IN THE UNITED STATES BANKRUPTCY COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
IN RE:
BANKRUPTCY NO. 03-23239-MBM
BICO, INC., f/k/a Biocontrol
CHAPTER 11
Technology, Inc.,
Debtor.
Document No.
SECOND AMENDED DISCLOSURE STATEMENT TO ACCOMPANY
SECOND AMENDED JOINT PLAN OF REORGANIZATION DATED AUGUST 3,
2004
AND NOW COMES, BICO, Inc., the above-captioned debtor
(the "Debtor"), by and through its counsel, Steven T.
Shreve, and PHD Capital, the Joint Plan Proponent, by and
through its counsel, Robert O. Lampl and John P. Lacher, and
furnish this Second Amended Disclosure Statement
("Disclosure Statement") to creditors in the above-captioned
matter pursuant to Federal Bankruptcy Code 11 U.S.C. 1125.
The purpose of this Second Amended Disclosure Statement
is to enable holders of claims against or interests in the
Debtor to make an informed judgment concerning acceptance or
rejection of the Joint Plant of Reorganization dated August
3, 2004, a copy of which is attached hereto.
Pursuant to 11 U.S.C. 1126(a), the holder of a claim
or interest allowed under 11 U.S.C. 502 may vote to accept
or reject the Second Amended Joint Plan of Reorganization
(the "Plan"). Under 11 U.S.C. 1126c), a class of claims
has accepted the Plan if more than 1\2 of the claimants
representing at least 2\3 in dollar amount have accepted the
Plan. Pursuant to 11 U.S.C. 1126(f), a class that is not
impaired under the Plan and is conclusively presumed to have
accepted the Plan. Pursuant to 11 U.S.C. 1126(g), a class
which does not receive nor retain any property under the
Plan is deemed to have rejected the Plan. 11 U.S.C.
1125(b) prohibits the solicitation of votes on the Plan
until a Disclosure Statement is approved by the Court as
containing adequate information.
The Debtor, Debtor's counsel, the Joint Plan Proponent,
and counsel to the Joint Plan Proponent have attempted to
provide in this Disclosure Statement reasonable detail of
all relevant information concerning assets, liabilities and
business operations.
NO INFORMATION CONCERNING THE DEBTOR IS AUTHORIZED
OTHER THAN INFORMATION SET FORTH IN THIS STATEMENT.
ANY REPRESENTATIONS OR INDUCEMENTS NOT IN THIS
DISCLOSURE STATEMENT MADE TO SECURE YOUR ACCEPTANCE
OR REJECTION OF THE PLAN SHOULD NOT BE RELIED UPON
BY YOU IN ARRIVING AT YOUR DECISION.
Creditors who wish to vote must complete their Ballots
and return them to the following address before the deadline
noted in the Order Approving the Second Amended Disclosure
Statement and fixing said time. The Court will schedule a
hearing on the Plan pursuant to 11 U.S.C. 1129.
Address for return of Ballots:
STEVEN T. SHREVE, ESQUIRE
303 PITT BLDG.
213 SMITHFIELD ST.
PITTSBURGH PA 15222
Ph. (412) 281-6555
Fax: (412) 281-6597
I. BACKGROUND
1. Name of Debtor: BICO, Inc., formerly known as
Biocontrol Technology,
Inc.
2. Type of Debtor: Public corporation.
3. Debtor's Business: BICO is a development stage
company,
researching, developing and selling products used in the
medical product and
environmental remediation businesses. In addition, prior to
its bankruptcy filing, BICO regularly invested funds in
other businesses. BICO has historically financed its
business operations from proceeds generated from private and
public sales of its securities, the issuance of debt in the
form of convertible debentures, and from funds paid by
subsidiaries to BICO for research and development costs.
4. Date of Chapter 11 Petition: On March 18, 2003,
BICO, Inc. and its subsidiary Petrol Rem, Inc. filed
voluntary petitions for Chapter 11 bankruptcy with the
United States Bankruptcy Court for the Western District of
Pennsylvania.
