matter therein, by judgment, order, settlement or
conviction, or upon a plea of nolo contendere or its equivalent, shall not
(except as otherwise expressly provided in this Agreement) of itself adversely
affect the right of Indemnitee to indemnification or create a presumption that
Indemnitee did not act in good faith and in a manner that he reasonably believed
to be in or not opposed to the best interests of the Corporation, or with
respect to any Proceeding, that Indemnitee had reasonable cause to believe that
his conduct was
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<PAGE> 7
unlawful. A person who acted in good faith and in a manner he reasonably
believed to be in the interest of the participants and beneficiaries of an
employee benefit plan of the Corporation shall be deemed to have acted in a
manner not opposed to the best interests of the Corporation.
For purposes of any determination hereunder, a person shall be deemed
to have acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the Corporation, or, with respect to any
criminal action or Proceeding, to have had no reasonable cause to believe his
conduct was unlawful, if his action is based on the records or books of account
of the Corporation or another enterprise or on information supplied to him by
the officers of the Corporation or another enterprise in the course of their
duties or on the advice of legal counsel for the Corporation or another
enterprise or on information or records given or reports made to the Corporation
or another enterprise by an independent certified public accountant or by an
appraiser or other expert selected with reasonable care by the Corporation or
another enterprise. The term "another enterprise" as used in this section shall
mean any other corporation or any partnership, limited liability company,
association, joint venture, trust, employee benefit plan or other enterprise of
which such person is or was serving at the request of the Corporation as a
director, officer, employee or agent. The provisions of this section shall not
be deemed to be exclusive or to limit in any way the circumstances in which an
Indemnitee may be deemed to have satisfied the applicable standards of conduct
for determining entitlement to rights under this Agreement.
Section 5.5. INDEPENDENT COUNSEL EXPENSES. The Corporation shall pay
any and all reasonable fees and expenses of Independent Counsel incurred acting
pursuant to this article and in any proceeding to which it is a party or witness
in respect of its investigation and written report and shall pay all reasonable
fees and expenses incident to the procedures in which such Independent Counsel
was selected or appointed. No Independent Counsel may serve if a timely
objection has been made to his selection, until a court has determined that such
objection is without a reasonable basis.
ARTICLE VI
CERTAIN REMEDIES OF INDEMNITEE
Section 6.1. ADJUDICATION. In the event that (i) a determination is
made pursuant to Section 5.2 or Section 5.3 of this Agreement that Indemnitee is
not entitled to indemnification under this Agreement; (ii) advancement of
Expenses is not timely made pursuant to Section 4.1 of this Agreement; (iii)
Independent Counsel has not made and delivered a written opinion determining the
request for indemnification (a) within 90 days
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<PAGE> 8
after being appointed by the Court, or (b) within 90 days after objections to
his selection have been overruled by the Court or (c) within 90 days after the
time for the Corporation or Indemnitee to object to his selection; or (iv)
payment of indemnification is not made within five days after a determination of
entitlement to indemnification has been made or deemed to have been made
pursuant to Section 5.2, Section 5.3 or Section 5.4 of this Agreement,
Indemnitee shall be entitled to an adjudication in Court of his entitlement to
such indemnification or advancement of Expenses. In the event that a
determination shall have been made that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Section 6.1 shall be conducted in all respects as a de novo trial on the
merits and Indemnitee shall not be prejudiced by reason of that adverse
determination. If a Change of Control shall have occurred, in any judicial
proceeding commenced pursuant to this Section 6.1, the Corporation shall have
the burden of proving that Indemnitee is not entitled to indemnification or
advancement of Expenses, as the case may be. If a determination shall have been
made or deemed to have been made that Indemnitee is entitled to indemnification,
the Corporation shall be obligated by such determination in any judicial
proceeding commenced pursuant to this Section 6.1, or otherwise, unless
Indemnitee knowingly misrepresented a material fact in connection with the
request for indemnification, or such indemnification is prohibited by law.
The Corporation shall be precluded from asserting in any judicial
proceeding commenced pursuant to this Section 6.1 that the procedures and
presumptions of this Agreement are not valid, binding and enforceable, and shall
stipulate in any such proceeding that the Corporation is obligated by all
provisions of this Agreement. In the event that Indemnitee, pursuant to this
Section 6.1, seeks a judicial adjudication to enforce his rights under, or to
recover damages for breach of, this Agreement, Indemnitee shall be entitled to
recover from the Corporation, and shall be indemnified by the Corporation
against, any and all Expenses actually and reasonably incurred by him in such
judicial adjudication, but only if he prevails therein. If it shall be
determined in such judicial adjudication that Indemnitee is entitled to receive
part but not all of the indemnification or advancement of Expenses sought, the
Expenses incurred by Indemnitee in connection with such judicial adjudication or
arbitration shall be appropriately prorated.
ARTICLE VII
PARTICIPATION BY THE CORPORATION
Section 7.1. PARTICIPATION BY THE CORPORATION. With respect to any such
Proceeding as to which Indemnitee notifies the Corporation of the commencement
thereof, (a) the Corporation will be entitled to participate therein at its own
expense; (b) except
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as otherwise provided below, to the extent that it may desire, the Corporation
(jointly with any other indemnifying party similarly notified) will be entitled
to assume the defense thereof, with counsel reasonably satisfactory to
Indemnitee. After receipt of notice from the Corporation to Indemnitee of the
Corporation's election so to assume the defense thereof, the Corporation will
not be liable to Indemnitee under this Agreement for any legal or other expenses
subsequently incurred by Indemnitee in connection with the defense thereof other
than reasonable costs of investigation or as otherwise provided below.
Indemnitee shall have the right to employ his own counsel in such Proceeding but
the fees and expenses of such counsel incurred after notice from the Corporation
of its assumption of the defense thereof shall be at the expense of Indemnitee
unless (i) the retention of counsel by Indemnitee has been authorized by the
Corporation, (ii) Indemnitee shall have reasonably concluded that there is a
conflict of interest between the Corporation and Indemnitee in the conduct of
the defense of such action or (iii) the Corporation shall not in fact have
employed counsel to assume the defense of such action, in each of which cases
the fees and expenses of counsel employed by Indemnitee shall be subject to
indemnification pursuant to the terms of this Agreement. The Corporation shall
not be entitled to assume the defense of any Proceeding brought in the name of
or on behalf of the Corporation or as to which Indemnitee shall have made the
conclusion provided for in (ii) above; and (c) the Corporation shall not be
liable to indemnify Indemnitee under this Agreement for any amounts paid in
settlement of any action or claim effected without its written consent, which
consent shall not be unreasonably withheld. The Corporation shall not settle any
action or claim in any manner that would impose any limitation or unindemnified
penalty on Indemnitee without Indemnitee's written consent, which consent shall
not be unreasonably withheld.
ARTICLE VIII
MISCELLANEOUS
Section 8.1. NONEXCLUSIVITY OF RIGHTS. The rights of indemnification
and advancement of Expenses as provided by this Agreement shall not be deemed
exclusive of any other rights to which Indemnitee may at any time be entitled to
under applicable law, the Corporation's Certificate of Incorporation, or any
amendment thereto; the Corporation's Bylaws, or any amendment thereto; any
agreement; a vote of stockholders or a resolution of directors, or otherwise. No
amendment, alteration or repeal of this Agreement or any provision hereof shall
be effective as to any Indemnitee for acts, events and circumstances that
occurred, in whole or in part, before such amendment, alteration or repeal. The
provisions of this Agreement shall continue as to an Indemnitee whose Corporate
Status has ceased for any reason and shall inure to the benefit of his heirs,
executors and administrators.
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Section 8.2. INSURANCE AND SUBROGATION. The Corporation shall not be
liable under this Agreement to make any payment of amounts otherwise
indemnifiable hereunder if, but only to the extent that, Indemnitee has
otherwise actually received such payment under any insurance policy, contract,
agreement or otherwise.
In the event of any payment hereunder, the Corporation shall be
subrogated to the extent of such payment to all the rights of recovery of
Indemnitee, who shall execute all papers required and take all action reasonably
requested by the Corporation to secure such rights, including execution of such
documents as are necessary to enable the Corporation to commence litigation to
enforce such rights.
Section 8.3. ACKNOWLEDGMENT OF CERTAIN MATTERS. In certain instances,
applicable law or public policy may prohibit indemnification of Indemnitee by
the Corporation under this Agreement or otherwise. The Corporation has
undertaken or may be required in the future to undertake, by the Securities and
Exchange Commission, to submit the question of indemnification to a court in
certain circumstances for a determination of the Corporation's right under
public policy to indemnify Indemnitee.
Section 8.4. AMENDMENT. This Agreement may not be modified or amended,
except by a written instrument executed by or on behalf of each of the parties
hereto.
Section 8.5. WAIVERS. The observance of any term of this Agreement may
be waived (either generally or in a particular instance and either retroactively
or prospectively) by the party entitled to enforce such term only by a writing
signed by the party against which such waiver is to be asserted. Unless
otherwise expressly provided herein, no delay on the part of any party hereto in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver on the part of any party hereto of any right,
power or privilege hereunder operate as a waiver of any other right, power or
privilege hereunder nor shall any single or partial exercise of any right, power
or privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege hereunder.
Section 8.6. ENTIRE AGREEMENT. This Agreement and the documents
referred to herein constitute the entire agreement between the parties hereto
with respect to the matters covered hereby, and any other prior or
contemporaneous oral or written understandings or agreements with respect to the
matters covered hereby are superseded by this Agreement.
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Section 8.7. SEVERABILITY. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby; and, to the
fullest extent possible, the provisions of this Agreement shall be construed so
as to give effect to the intent manifested by the provision held invalid,
illegal or unenforceable.
Section 8.8. CERTAIN ACTIONS FOR WHICH INDEMNIFICATION IS NOT PROVIDED.
Notwithstanding any other provision of this Agreement, Indemnitee shall not be
entitled to indemnification or advancement of Expenses under this Agreement with
respect to any Proceeding, or any Matter therein, brought or made by Indemnitee
against the Corporation.
Section 8.9. NOTICES. Promptly after receipt by Indemnitee of notice of
the commencement of any Proceeding, Indemnitee shall, if he anticipates or
contemplates making a claim for Expenses or an advance pursuant to the terms of
this Agreement, notify the Corporation of the commencement of such Proceeding;
provided, however, that any delay in so notifying the Corporation shall not
constitute a waiver or release by Indemnitee of rights hereunder and that any
omission by Indemnitee to so notify the Corporation shall not relieve the
Corporation from any liability that it may have to Indemnitee otherwise than
under this Agreement. Any communication required or permitted to the Corporation
shall be addressed to the Secretary of the Corporation and any such
communication to Indemnitee shall be addressed to the Indemnitee's address as
shown on the Corporation's records, unless the Indemnitee specifies otherwise
and shall be personally delivered or delivered by overnight mail or similar
delivery. Any such notice shall be effective upon receipt.
Section 8.10. GOVERNING LAW. This Agreement shall be construed in
accordance with and governed by the laws of the State of Delaware without regard
to any principles of conflict of laws that, if applied, might permit or require
the application of the laws of a different jurisdiction.
Section 8.11. HEADINGS. The article and section headings in this
Agreement are for convenience of reference only, and shall not be deemed to
alter or affect the meaning or interpretation of any provisions hereof.
Section 8.12. COUNTERPARTS. This Agreement may be executed in
counterparts, 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.
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Section 8.13. USE OF CERTAIN TERMS. As used in this Agreement, the
words "herein," "hereof," and "hereunder" and other words of similar import
refer to this Agreement as a whole and not to any particular paragraph,
subparagraph, section, subsection, or other subdivision. Whenever the context
may require, any pronoun used in this Agreement shall include the corresponding
masculine, feminine or neuter forms, and the singular form of nouns, pronouns
and verbs shall include the plural and vice versa.
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered to be effective as of the date first above written.
PERFORMANCE ASSET
MANAGEMENT COMPANY,
a Delaware corporation
By: _____________________________ ______________________________
William Savage
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EXHIBIT 10.17
PERFORMANCE ASSET MANAGEMENT COMPANY
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT ("Agreement"), is made and entered into
in duplicate as of the ____ day of __________, 1997, by and between Performance
Asset Management Company, a Delaware corporation ("Corporation"), and Michael
Cushing ("Indemnitee").
RECITALS
A. Indemnitee is currently serving as a director and officer of the
Corporation and in another Corporate Status (hereinafter defined) and Indemnitee
is willing, subject to, among other things, the Corporation's execution and
performance of this Agreement, to continue in or assume such capacities; and
B. The Bylaws of the Corporation provide that the Corporation shall
indemnify and advance Expenses (hereinafter defined) to all directors and
officers of the Corporation in the manner set forth therein and to the fullest
extent permitted by applicable law, and to such greater extent as applicable law
may thereafter permit, and the Corporation's Certificate of Incorporation
provides for limitation of liability for directors; and
C. In order to induce Indemnitee to provide services as contemplated
hereby, the Corporation has deemed it to be in its best interest to enter into
this Agreement with Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's agreement to provide services
to the Corporation and certain of its affiliates as contemplated hereby, the
mutual agreements contained herein and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
stipulate and agree as follows:
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ARTICLE I
CERTAIN DEFINITIONS
As used herein, the following words and terms shall have the following
respective meanings (whether singular or plural):
"Change of Control" means a change in control of the Corporation after
both the date of the closing of any initial public offering ("IPO") of the
Corporation's $.01 par value Common Stock to the public for cash that has been
registered using a registration statement that has been filed with and declared
effective by the Securities and Exchange Commission and after the date
Indemnitee acquired his Corporate Status, which shall be deemed to have occurred
in any one of the following circumstances occurring after such date (i) there
shall have occurred an event required to be reported with respect to the
Corporation in response to Item 6(e) of Schedule 14A of Regulation 14A (or in
response to any similar item or any similar schedule or form) promulgated under
the Securities Exchange Act of 1934, as amended ("Exchange Act"), whether or not
the Corporation is then subject to such reporting requirement; (ii) any "person"
(as such term is used in Sections 13(d) and 14(d) of the Exchange Act) shall
have become the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Corporation representing 40%
or more of the combined voting power of the Corporation's then outstanding
voting securities without prior approval of at least two-thirds of the members
of the Board of Directors in office immediately prior to such person attaining
such percentage interest; (iii) the Corporation is a party to a merger,
consolidation, sale of assets or other reorganization, or a proxy contest, as a
consequence of which members of the Board of Directors in office immediately
prior to such transaction or event constitute less than a majority of the Board
of Directors thereafter; or (iv) during any period of two consecutive years,
persons who at the beginning of such period constituted the Board of Directors
(including, for this purpose, any new director whose election or nomination for
election by the Corporation's stockholders was approved by a vote of at least
two-thirds of the directors then still in office who were directors at the
beginning of such period) cease for any reason to constitute at least a majority
of the Board of Directors.
"Corporate Status" describes the status of Indemnitee as a director,
officer, employee, agent or fiduciary of the Corporation or of any other
corporation, partnership, limited liability company, association, joint venture,
trust, employee benefit plan or other enterprise that Indemnitee is or was
serving at the request of the Corporation.
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"Court" means any court of competent jurisdiction.
"DGCL" means the Delaware General Corporation Law.
"Expenses" shall include all reasonable attorneys' fees, retainers,
court costs, filing fees, transcript costs, fees of experts, witness fees,
travel expenses, duplicating costs, printing and binding costs, telephone
charges, postage, delivery service fees, and all other disbursements or expenses
of the types customarily incurred in connection with prosecuting, defending,
preparing to prosecute or defend, investigating, or being or preparing to be a
witness in a Proceeding.
"Independent Counsel" means a law firm, or a member of a law firm, that
is experienced in matters of corporation law and neither presently is, nor in
the five years previous to his selection or appointment has been, retained to
represent (i) the Corporation or Indemnitee in any matter material to either
such party or (ii) any other party to the Proceeding resulting in a claim for
indemnification hereunder.
"Matter" is a claim, a material issue or a substantial request for
relief.
"Proceeding" includes any action, litigation, arbitration, alternate
dispute resolution procedure, investigation, administrative hearing or any other
proceeding, whether civil, criminal, administrative or investigative, except one
initiated by Indemnitee pursuant to Section 6.1 of this Agreement to enforce his
rights under this Agreement.
ARTICLE II
SERVICES BY INDEMNITEE
Section 2.1. SERVICES BY INDEMNITEE. Indemnitee agrees to serve or
continue to serve in his current capacity or capacities as a director, officer,
employee, agent or fiduciary of the Corporation. Indemnitee also agrees to
serve, as the Corporation may request from time to time, as a director, officer,
employee, agent or fiduciary of any other corporation, partnership, limited
liability company, association, joint venture, trust or other enterprise in
which the Corporation has an interest. Indemnitee and the Corporation each
acknowledge that they have entered into this Agreement as a means of inducing
Indemnitee to serve the Corporation in such capacities. Indemnitee may at any
time and for any reason resign from such capacity or capacities (subject to any
other contractual obligation or any obligation imposed by operation of law). The
Corporation shall have no obligation under this Agreement to continue Indemnitee
in any such capacity for any period of time and shall not be precluded by the
provisions of this Agreement from removing Indemnitee from any such capacity at
any time.
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ARTICLE III
INDEMNIFICATION
Section 3.1. GENERAL. The Corporation shall, to the fullest extent
permitted by applicable law in effect on the date hereof, and to such greater
extent as applicable law may thereafter permit, indemnify and hold Indemnitee
harmless from and against any and all losses, liabilities, claims, damages and,
subject to Section 3.2, Expenses whatsoever occurring because of any event or
occurrence related to the fact that Indemnitee is or was a director or officer
of the Corporation or is or was serving in another Corporate Status.
Section 3.2. EXPENSES. If Indemnitee is, by reason of his Corporate
Status a party to and is successful, on the merits or otherwise, in any
Proceeding, he shall be indemnified against all Expenses actually and reasonably
incurred by him or on his behalf in connection therewith. If Indemnitee is not
wholly successful in such Proceeding but is successful, on the merits or
otherwise, as to any Matter in such Proceeding, the Corporation shall indemnify
Indemnitee against all Expenses actually and reasonably incurred by him or on
his behalf relating to such Matter. The termination of any Matter in such a
Proceeding by dismissal, with or without prejudice, shall be deemed to be a
successful result as to such Matter. To the extent that the Indemnitee is, by
reason of his Corporate Status, a witness in any Proceeding, he shall be
indemnified against all Expenses actually and reasonably incurred by him or on
his behalf in connection therewith.
ARTICLE IV
ADVANCEMENT OF EXPENSES
Section 4.1. ADVANCES. In the event of any threatened or pending
Proceeding in which Indemnitee is a party or is involved and that may give rise
to a right of indemnification under this Agreement, following written request to
the Corporation by Indemnitee, the Corporation shall promptly pay to Indemnitee
amounts to pay Expenses reasonably incurred by Indemnitee in such Proceeding in
advance of its final disposition upon the receipt by the Corporation of (i) a
written undertaking executed by or on behalf of Indemnitee providing that
Indemnitee will repay the advance if it shall ultimately be determined that
Indemnitee is not entitled to be indemnified by the Corporation as provided in
this Agreement and (ii) satisfactory evidence as to the amount of such Expenses.
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Section 4.2. REPAYMENT OF ADVANCES OR OTHER EXPENSES. Indemnitee shall
reimburse the Corporation for all Expenses paid by the Corporation in defending
any Proceeding against Indemnitee in the event and only to the extent that it
shall be determined pursuant to the provisions of this Agreement or by final
judgment or other final adjudication under the provisions of any applicable law
that Indemnitee is not entitled to be indemnified by the Corporation for such
Expenses.
ARTICLE V
PROCEDURE FOR DETERMINATION OF ENTITLEMENT
TO INDEMNIFICATION
Section 5.1. REQUEST FOR INDEMNIFICATION. To obtain indemnification,
Indemnitee shall submit to the Secretary of the Corporation a written claim or
request. Such written claim or request shall contain sufficient information to
reasonably inform the Corporation about the nature and extent of the
indemnification or advance sought by Indemnitee. The Secretary of the
Corporation shall promptly advise the Board of Directors of such request.
Section 5.2. DETERMINATION OF ENTITLEMENT; NO CHANGE OF CONTROL. If
there has been no Change of Control at the time the request for indemnification
is submitted, Indemnitee's entitlement to indemnification shall be determined in
accordance with Section 145(d) of the DGCL. If entitlement to indemnification is
to be determined by Independent Counsel, the Corporation shall furnish notice to
Indemnitee within 10 days after receipt of the request for indemnification,
specifying the identity and address of Independent Counsel. The Indemnitee may,
within 14 days after receipt of such written notice of selection, deliver to the
Corporation a written objection to such selection. Such objection may be
asserted only on the ground that the Independent Counsel so selected does not
satisfy the requirements of Independent Counsel and the objection shall set
forth with particularity the factual basis for such assertion. If there is an
objection to the selection of Independent Counsel, either the Corporation or
Indemnitee may petition the Court for a determination that the objection is
without a reasonable basis or for the appointment of Independent Counsel
selected by the Court.
Section 5.3. DETERMINATION OF ENTITLEMENT; CHANGE OF CONTROL. If there
has been a Change of Control at the time the request for indemnification is
submitted, Indemnitee's entitlement to indemnification shall be determined in a
written opinion by Independent Counsel selected by Indemnitee. Indemnitee shall
give the Corporation written notice advising of the identity and address of the
Independent Counsel so selected.
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The Corporation may, within seven days after receipt of such written notice of
selection, deliver to the Indemnitee a written objection to such selection.
Indemnitee may, within five days after the receipt of such objection from the
Corporation, submit the name of another Independent Counsel and the Corporation
may, within seven days after receipt of such written notice of selection,
deliver to the Indemnitee a written objection to such selection. Any objections
referred to in this Section 5.3 may be asserted only for the reason that the
Independent Counsel so selected does not satisfy the requirements of Independent
Counsel and such objection shall set forth with particularity the factual basis
for such assertion. Indemnitee may petition the Court for a determination that
the Corporation's objection to the first or second selection of Independent
Counsel is without a reasonable basis or for the appointment as Independent
Counsel of a person selected by the Court.
Section 5.4. PROCEDURES OF INDEPENDENT COUNSEL. If a Change of Control
shall have occurred before the request for indemnification is sent by
Indemnitee, Indemnitee shall be presumed (except as otherwise expressly provided
in this Agreement) to be entitled to indemnification upon submission of a
request for indemnification in accordance with Section 5.1 of this Agreement,
and thereafter the Corporation shall have the burden of proof to overcome the
presumption in reaching a determination contrary to the presumption. The
presumption shall be used by Independent Counsel as a basis for a determination
of entitlement to indemnification, unless the Corporation provides information
sufficient to overcome such presumption by clear and convincing evidence or the
investigation, review and analysis of Independent Counsel convinces him by clear
and convincing evidence that the presumption should not apply.
Except in the event that the determination of entitlement to
indemnification is to be made by Independent Counsel, if the person or persons
empowered under Section 5.2 or Section 5.3 of this Agreement to determine
entitlement to indemnification shall not have made and furnished to Indemnitee
in writing a determination within 60 days after receipt by the Corporation of
the request therefor, the requisite determination of entitlement to
indemnification shall be deemed to have been made and Indemnitee shall be
entitled to such indemnification, unless Indemnitee knowingly misrepresented a
material fact in connection with the request for indemnification or such
indemnification is prohibited by applicable law. The termination of any
Proceeding or of any Matter therein, by judgment, order, settlement or
conviction, or upon a plea of nolo contendere or its equivalent, shall not
(except as otherwise expressly provided in this Agreement) of itself adversely
affect the right of Indemnitee to indemnification or create a presumption that
Indemnitee did not act in good faith and in a manner that he reasonably believed
to be in or not opposed to the best interests of the Corporation, or with
respect to any Proceeding, that Indemnitee had reasonable cause to believe that
his conduct was
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unlawful. A person who acted in good faith and in a manner he reasonably
believed to be in the interest of the participants and beneficiaries of an
employee benefit plan of the Corporation shall be deemed to have acted in a
manner not opposed to the best interests of the Corporation.
For purposes of any determination hereunder, a person shall be deemed
to have acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the Corporation, or, with respect to any
criminal action or Proceeding, to have had no reasonable cause to believe his
conduct was unlawful, if his action is based on the records or books of account
of the Corporation or another enterprise or on information supplied to him by
the officers of the Corporation or another enterprise in the course of their
duties or on the advice of legal counsel for the Corporation or another
enterprise or on information or records given or reports made to the Corporation
or another enterprise by an independent certified public accountant or by an
appraiser or other expert selected with reasonable care by the Corporation or
another enterprise. The term "another enterprise" as used in this section shall
mean any other corporation or any partnership, limited liability company,
association, joint venture, trust, employee benefit plan or other enterprise of
which such person is or was serving at the request of the Corporation as a
director, officer, employee or agent. The provisions of this section shall not
be deemed to be exclusive or to limit in any way the circumstances in which an
Indemnitee may be deemed to have satisfied the applicable standards of conduct
for determining entitlement to rights under this Agreement.
Section 5.5. INDEPENDENT COUNSEL EXPENSES. The Corporation shall pay
any and all reasonable fees and expenses of Independent Counsel incurred acting
pursuant to this article and in any proceeding to which it is a party or witness
in respect of its investigation and written report and shall pay all reasonable
fees and expenses incident to the procedures in which such Independent Counsel
was selected or appointed. No Independent Counsel may serve if a timely
objection has been made to his selection, until a court has determined that such
objection is without a reasonable basis.
ARTICLE VI
CERTAIN REMEDIES OF INDEMNITEE
Section 6.1. ADJUDICATION. In the event that (i) a determination is
made pursuant to Section 5.2 or Section 5.3 of this Agreement that Indemnitee is
not entitled to indemnification under this Agreement; (ii) advancement of
Expenses is not timely made pursuant to Section 4.1 of this Agreement; (iii)
Independent Counsel has not made and delivered a written opinion determining the
request for indemnification (a) within 90 days
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after being appointed by the Court, or (b) within 90 days after objections to
his selection have been overruled by the Court or (c) within 90 days after the
time for the Corporation or Indemnitee to object to his selection; or (iv)
payment of indemnification is not made within five days after a determination of
entitlement to indemnification has been made or deemed to have been made
pursuant to Section 5.2, Section 5.3 or Section 5.4 of this Agreement,
Indemnitee shall be entitled to an adjudication in Court of his entitlement to
such indemnification or advancement of Expenses. In the event that a
determination shall have been made that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Section 6.1 shall be conducted in all respects as a de novo trial on the
merits and Indemnitee shall not be prejudiced by reason of that adverse
determination. If a Change of Control shall have occurred, in any judicial
proceeding commenced pursuant to this Section 6.1, the Corporation shall have
the burden of proving that Indemnitee is not entitled to indemnification or
advancement of Expenses, as the case may be. If a determination shall have been
made or deemed to have been made that Indemnitee is entitled to indemnification,
the Corporation shall be obligated by such determination in any judicial
proceeding commenced pursuant to this Section 6.1, or otherwise, unless
Indemnitee knowingly misrepresented a material fact in connection with the
request for indemnification, or such indemnification is prohibited by law.
The Corporation shall be precluded from asserting in any judicial
proceeding commenced pursuant to this Section 6.1 that the procedures and
presumptions of this Agreement are not valid, binding and enforceable, and shall
stipulate in any such proceeding that the Corporation is obligated by all
provisions of this Agreement. In the event that Indemnitee, pursuant to this
Section 6.1, seeks a judicial adjudication to enforce his rights under, or to
recover damages for breach of, this Agreement, Indemnitee shall be entitled to
recover from the Corporation, and shall be indemnified by the Corporation
against, any and all Expenses actually and reasonably incurred by him in such
judicial adjudication, but only if he prevails therein. If it shall be
determined in such judicial adjudication that Indemnitee is entitled to receive
part but not all of the indemnification or advancement of Expenses sought, the
Expenses incurred by Indemnitee in connection with such judicial adjudication or
arbitration shall be appropriately prorated.
ARTICLE VII
PARTICIPATION BY THE CORPORATION
Section 7.1. PARTICIPATION BY THE CORPORATION. With respect to any such
Proceeding as to which Indemnitee notifies the Corporation of the commencement
thereof, (a) the Corporation will be entitled to participate therein at its own
expense; (b) except
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as otherwise provided below, to the extent that it may desire, the Corporation
(jointly with any other indemnifying party similarly notified) will be entitled
to assume the defense thereof, with counsel reasonably satisfactory to
Indemnitee. After receipt of notice from the Corporation to Indemnitee of the
Corporation's election so to assume the defense thereof, the Corporation will
not be liable to Indemnitee under this Agreement for any legal or other expenses
subsequently incurred by Indemnitee in connection with the defense thereof other
than reasonable costs of investigation or as otherwise provided below.
Indemnitee shall have the right to employ his own counsel in such Proceeding but
the fees and expenses of such counsel incurred after notice from the Corporation
of its assumption of the defense thereof shall be at the expense of Indemnitee
unless (i) the retention of counsel by Indemnitee has been authorized by the
Corporation, (ii) Indemnitee shall have reasonably concluded that there is a
conflict of interest between the Corporation and Indemnitee in the conduct of
the defense of such action or (iii) the Corporation shall not in fact have
employed counsel to assume the defense of such action, in each of which cases
the fees and expenses of counsel employed by Indemnitee shall be subject to
indemnification pursuant to the terms of this Agreement. The Corporation shall
not be entitled to assume the defense of any Proceeding brought in the name of
or on behalf of the Corporation or as to which Indemnitee shall have made the
conclusion provided for in (ii) above; and (c) the Corporation shall not be
liable to indemnify Indemnitee under this Agreement for any amounts paid in
settlement of any action or claim effected without its written consent, which
consent shall not be unreasonably withheld. The Corporation shall not settle any
action or claim in any manner that would impose any limitation or unindemnified
penalty on Indemnitee without Indemnitee's written consent, which consent shall
not be unreasonably withheld.
ARTICLE VIII
MISCELLANEOUS
Section 8.1. NONEXCLUSIVITY OF RIGHTS. The rights of indemnification
and advancement of Expenses as provided by this Agreement shall not be deemed
exclusive of any other rights to which Indemnitee may at any time be entitled to
under applicable law, the Corporation's Certificate of Incorporation, or any
amendment thereto; the Corporation's Bylaws, or any amendment thereto; any
agreement; a vote of stockholders or a resolution of directors, or otherwise. No
amendment, alteration or repeal of this Agreement or any provision hereof shall
be effective as to any Indemnitee for acts, events and circumstances that
occurred, in whole or in part, before such amendment, alteration or repeal. The
provisions of this Agreement shall continue as to an Indemnitee whose Corporate
Status has ceased for any reason and shall inure to the benefit of his heirs,
executors and administrators.
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Section 8.2. INSURANCE AND SUBROGATION. The Corporation shall not be
liable under this Agreement to make any payment of amounts otherwise
indemnifiable hereunder if, but only to the extent that, Indemnitee has
otherwise actually received such payment under any insurance policy, contract,
agreement or otherwise.
In the event of any payment hereunder, the Corporation shall be
subrogated to the extent of such payment to all the rights of recovery of
Indemnitee, who shall execute all papers required and take all action reasonably
requested by the Corporation to secure such rights, including execution of such
documents as are necessary to enable the Corporation to commence litigation to
enforce such rights.
Section 8.3. ACKNOWLEDGMENT OF CERTAIN MATTERS. In certain instances,
applicable law or public policy may prohibit indemnification of Indemnitee by
the Corporation under this Agreement or otherwise. The Corporation has
undertaken or may be required in the future to undertake, by the Securities and
Exchange Commission, to submit the question of indemnification to a court in
certain circumstances for a determination of the Corporation's right under
public policy to indemnify Indemnitee.
Section 8.4. AMENDMENT. This Agreement may not be modified or amended,
except by a written instrument executed by or on behalf of each of the parties
hereto.
Section 8.5. WAIVERS. The observance of any term of this Agreement may
be waived (either generally or in a particular instance and either retroactively
or prospectively) by the party entitled to enforce such term only by a writing
signed by the party against which such waiver is to be asserted. Unless
otherwise expressly provided herein, no delay on the part of any party hereto in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver on the part of any party hereto of any right,
power or privilege hereunder operate as a waiver of any other right, power or
privilege hereunder nor shall any single or partial exercise of any right, power
or privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege hereunder.
Section 8.6. ENTIRE AGREEMENT. This Agreement and the documents
referred to herein constitute the entire agreement between the parties hereto
with respect to the matters covered hereby, and any other prior or
contemporaneous oral or written understandings or agreements with respect to the
matters covered hereby are superseded by this Agreement.
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Section 8.7. SEVERABILITY. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby; and, to the
fullest extent possible, the provisions of this Agreement shall be construed so
as to give effect to the intent manifested by the provision held invalid,
illegal or unenforceable.
Section 8.8. CERTAIN ACTIONS FOR WHICH INDEMNIFICATION IS NOT PROVIDED.
Notwithstanding any other provision of this Agreement, Indemnitee shall not be
entitled to indemnification or advancement of Expenses under this Agreement with
respect to any Proceeding, or any Matter therein, brought or made by Indemnitee
against the Corporation.
Section 8.9. NOTICES. Promptly after receipt by Indemnitee of notice of
the commencement of any Proceeding, Indemnitee shall, if he anticipates or
contemplates making a claim for Expenses or an advance pursuant to the terms of
this Agreement, notify the Corporation of the commencement of such Proceeding;
provided, however, that any delay in so notifying the Corporation shall not
constitute a waiver or release by Indemnitee of rights hereunder and that any
omission by Indemnitee to so notify the Corporation shall not relieve the
Corporation from any liability that it may have to Indemnitee otherwise than
under this Agreement. Any communication required or permitted to the Corporation
shall be addressed to the Secretary of the Corporation and any such
communication to Indemnitee shall be addressed to the Indemnitee's address as
shown on the Corporation's records, unless the Indemnitee specifies otherwise
and shall be personally delivered or delivered by overnight mail or similar
delivery. Any such notice shall be effective upon receipt.
Section 8.10. GOVERNING LAW. This Agreement shall be construed in
accordance with and governed by the laws of the State of Delaware without regard
to any principles of conflict of laws that, if applied, might permit or require
the application of the laws of a different jurisdiction.
Section 8.11. HEADINGS. The article and section headings in this
Agreement are for convenience of reference only, and shall not be deemed to
alter or affect the meaning or interpretation of any provisions hereof.
Section 8.12. COUNTERPARTS. This Agreement may be executed in
counterparts, 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.
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Section 8.13. USE OF CERTAIN TERMS. As used in this Agreement, the
words "herein," "hereof," and "hereunder" and other words of similar import
refer to this Agreement as a whole and not to any particular paragraph,
subparagraph, section, subsection, or other subdivision. Whenever the context
may require, any pronoun used in this Agreement shall include the corresponding
masculine, feminine or neuter forms, and the singular form of nouns, pronouns
and verbs shall include the plural and vice versa.
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered to be effective as of the date first above written.
PERFORMANCE ASSET
MANAGEMENT COMPANY,
a Delaware corporation
By: _____________________________ ______________________________
Michael Cushing
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EXHIBIT 10.18
PERFORMANCE ASSET MANAGEMENT COMPANY
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT ("Agreement"), is made and entered into
in duplicate as of the ____ day of __________, 1997, by and between Performance
Asset Management Company, a Delaware corporation ("Corporation"), and Vincent E.
Galewick ("Indemnitee").
RECITALS
A. Indemnitee is currently serving as a director and officer of the
Corporation and in another Corporate Status (hereinafter defined) and Indemnitee
is willing, subject to, among other things, the Corporation's execution and
performance of this Agreement, to continue in or assume such capacities; and
B. The Bylaws of the Corporation provide that the Corporation shall
indemnify and advance Expenses (hereinafter defined) to all directors and
officers of the Corporation in the manner set forth therein and to the fullest
extent permitted by applicable law, and to such greater extent as applicable law
may thereafter permit, and the Corporation's Certificate of Incorporation
provides for limitation of liability for directors; and
C. In order to induce Indemnitee to provide services as contemplated
hereby, the Corporation has deemed it to be in its best interest to enter into
this Agreement with Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's agreement to provide services
to the Corporation and certain of its affiliates as contemplated hereby, the
mutual agreements contained herein and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
stipulate and agree as follows:
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ARTICLE I
CERTAIN DEFINITIONS
As used herein, the following words and terms shall have the following
respective meanings (whether singular or plural):
"Change of Control" means a change in control of the Corporation after
both the date of the closing of any initial public offering ("IPO") of the
Corporation's $.01 par value Common Stock to the public for cash that has been
registered using a registration statement that has been filed with and declared
effective by the Securities and Exchange Commission and after the date
Indemnitee acquired his Corporate Status, which shall be deemed to have occurred
in any one of the following circumstances occurring after such date (i) there
shall have occurred an event required to be reported with respect to the
Corporation in response to Item 6(e) of Schedule 14A of Regulation 14A (or in
response to any similar item or any similar schedule or form) promulgated under
the Securities Exchange Act of 1934, as amended ("Exchange Act"), whether or not
the Corporation is then subject to such reporting requirement; (ii) any "person"
(as such term is used in Sections 13(d) and 14(d) of the Exchange Act) shall
have become the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Corporation representing 40%
or more of the combined voting power of the Corporation's then outstanding
voting securities without prior approval of at least two-thirds of the members
of the Board of Directors in office immediately prior to such person attaining
such percentage interest; (iii) the Corporation is a party to a merger,
consolidation, sale of assets or other reorganization, or a proxy contest, as a
consequence of which members of the Board of Directors in office immediately
prior to such transaction or event constitute less than a majority of the Board
of Directors thereafter; or (iv) during any period of two consecutive years,
persons who at the beginning of such period constituted the Board of Directors
(including, for this purpose, any new director whose election or nomination for
election by the Corporation's stockholders was approved by a vote of at least
two-thirds of the directors then still in office who were directors at the
beginning of such period) cease for any reason to constitute at least a majority
of the Board of Directors.
"Corporate Status" describes the status of Indemnitee as a director,
officer, employee, agent or fiduciary of the Corporation or of any other
corporation, partnership, limited liability company, association, joint venture,
trust, employee benefit plan or other enterprise that Indemnitee is or was
serving at the request of the Corporation.
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"Court" means any court of competent jurisdiction.
"DGCL" means the Delaware General Corporation Law.
"Expenses" shall include all reasonable attorneys' fees, retainers,
court costs, filing fees, transcript costs, fees of experts, witness fees,
travel expenses, duplicating costs, printing and binding costs, telephone
charges, postage, delivery service fees, and all other disbursements or expenses
of the types customarily incurred in connection with prosecuting, defending,
preparing to prosecute or defend, investigating, or being or preparing to be a
witness in a Proceeding.
"Independent Counsel" means a law firm, or a member of a law firm, that
is experienced in matters of corporation law and neither presently is, nor in
the five years previous to his selection or appointment has been, retained to
represent (i) the Corporation or Indemnitee in any matter material to either
such party or (ii) any other party to the Proceeding resulting in a claim for
indemnification hereunder.
"Matter" is a claim, a material issue or a substantial request for
relief.
"Proceeding" includes any action, litigation, arbitration, alternate
dispute resolution procedure, investigation, administrative hearing or any other
proceeding, whether civil, criminal, administrative or investigative, except one
initiated by Indemnitee pursuant to Section 6.1 of this Agreement to enforce his
rights under this Agreement.
ARTICLE II
SERVICES BY INDEMNITEE
Section 2.1. SERVICES BY INDEMNITEE. Indemnitee agrees to serve or
continue to serve in his current capacity or capacities as a director, officer,
employee, agent or fiduciary of the Corporation. Indemnitee also agrees to
serve, as the Corporation may request from time to time, as a director, officer,
employee, agent or fiduciary of any other corporation, partnership, limited
liability company, association, joint venture, trust or other enterprise in
which the Corporation has an interest. Indemnitee and the Corporation each
acknowledge that they have entered into this Agreement as a means of inducing
Indemnitee to serve the Corporation in such capacities. Indemnitee may at any
time and for any reason resign from such capacity or capacities (subject to any
other contractual obligation or any obligation imposed by operation of law). The
Corporation shall have no obligation under this Agreement to continue Indemnitee
in any such capacity for any period of time and shall not be precluded by the
provisions of this Agreement from removing Indemnitee from any such capacity at
any time.
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ARTICLE III
INDEMNIFICATION
Section 3.1. GENERAL. The Corporation shall, to the fullest extent
permitted by applicable law in effect on the date hereof, and to such greater
extent as applicable law may thereafter permit, indemnify and hold Indemnitee
harmless from and against any and all losses, liabilities, claims, damages and,
subject to Section 3.2, Expenses whatsoever occurring because of any event or
occurrence related to the fact that Indemnitee is or was a director or officer
of the Corporation or is or was serving in another Corporate Status.
Section 3.2. EXPENSES. If Indemnitee is, by reason of his Corporate
Status a party to and is successful, on the merits or otherwise, in any
Proceeding, he shall be indemnified against all Expenses actually and reasonably
incurred by him or on his behalf in connection therewith. If Indemnitee is not
wholly successful in such Proceeding but is successful, on the merits or
otherwise, as to any Matter in such Proceeding, the Corporation shall indemnify
Indemnitee against all Expenses actually and reasonably incurred by him or on
his behalf relating to such Matter. The termination of any Matter in such a
Proceeding by dismissal, with or without prejudice, shall be deemed to be a
successful result as to such Matter. To the extent that the Indemnitee is, by
reason of his Corporate Status, a witness in any Proceeding, he shall be
indemnified against all Expenses actually and reasonably incurred by him or on
his behalf in connection therewith.
ARTICLE IV
ADVANCEMENT OF EXPENSES
Section 4.1. ADVANCES. In the event of any threatened or pending
Proceeding in which Indemnitee is a party or is involved and that may give rise
to a right of indemnification under this Agreement, following written request to
the Corporation by Indemnitee, the Corporation shall promptly pay to Indemnitee
amounts to pay Expenses reasonably incurred by Indemnitee in such Proceeding in
advance of its final disposition upon the receipt by the Corporation of (i) a
written undertaking executed by or on behalf of Indemnitee providing that
Indemnitee will repay the advance if it shall ultimately be determined that
Indemnitee is not entitled to be indemnified by the Corporation as provided in
this Agreement and (ii) satisfactory evidence as to the amount of such Expenses.
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Section 4.2. REPAYMENT OF ADVANCES OR OTHER EXPENSES. Indemnitee shall
reimburse the Corporation for all Expenses paid by the Corporation in defending
any Proceeding against Indemnitee in the event and only to the extent that it
shall be determined pursuant to the provisions of this Agreement or by final
judgment or other final adjudication under the provisions of any applicable law
that Indemnitee is not entitled to be indemnified by the Corporation for such
Expenses.
ARTICLE V
PROCEDURE FOR DETERMINATION OF ENTITLEMENT
TO INDEMNIFICATION
Section 5.1. REQUEST FOR INDEMNIFICATION. To obtain indemnification,
Indemnitee shall submit to the Secretary of the Corporation a written claim or
request. Such written claim or request shall contain sufficient information to
reasonably inform the Corporation about the nature and extent of the
indemnification or advance sought by Indemnitee. The Secretary of the
Corporation shall promptly advise the Board of Directors of such request.
Section 5.2. DETERMINATION OF ENTITLEMENT; NO CHANGE OF CONTROL. If
there has been no Change of Control at the time the request for indemnification
is submitted, Indemnitee's entitlement to indemnification shall be determined in
accordance with Section 145(d) of the DGCL. If entitlement to indemnification is
to be determined by Independent Counsel, the Corporation shall furnish notice to
Indemnitee within 10 days after receipt of the request for indemnification,
specifying the identity and address of Independent Counsel. The Indemnitee may,
within 14 days after receipt of such written notice of selection, deliver to the
Corporation a written objection to such selection. Such objection may be
asserted only on the ground that the Independent Counsel so selected does not
satisfy the requirements of Independent Counsel and the objection shall set
forth with particularity the factual basis for such assertion. If there is an
objection to the selection of Independent Counsel, either the Corporation or
Indemnitee may petition the Court for a determination that the objection is
without a reasonable basis or for the appointment of Independent Counsel
selected by the Court.
Section 5.3. DETERMINATION OF ENTITLEMENT; CHANGE OF CONTROL. If there
has been a Change of Control at the time the request for indemnification is
submitted, Indemnitee's entitlement to indemnification shall be determined in a
written opinion by Independent Counsel selected by Indemnitee. Indemnitee shall
give the Corporation written notice advising of the identity and address of the
Independent Counsel so selected.
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The Corporation may, within seven days after receipt of such written notice of
selection, deliver to the Indemnitee a written objection to such selection.
Indemnitee may, within five days after the receipt of such objection from the
Corporation, submit the name of another Independent Counsel and the Corporation
may, within seven days after receipt of such written notice of selection,
deliver to the Indemnitee a written objection to such selection. Any objections
referred to in this Section 5.3 may be asserted only for the reason that the
Independent Counsel so selected does not satisfy the requirements of Independent
Counsel and such objection shall set forth with particularity the factual basis
for such assertion. Indemnitee may petition the Court for a determination that
the Corporation's objection to the first or second selection of Independent
Counsel is without a reasonable basis or for the appointment as Independent
Counsel of a person selected by the Court.
Section 5.4. PROCEDURES OF INDEPENDENT COUNSEL. If a Change of Control
shall have occurred before the request for indemnification is sent by
Indemnitee, Indemnitee shall be presumed (except as otherwise expressly provided
in this Agreement) to be entitled to indemnification upon submission of a
request for indemnification in accordance with Section 5.1 of this Agreement,
and thereafter the Corporation shall have the burden of proof to overcome the
presumption in reaching a determination contrary to the presumption. The
presumption shall be used by Independent Counsel as a basis for a determination
of entitlement to indemnification, unless the Corporation provides information
sufficient to overcome such presumption by clear and convincing evidence or the
investigation, review and analysis of Independent Counsel convinces him by clear
and convincing evidence that the presumption should not apply.
Except in the event that the determination of entitlement to
indemnification is to be made by Independent Counsel, if the person or persons
empowered under Section 5.2 or Section 5.3 of this Agreement to determine
entitlement to indemnification shall not have made and furnished to Indemnitee
in writing a determination within 60 days after receipt by the Corporation of
the request therefor, the requisite determination of entitlement to
indemnification shall be deemed to have been made and Indemnitee shall be
entitled to such indemnification, unless Indemnitee knowingly misrepresented a
material fact in connection with the request for indemnification or such
indemnification is prohibited by applicable law. The termination of any
Proceeding or of any Matter therein, by judgment, order, settlement or
conviction, or upon a plea of nolo contendere or its equivalent, shall not
(except as otherwise expressly provided in this Agreement) of itself adversely
affect the right of Indemnitee to indemnification or create a presumption that
Indemnitee did not act in good faith and in a manner that he reasonably believed
to be in or not opposed to the best interests of the Corporation, or with
respect to any Proceeding, that Indemnitee had reasonable cause to believe that
his conduct was
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unlawful. A person who acted in good faith and in a manner he reasonably
believed to be in the interest of the participants and beneficiaries of an
employee benefit plan of the Corporation shall be deemed to have acted in a
manner not opposed to the best interests of the Corporation.
For purposes of any determination hereunder, a person shall be deemed
to have acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the Corporation, or, with respect to any
criminal action or Proceeding, to have had no reasonable cause to believe his
conduct was unlawful, if his action is based on the records or books of account
of the Corporation or another enterprise or on information supplied to him by
the officers of the Corporation or another enterprise in the course of their
duties or on the advice of legal counsel for the Corporation or another
enterprise or on information or records given or reports made to the Corporation
or another enterprise by an independent certified public accountant or by an
appraiser or other expert selected with reasonable care by the Corporation or
another enterprise. The term "another enterprise" as used in this section shall
mean any other corporation or any partnership, limited liability company,
association, joint venture, trust, employee benefit plan or other enterprise of
which such person is or was serving at the request of the Corporation as a
director, officer, employee or agent. The provisions of this section shall not
be deemed to be exclusive or to limit in any way the circumstances in which an
Indemnitee may be deemed to have satisfied the applicable standards of conduct
for determining entitlement to rights under this Agreement.
Section 5.5. INDEPENDENT COUNSEL EXPENSES. The Corporation shall pay
any and all reasonable fees and expenses of Independent Counsel incurred acting
pursuant to this article and in any proceeding to which it is a party or witness
in respect of its investigation and written report and shall pay all reasonable
fees and expenses incident to the procedures in which such Independent Counsel
was selected or appointed. No Independent Counsel may serve if a timely
objection has been made to his selection, until a court has determined that such
objection is without a reasonable basis.
ARTICLE VI
CERTAIN REMEDIES OF INDEMNITEE
Section 6.1. ADJUDICATION. In the event that (i) a determination is
made pursuant to Section 5.2 or Section 5.3 of this Agreement that Indemnitee is
not entitled to indemnification under this Agreement; (ii) advancement of
Expenses is not timely made pursuant to Section 4.1 of this Agreement; (iii)
Independent Counsel has not made and delivered a written opinion determining the
request for indemnification (a) within 90 days
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after being appointed by the Court, or (b) within 90 days after objections to
his selection have been overruled by the Court or (c) within 90 days after the
time for the Corporation or Indemnitee to object to his selection; or (iv)
payment of indemnification is not made within five days after a determination of
entitlement to indemnification has been made or deemed to have been made
pursuant to Section 5.2, Section 5.3 or Section 5.4 of this Agreement,
Indemnitee shall be entitled to an adjudication in Court of his entitlement to
such indemnification or advancement of Expenses. In the event that a
determination shall have been made that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Section 6.1 shall be conducted in all respects as a de novo trial on the
merits and Indemnitee shall not be prejudiced by reason of that adverse
determination. If a Change of Control shall have occurred, in any judicial
proceeding commenced pursuant to this Section 6.1, the Corporation shall have
the burden of proving that Indemnitee is not entitled to indemnification or
advancement of Expenses, as the case may be. If a determination shall have been
made or deemed to have been made that Indemnitee is entitled to indemnification,
the Corporation shall be obligated by such determination in any judicial
proceeding commenced pursuant to this Section 6.1, or otherwise, unless
Indemnitee knowingly misrepresented a material fact in connection with the
request for indemnification, or such indemnification is prohibited by law.
The Corporation shall be precluded from asserting in any judicial
proceeding commenced pursuant to this Section 6.1 that the procedures and
presumptions of this Agreement are not valid, binding and enforceable, and shall
stipulate in any such proceeding that the Corporation is obligated by all
provisions of this Agreement. In the event that Indemnitee, pursuant to this
Section 6.1, seeks a judicial adjudication to enforce his rights under, or to
recover damages for breach of, this Agreement, Indemnitee shall be entitled to
recover from the Corporation, and shall be indemnified by the Corporation
against, any and all Expenses actually and reasonably incurred by him in such
judicial adjudication, but only if he prevails therein. If it shall be
determined in such judicial adjudication that Indemnitee is entitled to receive
part but not all of the indemnification or advancement of Expenses sought, the
Expenses incurred by Indemnitee in connection with such judicial adjudication or
arbitration shall be appropriately prorated.
ARTICLE VII
PARTICIPATION BY THE CORPORATION
Section 7.1. PARTICIPATION BY THE CORPORATION. With respect to any such
Proceeding as to which Indemnitee notifies the Corporation of the commencement
thereof, (a) the Corporation will be entitled to participate therein at its own
expense; (b) except
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as otherwise provided below, to the extent that it may desire, the Corporation
(jointly with any other indemnifying party similarly notified) will be entitled
to assume the defense thereof, with counsel reasonably satisfactory to
Indemnitee. After receipt of notice from the Corporation to Indemnitee of the
Corporation's election so to assume the defense thereof, the Corporation will
not be liable to Indemnitee under this Agreement for any legal or other expenses
subsequently incurred by Indemnitee in connection with the defense thereof other
than reasonable costs of investigation or as otherwise provided below.
Indemnitee shall have the right to employ his own counsel in such Proceeding but
the fees and expenses of such counsel incurred after notice from the Corporation
of its assumption of the defense thereof shall be at the expense of Indemnitee
unless (i) the retention of counsel by Indemnitee has been authorized by the
Corporation, (ii) Indemnitee shall have reasonably concluded that there is a
conflict of interest between the Corporation and Indemnitee in the conduct of
the defense of such action or (iii) the Corporation shall not in fact have
employed counsel to assume the defense of such action, in each of which cases
the fees and expenses of counsel employed by Indemnitee shall be subject to
indemnification pursuant to the terms of this Agreement. The Corporation shall
not be entitled to assume the defense of any Proceeding brought in the name of
or on behalf of the Corporation or as to which Indemnitee shall have made the
conclusion provided for in (ii) above; and (c) the Corporation shall not be
liable to indemnify Indemnitee under this Agreement for any amounts paid in
settlement of any action or claim effected without its written consent, which
consent shall not be unreasonably withheld. The Corporation shall not settle any
action or claim in any manner that would impose any limitation or unindemnified
penalty on Indemnitee without Indemnitee's written consent, which consent shall
not be unreasonably withheld.
ARTICLE VIII
MISCELLANEOUS
Section 8.1. NONEXCLUSIVITY OF RIGHTS. The rights of indemnification
and advancement of Expenses as provided by this Agreement shall not be deemed
exclusive of any other rights to which Indemnitee may at any time be entitled to
under applicable law, the Corporation's Certificate of Incorporation, or any
amendment thereto; the Corporation's Bylaws, or any amendment thereto; any
agreement; a vote of stockholders or a resolution of directors, or otherwise. No
amendment, alteration or repeal of this Agreement or any provision hereof shall
be effective as to any Indemnitee for acts, events and circumstances that
occurred, in whole or in part, before such amendment, alteration or repeal. The
provisions of this Agreement shall continue as to an Indemnitee whose Corporate
Status has ceased for any reason and shall inure to the benefit of his heirs,
executors and administrators.
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Section 8.2. INSURANCE AND SUBROGATION. The Corporation shall not be
liable under this Agreement to make any payment of amounts otherwise
indemnifiable hereunder if, but only to the extent that, Indemnitee has
otherwise actually received such payment under any insurance policy, contract,
agreement or otherwise.
In the event of any payment hereunder, the Corporation shall be
subrogated to the extent of such payment to all the rights of recovery of
Indemnitee, who shall execute all papers required and take all action reasonably
requested by the Corporation to secure such rights, including execution of such
documents as are necessary to enable the Corporation to commence litigation to
enforce such rights.
Section 8.3. ACKNOWLEDGMENT OF CERTAIN MATTERS. In certain instances,
applicable law or public policy may prohibit indemnification of Indemnitee by
the Corporation under this Agreement or otherwise. The Corporation has
undertaken or may be required in the future to undertake, by the Securities and
Exchange Commission, to submit the question of indemnification to a court in
certain circumstances for a determination of the Corporation's right under
public policy to indemnify Indemnitee.
Section 8.4. AMENDMENT. This Agreement may not be modified or amended,
except by a written instrument executed by or on behalf of each of the parties
hereto.
Section 8.5. WAIVERS. The observance of any term of this Agreement may
be waived (either generally or in a particular instance and either retroactively
or prospectively) by the party entitled to enforce such term only by a writing
signed by the party against which such waiver is to be asserted. Unless
otherwise expressly provided herein, no delay on the part of any party hereto in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver on the part of any party hereto of any right,
power or privilege hereunder operate as a waiver of any other right, power or
privilege hereunder nor shall any single or partial exercise of any right, power
or privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege hereunder.
Section 8.6. ENTIRE AGREEMENT. This Agreement and the documents
referred to herein constitute the entire agreement between the parties hereto
with respect to the matters covered hereby, and any other prior or
contemporaneous oral or written understandings or agreements with respect to the
matters covered hereby are superseded by this Agreement.
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Section 8.7. SEVERABILITY. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby; and, to the
fullest extent possible, the provisions of this Agreement shall be construed so
as to give effect to the intent manifested by the provision held invalid,
illegal or unenforceable.
Section 8.8. CERTAIN ACTIONS FOR WHICH INDEMNIFICATION IS NOT PROVIDED.
Notwithstanding any other provision of this Agreement, Indemnitee shall not be
entitled to indemnification or advancement of Expenses under this Agreement with
respect to any Proceeding, or any Matter therein, brought or made by Indemnitee
against the Corporation.
Section 8.9. NOTICES. Promptly after receipt by Indemnitee of notice of
the commencement of any Proceeding, Indemnitee shall, if he anticipates or
contemplates making a claim for Expenses or an advance pursuant to the terms of
this Agreement, notify the Corporation of the commencement of such Proceeding;
provided, however, that any delay in so notifying the Corporation shall not
constitute a waiver or release by Indemnitee of rights hereunder and that any
omission by Indemnitee to so notify the Corporation shall not relieve the
Corporation from any liability that it may have to Indemnitee otherwise than
under this Agreement. Any communication required or permitted to the Corporation
shall be addressed to the Secretary of the Corporation and any such
communication to Indemnitee shall be addressed to the Indemnitee's address as
shown on the Corporation's records, unless the Indemnitee specifies otherwise
and shall be personally delivered or delivered by overnight mail or similar
delivery. Any such notice shall be effective upon receipt.
Section 8.10. GOVERNING LAW. This Agreement shall be construed in
accordance with and governed by the laws of the State of Delaware without regard
to any principles of conflict of laws that, if applied, might permit or require
the application of the laws of a different jurisdiction.
Section 8.11. HEADINGS. The article and section headings in this
Agreement are for convenience of reference only, and shall not be deemed to
alter or affect the meaning or interpretation of any provisions hereof.
Section 8.12. COUNTERPARTS. This Agreement may be executed in
counterparts, 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.
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Section 8.13. USE OF CERTAIN TERMS. As used in this Agreement, the
words "herein," "hereof," and "hereunder" and other words of similar import
refer to this Agreement as a whole and not to any particular paragraph,
subparagraph, section, subsection, or other subdivision. Whenever the context
may require, any pronoun used in this Agreement shall include the corresponding
masculine, feminine or neuter forms, and the singular form of nouns, pronouns
and verbs shall include the plural and vice versa.
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered to be effective as of the date first above written.
PERFORMANCE ASSET
MANAGEMENT COMPANY,
a Delaware corporation
By: _____________________________ ______________________________
Vincent E. Galewick
12
<PAGE> 1
EXHIBIT 11
PERFORMANCE ASSET MANAGEMENT COMPANY
PRO FORMA CALCULATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
EARNINGS
INCOME NUMBER (LOSS)
(LOSS) OF SHARES PER SHARE
---------- ---------- ---------
<S> <C> <C> <C>
1996............................................. $1,696,446 7,511,500 $ .23
1995............................................. $ 1,527 7,511,500 $ .00
1994 $ (651,720) 7,511,500 $(.09)
1993............................................. $ 948,779 7,511,500 $ .13
1992............................................. $ 390,640 7,511,500 $ .05
</TABLE>
- ---------------
Note: Assume no options, warrants etc. and the total number of shares were
issued on January 1, 1992.
<PAGE> 1
EXHIBIT 12
PAMCO
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------
1996 1995 1994 1993
---------- ------- --------- ----------
<S> <C> <C> <C> <C>
Pretax income (loss)............................... $2,827,632 $ 2,552 $(646,920) $1,402,079
Add back interest.................................. 13,294 13,095 0
---------- ------- --------- ----------
Earnings........................................... 2,827,632 15,846 633,825 1,402,079
Fixed charges...................................... 0 13,294 13,095 0
Ratio of earnings to fixed charges................. N/A 1.19 N/A N/A
</TABLE>
In 1993 and 1996 there were no fixed charges.
<PAGE> 1
EXHIBIT 15
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Performance Asset Management Company
Newport Beach, California
We have compiled the accompanying balance sheet of Performance Asset Management
Company as of June 30, 1997 and the related statements of operations,
shareholder's deficit, and cash flows for the six months then ended, in
accordance with Statements on Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements and, accordingly, do not express
an opinion or any other form of assurance on them.
Management has elected to omit substantially all of the disclosures required by
generally accepted accounting principles. If the omitted disclosures were
included in the financial statements, they might influence the user's
conclusions about the Company's financial position, results of operations, and
cash flows. Accordingly, these financial statements are not designed for those
who are not informed about such matters.
/s/ KELLY & COMPANY
- -------------------------------------
Kelly & Company
Newport Beach, California
November 4, 1997
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement on Form S-4
("Registration Statement") of Performance Asset Management Company, a Delaware
corporation, of our reports dated December 31, 1996; December 31, 1995; and
December 31, 1994, relating to the financial statements of (i) Performance Asset
Management Fund, Ltd., a California Limited Partnership; (ii) Performance Asset
Management Fund II, Ltd., a California Limited Partnership; (iii) Performance
Asset Management Fund III, Ltd., a California Limited Partnership; (iv)
Performance Asset Management Fund IV, Ltd., a California Limited Partnership;
(v) Performance Asset Management Fund V, Ltd., a California Limited Partnership;
and (vi) Performance Capital Management, Inc., a California corporation,
appearing in the Prospectus, which is a part of the Registration Statement, and
to the reference to us under the heading "Experts" in such Prospectus.
Dated: November 4, 1997 Kelly & Company
By: /s/ GERALD KELLY
------------------------------------
Gerald Kelly
<PAGE> 1
EXHIBIT 23.2
CONSENT OF FAIRNESS EXPERT
Gentlemen:
Willamette Management Associates, Inc. ("Fairness Analyst") hereby consents to
the use of its name, use of its Fairness Opinion and reference to it in the
Registration Statement on Form S-4 filed by Performance Asset Management
Company, a Delaware corporation ("Company"), with the Securities and Exchange
Commission regarding the review and determination of fairness by the Fairness
Analyst from a financial point of view of the proposed issuance by the Company,
to (i) Performance Capital Management, Inc., a California corporation ("PCM");
(ii) Performance Asset Management Fund, Ltd., A California Limited Partnership;
(iii) Performance Asset Management Fund II, Ltd., A California Limited
Partnership; (iv) Performance Asset Management Fund III, Ltd., A California
Limited Partnership; (v) Performance Asset Management Fund IV, Ltd., A
California Limited Partnership; and (vi) Performance Asset Management Fund V,
Ltd., A California Limited Partnership; (the limited partnerships identified in
Items (ii) through (vi), inclusive, shall be the "Partnerships") of 7,511,500
shares of the Company's $.001 par value common stock in exchange for the
acquisition of all of the assets and the assumption of all of the liabilities of
the Partnerships and PCM.
Dated: November 4, 1997 WILLAMETTE MANAGEMENT ASSOCIATES, INC.
By: /s/ ROBERT SCHWEIHS
----------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> JUN-30-1997 DEC-31-1996
<CASH> 0 0
<SECURITIES> 0 0
<RECEIVABLES> 1,551 828
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 1,551 828
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 1,551 828
<CURRENT-LIABILITIES> 1,720 920
<BONDS> 0 0
0 0
100 100
<COMMON> 1 1
<OTHER-SE> (270) (193)
<TOTAL-LIABILITY-AND-EQUITY> 1,551 828
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> (723) (828)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 723 828
<INCOME-TAX> 800 920
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (77) (92)
<EPS-PRIMARY> (.08) (.09)
<EPS-DILUTED> (.08) (.09)
</TABLE>
<PAGE> 1
EXHIBIT 99.1
AGREEMENT OF LIMITED PARTNERSHIP
OF
PERFORMANCE ASSET MANAGEMENT FUND, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
THIS AGREEMENT OF LIMITED PARTNERSHIP ("Agreement") is made and entered
into this day of , 1991, by and among Performance Development, Inc.,
a California corporation, and the persons listed as limited partners on the
signature page of this Agreement.
