<PAGE> 1
As filed with the Securities and Exchange Commission on December 13, 1996
File No. _________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
NU-TECH BIO-MED, INC.
(Exact name of Registrant as specified in its charter)
Delaware 25-1411971
(State of Incorporation) (I.R.S. Employer
Identification Number)
55 Access Road
Warwick, RI 02886
(401) 732-6520
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
J. Marvin Feigenbaum
Chief Executive Officer
Nu-Tech Bio-Med Inc.
500 Fifth Avenue, Suite 2424
New York, NY 10017
Telephone (212) 391-2424
Facsimile (212) 391-2864
(Name and address, including zip code, and telephone number,
including area code, of agent for service)
With copies to:
VICTOR J. DiGIOIA, ESQ.
GOLDSTEIN & DiGIOIA, LLP
369 Lexington Avenue
New York, New York 10017
Telephone (212) 599-3322
Facsimile (212) 557-0295
Approximate date of commencement of proposed sale to the public: As
soon as practicable after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plan, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933 other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ___________________.
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ] _______________________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [X]
<PAGE> 2
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
Maximum Maximum Amount of
Title of Each Class of Securities Amount to be Offering Price Aggregate Registration
Being Registered Registered per Share(1) Offering Fee(1)
Price(1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par 1,650,943 11.3125 $18,676,293 $5,659
value(2)...................
- -----------------------------------------------------------------------------------------------------------------------------------
Total...................... 1,650,943 18,676,293 5,659
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of determining the registration fee,
based on the average of the closing bid and asked prices of a share of
Common Stock as quoted on the Nasdaq SmallCap Market on December 9,
1996 ($11.3125 per share).
(2) For purposes of this Registration Statement, the number of Shares of
Common Stock registered hereby has been estimated to be 1,650,943
shares (subject to adjustment) based upon a conversion price of $8.48
per share and to be issued to the Selling Security Holders upon
conversion of the 14,000 issued and outstanding shares of Series A
Preferred Convertible Stock. Pursuant to Rule 416 promulgated under the
Securities Act of 1933, as amended, this Registration Statement is
intended to include all of the number of shares issuable upon exercise
of the Series A Preferred Convertible Stock which is subject to
increase in accordance with the conversion provisions and other
adjustment provisions of the Series A Preferred Convertible Stock.
---------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SECTION 8(a) MAY
DETERMINE.
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NU-TECH BIO-MED, INC.
CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K
Between Registration Statement on Form S-3 and Form of Prospectus
<TABLE>
<CAPTION>
Item Number and Heading Caption in Prospectus
<S> <C>
1. Forepart of the Registration Statement
and Outside Front Cover of Prospectus Outside Front Cover of Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus....................... Inside Front and Outside Back Cover Pages of Prospectus
3. Summary Information, Risk Factors,
and Ratio of Earnings to Fixed
Charges..................................... Prospectus Summary; The Company; Risk Factors;
4. Use of Proceeds............................ Use of Proceeds
5. Determination of Offering Price......... Outside Front Cover Page of Prospectus
6. Dilution..................................... Not Applicable
7. Selling Security Holders................. Selling Security Holders
8. Plan of Distribution....................... Inside Front Cover; Plan of Distribution
9. Description of Securities to be
Registered.................................. Description of Securities
10. Interests of Named Experts and
Counsel..................................... Legal Matters and Experts
11. Material Changes......................... Recent Developments
12. Incorporation of Certain Information
by Reference............................... Incorporation of Certain Information by Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................... Not Applicable
</TABLE>
iii
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Subject to Completion, dated December 13, 1996
P R O S P E C T U S
This Prospectus covers an aggregate of 1,650,943 Shares of Common Stock
NU-TECH BIO-MED, INC.
This Prospectus covers an aggregate of 1,650,943 shares of Common
Stock, $.01 par value (the "Shares") of Nu-Tech Bio-Med, Inc. (referred to as
the "Company" or "Nu-Tech"), held by certain securities holders ("Selling
Security Holders") relating to 1,650,943 Shares issuable upon conversion of the
Company's 14,000 issued and outstanding shares of Series A Convertible
Preferred Stock ("Series A Preferred Stock") and which may be sold by the
holders thereof. The number of Shares of Common Stock has been estimated based
upon a conversion price of $8.48 per share. The actual number of Shares of
Common Stock may be subject to increase or decrease dependent upon the
conversion price in effect at the date of conversion of the Series A Preferred
Stock. No other shares of capital stock of the Company are being registered
herewith.
The Shares may be sold from time to time by the Selling Security
Holders, or by the transferees of the Series A Preferred Stock. No underwriting
arrangements have been entered into by the Selling Security Holders. The
distribution of the Shares by the Selling Security Holders and/or their
transferees may be effected in one or more transactions that may take place on
the over-the-counter market, including ordinary brokers transactions, privately
negotiated transactions or through sales to one or more dealers for resale of
the Shares as principals, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices or at negotiated prices. The
Shares may be sold by the Selling Security Holders either (i) to a broker or
dealer as principal for resale by such broker or dealer for an amount pursuant
to this Prospectus (e.g., in a transaction with a "market maker"); (ii) in
brokerage transactions, including transactions in which the broker solicits
purchasers or (iii) in privately negotiated transactions pursuant to any
applicable exemption under the Securities Act of 1933, as amended (the "Act").
Usual and customary or specifically negotiated brokerage fees or commissions may
be paid by the Selling Security Holders in connection with such sales. The
Selling Security Holders and intermediaries through whom such Shares are sold
may be deemed "underwriters" within the meaning of the Act, with respect to the
Shares offered.
Concurrently herewith, pursuant to separate registration statements on
Forms S-3 and S-8 filed by the Company with the Securities and Exchange
Commission, the Company is registering an additional 2,789,431 shares of Common
Stock of the Company for resale thereof. Significant sales of such additional
shares may affect the market price of the Common Stock and the liquidity of the
Shares offered hereby.
The Common Stock is traded in the over-the-counter market and listed on
the SmallCap Market of the Nasdaq Stock Market ("Nasdaq") under the symbol
"NTBM," and on the Boston Stock Exchange under the symbol "NTB." On December 9,
1996, the closing bid and asked prices for the Common Stock as reported on
Nasdaq were $11.125 and $11.50, respectively. See "Price Range of Common Stock
and Certain Market Information," as set forth in the Form 10-KSB for the fiscal
year ended December 31, 1995.
<PAGE> 5
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND SHOULD BE PURCHASED
ONLY BY THOSE PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT.
SEE "RISK FACTORS" COMMENCING AT PAGE 13 OF THIS PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is__________________ , 1997
<PAGE> 6
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports and other information with the Securities
and Exchange Commission (the "Commission"). Reports, proxy and information
statements and other information filed by the Company with the Commission
pursuant to the informational requirements of the Exchange Act may be inspected
and copied at the public reference facilities maintained by the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 and at the following Regional
Offices of the Commission: New York Regional Office, 7 World Trade Center, 13th
Floor, New York, New York 10048; and Chicago Regional Office, Everett McKinley
Dirkson Building, 210 South Dearborn Street, Room 1204, Chicago, Illinois 60604.
Copies of such material may be obtained from the public reference section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, heretofore filed by the Company with the
Commission pursuant to the Exchange Act, are hereby incorporated by reference,
except as superseded or modified herein:
1. The Company's Quarterly Report on Form 10-QSB for the fiscal
quarter ended September 30, 1996.
2. The Company's Quarterly Report on Form 10-QSB for the fiscal
quarter ended June 30, 1996.
3. The Company's Quarterly Report on Form 10-QSB for the fiscal
quarter ended March 31, 1996.
4. The Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1995.
5. The Company's Form 8-K filed with the Commission on August 29,
1996.
6. The Company's Form 8-K filed with the Commission on September
23, 1996.
7. The Company's Form 8-K/A filed with the Commission on November
14, 1996.
8. The Company's Proxy Statement with respect to its Annual
Meeting of Shareholders held on August 27, 1996.
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9. The Company's Form 8-K filed with the Commission on December
3, 1996.
10. The Company's Form 8-A filed with the Commission on August 15,
1994.
11. The Company's Form 8-K/A filed with the Commission on January
10, 1996.
12. The Company's Form 8-K filed with the Commission on April 15,
1996.
13. The Company's Form 8-K filed with the Commission on June 26,
1996.
All documents filed by the Company subsequent to the date of this
Prospectus pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act and
prior to the filing of a post-effective amendment which indicates that all
Shares offered hereby have been sold or which deregisters all Shares then
remaining unsold, shall be deemed to be incorporated by reference in this
Registration Statement and Prospectus and to be a part hereof from the date of
filing of such documents. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed modified or
superseded for purposes of this Registration Statement and Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of the Registration Statement of which this Prospectus forms a
part.
The Company will provide without charge to each person to whom a copy
of this Prospectus is delivered, upon the written or oral request of any such
person, a copy of any document described above (other than exhibits). Requests
for such copies should be directed to Nu-Tech Bio-Med, Inc. 55 Access Road,
Warwick, Rhode Island 02886. The Company's telephone numbers are (401) 732-6520
or (212) 391-2424.
3
<PAGE> 8
PROSPECTUS SUMMARY
The following summary is intended to set forth certain pertinent facts
and highlights from material contained in the body of this Prospectus and the
Company's Report on Form 10-KSB for the fiscal year ended December 31, 1995,
(the "Form 10-KSB") and the Forms 10-QSB for the quarters ended September 30,
1996, June 30, 1996, and March 31, 1996 (the "Forms 10-QSB"), as well as the
Company's Reports on Form 8-K (collectively, the "Forms 8-K") filed by the
Company since December 31, 1995 up to the date hereof, all of which are
incorporated herein by reference. The summary is qualified in its entirety by
reference to the more detailed information and consolidated financial statements
appearing elsewhere in this Prospectus and Forms 10-KSB, 10-QSB and Forms 8-k.
Each prospective investor is urged to read this Prospectus, the Form 10-KSB and
Forms 10-QSB and Forms 8-K in their entirety.
THE COMPANY
GENERAL
Nu-Tech Bio-Med, Inc. (hereinafter sometimes referred to as
"Nu-Tech") was originally organized under the laws of the State of Delaware in
September 1981 under the name "Applied DNA Systems, Inc." On November 16, 1994,
the Company changed its name to its present name. The Company's wholly-owned
operating subsidiary, Analytical Biosystems Corporation ("ABC" or "Analytical
Biosystems") was organized under the laws of the State of Delaware in August,
1985.
On October 21, 1996, Nu-Tech acquired substantially all of the assets
of Prompt Medical Billing Services, Inc., a Florida corporation, as well as
assuming certain liabilities. Prior to the acquisition Prompt Medical was
engaged in the medical billing business with operations located in Miami,
Florida. The asset acquisition was accomplished through Nu-Tech's newly formed
subsidiary, NTBM Billing Services, Inc. Nu-Tech, through NTBM Billing
Services, intends to retain and expand the medical billing business acquired
from Prompt Medical. See "Recent Events-Acquisition of Assets of Prompt
Medical."
On November 18, 1996, the United States Bankruptcy Court (Central
District of California) approved the reorganization plan of Medical Science
Institute, a California corporation ("MSI") which had been jointly submitted to
the court by Nu-Tech and MSI. MSI had been operating as a debtor-in-possession
under Chapter 11 of the United States Bankruptcy Code since October 1995.
Pursuant to the plan, Nu-Tech acquired all of the capital stock of MSI and MSI
became a wholly-owned subsidiary of Nu-Tech. MSI is a full service medical
laboratory facility and its primary executive offices are located in Burbank,
California. MSI operates throughout the State of California. See "Recent
Events-Acquisition of Medical Science Institute."
On November 8, 1996, Nu-Tech joined with Physicians Clinical
Laboratory, Inc., a Delaware corporation, ("PCL") in submitting a plan of
reorganization for PCL under Chapter 11
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of the United States Bankruptcy Code ("Chapter 11") whereby Nu-Tech will acquire
51% of the capital stock of PCL. PCL has been operating as a
debtor-in-possession under Chapter 11 of the United States Bankruptcy Code
since November 8, 1996 and prior to such time had suffered significant losses
and was in default of approximately $120,000,000 of debt. PCL is a full service
clinical laboratory which provides a comprehensive battery of testing services.
PCL operates throughout the State of California and its executive offices are
located in Sacramento, California. The plan of reorganization is subject to the
approval of the United States Bankruptcy Court and there can be no assurance
that the Plan will be approved by the Court or that the acquisition of PCL will
be consummated. See Recent Acquisition Activities - Proposed Physicians
Clinical Laboratory Acquisition."
As a result of the acquisitions of the business of Prompt Medical and
MSI, the business of Nu-Tech has recently significantly changed and expanded.
Additionally, in the event the PCL acquisition is consummated, of which there
can be no assurance, the business of Nu-Tech will further change significantly.
Prior to such acquisitions, the Company's sole business activities were through
its subsidiary, Analytical Biosystems. Unless the context otherwise requires,
the "Company" shall refer to Nu-Tech, NTBM Billing Services Inc., Analytical
Biosystems and MSI.
Analytical Biosystems is a clinical oncology laboratory service and
research company which currently performs and furnishes a patented in vitro
chemosensitivity assay known as the Fluorescent Cytoprint Assay ("FCA") which
aids oncologists in selecting those chemotherapeutic drugs most likely to be
effective in treating a cancer patient's solid mass tumor. The FCA, which was
developed by M. Boris Rotman, Ph.D., Professor of Medical Science at Brown
University, Providence, Rhode Island, is a patented laboratory procedure that
measures the effectiveness of specific chemotherapy drugs in destroying cancer
cells retrieved from solid mass tumors removed from individual patients. The FCA
tests cancer tissue taken from the individual's tumor against many of the
chemotherapeutic agents likely to be used for that tumor type. Information
provided by the test helps rule out ineffective drugs and assists the
oncologists in determining appropriate chemotherapy.
ABC also offers an ATPase cell viability assay ("ATP-CVA") which is a
bioluminescent assay utilized for the determination of inhibition of metabolic
activity in cancer cells. The Company uses the non-proprietary ATP-CVA in
conjunction with Analytical Biosystem's FCA for the purpose of expanding the
number of chemotherapeutic drugs which ABC can offer for in vitro drug response
testing. Such expanded drugs include taxol, which is utilized in the treatment
of breast and ovarian cancer. Analytical Biosystems intends that the FCA will be
principally used for the assay of those chemotherapeutic drugs such as
cisplatin, doxorubicin and mitomycin C which have the effect of bursting or
killing cancer cells. With respect to other chemotherapeutic drugs which work in
a different fashion such as taxol and taxotere, the ATP-CVA will detect the
inhibition of metabolic activity. These two latter drugs, which have been
approved by the Food and Drug Administration for the use in the treatment of
breast, lung and ovarian cancer, will be assayed by the Company utilizing the
ATPase assay. In addition, ABC has added navelbine to the chemotherapeutic
drugs which it is capable to assay, which is currently used in the
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treatment of non-small cell lung cancer and whose effect is to burst or kill the
cancer cells immediately. This drug is being assayed by Analytical Biosystems
utilizing the FCA.
The existing and potential customers of Nu-Tech, ABC, MSI, and PCL and
NTBM Billing are medical offices surgeons, oncologists, pathologists, patients,
hospitals, health maintenance organizations ("HMOs"), community health centers,
and third party insurance companies.
ABC maintains its administrative offices and clinical laboratory and
research facilities at 55 Access Road, Warwick, Rhode Island 02886, and its
telephone number is (401) 732-6520. Nu-Tech maintains its executive offices at
500 Fifth Avenue, New York, New York 10036, telephone number (212) 391-2424. MSI
maintains its executive offices at 811 South San Fernando Blvd., Burbank,
California and its telephone number is (818) 846-4674. NTBM maintains a place
of business at 9090 Sw 87th Ct Miami Florida, 33176 and its telephone number is
(305) 273-1288
RECENT EVENTS
COMPLETION OF PRIVATE PLACEMENTS
DECEMBER 1996 PLACEMENT. On December 2, 1996, the Company completed a
private placement offering under Section 4(2) of the Securities Act of 1933
and/or Regulation D promulgated thereunder, pursuant to which it issued a total
of 14,000 shares of Series A Convertible Preferred Stock for a total aggregate
purchase price of $14,000,000. The Company realized net proceeds of
approximately $12,426,000 from the private offering. The proceeds of the
offering have been utilized by the Company for the purchase of certain debt
securities of Physicians Clinical Laboratory, Inc., to make certain payments
under the MSI Plan, all as described below, as well as for other general
purposes. The terms of the Series A Preferred Stock are governed by an Amended
Certificate of Designations, Rights and Preferences approved by the Board of
Directors in accordance with the Company's Articles of Incorporation and filed
with the Secretary of State of Delaware on October 23, 1996 and further amended
on November 20, 1996. The Series A Preferred Stock is convertible, by its
terms, into shares of Common Stock at the lesser of (i) $17.50 per share or
(ii) 75% of the average closing price of a share of the Company's Common Stock
as reported by the Nasdaq SmallCap Market for the five (5) trading days prior
to the date of the holder's notice of conversion. The Series A Preferred Stock
is convertible into the Company's Common Stock at the option of the holder
commencing on the 45th day after the issue date. Up to one third of the shares
of Series A Preferred Stock may be converted into Common Stock on each of the
45th day, 75th day and 105th day after the issue date. The initial issue date
was November 6, 1996 and the first date on which holders may obtain conversion
of the Series A Preferred Stock was December 20, 1996. Commencing upon the
270th day following completion of the private placement, the Company has the
right, upon 30 days prior notice, to cause the Series A Preferred Stock to be
converted into Common Stock at the then applicable conversion price. The
holders of a majority of the Series A Preferred Stock were granted one
"demand" registration right with respect to the Common Stock underlying the
Series A Preferred Stock. In the event the Company does not file with, and have
declared effective by, the Commission, a registration statement under the Act
within 120 days of receipt of the demand
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notice of the investors holding the shares of Series A Preferred Stock, the then
applicable conversion price of the Series A Preferred Stock will be reduced by
10%. Further, for each 30 day period after the 120 day period that the
registration statement has not been declared effective, the conversion price
will be reduced by an additional 2%, up to an aggregate of 12%. THIS PROSPECTUS
HAS BEEN FILED WITH RESPECT TO THE SHARES OF COMMON STOCK UNDERLYING THE SERIES
A PREFERRED STOCK.
Under various agreements related to the sale of the shares, the Company
paid to several investment bankers approximately $1,380,000 from the gross
proceeds and agreed to issue up to 60,000 shares of common stock and five year
Common Stock purchase warrants to purchase 85,714 shares of common stock
exercisable at $15.00 per share. The Company has engaged certain financial
public relations firms for which such firms have been paid an aggregate of
$1,275,000, which funds were paid from the offering proceeds.
APRIL 1996 PLACEMENT. On April 12, 1996, the Company completed a private
offering, under Section 4(2) of the Securities Act and/or Regulation D
promulgated thereunder, of 250,000 shares of its Common Stock to 36 investors
for an aggregate of $2,875,000. The Company paid to the placement agent
commissions of $143,750 (5% of the gross proceeds of the April offering), an
expense allowance of $20,000, and Common Stock purchase warrants to purchase
75,000 shares of the Company's Common Stock at an exercise price of $14.50 per
share, subject to adjustment The Company realized net proceeds of approximately
$2,630,000 after deduction of the placement agent commissions and expenses,
legal fees, blue sky filing fees and other miscellaneous expenses. The proceeds
were used for general working capital purposes as well as certain costs and
expenses allotted to the PCL, MSI and Prompt Medical Acquisitions.
An aggregate of 250,000 shares of Common Stock were issued to investors
in the April Offering. Investors in the April Offering were granted certain
demand and piggyback registration rights for the shares of Common Stock sold in
the April Offering. In settlement of certain alleged claims by the investors in
the April Offering that the Company had failed to timely register the shares of
Common Stock owned by such investors, the Company has agreed to issue one-half
share to the investors for each share purchased in the April Offering provided
that the price of the Common Stock on Nasdaq on the date of effectiveness of
this Prospectus is less than $11.50 per share. Fractional Shares have will not
be issued and will be rounded down to the nearest whole share of Common Stock.
The Company has filed simultaneously herewith a registration statement with the
Commission to register for sale under the Act, among other securities, the
375,000 shares of Common Stock issued in connection with the April offering.
THIS PROSPECTUS DOES NOT COVER ANY SHARES OF COMMON STOCK ISSUED IN CONNECTION
WITH THE APRIL 1996 PLACEMENT. See "Risk Factors - Simultaneous Registration of
Other Securities."
RECENT ACQUISITION ACTIVITIES.
PROPOSED PHYSICIANS CLINICAL LABORATORY ACQUISITION
The proceeds of Series A Preferred Stock offering completed on December
2, 1996 discussed above were used in furtherance of, among other things, the
acquisition of certain debt securities of Physicians Clinical Laboratory, Inc.,
a Delaware corporation ("PCL"), which is a full service clinical laboratory
capable of providing a comprehensive battery of testing services.
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<PAGE> 12
PCL is a publicly held corporation which, until recently, filed reports with the
Commission under the Securities Exchange Act of 1934, as amended. PCL is
delinquent in its filings with the Commission and has not filed any reports
since the quarter ended May 31, 1996. PCL has been operating as a
debtor-in-possession under Chapter 11 of the Bankruptcy Code since November 8,
1996. PCL's common stock is traded in the over-the-counter market of the
National Securities Dealers Automated Quotation System under the symbol "PCLI".
PCL reported net revenues of approximately $ 111,111,000 and $90,000,000 for the
fiscal years ended February 28, 1995 and February 29, 1996, respectfully. PCL
had net losses of approximately $67,500,000 for the fiscal year ended February
29, 1996 and is currently incurring operating losses of approximately
$20,000,000 on an annualized basis. PCL has operations throughout the State of
California and has been operating since 1992. PCL is continuing to incur
significant ongoing losses and is in default on approximately $80,000,000 in
senior secured debt (the "Senior Debt") and approximately $40,000,000 in
subordinated debt (the "Subordinated Debt"). For the quarter ended September 30,
1996, PCL estimates its net losses were approximately $________.
Nu-Tech has reached an agreement with the holders of the Senior Debt,
Subordinated Debt and the management of PCL whereby Nu-Tech will acquire a 51%
interest in PCL. The terms of the agreement provide that PCL would file a plan
of reorganization under Chapter 11 of the United States Bankruptcy Code to
effectuate the agreement (the "PCL Plan"). On November 8, 1996, PCL and the
Company filed the PCL Plan with the U.S. Bankruptcy Court located in the Central
District of California (Case No. SV96-23185-GM). As required by the
aforementioned agreement, the Company purchased $13,300,000 of Senior Debt for
$10,000,000 on November 7, 1996 in advance of the filing of the PCL Plan with
the bankruptcy court. In accordance with the PCL Plan, certain holders of Senior
Debt contributed $10,000,000 in DIP financing to PCL, which under the terms of
the reorganization, will be forgiven. The PCL Plan also requires that the
Company purchase an additional 17% of the capital stock of PCL for $5,000,000
upon approval of the PCL Plan. Pursuant to the PCL Plan, and assuming approval
of the PCL Plan by the bankruptcy court, the debt purchased by Nu-Tech will be
converted into 34% of the common stock of PCL, which together with the 17%
purchased for $5,000,000, will result in Nu-Tech owning 51% of the outstanding
common stock of PCL. The PCL Plan is subject to the approval of the bankruptcy
court and there can be no assurance such approval will be obtained or that the
acquisition will be consummated. There can be no assurance that the Company will
be able to raise sufficient funds to consummate the PCL acquisition or to
successfully operate the business even if the PCL acquisition is consummated.
See "Risk Factors-Risks of PCL Acquisition."
Pursuant to the PCL Plan, J. Marvin Feigenbaum, President and Chief
Executive Officer of the Company, has been retained as crisis manager of PCL and
serves as the equivalent of the Chief Operating Officer of PCL. It is
contemplated that Mr. Feigenbaum will serve in such capacity pending the
bankruptcy court's determination of the PCL Plan. In consideration of lending
Mr. Feigenbaum's services to PCL, Nu-Tech receives approximately $104,000 on an
annualized basis. In the event the PCL Plan is consummated, Nu-Tech will have
the right to nominate three persons to the five member Board of Directors of
PCL. In the event the PCL Plan
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is not consummated, Nu-Tech shall not be entitled to nominate any person to the
PCL Board of Directors.
There can be no assurance that the PCL Plan will be consummated, or if
consummated, will be upon the terms as originally submitted to the bankruptcy
court. Should the PCL Plan not be consummated, Nu-Tech will be a creditor of
PCL. Under the terms of the PCL Plan, however, no competing offer for PCL may be
accepted by the bankruptcy court unless (i) such competing offer is at least
$3.75 million higher than the bid by Nu-Tech and (ii) on the effective date of
the competing plan Nu-Tech receives $1.88 million in cash as compensation for
its time and expense in pursuing the PCL Plan.
ACQUISITION OF MEDICAL SCIENCE INSTITUTE
On November 18, 1996, the United States Bankruptcy Court of the Central
District of California (the "Court") (Case No. LA 95-37790 TD) approved the
First Amended Plan of Reorganization (the "MSI Plan") of Medical Science
Institute ("MSI") pursuant to which Nu-Tech acquired all of the capital stock of
MSI. Nu-Tech and MSI submitted the MSI Plan to the court on October 18, 1996.
MSI is engaged in the medical laboratory business primarily in the State of
California and had been operating under Chapter 11 of the U.S. Bankruptcy Code
since October 26, 1995. MSI provides clinical laboratory testing services,
including testing of human tissue and fluid specimens to physicians,
managed-care organizations, hospitals and other health care providers. MSI is a
California corporation with its principal executive offices located in Burbank,
California.
Pursuant to the MSI Plan, the holders of all of the MSI capital stock
(including any and all options, warrants and other convertible securities) will
receive 134,228 shares of Common Stock of Nu-Tech with an aggregate value of $2
million. The number of shares of Common Stock to be issued under the MSI Plan
are based upon the average closing price of a share of Common Stock on the
Nasdaq SmallCap Market for the 15 day period preceding November 18, 1996 ($14.90
per share). The recipients of Nu-Tech's Common Stock will be entitled to
"piggyback" registration rights with respect to such shares. The sole holder of
all capital stock of MSI is Fausto Mendez, Jr., the former President of MSI. Mr.
Mendez has the option to receive $275,000 in cash with a concurrent reduction in
the number of shares of Nu-Tech's Common Stock. NONE OF THE COMPANY'S SECURITIES
ISSUED IN CONNECTION WITH THE MSI ACQUISITION ARE BEING REGISTERED UNDER THE
REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS FORMS A PART.
In addition, Nu-Tech agreed to make certain other payments to creditors
and assume certain obligations under the MSI Plan. These payments include: (i)
approximately $750,000 to pay administrative claims of professionals (ii) an
additional $425,000 for professional administrative claims payable over 12
months (iii) approximately $572,000 payable for federal and state payroll taxes
(iv) approximately $2,500,000 to Austin Financial Services, Inc., a secured
creditor of MSI (v) trade payables in the amount of approximately $738,000 (vi)
$75,000 payable to the federal government in satisfaction of certain claims and
(viii) $750,000 payable to general
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<PAGE> 14
unsecured creditors. At the hearing confirming the MSI Plan held on November 18,
1996, the Company tendered $2,200,000 to the Court with respect to such
payments.
With respect to the sums payable under the MSI Plan to Austin
Financial, Nu-Tech obtained a loan in the principal amount of $2,500,000 from a
third party lender on December 2, 1996 and utilized the loan proceeds to pay off
Austin Financial. The loan bears interest at 15% per annum. All principal and
interest on the loan is payable on January 31, 1997. The loan is secured by the
Company's 16.4447% participation interest in a credit facility dated April 1,
1994 between the lender and Physician's Clinical Laboratory, which participation
represents the Company's purchase of the $13,300,000 of debt securities of PCL.
The loan is further secured by a personal guaranty of Nu-Tech's President, J.
Marvin Feigenbaum. The third party lender is a significant creditor of PCL and
has agreed to the terms of the PCL Plan. See "Risk Factors Need for Additional
Funds.".
Mr. Mendez, formerly President of MSI, has entered into an employment
agreement with MSI pursuant to which he will be employed at a salary of $182,000
per year. Mr. Mendez also has the right to serve on the Board of Directors of
MSI. Mr. Mendez was granted the right to borrow up to $100,000 from the Company,
to be secured by the shares of Common Stock received by him under the MSI Plan.
Mr. Mendez will also receive options to purchase 10,000 shares of Nu-Tech Common
Stock for every $1,000,000 of annual collectable revenues obtained by MSI
through the acquisition of other businesses by MSI in which Mr. Mendez acted as
the procuring cause. The options to be granted, if any, will bear an exercise
price equal to the fair market value of Nu-Tech's Common Stock at the time of
grant.
ACQUISITION OF BUSINESS ASSETS OF PROMPT MEDICAL BILLING, INC.
On October 21, 1996, the Company, through a newly formed wholly-owned
subsidiary, NTBM Billing Services, Inc. ("NTBM") acquired substantially all of
the medical billing service assets of Prompt Medical Billing, Inc., a privately
owned Florida corporation engaged in the medical billing service business in
Miami, Florida. The Company acquired the assets for a total consideration of
$675,000 consisting of $100,000 in cash and 37,404 shares of restricted common
stock. The number of shares may be subject to increase in the event the fair
market value of the shares at the termination of the two year period is less
than $500,000 or in the event that the holders thereof are unable to sell the
shares. All of the consideration paid by the Company has been placed into escrow
for a period of up to two years, to be released upon attainment of certain
performance levels. The Company has agreed to file a registration statement with
the Securities and Exchange Commission to register the shares for sale under the
Act prior to expiration of the two year escrow period. None of the shares issued
in connection with the Prompt Medical acquisition are being registered herein or
are included in this Prospectus. The cash consideration will be released from
escrow in eight quarterly installments of $12,500 together with interest.
Additionally, NTBM entered into a two-year employment agreement with a former
principal and executive officer of Prompt Medical who will have significant
management duties with respect to the operation of the business at a cost of
$20,000 per annum. NTBM also entered into a
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<PAGE> 15
consulting agreement with Health Systems Development Corporation for a term of
two years at approximately $5,000 per month plus commissions on new business.
NONE OF THE SHARES OF COMMON STOCK ISSUED IN CONNECTION WITH THE ACQUISITION OF
PROMPT MEDICAL'S BUSINESS ARE BEING REGISTERED IN THIS PROSPECTUS.
OTHER EVENTS
IMAGING SYSTEMS AGREEMENT
On April 20, 1995, ABC entered into an Agreement with Loats Associates,
Inc. ("Loats") pursuant to which Loats was engaged for the purpose of
evaluating, redesigning, configuring, assembling and installing a new and
improved version of the image system currently utilized by ABC in connection
with the quantitative evaluation of assays performed utilizing the FCA. Loats
was engaged by ABC to perform and complete the project on a work-for-hire
basis. The project was completed in December 1995 at a cost to the Company of
$300,000.
TERMINATION OF CLINICAL TRIALS AGREEMENT
On August 14, 1995, ABC entered into an agreement (the "Clinical Trials
Agreement") with a research institution (the "Institution") and certain
individuals (the "Principal Investigators") related to the conduct and
performance of certain proprietary research and development activities to be
performed and/or coordinated on a work-for-hire basis on behalf of ABC by the
Institution. The Clinical Trials Agreement was terminated by the Company in
August 1996 as a result of the Institution's inability to obtain the requisite
number of accruals. The Company is discussing new clinical trials with several
medical research institutions. There can be no assurance that the Company will
be successful in reaching agreements with these research institutions or that
the clinical trials will be completed.
RHODE ISLAND LABORATORY LICENSE
Analytical Biosystems has received approval, effective May 21, 1996,
from the State of Rhode Island Department of Health that its clinical laboratory
license had been expanded to include laboratory testing for routine chemistry,
histopathology and cytology and that the expanded testing approvals had been
added to the CLIA database.
The expansion of the clinical license will allow ABC to provide
additional services to health care providers and to bill third party insurance
carriers under existing CPT codes which are included in these licenses.
Management believes that these changes to its clinical license and the
resultant ability to utilize existing CPT codes increases ABC's ability to
obtain reimbursement for its testing procedures.
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<PAGE> 16
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Common Stock Outstanding
Prior to Offering (1) ............ 2,089,528 shares
Common Stock Outstanding
After the Offering (2) ........... 3,740,471 shares
Risk Factors .............................. This Offering involves a high degree of risk. See
"Risk Factors."
Use of Proceeds (3) ....................... All of the proceeds of this Offering will be paid to
the respective Selling Security Holders and none of
the proceeds will be received by the Company. See
"Use of Proceeds."
Nasdaq SmallCap Symbol .................... NTBM
Boston Stock Exchange Symbol .............. NTB
</TABLE>
- ---------------------
(1) Does not include (i) 350,000 shares of Common Stock reserved for
issuance under the Company's 1994 Incentive Stock Option Plan, of which
131,100 shares have been reserved for currently outstanding options and
218,900 shares are available for future issuances, (ii) 200,000 shares
of Common Stock reserved for issuance under the Company's Non-Executive
Director Stock Option Plan of which options to purchase 60,545 shares
have been issued and 139,455 shares are reserved for future issuances,
(iii) 13,715 shares reserved for currently outstanding options under
the Company's 1992 Incentive Stock Option Plan which has been
terminated; (iv) any shares of Common Stock to be issued under the
MSI Plan and (v) 1,487,845 shares reserved for issuance in connection
with other issued and outstanding options and warrants.
(2) Assumes the conversion of all of the shares of Series A Preferred Stock
at a conversion price of $8.48 (the average closing bid price of the
Common Stock on the Nasdaq SmallCap Market on December 9, 1996 less
25%) into 1,650,943 shares of Common Stock. Does not include (i)
350,000 shares of Common Stock reserved for issuance under the
Company's 1994 Incentive Stock Option Plan, of which 131,100 shares
have been reserved for currently outstanding options and 218,900 shares
are available for future issuances, and (ii) 200,000 shares of Common
Stock reserved for issuance under the Company's Non-Executive Director
Stock Option Plan of which options to purchase 60,545 shares have been
issued and 139,455 shares are reserved for future issuances, (iii)
13,715 shares reserved for currently outstanding options under the
Company's 1992 Incentive Stock Option Plan which has been terminated;
(iv) any shares of Common Stock to be issued under the MSI Plan and (v)
1,487,845 shares reserved for issuance in connection with other issued
and outstanding options and warrants.
12
<PAGE> 17
RISK FACTORS
An investment in the Shares of Common Stock offered hereby involves a
high degree of risk. The following factors, in addition to those discussed
elsewhere in this Prospectus should be considered carefully in evaluating the
Company and its business. An investment in the Shares is suitable only for those
investors who can bear the risk of loss of their entire investment.
SAFE HARBOR STATEMENT
Certain statements in this Prospectus, and Nu-Tech's Reports to the
Commission filed under the Securities Exchange Act of 1934 which are
incorporated by reference herein, constitute "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995 (the "1995
Reform Act"). Nu-Tech Bio-Med, Inc. desires to avail itself of certain "safe
harbor" provisions of the 1995 Reform Act and is therefore including this
special note to enable the Company to do so. Forward-looking statements included
in this Prospectus or hereafter included in other publicly available documents
filed with the Securities and Exchange Commission, reports to the Company's
stockholders and other publicly available statements issued or released by the
Company involve known and unknown risks, uncertainties, and other factors which
could cause the Company's actual results, performance (financial or operating)
or achievements to differ from the future results, performance (financial or
operating) achievements expressed or implied by such forward looking statement.
Such future results are based upon management's best estimates based upon
current conditions and the most recent results of operations. These risks
include, but are not limited to risks associated with recently consummated
acquisitions (including MSI and Prompt Medical), potential acquisitions
(including PCL), uncertainty of market acceptance of Analytical Biosystems' FCA,
dependence on reimbursement by third party payors, uncertainty of eligibility
for Medicare/Medicaid reimbursement, need for additional capital, certain patent
and technology considerations, health care reform, competition and technological
changes, limited facilities, governmental regulations, dependence upon key
personnel, professional and product liability, uncertainty of completion of the
PCL acquisition, and other risks detailed in the Company's Securities and
Exchange Commission filings, including its Annual Report on Form 10-KSB for the
year ended December 31, 1995 and Report on Form 10-QSB for the quarter ended
September 30, 1996, as well as recently filed Reports on Form 8-K, each of which
could adversely affect the Company's business and the accuracy of the forward
looking statements contained herein.
HISTORICAL LOSSES AND ACCUMULATED DEFICIT OF NU-TECH
Through the third quarter of the fiscal year ended September 30 1996,
Nu-Tech was classified as a development stage company for financial accounting
purposes by reason of the fact that it has not generated significant revenues
from operations prior to such date. Nu-Tech anticipates that as a result of the
acquisition of Prompt Medical and MSI, and resultant revenues, Nu-Tech shall no
longer be classified as a development stage company as of December 31, 1996.
Since 1990, the Company's principal business has been conducted through its
wholly-owned subsidiary, ABC. Prior to 1990, Nu-Tech, through other subsidiary
corporations, had
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<PAGE> 18
engaged in other unrelated businesses which have been discontinued. Since
inception (February 1, 1982) through September 30, 1996, the Company has
incurred an accumulated deficit during the development stage of approximately
$16,434,131. For the fiscal years ended December 31, 1995 and 1994, and the
fiscal quarter ended September 30, 1996, the Company incurred net losses of
approximately $2,089,000, $1,394,000 and $993,000, respectively. For the nine
month period ended September 30, 1996, the Company incurred losses of
approximately $2,558,000. The amount of stockholders equity at December 31, 1995
was approximately $2,588,000, approximately $2,062,000 at March 31, 1996 and
approximately $3,403,000 at September 30, 1996. The amount of its working
capital at June 30, 1996 was approximately $3,194,000 and $2,627,000 at
September 30, 1996. It is anticipated that the Company will continue to incur
losses until such time, if ever, that ABC attains sales of its FCA in amounts
sufficient to support its operations and/or the operations of MSI can be
stabilized and returned to profitability. There can be no assurance that the
Company will be able to successfully implement its marketing strategy, generate
significant revenues or achieve profitable operations in the future. See
Consolidated Financial Statements and Notes thereto appended to the Forms 10-KSB
and 10-QSB.
ACQUISITION OF PCL
PCL is currently operating under Chapter 11 of the United States
Bankruptcy Code. Nu-Tech and PLC have submitted a plan to the United States
Bankruptcy Court to acquire PCL which is incurring ongoing and significant
losses which Nu-Tech believes is at the rate of approximately $20,000,000
per year. Additionally, PCL is also in default on approximately $80,000,000 in
senior secured debt and approximately $40,000,000 in subordinated debt. The
Company purchased $13,300,000 of PCL Senior Debt in advance of submission of the
PCL Plan to the bankruptcy court. There can be no assurance the PCL acquisition
will be consummated or that the PCL Plan as submitted to the bankruptcy court
will be approved as submitted. Under such circumstances, in the event the PCL
Plan is not approved, the Company will be a creditor of PCL holding Senior Debt
in default.
In addition to the risks associated with the businesses of the Company
and PCL on an individual basis, the combined entity will present additional
risks solely by virtue of the combination of the two companies. Assuming the
acquisition of PCL is completed, the Company's size will increase substantially
and its operations will expand from one geographical area to three areas in
three states located on opposite ends of the country. There can be no
assurance that the PCL acquisition will be consummated in accordance with the
PCL Plan, if at all.
The Company anticipates that it will require additional funds of at
least $5,000,000 to consummate the PCL acquisition. Additionally, PCL will
require further funds to stabilize its operations following the acquisition and
may require funds to continue its operations during the pendency of the
bankruptcy proceedings. There can no assurance that these funds will be
available to either the Company or PCL.
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<PAGE> 19
ACQUISITION OF MSI
Nu-Tech has just recently completed the acquisition of MSI which
had been operating under Chapter 11 of the Bankruptcy Code since 1995. MSI
incurred losses of approximately $3,314,000 during the fiscal year ended
December 31, 1995 and of approximately $2,109,000 for the nine month period
ended September 30, 1996. There can be no assurance that the acquisition will
result in additional profits to the Company. In addition to the risks associated
with the businesses of the Company and MSI on an individual basis, the combined
entity will present additional risks solely by virtue of the combination of the
two companies. As a result of the MSI acquisition, the Company's size has
increased substantially and its operations have expanded from one geographical
area to two areas in two states located on opposite ends of the country.
RISKS OF COMBINED BUSINESSES
In addition to the risks associated with the businesses of Nu-Tech, MSI
and Prompt Medical on an individual basis, which have been described elsewhere
in this Prospectus, the combined entity will present additional risks solely by
virtue of the combination of these companies. Additionally, the Company has
proposed, as described elsewhere in this Prospectus, acquiring PCL. As a result
of the recently consummated acquisitions of Prompt Medical and MSI, Nu-Tech's
size has increased substantially and its operations have expanded from one
geographical area to three areas in three different states at opposite ends of
the country. Additionally, if the PCL acquisition is consummated as
contemplated, Nu-Tech's size will further increase and its operations will be
further expanded. Nu-Tech's existing management has no experience in operating a
company of such dimension and there can be no assurance management will be able
to effectively operate the combined entities.
NEED FOR ADDITIONAL FUNDS
The Company anticipates it will need additional capital of at least
$5,000,000 to consummate the PCL acquisition and an additional $3,000,000 for
operation of MSI. In addition, the Company must obtain funds in the amount of
$2,500,000 to repay the indebtedness incurred in connection with the MSI
acquisition, which indebtedness is due and payable in full, on January 31, 1997.
Additionally, the Company will require funding to finance the operation of ABC
and Nu-Tech. The Company, in the future, will also need additional funds from
loans and/or the sale of equity securities. No assurance can be given that such
funds will be available or, if available, will be on commercially reasonable
terms satisfactory to the Company. In the event such funds are not available,
the Company may be forced to curtail operations, or, in an extreme situation,
cease operations.
RISK FACTORS ASSOCIATED WITH MEDICAL LABORATORY BUSINESS
As a result of Nu-Tech's recent acquisition of MSI, and in light of
the Company's proposed acquisition of PCL, both of which are discussed elsewhere
in this Prospectus, the Company is presently, and will continue to be after the
consummation of the PCL acquisition, subject to numerous risks associated with
the medical laboratory business. Investors in the Shares are urged to consider
these risks in evaluating the Company and its new businesses.
Competition
Competition in the clinical laboratory industry is intense. Each of MSI
and PCL competes with other independent clinical laboratories as well as
laboratories located in physicians' offices and in hospitals. Several regional
and national independent clinical laboratories are larger and have greater
financial resources than either MSI or PCL. Each of MSI or PCL may encounter
more intense and varying levels of competition from other independent clinical
laboratory companies in the future. In addition, changes in the regulatory
environment in which each of MSI and PCL operates could affect the basis for
competition in the industry, and could thereby have a material adverse effect on
each of MSI and PCL's results of operations. There is also
15
<PAGE> 20
competition in the industry for acquisition candidates, and there can be no
assurance that such candidates will be available to Nu-Tech, MSI or PCL on
favorable terms, or at all.
The Stark Bill and Other Restrictions Referral
Each of MSI and PCL are subject to certain self-referral prohibitions
of Federal law, commonly known as the "Stark Bill." The Stark Bill, which became
effective January 1, 1992, generally prohibits MSI and PCL from billing the
Medicare program if the physician ordering the test (or an immediate family
member of such physician, as defined by Stark Bill) has an ownership or
investment interest in the Company, MSI or PCL or a compensation arrangement
with the Company. Ownership interests would include ownership of shares of
Common Stock purchased in the open market or otherwise. In the event that a
significant number of either MSI or PCL's referring physicians who, in the
aggregate, refer to either MSI or PCL a significant portion of their respective
Medicare-billed testing were to acquire and maintain ownership or investment
interests in either MSI or PCL, or enter into compensation agreements with
either MSI or PCL, and in such case either Nu-Tech, MSI or PCL were to continue
to perform testing services for such physicians comprising a significant portion
of either Nu-Tech, MSI or PCL's Medicare-billed testing, then either MSI or
PCL's inability to bill the Medicare program for tests ordered by such
physicians would have a material adverse effect on their respective revenues.
Each of MSI and PCL have internal procedures to identify referring physicians
who are stockholders of either Nu-Tech, MSI or PCL by asking such physicians to
indicate whether they own any securities of Nu-Tech, MSI or PCL on provided test
requisition forms. There can be no assurance that physicians have complied or in
the future will comply with these requests or accurately represent ownership of
any Common Stock. The Stark Bill also requires MSI and PCL to comply with
certain reporting requirements relating to physicians who have an ownership
interest in the Company and physicians who order tests from, and have a
compensation arrangement with, the Company. There can be no assurance that
either the Company, MSI or PCL will be able to obtain adequate information
concerning its physician stockholders to enable it fully to comply with these
reporting obligations. Proposed regulations implementing the Stark Bill also
would prohibit the Company, MSI and PCL from offering a physician price
discounts for laboratory services as an inducement for obtaining Medicare
referrals. Those regulations also would prohibit the purchase by the Company of
a physician-owned laboratory unless, for a period of one year before the
transaction and one year after the transaction, the physician had not had any
other financial relationship with the Company, MSI or PCL. Violations of the
Stark Bill could subject the Company to significant civil penalties or exclusion
from the Medicare program.
In August, 1993, Congress passed and the President signed the Omnibus
Budget Reconciliation Act of 1993 ("OBRA '93"), which amended certain important
provisions of the Stark Bill. OBRA '93 extended the prohibition on physician
self-referrals to all Medicare- and Medicaid-billable clinical laboratory
services, prohibiting the billing of such services to Medicare, Medicaid or any
other State plan. Under the amendments, physician ownership of shares in a
publicly traded corporation in which the average stockholder equity either at
the end of the corporations' most recent fiscal year or an average over the
prior three fiscal years exceeds $75
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<PAGE> 21
million will not be considered ownership or an investment interest subject to
the prohibition. While this exception is not relevant to the ownership of shares
in the Company at present, it may apply in the future.
In July, 1993 the California Legislature passed, and the Governor
signed, a comprehensive workers' compensation reform package. One of the
statutes prohibits the referral by a physician of workers' compensation medical
services to a clinical laboratory in which the physician or his or her family
has a financial interest. The term "financial interest" is defined very broadly,
covering many forms of direct or indirect payments, and includes interests which
are created or transferred to avoid the prohibition. The legislation exempts
referrals under the following circumstances: (1) when the physician's practice
is in a rural area and there is no alternative site within a reasonable
distance, (2) when the financial interest is a loan made on commercially
reasonable terms and the terms are not affected by referrals or volume of
services, (3) when the financial interest is a lease made on commercially
reasonable terms and the terms are not affected by referrals or volume of
services, (4) when the interest is ownership of securities in a public company
for which distribution or transfers for value are not based on referrals and
which has gross assets over $100 million (a condition which presently is not met
by the Company), (5) when the physician is not compensated for the referral or a
university employed physician refers to a university owned laboratory and (6)
when the laboratory is owned by the physician's group practice or the referral
is made by the physician's group practice to a multi-specialty clinic. The law
also requires disclosure to the patient of any financial interest of the
physician in the facility to which the referral is made. Violation of the law,
which is a misdemeanor, could subject MSI or PCL to fines and disciplinary
action, including license revocation.
Prohibitions of Mark-up of Laboratory Services
Clinical laboratories, physicians, hospitals and other health care
providers in California are subject to Section 655.5 of the California Business
and Professions Code. This statute prohibits those subject to the statute,
including MSI and PCL, in billing patients or third-party payors, from marking
up charges for any clinical laboratory services actually not rendered by the
provider. Approximately % of the net revenue of PCL for fiscal year ended
December 31, 1995 was attributable to tests performed for PCL to its customers.
Less than % of the net revenue for PCL for fiscal year ended December 31, 1995
was attributable to the marked-up portion of such charges. Approximately % of
the net revenue of MSI for fiscal year ended December 31, 1995 was attributable
to tests performed for MSI to its customers. Less than % of the net revenue
for MSI for fiscal year ended December 31, 1995 was attributable to the
marked-up portion of such charges.
Antikickback Laws
The Medicare/Medicaid antikickback statute prohibits laboratories from
paying remuneration as inducement for referrals of patients or specimens to
them for testing and contains severe penalties for violating fees for services
reimbursed by the Medicare or Medicaid (referred to in California as "MediCal")
programs. Nu-
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<PAGE> 22
Tech, PCL and MSI believe that their existing business relationships do not
violate this statute. Court decisions and an administrative decision suggest
that any direct or indirect payment conferred upon one who refers Medicare or
Medicaid patients by or on behalf of the referral recipient may violate the
statute if any part of the purpose of such benefits is to provide an incentive
for such referrals. In addition, a provider convicted of violating such laws
would b excluded from participation in the Medicare and MediCal programs. The
Office of Inspector General of the United States Department of Health and Human
Services has issued "safe harbor" regulations, which identify certain payment
practices which do not violate the antikickback statute. Although these
regulations protect certain types of investment interests, they do not protect
investments by physicians or hospitals in Nu-Tech, PCL or MSI or the purchase of
clinical laboratories from persons in a position to refer business to the
laboratory after the purchase occurs.
California law also prohibits the receipt or acceptance by licensed
physicians of various forms of consideration, including rebates, refunds,
discounts or preferences as compensation or inducement for referring patients,
clients or customers to any other person (including a clinical laboratory),
irrespective of any ownership which the physician may have in the entity to
which the referral is made or the source of payment of other services.
Laboratories that violate the California antikickback laws may be subject to
loss of licensure and substantial fines. In addition, a provider convicted of
violating such laws would be excluded from participation in the Medicare and
MediCal programs. Each of PCL and MSI believe that it satisfies the requirements
of California law with respect to its relationship with its physician-owners.
Medicare/MediCal Reimbursement
Laboratories are required to bill Medicare or MediCal directly for
services and supplies provided to patients under these programs and to accept
Medicare or MediCal reimbursement as payment in full. In 1984, Congress
established a reimbursement fee schedule for clinical laboratory testing
performed for Medicare beneficiaries (excluding hospital in-patients). State
Medicaid programs, including MediCal, are prohibited from paying more than the
Medicare fee schedule stipulates for testing for Medicaid beneficiaries. When
initially established, the Medicare fee schedules were set at 60% of prevailing
local charges. Medicare reimbursement rates for clinical laboratory testing
subsequently have been reduced several times pursuant to Congressional mandate.
The reductions in Medicare reimbursement rates have been offset to some extent
by increases in both the national cap and local fee schedules tied to the
Consumer Price Index ("CPI"). Further decreases in such fee schedules, however,
could have a material adverse effect on businesses and operations of PCL and
MSI. Proposals that would reduce the amounts reimbursable to independent
testing laboratories under the Medicare program are continuously under
consideration by Congress and the Executive Branch.
Capitation Risk
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Approximately ___% of the net revenue of PCL during its last fiscal
year was derived from testing performed on behalf of members of HMOs.
Approximately ___% of the net revenue of MSI during its last fiscal year was
derived from testing performed on behalf of members of HMOs. Each of MSI and PCL
is paid a fixed fee per month for each HMO member for whom it has agreed to
perform clinical laboratory services, and therefore is at risk that the variable
cost of providing such services will exceed the related revenues. To the extent
that a greater percentage of either MSI's or PCL's business in the future is
derived from capitated payments, this risk will be amplified and the revenues
and operations of each may be materially affected.
Management Information Systems
MSI's and PCL's testing operations and the level of service provided by
each of PCL and MSI to its clients are dependent upon the accurate and effective
operation of their respective management information systems. Any difficulty
associated with or failure of such systems even for a short period of time, or
any inability to expand processing capacity or develop and maintain networking
capability when needed, could have a material adverse effect upon MSI's and
PCL's results of operations.
Litigation and Liability Insurance Coverage
Although no significant liability has been imposed to date, each of
MSI, PCL and Nu-Tech could be subject to legal actions arising out of the
performance of its testing services, which could entail significant costs and
liabilities. There can be no assurance that Nu-Tech, MSI or PCL will not at some
time in the future incur significant liability arising out of such actions or
any other actions relating to past or future testing services. While each of
Nu-Tech, MSI and PCL currently maintains liability insurance, there can be no
assurance that such coverage is sufficient, that each of Nu-Tech, MSI and PCL
will be able to maintain such coverage with appropriate policy limits at an
acceptable cost or that each of Nu-Tech, MSI and PCL will have other resources
sufficient to satisfy any liability or litigation expense that may result from
any uninsured or underinsured claims.
OTHER RISKS
UNCERTAINTY OF MARKET ACCEPTANCE OF ANALYTICAL BIOSYSTEMS' FCA
Since 1986, ABC has performed over 4,100 assays on solid mass tumors
collected from over 250 different institutions and physicians. To date, however,
ABC has attempted only limited marketing of the FCA. Demand for and market
acceptance of the FCA is subject to a high degree of uncertainty, and there can
be no assurance that the FCA will ever achieve a sufficient level of market
acceptance to enable ABC to become profitable. The commercial success of ABC is
materially dependent upon its ability to educate the medical community
generally, and oncologists, surgeons, hospitals and HMOs in particular, of the
benefits and applications of ABC's assay, and to distinguish ABC's technology
from existing technology in the field and assays marketed by
19
<PAGE> 24
others. The process of educating the physician regarding the use and benefits of
a new technology such as the FCA is, in the Company's opinion, difficult. No
assurance can be given that ABC will be able to successfully recruit experienced
sales personnel or successfully implement its proposed sales and marketing
programs. In addition, as part of ABC's research and development and to enhance
the ability of ABC to proceed with its intended sales and marketing of the FCA,
ABC is seeking to develop new protocols to conduct new randomized prospective
clinical trials. While the clinical trials which the Company anticipates
conducting are not required as a condition to use or market the FCA, the Company
believes that the results will have a material effect upon the acceptance of the
Company's assay and the ultimate success of the Company's business, in that such
results would, if they demonstrate the efficacy of the FCA, be an added sales
and marketing tool. There is no assurance as to the results of such anticipated
non-mandatory clinical trials or the time over which such trials will be
completed.
DEPENDENCE ON REIMBURSEMENT BY THIRD PARTY PAYORS
The success of ABC in being able to market its FCA, in addition to
educating potential users, will be dependent upon its ability to obtain routine
reimbursement approval from third party payors. Additionally, the businesses of
both MSI and PCL are dependent upon reimbursement for services. Reimbursement
for diagnostic tests is typically determined by reference to whether such tests
are generally accepted as standard medical practice by each third party payor,
how the charges for such tests compare to charges for established tests for
similar indications, and whether the charges are within the range of usual and
customary services. Such determinations are independently made by each third
party payor. Third party payors also consider whether a test will further the
general objective of health care cost containment and enhance the potential for
the reduction of treatment costs. ABC has recently received an expanded license
from the State of Rhode Island which allow ABC to utilize existing CPT codes for
portions of its laboratory services and which ABC anticipates will enable ABC to
obtain reimbursement for certain of its services. There can be no assurance that
ABC will be able to maintain reimbursement approval on a routine basis from
enough additional third party payors so as to have a significant impact on the
marketing of the FCA. In the absence of third party reimbursement, the Company
will be dependent upon direct patient payment. Such dependence may affect the
amount and collectability of receivables of ABC.
CERTAIN PATENT AND TECHNOLOGY CONSIDERATIONS
Prior to the acquisition of Prompt Medical and MSI, the Company's
primary business was the FCA being marketed through Analytical Biosystems. ABC
is the owner of three patents granted by the United States Patent Office
relating to the FCA and its integral technology, as well as foreign patents
which are founded upon its United States patents. The Company views ABC's
patents as being material to ABC's business, its future success, and its ability
to compete. The three United States patents were originally issued in 1985, 1988
and 1990, and the protection afforded the Company by virtue of such patents will
expire in the years 2002, 2005 and 2007,
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<PAGE> 25
respectively. On and after the respective dates of the expiration of the
Company's patents, the Company's patented technology may become generally
available to the marketplace.
ABC's success will depend in part on its ability to defend its patents,
maintain trade secrets and operate without infringing upon the proprietary
rights of others, both in the United States and in foreign countries. In
addition, there can be no assurance that any patents issued to ABC will not be
challenged, invalidated or circumvented, or that the rights granted thereunder
will afford ABC protection from competitive products or processes. Furthermore,
there can be no assurance that ABC or the Company will have the financial or
other resources necessary to enforce or to defend a patent infringement or
proprietary rights violation action. Neither ABC nor Nu-Tech is aware of any
objection or challenge to its patents or of any asserted claim of patent
infringement.
The Company also relies on certain proprietary trade secrets and
know-how, which are not patentable, and on certain ancillary technologies which
are not patentable or proprietary and are therefore available to the Company's
competitors. Although the Company has taken steps to protect its unpatented
trade secrets and know-how, there can be no assurance that the Company's trade
secrets will not otherwise become known or be independently developed or
discovered by competitors.
The ability of ABC to obtain patents and similar rights and the nature,
extent and enforceability of the intellectual property rights that may be
obtained as a result of ABC's research efforts involve complex legal and factual
concerns. Discoveries made or developed by the Company may not qualify for
patents or if qualified, may be subject to challenge or to protracted
proceedings. In addition, other public or private concerns, including
universities, may hold or have filed patent applications and have been issued
patents on inventions or otherwise possess proprietary rights to technology
which may be necessary to commercially implement the Company's inventions. The
extent to which the Company may be required to license other patents or
proprietary rights, and the cost and availability of such licenses, are
presently unknown. There can be no assurances that others may not independently
develop similar technology or otherwise obtain access to the Company's know-how.
HEALTH CARE REFORM
The Clinton Administration and various Congressional and private
parties have proposed various plans to continue the reform of health care.
Numerous alternatives are under consideration, including mandated basic health
care benefits, controls on health care spending, price controls, the creation of
large insurance purchasing groups and fundamental changes in the health care
delivery system. In addition, several states have passed and implemented, or are
considering, various health care reform proposals. The various proposals and
plans may affect the businesses and operations of each of Nu-Tech, MSI, NTBM and
ABC, as well as PCL. Although ABC believes its FCA to be cost-effective in
overall chemotherapy treatment, changes in the level of support by federal and
state governments of health care services, the methods by
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<PAGE> 26
which such services may be delivered and the prices for such services may all
have a materially adverse impact on the Company's ability to achieve and sustain
a profit. Health care reform could also reduce the profitability of certain
medical institutions and, in turn, adversely impact the fees Nu-Tech, MSI, PCL,
NTBM and ABC are able to charge for their services. The Company cannot predict
which, if any, health care reform plan might be adopted or, if adopted, the
effect on these businesses.
COMPETITION AND TECHNOLOGICAL CHANGES
At the present time, there are several companies which commercially
market chemoresistant assays in addition to general oncology related laboratory
services. The Company believes that it is the only company currently marketing a
patented chemosensitivity assay in the United States. ABC believes that it
competes based upon its patented technology, the high evaluability rate (i.e.,
the ability to successfully test the tumor) for most types of human solid
tumors, and the positive and negative predictive accuracy of ABC's FCA assay.
There can be no assurance that ABC's competitors will not succeed in developing
technologies and services that are more accurate and effective than ABC's FCA or
any other assay which may be developed by ABC or that would render the Company's
technology and services obsolete or noncompetitive. In addition, in the event of
the future development and approval of chemotherapeutic drugs which are not
capable of being assayed by the FCA and such drugs become commonly used, such
event may materially affect the ability of Analytical Biosystems to market the
FCA.
In addition, there are many public and private companies, including
several well-known pharmaceutical companies and specialized biotechnology
companies, universities and research centers, engaged in developing therapeutic
and diagnostic products for the treatment of cancer. Many of ABC's competitors
have substantially greater financial and technological resources than the
Company or Analytical Biosystems, and have significantly greater experience in
sales and marketing and research and development. Such companies may be more
successful in developing alternate methods to predict the effectiveness or
non-effectiveness of chemotherapeutic drugs on an individual cancer patient.
LIMITED FACILITIES FOR FCA SERVICES
ABC currently has limited laboratory facilities at which to perform its
FCA services. Since 1986, the Company has performed over 4,100 assays and
currently is performing approximately 20 assays per month. The Company believes
that ABC's present facilities are adequate to allow ABC to perform up to
approximately 900 assays per month. No assurance may be given that the Company
will have adequate or sufficient cash resources to fund necessary expansion of
facilities and equipment to fully accommodate its future needs, or that
additional capital for such purposes will be available to it. Such circumstances
would have an adverse effect upon the ABC's ability to maximize its business
potential. Although as a result of the MSI acquisition and proposed PCL
acquisition the Company has and will have additional laboratory facilities at
its disposal, there can be no
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<PAGE> 27
assurance that the operations of ABC will be positively augmented by or assumed
by these new facilities.
PLEDGE OF PRINCIPAL ASSETS TO SECURE EXISTING LOANS
FROM THE STATE OF RHODE ISLAND
In connection with a series of loans obtained during 1993 and 1994 by
the Company from the State of Rhode Island Economic Development Small Business
Loan Fund Corporation ("SBLFC") in the principal aggregate amount of $791,000,
the Company executed two patent security agreements granting the SBLFC a
security interest in ABC's patents to secure $541,000 of the $791,000 of SBLFC
loans (the principal balance of which, as of September 30, 1996, was
approximately $370,000). All of the SBLFC loans, including those which are
subject to the patent security interest, are further secured by a security
interest in the Company's accounts receivable, inventory and equipment. Each of
these loans is for a term of five years from its respective loan date, bear
interest at the rate of 5.4% and, as to each loan, after the first year is
amortized monthly as to principal and interest. The aggregate amount of monthly
loan repayments are approximately $18,000 per month for the remainder of the
loan terms. In the event that the Company, for whatever reason, is unable to
continue to meet its loan repayment obligations, its assets will be subject to
the rights of the SBLFC as a secured party. Further, until the SBLFC loans are
repaid, it is unlikely that the Company or ABC will be able to obtain additional
secured financing.
GOVERNMENTAL REGULATION
The Company is subject to regulation by the Health Care Financing
Administration ("HCFA"), a division of the United States Department of
Health and Human Services, under the Clinical Laboratories Improvement Act of
1988 ("CLIA"). These regulations mandate that all clinical laboratories be
certified to perform testing on human specimens and provide specific conditions
for certification. These regulations also contain guidelines for the
qualification, responsibilities, training, working conditions and oversight of
clinical laboratory employees. In addition, specific standards are imposed for
each type of test which is performed in a laboratory. CLIA and the regulations
promulgated thereunder are enforced through continuous quality inspections of
test methods, equipment, instrumentation, materials and supplies on a biennial
and "spot" basis. Any change in CLIA or these regulations or in the
interpretation thereof could have a materially adverse effect on the Company's
business, prospects, financial condition or results of operations. To its
knowledge, the Company is in compliance with the currently applicable
regulations of HCFA. At the present time, the United States Food and Drug
Administration ("FDA") does not regulate the FCA. In addition, the extent of
potentially adverse government regulations which might arise from future
legislation or administrative action cannot be predicted.
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<PAGE> 28
DEPENDENCE UPON KEY PERSONNEL
The Company is dependent upon the executive abilities of its Chairman,
J. Marvin Feigenbaum, to implement its present and anticipated future plans and
programs. Mr. Feigenbaum has no background or training as a scientist, nor is
Mr. Feigenbaum a physician. The Company has entered into an employment agreement
with Mr. Feigenbaum for a term ending November 30, 1997, and has obtained, for
its benefit, a policy of key man life insurance on the life of Mr. Feigenbaum in
the amount of $1,000,000. The loss of Mr. Feigenbaum's services may have a
materially adverse effect on the business or prospects of the Company.
Additionally, as a result of the recent acquisitions of Prompt Medical and MSI,
as well as the pending acquisition of PCL, current management, especially Mr.
Feigenbaum, has been unable to devote full-time to operating ABC and the
marketing of the FCA. The Company will be required to hire additional management
or retain existing management at MSI and PCL in order to operate such
businesses. In light of the financial difficulties of both MSI and PCL,
culminating in their bankruptcy filings, it may be difficult for the Company,
MSI or PCL to attract qualified personnel to these businesses. There can be no
assurance that the Company will be successful in retaining current management or
hiring qualified persons to operate these businesses.
PROFESSIONAL AND PRODUCT LIABILITY
As a clinical laboratory performing assay services and other medical
laboratory services, the Company may be subject to professional and/or product
claims. While no claims have been asserted against or instituted to date arising
out of the performance by the Company of any assay, any such actions in the
future may subject the Company to liability for damages and significant costs
associated with the defense of such action or claim. ABC presently maintains
professional liability insurance in the amount of $1,000,000 per claim and
$3,000,000 aggregate as well as product liability insurance in the amount of
$2,000,000 per occurrence and $4,000,000 aggregate. In addition, both MSI and
PCL maintain professional liability insurance in the amount of $1,000,000 per
claim and $3,000,000 aggregate, and product liability insurance in the amount of
$1,000,000 per occurrence and $2,000,000 aggregate. There can be no assurance,
however, that this coverage will be adequate to protect the Company, ABC, AMSI
or PCL against future claims or that insurance will be available to the Company,
MSI or PCL in the future on acceptable terms, if at all, or that a liability or
other claim would not materially and adversely affect the business, prospects,
financial condition or results of operations of the Company, ABC, MSI or PCL.
The Company intends, however, if feasible, to increase the amounts of such
insurance coverage to such greater amount as management, in its discretion, may
determine having due regard to the cost of such insurance coverage.
CLASSIFIED BOARD OF DIRECTORS
On November 14, 1994, at a Special Meeting of Stockholders in Lieu of
Annual Meeting, the Company's stockholders authorized and approved an amendment
to the Company's Certificate of Incorporation to provide for a classified Board
of Directors consisting of three classes or
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<PAGE> 29
directors with terms which currently expire at the 1997, 1998 and 1999 Annual
Meeting of Stockholders. Any further amendment to the Company's Certificate of
Incorporation affecting the classified Board may only be adopted upon the
affirmative vote of not less than 75% of the issued and outstanding shares
entitled to vote thereon.
NO DIVIDENDS AND NONE ANTICIPATED
Nu-Tech has never declared nor paid a dividend on any shares of its
capital stock and the Board of Directors intends to continue this policy for the
foreseeable future.
SHARES ELIGIBLE FOR RESALE
The Company currently has 2,089,528 shares of Common Stock issued and
outstanding, of which shares may be deemed "restricted securities" as
that term is defined under the Securities Act of 1933, as amended. Such
restricted securities may be sold in the future only pursuant to registration
under the Act or an exemption therefrom, including Rule 144 promulgated
thereunder.
Upon the effectiveness of the registration statement of which this
Prospectus forms a part, all 1,650,943 Shares offered hereby shall be eligible
for immediate sale in the public market. This represents an increase of
approximately 79% in the total issued and outstanding shares of Common Stock of
the Company. Sales of the Shares offered hereby could adversely affect the
market price of the Company's Common Stock.
Additionally, the Company has simultaneously herewith (or anticipates
filing shortly) filed with the Securities Exchange Commission registration
statements to register for sale an additional 2,789,431 shares of Common Stock
of the Company. Sales of such additional shares will have an adverse effect
upon the price of the Company's Common Stock.
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<PAGE> 30
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
Shares of Common Stock offered hereby.
