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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 3, 2000
(September 21, 2000)
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INNOVATIVE CLINICAL SOLUTIONS, LTD.
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(Exact name of registrant as specified in its charter)
DELAWARE
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(State or other jurisdiction of incorporation)
0-27568 65-0617076
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(Commission File Number) (IRS Employer Identification Number)
10 DORRANCE STREET, SUITE 400, PROVIDENCE, RI 02903
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(Address of principal executive offices)
(401) 831-6755
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(Registrant's telephone number, including area code)
N/A
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(Former name or former address, if changed since last report)
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Item 1. Change in Control of Registrant
On the Effective Date of the Prepackaged Plan (as defined and
described in Item 5 hereof), a change of control of Innovative Clinical
Solutions, Ltd. (the "Registrant") occurred. As a result of the
implementation of the Prepackaged Plan, four affiliated entities (the
"Control Group"), consisting of Third Avenue Trust on behalf of Third Avenue
Value Fund Series ("Third Avenue"), Aggressive Conservative Investment Fund,
L.P., ("ACIF") Sun America Style Select Series Small-Cap Value Portfolio and
the Zelda Ross Trust collectively acquired 47.372% of the issued and
outstanding shares of the Registrant's voting stock (the "Controlling
Interest"), which gives this group effective control of the Registrant. The
Controlling Interest was acquired in exchange for Debentures (as defined in
Item 5) which had previously been held by the Controlling Group.
Third Avenue and ACIF were members of a steering committee of
Debentureholders (the "Steering Committee") which negotiated the terms of the
Prepackaged Plan. The Steering Committee was entitled, in accordance with the
Prepackaged Plan, to designate three members of the Registrant's Board of
Directors and to approve the appointment of a fourth member of the Registrant's
Board of Directors to serve until the Registrant's next annual meeting.
Accordingly, members of the Controlling Group either appointed or approved a
majority of the members of the current Board of Directors. There is no agreement
in place that gives the Controlling Group or any member thereof the right in the
future to designate, appoint, approve or select members of the Registrant's
Board of Directors. The Controlling Group, however, would most likely be able to
elect the members of the Board of Directors if each member of the Controlling
Group voted in concert with the others. Further, Third Avenue acting alone would
most likely be able to elect the members of the Board of Directors.
To the knowledge of the Registrant, there are no arrangements with any
person or group, the operation of which would result in a change of control of
the Registrant in the future.
Item 5. Other Events
EFFECTIVE DATE OF PREPACKAGED PLAN
On July 14, 2000, the Registrant announced that it and its wholly owned
subsidiaries (collectively, the "Debtors") had filed voluntary petitions for
protection under Chapter 11 of the United States Bankruptcy Code (the
"Bankruptcy Code") with the United States Bankruptcy Court for the District of
Delaware (the "Court"). The Debtors' cases were consolidated for the purpose of
joint administration (Case Nos. 00-3027 through 00-3091 inclusive) and were
assigned to Judge Peter J. Walsh. The purpose of the filing was to recapitalize
the Registrant through the conversion of $100 million of 6 3/4% Convertible
Subordinated Debentures due 2003 (the "Debentures") into newly issued common
stock (the "New Common Stock") representing 90% of its common equity pursuant to
a joint prepackaged plan of reorganization (the "Prepackage Plan"). Following a
hearing held on August 23, 2000, the Court entered an order confirming the
Registrant's Prepackaged Plan, which order was dated August 25, 2000. On
September 21, 2000, the Registrant satisfied all of the conditions precedent to
the effectiveness
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of the Prepackaged Plan, and accordingly, the Prepackaged Plan became effective
on such date (the "Effective Date"). A copy of the Registrant's press release
dated September 21, 2000 announcing the Effective Date of the Prepackaged Plan
is attached hereto as Exhibit 99.1.
EXCHANGE OF OLD COMMON STOCK AND DEBENTURES
On the Effective Date, the Debentures, the Registrant's Common Stock
issued and outstanding immediately prior thereto (the "Old Common Stock") and
the Old Other Interests (as defined in the Prepackaged Plan) were canceled and
extinguished and the holders thereof were entitled to receive only the
distributions, if any to be made to such holders under the Prepackaged Plan.
Under the Prepackaged Plan, each Debentureholder is entitled to receive, for
each $1,000 in face amount of the Debentures held by such holder on the
Effective Date, 108 shares of New Common Stock, and each existing stockholder is
entitled to receive, for each 31 shares of Old Common Stock held by such
stockholder on the Effective Date, 1 share of New Common Stock. New Common Stock
shall be issued in whole shares only, with any fractional share amounts to be
rounded up or down as applicable. Since, under the Prepackaged Plan, no
fractional shares of New Common Stock will be issued, any stockholder currently
holding less than 16 shares of Old Common Stock will not receive any shares of
New Common Stock under the Prepackaged Plan. The Registrant has instructed its
transfer agent to effect the exchange of Debentures and Old Common Stock for New
Common Stock as expeditiously as possible. Upon completion of these exchanges,
the Registrant will have approximately 12 million shares of New Common Stock
issued and outstanding. Of these, 10.8 million will be held by the former
Debentureholders and approximately 1.2 million will be held by former holders of
our Old Common Stock. The actual number of shares outstanding will depend upon
the rounding up or down of stock holdings described above.
