UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended: September 30, 1997 Commission File Number: 1-8147
MEDIQ Incorporated
(Exact name of registrant as specified in its charter)
Delaware 51-0219413
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One MEDIQ Plaza, Pennsauken, New Jersey 08110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (609) 662-3200
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ------------------- ---------------------
Common Stock, Par Value $1.00 American Stock Exchange
Series A Preferred Stock, Par Value $.50 American Stock Exchange
7.50% Exchangeable Subordinated Debentures due 2003 American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such requirements
for the past 90 days. YES X NO ____
---
The approximate aggregate market value of the voting stock held by
non-affiliates of the registrant as of December 12, 1997 (reference is made to
the final paragraph of Part I herein for a statement of the assumptions upon
which this calculation is based):
Common Stock $ 176,256,000
Series A Preferred Stock $ 24,277,000
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
---
The number of shares outstanding of each of the registrant's classes of stock as
of December 12, 1997:
Class
-----
Common Stock 19,433,126 Shares
Series A Preferred Stock 6,267,698 Shares
Documents Incorporated by Reference
-----------------------------------
Certain portions of the registrant's definitive Proxy Statement for its Annual
Meeting of Stockholders (which is expected to be filed with the Commission not
later than 120 days after the end of the registrant's last fiscal year) are
incorporated by reference into Part III of this report.
Exhibit Index appears on page 44.
<PAGE>
Some of the information presented in this Form 10-K constitutes forward
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Although the Company believes that its expectations are
based on reasonable assumptions within the bounds of its knowledge of its
business and operations, there can be no assurance that actual results will not
differ materially from its expectations. For additional information concerning
important factors which may cause the Company's actual results to differ
materially from expectations and underlying assumptions, please refer to the
reports filed by the Company with the Securities and Exchange Commission.
PART I
ITEM 1. BUSINESS
General
MEDIQ Incorporated ("MEDIQ" or the "Company"), through its wholly-owned
subsidiary, MEDIQ/PRN Life Support Services, Inc. ("MEDIQ/PRN"), operates the
largest movable critical care and life support medical equipment rental business
in the United States. MEDIQ/PRN rents a wide variety of movable medical
equipment and, with its acquisition of the remaining 50% of SpectraCair in
September 1997, directly provides therapeutic support systems to treat, prevent
or manage pressure ulcers. The Company's customers include acute care hospitals,
alternative care facilities, nursing homes, and home health care companies.
MEDIQ/PRN constitutes the Company's principal business, accounting for 98%, 98%
and 97% of consolidated revenues from continuing operations in 1997, 1996 and
1995, respectively. The Company's other operating subsidiary, MEDIQ Management
Services, Inc., provides management and consulting services to health care
providers and management and other administrative services to diagnostic imaging
centers. The Company was incorporated in 1977. Its principal offices are located
at One MEDIQ Plaza, Pennsauken, New Jersey.
During 1997, the Company completed its previously announced strategy of
divesting substantially all operating assets other than MEDIQ/PRN and MEDIQ
Management Services and used the proceeds thereof to reduce indebtedness. In
October 1996, PCI Services, Inc. ("PCI") was acquired by Cardinal Health, Inc.
("Cardinal"). In that transaction, the Company received 1,449,000 shares
(adjusted for stock split) of Cardinal stock in exchange for its 46% ownership
interest in PCI. In January 1997, the Company sold these shares for $88.4
million. In November 1996, the Company sold substantially all of the assets of
MEDIQ Mobile X-Ray Services, Inc. ("Mobile X-Ray") for $5.3 million in cash and
shares of Integrated Health Services, Inc. ("IHS") common stock with an initial
value of $5.2 million with the possibility of the Company receiving additional
cash consideration based upon the occurrence of certain future events. In July
1997, the Company sold the IHS shares at an amount which approximated carrying
value. In fiscal 1997, the Company received approximately $1.1 million in
additional cash consideration relating to the Mobile X-Ray transaction. In
December 1996, the Company disposed of all of its shares of NutraMax Products,
Inc. ("NutraMax") for $36.3 million, or $9.00 per share. In May 1997, the
Company sold the stock of Health Examinetics, Inc. for $1.7 million. In November
1997, the Company sold to InnoServ Technologies ("InnoServ") all of the
2,026,438 shares of InnoServ common stock owned by it, together with a warrant
to acquire additional shares of InnoServ common stock. Under the terms of the
agreement, no cash payment was made by InnoServ. However, the parties agreed to
terminate a non-compete covenant relating to maintenance and repair services. In
addition, in the event of a change of control of InnoServ before September 30,
1998, the Company will be entitled to certain payments from the acquiring party
as if it had continued to own the shares.
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On October 1, 1996, the Company together with its wholly-owned
subsidiary, MEDIQ/PRN entered into a $260 million Credit Agreement with a group
of lenders. The facility comprises a $25 million working capital line of credit,
$135 million in term loans and a $100 million acquisition facility. Initial
drawings on the facility were used to prepay all of the Company's senior debt
(except capital leases) and a portion of its subordinated debt. The facility may
also be used, among other things, to finance the redemption or repurchase of the
Company's other publicly traded debt, or to finance strategic acquisitions. In
November 1997, the Company reduced the acquisition facility to $25 million.
In February 1997, the Company entered into an agreement with Universal
Hospital Services, Inc. ("UHS") to acquire the outstanding shares of UHS for
$17.50 per share. Including the assumption of debt, the total purchase price
would have been $138 million. In April 1997, the shareholders of UHS approved
the acquisition subject to federal regulatory approval pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act. In July 1997, the Company and UHS
were informed by the Federal Trade Commission ("FTC") that it had authorized its
staff to take legal action to block the proposed transaction, and subsequently
the FTC filed a motion for a preliminary injunction to block the transaction. In
September 1997, facing the likelihood of a protracted administrative proceeding
before the FTC, the uncertainty of the outcome and the costs associated with
continuing to defend against the efforts of the FTC to prevent the merger, the
Company and UHS mutually terminated the proposed acquisition.
In September 1997, MEDIQ/PRN acquired the remaining 50% of SpectraCair
for approximately $1.9 million and the assumption of Huntleigh Healthcare's
(MEDIQ/PRN's former joint venture partner) portion of the outstanding debt of
$4.4 million.
The Company intends to continue to expand its core business through
strategic acquisitions, which it would expect to finance, at least in part, by
drawings under its credit facility. However there can be no assurance that any
transactions will occur, or if they occur that they will be successfully
integrated with the Company's existing operations.
In October 1997, the Company's Board of Directors initiated a process
to explore strategic alternatives available to the Company to maximize
shareholder value, including the possible sale of the Company, and has retained
an investment banking firm to assist in the process.
MEDIQ/PRN Life Support Services, Inc.
MEDIQ/PRN provides essential cost-effective services to its customers.
In order to maximize operating efficiency, health care providers often choose to
rent movable medical equipment rather than incur the capital costs required to
finance equipment purchases and the on-going expenses required for maintenance
and repair. In addition, renting patient-ready equipment provides a vital
adjunct that permits health care providers to meet periods of increased patient
census without the need for investing capital in stand-by equipment. MEDIQ/PRN
meets these needs by renting a wide variety of equipment to health care
providers across the continuum of care. As of September 30, 1997, MEDIQ/PRN had
available for rent over 650 different types of medical equipment, including
adult and infant ventilators, adult, infant, neonatal and fetal monitors,
infusion and suction pumps, incubators, infant warmers, pulse oximeters,
sequential compression devices, oxygen concentrators, therapeutic support
systems and other movable critical care equipment for use in respiratory care,
intensive care, labor and delivery, pediatric, neonatal intensive care and other
departments of acute care general hospitals and for use in alternative care
facilities, nursing homes, and by home health care providers. MEDIQ/PRN's
customers rent equipment, which is delivered in most cases within two hours of a
request, 24 hours a day, 365 days a year through 86 locations in major cities
nationwide. MEDIQ/PRN offers its customers a wide selection of rental programs
including (i) daily, weekly or monthly rentals with fixed rate terms, (ii)
longer-term rentals with pricing related to the length of the rental term, and
(iii) "usage" rentals on a per use, per hour or per day basis. In fiscal 1997,
the Company entered into several revenue-share arrangements with original
equipment manufacturers ("OEM") whereby the Company rents moveable medical
equipment and sells disposable products owned by the OEM to the Company's
customers. Under such
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arrangements, the Company bills the customer and pays the OEM a fee based upon a
percentage of the amount billed. Revenue-share arrangements have allowed the
Company to generate revenue without any additional capital investment. The
Company bears the risk of loss relating to the equipment and collection of
revenue. Rental revenues accounted for 80%, 84%, and 89% of consolidated
revenues in 1997, 1996 and 1995, respectively.
MEDIQ/PRN also distributes a variety of disposable products,
accessories, and repair parts used with the types of equipment it rents.
MEDIQ/PRN provides one-stop shopping for supplies from all the leading
manufacturers, and is the exclusive distributor of accessories and supplies
manufactured by Siemens Medical Systems, Inc. for respiratory care,
catherization lab and monitoring systems. Sales of disposable products accounted
for 13%, 9% and 5% of consolidated revenues in 1997, 1996 and 1995,
respectively.
MEDIQ/PRN offers its Comprehensive Asset Management Program (CAMP(R)),
which analyzes a customer's total critical care equipment activity from all
sources for the previous year. CAMP(R) includes a variety of logistics and
outsourcing services for movable medical equipment assets including equipment,
personnel, maintenance, documentation and tracking. MEDIQ/PRN also has programs
where it acquires all or some of the customer's equipment and rents the
equipment back to the customer, eliminating the customer's burdens of ownership,
under utilization and seasonal usage. MEDIQ/PRN's customers can benefit from the
use of CAMP(R) through the reduction of biomedical and other hospital staff,
lower equipment maintenance expenses and the elimination or reduction of capital
expenditures for equipment. MEDIQ/PRN also offers its CAMP(R) Plus logistics
program that provides similar management services for multi-site health care
networks to manage, service and transport movable patient care equipment. A
proprietary bar-code based asset management system provides customers optimum
utilization of owned equipment. The system provides information used to track
equipment, capture lost patient charges, control inventory and equipment
migration, reduce the need for supplemental rentals and manage overall capital
planning.
Other services offered by MEDIQ/PRN include:
o A logistics and distribution service to equipment manufacturers to reduce
their transportation costs through utilization of MEDIQ/PRN's national
branch office network.
o A medical gas administrative management service to health care providers to
centralize the purchasing function for bulk liquid oxygen, portable and
semi-portable oxygen containers, and high pressure gas cylinders for a
variety of medical gas products. This program offers competitive pricing
and price standardization for many locations, elimination of multiple local
vendor contracts, reduction in the time it takes to process supplier
invoices and improved purchasing efficiencies with a single-source
contract.
o Annual/major/electrical safety inspections, preventive maintenance and
repairs for most brands and models of critical care equipment through a
nationwide team of over 170 trained, experienced biomedical technicians.
Service and repairs can be performed on-site, or pick up and delivery is
available for servicing at any of MEDIQ/PRN's branch locations or two major
service centers.
o A complete remarketing program of every major equipment category. Health
care facilities can acquire pre-owned critical care equipment substantially
below the cost of purchasing new units.
o Complete programs for ventilator reconditioning including replacement of
parts, calibration, operational verification and cosmetics.
No single customer accounted for more than 10% of MEDIQ/PRN's revenues
during 1997, 1996 or 1995.
4
<PAGE>
Seasonality
MEDIQ/PRN's business is seasonal, with demand historically peaking
during periods of increased hospital census, which generally occurs in the
winter months during the Company's second fiscal quarter.
Quality Assurance
Quality control/quality assurance and risk management procedures are
conducted for all of MEDIQ/PRN's medical equipment by trained biomedical
technicians to ensure compliance with safety, testing and performance standards
at all branch offices. All equipment is serviced and tested prior to delivery to
customers in accordance with MEDIQ/PRN's Safety and Performance Inspection
("SPI") Program, which is primarily derived from the Emergency Care Research
Institute's ("ECRI's") programs. Most types of medical equipment rented by
MEDIQ/PRN require routine servicing at scheduled intervals based upon hours of
usage or passage of time, including complete testing and inspection of all
components that may need to be replaced or refurbished. Routine servicing is
conducted by MEDIQ/PRN's trained personnel at all of its branch locations. Major
repairs are performed by its biomedical equipment technicians at MEDIQ/PRN's
Pennsauken, New Jersey or Santa Fe Springs, California maintenance facilities.
Suppliers
MEDIQ/PRN acquires substantially all of its medical equipment, repair
parts, accessories or disposable products from approximately 100 suppliers.
MEDIQ/PRN has entered into long-term agreements with three vendors to purchase
approximately $31 million of certain products over the next two fiscal years.
MEDIQ/PRN is not dependent upon any single supplier and believes that
alternative purchasing sources of medical equipment are available to MEDIQ/PRN
should they be needed.
Competition
The movable medical equipment rental industry is highly competitive,
and MEDIQ/PRN encounters competition in all locations in which it operates.
MEDIQ/PRN's competitors include (i) national, regional and local medical
equipment rental and leasing companies and medical equipment distributors which
rent medical equipment to health care providers; (ii) medical equipment
manufacturers which sell medical equipment directly to health care providers;
and (iii) general leasing and financing companies and financial institutions,
such as banks, which finance the acquisition of medical equipment by health care
providers. MEDIQ/PRN believes that key factors influencing the decision
regarding the selection of a medical equipment rental vendor include
availability and quality of medical equipment, service and price.
Discontinued Operations
In November 1997, the Company sold to InnoServ all of the 2,026,438
shares of InnoServ common stock owned by it, together with a warrant to acquire
additional shares of InnoServ common stock. Under the terms of the agreement, no
cash payment was made by InnoServ. However, the parties agreed to terminate a
non-compete covenant relating to maintenance and repair services. In addition,
in the event of a change of control of InnoServ before September 30, 1998, the
Company will be entitled to certain payments from the acquiring party as if it
had continued to own the shares. At this time, the Company cannot determine
whether a change of control of InnoServ will occur and if a transaction would
occur, the amount of consideration it would receive. The Company had acquired
the InnoServ shares and warrant in connection with its 1994 sale of MEDIQ
Equipment and Maintenance Services, Inc.
In May 1997, the Company sold the stock of Health Examinetics to its
management for cash and an interest bearing note aggregating $1.7 million.
5
<PAGE>
On December 31, 1996, the Company sold to NutraMax all of the 4,037,258
shares of NutraMax common stock owned by the Company at a price of $9.00 per
share. Under the terms of the agreement, the Company received from NutraMax
$19.9 million in cash and an interest-bearing promissory note in the amount of
$16.4 million. The note is payable when NutraMax shares owned by the Company,
which currently are held in escrow in support of the Company's 7.50%
Exchangeable Subordinated Debentures, are released from that escrow. The
NutraMax shares are to be released from escrow upon the purchase or redemption
of the 7.50% debentures. The note does not bear a market rate of interest for
its full term. Accordingly, the Company discounted the note to $13.6 million.
