U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
SOLICITATION/RECOMMENDATION STATEMENT
PERFORMANCE CAPITAL MANAGEMENT, LLC
(Name of Subject Company)
PERFORMANCE CAPITAL MANAGEMENT, LLC
(Name of Person Filing Statement)
LLC UNITS
(Title of Class of Securities)
NOT APPLICABLE
(CUSIP Number of Class of Securities)
__________________
WILLIAM D. CONSTANTINO
CHIEF LEGAL OFFICER
PERFORMANCE CAPITAL MANAGEMENT, LLC
222 SOUTH HARBOR BLVD., SUITE 400
ANAHEIM, CALIFORNIA 92805
(714) 502-3780
(Name, Address and Telephone Number of Person Authorized to Receive
Notice and Communications on Behalf of the Person Filing Statement)
[ ] Check the box if the filing relates solely to preliminary communications
before the commencement of a tender offer.
INTRODUCTION
This Solicitation/Recommendation Statement relates to a letter our Board of
Directors recently became aware of from Sierra Liquidity Fund, LLC, dated
September 23, 2003, offering to purchase shares from Performance Capital
Management, LLC, Unit Holders for $2.00 per share (the "Offer"). We are not
aware that the Offer was published in any medium, and we did not receive a copy
of it from Sierra. The terms of the Offer are ambiguous concerning how many
units Sierra seeks to purchase, and we do not know how widely Sierra may have
disseminated its Offer. We believe that Sierra's Offer may be a "mini-tender
offer" subject to SEC regulation and, if the size is large enough, Sierra's
Offer could be a tender offer requiring Sierra to make filings with the SEC. As
a result, we have not been able to determine definitively that we should file a
Solicitation/Recommendation Statement on Schedule 14D-9. Instead, we have
prepared this Solicitation/Recommendation Statement based on the content
required by Schedule 14D-9, and filed it as an Exhibit to a current report filed
on Form 8-K.
ITEM 1. SUBJECT COMPANY INFORMATION.
(a) The name of the subject company is Performance Capital Management,
LLC, a California limited liability company ("PCMLLC" or the "Company"), and the
address and telephone number of its principal executive offices are 222 South
Harbor Blvd., Suite 400, Anaheim, California 92805, (714) 502-3780.
(b) As of October 17, 2003, PCMLLC had 571,550 units outstanding, of which
547,828 constituted voting units and of which 23,722 constituted economic
interest units only. All of the units constituting economic interest units are
owned by Sierra.
ITEM 2. IDENTITY AND BACKGROUND OF FILING PERSON.
The filing person is the subject company, and its name, business address
and business telephone number are set forth in Item 1(a), above. This
Solicitation/Recommendation Statement relates to a letter our Board of Directors
recently became aware of from Sierra Liquidity Fund, LLC, dated September 23,
2003, offering to purchase shares from Performance Capital Management, LLC, Unit
Holders for $2.00 per share. According to the Offer, Sierra's business address
and telephone number are 2699 White Road, Suite 255, Irvine, California 92614,
(949) 660-1144, extension 10.
ITEM 3. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS.
Except as described in this Solicitation/Recommendation Statement or in the
excerpt from the Company's Definitive Proxy Statement, dated April 29, 2003,
filed as Exhibit (a)(3) to this statement, there are no agreements,
arrangements, understandings, or any actual or potential conflicts of interest
between the Company or its affiliates and (1) the Company or its executive
officers, directors or affiliates or (2) Sierra or, to the Company's knowledge,
its respective executive officers, directors or affiliates. The excerpt filed as
Exhibit (a)(3) is incorporated herein by reference, and includes the information
from page 11 of the Proxy Statement, with the heading "Employment Contracts."
COMPENSATION OF DIRECTORS
Our directors receive $1,500 per scheduled meeting of the Board of
Directors. The Board of Directors has regularly scheduled meetings once per
month.
