FORM 8-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 22, 1996
MEDIQ INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
1-8147 51-0219413
(Commission File Number) (I.R.S. Employer Identification No.)
One MEDIQ Plaza, Pennsauken, New Jersey 08110
(Address of principal executive offices)
Registrant's telephone number, including area code:(609)665-9300
Page 1 of 3
<PAGE>
Item 5. Other Events.
On August 22, 1996 MEDIQ/PRN Life Support Services, Inc. ("PRN"), a
wholly owned subsidiary of MEDIQ Incorporated (the "Company") (MED:AMEX),
commenced a cash tender offer to purchase all of PRN's 12 1/8% Senior Secured
Notes Due 1999 (the "Notes") at a price of $1,078.74 per $1,000 principal
amount, upon the terms and subject to the conditions set forth in the Offer to
Purchase and Consent Solicitation dated August 22, 1996 (the "Offer to
Purchase"), and the related Consent and Letter of Transmittal (which together
with the Offer to Purchase constitutes the "Offer"). The description of the
Offer herein is in all respects subject to the Offer to Purchase which is
attached as an exhibit hereto and is incorporated by reference herein. The
outstanding principal balance of the Notes is $100 million.
The Offer is intended to reduce the Company's interest expense by
replacing the Notes with lower interest bearing loans under a credit facility
(the "Credit Facility") previously disclosed in the Company's 10-Q for the
quarter ended June 30, 1996.
In addition, the consent solicitation (the "Consent Solicitation") is
to adopt certain proposed amendments to the indenture governing the Notes which
will enable the Company to enter into the Credit Facility and achieve greater
operating and financial flexibility following the consummation of the Offer and
the Consent Solicitation.
The Offer is conditioned upon, among other things, (i) there having
been validly tendered (and not withdrawn) a majority in aggregate principal
amount of the Notes outstanding, and (ii) the Credit Facility having been
entered into and all conditions to the borrowings thereunder of an amount
sufficient to repurchase all validly tendered Notes, repay certain other
indebtedness, and make certain other payments, having been satisfied. The Offer,
Consent Solicitation and withdrawal rights are scheduled to expire at 5:00 p.m.,
Eastern Standard Time, on September 23, 1996 unless the Offer is extended.
It is the Company's present intention to defease any Notes which remain
outstanding after the consummation of the Offer.
American Stock Transfer & Trust Company will act as the Depository for
the Offer.
Exhibit Number 99
Offer to Purchase and Consent Solicitation by MEDIQ/PRN Life
Support Services, Inc. for its 12 1/8% Senior Secured Notes due
1999.
Page 2 of 3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MEDIQ INCORPORATED
(Registrant)
Dated: August 30, 1996 By: /s/ Michael F. Sandler
----------------------
Michael F. Sandler
Senior Vice President -
Finance and Chief Financial
Officer
Page 3 of 3
MEDIQ/PRN LIFE SUPPORT SERVICES, INC.
OFFER TO PURCHASE FOR CASH
AND SOLICITATION OF CONSENTS TO
THE AMENDMENT OF THE INDENTURE
RELATING TO ITS OUTSTANDING
12 1/8% SENIOR SECURED NOTES DUE 1999
AT A PRICE OF $1,078.74
PER $1,000 PRINCIPAL AMOUNT
PLUS ACCRUED AND UNPAID INTEREST UP TO BUT
NOT INCLUDING THE PAYMENT DATE
MEDIQ/PRN Life Support Services, Inc. ('PRN') hereby offers (the 'Tender
Offer') to purchase for cash, upon the terms and subject to the conditions set
forth in this Offer to Purchase and Consent Solicitation (the 'Offer to
Purchase') and in the accompanying Consent and Letter of Transmittal (the
'Consent and Letter of Transmittal'), all of its 12 1/8% Senior Secured Notes
due 1999 (the 'Notes') at a price of $1,078.74 per $1,000 principal amount, plus
accrued and unpaid interest up to, but not including, the Payment Date (as
defined herein). As of the date hereof, the outstanding principal balance of the
Notes is $100 million.
Upon the terms and subject to the conditions set forth herein and in the
Consent and Letter of Transmittal, PRN is soliciting (the 'Consent
Solicitation') consents (the 'Consents') to the adoption of proposed amendments
(the 'Proposed Amendments') to the indenture pursuant to which the Notes were
issued (the 'Indenture'). Registered holders of the Notes ('Holders') who tender
their Notes in the Tender Offer pursuant to the Consent and Letter of
Transmittal and in accordance with the procedures described herein will be
deemed to have consented to the Proposed Amendments. There will be no separate
payment for the Consents with respect to the entire principal amount of the
Notes tendered. The price paid by PRN for the Notes shall be deemed to include
payment for the Consents.
Notwithstanding any other provision of the Tender Offer or the Consent
Solicitation, PRN's obligation to accept for purchase and to pay for Notes
validly tendered pursuant to the Tender Offer and the Consent Solicitation is
conditioned upon, among other things, the following: (a) there having been
validly tendered (and not withdrawn) on or before the Expiration Date (as
defined herein) a majority in aggregate principal amount of the Notes
outstanding as of the date hereof, (b) the execution of a supplemental indenture
to the Indenture providing for the Proposed Amendments following receipt of the
Requisite Consents (as defined herein), and (c) the MEDIQ/PRN Credit Facility
(as defined herein) having become effective and the conditions to borrowing
thereunder having been satisfied. For a description of these and the other
conditions to the Tender Offer and the Consent Solicitation, see 'The Tender
Offer and the Consent Solicitation -- Conditions of the Tender Offer and the
Consent Solicitation.'
See 'Certain Considerations' and 'Certain Federal Income Tax
Considerations' for discussions of certain factors that should be considered in
evaluating the Tender Offer and the Consent Solicitation, and also see 'Proposed
Amendments to the Indenture' for a description of the Proposed Amendments and
the consequences of the adoption thereof to holders of Notes not purchased.
Any Holder desiring to tender Notes should complete and sign the Consent
and Letter of Transmittal (or a facsimile thereof) in accordance with the
instructions set forth therein and mail or deliver such manually signed Consent
and Letter of Transmittal (or such manually signed facsimile), together with the
Notes and any other documents required by such Consent and Letter of Transmittal
to American Stock Transfer & Trust Company (the 'Depositary'). Any beneficial
owner whose Notes are registered in the name of a broker, dealer, commercial
bank, trust company, or other nominee desiring to tender their Notes should
request such registered Holder to effect the transaction on such beneficial
owner's behalf.
<PAGE>
A Holder who desires to tender Notes and who cannot comply with the
procedures set forth herein for tender on a timely basis or whose Notes are not
immediately available may tender such Notes by following the procedures for
guaranteed delivery set forth herein. See 'The Tender Offer and the Consent
Solicitation -- Procedures for Tendering Notes and Delivering Consents --
Guaranteed Delivery'.
To be valid, tender must be received by the Depositary by the Expiration
Date.
Consents and Letters of Transmittal, the Notes and any other required
documents should be sent to the Depositary only, and the method of delivery of
such documents to the Depositary is at the election and risk of the Holder
tendering Notes. Questions and requests for assistance or additional copies of
this Offer to Purchase, the Consent and Letter of Transmittal and the related
Notice of Guaranteed Delivery may be directed to Michael F. Sandler, at (800)
222-4776.
NEITHER PRN, MEDIQ INCORPORATED NOR THEIR RESPECTIVE BOARDS OF DIRECTORS
MAKE ANY RECOMMENDATION AS TO WHETHER ANY HOLDER SHOULD TENDER ANY OR ALL OF
SUCH HOLDER'S NOTES PURSUANT TO THE OFFER. EACH HOLDER MUST MAKE SUCH HOLDER'S
OWN DECISION WHETHER TO TENDER NOTES AND, IF SO, HOW MANY NOTES TO TENDER. PRN
HAS BEEN ADVISED THAT CERTAIN OF ITS OFFICERS AND DIRECTORS INTEND TO TENDER
NOTES PURSUANT TO THE OFFER. SEE 'PARTICIPATION OF INSIDERS IN THE TENDER
OFFER.'
THE TENDER OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON SEPTEMBER
23, 1996, UNLESS EXTENDED (THE 'EXPIRATION DATE'). TENDERS OF NOTES MAY BE
WITHDRAWN AND CONSENTS MAY BE REVOKED AT ANY TIME UNTIL THE REQUISITE CONSENTS
HAVE BEEN RECEIVED AND THE SUPPLEMENTAL INDENTURE HAS BEEN EXECUTED, SUBJECT TO
CERTAIN LIMITED EXCEPTIONS DESCRIBED HEREIN.
NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION ON BEHALF OF PRN
AS TO WHETHER HOLDERS SHOULD TENDER OR REFRAIN FROM TENDERING NOTES PURSUANT TO
THE OFFER. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THE OFFER OTHER THAN THOSE CONTAINED IN THIS
OFFER TO PURCHASE OR IN THE LETTER OF TRANSMITTAL ACCOMPANYING THIS OFFER. IF
MADE OR GIVEN, SUCH RECOMMENDATION AND SUCH INFORMATION AND REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY PRN.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATORY AGENCY HAS MADE ANY FINDING OR DETERMINATION AS TO THE FAIRNESS OF
THIS TENDER OFFER, MADE ANY RECOMMENDATION OR ENDORSEMENT OF THE TENDER OFFER,
OR PASSED UPON THE ACCURACY OR COMPLETENESS OF THIS OFFER TO PURCHASE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
August 22, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION............................................ 4
SUMMARY.......................................................... 5
CERTAIN CONSIDERATIONS........................................... 8
CAPITALIZATION OF PRN............................................ 9
SELECTED FINANCIAL INFORMATION................................... 9
THE TENDER OFFER AND THE CONSENT SOLICITATION.................... 11
PROPOSED AMENDMENTS TO THE INDENTURE............................. 20
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS........................ 22
MISCELLANEOUS.................................................... 24
GLOSSARY......................................................... 25
ANNEX A -- COMPARISON OF INDENTURE PROVISIONS.................. A-1
ANNEX B -- FINANCIAL STATEMENTS FOR THREE YEARS ENDED SEPTEMBER
30, 1995.................................................... B-1
ANNEX C -- FINANCIAL STATEMENTS FOR NINE MONTHS ENDED
JUNE 30, 1996............................................... C-1
</TABLE>
3
<PAGE>
AVAILABLE INFORMATION
MEDIQ Incorporated ('MEDIQ'), which owns through subsidiaries, directly or
indirectly, 100% of the outstanding capital stock of PRN, 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 statements and other information filed by MEDIQ can 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 Commission's Regional
Offices at Seven World Trade Center, 13th Floor, New York, New York 10048 and
CitiCorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material may be obtained by mail from the Public
Reference Section of the Commission at 450 West Fifth Street, N.W, Washington,
D.C. 20549, at prescribed rates. In addition, reports, proxy statements and
other information concerning MEDIQ may be inspected at the offices of the
American Stock Exchange, 86 Trinity Place, New York, New York 10006.
4
<PAGE>
SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the financial data appearing elsewhere in
this Offer to Purchase. Certain capitalized terms used herein are defined in the
Glossary, which begins on page 24 of this Offer to Purchase.
BUSINESS OF MEDIQ AND PRN
MEDIQ, through its indirectly held wholly-owned subsidiaries, PRN and
MEDIQ/PRN Life Support Services-I, Inc. ('PRN-I'), operates the largest movable
critical care and life support medical equipment rental business in the United
States. PRN rents a wide variety of movable medical equipment for use by acute
care hospitals, alternative care facilities, nursing homes, and home health care
companies. On September 30, 1994, PRN-I acquired the critical care and life
support equipment of KCI Therapeutic Services, Inc., a subsidiary of Kinetic
Concepts, Inc., which equipment is owned by PRN-I. The Notes are secured by
certain medical equipment and other assets of PRN but not by any of the assets
of PRN-I.
PURPOSES OF THE TENDER OFFER AND THE CONSENT SOLICITATION; THE PROPOSED
AMENDMENTS
The Tender Offer is intended to reduce PRN's aggregate interest expense by
replacing the higher interest bearing Notes with lower interest bearing loans
under a proposed credit facility (the 'MEDIQ/PRN Credit Facility'), which PRN
expects to enter into among PRN, MEDIQ, certain of MEDIQ's subsidiaries, Banque
Nationale de Paris ('BNP'), NationsBank N.A. and certain other lenders. The
reduction in interest expense will permit PRN to reinvest a greater portion of
its cash flow in its business and increase PRN's operating and financial
flexibility.
The purpose of the Proposed Amendments is to enable PRN to enter into the
MEDIQ/PRN Credit Facility and thereby reduce PRN's aggregate interest expenses
as well as achieving greater operating and financial flexibility following the
consummation of the Tender Offer and the Consent Solicitation and the MEDIQ/PRN
Credit Facility (collectively, the 'Refinancing'). See 'The Tender Offer and the
Consent Solicitation -- Purposes of the Tender Offer and the Consent
Solicitation; The Proposed Amendments'.
In addition, following the adoption of the Proposed Amendments, PRN
presently intends, pursuant to the Indenture as amended, to irrevocably deposit
with the Trustee non-callable obligations of or guaranteed by the United States
of America, in an amount sufficient to pay the principal and interest on the
Notes to their first redemption date and simultaneously to call the notes for
redemption on or about July 1, 1997 at a redemption price of 103.5% of the
principal amount of the Notes plus unpaid interest. Upon the one hundred and
twenty-fifth (125th) day following such deposit, substantially all of the
Company's obligations under the Indenture shall be terminated, and thereafter
the Noteholders will look solely to such deposit for payment of amounts due with
respect to the Notes.
THE TENDER OFFER AND CONSENT SOLICITATION
THE TENDER OFFER....................PRN is offering to purchase all of its
outstanding 12 1/8% Senior Secured Notes due
1999 (the 'Notes'). The principal amount of
all outstanding Notes is $100 million.
THE CONSENT SOLICITATION............PRN is also seeking Consents from holders of
the Notes to certain proposed amendments
('Proposed Amendments') to the indenture
governing the Notes (the 'Indenture').
TENDER OFFER CONSIDERATION..........$1,078.74 for each $1,000 principal amount
of Notes, plus accrued and unpaid interest
up to, but not including, the Payment Date.
The Tender Offer Consideration shall be
deemed to include payment for the Consents.
5
<PAGE>
REQUISITE CONSENTS..................The Proposed Amendments to the Indenture
require the written consent of a majority in
aggregate principal amount of the
outstanding Notes. If the Proposed
Amendments become effective, all persons who
continue to hold Notes thereafter will be
subject to the provisions of the Indenture
as amended by the Proposed Amendments. Upon
receipt of the Requisite Consents, PRN
intends to enter into a supplemental
indenture giving effect to the Proposed
Amendments (the 'Supplemental Indenture').
However, the Supplemental Indenture will not
become effective unless and until PRN has
accepted all Notes validly tendered for
purchase (and not withdrawn) pursuant to the
Tender Offer (the 'Acceptance Date').
DELIVERY OF CONSENTS................The tender of Notes by a Holder thereof in
the Tender Offer will be conclusively deemed
to constitute a Consent to all of the
Proposed Amendments with respect to the
Notes tendered. Holders may not deliver
Consents with respect to any Notes without
tendering such Notes in the Tender Offer and
may not tender any Notes without such tender
constituting a Consent with respect to such
Notes.
PROPOSED AMENDMENTS.................The Proposed Amendments would: (i) delete
the sections in the Indenture entitled:
'Limitation on Restricted Payments',
'Limitation on Payment Restrictions
Affecting Subsidiaries', 'Limitation on
Incurrences of Additional Indebtedness',
'Compliance Certificate', 'SEC Reports',
'Guarantees of Certain Indebtedness',
'Limitation on Transactions with
Affiliates', and 'Transfer of Assets to
Subsidiaries of the Company,'; and (ii)
modify the sections in the Indenture
entitled 'Conflicting Agreements',
'Limitation on Liens', 'When Company May
Merge, etc.', 'Termination of Obligations',
'Application of Trust Money' and the
definition of 'permitted liens'.
CONDITIONS OF THE TENDER OFFER......PRN's obligation to accept for purchase and
pay for the Notes validly tendered is
subject to and conditioned upon, among other
things, the following: (i) there having been
validly tendered (and not withdrawn) on or
before the Expiration Date a majority in
aggregate principal amount of the Notes
outstanding (the 'Minimum Tender
Condition'), (ii) the execution of the
Supplemental Indenture providing for the
Proposed Amendments following receipt of the
Requisite Consents (the 'Supplemental
Indenture Condition') and (iii) the
MEDIQ/PRN Credit Facility shall have been
entered into and all conditions to the
borrowing thereunder of an amount sufficient
to repurchase all validly tendered Notes,
repay certain other indebtedness, and make
certain other payments, shall have been
satisfied (the 'Credit Facility Condition').
6
<PAGE>
EXPIRATION DATE.....................5:00 p.m., New York time, on September 23,
1996, unless extended by PRN.
PROCEDURE TO TENDER.................For a holder validly to tender Notes, a
properly completed and validly executed
Consent and Letter of Transmittal, or a
facsimile thereof, must be received by the
Depositary, together with tendered Notes,
prior to the Expiration Date. A holder who
desires to tender Notes but cannot comply
with the delivery requirement may tender
such Notes following the procedures set
forth for guaranteed delivery.
WITHDRAWAL OF TENDERS AND CONSENTS..Tenders of Notes and Consents may be
withdrawn at any time until the Requisite
Consents have been received and the
Supplemental Indenture has been executed by
PRN and the Trustee under the Indenture.
CERTAIN CONSIDERATIONS..............See 'Certain Considerations' for a
discussion of certain factors that should be
considered in evaluating the Tender Offer
and the Consent Solicitation.
DEPOSITARY..........................American Stock Transfer & Trust Company is
serving as Depositary in connection with the
Tender Offer and the Consent Solicitation.
Its telephone number is (718) 921-8200.
7
<PAGE>
CERTAIN CONSIDERATIONS
The following considerations, in addition to the other information set
forth herein, should be considered carefully by Holders and beneficial owners of
Notes.
