EXHIBIT 2.2
JOHN J. BINGHAM, JR. [State Bar No. 075842]
DANNING, GILL, DIAMOND & KOLLITZ, LLP
a limited liability partnership
composed of professional corporation
2029 Century Park East, Third Floor
Los Angeles, California 90067-2904
Telephone: (310)277-0077
Facsimile: (310)277-5735
Attorneys for James J. Joseph,
Chapter 11 Trustee
Ronald Rus, Esq. [State Bar No. 067369]
Cathrine Castaldi, Esq. [State Bar No. 156089]
Rus, Miliband & Smith,
A Professional Corporation
2600 Michelson Drive, 7th Floor
Irvine, CA 92612
Attorneys for The Official Committee of
Equity Security Holders
UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA
SANTA ANA DIVISION
In re: ) Case No. SA 98-27040-RA
) [Chapter 11]
VISION CAPITAL SERVICES ) In a Case Under Chapter 11
) of the Bankruptcy
CORPORATION, a California corporation; ) Code (11 U.S.C. Sec. 1101 et seq.)
)
Debtors and ) FIRST AMENDED DISCLOSURE
Debtors-in-Possession. ) STATEMENT DESCRIBING JOINT
- ---------------------------------------) CHPATER 11 PLAN PROPOSED BY
_ Affects All Debtors. ) CHAPTER 11 TRUSTEE AND THE
) OFFICIAL COMMITTEE OF EQUITY
- ---------------------------------------) SECURITY HOLDERS
VISION CAPITAL SERVICES ) -------------------------
CORPORATION, a California corporation; )
Case No. SA 98-27040-RA )
_ Affected by this Pleading )
- ---------------------------------------) DISCLOSURE STATEMENT HEARING
INCOME NETWORK COMPANY, INC., ) ----------------------------
a California corporation; )
Case No. SA 98-27041-RA ) Date: October 12, 2001
_ Affected by this Pleading ) Time: 1:30 p.m.
) Place: Courtroom 6C
) 411 West 4th Street
) Santa Ana, CA 92701
)
) PLAN CONFIRMATION HEARING
) -------------------------
)
) Date: December 21, 2001
) Time: 3:30 p.m.
- ---------------------------------------) Place: Courtroom 6C
) 411 West 4th Street
) Santa Ana, CA 92701
PERFORMANCE DEVELOPMENT, INC., )
California corporation; )
Case No. SA 98-27042-RA )
__ Affected by this Pleading )
- ---------------------------------------)
PERFORMANCE CAPITAL )
MANAGEMENT, INC., a California )
corporation; )
Case No. SA 98-27043-RA )
XX Affected by this Pleading )
- -- )
- ---------------------------------------)
ATLAS EQUITY INC., dba )
PERFORMANCE TELECOM, dba )
PERFORMANCE COMMUNICATIONS )
SERVICES, dba ALLEN RICHARDS )
& ASSOCIATES, a California corporation;)
Case No. SA 98-27044-RA )
Affected by this Pleading )
- -- )
- ---------------------------------------)
PERFORMANCE ASSET MANAGEMENT, )
FUND, LTD., a California limited )
partnership; )
Case No. SA 98-27092-RA )
XX Affected by this pleading )
- -- )
- ---------------------------------------)
PERFORMANCE ASSET MANAGEMENT, )
FUND II, LTD., a California limited )
partnership; )
Case No. SA 98-27098-RA )
XX Affected by this Pleading )
- -- )
- ---------------------------------------)
PERFORMANCE ASSET MANAGEMENT, )
FUND III, LTD., a California limited )
partnership; )
Case No. SA 98-27101-RA )
XX Affected by this Pleading )
- -- )
- ---------------------------------------)
PERFORMANCE ASSET MANAGEMENT, )
FUND IV, LTD., a California limited )
partnership; )
Case No. SA 98-27105-RA )
XX Affected by this Pleading )
- -- )
- ---------------------------------------)
PERFORMANCE ASSET MANAGEMENT, )
FUND V, LTD., a California limited )
partnership; )
Case No. SA 98-27106-RA )
XX Affected by this Pleading )
- -- )
- ---------------------------------------)
2
TABLE OF CONTENTS
I INTRODUCTION
(1) PAM . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
---
(2) PAM II. . . . . . . . . . . . . . . . . . . . . . . . . . 4
------
(3) PAM III . . . . . . . . . . . . . . . . . . . . . . . . . 4
-------
(4) PAM IV. . . . . . . . . . . . . . . . . . . . . . . . . . 5
------
(5) PAM V . . . . . . . . . . . . . . . . . . . . . . . . . . 5
-----
(6) PCM . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
---
A Brief Description Of the Debtors' Collective Business
-------------------------------------------------------
Operations . . . . . . . . . . . . . . . . . . . . . . . . . 6
----------
B Summary of the Plan . . . . . . . . . . . . . . . . . . . 6
----------------------
C The Plan Proponents and Their Recommendations. . . . . . 7
------------------------------------------------
II DISCLAIMER AND VOTING PROCEDURES
-----------------------------------
A Notice to Holders of Claims and Interests. . . . . . . 8
-----------------------------------------------
B Solicitation Package . . . . . . . . . . . . . . . . . . . . 10
--------------------
C Voting Procedures, Ballots, and Voting Deadline
------------------------------------------------
(For Holders of Impaired Claims) . . . . . . . . . . . . . . 10
--------------------------------
III DEFINED TERMS, RULES OF INTERPRETATION,
------------------------------------------
COMPUTATION OF TIME, AND GOVERNING LAW . . . . . . . . . . . . . 13
-------------------------------------------
A Definitions. . . . . . . . . . . . . . . . . . . . . . . . . 13
-----------
B Rules of Interpretation. . . . . . . . . . . . . . . . . . 22
-------------------------
IV EVENTS LEADING TO THE BANKRUPTCY FILING . . . . . . . . . . . . . 23
--------------------------------------------
V SIGNIFICANT EVENTS DURING THE CHAPTER II CASES . . . . . . . . . 23
----------------------------------------------------
A Appointment Of Trustee And Committee And
---------------------------------------------
Employment Of Professionals. . . . . . . . . . . . . . . . 23
-----------------------------
B Operations and Administration of the Cases
-----------------------------------------------
(1) Proofs of Claim/Interest Bar Date . . . . . . . . . 24
-------------------------------------
i
(2) Trustee's Investigation Of Debtor's
--------------------------------------
Pre-Petition Operations. . . . . . . . . . . . . . . . 25
------------------------
C Insider Payments. . . . . . . . . . . . . . . . . . . . . . 27
-----------------
D Significant Disputes Resolved By Settlement. . . . . . . 27
-----------------------------------------------
(1) The DOC Settlement. . . . . . . . . . . . . . . . . . 27
--------------------
(2) The Galewick And Intercompany Claims Settlement. . 28
----------------------------------------------------
(3) The WestCap and SunAmerica Claims Litigation . . . 28
--------------------------------------------------
VI FINANCIAL REPORTING DURING THE CHAPTER II CASES. . . . . . . . . 29
-----------------------------------------------------
VII FINANCIAL INFORMATION AND ASSET DESCRIPTION. . . . . . . . . . . . 29
-----------------------------------------------
A Real Property Assets and Liabilities . . . . . . . . . . . . 29
----------------------------------------
B Personal Property Assets and Liabilities . . . . . . . . . . 30
--------------------------------------------
(1) Defaulted-Debt Portfolios . . . . . . . . . . . . . . . . . 30
-------------------------
(2) Cash on Hand . . . . . . . . . . . . . . . . . . . . . . 30
--------------
(3) Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . 30
------
C. Post Petition Income and Expenses. . . . . . . . . . . . . . 30
-------------------------------------
VIII DESCRIPTION OF THE PLAN. . . . . . . . . . . . . . . . . . . . . . 30
--------------------------
A General Overview . . . . . . . . . . . . . . . . . . . . . . . . 30
-----------------
B Unclassified Claims. . . . . . . . . . . . . . . . . . . . . . . 30
--------------------
(1) Administrative Expenses . . . . . . . . . . . . . . . . . . 31
--------------------------
(2) Administrative Claims For Professionals Employed
----------------------------------------------------
By The Estates . . . . . . . . . . . . . . . . . . . . . . 31
----------------
(3) Administrative Priority Tax Claims. . . . . . . . . . . . 32
-------------------------------------
(4) Expenses Incurred in the Ordinary Course of Operations . . . 33
------------------------------------------------------
(5) Pre-Petition Priority Tax Claims. . . . . . . . . . . . . 33
-----------------------------------
C Classified Claims and Interests and Summary of Treatment. . . . . 33
--------------------------------------------------------
(1) Class of Priority Unsecured Claims . . . . . . . . . . . 33
--------------------------------------
(2) Secured Claims. . . . . . . . . . . . . . . . . . . . . . . 34
---------------
ii
(3) Classes of General Unsecured Claims and Summary
-----------------------------------------------------
of Treatment. . . . . . . . . . . . . . . . . . . . . . . . 34
-------------
(4) Classes of Interest Holders and Treatments. . . . . . . 34
-----------------------------------------------
D Means of Effectuating the Provisions of the Plan . . . . . 36
-------------------------------------------------------
(1) Consolidation of the Plan Debtors. . . . . . . . . . . . . 36
-------------------------------------
(2) Exchange of Partnership Interests For Issuance of PCMLLC
---------------------------------------------------------
Membership Interests. . . . . . . . . . . . . . . . . . . . 36
---------------------
(3) Funding for the Plan. . . . . . . . . . . . . . . . . . . . 37
----------------------
(4) PCMLLC Management . . . . . . . . . . . . . . . . . . . . . 37
------------------
(5) Disbursing Agent. . . . . . . . . . . . . . . . . . . . . . 38
-----------------
IX PROVISIONS GOVERNING DISTRIBUTIONS . . . . . . . . . . . . . . . . . 38
------------------------------------
A Effective Date Cash and Membership Interest Distributions . . . . 38
---------------------------------------------------------
B Delivery Of Distributions And Undeliverable Distributions. . . . 38
----------------------------------------------------------
C Setoffs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
-------
D Transactions On Business Days. . . . . . . . . . . . . . . . . 39
--------------------------------
X PROCEDURES FOR RESOLVING AND TREATING
-----------------------------------------
DISPUTED CLAIMS ANDDISPUTED EQUITY INTERESTS . . . . . . . . . . . 39
------------------------------------------------
A No Distribution Pending Allowance. . . . . . . . . . . . . . . 40
------------------------------------
B Resolution Of Disputed Claims. . . . . . . . . . . . . . . . . 40
--------------------------------
C Allowance Of Disputed Claims And Interests . . . . . . . . . 40
-----------------------------------------------
XI TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES . . . . . . 40
-----------------------------------------------------------
A Executory Contracts and Unexpired Leases . . . . . . . . . . 40
--------------------------------------------
(1) Assumption. . . . . . . . . . . . . . . . . . . . . . . . . 40
----------
(2) Rejection . . . . . . . . . . . . . . . . . . . . . . . . . 41
---------
XII EFFECTIVENESS OF THE PLAN . . . . . . . . . . . . . . . . . . . . . 41
----------------------------
A Conditions To The Effective Date. . . . . . . . . . . . . . . 41
------------------------------------
XIII EFFECT OF CONFIRMATION OF THE PLAN. . . . . . . . . . . . . . . . 42
---------------------------------------
A Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
---------
iii
B Revesting of Property in Plan Debtors for Transfer
--------------------------------------------------
to PCMLLC. . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
----------
C Post Confirmation Employment and Compensation of
------------------------------------------------
Professionals . . . . . . . . . . . . . . . . . . . . . . . . . . 43
-------------
D Dissolution of the Committee . . . . . . . . . . . . . . . . . 43
-------------------------------
E Modification of Plan . . . . . . . . . . . . . . . . . . . . . 43
----------------------
F Post-Confirmation Status Report . . . . . . . . . . . . . . . . 44
---------------------------------
G Post-Confirmation Conversion/Dismissal . . . . . . . . . . . . . 44
---------------------------------------
H Final Decree . . . . . . . . . . . . . . . . . . . . . . . . . . 44
-------------
XIV ACCEPTANCE AND CONFIRMATION OF THE PLAN . . . . . . . . . . . . . 44
--------------------------------------------
A Persons Entitled to Vote on the Plan. . . . . . . . . . . . 44
------------------------------------------
B Parties Entitled to Vote . . . . . . . . . . . . . . . . . . . 45
---------------------------
C Votes Required for Class Acceptance of the Plan. . . . . . 46
------------------------------------------------------
D Requirements for Confirmation of the Plan. . . . . . . . . . 47
----------------------------------------------
XV LIQUIDATION ANALYSIS. . . . . . . . . . . . . . . . . . . . . . . . 50
---------------------
XVI PLAN FEASIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . . 52
-----------------
A Effective Date Payments . . . . . . . . . . . . . . . . . . . . 52
-------------------------
B Post-Effective Date Payments. . . . . . . . . . . . . . . . . . 53
------------------------------
XVII SUMMARY OF SECTION 1129(b) . . . . . . . . . . . . . . . . . . . . 53
-----------------------------
XVIII TAX CONSEQUENCES . . . . . . . . . . . . . . . . . . . . . . . . . . 55
-----------------
XIX EXEMPTION FROM SECURITIES LAWS . . . . . . . . . . . . . . . . . . 55
---------------------------------
XX THE PLAN PROPONENTS RECOMMENDATIONS. . . . . . . . . . . . . . . . 56
--------------------------------------
iv
I.
INTRODUCTION
------------
Performance Asset Management Fund, Ltd., a California limited partnership
("PAM"), Performance Asset Management Fund II, Ltd., a California limited
partnership ("PAM II"), Performance Asset Management Fund III, Ltd., a
California limited partnership ("PAM III"), Performance Asset Management Fund
IV, Ltd., a California limited partnership ("PAM IV"), Performance Asset
Management Fund V, Ltd., a California limited partnership ("PAM V")
(collectively, PAM I - V are referred to herein as the "PAM Funds") and
Performance Capital Management, Inc., a California corporation ("PCM") are
debtors in related chapter 11 bankruptcy cases (collectively the "Debtors or
Plan Debtors") (1). The Official Committee of Equity Security Holders in the PAM
Fund bankruptcy cases (the "Committee") and James J. Joseph, Chapter 11 Trustee
for the Debtors, provide this Disclosure Statement to the Debtors' Creditors and
Equity Security Holders (2). This Disclosure
- ---------------
1 Four affiliates of the Debtors also commenced chapter 11 bankruptcy cases
on or about the same date as the Debtors commenced the Chapter 11 cases. These
affiliates, VCS, PDI, Income Network Company, Inc. (INC) and Atlas Equity Inc.,
dba Performance Telecom ("PT") are not proponents of the plan. A brief
description of VCS, PDI, INC, AND PT follows.