5. Events that Caused the Filing: BICO extensively
focused its efforts on research and development of products
used in the medical products business (particularly medical
products used in the treatment of diabetes) and
environmental remediation business. BICO also invested in
other business ventures. BICO's operations required a
continuous capital infusion to support its operations. In
late 2001 and continuing throughout 2002, BICO experienced
difficulty in raising monies to support its own operations
and controlling costs. BICO began selling its assets to
provide capital to meet its obligations. BICO's financial
situation continued to deteriorate throughout 2002. Without
necessary funding, BICO was unable to continue operations or
to retain sufficient counsel to defend itself from
litigation matters. In 2002, BICO was sued by several
alleged creditors who obtained default judgments against
BICO and a subsidiary. The judgment holders thereafter
levied on property of BICO, scheduling an execution sale of
assets. Faced with the threat of losing substantial assets
to a single disputed creditor, BICO filed a petition for
relief under Chapter 11 on
March 18, 2003.
In the years prior to the Chapter 11 filing, BICO
experienced substantial losses and financial difficulties.
The consolidated financial statements for BICO for the year
ended December 31, 2001 included disclosures that BICO had a
net loss for the nine month period ended September 30, 2002
of $17,518,464 (unaudited) and for the fiscal year ended
December 31, 2001 of $30,942,310, compared to a net loss for
the fiscal year ended December 31, 2000 of $ 42,546,303. As
of December 31, 2001, and September 30, 2002, BICO's
accumulated deficit was $254,663,071 and $272,181,535
(unaudited) respectively.
Prior to the Chapter 11 filing, BICO decided to
voluntary vacate its manufacturing facility in Indiana, PA.
All manufacturing operations have ceased and no additional
work is being performed on any remaining contracts at the
Indiana, Pa facility. The inventory and equipment at the
Indiana, PA facility has been sold during the course of
BICO's Chapter 11 bankruptcy case.
6. Anticipated Future of the Debtor: BICO will not
continue business operations as an independent entity.
Instead, the Joint Plan Proponent PHD Capital anticipates
combining a new entity, cXc Services, Inc. ("cXc"), into
BICO. BICO will obtain 100% of the assets of cXc, including
the exclusive licensing rights to a product known as a "web
phone" and management expertise . In return, the
shareholders of cXc will receive full voting, convertible,
preferred stock in BICO. The preferred stock shall be
convertible at any time into an amount of common stock equal
to 49.6% of the total stock to be issuable by BICO, but will
not provide cXc with any priority over the common
shareholders upon liquidation, nor any dividend or
disbursement priority. The former shareholders of cXc will
hold two of three positions on the Board of Directors of
BICO. BICO shall continue business operations as a publicly
traded company with continuing infusions of capital and
resources from selling additional shares or any other
available source. Neither cXc nor its principals shall
receive any funds currently held by BICO.
Who is cXc Services, Inc. and what is its business?
cXc is a private company based in Laguna Hills,
California. cXc was located by the joint plan proponent, PHD
Capital (PHD and cXc had no prior dealings). cXc was
incorporated in Delaware in 2003. Neither cXc, nor any of
its principals, have had any prior dealings with BICO or are
insiders of BICO or its subsidiaries. cXc is a developing
company dedicated to providing internet connectivity to the
large number of customers and consumers who do not currently
have internet service, as well as making internet service
more convenient for those who do have service. cXc is
marketing and will shortly begin selling, a "web phone"
product which will enable telephone users to access the
internet (without a computer or television) by pushing one
button on a telephone. cXc has the exclusive distribution
rights in North America for the web phone product
manufactured by Amstrad, PLC, a public British company.
