SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. __)
Filed by Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission
Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
PLM Equipment Growth Fund V
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
2. Aggregate number of securities to which transaction applies:
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4. Proposed maximum aggregate value of transaction:
5. Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1. Amount Previously Paid:
2. Form, Schedule or Registration Statement No.:
3. Filing Party:
4. Date Filed:
SOLICITATION STATEMENT
PLM FINANCIAL SERVICES, INC.
This solicitation statement is being provided to the limited partners
of PLM Equipment Growth Fund V (referred to as either "Fund V" or the
"Partnership") by PLM Financial Services, Inc. which is the General Partner of
the Partnership, in connection with the proposed equitable settlement of a class
action litigation brought on behalf of the limited partners and other current
and former investors in the Partnership. As more fully described throughout this
solicitation statement, the equitable settlement will make a number of changes
to the Partnership. The major changes include: extending until December 31, 2004
the time period during which the Partnership can acquire equipment with its cash
flow and sales proceeds; extending until January 1, 2007 the date by which all
of the Partnership's equipment must be sold; requiring the Partnership to
repurchase, to the extent that limited partners request, up to 10% of the
outstanding units, and; increasing the amount of certain fees the General
Partner can be paid by the Partnership.
CERTAIN FACETS OF THESE CHANGES TO THE PARTNERSHIP INVOLVE RISKS AND
CONFLICTS OF INTEREST THAT SHOULD BE CONSIDERED BY THE LIMITED PARTNERS. SEE
"RISK FACTORS" BEGINNING ON PAGE 6 OF THIS SOLICITATION STATEMENT AND "CONFLICTS
OF INTERESTS" BEGINNING ON PAGE 26. IN PARTICULAR, LIMITED PARTNERS SHOULD
CONSIDER THE FOLLOWING:
o The negative consent procedure by which the 6-year extension will be
voted upon makes approval of the extension more likely since only
voting forms actually returned and indicating opposition will be
counted.
o The attorneys for the limited partners agreed to the negative consent
voting procedure and, subject to court approval, could receive legal
fees of up to $2,239,819 from the Partnership only if the Amendments
are approved and the Partnership achieves certain performance levels.
o The Partnership's performance has been lackluster and unless the
Amendments are rejected, limited partners will not have the funds from
this investment available for 6 years more than expected.
o The Amendments will significantly reduce the price that the Partnership
will pay to repurchase units from the average limited partner from 110%
of net unrecovered principal ($5.37 per unit for the average limited
partner as of December 31, 1999) to 80% of net asset value ($4.64 per
unit as of December 31, 1999).
o The General partner's recommendation of the Amendments involve
potential conflicts of interest since the General Partner will receive
economic benefits with respect to the increase in compensation which
could be payable to it, as well as potential conflicts from one of its
subsidiaries having the opportunity to earn management fees through
January 1, 2007.
o The corporate parent of the General Partner has retained an investment
banking firm to explore strategic alternatives to maximize shareholder
value, which could include a merger with another company or the sale of
the business as well as the sale of the General Partner to a third
party; in the event of a sale, directly or indirectly, of the General
Partner, the purchaser could modify the business of the General
Partner.
THE GENERAL PARTNER RECOMMENDS ADOPTION OF THE AMENDMENTS AND THAT
LIMITED PARTNERS NOT VOTE AGAINST THEM. COUNSEL FOR THE LIMITED PARTNERS ALSO
SUPPORTS THE AMENDMENTS, WHICH FORM AN INTEGRAL PART OF THE PROPOSED EQUITABLE
SETTLEMENT.
LIMITED PARTNERS WHO FAVOR THE AMENDMENTS NEED DO NOTHING OR CAN SUBMIT
THE VOTING FORM IN FAVOR OF THE AMENDMENTS; LIMITED PARTNERS WHO WISH TO VOTE
AGAINST THE AMENDMENTS MUST DO SO BY FOLLOWING THE PROCEDURES DESCRIBED HEREIN.
LIMITED PARTNERS WHO FAIL TO RETURN THE VOTING FORM OR WHO MARK "ABSTAIN" ON THE
VOTING FORM WILL BE TREATED AS IF THEY HAD VOTED IN FAVOR OF THE AMENDMENTS.
This solicitation statement provides information with respect to the
Amendments, the predominant component of the equitable settlement. This
solicitation statement is being mailed to limited partners on or about
________________, 2000.
The defendants in the litigation are the General Partner and some of
its subsidiaries that are compensated by the Partnership for providing services.
The proposed equitable settlement of the litigation is part of a larger
settlement, including a monetary settlement that would resolve and settle all
claims brought against the General Partner and the other defendants. To
implement the equitable settlement, the Amended and Restated Limited Partnership
Agreement of the Partnership (the "Partnership Agreement") will be amended (the
"Amendments") to:
o extend by 6 years, until January 1, 2007, the date by which the General
Partner must complete the liquidation of the Partnership's equipment,
thereby extending the length of this investment by 6 years;
o extend by 5 years, until December 31, 2004, the period during which the
General Partner will reinvest the Partnership's cash flow, surplus
funds and retained proceeds in additional equipment;
o require the Partnership to repurchase up to ten percent 10% of the
outstanding units from limited partners;
o require a subsidiary of the General Partner to defer receipt of 25% of
the equipment management fee it receives from the Partnership for a
period of 2 1/2 years, payable only if certain financial performance
goals for the Partnership are attained; and
o increase the limitation on the amounts that the General Partner can
receive from the Partnership for equipment acquisition and lease
negotiation services and from distributions of proceeds from the
disposition of equipment
CAUTIONARY STATEMENT
THIS SOLICITATION STATEMENT CONTAINS FORWARD-LOOKING STATEMENTS THAT
ARE SUBJECT TO RISKS AND UNCERTAINTIES. THESE FORWARD-LOOKING STATEMENTS INCLUDE
INFORMATION ABOUT POSSIBLE OR ASSUMED FUTURE RESULTS OR THE PARTNERSHIP'S
OPERATIONS OR PERFORMANCE AND ABOUT THE POSSIBLE EFFECTS OF THE AMENDMENTS.
ALSO, THE WORDS "BELIEVES," "ANTICIPATES," "EXPECTS," "PROJECTS," "DETERMINED"
AND SIMILAR EXPRESSIONS USED IN THIS SOLICITATION STATEMENT ARE INTENDED TO
IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH FORWARD-LOOKING STATEMENTS ARE SUBJECT
TO KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE THE
ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE PARTNERSHIP TO BE MATERIALLY
DIFFERENT FROM THE HISTORICAL ACHIEVEMENTS OF THE PARTNERSHIP.
TABLE OF CONTENTS
SUMMARY........................................................................................................ 1
Procedure for Approval of the Amendments................................................................ 1
Effect of the Amendments................................................................................ 1
Risk Factors............................................................................................ 2
The Affirmative Vote of a Majority of the Units is Not Required to Bind all Limited Partners..... 2
Declining Revenue and Distributions of the Partnership........................................... 2
Lackluster Performance of this Investment........................................................ 3
Extending the Life of the Partnership Will Delay by 6 Years Payment of Distributions to the Limited
Partners from the Liquidation of the Partnership's Equipment..................................... 3
Significant Reduction in Unit Repurchase Price................................................... 3
Conflicts of Interest of General Partner......................................................... 3
Cash Used to Fund the Repurchase Could Limit Distributions to Limited Partners................... 3
Cash Used to Fund the Compensation Increase Could Limit Distributions to Limited Partners........ 3
The Potential Acceleration in Paying Either the Deferred Portion of the Management Fee
and some of Class Counsel's Fees Could Deter a Change of Control................................. 3
Alternatives to the Amendments.......................................................................... 3
General Partner's Reasons for Recommending the Amendments............................................... 4
Voting Procedures....................................................................................... 4
Effect of Settlement of the Litigation.................................................................. 5
No Appraisal Rights..................................................................................... 5
Conflicts of Interest................................................................................... 5
General Partner.................................................................................. 5
Class Counsel.................................................................................... 5
RISK FACTORS................................................................................................... 6
Risks Relating to the Amendments........................................................................ 6
The Affirmative Vote of a Majority of the Units is Not Required to Bind all Limited Partners..... 6
Extending the Life of the Partnership Will Cause a 6 Year Delay in the Payment of Distributions
to the Limited Partners from the Liquidation of the Partnership's Equipment...................... 6
Significant Reduction in Unit Repurchase Price................................................... 6
Adverse Consequences to the Partnership if the Amendments are not Approved....................... 6
Cash Used to Fund the Repurchase Could Limit Distributions to Limited Partners................... 7
Cash Used to Fund the Compensation Increase Could Limit Distributions to Limited Partners........ 7
The Potential Acceleration in Paying Either the Deferred Portion of the Management Fee or the
Equitable Class Fee Award Could Deter a Change of Control........................................ 7
Investment Risks........................................................................................ 8
Declining Revenue and Distributions.............................................................. 8
Lackluster Performance of this Investment........................................................ 8
Parent Company of the General Partner Reviewing Strategic Alternatives........................... 8
Ongoing Risks relating to the Partnerships and Tax Risks of this Investment............................ 8
Conflicts of Interest................................................................................... 8
Conflict of Interest of General Partner.......................................................... 8
Class Counsel.................................................................................... 9
BACKGROUND, BENEFITS OF, AND REASONS FOR, THE AMENDMENTS....................................................... 10
Description of the Litigation........................................................................... 10
Summary of Settlement............................................................................ 11
Class Members.................................................................................... 12
Approval Procedure for the Equitable Settlement.................................................. 12
Effect on Rights of Limited Partners............................................................. 12
Class Counsel........................................................................................... 13
Provisions of the Amendments............................................................................ 13
The Extension of the Reinvestment Period................................................................ 14
The Delayed Liquidation Date............................................................................ 14
The Management Fee Deferral............................................................................. 14
The Repurchase.......................................................................................... 14
The Compensation Increase............................................................................... 15
Comparison of Extending the Reinvestment Period and the Extension (and the Benefits thereof) to
Termination of Reinvestment and Liquidation of Equipment as Scheduled................................... 16
Continued Operation of Assets.................................................................... 16
Reinvestment of Proceeds into Additional Equipment............................................... 17
Equipment Transactions Entered into Since January 1998........................................... 18
Marine Containers................................................................................ 18
Marine Vessels................................................................................... 18
Aircraft and Aircraft Spare Parts................................................................ 19
Portable Heaters................................................................................. 19
Railcars................................................................................................ 19
Trailers......................................................................................... 19
Change of Strategy...................................................................................... 20
Comparison of Alternatives to the Extension............................................................. 20
General.......................................................................................... 20
General Partner's Assumptions.................................................................... 20
Currently Owned Equipment Assumptions............................................................ 22
Newly Acquired Equipment Assumptions............................................................. 23
Estimated December 31, 1999 Value of a Partnership Unit on a Present Value Basis Applying a
11.1% Discount Rate.............................................................................. 25
Benefits of Liquidation as of December 31, 1999 and January 1, 2001.............................. 25
COMPARISON CHART OF PARTNERSHIP OPERATIONS WITH AND WITHOUT THE AMENDMENTS..................................... 26
CONFLICTS OF INTEREST.......................................................................................... 29
General................................................................................................. 29
Conflict of Interest of General Partner................................................................. 29
Conflict of Interest of Class Counsel................................................................... 29
VOTING PROCEDURES.............................................................................................. 31
Time of Voting and Record Date.......................................................................... 31
No Vote................................................................................................. 31
Revocability of No Vote................................................................................. 31
No Appraisal Rights..................................................................................... 31
Information Services.................................................................................... 32
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE................................................................ 33
TEXT OF THE AMENDMENTS Appendix A
FINANCIAL ASSUMPTIONS Appendix B
FORM FOR VOTING AGAINST THE AMENDMENTS Appendix C
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS SOLICITATION STATEMENT.
PROCEDURE FOR APPROVAL OF THE AMENDMENTS
The Amendments are being proposed by the General Partner and supported
by counsel for plaintiffs in the litigation ("Class Counsel") as an integral
part of the proposed equitable settlement. Pursuant to the court's order
preliminarily approving the settlement stipulation and subject to final court
approval, unless limited partners holding 50% or more of the units vote against
one or more of the Amendments by timely delivering a vote against the Amendments
on the form attached as Appendix B, the Partnership Agreement will be so
amended.
The Amendments are also being proposed to the limited partnership
agreements of two other partnerships for which the General Partner acts as
general partner, PLM Equipment Growth Fund VI ("Fund VI"), and PLM Equipment
Growth and Income Fund VII ("Fund VII"). The Partnership, Fund VI and Fund VII
are collectively referred to as the "Partnerships," and the limited partnership
agreements of the Partnerships are collectively referred to as the "Partnership
Agreements." Changes to the Partnership Agreements of Funds VI and VII identical
to those proposed for the Partnership are also referred to as the "Amendments."
Prior to issuing the order, the court reviewed the proposed equitable
notice and a draft of this solicitation statement including the manner in which
the Amendments are voted on by the limited partners. See "VOTING PROCEDURES."
The court asked that certain changes be made, and after reviewing such changes,
approved the form and content of both this solicitation statement and the
equitable notice.
In addition, the court has scheduled a fairness hearing for
_______________, 2000, at which time:
o members of the equitable class who follow the procedures described in
the equitable notice may appear before the court and object to any
aspect of the settlement, including the Amendments, notwithstanding
their failure to deliver a vote by ___________________, 2000 (the
"Voting Deadline");
o the General Partner will provide the court with a tabulation of the
number of units held by limited partners in each of the Partnerships
that have voted against one or more of the Amendments; and
o the court may: (1) not approve the equitable settlement in the event
that limited partners of any of the Partnerships holding 50% or more of
the units vote against the Amendments (2) approve the equitable
settlement as to one, two or all of the Partnerships so long as limited
partners holding less than 50% of the units of any such Partnership
vote against the Amendments, or (3) notwithstanding votes against the
Amendments by limited partners holding less than 50% of the units in
each Partnership, still not approve the equitable settlement.
EFFECT OF THE AMENDMENTS
The Amendments will extend the period during which the Partnership will
be able to reinvest its cash flow, surplus funds and retained proceeds in
additional equipment (the "Reinvestment Period") by approximately 5 years until
December 31, 2004. During that time, the General Partner will purchase equipment
and endeavor to lease, and ultimately sell it, consistent with the objectives of
the Partnership. The Amendments will also extend the date by which the General
Partner must complete the liquidation of the Partnership's equipment by 6 years,
to January 1, 2007 (the "Extension"), whereas the Partnership Agreement
presently requires the liquidation of equipment by January 1, 2001.
From January 1, 2002 until June 30, 2004, PLM Investment Management,
Inc. (the "Manager"), which is a subsidiary of the General Partner and manages
the Partnership's equipment assets, will defer receipt of 25% of the equipment
management fee (the "Management Fee") it would otherwise be entitled to receive.
The Manager will be entitled to be paid the deferred portion of the Management
Fee by the Partnership only if there is an annualized increase of at least 10%
in the actual cash flow received by the limited partners relative to the cash
flow which the General Partner projects would have been received by limited
partners commencing January 1, 2000 if the Partnership were to be liquidated as
contemplated by the Partnership Agreement.
The current limitation on front-end fees payable to the General Partner
will be increased by 20% (the "Front-End Fee Increase"). The current limitation
is based upon the guidelines issued by the North American Securities
Administrators Association, Inc. ("NASAA"). The Front-End Fee Increase will have
the effect of increasing the total compensation permitted to be paid to the
General Partner and its affiliates by the amount of the Front-End Fee Increase.
As a result, the General Partner and its affiliates will be permitted to earn
equipment acquisition and lease negotiation fees ("Front-End Fees") that
otherwise would have been limited by the NASAA guidelines, and if the General
Partner and its affiliates do not earn the full amount of the Front-End Fee
Increase, additional categories of compensation, which otherwise would be
restricted by the NASAA guidelines, could be paid. Absent the Amendments,
however, the only payments to the General Partner other than Front-End Fees
which could result in total compensation exceeding the NASAA guidelines is the
payment to the General Partner of its interest in the distributed proceeds from
the sale of equipment ("Net Disposition Proceeds"). In this regard, the NASAA
guidelines permit the General Partner to be paid 1% of Net Disposition Proceeds,
while the Partnership Agreement permits the General Partner to be paid 5% of
such Net Disposition Proceeds. Without the Amendments, the payment to the
General Partner of up to the additional 4% of Net Disposition Proceeds to which
it is entitled under the Partnership Agreement would be permitted only if and to
the extent the General Partner has otherwise been paid less than the total
amount of the compensation allowed by the NASAA guidelines. Therefore, the
Amendments will enable the General Partner to receive up to this additional 4%
so long as the amount of Net Disposition Proceeds, together with the additional
Front-End Fees, do not exceed the 20% Front-End Fee Increase. The increase in
the Front-End Fees and in Net Disposition Proceeds is collectively referred to
as the "Compensation Increase."
