1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT,
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): OCTOBER 20, 1997 (OCTOBER 3,
1997)
NU-TECH BIO-MED, INC.
(Exact Name of Registrant as Specified in Charter)
DELAWARE 0-11772 25-1411971
(State or Other Jurisdiction (Commission File Number) (I.R.S. Employer
of Incorporation) Identification No.)
55 ACCESS ROAD
WARWICK, RHODE ISLAND 02886
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (401) 732-6520
2
Item 2. Acquisition or Disposition of Assets.
THIS REPORT ON FORM 8-K REFERS TO AND SUMMARIZES CERTAIN
AGREEMENTS, CONTRACTS AND DOCUMENTS RELATING TO PHYSICIANS CLINICAL LABORATORY,
INC., A COMPANY IN WHICH THE REGISTRANT HAS ACQUIRED A MAJORITY INTEREST. ANY
DESCRIPTION OF THE TERMS OR PROVISIONS OF SUCH AGREEMENTS, CONTRACTS AND
DOCUMENTS DOES NOT PURPORT TO BE COMPLETE AND IN EACH INSTANCE REFERENCE IS
MADE TO THE ACTUAL AGREEMENT, CONTRACT OR DOCUMENT BEING DISCUSSED WHICH IS
FILED AS AN EXHIBIT HERETO.
On November 8, 1996 (the "Petition Date"), Physicians Clinical
Laboratory, Inc., a Delaware corporation ("PCL"), and its subsidiaries, Quantum
Clinical Laboratories, Inc., Regional Reference Laboratory Governing
Corporation, Diagnostic Laboratories, Inc., and California Regional Reference
Laboratory (collectively with PCL, the "Debtors") commenced their respective
reorganization cases by filing voluntary petitions for relief under chapter 11
of the Bankruptcy Code, 11 U.S.C. Sections 101-1330 (the "Bankruptcy
Code").
The Debtors provide clinical laboratory testing services in
the State of California. Clinical testing focuses on testing bodily fluids for
the diagnosis and treatment of illnesses. The Debtors provide these services in
a high-quality and cost-efficient manner to a diversified group of customers and
payor sources, including office-based physicians, managed health care
associations and acute-care hospitals.
On December 12, 1996, the Debtors, Registrant and the Debtors'
senior lenders (collectively, the "Proponents") filed a joint plan of
reorganization which embodied the terms of the Prepetition Termsheet agreed to
among the Proponents. On January 17, 1997, the Proponents filed a modified joint
plan of reorganization, which contained certain amendments to the joint plan of
reorganization filed on December 2, 1996. On February 11, 1997, the Proponents
filed the Second Amended Plan of Reorganization of Physicians Clinical
Laboratories, Inc. and Its Affiliated Debtors (the "Plan") with the United
States Bankruptcy Court for the Central District of California (the "Court"),
which contained certain amendments to the plan of reorganization filed on
January 17, 1997.
On February 26, 1997, the Registrant completed the sale of its
ownership interest in another clinical laboratory company, Medical Science
Institute, Inc. ("MSI") to PCL. The Registrant sold its interest in MSI to PCL
for approximately $7.6 million. The Registrant received approximately $2.6
million in cash and a secured promissory note of PCL in the principal amount of
$5,000,000 that was secured by all the assets of PCL, but was subordinate to
certain other claims and other administrative expenses (the "MSI Acquisition
Note"). In the event the Plan was consummated and the Plan provided that the
Registrant was to become the owner of 52.6% of the outstanding capital stock of
PCL, the MSI Acquisition Note was to be forgiven.
By order dated April 23, 1997 (the "Confirmation Order"), the
Court confirmed the Plan pursuant to section 1129 of the Bankruptcy Code. By
separate order dated April 23, 1997, the Debtors' chapter 11 estates were
substantively consolidated. Pursuant to the Plan, all conditions to the
effective date of the plan (the "Effective Date") were to be satisfied or waived
on or before July 22, 1997, unless such date was extended by the Court.
In late May, 1997, PCL became aware of a subpoena it had
received in April of 1997 to furnish certain documents to the United States
Department of Defense with respect to PCL's Civilian Health and Medical Program
of Uniformed Services ("CHAMPUS") billing practices. In late May, 1997, PCL was
also notified that its Medicare and MediCal billing practices were undergoing
review by the Office of Inspector General of the United States Department of
Health and Human Services ("HHS/OIG"), and in early June of 1997, PCL
1
3
received a subpoena to furnish certain documents to HHS/OIG in connection with
such review. Due to PCL's cooperation and negotiations with these government
agencies, on July 24, 1997, the Court, on stipulation of PCL, the Registrant,
and the creditors of PCL, extended the date that certain conditions be satisfied
or waived pursuant to the Plan for 60 days to September 19, 1997, and stated
that the terms and conditions of the Plan would continue in full force and
effect.