Amstrad has sold and installed 300,000 units of the web
phone product in its markets in the last approx. year and a
half. To date, cXc and its predecessors have raised over $1
million to support it operations. A summary of cXc's product
description and target markets may be viewed at the firm's
website, cXcservices.com.
cXc Services is substantially owned (over 80%) by Ken
Raznick, Richard Greenwood and the management team. The co-
founder, President and CEO of cXc is Richard Greenwood.
Greenwood has over 25 years of experience in executive level
positions with financial institutions involving funding and
capital management. For example, he held various treasury
positions for Citibank, was CFO of California Federal Bank
and Valley National, and was the CEO of Bank Plus/Fidelity
Federal Bank. Most recently before starting cXc, Greenwood
was CEO of Hagenuk CPS/USA, a manufacturer and distributor
of web phones and smart card systems and technologies.
Greenwood is experienced at raising funds for a developing
business and managing its daily challenges.
Co-founder Ken Raznick, the Chairman of cXc, has worked
in the commercial real estate field for 30 years,
participating in the development of over 25 million square
feet of commercial and industrial space. In 1974, Raznick
started The Ken Raznick Company developing neighborhood
shopping centers. In addition to developing and managing
shopping centers, Raznick has been actively involved in
commercial financing issues. Raznick has invested
substantial monies in cXc and its operations.
7. Summarize all Significant Features of the Plan,
Including When and How Each Class of Creditor Will
be Paid and What, if Any, Liens Will Be Retained
by Secured Creditors or Granted to Any Creditor
Under the Plan.
The Joint Plan Proponent, PHD Capital, is an investment
banking company based in New York, NY. PHD Capital was used
by BICO prior to the filing of the Chapter 11 as an
investment banker to raise funds. None of the principals or
insiders of BICO are principals or insiders of PHD Capital,
nor have any members of PHD Capital ever held any positions
with BICO. PHD Capital is a creditor of the BICO Estate and
has worked with BICO to identify a merger partner and submit
this Plan. In return for its services, PHD Capital will
obtain stock in BICO representing 2.0% of BICO's issuable
shares. One-half of these shares shall be restricted from
sale for a period of 60 days after issuance, and the
remainder shall be unrestricted. No post-bankruptcy filing
contractual relationship exists between BICO and PHD
Capital.
The shareholders of cXc shall receive preferred stock
in BICO with full voting rights (the preferred stock will be
convertible into common stock representing 49.6% of BICO's
issuable shares). cXc will control two of three Board of
Director positions. Upon consummation of the merger, cXc
and\or PHD will endeavor to secure the funds necessary on an
as needed basis to: (I) merge operations with the
Reorganized Debtor; and (ii) continue BICO's operations and
preserve its status as a publicly traded company (including,
but not limited to, the costs and expenses of preparing
public company filings, registration statements, and
mailings to shareholders). In the 90 day period following
the merger, cXc expects to continue uninterrupted its
business plan and as such expects at least another $1
million dollars to be raised for the new BICO operation.
BICO's reorganized Board of Directors shall have the
following special powers, none of which shall require the
consent of any shareholders: 1) combine cXc into BICO and
implement the terms of the Joint Plan of Reorganization; 2)
designate officers and directors of the Reorganized Debtor
for a period of 12 months or until a merger is consummated,
whichever is sooner; 3) increase the total authorized shares
in the Reorganized Debtor to up to 250,000,000,000 shares;
4) split or reverse split the stock in the Reorganized
Debtor as many times as desired for a period of 5 years from
the effective date of the Plan; 5) redeem the interest of
BICO's preferred shareholders in exchange for common stock
in the Reorganized Debtor; 6) impose commercially reasonable
restrictions on the transfer of any issued stock; 7) amend
BICO's bylaws and\or issue new bylaws for BICO for a period
of 2 years from the effective date of the Plan; 8) assume,
ratify, assign and\or amend that certain Securities Purchase
Agreement between BICO and J.P. Carey Asset Management
relating to Series K Convertible Preferred Stock, including
extending the maturity date to September 1, 2007. This
agreement permits BICO to raise revenue by selling stock in
a less costly manner than by issuing a secondary offering;
and 9) issue restricted or unrestricted shares of BICO stock
in such amounts and at such times to persons or entities who
shall perform services for BICO, as the Board of Directors
shall determine.