1. FORMATION AND BUSINESS OF THE PARTNERSHIP.
1.1 PARTNERSHIP FORMATION. The parties hereby enter into a limited
partnership formed pursuant to the provisions of the Revised Limited Partnership
Act of the State of California, as enacted and in effect on or after June 1,
1986 ("Act"); and the rights and liabilities of the Partners shall be as
provided in the Act and as herein expressly provided. Upon the request of the
General Partner, the Limited Partners shall execute promptly all certificates
and other documents necessary for the General Partner to accomplish all filings,
recordings, publishings and other acts required for the operation of the
Partnership pursuant to the provisions of the laws of California.
1.2 PARTNERSHIP BUSINESS. The purpose and activity of the Partnership
shall be to acquire distressed assets from the Federal Deposit Insurance
Corporation ("FDIC"), the Resolution Trust Corporation ("RTC") and other sources
in order to derive income from managing, operating or selling those distressed
assets or collecting monies due and payable from those distressed assets.
1.3 CERTIFICATE OF LIMITED PARTNERSHIP. The General Partner shall cause a
Certificate of Limited Partnership to be filed in the office of the Secretary of
State of California and a certified copy thereof, or a legally acceptable
substitute therefor, to be filed in each California county in which the
Partnership owns or contemplates owning real property or any interest in real
property.
1.4 FICTITIOUS BUSINESS NAME STATEMENT. The General Partner shall execute
and cause to be filed and published a Fictitious Business Name Statement in
accordance with applicable California law.
1.5 FURTHER ASSURANCES. The parties hereto will execute such other
certificates and documents, and the General Partner will file, record and
publish such other certificates and documents, as may be necessary or
appropriate to comply with the requirements of applicable laws governing the
formation and operations of a limited partnership (or a partnership in which
special partners have a limited liability) in all jurisdictions where the
Partnership desires to conduct business.
1.6 NATURE OF PARTNERS' INTERESTS. The interests of the Partners in the
Partnership shall be personal property for all purposes. All property owned by
the Partnership, whether real or personal, tangible or intangible, shall be
deemed to be owned by the Partnership as an entity, and no Partner, as an
individual, shall have an ownership interest in such property.
1.7 TITLE TO PROPERTY. Title to property and any other assets acquired by
the Partnership and any other property acquired to effect the purposes of the
Partnership shall be held solely in the name of the Partnership. The General
Partner shall execute, file and record such documents as may be necessary to
specify the Partnership's ownership of such property and assets in such public
offices in such states as may be required. The Partners agree Partnership
property is not and will not be suitable for partition. Accordingly, each of the
Partners hereby irrevocably waives any and all rights that Partner may have to
maintain an action for partition of any Partnership property.
2. NAMES AND ADDRESSES OF PARTNERS
2.1 PARTNERSHIP. The business of the Partnership shall be conducted using
the name of "Performance Asset Management Fund, Ltd., A California Limited
Partnership," at the following address: 1920 Main Street, Suite 1290, Irvine,
California 92714, or using such other name or such other address as the General
1
<PAGE> 2
Partner shall hereafter designate in writing to the Limited Partners and by
amendment to this Agreement and the Certificate of Limited Partnership of the
Partnership.
2.2 GENERAL PARTNER. The name, address and telephone number of the General
Partner are as follows:
Performance Development, Inc.
a California corporation
1920 Main Street
Suite 1290
Irvine, California 92714
(714) 756-8959
2.3 LIMITED PARTNERS. The names and addresses of the Limited Partners
shall be as set forth in Exhibit "AA" attached hereto and as amended from time
to time.
2.4 AGENT FOR SERVICE OF PROCESS. In accordance with the requirements of
Section 15614(b) of the California Corporations Code, the name and address of
the Partnership's agent for service of process are as follows:
Vincent E. Galewick
1920 Main Street
Suite 1290
Irvine, California 92714
3. DEFINITIONS
3.1 "AFFILIATE" shall mean:
(i) any person directly or indirectly controlling, controlled by or
under common control with another person,
(ii) a person owning or controlling 10% or more of the outstanding
voting securities of such other person,
(iii) any officer, director or partner of such other person, and
(iv) any person who is an officer, director, general partner, trustee,
or holder of 10% or more of the voting securities or beneficial interests
of any of the foregoing. (The word "person" is defined in Section 15.7 of
this Agreement.)
3.2 "AGREEMENT" shall mean this Agreement of Limited Partnership, as
amended from time to time.
3.3 "ASSIGNEE" shall mean a person who has acquired a beneficial interest
in one or more Units from a Partner but who is not a Substituted Limited
Partner.
3.4 "CAPITAL CONTRIBUTION(S)" shall mean the capital contributed to the
Partnership by all Partners, both General Partner and Limited Partners.
3.5 "CASH AVAILABLE FOR DISTRIBUTION" shall mean the cash receipts from
the operations of the Partnership, after deducting cash funds used to pay all
other expenses, debt payments, capital improvements and replacements and less
the amount set aside for restoration or creation of reserves. The actual
distribution of cash shall be in the sole discretion of the General Partner.
3.6 "CLOSING DATE" shall mean the date after which the General Partner
will not accept any further subscriptions, which shall be December 31, 1991,
unless extended by the General Partner to a later date. If all Units are
subscribed prior to December 31, 1991, an earlier Closing Date may be designated
by the General Partner.
3.7 "CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
2
<PAGE> 3
3.8 "GENERAL PARTNER" shall mean Performance Development, Inc., a
California corporation, or any other person succeeding in that capacity.
3.9 "GROSS INCOME" shall mean the gross income of the Partnership as
determined using the cash method of accounting as permitted by the Code.
3.10 "GROSS PROCEEDS" shall mean the aggregate total of the initial
capital contributions of the General Partner and all of the Limited Partners.
3.11 "GROSS REVENUE" shall mean all revenues from the Partnership's
collection or sale of distressed assets obtained from the FDIC, RTC or other
sources. The term "Gross Revenues" shall not include revenues from the sale,
refinancing or other disposition of Partnership administrative assets, such as
office equipment and furniture, or from earnings on savings or invested funds.
3.12 "LIMITED PARTNERS" shall mean the persons who have been admitted to
the Partnership as limited partners in accordance with the provisions of this
Agreement. Reference to a "Limited Partner" shall mean any one of them.
3.13 "MAJORITY VOTE" shall mean that vote of the Limited Partners provided
for in Paragraph 9.3.3 of this Agreement.
3.14 "NET INCOME" or "NET LOSS" shall mean the net income or net loss of
the Partnership for federal income tax purposes, as determined on the cash
method of accounting as permitted by the Code.
3.15 "NET PROCEEDS" shall mean the total of Gross Proceeds less expenses
incurred and to be paid by the Partnership in organizing the Partnership and in
offering and selling Units.
3.16 "OPERATING EXPENSES" shall mean all expenses of operating the
Partnership not deemed to be "Organizational Expenses" or "Sales Commissions" as
those terms are defined herein.
3.17 "ORGANIZATIONAL EXPENSES" shall mean all expenses incurred by the
General Partner or the Partnership in organizing the Partnership and in the
qualifying and marketing of Units which shall include all expenses incurred
prior to the commencement of the Partnership's offering of Units, as well as
those subsequently incurred in complying with continuing conditions of
qualifying the Partnership and that offering pursuant to applicable federal and
state laws, including, but not limited to, the costs of printing, amending,
supplementing and distributing the Memorandum and any other sales material; and
the legal and accounting costs incurred in connection therewith.
3.18 "ORGANIZATIONAL MANAGEMENT FEE" shall mean the fee paid to the
General Partner for its services to the Partnership for the organization of the
Partnership, out of which the General Partner shall pay the Organizational
Expenses as specified in Paragraph 8.2.8 of this Agreement.
3.19 "PARTNERS" shall mean the General Partner and to the Limited
Partners, and reference to a "Partner" shall mean any one of the Partners.
3.20 "PARTNERSHIP" shall mean Performance Asset Management Fund, Ltd., A
California Limited Partnership.
3.21 "PARTNERSHIP MANAGEMENT FEE" shall mean the fee authorized by
Subparagraph 8.2.3.1 of this Agreement.
3.22 "PLACEMENT MANAGER" shall mean Income Network Company, a California
corporation, and an NASD Broker/Dealer which is an Affiliate of the General
Partner and selected by the General Partner to sell the Units.
3.23 "MEMORANDUM" shall mean the Confidential Private Placement Memorandum
of which this Agreement is Exhibit "A."
3.24 "SALES COMMISSIONS" shall mean those amounts paid to NASD
Broker/Dealers selected by the General Partner as compensation or reimbursement
for their services and expenses in marketing the Units.
3
<PAGE> 4
3.25 "SUBSTITUTED LIMITED PARTNER" shall mean a transferee of Units who
has succeeded to all the rights of a Limited Partner inherent in the ownership
of Units.
3.26 "SYNDICATION FEE" shall mean the fee paid to the General Partner
equal to 3% of the Gross Proceeds.
3.27 "TOTAL OUTSTANDING UNITS" shall mean all Units issued and outstanding
at a given date.
3.28 "UNIT" shall mean an interest in the Partnership representing a
capital contribution of $5,000 in cash and shall entitle the holder thereof to
an interest in the income, gains, losses, deductions, credits and distributions
of the Partnership.
4. TERM.
The business of the Partnership shall commence on the date the minimum
number of subscriptions for Units is accepted by the General Partner or the date
a separate Certificate of Limited Partnership pursuant to the Act and shall
continue until December 31, 2000, unless sooner terminated in accordance with
the provisions of this Agreement. The filing or recordation date of this
Agreement or the Certificate of Limited Partnership shall not control the date
of commencement of the business of the Partnership.
5. CAPITAL CONTRIBUTIONS.
5.1 GENERAL PARTNER. The General Partner shall make a Capital Contribution
to the Partnership equal to 1% of the Gross Proceeds.
5.2 PRIVATE OFFERING. The Partnership intends to make a private offering
of limited partnership interests so that the capital of the Partnership
contributed by the Limited Partners shall consist of 2,000 Units, each unit paid
for by a cash contribution of $5,000, and to admit, as Limited Partners, the
persons whose subscriptions for such Units are accepted by the General Partner.
Each such person shall become a Limited Partner when (i) such person has signed,
personally or by attorney-in-fact, a copy of the Subscription Agreement (and the
appendixes thereto) and a copy of this Agreement attached to the Memorandum;
(ii) the General Partner has accepted such subscription; and (iii) this
Agreement and the Certificate of Limited Partnership are amended, as required by
law, to specify such person has become a Limited Partner.
5.3 LIMITED PARTNER. Limited Partners shall contribute to the capital of
the Partnership in the amount of $5,000 by cash, check or money order for each
Unit purchased, with a minimum purchase of 5 Units. Limited Partners shall be
admitted to the Partnership pursuant to the provisions of Section 9.1 of this
Agreement. The General Partner shall have the right, in its sole discretion, to
waive the minimum purchase requirement.
5.4 INDEMNITY. Each Limited Partner agrees to indemnify, defend and hold
harmless the Partnership and the other Partners from any and all liability,
expense or damage occurring because of such Limited Partner's failure to
contribute when due any Capital Contribution that Limited Partner is required or
elects to make pursuant to this Article 5.
5.5 SUBSCRIPTION AGREEMENT. Each person who acquires Units shall execute
and deliver to the General Partner, or its representative, a Subscription
Agreement attached to the Memorandum, pursuant to which such person agrees to
purchase the number of Units indicated therein and to pay for such Units in the
manner indicated above. The Subscription Agreement contains the written
acceptance and adoption by such person of the provisions of this Agreement, and
includes the execution and delivery to the General Partner of a special power of
attorney, the form, style and content of which are more completely described
therein. The acceptance or rejection of the Subscription Agreement submitted by
any person shall be within the absolute discretion of the General Partner, and
no subscription shall be deemed accepted until the General Partner executes the
Subscription Agreement.
5.6 ACCEPTANCE BY GENERAL PARTNER. The General Partner shall accept or
reject the Subscription Agreement tendered by prospective Limited Partners that
are made in accordance with the provisions of Section 5.8 of this Agreement no
later than the Closing Date.
4
<PAGE> 5
5.7 LIABILITY FOR CAPITAL CONTRIBUTIONS. The General Partner and each
Limited Partner is personally liable to the Partnership for payment of that
Partner's entire agreed upon Capital Contribution in accordance with the terms
of this Agreement.
5.8 SALE OF UNITS. The General Partner shall have the right to qualify the
Units with state securities regulatory authorities or perfect exemptions from
qualification and enter into such underwriting or agency arrangements for the
sale thereof pursuant to such terms and conditions as the General Partner may
deem advisable.
5.9 WITHDRAWAL OR RETURN OF CAPITAL. No Partner shall have the right to
demand the withdrawal, reduction or return of that Partner's Capital
Contribution without the consent of all of the Partners, or upon the dissolution
and termination of the Partnership; nor shall any Partner have the right to
demand and receive property other than cash in return for that Partner's Capital
Contribution. Notwithstanding the foregoing, no part of the Capital Contribution
of any Partner shall be withdrawn unless all liabilities of the Partnership
(except liabilities to the General Partner and to the Limited Partners on
account of their Capital Contributions) have been paid or unless the Partnership
has assets sufficient to pay the these liabilities as those liabilities become
due and payable. A Limited Partner shall look only to the assets of the
Partnership and, if Partnership property remaining after the payment or
discharge of the liabilities of the Partnership is insufficient to return that
Partner's Capital Contribution, that Limited Partner shall have no recourse
against the General Partner or any other Limited Partners for such return.
5.10 INTEREST. No Partner shall receive any interest on that Partner's
Capital Contribution.
5.11 OPERATION OF THE PARTNERSHIP. The Partnership shall acquire, manage,
finance, refinance and sell any property on terms and conditions deemed suitable
by the General Partner, in its sole judgment.
6. ALLOCATION OF INCOME, LOSS AND DISTRIBUTIONS.
6.1 PAYMENT OF OBLIGATIONS. The General Partner shall pay to creditors on
or prior to the end of each year all Partnership obligations which are due and
payable at that time and shall create cash reserves only for liquidated
obligations not then due and payable, and then only to the extent the General
Partner believes such obligations cannot be paid from future projected
Partnership receipts.
6.2 CASH AVAILABLE FOR DISTRIBUTION. The General Partner shall distribute
Cash Available For Distribution to the Partners as frequently as possible, and
no less frequently than annually, in the following order of priority:
(a) To the Limited Partners in an amount equal to 90% of the Cash
Available For Distribution.
(b) To the General Partner in an amount equal to 10% of the Cash
Available For Distribution.
After the Limited Partners have received a cash return equal to their
Capital contributions, the Limited Partners shall receive 70% of Cash Available
For Distribution and the General Partner shall receive 30% of Cash Available For
Distribution.
Distributions pursuant to this Section 6.2 shall be made no later than
thirty (30) days after the end of the year to which those distributions pertain.
Distributions pursuant to this Section 6.2 constitute a return of capital, not a
return on capital, and depend entirely upon the success of the Partnership and
are not intended to create a guaranteed payment for use of capital.
6.3 DISTRIBUTION, REFINANCING OR TERMINATION. Upon the sale of all or
substantially all of the Partnership assets or when the Partnership is
terminated and wound up, the Partnership assets shall be distributed in the
following order of priority:
(a) All liabilities of the Partnership shall be paid or adequately
provided for.
(b) The General Partner may create a reserve to provide for contingent
or unforeseen liabilities. When the reason for the creation of that reserve has
been eliminated, the balance of that reserve shall be distributed in the
priority described below.
5
<PAGE> 6
(c) Any Cash Available For Distribution in the year or years of sale,
termination and winding up, and any funds held for the Limited Partners' benefit
not needed for (a) or (b) above shall be distributed in the priority described
in Section 6.2 of this Agreement.
(d) All assets remaining following the above distributions shall be
distributed to the Partners in the percentages of the Partners interests in the
capital of the Partnership.
If for any reason the General Partner deems it to be in the best
interests of the Partners to delay for a reasonable period of time the
distribution of any amounts otherwise distributable pursuant to the provision of
this Agreement, the General Partner may do so.
6.4 LIMITATIONS ON DISTRIBUTIONS. Distributions, also, may be restricted
or suspended for limited periods in circumstances when the General Partner
determines, in its absolute discretion, that such action is in the best
interests of the Partnership. The General Partner intends to make distributions
of substantially all of the Cash Available For Distribution as funds are
available; however, no assurances are hereby made that such distributions will
occur. All distributions will be subject to the payment of the Partnership
expenses and liabilities and to the maintenance of reasonable reserves.
The General Partner, from time to time, may elect to make partial
returns of Capital Contributions to Partners provided that:
(i) all liabilities of the Partnership to persons other than
Partners have been paid, or, in the good faith determination of the
General Partner, there remains property of the Partnership sufficient to
pay those liabilities;
(ii) the General Partner causes this Agreement and the Certificate
of Limited Partnership to be amended to specify such a reduction in the
Capital Contributions; and
(iii) all such returns of the Capital Contributions are made in
such a manner as to return to the Partners their proportionate interests
in the Partnership.
For purposes of the foregoing provisions, the condition of subpart (iii)
of this Section 6.4 shall have been satisfied if the distributions are made to
Partners based upon the interests of the Partners in the capital in the
Partnership. Each Partner, by becoming a Partner, consents to any such
distributions theretofore or thereafter made in accordance with such provisions,
and further consents to variations among the Partners in the amount of any such
distribution made in cash or in kind. Any property distributed in kind will be
valued on the basis of an independent appraisal and treated as though such
property were sold and the cash proceeds distributed.
6.5 ALLOCATIONS OF INCOME AND LOSS. Income, deductions, gains, and losses
shall be allocated, during the term of the Partnership, 10% to the General
Partner and 90% to the Limited Partners until the Limited Partners shall be
returned 100% of their Capital Contribution; thereafter, to the extent allowed
by the provisions of Section 704 of the Internal Revenue Code of 1986, as
amended (substantial economic effect test), such allocations shall be made 30%
to the General Partner and 70% to the Limited Partners, subject to the
provisions of Section 6.2 of this Agreement.
6.6 LOANS BY PARTNERS. Should any Partner make a loan to the Partnership,
such Partner would be entitled to receive interest on any loan so made, but in
no event in excess of the maximum legal rate then allowable pursuant to the
usury law of the State of California.
6.7 CONSENT BY PARTNERS. The methods hereinabove set forth by which
income, gains, losses, deductions, credits and distributions are allocated and
apportioned are hereby expressly consented to by each Partner as a specific
condition to becoming a Partner.
6.8 ACCOUNTING. Each item of income, gain, loss, deduction or credit of
the Partnership shall be determined in accordance with the tax basis of
accounting, consistently applied, pursuant to the provisions of the Internal
Revenue Code of 1986, as amended.
6
<PAGE> 7
7. PARTNERSHIP EXPENSES.
7.1 ADVANCES BY THE GENERAL PARTNER. The General Partner may advance any
monies to the Partnership required for the business of the Partnership, but the
General Partner has no obligation to do so. Such advances shall be deemed a loan
by the General Partner to the Partnership and shall not be deemed a Capital
Contribution. Such loans shall bear interest as provided in Section 6.6 of this
Agreement.
7.2 REIMBURSEMENT OF THE GENERAL PARTNER. The Partnership shall reimburse
the General Partner and its Affiliates for any Operating Expenses which were
advanced or otherwise incurred by the General Partner or its Affiliates on
behalf of the Partnership which are necessary to the prudent operation of the
Partnership. The reimbursement of those Operating Expenses shall comply with the
provisions of Rule 260.140.114.5(a) of the Rules of the Department of
Corporations of the State of California.
7.3 EXPENSES. Operating Expenses may include, but shall not be limited to
legal, audit, accounting, and printing costs or fees; expenses for revising,
amending, converting, modifying or terminating this Agreement; expenses
connected with the payment of distributions in cash or other property made by
the Partnership; expenses connected with communications to the Partners or other
interests in the Partnership, and bookkeeping and clerical work necessary in
maintaining relations with such persons, including costs of printing and mailing
notices and reports to such persons, the preparation of proxy statements and the
solicitation of proxies and the costs in connection therewith; costs incurred in
connection with any litigation in which the Partnership is involved as well as
any examination, investigation or other proceedings conducted by any regulatory
agency of the Partnership, including legal and accounting fees incurred in
connection therewith; costs of any accounting, statistical or bookkeeping
equipment necessary for the maintenance of the books and records of the
Partnership; supervision and expenses of professionals employed by the
Partnership in connection with any of the foregoing, including attorneys,
accountants and appraisers. Except as provided in Section 7.2 of this Agreement,
all expenses of the Partnership shall be billed directly to and paid by the
Partnership.
7.4 SYNDICATION FEE. The Partnership will pay the Syndication Fee to the
General Partner which is equal to three percent (3%) of the Gross Proceeds. The
Syndication Fee will be paid from the Gross Proceeds.
8. GENERAL PARTNER.
8.1 GENERAL PARTNER MAY PURCHASE UNITS. The General Partner and its
Affiliates shall have the right to contribute additional amounts to the capital
of the Partnership as a Limited Partner, paying the complete price for Units on
the same terms as any other Limited Partner. With respect to Units held as a
Limited Partner, the General Partner shall be treated as any other Limited
Partner with regard to those Units.
8.2 COMPENSATION OF THE GENERAL PARTNER.
8.2.1 GENERAL LIMITATIONS ON COMPENSATION. The General Partner shall
receive compensation from the Partnership only as specified the provisions of by
this Agreement.
8.2.2 ORGANIZATION AND OFFERING STAGE. The Partnership shall reimburse
the General Partner for Organizational Expenses in an amount not to exceed 15%
of Gross Proceeds. Of that 15%, 10% shall be for reimbursement of selling and
wholesaling expenses and commissions and 2% shall be for legal, accounting,
printing, and other syndication expenses. To the extent amounts equal to those
percentages are not expended for those purposes, such amounts shall be added to
working capital of the Partnership. The Partnership will pay to the General
Partner the Syndication Fee which is equal to 3% of the Gross Proceeds.
8.2.3 OPERATING STAGE
8.2.3.1 PARTNERSHIP MANAGEMENT FEE. The General Partner shall be
entitled to a Partnership management fee of an amount equal to 2% of the net
asset value of the Partnership during the operating stage of the Partnership.
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8.2.3.2 DISTRIBUTIONS. The General Partner shall be entitled to an
interest in the Partnership which consists of a share of the income, gains,
losses, deductions, credits and distributions pursuant to the provisions of
Sections 6.2, 6.3, and 6.5 of this Agreement, payable upon distribution.
8.2.3.3 REBATES, KICKBACKS, AND RECIPROCAL ARRANGEMENTS. No rebates
or give-ups may be received by the General Partner nor may the General Partner
participate in any reciprocal business arrangements which would circumvent any
provision of this Agreement, or violate the provisions of Rule 260.140.114.7 of
the Rules of the Department of Corporations of the State of California.
8.2.4 EXPULSION, RESIGNATION OR WITHDRAWAL OF THE GENERAL
PARTNER. Should the General Partner be expelled, resign or withdraw from the
Partnership pursuant to the provisions of Paragraph 9.3.2 or Section 8.6 of this
Agreement, any portion of Partnership distributions or other amounts payable
according to the provisions of Articles 6 and 8 of this Agreement which are then
accrued but not yet paid, shall be paid by the Partnership to the General
Partner or its Affiliates within thirty (30) days of the date of expulsion,
resignation or withdrawal, as stated in the written notice of expulsion,
resignation or withdrawal unless such amount is included in the purchase price
of the General Partner's interest in the Partnership as determined pursuant to
the provisions of Section 8.6 of this Agreement. Should the General Partner be
expelled from the Partnership, the General Partner shall be entitled to interest
on any loans made to the Partnership pursuant to the provisions of this
Agreement. If the General Partner is removed as general partner of the
Partnership for cause by a Majority Vote during the first 4 years of the term of
the Partnership, the General Partner shall lose all of the General Partner's
right, title and interest in and to the Partnership, except for the return of
the General Partner's Capital Contribution.
8.3 RIGHTS, AUTHORITY, POWERS, RESPONSIBILITIES AND DUTIES OF THE GENERAL
PARTNER.
8.3.1 GENERAL POWERS. The General Partner shall have all authority,
right and power conferred by law and required or appropriate for the management
of the Partnership's business which, by way of illustration but not by way of
limitation, shall include the rights, authority and powers specified in
Paragraph 8.3.2 of this Agreement. In the management of Partnership business,
the General Partner may delegate duties to such persons as the General Partner
may deem appropriate.
8.3.2 SPECIFIC POWERS.
8.3.2.1 ACQUIRE, MANAGE AND SELL PROPERTY. To the extent reasonably
necessary to achieve the Partnership's objective, to acquire, hold and dispose
of any personal or real property or interests therein, at such price for cash or
securities or other property, and upon terms, as the General Partner, in its
sole discretion, deems to be in the best interests of the Partnership.
8.3.2.2 MANAGE PROPERTY ASSETS. To manage, operate and develop any
Partnership asset or investment, and to enter into leases, servicing agreements,
marketing agreements, consultant agreements, operating agreements, joint
ventures or other contracts with others with respect to assets and investments
acquired by the Partnership, containing such terms, provisions and conditions as
the General Partner shall approve. No person dealing with the Partnership shall
be required to inquire into the authority of the General Partner to take any
action or make any decisions.
8.3.2.3 BORROW. To borrow money and, if security is required
therefor, to subject any Partnership property to any security device, to obtain
replacements of any security device, and to prepay, in whole or in part,
refinance, increase, modify, consolidate or extend any mortgage or other
security device, all of the foregoing at such terms and in such amounts as the
General Partner, in its sole discretion, deems to be in the best interests of
the Partnership.
8.3.2.4 CONTRACT FOR INSURANCE. To acquire and enter into any
contract for insurance, or have the Partnership named as on additional insured,
which the General Partner deems necessary or proper for the protection of the
Partnership and the General Partner, for the conservation of Partnership assets,
or for any purpose convenient or beneficial to the Partnership.
8.3.2.5 EMPLOY PERSONS AND SERVICES. To employ persons in the
operation and management of the business of the Partnership, including, but not
limited to, supervisory managing agents, accountants,
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bookkeepers, attorneys, insurance brokers, real estate brokers and loan brokers,
on such terms and for such compensation as the General Partner shall determine,
subject, however, to the limitations with respect thereto as specified in
Section 8.3 of this Agreement.
8.3.2.6 PREPARE REPORTS. To prepare or cause to be prepared reports,
statements and other relevant information for distribution to the Limited
Partners deemed appropriate by the General Partner.
8.3.2.7 MAINTAIN BANK ACCOUNTS. To open accounts and deposit and
maintain funds in the name of the Partnership in banks or savings and loan
associations; provided, however, the Partnership's funds shall not be commingled
with the funds of any other person.
8.3.2.8 TAX ELECTIONS. To cause the Partnership to make or revoke
any elections pursuant to federal or state tax laws, as the General Partner, in
its discretion, deems to be in the best interest of the Partnership.
8.3.2.9 SELECTING ACCOUNTING METHOD AND YEAR. To select as the
Partnership's accounting year a calendar year or such fiscal year as approved by
the Internal Revenue Service, and to determine the appropriate accounting method
or methods to be used by the Partnership. (The Partnership intends, initially,
to utilize the cash method of accounting in maintaining the Partnership's books
and records and to report on the basis of a calendar year.)
8.3.2.10 SELL UNITS. To offer and sell Units directly or through
finders, wholesalers, agents or Broker/Dealers; provided, however, such persons
shall be Broker/Dealers licensed with the National Association of Securities
Dealers, Inc. or shall be otherwise Registered Representatives, to persons who
make the requisite Capital Contributions, and to admit such persons as Limited
Partners.
8.3.2.11 PURCHASE UNITS FOR OWN ACCOUNT. To purchase Units for the
General Partner's account for investment, or for resale. If the General Partner,
also, is a Limited Partner, then the interests, rights and obligations of the
General Partner as the General Partner and as a Limited Partner at all times
shall be kept separate and distinct.
8.3.2.12 TEMPORARY REFUSAL TO TRANSFER UNITS. To temporarily refuse
to transfer a Partner's interest in the Partnership if such transfer would
result in a sale or exchange of more than 50% of the Partnership's capital and
profits within a 12 month period.
8.3.2.13 COMPROMISE AND SETTLE CLAIMS. To compromise, arbitrate or
otherwise adjust claims in favor of or against the Partnership and to commence
or defend litigation with respect to the Partnership or any assets of the
Partnership as the General Partner may deem advisable, all or any of the above
matters being at the expense of the Partnership; and to satisfy any judgment,
decree, decision or settlement first, out of any insurance proceeds available
therefor, and then out of Partnership assets and income.
8.3.2.14 CONTRACT WITH AFFILIATES. The General Partner may contract
on behalf of the Partnership with other parties affiliated with the General
Partner or with the Partnership to provide services or materials for the
Partnership, such as management, maintenance, executive, accounting, brokerage,
or legal services; provided, however, the fees to be paid therefor and the terms
and conditions thereof are not less favorable to the Partnership than those
which could be reasonably obtained by the Partnership from equally qualified but
unaffiliated third parties; providing, further, however, such contracts satisfy
the requirements of Rules 260.140.125, 260.140.125.1, 260.140.126, 260.140.127.1
and 260.140.127.2 of the Department of Corporations of the State of California.
8.3.2.15 NON-RECOURSE CONTRACTS. To require in all Partnership
contracts that the General Partner shall not have any personal liability
thereon, but that the person contracting with the Partnership is to look solely
to the Partnership and the Partnership's assets for satisfaction.
8.3.2.16 AMEND PARTNERSHIP AGREEMENT. To amend this Agreement after
obtaining a Majority Vote (i) to carry out the business and purpose of the
Partnership; (ii) to add to the representations, duties or obligations of the
General Partner or surrender any right or power granted to the General Partner
in this
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Agreement, for the benefit of the Limited Partners; and (iii) to cure any
ambiguity, to correct or supplement any provision in this Agreement that may be
inconsistent with any other provision in this Agreement or to add any other
provision with respect to matters or questions occurring pursuant to the
provisions of this Agreement that will not be inconsistent with the provisions
of this Agreement.
8.3.2.17 EXECUTION OF DOCUMENTS. To execute, acknowledge and deliver
any and all instruments to effectuate the foregoing, and to take all such action
in connection therewith as the General Partner shall deem necessary or
appropriate.
8.3.2.18 INVEST PRIOR TO ACQUISITION. To invest the Gross Proceeds
or Net Proceeds temporarily prior to the purchase of distressed assets in short
term, highly liquid investments where there is appropriate safety of principal.
8.3.2.19 PERFORM OTHER ACTS. To perform any and all other acts or
activities customary or incident to the business of the Partnership.
8.3.3 DUTIES AND RESPONSIBILITIES OF THE GENERAL PARTNER. The General
Partner shall devote only such time to the Partnership as the General Partner,
in its discretion, determines to be reasonably required for the efficient
conduct thereof, but nothing specified in this Agreement shall preclude the
General Partner from engaging in or possessing an interest in other business
ventures of every nature and description, and neither the Partnership nor the
Limited Partners shall have any interest, by virtue of this Agreement, in any
such other business ventures or the income or profits derived therefrom. In
addition, nothing specified in this Agreement, except the provisions of
Subparagraph 8.3.2.14 of this Agreement, shall preclude the employment of any
agent, third party or Affiliate of the General Partner to manage or provide
other services in respect of the Partnership's properties or business subject to
the control of the General Partner. The General Partner, in all instances, shall
retain general control over and continue to supervise generally the day to day
operations of the Partnership's properties and business and, in this connection,
the General Partner shall provide, furnish and perform, in a good faith,
diligent and efficient manner, all normal and customary business and
administrative duties and services necessary to conduct the Partnership's
business in an expeditious and economical manner.
8.3.3.1 OWNERSHIP OF PROPERTY. The General Partner shall take such
steps as are necessary, in its best judgment, to acquire ownership to any
property acquired by the Partnership, acceptable for the purposes of the
Partnership.
8.3.3.2 FILINGS. The General Partner shall be responsible for filing
a Certificate of Limited Partnership and a Fictitious Business Name Statement
and any required amendments thereto.
8.3.3.3 NET WORTH. The General Partner (i) will use its best efforts
at all times to maintain a net worth in excess of the total amount that could
reasonably be expected to be demanded from it by creditors of all partnerships
of which it is a general partner; (ii) will hold its interest in the Partnership
for its own account; (iii) will not agree to act as a nominee or agent of a
limited partner except as set forth in the partnership agreements for the
partnerships of which it is or may hereafter become a general partner; and (iv)
will not become the general partner of any additional limited partnerships
unless it receives an opinion of counsel to the effect that such transaction
will not cause any partnership of which it has previously become a general
partner to be taxable as a corporation.
8.3.3.4 TAX MATTERS PARTNER. The Partners do hereby appoint
Performance Development, Inc., the General Partner, to act as the "Tax Matters
Partner," as described in the Tax Equity and Fiscal Responsibility Act of 1982.
8.4 LIMITATIONS ON GENERAL PARTNER'S AUTHORITY. The General Partner shall
have all the rights and powers and be subject to all the responsibilities and
the liabilities of a partner in a partnership without limited partners, except
that neither the General Partner nor any of its Affiliates shall have the
authority to:
8.4.1 ALTER PURPOSE OF PARTNERSHIP. Alter the primary purpose of the
Partnership as specified in Article 1 of this Agreement.
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8.4.2 ACTS IN CONTRAVENTION OF THIS AGREEMENT. Do any act in
contravention of this Agreement or any separate Certificate of Limited
Partnership or enter into any reciprocal business arrangement which could
circumvent any of the restrictions specified in this Agreement.
8.4.3 HINDER THE PROVISIONS OF THIS AGREEMENT. Do any act which would
make it impossible to carry on the ordinary business of the Partnership as
provided in this Agreement.
8.4.4 POSSESS PARTNERSHIP PROPERTY. To possess Partnership property or
assign the rights of the Partnership in specific property other than for a
Partnership purpose.
8.4.5 ADMIT PERSONS CONTRARY TO THIS AGREEMENT. Admit a person as a
Limited Partner except as otherwise provided in this Agreement.
8.4.6 CONTINUE PARTNERSHIP AFTER LEGAL TERMINATION. Enter into
contracts with the Partnership which would obligate the Partnership after the
death, retirement, expulsion, insanity, adjudication of bankruptcy or
insolvency, dissolution or other termination of existence of the General
Partner, or to continue business with the Partnership's assets after the
occurrence of such event.
8.4.7 CONFESSIONS OF JUDGMENTS. Confess a judgment against the
Partnership in connection with any threatened or pending legal action.
8.4.8 ADMISSION OF GENERAL PARTNER. Admit a person as a general
partner of the Partnership, except with the consent of the Limited Partners as
specified in this Agreement.
8.4.9 USE OF PARTNERSHIP ASSETS. Employ or permit to employ the funds
or assets of the Partnership in any manner, except for the exclusive benefit of
the Partnership.
8.4.10 CREATION OF LIABILITY OF LIMITED PARTNERS. Perform any act
(other than an act required by this Agreement or any act taken in good faith
upon counsel's opinion) which would, at the time such act occurred, subject any
Limited Partner to liability as a general partner in any jurisdiction.
8.4.11 REDEMPTION OF UNITS. Redeem or repurchase Units, except as
specified in Section 8.8 of this Agreement or when the General Partner
determines such redemption or repurchase is in the best interests of the
Partnership and would not impair the capital of the Partnership or the operation
of the Partnership's business.
8.4.12 TAXATION AS A CORPORATION. Perform any act that would cause the
Partnership to become an association taxable as a corporation for federal income
tax purposes.
8.4.13 PARTNERSHIP LOANS. Lend Partnership funds to the General
Partner or an Affiliate of the General Partner.
8.4.14 INTEREST OF CREDITOR IN PARTNERSHIP. Incur any non-recourse
indebtedness pursuant to which the lender will have or acquire, at any time as a
result of making extending that indebtedness, any direct or indirect interest in
the profit, capital or property of the Partnership other than as a secured
creditor.
8.4.15 COMMINGLING OF PARTNERSHIP FUNDS. Commingle the Partnership
funds with those of any other person.
8.5 LIABILITY OF THE GENERAL PARTNER.
8.5.1 FRAUD, BAD FAITH OR GROSS MISCONDUCT. Except when any loss to
the Limited Partners is caused by fraud, bad faith, gross misconduct, gross
negligence or a breach of fiduciary duty by the General Partner (or any
employee, officer or director of the General Partner), it is expressly agreed
that the General Partner (or any employee, officer or director of the General
Partner) shall not be personally liable for the return of the capital or any
other contributions of the Limited Partners, or any portion thereof, but on the
contrary, that any such return shall be made solely from the Partnership's
assets. However, to be held harmless from any loss or liability suffered by the
Partnership, all of the following conditions must be satisfied:
(1) the General Partner has determined, in good faith, that the
course of conduct which caused the loss or liability was in the best
interests of the Partnership;
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(2) such liability or loss was not the result of gross negligence
or gross misconduct by the General Partner; and
(3) such indemnification or agreement to hold harmless is
recoverable only out of the assets of the Partnership and not from the
Limited Partners.
8.5.2 SECURITIES LAWS. A General Partner or its Affiliates will not be
indemnified for any liability imposed by judgment, and costs associated
therewith, including attorneys' fees, occurring because of a violation of state
or federal securities laws associated with the offer and sale of the Units.
Indemnification will be allowed for settlements and related expenses of lawsuits
alleging securities violations, and for expenses incurred in successfully
defending such lawsuits, provided a court either:
(1) approves the settlement and finds that indemnification of the
settlement and related costs should be made, or
(2) approves indemnification of litigation costs if a successful
defense is made.
8.5.3 PROPER USE OF ASSETS. The General Partner shall have a fiduciary
responsibility to the Limited Partners for the safekeeping and proper use of all
assets of the Partnership whether or not such assets are in the immediate
possession or control of the General Partners.
8.6 REMOVAL, RESIGNATION OR OTHER TERMINATION OF THE GENERAL PARTNER.
8.6.1 REMOVING GENERAL PARTNER. Should the General Partner cease to be
the general partner of the Partnership by reason of the death, disability,
bankruptcy, resignation or removal of the General Partner, any remaining general
partner of the Partnership, if there be one, shall become the General Partner of
the Partnership. The remaining general partner shall continue to serve as the
remaining general partner unless that General Partner shall resign or withdraw
upon 90 days written notice to the Limited Partners (in which event the Limited
Partners, pursuant to Section 9.3 of this Agreement, may elect a successor
general partner prior to the effective date of the resignation), or is removed
as the General Partner upon the vote of the Limited Partners pursuant to Section
9.3 of this Agreement, in which event a successor general partner may be
selected by the Limited Partners pursuant to Section 9.3 of this Agreement.
8.6.2 NOTICE OF EXPULSION. Upon the requisite vote to remove the
General Partner (the General Partner's Units shall not be counted for the
purposes of the voting procedure) as described in Paragraph 9.3.2(i) of this
Agreement, written notice of expulsion shall be served upon the General Partner
by certified or registered mail, return receipt requested, or by personal
service. Said notice shall set forth the date upon which the expulsion is to
become effective, which date shall be not less than 30 days after the service of
said notice upon the General Partner.
8.6.3 DUTIES AFTER EXPULSION. Upon receipt of the notice, the General
Partner shall cease to act as general partner of the Partnership unless it is
the sole general partner of the Partnership; in which event it shall continue in
the management of the Partnership's business until a successor general partner
is elected, but it shall enter into no contract except in the ordinary course of
the Partnership's business.
8.6.4 INTEREST IN PROFITS AND LOSSES. Removal of the General Partner
shall not affect the interest of the General Partner in the profits and losses
and in the distributions of the Partnership as set forth in Article 6 of this
Agreement. Such interest, in the event of the continuation of the business of
the Partnership following removal of the General Partner, may be treated and
continue to be treated in all respects as a Limited Partner's interest and the
Certificate of Limited Partnership shall be amended accordingly.
8.6.5 TERMINATION OF INTEREST. The provisions of this Article 8
notwithstanding, the Partnership may terminate the General Partner's interest in
Partnership income, losses, distributions, and capital by payment of an amount
equal to the then present fair market value of the General Partner's interest in
said items determined by agreement of the General Partner and the other
Partners, or, if they cannot agree, by arbitration in accordance with the then
current rules of the American Arbitration Association. The expenses of
arbitration shall be borne equally by the General Partner and the Partnership.
The fair market value of the General Partner's interest shall be the amount the
General Partner would receive upon dissolution and
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termination of the Partnership on the date of the terminating event and the
assets of the Partnership were sold for their then fair market value without any
compulsion on the part of the Partnership.
8.6.6 PAYMENT FOR TERMINATED INTEREST. If the termination of the
General Partner's interest is voluntary, the method of payment shall provide for
a non-interest bearing note with principal payable, if at all, from
distributions which the General Partner otherwise would have received pursuant
to the Partnership Agreement had the General Partner's interest not terminated.
Where the termination of the General Partner's interest is involuntary, the
method of payment shall provide for an interest bearing promissory note coming
due in 5 years with equal installments each year. Any other provisions of this
Agreement notwithstanding, if the General Partner is removed for cause by a
Majority Vote in the first 4 years of the term of the Partnership, the General
Partner shall lose all its right, title and interest in the Partnership except
for the return of its Capital Contribution.
8.6.7 STATUS OF UNITS AFTER REMOVAL. If the General Partner has been
removed or had its interest as general partner of the Partnership terminated and
owns any Units as General Partner, such Units shall thereafter be held by it as
a Limited Partner and the Certificate of Limited Partnership shall be amended
accordingly.
8.6.8 CHANGE OF PARTNERSHIP NAME. An expelled or a retired General
Partner may require the Partnership to change the Partnership's name to a name
that does not include any words, trademarks or logos associated with the
expelled or retired General Partner.
8.7 ASSIGNMENT OF GENERAL PARTNER'S INTEREST. The General Partner may
assign or encumber its right to receive distributions from the Partnership, or a
portion thereof, without the consent of the Limited Partners. The General
Partner, however, may not substitute any transferee as a general partner of the
Partnership or assign any of the General Partner's duties and obligations
created by the provisions of this Agreement without the approval of a Majority
Vote.
9. LIMITED PARTNERS.
9.1 ADMISSION OF LIMITED PARTNERS.
9.1.1 MINIMUM PURCHASE OF UNITS. The Partnership intends to sell and
issue 2,000 Units in exchange for Capital Contributions of $5,000 per each Unit
in cash. Each person who acquires any Units shall be eligible to become a
Limited Partner in the Partnership at such time as that person has:
(i) purchased 5 or more Units, or less than 5 Units, or, a fraction
of a Unit, if, in the discretion of the General Partner, purchases of
less than the minimum purchase are permitted;
(ii) submitted to the Partnership the sum of $5,000 in cash, check
or money order for each Unit purchased;
(iii) executed and filed with the General Partner a written
instrument which sets forth an intention to become a Limited Partner and
requests admission to the Partnership in that capacity, together with
such other instruments as the General Partner may deem necessary or
desirable to effect such admission, including the written acceptance and
adoption by such person of the provisions of this Agreement, and the
execution, acknowledgment and delivery to the General Partner of a
special power of attorney, the form, style and content of which are more
fully described herein; and
(iv) obtained the consent of the General Partner to be admitted as
a Limited Partner, which consent shall be within the absolute discretion
of the General Partner. Such consent shall be given or refused by the
Closing Date.
9.1.2 RELEASE OF PROCEEDS OF OFFERING. If 25 Units have been sold prior
to the Closing Date, the proceeds of the Offering will be released on the
Closing Date and a subscriber shall be deemed to have been admitted into the
Partnership as a Limited Partner on that date.
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9.1.3 CONTINUED SALE OF UNITS. The Partnership may continue to sell
Units until all 2,000 Units have been sold or until June 30, 1992, whichever
occurs first.
9.1.4 AMENDMENT OF AGREEMENT. The General Partner, when required, shall
amend this Agreement and any separate Certificate of Limited Partnership filed
for record to specify the admission of a person as a Limited Partner. The number
of Units acquired by the Limited Partners and each Partner's respective
ownership interest is set forth in Exhibit "AA" which is attached hereto and
incorporated herein by this reference.
9.2 STATUS OF LIMITED PARTNERS.
9.2.1 LIABILITY. A Limited Partner shall not be obligated by, or be
personally liable for, the expenses, liabilities or obligations of the
Partnership except to the extent of the Capital Contribution required to be made
by that Limited Partner pursuant to the terms of this Agreement and any
additional Contribution to the capital of the Partnership actually made by that
Limited Partner. A Partner is liable to return a distribution if, after the
distribution, Partnership liabilities exceed the fair salable value of
Partnership assets. However, nonrecourse liabilities and the assets which secure
those liabilities, as well as liabilities owed to Partners on account of their
interests in the Partnership are excluded. Notwithstanding the above
limitations, the Limited Partners hereby consent to such distributions in the
event all Partnership debts (other than debts owing to the Partners) have been
paid or adequately provided for.
9.2.2 NONASSESSABILITY. Each Unit shall be paid completely and
nonassessable, when issued.
9.3 RIGHTS, POWERS AND VOTING RIGHTS OF THE LIMITED PARTNERS.
9.3.1 MANAGEMENT. Limited Partners shall take no part in or interfere
in any manner with the control, conduct or operation of the Partnership and
shall have no right or authority to act for or obligate the Partnership.
9.3.2 VOTING RIGHTS. The provisions of this Agreement notwithstanding,
without the necessity for concurrence by the General Partner, a Majority Vote
may:
(1) amend this Agreement;
(2) remove the general partner;
(3) elect a new General Partner;
(4) approve or disapprove the sale of all or substantially all of
the assets of the Partnership;
(5) dissolve the Partnership; and
(6) extend the Partnership term for an additional 10 years. The
terms of an agreement with respect to such extension shall be negotiated
at that time between the General Partner and the Partnership.
9.3.2.1 AMENDMENT OF AGREEMENT BY GENERAL PARTNER. Without the
concurrence of a Majority Vote, the General Partner may not amend this Agreement
except for those amendments which do not affect the rights of Limited Partners.
9.3.2.2 RESTRICTION ON RIGHT OF LIMITED PARTNERS. A Majority Vote
may not modify this Agreement with respect to the compensation or distributions
to which the General Partner is entitled or which affects the duties of the
General Partner except with the consent of the General Partner, except as
provided in Paragraph 8.6.4 of this Agreement.
9.3.3 MAJORITY VOTE. All matters upon which the Limited Partners may
vote shall require, and the term "Majority Vote" shall mean, the vote or written
consent of 50% or more of all issued Units held by the Limited Partners. Each
Limited Partner shall be entitled to cast one vote for each Unit which that
Limited Partner owns.
9.3.4 PROCEDURE FOR VOTING.
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9.3.4.1 NOTICE OF MEETING. The General Partner, at any time, may
call a meeting or a vote without a meeting of the Limited Partners, and shall
call for such meeting or vote and give written notice thereof within not less
than 10 nor more than 60 days following receipt of written request therefor by
Limited Partners holding at least 10% or more of the Units. The General Partner
shall mail, postage-paid, written notice of any such meeting or vote to all
Partners of record as of the date of mailing and to the most recent addresses
shown on the records of the Partnership, which notice shall include a detailed
statement of the action proposed, including a verbatim statement of the wording
of any resolution proposed for adoption by the Limited Partners and of any
proposed amendment to this Agreement and the General Partner's recommendation
with respect to any matters that are to be voted on. The General Partner shall
provide for proxies or written consents which specify a choice between approval
and disapproval of each matter to be acted upon at the meeting. Notice given in
the foregoing manner shall be deemed complete 48 hours after that notice's
deposit by the General Partner in any regular United States Postal Service
depository. All expenses of the meeting or vote and of notice thereof shall be
borne by the Partnership. For a valid Partnership meeting and quorum there must
be in attendance, by person or by proxy, Limited Partners holding a majority of
the Units. Should there be a failure to have such a quorum at any meeting, then
that meeting shall be re-scheduled by those Limited Partners originally in
attendance at that adjourned meeting, for a date certain and the General Partner
shall notify those Limited Partners not in attendance at that adjourned meeting
of the new time, day and place. When obtaining a written vote on any matter to
be voted on without a meeting, a failure to respond within a specified time, but
not less than 10 days, shall constitute a vote of approval of the General
Partner's recommendation with respect thereto.
9.3.4.2 ONE VOTE PER UNIT. A Limited Partner shall be entitled to
cast one vote for each Unit which that Limited Partner owns (i) at a meeting, in
person, by written proxy or by a signed writing directing the manner in which
that Limited Partner desires that his vote be cast; or (ii) without a meeting,
by a signed writing directing the manner in which that Limited Partner desires
that his vote be cast which proxy or writing must be received by the General
Partner prior to the date upon which the votes of Limited Partners of record as
of the date of such meeting or vote shall be counted. The General Partner shall
not be entitled to vote except to the extent the General Partner also owns Units
as a Limited Partner. The law, of the State of California pertaining to the
validity and use of corporate proxies shall govern the validity and use of
proxies given by Limited Partners.
9.3.4.3 LIMITATIONS OF VOTING RIGHTS. No Limited Partner shall
have the right or power to:
(i) Withdraw or reduce his contribution to the capital of the
Partnership except as a result of the dissolution of the Partnership
or as otherwise provided by law;
(ii) Bring an action for partition against the Partnership;
(iii) Cause the termination and dissolution of the Partnership
by court decree or otherwise, except as set forth in this Agreement;
or
(iv) Demand or receive property other than cash in return for
that Limited Partner's Capital Contribution. Except as provided in
this Agreement, no Limited Partner shall have priority over any other
Limited Partner either as to the return of Capital Contributions or
as to income, gains, losses, deductions, credits or distributions.
Other than upon the termination and dissolution of the Partnership as
provided by this Agreement, there has been no time agreed upon when
the Capital Contribution of each Limited Partner is to be returned.
This Agreement may not be amended without the consent of the Partner
to be adversely affected by any amendment which would:
(a) convert a Limited Partner to a general partner of the
Partnership;
(b) modify the limited liability of a Limited Partner;
(c) alter the interest of the General Partner or the Limited
Partners in the income, gains, losses, deductions, credits or
distributions of the Partnership; or
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(d) affect the status of the Partnership as a partnership
for federal income tax purposes.
9.4 ASSIGNMENT OF PARTNERSHIP UNIT.
9.4.1 RIGHT TO ASSIGN. Subject to the provisions of this Section 9.4,
Limited Partners shall have the right to assign one or more Units owned by the
Limited Partners by a duly executed and acknowledged written instrument of
assignment in a form satisfactory to the General Partner, the terms of which are
not in contravention of any of the provisions of this Agreement. However, the
General Partner shall have the right to refuse to allow any such assignment if,
in the opinion of counsel to the Partnership, such assignment would jeopardize
the tax status of the Partnership. A Limited Partner shall notify the General
Partner within 30 days of any assignment or transfer by operation of law of a
beneficial interest in any Units which occurs without a transfer of record
ownership.
9.4.2 QUALIFICATION OF ASSIGNEE. An Assignee shall satisfy the
suitability standards applied to an original subscriber to the Partnership.
However, such suitability standards shall not apply to any Assignee receiving
Units by gift or by operation of law, except when the assigned Units are subject
to a liability owed to the Partnership or to a third party.
9.4.3 DEATH, INCOMPETENCY, BANKRUPTCY OR DISSOLUTION OF A LIMITED
PARTNER. The death, incompetency, bankruptcy or dissolution of a Limited Partner
shall not terminate the Partnership. Upon the death, incompetency or dissolution
of a Limited Partner, the personal representative or successor of such Limited
Partner shall have all the rights of the Limited Partner in the Partnership to
the extent of such Limited Partner's interest therein, subject to the terms and
conditions of this Agreement; and the estate or successor in interest of such
Limited Partner shall be liable for all of such Limited Partner's liabilities as
a Limited Partner, as well as the execution of all documents required to effect
the substitution of such Limited Partner's estate or successor in interest as a
substituted Limited Partner. Such Limited Partner's estate or successor in
interest, at such time as such successor in interest is legally recognized as
the owner of such Limited Partner's interest, shall be a Substituted Limited
Partner without the necessity of complying with the provisions of Section 9.5 of
this Agreement. However, during probate of a deceased Limited Partner's estate
and if the Partnership interest of such deceased Limited Partner is subject to
such probate, then during probate such successor in interest shall be treated as
an Assignee and not a Substituted Limited Partner, but only until such time as
probate closes by evidence satisfactory to the General Partner.
9.4.4. DISTRIBUTIONS. An Assignee shall have no rights as a Limited
Partner, but shall be entitled to receive allocations from the Partnership
attributable to the Units acquired by reason of such assignment from and after
the effective date of the assignment of such Units to such Assignee. However,
the provisions of this Agreement notwithstanding, the Partnership and the
General Partner shall be entitled to treat the assignor of such Units as the
absolute owner thereof in all respects and shall incur no liability for
allocations of income, gains, losses, deductions, credits, distributions or
transmittal of reports and notices required to be given to the Limited Partners,
which are made in good faith to such assignor prior to such time as the written
instrument of assignment has been received by the General Partner and recorded
on the books of the Partnership, or prior to the effective date of such
assignment. The effective date of such assignment of Units, on which the
Assignee shall be deemed an Assignee of record, shall be the first day of the
first complete fiscal quarter following the later of (i) the date set forth on
the written instrument of assignment (unless the date set forth in that written
instrument of assignment is the first day of the fiscal quarter in which event
that date shall be the effective date) or (ii) the date on which the Partnership
has actual notice of the assignment. The allocations and distributions
attributable to the Partnership interest acquired by reason of such assignment
shall be divided among and allocated between the assignor and Assignee of such
interest in proportion to the number of fiscal quarters that each is recognized
by the Partnership as the owner of the transferred Units, based upon the
effective date of the assignment of such interest.
9.4.5 OBLIGATIONS OF A LIMITED PARTNER. An assignment of Units by a
Limited Partner, including assignments of all or less than all rights specified
in this Agreement, shall not relieve the transferor of his duties and
obligations specified in this Agreement, whether occurring prior to or
subsequent to such assignment.
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9.5 SUBSTITUTED LIMITED PARTNERS. A Substituted Limited Partner shall have
rights and powers, and shall be subject to all the restrictions and liabilities,
of the respective assignor, except those liabilities of which that Substituted
Limited Partner was ignorant at the time that Substituted Limited Partner became
a Limited Partner and which could not be ascertained from this Agreement or from
the Certificate of Limited Partnership.
9.5.1 CONDITIONS OF SUBSTITUTION. A Limited Partner may designate an
Assignee as a Substituted Limited Partner, but no Assignee shall have the right
to become a Substituted Limited Partner in place of the respective assignor
unless all of the following conditions are first satisfied:
9.5.1.1 WRITTEN ASSIGNMENT. A duly executed and acknowledged written
instrument of assignment shall have been filed with the Partnership, which
instrument shall set forth the name of the assignor; the name, address and
social security or identification number of the Assignee; the details of the
assignment; the number of Units being assigned and the intention of the assignor
that the Assignee become a Substituted Limited Partner in the assignor's place
and stead to the extent of the assigned Units.
9.5.1.2 FRACTIONAL UNITS. No part of the Partnership interest being
acquired by the Assignee consists of less than 1 Unit, unless that part involves
the entire Partnership interest of the assignor.
9.5.1.3 INSTRUMENTS OF SUBSTITUTION. The assignor and Assignee shall
have executed and acknowledged such other instruments as the General Partner may
deem necessary or desirable to effect such substitution including, without
limitation, the written acceptance and adoption by the Assignee of the
provisions of this Agreement, as amended, and the Assignee's execution,
acknowledgment and delivery to the General Partner of a special power of
attorney, the form and content of which are described more completely in Article
13 of this Agreement.
9.5.1.4 COMPLIANCE WITH SECURITIES LAWS. The assignment is effected
in compliance with all applicable state and federal securities laws as evidenced
by an opinion of counsel satisfactory to the General Partner.
9.5.1.5 CONSENT OF A GENERAL PARTNER. The written consent of the
General Partner to such substitution shall have been obtained, the granting or
denial of which shall be only in accordance with the provisions of Paragraph
9.4.1 of this Agreement.
9.5.1.6 ASSIGNMENT FEE. An assignment fee shall have been paid to
the Partnership, which shall be equal to $100 or an amount sufficient to pay all
reasonable expenses connected with such assignment and substitution, whichever
is less.
9.5.2 CONSENT TO FUTURE SUBSTITUTED LIMITED PARTNERS. By executing or
adopting this Agreement, each Limited Partner hereby consents to the admission
of additional or Substituted Limited Partners by the General Partner and to any
Assignee becoming a Substituted Limited Partner.
9.5.3 AMENDMENT OF CERTIFICATE. An Assignee will become a Substituted
Limited Partner when this Agreement or a separate Certificate of Limited
Partnership is appropriately amended and filed in accordance with the provisions
of the California Revised Limited Partnership Act. The General Partner, at least
once each calendar quarter, cause this Agreement or any separate Certificate of
Limited Partnership to be amended to specify the admission or substitution of
Limited Partners.
9.6 COMPLIANCE WITH SECURITIES RULES OR TRANSFERS. No assignment, sale,
transfer, exchange or other disposition of any Units may be made, except in
compliance with the then applicable rules of all appropriate governmental
authorities.
9.7 VOID ASSIGNMENTS. Any assignment, sale, exchange or other transfer in
contravention of any of the provisions of this Article 9 shall be void and
ineffectual, and shall not obligate or be recognized by the General Partner or
the Partnership.
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10. BOOKS, RECORDS, ACCOUNTING AND REPORTS.
10.1 RECORDS. The General Partner shall keep at its office in California
the following Partnership documents:
(i) A current list of the complete name and last known business or
residence address of each Partner, together with the contribution and share
in profits and losses of each Partner;
(ii) A copy of the Certificate of Limited Partnership and all
certificates of amendment and executed copies of any powers of attorney
pursuant to which any certificate has been executed;
(iii) Copies of the Partnership's federal, state and local income tax
or informational returns and reports, if any, for the 6 most recent years;
(iv) Copies of the original copy of this Agreement and all amendments
to this Agreement;
(v) Financial statements of the Partnership for the 6 most recent
years; and
(vi) The Partnership's books and records as these books and records
relate to the internal affairs of the Partnership for at least the current
and 5 most recent years.
10.2 DELIVERY TO LIMITED PARTNER AND INSPECTION.
(i) Upon the request of a Limited Partner, the General Partner shall
deliver promptly to the requesting Limited Partner, at the expense of the
Partnership, a copy of the information to be maintained required by Section
10.1 of this Agreement.
(ii) Each Limited Partner has the right, upon reasonable request, to
each of the following:
(a) inspect and copy during normal business hours any of the
Partnership records required to be maintained by Section 10.1 of this
Agreement.
(b) obtain from the General Partner, promptly after becoming
available, a copy of the Partnership's federal, state and local income
tax or informational returns for each year.
(iii) The General Partner shall send to each Partner within 60 days
after the end of each year, the information necessary for that Partner to
complete that Partner's federal and state income tax or informational
returns, and if requested by a Limited Partner, there shall be included
within that 60 day period a copy of the Partnership's federal, state and
local income tax or informational returns for the year in which such
request is made.
10.3 ANNUAL REPORTS.
The General Partner will provide to the Limited Partners, within 60 days
after the end of each year of the Partnership, a report containing:
(i) A balance sheet for the Partnership as of the end of that year,
which may be unaudited;
(ii) A statement of income for the Partnership for that year, which
may be unaudited;
(iii) A statement of changes in financial position for the
Partnership for that year, which may be unaudited; and
(iv) Other pertinent information regarding the Partnership and the
activities of the Partnership during the period covered by that report.
10.4 TAX ALLOCATIONS. To the extent permitted by law, (i) all income,
gains and losses shall be allocated to the Partners to whom the revenues
resulting in the realization of such income, gains or losses are allocated
pursuant to Article 6 of this Agreement; (ii) all deductions and credits shall
be allocated to the Partners charged with the expenditures causing such
deductions or credits to occur; and (iii) all recapture of previously taken
deductions or credits shall be allocated to the Partners to whom such deductions
or credits were allocated. To the extent permitted by law, all items of tax
preference for federal income tax purposes shall be allocated to the Partners
credited with the revenues resulting in the realization of the income, gains or
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losses causing such items of tax preference to occur or charged with the
expenditure causing the deductions or credits to which such items of tax
preference are attributable to occur. To the extent permitted by law, each
Partner shall be entitled to that Partner's distributive share of Partnership
income, gain, loss, deduction or credit, or items of tax preference in computing
that Partner's taxable income or tax liability, to the exclusion of any other
Partner.
10.5 TAX ELECTIONS. Upon the assignment of all or part of a Limited
Partner's interest in the Partnership or upon the death of an individual Limited
Partner, or upon the distribution of any Partnership property to any Partner,
the Partnership, at the General Partner's option, may file an election in
accordance with applicable regulations, to cause the basis of the Partnership
property to be adjusted for federal income tax purposes as provided by Sections
734, 743 and 754, respectively, of the Code; similar elections pursuant to the
provisions of state and local income tax laws, at the General Partner's option,
may be made.
10.6 RECORDS OF ADJUSTED TAX BASIS. To the extent the General Partner is
required to determine the adjusted tax basis of any Partnership property with
respect to which the Code requires records of such adjusted tax basis be kept
and maintained by the Limited Partners, the General Partner may request
information regarding such adjusted tax basis from the Limited Partners, in
writing, and the Limited Partners shall furnish such information to the General
Partner within 90 days after said request is mailed by the General Partner.
10.7 TAX RETURNS. The General Partner, at the expense of the Partnership,
shall cause income tax returns for the Partnership to be prepared and timely
filed with the appropriate authorities.
10.8 DEFENSE OF CERTAIN CLAIMS. The General Partner, at the expense of the
Partnership, shall have the right to assume the defense of any claims made by
the Internal Revenue Service to the extent that such claims occur because of and
relate to the Partnership's business or investment activities, and in connection
therewith, to retain and pay counsel chosen by the General Partner, in the
General Partner's sole discretion. In no case, however, shall the Partnership be
liable for any additional tax payable by a Partner or for any costs of separate
counsel chosen by such Partner to represent such Partner with respect to any
aspects of such defense.
10.9 CAPITAL ACCOUNTS. The General Partner will maintain a separate
capital account for each Partner which shall be credited with (i) such Partner's
contributions to the capital of the Partnership and (ii) such Partner's
allocable share of Partnership revenues, gains and income, and which shall be
charged with (a) such Partner's allocable share of Partnership costs, expenses
and losses and (b) the amount of any distributions made to such Partner. The
books and records of the Partnership shall include such other separate and
additional accounts for each Partner as shall be necessary to specify accurately
the rights and interests of the Partners.