26
<PAGE> 31
SELLING SECURITY HOLDERS AND
TRANSACTIONS WITH SELLING SECURITY HOLDERS
<TABLE>
<CAPTION>
PERCENTAGE
SHARES SHARES OF SHARES
BENEFICIALLY OWNED OWNED
OWNED PRIOR AFTER AFTER
NAME OF TO OFFERING SHARES OFFERING OFFERING
SECURITY HOLDER (1) OFFERED (2) (2)
<S> <C> <C> <C> <C>
Buchanan Fund, Ltd. 29,481 29,481 0 0
Buchanan Partners Ltd. 29,481 29,481 0 0
Mifal Klita 117,924 117,924 0 0
Vermont Organization for
Jewish Education 58,962 58,962 0 0
Milton Partners 117,924 117,924 0 0
Citra Trading 35,377 35,377 0 0
Yisroel Goldstein 14,150 14,150 0 0
Champion Partners 25,943 25,943 0 0
Israel Daniel Levy 117,924 117,924 0 0
Agudath Shalom Banaich 18,867 18,867 0 0
Avraham Cohen 23,584 23,584 0 0
Bishop Merchant Group, Ltd. 235,849 235,849 0 0
BMD Partners 11,792 11,792 0 0
Albert Yanni 35,377 35,377 0 0
Futures Brokerage, Inc. 17,688 17,688 0 0
Blumfield Investment Inc. 35,377 35,377 0 0
Fanny Brach 70,754 70,754 0 0
Wayne Invest & Trade, Inc. 35,377 35,377 0 0
UFH Endowment Ltd. 8,844 8,844 0 0
United International Ins. Co. 2,948 2,948 0 0
Nachum Stein 8,844 8,844 0 0
Kentucky National Ins. Co.
</TABLE>
27
<PAGE> 32
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Rutgers Casualty Ins. Co. 8,844 8,844 0 0
F&N Associates 5,896 5,896 0 0
Eli Itzinger 23,584 23,584 0 0
Melvin Feigenbaum 11,792 11,792 0 0
Kenneth Orr (4) 41,273 41,273 0 0
Stewart J. Kahn 11,792 11,792 0 0
M. Klos Weinberger 11,792 11,792 0 0
Shalom Steinberg 22,405 22,405 0 0
Refco Capital Markets, Inc. 117,924 117,924 0 0
Red Rock Management Corp. 35,377 35,377 0 0
Granat 70,754 70,754 0 0
Gorra 58,962 58,962 0 0
Barras 58,962 58,962 0 0
J&B Associates
Profit Sharing Plan & Trust 35,377 35,377 0 0
Maslo Fund, Ltd. 54,245 54,245 0 0
</TABLE>
- ------------------------------
(1) Assumes a conversion price of $8.48 per share for each Share of Series
A Preferred Stock.
(2) Does not include (i) 350,000 shares of Common Stock reserved for
issuance under the Company's 1994 Incentive Stock Option Plan, of which
131,100 shares have been reserved for currently outstanding options and
218,900 shares are available for future issuances, (ii) 200,000 shares
of Common Stock reserved for issuance under the Company's Non-Executive
Director Stock Option Plan of which options to purchase 60,545 shares
have been issued and 139,455 shares are reserved for future issuances,
(iii) 13,715 shares reserved for currently outstanding options and
under the Company's 1992 Incentive Stock Option Plan which has been
terminated; (iv) any shares of Common Stock to be issued under the MSI
Plan and (v) 1,487,845 shares reserved for issuance in connection with
other options and warrants.
(3) Assumes the conversion of all of the shares of Series A Preferred Stock
at a conversion price of $8.48 (the average closing bid price of the
Common Stock on the Nasdaq SmallCap Market on December 9, 1996 less
25%) into 1,650,943 shares of Common Stock. Does not include (i)
350,000 shares of Common Stock reserved for issuance under the
Company's 1994 Incentive Stock Option Plan, of which 131,100 shares
have been reserved for currently outstanding options and 218,900 shares
are available for
28
<PAGE> 33
future issuances, and (ii) 200,000 shares of Common Stock reserved for
issuance under the Company's Non-Executive Director Stock Option Plan
of which options to purchase 60,545 shares have been issued and 139,455
shares are reserved for future issuances, (iii) 13,715 shares reserved
for currently outstanding options and under the Company's 1992
Incentive Stock Option Plan which has been terminated; (iv) any shares
of Common Stock to be issued under the MSI Plan and (v) 1,487,845
shares reserved for issuance in connection with other options and
warrants.
(4) Mr. Orr is a principal of First Cambridge Securities Corp., a
registered NASD broker - dealer and which may, from time to time, be
a "market maker" in the Company's Common Stock. First Cambridge acted
as placement agent in connection with the Company's private placement
in April 1996.
29
<PAGE> 34
DESCRIPTION OF SECURITIES
THE COMPANY'S AUTHORIZED CAPITALIZATION CONSISTS OF 12,000,000 SHARES
OF COMMON STOCK, PAR VALUE $.01 PER SHARE AND 1,000,000 SHARES OF PREFERRED
STOCK, PAR VALUE $.01 PER SHARE, WHICH MAY BE ISSUED IN ONE OR MORE SERIES. AS
OF THE DATE HEREOF, THERE WERE 2,089,528 SHARES OF COMMON STOCK OUTSTANDING AND
14,000 SHARES OF SERIES A PREFERRED STOCK OUTSTANDING. NO OTHER SHARES OR
CLASSES OF PREFERRED STOCK HAVE BEEN AUTHORIZED OR ISSUED. THE FOLLOWING SUMMARY
DESCRIPTION OF THE COMMON STOCK AND PREFERRED STOCK ARE QUALIFIED IN THEIR
ENTIRETY BY REFERENCE TO THE COMPANY'S ARTICLES OF INCORPORATION.
COMMON STOCK
Each share of Common Stock entitles its holder to one non-cumulative
vote per share and, the holders of more than fifty percent (50%) of the shares
voting for the election of directors can elect all the directors if they choose
to do so, and in such event the holders of the remaining shares will not be able
to elect a single director. Holders of shares of Common Stock are entitled to
receive such dividends as the Board of Directors may, from time to time, declare
out of Company funds legally available for the payment of dividends. Upon any
liquidation, dissolution or winding up of the Company, holders of shares of
Common Stock are entitled to receive pro rata all of the assets of the Company
available for distribution to shareholders after the satisfaction of the
liquidation preference of the Preferred Stockholders.
Shareholders do not have any pre-emptive rights to subscribe for or
purchase any stock, warrants or other securities of the Company. The Common
Stock is not convertible or redeemable. Neither the Company's Certificate of
Incorporation nor its By-Laws provide for pre-emptive rights.
PREFERRED STOCK
General. The Preferred Stock may be issued in one or more series, to be
determined and to bear such title or designation as may be fixed by resolution
of the Board of Directors prior to the issuance of any shares thereof. Each
series of the Preferred Stock will have such voting powers (including, if
determined by the Board of Directors, no voting rights), preferences, and other
rights as determined by the Board of Directors, with such qualifications,
limitations or restrictions as may be stated in the resolutions of the Board of
Directors adopted prior to the issuance of any shares of such series of
Preferred Stock.
Because the terms of each series of Preferred Stock may be fixed by the
Company's Board of Directors without shareholder action, the Preferred Stock
could be issued with terms calculated to defeat a proposed takeover of the
Company, or to make the removal of the Company's management more difficult.
Under certain circumstances, this could have the effect of decreasing the market
price of the Common Stock. Management of the Company is not aware of any such
threatened transaction to obtain control of the Company.
30
<PAGE> 35
SERIES A CONVERTIBLE PREFERRED STOCK
The Company filed a Certificate of Designation (the "Certificate of
Designation") on October 23, 1996 which was subsequently amended on November 20,
1996 with the Secretary of State of Delaware designating 14,000 shares of
Preferred Stock as "Series A Convertible Preferred Stock." The following is a
summary of the rights, preferences and privileges of the Series A Preferred
Stock.
Dividends. Holders of shares of the Series A Stock are not be entitled
to receive dividends in cash or otherwise.
Liquidation Rights. In case of the voluntary or involuntary
liquidation, dissolution or winding up of the Company, holders of shares of
Series A Preferred Stock are entitled to receive the liquidation price of $1,000
per share before any payment or distribution is made to the holders of the
Common Stock or any other series or class of the Company's stock hereafter
issued which ranks junior as to liquidation rights to the Series A Preferred
Stock. The holders of the shares of the Series A Preferred Stock will not be
entitled to receive the liquidation price of such shares until the liquidation
price of any other series or class of the Company's stock hereafter issued which
ranks senior as to the liquidation rights to the Series A Preferred Stock
("senior liquidation stock") has been paid in full. There is no prohibition upon
the Company's creation of senior liquidation stock. See "Voting Rights." The
holders of Series A Preferred Stock and all series or classes of the Company's
stock hereafter issued which rank on a parity as to liquidation rights with the
Series A Preferred Stock ("parity liquidation stock") are entitled to share
ratably, in accordance with the respective preferential amounts payable on such
stock, in any distribution (after payment of the liquidation price of the senior
liquidation stock) which is not sufficient to pay in full the aggregate of the
amounts payable thereon. After payment in full of the liquidation price of the
shares of the Series A Preferred Stock, the holders of such shares will not be
entitled to any further participation in any distribution of assets by the
Company. Neither a consolidation or merger of the Company with another
corporation, nor a sale or transfer of all or part of the Company's assets for
cash, securities or other property will be considered a liquidation, dissolution
or winding up of the Company.
Voting Rights. The holders of the Series A Preferred Stock will be not
entitled to voting rights except as required by Delaware Corporate Law.
Redemption. The Series A Preferred Stock is not redeemable by the
Company at any time.
Conversion Rights. Commencing on the 45th day following the closing of
the Offering Period, and on the 75th and 105th days following the closing of the
Offering Period, on each such date one-third of the Shares sold in the Offering
will be convertible into Common Stock, at the option of the holder. The Shares
will be convertible into such number of shares of Common Stock (the "Conversion
Shares") as shall equal $1,000 divided by a Conversion Rate equal to the lesser
of (i) 75% of the average closing price of the Common Stock on the Nasdaq
SmallCap Market for the 5 trading days immediately preceding the date of the
holder's notice of conversion or (ii) $17.50, subject to adjustment as described
below. No fractional shares will be issued and, in lieu of any fractional share,
cash in an amount based on the then current market price, determined as provided
in the Certificate of Designation, of the Common Stock will be paid.
31
<PAGE> 36
The conversion rate of the Series A Preferred Stock is subject to
adjustment in certain circumstances, including the payment of a stock dividend
on shares of the Common Stock, combinations and subdivisions of the Common
Stock, certain reclassifications of the Common Stock, and certain cash dividends
and distributions of evidences of indebtedness or assets to holders of certain
of the Company's capital stock. No adjustment in the conversion rate is required
unless it would result in at least a 1% increase or decrease in the conversion
rate; however any adjustment not made is carried forward. No adjustment need be
made in the conversion rate in any of the foregoing cases if the holders of the
Series A Preferred Stock participate in the distribution or transaction on a
basis and with notice that the Board of Directors determines to be fair to the
holders of the Series A Stock.
In case of any consolidation or merger of the Company with any other
corporation (other than a wholly-owned subsidiary), or in case of sale or
transfer of all or substantially all of the assets of the Company, or in the
case of any share exchange whereby the Common Stock is converted into other
securities or property, the Company will be required to make appropriate
provision so that the holder of each share of Series A Preferred Stock then
outstanding will have the right thereafter to convert such share of Series A
Preferred Stock into the kind and amount of shares of stock and other securities
and property receivable upon such consolidation, merger, sale, transfer or share
exchange by a holder of the number of shares of Common Stock into which such
share of Series A Preferred Stock might have been converted immediately prior to
such consolidation, merger, sale, transfer or share exchange.
Mandatory Conversion. In the event that less than all of the Shares of
Series A Preferred Stock are not converted prior to the date which is 270 days
from the closing of the Offering Period, then the Company has the right, upon 30
days prior notice to cause all remaining outstanding Shares of Series A
Preferred Stock to be mandatorily converted into Common Stock at the then
applicable conversion rate.
Registration Rights and Adjustment. Under the terms of the Series A
Preferred Stock, and a registration rights agreement entered into among the
Company and the holders of the Series A Preferred Stock, the Company agreed that
it would use its best efforts to file with, and have declared effective by, the
Commission a registration statement with respect to the shares of Common Stock
underlying the Series A Preferred Stock within 120 days of receipt of a demand
notice from the holders of the Series A Preferred Stock. This Prospectus forms a
part of the registration statement filed by the Company in response to the
demand notice received by the Company. Under the terms of the Series A Preferred
Stock, in the event the registration statement is not declared effective within
such 120 day period, the then applicable conversion price would be reduced by
10%. In addition, for each 30 day period beyond the 120 period that the
registration statement is not declared effective, the then applicable conversion
price is subject to further reduction of 2%, up to an aggregate of 12%.
No Sinking Fund. The Company is not required to provide for the
retirement or redemption of the Series A Preferred Stock through the operation
of a sinking fund.
Other Provisions. The shares of Series A Preferred Stock, when issued,
will be duly and validly issued, fully paid and nonassessable. The holders of
the shares of the Series A Stock have no pre-emptive rights with respect to any
shares of capital stock of the Company or any other securities of the Company
convertible into or carrying rights or options to purchase any such shares.
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<PAGE> 37
TRANSFER AGENT
The transfer agent for the Company's Common Stock is American Stock
Transfer and Trust Company, 40 Wall Street, New York, New York 10004. The
Company acts as its own transfer agent for the Series A Preferred Stock.
PLAN OF DISTRIBUTION
The Shares of Common Stock underlying the Series A Preferred Stock
issuable to Selling Security Holders upon exercise thereof, may be offered and
sold from time to time by the Selling Stockholders as market conditions permit
in the over-the-counter market, or otherwise, at prices and terms then
prevailing or at prices related to the then-current market price, or in
negotiated transactions. The Shares offered hereby may be sold by one or more of
the following methods, without limitation: (a) a block trade in which a broker
or dealer so engaged will attempt to sell the shares as agent but may position
and resell a portion of the block as principal to facilitate the transaction;
(b) purchases by a broker or dealer as principal and resale by such broker or
dealer for its account pursuant to this Prospectus; (c) ordinary brokerage
transactions and transactions in which the broker solicits purchasers; and (d)
face-to-face transactions between sellers and purchasers without a
broker-dealer. In effecting sales, brokers or dealers engaged by the Selling
Stockholder may arrange for other brokers or dealers to participate. Such
brokers or dealers may receive commissions or discounts from the Selling
Stockholders in amounts to be negotiated immediately prior to the sale. Such
brokers and dealers and any other participating brokers or dealers may be deemed
to be "underwriters" within the meaning of the Securities Act of 1933, in
connection with such sales.
Mr. Kenneth Orr, a principal of First Cambridge Securities Corp., is a
Selling Security Holder. First Cambridge is a registered broker dealer and a
market maker in the Common Stock of the Company. Under certain circumstances
Rule 10b.6 promulgated under the Securities Exchange Act of 1934 may be
preclude First Cambridge from making a market in any of the Company's
Securities for up to nine business days prior to the sale of the Shares by Mr.
Orr pursuant to this Prospectus and continuing until he has completed the
distribution of his Shares. The cessation of market making activities by First
Cambridge during the distribution of the Shares hereby may have a material
adverse effect on the market, including price, for the Common Stock.
REPORTS TO SHAREHOLDERS
The Company distributes annual reports to its stockholders, including
consolidated financial statements examined and reported on by independent
auditors, and will provide such other reports as management may deem necessary
or appropriate to keep stockholders informed of the Company's operations.
LEGAL MATTERS
The legality of the offering of the Shares will be passed upon for the
Company by Goldstein & DiGioia, LLP, 369 Lexington Avenue, New York, New York
l00l7.
33
<PAGE> 38
EXPERTS
The financial statements of Prompt Medical Billing, Inc. For the period
from March 1, 1994 (date of inception) to December 31, 1994 and for the year
ended December 31, 1995 appearing in Nu-Tech Bio-Med's Report on Form 8-K/A
filed November 14, 1996 have been audited by McClain & Company LLP, as set forth
in their report thereon included therein and incorporated herein by reference.
Such financial statements are incorporated herein by reference in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of Nu-Tech Bio-Med, Inc.
appearing in Nu-Tech Bio-Med's Annual Report (Form 10-KSB) for the year ended
December 31, 1995, have been audited by Ernst & Young LLP, independent auditors,
as set forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed a Registration Statement under the Act with the
Securities and Exchange Commission (the "Commission"), with respect to the
securities offered by this Prospectus. This Prospectus does not contain all of
the information set forth in the Registration Statement. For further information
with respect to the Company and such securities, reference is made to the
Registration Statement and to the exhibits and schedules filed therewith. Each
statement made in this Prospectus referring to a document filed as an exhibit to
the Registration Statement is qualified by reference to the exhibit for a
complete statement of its terms and conditions. The Registration Statement,
including exhibits thereto, may be inspected without charge to anyone at the
office of the Commission, and copies of all or any part thereof may be obtained
from the Commission's principal office in Washington, D.C. upon payment of the
Commission's charge for copying.
34
<PAGE> 39
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Expenses in connection with the issuance and distribution of the
securities being registered herein are estimated.
Amount
Securities and Exchange Commission
Registration Fee.................................................. $ 5,659
Printing and Engraving Expenses.................................... $ 2,000
Accounting Fees and Expenses....................................... $ 15,000
Legal Fees and Expenses............................................ $ 20,000
Blue Sky Fees and Expenses......................................... $ 500
Transfer Agent and Registrar Fees.................................. $ 1,000
Miscellaneous Fees and Expenses.................................... $ 500
=======
Total.......................... $ 44,659
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The General Corporation Law of Delaware provides generally that a
corporation may indemnify any person who was or is a party to or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative, or investigative in nature,
by reason of the fact that he is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys' fees)
and, in a proceeding not by or in the right of the corporation, judgments, fines
and amounts paid in settlement, actually and reasonably incurred by him in
connection with such suit or proceeding, if he acted in good faith and in a
manner believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reason to believe his conduct was unlawful. Delaware law further provides that a
corporation will not indemnify any person against expenses incurred in
connection with an action by or in the right of the corporation if such person
shall have been adjudged to be liable for negligence or misconduct in the
performance of his duty to the corporation unless and only to the extent that
the court in which such action or suit was brought shall determine that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for the expenses
which such court shall deem proper.
II-1
<PAGE> 40
The By-Laws of the Company provide for indemnification of officers and
directors of the Company to the greatest extent permitted by Delaware law for
any and all fees, costs and expenses incurred in connection with any action or
proceeding, civil or criminal, commenced or threatened, arising out of services
by or on behalf of the Company, providing such officer's or director's acts were
not committed in bad faith. The By-Laws also provide for advancing funds to pay
for anticipated costs and authorizes the Board to enter into an indemnification
agreement with each officer or director.
In accordance with Delaware law, the Company's Certificate of
Incorporation contains provisions eliminating the personal liability of
directors, except for (i) breaches of a director's fiduciary duty of loyalty to
the Company or to its stockholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of the law, and
(iii) any transaction in which a director receives an improper personal benefit.
These provisions only pertain to breaches of duty by directors as such, and not
in any other corporate capacity, e.g., as an officer. As a result of the
inclusion of such provisions, neither the Company nor its stockholders may be
able to recover monetary damages against directors for actions taken by them
which are ultimately found to have constituted negligence or gross negligence,
or which are ultimately found to have been in violation of their fiduciary
duties, although it may be possible to obtain injunctive or equitable relief
with respect to such actions. If equitable remedies are found not to be
available to stockholders in any particular case, stockholders may not have an
effective remedy against the challenged conduct.
The Company has entered into Indemnification Agreements with each of
its directors and officers (the "Indemnitees") pursuant to which it has agreed
to provide for indemnification, to the fullest extent permitted by law and the
Company's By-Laws, against any and all expenses, judgments, fines, penalties and
amounts paid in settlement arising out of any claim in connection with any
event, occurrence or circumstance related to such individual serving as a
director or officer of the Company. Such indemnification includes the advance of
expenses to the Indemnitees (including the payment of funds in trust therefor
under certain circumstances) and is subject to there not having been determined
that the Indemnitee would not be permitted to be indemnified under applicable
law. The rights of indemnification are in addition to any other rights which the
Indemnitees may have under the Company's Certificate of Incorporation, By-Laws,
the Delaware General Corporation Law or otherwise.
ITEM 16. EXHIBITS
The following exhibits, designated by an asterisk (*), have been
previously filed with the Commission and, pursuant to 17 C.F.R. Section 230.411,
are incorporated by reference to the document referenced in brackets following
the descriptions of such exhibits. The following exhibits designated by a double
asterisk (**) will be filed by amendment. All other exhibits are filed herewith.
II-2
<PAGE> 41
EXHIBIT INDEX
The exhibits designated with an asterisk (*) have previously been filed
with the Commission and, pursuant to 17 C.F.R. Secs. 201.24 and 240.12b-32, are
incorporated by reference to the document referenced in brackets following the
descriptions of such exhibits.
Exhibit
No. Description
2.1* Asset Purchase Agreement dated September 13, 1996,
among Nu-Tech Bio-Med, Inc., NTBM Billing Services,
Inc., Prompt Medical Services, Inc., Judith Prussin
and Jeffrey Prussin (filed without exhibits or
schedules)[filed as Exhibit 2.1 to Report on Form 8-K
filed dated September 31, 1996].
2.2* Order Confirming Medical Science Institute's First
Amended Plan of Reorganization dated November 18,
1996 (US Central District of California Case No. LA
95-37790 TD) together with First Amended Disclosure
Statement and Plan of Reorganization for Medical
Science Institute [filed as Exhibit 2.2 to Report on
Form 8-K filed with the Commission on December 3,
1996].
2.3 Disclosure Statement of Physicians Clinical
Laboratory as filed with the U.S. Bankruptcy Court
(Central District of California Case No. SV96-
23185-GM).
2.4 Joint Plan of Reorganization of Physicians Clinical
Laboratory as filed with the U.S. Bankruptcy Court
(Central District of California Case No. SV96-
23185-GM).
3.1* Amended and Restated Certificate of Incorporation
filed with the Secretary of State of Delaware on
November 16, 1994 [Exhibit 3.1.5 to Amendment No. 1
to Registration Statement on Form SB-2, File No.
33-84622]
3.2* Amended and Restated By-Laws effective November 16,
1994 [Exhibit 3.2.2 to Registration Statement on Form
SB-2, File No. 33-84622]
3.3* Amended Certificate of Designations, Preferences and
Rights and Number of Shares of Series A Preferred
Stock as filed with the Secretary of State of
Delaware on October 23, 1996 [filed as Exhibit 3.3 to
Report on Form 10QSB for the fiscal quarter ended
September 30, 1996].
II-3
<PAGE> 42
3.4 Certificate of Amendment of Amended Certificate of
Designations, Preferences and Rights and Number of
Shares of Series A Convertible Preferred Stock as
filed with the Secretary of State of Delaware on
November 20, 1996.
4.1* Form of Common Stock Certificate [Exhibit 4.1 to
Registration Statement on Form SB-2, File No.
33-84622]
4.2* Form of Warrant and Warrant Agreement relating to
Warrants to purchase an aggregate of 114,286 shares
of Common Stock issued to certain individuals on
August 9, 1994 in connection with a Bridge Financing
[Exhibit 4.2 to Registration Statement on Form SB-2,
File No. 33-84622]
4.3* Form of and Warrant Agreement issued to Starr
Securities, Inc. and Stein, Shore Securities, Inc.
[Exhibit 4.4 to Registration Statement on Form SB-2,
File No. 33-84622]
4.4* Form of Registration Rights Agreement dated August 9,
1994 between the Registrant and certain individuals
in connection with completed Bridge Financing
[Exhibit 4.5 to Registration Statement on Form SB-2,
File No. 33-84622]
5.1** Opinion of Goldstein & DiGioia, LLP including consent
re: legality of shares.
10.1* Amended and Restated Employment Agreement with J. Marvin
Feigenbaum [Exhibit 10.2 to Registration Statement on Form
SB-2, File No. 33-84622]
10.2* Employment Agreement with Dr. Kenneth E. Blackman as of July
1, 1994 [Exhibit 10.3 to Registration Statement on Form SB-2,
File No. 33-84622]
10.3* Patent No. 4,559,299 dated December 17, 1985 [Exhibit 10.4 to
Registration Statement on Form SB-2, File No. 33-84622]
10.4* Patent No. 4,734,372 dated March 29, 1988 [Exhibit 10.5 to
Registration Statement on Form SB-2, File No. 33-84622]
10.5* Patent No. 4,937,298 dated June 26, 1990 [Exhibit 10.6 to
Registration Statement on Form SB-2, File No. 33-84622]
10.6* Assignment of Patent No. 4,559,299, recorded on March 29,
1993, by Brown University Research Foundation, in favor of
Analytical Biosystems Corporation [Exhibit 10.7 to
Registration Statement on Form SB-2, File No. 33-84622]
II-4
<PAGE> 43
10.7* Assignment of Patent No. 4,734,372, recorded on March 29,
1993, by Brown University Research Foundation, Inc., in favor
of Analytical Biosystems Corporation [Exhibit 10.8 to
Registration Statement on Form SB-2, File No. 33-84622]
10.8* Assignment of Patent No. 4,937,187, recorded on March 29,
1993, by Brown University Research Foundation, Inc. in favor
of Analytical Biosystems Corporation [Exhibit 10.9 to
Registration Statement on Form SB-2, File No. 33-84622]
10.9* Consulting Agreement with Starr Securities, Inc. [Exhibit 10.
10 to Amendment No. 1 to Registration Statement on Form SB-2,
File No. 33-84622]
10.10* Funding Agreement dated December 14, 1990 between
Rhode Island Partnership for Science and Technology
and Analytical Biosystems Corporation [Exhibit 10.11
to Registration Statement on From SB-2, File No.
33-84622]
10.11* Loan Agreement dated February 11, 1993 between State
of Rhode Island Economic Development Small Business
Loan Fund Corporation ("SBLFC") and Analytical
Biosystems Corporation in the amount of $150,000
[Exhibit 10.(iii) to Report on Form 10-KSB for the
fiscal year ended December 31, 1992]
10.12* Loan Agreement dated February 25, 1993 between SBLFC
and Analytical Biosystems Corporation in the amount
of $100,000 [Exhibit 10(iii) to Report on Form 10-KSB
for the fiscal year ended December 31, 1992]
10.13* Loan Agreement dated April 19, 1993 between SBLFC
and Analytical Biosystems Corporation in the amount
of $250,000 [Exhibit 10(i)(a) to Report on Form 8-K
dated April 30, 1993]
10.14* Loan Agreement dated October 22, 1993 between SBLFC
and Analytical Biosystems Corporation in the amount
of $166,666 [Exhibit 10(iii)(d) to Report on Form
10-KSB for the fiscal year ended December 31, 1993]
10.15* Loan Agreement dated February 17, 1994 between SBLFC
and Analytical Biosystems Corporation in the amount
of $125,000 [Exhibit 10(iii)(e) to Report on Form
10-KSB for the fiscal year ended December 31, 1993]
10.16* Security Agreement dated October 22, 1993 between
SBLFC and Analytical Biosystems Corporation [Exhibit
10.17 to Registration Statement on From SB-2, File
No. 33-84622]
II-5
<PAGE> 44
10.17* Patent Security Agreement dated April 19, 1993
between SBLFC and Analytical Biosystems Corporation
[Exhibit 10.18 to Registration Statement on From
SB-2, File No. 33-84622]
10.18* Patent Security Agreement dated October 22, 1993
between SBLFC and Analytical Biosystems Corporation
[Exhibit 10.19 to Registration Statement on From
SB-2, File No. 33-84622]
10.19* Form of Indemnification Agreements between Registrant
and Registrant's Directors and Officers [Exhibit
10.20 to Registration Statement on From SB-2, File
No. 33-84622]
10.20* Lease Agreement as of November 1, 1994 for facility
located at 55 Access Road, Warwick, Rhode Island
02886 [Exhibit 10.21 to Amendment No. 1 to
Registration Statement on From SB-2, File No.
33-84622]
10.21* Consulting Agreement and Warrant with Dr. Elliot
Fishkin [Exhibit 10.22 to Amendment No. 1 to
Registration Statement on From SB-2, File No. 33-
84622]
10.22* Redacted copy of Clinical Trials Agreement dated
August 14, 1995 between Analytical Biosystems
Corporation and research institution and certain
individuals [Exhibit 10.1 to Report on Form 8-K dated
August 11, 1995]
10.23* Agreement dated April 10, 1995 between Analytical
Biosystems Corporation and Loats Associates [Exhibit
10.1 to Report on Form 8-K dated April 20, 1995].
10.24 Form of Registration Rights Agreement entered into
among the Company and the holders of the Company's
Series A Preferred Stock entered into on December 2,
1996.
10.25 Form of Registration Rights Agreement entered into
among the Company and certain holders of the
Company's Common Stock entered into on April 12, 1996
in connection with private placement offering
completed on April 12, 1996.
10.26 Form of Agreement dated November 7, 1996 among the
Company, Oaktree Capital Management LLC, and certain
other parties.
10.27 Secured Promissory Note of Nu-Tech Bio-Med, Inc.
Dated December 2, 1996 in the principal amount of
$2,500,000.
II-6
<PAGE> 45
10.28 Security Agreement dated as of December 2, 1996 by
Nu-Tech Bio-Med, Inc. And Oaktree Capital Management
LLC.
21 Subsidiaries of Registrant
23.1 Consent of Ernst & Young LLP, independent auditors of
Nu-Tech Bio-Med, Inc.
23.2 Consent of McClain & Company LLP, independent
auditors of Prompt Medical Billing Services, Inc.
23.3 Consent of Goldstein & DiGioia, LLP contained in
Exhibit 5.1 hereto.
99.1* 1992 Stock Option Plan [Exhibit 28 to Report on Form
10-Q for the quarter ended March 31, 1992]
99.2* 1994 Incentive Stock Option [Exhibit 99.2 to
Registration Statement on From SB-2, File No.
33-84622]
99.3* Non Employee Director Stock Option Plan [Exhibit 99.3
to Registration Statement on From SB-2, File No.
33-84622]
99.4* Amended and Restated Non-Employee Director Stock
Option Plan [filed as Exhibit to the Company's Proxy
Statement for the Annual meeting held August 27,
1996].
II-7
<PAGE> 46
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
A. (1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the most
recent post-effective amendment thereto) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
Registration Statement;
(iii) To include any material information with
respect to the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement;
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(4) (i) For the purpose of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in the form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part
of the Registration Statement as of the time it was declared effective.
(ii) For the purpose of determining any liability
under the Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(5) For purposes of determining any liability under the
Securities Act of 1933, each filing of the Company's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration
II-8
<PAGE> 47
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
B. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-9
<PAGE> 48
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant certifies that it has reasonable grounds to believe that it meets
all the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, State of New York, on the ____ day of
December, 1996.
NU-TECH BIO-MED, INC.
December 13, 1996 By: /s/ J. Marvin Feigenbaum
----------------------------------
J. Marvin Feigenbaum
Chairman of the Board, President
and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
substitutes and appoints J. Marvin Feigenbaum, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to file and same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
Signature Capacity Date
/s/ Edmond E. Charrette Director December 13, 1996
- -------------------------
Edmond E. Charrette, M.D.
/s/ Robert B. Fagenson Director December 13, 1996
- -------------------------
Robert B. Fagenson
/s/ J. Marvin Feigenbaum Chairman of the Board, December 13, 1996
- ------------------------- President Chief Executive
J. Marvin Feigenbaum Officer
II-10
<PAGE> 49
/s/ Leonard Green Director December 13, 1996
- -------------------------
Leonard Green
/s/ David A. Sterling Secretary, Director December 13, 1996
- -------------------------
David A. Sterling
/s/ Chriss W. Street Director December 13, 1996
- -------------------------
Chriss W. Street
II-11
<PAGE> 50
EXHIBIT INDEX
The exhibits designated with an asterisk (*) have previously been filed
with the Commission and, pursuant to 17 C.F.R. Secs. 201.24 and 240.12b-32, are
incorporated by reference to the document referenced in brackets following the
descriptions of such exhibits.
Exhibit
No. Description
2.1* Asset Purchase Agreement dated September 13, 1996,
among Nu-Tech Bio-Med, Inc., NTBM Billing Services,
Inc., Prompt Medical Services, Inc., Judith Prussin
and Jeffrey Prussin (filed without exhibits or
schedules)[filed as Exhibit 2.1 to Report on Form 8-K
filed dated September 31, 1996].
2.2* Order Confirming Medical Science Institute's First
Amended Plan of Reorganization dated November 18,
1996 (US Central District of California Case No. LA
95-37790 TD) together with First Amended Disclosure
Statement and Plan of Reorganization for Medical
Science Institute [filed as Exhibit 2.2 to Report on
Form 8-K filed with the Commission on December 3,
1996].
2.3 Disclosure Statement of Physicians Clinical
Laboratory as filed with the U.S. Bankruptcy Court
(Central District of California Case No. SV96-
23185-GM)
2.4 Joint Plan of Reorganization of Physicians Clinical
Laboratory as filed with the U.S. Bankruptcy Court
(Central District of California Case No. SV96-
23185-GM)
3.1* Amended and Restated Certificate of Incorporation
filed with the Secretary of State of Delaware on
November 16, 1994 [Exhibit 3.1.5 to Amendment No. 1
to Registration Statement on Form SB-2, File No.
33-84622]
3.2* Amended and Restated By-Laws effective November 16,
1994 [Exhibit 3.2.2 to Registration Statement on Form
SB-2, File No. 33-84622]
3.3* Amended Certificate of Designations, Preferences and
Rights and Number of Shares of Series A Preferred
Stock as filed with the Secretary of State of
Delaware on October 23, 1996 [filed as Exhibit 3.3 to
Report on Form 10QSB for the fiscal quarter ended
September 30, 1996].
<PAGE> 51
3.4 Certificate of Amendment of Amended Certificate of
Designations, Preferences and Rights and Number of
Shares of Series A Convertible Preferred Stock as
filed with the Secretary of State of Delaware on
November 20, 1996.
4.1* Form of Common Stock Certificate [Exhibit 4.1 to
Registration Statement on Form SB-2, File No.
33-84622]
4.2* Form of Warrant and Warrant Agreement relating to
Warrants to purchase an aggregate of 114,286 shares
of Common Stock issued to certain individuals on
August 9, 1994 in connection with a Bridge Financing
[Exhibit 4.2 to Registration Statement on Form SB-2,
File No. 33-84622]
4.3* Form of and Warrant Agreement issued to Starr
Securities, Inc. and Stein, Shore Securities, Inc.
[Exhibit 4.4 to Registration Statement on Form SB-2,
File No. 33-84622]
4.4* Form of Registration Rights Agreement dated August 9,
1994 between the Registrant and certain individuals
in connection with completed Bridge Financing
[Exhibit 4.5 to Registration Statement on Form SB-2,
File No. 33-84622]
5.1** Opinion of Goldstein & DiGioia, LLP including consent
re: legality of shares.
10.1* Amended and Restated Employment Agreement with J. Marvin
Feigenbaum [Exhibit 10.2 to Registration Statement on Form
SB-2, File No. 33-84622]
10.2* Employment Agreement with Dr. Kenneth E. Blackman as of July
1, 1994 [Exhibit 10.3 to Registration Statement on Form SB-2,
File No. 33-84622]
10.3* Patent No. 4,559,299 dated December 17, 1985 [Exhibit 10.4 to
Registration Statement on Form SB-2, File No. 33-84622]
10.4* Patent No. 4,734,372 dated March 29, 1988 [Exhibit 10.5 to
Registration Statement on Form SB-2, File No. 33-84622]
10.5* Patent No. 4,937,298 dated June 26, 1990 [Exhibit 10.6 to
Registration Statement on Form SB-2, File No. 33-84622]
10.6* Assignment of Patent No. 4,559,299, recorded on March 29,
1993, by Brown University Research Foundation, in favor of
Analytical Biosystems Corporation [Exhibit 10.7 to
Registration Statement on Form SB-2, File No. 33-84622]
<PAGE> 52
10.7* Assignment of Patent No. 4,734,372, recorded on March 29,
1993, by Brown University Research Foundation, Inc., in favor
of Analytical Biosystems Corporation [Exhibit 10.8 to
Registration Statement on Form SB-2, File No. 33-84622]
10.8* Assignment of Patent No. 4,937,187, recorded on March 29,
1993, by Brown University Research Foundation, Inc. in favor
of Analytical Biosystems Corporation [Exhibit 10.9 to
Registration Statement on Form SB-2, File No. 33-84622]
10.9* Consulting Agreement with Starr Securities, Inc. [Exhibit 10.
10 to Amendment No. 1 to Registration Statement on Form SB-2,
File No. 33-84622]
10.10* Funding Agreement dated December 14, 1990 between
Rhode Island Partnership for Science and Technology
and Analytical Biosystems Corporation [Exhibit 10.11
to Registration Statement on From SB-2, File No.
33-84622]
10.11* Loan Agreement dated February 11, 1993 between State
of Rhode Island Economic Development Small Business
Loan Fund Corporation ("SBLFC") and Analytical
Biosystems Corporation in the amount of $150,000
[Exhibit 10.(iii) to Report on Form 10-KSB for the
fiscal year ended December 31, 1992]
10.12* Loan Agreement dated February 25, 1993 between SBLFC
and Analytical Biosystems Corporation in the amount
of $100,000 [Exhibit 10(iii) to Report on Form 10-KSB
for the fiscal year ended December 31, 1992]
10.13* Loan Agreement dated April 19, 1993 between SBLFC
and Analytical Biosystems Corporation in the amount
of $250,000 [Exhibit 10(i)(a) to Report on Form 8-K
dated April 30, 1993]
10.14* Loan Agreement dated October 22, 1993 between SBLFC
and Analytical Biosystems Corporation in the amount
of $166,666 [Exhibit 10(iii)(d) to Report on Form
10-KSB for the fiscal year ended December 31, 1993]
10.15* Loan Agreement dated February 17, 1994 between SBLFC
and Analytical Biosystems Corporation in the amount
of $125,000 [Exhibit 10(iii)(e) to Report on Form
10-KSB for the fiscal year ended December 31, 1993]
10.16* Security Agreement dated October 22, 1993 between
SBLFC and Analytical Biosystems Corporation [Exhibit
10.17 to Registration Statement on From SB-2, File
No. 33-84622]
<PAGE> 53
10.17* Patent Security Agreement dated April 19, 1993
between SBLFC and Analytical Biosystems Corporation
[Exhibit 10.18 to Registration Statement on From
SB-2, File No. 33-84622]
10.18* Patent Security Agreement dated October 22, 1993
between SBLFC and Analytical Biosystems Corporation
[Exhibit 10.19 to Registration Statement on From
SB-2, File No. 33-84622]
10.19* Form of Indemnification Agreements between Registrant
and Registrant's Directors and Officers [Exhibit
10.20 to Registration Statement on From SB-2, File
No. 33-84622]
10.20* Lease Agreement as of November 1, 1994 for facility
located at 55 Access Road, Warwick, Rhode Island
02886 [Exhibit 10.21 to Amendment No. 1 to
Registration Statement on From SB-2, File No.
33-84622]
10.21* Consulting Agreement and Warrant with Dr. Elliot
Fishkin [Exhibit 10.22 to Amendment No. 1 to
Registration Statement on From SB-2, File No. 33-
84622]
10.22* Redacted copy of Clinical Trials Agreement dated
August 14, 1995 between Analytical Biosystems
Corporation and research institution and certain
individuals [Exhibit 10.1 to Report on Form 8-K dated
August 11, 1995]
10.23* Agreement dated April 10, 1995 between Analytical
Biosystems Corporation and Loats Associates [Exhibit
10.1 to Report on Form 8-K dated April 20, 1995].
10.24 Form of Registration Rights Agreement entered into
among the Company and the holders of the Company's
Series A Preferred Stock entered into on December 2,
1996.
10.25 Form of Registration Rights Agreement entered into
among the Company and certain holders of the
Company's Common Stock entered into on April 12, 1996
in connection with private placement offering
completed on April 12, 1996.
10.26 Form of Agreement dated November 7, 1996 among the
Company, Oaktree Capital Management LLC, and certain
other parties.
10.27 Secured Promissory Note of Nu-Tech Bio-Med, Inc.
Dated December 2, 1996 in the principal amount of
$2,500,000.
<PAGE> 54
10.28 Security Agreement dated as of December 2, 1996 by
Nu-Tech Bio-Med, Inc. And Oaktree Capital Management
LLC.
21 Subsidiaries of Registrant
23.1 Consent of Ernst & Young LLP, independent auditors of
Nu-Tech Bio-Med, Inc.
23.2 Consent of McClain & Company LLP, independent
auditors of Prompt Medical Billing Services, Inc.
23.3 Consent of Goldstein & DiGioia, LLP contained in
Exhibit 5.1 hereto.
99.1* 1992 Stock Option Plan [Exhibit 28 to Report on Form
10-Q for the quarter ended March 31, 1992]
99.2* 1994 Incentive Stock Option [Exhibit 99.2 to
Registration Statement on From SB-2, File No.
33-84622]
99.3* Non Employee Director Stock Option Plan [Exhibit 99.3
to Registration Statement on From SB-2, File No.
33-84622]
99.4* Amended and Restated Non-Employee Director Stock
Option Plan [filed as Exhibit to the Company's Proxy
Statement for the Annual meeting held August 27,
1996].
<PAGE> 1
Exhibit 2.3
Robert Dean Avery, Bar No. 56483
Susanne Meline, Bar No. 169177
JONES, DAY, REAVIS & POGUE
555 West Fifth Street, Suite 4600
Los Angeles, California 90013-1025
Telephone: (213) 489-3939
David S. Kurtz
Timothy R. Pohl
JONES, DAY, REAVIS & POGUE
77 West Wacker
Chicago, Illinois 60601-1692
Telephone: (312) 782-3939
Attorneys for Debtors
and Debtors in Possession
UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA
In re: ) Jointly Administered
) Case No. SV96-23185-GM
PHYSICIANS CLINICAL )
LABORATORY, INC., ) Chapter 11
a Delaware corporation, )
et al., ) DISCLOSURE STATEMENT PURSUANT TO
) SECTION 1125 OF THE BANKRUPTCY
Debtors. ) CODE WITH RESPECT TO THE JOINT
) PLAN OF REORGANIZATION OF
) PHYSICIANS CLINICAL LABORATORY,
) INC. AND ITS AFFILIATED DEBTORS
)
) Date: January 10, 1996
) Hearing: January 20, 1996
)
) Time: [TO BE SET]
) Place: Courtroom 303
) 21041 Burbank Blvd.
) Woodland Hills, CA 91367
<PAGE> 2
DISCLOSURE STATEMENT, DATED DECEMBER 2, 1996
SOLICITATION OF VOTES WITH RESPECT
TO JOINT PLAN OF REORGANIZATION
OF PHYSICIANS CLINICAL LABORATORY, INC.
AND ITS AFFILIATED DEBTORS
THIS DISCLOSURE STATEMENT SOLICITS ACCEPTANCES OF THE JOINT
PLAN OF REORGANIZATION (THE "PLAN") OF PHYSICIANS CLINICAL LABORATORY, INC. AND
ITS AFFILIATED DEBTORS (COLLECTIVELY, THE "DEBTORS") FROM HOLDERS OF CERTAIN
CLAIMS AND INTERESTS UNDER THE PLAN. THE PLAN IS BEING PROPOSED JOINTLY BY THE
DEBTORS, NU-TECH BIO-MED, INC. AND THE DEBTORS' SENIOR LENDERS.
------------------------------------
THE DEBTORS BELIEVE THAT THE PLAN IS IN THE BEST INTERESTS OF
CREDITORS AND EQUITY SECURITY HOLDERS. ACCORDINGLY, HOLDERS OF CLAIMS AND
INTERESTS ARE URGED TO VOTE IN FAVOR OF THE PLAN. VOTING INSTRUCTIONS ARE SET
FORTH AT PAGES ___ TO ___ OF THIS DISCLOSURE STATEMENT. TO BE COUNTED, YOUR
BALLOT MUST BE DULY COMPLETED, EXECUTED AND ACTUALLY RECEIVED NO LATER THAN 5:00
P.M., PACIFIC DAYLIGHT TIME, ON _________, 1997.
------------------------------------
THE CONFIRMATION AND EFFECTIVENESS OF THE PLAN ARE SUBJECT TO
MATERIAL CONDITIONS PRECEDENT, SOME OF WHICH MAY NOT BE SATISFIED. SEE "GENERAL
INFORMATION CONCERNING THE PLAN -- CONDITIONS PRECEDENT TO CONFIRMATION AND
CONSUMMATION OF THE PLAN" AND "ACCEPTANCE AND CONFIRMATION OF THE PLAN --
CONFIRMATION WITHOUT ACCEPTANCE OF ALL IMPAIRED CLASSES." THERE CAN BE NO
ASSURANCE THAT THOSE CONDITIONS WILL BE SATISFIED OR WAIVED.
------------------------------------
<PAGE> 3
NO PERSON IS AUTHORIZED BY THE DEBTORS IN CONNECTION WITH THE
PLAN OR THE SOLICITATION OF VOTES FOR THE PLAN TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS DISCLOSURE STATEMENT AND
THE EXHIBITS ATTACHED HERETO OR INCORPORATED BY REFERENCE OR REFERRED TO HEREIN,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MAY NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE DEBTORS.
THE DELIVERY OF THIS DISCLOSURE STATEMENT WILL NOT UNDER ANY
CIRCUMSTANCES IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF. ANY ESTIMATES OF CLAIMS AND INTERESTS SET FORTH
IN THIS DISCLOSURE STATEMENT MAY VARY FROM THE FINAL AMOUNTS OF CLAIMS OR
INTERESTS ALLOWED BY THE BANKRUPTCY COURT.
------------------------------------
HOLDERS OF CLAIMS AND INTERESTS ARE ENCOURAGED TO READ AND
CONSIDER CAREFULLY THIS ENTIRE DISCLOSURE STATEMENT, INCLUDING THE PLAN ATTACHED
HERETO AS EXHIBIT I AND THE MATTERS DESCRIBED IN THIS DISCLOSURE STATEMENT UNDER
"RISK FACTORS," PRIOR TO VOTING.
------------------------------------
The summaries of the Plan and other documents contained in
this Disclosure Statement are qualified in their entirety by reference to the
Plan itself, the exhibits thereto and all documents described therein. The
information contained in this Disclosure Statement, including the information
regarding the history, businesses and operations of the Debtors, the historical
and projected financial information of the Debtors (including the projected
results of operations of the Reorganized Debtors), and
<PAGE> 4
the liquidation analysis relating to the Debtors, is included herein for
purposes of soliciting acceptances of the Plan. As to contested matters,
however, such information is not to be construed as admissions or stipulations,
but rather as statements made in settlement negotiations.
------------------------------------
All capitalized terms used in this Disclosure Statement and
not otherwise defined herein have the meanings ascribed thereto in the Plan.
------------------------------------
NEITHER THE SECURITIES OFFERED UNDER THE PLAN NOR THE PLAN
ITSELF HAVE BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION APPROVED OR DISAPPROVED
THIS DISCLOSURE STATEMENT OR PASSED UPON THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED HEREIN.
<PAGE> 5
I.
INTRODUCTION
On November 8, 1996 (the "Petition Date"), the Debtors Filed
their voluntary petitions for relief pursuant to chapter 11 of the Bankruptcy
Code, 11 U.S.C. Sections 101-1330 (the "Bankruptcy Code"). Since the
Petition Date, the Debtors have continued in possession of their property and
are operating and managing their businesses as debtors in possession pursuant to
sections 1107(a) and 1108 of the Bankruptcy Code. Pursuant to an order entered
by the Bankruptcy Court on November 12, 1996, the Debtors' cases have been
jointly administered, but have not been substantively consolidated.
Chapter 11 is the principal business reorganization chapter of
the Bankruptcy Code. Under chapter 11 of the Bankruptcy Code, a debtor is
authorized to reorganize its business for the benefit of itself and its
creditors and stockholders. In addition to permitting rehabilitation of the
debtor, another goal of chapter 11 is to promote equality of treatment of
creditors and equity security holders who hold substantially similar claims or
interests with respect to the distribution of the debtor's assets. In
furtherance of these two goals, upon the filing of a petition for relief under
chapter 11, section 362 of the Bankruptcy Code generally provides for an
automatic stay of substantially all acts and proceedings against the debtor and
its property, including all attempts to collect claims or enforce liens that
arose prior to the commencement of the debtor's chapter 11 case.
1
<PAGE> 6
The consummation of a plan of reorganization is the principal
objective of a chapter 11 case. A plan of reorganization sets forth the means
for satisfying claims against and interests in a debtor. Confirmation of a plan
of reorganization by the Bankruptcy Court makes the plan binding upon the
debtor, any issuer of securities under the plan, any person or entity acquiring
property under the plan and any creditor of or equity security holder in the
debtor, whether or not such creditor or equity security holder (i) is impaired
under or has accepted the plan or (ii) receives or retains any property under
the plan. Subject to certain limited exceptions and other than as provided in
the plan itself or the confirmation order, the confirmation order discharges the
debtor from any debt that arose prior to the date of confirmation of the plan
and substitutes therefor the obligations specified under the confirmed plan, and
terminates all rights and interests of equity security holders.
On December 2, 1996, the Debtors filed the Plan. A copy of the
Plan is attached hereto as Exhibit I. The Plan is jointly proposed by the
Debtors, Nu-Tech and the Senior Lenders (collectively, the "Proponents"). As set
forth in more detail below, the Plan was negotiated among the Proponents prior
to the commencement of the Chapter 11 Cases. See "Overview of the Plan --
Prepetition Plan Negotiations and The Voting Condition." This Disclosure
Statement is submitted by the Debtors, pursuant to section 1125 of the
Bankruptcy Code, in connection with the solicitation of acceptances of the Plan
from holders of Claims and Interests.
2
<PAGE> 7
By order of the Bankruptcy Court dated __________ __, 1997,
this Disclosure Statement has been approved as containing "adequate information"
for creditors and equity security holders of the Debtors in accordance with
section 1125 of the Bankruptcy Code. Under section 1125(a)(1) of the Bankruptcy
Code, "adequate information" is defined as "information of a kind, and in
sufficient detail, as far as is reasonably practicable in light of the nature
and the history of the debtor and the condition of the debtor's books and
records, that would enable a hypothetical reasonable investor typical of holders
of claims or interests of the relevant class to make an informed judgment about
the plan. . . ."
The Plan cannot be consummated unless (a) it is confirmed by
the Bankruptcy Court and (b) it satisfies certain requirements with respect to
voting and acceptance by certain creditors. A description of who is entitled to
vote on the Plan and voting instructions are set forth below under "Overview of
the Plan -- Voting Procedures and Requirements." The requirements for
Confirmation, including voting results and certain of the statutory findings
that must be made by the Bankruptcy Court, are set forth under "Acceptance and
Confirmation of the Plan." Confirmation and the occurrence of the Effective Date
are subject to a number of significant conditions precedent, which are
summarized in "General Information Regarding the Plan -- Conditions Precedent to
Confirmation and Consummation of the Plan." There can be no assurance that these
conditions will be satisfied or waived by the Proponents.
3
<PAGE> 8
THE DEBTORS BELIEVE THAT THE PLAN IS IN THE BEST INTERESTS OF
ALL CREDITORS AND EQUITY SECURITY HOLDERS. ALL HOLDERS OF CLAIMS AND INTERESTS
ENTITLED TO VOTE IN CONNECTION WITH THIS SOLICITATION ARE URGED TO VOTE IN FAVOR
OF THE PLAN NOT LATER THAN THE VOTING DEADLINE OF ________, 1997.
II.
OVERVIEW OF THE PLAN
THE FOLLOWING IS A BRIEF SUMMARY OF THE TREATMENT OF CLAIMS
AND INTERESTS UNDER THE PLAN. THE DESCRIPTION OF THE PLAN SET FORTH BELOW
CONSTITUTES A SUMMARY ONLY. CREDITORS, SHAREHOLDERS AND OTHER PARTIES IN
INTEREST ARE URGED TO REVIEW THE MORE DETAILED DESCRIPTION OF THE PLAN CONTAINED
IN THIS DISCLOSURE STATEMENT. SEE "GENERAL INFORMATION REGARDING THE PLAN"
BELOW, AND THE PLAN ITSELF, WHICH IS ATTACHED HERETO AS EXHIBIT I.
A. SUMMARY OF CLASSES AND TREATMENT OF CLAIMS AND INTERESTS
As set forth in more detail below, the principal economic
terms of the Plan were negotiated and agreed upon among the Proponents prior to
the commencement of the Chapter 11 Cases. During the year prior to the
commencement of the Chapter 11 Cases, the Debtors undertook extensive efforts to
obtain an investment in or other strategic transaction with respect to their
businesses, which the Debtors believed was necessary to ensure their ability to
continue in existence as a going concern. As a result of these efforts, the
Debtors entered into an agreement with Nu-Tech and the Senior Lenders, providing
for a Cash investment by Nu-Tech into the Debtors of approximately
4
<PAGE> 9
$15 million, as well as an overall restructuring of the Debtors' balance sheet,
through a chapter 11 proceeding. See "-- Prepetition Plan Negotiations and The
Voting Condition." The Plan effectuates the agreement among the Debtors, Nu-Tech
and the Senior Lenders.
Section 1123 of the Bankruptcy Code requires that a plan of
reorganization place the claims of a debtor's creditors and equity interest
holders into classes. Accordingly, the Plan divides Claims and Interests into 9
Classes and prescribes the treatment for each Class. All Claims against each
Debtor are classified as if the Debtors have been substantively consolidated,
which essentially means that all Claims are being treated as if the Debtors are
a single entity, with consolidated assets and liabilities.
In accordance with section 1123(a) of the Bankruptcy Code,
Administrative Claims and Priority Tax Claims are not classified under the Plan.
The Plan generally provides for the payment in full in Cash of all
Administrative Claims on the Effective Date. Allowed Administrative Claims
representing obligations incurred in the ordinary course of business or
otherwise assumed by a Debtor pursuant to the Plan (including Administrative
Claims of governmental units for taxes) will be assumed on the Effective Date
and paid, performed or settled by the applicable Reorganized Debtor when due in
accordance with the terms and conditions of the particular agreements governing
such obligations. Pursuant to section 1129(a)(9)(C) of the Bankruptcy Code,
Allowed Priority Tax Claims will be paid in deferred cash payments over a period
not exceeding six years from the date of
5
<PAGE> 10
assessment of such Claim. Payments will be made in equal quarterly installments
of principal, plus simple interest accruing from the Effective Date at 8% per
annum on the unpaid portion of each Priority Tax Claim. For a summary of
treatment of Administrative Claims and deadlines by which holders of
Administrative Claims must file requests for payment of Administrative Claims,
see "General Information Concerning the Plan -- Treatment and Description of
Unclassified Claims."
The Debtors believe that the Plan provides consideration to
all Classes of Claims and Interests that reflects an appropriate resolution of
their Claims and Interests, taking into account the differing nature and
priority (including applicable contractual subordination) of such Claims and
Interests. The Bankruptcy Court must find, however, that a number of statutory
tests are met before it may confirm the Plan. See "Acceptance and Confirmation
of the Plan." Many of these tests are designed to protect the interests of
holders of Claims or Interests who do not vote to accept the Plan, but who will
be bound by the provisions of the Plan if it is confirmed by the Bankruptcy
Court. The "cramdown" provisions of section 1129(b) of the Bankruptcy Code, for
example, permit confirmation of a chapter 11 plan of reorganization in certain
circumstances even if the plan is not accepted by all impaired classes of claims
and interests. See "Acceptance and Confirmation of the Plan -- Confirmation
Without Acceptance of All Impaired Classes." The Proponents have reserved the
right to request Confirmation pursuant to the cramdown provisions of the
Bankruptcy Code and to amend the Plan if any Class of Claims or Interests fails
to
6
<PAGE> 11
accept the Plan. Although the Debtors believe that, if necessary, the Plan could
be confirmed under the cramdown provisions of the Bankruptcy Code if certain
Classes of Claims or Interests do not accept the Plan, there can be no assurance
that the requirements of such provisions would be satisfied.
For purposes of determining the recovery for creditors under
the Plan, the New Senior Notes will be valued at par. The New Common Stock of
PCL will be valued based on the assumption that Reorganized PCL's total equity
value is $30 million. This assumption is based on Nu-Tech receiving, if the Plan
is confirmed, 51% of the New Common Stock of PCL in return for a total Cash
investment of approximately $15 million. See "-- Prepetition Plan Negotiations
and The Voting Condition" for a discussion of the manner in which Nu-Tech's
investment into the Debtors will be made. The valuations of the New Common Stock
of PCL and the New Senior Notes do not purport to reflect or constitute an
estimate of the actual market value of such securities or the price at which
such securities may be traded in the market. Percentage recoveries for holders
of claims in Classes 5 and 6 are also based on assumptions about the aggregate
amount of Claims in each such Class, based on estimates derived from the
Debtors' books and records as of the date hereof. There can be no assurance that
the final amount of Allowed Claims in each such Class will not ultimately differ
materially from such estimates.
The following table summarizes the classifications of Claims
and Interests under the Plan, with a description of the treatment provided for
all Claims and Interests. As described in
7
<PAGE> 12
the table, treatment provided for certain Classes depends upon satisfaction of a
Voting Condition. See "-- Prepetition Plan Negotiations and The Voting
Condition" for a discussion of the Voting Condition. For a description of the
treatment of Claims that are not classified under the Plan, see "General
Information Regarding the Plan -- Treatment and Description of Unclassified
Claims."
TREATMENT OF CLAIMS AGAINST AND
INTERESTS IN THE DEBTORS UNDER THE PLAN
CLASS TREATMENT UNDER THE PLAN
Class 1 -
Priority Claims - On the Effective Date, each holder of a
Priority Claim will receive Cash equal to
the amount of such Claim, unless the holder
of such Claim and Reorganized PCL agree to a
different treatment. Any Allowed Priority
Claim not due and owing on the Effective
Date will be paid in full in Cash by
Reorganized PCL when such Claim becomes due
and owing. ESTIMATED PERCENTAGE RECOVERY:
100%
Class 2 - - On the Effective Date, each holder of an
Senior Debt Allowed Senior Debt Claim, in full and final
Claims satisfaction of such Allowed Claim, will
receive, on or as soon as practicable after
the Effective Date, its Pro Rata Share of
(i) if the Voting
8
<PAGE> 13
Condition is satisfied, shares of New Common
Stock comprising 37% of such shares on a
fully diluted basis, or, if the Voting
Condition is not satisfied, shares of New
Common Stock comprising 49% of such shares
on a fully diluted basis and (ii) the New
Senior Notes. ESTIMATED PERCENTAGE RECOVERY
IF VOTING CONDITION SATISFIED: 81.6%
ESTIMATED PERCENTAGE RECOVERY IF VOTING
CONDITION NOT SATISFIED: 86.0%
Class 3 - Nu-Tech - On the Effective Date, Nu-Tech will receive,
Senior Debt on or as soon as practicable after the
Claims Effective Date, shares of New Common Stock
comprising 34% of such shares on a fully
diluted basis. ESTIMATED PERCENTAGE
RECOVERY: 76.5%
Class 4 - - On the Effective Date, at the option of
Other Secured Reorganized PCL, each holder of an Allowed
Claims Other Secured Claim will be treated pursuant
to either clause (i) or (ii) below:
(i) The applicable Reorganized
Debtor may transfer the property securing
such Claim to the holder of the Claim, in
full satisfaction of the Claim; or
9
<PAGE> 14
(ii) such Claim may be Reinstated
as follows: (A) anky default, other than a
default of a kind specified in section
365(b)(2) of the Bankruptcy Code, will be
cured; (B) the maturity of the Claim will be
reinstated as the maturity existed before
any default; (C) the holder of the Claim
will be compensated for any damages incurred
as a result of any reasonable reliance by
the holder on any contractual provision that
entitled the holder to demand or receive
accelerated payment of the Claim; and (D)
the other legal, equitable or contractual
rights to which the Claim entitles the
holder will not otherwise be altered.
ESTIMATED PERCENTAGE RECOVERY: 100%
Class 5 - - On the Effective Date, if the Voting
Unsecured Claims Condition is satisfied, the Debtors will
deliver $1.7 million in Cash to the
Disbursing Agent, which Cash will be held by
the Disbursing Agent in the Class 5
Disbursement Account for the benefit of
holders of Class 5 Claims. If the Voting
Condition is satisfied, then each holder of
an Allowed Unsecured Claim, in full and
final satisfaction of such Allowed
10
<PAGE> 15
Claim, will receive its Pro Rata share of
the assets held by the Disbursing Agent, in
accordance with the provisions of Articles
VII and VIII of the Plan. If the Voting
Condition is not satisfied, then the holders
of Class 5 Claims will not receive or retain
any property under the Plan on account of
such Claims, and all assets held by the
Disbursing Agent will be returned to the
Reorganized Debtors.
ESTIMATED PERCENTAGE RECOVERY IF VOTING
CONDITION SATISFIED: 10% ESTIMATED
PERCENTAGE RECOVERY IF VOTING CONDITION NOT
SATISFIED: 0%
Class 6 - Old - On the Effective Date, the Old Indenture and
Subordinated the Old Subordinated Debentures will be
Debenture Claims automatically terminated without further
action by any party and will no longer be of
any force and effect. If the Voting
Condition is satisfied, then each holder of
an Allowed Old Subordinated Debenture Claim,
in full and final satisfaction of such
Allowed Claim, will receive, on or as soon
as practicable after the Effective Date, its
Pro Rata share of shares of New Common
11
<PAGE> 16
Stock comprising 9% of such shares on a
fully diluted basis. If the Voting Condition
is not satisfied, then the holders of Old
Subordinated Debenture Claims will not
receive or retain any property under the
Plan on account of such Claims.
ESTIMATED PERCENTAGE RECOVERY IF VOTING
CONDITION SATISFIED: 6% ESTIMATED PERCENTAGE
RECOVERY IF VOTING CONDITION NOT SATISFIED:
0%
Class 7 - - If the Voting Condition is satisfied, on or
Interests of as soon as is practicable after the
holders of Old Effective Date, each holder of an Allowed
Common Stock of Class 7 Interest will receive, in full and
PCL final satisfaction of such Interest, its Pro
Rata Share of (i) New Warrants and (ii)
shares of New Common Stock comprising 3% of
such shares on a fully diluted basis. If the
Voting Condition is not satisfied, then the
holders of Class 7 Interests will not
receive or retain any property under the
Plan on account of such Interests.
ESTIMATED RECOVERY IF VOTING CONDITION
SATISFIED: 3% OF SHARES OF REORGANIZED PCL
PLUS NEW WARRANTS
12
<PAGE> 17
ESTIMATE RECOVERY IF VOTING CONDITION NOT
SATISFIED: 0%
Class 8 - - In full and final satisfaction of the
Interests of Allowed Class 8 Interests, PCL will retain
holders of its Interests in each of the Subsidiary
Interests in Debtors and RRLGC shall retain its Interests
Subsidiaries in CRRL.
ESTIMATED RECOVERY: 100%
Class 9 - - The holders of Class 9 Interests will not
Interests of receive or retain any property under the
holders of Old Plan on account of such Interests.
Stock Options and
Old Warrants
ESTIMATED RECOVERY: NONE
B. PREPETITION PLAN NEGOTIATIONS AND THE VOTING CONDITION
The Debtors have been in default since September of 1995 with
respect to principal and interest payments due and owing under the Existing
Lender Agreements. Aggregate Senior Debt Claims and Nu-Tech Senior Debt Claims
(collectively, the "Senior Secured Claims"), which arise under the Existing
Lender Agreements, are approximately $94.3 million as of the Petition Date.
Senior Secured Claims are secured by substantially all of the Debtors' assets.
The Senior Lenders hold approximately $81 million of the Senior Secured Claims
and Nu-Tech holds approximately $13.33 million of the Senior Secured Claims. As
described in the Liquidation Analysis contained in Exhibit V
13
<PAGE> 18
hereto, the Debtors believe that if their assets were to be liquidated, no
creditor or shareholder would receive any recovery whatsoever, except for the
holders of Senior Secured Claims.
In addition, the Debtors have been in default since September
of 1995 with respect to interest payments on the Old Subordinated Debentures.
Outstanding indebtedness to holders of the Old Subordinated Debentures is
approximately $45 million.
From September 1995 through the Petition Date, the Debtors
experienced significant cash flow problems, as more fully discussed below. See
"General Background -- Events Leading to Chapter 11 Filing," as well as the
discussion of Liquidity and Operating Results in Exhibit II attached hereto. As
a result, the Debtors did not have sufficient resources to make any payments on
their obligations to the holders of Senior Secured Claims or holders of Old
Subordinated Debentures during that time period. Moreover, during such time,
because of the Debtors' ongoing liquidity problems, they were unable to make
payments when due to numerous vendors and other parties to whom the Debtors owed
various obligations.
On October 13, 1995, the Debtors' common stock was removed
from listing on the Nasdaq National Market. The reason for the delisting was
that the Debtors did not satisfy the Nasdaq National Market's net tangible
assets requirements. On October 25, 1995, the Debtors' common stock was removed
from trading on the Nasdaq Small Cap Market, and it is currently traded over the
counter.
As a result of their inability to pay their obligations when
they became due, as well as the industry conditions
14
<PAGE> 19
described below, the Debtors began taking steps to seek an infusion of new
capital or a strategic transaction (e.g., a merger or sale of the business). The
Debtors believed that absent the provision of new capital or consummation of a
strategic transaction, the Debtors would not be likely to be able to continue to
exist as a going concern.
Accordingly, in June 1995, the Debtors retained the investment
banking firm of Donaldson, Lufkin & Jenrette ("DLJ") to seek either a strategic
transaction or a capital infusion for the Debtors. From June 1995 through the
Petition Date, DLJ and the Debtors' Board of Directors engaged in discussions
with numerous industry parties as well as financial institutions, with respect
to a potential transaction or transactions that could provide the Debtors with
sufficient liquidity to survive as a going concern.
In the Fall and Winter of 1995, each of the lenders that were
party to the Existing Lender Agreements sold their debt instruments to various
investors in distressed entities. These investors now comprise the Senior
Lenders. In addition, certain of the Senior Lenders acquired a portion of the
outstanding Old Subordinated Debentures.
As a result of the efforts of the Debtors and DLJ, only one
offer to make an investment in the Debtors surfaced that the Debtors believed
was favorable to their creditors and shareholders. This offer was made by
Nu-Tech in conjunction with the Senior Lenders. After months of negotiations,
the Debtors, Nu-Tech and the Senior Lenders entered into an agreement providing
for a new investment of approximately $15 million into
15
<PAGE> 20
the Debtors and an overall restructuring of the Debtors' balance sheet (the
"Termsheet"). The terms of the Termsheet are embodied in the Plan.
The willingness of Nu-Tech to invest new capital into the
Debtors, and the willingness of the Senior Lenders to support a restructuring
that provided value for the Debtors' unsecured creditors and shareholders, was
subject to numerous conditions, which after lengthy negotiations were agreed to
by the Debtors in the Termsheet. These conditions included: (a) the filing of a
reorganization plan consistent with the Termsheet by December 2, 1996, (b) the
hiring of Nu-Tech's chief executive officer, J. Marvin Feigenbaum, as Chief
Operating Officer of PCL effective as of the Petition Date and (c) obtaining an
order approving certain break-up fee and overbid protections for Nu-Tech within
60 days of the Petition Date. See "The Chapter 11 Cases -- Breakup/Overbid
Protections."
To provide the Debtors with sufficient liquidity to operate
their businesses during the Chapter 11 Cases, the Termsheet required the Senior
Lenders to provide the DIP Financing Facility. See "Cash Collateral and Debtor
in Possession Financing" for a more detailed description of the terms and
conditions of the DIP Financing Facility. Funds for the DIP Financing Facility
were obtained by the Senior Lenders from Nu-Tech, which purchased approximately
$13.33 million of Senior Debt Claims for $10 million in Cash, just prior to the
Petition Date. Borrowings under the DIP Financing Facility will be forgiven
under the Plan without any payment by the Debtors, provided that no event of
default occurs and continues under the
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DIP Financing Facility. In such case, $10 million of Nu-Tech's $15 million
investment into the Debtors will have been made at the outset of the Chapter 11
Cases. The Plan provides for the final $5 million of Nu-Tech's investment to be
made on the Effective Date pursuant to the Nu-Tech Stock Purchase.