The cash proceeds from this transaction were used to reduce debt.
In November 1996, the Company sold substantially all of the assets of
Mobile X-Ray to Symphony Diagnostics, Inc., a subsidiary of IHS, for $5.3
million in cash and shares of IHS common stock with a value of $5.2 million at
the closing with the possibility of the Company receiving additional cash
consideration based upon the occurrence of certain future events. In July 1997,
the Company sold the IHS shares at an amount which approximated its carrying
value. Also, in fiscal 1997 the Company received approximately $1.1 million in
additional cash consideration.
On October 11, 1996, PCI was acquired by Cardinal. In that transaction,
the Company received 1,449,000 shares (adjusted for a stock split) of Cardinal
stock in exchange for its 46% ownership interest in PCI. The Company sold its
Cardinal shares in January 1997 for $88.4 million and used the proceeds to
reduce debt.
In September 1996, the Company sold its ownership interest in
HealthQuest for cash of $75,000 which approximated its carrying value.
In August 1995, the Company sold the assets of MEDIQ Imaging to NMC
Diagnostic Services, Inc., a division of W. R. Grace and Co. for approximately
$17 million in cash and the assumption of $9.7 million of debt.
In June 1995, the Company sold Medifac and certain related assets to
the management of Medifac for approximately $11 million in cash and notes, and
the assumption of $26.9 million of non-recourse debt.
Financial Information about Industry Segments
The Company operates primarily in one business segment. The Company,
through MEDIQ/PRN, rents movable medical equipment on a short-term basis
nationwide and distributes a variety of disposable products, accessories and
repair parts used with the types of equipment it rents. In fiscal 1997, this
segment represented more than 90% of the Company's consolidated revenues,
operating profits and assets.
Government Regulations
The Company's businesses are subject to Federal, state and local
regulations relating to the operation of such businesses. The Company is unable
to predict whether, or to what extent, new legislation or regulations affecting
its businesses will be enacted and, if enacted, what impact they will have on
the Company. In addition, government reimbursement of medical expenses are, to
an increasing extent, made at fixed rates unrelated to actual costs.
Consequently, hospitals and other health care providers are expected to continue
to emphasize cost-containment and cost-efficiency measures, which the Company
believes will increase the demand for its products and services.
Compliance with FDA Regulations - The FDA regulates companies which
manufacture, prepare, propagate, compound or process medical devices. Device
manufacturers must comply with registration and labeling regulations, submit
premarket notifications or obtain premarketing approvals, comply with medical
device reporting, tracking and post-market surveillance regulations and with
device good manufacturing practices ("GMPs"), and are subject to FDA inspection.
The GMP regulations specify the minimum standards for the manufacture, packing,
storage, and installation of medical devices, and
6
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impose certain record keeping requirements. The FDA currently does not regulate
MEDIQ/PRN or organizations which provide similar services as MEDIQ/PRN as device
manufacturers. However, any company which services, repairs or reconditions
medical devices could be subject to regulatory action by the FDA if its
activities cause the devices to become adulterated or mislabeled. In addition,
no assurance can be given that in the future the FDA will not regulate as device
manufacturers companies such as MEDIQ/PRN, which acquire ownership of devices,
recondition or rebuild such devices and rent them to customers or which service,
repair or recondition devices owned by others. The Company is unable to predict
the cost of compliance if any such regulations were to be adopted. MEDIQ/PRN is
required to comply with certain other device tracking and reporting regulations
administered by the FDA.
See also "Legal Proceedings" herein for certain additional information.
Employees
As of December 1, 1997, the Company and its wholly-owned subsidiaries
had 927 employees. The Company believes relations with employees are
satisfactory.
ITEM 2. PROPERTIES
The Company's principal facility is located in Pennsauken, New Jersey,
where the Company's corporate offices and a portion of its operating activities
are located, including MEDIQ/PRN's corporate offices. The Company and its
wholly-owned subsidiaries also lease office and warehouse space in approximately
80 locations throughout the United States for local and regional operations. The
properties owned and leased by the Company and its wholly-owned subsidiaries are
believed to be adequate for the Company's operations.
ITEM 3. LEGAL PROCEEDINGS
MEDIQ Imaging, the assets of which were sold by the Company in August
1995, was the subject of a civil investigation by the United States Attorney's
Office for the District of New Jersey and the Department of Health and Human
Services. The investigation focused on advice given by certain MEDIQ Imaging
employees to physician customers of MEDIQ Imaging relating to the reassignment
of certain Medicare claims. The Company and MEDIQ Imaging voluntarily reported
the issue to the U.S. Government in January 1995 after learning that the advice
given by the employees may have been inconsistent with the regulations relating
to reassignment. The Company and MEDIQ Imaging cooperated in the investigation
and denied any wrongdoing. In December 1997, desiring to avoid the delay,
expense, and uncertainty of protracted litigation, the Company reached a
settlement with the U.S. Government for $4.2 million. The settlement represents
the repayment of alleged excess Medicare reimbursements.
In February 1997, the Company was sued in the Superior Court of New
Jersey by its former wholly-owned subsidiary, MHM Services, Inc. ("MHM";
formerly Mental Health Management, Inc.). The suit challenged the validity of a
note receivable the Company and MHM entered into upon the spin-off of MHM to
MEDIQ's shareholders in August 1993. In addition, beginning in February 1997,
MHM stopped making the required monthly installments on the note, and therefore,
the Company gave notice to MHM of its default on the note and declared all sums
outstanding under the note to be immediately due and payable. In September 1997,
as a result of continued deterioration in MHM's financial condition, the Company
recorded a reserve for the remaining balance of the note receivable, which had
been partially reserved in 1996, and accrued interest on the note receivable. In
October 1997, the Company filed a motion for summary judgment against MHM. In
November 1997, the Court granted summary judgment in favor of the Company and
against MHM on all counts. Specifically, the Court ruled that the note
receivable was valid and enforceable. The Court also rejected MHM's request for
a stay pending appeal. MHM has filed a Motion for Reconsideration which is
currently pending.
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Mobile X-Ray, the assets of which the Company sold in November 1996,
was the subject of an investigation by the Wage and Hour Division of the United
States Department of Labor (the "DOL"). The DOL had indicated that it believed
that the practice of treating technologists as exempt professionals was
incorrect. The Company maintained that the practice of treating x-ray
technologists as exempt was correct and proper. In May 1997, the Company reached
a settlement with the DOL which required the Company to pay certain Mobile X-Ray
employees back wages aggregating $213,000 including legal fees. The back wages
were paid in September 1997.
On June 12, 1996, the Company, ATS Medical Services, Inc. ("ATS") and
Mobile X-Ray were sued in the United States District Court for the Middle
District of Pennsylvania by Gerard and Sharon Callie, who are both former
employees of ATS. The lawsuit alleges that the Callies were wrongfully
terminated and asserts claims pursuant to the whistleblower provisions of the
False Claims Act and the Pennsylvania Wage Payment and Collection Law. The
plaintiffs made a demand for damages totaling nearly $800,000. The Company
believes it has no liability and intends to vigorously defend this case. Trial
has been scheduled for February 1998.
In addition, the Company has pending several legal claims incurred in
the normal course of business, which in the opinion of management, will not have
material effect on the consolidated financial statements. See Note J to the
Company's Consolidated Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
quarter ended September 30, 1997.
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Section 16(a) Beneficial Ownership Reporting Compliance
It has recently come to the attention of the Company that the
conversion of the Company's 7.25% Convertible Debentures Due 2006 beneficially
owned by Michael J. Rotko, Chairman of the Board of Directors, in February 1997
was not reported to the Securities and Exchange Commission in a monthly
Statement of Changes in Beneficial Ownership, as required under Section 16(a) of
the Securities Exchange Act of 1934, as amended. Mr Rotko's debentures were
automatically converted into Common Stock upon the expiration of the Company's
offer to repurchase all such debentures outstanding on February 21, 1997. This
information is currently being filed with the Securities and Exchange
Commission.
For the purposes of calculating the aggregate market value of the
shares of common stock of the Company held by nonaffiliates, as shown on the
cover page of this report, it has been assumed that all the outstanding shares
were held by nonaffiliates except for the shares beneficially owned by directors
and executive officers of the Company. However, this should not be deemed to
constitute an admission that all directors and executive officers of the Company
are, in fact, affiliates of the Company, or that there are not other persons who
may be deemed to be affiliates of the Company. Further information concerning
shareholdings of officers, directors and principal shareholders is included in
the Company's definitive proxy statement filed or to be filed with the
Securities and Exchange Commission.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock and its Series A Preferred Stock, which is
convertible into Common Stock, are listed on the American Stock Exchange. The
following table sets forth the high and low sales prices for the Company's
Common and Preferred Stocks on the American Stock Exchange for the past two
fiscal years.
<TABLE>
<CAPTION>
Common Stock Preferred Stock
---------------------- ----------------------
Fiscal year ended September 30, High Low High Low
- ------------------------------- ------ ------ ------ ------
1997:
<S> <C> <C> <C> <C>
First Quarter $6.375 $5.688 $6.000 $5.500
Second Quarter 8.188 6.063 7.750 5.750
Third Quarter 8.813 7.000 8.625 7.375
Fourth Quarter 8.750 7.125 8.500 7.500
1996:
First Quarter $ 5.500 $ 3.938 $ 4.500 $ 4.125
Second Quarter 5.438 3.938 5.000 4.000
Third Quarter 6.563 4.813 6.125 4.875
Fourth Quarter 6.063 5.125 5.625 5.500
</TABLE>
As of December 1, 1997, there were approximately 1,500 holders of
record of the Company's Common Stock and approximately 300 holders of record of
the Company's Preferred Stock. Since a portion of the Company's Common Stock and
Preferred Stock is held in "street" or nominee name, the Company is unable to
determine the exact number of beneficial holders. On December 12, 1997, as
reported by the American Stock Exchange, the closing price per share of Common
Stock was $11.625, and the closing price per share of Series A Preferred Stock
was $11.50.
The Company did not pay any dividends in fiscal 1997 or 1996. The
Company does not intend to pay any dividends in the foreseeable future.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below has been
derived from the audited financial statements of the Company. This data is
qualified in its entirety by reference to, and should be read in conjunction
with the Company's Consolidated Financial Statements and Management's Discussion
and Analysis of Financial Condition and Results of Operations included elsewhere
herein.
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------------------------------------------
1997 1996 1995(2) 1994 1993
-------- --------- --------- -------- ------
(in thousands, except per share data)
Summary Statement of Operations Data:
<S> <C> <C> <C> <C> <C>
Revenues $155,960 $136,066 $132,241 $ 81,498 $ 89,994
Operating income 29,504 25,446 24,202 1,354 8,614
Interest expense (19,107) (27,307) (29,241) (21,335) (21,043)
Other (1) (7,504) (4,695) 1,381 7,381 1,918
Income (Loss) from continuing operations
before income tax expense (benefit) 2,893 (6,556) (3,658) (12,600) (10,511)
Loss from continuing operations (2,241) (6,178) (3,346) (8,254) (5,145)
Per Share Data:
Loss from continuing operations $ (.09) $ (.25) $ (.14) $ (.34) $ (.21)
Cash dividends per common share $ -- $ -- $ -- $ .09 $ .12
Cash dividends per preferred share $ -- $ -- $ -- $ .05 $ .07
Weighted average shares outstanding 25,960 24,967 24,604 24,405 24,366
</TABLE>
<TABLE>
<CAPTION>
September 30,
-------------------------------------------------------------------------------
1997 1996 1995 1994 (2) 1993
-------- -------- --------- --------- --------
(in thousands)
Summary Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
Current assets $ 69,751 $ 45,103 $ 44,436 $ 35,041 $ 42,500
Investments in discontinued operations -- 64,967 70,162 99,911 98,095
Property, plant and equipment 113,589 122,706 132,823 149,051 117,748
Total assets 257,552 308,423 334,169 377,795 308,827
Current liabilities 40,019 45,614 64,685 59,610 47,001
Senior debt, net of current portion 128,131 192,461 136,949 162,436 115,604
Subordinated debt, net of current portion 10,055 41,229 81,907 103,388 86,229
Stockholders' equity 48,603 17,445 31,517 36,280 44,574
</TABLE>
See Notes to Selected Consolidated Financial Data
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Notes to Selected Consolidated Financial Data
(1) Fiscal 1997 includes an equity participation charge related to the
repurchase of MEDIQ/PRN warrants of $11 million, a gain on the sale of
Cardinal stock of $9.2 million, a reserve on amounts due from MHM
Services, Inc. ("MHM") of $5.5 million, the write-off of UHS deferred
acquisition costs of $4 million, a gain on the NutraMax note receivable
of $1.8 million, and interest income of $2.1 million.
Fiscal 1996 includes a $6 million reserve on the note receivable from
MHM, interest income of $1.5 million and a net gain on the sale of
assets of $.6 million.
Fiscal 1995 includes $1.5 million of interest income partially offset
by a $.4 million net loss on the sale of assets.
Fiscal 1994 includes a net gain on the sale of assets of $5.8 million
and interest income of $1.4 million.
Fiscal 1993 includes interest income of $1.1 million partially offset
by a $.3 million net loss on the sale of assets.
(2) On September 30, 1994, MEDIQ/PRN acquired the critical care and life
support rental equipment inventory of Kinetic Concepts, Inc. ("KCI").
The purchase price, which was primarily financed with long-term debt,
approximated $88 million, including transaction costs and the assumption
of certain capital lease obligations.
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
During 1997 the Company completed its previously announced strategy of
divesting substantially all operating assets other than MEDIQ/PRN and MEDIQ
Management Services and used the proceeds thereof to reduce indebtedness.
In October 1996, PCI Services, Inc. ("PCI") was acquired by Cardinal
Health, Inc. ("Cardinal"). In that transaction, the Company received 1,449,000
shares (adjusted for stock split) of Cardinal stock in exchange for its 46%
ownership interest in PCI. In January 1997, the Company sold these shares for
$88.4 million. In November 1996, the Company sold substantially all of the
assets of MEDIQ Mobile X-Ray Services, Inc. ("Mobile X-Ray") for $5.3 million in
cash and shares of Integrated Health Services, Inc. ("IHS") common stock with an
initial value of $5.2 million with the possibility of the Company receiving
additional cash consideration based upon the occurrence of certain future
events. In July 1997, the Company sold the IHS shares at an amount which
approximated carrying value. In fiscal 1997, the Company received approximately
$1.1 million in additional cash consideration relating to the Mobile X-Ray
transaction. In December 1996, the Company sold all of its shares of NutraMax
Products, Inc. ("NutraMax") for $36.3 million, or $9.00 per share. In May 1997,
the Company sold the stock of Health Examinetics, Inc. for $1.7 million.