TAX TREATMENT FOR HOLDERS OF DEBENTURES AND OLD COMMON STOCK
Although the issue is not free from doubt, implementation of the
Prepackaged Plan should be treated as part of a "recapitalization" within the
meaning of the reorganization provisions of the Internal Revenue Code and the
Debentures as well as the Old Common Stock should be considered "securities"
within the meaning of such provisions. Accordingly a holder of Debentures and/or
Old Common Stock (i) will not be entitled to recognize any loss realized as a
result of implementation of the Prepackaged Plan and (ii) will not recognize any
gain realized as a result of the implementation of the Prepackaged Plan. The tax
basis of the New Common Stock in the hands of a former holder of Debentures
and/or Old Common Stock will be equal to such holder's adjusted tax basis in the
Debentures and/or Old Common Stock exchanged therefor.
A portion of the consideration received by an exchanging
Debentureholder may be attributable to accrued but unpaid interest. Such portion
will result in income or loss to the exchanging Debentureholder to the extent
the consideration attributable to accrued but unpaid interest is less or greater
than the amount of interest previously taken into account by the Debentureholder
in computing taxable income for federal income tax purposes. It is not clear
when consideration will be deemed attributable to accrued but unpaid interest.
There is no
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legislative history, regulatory or case law guidance under the applicable
statutory section that addresses this issue. Because the number of shares of New
Common Stock to be issued to a holder will not be affected by the amount of any
accrued but unpaid interest, we intend to take the position that no such amount
should be allocated to accrued interest. It is unclear whether the IRS will
accept such an allocation or will assert that a different allocation should be
made.
This discussion does not address the foreign, state or local tax
consequences of the Prepackaged Plan, nor does it specifically address the tax
consequences to taxpayers subject to special treatment under the federal income
tax laws (including dealers in securities or currencies, pass-through entities,
life insurance companies, tax-exempt organizations, financial institutions,
regulated investment companies, taxpayers subject to the alternative minimum
tax, persons who held Debentures or Old Common Stock as part of an integrated
investment (including a "straddle") consisting of Debentures or Old Common Stock
and one or more other positions, foreign corporations, persons who, for federal
income tax purposes, are not citizens or residents of the United States, or
persons whose functional currency is other than the United States Dollar). This
discussion assumes that the New Common Stock is or will be held as a capital
asset within the meaning of Section 1221 of the Internal Revenue Code.
"FRESH-START" ACCOUNTING
Pursuant to the AICPA's Statement of Position No. 90-7, FINANCIAL
REPORTING BY ENTITIES IN REORGANIZATION UNDER THE BANKRUPTCY CODE ("SOP 90-7"),
"fresh-start" reporting must be adopted by a company undergoing a reorganization
under Chapter 11 of the Bankruptcy Code, when the holders of existing voting
securities immediately before filing and confirmation of the plan receive less
than 50% of the voting securities of the emerging entity and the emerging
entity's reorganization value is less than the total of its post-petition
liabilities and allowed claims. The Registrant anticipates that implementation
of the Prepackaged Plan will require the Company to adopt fresh-start reporting
under SOP 90-7 on the basis that (i) holders of Old Common Stock immediately
before such implementation received less than 50% of the New Common Stock issued
in the implementation of the Prepackaged Plan and (ii) that the Company's
estimated reorganization value for purposes of SOP 90-7, will be less than the
Company's post-petition liabilities and Allowed Claims of approximately $154
million.
Fresh-start reporting requires the Registrant to restate its assets and
liabilities to reflect their reorganization value, which approximates fair value
at the date of the reorganization. In so restating, SOP 90-7 requires the
Registrant to allocate its reorganization value to its assets based upon their
fair values in accordance with the procedures specified by Accounting Principles
Board (APB) Opinion No. 16, BUSINESS COMBINATIONS, for transactions reported on
the purchase method. Any amount of the reorganization value that exceeds the
amounts allocable to the specific tangible and the identifiable intangible
assets is allocated to a specific intangible referred to as "Reorganization
value in excess of amounts allocable to identifiable assets" ("EXCESS
REORGANIZATION VALUE"), which is amortized in accordance with APB Opinion No.17,
INTANGIBLE ASSETS, over a life not to exceed 10 years. Each liability existing
on the date the Prepackaged Plan was confirmed by the bankruptcy court, other
than deferred taxes, will be stated at the present value of the amounts to be
paid, determined using an appropriate discount rate. Deferred
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taxes will be reported in accordance with generally accepted accounting
principles. However, any benefits derived from preconfirmation net operating
losses will first reduce the Excess Reorganization Value and other intangibles
until exhausted and thereafter be reported as a direct addition to additional
paid-in capital. Finally, any accounting principle changes required to be
adopted in the financial statements of the Registrant within the twelve months
following the adoption of fresh-start reporting must be adopted at the time
fresh-start reporting is adopted.