(1) VCS
---
VCS is a California corporation which was incorporated in or about
1995. VCS was a shell corporation utililized as a pay master for the Debtors.
Mr. Galewick is the President and Chief Executive Officer of VCS and owns 100%
of the outstanding shares of VCS. VCS has no ongoing business and is presently
under the management of Norman I. Hannover, Chapter 11 Trustee.
(2) PDI
---
PDI is a California corporation which was incorporated in June 1990.
PDI has been engaged in various aspects of the discussed financial services
industry since March 1991. PDI is the former general partner of each of the PAM
Funds and several non-debtor entities that currently are not operating. Mr.
Galewick is the President and Chief Executive Officer of PDI and owns 100% of
the outstanding shares of PDI. PDI's bankruptcy case has been dismissed.
(3) INC
---
INC served as the placement manager for the PAM Funds and has offered
and sold interests in each of the PAM Funds. INC generates its revenues from
commissions it earns on its sales. Mr. Galewick is the President and Chief
Executive Officer of INC and owns 100% of the outstanding shares of INC. INC is
a chapter 11 Debtor operating under Debtor in possession management.
(4) PT
--
PT provided long distance telephone services and related services to
approximately 6,000 unaffiliated business and household customers. PCM was
customers of PT and used the long distance services of PT to conduct the
collection and servicing of delinquent accounts. Mr. Galewick is the President
and Chief Executive Officer of PT. PT could not be operated profitably. The
operations of PT were terminated by the Trustee shortly after its bankruptcy
filing.
2 Capitalized terms used in the Disclosure Statement are defined at Article
III.
-3-
Statement is furnished for the purpose of soliciting acceptance of the Plan
filed concurrently with the filing of this Disclosure Statement.
Section 1125 of the Bankruptcy Code requires that, at the time the
Plan is delivered to Creditors and Equity Security Holders, the Plan be
accompanied by this Disclosure Statement. The purpose of this Disclosure
Statement is to provide adequate information of a kind and sufficient detail, as
far as it is reasonably practicable, in light of the nature history of the
Debtors and the condition of the Debtors' books and records, to enable a typical
creditor or Equity Security Holder to determine whether it is in his, her or its
best interest to vote for (accept) or against (reject) the Plan. This Disclosure
Statement contains a description of the Plan and certain other information
relevant to the decision of each Creditor or Equity Security Holder to vote to
accept or to reject the Plan.
The Debtors which are the subject of the Plan are briefly described as
follows.
(1) PAM
---
PAM is a California limited partnership formed on April 1, 1991. PAM
raised $5,205,000 in gross proceeds from the sale of its partnership units. PAM
then used these funds for the payment of organizational costs and then to
purchase and collect distressed debt portfolios. The assets of PAM consist
primarily of charged off credit card and consumer debt acquired from banks and
lending institutions, as well as cash.
(2) PAM II
------
PAM II is a California limited partnership formed on April 1, 1992.
PAM II raised $7,670,000 in gross proceeds from the sale of its partnership
units. PAM II then used these funds for the payment of organizational costs and
then to purchase and collect distressed debt portfolios. The assets of PAM II
consist of charged off credit card and consumer debts as acquired from banks and
lending institutions, as well as cash.
(3) PAM III
-------
PAM III is a California limited partnership formed on October 13,
1992. PAM III raised $9,990,000 in gross proceeds from the sale of its
partnership units. PAM III
-4-
then used these funds for the payment of organizational costs and then to
purchase and collect distressed debt portfolio. The assets in the portfolio of
PAM III consist primarily of charged off credit card and consumer debt acquired
from banks and lending institutions, as well as cash. PAM III is a public
limited partnership that is subject to reporting requirements of the United
States Securities and Exchange Commission.
(4) PAM IV
------
PAM IV is a California limited partnership formed on October 21, 1992.
PAM IV raised $28,595,000 in gross proceeds from the sale of its partnership
units. PAM IV then used these funds for the payments of organizational costs and
then to purchase and collect distressed debt portfolios. The assets of PAM IV
consist primarily of charged-off credit card and consumer debt acquired from
banks and lending institutions, as well as cash. PAM IV is a public limited
partnership that is subject to reporting requirements of The United States
Securities and Exchange Commission.
(5) PAM V
-----
PAM V is a California limited partnership formed on May 1, 1994. PAM
V raised $5,695,000 in gross proceeds from the sale of its partnership units.
PAM V then used these funds for the payments of organizational costs and then to
purchase and collect distressed debt portfolios. The assets of PAM V consist
primarily of charged-off credit card and consumer debt acquired from banks and
lending institution, as well as cash.
(6) PCM
---
PCM is a California corporation which was incorporated in January
1993. PCM identified potential distressed debt portfolio acquisitions, performed
due diligence in conjunction with potential portfolio acquisitions, acquired
portfolios, and through joint ventures with the PAM Funds collected, serviced,
and sold acquired portfolios. The PAM Funds collectively own 98.5% of the
outstanding shares of PCM. Michael Cushing, the former Vice President and Chief
Financial Officer of PCM, owns the remaining 1.5% of the outstanding shares of
PCM.
-5-
A. BRIEF DESCRIPTION OF THE DEBTORS' COLLECTIVE BUSINESS OPERATIONS
----------------------------------------------------------------
The sale of limited partnership interests in the PAM Funds provided
investment capital necessary for the purchase of distressed debt portfolios. PCM
identified, evaluated, and negotiated the purchase of distressed debt portfolios
and through joint ventures with the PAM Funds, collected, sold, and serviced the
portfolios.
B. SUMMARY OF THE PLAN
-------------------
The Plan basically provides for the consolidation of the PAM Funds and
PCM into a single entity, PCM Fund, LLC ("PCMLLC"), which will operate the
business of the Debtors. The formation of PCMLLC will be as provided by the Plan
and the Operating Agreement (the "Operating Agreement"). A copy of the Plan is
filed concurrently. A copy of the Operating Agreement is attached to the Plan as
Exhibit "1".
Pursuant to the Plan, Equity Security Holders in the PAM Funds will
receive LLC Units in PCMLLC. The percentage Membership Interest received by each
Equity Security Holder will be directly proportionate to that recipient's
original capital contribution as to the total capital contributions of all
Equity Security Holders in all PAM Funds. Distributions of cash will be made
in accordance with the ratio that an Equity Security Holders unreturned capital
bears to the total unreturned capital of all Equity Security Holder's in all of
the PAM Funds until such time as all Equity Security Holders in all of the PAM
Funds until such time as all Equity Security Holders have received 100% of their
initial capital contribution, at which time all future distributions will be
made in accordance with each respective Equity Security Holder's Percentage
Membership Interest.
For instance, with respect to an Equity Security Holders' interest in
PCMLLC, if the total of all original capital contributions to all PAM Funds were
approximately $57,425,000, and a particular Equity Security Holders' original
capital contribution were $10,000, and the authorized LLC Units were $74,250
then he or she would receive 100 LLC Units in PCMLLC.(1)
- --------------------
1 Under the Operating Agreement, PCMLLC can round up or down to achieve the
nearest Membership Interest unit.
-6-
If the total unreturned capital for all the PAM Fund Equity Security
Holders were $37,000,000 and an individual Equity Security Holder's unreturned
capital were $7,000 then that person would receive $7,000/$37,000,000 or .000189
of all distributions until all PAM Fund Equity Security Holders have received
the entirety of their unreturned capital, at which time all future distributions
will be based on such Equity Security Holders' ownership of LLC Units.
All allowed claims against Debtors will be paid in full without
interest. All assets of PCM will be transferred to PCMLLC.
C. THE PLAN PROPONENTS AND THEIR RECOMMENDATIONS.
----------------------------------------------
The Plan is proposed by the Committee and the Trustee. The Plan has
the unanimous support of the Committee members, who were appointed to serve on
the Committee by the Office of the United States Trustee on February 10,1999.
The Committee and the Trustee (the "Plan Proponents") believe that the
Plan provides Creditors and Equity Security Holders with a reasonable
probability that they will receive more under the Plan than under a liquidation.
The Plan Proponents believe the Plan is in the best interest of Equity Security
Holders because it provides Equity Security Holders with the opportunity to
participate in the anticipated growth of PCMLLC.
The Plan Proponents have considered multiple options for formulating a
Plan, including a sale of the assets or an orderly liquidation of the portfolios
and believe that Creditors and Equity Security Holders should vote to accept the
Plan as in their best interests because the above options, in the Plan
Proponents' view, would result in substantially less value than would be
realized under the Plan.
This Disclosure Statement does not purport to be a complete
description of the Plan, the financial data pertaining to the Debtors, the
applicable provisions of the Bankruptcy Code, or other matters which may be
deemed significant by creditors or Equity Security Holders. Out of practical
necessity, this Disclosure Statement represents an attempt to summarize
extensive data, legal documents and legal principles, including provisions of
the Bankruptcy Code, and to set them forth in an understandable, readable form.
Although the
-7-
Plan Proponents have attempted to describe the matters set forth and discussed
in this Disclosure Statement fairly and accurately, such descriptions are
qualified to the extent that they do not set forth the entire text of documents
or statutory provisions described.
II.
DISCLAIMER AND VOTING PROCEDURES
--------------------------------
THIS DISCLOSURE STATEMENT MAY NOT BE RELIED UPON FOR ANY PURPOSE OTHER
THAN TO DETERMINE HOW TO VOTE ON THE PLAN. NOTHING CONTAINED HERE SHALL
CONSTITUTE AN ADMISSION OF ANY FACT OR LIABILITY BY ANY PARTY, OR BE ADMISSIBLE
IN ANY PROCEEDING INVOLVING THE DEBTORS OR ANY OTHER PARTY, OR BE DEEMED ADVICE
ON THE TAX, SECURITIES, OR OTHER LEGAL EFFECTS OF THE REORGANIATION ON HOLDERS
OF CLAIMS OR INTERESTS. HOLDERS OF CLAIMS OR INTERESTS SHOULD CONSULT THEIR
PERSONAL COUNSEL OR TAX ADVISOR ON ANY QUESTIONS OR CONCERNS RESPECTING TAX,
SECURITIES, OR OTHER LEGAL CONSEQUENCES OF THE PLAN.
THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THE STATEMENTS
CONTAINED IN THIS DISCLOSURE STATEMENT.
A. NOTICE TO HOLDERS OF CLAIMS AND INTERESTS
--------------------------------------
This Disclosure Statement is being delivered to all holders of Claims
and Equity Security Interests against and in the Debtors, regardless of whether
they are entitled to vote to accept or reject the Plan and (b) holders of Claims
and Administrative Expenses, which pursuant in the Bankruptcy Code, have not
been classified and are not entitled to vote on the Plan.
-8-
This Disclosure Statement has been approved by the Bankruptcy Court as
containing information sufficient to enable a hypothetical reasonable creditor
or investor typical of holders of Claims or Equity Security Interests of
relevant classes to make an informed judgment concerning the Plan, assuming the
accuracy of such information. The Court has not yet determined the accuracy of
such information and may do so at the hearing on confirmation of the Plan. THE
BANKRUPTCY COURT'S APPROVAL OF THIS DISCLOURE STATEMENT, HOWEVER, DOES NOT
CONSTITUTE A RECOMMENDATION BY THE BANKRUPTCY COURT EITHER FOR OR AGAINST THE
PLAN.
CERTAIN INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT IS BY ITS
NATURE FORWARD LOOKING AND CONTAINS ESTIMATES, ASSUMPTIONS, AND PROJECTIONS THAT
MAY BE MATERIALLY DIFFERENT FROM ACTUAL, FUTURE RESULTS.
UNLESS SPECIFICALLY IDENTIFIED, THE INFORMATION CONTAINED IN OR
REFERRED TO IN THIS DISCLOSURE STATEMENT HAS NOT BEEN SUBJECT TO A CERTIFIED
AUDIT. THE PROPONENTS BELIEVE THAT EVERY REASONABLE EFFORT HAS BEEN MADE TO
PRESENT ACCURATE FINANCIAL INFORMATION IN THE PREPARATION OF THE DISCLOSURE
STATEMENT, BUT DO NOT WARRANT OR GUARANTEE THE SAME. THE RECORDS RELIED UPON ARE
NEITHER WARRANTED NOR REPRESENTED TO BE FREE OF INACCURACY. THIS FINANCIAL
INFORMATION CONSTITUTES THE BASIS UPON WHICH THE FINANCIAL PROJECTIONS HAVE BEEN
MADE. IN ADDITION, THE FINANCIAL PROJECTIONS ARE BASED ON THE NUMEROUS
ASSUMPTIONS WITH RESPECT TO INDUSTRY PERFORMANCE, GENERAL BUSINESS AND ECONOMIC
CONDITIONS, AND OTHER RELATED MATTERS WHICH ARE BEYOND THE PLAN PROPONENTS'
CONTROL. THE PROPONENTS DO NOT INTEND TO UPDATE THE FINANCIAL PROJECTIONS TO
REFLECT THE IMPACT OF ANY SUBSEQUENT EVENTS NOT ALREADY ACCOUNTED FOR IN THE
ASSUMPTIONS UNDERLYING THE PROJECTIONS OR TO DISTRIBUTE
-9-
AMENDMENTS OR SUPPLEMENTS TO THIS DISCLOSURE STATEMENT TO REFLECT SUCH
OCCURENCES. ACCORDINGLY, HOLDERS OF CLAIMS OR EQUITY SECURITY INTERESTS ARE
CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THE FINANCIAL PROJECTIONS.
B. SOLICITATION PACKAGE
--------------------
Accompanying this Disclosure Statement are copies of (i) the Plan,
(ii) the notice of, among other things, the time for submitting Ballots to
accept or reject the Plan, the date, time and place of the hearing to consider
the confirmation of the Plan and related matters, and the time for filing
objections to the confirmation of the Plan, and (iii) for Creditors or Equity
Security Holders whose Claims or Equity Security Interests are impaired and who,
therefore are permitted to vote on the Plan, one or more Ballots to be used in
voting to accept or to reject the Plan. If you did not receive Ballots in your
package and believe that you should have, please contact Rus, Miliband & Smith,
A Professional Corporation ("Counsel for the Committee") at the address or
telephone number set fourth in subsection C of this section. For information as
to whether or not you are entitled to vote on the Plan, please see Article XVI.