Finally, the Partnership will offer to repurchase up to 10% of its
units at a price of 80% of the net asset value per Unit determined at the end of
the fiscal quarter immediately preceding the deadline for submitting a
repurchase request (the "Repurchase"). This will replace the Partnership's
discretionary authority to repurchase, on an annual basis, up to 2% of the
outstanding units at a price of 110% of a selling limited partner's unrecovered
principal. See "BACKGROUND, BENEFITS OF, AND REASONS FOR, THE AMENDMENTS - The
Repurchase."
RISK FACTORS
Limited partners should carefully consider the matters disclosed under
"RISK FACTORS" beginning on page 6 and "CONFLICTS OF INTEREST" beginning on page
26 before deciding whether or not to vote against the Amendments. The following
is a summary of the material risks and other effects of the Amendments.
THE AFFIRMATIVE VOTE OF A MAJORITY OF THE UNITS IS NOT REQUIRED TO BIND
ALL LIMITED PARTNERS. Pursuant to the court's order preliminarily approving the
settlement stipulation and subject to final court approval, the Amendments will
be effective unless limited partners holding 50% or more of the units vote
against one or more of the Amendments. Under the Partnership Agreement in its
current form, if the Amendments were not subject to a judicial determination and
court order following the fairness hearing, the Amendments could be effected
only by obtaining the affirmative approval of limited partners holding at least
a majority of the units. In addition, although this procedure by which the
Amendments will be voted upon has been preliminarily approved by the court,
neither Class Counsel nor counsel for the General Partner specifically directed
the court's attention to the fact that the negative consent voting procedure is
contrary to the voting procedures set forth in the Partnership Agreement. See
"VOTING PROCEDURES."
DECLINING REVENUE AND DISTRIBUTIONS OF THE PARTNERSHIP. Since 1997, the
Partnership's revenue and the annual cash distributions to unitholders have
significantly declined. In the third quarter of 1998, a distribution to limited
partners was skipped in order to allow the Partnership to make a payment of
principal due under a loan agreement. Commencing in the fourth quarter of 1998,
the distributions to limited partners were reduced to $0.25 per unit per
quarter. This historical level of performance should be kept in mind when
evaluating the General Partner's recommendation to adopt the Amendments.
LACKLUSTER PERFORMANCE OF THIS INVESTMENT. As of December 31, 1999, the
value of this investment was $20.98 per unit, calculated by adding the sum of
the weighted average of distributions (weighted to reflect the fact that limited
partners acquired units at different times during the offering period) received
to such date and the estimated distribution that would have been received if the
assets of the Partnership had been liquidated on September 30, 1999 and a
liquidating distribution made to limited partners by December 31, 1999. This
value is only slightly higher than the original purchase price of $20.00 per
unit without taking into effect the time value of money.
EXTENDING THE LIFE OF THE PARTNERSHIP WILL DELAY BY 6 YEARS PAYMENT OF
DISTRIBUTIONS TO THE LIMITED PARTNERS FROM THE LIQUIDATION OF THE PARTNERSHIP'S
EQUIPMENT. Each limited partner's investment will change from an ownership
interest in a partnership whose Partnership Agreement contemplates that it will
liquidate its equipment assets before approximately January 1, 2001 to one that
will liquidate its equipment assets before approximately January 1, 2007.
SIGNIFICANT REDUCTION IN UNIT REPURCHASE PRICE. The Amendments will
reduce the price at which the Partnership shall repurchase units from the
average limited partner from 110% of net unrecovered capital per unit ($5.37 for
the average limited partner as of December 31, 1999) to 80% of the net asset
value per unit ($4.64 per unit as of December 31, 1999).
CONFLICTS OF INTEREST OF GENERAL PARTNER. The General Partner initiated
and participated in structuring the Amendments and has conflicts of interest
with respect to their effect, including the facts that: (a) the General Partner
will earn Front-End Fees for approximately 5 additional years; (b) the Manager,
which is a subsidiary of the General Partner, will earn Management Fees for 6
additional years; (c) the limitation on some compensation the General Partner
could receive will be increased by 20% over current limits; and (d) the approval
of the Amendment may make a transaction involving the General Partner's
corporate parent more attractive to a third-party." See 'RISK FACTORS - Parent
Company of the General Partner Reviewing Strategic Alternatives" and "CONFLICTS
OF INTEREST - Conflict of Interest of the General Partner."
CASH USED TO FUND THE REPURCHASE COULD LIMIT. Distributions to Limited
Partners. In order to fund the Repurchase projected to cost $4,204,705, the
Partnership may have to use cash that would otherwise be available for
distributions to the limited partners or for reinvestment in equipment.
CASH USED TO FUND THE COMPENSATION INCREASE COULD LIMIT DISTRIBUTIONS
TO LIMITED PARTNERS. Part of the equitable settlement includes increasing the
compensation which can be paid by the Partnership to the General Partner. Any
amounts paid to the General Partner as a result of the Compensation Increase
will be unavailable for distributions to the limited partners or for
reinvestment in equipment.
THE POTENTIAL ACCELERATION IN PAYING EITHER THE DEFERRED PORTION OF THE
MANAGEMENT FEE AND SOME OF CLASS COUNSEL'S FEES COULD DETER A CHANGE OF CONTROL.
The equitable settlement provides that, to the extent the applicable conditions
have been met, the portion of the Management Fee which will be deferred, as well
as the Equitable Class Fee Award (defined below), will be payable in a lump sum
in the event the limited partners approve a roll-up transaction or more than 50%
of the units in the Partnership are tendered in response to a registered tender
offer (a "Change of Control"). Absent a Change of Control, such fees would be
paid over time. These provisions could have the effect of deterring a roll-up
transaction or a tender offer. See "CONFLICTS OF INTEREST - Conflict of Interest
of Class Counsel."
ALTERNATIVES TO THE AMENDMENTS
In the event the court does not approve the Amendments, or limited
partners holding 50% or more of the units vote against the Amendments, the
General Partner will continue to operate the Partnership according to what is
contemplated by the Partnership Agreement. The Partnership stopped reinvesting
available cash in additional equipment in 1998 (except for certain contractually
mandated capital modifications), and has now entered a holding phase during
which equipment may be re-leased or sold, but no new equipment can be purchased.
The Partnership Agreement currently provides that the equipment will be fully
sold by January 1, 2001, after which the General Partner will proceed to wind up
the affairs of the Partnership and distribute all remaining funds, after
providing for Partnership obligations, to the limited partners.
GENERAL PARTNER'S REASONS FOR RECOMMENDING THE AMENDMENTS
The Amendments were proposed by the General Partner pursuant to the
settlement stipulation. The General Partner believes that the Extension (of the
liquidation date) is likely to provide the General Partner with greater
flexibility both to generate additional revenue from continuing to lease an
asset and to determine when to sell an asset based on market conditions. In
other words, the General Partner believes that much of the Partnership's
equipment will have future cash flow generating potential from continued rentals
and eventual sales proceeds and that the present value thereof will exceed the
present value of continued rentals and the sales proceeds of that same equipment
based upon the current liquidation date. Additionally, the General Partner
believes that extending the Reinvestment Period will allow the Partnership to
generally refocus its operations away from underperforming marine vessels to
other types of equipment markets that are currently experiencing better returns.
The General Partner believes its recommendation in favor of the
Amendments is also supported by: (a) the process of arm's length negotiation of
the structure, terms and conditions of the Amendments with Class Counsel acting
on behalf of the equitable class; (ii) the General Partner's knowledge that any
amendments to the Partnership Agreement would necessarily entail obtaining
preliminary and final approval by the court of the equitable settlement,
including the Amendments; and (iii) the opportunity for each limited partner
both to vote against the Amendments and/or to object to the settlement in court
as part of the fairness hearing. In addition, those holders of units who are not
limited partners will also have the opportunity to object to the settlement as
part of the fairness hearing. The General Partner's judgment, however, may be
affected by the fact that it will derive financial benefits from the Amendments,
and is thus subject to conflicts of interest. See "CONFLICTS OF INTEREST -
Conflict of Interest of the General Partner."
VOTING PROCEDURES
Pursuant to the court's order preliminarily approving the settlement
stipulation and subject to final court approval, the Partnership Agreement will
be amended in accordance with the Amendments unless limited partners holding 50%
or more of the units vote against any or all of the Amendments. Limited partners
may vote against the Amendments by delivering a Voting Form marked "No" to the
General Partner. Limited partners may also object to any aspect of the equitable
settlement, including the Amendments, at the fairness hearing by following the
procedures set forth in the equitable notice which accompanies this solicitation
statement. However, even if limited partners holding 50% or more of the units do
not vote against the Amendments, the court may not approve the settlement as to
a particular Partnership, and then the Amendments will not be given effect and
that Partnership will not participate in the equitable settlement.
LIMITED PARTNERS WHO ARE NOT IN FAVOR OF THE AMENDMENTS MUST RETURN A
SIGNED VOTING FORM (THE FORM OF WHICH IS ATTACHED AS APPENDIX B) TO GILARDI &
CO., 1115 MAGNOLIA AVENUE, LARKSPUR, CALIFORNIA 94977, AS SOON AS POSSIBLE, BUT
IN ANY EVENT, NO LATER THAN _____________, 2000, FOR THIS AND ANY OTHER
PARTNERSHIP IN WHICH THEY HOLD UNITS. THE VOTING FORM MUST CONTAIN THE NAME AND
ADDRESS OF THE LIMITED PARTNER, AND THE NUMBER OF UNITS HELD BY THE LIMITED
PARTNER.
Limited partners holding units as of _________________ (the "Record
Date"), have until 5:00 p.m. Pacific Time, on ____________, 2000, unless
extended, to submit their Voting Form (the "Voting Deadline").
Limited partners may withdraw or revoke their vote at any time prior to
the Voting Deadline. See "VOTING PROCEDURES - Revocability of Vote."
THE GENERAL PARTNER RECOMMENDS ADOPTION OF THE AMENDMENTS AND THAT
LIMITED PARTNERS NOT VOTE AGAINST THEM. CLASS COUNSEL SUPPORTS THE AMENDMENTS,
WHICH FORM AN INTEGRAL PART OF THE PROPOSED EQUITABLE SETTLEMENT. The General
Partner and Class Counsel are subject to conflicts of interest with respect to
the Amendments. See "CONFLICTS OF INTEREST."
EFFECT OF SETTLEMENT OF THE LITIGATION
The settlement will result in the full and complete settlement,
discharge and release of the claims by class members against the General
Partner, affiliates of the General Partner and other defendants in connection
with or which arise out of the allegations made in the litigation. The equitable
settlement will result in each class member releasing and discharging each
defendant in the equitable settlement irrespective of whether the class member
voted against the Amendments or objected to the Amendments in court. Even if the
court finally approves the equitable settlement, however, each class member who
is also a monetary class member will retain the option of not releasing claims
against the General Partner and other defendants and may pursue those claims by
opting out of the monetary settlement. The class members' retention of rights to
pursue defendants in the monetary settlement occurs because the settling parties
are asking the court to approve the equitable and monetary settlement as two
separate, albeit related, class action settlements.
NO APPRAISAL RIGHTS
Neither the Partnership Agreement nor state law provides for
dissenters' or appraisal rights to limited partners who object to the
Amendments. Such rights, when they exist, give the holders of securities the
right to surrender such securities for an appraised value in cash, if they
oppose a merger or similar reorganization. No such right will be provided by the
Partnership in connection with the Amendments.
CONFLICTS OF INTEREST
GENERAL PARTNER. The General Partner initiated and participated in
structuring the Amendments and has conflicts of interest with respect to their
effect. For a discussion of the conflicts of interest of the General Partner
with respect to the Amendments, see "CONFLICTS OF INTEREST - Conflict of
Interest of the General Partner."
CLASS COUNSEL. Limited partners should consider that Class Counsel may
be deemed to have a conflict of interest with respect to their support of the
equitable settlement, of which the proposed Amendments form an integral part. As
part of the equitable settlement, Class Counsel will apply for a fee award (the
"Equitable Class Fee Award") from any of the Partnerships participating in the
equitable settlement. The Equitable Class Fee Award will only be paid if the
Amendments are approved, the equitable settlement is approved and future cash
distributions to limited partners reach a targeted level. If the Equitable Class
Fee Award is paid, it is estimated to be payable at or near the time the
Partnership liquidates from funds that would otherwise be distributed to the
limited partners. The defendants will not have any separate liability for the
payment of the Equitable Class Fee Award, and it will be paid to Class Counsel
only if there is an annualized increase of at least 12% in the actual cash flow
received by the limited partners relative to the cash flow which the General
Partner projects would have been received by limited partners commencing January
1, 2000 if the Partnership were to be liquidated as contemplated by the
Partnership Agreement. If such a rate is obtained, and the General Partner's
projection of the Partnership's future performance as a result of the Extension
and extended Reinvestment Period is realized (assuming the Partnership debt is
extended), Class Counsel's attorney fees with respect to the equitable
settlement would be $2,239,819. See "CONFLICTS OF INTEREST - Conflict of
Interest of Class Counsel." Additional fees and expenses will be paid to Class
Counsel in connection with the monetary settlement, if approved by the court.
Such fees will be no greater than one-third of the monetary settlement fund, and
will be paid by defendants and their insurance company out of the monetary
settlement fund.
RISK FACTORS
The Amendments involve material risks and other adverse factors, all of
which the General Partner believes are discussed or referred to below. Limited
partners are urged to read this solicitation statement in its entirety,
including all appendices and supplements hereto, and the original prospectus,
and should consider carefully the following material risks in determining
whether to vote against one or more of the Amendments, as well as whether to
object to the equitable settlement in court as part of the fairness hearing
scheduled for --------------------.
RISKS RELATING TO THE AMENDMENTS
THE AFFIRMATIVE VOTE OF A MAJORITY OF THE UNITS IS NOT REQUIRED TO BIND
ALL LIMITED PARTNERS. Pursuant to the court's order preliminarily approving the
settlement stipulation and subject to the final court approval, the Amendments
will be effective unless limited partners holding 50% or more of the units vote
against one or more of the Amendments. A limited partner who does not vote
against any of the Amendments will be deemed as favoring the Amendments, even
though such limited partner may favor neither the Amendments nor the equitable
settlement. As such, it is possible that the Amendments may be approved even if
disfavored by the holders of a majority of the units or even if fewer than a
majority actually receive this solicitation statement or consider the Amendments
described herein.
Although the procedure by which the Amendments will be voted upon has
been preliminarily approved by the court, neither Class Counsel nor counsel for
the General Partner specifically directed the court's attention to the fact that
the negative consent voting procedure is contrary to the voting procedures set
forth in the Partnership Agreement. There is no reported appellate court
decision approving a change in the voting procedure of a limited partnership to
allow non-votes to be treated as affirmative votes where the partnership
agreement did not specifically permit non-votes to be so counted. In the event
the voting mechanism used here to approve the Amendments were to be successfully
objected to at the fairness hearing, the Partnership would not participate in
the equitable settlement.
Limited Partners should be aware that this negative consent voting
procedure is not typically used for solicitations governed by the SEC's proxy
solicitation rules, which normally require an affirmative vote for matters such
as approval of the Amendments. Additionally, limited partners who vote against
the Amendments will be bound by the equitable settlement (including the
implementation of the Amendments) unless limited partners holding more than 50%
of the units vote against one or more of the Amendments and the equitable
settlement is not approved by the court. No limited partner will be able to opt
out of the equitable settlement. If the Amendments were not subject to a
judicial determination and court order following the fairness hearing, the
Amendments could be effected only by obtaining the affirmative approval of
limited partners holding not less than a majority of the units. See " VOTING
PROCEDURES" and "CONFLICTS OF INTEREST - Conflicts of Interest of Class
Counsel."
EXTENDING THE LIFE OF THE PARTNERSHIP WILL CAUSE A 6 YEAR DELAY IN THE
PAYMENT OF DISTRIBUTIONS TO THE LIMITED PARTNERS FROM THE LIQUIDATION OF THE
PARTNERSHIP'S EQUIPMENT. Each limited partner's investment will change from an
ownership interest in a partnership which contemplates a liquidation of its
equipment assets before approximately January 1, 2001, to one that will
liquidate its equipment assets not later than January 1, 2007. Therefore, as a
result of the Amendments, it is anticipated that limited partners will not
receive final distributions from the liquidation and dissolution of the
Partnership until approximately 6 years later than contemplated by the
Partnership Agreement.