The Registrant anticipates that as financial statements for the fiscal
quarter ending October 31, 2000 will reflect the implementation of fresh-start
reporting.
AMENDMENTS TO THE CERTIFICATE OF INCORPORATION
As of the Effective Date, the Registrant filed an amendment to its
Certificate of Incorporation. The Corrected Amended and Restated Certificate of
Incorporation is attached hereto as Exhibit 3.1. The Registrant's Certificate of
Incorporation, as amended, prohibits the company from issuing non-voting
securities as required by Section 1123 of the Bankruptcy Code. In addition, the
amended Certificate of Incorporation differs from the Certificate of
Incorporation existing prior to the Effective date in that (i) the Registrant is
no longer able to issue preferred stock without stockholder approval; (ii) the
Registrant's Board of Directors is no longer divided into classes with staggered
terms; (iii) a special meeting of the stockholders can be called by holders of
25% of the capital stock of the Registrant; (iv) the Registrant may now amend
its bylaws by action of the Board of Directors or a simple majority vote of the
holders of the Registrant's capital stock; (v) the Registrant stockholders may
now act by written consent; and (vi) except as required by law, no action of the
stockholders requires a supermajority vote.
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In addition, each of the Registrant's subsidiaries amended its
respective charter document to prohibit the issuance of non-voting common stock
as required by Section 1123 of the Bankruptcy Code. This prohibition on the
issuance of non-voting securities will apply to the Registrant and each
subsidiary only for so long as it is required by Section 1123 of the Bankruptcy
Code.
TRADING OF NEW COMMON STOCK
As a result of the Prepackaged Plan, the Registrant's New Common Stock
is now traded under the ticker symbol "ICSNV." The Registrant's former trading
symbol, "ICSL.OB", is no longer applicable to the Registrant's Common Stock.
The Registrant's new trading symbol contains a "V" designation which
indicates that the its New Common Stock trades on a "when issued" basis. In
other words, any trades in the Registrant's New Common Stock will be settled
when the New Common Stock is actually issued, which the Company anticipates will
occur in the first week of October. At this time, the "V" designation will be
removed and the New Common Stock will trade over-the-counter on the pink sheets
under the symbol "ICSN." Once the Form 211 filed on behalf of the Registrant has
been approved by the National Association of Securities Dealers, Inc., the
Company's New Common Stock will again be traded on the over-the-counter Bulletin
Board under the symbol "ICSN.OB." The Company anticipates that it will begin
trading again on the over-the-counter Bulletin Board during the first week of
October, however, no assurances can be made that the Company will achieve this
timetable.
FORWARD LOOKING STATEMENTS
Certain statements set forth above, including, but not limited to,
statements containing the words "anticipates," "believes," "expects," "intends,"
"will," "may" and similar words constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are based on management's current expectations and
include known and unknown risks, uncertainties and other factors, many of which
the results or performance to differ materially from any future results or
performance expressed or implied by such forward-looking statements. These
statements involve risks, uncertainties and other factors detailed from time to
time in the Registrant's filings with the Securities and Exchange Commissions.
The Registrant cautions investors that any forward-looking statements made by
the Registrant are not guarantees of future performance. The Registrant
disclaims any obligation to update any such factors or to announce publicly the
results of any revisions to any of the forward-looking statements included
herein to reflect future events or developments.
Item 7. Financial Statements and Exhibits.
(a) Financial statements of business acquired.
Not Applicable
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(b) Pro forma financial information
Not Applicable
(c) Exhibits
Exhibit 3.1 - Corrected Amended and Restated Certificate of Incorporation
Exhibit 10.1 - 2000 Stock Option Plan
Exhibit 10.2 - Registration Rights Agreement dated September 21, 2000.
Exhibit 10.3 - Executive Employment Agreement of Michael T. Heffernan dated
September 21, 2000.
Exhibit 10.4 - Form of Executive Employment Agreement (with attached schedule
of terms).
Exhibit 99.1 - Press Release Dated September 21, 2000
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SIGNATURES
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.
INNOVATIVE CLINICAL SOLUTIONS, LTD.
By: /s/ Gary S. Gillheeney
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Gary S. Gillheeney
Chief Financial Officer
Date: October 3, 2000
