-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Auwx0fSUFU660R1yAC6URWM7DhBalwdTk5RL8bt2pA+qQeDZV1wG59DfeDpCmPAv UdHF06uIjckU5v1Rz+B/Qg== 0001169232-07-002486.txt : 20070529 0001169232-07-002486.hdr.sgml : 20070528 20070529072049 ACCESSION NUMBER: 0001169232-07-002486 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 20070529 DATE AS OF CHANGE: 20070529 GROUP MEMBERS: NIERENBERG INVESTMENT MANAGEMENT OFFSHORE, INC. GROUP MEMBERS: THE D3 FAMILY BULLDOG FUND, L.P. GROUP MEMBERS: THE D3 FAMILY FUND, L.P. GROUP MEMBERS: THE DIII OFFSHORE FUND, L.P. SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: PEDIATRIC SERVICES OF AMERICA INC CENTRAL INDEX KEY: 0000893430 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HOME HEALTH CARE SERVICES [8082] IRS NUMBER: 581873345 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-44129 FILM NUMBER: 07882063 BUSINESS ADDRESS: STREET 1: 31O TECHNOLOGY PKWY CITY: NORCROSS STATE: GA ZIP: 30092-2929 BUSINESS PHONE: 7704411580 MAIL ADDRESS: STREET 1: 310 TECHNOLOGY PKWY CITY: NORCROSS STATE: GA ZIP: 30092-2929 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: NIERENBERG INVESTMENT MANAGEMENT CO CENTRAL INDEX KEY: 0001282683 IRS NUMBER: 911677205 FILING VALUES: FORM TYPE: SC 13D/A MAIL ADDRESS: STREET 1: 19605 NE 8TH ST CITY: CAMAS STATE: WA ZIP: 98607 SC 13D/A 1 d72075_sc13da.txt AMEND. TO GEN. STATE. OF BEN. OWNERSHIP ---------------------------- OMB APPROVAL ---------------------------- OMB Number: 3235-0145 Expires: February 28, 2009 Estimated average burden hours per response.....14.5 ---------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D Under the Securities Exchange Act of 1934 (Amendment No. 24) PEDIATRIC SERVICES OF AMERICA, INC. (Name of Issuer) Common Stock (Title of Class of Securities) 705323103 (CUSIP Number) David Nierenberg The D3 Family Funds 19605 NE 8th Street Camas, WA 98607 (360) 604-8600 With a copy to: Henry Lesser, Esq. DLA Piper US LLP 2000 University Avenue East Palo Alto, California 94303 Telephone: (650) 833-2000 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) May 25, 2007 (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D and is filing this schedule because of ss.ss. 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box. |_| SEC 1746(3-06) CUSIP No. 705323103 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 1. NAMES OF REPORTING PERSONS. I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY). The D3 Family Fund, L.P. - -------------------------------------------------------------------------------- 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (SEE INSTRUCTIONS):* (a) |X| (b) |X| - -------------------------------------------------------------------------------- 3. SEC USE ONLY: - -------------------------------------------------------------------------------- 4. SOURCE OF FUNDS (SEE INSTRUCTIONS): WC - -------------------------------------------------------------------------------- 5. CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e): |_| - -------------------------------------------------------------------------------- 6. CITIZENSHIP OR PLACE OF ORGANIZATION: Washington - -------------------------------------------------------------------------------- 7. SOLE VOTING POWER: 301,974 Common shares (4.0%) NUMBER OF ------------------------------------------------------------- SHARES BENEFICIALLY 8. SHARED VOTING POWER: 0 OWNED BY ------------------------------------------------------------- EACH REPORTING 9. SOLE DISPOSITIVE POWER: 301,974 PERSON ------------------------------------------------------------- WITH 10. SHARED DISPOSITIVE POWER: 0 - -------------------------------------------------------------------------------- 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON: For the reporting person listed on this page, 301,974; for all reporting persons as a group, 1,453,444 shares (19.2%) - -------------------------------------------------------------------------------- 12. CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (SEE INSTRUCTIONS): |X|* - -------------------------------------------------------------------------------- 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): 19.2% - -------------------------------------------------------------------------------- 14. TYPE OF REPORTING PERSON (SEE INSTRUCTIONS): PN - -------------------------------------------------------------------------------- - ------------- * See "Explanatory Note to Cover Pages" following the cover pages to this Amendment. 