SIGNIFICANT REDUCTION IN UNIT REPURCHASE PRICE. The Amendments will
reduce the price at which the Partnership shall repurchase units from the
average limited partner from 110% of net unrecovered capital per unit ($5.37 for
the average limited partner as of December 31, 1999) to 80% of the net asset
value per unit ($4.64 per unit as of December 31, 1999).
ADVERSE CONSEQUENCES TO THE PARTNERSHIP IF THE AMENDMENTS ARE NOT
APPROVED. If the limited partners do not approve the Amendments, or if they are
approved but overturned as a result of an appeal, or if the court does not
approve the Amendments, the equitable settlement will become null and void. The
non-approval of the equitable settlement, however, would have no impact on the
monetary settlement (so long as it is approved by the court after the fairness
hearing). The General Partner believes that the return limited partners would
receive from their investment if the Amendments are not approved would be less
than the return they would likely receive if the Amendments are approved.
CASH USED TO FUND THE REPURCHASE. Could Limit Distributions to Limited
Partners. In order to fund the Repurchase, projected to cost $4,204,705, the
Partnership may have to use cash which would otherwise be available for
distributions to the limited partners or for reinvestment in equipment.
CASH USED TO FUND THE COMPENSATION INCREASE COULD LIMIT DISTRIBUTIONS
TO LIMITED PARTNERS. Part of the equitable settlement includes increasing the
fees which can be paid by the Partnership to the General Partner. Any amounts so
paid to the General Partner will be unavailable for distributions to limited
partners or for reinvestment in equipment. Furthermore, the aggregate amount
paid to the General Partner as a result of the Front-End Fee increase could
offset any benefits to the Partnership resulting from the Manager deferring (or
even not receiving) 25% of the Management Fee. During the time frame when the
Manager defers receiving 25% of the Management Fee, the Partnership will retain
the deferred fees and may reinvest them in equipment, deposit them in interest
bearing accounts, or do both. The Partnership's return on those investments, or
even the Partnership's savings if it does not pay the Manager any of the
deferred portion of the Management Fee (if the Manager does not achieve the
stipulated performance target), may be less than the amount of Front-End Fees
and Net Distribution Proceeds payable to the General Partner as a result of the
increase in the limitation on its fees.
THE POTENTIAL ACCELERATION IN PAYING EITHER THE DEFERRED PORTION OF THE
MANAGEMENT FEE OR THE EQUITABLE CLASS FEE AWARD COULD DETER A CHANGE OF CONTROL.
The equitable settlement provides that both the portion of the Management Fee
(25%) which will be deferred, as well as the Equitable Class Fee Award, will be
payable in a lump sum upon a Change of Control, but only if the General Partner
and Class Counsel agree that an annualized increase of 10% (for the Deferred
Management Fee) and/or 12% (for the Equitable Class Fee Award) in the cash flow
received by the limited partners relative to the cash flow which the General
Partner projects would have been received by the General Partner commencing
January 1, 2000 (if the Partnership were to be liquidated as is contemplated by
the Partnership Agreement) would have been attained absent the Change of
Control. Without a Change of Control, such fees would be paid over time, if the
10% and 12% targets were met. These provisions could have the effect of
deterring a roll-up transaction or a tender offer. See "CONFLICTS OF INTEREST -
Conflict of Interest of Class Counsel," and "- Conflict of Interest of General
Partner."
As discussed above, the General Partner and Class Counsel agreed that
the payment of the Equitable Class Fee Award would be accelerated upon a Change
of Control, but only if the limited partners had obtained the benefits of the
Extension and extended Reinvestment Period. That is, the General Partner and
Class Counsel agreed that Class Counsel would receive the Equitable Class Fee
Award upon a Change of Control if the required cash flows, which were the agreed
upon condition for paying Class Counsel, would have been attained and paid to
the limited partners absent the Change of Control.
The payment of the Equitable Class Fee Award is tied to, and
conditioned upon, the operation of the Partnership's business in its current
form, that is as a Partnership distributing cash to its investors. If the
Partnership is subject to a Change of Control, it may not be possible to
calculate whether and when the targeted thresholds for awarding the Equitable
Class Fee Award have been met, even if the limited partners have obtained the
targeted benefits of the Extension and extended Reinvestment Period.
Several alternative payment structures were considered by Class Counsel
and the defendants. Ultimately, it was agreed that Class Counsel would be paid
at the time of a Change of Control transaction, if, at the time of a Change of
Control transaction, absent the Change of Control, had the Partnership continued
to operate in its then current form the targeted threshold distributions to the
limited partners would otherwise have been achieved. That is, the General
Partner and Class Counsel agreed that Class Counsel would receive the Equitable
Class Fee Award upon a Change of Control if the required cash flows, which were
the agreed upon conditions for payment to Class Counsel, would have been
attained and paid to the limited partners absent the Change of Control.
INVESTMENT RISKS
DECLINING REVENUE AND DISTRIBUTIONS. Since 1997, the Partnership's
Revenue has Significantly Declined. Annual cash distributions to unitholders
have also declined, reduced to $1.00 in the fourth quarter of 1998, to reflect
diminished cash flow from operations. Limited partners are urged to review the
Partnership's annual and quarterly reports on Forms 10-K and 10-Q filed with the
SEC for a detailed review of these developments, the most recent of which are
being delivered to limited partners along with this solicitation statement.
LACKLUSTER PERFORMANCE OF THIS INVESTMENT. As of December 31, 1999, the
value of this investment (the sum of the distributions received to such date and
the estimated distribution that would have been received if the assets of the
Partnership had been liquidated on September 30, 1999 and a liquidating
distribution made to limited partners by December 31, 1999) is only slightly
higher than its original purchase price without taking into effect the time
value of money. The average limited partner who acquired units during the
offering period has received distributions through December 31, 1999 of $15.12
for each $20.00 unit purchased, and the General Partner estimates that, if the
Partnership had been liquidated as of December 31, 1999, limited partners would
have received an additional $5.86 per unit, for a total of $20.98. Through
December 31, 1999, limited partners who invested at the commencement of the
offering have received distributions totaling $16.74 per unit and those who
invested at the end of the offering period have received distributions totaling
$13.49 per unit.
PARENT COMPANY OF THE GENERAL PARTNER REVIEWING STRATEGIC ALTERNATIVES.
On November 8, 1999, PLM International, Inc., the corporate parent of the
General Partner, announced that its board of directors has engaged the
investment banking firm of Imperial Capital, LLC, to explore various strategic
and financial alternatives for maximizing shareholder value on a near-term
basis. Such alternatives may include, but are not limited to, a possible
transaction or series of transactions representing a merger, consolidation, or
any other business combination, a sale of all or a substantial amount of the
business, securities, or assets of PLM International, Inc., or a
recapitalization or spin-off. The Compensation Increase and the opportunity to
earn Management Fees for an additional 6 years provided for by the Amendments
may make a transaction involving the corporate parent of the General Partner
more attractive. In the event of a sale, directly or indirectly, of the General
Partner, the purchaser could modify the business of the General Partner.
ONGOING RISKS RELATING TO THE PARTNERSHIPS AND TAX RISKS OF THIS INVESTMENT
Throughout the Extension, the operation of the Partnership will
continue to be subject to risks similar to those that were present at the time
limited partners purchased their units, which risks are described in the
Prospectus for the Partnership, copies of which are available from the General
Partner.
CONFLICTS OF INTEREST
CONFLICT OF INTEREST OF GENERAL PARTNER. The General Partner initiated
and participated in the structuring of the Amendments and has the following
conflicts of interest with respect to their effect:
(1) As part of the Amendments, the limitation on the Front-End Fees and Net
Disposition Proceeds that can be paid to the General Partner by the Partnership
will be increased effective as of January 1, 1999, so that the General Partner
can earn such fees in excess of the amount proscribed in the NASAA guidelines.
(2) The General Partner will earn Front-End Fees for approximately 5 additional
years as a result of the extension of the Reinvestment Period. During the period
from 1997 through 1999, the Partnership paid the General Partner average annual
Front-End Fees of $379,539.
(3) The General Partner will earn greater Net Disposition Proceeds as a result
of extending the Reinvestment Period. To date, no Net Disposition Proceeds have
been paid because all disposition proceeds have been reinvested in equipment or
used for Partnership operations.
(4) The Manager, an affiliate of the General Partner, will earn Management Fees
for 6 more years than is contemplated by the Partnership Agreement.
Additionally, the ability to reinvest through December 31, 2004 will result in
the level of Management Fees not decreasing at as great a rate as they likely
would otherwise, since Management Fees are based upon gross lease revenues which
likely would decrease more quickly during those years in the absence of
reinvestment in equipment. During the period 1997 through 1999 the Partnership
paid the Manager on average Management Fees of $1,526,856 per year.
(5) If any portion of the Management Fee has been deferred at the time a Change
of Control occurs, the deferred portion may be payable in a lump sum if the
General Partner and Class Counsel agree that an annualized increase of 10% in
the cash flow received by the limited partners relative to the cash flow which
the General Partner projects would have been received by the limited partners
commencing January 1, 2000 (if the Partnership were to be liquidated pursuant to
what is contemplated by the Partnership Agreement) would have been attained
absent the Change of Control.
See "CONFLICTS OF INTEREST - Conflict of Interest of General Partner"
for a fuller discussion.
CLASS COUNSEL. In assessing Class Counsel's support of the equitable
settlement of which the proposed Amendments form an integral part, limited
partners should consider that Class Counsel may be deemed to have a conflict of
interest with respect to such support. In particular:
(a) the fees and expenses of Class Counsel in connection with the monetary
settlement, if approved by the court, will be paid in part from the cash
settlement fund provided by the defendants pursuant to the monetary settlement;
(b) as part of the equitable settlement, Class Counsel will apply for the
Equitable Class Fee Award which is estimated to be paid at or near the time the
Partnership liquidates from funds that would otherwise be distributed to the
limited partners if there is an annualized increase of at least 12% in the
actual cash flow received by the limited partners relative to the cash flow
which the General Partner projects would have been received by limited partners
commencing January 1, 2000 if the Partnership were to be liquidated as
contemplated by the Partnership Agreement;
(c) the Equitable Class Fee Award will be payable in a lump sum in the event of
a Change of Control if the General Partner and Class Counsel agree that an
annualized increase of 12% in the cash flow received by the limited partners
relative to the cash flow which the General Partner projects would have been
received by the limited partners commencing January 1, 2000 (if the Partnership
were to be liquidated as contemplated by the Partnership Agreement) would have
been attained absent the Change of Control; and
(d) given the additional protections for members of the equitable class,
including the right to object to the proposed equitable settlement in whole or
in part, and the court's prerogative to reject the settlement and the Amendments
even if the requisite consent of limited partners is obtained, under those
circumstances Class Counsel has agreed to the negative consent voting procedure
concerning the Amendments, which procedure makes their approval more likely and,
as a consequence, Class Counsel could receive legal fees of up to $2,239,819 if
the Amendments are approved and the Partnership achieves the targeted threshold
of performance (assuming renegotiation of the Partnership's debt). Class Counsel
may receive such fees at some time in the future (estimated to occur at or near
the time the Partnership liquidates), subject to acceleration in the event of a
Change of Control. Such fees could only be paid to Class Counsel if the limited
partners receive the targeted threshold level of distributions. See "CONFLICTS
OF INTEREST - Conflict of Interest of Class Counsel."
BACKGROUND, BENEFITS OF, AND REASONS FOR, THE AMENDMENTS
DESCRIPTION OF THE LITIGATION
PLM International, Inc., a Delaware corporation, the Manager, the
General Partner and two subsidiaries of the General Partner were named as
defendants in a lawsuit filed as a putative class action on January 22, 1997 in
the Circuit Court of Mobile County, Mobile, Alabama, Case No. CV-97-251 (the
"Alabama action"). Plaintiffs, who filed the complaint on their own behalf and
on behalf of all class members similarly situated, are six investors in the
Partnerships, for which the General Partner acts as the general partner. The
complaint asserted causes of action against all defendants, including fraud and
deceit, suppression, negligent misrepresentation, intentional and negligent
breaches of fiduciary duty, unjust enrichment, conversion, and conspiracy.
Plaintiffs alleged that each defendant owed plaintiffs and the class duties due
to their status as fiduciaries, financial advisors, agents and control persons.
Plaintiffs further asserted liability against defendants for improper sales and
marketing practices, mismanagement of the Partnerships, and concealing such
mismanagement from investors in the Partnerships.
Plaintiffs also alleged that the offering materials prepared by the
General Partner for use by third-party brokers misrepresented the purchases of
units in the Partnerships as safe, non-speculative investments with annual
double-digit cash distribution rates, and that the General Partner, other
defendants and non-defendant brokers misled class members by failing to disclose
what plaintiffs alleged to be the actual risks associated with investing in the
Partnerships. Plaintiffs sought unspecified compensatory and recissory damages,
as well as punitive damages, and have offered to tender their units back to the
defendants. Defendants have denied all of the allegations.
In March 1997, the defendants removed the Alabama action from the
Alabama state court to the United States District Court for the Southern
District of Alabama, Southern Division (Civil Action No. 97-0177-BH-C) based on
the diversity jurisdiction of the United States District Court. Defendants
removed the Alabama action to the Alabama federal court because defendants
believed that the case should have been brought in federal court and that
plaintiffs had incorrectly filed the complaint in Alabama state court because
Alabama state courts are widely perceived to be predisposed in favor of
plaintiffs in class actions, more likely to certify a putative class than the
federal courts, and more likely to award punitive damages. Defendants were also
aware of the practice of plaintiffs attorneys to file national class actions in
Alabama state court where very few plaintiffs reside in order to take advantage
of these perceived court-specific advantages.
After defendants removed the case to Alabama federal court, plaintiffs
filed a motion to remand the case back to Alabama state court. The Alabama
federal court denied plaintiffs' motion, after which plaintiff successfully
appealed the Alabama federal court's ruling to the Court of Appeals for the
Eleventh Circuit.
Further, in December 1997, the Alabama federal court granted
defendants' motion to compel arbitration of the named plaintiffs' claims, based
on an agreement to arbitrate contained in the Partnership Agreement of each
Partnership. The Alabama federal court's ruling meant that each plaintiff could
not prosecute the Alabama action as a class action in federal court, but instead
would have been likely required to pursue his or her claim in individual
arbitration proceedings, all in San Francisco, as provided for in the
Partnership Agreement. Plaintiffs therefore also appealed this significant
decision, but in June 1998 voluntarily dismissed their appeal pending settlement
of the Alabama action, as discussed below.
On June 5, 1997, the defendants were sued in another putative class
action filed in the San Francisco Superior Court, San Francisco, California,
Case No. 987062 (the "California action"). The plaintiff in the California
action is an investor in Fund V, and filed the complaint on her own behalf and
on behalf of all class members similarly situated who invested in the limited
partnerships for which the General Partner acts as the general partner,
including the Partnerships. The California action alleges the same facts and the
same causes of action as in the Alabama action, plus additional causes of action
against all of the defendants, including alleged unfair and deceptive practices,
constructive fraud, and violations of the California Securities Law of 1968.
In July 1997, defendants filed with the United States District Court
for the Northern District of California (Case No. C-97-2847 VHO) a petition
under the Federal Arbitration Act seeking, as in the Alabama action, to compel
arbitration of the California plaintiffs' claims and for an order staying the
California state court proceedings pending the outcome of the arbitration sought
by the petition. In October 1997, the California federal court denied
defendants' petition, but in November 1997, agreed to hear the General Partner's
motion for reconsideration of this order. That the California federal court
decided to reconsider its ruling denying defendants' motion to arbitrate was
also significant since that court's reconsideration created the risk for
plaintiffs that the California federal court would follow the ruling of the
Alabama federal court, and therefore, like in the Alabama action, the California
action would not be able to proceed as a class action in the federal courts, but
would instead likely have to proceed as an individual arbitration for the
California plaintiff and any other plaintiff in the California action. The
hearing on this motion for reconsideration has been taken off calendar and the
California federal court has dismissed the petition pending settlement of the
California action. The California state court action is stayed pending such
resolution.