POTENTIAL ADVERSE EFFECTS OF TENDER OFFER AND CONSENT SOLICITATION ON HOLDERS OF
NOTES NOT TENDERED
The Notes are not listed on any securities exchange and are not quoted
through the National Association of Securities Dealers Automated Quotation
System, although Dillon Reed & Co. makes a market in the Notes. To the extent
that Notes are tendered and accepted for payment in the Tender Offer, the
trading market for Notes that remain outstanding is expected to be significantly
more limited, which might adversely affect the liquidity of the Notes. The
extent of the trading market and the availability of price quotations would
depend upon a number of factors, including the number of holders of Notes
remaining at such time. As a result, there can be no assurance that any trading
market for the Notes will exist after consummation of the Tender Offer and the
Consent Solicitation. An issue of securities with a smaller outstanding market
value available for trading (the 'float') may command a lower price than would a
comparable issue of securities with a greater float. Therefore, the market price
for Notes that are not tendered in the Tender Offer may be affected adversely to
the extent that the amount of Notes purchased pursuant to the Tender Offer
reduces the float. The reduced float also may tend to make the trading prices of
the Notes that are not so purchased more volatile.
EFFECT OF THE PROPOSED AMENDMENTS ON HOLDERS WHO DO NOT TENDER
If the Tender Offer is consummated and the Proposed Amendments become
operative, Holders of Notes that are not purchased pursuant to the Tender Offer
for any reason will no longer be entitled to the benefits of certain restrictive
covenants and other provisions contained in the Indenture that will have been
eliminated or modified by the Proposed Amendments. The Proposed Amendments would
permit PRN to take actions that could significantly increase the credit risks
with respect to PRN faced by the Holders or that could otherwise be adverse to
the interest of the Holders. Under the Proposed Amendments, for example, PRN
would be permitted to increase the amount of indebtedness that it may incur and
grant liens on the collateral securing the Notes (that are subordinated to the
liens securing the Notes), and PRN would not be restricted from paying
dividends. Furthermore, under the Proposed Amendments PRN is permitted to cease
providing Holders with copies of periodic reports containing information as
prescribed by the reporting requirements under the Exchange Act, except to the
extent required by the Trust Indenture Act of 1939. See 'Proposed Amendments to
the Indenture.'
The Proposed Amendments will also permit PRN to defease the Notes. It is
the intention of PRN to defease any Notes not tendered in the Tender Offer
simultaneously with or shortly after the closing of the Tender Offer. In order
to defease the Notes, PRN is required to deposit certain U.S. Government
obligations sufficient to pay the principal of and interest plus redemption
premium on the outstanding Notes to redemption with the Trustee. One hundred and
twenty-five (125) days following such deposit, substantially all of the
Company's obligations under the Indenture would be terminated. See 'Proposed
Amendments to the Indenture'. The Notes would then be redeemed at 103.5% of the
principal amount of the Notes, plus any unpaid interest, on or about July 1,
1997 with the proceeds from such deposit. In addition, under regulations
recently adopted by the Internal Revenue Service, the Proposed Amendments,
considered together with the anticipated defeasance of the Notes, are likely to
constitute a 'significant' modification of the Notes within the meaning of such
regulations, which could result in a deemed exchange of the Notes for federal
tax purposes.
See 'Certain Federal Income Tax Considerations' for discussions of certain
factors that should be considered in evaluating the Tender Offer and the Consent
Solicitation and the effect of the Proposed Amendments and anticipated
defeasance on non-tendering Holders, and also see 'Proposed Amendments to the
Indenture' for a description of the Proposed Amendments and the consequences to
Holders of Notes not tendered.
8
<PAGE>
CAPITALIZATION OF PRN
The following table sets forth the capitalization of PRN as of June 30,
1996 on a historical actual basis and as adjusted to give effect to the
consummation of the Tender Offer and Consent Solicitation, assuming 100% of the
Notes are purchased and the completion of the proposed MEDIQ/PRN Credit
Facility. The table should be read in conjunction with the financial statements
of PRN and notes thereto and the other financial information contained in the
documents attached hereto.
<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Notes payable(1)..................................................................... $ 7,900 $ 7,900
Long-term debt-current (2)........................................................... 2,807 8,490
-------- --------
Total short-term debt............................................................. $ 10,707 $ 16,390
Long-term debt (2)..................................................................... 104,501 199,896
Stockholder's equity:
Class A common stock -- $.01 par value, 2,000 shares authorized, none issued......... -- --
Common stock -- $.01 par value, 20,000 shares authorized, 10,000 shares issued and
outstanding....................................................................... 1 1
Additional paid-in capital........................................................... 17,522 17,522
Accumulated deficit.................................................................. (7,172) (13,613)
-------- --------
Total shareholder's equity........................................................ 10,351 3,910
-------- --------
Total capitalization................................................................... $125,559 $220,196
======== ========
</TABLE>
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(1) In conjunction with the MEDIQ/PRN Credit Facility, the current $15,000,000
working capital facility will be replaced with a $25,000,000 working capital
facility.
(2) In addition to PRN refinancing substantially all of its senior debt with the
proceeds of the MEDIQ/PRN Credit Facility, PRN will be advancing
approximately $78,000,000 to MEDIQ, PRN Holdings, Inc. and PRN-I, to
refinance all of their senior debt and a portion of their subordinated debt,
and to purchase an outstanding warrant of PRN Holdings, Inc. In addition,
approximately $23,000,000 of additional proceeds will be utilized to pay the
expenses of the transaction, accrued interest, and the prepayment premium on
the Notes.
SELECTED FINANCIAL INFORMATION
MEDIQ/PRN LIFE SUPPORT SERVICES, INC.
The selected historical financial information of PRN shown below for the
fiscal years ended September 30, 1995 and 1994 has been derived from PRN's
audited financial statements. The financial information for the nine-month
periods ended June 30, 1996 and 1995 has been derived from PRN's unaudited
financial statements and includes, in the opinion of PRN's management, all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the information for such periods in all material respects. The
information set forth below is qualified by reference to, and should be read in
conjunction with, PRN's financial statements and related notes included
herewith. Results for the nine-month period ended June 30, 1996 are not
necessarily indicative of the results which may be expected for the fiscal year
as a whole.
9
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
------------------------ ----------------------------
JUNE 30, JUNE 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1995 1994
----------- ----------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues............................................. $101,231 $ 99,215 $128,810 $ 74,944
Operating income......................................... 10,832 8,702 9,115 5,083
Interest expense......................................... 10,480 10,655 14,012 13,372
(Loss) income before income tax (benefit) benefit
expense................................................ 352 (1,953) (4,897) (8,289)
Net loss................................................. (126) (1,583) (3,723) (6,285)
Ratio of Earnings to Fixed Charges(1).................... 1.03 .84 .69 .44
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital.......................................... 13,864 9,841 11,301 492
Rental equipment, net.................................... 74,729 87,795 83,554 98,984
Total assets, net of goodwill............................ 138,830 144,605 132,183 143,803
Total long-term debt(2).................................. 107,308 113,027 110,764 119,570
Stockholder's equity..................................... 10,351 12,617 10,477 14,200
</TABLE>
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(1) For purposes of calculating the ratio of earnings to fixed charges, earnings
are computed by adding to net income the provisions for income taxes and
fixed charges. Fixed charges consist of interest expense and the portion of
operating lease rent expense deemed representative of interest.
(2) Includes long-term debt and current maturities of long-term debt and
excludes all other liabilities of PRN.
10
<PAGE>
THE TENDER OFFER AND THE CONSENT SOLICITATION
PURPOSES OF THE TENDER OFFER AND THE CONSENT SOLICITATION; THE PROPOSED
AMENDMENTS
The Tender Offer is intended to reduce PRN's aggregate interest expense by
replacing the higher interest bearing Notes with lower interest bearing loans
under the MEDIQ/PRN Credit Facility. The reduction in interest expense will
permit PRN to reinvest a greater portion of its cash flow in its business and
increase PRN's operating and financial flexibility. In addition, the Proposed
Amendments will permit the Notes to be defeased.
The purpose of the Proposed Amendments to the Indenture is to enable PRN to
enter into the MEDIQ/PRN Credit Facility and to achieve greater operating and
financial flexibility following the Refinancing, including, among other things,
the ability to consolidate operations with PRN-I by merger or other
transactions. See 'Proposed Amendments to the Indenture'.
PRINCIPAL TERMS OF THE TENDER OFFER AND THE CONSENT SOLICITATION
Upon the terms and subject to the conditions set forth in this Offer to
Purchase and in the accompanying Consent and Letter of Transmittal, PRN is
offering to purchase for cash all outstanding Notes at a price of $1,078.74 per
$1,000 principal amount, plus accrued and unpaid interest up to, but not
including, the Payment Date (the 'Tender Offer Consideration'). The last
scheduled interest payment date on the Notes prior to the Expiration Date was
June 30, 1996. Thus, accrued interest, which will constitute a portion of the
Tender Offer Consideration, will be paid from July 1, 1996 up to, but not
including, the Payment Date.
Upon the terms and subject to the conditions set forth herein and in the
Consent and Letter of Transmittal, PRN is soliciting Consents from Holders of
Notes to the Proposed Amendments. Holders of Notes who tender their Notes in the
Tender Offer pursuant to the terms of the Consent and Letter of Transmittal will
be deemed to have consented to the Proposed Amendments. There will be no
separate payment for the Consents. The price paid by PRN for the Notes will be
deemed to include payment for the Consents.
The total amount of funds required to purchase all of the notes pursuant to
the Offer is approximately $111 million. PRN expects to borrow the required
funds under the proposed MEDIQ/PRN Credit Facility. The MEDIQ/PRN Credit
Facility is expected to be a $260 million credit facility consisting of (i) a
six-year $100 million acquisition revolving credit facility which will convert
to an amortizing term facility approximately eighteen months after the closing
of the MEDIQ/PRN Credit Facility, (ii) a six-year, $25 million working capital
revolving credit facility (with a $7.5 million sublimit for standby letters of
credit), (iii) a six-year, $35 million term loan, and (iv) an eight-year, $100
million term loan. The rate of interest is expected to be equal to either (i)
BNP's base rate plus an additional amount which will vary from .25% to 1.75%
depending on the total consolidated leverage ratio of MEDIQ, or, at the option
of MEDIQ, (ii) BNP's Eurodollar Rate plus an additional amount which will vary
from 1.75% to 3.25% depending on the total consolidated leverage ratio of MEDIQ.
The lenders under the MEDIQ/PRN Credit Facility will have a security interest in
substantially all the property of PRN, MEDIQ and certain subsidiaries of MEDIQ,
including a security interest in the collateral for the Notes which is
subordinate to that in favor of the Trustee for the benefit of the Holders of
the Notes. However, such lenders will not have a lien on any securities or other
assets transferred to the Trustee to defease the Notes.
The credit agreement and other documents relating to the MEDIQ/PRN Credit
Facility are currently being negotiated with the lenders. The conditions
precedent to the initial extension of credit under the MEDIQ/PRN Credit Facility
are expected to include (i) the delivery of definitive loan and security
documents, (ii) the consummation of the Tender Offer and the effectiveness of
the Proposed Amendments to the Indenture, (iii) the completion of the lenders'
due diligence investigation of PRN, MEDIQ and the other loan parties, (iv) the
merger of PRN-I into PRN, and (v) the absence of any default under the MEDIQ/PRN
Credit Facility, any material litigation and any material adverse change since
September 30, 1995, in the business, condition, operations, performance,
properties or prospects.
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It is PRN's present intention to defease any Notes still outstanding after
the consummation of the Tender Offer, which will result in the termination of
all rights that Holders have in the Note collateral 125 days following the
deposit of the defeasance securities.
PRN intends to use the MEDIQ/PRN Credit Facility to fund the Tender Offer,
the defeasance of any Notes not tendered in the Tender Offer, purchase of an
outstanding warrant of PRN Holdings, Inc., the refinancing of substantially all
of PRN's and MEDIQ's existing debt, exclusive of MEDIQ's 7.5% Subordinated Notes
due 2003, MEDIQ's 7.25% Convertible Subordinated Debentures due 2006, and
certain capitalized leases, and pay the expenses associated with such
refinancings; such uses are expected to be approximately $210 million in the
aggregate. The MEDIQ/PRN Credit Facility will also be available to finance
acquisitions (subject to the satisfaction of certain conditions in the MEDIQ/PRN
Credit Facility) which PRN may undertake in the future as well as to finance
working capital requirements. PRN anticipates that the refinancing of the Notes
will result in a lower interest cost for PRN and PRN intends to repay the
borrowings from the MEDIQ/PRN Credit Facility from operating revenues.
Under the Indenture, the Proposed Amendments require the written consent of
the Holders of at least a majority in aggregate principal amount outstanding of
the Notes (the 'Requisite Consent'). If the Requisite Consents are received and
a Supplemental Indenture (as defined herein) reflecting the Proposed Amendments
becomes operative, all persons who continue to hold Notes thereafter will be
subject to the provisions of the Indenture as amended by the Proposed
Amendments. Furthermore, if the Notes are defeased, PRN will be released from
most of the Indenture covenants and the Notes not tendered pursuant to the
Tender Offer will be called for redemption on July 1, 1997.
Upon receipt of the Requisite Consents, PRN will enter into a Supplemental
Indenture reflecting the Proposed Amendments. However, the Proposed Amendments
will not become effective until PRN has accepted all Notes validly tendered for
purchase (and not withdrawn) pursuant to the Tender Offer (the 'Acceptance
Date'). See 'Acceptance of Notes for Payment; Payment for Notes.'
A record date is not being set with respect to the Consent Solicitation
because Holders of Notes may not consent to the Proposed Amendments without
tendering their Notes in the Tender Offer and the Indenture does not require the
setting of a record date.
CONDITIONS OF THE TENDER OFFER AND THE CONSENT SOLICITATION
Notwithstanding any other provision of the Tender Offer and the Consent
Solicitation, PRN will not be required to accept for payment, or to pay for,
Notes tendered pursuant to the Tender Offer and may terminate, extend or amend
the Tender Offer and the Consent Solicitation and may, subject to Rule 14e-1
under the Securities Exchange Act of 1934, as amended (the 'Exchange Act'),
postpone the acceptance of Notes so tendered if, on the Expiration Date (a) the
Minimum Tender Condition shall not have been satisfied, (b) the Supplemental
Indenture Condition shall not have been satisfied, (c) the Credit Facility
Condition shall not have been satisfied or (d) any of the General Conditions (as
defined below) shall not have been satisfied.
For purposes of the foregoing provisions, all the 'General Conditions'
shall be deemed to have been satisfied unless any of the following conditions
shall occur prior to the Acceptance Date:
(i) there shall have been instituted, threatened or be pending any
action or proceeding before or by any court or governmental regulatory or
administrative agency or instrumentality, or by any other person, in
connection with the Tender Offer or the Consent Solicitation, or any other
action or proceeding that is, or is reasonably likely to be, in the sole
judgment of PRN, materially adverse to the business, operations,
properties, condition (financial or otherwise), assets, liabilities or
prospects of PRN;
(ii) there shall have occurred any material adverse development, in
the sole judgment of PRN, with respect to any action or proceeding
concerning PRN existing on the date hereof;
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(iii) any order, statute, rule, regulation, executive order, stay,
decree, judgment or injunction shall have been proposed, enacted, entered,
issued, promulgated, enforced or deemed applicable by any court or
governmental, regulatory or administrative agency or instrumentality that,
in the sole judgment of PRN, would or might prohibit, prevent, restrict or
delay consummation of the Tender Offer or the Consent Solicitation or that
is, or is reasonably likely to be, materially adverse to the business,
operations, properties, condition (financial or otherwise), assets,
liabilities or prospects of PRN;
(iv) there shall have occurred or be likely to occur any event that,
in the sole judgment of PRN, would or might prohibit, prevent, restrict or
delay consummation of the Tender Offer or the Consent Solicitation or that
will, or is reasonably likely to, materially impair the contemplated
benefits to PRN of the Tender Offer or the Consent Solicitation, or
otherwise result in the consummation of the Tender Offer or the Consent
Solicitation not being or not being reasonably likely to be in the best
interests of PRN;
(v) the trustee under the Indenture shall have objected in any respect
to, or taken any action that could, in the sole judgment of PRN, adversely
affect the consummation of the Tender Offer or the Consent Solicitation or
PRN's ability to cause the Proposed Amendments to be effected, or shall
have taken any action that challenges the validity or effectiveness of any
of the procedures used by PRN in soliciting the Consents to the Proposed
Amendments (including the form thereof) or in making the Tender Offer or
the Consent Solicitation or the acceptance of, or payment for, any of the
Notes; or
(vi) there shall have occurred (a) any general suspension of, or
limitation on prices for, trading in securities in the United States
securities or financial markets, (b) any significant adverse change in the
trading prices for the Notes or in MEDIQ's securities, (c) a material
impairment in the trading market for debt securities that could, in the
sole judgment of PRN, affect the Tender Offer or the Consent Solicitation,
(d) a declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States, (e) any limitation (whether or not
mandatory) by any government or governmental, administrative or regulatory
authority or agency, domestic or foreign, on, or other event that, in the
reasonable judgment of PRN, might affect, the extension of credit by banks
or other lending institutions, (f) a commencement of a war or armed
hostilities or other national or international calamity directly or
indirectly involving the United States, or (g) in the case of any of the
foregoing existing on the date hereof, a material acceleration or worsening
thereof.
The conditions to the Tender Offer and the Consent Solicitation are for the
sole benefit of PRN and may be asserted by PRN in its sole discretion regardless
of the circumstances giving rise to such conditions or may be waived by PRN, in
whole or in part, at any time and from time to time, in its sole discretion,
whether or not any other condition of the Tender Offer and the Consent
Solicitation is also waived. Any determination by PRN concerning the events
described in this section shall be final and binding upon all persons.
PARTICIPATION OF INSIDERS IN THE TENDER OFFER
PRN has been advised by Stephen R. Hanlon, Vice President of MIS for PRN;
Michael F. Sandler, Senior Vice President and Chief Financial Officer of MEDIQ;
Elliot Sloane, Vice President of Quality Improvement for PRN and Eugene M.
Schloss, Jr., Secretary of MEDIQ, that they may tender all their Notes pursuant
to the Offer. Stephen R. Hanlon owns $10,000 principal amount of Notes, Michael
F. Sandler owns $20,000 principal amount of Notes, Elliot Sloane owns $5,000
principal amount of Notes and Eugene M. Schloss, Jr. owns $20,000 principal
amount of Notes. NEITHER PRN, MEDIQ INCORPORATED NOR THEIR RESPECTIVE BOARDS OF
DIRECTORS MAKE ANY RECOMMENDATION AS TO WHETHER ANY NOTEHOLDER SHOULD TENDER ANY
OR ALL OF SUCH HOLDER'S NOTES PURSUANT TO THE OFFER. EACH NOTEHOLDER MUST MAKE
SUCH HOLDER'S OWN DECISION WHETHER TO TENDER NOTES AND, IF SO, HOW MANY NOTES TO
TENDER.