10.10 SPECIAL REPORTS. The General Partner, at the expense of the
Partnership, shall cause to be prepared and timely filed with the appropriate
federal and state agencies all reports required to be filed with such agencies
pursuant to the then current applicable laws, rules and regulations. Those
reports shall be prepared on the accounting or reporting basis required by those
appropriate regulatory agencies.
11. CERTAIN OPPORTUNITIES.
The General Partner, any Limited Partner, any Affiliate, any partner,
shareholder, officer, director or employee thereof, or any person owning a legal
or beneficial interest therein, may engage in or possess an interest in any
other business or venture of every nature and description, independently or with
others including those which may be the same as or similar to the Partnership's
business and in direct competition with the Partnership. Neither the Partnership
nor any Partner shall have any right, by virtue of this Agreement, in and to
such independent ventures or the income or profits derived therefrom. Except
when the General Partner has an overriding fiduciary obligation to the
Partnership, the General Partner and its Affiliates will have no duty or
obligation to submit to the Partnership any business opportunities which may
come to them or be presented to any person in which they may be in any way
interested, and the General Partner and any of its Affiliates shall have the
right to take for their own accounts (individually or otherwise) or to recommend
to others any such investment opportunity.
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12. TERMINATION, LIQUIDATION AND DISSOLUTION OF THE PARTNERSHIP.
12.1 TERMINATION. The Partnership shall be terminated and dissolved in
accordance with the California Revised Limited Partnership Act or upon the
earliest to occur of the following:
(i) The death, retirement (provided there has been 90 days prior
written notice to the Limited Partners), expulsion, insanity, adjudication
of bankruptcy or insolvency, or the dissolution of the General Partner
unless any remaining general partners of the Partnership elect to continue
the business of the Partnership;
(ii) A vote pursuant to Section 9.3 of this Agreement to remove the
General Partner, unless all of the Limited Partners elect a substitute
general partner of the Partnership;
(iii) A vote pursuant to Section 9.3 of this Agreement in favor of
termination and dissolution of the Partnership;
(iv) The expiration of the term of the Partnership; and
(v) The sale of all or substantially all of the Partnership assets and
the receipt of the final payment of the purchase price therefor.
12.2 DISTRIBUTIONS. Upon the termination and dissolution of the
Partnership for any reason, the General Partner (or a substituted general
partner of the Partnership elected by a Majority Vote) shall take complete
account of the Partnership's assets and liabilities and those assets shall be
liquidated as promptly as is consistent with obtaining the fair value thereof,
and the proceeds therefrom, to the extent sufficient to pay the Partnership's
obligations with respect thereto, shall be applied and distributed in the
following order:
(i) To the payment and discharge of all of the Partnership debts and
liabilities to persons other than Partners (or former Partners) including
the payment of promissory notes assigned and guaranteed by the Partnership
and the expenses of liquidation;
(ii) To the payment and discharge of any loans and advances made by
Partners (or former Partners) to the Partnership;
(iii) To the Partners in accordance with their respective Partnership
interests to the extent of the positive balances in their respective
capital accounts established pursuant to the provisions of Section 10.9 of
this Agreement.
(iv) The balance of such proceeds, if any, shall be distributed to the
Partners in accordance with their interests in the Partnership, except that
if a Partner shall have a debit balance in that Partner's capital account,
that Partner shall not receive distributions until the amount which would
otherwise be distributed to that Partner is equal to the debit balance,
after which that Partner shall then receive distributions in accordance
with that Partner's interest in the Partnership, but that Partner shall not
receive the amounts which were not distributed to that Partner because of
such debit balance.
12.3 NO RECOURSE AGAINST THE GENERAL PARTNER. Each Limited Partner shall
have that Limited Partner's Capital Contribution returned only from the assets
of the Partnership, and if the Partnership assets remaining after the payment or
discharge of the debts and liabilities of the Partnership is insufficient to
that Capital Contribution, that Limited Partner shall have no recourse against
the General Partner, any of its Affiliates, or any other Limited Partner.
12.4 WAIVER OF RIGHT TO COURT DECREE OF DISSOLUTION. All Partners agree
that irreparable damage would be done to the goodwill and reputation of the
Partnership if any Partner should bring an action in court to dissolve the
Partnership in any way other than as provided in this Agreement. Care has been
taken in this Agreement to provide what the Partners determined are fair and
just methods of liquidation of the interests of all Partners. Accordingly, each
Partner hereby waives and renounces that Partner's rights to a court decree of
dissolution, to seek the appointment by the court of a liquidation for the
Partnership to maintain an action for partition with respect to that Partner's
undivided interest in the Partnership properties or to compel any sale of such
properties.
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12.5 NOTICE OF DISSOLUTION. The General Partner shall cause (i) a Notice
of Dissolution to be published in a newspaper of general circulation in each
county where the Partnership business was regularly conducted and to be mailed
to each of the Partnership's creditors, (ii) an affidavit of publication and of
mailing to be filed with the appropriate County Clerk or Clerks within 30 days
after the publication, and (iii) the Certificate of Limited Partnership to be
canceled.
12.6 GENERAL PARTNER'S DISCRETION. The winding up and dissolution of the
Partnership's affairs and the liquidation and distribution of the Partnership's
assets shall be conducted exclusively by the General Partner (or a trustee, if
one is appointed), which is authorized to do any and all acts and things
authorized by law for these purposes. Distributions in accordance with the
provisions of this Section 12.6 or upon termination and dissolution of the
Partnership will (i) constitute a complete return to the Partners of their
interests in the profits of the Partnership and their Capital Contributions,
(ii) a final and complete distribution to the Partners of all their interests in
the Partnership properties, and (iii) a final termination and settlement of any
and all of the Partners' other interests in the Partnership.
12.7 PURCHASE BY GENERAL PARTNER. The General Partner, if the General
Partner so desires, may purchase Partnership properties upon liquidation of the
Partnership at the highest value established by 2 independent appraisers whose
selection has been approved by a Majority Vote.
13. SPECIAL POWER OF ATTORNEY.
13.1 EXECUTION OF SPECIAL POWER OF ATTORNEY. Concurrently with the
execution or written acceptance and adoption of the provisions of this
Agreement, each Limited Partner shall execute, acknowledge and deliver to the
General Partner a special power of attorney in a form acceptable to the General
Partner in which the General Partner is substituted and appointed as the
attorney-in-fact for such Limited Partner, with power and authority to act in
such Limited Partner's name and on such Limited Partner's behalf to execute,
acknowledge and swear to in the execution, acknowledgment and filing of
documents, which shall include, by way of illustration but not of limitation,
the following:
(i) This Agreement, any separate Certificate of Limited Partnership,
Fictitious Business Name Statements, as well as any amendments to the
foregoing which, pursuant to the laws of the State of California or the
laws of any other jurisdiction, are required to be filed or which the
General Partner deems it advisable to file,
(ii) Any other instrument or document which may be required to be
filed by the Partnership pursuant to the laws of any state or by any
governmental agency, or which the General Partner deems it advisable to
file.
(iii) Any instrument or document which may be required to effect the
continuation of the Partnership, the admission of an additional or
Substituted Limited Partner, or the dissolution and termination of the
Partnership (provided such continuation, admission or dissolution and
termination are in accordance with the terms of this Agreement), or to
specify any reductions in the amounts of the Capital Contributions of the
Partners.
(iv) Any documents, including escrow instructions and amendments, loan
documents, including promissory notes, guarantees, deeds of trust and other
security agreements and mortgages, agreements to sell, purchase, lease,
rent and exchange Partnership assets or any interests therein, contracts,
including management contracts, and all other agreements and documents
necessary to carry out the business of the Partnership and the Partners.
13.2 INCIDENTS OF SPECIAL POWER OF ATTORNEY. The power of attorney hereby
granted by each Limited Partner to the General Partner shall be on the following
terms and conditions.
13.2.1 COUPLED WITH AN INTEREST. That power of attorney is a special
power of attorney coupled with an interest, is irrevocable, shall survive the
death or insanity (or, in the case of a Limited Partner that is a corporation,
association, partnership, joint venture or trust, shall survive the merger,
dissolution or other termination of the existence) of such Limited Partner; and
is limited to those matters herein set forth.
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13.2.2 ACTION BY GENERAL PARTNER. That power of attorney may be
exercised by the General Partner acting alone for each Limited Partner by a
facsimile signature of the General Partner (or one of its officers, employees or
agents), or by listing all of the Limited Partners executing any instrument with
a single signature of the General Partner (or one of its officers, employees or
agents) acting as attorney-in-fact for all of the Limited Partners.
13.2.3 SURVIVAL OF ASSIGNMENT. That power of attorney shall survive an
assignment by a Limited Partner of all or any portion of such Limited Partner's
interest in the Partnership when an Assignee has been approved by the General
Partner for admission to the Partnership as a Substituted Limited Partner, the
special power of attorney shall survive such assignment for the sole purpose of
enabling the General Partner to execute, acknowledge and file any instrument or
document necessary to effect such substitution, as well as for the purposes set
forth in Section 13.1 of this Agreement.
13.2.4 ADDITIONAL ACTION. That power of attorney includes the authority
to take any additional action which the General Partner shall consider necessary
or convenient in connection with any of the powers granted to the General
Partner pursuant to Article 8 of this Agreement, hereby giving the General
Partner complete power and authority to do and perform each and every act and
thing whatsoever requisite and necessary to be done in and about the foregoing
as completely as such Limited Partner might or could do if personally present,
and hereby ratifying and confirming all that the General Partner shall lawfully
do or cause to be done by virtue hereof.
13.3 AUTHORITY OF THE GENERAL PARTNER. The General Partner shall be
authorized to obligate the Partnership by the signature of its officers alone,
and a facsimile signature is as effective as an actual signature.
13.4 ACKNOWLEDGMENT BY LIMITED PARTNERS. Each of the Limited Partners is
aware that the terms and conditions of this Agreement permit certain amendments
of this Agreement to be effected and certain other actions to be taken or
omitted by or with respect to the Partnership, in each case with the approval of
less than all of the Limited Partners. Such actions include, without limitation,
substitution of the General Partner. If, as and when (i) an amendment of this
Agreement is proposed or an action is proposed to be taken or omitted by or with
respect to the Partnership which requires, pursuant to the provisions of this
Agreement, the approval of a specified percentage in interest (but less than
all) of the Partners; (ii) Partners holding the percentage of Partnership
interests in the Partnership specified in this Agreement as being required for
such amendment or action have approved such amendment or action in the manner
contemplated by this Agreement; and (iii) a Limited Partner has failed or
refused to approve such amendment or action (hereinafter referred to as a Non-
Consenting Limited Partner); each Non-Consenting Limited Partner agrees that
each special attorney-in-fact specified above, with complete power of
substitution, is hereby authorized and empowered to execute, acknowledge, make,
swear to, verify, deliver, record, file and publish, for and on behalf of such
Non-Consenting Limited Partner, and in such Non-Consenting Limited Partner's
name, place and stead, any and all instruments and documents which may be
necessary or appropriate to permit such amendment to be lawfully made or action
lawfully taken or omitted. Each Consenting and Non-Consenting Limited Partner is
completely aware that such Limited Partner and each other Limited Partner have
executed this special power of attorney, and that each Limited Partner will rely
on the effectiveness of this special power of attorney with an anticipation of
the orderly administration of the Partnership's affairs.
14. LIABILITY OF AND INDEMNITY OF A GENERAL PARTNER.
14.1 ACTION BY THIRD PARTIES. Except as provided in Section 8.5 of this
Agreement, the General Partner shall not be liable to the Partnership or the
Limited Partners, or any of them, for any failure of any third parties to comply
with the obligations of those parties pursuant to any agreements; however, the
foregoing shall not apply if the General Partner was grossly negligent or failed
to act in good faith in contracting with any such third party.
14.2 ACTION INVOLVING GENERAL PARTNER. Except as provided in Section 8.5
of this Agreement, in any threatened, pending or completed action, lawsuit or
proceeding to which the General Partner (including employees, officers or
directors of the General Partner) was or is a party or is threatened to be made
a party by reason of the fact that it is or was the General Partner (other than
an action by or in the right of the
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Partnership), the Partnership shall indemnify the General Partner (including
employees, officers or directors of the General Partner) against all costs and
expenses, including attorneys' fees, costs of investigation, fines, judgments
and amounts paid in settlement, actually and reasonably incurred by the General
Partner (or such employee, officer or director) in connection with such action,
lawsuit or proceeding if the General Partner (or such employee, officer or
director) acted in good faith in a manner it reasonably believed to be in or not
opposed to the best interests of the Partnership, provided that its conduct does
not constitute negligence, misconduct, or a breach of fiduciary obligation to
the Limited Partners and, in the case of a criminal proceeding, had no
reasonable cause to believe its conduct was unlawful. The termination of any
action, lawsuit or proceeding by judgment, order, settlement, conviction or upon
a plea of nolo contendere or its equivalent shall not, of itself, create a
presumption that the General Partner (or such employee, officer or director) did
not act in good faith and in a manner which it reasonably believed to be in or
not opposed to the best interests of the Partnership or that it had reasonable
cause to believe that its conduct was unlawful. The General Partner (and the
employees, officers or directors of the General Partner) shall not be
indemnified by the Partnership with respect to any expense relating to any
claim, issue or matter as to which such General Partner (or employee, officer or
director of the General Partner) shall have been adjudged to be liable for
negligence or misconduct.
14.3 DEFENSE OF ACTION. Except as provided in Section 8.5 of this
Agreement, to the extent that the General Partner (including any employees,
officers or directors of the General Partner) has been successful on the merits
or otherwise in defense of an action, suit or proceeding referred to in Sections
14.2 or 14.3 of this Agreement, or in defense of any claim, issue or matter
therein, the Partnership shall indemnify the General Partner (or such employee,
officer or director) against all costs and expenses, including attorneys' fees
and costs of investigation, actually and reasonably incurred by it in connection
therewith. An indemnification pursuant to the provisions of Sections 14.2 and
14.3 of this Agreement, unless ordered by a court, shall be made by the
Partnership only as authorized in the specific case and only upon a
determination by independent legal counsel in a written opinion that
indemnification of the General Partner (or such employee, officer or director)
is proper in the circumstances because it has met the applicable standard of
conduct set forth in Sections 14.2 and 14.3 above.
14.4 SATISFACTION OF JUDGMENTS. Except as provided in Section 8.5 of this
Agreement, all judgments against the Partnership and the General Partner,
wherein the General Partner (including any employee, officer or director of the
General Partner) is entitled to indemnification, must first be satisfied from
Partnership assets before the General Partner is responsible for these
judgments.
14.5 RESTRICTION ON INDEMNIFICATION. Except as provided in Section 8.5 of
this Agreement, notwithstanding Section 14.1 of this Agreement, neither the
General Partner nor any officer, director, employee, agent, subsidiary or assign
of the General Partner or of the Partnership shall be indemnified against any
liability, loss or damage incurred by it in connection with (i) any claim or
settlement involving allegations that the Securities Act of 1933 was violated by
the General Partner or by any such other person unless (a) the General Partner
or other persons seeking indemnification are successful in defending such
action, and (b) such indemnification is specifically approved by a court of law
which shall have been advised as to the current positions of, both, the
Securities and Exchange Commission and the California Commissioner of
Corporations regarding indemnification for violations of securities law or (ii)
any liability imposed by law, including liability for fraud, bad faith or
negligence, and the provisions of Paragraph 8.5.1 of this Agreement have been
satisfied by the General Partner.
IN THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION, INDEMNIFICATION
FOR LIABILITIES OCCURRING PURSUANT TO THE SECURITIES ACT OF 1933 IS AGAINST
PUBLIC POLICY AS EXPRESSED IN THAT ACT AND, THEREFORE, IS UNENFORCEABLE.
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15. MISCELLANEOUS.
15.1 COUNTERPARTS. This Agreement may be executed in several counterparts,
and all so executed shall constitute one agreement, obligating all Partners,
notwithstanding that all of the Partners are not signatory to the original or
the same counterpart.
15.2 SUCCESSORS AND ASSIGNS. The terms and provisions of this Agreement
shall obligatory and shall inure to the benefit of the successors and assigns of
the respective Partners.
15.3 GOVERNING LAW. This Agreement shall be construed in accordance with,
and governed by, the laws of the State of California.
15.4 VOID PROVISIONS. In the event any part of this Agreement is declared
by a court of competent jurisdiction to be void, such part shall be deemed
severed from the remainder of the Agreement and the balance of the Agreement
shall remain in effect.
15.5 NOTICES. All notices pursuant to this Agreement shall be in writing
and shall be given to the Partner entitled thereto by personal service or by
certified or registered mail, return receipt requested, except that the notice
of any meeting or the furnishing of any financial statement to the Partners may
be done by regular mail. All notices sent by mail shall be posted to the address
maintained by the Partnership for such person or at such other address as that
person may specify in writing. Any notice pursuant to the provisions of this
Agreement shall be deemed received after 24 hours from the date and time of
postmark if such notice is deposited with the United States Mail pursuant to the
above (if mailed) or when personally received if the mail service is not used.
15.6 CAPTIONS. Titles or captions contained in this Agreement are inserted
only as a matter of convenience and for reference. Such titles and captions in
no way define, limit, extend or describe the scope of this Agreement nor the
intent of any provision hereof.
15.7 CONTEXT. Whenever required by the context hereof, the singular shall
include the plural, and vice-versa; the masculine gender shall include the
feminine and neuter genders, and vice-versa; and the word "person" shall include
any natural person, partnership, estate, corporation, trust, co-operative,
association or other legal entity.
15.8 LEGEND. Any certificate, document or instrument evidencing any right
or interest of any Partner shall bear such legend or legends as may be required
to comply with applicable requirements of any governmental authority.
15.9 FORCE MAJEURE. The General Partner shall not be liable for any loss
or damage to Partnership property caused by strikes, labor troubles, riots,
fires, blowouts, tornadoes, floods, earthquakes, acts of a public enemy,
insurrections, acts of God, failure to carry out the provisions of this
Agreement because of provisions of law or rules or regulations promulgated by
any governmental agency or any demand or acquisition of any government, or from
any other cause beyond the control of the General Partner.
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15.10 ATTORNEY'S FEES. In the event that any legal action is instituted
between the parties occurring because of this Agreement, the prevailing party or
parties therein shall be entitled to recover a reasonable allowance for that
party's attorneys' fees and court expenses, to be fixed and determined by the
court in which said action is filed.
General Partner:
Performance Development, Inc.,
a California corporation
Its: General Partner
By:
----------------------------------
Its: President
By:
----------------------------------
Its: Secretary
Limited Partner:
--------------------------------------
Signature
--------------------------------------
Printed or Typed Name
Address:
----------------------------
----------------------------
Telephone:
----------------------------
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<PAGE> 1
EXHIBIT 99.2
AGREEMENT OF LIMITED PARTNERSHIP
OF
PERFORMANCE ASSET MANAGEMENT FUND II, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
THIS AGREEMENT OF LIMITED PARTNERSHIP ("AGREEMENT") IS MADE AND ENTERED
INTO THIS 25TH DAY OF MARCH, 1992, BY AND AMONG PERFORMANCE DEVELOPMENT, INC., A
CALIFORNIA CORPORATION, AND THE PERSONS LISTED AS LIMITED PARTNERS ON THE
SIGNATURE PAGE OF THIS AGREEMENT.
1. FORMATION AND BUSINESS OF THE PARTNERSHIP.
1.1 PARTNERSHIP FORMATION. The parties hereby enter into a limited
partnership formed pursuant to the provisions of the Revised Limited Partnership
Act of the State of California, as enacted and in effect on or after June 1,
1986 ("Act"); and the rights and liabilities of the Partners shall be as
provided in the Act and as herein expressly provided. Upon the request of the
General Partner, the Limited Partners shall execute promptly all certificates
and other documents necessary for the General Partner to accomplish all filings,
recordings, publishing and other acts required for the operation of the
Partnership pursuant to the provisions of the laws of California.
1.2 PARTNERSHIP BUSINESS. The purpose and activity of the Partnership
shall be to acquire assets from the Federal Deposit Insurance Corporation
("FDIC"), the Resolution Trust Corporation ("RTC") and various other sources in
order to derive income from managing, operating or selling those assets or
collecting monies due and payable from those assets.
1.3 CERTIFICATE OF LIMITED PARTNERSHIP. The General Partner shall cause a
Certificate of Limited Partnership to be filed in the office of the Secretary of
State of California and a certified copy thereof, or a legally acceptable
substitute therefor, to be filed in each California county in which the
Partnership owns or contemplates owning real property or any interest in real
property.
1.4 FICTITIOUS BUSINESS NAME STATEMENT. The General Partner shall execute
and cause to be filed and published a Fictitious Business Name Statement in
accordance with applicable California law.
1.5 FURTHER ASSURANCES. The parties hereto will execute such other
certificates and documents, and the General Partner will file, record and
publish such other certificates and documents, as may be necessary or
appropriate to comply with the requirements of applicable laws governing the
formation and operations of a limited partnership (or a partnership in which
special partners have a limited liability) in all jurisdictions where the
Partnership desires to conduct business.
1.6 NATURE OF PARTNERS' INTERESTS. The interests of the Partners in the
Partnership shall be personal property for all purposes. All property owned by
the Partnership, whether real or personal, tangible or intangible, shall be
deemed to be owned by the Partnership as an entity, and no Partner, as an
individual, shall have an ownership interest in such property.
1.7 TITLE TO PROPERTY. Title to property and any other assets acquired by
the Partnership and any other property acquired to effect the purposes of the
Partnership shall be held solely in the name of the Partnership. The General
Partner shall execute, file and record such documents as may be necessary or
appropriate to specify the Partnership's ownership of such property and assets
in such public offices in such states as may be required. The Partners agree
Partnership property is not and will not be suitable for partition. Accordingly,
each of the Partners hereby irrevocably waives any and all rights that Partner
may have to maintain an action for partition of any Partnership property.
2. NAMES AND ADDRESSES OF PARTNERS.
2.1 PARTNERSHIP. The business of the Partnership shall be conducted using
the name of "Performance Asset Management Fund II, Ltd., A California Limited
Partnership," at the following address: 1920 Main Street, Suite 1290, Irvine,
California 92714, or using such other name or such other address as the General
Partner shall hereafter designate in writing to the Limited Partners and by
amendment to this Agreement and the Certificate of Limited Partnership of the
Partnership.
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2.2 GENERAL PARTNER. The name, address and telephone number of the General
Partner are as follows:
Performance Development, Inc.
a California corporation
1920 Main Street
Suite 1290
Irvine, California 92714
(714) 756-8959
2.3 LIMITED PARTNERS. The names and addresses of the Limited Partners
shall be as set forth in Exhibit "A" attached hereto and as amended from time to
time.
2.4 AGENT FOR SERVICE OF PROCESS. In accordance with the requirements of
Section 15614(b) of the California Corporations Code, the name and address of
the Partnership's agent for service of process are as follows:
Vincent E. Galewick
1920 Main Street
Suite 1290
Irvine, California 92714
3. DEFINITIONS.
3.1 "AFFILIATE" shall mean:
(i) any person directly or indirectly controlling, controlled by or
under common control with another person;
(ii) a person owning or controlling 10% or more of the outstanding
voting securities of such other person;
(iii) any officer, director or partner of such other person; and
(iv) any person who is an officer, director, general partner, trustee,
or holder of 10% or more of the voting securities or beneficial interests
of any of the foregoing (the word "person" is defined in Section 15.7 of
this Agreement.)
3.2 "AGREEMENT" shall mean this Agreement of Limited Partnership, as
amended from time to time.
3.3 "ASSIGNEE" shall mean a person who has acquired a beneficial interest
in one or more Units from a Partner but who is not a Substituted Limited
Partner.
3.4 "CAPITAL CONTRIBUTION(S)" shall mean the capital contributed to the
Partnership by all Partners.
3.5 "CASH AVAILABLE FOR DISTRIBUTION" shall mean the cash receipts from
the operations of the Partnership, after deducting cash funds used to pay all
other expenses, debt payments, capital improvements and replacements and less
the amounts set aside for restoration or creation of reserves. The actual
distribution of cash shall be in the sole discretion of the General Partner.
3.6 "CLOSING DATE" shall mean the date after which the General Partner
will not accept any further subscriptions, which shall be December 31, 1992,
unless extended by the General Partner to a later date. If all Units are
subscribed prior to December 31, 1992, an earlier Closing Date may be designated
by the General Partner.
3.7 "CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
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3.8 "GENERAL PARTNER" shall mean Performance Development, Inc., a
California corporation, or any other person succeeding in that capacity.
3.9 "GROSS INCOME" shall mean the gross income of the Partnership as
determined using the cash method of accounting as permitted by the Code.
3.10 "GROSS PROCEEDS" shall mean the aggregate total of the initial
Capital Contributions of all of the Limited Partners.
3.11 "GROSS REVENUE" shall mean all revenues from the Partnership's
collection or sale of distressed assets obtained from the FDIC, RTC or various
other sources. The term "Gross Revenues" shall not include revenues from the
sale, refinancing or other disposition of Partnership administrative assets,
such as office equipment and furniture, or from earnings on savings or invested
funds.
3.12 "LIMITED PARTNERS" shall mean the persons who have been admitted to
the Partnership as limited partners in accordance with the provisions of this
Agreement. Reference to a "Limited Partner" shall mean any one of them.
3.13 "MAJORITY VOTE" shall mean that vote of the Limited Partners provided
for in Paragraph 9.3.3 of this Agreement.
3.14 "MEMORANDUM" shall mean the Confidential Private Placement Memorandum
of which this Agreement is Exhibit "A."
3.15 "NET INCOME" or "NET LOSS" shall mean the net income or net loss of
the Partnership for federal income tax purposes, as determined on the cash
method of accounting as permitted by the Code.
3.16 "NET PROCEEDS" shall mean the total of Gross Proceeds less expenses
incurred and to be paid by the Partnership in organizing the Partnership and in
offering and selling Units.
3.17 "OPERATING EXPENSES" shall mean all expenses of operating the
Partnership not deemed to be "Organizational Expenses" or "Sales Commissions" as
those terms are defined herein.
3.18 "ORGANIZATIONAL EXPENSES" shall mean all expenses incurred by the
General Partner or the Partnership in organizing the Partnership and in the
qualifying and marketing of the Units which shall include all expenses incurred
prior to the commencement of the Partnership's offering of the Units, as well as
those subsequently incurred in complying with continuing conditions of
qualifying the Partnership and that offering pursuant to applicable federal and
state laws, including, but not limited to, the costs of printing, amending,
supplementing and distributing the Memorandum and any other sales material; and
the legal and accounting costs incurred in connection therewith.
3.19 "ORGANIZATIONAL MANAGEMENT FEE" shall mean the fee paid to the
General Partner for its services to the Partnership for the organization of the
Partnership, out of which the General Partner shall pay the Organizational
Expenses as specified in Paragraph 8.2.8 of this Agreement.
3.20 "PARTNERS" shall mean the General Partner and the Limited Partners,
and reference to a Partner shall mean any one of the Partners.
3.21 "PARTNERSHIP" shall mean Performance Asset Management Fund II, Ltd.,
A California Limited Partnership.
3.22 "PARTNERSHIP MANAGEMENT FEE" shall mean the fee authorized by
Subparagraph 8.2.3.1 of this Agreement.
3.23 "PLACEMENT MANAGER" shall mean Income Network Company, a California
corporation, and an NASD Broker/Dealer which is an Affiliate of the General
Partner and selected by the General Partner to sell the Units.
3.24 "SALES COMMISSIONS" shall mean those amounts paid to NASD
Broker/Dealers selected by the General Partner as compensation or reimbursement
for their services and expenses in marketing the Units.
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3.25 "SUBSTITUTED LIMITED PARTNER" shall mean a transferee of Units who
has succeeded to all the rights of a Limited Partner inherent in the ownership
of Units.
3.26 "SYNDICATION FEE" shall mean the fee paid to the General Partner
equal to 3% of the Gross Proceeds.
3.27 "TOTAL OUTSTANDING UNITS" shall mean all Units issued and outstanding
at a specified date.
3.28 "UNIT" shall mean an interest in the Partnership representing a
capital contribution of $5,000 in cash and shall entitle the holder thereof to
an interest in the income, gains, losses, deductions, credits and distributions
of the Partnership.
4. TERM.
The business of the Partnership shall commence on the date the minimum
number of subscriptions for Units is accepted by the General Partner or the date
a separate Certificate of Limited Partnership pursuant to the Act and shall
continue until December 31, 2005, unless sooner terminated in accordance with
the provisions of this Agreement. The filing or recordation date of this
Agreement or the Certificate of Limited Partnership shall not control the date
of commencement of the business of the Partnership.
5. CAPITAL CONTRIBUTIONS.
5.1 GENERAL PARTNER. The General Partner shall make no contribution to the
capital of the Partnership.
5.2 PRIVATE OFFERING. The Partnership intends to make a private offering
of limited partnership interests so that the capital of the Partnership
contributed by the Limited Partners shall consist of 1,000 Units, each unit paid
for by a cash contribution of $5,000, and to admit, as Limited Partners, the
persons whose subscriptions for such Units are accepted by the General Partner.
Each such person shall become a Limited Partner when (i) such person has signed,
personally or by attorney-in-fact, a copy of the Subscription Agreement (and the
appendices thereto) and a copy of this Agreement attached to the Memorandum;
(ii) the General Partner has accepted such subscription; and (iii) this
Agreement and the Certificate of Limited Partnership are amended, as required by
law, to specify such person has become a Limited Partner.
5.3 LIMITED PARTNERS. The Limited Partners shall contribute to the capital
of the Partnership in the amount of $5,000 by, cash, check or money order for
each Unit purchased, with a minimum purchase of 5 Units. Limited Partners shall
be admitted to the Partnership pursuant to the provisions of Section 9.1 of this
Agreement. The General Partner shall have the right, in its sole discretion, to
waive the minimum purchase requirement.
5.4 INDEMNITY. Each Limited Partner agrees to indemnify, defend and hold
the Partnership and the other Partners harmless from any and all liability,
expense or damage occurring because of such Limited Partner's failure to
contribute when due and payable any Capital Contribution such Limited Partner is
required or elects to make pursuant to this Article 5.
5.5 SUBSCRIPTION AGREEMENT. Each person who acquires Units shall execute
and deliver to the General Partner, or as representative, the Subscription
Agreement attached to the Memorandum marked Exhibit "C," pursuant to which such
person agrees to purchase the number of Units indicated therein and to pay for
such Units in the manner indicated above. The Subscription Agreement contains
the written acceptance and adoption by such person of the provisions of this
Agreement, and includes the execution and delivery to the General Partner of a
special power of attorney, the form, style and content of which are more
completely described therein. The acceptance or rejection of the Subscription
Agreement submitted by any person shall be within the absolute discretion of the
General Partner, and no subscription shall be deemed accepted until the General
Partner executes the Subscription Agreement.
5.6 ACCEPTANCE BY GENERAL PARTNER. The General Partner shall accept or
reject the Subscription Agreements tendered by prospective Limited Partners that
are made in accordance with the provisions of Section 5.5 of this Agreement no
later than the Closing Date.
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5.7 LIABILITY FOR CAPITAL CONTRIBUTIONS. Each Limited Partner is
personally liable to the Partnership for payment of that Partner's entire agreed
upon Capital Contribution in accordance with the terms of this Agreement.
5.8 SALE OF UNITS. The General Partner shall have the right to qualify the
Units with state securities regulatory authorities or perfect exemptions from
qualification and enter into such underwriting or agency arrangements for the
sale thereof pursuant to such terms and conditions as the General Partner may
deem advisable.
5.9 WITHDRAWAL OR RETURN OF CAPITAL. No Partner shall have the right to
demand the withdrawal, reduction or return of that Partner's Capital
Contribution without the consent of all of the Partners, or upon the dissolution
and termination of the Partnership; nor shall any Partner have the right to
demand and receive property other than cash in return for that Partner's Capital
Contribution. Notwithstanding the foregoing, no part of the Capital Contribution
of any Partner shall be withdrawn unless all liabilities of the Partnership
(except liabilities to the Limited Partners on account of their Capital
Contributions) have been paid or unless the Partnership has assets sufficient to
pay the these liabilities as those liabilities become due and payable. A Limited
Partner shall look only to the assets of the Partnership and, if Partnership
property remaining after the payment or discharge of the liabilities of the
Partnership is insufficient to return that Limited Partner's Capital
Contribution, that Limited Partner shall have no recourse against the General
Partner or any other Limited Partners for such return.
5.10 INTEREST. No Limited Partner shall receive any interest on that
Limited Partner's Capital Contribution.
5.11 OPERATION OF PARTNERSHIP PROPERTY. The Partnership shall acquire,
manage, finance, operate, refinance and sell any property on terms and
conditions deemed suitable by the General Partner, in its sole judgment.
6. ALLOCATION OF INCOME, LOSS AND DISTRIBUTIONS.
6.1 PAYMENT OF OBLIGATIONS. The General Partner shall pay to creditors on
or prior to the end of each year all Partnership obligations which are due and
payable at that time and shall create cash reserves only for liquidated
obligations not then due and payable, and then only to the extent the General
Partner believes such obligations cannot be paid from future projected
Partnership receipts.
6.2 CASH AVAILABLE FOR DISTRIBUTION. The General Partner shall distribute
Cash Available For Distribution to the Partners as frequently as possible, and
no less frequently than quarterly, in the following order of priority:
(a) To the Limited Partners in an amount equal to 90% of the Cash
Available For Distribution.
(b) To the General Partner in an amount equal to 10% of the Cash
Available For Distribution.
After the Limited Partners have received a cash return equal to their
Capital Contributions, the Limited Partners shall receive 70% of Cash Available
For Distribution and the General Partner shall receive 30% of Cash Available For
Distribution.
Distributions pursuant to this Section 6.2 shall be made no later than
thirty (30) days after the end of the year to which those distributions pertain.
Distributions pursuant to this Section 6.2 constitute a return of capital, not a
return on capital, and depend entirely upon the success of the Partnership and
are not intended to create a guaranteed payment for the capital contributed to
the Partnership.
6.3 DISTRIBUTION, REFINANCING OR TERMINATION. Upon the sale of all or
substantially all of the Partnership assets or when the Partnership is
terminated and wound up, the Partnership assets shall be distributed in the
following order of priority:
(a) All liabilities of the Partnership shall be paid or adequately
provided for.
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(b) The General Partner may create a reserve to provide for
contingent or unforeseen liabilities. When the reason for the creation of
that reserve has been eliminated, the balance of that reserve shall be
distributed in the priority described in (c) and (d) below.
(c) Any Cash Available For Distribution in the year or years of sale,
termination and winding up, and any funds held for the Limited Partners'
benefit not needed for (a) or (b) above shall be distributed in the
priority described in Section 6.2 of this Agreement.
(d) All assets remaining following the above distributions shall be
distributed to the Partners in the percentages of the Partners interests in
the capital of the Partnership.
If for any reason the General Partner deems it to be in the best
interests of the Partners to delay for a reasonable period of time the
distribution of any amounts otherwise distributable pursuant to the provision of
this Agreement, the General Partner may do so.
6.4 LIMITATIONS ON DISTRIBUTIONS. Distributions, also, may be
restricted or suspended for limited periods in circumstances when the General
Partner determines, in its absolute discretion, that such action is in the best
interests of the Partnership. The General Partner intends to make distributions
of substantially all of the Cash Available For Distribution as funds are
available; however, no assurances are hereby made that such distributions will
occur. All distributions will be subject to the payment of the Partnership
expenses and liabilities and to the maintenance of reasonable reserves.
The General Partner, from time to time, may elect to make partial
returns of Capital Contributions to Limited Partners provided that:
(i) all liabilities of the Partnership to persons other than
Partners have been paid, or, in the good faith determination of the
General Partner, there remains property of the Partnership sufficient to
pay those liabilities;
(ii) the General Partner causes this Agreement and the Certificate
of Limited Partnership to be amended to specify such a reduction in the
Capital Contributions; and
(iii) all such returns of the Capital Contributions are made in
such a manner as to return to the Partners their proportionate interests
in the Partnership.
For purposes of the foregoing provisions, the condition of subpart (iii)
of this Section 6.4 shall have been satisfied if the distributions are made to
the Limited Partners based upon the interests of the Limited Partners in the
capital of in the Partnership. Each Limited Partner, by becoming a Limited
Partner, consents to any such distributions theretofore or thereafter made in
accordance with such provisions, and further consents to variations among the
Limited Partners in the amount of any such distribution made in cash or in kind.
Any property distributed in kind will be valued on the basis of an independent
appraisal and treated as though such property were sold and the cash proceeds
distributed.
6.5 ALLOCATION OF INCOME AND LOSS. Income, deductions, gains, and losses
shall be allocated, during the term of the Partnership, 10% to the General
Partner and 90% to the Limited Partners until the Limited Partners have been
returned 100% of their Capital Contributions; thereafter, to the extent allowed
by the provisions of Section 704 of the Internal Revenue Code of 1986, as
amended (substantial economic effect test), such allocations shall be made 30%
to the General Partner and 70% to the Limited Partners, subject to the
provisions of Section 6.2 of this Agreement.
6.6 LOANS BY PARTNERS. Should any Partner make a loan to the Partnership,
such Partner would be entitled to receive interest on any loan so made, but in
no event shall such interest be in excess of the maximum legal rate then
allowable pursuant to the usury law of the State of California.
6.7 CONSENT BY PARTNERS. The methods hereinabove set forth by which
income, gains, losses, deductions, credits and distributions are allocated and
apportioned are hereby expressly consented to by each Partner as a specific
condition to becoming a Partner.
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6.8 ACCOUNTING. Each item of income, gain, loss, deduction or credit of
the Partnership shall be determined in accordance with the cash basis of
accounting, consistently applied, pursuant to the provisions of the Code.
7. PARTNER EXPENSES.
7.1 ADVANCES BY THE GENERAL PARTNER. The General Partner may advance any
monies to the Partnership required for the business of the Partnership, but the
General Partner has no obligation to do so. Such advances shall be deemed a loan
by the General Partner to the Partnership and shall not be deemed a Capital
Contribution. Such loans shall bear interest as provided in Section 6.6 of this
Agreement.
7.2 REIMBURSEMENT OF THE GENERAL PARTNER. The Partnership shall reimburse
the General Partner and its Affiliates for any Operating Expenses which were
advanced or otherwise incurred by the General Partner or its Affiliates on
behalf of the Partnership which are necessary to the prudent operation of the
Partnership. The reimbursement of those Operating Expenses shall comply with the
provisions of Rule 260.140.114.5(a) of the Rules of the Department of
Corporations of the State of California.
7.3 EXPENSES. Operating Expenses may include, but shall not be limited to,
legal, audit, accounting, and printing costs or fees; expenses for revising,
amending, converting, modifying or terminating this Agreement; expenses
connected with the payment of distributions in cash or other property made by
the Partnership; expenses connected with communications to the Partners or other
persons with interests in the Partnership, and bookkeeping and clerical work
necessary in maintaining relations with such persons, including costs of
printing and mailing notices and reports to such persons, the preparation of
proxy statements and the solicitation of proxies and the costs in connection
therewith; costs incurred in connection with any litigation in which the
Partnership is involved as well as any examination, investigation or other
proceedings conducted by any regulatory agency of the Partnership, including
legal and accounting fees incurred in connection therewith; costs of any
accounting, statistical or bookkeeping equipment necessary or appropriate for
the maintenance of the books and records of the Partnership; supervision and
expenses of professionals employed by the Partnership in connection with any of
the foregoing, including attorneys, accountants and appraisers. Except as
provided in Section 7.2 of this Agreement, all expenses of the Partnership shall
be billed directly to and paid by the Partnership.
7.4 SYNDICATION FEE. The Partnership will pay the Syndication Fee to the
General Partner which is equal to 3% of the Gross Proceeds. The Syndication Fee
will be paid from the Gross Proceeds.
8. GENERAL PARTNER.
8.1 GENERAL PARTNER MAY PURCHASE UNITS. The General Partner and its
Affiliates shall have the right, but not the obligation, to contribute to the
capital of the Partnership as a Limited Partner, paying the complete price for
Units on the same terms as any other Limited Partner. With respect to Units held
as a Limited Partner, the General Partner shall be treated as any other Limited
Partner with regard to those Units.
8.2 COMPENSATION OF THE GENERAL PARTNER.
8.2.1 GENERAL LIMITATIONS ON COMPENSATION. The General Partner shall
receive compensation from the Partnership only as specified the provisions of by
this Agreement.
8.2.2 ORGANIZATION AND OFFERING STAGE. The Partnership shall reimburse
the General Partner for Organizational Expenses in an amount not to exceed 15%
of Gross Proceeds. Of that 15%, 10% shall be for reimbursement of selling and
wholesaling expenses and commissions and 2% shall be for legal, accounting,
printing, and other syndication expenses. To the extent amounts equal to those
percentages are not expended for those purposes, such amounts shall be added to
working capital of the Partnership. The Partnership will pay to the General
Partner the Syndication Fee which is equal to 3% of the Gross Proceeds.
8.2.3 OPERATING STAGE
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8.2.3.1 PARTNERSHIP MANAGEMENT FEE. The General Partner shall be
entitled to a Partnership management fee of an amount equal to 2% of the net
asset value (dollar amount of assets less dollar amount of liabilities) of the
assets of the Partnership during the operating stage of the Partnership.
8.2.3.2 DISTRIBUTIONS. The General Partner shall be entitled to an
interest in the Partnership which consists of income, gains, losses, deductions,
credits and distributions pursuant to the provisions of Sections 6.2, 6.3, and
6.5 of this Agreement, payable upon distribution.
8.2.3.3 REBATES, KICKBACKS, AND RECIPROCAL ARRANGEMENTS. No rebates,
kickbacks or give-ups may be received by the General Partner nor may the General
Partner participate in any reciprocal business arrangements which would
circumvent any provision of this Agreement, or violate the provisions of Rule
260.140.114.7 of the Rules of the Department of Corporations of the State of
California.
8.2.4 EXPULSION, RESIGNATION OR WITHDRAWAL OF THE GENERAL
PARTNER. Should the General Partner be expelled, resign or withdraw from the
Partnership pursuant to the provisions of Paragraph 9.3.2 or Section 8.6 of this
Agreement, any interest which the General Partner shall then have in the
capital, income, gains, losses, deductions, credits and distributions of the
Partnership shall be converted to an interest of a Limited Partner and
thereafter the General Partner shall retain that interest as a Limited Partner
and shall be treated, in all respects, as a Limited Partner. Should the General
Partner be expelled, resign or withdraw from the Partnership, the General
Partner shall be entitled to interest on any loans made to the Partnership
pursuant to the provisions of this Agreement.
8.3 RIGHTS, AUTHORITY, POWERS, RESPONSIBILITIES AND DUTIES OF THE GENERAL
PARTNER.
8.3.1 GENERAL POWERS. The General Partner shall have all authority,
right and power conferred by law and required or appropriate for the management
of the Partnership's business which, by way of illustration, but not by way of
litigation, shall include the rights, authority and powers specified in
Paragraph 8.3.2 of this Agreement. In the management of Partnership business,
the General Partner may delegate duties to such persons as the General Partner
may deem appropriate.
8.3.2 SPECIFIC POWERS.
8.3.2.1 ACQUIRE, MANAGE AND SELL PROPERTY. To the extent reasonably
necessary to achieve the Partnership's objective, to acquire, hold and dispose
of any personal or real property or interests therein, at such price for cash or
securities or other property, and upon terms, as the General Partner, in its
sole discretion, deems to be in the best interests of the Partnership.
8.3.2.2 MANAGE PROPERTY ASSETS. To manage, operate and develop any
Partnership asset or investment, and to enter into leases, servicing agreements,
marketing agreements, consulting agreements, operating agreements, joint
ventures or other contracts with such persons with respect to assets and
investments acquired by the Partnership, containing such terms, provisions and
conditions as the General Partner shall approve. No person doing business or
dealing with the Partnership shall be required to inquire into the authority of
the General Partner to take any action or make any decisions.
8.3.2.3 BORROW. To borrow money and, if security is required
therefor, to subject any Partnership property to any security device, to obtain
replacements of any security device, and to prepay, in whole or in part,
refinance, increase, modify, consolidate or extend any mortgage or other
security device, all of the foregoing on such terms and in such amounts as the
General Partner, in its sole discretion, deems to be in the best interest of the
Partnership.
8.3.2.4 CONTRACT FOR INSURANCE. To acquire and enter into any
contract for insurance, or have the Partnership named as on additional insured,
which the General Partner deems necessary or appropriate for the protection of
the Partnership and the General Partner, for the conservation of Partnership
assets, or for any purpose convenient or beneficial to the Partnership.
8.3.2.5 EMPLOY PERSONS AND SERVICES. To employ persons in the
operation and management of the business of the Partnership, including, but not
limited to, supervisory managing agents, accountants, bookkeepers, attorneys,
insurance brokers, real estate brokers and loan brokers, on such terms and for
such
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compensation as the General Partner shall determine, subject, however, to the
limitations with respect thereto as specified in Section 8.3 of this Agreement.
8.3.2.6 PREPARE REPORTS. To prepare or cause to be prepared reports,
statements and other relevant information for distribution to the Limited
Partners deemed appropriate by the General Partner.
8.3.2.7 MAINTAIN BANK ACCOUNTS. To open accounts and deposit and
maintain funds in the name of the Partnership in banks or savings and loan
associations; provided, however, the Partnership's funds shall not be commingled
with the funds of any other person.
8.3.2.8 TAX ELECTIONS. To cause the Partnership to make or revoke
any elections pursuant to federal or state tax laws as the General Partner, in
its discretion, deems to be in the best interest of the Partnership.
8.3.2.9 SELECTING ACCOUNTING METHOD AND YEAR. To select as the
Partnership's accounting year a calendar year or such fiscal year as approved by
the Internal Revenue Service, and to determine the appropriate accounting method
or methods to be used by the Partnership. The Partnership intends, initially, to
utilize the accrual method of accounting in maintaining the Partnership's books
and records and to report on the basis of a calendar year.
8.3.2.10 SELL UNITS. To offer and sell Units directly or through
finders, wholesalers, agents or Broker/Dealers; provided, however, such persons
shall be Broker/Dealers licensed with the National Association of Securities
Dealers, Inc. or shall be otherwise Registered Representatives, to persons who
make the requisite Capital Contributions, and to admit such persons as Limited
Partners.
8.3.2.11 PURCHASE UNITS FOR OWN ACCOUNT. To purchase Units for the
General Partner's account for investment, or for resale. If the General Partner,
also, is a Limited Partner, then the interests, rights and obligations of the
General Partner as the General Partner and as a Limited Partner at all times
shall be kept separate and distinct.
8.3.2.12 TEMPORARY REFUSAL TO TRANSFER UNITS. To temporarily refuse
to transfer a Limited Partner's interest in the Partnership if such transfer
would result in a sale or exchange of more than 50% of the Partnership's capital
and profits within a 12 month period.
8.3.2.13 COMPROMISE AND SETTLE CLAIMS. To compromise, arbitrate or
otherwise adjust claims in favor of or against the Partnership and to commence
or defend litigation with respect to the Partnership or any assets of the
Partnership as the General Partner may deem advisable, all or any of the above
matters being at the expense of the Partnership; and to satisfy any judgment,
decree, decision or settlement first, out of any insurance proceeds available
therefor, and then out of Partnership assets and income.
8.3.2.14 CONTRACT WITH AFFILIATES. The General Partner may contract
on behalf of the Partnership with Affiliates of the General Partner or the
Partnership to provide services or materials for the Partnership, such as
management, maintenance, executive, accounting, brokerage, or legal services;
provided, however, the fees to be paid therefor and the terms and conditions
thereof will not be less favorable to the Partnership than those which could be
reasonably obtained by the Partnership from equally qualified but unaffiliated
persons; provided, further, however, such contracts must satisfy the
requirements of Rules 260.140.125, 260.140.125.1, 260.140.126, 260.140.127.1 and
260.140.127.2 of the Department of Corporations of the State of California.
8.3.2.15 NON-RECOURSE CONTRACTS. To require in all Partnership
contracts that the General Partner shall not have any personal liability
thereon, but that the person contracting with the Partnership is to look solely
to the Partnership and the Partnership's assets for satisfaction.
8.3.2.16 AMEND PARTNERSHIP AGREEMENT. To amend this Agreement after
obtaining a Majority Vote (i) to carry out the business and purpose of the
Partnership; (ii) to add to the representations, duties or obligations of the
General Partner or surrender any right or power granted to the General Partner
in this Agreement, for the benefit of the Limited Partners; and (iii) to cure
any ambiguity, to correct or supplement
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any provision of this Agreement that may be inconsistent with any other
provision in this Agreement or to add any other provision with respect to
matters or questions occurring pursuant to the provisions of this Agreement that
will not be inconsistent with the provisions of this Agreement.
8.3.2.17 EXECUTION OF DOCUMENTS. To execute, acknowledge and deliver
any and all instruments to effectuate the foregoing, and to take all such action
in connection therewith as the General Partner shall deem necessary or
appropriate.
8.3.2.18 INVEST PRIOR TO ACQUISITION. To invest the Gross Proceeds
or Net Proceeds temporarily prior to the purchase of assets in short term,
highly liquid investment where there is appropriate safety of principal.
8.3.2.19 PERFORM OTHER ACTS. To perform any and all other acts or
activities customary or incident to the business of the Partnership.
8.3.3 DUTIES AND RESPONSIBILITIES OF THE GENERAL PARTNER. The General
Partner shall devote only such time to the Partnership as the General Partner,
in its discretion, determines to be reasonably required for the efficient
conduct of the affairs of the Partnership, but nothing specified in this
Agreement shall preclude the General Partner from engaging in or possessing an
interest in other business ventures of every nature and description, and neither
the Partnership nor the Limited Partners shall have any interest, by virtue of
this Agreement, in any such other business ventures or the income or profits
derived therefrom. In addition, nothing specified in this Agreement, except the
provisions of Subparagraph 8.3.2.14 of this Agreement, shall preclude the
employment of any agent, third party or Affiliate of the General Partner to
manage or provide other services in respect of the Partnership's properties or
business subject to the control of the General Partner. The General Partner, In
all Instances, shall retain general control over and continue to supervise
generally the day to day operations of the Partnership's properties and business
and, In this connection, the General Partner shall provide, furnish and perform,
in a good faith, diligent and efficient manner, all normal and customary
business and administrative duties and services necessary to conduct the
Partnership's business in an expeditious and economical manner.
8.3.3.1 OWNERSHIP OF PROPERTY. The General Partner shall take such
steps as are necessary, in its best judgment, to acquire ownership to any
property acquired by the Partnership, acceptable for the purposes of the
Partnership.
8.3.3.2 FILINGS. The General Partner shall be responsible for filing
a Certificate of Limited Partnership and a Fictitious Business Name Statement
and any required amendments thereto.
8.3.3.3 NET WORTH. The General Partner (i) will use its best efforts
at all times to maintain a net worth in excess of the total amount that could
reasonably be expected to be demanded from it by creditors of all partnerships
of which it is a general partner; (ii) will hold its interest in the Partnership
for its own account; (iii) will not agree to act as a nominee or agent of a
limited partner except as set forth in the partnership agreements for the
partnerships of which it is or may hereafter become a general partner; and (iv)
will not become the general partner of any additional limited partnerships
unless it receives an opinion of counsel to the effect that such transaction
will not cause any partnership of which it has previously become a general
partner to be taxable as a corporation.
8.3.3.4 TAX MATTERS PARTNER. The Partners do hereby appoint
Performance Development, Inc., the General Partner, to act as the "Tax Matters
Partner," as described in the Tax Equity and Fiscal Responsibility Act of 1982.
8.4 LIMITATIONS ON GENERAL PARTNER'S AUTHORITY. The General Partner shall
have all the rights and powers and be subject to all the responsibilities and
the liabilities of a partner in a partnership without limited partners, except
that neither the General Partner nor any of its Affiliates shall have the
authority to:
8.4.1 ALTER PURPOSE OF PARTNERSHIP. Alter the primary purpose of the
Partnership as specified in Article I of this Agreement.
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8.4.2 ACTS IN CONTRAVENTION OF THIS AGREEMENT. Do any act in
contravention of this Agreement or any separate Certificate of Limited
Partnership or enter into any reciprocal business arrangement which could
circumvent any of the restrictions specified in this Agreement.
8.4.3 HINDER THE PROVISIONS OF THIS AGREEMENT. Do any act which would
make it impossible to carry on the ordinary business of the Partnership as
provided in this Agreement.
8.4.4 POSSESS PARTNERSHIP PROPERTY. To possess Partnership property or
assign the rights of the Partnership in specific property other than for a
Partnership purpose.
8.4.5 ADMIT PERSONS CONTRARY TO THIS AGREEMENT. Admit a person as a
Limited Partner except as otherwise provided in this Agreement.
8.4.6 CONTINUE PARTNERSHIP AFTER LEGAL TERMINATION. Enter into
contracts with the Partnership which would obligate the Partnership after the
death, retirement, expulsion, insanity, adjudication of bankruptcy or
insolvency, dissolution or other termination of existence of the General
Partner, or to continue business with the Partnership's assets after the
occurrence of such event.
8.4.7 CONFESSIONS OF JUDGMENTS. Confess a judgment against the
Partnership in connection with any threatened or pending legal action.
8.4.8 ADMISSION OF GENERAL PARTNER. Admit a person as a general partner
of the Partnership, except with the consent of the Limited Partners as specified
in this Agreement.
8.4.9 USE OF PARTNERSHIP ASSETS. Employ or permit to employ the funds
or assets of the Partnership in any manner, except for the exclusive benefit of
the Partnership.
8.4.10 CREATION OF LIABILITY OF LIMITED PARTNERS. Perform any act
(other than an act required by this Agreement or any act taken in good faith
upon counsel's opinion) which would, at the time such act occurred, subject any
Limited Partner to liability as a general partner in any jurisdiction.
8.4.11 REDEMPTION OF UNITS. Redeem or repurchase Units, except as
specified in Section 8.8 of this Agreement or when the General Partner
determines such redemption or repurchase is in the best interests of the
Partnership and would not impair the capital of the Partnership or the operation
of the Partnership's business.
8.4.12 TAXATION AS A CORPORATION. Perform any act that would cause the
Partnership to become an association taxable as a corporation for federal income
tax purposes.
8.4.13 PARTNERSHIP LOAN. Lend Partnership funds to the General Partner
or an Affiliate of the General Partner.
8.4.14 INTEREST OF CREDITOR IN PARTNERSHIP. Incur any non-recourse
indebtedness pursuant to which the lender will have or acquire, at any time as a
result of making extending that indebtedness, any direct or indirect interest in
the profit, capital or property of the Partnership other than as a secured
creditor.
8.4.15 COMMINGLING OF PARTNERSHIP FUNDS. Commingle the Partnership
funds with funds of any other person.
8.5 LIABILITY OF THE GENERAL PARTNER.
8.5.1 FRAUD, BAD FAITH OR GROSS MISCONDUCT. Except when any loss to the
Limited Partners is caused by fraud, bad faith, gross misconduct, gross
negligence or a breach of fiduciary duty by the General Partner (or any
employee, officer or director of the General Partner), it is expressly agreed
that the General Partner (or any employee, officer or director of the General
Partner) shall not be personally liable for the return of the capital or any
other contributions of the Limited Partners, or any portion thereof, but on the
contrary, that any such return shall be made solely from the Partnership's
assets. However, to be held harmless from any loss or liability suffered by the
Partnership, all of the following conditions must be satisfied:
(1) the General Partner has determined, in good faith, that the
course of conduct which caused the loss or liability was in the best
interests of the Partnership;
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(2) such liability or loss was not the result of gross negligence
or gross misconduct by the General Partner; and
(3) such indemnification or agreement to hold harmless is
recoverable only out of assets of the Partnership and not from the
Limited Partners.
8.5.2 SECURITIES LAWS. The General Partner and its Affiliates will not
be indemnified for any liability imposed by judgment, and costs associated
therewith, including attorneys' fees, occurring because of a violation of state
or federal securities laws associated with the offer and sale of the Units.
Indemnification will be allowed for settlements and related expenses of lawsuits
alleging securities violations, and for expenses incurred in successfully
defending such lawsuits, provided a court either:
(1) approves the settlement and finds that indemnification of the
settlement and related expenses should be made, or
(2) approves indemnification of litigation costs if a successful
defense is made.
8.5.3 PROPER USE OF ASSETS. The General Partner shall have a fiduciary
responsibility to the Limited Partners for the safekeeping and proper use of all
assets of the Partnership whether or not such assets are in the immediate
possession or control of the General Partner.
8.6 REMOVAL, RESIGNATION OR OTHER TERMINATION OF THE GENERAL PARTNER.
8.6.1 REMOVING GENERAL PARTNER. Should the General Partner cease to be
the general partner of the Partnership by reason of the death, disability,
bankruptcy, resignation or removal of the General Partner, any remaining general
partner of the Partnership, if there be one, shall become the General Partner of
the Partnership. The remaining general partner shall continue to serve as the
remaining general partner unless that General Partner shall resign or withdraw
upon 90 days written notice to the Limited Partners (in which event the Limited
Partners, pursuant to Section 9.3 of this Agreement, may elect a successor
general partner prior to the effective date of the resignation), or is removed
as the General Partner upon the vote of the Limited Partners pursuant to Section
9.3 of this Agreement, in which event a successor general partner may be
selected by the Limited Partners pursuant to Section 9.3 of this Agreement.
8.6.2 NOTICE OF EXPULSION. Upon the requisite vote to remove the
General Partner (any Units held by the General Partner shall not be counted for
the purposes of the voting procedure) as described in Paragraph 9.3.2(ii) of
this Agreement, written notice of expulsion shall be served upon the General
Partner by certified or registered mail, return receipt requested, or by
personal service. Said notice shall specify the date upon which the expulsion is
to become effective, which date shall be not less than 30 days after the service
of said notice upon the General Partner.
8.6.3 DUTIES AFTER EXPULSION. Upon receipt of the notice of expulsion,
the General Partner shall cease to act as general partner of the Partnership
unless it is the sole general partner of the Partnership; in which event the
General Partner shall continue in the management of the Partnership's business
until a successor general partner is elected, but the General Partner shall
enter into no contract except in the ordinary course of the Partnership's
business.
8.6.4 INTEREST IN PROFITS AND LOSSES. Removal, resignation or
withdrawal of the General Partner shall not affect the interest of the General
Partner in the profits and losses and in the distributions of the Partnership as
specified in Article 6 of this Agreement. Such interest, in the event of the
continuation of the business of the Partnership following removal of the General
Partner, may be treated and continue to be treated in all respects as a Limited
Partner's interest and the Certificate of Limited Partnership shall be amended
accordingly.
8.6.5 STATUS OF UNITS AFTER REMOVAL. If the General Partner has been
expelled or removed, resigns or withdraws, or had its interest as general
partner of the Partnership terminated and owns any Units as General Partner,
such Units shall thereafter be held by the General Partner as a Limited Partner
and the Certificate of Limited Partnership shall be amended accordingly.
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8.6.6 CHANGE OF PARTNERSHIP NAME. An expelled, retired or withdrawn
general partner may require the Partnership to change the Partnership's name to
a name that does not include any words, trademarks or logos associated with the
expelled, retired or withdrawn general partner.
8.7 ASSIGNMENT OF GENERAL PARTNER'S INTEREST. The General Partner may
assign or encumber its right to receive distributions from the Partnership, or a
portion thereof, without the consent of the Limited Partners. The General
Partner, however, may not substitute any transferee as a general partner of the
Partnership or assign any of the General Partner's duties and obligations
created by the provisions of this Agreement without the approval of a Majority
Vote.
9. LIMITED PARTNERS.
9.1 ADMISSION OF LIMITED PARTNERS.
9.1.1 MINIMUM OF UNITS. The Partnership intends to sell and issue 1,000
Units in exchange for Capital Contributions of $5,000 per each Unit in cash.
Each person who acquires any Units shall be eligible to become a Limited Partner
in the Partnership at such time as that person has:
(i) purchased 5 or more Units, or less than 5 Units, or, a fraction
of a Unit, if, in the discretion of the General Partner, purchases of
less than the minimum purchase are permitted;
(ii) submitted to the Partnership the sum of $5,000 in cash, check
or money order for each Unit purchased;
(iii) executed and filed with the General Partner a written
instrument which sets forth an intention to become a Limited Partner and
requests admission to the Partnership in that capacity, together with
such other instruments as the General Partner may deem necessary or
desirable to effect such admission, including the written acceptance and
adoption by such person of the provisions of this Agreement, and the
execution, acknowledgment and delivery to the General Partner of a
special power of attorney, the form, style and content of which are more
fully described herein; and
(iv) obtained the consent of the General Partner to be admitted as
a Limited Partner, which consent shall be within the absolute discretion
of the General Partner. Such consent shall be given or refused by the
Closing Date.
9.1.2 RELEASE OF PROCEEDS OF OFFERING. If 50 Units have been sold prior
to the Closing Date, the proceeds of the offering will be released on the
Closing Date and a subscriber shall be deemed to have been shall be deemed to
have been admitted into the Partnership.
9.1.3 CONTINUED SALE OF UNITS. The Partnership may continue to sell
Units until all 1,000 Units have been sold or until June 30, 1993, whichever
occurs first.
9.1.4 AMENDMENT OF AGREEMENT. The General Partner, when required, shall
amend this Agreement and any separate Certificate of Limited Partnership filed
for record to specify the admission of a person as a Limited Partner. The number
of Units acquired by the Limited Partners and each Partner's respective
ownership interest is set forth in Exhibit 'A' which is attached hereto and
incorporated herein by this reference.
9.2 STATUS OF LIMITED PARTNERS.
9.2.1 LIABILITY. A Limited Partner shall not be obligated by, or be
personally liable for, the expenses, liabilities or obligations of the
Partnership except to the extent of the Capital Contribution required to be made
by that Limited Partner pursuant to the terms of this Agreement and any
additional contribution to the capital of the Partnership actually made by that
Limited Partner. A Partner is liable to return a distribution if, after the
distribution, Partnership liabilities exceed the fair salable value of
Partnership assets. However, nonrecourse liabilities and the assets which secure
those liabilities, as well as liabilities owed to Partners on account of their
interests in the Partnership, are excluded. Notwithstanding the above
limitations,
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the Limited Partners hereby consent to such distributions in the event all
Partnership debts (other than debts owing to the Partners) have been paid or
provided for adequately.
9.2.2 NONASSESSABILITY. Each Unit shall be paid completely and
nonassessable, when issued.
9.3 RIGHTS, POWERS AND VOTING RIGHTS OF THE UNITED PARTNERS.
9.3.1 MANAGEMENT. Limited Partners shall take no part in or interfere
in any manner with the control, conduct or operation of the Partnership and
shall have no right or authority to act for or obligate the Partnership.