C VOTING PROCEDURES, BALLOTS, AND VOTING DEADLINE (FOR HOLDERS OF IMPAIRED
------------------------------------------------------------------------
CLAIMS)
------
To vote to accept or reject the Plan, please indicate your acceptance
or rejection thereof on the appropriate Ballots accompanying this Disclosure
Statement. Please complete and sign your original Ballot(s) and return it/them
to Counsel for the Committee , such that the Ballot(s) is/are actually received
by Counsel for the Committee by the Voting Deadline (as defined below).
IN ORDER FOR YOUR VOTE TO BE COUNTED, YOUR BALLOT(S) MUST BE PROPERLY
COMPLETED AS SET FORTH ABOVE AND IN ACCOORDANCE WITYH THE VOTING INSTRUCTIONS ON
THE BALLOT(S) AND RECEIVED NO LATER THAN NOVEMBER 27 2001, AT 5.00 P.M. LOCAL
-------- ----------------
TIME (THE "VOTING DEADLINE") BY COUNSEL FOR THE COMMITTEE AT ITS ADDRESS SET
FORTH BELOW. SINCE MAIL DELAYS MAY OCCUR, IT IS
-10-
IMPORTANT THAT BALLOTS BE MAILED WELL IN ADVANCE OF THE VOTING DEADLINE. ANY
BALLOTS RECEIVED AFTER THE VOTING DEADLINE WILL NOT BE INCLUDED IN ANY
--------
CALCULATION TO DETERMINE WHETHER THE PARTIES ENTITLED TO VOTE ON THE PLAN HAVE
VOTED TO ACCEPT OR REJECT THE PLAN.
Person(s) holding Claims or Interests will receive six Ballots, one of
which is appropriate if one is a Creditor of any of the Debtors, five of which
will be appropriate for voting based on Equity Security Interests in one or more
of the PAM Funds. PLEASE COMPLETE AND RETURN THE BALLOT OR BALLOTS THAT ARE
APPLICABLE TO YOUR CLAIM OR INTEREST. IF YOU RETURN DUPLICATE BALLOTS, ONLY ONE
BALLOT PER CLAIM OR INTEREST WILL BE INCLUDED IN ANY CALCULATION TO DETERMINE
WHETHER THE PARTIES ENTITLED TO VOTE ON THE PLAN HAVE VOTED TO ACCEPT OR REJECT
THE PLAN, IF YOU RETURN DUPLICATIVE BALLOTS WHICH HAVE BEEN VOTED
INCONSISTENTLY, THEY WILL BE COUNTED AS ONE (1) VOTE ACCEPTING THE PLAN.
If you have any questions about the procedure for voting your Claim or
Equity Security Interest(s) or with respect to the packet of materials that you
have received, please contact Counsel for the Committee at the following address
and telephone number:
Rus, Millard & Smith, A Professional Corporation
Attn: Cathrine M. Castaldi
2600 Michelson Drive, 7th Floor
Irvine, California 92612
Telephone: (949) 752 7100
The bankruptcy Court has scheduled a hearing on confirmation of the
Plan to commence on December 21, 2001 at 3:30 p.m., at the United States
Bankruptcy Court for the Central District of California, 411 West Fourth Street,
Santa Ana, California, in Courtroom 6C before the Honorable Robert W. Alberts.
At the Confirmation Hearing, the Bankruptcy Court will determine,
pursuant to Section 1129 of the Bankruptcy Code, whether the plan has been
accepted by the necessary
-11-
Classes of Claims or Equity Security Interests created under the Plan and
whether the Plan satisfies the various requirements of the Bankruptcy Code,
including whether it is feasible and whether confirmation of the Plan is in the
best interest of the Creditors and Equity Security Holders. Prior to the
Confirmation, the Proponents will submit a Ballot tally to the Bankruptcy Court
concerning the votes for acceptance or rejection of the Plan by the parties
entitled to vote. If at such hearing the Bankruptcy Court determines that the
Plan meets all of the requirements for confirmation prescribed by the Bankruptcy
Code, the Bankruptcy Court will enter a Confirmation Order. Pursuant to Section
1141 of the Bankruptcy Code, the effect of the Confirmation Order will be to
make provisions of the Plan binding upon the Debtors and each of their Creditors
and Equity Security Holders, regardless of whether or not the Creditor or Equity
Security Holder voted to accept the Plan.
Pursuant to Section 1128 of the Bankruptcy Code, any party in interest
may object to the confirmation of the Plan. Any objections to confirmation of
the Plan must be made in writing and filed with the Bankruptcy Court and served
so as to be received by the following persons no later than November 27, 2001 at
5:00 p.m. local time.
COUNSEL FOR THE TRUSTEE
-----------------------
John J. Bingham, Jr., Esq.
Danning, Gill, Diamond & Kollitz
2029 Century Park East, Suite 300
Los Angeles, CA 90067
COUNSEL FOR THE OFFICIAL INVESTORS' COMMITTEE
---------------------------------------------
Cathrine M. Castaldi, Esq.
Rus, Miliband, Williams & Smith
2600 Michelson, Suite 7009
Irvine, CA 92612
UNITED STATES TRUSTEE
---------------------
The Office of the United States Trustee
Attn: Michael Hauser, Esq
411 West Fourth Street, Suite 9041
Santa Ana, CA 92701-8000
-12-
Objections to confirmation of the Plan are governed by Bankruptcy Rule
9014 UNLESS AN OBJECTION TO CONFIRMATION IS TIMELY SERVED AND FILED IT MAY NOT
BE CONSIDERED BY THE BANKRUPTCY COURT.
THIS IS A SOLICITATION BY THE TRUSTEE AND THE COMMITTEE. OTHER THAN AS
SET FORTH IN THIS DISCLOSURE STATEMENT AND ACCOMPANYING PLAN, NO REPRESENTATIONS
CONCERNING THE SUBJECT MATTER OF THE DISCLOSURE STATEMENT, THE PLAN ARE
AUTHORIZED BY THE PLAN PROPONENTS. ANY REPRESENTATIONS OR INDUCEMENTS MADE TO
SECURE ACCEPTANCE OF THE PLAN THAT ARE IN ADDITION TO OR DIFFERENT FROM THE
STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT SHOULD NOT BE RELIED UPON BY
AND PARTY-IN-INTEREST. ANY SUCH ADDITIONAL REPRESENTATIONS OR INDUCEMENTS SHOULD
BE REPORTED TO THE PLAN PROPONENTS' ATTORNEYS WHO, IN TURN, WILL DELIVER THE
INFORMATION TO THE BANKRUPTCY CURT FOR SUCH ACTION AS THE BANKRUPTCY COURT MAY
DEEM TO BE APPROPRIATE.
III.
DEFINED TERMS, RULES OF INTERPRETATION,
---------------------------------------
COMPUTATION OF TIME, AND GOVERNING LAW
--------------------------------------
A. DEFINITIONS
-----------
The following definitions apply in this Disclosure Statement and the
Plan. A term used in the Plan or Disclosure, not otherwise defined, but which is
defined in the Bankruptcy Code, shall have the definition assigned to such term
in the Code.
-13-
"ADMINISTRATIVE CLAIM" means a claim against a Debtor for
administrative costs or expenses that are allowable under Bankruptcy Code
Section 503(b). These costs of expenses may include, without limitation (a)
actual costs or expenses that were incurred after the Petition Date and that
were necessary to preserve a Plan Debtors' Estate and operate a Plan Debtors'
business, (b) Professional Fee Claims, (c) Administrative Tax Claims, and (d)
Ordinary Course Administrative Claims including fees or charges assessed against
a Plan Debtors' Estate Under 28 U.S.C. Sec. 1930
"ADMINISTRATIVE TAX CLAIM "means an Administrative Claim or other
Claim that is not an Allowed Secured Claim and that a government asserts against
a Plan Debtor for taxes (or for related interest or penalties)for any tax period
that, either in a whole or in a part, falls within the period beginning on the
Petition Date and ending on the Effective Date.
"ALLOWED ADMINISTRATIVE CLAIM" means an Administrative Claim that is
allowed as set forth in Section III C4
"ALLOWED CLAIM" means a Claim against a Debtor, other than an
Administrative Claim to the extent that
(a) Either (1) a proof of Claim was timely Filed, or (2) a proof of
Claim is deemed timely Filed either under Bankruptcy Rule 3003
(b)(1) or by a Final Order, and
---
(b) Either (1) the Claim is not a Disputed Claim, (2) the Claim is
allowed by a Final Order, or (3) the Claim is allowed under the
Plan
An Allowed Claim does not include interest on the Claim accruing after the
Petition Date. Moreover, any portion of a Claim that is satisfied or released
during a Plan Debtors' Reorganization Case is not an Allowed Claim.
"ALLOWED EQUITY SECURITY INTEREST" means an equity interest in a Plan
Debtor to the extent that:
(a) Either (1) a proof of Interest was timely filed, or (2) a proof
of Interest is deemed timely Filed either under Bankruptcy Rule
3003 (b)(2) or by a Final Order, or (3) the Plan Debtors'
identified the Equity Interest and
-14-
its amount in an Equity Security Holder as existing on the
Petition Date;
and
---
(b) Either: (1) the Equity Security Interest is not a Disputed Equity
Security Interest; (2) the Equity Security Interest is allowed by
a Final Order; or (3) the Equity Security Interest is allowed
under the Plan
"ALLOCATION ORDER" means that certain order of the Court entered March
6, 1999, providing procedures for the allocation of fees and costs among the
Plan Debtors and Non-Plan Debtors.
"ALLOWED SECURED CLAIMS" means an Allowed Claim secured by a valid and
enforceable lien, security interest or other charge against property in which
the Debtor has an interest, or which is subject to setoff under Sec. 553 of the
Bankruptcy Code, but only to the extent of the value (determined in accordance
with Sec. 506(a) of the Bankruptcy Code or in accordance with the provisions of
the Plan) of the interest of the holder of such property or to the extent of the
amount subject to any setoff or as otherwise set forth in the Plan, as the case
may be.
"BANKRUPTCY CODE" or "CODE" means Title 11 of the United States Code,
as same was in effect on the Petition Date, as amended by any amendments
applicable to the Reorganization Cases.
"BANKRUPTCY COURT" means the United States Bankruptcy Court for the
Central District of California, Santa Ana Division, or such other court,
including the United States District Court for the Central District of
California, as may have jurisdiction over this case.
"BANKRUPTCY RULES" means, collectively, (a) the Federal Rules of
Bankruptcy Procedure and (b) the Local Bankruptcy Rules for the Central District
of California, as same were in effect on the Petition Date, as amended by any
amendments applicable to the Reorganization Case.
"BUSINESS DAY" means any day, other than Saturday, Sunday or a legal
holiday.
-15-
"CLAIMS" is defined in Sec. 101(5) of the Code. It includes any right
to payment, whether or not such right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed,
legal, equitable, secured, or unsecured, or any right to an equitable remedy for
breach of performance, if such breach gives rise to a right to payment, whether
such right to an equitable remedy is reduced to judgment, fixed, contingent,
matured, unmatured, disputed, undisputed, secured, or unsecured.
"CLAIMS/INTERESTS OBJECTION DEADLINE" means the deadline for objecting
to Claims or Interest, as set forth in Section IV G in the Plan.
"COMMITTEE" means the Official Committee of Equity Security Holders
appointed by the United States Trustee in the Reorganization Cases, as modified
by the addition or removal of members from time to time.
"CONFIRMATION" of the Plan means the entry of the Confirmation Order
by the Bankruptcy Court.
"CONFIRMATION DATE" means the date on which the Court enters the
Confirmation Order is entered on the Court docket.
"CONFIRMATION-HEARING DATE" means the first date on which the Court
holds a hearing regarding Plan confirmation.
"CONFIRMATION ORDER" means the Court order confirming the Plan under
Bankruptcy Code Section 1129.
"CONSUMMATION" of the Plan means the making of the distribution to be
made by PCMLLC of the Membership Interests to the PAM Funds as required by the
Plan.
"CREDITOR" means
(a) entity that has a claim against the debtor that arose at the time
of or before the order for relief concerning the debtor.
(b) entity that has a claim against the estate of a kind specified
in section 348(d), 502(f), 502(g), 502(h) or 502(i) of this title
or
(c) entity that has a community claim.
-16-
"DISBURSING AGENT" means PCMLLC or any person employed by PCMLLC to
assist PCMLLC with its duties as Disbursing Agent.
"DISCLOSURE STATEMENT" means this "Disclosure Statement Describing
Proponents' Joint Chapter 11 Plan of Reorganization As Amended [Dated September
6, 2001]"
"DISPUTED CLAIM" means a claim
(a) as to which a proof of Claim is Filed or deemed to be Filed under
Bankruptcy Rule 3003(b)(1); and
(b) as to which the Plan Debtor against which the Claim has been
asserted, the Trustee, Committee or PCMLLC, or any
party-in-interest entitled to do so has filed an objection by the
Claims/Interests Objection Deadline and as to which that
objection has not been overruled, denied by a Final Order, or
withdrawn.
"DISPUTED EQUITY SECURITY INTEREST" means any interest
(a) As to which a proof of Interest was Filed, as to which a proof of
Interest is deemed Filed under Bankruptcy Rule 3003(b)(1); or
that the Plan Debtors' identified as existing on the Petition
Date; and
(b) as to which the Plan Debtor against which the Equity Security
Interest has been asserted, The Trustee, Committee or PCMLLC, or
any party-in-interest entitled to do so has Filed an objection by
the Claims/Interests Objection Deadline and as to which that
objection has not been overruled, denied by a Final Order, or
withdrawn.
"EFFECTIVE DATE" means the later of the first business day;
(a) that is eleven (11) days (as calculated in accordance with
Fed.R.Bankr.P. 9006(a)) after the Confirmation Date; and
(b) on which no stay of the Confirmation Order is in effect.
-17-
"EQUITY SECURITY HOLDERS" means those persons holding Allowed Equity
Security Interests in a PAM Fund Debtor as of the Petition Date and their
successors and assigns.
"EQUITY SECURITY INTEREST" means the interest as the term "interest"
is defined in Bankruptcy Code Sec. 101(17) - of any Person who holds an equity
security in a PAM Fund. Debtor Interests include all Interests, whether
asserted or not.