2 CUSIP No. 705323103 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 1. NAMES OF REPORTING PERSONS. I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY). The DIII Offshore Fund, L.P. - -------------------------------------------------------------------------------- 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (SEE INSTRUCTIONS):* (a) |X| (b) |X| - -------------------------------------------------------------------------------- 3. SEC USE ONLY: - -------------------------------------------------------------------------------- 4. SOURCE OF FUNDS (SEE INSTRUCTIONS): WC - -------------------------------------------------------------------------------- 5. CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e): |_| - -------------------------------------------------------------------------------- 6. CITIZENSHIP OR PLACE OF ORGANIZATION: Bahamas - -------------------------------------------------------------------------------- 7. SOLE VOTING POWER: 310,426 common shares (4.1%) NUMBER OF ------------------------------------------------------------- SHARES BENEFICIALLY 8. SHARED VOTING POWER: 0 OWNED BY ------------------------------------------------------------- EACH REPORTING 9. SOLE DISPOSITIVE POWER: 310,426 PERSON ------------------------------------------------------------- WITH 10. SHARED DISPOSITIVE POWER: 0 - -------------------------------------------------------------------------------- 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON: For the reporting person listed on this page, 310,426; for all reporting persons as a group, 1,453,444 shares (19.2%) - -------------------------------------------------------------------------------- 12. CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (SEE INSTRUCTIONS): |X|* - -------------------------------------------------------------------------------- 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): 19.2% - -------------------------------------------------------------------------------- 14. TYPE OF REPORTING PERSON (SEE INSTRUCTIONS): PN - -------------------------------------------------------------------------------- - ------------- * See "Explanatory Note to Cover Pages" following the cover pages to this Amendment. 3 CUSIP No. 705323103 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 1. NAMES OF REPORTING PERSONS. I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY). The D3 Family Bulldog Fund, L.P. - -------------------------------------------------------------------------------- 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (SEE INSTRUCTIONS):* (a) |X| (b) |X| - -------------------------------------------------------------------------------- 3. SEC USE ONLY: - -------------------------------------------------------------------------------- 4. SOURCE OF FUNDS (SEE INSTRUCTIONS): WC - -------------------------------------------------------------------------------- 5. CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e): |_| - -------------------------------------------------------------------------------- 6. CITIZENSHIP OR PLACE OF ORGANIZATION: Washington - -------------------------------------------------------------------------------- 7. SOLE VOTING POWER: 841,044 common shares (11.1%) NUMBER OF ------------------------------------------------------------- SHARES BENEFICIALLY 8. SHARED VOTING POWER: 0 OWNED BY ------------------------------------------------------------- EACH REPORTING 9. SOLE DISPOSITIVE POWER: 841,044 PERSON ------------------------------------------------------------- WITH 10. SHARED DISPOSITIVE POWER: 0 - -------------------------------------------------------------------------------- 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON: For the reporting person listed on this page, 841,044; for all reporting persons as a group, 1,453,444 shares (19.2%) - -------------------------------------------------------------------------------- 12. CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (SEE INSTRUCTIONS): |X|* - -------------------------------------------------------------------------------- 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): 19.2% - -------------------------------------------------------------------------------- 14. TYPE OF REPORTING PERSON (SEE INSTRUCTIONS): PN - -------------------------------------------------------------------------------- - ------------- * See "Explanatory Note to Cover Pages" following the cover pages to this Amendment. 