After the California federal court in November 1997 agreed to hear
defendants' motion for reconsideration of their petition to compel arbitration
of the California action, and the Alabama federal court granted defendants'
motion to compel arbitration in the Alabama action, the parties commenced
serious settlement negotiations. Negotiations were long and involved, and
required Class Counsel to review materials relating to the Partnerships that
they had collected in other proceedings against brokers and from defendants in
this litigation. Material terms over which the parties negotiated included the
dollar amount of the monetary settlement, when defendants would fund the
monetary settlement (which would commence the payment of interest), the claims
procedures by which class members would file claims against the monetary
settlement fund, the benefits to the limited partners if the term of the
Partnerships were extended, the determination to include each Partnership in the
equitable settlement, the repurchase of units by the Partnership for a
percentage of their net asset value, the deferral of Management Fees by the
General Partner's subsidiary, the return threshold for the General Partner's
subsidiary becoming entitled to receive the deferred portion of the Management
Fee, the payment of additional compensation to the General Partner for
performing services during the Extension, and the definition and scope of the
settlement classes which would participate in the claims process and the
equitable settlement and would release claims against defendants and others.
On February 9, 1999, Class Counsel and the defendants entered into a
settlement stipulation providing for a monetary and equitable settlement of both
the Alabama action and California action, and filed the settlement stipulation
and supporting papers in the Alabama federal court. The Alabama federal court
preliminarily approved the stipulation on June 29, 1999 after a hearing attended
by representatives of defendants and plaintiffs. Although the procedure by which
the Amendments will be voted upon has been [preliminarily] approved by the
court, neither Class Counsel nor counsel for the General Partner specifically
directed the court's attention to the fact that the negative consent voting
procedure is contrary to the voting procedures set forth in the Partnership
Agreement. The Alabama federal court also preliminarily certified two classes
for settlement purposes, a monetary class and an equitable class, approved the
forms of notices to be sent to class members, and scheduled a date for a final
fairness hearing at which all class members will have an opportunity to be
heard.
Since the commencement of the Alabama action, which includes the period
of settlement negotiations, the General Partner has not considered involving the
Partnership in a merger, acquisition, combination, consolidation or joint
venture with other entities in the equipment leasing business. The General
Partner also has not been aware of any such offers to so involve the
Partnership. However, the General Partner's corporate parent has retained an
investment banker to consider strategic alternatives, including a merger,
consolidation, and sale of all of its business or assets, and any such
transaction could involve the General Partner.
SUMMARY OF SETTLEMENT. The settlement is comprised of two parts, the
monetary settlement, which involves the Partnerships and PLM Equipment Growth
Fund IV ("Fund IV"), and the equitable settlement in which only the Partnerships
(and not Fund IV) may participate, as more fully set forth in the accompanying
two separate notices of the equitable and monetary settlements. The monetary
settlement in part requires defendants to pay up to $6,600,000 in settlement of
the monetary class claims. The General Partner's parent is responsible for
$330,000 of this amount with the balance funded by insurance. $6,000,000 was
deposited into a settlement account on July 21, 1999, and the additional
$600,000 will be deposited shortly. Monetary class members who properly file
claims with the settlement administrator will be paid in accordance with a plan
of allocation that was formulated by Class Counsel and is to be considered for
final approval by the court. Amounts payable to monetary class members will be
reduced by the fees paid to Class Counsel from the monetary settlement, which
will be no greater than one-third of the monetary settlement. The equitable
settlement contemplates the extension of the Reinvestment Period and the
deferred liquidation of the equipment in each Partnership, as set forth in
detail in this document.
CLASS MEMBERS. The monetary class consists of, among others, all
persons whom between May 23, 1989 and June 29, 1999 purchased units in the
Partnerships and Fund IV, regardless of whether they currently hold units. The
General Partner is also the general partner of Fund IV. The equitable class
consists of, among others, all persons who were unitholders in the Partnerships
as of June 29, 1999 or their successors and/or assignees. There is substantial
overlap between the two classes and they are not mutually exclusive. Most
everyone who is a member of the equitable class will also be a member of the
monetary class (only those unitholders who acquired their units in a Partnership
after June 29, 1999 will not be monetary class members).
Approval Procedure for the Equitable Settlement. The equitable
settlement provides that, assuming other conditions are met, including court
approval, the Partnership Agreement will be amended to give effect to the
Amendments unless limited partners holding 50% or more of the units in such
Partnership vote against one or more of the Amendments. Limited partners have
until _________________, 2000 to vote against one or more of the Amendments.
Thus, the Partnership will participate in the equitable settlement if:
(1) limited partners holding less than 50% of the units of a given
Partnership vote against one or more of the Amendments;
(2) the court approves of the Partnership being included in the equitable
settlement; and
(3) the other terms and conditions of the settlement stipulation are
satisfied or waived.
Under the Partnership Agreement, implementation of the Amendments could
only be effected by obtaining the approval of the limited partners holding not
less than a majority of the units. However, because the Amendments are subject
to a judicial determination and court order following the fairness hearing (as
provided for in the settlement stipulation), the Amendments will be effective,
subject to the other conditions just described above, unless 50% or more of the
units vote against one or more of the Amendments (the negative consent voting
procedure). The General Partner is recommending the negative consent voting
procedure involving the Amendments, since such procedure makes their approval
more likely. Any limited partner objecting to this change in the voting
procedure (or to any other part of the equitable settlement) will have the
opportunity both to vote against the Amendments by submitting a signed Voting
Form by __________, 2000 and/or to object to them in court at the final approval
hearing on ______2000 by following the instructions contained in the equitable
notice accompanying this solicitation. At that hearing, the Alabama federal
court will hear and consider any such objections (as well as objections from
class members who are not limited partners), as well as other submissions by
Class Counsel and defendants, as part of its determination of whether both the
equitable and monetary class settlements are fair and reasonable resolutions of
this litigation. As part of that determination, the Alabama federal court will
consider any objection to any part of the settlement including objections to
that part of the equitable settlement that alters the Partnership's voting
procedures.
EFFECT ON RIGHTS OF LIMITED PARTNERS. An equitable class member has the
right to vote against the equitable settlement by voting against one or more of
the Amendments by delivery of a Voting Form pursuant to this solicitation
statement and/or to object to the equitable settlement in court by following the
procedures set forth in the equitable notice which accompanies this solicitation
statement. An equitable class member may not opt out of the equitable
settlement, and upon approval of the equitable settlement by the court, the
Amendments will be approved and all equitable class members will be participants
in the equitable settlement.
Approval of the equitable settlement will result in the full and
complete settlement, discharge and release of the claims by the equitable class
members against the General Partner, affiliates of the General Partner and other
defendants in connection with or which arise out of the allegations made in the
litigation irrespective of whether the equitable class member voted against the
Amendments or objected to the equitable settlement in court, unless the
equitable class member is also a monetary class member who properly opted out of
the monetary settlement. A member of the equitable class who is also a member of
the monetary class and who has opted out of the monetary class may pursue an
individual claim regardless of the outcome of the equitable settlement.
The class members' retention of rights to pursue defendants in the
monetary settlement occurs because the settling parties are asking the court to
approve the equitable and monetary settlement as two separate, albeit related,
class action settlements. And accordingly, each class member who has released
defendants by virtue of approval of the equitable settlement will, if they
properly opted out of the monetary settlement, not have released defendants in
the monetary settlement. But each class member who does not opt out of the
monetary settlement will be restrained from commencing or prosecuting any claims
settled and released as part of the monetary settlement.
A class member who chooses to vote against the amendments and/or object
to the equitable settlement in court is not, however, required to opt out of the
monetary settlement, and may still participate in the benefit of such settlement
if approved by the court.
The equitable settlement will not be approved by the court if the
monetary settlement is not approved (the monetary settlement may be approved
even if the equitable settlement is not approved).
If defendants elect to terminate the equitable settlement for the
reasons discussed below, class members will still have the right to opt out of
the monetary settlement if they wish to pursue claims against the General
Partner, other defendants, or others. If defendants elect to terminate the
monetary settlement as well, class members will also retain whatever rights they
previously had to pursue any claims they might have had against the General
Partner, other defendants or others.
CLASS COUNSEL
Class Counsel consists of law firms located throughout the United
States, each of which is unaffiliated with the General Partner. Such firms were
selected by the individual plaintiffs who commenced or intervened in the
litigation, all of whom are limited partners, to represent and act on behalf of
other limited partners and unitholders in the litigation, including settlement
of the litigation. Class Counsel are coordinated by Michael E. Criden of the law
firm of Hanzman, Criden, Chaykin, Ponce and Heise in Miami, Florida.
Each of plaintiffs' law firms is experienced in representing investors
in securities and limited partnership class action litigation, and each has
represented investors in complex settlement negotiations resulting in a variety
of settlement transactions. Class Counsel investigated the claims asserted
against the defendants in the litigation, conducted discovery, including the
review of numerous documents, and conducted extensive negotiations with the
General Partner resulting in the settlement.
Class Counsel may be considered to have a conflict of interest in their
support of the equitable settlement, of which the proposed Amendments form an
integral part, because Class Counsel intends to apply to the court for an award
of fees and reimbursement of expenses. See "CONFLICTS OF INTEREST - Conflict of
Interest of Class Counsel." Class Counsel's fee application is subject to the
approval of the court.
Class Counsel will not receive attorneys' fees from the Partnership or
the limited partners in the event the Amendments are not approved or if the
defendants elect to terminate the equitable settlement.
PROVISIONS OF THE AMENDMENTS
The Amendments, if approved by the court and the limited partners, will
consist of five material components, each described below:
o the extension of the Reinvestment Period by approximately 5 years;
o the extension, until January 1, 2007, of the date by which the General
Partner must liquidate all of the Partnership's equipment, which date
is 6 years beyond what is contemplated by the Partnership Agreement;
o the 2 1/2 year deferral of the Manager's receipt of 25% of its
Management Fee until specified performance levels are achieved by the
Partnership;
o the offer of the Partnership to repurchase up to 10% of its units from
equitable class members at 80% of their net asset value; and
o an increase in the limitation on compensation the General Partner can
receive.
THE EXTENSION OF THE REINVESTMENT PERIOD
The Reinvestment Period will be extended, permitting the General
Partner to reinvest cash flow, surplus funds or retained proceeds in additional
equipment into the year 2004, which will allow approximately 5 additional years
of reinvestment.
THE DELAYED LIQUIDATION DATE
The Partnership Agreement requires that the Partnership's equipment be
liquidated by January 1, 2001. The Amendments will extend that date by 6 years,
until January 1, 2007.
THE MANAGEMENT FEE DEFERRAL
Commencing January 1, 2002 and continuing for 2 1/2 years, the Manager
will defer receipt of 25% of the Management Fee it would otherwise be entitled
to receive from the Partnership pursuant to the Partnership Agreement. For
equipment management services rendered to the Partnership in 1999, the Manager
was paid a Management Fee of $1,292,340.
The time period over which the Manager agrees to defer receipt of 25%
of the Management Fee will end June 30, 2004. The deferred portion of the
Management Fee will be accrued by the Manager during the that period, and will
not be earned or paid to the Manager unless there is an annualized increase of
at least 10% in the actual cash flow received by the limited partners relative
to the cash flow which the General Partner projects would have been received by
limited partners commencing January 1, 2000 if the Partnership were to be
liquidated as contemplated by the Partnership Agreement. The deferred portion of
the Management Fee, if earned, will be paid to the Manager from any additional
cash flow of the Partnership until paid in full.
THE REPURCHASE
In structuring the equitable settlement, the General Partner sought to
make available an immediate liquidity option to limited partners who might
oppose the Amendment and/or those who wish to sell their units in the
near-future, capped at ten percent (10%) of the outstanding units. Currently,
limited partners have two ways of selling their units. They can sell them on the
secondary market, in which price is volatile and volume is low (10 reported
trades in the November/December issue of "Partnership Spectrum", at prices of
between $4.50 and $4.60 per unit), or they can tender them to the Partnership
for repurchase. However, the Partnership Agreement presently only allows the
Partnership to repurchase, on an annual basis, up to two percent (2%) of the
outstanding units, at a price of one hundred and ten percent (110%) of a limited
partner's net unrecovered capital per unit (original investment amount less
distributions received through the repurchase date, per unit). As of December
31, 1999, 110% of net unrecovered capital for a limited partner who bought his
or her units upon commencement of the Partnership was $3.58 per unit, and for
the average limited partner who bought units at any time during the offering
period, 110% of net unrecovered capital was $5.37 per unit.
Currently, the Partnership is obligated only to repurchase units if the
General Partner determines that such repurchase would not impair the capital or
operations of the Partnership. Additionally, the Partnership Agreement
prioritizes repurchase requests, with first priority going to units owned by
estates, then to IRAs and other qualified plans, and finally to all other
limited partners.
In light of this lack of liquidity, the General Partner believes that
offering to repurchase up to ten percent (10%) of all outstanding units at
eighty percent (80%) of net asset value reflects an appropriate discount for
immediate liquidity. As of December 31, 1999, 80% of net asset value, on a per
unit basis, was $4.64. If the Repurchase is approved as part of the Amendments,
the Partnership's discretionary ability to repurchase units for 110% of a
limited partner's net unrecovered capital will terminate and the Partnership is
projected to spend $4,204,705 for this one-time repurchase.
Any equitable class member intending to submit for repurchase some or
all of his, her or its units must indicate this intention on the repurchase
request that they receive along with the equitable notice and this solicitation
statement. The repurchase price for each unit shall be determined as follows:
first, the net asset value of the Partnership (the value of all equipment owned
by the Partnership as determined by the General Partner as of the fiscal quarter
immediately preceding the repurchase date, plus any cash, uncollected
receivables and any other assets, less accounts payable, debts and other
liabilities of the Partnership as of the same date) will be divided by the
number of outstanding units to determine the net asset value per unit. Then, the
net asset value per unit will be multiplied by 80% to determine the repurchase
price per unit. The repurchase of units will be completed not later than the end
of the first fiscal quarter after final court approval of the equitable
settlement.
If the eligible class members request that the Partnership repurchase
more than 10% of its outstanding units, the Partnership will repurchase up to
10% of the outstanding units pro rata within certain groups of established
priorities based on the number of units offered for repurchase in each such
group, or as close to a pro rata basis as is reasonably possible. Any such pro
rata allocation adjustment will be determined by the claims administrator,
giving first priority to units owned by estates, IRAs and qualified plans, in
that order, and which were purchased in the initial offering. In the event that
the total number of units requested by eligible class members to be repurchased
exceeds 10% of that Partnership's outstanding units, the General Partner will
have the option, but not the obligation, to purchase these excess units with its
own monies and on its own behalf.
THE COMPENSATION INCREASE
The current limitation on Front-End Fees payable to the General Partner
will be increased by twenty-percent (20%). The current limitation is based upon
the guidelines issued by NASAA. The Front-End Fee Increase will have the effect
of increasing the total compensation permitted to be paid to the General Partner
and its affiliates, if earned, by the amount of the Front-End Fee Increase. As a
result, if the General Partner and its affiliates do not earn the full amount of
the Front-End Fee Increase, additional categories of compensation, which
otherwise would be restricted by the NASAA guidelines, could be paid. Absent the
Amendments, however, the only other payment to the General Partner which could
result in total compensation exceeding the NASAA guidelines is the payment to
the General Partner of its interest in Net Disposition Proceeds. In this regard,
the NASAA guidelines permit the General Partner to be paid 1% of Net Disposition
Proceeds, while the Partnership Agreement permits the General Partner to be paid
5% of such Net Disposition Proceeds. Without the Amendments, the payment to the
General Partner of up to the additional 4% of Net Disposition Proceeds to which
it is entitled under the Partnership Agreement would be permitted only if and to
the extent the General Partner has otherwise been paid less than the total
amount of the compensation allowed by the NASAA guidelines. Therefore, the
Amendments will enable the General Partner to receive up to this additional 4%
so long as the amount of Net Disposition Proceeds, together with the additional
Front-End Fees, do not exceed the 20% Front-End Fee Increase. The General
Partner and Class Counsel agreed to this fee increase to compensate the General
Partner for the additional services it will perform during the Extension (an
additional six years). Without this increase, the General Partner would not
necessarily have agreed to the Amendments, which the General Partner believes
will benefit the limited partners for the reasons described below.
COMPARISON OF EXTENDING THE REINVESTMENT PERIOD AND THE EXTENSION (AND THE
BENEFITS THEREOF) TO TERMINATION OF REINVESTMENT AND LIQUIDATION OF EQUIPMENT AS
SCHEDULED
The Amendments are being proposed by the General Partner in connection
with the equitable settlement and pursuant to the settlement stipulation. The
structure, terms and conditions of the Amendments have been negotiated at arm's
length with Class Counsel acting on behalf of the equitable class. The General
Partner is recommending that the limited partners not vote against the
Amendments because it believes, for the reasons set forth below, that extending
the Reinvestment Period, and the Extension, both are in the best interests of
the limited partners.