SETTLEMENT AGREEMENTS
On or about July 18, 1997, PCL and the United States reached
an agreement in principle to settle such billing practice claims. The agreement
disposed of the claims on substantially the following terms. The following
description of the terms and provisions of the Federal Agreement is a summary
only, and is qualified in its entirety by the actual terms and conditions of the
Federal Agreement, which is attached hereto as Exhibit 99.15.
(1) PCL paid to the United States Government $200,000 18
days after the Court issued its order approving the
Settlement Agreement (October 7, 1997); and will pay
$1,800,000 in principal plus interest calculated at
the Treasury Bill interest rate payable in equal
monthly installments of $25,000 for six years;
(2) PCL entered into a five-year corporate integrity
agreement (the "Corporate Integrity Agreement") with
the HHS/OIG, pursuant to which PCL will, among other
requirements, set up and follow an internal corporate
compliance plan with monitoring provided by an
internal corporate compliance officer, provide proper
training for its billing and marketing personnel, and
fulfill various reporting requirements to HHS;
(3) PCL and J. Marvin Feigenbaum were released from civil
and criminal liability under the False Claims Act and
common law causes of action in connection with their
billing practices from January 1, 1992, to July 18,
1997;
(4) The amounts owed to the United States will not be
dischargeable in any bankruptcy; and
(5) If PCL defaults on any of its obligations under the
Settlement Agreement, all amounts owed will be
immediately due, all releases will be void and PCL
may be excluded from participation in Medicare and
Medicaid.
Subsequent to reaching an agreement in principle with the
United States, PCL approached representatives of the State of California (the
"State") to discuss the compromise and settlement of any outstanding claims that
the State might have against PCL for its prior billing practices involving the
MediCal program for clinical laboratory services during the period from January
1, 1992 to July 18, 1997. On or about August 28, 1997, PCL and the State reached
2
4
a final agreement to settle such claims (the "State Agreement"). The State
Agreement disposed of the claims on substantially the following terms. The
following description of the terms and provisions of the State Agreement is a
summary only, and is qualified in its entirety by the actual terms and
conditions of the State Agreement, which is attached hereto as Exhibit 99.14.
(1) PCL paid the State the sum of $100,000 22 days after
the Court issued its order approving the Settlement
Agreement (October 11). All of the terms of the
Corporate Integrity Agreement executed by PCL and the
United States Government are incorporated by
reference and all of the terms therein are made
applicable to the Settlement Agreement with the
state;
(2) The State released PCL and J. Marvin Feigenbaum from
any civil or administrative monetary claim or cause
of action that the California Department of Health
Services has or may have, and from any action seeking
exclusion from the MediCal program with regard to the
provision of and reimbursement for laboratory
services under the MediCal program;
(3) The State released PCL and Mr. Feigenbaum from any
criminal liability for any conduct covered by the
State Agreement;
(4) PCL will cooperate in any further investigation of
individuals and entities not released by the State
in the State Agreement.
On September 19, 1997, the Court granted the Debtors' motion to approve the
Federal and State Settlement Agreements. The Court's order became final on
September 30, 1997.
ACTIONS ON THE EFFECTIVE DATE
Pursuant to the Plan, prior to the Effective Date, all of the
Debtors were merged with and into PCL. On October 3, 1997, all conditions to the
Effective Date that were set forth in the Plan were satisfied, the Effective
Date occurred, and the following actions occurred:
The Old Common Stock of each Debtor, the Old Stock Options and
the Old Warranty (collectively, the "Capital Stock"), the original credit
agreements, guarantees, letters of credit, reimbursement agreements and other
documents executed and/or agreements entered into by each Debtor relating to the
Senior Debt Claims (collectively, the "Existing Lender Agreements"), 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 (collectively, the "Old Indenture"), and the $40 million
7.5% Convertible Subordinated Debenture due 2000 (the "Debentures") were deemed
canceled and of no further force and effect. The Company amended and restated
its Certificate of Incorporation in the State of Delaware ("Reorganized PCL"),
attached hereto as Exhibit 99.13, which authorized the issuance of 50,000,000
shares of common stock, par value $0.01 per share (the "New Common Stock").
Reorganized PCL issued, inter alia, (i) 2,500,000 shares of New Common Stock,
(ii) senior secured notes, in the principal amount of $55,000,000, and (iii)
warrants, exercisable within five years of the Effective Date, to purchase
approximately
3
5
131,579 shares of New Common Stock to be issued and outstanding on the Effective
Date, at an exercise price of $13.30 per share. In addition, Reorganized PCL
adopted Amended and Restated Bylaws effective as of September 30, 1997 (the
"Bylaws"), attached hereto as Exhibit 99.12.