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EXPIRATION DATE; EXTENSION; AMENDMENT; TERMINATION
The Tender Offer and the Consent Solicitation will expire at 5:00 p.m., New
York City time, on September 23, 1996, unless extended by PRN. PRN expressly
reserves the right to extend the Tender Offer and the Consent Solicitation on a
daily basis or for such period or periods as it may determine in its sole
discretion from time to time by giving written or oral notice to the Depositary
and by making a public announcement by press release (which shall include
disclosure of the approximate principal amount of Notes deposited to date) to
the Dow Jones News Service prior to 9:00 A.M., New York City time, on the next
business day following the previously scheduled Expiration Date. PRN does not
intend to extend the Tender Offer and the Consent Solicitation independently of
each other. During any extension of the Tender Offer and the Consent
Solicitation, all Notes previously tendered and not accepted for payment will
remain subject to the Tender Offer and the Consent Solicitation and, subject to
the terms and conditions of the Tender Offer and the Consent Solicitation, may
be accepted for payment by PRN.
Notwithstanding anything herein to the contrary, PRN expressly reserves the
absolute right, in its sole discretion, to (a) waive any condition to the Tender
Offer and the Consent Solicitation, (b) amend any term of the Tender Offer and
the Consent Solicitation and (c) modify the Tender Offer Consideration. The
Tender Offer and the Consent Solicitation may be amended independently of each
other. Any waiver or amendment applicable to the Tender Offer or the Consent
Solicitation, as the case may be, will apply to all Notes tendered or for which
a Consent was delivered, as the case may be, regardless of when or in what order
such Notes were tendered or such Consents were delivered, as the case may be. If
PRN makes a material change in the terms of either the Tender Offer or the
Consent Solicitation, or in the information concerning the Tender Offer or the
Consent Solicitation, or if it waives a material condition of the Tender Offer
or the Consent Solicitation, PRN will disseminate additional Tender Offer and
Consent Solicitation materials and will extend the Tender Offer and the Consent
Solicitation, in each case to the extent required by applicable law. If PRN
changes the principal amount of Notes subject to the Tender Offer or increases
or decreases the cash purchase price for the Notes subject to the Tender Offer
and the Consent Solicitation, PRN will, to the extent required by applicable
law, cause the Tender Offer and the Consent Solicitation to be extended, so that
the Tender Offer and the Consent Solicitation remain open at least until the
expiration of ten business days from the date that notice of such increase or
decrease is first published, sent or given by PRN to Holders in respect of the
Tender Offer and the Consent Solicitation. For purposes of the Tender Offer and
the Consent Solicitation, the term 'business day' means any day other than a
Saturday, Sunday or federal holiday. If the Tender Offer or the Consent
Solicitation is amended prior to the Expiration Date in a manner determined by
PRN to constitute a material adverse change to the Holders, PRN promptly will
disclose such amendment in a public announcement and will extend the Tender
Offer and the Consent Solicitation for a period deemed by it to be adequate to
permit Holders to deliver or withdraw their tenders and revoke their Consents.
See 'Withdrawal of Tenders; Revocation of Consents' below.
PRN expressly reserves the right, in its sole discretion, to terminate the
Tender Offer and the Consent Solicitation if any of the conditions applicable
thereto set forth above under 'Conditions of the Tender Offer and the Consent
Solicitation' shall exist and shall not have been waived by PRN. Any such
termination will be followed promptly by public announcement thereof. The Tender
Offer and the Consent Solicitation may not be terminated independently of each
other. If PRN terminates the Tender Offer and the Consent Solicitation, it will
give immediate notice thereof to the Depositary, and all Notes theretofore
tendered and not accepted for payment and all Consents theretofore delivered
will be returned promptly to the tendering and delivering Holders thereof. See
'-- Withdrawal of Tenders; Revocation of Consents' below and '-- Conditions of
the Tender Offer and the Consent Solicitation' above.
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ACCEPTANCE OF NOTES FOR PAYMENT; PAYMENT FOR NOTES
Upon the terms and subject to the conditions of the Tender Offer and the
Consent Solicitation, PRN will accept for payment all Notes validly tendered
pursuant to the Tender Offer (or defectively tendered, if PRN has waived such
defect) and not properly withdrawn, promptly after the later of (a) the
Expiration Date and (b) the satisfaction or waiver of the Conditions specified
in the Tender Offer. PRN will not accept Notes for payment before the Expiration
Date. Promptly after the Acceptance Date, PRN will pay for such Notes. The date
of payment with respect to the Tender Offer and Consent Solicitation is referred
to herein as the 'Payment Date'.
PRN expressly reserves the right, in its sole discretion, to delay
acceptance for payment of Notes tendered under the Tender Offer or the payment
for Notes accepted for payment (subject to Rule 14e-1 under the Exchange Act,
which requires that an offeror pay the consideration offered or return the
securities deposited by or on behalf of the holders thereof promptly after the
termination or withdrawal of a Tender Offer), or to terminate the Tender Offer
and the Consent Solicitation and not accept for payment any Notes not
theretofore accepted for payment, if any of the conditions set forth above under
'Conditions of the Tender Offer and the Consent Solicitation' shall not have
been satisfied or waived by PRN or in order to comply in whole or in part with
any applicable law. In all cases, payment for Notes accepted for payment
pursuant to the Tender Offer will be made only after timely receipt by the
Depositary of Notes and a properly completed and validly executed Consent and
Letter of Transmittal (or a manually signed facsimile thereof), and any other
documents required thereby.
For purposes of the Tender Offer, PRN will be deemed to have accepted for
payment validly tendered Notes (or defectively tendered Notes, if PRN has waived
such defect) if, as and when PRN gives oral or written notice thereof to the
Depositary. Payment for Notes accepted for payment in the Tender Offer will be
made by PRN on the Payment Date by deposit with the Depositary, which will act
as agent for the tendering Holders for the purposes of receiving the Tender
Offer Consideration and transmitting the Tender Offer Consideration to such
Holders. Upon the terms and subject to the conditions of the Tender Offer,
delivery of the Tender Offer Consideration for Notes accepted for payment
pursuant to the Tender Offer will be made by the Depositary promptly after
receipt of funds for the payment of such Notes by the Depositary.
Tenders of and Consents with respect to Notes pursuant to the Tender Offer
and the Consent Solicitation will be accepted only in principal amounts equal to
$1,000 or integral multiples thereof.
If, for any reason, acceptance for payment of, or payment for, validly
tendered Notes pursuant to the Tender Offer and the Consent Solicitation is
delayed or PRN is unable to accept for payment, or to pay for, validly tendered
Notes pursuant to the Tender Offer and the Consent Solicitation, then the
Depositary may, nevertheless, on behalf of PRN, retain tendered Notes, without
prejudice to the rights of PRN described under '-- Expiration Date; Extension;
Amendment; Termination' and '-- Conditions of the Tender Offer and the Consent
Solicitation' above and '-- Withdrawal of Tenders; Revocation of Consents'
below, but subject to Rule 14e-1 under the Exchange Act, which requires that an
offeror pay the consideration offered or return the Notes deposited by or on
behalf of Holders thereof promptly after the termination or withdrawal of a
tender offer.
If any tendered Notes are not accepted for payment for any reason pursuant
to the terms and conditions of the Tender Offer and the Consent Solicitation,
unpurchased Notes will be returned, without expense, to the tendering Holder,
unless otherwise requested by such Holder under 'Special Delivery Instructions'
in the Consent and Letter of Transmittal, promptly following the Expiration Date
or the termination of the Tender Offer and the Consent Solicitation.
Tendering Holders of Notes purchased in the Tender Offer and the Consent
Solicitation will not be obligated to pay brokerage commissions or fees or to
pay transfer taxes with respect to the purchase of their Notes unless the box
entitled 'Special Payment Instructions' or the box entitled 'Special Delivery
Instructions' in the Consent and Letter of Transmittal has been completed, as
described in the instructions thereto. PRN will pay all other charges and
expenses in connection with the Tender Offer and the Consent Solicitation. See
'Depositary' and 'Miscellaneous' below.
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PROCEDURES FOR TENDERING NOTES AND DELIVERING CONSENTS
General
Holders of Notes who tender their Notes in the Tender Offer pursuant to the
Consent and Letter of Transmittal and in accordance with the procedures
described below will be deemed to have consented to the Proposed Amendments with
respect to the Notes tendered. Holders of Notes may not deliver Consents without
tendering their Notes in the Tender Offer.
Tenders of and Consents for Notes
For a Holder validly to tender Notes pursuant to the Tender Offer, a
properly completed and validly executed Consent and Letter of Transmittal (or a
facsimile thereof), together with any signature guarantees and any other
documents required by the instructions to the Consent and Letter of Transmittal,
must be received by the Depositary at one of its addresses set forth on the back
cover of this Offer to Purchase, and tendered Notes must be received by the
Depositary at any of such addresses, in each case on or prior to the Expiration
Date. A Holder who desires to tender Notes and who cannot comply with the
procedures set forth herein for tender on a timely basis or whose Notes are not
immediately available must comply with the procedures for guaranteed delivery
set forth below.
Delivery of Consents and Letters of Transmittal
If the Notes are registered in the name of a person other than the signer
of a Consent and Letter of Transmittal, then, in order to tender such Notes
pursuant to the Tender Offer, the Notes must be endorsed or accompanied by
appropriate bond powers, signed exactly as the name or names of the registered
owner or owners appear on the Notes, with the signatures on the Notes or bond
powers guaranteed as provided below, assigning the Notes to the person who
executed the Consent and Letter of Transmittal. If the Consent and Letter of
Transmittal is signed by a beneficial owner who is not either (x) the registered
owner of such Notes or (y) the agent of the registered owner of such Notes duly
appointed by written proxy delivered to the Depositary, the registered owner
must complete and sign the 'Consent Box' set forth in the Consent and Letter of
Transmittal, as Notes may not be tendered without also consenting to the
Proposed Amendments, and only registered owners (or their duly appointed agents)
are entitled to deliver Consents.
Any beneficial owner whose Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
Notes and deliver a Consent should contact such registered Holder promptly and
instruct such registered Holder to tender Notes and deliver Consents on such
beneficial owner's behalf. If such beneficial owner wishes to tender such Notes
himself, such beneficial owner must, prior to completing and executing the
Consent and Letter of Transmittal and, where applicable, delivering such Notes,
either make appropriate arrangements to register ownership of the Notes in such
beneficial owner's name or follow the procedures described in the immediately
preceding paragraph. The transfer of record ownership may take a considerable
amount of time.
CONSENTS AND LETTERS OF TRANSMITTAL, NOTES AND ANY OTHER REQUIRED DOCUMENTS
SHOULD BE SENT TO THE DEPOSITARY ONLY. CONSENTS AND LETTERS OF TRANSMITTAL,
NOTES AND ANY OTHER REQUIRED DOCUMENTS SHOULD NOT BE SENT TO PRN OR THE TRUSTEE
FOR THE NOTES.
THE METHOD OF DELIVERY OF NOTES, CONSENTS AND LETTERS OF TRANSMITTAL, AND
ALL OTHER REQUIRED DOCUMENTS TO THE DEPOSITARY IS AT THE ELECTION AND RISK OF
THE HOLDER TENDERING NOTES. IF SUCH DELIVERY IS BY MAIL, IT IS SUGGESTED THAT
THE HOLDER USE PROPERLY INSURED, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED,
AND THAT THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO
PERMIT DELIVERY TO THE DEPOSITARY PRIOR TO SUCH DATE.
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Signature Guarantees
Signatures on the Consent and Letter of Transmittal must be guaranteed by a
financial institution (including most commercial banks, savings and loan
associations and brokerage houses) that is a participant in the Security
Transfer Agents Medallion Program, the New York Stock Exchange Medallion
Signature Guarantee Program or the Stock Exchange Medallion Program (each of the
foregoing being referred to herein as an 'Eligible Institution'), unless (a) the
Consent and Letter of Transmittal is signed by the registered Holder of the
Notes tendered therewith and neither the 'Special Payment Instructions' box nor
the 'Special Delivery Instructions' box of the Consent and Letter of Transmittal
is completed, or (b) such Notes are tendered for the account of an Eligible
Institution.
Guaranteed Delivery
If a Holder desires to tender Notes pursuant to the Tender Offer and (a)
such Notes are not immediately available or (b) time will not permit such
Holder's Consent and Letter of Transmittal, Notes or other required documents to
reach the Depositary on or prior to the Expiration Date, a tender may be
effected if all the following are complied with:
(a) such tender is made by or through an Eligible Institution;
(b) on or prior to the Expiration Date, the Depositary has received
from such Eligible Institution(s), at one of the addresses of the
Depositary set forth on the back cover of this Offer to Purchase, a
properly completed and validly executed Notice of Guaranteed Delivery (by
telegram, telex, facsimile transmission, mail or hand delivery) in
substantially the form provided in this Offer to Purchase, setting forth
the name(s) and address(es) of the registered Holder(s), and the principal
amount of Notes being tendered and as to which Consents are given, and
stating that the tender is being made thereby and guaranteeing that, within
three business days after the date of the Notice of Guaranteed Delivery,
the applicable Consent and Letter of Transmittal validly executed (or a
facsimile thereof), together with the Notes, and any other documents
required by the Consent and Letter of Transmittal and the instructions
thereto, will be deposited by such Eligible Institution with the
Depositary; and
(c) the Consent and Letter of Transmittal in proper form (or a
facsimile thereof), properly completed and validly executed, together with
all physically delivered Notes in proper form for transfer, and any other
required documents are in fact received by the Depositary within three
business days after the date of the Notice of Guaranteed Delivery.
Lost or Missing Notes
If a Holder desires to tender Notes pursuant to the Tender Offer, but the
Notes have been mutilated, lost, stolen or destroyed, such Holder should write
to or telephone the Trustee under the Indenture at the address or telephone
number listed below, about procedures for obtaining replacement certificates for
such Notes or arranging for indemnification or any other matter that requires
handling by the Trustee:
SUMMIT BANK
210 Main Street, 6th Floor
Hackensack, New Jersey 07602
Attention: Corporate Trust Department
Telephone: (201) 646-0087
Other Matters
Notwithstanding any other provision of the Tender Offer and the Consent
Solicitation, payment of the Tender Offer Consideration for Notes tendered and
accepted for payment pursuant to the Tender Offer will occur only after timely
receipt by the Depositary of the tendered Notes, together with a properly
completed and validly executed Consent and Letter of Transmittal (or a facsimile
thereof) and any other required documents.
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Tenders of Notes pursuant to any of the procedures described above and
acceptance thereof by PRN will constitute a binding agreement between PRN and
the tendering and consenting Holder of the Notes, upon the terms and subject to
the conditions of the Tender Offer and the Consent Solicitation.
All questions as to the form of all documents and the validity (including
time of receipt) and acceptance of all tenders of Notes and deliveries of
Consents will be determined by PRN, in its sole discretion, the determination of
which shall be final and binding. Alternative, conditional or contingent tenders
of Notes or Consents will not be considered valid. PRN reserves the absolute
right to reject any or all tenders of Notes or deliveries of Consents that are
not in proper form or the acceptance of which, in PRN's opinion, would be
unlawful. PRN also reserves the right to waive any defects, irregularities or
conditions of tender as to particular Notes or of delivery as to particular
Consents. PRN's interpretation of the terms and conditions of the Tender Offer
and the Consent Solicitation (including the instructions in the Consent and
Letter of Transmittal) will be final and binding. Any defect or irregularity in
connection with tenders of Notes or deliveries of Consents must be cured within
such time as PRN determines, unless waived by PRN. Tenders of Notes and
deliveries of Consents shall not be deemed to have been made until all defects
and irregularities have been waived by PRN or cured. None of PRN, the
Depositary, the Trustee for the Notes, or any other person will be under any
duty to give notice of any defects or irregularities in tenders of Notes or
deliveries of Consents, or will incur any liability to Holders for failure to
give any such notice.
WITHDRAWAL OF TENDERS; REVOCATION OF CONSENTS
Tenders of Notes may be withdrawn at any time until the Requisite Consents
have been received and the Supplemental Indenture has been executed by PRN and
the Trustee under the Indenture. However, if PRN changes the principal amount of
Notes subject to the Tender Offer and the Consent Solicitation, or increases or
decreases the cash purchase price for the Notes subject to the Tender Offer and
the Consent Solicitation, previously tendered Notes may be withdrawn (and thus
the Consents would be revoked) until the expiration of ten business days after
the date that notice of any such increase or decrease is first published, sent
or given by PRN to Holders in respect of the Tender Offer and the Consent
Solicitation. Tenders of any Notes may also be withdrawn if the Tender Offer and
the Consent Solicitation is terminated without any such Notes being purchased
thereunder. In the event of termination of the Tender Offer and the Consent
Solicitation, the Notes tendered pursuant thereto will be returned to the
tendering Holder promptly.
Holders who wish to exercise their right of withdrawal with respect to the
Tender Offer and the Consent Solicitation must give written notice of withdrawal
delivered by mail or hand delivery or facsimile transmission, which notice must
be received by the Depositary at one of its addresses set forth on the back
cover of this Offer to Purchase on or prior to the time provided in the
immediately preceding paragraph. In order to be effective, a notice of
withdrawal must specify the name of the person who deposited the Notes to be
withdrawn (the 'Depositor'), the name in which the Notes are registered, if
different from that of the Depositor, and the principal amount of Notes to be
withdrawn. If Notes have been delivered to the Depositary, the name of the
registered Holder and the certificate number or numbers relating to such Notes
withdrawn also must be furnished to the Depositary as aforesaid prior to the
physical release of the withdrawn Notes. The notice of withdrawal must be signed
by the Holder in the same manner as the Consent and Letter of Transmittal
(including, in any case, any required signature guarantees) or be accompanied by
evidence satisfactory to PRN that the person withdrawing the tender has
succeeded to the ownership of such Notes. Withdrawals of tenders of Notes may
not be rescinded and any Notes withdrawn thereafter will be deemed not validly
tendered for purposes of the Tender Offer and the Consent Solicitation. However,
properly withdrawn Notes may be tendered by following the procedures therefor
described elsewhere herein, at any time prior to the Expiration Date.