All directors receive reimbursement for travel and out-of-pocket expenses
incurred in connection with attendance at all meetings. Except as described
above, none of our directors receive any other compensation for performance of
services as a director of PCMLLC or a member of any committee of our Board of
Directors.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
No transactions with our directors, management or other parties occurred
since February 4, 2002 (inception) that would otherwise be reported under this
section.
It is our current policy that all transactions with officers, directors, 5%
LLC Unit holders and their affiliates be entered into only if they are approved
by a majority of the disinterested directors, are on terms no less favorable to
PCMLLC than could be obtained from unaffiliated parties, and are reasonably
expected to benefit PCMLLC.
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ITEM 4. THE SOLICITATION OR RECOMMENDATION.
SOLICITATION OR RECOMMENDATION
Your Board of Directors unanimously recommends that Performance Capital
Management, LLC, Unit Holders reject the Offer and NOT tender their units to
Sierra. A form of letter to Unit Holders communicating the recommendation of
the Board is filed as an exhibit to a current report on Form 8-K. This
Solicitation/Recommendation Statement is also filed as an exhibit to the same
current report on Form 8-K.
The Board is also concerned that certain Unit Holders may already have
tendered their units to Sierra without receiving adequate disclosure as required
by the Securities Exchange Act of 1934 and its regulations. A form of letter to
Sierra communicating the concern of the Board is also filed as an exhibit to the
current report on Form 8-K. We cannot guarantee that Sierra will comply with
the demands in this letter, and we have no intention at this time of initiating
litigation to compel Sierra to offer to return units.
REASONS
Background
We believe that beginning sometime during the month of August, 2001, Sierra
first solicited investors who were to become Unit Holders of PCMLLC. At that
time, PCMLLC had not yet been formed, and its predecessors in bankruptcy were
the subject of a reorganization plan being proposed to investors in those
predecessors. The reorganization plan was approved by all required voting groups
pursuant to applicable federal bankruptcy laws, and as part of the plan the
combined predecessors emerged from bankruptcy as PCMLLC on February 4, 2002.
Also as part of the plan, PCMLLC issued a total of 571,550 LLC Units to
investors in the predecessor entities. During the course of the approval
process, but prior to PCMLLC's emergence from bankruptcy, Sierra offered to
purchase investors' bankruptcy claims at a price, to the Company's knowledge,
effectively equal on average to $11.12 per unit. As a result of this offer,
Sierra obtained bankruptcy claims that translated into 23,722 units. We disputed
Sierra's right to acquire these claims and become a member of PCMLLC, and as
part of a settlement with Sierra, permitted the transfer solely of economic
interests in the 23,722 units.
To the Company's knowledge, Sierra spent approximately $264,000 acquiring
the bankruptcy claims that translated into economic interests in 23,722 units.
Shortly after emergence from bankruptcy, pursuant to the reorganization plan
PCMLLC paid a $12 million distribution to its Unit Holders. To the Company's
knowledge, while Sierra was acquiring the bankruptcy claims, it knew that this
distribution was mandated by the reorganization plan and that PCMLLC had
sufficient funds to make the distribution. Sierra received approximately
$487,000 as its share of this $12 million distribution. In addition, Sierra has
received approximately $12,000 as its share of the $300,000 in distributions
paid by PCMLLC thus far in 2003. Sierra stands to receive an additional
approximately $7,000 with respect to its 23,722 units out of the $165,000
distribution declared by the Board at its October 13, 2003, meeting. To
summarize, Sierra has, to the Company's knowledge, invested approximately
$264,000 in the 23,722 units and, including the recent distribution declared on
October 13, 2003, received a return of approximately $506,000.
Sierra sent a representative to our annual meeting on June 9, 2003.