"ESTATE(S)" means the estate or estates created in these Chapter 11
case by Sec. 541 of the Bankruptcy Code
"FINAL ORDER" means an order of the Bankruptcy Court entered on the
Court's docket as to which:
(a) the time for appeal has expired with no appeal having been
properly noticed therefrom; or
(b) any appeal which has been taken has been fully resolved, and a
final determination made and the time for appeal from the final
determination expired.
"INITIAL LLC UNITS" means the LUC Units to be granted by PCMLLC to the
PAM Funds pursuant to the Operating Agreement and the Plan.
"LLC UNIT(S)" has the meaning ascribed to it in the Operating
Agreement.
"MEMBERSHIP INTERESTS" has the meaning ascribed to it in the Operating
Agreement.
"NOD, Inc." means NOD, Inc. the general partner for each of the PAM
Funds.
"ORDINARY-COURSE ADMINISTRATIVE CLAIM" means Administrative
Claims--other than Administrative Tax Claims, Professional-Fee Claims and
Non-Ordinary-Course Administrative Claims based--upon liabilities that the Plan
Debtor Estates incur in the ordinary course of their businesses, including
without limitation, fees or charges assessed against a Plan Debtors' Estate
under 28 U.S.C. Sec. 1930
-18-
"OPERATING AGREEMENT" means that certain agreement setting forth the
authorized company powers for the PCMLLC, including all powers authorized under
and by Section 17100 of the California Corporations Code, a copy of which
Operating Agreement is appended to the Plan as Exhibit 1.
"PAM FUNDS" means collectively PAM I, PAM II, PAM III, PAM IV and PAM
V
"PAM I" means Performance Asset Management Fund, Ltd., a California
limited partnership, a Debtor in these related Chapter 11 bankruptcy cases.
"PAM II" means Performance Asset Management Fund II, Ltd., a
California limited partnership, a Debtor in these related Chapter 11 bankruptcy
cases.
"PAM III" means Performance Asset Management Fund III, Ltd., a
California limited partnership, a Debtor in these related Chapter 11 bankruptcy
cases.
"PAM IV" means Performance Asset Management Fund IV, Ltd., a
California limited partnership, a Debtor in these related Chapter 11 bankruptcy
cases.
"PAM V" means Performance Asset Management Fund V, Ltd., a California
limited partnership, a Debtor in these related Chapter 11 bankruptcy cases.
"PCM" means Performance Capital Management, Inc., a California
corporation, a Debtor in these related Chapter 11 bankruptcy cases.
"PCM EQUITY SECURITY INTEREST" means the interest-as the term
"interest" is defined in Bankruptcy Code Sec. 101(17)-of any Person who holds an
equity security in PCM. Interests include all Interests, whether asserted or
not.
"PCM EQUITY SECURITY HOLDERS" means those persons holding Allowed
Equity Security Interests in PCM.
"PCMLLC" means Performance Capital Management, Limited Liability
Company, the limited liability company to be formed pursuant to this Plan.
"PERSON" means any individual corporation, general partnership,
limited partnership, limited liability company, association, joint-stock
company, joint venture, estate, trust, government, political subdivision,
governmental unit (as defined in the Bankruptcy
-19-
Code), official committee appointed by the United States Code, official
committee appointed by the United States Trustee, unofficial committee of
creditors or equity holders or entity.
"PETITION DATE" means December 22 and 23, 1998.
"PLAN" means this plan of reorganization, including any amendment or
modification approved by the Proponents and the Court.
"PLAN DEBTORS" means the PAM Funds and each of them and PCM.
"PRIORITY CLAIM" means an Allowed Claim entitled to priority against a
Plan Debtor Estate Under Bankruptcy Code Sec. 507(a)(3), 507(a)(4) or 507(a)(6).
"PRIORITY TAX CLAIM" means an Allowed Claim entitled to priority
against a Plan Debtor Estate under Bankruptcy Code Sec. 507(a)(8).
"PROFESSIONAL-FEE CLAIM" means:
(a) a Claim under Bankruptcy Code Sec. 327, 328, 330, 331, 503 or
1103 for compensation for professional services rendered or
expenses incurred on a Plan Debtor Estate's behalf; or
(b) a Claim either under Bankruptcy Code Sec. 503(b)(4) for
compensation for professional services rendered or under
Bankruptcy Code Sec. 503(b)(3)(D) for expenses incurred in making
a substantial contribution to an Estate.
"PROPONENTS" means the Trustee and the Committee.
"REDISTRIBUTED MEMBERSHIP INTERESTS" means the Initial Membership
Interests to be distributed by the Reorganized Debtors to the Equity
Security Holders pursuant to the Operating Agreement and the Plan.
"REORGANIZATION CASES" means the Chapter 11 cases commenced by the
filing by the Plan Debtors of their respective petitions in the United States
Bankruptcy Court for the Central District of California, Santa Ana Division,
under Chapter 11 of Title 11 of the United States Code, Case No. SA 98-27043-RA,
SA 98-27092-RA, SA 98-27098-RA, SA 98-27101-RA, SA 98-27105-RA, and SA
98-27106-RA.
-20-
"REORGANIZED DEBTORS" means the Plan Debtors on and after the
Effective Date.
"RESERVED CLAIMS" means, collectively, any and all claims and causes
of action of the Plan Debtor Estates, defenses, set-offs, or other claims and
defenses, including, without limitation, all claims arising or assertable at any
time under the Bankruptcy Code, including under Sec. 510, 342, 543, 544, 545,
547, 548, 549, 550, 552 and 553 thereof, except claims expressly waived,
relinquished or released in accordance with this Plan, whether or not such
claims or causes of action are the subject of pending litigation as of the
Effective Date.
"SECURED CLAIM" means a Claim against a Plan Debtor that is secured by
a valid and unavoidable lien against property in which an Plan Debtor Estate has
an interest or that is subject to setoff under Bankruptcy Code Section 553. A
Claim is a Secured Claim only to the extent of the value of the interest of the
Claim holder in the Plan Debtor's in that property or to the extent of the
amount of the setoff, as applicable, as determined under Bankruptcy Code Sec.
506(a).
"SCHEDULES" means the Schedules of Assets and Liabilities, as the same
may have been amended, filed by or for the Plan Debtors in compliance with
Bankruptcy Code Sec. 521(1)
"UNCLAIMED PROPERTY" means any funds (together with any interest
thereon) that are unclaimed 180 days after the issuance of any check by the
Disbursing Agent. Unclaimed Property shall include the funds represented by (a)
checks mailed to those holding Allowed Claims that have been returned as
undeliverable without a proper forwarding address, (b) that have not been paid,
and (c) that were not mailed or delivered because of the absence of a proper
address to which to mail or deliver such property, after making a reasonable
inquiry to determine a proper address.
"UNRETURNED CAPITAL" means the amount of each Equity Security Holder's
initial cash investment less the amount of cash received to date.
-21-
"UNSECURED CLAIM" means a claim against a Plan Debtor that is not an
Administrative Claim, Secured Claim, Non-Tax Priority Claim, Priority Tax Claim,
or proof of Equity Security Interest. General Unsecured Claims include, but are
not necessarily limited to, claims based upon goods and services provided to the
Debtors on open account or terms, non-priority tax claims, non-priority security
deposit claims, the unsecured portion of any Allowed Secured Claim, interest and
penalties attributable to any tax claims, and claims arising from the rejection
of executory contracts or unexpired leases, to the extent not included in any
other class under the Plan.
B. RULES OF INTERPRETATION
-----------------------
For purposes of this Disclosure Statement, the following rules of
interpretation shall apply.
(a) Wherever from the context it appears appropriate, each item
stated in either the singular or the plural shall include the singular and the
plural and pronouns stated in the masculine, feminine or neuter gender shall
include the masculine, the feminine and the neuter
(b) Any reference in this Disclosure Statement to a contract,
instrument, release, indenture or other agreement or document being in a
particular form or on particular terms and conditions means that such document
shall be substantially in such form or substantially on such terms and
conditions.
(c) Any reference in the Plan to an existing document or exhibit
filed or to be filed means such document or exhibit, as it may have been or may
be amended, modified or supplemented
(d) Unless otherwise specified, all references in the Disclosure
Statement to Sections, Articles, Schedules and Exhibits are references to
Sections, Article, Schedules and Exhibits of or to this Disclosure Statement
(e) Captions and headings to Articles and Sections are inserted
for convenience of reference only and are not intended to be a part of or to
affect the interpretation of the Disclosure Statement
-22-
(f) Unless otherwise expressly provided, the rules of construction
set forth in Section 102 of the Bankruptcy Code and in the Bankruptcy Rules
shall apply.
(g) A term used in this Disclosure Statement which is not defined
shall have the meaning ascribed to that term, if any, by the Bankruptcy Code or
the Bankruptcy Rules, or its meaning in standard English.
(h) In the event of any conflict between provisions of this
Disclosure Statement and provisions of the Plan, the provisions of the Plan
shall govern.
IV.
EVENTS LEADING TO THE BANKRUPTCY FILING
---------------------------------------
The debtors' cases were commenced on December 22 and 23, 1998, (the
"Commencement Date(s)") by the filing of voluntary chapter 11 petitions. On the
dates when the Chapter 11 petitions were filed, all of the debtors were
defendants in a regulatory enforcement action brought by the Department of
Corporations of the State of California ("DOC"), People v. Vincent E. Galewick,
------------------------------
et al. case number BC 200771 pending in the Superior Court of the State of
- ------
California for the County of Los Angeles. The commencement of these Chapter 11
cases was precipitated by the plaintiff in that action obtaining an injunction
which, on its face, appeared to enjoin the debtors from operating their
businesses.
V.
SIGNIFICANT EVENTS DURING THE CHAPTER 11 CASES
----------------------------------------------
A. APPOINTMENT OF TRUSTEE AND COMMITTEE AND EMPLOYMENT OF PROFESSIONALS
--------------------------------------------------------------------
After hearing on December 28, 1998 on the motion to appoint a trustee
filed by the DOC, the Court ordered the appointment of a single trustee for all
of the debtors. On December 30, 1998, James J. Joseph was appointed as Chapter
11 trustee (the "Trustee"), duly qualified and continues to act in that capacity
for each of the debtors. The cases have not been substantively consolidated.
They are being jointly administered.
Pursuant to Court order, the Trustee employed Danning, Gill, Diamond
& Kollitz, LLP ("DGD&K") as general counsel and PriceWaterhouseCoopers, LLP
("PWC") as the Trustee's accountants.
-23-
On or about February 11, 1999, the United States Trustee appointed an
Official Committee on Equity Security Holders for the PAM Funds (the
"Committee"), comprised of limited partners; i.e., investors in one or more of
the PAM FUNDS. (1) Pursuant to Court Order, the Committee has employed Rus,
-----
Miliband & Smith, A Professional Corporation, as its counsel. Since the
Committee's formation, the Trustee has worked closely with the Committee to
protect the interests of and to maximize the recovery to the Equity Security
Holders and Creditors
B. OPERATIONS AND ADMINISTRATION OF THE CASES
------------------------------------------
Since shortly after the Commencement Date, the Debtors' businesses
have remained open and operating under the auspices of the Trustee.
(1) PROOFS OF CLAIM/INTEREST BAR DATE
---------------------------------
On July 16, 1999, the Court entered its order setting September 17,
1999 as the last day to file Proofs of Claim. On September 17, 1999, the Court
entered its order extending to November 17, 1999 the last day to file Proofs of
Claim and/or Proofs of Interest with reference to the PAM Fund Debtors only.
Pursuant to that order, the following Creditors were required to File Proofs of
Claim:
a) Creditors or interest holders whose claims or interests have (1)
been scheduled or disputed, contingent, or unliquidated, or (2)
where the Creditor or Interest Holder disagrees with the amount
scheduled, and
b) Claims arising from rejection of executory contracts or unexpired
leases, which claims must be filed within 30 days after said
party is served with written notice that said contract or lease
has been rejected by the bankruptcy estate, or by September 17,
1999, which date is later
- ------------------------
(1) The current members of the Committee are David Barnizer on behalf of
Raindance Partnership, Lester T. Bishop, Hank Chandler, Larissa Gadd on behalf
of the the Gadd Family Trust, Phillip H. Kief, Sanford A. Lakoff on behalf of
the Lakoff Family Trust, Stanley Lopat, Larry C. Smith and Rodney I. Woodworth.
-24-
(2) TRUSTEE'S INVESTIGATION OF DEBTOR'S PRE-PETITION OPERATIONS (1)
-----------------------------------------------------------
At all material times, Vincent Galewick was the sole or controlling
shareholder of PCM and of PDI, which served as general partner to each of the
PAM Funds. Mr. Galewick, working through INC, a licensed broker-dealer, raised
approximately $58 million over the period of about 1991 through 1994 selling
limited partnership interests in the PAM Funds. After approximately $8.7 million
was deducted for brokerage commissions and organizational fees, approximately
$49.5 million was used to purchase distressed credit card portfolios. These
credit card portfolios were typically purchased by the PAM Funds from PCM. PCM
also collected the portfolios under joint venture agreements between itself and
the PAM Funds. In the normal course of the debtors' businesses, debt portfolios
would be purchased, collections would be effectuated and then, in some
instances, the portfolios would be resold. PCM was also in the business of
managing credit cards portfolios owned by non-affiliates.
PCM generally charged a "mark-up" to the PAM Funds upon its sale of a
debt portfolio to the PAM Funds, which mark-up averaged 35% above the price that
PCM paid for the portfolio in the open market. PCM was also contractually
entitled to receive approximately 45% of all monies collected on the portfolios.
The 45% entitlement appears not to be disproportionate to the industry standard
and did not appear to provide PCM with an excessive profit.
In addition, PDI, the PAM Funds' former general partner, received a
management fee from the Funds ranging from 2 to 2 1/2 % of the net asset value
of the loan portfolio on an annual basis and 10% of the amount of any
distributions to the limited partners.
Although the 45% PCM contractual entitlement did not appear excessive,
the PCM average mark up of 35% and the PDI general partner fees appear
otherwise.
- -------------------------------
1 The following narrative is taken from the extensive report filed by
the Trustee on January 3, 2000 as required by 11 U.S.C. Sec. 1106.
-25-
When all of the mark-ups and acquisition charges passed through by PCM
and PDI are considered, a portfolio would have to yield approximately 300% of
its cost on the open market before any profit on the portfolio would be realized
at the limited partnership level. Historically, few PAM Fund debt portfolios
have yielded returns in excess of 300% of market cost. If a distressed debt
portfolio ought to yield, over time, about 300% of what was paid for it, than
roughly one-third of the gross collections reflect a return of cost, one-third
of gross collections represent the cost and expense of collecting and one-third
of the gross collections ought to be profit on the transaction. If it takes two
years to "collect out" the portfolio, than a profit of 16 1/2% per annum is
realized, which is a respectable return. However, the 35% mark up over market
price by PCM to the PAM Funds had the effect of PCM receiving most of the
realizable profit in the portfolios at the time of acquisition by the PAM Funds.