If PRN is delayed in acceptance for payment of, or payment for, any Notes
or is unable to accept for payment or pay for Notes pursuant to the Tender Offer
for any reason, then, without prejudice to PRN's rights hereunder, tendered
Notes may be retained by the Depositary on behalf of PRN and may not be
withdrawn (subject to Rule 14e-1 under the Exchange Act, which requires that an
offeror pay
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the consideration offered or return the Notes deposited by or on behalf of the
holders promptly after the termination or withdrawal of a Tender Offer), except
as otherwise provided in this section.
BACKUP WITHHOLDING
For a discussion of federal income tax considerations relating to backup
withholding, see 'Certain Federal Income Tax Considerations -- Back-up
Withholding and Substitute Form W-9.'
DEPOSITARY
American Stock Transfer & Trust Company has been appointed Depositary for
the Tender Offer and the Consent Solicitation. All deliveries and correspondence
sent to the Depositary should be directed to one of its addresses set forth on
the back cover of this Offer to Purchase.
PRN has agreed to pay the Depositary customary fees for its services and to
reimburse the Depositary for its reasonable out-of-pocket expenses in connection
herewith.
MISCELLANEOUS
In connection with the Tender Offer and the Consent Solicitation,
directors, officers and regular employees of PRN and MEDIQ (who will not be
specifically compensated for such services) may solicit tenders and consents by
use of the mails, personally or by telephone, telegram or facsimile
transmissions. PRN also will pay brokerage houses and other custodians, nominees
and fiduciaries their reasonable out-of-pocket expenses incurred in forwarding
copies of this Offer to Purchase and related documents to the beneficial owners
of the Notes and in handling or forwarding tenders of Notes and deliveries of
Consents by their customers.
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PROPOSED AMENDMENTS TO THE INDENTURE
Set forth below is a summary description of the proposed modifications to
the Indenture for which the Consents of the Holders are being solicited hereby.
This description is qualified by reference to the full provisions of the
existing Indenture and the provisions of the proposed Supplemental Indenture,
which provisions are substantially in the form set forth in Annex A hereto. Each
Holder, by executing and delivering a Consent, will consent to the Proposed
Amendments as set forth in Annex A hereto and as described below. The
capitalized terms used herein and not otherwise defined shall have the meanings
ascribed to them in the Indenture or the Supplemental Indenture.
The Proposed Amendments would:
(i) delete the Sections of the Indenture entitled 'Limitation on
Restricted Payments' (Section 4.03), 'Limitation on Payment Restrictions
Affecting Subsidiaries' (Section 4.04) and 'Limitation on Incurrences of
Additional Indebtedness' (Section 4.05), which contain covenants which
under certain circumstances restrict PRN from incurring or repaying debt,
and from making certain investments and payments to affiliates and others
(including dividends);
(ii) delete the Sections of the Indenture entitled 'Compliance
Certificate' (Section 4.09) and 'SEC Reports' (Section 4.10), which contain
covenants which require PRN to deliver certain certificates and reports;
(iii) delete the Sections of the Indenture entitled 'Guarantees of
Certain Indebtedness' (Section 4.14), 'Limitation on Transactions with
Affiliates' (Section 4.15) and 'Transfer of Assets to Subsidiaries of the
Company' (Section 4.18), which contain covenants which restrict PRN's
subsidiaries from entering into guarantees of certain indebtedness, PRN and
its subsidiaries from engaging in certain transactions with affiliates, and
the transfer of certain assets to PRN's subsidiaries;
(iv) delete clause (ii) and the final sentence of 'When Company May
Merge, etc.' (Section 5.01), which restricts PRN's ability to merge with
another corporation unless the surviving corporation would meet certain net
worth, indebtedness and operating coverage tests, and eliminates a
provision no longer applicable to PRN, respectively;
(v) modify the section in the Indenture entitled 'Conflicting
Agreements' (Section 4.13) to allow the proceeds from the sale of
collateral for the Notes to be used to repay indebtedness other than the
Notes following defeasance of the Notes or their payment in full;
(vi) modify the definition of 'Permitted Liens' in the Indenture and
the section in the Indenture entitled 'Limitation on Liens' (Section 4.17)
to permit liens on assets other than the assets pledged to secure the Notes
and to permit subordinated liens on the assets pledged to secure the Notes;
(vii) modify the section in the Indenture entitled 'Termination of
Obligations' (Section 8.01) to change certain requirements for the
defeasance of the Notes and which will make it possible for PRN to defease
the Notes;
(viii) modify the section in the Indenture entitled 'Application of
Trust Money' (Section 8.02) to provide that the Trustee will have no
obligation to make payments of principal and interest for Notes held by the
Company or its affiliates for which no defeasance deposit has been made;
and
(ix) amend various provisions of the Indenture and the Security
Agreement to make certain changes consistent with the foregoing.
Following the adoption of the Supplemental Indenture, PRN intends to grant
to BNP, as agent for the lenders under the MEDIQ/PRN Credit Facility, a lien on
all of its assets, including those assets currently pledged as collateral for
the Notes. In the case of the collateral securing the Notes, such lien will be
expressly subordinate to the lien created pursuant to the Indenture. PRN also
intends that PRN-I will merge into PRN and that PRN-I will defease all Notes
outstanding following the completion of the
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Tender Offer. The adoption of the Proposed Amendments will, among other things,
permit PRN to take such actions.
The Proposed Amendments to Section 8.01 of the Indenture would eliminate
the requirement that, in order to defease the Notes, PRN deliver to the Trustee
either a ruling from the Internal Revenue Service, or an opinion of legal
counsel to the effect that the Holders of Notes will not recognize income, gain
or loss for federal income tax purposes as a result of such defeasance. As
described elsewhere herein, see 'Certain Federal Income Tax Considerations,'
there is a substantial possibility that such defeasance, as contemplated herein,
together with the Proposed Amendments, would be characterized for federal income
tax purposes as a deemed exchange of new modified securities for existing Notes.
In such event, a Holder would recognize a taxable gain. Consequently, PRN is not
likely to be able to obtain such the ruling or opinion presently required by
Section 8.01 of the Indenture. In addition, Section 8.01 of the Indenture
currently requires, in order to defease the Notes, an opinion of counsel to the
effect that, after 90 days following the deposit of certain government
securities with the Trustee, the deposited funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar law.
In order to obtain such an opinion, the applicable period is being extended to
124 days.
HOLDERS OF NOTES WHO TENDER THEIR NOTES IN THE TENDER OFFER WILL BE DEEMED
TO HAVE CONSENTED TO ALL THE PROPOSED AMENDMENTS. ACCORDINGLY, A CONSENT
PURPORTING TO CONSENT TO ONLY SOME OF THE PROPOSED AMENDMENTS WILL NOT BE VALID.
21
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes certain federal income tax consequences
resulting from the tender of the Notes pursuant to the Tender Offer, and the
adoption of the Proposed Amendments. This summary is based upon the Internal
Revenue Code of 1986, as amended (the 'Code'), the Treasury Regulations
promulgated thereunder, Internal Revenue Service ('IRS') rulings, and judicial
decisions, all as in effect on the date hereof, and all of which are subject to
change, possibly with retroactive effect. This summary does not address all of
the federal income tax consequences that may be relevant to a holder in light of
such holder's particular tax situation or to certain classes of holders subject
to special treatment under the federal income tax laws (for example, dealers in
securities, banks, insurance companies, subchapter S corporations, nonresident
aliens, foreign corporations, tax-exempt entities, employee stock ownership
plans, individual retirement and other tax-deferred accounts, and persons who
hold the Notes as a hedge, who have otherwise hedged the risk of holding Notes,
who held the Notes as part of a straddle with other investments or who hold the
Notes in connection with a conversion transaction), nor does it address any
aspect of gift, estate, state, local or foreign taxation. This discussion is
directed at holders who are United States persons and assumes that the Notes are
held as 'capital assets' within the meaning of section 1221 of the Code.
HOLDERS OF NOTES ARE URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE
TAX CONSEQUENCES OF TENDERING OR FAILING TO TENDER NOTES, INCLUDING THE
APPLICATION AND EFFECT OF ANY GIFT, ESTATE, APPLICABLE STATE, LOCAL, FOREIGN
INCOME OR OTHER TAX LAWS.
SALE OF NOTES PURSUANT TO THE TENDER OFFER
The receipt of cash by a holder of Notes in a sale pursuant to the Tender
Offer will be a taxable transaction to such holder for federal income tax
purposes. A holder will generally recognize capital gain (subject to the market
discount rules discussed below) or loss on the sale of a Note in an amount equal
to the difference between (i) the amount of cash received for such Note, other
than the portion of such amount that is properly allocable to accrued interest,
which will be taxed as ordinary income, and (ii) the holder's 'adjusted tax
basis' for such Note at the time of the sale. Such capital gain or loss will be
long-term if the holder held the Note for more than one year at the time of such
sale. Generally a holder's adjusted tax basis for a Note will be equal to the
cost of the Note to such holder, less payments (other than interest payments)
made on the Notes. If applicable, a holder's tax basis in a Note also would be
increased by any market discount previously included in income by such holder
pursuant to an election to include market discount in gross income currently as
it accrues. If a portion of the cash received by a holder of Notes in a sale
pursuant to the Tender Offer is properly treated as a separate fee for
consenting to the Proposed Amendments, it is possible that such amount would be
taxable as ordinary income to such holder (rather than as sale proceeds,
discussed above). Tendering holders of Notes should consult their own tax
advisors with respect to the tax consequences to them of the receipt of cash in
a sale pursuant to the Tender Offer.
An exception to the capital gain treatment described above may apply to a
holder who purchased a Note at a 'market discount'. Subject to a statutory de
minimis exception, market discount is the excess of the issue price of such Note
over the holder's tax basis in such Note immediately after its acquisition by
such holder. In general, any gain realized by a holder on the sale of a Note
having market discount in excess of a de minimis amount will be treated as
ordinary income to the extent of the market discount that has accrued (on a
straight line basis or, at the election of the holder, on a constant interest
basis), while such Note was held by the holder, unless the holder has elected to
include market discount in income currently as it accrues.
PROPOSED AMENDMENTS AND DEFEASANCE
The federal income tax consequences of adoption of the Proposed Amendments
to non-tendering holders of Notes will depend on whether a constructive exchange
of Notes is deemed to have occurred. Recently adopted Treasury Regulations
define the extent to which the terms of a debt instrument may
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be modified without such modification rising to the level of a deemed exchange.
Under the Treasury Regulations, a 'significant' modification of a debt
instrument results in a deemed exchange; a modification that is not
'significant' is not treated as such an exchange. Under the Treasury
Regulations, whether the Proposed Amendments would be considered to be a
significant modification of the Notes is not free from doubt.
However, under the Treasury Regulations, where an issuer of debt obtains a
release from the covenants of the indenture by depositing government securities
sufficient to make all scheduled principal and interest payments on the debt,
this transaction is described as a defeasance. If after a defeasance, the issuer
has no continuing recourse liability with respect to the debt, so that the
holders must look solely to the collateral as the source of principal and
interest payments, the Treasury Regulations conclude that this will constitute a
significant modification of the debt. Accordingly, the anticipated defeasance by
PRN of the Notes, when considered together with the Proposed Amendments, would
likely be deemed to constitute a significant modification of the terms of the
Notes, and thus for federal income tax purposes would result in a deemed
exchange of new modified securities for the existing Notes. In that event, a
non-tendering holder of Notes may recognize taxable gain equal to the difference
between the fair market value of the deemed new securities (the tender price)
and his adjusted basis in his Notes.
Non-tendering holders of Notes should consult their own tax advisors with
respect to the tax consequences to them of adoption of the Proposed Amendments,
and the anticipated defeasance by PRN of the Notes.
INFORMATION REPORTING
Information statements will be provided to the IRS and to holders whose
Notes are sold pursuant to the Tender Offer reporting the payment of the Tender
Offer Consideration (except with respect to holders that are exempt from the
information reporting rules, such as corporations).
BACKUP WITHHOLDING AND SUBSTITUTE FORM W-9
Under federal income tax law, certain holders whose Notes are accepted for
payment are required to provide the Depositary (as payor) with such holder's
correct taxpayer identification number ('TIN') on the Substitute Form W-9
(included as part of the Consent and Letter of Transmittal). If the holder is an
individual, the TIN is his or her social security number. If the Depositary is
not provided with the correct TIN, the holder may he subject to a $50 penalty
imposed by the IRS. In addition, payments that are made to such holder may be
subject to backup withholding. Certain holders (including, among others,
corporations) are not subject to these backup withholding and reporting
requirements. If backup withholding applies, the Depositary is required to
withhold 31% of any payment made to the holder. Backup withholding is not an
additional federal income tax. Rather, the federal income tax liability of
persons subject to backup withholding will be offset by the amount of tax
withheld. If backup withholding results in an overpayment of federal income
taxes, a refund may be obtained from the IRS provided the required information
is furnished.
To prevent backup withholding, the holder or other payee is required to
complete the Substitute Form W-9 on the Consent and Letter of Transmittal
certifying that the TIN provided on such form is correct and that such holder or
other payee is not subject to backup withholding.
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THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSIDERATIONS DOES
NOT CONSIDER THE PARTICULAR FACTS AND CIRCUMSTANCES OF ANY HOLDER'S SITUATION OR
STATUS. THE SUMMARY IS BASED ON THE PROVISIONS OF THE CODE, REGULATIONS, RULINGS
AND JUDICIAL DECISIONS NOW IN EFFECT, ALL OF WHICH ARE SUBJECT TO CHANGE,
POSSIBLY ON A RETROACTIVE BASIS. HOLDERS OF NOTES (INCLUDING HOLDERS OF NOTES
WHO DO NOT TENDER THEIR NOTES) SHOULD CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THE TAX CONSEQUENCES TO THEM, INCLUDING THE TAX CONSEQUENCES UNDER
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS, OF THE SALE OF THE NOTES AND THE
ADOPTION OF THE PROPOSED AMENDMENTS.
MISCELLANEOUS
The Tender Offer and the Consent Solicitation is not being made to (nor
will tenders of Notes be accepted from or on behalf of) holders of Notes in any
jurisdiction in which the making or acceptance of the Tender Offer and the
Consent Solicitation would not be in compliance with the laws of such
jurisdiction. However, PRN, in its sole discretion, may take such action as it
may deem necessary to make the Tender Offer and the Consent Solicitation in any
such jurisdiction, and may extend the Tender Offer and the Consent Solicitation
to holders of Notes in such jurisdiction.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ON BEHALF OF PRN WHICH IS NOT CONTAINED IN THIS OFFER TO PURCHASE
OR IN THE CONSENT AND LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON.
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GLOSSARY
For purposes of this Offer to Purchase, the following capitalized terms
shall have the meanings set forth below.
'Acceptance Date' means the date on which PRN accepts Notes for payment.
'BNP' means Banque Nationale de Paris.
'Code' means the Internal Revenue Code of 1986, as amended.
'Commission' means the Securities and Exchange Commission.
'Consent and Letter of Transmittal' means the Consent and Letter of
Transmittal accompanying the Offer to Purchase.
'Consents' means the consents received by PRN from the Consent
Solicitation.
'Consent Solicitation' means the solicitation of Holders of the Notes to
the Proposed Amendments.
'Credit Facility Condition' means the effectiveness of the MEDIQ/PRN Credit
Facility and the satisfaction of all conditions to the borrowing thereunder of
sufficient funds to purchase all validly tendered Notes, to repay certain other
indebtedness, and to make certain other payments.
'Depositary' means American Stock Transfer & Trust Company.
'Depositor' means the person who deposits Notes pursuant to the Tender
Offer.
'Eligible Institutions' means a financial institution (including most
commercial banks, savings and loan associations and brokerage houses) that is a
participant in the Security Transfer Agents Medallion Program, the New York
Stock Exchange Medallion Signature Guarantee Program or the Stock Exchange
Medallion Program.
'Exchange Act' means the Securities Exchange Act of 1934, as amended.
'Expiration Date' means 5:00 p.m., New York City time, on September 23,
1996, or, if the Tender Offer and the Consent Solicitation are extended, the
latest time and date to which the Tender Offer and the Consent Solicitation are
so extended.
'General Conditions' means the fulfillment or satisfaction of the
conditions set forth in the Offer to Purchase (other than the Minimum Tender
Condition, the Supplemental Indenture Condition, and the MEDIQ/PRN Credit
Facility Condition).
'Holder' means a registered holder of one or more Notes.
'Indenture' means the Indenture dated as of July 6, 1992, pursuant to which
the Notes were first issued, as amended to the date hereof.
'IRS' means the Internal Revenue Service.
'MEDIQ' means MEDIQ Incorporated.
'MEDIQ/PRN Credit Facility' means the credit facility to be entered into
among PRN, MEDIQ, certain subsidiaries of MEDIQ, BNP, NationsBank N.A. and the
other lenders party thereto.
'Minimum Tender Condition' means the valid tender prior to the Expiration
Date of a majority in aggregate principal amount of Notes outstanding.
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'Notes' means the 12 1/8% Senior Secured Notes due 1999 of PRN.
'Offer to Purchase' means this document.
'Payment Date' means the date of payment with respect to the Tender Offer
and the Consent Solicitation.
'Proposed Amendments' means the changes to be made to the Indenture as set
forth in Annex A of this document.
'PRN' means MEDIQ/PRN Life Support Services, Inc., a Delaware corporation
with its principal headquarters at One MEDIQ Plaza, Pennsauken, NJ 08110.
'PRN-I' means MEDIQ/PRN Life Support Services-I, Inc., a Delaware
corporation with its principal headquarters at One MEDIQ Plaza, Pennsauken, NJ
08110.
'Refinancing' means the consummation of the Tender Offer, the Consent
Solicitation and the MEDIQ/PRN Credit Facility.
'Requisite Consents' means the written consent of Holders of at least a
majority in principal amount of Notes then outstanding.
'Supplemental Indenture' means a supplemental indenture executed by PRN and
the trustee under the Indenture reflecting the Proposed Amendments.
'Supplemental Indenture Condition' means the execution of a supplemental
indenture to the Indenture providing for the Proposed Amendments following
receipt of the Requisite Consents.
'Tender Offer' means the offer to purchase for cash the Notes upon the
terms and conditions set forth in the Offer to Purchase.
'Tender Offer Consideration' means the price of $1,078.74 per $1,000
principal amount, plus accrued and unpaid interest up to, but not including, the
Payment Date.
'TIN' means Taxpayer Identification Number.