PCL satisfied its obligations to its impaired creditors as
follows: (A) the Registrant received 890,000 shares of New Common Stock, which
constitutes approximately 35.6% of the amount of issued and outstanding New
Common Stock, in exchange for approximately $13.0 million in senior secured debt
(which debt it purchased from Oaktree Capital Management LLC, The Copernicus
Fund, L.P. ("Copernicus"), DDJ Overseas Corp., Belmont Fund, L.P. ("Belmont I"),
Belmont Capital Partners, II, L.P. ("Belmont II") and Cerberus Partners, L.P.
("Cerberus") (collectively, the "Senior Lenders") just prior to the Petition
Date), constituting an estimated percentage recovery of 79.58% of its allowed
claims; the Registrant also received an additional 17% of the amount of New
Common Stock issued and outstanding on the Effective Date in exchange for the
Registrant's cancellation of the MSI Acquisition Note; (B) the Senior Lenders,
which held an aggregate of approximately $80.0 million of secured debt, each
received a pro rata share of $55.0 million in new senior secured notes and
952,500 shares of New Common Stock, which constitutes 38.1% of the amount of
issued and outstanding New Common Stock, constituting an estimated percentage
recovery of 84.37% of their aggregate allowed claims; (C) the Debentures each
received a pro rata share of 232,500 shares of New Common Stock, which
constitutes 9.3% of the amount of issued and outstanding New Common Stock,
constituting an estimated percentage recovery of 5.9% of their aggregate allowed
claims; (D) the Company's former shareholders will receive warrants to purchase
131,579 shares of the New Common Stock for a period of up to five years, at a
purchase price of $13.30 per share, which price is based upon an implied
enterprise value for the Company of $90.0 million, and (E) each of the Company's
general unsecured creditors received a pro rata share of $2.45 million in cash
and an unsecured note in the principal amount of $400,000, constituting an
estimated percentage recovery of 16.29% of their aggregate allowed claims. The
holders of Old Stock Options and Old Warrants did not receive any distributions
or property under the Plan. As a result, the Registrant currently holds
1,315,000 shares, or approximately 52.6% of Reorganized PCL's outstanding common
stock.
In addition, Reorganized PCL entered into the following
agreements: (A) the New Indenture, dated as of September 30, 1997 between
Reorganized PCL and First Trust National Association ("FTNA"), attached hereto
as Exhibit 99.1 (the "Indenture"); (B) the Security Agreement, dated as of
September 30, 1997, between Reorganized PCL and FTNA, attached hereto as
Exhibit 99.2; (C) the Pledge Agreement, dated as of September 30, 1997,
between Reorganized PCL and FTNA, attached hereto as Exhibit 99.4;
(D) the Stockholders Agreement, dated as of September 30, 1997, by and
among Reorganized PCL, the Registrant, and Oaktree, attached hereto as
Exhibit 99.3; (E) the Employment Agreement, made as of September 30, 1997,
by and between Reorganized PCL and
4
6
J. Marvin Feigenbaum, attached hereto as Exhibit 99.5; (F) the Noncompetition
Agreement, made as of September 30, 1997, by and among Reorganized PCL and the
Registrant, attached hereto as Exhibit 99.6; (G) the Warrant Agreement, dated
as of September 30, 1997, between Reorganized PCL and U.S. Trust Company of
California, N.A., attached hereto as Exhibit 99.11; (H) the Healthcare
Receivables Purchase and Transfer Agreement, dated as of September 30, 1997,
attached hereto as Exhibit 99.7; (I) the Assignment of Healthcare Receivables
Purchase and Transfer Agreement as Collateral Security, dated September 30, 1997
and attached hereto as Exhibit 99.8; (J) the Loan and Security Agreement, dated
as of September 30, 1997, between Bio-Cypher Funding Corp, a Delaware
corporation ("the Funding Corp."), and Daiwa Healthco-2 LLC, a Delaware LLC
("Daiwa"), attached hereto as Exhibit 99.9; and (K) the Depositary Agreement,
dated as of September 30, 1997, among Reorganized PCL, the Funding Corp.,
Daiwa, and Union Bank of California, N.A., attached hereto as Exhibit 99.10.