Existing unsecured nonpriority creditors of BICO shall
receive 6,500,000,000 shares of restricted common stock in
the Reorganized Debtor, distributed on a pro-rata basis.
Holders of this common stock shall be restricted from
trading the stock in the following manner: 25% may be sold
beginning 6 months from the date of issuance; another 25%
may be sold beginning 9 months from the date of issuance;
and the remainder may be sold beginning 1 year from the date
of issuance. Existing unsecured creditors shall also receive
the net proceeds distributed on a pro-rata basis of any
fraudulent transfer litigation to be commenced by BICO or
its assign. This includes a possible cause of action against
Edward Lofton and\or Intco., Inc. arising out of a loan
transaction between BICO and Intco, Inc. The Debtor believes
that this cause of action
has merit and should be pursued. Upon locating an attorney
to pursue the action on a contingency, BICO may fund a cost
account to pursue the litigation prior to any merger. The
Reorganized Debtor shall have no obligation to pursue or
fund this litigation.
The Reorganized Debtor shall redeem the existing
preferred stock in exchange for common stock in the
Reorganized Debtor of another 6,500,000,000 shares. The
existing common stockholders in BICO shall retain their
existing shares in the amount of approx. 6,500,000,000.
Collectively, existing creditors, preferred shareholders,
and shareholders of the Debtor shall receive approx. 8% of
the issuable shares in the Reorganized Debtor.
J.P. Carey Asset Management shall receive shall receive
1,000,000,000 shares of common stock in the Reorganized
Debtor, which shares shall be restricted from trading for a
period of 6 months from the date of issuance. These shares
shall be paid to J.P. Carey Asset Management for assisting
BICO in raising revenue pursuant to the Securities Purchase
Agreement for Series K Preferred Stock dated February 15,
2002.
The Reorganized Debtor shall also reserve 4,500,000,000
shares of common stock, restricted or unrestricted as the
Board of the Debtor shall determine, to be used to pay for
services to be rendered to the Reorganized Debtor
(including, but not limited to, public relations firm(s),
marketing agents, accountants, attorneys, employees, and
professionals).
Holders of warrants and\or options to purchase BICO
stock or debt which had not been exercised as of March 18,
2003 shall not receive any property under this Plan, and
such interests are cancelled.
Administrative claimants will be paid either in full on
the Effective Date of the Plan or as agreed between the
Debtor and the claimant(s). Priority wage claim creditors
will be paid the full amount of their allowed priority
claims (up to $4,650 per claimant) on the Effective Date of
the Plan. Unsecured priority tax creditors shall be paid the
full amount of their priority tax claims over a period of 72
months or less, plus interest at the prevailing interest
rate for such claims in effect on the date the Plan is
confirmed, as provided by 11 U.S.C. 507(a)(8).
Upon approval of the Plan and implementation of the
Plan, BICO anticipates registering and issuing unrestricted
stock in BICO representing 16% of the issuable shares in the
company, and immediately begin selling such stock to raise
needed investment capital. BICO shall reserve another 22% of
its issuable shares for future capital raising.
8. The Monthly Operating Statements are current and
on file with the Clerk of Court through June, 2004, as of
the date of this Second Amended Disclosure Statement. The
monthly operating statement for the month of July, 2004 is
not yet due.