4 CUSIP No. 705323103 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 1. NAMES OF REPORTING PERSONS. I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY). Nierenberg Investment Management Company, Inc. - -------------------------------------------------------------------------------- 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (SEE INSTRUCTIONS):* (a) |X| (b) |X| - -------------------------------------------------------------------------------- 3. SEC USE ONLY: - -------------------------------------------------------------------------------- 4. SOURCE OF FUNDS (SEE INSTRUCTIONS): WC - -------------------------------------------------------------------------------- 5. CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e): |_| - -------------------------------------------------------------------------------- 6. CITIZENSHIP OR PLACE OF ORGANIZATION: Washington - -------------------------------------------------------------------------------- 7. SOLE VOTING POWER: 0 NUMBER OF ------------------------------------------------------------- SHARES BENEFICIALLY 8. SHARED VOTING POWER: 1,453,444 shares (19.2%) OWNED BY ------------------------------------------------------------- EACH REPORTING 9. SOLE DISPOSITIVE POWER: 0 PERSON ------------------------------------------------------------- WITH 10. SHARED DISPOSITIVE POWER: 1,453,444 shares - -------------------------------------------------------------------------------- 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON: For the reporting person listed on this page, 1,453,444; for all reporting persons as a group, 1,453,444 shares (19.2%) - -------------------------------------------------------------------------------- 12. CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (SEE INSTRUCTIONS): |X|* - -------------------------------------------------------------------------------- 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): 19.2% - -------------------------------------------------------------------------------- 14. TYPE OF REPORTING PERSON (SEE INSTRUCTIONS): CO - -------------------------------------------------------------------------------- - ------------- * See "Explanatory Note to Cover Pages" following the cover pages to this Amendment. 5 CUSIP No. 705323103 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 1. NAMES OF REPORTING PERSONS. I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY). Nierenberg Investment Management Offshore, Inc. - -------------------------------------------------------------------------------- 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (SEE INSTRUCTIONS):* (a) |X| (b) |X| - -------------------------------------------------------------------------------- 3. SEC USE ONLY: - -------------------------------------------------------------------------------- 4. SOURCE OF FUNDS (SEE INSTRUCTIONS): WC - -------------------------------------------------------------------------------- 5. CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e): |_| - -------------------------------------------------------------------------------- 6. CITIZENSHIP OR PLACE OF ORGANIZATION: Bahamas - -------------------------------------------------------------------------------- 7. SOLE VOTING POWER: 0 NUMBER OF ------------------------------------------------------------- SHARES BENEFICIALLY 8. SHARED VOTING POWER: 310,426 common shares (4.1%) OWNED BY ------------------------------------------------------------- EACH REPORTING 9. SOLE DISPOSITIVE POWER: 0 PERSON ------------------------------------------------------------- WITH 10. SHARED DISPOSITIVE POWER: 310,426 common shares - -------------------------------------------------------------------------------- 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON: For the reporting person listed on this page, 310,426; for all reporting persons as a group, 1,453,444 shares (19.2%) - -------------------------------------------------------------------------------- 12. CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (SEE INSTRUCTIONS): |X|* - -------------------------------------------------------------------------------- 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): 19.2% - -------------------------------------------------------------------------------- 14. TYPE OF REPORTING PERSON (SEE INSTRUCTIONS): CO - -------------------------------------------------------------------------------- - ------------- * See "Explanatory Note to Cover Pages" following the cover pages to this Amendment. 6 EXPLANATORY NOTE TO COVER PAGES In the foregoing cover pages to this Amendment, the box in row 2(a) is checked to affirm the existence of a "group" among the Reporting Persons signing this Amendment. The box in row 2(b) is also checked to denote that the Reporting Persons may be deemed to constitute a "group" with the Portfolio Logic Filing Parties (as defined in Item 2 to this Amendment) by reason of the non-binding Memorandum of Understanding reported in Item 4 to this Amendment but that the Reporting Persons disclaim beneficial ownership of any of the Shares beneficially owned by the Portfolio Logic Filing Parties. 