The Indenture
The Indenture was entered into between Reorganized PCL and
FTNA in connection with the issuance of Reorganized PCL's $55,000,000 Senior
Secured Notes Due 2004. The original principal amount is $55,000,000 and the
Notes will bear interest at the rate of either 10% per annum in cash or 12% per
annum in kind, at the option of Reorganized PCL, for the first two years after
issuance. Reorganized PCL may not make any interest payments in kind once a cash
interest payment has been made pursuant to the Indenture. After two years, the
Notes will bear interest at the rate of 11% per annum in cash, which rate will
be increased by 1% per annum through maturity. Interest will be payable
semi-annually. To the extent lawful, Reorganized PCL will pay interest on
overdue principal and overdue installments of interest at the rate of 1% per
annum in excess of the then applicable interest rate on the Notes. The Notes
will mature seven years after issuance.
The Notes may be redeemed, at Reorganized PCL's option, in
whole or in part, upon not less than 30 or more than 60 days' notice, at a
redemption price equal to 100% of the principal amount thereon, plus accrued and
unpaid interest thereon through the applicable redemption date. Except with
respect to certain repurchase obligations, Reorganized PCL will not be obligated
to make mandatory redemption or sinking fund payments with respect to the Notes.
Upon the occurrence of a Change of Control (as defined in the Indenture), each
noteholder shall have the right to require Reorganized PCL to repurchase such
holder's Notes at an offer price in cash equal to 101% of the aggregate
principal amount of such Note, plus accrued and unpaid interest through the date
of repurchase. When the aggregate amount of excess proceeds from any asset sale
exceeds $5.0 million, Reorganized PCL will be obligated to make an offer to
repurchase the maximum principal amount of Notes that may be purchased with such
Excess Proceeds at an offer price in cash equal to 100% of the principal amount
of such Notes at maturity, plus accrued and unpaid interest. "Excess Proceeds"
means the net proceeds from any asset sale that have not been applied, at
Reorganized PCL's option, (a) to permanently reduce amounts outstanding under
the Working Capital Facility, or (b) to make an investment in a permitted
business or certain permissible capital expenditures with respect to the
acquisition of certain long term tangible assets. Upon consummation by
Reorganized PCL of an underwritten public offering of its capital stock,
Reorganized PCL shall be obligated to offer
5
7
to purchase the maximum principal amount of Notes possible from the Equity Net
Proceeds at an offer price in cash equal to 100% of the principal amount of such
Notes at maturity, plus accrued and unpaid interest. "Equity Net Proceeds" means
35% of the net proceeds received by Reorganized PCL from any such public
offering of its capital stock.
Payment of the Notes is secured by a first priority security
interest in all existing and future assets of Reorganized PCL including, without
limitation, accounts, equipment, inventory, intellectual property (including
patents, copyrights and trademarks), documents, instruments and any and all
proceeds of the foregoing. Finally, as additional collateral for payment of the
Notes, Reorganized PCL pledged all of the capital stock of its now owned, or
hereafter acquired, subsidiaries, for the benefit of the noteholders. Each of
the Security Agreement, Leasehold Mortgage Agreement and Pledge Agreement
contains customary provisions regarding the preservation of collateral, defaults
and remedies, as well as customary covenants, representations and warranties.
Pursuant to an intercreditor agreement between the Trustee (on behalf of the
noteholders) and Reorganized PCL's exit financing lender, the security interests
granted to the Trustee in Reorganized PCL's receivables will be subordinated to
the lender providing Reorganized PCL's exit financing facility.
Until the first two cash interest payments are made by
Reorganized PCL, the Indenture will contain covenants regarding minimum EBITDA
(earnings before interest, taxes, depreciation and amortization), minimum
tangible net worth, minimal EBITDA/interest expense coverage and certain
restrictions on capital expenditures. The Indenture contains customary
covenants, representations and warranties, as well as customary provisions
regarding defaults, remedies and modifications.
The Warrant Agreement
Reorganized PCL has agreed to issue warrants (subject to
adjustment as set forth below) for the purchase by warrant holders of an
aggregate of 131,579 shares of New Common Stock in Reorganized PCL, $.01 par
value, which amount constitutes approximately 5% of the shares of the New Common
Stock to be issued and outstanding immediately after the Effective Date of the
Plan. Each warrant will entitle the holder thereof to acquire one share of New
Common Stock at a price of $13.30 per share. The exercise price was derived
based upon an assumed total enterprise value for Reorganized PCL of $90 million.
The 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 "Exercise Period"). Each
warrant not exercised prior to the expiration of the Exercise Period will become
void.