9.3.2 VOTING RIGHTS. The provisions of this Agreement notwithstanding,
without the necessity for concurrence by the General Partner, a Majority Vote
may:
(i) amend this Agreement;
(ii) remove the General Partner;
(iii) elect a new general partner;
(iv) approve or disapprove the sale of all or substantially all of
the assets of the Partnership;
(v) dissolve the Partnership; and
(vi) extend the Partnership term for an additional 10 years. The
terms of an agreement with respect to such extension shall be negotiated
at that time between the General Partner and the Partnership.
9.3.2.1 AMENDMENT OF AGREEMENT BY GENERAL PARTNER. Without the
concurrence of a Majority Vote, the General Partner may not amend this Agreement
except for those amendments which do not affect the rights of Limited Partners.
9.3.2.2 RESTRICTION ON RIGHT OF LIMITED PARTNERS. A Majority Vote
may not modify this Agreement with respect to the compensation or distributions
to which the General Partner is entitled or which affects the duties of the
General Partner except with the consent of the General Partner, except as
provided in Paragraph 8.6.4 of this Agreement.
9.3.3 MAJORITY VOTE. All matters upon which the Limited Partners may
vote shall require, and the term "Majority Vote" shall mean, the vote or written
consent of 50% or more of all issued Units held by the Limited Partners. Each
Limited Partner shall be entitled to cast one vote for each Unit which that
Limited Partner owns.
9.3.4 PROCEDURE FOR VOTING.
9.3.4.1 NOTICE OF MEETING. The General Partner, at any time, may
call a meeting or a vote without a meeting of the Limited Partners, and shall
call for such meeting or vote and give written notice thereof will not less than
10 nor more than 60 days following receipt of written request therefor by
Limlted Partners holding at least 10% or more of the Units. The General Partner
shall mail, postage-paid, written notice of any such meeting or vote to all
Partners of record as of the date of mailing and to the most recent addresses
shown on the records of the Partnership, which notice shall include a detailed
statement of the action proposed, including a verbatim statement of the wording
of any resolution proposed for adoption by the Limited Partners and of any
proposed amendment to this Agreement and the General Partner's recommendation
with respect to any matters that are to be voted on. The General Partner shall
provide for proxies or written consents which specify a choice between approval
and disapproval of each matter to be acted upon at the meeting. Notice given in
the foregoing manner shall be deemed complete 48 hours after that notice's
deposit by the General Partner In any regular United States Postal Service
depository. All expenses of the meeting or vote and of notice thereof shall be
borne by the Partnership. For a valid Partnership meeting and quorum there must
be in attendance, by person or by proxy, United Partners holding a majority of
the Units. Should there be a failure to have such a quorum at any meeting, then
that meeting shall be re-scheduled by those United Partners originally in
attendance at that adjourned meeting, for a date certain and the General
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Partner shall notify those Limited Partners not in attendance at that
adjourned meeting of the new time, day and place. When obtaining a written vote
on any matter to be voted on without a meeting, a failure to respond within a
specified time, but not less than 10 days, shall constitute a vote of approval
of the General Partner's recommendation with respect thereto.
9.3.4.2 ONE VOTE PER UNIT. A Limited Partner shall be entitled to
cast one vote for each Unit which that Limited Partner owns (i) at a meeting, in
person, by written proxy or by a signed writing directing the manner in which
that Limited Partner desires that his vote be cast; or (ii) without a meeting,
by a signed writing directing the manner in which that Limited Partner desires
that his vote be cast which proxy or writing must be received by the General
Partner prior to the date upon which the votes of Limited Partners of record as
of the date of such meeting or vote shall be counted. The General Partner shall
not be entitled to vote except to the extent the General Partner also owns Units
as a Limited Partner. The laws of the State of California pertaining to the
validity and use of corporate proxies shall govern the validity and use of
proxies given by Limited Partners.
9.3.4.3 LIMITATIONS OF VOTING RIGHTS. No Limited Partner shall have
the right or power to:
(i) Withdraw or reduce his contribution to the capital of the
Partnership except as a result of the dissolution of the Partnership
or as otherwise provided by law;
(ii) Bring an action for partition against the Partnership;
(iii) Cause the termination and dissolution of the Partnership
by court decree or otherwise, except as set forth in this Agreement;
or
(iv) Demand or receive property other than cash in return for
that Limited Partner's Capital Contribution. Except as provided in
this Agreement, no Limited Partner shall have priority over any other
Limited Partner either as to the return of Capital Contributions or
as to income, gains, losses, deductions, credits or distributions.
Other than upon the termination and dissolution of the Partnership as
provided by this Agreement, there has been no time agreed upon when
the Capital Contribution of each Limited Partner is to be returned.
This Agreement may not be amended without the consent of the Partner
to be adversely affected by any amendment which would:
(a) convert a Limited Partner to a general partner of the
Partnership;
(b) modify the limited liability of a Limited Partner;
(c) alter the interest of the General Partner or the Limited
Partners in the income, gains, losses, deductions, credits or
distributions of the Partnership; or
(d) affect the status of the Partnership as a partnership
for federal income tax purposes.
9.4 ASSIGNMENT OF UNITS.
9.4.1 RIGHT TO ASSIGN. Subject to the provisions of this Section 9.4,
Limited Partners shall have the right to assign one or more Units owned by the
Limited Partners by a duly executed and acknowledged written instrument of
assignment in a form satisfactory to the General Partner, the terms of which are
not in contravention of any of the provisions of this Agreement. However, the
General Partner shall have the right to refuse to allow any such assignment if,
in the opinion of counsel to the Partnership, such assignment would jeopardize
the tax status of the Partnership. A Limited Partner shall notify the General
Partner within 30 days of any assignment or transfer by operation of law of a
beneficial interest in any Units which occurs without a transfer of record
ownership.
9.4.2 QUALIFICATION OF ASSIGNEE. An Assignee shall satisfy the
suitability standards applied to an original subscriber to the Partnership.
However, such suitability standards shall not apply to any Assignee receiving
Units by gift or by operation of law, except when the assigned Units are subject
to a liability owed to the Partnership or to a third party.
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9.4.3 DEATH, INCOMPETENCY, BANKRUPTCY OR DISSOLUTION OF A LIMITED
PARTNER. The death, incompetency, bankruptcy or dissolution of a Limited Partner
shall not terminate the Partnership. Upon the death, incompetency or dissolution
of a Limited Partner, the personal representative or successor of such Limited
Partner shall have all the rights of the Limited Partner in the Partnership to
the extent of such Limited Partner's interest therein, subject to the terms and
conditions of this Agreement; and the estate or successor in interest of such
Limited Partner shall be liable for all of such Limited Partner's liabilities as
a Limited Partner, as well as the execution of all documents required to effect
the substitution of such Limited Partner's estate or successor in interest as a
Substituted Limited Partner. Such Limited Partner's estate or successor in
interest, at such time as such successor in interest is legally recognized as
the owner of such Limited Partner's interest, shall be a Substituted Limited
Partner without the necessity of complying with the provisions of Section 9.5 of
this Agreement. However, during probate of a deceased Limited Partner's estate
and if the Partnership interest of such deceased Limited Partner is subject to
such probate, then during probate such successor in interest shall be treated as
an Assignee and not a Substituted Limited Partner, but only until such time as
probate closes by evidence satisfactory to the General Partner.
9.4.4. DISTRIBUTIONS. An Assignee shall have no rights as a Limited
Partner, but shall be entitled to receive allocations from the Partnership
attributable to the Units acquired by reason of such assignment from and after
the effective date of the assignment of such Units to such Assignee. However,
the provisions of this Agreement notwithstanding, the Partnership and the
General Partner shall be entitled to treat the assignor of such Units as the
absolute owner thereof in an respects and shall incur no liability for
allocations of income, gains, losses, deductions, credits, distributions or
transmittal of reports and notices required to be given to the Limited Partners,
which are made in good faith to such assignor prior to such time as the written
instrument of assignment has been received by the General Partner and recorded
on the books of the Partnership, or prior to the effective date of such
assignment. The effective date of such assignment of Units, on which the
Assignee shall be deemed an Assignee of record, shall be the first day of the
first complete fiscal quarter following the later of (i) the date set forth on
the written instrument of assignment (unless the date set forth in that written
instrument of assignment is the first day of the fiscal quarter in which event
that date shall be the effective date) or (ii) the date on which the Partnership
has actual notice of the assignment. The allocations and distributions
attributable to the Partnership interest acquired by reason of such assignment
shall be divided among and allocated between the assignor and Assignee of such
interest in proportion to the number of fiscal quarters that each is recognized
by the Partnership as the owner of the transferred Units, based upon the
effective date of the assignment of such interest.
9.4.5 OBLIGATIONS OF A LIMITED PARTNER. An assignment of Units by a
Limited Partner, including assignments of all or less than all rights specified
in this Agreement, shall not relieve the transferor of his duties and
obligations specified in this Agreement, whether occurring prior to or
subsequent to such assignment.
9.5 SUBSTITUTED UNITED PARTNERS. A Substituted Limited Partner shall have
the rights and powers, and shall be subject to all the restrictions and
liabilities, of the respective assignor, except those liabilities of which that
Substituted Limited Partner was ignorant at the time that Substituted Limited
Partner became a Limited Partner and which could not be ascertained from this
Agreement or from the Certificate of Limited Partnership.
9.5.1 CONDITIONS OF SUBSTITUTION. A Limited Partner may designate an
Assignee as a Substituted Limited Partner, but no Assignee shall have the right
to become a Substituted Limited Partner in place of the respective assignor
unless all of the following conditions are first satisfied:
9.5.1.1 WRITTEN ASSIGNMENT. A duly executed and acknowledged
written instrument of assignment shall have been filed with the Partnership,
which instrument shall set forth the name of the assignor; the name, address and
social security or identification number of the Assignee; the details of the
assignment; the number of Units being assigned and the intention of the assignor
that the Assignee become a Substituted Limited Partner In the assignor's place
and stead to the extent of the assigned Units.
9.5.1.2 FRACTIONAL UNITS. No part of the Partnership interest being
acquired by the Assignee consists of less than 1 Unit, unless that part involves
the entire Partnership interest of the assignor.
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<PAGE> 17
9.5.1.3 INSTRUMENTS OF SUBSTITUTION. The assignor and Assignee
shall have executed and acknowledged such other instruments as the General
Partner may deem necessary or desirable to effect such substitution including,
without limitation, the written acceptance and adoption by the Assignee of the
provisions of this Agreement, as amended, and the Assignee's execution,
acknowledgment and delivery to the General Partner of a special power of
attorney, the form and content of which are described more completely in Article
13 of this Agreement.
9.5.1.4 COMPLIANCE WITH SECURITIES LAWS. The assignment is effected
in compliance with all applicable state and federal securities laws as evidenced
by an opinion of counsel satisfactory to the General Partner.
9.5.1.5 CONSENT OF A GENERAL PARTNER. The written consent of the
General Partner to such substitution shall have been obtained, the granting or
denial of which shall be only in accordance with the provisions of Paragraph
9.4.1 of this Agreement.
9.5.1.6 ASSIGNMENT FEE. An assignment fee shall have been paid to
the Partnership, which shall be equal to $100 or an amount sufficient to pay all
reasonable expenses connected with such assignment and substitution, whichever
is less.
9.5.2 COMMENT TO FUTURE SUBSTITUTED LIMITED PARTNERS. By executing or
adopting this Agreement, each Limited Partner hereby consents to the admission
of additional or Substituted Limited Partners by the General Partner and to any
Assignee becoming a Substituted Limited Partner.
9.5.3 AMENDMENT OF CERTIFICATE. An Assignee will become a Substituted
Limited Partner when this Agreement or a separate Certificate of Limited
Partnership is appropriately amended and filed in accordance with the provisions
of the California Revised Limited Partnership Act. The General Partner, at least
once each calendar quarter, shall cause this Agreement or any separate
Certificate of Limited Partnership to be amended to specify the admission or
substitution of Limited Partners.
9.6 COMPLIANCE WITH SECURITIES RULES OR TRANSFERS. No assignment, sale,
transfer, exchange or other disposition of any Units may be made, except in
compliance with the then applicable rules of all appropriate governmental
authorities.
9.7 VOID ASSIGNMENTS. Any assignment, sale, exchange or other transfer in
contravention of any of the provisions of this Article 9 shall be void and
ineffectual, and shall not obligate, or be recognized by, the General Partner or
the Partnership.
10. BOOKS, RECORDS, ACCOUNTING AND REPORTS.
10.1 RECORDS. The General Partner shall keep at its office in California
the following Partnership documents:
(i) A current list of the complete name and last known business or
residence address of each Partner, together with the contribution and share
in profits and losses of each Partner;
(ii) A copy of the Certificate of Limited Partnership and all
certificates of amendment and executed copies of any powers of attorney
pursuant to which any certificate has been executed;
(iii) Copies of the Partnership's federal, state and local income tax
or informational returns and reports, if any, for the 6 most recent years;
(iv) Copies of the original copy of this Agreement and all amendments
to this Agreement;
(v) Financial statements of the Partnership for the 6 most recent
years; and
(vi) The Partnership's books and records as these books and records
relate to the internal affairs of the Partnership for at least the current
and 5 most recent years.
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10.2 DELIVERY TO LIMITED PARTNER AND IMPACTION.
(i) Upon the request of a Limited Partner, the General Partner shall
deliver promptly to the requesting Limited Partner, at the expense of the
Partnership, a copy of the information to be maintained required by Section
10.1 of this Agreement.
(ii) Each Limited Partner has the right, upon reasonable request, to
each of the following:
(a) inspect and copy during normal business hours any of the
Partnership records required to be maintained by Section 10.1 of this
Agreement.
(b) obtain from the General Partner, promptly after becoming
available, a copy of the Partnership's federal, state and local income
tax or informational returns for each year.
(iii) The General Partner shall send to each Partner within 60 days
after the end of each year, the information necessary for that Partner to
complete that Partner's federal and state income tax or informational
returns, and if requested by a Limited Partner, there shall be included
within that 60 day period a copy of the Partnership's federal, state and
local income tax or informational returns for the year in which such
request is made.
10.3 ANNUAL REPORTS. The General Partner will provide to the Limited
Partners, within 60 days after the end of each year of the Partnership, a report
containing:
(i) A balance sheet for the Partnership as of the end of that year,
which may be unaudited;
(ii) A statement of income for the Partnership for that year, which
may be unaudited;
(iii) A statement of changes in financial position for the Partnership
for that year, which may be unaudited; and
(iv) Other pertinent information regarding the Partnership and the
activities of the Partnership during the period covered by that report.
10.4 TAX ALLOCATIONS. To the extent permitted by law, (i) all income,
gains and losses shall be allocated to the Partners to whom the revenues
resulting in the realization of such income, gains or losses are allocated
pursuant to Article 6 of this Agreement; (ii) all deductions and credits shall
be allocated to the Partners charged with the expenditures causing such
deductions or credits to occur; and (iii) all recapture of previously taken
deductions or credits shall be allocated to the Partners to whom such deductions
or credits were allocated. To the extent permitted by law, all Items of tax
preference for federal income tax purposes shall be allocated to the Partners
credited with the revenues resulting in the realization of the income, gains or
loss causing such items of tax preference to occur or charged with the
expenditure causing the deductions or credits to which such items of tax
preference are attributable to occur. To the extent permitted by law, each
Partner shall be entitled to that Partner's distributive share of Partnership
income, gain, loss, deduction or credit, or items of tax preference in computing
that Partner's taxable income or tax liability, to the exclusion of any other
Partner.
10.5 TAX ELECTIONS. Upon the assignment of all or part of a Limited
Partner's interest in the Partnership or upon the death of an individual Limited
Partner, or upon the distribution of any Partnership property to any Partner,
the Partnership, at the General Partner's option, may file an election in
accordance with applicable regulations, to cause the basis of the Partnership
property to be adjusted for federal income tax purposes as provided by Sections
734, 743 and 754 of the Code; similar elections pursuant to the provisions of
state and local income tax laws, at the General Partner's option, may be made.
10.6 RECORDS OF ADJUSTED TAX BASIS. To the extent the General Partner is
required to determine the adjusted tax basis of any Partnership property with
respect to which the Code requires records of such adjusted tax basis be kept
and maintained by the Limited Partners, the General Partner may request
information regarding such adjusted tax basis from the Limited Partners, in
writing, and the Limited Partners shall furnish such information to the General
Partner within 90 days after said request is mailed by the General Partner.
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10.7 TAX RETURN. The General Partner, at the expense of the Partnership,
shall cause income tax returns for the Partnership to be prepared and timely
filed with the appropriate authorities.
10.8 DEFENSE OF CERTAIN CLAIMS. The General Partner, at the expense of the
Partnership, shall have the right to assume the defense of any claims made by
the Internal Revenue Service to the extent that such claims occur because of and
relate to the Partnership's business or investment activities, and in connection
therewith, to retain and pay counsel chosen by the General Partner, in the
General Partner's sole discretion. In no case, however, shall the Partnership be
liable for any additional tax payable by a Partner or for any costs of separate
counsel chosen by such Partner to represent such Partner with respect to any
aspects of such defense.
10.9 CAPITAL ACCOUNTS. The General Partner will maintain a separate
capital account for each Partner which shall be credited with (i) such Partner's
contributions to the capital of the Partnership and (ii) such Partner's
allowable share of Partnership revenues, gains and income, and which shall be
charged with (a) such Partner's allocable share of Partnership costs, expenses
and losses and (b) the amount of any distributions made to such Partner. The
books and records of the Partnership shall include such other separate and
additional accounts for each Partner as shall be necessary to specify accurately
the rights and interests of the Partners.
10.10 SPECIAL REPORTS. The General Partner, at the expense of the
Partnership, shall cause to be prepared and timely filed with the appropriate
federal and state agencies all reports required to be filed with such agencies
pursuant to the then current applicable laws, rules and regulations. Those
reports shall be prepared on the accounting or reporting basis required by those
appropriate regulatory agencies.
11. CERTAIN OPPORTUNITIES.
The General Partner, any Limited Partner, any Affiliate, any partner,
shareholder, officer, director or employee thereof, or any person owning a legal
or beneficial interest therein, may engage in or possess an interest in any
other business or venture of every nature and description, independently or with
others including those which may be the same as or similar to the Partnership's
business and in direct competition with the Partnership. Neither the Partnership
nor any Partner shall have any right, by virtue of this Agreement, in and to
such independent ventures or the income or profits derived therefrom. Except
when the General Partner has an overriding fiduciary obligation to the
Partnership, the General Partner and its Affiliates will have no duty or
obligation to submit to the Partnership any business opportunities which may
come to them or be presented to any person in which they may be in any way
interested, and the General Partner and any of its Affiliates shall have the
right to take for their own accounts (individually or otherwise) or to recommend
to others any such investment opportunity.
12. TERMINATION, LIQUIDATION AND DISSOLUTION OF THE PARTNERSHIP.
12.1 TERMINATION. The Partnership shall be terminated and dissolved in
accordance with the California Revised Limited Partnership Act or upon the
earliest to occur of the following:
(i) The death, retirement (provided there has been 90 days prior
written notice to the Limited Partners), expulsion, insanity, adjudication
of bankruptcy or insolvency, or the dissolution of the General Partner
unless any remaining general partners of the Partnership elect to continue
the business of the Partnership;
(ii) A vote pursuant to Section 9.3 of this Agreement to remove the
General Partner, unless all of the Limited Partners elect a substitute
general partner of the Partnership;
(iii) A vote pursuant to Section 9.3 of this Agreement in favor of
termination and dissolution of the Partnership;
(iv) The expiration of the term of the Partnership; or
(v) The sale of all or substantially all of the Partnership assets and
the receipt of the final payment of the purchase price therefor.
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<PAGE> 20
12.2 DISTRIBUTIONS. Upon the termination and dissolution of the
Partnership for any reason, the General Partner (or a substituted general
partner of the Partnership elected by a Majority Vote) shall take complete
account of the Partnership's assets and liabilities and those assets shall be
liquidated as promptly as is consistent with obtaining the fair value thereof,
and the proceeds therefrom, to the extent sufficient to pay the Partnership's
obligations with respect thereto, shall be applied and distributed in the
following order:
(i) To the payment and discharge of all of the Partnership debts and
liabilities to persons other than Partners (or former Partners) including
the payment of promissory notes assigned and guaranteed by the Partnership
and the expenses of liquidation;
(ii) To the payment and discharge of any loans and advances made by
Partners (or former Partners) to the Partnership;
(iii) To the Partners in accordance with their respective Partnership
interests to the extent of the positive balances in their respective
capital accounts established pursuant to the provisions of Section 10.9 of
this Agreement; and
(iv) The balance of such proceeds, if any, shall be distributed to the
Partners in accordance with their interests in the Partnership, except that
if a Partner shall have a debit balance in that Partner's capital account,
that Partner shall not receive distributions until the amount which would
otherwise be distributed to that Partner is equal to the debit balance,
after which that Partner shall then receive distributions in accordance
with that Partner's interest in the Partnership, but that Partner shall not
receive the amounts which were not distributed to that Partner because of
such debit balance.
12.3 NO RECOURSE AGAINST THE GENERAL PARTNER. Each Limited Partner shall
have that Limited Partner's Capital Contribution returned only from the assets
of the Partnership, and if the Partnership assets remaining after the payment or
discharge of the debts and liabilities of the Partnership are insufficient to
return that Capital Contribution, that Limited Partner shall have no recourse
against the General Partner, any of its Affiliates, or any other Limited
Partner.
12.4 WAIVER OF RIGHT TO COURT DECREE OF DISSOLUTION. All Partners agree
that irreparable damage would be done to the goodwill and reputation of the
Partnership if any Partner should bring an action in court to divide the
Partnership in any way other than as provided in this Agreement. Care has been
taken in this Agreement to provide what the Partners determined are fair and
just methods of liquidation of the interests of all Partners. Accordingly, each
Partner hereby waives and renounces that Partner's rights to a court decree of
dissolution, to seek the appointment by the court of a liquidator for the
Partnership, to maintain an action for partition with respect to that Partner's
undivided interest in the Partnership properties or to compel any sale of such
properties.
12.5 NOTICE OF DISSOLUTION. The General Partner shall cause (i) a Notice
of Dissolution to be published in a newspaper of general circulation in each
county where the Partnership business was regularly conducted and to be mailed
to each of the Partnership's creditors, (ii) an affidavit of publication and of
mailing to be filed with the appropriate County Clerk or Clerks within 30 days
after the publication, and (iii) the Certificate of Limited Partnership to be
canceled.
12.6 GENERAL PARTNER'S DISCRETION. The winding up and dissolution of the
Partnership's affairs and the liquidation and distribution of the Partnership's
assets shall be conducted exclusively by the General Partner (or a trustee, if
one is appointed), which is authorized to do any and all acts and things
authorized by law for these purposes. Distributions in accordance with the
provisions of this Section 12.6 or upon termination and dissolution of the
Partnership will (i) constitute a complete return to the Partners of their
interests in the profits of the Partnership and their Capital Contributions,
(ii) a final and complete distribution to the Partners of all their interests in
the Partnership properties, and (iii) a final termination and settlement of any
and all of the Partners' other interests in the Partnership.
12.7 PURCHASE BY GENERAL PARTNER. The General Partner, if the General
Partner so desires, may purchase Partnership properties upon liquidation of the
Partnership at the highest value established by 2 independent appraisers whose
selection his been approved by a Majority Vote.
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<PAGE> 21
13. SPECIAL POWER OF ATTORNEY.
13.1 EXECUTION OF SPECIAL POWER OF ATTORNEY. Concurrently with the
execution or written acceptance and adoption of the provisions of this
Agreement, each Limited Partner shall execute, acknowledge and deliver to the
General Partner a special power of attorney in a form acceptable to the General
Partner in which the General Partner is substituted and appointed as the
attorney-in-fact for such Limited Partner, with power and authority to act in
such Limited Partner's name and on such Limited Partner's behalf to execute,
acknowledge and swear to in the execution, acknowledgment and filing of
documents, which shall include, by way of illustration but not of limitation,
the following:
(i) This Agreement, any separate Certificate of Limited Partnership,
Fictitious Business Name Statements, as well as any amendments to the
foregoing which, pursuant to the laws of the State of California or the
laws of any other jurisdiction, are required to be filed or which the
General Partner deems it advisable to file;
(ii) Any other instrument or document which may be required to be
filed by the Partnership pursuant to the laws of any state or by any
governmental agency, or which the General Partner deems it advisable to
file;
(iii) Any instrument or document which may be required to affect the
continuation of the Partnership, the admission of an additional or
Substituted Limited Partner, or the dissolution and termination of the
Partnership (provided such continuation, admission or dissolution and
termination are in accordance with the terms of this Agreement), or to
specify any reductions in the amounts of the Capital Contributions of the
Limited Partners; and
(iv) Any documents, including escrow instructions and amendments, loan
documents, including promissory notes, guarantees, deeds of trust and other
security agreements and mortgages, agreements to sell, purchase, lease,
rent and exchange Partnership assets or any interests therein, contracts,
including management contracts, and all other agreements and documents
necessary to carry out the business of the Partnership and the Partners.
13.2 INCIDENTS OF SPECIAL POWER OF ATTORNEY. The power of attorney hereby
granted by each Limited Partner to the General Partner shall be on the following
terms and conditions.
13.2.1 COUPLED WITH AN INTEREST. That power of attorney is a special
power of attorney coupled with an interest, is irrevocable, shall survive the
death or insanity (or, in the case of a Limited Partner that is a corporation,
association, partnership, joint venture or trust, shall survive the merger,
dissolution or other termination of the existence) of such Limited Partner; and
is limited to those matters herein set forth.
13.2.2 ACTION BY GENERAL PARTNER. That power of attorney may be
exercised by the General Partner acting alone for each Limited Partner by a
facsimile signature of the General Partner (or one of its officers, employees or
agents), or by listing all of the Limited Partners executing any instrument with
a single signature of the General Partner (or one of its officers, employees or
agents) acting as attorney-in-fact for all of the Limited Partners.
13.2.3 SURVIVAL OF ASSIGNMENT. That power of attorney shall survive an
assignment by a Limited Partner of all or any portion of such Limited Partner's
interest in the Partnership when an Assignee has been approved by the General
Partner for admission to the Partnership as a Substituted Limited Partner, the
special power of attorney shall survive such assignment for the sole purpose of
enabling the General Partner to execute, acknowledge and file any instrument or
document necessary to effect such substitution, as well as for the purposes set
forth in Section 13.1 of this Agreement.
13.2.4 ADDITIONAL ACTION. The power of attorney includes the authority
to take any additional action which the General Partner shall consider necessary
or convenient in connection with any of the powers granted to the General
Partner pursuant to Article 8 of this Agreement, hereby giving the General
Partner complete power and authority to do and perform each and every act and
thing whatsoever requisite and necessary to be done in and about the foregoing
as completely as such Limited Partner might or could do if
21
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personally present, and hereby ratifying and confirming all that the
General Partner shall lawfully do or cause to be done by virtue hereof.
13.3 AUTHORITY OF THE GENERAL PARTNER. The General Partner shall be
authorized to obligate the Partnership by the signature of its officers alone,
and a facsimile signature is as effective as an actual signature.
13.4 ACKNOWLEDGEMENT BY LIMITED PARTNERS. Each of the Limited Partners is
aware that the terms and conditions of this Agreement permit certain amendments
of this Agreement to be effected and certain other actions to be taken or
omitted by or with respect to the Partnership, in each case with the approval of
less than all of the Limited Partners. Such actions include, without limitation,
substitution of the General Partner. If, as and when (i) an amendment of this
Agreement is proposed or an action is proposed to be taken or omitted by or with
respect to the Partnership which requires, pursuant to the provisions of this
Agreement, the approval of a specified percentage in interest (but less than
all) of the Partners; (ii) Partners holding the percentage of Partnership
Interests in the Partnership specified in this Agreement as being required for
such amendment or action have approved such amendment or action in the manner
contemplated by this Agreement; and (iii) a Limited Partner has failed or
refused to approve such amendment or action (hereinafter referred to as a
"Non-Consenting Limited Partner"); each Non-Consenting Limited Partner agrees
that each special attorney-in-fact specified above, with complete power of
substitution, is hereby authorized, empowered and instructed to execute,
acknowledge, make, swear to, verify, deliver, record, file and publish, for and
on behalf of such Non-Consenting Limited Partner, and in such Non-Consenting
Limited Partner's name, place and stead, any and all investments and documents
which may be necessary or appropriate to permit such amendment to be lawfully
made or action lawfully taken or omitted. Each consenting and Non-Consenting
Limited Partner is completely aware that such Limited Partner and each other
Limited Partner have executed this special power of attorney, and that each
Limited Partner will rely on the effectiveness of this special power of attorney
with an anticipation of the orderly administration of the Partnership's affairs.
14. LIABILITY OF AND INDEMNIFICATION OF A GENERAL PARTNER.
14.1 ACTION BY THIRD PARTIES. Except as provided in Section 8.5 of this
Agreement, the General Partner shall not be liable to the Partnership or the
Limited Partners, or any of them, for any failure of any third parties to comply
with the obligations of those parties pursuant to any agreements; however, the
foregoing shall not apply if the General Partner was grossly negligent or failed
to act in good faith in contracting with any such third party.
14.2 ACTION INVOLVING GENERAL PARTNER. Except as provided in Section 8.5
of this Agreement, in any threatened, pending or completed action, lawsuit or
proceeding to which the General Partner (including employees, officers or
directors of the General Partner) was or is a party or is threatened to be made
a party by reason of the fact that it is or was the General Partner (other than
an action by or in the right of the Partnership), the Partnership shall
indemnify the General Partner (including employees, officers or directors of the
General Partner) against all costs and expenses, including attorneys' fees,
costs of investigation, fines, judgments and amounts paid in settlement,
actually and reasonably incurred by the General Partner (or such employee,
officer or director) in connection with such action, lawsuit or proceeding if
the General Partner (or such employee, officer or director) acted in good faith
in a manner it reasonably believed to be in or not opposed to the best interests
of the Partnership; provided, that however, the General Partner's conduct does
not constitute negligence, misconduct, or a breach of fiduciary obligation to
the Limited Partners and, in the case of a criminal proceeding, the General
Partner had no reasonable cause to believe its conduct was unlawful. The
termination of any action, lawsuit or proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent shall not, of
itself, create a presumption that the General Partner (or such employee, officer
or director) did not act in good faith and in a manner which the General Partner
reasonably believed to be in or not opposed to the best interests of the
Partnership or that the General Partner had reasonable cause to believe that its
conduct was unlawful. The General Partner (and the employees, officers or
directors of the General Partner) shall not be indemnified by the Partnership
with respect to any expense relating to any claim, issue or matter as to which
such General Partner (or employee, officer or director of the General Partner)
shall have been adjudged to be liable for negligence or misconduct.
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14.3 DEFENSE OF ACTION. Except as provided in Section 8.5 of this
Agreement, to the extent that the General Partner (including any employees,
officers or directors of the General Partner) has been successful on the merits
or otherwise in defense of an action, suit or proceeding referred to in Sections
14.2 or 14.3 of this Agreement, or in defense of any claim, issue or matter
therein, the Partnership shall indemnify the General Partner (or such employee,
officer or director) against all costs and expenses, including attorneys' fees
and costs of investigation, actually and reasonably incurred by it in connection
therewith. An indemnification pursuant to the provisions of Sections 14.2 and
14.3 of this Agreement, unless ordered by a court, shall be made by the
Partnership only as authorized in the specific case and only upon a
determination by independent legal counsel in a written opinion that
indemnification of the General Partner (or such employee, officer or director)
is proper in the circumstances because the General Partner has met the
applicable standard of conduct set forth in Sections 14.2 and 14.3 above.
14.4 SATISFACTION OF JUDGMENTS. Except as provided in Section 8.5 of this
Agreement, all judgments against the Partnership and the General Partner,
wherein the General Partner (including any employee, officer or director of the
General Partner) is entitled to indemnification, must first be satisfied from
Partnership assets before the General Partner is responsible for those
judgments.
14.5 RESTRICTION ON INDEMNIFICATION. Except as provided In Section 8.5 of
this Agreement, notwithstanding Section 14.1 of this Agreement, neither the
General Partner nor any officer, director, employee, agent, subsidiary or assign
of the General Partner or of the Partnership shall be indemnified against any
liability, loss or damage incurred by the General Partner in connection with (i)
any claim or settlement involving allegations that the Securities Act of 1933
was violated by the General Partner or by any such other person unless (a) the
General Partner or other persons seeking indemnification are successful in
defending such action, and (b) such indemnification is specifically approved by
a court of law which shall have been advised as to the current positions of,
both, the Securities and Exchange Commission and the California Commissioner of
Corporations regarding indemnification for violations of securities law or (ii)
any liability imposed by law, including liability for fraud, bad faith or
negligence, and the provisions of Paragraph 8.5.1 of this Agreement have been
satisfied by the General Partner.
IN THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION, INDEMNIFICATION FOR
LIABILITIES OCCURRING PURSUANT TO THE SECURITIES ACT OF 1933 IS AGAINST PUBLIC
POLICY AS EXPRESSED IN THAT ACT AND, THEREFORE, IS UNENFORCEABLE.
15. MISCELLANEOUS.
15.1 COUNTERPARTS. This Agreement may be executed in several counterparts,
and all counterparts so executed shall constitute one agreement, obligating all
Partners, notwithstanding that all of the Partners are not signatory to the
original or the counterpart.
15.2 SUCCESSORS AND ASSIGNS. The terms and provisions of this Agreement
shall obligate and shall inure to the benefit of the successors and assigns of
the respective Partners.
15.3 GOVERNING LAW. This Agreement shall be construed in accordance with,
and governed by, the laws of the State of California.
15.4 VOID PROVISION. In the event any part of this Agreement is declared
by a court of competent jurisdiction to be void, such part shall be deemed
severed from the remainder of the Agreement and the balance of the Agreement
shall remain in effect.
15.5 NOTICES. All notices pursuant to this Agreement shall be in writing
and shall be given to the Partner entitled thereto by personal service or by
certified or registered mail, return receipt requested, except that the notice
of any meeting or the furnishing of any financial statement to the Partners may
be done by regular mail. All notices sent by mail shall be posted to the address
maintained by the Partnership for such person or at such other address as that
person may verify in writing. Any notice pursuant to the provisions of this
Agreement shall be deemed received after 24 hours from the date and time of
postmark if such notice is deposited with the United States mail pursuant to the
above (if mailed) or when personally received if the mail service is not used.
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15.6 CAPTIONS. Titles or captions contained in this Agreement are inserted
only as a matter of convenience and for reference. Such titles and captions in
no way define, limit, extend or describe the scope of this Agreement nor the
intent of any provision hereof.
15.7 CONTEXT. Whenever required by the context hereof, the singular shall
include the plural, and vice-versa; the masculine gender shall include the
feminine and neuter genders, and vice-versa; and the word 'person' shall include
any natural person, partnership, estate, corporation, trust, cooperative,
association or other legal entity.
15.8 LEGEND. Any certificate, document or instrument evidencing any right
or interest of any Partner shall bear such legend or legends as may be required
to comply with applicable requirements of any governmental authority.
15.9 FORCE MAJEURE. The General Partner shall not be liable for any loss
or damage to Partnership property caused by strikes, labor troubles, riots,
fires, blowouts, tornadoes, floods, earthquakes, acts of a public enemy,
insurrections, acts of God, failure to carry out the provisions of this
Agreement because of provisions of law or rules or regulations promulgated by
any governmental agency or any demand or acquisition of any government, or from
any other cause beyond the control of the General Partner.
15.10 ATTORNEY'S FEES. In the event that any legal action is instituted
between the parties occurring because of this Agreement, the prevailing party or
parties therein shall be entitled to recover a reasonable allowance for that
party's attorneys' fees and court expenses, to be fixed and determined by the
court in which said action is filed.
IN WITNESS WHEREOF, the General Partner and the Limited Partners have
entered into and executed this Agreement effective the dates the General Partner
accepts the subscriptions of the Limited Partners.
<TABLE>
<S> <C>
General Partner: Limited Partner:
By: Performance Development, Inc., a
California corporation
--------------------------------------------
Signature
By: --------------------------------------------
----------------------------------------
Its: President Printed or Typed Name
Address:
----------------------------------
By:
---------------------------------------- ----------------------------------
Its: Secretary
Telephone:
--------------------------------
</TABLE>
24
<PAGE> 1
EXHIBIT 99.3
AGREEMENT OF LIMITED PARTNERSHIP
OF
PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
THIS AGREEMENT OF LIMITED PARTNERSHIP ("Agreement") is made and entered into as
of this 1st day of September 1992, by and among Performance Development, Inc., a
California corporation ("General Partner"), and the persons accepted by the
General Partners as Limited Partners and who shall sign and submit to the
General Partner a signature page to this Agreement upon their subscriptions for
Units.
1. FORMATION AND BUSINESS OF THE PARTNERSHIP.
1.1 PARTNERSHIP FORMATION. The parties hereby enter into a limited
partnership formed pursuant to the provisions of the Revised Limited Partnership
Act of the State of California, as enacted and in effect on or after June 1,
1986 ("Act"); and the rights and liabilities of the Partners shall be as
provided in the Act and as herein expressly provided. Upon the request of the
General Partner, the Limited Partners shall execute promptly all certificates
and other documents necessary for the General Partner to accomplish all filings,
recordings, publishing and other acts required for the operation of the
Partnership pursuant to the provisions of the laws of California.
1.2 PARTNERSHIP BUSINESS. The purpose and activity of the Partnership
shall be to acquire assets from federal and state banking and savings and loan
agencies, the Federal Deposit Insurance Corporation ("FDIC"), the Resolution
Trust Corporation ("RTC") and various other sources in order to derive income
from managing, servicing, operating or selling those assets or collecting monies
due and payable from those assets.
1.3 CERTIFICATE OF LIMITED PARTNERSHIP. The General Partner shall cause a
Certificate of Limited Partnership to be filed in the office of the Secretary of
State of California and a certified copy thereof, or a legally acceptable
substitute therefor, to be filed in each California county in which the
Partnership owns or contemplates owning real property or any interest in real
property.
1.4 FICTITIOUS BUSINESS NAME STATEMENT. The General Partner shall execute
and cause to be filed and published a Fictitious Business Name Statement in
accordance with applicable California law.
1.5 FURTHER ASSURANCES. The parties hereto will execute such other
certificates and documents, and the General Partner will file, record and
publish such other certificates and documents, as may be necessary or
appropriate to comply with the requirements of applicable laws governing the
formation and operation of a limited partnership (or a partnership in which
special partners have limited liability) in all jurisdictions where the
Partnership desires to conduct business.
1.6 NATURE OF PARTNERS' INTERESTS. The interests of the Partners in the
Partnership shall be personal property for all purposes. All property owned by
the Partnership, whether real or personal, tangible or intangible, shall be
deemed to be owned by the Partnership as an entity, and no Partner, as an
individual, shall have an ownership interest in such property.
1.7 TITLE TO PROPERTY. Title to property and any other assets acquired by
the Partnership and any other property acquired to effect the purposes of the
Partnership shall be held solely in the name of the Partnership. The General
Partner shall execute, file and record such documents as may be necessary or
appropriate to specify the Partnership's ownership of such property and assets
in such public offices in such states as may be required. The Partners agree
Partnership property is not and will not be suitable for partition. Accordingly,
each of the Partners hereby irrevocably waives any and all rights that Partner
may have to maintain an action for partition of any Partnership property.
2. NAMES AND ADDRESSES OF PARTNERS.
2.1 PARTNERSHIP. The business of the Partnership shall be conducted using
the name of "Performance Asset Management Fund III, Ltd., A California Limited
Partnership," at the following address: 695 Town
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Center Drive, 15th Floor, Costa Mesa, California 92626, or using such other name
or such other address as the General Partner shall hereafter designate in
writing to the Limited Partners and by amendment to this Agreement and the
Certificate of Limited Partnership of the Partnership.
2.2 GENERAL PARTNER. The name, address and telephone number of the General
Partner are as follows:
Performance Development, Inc.,
a California corporation
695 Town Center Drive
15th Floor
Costa Mesa, California 92626
(714) 756-8959
2.3 LIMITED PARTNERS. The names and addresses of the Limited Partners
shall be as set forth in Exhibit 'A' attached hereto, as amended from time to
time.
2.4 AGENT FOR SERVICE OF PROCESS. In accordance with the requirements of
Section 15614(b) of the California Corporations Code, the name and address of
the Partnership's agent for service of process are as follows:
Vincent E. Galewick
695 Town Center Drive
15th Floor
Costa Mesa, California 92626
3. DEFINITIONS.
3.1 "AFFILIATE" shall mean:
(i) any person directly or indirectly controlling, controlled by or
under common control with another person;
(ii) a person owning or controlling 10% or more of the outstanding
voting securities of such other person;
(iii) any officer, director or partner of such other person; and
(iv) any person who is an officer, director, general partner, trustee,
or holder of 10% or more of the voting securities or beneficial interests
of any of the foregoing. (The word "person" is defined in Section 15.7 of
this Agreement.)
3.2 "AGREEMENT" shall mean this Agreement of Limited Partnership, as
amended from time to time.
3.3 "ASSIGNEE" shall mean a person who has acquired a beneficial interest
in one or more Units from a Partner but who is not a Substituted Limited
Partner.
3.4 "CAPITAL CONTRIBUTION" shall mean the cash contributed to the capital
of the Partnership by a Limited Partner in exchange for such Limited Partner's
Units.
3.5 "CASH AVAILABLE FOR DISTRIBUTION" shall mean the cash receipts from
the operations of the Partnership, after deducting cash funds used to pay all
expenses, debt payments, capital improvements and replacements and less the
amounts set aside for acquisition of additional assets or creation of reserves.
The actual distribution of cash shall be in the sole discretion of the General
Partner.
3.6 "CLOSING DATE" shall mean the date after which the General Partner
will not accept any further subscriptions, which shall be December 31, 1993. If
all Units are subscribed prior to December 31, 1993, an earlier Closing Date may
be designated by the General Partner,
3.7 "CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
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3.8 "GENERAL PARTNER" shall mean Performance Development, Inc., a
California corporation, or any other person succeeding in that capacity.
3.9 "GROSS INCOME" shall mean the gross income of the Partnership as
determined using the accrual method of accounting as permitted by the Code.
3.10 "GROSS PROCEEDS" shall mean the aggregate total of the Capital
Contributions of all of the Limited Partners.
3.11 "GROSS REVENUE" shall mean all revenues from the Partnership's
collection or sale of assets obtained from federal and state banking and savings
and loan agencies, the FDIC, RTC or various other sources. The term "Gross
Revenue" shall not include revenues from the sale, refinancing or other
disposition of Partnership administrative assets, such as office equipment and
furniture, or from earnings on savings or invested funds.
3.12 "LIMITED PARTNERS" shall mean the persons who have been admitted to
the Partnership as limited partners in accordance with the provisions of this
Agreement. Reference to a "Limited Partner" shall mean any one of them.
3.13 "MAJORITY VOTE" shall mean that vote of the Limited Partners provided
for in Paragraph 9.3.3 of this Agreement.
3.14 "MEMORANDUM" shall mean the Confidential Private Placement Memorandum
dated September 25, 1 992, of which this Agreement is Exhibit "A."
3.15 "NET INCOME" or "NET LOSS" shall mean the net income or net loss of
the Partnership for federal income tax purposes, as determined on the accrual
method of accounting as permitted by the Code.
3.16 "NET PROCEEDS" shall mean the total of Gross Proceeds less expenses
incurred and to be paid by the Partnership in organizing the Partnership and in
offering and selling the Units.
3.17 "OPERATING EXPENSES" shall mean all expenses of operating the
Partnership not deemed to be "Organizational Expenses" or "Sales Commissions" as
those terms are defined herein.
3.18 "ORGANIZATIONAL EXPENSES" shall mean all expenses incurred by the
General Partner or the Partnership in organizing the Partnership and in the
qualifying and marketing of the Units which shall include all expenses incurred
prior to the commencement of the Partnership's offering of the Units, as well as
those subsequently incurred in complying with continuing conditions of
qualifying the Partnership and that offering pursuant to applicable federal and
state laws, including, but not limited to, the costs of printing, amending,
supplementing and distributing the Memorandum and any other sales material; and
the legal and accounting costs incurred in connection therewith.
3.19 "ORGANIZATIONAL MANAGEMENT FEE" shall mean the fee paid to the
General Partner for its services to the Partnership for the organization of the
Partnership, out of which the General Partner shall pay the Organizational
Expenses as specified in Paragraph 8.2.8 of this Agreement.
3.20 "PARTNERS" shall mean the General Partner and the Limited Partners,
and reference to a Partner shall mean any one of the Partners.
3.21 "PARTNERSHIP" shall mean Performance Asset Management Fund III, Ltd.,
A California Limited Partnership.
3.22 "PARTNERSHIP MANAGEMENT FEE" shall mean the fee authorized by
Subparagraph 8.2.3.1 of this Agreement.
3.23 "PLACEMENT MANAGER" shall mean Income Network Company, a California
corporation, and an NASD Broker/Dealer which is an Affiliate of the General
Partner and selected by the General Partner to sell the Units.
3.24 "SALES COMMISSIONS" shall mean those amounts paid to NASD
Broker/Dealers selected by the General Partner as compensation or reimbursement
for their services and expenses in marketing the Units.
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3.25 "SUBSTITUTED LIMITED PARTNER" shall mean a transferee of Units who
has succeeded to all the rights of a Limited Partner inherent in the ownership
of Units.
3.26 "SYNDICATION FEE" shall mean the fee paid to the General Partner
equal to 3% of the Gross Proceeds.
3.27 "TOTAL OUTSTANDING UNITS" shall mean all Units outstanding at a
specified date.
3.28 "UNIT" shall mean an interest in the Partnership representing a
capital contribution of $5,000 in cash and shall entitle the holder thereof to
an interest in the income, gains, losses, deductions, credits and distributions
of the Partnership.
4. TERM.
The business of the Partnership shall commence on the date the minimum
number of subscriptions for Units is accepted by the General Partner or the date
a separate Certificate of Limited Partnership pursuant to the Act and shall
continue until December 31, 2005, unless sooner terminated in accordance with
the provisions of this Agreement. The filing or recordation date of this
Agreement or the Certificate of Limited Partnership shall not control the date
of commencement of the business of the Partnership,
5. CAPITAL CONTRIBUTIONS.
5.1 GENERAL PARTNER. The General Partner shall make no contribution to the
capital of the Partnership.
5.2 PRIVATE OFFERING. The Partnership intends to make a private offering
of limited partnership interests so that the capital of the Partnership
contributed by the Limited Partners shall consist of 1,000 Units, each unit paid
for by a cash contribution of $5,000, and to admit, as Limited Partners, the
persons whose subscriptions for such Units are accepted by the General Partner.
Each such person shall become a Limited Partner when (i) such person has signed,
personally or by attorney-in-fact, a copy of the Subscription Agreement (and the
appendices thereto) and a copy of this Agreement attached to the Memorandum;
(ii) the General Partner has accepted such subscription; and (iii) this
Agreement and the Certificate of Limited Partnership are amended, as required by
law, to specify such person has become a Limited Partner.
5.3 LIMITED PARTNERS. The Limited Partners shall contribute to the capital
of the Partnership in the amount of $5,000 by cash, check or money order for
each Unit purchased, with a minimum purchase of 5 Units. Limited Partners shall
be admitted to the Partnership pursuant to the provisions of Section 9.1 of this
Agreement. The General Partner shall have the right, in its sole discretion, to
waive the minimum purchase requirement.
5.4 INDEMNITY. Each Limited Partner agrees to indemnify, defend and hold
the Partnership and the other Partners harmless from any and all liability,
expense or damage occurring because of such Limited Partner's failure to
contribute when due and payable any Capital Contribution such Limited Partner is
required or elects to make pursuant to this Article 5.
5.5 SUBSCRIPTION AGREEMENT. Each person who acquires Units shall execute
and deliver to the General Partner, or its representative, the Subscription
Agreement attached to the Memorandum marked Exhibit "B," pursuant to which such
person agrees to purchase the number of Units indicated therein and to pay for
such Units in the manner indicated above. The Subscription Agreement contains
the written acceptance and adoption by such person of the provisions of this
Agreement, and includes the execution and delivery to the General Partner of a
special power of attorney, the form, style and content of which are more
completely described therein. The acceptance or rejection of the Subscription
Agreement submitted by any person shall be within the absolute discretion of the
General Partner, and no subscription shall be deemed accepted until the General
Partner executes the Subscription Agreement.
5.6 ACCEPTANCE BY GENERAL PARTNER. The General Partner shall accept or
reject the Subscription Agreements tendered by prospective Limited Partners that
are made in accordance with the provisions of Section 5.5 of this Agreement no
later than the Closing Date.
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5.7 LIABILITY FOR CAPITAL CONTRIBUTIONS. Each Limited Partner is
personally liable to the Partnership for payment of that Partner's entire agreed
upon Capital Contribution in accordance with the terms of this Agreement.
5.8 SALE OF UNITS. The General Partner shall have the right to qualify the
Units with state securities regulatory authorities or perfect exemptions from
qualification and enter into such underwriting or agency arrangements for the
sale thereof pursuant to such terms and conditions as the General Partner may
deem advisable.
5.9 WITHDRAWAL OR RETURN OF CAPITAL. No Partner shall have the right to
demand the withdrawal, reduction or return of that Partner's Capital
Contribution without the consent of all of the Partners, or upon the dissolution
and termination of the Partnership; nor shall any Partner have the right to
demand and receive property other than cash in return for that Partner's Capital
Contribution. Notwithstanding the foregoing, no part of the Capital Contribution
of any Partner shall be withdrawn unless all liabilities of the Partnership
(except liabilities to the Limited Partners on account of their Capital
Contributions) have been paid or unless the Partnership has assets sufficient to
pay those liabilities as those liabilities become due and payable. A Limited
Partner shall look only to the assets of the Partnership and, if Partnership
property remaining after the payment or discharge of the liabilities of the
Partnership is insufficient to return that Limited Partner's Capital
Contribution, that Limited Partner shall have no recourse against the General
Partner or any other Limited Partners for such return.
5.10 INTEREST. No Limited Partner shall receive any interest on that
Limited Partner's Capital Contribution.
5.11 OPERATION OF PARTNERSHIP PROPERTY. The Partnership shall acquire,
manage, finance, operate, refinance and sell any property on terms and
conditions deemed suitable by the General Partner, in its sole judgment.
6. ALLOCATION OF INCOME, LOSS AND DISTRIBUTIONS.
6.1 PAYMENT OF OBLIGATIONS. The General Partner shall pay to creditors on
or prior to the end of each year all Partnership obligations which are due and
payable at that time and shall create cash reserves for liquidated obligations
not then due and payable, and then to the extent the General Partner believes
such obligations cannot be paid from future projected Partnership receipts.
6.2 CASH AVAILABLE FOR DISTRIBUTION. The General Partner shall distribute
Cash Available For Distribution to the Partners no less frequently than
quarterly, in the following order of priority:
(a) To the Limited Partners in an amount equal to 90% of the Cash
Available For Distribution.
(b) To the General Partner in an amount equal to 10% of the Cash
Available For Distribution.
After the Limited Partners have received a cash return equal to their
Capital Contributions, the Limited Partners shall receive 70% of Cash Available
For Distribution and the General Partner shall receive 30% of Cash Available For
Distribution.
Distributions pursuant to this Section 6.2 constitute a return of
capital, not a return on capital, and depend entirely upon the success of the
Partnership and are not intended to create a guaranteed payment for the capital
contributed to the Partnership,
6.3 DISTRIBUTION, REFINANCING OR TERMINATION. Upon the sale of all or
substantially all of the Partnership assets or when the Partnership is
terminated and wound up, the Partnership assets shall be distributed in the
following order of priority:
(a) All liabilities of the Partnership shall be paid or adequately
provided for.
(b) The General Partner may create a reserve to provide for contingent
or unforeseen liabilities. When the reason for the creation of that reserve
has been eliminated, the balance of that reserve shall be distributed in
the priority described in (c) and (d) below.
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(c) Any Cash Available For Distribution in the year or years of sale,
termination and winding up, and any funds held for the Limited Partners'
benefit not needed for (a) or (b) above shall be distributed in the
priority described in Section 6.2 of this Agreement.
(d) All assets remaining following the above distributions shall be
distributed to the Partners in the percentages of the Partners interests in
the capital of the Partnership.
If for any reason the General Partner deems it to be in the best
interests of the Partners to delay for a reasonable period of time the
distribution of any amounts otherwise distributable pursuant to the provision of
this Agreement, the General Partner may do so.
6.4 LIMITATIONS ON DISTRIBUTIONS. Distributions, also, may be restricted
or suspended for limited periods in circumstances when the General Partner
determines, in its absolute discretion, that such action is in the best
interests of the Partnership. The General Partner intends to make distributions
of substantially all of the Cash Available For Distribution as funds are
available; however, no assurances are hereby made that such distributions will
occur. All distributions will be subject to the payment of the Partnership
expenses and liabilities and to the maintenance of reasonable reserves.
The General Partner, from time to time, may elect to make partial returns of
Capital Contributions to Limited Partners provided that:
(i) all liabilities of the Partnership to persons other than Partners
have been paid, or, in the good faith determination of the General Partner,
there remains property of the Partnership sufficient to pay those
liabilities;
(ii) the General Partner causes this Agreement and the Certificate of
Limited Partnership to be amended to specify such a reduction in the
Capital Contributions; and
(iii) all such returns of the Capital Contributions are made in such a
manner as to return to the Partners their proportionate interests in the
Partnership.
For purposes of the foregoing provisions, the condition of subpart (iii) of this
Section 6.4 shall have been satisfied if the distributions are made to the
Limited Partners based upon the interests of the Limited Partners in the capital
of in the Partnership. Each Limited Partner, by becoming a Limited Partner,
consents to any such distributions theretofore or thereafter made in accordance
with such provisions, and further consents to variations among the Limited
Partners in the amount of any such distribution made in cash or in kind. Any
property distributed in kind will be valued on the basis of an independent
appraisal and treated as though such property were sold and the cash proceeds
distributed.
6.5 ALLOCATION OF INCOME AND LOSS. Income, deductions, gains, and losses
shall be allocated, during the term of the Partnership, 10% to the General
Partner and 90% to the Limited Partners until the Limited Partners have been
returned 100% of their Capital Contributions; thereafter, to the extent allowed
by the provisions of Section 704 of the Internal Revenue Code of 1986, as
amended (substantial economic effect test), such allocations shall be made 30%
to the General Partner and 70% to the Limited Partners, subject to the
provisions of Section 6.2 of this Agreement.
6.6 LOANS BY PARTNERS. Should any Partner make a loan to the Partnership,
such Partner would be entitled to receive interest on any loan so made, but in
no event shall such interest be in excess of the maximum legal rate then
allowable pursuant to the usury law of the State of California.
6.7 CONSENT BY PARTNERS. The methods hereinabove set forth by which
income, gains, losses, deductions, credits and distributions are allocated and
apportioned are hereby expressly consented to by each Partner as a specific
condition to becoming a Partner.
6.8 ACCOUNTING. Each item of income, gain, loss, deduction or credit of
the Partnership shall be determined in accordance with the accrual basis of
accounting, consistently applied, pursuant to the provisions of the Code.
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7. PARTNER EXPENSES.
7.1 ADVANCES BY THE GENERAL PARTNER. The General Partner may advance any
monies to the Partnership required for the business of the Partnership, but the
General Partner has no obligation to do so. Such advances shall be deemed a loan
by the General Partner to the Partnership and shall not be deemed a Capital
Contribution. Such loans shall bear interest as provided in Section 6.6 of this
Agreement.
7.2 REIMBURSEMENT OF THE GENERAL PARTNER. The Partnership shall reimburse
the General Partner and its Affiliates for any Operating Expenses which were
advanced or otherwise incurred by the General Partner or its Affiliates on
behalf of the Partnership which are necessary to the prudent operation of the
Partnership. The reimbursement of those Operating Expenses shall comply with the
provisions of Rule 260.140.114.5(a) of the Rules of the Department of
Corporations of the State of California.
7.3 EXPENSES. Operating Expenses may include, but shall not be limited to,
legal, audit, accounting, and printing costs or fees; expenses for revising,
amending, converting, modifying or terminating this Agreement; expenses
connected with the payment of distributions in cash or other property made by
the Partnership; expenses connected with communications to the Partners or other
persons with interests in the Partnership, and bookkeeping and clerical work
necessary in maintaining relations with such persons, including costs of
printing and mailing notices and reports to such persons, the preparation of
proxy and similar statements and the solicitation of proxies and written
consents and the costs in connection therewith; costs incurred in connection
with any litigation in which the Partnership is involved as well as any
examination, investigation or other proceedings conducted by any regulatory
agency of the Partnership, including legal and accounting fees incurred in
connection therewith; costs of any accounting, statistical or bookkeeping
equipment necessary or appropriate for the maintenance of the books and records
of the Partnership; supervision and expenses of professionals employed by the
Partnership in connection with any of the foregoing, including attorneys,
accountants and appraisers. Except as provided in Section 7.2 of this Agreement,
all expenses of the Partnership shall be billed directly to and paid by the
Partnership.
7.4 SYNDICATION FEE. The Partnership will pay the Syndication Fee to the
General Partner which is equal to 3% of the Gross Proceeds. The Syndication Fee
will be paid from the Gross Proceeds.
8. GENERAL PARTNER.
8.1 GENERAL PARTNER MAY PURCHASE UNITS. The General Partner and its
Affiliates shall have the right, but not the obligation, to contribute to the
capital of the Partnership as a Limited Partner, paying the complete price for
Units on the same terms as any other Limited Partner. With respect to Units held
as a Limited Partner, the General Partner shall be treated as any other Limited
Partner with regard to those Units.
8.2 COMPENSATION OF THE GENERAL PARTNER.
8.2.1 GENERAL LIMITATIONS ON COMPENSATION. The General Partner shall
receive compensation from the Partnership only as specified by the provisions of
this Agreement.
8.2.2 ORGANIZATION AND OFFERING STAGE. The Partnership shall reimburse
the General Partner for Organizational Expenses in an amount not to exceed 15%
of Gross Proceeds. Of that 15%, 10% shall be for reimbursement of selling and
wholesaling expenses and commissions and 2% shall be for legal, accounting,
printing, and other syndication expenses. To the extent amounts equal to those
percentages are not expended for those purposes, such amounts shall be added to
working capital of the Partnership. The Partnership will pay to the General
Partner the Syndication Fee which is equal to 3% of the Gross Proceeds.
8.2.3 OPERATING STAGE.
8.2.3.1 PARTNERSHIP MANAGEMENT FEE. The General Partner shall be
entitled to an annual and on-going Partnership management fee of an amount equal
to 2 1/2% of the net asset value of the assets of the Partnership during the
operating stage of the Partnership, which fee shall be paid monthly. The net
asset value of the Partnerships assets shall be the total of the (i) lower of
the market value, determined by the General Partner each year, or the cost to
the Partnership of non-performing assets and (ii) principal balances of
performing assets.
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8.2.3.2 DISTRIBUTIONS. The General Partner shall be entitled to an
interest in the Partnership which consists of income, gains, losses, deductions,
credits and distributions pursuant to the provisions of Sections 6.2, 6.3, and
6.5 of this Agreement, payable upon distribution.
8.2.3.3 REBATES, KICKBACKS, AND RECIPROCAL ARRANGEMENTS. No rebates,
kickbacks or give-ups may be received by the General Partner nor may the General
Partner participate in any reciprocal business arrangements which would
circumvent any provision of this Agreement, or violate the provisions of Rule
260.140.114.7 of the Rules of the Department of Corporations of the State of
California.
8.2.4 EXPULSION, RESIGNATION OR WITHDRAWAL OF THE GENERAL
PARTNER. Should the General Partner be expelled, resign or withdraw from the
Partnership pursuant to the provisions of Paragraph 9.3.2 or Section 8.6 of this
Agreement, any interest which the General Partner shall then have in the
capital, income, gains, losses, deductions, credits and distributions of the
Partnership shall be converted to an interest of a Limited Partner and
thereafter the General Partner shall retain that interest as a Limited Partner
and shall be treated, in all respects, as a Limited Partner. Should the General
Partner be expelled, resign or withdraw from the Partnership, the General
Partner shall be entitled to interest on any loans made to the Partnership
pursuant to the provisions of this Agreement.
8.3 RIGHTS, AUTHORITY, POWERS, RESPONSIBILITIES AND DUTIES OF THE GENERAL
PARTNER.
8.3.1 GENERAL POWERS. The General Partner shall have all authority,
right and power conferred by law and required or appropriate for the management
of the Partnership's business which, by way of illustration, but not by way of
limitation, shall include the rights, authority and powers specified in
Paragraph 8.3.2 of this Agreement. In the management of Partnership business,
the General Partner may delegate duties to such persons as the General Partner
may deem appropriate.
8.3.2 SPECIFIC POWERS.
8.3.2.1 ACQUIRE, MANAGE AND SELL PROPERTY. To the extent reasonably
necessary to achieve the Partnership's objective, to acquire, hold and dispose
of any personal or real property or interests therein, at such price for cash or
securities or other property, and upon terms, as the General Partner, in its
sole discretion, deems to be in the best interests of the Partnership.
8.3.2.2 MANAGE PROPERTY ASSETS. To manage, operate and develop any
Partnership asset or investment, and to enter into leases, servicing agreements,
marketing agreements, consulting agreements, operating agreements, joint
ventures or other contracts with such persons with respect to assets and
investments acquired by the Partnership, containing such terms, provisions and
conditions as the General Partner shall approve. No person doing business or
dealing with the Partnership shall be required to inquire into the authority of
the General Partner to take any action or make any decisions.
8.3.2.3 BORROW. To borrow money and, if security is required
therefor, to subject any Partnership property to any security device, to obtain
replacements of any security device, and to prepay, in whole or in part,
refinance, increase, modify, consolidate or extend any mortgage or other
security device, all of the foregoing on such terms and in such amounts as the
General Partner, in its sole discretion, deems to be in the best interest of the
Partnership.
8.3.2.4 CONTRACT FOR INSURANCE. To acquire and enter into any
contract for insurance, or have the Partnership named as on additional insured,
which the General Partner deems necessary or appropriate for the protection of
the Partnership and the General Partner, for the conservation of Partnership
assets, or for any purpose convenient or beneficial to the Partnership.
8.3.2.5 EMPLOY PERSONS AND SERVICES. To employ persons in the
operation and management of the business of the Partnership, including, but not
limited to, supervisory managing agents, accountants, bookkeepers, attorneys,
insurance brokers, real estate brokers and loan brokers, on such terms and for
such compensation as the General Partner shall determine, subject, however, to
the limitations with respect thereto as specified in Section 8.3 of this
Agreement.
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8.3.2.6 PREPARE REPORTS. To prepare or cause to be prepared reports,
statements and other relevant information for distribution to the Limited
Partners deemed appropriate by the General Partner.
8.3.2.7 MAINTAIN BANK ACCOUNTS. To open accounts and deposit and
maintain funds in the name of the Partnership in banks or savings and loan
associations; provided, however, the Partnership's funds shall not be commingled
with the funds of any other person.
