U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Act of 1934
Date of Report (Date of earliest event reported): JULY 13, 2004
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PERFORMANCE CAPITAL MANAGEMENT, LLC
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(Exact name of registrant as specified in its charter)
CALIFORNIA 0 - 50235 03-0375751
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(State or other (Commission (I.R.S. Employer
Jurisdiction File Number) Identification No.)
of incorporation)
222 SOUTH HARBOR BLVD., SUITE 400
ANAHEIM, CALIFORNIA 92805
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 502-3780
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ITEM 5. OTHER EVENTS.
On July 13, 2004 effective June 10, 2004, we entered into a definitive Master
Loan Agreement with Varde Investment Partners, L.P. ("Varde"), a well-known
participant in the debt collection industry, to augment our portfolio purchasing
capacity using capital provided by Varde. The following list summarizes some of
the key business points in our agreement with Varde:
- The facility provides for up to $25 million of capital (counting each
dollar loaned on a cumulative basis) over a five-year term.
- Varde is not under any obligation to make a loan to us if Varde does
not approve of the portfolio(s) we propose to acquire and the terms of
the acquisition.
- Varde has the right to participate in any proposed acquisition of a
portfolio by us in excess of $500,000 pursuant to a right of first
refusal.
- We must agree with Varde on the terms for each specific advance under
the loan facility, including such material terms as (a) the relative
sizes of our participation and Varde's in supplying the purchase
price; (b) the amount of servicing fees we will receive for collecting
the portfolio; (c) the rates of return on the funds advanced by Varde
and us; and (d) the split of any excess profits after repayment of the
purchase price (plus interest) to Varde and us and payment of
collection expenses.
It is unlikely that we will ever have outstanding indebtedness of the full $25
million at any one time, due to the cumulative nature of the facility.
We have created a wholly-owned subsidiary, Matterhorn Financial Services LLC, a
California limited liability company, to serve as the entity that will purchase
portfolios under the loan agreement with Varde. Varde has a first priority
security interest in all the assets of Matterhorn securing repayment of its
loans and payment of its interest in excess profits. Performance Capital
Management, LLC, has entered into a Servicing Agreement with Matterhorn as part
of the agreement with Varde, and Varde has a security interest in Matterhorn's
rights to proceeds under the Servicing Agreement. Under the Servicing
Agreement, Performance Capital Management will collect the portfolios purchased
by Matterhorn in exchange for a fee that will be agreed upon prior to the
funding of each individual financing by Varde. Performance Capital Management
has also guarantied Matterhorn's payment and certain performance obligations
under the loan documents.
Varde may exercise its rights under its various security interests and the
guaranty if an event of default occurs. These rights include demanding the
immediate payment of all amounts due to Varde, as well as liquidating the
collateral. A failure to make payments when due, if not cured within five days,
is an event of default. Other events of default include:
- Material breaches of representations and warranties;
- Uncured breaches of agreements having a material adverse effect;
- Bankruptcy or insolvency of Performance Capital Management or
Matterhorn;
- Fraudulent conveyances;
- Defaults in other debt or debt-related agreements;
- Failure to pay judgments when due;
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- Material loss or damage to, or unauthorized transfer of, the
collateral;
- Change in control of Performance Capital Management;
- Termination of Performance Capital Management as the Servicer under
the Servicing Agreement; and
- Breach of Varde's right of first refusal to finance portfolio
acquisitions.
When we identify a portfolio we would like to acquire using the loan facility,
Matterhorn will make a proposal to Varde, specifying, among other things:
- Total cost of the portfolio(s), including closing costs and amortized
expenses;
- Proportions of the total cost to be funded by Varde (not to exceed
75%) and us;
- Percentage of collections to be paid to Performance Capital Management
as a servicing fee;
- Rates of return on the funds advanced by Varde and us; and
- Proportions of excess profits to Varde and Matterhorn after payment of
the preceding four items.
When we make a proposal to Varde, Varde has the opportunity to conduct its own
due diligence concerning the portfolio(s). Varde may accept our proposal, with
or without modifications, in a commitment that will specify the number of days
the commitment remains open. Varde has no obligation to accept a proposal and
may reject a proposal for any reason or for no reason. Before Varde advances
any funds, we must satisfy, or Varde must waive, certain conditions set forth in
the agreement.
Our agreement with Varde is the most important initiative we have undertaken to
leverage our infrastructure resources. We believe that, by accessing the Varde
facility to acquire more portfolios than we could acquire using only our own
financial resources, our current collection infrastructure will handle a greater
volume of accounts. We also believe that the Varde facility will leverage our
portfolio acquisition strategy by permitting us to acquire larger denomination
portfolios. We believe that some of these larger denomination portfolios have
pricing and quality characteristics that are difficult to find in the smaller
denomination portfolios we have acquired thus far.
We have filed the Master Loan Agreement with Varde as Exhibit 10.1 to this
current report on Form 8-K. We entered into the related Guaranty, Security
Agreement, Assignment of Servicing Agreement and Servicing Agreement, attached
as Exhibits E, F, G and H, respectively, to the Master Loan Agreement, effective
June 10, 2004. The discussion of the agreement in this report is qualified in
its entirety by reference to the agreement, which is hereby incorporated by
reference.
Except for the historical information presented in this document, the matters
discussed in this Form 8-K or otherwise incorporated by reference into this
document contain "forward-looking statements" (as such term is defined in the
Private Securities Litigation Reform Act of 1995). These statements can be
identified by the use of forward-looking terminology such as "believes,"
"plans," "expects," "may," "will," "intends," "should," "plan," "assume" or
"anticipates" or the negative thereof or other variations thereon or comparable
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terminology, or by discussions of strategy that involve risks and uncertainties.
The safe harbor provisions of Section 21E of the Securities Exchange Act of
1934, as amended, and Section 27A of the Securities Act of 1933, as amended,
apply to forward-looking statements made by Performance Capital Management, LLC.
You should not place undue reliance on forward-looking statements.
Forward-looking statements involve risks and uncertainties. The actual results
that we achieve may differ materially from any forward-looking statements due to
such risks and uncertainties. These forward-looking statements are based on
current expectations, and we assume no obligation to update this information.
Readers are urged to carefully review and consider the various disclosures made
by us in this report on Form 8-K and in our other reports filed with the
Securities and Exchange Commission that attempt to advise interested parties of
the risks and factors that may affect our business.
ITEM 7. EXHIBITS.
Exhibit No. Description
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10.1 Master Loan Agreement by and among Performance Capital
Management, LLC, Varde Investment Partners, L.P. and Matterhorn
Financial Services, LLC, dated June 10, 2004
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SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
PERFORMANCE CAPITAL MANAGEMENT, LLC
July 28, 2004 By: /s/ David J. Caldwell
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(Date) David J. Caldwell
Its: Chief Operations Officer
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EXHIBIT INDEX
Exhibit No. Description
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10.1 Master Loan Agreement by and among Performance Capital
Management, LLC, Varde Investment Partners, L.P. and Matterhorn
Financial Services, LLC, dated June 10, 2004
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