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ANNEX A
COMPARISON OF INDENTURE PROVISIONS
INDENTURE PROVISIONS AS CURRENTLY IN EFFECT
'Permitted Liens' shall mean (i) Liens for taxes, assessments and
governmental charges to the extent not required to be paid under this Indenture,
(ii) statutory Liens of landlords and carriers, warehousemen, mechanics,
suppliers, materialmen, repairmen or other like Liens arising in the ordinary
course of business and with respect to amounts not yet delinquent or being
contested in good faith by an appropriate process of law, and for which a
reserve or other appropriate provision, if any, as shall be required by GAAP
shall have been made, (iii) pledges or deposits in the ordinary course of
business to secure lease obligations or non-delinquent obligations under
workers' compensation, unemployment insurance or similar legislation, (iv) Liens
to secure the performance of public statutory obligations that are not
delinquent, appeal bonds, performance bonds, bid bonds or other obligations of a
like nature (other than for borrowed money), (v) easements, right-of-way,
restrictions, minor defects or irregularities in title and other similar charges
or encumbrances not interfering in any material respect with the business of the
Company or any of its Subsidiaries incurred in the ordinary course of business,
(vi) Liens upon specific items of inventory or other goods and proceeds of any
Person securing such Person's obligations in respect of bankers' acceptances
issued or created for the account of such Person to facilitate the purchase,
shipment or storage of such inventory or other goods in the ordinary course of
business, (vii) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of non-delinquent customs duties in connection
with the importation of goods, (viii) judgment and attachment Liens not giving
rise to a Default or Event of Default, (ix) leases or subleases granted to
others not interfering in any material respect with the business of the Company
or any Subsidiary, (x) any interest or title of a lessor in the property subject
to any lease, whether characterized as capitalized or operating other than any
such interest or title resulting from or arising out of a default by the Company
or any of its Subsidiaries of its obligations under such lease and (xi) Liens
arising from filing UCC financing statements for precautionary purposes in
connection with true leases of personal property that are otherwise permitted
under this Indenture and under which the Company or any of its Subsidiaries is
lessee.
SECTION 4.03. Limitation on Restricted Payments.
(a) The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, make any Restricted Payment if, at the time of such
Restricted Payment, or after giving effect thereto, (i) a Default or an Event of
Default shall have occurred and be continuing, (ii) the Company would be unable
to incur an additional $1.00 of Indebtedness under Section 4.05(a), or (iii) the
aggregate amount expended for all Restricted Payments, including such Restricted
Payment (the amount of any Restricted Payment, if other than cash, to be the
fair market value thereof at the date of payment as determined in good faith by
the Board of Directors of the Company), subsequent to June 30, 1992, shall
exceed the sum of (x) 50% of the aggregate Consolidated Net Income (or if such
aggregate Consolidated Net Income is a loss, minus 100% of such loss) of the
Company earned subsequent to June 30, 1992 and on or prior to the date that the
Restricted Payment occurs (the 'Reference Date'), plus (y) 100% of the aggregate
Consolidated Net Proceeds received by the Company from any Person (other than a
Subsidiary of the Company) from the issuance and sale (including upon exchange
or conversion for other securities of the Company) subsequent to June 30, 1992
and on or prior to the Reference Date of Qualified Capital Stock (excluding (A)
Qualified Capital Stock paid as a dividend on any Capital Stock or as interest
on any Indebtedness and (B) any Net Proceeds from issuances and sales of
Qualified Capital Stock financed directly or indirectly using funds borrowed
from the Company or any of its Subsidiaries until and to the extent such
borrowing is repaid).
(b) Notwithstanding the foregoing, the provisions of Section 4.03(a) shall
not prohibit:
(i) the payment of any dividend within 60 days after the date of its
declaration if the dividend would have been permitted on the date of
declaration;
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(ii) if no Default or Event of Default shall have occurred and be
continuing as a consequence thereof, the acquisition of any shares of
Capital Stock of the Company or the repayment of any Indebtedness of the
Company in exchange for or solely out of the proceeds of the substantially
concurrent sale (other than to a Subsidiary of the Company) of shares of
Qualified Capital Stock;
(iii) payments of an amount not to exceed $1,000,000 in respect of the
exercise by INFC of its option to cause the Company to repurchase all or
any portion of the Warrant;
(iv) Investments in an amount not to exceed, individually or in the
aggregate, $1,000,000; and
(v) if no Default or Event of Default shall have occurred and be
continuing as a consequence thereof, Permitted Payments; provided that each
dividend paid in accordance with clause (i) above, each acquisition made in
accordance with clause (ii) above, each payment made in accordance with
clause (iii) above, each Investment made in accordance with clause (iv)
above and each payment described in the definition of 'Permitted Payments'
shall be counted for purposes of computing amounts expended pursuant to
clause (iii) of Section 4.03(a).
SECTION 4.04. Limitation on Payment Restrictions Affecting Subsidiaries.
The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create or suffer to exist or allow to become effective
any consensual Payment Restriction with respect to any of its Subsidiaries,
except for (a) any such Payment Restrictions contained in Indebtedness of a
Person existing at the time such Person becomes a Subsidiary (provided that (i)
such Indebtedness is not incurred in connection with, or in contemplation of,
such Person becoming a Subsidiary, (ii) such restriction is not applicable to
any Person, or the properties or assets of any person, other than the Person so
acquired, and (iii) such Indebtedness is otherwise permitted to be incurred
pursuant to Section 4.05), (b) customary non-assignment provisions restricting
subletting or assignment of any lease or assignment entered into by a
Subsidiary, and (c) customary net worth provisions contained in leases and other
agreements entered into by a Subsidiary in the ordinary course of business.
SECTION 4.05. Limitation on Incurrences of Additional Indebtedness.
(a) The Company shall not, and shall not permit any of its Subsidiaries,
directly or indirectly, to incur any Indebtedness; provided that if no Default
or Event of Default shall have occurred and be continuing at the time or as a
consequence of the incurrence of any such Indebtedness, the Company may incur
Indebtedness if, on a pro forma basis after giving effect to such incurrence,
the Operating Coverage Ratio of the Company would be greater than 3.00 to 1.0 if
such date is prior to June 30, 1994; greater than 3.25 to 1.0 if such date is on
or after June 30, 1994 and prior to June 30, 1995; and greater than 3.50 to 1.0
thereafter; provided, further, that a Subsidiary of the Company may incur
Acquired Indebtedness to the extent such Indebtedness could have been incurred
by the Company pursuant to the immediately preceding proviso.
(b) The limitations set forth in Section 4.05(a) shall not apply to:
(i) Indebtedness incurred by the Company or any of its Subsidiaries in
connection with the purchase or improvement of property (real or personal)
or equipment or other Capital Expenditures in the ordinary course of
business or consisting of Capitalized Lease Obligations in an aggregate
amount not to exceed in any Yearly Period the lesser of (x) $5,000,000 or
(y) 75% of the Capital Expenditures of the Company and its Subsidiaries for
the immediately prior Yearly Period (provided that an amount equal to the
unutilized portion of the lesser of the preceding clauses (x) or (y) for
any Yearly Period may be carried over to the next (but not any subsequent)
Yearly Period);
(ii) Indebtedness of the Company incurred under a revolving credit
facility in an amount not to exceed $15 million at any time outstanding;
provided that there shall not be any amount outstanding under this clause
(ii) for a 30-day consecutive period in every Yearly Period;
(iii) Refinancing Indebtedness; or
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(iv) in addition to the Indebtedness permitted, by clauses (i)-(iii),
Indebtedness incurred by the Company not exceeding $10,000,000 in the
aggregate at any time outstanding.
SECTION 4.09. Compliance Certificate.
(a) The Company shall deliver to the Trustee an Officers' Certificate
executed by two Officers of the Company within 120 days after the end of each
fiscal year stating whether or not they know of any Default or Event of Default.
In the event that any Officer of the Company knows of such a Default or Event of
Default, the certificate shall describe any such Default or Event of Default and
its status. The first certificate to be delivered pursuant to this Section
4.09(a) shall be for the fiscal year ending in September 1993.
(b) The Company shall deliver to the Trustee within 120 days after the end
of each fiscal year a written statement by the Company's independent certified
public accountants stating (A) that their audit examination has included a
review of the relevant provisions of this Indenture and the Senior Secured Notes
as they relate to accounting matters, and (B) whether, in connection with their
audit examination, any Default has come to their attention and if such a Default
has come to their attention, specifying the nature and period of existence
thereof: provided that, without any restriction as to the scope of the audit
examination, such independent certified public accountants shall not be liable
by reason of any failure to obtain knowledge of any such Default that would not
be disclosed in the course of an audit examination conducted in accordance with
generally accepted auditing standards.
(c) The Company will, so long as any of the Senior Secured Notes are
outstanding, deliver to the Trustee, within five Business Days of any Officer
becoming aware of any Default or Event of Default, an Officers' Certificate
specifying such Default or Event of Default.
SECTION 4.10. SEC Reports.
(a) The Company shall file with the Trustee within 15 days after it files
them with the SEC copies of the annual reports and of the information,
documents, and other reports (or copies of such portions of any of the foregoing
as the SEC may by rules and regulations prescribe) which the Company is required
to file with the SEC pursuant to Section 13 or 15(d) of the Securities Exchange
Act. If the Company is not subject to the requirements of such Section 13 or
15(d) of the Securities Exchange Act, the Company shall file with the Trustee,
within 15 days after it would have been required to file such information with
the SEC, financial statements, including any notes thereto and with respect to
annual reports, an auditors' report by an accounting firm of established
national reputation, and a 'Management's Discussion and Analysis of Financial
Condition and Results of Operations,' both comparable to that which the Company
would have been required to include in such annual reports, information,
documents or other reports if the Company was subject to the requirements of
such Section 13 or 15(d) of the Securities Exchange Act. The Company shall also
comply with the provisions of TIA Section 314(a).
(b) The Company shall cause an annual report to stockholders and each
quarterly or other financial report if furnished by it to stockholders generally
to be filed with the Trustee and mailed to the Holders at their addresses
appearing in the register of Senior Secured Notes maintained by the Registrar at
the time of such mailing or furnishing to stockholders. If the Company is not
required to furnish annual or quarterly reports to its stockholders pursuant to
the Securities Exchange Act, the Company shall cause its financial statements,
including any notes thereto and with respect to annual reports, an auditors'
report by an accounting firm of established national reputation, and a
'Management's Discussion and Analysis of Financial Condition and Results of
Operations,' to be so mailed to the Holders within 105 days after the end of
each of compliance with which would materially adversely affect the earnings,
properties, assets or condition, financial or otherwise, of the Company and its
Subsidiaries, taken as a whole.
SECTION 4.13. Conflicting Agreements.
The Company shall not, and shall not permit any of its Subsidiaries to,
enter into any agreement or instrument that by its terms expressly (a) prohibits
A-3
<PAGE>
the Company from optionally redeeming or otherwise making any payments on or in
respect of the Senior Secured Notes in accordance with the terms thereof and of
this Indenture, as in effect from time to time, or (b) requires that the
proceeds received from the sale of any Collateral be applied to repay, redeem or
otherwise retire any Indebtedness of any Person other than the Indebtedness
represented by the Senior Secured Notes.
SECTION 4.14. Guarantees of Certain Indebtedness.
The Company shall not permit any of its Subsidiaries to guarantee or secure
through the granting of Liens on assets the payment of any Indebtedness of the
Company, unless such Subsidiary, the Company and the Trustee execute and
deliver, in the case of a guarantee, a supplemental indenture evidencing such
Subsidiary's guarantee of the Senior Secured Notes or, in the case of a Lien, a
security agreement, substantially in the form of Exhibit II hereto, creating a
Lien on such assets in favor of the Senior Secured Notes, such guarantee to be a
senior obligation of such Subsidiary ranking pari passu or senior to any
guarantee of any Indebtedness of the Company and such Lien to be a first
priority Lien ranking equally and ratably or senior to any Lien granted to
secure Indebtedness of the Company.
SECTION 4.15. Limitation on Transactions with Affiliates.
(a) Neither the Company nor any of its Subsidiaries shall (i) sell, lease,
transfer or otherwise dispose of any of its properties, assets or securities to,
(ii) purchase any property, assets or securities from, (iii) make any Investment
in or (iv) enter into or suffer to exist any contract or agreement with or for
the benefit of, any Affiliate or Significant Stockholder (and any Affiliate of
such Significant Stockholder) of the Company or any of its Subsidiaries (an
'Affiliate Transaction'), other than Affiliate Transactions (including lease
transactions) in the ordinary course of business and consistent with past
practices that are fair to the Company or such Subsidiary, as the case may be,
and are on terms at least as favorable as would reasonably have been obtainable
at such time from an unaffiliated party, unless the Board of Directors of the
Company or such Subsidiary, as the case may be, pursuant to a Board Resolution,
reasonably and in good faith determines that such Affiliate Transaction is fair
to the Company or such Subsidiary, as the case may be, and is on terms at least
as favorable as would reasonably have been obtainable at such time from an
unaffiliated party. In addition, the Company shall not, and shall not permit any
of its Subsidiaries to, enter into an Affiliate Transaction or series of related
Affiliate Transactions involving or having a value of more than $10,000,000
unless the Company or such Subsidiary, as the case may be, has received an
opinion from an Independent Financial Advisor to the effect that the financial
terms of such Affiliate Transaction are fair to the Company or such Subsidiary
from a financial point of view.
(b) The limitations set forth in Section 4.15(a) shall not apply to (i) any
Permitted Payment, (ii) any Restricted Payment that is made in compliance with
Section 4.03, (iii) reasonable and customary fees and compensation paid to, and
indemnity provided on behalf of, officers, directors, employees or consultants
of the Company or any of its Subsidiaries, as determined by the Board of
Directors of the Company or such Subsidiary or the senior management thereof in
good faith, (iv) transactions exclusively between or among the Company and any
of its Wholly Owned Subsidiaries or exclusively between or among any of the
Company's Wholly Owned Subsidiaries; provided that such transactions are not
otherwise prohibited by this Indenture or the Security Documents, and (v) any
agreement as in effect as of the date of the Prospectus or any amendment thereto
or any transaction contemplated thereby (including pursuant to any amendment
thereto) so long as any such amendment is not disadvantageous to the Company or
its Subsidiary, as applicable, in any material respect.
SECTION 4.17. Limitation on Liens.
The Company shall not, and shall not permit any of its Subsidiaries to
incur or suffer to exist any Liens upon any of their respective assets, except
for (i) Permitted Liens, (ii) Liens securing Acquired Indebtedness; provided
that such Liens (a) are not incurred in connection with, or in contemplation of,
the acquisition of the property or assets acquired, and (b) do not extend to or
A-4
<PAGE>
cover any property or assets of the Company or any of its Subsidiaries other
than the property or assets so acquired, (iii) Liens securing Refinancing
Indebtedness to the extent incurred to repay, refinance or refund Indebtedness
which is secured by Liens and outstanding as of the date of the Prospectus;
provided that such Refinancing Indebtedness shall be secured solely by the
assets securing the outstanding Indebtedness being repaid, refinanced or
refunded and shall not be secured in any case by Liens on Excluded Assets, (iv)
Liens to secure Indebtedness permitted under Sections 4.05(b)(i) and 4.05(b)(iv)
and that are used to finance the cost of the property subject thereto; provided
that (a) any such Lien is created solely for the purpose of securing
Indebtedness representing, or incurred to finance, refinance or refund, the cost
(including sales and excise taxes, installation and delivery charges and other
direct costs of, and other direct expenses paid or charged in connection with,
such purchase or construction) of the property subject thereto, (b) the
principal amount of the Indebtedness secured by such Lien does not exceed 100%
of such cost, (c) such Lien does not extend to or cover any other property other
than such item of property and any improvements on such item of property and (d)
any Liens securing Indebtedness permitted under Section 4.05(b)(iv) shall not
secure an amount of Indebtedness, individually or in the aggregate, in excess of
(x) $5,000,000 to the extent such indebtedness is incurred to finance the
acquisition of real property and (y) $1,000,000 to the extent such Indebtedness
is incurred to finance the acquisition of property or assets other than real
property; provided that no such Lien under this clause (y) shall extend to or
cover any item of medical rental equipment, (v) Liens on the Company's accounts
receivable to secure Indebtedness incurred under Section 4.05(b)(ii), (vi) Liens
under the Security Agreement and this Indenture, (vii) any replacement,
extension or renewal, in whole or in part, of any Lien described in the
foregoing clauses (i) through (vi); provided that, to the extent any such clause
limits the amount secured or the assets subject to such Liens, no extension
or renewal shall increase the amount or the assets subject to such Liens and
(viii) Liens on Excluded Assets securing Capitalized Lease Obligations
outstanding as of the date of the Prospectus.
SECTION 4.18 Transfer of Assets to Subsidiaries of the Company
Subject to Section 4.03 hereof, the Company shall not, directly or
indirectly, transfer, lease or otherwise dispose of any assets or property to
any of its Subsidiaries; provided, however, that the Company may transfer to a
Subsidiary an aggregate of $5,000,000 of property or assets provided that the
Company, the Trustee and the Subsidiary to whom any such assets or property are
transferred execute and deliver a supplemental indenture evidencing such
Subsidiary's guarantee of the Senior Secured Notes, such guarantee to be a
senior obligation of such Subsidiary.
SECTION 5.01 When Company May Merge, etc.
The Company, in a single transaction or through a series of related
transactions, shall not (a) consolidate with or merge with or into any other
Person, or transfer (by lease, assignment, sale or otherwise) all or
substantially all of its properties and assets as an entirety or substantially
as an entirety to another Person or group of affiliated Persons, or (b) adopt a
Plan of Liquidation, unless, in either case,
(i) either the Company shall be the continuing Person, or the Person
(if other than the Company) formed by such consolidation or into which the
Company is merged or to which all or substantially all of the properties
and assets of the Company as an entirety or substantially as an entirety
(or, in the case of a Plan of Liquidation, one Person to which assets are
transferred) (the Company or such other person, the 'Surviving Person')
shall be a corporation organized and validly existing under the laws of the
United States, any state thereof or the District of Columbia, and shall
expressly assume, by a supplemental indenture, all the obligations of the
Company under the Senior Secured Notes, the Indenture and the Security
Documents;
(ii) immediately after and giving effect to such transaction and the
assumption contemplated by clause (i) above and the incurrence or
anticipated incurrence of any Indebtedness to be incurred in connection
therewith,
(A) the Surviving Person shall have a Net Worth equal to or
greater than the Net Worth of the Company immediately preceding the
transaction,
A-5
<PAGE>
(B) the Surviving Person could incur at least $1.00 of
Indebtedness pursuant to Section 4.05(a), and
(C) if the Operating Coverage Ratio of the Company immediately
preceding the transaction is within a range set forth under column X
below, then the Surviving Person shall have an Operating Coverage
Ratio, or a pro forma basis after giving effect to the transaction,
at least equal to the greater of (1) the actual Operating Coverage
Ratio of the Company multiplied by the appropriate percentage set
forth in column Y and (2) the ratio set forth in column Z below:
X Y Z
-- -- --
3.0:1 to 3.999:1 100% 3.5:1
4.0:2 to 4.999:1 90% 4.0:1
5.0:1 or more 80% 4.5:1
; provided, further, that if, immediately after giving effect to
such transaction on a pro forma basis, the Operating Coverage Ratio
of the Company or the surviving entity, as the case may be, is 5.0:1
or more, the calculation in the preceding proviso shall be
inapplicable and such transaction shall be deemed to have complied
with the requirements of such provision; and
(iii) immediately preceding and immediately after giving effect to
such transaction and the assumption of the obligations as set forth in
clause (i) above and the incurrence or anticipated incurrence of any
Indebtedness to be incurred in connection therewith, no Default or Event of
Default shall have occurred and be continuing.