The number and kind of securities purchasable upon the
exercise of warrants and the exercise price therefor will be subject to
adjustment upon the occurrence of certain events, including the issuance of New
Common Stock or other shares of capital stock as a dividend or distribution on
the New Common Stock; subdivisions, reclassifications and combinations of the
New Common Stock; the issuance to all holders of New Common Stock of certain
rights, options or warrants entitling them to subscribe for or purchase New
Common Stock; the distribution to holders of New Common Stock of evidences of
indebtedness or assets of Reorganized PCL or any entity controlled by
Reorganized PCL (excluding cash dividends or
6
8
cash distributions from consolidated earnings or surplus legally available for
such dividends or distributions); the distribution to holders of New Common
Stock of shares of capital stock of any entity controlled by Reorganized PCL;
the issuance of shares of New Common Stock for less consideration than the
then-current market price of the New Common Stock; and the issuance of
securities convertible into or exchangeable or exercisable for shares of New
Common Stock or rights to subscribe for such securities, for a consolidation per
share of New Common Stock 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, 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 or securities convertible into or exchangeable for
shares of New Common Stock pursuant to an underwritten public offering
satisfying specified criteria; sales of New Common Stock pursuant to a plan
adopted by Reorganized PCL for the reinvestment of dividends or interest; the
issuance of shares of New Common Stock 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). Additionally, no adjustment will be required if in connection with any
of the events otherwise giving rise to an adjustment the holders of the warrants
receive such rights, securities or assets as such holders would have been
entitled had the 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 issuable upon the hypothetical
exercise of a 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 Warrant Agreement without the 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 Warrant Agreement may be made
with the approval of the holders of a majority of the then outstanding 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 issuable
upon exercise of warrants; or (iii) shortens the Exercise Period requires the
consent of each holder of a warrant affected thereby.
7
9
THE STOCKHOLDERS AGREEMENT AND CERTAIN GOVERNANCE MATTERS
The Stockholders Agreement
The Registrant and Oaktree (collectively, the "Stockholders")
and Reorganized PCL entered into the Stockholders Agreement as of September 30,
1997. Following is a brief description of the substantive provisions of such
agreement:
(i) Transfer Restrictions. None of the shares of the New
Common Stock or any securities exercisable for or convertible into the New
Common Stock (the "Securities") held by the Stockholders may be transferred
unless (A) the transferee shall deliver to Reorganized PCL a written
acknowledgement that the Securities are subject to the Stockholders Agreement;
(B) such transfer shall be made pursuant to a public offering registered under
the Securities Act and in accordance with applicable state law; (C) such
transfer is made to an Affiliate of the transferring Stockholder; or (D) such
transfer is made by the Registrant in a pro rata distribution of Securities to
its stockholders. In addition, the Stockholders agree that they will not,
without the prior written consent of Reorganized PCL, transfer any shares of
Common Stock to Cerberus or any entity which owns, directly or indirectly, 5% or
more of the issued and outstanding equity securities of any entity that conducts
clinical or specialized laboratory services as its principal business.
(ii) Stockholder Share Purchase Rights. If Reorganized PCL
desires in good faith to issue or transfer the Securities, Reorganized PCL shall
deliver a written notice of the proposed transfer to each of the Registrant and
Oaktree (the "Transfer Notice"), which notice
9
10
shall contain a description of the proposed transaction and the terms thereof,
and shall be accompanied by a copy of the bona fide third party written offer.
If Reorganized PCL receives authority from its Board of Directors, it may issue
the Securities on the terms set forth in the Transfer Notice; subsequently
(except in certain circumstances set forth in the Shareholders Agreement),
Reorganized PCL shall make the offer to sell to each Stockholder a pro rata
portion of the Securities based upon such Stockholder's holdings of New Common
Stock. Any Stockholder may, by written notice, accept such offer, in whole or in
part, within thirty (30) days after receipt of the offer.
Reorganized PCL's Certificate of Incorporation also provides
certain shareholders with rights to acquire additional shares pro rata to their
holdings if additional shares are issued or transferred by Reorganized PCL. The
terms of the Certificate of Incorporation are identical to those set forth in
the Shareholders' Agreement, except that in addition to the Registrant and
Oaktree, Belmont I, Belmont II, Copernicus, Gallileo Fund, L.P. ("Gallileo") and
Cerberus, and all of their respective permitted transferees, are the
beneficiaries of such purchase rights.
(iii) Initial Board of Directors. The Initial Board of
Directors, as specified in the Shareholders Agreement is comprised of:
Dr. Nathan Rubin
Mr. J. Marvin Feigenbaum
Mr. Matthew S. Barrett
Mr. David Sterling
Mr. William J. Begley
(iv) Voting Agreement. On or after September 30, 1998, at the
next annual or special meeting called for the purpose of electing directors,
each Stockholder shall elect five members of the Board of Directors, of which
two individuals shall be designated by OCM Administrative Services, L.L.C. or
its designee ("OCM") (an affiliate of Oaktree) and three individuals shall be
designated by the Registrant. If a director designated by OCM or the Registrant
vacates such position for any reason prior to the expiration of his or her term,
then OCM or the Registrant shall have the right to nominate a replacement so
long as it continues to beneficially own the percentage of outstanding
Securities specified in the Shareholders Agreement.