To date, the Partnership has acquired and operated transportation
equipment to generate cash flow to pay the expenses and obligations of the
Partnership and to make distributions to the limited partners with any remaining
cash flow. The General Partner stopped reinvesting proceeds from the sale of
equipment in 1998 (except for certain contractually mandated capital
modifications), and the Partnership has entered the holding phase of its life.
During the holding phase, the General Partner is permitted to continue leasing
equipment under existing leases, to enter into new leases, or to sell equipment.
Once equipment is sold during the holding phase, the proceeds may be used to
repay Partnership debt, to maintain an appropriate level of working capital
reserves, and to make distributions to limited partners. The proceeds cannot be
reinvested in additional equipment, however. The holding phase will be followed
by the liquidation phase, when the General Partner will undertake the orderly
and businesslike liquidation of the equipment and will begin to wind up the
affairs of, and liquidate, the Partnership. The Partnership Agreement presently
requires that the Partnership's equipment be liquidated by January 1, 2001.
In reviewing the Partnership's portfolio and in connection with the
litigation, the General Partner analyzed the continued operation of the
Partnership and liquidation of Partnership equipment substantially in accordance
with the timetable described above. The Partnership portfolio on December 31,
1999 consisted, on an original cost basis, of approximately $55.3 million in
aircraft equipment, $43.6 million in marine vessels, $11.3 million in railcars,
$9 million in containers and $9 million in trailers (totaling approximately
$128.5 million), which equipment the General Partner believes had a fair market
value of $69.1 million as of December 31, 1999. The General Partner determined
that, in general, certain types of equipment were underperforming (marine
vessels and aircraft) and other types of equipment were meeting or exceeding
expectations (railcars, containers and trailers). The General Partner believes
that Partnership performance can be improved if the Partnership continues to
hold and operate certain assets beyond the current expected liquidation date and
if specific underperforming assets are sold and the proceeds reinvested in
assets which would earn yields of 11.8% and 10.7% (assuming the extension of the
Partnership debt and no extension of such debt, respectively), which the General
Partner believes can be obtained for the reasons described below.
CONTINUED OPERATION OF ASSETS. The General Partner believes that it can
continue to rent and operate the higher performing assets beyond 2000 and that
such assets will generate cash flow from continued rentals and eventual sales,
the present value of which are expected to exceed the present value of continued
rentals and the sales proceeds of that same equipment based upon the presently
expected liquidation date. Much of this equipment, because of its age and/or
operating characteristics, is not expected to experience significant reductions
in its estimated fair market value through the Extension, yet this same
equipment can be leased to third-party users at rental rates only slightly lower
than those commanded by similar equipment (notwithstanding higher maintenance
and repair costs on older equipment, which is taken into account when setting
lease rates) that is newer and has a higher fair market value Absent unforeseen
changes in the marketplace for these types of equipment The General Partner does
not believe that the fair market value of these assets will materially decline
between the time the General Partner would liquidate the equipment pursuant to
the terms of the Partnership Agreement and the time the General Partner would
liquidate the equipment during the Extension.
Based on these factors, the General Partner believes that this
equipment is well positioned to earn favorable returns for limited partners over
the next five to seven years when compared to its current fair market value. For
example, the General Partner has calculated projected returns on the
Partnerships' portfolio of railcars, containers and trailers (not including
equipment purchased during the last two years) from January 1, 2000 through the
Partnerships' expected liquidation pursuant to the terms of the Partnership
Agreements, and pursuant to the Extension, using the assumptions set forth on
pages 20 through 23. The General Partner projects the returns on this group of
assets on a weighted average basis to be 14% (assuming no leverage on the
equipment) to 18% (assuming 20% leverage on the equipment) if the equipment were
liquidated during the time frame specified in the Partnership Agreements,
compared to 16% (assuming no leverage on the equipment) to 19% (assuming 20%
leverage on the equipment) if the equipment were liquidated during the proposed
Extension. However, there can be no assurance that such equipment will earn the
projected returns, as the equipment markets in which the Partnership operates
are subject to risks, uncertainties and other factors that may cause performance
to be materially different from historical performance of the Partnership.
Additionally, there can be no assurance that the General Partner would not
determine to sell certain types of equipment if it determined such sale to be in
the best interests of the Partnership.
REINVESTMENT OF PROCEEDS INTO ADDITIONAL EQUIPMENT. The General Partner
from time to time identifies assets which it intends to sell for any number of
reasons, including because the asset's performance is not meeting the General
Partner's expectations and is not expected to improve, or to pay down
Partnership debt. In the absence of the extension of the Reinvestment Period,
sales proceeds from assets sold cannot be used to reinvest in additional
equipment (to the extent such proceeds were not needed to pay down debt or for
partnership operations). With the extension of the Reinvestment Period, sales
proceeds may be used as available to purchase additional assets through December
31, 2004. The General Partner believes that the Partnership performance will be
improved during the Extension if, in addition to the continued lease of higher
performing assets, available Partnership funds from the sale of poorer
performing assets are reinvested in equipment with yields of approximately 10.8%
and 10.7% (assuming the extension of the Partnership debt and no extension of
such debt, respectively), which yields the General Partner has assumed can be
achieved based upon returns projected to be earned on equipment purchased over
the last two years, taking into account the change of strategy. These yields
approximate the discount rate of 11.1% applied in evaluating the benefit to the
limited partners of the Extension and extended Reinvestment Period (see Page
24). While such transactions will make up only a small percentage of the overall
portfolio, they will allow Partnership overhead and other fixed costs to be
spread out over a larger portfolio, resulting in a decrease in such costs as a
percentage of Partnership revenues. The General Partner believes it will be able
to identify equipment for the Partnership to acquire using the reinvestment
funds with projected returns similar to those described below for marine
containers and railcars (See Equipment Transactions Entered into Since January
1998.)
The Partnership currently has approximately $13.5 million in debt
outstanding under a loan agreement scheduled to be repaid in quarterly
installments of approximately $1.9 million each. If the Extension is approved,
the General Partner may seek to renegotiate the debt, thereby changing the time
at which payments of principal must be made to a date later than currently
scheduled. Assets which would otherwise have to be sold during the Reinvestment
Period (in order to pay down the debt) would then either: (i) remain in the
portfolio in order to continue to generate revenue; or (ii) be sold and the
proceeds used to reinvest in additional equipment. During the five-year
extension of the Reinvestment Period, and assuming the debt is paid down as
currently scheduled, the General Partner projects that it will have
approximately $18 million available from the sale of assets for reinvestment. If
the debt is renegotiated, the General Partner projects that it will have up to
approximately $30.5 million available from the sale of assets for reinvestment.
However, there can be no assurance that suitable equipment transactions will be
available or that projected returns will be realized as the equipment markets in
which the Partnership operates are subject to risks, uncertainties and other
factors that may cause performance to be materially different from that
described below or even from historical performance of the Partnership. It
should also be noted that the General Partner will be entitled to equipment
acquisition and lease negotiation fees when additional equipment is acquired and
initially leased out. See "RISK FACTORS," "CONFLICTS OF INTEREST" and
"CAUTIONARY STATEMENT."
EQUIPMENTTRANSACTIONS ENTERED INTO SINCE JANUARY 1998. Since January of
1998, the General Partner has acquired, on behalf of the Partnerships and
Professional Lease Management Income Fund I, L.L.C. ("LLC") $153,956,000 of
equipment as specified below:
Type of equipment Total Expenditures by the
Partnerships and LLC Expenditures for V
Marine Containers $52,080,000 --
Marine Vessels $51,819,000 $9,200,000
Aircraft and Spare Parts $40,325,000 --
Portable Heaters $4,115,000 --
Railcars $3,929,000 --
Trailers $1,688,000 --
Total $153,956,000 $9,200,000
The General Partner has calculated projected returns on this equipment
assuming the Amendments are approved and, except as otherwise specifically
noted, the equipment is held until liquidation of each program (fourth quarter
2006). The returns were calculated on the following basis:
(i) the acquisition cost of the equipment was increased to include
Front-End Fees;
(ii) projected equipment revenue was reduced to reflect Management Fees that
have been and will be paid, and reduced to reflect an allocation of
overhead;
(iii) projected returns are expressed on a cash basis, pre-tax;
(iv) the equipment lessees do not default and the equipment has no time off
lease, except as otherwise noted below, (Fund VII has had significant
off-lease and default experience over the last two years, however); and
(v) the Partnership does not need to make any unbudgeted expenditures for
equipment repair and modification.
MARINE CONTAINERS
In 1998 and 1999 the General Partner acquired and leased on a long-term
basis 19,970 predominately new (in no event more than 2 years old) 20', 40' and
40' Hi Cube dry maritime containers at a cost of $52,081,000.
This equipment is projected to return on a weighted average basis 11.2%.
MARINE VESSELS
Anchor Handling Tug/Supply ("AHTS") Vessels
During the first six months of 1998, the General Partner acquired, in
two separate transactions, 3 AHTS vessels for $28,025,000, including one
purchased on behalf of the Partnership for $9,200,000. Based on the current
lease rates, the General Partner originally projected returns on these
investments from 9.2% to 9.1%. During the third quarter of 1999, one of the
partnerships managed by the General Partner had a vessel similar to these three
vessels come off lease. Based upon the re-lease rate achieved on that vessel,
which is lower than that currently being earned by these 3 vessels, the General
Partner has determined to sell these vessels in 2001 and has revised the
projected return on these three vessels to between 2.1% and 2.4%.
Product Tanker
During the second quarter of 1998, the General Partner acquired a
product tanker for $17,000,000. The expected return on this investment, based
upon the General Partner's projected future charter rates when the vessel was
acquired, was 9.2%. Based upon the vessel's actual performance and projected
future charter rates, the General Partner will shortly be marketing this vessel
for sale, and the projected return on this investment has been reduced to
(0.5)%.
Handy Sized Bulk Carrier Vessel
In the first quarter of 1999, the General Partner acquired for one of
the programs a handy sized bulk carrier vessel for $6,674,000. At the time the
vessel was acquired, based upon projected charter rates and vessel residual, the
General Partner projected the return on this vessel to be 13.8%. Several months
after acquiring this vessel, based upon unanticipated softness in charter rates
available in the market for vessels of this type, the General Partner
re-evaluated the projected return this asset would yield, and, concurrent with
continuing to charter the vessel, began marketing the vessel for sale. The
vessel was sold in October of 1999 for $7,500,000 yielding a return of 13.1%.
See "CHANGE OF STRATEGY."
AIRCRAFT AND AIRCRAFT SPARE PARTS
In 1998 the General Partner, on behalf of one of the programs, acquired
and leased to an airline a portfolio of aircraft spare parts for $2,175,000. The
expected return to the program on this portfolio investment is 10.1%, assuming a
sale in December 2003 at the end of the lease term.
In 1998 the General Partner acquired an MD 82 "stage three" aircraft
and assumed the remaining long-term lease with an airline, for $15,550,000. The
projected return on this investment is 9.3%, assuming a sale at the end of the
lease in the second quarter of 2003.
In 1999, the General Partner acquired a 737-300 aircraft for
$22,500,000. At the time of purchase, it was expected that this aircraft would
be leased promptly at a lease rate and with an expected residual that would
yield a return on this investment of 8.5%. The Aircraft has not yet been leased.
The General Partner is now projecting that it will be leased in the first
quarter of 2000 at a lease rate and with an expected residual that will result
in a return on this investment of 2.7%, assuming a sale of this asset in the
third quarter 2005. See "CHANGE OF STRATEGY."
PORTABLE HEATERS
In 1998 the General Partner acquired 638 portable heaters at a cost of
$4,115,000, subject to a four-year lease. The General Partner expected that this
equipment would yield a return of 13.9%. After approximately one year, the
lessee of the heaters encountered financial difficulties and ceased paying rent
on the equipment. The lessee was declared in default under the lease, and the
equipment was sold approximately 18 months after purchase. The actual return on
this equipment was 4.0%.
RAILCARS
The General Partner acquired, in three separate transactions, 215 tank
railcars at a cost of $3,929,000. The railcars are on various medium to long
term leases, ranging from 1 to 5 years. This equipment is projected to return on
a weighted average basis 14.7%.
TRAILERS
In 1999 the General Partner acquired 75 new, dry, over-the-road
trailers, at a total cost of $1,688,000. These trailers are operating under a
revenue sharing agreement with a major carrier and are projected to have a
return on investment of 10.5%.
CHANGE OF STRATEGY
In light of the historical performance of the Partnership's marine
vessel and aircraft investments, as discussed in this Section, the General
Partner recently changed the investment strategy it will employ on behalf of the
Partnership, if the Reinvestment Period is extended. In this regard, the General
Partner believed in 1998 and early 1999 that the marine vessel market was at a
low point, both in terms of the cost to acquire equipment and lease rates. The
General Partner also believed that there would be an upturn in the marine vessel
market such that the continued acquisition of vessels for the Partnership would
meet the targeted investment return threshold, notwithstanding the then current
lease rates. Towards the end of the first quarter of 1999, based upon a
re-analysis and forecast of vessel market trends, the General Partner determined
that it did not believe the vessel market would sufficiently recover during the
time horizon required in order to meet the previous projections and the General
Partner then re-evaluated the projected return of the Partnership's vessels. As
a result, the General Partner has decided to curtail acquiring any additional
vessels and to sell all of the Partnership's vessels over the next 2 years.
Furthermore, as a result of its experience in the aircraft market,
during the extended Reinvestment Period the General Partner will no longer
invest Partnership funds in commuter aircraft or aircraft that, at the time of
acquisition, is not subject to lease or for which it does not have a binding
lease commitment. Additionally, the General Partner will not lease aircraft to
lessees located in less developed countries whose legal system may not allow the
Partnership to effectively enforce its rights under a lease, absent an unusually
attractive lease rate or satisfactory credit support. See "RISK FACTORS,"
"CONFLICTS OF INTEREST" and "CAUTIONARY STATEMENT."
COMPARISON OF ALTERNATIVES TO THE EXTENSION
General. To assist the limited partners in evaluating the Amendments,
the General Partner has computed estimates of the following:
o the value of a unit, on a present value basis, assuming that the
Partnership renegotiates its debt agreements, reinvests in equipment
through the Reinvestment Period (December 31, 2004), and then
liquidates its equipment at the end of the Extension (by January 1,
2007)
o the value of a unit, on a present value basis, assuming that the
Partnership does not renegotiate its debt agreements, reinvests in
equipment through the Reinvestment Period (December 31, 2004), and then
liquidates its equipment at the end of the Extension (by January 1,
2007)
o the value of a unit, on a present value basis, assuming that the
Partnership liquidates its equipment by approximately January 1, 2001;
and
o the value of a unit if the Partnership's equipment hypothetically had
been liquidated on September 30, 1999, in order for the Partnership to
liquidate and for the Partnership's investors to receive a final
liquidating distribution by December 31, 1999;
The present value of a unit represents the value as of December 31, 1999 of the
sum of the estimated distributions per unit to be received by limited partners
from January 1, 2000 through the date of liquidation of the Partnership,
discounted for the time value of money, which the General Partner has assumed to
be 11.1%. The present value of a unit does not include Partnership distributions
paid to investors from the date of their investment through December 31, 1999.
GENERAL PARTNER'S ASSUMPTIONS. The General Partner has made certain
assumptions in order to estimate the value of a Partnership unit as of each time
period described above.
For liquidation as of December 31, 1999, the General Partner has
assumed that the Partnership equipment was sold in an orderly liquidation (i.e.,
a willing buyer, a willing seller, and closing of the sale within 90 days) on
September 30, 1999. The primary component of this analysis, the estimated sales
proceeds that could be received upon the sale of the Partnership's equipment
assets, was determined by the General Partner's best estimate of the current
market values of such assets based on the opinions of the General Partner's
staff equipment specialists. These opinions were reached based on the
specialists' knowledge of the equipment markets for which they are responsible,
including their knowledge of or research into recent similar transactions in the
marketplace, if any. Estimated sales proceeds, working capital, collection of
accounts receivable and liquidation of other assets were then aggregated and,
from this total, all existing debt, including prepayment penalties, if any, as
well of the payment of any other liabilities was assumed to be paid out in the
fourth quarter of 1999. The General Partner assumed that a final distribution to
investors would be made by December 31, 1999. The specific projections of sales
proceeds, expenses and other cash flow items made by the General Partner are set
forth on the chart in Appendix B. The Partnership equipment was not liquidated
on December 31, 1999, and the General Partner currently has no plan to liquidate
the Partnership's entire portfolio of equipment prior to the time frame
contemplated by the Partnership Agreement, whether or not the Amendments are
approved.