The foregoing limitations shall not apply to a merger between the Company
and MEDIQ/PLSS, Inc. or any other entity formed for the purposes of
incorporating the Company in the State of Delaware.
SECTION 8.01. Termination of Obligations.
The Company may terminate its obligations under the Senior Secured Notes
and this Indenture, except those obligations referred to in the immediately
succeeding paragraph, if:
(a) (i) all Senior Secured Notes previously authenticated and
delivered (other than destroyed, lost or stolen Senior Secured Notes which
have been replaced or paid) have been delivered to the Trustee for
cancellation or moneys sufficient for the payment of Senior Secured Notes
which are due and payable but have not been surrendered for payment shall
have been deposited with the Trustee or Paying Agent and the Company has
paid all sums payable by it hereunder; or
(ii) the Company shall have irrevocably deposited or caused to
be deposited with the Trustee or the Paying Agent, under the terms
of an irrevocable trust agreement in form and substance satisfactory
to the Trustee, as trust funds in trust solely for the benefit of
the Holders for that purpose, money or direct non-callable
obligations of, or non-callable obligations guaranteed by, the
United States of America for the payment of which guarantee or
obligation the full faith and credit of the United States is pledged
('U.S. Government Obligations'), maturing as to principal and
interest in such amounts and at such times as are sufficient,
without consideration of any reinvestment of such interest, to pay
principal of and interest on the outstanding Senior Secured Notes to
maturity or redemption, as the case may be, as certified by the
Company in an Officers' Certificate; provided that the Trustee shall
have been irrevocably instructed pursuant to such Officers'
Certificate to apply such money or the proceeds of such U.S.
Government Obligations to the payment of said principal and interest
with respect to the Senior Secured Notes; and provided, further,
that the Company shall have delivered to the Trustee (A) either (1)
a ruling directed to the Trustee received from the Internal Revenue
Service to the effect that the Holders of such Senior Secured Notes
A-6
<PAGE>
will not recognize income, gain or loss for Federal income tax
purposes as a result of the Company's exercise of its option under
this Section 8.01 and will be subject to Federal income tax on the
same amount and in the same manner and at the same times as would
have been the case if such option had not been exercised, or (2) an
Opinion of Counsel to the same effect as the ruling described in
clause (1) accompanied by a ruling to that effect published by the
Internal Revenue Service, unless there has been a change in the
applicable Federal income tax law since the date the Senior Secured
Notes were originally issued, such that a ruling from the Internal
Revenue Service is no longer required, and (B) an Opinion of Counsel
to the effect that, after the passage of 90 days following the
deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally; and
(b) the Company pays or causes to be paid all other sums then payable
by the Company hereunder; and
(c) the Company delivers to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent provided
for herein relating to the satisfaction and discharge of this Indenture
have been complied with;
provided, however, that no deposit under 8.01(a)(ii) shall be effective to
terminate the obligations of the Company under the Senior Secured Notes or this
Indenture prior to 90 days following any such deposit.
Notwithstanding the foregoing paragraph, the Company's obligations in
Sections 2.03, 2.04, 2.05, 2.06, 2.07, 2.13, 4.02, 7.07, 7.08, 8.03 and 8.04
shall survive until the Senior Secured Notes are no longer outstanding.
Thereafter, the Company's obligations in Sections 7.07, 8.03 and 8.04 shall
survive.
After such delivery or irrevocable deposit the Trustee upon request shall
acknowledge in writing the discharge of the Company's obligations under the
Senior Secured Notes and this Indenture except for those surviving obligations
specified above.
The Company will pay any taxes or other expenses incurred by any trust
created pursuant to this Article 8.
SECTION 8.02. Application of Trust Money
The Trustee or Paying Agent shall hold in trust money or U.S. Government
Obligations deposited with it pursuant to Section 8.01, and shall apply the
deposited money and the money from U.S. Government Obligations in accordance
with this Indenture to the payment of principal of and interest on the Senior
Secured Notes. The Trustee shall be under no obligation to invest said money or
U.S. Government Obligations except as it may agree with the Company.
INDENTURE PROVISIONS AS PROPOSED TO BE AMENDED
'Permitted Liens' shall mean (i) Liens for taxes, assessments and
governmental charges to the extent not required to be paid under this Indenture,
(ii) statutory Liens of landlords and carriers, warehousemen, mechanics,
suppliers, materialmen, repairmen or other like Liens arising in the ordinary
course of business and with respect to amounts not yet delinquent or being
contested in good faith by an appropriate process of law, and for which a
reserve or other appropriate provision, if any, as shall be required by GAAP
shall have been made, (iii) pledges or deposits in the ordinary course of
business to secure lease obligations or non-delinquent obligations under
workers' compensation, unemployment insurance or similar legislation, (iv) Liens
to secure the performance of public statutory obligations that are not
delinquent, appeal bonds, performance bonds, bid bonds or other obligations of a
like nature (other than for borrowed money), (v) easements, right-of-way,
restrictions, minor defects or irregularities in title and other similar charges
A-7
<PAGE>
or encumbrances not interfering in any material respect with the business of the
Company or any of its Subsidiaries incurred in the ordinary course of business,
(vi) Liens upon specific items of inventory or other goods and proceeds of any
Person securing such Person's obligations in respect of bankers' acceptances
issued or created for the account of such Person to facilitate the purchase,
shipment or storage of such inventory or other goods in the ordinary course of
business, (vii) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of non-delinquent customs duties in connection
with the importation of goods, (viii) judgment and attachment Liens not giving
rise to a Default or Event of Default, (ix) leases or subleases granted to
others not interfering in any material respect with the business of the Company
or any Subsidiary, (x) any interest or title of a lessor in the property subject
to any lease, whether characterized as capitalized or operating other than any
such interest or title resulting from or arising out of a default by the Company
or any of its Subsidiaries of its obligations under such lease, (xi) Liens
arising from filing UCC financing statements for precautionary purposes in
connection with true leases of personal property that are otherwise permitted
under this Indenture and under which the Company or any of its Subsidiaries is
lessee, (xii) Liens on any assets which are not subject to the Liens of the
Trustee for the benefit of the Noteholders, and (xiii) Liens on assets subject
to the Liens of the Trustee for the benefit of Noteholders, but which are
expressly subordinate in priority to such Liens in favor of the Trustee created
under this Indenture.
SECTION 4.03. Limitation on Restricted Payments.
[DELETED IN ITS ENTIRETY]
SECTION 4.04. Limitation on Payment Restrictions Affecting Subsidiaries.
[DELETED IN ITS ENTIRETY]
SECTION 4.05. Limitation on Incurrences of Additional Indebtedness.
[DELETED IN ITS ENTIRETY]
SECTION 4.09. Compliance Certificate.
[DELETED IN ITS ENTIRETY]
SECTION 4.10. SEC Reports.
[DELETED IN ITS ENTIRETY]
SECTION 4.13. Conflicting Agreements.
The Company shall not, and shall not permit any of its Subsidiaries to,
enter into any agreement or instrument that by its terms expressly (a) prohibits
the Company from optionally redeeming or otherwise making any payments on or in
respect of the Senior Secured Notes in accordance with the terms thereof and of
this Indenture, as in effect from time to time, or (b) requires, prior to the
payment in full or defeasance of the Senior Secured Notes, that the proceeds
received from the sale of any Collateral be applied to repay, redeem or
otherwise retire any Indebtedness of any Person other than the Indebtedness
represented by the Senior Secured Notes.
SECTION 4.14. Guarantees of Certain Indebtedness.
[DELETED IN ITS ENTIRETY]
SECTION 4.15. Limitation on Transactions with Affiliates
[DELETED IN ITS ENTIRETY]
SECTION 4.17. Limitation on Liens.
The Company shall not, and shall not permit any of its Subsidiaries to
incur or suffer to exist any Liens upon any of their respective assets, except
for (i) Permitted Liens, (ii) Liens securing Acquired Indebtedness; provided
that such Liens (a) are not incurred in connection with, or in contemplation of,
the acquisition of the property or assets acquired, and (b) do not extend to or
cover any property or assets of the Company or any of its Subsidiaries other
than the property or assets so acquired, (iii) Liens securing Refinancing
A-8
<PAGE>
Indebtedness to the extent incurred to repay, refinance or refund Indebtedness
which is secured by Liens and outstanding as of the date of the Prospectus;
provided that such Refinancing Indebtedness shall be secured solely by the
assets securing the outstanding Indebtedness being repaid, refinanced or
refunded and shall not be secured in any case by Liens on Excluded Assets, (iv)
Liens to secure Indebtedness permitted under Sections 4.05(b)(i) and 4.05(b)(iv)
and that are used to finance the cost of the property subject thereto; provided
that (a) any such Lien is created solely for the purpose of securing
Indebtedness representing, or incurred to finance, refinance or refund, the cost
(including sales and excise taxes, installation and delivery charges and other
direct costs of, and other direct expenses paid or charged in connection with,
such purchase or construction) of the property subject thereto, (b) the
principal amount of the Indebtedness secured by such Lien does not exceed 100%
of such cost, (c) such Lien does not extend to or cover any other property other
than such item of property and any improvements on such item of property and (d)
any Liens securing Indebtedness permitted under Section 4.05(b)(iv) shall not
secure an amount of Indebtedness, individually or in the aggregate, in excess of
(x) $5,000,000 to the extent such indebtedness is incurred to finance the
acquisition of real property and (y) $1,000,000 to the extent such Indebtedness
is incurred to finance the acquisition of property or assets other than real
property; provided that no such Lien under this clause (y) shall extend to or
cover any item of medical rental equipment, (v) Liens on the Company's accounts
receivable to secure Indebtedness incurred under Section 4.05(b)(ii), (vi) Liens
under the Security Agreement and this Indenture, (vii) any replacement,
extension or renewal, in whole or in part, of any Lien described in the
foregoing clauses (i) through (vi); provided that, to the extent any such
clause limits the amount secured or the assets subject to such Liens, no
extension or renewal shall increase the amount or the assets subject to such
Liens and (viii) Liens on Excluded Assets securing Capitalized Lease Obligations
outstanding as of the date of the Prospectus. Notwithstanding anything to the
contrary contained herein, the Company and its subsidiaries and Affiliates may
grant Liens on any assets which are not subject to the Liens of the Trustee for
the benefit of the Noteholders.
SECTION 4.18 Transfer of Assets to Subsidiaries of the Company
[DELETED IN ITS ENTIRETY]
SECTION 5.01 When Company May Merge, etc.
The Company, in a single transaction or through a series of related
transactions, shall not (a) consolidate with or merge with or into any other
Person, or transfer (by lease, assignment, sale or otherwise) all or
substantially all of its properties and assets as an entirety or substantially
as an entirety to another Person or group of affiliated Persons, or (b) adopt a
Plan of Liquidation, unless, in either case,
(i) either the Company shall be the continuing Person, or the Person
(if other than the Company) formed by such consolidation or into which the
Company is merged or to which all or substantially all of the properties
and assets of the Company as an entirety or substantially as an entirety
(or, in the case of a Plan of Liquidation, one Person to which assets are
transferred) (the Company or such other person, the 'Surviving Person')
shall be a corporation organized and validly existing under the laws of the
United States, any state thereof or the District of Columbia, and shall
expressly assume, by a supplemental indenture, all the obligations of the
Company under the Senior Secured Notes, the Indenture and the Security
Documents; and
(ii) immediately preceding and immediately after giving effect to such
transaction and the assumption of the obligations as set forth in clause
(i) above and the incurrence or anticipated incurrence of any Indebtedness
to be incurred in connection therewith, no Default or Event of Default
shall have occurred and be continuing.
SECTION 8.01. Termination of Obligations.
The Company may terminate its obligations under the Senior Secured Notes
and this Indenture, except those obligations referred to in the immediately
succeeding paragraph, if:
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<PAGE>
(a) (i) all Senior Secured Notes previously authenticated and
delivered (other than destroyed, lost or stolen Senior Secured Notes which
have been replaced or paid) have been delivered to the Trustee for
cancellation or have been deemed cancelled pursuant to Section 2.12(b)
hereof or moneys sufficient for the payment of Senior Secured Notes which
are due and payable but have not been surrendered for payment shall have
been deposited with the Trustee or Paying Agent and the Company has paid
all sums payable by it hereunder; or
(ii) the Company shall have irrevocably deposited or caused to be
deposited with the Trustee or the Paying Agent, under the terms of an
irrevocable trust agreement in form and substance satisfactory to the
Trustee, as trust funds in trust solely for the benefit of the Holders
(other than the Company or any Affiliates of the Company) for that purpose,
money or direct non-callable obligations of, or non-callable obligations
guaranteed by, the United States of America for the payment of which
guarantee or obligation the full faith and credit of the United States is
pledged ('U.S. Government Obligations'), maturing as to principal and
interest in such amounts and at such times as are sufficient, without
consideration of any reinvestment of such interest, to pay principal of and
interest on the outstanding Senior Secured Notes to maturity or redemption,
as the case may be, as certified by the Company in an Officers'
Certificate; provided that the Trustee shall have been irrevocably
instructed pursuant to such Officers' Certificate to apply such money or
the proceeds of such U.S. Government Obligations to the payment of said
principal and interest with respect to the Senior Secured Notes held by
Holders other than the Company and any Affiliate of the Company; and
provided, further, that the Company shall have delivered to the Trustee an
Opinion of Counsel to the effect that, after the passage of 124 days
following the deposit, the trust funds will not be subject to the effect
of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally; and
(b) the Company pays or causes to be paid all other sums then payable
by the Company hereunder; and
(c) the Company delivers to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent provided
for herein relating to the satisfaction and discharge of this Indenture
have been complied with;
provided, however, that no deposit under 8.01(a)(ii) shall be effective to
terminate the obligations of the Company under the Senior Secured Notes or this
Indenture prior to 124 days following any such deposit.
Notwithstanding the foregoing paragraph, the Company's obligations in
Sections 2.03, 2.04, 2.05, 2.06, 2.07, 2.13, 4.02, 7.07, 7.08, 8.03 and 8.04
shall survive until the Senior Secured Notes are no longer outstanding.
Thereafter, the Company's obligations in Sections 7.07, 8.03 and 8.04 shall
survive.
After such delivery or irrevocable deposit the Trustee upon request shall
acknowledge in writing the discharge of the Company's obligations under the
Senior Secured Notes and this Indenture except for those surviving obligations
specified above.
The Company will pay any taxes or other expenses incurred by any trust
created pursuant to this Article 8.
SECTION 8.02. Application of Trust Money
The Trustee or Paying Agent shall hold in trust money or U.S. Government
Obligations deposited with it pursuant to Section 8.01, and shall apply the
deposited money and the money from U.S. Government Obligations in accordance
with this Indenture to the payment of principal of and interest on the Senior
Secured Notes; provided, however, that notwithstanding anything to the contrary
contained herein the Trustee shall have no obligation to make payments of
principal and interest under this Indenture for Senior Secured Notes held by the
Company or its Affiliates for which no deposit was made under Section 8.01
hereof. The Trustee shall be under no obligation to invest said money or U.S.
Government Obligations except as it may agree with the Company.
A-10
<PAGE>
ANNEX B
MEDIQ/PRN LIFE SUPPORT SERVICES, INC.
FINANCIAL STATEMENTS
THREE YEARS ENDED SEPTEMBER 30, 1995
B-1
<PAGE>
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
<S> <C>
Independent Auditors' Report.............................................................. B-3
Balance Sheets as of September 30, 1995 and 1994.......................................... B-4
Statements of Operations for the three years ended September 30, 1995..................... B-5
Statements of Stockholder's Equity for the three years ended September 30, 1995........... B-6
Statements of Cash Flows for the three years ended September 30, 1995..................... B-7
Notes to Financial Statements............................................................. B-8
</TABLE>
B-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholder
MEDIQ/PRN Life Support Services, Inc.
Pennsauken, New Jersey
We have audited the accompanying balance sheets of MEDIQ/PRN Life Support
Services, Inc. (a wholly-owned subsidiary of PRN Holdings, Inc.) as of September
30, 1995 and 1994, and the related statements of operations, stockholder's
equity and cash flows for each of the three years in the period ended September
30, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of MEDIQ/PRN Life Support Services, Inc. as of
September 30, 1995 and 1994, and the results of its operations and cash flows
for each of the three years in the period ended September 30, 1995 in conformity
with generally accepted accounting principles.
The accompanying financial statements may not necessarily be indicative of
the conditions that would have existed or the results of operations if MEDIQ/PRN
Life Support Services, Inc. had been unaffiliated with PRN Holdings, Inc., its
wholly owned subsidiary, MEDIQ/PRN Life Support Services, -- I, Inc., and MEDIQ
Incorporated. As discussed in Note A to the financial statements, such companies
provided financing, guaranteed certain liabilities and conducted certain other
business transactions with the Company.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
December 31, 1995
B-3
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF PRN HOLDINGS, INC.)