8.3.2.8 TAX ELECTIONS. To cause the Partnership to make or revoke
any elections pursuant to federal or state tax laws as the General Partner, in
its discretion, deems to be in the best interest of the Partnership.
8.3.2.9 SELECTING ACCOUNTING METHOD AND YEAR. To select as the
Partnership's accounting year a calendar year or such fiscal year as approved by
the Internal Revenue Service, and to determine the appropriate accounting method
or methods to be used by the Partnership. The Partnership intends, initially, to
utilize the accrual method of accounting in maintaining the Partnership's books
and records and to report on the basis of a calendar year.
8.3.2.10 SELL UNITS. To offer and sell Units directly or through
finders, wholesalers, agents or Broker/Dealers; provided, however, such persons
shall be Broker/Dealers licensed with the National Association of Securities
Dealers, Inc. or shall be otherwise Registered Representatives, to persons who
make the requisite Capital Contributions, and to admit such persons as Limited
Partners.
8.3.2.11 PURCHASE UNITS FOR OWN ACCOUNT. To purchase Units for the
General Partner's account for investment, or for resale. If the General Partner,
also, is a Limited Partner, then the interests, rights and obligations of the
General Partner as the General Partner and as a Limited Partner at all times
shall be kept separate and distinct.
8.3.2.12 TEMPORARY REFUSAL TO TRANSFER UNITS. To temporarily refuse
to transfer a Limited Partner's interest in the Partnership if such transfer
would result in a sale or exchange of more than 50% of the Partnership's capital
and profits within a 12 month period.
8.3.2.13 COMPROMISE AND SETTLE CLAIMS. To compromise, arbitrate or
otherwise adjust claims in favor of or against the Partnership and to commence
or defend litigation with respect to the Partnership or any assets of the
Partnership as the General Partner may deem advisable, all or any of the above
matters being at the expense of the Partnership; and to satisfy any judgment,
decree, decision or settlement first, out of any insurance proceeds available
therefor, and then out of Partnership assets and income.
8.3.2.14 CONTRACT WITH AFFILIATES. The General Partner may contract
on behalf of the Partnership with Affiliates of the General Partner or the
Partnership to provide services or materials for the Partnership, such as
management, maintenance, executive, accounting, brokerage, or legal services;
provided, however, the fees to be paid therefor and the terms and conditions
thereof will not be less favorable to the Partnership than those which could be
reasonably obtained by the Partnership from equally qualified but unaffiliated
persons; provided, further, however, such contracts must satisfy the
requirements of Rules 260.140.125, 260.140.125.1, 260.140.126, 260.140.127.1 and
260.140.127.2 of the Department of Corporations of the State of California.
8.3.2.15 NON-RECOURSE CONTRACTS. To require in all Partnership
contracts that the General Partner shall not have any personal liability
thereon, but that the person contracting with the Partnership is to look solely
to the Partnership and the Partnership's assets for satisfaction.
8.3.2.16 AMEND PARTNERSHIP AGREEMENT. To amend this Agreement after
obtaining a Majority Vote (i) to carry out the business and purpose of the
Partnership; (ii) to add to the representations, duties or obligations of the
General Partner or surrender any right or power granted to the General Partner
in this Agreement, for the benefit of the Limited Partners; and (iii) to cure
any ambiguity, to correct or supplement any provision of this Agreement that may
be inconsistent with any other provision in this Agreement or to add any other
provision with respect to matters or questions occurring pursuant to the
provisions of this Agreement that will not be inconsistent with the provisions
of this Agreement.
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8.3.2.17 EXECUTION OF DOCUMENTS. To execute, acknowledge and deliver
any and all instruments to effectuate the foregoing, and to take all such action
in connection therewith as the General Partner shall deem necessary or
appropriate.
8.3.2.18 INVEST PRIOR TO ACQUISITION. To invest the Gross Proceeds
or Net Proceeds temporarily prior to the purchase of assets in short term,
highly liquid investment where there is appropriate safety of principal.
8.3.2.19 PERFORM OTHER ACTS. To perform any and all other acts or
activities customary or incident to the business of the Partnership.
8.3.3 DUTIES AND RESPONSIBILITIES OF THE GENERAL PARTNER. The General
Partner shall devote only such time to the Partnership as the General Partner,
in its discretion, determines to be reasonably required for the efficient
conduct of the affairs of the Partnership, but nothing specified in this
Agreement shall preclude the General Partner from engaging in or possessing an
interest in other business ventures of every nature and description, and neither
the Partnership nor the Limited Partners shall have any interest, by virtue of
this Agreement, in any such other business ventures or the income or profits
derived therefrom. In addition, nothing specified in this Agreement, except the
provisions of Subparagraph 8.3.2.14 of this Agreement, shall preclude the
employment of any agent, third party or Affiliate of the General Partner to
manage or provide other services in respect of the Partnership's properties or
business subject to the control of the General Partner. The General Partner, in
all instances, shall retain general control over and continue to supervise
generally the day to day operations of the Partnership's properties and business
and, in this connection, the General Partner shall provide, furnish and perform,
in a good faith, diligent and efficient manner, all normal and customary
business and administrative duties and services necessary to conduct the
Partnership's business in an expeditious and economical manner.
8.3.3.1 OWNERSHIP OF PROPERTY. The General Partner shall take such
steps as are necessary, in its best judgment, to acquire ownership to any
property acquired by the Partnership, acceptable for the purposes of the
Partnership.
8.3.3.2 FILINGS. The General Partner shall be responsible for filing
a Certificate of Limited Partnership and a Fictitious Business Name Statement
and any required amendments thereto.
8.3.3.3 NET WORTH. The General Partner (i) will use its best efforts
at all times to maintain a net worth in excess of the total amount that could
reasonably be expected to be demanded from it by creditors of all partnerships
of which it is a general partner; (ii) will hold its interest in the Partnership
for its own account; and (iii) will not agree to act as a nominee or agent of a
limited partner except as set forth in the partnership agreements for the
partnerships of which it is or may hereafter become a general partner.
8.3.3.4 TAX MATTERS PARTNER. The Partners do hereby appoint
Performance Development, Inc., the General Partner, to act as the "Tax Matters
Partner," as described in the Tax Equity and Fiscal Responsibility Act of 1982.
8.4 LIMITATIONS ON GENERAL PARTNER'S AUTHORITY. The General Partner shall
have all the rights and powers and be subject to all the responsibilities and
the liabilities of a partner in a partnership without limited partners, except
that neither the General Partner nor any of its Affiliates shall have the
authority to:
8.4.1 ALTER PURPOSE OF PARTNERSHIP. Alter the primary purpose of the
Partnership as specified in Article I of this Agreement.
8.4.2 ACTS IN CONTRAVENTION OF THIS AGREEMENT. Do any act in
contravention of this Agreement or any separate Certificate of Limited
Partnership or enter into any reciprocal business arrangement which could
circumvent any of the restrictions specified in this Agreement.
8.4.3 HINDER THE PROVISIONS OF THIS AGREEMENT. Do any act which would
make it impossible to carry on the ordinary business of the Partnership as
provided in this Agreement.
8.4.4 POSSESS PARTNERSHIP PROPERTY. To possess Partnership property or
assign the rights of the Partnership in specific property other than for a
Partnership purpose.
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8.4.5 ADMIT PERSONS CONTRARY TO THIS AGREEMENT. Admit a person as a
Limited Partner except as otherwise provided in this Agreement.
8.4.6 CONTINUE PARTNERSHIP AFTER LEGAL TERMINATION. Enter into
contracts with the Partnership which would obligate the Partnership after the
death, retirement, expulsion, insanity, adjudication of bankruptcy or
insolvency, dissolution or other termination of existence of the General
Partner, or to continue business with the Partnership's assets after the
occurrence of such event.
8.4.7 CONFESSIONS OF JUDGMENTS. Confess a judgment against the
Partnership in connection with any threatened or pending legal action.
8.4.8 ADMISSION OF GENERAL PARTNER. Admit a person as a general partner
of the Partnership, except with the consent of the Limited Partners as specified
in this Agreement.
8.4.9 USE OF PARTNERSHIP ASSETS. Employ or permit to employ the funds
or assets of the Partnership in any manner, except for the exclusive benefit of
the Partnership.
8.4.10 CREATION OF LIABILITY OF LIMITED PARTNERS. Perform any act
(other than an act required by this Agreement or any act taken in good faith
upon counsel's opinion) which would, at the time such act occurred, subject any
Limited Partner to liability as a general partner in any jurisdiction.
8.4.11 REDEMPTION OF UNITS. Redeem or repurchase Units, except as
specified in Section 8.8 of this Agreement or when the General Partner
determines such redemption or repurchase is in the best interests of the
Partnership and would not impair the capital of the Partnership or the operation
of the Partnership's business.
8.4.12 TAXATION AS A CORPORATION. Perform any act that would cause the
Partnership to become an association taxable as a corporation for federal income
tax purposes.
8.4.13 PARTNERSHIP LOAN. Lend Partnership funds to the General Partner
or an Affiliate of the General Partner.
8.4.14 INTEREST OF CREDITOR IN PARTNERSHIP. Incur any non-recourse
indebtedness pursuant to which the lender will have or acquire, at any time as a
result of making extending that indebtedness, any direct or indirect interest in
the profit, capital or property of the Partnership other than as a secured
creditor.
8.4.15 COMMINGLING OF PARTNERSHIP FUNDS. Commingle the Partnership
funds with funds of any other person.
8.5 LIABILITY OF THE GENERAL PARTNER.
8.5.1 FRAUD, BAD FAITH OR GROSS MISCONDUCT. Except when any loss to the
Limited Partners is caused by fraud, bad faith, gross misconduct, gross
negligence or a breach of fiduciary duty by the General Partner (or any
employee, Affiliate, officer or director of the General Partner), it is
expressly agreed that the General Partner (or any employee, Affiliate, officer
or director of the General Partner) shall not be personally liable for the
return of the capital or any other contributions of the Limited Partners, or any
portion thereof, but on the contrary, that any such return shall be made solely
from the Partnership's assets. However, to be held harmless from any loss or
liability suffered by the Partnership, all of the following conditions must be
satisfied:
(1) the General Partner has determined, in good faith, that the
course of conduct which caused the loss or liability was in the best
interests of the Partnership;
(2) such liability or loss was not the result of gross negligence
or gross misconduct by the General Partner; and
(3) such indemnification or agreement to hold harmless is
recoverable only out of assets of the Partnership and not from the
Limited Partners.
8.5.2 SECURITIES LAWS. The General Partner and its Affiliates will not
be indemnified for any liability imposed by judgment, and costs associated
therewith, including attorneys' fees, occurring because of a
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violation of state or federal securities laws associated with the offer and sale
of the Units. Indemnification will be allowed for settlements and related
expenses of lawsuits alleging securities violations, and for expenses incurred
in successfully defending such lawsuits, provided a court either:
(1) approves the settlement and finds that indemnification of the
settlement and related expenses should be made, or
(2) approves indemnification of litigation costs if a successful
defense is made.
8.5.3 PROPER USE OF ASSETS. The General Partner shall have a fiduciary
responsibility to the Limited Partners for the safekeeping and proper use of all
assets of the Partnership whether or not such assets are in the immediate
possession or control of the General Partner.
8.6 REMOVAL, RESIGNATION OR OTHER TERMINATION OF THE GENERAL PARTNER.
8.6.1 REMOVING GENERAL PARTNER. Should the General Partner cease to be
the general partner of the Partnership by reason of the death, disability,
bankruptcy, resignation or removal of the General Partner, any remaining general
partner of the Partnership, if there be one, shall become the General Partner of
the Partnership. The remaining general partner shall continue to serve as the
remaining general partner unless that General Partner shall resign or withdraw
upon 90 days written notice to the Limited Partners (in which event the Limited
Partners, pursuant to Section 9.3 of this Agreement, may elect a successor
general partner prior to the effective date of the resignation), or is removed
as the General Partner upon the vote of the Limited Partners pursuant to Section
9.3 of this Agreement, in which event a successor general partner may be
selected by the Limited Partners pursuant to Section 9.3 of this Agreement.
8.6.2 NOTICE OF EXPULSION. Upon the requisite vote to remove the
General Partner (any Units held by the General Partner shall not be counted for
the purposes of the voting procedure) as described in Paragraph 9.3.2(ii) of
this Agreement, written notice of expulsion shall be served upon the General
Partner by certified or registered mail, return receipt requested, or by
personal service. Said notice shall specify the date upon which the expulsion is
to become effective, which date shall be not less than 30 days after the service
of said notice upon the General Partner.
8.6.3 DUTIES AFTER EXPULSION. Upon receipt of the notice of expulsion,
the General Partner shall cease to act as general partner of the Partnership
unless it is the sole general partner of the Partnership; in which event the
General Partner shall continue in the management of the Partnership's business
until a successor general partner is elected, but the General Partner shall
enter into no contract except in the ordinary course of the Partnership's
business.
8.6.4 INTEREST IN PROFITS AND LOSSES. Removal, resignation or
withdrawal of the General Partner shall not affect the interest of the General
Partner in the profits and losses and in the distributions of the Partnership as
specified in Article 6 of this Agreement. Such interest, in the event of the
continuation of the business of the Partnership following removal of the General
Partner, may be treated and continue to be treated in all respects as a Limited
Partner's interest and the Certificate of Limited Partnership shall be amended
accordingly.
8.6.5 STATUS OF UNITS AFTER REMOVAL. If the General Partner has been
expelled or removed, resigns or withdraws, or had its interest as general
partner of the Partnership terminated and owns any Units as General Partner,
such Units shall thereafter be held by the General Partner as a Limited Partner
and the Certificate of Limited Partnership shall be amended accordingly.
8.6.6 CHANGE OF PARTNERSHIP NAME. An expelled, retired or withdrawn
general partner may require the Partnership to change the Partnership's name to
a name that does not include any words, trademarks or logos associated with the
expelled, retired or withdrawn general partner.
8.7 ASSIGNMENT OF GENERAL PARTNER'S INTEREST. The General Partner may
assign or encumber its right to receive distributions from the Partnership, or a
portion thereof, without the consent of the Limited Partners. The General
Partner, however, may not substitute any transferee as a general partner of the
Partnership or
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assign any of the General Partner's duties and obligations created by the
provisions of this Agreement without the approval of a Majority Vote.
9. LIMITED PARTNERS.
9.1 ADMISSION OF LIMITED PARTNERS.
9.1.1 MINIMUM OF UNITS. The Partnership intends to sell and issue 1,000
Units in exchange for Capital Contributions of $5,000 per each Unit in cash.
Each person who acquires any Units shall be eligible to become a Limited Partner
in the Partnership at such time as that person has:
(i) purchased 5 or more Units, or less than 5 Units, or, a fraction
of a Unit, if, in the discretion of the General Partner, purchases of
less than the minimum purchase are permitted;
(ii) submitted to the Partnership the sum of $5,000 in cash, check
or money order for each Unit purchased;
(iii) executed and filed with the General Partner a written
instrument which sets forth an intention to become a Limited Partner and
requests admission to the Partnership in that capacity, together with
such other instruments as the General Partner may deem necessary or
desirable to effect such admission, including the written acceptance and
adoption by such person of the provisions of this Agreement, and the
execution, acknowledgment and delivery to the General Partner of a
special power of attorney, the form, style and content of which are more
fully described herein; and
(iv) obtained the consent of the General Partner to be admitted as
a Limited Partner, which consent shall be within the absolute discretion
of the General Partner. Such consent shall be given or refused by the
Closing Date.
9.1.2 RELEASE OF PROCEEDS OF OFFERING. If 50 Units have been sold prior
to the Closing Date, the proceeds of the offering will be released on the
Closing Date and a subscriber shall be deemed to have been shall be deemed to
have been admitted into the Partnership.
9.1.3 CONTINUED SALE OF UNITS. The Partnership may continue to sell
Units until all 1,000 Units have been sold or until December 31, 1993, whichever
occurs first.
9.1.4 AMENDMENT OF AGREEMENT. The General Partner, when required, shall
amend this Agreement and any separate Certificate of Limited Partnership filed
for record to specify the admission of a person as a Limited Partner. The number
of Units acquired by the Limited Partners and each Partner's respective
ownership interest is set forth in Exhibit 'A' which is attached hereto and
incorporated herein by this reference.
9.2 STATUS OF LIMITED PARTNERS.
9.2.1 LIABILITY. A Limited Partner shall not be obligated by, or be
personally liable for, the expenses, liabilities or obligations of the
Partnership except to the extent of the Capital Contribution required to be made
by that Limited Partner pursuant to the terms of this Agreement and any
additional contribution to the capital of the Partnership actually made by that
Limited Partner. A Partner is liable to return a distribution if, after the
distribution, Partnership liabilities exceed the fair salable value of
Partnership assets. However, nonrecourse liabilities and the assets which secure
those liabilities, as well as liabilities owed to Partners on account of their
interests in the Partnership, are excluded. Notwithstanding the above
limitations, the Limited Partners hereby consent to such distributions in the
event all Partnership debts (other than debts owing to the Partners) have been
paid or provided for adequately.
9.2.2 NONASSESSABILITY. Each Unit shall be paid completely and
nonassessable, when issued.
9.3 RIGHTS, POWERS AND VOTING RIGHTS OF THE LIMITED PARTNERS.
9.3.1 MANAGEMENT. Limited Partners shall take no part in or interfere
in any manner with the control, conduct or operation of the Partnership and
shall have no right or authority to act for or obligate the Partnership.
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9.3.2 VOTING RIGHTS. The provisions of this Agreement notwithstanding,
without the necessity for concurrence by the General Partner, a Majority Vote
may:
(i) amend this Agreement;
(ii) remove the General Partner;
(iii) elect a new general partner;
(iv) approve or disapprove the sale of all or substantially all of
the assets of the Partnership;
(v) dissolve the Partnership; and
(vi) extend the Partnership term for an additional 10 years. The
terms of an agreement with respect to such extension shall be negotiated
at that time between the General Partner and the Partnership.
9.3.2.1 AMENDMENT OF AGREEMENT BY GENERAL PARTNER. Without the
concurrence of a Majority Vote, the General Partner may not amend this Agreement
except for those amendments which do not affect the rights of Limited Partners.
9.3.2.2 RESTRICTION ON RIGHT OF LIMITED PARTNERS. A Majority Vote
may not modify this Agreement with respect to the compensation or distributions
to which the General Partner is entitled or which affects the duties of the
General Partner except with the consent of the General Partner, except as
provided in Paragraph 8.6.4 of this Agreement.
9.3.3 MAJORITY VOTE. All matters upon which the Limited Partners may
vote shall require, and the term "Majority Vote" shall mean, the vote or written
consent of 50% or more of all issued Units held by the Limited Partners. Each
Limited Partner shall be entitled to cast one vote for each Unit which that
Limited Partner owns.
9.3.4 PROCEDURE FOR VOTING.
9.3.4.1 NOTICE OF MEETING. The General Partner, at any time, may
call a meeting or a vote without a meeting of the Limited Partners, and shall
call for such meeting or vote and give written notice thereof which will be
given not less than 10 nor more than 60 days following receipt of written
request therefor by Limited Partners holding at least 10% or more of the Units.
The General Partner shall mail, postage-paid, written notice of any such meeting
or vote to all Partners of record as of the date of mailing and to the most
recent addresses shown on the records of the Partnership, which notice shall
include a detailed statement of the action proposed, including a verbatim
statement of the wording of any resolution proposed for adoption by the Limited
Partners and of any proposed amendment to this Agreement and the General
Partner's recommendation with respect to any matters that are to be voted on.
The General Partner shall provide for proxies or written consents which specify
a choice between approval and disapproval of each matter to be acted upon at the
meeting. Notice given in the foregoing manner shall be deemed complete 48 hours
after that notice's deposit by the General Partner in any regular United States
Postal Service depository. All expenses of the meeting or vote and of notice
thereof shall be paid by the Partnership. For a valid Partnership meeting and
quorum there must be in attendance, by person or by proxy, Limited Partners
holding a majority of the Units. Should there be a failure to have such a quorum
at any meeting, then that meeting shall be re-scheduled by those Limited
Partners originally in attendance at that adjourned meeting, for a date certain
and the General Partner shall notify those Limited Partners not in attendance at
that adjourned meeting of the new time, day and place. When obtaining a written
vote on any matter to be voted on without a meeting, a failure to respond within
a specified time, but not less than 10 days, shall constitute a vote of approval
of the General Partner's recommendation with respect thereto.
9.3.4.2 ONE VOTE PER UNIT. A Limited Partner shall be entitled to
cast one vote for each Unit which that Limited Partner owns (i) at a meeting, in
person, by written proxy or by a signed writing directing the manner in which
that Limited Partner desires that his vote be cast; or (ii) without a meeting,
by a signed writing directing the manner in which that Limited Partner desires
that his vote be cast which proxy or writing must be received by the General
Partner prior to the date upon which the votes of Limited Partners of record
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as of the date of such meeting or vote shall be counted. The General
Partner shall not be entitled to vote except to the extent the General Partner
also owns Units as a Limited Partner. The laws of the State of California
pertaining to the validity and use of corporate proxies shall govern the
validity and use of proxies given by Limited Partners.
9.3.4.3 LIMITATIONS OF VOTING RIGHTS. No Limited Partner shall have
the right or power to:
(i) Withdraw or reduce his contribution to the capital of the
Partnership except as a result of the dissolution of the Partnership
or as otherwise provided by law;
(ii) Bring an action for partition against the Partnership;
(iii) Cause the termination and dissolution of the Partnership
by court decree or otherwise, except as set forth in this Agreement;
or
(iv) Demand or receive property other than cash in return for
that Limited Partner's Capital Contribution. Except as provided in
this Agreement, no Limited Partner shall have priority over any other
Limited Partner either as to the return of Capital Contributions or
as to income, gains, losses, deductions, credits or distributions.
Other than upon the termination and dissolution of the Partnership as
provided by this Agreement, there has been no time agreed upon when
the Capital Contribution of each Limited Partner is to be returned.
This Agreement may not be amended without the consent of the Partner
to be adversely affected by any amendment which would:
(a) convert a Limited Partner to a general partner of the
Partnership;
(b) modify the limited liability of a Limited Partner;
(c) alter the interest of the General Partner or the Limited
Partners in the income, gains, losses, deductions, credits or
distributions of the Partnership; or
(d) affect the status of the Partnership as a partnership
for federal income tax purposes.
9.4 ASSIGNMENT OF UNITS.
9.4.1 RIGHT TO ASSIGN. Subject to the provisions of this Section 9.4,
Limited Partners shall have the right to assign one or more Units owned by the
Limited Partners by a duly executed and acknowledged written instrument of
assignment in a form satisfactory to the General Partner, the terms of which are
not in contravention of any of the provisions of this Agreement. However, the
General Partner shall have the right to refuse to allow any such assignment if,
in the opinion of counsel to the Partnership, such assignment would jeopardize
the tax status of the Partnership. A Limited Partner shall notify the General
Partner within 30 days of any assignment or transfer by operation of law of a
beneficial interest in any Units which occurs without a transfer of record
ownership.
9.4.2 QUALIFICATION OF ASSIGNEE. An Assignee shall satisfy the
suitability standards applied to an original subscriber to the Partnership.
However, such suitability standards shall not apply to any Assignee receiving
Units by gift or by operation of law, except when the assigned Units are subject
to a liability owed to the Partnership or to a third party.
9.4.3 DEATH, INCOMPETENCY, BANKRUPTCY OR DISSOLUTION OF A LIMITED
PARTNER. The death, incompetency, bankruptcy or dissolution of a Limited Partner
shall not terminate the Partnership. Upon the death, incompetency or dissolution
of a Limited Partner, the personal representative or successor of such Limited
Partner shall have all the rights of the Limited Partner in the Partnership to
the extent of such Limited Partner's interest therein, subject to the terms and
conditions of this Agreement; and the estate or successor in interest of such
Limited Partner shall be liable for all of such Limited Partner's liabilities as
a Limited Partner, as well as the execution of all documents required to effect
the substitution of such Limited Partner's estate or successor in interest as a
Substituted Limited Partner. Such Limited Partner's estate or successor in
interest, at such time as such successor in interest is legally recognized as
the owner of such Limited Partner's interest,
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shall be a Substituted Limited Partner without the necessity of
complying with the provisions of Section 9.5 of this Agreement. However, during
probate of a deceased Limited Partner's estate and if the Partnership interest
of such deceased Limited Partner is subject to such probate, then during probate
such successor in interest shall be treated as an Assignee and not a Substituted
Limited Partner, but only until such time as probate closes by evidence
satisfactory to the General Partner.
9.4.4. DISTRIBUTIONS. An Assignee shall have no rights as a Limited
Partner, but shall be entitled to receive allocations from the Partnership
attributable to the Units acquired by reason of such assignment from and after
the effective date of the assignment of such Units to such Assignee. However,
the provisions of this Agreement notwithstanding, the Partnership and the
General Partner shall be entitled to treat the assignor of such Units as the
absolute owner thereof in an respects and shall incur no liability for
allocations of income, gains, losses, deductions, credits, distributions or
transmittal of reports and notices required to be given to the Limited Partners,
which are made in good faith to such assignor prior to such time as the written
instrument of assignment has been received by the General Partner and recorded
on the books of the Partnership, or prior to the effective date of such
assignment. The effective date of such assignment of Units, on which the
Assignee shall be deemed an Assignee of record, shall be the first day of the
first complete fiscal quarter following the later of (i) the date set forth on
the written instrument of assignment (unless the date set forth in that written
instrument of assignment is the first day of the fiscal quarter in which event
that date shall be the effective date) or (ii) the date on which the Partnership
has actual notice of the assignment. The allocations and distributions
attributable to the Partnership interest acquired by reason of such assignment
shall be divided among and allocated between the assignor and Assignee of such
interest in proportion to the number of fiscal quarters that each is recognized
by the Partnership as the owner of the transferred Units, based upon the
effective date of the assignment of such interest.
9.4.5 OBLIGATIONS OF A LIMITED PARTNER. An assignment of Units by a
Limited Partner, including assignments of all or less than all rights specified
in this Agreement, shall not relieve the transferor of his duties and
obligations specified in this Agreement, whether occurring prior to or
subsequent to such assignment.
9.5 SUBSTITUTED LIMITED PARTNERS. A Substituted Limited Partner shall
have the rights and powers, and shall be subject to all the restrictions and
liabilities, of the respective assignor, except those liabilities of which that
Substituted Limited Partner was ignorant at the time that Substituted Limited
Partner became a Limited Partner and which could not be ascertained from this
Agreement or from the Certificate of Limited Partnership.
9.5.1 CONDITIONS OF SUBSTITUTION. A Limited Partner may designate an
Assignee as a Substituted Limited Partner, but no Assignee shall have the right
to become a Substituted Limited Partner in place of the respective assignor
unless all of the following conditions are first satisfied:
9.5.1.1 WRITTEN ASSIGNMENT. A duly executed and acknowledged written
instrument of assignment shall have been filed with the Partnership, which
instrument shall set forth the name of the assignor; the name, address and
social security or identification number of the Assignee; the details of the
assignment; the number of Units being assigned and the intention of the assignor
that the Assignee become a Substituted Limited Partner in the assignor's place
and stead to the extent of the assigned Units.
9.5.1.2 FRACTIONAL UNITS. No part of the Partnership interest being
acquired by the Assignee consists of less than 1 Unit, unless that part involves
the entire Partnership interest of the assignor.
9.5.1.3 INSTRUMENTS OF SUBSTITUTION. The assignor and Assignee shall
have executed and acknowledged such instruments as the General Partner may deem
necessary or desirable to effect such substitution including, without
limitation, the written acceptance and adoption by the Assignee of the
provisions of this Agreement, as amended, and the Assignee's execution,
acknowledgment and delivery to the General Partner of a special power of
attorney, the form and content of which are described more completely in Article
13 of this Agreement.
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9.5.1.4 COMPLIANCE WITH SECURITIES LAWS. The assignment is effected
in compliance with all applicable state and federal securities laws as evidenced
by an opinion of counsel satisfactory to the General Partner.
9.5.1.5 CONSENT OF A GENERAL PARTNER. The written consent of the
General Partner to such substitution shall have been obtained, the granting or
denial of which shall be only in accordance with the provisions of Paragraph
9.4.1 of this Agreement.
9.5.1.6 ASSIGNMENT FEE. An assignment fee shall have been paid to
the Partnership, which shall be equal to $250.
9.5.2 COMMENT TO FUTURE SUBSTITUTED LIMITED PARTNERS. By executing or
adopting this Agreement, each Limited Partner hereby consents to the admission
of additional or Substituted Limited Partners by the General Partner and to any
Assignee becoming a Substituted Limited Partner.
9.5.3 AMENDMENT OF CERTIFICATE. An Assignee will become a Substituted
Limited Partner when this Agreement or a separate Certificate of Limited
Partnership is appropriately amended and filed in accordance with the provisions
of the California Revised Limited Partnership Act. The General Partner, at least
once each calendar quarter, shall cause this Agreement or any separate
Certificate of Limited Partnership to be amended to specify the admission or
substitution of Limited Partners.
9.6 COMPLIANCE WITH SECURITIES RULES OR TRANSFERS. No assignment, sale,
transfer, exchange or other disposition of any Units may be made, except in
compliance with the then applicable rules of all appropriate governmental
authorities.
9.7 VOID ASSIGNMENTS. Any assignment, sale, exchange or other transfer in
contravention of any of the provisions of this Article 9 shall be void and
ineffectual, and shall not obligate, or be recognized by, the General Partner or
the Partnership.
10. BOOKS, RECORDS, ACCOUNTING AND REPORTS.
10.1 RECORDS. The General Partner shall keep at its office in California
the following Partnership documents:
(i) A current list of the complete name and last known business or
residence address of each Partner, together with the contribution and share
in profits and losses of each Partner;
(ii) A copy of the Certificate of Limited Partnership and all
certificates of amendment and executed copies of any powers of attorney
pursuant to which any certificate has been executed;
(iii) Copies of the Partnership's federal, state and local income tax
or informational returns and reports, if any, for the 6 most recent years;
(iv) Copies of the original copy of this Agreement and all amendments
to this Agreement;
(v) Financial statements of the Partnership for the 6 most recent
years; and
(vi) The Partnership's books and records as those books and records
relate to the internal affairs of the Partnership for at least the current
and 3 most recent years.
10.2 DELIVERY TO LIMITED PARTNER AND IMPACTION.
(i) Upon the request of a Limited Partner, the General Partner shall
deliver promptly to the requesting Limited Partner, at the expense of the
Partnership, a copy of the information to be maintained required by the
provisions of subsections (i), (ii), and (iv) of Section 10.1 of this
Agreement.
(ii) Each Limited Partner has the right, upon reasonable request, to
each of the following:
(a) inspect and copy during normal business hours any of the
Partnership records required to be maintained by Section 10.1 of this
Agreement; and
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(b) obtain from the General Partner, promptly after becoming
available, a copy of the Partnership's federal, state and local income
tax or informational returns for each year.
(iii) The General Partner shall send to each Partner within 60 days
after the end of each year, the information necessary for that Partner to
complete that Partner's federal and state income tax or informational
returns, and if requested by a Limited Partner, there shall be included
within that 60 day period a copy of the Partnership's federal, state and
local income tax or informational returns for the ear in which such request
is made.
10.3 ANNUAL REPORTS. The General Partner will provide to the Limited
Partners, within 60 days after the end of each year of the Partnership, a report
containing:
(i) A balance sheet for the Partnership as of the end of that year,
which may be unaudited;
(ii) A statement of income for the Partnership for that year, which
may be unaudited;
(iii) A statement of changes in financial position for the Partnership
for that year, which may be unaudited; and
(iv) Other pertinent information regarding the Partnership and the
activities of the Partnership during the period covered by that report.
10.4 TAX ALLOCATIONS. To the extent permitted by law, (i) all income,
gains and losses shall be allocated to the Partners to whom the revenues
resulting in the realization of such income, gains or losses are allocated
pursuant to Article 6 of this Agreement; (ii) all deductions and credits shall
be allocated to the Partners charged with the expenditures causing such
deductions or credits to occur; and (iii) all recapture of previously taken
deductions or credits shall be allocated to the Partners to whom such deductions
or credits were allocated. To the extent permitted by law, all items of tax
preference for federal income tax purposes shall be allocated to the Partners
credited with the revenues resulting in the realization of the income, gains or
loss causing such items of tax preference to occur or charged with the
expenditure causing the deductions or credits to which such items of tax
preference are attributable to occur. To the extent permitted by law, each
Partner shall be entitled to that Partner's distributive share of Partnership
income, gain, loss, deduction or credit, or items of tax preference in computing
that Partner's taxable income or tax liability, to the exclusion of any other
Partner.
10.5 TAX ELECTIONS. Upon the assignment of all or part of a Limited
Partner's interest in the Partnership or upon the death of an individual Limited
Partner, or upon the distribution of any Partnership property to any Partner,
the Partnership, at the General Partner's option, may file an election in
accordance with applicable regulations, to cause the basis of the Partnership
property to be adjusted for federal income tax purposes as provided by Sections
734, 743 and 754 of the Code; similar elections pursuant to the provisions of
state and local income tax laws, at the General Partner's option, may be made.
10.6 RECORDS OF ADJUSTED TAX BASIS. To the extent the General Partner is
required to determine the adjusted tax basis of any Partnership property with
respect to which the Code requires records of such adjusted tax basis be kept
and maintained by the Limited Partners, the General Partner may request
information regarding such adjusted tax basis from the Limited Partners, in
writing, and the Limited Partners shall furnish such information to the General
Partner within 90 days after said request is mailed by the General Partner.
10.7 TAX RETURN. The General Partner, at the expense of the Partnership,
shall cause income tax returns for the Partnership to be prepared and timely
filed with the appropriate authorities.
10.8 DEFENSE OF CERTAIN CLAIMS. The General Partner, at the expense of the
Partnership, shall have the right to assume the defense of any claims made by
the Internal Revenue Service to the extent that such claims occur because of and
relate to the Partnership's business or investment activities, and in connection
therewith, to retain and pay counsel chosen by the General Partner, in the
General Partner's sole discretion. In no case, however, shall the Partnership be
liable for any additional tax payable by a Partner or for any costs of separate
counsel chosen by such Partner to represent such Partner with respect to any
aspects of such defense.
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10.9 CAPITAL ACCOUNTS. The General Partner will maintain a separate
capital account for each Partner which shall be credited with (i) such Partner's
contributions to the capital of the Partnership and (ii) such Partner's
allocable share of Partnership revenues, gains and income, and which shall be
charged with (a) such Partner's allocable share of Partnership costs, expenses
and losses and (b) the amount of any distributions made to such Partner. The
books and records of the Partnership shall include such other separate and
additional accounts for each Partner as shall be necessary to specify accurately
the rights and interests of the Partners.
10.10 SPECIAL REPORTS. The General Partner, at the expense of the
Partnership, shall cause to be prepared and timely filed with the appropriate
federal and state agencies all reports required to be filed with such agencies
pursuant to the then current applicable laws, rules and regulations. Those
reports shall be prepared on the accounting or reporting basis required by those
appropriate regulatory agencies.
11. CERTAIN OPPORTUNITIES.
The General Partner, any Limited Partner, any Affiliate, any partner,
shareholder, officer, director or employee thereof, or any person owning a legal
or beneficial interest therein, may engage in or possess an interest in any
other business or venture of every nature and description, independently or with
others including those which may be the same as or similar to the Partnership's
business and in direct competition with the Partnership. Neither the Partnership
nor any Partner shall have any right, by virtue of this
Agreement, in and to such independent ventures or the income or profits derived
therefrom. Except when the General Partner has an overriding fiduciary
obligation to the Partnership, the General Partner and its Affiliates will have
no duty or obligation to submit to the Partnership any business opportunities
which may come to them or be presented to any person in which they may be in any
way interested, and the General Partner and any of its Affiliates shall have the
right to take for their own accounts (individually or otherwise) or to recommend
to others any such investment opportunity.
12. TERMINATION, LIQUIDATION AND DISSOLUTION OF THE PARTNERSHIP.
12.1 TERMINATION. The Partnership shall be terminated and dissolved in
accordance with the California Revised Limited Partnership Act or upon the
earliest to occur of the following:
(i) The death, retirement (provided there has been 90 days prior
written notice to the Limited Partners), expulsion, insanity, adjudication
of bankruptcy or insolvency, or the dissolution of the General Partner
unless any remaining general partners of the Partnership elect to continue
the business of the Partnership;
(ii) A vote pursuant to Section 9.3 of this Agreement to remove the
General Partner, unless all of the Limited Partners elect a substitute
general partner of the Partnership;
(iii) A vote pursuant to Section 9.3 of this Agreement in favor of
termination and dissolution of the Partnership;
(iv) The expiration of the term of the Partnership; or
(v) The sale of all or substantially all of the Partnership assets and
the receipt of the final payment of the purchase price therefor.
12.2 DISTRIBUTIONS. Upon the termination and dissolution of the
Partnership for any reason, the General Partner (or a substituted general
partner of the Partnership elected by a Majority Vote) shall take complete
account of the Partnership's assets and liabilities and those assets shall be
liquidated as promptly as is consistent with obtaining the fair value thereof,
and the proceeds therefrom, to the extent sufficient to pay the Partnership's
obligations with respect thereto, shall be applied and distributed in the
following order:
(i) To the payment and discharge of all of the Partnership debts and
liabilities to persons other than Partners (or former Partners) including
the payment of promissory notes assigned and guaranteed by the Partnership
and the expenses of liquidation;
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<PAGE> 20
(ii) To the payment and discharge of any loans and advances made by
Partners (or former Partners) to the Partnership;
(iii) To the Partners in accordance with their respective Partnership
interests to the extent of the positive balances in their respective
capital accounts established pursuant to the provisions of Section 10.9 of
this Agreement; and
(iv) The balance of such proceeds, if any, shall be distributed to the
Partners in accordance with their interests in the Partnership, except that
if a Partner shall have a debit balance in that Partner's capital account,
that Partner shall not receive distributions until the amount which would
otherwise be distributed to that Partner is equal to the debit balance,
after which that Partner shall then receive distributions in accordance
with that Partner's interest in the Partnership, but that Partner shall not
receive the amounts which were not distributed to that Partner because of
such debit balance.
12.3 NO RECOURSE AGAINST THE GENERAL PARTNER. Each Limited Partner shall
have that Limited Partner's Capital Contribution returned only from the assets
of the Partnership, and if the Partnership assets remaining after the payment or
discharge of the debts and liabilities of the Partnership are insufficient to
return that Capital Contribution, that Limited Partner shall have no recourse
against the General Partner, any of its Affiliates, or any other Limited
Partner.
12.4 WAIVER OF RIGHT TO COURT DECREE OF DISSOLUTION. All Partners agree
that irreparable damage would be done to the goodwill and reputation of the
Partnership if any Partner should bring an action in court to divide the
Partnership in any way other than as provided in this Agreement. Care has been
taken in this Agreement to provide what the Partners determined are fair and
just methods of liquidation of the interests of all Partners. Accordingly, each
Partner hereby waives and renounces that Partner's rights to a court decree of
dissolution, to seek the appointment by the court of a liquidator for the
Partnership, to maintain an action for partition with respect to that Partner's
undivided interest in the Partnership properties or to compel any sale of such
properties.
12.5 NOTICE OF DISSOLUTION. The General Partner shall cause (i) a Notice
of Dissolution to be published in a newspaper of general circulation in each
county where the Partnership business was regularly conducted and to be mailed
to each of the Partnership's creditors, (ii) an affidavit of publication and of
mailing to be filed with the appropriate County Clerk or Clerks within 30 days
after the publication, and (iii) the Certificate of Limited Partnership to be
canceled.
12.6 GENERAL PARTNER'S DISCRETION. The winding up and dissolution of the
Partnership's affairs and the liquidation and distribution of the Partnership's
assets shall be conducted exclusively by the General Partner (or a trustee, if
one is appointed), which is authorized to do any and all acts and things
authorized by law for these purposes. Distributions in accordance with the
provisions of this Section 12.6 or upon termination and dissolution of the
Partnership will (i) constitute a complete return to the Partners of their
interests in the profits of the Partnership and their Capital Contributions,
(ii) a final and complete distribution to the Partners of all their interests in
the Partnership properties, and (iii) a final termination and settlement of any
and all of the Partners' other interests in the Partnership.
12.7 PURCHASE BY GENERAL PARTNER. The General Partner, if the General
Partner so desires, may purchase Partnership properties upon liquidation of the
Partnership at the greater of the highest bona fide independent offer received
or if no such offer is received, the market value thereof.
13. SPECIAL POWER OF ATTORNEY.
13.1 EXECUTION OF SPECIAL POWER OF ATTORNEY. Concurrently with the
execution or written acceptance and adoption of the provisions of this
Agreement, each Limited Partner shall execute, acknowledge and deliver to the
General Partner a special power of attorney in a form acceptable to the General
Partner in which the General Partner is substituted and appointed as the
attorney-in-fact for such Limited Partner, with power and authority to act in
such Limited Partner's name and on such Limited Partner's behalf to execute,
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<PAGE> 21
acknowledge and swear to in the execution, acknowledgment and filing of
documents, which shall include, by way of illustration but not of limitation,
the following:
(i) This Agreement, any separate Certificate of Limited Partnership,
Fictitious Business Name Statements, as well as any amendments to the
foregoing which, pursuant to the laws of the State of California or the
laws of any other jurisdiction, are required to be filed or which the
General Partner deems it advisable to file;
(ii) Any other instrument or document which may be required to be
filed by the Partnership pursuant to the laws of any state or by any
governmental agency, or which the General Partner deems it advisable to
file;
(iii) Any instrument or document which may be required to effect the
continuation of the Partnership, the admission of an additional or
Substituted Limited Partner, or the dissolution and termination of the
Partnership (provided such continuation, admission or dissolution and
termination are in accordance with the terms of this Agreement), or to
specify any reductions in the amounts of the Capital Contributions of the
Limited Partners; and
(iv) Any documents, including escrow instructions and amendments,
loan documents, including promissory notes, guarantees, deeds of trust and
other security agreements and mortgages, agreements to sell, purchase,
lease, rent and exchange Partnership assets or any interests therein,
contracts, including management contracts, and all other agreements and
documents necessary to carry out the business of the Partnership and the
Partners.
13.2 INCIDENTS OF SPECIAL POWER OF ATTORNEY. The power of attorney hereby
granted by each Limited Partner to the General Partner shall be on the following
terms and conditions.
13.2.1 COUPLED WITH AN INTEREST. That power of attorney is a special
power of attorney coupled with an interest, is irrevocable, shall survive the
death or insanity (or, in the case of a Limited Partner that is a corporation,
association, partnership, joint venture or trust, shall survive the merger,
dissolution or other termination of the existence) of such Limited Partner; and
is limited to those matters herein set forth.
13.2.2 ACTION BY GENERAL PARTNER. That power of attorney may be
exercised by the General Partner acting alone for each Limited Partner by a
facsimile signature of the General Partner (or one of its officers, employees or
agents), or by listing all of the Limited Partners executing any instrument with
a single signature of the General Partner (or one of its officers, employees or
agents) acting as attorney-in-fact for all of the Limited Partners.
13.2.3 SURVIVAL OF ASSIGNMENT. That power of attorney shall survive an
assignment by a Limited Partner of all or any portion of such Limited Partner's
interest in the Partnership when an Assignee has been approved by the General
Partner for admission to the Partnership as a Substituted Limited Partner, the
special power of attorney shall survive such assignment for the sole purpose of
enabling the General Partner to execute, acknowledge and file any instrument or
document necessary to effect such substitution, as well as for the purposes set
forth in Section 13.1 of this Agreement.
13.2.4 ADDITIONAL ACTION. The power of attorney includes the authority
to take any additional action which the General Partner shall consider necessary
or convenient in connection with any of the powers granted to the General
Partner pursuant to Article 8 of this Agreement, hereby giving the General
Partner complete power and authority to do and perform each and every act and
thing whatsoever requisite and necessary to be done in and about the foregoing
as completely as such Limited Partner might or could do if personally present,
and hereby ratifying and confirming all that the General Partner shall lawfully
do or cause to be done by virtue hereof.
13.3 AUTHORITY OF THE GENERAL PARTNER. The General Partner shall be
authorized to obligate the Partnership by the signature of its officers alone,
and a facsimile signature is as effective as an actual signature.
13.4 ACKNOWLEDGEMENT BY LIMITED PARTNERS. Each of the Limited Partners is
aware that the terms and conditions of this Agreement permit certain amendments
of this Agreement to be effected and certain other
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actions to be taken or omitted by or with respect to the Partnership, in each
case with the approval of less than all of the Limited Partners. Such actions
include, without limitation, substitution of the General Partner. If, as and
when (i) an amendment of this Agreement is proposed or an action is proposed to
be taken or omitted by or with respect to the Partnership which requires,
pursuant to the provisions of this Agreement, the approval of a specified
percentage in interest (but less than all) of the Partners; (ii) Partners
holding the percentage of Partnership interests in the Partnership specified in
this Agreement as being required for such amendment or action have approved such
amendment or action in the manner contemplated by this Agreement; and (iii) a
Limited Partner has failed or refused to approve such amendment or action
(hereinafter referred to as a "Non-Consenting Limited Partner"), each
Non-Consenting Limited Partner agrees that each special attorney-in-fact
specified above, with complete power of substitution, is hereby authorized,
empowered and instructed to execute, acknowledge, make, swear to, verify,
deliver, record, file and publish, for and on behalf of such Non-Consenting
Limited Partner, and in such Non-Consenting Limited Partner's name, place and
stead, any and all instruments and documents which may be necessary or
appropriate to permit such amendment to be lawfully made or action lawfully
taken or omitted. Each consenting Limited Partner and Non-Consenting Limited
Partner is completely aware that such Limited Partner and each other Limited
Partner have executed this special power of attorney, and that each Limited
Partner will rely on the effectiveness of this special power of attorney with an
anticipation of the orderly administration of the Partnership's affairs.
14. LIABILITY OF AND INDEMNIFICATION OF A GENERAL PARTNER.
14.1 ACTION BY THIRD PARTIES. Except as provided in Section 8.5 of this
Agreement, the General Partner shall not be liable to the Partnership or the
Limited Partners, or any of them, for any failure of any third parties to comply
with the obligations of those parties pursuant to any agreements; however, the
foregoing shall not apply if the General Partner was grossly negligent or failed
to act in good faith in contracting with any such third party.
14.2 ACTION INVOLVING GENERAL PARTNER. Except as provided in Section 8.5
of this Agreement, in any threatened, pending or completed action, lawsuit or
proceeding to which the General Partner (including employees, Affiliates,
officers or directors of the General Partner) was or is a party or is threatened
to be made a party by reason of the fact that it is or was the General Partner
(other than an action by or in the right of the Partnership), the Partnership
shall indemnify the General Partner (including employees, Affiliates, officers
or directors of the General Partner) against all costs and expenses, including
attorneys' fees, costs of investigation, fines, judgments and amounts paid in
settlement, actually and reasonably incurred by the General Partner (or such
employee, Affiliates, officer or director) in connection with such action,
lawsuit or proceeding if the General Partner (or such employee, Affiliates,
officer or director) acted in good faith in a manner it reasonably believed to
be in or not opposed to the best interests of the Partnership; provided, that
however, the General Partner's conduct does not constitute negligence,
misconduct, or a breach of fiduciary obligation to the Limited Partners and, in
the case of a criminal proceeding, the General Partner had no reasonable cause
to believe its conduct was unlawful. The termination of any action, lawsuit or
proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent shall not, of itself, create a presumption that the
General Partner (or such employee, Affiliate, officer or director) did not act
in good faith and in a manner which the General Partner reasonably believed to
be in or not opposed to the best interests of the Partnership or that the
General Partner had reasonable cause to believe that its conduct was unlawful.
The General Partner (and the employees, Affiliates, officers or directors of the
General Partner) shall not be indemnified by the Partnership with respect to any
expense relating to any claim, issue or matter as to which such General Partner
(or employee, Affiliate, officer or director of the General Partner) shall have
been adjudged to be liable for negligence or misconduct.
14.3 DEFENSE OF ACTION. Except as provided in Section 8.5 of this
Agreement, to the extent that the General Partner (including any employees,
Affiliates, officers or directors of the General Partner) has been successful on
the merits or otherwise in defense of an action, suit or proceeding referred to
in Sections 14.2 or 14.3 of this Agreement, or in defense of any claim, issue or
matter therein, the Partnership shall indemnify the General Partner (or such
employee, Affiliates, officer or director) against all costs and expenses,
including
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attorneys' fees and costs of investigation, actually and reasonably incurred by
it in connection therewith. An indemnification pursuant to the provisions of
Sections 14.2 and 14.3 of this Agreement, unless ordered by a court, shall be
made by the Partnership only as authorized in the specific case and only upon a
determination by independent legal counsel in a written opinion that
indemnification of the General Partner (or such employee, Affiliates, officer or
director) is proper in the circumstances because the General Partner has met the
applicable standard of conduct set forth in Sections 14.2 and 14.3 above.
14.4 SATISFACTION OF JUDGMENTS. Except as provided in Section 8.5 of this
Agreement, all judgments against the Partnership and the General Partner,
wherein the General Partner (including any employee, Affiliate, officer or
director of the General Partner) is entitled to indemnification, must first be
satisfied from Partnership assets before the General Partner is responsible for
those judgments.
14.5 RESTRICTION ON INDEMNIFICATION. Except as provided in Section 8.5 of
this Agreement, notwithstanding Section 14.1 of this Agreement, neither the
General Partner nor any officer, Affiliate, director, employee, agent,
subsidiary or assign of the General Partner or of the Partnership shall be
indemnified against any liability, loss or damage incurred by the General
Partner in connection with (i) any claim or settlement involving allegations
that the Securities Act of 1933 was violated by the General Partner or by any
such other person unless (a) the General Partner or other persons seeking
indemnification are successful in defending such action, and (b) such
indemnification is specifically approved by a court of competent jurisdiction
which shall have been advised as to the current positions of, both, the
Securities and Exchange Commission and the California Commissioner of
Corporations regarding indemnification for violations of securities law or (ii)
any liability imposed by law, including liability for fraud, bad faith or
negligence, and the provisions of Paragraph 8.5.1 of this Agreement have been
satisfied by the General Partner.
IN THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION, INDEMNIFICATION FOR
LIABILITIES OCCURRING PURSUANT TO THE SECURITIES ACT OF 1933 IS AGAINST PUBLIC
POLICY AS EXPRESSED IN THAT ACT AND, THEREFORE, IS UNENFORCEABLE.
15. MISCELLANEOUS.
15.1 COUNTERPARTS. This Agreement may be executed in several counterparts,
and all counterparts so executed shall constitute one agreement, obligating all
Partners, notwithstanding that all of the Partners are not signatory to the
original or the counterpart.
15.2 SUCCESSORS AND ASSIGNS. The terms and provisions of this Agreement
shall obligate and shall inure to the benefit of the successors and assigns of
the respective Partners.
15.3 GOVERNING LAW. This Agreement shall be construed in accordance with,
and governed by, the laws of the State of California.
15.4 VOID PROVISION. In the event any part of this Agreement is declared
by a court of competent jurisdiction to be void, such part shall be deemed
severed from the remainder of the Agreement and the balance of the Agreement
shall remain in effect.
15.5 NOTICES. All notices pursuant to this Agreement shall be in writing
and shall be given to the Partner entitled thereto by personal service or by
certified or registered mail, return receipt requested, except that the notice
of any meeting or the furnishing of any financial statement to the Partners may
be done by regular mail. All notices sent by mail shall be posted to the address
maintained by the Partnership for such person or at such other address as that
person may verify in writing. Any notice pursuant to the provisions of this
Agreement shall be deemed received after 24 hours from the date and time of
postmark if such notice is deposited with the United States mail pursuant to the
above (if mailed) or when personally received if the mail service is not used.
15.6 CAPTIONS. Titles or captions contained in this Agreement are inserted
only as a matter of convenience and for reference. Such titles and captions in
no way define, limit, extend or describe the scope of this Agreement nor the
intent of any provision hereof.
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15.7 CONTEXT. Whenever required by the context hereof, the singular shall
include the plural, and vice-versa; the masculine gender shall include the
feminine and neuter genders, and vice-versa; and the word "person" shall include
any natural person, partnership, estate, corporation, trust, cooperative,
association or other legal entity.
15.8 LEGEND. Any certificate, document or instrument evidencing any right
or interest of any Partner shall bear such legend or legends as may be required
to comply with applicable requirements of any governmental authority.
15.9 FORCE MAJEURE. The General Partner shall not be liable for any loss
or damage to Partnership property caused by strikes, labor troubles, riots,
fires, blowouts, tornadoes, floods, earthquakes, acts of a public enemy,
insurrections, acts of God, failure to carry out the provisions of this
Agreement because of provisions of law or rules or regulations promulgated by
any governmental agency or any demand or acquisition of any government, or from
any other cause beyond the control of the General Partner.
15.10 ATTORNEY'S FEES. In the event that any legal action is instituted
between the parties occurring because of this Agreement, the prevailing party or
parties therein shall be entitled to recover a reasonable allowance for that
party's attorneys' fees and court expenses, to be fixed and determined by the
court in which said action is filed.
IN WITNESS WHEREOF, the General Partner and the Limited Partners have
entered into and executed this Agreement effective the dates the General Partner
accepts the subscriptions of the Limited Partners.
<TABLE>
<S> <C>
General Partner: Limited Partner:
By: Performance Development, Inc.,
a California corporation
---------------------------------------------
By:
----------------------------------------
Its: President
By:
----------------------------------------
Its: Secretary
</TABLE>
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<PAGE> 1
EXHIBIT 99.4
AGREEMENT OF LIMITED PARTNERSHIP
OF
PERFORMANCE ASSET MANAGEMENT FUND IV, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
THIS AGREEMENT OF LIMITED PARTNERSHIP ("Agreement") is made and entered
into this 21st day of October, 1992, by and among Performance Development, Inc.,
a California corporation ("General Partner"), and the persons accepted by the
General Partner as Limited Partners and who shall sign and submit to the General
Partner a signature page to this Agreement upon their subscriptions for Units.
1. FORMATION AND BUSINESS OF THE PARTNERSHIP.
1.1 PARTNERSHIP FORMATION. The parties hereby enter into a limited
partnership formed pursuant to the provisions of the Revised Limited Partnership
Act of the State of California ("Act"); and the rights and liabilities of the
Partners shall be as provided in the Act and as herein expressly provided. Upon
the request of the General Partner, the Partners shall execute promptly all
certificates and other documents necessary for the General Partner to accomplish
all filings, recordings, publishing and other acts required for the operation of
the Partnership pursuant to the provisions of the laws of California.
1.2 PARTNERSHIP BUSINESS. The purpose and activity of the Partnership shall
be to acquire assets from federal and state banking and savings and loan
agencies, the Federal Deposit Insurance Corporation ("FDIC"), the Resolution
Trust Corporation ("RTC") and various other sources in order to derive income
from managing, servicing, operating or selling those assets or collecting monies
due and payable from those assets.
1.3 CERTIFICATE OF LIMITED PARTNERSHIP. The General Partner shall cause a
Certificate of Limited Partnership to be filed in the office of the Secretary of
State of California and a certified copy thereof, or a legally acceptable
substitute therefor, to be filed in each California county in which the
Partnership owns or contemplates owning real property or any interest in real
property.
1.4 FICTITIOUS BUSINESS NAME STATEMENT. The General Partner shall execute
and cause to be filed and published a Fictitious Business Name Statement in
accordance with applicable California law.
1.5 FURTHER ASSURANCES. The parties hereto will execute such other
certificates and documents, and the General Partner will file, record and
publish such other certificates and documents, as may be necessary or
appropriate to comply with the requirements of applicable laws governing the
formation and operation of a limited partnership (or a partnership in which
special partners have limited liability) in all jurisdictions in which the
Partnership desires to conduct business.
1.6 NATURE OF PARTNERS' INTERESTS. The interests of the Partners in the
Partnership shall be personal property for all purposes. All property owned by
the Partnership, whether real or personal, tangible or intangible, shall be
deemed to be owned by the Partnership as an entity, and no Partner, as an
individual, shall have an ownership interest in such property.
1.7 TITLE TO PROPERTY. Title to property and any other assets acquired by
the Partnership and any other property acquired to effect the purposes of the
Partnership shall be held solely in the name of the Partnership. The General
Partner shall execute, file and record such documents as may be necessary or
appropriate to specify the Partnership's ownership of such property and assets
in such public offices in such states as may be required. The Partners agree
Partnership property is not and will not be suitable for partition. Accordingly,
each of the Partners hereby irrevocably waives any and all rights that Partner
may have to maintain an action for partition of any Partnership property.
2. NAMES AND ADDRESSES OF PARTNERS.
2.1 PARTNERSHIP. The business of the Partnership shall be conducted using
the name of "Performance Asset Management Fund IV, Ltd., A California Limited
Partnership," at the following address: 695 Town Center Drive, Suite 1550, Costa
Mesa, California 92626, or using such other name or such other address as
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the General Partner shall hereafter designate in writing to the Limited Partners
and by amendment to this Agreement and the Certificate of Limited Partnership of
the Partnership.
2.2 GENERAL PARTNER. The name, address and telephone number of the General
Partner are:
Performance Development, Inc.,
a California corporation
695 Town Center Drive
Suite 1550
Costa Mesa, California 92626
(714) 979-4100
2.3 LIMITED PARTNERS. The names and addresses of the Limited Partners shall
be as set forth in Exhibit 'A' attached hereto and as amended from time to time.
2.4 AGENT FOR SERVICE OF PROCESS. In accordance with the requirements of
Section 15614(b) of the California Corporations Code, the name and address of
the Partnership's agent for service of process are:
Vincent E. Galewick
695 Town Center Drive
Suite 1550
Costa Mesa, California 92626
3. DEFINITIONS.
3.1 "AFFILIATE" shall mean:
(i) any person directly or indirectly controlling, controlled by or
under common control with another person;
(ii) a person owning or controlling 10% or more of the outstanding
voting securities of such other person;
(iii) any officer, director or partner of such other person; and
(iv) any person who is an officer, director, general partner, trustee,
or holder of 10% or more of the voting securities or beneficial interests
of any of the foregoing. (The word "person" is defined in Section 15.7 of
this Agreement).
3.2 "AGREEMENT" shall mean this Agreement of Limited Partnership, as
amended from time to time.
3.3 "ASSIGNEE" shall mean a person who has acquired a beneficial interest
in one or more Units from a Partner but who is not a Substituted Limited
Partner.
3.4 "CAPITAL CONTRIBUTION(S)" shall mean the cash contributed by a Limited
Partner to the Partnership in exchange for such Limited Partner's Unit(s).
3.5 "CASH AVAILABLE FOR DISTRIBUTION" shall mean the cash receipts from
the operations of the Partnership, after deducting cash funds used to pay all
expenses, debt payments, capital improvements and replacements and less the
amounts set aside for acquisition of additional assets or creation of reserves.
The actual distribution of cash shall be in the sole discretion of the Managing
General Partner.
3.6 "CLOSING DATE" shall mean the date after which the General Partner
will not accept any further subscriptions, which shall be April 29, 1995.
3.7 "CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
3.8 "GENERAL PARTNER" shall mean Performance Development, Inc., a
California corporation, or any other person succeeding in that capacity.
3.9 "GROSS INCOME" shall mean the gross income of the Partnership as
determined using the accrual method of accounting as permitted by the Code.
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3.10 "GROSS PROCEEDS" shall mean the aggregate total of the Capital
Contributions of all of the Limited Partners.
3.11 "GROSS REVENUE" shall mean all revenues from the Partnership's
collection or sale of assets obtained from federal and state banking and savings
and loan agencies, the FDIC, RTC or various other sources. The term "Gross
Revenues" shall not include revenues from the sale, refinancing or other
disposition of Partnership administrative assets, such as office equipment and
furniture, or from earnings on savings or invested funds.
3.12 "LIMITED PARTNERS" shall mean the persons who have been admitted to
the Partnership as limited partners in accordance with the provisions of this
Agreement. Reference to a "Limited Partner" shall mean any one of them.
3.13 "MAJORITY VOTE" shall mean that vote of the Limited Partners provided
for in Paragraph 9.3.3 of this Agreement.
3.14 "NASD" shall mean the National Association of Securities Dealers,
Inc.
3.15 "NET INCOME" or "NET LOSS" shall mean the net income or net loss of
the Partnership for federal income tax purposes, as determined on the accrual
method of accounting as permitted by the Code.
3.16 "NET PROCEEDS" shall mean the total of Gross Proceeds less expenses
incurred and to be paid by the Partnership in organizing the Partnership and in
offering and selling the Units.
3.17 "OPERATING EXPENSES" shall mean all expenses of operating the
Partnership not deemed to be "Organizational Expenses" or "Sales Commissions" as
those terms are defined herein.
3.18 "ORGANIZATIONAL EXPENSES" shall mean all expenses incurred by the
General Partner or the Partnership in organizing the Partnership and in the
qualifying and marketing of the Units which shall include all expenses incurred
prior to the commencement of the Partnership's offering of the Units, as well as
those subsequently incurred in complying with continuing conditions of
qualifying the Partnership and that offering pursuant to applicable federal and
state laws, including, but not limited to, the costs of printing, amending,
supplementing and distributing the Prospectus (defined hereinafter) and any
other sales material; and the legal and accounting costs incurred in connection
therewith.
3.19 "ORGANIZATIONAL MANAGEMENT FEE" shall mean the fee paid to the
General Partner for its services to the Partnership for the organization of the
Partnership, out of which the General Partner shall pay the Organizational
Expenses as specified in Paragraph 8.2.8 of this Agreement.
3.20 "PARTNERS" shall mean the General Partner and the Limited Partners,
and reference to a Partner shall mean any one of the Partners.
3.21 "PARTNERSHIP" shall mean Performance Asset Management Fund IV, Ltd.,
A California Limited Partnership.
3.22 "PARTNERSHIP MANAGEMENT FEE" shall mean the fee authorized by
Subparagraph 8.2.3.1 of this Agreement.
3.23 "PLACEMENT MANAGER" shall mean Income Network Company, a California
corporation, and an NASD Broker/Dealer which is an Affiliate of the General
Partner and selected by the General Partner to sell the Units.
3.24 "PROSPECTUS" shall mean the Prospectus dated June 6, 1994, of which
this Agreement is Exhibit "B."
3.25 "SALES COMMISSIONS" shall mean those amounts paid to NASD
Broker/Dealers selected by the General Partner as compensation or reimbursement
for their services and expenses in marketing the Units.
3.26 "SUBSTITUTED LIMITED PARTNER"shall mean a transferee of Units who has
succeeded to all the rights of a Limited Partner inherent in the ownership of
Units.
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3.27 "SYNDICATION FEE" shall mean the fee paid to the General Partner
equal to 3% of the Gross Proceeds.
3.28 "TOTAL OUTSTANDING UNITS" shall mean all Units issued and outstanding
at a specified date.
3.29 "UNIT" shall mean an interest in the Partnership representing a
capital contribution of $2,500 in cash and shall entitle the holder thereof to
an interest in the income, gains, losses, deductions, credits and distributions
of the Partnership.