(v) Corporate Governance. During such time as OCM has the
right to designate Directors under the Shareholders Agreement, an affirmative
vote of at least one Director who is appointed by OCM shall be required to: (A)
authorize or propose to authorize any agreement of Reorganized PCL other than
issuances of securities pursuant to the Warrants, employee benefit plans,
management incentive plans or employment agreements with officers of Reorganized
PCL; (B) issue, or propose to issue any capital stock; (C) modify or propose to
modify the Certificate of Incorporation or the By-Laws of Reorganized PCL; (D)
directly or indirectly acquire or propose to acquire any of its capital stock,
or any security exercisable or exchangeable for or convertible into any of its
capital stock; (E) effect or propose to effect a recapitalization or
reorganization of Reorganized PCL in any form; (F) consolidate or merge, or
propose to consolidate or merge, or transfer all or substantially all of the
properties and assets of Reorganized PCL; (G) incur, or cause any subsidiary of
Reorganized PCL to incur any
10
11
indebtedness or other payment obligation out of the ordinary course of business
(other than amounts borrowed pursuant to the Loan and Security Agreement), that
exceeds $1,000,000 when aggregated with all other outstanding indebtedness of
Reorganized PCL and its subsidiaries; (H) make any Capital Expenditure that
exceeds $1,000,000 when aggregated with all other Capital Expenditures in the
immediately preceding twelve month period; or (I) modify the Employment
Agreement or otherwise approve any compensation arrangement or other transaction
for the benefit of Mr. Feigenbaum other than as provided in the Employment
Agreement.
In addition, upon the affirmative vote of two directors,
Reorganized PCL shall institute claims for indemnification pursuant to the
provisions of the Stock Purchase Agreement between Registrant and Reorganized
PCL. The Stockholders shall take all actions necessary to cause the Board of
Directors to adopt resolutions that establish an Indemnity Committee. Such
Indemnity Committee shall be composed of two Directors designated by OCM and one
Director designated by the Registrant (so long as the Registrant is entitled to
designate Directors). Reorganized PCL shall also reimburse any Director for
reasonable costs and expenses incurred in connection with the initiation or
prosecution of such claims, and indemnify and hold harmless such Director for
any liability incurred in relation thereto.
The Certificate of Incorporation and the By-Laws
The Certificate of Incorporation also provides that the number
of Directors shall be five, the Directors may be elected only at an annual
meeting of Stockholders, and said election need not be by written ballot unless
requested by the Chairman or by the majority Stockholders. Vacancies on the
Board will be filled solely by the majority of the remaining Directors then in
office and Board Members elected in this manner will hold office until the next
annual meeting and until his or her successor is elected and qualified. Any
Director may be removed from office only at an annual or special meeting of the
Stockholders, the notice of which meeting states that the removal of a Director
is among the purposes of the meeting, and with an affirmative vote of the
holders of at least 66 2/3% of the voting stock. The Certificate of
Incorporation provides that each Director, officer, employee or agent of
Reorganized PCL shall be indemnified by Reorganized PCL to the full extent
permitted by law, and will be entitled to advancement of expenses in connection
therewith.
The Bylaws of Reorganized PCL provide, in general, that (i)
subject to the Certificate of Incorporation, the number of Directors will be
fixed within a specified range by a majority of the total number of Reorganized
PCL Directors then in office; (ii) the Directors in office from time to time
will fill any newly created directorship or vacancy on the Board; (iii)
Directors may be removed only by the holders of at least 66 2/3% of Reorganized
PCL's voting stock; (iv) special meetings of Stockholders may be called only by
the Chairman of the Board or the Secretary of the Reorganized PCL within ten
days of receipt of the written request of a majority of the total number of
Directors of Reorganized PCL that Reorganized PCL would have if there were no
vacancies, or the holders of record of at least 10% of the voting stock, and any
such request must state the purpose or purposes of the proposed meeting; and (v)
subject to certain exceptions, the Board may postpone and reschedule any
previously scheduled annual or special meeting of Stockholders.