As set forth in more detail in "Cash Collateral and the Debtor
in Possession Financing," the DIP Financing Facility contains numerous
provisions requiring the Debtors to perform their obligations under the
Termsheet. If the Debtors fail to do so, they will be in default under the DIP
Financing Facility, which will give the Senior Lenders and Nu-Tech the right to
seek to foreclose on their security interests in the Debtors' assets. The
Debtors believe that if the Senior Lenders and Nu-Tech foreclose on their
security interests in the Debtors' assets, no other creditors or shareholders
will receive any recovery on their Claims or Interests. See "Acceptance and
Confirmation of the Plan -- Best Interests Test" and the Liquidation Analysis
contained in Exhibit V hereto. In addition, even if the Senior Lenders and
Nu-Tech do not foreclose on their security interests, absent the ability to
borrow funds under the DIP Financing Facility, the Debtors are unlikely to have
sufficient working capital to continue to operate their businesses as a going
concern.
Finally, the Termsheet required, as set forth in the preceding
table, that holders of Claims in Classes 5 and 6, and holders of Interests in
Class 7, will only be entitled to a distribution under the Plan if the Voting
Condition is satisfied. The Voting Condition requires Classes 5 and 6 to accept
the Plan.
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See "-- Voting Procedure and Requirements" and "Acceptance and Confirmation of
the Plan" for a description of the method of tabulating votes to determine if a
Class has accepted the Plan. If the Voting Condition is not satisfied, (a) the
Senior Lenders' recovery of New Common Stock of PCL will increase from 37% to
49% and (b) holders of Claims and Interests in Classes 5, 6 and 7 will receive
no recovery under the Plan.
C. VOTING PROCEDURES AND REQUIREMENTS
1. Persons Entitled to Vote on the Plan
As a condition to Confirmation, the Bankruptcy Code requires
that each class of impaired Claims or Interests vote to accept the Plan, except
under certain circumstances. See "Acceptance and Confirmation of the Plan --
Confirmation Without Acceptance of All Impaired Classes." A plan is accepted by
an impaired class of claims if holders of at least two-thirds in dollar amount
and more than one-half in number of claims of that class vote to accept the
plan. A plan is accepted by an impaired class of interests if holders of at
least two-thirds of the number of shares in such class vote to accept the plan.
Only those holders of claims or interests whose Claims or Interests are
undisputed and who actually vote count in these tabulations. Holders of claims
who fail to vote are not counted as either accepting or rejecting a plan or for
purposes of determining the number of votes or amount of claims and interests
required to accept a plan.
Under the Plan, Claims and Interests are divided into nine
Classes as more fully described in "-- Summary of Classes and Treatment of
Claims and Interests." Claims or Interests in
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the following Classes are Impaired under the Plan and thus are entitled to vote
on the Plan:
Class 2. Senior Debt Claims
Class 3. Nu-Tech Senior Debt Claims.
Class 5. Unsecured Claims.
Class 6. Old Subordinated Debenture Claims.
Class 7. Old Common Stock Interests.
Classes 1, 4 and 8 are unimpaired under the Plan, and,
therefore, conclusively are presumed to have accepted the Plan pursuant to
section 1126(f) of the Bankruptcy Code. Holders of Class 9 Interests will not
receive or retain any property under the Plan on account of their Interests, and
therefore, Class 9 is deemed not to have accepted the Plan pursuant to Section
1126(g) of the Bankruptcy Code. Thus, holders of Claims and Interests in these
Classes are not entitled to vote on the Plan.
__________ __, 1996 IS THE RECORD DATE OF ALL CLAIMS AND
INTERESTS FOR VOTING PURPOSES. ENTITIES HOLDING CLAIMS OR INTERESTS TRANSFERRED
AFTER SUCH DATE WILL NOT BE PERMITTED TO VOTE TO ACCEPT OR REJECT THE PLAN.
Pursuant to section 502 of the Bankruptcy Code and Bankruptcy Rule 3018, the
Bankruptcy Court may estimate and temporarily allow a Claim for the purpose of
voting on the Plan. The Debtors or any holder of a Disputed Claim may seek an
order of the Bankruptcy court temporarily allowing, for voting purposes only,
certain Disputed Claims.
The Bankruptcy Court has scheduled the Confirmation Hearing,
at which it will consider Confirmation of the Plan, for ________ __, 1997, at
__:00 __.m., Pacific Daylight Time, in the United States Bankruptcy Court, 21041
Burbank Boulevard, Woodland
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Hills, California 91367. The Bankruptcy Court has directed that objections, if
any, to Confirmation of the Plan be served and filed on or before __________ __,
1997 in the manner described in the Notice accompanying this Disclosure
Statement. The date of the Confirmation Hearing may be adjourned from time to
time without further notice except for an announcement at the Confirmation
Hearing of the date to which the Confirmation Hearing has been adjourned.
2. Voting Instructions
VOTING ON THE PLAN BY EACH HOLDER OF CLAIMS AND INTERESTS IS
IMPORTANT. IF YOU HOLD CLAIMS OR INTERESTS IN MORE THAN ONE CLASS, YOU MAY
RECEIVE MORE THAN ONE BALLOT. YOU SHOULD COMPLETE, SIGN AND RETURN EACH BALLOT
THAT YOU RECEIVE.
TO BE COUNTED, YOUR BALLOT(S) MUST BE ACTUALLY RECEIVED BY
__________ __, 1997, 5:00 P.M. PACIFIC DAYLIGHT TIME, AT THE ADDRESS SET FORTH
IN THE VOTING INSTRUCTIONS ACCOMPANYING YOUR BALLOT(S). IT IS OF THE UTMOST
IMPORTANCE TO THE DEBTORS THAT YOU VOTE PROMPTLY TO ACCEPT THE PLAN. THE
PROPONENTS SUPPORT THE PLAN AND STRONGLY ENCOURAGE YOU TO VOTE TO ACCEPT THE
PLAN.
VOTES CANNOT BE TRANSMITTED ORALLY OR BY FAX. ACCORDINGLY, YOU
ARE URGED TO RETURN YOUR SIGNED AND COMPETED BALLOT PROMPTLY.
IF YOU HAVE A CLAIM OR INTEREST THAT IS IMPAIRED UNDER THE
PLAN, THEREBY ENTITLING YOU TO VOTE, BUT DID NOT RECEIVE A BALLOT, RECEIVED A
DAMAGED BALLOT, OR LOST YOUR BALLOT, OR IF YOU HAVE ANY QUESTIONS CONCERNING THE
DISCLOSURE STATEMENT OR THE PLAN, PLEASE CALL THE DEBTORS' SOLICITATION AGENT,
AS IDENTIFIED IN THE VOTING INSTRUCTIONS DISTRIBUTED WITH EACH BALLOT.
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THE PROPONENTS WILL SEEK CONFIRMATION OF THE PLAN UNDER
SECTION 1129(b) OF THE BANKRUPTCY CODE IN VIEW OF THE DEEMED NONACCEPTANCE BY
CLASS 9. IN THE EVENT THAT ANY IMPAIRED CLASS OF CLAIMS OR INTERESTS DOES NOT
ACCEPT THE PLAN IN ACCORDANCE WITH SECTION 1126 OF THE BANKRUPTCY CODE, THE
PROPONENTS HAVE REQUESTED THAT THE BANKRUPTCY COURT CONFIRM THE PLAN IN
ACCORDANCE WITH SECTION 1129(b) OF THE BANKRUPTCY CODE. THE PROPONENTS RESERVE
THE RIGHT TO MODIFY THE PLAN TO THE EXTENT, IF ANY, THAT CONFIRMATION PURSUANT
TO SECTION 1129(b) OF THE BANKRUPTCY CODE REQUIRES MODIFICATION.
III.
GENERAL BACKGROUND
A. CORPORATE STRUCTURE OF THE DEBTORS
Physicians Clinical Laboratory, Inc. ("PCL") is a Delaware
corporation, which owns 100% of the capital stock of the following three
Debtors, each of which is a California corporation: Quantum Clinical
Laboratories, Inc., Diagnostic Laboratories, Inc. and Regional Reference
Laboratory Governing Corporation ("RRLGC"). PCL and RRLGC are the two partners
in the remaining Debtor, California Regional Reference Laboratory, which is a
California limited partnership.
B. DESCRIPTION OF THE DEBTORS' PREPETITION BUSINESS
1. General
The Debtors provide clinical laboratory services in the State
of California. As of June 30, 1996, the Debtors operated one full-service
clinical laboratory in Sacramento, 20 "STAT" laboratories and more than 200
patient service centers located in
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close proximity to referral sources throughout the Debtors' service areas. The
Debtors have a full service laboratory and more than 70 patient service centers
in the Sacramento area. The Debtors are a "hybrid" among clinical laboratory
companies in that they serve both as a traditional reference laboratory for
approximately 8500 office-based physician-clients and as an independent clinical
laboratory to acute care hospital customers.
2. Laboratory Testing Services
The Debtors' clinical laboratory tests measure the levels of
chemical and cellular components in human body fluids and tissue. They include
procedures in the areas of blood chemistry, hematology, urine chemistry,
immunology, virology, serology, histology, microbiology, endocrinology and
cytology. Commonly ordered individual tests include red and white blood cell
counts, PAP smears and procedures to measure blood glucose levels and to
determine pregnancy. As of the fiscal year ended February 29, 1996, the Debtors'
laboratories handled more than 55,000 patient specimens per week and performed
approximately 120,000 tests per week. Approximately 97% of the Debtors' revenues
are derived from tests performed by the Debtors internally. The remainder of the
Debtors' revenue is derived from other infrequently requested tests, which are
often labor- intensive or require specialized testing equipment and are referred
by the Debtors to more specialized reference laboratories.
The Debtors perform both routine clinical tests and so-called
"esoteric" tests at its Sacramento laboratory. Routine tests generally include
clinical tests capable of being performed
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and reported within a 24-hour period, whereas esoteric tests include more
complex and labor-intensive tests, generally requiring more sophisticated
technology and a higher degree of technical skill and knowledge. The Debtors
believe that there are approximately 1,250 tests available in the industry
today, of which the Debtors consider approximately 50% to be routine. Routine
tests include, among others, tests to determine the function of the kidney,
heart, liver and thyroid, as well as other organs, and a general health screen
that measures several important body health parameters. Of the approximately
120,000 tests the Debtors performed weekly, as of year end, the Debtors
considered approximately 70% to be routine. Many of the routine tests offered
are performed by sophisticated, computerized laboratory testing equipment.
Physicians order esoteric tests when the information provided by routine tests
is not specific enough or is not conclusive as to the existence or absence of
disease or when a physician requires additional information. Esoteric tests,
which often require manual techniques and more sophisticated equipment, can be
quite complex and generally are carried out by a highly trained technician. As a
consequence, esoteric tests are relatively higher priced. The number of esoteric
tests continually increases as new medical discoveries are made although
improved technology can also automate esoteric tests and, depending upon the
volume of test requests, convert esoteric tests to routine procedures. Some
examples of esoteric tests are immunoelectrophoresis, used for the diagnosis of
auto immune disorders and myelomas, and hepatitis markers, used for
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the diagnosis of acute hepatitis A and B and for identification of chronic
carriers of these diseases.
The Debtors are "hybrid" providers, in that they provide
testing services to both office-based physicians and acute-care hospitals.
Generally, service requirements and expectations of hospitals greatly exceed
those of office-based physicians, since hospitals ordinarily treat patients who
are unquestionably ill whereas office-based physicians often see patients for
routine examinations and for less serious illnesses. Clinical testing on behalf
of acute-care hospitals requires extremely high levels of quality and service.
The Debtors' standard turnaround time is three hours for most hospital tests,
and the results of these tests generally reveal a much higher percentage of
abnormalities than is encountered in other sectors of the clinical testing
business. The Debtors believe that their office-based physician customers
benefit from the hybrid nature of the Debtors' business, since they generally
receive services that have been disciplined by the more stringent timing and
quality requirements demanded by hospitals.
3. Laboratory Operations
As of February 29, 1996, the Debtors conducted their
operations through their full-service laboratories in Sacramento and Burbank,
their STAT laboratories and more than 200 patient service centers. Effective
June 1996, the Debtors discontinued full-service operations in their Burbank
laboratory and consolidated its operations with those of their Sacramento
full-service laboratory, while maintaining expanded STAT capabilities at the
Burbank facility. Patient service centers (which are
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often referred to as "draw stations") are facilities maintained by the Debtors,
often in or adjacent to a medical professional building, staffed with
phlebotomists and other personnel and at which patient specimens are drawn and
stored pending pickup and delivery to the central laboratory. Samples for tests
ordered by office-based physicians are generally drawn by phlebotomists at one
of the Debtors' patient service centers, to which the patient is referred by the
attending physician. Samples for tests ordered by the Debtors' hospital
customers are drawn by hospital personnel. The Debtors maintain a fleet of
service vehicles that collect specimens from each draw station at least twice
daily, from five Sacramento hospitals approximately every 90 minutes, and from
certain of the Debtors' office-based physician customers and hospitals
periodically during the day. Although specimens arrive at the full-service
laboratories throughout the day, the vast majority are received in the early
evening.
Upon arrival at the full-service laboratories, each specimen
is logged for testing and billing purposes into the Debtors' computer system.
Each specimen is labeled and is verified to be the correct type and quantity
required for the requested tests. The tests are then performed on the specimens
by the Debtors' technologists, and the results are entered into the Debtors'
computer systems, either manually or directly through computer interface,
depending upon the complexity and type of test and the type of equipment used to
perform the test.
Six of the Debtors' Sacramento-area hospital clients generally
require a maximum three hour turnaround on ordered testing, and to service these
customers the Debtors are equipped
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to perform tests on a STAT basis. The Debtors perform an average of
approximately 225 physician-requested STAT tests each day at their Sacramento
facilities, including blood cell counts and chemistry tests such as glucose
analyses. The Debtors believe that this capability provides a competitive
advantage in marketing their services to office-based physicians by enhancing
the Debtors' reputation among such physicians.
4. Clients and Payors
The Debtors' principal customers are their approximately 8,500
office-based physician-customers, their 10 acute-care hospital customers and
other HMOs and managed care entities. The Debtors receive payment for their
services from these customers, as well as from patients and third-party payors
such as insurance companies, HMOs, Medicare and MediCal. An important
determinant of the profitability of all clinical laboratory testing companies,
including the Debtors, is the percentage of their net revenues billed at
wholesale rates. The Debtors' mix of billings over time will be influenced by,
among other factors, regulatory developments, cost-containment efforts on the
part of payors and the types of businesses conducted by laboratories acquired by
the Debtors.
Fees for clinical laboratory testing services rendered for
physicians are typically charged on a fee-per-test basis and are billed to the
physician, directly to the patient or to the patient's third-party payor, such
as an insurance company, an HMO, Medicare or MediCal. Billings directly to
patients are made at the Debtors' patient, or "retail," fee schedule. Billings
to physicians are typically made at discounts from the Debtors'
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patient fee schedule. Third-party payors generally reimburse the Debtors
according to their own fee schedules, which usually represent a discount from
the Debtors' client fee schedule. The Debtors also have agreed to provide
testing services to certain HMOs pursuant to capitated fee arrangements that
provide for a fixed fee per member per month rather than fees for services
actually performed.
5. Sales and Marketing
The Debtors' full-time sales and marketing staff consists of
approximately 45 employees. The Debtors also employ approximately 20 field
service supervisors who maintain close contact with the Debtors' client base and
who monitor the Debtors' physician relationships. The Debtors also maintain a
staff of approximately 40 customer service personnel to assist customers with
questions regarding billing, testing results and related matters.
The Debtors have developed detailed management information
systems that monitor the performance of each sales person on a monthly basis.
The Debtors' three regional sales managers receive bonuses only if the entire
sales department for their region meets or exceeds an established quota on a
quarterly basis. Each sales person must achieve a standard based upon actual new
sales added on a monthly basis. Sales employees are paid a modest base salary, a
car allowance, and commission based upon a percentage of new account revenue
production on a twelve-month basis. Sales compensation arrangements are
structured to reward salespersons who bring in new business accounts.
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C. DESCRIPTION OF THE DEBTORS' PREPETITION FINANCING FACILITY
Prior to the commencement of the Chapter 11 Cases, the Debtors
were party to the Existing Lender Agreements. Under the Existing Lender
Agreements, the Debtors were indebted to the Senior Lenders and Nu-Tech in the
approximate amount of $94.2 million. See "Overview of the Plan -- Prepetition
Plan Negotiations and The Voting Condition." The Debtors' obligations under the
Existing Lender Agreements are secured by a first priority lien on and security
interest in substantially all of the Debtors' assets.
No payments of principal or interest were made by the Debtors
under the Existing Lender Agreements from September 1995 to the Petition Date.
Accordingly, the Debtors were in default of the Existing Lender Agreements
beginning in September 1995. As a result, the Debtors were unable to borrow any
funds necessary for working capital or any other purpose. Thus, to provide
liquidity during the Chapter 11 Cases, the Debtors obtained authority from the
Bankruptcy Court to use the Senior Lenders' cash collateral (subject to certain
limitations) and enter into a new debtor in possession financing facility. See
"Cash Collateral and Debtor in Possession Financing."
D. PREPETITION MANAGEMENT AND BOARD OF DIRECTOR CHANGES
[INSERT BOARD RESIGNATIONS]
In addition, as discussed below, as a condition to the
availability of funds under the DIP Financing Facility, J. Marvin Feigenbaum was
retained by the Debtors as Chief Operating Officer. Mr. Feigenbaum has acted in
that capacity, reporting directly to the Debtors' Board of Directors, from the
Petition
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Date through the date hereof. See "Overview of the Plan -- Prepetition Plan
Negotiations and the Voting Condition" and "-- Events Leading to Chapter 11
Filing."
E. SELECTED HISTORICAL FINANCIAL INFORMATION
The following tables set forth certain selected financial
information for the Debtors (consolidated) as of and for the fiscal years ended
February 28 (29), 1992, 1993, 1994, 1995 and 1996. The selected consolidated
financial information should be read in conjunction with the historical
financial statements and related information set forth in the Debtors' most
current annual report to the Securities and Exchange Commission on Form 10-K and
the Debtors' most current quarterly report to the Securities and Exchange
Commission on Form 10-Q, which are attached hereto as Exhibits II and III,
respectively. Exhibit II discusses, among other matters, certain material
uncertainties with respect to the Debtors. The financial information set forth
below has been derived from audited consolidated financial statements of the
Debtors.
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<TABLE>
<CAPTION>
--------------------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(In thousands, except ratios and per share amounts)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Net revenue $ $ $ $ $ 90,392
Direct laboratory costs 10,179 13,676 21,821 35,335 31,881
Laboratory support costs 4,482 7,310 13,652 24,741 26,509
--------- --------- --------- ---------- ---------------
Laboratory profit 12,811 19,699 32,322 51,035 32,002
Selling, general and administrative 5,822 7,970 17,008 26,627 27,739
Provision for doubtful accounts 835 1,586 2,502 4,319 30,539
Depreciation, amortization and write down
of intangible assets 1,745 2,624 4,797 9,881 36,327
Credit restructuring costs -- -- -- -- 4,904
Non-recurring acquisition
integration expense -- -- -- 9,250 --
--------- --------- --------- ---------- ---------------
Operating income (loss) 4,409 7,519 8,015 958 (67,507)
Interest expense (874) (1,012) (2,981) (9,013) (12,899)
Non operating income (expense), net 33 (155) 299 270 (322)
Litigation settlement -- -- (792) -- --
--------- --------- --------- ---------- ---------------
Income (loss) before income taxes 3,568 6,352 4,541 (7,785) (80,728)
Provision (benefit) for income taxes -- 2,800 1,831 (2,189) (1,543)
--------- --------- --------- ---------- ---------------
Net income (loss) 3,552 2,710 (5,596) (79,185)
========= ========= ========== ===============
Net income (loss) per share $ 0.72 $ 0.44 $ (0.93) $ (13.13)
========= ========= ========== ===============
BALANCE SHEET DATA:
Working capital $ $ $ $ 17,243 $ (134,491)
Total assets 16,676 42,784 78,813 158,044 92,852
Total long-term indebtedness 6,557 9,381 46,703 114,397 3,570
Stockholders' equity 4,429 17,302 19,992 14,548 (63,173)
</TABLE>
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F. EVENTS LEADING TO CHAPTER 11 FILING
As discussed above, during the past year, the Debtors engaged
in negotiations with numerous third parties with respect to a potential
strategic transaction or capital investment that the Debtors believed necessary
to ensure their ability to continue their existence as a going concern. The
Debtors believe that maintaining their existence as a going concern is essential
to maximize value to creditors and shareholders. See "Overview of the Plan --
Prepetition Plan Negotiations and The Voting Condition."
The Debtors' financial difficulties, which necessitated an
infusion of new capital and ultimately led to the agreement with Nu-Tech and the
Senior Lenders, began in April 1994. At such time, the Debtors completed their
acquisition of the California laboratory operations of Damon. The Debtors
integrated the Damon operations into their existing business through the
establishment of a regional laboratory in Burbank.
As a result of delays and unexpectedly large costs incurred in
the integration of certain of the Damon operations, declining reimbursements
from insurance payers, Medicare and MediCal and billing and collection problems,
the Debtors began to experience severe cash flow problems in the second half of
fiscal 1995. The Debtors failed to make the March 31, 1995 principal and
interest payment under the Existing Lender Agreements and the due date was
extended by the lenders thereunder to April 24, 1995. When the April 24, 1995
due date was not met, the lenders thereunder notified the Debtors that they were
in default of the Existing Lender Agreements. The Debtors and the lenders
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<PAGE> 36
thereunder entered into the Third Amendment to the Credit Agreement on May 10,
1995. In connection with the Third Amendment to the Credit Agreement, the
lenders required Sutter Health, one of the PCL's largest shareholders, to
provide a guarantee of the Debtors' borrowings under the credit agreement in the
amount of $3.5 million. Sutter Health provided that guarantee on May 10, 1995.
The Third Amendment to the Credit Agreement provided a waiver of the condition
of default and revised certain financial covenants. Upon the announcement of the
Debtors' fiscal year 1995 results of operations, the Debtors were out of
compliance with several of the revised financial covenants. The Third Amendment
provided for automatic acceleration of payments in the event of default without
notice of any kind by the lenders. As such, all loans under the Existing Lender
Agreements were due and payable immediately at that time.
On July 31, 1995, the Debtors entered into another amendment
to the Existing Lender Agreements, which modified the schedule under which
principal amortization payments and interest payments were to be made by the
Debtors, and provided adjustments to various financial covenants, among other
things. The Debtors were not able to comply with the revised payment schedule,
and thus have been in default since September of 1995 with respect to payments
of principal and interest, as well as certain covenants, under the Existing
Lender Agreements.
The Debtors also failed to make two interest payments, each in
the amount of $1.5 million, due on August 15, 1995 and February 15, 1996,
respectively, in respect of its Old
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Subordinated Debentures. Accordingly, the Debtors have been in default
thereunder since September 1995.
Due to the significant changes occurring in the health care
industry related to managed care, billing system/process challenges and accounts
receivable collection problems, the Debtors wrote down their accounts receivable
by $25,440,000 in fiscal year ended February 29, 1996. During that year,
intensive efforts were put forth to gather billing and eligibility information
in order to process unbilled claims and collect past due accounts. The Debtors
were able to bill and collect some past due accounts receivable, but the
remainder was considered uncollectible.
As disclosed in the Debtors' 10-K for the year ended February
29, 1996 (attached hereto as Exhibit II), operating income fell from $958,000
for fiscal year 1995 to a loss of $67.5 million for fiscal year 1996. This
decrease resulted from the loss of revenue associated with reduced reimbursement
from third party payors and increased laboratory support cost associated with
servicing Damon acquisition associated accounts.
Through the Petition Date, the liquidity and results of
operations of the Debtors continued to be adversely affected by downward
pressure on reimbursement revenues, billing system/process challenges and
accounts receivable collection problems. The Debtors continued to experience
severe cash flow problems, reduction in third-party payor reimbursement rates,
billing and collection problems and effects of significant changes in the health
care industry. As of the Petition Date, the Debtors had virtually no Cash
resources whatsoever, no
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<PAGE> 38
material unencumbered assets, and no ability to borrow funds from any third
party, other than from the Senior Lenders under the DIP Financing Facility.
Absent the ability to borrow funds under the DIP Financing Facility, the Debtors
do not believe they would have been able to survive as a going concern for any
significant length of time.
G. PREPETITION BUSINESS RESTRUCTURING EFFORTS
Given the Debtors' financial difficulties described above, the
Debtors took a number of steps during the year prior to the commencement of the
Chapter 11 Cases to reduce operating costs, improve cash collections and
increase revenue flows. Most significantly, the Debtors consolidated certain
laboratory facilities and reduced their workforce accordingly. Thus, in June
1995, the Debtors' Fresno hub laboratory was closed. In June 1996, the Debtors'
Burbank hub laboratory was closed. Laboratory services provided at those
locations were, to the extent possible, performed at other of the Debtors'
locations.
In addition, the Debtors engaged outside consultants to assist
them in streamlining and improving their billing and collection process.
Internal teams were created to concentrate on account receivable collections in
the Medicare, MediCal, client and patient payor categories.
The Debtors also increased their focus on sales and marketing
efforts to increase net revenues. Finally, the Debtors reduced overhead expenses
by, among other things, significantly reducing the size of their workforce,
closing unprofitable locations and terminating unprofitable contracts.
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The Debtors believe that these efforts had a positive effect
on their cash flow. They were not sufficient, however, to enable the Debtors to
pay their obligations as they became due.
IV.
THE CHAPTER 11 CASES
A. COMMENCEMENT OF THE CHAPTER 11 CASES
As stated above, on November 8, 1996, the Debtors commenced
the Chapter 11 Cases by Filing voluntary petitions for relief under chapter 11
of the Bankruptcy Code in the Bankruptcy Court. Under the protection of chapter
11, the Debtors have continued in possession of their properties as debtors in
possession, and are authorized to operate and manage their businesses and to
enter into all transactions that they could have entered into in the ordinary
course of their businesses had there been no chapter 11 filings.
Pursuant to applicable Bankruptcy Code provisions, the Debtors
have sought and obtained numerous orders from the Bankruptcy Court intended to
facilitate their operations during the Chapter 11 Cases. Among other things,
these orders authorized the Debtors to (1) maintain their cash management system
with minor modifications, (2) pay certain prepetition claims, including employee
wages and salaries and (3) continue to operate under existing utility and phone
agreements. Accordingly, since the Petition Date, the Debtors have continued to
conduct their businesses substantially as they did prior to the Petition Date.
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B. PARTIES IN INTEREST IN THE CHAPTER 11 CASES
1. The Bankruptcy Court
The Chapter 11 Cases are pending before the Honorable
Geraldine Mund of the United States Bankruptcy Court for the Central District of
California, located at 21041 Burbank Boulevard, Woodland Hills, California
91367.
2. Retention of Professionals
During the Chapter 11 Cases, the Debtors sought approval from
the Bankruptcy Court to retain Jones, Day, Reavis & Pogue as their attorneys and
Ernst & Young as their accountants and financial advisors. As of the date
hereof, applications to retain these professionals are pending.
3. The Official Committee of Unsecured Creditors
Shortly after the Petition Date, the United States Trustee for
the Central District of California held a meeting of the Debtors' twenty largest
unsecured creditors and appointed the Official Committee. The Official Committee
currently consists of the following members:
Medical Group Pathology Laboratory
425 West Junipero
Santa Barbara, California 93105
Fisher Scientific, Inc.
22745 Savi Ranch Parkway
Yorba Linda, California 92687
Boehringer Mannheim Corporation
9115 Hague Road
Indianapolis, Indiana 46250-0446
Corning Nichols Institute
33608 Ortega Highway
San Juan Capistrano, California 92690
ARUP Laboratories
500 Chipeta Way
Salt Lake City, Utah 84108
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Glendale Adventist Medical Center
1509 Wilson Terrace
Glendale, California 91206
Antrim
101 East Park Boulevard, 12th Floor
Plano, Texas 75074
As of the date hereof, the Creditors' Committee intends
to seek the retention of Andrews & Kurth, L.L.P. as legal counsel
and Price Waterhouse as its financial advisors.
C. CASH COLLATERAL AND DEBTOR IN POSSESSION FINANCING
Critical to the Debtors' ability to restructure their
businesses and to emerge from chapter 11 was their ability to maintain liquidity
to meet operating needs during the Chapter 11 Cases. As a result of filing for
chapter 11 protection, cash generated from services rendered prior to the
Chapter 11 Cases is "cash collateral" of the Senior Lenders, pursuant to their
security interests therein. See "General Background -- Description of the
Debtors' Prepetition Financing Facility." Under the Bankruptcy Code, this cash
collateral could not be used by the Debtors without the Senior Lenders' consent
or Bankruptcy Court approval. Accordingly, and as contemplated by the Termsheet,
on November 12, 1996, the Bankruptcy Court entered an interim order authorizing
the Debtors to use the cash collateral under specified conditions, as consented
to by the Senior Lenders.
Use of cash collateral would not have provided the Debtors
with sufficient liquidity to sustain their operations during the Chapter 11
Cases. Thus, to provide additional necessary liquidity, as contemplated by the
Termsheet, the Debtors entered into the DIP Financing Facility with the Senior
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Lenders. The DIP Financing Facility provided the Debtors with up to $9.8 million
of borrowing capacity during the Chapter 11 Cases, for ordinary working capital
purposes and to fund the Plan. On November 12, 1996, the Bankruptcy Court
entered an interim order approving borrowings of up to $2.0 million under the
DIP Financing Facility. As of the date hereof, a hearing at which the Debtors
will seek final approval of the DIP Financing Facility and cash collateral usage
for the duration of the Chapter 11 Cases is scheduled for December 3, 1996.
Under the DIP Financing Facility, the Senior Lenders agreed to
make loans to the Debtors in an aggregate principal amount not to exceed $9.8
million. The obligations of the Debtors under the DIP Financing Facility are
secured by a first priority lien and security interest in all of the Debtors'
assets and are also allowed administrative expenses under the Bankruptcy Code,
with priority over most administrative expenses of the kind specified in
sections 503(b) and 507(b) of the Bankruptcy Code.
The DIP Financing Facility provides that interest on advances
to the Debtors accrues at the rate of 2% above the prime rate and is only
payable upon an event of default described below or at the end of the term of
the DIP Financing Facility if the Plan is not Confirmed. Upon the Effective
Date, accrued interest under the DIP Financing Facility will be forgiven.
The DIP Financing Facility imposes an annual commitment fee of
1% on the unused portion of the $9.8 million limit. This commitment fee is only
payable upon an event of default described below or at the end of the term of
the DIP Financing Facility if
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the Plan is not Confirmed. Upon the Effective Date, accrued commitment fees will
be forgiven.
In addition to other terms and conditions customary for debtor
in possession financings of this type, the DIP Financing Facility requires the
Debtors to use their best efforts to obtain Bankruptcy Court approval of the
following: (i) provisions acknowledging the amount and validity of the Senior
Debt Claims and security interests, the amount and validity of the Old
Subordinated Debentures, and that such debt and security interests are not
subject to challenge, dispute or avoidance in the Chapter 11 Cases; (ii)
provisions waiving and releasing any known or unknown claims of the Estates
arising out of the Existing Lender Agreements; (iii) provisions waiving any
rights of surcharge under section 506(c) of the Bankruptcy Code and rights of
recovery under section 502(d) of the Bankruptcy Code; and (iv) provisions
stating that upon an event of default by the Debtors under the DIP Financing
Facility, all stays, including the automatic stay of section 362 of the
Bankruptcy Code, will terminate on five days written notice to permit the Senior
Lenders to exercise their rights and remedies under the DIP Financing Facility
as if no bankruptcy stay were in effect. These provisions will be ruled upon by
the Bankruptcy Court at the December 3, 1996 hearing.
Moreover, the DIP Financing Facility contains the following
events of default, designed to ensure that the Debtors perform their obligations
under the Termsheet, as described above under the heading "Overview of the Plan
- -- Prepetition Plan Negotiations and The Voting Condition": (i) failure of the
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breakup/overbid protections (as described below) to be approved by the
Bankruptcy Court; (ii) withdrawal of the Plan by the Debtors or proposal by the
Debtors of a plan of reorganization inconsistent with the terms of the
Termsheet; (iii) termination of the Debtors' exclusive right to file and solicit
acceptances with respect to the Plan for the benefit any party other than the
Proponents; (iv) removal or termination of J. Marvin Feigenbaum as Chief
Operating Officer of the Debtors other than in accordance with his employment
agreement or modification by the Debtors of his employment agreement without the
Proponents' written consent; and (v) termination by J. Marvin Feigenbaum of his
employment agreement in accordance with its terms. In addition, the DIP
Financing Facility contains events of default customary for debtor in possession
financings of this type.
The DIP Financing Facility terminates upon an event of default
described above or on the first anniversary of the Petition Date if the Plan is
not Confirmed. Immediately prior to the Effective Date, the unused principal
availability under the DIP Financing Facility will be fully drawn. Upon the
Effective Date, the principal balance of the DIP Financing Facility, all accrued
interest and all fees will be forgiven without any payment by the Debtors.
D. BREAKUP/OVERBID PROTECTIONS
The Termsheet provides that the Debtors will only transfer
their assets or stock to a third party other than as contemplated by the Plan or
confirm any other plan of reorganization if (i) the Bankruptcy Court finds that
such a transfer to third party or alternative plan has an aggregate
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present value to creditors and shareholders of the Debtors of at least $3.75
million higher than the present value of the Plan to creditors and shareholders
and (ii) on the effective date of such third party transfer or alternative plan,
Nu-Tech is paid $1.88 million in cash as compensation for time and expenses
incurred in pursuing the Plan and such compensation is entitled to
administrative expense priority (collectively, the "Breakup/Overbid
Protections"). Failure to obtain an order of the Bankruptcy Court approving
these provisions is an event of default under the DIP Financing Facility.
The Debtors have filed a motion seeking approval of the
Breakup/Overbid Protections with the Bankruptcy Court. The Bankruptcy Court has
set a hearing on this Motion for ____________, 199_ at _:__ _.m., Pacific
Daylight Time.
E. THE DEBTORS' ONGOING BUSINESS RESTRUCTURING
Following the Petition Date, the Debtors have continued
implementation of the operational restructuring that began prior to the Petition
Date. See "General Background -- Prepetition Business Restructuring Efforts."
The Debtors have continued to identify areas where overhead cost savings can be
achieved, as well as unprofitable laboratory operations that are slated for
closure.
F. EMPLOYEE MATTERS
As of the Petition Date, the Debtors employed approximately
1,150 employees.
Immediately upon the Filing of their chapter 11 petitions, the
Debtors obtained the Bankruptcy Court's authorization to continue paying,
without interruption, basic
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wages, salaries and benefits to their employees, to the extent that such amounts
would have been entitled to priority and payable pursuant to section 507(a)(3)
of the Bankruptcy Code. In so doing, the Debtors solidified their relationships
with their employees, thereby successfully maintaining employee morale and
stabilizing the Debtors' workforce during the early days of the Chapter 11
Cases.
G. BAR DATE, DISPUTE RESOLUTION PROCEDURE AND OTHER CLAIM MATTERS
As of the date hereof, the Debtors have not Filed their
schedules of assets and liabilities or statements of financial affairs
(collectively, the "Schedules"), as required by Bankruptcy Rule 1007. By order
of the Bankruptcy Court, the Debtors are required to do so by December 23, 1996.
The Debtors intend to ask the Bankruptcy Court to establish a
deadline for creditors to file proofs of claim as soon as possible after the
Schedules are Filed. After that deadline occurs, the Debtors will begin the
process of reviewing claims filed, comparing such claims to the Debtors' books
and records and objecting to, or seeking to consensually resolve, Disputed
Claims.
V.
GENERAL INFORMATION CONCERNING THE PLAN
THE FOLLOWING IS A SUMMARY OF CERTAIN ADDITIONAL INFORMATION
CONCERNING THE PLAN. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE PROVISIONS OF THE PLAN AND THE ATTACHMENTS THERETO.
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A. CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS
The classification and treatment of Claims and Interests is
described above. See "Overview of the Plan -- Summary of Classes and Treatment
of Claims and Interests." All Claims and Interests, except Administrative
Claims, Priority Tax Claims and DIP Financing Facility Claims, are placed in the
Classes described in the Plan.
No holder of a Priority Tax Claim, a Priority Claim or an
Allowed Claim (other than a holder of an Administrative Claim based on liability
incurred by a Debtor in the ordinary course of its business that is entitled to
interest pursuant to the terms and conditions of the transaction giving rise to
such Administrative Claim) will be entitled to any payments or additional
distributions on account of accrued postpetition interest in respect of such
Claims.
B. TREATMENT AND DESCRIPTION OF UNCLASSIFIED CLAIMS
The Bankruptcy Code does not require certain administrative
and priority claims to be classified under a plan of reorganization.
Accordingly, Administrative Claims, Priority Tax Claims and DIP Financing
Facility Claims are not classified in the Plan.
1. Administrative Claims
Administrative Claims are defined as costs and expenses of
administration allowed and entitled to priority under sections 503(b), 507(b) or
1114(e)(2) of the Bankruptcy Code, including: (a) the actual and necessary costs
and expenses incurred after the Petition Date of preserving the Estates and
operating the businesses of the Debtors; (b) compensation for
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legal, financial advisory, accounting and other services and reimbursement of
expenses awarded or allowed under sections 330(a) or 331 of the Bankruptcy Code;
(c) all fees and charges assessed against the Estate under chapter 123 of the
title 23 of the United States Code, 28 U.S.C. SectionSection 1911-1930; anD (d)
claims for reclamation allowed in accordance with section 546(c)(2) of the
Bankruptcy Code. In addition to the types of Administrative Claims described
above, section 503(b) of the Bankruptcy Code provides for the payment of
compensation or reimbursement of expenses to creditors, indenture trustees and
other entities making a "substantial contribution" to a chapter 11 case and to
attorneys for and other professional advisors to such entities. The amounts, if
any, that such entities will or may seek for such compensation or reimbursement
are not known by the Debtors at this time. Except as otherwise provided in the
Plan, requests for such compensation or reimbursement must be approved by the
Bankruptcy Court after notice and a hearing at which the Debtors or the
Reorganized Debtors and other parties in interest may participate and, if
appropriate, object to the allowance of any such compensation or reimbursement.
Subject to the provisions of Section 2.1.2 of the Plan with
respect to Professionals and certain other entities, the Plan provides for
payments of Allowed Administrative Claims in full, unless such holder and the
applicable Debtor or Reorganized Debtor agree to other terms or a Final Order of
the Bankruptcy Court provides for other terms.
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Allowed Administrative Claims representing obligations
incurred in the ordinary course of business or otherwise assumed by a Debtor
pursuant to the Plan (including Administrative Claims of governmental units for
taxes) will be assumed on the Effective Date and paid, performed or settled by
the applicable Reorganized Debtor when due in accordance with the terms and
conditions of the particular agreements governing such obligations without the
need for holders of such Claims to comply with Section 2.1.2 of the Plan.
Except as provided below, requests for payment of
Administrative Claims must be Filed and served on the Debtors or the Reorganized
Debtors no later than 30 days after the Effective Date. Holders of
Administrative Claims that are required to File and serve a request for payment
of such Claims and that do not File and serve a request by such date will be
forever barred from asserting such Claims against the Debtors, the Reorganized
Debtors or their respective property. Objections to such requests must be Filed
and served on the Reorganized Debtors and the requesting party no later than 30
days after the date on which the applicable request for payment was Filed.
Professionals or other entities requesting compensation or
reimbursement of expenses pursuant to sections 327, 328, 330, 331, 503(b) or
1103 of the Bankruptcy Code for services rendered before the Effective Date
(including compensation requested pursuant to section 503(b)(4) of the
Bankruptcy Code by any Professional or other entity for making a substantial
contribution in the Chapter 11 Cases) must File and serve on the Reorganized
Debtors and counsel for the Reorganized Debtors an
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application for final allowance of compensation and reimbursement of expenses no
later than 30 days after the Effective Date, unless such Filing and service
deadline is extended by the Bankruptcy Court. Objections to applications of
Professionals or other entities for compensation or reimbursement of expenses
must be Filed and served on the Reorganized Debtors, counsel for the Reorganized
Debtors and the requesting Professional or other entity no later than 30 days
after the date on which the applicable application for compensation or
reimbursement was Filed.
2. Priority Tax Claims
Pursuant to section 1129(a)(9)(C) of the Bankruptcy Code,
unless otherwise agreed by the holder of a Priority Tax Claim and the applicable
Debtor or Reorganized Debtor, the Plan provides that each holder of a Priority
Tax Claim will receive, in full satisfaction of such Claim, deferred cash
payments over a period not exceeding six years from the date of assessment of
such Claim. Payments will be made in equal quarterly installments of principal,
plus simple interest accruing from the Effective Date at 8% per annum on the
unpaid portion of each Priority Tax Claim (or upon such other terms determined
by the Bankruptcy Court to provide the holders of Priority Tax Claims with
deferred cash payments having a value as of the Effective Date equal to such
Claims). Unless otherwise agreed by the holder of a Priority Tax Claim and the
applicable Debtor or Reorganized Debtor, the first payment will be payable one
year after the Effective Date or, if the Priority Tax Claim is not allowed
within one year after the Effective Date, the first day
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of the quarter following the date on which (a) an order allowing such Claim
becomes a Final Order or (b) a Stipulation regarding the Amount and Nature of
Claim is executed by the Reorganized Debtor and the Claim holder; provided,
however, that the Reorganized Debtor will have the right to pay any Priority Tax
Claim, or any remaining balance of such Claim, in full, at any time on or after
the Effective Date, without premium or penalty.
3. DIP Financing Facility Claims
Immediately prior to the Effective Date, provided that no
unwaived event of default exists under the DIP Financing Facility, any amounts
available under the DIP Financing Facility will be borrowed by PCL so that the
total outstanding principal balance thereunder is $9,800.000. On the Effective
Date, any and all amounts owing under the DIP Financing Facility will be deemed
fully and finally forgiven without any payment by the Debtors or further action
by any party.
C. SOURCES OF CASH TO MAKE PLAN DISTRIBUTIONS
Except as otherwise provided in the Plan or the Confirmation
Order, all Cash necessary for the Reorganized Debtors to make payments pursuant
to the Plan will be obtained from the Reorganized Debtors' cash balances and the
operations of the Debtors or Reorganized Debtors, the DIP Financing Facility,
the New Credit Facility and consummation of the Nu-Tech Stock Purchase. Cash
payments to be made pursuant to the Plan will be made by Reorganized PCL or the
Disbursing Agent; provided, however, that the Debtors and the Reorganized
Debtors will be entitled to transfer funds between and among themselves as they
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determine to be necessary or appropriate to enable each Reorganized Debtor to
satisfy its obligations under the Plan.
D. RELEASE OF LIENS
Except as otherwise provided in the Plan with respect to Other
Secured Claims, the New Indenture or in any contract, instrument, indenture or
other agreement or document created in connection with the Plan, on the
Effective Date, all mortgages, deeds of trust, liens or other security interests
against the property of the Estate shall be released, and all the right, title
and interest of any holder of such mortgages, deeds of trust, liens or other
security interests shall revert to the applicable Reorganized Debtor and its
successors and assigns.
E. PRESERVATION OF RIGHTS OF ACTION BY THE DEBTORS AND
THE REORGANIZED DEBTORS; RELEASES
1. Preservation of Rights of Action
Except as provided in Section 5.5 of the Plan, or in any
contract, instrument, release, indenture or other agreement entered into in
connection with the Plan, in accordance with section 1123(b) of the Bankruptcy
Code, each Reorganized Debtor shall retain and may enforce any claims, rights
and causes of action that the applicable Debtor or its Estate may hold against
any entity, including but not limited to the claims, rights and causes of action
set forth in Exhibit L to the Plan. Failure to list a claim, right or cause of
action on Exhibit L to the Plan shall not constitute a waiver or release by the
Debtors of such claim, right or cause of action. Each Reorganized Debtor or its
successors may pursue such retained claims, rights or causes of
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action, as appropriate, in accordance with the best interests of such
Reorganized Debtor.
2. Releases by the Debtors
As of the Effective Date, the Debtors and the Reorganized
Debtors will be deemed to have released and waived all causes of action of the
Debtors arising under sections 510, 544, 547, 548, 549 or 550 of the Bankruptcy
Code other than those expressly listed on Exhibit L to the Plan. Additionally,
as of the Effective Date, for good and valuable consideration, the adequacy of
which is hereby confirmed, the Debtors and the Reorganized Debtors will be
deemed to forever release, waive and discharge all claims, counterclaims,
obligations, suits, judgments, damages, demands, debts, rights, causes of action
and liabilities whatsoever in connection with or related to the Debtors, the
Chapter 11 Cases or the Plan (other than the rights of the Debtors or the
Reorganized Debtors to enforce the Plan and the contracts, instruments,
releases, indentures and other agreements or documents delivered thereunder),
whether liquidated or unliquidated, fixed or contingent, matured or unmatured,
known or unknown, foreseen or unforeseen, then existing or thereafter arising,
in law, equity or otherwise that are based in whole or in part on any act,
omission, transaction, event or other occurrence taking place on or prior to the
Effective Date in any way relating to the Debtors, the parties released pursuant
to Section 5.5.1 of the Plan, the Chapter 11 Cases or the Plan, and that may be
asserted by or on behalf of a Debtor or its Estate against (i) the Debtors'
current and former officers, directors and shareholders, (ii) Nu-Tech and
Nu-Tech's current and former
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officers, directors and shareholders, (iii) the respective current and former
agents, employees, consultants, advisors, attorneys, accountants and other
representatives of the Debtors or Nu-Tech (including the respective current and
former members and professionals of the foregoing) acting in such capacity, (iv)
the Senior Lenders, the Agent, the holders of the Old Subordinated Debentures,
the trustee under the Old Indenture and the Official Committee and their
respective predecessors in interest relating to their respective Claims and (v)
the respective current and former agents, advisors, attorneys and
representatives of the Senior Lenders, the Agent, the holders of the Old
Subordinated Debentures, and the Official Committee (including the respective
current and former members and professionals of the foregoing and their
respective predecessors in interest) acting in such capacity; provided, however,
that the Debtors shall not release the persons identified in subclauses (i) and
(ii) of Section 5.5.1.2 of the Plan from any claims with respect to (a) any
loan, advance or similar payment by the Debtors to such person or (b) any
contractual obligation owed by such person to the Debtors. Notwithstanding
Section 5.5 of the Plan, if and to the extent that the Bankruptcy Court
concludes that the Plan cannot be confirmed with any portion of the releases set
forth in the Plan, then the Plan may be confirmed with that portion excised so
as to give effect as much as possible to the foregoing releases without
precluding confirmation of the Plan.
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3. Releases by Holders of Claims or Interests
(a) Holders of Claims
As of the Effective Date, to the fullest extent permitted by
law, in consideration for the obligations of the Debtors and the Reorganized
Debtors under the Plan and the Cash (if the Voting Condition is satisfied), the
New Securities, contracts, instruments, releases and other agreements or
documents to be delivered in connection with the Plan, each holder of a Claim
that is Impaired under the Plan will be deemed to forever release, waive and
discharge all claims, counterclaims, demands, debts, rights, causes of action
and liabilities (other than the right to enforce the Debtors' or the Reorganized
Debtors' obligations under the Plan and the contracts, instruments, releases and
other agreements and documents delivered thereunder), whether liquidated or
unliquidated, fixed or contingent, matured or unmatured, known or unknown,
foreseen or unforeseen, then existing or thereafter arising, that are based in
whole or in part on any act, omission or other occurrence taking place on or
prior to the Effective Date in any way relating to their Claims against a
Debtor, the Chapter 11 Cases or the Plan against (i) the Debtors and Nu-Tech,
(ii) the current and former officers, directors and shareholders of the Debtors
and Nu-Tech or (iii) their respective agents, advisors, attorneys and
representatives (including the respective current and former officers,
directors, employees, shareholders and professionals of the foregoing), acting
in such capacity.
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(b) Holders of Interests
As of the Effective Date, to the fullest extent permissible
under applicable law, in consideration for the obligations of the Debtors and
the Reorganized Debtors under the Plan (and, if the Voting Condition is
satisfied, the New Common Stock and the New Warrants), contracts, instruments,
releases or other agreements or documents to be delivered in connection with the
Plan, each entity that has held, holds or may hold an Interest will be deemed to
forever release, waive and discharge all claims, counterclaims, demands, debts,
rights, causes of action and liabilities (other than the right to enforce the
Debtors' or the Reorganized Debtors' obligations under the Plan and the
contracts, instruments, releases and other agreements and documents delivered
thereunder), whether liquidated or unliquidated, fixed or contingent, matured or
unmatured, known or unknown, foreseen or unforeseen, then existing or thereafter
arising, that are based in whole or in part on any act, omission or other
occurrence taking place on or prior to the Effective Date in any way relating to
their Interests in a Debtor, the Chapter 11 Cases or the Plan against: (i) the
Debtors and Nu- Tech, (ii) the current or former officers, directors and
shareholders of the Debtors and Nu-Tech or (iii) their respective agents,
advisors, attorneys and representatives (including the respective current and
former directors, officers, employees, shareholders and professionals of the
foregoing), acting in such capacity.
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(c) Release of Official Committee
As of the Effective Date, to the fullest extent permissible
under applicable law, in consideration for the contracts, instruments, releases
or other agreements or documents to be delivered in connection with the Plan,
each entity that has held, holds or may hold a Claim or Interest which is
Impaired will be deemed to forever release, waive and discharge all claims,
counterclaims, demands, debts, rights, causes of action and liabilities, whether
liquidated or unliquidated, fixed or contingent, matured or unmatured, known or
unknown, foreseen or unforeseen, then existing or thereafter arising, that are
based in whole or in part on any act, omission or other occurrence taking place
on or prior to the Effective Date in any way relating to their Claims against or
Interests in a Debtor, the Chapter 11 Cases or the Plan against the Official
Committee, its agents, advisors, attorneys and representatives (including the
respective current and former directors, officers, employees, shareholders and
professionals of the foregoing), acting in such capacity.
(d) Sutter Guaranty
Notwithstanding that the Sutter Guaranty shall continue in
full force and effect after the Effective Date as of the Effective Date, in
consideration for the obligations of the Debtors and the Reorganized Debtors
under the Plan, Sutter will be deemed to have forever released, waived and
discharged all claims, counterclaims, demands, debts, rights of contribution,
reimbursement, subrogation or otherwise, and liabilities, whether liquidated or
unliquidated, fixed or contingent, material or
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immaterial, known or unknown, foreseen or unforeseen, then existing or
thereafter arising in any way relating to the Sutter Guaranty and against (i)
the Debtors and Nu-Tech, (ii) the current and former officers, directors and
shareholders of the Debtors and Nu-Tech or (iii) their respective agents,
advisors, attorneys and representatives (including the respective current and
former officers, directors, employees, shareholders and professionals of the
foregoing), acting in such capacity.
4. Injunction Related to Releases
As provided in Section 11.2 of the Plan, the Confirmation
Order will enjoin the prosecution, whether directly, derivatively or otherwise,
of any claim, counterclaim, demand, debt, right, cause of action, liability or
interest released, discharged or terminated pursuant to the Plan.
F. EXECUTORY CONTRACTS AND UNEXPIRED LEASES
1. Assumptions of Contracts
Except as otherwise provided in the Plan, including Section
6.2 of the Plan, or in any contract, instrument, release, indenture or other
agreement or document entered into in connection with the Plan, on the Effective
Date, pursuant to section 365 of the Bankruptcy Code, the Debtors will assume
(i) each executory contract and unexpired lease entered into by a Debtor prior
to the Petition Date that has not previously: (a) expired or terminated pursuant
to its own terms or (b) been assumed or rejected pursuant to section 365 of the
Bankruptcy Code and (ii) each Provider Agreement. Notwithstanding any other
provision of the Plan, the Provider Agreements will be assumed as of the
Effective Date free and clear of any rights, claims,
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recoupments or setoffs which accrued before the Effective Date. In particular,
and without limitation, from and after the Effective Date, the non-debtor
parties to the Provider Agreements will be enjoined from setting off or
recouping against payments due to the Reorganized Debtors after the Effective
Date, any liabilities which the Debtors have, or may have, to such third parties
which liabilities accrued on or before the Effective Date; and such non-debtor
parties to any of the Provider Agreements will not be entitled to impose on the
Reorganized Debtors, any successor to the Reorganized Debtors or any of their
respective agents or employees, any compliance or other requirements as a
condition to the Provider Agreements remaining in full force and effect. The
Confirmation Order will constitute an order of the Bankruptcy Court approving
the assumptions described in Section 6.1.1 of the Plan, pursuant to section 365
of the Bankruptcy Code, as of the Effective Date.
2. Cure of Defaults in Connection with Assumption
Any monetary amounts by which each executory contract and
unexpired lease to be assumed pursuant to the Plan is in default will be
satisfied, pursuant to section 365(b)(1) of the Bankruptcy Code, at the option
of the applicable Debtor or Reorganized Debtor: (a) by payment of the default
amount in Cash on the Effective Date or (b) on such other terms as are agreed to
by the parties to such executory contract or unexpired lease. If there is a
dispute regarding: (i) the amount of any cure payments; (ii) the ability of the
applicable Reorganized Debtor to provide "adequate assurance of future
performance" (within the meaning of section 365 of the Bankruptcy Code) under
the contract
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or lease to be assumed; or (iii) any other matter pertaining to assumption, the
cure payments required by section 365(b)(1) of the Bankruptcy Code will be made
following the entry of a Final Order resolving the dispute and approving the
assumption.
3. Rejections
Except as otherwise provided in the Plan or in any contract,
instrument, release, indenture or other agreement or document entered into in
connection with the Plan, on the Effective Date, pursuant to section 365 of the
Bankruptcy Code, the applicable Debtor will reject each of the executory
contracts and unexpired leases listed on Exhibit I to the Plan; provided,
however, that the Debtors reserve the right, at any time prior to the Effective
Date, to amend Exhibit I to the Plan to delete any executory contract or
unexpired lease listed therein, thus providing for its assumption pursuant to
Section 6.1.1 of the Plan. Each contract and lease listed on Exhibit I to the
Plan will be rejected only to the extent that any such contract or lease
constitutes an executory contract or unexpired lease. Listing a contract or
lease on Exhibit I of the Plan will not constitute an admission by the
applicable Debtor or Reorganized Debtor that such contract or lease is an
executory contract or unexpired lease or that the applicable Debtor or
Reorganized Debtor has any liability thereunder. The Confirmation Order will
constitute an order of the Bankruptcy Court approving such rejections, pursuant
to section 365 of the Bankruptcy Code, as of the Effective Date.
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4. Bar Date for Rejection Damages
If the rejection of an executory contract or unexpired lease
pursuant to Section 6.2.1 of the Plan gives rise to a Claim by the other party
or parties to such contract or lease, such Claim will be forever barred and
shall not be enforceable against the applicable Debtor, Reorganized Debtor,
their respective successors or properties unless (a) a Stipulation of Amount and
Nature of Claim has been entered into with respect to the rejection of such
executory contract or unexpired lease or (b) a proof of Claim is Filed and
served on the Reorganized Debtors and counsel for the Reorganized Debtors within
30 days after the Effective Date or such earlier date as established by the
Bankruptcy Court.
G. SPECIAL EXECUTORY CONTRACT AND UNEXPIRED LEASE MATTERS
The employment, retirement and other agreements and incentive
compensation programs that are listed on Exhibit K to the Plan are treated as
executory contracts under the Plan and, on the Effective Date, will be assumed
pursuant to sections 365 and 1123 of the Bankruptcy Code.
To the extent any indemnification obligation of a Debtor
existing as of the Petition Date to any officer or director to be employed by
Reorganized PCL constitutes an executory contract, each Debtor will be deemed to
have assumed such executory contract as of the Effective Date pursuant to
section 365 of the Bankruptcy Code.
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H. EXECUTORY CONTRACTS AND UNEXPIRED LEASES ENTERED INTO AND OTHER
OBLIGATIONS INCURRED AFTER THE PETITION DATE
Executory contracts and unexpired leases entered into and
other obligations incurred after the Petition Date by the Debtor will be
performed by the Debtor or Reorganized Debtor in the ordinary course of its
business. Accordingly, such executory contracts, unexpired leases and other
obligations will survive and remain unaffected by entry of the Confirmation
Order.
I. CONDITIONS PRECEDENT TO CONFIRMATION AND CONSUMMATION OF THE PLAN
1. Conditions to Confirmation
The Plan provides that the Bankruptcy Court will not enter the
Confirmation Order unless the Confirmation Order is in form and substance
satisfactory to the Proponents. In addition, there are a number of procedural
and substantive confirmation requirements under the Bankruptcy Code that must be
satisfied for the Plan to be confirmed pursuant to section 1129 of the
Bankruptcy Code. See "Acceptance and Confirmation of the Plan." There can be no
assurance that the Confirmation conditions or the conditions set forth in
section 1129 of the Bankruptcy Code will be satisfied or, if permitted, waived
by the Debtors.
2. Conditions to Effective Date
The Effective Date is defined as a Business Day, as determined
by the Debtors, that is as soon as reasonably practicable but that is at least
11 days after the Confirmation Date and on which: (a) no stay of the
Confirmation Order is in effect and (b) all conditions to the Effective Date set
forth in Section 9.2 of the Plan have been satisfied or waived (if
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available) pursuant to Section 9.3 of the Plan. The Plan will not become
effective unless and until each of the following conditions have been satisfied
or waived:
(a) The Confirmation Order authorizes and directs the Debtors
and Reorganized Debtors to take all actions necessary or appropriate to
enter into, implement and consummate the contracts, instruments,
releases, leases, indentures and other agreements or documents created
in connection with the Plan. The Confirmation Order is not subject to a
presently effective stay pending appeal.
(b) Nu-Tech and Reorganized PCL have consummated the Nu-Tech
Stock Purchase.
(c) The lenders under the New Credit Facility have committed
to fund the New Credit Facility on terms acceptable to the Proponents.
(d) The New Intercreditor Agreement is entered into.
The conditions to Confirmation and the Effective Date, other than the
conditions set forth in Section 9.2.1 and 9.2.2 of the Plan, may be waived in
whole or in part by the Proponents at any time, without notice, an order of the
Bankruptcy Court or any further action other than proceeding to Confirmation and
consummation of the Plan; provided that the conditions to the Effective Date set
forth in Sections 9.2.3 and 9.2.4 of the Plan may be so waived by the Senior
Lenders and Nu-Tech. The failure to satisfy or waive any condition may be
asserted by the Proponents regardless of the circumstances giving rise to the
failure of such condition to be satisfied (including any action or inaction by
the Proponents). The failure of the Proponents to
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exercise any of the foregoing rights will not be deemed a waiver of any other
rights and each such right shall be deemed an ongoing right that may be asserted
at any time.
Each of the conditions to consummation and the Effective Date
must be satisfied or duly waived, as provided above, within 60 days after the
Confirmation Date unless all Proponents agree to extend this time. If each
condition to the Effective Date has not been satisfied or duly waived pursuant
to Section 9.3 of the Plan, within 60 days after the Confirmation Date or such
later date as mutually agreed upon by the Proponents, then upon motion by any
party in interest made before the time that each of such conditions has been
satisfied or duly waived and upon notice to such parties in interest as the
Bankruptcy Court may direct, the Confirmation Order will be vacated by the
Bankruptcy Court; provided, however, that, notwithstanding the filing of such
motion, the Confirmation Order may not be vacated if each of the conditions to
the Effective Date is either satisfied or duly waived before the Bankruptcy
Court enters an order granting such motion. If the Confirmation Order is vacated
pursuant to Section 9.4 of the Plan, the Plan will be deemed null and void in
all respects, including the discharge of Claims and termination of Interests
pursuant to section 1141 of the Bankruptcy Code and the assumptions or
rejections of executory contracts and unexpired leases pursuant to Sections 6.1
and 6.2 of the Plan, and nothing contained in the Plan will (1) constitute a
waiver or release of any Claims by or against, or any Interests in, the Debtors
or (2) prejudice in any manner the rights of the Debtors.
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J. LEGAL EFFECTS OF THE PLAN
1. Discharge of Claims and Termination of Interests
Except as provided in the Plan or the Confirmation Order, the
rights afforded under the Plan and the treatment of Claims and Interests under
the Plan will be in exchange for and in complete satisfaction, discharge and
release of all Claims and termination of all Interests, including any interest
accrued on Claims from the Petition Date. Except as provided in the Plan or the
Confirmation Order, Confirmation will: (a) discharge the Debtors from all Claims
or other debts that arose before the Confirmation Date and all debts of the kind
specified in sections 502(g), 502(h) or 502(i) of the Bankruptcy Code, whether
or not: (i) a proof of Claim based on such debt is Filed or deemed Filed
pursuant to section 501 of the Bankruptcy Code, (ii) a Claim based on such debt
is Allowed pursuant to section 502 of the Bankruptcy Code or (iii) the holder of
a Claim based on such debt has accepted the Plan; and (b) terminate all
Interests and other rights of equity security holders in the Debtors.
As of the Confirmation Date, except as provided in the Plan or
the Confirmation Order, all entities will be precluded from asserting against
the Debtors, Reorganized Debtors, Proponents, the Committee, their successors or
their property, any other or further claims, counterclaims, debts, rights,
causes of action, liabilities or equity interests relating to the Debtors based
upon any act, omission, transaction or other activity of any nature that
occurred prior to the Confirmation Date. In accordance with the foregoing,
except as provided in the Plan or the Confirmation Order, the Confirmation Order
will
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be a judicial determination of discharge of all such Claims and other debts and
liabilities against the Debtors and termination of all such Interests and other
rights of equity security holders in the Debtors, pursuant to sections 524 and
1141 of the Bankruptcy Code, and such discharge will void any judgment obtained
against any Debtor at any time, to the extent that such judgment relates to a
discharged Claim or terminated Interest.
2. Injunctions
Except as provided in the Plan or the Confirmation Order, as
of the Confirmation Date, all entities that have held, currently hold or may
hold a Claim or other debt or liability that is discharged or an Interest or
other right of an equity security holder that is terminated pursuant to the
terms of the Plan are permanently enjoined from taking any of the following
actions against the Debtors, Reorganized Debtors or their respective property on
account of any such discharged Claims, debts or liabilities or terminated
Interests or rights: (a) commencing or continuing, in any manner or in any
place, any action or other proceeding; (b) enforcing, attaching, collecting or
recovering in any manner any judgment, award, decree or order; (c) creating,
perfecting or enforcing any lien or encumbrance; (d) asserting a setoff, right
of subrogation or recoupment of any kind against any debt, liability or
obligation due to the Debtors or Reorganized Debtors; and (e) commencing or
continuing, in any manner or in any place, any action that does not comply with
or is inconsistent with the provisions of the Plan.
As of the Effective Date, all entities that have held,
currently hold or may hold a claim, counterclaim, demand, debt,
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right, cause of action or liability that is released pursuant to Section 5.5 of
the Plan are permanently enjoined from taking any of the following actions on
account of such released claims, demands, debts, rights, causes of action or
liabilities: (a) commencing or continuing in any manner any action or other
proceeding; (b) enforcing, attaching, collecting or recovering in any manner any
judgment, award, decree or order; (c) creating, perfecting or enforcing any lien
or encumbrance; (d) asserting a setoff, right of subrogation or recoupment of
any kind against any debt, liability or obligation due to any released entity;
and (e) commencing or continuing any action, in any manner, in any place that
does not comply with or is inconsistent with the provisions of the Plan.
By accepting distributions pursuant to the Plan, each holder
of an Allowed Claim or Allowed Interest receiving distributions pursuant to the
Plan will be deemed to have specifically consented to the injunctions set forth
in Section 11.2.3 of the Plan.
3. Termination of Subordination Rights and Settlement of Related
Claims and Controversies
The classification and manner of satisfying all Claims and
Interests under the Plan take into consideration all contractual, legal and
equitable subordination rights, whether arising under general principles of
equitable subordination, section 510(c) of the Bankruptcy Code or otherwise,
that a holder of a Claim or Interest may have against other Claim or Interest
holders with respect to any distribution made pursuant to the Plan. On the
Confirmation Date, all contractual, legal or
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equitable subordination rights that a holder of a Claim or Interest may have
with respect to any distribution to be made pursuant to the Plan shall be
discharged and terminated, and all actions related to the enforcement of such
subordination rights shall be permanently enjoined. Accordingly, distributions
pursuant to the Plan to holders of Allowed Claims and Allowed Interests will not
be subject to payment to a beneficiary of such terminated subordination rights,
or to levy, garnishment, attachment or other legal process by any beneficiary of
such terminated subordination rights.
Pursuant to Bankruptcy Rule 9019 and in consideration for the
distributions and other benefits provided under the Plan, the provisions of
Section 11.3 of the Plan will constitute a good faith compromise and settlement
of all claims or controversies relating to the termination of all contractual,
legal and equitable subordination rights that a holder of a Claim or an Interest
may have with respect to any Allowed Claim or Allowed Interest, or any
distribution to be made on account of an Allowed Claim or Allowed Interest. The
entry of the Confirmation Order will constitute the Bankruptcy Court's approval
of the compromise or settlement of all such claims or controversies and the
Bankruptcy Court's finding that such compromise or settlement is in the best
interests of the Debtors, Reorganized Debtors and their respective property and
Claim and Interest holders, and is fair, equitable and reasonable.
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K. LIMITATION OF LIABILITY IN CONNECTION WITH THE PLAN, DISCLOSURE
STATEMENT AND RELATED DOCUMENTS AND RELATED INDEMNITY
The Proponents and their officers, directors, members, agents
and representatives will neither have nor incur any liability to any entity,
including, specifically any holder of a Claim or Interest, for any act taken or
omitted to be taken in connection with or related to the formulation,
preparation, dissemination, implementation, Confirmation or consummation of the
Plan, the Disclosure Statement, the Confirmation Order or any contract,
instrument, release or other agreement or document created or entered into, or
any other act taken or omitted to be taken in connection with the Plan, the
Disclosure Statement or the Confirmation Order, including solicitation of
acceptances of the Plan.
Reorganized PCL will indemnify each Proponent and their
officers, directors, members, agents and representatives, hold each Proponent
harmless from, and reimburse each Proponent and their officers, directors,
members, agents and representatives for, any and all losses, costs, expenses
(including attorneys' fees and expenses), liabilities and damages sustained by a
Proponent and their officers, directors, members, agents and representatives
arising from any liability described in Section 11.4 of the Plan.
L. MODIFICATION OR REVOCATION OF THE PLAN; SEVERABILITY
Subject to the restrictions on modifications set forth
in section 1127 of the Bankruptcy Code and any applicable notice
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requirements, the Proponents reserve the right to alter, amend or modify the
Plan before its substantial consummation.
The Proponents reserve the right to revoke or withdraw the
Plan as to any or all of the Proponents prior to the Confirmation Date. If the
Debtors revoke or withdraw the Plan as to any or all of the Debtors, or if
Confirmation as to any or all of the Debtors does not occur, then, with respect
to such Debtors, the Plan shall be null and void in all respects, and nothing
contained in the Plan shall: (1) constitute a waiver or release of any Claims by
or against, or any Interests in, such Debtors; or (2) prejudice in any manner
the rights of such Debtors.
If, prior to Confirmation, any term or provision of the Plan
is held by the Bankruptcy Court to be invalid, void or unenforceable, the
Bankruptcy Court, at the request of the Proponents, will have the power to alter
and interpret such term or provision to make it valid or enforceable to the
maximum extent practicable, consistent with the original purpose of the term or
provision held to be invalid, void or unenforceable, and such term or provision
shall then be applicable as altered or interpreted. Notwithstanding any such
holding, alteration or interpretation, the remainder of the terms and provisions
of the Plan will remain in full force and effect and will in no way be affected,
impaired or invalidated by such holding, alteration or interpretation. The
Confirmation Order will constitute a judicial determination and shall provide
that each term and provision of the Plan, as it may have been altered or
interpreted
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in accordance with the foregoing, is valid and enforceable pursuant to its
terms.