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------
1995 1994
----------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash........................................................................ $1,591,000 $ 192,000
Accounts receivable, less allowance for doubtful accounts of $2,153,000 in
1995 and $1,837,000 in 1994.............................................. 26,870,000 15,012,000
Inventories................................................................. 4,178,000 5,923,000
Investment in marketable securities......................................... 342,000 2,781,000
Advance on revenue share.................................................... -- 2,490,000
Deferred taxes.............................................................. 1,878,000 2,384,000
Prepaid insurance........................................................... 1,228,000 1,695,000
Prepaid expenses and other.................................................. 197,000 296,000
----------- ------------
Total current assets.......................................................... 36,284,000 30,773,000
Rental equipment -- net....................................................... 83,554,000 98,984,000
Property, plant and equipment -- net.......................................... 9,015,000 8,891,000
Goodwill -- net............................................................... 22,540,000 23,838,000
Other assets.................................................................. 3,330,000 5,155,000
----------- ------------
Total Assets.................................................................. $154,723,000 $167,641,000
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Notes payable............................................................... $ -- $ 5,180,000
Accounts payable............................................................ 5,050,000 5,204,000
Accrued payroll and related taxes........................................... 1,917,000 1,620,000
Accrued interest............................................................ 2,857,000 2,870,000
Other accrued expenses...................................................... 4,866,000 4,307,000
Due to MEDIQ................................................................ 1,689,000 --
Due to PRN-NEW -- revenue share............................................. 4,443,000 --
Long-term debt -- current................................................... 4,161,000 11,100,000
----------- ------------
Total current liabilities..................................................... 24,983,000 30,281,000
Long-term debt, less current maturities....................................... 106,603,000 108,470,000
Deferred income taxes......................................................... 10,852,000 12,519,000
Other liabilities............................................................. 1,808,000 2,171,000
Commitments and contingencies
Stockholder's equity:
Class A common stock -- $.01 par value:
Authorized -- 20,000 shares
Issued and outstanding -- none
Common stock -- par value $.01
Authorized -- 2,000 shares in 1995 and 1994
Issued and outstanding -- 10,000 shares in 1995 and 1994................. 1,000 1,000
Additional paid-in capital.................................................. 17,522,000 17,522,000
Accumulated deficit......................................................... (7,046,000) (3,323,000)
----------- ------------
Total stockholder's equity.................................................... 10,477,000 14,200,000
----------- ------------
Total Liabilities and Stockholder's Equity.................................... $154,723,000 $167,641,000
============ ============
</TABLE>
See notes to financial statements.
B-4
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF PRN HOLDINGS, INC.)
STATEMENTS OF OPERATIONS
<TABLE>
<S> <C> <C> <C>
YEAR ENDED SEPTEMBER 30,
------------------------------------------------
1995 1994 1993
---------------- -------------- --------------
Net Revenue.................................................... $ 128,810,000 $ 74,944,000 $76,527,000
Operating costs and expenses:
Operating................................................. 81,174,000 35,847,000 33,262,000
General and administrative................................ 17,256,000 13,678,000 12,724,000
Depreciation and amortization............................. 21,265,000 20,336,000 17,377,000
------------- ------------ -----------
119,695,000 69,861,000 63,363,000
------------- ------------ -----------
Operating income............................................... 9,115,000 5,083,000 13,164,000
Interest expense............................................... 14,012,000 13,372,000 12,615,000
------------- ------------ -----------
(Loss) income before income tax (benefit) expense and
extraordinary charge......................................... (4,897,000) (8,289,000) 549,000
Income tax (benefit) expense................................... (1,174,000) (2,004,000) 710,000
------------- ------------ -----------
Loss before extraordinary charge............................... (3,723,000) (6,285,000) (161,000)
Extraordinary charge, early retirement of debt (net of income
tax benefit of $69,000)...................................... -- -- (101,000)
------------- ------------ -----------
Net loss....................................................... $ (3,723,000) $ (6,285,000) $ (262,000)
============= ============ ===========
</TABLE>
See notes to financial statements.
B-5
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF PRN HOLDINGS, INC.)
STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
--------------------
ADDITIONAL
SHARES PAID-IN ACCUMULATED
ISSUED AMOUNT CAPITAL DEFICIT TOTAL
--------- --------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Balance,
October 1, 1992........................... 10,000 $1,000 $16,954,000 $ 3,224,000 $20,179,000
Capital contribution from MEDIQ related to
building transfer......................... 568,000 568,000
Net loss.................................... (262,000) (262,000)
------ ------ ----------- ----------- -----------
Balance,
September 30, 1993........................ 10,000 1,000 17,522,000 2,962,000 20,485,000
Net loss.................................... (6,285,000) (6,285,000)
------ ------ ----------- ----------- -----------
Balance,
September 30, 1994........................ 10,000 1,000 17,522,000 (3,323,000) 14,200,000
Net Loss.................................... (3,723,000) (3,723,000)
------ ------ ----------- ----------- -----------
Balance,
September 30, 1995........................ 10,000 $1,000 $17,522,000 $(7,046,000) $10,477,000
====== ====== =========== =========== ===========
</TABLE>
See notes to financial statements.
B-6
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF PRN HOLDINGS, INC.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss...................................................... $(3,723,000) $(6,285,000) $ (262,000)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization........................... 22,250,000 21,068,000 17,954,000
Deferred taxes.......................................... (1,161,000) (2,042,000) 1,426,000
Provision for doubtful accounts......................... 1,287,000 826,000 900,000
(Gain) loss on sale of assets........................... (897,000) (313,000) 371,000
Decrease (increase) in current assets:
Accounts receivable.................................. (13,032,000) 269,000 4,713,000
Inventories.......................................... 1,746,000 187,000 278,000
Net activity under revenue share..................... 6,933,000 (2,490,000) --
Prepaid insurance.................................... 468,000 (333,000) 196,000
Prepaid expenses and other........................... (50,000) 448,000 (306,000)
Increase (decrease) in current liabilities:
Accounts payable..................................... 353,000 1,012,000 (3,504,000)
Accrued payroll and related taxes.................... 298,000 (383,000) (279,000)
Accrued interest..................................... (13,000) (6,000) 178,000
Other accrued expenses............................... (5,000) 1,230,000 (2,631,000)
----------- ----------- -----------
Net cash provided by operating activities....................... 14,454,000 13,188,000 19,034,000
Cash Flows from Investing Activities:
Purchases of rental equipment................................. (3,807,000) (7,437,000) (13,795,000)
Purchases of property and equipment........................... (1,135,000) (947,000) (533,000)
Proceeds from sale of equipment............................... 1,810,000 1,777,000 350,000
Acquisitions (net of cash acquired)........................... -- (2,973,000) --
Sale of marketable securities................................. 2,773,000 798,000 715,000
Other......................................................... 890,000 (1,595,000) (405,000)
----------- ----------- -----------
Net cash provided by (used in) investing activities............. 531,000 (10,377,000) (13,668,000)
Cash Flows from Financing Activities:
Net activity due to MEDIQ..................................... 1,759,000 (2,720,000) 2,720,000
Proceeds from issuance of long-term debt...................... 960,000 -- --
Principal payments under long-term debt....................... (11,125,000) (6,274,000) (3,077,000)
Net activity of notes payable to bank......................... (5,180,000) 3,907,000 (4,727,000)
----------- ----------- -----------
Net cash used in financing activities........................... (13,586,000) (5,087,000) (5,084,000)
----------- ----------- -----------
Net increase (decrease) in cash................................. 1,399,000 (2,276,000) 282,000
Cash:
Beginning of year.................................... 192,000 2,468,000 2,186,000
----------- ----------- -----------
End of year.......................................... $ 1,591,000 $ 192,000 $ 2,468,000
=========== =========== ===========
Supplemental Disclosure of Cash Flow Information:
Interest paid........................................ $13,036,000 $12,498,000 $12,424,000
=========== =========== ===========
</TABLE>
See notes to financial statements.
B-7
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF PRN HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company -- The Company is a wholly-owned subsidiary of PRN Holdings,
Inc. ('Holdings'). Holdings is a wholly owned subsidiary of MEDIQ Incorporated
('MEDIQ'). The Company is the largest provider of movable critical care and life
support medical equipment on a rental basis to acute care hospitals, home health
care companies, nursing homes and alternate care facilities.
Relationship with MEDIQ -- The accompanying financial statements may not
necessarily be indicative of the conditions that would have existed, or the
results of operations, if the Company had been unaffiliated with Holdings, its
wholly owned subsidiary, MEDIQ/PRN Life Support Services -- I, Inc. ('PRN-NEW'),
and MEDIQ. Such companies provided financing, guaranteed certain liabilities and
conducted certain other business transactions with the Company (Notes B, F, H
and J).
Inventories -- Inventories, which consist of finished goods held for sale
and repair parts for rental equipment, are stated at the lower of cost
(first-in, first-out method) or market.
Rental Equipment and Property, Plant and Equipment -- Rental equipment and
property, plant and equipment are stated at cost. Capital leases are recorded at
the lower of fair market value or the present value of future lease payments.
The Company provides for depreciation and amortization on a straight-line basis
as follows:
Rental equipment.............................. 3 to 10 years
Building...................................... 25 years
Building improvements......................... 10 years
Machinery and equipment....................... 1 to 10 years
Furniture and fixtures........................ 2 to 10 years
Goodwill -- The purchase price in excess of the net assets acquired, is
being amortized on a straight line basis over periods from twenty ($25,562,000)
to forty years ($801,000). Amortization expense for the years ended September
30, 1995, 1994, and 1993 was $1,298,000, $1,112,000 and $930,000, respectively.
Accumulated amortization as of September 30, 1995 and 1994 was $3,823,000 and
$2,525,000, respectively.
Carrying value of long-term assets -- The Company evaluates the carrying
value of long-term assets, including rental equipment, goodwill and other
intangible assets, based upon current and anticipated undiscounted cash flows,
and recognizes an impairment when such estimated cash flows will be less than
the carrying value of the asset. Measurement of the amount of impairment, if
any, is based upon the difference between carrying value and fair value.
Investments in Marketable Securities -- Investments in marketable
securities consist primarily of U.S. Treasury Bills and are carried at cost,
which approximates market. These investments collateralize the Senior Secured
Notes due 1999 issued in July 1992 (the 'Senior Secured Notes').
Income Taxes -- The Company is included in the consolidated federal income
tax returns of MEDIQ. Calculation of the Company's federal income tax expense on
a separate return basis would not result in any material change in the amounts
reflected in the accompanying consolidated statements of operations. Income
taxes are provided based on the liability method pursuant to Statement of
Financial Accounting Standard ('SFAS') No. 109, 'Accounting for Income Taxes.'
Revenue Recognition -- Revenue is recognized in accordance with the terms
of the related rental agreement and upon the usage of the related rental
equipment.
Reclassifications -- Certain reclassifications have been made to the prior
years' balances so as to conform to the current year's presentation.
B-8
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF PRN HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE B. SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
The Company financed the purchase of $976,000, $4,623,000 and $7,554,000 of
equipment with capital leases during the years ended September 30, 1995, 1994
and 1993, respectively.
As of September 30, 1995, 1994, and 1993, the Company had $809,000,
$1,315,000 and $1,110,000, respectively, of rental equipment purchases included
in accounts payable.
In fiscal 1994, the Company financed a portion of its acquisitions with
notes payable of $7,815,000.
In fiscal 1993, MEDIQ transferred its right, title and interest in a
facility utilized as MEDIQ's and the Company's corporate headquarters to the
Company in exchange for the assumption by the Company of the indebtedness
related to the facility of $741,000, application of the deposit the Company had
with MEDIQ of $4,042,000, issuance of a $954,000 note payable to MEDIQ, the
receipt of a $568,000 capital contribution from MEDIQ and assumption of $58,000
of accounts payable.
NOTE C. ACQUISITION
On September 30, 1994, PRN-NEW acquired the life support and critical care
medical rental equipment inventory of Kinetic Concepts, Inc. ('KCI'). In
addition, the Company signed a revenue sharing agreement with PRN-NEW, whereby
the Company will rent and maintain PRN-NEW's medical rental equipment inventory.
Through the term of the revenue sharing agreement the Company will remit, on a
monthly basis, 55% of the gross billed revenue generated by PRN-NEW's medical
rental equipment.
In connection with the transaction noted above, the Company acquired all of
KCI's disposable and repair parts inventory. The purchase price was $7,553,000,
consisting of $2,000,000 in cash and a discounted note payable to KCI of
$5,553,000 ($5,836,000 face value). The excess of the purchase price over the
fair market values of the inventory acquired has been recorded as goodwill and
is being amortized over 20 years.
NOTE D. RENTAL EQUIPMENT AND PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------
1995 1994
------------ ------------
<S> <C> <C>
Rental equipment................................................ $158,954,000 $170,031,000
Less: accumulated depreciation and amortization................. 75,400,000 71,047,000
------------ ------------
$ 83,554,000 $ 98,984,000
============ ============
Land............................................................ $ 149,000 $ 149,000
Building and improvements....................................... 6,004,000 5,986,000
Machinery and equipment......................................... 3,797,000 2,862,000
Furniture and fixtures.......................................... 1,877,000 1,762,000
Leasehold improvements.......................................... 167,000 132,000
------------ ------------
11,994,000 10,891,000
Less: accumulated depreciation and amortization................. 2,979,000 2,000,000
------------ ------------
$ 9,015,000 $ 8,891,000
============ ============
</TABLE>
Depreciation and amortization expense of rental equipment for the years
ended September 30, 1995, 1994 and 1993 was $18,523,000, $18,257,000, and
$15,926,000, respectively. Depreciation and
B-9
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF PRN HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE D. RENTAL EQUIPMENT AND PROPERTY, PLANT AND EQUIPMENT -- CONTINUED
amortization expense of property, plant and equipment for the years ended
September 30, 1995, 1994, and 1993 was $997,000, $844,000, and $521,000,
respectively.
NOTE E. NOTES PAYABLE
The Company has a $15,000,000 revolving line of credit from a financial
institution. Borrowings under the line bear interest at the prime rate (8.75% at
September 30, 1995) plus 1.50% and is collateralized by accounts receivable, a
pledge of the common stock of Holdings, PRN-NEW and the Company, and a second
mortgage on real estate. The Company's ability to borrow under the line can not
exceed eligible collateral without the prior permission of the lender. At
September 30, 1995, the Company had no amounts outstanding under the line of
credit, and based upon management's analysis of the eligible collateral, the
Company had $15,000,000 available for borrowing.
NOTE F. LONG-TERM DEBT
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------
1995 1994
------------ ------------
<S> <C> <C>
Senior Secured Notes with interest of 12.125% maturing in
1999.......................................................... $100,000,000 $100,000,000
Capital lease obligations with interest rates of 9.12% to 20.96%
maturing through 2000......................................... 8,800,000 10,246,000
Mortgage with interest of 7.75% maturing through 1999........... 525,000 627,000
KCI note payable, non-interest bearing maturing October 1995
discounted at 8%.............................................. 584,000 5,553,000
Note payable, non-interest bearing maturing December 1995
discounted at 7.75%........................................... 855,000 2,155,000
Term loan....................................................... -- 989,000
------------ ------------
110,764,000 119,570,000
Current portion................................................. 4,161,000 11,100,000
------------ ------------
$106,603,000 $108,470,000
============ ============
</TABLE>
In July 1992, the Company issued the Senior Secured Notes with interest
payable semi-annually on January 1 and July 1. The Senior Secured Notes are
collateralized by substantially all of PRN-OLD's rental equipment, property and
equipment, and the Company's investment in marketable securities. The Senior
Secured Notes are redeemable, in whole or in part, at the option of the Company
at any time on or after July 1, 1997 at specified redemption prices. The Company
is obligated to make offers to purchase the Senior Secured Notes under certain
circumstances. In 1995, the Company was not obligated to make any such offers.
On October 1, 1995, pursuant to an amendment to the Senior Secured Notes
indenture, the interest rate on the Senior Secured Notes increased from 11.125%
to 12.125%. The interest rate on the Senior Secured Notes will decrease to
11.125% if and when PRN-NEW's rental equipment, as defined, becomes collateral
for the Senior Secured Notes.
Under the terms of the indenture relating to the Senior Secured Notes, the
KCI note payable, and the line of credit, as amended, the Company is required to
maintain specified financial ratios, and is limited in the amount of dividends,
additional borrowings, and payments that may be made to MEDIQ. As of September
30, 1995, the Company did not comply with certain covenants under the line of
credit
B-10
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF PRN HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE F. LONG-TERM DEBT -- CONTINUED
including the working capital and tangible net worth requirements. Subsequent to
September 30, 1995, the Company obtained the necessary waivers and amendments
from its lender, regarding these ratios and limitations. The most restrictive
provision limits the amount of dividends, if any, the Company can pay to
one-half of the Company's cumulative net income, as defined. As of September 30,
1995, the Company was not permitted to pay any dividends pursuant to such
provision.
Maturities of long-term debt are as follows:
YEAR ENDING SEPTEMBER 30,
1996................................................ $ 4,161,000
1997................................................ 2,826,000
1998................................................ 2,127,000
1999................................................ 101,500,000
2000................................................ 150,000
------------
$110,764,000
============
At September 30, 1995, rental equipment included assets capitalized under
lease obligations with a cost of $13,420,000 and a net book value of
$10,529,000. MEDIQ is a guarantor on certain of the Company's long-term debt in
an aggregate amount of $6,745,000 as of September 30, 1995. The mortgage is
collateralized by the land and building.
NOTE G. LEASES
The Company leases certain operating and administrative facilities and
certain equipment and vehicles under operating leases. Certain rental equipment
is leased under capital leases. Future minimum payments under non-cancelable
capital and operating leases are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING SEPTEMBER 30, LEASES LEASES
------------- ------------
<S> <C> <C>
1996............................................................. $ 3,394,000 $ 4,356,000
1997............................................................. 3,211,000 3,282,000
1998............................................................. 2,245,000 1,932,000
1999............................................................. 1,520,000 767,000
2000............................................................. 42,000 447,000
----------- -----------
Total minimum lease payments.......................................... 10,412,000 $10,784,000
===========
Amount representing interest.......................................... (1,612,000)
-----------
Present value of minimum lease payments............................... $ 8,800,000
===========
</TABLE>
Rental expense for operating leases was $5,084,000, $4,468,000 and
$4,474,000 for the years ended September 30, 1995, 1994, and 1993, respectively.