4. TERM.
The business of the Partnership shall commence on the date the minimum
number of subscriptions for Units is accepted by the General Partner or the date
a separate Certificate of Limited Partnership pursuant to the Act and shall
continue until December 31, 2005, unless sooner terminated in accordance with
the provisions of this Agreement. The filing or recordation date of this
Agreement or the Certificate of Limited Partnership shall not control the date
of commencement of the business of the Partnership.
5. CAPITAL CONTRIBUTIONS.
5.1 GENERAL PARTNER. The General Partner shall make no contributions to
the capital of the Partnership.
5.2 INTRASTATE OFFERING. The Partnership intends to make an offering to
only residents of the State of California of limited partnership interests so
that the capital of the Partnership contributed by the Limited Partners shall
consist of 12,000 Units, each unit paid for by a cash contribution of $2,500,
and to admit, as Limited Partners, the persons whose subscriptions for such
Units are accepted by the General Partner. Each such person shall become a
Limited Partner when (i) such person has signed, personally or by attorney-in-
fact, a copy of the Subscription Agreement (and the appendices thereto) and a
copy of this Agreement attached to the Prospectus; (ii) the General Partner has
accepted such subscription; and (iii) this Agreement and the Certificate of
Limited Partnership are amended, as required by law, to specify such person has
become a Limited Partner.
5.3 LIMITED PARTNERS. The Limited Partners shall contribute to the capital
of the Partnership in the amount of $2,500 by, cash, check or money order for
each Unit purchased, with a minimum purchase of 4 Units. Payments made by
investors shall be deposited in an interest bearing escrow account at City
National Bank. In the event the minimum offering of 480 Units ($1,200,000) has
not been sold by April 30, 1994, the Offering shall terminate and the investors'
funds and escrow interest earned thereon, will be returned to investors within
10 days of the termination of the Offering. In the event the minimum offering of
480 Units has been sold by April 30, 1994, escrow interest (net of certain fees
and expenses of the escrow agent) earned on subscriptions accepted by the
General Partner shall be distributed to all investors within 60 days of the
Closing, pro rata based upon the length of time that the investors' funds have
been held in the escrow account. Subscriptions are absolutely irrevocable and
may not be terminated or withdrawn by investors for any reason. Limited Partners
shall be admitted to the Partnership pursuant to the provisions of Section 9.1
of this Agreement. The General Partner shall have the right, in its sole
discretion, to waive the minimum purchase requirement.
5.4 INDEMNITY. Each Limited Partner agrees to indemnify, defend and hold
the Partnership and the other Partners harmless from any and all liability,
expense or damage occurring because of such Limited Partner's failure to
contribute when due and payable any Capital Contribution such Limited Partner is
required or elects to make pursuant to this Article 5.
5.5 SUBSCRIPTION AGREEMENT. Each person who acquires Units shall execute
and deliver to the General Partner, or its representative, the Subscription
Agreement attached to the Prospectus marked Exhibit "C," pursuant to which such
person agrees to purchase the number of Units indicated therein and to pay for
such Units in the manner indicated above. The Subscription Agreement contains
the written acceptance and adoption by such person of the provisions of this
Agreement, and includes the execution and delivery to the General Partner of a
special power of attorney, the form, style and content of which are more
completely
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described therein. The acceptance or rejection of the Subscription Agreement
submitted by any person shall be within the absolute discretion of the General
Partner, and no subscription shall be deemed accepted until the General Partner
executes the Subscription Agreement.
5.6 ACCEPTANCE BY GENERAL PARTNER. The General Partner shall accept or
reject the Subscription Agreements tendered by prospective Limited Partners that
are made in accordance with the provisions of Section 5.5 of this Agreement
within 30 days of receipt of each Subscription Agreement; and if rejected, all
subscription funds shall be returned to the subscriber immediately.
5.7 LIABILITY FOR CAPITAL CONTRIBUTIONS. Each Limited Partner is
personally liable to the Partnership for payment of that Partner's entire agreed
upon Capital Contribution in accordance with the terms of this Agreement.
5.8 SALE OF UNITS. The General Partner shall qualify the Units with the
State of California, Commissioner of Corporations and enter into such
underwriting or agency arrangements for the sale thereof pursuant to such terms
and conditions as the General Partner may deem advisable.
5.9 WITHDRAWAL OR RETURN OF CAPITAL. No Partner shall have the right to
demand the withdrawal, reduction or return of that Partner's Capital
Contribution without the consent of all of the Partners, or upon the dissolution
and termination of the Partnership; nor shall any Partner have the right to
demand and receive property other than cash in return for that Partner's Capital
Contribution. Notwithstanding the foregoing, no part of the Capital Contribution
of any Partner shall be withdrawn unless all liabilities of the Partnership
(except liabilities to the Limited Partners on account of their Capital
Contributions) have been paid or unless the Partnership has assets sufficient to
pay the these liabilities as those liabilities become due and payable. A Limited
Partner shall look only to the assets of the Partnership and, if Partnership
property remaining after the payment or discharge of the liabilities of the
Partnership is insufficient to return that Limited Partner's Capital
Contribution, that Limited Partner shall have no recourse against the General
Partner or any other Limited Partners for such return.
5.10 INTEREST. The Limited Partners shall receive interest on their
Capital Contributions in amounts which are equal to an annual rate of 6% an the
amounts of those Capital Contributions which have not been returned to the
Limited Partners.
5.11 OPERATION OF PARTNERSHIP PROPERTY. The Partnership shall acquire,
manage, finance, operate, refinance and sell any property on terms and
conditions deemed suitable by the General Partner, in its sole judgment.
5.12 ASSESSMENTS. No Limited Partner shall be subject to any assessment
nor shall a Limited Partner be required to make any contribution to the capital
of the Partnership other than that specified in the Subscription Agreement.
6. ALLOCATION OF INCOME, LOSS AND DISTRIBUTIONS.
6.1 PAYMENT OF OBLIGATIONS. The General Partner shall pay to creditors on
or prior to the end of each year all Partnership obligations which are due and
payable at that time and shall create cash reserves only for liquidated
obligations not then due and payable, and then only to the extent the General
Partner believes such obligations cannot be paid from future projected
Partnership receipts.
6.2 CASH AVAILABLE FOR DISTRIBUTION. Until such time as the Limited
Partners have received a cash return equal to their Capital Contributions plus
and amount equal to 6% of their Capital Contributions which shall accumulate
until recovery, the General Partner shall distribute Cash Available For
Distribution to the Partners no less frequently than quarterly, in the following
order of priority:
(a) To the Limited Partners in an amount equal to 90% of the Cash
Available For Distribution.
(b) To the General Partner in an amount equal to 10% of the Cash
Available For Distribution.
The 6% return shall be calculated on the balance in the Limited Partners'
capital accounts with the Partnership on the dates of distributions.
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After the Limited Partners have received a cash return equal to their
Capital Contributions plus and amount equal to 6% of their Capital Contributions
for each year their Capital Contributions remain unreturned and which shall
accumulate until recovery, the Limited Partners shall receive 70% of Cash
Available For Distribution and the General Partner shall receive 30% of Cash
Available For Distribution.
Distributions pursuant to this Section 6.2 constitute a return of capital,
not a return on capital, and depend entirely upon the success of the Partnership
and are not intended to create a guaranteed payment for the capital contributed
to the Partnership.
6.3 DISTRIBUTION, REFINANCING OR TERMINATION. Upon the sale of all or
substantially all of the Partnership assets or when the Partnership is
terminated and wound up, the Partnership assets shall be distributed in the
following order of priority:
(a) All liabilities of the Partnership shall be paid or adequately
provided for.
(b) The General Partner may create a reserve to provide for contingent
or unforeseen liabilities. When the reason for the creation of that reserve
has been eliminated, the balance of that reserve shall be distributed in
the priority described in (c) and (d) below.
(c) Any Cash Available For Distribution in the year or years of sale,
termination and winding up, and any funds held for the Limited Partners'
benefit not needed for (a) or (b) above shall be distributed in the
priority described in Section 6.2 of this Agreement.
(d) All assets remaining following the above distributions shall be
distributed to the Partners in the percentages of the Partners interests in
the capital of the Partnership.
If, for any reason, the General Partner deems it to be in the best
interests of the Partnership to delay for a reasonable period of time the
distribution of any amounts otherwise distributable pursuant to the provision of
this Agreement, the General Partner may do so.
6.4 LIMITATIONS ON DISTRIBUTIONS. Distributions, also, may be restricted
or suspended for limited periods in circumstances when the General Partner
determines, in its absolute discretion, that such action is in the best
interests of the Partnership. The General Partner intends to make distributions
of substantially all of the Cash Available For Distribution as funds are
available; however, no assurances are hereby made that such distributions will
occur. All distributions will be subject to the payment of the Partnership
expenses and liabilities and to the maintenance of reasonable reserves.
The General Partner, from time to time, may elect to make partial returns
of Capital Contributions to Limited Partners provided that:
(i) all liabilities of the Partnership to persons other than Partners
have been paid, or, in the good faith determination of the General Partner,
there remains property of the Partnership sufficient to pay those
liabilities;
(ii) the General Partner causes this Agreement and the Certificate of
Limited Partnership to be amended to specify such a reduction in the
Capital Contributions; and
(iii) all such returns of the Capital Contributions are made in such a
manner as to return to the Partners their proportionate interests in the
Partnership.
For purposes of the foregoing provisions, the condition of subpart (iii) of
this Section 6.4 shall have been satisfied if the distributions are made to the
Limited Partners based upon the interests of the Limited Partners in the capital
of in the Partnership. Each Limited Partner, by becoming a Limited Partner,
consents to any such distributions theretofore or thereafter made in accordance
with such provisions, and further consents to variations among the Limited
Partners in the amount of any such distribution made in cash or in kind. Any
property distributed in kind will be valued on the basis of an independent
appraisal and treated as though such property were sold and the cash proceeds
distributed.
6.5 ALLOCATION OF INCOME AND LOSS. Income, deductions, gains, and losses
shall be allocated, during the term of the Partnership, 10% to the General
Partner and 90% to the Limited Partners until the Limited
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Partners have been returned 100% of their Capital Contributions plus an amount
equal to 6% of their Capital Contributions for each year their Capital
Contributions remain unreturned and which shall accumulate until recovery. The
6% return shall be calculated on the balances in the Limited Partners' capital
accounts with the Partnership on the dates of distributions. Thereafter, to the
extent allowed by the provisions of Section 704 of the Internal Revenue Code of
1986, as amended (substantial economic effect test), such allocations shall be
made 30% to the General Partner and 70% to the Limited Partners, subject to the
provisions of Section 6.2 of this Agreement.
6.6 LOANS BY PARTNERS. Should any Partner make a loan to the Partnership,
such Partner may not receive interest and other financing charges or fees in
excess of the amounts which would be charged by unrelated lending institutions
on comparable loans for the same purpose in the same locality of the
Partnership. No prepayment charge or penalty shall be required by any such
Partner.
6.7 CONSENT BY PARTNERS. The methods hereinabove set forth by which
income, gains, losses, deductions, credits and distributions are allocated and
apportioned are hereby expressly consented to by each Partner as a specific
condition to becoming a Partner.
6.8 ACCOUNTING. Each item of income, gain, loss, deduction or credit of
the Partnership shall be determined in accordance with the accrual basis of
accounting, consistently applied, pursuant to the provisions of the Code.
7. PARTNERSHIP EXPENSES.
7.1 ADVANCES BY THE GENERAL PARTNER. The General Partner may advance any
monies to the Partnership required for the business of the Partnership, but the
General Partner has no obligation to do so. Such advances shall be deemed a loan
by the General Partner to the Partnership and shall not be deemed a Capital
Contribution. Such loans shall bear interest as provided in Section 6.6 of this
Agreement.
7.2 REIMBURSEMENT OF THE GENERAL PARTNER. The Partnership shall reimburse
the General Partner and its Affiliates for any Operating Expenses which were
advanced or otherwise incurred by the General Partner or its Affiliates on
behalf of the Partnership which are necessary to the prudent operation of the
Partnership. The reimbursement of those Operating Expenses shall comply with the
provisions of Rule 260.140.114.5(a) of the Rules of the Department of
Corporations of the State of California.
7.3 EXPENSES. Operating Expenses may include, but shall not be limited to,
legal, audit, accounting, and printing costs or fees; expenses for revising,
amending, converting, modifying or terminating this Agreement; expenses
connected with the payment of distributions in cash or other property made by
the Partnership; expenses connected with communications to the Partners or other
persons with interests in the Partnership, and bookkeeping and clerical work
necessary in maintaining relations with such persons, including costs of
printing and mailing notices and reports to such persons, the preparation of
proxy and similar statements and the solicitation of proxies and written
consents and the costs in connection therewith; costs incurred in connection
with any litigation in which the Partnership is involved as well as any
examination, investigation or other proceedings conducted by any regulatory
agency of the Partnership, including legal and accounting fees incurred in
connection therewith; costs of any accounting, statistical or bookkeeping
equipment necessary or appropriate for the maintenance of the books and records
of the Partnership; supervision and expenses of professionals employed by the
Partnership in connection with any of the foregoing, including attorneys,
accountants and appraisers. Except as provided in Section 7.2 of this Agreement,
all expenses of the Partnership shall be billed directly to and paid by the
Partnership.
7.4 SYNDICATION FEE. The Partnership will pay the Syndication Fee to the
General Partner which is equal to 3% of the Gross Proceeds. The Syndication Fee
will be paid from the Gross Proceeds.
8. GENERAL PARTNER.
8.1 GENERAL PARTNER MAY PURCHASE UNITS. The General Partner and its
Affiliates shall have the right, but not the obligation, to contribute to the
capital of the Partnership as a Limited Partner, paying the complete
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price for Units on the same terms as any other Limited Partner. With respect to
Units held as a Limited Partner, the General Partner shall be treated as a
Limited Partner with regard to those Units.
8.2 COMPENSATION OF THE GENERAL PARTNER.
8.2.1 GENERAL LIMITATIONS ON COMPENSATION. The General Partner shall
receive compensation from the Partnership only as specified by the provisions of
this Agreement.
8.2.2 ORGANIZATION AND OFFERING STAGE. The Partnership shall reimburse
the General Partner for Organizational Expenses in an amount not to exceed 15%
of Gross Proceeds. Of that 15%, 10% shall be for reimbursement of selling and
wholesaling expenses and commissions and 2% shall be for legal, accounting,
printing, and other syndication expenses. To the extent amounts equal to those
percentages are not expended for those purposes, such amounts shall be added to
working capital of the Partnership. The Partnership will pay to the General
Partner the Syndication Fee which is equal to 3% of the Gross Proceeds.
8.2.3 OPERATING STAGE
8.2.3.1 PARTNERSHIP MANAGEMENT FEE. The General Partner shall be
entitled to an annual and on-going Partnership management fee of an amount equal
to 2 1/2% of the net asset value of the assets of the Partnership during the
operating stage of the Partnership, which fee shall be paid monthly. The net
asset value of the Partnership's assets shall be the total of the(i) lower of
the market value, determined by the General Partner each year, or the cost to
the Partnership of non-performing assets and (ii) principal balances of
performing assets.
8.2.3.2 DISTRIBUTIONS. The General Partner shall be entitled to an
interest in the Partnership which consists of income, gains, losses, deductions,
credits and distributions pursuant to the provisions of Sections 6.2, 6.3, and
6.5 of this Agreement, payable upon distribution.
8.2.3.3 REBATES, KICKBACKS, AND RECIPROCAL ARRANGEMENTS. No rebates,
kickbacks or give-ups may be received by the General Partner nor may the General
Partner participate in any reciprocal business arrangements which would
circumvent any provision of this Agreement, or violate the provisions of Rule
260.140.114.7 of the Rules of the Commissioner of Corporations of the State of
California.
8.2.4 EXPULSION, RESIGNATION OR WITHDRAWAL OF THE GENERAL
PARTNER. Should the General Partner be expelled, resign or withdraw from the
Partnership pursuant to the provisions of Paragraph 9.3.2 or Section 8.6 of this
Agreement, any interest which the General Partner shall then have in the
capital, income, gains, losses, deductions, credits and distributions of the
Partnership shall be converted to an interest of a Limited Partner and
thereafter the General Partner shall retain that interest as a Limited Partner
and shall be treated, in all respects, as a Limited Partner. Should the General
Partner be expelled, resign or withdraw from the Partnership, the General
Partner shall be entitled to interest on any loans made to the Partnership
pursuant to the provisions of this Agreement.
8.3 RIGHTS, AUTHORITY, POWERS, RESPONSIBILITIES AND DUTIES OF THE GENERAL
PARTNER
8.3.1 GENERAL POWERS OF GENERAL PARTNER. The General Partner shall have
all authority, right and power conferred by law and required or appropriate for
the management of the Partnership's business which, by way of illustration, but
not by way of limitation, shall include the rights, authority and powers
specified in Paragraph 8.3.2 of this Agreement. In the management of Partnership
business, the General Partner may delegate duties to such persons as the General
Partner may deem appropriate.
8.3.2 SPECIFIC POWERS OF GENERAL PARTNER.
8.3.2.1 ACQUIRE, MANAGE AND SELL PROPERTY. To the extent reasonably
necessary to achieve the Partnership's objectives, to acquire, hold and dispose
of any personal or real property or interests therein, at such price for cash or
securities or other property, and upon terms, as the General Partner, in its
sole discretion, deems to be in the best interests of the Partnership.
8.3.2.2 MANAGE PROPERTY ASSETS. To manage, operate and develop any
Partnership asset or investment, and to enter into leases, servicing agreements,
marketing agreements, consulting agreements,
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operating agreements, joint ventures or other contracts with such
persons with respect to assets and investments acquired by the Partnership,
containing such terms, provisions and conditions as the General Partner shall
approve. No person doing business or dealing with the Partnership shall be
required to inquire into the authority of the General Partner to take any action
or make any decisions.
8.3.2.3 BORROW. To borrow money and, if security is required
therefor, to subject any Partnership property to any security device, to obtain
replacements of any security device, and to prepay, in whole or in part,
refinance, increase, modify, consolidate or extend any mortgage or other
security device, all of the foregoing on such terms and in such amounts as the
General Partner, in its sole discretion, deems to be in the best interests of
the Partnership.
8.3.2.4 CONTRACT FOR INSURANCE. To acquire and enter into any
contract for insurance, or have the Partnership named as on additional insured,
which the General Partner deems necessary or appropriate for the protection of
the Partnership and the General Partner, for the conservation of Partnership
assets, or for any purpose convenient or beneficial to the Partnership.
8.3.2.5 EMPLOY PERSONS AND SERVICES. To employ persons in the
operation and management of the business of the Partnership, including, but not
limited to, supervisory managing agents, accountants, bookkeepers, attorneys,
insurance brokers, real estate brokers and loan brokers, on such terms and for
such compensation as the General Partner shall determine, subject, however, to
the limitations with respect thereto as specified in Section 8.3 of this
Agreement.
8.3.2.6 PREPARE REPORTS. To prepare or cause to be prepared reports,
statements and other relevant information for distribution to the Limited
Partners required by the provisions of the California Revised Limited
Partnership Act and the California Corporate Securities Law of 1968.
8.3.2.7 MAINTAIN BANK ACCOUNTS. To open accounts and deposit and
maintain funds in the name of the Partnership in banks or savings and loan
associations; provided, however, the Partnership's funds shall not be commingled
with the funds of any other person.
8.3.2.8 TAX ELECTIONS. To cause the Partnership to make or revoke
any elections pursuant to federal or state tax laws as the General Partner, in
its discretion, deems to be in the best interest of the Partnership.
8.3.2.9 SELECTING ACCOUNTING METHOD AND YEAR. To select as the
Partnership's accounting year a calendar year or such fiscal year as approved by
the Internal Revenue Service, and to determine the appropriate accounting method
or methods to be used by the Partnership. The Partnership intends, initially, to
utilize the accrual method of accounting in maintaining the Partnership's books
and records and to report on the basis of a calendar year.
8.3.2.10 SELL UNITS. To offer and sell Units directly or through
finders, wholesalers, agents or Broker/Dealers; provided, however, such persons
shall be Broker/Dealers licensed with the National Association of Securities
Dealers, Inc. or shall be otherwise Registered Representatives, to persons who
make the requisite Capital Contributions, and to admit such persons as Limited
Partners.
8.3.2.11 PURCHASE UNITS FOR OWN ACCOUNT. To purchase Units for the
General Partner's account for investment. If the General Partner, also, is a
Limited Partner, then the interests, rights and obligations of the General
Partner as the General Partner and as a Limited Partner at all times shall be
kept separate and distinct.
8.3.2.12 TEMPORARY REFUSAL TO TRANSFER UNITS. To temporarily refuse
to transfer a Limited Partner's interest in the Partnership if such transfer
would result in a sale or exchange of more than 50% of the Partnership's capital
and profits within a 12 month period.
8.3.2.13 COMPROMISE AND SETTLE CLAIMS. To compromise, arbitrate or
otherwise adjust claims in favor of or against the Partnership and to commence
or defend litigation with respect to the Partnership or any assets of the
Partnership as the General Partner may deem advisable, all or any of the above
matters being at the expense of the Partnership; and to satisfy any judgment,
decree, decision or
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settlement first, out of any insurance proceeds available therefor, and then out
of Partnership assets and income.
8.3.2.14 CONTRACT WITH AFFILIATES. The General Partner may contract
on behalf of the Partnership with Affiliates of the General Partner or the
Partnership, to provide services or materials for the Partnership, such as
management, maintenance, executive, accounting, collection, servicing, aging,
brokerage, or other services; provided, however, the fees to be paid therefor
and the terms and conditions thereof will not be less favorable to the
Partnership than those which could be reasonably obtained by the Partnership
from equally qualified but unaffiliated persons; provided, further, however,
such contracts must satisfy the requirements of Rules 260.140.125,
260.140.125.1, 260.140.126, 260.140.127.1 and 260.140.127.2 of the Commissioner
of Corporations of the State of California.
8.3.2.15 NON-RECOURSE CONTRACTS. To require in all Partnership
contracts that the General Partner shall not have any personal liability
thereon, but that the person contracting with the Partnership is to look solely
to the Partnership and the Partnership's assets for satisfaction.
8.3.2.16 AMEND PARTNERSHIP AGREEMENT. To amend this Agreement after
obtaining a Majority Vote (i) to carry out the business and purpose of the
Partnership; (ii) to add to the representations, duties or obligations of the
General Partner or surrender any right or power granted to the General Partner
in this Agreement, for the benefit of the Limited Partners; and (iii) to cure
any ambiguity, to correct or supplement any provision of this Agreement that may
be inconsistent with any other provision in this Agreement or to add any other
provision with respect to matters or questions occurring pursuant to the
provisions of this Agreement that will not be inconsistent with the provisions
of this Agreement.
8.3.2.17 EXECUTION OF DOCUMENTS. To execute, acknowledge and deliver
any and all instruments to effectuate the foregoing, and to take all such action
in connection therewith as the General Partner shall deem necessary or
appropriate.
8.3.2.18 INVEST PRIOR TO ACQUISITION. To invest the Gross Proceeds
or Net Proceeds temporarily prior to the purchase of assets in short term,
highly liquid investments where there is appropriate safety of principal such as
bank money market accounts, U.S. Treasury Bonds or Bills or similar investments.
Any Net Proceeds not invested within 2 years from the date of effectiveness of
the qualification of the Units (except for necessary operating capital) shall be
distributed pro rata to the Partners as a return of capital.
8.3.2.19 PERFORM OTHER ACTS. To perform any and all other acts or
activities customary or incident to the business of the Partnership.
8.3.3 DUTIES AND RESPONSIBILITIES OF THE GENERAL PARTNER. The General
Partner shall have fiduciary responsibility for the safe keeping and use of all
funds and assets of the Partnership, whether or not in the General Partner's
possession on control, and the General Partner shall not employ, or permit any
other person to employ such funds or assets in any manner except for the
exclusive benefit of the Partnership. The General Partner shall devote only such
time to the Partnership as the General Partner, in its discretion, determines to
be reasonably required for the efficient conduct of the affairs of the
Partnership, but nothing specified in this Agreement shall preclude the General
Partner from engaging in or possessing an interest in other business ventures of
every nature and description, and neither the Partnership nor the Limited
Partners shall have any interest, by virtue of this Agreement, in any such other
business ventures or the income or profits derived therefrom. In addition,
nothing specified in this Agreement, except the provisions of Subparagraph
8.3.2.14 of this Agreement, shall preclude the employment of any agent, third
party or Affiliate of the General Partner to manage or provide other services in
respect of the Partnership's properties or business subject to the control of
the General Partner. The General Partner, in all instances, shall retain general
control over and continue to supervise generally the day to day operations of
the Partnership's properties and business and, in this connection, the General
Partner shall provide, furnish and perform, in a good faith, diligent and
efficient manner, all normal and customary business and administrative duties
and services necessary to conduct the Partnership's business in an expeditious
and economical manner.
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8.3.3.1 OWNERSHIP OF PROPERTY. The General Partner shall take such
steps as are necessary, in its best judgment, to acquire ownership to any
property acquired by the Partnership, acceptable for the purposes of the
Partnership.
8.3.3.2 FILINGS. The General Partner shall be responsible for filing
a Certificate of Limited Partnership and a Fictitious Business Name Statement
and any required amendments thereto.
8.3.3.3 NET WORTH. The General Partner (i) will use its best efforts
at all times to maintain a net worth in excess of the total amount that could
reasonably be expected to be demanded from it by creditors of all partnerships
of which it is a general partner; (ii) will hold its interest in the Partnership
for its own account; and (iii) will not agree to act as a nominee or agent of a
limited partner except as set forth in the partnership agreements for the
partnerships of which it is or may hereafter become a general partner.
8.3.3.4 TAX MATTERS PARTNER. The Partners do hereby appoint
Performance Development, Inc., the General Partner, to act as the "Tax Matters
Partner," as described in the Tax Equity and Fiscal Responsibility Act of 1982.
8.4 LIMITATIONS ON GENERAL PARTNER'S AUTHORITY. Subject to the provisions
of this Agreement, the General Partner shall have all the rights and powers and
be subject to all the responsibilities and the liabilities of a partner in a
partnership without limited partners, except that neither the General Partner
nor any of its Affiliates shall have the authority to:
8.4.1 ALTER PURPOSE OF PARTNERSHIP. Alter the primary purpose of the
Partnership as specified in Article I of this Agreement.
8.4.2 ACTS IN CONTRAVENTION OF THIS AGREEMENT. Do any act in
contravention of this Agreement or any separate Certificate of Limited
Partnership or enter into any reciprocal business arrangement which could
circumvent any of the restrictions specified in this Agreement.
8.4.3 HINDER THE PROVISIONS OF THIS AGREEMENT. Do any act which would
make it impossible to carry on the ordinary business of the Partnership as
provided in this Agreement.
8.4.4 POSSESS PARTNERSHIP PROPERTY. To possess Partnership property or
assign the rights of the Partnership in specific property other than for a
Partnership purpose.
8.4.5 ADMIT PERSONS CONTRARY TO THIS AGREEMENT. Admit a person as a
Limited Partner except as otherwise provided in this Agreement.
8.4.6 CONTINUE PARTNERSHIP AFTER LEGAL TERMINATION. Enter into
contracts with the Partnership which would obligate the Partnership after the
death, retirement, expulsion, insanity, adjudication of bankruptcy or
insolvency, dissolution or other termination of existence of the General
Partner, or to continue business with the Partnership's assets after the
occurrence of such event.
8.4.7 CONFESSIONS OF JUDGMENTS. Confess a judgment against the
Partnership in connection with any threatened or pending legal action.
8.4.8 ADMISSION OF GENERAL PARTNER. Admit a person as a general partner
of the Partnership, except with the consent of the Limited Partners as specified
in this Agreement.
8.4.9 USE OF PARTNERSHIP ASSETS. Employ or permit to employ the funds
or assets of the Partnership in any manner, except for the exclusive benefit of
the Partnership.
8.4.10 CREATION OF LIABILITY OF LIMITED PARTNERS. Perform any act
(other than an act required by this Agreement or any act taken in good faith
upon counsel's opinion) which would, at the time such act occurred, subject any
Limited Partner to liability as a general partner in any jurisdiction.
8.4.11 REDEMPTION OF UNITS. Redeem or repurchase Units, except when
the General Partner determines such redemption or repurchase is in the best
interests of the Partnership and would not impair the capital of the Partnership
or the operation of the Partnership's business.
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8.4.12 TAXATION AS A CORPORATION. Perform any act that would cause the
Partnership to become an association taxable as a corporation for federal income
tax purposes.
8.4.13 PARTNERSHIP LOAN. Lend Partnership funds to the General Partner
or an Affiliate of the General Partner.
8.4.14 INTEREST OF CREDITOR IN PARTNERSHIP. Incur any non-recourse
indebtedness pursuant to which the lender will have or acquire, at any time as a
result of making extending that indebtedness, any direct or indirect interest in
the profit, capital or property of the Partnership other than as a secured
creditor.
8.4.15 COMMINGLING OF PARTNERSHIP FUNDS. Commingle the Partnership
funds with funds of any other person.
8.4.16 EXCHANGE OF PARTNERSHIP INTERESTS. Acquire property on behalf
of the Partnership in exchange for Units or other interests in the Partnership
to the Partners.
8.4.17 INVESTMENTS IN OTHER PROGRAMS. Invest in limited partnership
interests of other programs; provided, however, nothing herein shall preclude
the General Partner from investing in partnerships (general or limited) or joint
ventures which own, operate, service, manage and collect assets similar to those
acquired by the Partnership, provided duplicate management and other fees shall
not be charged. Joint venture investments between investment programs affiliated
with the Partnership shall be permitted if those investment programs have (i)
comparable investment objectives, (ii) substantially identical sponsor
compensation programs, and (iii) the affiliated investment programs each invest
on substantially the same terms and conditions. Before investing in any such
affiliated investment program, the General Partner shall make adequate
disclosure of the risks involved in any such investment.
8.5 LIABILITY OF THE GENERAL PARTNER.
8.5.1 FRAUD, BAD FAITH OR GROSS MISCONDUCT. Except when any loss to
the Limited Partners is caused by fraud, bad faith, gross misconduct, gross
negligence or a breach of fiduciary duty by the General Partner (or any
employee, Affiliate, officer or director of the General Partner), it is
expressly agreed that the General Partner (or any employee, Affiliate, officer
or director of the General Partner) shall not be personally liable for the
return of the capital or any other contributions of the Limited Partners, or any
portion thereof, but on the contrary, that any such return shall be made solely
from the Partnership's assets. However, to be held harmless from any loss or
liability suffered by the Partnership, all of the following conditions must be
satisfied:
(1) the General Partner has determined, in good faith, that the
course of conduct which caused the loss or liability was in the
best interests of the Partnership;
(2) such liability or loss was not the result of gross negligence
or gross misconduct by the General Partner; and
(3) such indemnification or agreement to hold harmless is
recoverable only out of assets of the Partnership and not from
the Limited Partners.
8.5.2 SECURITIES LAWS. The General Partner and its Affiliates will not
be indemnified for any liability imposed by judgment, and costs associated
therewith, including attorneys' fees, occurring because of a violation of state
or federal securities laws associated with the offer and sale of the Units. The
parties seeking indemnification shall apprise the court of the positions of the
Securities and Exchange Commission and the State of California Commissioner of
Corporations with respect to indemnification for securities laws violations
before seeking court approval. Indemnification will be allowed for settlements
and related expenses of lawsuits alleging securities violations, and for
expenses incurred in successfully defending such lawsuits, provided a court
either:
(1) approves the settlement and finds that indemnification of the
settlement and related expenses should be made, or
(2) approves indemnification of litigation costs if a successful
defense is made.
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8.5.3 PROPER USE OF ASSETS. The General Partner shall have fiduciary
responsibilities to the Limited Partners for the safekeeping and proper use of
all assets of the Partnership whether or not such assets are in the immediate
possession or control of the General Partner.
8.6 REMOVAL, RESIGNATION OR OTHER TERMINATION OF THE GENERAL PARTNER.
8.6.1 REMOVING GENERAL PARTNER. Should the General Partner cease to be
the General Partner of the Partnership by reason of the death, disability,
bankruptcy, resignation or removal of the General Partner, any remaining General
Partner of the Partnership, if there be one, shall continue to serve as the
General Partner unless such General Partner shall resign or withdraw upon 90
days written notice to the Limited Partners (in which event the Limited
Partners, pursuant to Section 9.3 of this Agreement, may elect a successor
General Partner prior to the effective date of the resignation), or is removed
as the General Partner upon the vote of the Limited Partners pursuant to Section
9.3 of this Agreement, in which event a successor General Partner may be
selected by the Limited Partners pursuant to Section 9.3 of this Agreement.
8.6.2 NOTICE OF EXPULSION. Upon the requisite vote to remove the
General Partner (any Units held by the General Partner shall not be counted for
the purposes of the voting procedure) as described in Paragraph 9.3.2(ii) of
this Agreement, written notice of expulsion shall be served upon the General
Partner by certified or registered mail, return receipt requested, or by
personal service. Said notice shall specify the date upon which the expulsion is
to become effective, which date shall be not less than 30 days after the service
of said notice upon the General Partner.
8.6.3 DUTIES AFTER EXPULSION. Upon receipt of the notice of expulsion,
the General Partner shall cease to act as General Partner of the Partnership
unless it is the sole General Partner of the Partnership; in which event the
General Partner shall continue in the management of the Partnership's business
until a successor General Partner is elected, but the General Partner shall
enter into no contract except in the ordinary course of the Partnership's
business.
8.6.4 INTEREST IN PROFITS AND LOSSES. Removal, resignation or
withdrawal of the General Partner shall not affect the interest of the General
Partner in the profits and losses and in the distributions of the Partnership as
specified in Article 6 of this Agreement. Such interest, in the event of the
continuation of the business of the Partnership following removal of the General
Partner, may be treated and continue to be treated in all respects as a Limited
Partner's interest and the Certificate of Limited Partnership shall be amended
accordingly.
8.6.5 TERMINATION OF INTEREST. The provisions of this Article 8
notwithstanding, the Partnership may terminate the General Partner's interest in
Partnership income, losses, distributions, and capital of the Partnership by
payment of an amount equal to the then present fair market value of the General
Partner's interest in said items determined by agreement of the General Partner
and the other Partners, or, if they cannot agree, by arbitration in accordance
with the then current rules of the American Arbitration Association. The
expenses of arbitration shall be borne equally by the General Partner and the
Partnership. The fair market value of the General Partner's interest shall be
the amount the General Partner would receive upon dissolution and termination of
the Partnership on the date of the terminating event and the assets of the
Partnership were sold for their then fair market value without any compulsion on
the part of the Partnership to sell such assets.
8.6.6 PAYMENT FOR TERMINATED INTEREST. If the termination of the
General Partner's interest is voluntary, the method of payment shall provide for
a non-interest bearing note with principal payable, if at all, from
distributions which the General Partner otherwise would have received pursuant
to the Partnership Agreement had the General Partner's interest not terminated.
Where the termination of the General Partner's interest is involuntary, the
method of payment shall provide for an interest bearing promissory note coming
due in 5 years with equal installments each year.
8.6.7 STATUS OF UNITS AFTER REMOVAL. If the General Partner has been
expelled or removed, resigns or withdraws, or had its interest as general
partner of the Partnership terminated and owns any Units, such Units shall
thereafter be held by the General Partner as a Limited Partner and the
Certificate of Limited Partnership shall be amended accordingly.
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8.6.8 CHANGE OF PARTNERSHIP NAME. An expelled, retired or withdrawn
General Partner may require the Partnership to change the Partnership's name to
a name that does not include any words, trademarks or logos associated with the
expelled, retired or withdrawn General Partner.
8.7 ASSIGNMENT OF GENERAL PARTNER'S INTEREST. The General Partner may
assign or encumber its right to receive distributions from the Partnership, or a
portion thereof, without the consent of the Limited Partners. The General
Partner, however, may not substitute any transferee as a substitute General
Partner of the Partnership or assign any of such General Partner's duties and
obligations created by the provisions of this Agreement without the approval of
a Majority Vote.
9. LIMITED PARTNERS.
9.1 ADMISSION OF LIMITED PARTNERS.
9.1.1 MINIMUM OF UNITS. The Partnership intends to sell and issue
12,000 Units in exchange for Capital Contributions of $2,500 per each Unit in
cash. Each person who acquires any Units shall be eligible to become a Limited
Partner in the Partnership at such time as that person has:
(i) purchased 4 or more Units, or less than 4 Units, if, in the
discretion of the General Partner, purchases of less than the minimum
purchase are permitted;
(ii) submitted to the Partnership the sum of $2,500 in cash, check
or money order for each Unit purchased;
(iii) executed and filed with the General Partner a written
instrument which sets forth an intention to become a Limited Partner and
requests admission to the Partnership in that capacity, together with
such other instruments as the General Partner may deem necessary or
desirable to effect such admission, including the written acceptance and
adoption by such person of the provisions of this Agreement, and the
execution, acknowledgment and delivery to the General Partner of a
special power of attorney, the form, style and content of which are more
fully described herein; and
(iv) obtained the consent of the General Partner to be admitted as
a Limited Partner, which consent shall be within the absolute discretion
of the General Partner. Such consent shall be given or refused by the
Closing Date.
9.1.2 ADMISSION INTO PARTNERSHIP. Purchasers shall be admitted as
Limited Partners not later than 15 days after the release of their funds from
impound, if the funds of the purchasers are impounded. Otherwise, purchasers
shall be admitted as Limited Partners not later than the first day of the fiscal
quarter following the date upon which the General Partner accepts their
subscriptions.
9.1.3 RELEASE OF PROCEEDS OF OFFERING. If 480 Units have been sold
prior to the Closing Date, the proceeds of the Offering will be released to the
Partnership on the date such 480 Units have been sold and a subscriber shall be
deemed to have been admitted into the Partnership on such date.
9.1.4 CONTINUED SALE OF UNITS. The Partnership may continue to sell
Units until all 12,000 Units have been sold or until April 29, 1995, whichever
occurs first.
9.1.5 AMENDMENT OF AGREEMENT. The General Partner, when required, shall
amend this Agreement and any separate Certificate of Limited Partnership filed
for record to specify the admission of a person as a Limited Partner. The number
of Units acquired by the Limited Partners and each Partner's respective
ownership interest is set forth in Exhibit A which is attached hereto and
incorporated herein by this reference.
9.2 STATUS OF LIMITED PARTNERS.
9.2.1 LIABILITY. A Limited Partner shall not be obligated by, or be
personally liable for, the expenses, liabilities or obligations of the
Partnership except to the extent of the Capital Contribution required to be made
by such Limited Partner pursuant to the terms of this Agreement and any
additional contribution to the capital of the Partnership actually made by such
Limited Partner. A Partner is liable to return a
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distribution if, after the distribution, Partnership liabilities exceed
the fair salable value of Partnership assets. However, nonrecourse liabilities
and the assets which secure those liabilities, as well as liabilities owed to
Partners on account of their interests in the Partnership, are excluded.
Notwithstanding the above limitations, the Limited Partners hereby consent to
such distributions in the event all Partnership debts (other than debts owing to
the Partners) have been paid or provided for adequately.
9.2.2 NONASSESSABILITY. Each Unit shall be paid completely and
nonassessable, when issued.
9.3 RIGHTS, POWERS AND VOTING RIGHTS OF THE LIMITED PARTNERS.
9.3.1 MANAGEMENT. Limited Partners shall take no part in or interfere
in any manner with the control, conduct or operation of the Partnership and
shall have no right or authority to act for or obligate the Partnership.
9.3.2 VOTING RIGHTS. The provisions of this Agreement notwithstanding,
without the necessity for concurrence by the General Partner, a Majority Vote
may:
(i) amend this Agreement;
(ii) remove the General Partner;
(iii) elect a new General Partner;
(iv) approve or disapprove the sale of all or substantially all of
the assets of the Partnership; and
(v) dissolve the Partnership.
9.3.2.1 AMENDMENT OF AGREEMENT BY GENERAL PARTNER. Without the
concurrence of a Majority Vote, the General Partner may not amend this Agreement
except for those amendments which do not affect the rights of Limited Partners,
retire as the General Partner, appoint a new General Partner, sell all or
substantially all of the assets of the Partnership or dissolve the Partnership.
9.3.2.2 RESTRICTION ON RIGHT OF LIMITED PARTNERS. A Majority Vote
may not modify this Agreement with respect to the compensation or distributions
to which the General Partner is entitled or which affects the duties of the
General Partner except with the consent of the General Partner, except as
provided in Paragraph 8.6.4 of this Agreement.
9.3.3 MAJORITY VOTE. All matters upon which the Limited Partners may
vote shall require, and the term "Majority Vote" shall mean, the vote or written
consent of 50% or more of all issued Units held by the Limited Partners. Each
Limited Partner shall be entitled to cast one vote for each Unit which such
Limited Partner owns.
9.3.4 PROCEDURE FOR VOTING.
9.3.4.1 NOTICE OF MEETING. The General Partner, at any time, may
call a meeting or a vote without a meeting of the Limited Partners, and shall
call for such meeting or vote and give written notice thereof within 10 days of
such call and such meeting must be held not less than 15 nor more than 60 days
following receipt of written request therefor by Limited Partners holding at
least 10% or more of the Units. The General Partner shall mail, postage-paid,
written notice of any such meeting or vote to all Partners of record as of the
date of mailing and to the most recent addresses shown on the records of the
Partnership, which notice shall include a detailed statement of the action
proposed, including a verbatim statement of the wording of any resolution
proposed for adoption by the Limited Partners and of any proposed amendment to
this Agreement and the General Partner's recommendation with respect to any
matters that are to be voted on. The General Partner shall provide for proxies
or written consents which specify a choice between approval and disapproval of
each matter to be acted upon at the meeting. Notice given in the foregoing
manner shall be deemed complete 48 hours after that notice's deposit by the
General Partner in any regular United States Postal Service depository. All
expenses of the meeting or vote and of notice thereof shall be paid by the
Partnership. For a valid Partnership meeting and quorum there must be in
attendance, by person or by proxy, Limited Partners holding a majority of the
Units. Should there be a failure to have such a quorum at any
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meeting, then that meeting shall be re-scheduled by those Limited
Partners originally in attendance at that adjourned meeting, for a date certain
and the General Partner shall notify those Limited Partners not in attendance at
that adjourned meeting of the new time, day and place. When obtaining a written
vote on any matter to be voted on without a meeting, a failure to respond within
a specified time, but not less than 10 days, shall constitute a vote of approval
of the General Partner's recommendation with respect thereto.
9.3.4.2 ONE VOTE PER UNIT. A Limited Partner shall be entitled to
cast one vote for each Unit which that Limited Partner owns (i) at a meeting, in
person, by written proxy or by a signed writing directing the manner in which
that Limited Partner desires that his vote be cast; or (ii) without a meeting,
by a signed writing directing the manner in which that Limited Partner desires
that his vote be cast which proxy or writing must be received by the General
Partner prior to the date upon which the votes of Limited Partners of record as
of the date of such meeting or vote shall be counted. The General Partner shall
not be entitled to vote except to the extent the General Partner also owns
Unit(s) as a Limited Partner. The laws of the State of California pertaining to
the validity and use of corporate proxies shall govern the validity and use of
proxies given by Limited Partners.
9.3.4.3 LIMITATIONS OF VOTING RIGHTS. No Limited Partner shall have
the right or power to:
(i) Withdraw or reduce his contribution to the capital of the
Partnership except as a result of the dissolution of the Partnership or
as otherwise provided by law;
(ii) Bring an action for partition against the Partnership;
(iii) Cause the termination and dissolution of the Partnership by
court decree or otherwise, except as set forth in this Agreement; or
(iv) Demand or receive property other than cash in return for that
Limited Partner's Capital Contribution. Except as provided in this
Agreement, no Limited Partner shall have priority over any other Limited
Partner either as to the return of Capital Contributions or as to
income, gains, losses, deductions, credits or distributions. Other than
upon the termination and dissolution of the Partnership as provided by
this Agreement, there has been no time agreed upon when the Capital
Contribution of each Limited Partner is to be returned. This Agreement
may not be amended without the consent of the Partner to be adversely
affected by any amendment which would:
(a) convert a Limited Partner to a General Partner of the
Partnership;
(b) modify the limited liability of a Limited Partner;
(c) alter the interest of a General Partner or the Limited
Partners in the income, gains, losses, deductions, credits or
distributions of the Partnership; or
(d) affect the status of the Partnership as a partnership for
federal income tax purposes.
9.4 ASSIGNMENT OF UNITS.
9.4.1 RIGHT TO ASSIGN. Subject to the provisions of this Section 9.4,
Limited Partners shall have the right to assign one or more Units owned by the
Limited Partners by a duly executed and acknowledged written instrument of
assignment in a form satisfactory to the General Partner, the terms of which are
not in contravention of any of the provisions of this Agreement. However, the
General Partner shall have the right to refuse to allow any such assignment if,
in the opinion of counsel to the Partnership, such assignment would jeopardize
the tax status of the Partnership; and any and all expenses incurred regarding
that opinion of counsel shall be paid by the General Partner. A Limited Partner
shall notify the General Partner within 30 days of any assignment or transfer by
operation of law of a beneficial interest in any Units which occurs without a
transfer of record ownership.
9.4.2 ASSIGNMENTS TO NON-CALIFORNIA RESIDENTS. In no event shall any
Unit be assigned to a non-resident of the State of California for a period of at
least 9 months from the date that the offering of the Units has terminated.
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9.4.3 QUALIFICATION OF ASSIGNEE. An Assignee shall satisfy the
suitability standards applied to an original subscriber to the Partnership.
However, such suitability standards shall not apply to any Assignee receiving
Units by gift or by operation of law, except when the assigned Units are subject
to a liability owed to the Partnership or to a third party.
9.4.4 DEATH, INCOMPETENCY, BANKRUPTCY OR DISSOLUTION OF A LIMITED
PARTNER. The death, incompetency, bankruptcy or dissolution of a Limited Partner
shall not terminate the Partnership. Upon the death, incompetency or dissolution
of a Limited Partner, the personal representative or successor of such Limited
Partner shall have all the rights of the Limited Partner in the Partnership to
the extent of such Limited Partner's interest therein, subject to the terms and
conditions of this Agreement; and the estate or successor in interest of such
Limited Partner shall be liable for all of such Limited Partner's liabilities as
a Limited Partner, as well as the execution of all documents required to effect
the substitution of such Limited Partner's estate or successor in interest as a
Substituted Limited Partner. Such Limited Partner's estate or successor in
interest, at such time as such successor in interest is legally recognized as
the owner of such Limited Partner's interest, shall be a Substituted Limited
Partner without the necessity of complying with the provisions of Section 9.5 of
this Agreement. However, during probate of a deceased Limited Partner's estate
and if the Partnership interest of such deceased Limited Partner is subject to
such probate, then during probate such successor in interest shall be treated as
an Assignee and not a Substituted Limited Partner, but only until such time as
probate closes by evidence satisfactory to the General Partner.
9.4.5 DISTRIBUTIONS. An Assignee shall have no rights as a Limited
Partner, but shall be entitled to receive allocations from the Partnership
attributable to the Units acquired by reason of such assignment from and after
the effective date of the assignment of such Units to such Assignee. However,
the provisions of this Agreement notwithstanding, the Partnership and the
General Partner shall be entitled to treat the assignor of such Units as the
absolute owner thereof in an respects and shall incur no liability for
allocations of income, gains, losses, deductions, credits, distributions or
transmittal of reports and notices required to be given to the Limited Partners,
which are made in good faith to such assignor prior to such time as the written
instrument of assignment has been received by the General Partner and recorded
on the books of the Partnership, or prior to the effective date of such
assignment. The effective date of such assignment of Units, on which the
Assignee shall be deemed an Assignee of record, shall be the first day of the
first complete fiscal quarter following the later of (i) the date set forth on
the written instrument of assignment (unless the date set forth in that written
instrument of assignment is the first day of the fiscal quarter in which event
that date shall be the effective date) or (ii) the date on which the Partnership
has actual notice of the assignment. The allocations and distributions
attributable to the Partnership interest acquired by reason of such assignment
shall be divided among and allocated between the assignor and Assignee of such
interest in proportion to the number of fiscal quarters that each is recognized
by the Partnership as the owner of the transferred Units, based upon the
effective date of the assignment of such interest.
9.4.6 OBLIGATIONS OF A LIMITED PARTNER. An assignment of Units by a
Limited Partner, including assignments of all or less than all rights specified
in this Agreement, shall not relieve the transferor of his duties and
obligations specified in this Agreement, whether occurring prior to or
subsequent to such assignment.
9.5 SUBSTITUTED LIMITED PARTNERS. A Substituted Limited Partner shall have
the rights and powers, and shall be subject to all the restrictions and
liabilities, of the respective assignor, except those liabilities of which that
Substituted Limited Partner was ignorant at the time that Substituted Limited
Partner became a Limited Partner and which could not be ascertained from this
Agreement or from the Certificate of Limited Partnership.
9.5.1 CONDITIONS OF SUBSTITUTION. A Limited Partner may designate an
Assignee as a Substituted Limited Partner, but no Assignee shall have the right
to become a Substituted Limited Partner in place of the respective assignor
unless all of the following conditions are first satisfied:
9.5.1.1 WRITTEN ASSIGNMENT. A duly executed and acknowledged written
instrument of assignment shall have been filed with the Partnership, which
instrument shall set forth the name of the assignor; the name, address and
social security or identification number of the Assignee; the details of the
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assignment; the number of Units being assigned and the intention of
the assignor that the Assignee become a Substituted Limited Partner in the
assignor's place and stead to the extent of the assigned Units.
9.5.1.2 FRACTIONAL UNITS. No part of the Partnership interest being
acquired by the Assignee consists of less than 1 Unit.
9.5.1.3 INSTRUMENTS OF SUBSTITUTION. The assignor and Assignee shall
have executed and acknowledged such instruments as the General Partner may deem
necessary or desirable to effect such substitution including, without
limitation, the written acceptance and adoption by the Assignee of the
provisions of this Agreement, as amended, and the Assignee's execution,
acknowledgment and delivery to the General Partner of a special power of
attorney, the form and content of which are described more completely in Article
13 of this Agreement.
9.5.1.4 COMPLIANCE WITH SECURITIES LAWS. The assignment is effected
in compliance with all applicable state and federal securities laws as evidenced
by an opinion of counsel satisfactory to the General Partner; and any and all
expenses incurred regarding that opinion of counsel shall be paid by the General
Partner.
9.5.1.5 CONSENT OF A GENERAL PARTNER. The written consent of the
General Partner to such substitution shall have been obtained, the granting or
denial of which shall be only in accordance with the provisions of Paragraph
9.4.1 of this Agreement.
9.5.1.6 ASSIGNMENT FEE. An assignment fee shall have been paid to
the Partnership, which shall be equal to $150.
9.5.2 COMMENT TO FUTURE SUBSTITUTED LIMITED PARTNERS. By executing or
adopting this Agreement, each Limited Partner hereby consents to the admission
of additional or Substituted Limited Partners by the General Partner and to any
Assignee becoming a Substituted Limited Partner.
9.5.3 AMENDMENT OF CERTIFICATE. An Assignee will become a Substituted
Limited Partner when this Agreement or a separate Certificate of Limited
Partnership is appropriately amended and filed in accordance with the provisions
of the California Revised Limited Partnership Act. The General Partner, at least
once each calendar quarter, shall cause this Agreement or any separate
Certificate of Limited Partnership to be amended to specify the admission or
substitution of Limited Partners.
9.6 COMPLIANCE WITH SECURITIES RULES ON TRANSFERS. No assignment, sale,
transfer, exchange or other disposition of any Units may be made, except in
compliance with the then applicable rules of all appropriate governmental
authorities.
9.7 VOID ASSIGNMENTS. Any assignment, sale, exchange or other transfer in
contravention of any of the provisions of this Article 9 shall be void and
ineffectual, and shall not obligate, or be recognized by, the General Partner or
the Partnership.
10. BOOKS, RECORDS, ACCOUNTING AND REPORTS.
10.1 RECORDS. The General Partner shall keep at its office in California
the following Partnership documents:
(i) A current list of the complete name and last known business or
residence address of each Partner, together with the contribution and share
in profits and losses of each Partner;
(ii) A copy of the Certificate of Limited Partnership and all
certificates of amendment and executed copies of any powers of attorney
pursuant to which any certificate has been executed;
(iii) Copies of the Partnership's federal, state and local income tax
or informational returns and reports, if any, for the 6 most recent years;
(iv) Copies of the original copy of this Agreement and all amendments
to this Agreement;
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(v) Financial statements of the Partnership for the 6 most recent
years; and
(vi) The Partnership's books and records as those books and records
relate to the internal affairs of the Partnership for at least the current
and 3 most recent years.
10.2 DELIVERY TO LIMITED PARTNER AND INSPECTION.
(i) Upon the request of a Limited Partner, the General Partner shall
deliver promptly to the requesting Limited Partner, at the expense of the
Partnership, a copy of the information to be maintained required by the
provisions of subsections (i), (ii) and (iv) of Section 10.1 of this
Agreement.
(ii) Each Limited Partner has the right, upon reasonable request, to
each of the following:
(a) inspect and copy during normal business hours any of the
Partnership records required to be maintained by Section 10.1 of this
Agreement and such Limited Partner shall pay the Partnership a
reasonable charge for any and all copy work; and
(b) obtain from the General Partner, promptly after becoming
available, a copy of the Partnership's federal, state and local income
tax or informational returns for each year.
(iii) The General Partner shall send to each Partner within 75 days
after the end of each year, the information necessary for that Partner to
complete that Partner's federal and state income tax or informational
returns, and if requested by a Limited Partner, there shall be included
within that 75 day period a copy of the Partnership's federal, state and
local income tax or informational returns for the year in which such
request is made.
10.3 ANNUAL REPORTS. The General Partner shall provide to the Limited
Partners, within 120 days after the end of each fiscal year of the Partnership,
a report containing:
(i) A balance sheet for the Partnership as of the end of that year;
(ii) A statement of income for the Partnership for that year;
(iii) A statement of changes in financial position for the Partnership
for that year;
(iv) A statement of partners' equities in the Partnership; and
(v) Other pertinent information regarding the Partnership and the
activities of the Partnership during the period covered by that report.
The information specified in items (i) through (iv), inclusive, above,
shall be prepared in accordance with generally accepted accounting principles
and accompanied by an auditor's opinion which may be materially qualified. In
addition to that information, the General Partner shall provide to the Limited
Partners an audited cash flow statement, a schedule of all distributions to the
Limited Partners identifying the source of each, and a schedule of all
compensation paid and distributions made to the General Partner, including a
description of the services performed and identifying the source of each
distribution, which information shall be provided not more than 120 days after
the end of the Partnership's fiscal year.
10.4 TAX ALLOCATIONS. To the extent permitted by law, (i) all income,
gains and losses shall be allocated to the Partners to whom the revenues
resulting in the realization of such income, gains or losses are allocated
pursuant to Article 6 of this Agreement; (ii) all deductions and credits shall
be located to the Partners charged with the expenditures causing such deductions
or credits to occur; and (iii) all recapture of previously taken deductions or
credits shall be allocated to the Partners to whom such deductions or credits
were allocated. To the extent permitted by law, all items of tax preference for
federal income tax purposes shall be allocated to the Partners credited with the
revenues resulting in the realization of the income gains or loss causing such
items of tax preference to occur or charged with the expenditure causing the
deductions or credits to which such items of tax preference are attributable to
occur. To the extent permitted by law, each Partner shall be entitled to that
Partner's distributive share of Partnership income, gain, loss, deduction or
credit, or items of tax preference in computing that Partner's taxable income or
tax liability, to the exclusion of any other Partners of this Agreement.
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10.5 TAX ELECTIONS. Upon the assignment of all or part of a Limited
Partner's interest in the Partnership or upon the death of an individual Limited
Partner, or upon the distribution of any Partnership property to any Partner,
the Partnership, at the General Partner's option, may file an election in
accordance with applicable regulations, to cause the basis of the Partnership
property to be adjusted for federal income tax purposes as provided by Sections
734, 743 and 754 of the Code; similar elections pursuant to the provisions of
state and local income tax laws, at the General Partner's option, may be made.
10.6 RECORDS OF ADJUSTED TAX BASIS. To the extent the General Partner is
required to determine the adjusted tax basis of any Partnership property with
respect to which the Code requires records of such adjusted tax basis be kept
and maintained by the Limited Partners, the General Partner may request
information regarding such adjusted tax basis from the Limited Partners, in
writing, and the Limited Partners shall furnish such information to the General
Partner no later than 30 days after said request is mailed by the General
Partner.
10.7 TAX RETURN. The General Partner, at the expense of the Partnership,
shall cause income tax returns for the Partnership to be prepared and timely
filed with the appropriate authorities.
10.8 DEFENSE OF CERTAIN CLAIMS. The General Partner, at the expense of the
Partnership, shall have the right to assume the defense of any claims made by
the IRS to the extent that such claims occur because of or relate to the
Partnership's business or investment activities, and in connection therewith, to
retain and pay counsel chosen by the General Partner, in the General Partner's
sole discretion. In no case, however, shall the Partnership be liable for any
additional tax payable by a Partner or for any costs of separate counsel chosen
by such Partner to represent such Partner with respect to any aspects of such
defense.
10.9 CAPITAL ACCOUNTS. The General Partner will maintain a separate
capital account for each Partner which shall be credited with (i) such Partner's
contributions to the capital of the Partnership and (ii) such Partner's
allocable share of Partnership revenues, gains and income, and which shall be
charged with (a) such Partner's allocable share of Partnership costs, expenses
and losses and (b) the amount of any distributions made to such Partner. The
books and records of the Partnership shall include such other separate and
additional accounts for each Partner as shall be necessary to specify accurately
the rights and interests of the Partners.
10.10 SPECIAL REPORTS. The General Partner, at the expense of the
Partnership, shall cause to be prepared and timely filed with the appropriate
federal and state agencies all reports required to be filed with such agencies
pursuant to the then current applicable laws, rules and regulations. Those
reports shall be prepared on the accounting or reporting basis required by those
appropriate regulatory agencies.
11. CERTAIN OPPORTUNITIES
The General Partner, any Limited Partner, any Affiliate, any partner,
shareholder, officer, director or employee thereof, or any person owning a legal
or beneficial interest therein, may engage in or possess an interest in any
other business or venture of every nature and description, independently or with
others including those which may be the same as or similar to the Partnership's
business and in direct competition with the Partnership. Neither the Partnership
nor any Partner shall have any right, by virtue of this Agreement, in or to such
independent ventures or the income or profits derived therefrom. Except when the
General Partner has an overriding fiduciary obligation to the Partnership, the
General Partner and its Affiliates will have no duty or obligation to submit to
the Partnership any business opportunities which may come to them or be
presented to any person in which they may be in any way interested, and the
General Partner and its Affiliates shall have the right to take for their own
accounts (individually or otherwise) or to recommend to others any such
investment opportunity.
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12. TERMINATION, LIQUIDATION AND DISSOLUTION OF THE PARTNERSHIP.
12.1 TERMINATION. The Partnership shall be terminated and dissolved in
accordance with the Act or upon the earliest to occur of the following:
(i) The death, retirement (provided there has been 90 days prior
written notice to the Limited Partners), expulsion, insanity, adjudication
of bankruptcy or insolvency, or the dissolution of the General Partner
unless any remaining general partners of the Partnership elect to continue
the business of the Partnership;
(ii) A vote pursuant to Section 9.3 of this Agreement to remove the
General Partner, unless all of the Limited Partners elect a substitute
general partner of the Partnership;
(iii) A vote pursuant to Section 9.3 of this Agreement in favor of
termination and dissolution of the Partnership;
(iv) The expiration of the term of the Partnership; or
(v) The sale of all or substantially all of the Partnership assets and
the receipt of the final payment of the purchase price therefor.
12.2 DISTRIBUTIONS. Upon the termination and dissolution of the
Partnership for any reason, the General Partner (or a substituted general
partner of the Partnership elected by a Majority Vote) shall take complete
account of the Partnership's assets and liabilities and those assets shall be
liquidated as promptly as is consistent with obtaining the fair value thereof,
and the proceeds therefrom, to the extent sufficient to pay the Partnership's
obligations with respect thereto, shall be applied and distributed in the
following order:
(i) To the payment and discharge of all of the Partnership debts and
liabilities to persons other than Partners (or former Partners) including
the payment of promissory notes assigned and guaranteed by the Partnership
and the expenses of liquidation;
(ii) To the payment and discharge of any loans and advances made by
Partners (or former Partners) to the Partnership;
(iii) To the Partners in accordance with their respective Partnership
interests to the extent of the positive balances in their respective
capital accounts established pursuant to the provisions of Section 10.9 of
this Agreement; and
(iv) The balance of such proceeds, if any, shall be distributed to the
Partners in accordance with their interests in the Partnership, except that
if a Partner shall have a debit balance in that Partner's capital account,
that Partner shall not receive distributions until the amount which would
otherwise be distributed to that Partner is equal to the debit balance,
after which that Partner shall then receive distributions in accordance
with that Partner's interest in the Partnership, but that Partner shall not
receive the amounts which were not distributed to that Partner because of
such debit balance.
12.3 NO RECOURSE AGAINST THE GENERAL PARTNER. Each Limited Partner shall
have that Limited Partner's Capital Contribution returned only from the assets
of the Partnership, and if the Partnership assets remaining after the payment or
discharge of the debts and liabilities of the Partnership are insufficient to
return that Capital Contribution, that Limited Partner shall have no recourse
against the General Partner, any of its Affiliates, or any other Limited
Partner.
12.4 WAIVER OF RIGHT TO COURT DECREE OF DISSOLUTION. All Partners agree
that irreparable damage would be done to the goodwill and reputation of the
Partnership if any Partner should bring an action in court to divide the
Partnership in any way other than as provided in this Agreement. Care has been
taken in this Agreement to provide what the Partners determined are fair and
just methods of liquidation of the interests of all Partners. Accordingly, each
Partner hereby waives and renounces that Partner's rights to a court decree of
dissolution, to seek the appointment by the court of a liquidator for the
Partnership, to maintain an action for partition with respect to that Partner's
undivided interest in the Partnership properties or to compel any sale of such
properties.
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12.5 NOTICE OF DISSOLUTION. The General Partner shall cause (i) a Notice
of Dissolution to be published in a newspaper of general circulation in each
county where the Partnership business was regularly conducted and to be mailed
to each of the Partnership's creditors, (ii) an affidavit of publication and of
mailing to be filed with the appropriate County Clerk or Clerks within 30 days
after the publication, and (iii) the Certificate of Limited Partnership to be
canceled.
12.6 GENERAL PARTNER'S DISCRETION. The winding up and dissolution of the
Partnership's affairs and the liquidation and distribution of the Partnership's
assets shall be conducted exclusively by the General Partner (or a trustee, if
one is appointed), which is authorized to do any and all acts and things
authorized by law for these purposes. Distributions in accordance with the
provisions of this Section 12.6 or upon termination and dissolution of the
Partnership will (i) constitute a complete return to the Partners of their
interests in the profits of the Partnership and their Capital Contributions,
(ii) a final and complete distribution to the Partners of all their interests in
the Partnership properties, and (iii) a final termination and settlement of any
and all of the Partners' other interests in the Partnership.