Although not entitled to vote, Sierra's representative spoke at length
concerning his views of the Company and its finances. He suggested that the
Company operates in a very competitive industry, is undercapitalized and should
be liquidated. PCMLLC representatives explained that sophisticated analyses had
been conducted in bankruptcy by highly respected consultants assessing which of
several alternatives held the greatest promise for ultimately returning the
greatest amount of money to investors-and that emergence from bankruptcy to
conduct the business had been recommended over a liquidating distribution. The
representative then suggested that the Company should endeavor to permit its
investors to trade their securities in a market. PCMLLC representatives
explained that the Company was never intended to be a public venture and that
the reorganization plan contemplated returning money to the original investors.
In early October, 2003, one of our directors received a copy of the Offer
from Sierra, offering to purchase his units. At its October 13, 2003, meeting,
the Board discussed the Offer, as set forth more fully below, and unanimously
determined to recommend that Unit Holders reject the Offer and NOT tender their
units to Sierra.
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Reasons for the Recommendation of the Board
In reaching the conclusions and in making the recommendation described
above, the Board consulted with the Company's management, which had consulted
professional advisors in advance, and took into account numerous factors,
including but not limited to the following.
The Offer does not explain the basis for the $2.00 price offered to Unit
Holders. So far in two quarters this year, the Company has paid distributions
of approximately $0.52 per unit. The actual distribution per unit depends on
which of the PAM Funds a Unit Holder invested in, because distributions are paid
based on unreturned capital. At our Board of Directors meeting on October 13,
2003, we declared a further distribution of approximately $0.29 per unit.
Assuming we maintain distributions at this rate, each year our Unit Holders will
receive distributions of approximately $1.10 per unit, more than 50% of the
price offered by Sierra for an entire unit. Although there is no guarantee that
we will continue paying distributions at this rate, the Company has stated in
its public filings with the SEC that the Board considers it a priority to pay a
distribution to Unit Holders each quarter. Payment of the distribution
continues to be a Board priority.
The $2.00 price offered by Sierra is substantially lower than the
liquidation value of the Company. Based solely on the Company's June 30, 2003,
unaudited financial statements, the liquidation value of the Company is
approximately $7.25 per unit. The actual liquidation value per unit depends on
which of the PAM Funds a Unit Holder invested in, because amounts paid in
liquidation are first returned based on unreturned capital, and then pro rata
based on units. If the liquidation value of the Company is calculated
substituting the fair value of our portfolios reported in our footnotes for the
cost basis reported in our financial statements, the liquidation value of the
Company is approximately $31.15 per unit. The Company might not be able to
realize 100% of the value of its assets in the event of a liquidation because
distressed assets are usually sold at a discount. These two liquidation values
are based on financial measures contained in our unaudited financial statements,
and they may not represent the actual fair market value of our units. But the
Board believes that these liquidation values are meaningful benchmarks of value
that demonstrate the inadequacy of Sierra's Offer.
Based on the Company's Chief Legal Officer's preliminary discussions with
outside counsel, the Board suspected that Sierra's Offer may violate SEC
guidance designed to prevent fraudulent, deceptive or manipulative acts or
practices in connection with tender offers. The Board appointed one of its
directors, David Barnhizer, to speak with the Chief Legal Officer and outside
counsel concerning this issue. As a result of these discussions, the Company
believes that the Offer may be deficient in its disclosure in a number of areas,
including without limitation:
- Failing to discuss the basis for the Offer price of $2.00 per unit;
- Failing to identify control persons of Sierra and its promoters;
- Failing to disclose future intentions toward the Company or regarding
another tender offer;
- Failing to include risk factors in the Offer;
- Failing to address state securities law "blue sky" issues; and
- Failing to discuss the tax consequences of the Offer to the Unit Holders.
If the consummation of the transactions contemplated by the Offer would result
in Sierra owning more than a 5% interest in PCMLLC, we believe that the
Securities Exchange Act of 1934 and its regulations would require Sierra to file
a Schedule TO tender offer document with the SEC, which would require
substantially more disclosure than the bulleted items set forth above.