11
12
The Bylaws also require that Stockholders desiring to bring
any business before an annual meeting of Stockholders deliver written notice
thereof to the Secretary of Reorganized PCL not less than 50 days in advance of
the meeting of Stockholders; provided, however, that in the event that the date
of the meeting is not publicly announced by Reorganized PCL more than 60 days
prior to the meeting, notice by the Stockholder to be timely must be delivered
to the Secretary of Reorganized PCL not later than the close of business on the
tenth day following the day on which such announcement of the date of the
meeting was so communicated. The Bylaws further require that the notice by the
Stockholder set forth a description of the business to be brought before the
meeting and the reasons for conducting such business at the meeting and certain
information concerning the Stockholder proposing such business at the meeting
and the beneficial owner, if any, on whose behalf the proposal is made,
including their names and addresses, the class and number of shares of
Reorganized PCL that are owned beneficially and of record by each of them and
any material interest of either in the business proposed to be brought before
the meeting.
The Bylaws also provide that the terms of any Director who is
also an officer of Reorganized PCL will terminate automatically, without any
further action on the part of the Board or such Director, upon the termination
for any reason of such Director in his or her capacity as an officer of
Reorganized PCL.
Under applicable provisions of the Delaware General
Corporation Law, the approval of a Delaware company's board of directors, in
addition to stockholder approval, is required to adopt any amendment to a
company's certificate of incorporation, but a company's bylaws may be amended
either by action of its stockholders or, if the company's certificate of
incorporation so provides, its board of directors. However, Reorganized PCL's
Certificate and Bylaws provide that the provisions summarized above and certain
other provisions, including those relating to the classification of the Board
and nominating procedures, may not be amended by the Stockholders nor may any
provisions inconsistent therewith be adopted by the Stockholders, without the
affirmative vote of the holders of at least 75% of the company's voting stock,
voting together as a single class. The Company's Certificate authorizes the
Board to approve amendments to the Bylaws. Any amendment to the Bylaws relating
to the automatic termination of any Director who is an officer upon termination
of such officer would require the affirmative vote of the holders of at least
66 2/3% of the Directors then in office.
Daiwa Facility
On September 30, 1997, Reorganized PCL and its wholly owned
subsidiary, the Funding Corp. entered into a $10 million healthcare receivables
financial facility (the "Exit Financing Facility") with Daiwa. Under the Exit
Financing Facility, Reorganized PCL sells and contributes all of its healthcare
accounts receivables to the Funding Corp., which in turn pledges such accounts
receivable to the Daiwa as collateral for revolving loans. The proceeds of such
revolving loans are used to purchase the eligible accounts receivable from
Reorganized PCL. Reorganized PCL then uses such funds to fund future operating
and capital expenditures and to establish the future liquidity needed to operate
its businesses.
Under a Healthcare Receivables Purchase and Transfer
Agreement, Reorganized PCL sells and contributes all of its healthcare accounts
receivables and related items to the
12
13
Funding Corp. for a purchase price equal to 95% of the expected net value of
those accounts receivable that meet certain eligibility requirements.
Reorganized PCL will also act as the servicer of such accounts receivable,
continuing to conduct all billing and collection responsibilities. The Funding
Corp. may replace Reorganized PCL with a third-party servicer upon the
occurrence of certain termination events.
Under a Loan and Security Agreement, the Funding Corp. pledges
the accounts receivable received from Reorganized PCL to Daiwa as collateral for
revolving loans. Daiwa makes revolving loans available to the Funding Corp. in
an amount up to the lessor of (a) $10 million and (b) a borrowing base equal to
85% of the value of eligible accounts receivables, subject to certain
adjustments. The Funding Corp. must pay interest on the outstanding balance of
these revolving loans at an interest rate per annum equal to two percent in
excess of the LIBO Rate (as defined and calculated under the Loan and Security
Agreement), which interest rate will increase by three percent after an event of
default under the Loan and Security Agreement. The Funding Corp. must also pay
to Daiwa a monthly non-utilization fee equal to one-half of a percent on the
amount by which $10 million exceeds the outstanding balance of all revolving
loans during the prior month.
Both the Healthcare Receivables Purchase and Transfer
Agreement and the Loan and Security Agreement contain representations and
warranties, affirmative and negative covenants (including financial covenants),
events of default and events of termination that are typical in transactions of
this nature. The Exit Financing Facility expires on September 30, 1999.
Employment Agreement
On September 30, 1997, J. Marvin Feigenbaum, President and
Chief Executive Officer of Registrant, entered into an Employment Agreement with
PCL pursuant to which he is also to be employed as President and Chief Executive
Officer and Chairman of the Board of PCL. The employment of Mr. Feigenbaum is
for a term of three years at a base salary of $104,000 per annum through October
31, 1997, and $208,000 per annum thereafter. PCL is to provide Mr. Feigenbaum
with health insurance to the extent not provided for under other employment
arrangements, long term disability insurance, reimbursement for reasonable and
necessary expenses incurred, and an automobile allowance of $500 per month
relating to the use of an automobile while in the state of California. Mr.