M. RETENTION OF BANKRUPTCY COURT JURISDICTION
Notwithstanding the entry of the Confirmation Order and the
occurrence of the Effective Date, the Bankruptcy Court will retain such
jurisdiction over the Chapter 11 Cases after the Effective Date to the fullest
extent permitted by applicable law, including, without limitation, jurisdiction
to:
(1) Allow, disallow, determine, liquidate, classify, estimate
or establish the priority or secured or unsecured status of any Claim
or Interest, including the resolution of any request for payment of any
Administrative Claim, the resolution of any objections to the allowance
or priority of Claims or Interests and the resolution of any dispute as
to the treatment necessary to Reinstate a Claim pursuant to the Plan;
(2) Grant or deny any applications for allowance of
compensation or reimbursement of expenses authorized pursuant to the
Bankruptcy Code or the Plan, for periods ending on or before the
Effective Date;
(3) Resolve any matters related to the assumption or rejection
of any executory contract or unexpired lease to which a Debtor is a
party or with respect to which a Debtor may be liable, and to hear,
determine and, if necessary, liquidate any Claims arising therefrom;
(4) Ensure that distributions to holders of Allowed Claims or
Allowed Interests are accomplished pursuant to the provisions of the
Plan;
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(5) Decide or resolve any motions, adversary proceedings,
contested or litigated matters and any other matters and grant or deny
any applications involving the Debtors or Reorganized Debtors that may
be pending on the Effective Date;
(6) Enter such orders as may be necessary or appropriate to
implement or consummate the provisions of the Plan and all contracts,
instruments, releases, indentures and other agreements or documents
created in connection with the Plan, the Disclosure Statement or the
Confirmation Order;
(7) Resolve any cases, controversies, suits or disputes that
may arise in connection with the consummation, interpretation or
enforcement of the Plan or the Confirmation Order, including the
release and injunction provisions set forth in and contemplated by the
Plan and the Confirmation Order, or any entity's rights arising under
or obligations incurred in connection with the Plan or the Confirmation
Order;
(8) Modify the Plan before or after the Effective Date
pursuant to section 1127 of the Bankruptcy Code or modify the
Disclosure Statement, the Confirmation Order or any contract,
instrument, release, indenture or other agreement or document created
in connection with the Plan, the Disclosure Statement or the
Confirmation Order; or remedy any defect or omission or reconcile any
inconsistency in any Bankruptcy Court order, the Plan, the Disclosure
Statement, the Confirmation Order or any contract, instrument, release,
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indenture or other agreement or document created in connection with the
Plan, the Disclosure Statement or the Confirmation Order, in such
manner as may be necessary or appropriate to consummate the Plan, to
the extent authorized by the Bankruptcy Code;
(9) Issue injunctions, enter and implement other orders or
take such other actions as may be necessary or appropriate to restrain
interference by any entity with consummation, implementation or
enforcement of the Plan or the Confirmation Order;
(10) Enter and implement such orders as are necessary or
appropriate if the Confirmation Order is for any reason modified,
stayed, reversed, revoked or vacated;
(11) Determine any other matters that may arise in connection
with or relating to the Plan, the Disclosure Statement, the
Confirmation Order or any contract, instrument, release, indenture or
other agreement or document created in connection with the Plan, the
Disclosure Statement or the Confirmation Order, except as otherwise
provided in the Plan; and
(12) Enter an order concluding the Chapter 11 Cases.
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VI.
DISTRIBUTIONS UNDER THE PLAN
A. PROCEDURES GOVERNING DISTRIBUTIONS UNDER THE PLAN
1. Distributions for Claims and Interests Allowed as of
the Effective Date
Except as otherwise provided in Article VII of the Plan, or as
may be ordered by the Bankruptcy Court, distributions to be made on account of
Claims or Interests that are Allowed as of the Effective Date shall be made on
the Effective Date. Distributions will be deemed made on the Effective Date if
made on the Effective Date or as promptly thereafter as practicable, but in any
event no later than 60 days after the Effective Date or such later date when the
applicable conditions of Section 6.1.2 of the Plan (regarding cure payments for
executory contracts and unexpired leases being assumed); Section 7.3.2 of the
Plan (regarding undeliverable distributions); Section 7.6.6.2 of the Plan
(regarding arrangements for the satisfaction and payment of tax obligations
relating to distributions of Cash or securities pursuant to the Plan); or
Sections 5.4 and 7.8 of the Plan (regarding surrender of canceled debt
instruments and securities) are satisfied. Securities to be issued will be
deemed issued as of the Effective Date regardless of the date on which they are
actually distributed. Distributions on account of Claims or Interests that are
Allowed after the Effective Date shall be made pursuant to Sections 7.6 and 8.3
of the Plan. Notwithstanding the date on which any distribution of securities is
actually made to a holder of a Claim or Interest that is an Allowed Claim or
Allowed Interest on the Effective Date, as of
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the date of the distribution such holder will be deemed to have the rights of a
holder of such securities distributed as of the Effective Date.
From and after the Effective Date, Cash to be distributed on
the Effective Date on account of Claims allowed as of the Effective Date will be
held pending distribution in trust in segregated bank accounts in the name of
the Disbursing Agent for the benefit of the holders of such Claims. The
Disbursing Agent will invest such cash in a manner consistent with Reorganized
PCL's investment and deposit guidelines. Distributions of Cash on account of
each Claim allowed as of the Effective Date shall include a Pro Rata share of
the Reorganization Investment Yield from such investment of Cash.
2. Distributions by Disbursing Agents and the Indenture
Trustee
Except as provided in Section 7.2.2 of the Plan, the
Disbursing Agent will make all distributions of Cash and New Securities required
to be distributed under the applicable provisions of the Plan. The Disbursing
Agent may employ or contract with other entities to assist in or make the
distributions required by the Plan. The Disbursing Agent will serve without
bond, and any Third-Party Disbursing Agent will receive, without further
Bankruptcy Court approval, reasonable compensation for distribution services
rendered pursuant to the Plan and reimbursement of reasonable out-of-pocket
expenses incurred in connection with such services from Reorganized PCL on terms
acceptable to Reorganized PCL.
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3. Indenture Trustee
Distributions provided for in the Plan on account of Old
Subordinated Debenture Claims will be made to the Indenture Trustee, for further
distribution to individual holders of Allowed Old Subordinated Debenture Claims.
Any such distribution will be made pursuant to the Old Indenture.
B. TIMING AND CALCULATION OF AMOUNTS TO BE DISTRIBUTED
1. In General
On the Effective Date, other than as provided in Section 7.6.2
of the Plan, to the extent that the Plan provides for distributions on account
of Allowed Claims or Allowed Interests in the applicable Class, each holder of
an Allowed Claim or Allowed Interest will receive the full amount of the
distributions that the Plan provides for Allowed Claims or Allowed Interests in
the applicable Class. On each Distribution Date, distributions shall also be
made, pursuant to Sections 7.3 and 8.3 of the Plan, respectively, to (a) holders
of Claims or Interests to whom a distribution has become deliverable during the
preceding calendar quarter and (b) to holders of Disputed Claims or Disputed
Interests in any such Class whose Claims or Interests were Allowed during the
preceding quarter. Such quarterly distributions will also be in the full amount
that the Plan provides for Allowed Claims or Allowed Interests in the applicable
Class.
2. Distributions to Holders of Claims in Class 5
The Disbursing Agent will make initial distributions to the
holders of Allowed Claims in Class 5 on the Effective Date. The amount of the
distributions to be made to holders of Allowed
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Claims in Class 5 on the Effective Date shall be calculated as if each Disputed
Claim in Class 5 were an Allowed Claim in the amount of the Claim as Filed.
Pursuant to Sections 8.1.2 and 8.3 of the Plan, (a) beginning on the first
Distribution Date, the Disbursing Agent will make distributions to holders of
Disputed Claims whose Claims become Allowed Claims during the preceding quarter,
(b) all fees and expenses of the Disbursing Agent with respect to distributions
to holders of Class 5 Claims will be paid out of the funds in the Class 5
Disbursement Account and (c) all costs incurred in connection with the
resolution of Disputed Claims after the Effective Date will be paid out of the
funds in the Class 5 Disbursement Account. Such distributions will be calculated
pursuant to the provisions set forth in Section 7.3 of the Plan.
On each Distribution Date, each holders of a previously
Allowed Claim in Class 5 will receive an additional distribution on account of
such Claim equal to: (i) the amount of consideration that such holder would be
entitled to receive under the Plan as if such Claim had become an Allowed Claim
on such Distribution Date, minus (ii) the aggregate amount of consideration
previously distributed on account of such Claim. Each such additional
distribution will also include, on the basis of the amount then being
distributed, a Pro Rata share of the Reorganization Investment Yield, from the
date such amounts would have been due had such Claim initially been paid 100% of
the Allowed Amount, to the date such distribution is made, net of any taxes paid
or payable by the Disbursing Agent and properly
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attributable to such share of the Reorganization Investment Yield.
3. Distributions of Common Stock
Notwithstanding any other provision of the Plan, only whole
numbers of shares of New Common Stock will be issued or transferred, as the case
may be, pursuant to the Plan. When any distribution on account of an Allowed
Claim or Allowed Interest pursuant to the Plan would otherwise result in the
issuance or transfer of a number of shares of New Common Stock that is not a
whole number, the actual distribution of shares of such stock shall be rounded
to the next higher or lower whole number as follows: (a) fractions of 1/2 or
greater shall be rounded to the next higher whole number and (b) fractions of
less than 1/2 shall be rounded to the next lower whole number. The total number
of shares of New Common Stock to be distributed to a Class of Claims or
Interests will be adjusted as necessary to account for the rounding provided for
in Section 7.6.3 of the Plan. No consideration will be provided in lieu of
fractional shares that are rounded down.
4. Distributions of New Senior Notes
Notwithstanding any other provision of the Plan, New Senior
Notes will be issued in denominations of $1,000 and integral multiples thereof.
In the event a holder of an Allowed Senior Debt Claim is entitled to an amount
of New Senior Notes that is not an integral multiple of $1,000, the principal
amount of New Senior Notes such holder is entitled to receive shall be rounded
up to the nearest integral multiple of $1,000.
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5. Distributions of New Warrants
Notwithstanding any other provision of the Plan, only whole
numbers of New Warrants will be issued pursuant to the Plan. When any
distribution on account of an Allowed Class 7 Interest pursuant to the Plan
would otherwise result in the issuance of a number of New Warrants that is not a
whole number, the actual distribution of such New Warrants shall be rounded to
the next higher or lower whole number as follows: (a) fractions of 1/2 or
greater shall be rounded to the next higher whole number and (b) fractions of
less than 1/2 shall be rounded to the next lower whole number. The total number
of New Warrants to be distributed to a holder of an Allowed Class 7 Interest
will be adjusted as necessary to account for the rounding provided for in
Section 7.6.5 of the Plan. No consideration shall be provided in lieu of
fractional warrants that are rounded down.
6. Compliance with Tax Requirements
In connection with the Plan, to the extent applicable, the
Disbursing Agent will comply with all tax withholding and reporting requirements
imposed on it by any governmental unit, and all distributions pursuant to the
Plan shall be subject to such withholding and reporting requirements. The
Disbursing Agent will be authorized to take any and all actions that may be
necessary or appropriate to comply with such withholding and reporting
requirements. Notwithstanding any other provision of the Plan: (i) each holder
of an Allowed Claim or Interest that is to receive a distribution of Cash or New
Securities pursuant to the Plan shall have sole and exclusive responsibility for
the satisfaction and payment of any tax obligations imposed by any
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governmental unit, including income, withholding and other tax obligations, on
account of such distribution; and (ii) no distribution shall be made to or on
behalf of such holder pursuant to the Plan unless and until such holder has made
arrangements satisfactory to the Disbursing Agent for the payment and
satisfaction of such tax obligations. Any Cash or New Securities to be
distributed pursuant to the Plan will, pending the implementation of such
arrangements, be treated as an undeliverable distribution pursuant to Section
7.3.2 of the Plan.
C. DISTRIBUTION RECORD DATE
As of the close of business on the Distribution Record Date,
the transfer registers for the Capital Stock maintained by the Debtors, or their
respective agents, will be closed. The Disbursing Agents and their respective
agents shall have no obligation to recognize the transfer of any Capital Stock
occurring after the Distribution Record Date, and shall be entitled for all
purposes herein to recognize and deal only with those holders of record as of
the close of business on the Distribution Record Date.
D. SURRENDER OF CANCELLED DEBT INSTRUMENTS OR SECURITIES
Subject to the provisions of Section 7.8.2 of the Plan, as a
condition precedent to receiving any distribution pursuant to the Plan on
account of an Allowed Claim or Allowed Interest evidenced by the instruments,
Old Common Stock or other documentation canceled pursuant to Section 5.2.1 of
the Plan, the holder of such Claim or Interest will tender the applicable
instruments, Old Subordinated Debentures, Old Common Stock or other
documentation evidencing such Claim or Interest to the
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Disbursing Agent pursuant to a letter of transmittal furnished by the Disbursing
Agent. Any New Securities to be distributed pursuant to the Plan on account of
any such Claim or Interest will, pending such surrender, be treated as an
undeliverable distribution pursuant to Section 7.3.2 of the Plan.
(1) Old Subordinated Debentures and Capital Stock
Certificates. Except as provided in Section 7.8.2 of the Plan for lost,
stolen, mutilated or destroyed Old Subordinated Debentures or Capital
Stock certificates, each holder of an Allowed Claim or Allowed Interest
evidenced by an Old Subordinated Debenture or Capital Stock certificate
will tender such Old Subordinated Debenture or Capital Stock
certificate to the Disbursing Agent in accordance with written
instructions to be provided in a letter of transmittal to such holders
by the Disbursing Agent as promptly as practicable following the
Effective Date. Such letter of transmittal shall specify that delivery
of such Old Subordinated Debentures or Capital Stock certificates will
be effected, and risk of loss and title thereto will pass, only upon
the proper delivery of such Old Subordinated Debentures or Capital
Stock certificates with the letter of transmittal in accordance with
such instructions. Such letter of transmittal shall also include, among
other provisions, customary provisions with respect to the authority of
the holder of the applicable Old Subordinated Debenture or Capital
Stock certificate to act and the authenticity of any signatures
required on the letter of transmittal. All surrendered Old Subordinated
Debentures
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and Capital Stock certificates shall be marked as canceled and
delivered to Reorganized PCL.
(2) Lost, Stolen, Mutilated or Destroyed Existing
Lender Agreements, Old Subordinated Debentures or Capital Stock
Certificates. In addition to any requirements under the applicable
certificate or articles of incorporation or bylaws of the applicable
Debtor, any holder of a Claim or an Interest evidenced by an Existing
Lender Agreement, Old Subordinated Debenture or a Capital Stock
certificate that has been lost, stolen, mutilated or destroyed will, in
lieu of surrendering such Old Subordinated Debenture or Capital Stock
certificate, deliver to the Disbursing Agent: (a) evidence satisfactory
to the Disbursing Agent of the loss, theft, mutilation or destruction;
and (b) such indemnity as may be required by the Disbursing Agent to
hold the Disbursing Agent harmless from any damages, liabilities or
costs incurred in treating such individual as a holder of an Existing
Lender Agreement, Old Subordinated Debenture or a Capital Stock
certificate. Upon compliance with Section 7.8.2 of the Plan by a holder
of a Claim or an Interest evidenced by an Existing Lender Agreement,
Old Subordinated Debenture or Capital Stock certificate, such holder
will, for all purposes under the Plan, be deemed to have surrendered an
Existing Lender Agreement, Old Subordinated Debenture or a Capital
Stock certificate, as applicable.
(3) Failure to Surrender Canceled Old Subordinated
Debentures or Capital Stock Certificates. Any holder of an Old
Subordinated Debenture or Capital Stock
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certificate that fails to surrender or be deemed to have surrendered
such Old Subordinated Debenture or Capital Stock certificate within one
year after the Effective Date will have its claim for a distribution
pursuant to the Plan on account of such Old Subordinated Debenture or
Capital Stock certificate discharged and shall be forever barred from
asserting any such claim against the Reorganized Debtors or their
respective property. In such cases, any Cash or New Securities held for
distribution on account of such Claim or Interest will be disposed of
pursuant to the provisions set forth in Section 7.3.2 of the Plan.
E. DELIVERY OF DISTRIBUTIONS AND UNDELIVERABLE OR UNCLAIMED DISTRIBUTIONS
Distributions to holders of Allowed Claims or Allowed
Interests will be made at the addresses set forth in the Schedules or other
records of the Debtors or Reorganized Debtors at the time of the distribution.
If the distribution to any holder of an Allowed Claim or
Allowed Interest is returned to a Disbursing Agent as undeliverable, no further
distributions will be made to such holder unless and until the Disbursing Agent
is notified in writing of such holder's then-current address. Undeliverable
distributions will remain in the possession of the Disbursing Agent pursuant to
Section 7.3.2.1.1 of the Plan until such time as a distribution becomes
deliverable. Undeliverable Cash will be held in trust in segregated bank
accounts in the name of the Disbursing Agent for the benefit of the potential
claimants of such funds, and shall be accounted for separately. Undeliverable
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New Securities and Senior Notes will be held in trust for the benefit of the
potential claimants of such securities by the Disbursing Agent in principal
amounts or number of shares sufficient to fund the unclaimed amounts of such
securities and shall be accounted for separately.
Pending the distribution of any undeliverable New Common Stock
pursuant to the Plan, the Disbursing Agent will cause the Common Stock held by
it in its capacity as Disbursing Agent to be: (A) represented in person or by
proxy at each meeting of the stockholders of Reorganized PCL; and (B) voted with
respect to any matter of Reorganized PCL proportionally with the votes cast by
the other stockholders of Reorganized PCL.
On each Distribution Date, the Disbursing Agent will make all
distributions that become deliverable to holders of Allowed Claims or Allowed
Interests during the preceding quarter. Each such distribution will include, to
the extent applicable: (i) dividends or other distributions, if any, that will
have theretofore been paid to the Disbursing Agent in respect of any New Common
Stock included in such distribution and (ii) a Pro Rata share of the
Reorganization Investment Yield.
Any holder of an Allowed Claim or Allowed Interest that does
not assert a claim pursuant to the Plan for an undeliverable distribution within
one year after the Effective Date will have its claim for such undeliverable
distribution discharged and shall be forever barred from asserting any such
claim for an undeliverable distribution against the Reorganized Debtors or their
respective property. In such cases: (i) any Cash held for distribution on
account of such claims for undeliverable
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distributions will be property of Reorganized PCL free of any restrictions
thereon; (ii) any New Common Stock held for issuance on account of such claims
for undeliverable distributions will either be canceled or held as treasury
shares as Reorganized PCL may determine is appropriate; and (iii) any New
Warrants held for issuance on account of such claims for undeliverable
distributions will be canceled. To the extent that such undeliverable Cash or
New Securities are held by a Third-Party Disbursing Agent, the Third-Party
Disbursing Agent shall return such Cash or the securities or other instruments
evidencing such New Securities to Reorganized PCL. Nothing contained in the Plan
shall require the Debtors, Reorganized Debtors or any Disbursing Agent to
attempt to locate any holder of an Allowed Claim or Allowed Interest.
F. PROSECUTION OF OBJECTIONS TO CLAIMS AND INTERESTS
After the Confirmation Date and through the Effective Date,
only the Debtors and Reorganized Debtors will have the authority to File
objections, settle, compromise, withdraw or litigate to judgment objections to
Claims and Interests. From and after the Confirmation Date, the Debtors and
Reorganized Debtors may settle or compromise any Disputed Claim or Disputed
Interest without approval of the Bankruptcy Court.
After the Effective Date, the Official Committee or any duly
authorized representative thereof will have authority to File objections,
settle, compromise, withdraw or litigate to judgment objections to Class 5
Claims. After the Effective Date, the Official Committee or its duly authorized
representative must give written notice to the Reorganized Debtors of any
proposed
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settlement of a Disputed Claim in Class 5. If the Reorganized Debtors do not
object within 5 business days after receipt of such notice, the Official
Committee or its representative may settle such Disputed Claim without approval
of the Bankruptcy Court. If the Reorganized Debtors object to a proposed
settlement, the proposed settlement will be ruled upon by the Bankruptcy Court.
Any and all fees, costs and expenses incurred by the Official Committee or its
representative in connection with objections, settlements or litigation of any
Disputed Claim under Section 8.1.2 of the Plan will be paid out of the funds in
the Class 5 Disbursement Account.
G. DISPUTED CLAIMS
1. Treatment of Disputed Claims or Interests
Notwithstanding any other provisions of the Plan, no payments
or distributions shall be made on account of a Disputed Claim or a Disputed
Interest until such Claim or Interest becomes an Allowed Claim or Allowed
Interest.
2. Resolution or Estimation of Claims
Until the Effective Date, the Debtors or the Reorganized
Debtors, and after the Effective Date, the Official Committee with Class 5
Claims, may, at any time, request that the Bankruptcy Court estimate any
contingent or unliquidated Claim pursuant to section 502(c) of the Bankruptcy
Code, irrespective of whether the applicable Debtor or Reorganized Debtor has
previously objected to such Claim or whether the Bankruptcy Court has ruled on
any such objection. The Bankruptcy Court will retain jurisdiction to estimate
any contingent or unliquidated Claim at any time during litigation concerning
any objection to
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the Claim, including during the pendency of any appeal relating to any such
objection. If the Bankruptcy Court estimates any contingent or unliquidated
Claim, that estimated amount will constitute either the Allowed Amount of such
Claim or a maximum limitation on such Claim, as determined by the Bankruptcy
Court. If the estimated amount constitutes a maximum limitation on such Claim,
the applicable Debtor or Reorganized Debtor or the Official Committee, as the
case may be, may elect to pursue any supplemental proceedings to object to any
ultimate payment on account of such Claim. All of these Claims objection,
estimation and resolution procedures are cumulative and not necessarily
exclusive of one another. In addition to seeking estimation of Claims as
provided in Section 8.2.2 of the Plan, the Debtors or Reorganized Debtors or the
Official Committee pursuant to Section 8.1.2 of the Plan may resolve or
adjudicate any Disputed Claim in the manner in which the amount of such Claim
and the rights of the holder of such Claim would have been resolved or
adjudicated if the applicable Chapter 11 Case had not been commenced. Claims may
be subsequently compromised, settled, withdrawn or resolved by the applicable
Debtor or Reorganized Debtor or the Official Committee pursuant to Section 8.1
of the Plan.
3. Distributions on Account of Disputed Claims or Interests Once
They Are Allowed
On each Distribution Date, the Disbursing Agent will make all
distributions on account of any Disputed Claim or Disputed Interest that has
become an Allowed Claim or Allowed Interest during the preceding quarter. After
the Effective Date,
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costs incurred by the Disbursing Agent with respect to distributions on account
of Class 5 Claims will be paid from the funds in the Class 5 Distribution
Account. Such distributions will be made pursuant to the provisions of the Plan
governing the applicable Class. Holders of Disputed Claims or Disputed Interests
that are ultimately allowed will also be entitled to receive, on the basis of
the amount ultimately allowed: (1) any dividends or other payments made on
account of New Securities held pending distribution and (2) a Pro Rata share of
the Reorganization Investment Yield.
H. SETOFFS
Except with respect to claims of a Debtor or Reorganized
Debtor released pursuant to the Plan or any contract, instrument, release,
indenture, or other agreement or document created in connection with the Plan,
the Debtors or Reorganized Debtors may, pursuant to section 553 of the
Bankruptcy Code or applicable nonbankruptcy law, set off against any Allowed
Claim (other than a Senior Debt Claim, Nu-Tech Claim or Old Subordinated
Debentures Claim) and the distributions to be made pursuant to the Plan on
account of such Claim (before any distribution is made on account of such
Claim), the claims, rights and causes of action of any nature that the
applicable Debtor or Reorganized Debtor 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 hereunder will constitute a waiver or
release by the applicable Debtor or Reorganized Debtor of any such claims,
rights and causes of
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action that the applicable Debtor or Reorganized Debtor may possess against such
holder.
VII.
DESCRIPTION OF PROPERTY TO BE DISTRIBUTED UNDER THE PLAN
Under the Plan, all creditors and shareholders will receive
distributions comprised of either Cash, New Senior Notes, New Common Stock of
PCL, New Warrants or some combination thereof. See "Overview of the Plan --
Summary of Clauses and Treatment of Claims and Interests." In addition, upon the
Effective Date, the Debtors may enter into the New Credit Facility Agreement.
A. NEW CREDIT FACILITY
[TO COME]
B. NEW SECURITIES
The following discussion summarizes certain provisions of the
securities and related agreements to be issued pursuant to the Plan. Such
summaries do not purport to be complete and are qualified in their entirety by
reference to the full text of the applicable documents setting forth the terms
and conditions of such securities.
1. Issuance of New Senior Notes
The New Senior Notes are anticipated to be issued in the
original principal amount of $55,000,000, and will mature seven years after
their issuance. The New Senior Notes will be issued pursuant to the New
Indenture, which will be entered into between Reorganized PCL and a trustee
thereunder. At this time, a trustee has not been selected. Such trustee will be
selected
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no later than the Confirmation Date, and will be entitled to customary
compensation for its services.
The New Senior Notes will initially bear interest at the rate
of either 10% per annum in cash or 12% per annum in payment in kind, at the
option of the Reorganized Debtors for the first two years. Thereafter, the New
Senior Notes will bear interest at the rate of 11% per annum in cash, which rate
will be increased by 1% per year through maturity. Interest will be payable
semi-annually, commencing _____________, 1997.
The New Senior Notes will be redeemable in whole or in part at
the Reorganized Debtors' option at anytime at 100% of the principal amount
outstanding, together with accrued and unpaid interest. Partial redemptions must
be in an aggregate amount of at least $1,000,000 and in multiples of $1,000,000.
Upon a change of control (to be defined by further agreement between the Senior
Lenders, Nu-Tech and the Debtors), the Reorganized Debtors will offer to
repurchase the New Senior Notes at 101% of the principal amount outstanding,
together with accrued and unpaid interest. There is no mandatory redemption of
the New Senior Notes.
The Senior Lenders will have the option upon not less that 120
days notice to the Reorganized Debtors (which notice may not be served earlier
than 15 months after the Effective Date) to require the Reorganized Debtors to
publicly register the New Senior Notes. The Reorganized Debtors may prepay the
New Senior Notes during this notice period as described above. The publicly
registered securities to be issued by the Reorganized Debtors
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under this paragraph must be in form and substance satisfactory to the Senior
Lenders and the Reorganized Debtors.
Payment of the New Senior Notes will be secured by a first
priority security interests on all existing and future assets of the Reorganized
Debtor. The Senior Lenders will subordinate such security interests on the
receivables of Reorganized Debtors, however, to the security interests granted
to the lender providing the New Credit Facility under such facility.
Until the first two cash interest payments are made by the
Debtors, the New Indenture will contain covenants regarding minimum EBITDA,
minimum tangible net worth, minimum EBITDA/interest expense coverage and
restrictions on capital expenditures. In addition, the New Indenture will
contain customary representations, warranties and covenants. The New Indenture
will also contain customary provisions regarding remedies and modifications.
2. Issuance of New Common Stock of PCL
The New Common Stock of PCL will be issued to holders of
Allowed Claims in Class 2 and Class 3, and, subject to the satisfaction of the
Voting Condition, Class 6 and Class 7. The New PCL Certificate of Incorporation
will authorize (i) ______ shares of preferred stock, par value $.01 per share
and (ii) ________ shares of New Common Stock of PCL. Giving effect to the Plan,
including the distribution and other transactions contemplated by the Plan, the
Debtor estimates that ____ shares of New Common Stock of PCL will be outstanding
as of the Effective Date.
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The rights of the holders of the New Common Stock of PCL will
be governed by the laws of the State of Delaware as well as by the New PCL
Certificate of Incorporation and New PCL Bylaws. Under the New PCL Certificate
of Incorporation, the holders of New Common Stock of PCL will be entitled to one
vote for each share held of record on all matters submitted to a vote of
stockholders, including the election of directors. The New Common Stock of PCL
will not have cumulative voting rights. As a result, the holders of more than
50% of New Common Stock of PCL will be able to elect 100% of the directors to be
elected if they choose to do so (subject to the voting rights, if any, of any
shares of any series of Reorganized PCL Preferred Stock which may at the time be
outstanding). In such event, the holders of the remaining shares of New Common
Stock of PCL will not be able to elect any directors. Holders of New Common
Stock of PCL will be entitled to participate equally in such dividends as may be
declared by the Reorganized PCL Board of Directors out of funds legally
available therefor. However, it is not anticipated that dividends will be paid
on the New Common Stock of PCL in the foreseeable future. See "Risk Factors --
Dividend Restrictions." In the event of a liquidation, dissolution or winding up
of Reorganized PCL, holders of New Common Stock of PCL will be entitled to
participate equally in all assets remaining after payment of liabilities and the
liquidation preference of any preferred stock of Reorganized PCL. Holders of New
Common Stock of PCL will have no rights to convert their New Common Stock into
any other securities and will have no redemption provisions or sinking fund
provisions with respect to such shares.
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3. Issuance of New Warrants
If the Voting Condition is satisfied, the New Warrants will be
issued to Holders of Allowed Class 7 Interests pursuant to a Warrant Agreement
between Reorganized PCL and ________, as Warrant Agent (the "New Warrant
Agreement"). The New Warrants will represent the right to purchase 3% of the New
Common Stock of PCL on a fully diluted basis. Each New Warrant will entitle the
holder thereof to acquire one share of New Common Stock of PCL at an exercise
price determined calculated based upon an implied enterprise value for
Reorganized PCL of $115 million.
The number and kind of securities purchasable upon the
exercise of New Warrants and the exercise price therefor will be subject to
adjustment upon the occurrence of certain events as set forth in the New Warrant
Agreement, including the issuance of New Common Stock of PCL or other shares of
capital stock as a dividend or distribution on the New Common Stock of PCL;
subdivisions, reclassifications and combinations of the New Common Stock of PCL;
the issuance to all holders of New Common Stock of PCL of certain rights,
options or warrants entitling them to subscribe for or purchase New Common Stock
of PCL at less than the then-current market price of the New Common Stock of PCL
(as determined in accordance with the New PCL Warrant Agreement); the
distribution to holders of New Common Stock of PCL of evidences of indebtedness
or assets of Reorganized PCL or any entity controlled by Reorganized PCL
(excluding cash dividends or cash distributions from consolidated earnings or
surplus legally available for such dividends or distributions); the distribution
to holders of New Common Stock of PCL of shares of capital stock
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of any entity controlled by Reorganized PCL; the issuance of shares of New
Common Stock of PCL for less consideration than the then-current market price of
the New Common Stock of PCL; and the issuance of securities convertible into or
exchangeable or exercisable for shares of New Common Stock of PCL or rights to
subscribe for such securities, for a consideration per share of New Common Stock
of PCL deliverable on such conversion, exchange or exercise that is less than
the then-current market price thereof (although that no adjustment in such
shares or exercise price will be required in connection with the issuance of the
New Common Stock of PCL, options, rights, warrants or other securities pursuant
to the Plan, any plan adopted by Reorganized PCL or any entity controlled by
Reorganized PCL for the benefit of employees or directors, or any share purchase
rights plan adopted by Reorganized PCL; the issuance of shares of New Common
Stock of PCL or securities convertible into or exchangeable for shares of New
Common Stock of PCL pursuant to an underwritten public offering satisfying
specified criteria; sales of New Common Stock of PCL pursuant to a plan adopted
by Reorganized PCL for the reinvestment of dividends or interest; the issuance
of shares of New Common Stock of PCL to shareholders of any corporation which is
acquired by, merged into or made a part or subsidiary of Reorganized PCL in an
arm's-length transaction; or a change in the par value of the New Common Stock
of PCL). Additionally, no adjustment will be required if in connection with any
of the events otherwise giving rise to an adjustment the holders of the New
Warrants receive such rights, securities or assets as such holders would have
been entitled had the New
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Warrants been exercised immediately prior to such event, and no adjustment will
be required unless such adjustment would require a change in the aggregate
number of shares of New Common Stock of PCL issuable upon the hypothetical
exercise of a New PCL Warrant of at least 1% (but any adjustment requiring a
change of less than 1% will be carried forward and taken into account in any
subsequent adjustment).
Reorganized PCL and the Warrant Agent may from time to time
supplement or amend the New PCL Warrant Agreement without approval of any holder
to cure, among other things, any ambiguity or to correct or supplement any
provision or to comply with the requirements of any national securities
exchange. Any other supplement or amendment to the New PCL Warrant Agreement may
be made with the approval of the holders of a majority of the then outstanding
New Warrants; provided, however, that any such amendment or supplement that (i)
increases the exercise price; (ii) decreases the number of shares of New Common
Stock of PCL issuable upon exercise of New Warrants; or (iii) shortens the
period during which the New Warrants may be exercised requires the consent of
each holder of a New Warrant affected thereby.
The New Warrants will be exercisable at any time from 9:00
a.m., New York City time, on the date of their issuance to 5:00 p.m. New York
City time, on the fifth anniversary of the Effective Date of the Plan (the "New
Warrant Exercise Period"). Each New Warrant not exercised prior to the
expiration of the New Warrant Exercise Period will become void, and all rights
thereunder and in respect thereof under the New Warrant Agreement will cease on
the expiration of the New Warrant Exercise Period.
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Under the New Warrant Agreement, Reorganized PCL is not
obligated to furnish holders of the New Warrants with quarterly, annual or other
reports regarding Reorganized PCL, although it may do so in its sole discretion
and intends to do so to the extent required by applicable law or any securities
exchange on which the New Warrants may be listed or any quotation system in
which they may be included. The Debtors expect that the Warrant Agent will serve
as registrar and warrant agent for the New Warrants. To the Debtors' knowledge,
the Warrant Agent will not be a holder of any indebtedness of the Debtors and is
not an affiliate of any such holder.
4. The New Registration Rights Agreements
(a) Demand Rights
Reorganized PCL and the Senior Lenders will enter into a
Registration Rights Agreement with respect to each of the New Senior Notes and
the New Common Stock of PCL on or prior to the Effective Date. Pursuant to the
New Registration Rights Agreements, Reorganized PCL will file with the
Commission as soon as practicable after receiving a request from the holders of
the then issued and outstanding Registrable Securities (as defined therein) with
a market value that would exceed $10 million at the proposed offering price, a
registration statement (a "Reorganized PCL Registration Statement") on Form S-1
or Form S-3, if use of such a form is then available to cover resales of
Registrable Securities. Such holders thereof must satisfy certain conditions
relating to the provision of information in connection with any Reorganized PCL
Registration Statement. Reorganized PCL will use Commercially Reasonable Efforts
(as defined in the New
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Registration Rights Agreements) to cause any Reorganized PCL Registration
Statement to be declared effective by the Commission within 180 days of such
demand. Holders of the Registrable Securities shall not be entitled to exercise
demand rights until ________ months after the Effective Date.
Under the New Registration Rights Agreements, "Registrable
Securities" means the New Senior Notes and the New Common Stock of PCL,
respectively, acquired by persons pursuant to the Plan or acquired by their
successors and permitted assigns in accordance with such agreement.
Pursuant to the terms of the New Registration Rights
Agreements, the holders of the New Senior Notes or New Common Stock of PCL who
are a party to such agreements will have the right to make up to two demands
during the three-year term thereof for the filing of a Reorganized PCL
Registration Statement, provided that such holders may not make a second demand
for registration until 12 months after the date on which the New PCL
Registration Statement filed pursuant to the first demand for registration shall
have been declared effective, and provided further that such holders may not
make a second demand for registration if the average daily trading volume of the
New Senior Notes or the New Common Stock of PCL, respectively, on the
interdealer quotation system on which the New Senior Notes or the New Common
Stock of PCL, respectively, are then quoted shall have been __________ per day
for any consecutive 20 business day period preceding such second demand. Only
those holders who are deemed to be "underwriters" or "affiliates" of Reorganized
PCL for purposes of the Securities Act will be permitted to demand
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the registration of New Senior Notes or the New Common Stock of PCL,
respectively, pursuant to a shelf registration statement. Reorganized PCL shall,
within 15 days of receipt of a registration demand, provide notice to all
holders of New Senior Notes or the New Common Stock of PCL, respectively, who
are a party to such agreement. Such holders who respond by requesting the right
to include their New Senior Notes or the New Common Stock of PCL, respectively,
for resale pursuant to the Reorganized PCL Registration Statement (the
"Participating Reorganized PCL Holders") will be entitled to so participate,
subject to certain restrictions and limitations, including, the right of
underwriters to reduce the number of shares being offered for resale (in the
case of an underwritten offering). In the case of any such reduction,
Reorganized PCL will include in such registration that amount of New Senior
Notes or the New Common Stock of PCL, respectively, that Reorganized PCL is so
advised can be sold in (or during the time of) the offering, as follows: first,
securities of any Participating Reorganized PCL Holder that is an "underwriter"
or an "affiliate" of Reorganized PCL in an amount sufficient to include all the
New Senior Notes or the New Common Stock of PCL, respectively, offered by the
Participating Reorganized PCL Holder, or in an amount sufficient to reduce the
amount of such Participating Reorganized PCL Holder's New Senior Notes or New
Common Stock of PCL held after the offering to a level that would cause such
Participating Reorganized PCL Holder to no longer be an "underwriter" or an
"affiliate" of Reorganized PCL, whichever is less; second, such securities duly
requested to be included in such Reorganized PCL
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Registration Statement by any other Participating Reorganized PCL Holder, pro
rata on the basis of the amount of such securities held by such holder; and
third, all other securities of Reorganized PCL duly requested to be included in
such Reorganized PCL Registration Statement.
(b) Piggy-Back Rights
If, during the three-year term of the New Registration Rights
Agreements, Reorganized PCL proposes to register any of its equity securities
under the Securities Act (other than by a registration statement on Form S-4 or
Form S-8) in a form and a manner that would permit registration of New Senior
Notes or New Common Stock of PCL held by holders that are parties to such
agreement, Reorganized PCL will give notice to such holders of such
registration. Upon a written request from such a holder of New Senior Notes or
New Common Stock of PCL requesting that such holder's shares be included in such
registration (which request must be received by Reorganized PCL within 20 days
after such notice has been given), Reorganized PCL will use Commercially
Reasonable Efforts to effect the registration of such New Senior Notes or New
Common Stock of PCL. In the case Reorganized PCL's underwriters advise that the
number of shares requested to be included in the registration statement cannot
be sold in the time or manner requested by Reorganized PCL, Reorganized PCL will
include in such registration that amount of New Senior Notes or New Common Stock
of PCL that Reorganized PCL is so advised can be sold in (or during the time of)
the offering, as follows: first, all securities proposed by Reorganized PCL to
be sold for its own account; second, securities of any Participating Reorganized
PCL
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Holder that is an "underwriter" or an "affiliate" of Reorganized PCL in an
amount sufficient to include all the New Senior Notes or New Common Stock of PCL
offered by the Participating Reorganized PCL Holder, or in an amount sufficient
to reduce the amount of such Participating Reorganized PCL Holder's New Senior
Notes or New Common Stock of PCL held after the offering to a level that would
cause such Participating Reorganized PCL Holder to no longer be an "underwriter"
or an "affiliate" of Reorganized PCL, whichever is less; third, such securities
duly requested to be included in such registration statement by any holder, pro
rata on the basis of the amount of such securities held by such holder; and
fourth, all other securities of Reorganized PCL duly requested to be included in
such registration statement.
(c) Other
The New Registration Rights Agreements contain a variety of
other provisions applicable to either demand or piggyback registrations.
Reorganized PCL is required to pay specified expenses in connection with such
registrations and is required to indemnify the selling stockholders against
certain liabilities, including liabilities under the Securities Act. The
registration rights provided for in such agreement are transferable to permitted
transferees of New Senior Notes or New Common Stock of PCL that comply with
specified procedures.
5. Applicability of Federal and Other Securities Laws
No registration statement will be filed under the Securities
Act or any other state or federal securities laws with respect to the offer and
distribution under the Plan of the New Securities pursuant to this solicitation
and the issuance and
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transfer of the New Common Stock of PCL pursuant to the exercise of the New
Warrants. The Debtors believe that the provisions of the Bankruptcy Code
described below exempt the offer of such securities pursuant to this
solicitation and the issuance and transfer of such securities pursuant to the
Plan from federal and state securities registration requirements.
(a) Bankruptcy Code Exemptions from Registration
Requirements and Transfer Restrictions
(1) Initial Offer and Sale of Securities
Section 1145(a)(1) of the Bankruptcy Code exempts the offer
and sale of securities under a plan of reorganization from registration under
the Securities Act under state securities laws if three principal requirements
are satisfied: (i) the securities must be offered and sold "under a plan" of
reorganization and must be securities of the debtor, of an affiliate
"participating in a joint plan" with the debtor or of a successor to the debtor
under the plan; (ii) the recipients of the securities must hold a prepetition or
administrative expense claim against the debtor or an interest in the debtor;
and (iii) the securities must be issued entirely in exchange for the recipient's
claim against or interest in the debtor, or "principally" in such exchange and
"partly" for cash or property. The Debtors believe that the offer and sale of
New Common Stock of PCL, New Senior Notes and New Warrants under the Plan
satisfy the requirements of section 1145(a)(1) of the Bankruptcy Code and are,
therefore, exempt from registration under the Securities Act and state
securities laws.
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Section 1145(a)(2) of the Bankruptcy Code exempts the offer of
a security through any warrant, option or right to subscribe that was sold in
the manner specified in section 1145(a)(1) of the Bankruptcy Code and the sale
of a security upon the exercise of such a warrant, option or right to subscribe.
The Debtors believe that the offer and sale of New Common Stock of PCL pursuant
to the New Warrants satisfies the requirements of section 1145(a)(2) of the
Bankruptcy Code and are, therefore, exempt from registration under the
Securities Act and state securities laws.
(2) Subsequent Transfers Under Federal
Securities Laws
The New Common Stock of PCL, the New Senior Notes and the New
Warrants distributed under the Plan will not be "restricted securities" within
the meaning of Rule 144 under the Securities Act.
In general, all resales and subsequent transactions in the New
Common Stock of PCL, the New Senior Notes and the New Warrants offered and sold
under the Plan will be exempt from registration under the Securities Act
pursuant to Section 4(1) of the Securities Act, unless the holder thereof is
deemed to be an "underwriter" with respect to such securities, an "affiliate" of
the issuer of such securities or a "dealer." Section 1145(b) of the Bankruptcy
Code defines four types of "underwriters":
(i) persons who purchase a claim against, an interest
in, or a claim for administrative expense against
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the debtor with a view to distributing any security received
in exchange for such a claim or interest ("accumulators");
(ii) persons who offer to sell securities offered under a plan
for the holders of such securities ("distributors");
(iii) persons who offer to buy securities from the holders of
such securities, if the offer to buy is (a) with a view to distributing
such securities and (b) made under a distribution agreement; and
(iv) a person who is an "issuer" with respect to the
securities, as the term "issuer" is defined in Section 2(11) of the
Securities Act.
Under section 2(11) of the Securities Act, an "issuer" includes any "affiliate"
of the issuer, which means any person directly or indirectly through one or more
intermediaries controlling, controlled by or under common control with the
issuer. Under section 2(12) of the Securities Act, a "dealer" is any person who
engages either for all or part of his time, directly or indirectly, as agent,
broker or principal, in the business of offering, buying, selling or otherwise
dealing or trading in securities issued by another person.
Whether or not any particular person would be deemed to be an
"underwriter" or an "affiliate" with respect to any security to be issued
pursuant to the Plan or to be a "dealer" would depend upon various facts and
circumstances applicable to that person. Accordingly, the Debtors express no
view as to whether any person would be an "underwriter" or an "affiliate" with
respect to any security to be issued pursuant to the Plan or
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to be a "dealer". See "Risk Factors -- Restricted Resale of Securities
Distributed Under the Plan."
In addition, Rule 144 provides an exemption from registration
under the Securities Act for certain limited public resales of unrestricted
securities by "affiliates" of the issuer of such securities. Rule 144 allows a
holder of unrestricted securities that is an affiliate of the issuer of such
securities to sell, without registration, within any three month period a number
of shares of such unrestricted securities that does not exceed the greater of 1%
of the number of outstanding securities in question or the average weekly
trading volume in the securities in question during the four calendar weeks
preceding the date on which notice of such sale was filed pursuant to Rule 144,
subject to the satisfaction of certain other requirements of Rule 144 regarding
the manner of sale, notice requirements and the availability of current public
information regarding the issuer.
The holders of a specified portion of the New Senior Notes and
the New Common Stock of PCL will be entitled to demand that the Reorganized
Debtors register the sale of their New Senior Notes or New Common Stock of PCL
under the Securities Act, and holders of the New Senior Notes and the New Common
Stock of PCL will be permitted to obtain registration of the sale of their New
Senior Notes or New Common Stock of PCL in certain circumstances in connection
with certain offerings of securities by the Reorganized Debtors that are
registered under the Securities Act. See "-- The New Registration Rights
Agreements."
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GIVEN THE COMPLEX NATURE OF THE QUESTION OF WHETHER A
PARTICULAR PERSON MAY BE AN UNDERWRITER, THE DEBTORS MAKE NO REPRESENTATIONS
CONCERNING THE RIGHT OF ANY PERSON TO TRADE IN THE NEW COMMON STOCK OF PCL, THE
NEW SENIOR NOTES OR THE NEW WARRANTS TO BE DISTRIBUTED PURSUANT TO THE PLAN. THE
DEBTORS RECOMMEND THAT HOLDERS OF CLAIMS AND INTERESTS IN CLASSES 2, 3, 6 AND 7
CONSULT THEIR OWN COUNSEL CONCERNING WHETHER THEY MAY FREELY TRADE SUCH
SECURITIES OR INTERESTS.
(3) Subsequent Transfers Under State Law
The state securities laws generally provide registration
exemptions for subsequent transfers by a bona fide owner for his or her own
account and subsequent transfers to institutional or accredited investors. Such
exemptions are generally expected to be available for subsequent transfers of
New Common Stock of PCL, the New Senior Notes and the New Warrants.
(b) Certain Transactions by Stockbrokers
Under section 1145(a)(4) of the Bankruptcy Code, stockbrokers
are required to deliver a copy of this Disclosure Statement (and supplements
hereto, if any, if ordered by the Bankruptcy Court) at or before the time of
delivery of securities issued under the Plan to their customers for the first 40
days after the Effective Date. This requirement specifically applies to trading
and other aftermarket transactions in such securities.
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VIII.
RISK FACTORS
The securities to be issued or transferred pursuant to the
Plan are subject to a number of material risks, including those enumerated
below. The risk factors enumerated below assume Confirmation and the
consummation of the Plan and all transactions contemplated therein, and do not
include matters that could prevent or delay confirmation. See "General
Information Concerning the Plan -- Conditions Precedent to Confirmation and
Consummation of the Plan" and "Overview of the Plan -- Voting and Confirmation
of the Plan" for a discussion of such matters. Prior to deciding whether and how
to vote on the Plan, Holders of Claims and Interests should carefully consider
all of the information contained in this Disclosure Statement, especially the
factors described in the following paragraphs.
A. RISKS RELATING TO THE PROJECTIONS
The management of the Debtors, along with Nu-Tech, have
prepared the projected financial information contained in this Disclosure
Statement relating to the Reorganized Debtors in connection with the development
of the Plan to present the projected effects of the Plan and the transactions
contemplated thereby. See "The Reorganized Debtors -- Long Term Business Plan
and Projected Financial Information." The Projections assume the Plan and the
transactions contemplated thereby will be implemented in accordance with their
terms. The assumptions and estimates underlying such Projections are inherently
uncertain and are subject to significant business, economic and competitive
risks and uncertainties that could cause actual results to differ
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materially from those projected, including, among others, those enumerated in
the Projections. Accordingly, the Projections are not necessarily indicative of
the future financial condition or results of operations of the Reorganized
Debtors, which may vary significantly from those set forth in the Projections.
Consequently, the projected financial information contained herein should not be
regarded as a representation by the Debtors, the Debtors' advisors or any other
person that the Projections can or will be achieved.
B. CERTAIN RISKS ASSOCIATED WITH THE NEW WARRANTS
The New Warrants are speculative securities. Under their
terms, they are exercisable at a specified exercise price and will expire at
5:00 p.m. New York City time on the date that is five years after the Effective
Date of the Plan. There can be no assurance that the market value of the New
Common Stock of PCL will exceed the exercise price of the New Warrants at any
time prior to the expiration of the New Warrants. The New Warrants will have no
voting rights and no right to share in dividends, if any, paid with respect to
the New Common Stock of PCL and would have no rights on liquidation of the
Reorganized Debtors. There can be no assurance that the New Warrants will have
access to a liquid trading market.
C. ABSENCE OF PUBLIC MARKET
There is no existing market for the New Common Stock of PCL,
the New Senior Notes or the New Warrants and there can be no assurance that a
market will develop for such securities.
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D. RESTRICTED RESALE OF SECURITIES DISTRIBUTED UNDER THE PLAN
The New Securities will be distributed pursuant to the
Plan without registration under the Securities Act or any state securities laws
pursuant to exemptions from such registration contained in section 1145(a) of
the Bankruptcy Code. In the event that a holder of securities offered and sold
under the Plan is deemed to be an "underwriter" with respect to such securities
or an "affiliate" of the issuer of such securities, resales of such securities
by such holder would not be exempt from the registration requirements under the
Securities Act and state securities laws pursuant to section 1145 of the
Bankruptcy Code and, accordingly, could be effected only pursuant to an
effective registration statement or in reliance on another applicable exemption
from such registration requirements. See "Description of Property to be
Distributed Under the Plan -- Applicability of Federal and Other Securities
Laws."
E. DIVIDEND RESTRICTIONS
It is not anticipated that any cash dividends will be paid on
the New Common Stock of PCL for the foreseeable future.
F. RISKS ASSOCIATED WITH ACQUISITIONS
The success of the Reorganized Debtors' business will be
dependent in part upon its ability to capitalize on industry consolidation by
engaging in acquisitions. In order to achieve this strategy, the Reorganized
Debtors must successfully identify acquisition candidates, complete acquisitions
and integrate acquired clinical laboratories into existing laboratory
operations. In addition, acquisitions, by their nature, involve additional
risks, including acquisition of contingent or
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unexpected liabilities and the diversion of management time and attention. There
can be no assurance that the Reorganized Debtors will successfully identify,
complete or integrate acquisitions or that any acquired operations will perform
as expected, will not result in significant unexpected liabilities or will ever
contribute significant revenues or profits to the Reorganized Debtors. Further,
there can be no assurance that the Reorganized Debtors will have sufficient
revenues from such operations or will be able to obtain adequate financing to
implement its acquisition strategy. To the extent that the Reorganized Debtors'
acquisition strategy is successful, the Reorganized Debtors must also manage the
transition to higher volume operations, the expansion of quality assurance
measures, the control of overhead expenses and inventories, and the collection
of accounts receivable. If the Reorganized Debtors are unable to manage growth
resulting from any such acquisitions effectively, the Reorganized Debtors'
operating results could be materially adversely affected.
G. ROLE OF MANAGED CARE
California has the highest enrollment rate (approximately 40%
of the population) in managed care plans of any state in the country and, as a
result, delivery of health care to participants in such plans has become
integral to the healthcare delivery system throughout the state. With managed
care playing such a significant role in the healthcare industry, the future
success of the Reorganized Debtors will be, in part, dependent upon obtaining
and retaining managed care contracts in California. Although the Debtors are
currently party to
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contracts with over numerous managed care groups, there can be no
assurance that the Reorganized Debtors will retain or continue to
obtain such managed care contracts. In addition, even if the
Reorganized Debtors are successful in obtaining and retaining
managed care contracts, because managed care contracts typically
provide for lower reimbursement rates and a reduction in average
selling price, unless the Reorganized Debtors are able to control
their costs relative to the utilization and revenues from such
business and/or increases higher margin services, it may
experience declining profit margins.
H. CAPITATION RISK
Approximately __% of the Debtors' net revenue during its last
fiscal year was derived form testing performed on behalf of members of HMOs. The
Reorganized Debtors will be party to agreements with several HMOs throughout the
state under which the Reorganized Debtors will provide testing services that may
be required by the HMOs' members. The Reorganized Debtors will be compensated
for these services on a capitated basis (i.e., the Reorganized Debtors will be
paid a fixed fee per month for each member of an HMO for whom it has agreed to
perform clinical laboratory services). Therefore, there is a significant risk
that the variable cost of providing such services will exceed the related
revenues. To the extent that a greater percentage of the Reorganized Debtors'
business in the future is derived from capitated payments, this risk will be
amplified. The aggregate number of members covered under HMOs with whom the
Reorganized Debtors will contract is approximately 800,000.
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I. MANAGEMENT INFORMATION SYSTEMS
The Reorganized Debtors' testing operations and the level of
service it will provide to its clients will be dependent upon the accurate and
effective operation of the Reorganized Debtors' management information systems.
The Debtors believe that the efficient integration and operation of existing and
future acquired laboratory operations may depend upon connecting any acquired
laboratories to its main Sacramento laboratory using its management information
system network. Any difficulty associated with or failure of such systems even
for a short period of time, or any inability to expand processing capacity or
develop and maintain networking capability when needed, could have a material
adverse effect upon the Reorganized Debtors' results of operations.
J. LITIGATION AND LIABILITY INSURANCE COVERAGE
Although no significant liability has been imposed on the
Debtors to date, the Reorganized Debtors could be subject to legal actions
arising out of the performance of its testing services, which could entail
significant costs and liabilities. There can be no assurance that the
Reorganized Debtors will not at some point in the future incur significant
liability arising out of such actions relating to past or future testing
services. While the Reorganized Debtors will maintain liability insurance, there
can be no assurance that such coverage is sufficient, that the Reorganized
Debtors will be able to maintain such coverage with appropriate policy limits at
an acceptable cost or that the Reorganized Debtors will have other resources
sufficient to
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satisfy any liability or litigation expense that may result from uninsured or
underinsured claims.
K. GOVERNMENT REGULATION
The Reorganized Debtors will be subject to a variety of
government regulations governing, among other things, self-referral, the
mark-up of laboratory services, quality standards for laboratories and
reimbursement policies. Such regulations can materially impact the Reorganized
Debtors' revenues and operating results. Violations of these regulations could
subject the Reorganized Debtors to civil and criminal penalties and other
liabilities. See "The Reorganized Debtors -- Government Regulation" for a
description of material areas of government regulation expected to affect the
Reorganized Debtors.
IX.
THE REORGANIZED DEBTORS
A. CONTINUED CORPORATE EXISTENCE
Except as otherwise provided in the Plan, the Reorganized Debtors
(other than Reorganized CRRL) will continue to exist after the Effective Date as
separate corporate entities, with all of the powers of corporations under the
general corporation law of the Reorganized Debtors' respective states of
incorporation and without prejudice to any right to alter or terminate their
existence (whether by merger or otherwise). Reorganized CRRL will continue to
exist after the Effective Date as a limited partnership, with all the powers of
a limited partnership under the applicable partnership law of the State of
California and
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without prejudice to any right to alter or terminate its existence.
Except as otherwise provided in the Plan, on and after the
Effective Date, all property of the respective Estates of the Debtors, including
all claims, rights and causes of action (other than those released pursuant to
Section 5.5 of the Plan), and any property acquired by a Debtor or Reorganized
Debtor under or in connection with the Plan, shall vest in the applicable
Reorganized Debtor free and clear of all Claims, liens, charges, other
encumbrances and Interests. On and after the Effective Date, each Reorganized
Debtor may operate its businesses and may use, acquire and dispose of property
and compromise or settle any Claims or Interests without supervision or approval
by the Bankruptcy Court and free of any restrictions of the Bankruptcy Code or
Bankruptcy Rules, other than restrictions expressly imposed by the Plan or the
Confirmation Order. Without limiting the foregoing, each Reorganized Debtor may
pay the charges that it incurs on or after the Effective Date for Professionals'
fees, disbursements, expenses or related support services without application to
the Bankruptcy Court.
B. MANAGEMENT OF THE REORGANIZED DEBTORS
1. BOARD OF DIRECTORS
Subject to any requirement of Bankruptcy Court approval
pursuant to section 1129(a)(5) of the Bankruptcy Code, the New PCL Certificate
of Incorporation and New PCL Bylaws will provide that the business and affairs
of Reorganized PCL are to be managed under the direction of the board of
directors of Reorganized PCL (the "Reorganized PCL Board of Directors"). The
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Reorganized PCL Board of Directors will be comprised of five members, three of
which will initially be designated by Nu-Tech and two of which will initially be
designated by the Senior Lenders. J. Marvin Feigenbaum will be appointed to
serve as Chairman of the Reorganized PCL Board of Directors for an initial term
of three years, pursuant to the Employment Agreement, which will be entered into
between Mr. Feigenbaum and Reorganized PCL on the Effective Date. The two
designees of Nu-Tech will serve for initial terms of two years. The two
designees of the Senior Lenders will serve for initial term of one year. All
such directors, will be selected prior to the Effective Date. With respect to
director elections after the initial terms, it is anticipated that the Senior
Lenders and Nu-Tech will enter into a shareholders agreement pursuant to which
Nu-Tech shall be entitled to appoint three directors and the Senior Lenders, or
their designees, shall be entitled to appoint two directors to the Reorganized
PCL Board of Directors on account of the shares of New Common Stock held by the
Senior Lenders unless and until the Senior Lenders shall, in the aggregate, own
less than 20% of the shares of New Common Stock. See "-- Shareholders
Agreement." It is anticipated that all of the current directors of PCL will
resign from PCL's Board of Directors on or prior to the Effective Date.
Mr. J. Marvin Feigenbaum currently serves as Chief Operating
Officer of the Debtor, pursuant to an employment agreement entered into as of
November 8, 1996. Mr. Feigenbaum also currently serves as Chairman of the Board
of Directors, President, Chief Executive Officer and Chief Financial Officer of
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each of Nu-Tech and Analytical Biosystems Corp. ("ABC"), Nu-Tech's wholly-owned
operating subsidiary. Mr. Feigenbaum was first elected to the Board of Directors
of Nu-Tech in June 1994, at which time he was also elected to the Board of
Directors of ABC and appointed Chief Executive Officer of Nu-Tech and of ABC.
From August 1993 to June 1994, Mr. Feigenbaum served as a consultant to Nu-Tech,
primarily with respect to Nu-Tech's business development and plans and programs
relating to the marketing and exploitation of Nu-Tech's laboratory and medical
testing services. From 1987 to June 1994, Mr. Feigenbaum acted as an independent
consultant in the medical and health care industry. He has over 20 years of
experience in the health care industry. Prior to being an independent
consultant, Mr. Feigenbaum, from 1982 to mid-1987, served as Chairman, President
and Chief Executive Officer of Temco Home Health Care Products, Inc., a durable
medical equipment manufacturer. Mr. Feigenbaum presently serves as a member of
the Board of Directors and Vice-Chairman of Comprehensive Care Corp., a publicly
owned company engaged in the health care business, which is listed on the New
York Stock Exchange. On February 24, 1995, a group of holders of CompCare 7 1/2%
Convertible Subordinated Debentures filed an involuntary petition against
CompCare under Chapter 7 of the United States Bankruptcy Code in the United
States Bankruptcy Court for the Northern District of Texas, Fort Worth Division.
This petition was dismissed by the Court on March 7, 1995 upon the joint motion
of CompCare and petitioners.
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2. SHAREHOLDERS AGREEMENT
It is anticipated that Nu-Tech and the Senior Lenders will
enter into a shareholders agreement (the "Shareholders Agreement"), which will
govern certain matters with respect to the management of Reorganized PCL. The
Shareholders Agreement will provide that, until such time as the Senior Lenders
own, in the aggregate, less than 20% of the outstanding shares of New Common
Stock, the Reorganized PCL Board of Directors will not undertake the following
activities without the affirmative vote of at least one of the directors
appointed by the Senior Lenders: (a) merger and acquisition; (b) assuming
non-ordinary course obligations in excess of $1 million; (c) making capital
expenditures in excess of $1 million; and (d) approving any compensation
arrangement for Mr. Feigenbaum.
3. BOARD COMMITTEES
The New PCL Bylaws will provide that the Reorganized PCL Board
of Directors may establish directorate committees. It presently is contemplated
that the Reorganized PCL Board of Directors will establish the following
committees, each of which is currently maintained by PCL, with functions similar
to the functions of such currently-maintained committees, as described below.
However, the Reorganized PCL Board of Directors will have the authority to
modify the functions to be performed by such committees, to terminate such
committees and to designate additional committees, as it deems appropriate after
consideration of applicable legal, stock exchange and other requirements.
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(a) Compensation Committee
The functions to be performed by the Compensation Committee
include reviewing and approving management's recommendations as to executive
compensation, and reviewing, approving and administering Reorganized PCL's
executive compensation and stock option plans.
(b) Audit Committee
The Audit Committee will be responsible for causing suitable
examinations to be made at least annually of the financial affairs of and for
reporting the results of such examinations to the Reorganized PCL Board of
Directors, which report shall set forth an opinion with respect to the financial
condition of Reorganized PCL, whether adequate controls and procedures are being
maintained and such recommendations for change as the Committee deems to be
advisable.
4. DIRECTOR COMPENSATION
The employment, compensation and benefit arrangements that
presently are expected to be maintained by Reorganized PCL with respect to its
directors, are described below. Existing director compensation and benefit
arrangements of PCL that are expected to be terminated as of the Effective Date
are not described below. For information regarding such existing director
compensation and benefit arrangements, see Exhibits II and III attached hereto.
(a) Chairman of the Board
It is anticipated that Mr. Feigenbaum will enter into the New
Employment Agreement, which is a three-year employment agreement with
Reorganized PCL, pursuant to which Mr. Feigenbaum
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will be retained as Chairman of the Reorganized PCL Board of Directors and Chief
Executive Officer and President of Reorganized PCL. Under the terms of the
agreement, Mr. Feigenbaum will receive an annual salary of $104,000.00 for the
first year of the agreement, which amount may be increased in subsequent years
at the discretion of the Reorganized PCL Board of Directors. The agreement will
also provide that Mr. Feigenbaum will receive options to purchase New Common
Stock of PCL at a price per share equal to the market value per share of the New
Common Stock of PCL on the Effective Date, in an amount to be determined by the
Reorganized PCL Board of Directors at the time of the grant of such options.
(b) Other Director Compensation
Non-employee directors of Reorganized PCL will receive
a retainer fee of $12,000 per year, together with fees equal to $500 for each
Board meeting and $500 for each committee meeting attended. Directors who are
employees of Reorganized PCL will receive no additional compensation for serving
as directors.
5. EXECUTIVE OFFICERS AND EXECUTIVE COMPENSATION
(a) Executive Officers
It is anticipated that J. Marvin Feigenbaum will serve as
Chairman of the Board, President and Chief Executive Officer of Reorganized PCL
from and after the Effective Date. Currently, Mr. Feigenbaum serves as Chief
Operating Officer of PCL. See "-- Management of the Reorganized Debtors." The
other executive officers of Reorganized PCL will be selected prior to the
Effective Date. Set forth below is a list of the persons currently serving as
executive officers of PCL, in the position
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with PCL set forth below, and each of whom has served in such capacity since the
date of his election to corporate office set forth below.
<TABLE>
<CAPTION>
POSITION WITH THE OFFICER
NAME AGE DEBTOR SINCE
---- --- ------ -----
<S> <C> <C> <C>
Nathan L. Headley 60 Chief ________ 1989
Executive Officer and
President
J. Marvin 45 Chief November 1996
Feigenbaum Operating Officer
Richard M. Brooks 42 Senior Vice January 1995
President,
Chief Financial
Officer
Joseph L. 55 Senior Vice November 1992
Gallagher President,
General Manager
Wayne E. Cottrell 46 Vice President, April 1987
Finance
Taylor R. 44 Vice President, December 1989
McKeeman Laboratory Operations
David G. Shafer 50 Vice President, October 1987
Information Systems
Robert P. 35 Vice President, September 1993
Headley Sales and Marketing
</TABLE>
(b) Executive Officer Compensation
[TO COME]
6. BENEFIT PLANS AND AGREEMENTS
(a) Section 401(k) Plan
Reorganized PCL will maintain the employee savings and
retirement plan (the "Section 401(k) Plan") currently maintained by PCL. PCL
offers to employees after 90 days of employment and attainment of age 21 the
opportunity to participate in the
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Section 401(k) Plan, which is administered by an insurance company under which
participants may elect to defer and contribute up to 20% of their eligible
compensation in any one year (subject to certain limits prescribed by statute).
The Section 401(k) Plan is intended to be tax-qualified under Sections 401(a)
and 401(k) of the Internal Revenue Code. Reorganized PCL shall not make any
matching contributions to the Section 401(k) Plan. Each participant is fully
vested in his or her contributions at all times. All contributions are invested
in annuity contracts with an independent insurance company. Assuming the Section
401(k) Plan complies with applicable requirements of the Internal Revenue Code
of 1986, as amended (the "Code"), all contributions will be deductible to
Reorganized PCL when made and neither the contributions nor the income earned
thereon is taxable to the participants until withdrawn. The Code imposes certain
limitations on tax-qualified plans as to the amount of eligible compensation
that may be taken into account in determining annual contributions for
participants, on the annual amounts that may be added to participant's accounts
and special limitations on contributions for employees who are treated as
"highly compensated" under the Code. Under the Section 401(k) Plan,
participants' account balances may be paid upon death, disability or other
termination of employment in a lump-sum or in an actuarial equivalent annuity
form of payment. Participants may also take withdrawals against their account
balance prior to termination of employment in the event of proven financial
hardship or after attainment of age 59 1/2.
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(b) Other Benefit Plans
Reorganized PCL will maintain the group life, health, dental,
vision and long-term disability plans which PCL offers to full-time employees
who meet minimum service requirements. Currently, PCL provides health benefits
at no cost to employees but employee contributions are required for dependent
coverage.
(c) Employment Contracts
The only employment contract currently anticipated to be
entered into by the Reorganized Debtors is with respect to Mr. Feigenbaum. The
terms of that agreement are described above.
See "-- Director Compensation."
7. CORPORATE GOVERNANCE
The New PCL Certificate of Incorporation and New PCL Bylaws,
which will be substantially in the forms of Exhibits A and B to the Plan,
respectively, will contain a number of provisions relating to corporate
governance. Those provisions provide that (i) the number of directors of
Reorganized PCL will be five, (ii) vacancies or newly created directorships on
the Board of Directors will be filled by the affirmative vote of a majority of
the remaining directors then in office, though less than a quorum, or by a sole
remaining director, with any new director to hold office until the next annual
meeting and until his or her successor is elected and qualified, (iii) directors
may be removed by the affirmative vote of holders of [two-thirds] of the of the
outstanding shares entitled to vote generally in the election of directors,
voting together as a single class, (iv) the New PCL Bylaws provide that special
meetings of the stockholders may be called only by the Chairman of the Board, a
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majority of the total number of directors, and by the holders of record of at
least one-third of the voting power of Reorganized PCL's voting stock entitled
to vote generally in the election of directors, and the business permitted to be
conducted at any such meeting is limited to that specified in the notice of
meeting or otherwise properly brought before the meeting by the Chairman of the
Board or his specific designee or by a majority of the total number of
directors, (v) subject to certain exceptions, the Reorganized PCL Board of
Directors may postpone and reschedule any previously scheduled annual or special
meeting of stockholders, and (vi) any stockholder desiring to bring an item of
business before an annual meeting of stockholders or to nominate a person for
election as a director must deliver to the secretary of Reorganized PCL written
notice thereof, which written notice must be received at the principal executive
offices of Reorganized PCL not less than 50 days prior to the annual meeting
unless notice of the annual meeting is given less than 60 days in advance, in
which case the stockholder's notice must be received not later than 10 days
following the date on which notice of the meeting was given.
The New PCL Bylaws will provide that all meetings of the
Reorganized PCL Board of Directors be held in Sacramento, California, in the
city in which Reorganized PCL maintains its headquarters, in any other location
where Reorganized PCL maintains significant operations or at any other location
that the Reorganized PCL Board of Directors, by majority vote, may approve.