In February 1997, the Company entered into an agreement with Universal
Hospital Services, Inc. ("UHS") to acquire the outstanding shares of UHS for
$17.50 per share. Including the assumption of debt, the total purchase price was
$138 million. In April 1997, the shareholders of UHS approved the acquisition
subject to approval pursuant to the Hart-Scott-Rodino Antitrust Improvements Act
("Hart-Scott-Rodino Act"). In July 1997, the Company and UHS were informed by
the Federal Trade Commission ("FTC") that it had authorized its staff to take
legal action to block the proposed transaction, and subsequently the FTC filed a
motion for a preliminary injunction to block the transaction. In September 1997,
facing the likelihood of a protracted administrative proceeding before the FTC,
the uncertainty of the outcome and the costs associated with continuing to
defend against the efforts of the FTC to prevent the merger, the Company and UHS
mutually terminated the proposed acquisition. The Company wrote-off $4 million
($2.4 million net of taxes, or $.09 per share) of deferred acquisition and
financing costs related to the proposed acquisition.
In September 1997, MEDIQ/PRN acquired the remaining 50% of SpectraCair
for approximately $1.9 million and the assumption of Huntleigh Healthcare's
(MEDIQ/PRN's former joint venture partner) portion of the outstanding debt of
$4.4 million.
The Company intends to continue to seek to expand its core business
through other strategic acquisitions. However, there can be no assurances that
the Company will be successful in identifying suitable acquisition candidates,
consummating any transactions or, if it completes any acquisition transaction,
in successfully integrating the operations of any acquired entity.
The health care industry continues to receive significant public
attention over alleged misconduct and abuses, and there have been renewed calls
for increased government regulation or oversight into various aspects of the
industry. There can be no assurance that new or more stringent government
regulations will not be adopted, or if such regulations are adopted, that they
may not adversely affect the Company.
12
<PAGE>
Results of Operations
Fiscal Year 1997 Compared with Fiscal Year 1996
Revenues from continuing operations were $156 million as compared to
$136.1 million in the prior year, an increase of $19.9 million, or 15%. The
revenue growth was attributable to a 9% increase in rental revenue, a 70%
increase in sales, and a 16% increase in other revenue. The growth in rental
revenue was primarily attributable to new revenue-share arrangements, a
sustained flu season, increased volume and the acquisition of SpectraCair. The
increase in sales was derived primarily from a significant distribution contract
which was in place during all of 1997 as compared to five months in the
comparable prior year as well as increases in sales of disposable products as a
result of additional volume attributable to an expanded customer base, a wider
variety of product offerings, a new revenue share arrangement and the expansion
of the distribution agreement to include additional product lines. The increase
in other revenue was achieved principally through outsourcing services as a
result of an expanded customer base. The Company expects to continue to
emphasize the sale of disposable products related to the types of equipment it
rents, as well as the nonrental services it has introduced, and would anticipate
that, if this strategy is successful, these activities would significantly
contribute to the Company's revenue growth.
The Company markets its products and services to a variety of
health care and related businesses, primarily hospitals, nursing homes and home
health care companies. In recent years, these industries have undergone dramatic
consolidation and change. Although the Company is seeking to emphasize its
ability to provide services to these health care institutions in response to a
perception that such institutions are "outsourcing" increasing amounts of their
operations, there can be no assurance that this strategy will be successful.
Operating income increased $1.9 million or 7% to $29.5 million, as
compared to $27.6 million, exclusive of a $2.2 million restructuring charge, in
the prior year. The restructuring charge was incurred in connection with the
downsizing of corporate functions and consolidation of certain activities with
the operations of MEDIQ/PRN. The improvement in operating income was
attributable to the growth in revenue-share and sales activities and reductions
in corporate overhead of $.9 million related to the downsizing of corporate
functions. This improvement was partially offset by an additional investment in
people and information systems to facilitate the accelerated growth of sales of
disposable products and revenues from outsourcing activities, higher variable
costs associated with the sustained flu season and increased volume. Operating
margins remained consistent with the prior year as a result of the Company's
growth in revenue-sharing activities and sales of disposable products which
provide a lower gross margin than the traditional rental of equipment but do not
require any capital investment.
Interest expense decreased 30% to $19.1 million from $27.3 million in
1996 primarily as a result of substantial reductions of debt with the proceeds
from the sales of discontinued operations and lower interest rates associated
with the refinancing that occurred on October 1, 1996.
In October 1996, the Company incurred a non-recurring charge of $11
million for the repurchase of warrants to purchase 10% of the capital stock of
MEDIQ/PRN issued in connection with financing the Kinetic Concepts, Inc.
acquisition in 1994.
In September 1997, the Company recorded additional reserves of $5.5
million on amounts due from MHM Services, Inc. ("MHM", formerly a wholly-owned
subsidiary of the Company which was spun-off to shareholders in August 1993) as
a result of its assessment of the net realizable value of these amounts in light
of continued deterioration in MHM's financial condition. See "Item 3 - Legal
Proceedings". The Company also wrote-off $4 million of deferred acquisition and
financing costs associated with its proposed acquisition of UHS. These charges
are reflected in Other Expense-net in the Company's Consolidated Statement of
Operations.
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<PAGE>
The Company's effective tax rate was disproportionate compared to the
statutory rate as a result of the non-deductibility of the expense associated
with the repurchase of the MEDIQ/PRN warrants, goodwill amortization and
non-recognition of certain operating losses and non-operating gains for state
income tax purposes.
In November 1997, the Company sold to InnoServ Technologies
("InnoServ") all of the 2,026,438 shares of InnoServ common stock owned by it,
together with a warrant to acquire additional shares of InnoServ common stock.
Under the terms of the agreement, no cash payment was made by InnoServ. However,
the parties agreed to terminate a non-compete covenant relating to maintenance
and repair services. In addition, in the event of a change of control of
InnoServ before September 30, 1998, the Company will be entitled to certain
payments from the acquiring party as if it had continued to own the shares. At
this time, the Company cannot determine whether a change of control of InnoServ
will occur and if a transaction would occur, the amount of consideration it
would receive. Accordingly, the Company has recorded a reserve of $5 million
before taxes ($1.3 million after taxes) as a component of Income from
Discontinued Operations in the Company's Consolidated Statement of Operations.
On May 7, 1997, the Company sold the stock of Health Examinetics, Inc.
to the management of Health Examinetics for approximately $1.7 million,
consisting of $.1 million in cash and an interest-bearing promissory note in the
amount of $1.6 million. The promissory note bears interest at 7% per annum and
matures in April 2003. Interest only is due on the promissory note for the first
eighteen months. Quarterly principal and interest payments commence on January
1, 1999. The sale resulted in an after-tax charge of $1 million, or $.04 per
share in addition to the estimated net loss on the disposal recorded in fiscal
1996. The charge is reflected as a component of Income from Discontinued
Operations in the Company's Consolidated Statement of Operations.
On December 31, 1996, the Company sold to NutraMax, all of the
4,037,258 shares of NutraMax common stock owned by the Company at a price of
$9.00 per share. The Company received from NutraMax $19.9 million in cash and an
interest-bearing promissory note (the "note") in the amount of $16.4 million.
The note matures in July 2003 and bears interest at 7.5% per annum for the first
eighteen months with decreasing interest rates over the remaining term. The note
is payable when NutraMax shares owned by the Company, which are held in escrow
in support of the Company's 7.50% Exchangeable Subordinated Debentures ("7.50%
debentures") are delivered to NutraMax upon release from escrow. The NutraMax
shares are to be released from escrow upon the purchase or redemption of the
7.50% debentures. In the event the 7.50% debentures are exchanged into shares of
NutraMax, the note receivable will be reduced on a pro rata basis. The note does
not bear a market rate of interest for its full term. Accordingly, the Company
discounted the note to $13.6 million. The Company recognized an after-tax gain
of $4.8 million, or $.18 per share on the sale of the NutraMax stock which is
included in Discontinued Operations in the Company's Consolidated Statement of
Operations. From January through September 1997, the Company repurchased $17.8
million of the 7.50% debentures in the open market which resulted in the release
of 1,161,961 shares of NutraMax common stock from escrow. The shares were
delivered to NutraMax resulting in cash payments on the note of $10.5 million
and the realization of a $1.8 million pretax gain as a result of the recognition
of a portion of the discount on the note. This gain is reflected in Other
Expense-net in the Company's Consolidated Statement of Operations. At September
30, 1997, the balance of the note was $4.8 million, net of a discount of $1.1
million. The Company used the cash proceeds received from these transactions to
reduce debt.
On November 6, 1996, the Company sold substantially all of the assets
of Mobile X-Ray to Symphony Diagnostics, Inc., a subsidiary of Integrated Health
Services, Inc. ("IHS"), for $5.3 million in cash and shares of IHS common stock
with a value of $5.2 million. In 1997, the Company received additional proceeds
of $1.1 million, with the possibility of the Company receiving additional cash
consideration based upon the occurrence of certain future events. The loss on
the disposal of these assets was recorded in fiscal 1996. In July 1997, the
Company sold the IHS shares at an amount which approximated carrying value. The
proceeds from these transactions were used to reduce debt.
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<PAGE>
On October 11, 1996, PCI was acquired by Cardinal. In that transaction,
the Company received 1,449,000 shares (adjusted for stock split) of Cardinal
stock in exchange for its 46% ownership interest in PCI. The Company recognized
an after-tax gain of $32.6 million on this transaction as a component of Income
from Discontinued Operations in the Company's Consolidated Statement of
Operations. The Company sold its Cardinal shares in January 1997 for $88.4
million and used the proceeds to reduce debt.
Revenues and operating income from discontinued operations (excluding
equity investees) in 1997 were $6.6 million and $.2 million, respectively, as
compared to revenues and operating income of $36.8 million and $4.3 million,
respectively, in the prior year.
As a result of the refinancing and the repurchases of the Company's
7.25% Convertible Subordinated Debentures ("7.25% debentures") and 7.50%
debentures, the Company recognized an extraordinary charge of $13.4 million
($8.0 million, net of taxes) resulting primarily from premiums incurred related
principally to the tender offer to purchase the $100 million 11 1/8% Senior
Secured Notes due 1999 and the write-off of related deferred charges.
Fiscal Year 1996 Compared with Fiscal Year 1995
Revenues from continuing operations were $136.1 million, as compared to
$132.2 million in the prior year, an increase of $3.9 million, or 3%. The
revenue growth was attributable to a 66% increase in sales and a 24% increase in
other revenue, partially offset by a 2% decrease in rental revenue. The growth
in sales and other revenue was partially offset by lower equipment rentals as a
result of the absence in fiscal 1996 of a sustained flu season, the non-renewal
of a number of long-term rental contracts as a result of customer purchases and
a trend in the marketplace of better utilization of equipment by customers
partially offset by an increase in the number of rental customers.
Operating income from continuing operations was $25.4 million, as
compared to $24.2 million in 1995, an increase of $1.2 million, or 5%. The
improvement in operating income was attributable to reductions in corporate
overhead of $4.1 million, as compared to fiscal 1995, as a result of
non-recurring expenses in fiscal 1995 associated with the activities of the
Special Committee of the Board of Directors and the reduction in corporate
personnel in connection with the corporate restructuring plan adopted in the
first quarter of fiscal 1996. This reduction was partially offset by a
restructuring charge of $2.2 million for employee severance costs incurred in
connection with a plan approved by the Board of Directors to downsize corporate
functions and consolidate certain activities with the operations of MEDIQ/PRN.
Interest expense decreased 7%, to $27.3 million, from $29.2 million in
1995. The decrease was primarily attributable to a net reduction in indebtedness
and was partially offset by an increase in the interest rate of MEDIQ/PRN's $100
million Senior Secured Notes from 11 1/8% to 12 1/8% effective October 1, 1995.
Interest income of $1.5 million was consistent with the prior year and
was primarily derived from the Company's note receivable from MHM.
Other charges and credits for 1996 included the establishment of a
reserve on the note receivable from MHM of $6 million as a result of the
Company's analysis of the financial condition of MHM and a charge of $.6 million
related to the excess of the purchase price over the carrying value of a warrant
issued by MEDIQ/PRN in 1992 to a lender in connection with the financing of an
acquisition in 1992. The purchase price of the warrant was $1.6 million. These
charges were partially offset by gains on the sales of operating assets of $.6
million. Fiscal 1995 included a loss of $1.1 million from the sale of the
Company's equity interest in New West Eyeworks, Inc. in April 1995 for $3.0
million, and income of $.6 million representing a portion of the contingent
proceeds earned in 1995 from the prior year sale of the Company's interest in a
kidney stone treatment center.
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<PAGE>
The pretax loss from continuing operations before extraordinary item
was $6.6 million for 1996, as compared to a pretax loss of $3.7 million in the
prior year. The increase in pretax loss was attributable to the reserve on the
note receivable from MHM, the restructuring charge and the charge related to the
repurchase of the MEDIQ/PRN warrant partially offset by net reductions in
interest expense and corporate overhead. The pretax loss in 1995 included
non-recurring expenses of $1.7 million related to the strategic activities of
the Board of Directors and a loss of $1.1 million on the sale of the Company's
equity interest in New West Eyeworks.
The income tax benefit related to continuing operations was $.4
million, as compared to a benefit of $.3 million in the prior year. The
Company's effective tax rates were disproportionate compared to the statutory
rates as a result of goodwill amortization and the non-recognition for state
income tax purposes of certain operating losses.
Revenues from discontinued operations (excluding equity investees) were
$36.8 million in 1996, as compared to $78.4 million in 1995. The net loss from
discontinued operations was $10.7 million in 1996, as compared to $1.6 million
in 1995, and consisted principally of revisions to the estimates of sales
proceeds for the disposal of the Company's investments in discontinued
operations, including reserves relating to investigations as discussed in Item
3, "Legal Proceedings" and Note J to the Consolidated Financial Statements.
In September 1996, the Company sold its ownership interest in
HealthQuest for cash of $75,000 which approximated its carrying value.
In August 1995, the Company sold the assets of MEDIQ Imaging to NMC
Diagnostic Services, Inc., a division of W. R. Grace and Co. for approximately
$17 million in cash and the assumption of $9.7 million of debt.
In June 1995, the Company sold Medifac and certain related assets to
the management of Medifac for approximately $11 million in cash and notes, and
the assumption of $26.9 million of non-recourse debt.
In connection with repayments of debt, the Company realized an
extraordinary gain of $1.7 million, or $1.1 million net of taxes, in 1996.
Liquidity and Capital Resources
In 1997, cash provided by operating activities was $1.2 million, as
compared to $29.1 million in the prior year. This decrease was principally
attributable to increased working capital requirements as a result of the growth
of the Company's business, particularly sales of disposable products, and
payments for income taxes.