For liquidation pursuant to the terms of the Partnership Agreement
(equipment liquidation by January 1, 2001), the General Partner has made
assumptions as to the financial performance of each item of equipment currently
owned by the Partnership, including expected lease revenues, operating expenses,
date of sale and the amount of sale proceeds. Lease revenues, operating
expenses, and sale proceeds for currently owned equipment were estimated based,
in part on the General Partner's and its staff equipment specialists' historical
experience with each particular asset or asset type, and in part on the opinions
of its equipment specialists as to the future performance of each asset and
their expectation of the trends in the various equipment markets, as further
described below in "Currently Owned Equipment Assumptions." Limited Partners
should bear in mind that Fund VII has had significant off-lease and bad debt
experience over the last two years, and from its inception through September 30,
1999, Fund VII has had uncollected lease revenue (bad debt) of 1.73% and
equipment off-lease experience of 5.8% (expressed as a percent of the original
cost of all equipment purchased). Proceeds received from the sale of assets were
applied as required to pay off Partnership debt, were added to the Partnership's
working capital or reserves or available for distributions to limited partners.
The General Partner also made assumptions regarding the amount of other
non-operating expenses and cash flows of the Partnership, such as the payment of
Management Fees, overhead and other administrative costs, and partnership
distributions. The specific cash flow projections made by the General Partner
are set forth on the chart in Appendix B.
For liquidation pursuant to the proposed extended Reinvestment Period
and Extension (reinvestment through December 31, 2004 and equipment liquidation
by January 1, 2007) with no renegotiation of Partnership debt, the General
Partner made the same assumptions as were made for liquidation pursuant to the
Partnership Agreement, except that the General Partner assumed that
approximately $18 million of available partnership funds could be used to
purchase additional equipment through December 31, 2004. Partnership funds were
considered to be available if they were not needed to pay down debt or for the
Partnership's working capital or reserves. The General Partner has not
identified any particular assets or related leases transactions for such
reinvestment, but assumed that the newly acquired equipment in the aggregate
could yield a pre-tax cash return of 10.7% as further described below in "Newly
Acquired Equipment Assumptions." Further, the General Partner assumed that
approximately $4,204,705 of Partnership funds, from the Partnership's working
capital and asset sales, would be used to fund the repurchase contemplated by
the Amendments in the second and third quarters of 2000. The specific cash flow
projections made by the General Partner are set forth on the chart in Appendix
B.
For liquidation pursuant to the proposed extended Reinvestment Period
and Extension (reinvestment through December 31, 2004 and equipment liquidation
by January 1, 2007) with the renegotiation of Partnership debt, the General
Partner made the same assumptions as were made for liquidation pursuant to the
proposed extended Reinvestment Period and Extension (reinvestment through
December 31, 2004 and equipment liquidation by January 1, 2007) with no
renegotiation of Partnership debt, except that the General Partner assumed that
it was able to renegotiate the Partnership's current debt so that principal
payments become due later than currently scheduled. The General Partner has not
secured the agreement of the Partnerships' lenders to extend the term of the
loan. The General Partner further assumed that the proceeds from assets sold
during the extended Reinvestment Period (some of which would have been used to
pay down the original debt), were used instead to reinvest in approximately
$12.5 million of additional equipment, for a total of approximately $30.5
million reinvested during the extended Reinvestment Period. The General Partner
assumed that the newly acquired equipment could yield a pre-tax cash return of
10.8% as further described below in "Newly Acquired Equipment Assumptions." The
specific cash flow projections made by the General Partner are set forth on the
chart in Appendix B.
CURRENTLY OWNED EQUIPMENT ASSUMPTIONS. For equipment owned by the
Partnership and for the purposes of estimating a portion of the returns in each
of the scenarios discussed above except for liquidation as of December 31, 1999,
the General Partner has made the following assumptions:
Railcars: The General Partner tracks railcar performance by determining
the number of days per year that a railcar was available to be on-lease and
compares that number to the actual number of days it generated revenues. For the
past 5 years, railcars have historically remained at above 98.5% utilization
pursuant to leases ranging from 1 - 5 years. The General Partner assumed that,
on a going forward basis, the railcars would remain at approximately 97%
utilization. The General Partner also assumed that the lease rates for railcars
would remain steady and that railcar expenses would increase 3% per year, which
assumptions are consistent with lease rate and expense cost trends. The
Partnership's fleet of railcars has not experienced any lessee defaults
resulting in non-payment of rent or other amounts, and the General Partner did
not assume any "bad-debt" in the future. The General Partner has assumed that
railcars can be sold at the end of the partnership term for an average of 48% of
original equipment cost, and at the end of the Extension for an average of 40%
of original equipment cost. These percentages are consistent with the General
Partner's experience in connection with the sale of railcars owned by other
managed partnerships, and based on the opinion of the General Partner's railcar
specialists as to the value of railcars over the next 4 to 7 years.
Containers: The Partnership's container fleet is mostly leased pursuant
to term leases ranging from 3 to 6 years duration, with the remaining containers
in the portfolio being leased on a revenue sharing/utilization basis. When the
term leases expire, those containers will by agreement also be placed into
revenue sharing arrangements with the current lessees, earning revenue based on
their level of utilization and after deducting the costs of operating the
equipment. The General Partner has assumed that containers will earn revenue
based on the actual lease rates through the expiration of the container leases,
and thereafter, based on levels of utilization and lease rates experienced over
the past two years. The General Partner believes that the container industry has
reached a historic low, in terms of both, the cost of new equipment and lease
rates. For example, a new container purchased in 1990 for approximately $2,500
could be purchased today for approximately $1,475, and lease rates have
similarly declined over the same period of time. The General Partner does not
believe lease rates will continue to decline and therefore, has assumed lease
rates consistent with those experienced over the last two years. The
Partnership's fleet of term lease containers has not experienced any lessee
defaults resulting in non-payment of rent or other amounts, and the General
Partner did not assume any "bad-debt" in the future for the term lease
containers. The General Partner has assumed that the containers can be sold
during and at the end of the partnership term for an average of 33% of original
equipment cost, and during and at the end of the Extension for an average of 27%
of original equipment cost, based on the General Partner's experience selling
used containers owned by the Partnership and other managed partnerships, and
based on the General Partner's opinion as to the value of used containers over
the next 4 to 7 years.
Trailers: All of the Partnership's trailers are rented out on a short
term basis out of trailer yards owned and operated by an affiliate of the
General Partner or on a utilization basis pursuant to an agreement with a third
party. For all trailers, the General Partner tracks trailer performance by
determining the number of days per year that a trailer was available for lease
and compares that number to the actual number of days it generated revenues, the
amount of revenues generated and the costs and expenses, including bad debt,
associated with operating the trailer. The General Partner assumed that, on a
going forward basis, the Partnership trailers would remain at the same level of
utilization as during the preceding year, but that revenues would decline at a
rate of 2% per year and costs and expenses would increase at a rate of 3% per
year, consistent with lease rate and cost trends. The General Partner has
assumed that trailers can be sold during and at the end of the partnership term
for an average of 35% of original equipment cost, and during and at the end of
the Extension for an average of 22% of original equipment cost. These
percentages are consistent with the General Partner's experience in connection
with the sale of trailers owned by the Partnership and other managed
partnerships, and based on the opinion of the trailer specialists as to the
value of the trailers over the next 4 to 7 years. The General Partner did not
assume that the Partnership's portfolio of trailers would be sold in bulk, which
is one of the possible results of the strategic review by the parent of the
General Partner. In the event the trailers are sold in bulk, the General Partner
would utilize the proceeds from such sale to pay down debt or to reinvest into
additional equipment for the Partnership if the Partnership was permitted to do
so.
Marine Vessels: Consistent with the General Partner's change of
strategy, all of the Partnership's marine vessels are anticipated to be sold
over the next two years. Because of the short time horizon, the General Partner
assumed that the vessels (which operate on short term charters) would continue
to generate revenues (based on utilization and after taking into account
estimated vessel operating expenses) consistent with current levels during the
period of time the vessels are held. The Partnership has not experienced any
marine vessel lessee defaults resulting in non-payment of rent or other amounts,
and the General Partner did not assume any "bad-debt" in the future for this
equipment. The General Partner further assumed that the marine vessels would be
sold at average prices equal to approximately 40% of original equipment cost.
These assumptions are consistent with prices that the General Partner's marine
experts have recently observed in the market place.
Aircraft: The General Partner has assumed that the aircraft owned by
the Partnership remain on their current leases for the duration of those leases,
earning the agreed upon lease rates. The General Partner has also assumed that
aircraft coming off lease during the partnership term or the Extension are sold
in the quarter following the expiration of the lease, and that aircraft whose
leases extend beyond the partnership term or the Extension are sold at the end
of the partnership term or the Extension, respectively. The General Partner has
assumed that the aircraft can be sold during the partnership term for an average
of 66% of original equipment cost, and during the Extension for an average of
43% of original equipment cost. The General Partner has assumed that aircraft
costs (after adjusting for the size of the aircraft portfolio) increase 5% a
year, including reserves of 3% for bad debt and off-lease. Although this reserve
is lower than the Partnership's historical experience for aircraft bad debt and
off lease, the General Partner believes it is sufficient after taking into
account its change in strategy (discussed on page 20).
NEWLY ACQUIRED EQUIPMENT ASSUMPTIONS. For equipment that will be
purchased on behalf of the Partnership during the extended Reinvestment Period
(through 2004) and for the purposes of estimating a portion of the returns in
each of the scenarios discussed above except for liquidation as of December 31,
1999, the General Partner has assumed that assets purchased on behalf of the
Partnership would yield an average of 10.7% and 10.8%, depending on whether the
equipment was purchased, during the extended Reinvestment Period (through 2004)
without renegotiation of Partnership debt, or during the extended Reinvestment
Period (through 2004) with renegotiation of Partnership debt, respectively.
These yields were calculated as the internal rate of return of the total cash
flow stream of the reinvestment, which cash flow was calculated after taking all
operating expenses, fees and overhead into account, and assuming an average
residual value for the acquired equipment of 57% for equipment sold at the end
of the Extension. Although investments made by the General Partner on behalf of
the Partnership and other managed programs since the beginning of 1998 are
projected, on a weighted average basis, to yield 6.8% on a pre-tax cash basis,
the General Partner believes that as a result of its change of investment
strategy, reinvestment proceeds can be used to acquire equipment projected to
generate the assumed returns. This belief is based on its calculation of the
average yields on all equipment purchased since the beginning of 1998, excluding
marine vessels and aircraft, which are projected to be approximately 11%, with
yields for the marine containers and railcars projected to be 11.2% and 14.7%
respectively. There can be no assurance that investments in similar transactions
would be available in the marketplace at the time that the Partnership has funds
to invest, or that such transactions, if available, would ultimately perform as
projected.
ALL OF THE GENERAL PARTNER'S VALUATION ESTIMATES ARE SUBJECT TO
SIGNIFICANT UNCERTAINTIES, SINCE THE ESTIMATED VALUE OF A UNIT WAS IN TURN
DERIVED FROM A NUMBER OF ASSUMPTIONS AND ESTIMATES PROJECTED OVER TIME.
THEREFORE, NO ASSURANCE CAN BE GIVEN THAT THE ESTIMATED VALUES INDICATED WOULD
BE REALIZED AND ACTUAL REALIZED VALUES LIKELY WILL DIFFER FROM THE ESTIMATES OF
SUCH VALUES. THE ASSUMPTIONS AND ESTIMATES WERE BASED UPON INFORMATION AVAILABLE
TO THE GENERAL PARTNER AT THE TIME THE ESTIMATED VALUES WERE COMPUTED, AND NO
ASSURANCE CAN BE GIVEN THAT THE SAME CONDITIONS CONSIDERED OR ANTICIPATED BY THE
GENERAL PARTNER IN ARRIVING AT THE ESTIMATE OF VALUES WOULD EXIST AT ANY TIME IN
THE FUTURE. WHILE THE GENERAL PARTNER BELIEVES IT HAS REASONABLE BASES FOR ITS
ASSUMPTIONS, IT IS INEVITABLE THAT SOME OF THEM WILL NOT MATERIALIZE AND THAT
SOME OF THOSE WHICH DO WILL BE DIFFERENT IN MATERIAL RESPECTS. THE ESTIMATED
VALUE OF A UNIT WOULD HAVE BEEN DIFFERENT HAD THE GENERAL PARTNER MADE DIFFERENT
ASSUMPTIONS AND, AS NOTED, THE ACTUAL PERFORMANCE OF THE PARTNERSHIP WILL LIKELY
VARY FROM THE ESTIMATES, AND COULD BE SUBSTANTIALLY DIFFERENT FROM THE
ESTIMATES. MOREOVER, THE OCCURRENCE OF ANY OF THE EVENTS GIVING RISE TO THE
PRESENT RISKS SET FORTH UNDER THE CAPTION "RISK FACTORS" AND "CAUTIONARY
STATEMENT" COULD HAVE A MATERIAL ADVERSE EFFECT ON THE PERFORMANCE OF THE
PARTNERSHIP.
Estimated December 31, 1999 Value of a Partnership Unit on a Present
Value Basis Applying a 11.1% Discount Rate. The General partner has computed the
estimated values of a unit as of December 31, 1999, on a present value basis
(using a discount rate of 11.1%), based on a variety of assumptions and
estimates that have been made by the General Partner as described in detail
above. The results of these computations are summarized in the following table:
Estimated Present Estimated Present
Value per Unit for Value per Unit for
Liquidation as of Liquidation as of Estimated Present Estimated Value
January 1, 2007 January 1, 2007 Value per Unit for per Unit for
(with renegotiation (no renegotiation Liquidation as of Liquidation as of
of debt of debt) January 1, 2001 December 31, 1999
$6.60 $6.48 $6.04 $5.86
BENEFITS OF LIQUIDATION AS OF DECEMBER 31, 1999 AND JANUARY 1, 2001.
Notwithstanding the General Partner's recommendation of the Amendments,
including the Extension, there could potentially be some benefits to the limited
partners were the Partnership to be liquidated at this time. Although not
considered as an option by the General Partner, liquidating the Partnership at
this time would eliminate all future risks associated with this investment, and
limited partners could receive a liquidating distribution of possibly as much as
$5.86 per unit, which could be directed into other types of investments prior to
the liquidation date contemplated by the Partnership Agreement (January 1,
2001). Liquidation as contemplated by the Partnership Agreement would reduce the
risk associated with holding this investment from January 1, 2001 through
January 1, 2007, and would allow limited partners to redirect liquidating
distributions into other types of investments six years sooner than is being
proposed.
The General Partner has not received any third-party reports, opinions
or appraisals relating to the Amendments, nor has it utilized any in concluding
to recommend the Amendments to limited partners.
COMPARISON CHART OF PARTNERSHIP OPERATIONS WITH
AND WITHOUT THE AMENDMENTS
DURATION OF THE REINVESTMENT PERIOD
WITHOUT THE AMENDMENTS
Pursuant to Section 2.02(r) of the Partnership Agreement, except for certain
contractually mandated capital modifications, the Partnership stopped
reinvesting in equipment as of December 31, 1998.
WITH THE AMENDMENTS
The Partnership will be permitted to reinvest in equipment through December 31,
2004.
LOAN REPAYMENT
WITHOUT THE AMENDMENTS
Pursuant to the terms of the Partnership's loan agreement, the Partnership is
obligated to repay a total of approximately $13.5 million in principal in
quarterly installments of approximately $1.9 million each.
WITH THE AMENDMENTS
The General Partner may seek to renegotiate the loan in order to postpone the
repayment of principal due under the loan.
EQUIPMENT LIQUIDATION DATE
WITHOUT THE AMENDMENTS
The Partnership Agreement requires that the Partnership's equipment be
liquidated by January 1, 2001.
WITH THE AMENDMENTS
The General Partner will liquidate the Partnership's equipment by January 1,
2007.
REPURCHASE OF UNITS
WITHOUT THE AMENDMENTS
Pursuant to Section 6.11 of the Partnership Agreement, the Partnership may be
obligated to repurchase up to 2% of the outstanding units in any year, unless
the General Partner determines that such repurchase would either: (a) cause the
Partnership to be taxed as a corporation; or (b) impair the capital or
operations of the Partnership. The repurchase price is equal to 110% of the
selling limited partner's unrecovered principal (i.e., the amount paid to the
Partnership for units less any distributions received from the Partnership with
respect to the units), with priority going to units owned by estates, followed
by IRA's and qualified plans.
WITH THE AMENDMENTS
The Partnership will be obligated to repurchase up to 10% of the outstanding
units at 80% of their net asset value as of the end of the quarter immediately
preceding court approval of the equitable settlement, projected to cost
$4,204,705. The existing annual repurchase obligation will cease.