II. CREDITOR CLASSIFICATION.
A. Unimpaired Administrative Claims - Class 1
Estimate of claims of counsel to Debtor $
90,000.00 and counsel to the Creditors Committee
B. Unimpaired Administrative Claims - Class 2
Estimate of claim of Clerk of the Bankruptcy Court
and U.S. Trustee fees and claims $ 500.00
C. Impaired Administrative Claim - Class 3
Claimant A. Paterra, the CEO and Director of BICO, asserts a
claim for deferred
compensation during the Chapter 11 for compensation accrued
but not paid (initially, no monies were in the Debtor's
account). The estimated current amount of this claim to date
is $45,666. This amount represents the difference between
Mr. Paterra's prebankruptcy compensation and what Paterra
has actually received since the Chapter 11 filing ($96,000
between March 18, 2003 and July, 2004). The Debtor agrees to
this amount. Mr. Paterra has agreed to enter into both a
consulting agreement and a non-compete agreement with the
Reorganized Debtor. In return for entering into a consulting
agreement and a non-compete agreement, Mr. Paterra shall
receive common stock in the Reorganized Debtor in totaling
500,000,000 shares.
D. Unimpaired Priority Wage Claims - Class 4. 11
U.S.C. 507(a)(3). The allowed claims of entities for
wages, salaries or commissions up to a statutory maximum of
$4,650 per claimant, earned within 90 days before March 18,
2003 or the cessation of business (whichever occurred first)
entitled to priority pursuant to 507(a)(3) of the Code. 11
U.S.C. 507(a)(3). The allowed Class 4 claims shall be paid
in full on the Effective Date of the Plan. Estimated total
allowed amount of such claims totals $165,000. The Debtor
believes that some of the filed priority wage claims are not
valid and will file objections to or otherwise attempt to
settle these claims if necessary.
E. Unimpaired Priority Tax Claims - Class 5. 11
U.S.C. 507(a)(8).
Claimant Pa. Dept. of Revenue shall be paid the full amount
of their priority tax claims over a period of 72 months or
less, plus interest at the prevailing interest rate for such
claims in effect on the date the Plan is confirmed.
F. Impaired General Unsecured Nonpriority Claims -
Class 6. All
allowed unsecured claims for goods and services provided
prior to March 18, 2003, including, but not limited to,
unsecured claims by creditors whose claims arise from the
rejection of an executory contract by the Debtor for leased
property, and unsecured claims by creditors whose claims
arise from deficiency balances after the sale of those
creditors' collateral or the avoidance of those creditors'
security interests. Class 6 members shall receive a pro-rata
distribution of 6,500,000,000 shares of common stock in the
Reorganized Debtor, which shares shall be restricted from
trading for a period of 12 months from the date of issuance.
G. Impaired Class 7: Claims & Interests of BICO, Inc.
Preferred Security Holders. Members of Class 7 include all
preferred shareholder equity interests in the BICO. The
Reorganized Debtor shall redeem the interests of Class 7
members in exchange for unrestricted common stock in the
Reorganized Debtor.
H. Unimpaired Class 8: Claims & Interests of BICO, Inc.
Common Security Holders. Members of Class 8 include all
common shareholder equity interests in the BICO. The
existing common stockholders in BICO shall retain their
shares.
III. IDENTITY AND VALUATION OF DEBTOR ASSETS.
BICO did not own any real estate at the time of the
Chapter 11 filing. The Debtor has liquidated, or is in the
process of liquidating, the following assets: 1) BICO's
equity and debt interest in Viacirq, Inc., a subsidiary
($300,000 sale price); 2) the remaining inventory and
equipment at BICO's Indiana, Pa division ($130,000 sale
price); 3) BICO's equity and debt interest in Diasense, Inc.
($80,000 sale price); & 4) accounts receivable collection
(less than $20,000). These are gross amounts obtained from
the sale of certain of BICO's assets. BICO currently has
approx. $345,000 of sales proceeds remaining after payment
of ongoing Chapter 11 expenses (such as salaries to Debtor
employees, rent, storage, utilities, and quarterly fees, but
not including any professional fees).