Net cash provided by investing activities was $101.3 million for 1997,
and consisted of cash proceeds from sales of the Company's discontinued
operations of $130.3 million partially offset by expenditures for rental medical
equipment totaling $15.5 million, the repurchase of the MEDIQ/PRN warrant for
$12.5 million and the acquisition of the remaining 50% of SpectraCair for $1.9
million. The Company presently anticipates capital expenditures of approximately
$15 million during fiscal 1998, primarily for rental medical equipment. Also,
the Company has entered into long-term agreements with three vendors to purchase
approximately $31 million of certain products over the next two fiscal years.
The Company intends to fund the disposable product purchases and rental medical
equipment expenditures with cash from operations.
16
<PAGE>
Net cash used in financing activities was $102.2 million for 1997 and
consisted primarily of debt repayments of $307.6 million related to the
refinancing, subordinated debenture repurchases and debt service and deferred
financing fees of $8.9 million associated with the refinancing, partially offset
by borrowings of $214 million.
On October 1, 1996, the Company, together with MEDIQ/PRN entered into a
$260 million Credit Agreement with a group of lenders led by Banque Nationale de
Paris as Administrative Agent and NationsBank, N.A. as the Documentation Agent
(the "Credit Agreement"). The Credit Agreement provides for four separate loans,
a Term A loan ($35 million), a Term B loan ($100 million), an Acquisition
Revolver ($100 million) and a Working Capital Revolver ($25 million). The
amounts available under the Credit Agreement allowed the Company to refinance
substantially all of its existing senior debt, its outstanding lines of credit,
all of MEDIQ/PRN's subordinated debt, and MEDIQ/PRN's $100 million 11 1/8%
Senior Secured Notes due 1999. Accordingly, the Company reflected the
outstanding balances of its lines of credit, subordinated debt and Senior
Secured Notes as long-term senior debt on its Consolidated Balance Sheet at
September 30, 1996. In November 1997, the Company reduced the Acquisition
Revolver to $25 million.
Borrowings under the Credit Agreement bear interest at either the prime
rate plus a factor or at a Eurodollar rate plus a factor. The factor changes
quarterly based upon the Company's leverage ratio. The Company's interest rate
on the Term A loan, the Acquisition Revolver and the Working Capital Revolver is
prime (8.50% at September 30, 1997) plus .5% or Eurodollar (6.0625% at September
30, 1997) plus 2.0% and the interest rate on the Term B loan is prime plus 1.25%
or Eurodollar plus 2.75%. During fiscal 1997, the weighted average interest
rates were as follows: (i) Term A loan - 8.45%, (ii) Acquisition Revolver -
8.56%, (iii) Working Capital Revolver - 9.15%, and (iv) Term B loan 9.00%. The
loans are collateralized by substantially all of the assets of the Company. The
proceeds from the sales of PCI, NutraMax, Mobile X-Ray and Health Examinetics
were utilized to repay outstanding advances under the Acquisition Revolver upon
receipt.
The Term A loan is payable in quarterly installments of $1.2 million
from December 31, 1996 through September 30, 2001 and in quarterly installments
of $2.7 million from December 31, 2001 through September 30, 2002. The Term B
loan is payable in quarterly installments of $250,000 from December 31, 1996
through September 30, 2002, quarterly installments of $8.5 million in fiscal
2003 and quarterly installments of $15 million in fiscal 2004. The Company can
borrow and repay under the Acquisition Revolver until March 31, 1998 in
accordance with the Credit Agreement. On March 31, 1998, any outstanding balance
on the Acquisition Revolver will convert to a term loan which will be repaid in
quarterly installments beginning on June 30, 1998. The first two installments
will be at 5% of the converted balance and all remaining quarterly payments will
be at 5.625% of the converted balance. The Working Capital Revolver terminates
on September 30, 2002 at which time all outstanding balances are due.
The Credit Agreement requires the Company to maintain certain financial
ratios and imposes certain other financial limitations. The terms of the
Company's Credit Agreement precluded the payment of dividends until October 1,
1997. The Company does not intend to pay any dividends in the foreseeable
future.
During fiscal 1997, the Company repurchased an aggregate of $24.4
million of the 7.50% debentures at a discount in the open market with borrowings
under its credit facility. The Company may use proceeds from its Acquisition
Revolver to redeem or repurchase the remaining balance of its 7.50% exchangeable
subordinated debentures. However, except to the extent required by the terms of
the indenture pursuant to which this debenture was issued, there can be no
assurance that any additional repurchase or redemption will occur.
17
<PAGE>
During fiscal 1997, the Company repurchased or redeemed $23 million of
the 7.25% debentures. The Company funded the repurchase/redemption with
borrowings under its Credit Agreement. The remaining balance of $6.2 million of
the 7.25% debentures was converted into 833,446 shares of the Company's common
stock.
In February 1997, the Company entered into an agreement with Universal
Hospital Services, Inc. ("UHS") to acquire the outstanding shares of UHS for
$17.50 per share. Including the assumption of debt, the total purchase price
would have been $138 million. The transaction was structured as a cash merger
and was anticipated to be funded with proceeds from the Credit Agreement. In
January 1997, the Credit Agreement was amended to increase certain components of
the facility by $50 million, subject to approval of the proposed acquisition of
UHS pursuant to the Hart-Scott-Rodino Act and by UHS' shareholders. In April
1997, the shareholders of UHS approved the acquisition subject to federal
regulatory approval pursuant to the Hart-Scott-Rodino Act. In July 1997, the
Company and UHS were informed by the Federal Trade Commission ("FTC") that it
had authorized its staff to take legal action to block the proposed transaction,
and subsequently the FTC filed a motion for a preliminary injunction to block
the transaction. In September 1997, facing the likelihood of a protracted
administrative proceeding before the FTC, the uncertainty of the outcome and the
costs associated with continuing to defend against the efforts of the FTC to
prevent the merger, the Company and UHS mutually terminated the proposed
acquisition. Consequently, the amendment to the Credit Agreement was also
terminated. The Company wrote-off $4 million ($2.4 million net of taxes, or $.09
per share) of deferred acquisition and financing costs related to the
acquisition.
The Company expects that its primary sources of liquidity for operating
activities will be generated through cash flows from MEDIQ/PRN. The Company
believes that sufficient funds will be available from operating cash flows and
its credit facility to meet the Company's anticipated operating and capital
requirements for the foreseeable future.
Market Risk Sensitivity
In accordance with the terms of the Credit Agreement, the Company
entered into two interest rate swap contracts ("swap contracts") on November 15,
1996. The swap contracts hedge the Company's interest rate exposure and
terminate in January 2000. The Company did not enter into the swap contracts for
trading or speculative purposes.
The information below summarizes the Company's market risks associated
with debt obligations and swap contracts outstanding as of September 30, 1997.
Fair values of debt instruments included herein have been determined based on
quoted market prices were available. The fair values of interest rate
instruments are the estimated amounts the Company would expect to pay to
terminate the swap contracts. The information presented below should be read in
conjunction with Notes H and I to the Company's Consolidated Financial
Statements.
For debt obligations, the table presents principal cash flows and
related interest rates by fiscal year of maturity. Fixed interest rates
disclosed represent the weighted average rates for the Company's capital leases,
except where noted. Variable interest rates disclosed represent the weighted
average rates of the portfolio at September 30, 1997. For interest rate swaps,
the table presents notional amounts and related interest rates by fiscal year of
maturity.
18
<PAGE>
<TABLE>
<CAPTION>
Expected Fiscal Year of Maturity
(in thousands of U.S. $, except percentages)
Debt 1998 1999 2000 2001 Thereafter Total FV
- ---- ------- ------- ------- ------- ---------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Fixed rate $ 1,860 $ 1,360 $ 126 -- $ 10,055 (a) $ 13,401 $ 13,803
Average
interest rate 10.01% 10.05% 10.72% -- 7.5%(a)
Variable rate $ 5,788 $ 5,788 $ 5,788 $ 5,788 $109,281 $132,433 $132,433
Average
interest rate 8.65% 8.65% 8.65% 8.65% 8.65% 8.65%
Interest
Rate Swap
- ---------
Variable
to fixed $ 50,000 $ 50,000 $ (288)
Average
pay rate 6.26% 6.26%
Average
receive rate 5.64% 5.64%
Interest
Rate Collar
- -----------
Notional amount $ 50,000 $ 50,000 $ (16)
Cap 7.43% 7.43%
Floor 5.25% 5.25%
</TABLE>
(a) Represents the Company's 7.50% debentures.
Recent Developments
In October 1997, the Company's Board of Directors initiated a process
to explore strategic alternatives available to the Company to maximize
shareholder value, including the possible sale of the Company, and has retained
an investment banking firm to assist in the process.
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," ("SFAS 123"), which was adopted by the Company in fiscal year
1997 as required by the statement. The Company has elected to continue to
measure such compensation expense using the method prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," as
permitted by SFAS 123. (See Note O)
The Financial Accounting Standards Board has issued SFAS No. 128,
"Earnings Per Share," which will result in changes to the computation and
presentation of earnings per share. The Company will be required to adopt this
standard during its quarter ended December 31, 1997 with earlier adoption not
permitted. At this time, the Company does not believe the adoption of this
standard will have a material impact on the Company's earnings per share.
The Financial Accounting Standards Board has issued SFAS No. 130,
"Reporting Comprehensive Income," which will result in disclosure of
comprehensive income and its
19
<PAGE>
components (revenues, expenses, gains and losses) in a full set of
general-purpose financial statements. The Company is not required to adopt this
standard until fiscal 1999. At this time, the Company has not determined the
impact the adoption of this standard will have on the Company's financial
statements.
The Financial Accounting Standards Board has issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
establishes standards for the way public business enterprises report information
about operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. The Company is not required to adopt this standard until fiscal 1999.
At this time, the Company has not determined the impact the adoption of this
standard will have on the Company's financial statements.
The Company has and will continue to make certain investments in its
software systems and applications to ensure that the Company is year 2000
compliant. The financial impact to the Company has not been and is not
anticipated to be material to its financial position or results of operations in
any given year.
20
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
----
Independent Auditors' Report 22
Consolidated Statements of Operations -
Three Years Ended September 30, 1997 23
Consolidated Balance Sheets - September 30, 1997 and 1996 24
Consolidated Statements of Stockholders' Equity -
Three Years Ended September 30, 1997 25
Consolidated Statements of Cash Flows -
Three Years Ended September 30, 1997 26
Notes to Consolidated Financial Statements 27-41
21
<PAGE>
Independent Auditors' Report
Board of Directors and Stockholders
MEDIQ Incorporated
Pennsauken, New Jersey
We have audited the accompanying consolidated balance sheets of MEDIQ
Incorporated and subsidiaries as of September 30, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended September 30, 1997. Our audits also
include the financial statement schedule listed in the index at Item 14(a)(2).
These financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and the financial statement schedule 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 consolidated financial statements present fairly,
in all material respects, the financial position of MEDIQ Incorporated and
subsidiaries as of September 30, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1997 in conformity with generally accepted accounting principles.