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PCL currently has 30,000,000 authorized shares of Old Common
Stock and it is intended that the New PCL Certificate of Incorporation will
authorize [100,000,000] shares of New Common Stock. The New PCL Certificate of
Incorporation will permit the Reorganized PCL Board of Directors to cause
Reorganized PCL to issue, in one or more transactions, additional shares of New
Common Stock of PCL in amounts which could make more difficult, and therefore
less likely, a takeover or change in management of Reorganized PCL.
PCL currently has 20,000,000 authorized shares of preferred
stock that are issuable in series by action of PCL's Board of Directors, which
may fix the voting powers, preferences, rights and other terms as permitted
under the Delaware General Corporation Law. No shares of preferred stock have
been issued or are outstanding. It is intended that under the New PCL
Certificate of Incorporation, Reorganized PCL will have 10,000,000 authorized
shares of preferred stock that will be issuable in series by action of PCL's
Board of Directors, which may fix the voting powers, preferences, rights,
limitations or restrictions of all shares of a series, including without
limitation dividend rates, preemptive rights, voting rights, redemption and
sinking fund provisions, liquidation preferences and the number of shares
constituting each such series, without any further vote or action by the
stockholders. The issuance of preferred stock could decrease the amount of
earnings and assets available for distribution to holders of common stock or
adversely affect the rights and powers, including voting rights, of the holders
of New Common Stock of PCL. The issuance of
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preferred stock could also have the effect of delaying, deferring or preventing
a change in control of Reorganized PCL without further action by the
stockholders.
Under the New PCL Certificate of Incorporation, any future
issuance of shares of New Common Stock of PCL or preferred stock could have the
effect of diluting the earnings per share, book value per share and voting power
of shares held by Reorganized PCL's stockholders. For example, under the New PCL
Certificate of Incorporation, additional shares of New Common Stock of PCL or
shares of one or more series of preferred stock, or some combination thereof,
could be issued to one or more holders who, as a result of the issuance of such
shares, would have sufficient voting power to assure that any proposed
amendments to the New PCL Certificate of Incorporation would not receive the
necessary stockholder vote required for such amendment. In addition, such shares
could be privately placed with purchasers who might oppose a hostile takeover
bid or (particularly if the Reorganized PCL Board of Directors authorized
holders of a series of preferred stock to vote as a class, either separately or
with the holders of New Common Stock of PCL) to affect the outcome of any
proposal for a merger of Reorganized PCL or sale or exchange of assets by
Reorganized PCL or any other extraordinary corporate transaction. Consequently,
pursuant to the New PCL Certificate of Incorporation, the authorized but
unissued shares of New Common Stock and preferred stock would be available for
such purposes. The New PCL Certificate of Incorporation also provides, to the
extent required by section 1123 of the Bankruptcy Code, that Reorganized
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PCL will not issue nonvoting equity securities. These provisions could make it
more difficult to effect a change in control of Reorganized PCL or to obtain
approval of any proposal to amend the New PCL Certificate of Incorporation or to
effect certain mergers, asset sales or exchanges or other extraordinary
corporate transactions which might be opposed by the incumbent Reorganized PCL
Board of Directors.
The provisions of the New PCL Certificate of Incorporation and
New PCL Bylaws described herein may, under certain circumstances, make more
difficult or discourage a takeover of Reorganized PCL and the removal of
incumbent management. These provisions are designed to assist Reorganized PCL in
carrying out its long-term strategy for enhancement of stockholder value and to
encourage persons interested in business combinations to negotiate with
Reorganized PCL. Reorganized PCL has no present intention to adopt other
anti-takeover measures, although it is possible that circumstances could arise
which would cause Reorganized PCL to do so.
As of the Effective Date, the certificate or articles of
incorporation (other than Reorganized CRRL) of each Reorganized Subsidiary
Debtor will, among other things, prohibit or be amended to prohibit the issuance
of nonvoting equity securities to the extent required by section 1123(a)(6) of
the Bankruptcy Code, and otherwise will, or will be amended and restated to be,
substantially in the form of Exhibit C to the Plan. If a Reorganized Subsidiary
Debtor is incorporated under the laws of a jurisdiction for which the forms of a
certificate or articles of incorporation are not included in Exhibit C to the
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Plan, such Debtor's constituent documents will be substantially identical to
Exhibit C to the Plan, with such differences as may be necessary or appropriate
under the applicable jurisdiction's corporation law. After the Effective Date,
each such entity may amend and restate its certificate or articles of
incorporation or its bylaws or regulations or similar constituent documents as
permitted by applicable state law, subject to the terms and conditions of its
certificate or articles of incorporation or its bylaws or regulations or similar
constituent documents.
8. LIMITATION OF LIABILITY; INDEMNIFICATION; DIRECTOR AND
OFFICER INSURANCE
The New PCL Certificate of Incorporation will limit
personal liability of Reorganized PCL's directors to the full extent permitted
by Delaware law. Section 102(b)(7) of the Delaware General Corporation Law
enables a Delaware corporation to include in its certificate of incorporation a
provision eliminating or limiting the personal liability of a director to the
corporation or its stockholders for monetary damages for breaches of fiduciary
duties as a director, but no such provision may eliminate or limit the liability
of a director (i) for any breach of the duty of loyalty, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law (dealing with illegal redemptions and stock repurchases) or (iv) for any
transaction from which the director derived an improper personal benefit.
The New PCL Certificate of Incorporation will also provide, as
do the charters of many other publicly-held
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companies, for the indemnification of persons to the fullest extent authorized
or permitted by Delaware Law. Section 145 of the Delaware General Corporation
Law provides that a corporation (a) must indemnify its directors, officers,
employees and agents for all expenses of litigation when they are successful on
the merits or otherwise; (b) may indemnify such persons for the expenses,
judgments, fines and amounts paid in settlement of litigation (other than a
derivative suit) even if they are not successful on the merits, if they acted in
good faith and in a manner they reasonably believed to be in or not opposed to
the best interests of the corporation (and, in the case of criminal proceedings,
have no reason to believe that their conduct was unlawful); and (c) may
indemnify such persons for the expenses of a derivative suit even if they are
not successful on the merits if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, provided that no such indemnification may be made on behalf of a
person adjudged to be liable in a derivative suit, unless the Delaware Chancery
Court determines that, despite such adjudication but in view of all of the
circumstances, such person is entitled to indemnification. In any such case,
indemnification may be made only upon determination by (i) a majority of the
disinterested directors, (ii) independent legal counsel or (iii) the
shareholders that indemnification is proper because the applicable standard of
conduct was met. The advancement of litigation expenses to a director or officer
is also authorized upon receipt by the board of directors of an
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undertaking to repay such amounts if it is ultimately determined that such
person is not entitled to be indemnified for them.
The New PCL Bylaws also will mandate indemnification to the
full extent permitted by the Delaware General Corporation Law for any person
made or threatened to be made a party to an action or proceeding, whether
criminal, civil, administrative or investigative, by reason of the fact that he,
his testator or intestate is or was a director, officer or employee of the
corporation or any predecessor of the corporation or serves or served any other
enterprise as a director, officer or employee at the request of Reorganized PCL
or any predecessor of Reorganized PCL. Furthermore, Reorganized PCL may enter
into agreements with any person, which provide for indemnification greater or
different than provided for in the New PCL Amended Certificate of Incorporation.
As authorized by the New PCL Bylaws, it is anticipated that
Reorganized PCL will enter into indemnification agreements (the "New PCL
Indemnification Agreements") with the directors and executive officers of
Reorganized PCL, and will enter into similar agreements with any director
elected or appointed in the future or the executive officers designated by the
Reorganized PCL Board of Directors at the time of their election, appointment or
designation. To the extent any indemnification obligation of the Debtor existing
as of the Petition Date to any current or former officer or director constitutes
an executory contract, the Debtor shall be deemed to have assumed such executory
contract as of the Effective Date pursuant to section 365 of the Bankruptcy
Code.
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Under the New PCL Indemnification Agreements, Reorganized PCL
will be obligated to indemnify a director or officer of Reorganized PCL (the
"Indemnitee") if the Indemnitee is a party or is threatened to be made a party
to any pending, threatened or completed investigation, claim, action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
a suit by or in the right of Reorganized PCL), and any appeals therefrom, by
reason of the fact that the Indemnitee is or was or had agreed to be a director
or officer of Reorganized PCL, or is or was serving or had agreed to serve at
the request of Reorganized PCL in certain capacities with another entity,
against any and all costs, charges and expenses, including without limitation
attorneys' and others' fees and expenses, judgments, fines and amounts paid in
settlement actually incurred by the Indemnitee in connection with the defense or
settlement of such proceeding and any appeal therefrom if the Indemnitee acted
in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of Reorganized PCL and with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. Reorganized PCL must also indemnify under the New PCL
Indemnification Agreements for such expenses in defense or settlement of a suit
by or in the right of Reorganized PCL, but if the Indemnitee is adjudged to be
liable to Reorganized PCL, Reorganized PCL must indemnify the Indemnitee only to
the extent that the Court of Chancery determines the Indemnitee is fairly and
reasonably entitled to in view of all the circumstances. Additionally, the New
PCL Indemnification
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Agreements will provide for indemnification for Indemnitees for amounts they are
legally obligated to pay arising out of claims made for any act, failure to act
or neglect or breach of duty, including any actual or alleged error,
misstatement or misleading statement.
The New PCL Indemnification Agreements mandate indemnification
for expenses incurred to the extent that an Indemnitee has been successful on
the merits or otherwise; all other indemnification mentioned in the above
paragraph is made based on a determination by the Reorganized PCL Board of
Directors that the Indemnitee is entitled to indemnification. An Indemnitee may
submit, but is not required to, an Indemnification Statement averring that he is
entitled to indemnification creating a presumption in favor of indemnification.
The New PCL Indemnification Agreements also will authorize
advancement of expenses incurred by the Indemnitee before the final disposition
of an action and provide a procedure for creating a presumption in favor of an
Indemnitee's right to receive indemnification under a New PCL Indemnification
Agreement. The Indemnitee must under certain circumstances (and may under other
circumstances) submit to the Reorganized PCL Board of Directors an undertaking
averring that (i) he has incurred or will incur actual expenses in defending a
civil or criminal action, suit, proceeding or claim and (ii) if required by law
at the time of the advance, he undertakes to repay such amount if it is
ultimately determined that he is not entitled to be indemnified by Reorganized
PCL under a New PCL Indemnification Agreement or otherwise.
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Section 145 of the Delaware General Corporation Law also
permits a corporation to purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability. The
New PCL Bylaws will authorize Reorganized PCL, to the fullest extent permitted
by law, to maintain insurance protecting its officers and directors against
certain losses arising out of actual or threatened actions, suits or proceedings
to which such persons may be made or threatened to be made parties. However,
Reorganized PCL and the directors or officers cannot be sure that such insurance
coverage will continue to be available in the future or, if available, that it
will not be unreasonably expensive to purchase and maintain.
C. LONG-TERM BUSINESS PLAN AND PROJECTED FINANCIAL INFORMATION
In conjunction with Nu-Tech, the Debtors' management has
prepared a long-term business plan (the "Business Plan") and certain financial
projections ("Projections"), which are attached hereto as Exhibit IV. The
Business Plan and Projections should be read in conjunction with the
assumptions, qualifications, limitations and explanations set forth therein.
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D. GOVERNMENT REGULATION
The Reorganized Debtors will continue to be subject to
government regulation, at both the Federal and State level, in many areas.
Material areas of government regulation of the Reorganized Debtors' businesses
are described below.
1. THE STARK BILL AND OTHER RESTRICTIONS ON SELF-REFERRAL
Section 1877 of the Social Security Act, commonly known
as the "Stark Bill," which became effective January 1, 1992, generally prohibits
the Reorganized Debtors from billing for tests covered by Medicare if the
physician ordering the test (or an immediate relative of such physician) has a
direct or indirect ownership or investment interest in, or compensation
arrangement with, the Reorganized Debtors. Effective January 1, 1995, this
prohibition also applies to preclude the Reorganized Debtors from billing the
Medi-Cal program for tests ordered by such physicians. Congress has considered
legislation that would extend this prohibition to preclude the Reorganized
Debtors from billing for services rendered to any patient, and not just to
Medicare or Medi-Cal patients, if the services were rendered on referral from a
physician with a financial relationship to the Reorganized Debtors, unless an
exception applied. Ownership interests would include ownership of the New Senior
Notes or shares of the New Common Stock of PCL. It does not appear that there is
an exception from the Stark Bill for which the Reorganized Debtors will qualify.
The Stark Bill requires the Reorganized Debtors to provide the
United States Department of Health and Human Services ("HHS") with the names and
unique physician identification
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numbers of all physicians who have (or whose immediate relatives have) a direct
or indirect ownership or investment interest in, or compensation relationship
with, the Reorganized Debtors. The Reorganized Debtors are also required to
identify the referring physicians on each of their claims for Medicare payment
and to indicate whether the physician or the physician's relative has an
ownership or compensation relationship with the Reorganized Debtors.
On August 14, 1995, the Secretary of HHS issued final
regulations to those provisions of the Stark Bill, which were effective January
1, 1992 ("Stark Regulations"). The Stark Regulations contain provisions that
mirror the statutory reporting requirements described above.
Individuals or entities who are found to have violated the
Stark Bill may be subject to severe monetary civil penalties and possible
exclusion from the Medicare and Medi-Cal programs. Items or services that are
billed and paid for in violation of the Stark Bill are subject to refund. The
Reorganized Debtors intend to institute appropriate programs to ensure
compliance with the Stark Bill to the fullest extent possible.
In 1993, the California legislature enacted Assembly Bill 919,
generally known as the "Speier Bill." The Speier Bill, which took effect on
January 1, 1995, generally prohibits the Reorganized Debtors from billing for
laboratory tests if the physicians ordering the test (or an immediate relative
of the physician) has a direct or indirect ownership or investment interest in,
or compensation agreement with, the Reorganized Debtors. Unlike the Stark Bill
as presently enacted, the Speier
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Bill applies regardless of who will pay for the ordered service. Therefore, the
Reorganized Debtors are generally unable to bill third-party payors for services
performed on referral from financially related physicians, even if the services
are not to be paid for by Medicare or Medi-Cal.
It does not appear that the Reorganized Debtors qualify for
any exemption under the Speier Bill. Thus, the Reorganized Debtors intend not to
bill for laboratory testing referred by physicians whom the Reorganized Debtors
know to be shareholders of the Reorganized Debtors.
In 1995, the Speier Bill was amended to provide an exception
for a one-time sale of a practice or property or other financial interest
between a licensee and the recipient of the referral if the sale or transfer is
(i) for commercially reasonable terms and (ii) the consideration is not affected
by either party's referral of any person or the volume of services provided by
either party.
Under the Speier Bill, a physician who received price
discounts on clinical laboratory services that the physician purchased from the
Reorganized Debtors may be considered to be financially related to the
Reorganized Debtors. The impact of this provision requires further
clarification, as does the meaning of the term "discount" in this context.
However, this provision may prevent the Reorganized Debtors from billing for
services provided to persons who are referred to the Reorganized Debtors by
physicians who purchase discounted clinical laboratory services from the
Reorganized Debtors. Currently, approximately 10% of the Reorganized Debtors'
net revenues are derived from
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selling laboratory services to physicians at a discount from the Reorganized
Debtors' standard prices. Physicians who receive such discounts generally refer
their Medicare patients directly to an independent clinical laboratory such as
the Reorganized Debtors for laboratory services, since physicians are generally
prohibited by law from billing the Medicare program for laboratory testing that
is actually provided by an independent clinical laboratory. This feature of the
Speier Bill parallels proposed revisions to the Stark Bill previously considered
by Congress. Under these proposed Stark Bill revisions, the Reorganized Debtors
could not bill for services provided to Medicare and Medi-Cal patients on
referral from physicians who purchased laboratory services from the Reorganized
Debtors at less than fair market value. To date, the Reorganized Debtors are
unaware of any guidance issued by California regulatory or judicial authorities
which clarifies the meaning of the Speier Bill's apparent prohibition on billing
for services rendered on referral from physicians who receive price discounts
from the Reorganized Debtors. In a related context, the California Attorney
General and the Laboratory Field Services Division of the California Department
of Health Services ("DHS") have opined that the term "discount" does not include
price reductions which are passed along from physician to consumer. California
law currently requires physicians to extend the benefit of discounted laboratory
pricing to their patients.
2. PROHIBITIONS ON MARK-UP OF LABORATORY SERVICES
Clinical laboratories (including those in hospitals),
physicians, hospitals and certain other health care providers in
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California are subject to Section 655.5 of the California Business and
Professions Code. This statute, which became effective January 1, 1993,
prohibits those subject to its provisions from marking up charges for any
clinical laboratory services not actually rendered by the clinical laboratory,
physician or other health care provider, unless the additional charge is for a
service actually rendered to the patient by the person billing for the service
and is itemized in the bill. Further, this statute requires that if a person
subject to the statute other than a hospital or other health facility bills for
clinical laboratory services actually rendered by another provider, the bill
must clearly indicate the name and address of the laboratory that actually
performed the services, that laboratory's charges to the person billing for the
services, and whether or not the performing laboratory's charges are included in
the bill submitted to the patient or third-party payor.
Effective July 1, 1994, Section 655.5 requires the Reorganized
Debtors to provide a fee schedule (a) to referring providers on request, and (b)
to referring physicians or to potential referring providers whenever a list of
laboratory services is furnished to the referring provider or potential
provider. On September 29, 1996, California Governor Pete Wilson approved
Assembly Bill No. 2588, which amended 655.5 to provide for easier disclosure
requirements and lowered the penalties for physicians for the commission of
first offenses under the statute with certain conditions.
In signing the legislation, Governor Wilson expressed concerns
about the bill's potential to provide a reduced penalty
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to physicians who knowingly and willfully break the law against marked-up
billings. Thus, to address his concerns, he directed the Department of Consumer
Affairs to work with the Medical Board of California among others to (i) develop
legislation for introduction in January 1997, which will assure that physicians
who knowingly commit fraud are criminally prosecuted for first-time offenses;
and (ii) create a defined plan of action for timely and effective enforcement of
the provisions of this bill and the current law governing marked-up billings.
3. FRAUD AND ABUSE LAWS
Clinical laboratories participating in the Medicare and
Medicaid programs (including California's Medi-Cal program), are subject to a
wide variety of laws intended to eliminate the effects of fraud and abuse on
these programs. These laws include prohibitions on: (a) submitting false claims
or false information to the programs; (b) deceptive or fraudulent conduct; (c)
the provision of excessive or unnecessary services, or services at excessive
prices; and (d) inducing the referral of program patients through the offer or
receipt of remuneration, a prohibition often referred to as the "antikickback
statute." Penalties for violation of these federal laws include exclusion from
participation in the Medicare and Medicaid programs, asset forfeitures, civil
monetary penalties and criminal penalties. Civil penalties for a wide range of
offenses may include fines of up to $2,000 for each item or service plus twice
the amount claimed for such service, and exclusion from participation in the
Medicare and Medicaid programs.
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These provisions have been liberally interpreted and
aggressively enforced by the relevant enforcement authorities. The detection and
punishment of health care fraud and abuse has recently been elevated to one of
the highest priorities of the United States Department of Justice. In addition,
the federal "whistleblower" statute permits private litigants to bring a "qui
tam" action on behalf of the United States government in connection with the
submission of allegedly false claims. The Department of Justice is required to
investigate claims raised by such qui tam litigants, who are entitled to receive
a percentage of any recoveries obtained in the action they initiate.
The governmental and third-party payor reimbursement system
for clinical laboratory services is complex and subject to variances among
payors and to variances in interpretation of billing regulations and guidelines.
In recognition of this, the Reorganized Debtors will engage in ongoing review of
their billing practices. In this regard, the Reorganized Debtors will engage
counsel to assist the Reorganized Debtors in developing a compliance program
meeting the requirements of the applicable federal guidelines.
The Office of Inspector General ("OIG") of the Department of
Health and Human Services, one of the federal agencies responsible for enforcing
the laws against fraud and abuse, has asserted that the antikickback statute is
violated by various practices that the OIG believes are common in the clinical
laboratory industry. These practices include installment payments and earn-out
provisions under agreements for the acquisition of physician owned laboratories,
inducing the
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ordering of unnecessary tests through test requisition form design or test
pricing to physicians, and "unbundling" a package of generally automated tests
to secure higher reimbursement.
In October 1994, the OIG issued a Special Fraud Alert entitled
"Arrangements for the Provision of Clinical Lab Services." The Fraud Alert
listed a number of practices that may violate the antikickback statute,
including the provision of computers and fax machines to physicians, free
laboratory testing for healthcare providers, their families and employees,
collection of bio-hazardous wastes from physician's offices unrelated to the
collection of specimens by the laboratory, waiver of charges to managed care
patients, and other examples.
California law also prohibits payments being made to
physicians by clinical laboratories as compensation or inducement for referrals
of patients or test specimens, regardless of the source of payment for such
testing. Laboratories which violate the California antikickback laws may be
subject to loss of licensure and substantial fines. In addition, a provider
convicted under such laws would be excluded from participation in the Medicare
and Medicaid programs. The Reorganized Debtors believe that they do not violate
these requirements.
The "Health Insurance Portability and Accountability Act of
1996" was signed into law on August 21, 1996. Most of its provisions will become
effective January 1, 1997. The legislation contains significant changes in the
scope, enforcement and penalties for violations of the federal fraud and abuse
laws. It includes additional funding for programs to combat health care fraud,
higher penalties for violations,
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mandatory exclusions from participation in Medicare and Medicaid for those
convicted of health care fraud, and new healthcare fraud offenses.
In a move favorable to the healthcare industry, the
legislation requires the Secretary to issue advisory opinions within a sixty-day
time frame, with respect to whether particular transactions constitute a
violation of the federal antikickback law. The Secretary is also required to
publish regulations concerning the issuance of advisory options within 180 days
of enactment of the legislation. However, this advisory opinion process will
terminate four years after the date of the legislation's enactment unless later
extended by Congress. Upon signing the legislation, President Clinton reiterated
his opposition to advisory opinions, commenting that the Attorney General and
the Secretary of HHS are concerned that such opinions will burden the efforts to
enforce laws against health care fraud and abuse.
The new legislation also requires the Secretary to request
suggestions for the issuance of new safe harbors under the antikickback statute.
The OIG will be required to consider requests from any person that it issue a
"Special Fraud Alert" with respect to a particular practice under the Medicare
or Medicaid programs.
4. QUALITY ASSURANCE
CLIA 1967 and 1988. The Clinical Laboratory Improvement Act of
1967 ("CLIA 1967") provides for the certification and regulation by HHS of
certain clinical laboratories, including those operated by the Reorganized
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Debtors. The Clinical Laboratory Improvement Amendments of 1988 ("CLIA 1988")
subjects virtually all clinical laboratories to the jurisdiction of HHS by
establishing national standards for assuring the quality of laboratory
performance. The Health Care Financing Administration within HHS ("HCFA") issued
final regulations applicable to all laboratories certified under CLIA 1967,
which became effective in 1990 and 1991. The regulations also included
self-implementing requirements of CLIA 1988.
HCFA has published several sets of final and proposed
regulations to implement CLIA 1988. Final regulations include those setting
national performance standards and establishing enforcement procedures and
penalties. The Debtors believe that they are in compliance in all material
respects with CLIA 1967, CLIA 1988 and all final regulations thereunder.
Although the CLIA 1988 requirements are expected to be phased
in over a period of several years, CLIA 1988 could have a substantial effect on
the laboratory testing industry. The recently issued regulations will establish
standards for the day-to-day operation of laboratories, and subject large
numbers of previously exempt facilities to government regulation for the first
time. The Debtors believe that compliance with the new law should not pose a
significant burden on the Reorganized Debtors because the Debtors are already
subject to comprehensive regulation.
Among the classes of laboratories that may be most affected by
the implementation of CLIA 1988, however, are those laboratories located in
physicians' offices. The Debtors believe that many physician office laboratories
("POLs") will choose to
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cease operation or to be acquired by an independent laboratory rather than
assume the expense and administrative burden of complying with these quality
standards.
Proposed legislation and regulations may ease the burden of
compliance with CLIA for POLs. CLIA 1988 already establishes categories of
laboratories for which compliance with the national standards will be waived.
New regulations make an exception for certain microscopy tests performed by
physicians for their own patients from certain provisions of the regulations.
Moreover, in April 1995, House Ways and Means Committee Chairman Bill Archer
introduced H.R. 1386, the Clinical Laboratory Improvement Act Amendments of
1995, which would generally exempt POLs from CLIA 1988. Similar legislation (S.
877) has been introduced in the Senate. The last action on H.R. 1386 was its
referral to the House Commerce Committee. This legislation now has 129
cosponsors, including 12 Representatives from California. The last action on S.
877 was its referral to the Senate Labor and Human Resources Committee on May
26, 1995. If such legislation is passed, it would be expected that physicians
would operate POLs and not use independent clinical laboratories for testing,
which may adversely impact the business of the Reorganized Debtors. The American
Medical Association supports federal legislation which would repeal the
application of CLIA to POLs.
During the past year, HHS has also proposed or adopted various
rules which will ease some of the administrative burden of complying with CLIA.
On September 13, 1995, HHS proposed new criteria to categorize specific
laboratory tests as waived from
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certain requirements of CLIA. As a result, it is expected that more tests will
be approved for waiver for use by laboratories. On September 15, 1995, HHS
proposed a new subcategory of moderate procedures to be called accurate and
precise technology tests, which would be subject to less stringent requirements.
In addition, under the Alternative Quality Assessment Survey, HCFA has extended
the period between CLIA on-site surveys to four years with self-assessments in
certain situations where the laboratory has received good results from an
on-site survey. These developments would be helpful to POLs in reducing the
administrative burden of complying with CLIA.
5. CLIA ENFORCEMENT
HCFA will enforce its regulations by periodic, often
unannounced, inspections. Laboratories subject to these regulations also have to
process certain proficiency testing samples to ensure that the laboratory
properly performs testing. The Debtors have passed all such proficiency tests to
date. Currently, any failure to pass an inspection or meet the requirements of
the proficiency testing program could result in denial or cancellation of the
laboratory's approval to receive Medicare payments and/or the suspension,
revocation, or limitation of its license to engage in interstate commerce. Any
of these failures could result in the laboratory's losing its right to perform
certain types of testing, cancellation of the laboratory's approval to receive
Medicare payments for its services, or its being subjected to civil money
penalties, on-site monitoring or a plan of correction.
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The OIG Work Plan for 1996 provides that the OIG will
determine how HCFA is enforcing CLIA and any recommendations for improvements.
At HCFA's request, the OIG will assess the extent to which cytotech workload
records may be falsified and the reliability of procedures in workload
recordkeeping.
6. PROPOSED EXEMPTION FROM CLIA FOR CALIFORNIA
Under CLIA, states may be granted an exemption if a state's
licensure program and accreditation/licensure process are equal to or more
stringent than those of CLIA. Currently only two states, Washington and Oregon,
have been granted a CLIA exemption for all of their laboratories. In August
1995, New York was granted a CLIA exemption for all but its POLs.
California's Department of Health Services submitted an
application to HCFA in late spring of 1996 for a CLIA exemption. As of November
of 1996, California was still waiting to see if its application would be
approved. A decision is expected by the end of the year. If California is
granted an exemption, clinical laboratories would need to meet only California
standards, not those standards set by CLIA.
7. CERTIFICATION AND LICENSES
The federal government and the State of California impose
various certification and licensure obligations on clinical laboratory companies
such as the Reorganized Debtors. The applicable certification and licensure
programs establish standards for the day-to-day operation of a clinical
laboratory including, among other things, the training and skills required of
personnel and quality control. Compliance with such standards is verified by
periodic inspections by inspectors representing
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the appropriate federal or state regulatory agencies. In addition, federal and
state law mandates proficiency testing, which involves testing of control and
comparison of actual results with established standards. The Debtors believe
they have all federal and state licenses, certifications and permits necessary
to conduct their business as a clinical laboratory. The Reorganized Debtors'
laboratories will continue to be certified under the Medicare and Medi-Cal
programs as well as under CLIA 1988. Licensure will also be maintained for the
Reorganized Debtors' laboratories under the laws of the State of California.
8. OTHER REGULATIONS
Infectious Waste. Certain federal and state laws govern the
handling and disposal of infectious and hazardous wastes. Although the Debtors
believe that they are currently in compliance in all material respects with such
federal and state laws, failure to comply could subject the Reorganized Debtors
to fines, criminal penalties and/or other enforcement actions.
Protection of Workers. Pursuant to the Federal Occupational
Safety and Health Act, laboratories have a general duty to provide a workplace
to their employees that is safe from hazard. Over the past years, the
Occupational Safety and Health Administration ("OSHA") has issued rules relevant
to certain hazards that are found in the laboratory. In addition, OSHA has
adopted regulations applicable to protection of workers from blood-borne
pathogens. Failure to comply with any final standard relating to blood-borne
pathogens, other applicable OSHA rules or with the general duty to provide a
safe workplace could subject
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an employer, including a laboratory employer, to substantial fines and
penalties. The Debtors believe that they are in compliance in all material
respects with applicable OSHA requirements.
9. HEALTH CARE REFORM
The entire health care industry is undergoing significant
change. While all third party payors are attempting to increase their control
over the cost, utilization and delivery of health care services, budgetary
pressure on the federal and state governments has led to calls for significant
cutbacks in reimbursement under the Medicare and Medicaid programs. Reductions
in the reimbursement rates of other third-party payors are also occurring. Many
of the laws discussed above continue to be subject to change under proposed
legislation. The Debtors cannot predict the effect health care reform or changes
in reimbursement practices may have on the Reorganized Debtors' business if
enacted or implemented, and there can be no assurance that such reforms or
practice changes would not have a material adverse effect on the Reorganized
Debtors.
10. COST CONTAINMENT PROGRAMS
(a) Medicare/Medi-Cal Reimbursement
Fees for laboratory testing services to be reimbursed by
Medicare or Medi-Cal are required to be billed to Medicare or Medi-Cal directly
and the provider is required to accept Medicare or Medi-Cal reimbursement as
payment in full. In 1984, Congress established a reimbursement fee schedule for
clinical laboratory testing performed for Medicare beneficiaries (excluding
hospital in-patients). State Medicaid programs are prohibited from paying
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more than the amount stipulated by the Medicare fee schedule for testing on
behalf of Medicaid beneficiaries. When initially established, the Medicare fee
schedules were set at 60% of prevailing local charges. Medicare reimbursement
rates for clinical laboratory testing have subsequently been reduced several
times pursuant to Congressional mandate. A ceiling on payments to laboratories,
commonly referred to as the "national cap" amount, became effective in 1986. The
national cap was initially set at 115% of the nationwide median of local fee
schedule rates for each test. Effective April 1, 1988, January 1, 1990, and
January 1, 1991, the national cap was reduced to 100%, 93% and 88%,
respectively, of the local fee schedule medians. The Omnibus Budget
Reconciliation Act of 1993 reduced the national cap for 1994, 1995, 1996 and
thereafter to 84%, 80% and 76%, respectively of the local fee schedule medians.
In addition, for approximately 25 commonly performed tests, the fee schedules
were reduced by 8.3% on April 1, 1988. The reductions in Medicare reimbursement
rates described above have been offset to some extent by increases in both the
national cap and local fee schedules tied to the Consumer Price Index ("CPI").
Laboratory fee increases tied to the CPI have been limited to 2% for each of the
years 1991, 1992 and 1993, and were eliminated entirely for fiscal 1994 and 1995
but were reinstated for 1996. The effect of reduced reimbursement rates on the
Debtors' revenues to date has been significant, and will continue to effect the
revenues of the Reorganized Debtors.
In November of 1994, HCFA issued a proposal to change Medicare
policies concerning reimbursement for blood chemistry
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profiles. The proposed changes would expand the list of tests that are
considered to be parts of automated panels. If adopted, such a proposal could
have an adverse effect on the Reorganized Debtors' revenues. Another proposed
change would require laboratories performing certain automated blood chemistry
profiles to obtain and document the medical necessity of each test included in
each profile test performed for a Medicare beneficiary. If such a requirement
were to be implemented, the Reorganized Debtors (and laboratories generally)
would incur significant additional costs associated with compliance. In
addition, such a change could result in more unreimbursed testing, since the
necessary information may not always be available from physicians to permit the
Reorganized Debtors to file valid claims with Medicare. The Debtors cannot
predict when or if these proposals will be adopted. If enacted, such provisions
could have a material adverse effect on the Reorganized Debtors.
DHS has asserted in a number of laboratory audits that the
Medi-Cal program is required to pay no more for testing than the lowest amount
which a laboratory charges any of its physician customers. A California
appellate court recently upheld this position. DHS has not made such a challenge
to the Debtors to date. Because the Debtors' payments from the Medi-Cal program
do not substantially exceed their charges to physicians, the Debtors do not
expect that the financial results of the Reorganized Debtors would be adversely
affected as a result of a successful assertion of this position by DHS.
Reimbursement received by the
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Debtors from the Medi-Cal program represented approximately 11% of the Debtors'
net revenue during its last fiscal year.
(b) Proposed Changes to Medicare/Medi-Cal
Reimbursement
Several proposals have been made in recent years which could
reduce the level of Medicare reimbursement received by the Reorganized Debtors.
In October 1996, under pressure from physicians and health
industry manufacturers, HCFA retreated from a directive that would have resulted
in lower Medicare payments for clinical laboratory tests that are not subject to
regulation under CLIA. The agency is continuing to study the issue and may issue
such regulations in the future for these procedures. The American Medical
Association opposes the change since many POLs perform waived tests, which do
not require certification under CLIA. These changes could lead to a lower level
of reimbursement for the Reorganized Debtors for waived tests; however, it will
impact POLs disproportionately since they are often unwilling to go to the
expense to become certified under CLIA in order to perform nonexempt tests.
A recent General Accounting Office ("GAO") Report would seek
to equalize profit rates on laboratory services provided to Medicare
beneficiaries and all other patients. The GAO concluded from its study that
Medicare payment policies overcompensate clinical laboratories because they
provide profit rates from Medicare which substantially exceed the laboratories'
overall profit rates. In January 1990, and again in January of 1995, the OIG
called for legislation that would permit Medicare to receive
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the benefit of discounts furnished to physicians and other so-called "wholesale"
accounts.
Another set of proposals, if enacted, would reimburse clinical
laboratory testing services as part of a larger "bundle" of healthcare services.
An October 1990 OIG monograph concluded that elimination of separate Medicare
reimbursement for clinical laboratory testing would reduce Medicare
expenditures. Under the OIG's "laboratory roll in" proposal, physicians would be
reimbursed an additional amount for each office visit they had with a Medicare
beneficiary. The physician would be responsible for paying for the laboratory
services out of this sum, and would presumably seek favorable pricing
arrangements. In addition, Congress has directed HHS to study and report on the
advisability of adopting certain "bundled" payment systems for reimbursement of
services provided by hospital outpatient departments. These payment systems
could be applied to other outpatient sites, including independent clinical
laboratories, at some point in the future. HCFA has also proposed restricting
Medicare coverage of diagnostic tests to those ordered by the physician treating
the patient.
In May 1995 a conflict arose between the California Medi-Cal
program and the OIG. The OIG found that Medi-Cal had overpaid providers $8
million in 1993 and 1994 and recommended that Medi-Cal recover the overpayments
from providers. The state agency disagreed, responding that it was not required
to follow Medicare guidelines. HHS holds that the Medicaid program must observe
Medicare rules governing reimbursement of clinical diagnostic laboratory
services, including schemes for bundling
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tests into automated panels. If this dispute is resolved in HHS's favor, and
bundling and other Medicare guidelines are adopted in California, it could have
a material adverse effect on the Reorganized Debtors' net revenue.
DHS has discussed negotiated laboratory service contracting
for the Medi-Cal program as a means of reducing MediCal expenditures for
laboratory testing. For many testing procedures, a laboratory holding such a
contract would be the only laboratory in its area that Medi-Cal would
compensate. Non-contracting laboratories could still perform and receive
compensation only for those tests not included within the contracting program.
California currently has the statutory authority to implement such a program,
but has not done so. On April 2, 1993, DHS released its revised Strategic Plan
for MediCal Managed Care to expand managed care access to Medi-Cal
beneficiaries. Under this plan, DHS would contract with only two managed care
plans for each of specified regions of the state. A pilot program is currently
in place in Sacramento County, and in 13 additional counties. It is unclear how
Medi-Cal managed care will affect the Reorganized Debtors. However, the
Reorganized Debtors' fee-for-service business has always made a higher
contribution to its operating margins than its managed care business.
Medicare/Medi-Cal reimbursement accounted for approximately
30% of the Debtors' net revenue in fiscal year 1996, and a substantial reduction
in Medicare/Medi-Cal payments to the Reorganized Debtors could have a material
adverse effect on their operating results.
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Non-Governmental Efforts. In an effort to control costs,
non-governmental health care payors may implement cost containment programs
which could adversely affect the Reorganized Debtors' net revenue. For example,
persons enrolled in prepaid health care plans often do not have free choice as
to where they obtain laboratory services. Rather, the health plan may provide
laboratory services directly or contract with laboratories at favorable rates
and require its enrollees to obtain service only from such contracted
laboratories. Some insurance companies and self-insured employers also limit
service to contracted laboratories. To the extent such "closed" payment systems
become more common in the future and payors operate their own laboratories or
the Reorganized Debtors are unable to obtain contracts to provide service or
must discount its services to obtain such contracts, the Reorganized Debtors'
results of operations could be materially adversely affected. In fiscal 1996, 6%
of the Debtors' net revenue was derived from closed payment systems.
X.
ACCEPTANCE AND CONFIRMATION OF THE PLAN
The Bankruptcy Code requires that, to confirm the Plan, the
Bankruptcy Court must make a series of findings concerning the Plan and the
Debtors, including that (A) the Plan has classified Claims and Interests in a
permissible manner, (B) the Plan complies with applicable provisions of the
Bankruptcy Code, (C) the Debtors have complied with applicable provisions of the
Bankruptcy Code, (D) the Proponents have proposed the Plan in
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good faith and not by any means forbidden by law and (E) the disclosure required
to be made by section 1125 of the Bankruptcy Code has in fact been made. The
Debtors believe that all of these conditions will have been met by the date of
the Confirmation Hearing described below and will seek rulings of the Bankruptcy
Court to such effect at that hearing.
The Bankruptcy Code also requires that the Plan be accepted by
the requisite votes of creditors (except to the extent that cramdown is
available under section 1129(b) of the Bankruptcy Code), that the Plan be
feasible (that is, that there be a reasonable prospect the Reorganized Debtors
will be able to perform their obligations under the Plan and operate their
business without the need for further financial reorganization) and that the
Plan be in the "best interests" of all holders of Claims or Interests in an
impaired class (that is, that creditors and equity security holders will receive
at least as much pursuant to the Plan as they would receive or retain in a
chapter 7 liquidation). To confirm the Plan, the Bankruptcy Court must find that
all of these conditions are met. Thus, even if the Debtors' creditors and equity
security holders accept the Plan by the requisite votes, the Bankruptcy Court
must make independent findings concerning the Plan's feasibility and whether it
is in the best interests of the Debtors' creditors and equity security holders
before it may confirm the Plan. The voting requirements and statutory conditions
to confirmation are discussed below.
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A. ACCEPTANCE OF THE PLAN
As a condition to Confirmation, the Bankruptcy Code requires
that each class of impaired claims or interests vote to accept the Plan, except
under certain circumstances. See "Overview of the Plan -- Voting Procedures and
Requirements" and "-- Confirmation Without Acceptance of All Impaired Classes."
A plan is accepted by an impaired class of claims if holders of at least
two-thirds in dollar amount and more than one-half in number of claims of that
class vote to accept the plan. A plan is accepted by an impaired class of
interests if holders of at least two-thirds of the number of shares in such
class vote to accept the plan. Only those holders of claims or interests who
actually vote count in these tabulations. Holders of claims who fail to vote are
not counted as either accepting or rejecting a plan or for purposes of
determining the number of votes or amount of claims and interests required to
accept a plan.
In addition to this voting requirement, section 1129 of the
Bankruptcy Code requires that a plan be accepted by each holder of a claim or
interest in an impaired class or that the plan otherwise be found by the
bankruptcy court to be in the best interests of each holder of a claim or
interest in such class. See "-- Best Interests Test." Also, each impaired class
must accept the plan for the plan to be confirmed without application of the
"fair and equitable" and "unfair discrimination" tests in section 1129(b) of the
Bankruptcy Code discussed below.
B. CONFIRMATION WITHOUT ACCEPTANCE OF ALL IMPAIRED CLASSES
The Bankruptcy Code contains provisions for Confirmation of
the Plan even if the Plan is not accepted by all
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impaired classes, as long as at least one impaired Class of Claims, not counting
insiders of the Debtors, has accepted it. These so-called "cramdown" provisions
are set forth in section 1129 of the Bankruptcy Code.
A plan may be confirmed under the cramdown provisions if, in
addition to satisfying all other requirements of section 1129(a) of the
Bankruptcy Code, it (1) "does not discriminate unfairly" and (2) is "fair and
equitable," with respect to each class of Claims or Interests that is impaired
under, and has not accepted, the Plan. As used by the Bankruptcy Code, the
phrases "discriminate unfairly" and "fair and equitable" have specific meanings
unique to bankruptcy law.
In general, the cramdown standard requires that a dissenting
class receive full compensation for its allowed claims or interests before any
junior class receives any distribution. More specifically, section 1129(b) of
the Bankruptcy Code provides that a plan can be confirmed if: (1) with respect
to a class of unsecured claims, either (a) each impaired unsecured creditor in
such class will receive property of a value equal to the amount of its allowed
claim or (b) the holders of claims and interests that are junior to the claims
of the dissenting class will not receive any property under the plan; or, (2)
with respect to a class of interests, either (a) each holder of an interest of
such class will receive or retain on account of such interest property of a
value equal to the greater 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
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interest that is junior to the interest of such class will not receive or retain
any property on account of such junior interest.
The requirement that a plan not "discriminate unfairly" means,
among other things, that a dissenting class must be treated substantially
equally with respect to other classes of equal rank. The "fair and equitable"
standard, also known as the "absolute priority rule," requires, among other
things, that unless a dissenting unsecured class of claims or interests receives
full compensation for its allowed claims or allowed interests, no holder of
claims or interests in any junior class may receive or retain any property on
account of such claims or interests. With respect to a dissenting class of
secured claims, the "fair and equitable" standard requires, among other things,
that holders of such Secured Claims either (1) retain their liens and receive
deferred cash payments with a value as of the plan's effective date equal to the
value of their interest in property of the estate or (2) otherwise receive the
indubitable equivalent of these secured claims. The "fair and equitable"
standard has also been interpreted to prohibit any class senior to a dissenting
class from receiving under a plan more than 100% of its allowed claims.
In the event that any impaired Class is determined to have
rejected the Plan in accordance with section 1126 of the Bankruptcy Code, the
Debtors may seek to confirm the Plan as to any such Class under the cramdown
provisions of section 1129 of the Bankruptcy Code. Alternatively, the Debtors
may modify or revoke the Plan in accordance with Sections 13.2 or 13.3 of the
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Plan. In addition, the Plan and this Disclosure Statement will
be deemed to be a solicitation to the holders of New Senior Notes
for approval of the New Registration Rights Agreement, and the
approval of the Plan and the entry of the Confirmation Order will
be deemed to constitute approval of such agreement for purposes
of compliance with Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended, if, and only if, the Plan has
been approved by holders of Class 2 Claims.
C. BEST INTERESTS TEST
Notwithstanding acceptance of the Plan by each impaired class,
for the Plan to be confirmed, the Bankruptcy Court must determine that the Plan
is in the best interests of each holder of a Claim or Interest who is in an
impaired Class and has not voted to accept the Plan. Accordingly, if an impaired
class does not unanimously accept the Plan, the best interests test requires the
Bankruptcy Court to find that the Plan provides to each member of such impaired
Class a recovery on account of the Class member's Claim or Interest that has a
value, as of the Effective Date, at least equal to the value of the distribution
that each such member would receive if the Debtors were liquidated under chapter
7 of the Bankruptcy Code on such date.
To estimate what members of each impaired Class of unsecured
creditors and equity security holders would receive if the Debtors were
liquidated, the Bankruptcy Court must first determine the aggregate dollar
amount that would be generated from the Debtors' assets if the chapter 11 cases
were converted to chapter 7 cases under the Bankruptcy Code and the assets were
liquidated by a trustee in bankruptcy (the "Liquidation Value").
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The Liquidation Value would consist of the net proceeds from the disposition of
the assets of the Debtors and would be augmented by any cash held by the
Debtors.
The Liquidation Value of the Debtors' assets available to
general creditors would be reduced by the costs and expenses of the liquidation,
as well as other administrative expenses of the Debtors' Estates. The Debtors'
costs of liquidation under chapter 7 would include the compensation of a trustee
or trustees, as well as counsel and other professionals retained by the trustee,
disposition expenses, all unpaid expenses incurred by the Debtors during the
Chapter 11 Cases (such as compensation for attorneys and accountants) that are
allowed in the chapter 7 proceedings, litigation costs and claims against the
Debtors arising from their business operations during the pendency of the
Chapter 11 Cases and chapter 7 liquidation proceedings. These costs, expenses
and claims would be paid in full out of the Debtors' liquidation proceeds before
the balance would be made available to pay creditors. In a chapter 7
liquidation, the distinctions between Claims in Classes 2 and 3 and Classes 5
and 6 would be eliminated.
Once the percentage recoveries in liquidation of priority
claimants, secured creditors, general unsecured creditors and equity security
holders are ascertained, the value of the distribution available out of the
Liquidation Value is compared with the value of the property offered to each of
the classes of Claims and Interests under the Plan to determine if the Plan is
in the best interests of each creditor and equity security holder class.
Attached hereto as Exhibit V is a
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<PAGE> 159
Comparative Analysis of the Plan versus Liquidation (the "Liquidation
Analysis"), which was compiled by Ernst & Young, the Debtors' accountants and
financial advisors. The estimates of liquidation values set forth in the
Liquidation Analysis are based primarily on estimates provided by the Debtors
and compiled by Ernst & Young. Specifically, the Debtors estimate that in a
forced liquidation of the Debtors' assets, holders of Claims against the
Debtors, other than certain Administrative Claims and Secured Claims, would
receive no distribution. Reference is made to the Liquidation Analysis for a
description of the procedures followed, the factors considered and the
assumptions and qualifications used in the preparation thereof.
In contrast, the Plan provides for payment in full of all
Administrative Claims, Priority Tax Claims and Other Priority Claims. The Plan
also provides for an estimated recovery by all creditors and equity security
holders. See "Overview of the Plan -- Summary of Classes and Treatment of Claims
and Interests."
Due to the numerous uncertainties and time delays associated
with liquidation under chapter 7 of the Bankruptcy Code, it is not possible to
predict with certainty the outcome of any chapter 7 liquidation of the Debtors
or the timing of any distribution to creditors. However, as the Liquidation
Analysis and the foregoing discussion demonstrate, the Debtors have concluded
that a complete liquidation of the Debtors under chapter 7 of the Bankruptcy
Code would result in a lesser distribution to creditors and shareholders than
that provided for in the Plan.
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D. FEASIBILITY
Section 1129(a)(11) of the Bankruptcy Code requires that the
Reorganized Debtors be able to perform their obligations under the Plan and that
confirmation is not be likely to be followed by the liquidation, or the need for
further financial reorganization, of the Debtors, the Reorganized Debtors or any
successor to the Debtors or the Reorganized Debtors. For purposes of determining
whether the Plan meets this requirement, the Proponents analyzed the Reorganized
Debtors' future prospects and their ability to meet their obligations under the
Plan. The Debtors believe that the Reorganized Debtors will be able to meet
their obligations under the Plan and that Confirmation will likely not be
followed by the liquidation or further financial reorganization of the
Reorganized Debtors.
The feasibility of the Plan is demonstrated by the forecasted
financial statements described in the attached Exhibit IV. These forecasted
financial statements project the Debtors' financial position as of the Effective
Date and for the period through ___________ __, ____. The forecasted financial
statements are based upon assumptions that, when considered on an overall basis
for the indicated forecast period, are considered reasonable by the Debtors.
E. COMPLIANCE WITH THE APPLICABLE PROVISIONS OF THE BANKRUPTCY CODE
Section 1129(a)(1) of the Bankruptcy Code requires that the
Plan comply with the applicable provisions of the Bankruptcy Code. During the
course of negotiations among the Debtors, their creditor constituencies and
their representatives, various legal
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issues, including Claim classification and treatment issues, were raised. The
Debtors have carefully considered each of these issues in the development and
formulation of the Plan and believe that the Plan complies with all applicable
provisions of the Bankruptcy Code.
F. CONFIRMATION HEARING
The Bankruptcy Code requires the Bankruptcy Court, after
notice, to hold a hearing to determine whether the Plan and the Debtor have
fulfilled the Confirmation requirements of section 1129 of the Bankruptcy Code.
The Confirmation hearing has been scheduled for _________, 1997, at __:__ _.m.,
Pacific Daylight Time, before The Honorable Geraldine Mund, United States
Bankruptcy Court, Central District of California, 21041 Burbank Boulevard,
Woodland Hills, California 91367. The Confirmation hearing may be adjourned from
time to time by the Bankruptcy Court without further notice, except for an
announcement of the adjourned Confirmation hearing date made at the Confirmation
hearing.
Any objections to confirmation of the Plan must be made in
writing, and filed with the Bankruptcy Court and served upon the following on or
before ___________, 1997:
PHYSICIANS CLINICAL LABORATORY, INC.
2495 Natomas Park Drive, Suite 600
Sacramento, California 95833
Attn: J. Marvin Feigenbaum
with a copy to:
JONES, DAY, REAVIS & POGUE
77 West Wacker Drive
Chicago, Illinois 60601-1692
Attn: David S. Kurtz, Esq.
Timothy R. Pohl, Esq.
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and
JONES, DAY, REAVIS & POGUE
555 West Fifth Street, Suite 4600
Los Angeles, California 90013-1025
Attn:
Robert Dean Avery, Esq.
Susanne Meline, Esq.
and
PACHULSKI, STANG, ZIEHL & YOUNG
Century City North Building
10100 Santa Monica Boulevard, Suite 1100
Los Angeles, California 90067
Attn: Jeremy V. Richards, Esq.
and
MILBANK, TWEED, HADLEY & McCLOY
601 South Figueroa Street, 13th Floor
Los Angeles, California 90017-5735
Attn: David C.L. Frauman, Esq.
and
Office of the United States Trustee
221 North Figueroa Street
Los Angeles, California 90071
Attn: Ronald Maroko
and
ANDREWS & KURTH, L.L.P.
601 South Figueroa, Suite 4200
Los Angeles, California 90017
Attn: David W. Meadows, Esq.
XI.
ADDITIONAL INFORMATION
PCL is subject to the information requirements of the Exchange
Act and in accordance therewith files reports and other information with the
Commission. Such reports and other information so filed can be inspected and
copied at the Public Reference Room of the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549 and at the public reference facilities
maintained by the Commission at 7 World Trade Center,
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13th Floor, New York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials can also
be obtained at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission
maintains a web site on the Internet that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission and that is located at "http://www.sec.gov."
Any statements contained herein concerning the provisions of
any document are not necessarily complete, and in each instance reference is
made to the copy of such document for the full text thereof. Each such statement
is qualified in its entirety by such reference. Certain documents referred to
herein have not been attached as exhibits because of the impracticability of
furnishing copies thereof to all of the Debtor's creditors and equity security
holders. All of the Exhibits to the Plan and to this Disclosure Statement are
available for inspection at the offices of Physicians Clinical Laboratory, Inc.,
2495 Natomas Park Drive, Suite 600, Sacramento, California 95833. To review such
Exhibits, contact Richard M. Brooks, Chief Financial Officer.
XII.
RECOMMENDATION AND CONCLUSION
For all of the reasons set forth in this Disclosure Statement,
the Debtors believe that the Confirmation and consummation of the Plan is
preferable to all other alternatives.
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Consequently, the Debtors urge all Holders of Claims and Interests to vote to
ACCEPT the Plan, and to duly complete and return their ballots such that they
will be ACTUALLY RECEIVED on or before __:00 p.m. Pacific Daylight Time on
_________, 1997.
Los Angeles, California
December ___, 1996
Respectfully submitted,
PHYSICIANS CLINICAL LABORATORY,
INC.,
a Delaware corporation
By:
----------------------------
[NAME]
[TITLE]
QUANTUM CLINICAL LABORATORIES,
INC.,
a California corporation
By:
---------------------------
[NAME]
[TITLE]
DIAGNOSTIC LABORATORIES, INC.,
a California corporation
By:
---------------------------
[NAME]
[TITLE]
REGIONAL REFERENCE LABORATORY
GOVERNING CORPORATION,
a California corporation
By:
---------------------------
[NAME]
[TITLE]
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CALIFORNIA REGIONAL REFERENCE
LABORATORY,
a California limited partnership
By:
----------------------------
[NAME]
[TITLE]
COUNSEL:
David S. Kurtz
Timothy R. Pohl
JONES, DAY, REAVIS & POGUE
77 West Wacker Drive Chicago, Illinois 60601-1692
(312) 782-3939
Robert Dean Avery
Susanne Meline
JONES, DAY, REAVIS & POGUE
555 West Fifth Street, Suite 4600
Los Angeles, California 90013-1025
(213) 489-3939
PROPOSED ATTORNEYS FOR THE DEBTORS
AND DEBTORS IN POSSESSION
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TABLE OF CONTENTS
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I. INTRODUCTION......................................................................................... 1
II. OVERVIEW OF THE PLAN................................................................................. 4
A. Summary of Classes and Treatment of Claims and
Interests................................................................................... 4
B. Prepetition Plan Negotiations and The Voting
Condition................................................................................... 13
C. Voting Procedures and Requirements.......................................................... 17
1. Persons Entitled to Vote on the Plan............................................... 17
2. Voting Instructions................................................................ 19
III. GENERAL BACKGROUND................................................................................... 21
A. Corporate Structure of the Debtors.......................................................... 21
B. Description of the Debtors' Prepetition Business
........................................................................................... 21
1. General............................................................................ 21
2. Laboratory Testing Services........................................................ 21
3. Laboratory Operations.............................................................. 24
4. Clients and Payors................................................................. 25
5. Sales and Marketing................................................................ 26
C. Description of the Debtors' Prepetition
Financing Facility.......................................................................... 27
D. Prepetition Management and Board of Director
Changes..................................................................................... 28
E. Selected Historical Financial Information................................................... 28
F. Events Leading to Chapter 11 Filing......................................................... 31
G. Prepetition Business Restructuring Efforts.................................................. 34
IV. THE CHAPTER 11 CASES................................................................................. 35
A. Commencement of the Chapter 11 Cases........................................................ 35
B. Parties in Interest in the Chapter 11 Cases................................................. 35
1. The Bankruptcy Court............................................................... 35
2. Retention of Professionals......................................................... 36
3. The Official Committee of Unsecured
Creditors.......................................................................... 36
C. Cash Collateral and Debtor in Possession
Financing................................................................................... 37
D. Breakup/Overbid Protections................................................................. 40
E. The Debtors' Ongoing Business Restructuring................................................. 41
F. Employee Matters............................................................................ 41
G. Bar Date, Dispute Resolution Procedure and Other
Claim Matters............................................................................... 41
V. GENERAL INFORMATION CONCERNING THE PLAN.............................................................. 42
A. Classification and Treatment of Claims and
Interests................................................................................... 42
B. Treatment and Description of Unclassified Claims
........................................................................................... 43
1. Administrative Claims.............................................................. 43
2. Priority Tax Claims................................................................ 45
3. DIP Financing Facility Claims...................................................... 46
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C. Sources of Cash to Make Plan Distributions.................................................. 47
D. Release of Liens............................................................................ 47
E. Preservation of Rights of Action by the Debtors
and the Reorganized Debtors; Releases....................................................... 47
1. Preservation of Rights of Action................................................... 47
2. Releases by the Debtors............................................................ 48
3. Releases by Holders of Claims or Interests......................................... 50
(a) Holders of Claims.......................................................... 50
(b) Holders of Interests....................................................... 51
(c) Release of Official Committee.............................................. 52
(d) Sutter Guaranty............................................................ 52
4. Injunction Related to Releases..................................................... 53
F. Executory Contracts and Unexpired Leases.................................................... 53
1. Assumptions of Contracts........................................................... 53
2. Cure of Defaults in Connection with
Assumption......................................................................... 54
3. Rejections......................................................................... 55
4. Bar Date for Rejection Damages..................................................... 55
G. Special Executory Contract and Unexpired Lease
Matters..................................................................................... 56
H. Executory Contracts and Unexpired Leases Entered
Into and Other Obligations Incurred After the
Petition Date............................................................................... 56
I. Conditions Precedent to Confirmation and
Consummation of the Plan.................................................................... 57
1. Conditions to Confirmation......................................................... 57
2. Conditions to Effective Date....................................................... 57
J. Legal Effects of the Plan................................................................... 59
1. Discharge of Claims and Termination of
Interests.......................................................................... 59
2. Injunctions........................................................................ 60
3. Termination of Subordination Rights and
Settlement of Related Claims and
Controversies...................................................................... 62
K. Limitation of Liability in Connection with the
Plan, Disclosure Statement and Related Documents
and Related Indemnity....................................................................... 63
L. Modification or Revocation of the Plan;
Severability................................................................................ 64
M. Retention of Bankruptcy Court Jurisdiction.................................................. 65
VI. DISTRIBUTIONS UNDER THE PLAN......................................................................... 68
A. Procedures Governing Distributions under the
Plan........................................................................................ 68
1. Distributions for Claims and Interests
Allowed as of the Effective Date................................................... 68
2. Distributions by Disbursing Agents and the
Indenture Trustee.................................................................. 69
3. Indenture Trustee.................................................................. 69
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B. Timing and Calculation of Amounts to be
Distributed................................................................................. 70
1. In General......................................................................... 70
2. Distributions to Holders of Claims in
Class 5............................................................................ 70
3. Distributions of Common Stock...................................................... 71
4. Distributions of New Senior Notes.................................................. 72
5. Distributions of New Warrants...................................................... 72
6. Compliance with Tax Requirements................................................... 73
C. Distribution Record Date.................................................................... 74
D. Surrender of Cancelled Debt Instruments or
Securities.................................................................................. 74
E. Delivery of Distributions and Undeliverable or
Unclaimed Distributions..................................................................... 77
F. Prosecution of Objections to Claims and
Interests................................................................................... 79
G. Disputed Claims............................................................................. 80
1. Treatment of Disputed Claims or Interests.......................................... 80
2. Resolution or Estimation of Claims................................................. 80
3. Distributions on Account of Disputed Claims
or Interests Once They Are Allowed................................................. 81
H. Setoffs..................................................................................... 81
VII. DESCRIPTION OF PROPERTY TO BE DISTRIBUTED UNDER THE
PLAN................................................................................................. 82
A. New Credit Facility......................................................................... 82
B. New Securities.............................................................................. 83
1. Issuance of New Senior Notes....................................................... 83
2. Issuance of New Common Stock of PCL................................................ 85
3. Issuance of New Warrants........................................................... 86
4. The New Registration Rights Agreements............................................. 89
(a) Demand Rights.............................................................. 89
(b) Piggy-Back Rights.......................................................... 92
(c) Other...................................................................... 93
5. Applicability of Federal and Other
Securities Laws.................................................................... 94
(a) Bankruptcy Code Exemptions from
Registration Requirements and Transfer
Restrictions............................................................... 94
(1) Initial Offer and Sale of
Securities.......................................................... 94
(2) Subsequent Transfers Under Federal
Securities Laws..................................................... 95
(3) Subsequent Transfers Under State
Law................................................................. 98
(b) Certain Transactions by Stockbrokers....................................... 98
VIII. RISK FACTORS......................................................................................... 98
A. Risks Relating to the Projections........................................................... 99
B. Certain Risks Associated With the New Warrants.............................................. 100
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C. Absence of Public Market.................................................................... 100
D. Restricted Resale of Securities Distributed
Under the Plan.............................................................................. 100
E. Dividend Restrictions....................................................................... 101
F. Risks Associated With Acquisitions.......................................................... 101
G. Role of Managed Care........................................................................ 102
H. Capitation Risk............................................................................. 103
I. Management Information Systems.............................................................. 103
J. Litigation and Liability Insurance Coverage................................................. 104
K. Government Regulation....................................................................... 104
IX. THE REORGANIZED DEBTORS.............................................................................. 105
A. Continued Corporate Existence............................................................... 105
B. Management of The Reorganized Debtors....................................................... 106
1. Board of Directors................................................................. 106
2. Shareholders Agreement............................................................. 108
3. Board Committees................................................................... 108
(a) Compensation Committee..................................................... 109
(b) Audit Committee............................................................ 109
4. Director Compensation.............................................................. 109
(a) Chairman of the Board...................................................... 110
(b) Other Director Compensation................................................ 110
5. Executive Officers and Executive
Compensation....................................................................... 110
(a) Executive Officers......................................................... 110
(b) Executive Officer Compensation............................................. 111
6. Benefit Plans and Agreements....................................................... 111
(a) Section 401(k) Plan........................................................ 111
(b) Other Benefit Plans........................................................ 113
(c) Employment Contracts....................................................... 113
7. Corporate Governance............................................................... 113
8. Limitation of Liability; Indemnification;
Director and Officer Insurance..................................................... 118
C. Long-Term Business Plan and Projected Financial
Information................................................................................. 123
D. Government Regulation....................................................................... 123
1. The Stark Bill and Other Restrictions on
Self-Referral...................................................................... 123
2. Prohibitions on Mark-up of Laboratory
Services........................................................................... 127
3. Fraud and Abuse Laws............................................................... 128
4. Quality Assurance.................................................................. 132
5. CLIA Enforcement................................................................... 134
6. Proposed Exemption from CLIA for California
.................................................................................. 135
7. Certification and Licenses......................................................... 135
8. Other Regulations.................................................................. 136
9. Health Care Reform................................................................. 137
10. Cost Containment Programs.......................................................... 137
(a) Medicare/Medi-Cal Reimbursement............................................ 137
</TABLE>
iv
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
(b) Proposed Changes to Medicare/Medi-Cal
Reimbursement.............................................................. 140
X. ACCEPTANCE AND CONFIRMATION OF THE PLAN.............................................................. 143
A. Acceptance of the Plan...................................................................... 144
B. Confirmation Without Acceptance of All Impaired
Classes..................................................................................... 145
C. Best Interests Test......................................................................... 148
D. Feasibility................................................................................. 150
E. Compliance with the Applicable Provisions of the
Bankruptcy Code............................................................................. 151
F. Confirmation Hearing........................................................................ 151
XI. ADDITIONAL INFORMATION............................................................................... 153
XII. RECOMMENDATION AND CONCLUSION........................................................................ 155
</TABLE>
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<PAGE> 171
TABLE OF EXHIBITS
<TABLE>
<S> <C>
Exhibit I. Joint Plan of Reorganization of Physicians
Clinical Laboratory, Inc. and its Affiliated
Debtors (with selected exhibits)
Exhibit II. Annual Report on Form 10-K of Physicians Clinical
Laboratory, Inc. for the Fiscal Year Ended
February 29, 1996
Exhibit III. Quarterly Report on Form 10-Q of Physicians
Clinical Laboratory, Inc. for the Fiscal Quarter
Ended May 31, 1996
Exhibit IV. Projections*
Exhibit V. Liquidation Analysis
</TABLE>
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* To be Filed and made available not later than 25 days prior to the hearing
to consider whether the Disclosure Statement contains adequate information
with respect to the Plan, within the meaning of section 1125 of the
Bankruptcy Code.
vi
<PAGE> 1
EXHIBIT 2.4
David S. Kurtz, Esq.
Timothy R. Pohl, Esq.
JONES, DAY, REAVIS & POGUE
77 West Wacker
Chicago, Illinois 60601-1692
Telephone: (312) 782-3939
Telecopier: (312) 782-8585
Proposed Attorneys for Debtors
and Debtors in Possession
David C.L. Frauman, Esq. (State Bar No. 11140)
Eric Reimer, Esq. (State Bar No. 130789)
MILBANK, TWEED, HADLEY & McCLOY
601 South Figueroa Street, 30th Floor
Los Angeles, California 90017
Telephone: (213) 892-4000
Telecopier: (213) 629-5063
Attorneys for the Senior Lenders
Richard M. Pachulski, Esq. (State Bar No. 90073)
Jeremy V. Richards, Esq. (State Bar No. 102300)
PACHULSKI, STANG, ZIEHL & YOUNG P.C.
10100 Santa Monica Boulevard, Suite 1100
Los Angeles, California 90067
Telephone: (310) 277-6910
Telecopier: (310) 201-0760
Attorneys for Nu-Tech Bio-Med, Inc.
UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA
In re: ) Jointly Administered
) Case No. SV96-23185-GM
PHYSICIANS CLINICAL )
LABORATORY, INC., ) Chapter 11
a Delaware corporation, )
et al., ) JOINT PLAN OF REORGANIZATION OF
) Physicians Clinical Laboratory,
Debtors. ) Inc. and its Affiliated Debtors
) Date: ___________, 1997
) Time: ________ __.m.
) Place: Courtroom 303
) 21041 Burbank Blvd.
- --------------------------------------) Woodland Hills, CA 91367
<PAGE> 2
INTRODUCTION
Physicians Clinical Laboratory, Inc., a Delaware corporation, Quantum
Clinical Laboratories, Inc., a California corporation, Regional Reference
Laboratory Governing Corporation, a California corporation, Diagnostic
Laboratories, Inc., a California corporation, and California Regional Reference
Laboratory, a California partnership (collectively, the "Debtors"), the Senior
Lenders (as defined herein) and Nu-Tech (as defined herein) (the Debtors, the
Senior Lenders and Nu-Tech shall be referred to herein collectively as the
"Proponents") propose the following joint plan of reorganization for the
satisfaction of the Debtors' outstanding creditor claims and equity interests.
Reference is made to the Debtors' disclosure statement, distributed
contemporaneously with the Plan (the "Disclosure Statement"), for a discussion
of the Debtors' history, businesses, properties, results of operations and
projections for future operations, and for a summary and analysis of the Plan
and certain related matters. All holders of Claims against and Interests in the
Debtors are encouraged to read the Plan and the Disclosure Statement in their
entirety before voting to accept or reject the Plan. Subject to certain
restrictions and requirements set forth in the Plan, the Proponents reserve the
right to alter, amend, modify, revoke or withdraw the Plan prior to its
consummation.
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ARTICLE I.
DEFINED TERMS, RULES OF INTERPRETATION,
COMPUTATION OF TIME AND GOVERNING LAW
1.1 DEFINED TERMS
As used in the Plan, capitalized terms and phrases have the meanings
set forth below. Any term used in the Plan that is not defined herein, but that
is used in the Bankruptcy Code or the Bankruptcy Rules, shall have the meaning
assigned to that term in the Bankruptcy Code or the Bankruptcy Rules.
1.1.1 "ADMINISTRATIVE CLAIM" means a Claim for costs and expenses of
administration allowed under sections 503(b), 507(b) or 1114(e)(2) of the
Bankruptcy Code, including: (a) the actual and necessary costs and expenses
incurred after the Petition Date of preserving the Estate and operating the
businesses of the Debtors (such as wages, salaries or commissions for services
and payments for goods or other services); (b) compensation for legal, financial
advisory, accounting and other services and reimbursement of expenses awarded or
allowed under sections 330(a) or 331 of the Bankruptcy Code; (c) all fees and
charges assessed against the Estates under chapter 123 of title 28, United
States Code, 28 U.S.C. Sections 1911-1930; and (d) any sUCH Claim held by
an Affiliate arising on or after the Petition Date. Administrative Claims shall
not include any Claims relating to the DIP Financing Facility.
1.1.2 "AFFILIATE" means PCL or any corporation, limited liability
company or partnership in which PCL directly or indirectly owns 50% or more of
the equity interest of such entity.