7 This Amendment No. 24 to Schedule 13D (this "Amendment") amends the below-indicated items from the Schedule 13D previously filed by or on behalf of the undersigned parties (the "Reporting Persons"), as previously amended (the "Schedule 13D"), by supplementing such Items with the information below. Capitalized terms used and not defined in this Amendment have the meanings given to them in the Schedule 13D. Item 2. Identity and Background By reason of the non-binding Memorandum of Understanding reported in Item 4 of this Amendment (which is incorporated by reference in response to this Item), the Reporting Persons may be deemed to constitute a "group," for purposes of Rule 13d-5(b)(1) promulgated under the Securities Exchange Act of 1934, as amended (the "1934 Act"), with Portfolio Logic and Mr. Jeffrey D. Zients (the "Portfolio Logic Filing Parties"), which have reported on a Schedule 13D/A that they beneficially own 1,090,918 Shares, representing approximately 14.4% of the outstanding Shares. The Reporting Persons disclaim beneficial ownership of any of the Shares beneficially owned by the Portfolio Logic Filing Parties. To the extent that the Reporting Persons and the Portfolio Logic Parties may be deemed to constitute a "group," this Amendment and any future amendments to the Schedule 13D constitute solely the individual filings of the Reporting Persons for purpose of Rule 13d-1(k) promulgated pursuant to the 1934 Act and the Reporting Persons assume no responsibility for the completeness or accuracy of the information concerning the Portfolio Logic Filing Parties contained in this Amendment or any future amendment to the Schedule 13D or in the separate filings on Schedule 13D/A by the Portfolio Logic Filing Parties. Item 4. Purpose of Transaction As a result of discussions held between Portfolio Logic and the Reporting Persons since the Reporting Persons filed Amendment No. 23 to the Schedule 13D dated April 30, 2007 ("Amendment No. 23"), Portfolio Logic and the Reporting Persons have entered into a non-binding Memorandum of Understanding dated as of May 25, 2007 (the "MOU"). The MOU is filed as Exhibit 4 to this Amendment and incorporated by reference in response to this Item, and the description in this Item of the MOU is qualified in its entirety by the full text thereof. The MOU contemplates, to the extent and on the terms therein set forth, the participation of the Reporting Persons in the Merger by contributing some or all of their Shares (the precise amount to be agreed upon by the parties) to a new Delaware corporation ("Newco") to be formed by Portfolio Logic (and to which Portfolio Logic will assign its rights under the Merger Agreement and contribute all its Shares and an amount of cash to be determined), in exchange for a minority interest in Newco and, following the closing of the Merger (the "Closing"), representation of Mr. Nierenberg on the board of directors of PSAI (as the surviving corporation in the Merger) and Newco, and customary registration rights for the parties as to their respective Shares of Newco as provided for in a shareholders agreement to be entered into prior to the Closing. To the extent that any of the Reporting Persons' Shares are not contributed to Newco pursuant to the MOU (which is not assured), if the Merger is consummated the Reporting Persons will be entitled to receive, for their non-contributed Shares, the same Merger Consideration as all other holders of Shares that do not participate in the Merger with Portfolio Logic. It is the current expectation of the Reporting Persons that if the Merger Agreement is submitted to a vote of PSAI's stockholders at the special stockholders' meeting contemplated by the Merger Agreement, the Reporting Persons will vote all of their Shares in favor of adoption of the Merger Agreement. However, the MOU does not require the Reporting Persons to do so. By reporting the information contained in this Amendment, the Reporting Persons do not intend to solicit, nor are they soliciting, proxies or consents from, nor seeking or requesting any other action by, any of the other stockholders of PSAI with respect to the Merger. The previous statements as to the views of the Reporting Persons regarding their investment in PSAI represent solely their own analyses and judgments, based on publicly-available information and their own internal 8 evaluation thereof. Those statements are not intended, and should not be relied on, as investment advice to any other investor or prospective investor. To the extent those statements reflect assessments of possible future developments, those