Also, in our opinion, the financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
November 25, 1997
22
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------------
1997 1996 1995
-------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C>
Revenues:
Rental $124,316 $114,275 $117,043
Sales 19,922 11,696 7,036
Other 11,722 10,095 8,162
-------- -------- --------
155,960 136,066 132,241
Costs and Expenses:
Cost of sales 16,334 9,534 5,686
Operating 56,609 47,934 47,478
Selling and administrative 23,154 20,795 24,714
Restructuring -- 2,200 --
Depreciation and amortization 30,359 30,157 30,161
-------- -------- --------
126,456 110,620 108,039
-------- -------- --------
Operating Income 29,504 25,446 24,202
Other (Charges) Credits:
Interest expense (19,107) (27,307) (29,241)
Interest income 2,069 1,452 1,502
Other - net (9,573) (6,147) (121)
-------- ------- -------
Income (Loss) from Continuing Operations before
Income Tax Expense (Benefit) and Extraordinary Item 2,893 (6,556) (3,658)
Income Tax Expense (Benefit) 5,134 (378) (312)
-------- -------- --------
Loss from Continuing Operations before
Discontinued Operations and Extraordinary Item (2,241) (6,178) (3,346)
Discontinued Operations:
Income from operations (net of income taxes of
$2,025,000 in 1996 and $3,393,000 in 1995) -- 3,929 3,132
Gain (Loss) on disposal (net of income taxes of $20,507,000
in 1997, ($5,406,000) in 1996 and $953,000 in 1995) 34,941 (14,598) (4,733)
-------- -------- --------
34,941 (10,669) (1,601)
-------- -------- --------
Income (Loss) before Extraordinary Item 32,700 (16,847) (4,947)
Extraordinary Gain (Loss), Early Retirement of Debt
(net of income taxes of ($5,316,000) in 1997 and
$587,000 in 1996) (8,037) 1,143 --
-------- -------- --------
Net Income (Loss) $ 24,663 $(15,704) $ (4,947)
======== ======== ========
Earnings Per Share:
Income (Loss) from:
Continuing Operations $ (.09) $ (.25) $ (.14)
Discontinued Operations 1.35 (.43) (.06)
-------- --------- --------
Income (Loss) before Extraordinary Item 1.26 (.68) (.20)
Extraordinary Item (.31) .05 --
-------- -------- --------
Net Income (Loss) $ .95 $ (.63) $ (.20)
======== ======== ========
Weighted Average Shares Outstanding 25,960 24,967 24,604
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
23
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
-------------------------------
1997 1996
-------- --------
(in thousands)
Assets
Current Assets:
<S> <C> <C>
Cash $ 3,639 $ 3,219
Accounts receivable (net of allowance of $4,077,000 in
1997 and $2,383,000 in 1996) 39,686 30,233
Inventories 13,047 6,614
Deferred income taxes 6,967 2,447
Income taxes receivable 4,917 310
Other current assets 1,495 2,280
-------- --------
Total Current Assets 69,751 45,103
Investment in discontinued operations - restricted -- 64,967
Note receivable from MHM -- 3,967
Property, plant and equipment 113,589 122,706
Goodwill 57,056 58,321
Other assets 17,156 13,359
-------- --------
Total Assets $257,552 $308,423
======== ========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 8,793 $ 8,907
Accrued expenses 22,732 27,729
State taxes payable 177 --
Other current liabilities 669 458
Current portion of long-term debt 7,648 8,520
-------- --------
Total Current Liabilities 40,019 45,614
Senior debt 128,131 192,461
Subordinated debt 10,055 41,229
Deferred income taxes 28,178 7,254
Other liabilities 2,566 4,420
Commitments and contingencies -- --
Stockholders' Equity:
Preferred stock ($.50 par value: Authorized 20,000,000 shares;
issued Series A: 6,644,000 in 1997 and 6,688,000 in 1996) 3,322 3,344
Common stock ($1 par value: Authorized 40,000,000 shares;
issued 20,068,000 in 1997 and 19,191,000 in 1996) 20,068 19,191
Capital in excess of par value 27,127 21,517
Retained earnings (Accumulated deficit) 2,892 (21,771)
Treasury stock, at cost (preferred shares: 377,000 in 1997 and
1996; common shares: 739,000 in 1997 and 772,000 in 1996)
(4,806) (4,836)
-------- --------
Total Stockholders' Equity 48,603 17,445
-------- --------
Total Liabilities and Stockholders' Equity $257,552 $308,423
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
24
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Retained
--------------- ----------------- Capital in Earnings
Shares Shares Excess of (Accumulated Treasury
Issued Amount Issued Amount Par Value Deficit) Stock
------- ------- ------- ------- --------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance October 1, 1994 6,816 $ 3,408 19,064 $19,064 $22,357 $(1,120) $ (7,429)
Net loss (4,947)
Conversion of preferred stock
to common stock (64) (32) 63 63 (31)
Stock options exercised (202) 386
------- ------- ------- ------- ------- ------- --------
Balance September 30, 1995 6,752 3,376 19,127 19,127 22,124 (6,067) (7,043)
Net loss (15,704)
Conversion of preferred stock
to common stock (64) (32) 64 64 (32)
Stock options exercised (575) 2,207
------- ------- ------- ------- ------- ------- --------
Balance September 30, 1996 6,688 3,344 19,191 19,191 21,517 (21,771) (4,836)
Net income 24,663
Conversion of subordinated
debentures to common stock 833 833 5,417
Conversion of preferred
stock to common stock (44) (22) 44 44 (22)
Acquisition of SpectraCair (404)
Stock options exercised _______ _______ _______ _______ 215 _______ 434
------- -------
Balance September 30, 1997 6,644 $ 3,322 20,068 $20,068 $27,127 $ 2,892 $(4,806)
======= ======= ======= ======= ======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements
25
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------------
1997 1996 1995
-------- --------- -----------
Cash Flows From Operating Activities (in thousands)
- ------------------------------------
<S> <C> <C> <C>
Net income (loss) $ 24,663 $(15,704) $ (4,947)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization 30,359 30,157 30,161
Provision for doubtful accounts 3,234 1,237 993
Provision for deferred income taxes (benefit) 29,480 (650) (434)
Reserve on note receivable from MHM 5,523 6,000 --
Cash provided by discontinued operations 660 3,240 7,532
(Income) loss from discontinued operations (34,941) 10,669 1,601
Extraordinary item, early extinguishment of debt 2,879 (1,730) --
Gain on sale of Cardinal Stock (9,213) -- --
Equity participation - PRN warrants 11,047 625 --
Other 1,751 484 1,775
Increase (decrease), net of effects from acquisitions:
Accounts receivable (8,067) (2,428) (11,305)
Inventories (6,397) (2,433) 1,758
Accounts payable (1,577) 2,213 (108)
Accrued expenses (4,402) (2,973) (3,036)
Federal and state taxes payable (36,273) -- (83)
Deferred income taxes (2,559) 1,933 3,236
Other current assets and liabilities (4,930) (1,572) (824)
-------- -------- ----------
Net cash provided by operating activities 1,237 29,068 26,319
Cash Flows From Investing Activities
Proceeds from sale of assets -- 3,976 10,957
Proceeds from sale of discontinued operations 130,259 1,500 23,858
Purchase of equipment (15,458) (18,073) (11,548)
Acquisition of SpectraCair (1,915) -- --
Note receivable from SpectraCair -- (3,250) --
Payment of note receivable from SpectraCair -- 3,250 --
Repurchase of MEDIQ/PRN warrant (12,500) (1,625) --
Other 947 (2,727) (6,636)
-------- -------- ----------
Net cash provided by (used in) investing activities 101,333 (16,949) 16,631
Cash Flows From Financing Activities
Borrowings 214,000 25,747 1,190
Debt repayments (307,639) (39,045) (42,853)
Deferred financing fees (8,874) -- --
Proceeds from exercise of options 363 1,432 184
-------- -------- ----------
Net cash used in financing activities (102,150) (11,866) (41,479)
-------- -------- ----------
Increase in cash 420 253 1,471
Cash:
Beginning balance 3,219 2,966 1,495
-------- -------- ----------
Ending balance $ 3,639 $ 3,219 $ 2,966
======== ======== ==========
Supplemental disclosure of cash flow information:
Interest paid $ 21,381 $ 25,563 $ 26,200
======== ======== ==========
Income taxes paid $ 7,553 $ 557 $ 205
======== ======== ==========
Supplemental disclosure of non-cash investing and financing activities:
Conversion of 7.25% subordinated debentures into common stock $ 6,251 $ -- $ --
======== ======== ==========
Equipment financed with long-term debt and capital leases $ -- $ 840 $ 1,808
======== ======== ==========
</TABLE>
See Notes to Consolidated Financial Statements
26
<PAGE>
Note A - Summary of Significant Accounting Policies
Description of Operations - The Company rents movable critical care and
life support medical equipment, distributes disposable products, accessories and
repair parts used with the types of equipment it rents and provides other
services to its customers in the healthcare industry.
Principles of consolidation - The consolidated financial statements
include the accounts of MEDIQ Incorporated and its subsidiaries (the "Company").
Investments in companies owned 20% to 50% are accounted for under the equity
method of accounting. Investments in discontinued operations are stated at the
lower of cost or net realizable value. In consolidation, all significant
intercompany transactions and balances have been eliminated.
Inventories - Inventories, which consist primarily of disposable
products and repair parts for rental equipment, are stated at the lower of cost
(first-in, first-out method) or market.
Property, plant and equipment - Rental equipment, machinery and
equipment, buildings and improvements, and land are recorded at cost. Capital
leases are recorded at the lower of fair market value or the present value of
future lease payments. The Company provides straight-line depreciation and
amortization over the estimated useful lives (rental equipment and machinery and
equipment - 2 to 10 years and buildings and improvements - 10 to 25 years).
Goodwill - The cost of acquired businesses in excess of net assets is
amortized on a straight-line basis primarily over periods of 20 years.
Accumulated amortization was $18.6 million and $15.3 million as of September 30,
1997 and 1996, 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 it is probable that 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.
Revenue recognition policy - The Company derives revenues from the
following sources: rental - rental of moveable medical equipment; sales - sales
of disposable products, repair parts and equipment; and other - logistical
services, maintenance and reconditioning services and management consulting
services.
In fiscal 1997, the Company entered into several revenue-share
arrangements with original equipment manufacturers ("OEM") whereby the Company
rents moveable medical equipment and sells disposable products owned by the OEM
to the Company's customers. Under such arrangements, the Company bills the
customer and pays the OEM a fee based upon a percentage of the amount billed.
Revenue share arrangements have allowed the Company to generate revenue without
any additional capital investment. The Company bears the risk of loss relating
to the equipment and collection of revenue. The revenue related to the rental of
such OEM-owned equipment is included in rental revenue while the related fees
are reflected in operating expenses. The revenue related to the sale of the
OEM's disposable products is included in sales while the related fees are
reflected in cost of goods sold.
Rental revenue is recognized in accordance with the terms of the
related rental agreement and the usage of the related rental equipment. Revenues
from other operating activities are recognized as services are rendered, as
income is earned or as products are shipped.
Subsidiary and unconsolidated affiliate stock transactions - Gains
(losses) resulting from the issuance or repurchase of stock by subsidiaries and
unconsolidated affiliates are recognized by the Company as equity participation,
a component of Other Expense-net, in the Consolidated Statements of Operations.
27
<PAGE>
Note A - Summary of Significant Accounting Policies (Continued)
Earnings (loss) per share - Primary net earnings (loss) per share are
computed by dividing net earnings (loss) by the weighted average number of
shares of common stock and common stock equivalents outstanding during the
period. Common stock equivalents include shares issuable upon conversion of the
Company's convertible preferred stock and exercise of outstanding stock options.
Fully diluted earnings per share are not disclosed because the calculation
results in dilution of less than 3%.
Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results may differ from those
estimates and assumptions.
Reclassification of accounts - Certain reclassifications have been made
to conform prior years' balances to the current year presentation.
Note B - Dispositions
During fiscal 1997 the Company completed its previously announced
strategy of divesting substantially all operating assets other than MEDIQ/PRN
Life Support Services, Inc. ("MEDIQ/PRN") and MEDIQ Management Services, Inc.
and using the proceeds thereof to reduce indebtedness.
In November 1997, the Company sold to InnoServ Technologies
("InnoServ") all of the 2,026,483 shares of InnoServ common stock owned by it,
together with a warrant to acquire additional shares of InnoServ common stock.
Under the terms of the agreement, no cash payment was made by InnoServ. However,
the parties agreed to terminate a non-compete covenant relating to maintenance
and repair services. In addition, in the event of a change of control of
InnoServ before September 30, 1998, the Company will be entitled to certain
payments from the acquiring party as if it had continued to own the shares.
Accordingly, the Company has recorded a reserve of $5 million before taxes ($1.3
million after taxes) as a component of Income from Discontinued Operations in
the Company's Consolidated Statement of Operations. The Company had acquired the
InnoServ shares and warrant in connection with its 1994 sale of MEDIQ Equipment
and Maintenance Services, Inc.
On May 7, 1997, the Company sold the stock of Health Examinetics, Inc.
to the management of Health Examinetics for approximately $1.7 million,
consisting of $.1 million in cash and an interest-bearing promissory note in the
amount of $1.6 million. The promissory note bears interest at 7% per annum and
matures in April 2003. Interest only is due on the note for the first eighteen
months. Quarterly principal and interest payments commence on January 1, 1999.
The sale resulted in an after-tax charge of $1 million, or $.04 per share in
addition to the estimated net loss on the disposal recorded in fiscal 1996. The
charge is reflected as a component of Income from Discontinued Operations in the
Company's Consolidated Statement of Operations.
On December 31, 1996 the Company sold to NutraMax Products, Inc.
("NutraMax") all of the 4,037,258 shares of NutraMax common stock owned by the
Company at a price of $9.00 per share. Under the terms of the agreement, the
Company received from NutraMax $19.9 million in cash and an interest-bearing
promissory note (the "note") in the amount of $16.4 million. The note is payable
when NutraMax shares owned by the Company, which currently are held in escrow in
support of the Company's 7.50% Exchangeable Subordinated Debentures ("7.50%
debentures"), are released from that escrow. The NutraMax shares are to be
released from escrow upon the purchase or redemption of the 7.50% debentures. In
the event the 7.50% debentures are exchanged into shares of NutraMax, the note
receivable will be reduced on a pro rata basis. The note does not bear a market
rate of interest for its full term. Accordingly, the Company discounted the note
to $13.6 million and recognized an after-tax gain of $4.8 million.
28
<PAGE>
Note B - Dispositions (Continued)
From January through September 1997, the Company repurchased $17.8
million of the 7.50% debentures in the open market and a private transaction
(See Note H) which resulted in the release of 1,161,961 shares of NutraMax
common stock from escrow. The shares were delivered to NutraMax resulting in
cash payments on the Note aggregating $10.5 million and the realization of a
$1.8 million pretax gain as a result of the recognition of a portion of the
discount on the note. The gain is reflected in Other Expense-net on the
Company's Consolidated Statement of Operations. At September 30, 1997, the
balance of the note receivable was $4.8 million, net of a discount of $1.1
million. The cash proceeds from these transactions were used to reduce debt.
In November 1996, the Company sold substantially all of the assets of
MEDIQ Mobile X-Ray Services, Inc. ("Mobile X-Ray") to Symphony Diagnostics,
Inc., a subsidiary of Integrated Health Services, Inc. ("IHS") for $5.3 million
in cash and shares of IHS common stock with a value of $5.2 million at the
closing with the possibility of the Company receiving additional cash
consideration based upon the occurrence of certain future events. In July 1997,
the Company sold the IHS shares at an amount which approximated its carrying
value. Also, in fiscal 1997 the Company received approximately $1.1 million in
additional cash consideration.
On October 11, 1996, PCI Services, Inc. ("PCI"), was acquired by
Cardinal Health, Inc. ("Cardinal"). In that transaction, the Company received
1,449,000 shares (adjusted for stock split) of Cardinal stock in exchange for
its 46% ownership interest in PCI. The Company recognized an after-tax gain of
$32.6 million on this transaction as a component of Income from Discontinued
Operations in the Company's Consolidated Statement of Operations. The Company
sold its Cardinal shares in January 1997 for $88.4 million and used the proceeds
to reduce debt.
In September 1996, the Company sold its common stock investment in
HealthQuest to management for approximately $75,000 which approximated its
carrying value.
In August 1995, the Company sold the assets of MEDIQ Imaging Services,
Inc., to NMC Diagnostic Services Inc., a division of W.R. Grace & Co., for
approximately $17 million in cash, and the assumption of $9.7 million of debt.
In June 1995, the Company sold Medifac, Inc., and related assets to the
management of Medifac for approximately $11 million, consisting of $6 million in
cash and $5 million in notes, and the assumption of $26.9 million of
non-recourse debt.
Revenues from discontinued operations (excluding equity investees) were
$6.6 million, $36.8 million and $78.4 million in 1997, 1996 and 1995
respectively.
Note C - Restructuring Charge
In the first quarter of fiscal 1996, the Company recorded a
restructuring charge of $2.2 million for employee severance costs incurred in
connection with a plan approved by the Board of Directors to downsize corporate
functions and consolidate certain activities with the operations of MEDIQ/PRN.
The plan resulted in the termination of 29 employees in fiscal 1996. The Company
paid approximately $1.5 million of severance benefits through September 30, 1997
with the balance of the restructuring obligation due over the next two fiscal
years.
Note D - Universal Hospital Services, Inc.
In February 1997, the Company entered into a definitive agreement with
Universal Hospital Services, Inc. ("UHS") to acquire the outstanding shares of
UHS for $17.50 per share. Including the assumption of debt, the total purchase
price would have been $138 million. In April 1997, the shareholders of UHS
approved the acquisition subject to federal regulatory approval pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act. In July 1997, the Company and UHS
were informed by the Federal Trade Commission ("FTC") that it had authorized its
staff to take legal action to block the proposed transaction, and subsequently
the FTC filed a motion for a preliminary injunction to block the
29
<PAGE>
Note D - Universal Hospital Services, Inc. (Continued)
transaction. In September 1997, facing the likelihood of a protracted
administrative proceeding before the FTC, the uncertainty of the outcome and the
costs associated with continuing to defend against the efforts of the FTC to
prevent the merger, the Company and UHS mutually terminated the proposed
acquisition. The Company wrote-off $4 million ($2.4 million net of taxes, or
$.09 per share) of deferred acquisition and financing costs related to the
proposed acquisition which is included in Other Expense-net in the Company's
Consolidated Statement of Operations.