PriceWaterhouse conducted an analysis of the distressed loan
portfolios owned by the PAM Funds at the commencement of the cases. For the five
debtor PAM Funds, that analysis suggests a then current market value of
approximately $14.5 millions, based upon net collections over the reasonable
life of the portfolio, without new purchases.
To attempt to address the question of PCM's general disposition of
cash, the Trustee caused to be instituted an analysis of cash expenditures by
PCM for the years, 1996, 1997, and 1998, during which periods total portfolio
mark-ups by PCM to the PAM Funds of approximately $6.3 million occurred. The
analysis did not reveal that principals of the debtors simply siphoned money
off. The analysis did, however, reveal that during the three year period,
tremendous amounts of cash were expended in an ultimately unsuccessful attempt
to develop PT (formerly known as Performance Telecom) into a viable business.
The amount of funds expended on PT, not only from PCM but from monies raised
from individuals who invested in partnerships which became Performance Telecom
shareholders approaches approximately $5 million.
-26-
C. INSIDER PAYMENTS
----------------
As mentioned above, PriceWaterhouse performed an analysis of PCM's,
PDI's, VSC's, PT's and INC's use of cash for three consecutive years ending
December 31, 1998. There were a number of payments, further described before,
of relatively small amounts from these debtors to Vincent Galewick and various
members of his family. In addition to the transactions described above, the
books and records of the operating entities (not the PAM Funds) reflect that
during this period, in addition to salary, commissions and a bonus, Mr. Galewick
received approximately $336,000 in funds booked as either loans or as
unidentified entries. Mr. Galewick's father-in-law, Larry Curran, Sr. (now
deceased), received a loan of $47,500, subject to possible offsets and there
were unidentified transfers to Mr. Curran of approximately $61,000, which
management indicates were for legal or consulting services. In addition, Larry
Curran, Sr. received approximately $19,000 for consulting services. Mr.
Galewick's brother-in-law, Dan Curran, received $90,000 booked as consulting
fees.
D. SIGNIFICANT DISPUTES RESOLVED BY SETTLEMENT
-------------------------------------------
(1) THE DOC SETTLEMENT
------------------
A number of issues were resolved. These issues included recovery of,
or of the benefit of, substantial funds transferred by PCM to or for the benefit
of Vincent Galewick in 1998, dismissal of litigation initiated by the DOC to
assess penalties against the assets of the estates and to prevent delivery to
the PAM Funds of certain trust funds and related claims by the State court
appointed receiver at the behest of the DOC.
All of the foregoing disputes, and others were resolved by virtue of a
settlement, which was approved at a hearing held on October 21, 1999 (the "DOC
Settlement"). The result of the DOC Settlement was elimination of all claims and
objections by the DOC to the debtors' reorganization based upon prior DOC
claims, receipt of the PAM Fund monies held pursuant to a prior agreement with
the DOC in their entirety and receipt of, or the benefit of, a substantial
portion of monies originally transferred by PCM at Mr. Galewick's instruction.
-27-
(2)THE GALEWICK AND INTERCOMPANY CLAIMS SETTLEMENT
-----------------------------------------------
After the DOC Settlement was concluded, the Trustee, the Committee and
Galewick held extensive negotiations to arrive at a settlement of claims
asserted by and between Galewick, the Committee and the Trustee, inter-company
claims and, as important, Galewick's role in the financial affairs of the
Debtors under any plan of reorganization promulgated by the Trustee and/or the
Committee.
All of the forgoing disputes, and others were resolved by virtue of a
settlement, which was approved at a hearing held on September 20, 2002 (the
"Intercompany Settlement") with notice to Creditors and Equity Security Holders.
In its simplest terms, the Intercompany Settlement removed Galewick from any
further role in the affairs of PCM or the PAM Funds, transferred to the Trustee
all claims of Galewick and the "Galewick Releasors"(1) against the PAM Funds and
PCM, as well as Galewick's controlling interest in PCM, thereby according the
PAM Fund estates control over the entity which administered their assets.
The Trustee and the Committee released any claims of the Debtors'
estates against Galewick and Galewick affiliates. Inter-debtor claims were
released and withdrawn. Galewick received consideration from the Bankruptcy
Estates of the PAM Funds, as part of the settlement. PDI was removed as the
general partner of the PAM Funds and the Trustee resigned as Trustee for PDI,
thus returning control of PDI to Galewick.
(3)THE WESTCAP AND SUNAMERICA CLAIMS LITIGATION
--------------------------------------------
Both West Capital Financial Services Corporation ("WestCap") and
SunAmerica, Inc. ("SunAmerica") asserted claims against all the Galewick related
entities, including the Debtors, in an amount in excess of $21 million. In the
event the WestCap or SunAmerica claims were maintained against the Debtors, the
Debtors would not have been able to reorganize. The trustee asserted that the
claims were without merit and after due
- ---------------
(1) The Galewick Releasers include Vision Nevada, Inc., Performance Information
Services, Performance Technology Group, LLC, Performance Technology Services,
L.P., Performance Asset Management Company, Performance Capital Services, Inc.
Performance Information & Technology, Inc. The definition of Galewick Releaser
herein specifically excludes the Debtors Desert Hot Springs Resort Partners,
Ltd. Series A and B and Performance Assets Management Fund VI Ltd.
-28-
consideration, both SunAmerica and WestCap acceded to the Trustee's position and
withdrew their claims.
VI.
FINANCIAL REPROTING DURING THE CHAPTER 11 CASES
-----------------------------------------------
In accordance with the requirement of the United States Trustee,
Interim Statements and Operating Reports reflecting the Estates' financial
performance have been prepared during the Chapter 11 Cases. Copies of the
Interim Statements and Operating Reports are on file and may be reviewing during
normal business hours at the United States Trustee's Santa Ana office at 411
West Fourth Street, Suite 9041, Santa Ana, California 92701-8000. The debtors
also have filed Schedules which purport to disclose the Debtors' assets and
liabilities as of the Petition Dates and Schedules listing Equity Security
Holders and their investments. A copy of the Schedules, and any amendments, are
on file and may be reviewed at the Clerk's office of the United States
Bankruptcy Court during normal business hours.
VII.
FINANCIAL INFORMATION AND ASSET DESCRIPTION
-------------------------------------------
A. REAL PROPERTY ASSETS AND LIABILITIES.
------------------------------------
The Debtor's Estate real property assets are as follows
(1) A leasehold interest of office space at 2801 Main Street, Irvine,
California, which lease was assumed by PCM and expires by its
terms on April 30, 2002. PCM assumed the lease during the course
of the Chapter 11 case and will assign the lease to PCMLLC. The
Estate is current in the payment of rent, and
(2) Raw land in or near Bullhead City, Arizona
-29-
B. PERSONAL PROPERTY ASSETS AND LIABILITIES
----------------------------------------
(1) DEFAULT-DEBT PORTFOLIOS
-----------------------
While the current market value of the portfolios depends on a
variety of factors PriceWaterhouse has prepared a schedule, and their
assumptions are set forth in it. PriceWaterhouse's Liquidation Analysis is set
forth in Exhibit "I."
(2) CASH ON HAND
------------
As of July 31, 2001, the Trustee has cash on hand of
$16,633,019.46.
(3) CLAIMS
------
The Claims, either by virtue of being scheduled as undisputed or
based upon a review of Proofs of Claims filed by Creditors (primarily creditors
or PCM), are summarized at Exhibit "3."
The estimated Professional Fee Claims are described below
C. POST-PETITION INCOME AND EXPENSES.
---------------------------------
Attached as Exhibit "4" are unaudited reports of the Debtors' estates'
post petition cash flow.
VIII.
DISCRIPTION OF THE PLAN
-----------------------
A. GENERAL OVERVIEW
----------------
As required by the Bankruptcy code, the Plan classifies claims and
interest in various classes according to their right to priority of payments as
provided in the Bankruptcy Code. The plan states whether each class of claims
or interests is impaired or unimpaired. The Plan provides the treatment each
class will receive under the Plan.
B. UNCLASSIFIED CLAIMS
-------------------
Certain types of claims are not placed in to voting classes instead
they are unclassified. They are not considered impaired and they do not vote on
the Plan because they are automatically entitled to specific treatment provided
for them in the Bankruptcy Code. As such, the Proponents have not placed the
following claims in a class. The treatment of these claims is provided below.
-30-
(1) ADMINISTRATIVE EXPENSES
-----------------------
The first category of unclassified claims are administrative expenses.
This class consists of all administrative expenses and other claims, if any,
allowed pursuant to Sec. 503(b) of the code or entitled to priority pursuant to
Sec. 507(a)(1) thereof and all fees payable under 28 U.S.C. Sec. 1930. These
claims include costs and charges of the Clerk of the Bankruptcy Court, monies
payable to the United States Trustee, and such fees and expense reimbursements
as may be fixed and allowed by the Court to the professionals employed by the
Estate pursuant to orders(s) of the Court. The Bankruptcy Code requires that all
such administrative expense claims be paid on the Effective Date of the Plan,
unless a particular claimant agrees to a deferent treatment.
(2) ADMINISTRATIVE CLAIMS FOR PROFESSIONAL EMPLOYED BY THE ESTATES
--------------------------------------------------------------
Pursuant the Allocation Order, prior fees and expenses of the Trustee
and the professionals employed by the Debtors' estates were allocated among the
Debtors and the Non-Plan Debtors pursuant to certain formulas. For the unpaid
fees and expenses described in the chart immediately below, the total of all
such fees and expenses shall be delivered by the PAM Funds to the Trustee for
that purpose as follows.
PAM I PAM II PAM III PAM IV PAM V TOTAL
- ------ ------ ------- ------ ------ ------
4.00% 10.49% 17.53% 55.34% 12.65% 100%
- ------ ------ ------- ------ ------ ------
The following chart lists the Plan Debtors' Bankruptcy Code Sec.
507(a)(1) administrative claims of the professionals employed in the Case and
the treatment afforded such administrative claimants under the Plan.
-31-
Administrative Claimant's Name Current Amount Treatment
- ------------------------------ -------------- ---------
Owing
-----
Estimated as of
---------------
June 30, 2001
-------------
James J. Joseph, Chapter 11 Trustee $ 111,796.16 Paid in full upon Court approval
- ------------------------------------ ---------------- --------------------------------
Deaning, Gill, Diamond & Koltitz $ 126,518.82 Paid in full upon Court approval
LLP (Trustee's Counsel)
- ------------------------------------ ---------------- --------------------------------
PriceWaterhouseCoopers $ 120,700.00 Paid in full upon Court approval
(Trustee's Accountants)
- ------------------------------------ ---------------- --------------------------------
Knee & Ross None Owing Paid in full upon Court approval
(Trustee's Labor Counsel)
- ------------------------------------ ---------------- --------------------------------
Rus, Miliband & Smith (Committee $ 133,466.87 Paid in full upon Court approval
Counsel)
- ------------------------------------ ---------------- --------------------------------
Irell & Manella $ 36,000.00 Paid in full upon Court approval
(Debtors' Counsel and Committee's
Special Counsel)
- ------------------------------------ ---------------- --------------------------------
Clerk's Office Fees To be provided Paid in full on Effective Date
- ------------------------------------ ---------------- --------------------------------
Office of the U.S. Trustee Fees Current Paid in full on Effective Date
- ------------------------------------ ---------------- --------------------------------
Total
- ------------------------------------ ---------------- --------------------------------
The Court must approve all professional fees paid in the past, as well
as those listed in this chart before the same may be paid. For all fees except
Clerk's Office fees and U.S. Trustee's fees, the professional in question must
file and serve a properly noticed fee application and the Court must rule on the
application. Only the amount of fees allowed by the Court will be required to
be paid under the Plan.
(3) ADMINISTRATIVE PRIORITY TAX CLAIMS
----------------------------------
To the extent the Plan Debtors are determined to be liable for any
post petition administrative priority tax claims, the same shall be paid on the
Effective Date in full. The Plan Proponents do not believe there are any
Administrative Priority Tax Claims. The Proponents dispute any tax claims
against any of the PAM Funds, which as limited partnerships pass any gains or
losses through to their respective partners. Person holding Administrative Tax
Claims who do not timely file and serve a proof of Administrative Tax Claim or
motion for payment will be forever barred from asserting those Claims against
PCMLLC, the Estates,
-32-
the Plan Debtors or their respective property, whether the Administrative Tax
Claim is deemed to arise before, on or after the Effective Date.
(4) EXPENSES INCURRED IN THE ORDINARY COURSE OF OPERATIONS
------------------------------------------------------
Unless PCMLLC, the Trustee, the Committee or Reorganized Debtors to an
Ordinary-Course Administrative Claim, the Claim will be allowed and paid in
accordance with the terms and conditions of the particular transaction that gave
rise to the Ordinary Course Administrative Claim and the person holding the
Ordinary Course Administrative Claim need not file any request for payment of
its claim. Pursuant to 28 U.S.C. Sec. 1930(a)(6), quarterly fees to the Office
of the United States Trustee will continue to be paid until the bankruptcy cases
are closed, dismissed, or converted to Chapter 7, at the rate in effect at the
time such fees are due. Such fees shall be paid as and when due.
(5) PRE-PETITION PRIORITY TAX CLAIMS
--------------------------------
Unless the person holding an Allowed Priority Tax Claim and PCMLLC
agree otherwise, PCMLLC will pay to that person, payment in an amount equal to
the amount of the Allowed Priority Tax Claim. The payment will be due on the
later of (a) 30 days after the Effective Date; (b) 30 days after the date on
which the Priority Tax Claim becomes an Allowed Priority Claim, or (c) 30 days
after the date on which the Priority Tax Claim is allowed by a Final Order.
C. CLASSIFIED CLAIMS AND INTERESTS AND SUMMARY OF TREATMENT
--------------------------------------------------------
(1) CLASS OF PRIORITY UNSECURED CLAIMS
----------------------------------
Certain priority claims that are referred to in Bankruptcy Code Sec.
507(a)(3) (commission and employee claims), (4)(employee benefit plan
contributions). (5)(grain or fishery claims), (6)(deposit for purchase of goods
or services), and (7)(alimony and other claims arising from the family
relationship). These types of claims are entitled to priority treatment as
follows: the Code requires that each holder of such a claim receive cash on the
Effective Date equal to the allowed amount of such claim. Allowed Priority
Claims, if any, will be paid in full as soon as practicable in full after the
Effective Date, without interest. Proponents do not believe that there are any
priority claims in this class.