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1.1.3 "AGENT" means OCM Administrative Services, LLC.
1.1.4 "ALLOWED CLAIM" means:
1.1.4.1 a Claim that has been listed by a Debtor in its
Schedules as other than disputed, contingent or unliquidated and as to
which a Debtor has not timely Filed an objection thereto;
1.1.4.2 a Claim that either is not a Disputed Claim or has
been allowed by a Final Order if a proof of Claim has been filed by the
Bar Date or has otherwise been deemed timely Filed under applicable
law;
1.1.4.3 a Claim that is allowed: (i) in any Stipulation of
Amount and Nature of Claim executed prior to the Confirmation Date and
approved by the Bankruptcy Court; (ii) in any Stipulation of Amount and
Nature of Claim executed on or after the Confirmation Date; or (iii) in
any contract, instrument, indenture or other agreement or document
entered into in connection with the Plan;
1.1.5 "ALLOWED . . . CLAIM" means an Allowed Claim in the particular
Class(es) or categories described.
1.1.6 "ALLOWED INTEREST" means an Interest: (a) that is registered as
of the Distribution Record Date in a stock register that is maintained by or on
behalf of a Debtor and (b) either (i) is not a Disputed Interest or (ii) has
been allowed by a Final Order.
1.1.7 "BALLOTS" means the ballots accompanying the Disclosure Statement
upon which holders of Impaired Claims or Impaired Interests entitled to vote on
the Plan shall indicate
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<PAGE> 5
their acceptance or rejection of the Plan in accordance with the Voting
Instructions.
1.1.8 "BANKRUPTCY CODE" means title 11 of the United States Code, as
now in effect or hereafter amended.
1.1.9 "BANKRUPTCY COURT" means the United States District Court having
jurisdiction over the Chapter 11 Cases and, to the extent of any reference made
pursuant to 28 U.S.C. Section 157, the bankruptcy unit of the District Court.
1.1.10 "BANKRUPTCY RULES" means, collectively, the Federal Rules of
Bankruptcy Procedure and the general and local rules of the Bankruptcy Court, as
now in effect or hereafter amended.
1.1.11 "BAR DATE" means the bar date for Filing proofs of Claim
established by an order of the Bankruptcy Court.
1.1.12 "BUSINESS DAY" means any day, other than a Saturday, Sunday or
"legal holiday" (as defined in Bankruptcy Rule 9006(a)).
1.1.13 "CRRL" means California Regional Reference Laboratory, a
California limited partnership.
1.1.14 "CAPITAL STOCK" means, collectively, the Old Common Stock, the
Old Stock Options and the Old Warrants.
1.1.15 "CASH" means cash and cash equivalents.
1.1.16 "CHAPTER 11 CASES" means, collectively, the cases commenced
under chapter 11 of the Bankruptcy Code by the Debtors.
1.1.17 "CLAIM" means a claim (as defined in section 101(5) of the
Bankruptcy Code) against any Debtor.
1.1.18 "CLASS" means a class of Claims or Interests, as described in
Article III below.
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<PAGE> 6
1.1.19 "CLASS 5 DISBURSEMENT ACCOUNT" means the account established for
the benefit of holders of Claims in Class 5, into which the Debtors shall
deposit $1.7 million in cash on the Effective Date, pursuant to Section 3.2.5
below.
1.1.20 "CONFIRMATION" means the entry of the Confirmation Order.
1.1.21 "CONFIRMATION DATE" means the date on which the Bankruptcy Court
enters the Confirmation Order on its docket, within the meaning of Bankruptcy
Rules 5003 and 9021.
1.1.22 "CONFIRMATION ORDER" means the order of the Bankruptcy Court
confirming the Plan pursuant to section 1129 of the Bankruptcy Code.
1.1.23 "DEBTORS" means, collectively, PCL, QCL, DLI, RRLGC and CRRL.
1.1.24 "DIP FINANCING FACILITY" means the postpetition credit facility
extended to the Debtors under section 364 of the Bankruptcy Code.
1.1.25 "DISBURSING AGENT" means Reorganized PCL, in its capacity as
Disbursing Agent, or any Third-Party Disbursing Agent.
1.1.26 "DISCLOSURE STATEMENT" means the Disclosure Statement of even
date herewith, as amended, modified or supplemented (and all exhibits or
schedules annexed thereto or referenced therein), which relates to the Plan, and
which shall be prepared and distributed in accordance with sections 1125 and
1126(b) of the Bankruptcy Code and Bankruptcy Rule 3018.
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<PAGE> 7
1.1.27 "DISPUTED CLAIM" means, for the purpose of receiving
distributions pursuant to the Plan:
1.1.27.1 a Claim as to which, if no proof of Claim has been
Filed by the Bar Date or has otherwise been deemed timely Filed under
applicable law and such Claim has been scheduled by a Debtor in its
schedule of liabilities as other than disputed, contingent or
unliquidated, the applicable Debtor has Filed an objection by the
Effective Date; or
1.1.27.2 a Claim as to which, if a proof of Claim has been
Filed by the Bar Date or has otherwise been deemed timely Filed under
applicable law, an objection has been timely Filed by the applicable
Debtor or any other party in interest and such objection has not been
withdrawn on or before any date fixed by the Plan or order of the
Bankruptcy Court for Filing such objections and such objection has not
been denied by a Final Order. For the purpose of receiving
distributions pursuant to the Plan, a Claim or Claims asserted in a
proof of Claim shall be considered a Disputed Claim in its entirety if
an objection is timely Filed to any portion of such Claim or Claims.
1.1.28 "DISPUTED INTEREST" means any Interest as to which a Debtor has
listed in its Schedules as disputed, interposed a timely objection or request
for estimation in accordance with the Bankruptcy Code and the Bankruptcy Rules
or any Interest otherwise disputed by a Debtor in accordance with applicable
law, which objection, request for estimation or dispute has not been withdrawn
or determined by a Final Order.
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<PAGE> 8
1.1.29 "DISTRIBUTION DATE" means the last Business Day of the calendar
quarter ending not less than 30 days following the Effective Date and the last
Business Day of each calendar quarter thereafter, through and including the
Final Distribution Date.
1.1.30 "DISTRIBUTION RECORD DATE" means the close of business on the
Business Day immediately preceding the Effective Date.
1.1.31 "DLI" means Diagnostic Laboratories, Inc., a California
corporation.
1.1.32 "EFFECTIVE DATE" means a Business Day, as determined by the
Debtors, that is as soon as reasonably practicable but that is at least 11 days
after the Confirmation Date and on which: (a) no stay of the Confirmation Order
is in effect and (b) all conditions to the Effective Date set forth in Section
9.2 below have been satisfied or waived (if available) pursuant to Section 9.3
below.
1.1.33 "EMPLOYMENT AGREEMENT" means the Employment Agreement to be
entered into on the Effective Date between Reorganized PCL and J. Margin
Feigenbaum, pursuant to which J. Marvin Feigenbaum shall be employed by
Reorganized PCL as chief executive officer.
1.1.34 "ESTATE" means, collectively, the estate created for each Debtor
in its Chapter 11 Case pursuant to section 541 of the Bankruptcy Code.
1.1.35 "EXCHANGE ACT" means the Exchange Act of 1934, as amended.
1.1.36 "EXISTING LENDER AGREEMENTS" means, collectively, the original
credit agreements, guaranties, letters of credit,
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<PAGE> 9
reimbursement agreements and other documents executed and/or agreements entered
into by each Debtor relating to the Senior Debt Claims, including, but not
limited to, those agreements listed in Exhibit E hereto.
1.1.37 "FILE," "FILED" OR "FILING" means file, filed or filing with the
Bankruptcy Court in the Chapter 11 Cases.
1.1.38 "FINAL DISTRIBUTION DATE" means the date the Disbursing Agent
makes a final distribution to holders of Allowed Claims and Interests as
provided in Articles VII and VIII below, which shall be a Business Day as soon
as practicable after the later of (a) the date all Disputed Claims have been
resolved by Final Order and (b) one year after the Effective Date.
1.1.39 "FINAL ORDER" means an order or judgment of the Bankruptcy
Court, or other court of competent jurisdiction, as entered on the docket in any
Chapter 11 Case, which has not been reversed, stayed, modified or amended, and
as to which the time to appeal or seek certiorari has expired, and no appeal or
petition for certiorari has been timely taken, or as to which any appeal that
has been or may be taken or any petition for certiorari that has been or may be
filed has been dismissed or resolved by the highest court to which the order or
judgment was appealed or from which certiorari was sought.
1.1.40 "IMPAIRED . . ." means, when used with reference to a Claim or
Interest, a Claim or Interest that is impaired within the meaning of section
1124 of the Bankruptcy Code.
1.1.41 "INDENTURE TRUSTEE" means U.S. Trust of California, N.A., as
Trustee under the Old Indenture.
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<PAGE> 10
1.1.42 "INTEREST" means, collectively, the rights of holders of Capital
Stock and Old Common Stock of the Subsidiaries, including redemption rights,
dividend rights and liquidation preferences.
1.1.43 "MASTER BALLOTS" means the master ballots accompanying the
Disclosure Statement upon which the acceptance or rejection of the Plan by
holders of Impaired Claims and Interests shall be indicated in accordance with
the Voting Instructions.
1.1.44 "NEW COMMON STOCK" means all shares of common stock of
Reorganized PCL authorized, fully prepaid and nonassessable, pursuant to the New
PCL Certificate of Incorporation to be issued and distributed in accordance with
the provisions hereof, which shares shall constitute 100% of the total number of
shares of such common stock issued and outstanding immediately after the
Effective Date.
1.1.45 "NEW COMMON STOCK REGISTRATION RIGHTS AGREEMENT" means that
certain agreement to be entered into on the Effective Date by Reorganized PCL
and the Senior Lenders, which shall be substantially in the form set forth in
Exhibit F(2).
1.1.46 "NEW COMPENSATION PLANS" means collectively, the employment,
retirement, indemnification and other agreements, and the welfare benefits and
other incentive plans to be entered into or implemented by Reorganized PCL as of
the Effective Date, summaries of which are set forth in Exhibit J.
1.1.47 "NEW CREDIT FACILITY" means the lending facility to be provided
to certain of the Reorganized Debtors as of the Effective Date, in an amount up
to $10 million to be secured
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<PAGE> 11
solely by accounts receivable and the proceeds thereof of the
Reorganized Debtors, pursuant to the terms and conditions of the New Credit
Facility Agreement.
1.1.48 "NEW CREDIT FACILITY AGREEMENT" means the agreement to be
entered into as of the Effective Date by and among certain of the Reorganized
Debtors and the lender(s) that are signatories thereto, pursuant to which such
lender(s) will provide certain of the Reorganized Debtors with the New Credit
Facility.
1.1.49 "NEW CREDIT FACILITY DOCUMENTS" means the New Credit Facility
Agreement and all documents executed in connection therewith.
1.1.50 "NEW INDENTURE" means, collectively, the indenture between
Reorganized PCL and the trustee named therein, substantially in the form of
Exhibit H, and all related collateral, pledge, security or other similar
agreements, which indenture and other agreements relate to the New Senior Notes.
1.1.51 "NEW INTERCREDITOR AGREEMENT" means an intercreditor agreement,
in form and substance satisfactory to the Senior Lenders, to be entered into by
the holders of the New Senior Notes, the trustee under the New Indenture,
Reorganized PCL and the lender(s) under the New Credit Facility setting forth
their respective rights on the collateral of the Reorganized Debtors and
providing, inter alia, that the lender(s) under the New Credit Facility shall
have a first priority lien on the accounts receivable of the Reorganized Debtors
and the trustee under the New Indenture shall have a first priority lien on
substantially all of the other assets of the Reorganized Debtors.
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1.1.52 "NEW PCL CERTIFICATE OF INCORPORATION" means the Certificate of
Incorporation of Reorganized PCL, which shall be in substantially the form set
forth in Exhibit A.
1.1.53 "NEW PCL BYLAWS" means the Bylaws of Reorganized PCL, which
shall be substantially in the form set forth in Exhibit B.
1.1.54 "NEW REGISTRATION RIGHTS AGREEMENTS" means,collectively, (a) the
New Common Stock Registration Rights Agreement and (b) the New Senior Notes
Registration Rights Agreement.
1.1.55 "NEW SECURITIES" means, collectively, the (a) New Common Stock,
(b) New Warrants and (c) New Senior Notes.
1.1.56 "NEW SENIOR NOTES" means the Senior Secured 10% Notes Due 2004,
to be issued by Reorganized PCL, pursuant to the New Indenture, substantially in
the form provided therein.
1.1.57 "NEW SENIOR NOTES REGISTRATION RIGHTS AGREEMENT" means that
certain agreement to be entered into on the Effective Date by Reorganized PCL
and the recipients of New Senior Notes, which shall be in substantially the form
set forth in Exhibit F(1).
1.1.58 "NEW WARRANT AGREEMENT" means the Warrant Agreement in
substantially the form set forth in Exhibit G.
1.1.59 "NEW WARRANTS" means the warrants, each to purchase one share of
New Common Stock, to be issued by Reorganized PCL pursuant to the New Warrant
Agreement, which warrants shall be issued to holders of Allowed Class 7
Interests pursuant to Section 3.2.7 of the Plan, and which warrants each shall
(a) have an exercise price to be determined calculated
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based on an implied enterprise value for Reorganized PCL of $115 million and (b)
expire on the date occurring five years after the Effective Date.
1.1.60 "NU-TECH" means Nu-Tech Bio-Med, Inc., a Delaware corporation.
1.1.61 "NU-TECH SENIOR DEBT CLAIM" means, collectively, all Claims of
Nu-Tech under the Existing Lender Agreements.
1.1.62 "NU-TECH STOCK PURCHASE" means the purchase by Nu- Tech on the
Effective Date of shares of New Common Stock comprising 17% of such shares on a
fully diluted basis, for $5,000,000 in Cash paid to Reorganized PCL.
1.1.63 "OFFICIAL COMMITTEE" means the Official Committee of Unsecured
Creditors of the Debtors appointed pursuant to section 1102 of the Bankruptcy
Code.
1.1.64 "OLD COMMON STOCK OF . . ." means, when used with reference to a
particular Debtor, the common stock issued by such Debtor and outstanding
immediately prior to the Effective Date. When used without reference to a
particular Debtor, "Old Common Stock" means the common stock issued by PCL and
outstanding immediately prior to the Effective Date.
1.1.65 "OLD INDENTURE" means, collectively, that certain Indenture
dated as of August 24, 1993 by and among PCL, Donaldson, Lufkin & Jenrette
Securities Corporation and Smith Barney Shearson, Inc., and all related
agreements, which indenture and other agreements relate to the Old Subordinated
Debentures.
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1.1.66 "OLD STOCK OPTIONS" means the options, outstanding immediately
prior to the Petition Date, to purchase Old Common Stock.
1.1.67 "OLD SUBORDINATED DEBENTURE CLAIMS" means, collectively, all
Claims of holders of Old Subordinated Debentures relating to the Old
Subordinated Debentures.
1.1.68 "OLD SUBORDINATED DEBENTURES" means the 7.5% Convertible
Subordinated Debentures Due 2000 issued by PCL pursuant to the Old Indenture.
1.1.69 "OLD WARRANTS" means the warrants, outstanding immediately prior
to the Petition Date, to purchase Old Common Stock.
1.1.70 "OTHER SECURED CLAIMS" means, collectively, all Secured Claims
against a Debtor held by any entity, other than the Secured Claims of the Senior
Lenders and Nu-Tech, including the DIP Financing Facility Claims.
1.1.71 "PCL" means Physicians Clinical Laboratory, a Delaware
corporation.
1.1.72 "PETITION DATE" means November 8, 1996.
1.1.73 "PLAN" means this joint chapter 11 plan of reorganization of
Physicians Clinical Laboratory, Inc. and its Affiliated Debtors and all Exhibits
annexed hereto or referenced herein, as the same may be amended, modified or
supplemented.
1.1.74 "PRIORITY CLAIM" means a Claim that is entitled to priority in
payment pursuant to section 507(a) of the Bankruptcy Code and that is not an
Administrative Claim or a Priority Tax Claim.
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1.1.75 "PRIORITY TAX CLAIM" means a Claim of a governmental unit that
is entitled to priority in payment pursuant to section 507(a)(8) of the
Bankruptcy Code.
1.1.76 "PRO RATA" means:
1.1.76.1 so that with respect to an Allowed Senior Lender
Claim, the ratio of (i)(a) the number of shares of New Common Stock or
New Senior Notes to be distributed on account of a particular Allowed
Senior Lender Claim to (b) the amount of such Allowed Senior Lender
Claim, is the same as the ratio of (ii)(a) the number of shares of New
Common Stock or New Senior Notes to be distributed on account of all
Allowed Senior Lender Claims to (b) the amount of all Allowed Senior
Lender Claims;
1.1.76.2 so that with respect to an Allowed Old Subordinated
Debenture Claim, the ratio of (i) (a) the number of shares of New
Common Stock to be distributed on account of a particular Allowed Old
Subordinated Debenture Claim to (b) the amount of such Allowed Old
Subordinated Debenture Claim, is the same as the ratio of (ii) (a) the
number of shares of New Common Stock to be distributed on account of
all Allowed Old Subordinated Debenture Claims to (b) the amount of all
Allowed Old Subordinated Debenture Claims;
1.1.76.3 so that with respect to an Allowed Class 5 Claim, the
ratio of (i) (a) Cash to be distributed on account of a particular
Allowed Class 5 Claim to (b) the amount of such Allowed Class 5 Claim
is the same as the ratio of (ii) (a) the aggregate Cash to be
distributed on
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account of all Allowed Class 5 Claims, net of fees, costs and expenses
to be paid out of the funds in the Class 5 Disbursement Account
pursuant to Sections 8.1.2 and 8.3 below to (b) the amount of all
Allowed Class 5 Claims;
1.1.76.4 so that with respect to an Allowed Interest
consisting of Old Common Stock of PCL, the ratio of (i) (a) the number
of shares of New Common Stock to be distributed on account of a
particular Allowed Interest to (b) the amount of such Allowed Interest,
is the same as the ratio of (ii) (a) the number of shares of New Common
Stock to be distributed on account of all Allowed Interests consisting
of Old Common Stock of PCL to (b) the amount of all such Allowed
Interests; and
1.1.76.5 when used with reference to distributions of the
Reorganization Investment Yield, the ratio, as of the date upon which
the distribution of the Reorganization Investment Yield is made, of (i)
(a) the portion of the Reorganization Investment Yield to be
distributed to the Holder of an Allowed Claim pursuant to Articles VII
and VIII of the Plan to (b) the aggregate amount of the Reorganization
Investment Yield is the same as the ratio of (ii) (a) the Allowed
Amount of such Claim to (b) the sum of the aggregate amount of the
Claims which are Disputed and the aggregate amount of Claim on account
of which distributions are undeliverable.
1.1.77 "PROFESSIONAL" means any professional employed in the
Chapter 11 Cases pursuant to sections 327 or 1103 of the Bankruptcy
Code and the professionals seeking compensation or
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reimbursement of expenses in connection with the Chapter 11 Cases pursuant to
section 503(b)(4) of the Bankruptcy Code.
1.1.78 "PROVIDER AGREEMENTS" means any and all health care provider
agreements between the Debtors, on the one hand, and Federal and State
governments or third parties, or their respective agencies or agents, on the
other hand.
1.1.79 "QCL" means Quantum Clinical Laboratories, Inc., a California
corporation.
1.1.80 "RRLGC" means Regional Reference Laboratory Governing
Corporation, a California corporation.
1.1.81 "REINSTATED" OR "REINSTATEMENT" means rendering a Claim
unimpaired pursuant to section 1124 of the Bankruptcy Code.
1.1.82 "REORGANIZATION INVESTMENT YIELD" means the net yield earned by
the Disbursing Agent from the investment of Cash held pending distribution
pursuant to the Plan (including dividends and other distributions on
undeliverable New Securities from the date that such distribution would have
first been due had it then been deliverable to the date that such distribution
becomes deliverable), which investment shall be in a manner consistent with
Reorganized PCL's investment and deposit guidelines.
1.1.83 "REORGANIZED . . ." means, when used in reference to all of the
Debtors, the Debtors on and after the Effective Date, and, when used in
reference to a particular Debtor, such Debtor on and after the Effective Date,
including any successor thereto, by merger, consolidation or otherwise.
1.1.84 "SCHEDULES" means, collectively, the: (a) schedules of assets
and liabilities and the statements of
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financial affairs, if any, Filed by the Debtors in the Chapter 11 Cases,
pursuant to section 521 of the Bankruptcy Code, the Bankruptcy Rules and the
Official Bankruptcy Forms; and (b) schedule of unliquidated, disputed or
contingent Claims, as required by any Local Rule of the Bankruptcy Court, as
such requirements may be modified by any order of the Bankruptcy Court.
1.1.85 "SECURED CLAIM" means a Claim that is secured by a lien on
property in which the Estate has an interest or that is subject to setoff under
section 553 of the Bankruptcy Code, to the extent of the value of the Claim
holder's interest in the Estate's interest in such property or to the extent of
the amount subject to setoff, as applicable, as determined pursuant to section
506(a) of the Bankruptcy Code.
1.1.86 "SECURITIES ACT" means the Securities Act of 1933, 15 U.S.C.
Sections 77a-77aa, as now in effect or hereafter amended.
1.1.87 "SENIOR DEBT CLAIMS" means, collectively, all Claims of the
Senior Lenders under the Existing Lender Agreements.
1.1.88 "SENIOR LENDERS" means, collectively, the Agent and the other
entities listed on Exhibit D and their successors and assigns, excluding
Nu-Tech.
1.1.89 "STIPULATION OF AMOUNT AND NATURE OF CLAIM" means a stipulation
or other document that a Debtor has sent or may send to a holder of a Claim that
states the Debtor's position regarding the amount or nature of the holder's
Claim and requests such holder's agreement with the Debtor's position.
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1.1.90 "SUBSIDIARY DEBTORS" means, collectively, DLI, QCL, RRLGC and
CRRL.
1.1.91 "SUTTER GUARANTY" means that certain General Continuing Guaranty
in the amount of $3,500,000 dated as of May 10, 1995, by Sutter Health for the
benefit of the Senior Lenders and Nu-Tech.
1.1.92 "THIRD-PARTY DISBURSING AGENT" means any entity designated by
the Debtors or the Reorganized Debtors to act as a Disbursing Agent.
1.1.93 "UNIMPAIRED CLAIM" means a Claim that is not impaired within the
meaning of section 1124 of the Bankruptcy Code.
1.1.94 "UNSECURED CLAIM" means any Claim which is not an
Administrative Claim, Priority Claim, Priority Tax Claim, Secured
Claim or Old Subordinated Debenture Claim.
1.1.95 "VOTING CONDITION" means that Class 5 Claims and Class 6 Claims
shall have each voted to accept the Plan in accordance with section 1126 of the
Bankruptcy Code; provided, however, that for purposes of determining whether the
Voting Condition is satisfied, Class 5 and Class 6 Claims held by any Proponents
shall be deemed to have been voted in favor of the Plan, whether or not such
Claims are actually voted in favor of the Plan.
1.1.96 "VOTING INSTRUCTIONS" means the instructions for voting on the
Plan contained in the section of the Disclosure Statement entitled "Voting and
Confirmation of the Plan -- Voting Procedures and Requirements" and accompanying
the Ballots and the Master Ballots.
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1.1.97 "VOTING RECORD DATES" means a date to be established by the
Debtors with respect to identification of the holders of Allowed Interests and
Allowed Claims entitled to vote on the Plan.
1.2 RULES OF INTERPRETATION, COMPUTATION OF TIME AND GOVERNING LAW
1.2.1 RULES OF INTERPRETATION
For purposes of the Plan: (a) whenever from the context it is
appropriate, each term, whether stated in the singular or the plural, shall
include both the singular and the plural; (b) any reference in the Plan 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) if the Plan's description of the terms
of an Exhibit is inconsistent with the terms of the Exhibit, the terms of the
Exhibit shall control; (e) unless otherwise specified, all references in the
Plan to Articles, Sections , Clauses and Exhibits are references to Articles,
Sections , Clauses and Exhibits of or to the Plan; (f) the words "herein" and
"hereto" refer to the Plan in its entirety rather than to a particular portion
of the Plan; (g) 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 Plan; and (h) the rules of construction
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set forth in section 102 of the Bankruptcy Code shall apply, to the extent such
rules are not inconsistent with any other provision in this Section 1.2.1.
1.2.2 COMPUTATION OF TIME
In computing any period of time prescribed or allowed by the Plan, the
provisions of Bankruptcy Rule 9006(a) shall apply.
1.2.3 GOVERNING LAW
Except to the extent that the Bankruptcy Code or Bankruptcy Rules are
applicable, and subject to the provisions of any contract, instrument, release,
indenture or other agreement or document entered into in connection with the
Plan, the rights and obligations arising under the Plan shall be governed by,
and construed and enforced in accordance with, the laws of the State of
California, without giving effect to the principles of conflicts of law thereof.
ARTICLE II.
ADMINISTRATIVE CLAIMS AND PRIORITY TAX CLAIMS
In accordance with section 1123(a)(1) of the Bankruptcy Code,
Administrative Claims and Priority Tax Claims, as described below in Article II,
have not been classified.
2.1 ADMINISTRATIVE CLAIMS
2.1.1 IN GENERAL
Subject to the provisions of Sections 2.1.2 and 2.1.3 below
with respect to the Administrative Claims bar date and Professionals,
respectively, on the Effective Date, each holder of an Allowed Administrative
Claim shall receive Cash equal to the amount of such Allowed Administrative
Claim, unless such holder and the applicable Debtor or Reorganized Debtor agree
to
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other terms or a Final Order of the Bankruptcy Court provides for other terms;
provided, however, that Allowed Administrative Claims representing obligations
incurred in the ordinary course of business or otherwise assumed by a Debtor
pursuant to the Plan (including Administrative Claims of governmental units for
taxes) shall be assumed on the Effective Date and paid, performed or settled by
the applicable Reorganized Debtor when due in accordance with the terms and
conditions of the particular agreements governing such obligations, without the
need for holders of such Claims to comply with Section 2.1.2 below .
2.1.2 BAR DATE FOR ADMINISTRATIVE CLAIMS
Requests for payment of Administrative Claims must be Filed
and served on the Debtors or the Reorganized Debtors no later than 30 days after
the Effective Date. Holders of Administrative Claims that are required to File
and serve a request for payment of such Claims and that do not File and serve a
request by such date shall be forever barred from asserting such Claims against
the Debtors, the Reorganized Debtors or their respective property. Objections to
such requests must be Filed and served on the Reorganized Debtors and the
requesting party no later than 30 days after the date on which the applicable
request for payment was Filed.
2.1.3 PROFESSIONALS
Professionals or other entities requesting compensation or
reimbursement of expenses pursuant to sections 327, 328, 330, 331, 503(b) or
1103 of the Bankruptcy Code for services rendered before the Effective Date
(including compensation requested pursuant to section 503(b)(4) of the
Bankruptcy Code by any
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Professional or other entity for making a substantial contribution in the
Chapter 11 Cases) shall File and serve on the Reorganized Debtors and counsel
for the Reorganized Debtors an application for final allowance of compensation
and reimbursement of expenses no later than 30 days after the Effective Date,
unless such Filing and service deadline is extended by the Bankruptcy Court.
Objections to applications of Professionals or other entities for compensation
or reimbursement of expenses must be Filed and served on the Reorganized
Debtors, counsel for the Reorganized Debtors and the requesting Professional or
other entity no later than 30 days after the date on which the applicable
application for compensation or reimbursement was Filed.
2.2 PRIORITY TAX CLAIMS
Pursuant to section 1129(a)(9)(C) of the Bankruptcy Code, unless
otherwise agreed by the holder of a Priority Tax Claim and the applicable Debtor
or Reorganized Debtor, each holder of a Priority Tax Claim will receive, in full
satisfaction of such Claim, deferred cash payments over a period not exceeding
six years from the date of assessment of such Claim. Payments will be made in
equal quarterly installments of principal, plus simple interest accruing from
the Effective Date at 8% per annum on the unpaid portion of each Priority Tax
Claim (or upon such other terms determined by the Bankruptcy Court to provide
the holders of Priority Tax Claims with deferred cash payments having a value as
of the Effective Date equal to such Claims). Unless otherwise agreed by the
holder of a Priority Tax Claim and the applicable Debtor or Reorganized Debtor,
the first payment will be payable
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one year after the Effective Date or, if the Priority Tax Claim is not allowed
within one year after the Effective Date, the first day of the quarter following
the date on which (a) an order allowing such Claim becomes a Final Order or (b)
a Stipulation regarding the Amount and Nature of Claim is executed by the
Reorganized Debtor and the Claim holder; provided, however, that the Reorganized
Debtor will have the right to pay any Priority Tax Claim, or any remaining
balance of such Claim, in full, at any time on or after the Effective Date,
without premium or penalty.
2.3 DIP FINANCING FACILITY CLAIMS
Immediately prior to the Effective Date, provided that no unwaived
events of default exist under the DIP Financing Facility, any amounts available
under the DIP Financing Facility shall be borrowed by PCL so that the total
outstanding principal balance thereunder is $9,800.000. On the Effective Date,
any and all amounts owing under the DIP Financing Facility shall be deemed fully
and finally forgiven without any payment by the Debtors or further action by any
party.
ARTICLE III.
CLASSIFICATION AND TREATMENT OF
CLASSIFIED CLAIMS AND INTERESTS
All Claims and Interests, except Administrative Claims and Priority Tax
Claims, are placed in the Classes described below. All such Claims against each
Debtor are classified as if the Debtors have been substantively consolidated.
A Claim or Interest is classified in a particular Class only to the
extent that the Claim or Interest qualifies within the
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description of that Class and is classified in other Classes only to the extent
that any remainder of the Claim or Interest qualifies within the description of
such other Classes. A Claim or Interest is also classified in a particular Class
only to the extent that such Claim or Interest is an Allowed Claim or Allowed
Interest in that Class and has not been paid, released or otherwise satisfied
prior to the Effective Date.
3.1 SUMMARY
Class Status
Class 1 - Priority Claims Unimpaired - not
entitled to vote
Class 2 - Senior Debt Impaired - entitled to
Claims vote
Class 3 - Nu-Tech Senior Impaired - entitled to
Debt Claims vote
Class 4 - Other Secured Unimpaired - not
Claims entitled to vote
Class 5 - Unsecured Impaired - entitled to
Claims vote
Class 6 - Old Impaired - entitled to
Subordinated Debenture vote
Claims
Class 7 - Interests of Impaired - entitled to
holders of Old Common vote
Stock in PCL
Class 8 - Interests of Unimpaired - not
holders of Interests in entitled to vote
Subsidiaries
Class 9 - Interests of Impaired - deemed to
holders of Old Stock have rejected the Plan
Options and Old Warrants
3.2 CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS
3.2.1 CLASS 1 - PRIORITY CLAIMS
Classification: Class 1 consists of all Priority Claims
against the Debtors.
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Treatment: On the Effective Date, each holder of an Allowed
Class 1 Claim shall receive Cash equal to the amount of such Claim,
unless the holder of such Claim and Reorganized PCL agree to a
different treatment. Any Allowed Class 1 Claim not due and owing on the
Effective Date will be paid in full in Cash by Reorganized PCL when
such Claim becomes due and owing.
Voting: Class 1 is unimpaired, and the holders of Claims in
Class 1 are not entitled to vote to accept or reject the Plan.
3.2.2 CLASS 2 - SENIOR DEBT CLAIMS
Classification: Class 2 consists of all Senior Debt
Claims against the Debtors.
Treatment: On the Effective Date, the Existing Lender
Agreements shall automatically be terminated without further action by
any party and shall no longer be of any force or effect. Each holder of
an Allowed Senior Debt Claim, in full and final satisfaction of such
Allowed Claim, shall receive, on or as soon as practicable after the
Effective Date, its Pro Rata Share of (i) if the Voting Condition is
satisfied, shares of New Common Stock comprising 37% of such shares on
a fully diluted basis, or, if the Voting Condition is not satisfied,
shares of New Common Stock comprising 49% of such shares on a fully
diluted basis and (ii) the New Senior Notes.
Voting: Class 2 is impaired and the holders of Allowed
Claims in Class 2 are entitled to vote to accept or reject
the Plan.
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3.2.3 CLASS 3 - NU-TECH SENIOR DEBT CLAIMS
Classification: Class 3 consists of all Nu-Tech Senior Debt
Claims.
Treatment: On the Effective Date, the Existing Lender
Agreements shall automatically be terminated without further action by
any party and shall no longer be of any force or effect. In full and
final satisfaction of the Allowed Nu- Tech Senior Debt Claims, Nu-Tech
shall receive, on or as soon as practicable after the Effective Date,
shares of New Common Stock comprising 34% of such shares on a fully
diluted basis.
Voting: Class 3 is impaired and the holder of Allowed
Class 3 Claims is entitled to vote to accept or reject the Plan.
3.2.4 CLASS 4 - OTHER SECURED CLAIMS
Classification: Class 4 consists of all Other Secured Claims
against the Debtors.
Treatment: On the Effective Date, at the option of Reorganized
PCL, each Allowed Class 4 Claim shall be treated pursuant to either
clause (i) or (ii) below:
(i) The applicable Reorganized Debtor may
transfer the property securing such Claim to the holder
of the Claim, in full satisfaction of the Claim; or
(ii) such Claim may be Reinstated as follows:
(A) any default, other than a default of a kind
specified in section 365(b)(2) of the Bankruptcy Code,
shall be cured; (B) the maturity of the Claim shall be
reinstated as the maturity existed before any default;
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(C) the holder of the Claim shall be compensated for any
damages incurred as a result of any reasonable reliance by the
holder on any contractual provision that entitled the holder
to demand or receive accelerated payment of the Claim; and (D)
the other legal, equitable or contractual rights to which the
Claim entitles the holder shall not otherwise be altered.
Voting: Class 4 is unimpaired and the holders of Claims in
Class 4 are not entitled to vote to accept or reject the Plan.
3.2.5 CLASS 5 - UNSECURED CLAIMS
Classification: Class 5 consists of all Unsecured
Claims against the Debtors.
Treatment: On the Effective Date, if the Voting Condition is
satisfied, the Debtors will deliver $1.7 million in Cash to the
Disbursing Agent, which Cash shall be held by the Disbursing Agent in
the Class 5 Disbursement Account for the benefit of holders of Class 5
Claims. If the Voting Condition is satisfied, then each holder of an
Allowed Class 5 Claim, in full and final satisfaction of such Allowed
Claim, shall receive its Pro Rata share of the assets held by the
Disbursing Agent, in accordance with the provisions of Articles VII and
VIII below. If the Voting Condition is not satisfied, then the holders
of Class 5 Claims shall not receive or retain any property under the
Plan on account of such Claims, and all
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assets held by the Disbursing Agent shall be returned to the
Reorganized Debtors.
Voting: Class 5 is impaired and the holders of Allowed
Class 5 Claims are entitled to vote to accept or reject the Plan.
3.2.6 CLASS 6 - OLD SUBORDINATED DEBENTURE CLAIMS
Classification: Class 6 consists of all Old
Subordinated Debenture Claims against the Debtors.
Treatment: On the Effective Date, the Old Indenture and the
Old Subordinated Debentures shall be automatically terminated without
further action by any party and shall no longer be of any force and
effect. If the Voting Condition is satisfied, then each holder of an
Allowed Old Subordinated Debenture Claim, in full and final
satisfaction of such Allowed Claim, shall receive, on or as soon as
practicable after the Effective Date, its Pro Rata share of shares of
New Common Stock comprising 9% of such shares on a fully diluted basis.
If the Voting Condition is not satisfied, then the holders of Old
Subordinated Debenture Claims shall not receive or retain any property
under the Plan on account of such Claims.
Voting: Class 6 is impaired and the holders of Allowed
Claims in Class 6 are entitled to vote to accept or reject the Plan.
3.2.7 CLASS 7 - INTERESTS OF HOLDERS OF OLD COMMON STOCK
IN PCL
Classification: Class 7 consists of the Interests of
holders of Old Common Stock in PCL.
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Treatment: If the Voting Condition is satisfied, on or as soon
as is practicable after the Effective Date, each holder of an Allowed
Class 7 Interest shall receive, in full and final satisfaction of such
Interest, its Pro Rata Share of (i) New Warrants and (ii) shares of New
Common Stock comprising 3% of such shares on a fully diluted basis. If
the Voting Condition is not satisfied, then the holders of Class 7
Interests shall not receive or retain any property under the Plan on
account of such Interests.
Voting: Class 7 is impaired and the holders of Allowed
Class 7 Interests are entitled to vote to accept or reject
the Plan.
3.2.8 CLASS 8 - INTERESTS OF HOLDERS OF INTERESTS IN
SUBSIDIARIES
Classification: Class 8 consists of the Interests of PCL and
RRLGC in the Subsidiary Debtors.
Treatment: In full and final satisfaction of the Allowed Class
8 Interests, PCL shall retain its Interests in each of the Subsidiary
Debtors and RRLGC shall retain its Interests in CRRL.
Voting: Class 8 is unimpaired and the holders of Allowed Class
8 Interests are not entitled to vote to accept or reject the Plan.
3.2.9 CLASS 9 - INTERESTS OF HOLDERS OF OLD STOCK
OPTIONS AND OLD WARRANTS
Classification: Class 9 consists of the Interests of
the holders of Old Stock Options and Old Warrants.
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Treatment: The holders of Class 9 Interests shall not
receive or retain any property under the Plan on account of
such Interests.
Voting: Class 9 is impaired and because no distribution of
property will be made to holders of Class 9 Interests, nor will such
holders retain any property, Class 9 is deemed not to have accepted the
Plan.
3.3 SPECIAL PROVISION REGARDING UNIMPAIRED CLAIMS
Except as otherwise provided in the Plan, nothing shall affect the
Debtors' or the Reorganized Debtors' rights and legal and equitable defenses in
respect of any Unimpaired Claims, including but not limited to all rights in
respect of legal and equitable defenses to setoffs or recoupments against
Unimpaired Claims.
3.4 ACCRUAL OF POSTPETITION INTEREST
No holder of a Priority Tax Claim, a Priority Claim or an Allowed Claim
(other than a holder of an Administrative Claim based on liability incurred by a
Debtor in the ordinary course of business that is entitled to interest pursuant
to the terms and conditions of the agreements giving rise to such Administrative
Claim) will be entitled to any payments or additional distributions on account
of accrued postpetition interest in respect of such Claims.
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ARTICLE IV.
ACCEPTANCE OR REJECTION OF THE PLAN
4.1 VOTING CLASSES
Each holder of an Allowed Class 2, 3, 5 or 6 Claim or an
Allowed Class 7 Interest shall be entitled to vote to accept or
reject the Plan.
4.2 ACCEPTANCE BY IMPAIRED CLASSES
An Impaired Class of Claims shall have accepted the Plan if (i) the
holders (other than any holder designated under section 1126(e) of the
Bankruptcy Code) of at least two-thirds in amount of the Allowed Claims actually
voting in such Class have voted to accept the Plan and (ii) the holders (other
than any holder designated under section 1126(e) of the Bankruptcy Code) of more
than one-half in number of the Allowed Claims actually voting in such Class have
voted to accept the Plan. An Impaired Class of Interests shall have accepted the
Plan if the holders (other than any holder designated under section 1126(e) of
the Bankruptcy Code) of at least two-thirds in amount of the Allowed Interests
actually voting in such Class have voted to accept the Plan. 4.3 PRESUMED
ACCEPTANCE OF PLAN
Classes 1, 4 and 8 are unimpaired under the Plan, and,
therefore, conclusively are presumed to have accepted the Plan
pursuant to section 1126(f) of the Bankruptcy Code.
4.4 DEEMED NON-ACCEPTANCE OF PLAN
Holders of Class 9 Interests shall not receive or retain any property
under the Plan on account of their Interests, and
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therefore, Class 9 is deemed not to have accepted the Plan pursuant to Section
1126(g) of the Bankruptcy Code.
4.5 NON-CONSENSUAL CONFIRMATION
The Debtors will seek Confirmation of the Plan under section 1129(b) of
the Bankruptcy Code in view of the deemed non-acceptance by Class 9. In the
event that any Impaired Class of Claims or Interests does not accept the Plan in
accordance with section 1126 of the Bankruptcy Code, the Debtors hereby request
that the Bankruptcy Court confirm the Plan in accordance with section 1129(b) of
the Bankruptcy Code. The Proponents reserve the right to modify the Plan to the
extent, if any, that Confirmation pursuant to section 1129(b) of the Bankruptcy
Code requires modification.
ARTICLE V.
MEANS FOR IMPLEMENTATION OF THE PLAN
5.1 CONTINUED CORPORATE EXISTENCE, VESTING OF ASSETS IN THE
REORGANIZED DEBTORS AND PRESERVATION OF RIGHTS OF ACTION
5.1.1 CONTINUED CORPORATE EXISTENCE AND VESTING OF
ASSETS
The Reorganized Debtors (other than Reorganized CRRL) will continue to
exist after the Effective Date as separate corporate entities, with all of the
powers of corporations under the general corporation law of the Reorganized
Debtors' respective states of incorporation and without prejudice to any right
to alter or terminate their existence (whether by merger or otherwise).
Reorganized CRRL will continue to exist after the Effective Date as a limited
partnership, with all the powers of a limited partnership under the applicable
partnership law of the
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State of California and without prejudice to any right to alter or terminate its
existence. Except as otherwise provided in the Plan, on and after the Effective
Date, all property of the respective Estates of the Debtors, including all
claims, rights and causes of action (other than those released pursuant to
Section 5.5 below), and any property acquired by a Debtor or Reorganized Debtor
under or in connection with the Plan, shall vest in the applicable Reorganized
Debtor free and clear of all Claims, liens, charges, other encumbrances and
Interests. On and after the Effective Date, each Reorganized Debtor may operate
its businesses and may use, acquire and dispose of property and compromise or
settle any Claims or Interests without supervision or approval by the Bankruptcy
Court and free of any restrictions of the Bankruptcy Code or Bankruptcy Rules,
other than restrictions expressly imposed by the Plan or the Confirmation Order.
Without limiting the foregoing, each Reorganized Debtor may pay the charges that
it incurs on or after the Effective Date for Professionals' fees, disbursements,
expenses or related support services without application to the Bankruptcy
Court.
5.1.2 PRESERVATION OF RIGHTS OF ACTION
Except as provided in Section 5.5 below, or in any contract,
instrument, release, indenture or other agreement entered into in connection
with the Plan, in accordance with section 1123(b) of the Bankruptcy Code, each
Reorganized Debtor shall retain and may enforce any claims, rights and causes of
action that the applicable Debtor or its Estate may hold against any entity,
including but not limited to the claims, rights and causes of action set forth
in Exhibit L. Failure to list a claim, right or
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cause of action on Exhibit L shall not constitute a waiver or release by the
Debtors of such claim, right or cause of action. Each Reorganized Debtor or its
successors may pursue such retained claims, rights or causes of action, as
appropriate, in accordance with the best interests of such Reorganized Debtor.
5.2 THE RESTRUCTURING TRANSACTIONS
5.2.1 CANCELLATION OF CAPITAL STOCK, EXISTING LENDER
AGREEMENTS AND OLD INDENTURE; SURRENDER OF
SECURITIES AND OTHER DOCUMENTATION
On the Effective Date, the Capital Stock (whether issued and
outstanding or held in the treasury of PCL immediately prior to the Effective
Date), the Existing Lender Agreements, the Old Indenture and the Old
Subordinated Debentures shall be deemed to be cancelled, extinguished, retired
and of no further force and effect, in all events without any further action on
the part of the Debtors, the Reorganized Debtors, the holders of Capital Stock,
the Senior Lenders, Nu-Tech, the trustee under the Old Indenture, the holders of
the Old Subordinated Debentures or any other entity. The holders of such
canceled securities and other documentation shall have no rights arising from or
relating to such securities or other documentation, or the cancellation thereof,
except the rights provided pursuant to the Plan; provided, however, that no
distribution under the Plan shall be made to or on behalf of any holder of any
Allowed Claim or Allowed Interest evidenced by such canceled securities or other
documentation unless or until such securities or documentation are received by
the Disbursing Agent pursuant to Section 7.8 below.
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5.2.2 THE REORGANIZED DEBTORS' OBLIGATIONS UNDER THE PLAN
From and after the Effective Date, the Reorganized Debtors will perform
the obligations of the Debtors under the Plan.
5.2.3 ISSUANCE OF SECURITIES AND RELATED DOCUMENTATION
On the Effective Date:
(a) Reorganized PCL shall issue the shares of New Common Stock
to be distributed pursuant to the Plan.
(b) Reorganized PCL shall enter into the New Indenture with
the trustee named therein and issue the New Senior Notes to be
distributed pursuant to the Plan.
(c) Reorganized PCL shall issue, pursuant to the New Warrant
Agreement, the New Warrants to be distributed pursuant to the Plan.
(d) The transferees of the New Senior Notes shall be deemed to
have entered into the New Senior Notes Registration Rights Agreement
without further action on the part of the Debtors, Reorganized Debtors
or any other entity.
(e) The Senior Lenders shall be deemed to have entered into
the New Common Stock Registration Rights Agreement without further
action on the part of the Debtors, the Reorganized Debtors or any other
entity.
(f) Reorganized PCL and Nu-Tech shall consummate the Nu-Tech
Stock Purchase.
(g) Reorganized PCL shall enter into the Employment Agreement.
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5.2.4 ESTABLISHMENT OF NEW CREDIT FACILITY
On the Effective Date, certain of the Reorganized Debtors may establish
the New Credit Facility by entering into the New Credit Facility Documents. On
the Effective Date, the lender(s) under the New Credit Facility, Reorganized
Debtors and the trustee under the New Indenture may enter into the New
Intercreditor Agreement.
5.3 CORPORATE GOVERNANCE, DIRECTORS AND OFFICERS, EMPLOYMENT-
RELATED AGREEMENTS AND COMPENSATION PROGRAMS
5.3.1 CERTIFICATE OF INCORPORATION AND BYLAWS
5.3.1.1 REORGANIZED PCL
As of the Effective Date, the New PCL Certificate of Incorporation and
the New PCL Bylaws shall be substantially in the forms of Exhibits A and B,
respectively, to the Plan. The New PCL Certificate of Incorporation shall, among
other things: (i) prohibit the issuance of nonvoting equity securities, to the
extent required by section 1123(a) of the Bankruptcy Code; and (ii) authorize
the issuance of New Common Stock and New Warrants in amounts not less than the
amounts necessary to permit the distributions thereof required or contemplated
by the Plan. After the Effective Date, Reorganized PCL may amend and restate the
New PCL Certificate of Incorporation or New PCL Bylaws as permitted by
applicable law.
5.3.1.2 THE SUBSIDIARY DEBTORS
As of the Effective Date, the certificate or articles of incorporation
(other than Reorganized CRRL) of each Reorganized Subsidiary Debtor will, among
other things, prohibit or be amended to prohibit the issuance of nonvoting
equity securities
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to the extent required by section 1123(a)(6) of the Bankruptcy Code, and
otherwise will, or will be amended and restated to be, substantially in the form
of Exhibit C. If a Reorganized Subsidiary Debtor is incorporated under the laws
of a jurisdiction for which the forms of a certificate or articles of
incorporation are not included in Exhibit C, such Debtor's constituent documents
will be substantially identical to Exhibit C, with such differences as may be
necessary or appropriate under the applicable jurisdiction's corporation law.
After the Effective Date, each such entity may amend and restate its certificate
or articles of incorporation or its bylaws or regulations or similar constituent
documents as permitted by applicable state law, subject to the terms and
conditions of its certificate or articles of incorporation or its bylaws or
regulations or similar constituent documents.
5.3.2 DIRECTORS AND OFFICERS
5.3.2.1 REORGANIZED PCL
Subject to any requirement of Bankruptcy Court approval pursuant to
section 1129(a)(5) of the Bankruptcy Code, the initial directors of Reorganized
PCL will consist of five directors. Initially, Nu-Tech will appoint three
directors and the Senior Lenders will appoint two directors. Subject to any
requirement of Bankruptcy Court approval pursuant to section 1129(a)(5) of the
Bankruptcy Code, the initial chief executive officer of Reorganized PCL shall be
J. Marvin Feigenbaum. The other officers of Reorganized PCL will be named prior
to Confirmation. All directors of Reorganized PCL shall serve until their
successors are duly elected or appointed and qualified or
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until their earlier death, resignation or removal in accordance with the New PCL
Certificate of Incorporation and Bylaws. Each officer of Reorganized PCL will
serve from and after the Effective Date until his or her successor is duly
appointed and qualified or until their earlier death, resignation or removal in
accordance with the terms of the Certificate of Incorporation and Bylaws.
5.3.2.2 THE REORGANIZED SUBSIDIARY DEBTORS
Subject to any requirement of Bankruptcy Court approval pursuant to
section 1129(a)(5) of the Bankruptcy Code, the initial directors and officers of
each Reorganized Subsidiary Debtor will be appointed by the Board of Directors
of Reorganized PCL. Each such director and officer will serve from and after the
Effective Date until a successor is duly elected or appointed or until their
earlier death, resignation or removal in accordance with the applicable
Reorganized Subsidiary Debtor's constituent documents and applicable law.
5.3.3 EMPLOYMENT, RETIREMENT, INDEMNIFICATION AND OTHER
AGREEMENTS AND INCENTIVE COMPENSATION PROGRAMS;
RETIREE HEALTH AND WELFARE BENEFITS
5.3.3.1 As of the Effective Date, the Reorganized Debtors
shall have the authority to (i) enter into employment, retirement,
indemnification and other agreements with their active directors, officers and
employees and (ii) implement retirement income plans, welfare benefit plans and
other incentive plans in which directors, officers and other active employees of
the Reorganized Debtors may be eligible to participate. Such agreements and
plans may include equity, bonus
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and other incentive plans. The Disclosure Statement contains information as to
the compensation to be paid to insiders who are the subject of any such
agreements, plans or programs currently intended to be implemented.
5.3.3.2 From and after the Effective Date, pursuant to section
1129(a)(13) of the Bankruptcy Code, the Reorganized Debtors shall continue to
pay all retiree benefits (as defined in section 1114(a) of the Bankruptcy Code),
at the level established pursuant to subsection (e)(1)(B) or (g) of section 1114
of the Bankruptcy Code, at any time prior to Confirmation, in accordance with
the contract or program giving rise to such benefits.
5.3.4 CORPORATE ACTION
The adoption of new or amended and restated certificates or articles of
incorporation and bylaws or regulations or similar constituent documents for the
Reorganized Debtors; the initial selection of directors and officers for the
Reorganized Debtors; the distribution of Cash pursuant to the Plan; the issuance
and distribution of New Securities pursuant to the Plan; the grant of mortgages,
deeds of trust, liens and other security interests; the adoption, execution,
delivery and implementation of all contracts, leases, instruments, releases,
indentures and other agreements or documents related to any of the foregoing;
the adoption, execution and implementation of employment, retirement and
indemnification agreements, incentive compensation programs, retirement income
plans, welfare benefit plans and other employee plans and related agreements;
and the other matters provided for under the Plan involving the corporate or
partnership structure of any Debtor or Reorganized Debtor or corporate or
partnership
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action to be taken by or required of any Debtor or Reorganized Debtor will occur
and be effective as provided herein, and will be authorized and approved in all
respects and for all purposes without any requirement of further action by
stockholders, directors or partners of any of the Debtors or the Reorganized
Debtors.
5.4 SOURCES OF CASH FOR PLAN DISTRIBUTIONS
Except as otherwise provided in the Plan or the Confirmation Order, all
Cash necessary for the Reorganized Debtors to make payments pursuant to the Plan
shall be obtained from the Reorganized Debtors' cash balances and the operations
of the Debtors or Reorganized Debtors, the DIP Financing Facility, the New
Credit Facility and consummation of the Nu-Tech Stock Purchase. Cash payments to
be made pursuant to the Plan will be made by Reorganized PCL or the Disbursing
Agent; provided, however, that the Debtors and the Reorganized Debtors will be
entitled to transfer funds between and among themselves as they determine to be
necessary or appropriate to enable each Reorganized Debtor to satisfy its
obligations under the Plan.
5.5 RELEASES AND RELATED MATTERS
5.5.1 RELEASES BY THE DEBTORS
5.5.1.1 As of the Effective Date, the Debtors and the
Reorganized Debtors will be deemed to have released and waived all causes of
action of the Debtors arising under sections 510, 544, 547, 548, 549 or 550 of
the Bankruptcy Code, other than those expressly listed on Exhibit L.
5.5.1.2 As of the Effective Date, for good and valuable
consideration, the adequacy of which is hereby
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confirmed, the Debtors and the Reorganized Debtors will be deemed to forever
release, waive and discharge all claims, counterclaims, obligations, suits,
judgments, damages, demands, debts, rights, causes of action and liabilities
whatsoever in connection with or related to the Debtors, the Chapter 11 Cases or
the Plan (other than the rights of the Debtors or the Reorganized Debtors to
enforce the Plan and the contracts, instruments, releases, indentures and other
agreements or documents delivered thereunder), whether liquidated or
unliquidated, fixed or contingent, matured or unmatured, known or unknown,
foreseen or unforeseen, then existing or thereafter arising, in law, equity or
otherwise that are based in whole or in part on any act, omission, transaction,
event or other occurrence taking place on or prior to the Effective Date in any
way relating to the Debtors, the parties released pursuant to this Section
5.5.1, the Chapter 11 Cases or the Plan, and that may be asserted by or on
behalf of a Debtor or its Estate against (i) the Debtors' current and former
officers, directors and shareholders, (ii) Nu-Tech and Nu-Tech's current and
former officers, directors and shareholders, (iii) the respective current and
former agents, employees, consultants, advisors, attorneys, accountants and
other representatives of the Debtors or Nu-Tech (including the respective
current and former members and professionals of the foregoing) acting in such
capacity, (iv) the Senior Lenders, the Agent, the holders of the Old
Subordinated Debentures, the trustee under the Old Indenture and the Official
Committee and their respective predecessors in interest relating to their
respective Claims and (v) the
<PAGE> 43
respective current and former agents, advisors, attorneys and representatives of
the Senior Lenders, the Agent, the holders of the Old Subordinated Debentures,
and the Official Committee (including the respective current and former members
and professionals of the foregoing and their respective predecessors in
interest) acting in such capacity; provided, however, that the Debtors shall not
release the persons identified in subclauses (i) and (ii) of this Section
5.5.1.2 from any claims with respect to (a) any loan, advance or similar payment
by the Debtors to such person or (b) any contractual obligation owed by such
person to the Debtors. Notwithstanding this Section 5.5, if and to the extent
that the Bankruptcy Court concludes that the Plan cannot be confirmed with any
portion of the releases set forth in the Plan, then the Plan may be confirmed
with that portion excised so as to give effect as much as possible to the
foregoing releases without precluding confirmation of the Plan.
5.5.2 RELEASES BY HOLDERS OF CLAIMS OR INTERESTS
5.5.2.1 Holders of Claims. As of the Effective Date, to the
fullest extent permitted by applicable law, in consideration for the obligations
of the Debtors and the Reorganized Debtors under the Plan and the Cash (if the
Voting Condition is satisfied), the New Securities, contracts, instruments,
releases and other agreements or documents to be delivered in connection with
the Plan, each holder of a Claim that is Impaired under the Plan will be deemed
to forever release, waive and discharge all claims, counterclaims, demands,
debts, rights, causes of action and liabilities (other than the right to enforce
the Debtors' or the Reorganized Debtors'
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obligations under the Plan and the contracts, instruments, releases and other
agreements and documents delivered thereunder), whether liquidated or
unliquidated, fixed or contingent, matured or unmatured, known or unknown,
foreseen or unforeseen, then existing or thereafter arising, that are based in
whole or in part on any act, omission or other occurrence taking place on or
prior to the Effective Date in any way relating to their Claims against a
Debtor, the Chapter 11 Cases or the Plan against (i) the Debtors and Nu-Tech,
(ii) the current and former officers, directors and shareholders of the Debtors
and Nu-Tech or (iii) their respective agents, advisors, attorneys and
representatives (including the respective current and former officers,
directors, employees, shareholders and professionals of the foregoing), acting
in such capacity.
5.5.2.2 Holders of Interests. As of the Effective Date, to the
fullest extent permissible under applicable law, in consideration for the
obligations of the Debtors and the Reorganized Debtors under the Plan (and, if
the Voting Condition is satisfied, the New Common Stock and the New Warrants),
contracts, instruments, releases or other agreements or documents to be
delivered in connection with the Plan, each entity that has held, holds or may
hold an Interest will be deemed to forever release, waive and discharge all
claims, counterclaims, demands, debts, rights, causes of action and liabilities
(other than the right to enforce the Debtors' or the Reorganized Debtors'
obligations under the Plan and the contracts, instruments, releases and other
agreements and documents delivered thereunder), whether liquidated or
unliquidated, fixed or
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contingent, matured or unmatured, known or unknown, foreseen or unforeseen, then
existing or thereafter arising, that are based in whole or in part on any act,
omission or other occurrence taking place on or prior to the Effective Date in
any way relating to their Interests in a Debtor, the Chapter 11 Cases or the
Plan against: (i) the Debtors and Nu-Tech, (ii) the current or former officers,
directors and shareholders of the Debtors and Nu-Tech or (iii) their respective
agents, advisors, attorneys and representatives (including the respective
current and former directors, officers, employees, shareholders and
professionals of the foregoing), acting in such capacity.
5.5.2.3 Release of Official Committee. As of the Effective
Date, to the fullest extent permissible under applicable law, in consideration
for the contracts, instruments, releases or other agreements or documents to be
delivered in connection with the Plan, each entity that has held, holds or may
hold a Claim or Interest which is Impaired will be deemed to forever release,
waive and discharge all claims, counterclaims, demands, debts, rights, causes of
action and liabilities, whether liquidated or unliquidated, fixed or contingent,
matured or unmatured, known or unknown, foreseen or unforeseen, then existing or
thereafter arising, that are based in whole or in part on any act, omission or
other occurrence taking place on or prior to the Effective Date in any way
relating to their Claims against or Interests in a Debtor, the Chapter 11 Cases
or the Plan against the Official Committee, its agents, advisors, attorneys and
representatives (including the respective current
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and former directors, officers, employees, shareholders and professionals of the
foregoing), acting in such capacity.
5.5.2.4 Sutter Guaranty. Notwithstanding that the Sutter
Guaranty shall continue in full force and effect after the Effective Date, as of
the Effective Date, in consideration for the obligations of the Debtors and the
Reorganized Debtors under the Plan, Sutter will be deemed to have forever
released, waived and discharged all claims, counterclaims, demands, debts,
rights of contribution, reimbursement, subrogation or otherwise, and
liabilities, whether liquidated or unliquidated, fixed or contingent, material
or immaterial, known or unknown, foreseen or unforeseen, then existing or
thereafter arising in any way relating to the Sutter Guaranty and against (i)
the Debtors and Nu-Tech, (ii) the current and former officers, directors and
shareholders of the Debtors and Nu-Tech or (iii) their respective agents,
advisors, attorneys and representatives (including the respective current and
former officers, directors, employees, shareholders and professionals of the
foregoing), acting in such capacity.
5.5.3 INJUNCTION RELATED TO RELEASES
As further provided in Section 11.2, the Confirmation Order will enjoin
the prosecution, whether directly, derivatively or otherwise, of any claim,
counterclaim, demand, debt, right, cause of action, liability or interest
released, discharged or terminated pursuant to the Plan.
5.6 RELEASE OF LIENS
Except as otherwise provided in the Plan with respect to Other Secured
Claims, the New Indenture, or in any contract,
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instrument, indenture or other agreement or document created in connection with
the Plan, on the Effective Date, all mortgages, deeds of trust, liens or other
security interests against the property of the Estate shall be released, and all
the right, title and interest of any holder of such mortgages, deeds of trust,
liens or other security interests shall revert to the applicable Reorganized
Debtor and its successors and assigns.
5.7 EFFECTUATING DOCUMENTS; FURTHER TRANSACTIONS; EXEMPTION FROM CERTAIN
TRANSFER TAXES
The Chairman of the Board, Chief Executive Officer and any Executive
Vice President or Vice President of each Debtor or Reorganized Debtor shall be
authorized to execute, deliver, file or record such contracts, instruments,
releases, indentures and other agreements or documents and to take such actions
as may be necessary or appropriate to effectuate and further evidence the terms
and conditions of the Plan. The Secretary or any Assistant Secretary of the
applicable Debtor or Reorganized Debtor shall be authorized to certify or attest
to any of the foregoing actions. Pursuant to section 1146(c) of the Bankruptcy
Code: (1) the issuance, distribution, transfer or exchange of the New
Securities; (2) the creation, modification, consolidation or recording of any
mortgage, deed of trust or other security interest, the securing of additional
indebtedness by such means or by other means in furtherance of, or in connection
with, the Plan or the Confirmation Order; (3) the making, assignment or
recording of any lease or sublease; or (4) the making, delivery or recording of
any deed or other instrument of transfer under, in furtherance of, or in
connection with, the Plan, including any
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merger agreements or agreements of consolidations, deeds, bills of sale,
assignment or other instruments of transfer executed in connection with the
Plan, the Confirmation Order or any transaction contemplated in Section 5.2
above, or any transactions arising out of, contemplated by or in any way related
to the foregoing, shall not be subject to any document recording tax, stamp tax,
conveyance fee, intangibles or similar tax, mortgage tax, stamp act, real estate
transfer tax, mortgage recording tax or other similar tax or governmental
assessment, and the appropriate state or local governmental officials or agents
shall be, and hereby are, directed to forego the collection of any such tax or
governmental assessment and to accept for filing and recordation any of the
foregoing instruments or other documents without the payment of any such tax or
governmental assessment.
ARTICLE VI.
TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES
6.1 EXECUTORY CONTRACTS AND UNEXPIRED LEASES TO BE ASSUMED
6.1.1 ASSUMPTIONS GENERALLY
Except as otherwise provided in the Plan, including Section 6.2 below,
or in any contract, instrument, release, indenture or other agreement or
document entered into in connection with the Plan, on the Effective Date,
pursuant to section 365 of the Bankruptcy Code, the Debtors shall assume (i)
each executory contract and unexpired lease entered into by a Debtor prior to
the Petition Date that has not previously: (a) expired or terminated pursuant to
its own terms or (b) been assumed or rejected pursuant to section 365 of the
Bankruptcy Code and
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(ii) each Provider Agreement. Notwithstanding any other provision of this Plan,
the Provider Agreements shall be assumed as of the Effective Date free and clear
of any rights, claims, recoupments or setoffs which accrued before the Effective
Date. In particular, and without limitation, from and after the Effective Date,
the non-debtor parties to the Provider Agreements shall be enjoined from setting
off or recouping against payments due to the Reorganized Debtors after the
Effective Date, any liabilities which the Debtors have, or may have, to such
third parties which liabilities accrued on or before the Effective Date; and
such non-debtor parties to any of the Provider Agreements shall not be entitled
to impose on the Reorganized Debtors, any successor to the Reorganized Debtors
or any of their respective agents or employees, any compliance or other
requirements as a condition to the Provider Agreements remaining in full force
and effect. The Confirmation Order shall constitute an order of the Bankruptcy
Court approving the assumptions described in this Section 6.1.1, pursuant to
section 365 of the Bankruptcy Code, as of the Effective Date.
6.1.2 CURE OF DEFAULTS
Any monetary amounts by which each executory contract and unexpired
lease to be assumed pursuant to the Plan is in default shall be satisfied,
pursuant to section 365(b)(1) of the Bankruptcy Code, at the option of the
applicable Debtor or Reorganized Debtor: (a) by payment of the default amount in
Cash on the Effective Date or (b) on such other terms as are agreed to by the
parties to such executory contract or unexpired lease. If there is a dispute
regarding: (i) the amount of any cure
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payments; (ii) the ability of the applicable Reorganized Debtor to provide
"adequate assurance of future performance" (within the meaning of section 365 of
the Bankruptcy Code) under the contract or lease to be assumed; or (iii) any
other matter pertaining to assumption, the cure payments required by section
365(b)(1) of the Bankruptcy Code shall be made following the entry of a Final
Order resolving the dispute and approving the assumption.
6.2 EXECUTORY CONTRACTS AND UNEXPIRED LEASES TO BE REJECTED; BAR DATE FOR
REJECTION DAMAGES
6.2.1 REJECTION GENERALLY
Except as otherwise provided in the Plan or in any contract,
instrument, release, indenture or other agreement or document entered into in
connection with the Plan, on the Effective Date, pursuant to section 365 of the
Bankruptcy Code, the applicable Debtor shall reject each of the executory
contracts and unexpired leases listed on Exhibit I to the Plan; provided,
however, that the Debtors reserve the right, at any time prior to the Effective
Date, to amend Exhibit I to delete any executory contract or unexpired lease
listed therein, thus providing for its assumption pursuant to Section 6.1.1
above. Each contract and lease listed on Exhibit I shall be rejected only to the
extent that any such contract or lease constitutes an executory contract or
unexpired lease. Listing a contract or lease on Exhibit I shall not constitute
an admission by the applicable Debtor or Reorganized Debtor that such contract
or lease is an executory contract or unexpired lease or that the applicable
Debtor or Reorganized Debtor has any liability thereunder. The Confirmation
Order shall constitute an order of the Bankruptcy Court approving such
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rejections, pursuant to section 365 of the Bankruptcy Code, as of the Effective
Date.
6.2.2 BAR DATE FOR REJECTION DAMAGES
If the rejection of an executory contract or unexpired lease pursuant
to Section 6.2.1 above gives rise to a Claim by the other party or parties to
such contract or lease, such Claim shall be forever barred and shall not be
enforceable against the applicable Debtor, Reorganized Debtor, their respective
successors or properties unless (a) a Stipulation of Amount and Nature of Claim
has been entered into with respect to the rejection of such executory contract
or unexpired lease or (b) a proof of Claim is Filed and served on the
Reorganized Debtors and counsel for the Reorganized Debtors within 30 days after
the Effective Date or such earlier date as established by the Bankruptcy Court.
6.3 SPECIAL EXECUTORY CONTRACT AND UNEXPIRED LEASE MATTERS
6.3.1 EXISTING EMPLOYMENT, RETIREMENT AND OTHER AGREEMENTS AND
INCENTIVE COMPENSATION PROGRAMS
The employment, retirement and other agreements and incentive
compensation programs that are listed on Exhibit K to the Plan are treated as
executory contracts under the Plan and, on the Effective Date, shall be assumed
pursuant to sections 365 and 1123 of the Bankruptcy Code.
6.3.2 INDEMNIFICATION OBLIGATIONS
To the extent any indemnification obligation of a Debtor existing as of
the Petition Date to any officer or director to be employed by Reorganized PCL
constitutes an executory contract, each Debtor shall be deemed to have assumed
such executory
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contract as of the Effective Date pursuant to section 365 of the Bankruptcy
Code.
6.4 EXECUTORY CONTRACTS AND UNEXPIRED LEASES ENTERED INTO AND
OTHER OBLIGATIONS INCURRED AFTER THE PETITION DATE
Executory contracts and unexpired leases entered into and other
obligations incurred after the Petition Date by the Debtors shall be performed
by the applicable Debtor or Reorganized Debtor in the ordinary course of its
business. Accordingly, such executory contracts, unexpired leases and other
obligations shall survive and remain unaffected by entry of the Confirmation
Order.
ARTICLE VII.