Note E - Acquisition
On September 18, 1997, the Company's wholly-owned subsidiary,
MEDIQ/PRN, acquired the remaining 50% interest in its SpectraCair Joint Venture
("SpectraCair") from a subsidiary of Huntleigh Healthcare ("Huntleigh") for $1.9
million in cash and the assumption of Huntleigh's portion of the outstanding
debt of SpectraCair. The acquisition was accounted for under the purchase method
of accounting and, accordingly, the purchase price was allocated to assets
acquired and liabilities assumed based on their estimated fair market values at
the date of the acquisition. The excess of the purchase price over the estimated
fair values of the net assets acquired was recorded as goodwill and is being
amortized over twenty years.
Note F- Property, Plant and Equipment
September 30,
----------------------------------
1997 1996
-------- --------
(in thousands)
Rental equipment $229,095 $211,948
Equipment and fixtures 12,787 11,460
Building and improvements 7,589 7,486
Land 149 149
-------- --------
249,620 231,043
Less accumulated depreciation
and amortization (136,031) (108,337)
-------- --------
$113,589 $122,706
======== ========
Depreciation and amortization expense related to property, plant and equipment
was $26.5 million, $26.3 million and $26.1 million in 1997, 1996 and 1995,
respectively.
Note G - Accrued Expenses
September 30,
----------------------------------
1997 1996
-------- --------
(in thousands)
Interest $ 2,135 $ 5,360
Payroll and related taxes 3,588 3,756
Severance 2,431 2,971
Government investigations 4,200 6,000
Insurance 1,960 1,632
Pension 1,961 2,188
Other 6,457 5,822
-------- --------
$ 22,732 $ 27,729
======== ========
30
<PAGE>
Note H - Long-Term Debt
Senior debt consisted of the following:
<TABLE>
<CAPTION>
September 30,
--------------------------------
1997 1996
-------- ---------
(in thousands)
<S> <C> <C>
Term loans $128,933 $ 27,448
Revolving credit facilities 3,500 --
Capital lease obligations payable in varying installments
through 1999 at fixed rates from 9.1% to 13.6% 3,346 6,204
Senior secured notes due 1999 -- 100,000
Lines of credit -- 26,030
7.25% convertible subordinated debentures due 2006 -- 22,500
10% subordinated notes due 2004 -- 8,799
10% subordinated notes due 1999 -- 10,000
-------- ---------
135,779 200,981
Less current portion 7,648 8,520
-------- ---------
$128,131 $ 192,461
======== =========
</TABLE>
Subordinated debt consisted of the following:
<TABLE>
<CAPTION>
September 30,
--------------------------------
1997 1996
-------- ---------
(in thousands)
<S> <C> <C>
Corporate debt:
7.50% exchangeable subordinated debentures due 2003 $ 10,055 $ 34,500
7.25% convertible subordinated debentures due 2006 -- 6,729
-------- ---------
$ 10,055 $ 41,229
======== =========
</TABLE>
On October 1, 1996, the Company, together with MEDIQ/PRN entered into a
$260 million Credit Agreement with a group of lenders led by Banque Nationale de
Paris as Administrative Agent and NationsBank, N.A. as the Documentation Agent
(the "Credit Agreement"). The Credit Agreement provides for four separate loans,
a Term A loan ($35 million), a Term B loan ($100 million), an Acquisition
Revolver ($100 million) and a Working Capital Revolver ($25 million). The
amounts available under the Credit Agreement allowed the Company to refinance
substantially all of its existing senior debt, its outstanding lines of credit,
all of MEDIQ/PRN's subordinated debt, and MEDIQ/PRN's $100 million 11 1/8%
Senior Secured Notes due 1999. Accordingly, the Company reflected the
outstanding balances of its lines of credit, certain subordinated debt and
Senior Secured Notes as long-term senior debt on its Consolidated Balance Sheet
at September 30, 1996.
In January 1997, the Credit Agreement was amended to increase certain
components of the facility by $50 million, subject to approval of the proposed
acquisition of UHS pursuant to the Hart-Scott-Rodino Antitrust Improvements Act
and by UHS' stockholders. This amendment was terminated in conjunction with the
termination of the proposed acquisition of UHS in September 1997. In November
1997, the Acquisition Revolver was reduced to $25 million.
Borrowings under the Credit Agreement bear interest at either the prime
rate plus a factor or at a Eurodollar rate plus a factor. The factor may change
quarterly based upon the Company's leverage ratio, as defined in the Credit
Agreement. The Company's interest rate on the Term A loan, the Acquisition
Revolver and the Working Capital Revolver is prime (8.50% at September 30, 1997)
plus .5% or Eurodollar (6.0625% at September 30, 1997) plus 2.0% and the
interest rate on the Term B loan is prime plus 1.25% or Eurodollar plus 2.75%.
During fiscal 1997, the weighted average interest rates were as follows: (i)
Term A loan - 8.45%, Acquisition Revolver - 8.56%,
31
<PAGE>
Note H - Long Term Debt (Continued)
(iii) Working Capital Revolver - 9.15%, and (iv) Term B loan - 9.00%. The loans
are collateralized by substantially all of the assets of the Company. The
proceeds from the sales of PCI, NutraMax, Mobile X-Ray and Health Examinetics
were utilized to repay outstanding advances under the Acquisition Revolver upon
receipt.
The Term A loan is payable in quarterly installments of $1.2 million
from December 31, 1996 through September 30, 2001 and in quarterly installments
of $2.7 million from December 31, 2001 through September 30, 2002. The Term B
loan is payable in quarterly installments of $250,000 from December 31, 1996
through September 30, 2002, quarterly installments of $8.5 million in fiscal
2003 and quarterly installments of $15 million in fiscal 2004. The Company can
borrow and repay under the Acquisition Revolver until March 31, 1998 in
accordance with the Credit Agreement. On March 31, 1998, the Acquisition
Revolver converts to a term loan which will be repaid in quarterly installments
beginning on June 30, 1998. The first two installments will be at 5.0% of the
converted balance and all remaining quarterly payments will be at 5.625% of the
converted balance. The Working Capital Revolver terminates on September 30, 2002
at which time all outstanding balances are due.
The Credit Agreement requires the Company to maintain certain financial
ratios and imposes certain other financial limitations. The terms of the
Company's Credit Agreement precluded the payment of cash dividends until October
1, 1997. The Company does not intend to pay any dividends in the foreseeable
future.
As a result of the refinancing, the Company recognized an extraordinary
charge of $13 million ($7.7 million net of taxes) resulting from the write-off
of deferred charges and premiums incurred related principally to the tender
offer to purchase the $100 million 11 1/8% Senior Secured Notes due 1999, and a
non-recurring charge of $11 million for the repurchase of a warrant to purchase
10% of the capital stock of MEDIQ/PRN issued in connection with financing the
Kinetic Concepts, Inc. acquisition. The non-recurring charge is reflected as
equity participation, a component of Other Expense-net, in the Company's
Consolidated Statement of Operations.
The 7.50% debentures are exchangeable into shares of NutraMax common
stock owned by the Company, at an equivalent of $15.30 per share, and are
redeemable in whole or in part at the option of the Company. The NutraMax shares
are also held in escrow under the terms of an agreement of sale, as discussed in
Note B. Interest is payable semi-annually on January 15 and July 15. In fiscal
1997, the Company repurchased $24.4 million of the 7.50% debentures in the open
market at a discount. The Company recognized an extraordinary loss in connection
with the repurchase of the 7.50% debentures and write-offs of related deferred
charges in the aggregate amount of $26,000 net of taxes.
During fiscal 1997, the Company repurchased or redeemed $23 million of
the 7.25% Subordinated Convertible Debentures due 2006 ("7.25% debentures"). The
Company recognized an extraordinary loss in connection with the repurchase of
the 7.25% debentures and write-offs of related deferred charges in the aggregate
amount of $.3 million. The remaining balance of $6.2 million of the 7.25%
debentures was converted into 833,446 shares of the Company's common stock.
Maturities of long-term debt giving effect to the refinancing described
above are as follows:
<TABLE>
<CAPTION>
Year Ending September 30, Subordinated
Senior (in thousands) Total
-------- -------------- --------
<S> <C> <C> <C>
1998 $ 7,648 $ -- $ 7,648
1999 7,148 -- 7,148
2000 5,914 -- 5,914
2001 5,788 -- 5,788
2002 15,475 -- 15,475
Thereafter 93,806 10,055 103,861
-------- --------- --------
$135,779 $ 10,055 $145,834
======== ========= ========
</TABLE>
32
<PAGE>
Note I - Financial Instruments
The Company utilizes interest rate swap contracts ("swap contracts") to
manage interest rate exposure. The principal objective of such contracts is to
minimize the risks and/or costs associated with financial activities. The
Company does not utilize swap contracts for trading or other speculative
purposes. The counterparties to these contractual agreements are a diverse group
of major financial institutions with which the Company also has other financial
relationships. The Company is exposed to credit loss in the event of
nonperformance by these counterparties. However, the Company does not anticipate
nonperformance by the other parties.
Interest Rate Instruments: The Company enters into interest rate swap
and interest rate collar contracts to reduce the impact of changes in interest
rates on its floating rate debt. The swap contracts exchange floating rate for
fixed interest payments periodically over the life of the contracts without the
exchange of the underlying notional amounts. The notional amounts of swap
contracts are used to measure interest to be paid or received and do not
represent the amount of exposure to credit loss. For swap contracts that
effectively hedge interest rate exposures, the net cash amounts paid or received
on the contract are accrued and recognized as an adjustment to interest expense.
As of September 30, 1997, the Company had the following interest rate
instruments in effect (notional amounts in thousands; the swap and collar rates
are based on 3-month LIBOR):
<TABLE>
<CAPTION>
1997
------------------------------------------------
Notional Strike
Amount Rate Period
-------- ------ ------------
<S> <C> <C> <C> <C>
Interest rate swap $ 50,000 6.26% 10/97 - 1/98
Interest rate collar: 50,000 7.43% 10/97 - 1/98
50,000 5.25% 10/97 - 1/98
</TABLE>
Note J - Commitments and Contingencies
Leases - The Company leases certain equipment, automobiles and office space. The
future minimum lease payments under noncancelable operating leases and capital
leases are as follows:
<TABLE>
<CAPTION>
Capital Operating
Year Ending September 30, Leases Leases
- ------------------------- -------- ---------
(in thousands)
<S> <C> <C>
1998 $ 2,104 $ 4,249
1999 1,499 2,627
2000 128 1,870
2001 -- 831
2002 and thereafter -- 342
-------- --------
Total minimum lease payments 3,731 $ 9,919
========
Amount representing interest 385
--------
Present value of minimum lease payments $ 3,346
========
</TABLE>
Total rent expense under operating leases was $5.6 million, $5.2
million and $5.4 million in 1997, 1996 and 1995, respectively. Certain leases,
which are for terms of up to 5 years, contain options to renew for additional
periods.
At September 30, 1997, rental equipment and machinery and equipment
included assets under capitalized lease obligations of $11.5 million, less
accumulated amortization of $4.3 million.
33
<PAGE>
Note J - Commitments and Contingencies (Continued)
Purchase Commitments - Pursuant to a Distribution Agreement and several
purchase agreements with vendors, MEDIQ/PRN has agreed to purchase approximately
$31 million of certain products in the next two fiscal years. The Company
purchased $1.2 million, $5.9 million and $2.4 million under purchase commitment
agreements in 1997, 1996 and 1995, respectively.
Employment Agreements - The Company maintains employment agreements
with two of its Executive Officers and certain officers and employees of its
subsidiaries. Such agreements, which automatically renew each year unless
terminated as described in the agreement, provide for minimum salary levels,
adjusted annually in accordance with Company policy, as well as for incentive
bonuses that are payable if specified management goals are attained. A majority
of the employment agreements contain provisions for severance payments unless
the individual is terminated for cause or resigns. As of September 30, 1997, the
aggregate minimum commitment under these employment agreements, excluding
bonuses, was approximately $6,000,000. In addition, the agreements provide for
special bonuses to be paid to the Executive Officers, as well as the former
Chief Financial Officer, if a Sale Transaction were to occur (as defined in the
agreement). The special bonuses are based on the aggregate value of any future
transaction, and accordingly cannot be determined at this time.
Investigations and Legal Proceedings - MEDIQ Imaging, the assets of which were
sold by the Company in August 1995, was the subject of a civil investigation by
the United States Attorney's Office for the District of New Jersey and the
Department of Health and Human Services. The investigation focused on advice
given by certain MEDIQ Imaging employees to physician customers of MEDIQ Imaging
relating to the reassignment of certain Medicare claims. The Company and MEDIQ
Imaging voluntarily reported the issue to the U.S. Government in January 1995
after learning that the advice given by the employees may have been inconsistent
with the regulations relating to reassignment. The Company and MEDIQ Imaging
cooperated in the investigation and denied any wrongdoing. In December 1997,
desiring to avoid the delay, expense, and uncertainty of protracted litigation,
the Company reached a settlement with the U.S. Government for $4.2 million,
which was fully reserved as of September 30, 1997. The settlement represents the
repayment of alleged excess Medicare reimbursements.
In February 1997, the Company was sued in the Superior Court of New
Jersey by its former wholly-owned subsidiary, MHM Services, Inc. ("MHM";
formerly Mental Health Management, Inc.). The suit challenged the validity of a
note receivable the Company and MHM entered into upon the spin-off of MHM to
MEDIQ's shareholders in August 1993. In addition, beginning in February 1997,
MHM stopped making the required monthly installments on the note, and therefore,
the Company gave notice to MHM of its default on the note and declared all sums
outstanding under the note to be immediately due and payable. In September 1997,
as a result of continued deterioration in MHM's financial condition, the Company
recorded a reserve for the remaining balance of the note receivable, which had
been partially reserved in 1996, and accrued interest on the note receivable. In
October 1997, the Company filed a motion for summary judgment against MHM. In
November 1997, the Court granted summary judgment in favor of the Company and
against MHM on all counts. Specifically, the Court ruled that the note
receivable was valid and enforceable. The Court also rejected MHM's request for
a stay pending appeal. MHM has filed a Motion for Reconsideration which is
currently pending.
Mobile X-Ray, the assets of which the Company sold in November 1996,
was the subject of an investigation by the Wage and Hour Division of the United
States Department of Labor (the "DOL"). The DOL had indicated that it believed
that the practice of treating technologists as exempt professionals was
incorrect. The Company maintained that the practice of treating x-ray
technologists as exempt was correct and proper. In May 1997, the Company reached
a settlement with the DOL which required the Company to pay certain Mobile X-Ray
employees back wages aggregating $213,000 including legal fees. The back wages
were paid in September 1997.