Feigenbaum is also to be provided with a policy of term life insurance in the
amount of $500,000. As part of his Employment Agreement with PCL, Mr. Feigenbaum
is subject to certain non-disclosure provisions and a restrictive covenant which
provide for the non-disclosure of trade secrets and confidential information of
PCL and which information is not generally known. While employed by PCL, Mr.
Feigenbaum may not become associated with another business which is directly
involved in the provision of clinical laboratory services anywhere in the United
States and, in the event of his termination of employment under certain
circumstances, Mr. Feigenbaum is not to engage in any competitive act in the
United States prior to September 30, 2001. In connection with his employment by
PCL, PCL granted to Mr. Feigenbaum options to purchase 100,000 shares of PCL's
common stock at an exercise price of $.25 per share and granted options to
purchase an additional 100,000 shares of PCL's common stock at an exercise price
of $5 per share, which latter 100,000 options vest and become exercisable based
on PCL's performance for each of the
13
14
years ended December 31, 1997, 1998 and 1999. Such Employment Agreement is
attached hereto as Exhibit 99.5.
Non-Competition Agreement
On September 30, 1997, Registrant entered into a
Non-Competition Agreement with PCL. The entry into this agreement was in
connection with the purchase by PCL of all of the shares of capital stock of
Medical Science Institute, Inc. formerly owned by the Registrant. The
Non-Competition Agreement provides that Registrant will not, directly or
indirectly, engage in a business which is involved in the provision of clinical
laboratory services in the United States during such time as the Registrant is
the beneficial owner of 25% of the issued and outstanding shares of PCL;
provided, however, that the specialized cancer or genetic diagnostic laboratory
services shall not be deemed to be clinical laboratory services for the purposes
of the Non-Competition Agreement. The Non-Competition Agreement is attached
hereto as Exhibit 99.6.
14
15
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
The financial statements required to be filed as part of this Current
Report on Form 8-K will be filed no later than December 19, 1997 (60 days from
the date of this report) as an amendment to this report.
(b) PRO FORMA FINANCIAL INFORMATION.
The pro forma financial information required to be filed as part of
this Current Report on Form 8-K will be filed no later than December 19, 1997
(60 days from the date of this report) as an amendment to this report.
(c) EXHIBITS.
EXHIBIT
NO. DESCRIPTION
2 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) [previously filed as Exhibit 2.4 to the
Company's Registration Statement on Form S-3, File No. 333-17859, and
incorporated by reference herein pursuant to 17 C.F.R. Section 230.411]
99.1 Indenture, dated as of September 30, 1997, among Physicians Clinical
Laboratory, Inc., a Delaware corporation ("PCL"), and First Trust
National Association ("FTNA").
99.2 Security Agreement, dated as of September 30, 1997 between PCL and FTNA.
99.3 Stockholders Agreement, dated as of September 30, 1997, by and among
PCL, Nu-Tech, and Oaktree.
99.4 Pledge Agreement, dated as of September 30, 1997, between PCL and FTNA.
99.5 Employment Agreement, made as of September 30, 1997, by and between PCL
and J. Marvin Feigenbaum.
99.6 Noncompetition Agreement, made as of September 30, 1997, by and among
PCL and Nu-Tech.
99.7 Healthcare Receivables Purchase and Transfer Agreement, dated as of
September 30, 1997.
99.8 Assignment of Healthcare Receivables Purchase and Transfer Agreement as
Collateral Security.
99.9 Loan and Security Agreement, dated as of September 30, 1997, between
Bio-Cypher Funding Corp, a Delaware corporation ("Bio-Cypher"), and
Daiwa Healthco-2 LLC, a Delaware LLC ("Daiwa").
99.10 Depositary Agreement, dated as of September 30, 1997, among PCL,
Bio-Cypher, Daiwa, and Union Bank of California, N.A.
99.11 Warrant Agreement, dated as of September 30, 1997, between PCL and U.S.
Trust Company of California, N.A.
99.12 Amended and Restated Bylaws of PCL, effective as of September 30, 1997.
99.13 Amended and Restated Certificate of Incorporation of PCL.
99.14 Settlement Agreement re: State of California.
99.15 Settlement Agreement re: Federal Government.
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report on Form 8-K to be signed on its
behalf by the undersigned hereunto duly authorized.
NU-TECH BIO-MED, INC.
By: /s/ J. Marvin Feigenbaum
Name: J. Marvin Feigenbaum
Title: Chairman of the Board, President, Chief
Executive and Chief Financial Officer
Date: October 20, 1997