BICO's remaining assets consist of 1) over $250,000,000
in net tax loss
carryforwards; and 2) BICO's status at a publicly traded
company. BICO has been attempting to sell the tax loss
carryforwards since the filing date, but has not received
any significant offers for the loss carryforwards alone.
Although these potential assets may have substantial value
to a particular company, the Debtor believes that they have
no net value in a Chapter 7 case to a Debtor's estate. The
actual value of the tax loss carryforwards will also depend
on the tax laws in effect when the losses are sought to be
utilized and not all losses may be available to a purchaser.
Together with its status as a publicly traded company,
BICO believes that the merger with cXc maximizes value for
both creditors and equityholders alike. BICO will become a
company with a proven management group, valuable
intellectual property, and a potential ability to generate
revenues substantially in excess of any revenues ever
generated by the pre-bankruptcy filing BICO. The merged,
Reorganized Debtor should therefore be in a position to take
maximal advantage of BICO's tax loss carryforwards. By
obtaining and retaining equity interests in the Reorganized
Debtor, BICO's creditors and shareholders stand to benefit
from the Reorganized Debtor's operations.
IV. COMPARISON OF PLAN WITH CHAPTER 7 LIQUIDATION.
If Debtor's proposed Plan is not confirmed, the
potential alternatives include proposal of a different Plan,
dismissal of the bankruptcy case, or conversion of the case
to Chapter 7. If this case is converted to Chapter 7, a
trustee will be appointed to liquidate the Debtor's
remaining assets. In this event, all secured claims and
priority claims, including all expenses of administration,
must be paid in full before any distribution is made to
unsecured claimants. BICO believes that its status as a
public trading company would then be eliminated, leaving
only BICO's tax loss carryforwards as a potential asset.
BICO believes that without its public trading status, a
Chapter 7 trustee would not be able to obtain significant
funds for the tax loss carryforwards. As a result, equity
holders would not receive any value and would not retain
their share interests. Further, any nominal distribution to
unsecured nonpriority creditors would be further diminished
by the fees and expenses of a Chapter 7 trustee, legal
counsel to a
trustee, and likely an accountant to a Chapter trustee. As a
result, all creditors and equity security holders will
receive better treatment under the Plan than if BICO's case
is converted to Chapter 7.
V. Management.
Stan Cottrell, BICO's CEO and a director of BICO at the time
of filing, resigned from both positions shortly after BICO's
bankruptcy filing. His resignation was accepted by the
remaining directors, Jerome Buyny and Anthony Paterra.
Anthony Paterra was thereafter named BICO's CEO and
continues to act in that capacity. Mr. Paterra will fill one
of three positions on the Reorganized Debtor's board of
directors during the transition period. Mr. Paterra will
continue to act as a board member until and unless replaced
by a majority vote of the board of directors. The remaining
two positions will be selected by the former shareholders of
cXc. Mr. Paterra has agreed to continue as the Reorganized
Debtor's interim CEO, and to enter into a consulting
agreement, and a non-compete agreement with the Reorganized
Debtor.
VI. Certification.
The undersigned hereby certifies that the information herein
is true and correct to the best of their knowledge and
belief, formed after reasonable inquiry.
BICO, Inc.
By: /s/ Anthony
Paterra
Date: 8/3/2004 Anthony
Paterra, CEO
Joint Plan Proponent
PHD Capital
By: Jody Eisenman
Title: Partner
VII. Corporate Resolution
The undersigned, Anthony Paterra, being the Chief Operating
Officer of BICO,
Inc., hereby authorize the filing of the foregoing Second
Amended Disclosure
Statement.
BICO, Inc.
By: /s/ Anthony
Paterra
Anthony Paterra,
Chief
Executive Officer
Dated: August 3, 2004
/s/ STEVEN T. SHREVE
Steven T. Shreve,
Esquire
303 Pitt Building
213 Smithfield St.
Pittsburgh,
Pennsylvania 15222
(412) 281-6555
Counsel for Debtor
Pa. I.D. No. 59682