-33-
(2) SECURED CLAIMS
--------------
Secured claims are claims secured by liens on property of the estate.
The proponents believe that the Country Assessor for Mojave County, Arizona, is
the sole secured creditor holding a lien upon real property held by the Estate
of PCM. Its rights in the property securing this obligation or claim remain
unchanged.
(3) CLASSES OF GENERAL UNSECURED CLAIMS AND SUMMARY OF TREATMENT
------------------------------------------------------------
CLASSES 3, 4, 5, 6, 7, AND 8:
As depicted in the charts below. Allowed Unsecured Claims shall be
paid in full as soon as practicable after the Effective Date, without interest.
The class of Unsecured Claims is impaired under the Plan and are entitled to
vote on the Plan. A chart setting forth the total estimated unsecured claims
against the Plan Debtors is set forth as Exhibit "3." All allowed unsecured
claims shall be paid in full, without interest as soon as practicable after the
Effective Date from funds made available by the PAM Funds.
(4) CLASSES OF INTEREST HOLDERS AND TREATMENT
-----------------------------------------
CLASS 9; PCM:
PCM is a corporation, entities holding preferred or common stock in
PCM are interest holders. The Trustee holds 98.5% of the PCM common stock in
trust for the PAM Funds. The remaining 1.5% it of record in Michael Cushing,
former officer of PCM. The interest holders of PCM shall be treated as a
separate class that are unimpaired under the Plan. The treatment provided to the
interest holders of PCM is that they shall retain unaltered all rights in and to
such stock.
CLASSES 10(PAM I), II (PAM II), 12 (PAM III), 13 (PAM IV) AND 14 (PAM V):
Each of the PAM Funds are partnerships, their interest holders include
both general and limited partners. The general partner of each of the PAM funds
and NOD Inc., an entity that pursuant to an order of the Bankruptcy Court
entered on or about October of 2000 and the consent of the limited partners, was
emplaced as the general partner in each of the PAM Funds in lieu and place of
PDI. Pursuant to the agreement of limited partnership for each of the PAM
funds, the general partner has no right to share in distributions of profits or
-34-
losses but receives a fee for services rendered. NOD, Inc. has agreed that it
will surrender all rights, if any, to share in any distributions under the Plan.
The names and unit shares of each interest holder in each of the PAM
Funds is set forth in Exhibit C2 to the Operating Agreement attached to the
Plan. The interest holders for each of the PAM Funds are classified as a
separate class and are impaired under the Plan. The treatment for each of the
Classes of interest holders for the Pam Funds is the same.
a) On the Effective Date, each of the PAM Funds shall receive
LLC Units (the initial LLC Units) in PCMLLC in an amount equal to the total
number of LLC Units currently authorized by PCMLLC multiplied by the fraction
obtained by dividing the total cash investment made by Equity Security Holders
in each such PAM Fund by the total cash investment made by Equity Security
Holders in all of the PAM Funds combined. This formula is set forth in the
following chart.
Ratio of Cash Investment to Total of All Cash Invested
------------------------------------------------------
PAM I PAM II PAM III PAM IV PAM V TOTAL
- ------ ------ ------- ------ ------ ------
9% 14% 17% 50% 10% 100%
b) As soon as practicable thereafter, each of the PAM I Funds
will redistribute its Initial LLC Units ("Redistributed LLC Units") to its
respective Equity Security Holders in an amount equal to the number of LLC Units
held by such PAM Funds multiplied by the fraction obtained by dividing the total
cash investment of all Equity Security Holders in all such PAM Funds.
Fractional units arising therefrom shall be rounded to the nearest full unit.
c) In addition, the PAM Funds are collectively holding
approximately $16.6 million of which, not less than $12 million and as much as
$13 million, any amount over $12 million to be within the sole discretion of
PCMLLC, will be made available for distribution by the PCMLLC. This
distribution will be made as soon as practicable after the Effective Date. The
Equity Security Holders will participate in this distribution based upon the
ratio that each interest holders' unreturned capital bears to the total
-35-
unreturned capital of all Equity Security Holders. An example of the
application of this formula is set forth at Section 1, Article B.
d) After all interest holders' unreturned capital is
returned, any further distributions will be made as provided in the Operating
Agreement, i.e. based upon the ratio of the membership interest held by any
Member in PCMLLC relates to the total amount of outstanding membership
interests.
CLASS 15(NOD). The interests of NOD as general partner of each of the PAM
Funds remains unaltered. Pursuant to its agreement with the PAM Funds and the
Equity Security Holders on the Effective Date or such other date as may be
determined by the PAM Funds or the Reorganized Debtors, NOD shall resign as
general partner of each of the PAM Funds and shall have no interest or claim
against PCMLLC, the PAM Funds, the Reorganized Debtors or the Trustee.
D. MEANS OF EFFECTUATING THE PROVISIONS OF THE PLAN
------------------------------------------------
(1) CONSOLIDATION OF THE PLAN DEBTORS
---------------------------------
On the Effective Date of the Plan, or as soon as practicable
thereafter, the PAM Funds shall be consolidated, forming one new entity, PCMLLC.
In consideration of the payment of its claims and the assumption of its
administrative debt, the assets of PCM shall be transferred on the Effective
Date to PCMLLC. The trustee on behalf of each of the Plan Debtors shall be
authorized to execute all documents necessary to effectuate the consolidation of
the PAM Funds and the formation of PCMLLC in accordance with the Operating
Agreement.
(2) EXCHANGE OF PARTNERSHIP INTERESTS FOR ISSUANCE OF PCMLLC MEMBERSHIP
-------------------------------------------------------------------
INTERESTS
---------
Without limiting the precise terms of the Operating Agreement, as soon
as practicable following the Confirmation Order becoming final, PCMLLC shall
issue to each of the PAM Funds the Initial LLC Units.
-36-
As soon as practicable after the Effective Date, each of the PAM Fund
Reorganized Debtors shall distribute to each of the holders of allowed Equity
Security Interests in the PAM Funds, the Redistributed LLC Units in PCMLLC, as
described in C5 above.
PCMLLC Members shall be entitled to one vote per LLC Unit.
As of the Effective Date and notwithstanding whether an Equity
Security Holder has voted for or against the Plan, each Equity Security Holder
shall be deemed to have executed the Operating Agreement and thereby deemed to
have consented to each and every provision of the Operating Agreement and to be
bound by the Operating Agreement.
PCMLLC, or a qualified agent may be selected by PCMLLC's Board of
Directors in the future, shall act as its own registrar and transfer agent for
the PCMLLC Interests to be issued under the Plan.
The Reorganized Debtors can take whatever steps the deem necessary to
wind up their business affairs at the expense of PCMLLC.
(3) FUNDING FOR THE PLAN
--------------------
The Plan will be funded as follows: cash on hand and cash from
operations of the Plan Debtors Estates and PCMLLC. The Plan Proponents estimate
that cash on hand for all Plan Debtors will be $17 million as of the proposed
Effective Date.
(4) PCMLLC MANAGEMENT
-----------------
Post-Confirmation Management is that to be provided by and for PCMLLC
with such powers and duties as typically provided by and for the officers and
management of a limited liability company as organized under the laws of the
State of California. David Caldwell shall be Chief Operations Officer and
previously served as an officer of PCM, Mr. Caldwell's compensation will be set
by the incoming board of PCMLLC. Darren Bard shall be Chief Information
Officer. William Constantino shall be Chief Officer of Legal Affairs. Wendy
Curran shall be Chief Human Resources Officer. The trustee James J. Joseph will
be available to provide his services to the Board of Directors as a consultant.
The board of directors shall consist of David Barnhizer, Lester T.
Bishop, Larrissa Gadd, Sanford A. Lakoff, Larry C. Smith, and Rodney L.
Woodworth with the powers
-37-
and duties of a board of directors as detailed in the Operating Agreement or as
otherwise provided by the laws of the State of California.(1)
During the period between the Confirmation Hearing and the Effective
Date, the Trustee shall continue to operate the Plan Debtors' business and
administer their property subject to the provisions of the Bankruptcy Code.
(5) DISBURSING AGENT
----------------
PCMLLC shall act as the disbursing agent for the purpose of making all
distributions to unclassified and classified claimants and/or creditors and
interest holders provided for under the Plan. The Disbursing Agent shall serve
without bond and shall receive no compensation for distribution services and
expenses insured pursuant to the Plan.
IX.
PROVISIONS GOVERNING DISTRIBUTIONS
----------------------------------
A. EFFECTIVE DATE CASH AND MEMBERSHIP INTEREST DISTRIBUTION
--------------------------------------------------------
As soon thereafter as is practicable after the Effective Date, the
Disbursing Agent shall make distributions of Cash or Membership Interests, as
the case may be, in the manner prescribed by the accompanying Plan.
B. DELIVERY OF DISTRIBUTIONS AND UNDELIVERABLE DISTRIBUTIONS
---------------------------------------------------------
Distributions of Cash or LLC Units to holders of Allowed Claims or
Allowed Equity Interests shall be made at the address of each such holder as set
forth on the Schedules filed with the Bankruptcy Court unless superseded by the
address as set forth on the Proofs of Claim or Interest filed by such holders or
other writing notifying the Trustee, the Plan Debtors or PCMLLC of a change of
address. If any Cash distribution or Member Interest is returned as
undeliverable, no further distributions to such party shall be made unless and
until the Disbursing Agent or PCMLLC is notified of such holder's then current
address, at which time all missed distributions shall be made no such holder,
without interests.
- ------------------
1 A true and correct copy of resumes for the proposed Board of
Directors and Officers are attached as Exhibit "5".
-38-
All Claims for undeliverable Cash distribution or Member Interest
shall be made on or before one year after the date such undeliverable
distribution was initially made. After such date, all undeliverable Cash
distributions shall become property of PCMLLC and LLC Units shall be cancelled,
and the holder of any such Claim or Equity Interest.
C. SETOFFS.
--------
The Plan Debtors, the Trustee, PCMLLC and the Disbursing Agent,
reserve any and all rights to effectuate setoff under applicable law against any
Allowed Claim and the distributions to be made pursuant to the Plan on account
of such Claim (before any distribution in made on account of such Claim), the
claims, rights and causes of action of any nature that the Plan Debtors may hold
against the holder of such Allowed Claim; provided, however, that neither the
-------- -------
failure to effect such a setoff nor the allowance of any Claim shall constitute
a waiver or release by the Trustee or Plan Debtors may possess against a holder
of any allowed claim.
D. TRANSACTIONS ON BUSINESS DAYS
-----------------------------
If the Effective Date or any other date on which a transaction may
occur under the Plan shall occur on a day that is not a Business Day, the
transactions contemplated by the Plan to occur on such day shall instead occur
the next succeeding Business Day.
X.
PROCEDURES FOR RESOLVING AND TREATING
-------------------------------------
DISPUTED CLAIMS AND DISPUTED EQUITY INTERESTS
---------------------------------------------
A. NO DISTRIBUTION PENDING ALLOWANCE
---------------------------------
Notwithstanding any other provision of the Plan, no distribution shall
be made under the Plan on account of any Disputed Claim, unless and until such
Claim becomes an Allowed Claim. Notwithstanding any other provisions of the
Plan, no distribution shall be made under the Plan on account of any Disputed
Equity Security Interest, unless and until such Disputed Equity Security
Interest becomes an Allowed Equity Security Interest. Allowed
-39-
Equity Security Interests shall be based upon the amount of initial investment
set forth in Exhibit "C2" to the Operating Agreement, which is attached as
Exhibit "I" to the Plan.
B. RESOLUTION OF DISPUTED CLAIMS.
------------------------------
From and after the Effective Date, any and all claims or interest and
defenses to any claims or interests shall be transferred to PCMLLC. PCMLLC
shall be the owner and entitled to initiate and prosecute any objection to
claim. Any objectives shall be litigated to a Final Order Except to the extent
that PCMLLC elects to withdraw any such objection or to the extent that PCMLLC
and the claimant elect to compromise, settle or otherwise resolve any Disputed
Claim or Disputed Interest without approval of the Bankruptcy Court.
C. ALLOWANCE OF DISPUTED CLAIMS AND INTERESTS.
-------------------------------------------
If, on or after the Effective Date, any Disputed Claim (or Interest)
becomes an Allowed Claim (or Interest), the Disbursing agent shall, on the
thirteenth Business Day of the first month in which the Disputed Claim (or
Interest) becomes an Allowed Claim (or Interest), disburse funds and/or LLC
Units in accordance with the Plan.
XI.
TREATMENT OF EXECUTORY
----------------------
CONTRACTS AND UNEXPIRED LEASES
------------------------------
A. EXECUTORY CONTRACTS AND UNEXPIRED LEASES
----------------------------------------
(1) ASSUMPTION
----------
The unexpired leases and executory contracts to be assumed by the
Trustee and assigned to PCMLLC under the Plan are ser forth as Exhibits "3" and
"4".
On the Effective date, each of the unexpired leases and executory
contracts listed in Exhibits "3" and "4" shall be assumed by that Trustee and
assigned to PCMLLC. The Order of the Court confirming the Plan shall constitute
an Order approving the assumption and/or assignment of each lease and contract
listed. Any payments due pursuant to 11 U.S.C. Sec. 365(b)(1) shall be paid
upon the earlier of ten days after the Confirmation Order becomes final or ten
days after the Court makes a determination fixing the amount of such
-40-
payment, if such cure amount is disputed by the Proponents or the non-debtor
third party to the contract or lease. If a party to a lease or contract to be
assumed and assigned objects to the assumption of its lease or contract, it must
file and serve its objection to the Plan within the deadline for objecting to
the confirmation of the Plan.
(2) REJECTION
---------
Executory contracts and unexpired leases listed in Exhibit "4" to the
Plan rejected.
The order confirming the Plan shall constitute an order approving the
rejection of the lease or contract. If you are a party to a contract or lease
to be rejected and you object to the rejection of your contract or lease, you
must file and serve you objection to the Plan within the deadline for objecting
to the confirmation to the Plan.
Any executory contract or lease not expressly assumed or otherwise
provided for in the Plan shall be deemed rejected.