B-11
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF PRN HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE H. INCOME TAXES
Income tax expense consists of the following:
<TABLE>
<CAPTION>
1995 1994 1993
------------------------ -------------------------- --------------------------
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------------------------
FEDERAL STATE FEDERAL STATE FEDERAL STATE
------------- --------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Income taxes currently
payable..................... $ -- $ -- $ -- $ 38,000 $ -- $ 27,000
Deferred income taxes......... (1,202,000) 28,000 (2,196,000) 154,000 (839,000) 1,522,000
------------- --------- ------------- ----------- ----------- -------------
Income tax (benefit)
expense..................... $ (1,202,000) $ 28,000 $ (2,196,000) $ 192,000 $ (839,000) $ 1,549,000
============= ========= ============= =========== =========== =============
</TABLE>
The difference between the Company's provision for income taxes and the
income taxes computed using the U.S. federal income tax rate were as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------
1995 1994 1993
------------- ------------ ----------
<S> <C> <C> <C>
Statutory (benefit) expense....................................... $(1,340,000) $(2,818,000) $ 187,000
State (benefit) tax, net of federal benefit....................... (29,000) 127,000 1,022,000
Goodwill amortization............................................. 340,000 344,000 281,000
Other............................................................. (145,000) 343,000 (780,000)
----------- ----------- ----------
Effective income tax (benefit) expense............................ $(1,174,000) $(2,004,000) $ 710,000
=========== =========== ==========
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
was as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------------
1995 1994
-------------- -----------
<S> <C> <C>
LIABILITIES
Depreciation.......................................................... $25,670,000 $26,400,000
Reserves.............................................................. 800,000 800,000
Goodwill.............................................................. 32,000 --
Other................................................................. 648,000 383,000
----------- -----------
27,150,000 27,583,000
ASSETS
Net operating losses.................................................. 13,371,000 12,592,000
Accrued expenses and reserves......................................... 3,744,000 4,396,000
Other................................................................. 1,061,000 460,000
----------- -----------
18,176,000 17,448,000
----------- -----------
Net deferred tax liability $ 8,974,000 $10,135,000
=========== ===========
</TABLE>
Pursuant to a tax allocation/sharing agreement, the Company has agreed to
reimburse MEDIQ for any future tax assessment against MEDIQ resulting from the
Company's operations, the Company will be reimbursed by MEDIQ for any future tax
benefit derived by MEDIQ resulting from the Company's operations, and the
Company will be indemnified for certain tax liabilities. Taxes currently payable
or receivable will be reimbursed by the respective parties only to the extent
such payables or receivables would be realized on a separate return basis. In
fiscal 1995, 1994 and 1993, the Company generated Federal income tax benefits of
$800,000, $2,941,000 and $5,484,000, respectively. Such benefits have been
utilized to reduce deferred taxes in accordance with SFAS No. 109 (fiscal 1995
and 1994) and SFAS No. 96 (fiscal 1993).
B-12
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF PRN HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE I. WARRANT
In May 1992, the Company issued a warrant to a lender to purchase 2.5% of
the common stock of the Company for a nominal amount, subject to certain
conditions. Such warrant expires on May 29, 1999.
NOTE J. TRANSACTIONS WITH AFFILIATES
Services Agreement -- As of May 29, 1992, the Company entered into a
Services Agreement with MEDIQ pursuant to which the Company may obtain financial
and other management, legal, human resources, accounting, tax, risk and
automotive fleet management services. Services provided by MEDIQ are charged at
the rates defined in the agreement. The Company has the discretion to obtain
services from MEDIQ or unrelated third parties. The services agreement may be
terminated by either party upon not less than ninety days written notice. The
Company incurred $200,000 under the services agreement for each of the years
ended September 30, 1995, 1994, and 1993.
Due to MEDIQ -- As of September 30, 1995 amounts due to MEDIQ of $1,689,000
represent unpaid charges pursuant to the services, insurance and reimbursement
agreements and advances made by MEDIQ. As of September 30, 1994, MEDIQ owed the
Company $70,000 which represents unpaid rent and related costs under MEDIQ's
lease of a portion of the Company's facility. Amounts outstanding with MEDIQ
bear interest at prime plus 1.75%.
Building Transfer -- Effective September 30, 1993, MEDIQ transferred to the
Company all of its rights, title and interest in the facility utilized as
MEDIQ's and the Company's corporate headquarters. The transfer was made at
MEDIQ's historical net book value. In addition, the Company and MEDIQ entered
into a lease agreement whereby MEDIQ leases a portion of the facility through
September 1996. Rent is based on the Company's cost to operate the facility and
the amount of space utilized by MEDIQ. The Company generated $769,000 and
$1,045,000 of revenue from MEDIQ's lease for the year ended September 30, 1995
and 1994, respectively.
Prior to the transfer of the facility to the Company, the Company leased
its portion of the facility for a portion of fiscal 1993 from MEDIQ. For the
year ended September 30, 1993, the Company paid MEDIQ $406,000 under this lease.
Insurance -- The Company obtains its insurance for workers' compensation,
automobile liability, general liability, product liability, property, fidelity,
fiduciary and other coverages through MEDIQ, pursuant to an insurance program
agreement. Insurance expense under such programs was approximately $1,833,000,
$1,688,000, and $1,648,000 for the years ended September 30, 1995, 1994, and
1993, respectively.
Retirement Plan -- Substantially all of the Company's employees are
eligible to be participants in the MEDIQ retirement plan. The plan provides
defined benefits based on years of credited service and level of compensation.
The Company has made annual contributions on their behalf for the years ended
September 30, 1995, 1994 and 1993 in the aggregate amount of $504,000, $516,000
and $291,000, respectively.
Savings Plan -- Certain of the Company's employees participate in the MEDIQ
savings plan. The Company has made annual contributions on their behalf for the
years ended September 30, 1995, 1994 and 1993 in the aggregate amount of
$202,000, $162,000, and $122,000, respectively.
MEDIQ Stock Option Plan -- MEDIQ maintains stock option plans under which
officers and key employees of MEDIQ and its subsidiaries, including the Company,
are eligible to participate. The Stock Option Committee, appointed by MEDIQ's
Board of Directors, determines who shall participate, and the number, exercise
price, and other terms and provisions of the options to be granted. At
B-13
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF PRN HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE J. TRANSACTIONS WITH AFFILIATES -- CONTINUED
September 30, 1995, officers and key employees of the Company held options
exercisable for 691,555 shares of MEDIQ's common stock.
Revenue Sharing Agreement -- On September 30, 1994, in connection with the
acquisition of the KCI assets, the Company entered into a revenue sharing
agreement with PRN-NEW. During fiscal 1995, the Company incurred $30,000,000 of
operating expense under the revenue sharing agreement, which was guaranteed. Had
the provisions of the revenue sharing agreement not guaranteed a minimum, the
Company would have recognized $24,400,000 of operating expenses for the year
ended September 30, 1995 pursuant to the terms of such agreement. Amounts
recognized under the agreement are based upon, among other factors, the rates
charged, the length of the rental, and whether the specific unit owned by
PRN-NEW is rented by the Company. As such, costs recognized by the Company under
the revenue sharing agreement in future years are subject to fluctuation, up or
down, as compared to fiscal 1995, and such fluctuations may be material.
As of September 30, 1995, the Company owed PRN-NEW $4,443,000 pursuant to
the revenue sharing agreement. As of September 30, 1994, the Company made an
advance payment in the amount of $2,490,000 under such agreement.
MEDIQ Mobile X-Ray -- During fiscal 1995, the Company recognized rental
revenue from MEDIQ Mobile X-Ray, Inc., a wholly owned subsidiary of MEDIQ, of
$1,163,000.
NOTE K. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value amounts have been determined by the Company using
available market information and appropriate methodologies. However,
considerable judgment is necessarily required in interpreting market data to
develop the estimates of fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts that the Company could realize in
a current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts. The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
Cash, accounts receivable and accounts payable -- The carrying amounts of
these items are a reasonable estimate of their fair values at September 30,
1995.
Long-term debt (excluding capital leases) -- The fair value of the
Company's traded debt is based upon quoted market prices for that debt. Interest
rates that are currently available to the Company for issuance of debt with
similar terms and remaining maturities are used to estimate fair value for debt
issues for which quoted market prices are not available. The carrying amount and
estimated fair value of long-term and subordinated debt excluding capital leases
as of September 30, 1995 was $101,964,000 and $102,964,000, respectively, and as
of September 30, 1994 was $109,324,000 and $104,324,000, respectively.
The fair value estimates presented herein are based upon pertinent
information available to management as of September 30, 1995, and have not been
comprehensively revalued for purposes of these financial statements since that
date. Current estimates of fair value may differ significantly from the amounts
presented herein.
NOTE L. COMMITMENTS AND CONTINGENCIES
The Company, pursuant to an agreement dated December 6, 1992 has agreed to
purchase from one of its vendors certain rental equipment, subject to
adjustment, and to provide certain rental equipment for remanufacture. In
addition, the Company has agreed to purchase other rental equipment,
B-14
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF PRN HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE L. COMMITMENTS AND CONTINGENCIES -- CONTINUED
remanufacturing services, parts, subassemblies, supplies and accessories through
fiscal 1997. The Company's total commitment under this agreement, valued at
prices in effect as of September 30, 1995 is as follows:
<TABLE>
<CAPTION>
REMANUFACTURING SERVICES
YEAR ENDING RENTAL PARTS, SUBASSEMBLIES,
SEPTEMBER 30, EQUIPMENT SUPPLIES AND ACCESSORIES
- ---------------------------------------------------------------------- ----------- -----------------------------
<S> <C> <C>
1996............................................................. $877,000 $1,311,000 to 1,734,000
1997............................................................. -- 436,000
</TABLE>
The Company has certain pending legal claims incurred in the normal course
of business, which in the opinion of management, will not have a material
adverse effect on the Company.
B-15
<PAGE>
ANNEX C
MEDIQ/PRN LIFE SUPPORT SERVICES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF PRN HOLDINGS, INC.)
CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 1996 AND 1995
C-1
<PAGE>
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
<S> <C>
Condensed Balance Sheets as of June 30, 1996 (Unaudited)
And September 30, 1995............................................................................ C-3
Condensed Statements of Operations -- Three and
Nine months ended June 30, 1996 and 1995 (Unaudited).............................................. C-4
Condensed Statements of Cash Flows -- Nine months
Ended June 30, 1996 and 1995 (Unaudited).......................................................... C-5
Notes to Condensed Financial Statements............................................................. C-6
</TABLE>
C-2
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF PRN HOLDINGS, INC.)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1996 1995
---------------- ----------------
(UNAUDITED) (SEE NOTE A)
<S> <C> <C>
ASSETS
Current assets:
Cash........................................................................ $ 659,000 $ 1,591,000
Accounts receivable -- net.................................................. 31,740,000 26,870,000
Inventories................................................................. 6,163,000 4,178,000
Due from PRN-NEW-revenue share.............................................. 1,052,000 --
Prepaid expenses and other current assets................................... 7,219,000 3,645,000
------------ ------------
Total current assets.......................................................... 46,833,000 36,284,000
Rental equipment -- net....................................................... 74,729,000 83,554,000
Property, plant and equipment -- net.......................................... 9,298,000 9,015,000
Goodwill -- net............................................................... 21,566,000 22,540,000
Other assets.................................................................. 7,970,000 3,330,000
------------ ------------
Total assets.................................................................. $160,396,000 $154,723,000
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Notes payable............................................................... $ 7,900,000 $ --
Accounts payable............................................................ 9,598,000 5,050,000
Accrued payroll and related taxes........................................... 2,445,000 1,917,000
Accrued interest............................................................ 6,125,000 2,857,000
Other accrued expenses...................................................... 4,094,000 6,555,000
Due to PRN-NEW-revenue share................................................ -- 4,443,000
Long-term debt -- current................................................... 2,807,000 4,161,000
------------ ------------
Total current liabilities..................................................... 32,969,000 24,983,000
Long-term debt, less current maturities....................................... 104,501,000 106,603,000
Deferred income taxes......................................................... 11,065,000 10,852,000
Other liabilities............................................................. 1,510,000 1,808,000
Stockholder's equity.......................................................... 10,351,000 10,477,000
------------ ------------
Total liabilities and stockholder's equity.................................... $160,396,000 $154,723,000
============ ============
</TABLE>
C-3
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF PRN HOLDINGS, INC.)
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, NINE MONTHS ENDED JUNE 30,
--------------------------- ----------------------------
1996 1995 1996 1995
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net Revenue................................... $33,624,000 $32,163,000 $101,231,000 $99,215,000
Operating costs and expenses:
Operating................................... 20,802,000 20,475,000 61,180,000 61,780,000
General and administrative.................. 4,285,000 4,280,000 13,137,000 12,975,000
Depreciation and amortization............... 5,450,000 5,538,000 16,082,000 15,758,000
----------- ----------- ------------ -----------
30,537,000 30,293,000 90,399,000 90,513,000
----------- ----------- ------------ -----------
Operating income.............................. 3,087,000 1,870,000 10,832,000 8,702,000
Interest expense.............................. 3,531,000 3,483,000 10,480,000 10,655,000
----------- ----------- ------------ -----------
(Loss) income before
income tax (benefit) expense................ (444,000) (1,613,000) 352,000 (1,953,000)
Income tax (benefit) expense.................. (69,000) (442,000) 478,000 (370,000)
----------- ----------- ------------ -----------
Net loss...................................... $ (375,000) $(1,171,000) $ (126,000) $(1,583,000)
=========== =========== ============ ===========
</TABLE>
C-4
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF PRN HOLDINGS, INC.)
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
Net cash used in operating activities............................................ $ 1,203,000 $ 7,367,000
Cash Flows from Investing Activities:
Purchases of rental and equipment.............................................. (5,766,000) (3,231,000)
Purchases of property and equipment............................................ (1,148,000) (730,000)
Proceeds from sale of equipment................................................ 2,269,000 1,136,000
Other.......................................................................... (1,882,000) 601,000
----------- -----------
Net cash provided by investing activities........................................ (6,527,000) (2,224,000)
Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt....................................... -- 960,000
Principal payments under long-term debt........................................ (3,508,000) (8,820,000)
Net activity of notes payable to bank.......................................... 7,900,000 3,898,000
----------- -----------
Net cash provided by (used in) financing activities.............................. 4,392,000 (3,962,000)
----------- -----------
Net (decrease) increase in cash.................................................. (932,000) 1,181,000
Cash:
Beginning of period............................................................ 1,591,000 192,000
----------- -----------
End of period.................................................................. $ 659,000 $ 1,373,000
=========== ===========
Supplemental Disclosure of Cash Flow Information:
Interest paid.................................................................. $ 7,046,000 $ 7,077,000
=========== ===========
Supplemental Disclosure of non-cash investing and financing activities:
Equipment financed with capital leases......................................... $ -- $ 976,000
=========== ===========
Equipment purchased included in accounts payable............................... $ 914,000 $ 173,000
=========== ===========
</TABLE>
C-5
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF PRN HOLDINGS, INC.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company -- MEDIQ/PRN Life Support Services, Inc. (the 'Company') is a
wholly-owned subsidiary of PRN Holdings, Inc. ('Holdings'). Holdings is a
wholly-owned subsidiary of MEDIQ Incorporated ('MEDIQ'). The Company is the
largest provider of movable critical care and life support medical equipment on
a rental basis to acute care hospitals, home health care companies, nursing
homes and alternate care facilities.
Financial Statements -- The condensed balance sheet as of June 30, 1996 and
the condensed statements of operations for the three and nine months ended June
30, 1996 and 1995, and the condensed statements of cash flows for the nine
months ended June 30, 1996 and 1995, have been prepared by the Company, without
audit. In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations and cash flows for the periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These condensed financial statements should be
read in conjunction with the financial statements for the year ended September
30, 1995 and notes thereto. The results of operations for the three and nine
months ended June 30, 1996 are not necessarily indicative of the operating
results for the full year.
NOTE B. RENTAL EQUIPMENT
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1995 1995
-------------- ------------
<S> <C> <C>
Rental equipment................................................ $159,782,000 $158,954,000
Less: accumulated depreciation and amortization................. 85,053,000 75,400,000
------------ ------------
$ 74,729,000 $ 83,554,000
============ ============
</TABLE>
Depreciation and amortization expense of rental equipment for the nine
months ended June 30, 1996 and 1995 was $14,115,000 and $13,709,000,
respectively.
NOTE C. REVENUE SHARING AGREEMENT
For the nine months ended June 30, 1996 and 1995, the Company incurred
operating expenses of $19,620,000 and $22,500,000, respectively, pursuant to a
revenue sharing agreement dated September 30, 1994 between the Company and
MEDIQ/PRN Life Support Services -- I, Inc. ('PRN-NEW'). PRN-NEW is a wholly
owned subsidiary of Holdings. The revenue sharing agreement provides for the
Company to pay PRN-NEW 55% of the revenues from the rental by the Company of
equipment owned by PRN-NEW with a minimum of $30,000,000 to PRN-NEW for the
period October 1, 1994 to September 30, 1995. As of June 30, 1996 the Company
made an advance payment in the amount of $1,052,000 under the revenue sharing
agreement. As of September 30, 1995, the Company had $4,443,000 due to PRN-NEW
under such agreement.
NOTE D. DEBT REFINANCING
In July 1996, MEDIQ executed a commitment letter with two financial
institutions to refinance substantially all of MEDIQ's, PRN-NEW's and the
Company's senior debt and working capital facilities and Holdings' subordinated
debt. The commitment provides for two term loans aggregating $135 million, a $25
million line of credit, and under certain circumstances, a $100 million
revolving credit facility. The interest rate on these facilities will be based
upon prime or LIBOR, at the Company's discretion, with a spread based upon the
Company's leverage ratio. The interest rate should initially approximate LIBOR
plus 3%. MEDIQ expects to finalize the negotiations on the credit agreement
shortly and consummate the refinancing by September 30, 1996.
C-6
<PAGE>
Facsimile copies of the Consent and Letter of Transmittal, properly
completed and validly executed, will be accepted. Consents and Letters of
Transmittal, certificates for Notes and any other required documents should be
sent or delivered by each holder of Notes or such holder's broker, dealer,
commercial bank or trust company to the Depositary at one of its addresses set
forth below.
The Depositary for the Tender Offer and the Consent Solicitation is:
AMERICAN STOCK TRANSFER & TRUST COMPANY
By Mail: By Facsimile Transmission By Hand/Overnight
Courier:
American Stock (718) 234-5001 American Stock
Transfer & Trust Company Transfer & Trust Company
40 Wall Street 40 Wall Street
New York, NY 10005 New York, NY 10005
Requests for assistance and additional copies of this Offer to Purchase and
Consent Solicitation, and the Consent and Letter of Transmittal should be
directed to the Company's Chief Financial Officer, Michael F. Sandler, at (800)
222-4776. You may also contact your broker, dealer, commercial bank, trust
company or nominee for assistance concerning the Tender Offer and the Consent
Solicitation.
THE DATE OF THIS OFFER TO PURCHASE AND CONSENT SOLICITATION
IS AUGUST 22, 1996