Based on the Company's Chief Legal Officer's preliminary discussions with
outside counsel, the Board suspected that Sierra may not be able to consummate
its Offer because state securities laws may not permit all of the transfers that
Sierra's Offer would require. Because we do not know which of our Unit Holders
Sierra has contacted, we cannot be sure that relevant state securities laws will
permit the transfer of units from our Unit Holders to Sierra. The Company would
have to review any requests for transfer arising from the Offer on a
case-by-case basis.
The foregoing discussion of the information and factors considered by the
Board is not meant to be exhaustive, but includes the material information,
factors and analyses considered by the Board in reaching its
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conclusions and recommendations. The members of the Board evaluated the various
factors listed above in light of their knowledge of the business, financial
condition and prospects of the Company and based upon the advice of the Board's
advisors. In light of the number and variety of factors that the Board
considered, the members of the Board did not find it practicable to assign
relative weights to the foregoing factors, although they did determine that the
pricing factors listed above were the more significant factors in their
determination. However, the recommendation of the Board was made after
considering the totality of the information and factors involved. In addition,
individual members of the Board may have given different weight to different
factors.
INTENT TO TENDER
To the best knowledge of the Company, none of the Company's executive
officers, directors or affiliates currently intends to tender units held by such
person for purchase pursuant to the Offer.
ITEM 5. PERSONS/ASSETS RETAINED, EMPLOYED, COMPENSATED OR USED.
Neither the Company nor any person acting on its behalf has or currently
intends to employ, retain or compensate any person to make solicitations or
recommendations to the stockholders of the Company on its behalf with respect to
the Offer.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
During the past 60 days, no transactions with respect to the units have
been effected by the Company or, to the Company's knowledge, by any of its
executive officers, directors or affiliates.
ITEM 7. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS.
The Company has not undertaken and is not engaged in any negotiations in
response to the Offer which relate to: (1) a tender offer or other acquisition
of the Company's securities by the Company or any other person; (2) an
extraordinary transaction, such as a merger, reorganization or liquidation
involving the Company; (3) a purchase, sale or transfer of a material amount of
assets of the Company or any of its subsidiaries; or (4) any material change in
the present distribution rate or policy, or indebtedness or capitalization of
the Company. There is no transaction, board resolution, agreement in principle,
or signed contract in response to the Offer which relates to or would result in
one or more of the matters referred to in the preceding sentence.
ITEM 8. ADDITIONAL INFORMATION.
Not applicable.
ITEM 9. EXHIBITS.
Exhibit No. Description
- --------------- ----------------------------------------------------------------------------
(a)(1)* Form of letter to Unit Holders communicating the recommendation of the Board
(a)(2)** Form of letter to Sierra communicating the concern of the Board
(a)(3)*** Excerpt from Definitive Proxy Statement filed April 29, 2003
<FN>
* Incorporated by reference to Exhibit 99.1 to Form 8-K filed by PCMLLC October 21, 2003.
** Incorporated by reference to Exhibit 99.2 to Form 8-K filed by PCMLLC October 21, 2003.
*** Incorporated by reference to Exhibit 99.4 to Form 8-K filed by PCMLLC October 21, 2003.
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
PERFORMANCE CAPITAL MANAGEMENT, LLC
/s/ David J. Caldwell
---------------------------------------
By David J. Caldwell
Its Chief Operations Officer
Date: October 21, 2003
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EXHIBIT INDEX
Exhibit No. Description
- --------------- ----------------------------------------------------------------------------
(a)(1)* Form of letter to Unit Holders communicating the recommendation of the Board
(a)(2)** Form of letter to Sierra communicating the concern of the Board
(a)(3)*** Excerpt from Definitive Proxy Statement filed April 29, 2003
<FN>
* Incorporated by reference to Exhibit 99.1 to Form 8-K filed by PCMLLC October 21, 2003.
** Incorporated by reference to Exhibit 99.2 to Form 8-K filed by PCMLLC October 21, 2003.
*** Incorporated by reference to Exhibit 99.4 to Form 8-K filed by PCMLLC October 21, 2003.