CLASS COUNSEL FEES TO BE PAID FROM CASH FLOW
WITHOUT THE AMENDMENTS
There is no provision for the payment of Class Counsel fees by the Partnership.
If the monetary settlement is approved, Class Counsel will be paid not greater
than one-third of the monetary settlement fund by the Defendants and the
insurance carrier.
WITH THE AMENDMENTS
Class Counsel will be paid not greater than one-third of the monetary settlement
fund by the Defendants and the insurance carrier (because the Amendments may be
approved only if the monetary settlement has been approved). Additionally, if
there is an annualized increase of at least 12% in the actual cash flow received
by the limited partners relative to the cash flow which the General Partner
projects would have been received by limited partners commencing January 1, 2000
if the Partnership were to be liquidated pursuant to what is contemplated by the
Partnership Agreement, Class Counsel will be entitled to receive a graduated
percentage of the excess, paid out of the Partnership's cash flow, of $2,239,819
if the General Partner's projections of the Partnership's distributions through
liquidation at January 1, 2007 (assuming the debt is renegotiated) are accurate,
and $1,453,189 if the General Partner's projections of the Partnership's
distribution through liquidation at January 1, 2007 (assuming no change to the
debt) are accurate.
MANAGEMENT FEES
WITHOUT THE AMENDMENTS
Pursuant to Section 2.05(f) of the Partnership Agreement, the Partnership will
continue to pay Management Fees each month to the Manager, a subsidiary of the
General Partner. Management Fees are calculated based on a percentage of Gross
Lease Revenues, which percentage depends on the types of leases the Partnership
equipment is subject to and the level of services that are provided by an
affiliate of the General Partner. The Partnership Agreement does not contain any
performance goals as a condition to the payment of Management Fees.
WITH THE AMENDMENTS
Payment of 25% of the Management Fee will be deferred for 2 1/2 years commencing
January 1, 2002 pending the Partnership's attainment of performance goals;
except for the deferred Management Fees which will only be paid if there is an
annualized increase of at least 10% in the actual cash flow received by the
limited partners relative to the cash flow which the General Partner projects
would have been received by limited partners commencing January 1, 2000 if the
Partnership were to be liquidated pursuant to what is contemplated by the
Partnership Agreement. These fees will be paid for approximately 6 years beyond
what is contemplated by the Partnership Agreement. Additionally, as a result of
the extension of the Reinvestment Period, the Management Fees through December
31, 2004 will not decrease at as great a rate as they likely would otherwise,
since Management Fees are based upon gross lease revenues which likely would
decrease more quickly during those years in the absence of reinvestment in
equipment.
FRONT-END FEES AND NET DISPOSITION PROCEEDS
WITHOUT THE AMENDMENTS
Pursuant to Section 2.05(h) of the Partnership Agreement, front-end fees and
overall payments to the General Partner are subject to the compensation limits
set forth in the Statement of Policy of NASAA. The General Partner is entitled
to be paid a total of $39,150,778 over the life of the Partnership for front-end
fees, and 1% of Net Disposition Proceeds, increased up to 5%, to the extent the
General Partner does not receive the maximum amount of front-end fees to which
it is entitled. Through December 31, 1999, the General Partner has been paid
front-end fees of $37,147,884, of which $15,369,791 is comprised of Front-End
Fees (acquisition and lease negotiation fees).
WITH THE AMENDMENTS
The current limitation on front-end fees payable to the General Partner will be
increased by twenty-percent (20%). The current limitation is based upon the
guidelines issued by NASAA. The Front-End Fee Increase will have the effect of
increasing the total compensation permitted to be paid to the General Partner
and its affiliates, if earned, by the amount of the Front-End Fee Increase. As a
result, if the General Partner and its affiliates do not earn the full amount of
the Front-End Fee Increase, additional categories of compensation, which
otherwise would be restricted by the NASAA guidelines, could be paid. Absent the
Amendments, however, the only other payment to the General Partner which could
result in total compensation exceeding the NASAA guidelines is the payment to
the General Partner of its interest in Net Disposition Proceeds. In this regard,
the NASAA guidelines permit the General Partner to be paid 1% of Net Disposition
Proceeds, while the Partnership Agreement permits the General Partner to be paid
5% of such Net Disposition Proceeds. Without the Amendments, the payment to the
General Partner of up to the additional 4% of Net Disposition Proceeds to which
it is entitled under the Partnership Agreement would be permitted only if and to
the extent the General Partner has otherwise been paid less than the total
amount of the compensation allowed by the NASAA guidelines. Therefore, the
Amendments will enable the General Partner to receive up to this additional 4%
so long as the amount of Net Disposition Proceeds, together with the additional
Front-End Fees, do not exceed the 20% Front-End Fee Increase.
As of January 1, 1999 the limitation on the total of Front-End Fees payable to
the General Partner will be increased so that the General Partner will be
entitled to be paid up to an additional $7,406,500 for earned acquisition and
lease negotiation fees and for up to 4% of Net Disposition Proceeds. The General
Partner expects that, from January 1, 2000 through the end of the extended
Reinvestment Period, it will be paid additional aggregate Front-End Fees of
approximately $1,622,500 assuming the debt is renegotiated, and $935,000
assuming no change to the debt, and it projects that upon the liquidation of the
Partnership's equipment, Net Disposition Proceeds of 4% will be paid, a portion
of which may be available regardless of whether the Amendments are approved.
DISTRIBUTIONS TO UNITHOLDERS
WITHOUT THE AMENDMENTS
The General Partner projects that aggregate distributions (not discounted to
present value) to limited partners from January 1, 2000 through 2001 will be
$61,819,436, including distributions resulting from operating revenues and
equipment sales.
WITH THE AMENDMENTS
As a result of extending the Reinvestment Period and the Extension, the General
Partner projects that aggregate distribution (not discounted to present value)
to limited partners from January 1, 2000 through 2007 will be $89,857,630
assuming the Partnership debt is renegotiated and sales proceeds are reinvested
in equipment rather than paying down debt during the Reinvestment Period, and
$87,572,533 assuming no changes are made to the Partnership debt, each including
distributions resulting from operating revenues and equipment sales and each
including the $4,204,705 anticipated to be paid to investors for the repurchase
of 10% of the Partnership units at 80% of their net asset value.
CONFLICTS OF INTEREST
GENERAL. The General Partner has fiduciary duties to the Partnerships,
in addition to the specific duties and obligations imposed upon it under the
Partnership Agreement. Subject to the terms of the Partnership Agreement, the
General Partner, in managing the affairs of the Partnership, is expected to
exercise good faith, to use care and prudence and to act with an undivided duty
of loyalty to the limited partners. Under these fiduciary duties, the General
Partner is obligated to ensure that the Partnership is treated fairly and
equitably in transactions with third parties, especially where consummation of
such transactions may result in the interests of the General Partner being
opposed to, or not aligned with, the interests of the limited partners.
Accordingly, the General Partner has assessed the potential benefits to be
derived by limited partners from the Amendments. Notwithstanding any conflict of
interest, after consideration of the terms and conditions of the Amendments, the
General Partner recommends that limited partners do not vote against the
Amendments and do not object to the equitable settlement.
CONFLICT OF INTEREST OF GENERAL PARTNER. The General Partner initiated
and participated in structuring the Amendments and has conflicts of interest
with respect to their effect. As part of the Amendments, the limitation on front
end fees that can be paid to the General Partner by the Partnership will be
increased by 20% so that the General Partner can earn such fees in excess of the
amount proscribed in the Statement of Policy of NASAA effective January 1, 1999.
As a result of extending the Reinvestment Period, the General Partner will earn
Front-End Fees, for equipment acquisition and lease negotiation services, from
the Partnership for approximately 5 additional years; during 1997 through 1999
the Partnership paid the General Partner Front-End Fees averaging $379,539 per
year. Upon liquidation of the Partnership, it will also earn up to an additional
4% of Net Disposition Proceeds.
The Manager, a subsidiary of the General Partner, will earn Management
Fees for 6 years beyond what the Partnership Agreement contemplates . During
1997 through 1999 the Manager was paid Management Fees averaging $1,526,856 per
year. Additionally, the ability to reinvest through December 31, 2004 will
result in the level of Management Fees not decreasing at as great a rate as they
likely otherwise would, since Management Fees are based upon gross lease
revenues which likely would decrease more quickly during those years in the
absence of reinvestment in equipment. Although the payment of 25% of the
Management Fee will be deferred for 2 1/2 years commencing January 1, 2002 until
performance goals are attained, the payment of any accrued deferred fees will be
accelerated (and paid in a lump sum) upon a Change of Control occurring after
January 1, 2002 if the General Partner and Class Counsel agree that an
annualized increase of 10% in the cash flow received by the limited partners
relative to the cash flow which the General Partner projects would have been
received by the General Partner commencing January 1, 2000 if the Partnership
were to be liquidated as contemplated by the Partnership Agreement would have
been attained absent the Change of Control. Any increase in the cash flow
received by limited partners does not necessarily mean that the Partnership is
making money since cash distributions could include a return of capital and
could reflect the effects of depreciating the Partnership's equipment.
On November 8, 1999, PLM International, Inc., the corporate parent of
the General Partner, announced that its board of directors has engaged the
investment banking firm of Imperial Capital, LLC, to explore various strategic
and financial alternatives for maximizing shareholder value on a near-term
basis. Such alternatives may include, but are not limited to, a possible
transaction or series of transactions representing a merger, consolidation, or
any other business combination, a sale of all or a substantial amount of the
business, securities, or assets of PLM International, Inc., or a
recapitalization or spin-off. The Compensation Increase and the opportunity to
earn Management Fees for an additional 6 years provided for by the Amendments
may make a transaction involving the corporate parent of the General Partner
more attractive. In the event of a sale, directly or indirectly, of the General
Partner, the purchaser could modify the business of the General Partner.
CONFLICT OF INTEREST OF CLASS COUNSEL. In assessing Class Counsel's
support of the equitable settlement of which the proposed Amendments form an
integral part, limited partners should consider that Class Counsel may be deemed
to have a conflict of interest with respect to such support. Given the
additional protections for members of the equitable class, including the right
to object to the proposed equitable settlement, in whole or in part, and the
court's prerogative to reject the settlement and the Amendments even if the
requisite consent of limited partners is obtained, under those circumstances
Class Counsel has agreed to the negative consent voting procedure concerning the
Amendments, which procedure makes their approval more likely and, as a
consequence, Class Counsel could receive legal fees of up to $2,239,819 if the
Amendments are approved and the Partnership achieves the targeted threshold of
performance (assuming renegotiation of Partnership debt). Class Counsel may
receive such fees at some time in the future (estimated to occur at or near the
time the Partnership liquidates), subject to acceleration in the event of a
Change of Control. Such fees could only be paid to Class Counsel if the limited
partners receive the targeted threshold level of distributions.
The fees and expenses of Class Counsel, if approved by the court, will
be paid in part from the settlement fund provided by the Defendant pursuant to
the monetary settlement. Also, as part of the equitable settlement, Class
Counsel will apply for an additional fee and expense award. Class Counsel will
not receive any Equitable Class Fee Award from the Partnership (or the limited
partners) in the event the Amendments are not approved or if defendants elect to
terminate the equitable settlement. With respect to the Equitable Class Fee
Award, commencing January 1, 2000, the General Partner will calculate the cash
flows received by the limited partners to determine the rate of any annualized
increase relative to the cash flows which the General Partner projects would
have been received by the limited partners commencing January 1, 2000 if the
Partnership were to be liquidated as contemplated by the Partnership Agreement.
At the time, if ever, that the aggregate increase in the cash flows for the
Partnership after January 1, 2000 equals or exceeds 12%, Class Counsel will be
entitled to receive from each future distribution to the unitholders, a
percentage of the distributions in excess of 12%, such percentage to be
established by the court in connection with Class Counsel's application for an
Equitable Class Fee Award in an amount not to exceed 27.5% of the first $10
million of the distributions in excess of 12% for each Fund, 22.5% of such
distributions between $10 million and $20 million, 15% of such distributions
between $20 million and $30 million, and 10% of such distributions exceeding $30
million. Assuming the Partnership's debt is not extended, based upon the General
Partner's projection of distributions in excess of 12% totaling $5,284,325,
Class Counsel would receive fees of $1,453,189. If the Partnership's debt is
extended, the General Partner projects that there will be distributions in
excess of 12% totaling $8,144,798, and that Class Counsel would receive fees of
$2,239,819. See also "RISK FACTORS - Conflicts of Interest" which describes the
circumstances under which the payment of the Equitable Class Fee Award will be
accelerated.
As discussed above, the equitable settlement provides that the
Equitable Class Fee Award will be payable in a lump sum in the event a Change of
Control, but only if the General Partner and Class Counsel agree that an
annualized increase of 12% in the cash flow received by the limited partners
relative to the cash flow which the General Partner projects would have been
received by the General Partner commencing January 1, 2000 (if the Partnership
were to be liquidated as contemplated by the Partnership Agreement) would have
been attained absent the Change of Control. Class Counsel negotiated for this
accelerated payment procedure to be triggered by a Change of Control because
they did not want to risk deferring further receipt of their Equitable Class Fee
Award in the event that a Change of Control altered the method or timing of
payment of their Award. Class counsel also did not want to risk being
constrained to take some form of compensation other than cash in the event of a
Change of Control. Accordingly, Class Counsel and defendants agreed that, in the
event of a Change of Control, they both would analyze Class Counsel's
entitlement to their Equitable Class Fee Award as if there was no Change of
Control.
VOTING PROCEDURES
TIME OF VOTING AND RECORD DATE
Limited partners holding units as of the Record Date (i.e.,
________________) have until the Voting Deadline (i.e., , 2000) to vote on the
Amendments. If you approve of the Amendments, you need not do anything but can
return a vote in favor if you wish.
As of the Record Date, the following number of units were held of
record by the number of limited partners indicated below:
Number of Units Voting No Required for
Number of Number of Units the Partnership Not to Participate in
Limited Partners Held of Record Equitable Settlement
- --------------- ---------------- -----------------
LIMITED PARTNERS WHO FAIL TO RETURN THE VOTING FORM WILL BE TREATED AS
IF THEY HAD VOTED IN FAVOR OF THE AMENDMENTS. YOU NEED NOT RETURN THE FORM IF
YOU APPROVE OF THE AMENDMENTS.
The number of units entitled to vote against the Amendments is equal to
the number of units held by limited partners of record at the Record Date. The
Partnership Agreement presently gives the limited partners the power, by an
affirmative vote, to approve each individual Amendment. However, as structured
in the equitable settlement, unless limited partners holding 50% or more of the
units vote against one or more of the Amendments, (in which event the
Partnership will not participate in the settlement), approval of the Amendments
is in the sole discretion of the court.
NO VOTE
Limited partners that wish to vote against the Amendments must send
their Voting Form (attached as Exhibit A), indicating to which Amendment(s) they
object, Gilardi & Co., 1115 Magnolia Avenue, Larkspur, CA 94977, as soon as
possible but in no event later than the expiration of the Voting Deadline
(_______________, 2000). The Voting Form must contain the name and address of
the limited partner and the number of units so held, and the Amendment(s) to
which they object. Limited partners also have the right to object to the
settlement at or before the fairness hearing, whether or not they have submitted
a Voting Form in connection with this solicitation statement.
The General Partner recommends that limited partners not vote against
the Amendments.
REVOCABILITY OF VOTE
Limited partners may revoke their vote at any time prior to
________________, 2000, by mailing a revocation to the address above (which
revocation must be received by the General Partner on or prior to such date).
NO APPRAISAL RIGHTS
Neither the Partnership Agreement nor state law provides for
dissenters' or appraisal rights to limited partners who object to the
Amendments. Such rights, when they exist, give the holders of securities the
right to surrender such securities for an appraised value in cash, if they
oppose a merger or similar reorganization. No such right will be provided by the
Partnership in connection with the Amendments.
INFORMATION SERVICES
The General Partner and its officers, directors and employees may
assist in providing information to limited partners in connection with any
questions they may have with respect to this solicitation statement and the
procedures to vote against the Amendments.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Partnership incorporates by reference its annual report on Form
10-K for the fiscal year ended December 31, 1999, which is delivered herewith.