12.7 PURCHASE BY GENERAL PARTNER. The General Partner, if the General
Partner so desires, may purchase Partnership properties upon liquidation of the
Partnership at the greater of the highest bona fide independent offer received,
or if no such offer is received, the market value thereof.
13. SPECIAL POWER OF ATTORNEY.
13.1 EXECUTION OF SPECIAL POWER OF ATTORNEY. Concurrently with the
execution or written acceptance and adoption of the provisions of this
Agreement, each Limited Partner shall execute, acknowledge and deliver to the
General Partner a special power of attorney in a form acceptable to the General
Partner in which the General Partner is substituted and appointed as the
attorney-in-fact for such Limited Partner, with power and authority to act in
such Limited Partner's name and on such Limited Partner's behalf to execute,
acknowledge and swear to in the execution, acknowledgment and filing of
documents, which shall include, by way of illustration but not of limitation,
the following:
(i) This Agreement, any separate Certificate of Limited Partnership,
Fictitious Business Name Statements, as well as any amendments to the
foregoing which, pursuant to the laws of the State of California or the
laws of any other jurisdiction, are required to be filed or which the
General Partner deems it advisable to file;
(ii) Any other instrument or document which may be required to be
filed by the Partnership pursuant to the laws of any state or by any
governmental agency, or which the General Partner deems advisable to file;
(iii) Any instrument or document which may be required to effect the
continuation of the Partnership, the admission of an additional or
Substituted Limited Partner, or the dissolution and termination of the
Partnership (provided such continuation, admission or dissolution and
termination are in accordance with the terms of this Agreement), or to
specify any reductions in the amounts of the Capital Contributions of the
Limited Partners; and
(iv) Any documents, including escrow instructions and amendments; loan
documents, including promissory notes, guarantees, deeds of trust and other
security agreements and mortgages; agreements to sell, purchase, lease,
rent and exchange Partnership assets or any interests therein; contracts,
including management contracts; and all other agreements and documents
necessary to carry out and effectuate the business of the Partnership and
the Partners.
13.2 INCIDENTS OF SPECIAL POWER OF ATTORNEY. The power of attorney hereby
granted by each Limited Partner to the General Partner shall be on the following
terms and conditions.
13.2.1 COUPLED WITH AN INTEREST. That power of attorney is a special
power of attorney coupled with an interest, is irrevocable, shall survive the
death or insanity (or, in the case of a Limited Partner that is a corporation,
association, partnership, joint venture or trust, shall survive the merger,
dissolution or other termination of the existence) of such Limited Partner; and
is limited to those matters herein set forth.
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13.2.2 ACTION BY GENERAL PARTNER. That power of attorney may be
exercised by the General Partner acting alone for each Limited Partner by a
facsimile signature of the General Partner (or any one of its officers,
employees or agents), or by listing all of the Limited Partners executing any
instrument with a single signature of the General Partner (or any one of its
officers, employees or agents) acting as attorney-in-fact for all of the Limited
Partners.
13.2.3 SURVIVAL OF ASSIGNMENT. That power of attorney shall survive an
assignment by a Limited Partner of all or any portion of such Limited Partner's
interest in the Partnership when an Assignee has been approved by the General
Partner for admission to the Partnership as a Substituted Limited Partner, and
that power of attorney shall survive such assignment for the sole purpose of
enabling the General Partner to execute, acknowledge and file any instrument or
document necessary to effect such substitution, as well as for the purposes set
forth in Section 13.1 of this Agreement.
13.2.4 ADDITIONAL ACTION. The power of attorney granted herein includes
the authority to take any additional action which the General Partner shall
consider necessary or convenient in connection with any of the powers granted to
the General Partner pursuant to Article 8 of this Agreement, hereby giving the
General Partner complete power and authority to do and perform each and every
act and thing whatsoever requisite and necessary to be done in and about the
foregoing as completely as such Limited Partner might or could do if personally
present, and hereby ratifying and confirming all that the General Partner shall
lawfully do or cause to be done by virtue hereof.
13.3 AUTHORITY OF THE GENERAL PARTNER. The General Partner shall be
authorized to obligate the Partnership by the signature of any of the General
Partner's officers alone, and a facsimile signature is as effective as an actual
signature.
13.4 ACKNOWLEDGEMENT BY LIMITED PARTNERS. Each of the Limited Partners is
aware that the terms and conditions of this Agreement permit certain amendments
of this Agreement to be effected and certain other actions to be taken or
omitted by or with respect to the Partnership, in each case with the approval of
less than all of the Limited Partners. Such actions include, without limitation,
substitution of the General Partner. If, as and when (i) an amendment of this
Agreement is proposed or an action is proposed to be taken or omitted by or with
respect to the Partnership which requires, pursuant to the provisions of this
Agreement, the approval of a specified percentage in interest (but less than
all) of the Partners; (ii) Partners holding the percentage of interests in the
Partnership specified in this Agreement as being required for such amendment or
action have approved such amendment or action in the manner contemplated by this
Agreement; and (iii) a Limited Partner has failed or refused to approve such
amendment or action (hereinafter referred to as a "Non-Consenting Limited
Partner"), each Non-Consenting Limited Partner agrees that each special
attorney-in-fact specified above, with complete power of substitution, is hereby
authorized, empowered and instructed to execute, acknowledge, make, swear to,
verify, deliver, record, file and publish, for and on behalf of such Non-
Consenting Limited Partner, and in such Non-Consenting Limited Partner's name,
place and stead, any and all instruments and documents which may be necessary or
appropriate to permit such amendment to be lawfully made or action lawfully
taken or omitted. Each consenting Limited Partner and Non-Consenting Limited
Partner is completely aware that such Limited Partner and each other Limited
Partner have executed this special power of attorney, and that each Limited
Partner will rely on the effectiveness of this special power of attorney with an
anticipation of the orderly administration of the Partnership's affairs.
14. LIABILITY OF AND INDEMNIFICATION OF A GENERAL PARTNER.
14.1 ACTION BY THIRD PARTIES. Except as provided in Section 8.5 of this
Agreement, the General Partner shall not be liable to the Partnership or the
Limited Partners, or any of them, for any failure of any third parties to comply
with the obligations of those parties pursuant to any agreements; provided,
however, the foregoing shall not apply if the General Partner was grossly
negligent or failed to act in good faith in contracting with any such third
party.
14.2 ACTION INVOLVING GENERAL PARTNER. Except as provided in Section 8.5
of this Agreement, in any threatened, pending or completed action, lawsuit or
proceeding to which the General Partner (including employees, Affiliates,
officers or directors of the General Partner) was or is a party or is threatened
to be made
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a party by reason of the fact that it is or was the General Partner (other than
an action by or in the right of the Partnership), the Partnership shall
indemnify the General Partner (including employees, Affiliates, officers or
directors of the General Partner) against all costs and expenses, including
attorneys' fees, costs of investigation, fines, judgments and amounts paid in
settlement, actually and reasonably incurred by the General Partner (or such
employee, Affiliates, officer or director) in connection with such action,
lawsuit or proceeding if the General Partner (or such employee, Affiliates,
officer or director) acted in good faith in a manner it reasonably believed to
be in or not opposed to the best interests of the Partnership; provided,
however, that the General Partner's conduct does not constitute negligence,
misconduct, or a breach of fiduciary obligation to the Limited Partners and, in
the case of a criminal proceeding, the General Partner had no reasonable cause
to believe the General Partner's conduct was unlawful. The termination of any
action, lawsuit or proceeding by judgment, order, settlement, conviction or upon
a plea of nolo contendere or its equivalent shall not, of itself, create a
presumption that the General Partner (or such employee, Affiliate, officer or
director) did not act in good faith and in a manner which the General Partner
reasonably believed to be in or not opposed to the best interests of the
Partnership or that the General Partner had reasonable cause to believe that the
General Partner's conduct was unlawful. The General Partner (and the employees,
Affiliates, officers or directors of the General Partner) shall not be
indemnified by the Partnership with respect to any expense relating to any
claim, issue or matter as to which such General Partner (or employee, Affiliate,
officer or director of the General Partner) shall have been adjudged to be
liable for negligence or misconduct.
14.3 DEFENSE OF ACTION. Except as provided in Section 8.5 of this
Agreement, to the extent that the General Partner (including any employees,
Affiliates, officers or directors of the General Partner) has been successful on
the merits or otherwise in defense of an action, suit or proceeding referred to
in Sections 14.2 or 14.3 of this Agreement, or in defense of any claim, issue or
matter therein, the Partnership shall indemnify the General Partner (or such
employee, Affiliates, officer or director) against all costs and expenses,
including attorneys' fees and costs of investigation, actually and reasonably
incurred by it in connection therewith. An indemnification pursuant to the
provisions of Sections 14.2 and 14.3 of this Agreement, unless ordered by a
court, shall be made by the Partnership only as authorized in the specific case
and only upon a determination by independent legal counsel in a written opinion
that indemnification of the General Partner (or such employee, Affiliates,
officer or director) is proper in the circumstances because the General Partner
has met the applicable standard of conduct set forth in Sections 14.2 and 14.3
above.
14.4 SATISFACTION OF JUDGMENTS. Except as provided in Section 8.5 of this
Agreement, all judgments against the Partnership and the General Partner,
wherein the General Partner (including any employee, Affiliate, officer or
director of the General Partner) is entitled to indemnification, must first be
satisfied from Partnership assets before the General Partner is responsible for
those judgments.
14.5 RESTRICTION ON INDEMNIFICATION. Except as provided in Section 8.5 of
this Agreement, notwithstanding Section 14.1 of this Agreement, the General
Partner and any officer, Affiliate, director, employee, agent, subsidiary or
assign of the General Partner or of the Partnership shall not be indemnified
against any liability, cost, settlement, loss or damage incurred by the General
Partner in connection with (i) any claim or settlement arising from or out of a
violation of state or federal securities laws associated with the offer and sale
of the Units by the General Partner or by any the other person unless (a) the
General Partner or other persons seeking indemnification are successful in
defending such action, and (b) such indemnification is specifically approved by
a court of competent jurisdiction which shall have been advised as to the
current positions of, both, the Securities and Exchange Commission and the State
of California Commissioner of Corporations regarding indemnification for
violations of securities laws before seeking court approval or (ii) any
liability imposed by law, including liability for fraud, bad faith or
negligence, and the provisions of Paragraph 8.5.1 of this Agreement have been
satisfied by the General Partner.
IN THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION, INDEMNIFICATION
FOR LIABILITIES OCCURRING PURSUANT TO THE SECURITIES ACT OF 1933 IS AGAINST
PUBLIC POLICY AS EXPRESSED IN THAT ACT AND, THEREFORE, IS UNENFORCEABLE.
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15. MISCELLANEOUS.
15.1 COUNTERPARTS. This Agreement may be executed in several counterparts,
and all counterparts so executed shall constitute one agreement, obligating all
Partners, notwithstanding that all of the Partners are not signatory to the
original or the counterpart.
15.2 SUCCESSORS AND ASSIGNS. The terms and provisions of this Agreement
shall obligate and shall inure to the benefit of the successors and assigns of
the respective Partners.
15.3 GOVERNING LAW. This Agreement shall be construed in accordance with,
and governed by, the laws of the State of California.
15.4 VOID PROVISION. In the event any part of this Agreement is declared
by a court of competent jurisdiction to be void, such part shall be deemed
severed from the remainder of the Agreement and the balance of the Agreement
shall remain in effect.
15.5 NOTICES. All notices pursuant to this Agreement shall be in writing
and shall be given to the Partner entitled thereto by personal service or by
certified or registered mail, return receipt requested, except that the notice
of any meeting or the furnishing of any financial statement to the Partners may
be done by regular mail. All notices sent by mail shall be posted to the address
maintained by the Partnership for such person or at such other address as that
person may verify in writing. Any notice pursuant to the provisions of this
Agreement shall be deemed received after 24 hours from the date and time of
postmark if such notice is deposited with the United States mail pursuant to the
above (if mailed) or when personally received if the mail service is not used.
15.6 CAPTIONS. Titles or captions contained in this Agreement are inserted
only as a matter of convenience and for reference. Such titles and captions in
no way define, limit, extend or describe the scope of this Agreement nor the
intent of any provision hereof.
15.7 CONTEXT. Whenever required by the context hereof, the singular shall
include the plural, and vice-versa; the masculine gender shall include the
feminine and neuter genders, and vice-versa; and the word "person" shall include
any natural person, partnership, estate, corporation, trust, cooperative,
association or other legal entity.
15.8 LEGEND. Any certificate, document or instrument evidencing any right
or interest of any Partner shall bear such legend or legends as may be required
to comply with applicable requirements of any governmental authority.
15.9 FORCE MAJEURE. The General Partner shall not be liable for any loss
or damage to Partnership property caused by strikes, labor troubles, riots,
fires, blowouts, tornadoes, floods, earthquakes, acts of a public enemy,
insurrections, acts of God, failure to carry out the provisions of this
Agreement because of provisions of law or rules or regulations promulgated by
any governmental agency or any demand or acquisition of any government, or from
any other cause beyond the control of the General Partner.
15.10 ATTORNEY'S FEES. In the event that any legal action is instituted
between the parties occurring because of this Agreement, the prevailing party or
parties therein shall be entitled to recover a reasonable allowance for that
party's attorneys' fees and court expenses, to be fixed and determined by the
court in which said action is filed.
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IN WITNESS WHEREOF, the General Partner and the Limited Partners have
entered into and executed this Agreement effective the date the General Partner
accepts the subscriptions of the Limited Partners.
<TABLE>
<S> <C>
General Partner: Limited Partner:
Performance Development, Inc.,
a California corporation
By:
- -------------------------------------------- --------------------------------------------
</TABLE>
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<PAGE> 1
EXHIBIT 99.5
AGREEMENT OF LIMITED PARTNERSHIP
OF
PERFORMANCE ASSET MANAGEMENT FUND V, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
THIS AGREEMENT OF LIMITED PARTNERSHIP ("Agreement") is made and entered into as
of this 4th day of April, 1994, by and among Performance Development, Inc., a
California corporation ("General Partner"), and the persons accepted by the
General Partner as Limited Partners and who shall sign and submit to the General
Partner a signature page to this Agreement upon their subscriptions for Units.
1. FORMATION AND BUSINESS OF THE PARTNERSHIP
1.1 PARTNERSHIP FORMATION. The parties hereby enter into a limited
partnership formed pursuant to the provisions of the Revised Limited Partnership
Act of the State of California ("Act"); and the rights and liabilities of the
Partners shall be as provided in the Act and as herein expressly provided. Upon
the request of the General Partner, the Limited Partners shall execute promptly
all certificates and other documents necessary for the General Partner to
accomplish all filings, recordings, publishing and other acts required for the
operation of the Partnership pursuant to the provisions of the laws of
California.
1.2 PARTNERSHIP BUSINESS. The purpose and activity of the Partnership
shall be to (i) acquire assets from federal and state banking and savings and
loan agencies and various other sources in order to derive income from managing,
servicing, operating or selling those assets or collecting monies due and
payable from those assets and (ii) potentially utilize a portion of the Net
Proceeds to provide expansion capital for one or more of the Partnership's
servicing entities and acquire ownership interests therein.
1.3 CERTIFICATE OF LIMITED PARTNERSHIP. The General Partner shall cause a
Certificate of Limited Partnership to be filed in the office of the Secretary of
State of California and a certified copy thereof, or a legally acceptable
substitute, to be filed in each California county in which the Partnership owns
or contemplates owning real property or any interest in real property.
1.4 FICTITIOUS BUSINESS NAME STATEMENT. The General Partner shall execute
and cause to be filed and published a Fictitious Business Name Statement in
accordance with applicable California law.
1.5 FURTHER ASSURANCES. The parties hereto will execute such other
certificates and documents, and the General Partner will file, record and
publish such other certificates and documents, as may be necessary or
appropriate to comply with the requirements of applicable laws governing the
formation and operation of a limited partnership (or a partnership in which
special partners have limited liability) in all jurisdictions where the
Partnership desires to conduct business.
1.6 NATURE OF PARTNERS' INTERESTS. The interests of the Partners in the
Partnership shall be personal property for all purposes. All property owned by
the Partnership, whether real or personal, tangible or intangible, shall be
deemed to be owned by the Partnership as an entity, and no Partner, as an
individual, shall have an ownership interest in such property.
1.7 TITLE TO PROPERTY. Title to property and any other assets acquired by
the Partnership and any other property acquired to effect the purposes of the
Partnership shall be held solely in the name of the Partnership. The General
Partner shall execute, file and record such documents as may be necessary or
appropriate to specify the Partnership's ownership of such property and assets
in such public offices in such states as may be required. The Partners agree
that Partnership property is not and will not be suitable for partition.
Accordingly, each of the Partners hereby irrevocably waives any and all rights
that Partner may have to maintain an action for partition of any Partnership
property.
2. NAMES AND ADDRESSES OF PARTNERS
2.1 PARTNERSHIP. The business of the Partnership shall be conducted using
the name of "Performance Asset Management Fund V, Ltd., A California Limited
Partnership," at the following address: 695 Town Center Drive, Suite 1550, Costa
Mesa, California 92626, or using such other names or such other addresses as
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<PAGE> 2
the General Partner shall hereafter designate in writing to the Limited Partners
and by amendment to this Agreement and the Certificate of Limited Partnership of
the Partnership.
2.2 GENERAL PARTNER. The name, address and telephone number of the General
Partner are as follows:
Performance Development, Inc.,
a California corporation
695 Town Center Drive, Suite 1550
Costa Mesa, California 92626
(714) 979-4100
2.3 LIMITED PARTNERS. The names and addresses of the Limited Partners
shall be as set forth in Exhibit 'A' attached hereto, as amended from time to
time.
2.4 AGENT FOR SERVICE OF PROCESS. In accordance with the requirements of
Section 15614(b) of the California Corporations Code, the name and address of
the Partnership's agent for service of process are as follows:
Vincent E. Galewick
695 Town Center Drive, Suite 1550
Costa Mesa, California 92626
3. DEFINITIONS
3.1 "AFFILIATE" shall mean:
(i) any person directly or indirectly controlling, controlled by or
under common control with another person;
(ii) a person owning or controlling 10% or more of the outstanding
voting securities of such other person;
(iii) any officer, director or partner of such other person; and
(iv) any person who is an officer, director, general partner, trustee,
or holder of 10% or more of the voting securities or beneficial interests
of any of the foregoing. (The word "person" is defined in Section 15.7 of
this Agreement.)
3.2 "AGREEMENT" shall mean this Agreement of Limited Partnership, as
amended from time to time.
3.3 "ASSIGNEE" shall mean a person who has acquired a beneficial interest
in one or more Units from a Partner but who is not a Substituted Limited
Partner.
3.4 "CAPITAL CONTRIBUTION" shall mean the cash contributed to the capital
of the Partnership by a Limited Partner in exchange for such Limited Partner's
Units.
3.5 "CASH AVAILABLE FOR DISTRIBUTION" shall mean the cash receipts from
the operations of the Partnership, after deducting cash funds used to pay all
expenses, debt payments, capital improvements and replacements and less the
amounts set aside for acquisition of additional assets or creation of reserves.
The actual distribution of cash shall be in the sole discretion of the General
Partner.
3.6 "CLOSING DATE" shall mean the date after which the General Partner
will not accept any further subscriptions, which shall be April 1, 1995. If all
Units are subscribed prior to April 1, 1995, an earlier Closing Date may be
designated by the General Partner.
3.7 "CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
3.8 "GENERAL PARTNER" shall mean Performance Development, Inc., a
California corporation, or any other person succeeding in that capacity.
3.9 "GROSS INCOME" shall mean the gross income of the Partnership as
determined using the accrual method of accounting as permitted by the Code.
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3.10 "GROSS PROCEEDS" shall mean the aggregate total of the Capital
Contributions of all of the Limited Partners.
3.11 "GROSS REVENUE" shall mean all revenues from the Partnership's
collection or sale of assets obtained from federal and state banking and savings
and loan agencies or various other sources. The term "Gross Revenue" shall not
include revenues from the sale, refinancing or other disposition of Partnership
administrative assets, such as office equipment and furniture, or from earnings
on savings or invested funds.
3.12 "LIMITED PARTNERS" shall mean the persons who have been admitted to
the Partnership as limited partners in accordance with the provisions of this
Agreement. Reference to a "Limited Partner" shall mean any one of them.
3.13 "MAJORITY VOTE" shall mean that vote of the Limited Partners provided
for in Paragraph 9.3.3 of this Agreement.
3.14 "MEMORANDUM" shall mean the Confidential Private Placement Memorandum
dated May 1, 1994, of which this Agreement is Exhibit "A."
3.15 "NET INCOME" or "NET LOSS" shall mean the net income or net loss of
the Partnership for federal income tax purposes, as determined on the accrual
method of accounting as permitted by the Code.
3.16 "NET PROCEEDS" shall mean the total of Gross Proceeds less expenses
incurred and to be paid by the Partnership in organizing the Partnership and in
offering and selling the Units.
3.17 "OPERATING EXPENSES" shall mean all expenses of operating the
Partnership not deemed to be "Organizational Expenses" or "Sales Commissions" as
those terms are defined herein.
3.18 "ORGANIZATIONAL EXPENSES" shall mean all expenses incurred by the
General Partner or the Partnership in organizing the Partnership and in the
marketing of the Units which shall include all expenses incurred prior to the
commencement of the Partnership's offering of the Units, as well as those
subsequently incurred in complying with continuing conditions of that offering
pursuant to applicable federal and state laws, including, but not limited to,
the costs of printing, amending, supplementing and distributing the Memorandum
and any other sales material; and the legal and accounting costs incurred in
connection therewith.
3.19 "ORGANIZATIONAL MANAGEMENT FEE" shall mean the fee paid to the
General Partner for its services to the Partnership for the organization of the
Partnership, out of which the General Partner shall pay the Organizational
Expenses as specified in Paragraph 8.2.2 of this Agreement.
3.20 "PARTNERS" shall mean the General Partner and the Limited Partners,
and reference to a Partner shall mean any one of the Partners.
3.21 "PARTNERSHIP" shall mean Performance Asset Management Fund V, Ltd., A
California Limited Partnership.
3.22 "PARTNERSHIP MANAGEMENT FEE" shall mean the fee authorized by
Subparagraph 8.2.3.1 of this Agreement.
3.23 "PLACEMENT MANAGER" shall mean Income Network Company, a California
corporation, and an NASD Broker/Dealer which is an Affiliate of the General
Partner and selected by the General Partner to sell the Units.
3.24 "SALES COMMISSIONS" shall mean those amounts paid to NASD
Broker/Dealers selected by the General Partner as compensation or reimbursement
for their services and expenses in marketing the Units.
3.25 "SUBSTITUTED LIMITED PARTNER" shall mean a transferee of Units who
has succeeded to all the rights of a Limited Partner inherent in the ownership
of Units.
3.26 "SYNDICATION FEE" shall mean the fee paid to the General Partner
equal to 3% of the Gross Proceeds.
3.27 "TOTAL OUTSTANDING UNITS" shall mean all Units outstanding at a
specified date.
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3.28 "UNIT" shall mean an interest in the Partnership representing a
capital contribution of $5,000 in cash and shall entitle the holder thereof to
an interest in the income, gains, losses, deductions, credits and distributions
of the Partnership.
4. TERM
The business of the Partnership shall commence on the date the minimum number of
subscriptions for Units is accepted by the General Partner or the date a
separate Certificate of Limited Partnership pursuant to the Act and shall
continue until December 31, 2007, unless sooner terminated in accordance with
the provisions of this Agreement. The filing or recordation date of this
Agreement or the Certificate of Limited Partnership shall not control the date
of commencement of the business of the Partnership.
5. CAPITAL CONTRIBUTIONS
5.1 GENERAL PARTNER. The General Partner shall make no contribution to
the capital of the Partnership.
5.2 PRIVATE OFFERING. The Partnership intends to make a private offering
of limited partnership interests on a "best efforts" basis so that the capital
of the Partnership contributed by the Limited Partners shall consist of 1,000
Units, each unit paid for by a cash contribution of $5,000, and to admit, as
Limited Partners, the persons whose subscriptions for such Units are accepted by
the General Partner. Each such person shall become a Limited Partner when (i)
such person has signed, personally or by attorney-in-fact, a copy of the
Subscription Agreement (and the appendices thereto) and a copy of this Agreement
attached to the Memorandum; (ii) the General Partner has accepted such
subscription; and (iii) this Agreement and the Certificate of Limited
Partnership are amended, as required by law, to specify such person has become a
Limited Partner. The minimum offering is 50 Units ($250,000). Until the
acceptance by the General Partner of enough Units to constitute the minimum
offering of 50 Units ($250,000), proceeds received from the offer and sale of
Units will be deposited in an escrow account maintained at City National Bank,
120 South Spalding Drive, 4th Floor, Beverly Hills, California. In the event 50
Units have not been sold by December 31, 1994, the offering will terminate and
funds received for the purchase of Units and any interest earned on those funds
will be returned to subscribers. Upon the acceptance by the General Partner of
enough Units to constitute the minimum offering of 50 Units ($250,000), all
funds held by such bank received for the purchase of Units shall be disbursed to
the Partnership and Units will continue to be sold on an individual basis, until
the earlier to occur of (i) the maximum offering of 1,000 Units ($5,000,000) is
sold, or (ii) April 1, 1995, and the net proceeds from such sales will be used
for the purposes specified in this Agreement.
5.3 LIMITED PARTNERS. The Limited Partners shall contribute to the
capital of the Partnership in the amount of $5,000 by cash, check or money order
for each Unit purchased with a minimum purchase of 5 Units. Limited Partners
shall be admitted to the Partnership pursuant to the provisions of Section 9.1
of this Agreement. The General Partner shall have the right, in its sole
discretion, to waive the minimum purchase requirement.
5.4 INDEMNITY. Each Limited Partner agrees to indemnify, defend and hold
the Partnership and the other Partners harmless from any and all liability,
expense or damage occurring because of such Limited Partner's failure to
contribute when due and payable any Capital Contribution such Limited Partner is
required or elects to make pursuant to this Article 5.
5.5 SUBSCRIPTION AGREEMENT. Each person who acquires Units shall execute
and deliver to the General Partner, or its representative, the Subscription
Agreement attached to the Memorandum marked Exhibit "B," pursuant to which such
person agrees to purchase the number of Units indicated therein and to pay for
such Units in the manner indicated above. The Subscription Agreement contains
the written acceptance and adoption by such person of the provisions of this
Agreement, and includes the execution and delivery to the General Partner of a
special power of attorney, the form, style and content of which are more
completely described therein. The acceptance or rejection of the Subscription
Agreement submitted by any person shall be within the absolute discretion of the
General Partner, and no subscription shall be deemed accepted until the General
Partner executes the Subscription Agreement.
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5.6 ACCEPTANCE BY GENERAL PARTNER. The General Partner shall accept or
reject the Subscription Agreements tendered by prospective Limited Partners that
are made in accordance with the provisions of Section 5.5 of this Agreement no
later than the Closing Date.
5.7 LIABILITY FOR CAPITAL CONTRIBUTIONS. Each Limited Partner is
personally liable to the Partnership for payment of that Limited Partner's
entire agreed upon Capital Contribution in accordance with the terms of this
Agreement.
5.8 SALE OF UNITS. The General Partner shall have the right to qualify
the Units with state securities regulatory authorities or perfect exemptions
from qualification and enter into such underwriting or agency arrangements for
the sale thereof pursuant to such terms and conditions as the General Partner
may deem advisable.
5.9 WITHDRAWAL OR RETURN OF CAPITAL. No Partner shall have the right to
demand the withdrawal, reduction or return of that Partner's Capital
Contribution without the consent of all Partners, or upon the dissolution and
termination of the Partnership; nor shall any Partner have the right to demand
or receive property other than cash in return for that Partner's Capital
Contribution. Notwithstanding the foregoing, no part of the Capital Contribution
of any Limited Partner shall be withdrawn unless all liabilities of the
Partnership (except liabilities to the Limited Partners on account of their
Capital Contributions) have been paid or unless the Partnership has assets
sufficient to pay those liabilities as those liabilities become due and payable.
A Limited Partner shall look only to the assets of the Partnership and, if
Partnership property remaining after the payment or discharge of the liabilities
of the Partnership is insufficient to return that Limited Partner's Capital
Contribution, that Limited Partner shall have no recourse against the General
Partner or any other Limited Partners for such return.
5.10 INTEREST. No Limited Partner shall receive any interest on that
Limited Partner's Capital Contribution.
5.11 OPERATION OF PARTNERSHIP PROPERTY. The Partnership shall acquire,
manage, finance, operate, refinance and sell any property on terms and
conditions deemed suitable by the General Partner, in its sole judgment.
6. ALLOCATION OF INCOME, LOSS AND DISTRIBUTIONS
6.1 PAYMENT OF OBLIGATIONS. The General Partner shall pay to creditors on
or prior to the end of each year all Partnership obligations which are due and
payable at that time and shall create cash reserves for liquidated obligations
not then due and payable, and then to the extent the General Partner believes
such obligations cannot be paid from future projected Partnership receipts.
6.2 CASH AVAILABLE FOR DISTRIBUTION. The General Partner shall distribute
Cash Available For Distribution to the Partners no less frequently than
quarterly, in the following order of priority:
(a) To the Limited Partners in an amount equal to 90% of the Cash
Available For Distribution.
(b) To the General Partner in an amount equal to 10% of the Cash
Available For Distribution.
After the Limited Partners have received a cash return equal to their Capital
Contributions, the Limited Partners shall receive 70% of Cash Available For
Distribution and the General Partner shall receive 30% of Cash Available For
Distribution.
Distributions pursuant to this Section 6.2 constitute a return of capital, not a
return on capital, and depend entirely upon the success of the Partnership and
are not intended to create a guaranteed payment for the capital contributed to
the Partnership.
6.3 DISTRIBUTION, REFINANCING OR TERMINATION. Upon the sale of all or
substantially all of the Partnership assets or when the Partnership is
terminated and wound up, the Partnership assets shall be distributed in the
following order of priority:
(a) All liabilities of the Partnership shall be paid or adequately
provided for.
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(b) The General Partner may create a reserve to provide for contingent
or unforeseen liabilities. When the reason for the creation of that reserve
has been eliminated, the balance of that reserve shall be distributed in
the priority described in (c) and (d) below.
(c) Any Cash Available For Distribution in the year or years of sale,
termination and winding up, and any funds held for the Limited Partners'
benefit not needed for (a) or (b) above shall be distributed in the
priority described in Section 6.2 of this Agreement.
(d) All assets remaining following the above distributions shall be
distributed to the Partners in the percentages of the Partners interests in the
capital of the Partnership.
If for any reason the General Partner deems it to be in the best interests of
the Partners to delay for a reasonable period of time the distribution of any
amounts otherwise distributable pursuant to the provision of this Agreement, the
General Partner may do so.
6.4 LIMITATIONS ON DISTRIBUTIONS. Distributions, also, may be restricted
or suspended for limited periods in circumstances when the General Partner
determines, in its absolute discretion, that such action is in the best
interests of the Partnership. The General Partner intends to make distributions
of substantially all of the Cash Available For Distribution as funds are
available; however, no assurances are hereby made that such distributions will
occur. All distributions will be subject to the payment of the Partnership
expenses and liabilities and to the maintenance of reasonable reserves.
The General Partner, from time to time, may elect to make partial returns of
Capital Contributions to Limited Partners provided that all of the following
shall occur:
(a) All liabilities of the Partnership to persons other than Partners
have been paid, or, in the good faith determination of the General Partner,
there remains property of the Partnership sufficient to pay those
liabilities.
(b) The General Partner causes this Agreement and the Certificate of
Limited Partnership to be amended to specify such a reduction in the
Capital Contributions.
(c) All such returns of the Capital Contributions are made in such a
manner as to return to the Partners their proportionate interests in the
Partnership.
For purposes of the foregoing provisions, the condition of sub-part (iii) of
this Section 6.4 shall have been satisfied if the distributions are made to the
Limited Partners based upon the interests of the Limited Partners in the capital
of in the Partnership. Each Limited Partner, by becoming a Limited Partner,
consents to any such distributions theretofore or thereafter made in accordance
with such provisions, and further consents to variations among the Limited
Partners in the amount of any such distribution made in cash or in kind. Any
property distributed in kind will be valued on the basis of an independent
appraisal and treated as though such property were sold and the cash proceeds
distributed.
6.5 ALLOCATION OF INCOME AND LOSS. Income, deductions, gains, and losses
shall be allocated, during the term of the Partnership, 10% to the General
Partner and 90% to the Limited Partners until the Limited Partners have been
returned 100% of their Capital Contributions; thereafter, to the extent allowed
by the provisions of Section 704 of the Internal Revenue Code of 1986, as
amended (substantial economic effect test), such allocations shall be made 30%
to the General Partner and 70% to the Limited Partners, subject to the
provisions of Section 6.2 of this Agreement.
6.6 LOANS BY PARTNERS. In the event any Partner should make a loan to the
Partnership, such Partner would be entitled to receive interest on any loan so
made, but in no event shall such interest be in excess of the maximum legal rate
then allowable pursuant to the usury law of the State of California.
6.7 CONSENT BY PARTNERS. The methods hereinabove set forth by which
income, gains, losses, deductions, credits and distributions are allocated and
apportioned are hereby expressly consented to by each Partner as a specific
condition to becoming a Partner.
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6.8 ACCOUNTING. Each item of income, gain, loss, deduction or credit of
the Partnership shall be determined in accordance with the accrual basis of
accounting, consistently applied, pursuant to the provisions of the Code.
7. PARTNER EXPENSES
7.1 ADVANCES BY THE GENERAL PARTNER. The General Partner may advance to
the Partnership any moneys or funds required for the business of the
Partnership, but the General Partner has no obligation to do so. Such advances
shall be deemed a loan by the General Partner to the Partnership and shall not
be deemed a Capital Contribution. Each such loan shall bear interest as provided
in Section 6.6 of this Agreement.
7.2 REIMBURSEMENT TO THE GENERAL PARTNER. The Partnership shall reimburse
the General Partner and its Affiliates for any Operating Expenses which were
advanced or otherwise incurred by the General Partner or its Affiliates on
behalf of the Partnership which are necessary to the prudent operation of the
Partnership. The reimbursement of those Operating Expenses shall comply with the
provisions of Rule 260.140.114.5(a) of the Rules of the Department of
Corporations of the State of California.
7.3 EXPENSES. Operating Expenses may include, but shall not be limited to,
legal, audit, accounting, and printing costs or fees; expenses for revising,
amending, converting, modifying or terminating this Agreement; expenses
connected with the payment of distributions in cash or other property made by
the Partnership; expenses connected with communications to the Partners or other
persons with interests in the Partnership, and bookkeeping and clerical work
necessary in maintaining relations with such persons, including costs of
printing and mailing notices and reports to such persons, the preparation of
proxy and similar statements and the solicitation of proxies and written
consents and the costs in connection therewith; costs incurred in connection
with any litigation in which the Partnership is involved as well as any
examination, investigation or other proceedings conducted by any regulatory
agency of the Partnership, including legal and accounting fees incurred in
connection therewith; costs of any accounting, statistical or bookkeeping
equipment necessary or appropriate for the maintenance of the books and records
of the Partnership; supervision and expenses of professionals employed by the
Partnership in connection with any of the foregoing, including attorneys,
accountants and appraisers. Except as provided in Section 7.2 of this Agreement,
all expenses of the Partnership shall be billed directly to and paid by the
Partnership.
7.4 SYNDICATION FEE. The Partnership will pay the Syndication Fee to the
General Partner which is equal to 3% of the Gross Proceeds. The Syndication Fee
will be paid from the Gross Proceeds.
8. GENERAL PARTNER.
8.1 GENERAL PARTNER MAY PURCHASE UNITS. The General Partner and its
Affiliates shall have the right, but not the obligation, to contribute to the
capital of the Partnership as a Limited Partner, paying the complete price for
Units on the same terms as any other Limited Partner. With respect to Units held
as a Limited Partner, the General Partner shall be treated as any other Limited
Partner with regard to those Units.
8.2 COMPENSATION OF THE GENERAL PARTNER.
8.2.1 GENERAL LIMITATIONS ON COMPENSATION. The General Partner shall
receive compensation from the Partnership only as specified by the provisions of
this Agreement.
8.2.2 ORGANIZATION AND OFFERING STAGE. The Partnership shall reimburse
the General Partner for Organizational Expenses in an amount not to exceed 15%
of Gross Proceeds. Of that 15%, 10% shall be for reimbursement of selling and
wholesaling expenses and commissions and 2% shall be for legal, accounting,
printing, and other syndication expenses. To the extent amounts equal to those
percentages are not expended for those purposes, such amounts shall be added to
working capital of the Partnership. The Partnership will pay to the General
Partner the Syndication Fee which is equal to 3% of the Gross Proceeds.
8.2.3 OPERATING STAGE
8.2.3.1 PARTNERSHIP MANAGEMENT FEE. The General Partner shall be
entitled to an annual and on-going Partnership management fee of an amount equal
to 2.5% of the net asset value of Partnership's
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assets during the operating stage of the Partnership, which fee shall
be paid monthly. The net asset value of the Partnership's assets shall be the
total of the (i) lower of the market value, determined by the General Partner
each year, or the cost to the Partnership for non-performing assets and (ii) the
remaining principal balances of performing assets.
8.2.3.2 DISTRIBUTIONS. The General Partner shall be entitled to an
interest in the Partnership which consists of income, gains, losses, deductions,
credits and distributions pursuant to the provisions of Sections 6.2, 6.3, and
6.5 of this Agreement, payable upon distribution.
8.2.3.3 REBATES, KICKBACKS, AND RECIPROCAL ARRANGEMENTS. No rebates,
kickbacks or give-ups may be received by the General Partner nor may the General
Partner participate in any reciprocal business arrangements which would
circumvent any provision of this Agreement, or violate the provisions of Rule
260.140.114.7 of the Rules of the Department of Corporations of the State of
California.
8.2.4 EXPULSION, RESIGNATION OR WITHDRAWAL OF THE GENERAL PARTNER. In
the event the General Partner should be expelled, resign or withdraw from the
Partnership pursuant to the provisions of Paragraph 9.3.2 or Section 8.6 of this
Agreement, any interest which the General Partner shall then have in the
capital, income, gains, losses, deductions, credits and distributions of the
Partnership shall be converted to an interest of a Limited Partner and
thereafter the General Partner shall retain that interest as a Limited Partner
and shall be treated, in all respects, as a Limited Partner. In the event the
General Partner should be expelled, resign or withdraw from the Partnership, the
General Partner shall be entitled to interest on any loans made to the
Partnership pursuant to the provisions of this Agreement.
8.3 RIGHTS, AUTHORITY, POWERS, RESPONSIBILITIES AND DUTIES OF THE GENERAL
PARTNER
8.3.1 GENERAL POWERS. The General Partner shall have all authority,
right and power conferred by law and required or appropriate for the management
of the Partnership's business which, by way of illustration, but not by way of
limitation, shall include the rights, authority and powers specified in
Paragraph 8.3.2 of this Agreement. In the management of Partnership business,
the General Partner may delegate duties to such persons as the General Partner
may deem appropriate.
8.3.2 SPECIFIC POWERS.
8.3.2.1 ACQUIRE, MANAGE AND SELL PROPERTY. To the extent reasonably
necessary to achieve the Partnership's objectives, to acquire, hold and dispose
of any personal or real property or interests therein, at such price for cash or
securities or other property, and upon terms, as the General Partner, in its
sole discretion, deems to be in the best interest of the Partnership.
8.3.2.2 MANAGE PROPERTY ASSETS. To manage, operate and develop any
Partnership asset or investment, and to enter into leases, servicing agreements,
marketing agreements, consulting agreements, operating agreements, joint
ventures or other contracts with such persons with respect to assets and
investments acquired by the Partnership, containing such terms, provisions and
conditions as the General Partner shall approve. No person doing business or
dealing with the Partnership shall be required to inquire into the authority of
the General Partner to take any action or make any decisions.
8.3.2.3 BORROW. To borrow money and, if security is required
therefor, to subject any Partnership property to any security device, to obtain
replacements of any security device, and to prepay, in whole or in part,
refinance, increase, modify, consolidate or extend any mortgage or other
security device, all of the foregoing on such terms and in such amounts as the
General Partner, in its sole discretion, deems to be in the best interest of the
Partnership.
8.3.2.4 CONTRACT FOR INSURANCE. To acquire and enter into any
contract for insurance, or have the Partnership named as an additional insured,
which the General Partner deems necessary or appropriate for the protection of
the Partnership and the General Partner, for the conservation of Partnership
assets, or for any purpose convenient or beneficial to the Partnership.
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8.3.2.5 EMPLOY PERSONS AND SERVICES. To employ persons in the
operation and management of the business of the Partnership, including, but not
limited to, supervisory managing agents, accountants, bookkeepers, attorneys,
insurance brokers, real estate brokers and loan brokers, on such terms and for
such compensation as the General Partner shall determine, subject, however, to
the limitations with respect thereto as specified in Section 8.3 of this
Agreement.
8.3.2.6 PREPARE REPORTS. To prepare or cause to be prepared reports,
statements and other relevant information for distribution to the Limited
Partners deemed appropriate by the General Partner.
8.3.2.7 MAINTAIN BANK ACCOUNTS. To open accounts and deposit and
maintain funds in the name of the Partnership in banks or savings and loan
associations; provided, however, the Partnership's funds shall not be commingled
with the funds of any other person.
8.3.2.8 TAX ELECTIONS. To cause the Partnership to make or revoke
any elections pursuant to federal or state tax laws as the General Partner, in
its discretion, deems to be in the best interest of the Partnership.
8.3.2.9 SELECTING ACCOUNTING METHOD AND YEAR. To select as the
Partnership's accounting year a calendar year or such fiscal year as approved by
the Internal Revenue Service, and to determine the appropriate accounting method
or methods to be used by the Partnership. The Partnership intends, initially, to
utilize the accrual method of accounting in maintaining the Partnership's books
and records and to report on the basis of a calendar year.
8.3.2.10 SELL UNITS. To offer and sell Units directly or through
finders, wholesalers, agents or Broker/Dealers; provided, however, such persons
shall be Broker/Dealers licensed with the National Association of Securities
Dealers, Inc. or shall be otherwise Registered Representatives, to persons who
make the requisite Capital Contributions, and to admit such persons as Limited
Partners.
8.3.2.11 PURCHASE UNITS FOR OWN ACCOUNT. To purchase Units for the
General Partner's account for investment, or for resale. If the General Partner,
also, is a Limited Partner, then the interests, rights and obligations of the
General Partner as the General Partner and as a Limited Partner at all times
shall be kept separate and distinct.
8.3.2.12 TEMPORARY REFUSAL TO TRANSFER UNITS. To temporarily refuse
to transfer a Limited Partner's interest in the Partnership if such transfer
would result in a sale or exchange of more than 50% of the Partnership's capital
and profits within a 12 month period.
8.3.2.13 COMPROMISE AND SETTLE CLAIMS. To compromise, arbitrate or
otherwise adjust claims in favor of or against the Partnership and to commence
or defend litigation with respect to the Partnership or any assets of the
Partnership as the General Partner may deem advisable, all or any of the above
matters being at the expense of the Partnership; and to satisfy any judgment,
decree, decision or settlement first, out of any insurance proceeds available
therefor, and then out of Partnership assets and income.
8.3.2.14 CONTRACT WITH AFFILIATES. The General Partner may contract
on behalf of the Partnership with Affiliates of the General Partner or the
Partnership to provide services or materials for the Partnership, such as
management, maintenance, executive, accounting, brokerage, or legal services;
provided, however, the fees to be paid therefor and the terms and conditions
thereof will not be less favorable to the Partnership than those which could be
reasonably obtained by the Partnership from equally qualified but unaffiliated
persons; provided, further, however, such contracts must satisfy the
requirements of Rules 260.140.125, 260.140.125.1, 260.140.126, 260.140.127.1 and
260.140.127.2 of the Department of Corporations of the State of California.
8.3.2.15 NON-RECOURSE CONTRACTS. To require in all Partnership
contracts that the General Partner shall not have any personal liability
thereon, but that the person contracting with the Partnership is to look solely
to the Partnership and the Partnership's assets for satisfaction.
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8.3.2.16 AMEND PARTNERSHIP AGREEMENT. Subject to the provisions of
Subparagraph 9.3.2.1 of this Agreement, to amend this Agreement after obtaining
a Majority Vote (i) to carry out the business and purpose of the Partnership;
(ii) to add to the representations, duties or obligations of the General Partner
or surrender any right or power granted to the General Partner in this
Agreement, for the benefit of the Limited Partners; and (iii) to cure any
ambiguity, to correct or supplement any provision of this Agreement that may be
inconsistent with any other provision in this Agreement or to add any other
provision with respect to matters or questions occurring pursuant to the
provisions of this Agreement that will not be inconsistent with the provisions
of this Agreement.
8.3.2.17 EXECUTION OF DOCUMENTS. To execute, acknowledge and deliver
any and all instruments to effectuate the foregoing, and to take all such action
in connection therewith as the General Partner shall deem necessary or
appropriate.
8.3.2.18 INVEST PRIOR TO ACQUISITION. To invest the Gross Proceeds
or Net Proceeds temporarily prior to the purchase of assets in short term,
highly liquid investment where there is appropriate safety of principal.
8.3.2.19 LEND MONEY AND FUNDS. To lend any and all monies and funds
of the Partnership to such persons, including Affiliates of the General Partner,
as the General Partner shall determine to be appropriate; provided, however, the
terms and conditions thereof shall not be more favorable to any Affiliate of the
General Partner then those terms and conditions which could be reasonably
obtained by such Affiliate from equally qualified but unaffiliated lenders;
provided, further, however, such lending transactions must satisfy the
requirements of Rules 260.140.125, 260.140.125.1, 260.140.126, 260.140.127.1 and
260.140.127.2 of the Department of Corporations of the State of California.
8.3.2.20 PERFORM OTHER ACTS. To perform any and all other acts or
activities customary or incident to the business of the Partnership.
8.3.3 DUTIES AND RESPONSIBILITIES OF THE GENERAL PARTNER. The General
Partner shall devote only such time to the Partnership as the General Partner,
in its discretion, determines to be reasonably required for the efficient
conduct of the affairs of the Partnership, but nothing specified in this
Agreement shall preclude the General Partner from engaging in or possessing an
interest in other business ventures of every nature and description, and neither
the Partnership nor the Limited Partners shall have any interest, by virtue of
this Agreement, in any such other business ventures or the income or profits
derived therefrom. In addition, nothing specified in this Agreement, except the
provisions of Subparagraph 8.3.2.14 of this Agreement, shall preclude the
employment of any agent, third party or Affiliate of the General Partner to
manage or provide other services in respect of the Partnership's properties or
business subject to the control of the General Partner. The General Partner, in
all instances, shall retain general control over and continue to supervise
generally the day to day operations of the Partnership's properties and business
and, in this connection, the General Partner shall provide, furnish and perform,
in a good faith, diligent and efficient manner, all normal and customary
business and administrative duties and services necessary to conduct the
Partnership's business in an expeditious and economical manner.
8.3.3.1 OWNERSHIP OF PROPERTY. The General Partner shall take such
steps as are necessary, in the General Partner's best judgment, to acquire
ownership to any property acquired by the Partnership, acceptable for the
purposes of the Partnership.
8.3.3.2 FILINGS. The General Partner shall be responsible for filing
a Certificate of Limited Partnership and a Fictitious Business Name Statement
and any required amendments thereto.
8.3.3.3 NET WORTH. The General Partner (i) will use its best efforts
at all times to maintain a net worth in excess of the total amount that could
reasonably be expected to be demanded from the General Partner by creditors of
all partnerships of which it is a general partner; (ii) will hold its interest
in the Partnership for its own account; and (iii) will not agree to act as a
nominee or agent of a limited partner except as set forth in the partnership
agreements for the partnerships of which it is or may hereafter become a general
partner.
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8.3.3.4 TAX MATTERS PARTNER. The Partners do hereby appoint
Performance Development, Inc., the General Partner, to act as the "Tax Matters
Partner," as described in the Tax Equity and Fiscal Responsibility Act of 1982.
8.4 LIMITATIONS ON GENERAL PARTNER'S AUTHORITY. The General Partner shall
have all the rights and powers and be subject to all the responsibilities and
the liabilities of a partner in a partnership without limited partners, except
that neither the General Partner nor any of its Affiliates shall have the
authority to:
8.4.1 ALTER PURPOSE OF PARTNERSHIP. Alter the primary purpose of the
Partnership as specified in Article I of this Agreement.
8.4.2 ACTS IN CONTRAVENTION OF THIS AGREEMENT. Do any act in
contravention of this Agreement or any separate Certificate of Limited
Partnership or enter into any reciprocal business arrangement which could
circumvent any of the restrictions specified in this Agreement.
8.4.3 HINDER THE PROVISIONS OF THIS AGREEMENT. Do any act which would
make it impossible to carry on the ordinary business of the Partnership as
provided in this Agreement.
8.4.4 POSSESS PARTNERSHIP PROPERTY. To possess Partnership property or
assign the rights of the Partnership in specific property other than for a
Partnership purpose.
8.4.5 ADMIT PERSONS CONTRARY TO THIS AGREEMENT. Admit a person as a
Limited Partner except as otherwise provided in this Agreement.
8.4.6 CONTINUE PARTNERSHIP AFTER LEGAL TERMINATION. Enter into
contracts with the Partnership which would obligate the Partnership after the
death, retirement, expulsion, insanity, adjudication of bankruptcy or
insolvency, dissolution or other termination of existence of the General
Partner, or to continue business with the Partnership's assets after the
occurrence of such event.
8.4.7 CONFESSIONS OF JUDGMENTS. Confess a judgment against the
Partnership in connection with any threatened or pending legal action.
8.4.8 ADMISSION OF GENERAL PARTNER. Admit a person as a general partner
of the Partnership, except with the consent of the Limited Partners as specified
in this Agreement.
8.4.9 USE OF PARTNERSHIP ASSETS. Employ or permit to employ the funds
or assets of the Partnership in any manner, except for the exclusive benefit of
the Partnership.
8.4.10 CREATION OF LIABILITY OF LIMITED PARTNERS. Perform any act
(other than an act required by this Agreement or any act taken in good faith
upon counsel's opinion) which would, at the time such act occurred, subject any
Limited Partner to liability as a general partner in any jurisdiction.
8.4.11 REDEMPTION OF UNITS. Redeem or repurchase Units, except as
specified in when the General Partner determines such redemption or repurchase
is in the best interests of the Partnership and would not impair the capital of
the Partnership or the operation of the Partnership's business.
8.4.12 TAXATION AS A CORPORATION. Perform any act that would cause the
Partnership to become an association taxable as a corporation for federal income
tax purposes.
8.4.13 INTEREST OF CREDITOR IN PARTNERSHIP. Incur any non-recourse
indebtedness pursuant to which the lender will have or acquire, at any time as a
result of making extending that indebtedness, any direct or indirect interest in
the profit, capital or property of the Partnership other than as a secured
creditor.
8.4.14 COMMINGLING OF PARTNERSHIP FUNDS. Commingle the Partnership
funds with funds of any other person.
8.5 LIABILITY OF THE GENERAL PARTNER.
8.5.1 FRAUD, BAD FAITH OR GROSS MISCONDUCT. Except when any loss to the
Limited Partners is caused by fraud, bad faith, gross misconduct, gross
negligence or a breach of fiduciary duty by the General Partner (or any
employee, Affiliate, officer or director of the General Partner), it is
expressly agreed that the
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General Partner (and no employee, Affiliate, officer or director of the
General Partner) shall not be personally liable for the return of the capital or
any other contributions of the Limited Partners, or any portion thereof, but on
the contrary, that any such return shall be made solely from the Partnership's
assets. However, to be held harmless and indemnified from any loss or liability
suffered by the Partnership, all of the following conditions must be satisfied:
(1) the General Partner has determined, in good faith, that the
course of conduct which caused the loss or liability was in the best
interests of the Partnership;
(2) such liability or loss was not the result of gross negligence
or gross misconduct by the General Partner; and
(3) such indemnification or agreement to hold harmless is
recoverable only out of assets of the Partnership and not from the
Limited Partners.
8.5.2 SECURITIES LAWS. The General Partner and its Affiliates will not
be indemnified for any liability imposed by judgment, and costs associated
therewith, including attorneys' fees, occurring because of a violation of state
or federal securities laws associated with the offer and sale of the Units.
Indemnification will be allowed for settlements and related expenses of lawsuits
alleging securities violations, and for expenses incurred in successfully
defending such lawsuits, provided a court either:
(1) approves the settlement and finds that indemnification of the
settlement and related expenses should be made, or
(2) approves indemnification of litigation costs if a successful
defense is made.
8.5.3 PROPER USE OF ASSETS. The General Partner shall have a fiduciary
responsibility to the Limited Partners for the safekeeping and proper use of all
assets of the Partnership whether or not such assets are in the immediate
possession or control of the General Partner.
8.6 REMOVAL, RESIGNATION OR OTHER TERMINATION OF THE GENERAL PARTNER.
8.6.1 REMOVING GENERAL PARTNER. In the event the General Partner should
cease to be the general partner of the Partnership by reason of the death,
disability, bankruptcy, resignation or removal of the General Partner, any
remaining general partner of the Partnership, if there be one, shall become the
General Partner of the Partnership. The remaining general partner shall continue
to serve as the remaining general partner unless that General Partner shall
resign or withdraw upon 90 days written notice to the Limited Partners (in which
event the Limited Partners, pursuant to Section 9.3 of this Agreement, may elect
a successor general partner prior to the effective date of the resignation), or
is removed as the General Partner upon the vote of the Limited Partners pursuant
to Section 9.3 of this Agreement, in which event a successor general partner may
be selected by the Limited Partners pursuant to Section 9.3 of this Agreement.
8.6.2 NOTICE OF EXPULSION. Upon the requisite vote to remove the
General Partner (any Units held by the General Partner shall not be counted for
the purposes of the voting procedure) as described in Paragraph 9.3.2(2) of this
Agreement, written notice of expulsion shall be served upon the General Partner
by certified or registered mail, return receipt requested, or by personal
service. Said notice shall specify the date upon which the expulsion is to
become effective, which date shall be not less than 30 days after the service of
said notice upon the General Partner.
8.6.3 DUTIES AFTER EXPULSION. Upon receipt of the notice of expulsion,
the General Partner shall cease to act as general partner of the Partnership
unless the General Partner is the sole general partner of the Partnership; in
which event the General Partner shall continue in the management of the
Partnership's business until a successor general partner is elected, but the
General Partner shall enter into no contract except in the ordinary course of
the Partnership's business.
8.6.4 INTEREST IN PROFITS AND LOSSES. Removal, resignation or
withdrawal of the General Partner shall not affect the interest of the General
Partner in the profits and losses and in the distributions of the Partnership as
specified in Article 6 of this Agreement. Such interest, in the event of the
continuation of the business of the Partnership following removal of the General
Partner, may be treated and continue to be
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treated in all respects as a Limited Partner's interest and the
Certificate of Limited Partnership shall be amended accordingly.
8.6.5 STATUS OF UNITS AFTER REMOVAL. If the General Partner has been
expelled or removed, resigns or withdraws, or had its interest as general
partner of the Partnership terminated and owns any Units as General Partner,
such Units shall thereafter be held by the General Partner as a Limited Partner
and the Certificate of Limited Partnership shall be amended accordingly.
8.6.6 CHANGE OF PARTNERSHIP NAME. An expelled, retired or withdrawn
general partner may require the Partnership to change the Partnership's name to
a name that does not include any words, trademarks or logos associated with the
expelled, retired or withdrawn general partner.
8.7 ASSIGNMENT OF GENERAL PARTNER'S INTEREST. The General Partner may
assign or encumber its right to receive distributions from the Partnership, or a
portion thereof, without the consent of the Limited Partners. The General
Partner, however, may not substitute any transferee as a general partner of the
Partnership or assign any of the General Partner's duties and obligations
created by the provisions of this Agreement without the approval of a Majority
Vote.
9. LIMITED PARTNERS.
9.1 ADMISSION OF LIMITED PARTNERS.
9.1.1 MINIMUM OF UNITS. The Partnership intends to sell and issue 1,000
Units in exchange for Capital Contributions of $5,000 per each Unit in cash.
Each person who acquires any Units shall be eligible to become a Limited Partner
in the Partnership at such time as that person has:
(1) purchased 5 or more Units, or less than 5 Units, or, a fraction
of a Unit, if, in the discretion of the General Partner, purchases of
less than the minimum purchase are permitted;
(2) submitted to the Partnership the amount of $5,000 in cash,
check or money order for each Unit purchased;
(3) executed and filed with the General Partner a written
instrument which sets forth an intention to become a Limited Partner and
requests admission to the Partnership in that capacity, together with
such other instruments as the General Partner may deem necessary or
desirable to effect such admission, including the written acceptance and
adoption by such person of the provisions of this Agreement, and the
execution, acknowledgment and delivery to the General Partner of a
special power of attorney, the form, style and content of which are more
fully described herein; and
(4) obtained the consent of the General Partner to be admitted as a
Limited Partner, which consent shall be within the absolute discretion
of the General Partner. Such consent shall be given or refused by the
Closing Date.
9.1.2 ADMISSION INTO PARTNERSHIP. Purchasers shall be admitted as
Limited Partners not later than 15 days after the release of their funds from
escrow, if the funds of those purchasers are escrowed. Otherwise, purchasers
shall be admitted as Limited Partners not later than the first day of the fiscal
quarter following the date upon which the General Partner accepts their
subscriptions.
9.1.3 RELEASE OF PROCEEDS OF OFFERING. If 50 Units have not been sold
by the Closing Date, the offering will terminate and funds received for the
purchase of Units and any interest earned on those funds will be returned to
subscribers. If 50 Units have been sold prior to the Closing Date, the proceeds
of the offering will be released to the Partnership on the date such 50 Units
have been sold and subscribers shall be deemed to have been admitted to the
Partnership on such date.
9.1.4 CONTINUED SALE OF UNITS. The Partnership may continue to sell
Units until all 1,000 Units have been sold or until April 1, 1995, whichever
occurs first, and the net proceeds from such sales will be used for the purposes
specified in this Agreement.
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9.1.5 AMENDMENT OF AGREEMENT. The General Partner, when required, shall
amend this Agreement and any separate Certificate of Limited Partnership filed
for record to specify the admission of a person as a Limited Partner. The number
of Units acquired by the Limited Partners and each Partner's respective
ownership interest is set forth in Schedule A which is attached hereto and
incorporated herein by this reference.
9.2 STATUS OF LIMITED PARTNERS.
9.2.1 LIABILITY. A Limited Partner shall not be obligated by, or be
personally liable for, the expenses, liabilities or obligations of the
Partnership except to the extent of the Capital Contribution required to be made
by that Limited Partner pursuant to the terms of this Agreement and any
additional contribution to the capital of the Partnership actually made by that
Limited Partner. A Partner is liable to return a distribution if, after the
distribution, Partnership liabilities exceed the fair salable value of
Partnership assets. However, nonrecourse liabilities and the assets which secure
those liabilities, as well as liabilities owed to Partners on account of their
interests in the Partnership, are excluded. Notwithstanding the above
limitations, the Limited Partners hereby consent to such distributions in the
event all Partnership debts (other than debts owing to the Partners) have been
paid or provided for adequately.
9.2.2 NONASSESSABILITY. Each Unit shall be paid completely and
nonassessable, when issued.
9.3 RIGHTS, POWERS AND VOTING RIGHTS OF THE LIMITED PARTNERS.
9.3.1 MANAGEMENT. Limited Partners shall take no part in, or interfere
in any manner with, the control, conduct or operation of the Partnership and
shall have no right or authority to act for or obligate the Partnership.
9.3.2 VOTING RIGHTS. The provisions of this Agreement notwithstanding,
without the necessity for concurrence by the General Partner, a Majority Vote
may:
(1) amend this Agreement;
(2) remove the General Partner;
(3) elect a new general partner;
(4) approve or disapprove the sale of all or substantially all of
the assets of the Partnership; and
(5) dissolve the Partnership.
9.3.2.1 AMENDMENT OF AGREEMENT BY GENERAL PARTNER. Without the
concurrence of a Majority Vote, the General Partner may not amend this Agreement
except for those amendments which do not affect the rights of the Limited
Partners.
9.3.2.2 RESTRICTION ON RIGHT OF LIMITED PARTNERS. A Majority Vote
may not modify this Agreement with respect to the compensation or distributions
to which the General Partner is entitled or which affects the duties of the
General Partner except with the consent of the General Partner, except as
provided in Paragraph 8.6.4 of this Agreement.
9.3.3 MAJORITY VOTE. All matters upon which the Limited Partners may
vote shall require, and the term "Majority Vote" shall mean, the vote or written
consent of 50% or more of all issued Units held by the Limited Partners. Each
Limited Partner shall be entitled to cast one vote for each Unit which that
Limited Partner owns.
9.3.4 PROCEDURE FOR VOTING.
9.3.4.1 NOTICE OF MEETING. The General Partner, at any time, may
call a meeting or a vote without a meeting of the Limited Partners, and shall
call for such meeting or vote and give written notice thereof which will be
given not less than 10 nor more than 60 days following receipt of written
request therefor by Limited Partners holding at least 10% or more of the Units.
The General Partner shall mail, postage-paid, written notice of any such meeting
or vote to all Partners of record as of the date of mailing and to the most
recent addresses shown on the records of the Partnership. Each notice shall
include a detailed statement of the
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action proposed, including a verbatim statement of the wording of any
resolution proposed for adoption by the Limited Partners and of any proposed
amendment to this Agreement and the General Partner's recommendation with
respect to any matters that are to be voted on. The General Partner shall
provide for proxies or written consents which specify a choice between approval
and disapproval of each matter to be acted upon at the meeting. Notice given in
the foregoing manner shall be deemed complete 48 hours after that notice's
deposit by the General Partner in any regular United States Postal Service
depository. All expenses of the meeting or vote and of notice thereof shall be
paid by the Partnership. For a valid Partnership meeting and quorum there must
be in attendance, by person or by proxy, Limited Partners holding a majority of
the Units. Should there be a failure to have such a quorum at any meeting, then
that meeting shall be re-scheduled by those Limited Partners originally in
attendance at that adjourned meeting, for a date certain and the General Partner
shall notify those Limited Partners not in attendance at that adjourned meeting
of the new time, day and place. When obtaining a written vote on any matter to
be voted on without a meeting, a failure to respond within a specified time, but
not less than 10 days, shall constitute a vote of approval of the General
Partner's recommendation with respect thereto.
9.3.4.2 ONE VOTE PER UNIT. A Limited Partner shall be entitled to
cast one vote for each Unit which that Limited Partner owns (i) at a meeting, in
person, by written proxy or by a signed writing directing the manner in which
that Limited Partner desires that his vote be cast; or (ii) without a meeting,
by a signed writing directing the manner in which that Limited Partner desires
that his vote be cast which proxy or writing must be received by the General
Partner prior to the date upon which the votes of Limited Partners of record as
of the date of such meeting or vote shall be counted. The General Partner shall
not be entitled to vote except to the extent the General Partner also owns Units
as a Limited Partner. The laws of the State of California pertaining to the
validity and use of corporate proxies shall govern the validity and use of
proxies given by Limited Partners.