THE BAR DATE FOR FILING A PROOF OF CLAIM UNDER THE PLAN BASED ON A
CLAIM ARISING FROM THE REJECTION OR A LEASE OR CONTRACT IS THIRTY DAYS FROM THE
DATE OF FINALITY OF THE CONFIRMATION ORDER. Any claim based on the rejection of
an executory contract or unexpired lease will be barred if the proof of claim is
not timely filed, unless the Court later orders otherwise. Such claim, to the
extent allowed, shall be and is a general unsecured claim entitled to the
treatment to the claimants included in Class 3.
XII.
EFFECTIVENESS OF THE PLAN
-------------------------
A. CONDITIONS TO THE EFFECTIVE DATE.
---------------------------------
The following are conditions precedent to the Effective Date of the
Plan.
(a) The Bankruptcy Court shall have entered the Confirmation Order
confirming the Plan.
-41-
(b) Eleven days shall have expired and the Confirmation Order
shall have become a Final Order, or in the alternative, the Confirmation Order
is not subject to a say pending an appeal of the Confirmation Order.
(c) All documents, instruments, fund asset transfers and
agreements provided for under, or necessary to implement, the Plan shall have
been executed by the necessary entities.
XIII.
EFFECT OF THE CONFIRMATION OF THE PLAN
--------------------------------------
A. DISCHARGE
---------
The Plan provides that upon the Confirmation Date, the Plan Debtors
shall be discharged of liability for payment of debtors recurred before
confirmation of the Plan to the extent specified in Bankruptcy Code Sec. 1411.
However, any liability imposed by the Plan will not be discharged.
---
The rights afforded in the Plan and the treatment of all Claims and
Equity Interests in the Plan shall be in exchange for and in complete
satisfaction, discharge, and release of all claims and equity interests of any
nature whatsoever, including any interest accrued on such claims from and after
the Petition Date, against the Debtors, the Debtors in Possession, the Chapter
11 estates administered by the Trustee, PCMLLC or any of their assets or
------
properties, arising prior to the Effective Date. Except as otherwise expressly
specified in the Plan, the Confirmation Order shall act as of the Effective Date
as a discharge of the debts of, claims against, liens on, and equity interests
in the Debtors, its assets and properties, arising at any time before the entry
of the Confirmation Order, regardless of whether a proof of claim or equity
interest is filed, whether the claim of equity interest is allowed, or whether
the holder thereof votes to accept the Plan is entitled to receive a
distribution hereunder. Except as otherwise expressly specified in the Plan of
the Effective
-42-
Date, any holder such discharged claim or equity interest shall be precluded
from asserting against the Debtors PCMLLC, or any of their assets or property
any other or further claim or equity interest based on any document, instrument,
act, omission, transaction, or other activity of any kind or nature that
occurred before the entry of the Confirmation Order.
B. REVESTING OF PROPERTY IN PLAN DEBTORS FOR TRANSFER TO PCMLLC
------------------------------------------------------------
Except as expressly provided elsewhere in the Plan, on the Effective
Date of the Plan, all of the property of the Plan Debtors' estates shall be
revested in each of them, including Reserved Claims free and clear of all
claims, liens, charges and other interests of creditors and interest holders
and, immediately, thereafter be transferred to PCMLLC free and clear of all
claims, liens, charges and other interest of creditors and interest holders.
C. POST-CONFIRMATION EMPLOYMENT AND COMPENSATION OF PROFESSIONALS
--------------------------------------------------------------
After the Confirmation Date, each of the Trustee, PCMLLC may employ,
without notice, hearing or order of the Bankruptcy Court, such attorneys,
accountants and other professionals as it may desire to render services on such
as it deems reasonable. With respect to services rendered by professional
persons employed by PCMLLC and the Trustee, it shall be authorized to pay for
such services, related costs and expenses, without notice, hearing of order of
the Bankruptcy Court.
D. DISSOLUTION OF THE COMMITTEE
----------------------------
The appointment of the Committee shall terminate on the Effective Date
of the Plan.
E. MODIFICATION OF THE PLAN
------------------------
The Proponents of the Plan may modify the Plan at any time before
confirmation. However, the Court may require a new disclosure statement and/or
re-voting on the Plan if the Proponents modify the plan before confirmation.
The Proponents of the Plan also may seek to modify the Plan at any
time after confirmation so long as (1) the Plan has not been substantially
consummated and (2) if the Court authorizes the proposed modifications after
notice and a hearing.
-43-
F. POST-CONFIRMATION STATUS REPORT
-------------------------------
Within 120 days of the entry of the order confirming the Plan, the
Plan Proponents shall file a status report with the Court explaining what
progress has been made toward consummation of the confirmed Plan. The status
report shall be served on the United States Trustee, the twenty largest
unsecured creditors of each of the Debtors, and those parties who have requested
special notice. Further status reports shall be filed every 120 days and served
on the same entities.
G. POST-CONFIRMATION CONVERSION/DISMISSAL
--------------------------------------
A creditor or party in interest may bring a motion to convert or
dismiss the case under Bankruptcy Code Sec. 1112(b) after the Plan is confirmed,
if there is a default in performing the Plan. If the Court orders the case
converted to Chapter 7 after the Plan is confirmed, then all property that had
been property of the Chapter 11 estate, and that has not been disbursed pursuant
to the Plan, will revest in the Chapter 7 estate, and the automatic stay will be
reimposed upon the revested property only to the extent that relief from stay
was not previously granted by the Court during this case.
H. FINAL DECREE
------------
Once the estate has been fully administered as referred to in
Bankruptcy Rule 3022, the Proponents, the Disbursing Agent, or other party as
the Court shall designate in the Plan Confirmation Order, shall file a motion
with the Court to obtain a final decree to close the case.
XIV.
ACCEPTANCE AND CONFIRMATION OF THE PLAN
---------------------------------------
A. PERSONS ENTITLED TO VOTE ON THE PLAN.
-------------------------------------
Generally, the holder of any Claim or Equity Security Interest Allowed
under Section 502 of the Bankruptcy Code may not accept or reject the Plan. The
Claim of any creditor is "allowed" is such Claim is listed on the Debtors'
Schedules as "undisputed," "non contingent," and/or "liquidated," or if such
Claim is reflected in a Proof of Claim Filed in the Chapter 11 Cases on or
before the Bar Date and to which a party in interest has not objected.
-44-
In the event of an objection to a duly filed Proof of Claim, the amount of the
"allowed" claim will be determined by the Bankruptcy Court.
B. PARTIES ENTITLED TO VOTE
------------------------
Pursuant to Section 1126 of the Bankruptcy Code, each Class of
impaired Claims or Equity Security Interests which is not deemed to reject the
Plan is entitled to vote on acceptance or rejection of the Plan. Any holder of
an Allowed Claim or Allowed Interest that is in an impaired Class under the
Plan, whose Class is not deemed to have rejected the Plan, is entitled to vote.
A class is "impaired" unless (a) that class is to have its legal,
equitable and contractual rights left unaltered by the reorganization effected
by a plan, of (b) if the plan reinstates the claims held by members of such
class by (i) curing and defaults which exist, (ii) reinstating the maturity of
such claim, (iii) compensating the holder of such claim for damages which
result from the reasonable reliance on any contractual provision or law that
allows acceleration of such claim, and (iv) otherwise leaving unaltered any
legal, equitable, or contractual rights to which the claim entitles the holder
of such claim. Because of their favorable treatment, classes that are not
impaired are conclusively presumed to accept a plan. Accordingly, it is not
necessary to solicit votes from the holders or claims or interests in classes
that are not impaired.
Classes of claims or interests that will not receive or retain any
property under a plan on account of such claims or interest are deemed, as a
matter of law under Section 1126(g) of the Bankruptcy Code, to have rejected the
Plan and are likewise not entitled to vote on the Plan. There are no such
Classes under the Plan.
VOTES TO ACCEPT THE PLAN ARE BEING SOLICITED ONLY FROM IMPAIRED
CLASSES.
The following Classes of Claims and Equity Security Interests are
impaired under the Plan and are not deemed to reject the Plan. Persons holding
Claims and Equity Security Interests in the Classes 3, 4, 5, 6, 7, 8, 9, 10, 11,
12, 13, & 14 are entitled to vote to accept or reject the Plan.
-45-
If no votes are received with respect to a particular Class of Claims
or Equity Security Interests and no objections to confirmation are received from
such Class, the Bankruptcy Court may enter an order confirming the Plan.
As noted above, votes will be counted only if submitted by a holder of
a Claim or Equity Security Interest whose Claim or Equity Security Interest is
listed on the Schedules as undisputed, non-contingent, and liquidated, or if a
Proof of Claim or Proof of Equity Security Interest has been filed with the
Bankruptcy Court and is not disputed and had not been disallowed, disqualified,
or suspended prior to computation of the vote on the Plan. A Claim to which an
objection has been filed is not an Allowed Claim unless and until the Bankruptcy
Court overrules the objection.
Allowance of a Claim or Equity Security Interest for voting purposes
does not necessarily mean that all or a portion of the Claim or Equity Security
Interest will be allowed or disallowed for distribution purposes. Any Claim or
Equity Security Interest in this Bankruptcy Case is subject to an order
disallowing it for distribution purposes or for voting purposes in motion of any
party in interest.
If the Plan is confirmed, the Plan will be binding with respect to
all holders of Claims and Equity Security Interests of each Class, including
Classes and members of such Classes and did not vote or that voted to reject the
Plan.
C. VOTES REQUIRED FOR CLASS ACCEPTANCE OF THE PLAN.
-----------------------------------------------
As a condition to confirmation, the Bankruptcy Code requires that
impaired class of claims or interests accept the plan, subject to the exceptions
described here. With respect t the Plan, at least one impaired Class of Claims
or Interests must accept the Plan in order for the Plan to be continued.
For a class of Claims to accept a plan, Section 1126 of the Bankruptcy
Code required acceptance by creditors that hold at least two thirds allowed in
and a majority in number of allowed claims of such class, in both cases counting
only the actually voting to accept or reject the plan.
-46-
For a class of Equity Security Interests to accept a plan, Section
1126 of the Bankruptcy Code requires acceptance by Equity Interest Holders that
hold at least two-thirds of allowed equity security interests of such class held
by holders of such interests, counting only those interests actually voting to
accept or reject the plan.
The holders of Claims or Equity Security Interest(s) who fail to vote
are not counted as either accepting or rejecting the plan.
As indicated above, classes of claims that are not "impaired" under a
plan are deemed, as a matter of law, to have accepted the plan and, therefore,
are not required to vote on such plan.
D. REQUIREMENTS FOR CONFIRMATION OF THE PLAN
-----------------------------------------
Once the Bankruptcy Court approves this Disclosure Statement, the
Proponents will request that the Bankruptcy Court hold the Confirmation Hearing
as promptly thereafter as practicable. Parties in interest, including, inter
-----
alia, all holders of Claims and Equity Security Interests, will receive notice
- ----
of the date and time fixed by the Bankruptcy Court for the Confirmation Hearing.
The Bankruptcy also will establish procedures for the filing and service of
objections to confirmation of the Plan.
At the Confirmation Hearing, the Bankruptcy Court will determine,
among other things, whether or not the requirements of Section 1129 of the
Bankruptcy Code have been met. If all provisions of Section 1129 are met, the
Bankruptcy Court may enter an order confirming the Plan. The requirements of
Section 1129, as applicable here, are as follows:
(1) The Plan complies with applicable provisions of the Bankruptcy
Code
(2) The Proponents have complied with the applicable provisions of
the Bankruptcy Code
(3) The Plan has been proposed in good faith and not by any means
forbidden by law
(4) Any payment made or to be made by the Proponents for services or
for costs expenses in, or in connection with, the Chapter 11
Cases, or in connection
-47-
with the Plan and incident to the Chapter 11 cases, have been
discloses to the Bankruptcy Court and have been approved by, or
are subject to the approval of, the Bankruptcy Court as
reasonable.
(5) The Proponents have disclosed the identity and affiliations of
individuals proposed to serve, after confirmation of the Plan, as
directors or officers of the Debtors and PCMLLC, and the
appointment to, or continuance in, such offices by such
individuals is consistent with the interests of the Debtors'
Creditors and Equity Security Holders and with public policy.
Additionally, the Proponents have disclosed the identity of
insiders (as defined in Section 101(31) of the Bankruptcy Code)
that will be employed by PCMLLC under the Plan, and the nature of
such insider's compensation. See Article VIII D (4) hereof.
(6) Each holder of an impaired Claim and each holder of an impaired
Equity Security Interest either has accepted the Plan or will
receive or retain under the Plan on account of such holder's
Claim or Equity Security Interest, as the case may be, property
of a value, as of the Effective Date, that is not less than the
amount that such entity would receive or retain if the Debtors
were liquidated on such date under Chapter 7 of the Bankruptcy
Code. This requirement is commonly referred to as the "best
interest of creditors test" See Article XVI hereof.
---
(7) Each Class of Claims or Equity Security Interests has either
accepted the Plan or is not impaired under the Plan.
Alternatively, the Plan may be confirmed over the dissent of a
Class of Claims or Equity Security Interests if the "cramdown"
requirements of the Bankruptcy Code, which are codified in
Section 1129(b) of the Bankruptcy Code are met. See Article XVIII
hereof. ---
(8) Except to the extent that the holder of a particular Claim had
agreed to a different treatment of such Claim, the Plan provides
that Administrative
-48-
Expense Claims and Other Priority Claims, other than Priority Tax
Claims, will receive on account of such Claims either payment in
full on the Effective Date or, if the holder of such Claim
consents, deferred cash payments of a present value equal to the
allowed amount of such Claim, and that holders of Priority Tax
Claims will receive on account of such Claims deferred cash
payments, over a period not exceeding six (6) years after the
date of assessment of such tax, of a value, as of the Effective
Date, equal to the allowed amount of such Claim. See Article IX
---
hereof.
(9) At least one (1) Class is impaired Claims has accepted the Plan.
This is determined without including any acceptance of the Plan
by any insider holding a Claim in such Class.
(10) Confirmation of the Plan is not likely to be followed by the
liquidation or the need for further financial reorganization of
the Debtors. This is commonly referred to as the "feasibility
test".
(11) All fees required to be paid under the Bankruptcy Code have been
paid and the Plan provides for unpaid fees to be paid on the
Effective Date.
(12) The Plan provides for the continuation of payment of retiree
benefits as that term is defined under Section 1114 of the
Bankruptcy Code for the duration of the period for which the
Debtors have obligated themselves to pay such benefits.
The Proponents believe that the Plan satisfies all of the statutory
requirements of chapter 11 of the Bankruptcy Code for confirmation of the Plan.