assessments are inherently subject to the uncertainties associated with all assessments of future events; actual developments may materially differ as a result of circumstances affecting PSAI and/or extrinsic factors such as developments in PSAI's industry, the economic environment and the status of the Merger Agreement. The Reporting Persons reserve the right to change their internal evaluation of this investment in the future, as well as to increase or decrease their investment depending on their evaluation (consistent with agreements to which they are parties), without further amending the Schedule 13D except as required by applicable rules. Item 5. Interest in Securities of the Issuer (a, b) Reference is made to the response to Item 2 of this Amendment, which is incorporated by reference in response to this Item, with respect to the beneficial ownership of Shares reported by the Portfolio Logic Filing Parties. As noted therein, the Reporting Persons disclaim beneficial ownership of any of the Shares beneficially owned by the Portfolio Logic Filing Parties. Item 6. Contracts, Arrangements, Understandings or Relationships with the Issuer Exhibit 4 to this Amendment is hereby incorporated by reference in response to this Item. (Exhibits 1, 2 and 3 were filed as exhibits to Amendment No. 23.) Also see the responses to Items 2, 4 and 5 of this Amendment. Item 7. Material to be filed as Exhibits Exhibit 4: Memorandum of Understanding between Portfolio Logic and the Reporting Persons dated as of May 25, 2007. 9 SIGNATURE After reasonable inquiry and to the best of our knowledge and belief, each of the undersigned certifies that the information set forth in the Statement is true, complete and correct. D3 Family Fund, L.P. and D3 Bulldog Fund, L.P. By: Nierenberg Investment Management Company, Inc. Its: General Partner May 29, 2007 By: /s/ David Nierenberg -------------------- David Nierenberg, President DIII Offshore Fund L.P. By: Nierenberg Investment Management Offshore, Inc. Its: General Partner May 29, 2007 By: /s/ David Nierenberg -------------------- David Nierenberg, President Nierenberg Investment Management Company, Inc. May 29, 2007 By: /s/ David Nierenberg -------------------- David Nierenberg, President Nierenberg Investment Management Offshore, Inc. May 29, 2007 By: /s/ David Nierenberg -------------------- David Nierenberg, President 10 EX-4 2 d72075_ex4.txt MEMORANDUM OF UNDERSTANDING EXHIBIT 4 MEMORANDUM OF UNDERSTANDING This MEMORANDUM OF UNDERSTANDING, dated as of May 25, 2007 (this "MOU") is made by and between (1) Portfolio Logic LLC, a Delaware limited liability company ("Portfolio Logic"), and (2) The D3 Family Fund, L.P., The DIII Offshore Fund, L.P., The D3 Family Bulldog Fund L.P., Nierenberg Investment Management Company, Inc., and Nierenberg Investment Management Offshore Inc. (collectively, the "D3 Entities"), and David Nierenberg ("Mr. Nierenberg" and, collectively with the D3 Entities, the "D3 Parties"). WHEREAS, as of the date hereof, Portfolio Logic beneficially owns 1,090,918 shares of common stock of Pediatric Services of America, Inc., a Delaware corporation ("PSAI"), representing approximately 14.4% of the issued and outstanding common stock of PSAI; WHEREAS, as of the date hereof, the D3 Entities beneficially own in the aggregate 1,453,444 shares of PSAI common stock, representing approximately 19.2% of the issued and outstanding PSAI common stock; WHEREAS, Mr. Nierenberg is the President of the corporate general partners of the other D3 Entities and as such, is authorized to enter into this MOU on behalf of all the D3 Entities; WHEREAS, on April 25, 2007, Portfolio Logic entered into an Agreement and Plan of Merger, dated as of April 25, 2007 (the "Merger Agreement"), among PSAI, Portfolio Logic and Pointer Acquisition Co., Inc., a wholly-owned subsidiary of Portfolio Logic ("Merger Sub"), providing for the acquisition by Portfolio Logic of all of the issued and outstanding common stock of PSAI not owned by Portfolio Logic at a price of $16.25 per share (the "Merger Consideration") pursuant to a merger of Merger Sub with and into PSAI (the "Merger") on the terms and subject to the conditions set forth in the Merger Agreement; and WHEREAS, (a) on April 25, 2007, the Board of Directors of PSAI approved the Merger Agreement, the transactions contemplated by the Merger Agreement and the Exempted Transactions (as defined below) for purposes of the provisions of Section 203 of the General Corporation Law of the State of Delaware, with the intent that none of the foregoing should be subject to the requirements of said Section 203, (b) as of April 25, 2007, PSAI and Mellon Shareholder Services