On June 12, 1996, the Company, ATS Medical Services, Inc. ("ATS") and
Mobile X-Ray were sued in the United States District Court for the Middle
District of Pennsylvania by Gerard and Sharon Callie, who are both former
employees of ATS. The lawsuit alleges that the Callies were wrongfully
terminated and asserts claims pursuant to the whistleblower provisions of the
False Claims Act and the
34
<PAGE>
Note J - Commitments and Contingencies (Continued)
Pennsylvania Wage Payment and Collection Law. The plaintiffs made a demand for
damages totaling nearly $800,000. The Company believes it has no liability and
intends to vigorously defend this case. Trial has been scheduled for February
1998.
In addition, the Company has pending several legal claims incurred in
the normal course of business, which in the opinion of management, will not have
material effect on the consolidated financial statements.
Note K - Fair Value of Financial Instruments
Estimated fair value of financial instruments is provided in accordance
with the requirements of SFAS No. 107, "Disclosures About 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:
Accounts receivable and accounts payable - The carrying amounts of
these items are an estimate of their fair values at September 30, 1997.
Long-term debt (excluding capital lease obligations) - The fair value
of the Company's publicly-traded debt is based on quoted market prices.
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 debt are $145.8 million and $146.2 million, respectively.
Interest Rate Instruments - The fair values are the estimated amounts
that the Company would receive or pay to terminate the agreements at
September 30, 1997, taking into account current interest rates and the
current creditworthiness of the counterparties. At September 30, 1997,
the notional amounts were $100 million, the carrying value was $61,000
and the fair value was $304,000, which represents the cost to settle
these instruments.
The fair value estimates presented herein are based on information available to
management as of September 30, 1997, 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 - Common and Preferred Stock
Series A preferred stock is convertible on a one-for-one basis into shares of
common stock, votes generally with the common stock as a single class, and in
all such votes, has ten votes per share. The preferred stock participates in
cash dividends at a rate equal to 60% of the amount paid on the common stock and
has a $.50 per share preference in the event of dissolution or liquidation.
35
<PAGE>
Note M - Income Taxes
Income tax expense (benefit) relating to continuing operations consisted of the
following:
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------------
1997 1996 1995
--------- ------- -------
(in thousands)
<S> <C> <C> <C>
Current:
Federal $(24,397) $ -- $ --
State 51 272 122
-------- ------- -------
(24,346) 272 122
-------- ------- -------
Deferred:
Federal 29,641 (810) (1,432)
State (161) 160 998
-------- ------- -------
29,480 (650) (434)
-------- ------- -------
Total income tax expense (benefit) $ 5,134 $ (378) $ (312)
======== ======= =======
</TABLE>
The differences between the Company's income tax expense (benefit) and the
income tax expense (benefit) computed using the U.S. federal income tax rate
were as follows:
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------------
1997 1996 1995
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Statutory federal tax expense (benefit) $ 984 $(2,229) $(1,244)
State income taxes, net of federal income taxes (72) 1,201 739
Goodwill amortization 350 368 344
Equity Participation - PRN warrants 3,756 213 --
Other items - net 116 69 (151)
------- ------- -------
Income tax expense (benefit) $ 5,134 $ (378) $ (312)
======= ======= =======
</TABLE>
Significant components of the Company's deferred tax assets and liabilities were
as follows:
<TABLE>
<CAPTION>
September 30,
------------------------
1997 1996
------- -------
Liabilities: (in thousands)
<S> <C> <C>
Depreciation $28,004 $30,105
Intangible assets 2,050 13,887
Accrued Expenses 4,510 4,720
Prepaid Expenses 117 76
Other 768 674
------- -------
Gross deferred tax liabilities 35,449 49,462
Assets:
Net operating and capital loss carry forwards 4,894 29,478
Tax credit carry forwards 1,997 5,878
Accrued expenses and reserves 6,972 8,721
Intangible assets 364 231
Other 4,905 3,504
------- -------
Gross deferred tax assets 19,132 47,812
Valuation allowance (4,894) (3,157)
------- -------
14,238 44,655
------- -------
Net deferred tax liability $21,211 $ 4,807
======= =======
</TABLE>
36
<PAGE>
Note M - Income Taxes (Continued)
During fiscal 1997, the Company utilized $49.7 million of net operating loss
carry forwards and $25.5 million of capital loss carry forwards. At September
30, 1997, for income tax purposes, the Company had alternative minimum tax
credit carry forwards of approximately $1.6 million. State net operating loss
carry forwards were $81.6 million, expire through 2010, and are fully reserved
in the valuation allowance. The Company also had a carry forward of Investment
Tax Credit and Rehabilitation Tax Credit of $219,000 expiring through 2003.
Note N - Related Party Transactions
In connection with the spin-off of MHM in fiscal 1993, MHM was obligated to the
Company pursuant to a promissory note with MHM in the original amount of $11.5
million due in August 1998. The note bears interest at the prime rate plus 1.5%
with interest payments only through fiscal 1995. Principal and interest payments
commenced October 1, 1996. The Company recorded interest income related to the
MHM note of $1 million, $1.1 million and $1.2 million in 1997, 1996 and 1995,
respectively. As a result of the continued deterioration in MHM's financial
condition, the Company established reserves of $5.5 million and $6 million on
amounts due from MHM, including accrued interest, in fiscal 1997 and 1996
respectively.
In 1997, 1996 and 1995, the Company incurred legal fees of approximately $2.2
million, $657,000, and $700,000 respectively, to a law firm in which the
Company's Chairman of the Board of Directors was a partner.
In 1997 and 1996, the Company incurred consulting fees of approximately $85,000
and $126,000 respectively to a law firm of which another member of the Board of
Directors is a partner.
The Company derived revenues of $33,000, $175,000 and $340,000 in 1997, 1996 and
1995, respectively, pursuant to agreements to provide financial management,
legal and risk management services to PCI, NutraMax, MHM and InnoServ.
Note O - Stock Option Plans
The Company maintains stock option plans (the "Plans") for the benefit of
officers and key employees of the Company and its subsidiaries. Options granted
vest over periods up to five years and are exercisable for periods up to ten
years from the date of grant at a price which equals fair market value at the
date of grant.
The Company accounts for the Plans in accordance with APB Opinion No. 25, under
which no compensation cost has been recognized. Had compensation cost for the
Plans been determined consistent with SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company's net income and earnings per share would have been
reduced by $556,000 and $.02 per share, respectively, for fiscal 1997 and
$129,000 and $.01 per share respectively, for fiscal 1996.
Because the SFAS 123 method of accounting has not been applied to options
granted prior to October 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
The following summarizes all stock option transactions for the Company under the
Plans from October 1, 1994 through September 30, 1997:
37
<PAGE>
Note O - Stock Options Plans
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1996 Fiscal 1995
-------------------------- ------------------------- -------------------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Options price Options price Options price
-------- --------- ------- --------- -------- --------
(000's) (000's) (000's)
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning
of year 1,686 $ 3.89 1,111 $ 3.10 1,442 $ 3.13
Granted 553 8.06 1,153 4.49 21 4.11
Exercised (37) 3.98 (575) 2.87 (60) 3.06
Canceled (160) 7.04 (3) 4.22 (292) 3.39
----- ------ ------ ------ ----- ------
Outstanding,
end of year 2,042 $ 4.97 1,686 $ 3.89 1,111 $ 3.10
===== ====== ====== ====== ===== ======
Exercisable,
end of year 893 $ 4.13 617 $ 3.43 1,111 $ 3.10
===== ====== ====== ====== ===== ======
</TABLE>
The weighted average fair value of options granted during fiscal 1997
and 1996 was $2.1 million and $2.3 million respectively. The fair value of the
options granted were estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions for grants in both fiscal
1997 and 1996: risk-free interest rates ranging from 5.48% to 6.43%, expected
life of 7 years, expected volatility of 36% and dividend yield of 0%.
Information relative to stock options outstanding as of September 30,
1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------- ----------------------------
Weighted
average Weighted Weighted
remaining average average
Range of contractual exercise exercise
exercise prices Options life in years price Options price
- --------------- ------- ------------- -------- ------- --------
(000's) (000's)
<S> <C> <C> <C> <C> <C> <C>
$2.73 - $3.49 395 1.36 $3.06 395 $3.06
$4.00 - $5.3125 1,208 7.64 4.47 410 4.33
$8.06 - $8.13 439 9.75 8.06 88 8.06
----- ---- ----- --- -----
2,042 6.60 $4.97 893 $4.13
===== ==== ===== === =====
</TABLE>
As of September 30, 1997, approximately 461,000 additional shares were
available to be issued pursuant to the Plans.
Note P - Pension Plan
The Company maintains a noncontributory pension plan which provides retirement
benefits to substantially all employees. Employees generally are eligible to
participate in the plan after one year of service and become fully vested after
five years of service. The plan provides defined benefits based on years of
credited service and compensation. The Company makes contributions that are
sufficient to fully fund its actuarially determined cost, generally equal to the
minimum amounts required by ERISA. Assets of the plan consist primarily of
stocks, bonds and annuities.
38
<PAGE>
Note P - Pension Plan (Continued)
Net periodic pension expense is comprised of the following:
<TABLE>
<CAPTION>
Year ended September 30,
-------------------------------------------
1997 1996 1995
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 451 $ 609 $ 785
Interest cost on projected benefit obligation 1,158 1,066 929
Actual return on plan assets (3,029) (1,463) (1,642)
Net amortization and deferrals 1,952 544 851
-------- -------- --------
Net periodic pension expense $ 532 $ 756 $ 923
======== ======== ========
</TABLE>
The following table presents the funded status of the Company's pension plan and
the amounts reflected in the Consolidated Balance Sheets:
<TABLE>
<CAPTION>
September 30,
-------------------------
1997 1996
-------- --------
(in thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits $(15,116) $(13,141)
======== ========
Accumulated benefit obligation $(15,857) $(13,713)
======== ========
Projected benefit obligation $(16,680) $(14,539)
Plan assets at fair value 16,528 13,663
-------- --------
Projected benefit obligation in excess of plan assets (152) (876)
Unrecognized net gain (2,047) (1,673)
Balance of unrecorded transition obligation 238 361
-------- --------
Accrued pension liability $ (1,961) $ (2,188)
======== ========
</TABLE>
The actuarial assumptions used in determining net periodic pension costs were:
<TABLE>
<CAPTION>
Year ended September 30,
---------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Discount rate 7.5% 8% 8%
Expected long-term return on plan assets 8% 8% 8%
Weighted average rate of increase in
compensation levels 5% 5% 4.5%
</TABLE>
39
<PAGE>
Note Q - Selected Quarterly Financial Data (Unaudited)
Selected quarterly financial data (in thousands except per share data) for 1997
and 1996 is as follows:
<TABLE>
<CAPTION>
First Second Third Fourth
1997 Quarter Quarter Quarter Quarter
- ---- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues (A) $ 35,483 $ 42,566 $ 39,625 $ 38,286
Operating income (A) 6,538 10,189 7,781 4,996
Income (loss) from continuing operations (7,491) 6,357 2,561 (3,668) (C)
Income (loss) from discontinued operations 37,241 (B) (66) (1,092) (1,142)
Extraordinary item (6,464) (462) (76) (1,035)
Net income (loss) 23,286 5,829 1,393 (5,845)
Earnings per share:
Income (loss) from continuing operations (.30) .25 .10 (.14)
Income (loss) from discontinued operations 1.47 -- (.04) (.04)
Extraordinary item (.25) (.02) -- (.04)
Net income (loss) .92 .23 .06 (.22)
<CAPTION>
First Second Third Fourth
1996 Quarter Quarter Quarter Quarter
- ---- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues (A) $ 32,093 $ 36,999 $ 34,386 $ 32,588
Operating income (A) 2,912 (D) 10,161 6,899 5,474
Income (loss) from continuing operations (2,370) 1,273 293 (5,374) (C)
Income (loss) from discontinued operations 1,002 1,542 (1,514) (11,699) (E)
Extraordinary item 1,001 -- 153 (11)
Net income (loss) (367) 2,815 (1,068) (17,084)
Earnings per share:
Income (loss) from continuing operations (.09) .05 .01 (.22)
Income (loss) from discontinued operations .04 .06 (.06) (.47)
Extraordinary item .04 -- .01 --
Net income (loss) (.01) .11 (.04) (.69)
</TABLE>
(A) Reflects seasonal nature of MEDIQ/PRN's business.
(B) Reflects gain on sales of PCI and NutraMax, net of taxes.
(C) Includes MHM reserves of $3.6 million in 1997 and $3.9 million in 1996,
respectively, and the write-off of UHS deferred acquisition costs of $2.4
million, net of tax benefits.
(D) Includes non-recurring expenses of $2.2 million related to the r
estructuring charge.
(E) Reflects adjustment of the Company's reserve for the disposal of
discontinued operations.
Note R- Business Segment Data
The Company operates primarily in one business segment. The Company, through
MEDIQ/PRN, rents movable medical equipment on a short-term basis nationwide and
distributes a variety of disposable products, accessories and repair parts used
with the types of equipment it rents. This segment represents more than 90% of
the consolidated revenues, operating profit and assets exclusive of corporate
assets.
40
<PAGE>
Note S- New Accounting Pronouncements
The Financial Accounting Board has issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," ("SFAS
123"), which was adopted by the Company in fiscal year 1997 as required by the
statement. The Company has elected to continue to measure such compensation
expense using the method prescribed by Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," as permitted by SFAS 123.
(See Note O)
The Financial Accounting Standards Board has issued SFAS No. 128,
"Earnings Per Share," which will result in changes to the computation and
presentation of earnings per share. The Company will be required to adopt this
standard during its quarter ended December 31, 1997 with earlier adoption not
permitted. At this time, the Company has determined that the adoption of this
standard will not have a material impact on the Company's earnings per share.
The Financial Accounting Standards Board has issued SFAS No. 130,
"Reporting Comprehensive Income," which will result in disclosure of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements. The Company is not
required to adopt this standard until fiscal 1999. At this time, the Company has
not determined the impact the adoption of this standard will have on the
Company's financial statements.
The Financial Accounting Standards Board has issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
establishes standards for the way public business enterprises report information
about operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. The Company is not required to adopt this standard until fiscal 1999.
At this time, the Company has not determined the impact the adoption of this
standard will have on the Company's financial statements.
41
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable
PART III
Incorporated by Reference
The information called for by Item 10 "Directors and Executive
Officers of the Registrant", Item 11 "Executive Compensation", Item 12 "Security
Ownership of Certain Beneficial Owners and Management" and Item 13 "Certain
Relationships and Related Transactions" is incorporated herein by reference to
the Company's definitive proxy statement for its Annual Meeting of Shareholders,
which definitive proxy statement is expected to be filed with the Commission not
later than 120 days after the end of the fiscal year to which this report
relates.