PROVISIONS GOVERNING DISTRIBUTIONS
7.1 DISTRIBUTIONS FOR CLAIMS AND INTERESTS ALLOWED AS OF THE
EFFECTIVE DATE
7.1.1 Except as otherwise provided in this Article VII, or as may be
ordered by the Bankruptcy Court, distributions to be made on account of Claims
or Interests that are Allowed as of the Effective Date shall be made on the
Effective Date. Distributions shall be deemed made on the Effective Date if made
on the Effective Date or as promptly thereafter as practicable, but in any event
no later than 60 days after the Effective Date or such later date when the
applicable conditions of Sections 6.1.2 (regarding cure payments for executory
contracts and unexpired leases being assumed); 7.3.2 (regarding undeliverable
distributions); 7.6.6.2 (regarding arrangements for the satisfaction and payment
of tax obligations relating to distributions of Cash or securities pursuant to
the Plan); or 5.4 and 7.8 (regarding surrender of canceled debt instruments and
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securities) are satisfied. Securities to be issued shall be deemed issued as of
the Effective Date regardless of the date on which they are actually
distributed. Distributions on account of Claims or Interests that are Allowed
after the Effective Date shall be made pursuant to Sections 7.6 and 8.3 below.
Notwithstanding the date on which any distribution of securities is actually
made to a holder of a Claim or Interest that is an Allowed Claim or Allowed
Interest on the Effective Date, as of the date of the distribution such holder
shall be deemed to have the rights of a holder of such securities distributed as
of the Effective Date.
7.1.2 From and after the Effective Date, Cash to be distributed on the
Effective Date on account of Claims allowed as of the Effective Date shall be
held pending distribution in trust in segregated bank accounts in the name of
the Disbursing Agent for the benefit of the holders of such Claims. The
Disbursing Agent shall invest such cash in a manner consistent with Reorganized
PCL's investment and deposit guidelines. Distributions of Cash on account of
each Claim allowed as of the Effective Date shall include a Pro Rata share of
the Reorganization Investment Yield from such investment of Cash.
7.2 DISTRIBUTIONS BY DISBURSING AGENTS AND THE INDENTURE TRUSTEE
7.2.1 DISBURSING AGENTS
Except as provided in Section 7.2.2 below, the Disbursing Agent shall
make all distributions of Cash and New Securities required to be distributed
under the applicable provisions of the Plan. The Disbursing Agent may employ or
contract with other entities to assist in or make the distributions required by
the
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Plan. The Disbursing Agent shall serve without bond, and any Third-Party
Disbursing Agent shall receive, without further Bankruptcy Court approval,
reasonable compensation for distribution services rendered pursuant to the Plan
and reimbursement of reasonable out-of-pocket expenses incurred in connection
with such services from Reorganized PCL on terms acceptable to Reorganized PCL.
7.2.2 INDENTURE TRUSTEE
Distributions provided for in the Plan on account of Old Subordinated
Debenture Claims shall be made to the Indenture Trustee, for further
distribution to individual holders of Allowed Old Subordinated Debenture Claims.
Any such distribution shall be made pursuant to the Old Indenture.
7.3 DELIVERY OF DISTRIBUTIONS AND UNDELIVERABLE OR UNCLAIMED
DISTRIBUTIONS
7.3.1 DELIVERY OF DISTRIBUTIONS IN GENERAL
Distributions to holders of Allowed Claims or Allowed Interests shall
be made at the addresses set forth in the Schedules or other records of the
Debtors or Reorganized Debtors at the time of the distribution.
7.3.2 UNDELIVERABLE DISTRIBUTIONS
7.3.2.1 HOLDING AND INVESTMENT OF UNDELIVERABLE
DISTRIBUTIONS
7.3.2.1.1 If the distribution to any holder of an
Allowed Claim or Allowed Interest is returned to a Disbursing Agent as
undeliverable, no further distributions shall be made to such holder unless and
until the Disbursing Agent is notified in writing of such holder's then-current
address. Undeliverable
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distributions shall remain in the possession of the Disbursing Agent pursuant to
this Section 7.3.2.1.1 until such time as a distribution becomes deliverable.
Undeliverable Cash shall be held in trust in segregated bank accounts in the
name of the Disbursing Agent for the benefit of the potential claimants of such
funds, and shall be accounted for separately. Undeliverable New Securities and
Senior Notes shall be held in trust for the benefit of the potential claimants
of such securities by the Disbursing Agent in principal amounts or number of
shares sufficient to fund the unclaimed amounts of such securities and shall be
accounted for separately.
7.3.2.1.2 Pending the distribution of any
undeliverable New Common Stock pursuant to the Plan, the Disbursing Agent shall
cause the Common Stock held by it in its capacity as Disbursing Agent to be: (A)
represented in person or by proxy at each meeting of the stockholders of
Reorganized PCL; and (B) voted with respect to any matter of Reorganized PCL
proportionally with the votes cast by the other stockholders of Reorganized PCL.
7.3.2.2 AFTER DISTRIBUTIONS BECOME DELIVERABLE
On each Distribution Date, the applicable Disbursing Agent will make
all distributions that become deliverable to holders of Allowed Claims or
Allowed Interests during the preceding quarter. Each such distribution will
include, to the extent applicable: (i) dividends or other distributions, if any,
that shall have theretofore been paid to the Disbursing Agent in respect of any
New Common Stock included in such distribution and (ii) a Pro Rata share of the
Reorganization Investment Yield.
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7.3.2.3 FAILURE TO CLAIM UNDELIVERABLE DISTRIBUTIONS
Any holder of an Allowed Claim or Allowed Interest that does not assert
a claim pursuant to the Plan for an undeliverable distribution within one year
after the Effective Date shall have its claim for such undeliverable
distribution discharged and shall be forever barred from asserting any such
claim for an undeliverable distribution against the Reorganized Debtors or their
respective property. In such cases: (i) any Cash held for distribution on
account of such claims for undeliverable distributions shall be property of
Reorganized PCL free of any restrictions thereon; (ii) any New Common Stock held
for issuance on account of such claims for undeliverable distributions shall
either be canceled or held as treasury shares as Reorganized PCL may determine
is appropriate; and (iii) any New Warrants held for issuance on account of such
claims for undeliverable distributions shall be canceled. To the extent that
such undeliverable Cash or New Securities are held by a Third-Party Disbursing
Agent, the Third-Party Disbursing Agent shall return such Cash or the securities
or other instruments evidencing such New Securities to Reorganized PCL. Nothing
contained in the Plan shall require the Debtors, Reorganized Debtors or any
Disbursing Agent to attempt to locate any holder of an Allowed Claim or Allowed
Interest.
7.4 DISTRIBUTION RECORD DATE
As of the close of business on the Distribution Record Date, the
transfer registers for the Capital Stock maintained by the Debtors, or their
respective agents, shall be closed. The Disbursing Agents and their respective
agents shall have no
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obligation to recognize the transfer of any Capital Stock occurring after the
Distribution Record Date, and shall be entitled for all purposes herein to
recognize and deal only with those holders of record as of the close of business
on the Distribution Record Date.
7.5 MEANS OF CASH PAYMENTS
Cash payments made pursuant to the Plan shall be in U.S. dollars by
checks drawn on a domestic bank selected by the Disbursing Agent, or by wire
transfer from a domestic bank, at the option of the Disbursing Agent. Cash
payments of [$1,000,000.00] or more to be made pursuant to the Plan will, to the
extent requested in writing no later than five days after the Confirmation Date,
be made by wire transfer from a domestic bank. Cash payments to foreign
creditors may be made, at the option of the Disbursing Agent, in such funds and
by such means as are necessary or customary in a particular foreign
jurisdiction.
7.6 TIMING AND CALCULATION OF AMOUNTS TO BE DISTRIBUTED
7.6.1 IN GENERAL
On the Effective Date, other than as provided in Section 7.6.2 below,
to the extent that the Plan provides for distributions on account of Allowed
Claims or Allowed Interests in the applicable Class, each holder of an Allowed
Claim or Allowed Interest shall receive the full amount of the distributions
that the Plan provides for Allowed Claims or Allowed Interests in the applicable
Class. On each Distribution Date, distributions shall also be made, pursuant to
Sections 7.3 and 8.3 below, respectively, to (a) holders of Claims or Interests
to whom a distribution has become deliverable during
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the preceding quarter and (b) to holders of Disputed Claims or Disputed
Interests in any such Class whose Claims or Interests were Allowed during the
preceding quarter. Such quarterly distributions shall also be in the full amount
that the Plan provides for Allowed Claims or Allowed Interests in the applicable
Class.
7.6.2 DISTRIBUTIONS TO HOLDERS OF CLAIMS IN CLASS 5
7.6.2.1 The Disbursing Agent shall make initial distributions
to the holders of Allowed Claims in Class 5 on the Effective Date. The amount of
the distributions to be made to holders of Allowed Claims in Class 5 on the
Effective Date shall be calculated as if each Disputed Claim in Class 5 were an
Allowed Claim in the amount of the Claim as Filed. Pursuant to Sections 8.1.2
and 8.3 below, (a) beginning on the first Distribution Date, the Disbursing
Agent shall make distributions to holders of Disputed Claims whose Claims become
Allowed Claims during the preceding quarter, (b) all fees and expenses of the
Disbursing Agent with respect to distributions to holders of Class 5 Claims
shall be paid out of the funds in the Class 5 Disbursement Account and (c) all
costs incurred in connection with the resolution of Disputed Claims after the
Effective Date shall be paid out of the funds in the Class 5 Disbursement
Account. Such distributions shall be calculated pursuant to the provisions set
forth in this Section 7.6.2.1.
7.6.2.2 On each Distribution Date, each holders of a
previously Allowed Claim in Class 5 shall receive an additional distribution on
account of such Claim equal to: (i) the amount of consideration that such holder
would be entitled to receive
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under the Plan as if such Claim had become an Allowed Claim on such Distribution
Date, minus (ii) the aggregate amount of consideration previously distributed on
account of such Claim. Each such additional distribution shall also include, on
the basis of the amount then being distributed, a Pro Rata share of the
Reorganization Investment Yield, from the date such amounts would have been due
had such Claim initially been paid 100% of the Allowed amount, to the date such
distribution is made, net of any taxes paid or payable by the Disbursing Agent
and properly attributable to such share of the Reorganization Investment Yield.
7.6.3 DISTRIBUTIONS OF COMMON STOCK
Notwithstanding any other provision of the Plan, only whole numbers of
shares of New Common Stock shall be issued or transferred, as the case may be,
pursuant to the Plan. When any distribution on account of an Allowed Claim or
Allowed Interest pursuant to the Plan would otherwise result in the issuance or
transfer of a number of shares of New Common Stock that is not a whole number,
the actual distribution of shares of such stock shall be rounded to the next
higher or lower whole number as follows: (a) fractions of 1/2 or greater shall
be rounded to the next higher whole number and (b) fractions of less than 1/2
shall be rounded to the next lower whole number. The total number of shares of
New Common Stock to be distributed to a Class of Claims or Interests shall be
adjusted as necessary to account for the rounding provided for in this Section
7.6.3. No consideration shall be provided in lieu of fractional shares that are
rounded down.
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7.6.4 DISTRIBUTIONS OF NEW SENIOR NOTES
Notwithstanding any other provision of the Plan, New Senior Notes will
be issued in denominations of $1,000 and integral multiples thereof. In the
event a holder of an Allowed Senior Debt Claim is entitled to an amount of New
Senior Notes that is not an integral multiple of $1,000, the principal amount of
New Senior Notes such holder is entitled to receive shall be rounded up to the
nearest integral multiple of $1,000.
7.6.5 DISTRIBUTIONS OF NEW WARRANTS
Notwithstanding any other provision of the Plan, only whole numbers of
New Warrants shall be issued pursuant to the Plan. When any distribution on
account of an Allowed Class 7 Interest pursuant to the Plan would otherwise
result in the issuance of a number of New Warrants that is not a whole number,
the actual distribution of such New Warrants shall be rounded to the next higher
or lower whole number as follows: (a) fractions of 1/2 or greater shall be
rounded to the next higher whole number and (b) fractions of less than 1/2 shall
be rounded to the next lower whole number. The total number of New Warrants to
be distributed to a holder of an Allowed Class 7 Interest shall be adjusted as
necessary to account for the rounding provided for in this Section 7.6.5. No
consideration shall be provided in lieu of fractional warrants that are rounded
down.
7.6.6 COMPLIANCE WITH TAX REQUIREMENTS
7.6.6.1 In connection with the Plan, to the extent applicable,
the Disbursing Agent shall comply with all tax withholding and reporting
requirements imposed on it by any governmental unit, and all distributions
pursuant to the Plan
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shall be subject to such withholding and reporting requirements. The Disbursing
Agent shall be authorized to take any and all actions that may be necessary or
appropriate to comply with such withholding and reporting requirements.
7.6.6.2 Notwithstanding any other provision of the Plan: (i)
each holder of an Allowed Claim or Interest that is to receive a distribution of
Cash or New Securities pursuant to the Plan shall have sole and exclusive
responsibility for the satisfaction and payment of any tax obligations imposed
by any governmental unit, including income, withholding and other tax
obligations, on account of such distribution; and (ii) no distribution shall be
made to or on behalf of such holder pursuant to the Plan unless and until such
holder has made arrangements satisfactory to the Disbursing Agent for the
payment and satisfaction of such tax obligations. Any Cash or New Securities to
be distributed pursuant to the Plan shall, pending the implementation of such
arrangements, be treated as an undeliverable distribution pursuant to Section
7.3.2 above.
7.7 SETOFFS
Except with respect to claims of a Debtor or Reorganized Debtor
released pursuant to the Plan or any contract, instrument, release, indenture,
or other agreement or document created in connection with the Plan, the Debtors
or Reorganized Debtors may, pursuant to section 553 of the Bankruptcy Code or
applicable nonbankruptcy law, set off against any Allowed Claim (other than a
Senior Debt Claim, Nu-Tech Claim or Old Subordinated Debentures Claim) and the
distributions to be made pursuant to the Plan on account of such Claim (before
any distribution is made on account
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of such Claim), the claims, rights and causes of action of any nature that the
applicable Debtor or Reorganized Debtor 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 hereunder shall constitute a waiver or
release by the applicable Debtor or Reorganized Debtor of any such claims,
rights and causes of action that the applicable Debtor or Reorganized Debtor may
possess against such holder.
7.8 SURRENDER OF CANCELLED DEBT INSTRUMENTS OR SECURITIES
Subject to the provisions of Section 7.8.2 below, as a condition
precedent to receiving any distribution pursuant to the Plan on account of an
Allowed Claim or Allowed Interest evidenced by the instruments, securities or
other documentation canceled pursuant to Section 5.2.1 above, the holder of such
Claim or Interest shall tender the applicable instruments, Old Subordinated
Debentures, Old Common Stock or other documentation evidencing such Claim or
Interest to the Disbursing Agent pursuant to a letter of transmittal furnished
by the Disbursing Agent. Any New Securities to be distributed pursuant to the
Plan on account of any such Claim or Interest shall, pending such surrender, be
treated as an undeliverable distribution pursuant to Section 7.3.2 above.
7.8.1 OLD SUBORDINATED DEBENTURES AND CAPITAL STOCK
CERTIFICATES
Except as provided in Section 7.8.2 below for lost, stolen, mutilated
or destroyed Old Subordinated Debentures or Capital Stock certificates, each
holder of an Allowed Claim or Allowed Interest evidenced by an Old Subordinated
Debenture or Capital
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Stock certificate shall tender such Old Subordinated Debenture or Capital Stock
certificate to the Disbursing Agent in accordance with written instructions to
be provided in a letter of transmittal to such holders by the Disbursing Agent
as promptly as practicable following the Effective Date. Such letter of
transmittal shall specify that delivery of such Old Subordinated Debentures or
Capital Stock certificates will be effected, and risk of loss and title thereto
will pass, only upon the proper delivery of such Old Subordinated Debentures or
Capital Stock certificates with the letter of transmittal in accordance with
such instructions. Such letter of transmittal shall also include, among other
provisions, customary provisions with respect to the authority of the holder of
the applicable Old Subordinated Debenture or Capital Stock certificate to act
and the authenticity of any signatures required on the letter of transmittal.
All surrendered Old Subordinated Debentures and Capital Stock certificates shall
be marked as canceled and delivered to Reorganized PCL.
7.8.2 LOST, STOLEN, MUTILATED OR DESTROYED EXISTING LENDER AGREEMENTS,
OLD SUBORDINATED DEBENTURES OR CAPITAL STOCK CERTIFICATES
In addition to any requirements under the applicable certificate or
articles of incorporation or bylaws of the applicable Debtor, any holder of a
Claim or an Interest evidenced by an Existing Lender Agreement, Old Subordinated
Debenture or a Capital Stock certificate that has been lost, stolen, mutilated
or destroyed shall, in lieu of surrendering such Old Subordinated Debenture or
Capital Stock certificate, deliver to the Disbursing
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Agent: (a) evidence satisfactory to the Disbursing Agent of the loss, theft,
mutilation or destruction; and (b) such indemnity as may be required by the
Disbursing Agent to hold the Disbursing Agent harmless from any damages,
liabilities or costs incurred in treating such individual as a holder of an
Existing Lender Agreement, Old Subordinated Debenture or a Capital Stock
certificate. Upon compliance with this Section 7.8.2 by a holder of a Claim or
an Interest evidenced by an Existing Lender Agreement, Old Subordinated
Debenture or Capital Stock certificate, such holder shall, for all purposes
under the Plan, be deemed to have surrendered an Existing Lender Agreement, Old
Subordinated Debenture or a Capital Stock certificate, as applicable.
7.8.3 FAILURE TO SURRENDER CANCELED OLD SUBORDINATED DEBENTURES OR
CAPITAL STOCK CERTIFICATES
Any holder of an Old Subordinated Debenture or Capital Stock
certificate that fails to surrender or be deemed to have surrendered such Old
Subordinated Debenture or Capital Stock certificate within one year after the
Effective Date shall have its claim for a distribution pursuant to the Plan on
account of such Old Subordinated Debenture or Capital Stock certificate
discharged and shall be forever barred from asserting any such claim against the
Reorganized Debtors or their respective property. In such cases, any Cash or New
Securities held for distribution on account of such Claim or Interest shall be
disposed of pursuant to the provisions set forth in Section 7.3.2 above.
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ARTICLE VIII.
PROCEDURES FOR RESOLVING DISPUTED CLAIMS AND DISPUTED INTERESTS
8.1 PROSECUTION OF OBJECTIONS TO CLAIMS AND INTERESTS
8.1.1 PRIOR TO THE EFFECTIVE DATE
After the Confirmation Date and through the Effective Date, only the
Debtors and Reorganized Debtors shall have the authority to File objections,
settle, compromise, withdraw or litigate to judgment objections to Claims and
Interests. From and after the Confirmation Date, the Debtors and Reorganized
Debtors may settle or compromise any Disputed Claim or Disputed Interest without
approval of the Bankruptcy Court.
8.1.2 AFTER THE EFFECTIVE DATE
After the Effective Date, the Official Committee or any duly authorized
representative thereof shall have authority to File objections, settle,
compromise, withdraw or litigate to judgment objections to Class 5 Claims. After
the Effective Date, the Official Committee or its duly authorized representative
must give written notice to the Reorganized Debtors of any proposed settlement
of a Disputed Claim in Class 5. If the Reorganized Debtors do not object within
5 business days after receipt of such notice, the Official Committee or its
representative may settle such Disputed Claim without approval of the Bankruptcy
Court. If the Reorganized Debtor objects to a proposed settlement, the proposed
settlement shall be ruled upon by the Bankruptcy Court. Any and all fees, costs
and expenses incurred by the Official Committee or its representative in
connection with objections, settlements or litigation of any Disputed Claim
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under this Section 8.1.2 shall be paid out of the funds in the Class 5
Disbursement Account.
8.2 TREATMENT OF DISPUTED CLAIMS OR INTERESTS
8.2.1 NO PAYMENTS ON ACCOUNT OF DISPUTED CLAIMS OR INTERESTS
Notwithstanding any other provisions of the Plan, no payments or
distributions shall be made on account of a Disputed Claim or a Disputed
Interest until such Claim or Interest becomes an Allowed Claim or Allowed
Interest.
8.2.2 RESOLUTION OR ESTIMATION OF CLAIMS
Until the Effective Date, the Debtors or the Reorganized
Debtors, and after the Effective Date, the Official Committee with respect to
Class 5 Claims, may, at any time, request that the Bankruptcy Court estimate any
contingent or unliquidated Claim pursuant to section 502(c) of the Bankruptcy
Code, irrespective of whether the applicable Debtor or Reorganized Debtor has
previously objected to such Claim or whether the Bankruptcy Court has ruled on
any such objection. The Bankruptcy Court will retain jurisdiction to estimate
any contingent or unliquidated Claim at any time during litigation concerning
any objection to the Claim, including during the pendency of any appeal relating
to any such objection. If the Bankruptcy Court estimates any contingent or
unliquidated Claim, that estimated amount will constitute either the Allowed
Amount of such Claim or a maximum limitation on such Claim, as determined by the
Bankruptcy Court. If the estimated amount constitutes a maximum limitation on
such Claim, the applicable Debtor or Reorganized Debtor or the Official
Committee, as the
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case may be, may elect to pursue any supplemental proceedings to object to any
ultimate payment on account of such Claim. All of these Claims objection,
estimation and resolution procedures are cumulative and not necessarily
exclusive of one another. In addition to seeking estimation of Claims as
provided in this Section 8.2.2, the Debtors or Reorganized Debtors or the
Official Committee pursuant to Section 8.1.2 may resolve or adjudicate any
Disputed Claim in the manner in which the amount of such Claim and the rights of
the holder of such Claim would have been resolved or adjudicated if the
applicable Chapter 11 Case had not been commenced. Claims may be subsequently
compromised, settled, withdrawn or resolved by the applicable Debtor or
Reorganized Debtor or the Official Committee pursuant to Section 8.1 above.
8.3 DISTRIBUTIONS ON ACCOUNT OF DISPUTED CLAIMS OR INTERESTS ONCE THEY ARE
ALLOWED
On each Distribution Date, the Disbursing Agent shall make all
distributions on account of any Disputed Claim or Disputed Interest that has
become an Allowed Claim or Allowed Interest during the preceding quarter. After
the Effective Date, costs incurred by the Disbursing Agent with respect to
distributions on account of Class 5 Claims shall be paid from the funds in the
Class 5 Distribution Account. Such distributions shall be made pursuant to the
provisions of the Plan governing the applicable Class. Holders of Disputed
Claims or Disputed Interests that are ultimately allowed shall also be entitled
to receive, on the basis of the amount ultimately allowed: (1) any dividends or
other payments made on account of New Securities held pending
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distribution and (2) a Pro Rata share of the Reorganization Investment Yield.
ARTICLE IX.
CONDITIONS PRECEDENT TO CONFIRMATION AND
CONSUMMATION OF THE PLAN
9.1 CONDITIONS TO CONFIRMATION
The Confirmation Order shall be in form and substance satisfactory to
the Proponents.
9.2 CONDITIONS TO EFFECTIVE DATE
The Plan shall not be consummated and the Effective Date shall not
occur unless and until each of the following conditions has been satisfied or
duly waived (if available) pursuant to Section 9.3 below:
9.2.1 The Confirmation Order shall authorize and direct the
Debtors and Reorganized Debtors to take all actions necessary or
appropriate to enter into, implement and consummate the contracts,
instruments, releases, leases, indentures and other agreements or
documents created in connection with the Plan. The Confirmation Order
shall not be subject to a presently effective stay pending appeal.
9.2.2 Nu-Tech and Reorganized PCL shall have consummated the
Nu-Tech Stock Purchase.
9.2.3 The lenders under the New Credit Facility shall be
committed to fund the New Credit Facility on terms acceptable to the
Proponents.
9.2.4 The New Intercreditor Agreement shall be entered into.
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9.3 WAIVER OF CONDITIONS
The conditions to Confirmation and the Effective Date, other than the
condition set forth above in Section 9.2.1 and 9.2.2, may be waived in whole or
in part by the Proponents at any time, without notice, an order of the
Bankruptcy Court or any further action other than proceeding to Confirmation and
consummation of the Plan; provided that the conditions to the Effective Date set
forth in Sections 9.2.3 and 9.2.4 may be so waived by the Senior Lenders and
Nu-Tech. The failure to satisfy or waive any condition may be asserted by the
Proponents regardless of the circumstances giving rise to the failure of such
condition to be satisfied (including any action or inaction by the Proponents).
The failure of the Proponents to exercise any of the foregoing rights shall not
be deemed a waiver of any other rights and each such right shall be deemed an
ongoing right that may be asserted at any time.
9.4 EFFECT OF NONOCCURRENCE OF CONDITIONS TO EFFECTIVE DATE
Each of the conditions to consummation and the Effective Date must be
satisfied or duly waived, as provided above, within 60 days after the
Confirmation Date unless all Proponents agree to extend this time. If each
condition to the Effective Date has not been satisfied or duly waived pursuant
to Section 9.3 above, within 60 days after the Confirmation Date or such later
date as mutually agreed upon by the Proponents, then upon motion by any party in
interest made before the time that each of such conditions has been satisfied or
duly waived and upon notice to such parties in interest as the Bankruptcy Court
may direct, the Confirmation Order shall be vacated by the Bankruptcy Court;
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provided, however, that, notwithstanding the filing of such motion, the
Confirmation Order may not be vacated if each of the conditions to the Effective
Date is either satisfied or duly waived before the Bankruptcy Court enters an
order granting such motion. If the Confirmation Order is vacated pursuant to
this Section 9.4, the Plan shall be deemed null and void in all respects,
including the discharge of Claims and termination of Interests pursuant to
section 1141 of the Bankruptcy Code and the assumptions or rejections of
executory contracts and unexpired leases pursuant to Sections 6.1 and 6.2 above,
and nothing contained in the Plan shall (1) constitute a waiver or release of
any Claims by or against, or any Interests in, the Debtors or (2) prejudice in
any manner the rights of the Debtors.
ARTICLE X.
CONFIRMABILITY AND SEVERABILITY OF PLAN AND CRAMDOWN
10.1 CONFIRMABILITY AND SEVERABILITY OF A PLAN
The Plan constitutes a separate plan of reorganization for each Debtor.
Accordingly, the confirmation requirements of section 1129 of the Bankruptcy
Code must be satisfied separately with respect to each Debtor. The Proponents
reserve the right to modify, revoke or withdraw the Plan, as it applies to any
particular Debtor, pursuant to Sections 13.2 and 13.3 below. A determination by
the Bankruptcy Court that the Plan, as it applies to any particular Debtor, is
not confirmable pursuant to section 1129 of the Bankruptcy Code shall not limit
or affect the Proponents' ability to modify the Plan, as it applies to any
particular Debtor, to satisfy the confirmation requirements of section 1129 of
the Bankruptcy Code.
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10.2 CRAMDOWN
The Proponents hereby request Confirmation of the Plan under section
1129(b) of the Bankruptcy Code if any Impaired Class does not accept the Plan in
accordance with section 1126 of the Bankruptcy Code. The Proponents reserve the
right to modify the Plan to the extent, if any, that Confirmation pursuant to
section 1129(b) of the Bankruptcy Code requires modification.
ARTICLE XI.
DISCHARGE OF CLAIMS, TERMINATION OF
INTERESTS, INJUNCTIONS AND SUBORDINATION RIGHTS
11.1 DISCHARGE OF CLAIMS AND TERMINATION OF INTERESTS
11.1.1 Except as provided in the Plan or the Confirmation Order, the
rights afforded under the Plan and the treatment of Claims and Interests under
the Plan shall be in exchange for and in complete satisfaction, discharge and
release of all Claims and termination of all Interests, including any interest
accrued on Claims from the Petition Date. Except as provided in the Plan or the
Confirmation Order, Confirmation shall: (a) discharge the Debtors from all
Claims or other debts that arose before the Confirmation Date and all debts of
the kind specified in sections 502(g), 502(h) or 502(i) of the Bankruptcy Code,
whether or not: (i) a proof of Claim based on such debt is Filed or deemed Filed
pursuant to section 501 of the Bankruptcy Code, (ii) a Claim based on such debt
is Allowed pursuant to section 502 of the Bankruptcy Code or (iii) the holder of
a Claim based on such debt has accepted the Plan; and (b) terminate all
Interests and other rights of equity security holders in the Debtors.
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11.1.2 As of the Confirmation Date, except as provided in the Plan or
the Confirmation Order, all entities shall be precluded from asserting against
the Debtors, Reorganized Debtors, Proponents, the Committee, their successors or
their property, any other or further claims, counterclaims, debts, rights,
causes of action, liabilities or equity interests relating to the Debtors based
upon any act, omission, transaction or other activity of any nature that
occurred prior to the Confirmation Date. In accordance with the foregoing,
except as provided in the Plan or the Confirmation Order, the Confirmation Order
shall be a judicial determination of discharge of all such Claims and other
debts and liabilities against the Debtors and termination of all such Interests
and other rights of equity security holders in the Debtors, pursuant to sections
524 and 1141 of the Bankruptcy Code, and such discharge shall void any judgment
obtained against any Debtor at any time, to the extent that such judgment
relates to a discharged Claim or terminated Interest.
11.2 INJUNCTIONS
11.2.1 INJUNCTION RELATED TO DISCHARGED CLAIMS AND TERMINATED INTERESTS
Except as provided in the Plan or the Confirmation Order, as of the
Confirmation Date, all entities that have held, currently hold or may hold a
Claim or other debt or liability that is discharged or an Interest or other
right of an equity security holder that is terminated pursuant to the terms of
the Plan are permanently enjoined from taking any of the following actions
against the Debtors, Reorganized Debtors or their respective
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property on account of any such discharged Claims, debts or liabilities or
terminated Interests or rights: (a) commencing or continuing, in any manner or
in any place, any action or other proceeding; (b) enforcing, attaching,
collecting or recovering in any manner any judgment, award, decree or order; (c)
creating, perfecting or enforcing any lien or encumbrance; (d) asserting a
setoff, right of subrogation or recoupment of any kind against any debt,
liability or obligation due to the Debtors or Reorganized Debtors; and (e)
commencing or continuing, in any manner or in any place, any action that does
not comply with or is inconsistent with the provisions of the Plan.
11.2.2 RELEASED CLAIMS
As of the Effective Date, all entities that have held, currently hold
or may hold a claim, counterclaim, demand, debt, right, cause of action or
liability that is released pursuant to Section 5.5 are permanently enjoined from
taking any of the following actions on account of such released claims, demands,
debts, rights, causes of action or liabilities: (a) commencing or continuing in
any manner any action or other proceeding; (b) enforcing, attaching, collecting
or recovering in any manner any judgment, award, decree or order; (c) creating,
perfecting or enforcing any lien or encumbrance; (d) asserting a setoff, right
of subrogation or recoupment of any kind against any debt, liability or
obligation due to any released entity; and (e) commencing or continuing any
action, in any manner, in any place that does not comply with or is inconsistent
with the provisions of the Plan.
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11.2.3 CONSENT TO INJUNCTION
By accepting distributions pursuant to the Plan, each holder of an
Allowed Claim or Allowed Interest receiving distributions pursuant to the Plan
will be deemed to have specifically consented to the injunctions set forth in
this Section 11.2.
11.3 TERMINATION OF SUBORDINATION RIGHTS AND SETTLEMENT OF RELATED CLAIMS AND
CONTROVERSIES
11.3.1 The classification and manner of satisfying all Claims and
Interests under the Plan take into consideration all contractual, legal and
equitable subordination rights, whether arising under general principles of
equitable subordination, section 510(c) of the Bankruptcy Code or otherwise,
that a holder of a Claim or Interest may have against other Claim or Interest
holders with respect to any distribution made pursuant to the Plan. On the
Confirmation Date, all contractual, legal or equitable subordination rights that
a holder of a Claim or Interest may have with respect to any distribution to be
made pursuant to the Plan shall be discharged and terminated, and all actions
related to the enforcement of such subordination rights shall be permanently
enjoined. Accordingly, distributions pursuant to the Plan to holders of Allowed
Claims and Allowed Interests shall not be subject to payment to a beneficiary of
such terminated subordination rights, or to levy, garnishment, attachment or
other legal process by any beneficiary of such terminated subordination rights.
11.3.2 Pursuant to Bankruptcy Rule 9019 and in consideration for the
distributions and other benefits provided under the Plan, the provisions of this
Section 11.3 shall
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constitute a good faith compromise and settlement of all claims or controversies
relating to the termination of all contractual, legal and equitable
subordination rights that a holder of a Claim or an Interest may have with
respect to any Allowed Claim or Allowed Interest, or any distribution to be made
on account of an Allowed Claim or Allowed Interest. The entry of the
Confirmation Order shall constitute the Bankruptcy Court's approval of the
compromise or settlement of all such claims or controversies and the Bankruptcy
Court's finding that such compromise or settlement is in the best interests of
the Debtors, Reorganized Debtors and their respective property and Claim and
Interest holders, and is fair, equitable and reasonable.
11.4 LIMITATION OF LIABILITY IN CONNECTION WITH THE PLAN, DISCLOSURE STATEMENT
AND RELATED DOCUMENTS AND RELATED INDEMNITY
11.4.1 The Proponents and their officers, directors, members, agents
and representatives shall neither have nor incur any liability to any entity,
including, specifically any holder of a Claim or Interest, for any act taken or
omitted to be taken in connection with or related to the formulation,
preparation, dissemination, implementation, Confirmation or consummation of the
Plan, the Disclosure Statement, the Confirmation Order or any contract,
instrument, release or other agreement or document created or entered into, or
any other act taken or omitted to be taken in connection with the Plan, the
Disclosure Statement or the Confirmation Order, including solicitation of
acceptances of the Plan.
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11.4.2 Reorganized PCL shall indemnify each Proponent and their
officers, directors, members, agents and representatives, and shall hold each
Proponent and their officers, directors, members, agents and representatives
harmless from, and reimburse each Proponent for, any and all losses, costs,
expenses (including attorneys' fees and expenses), liabilities and damages
sustained by a Proponent and their officers, directors, members, agents and
representatives arising from any liability described in this Section 11.4.
ARTICLE XII.
RETENTION OF JURISDICTION
12.1 Notwithstanding the entry of the Confirmation Order and the
occurrence of the Effective Date, the Bankruptcy Court shall retain such
jurisdiction over the Chapter 11 Cases after the Effective Date to the fullest
extent permitted by applicable law, including, without limitation, jurisdiction
to:
12.1.1 Allow, disallow, determine, liquidate, classify,
estimate or establish the priority or secured or unsecured status of
any Claim or Interest, including the resolution of any request for
payment of any Administrative Claim, the resolution of any objections
to the allowance or priority of Claims or Interests and the resolution
of any dispute as to the treatment necessary to Reinstate a Claim
pursuant to the Plan;
12.1.2 Grant or deny any applications for allowance of
compensation or reimbursement of expenses authorized pursuant to the
Bankruptcy Code or the Plan, for periods ending on or before the
Effective Date;
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12.1.3 Resolve any matters related to the assumption or
rejection of any executory contract or unexpired lease to which a
Debtor is a party or with respect to which a Debtor may be liable, and
to hear, determine and, if necessary, liquidate any Claims arising
therefrom;
12.1.4 Ensure that distributions to holders of Allowed Claims
or Allowed Interests are accomplished pursuant to the provisions of the
Plan;
12.1.5 Decide or resolve any motions, adversary proceedings,
contested or litigated matters and any other matters and grant or deny
any applications involving the Debtors or Reorganized Debtors that may
be pending on the Effective Date;
12.1.6 Enter such orders as may be necessary or appropriate to
implement or consummate the provisions of the Plan and all contracts,
instruments, releases, indentures and other agreements or documents
created in connection with the Plan, the Disclosure Statement or the
Confirmation Order;
12.1.7 Resolve any cases, controversies, suits or disputes
that may arise in connection with the consummation, interpretation or
enforcement of the Plan or the Confirmation Order, including the
release and injunction provisions set forth in and contemplated by the
Plan and the Confirmation Order, or any entity's rights arising under
or obligations incurred in connection with the Plan or the Confirmation
Order;
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12.1.8 Modify the Plan before or after the Effective Date
pursuant to section 1127 of the Bankruptcy Code or modify the
Disclosure Statement, the Confirmation Order or any contract,
instrument, release, indenture or other agreement or document created
in connection with the Plan, the Disclosure Statement or the
Confirmation Order; or remedy any defect or omission or reconcile any
inconsistency in any Bankruptcy Court order, the Plan, the Disclosure
Statement, the Confirmation Order or any contract, instrument, release,
indenture or other agreement or document created in connection with the
Plan, the Disclosure Statement or the Confirmation Order, in such
manner as may be necessary or appropriate to consummate the Plan, to
the extent authorized by the Bankruptcy Code;
12.1.9 Issue injunctions, enter and implement other orders or
take such other actions as may be necessary or appropriate to restrain
interference by any entity with consummation, implementation or
enforcement of the Plan or the Confirmation Order;
12.1.10 Enter and implement such orders as are necessary or
appropriate if the Confirmation Order is for any reason modified,
stayed, reversed, revoked or vacated;
12.1.11 Determine any other matters that may arise in
connection with or relating to the Plan, the Disclosure Statement, the
Confirmation Order or any contract, instrument, release, indenture or
other agreement or document created in connection with the Plan, the
Disclosure
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Statement or the Confirmation Order, except as otherwise
provided in the Plan; and
12.1.12 Enter an order concluding the Chapter 11 Cases.
ARTICLE XIII.
MISCELLANEOUS PROVISIONS
13.1 PAYMENT OF STATUTORY FEES
All fees payable pursuant to section 1930 of title 28 of the United
States Code, as determined by the Bankruptcy Court at the Plan Confirmation
hearing pursuant to section 1128 of the Bankruptcy Code, shall be paid on or
before the Effective Date.
13.2 MODIFICATION OF THE PLAN
Subject to the restrictions on modifications set forth in section 1127
of the Bankruptcy Code and any applicable notice requirements, the Proponents
reserve the right to alter, amend or modify the Plan before its substantial
consummation.
13.3 REVOCATION OF THE PLAN
The Proponents reserve the right to revoke or withdraw the Plan as to
any or all of the Proponents prior to the Confirmation Date. If the Debtors
revoke or withdraw the Plan as to any or all of the Debtors, or if Confirmation
as to any or all of the Debtors does not occur, then, with respect to such
Debtors, the Plan shall be null and void in all respects, and nothing contained
in the Plan shall: (1) constitute a waiver or release of any Claims by or
against, or any Interests in, such Debtors; or (2) prejudice in any manner the
rights of such Debtors.
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13.4 SEVERABILITY OF PLAN PROVISIONS
If, prior to Confirmation, any term or provision of the Plan is held by
the Bankruptcy Court to be invalid, void or unenforceable, the Bankruptcy Court,
at the request of the Proponents, shall have the power to alter and interpret
such term or provision to make it valid or enforceable to the maximum extent
practicable, consistent with the original purpose of the term or provision held
to be invalid, void or unenforceable, and such term or provision shall then be
applicable as altered or interpreted. Notwithstanding any such holding,
alteration or interpretation, the remainder of the terms and provisions of the
Plan will remain in full force and effect and will in no way be affected,
impaired or invalidated by such holding, alteration or interpretation. The
Confirmation Order shall constitute a judicial determination and shall provide
that each term and provision of the Plan, as it may have been altered or
interpreted in accordance with the foregoing, is valid and enforceable pursuant
to its terms.
13.5 SUCCESSORS AND ASSIGNS
The rights, benefits and obligations of any entity named or referred to
in the Plan shall be binding on, and shall inure to the benefit of, any heir,
executor, administrator, successor or assign of such entity.
13.6 EXHIBITS
Because certain of the Exhibits referred to in the Plan are extremely
voluminous, these Exhibits are not being served with copies of the Plan and the
Disclosure Statement. The table of contents for the Plan indicates which
Exhibits are attached to
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the Plan as distributed and which are available only upon request from the
Debtors.
13.7 SERVICE OF DOCUMENTS ON THE DEBTORS OR REORGANIZED DEBTORS
Any pleading, notice or other document required by the Plan or
Confirmation Order to be served on or delivered to the Debtors or the
Reorganized Debtors shall be sent by first class U.S. mail, postage prepaid, to:
PHYSICIANS CLINICAL LABORATORY, INC.
2495 Natomas Park Drive, Suite 600
Sacramento, California 98533
Attention: J. Marvin Feigenbaum and Richard M. Brooks
with copies to:
JONES, DAY, REAVIS & POGUE
77 West Wacker
Chicago, Illinois 60601-1692
Attention: David S. Kurtz, Esq. and
Timothy R. Pohl, Esq.
and
PACHULSKI STANG ZIEHL & YOUNG
Century City North Building
10100 Santa Monica Boulevard, Suite 1100
Los Angeles, California 90067
Attention: Richard Pachulski, Esq. and
Jeremy V. Richards, Esq.
and
MILBANK, TWEED, HADLEY & McCLOY
601 South Figueroa Street, 13th Floor
Los Angeles, California 90017-5735
Attention: David C.L. Frauman, Esq. and
Scot D. Tucker, Esq.
Los Angeles, California
December ___, 1996
Respectfully submitted,
PHYSICIANS CLINICAL LABORATORY,
INC.,
a Delaware corporation
By:_______________________________________________
[NAME]
-80-
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__________________________________________________
[TITLE]
QUANTUM CLINICAL LABORATORIES,
INC.,
a California corporation
By:_______________________________________________
[NAME]
[TITLE]
DIAGNOSTIC LABORATORIES, INC.,
a California corporation
By:_______________________________________________
[NAME]
[TITLE]
REGIONAL REFERENCE LABORATORY
GOVERNING CORPORATION,
a California corporation
By:_______________________________________________
[NAME]
[TITLE]
CALIFORNIA REGIONAL REFERENCE
LABORATORY,
a California limited partnership
By:_______________________________________________
[NAME]
[TITLE]
NU-TECH BIO-MED, INC.
By:_______________________________________________
[NAME]
[TITLE]
-81-
<PAGE> 83
OAKTREE CAPITAL MANAGEMENT,
L.L.C., as general partner
or investment manager on
behalf of the funds listed
on Annex I hereto under
"Oaktree Funds"
By:_______________________________________________
[NAME]
[TITLE]
By:_______________________________________________
[NAME]
[TITLE]
DDJ OVERSEAS CORP.
By:_______________________________________________
Judy K. Mencher
Vice President
THE COPERNICUS FUND, L.P.
By: DDJ Copernicus, LLC,
Its General Partner
By:_______________________________________________
[NAME]
[TITLE]
BELMONT FUND, L.P.
By:______________________________________________,
Its General Partner
By:________________________________________
[NAME]
[TITLE]
-82-
<PAGE> 84
BELMONT CAPITAL PARTNERS, II, L.P.
By:_______________________________________________,
Its General Partner
By:________________________________________
[NAME]
[TITLE]
CERBERUS PARTNERS, LTD.
By:______________________________________________,
Its General Partner
By:________________________________________
[NAME]
[TITLE]
PROPOSED COUNSEL:
David S. Kurtz
Timothy R. Pohl
JONES, DAY, REAVIS & POGUE
77 West Wacker Drive
Chicago, Illinois 60601-1692
(312) 782-3939
Robert Dean Avery
Susanne Meline
JONES, DAY, REAVIS & POGUE
555 West Fifth Street, Suite 4600
Los Angeles, California 90013-1025
(213) 489-3939
ATTORNEYS FOR DEBTORS
AND DEBTORS IN POSSESSION
-83-
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C> <C> <C>
Introduction.................................................................................................... 1
ARTICLE I. DEFINED TERMS, RULES OF INTERPRETATION,
COMPUTATION OF TIME AND GOVERNING LAW.................................... 2
1.1 Defined Terms.......................................................................... 2
1.1.1 "Administrative Claim"................................................... 2
1.1.2 "Affiliate".............................................................. 2
1.1.3 "Agent".................................................................. 2
1.1.4 "Allowed Claim".......................................................... 3
1.1.5 "Allowed . . . Claim".................................................... 3
1.1.6 "Allowed Interest"....................................................... 3
1.1.7 "Ballots"................................................................ 3
1.1.8 "Bankruptcy Code"........................................................ 4
1.1.9 "Bankruptcy Court"....................................................... 4
1.1.10 "Bankruptcy Rules"....................................................... 4
1.1.11 "Bar Date"............................................................... 4
1.1.12 "Business Day"........................................................... 4
1.1.13 "CRRL"................................................................... 4
1.1.14 "Capital Stock".......................................................... 4
1.1.15 "Cash"................................................................... 4
1.1.16 "Chapter 11 Cases"....................................................... 4
1.1.17 "Claim".................................................................. 4
1.1.18 "Class".................................................................. 4
1.1.19 "Class 5 Disbursement Account"........................................... 4
1.1.20 "Confirmation"........................................................... 5
1.1.21 "Confirmation Date"...................................................... 5
1.1.22 "Confirmation Order"..................................................... 5
1.1.23 "Debtors"................................................................ 5
1.1.24 "DIP Financing Facility"................................................. 5
1.1.25 "Disbursing Agent"....................................................... 5
1.1.26 "Disclosure Statement"................................................... 5
1.1.27 "Disputed Claim"......................................................... 5
1.1.28 "Disputed Interest"...................................................... 6
1.1.29 "Distribution Date"...................................................... 6
1.1.30 "Distribution Record Date"............................................... 6
1.1.31 "DLI".................................................................... 7
1.1.32 "Effective Date"......................................................... 7
1.1.33 "Employment Agreement"................................................... 7
1.1.34 "Estate"................................................................. 7
1.1.35 "Exchange Act"........................................................... 7
1.1.36 "Existing Lender Agreements"............................................. 7
1.1.37 "File," "Filed" or "Filing".............................................. 7
1.1.38 "Final Distribution Date"................................................ 8
1.1.39 "Final Order"............................................................ 8
1.1.40 "Impaired . . ."......................................................... 8
1.1.41 "Indenture Trustee"...................................................... 8
1.1.42 "Interest"............................................................... 8
1.1.43 "Master Ballots"......................................................... 8
1.1.44 "New Common Stock"....................................................... 9
1.1.45 "New Common Stock Registration Rights
Agreement"............................................................... 9
</TABLE>
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Table of Contents
(continued)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1.1.46 "New Compensation Plans"................................................. 9
1.1.47 "New Credit Facility".................................................... 9
1.1.48 "New Credit Facility Agreement".......................................... 9
1.1.49 "New Credit Facility Documents".......................................... 10
1.1.50 "New Indenture".......................................................... 10
1.1.51 "New Intercreditor Agreement"............................................ 10
1.1.52 "New PCL Certificate of
Incorporation"........................................................... 10
1.1.53 "New PCL Bylaws"......................................................... 10
1.1.54 "New Registration Rights Agreements"..................................... 11
1.1.55 "New Securities"......................................................... 11
1.1.56 "New Senior Notes"....................................................... 11
1.1.57 "New Senior Notes Registration Rights
Agreement"............................................................... 11
1.1.58 "New Warrant Agreement".................................................. 11
1.1.59 "New Warrants"........................................................... 11
1.1.60 "Nu-Tech"................................................................ 11
1.1.61 "Nu-Tech Senior Debt Claim".............................................. 11
1.1.62 "Nu-Tech Stock Purchase"................................................. 12
1.1.63 "Official Committee"..................................................... 12
1.1.64 "Old Common Stock of . . .".............................................. 12
1.1.65 "Old Indenture".......................................................... 12
1.1.66 "Old Stock Options"...................................................... 12
1.1.67 "Old Subordinated Debenture Claims"...................................... 12
1.1.68 "Old Subordinated Debentures"............................................ 12
1.1.69 "Old Warrants"........................................................... 13
1.1.70 "Other Secured Claims"................................................... 13
1.1.71 "PCL".................................................................... 13
1.1.72 "Petition Date".......................................................... 13
1.1.73 "Plan"................................................................... 13
1.1.74 "Priority Claim"......................................................... 13
1.1.75 "Priority Tax Claim"..................................................... 13
1.1.76 "Pro Rata"............................................................... 13
1.1.77 "Professional"........................................................... 15
1.1.78 "Provider Agreements".................................................... 15
1.1.79 "QCL".................................................................... 15
1.1.80 "RRLGC".................................................................. 15
1.1.81 "Reinstated" or "Reinstatement".......................................... 15
1.1.82 "Reorganization Investment Yield"........................................ 16
1.1.83 "Reorganized . . ."...................................................... 16
1.1.84 "Schedules".............................................................. 16
1.1.85 "Secured Claim".......................................................... 16
1.1.86 "Securities Act"......................................................... 17
1.1.87 "Senior Debt Claims"..................................................... 17
1.1.88 "Senior Lenders"......................................................... 17
1.1.89 "Stipulation of Amount and Nature of
Claim"................................................................... 17
1.1.90 "Subsidiary Debtors"..................................................... 17
1.1.91 "Sutter Guaranty"........................................................ 17
1.1.92 "Third-Party Disbursing Agent"........................................... 17
1.1.93 "Unimpaired Claim"....................................................... 17
1.1.94 "Unsecured Claim"........................................................ 17
1.1.95 "Voting Condition"....................................................... 17
</TABLE>
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Table of Contents
(continued)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C> <C> <C>
1.1.96 "Voting Instructions".................................................... 18
1.1.97 "Voting Record Dates".................................................... 18
1.2 Rules of Interpretation, Computation of Time
and Governing Law...................................................................... 18
1.2.1 Rules of Interpretation.................................................. 18
1.2.2 Computation of Time...................................................... 19
1.2.3 Governing Law............................................................ 19
ARTICLE II. ADMINISTRATIVE CLAIMS AND PRIORITY TAX CLAIMS.......................................... 19
2.1 Administrative Claims.................................................................. 20
2.1.1 In General............................................................... 20
2.1.2 Bar Date for Administrative Claims....................................... 20
2.1.3 Professionals............................................................ 21
2.2 Priority Tax Claims.................................................................... 21
2.3 DIP Financing Facility Claims.......................................................... 22
ARTICLE III. CLASSIFICATION AND TREATMENT OF
CLASSIFIED CLAIMS AND INTERESTS........................................................ 23
3.1 Summary................................................................................ 23
3.2 Classification and Treatment of Claims and
Interests.............................................................................. 24
3.2.1 Class 1 - Priority Claims................................................ 24
3.2.2 Class 2 - Senior Debt Claims............................................. 24
3.2.3 Class 3 - Nu-Tech Senior Debt Claims..................................... 25
3.2.4 Class 4 - Other Secured Claims........................................... 25
3.2.5 Class 5 - Unsecured Claims............................................... 26
3.2.6 Class 6 - Old Subordinated Debenture
Claims................................................................... 27
3.2.7 Class 7 - Interests of holders of Old
Common Stock in PCL...................................................... 28
3.2.8 Class 8 - Interests of holders of
Interests in Subsidiaries................................................ 28
3.2.9 Class 9 - Interests of holders of Old
Stock Options and Old Warrants........................................... 29
3.3 Special Provision Regarding Unimpaired Claims.......................................... 29
3.4 Accrual of Postpetition Interest....................................................... 29
ARTICLE IV. ACCEPTANCE OR REJECTION OF THE PLAN.................................................... 30
4.1 Voting Classes......................................................................... 30
4.2 Acceptance by Impaired Classes......................................................... 30
4.3 Presumed Acceptance of Plan............................................................ 30
4.4 Deemed Non-Acceptance of Plan.......................................................... 30
4.5 Non-Consensual Confirmation............................................................ 31
ARTICLE V. MEANS FOR IMPLEMENTATION OF THE PLAN................................................... 31
5.1 Continued Corporate Existence, Vesting of
Assets in the Reorganized Debtors and
Preservation of Rights of Action....................................................... 31
5.1.1 Continued Corporate Existence and
Vesting of Assets........................................................ 31
5.1.2 Preservation of Rights of Action......................................... 32
5.2 The Restructuring Transactions......................................................... 33
</TABLE>
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Table of Contents
(continued)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C> <C> <C>
5.2.1 Cancellation of Capital Stock,
Existing Lender Agreements and Old
Indenture; Surrender of Securities and
Other Documentation...................................................... 33
5.2.2 The Reorganized Debtors' Obligations
Under the Plan........................................................... 34
5.2.3 Issuance of Securities and Related
Documentation............................................................ 34
5.2.4 Establishment of New Credit Facility..................................... 34
5.3 Corporate Governance, Directors and Officers,
Employment-Related Agreements and Compensation
Programs............................................................................... 35
5.3.1 Certificate of Incorporation and
Bylaws................................................................... 35
5.3.1.1 Reorganized PCL........................................ 35
5.3.1.2 The Subsidiary Debtors................................. 35
5.3.2 Directors and Officers................................................... 36
5.3.2.1 Reorganized PCL........................................ 36
5.3.2.2 The Reorganized Subsidiary
Debtors................................................ 37
5.3.3 Employment, Retirement,
Indemnification and Other Agreements
and Incentive Compensation Programs;
Retiree Health and Welfare Benefits...................................... 37
5.3.4 Corporate Action......................................................... 38
5.4 Sources of Cash for Plan Distributions................................................. 39
5.5 Releases and Related Matters........................................................... 39
5.5.1 Releases by the Debtors.................................................. 39
5.5.2 Releases by Holders of Claims or
Interests................................................................ 41
5.5.2.1 Holders of Claims...................................... 41
5.5.2.2 Holders of Interests................................... 42
5.5.2.3 Release of Official
Committee.............................................. 43
5.5.2.4 Sutter Guaranty........................................ 43
5.5.3 Injunction Related to Releases........................................... 44
5.6 Release of Liens....................................................................... 44
5.7 Effectuating Documents; Further Transactions;
Exemption from Certain Transfer Taxes.................................................. 44
ARTICLE VI.
TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES............................ 46
6.1 Executory Contracts and Unexpired Leases to be
Assumed................................................................................ 46
6.1.1 Assumptions Generally.................................................... 46
6.1.2 Cure of Defaults......................................................... 47
6.2 Executory Contracts and Unexpired Leases to be
Rejected; Bar Date for Rejection Damages............................................... 47
6.2.1 Rejection Generally...................................................... 47
6.2.2 Bar Date for Rejection Damages........................................... 48
6.3 Special Executory Contract and Unexpired Lease
Matters................................................................................ 49
</TABLE>
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Table of Contents
(continued)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C> <C> <C>
6.3.1 Existing Employment, Retirement and
Other Agreements and Incentive
Compensation Programs.................................................... 49
6.3.2 Indemnification Obligations.............................................. 49
6.4 Executory Contracts and Unexpired Leases
Entered Into and Other Obligations Incurred
After the Petition Date................................................................ 49
ARTICLE VII. PROVISIONS GOVERNING DISTRIBUTIONS..................................................... 50
7.1 Distributions for Claims and Interests Allowed
as of the Effective Date............................................................... 50
7.2 Distributions by Disbursing Agents and the
Indenture Trustee...................................................................... 51
7.2.1 Disbursing Agents........................................................ 51
7.2.2 Indenture Trustee........................................................ 51
7.3 Delivery of Distributions and Undeliverable or
Unclaimed Distributions................................................................ 52
7.3.1 Delivery of Distributions in General..................................... 52
7.3.2 Undeliverable Distributions.............................................. 52
7.3.2.1 Holding and Investment of
Undeliverable Distributions............................ 52
7.3.2.2 After Distributions Become
Deliverable............................................ 53
7.3.2.3 Failure to Claim
Undeliverable Distributions............................ 53
7.4 Distribution Record Date............................................................... 54
7.5 Means of Cash Payments................................................................. 54
7.6 Timing and Calculation of Amounts to be
Distributed............................................................................ 55
7.6.1 In General............................................................... 55
7.6.2 Distributions to Holders of Claims in
Class 5.................................................................. 55
7.6.3 Distributions of Common Stock............................................ 56
7.6.4 Distributions of New Senior Notes........................................ 57
7.6.5 Distributions of New Warrants............................................ 57
7.6.6 Compliance with Tax Requirements......................................... 58
7.7 Setoffs................................................................................ 59
7.8 Surrender of Cancelled Debt Instruments or
Securities............................................................................. 59
7.8.1 Old Subordinated Debentures and
Capital Stock Certificates............................................... 60
7.8.2 Lost, Stolen, Mutilated or Destroyed
Existing Lender Agreements, Old
Subordinated Debentures or Capital
Stock Certificates....................................................... 61
7.8.3 Failure to Surrender Canceled Old
Subordinated Debentures or Capital
Stock Certificates....................................................... 61
ARTICLE VIII. PROCEDURES FOR RESOLVING DISPUTED CLAIMS AND
DISPUTED INTERESTS.................................................................... 62
8.1 Prosecution of Objections to Claims and
Interests.............................................................................. 62
</TABLE>
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Table of Contents
(continued)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C> <C> <C>
8.1.1 Prior to the Effective Date.............................................. 62
8.1.2 After the Effective Date................................................. 62
8.2 Treatment of Disputed Claims or Interests.............................................. 63
8.2.1 No Payments on Account of Disputed
Claims or Interests...................................................... 63
8.2.2 Resolution or Estimation of Claims....................................... 63
8.3 Distributions on Account of Disputed Claims or
Interests Once They Are Allowed........................................................ 64
ARTICLE IX. CONDITIONS PRECEDENT TO CONFIRMATION AND
CONSUMMATION OF THE PLAN............................................................... 65
9.1 Conditions to Confirmation............................................................. 65
9.2 Conditions to Effective Date........................................................... 65
9.3 Waiver of Conditions................................................................... 66
9.4 Effect of Nonoccurrence of Conditions to
Effective Date......................................................................... 66
ARTICLE X. CONFIRMABILITY AND SEVERABILITY OF PLAN AND
CRAMDOWN............................................................................... 67
10.1 Confirmability and Severability of a Plan.............................................. 67
10.2 Cramdown............................................................................... 68
ARTICLE XI. DISCHARGE OF CLAIMS, TERMINATION OF INTERESTS,
INJUNCTIONS AND SUBORDINATION RIGHTS................................................... 68
11.1 Discharge of Claims and Termination of
Interests.............................................................................. 68
11.2 Injunctions............................................................................ 69
11.2.1 Injunction Related to Discharged
Claims and Terminated Interests.......................................... 69
11.2.2 Released Claims.......................................................... 70
11.2.3 Consent to Injunction.................................................... 70
11.3 Termination of Subordination Rights and
Settlement of Related Claims and
Controversies.......................................................................... 71
11.4 Limitation of Liability in Connection with the
Plan, Disclosure Statement and Related
Documents and Related Indemnity........................................................ 72
ARTICLE XII. RETENTION OF JURISDICTION.............................................................. 73
ARTICLE XIII. MISCELLANEOUS PROVISIONS............................................................... 76
13.1 Payment of Statutory Fees.............................................................. 76
13.2 Modification of the Plan............................................................... 76
13.3 Revocation of the Plan................................................................. 76
13.4 Severability of Plan Provisions........................................................ 76
13.5 Successors and Assigns................................................................. 77
13.6 Exhibits............................................................................... 77
13.7 Service of Documents on the Debtors or
Reorganized Debtors.................................................................... 77
</TABLE>
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TABLE OF EXHIBITS*
<TABLE>
<CAPTION>
EXHIBIT NAME
<S> <C>
A Reorganized PCL Certificate of Incorporation
B Reorganized PCL Bylaws
C Amended Certificate or Articles of Incorporation of
Each Reorganized Subsidiary Debtor
D List of Senior Lenders
E List of Existing Lender Agreements
F Registration Rights Agreements
G New Warrant Agreement
H Indenture for New Senior Notes
I Exclusive Schedule of Executory Contracts and Unexpired
Leases to be Rejected
J Summaries of New Compensation Plans
K List of New Employment, Retirement, Indemnification and
Other Agreements and Incentive Compensation Programs
That Will Remain in Effect as of the Effective Date
L Non-Exclusive List of Retained Claims, Rights and
Causes of Action
</TABLE>
- -------------------
* Exhibits will be filed with the Court and made available upon request
not later than one week prior to the hearing to be conducted to
determine whether the Disclosure Statement with respect to the Plan
satisfies the requirements of section 1125 of the Bankruptcy Code.
-vii-
<PAGE> 1
Exhibit 3.4
NU-TECH BIO-MED, INC.
CERTIFICATE OF AMENDMENT OF AMENDED
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND
RIGHTS AND NUMBER
OF SHARES OF
SERIES A CONVERTIBLE PREFERRED STOCK
Pursuant to Section 242 of the
Delaware General Corporation Law
The undersigned President of NU-TECH BIO-MED, INC., a Delaware
corporation (the "Corporation") certifies that pursuant to authority granted to
and vested in the Board of Directors of the Corporation by the provisions of the
Certificate of Incorporation and in accordance with the provisions of Section
242B(2) of the General Corporation Law of the State of Delaware, its Board of
Directors has duly adopted the following resolutions amending the Amended
Certificate of Designation, Preferences and Rights and Number of Shares of
Series A Convertible Preferred Stock filed with the Office of the Secretary of
State of Delaware on October 23, 1996 (the "Certificate of Designations of
Series A Preferred Stock"). The undersigned certifies that as of November 19,
1996 there were 10,000 shares of Series A Preferrred Stock issued and
outstanding. The undersigned further certifies that the holders of a majority of
the 10,000 issued and outstanding shares of Series A Preferred Stock have
approved this Certificate of Amendment. The Amended Certificate of Designations
of Series A Preferred Stock is hereby amended to read as follows:
RESOLVED, that Section 4(f)(iv) be and hereby is amended in its
entirety to provide as follows:
(iv) Adjustment for Lack of Timely Registration. The holders of the
Series A Convertible Preferred Stock are entitled to the registration rights as
set forth in that certain Registration Rights Agreement to be entered into
between the Corporation and the holders of the Series A Convertible Preferred
Stock. In the event that the Corporation fails to obtain an order from the
Securities and Exchange Commission declaring effective the registration
statement filed by the Corporation under the Securities Act of 1933 in order to
register for sale by the holders the Conversion Shares within 120 days of
receipt by the Corporation of the holder's Demand Registration Request (as
defined in the Registration Rights Agreement), the applicable Conversion Price
shall be adjusted as follows: (A) if the applicable Conversion Price prior to
adjustment herein is as set forth in clause (i) of the defined term "Conversion
Price" above, then the percentage discount from the NASDAQ closing price shall
be deemed 35% instead of 25% or (B) if the applicable Conversion Price prior to
adjustment herein is as set forth in clause (ii) of the defined term "Conversion
Price" above, then the applicable Conversion Price shall be deemed to be 90% of
the NASDAQ closing price. In addition to the foregoing, the Conversion Price
adjustments set forth in (a) and (b) above shall be further reduced by 2% per
month for each 30 day period for which the registration statement
<PAGE> 2
is not effective beyond the initial 120 day period set forth above. In no event
shall this further adjustment exceed 12% in the aggregate. By way of example, if
the registration statement is declared effective 150 days after the Demand
Registration Request, then the Conversion Price shall be the lesser of (x) 37%
of the NASDAQ closing price or (y) $15.40.
IN WITNESS WHEREOF, this Certificate of Amendment has been made under
the seal of the Corporation and the hands of the undersigned on November 19,
1996 .
----------------------------------------
Name: J. Marvin Feigenbaum
Title: President
2
<PAGE> 1
Exhibit 10.24
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated the _____ day of
November, 1996, between the person and/or entity whose name and address appears
on the signature page attached hereto (individually a "Holder" or collectively
with the holders of the other Securities issued pursuant to a Preferred Stock
Securities Purchase Agreement of even date herewith, as defined below, the
"Holders") and Nu-Tech Bio-Med, Inc., a Delaware corporation (the "Company")
having its principal place of business at 55 Access Road, Warwick, Rhode Island
02886.
WHEREAS, simultaneously with the execution and delivery of
this Agreement, the Holders are purchasing from the Company, pursuant to a
Series A Preferred Stock Securities Purchase Agreement dated the date hereof
(the "Subscription Agreement"), an aggregate of up to 14,000 shares of Series A
Convertible Preferred Stock (the "Preferred Shares"); and
WHEREAS, the Preferred Shares are convertible into shares (the
"Conversion Shares") of the Company's Common Stock, par value $.01 per share
("Common Stock") pursuant to the terms of the Amended Certificate of
Designation, Powers, Preferences and Rights of the Preferred Shares as filed by
the Company with the Office of the Secretary of State of Delaware ("Certificate
of Designation"); and
WHEREAS, the Company desires to grant to the Holders the
registration rights set forth herein with respect to the Conversion Shares.
NOW, THEREFORE, the parties hereto mutually agree as follows:
Section 1. Registrable Securities. As used herein the term
"Registrable Security" means each of the Conversion Shares, as adjusted pursuant
to the provisions of the Preferred Shares; provided, however, that with respect
to any particular Registrable Security, such security shall cease to be a
Registrable Security when, as of the date of determination, (i) it has been
effectively registered under the Securities Act of 1933, as amended (the
"Securities Act") and disposed of pursuant thereto, (ii) registration under the
Securities Act is no longer required for the immediate public distribution of
such security as a result of the provisions of Rule 144 promulgated under the
Securities Act of 1933, as amended, or (iii) it has ceased to be outstanding.
The term "Registrable Securities" means any and/or all of the securities falling
within the foregoing definition of a "Registrable Security." In the event of any
merger, reorganization, consolidation, recapitalization or other change in
corporate structure affecting the Common Stock, such adjustment shall be made in
the definition of "Registrable Security" as is
<PAGE> 2
appropriate in order to prevent any dilution or enlargement of the rights
granted pursuant to this Section 1.
Section 2. Restrictions on Transfer. The Holder acknowledges
and understands that prior to the registration of the Conversion Shares as
provided herein, the Preferred Shares and the Conversion Shares are "restricted
securities" as defined in Rule 144. The Holder understands that no disposition
or transfer of any of the Preferred Shares or Conversion Shares may be made by
Holder in the absence of (i) an opinion of counsel reasonably satisfactory to
the Company that such transfer may be made or (ii) a registration statement
under the Securities Act is then in effect with respect thereto.
Section 3. Registration Rights. (a) At any time commencing
after the date hereof the holders of a majority of the Conversion Shares
(whether or not the Preferred Shares have been converted) shall have the right,
exercisable by written notice to the Company (the "Demand Registration
Request"), to have the Company prepare and file with the Securities and Exchange
Commission ("SEC" or "Commission"), on one occasion, at the sole expense of the
Company (except as provided in Section 3(c)hereof), a registration statement
with respect to the Registrable Securities, so as to permit a public offering
and sale by the holders thereof of the Registrable Securities under the
Securities Act.
(b) The Company will maintain any Registration Statement or
post-effective amendment filed under this Section 3 hereof current under the
Securities Act until the earlier of (i) the date that all of the Registrable
Securities have been sold pursuant to the Registration Statement, (ii) the date
the holders thereof receive an opinion of counsel that the Registrable
Securities may be sold under the provisions of Rule 144 or (iii) the second
anniversary of the effective date of the Registration Statement.
(c) All fees, disbursements and out-of-pocket expenses and
costs incurred by the Company in connection with the preparation and filing of
any Registration Statement under subparagraph 3(a) and in complying with
applicable securities and Blue Sky laws (including, without limitation, all
attorneys' fees) shall be borne by the Company. The Holder shall bear the cost
of underwriting discounts and commissions, if any, applicable to the Registrable
Securities being registered and the fees and expenses of its counsel. The
Company shall use its best efforts to qualify any of the securities for sale in
such states as such Holder reasonably designates and shall furnish
indemnification in the manner provided in Section 6 hereof. However, the Company
shall not be required to qualify in any state which will require an escrow or
other restriction relating to the Company and/or the sellers. The Company at its
expense will supply the Holder with copies of such Registration Statement and
the prospectus or
2
<PAGE> 3
offering circular included therein and other related documents in such
quantities as may be reasonably requested by the Holder.
(d) The Company shall not be required by this Section 3 to
include a Holder's Registrable Securities in any Registration Statement which is
to be filed if, in the opinion of counsel for both the Holder and the Company
(or, should they not agree, in the opinion of another counsel experienced in
securities law matters acceptable to counsel for the Holder and the Company),
the proposed offering or other transfer of the Registrable Securities as to
which such registration is requested is exempt from applicable federal and state
securities laws and would result in all purchasers or transferees obtaining
securities which are not "restricted securities", as defined in Rule 144 under
the Securities Act.
(e) In the event the Registration Statement to be filed by the
Company pursuant to Section 3(a) above is not declared effective by the SEC
within 120 days of the receipt by the Company of the Demand Registration
Request, then the Conversion Price (as defined in the Certificate of
Designation) shall be adjusted as required in the Certificate of Designation and
the Registration Statement so filed shall be amended to include such additional
Conversion Shares.