LLC, as Rights Agent, entered into the Second Amendment (the "Second Amendment to the Rights Agreement") to PSAI's Rights Agreement, dated as of September 22, 1998, (c) on April 29, 2007, PSAI and the D3 Entities entered into the First Amendment (the "First Amendment to the Standstill Agreement") to the Standstill Agreement, dated as of February 18, 2005, among PSAI, certain of the D3 Parties and certain affiliated entities, and (d) the Second Amendment to the Rights Agreement and the First Amendment to the Standstill Agreement permit the D3 Parties to engage in discussions and negotiations with Portfolio Logic regarding their possible participation in the transactions contemplated by the Merger Agreement (through, among other things, equity investment or contribution of their shares of PSAI common stock and possible participation in the governance of PSAI following the Merger), as well as to reach, and if reached to effectuate, agreements, arrangements and understandings with Portfolio Logic regarding such possible participation, as well as certain related activities (the activities permitted by the Second Amendment to the Rights Agreement and the First Amendment to the Standstill Agreement being referred to therein and herein as the "Exempted Transactions"). 11 NOW THEREFORE, the parties have reached the following understandings: 1. Prior to the closing of the Merger (the "Closing"): (a) Portfolio Logic will form a Delaware corporation ("Newco") and will assign to Newco all of Portfolio's Logic's rights under the Merger Agreement pursuant to Section 9.7 thereof; (b) The D3 Entities will collectively contribute to Newco shares of PSAI common stock having an aggregate value of not less than $18 million and not more than $24 million (collectively, the "D3 Contribution"), the precise amount of the D3 Contribution to be agreed upon by the parties; and (c) in exchange for the D3 Contribution, Portfolio Logic will cause Newco to issue to each D3 Entity making a portion of the D3 Contribution a number of shares of common stock of Newco equal to the product of (i) the number of issued and outstanding shares of common stock of Newco and (ii) a fraction the numerator of which is the D3 Contribution of such D3 Entity and the denominator of which is the sum of (x) the aggregate D3 Contribution and (y) the amount contributed by Portfolio Logic to Newco in cash and shares of PSAI common stock (which shall include all the shares of PSAI common stock beneficially owned by Portfolio Logic immediately prior to the Closing and an amount of cash sufficient to result in the aggregate value of the shares of PSAI common stock and cash contributed by Portfolio Logic exceeding the aggregate value of the D3 Contribution so that Portfolio Logic will own a majority of the total shares of common stock of Newco outstanding immediately after the consummation of the transactions contemplated by this Section 1). For purposes of the foregoing, all shares of PSAI common stock contributed by Portfolio Logic and the D3 Entities to Newco will be valued at the Merger Price. 2. Prior to the Closing, Portfolio Logic and the D3 Entities will enter into a shareholders agreement that will provide for: (a) Mr. Nierenberg to be elected as a member of the board of directors of PSAI and Newco immediately following the Closing; (b) each of Portfolio Logic and the D3 Entities to have customary registration rights with respect to their shares of Newco following the Closing; and (c) such other terms as the parties may agree and that are reasonable and customary in the circumstances. 3. The parties will cooperate reasonably and in good faith with the aim of consummating the transactions contemplated by this MOU on a timeline consistent with the consummation of the Merger. 4. This MOU reflects the intentions of the parties, but is not intended to, and does not, constitute a legally binding contract. No party will be subject to any legally binding obligation with respect to the matters described herein until the execution and delivery by such parties of one or more definitive written agreements relating to such matters, which agreements the parties will negotiate in good faith. 12 IN WITNESS WHEREOF, the undersigned have duly executed and delivered this MOU as of the date first above written. PORTFOLIO LOGIC LLC By: Portfolio Logic Management LLC, its Manager By: /s/ Jeffrey D. Zients ------------------------------------------- Name: Jeffrey D. Zients Title: Manager DAVID NIERENBERG /s/ David Nierenberg ------------------------------------------------ In his individual capacity and as authorized signatory for the D3 Entities 13 -----END PRIVACY-ENHANCED MESSAGE-----