Prior to the Confirmation Hearing, the Proponents will file extensive pleading
and provide evidence in support of their assertions that the Plan complies with
all the requirements of Section 1129 of the Bankruptcy Code.
-49-
XV.
LIQUIDATION ANALYSIS
--------------------
The Bankruptcy Code requires that, for a chapter 11 plan to be
confirmed, the plan must afford the holders of allowed impaired Claims or Equity
Security Interest as much as they would receive or retain if the assets of the
debtor were liquidated under chapter 7 of the Bankruptcy Code, unless the holder
of an impaired Claim(s) or Equity Security Interest(s) vote(s) to accept the
plan. In order to assist Creditors and Equity Security Holders in evaluating
the Plan, the Proponents have prepared a Liquidation Analysis, attached as
Exhibit "1". The Plan Proponents assert that the Plan provides Creditors and
Equity Security Holders with a greater distribution than they would receive in a
chapter 7 liquidation.
The Plan provides Creditors with at least the same distribution as
they would receive in a chapter 7 liquidation because it provides for payment in
full, in Cash, to all holders of Allowed Claims (1).
Similarly, assuming continued operation of the Debtors rather than a
"fire sale" liquidation of assets that would occur if the Plan cannot be
confirmed. Equity Security Holders will receive, in exchange for their Equity
Security Interests. LLC Units in PCMLLC, which will hold all of the assets of
the Plan Debtors. The simple aggregation of all of the Debtors' assets and the
distribution of LLC Units based on the proportional investment in the PAM Funds
to the total investment in the PAM Funds results in a relative equivalency. The
elimination of fees attributable to services provided by others for acquisition
and collection of portfolios and provision of personnel will allow the Plan
Debtors to achieve greater efficiencies. Attached as Exhibit "2", are
Projections prepared by PWC, which illustrates the Proponents' view of the
results of a liquidation and projections based on go forward operations as
contemplated by the Plan.
- ---------------
(1) Unless other agreements are reached with Creditors.
-50-
If there is a "fire sale" liquidation of the Debtor's assets pursuant
to chapter 7 of the Bankruptcy Code. Equity Security Interests would be worth
less than they are worth currently and, therefore, less than the equivalent
member interest in PCMLLC each Equity Security Interest holder will receive
under the Plan. In a liquidation, Equity Security Interests in the Plan Debtors
would have no value other than that represented by the cash remaining after a
forced-sale liquidation of all of the Plan Debtors' assets and payment in full
of all Claims. In other words, Equity Security Holders would receive no benefit
attributable to a return on investment from possible future profits, and the
assets which would be sold to pay Creditors and Equity Security Holders would
yield only a fraction of their value in an ongoing enterprise even before being
further reduced by costs of sale. In contrast, the return provided by the Plan
is increased by continued operation of an ongoing business.
In sum, the attached Liquidation Analysis illustrates that liquidation
under chapter 7 likely would provide payment in full for Creditors. However,
Equity Security Holders would receive significantly less value then they would
probably receive under the Plan because PCMLLC will continue to operate. Thus,
Equity Security Holders will benefit from the result of the operations under the
Plan.
Consequently, the Proponents believe that the Plan, which provides for
the continuation of the Plan Debtors' business, consummates the consolidation of
the Debtors, avoids an asset fire sale, provides an opportunity to share in
future revenues and provides increased liquidity and value to the Equity
Security Interests while paying all Creditors in full, will not result in a
distribution to Creditors and Equity Security Holders which is less than a
distribution under a Chapter 7 liquidation.
THE PROPONENTS HAVE ATTEMPTED TO SET FORTH THE LIKELY RESULT OF A
LIQUIDATION UNDER CHAPTER 7 AND OF THE ANTICIPATED FINANCIAL RESULTS OF
CONFIRMATION. PROJECTIONS ARE NOT PROMISES RESPECTING FUTURE EVENTS AND THE
PROJECTED RESULTS OF PCMLLC'S OPERATIONS ARE IN NO WAY WHATSOEVER WARRANTIED OR
GUARANTEED. THE PROPONENTS CAUTION CREDITORS AND EQUITY
-51-
SECURITY HOLDERS THAT A VOTE MUSH BE FOR OR AGAINST THE PLAN. THE VOTE ON THE
PLAN DOES NOT INCLUDE A VOTE ON THE LIKELY CHAPTER 7 LIQUIDATION ALTERNATIVE TO
THE PLAN. THERE IS NO ASSURANCE THAT THE LIKELY CHAPTER 7 LIQUIDATION
ALTERNATIVE WILL, IN FACT, FOLLOW IF THE PLAN IS NOT ACCEPTED. IF YOU BELIEVE
THE LIKELY CHAPTER 7 LIQUIDATION ALTERNATIVE IS PREFERABLE TO THE PLAN AND YOU
WISH TO URGE IT UPON THE BANKRUPTFY COURT, YOU SHOULD CONSULT WITH AN ATTORNEY.
XVI.
PLAN FEASIBILITY
----------------
Under the "feasibility test", the Bankruptcy Court must find that
confirmation of the Plan will not likely be followed by a liquidation of the
Debtors or a need for further financial reorganization of the Debtors, or their
successor, PCMLLC, unless such liquidation or reorganization is proposed in the
Plan. In the circumstances of these Chapter 11 Cases, the Bankruptcy Court must
determine that PCMLLC will possess the resources and working capital necessary
to meet its obligations under the Plan, for the Plan to meet the feasibility
test.
There are two important aspects to feasibility. The first aspect is
the Plan Debtors' ability to pay all Claims entitled to payment on the Effective
Date. The second aspect is the ability to fulfill all of their post-Effective
Date financial obligations under the Plan.
A. EFFECTIVE DATE PAYMENTS.
------------------------
The Proponents forecast Cash on hand of approximately $17 million on
or about October 1, 2001. Under the Plan, on the Effective Date, PCMLLC will
pay all Allowed Claims. These Claims are expected to aggregate to approximately
$880,000, which is substantially less than the projected Cash on hand.
-52-
B. POST-EFFECTIVE DATE PAYMENTS.
-----------------------------
As set forth in the Proponents' projections of future operations, true
and current copies of which are attached hereto as Exhibit "2", proceeds from
operations and Cash on hand remaining after Effective Date payments are made
will provide funds sufficient to purchase additional debt portfolios for future
collection and to make payroll and cover operating expenses. In addition, the
projections indicate that PCMLLC revenue will be sufficient to make all required
tax payments and to service debt obligation incurred to purchase more portfolios
while still producing significant profits.
In light of the foregoing, the Proponents believe that sufficient
funds to make the payments required under the Plan will be available, and that
the Plan is not likely to be followed by a liquidation or a need for further
financial reorganization. In light of the foregoing, the Plan meets the
feasibility test.
XVII.
SUMMARY OF SECTION 1129(b)
--------------------------
If an impaired Class rejects the Plan, confirmation of the Plan is
still possible as long as at least one impaired class of Claims accepts the Plan
and the Plan meets the "cramdown" requirements codified in Section 1129(b) of
the Bankruptcy Code. In the event that the Proponents do not secure the
acceptance of the Plan by each Class of impaired Claims or Equity Security
Interests, the Proponents intend to seek confirmation of the Plan pursuant to
Section 1129(b)(1) of the Bankruptcy Code.
Section 1129(b) requires that the Bankruptcy Court find that the Plan
is "fair and equitable" and "does not discriminate unfairly" with respect to
each impaired Class of Claims or Equity Security Interests rejecting the Plan.
A plan "does not discriminate unfairly" within the meaning of the Bankruptcy
Code if each rejecting impaired class is treated in a manner similar to that of
other classes of equal rank.
-53-
A plan is "fair and equitable" with respect to a class of secured
claims that rejects such plan only if the plan provides (a) that the secured
creditors within such class retain under the plan the liens securing their
claims and that each holder of a claim of such class receives deferred cash
payments totaling at least the allowed amount of its secured claim of a value,
as of the effective date of the plan, of at least the value of secured
creditor's interest in the estate's interest in the secured property, (b) for
the sale of the property securing the claim pursuant to Section 363(k) of the
Bankruptcy Code, with the secured creditor's lien attaching to the proceeds of
such sale and with such lien treated as in clause (a) above, or (c) for the
realization by the secured creditor of the indubitable equivalent of its claim.
A plan is "fair and equitable" with respect to a class of unsecured
claims that reject such plan only if (a) each unsecured creditor in such class
receives or retains under the plan property of a value as of the effective date
of such plan equal to the allowed amount of its claim, or (b) the holder of any
claim or interest that is junior to the claims of such dissenting class does not
receive or retain any property under the plan on account of their claims.
A plan is "fair and equitable" with respect to a class of Equity
Security Interests that rejects such plan only if (a) each equity holder in such
class receives or retains under the plan property of a value as of the effective
date of such plan equal to the greatest of the allowed amount of any fixed
liquidation preference to which such holder is entitled, any fixed redemption
price to which such holder is entitled, or the value of such interest, or (b)
the holder of any interest that is junior to the interests of such dissenting
class does not receive or retain any property under the plan on account of their
interests.
The Proponents do not anticipate rejection by any Class because in
the Proponents' view, the Plan represents the best alternative available to
Creditors and Equity Security Holders. In the event an affected Class does not
accept the Plan the Proponents reserve the right to modify the Plan, so that
they may attempt to seize the provisions of Section 1129(b) of the Bankruptcy
Code to achieve confirmation.
-54-
XVIII.
TAX CONSEQUENCES
----------------
Creditors and Equity Security Holders are advised to consult with
their own tax advisors respecting the tax consequences, if any, of the Plan,
including state and local tax consequences.
XIX.
EXEMPTION FROM SECURITES LAWS
-----------------------------
As specified herein, the Member Interests shall be distributed to the
PAM Funds, and, subsequently, to Allowed Equity Interests in the PAM Funds,
pursuant to Bankruptcy Code Section 1145 (a)(1).
a. Section 1 145 exempts from registration under "section 5 of the
Securities Act of 1933 and any state or local law requiring registration for
offer or sale of a security or registration . . . the offer or sale under a plan
of a security of the debtor, of an affiliate participating in a joint plan with
the debtor, or of a successor to the debtor under the plan . . . in exchange for
a claim against, an interest in, or a claim for an administrative expense in the
case concerning, the debtor or such affiliate . . . .", except to the extent
that the entity receiving such securities is an underwriter pursuant to
Bankruptcy Code Section 1145(b).
b. For purposes of the Plan and Section 1145 of the Bankruptcy
Code, PFLLC shall be deemed to be the successor of the Debtors under the Plan
and a proponent of the Plan.
-55-
c. The Member Interests shall be exempt from registration under
the Securities Act of 1933 and all other federal, state, and local laws
requiring registration of the Member Interests prior to any transfer or sale of
the Member Interests.
XIX.
THE PLAN PROPNENTS' RECOMMENDATION
----------------------------------
THE PLAN PROPONENTS BELIEVE THAT CONFIRMATION OF THE PLAN IS IN THE
BEST INTEREST OF ALL CREDITORS AND EQUITY SECURITY HOLDERS AND THAT THE PLAN
SHOULD BE CONDIRMED. THE DEBTORS STRONGLY RECOMMEND THAT ALL CREDOTORS AND
EQUITY SECURITY HOLDERS WHO ARE ENTITLED TO VOTE ON THE PLAN VOTE TO ACCEPT THE
PLAN.
Date: October 21, 2001
/s/ JAMES J. JOSEPH
------------------------------------
JAMES J. JOSEPH
Chapter 11 Trustee of
Performance Capital Management, Inc.
/s/ JAMES J. JOSEPH
------------------------------------
JAMES J. JOSEPH
Chapter 11 Trustee of PAM FUND
/s/ JAMES J. JOSEPH
------------------------------------
JAMES J. JOSEPH
Chapter 11 Trustee of PAM II FUND
/s/ JAMES J. JOSEPH
------------------------------------
JAMES J. JOSEPH
Chapter 11 Trustee of PAM III FUND
[SIGNATURES CONTUINUED AT PAGE 55]
-56-
/s/ JAMES J. JOSEPH
------------------------------------
JAMES J. JOSEPH
Chapter 11 Trustee of PAM IV FUND
/s/ JAMES J. JOSEPH
------------------------------------
JAMES J. JOSEPH
Chapter 11 Trustee of PAM V FUND
OFFICIAL COMMITTEE OF EQUITY
SECURITY HOLDERS
By: /s/ Leslie T. Bishop
------------------------------------
Leslie T. Bishop, Chair of Official
Committee of Equity Security Holders
APPROVED AS TO FORM
DANNING, GILL, DIAMOND & KOLLITZ, LLP
By: SEE NEXT PAGE
----------------------------
JOHN J. BINGHAM JR.
Attorneys for James J. Joseph,
Chapter 11 Trustee
RUS, MILIBAND & SMITH, APC
By: /s/ CATHRINE M. CASTALDI
----------------------------
CATHRINE M. CASTALDI
Attorneys for the Official
Committee of Equity Security Holders
-57-
/s/ JAMES J. JOSEPH
------------------------------------
JAMES J. JOSEPH
Chapter 11 Trustee of PAM IV FUND
/s/ JAMES J. JOSEPH
------------------------------------
JAMES J. JOSEPH
Chapter 11 Trustee of PAM V FUND
OFFICIAL COMMITTEE OF EQUITY
SECURITY HOLDERS
By: /s/ Leslie T. Bishop
------------------------------------
Leslie T. Bishop, Chair of Official
Committee of Equity Security Holders
APPROVED AS TO FORM:
DANNING, GILL, DIAMOND & KOLLITZ, LLP
By: /s/ JOHN J. BINGHAM JR.
----------------------------
JOHN J. BINGHAM JR.
Attorneys for James J. Joseph
Chapter 11 Trustee
RUS, MILIBAND & SMITH, APC
By: /s/ CATHRINE M. CASTALDI
----------------------------
CATHRINE M. CASTALDI
Attorneys for The Official
Committee of Equity Security Holders
-57-
INDEX OF EXHIBITS TO EXHIBIT 2.2
EXHIBIT 1 Performance Asset Management Company Financial Projection Model
EXHIBIT 2 Perfromance Asset Management Company Financial Projection Model-
Balance Sheet, income Statement, Statement of Cash flows
EXHIBIT 3 Performance Capital Management Inc. and Performance Asset
Management Funds I, II, III, IV and V, Ltd. Claims Register
EXHIBIT 4 Adjusted Cash Flows- 1999,2000 and First Five Months 2001
EXHIBIT 5 Resumes of Directors and Executive Officers of Performance
Capital Management, LLC