(f) No provision contained herein shall preclude the Company
from selling securities pursuant to any Registration Statement in which it is
required to include Registrable Securities pursuant to this Section 3.
4. Cooperation with Company. Holders will cooperate with the
Company in all respects in connection with this Agreement, including, timely
supplying all information reasonably requested by the Company and executing and
returning all documents reasonably requested in connection with the registration
and sale of the Registrable Securities.
5. Registration Procedures. If and whenever the Company is required by any of
the provisions of this Agreement to effect the registration of any of the
Registrable Securities under the Securities Act, the Company shall (except as
otherwise provided in this Agreement), as expeditiously as possible:
a. prepare and file with the Commission such amendments and
supplements to such registration statement and the Prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
to comply with the provisions of the Securities Act with respect to the sale or
other disposition of all securities covered by such registration statement
whenever the Holder or Holders of such securities shall desire to sell or
otherwise dispose of the same (including prospectus supplements with respect to
the sales of securities from time to time in
3
<PAGE> 4
connection with a registration statement pursuant to Rule 415 promulgated under
the Securities Act);
b. furnish to each Holder such numbers of copies of a summary
prospectus or other prospectus, including a preliminary prospectus or any
amendment or supplement to any prospectus, in conformity with the requirements
of the Securities Act, and such other documents, as such Holder may reasonably
request in order to facilitate the public sale or other disposition of the
securities owned by such Holder;
c. use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or blue sky
laws of such jurisdictions as the Holder, shall reasonably request, and do any
and all other acts and things which may be necessary or advisable to enable each
Holder to consummate the public sale or other disposition in such jurisdiction
of the securities owned by such Holder, except that the Company shall not for
any such purpose be required to qualify to do business as a foreign corporation
in any jurisdiction wherein it is not so qualified or to file therein any
general consent to service of process;
d. use its best efforts to list such securities on any
securities exchange on which any securities of the Company are then listed, if
the listing of such securities is then permitted under the rules of such
exchange or Nasdaq;
e. enter into and perform its obligations under an
underwriting agreement, if the offering is an underwritten offering, in usual
and customary form, with the managing underwriter or underwriters of such
underwritten offering;
f. notify each Holder of Registrable Securities covered by
such registration statement, at any time when a prospectus relating thereto
covered by such registration statement is required to be delivered under the
Securities Act, of the happening of any event of which it has knowledge as a
result of which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
Section 6. Indemnification.
(a) In the event of the filing of any Registration Statement
with respect to Registrable Securities pursuant to Section 3 hereof, the Company
agrees to indemnify and hold harmless the Holder and each person, if any, who
controls the Holder within the meaning of the Securities Act ("Distributing
Holders") against any losses, claims, damages or liabilities, joint or several
(which
4
<PAGE> 5
shall, for all purposes of this Agreement, include, but not be limited
to, all costs of defense and investigation and all attorneys' fees), to which
the Distributing Holders may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any such Registration
Statement, or any related preliminary prospectus, final prospectus, offering
circular, notification or amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that the Company will not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such Registration Statement, preliminary prospectus,
final prospectus, offering circular, notification or amendment or supplement
thereto in reliance upon, and in conformity with, written information furnished
to the Company by the Distributing Holders, specifically for use in the
preparation thereof. This indemnity agreement will be in addition to any
liability which the Company may otherwise have.
(b) Each Distributing Holder agrees that it will indemnify and
hold harmless the Company, and each officer, director of the Company or person,
if any, who controls the Company within the meaning of the Securities Act,
against any losses, claims, damages or liabilities (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of defense
and investigation and all attorneys' fees) to which the Company or any such
officer, director or controlling person may become subject under the Securities
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in a Registration
Statement requested by such Distributing Holder, or any related preliminary
prospectus, final prospectus, offering circular, notification or amendment or
supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, but in each case
only to the extent that such untrue statement or alleged untrue statement or
omission or alleged omission was made in such Registration Statement,
preliminary prospectus, final prospectus, offering circular, notification or
amendment or supplement thereto in reliance upon, and in conformity with,
written information furnished to the Company by such Distributing Holder,
specifically for use in the preparation thereof and, provided further, that the
indemnity agreement contained in this Section 6(b) shall not inure to the
benefit of the Company with respect to any person asserting such loss, claim,
damage or liability who purchased the Registrable
5
<PAGE> 6
Securities which are the subject thereof if the Company failed to send or give
(in violation of the Securities Act or the rules and regulations promulgated
thereunder) a copy of the prospectus contained in such Registration Statement to
such person at or prior to the written confirmation to such person of the sale
of such Registrable Securities, where the Company was obligated to do so under
the Securities Act or the rules and regulations promulgated thereunder. This
indemnity agreement will be in addition to any liability which the Distributing
Holders may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 6 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 6, notify the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve the
indemnifying party from any liability which it may have to any indemnified party
otherwise than as to the particular item as to which indemnification is then
being sought solely pursuant to this Section 6. In case any such action is
brought against any indemnified party, and it notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
in, and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, assume the defense thereof, subject to the provisions
herein stated and after notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof, the indemnifying party
will not be liable to such indemnified party under this Section 6 for any legal
or other expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation, unless
the indemnifying party shall not pursue the action to its final conclusion. The
indemnified party shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel shall not be at the expense of the indemnifying party if the
indemnifying party has assumed the defense of the action with counsel reasonably
satisfactory to the indemnified party; provided that if the indemnified party is
the Distributing Holder, the fees and expenses of such counsel shall be at the
expense of the indemnifying party if (i) the employment of such counsel has been
specifically authorized in writing by the indemnifying party or (ii) the named
parties to any such action (including any impleaded parties) include both the
Distributing Holder and the indemnifying party and the Distributing Holder shall
have been advised by such counsel that there may be one or more legal defenses
available to the indemnifying party different from or in conflict with any legal
defenses which may be available to the Distributing Holder (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the Distributing Holder, it being understood, however, that the
indemnifying party shall, in connection with any one such action or separate but
substantially similar or related actions in the same
6
<PAGE> 7
jurisdiction arising out of the same general allegations or circumstances, be
liable only for the reasonable fees and expenses of one separate firm of
attorneys for the Distributing Holder, which firm shall be designated in writing
by the Distributing Holder). No settlement of any action against an indemnified
party shall be made without the prior written consent of the indemnified party,
which consent shall not be unreasonably withheld.
Section 7. Contribution. In order to provide for just and
equitable contribution under the Securities Act in any case in which (i) the
Distributing Holder makes a claim for indemnification pursuant to Section 6
hereof but is judicially determined (by the entry of a final judgment or decree
by a court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that the express provisions of
Section 6 hereof provide for indemnification in such case or (ii) contribution
under the Securities Act may be required on the part of any Distributing Holder,
then the Company and the applicable Distributing Holder shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(which shall, for all purposes of this Agreement, include, but not be limited
to, all costs of defense and investigation and all attorneys' fees), in either
such case (after contribution from others) on the basis of relative fault as
well as any other relevant equitable considerations. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the one hand
or the applicable Distributing Holder, on the other hand, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and the Distributing Holder
agree that it would not be just and equitable if contribution pursuant to this
Section 7 were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to in this Section 7. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions in respect
thereof) referred to above in this Section 7 shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
Section 8. Notices. Any notice pursuant to this Agreement by
the Company or by the Holder shall be in writing and shall be deemed to have
been duly given if delivered by (i)hand, (ii) by facsimile and followed by mail
delivery or (iii) if mailed by certified mail, return receipt requested, postage
prepaid,
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<PAGE> 8
addressed as follows:
(a) If to the Holder, to its, his or her address set forth on
the signatory page of this Agreement, with a copy to the person designated in
the Subscription Agreement.
(b) If to the Company, at 500 Fifth Avenue New York, New York
10036 Attn: J. Marvin Feigenbaum (Facsimile No. (212) 391-2864), with a copy to
Goldstein & DiGioia, LLP, 369 Lexington Avenue, New York, New York 10017,
Attention: Victor J. DiGioia, Esq. or to such other address as any such party
may designate by notice to the other party. Notices shall be deemed given at the
time they are delivered personally or five (5) days after they are mailed in the
manner set forth above. If notice is delivered by facsimile to the Company and
followed by mail, delivery shall be deemed given two (2) days after such
facsimile is sent.
Section 8. Assignment. This Agreement is binding upon and
inures to the benefit of the parties hereto and their respective heirs,
successors and permitted assigns. This Agreement cannot be assigned, amended or
modified by the parties hereto, except by written agreement executed by the
parties. If requested by the Company, the Holder shall have furnished to the
Company an opinion of counsel reasonably satisfactory to the Company to such
effect.
Section 9. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 10. Headings. The headings in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 11. Governing Law;Venue. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
applicable to contracts made and to be performed entirely within such State,
without regard to its principles of conflicts of laws. Each of the parties
hereto agrees that in the event of any dispute arising hereunder venue shall be
New York, New York and each party hereby submits to the jurisdiction of the
United States Federal Court in the Southern District of New York.
remainder of page intentionally left blank
8
<PAGE> 9
Section 12. Severability. If any provision of this Agreement
shall for any reason be held invalid or unenforceable, such invalidity or
unenforceablity shall not affect any other provision hereof and this Agreement
shall be construed as if such invalid or unenforceable provision had never been
contained herein.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, on the day and year first above written.
Attest: NU-TECH BIO-MED, INC.
By:___________________________ By:___________________________
Name: David Sterling Name: J. Marvin Feigenbaum
Title: Secretary Title: President
------------------------------
Signature
------------------------------
Print Name
Address:
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<PAGE> 1
Exhibit 10.25
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated the _____ day of
March, 1996, between the person whose name and address appear on the signature
page attached hereto (individually a "Holder" or collectively with the holders
of the other Securities issued pursuant to a Confidential Offering Memorandum
dated March 18, 1996 and Subscription Agreement, each as defined below, the
"Holders") and Nu-Tech Bio-Med, Inc., a Delaware corporation having its
principal place of business at 55 Access Road, Warwick, Rhode Island 02886.
WHEREAS, simultaneously with the execution and delivery of
this Agreement, the Holders are purchasing from the Company, pursuant to a
Subscription Agreement dated the date hereof (the "Subscription Agreement"), an
aggregate of 250,000 shares (the "Shares") of Common Stock, par value $.01 per
share ("Common Stock")". The Shares are sometimes referred to herein as the
"Securities".
WHEREAS, the Company desires to grant to the Holders the
registration rights set forth herein with respect to the Shares (the
"Registrable Shares").
NOW, THEREFORE, the parties hereto mutually agree as follows:
Section 1. Restrictions on Transfer. The Holder agrees that
prior to making any disposition of any of the Shares, the Holder shall give
written notice to the Company describing briefly the manner in which any such
proposed disposition is to be made and no such disposition shall be made if the
Company has notified the Holder that, in the opinion of counsel reasonably
satisfactory to the Holder, a registration statement or other notification or
post-effective amendment thereto (hereinafter collectively referred to as a
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act") is required with respect to such disposition and no such
Registration Statement is then in effect with respect thereto.
Section 2. Registration Rights. (a) The Company shall be
obligated to the Holder to file a Registration Statement only as follows:
(i) Whenever, during the period commencing upon the date
hereof and continuing until April 1, 2001, the Company proposes to file
with the Securities and Exchange Commission (the "Commission") a
Registration Statement (other than a Form S-4 or S-8, or an S-3 used in
conjunction with an S-8 (which S-3 is filed solely to facilitate
resales by affiliates of the
<PAGE> 2
Company of shares issued under employee stock incentive plans), or
comparable registration statements), it shall, at least 30 days prior
to such filing, give written notice of such proposed filing to the
Holder at the Holder's address appearing on the records of the Company,
and shall offer to include and shall include in such filing all or a
portion of the Registrable Shares upon receipt by the Company, not less
than 10 days prior to the proposed filing date, of a request therefor,
subject to the right of the managing underwriter, in any such offering
that is underwritten, to limit or eliminate entirely the number of
securities that may be included in such offering on a pro rata basis
with any other person on whose behalf securities are being registered.
(ii) In addition to any Registration Statement pursuant to
subparagraph (i) above, the Company will, as promptly as practicable
(but in any event within 30 days) after written notice, at any time
during the period commencing 120 days following the date hereof and
extending through April 1, 2001, prepare and file at the written
request of the persons holding not less than 50% of the Registrable
Shares (the "Demand Holders"), a Registration Statement with the
Commission and appropriate state securities authorities sufficient to
permit the public offering of the Registrable Shares which are issuable
or were issued, and will use its best efforts, at its own expense,
through its officers, directors, auditors and counsel, in all matters
necessary or advisable, to cause such Registration Statement to become
effective as promptly as practicable following filing thereof;
provided, further, that the Company shall be obligated to file a second
Registration Statement under this subparagraph (ii) so long as the
expenses of the second Registration Statement are paid for by the
Demand Holders and any other persons whose securities are included in
such Registration Statement on a pro rata basis. Promptly upon receipt
of such notice, the Company will begin to prepare the necessary
Registration Statement and shall use its best efforts to file the
second Registration Statement within 60 days of such demand. Within 30
days after receiving notice hereunder from the Demand Holders, the
Company shall give notice to the other holders of the Registrable
Shares and offer to include in the Registration Statement such other
Registrable Shares.
(b) The Company will maintain any Registration Statement or
post-effective amendment filed under this Section 2 hereof current under the
Securities Act until the earlier of (1) the sale of all of the Registrable
Shares subject to such Registration Statement or (2) nine months from the
effective date thereof. If the Company fails to keep such Registration Statement
current for the period specified above, and the sellers do not sell at least
2
<PAGE> 3
one-half of the Registrable Shares which are the subject of the offering, such
registration shall not be deemed an exercise of any of the rights provided under
this Section 2 hereof.
(c) All fees, disbursements and out-of-pocket expenses and
costs incurred by the Company in connection with the preparation and filing of
any Registration Statement under subparagraphs (i) and (ii) of Section 2(a) and
in complying with applicable securities and Blue Sky laws (including, without
limitation, all attorneys' fees) shall be borne by the Company, except as
otherwise expressly provided in subparagraph (ii) of Section 2(a). The Holder
shall bear the cost of underwriting discounts and commissions, if any,
applicable to the Registrable Shares being registered and the fees and expenses
of its counsel. The Company shall use its best efforts to qualify any of the
securities for sale in such states as such Holder reasonably designates and
shall furnish indemnification in the manner provided in Section 3 hereof.
However, the Company shall not be required to qualify in any state which will
require an escrow or other restriction relating to the Company and/or the
sellers. The Company at its expense will supply the Holder with copies of such
Registration Statement and the prospectus or offering circular included therein
and other related documents in such quantities as may be reasonably requested by
the Holder.
(d) The Company shall not be required by this Section 2 to
include a Holder's Registrable Shares in any Registration Statement which is to
be filed if, in the opinion of counsel for both the Holder and the Company (or,
should they not agree, in the opinion of another counsel experienced in
securities law matters acceptable to counsel for the Holder and the Company) the
proposed offering or other transfer as to which such registration is requested
is exempt from applicable federal and state securities laws and would result in
all purchasers or transferees obtaining securities which are not "restricted
securities", as defined in Rule 144 under the Securities Act.
(e) The Company agrees that until all Registrable Shares have
been sold under a Registration Statement or pursuant to Rule 144 under the
Securities Act, it will keep current in filing all materials required to be
filed with the Commission in order to permit the holders thereof to sell the
Registrable Shares under such Rule 144.
(f) No provision contained herein shall preclude the Company
from selling securities pursuant to any Registration Statement in which it is
required to include Registrable Shares pursuant to this Section 2.
3
<PAGE> 4
Section 3. Indemnification.
(a) In the event of the filing of any Registration Statement
with respect to Registrable Shares pursuant to Section 2 hereof, the Company
agrees to indemnify and hold harmless the Holder and each person, if any, who
controls the Holder within the meaning of the Securities Act ("Distributing
Holders") against any losses, claims, damages or liabilities, joint or several
(which shall, for all purposes of this Agreement, include, but not be limited
to, all costs of defense and investigation and all attorneys' fees), to which
the Distributing Holders may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any such Registration
Statement, or any related preliminary prospectus, final prospectus, offering
circular, notification or amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that the Company will not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such Registration Statement, preliminary prospectus,
final prospectus, offering circular, notification or amendment or supplement
thereto in reliance upon, and in conformity with, written information furnished
to the Company by the Distributing Holders, specifically for use in the
preparation thereof. This indemnity agreement will be in addition to any
liability which the Company may otherwise have.
(b) Each Distributing Holder agrees that it will indemnify and
hold harmless the Company, and each person, if any, who controls the Company
within the meaning of the Securities Act, against any losses, claims, damages or
liabilities (which shall, for all purposes of this Agreement, include, but not
be limited to, all costs of defense and investigation and all attorneys' fees)
to which the Company or any such controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in a
Registration Statement requested by such Distributing Holder, or any related
preliminary prospectus, final prospectus, offering circular, notification or
amendment or supplement thereto, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, but in each
case only to the extent that such untrue statement or alleged untrue
4
<PAGE> 5
statement or omission or alleged omission was made in such Registration
Statement, preliminary prospectus, final prospectus, offering circular,
notification or amendment or supplement thereto in reliance upon, and in
conformity with, written information furnished to the Company by such
Distributing Holder, specifically for use in the preparation thereof and,
provided further, that the indemnity agreement contained in this Section 3(b)
shall not inure to the benefit of the Company with respect to any person
asserting such loss, claim, damage or liability who purchased the Registrable
Shares which are the subject thereof if the Company failed to send or give (in
violation of the Securities Act or the rules and regulations promulgated
thereunder) a copy of the prospectus contained in such Registration Statement to
such person at or prior to the written confirmation to such person of the sale
of such Registrable Shares, where the Company was obligated to do so under the
Securities Act or the rules and regulations promulgated thereunder. This
indemnity agreement will be in addition to any liability which the Distributing
Holders may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 3 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 3, notify the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve the
indemnifying party from any liability which it may have to any indemnified party
otherwise than as to the particular item as to which indemnification is then
being sought solely pursuant to this Section 3. In case any such action is
brought against any indemnified party, and it notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
in, and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, assume the defense thereof, subject to the provisions
herein stated and after notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof, the indemnifying party
will not be liable to such indemnified party under this Section 3 for any legal
or other expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation, unless
the indemnifying party shall not pursue the action to its final conclusion. The
indemnified party shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel shall not be at the expense of the indemnifying party if the
indemnifying party has assumed the defense of the action with counsel reasonably
satisfactory to the indemnified party; provided that if the indemnified party is
the Distributing Holder, the fees and expenses of such counsel shall be at the
expense of the indemnifying party if (i) the employment of such counsel has been
specifically authorized in writing by the indemnifying party
5
<PAGE> 6
or (ii) the named parties to any such action (including any impleaded parties)
include both the Distributing Holder and the indemnifying party and the
Distributing Holder shall have been advised by such counsel that there may be
one or more legal defenses available to the indemnifying party different from or
in conflict with any legal defenses which may be available to the Distributing
Holder (in which case the indemnifying party shall not have the right to assume
the defense of such action on behalf of the Distributing Holder, it being
understood, however, that the indemnifying party shall, in connection with any
one such action or separate but substantially similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable only for the reasonable fees and expenses of one separate firm of
attorneys for the Distributing Holder, which firm shall be designated in writing
by the Distributing Holder). No settlement of any action against an indemnified
party shall be made without the prior written consent of the indemnified party,
which consent shall not be unreasonably withheld.
Section 4. Contribution. In order to provide for just and
equitable contribution under the Securities Act in any case in which (i) the
Distributing Holder makes a claim for indemnification pursuant to Section 3
hereof but is judicially determined (by the entry of a final judgment or decree
by a court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that the express provisions of
Section 3 hereof provide for indemnification in such case or (ii) contribution
under the Securities Act may be required on the part of any Distributing Holder,
then the Company and the applicable Distributing Holder shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(which shall, for all purposes of this Agreement, include, but not be limited
to, all costs of defense and investigation and all attorneys' fees), in either
such case (after contribution from others) on the basis of relative fault as
well as any other relevant equitable considerations. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the one hand
or the applicable Distributing Holder, on the other hand, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and the Distributing Holder
agree that it would not be just and equitable if contribution pursuant to this
Section 4 were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to in this Section 4. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions
6
<PAGE> 7
in respect thereof) referred to above in this Section 4 shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
Section 5. Notices. Any notice pursuant to this Agreement by
the Company or by the Holder shall be in writing and shall be deemed to have
been duly given if delivered by hand or if mailed by certified mail, return
receipt requested, postage prepaid, addressed as follows:
(a) If to the Holder, to his or her address set forth on the
signatory page of this Agreement.
(b) If to the Company, to the address set forth on the first
page of this Agreement, with a copy to Goldstein, Axelrod & DiGioia, LLP, 369
Lexington Avenue, New York, New York 10017, Attention: Charles P. Axelrod, Esq.
or to such other address as any such party may designate by notice to the other
party. Notices shall be deemed given at the time they are delivered personally
or three days after they are mailed in the manner set forth above.
Section 6. Assignment. This Agreement is binding upon and
inures to the benefit of the parties hereto and their respective heirs,
successors and permitted assigns. This Agreement cannot be assigned, amended or
modified by the parties hereto, except by written agreement executed by the
parties; provided, however, that upon 10 days' prior written notice to the
Company, the Holder may assign this Agreement and its rights and obligations
hereunder, without the consent of the Company, to any person who is permitted to
acquire any or all of the Shares, provided, that the transferee agrees to be
bound by the terms of this Agreement as if such transferee were a Holder and,
provided, further, that the assignment is made to an "accredited investor" as
defined by Rule 501(a) under the Securities Act. If requested by the Company,
the Holder shall have furnished to the Company an opinion of counsel reasonably
satisfactory to the Company to such effect.
Section 7. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 8. Headings. The headings in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
7
<PAGE> 8
Section 9. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed entirely within such State, without regard to
its principles of conflicts of laws.
Section 10. Severability. If any provision of this Agreement
shall for any reason be held invalid or unenforceable, such invalidity or
unenforceablity shall not affect any other provision hereof and this Agreement
shall be construed as if such invalid or unenforceable provision had never been
contained herein.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, on the day and year first above written.
Attest: NU-TECH BIO-MED, INC.
By:___________________________ By:___________________________
Name: Name:
Title: Title:
[HOLDER]
------------------------------
Signature
------------------------------
Print Name
Address:
------------------------------
------------------------------
8
<PAGE> 1
Exhibit 10.26
AGREEMENT
This Agreement ("Agreement"), dated as of NOVEMBER ___, 1996 is by and
among OAKTREE CAPITAL MANAGEMENT, LLC, a California limited liability company,
as general partner or investment manager (in such capacity, "Oaktree") on behalf
of the funds listed on Annex I under the heading "Oaktree Funds" (collectively,
the "Oaktree Funds"), DDJ OVERSEAS CORP., a Cayman Islands company ("Overseas"),
THE COPERNICUS FUND, L.P., a Delaware limited partnership ("Copernicus" and,
collectively with Overseas, the "DDJ Funds"), BELMONT FUND, L.P., a Bermuda
limited partnership ("Belmont I"), BELMONT CAPITAL PARTNERS, II, L.P., a
Delaware limited partnership ("Belmont II" and, collectively with Belmont I, the
"Fidelity Funds" and, collectively with the Oaktree Funds and the DDJ Funds, the
"Funds"), and CERBERUS PARTNERS, L.P. ("Cerberus") (Oaktree, the DDJ Funds, the
Fidelity Funds, and Cerberus hereinafter collectively referred to as the "Senior
Lenders"), and NU-TECH BIO-MED, INC., a Delaware corporation ("Nu-Tech" and,
collectively with the Senior Lenders, the "Parties").
R E C I T A L S
1. The Senior Lenders currently hold all (a) senior secured notes (the
"Bank Debt") of Physician's Clinical Laboratory, Inc. (the "Company"), issued
pursuant to the Credit Agreement dated as of April 1, 1994, as amended, among
the Company, as borrower, OCM Administrative Services, L.L.C. (as assignee of
Wells Fargo Bank, N.A.), as agent, and the financial institutions party thereto
and (b) certain subordinated indebtedness of the Company.
2. The Senior Lenders and Nu-Tech contemplate a restructuring of the
Company pursuant to which, among other things, (a) the Senior Lenders will
assign to Nu-Tech and Nu-Tech will purchase from the Senior Lenders
participation in certain of the Bank Debt, on a pro rata basis, subject to the
terms and conditions of this Agreement, and (b) Senior Lenders will make certain
loans to the Company.
NOW THEREFORE, for good and valuable consideration, the sufficiency and
delivery of which are hereby acknowledged, the Parties hereby agree as follows:
<PAGE> 2
SECTION 1. BOARD APPROVAL OF DIP TERM SHEET. Each of the Parties shall
use its best efforts with respect to obtaining the approval and execution by the
Board of Directors of the Company of the "Summary of Terms of Restructuring of
Physician's Clinical Laboratory, Inc." attached hereto as Exhibit A or a term
sheet containing substantially similar terms and conditions, acceptable to all
of the Parties (the "Term Sheet").
SECTION 2. PARTICIPATION IN BANK DEBT. Upon approval and execution by
the Board of Directors of the Company of the Term Sheet described in Section 1,
Nu-Tech shall purchase an undivided participation in the Bank Debt from the
Senior Lenders, pro rata to the percentage holdings of such Bank Debt by each of
the Senior Lenders, for $10,000,000, pursuant to the terms and conditions of the
Participation Agreement attached hereto as Exhibit B. Nu-Tech hereby
acknowledges and agrees that the foregoing obligation shall be binding,
irrespective of the failure of any other conditions contained herein or in the
DIP Term Sheet to be satisfied, including, without limitation, the failure of
the Company to file a bankruptcy petition, appoint Marvin Feigenbaum as its
chief executive or crisis manager, consummate a debtor in possession financing
arrangement (as described in the Term Sheet AND PARAGRAPH 3, BELOW, the "DIP
Financing"), consummate the plan of reorganization (such plan as described in
the Term Sheet the "Plan") or provide for the "Plan Treatment", all described in
the DIP Term Sheet. In the event the DIP Financing is not approved or the Plan
are not consummated, Nu-Tech's sole interest in the Company arising under this
Agreement shall be as a participant in the Bank Debt purchased from the Senior
Lenders pursuant to this Section 2.
SECTION 3. DIP FINANCING. As more particularly set forth in the DIP
Term Sheet and subject to Section 5 below, the Senior Lenders will provide to
the Company a debtor in possession secured credit facility in an amount up to
$10,000,000, the proceeds of which shall be used (a) for administrative costs
incurred by the Company in connection with the bankruptcy (including legal,
accounting and investment banking fees), (b) for working capital needs of the
Company during the bankruptcy and (c) to fund the Plan. The Parties shall use
their best efforts to obtain court approval of the DIP Financing as soon as
practicable after the Company files its chapter 11 bankruptcy petition.
SECTION 4. BREAK-UP/OVERBID PROTECTIONS. The Parties agree to support
the Break-up/Overbid Protections (more fully described in the DIP Term Sheet)
and agree to use their best efforts to obtain Bankruptcy Court approval for the
Break-Up/Overbid Protections, as contemplated by the DIP Term Sheet.
SECTION 5. PLAN OF REORGANIZATION. The Parties shall use their best
efforts to obtain confirmation of the Plan as soon as reasonably practicable.
Additionally, the Parties
- 2 -
<PAGE> 3
agree to vote all of their claims against the Company (including, without
limitation, claims relating to the Bank Debt and the Subordinated Indebtedness)
in favor of the Plan. As more particularly set forth in the DIP Term Sheet and
subject to Section 5, the Plan shall provide for the following to occur on the
effective date of the Plan (the "Effective Date"):
a. The capitalization of the reorganized Company (the
"Reorganized Company") shall be as follows:
i. Nu-Tech shall hold 51% of the fully diluted
common shares of Reorganized Company (the
"Shares") by (a) exchanging its holding of
Existing Senior Debt in the principle amount
of $13.333 million for 34% of the Shares and
(b) purchasing 17% of the Shares for the sum
of Five Million Dollars ($5,000,000) as of
the Effective Date;
ii. The Senior Lenders shall receive 49% of the
Shares, unless the Voting Condition (as
defined in the DIP Term Sheet) is satisfied,
in which event the Senior Lenders shall
receive 37% of the Shares;
iii. If, but only if the Voting Condition is
satisfied, the holders of the Subordinated
Indebtedness shall receive 9% of the Shares;
iv. If, but only if the Voting Condition is
satisfied, the holders of existing equity
interests in PCL shall receive 3% of the
Shares and the Warrants (as defined in the
DIP Term Sheet);
v. The Senior Lenders shall receive the
$55,000,000 of "New Senior Debt" issued by
the Reorganized Company, which shall contain
the terms and conditions set forth in the
DIP Term Sheet and other terms and
conditions agreeable to all of the Parties;
vi. All amounts owed under the DIP Facility
shall be forgiven and any unfunded portion
of the DIP Facility shall be contributed by
the Senior Lenders to the Reorganized
Company as a capital contribution;
- 3 -
<PAGE> 4
vii. The Reorganized Company shall have no other
indebtedness, equity interest or claims
against its equity interest, other than the
working capital facility referenced in the
DIP Term Sheet and outstanding trade debt
incurred in the ordinary course of business.
b. The Plan or separate agreement of the Parties shall provide
for the following:
i. Reorganized Company's Board of Directors
will consist of five (5) directors, three of
whom shall be appointed by Nu-Tech
(INCLUDING THE CHAIRMAN OF THE BOARD) and
the remaining two (the "Lender Director(s)")
of whom shall be appointed by the Senior
Lenders. The SENIOR LENDERS SHALL BE
ENTITLED TO APPOINT TWO DIRECTORS TO THE
REORGANIZED COMPANY'S BOARD OF DIRECTORS
UNLESS AND UNTIL THEY, IN THE AGGREGATE, OWN
LESS THAN TWENTY PERCENT (20%) OF THE SHARES
OF THE Reorganized Company , IN WHICH EVENT,
THE SENIOR LENDERS SHALL ONLY BE ENTITLED TO
APPOINT SUCH DIRECTORS, IF ANY, WHICH THEY
WOULD BE ENTITLED TO APPOINT UNDER THE
CUMULATIVE VOTING PROVISIONS OF DELAWARE
LAW.
ii. The organizational documents of the
Reorganized Company shall provide that the
Reorganized Company's Board of Directors
will not undertake the following activities
without approval of at least one Lender
Director: (a) merger & acquisition; (b)
assuming non-ordinary course obligations in
excess of $1 million; (c) making capital
expenditures in excess of $1 million; and
(d) modifying, extending or renewing the
employment agreement referenced in
subparagraph iii, below. The foregoing
LIMITATION ON THE ACTIONS OF THE REORGANIZED
COMPANY'S BOARD OF DIRECTORS shall cease to
be effective in the event the Senior Lenders
in the aggregate own less than 20% of the
Shares of Reorganized Company; and
iii. J. Marvin Feigenbaum shall be appointed as
the President and Chief Executive Officer of
Reorganized Company for a term of three (3)
years and shall be paid an initial salary of
$104,000 per annum, and stock options at THE
market value OF
- 4 -
<PAGE> 5
PCL AS OF THE PETITION DATE AND IN AN AMOUNT
to be negotiated with the Board of
Directors.
SECTION 6. CONFIDENTIALITY. Each of the Parties agrees to respect the
confidential information disclosed in the negotiation and performance of this
Agreement and the DIP Term Sheet, including any information labeled or otherwise
indicated as being confidential or proprietary by the disclosing party, except
disclosures (a) which may be compelled by legal process, by an order, judgment
or decree of a court or other governmental authority of competent jurisdiction,
(b) to its own employees, attorneys, accountants or representatives or (c) which
may be required by any applicable federal, state or other regulatory requirement
including disclosures required by Bankruptcy Code Section 1125 AND DISCLOSURES
REQUIRED TO BE MADE BY NU-TECH IN ACCORDANCE WITH FEDERAL OR STATE SECURITIES
LAWS.
SECTION 7. TERMINATION. The obligation of the Parties under Section 5
shall be binding on each of the Parties until the earliest of THE EFFECTIVE DATE
OR THE FIRST ANNIVERSARY OF THE PETITION DATE.
SECTION 8. LIMITATIONS ON LIABILITY. Nu-Tech hereby acknowledges and
agrees that in no event shall any of the partners, officers, directors, members,
fiduciaries, shareholders, employees, agents, affiliates or investment managers
(collectively "Representatives") of any of Oaktree, the DDJ Funds or the
Fidelity Funds have any obligation or liability to Nu-Tech for any action taken
or omitted by or on behalf of any of the Funds or in connection herewith (such
obligation and liability being the sole responsibility of such Funds). Nu-Tech
further acknowledges and agrees that (a) all obligations and liabilities of each
Fund under this Agreement or in connection herewith are enforceable solely
against such Fund and its assets and not against the assets of Oaktree, the DDJ
Funds' affiliates, the Fidelity Funds' affiliates, any other Fund or any
Representatives of Oaktree, the DDJ Funds or the Fidelity Funds, and (b) the
obligations and liabilities of each Fund shall be several in the proportions set
forth on Annex I and not joint and several.
SECTION 9. REPRESENTATIONS AND WARRANTIES. Each Party hereby represents
and warrants as follows:
a. Such Party is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization with all
requisite corporate power and authority to execute, deliver and perform its
obligations under this Agreement and to consummate the transactions contemplated
herein.
- 5 -
<PAGE> 6
b. The execution, delivery and performance of this Agreement
and all other instruments and documents executed and delivered by such Party in
connection herewith have been duly authorized by all necessary proceedings.
c. No authorizations, consents or approvals from, or
notifications to, any court or any governmental agency having jurisdiction over
such Party or any other person or entity are or will be necessary to the valid
execution, delivery or performance by such Party of this Agreement.
d. This Agreement constitutes the legal, valid and binding
obligation of such Party except as may be limited by bankruptcy, reorganization,
receivership, insolvency or similar laws affecting the enforcement of creditors'
rights generally.
SECTION 10. ENTIRE AGREEMENT; AMENDMENTS. This Agreement, together with
the Annexes and Exhibits hereto, sets forth the entire agreement between the
Parties and supersedes all prior communications and understandings of any nature
and may not be supplemented or altered orally. Any amendments hereto shall be in
writing and signed by each party.
SECTION 11. NOTICES. Each notice or other communication hereunder shall
be in writing, shall be sent by messenger, by telecopy or facsimile transmission
or by express mail, shall be deemed given when sent to the designated address
set forth in Annex II (or such other address as the Parties may designate from
time to time to the other Parties).
SECTION 12. FURTHER ASSURANCES. Each Party shall execute and deliver
all further documents or instruments reasonably requested by the other Parties
in order to effect the intent of this Agreement and obtain the full benefit of
this Agreement.
SECTION 13. SUCCESSORS AND ASSIGNS. This Agreement shall be binding on,
and inure to the benefit of, the Parties and their successors and assigns.
SECTION 14. SUBMISSION TO JURISDICTION. The Parties agree that any
legal action or proceeding arising out of or relating to this Agreement may be
brought in the courts of the State of California, the courts of the United
States of America located in the City of Los Angeles, or in any other court
having jurisdiction with respect thereto, and the Parties irrevocably consent to
service of process in any said action or proceeding in any of such courts by the
mailing of copies thereof, postage prepaid, to such Party at such Party's
address set forth in Annex II, such service to become effective 10 days after
such mailing.
- 6 -
<PAGE> 7
SECTION 15. GOVERNING LAW; WAIVER OF JURY TRIAL. THIS AGREEMENT SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA. EACH OF THE PARTIES HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY
LAW ITS RIGHT TO A TRIAL BY JURY WITH RESPECT TO ANY DISPUTE ARISING WITH
RESPECT TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 16. SEVERABILITY. If any provision of this Agreement shall for
any reason be held to be invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provision hereof, but this Agreement
shall be construed as if such invalid or unenforceable provision had never been
contained herein.
SECTION 17. AUTHORITY. Oaktree represents and warrants to Nu-Tech that
it has full power and authority to execute and deliver this Agreement for and on
behalf of the Oaktree Funds. Oaktree is authorized to act on behalf of its
respective Funds in connection with the matters contemplated hereby.
SECTION 18. COUNTERPARTS. This Agreement may be executed in one or more
counterparts each signed by one or more of the parties to this Agreement, and
such counterparts shall together constitute one agreement.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their respective duly authorized officers as of the date first above
written.
NU-TECH BIO-MED, INC.
By_________________________________
Its_____________________________
- 7 -
<PAGE> 8
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
- 8 -
<PAGE> 9
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
OAKTREE CAPITAL MANAGEMENT,
LLC, as general partner or
investment manager on
behalf of the funds listed
on Annex I hereto under
"Oaktree Funds"
By_________________________________
Its_____________________________
By_________________________________
Its______________________________
DDJ OVERSEAS CORP.
By_________________________________
Judy K. Mencher
Its Vice President
THE COPERNICUS FUND, L.P.
By DDJ Copernicus, LLC, its General Partner
By_________________________________
Its_____________________________
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
- 9 -
<PAGE> 10
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
BELMONT FUND, L.P.
By [_______________], its General Partner
By_________________________________
Its______________________________
BELMONT CAPITAL PARTNERS, II, L.P.,
By [_______________], its General Partner
By_________________________________
Its______________________________
CERBERUS PARTNERS, L.P.
By_________________________________
By_________________________________
Its______________________________
- 10 -
<PAGE> 11
Annex I
Oaktree Funds
<TABLE>
<CAPTION>
Entity Percentage
<S> <C>
OCM Opportunities Fund, L.P. 96%
Columbia/HCA Master Retirement Trust 4%
(Separate Account) ---
100%
</TABLE>
DDJ
Funds
The Copernicus Fund, L.P.
DDJ Overseas Corp.
Fidelity Funds
Belmont Fund, L.P.
Belmont Capital Partners II, L.P.
<PAGE> 12
Annex II
Oaktree:
Oaktree Capital Management, LLC
550 South Hope Street, 22nd Floor
Los Angeles, California 90071
Attention: Kenneth L. Liang, Esq.
Telephone: (213) 694-1522
Fax: (213) 694-1599
Matthew S. Barrett
Telephone: (213) 694-1507
Fax: (213) 694-1592
DDJ Funds:
c/o DDJ Capital Management, LLC
141 Linden Street, Suite 4
Wellesley, Massachusetts 02181
Attention: Judy K. Mencher
Telephone: (617) 283-8500
Fax: (617) 283-5555
Fidelity Funds:
c/o Fidelity Management & Research Company
82 Devonshire Street - E20E
Boston, Massachusetts 02109
Attention: Wendy Schnipper Clayton, Esq.
Telephone: (617) 563-0505
Fax: (617) 476-7774
Cerberus Partners, L.P.:
950 Third Avenue
20th Floor
New York, NY 10019
Attention: Robert Davenport, Esq.
Telephone: (212) 421-2600
Fax: (212) 421-2947
<PAGE> 13
Nu-Tech:
Nu-Tech Bio-Med, Inc.
500 Fifth Avenue, Suite 2424
New York, New York 10110
Attention: J. Marvin Feigenbaum
Telephone: (212) 391-2424
Fax: (212) 391-2864
<PAGE> 14
Exhibit A
DIP TERM SHEET
[To be attached]
<PAGE> 15
Exhibit B
PARTICIPATION AGREEMENT
[To be attached]
<PAGE> 1
Exhibit 10.27
SECURED PROMISSORY NOTE
$2,500,000 New York, New York
December 2, 1996
For value received, the undersigned unconditionally promises
to pay to the order of Oaktree Capital Management, LLC, a California limited
liability company, as general partner or investment manager on behalf of certain
funds and accounts set forth on Schedule I attached hereto (the "Lender"), at
its principal office located at 550 South Hope Street, 22nd Floor, Los Angeles,
California 90071 or such other place designated by Lender, the principal amount
of TWO MILLION FIVE HUNDRED THOUSAND DOLLARS ($2,500,000) on January 31, 1997;
provided, however that this Secured Promissory Note (the "Note") shall become
immediately due and payable upon (i) the filing by, or against, the undersigned
or J. Marvin Feigenbaum of any petition for protection under the United States
Bankruptcy Code, or any similar statute, (ii) the invalidity or any attempted
revocation of either the Guarantee Agreement of even date herewith executed by
J. Marvin Feigenbaum in favor of the Lender or the Security Agreement of even
date herewith executed by the undersigned in favor of the Lender, (iii) upon the
Lender's determination that a material adverse change has occurred in the
financial condition, operations, business or prospects of the undersigned or J.
Marvin Feigenbaum, (iv) the bankruptcy courts's determination that J. Marvin
Feigenbaum has violated his fiduciary obligations to the bankruptcy estate of
Physician's Clinical Laboratory, Inc, debtor and debtor in possession ("PCL") or
(v) any representation or warranty contained herein or in the documents executed
in connection herewith being untrue. The occurrence of any of the events
described in clauses (i) through (v) of the foregoing sentence or the failure of
the undersigned to pay any amount when due hereunder shall constitute a default
under this Note.
The undersigned promises to pay interest on the unpaid balance
of such principal amount from and including the date of this Note to but
excluding the date this Note is paid in full at a rate per annum equal to
fifteen percent (15%). Interest shall be payable on January 31, 1997 and on any
other payment of principal. Any principal, interest or fee not paid when due
(whether by maturity, acceleration or otherwise) shall bear interest from and
including such date to but excluding the date paid in full, at a variable rate
per annum equal to 2% in excess of the rate set forth above; such interest to be
payable on demand and on any payment of such principal. Interest shall be
calculated on the basis of a year of 360 days for the actual number of days
elapsed.
<PAGE> 2
The undersigned shall pay to the Lender upon the execution of
this Note a fee of Seven Thousand Five Hundred Dollars ($7,500) to reimburse the
Lender for legal fees and expenses incurred by the Lender in connection with the
negotiation and preparation of this Note and the documents executed in
connection with this Note.
All payments under this Note shall be made in lawful money of
the United States of America and in immediately available funds at the Lender's
office specified above. This Note may be prepaid without penalty.
The undersigned waives presentment, notice of dishonor,
protest and any other notice or formality with respect to this Note.
The undersigned agrees to reimburse the Lender on demand for
all reasonable costs, expenses and charges (including, without limitation,
reasonable attorneys' fees and charges) in connection with the interpretation,
performance or enforcement of this Note.
This Note shall be binding on the undersigned and its
successors and assigns and shall inure to the benefit of the Lender and its
successors and assigns; provided that the undersigned may not delegate any
obligations under this Note without the prior written consent of the Lender.
The proceeds of this Note shall be used solely to retire the
indebtedness owing by Medical Science Institute, dba MSI Laboratories ("MSI") to
Austin Financial Corporation pursuant to MSI's Plan of Reorganization confirmed
on November 18, 1996 in case No. LA-95-37790TD.
The undersigned represents and warrants that:
It is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has all
requisite corporate power, and has all material governmental approvals
necessary, to own its assets and to carry on its business as now being
or as proposed to be conducted;
The execution and delivery of this Note will not conflict with
or result in a breach of, or require any consent under, the charter or
by-laws of the undersigned or any applicable governmental regulation or
any material agreement or instrument to which the undersigned is a
party or to which it is subject, or constitute a default under, or
result in the termination of, or result in the acceleration or
mandatory prepayment of, any indebtedness evidenced by any such
agreement or instrument; and
The undersigned has all necessary corporate power and
authority to execute, deliver and perform its obligations under this
Note; the execution, delivery and
- 2-
<PAGE> 3
performance by the undersigned of this Note has been duly authorized by
all necessary corporate action on its part; and this Note when executed
and delivered by the undersigned for value will constitute, its legal,
valid and binding obligation, enforceable against it in accordance with
its terms.
The undersigned's chief operating office and principal place of
business is located at the address set forth below.
The proceeds of the loan evidenced hereby shall be used as set forth
above and, upon such use of proceeds, the MSI plan of reorganization will be
consummated and the undersigned will own all of the outstanding equity of MSI.
All notices and communications to be given under this Note
shall be given or made in writing to the intended recipient at the address
specified below or, at such other address as shall be designated in a notice
given to such entity. All such communications shall be deemed to have been duly
given when transmitted by telex or telecopier, delivered to the telegraph or
cable office or personally delivered or, in the case of a mailed notice, upon
receipt, in each case, given or addressed as follows:
To the undersigned: Nu-Tech Bio-Med, Inc.
500 Fifth Avenue, Suite 2424
New York, New York 10016
Fax No. (212) 391-2864
Attention: J. Marvin Feigenbaum
To the Lender: Oaktree Capital Management, LLC
550 South Hope Street, 22nd Floor
Los Angeles, California 90071
Fax No. (213) 694-1599
Attention: Kenneth Liang, Esq.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND
PERFORMED IN THE STATE OF NEW YORK. THE UNDERSIGNED HEREBY SUBMITS TO THE
NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW YORK COUNTY,
NEW YORK FOR THE PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE
- 3-
<PAGE> 4
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. THE UNDERSIGNED IRREVOCABLY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION WHICH IT MAY
NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT
IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT
HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
THE UNDERSIGNED HEREBY IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE OR THE TRANSACTIONS
CONTEMPLATED BY THIS NOTE.
IN WITNESS WHEREOF, the undersigned has caused this Note to be
duly executed and delivered as of the day and year first above written.
NU-TECH BIO-MED, INC.,
a Delaware corporation
By__________________________________________
J. Marvin Feigenbaum, President
- 4 -
<PAGE> 5
SCHEDULE I
<TABLE>
<CAPTION>
<S> <C>
OCM Opportunities Fund, L.P. 97%
Columbia/HCA Separate Account 3%
</TABLE>
<PAGE> 1
Exhibit 10.28
************************************************************************
SECURITY AGREEMENT
Dated as of December 2, 1996
by
NU-TECH BIO-MED, INC.
in favor of
OAKTREE CAPITAL MANAGEMENT, LLC
************************************************************************
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Section 1. Definitions and Interpretation ........................................................................1
1.01 Certain Defined Terms..............................................................................1
1.02 Interpretation.....................................................................................2
Section 2. Collateral ............................................................................................2
2.01 Grant..............................................................................................2
2.02 Perfection.........................................................................................2
2.03 Preservation and Protection of Security Interests..................................................3
2.04 Attorney-in-Fact...................................................................................3
2.05 Rights and Obligations.............................................................................4
2.06 Payments and Proceeds..............................................................................4
Section 3. Representations, Warranties and Covenants .............................................................5
3.01 Title..............................................................................................5
3.02 Sales and Other Liens..............................................................................5
3.03 Principal Place of Business........................................................................5
3.04 Further Assurances.................................................................................5
Section 4. Remedies ..............................................................................................5
4.01 Events of Default, Etc.............................................................................5
4.02 Deficiency.........................................................................................6
4.03 Private Sale.......................................................................................6
4.04 Application of Proceeds............................................................................7
Section 5. Miscellaneous .........................................................................................8
5.01 Waiver.............................................................................................8
5.02 Notices............................................................................................8
5.03 Expenses, Etc......................................................................................8
5.04 Amendments, Etc....................................................................................9
5.05 Successors and Assigns.............................................................................9
5.06 Survival...........................................................................................9
5.07 Agreements Superseded..............................................................................9
5.08 Severability.......................................................................................9
5.09 GOVERNING LAW; SUBMISSION TO JURISDICTION..........................................................9
5.10 WAIVER OF JURY TRIAL..............................................................................10
</TABLE>
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<PAGE> 3
SECURITY AGREEMENT
This SECURITY AGREEMENT (this "Agreement") dated as of
December 2, 1996 is made by Nu-Tech Bio-Med, Inc., a Delaware corporation (the
"Company") in favor of Oaktree Capital Management, LLC, as general partner and
investment adviser for certain funds and accounts set forth on Schedule I
attached hereto (the "Secured Party").
The Secured Promissory Note dated as of December 2, 1996 in
the amount of Two Million Five Hundred Thousand Dollars ($2,500,000) (the
"Note") executed by the Company in favor of the Lender provides, subject to its
terms and conditions, for certain extensions of credit to the Company. It is a
condition to the extensions of credit under the Note by the Secured Party that
the Company shall have executed and delivered, and granted the Lien provided for
in, this Agreement.
To induce the Secured Party to enter into, and to extend
credit under, the Note and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company has agreed
to pledge, assign and grant a security interest in the Collateral as security
for the Secured Obligations. Accordingly, the Company agrees with the Secured
Party as follows:
Section 1. Definitions and Interpretation.
1.011 Certain Defined Terms. The following terms shall have
the following meanings under this Agreement:
"Agent" shall mean OCM Administrative Services, LLC, an
affiliate of the Secured Party (as assignee of Wells Fargo Bank, N.A.), as agent
under the Credit Agreement.
"Basic Document" shall mean the Note, this Agreement and the
Guarantee Agreement of even date herewith executed by J. Marvin Feigenbaum in
favor of the Secured Party.
"Code" shall mean the Uniform Commercial Code as in effect in
the State of New York from time to time or, by reason of mandatory application,
any other applicable jurisdiction.
"Collateral" shall mean all right, title and interest of the
Company in its 16.4447% participation interest in the credit facilities
evidenced by the Credit Agreement, which it purchased pursuant to the
Participation Agreement dated as of November 8, 1996 among, inter alia, the
Company and the Secured Party, a copy of which is attached hereto, (the
"Participation Agreement") and all instruments or chattel paper (each as defined
in the Code) evidencing, representing, arising from or existing in respect of,
relating to, securing or otherwise supporting the payment of such participation
interest, including all of the right, title and interest of the
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<PAGE> 4
Company in, to and under the Participation Agreement and the Agreement dated as
of November 8, 1996 among, inter alia, the Company and the Secured Party, a copy
of which is attached hereto, (the "Agreement") and all proceeds and products in
whatever form of all or any part of the foregoing (together with all rights to
recover and proceed with respect to the same) and all substitutions for and
replacements of all or any part of the foregoing.
"Credit Agreement" shall mean the Credit Agreement dated as of
April 1, 1994 between Physician's Clinical Laboratory, Inc., the Agent and the
financial institutions party thereto.
"Default" shall mean any default described in the Note.
"Lien" shall mean, with respect to any property, any mortgage,
lien, pledge, charge, security interest or encumbrance of any kind in respect of
such property or any agreement to give, or notice of, any of the foregoing.
"Secured Obligations" shall mean any and all obligations of
the Company for the performance of its agreements, covenants and undertakings
under or in respect of the Note, including the payment of all amounts owed
thereunder.
Section 1.021 Interpretation. In this Agreement, unless
otherwise indicated, the singular includes the plural and plural the singular;
words importing either gender include the other gender; references to statutes
or regulations are to be construed as including all statutory or regulatory
provisions consolidating, amending or replacing the statute or regulation
referred to; references to "writing" include printing, typing, lithography and
other means of reproducing words in a tangible visible form; the words
"including," "includes" and "include" shall be deemed to be followed by the
words "without limitation"; references to articles, sections (or subdivisions of
sections), exhibits, annexes or schedules are to this Agreement; references to
agreements and other contractual instruments shall be deemed to include all
subsequent amendments, extensions and other modifications to such instruments
(without, however, limiting any prohibition on any such amendments, extensions
and other modifications by the terms of any such document); and references to
persons or entities including their respective permitted successors and assigns.
Section 2. Collateral.
1.021 Grant. As collateral security for the prompt payment in
full when due (whether at stated maturity, by acceleration or otherwise) and
performance of the Secured Obligations, the Company hereby pledges, assigns and
grants to the Secured Party a security interest in all of the Company's right,
title and interest in and to the Collateral.
1.022 Perfection. Concurrently with the execution and delivery
of this Agreement, the Company shall (i) file such financing statements and
other documents in such
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<PAGE> 5
offices as shall be necessary or as the Secured Party may request to perfect and
establish the Lien granted by this Agreement, (ii) deliver and pledge to the
Secured Party any and all instruments and chattel paper, endorsed or accompanied
by such instruments of assignment and transfer in such form and substance as the
Secured Party may request and (iii) take all such other actions as shall be
necessary or as the Secured Party may request to perfect and establish the
priority of the Lien granted by this Agreement.
1.023 Preservation and Protection of Security Interests. The
Company shall:
(a) upon the acquisition after the date of this Agreement by
the Company of any instrument or chattel paper evidencing all or any part of the
interests constituting the Collateral, promptly deliver and pledge to the
Secured Party all such instruments or chattel paper, endorsed or accompanied by
such instruments of assignment and transfer in such form and substance as the
Secured Party may request; and
(b) give, execute, deliver, file or record any and all
financing statements, notices, contracts, agreements or other instruments,
obtain any and all governmental approvals and take any and all steps that may be
necessary or as the Secured Party may request to create, perfect, establish the
priority of, or to preserve the validity, perfection or priority of, the Lien
granted by this Agreement or to enable the Secured Party to exercise and enforce
its rights, remedies, powers and privileges under this Agreement with respect to
such Lien.
1.024 Attorney-in-Fact.
(a) The Secured Party is hereby appointed the attorney-in-fact
of the Company for the purpose of carrying out the provisions of this Agreement
and taking any action and executing any instruments which the Secured Party may
deem necessary or advisable to accomplish the purposes of this Agreement, to
preserve the validity, perfection and priority of the Lien granted by this
Agreement and, following any Default, to exercise its rights, remedies, powers
and privileges under this Agreement. This appointment as attorney-in-fact is
irrevocable and coupled with an interest. Without limiting the generality of the
foregoing, the Secured Party shall be entitled under this Agreement upon the
occurrence and continuation of any Default (i) to ask, demand, collect, sue for,
recover, receive and give receipt and discharge for amounts due and to become
due under and in respect of all or any part of the Collateral; (ii) to receive,
endorse and collect any instruments or other drafts, instruments, documents and
chattel paper in connection with clause (i) above (including any draft or check
representing the proceeds of insurance or the return of unearned premiums);
(iii) to file any claims or take any action or proceeding that the Secured Party
may deem necessary or advisable for the collection of all or any part of the
Collateral, including the collection of any compensation due and to become due
under any contract or agreement with respect to all or any part of the
Collateral; and (iv) to execute, in connection with any sale or disposition of
the Collateral under Section 4, any endorsements,
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<PAGE> 6
assignments, bills of sale or other instruments of conveyance or transfer with
respect to all or any part of the Collateral.
(b) So long as no Default shall have occurred and be
continuing, the Company shall have the right to exercise all voting, consensual
and other powers of ownership pertaining to the Collateral for all purposes not
inconsistent with the terms of this Agreement.
(c) If any Default shall have occurred and be continuing, and
whether or not the Secured Party exercises any available right to declare any
Secured Obligation due and payable or seeks or pursues any other right, remedy,
power or privilege available to it under applicable law, this Agreement or any
other Basic Document, all payments and other distributions on the Collateral
shall be paid directly to the Secured Party or its designee, retained by it and
applied as set forth in Section 4.04.
1.025 Rights and Obligations.
(a) The Company shall remain liable to perform its duties and
obligations under the contracts and agreements included in the Collateral in
accordance with their respective terms to the same extent as if this Agreement
had not been executed and delivered. The exercise by the Secured Party of any
right, remedy, power or privilege in respect of this Agreement shall not release
the Company from any of its duties and obligations under such contracts and
agreements. The Secured Party shall have no duty, obligation or liability under
such contracts and agreements by reason of this Agreement or any other Basic
Document, nor shall the Secured Party be obligated to perform any of the duties
or obligations of the Company under any such contract or agreement or to take
any action to collect or enforce any claim under any such contract or agreement.
(b) No Lien granted by this Agreement in the Company's right,
title and interest in any contract or agreement shall be deemed to be a consent
by the Secured Party to any such contract or agreement.
(c) No reference in this Agreement to proceeds or to the sale
or other disposition of Collateral shall authorize the Company to sell or
otherwise dispose of any Collateral.
(d) The Secured Party shall not be required to take steps
necessary to preserve any rights against prior parties to any part of the
Collateral.
1.026 Payments and Proceeds.
(a) The Company hereby authorizes and directs the Agent to
make all payments in respect of the Collateral to Secured Party and authorizes
Secured Party or its designee to immediately apply such amounts in accordance
with Section 4.04.
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<PAGE> 7
(b) The Company agrees that if the proceeds of any Collateral
(including payments made in respect thereof) shall be received by it, the
Company shall immediately remit such proceeds to Secured Party. Until so
deposited, all such proceeds shall be held in trust by the Company for and as
the property of the Secured Party and shall not be commingled with any other
funds or property of the Company.
Section 3. Representations, Warranties and Covenants. As of
the date of this Agreement, the Company represents, warrants and covenants to
the Secured Party as follows:
1.031 Title. The Company is the sole beneficial owner of the
Collateral in which it purports to grant a Lien pursuant to this Agreement, and
such Collateral is free and clear of all Liens. The Lien granted by this
Agreement in favor of the Secured Party has attached and constitutes a perfected
security interest in all of such Collateral prior to all other Liens.
1.032 Sales and Other Liens. The Company shall not dispose of
any Collateral, create, incur, assume or suffer to exist any Lien upon any
Collateral or file or suffer to be on file or authorize to be filed, in any
jurisdiction, any financing statement or like instrument with respect to all or
any part of the Collateral in which the Secured Party is not named as the sole
secured party.
1.033 Principal Place of Business. The Company's chief
executive office and principal place of business is located at the address set
forth below.
1.041 Further Assurances. The Company agrees that, from time
to time upon the written request of the Secured Party, the Company will execute
and deliver such further documents and do such other acts and things as the
Secured Party may reasonably request in order fully to effect the purposes of
this Agreement.
Section 4. Remedies.
1.041 Events of Default, Etc. If any Default shall have
occurred and be continuing:
(a) the Secured Party in its discretion may make any
reasonable compromise or settlement it deems desirable with respect to any of
the Collateral and may extend the time of payment, arrange for payment in
installments, or otherwise modify the terms of, all or any part of the
Collateral;
(b) the Secured Party in its discretion may, in its name or in
the name of the Company or otherwise, demand, sue for, collect or receive any
money or property at any time payable or receivable on account of or in exchange
for all or any part of the Collateral, but shall be under no obligation to do
so;
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<PAGE> 8
(c) the Secured Party in its discretion may, upon ten business
days' prior written notice to the Company of the time and place, with respect to
all or any part of the Collateral which shall then be or shall thereafter come
into the possession, custody or control of the Secured Party or any of its
agents, sell, lease or otherwise dispose of all or any part of such Collateral,
at such place or places as the Secured Party deems best, for cash, for credit or
for future delivery (without thereby assuming any credit risk) and at public or
private sale, without demand of performance or notice of intention to effect any
such disposition or of time or place of any such sale (except such notice as is
required above or by applicable statute and cannot be waived), and the Secured
Party or any other person or entity may be the purchaser, lessee or recipient of
any or all of the Collateral so disposed of at any public sale (or, to the
extent permitted by law, at any private sale) and thereafter hold the same
absolutely, free from any claim or right of whatsoever kind, including any right
or equity of redemption (statutory or otherwise), of the Company, any such
demand, notice and right or equity being hereby expressly waived and released.
The Secured Party may, without notice or publication, adjourn any public or
private sale or cause the same to be adjourned from time to time by announcement
at the time and place fixed for the sale, and such sale may be made at any time
or place to which the sale may be so adjourned; and
(d) the Secured Party shall have, and in its discretion may
exercise, all of the rights, remedies, powers and privileges with respect to the
Collateral of a secured party under the Code (whether or not the Code is in
effect in the jurisdiction where such rights, remedies, powers and privileges
are asserted) and such additional rights, remedies, powers and privileges to
which a secured party is entitled under the laws in effect in any jurisdiction
where any rights, remedies, powers and privileges in respect of this Agreement
or the Collateral may be asserted, including the right, to the maximum extent
permitted by law, to exercise all voting, consensual and other powers of
ownership pertaining to the Collateral as if the Secured Party were the sole and
absolute owner of the Collateral (and the Company agrees to take all such action
as may be appropriate to give effect to such right).
The proceeds of, and other realization upon, the Collateral by virtue of the
exercise of remedies under this Section 4.01 shall be applied in accordance with
Section 4.04.
1.042 Deficiency. If the proceeds of, or other realization
upon, the Collateral by virtue of the exercise of remedies under Section 4.01
are insufficient to cover the costs and expenses of such exercise and the
payment in full of the other Secured Obligations, the Company shall remain
liable for any deficiency.
4.03 Private Sale.
(a) The Secured Party shall incur no liability as a result of
the sale, lease or other disposition of all or any part of the Collateral at any
private sale pursuant to Section 4.01 conducted in a commercially reasonable
manner. The Company hereby waives any claims against
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<PAGE> 9
the Secured Party arising by reason of the fact that the price at which the
Collateral may have been sold at such a private sale was less than the price
which might have been obtained at a public sale or was less than the aggregate
amount of the Secured Obligations, even if the Secured Party accepts the first
offer received and does not offer the Collateral to more than one offeree.
(b) The Company recognizes that, by reason of certain
prohibitions contained in the Securities Act of 1933 and applicable state
securities laws, the Secured Party may be compelled, with respect to any sale of
all or any part of the Collateral, to limit purchasers to those who will agree,
among other things, to acquire the Collateral for their own account, for
investment and not with a view to distribution or resale. The Company
acknowledges that any such private sales may be at prices and on terms less
favorable to the Secured Party than those obtainable through a public sale
without such restrictions, and, notwithstanding such circumstances, agree that
any such private sale shall be deemed to have been made in a commercially
reasonable manner and that the Secured Party shall have no obligation to engage
in public sales and no obligation to delay the sale of any Collateral for the
period of time necessary to permit the respective Issuer of such Collateral to
register it for public sale.
1.044 Application of Proceeds. Except as otherwise expressly
provided in this Agreement and except as provided below in this Section 4.04,
the proceeds of, or other realization upon, all or any part of the Collateral by
virtue of the exercise of remedies under Section 4.01 and any other cash at the
time held by the Secured Party under this Agreement, shall be applied by the
Secured Party:
First, to the payment of the costs and expenses of such
exercise of remedies, including reasonable out-of-pocket costs and expenses of
the Secured Party, the fees and expenses of its agents and counsel and all other
expenses incurred and advances made by the Secured Party in that connection;
Next, to the payment in full of the remaining Secured
Obligations in such manner as the Secured Party may determine; and
Finally, to the payment to the Company, or its respective
successors or assigns, or as a court of competent jurisdiction may direct, of
any surplus then remaining.
As used in this Section 4, "proceeds" of Collateral shall mean
cash, securities and other property realized in respect of, and distributions in
kind of, Collateral, including any property received under any bankruptcy,
reorganization or other similar proceeding as to the Company or any issuer of,
or account debtor or other obligor on, any of the Collateral.
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<PAGE> 10
Section 5. Miscellaneous.
1.051 Waiver. No failure on the part of the Secured Party to
exercise and no delay in exercising, and no course of dealing with respect to,
any right, remedy, power or privilege under this Agreement shall operate as a
waiver of such right, remedy, power or privilege, nor shall any single or
partial exercise of any right, remedy, power or privilege under this Agreement
preclude any other or further exercise of any such right, remedy, power or
privilege or the exercise of any other right, remedy, power or privilege. The
rights, remedies, powers and privileges provided in this Agreement are
cumulative and not exclusive of any rights, remedies, powers and privileges
provided by law.
1.052 Notices. All notices and communications to be given
under this Agreement shall be given or made in writing to the intended recipient
at the address specified below or, as to any party, at such other address as
shall be designated by such party in a notice to each other party. Except as
otherwise provided in this Agreement, all such communications shall be deemed to
have been duly given when transmitted by telex or telecopier, delivered to the
telegraph or cable office or personally delivered or, in the case of a mailed
notice, upon receipt, in each case, given or addressed as provided in this
Section 5.02:
To the Company: NU-TECH BIO-MED, INC.
500 Fifth Avenue, Suite 2424
New York, New York 10016
Fax No.: (212) 391-2864
Attention: J. Marvin Feigenbaum
To the Secured Party: OAKTREE CAPITAL MANAGEMENT, LLC
550 South Hope Street, 22nd Floor
Los Angeles, California 90071
Fax No.: (213) 694-1599
Attention: Kenneth Liang, Esq.
1.053 Expenses, Etc. The Company agrees to pay or to reimburse
the Secured Party for all costs and expenses (including reasonable attorney's
fees and expenses) that may be incurred by the Secured Party in any effort to
enforce any of the provisions of Section 4 or any of the obligations of the
Company in respect of the Collateral or in connection with (a) the preservation
of the Lien of, or the rights of the Secured Party under this Agreement or (b)
any actual or attempted sale, lease, disposition, exchange, collection,
compromise, settlement or other realization in respect of, or care of, the
Collateral, including all such costs and expenses (and reasonable attorney's
fees and expenses) incurred in any bankruptcy, reorganization, workout or other
similar proceeding relating to the Company or J. Marvin Feigenbaum.
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<PAGE> 11
1.054 Amendments, Etc. Any provision of this Agreement may be
modified, supplemented or waived only by an instrument in writing duly executed
by the Company and the Secured Party. Any such modification, supplement or
waiver shall be for such period and subject to such conditions as shall be
specified in the instrument effecting the same and shall be binding upon the
Secured Party, each holder of any of the Secured Obligations and the Company,
and any such waiver shall be effective only in the specific instance and for the
purposes for which given.
1.055 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the Company, the Secured Party and each holder
of any of the Secured Obligations and their respective successors and permitted
assigns. The Company shall not assign or transfer its rights under this
Agreement without the prior written consent of the Secured Party.
1.056 Survival. All representations and warranties made in
this Agreement or in any certificate or other document delivered pursuant to or
in connection with this Agreement shall survive the execution and delivery of
this Agreement or such certificate or other document (as the case may be) or any
deemed repetition of any such representation or warranty.
1.057 Agreements Superseded. This Agreement supersedes all
prior agreements and understandings, written or oral, among the parties with
respect to the subject matter of this Agreement.
1.058 Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions of this Agreement, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
1.059 GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS
AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE
STATE OF NEW YORK. THE COMPANY HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION
OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF
ANY NEW YORK STATE COURT SITTING IN NEW YORK, NEW YORK FOR THE PURPOSES OF ALL
LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. THE COMPANY IRREVOCABLY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION WHICH IT MAY NOW
OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN
SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM.
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<PAGE> 12
5.10 WAIVER OF JURY TRIAL. THE COMPANY AND THE SECURED PARTY
HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY
AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
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<PAGE> 13
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed and delivered as of the day and year first above written.
NU-TECH BIO-MED, INC.,
a Delaware corporation
By:_____________________________________
J. Marvin Feigenbaum, President
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<PAGE> 14
SCHEDULE I
<TABLE>
<CAPTION>
<S> <C>
OCM Opportunities Fund, L.P. 97%
Columbia/HCA Separate Account 3%
</TABLE>
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES
Analytical Biosystems Corporation
NTBM Billing Services, Inc.
Medical Science Institute
<PAGE> 1
Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of Nu-Tech Bio-Med,
Inc. for the registration of 2,225,716 shares of its common stock and to the
incorporation by reference therein of our report dated March 5, 1996 , with
respect to the consolidated financial statements of Nu-Tech Bio-Med, Inc.
included in its Annual Report (Form 10-KSB) for the year ended December 31,
1995, filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Providence, Rhode Island
December 13, 1996
<PAGE> 1
Exhibit 23.2
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of Nu-Tech Bio-Med,
Inc. for the registration of 2,225,716 shares of common stock and to the
incorporation by reference therein of our report dated September 20, 1996,
except for Notes 8 and 9, as to which the date is October 30, 1996, with
respect to the financial statements of Prompt Medical Billing, Inc. for the
period from March 1, 1994 (date of inception) to December 31, 1994 and for the
year ended December 31, 1995, included in the Current Report on Form 8-K/A of
Nu-Tech Bio-Med, Inc. dated November 14, 1996, filed with the Securities and
Exchange Commission.
MCCLAIN & COMPANY LLP
Miami, Florida
December 13, 1996