APPENDIX A
TEXT OF THE AMENDMENTS
AMENDMENT I - THE EXTENSION
Section 10.01(e) of the Partnership Agreement for Fund V will be
amended to provide that an event of dissolution of the Fund shall occur when the
General Partner determines that it is necessary to commence the liquidation of
the Equipment (as defined in the Partnership Agreement) to complete the
liquidation by January 1, 2007. Section 10.01(e) will be deleted and replaced in
its entirety so that the introductory sentence (which will not change) and
amended subsection (e) will read as follows:
"Events of Dissolution. The Partnership shall be dissolved and
shall commence the orderly liquidation of its assets upon the
first to occur of any of the following:
* * *
(e) The determination by the General Partner that it is
necessary to commence the liquidation of the Equipment in
order for the liquidation of all the Equipment to be completed
in an orderly and businesslike fashion prior to January 1,
2007."
AMENDMENT II - COMPENSATION INCREASE
Section 2.05(h) of the Partnership Agreement for Fund V will be amended
to increase the limitations on the General Partner's Fees by 20% of the
limitations presently stated in the Partnership Agreement so as to allow the
General Partner to earn fees in excess of the compensatory limitations set forth
in the Statement of Policy of the North American Securities Administrators
Association, Inc. during the extended Reinvestment Period. Specifically, the
first clause of the first sentence of section 2.05(h) will be deleted and
replaced in its entirety as follows:
"Limitation of Fees. The General Partner shall not receive
fees in excess of 120% of the following limitations which
shall apply to the amount of Capital Contributions which must
be committed to Investment in Equipment:"
AMENDMENT III - EXTENSION OF THE REINVESTMENT PERIOD
Section 2.02 (r) of the Partnership Agreement for Fund V will be
amended to allow the General Partner to reinvest such amounts through 2004.
Specifically, Section 2.02(r) will be amended by deleting only the language that
states "for six years after the year which includes the Funding Date" and
replacing such language with "until December 31, 2004".
AMENDMENT IV - THE REPURCHASE
Section 6.11 of the Partnership Agreement for Fund V is amended to
allow repurchase by the Partnership of up to 10% of its outstanding units at 80%
of net asset value in accordance with the terms of the settlement stipulation
and the Repurchase Protocol which is Exhibit C to the stipulation. Section 6.11
will be amended by adding the following language at the end of the section:
"Notwithstanding any terms of the preceding paragraph, from
June 29, 1999 forward the following terms of Section 6.11 will
govern and control all Limited Partners' and the General
Partner's rights and obligations regarding repurchase of
outstanding Units. The Partnership will repurchase up to 10%
of the then total outstanding Units as of June 29, 1999
("Outstanding Units"). Any Unitholder that intends to submit
for repurchase some or all of his, her or its Units must
indicate this intention on the Request to Repurchase Form that
has been mailed to the Limited Partners along with the
Equitable Settlement Hearing Notice and Solicitation
Statement. The repurchase price for each Unit shall be
determined as follows: the Net Asset Value of the Partnership
(defined below) as of the fiscal quarter immediately preceding
[add the last date to file the Repurchase Request] will be
divided by the number of Outstanding Units to determine the
Net Asset Value per Unit. The Net Asset Value per Unit will be
multiplied by 80% to determine the repurchase price per Unit
(the "Repurchase Price"). The repurchase of Units will be
completed no later than the end of the fiscal quarter
following the fiscal quarter during which the United States
District Court for the Southern District of Alabama enters an
order granting final approval of the Equitable Class Action
Settlement. If the Unitholders request the Partnership to
repurchase more than 10% of its Units, the Partnership will
repurchase up to 10% of the Units, pro-rata based on the
number of Units offered for repurchase, or as close to a
pro-rata basis as is reasonably possible. Any such pro-rata
allocation adjustments will be determined by the Claims
Administrator who will give priority according to the order of
preference for each category set forth below in this
paragraph. To the extent that the demand in any category would
exhaust the 10% number then all Unitholders in that category
will have their Units repurchased on a pro rata basis, rounded
up to the nearest whole Unit, and the Unitholders in the
remaining categories will not have the option of having their
Units repurchased. The order of preferences is: (1) Units
owned by estates, IRAs and Qualified Plans which were
purchased as part of the initial offering; (2) Units owned by
Limited Partners which were purchased as part of the initial
offering; (3) Units owned by Limited Partners which were
purchased after the initial offering; (4) Units owned by
Unitholders which were purchased after the initial offering.
In the event that the total number of Units requested to be
repurchased exceeds 10% of the Partnership's Units, the
General Partner will have the option, but not the obligation,
to purchase these excess Units with its own monies and on its
own behalf."
"Net Asset Value" of the Partnership means the value of all
Equipment owned by the Partnership and as determined by the
General Partner (and subject to consultation with Class
Counsel's valuation expert) plus any cash, uncollected
receivables and any other assets, less accounts payable, debts
and other liabilities of the Fund as of the fiscal quarter
immediately preceding the repurchase date."
AMENDMENT V - ENABLING AMENDMENTS
Article XVIII of the Partnership Agreement for Fund V will be amended
to provide: (a) that the limited partners may amend the Partnership Agreement to
make all amendments necessary to this equitable settlement, including amendments
to Section 10.01 thereof; and (b) that any such amendment may be made by
approval of a Majority in Interest as provided for in amended Article XV, below.
Article XVIII shall remain the same except that the first provision of the
second paragraph will be deleted and replaced in its entirety as follows:
"[P]rovided, however that the Limited Partners may not amend
this Agreement to extend the Partnership term or to change the
provisions of Section 10.03;"
Additionally, a new paragraph will be added at the end of Article XVIII as
follows:
"Approval of a Majority in Interest to all amendments of this
Agreement necessary to effectuating the Equitable Class
Settlement shall be deemed to have been given if less than
half of the Units held by Limited Partners vote against any
such amendment proposed by the _____, 2000 Solicitation
Statement, as provided for in amended Article XV of this
Agreement."
AMENDMENT VI - ACTIONS BY LIMITED PARTNERS
Article XV of the Partnership Agreement for Fund V will be amended to
provide that written consent of the limited partners respecting any matters in
connection with the equitable settlement shall be deemed to have been given
unless limited partners holding more than one half of the units vote against any
such matter. Article XV will be amended to add the following language to the end
of the fourth paragraph of Article XV:
"Provided, however, that effective written consent by a
Majority in Interest of the Limited Partners to any proposed
action set forth in the ______, 2000 Solicitation Statement
and in connection with the Equitable Class Settlement, shall
be deemed to have been given, unless Limited Partners holding
more than half of the outstanding Units in such Limited
Partnership vote against any such action."
AMENDMENT VII - DISPUTES AND RESOLUTIONS
Article XIV of the Partnership Agreement for Fund V will be amended to
provide that all disputes relating to, or arising out of this settlement, shall
be subject to the court's continuing jurisdiction over the interpretation and
administration of this settlement and all the settlement documents incorporated
herein. Article XIV will be amended by adding the following language to the end
of the paragraph:
"Provided, however, that any and all disputes relating to or
arising out of the Equitable Class Action Settlement approved
by the Federal District Court for the Southern District of
Alabama by final order, including all issues pertaining to the
interpretation and administration of the Stipulation of
Settlement and all its exhibits, shall be subject to the
continuing and exclusive jurisdiction of the Federal District
Court for the Southern District of Alabama."
APPENDIX B
Liquidation as of December 31, 1999
Total Dollars Estimated
Value per
Unit
COMPONENTS OF OPERATING CASH FLOW<F1>1
Interest Income - -
Interest Expense - -
Scheduled Debt Payment - -
Prepayment of Debt $ (19,354,950) -$2.13
Distributions to General Partner $ (2,758,309) -$0.30
Other $ 1,399,488 $0.15
------------- ------
$ (20,713,771) -$2.29
SALES PROCEEDS BY EQUIPMENT TYPE<F2>2
Aircraft $ 41,803,075 $4.61
Containers $ 3,300,243 $0.36
Railcars $ 5,575,000 $0.61
Trailers $ 3,839,000 $0.42
Vessels
Gross Proceeds $ 19,742,916
Brokers Fees $ (444,216)
Net Proceeds $ 19,298,700 $2.13
Redeployed (from Aircraft and Vessels) - -
------------- -----
$ 73,816,017 $8.14
Estimated Total Cash Flow $ 53,102,246
Estimated Value of a Unit $5.86
<FN>
- --------------------------
<F1>
1 Fourth quarter 1999 cash flow items (revenues and expenses) following sale
of equipment relating to operation and liquidation of the Partnership,
including fees for prepayment of debt.
<F2>
2 Assumes hypothetical liquidation as of September 30, 1999.
</FN>
LIQUIDATION AS OF JANUARY 1, 2001
Total Dollars Estimated
Present
Value* per
Unit
OPERATING REVENUES BY EQUIPMENT
TYPE (Net of Direct
Expenses)
Aircraft $ 8,097,123 $0.84
Containers $ 451,618 $0.05
Railcars $ 1,673,021 $0.17
Trailers $ 1,086,677 $0.11
Vessels $ 1,973,301 $0.21
Redeployed (from Aircraft and Vessels) - -
------------ -----
$ 13,281,741 $1.38
COMPONENTS OF OPERATING CASH FLOW
Interest Income $ 161,782 $0.02
Interest Expense $ (720,223) -$0.07
Management Fees $ (850,747) -$0.09
Other $ (792,472) -$0.27
------------ ------
$ (2,201,659) -$0.42
NON OPERATING CASH FLOW
Aircraft Reserves $ 672,416 $0.07
Dry Dock $ (150,000) -$0.02
------------ ------
$ 522,416 $0.05
SALES PROCEEDS BY EQUIPMENT TYPE
Aircraft $ 37,877,958 $3.76
Containers $ 3,224,557 $0.33
Railcars $ 5,403,333 $0.54
Trailers $ 3,275,354 $0.33
Vessels
Gross Proceeds $ 21,541,176
Brokers Fees $ (484,676)
Net Proceeds $ 21,056,500 $2.19
Redeployed (from Aircraft and Vessels) - -
------------ -----
$ 70,837,702 $7.14
EQUIPMENT PURCHASES
Cost of Equipment $ 2,200,000 -$0.24
Fees on Equipment Purchases - -
------------ ------
$ 2,200,000 -$0.24
DEBT and FEES
Debt Payments $(15,483,960) -$1.57
Redemptions of Units - -
Class Counsel Fees - -
Distributions to General Partner $ (2,936,803) -$0.31
------------ ------
$(18,420,764) -$1.88
Estimated Total Cash Flow $ 61,819,436
Estimated Present Value of a Unit $6.04
$10.88 $0.00
*Discounted at 11.1%
Liquidation as of January 1, 2007
(no renegotiation of debt)
Total Dollars Estimated
Present
Value* per
Unit
OPERATING REVENUES BY EQUIPMENT TYPE
(Net of Direct Expenses)
Aircraft $ 36,401,645 $3.40
Containers $ 1,023,428 $0.11
Railcars $ 9,774,305 $0.87
Trailers $ 4,013,405 $0.38
Vessels $ 1,973,301 $0.22
Redeployed (from Aircraft and Vessels) $ 18,487,500 $1.45
------------ -----
$ 71,673,584 $6.43
COMPONENTS OF OPERATING CASH FLOW
Interest Income $ 869,461 $0.07
Interest Expense $ (1,766,163) -$0.18
Management Fees $ (4,255,715) -$0.38
Other $ (3,612,155) -$0.61
------------ ------
$ (8,764,572) -$1.10
NON OPERATING CASH FLOW
Aircraft Reserves $ 3,846,447 $0.36
Dry Dock $ (150,000) -$0.02
------------ ------
$ 3,696,447 $0.35
SALES PROCEEDS BY EQUIPMENT TYPE
Aircraft $ 23,766,494 $1.73
Containers $ 3,199,648 $0.33
Railcars $ 4,498,333 $0.29
Trailers $ 2,021,854 $0.16
Vessels
Gross Proceeds $ 21,541,176 -
Brokers Fees $ (484,676) -
Net Proceeds $ 21,056,500 $2.32
Redeployed (from Aircraft and Vessels) $ 9,540,000 $0.56
------------ -----
$ 64,082,829 $5.40
EQUPMENT PURCHASES
Cost of Equipment $(20,276,880) -$2.08
Fees on Equipment Purchases $ (935,000) -$0.10
------------- ------
$(21,211,880) -$2.18
DEBT and FEES
Debt Payments $(15,483,960) -$1.53
Redemptions of Units $ (4,204,705) -$0.47
Class Counsel Fees $ (1,453,189) -$0.08
Distributions to General Partner $ (4,268,466) -$0.33
------------ ------
$(25,410,320) -$2.42
Estimated Total Cash Flow $ 84,066,088
Estimated Present Value of a Unit $6.48
*Discounted at 11.1%
LIQUIDATION AS OF JANUARY 1, 2007
(with debt renegotiation)
Total Dollars Estimated
Present
Value* per
Unit
OPERATING REVENUES BY EQUIPMENT TYPE
(Net of Direct Expenses)
Aircraft $ 36,392,562 $3.40
Containers $ 1,023,428 $0.11
Railcars $ 9,774,305 $0.87
Trailers $ 4,013,405 $0.38
Vessels $ 1,973,301 $0.22
Redeployed (from Aircraft and Vessels) $ 31,021,500 $2.41
------------ -----
$ 84,198,501 $7.39
COMPONENTS OF OPERATING CASH FLOW
Interest Income $ 1,001,710 $0.08
Interest Expense $ (4,635,799) -$0.41
Management Fees $ (4,865,840) -$0.43
Other $ (4,453,325) -$0.68
------------ ------
$(12,953,254) -$1.44
NON OPERATING CASH FLOW
Aircraft Reserves $ 3,846,447 $0.37
Dry Dock $ (150,000) -$0.02
------------ -------
$ 3,696,447 $0.35
SALES PROCEEDS BY EQUIPMENT TYPE
Aircraft $ 23,766,494 $1.73
Containers $ 3,199,648 $0.33
Railcars $ 4,498,333 $0.29
Trailers $ 2,021,854 $0.16
Vessels
Gross Proceeds $ 21,541,176 -
Brokers Fees $ (484,676) -
Net Proceeds $ 21,056,500 $2.32
Redeployed (from Aircraft and Vessels) $ 16,885,000 $0.99
------------ -----
$ 71,427,829 $5.83
EQUIPMENT PURCHASES
Cost of Equipment $(32,776,880) -$3.30
Fees on Equipment Purchases $ (1,622,500) -$0.16
------------ ------
$(34,399,380) -$3.46
DEBT and FEES
Debt Payments $(15,483,960) -$1.13
Redemptions of Units $ (4,204,705) -$0.47
Class Counsel Fees $ (2,239,819) -$0.13
Distributions to General Partner $ (4,388,734) -$0.34
------------ ------
$(26,317,218) -$2.07
Estimated Total Cash Flow $ 85,652,926
Estimated Present Value of a Unit $6.60
*Discounted at 11.1%
APPENDIX C
VOTING FORM
FUND V
IF YOU APPROVE OF THE AMENDMENTS TO THE PARTNERSHIP AGREEMENT, YOU DO
NOT NEED TO COMPLETE AND SUBMIT THIS FORM. YOU NEED DO NOTHING TO INDICATE YOUR
APPROVAL, BUT CAN VOTE IN FAVOR OF THE AMENDMENTS AND RETURN THIS FORM IF YOU
WISH. THIS FORM NEED BE USED ONLY BY PERSONS WHO WISH TO VOTE AGAINST ONE OR
MORE OF THE AMENDMENTS TO THE PARTNERSHIP AGREEMENT.
The undersigned limited partner hereby votes as follows with respect to
the proposed amendment(s) of the Partnership Agreement, as more fully described
in the solicitation statement dated __________________, 2000.
- -------------------------------------------------------------------------------
Number of units held by voting limited partner: _______________________________
Yes No Abstain
Amendment No. I ___ ___ ___
Amendment No. II ___ ___ ___
Amendment No. III ___ ___ ___
Amendment No. IV ___ ___ ___
Amendment No. V ___ ___ ___
Amendment No. VI ___ ___ ___
Amendment No. VII ___ ___ ___
- -------------------------------------------------------------------------------
Address of Limited Partner:
Social Security or Taxpayer Identification No.:_______________________
I/we hereby certify that the foregoing information is complete and accurate.
Print or type name of limited partner(s) as it appears on the most recent
account statement.
Signature of Limited Partner Date
Signature of Co-Owner Date
YOU MUST PROVIDE ALL OF THE INFORMATION REQUESTED ABOVE IN ORDER TO
SUBMIT A VALID VOTE AGAINST ANY OF THE AMENDMENTS TO THE PARTNERSHIP AGREEMENT.
THE DEADLINE FOR SUBMISSION OF THIS NO VOTE IS ____________________, 2000.
VOTING NOTICES SHOULD BE SENT TO:
Gilardi & Co.
1115 Magnolia Avenue
Larkspur, CA 94977