9.3.4.3 LIMITATIONS OF VOTING RIGHTS. No Limited Partner shall have
the right or power to:
(1) Withdraw or reduce his contribution to the capital of the
Partnership except as a result of the dissolution of the Partnership
or as otherwise provided by law;
(2) Bring an action for partition against the Partnership;
(3) Cause the termination and dissolution of the Partnership by
court decree or otherwise, except as set forth in this Agreement; or
(4) Demand or receive property other than cash in return for
that Limited Partner's Capital Contribution. Except as provided in
this Agreement, no Limited Partner shall have priority over any other
Limited Partner either as to the return of Capital Contributions or
as to income, gains, losses, deductions, credits or distributions.
Other than upon the termination and dissolution of the Partnership as
provided by this Agreement, there has been no time agreed upon when
the Capital Contribution of each Limited Partner is to be returned.
This Agreement may not be amended without the consent of the Partner
to be adversely affected by any amendment which would:
(a) convert a Limited Partner to a general partner of the
Partnership;
(b) modify the limited liability of a Limited Partner;
(c) alter the interest of the General Partner or the Limited
Partners in the income, gains, losses, deductions, credits or
distributions of the Partnership; or
(d) affect the status of the Partnership as a partnership
for federal income tax purposes.
9.4 ASSIGNMENT OF UNITS.
9.4.1 RIGHT TO ASSIGN. Subject to the provisions of this Section 9.4,
Limited Partners shall have the right to assign one or more Units owned by the
Limited Partners by a duly executed and acknowledged written instrument of
assignment in a form satisfactory to the General Partner, the terms of which are
not in
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contravention of any of the provisions of this Agreement. However, the
General Partner shall have the right to refuse to allow any such assignment if,
in the opinion of counsel to the Partnership, such assignment would jeopardize
the tax status of the Partnership. A Limited Partner shall notify the General
Partner within 30 days of any assignment or transfer by operation of law of a
beneficial interest in any Units which occurs without a transfer of record
ownership.
9.4.2 QUALIFICATION OF ASSIGNEE. An Assignee shall satisfy the
suitability standards applied to an original subscriber to the Partnership.
However, such suitability standards shall not apply to any Assignee receiving
Units by gift or by operation of law, except when the assigned Units are subject
to a liability owed to the Partnership or to a third party.
9.4.3 DEATH, INCOMPETENCY, BANKRUPTCY OR DISSOLUTION OF A LIMITED
PARTNER. The death, incompetency, bankruptcy or dissolution of a Limited Partner
shall not terminate the Partnership. Upon the death, incompetency or dissolution
of a Limited Partner, the personal representative or successor of such Limited
Partner shall have all the rights of the Limited Partner in the Partnership to
the extent of such Limited Partner's interest therein, subject to the terms and
conditions of this Agreement; and the estate or successor in interest of such
Limited Partner shall be liable for all of such Limited Partner's liabilities as
a Limited Partner, as well as the execution of all documents required to effect
the substitution of such Limited Partner's estate or successor in interest as a
Substituted Limited Partner. Such Limited Partner's estate or successor in
interest, at such time as such successor in interest is legally recognized as
the owner of such Limited Partner's interest, shall be a Substituted Limited
Partner without the necessity of complying with the provisions of Section 9.5 of
this Agreement. However, during probate of a deceased Limited Partner's estate
and if the Partnership interest of such deceased Limited Partner is subject to
such probate, then during probate such successor in interest shall be treated as
an Assignee and not a Substituted Limited Partner, but only until such time as
probate closes by evidence satisfactory to the General Partner.
9.4.4 DISTRIBUTIONS. An Assignee shall have no rights as a Limited
Partner, but shall be entitled to receive allocations from the Partnership
attributable to the Units acquired by reason of such assignment from and after
the effective date of the assignment of such Units to such Assignee. However,
the provisions of this Agreement notwithstanding, the Partnership and the
General Partner shall be entitled to treat the assignor of such Units as the
absolute owner thereof in an respects and shall incur no liability for
allocations of income, gains, losses, deductions, credits, distributions or
transmittal of reports and notices required to be given to the Limited Partners,
which are made in good faith to such assignor prior to such time as the written
instrument of assignment has been received by the General Partner and recorded
on the books of the Partnership, or prior to the effective date of such
assignment. The effective date of such assignment of Units, on which the
Assignee shall be deemed an Assignee of record, shall be the first day of the
first complete fiscal quarter following the later of (i) the date set forth on
the written instrument of assignment (unless the date set forth in that written
instrument of assignment is the first day of the fiscal quarter in which event
that date shall be the effective date) or (ii) the date on which the Partnership
has actual notice of the assignment. The allocations and distributions
attributable to the Partnership interest acquired by reason of such assignment
shall be divided among and allocated between the assignor and Assignee of such
interest in proportion to the number of fiscal quarters that each is recognized
by the Partnership as the owner of the transferred Units, based upon the
effective date of the assignment of such interest.
9.4.5 OBLIGATIONS OF A LIMITED PARTNER. An assignment of Units by a
Limited Partner, including assignments of all or less than all rights specified
in this Agreement, shall not relieve the transferor of his duties and
obligations specified in this Agreement, whether occurring prior to or
subsequent to such assignment.
9.5 SUBSTITUTED LIMITED PARTNERS. A Substituted Limited Partner shall have
the rights and powers, and shall be subject to all the restrictions and
liabilities, of the respective assignor, except those liabilities of which that
Substituted Limited Partner was ignorant at the time that Substituted Limited
Partner became a Limited Partner and which could not be ascertained from this
Agreement or from the Certificate of Limited Partnership.
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9.5.1 CONDITIONS OF SUBSTITUTION. A Limited Partner may designate an
Assignee as a Substituted Limited Partner, but no Assignee shall have the right
to become a Substituted Limited Partner in place of the respective assignor
unless all of the following conditions are first satisfied:
9.5.1.1 WRITTEN ASSIGNMENT. A duly executed and acknowledged written
instrument of assignment shall have been filed with the Partnership, which
instrument shall set forth the name of the assignor; the name, address and
social security or identification number of the Assignee; the details of the
assignment; the number of Units being assigned and the intention of the assignor
that the Assignee become a Substituted Limited Partner in the assignor's place
and stead to the extent of the assigned Units.
9.5.1.2 FRACTIONAL UNITS. No part of the Partnership interest being
acquired by the Assignee consists of less than 1 Unit, unless that part involves
the entire Partnership interest of the assignor.
9.5.1.3 INSTRUMENTS OF SUBSTITUTION. The assignor and Assignee shall
have executed and acknowledged such instruments as the General Partner may deem
necessary or desirable to effect such substitution including, without
limitation, the written acceptance and adoption by the Assignee of the
provisions of this Agreement, as amended, and the Assignee's execution,
acknowledgment and delivery to the General Partner of a special power of
attorney, the form and content of which are described more completely in Article
13 of this Agreement.
9.5.1.4 COMPLIANCE WITH SECURITIES LAWS. The assignment is effected
in compliance with all applicable state and federal securities laws as evidenced
by an opinion of counsel satisfactory to the General Partner.
9.5.1.5 CONSENT OF A GENERAL PARTNER. The written consent of the
General Partner to such substitution shall have been obtained, the granting or
denial of which shall be only in accordance with the provisions of Paragraph
9.4.1 of this Agreement.
9.5.1.6 ASSIGNMENT FEE. An assignment fee of $250 shall have been
paid to the General Partner.
9.5.2 COMMENT TO FUTURE SUBSTITUTED LIMITED PARTNERS. By executing or
adopting this Agreement, each Limited Partner hereby consents to the admission
of additional or Substituted Limited Partners by the General Partner and to any
Assignee becoming a Substituted Limited Partner.
9.5.3 AMENDMENT OF CERTIFICATE. An Assignee will become a Substituted
Limited Partner when this Agreement or a separate Certificate of Limited
Partnership is appropriately amended and filed in accordance with the provisions
of the California Revised Limited Partnership Act. The General Partner, at least
once each calendar quarter, shall cause this Agreement or any separate
Certificate of Limited Partnership to be amended to specify the admission or
substitution of Limited Partners.
9.6 COMPLIANCE WITH SECURITIES RULES OR TRANSFERS. No assignment, sale,
transfer, exchange or other disposition of any Units may be made, except in
compliance with the then applicable rules of all appropriate governmental
authorities.
9.7 VOID ASSIGNMENTS. Any assignment, sale, exchange or other transfer in
contravention of any of the provisions of this Article 9 shall be void and
ineffectual, and shall not obligate, or be recognized by, the General Partner or
the Partnership.
10. BOOKS, RECORDS, ACCOUNTING AND REPORTS.
10.1 RECORDS. The General Partner shall keep at its office in California
the following Partnership documents:
(1) A current list of the complete name and last known business or
residence address of each Partner, together with the contribution and share
in profits and losses of each Partner;
(2) A copy of the Certificate of Limited Partnership and all
certificates of amendment and executed copies of any powers of attorney
pursuant to which any certificate has been executed;
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(3) Copies of the Partnership's federal, state and local income tax or
informational returns and reports, if any, for the 6 most recent years;
(4) Copies of the original copy of this Agreement and all amendments
to this Agreement;
(5) Financial statements of the Partnership for the 6 most recent
years; and
(6) The Partnership's books and records as those books and records
relate to the internal affairs of the Partnership for at least the current
and 3 most recent years.
10.2 DELIVERY TO LIMITED PARTNER AND INSPECTION. (i) Upon the request of
a Limited Partner, the General Partner shall deliver promptly to the requesting
Limited Partner, at the expense of the Partnership, a copy of the information to
be maintained required by the provisions of subsections (1), (2), and (4) of
Section 10.1 of this Agreement. Each Limited Partner has the right, upon
reasonable request, to (i) inspect and copy during normal business hours any of
the Partnership records required to be maintained by Section 10.1 of this
Agreement; and (b) obtain from the General Partner, promptly after becoming
available, a copy of the Partnership's federal, state and local income tax or
informational returns for each year. The General Partner shall send to each
Partner no later than 60 days after the end of each year, the information
necessary for that Partner to complete that Partner's federal and state income
tax or informational returns, and if requested by a Limited Partner, there shall
be included no later than that 60 day period a copy of the Partnership's
federal, state and local income tax or informational returns for the year in
which such request is made.
10.3 ANNUAL REPORTS. The General Partner will provide to the Limited
Partners, no later than 60 days after the end of each year of the Partnership, a
report containing:
(1) A balance sheet for the Partnership as of the end of that year,
which may be unaudited;
(2) A statement of income for the Partnership for that year, which may
be unaudited;
(3) A statement of changes in financial position for the Partnership
for that year, which may be unaudited; and
(4) Other pertinent information regarding the Partnership and the
activities of the Partnership during the period covered by that report.
10.4 TAX ALLOCATIONS. To the extent permitted by law, (i) all income,
gains and losses shall be allocated to the Partners to whom the revenues
resulting in the realization of such income, gains or losses are allocated
pursuant to Article 6 of this Agreement; (ii) all deductions and credits shall
be allocated to the Partners charged with the expenditures causing such
deductions or credits to occur; and (iii) all recapture of previously taken
deductions or credits shall be allocated to the Partners to whom such deductions
or credits were allocated. To the extent permitted by law, all items of tax
preference for federal income tax purposes shall be allocated to the Partners
credited with the revenues resulting in the realization of the income, gains or
loss causing such items of tax preference to occur or charged with the
expenditure causing the deductions or credits to which such items of tax
preference are attributable to occur. To the extent permitted by law, each
Partner shall be entitled to that Partner's distributive share of Partnership
income, gain, loss, deduction or credit, or items of tax preference in computing
that Partner's taxable income or tax liability, to the exclusion of any other
Partner.
10.5 TAX ELECTIONS. Upon the assignment of all or part of a Limited
Partner's interest in the Partnership or upon the death of an individual Limited
Partner, or upon the distribution of any Partnership property to any Partner,
the Partnership, at the General Partner's option, may file an election in
accordance with applicable regulations, to cause the basis of the Partnership
property to be adjusted for federal income tax purposes as provided by Sections
734, 743 and 754 of the Code; similar elections pursuant to the provisions of
state and local income tax laws, at the General Partner's option, may be made.
10.6 RECORDS OF ADJUSTED TAX BASIS. To the extent the General Partner is
required to determine the adjusted tax basis of any Partnership property with
respect to which the Code requires records of such adjusted tax basis be kept
and maintained by the Limited Partners, the General Partner may request
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information regarding such adjusted tax basis from the Limited Partners, in
writing, and the Limited Partners shall furnish such information to the General
Partner no later than 30 days after said request is mailed by the General
Partner.
10.7 TAX RETURN. The General Partner, at the expense of the Partnership,
shall cause income tax returns for the Partnership to be prepared and timely
filed with the appropriate authorities.
10.8 DEFENSE OF CERTAIN CLAIMS. The General Partner, at the expense of
the Partnership, shall have the right to assume the defense of any claims made
by the IRS to the extent that such claims occur because of or relate to the
Partnership's business or investment activities, and in connection therewith, to
retain and pay counsel chosen by the General Partner, in the General Partner's
sole discretion. In no case, however, shall the Partnership be liable for any
additional tax payable by a Partner or for any costs of separate counsel chosen
by such Partner to represent such Partner with respect to any aspects of such
defense.
10.9 CAPITAL ACCOUNTS. The General Partner will maintain a separate
capital account for each Partner which shall be credited with (i) such Partner's
contributions to the capital of the Partnership and (ii) such Partner's
allocable share of Partnership revenues, gains and income, and which shall be
charged with (a) such Partner's allocable share of Partnership costs, expenses
and losses and (b) the amount of any distributions made to such Partner. The
books and records of the Partnership shall include such other separate and
additional accounts for each Partner as shall be necessary to specify accurately
the rights and interests of the Partners.
10.10 SPECIAL REPORTS. The General Partner, at the expense of the
Partnership, shall cause to be prepared and timely filed with the appropriate
federal and state agencies all reports required to be filed with such agencies
pursuant to the then current applicable laws, rules and regulations. Those
reports shall be prepared on the accounting or reporting basis required by those
appropriate regulatory agencies.
11. CERTAIN OPPORTUNITIES
The General Partner, any Limited Partner, any Affiliate, any partner,
shareholder, officer, director or employee thereof, or any person owning a legal
or beneficial interest therein, may engage in or possess an interest in any
other business or venture of every nature and description, independently or with
others including those which may be the same as or similar to the Partnership's
business and in direct competition with the Partnership. Neither the Partnership
nor any Partner shall have any right, by virtue of this Agreement, in or to such
independent ventures or the income or profits derived therefrom. Except when the
General Partner has an overriding fiduciary obligation to the Partnership, the
General Partner and its Affiliates will have no duty or obligation to submit to
the Partnership any business opportunities which may come to them or be
presented to any person in which they may be in any way interested, and the
General Partner and its Affiliates shall have the right to take for their own
accounts (individually or otherwise) or to recommend to others any such
investment opportunity.
12. TERMINATION, LIQUIDATION AND DISSOLUTION OF THE PARTNERSHIP.
12.1 TERMINATION. The Partnership shall be terminated and dissolved in
accordance with the Act or upon the earliest to occur of the following:
(1) The death, retirement (provided there has been 90 days prior
written notice to the Limited Partners), expulsion, insanity, adjudication
of bankruptcy or insolvency, or the dissolution of the General Partner
unless any remaining general partners of the Partnership elect to continue
the business of the Partnership;
(2) A vote pursuant to Section 9.3 of this Agreement to remove the
General Partner, unless all of the Limited Partners elect a substitute
general partner of the Partnership;
(3) A vote pursuant to Section 9.3 of this Agreement in favor of
termination and dissolution of the Partnership;
(4) The expiration of the term of the Partnership; or
19
<PAGE> 20
(5) The sale of all or substantially all of the Partnership assets and
the receipt of the final payment of the purchase price therefor.
12.2 DISTRIBUTIONS. Upon the termination and dissolution of the
Partnership for any reason, the General Partner (or a substituted general
partner of the Partnership elected by a Majority Vote) shall take complete
account of the Partnership's assets and liabilities and those assets shall be
liquidated as promptly as is consistent with obtaining the fair value thereof,
and the proceeds therefrom, to the extent sufficient to pay the Partnership's
obligations with respect thereto, shall be applied and distributed in the
following order:
(1) To the payment and discharge of all of the Partnership debts and
liabilities to persons other than Partners (or former Partners) including
the payment of promissory notes assigned and guaranteed by the Partnership
and the expenses of liquidation;
(2) To the payment and discharge of any loans and advances made by
Partners (or former Partners) to the Partnership;
(3) To the Partners in accordance with their respective Partnership
interests to the extent of the positive balances in their respective
capital accounts established pursuant to the provisions of Section 10.9 of
this Agreement; and
(4) The balance of such proceeds, if any, shall be distributed to the
Partners in accordance with their interests in the Partnership, except that
if a Partner shall have a debit balance in that Partner's capital account,
that Partner shall not receive distributions until the amount which would
otherwise be distributed to that Partner is equal to the debit balance,
after which that Partner shall then receive distributions in accordance
with that Partner's interest in the Partnership, but that Partner shall not
receive the amounts which were not distributed to that Partner because of
such debit balance.
12.3 NO RECOURSE AGAINST THE GENERAL PARTNER. Each Limited Partner shall
have that Limited Partner's Capital Contribution returned only from the assets
of the Partnership, and if the Partnership assets remaining after the payment or
discharge of the debts and liabilities of the Partnership are insufficient to
return that Capital Contribution, that Limited Partner shall have no recourse
against the General Partner, any of its Affiliates, or any other Limited
Partner.
12.4 WAIVER OF RIGHT TO COURT DECREE OF DISSOLUTION. All Partners agree
that irreparable damage would be done to the goodwill and reputation of the
Partnership if any Partner should bring an action in court to divide the
Partnership in any way other than as provided in this Agreement. Care has been
taken in this Agreement to provide what the Partners determined are fair and
just methods of liquidation of the interests of all Partners. Accordingly, each
Partner hereby waives and renounces that Partner's rights to a court decree of
dissolution, to seek the appointment by the court of a liquidator for the
Partnership, to maintain an action for partition with respect to that Partner's
undivided interest in the Partnership properties or to compel any sale of such
properties.
12.5 NOTICE OF DISSOLUTION. The General Partner shall cause (i) a Notice
of Dissolution to be published in a newspaper of general circulation in each
county where the Partnership business was regularly conducted and to be mailed
to each of the Partnership's creditors, (ii) an affidavit of publication and of
mailing to be filed with the appropriate County Clerk or Clerks within 30 days
after the publication, and (iii) the Certificate of Limited Partnership to be
canceled.
12.6 GENERAL PARTNER'S DISCRETION. The winding up and dissolution of the
Partnership's affairs and the liquidation and distribution of the Partnership's
assets shall be conducted exclusively by the General Partner (or a trustee, if
one is appointed), which is authorized to do any and all acts and things
authorized by law for these purposes. Distributions in accordance with the
provisions of this Section 12.6 or upon termination and dissolution of the
Partnership will (i) constitute a complete return to the Partners of their
interests in the profits of the Partnership and their Capital Contributions,
(ii) a final and complete distribution to the Partners of all their interests in
the Partnership properties, and (iii) a final termination and settlement of any
and all of the Partners' other interests in the Partnership.
20
<PAGE> 21
12.7 PURCHASE BY GENERAL PARTNER. The General Partner, if the General
Partner so desires, may purchase Partnership properties upon liquidation of the
Partnership at the greater of the highest bona fide independent offer received,
or if no such offer is received, the market value thereof.
13. SPECIAL POWER OF ATTORNEY.
13.1 EXECUTION OF SPECIAL POWER OF ATTORNEY. Concurrently with the
execution or written acceptance and adoption of the provisions of this
Agreement, each Limited Partner shall execute, acknowledge and deliver to the
General Partner a special power of attorney in a form acceptable to the General
Partner in which the General Partner is substituted and appointed as the
attorney-in-fact for such Limited Partner, with power and authority to act in
such Limited Partner's name and on such Limited Partner's behalf to execute,
acknowledge and swear to in the execution, acknowledgment and filing of
documents, which shall include, by way of illustration but not of limitation,
the following:
(1) This Agreement, any separate Certificate of Limited Partnership,
Fictitious Business Name Statements, as well as any amendments to the
foregoing which, pursuant to the laws of the State of California or the
laws of any other jurisdiction, are required to be filed or which the
General Partner deems it advisable to file;
(2) Any other instrument or document which may be required to be filed
by the Partnership pursuant to the laws of any state or by any governmental
agency, or which the General Partner deems advisable to file;
(3) Any instrument or document which may be required to effect the
continuation of the Partnership, the admission of an additional or
Substituted Limited Partner, or the dissolution and termination of the
Partnership (provided such continuation, admission or dissolution and
termination are in accordance with the terms of this Agreement), or to
specify any reductions in the amounts of the Capital Contributions of the
Limited Partners; and
(4) Any documents, including escrow instructions and amendments; loan
documents, including promissory notes, guarantees, deeds of trust and other
security agreements and mortgages; agreements to sell, purchase, lease,
rent and exchange Partnership assets or any interests therein; contracts,
including management contracts; and all other agreements and documents
necessary to carry out and effectuate the business of the Partnership and
the Partners.
13.2 INCIDENTS OF SPECIAL POWER OF ATTORNEY. The power of attorney hereby
granted by each Limited Partner to the General Partner shall be on the following
terms and conditions.
13.2.1 COUPLED WITH AN INTEREST. That power of attorney is a special
power of attorney coupled with an interest, is irrevocable, shall survive the
death or insanity (or, in the case of a Limited Partner that is a corporation,
association, partnership, joint venture or trust, shall survive the merger,
dissolution or other termination of the existence) of such Limited Partner; and
is limited to those matters herein set forth.
13.2.2 ACTION BY GENERAL PARTNER. That power of attorney may be
exercised by the General Partner acting alone for each Limited Partner by a
facsimile signature of the General Partner (or any one of its officers,
employees or agents), or by listing all of the Limited Partners executing any
instrument with a single signature of the General Partner (or any one of its
officers, employees or agents) acting as attorney-in-fact for all of the Limited
Partners.
13.2.3 SURVIVAL OF ASSIGNMENT. That power of attorney shall survive an
assignment by a Limited Partner of all or any portion of such Limited Partner's
interest in the Partnership when an Assignee has been approved by the General
Partner for admission to the Partnership as a Substituted Limited Partner, and
that power of attorney shall survive such assignment for the sole purpose of
enabling the General Partner to execute, acknowledge and file any instrument or
document necessary to effect such substitution, as well as for the purposes set
forth in Section 13.1 of this Agreement.
13.2.4 ADDITIONAL ACTION. The power of attorney granted herein includes
the authority to take any additional action which the General Partner shall
consider necessary or convenient in connection with any of
21
<PAGE> 22
the powers granted to the General Partner pursuant to Article 8 of this
Agreement, hereby giving the General Partner complete power and authority to do
and perform each and every act and thing whatsoever requisite and necessary to
be done in and about the foregoing as completely as such Limited Partner might
or could do if personally present, and hereby ratifying and confirming all that
the General Partner shall lawfully do or cause to be done by virtue hereof.
13.3 AUTHORITY OF THE GENERAL PARTNER. The General Partner shall be
authorized to obligate the Partnership by the signature of any of the General
Partner's officers alone, and a facsimile signature is as effective as an actual
signature.
13.4 ACKNOWLEDGEMENT BY LIMITED PARTNERS. Each of the Limited Partners is
aware that the terms and conditions of this Agreement permit certain amendments
of this Agreement to be effected and certain other actions to be taken or
omitted by or with respect to the Partnership, in each case with the approval of
less than all of the Limited Partners. Such actions include, without limitation,
substitution of the General Partner. If, as and when (i) an amendment of this
Agreement is proposed or an action is proposed to be taken or omitted by or with
respect to the Partnership which requires, pursuant to the provisions of this
Agreement, the approval of a specified percentage in interest (but less than
all) of the Partners; (ii) Partners holding the percentage of interests in the
Partnership specified in this Agreement as being required for such amendment or
action have approved such amendment or action in the manner contemplated by this
Agreement; and (iii) a Limited Partner has failed or refused to approve such
amendment or action (hereinafter referred to as a "Non-Consenting Limited
Partner"), each Non-Consenting Limited Partner agrees that each special
attorney-in-fact specified above, with complete power of substitution, is hereby
authorized, empowered and instructed to execute, acknowledge, make, swear to,
verify, deliver, record, file and publish, for and on behalf of such Non-
Consenting Limited Partner, and in such Non-Consenting Limited Partner's name,
place and stead, any and all instruments and documents which may be necessary or
appropriate to permit such amendment to be lawfully made or action lawfully
taken or omitted. Each consenting Limited Partner and Non-Consenting Limited
Partner is completely aware that such Limited Partner and each other Limited
Partner have executed this special power of attorney, and that each Limited
Partner will rely on the effectiveness of this special power of attorney with an
anticipation of the orderly administration of the Partnership's affairs.
14. LIABILITY OF AND INDEMNIFICATION OF A GENERAL PARTNER.
14.1 ACTION BY THIRD PARTIES. Except as provided in Section 8.5 of this
Agreement, the General Partner shall not be liable to the Partnership or the
Limited Partners, or any of them, for any failure of any third parties to comply
with the obligations of those parties pursuant to any agreements; provided,
however, the foregoing shall not apply if the General Partner was grossly
negligent or failed to act in good faith in contracting with any such third
party.
14.2 ACTION INVOLVING GENERAL PARTNER. Except as provided in Section 8.5
of this Agreement, in any threatened, pending or completed action, lawsuit or
proceeding to which the General Partner (including employees, Affiliates,
officers or directors of the General Partner) was or is a party or is threatened
to be made a party by reason of the fact that it is or was the General Partner
(other than an action by or in the right of the Partnership), the Partnership
shall indemnify the General Partner (including employees, Affiliates, officers
or directors of the General Partner) against all costs and expenses, including
attorneys' fees, costs of investigation, fines, judgments and amounts paid in
settlement, actually and reasonably incurred by the General Partner (or such
employee, Affiliates, officer or director) in connection with such action,
lawsuit or proceeding if the General Partner (or such employee, Affiliates,
officer or director) acted in good faith in a manner it reasonably believed to
be in or not opposed to the best interests of the Partnership; provided,
however, that the General Partner's conduct does not constitute negligence,
misconduct, or a breach of fiduciary obligation to the Limited Partners and, in
the case of a criminal proceeding, the General Partner had no reasonable cause
to believe the General Partner's conduct was unlawful. The termination of any
action, lawsuit or proceeding by judgment, order, settlement, conviction or upon
a plea of nolo contendere or its equivalent shall not, of itself, create a
presumption that the General Partner (or such employee, Affiliate, officer or
director) did not act in good faith and in a manner which the General Partner
reasonably believed to be in or not opposed to the best interests of the
Partnership or that the General Partner had reasonable cause
22
<PAGE> 23
to believe that the General Partner's conduct was unlawful. The General Partner
(and the employees, Affiliates, officers or directors of the General Partner)
shall not be indemnified by the Partnership with respect to any expense relating
to any claim, issue or matter as to which such General Partner (or employee,
Affiliate, officer or director of the General Partner) shall have been adjudged
to be liable for negligence or misconduct.
14.3 DEFENSE OF ACTION. Except as provided in Section 8.5 of this
Agreement, to the extent that the General Partner (including any employees,
Affiliates, officers or directors of the General Partner) has been successful on
the merits or otherwise in defense of an action, suit or proceeding referred to
in Sections 14.2 or 14.3 of this Agreement, or in defense of any claim, issue or
matter therein, the Partnership shall indemnify the General Partner (or such
employee, Affiliates, officer or director) against all costs and expenses,
including attorneys' fees and costs of investigation, actually and reasonably
incurred by it in connection therewith. An indemnification pursuant to the
provisions of Sections 14.2 and 14.3 of this Agreement, unless ordered by a
court, shall be made by the Partnership only as authorized in the specific case
and only upon a determination by independent legal counsel in a written opinion
that indemnification of the General Partner (or such employee, Affiliates,
officer or director) is proper in the circumstances because the General Partner
has met the applicable standard of conduct set forth in Sections 14.2 and 14.3
above.
14.4 SATISFACTION OF JUDGMENTS. Except as provided in Section 8.5 of this
Agreement, all judgments against the Partnership and the General Partner,
wherein the General Partner (including any employee, Affiliate, officer or
director of the General Partner) is entitled to indemnification, must first be
satisfied from Partnership assets before the General Partner is responsible for
those judgments.
14.5 RESTRICTION ON INDEMNIFICATION. Except as provided in Section 8.5 of
this Agreement, notwithstanding Section 14.1 of this Agreement, neither the
General Partner nor any officer, Affiliate, director, employee, agent,
subsidiary or assign of the General Partner or of the Partnership shall be
indemnified against any liability, loss or damage incurred by the General
Partner in connection with (i) any claim or settlement involving allegations
that the Securities Act of 1933 was violated by the General Partner or by any
such other person unless (a) the General Partner or other persons seeking
indemnification are successful in defending such action, and (b) such
indemnification is specifically approved by a court of competent jurisdiction
which shall have been advised as to the current positions of, both, the
Securities and Exchange Commission and the California Commissioner of
Corporations regarding indemnification for violations of securities law or (ii)
any liability imposed by law, including liability for fraud, bad faith or
negligence, and the provisions of Paragraph 8.5.1 of this Agreement have been
satisfied by the General Partner.
IN THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION, INDEMNIFICATION
FOR LIABILITIES OCCURRING PURSUANT TO THE SECURITIES ACT OF 1933 IS AGAINST
PUBLIC POLICY AS EXPRESSED IN THAT ACT AND, THEREFORE, IS UNENFORCEABLE.
15. MISCELLANEOUS.
15.1 COUNTERPARTS. This Agreement may be executed in several counterparts,
and all counterparts when so executed shall constitute one agreement, obligating
all Partners, notwithstanding that all of the Partners are not signatory to the
original or the counterpart.
15.2 SUCCESSORS AND ASSIGNS. The terms and provisions of this Agreement
shall obligate and shall inure to the benefit of the successors and assigns of
the respective Partners.
15.3 GOVERNING LAW. This Agreement shall be deemed to have been entered
into in the County of Orange, State of California, and all questions concerning
the validity, interpretation, or performance of any of the terms or provisions
of this Agreement or of any of the rights or obligations of the parties to this
Agreement, shall be governed by, and resolved in accordance with, the laws of
the State of California. Any and all actions or proceedings, at law or in
equity, to enforce or interpret the provisions of this Agreement shall be
litigated in courts having situs within the County of Orange, State of
California, and each party hereby consents to the exclusive jurisdiction and
venue of any local, state or federal court located within the County of Orange,
State of California.
23
<PAGE> 24
15.4 VOID PROVISION. In the event any part of this Agreement is declared
by a court of competent jurisdiction to be void, such part shall be deemed
severed from the remainder of the Agreement and the balance of the Agreement
shall remain in effect.
15.5 NOTICES. All notices pursuant to this Agreement shall be in writing
and shall be given to the Partner entitled thereto by personal service or by
certified or registered mail, return receipt requested, except that the notice
of any meeting or the furnishing of any financial statement to the Partners may
be done by regular mail. All notices sent by mail shall be posted to the address
maintained by the Partnership for such person or at such other address as that
person may verify in writing. Any notice pursuant to the provisions of this
Agreement shall be deemed received after 24 hours from the date and time of
postmark if such notice is deposited with the United States mail pursuant to the
above (if mailed) or when personally received if the mail service is not used.
15.6 CAPTIONS. Titles or captions contained in this Agreement are inserted
only as a matter of convenience and for reference. Such titles and captions in
no way define, limit, extend or describe the scope of this Agreement nor the
intent of any provision hereof.
15.7 CONTEXT. Whenever required by the context hereof, the singular shall
include the plural, and vice-versa; the masculine gender shall include the
feminine and neuter genders, and vice-versa; and the word "person" shall include
any natural person, partnership, estate, corporation, trust, cooperative,
association or other legal entity.
15.8 LEGEND. Any certificate, document or instrument evidencing any right
or interest of any Partner shall bear such legend or legends as may be required
to comply with applicable requirements of any governmental authority.
15.9 FORCE MAJEURE. The General Partner shall not be liable for any loss
or damage to Partnership property caused by strikes, labor troubles, riots,
fires, blowouts, tornadoes, floods, earthquakes, acts of a public enemy,
insurrections, acts of God, failure to carry out the provisions of this
Agreement because of provisions of law or rules or regulations promulgated by
any governmental agency or any demand or acquisition of any government, or from
any other cause beyond the control of the General Partner.
IN WITNESS WHEREOF, the General Partner and the Limited Partners have
entered into and executed this Agreement effective the dates the General Partner
accepts the subscriptions of the Limited Partners.
General Partner:
By: Performance Development, Inc.,
a California corporation
By:
----------------------------------
Its: President
24
<PAGE> 1
EXHIBIT 99.6
RECORDING REQUESTED BY AND
WHEN RECORDED MAIL TO:
SPACE ABOVE THIS LINE FOR RECORDER'S USE
=============================================================================
Office of
March Fong Eu
Secretary of State
SACRAMENTO
I, MARCH FONG EU, Secretary of State of the State of California, hereby
certify:
That the annexed transcript of 1 page(s) was prepared by and in this
office from the record on file, of which it purports to be a copy, and that
it is full, true and correct.
IN WITNESS WHEREOF, I execute this
certificate and affix the Great
Seal of the State of California
this APR 25, 1991
THE GREAT SEAL OF THE
STATE OF CALIFORNIA 87 46299
/s/ MARCH FONG EU
SEC/STATE Form LP [SEAL]
222A (Rev. 9/87) Secretary of State
<PAGE> 2
STATE OF CALIFORNIA
CERTIFICATE OF LIMITED PARTNERSHIP -- FORM LP-1
IMPORTANT--Read Instructions on back before completing this form.
This Certificate is presented for filing pursuant to Chapter 3, Article 2,
Section 15621, California Corporations Code.
- -------------------------------------------------------------------------------
1. NAME OF LIMITED PARTNERSHIP
PERFORMANCE ASSET MANAGEMENT FUND, LTD., A CALIFORNIA LIMITED
PARTNERSHIP
- -------------------------------------------------------------------------------
2. STREET ADDRESS OF 3. CITY AND STATE 4. ZIP CODE
PRINCIPAL EXECUTIVE OFFICE
1920 MAIN STREET, SUITE 1290 IRVINE, CA 92714
- -------------------------------------------------------------------------------
5. STREET ADDRESS OF CALIFORNIA OFFICE 6. CITY 7. ZIP CODE
IF EXECUTIVE OFFICE IN ANOTHER STATE
N/A CALIFORNIA
---------------------------------------------------------------------------
8. COMPLETE IF LIMITED PARTNERSHIP WAS FORMED PRIOR TO JULY 1, 1994 AND IS
IN EXISTENCE ON DATE THIS CERTIFICATE IS EXECUTED.
THE ORIGINAL LIMITED PARTNERSHIP
CERTIFICATE WAS RECORDED ON _________ 19___ WITH THE RECORDER
OF _____________________ COUNTY. FILE OR RECORDATION NUMBER______________
- -------------------------------------------------------------------------------
9. NAMES AND ADDRESSES OF ALL GENERAL PARTNERS, (CONTINUE ON SECOND
PAGE IF NECESSARY)
NAME: PERFORMANCE DEVELOPMENT, INC.
ADDRESS: 1920 MAIN STREET, SUITE 1290
CITY: IRVINE STATE CA ZIP CODE 92714
- -------------------------------------------------------------------------------
9A. NAME:
ADDRESS:
CITY: STATE ZIP CODE
- -------------------------------------------------------------------------------
9B. NAME:
ADDRESS:
CITY: STATE ZIP CODE
- -------------------------------------------------------------------------------
10. NAME AND ADDRESS OF AGENT FOR SERVICE OF PROCESS
NAME: VINCENT E. GALEWICK, PRESIDENT
ADDRESS: 1920 MAIN STREET, SUITE 1290
CITY: IRVINE STATE CA ZIP CODE 92714
- -------------------------------------------------------------------------------
11. TERM FOR WHICH THIS PARTNERSHIP IS TO EXIST
Whichever occurs first 2031 the sale of assets dissolution and
subsequent removal or incapacity of the General Partner, unless the Limited
Partners elect to continue.
- -------------------------------------------------------------------------------
12. FOR THE PURPOSE OF FILING AMENDMENTS, DISSOLUTION AND CANCELLATION
CERTIFICATES PERTAINING TO THIS CERTIFICATE, THE
ACKNOWLEDGMENT OF [1] GENERAL PARTNERS IS REQUIRED.
- -------------------------------------------------------------------------------
13. ANY OTHER MATTERS THE GENERAL PARTNERS DESIRE TO INCLUDE IN THIS CERTIFICATE
MAY BE NOTED ON SEPARATE PAGES AND BY REFERENCE HEREIN IS A PART OF THIS
CERTIFICATE NUMBER OF PAGES ATTACHED [0]
- -------------------------------------------------------------------------------
14. IT IS HEREBY DECLARED THAT I AM (WE ARE) THE PERSON(S) WHO EXECUTED THIS
CERTIFICATE OF LIMITED PARTNERSHIP, WHICH EXECUTION IS MY (OUR) ACT AND DEED
(SEE INSTRUCTIONS).
15. THIS SPACE FOR FILING
OFFICER USE (FILE NUMBER
/s/ VINCENT E. GALEWICK 04/15/91 DATE OF FILING:)
- -------------------------------- ---------------------
SIGNATURE OF DATE SIGNATURE OF DATE 9111200007
GENERAL PARTNER GENERAL PARTNER
VINCENT E. GALEWICK, PRESIDENT
PERFORMANCE DEVELOPMENT, INC., GENERAL PARTNER FILED
- ------------------------- --------------------- in the office of the
SIGNATURE OF DATE SIGNATURE OF DATE Secretary of State of
GENERAL PARTNER GENERAL PARTNER the State of California
- ------------------------- ---------------------
SIGNATURE OF DATE TITLE OR DATE
OTHER THAN DESIGNATION APR 19 1991
GENERAL PARTNER
================================================
16. RETURN ACKNOWLEDGEMENT TO:
BRIANNA BRISTOW
C/O PERFORMANCE DEVELOPMENT, INC. MARCH FONG EU
1920 MAIN STREET, SUITE 1290 SECRETARY OF STATE
IRVINE, CA 92714
================================================
FORM LP-1 -- FILING FEE $70
<PAGE> 1
EXHIBIT 99.7
RECORDING REQUESTED BY AND
WHEN RECORDED MAIL TO:
SPACE ABOVE THIS LINE FOR RECORDER'S USE
=============================================================================
Office of
March Fong Eu
Secretary of State
SACRAMENTO
I, MARCH FONG EU, Secretary of State of the State of California, hereby
certify:
That the annexed transcript of 1 page(s) was prepared by and in this
office from the record on file, of which it purports to be a copy, and that
it is full, true and correct.
IN WITNESS WHEREOF, I execute this
certificate and affix the Great
Seal of the State of California
this April 21, 1992
THE GREAT SEAL OF THE
STATE OF CALIFORNIA 87 46299
[SEAL] MARCH FONG EU
SEC/STATE Form LP
222A (Rev. 9/87) Secretary of State
<PAGE> 2
STATE OF CALIFORNIA
CERTIFICATE OF LIMITED PARTNERSHIP -- FORM LP-1
IMPORTANT--Read Instructions on back before completing this form.
This Certificate is presented for filing pursuant to Chapter 3, Article 2,
Section 15621, California Corporations Code.
- -------------------------------------------------------------------------------
1. NAME OF LIMITED PARTNERSHIP
PERFORMANCE ASSET MANAGEMENT FUND II, LTD., A CALIFORNIA LIMITED
PARTNERSHIP
- -------------------------------------------------------------------------------
2. STREET ADDRESS OF 3. CITY AND STATE 4. ZIP CODE
PRINCIPAL EXECUTIVE OFFICE
1920 MAIN STREET, SUITE 1290 IRVINE, CA 92714
- -------------------------------------------------------------------------------
5. STREET ADDRESS OF CALIFORNIA OFFICE 6. CITY 7. ZIP CODE
IF EXECUTIVE OFFICE IN ANOTHER STATE
N/A CALIFORNIA
- -------------------------------------------------------------------------------
8. COMPLETE IF LIMITED PARTNERSHIP WAS FORMED PRIOR TO JULY 1, 1994 AND IS IN
EXISTENCE ON DATE THIS CERTIFICATE IS EXECUTED.
THE ORIGINAL LIMITED PARTNERSHIP
CERTIFICATE WAS RECORDED ON _________ 19___ WITH THE RECORDER
OF _________________________ COUNTY. FILE OR RECORDATION NUMBER____________
- -------------------------------------------------------------------------------
9. NAMES AND ADDRESSES OF ALL GENERAL PARTNERS, (CONTINUE ON SECOND
PAGE IF NECESSARY)
NAME: PERFORMANCE DEVELOPMENT, INC.
ADDRESS: 1920 MAIN STREET, SUITE 1290
CITY: IRVINE STATE CA ZIP CODE 92714
- -------------------------------------------------------------------------------
9A. NAME:
ADDRESS:
CITY: STATE ZIP CODE
- -------------------------------------------------------------------------------
9B. NAME:
ADDRESS:
CITY: STATE ZIP CODE
- -------------------------------------------------------------------------------
10. NAME AND ADDRESS OF AGENT FOR SERVICE OF PROCESS
NAME: VINCENT E. GALEWICK, PRESIDENT
ADDRESS: 1920 MAIN STREET, SUITE 1290
CITY: IRVINE STATE CA ZIP CODE 92714
- -------------------------------------------------------------------------------
11. TERM FOR WHICH THIS PARTNERSHIP IS TO EXIST
Whichever occurs first 2032 the sale of assets dissolution and
subsequent removal or incapacity of the General Partner, unless the Limited
Partners elect to continue.
- --------------------------------------------------------------------------------
12. FOR THE PURPOSE OF FILING AMENDMENTS, DISSOLUTION AND CANCELLATION
CERTIFICATES PERTAINING TO THIS CERTIFICATE, THE
ACKNOWLEDGMENT OF [1] GENERAL PARTNERS IS REQUIRED.
- --------------------------------------------------------------------------------
13. ANY OTHER MATTERS THE GENERAL PARTNERS DESIRE TO INCLUDE IN THIS CERTIFICATE
MAY BE NOTED ON SEPARATE PAGES AND BY REFERENCE HEREIN IS A PART OF THIS
CERTIFICATE NUMBER OF PAGES ATTACHED [0]
- --------------------------------------------------------------------------------
14. IT IS HEREBY DECLARED THAT I AM (WE ARE) THE PERSON(S) WHO EXECUTED THIS
CERTIFICATE OF LIMITED PARTNERSHIP, WHICH EXECUTION IS MY (OUR) ACT AND
DEED (SEE INSTRUCTIONS).
15. THIS SPACE FOR FILING
OFFICER USE (FILE NUMBER
DATE OF FILING:)
- ------------------------- ---------------------
SIGNATURE OF DATE SIGNATURE OF DATE 9209000026
GENERAL PARTNER GENERAL PARTNER
VINCENT E. GALEWICK, PRESIDENT
PERFORMANCE DEVELOPMENT, INC., GENERAL PARTNER FILED
- ------------------------- --------------------- in the office of the
SIGNATURE OF DATE SIGNATURE OF DATE Secretary of State of
GENERAL PARTNER GENERAL PARTNER the State of California
- ------------------------- ---------------------
SIGNATURE OF DATE TITLE OR DATE
OTHER THAN DESIGNATION MAR 25 1992
GENERAL PARTNER
================================================
16. RETURN ACKNOWLEDGMENT TO:
BRIANNA BRISTOW
C/O PERFORMANCE DEVELOPMENT, INC. MARCH FONG EU
1920 MAIN STREET, #1290 SECRETARY OF STATE
IRVINE, CA 92714
================================================
FORM LP-1 -- FILING FEE $70
<PAGE> 1
EXHIBIT 99.8
RECORDING REQUESTED BY AND
WHEN RECORDED MAIL TO:
SPACE ABOVE THIS LINE FOR RECORDER'S USE
=============================================================================
Office of
March Fong Eu
Secretary of State
SACRAMENTO
I, MARCH FONG EU, Secretary of State of the State of California, hereby
certify:
That the annexed transcript of 30 page(s) was prepared by and in this
office from the record on file, of which it purports to be a copy, and that
it is full, true and correct.
IN WITNESS WHEREOF, I execute this
certificate and affix the Great
Seal of the State of California
this OCT 26, 1992
THE GREAT SEAL OF THE
STATE OF CALIFORNIA 87 [SEAL] 46299
SEC/STATE Form LP /s/ MARCH FONG EU
222A (Rev. 9/87)
Secretary of State
<PAGE> 2
STATE OF CALIFORNIA
CERTIFICATE OF LIMITED PARTNERSHIP -- FORM LP-1
IMPORTANT--Read Instructions on back before completing this form.
This Certificate is presented for filing pursuant to Chapter 3, Article 2,
Section 15621, California Corporations Code.
- --------------------------------------------------------------------------------
1. NAME OF LIMITED PARTNERSHIP
PERFORMANCE ASSET MANAGEMENT FUND III, LTD., A CALIFORNIA LIMITED
PARTNERSHIP
- --------------------------------------------------------------------------------
2. STREET ADDRESS OF 3. CITY AND STATE 4. ZIP CODE
PRINCIPAL EXECUTIVE OFFICE
1920 MAIN STREET, SUITE 1290 IRVINE, CA 92714
- --------------------------------------------------------------------------------
5. STREET ADDRESS OF CALIFORNIA OFFICE 6. CITY 7. ZIP CODE
IF EXECUTIVE OFFICE IN ANOTHER STATE
N/A CALIFORNIA
- --------------------------------------------------------------------------------
8. COMPLETE IF LIMITED PARTNERSHIP WAS FORMED PRIOR TO JULY 1, 1994 AND IS IN
EXISTENCE ON DATE THIS CERTIFICATE IS EXECUTED.
THE ORIGINAL LIMITED PARTNERSHIP
CERTIFICATE WAS RECORDED ON _________ 19___ WITH THE RECORDER
OF _________________________ COUNTY. FILE OR RECORDATION NUMBER____________
- --------------------------------------------------------------------------------
9. NAMES AND ADDRESSES OF ALL GENERAL PARTNERS, (CONTINUE ON SECOND
PAGE IF NECESSARY)
NAME: PERFORMANCE DEVELOPMENT, INC.
ADDRESS: 1920 MAIN STREET, SUITE 1290
CITY: IRVINE STATE CA ZIP CODE 92714
- --------------------------------------------------------------------------------
9A. NAME:
ADDRESS:
CITY: STATE ZIP CODE
- --------------------------------------------------------------------------------
9B. NAME:
ADDRESS:
CITY: STATE ZIP CODE
- --------------------------------------------------------------------------------
10. NAME AND ADDRESS OF AGENT FOR SERVICE OF PROCESS
NAME: VINCENT E. GALEWICK, PRESIDENT
ADDRESS: 1920 MAIN STREET, SUITE 1290
CITY: IRVINE STATE CA ZIP CODE 92714
- --------------------------------------------------------------------------------
11. TERM FOR WHICH THIS PARTNERSHIP IS TO EXIST
Whichever occurs first 2033 the sale of assets dissolution and
subsequent removal or incapacity of the General Partner, unless the Limited
Partners elect to continue.
- --------------------------------------------------------------------------------
12. FOR THE PURPOSE OF FILING AMENDMENTS, DISSOLUTION AND CANCELLATION
CERTIFICATES PERTAINING TO THIS CERTIFICATE, THE
ACKNOWLEDGMENT OF [1] GENERAL PARTNERS IS REQUIRED.
- --------------------------------------------------------------------------------
13. ANY OTHER MATTERS THE GENERAL PARTNERS DESIRE TO INCLUDE IN THIS CERTIFICATE
MAY BE NOTED ON SEPARATE PAGES AND BY REFERENCE HEREIN IS A PART OF THIS
CERTIFICATE NUMBER OF PAGES ATTACHED [29]
- --------------------------------------------------------------------------------
14. IT IS HEREBY DECLARED THAT I AM (WE ARE) THE PERSON(S) WHO EXECUTED THIS
CERTIFICATE OF LIMITED PARTNERSHIP, WHICH EXECUTION IS MY (OUR) ACT AND DEED
(SEE INSTRUCTIONS).
15. THIS SPACE FOR FILING
OFFICER USE (FILE NUMBER
DATE OF FILING:)
- ------------------------- ---------------------
SIGNATURE OF DATE SIGNATURE OF DATE 9228900003
GENERAL PARTNER GENERAL PARTNER
VINCENT E. GALEWICK, PRESIDENT
PERFORMANCE DEVELOPMENT, INC., GENERAL PARTNER FILED
- ------------------------- --------------------- in the office of the
SIGNATURE OF DATE SIGNATURE OF DATE Secretary of State of
GENERAL PARTNER GENERAL PARTNER the State of California
- ------------------------- ---------------------
SIGNATURE OF DATE TITLE OR DATE
OTHER THAN DESIGNATION OCT 13 1992
GENERAL PARTNER
================================================
16. RETURN ACKNOWLEDGMENT TO:
BRIANNA BRISTOW
C/O PERFORMANCE DEVELOPMENT, INC. MARCH FONG EU
1920 MAIN STREET, #1290 SECRETARY OF STATE
IRVINE, CA 92714
================================================
FORM LP-1 -- FILING FEE $70
<PAGE> 1
EXHIBIT 99.9
RECORDING REQUESTED BY AND
WHEN RECORDED MAIL TO:
SPACE ABOVE THIS LINE FOR RECORDER'S USE
===============================================================================
STATE OF CALIFORNIA
Office of
MARCH FONG EU
Secretary of State
SACRAMENTO
I, MARCH FONG EU, Secretary of State of the State of California, hereby certify:
That the annexed transcript of 32 page(s) was prepared by and in this office
from the record on file, of which it purports to be a copy, and that it is
full, true and correct.
IN WITNESS WHEREOF, I execute this certificate and affix the Great Seal of the
State of California this Nov. 03, 1992.
[SEAL OF THE STATE OF CALIFORNIA] [SEAL OF THE OFFICE OF THE SECRETARY OF
STATE]
- -------------------------------------------------------------------------------
13. ANY OTHER MATTERS THE GENERAL PARTNERS DESIRE TO INCLUDE IN THIS
CERTIFICATE MAY BE NOTED ON SEPARATE PAGES AND BY REFERENCE HEREIN IS
A PART OF THIS CERTIFICATE. NUMBER OF PAGES ATTACHED [31].
- -------------------------------------------------------------------------------
14. IT IS HEREBY DECLARED THAT I AM (WE ARE) THE PERSON(S) WHO EXECUTED THIS
CERTIFICATE OF LIMITED PARTNERSHIP, WHICH EXECUTION IS MY (OUR) ACT AND DEED
(SEE INSTRUCTIONS)
/s/ VINCENT E. GALEWICK 10/20/92
----------------------------------- ----------------------------------
SIGNATURE OF GENERAL PARTNER DATE SIGNATURE OF GENERAL PARTNER DATE
VINCENT E. GALEWICK, PRESIDENT
PERFORMANCE DEVELOPMENT, INC. -
GENERAL PARTNER
----------------------------------- ----------------------------------
SIGNATURE OF GENERAL PARTNER DATE SIGNATURE OF GENERAL PARTNER DATE
----------------------------------- ----------------------------------
SIGNATURE OF GENERAL PARTNER DATE SIGNATURE OF GENERAL PARTNER DATE
===============================================================================
16. RETURN ACKNOWLEDGMENT TO:
BRIANNA BRISTOW
PERFORMANCE DEVELOPMENT INC.
1920 MAIN STREET, SUITE 1290
IRVINE, CA 92714
===============================================================================
15. THIS SPACE FOR FILING OFFICER USE (FILE NUMBER, DATE OF FILING)
9230000009
===============================================================================
FILED IN THE OFFICE OF THE SECRETARY OF STATE OF THE STATE OF CALIFORNIA
OCTOBER 21, 1992
/s/ MARCH FONG EU
-----------------
MARCH FONG EU
SECRETARY OF STATE
<PAGE> 2
STATE OF CALIFORNIA
CERTIFICATE OF LIMITED PARTNERSHIP - FORM LP-1
IMPORTANT - READ INSTRUCTIONS ON BACK BEFORE COMPLETING THIS FORM
This Certificate is presented for filing pursuant to Chapter 3, Article 2,
Section 15621, California Corporations Code.
- -------------------------------------------------------------------------------
1. NAME OF LIMITED PARTNERSHIP
PERFORMANCE ASSET MANAGEMENT FUND IV, A CALIFORNIA LIMITED PARTNERSHIP
- -------------------------------------------------------------------------------
2. STREET ADDRESS OF PRINCIPAL EXECUTIVE OFFICE
1920 MAIN STREET, SUITE 1290
- -------------------------------------------------------------------------------
3. CITY AND STATE
IRVINE, CA
- -------------------------------------------------------------------------------
4. ZIP CODE
92714
- -------------------------------------------------------------------------------
5. STREET ADDRESS OF PRINCIPAL EXECUTIVE OFFICE
- -------------------------------------------------------------------------------
6. CITY AND STATE
- ------------------------------------------------------------------------------
7. ZIP CODE
- -------------------------------------------------------------------------------
8. COMPLETE IF LIMITED PARTNERSHIP WAS FORMED PRIOR TO JULY 1, 1984 AND IS IN
EXISTENCE ON DATE THIS CERTIFICATE IS EXECUTED.
THE ORIGINAL LIMITED PARTNERSHIP CERTIFICATE WAS RECORDED
ON __________________ 19 ___________ WITH THE RECORDER OF
_____________________ COUNTY. FILE OR RECORDATION NUMBER ________________
- -------------------------------------------------------------------------------
9. NAMES AND ADDRESSES OF ALL GENERAL PARTNERS: (CONTINUE ON SECOND PAGE, IF
NECESSARY)
NAME: PERFORMANCE DEVELOPMENT, INC.
ADDRESS: 1920 MAIN STREET, SUITE 1290
CITY: IRVINE STATE CA ZIP CODE 92714
- -------------------------------------------------------------------------------
9A.
NAME:
ADDRESS:
CITY: STATE ZIP CODE
- -------------------------------------------------------------------------------
9B.
NAME:
ADDRESS:
CITY: STATE ZIP CODE
- -------------------------------------------------------------------------------
10. NAME AND ADDRESS OF AGENT FOR SERVICE OF PROCESS
NAME: VINCENT E. GALEWICK
ADDRESS: 1920 MAIN STREET, SUITE 1290
CITY: IRVINE STATE CA ZIP CODE 92714
- -------------------------------------------------------------------------------
11. TERM FOR WHICH THIS PARTNERSHIP IS TO EXIST. Whichever occurs first 2005
the sale of assets, dissolution and subsequent removal or incapacity of the
General Partner, unless the Limited Partners elect to continue.
- -------------------------------------------------------------------------------
12. FOR THE PURPOSE OF FILING AMENDMENTS, DISSOLUTION AND CANCELLATION
CERTIFICATES PERTAINING TO THIS CERTIFICATE, THE ACKNOWLEDGMENT OF [1]
GENERAL PARTNERS IS REQUIRED.
- -------------------------------------------------------------------------------
13. ANY OTHER MATTERS THE GENERAL PARTNERS DESIRE TO INCLUDE IN THIS
CERTIFICATE MAY BE NOTED ON SEPARATE PAGES AND BY REFERENCE HEREIN IS
A PART OF THIS CERTIFICATE. NUMBER OF PAGES ATTACHED [31].
- -------------------------------------------------------------------------------
14. IT IS HEREBY DECLARED THAT I AM (WE ARE) THE PERSON(S) WHO EXECUTED THIS
CERTIFICATE OF LIMITED PARTNERSHIP, WHICH EXECUTION IS MY (OUR) ACT AND DEED
(SEE INSTRUCTIONS)
/s/ VINCENT E. GALEWICK 10/20/92
----------------------------------- ----------------------------------
SIGNATURE OF GENERAL PARTNER DATE SIGNATURE OF GENERAL PARTNER DATE
VINCENT E. GALEWICK, PRESIDENT
PERFORMANCE DEVELOPMENT, INC. -
GENERAL PARTNER
----------------------------------- ----------------------------------
SIGNATURE OF GENERAL PARTNER DATE SIGNATURE OF GENERAL PARTNER DATE
----------------------------------- ----------------------------------
SIGNATURE OF GENERAL PARTNER DATE SIGNATURE OF GENERAL PARTNER DATE
===============================================================================
16. RETURN ACKNOWLEDGMENT TO:
BRIANNA BRISTOW
PERFORMANCE DEVELOPMENT INC.
1920 MAIN STREET, SUITE 1290
IRVINE, CA 92714
===============================================================================
15. THIS SPACE FOR FILING OFFICER USE (FILE NUMBER, DATE OF FILING)
9230000009
===============================================================================
FILED IN THE OFFICE OF THE SECRETARY OF STATE OF THE STATE OF CALIFORNIA
OCTOBER 21, 1992
/s/ MARCH FONG EU
-----------------
MARCH FONG EU
SECRETARY OF STATE
<PAGE> 1
EXHIBIT 99.10
RECORDING REQUESTED BY AND
WHEN RECORDED MAIL TO:
SPACE ABOVE THIS LINE FOR RECORDER'S USE
=============================================================================
Office of
March Fong Eu
Secretary of State
SACRAMENTO
I, TONY MILLER, Acting Secretary of State of the State of California, hereby
certify:
That the annexed transcript of 1 page(s) was prepared by and in this
office from the record on file, of which it purports to be a copy, and that
it is full, true and correct.
IN WITNESS WHEREOF, I execute this
certificate and affix the Great
Seal of the State of California
this 4th day of MAY 1994
THE GREAT SEAL OF THE
STATE OF CALIFORNIA 87 [SEAL] 46299
SEC/STATE Form LP TONY MILLER
222A (Rev. 9/87) Acting Secretary of State
<PAGE> 2
STATE OF CALIFORNIA
CERTIFICATE OF LIMITED PARTNERSHIP -- FORM LP-1
IMPORTANT--Read Instructions on back before completing this form.
This Certificate is presented for filing pursuant to Chapter 3, Article 2,
Section 15621, California Corporations Code.
- --------------------------------------------------------------------------------
1. NAME OF LIMITED PARTNERSHIP
PERFORMANCE ASSET MANAGEMENT FUND V, LTD., A CALIFORNIA LIMITED PARTNERSHIP
- --------------------------------------------------------------------------------
2. STREET ADDRESS OF 3. CITY AND STATE 4. ZIP CODE
PRINCIPAL EXECUTIVE OFFICE
695 TOWN CENTER DRIVE, SUITE 1550 COSTA MESA, CA 92626
- --------------------------------------------------------------------------------
5. STREET ADDRESS OF CALIFORNIA OFFICE 6. CITY 7. ZIP CODE
IF EXECUTIVE OFFICE IN ANOTHER STATE
N/A CALIFORNIA
- --------------------------------------------------------------------------------
8. COMPLETE IF LIMITED PARTNERSHIP WAS FORMED PRIOR TO JULY 1, 1994 AND IS IN
EXISTENCE ON DATE THIS CERTIFICATE IS EXECUTED.
THE ORIGINAL LIMITED PARTNERSHIP
CERTIFICATE WAS RECORDED ON _________ 19___ WITH THE RECORDER
OF _________________________ COUNTY. FILE OR RECORDATION NUMBER____________
- --------------------------------------------------------------------------------
9. NAMES AND ADDRESSES OF ALL GENERAL PARTNERS, (CONTINUE ON SECOND
PAGE IF NECESSARY)
NAME: PERFORMANCE DEVELOPMENT, INC.
ADDRESS: 695 TOWN CENTER DRIVE, SUITE 1550
CITY: COSTA MESA STATE CA ZIP CODE 92626
- --------------------------------------------------------------------------------
9A. NAME:
ADDRESS:
CITY: STATE ZIP CODE
- --------------------------------------------------------------------------------
9B. NAME:
ADDRESS:
CITY: STATE ZIP CODE
- --------------------------------------------------------------------------------
10. NAME AND ADDRESS OF AGENT FOR SERVICE OF PROCESS
NAME: VINCENT E. GALEWICK, PRESIDENT
ADDRESS: 695 TOWN CENTER DRIVE, SUITE 1550
CITY: COSTA MESA STATE CA ZIP CODE 92626
- --------------------------------------------------------------------------------
11. TERM FOR WHICH THIS PARTNERSHIP IS TO EXIST
Whichever occurs first 2035 the sale of assets dissolution and
subsequent removal or incapacity of the General Partner, unless the Limited
others elect to continue.
- --------------------------------------------------------------------------------
12. FOR THE PURPOSE OF FILING AMENDMENTS, DISSOLUTION AND CANCELLATION
CERTIFICATES PERTAINING TO THIS CERTIFICATE, THE
ACKNOWLEDGMENT OF [1] GENERAL PARTNERS IS REQUIRED.
- --------------------------------------------------------------------------------
13. ANY OTHER MATTERS THE GENERAL PARTNERS DESIRE TO INCLUDE IN THIS CERTIFICATE
MAY BE NOTED ON SEPARATE PAGES AND BY REFERENCE HEREIN IS A PART OF THIS
CERTIFICATE NUMBER OF PAGES ATTACHED [0]
- --------------------------------------------------------------------------------
14. IT IS HEREBY DECLARED THAT I AM (WE ARE) THE PERSON(S) WHO EXECUTED THIS
CERTIFICATE OF LIMITED PARTNERSHIP, WHICH EXCEPTION IS MY (OUR) ACT AND DEED
(SEE INSTRUCTIONS).
15. THIS SPACE FOR FILING
OFFICER USE (FILE NUMBER
DATE OF FILING:)
- ------------------------- ---------------------
SIGNATURE OF DATE SIGNATURE OF DATE 9411100030
GENERAL PARTNER GENERAL PARTNER
VINCENT E. GALEWICK, PRESIDENT
PERFORMANCE DEVELOPMENT, INC., GENERAL PARTNER FILED
- ------------------------- --------------------- in the office of the
SIGNATURE OF DATE SIGNATURE OF DATE Secretary of State of
GENERAL PARTNER GENERAL PARTNER the State of California
- ------------------------- ---------------------
SIGNATURE OF DATE TITLE OR DATE
OTHER THAN DESIGNATION APR 4 1994
GENERAL PARTNER
================================================
16. RETURN ACKNOWLEDGEMENT TO:
BRIANNA BRISTOW
C/O PERFORMANCE DEVELOPMENT, INC. MARCH FONG EU
695 TOWN CENTER DRIVE, SUITE 1550 SECRETARY OF STATE
COSTA MESA, CA 92626
================================================
FORM LP-1 -- FILING FEE $70