42
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a)(1) Financial Statements and Supplementary Data
Report of Independent Auditors 22
Consolidated Statement of Operations 23
Consolidated Balance Sheets 24
Consolidated Statements of Stockholders' Equity 25
Consolidated Statements of Cash Flows 26
Notes to Consolidated Financial Statements 27-41
The response to this portion of Item 14 is submitted as a separate
section of this report.
(a)(2) Financial Statement Schedules
Included in Part IV of this report:
Schedule II - Valuation and Qualifying Accounts and Reserves
Other Schedules are omitted because of the absence of conditions
under which they are required.
(a)(3) Exhibits
The exhibits are listed in the Index to Exhibits appearing below.
(b) The following report on Form 8-K was filed during the quarter ended
September 30, 1997.
<TABLE>
<S> <C>
Date of Earliest Event Requiring Report: September 18, 1997
Date of Filing: September 25, 1997
Items Reported: Item 5
Subject: Termination of UHS acquisition.
Acquisition of remaining 50%
of SpectraCair
</TABLE>
43
<PAGE>
(c) Exhibits
<TABLE>
<CAPTION>
Exhibit Description Incorporation Reference
- ------- ----------- -----------------------
<S> <C> <C>
2.1 Agreement and Plan of Merger Exhibit 2.1 to Schedule 13D
among Cardinal Health, Inc., filed by Cardinal Health,
Panther Merger Corp., PCI Services, Inc. July 29, 1996.
Inc. and MEDIQ dated July 23, 1996.
2.2 Amended and restated Stock Purchase Exhibit 2(a) to Form 10-K Annual
Agreement among MEDIQ, MEDIQ Investment Report filed by NutraMax Products,
Services, Inc. and NutraMax Products, Inc. for the fiscal year ended
Inc. dated November 20, 1996 September 28, 1996.
2.3 Affiliate Letter to Cardinal Health, Exhibit 4 to Current Report on Form 8-K
Inc. from MEDIQ dated August 16, filed October 21, 1996.
1996.
2.4 Stock purchase agreement among MEDIQ, Filed herewith.
MEDIQ Investment Services, Inc. and
InnoServ Technologies, Inc. dated
November 13, 1997.
2.5 Asset Purchase Agreement by and Exhibit 2.5 to Annual Report on
among MEDIQ Mobile X-Ray Services, Form 10-K filed on December 30, 1996.
Inc., MEDIQ and Symphony Diagnostic
Services No. 1, Inc. dated
November 6, 1996.
3.1 Certificate of Incorporation. Exhibit 3.1 to Annual Report
on Form 10-K filed on
January 12, 1996.
3.2 By-Laws. Exhibit 3.2 to Annual Report.
on Form 10-K filed on
January 12, 1996.
4.1 Credit Agreement among MEDIQ/PRN Exhibit 4.1 to Annual Report on
Life Support Services, Inc., the Form 10-K filed December 30, 1996.
Lender Parties party thereto, Banque
Nationale de Paris, as Administrative
Agent and as Initial Issuing Bank,
and NationsBank, N.A., as
Documentation Agent dated October 1, 1996.
4.1(a) Amendment No. 1 to Credit Agreement Filed herewith.
among MEDIQ/PRN Life Support Services,
Inc., the Lender Parties party thereto,
Banque Nationale de Paris, as
Administrative Agent and as Initial
Issuing Bank, and NationsBank, N.A.,
as Documentation Agent dated
January 24, 1997.
4.1(b) Amendment No. 2 to Credit Agreement Filed herewith.
among MEDIQ/PRN Life Support Services
Inc., the Lender Parties party thereto,
Banque Nationale de Paris, as
Administrative Agent and as Initial
Issuing Bank, and NationsBank, N.A.,
as Documentation Agent dated
April 1, 1997.
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description Incorporation Reference
- ------- ----------- -----------------------
<S> <C> <C>
4.1(c) Amendment No. 3 to Credit Agreement Filed herewith.
among MEDIQ/PRN Life Support Services,
Inc., the Lender Parties party thereto,
Banque Nationale de Paris, as
Administrative Agent and as Initial
Issuing Bank, and NationsBank, N.A.,
as Documentation Agent dated
August 8, 1997.
4.1(d) Amendment No. 4 to Credit Agreement Filed herewith.
among MEDIQ/PRN Life Support Services,
Inc., the Lender Parties party thereto,
Banque Nationale de Paris, as
Administrative Agent and as Initial
Issuing Bank, and NationsBank, N.A.,
as Documentation Agent dated
September 17, 1997
4.2 Security Agreement among MEDIQ/PRN Exhibit 4 to Schedule 13D
Life Support Services, Inc., the filed October 11, 1996.
Banque Nationale de Paris, as
Administrative Agent and as Initial
Issuing Bank, and NationsBank, N.A.
as Documentation Agent dated
October 1, 1996
4.5 Indenture dated as of July 1, 1993 Exhibit 4.1 to S-2
between MEDIQ and First Union Bank, Registration Statement
N.A. (formerly First Fidelity Bank, No. 33-61724 originally filed
N.A.) for 7.50% Exchangeable on April 28, 1993, as amended.
Subordinated Debentures due 2003.
4.6 7.50% Exchangeable Subordinated Exhibit 4.2 to S-2 Registration
Debentures due 2003 Statement No. 33-61724 originally
filed on April 28, 1993 as amended
10.6 MEDIQ Executive Security Plan Exhibit 10.6 to Form 10-K
Annual Report filed on
January 12, 1996.
10.7(a) 1987 Stock Option Plan Exhibit 10.7 to Form 10-K
Annual Report filed on
January 12, 1996.
10.7(b) Amendment to 1987 Stock Option Exhibit 10.7(b) to Annual Report on
Form 10-K filed on December 30, 1996.
10.7(c) 1997 Stock Option Plan Filed herewith.
Plan.
10.8 Employment contract with Michael F. Exhibit 10.8 to Form 10-K
Sandler dated as of June 26, 1995. Annual Report filed on
January 12, 1996.
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description Incorporation Reference
- ------- ----------- -----------------------
<S> <C> <C>
10.8(a) Amendment No. 1 to Employment Filed herewith.
contract with Michael F. Sandler
dated as of April 30, 1997.
10.8(b) Amendment No. 2 to Employment Filed herewith.
contract with Michael F. Sandler
dated as of September 30, 1997.
10.8(c) Amendment No. 3 to Employment Filed herewith.
contract with Michael F. Sandler
dated as of September 30, 1997
10.9 Employment contract with Thomas E. Exhibit 10.9 to Form 10-K
Carroll dated as of April 27, 1995. Annual Report filed on
January 12, 1996
10.9(a) Amendment No. 1 to Employment Filed herewith.
contract with Thomas E. Carroll
dated as of November 14, 1997.
10.10 Employment contract with Jay M. Exhibit 10.10 to Form 10-K
Kaplan dated as of June 20, 1995. Annual Report filed on
January 12, 1996.
11 Statement re computation of per share Filed herewith.
earnings.
21 Subsidiaries of the Registrant. Filed herewith.
23 Consent of Deloitte & Touche LLP Filed herewith.
27 Financial Data Schedule Filed herewith.
</TABLE>
46
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
(in thousands)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- ---------------------------------------------------------------------------------------------------------------------------------
Additions
Description Balance at Charged to (1) Balance at
Beginning Costs and Charged to (2) End of
of Period Expenses Other Accounts Deductions Period
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended September 30, 1997:
Allowance for doubtful accounts $ 2,383 $ 3,234 $ 478 $(2,018) $ 4,077
======= ======= ======= ======= ======
Year ended September 30, 1996:
Allowance for doubtful accounts $ 2,207 $ 1,237 $ -- $(1,061) $ 2,383
======= ======= ======= ======= ======
Year ended September 30, 1995:
Allowance for doubtful accounts $ 2,195 $ 993 $ -- $ (981) $ 2,207
======= ======= ======= ======= =======
</TABLE>
(1) Primarily represents allowances for doubtful accounts related to
acquisitions.
(2) Represents accounts directly written-off net of recoveries.
47
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: December 23, 1997 MEDIQ Incorporated
/s/Thomas E. Carroll
--------------------------------------
BY: Thomas E. Carroll
President and
Chief Executive Officer
/s/Jay M. Kaplan
--------------------------------------
BY: Jay M. Kaplan
Senior Vice President - Finance,
Treasurer and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Thomas E. Carroll Director, Chief Executive December 23, 1997
- ------------------------- Officer and President
Thomas E. Carroll
/s/ Michael F. Sandler Director December 23, 1997
- --------------------------
Michael F. Sandler
Director December 23, 1997
- --------------------------
Sheldon M. Bonovitz
/s/ Mark S. Levitan Director December 23, 1997
- --------------------------
Mark S. Levitan
/s/ H. Scott Miller Director December 23, 1997
- ---------------------------
H. Scott Miller
/s/ Michael J. Rotko Chairman of the Board December 23, 1997
- -------------------------- and Director
Michael J. Rotko
/s/ Jacob Shipon Vice Chairman of the December 23, 1997
- ---------------------------- Board and Director
Jacob Shipon
</TABLE>
48
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT, dated as of November 13, 1997 (the
"Agreement"), among MEDIQ Incorporated, a Delaware corporation ("MEDIQ"), MEDIQ
Investment Services, Inc., a Delaware corporation ("MIS" and together with
MEDIQ, collectively the "Seller"), and InnoServ Technologies, Inc., a California
corporation (the "Company").
WITNESSETH:
WHEREAS, Seller owns 2,026,438 shares (the "Issuer Shares") of the
common stock of the Company (the "Common Stock") and warrants to purchase
325,000 shares of Common Stock (the "Warrants"); and
WHEREAS, the Seller and the Company had previously entered into an
agreement pursuant to which Seller would be required to distribute the Issuer
Shares to its stockholders upon demand by the Company; and
WHEREAS, by letter dated September 26, 1997 (the "Distribution
Request"), the Company has requested that Seller distribute the Issuer Shares to
its stockholders, such distribution to be completed no later than 60 days from
the date of such letter; and
WHEREAS, the Seller requested that the Company consider alternative
arrangements with respect to the Issuer Shares, and the respective Boards of
Directors of the Company and the Seller have considered such alternative
arrangements; and
WHEREAS the Seller and the Company desire that in lieu of distribution
that Seller will sell and transfer such shares to Company in accordance with the
terms and conditions hereof; and
NOW, THEREFORE, in consideration of the mutual premises and agreements
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by the parties, the parties hereto
agree as follows:
<PAGE>
1. SALE OF THE SHARES
1.1 Sale. Simultaneously with the execution and delivery hereof, the
Seller shall transfer, assign, sell and deliver to the Company, and the Company
shall purchase from the Seller all of the Issuer Shares and Warrants in
consideration of the agreements and waivers of the parties contained herein (the
"Purchase Price"). The closing (the "Closing") of the sale and purchase and
delivery of all of the Issuer Shares and Warrants shall be held on the date
hereof. At the Closing Seller shall deliver the certificates for the Issuer
Shares and the Warrants duly endorsed or accompanied by stock powers or other
appropriate instruments of transfer duly executed in blank.
1.2 Change in Control.
(a) Before April 1, 1998, the Company shall not enter into or
consummate a change in control (as defined below) unless the other party or
parties thereto agree, as a condition precedent to such transaction, to pay
Seller the amount (subject to the last sentence of this paragraph) that would
have been received by the Seller in connection with the change of control
transaction if all of the Issuer Shares were outstanding and held by the Seller
at the effective time of such change in control transaction. From and after
April 1, 1998 and through September 30, 1998, the Company shall not enter into
or consummate a change of control unless the other party or parties thereto
agree, as a condition precedent to such transaction, to pay Seller 50% of the
amount (subject to the last sentence of this paragraph) that would have been
received by the Seller in connection with the change of control transaction if
all of the Issuer Shares were outstanding and held by the Seller at the
effective time of such change in control transaction. Any amounts owed to Seller
pursuant to this Section 1.3 shall be paid simultaneously with the payment to
the Company's shareholders in connection with the consummation of any
transaction that constitutes a change in control of the Company. The Company
shall not enter into any change in control transaction or cooperate with any
third party with respect to a possible change in control transaction unless the
other party (or parties) thereto agree to make adequate provision for the
payment to Seller of all amounts provided herein. If the Company's shareholders
are entitled to receive Marketable Consideration (as defined below) and other
consideration in respect of a share of Common Stock, the amount that is due to
Seller shall be determined only with respect to the portion that is Marketable
Consideration.
(b) For purposes of this Agreement, the parties intend that a
"change in control" means a transaction or series of transactions in which the
holders of a majority of the outstanding Common Stock receive (or have the right
to receive) Marketable Consideration, in respect of their shares of Common Stock
(whether by merger, sale, tender, dissolution or otherwise). For the purposes of
this Agreement, Marketable Consideration means cash, debt or publicly traded
equity securities of a company that had been a public company before such
transaction (including preferred stock or any right to acquire such publicly
traded equity security) ("Marketable Consideration"). By way of illustration, a
change in control shall include: (i) the consolidation or merger of the Company
pursuant to which the outstanding shares of Common Stock are converted into the
right to receive Marketable Consideration or (ii) the sale of all or
<PAGE>
substantially all of the assets of the Company for Marketable Consideration or
(iii) any other transaction involving an exchange or sale of 50% or more of the
outstanding Common Stock, including a tender offer, for Marketable
Consideration, but excluding all other transactions, including where the holders
of the outstanding Common Stock receive only securities of the Company or of
another entity of which the Company's assets or business constitute a
substantial portion, or reincorporation of the Company in a jurisdiction other
than California.
(c) For purposes of determining the amount which Seller would have
received with respect to the Issuer Shares following a change in control, (1) in
any transaction involving a sale or exchange of any shares of Common Stock, it
shall be presumed that all of the Issuer Shares were sold at the highest average
price paid to any affiliate of the Issuer for any shares in such transaction,
(2) in any transaction involving a merger or consolidation of the Company, it
shall be presumed that the Seller (as a shareholder) voted in favor of such
transaction, (3) in any transaction involving the sale of all or substantially
all of the assets of the Company, it shall be presumed that the Company was
dissolved and its net assets distributed to its shareholders immediately after
such transaction and (4) in any other change in control transaction in which a
majority of the Company's shareholders which are not affiliates of the Company
receive any consideration in respect of their shares of Common Stock, the Seller
shall be presumed to have the right to receive an equivalent amount.
Furthermore, in the event of a tender or exchange offer for less than all of the
outstanding Common Stock, the Seller shall be treated as if it had tendered
(which tender had been accepted) a percentage of the Issuer Shares equal to the
highest percentage of shares of Common Stock owned by any shareholder of the
Company which are accepted by the party making such offer; and in addition the
Seller shall be entitled to receive an equivalent amount of any securities of
the Company retained by such shareholder.
(d) The Seller acknowledges that neither the Company nor any of its
affiliates (i) has any fiduciary duty to Seller, any of Seller's affiliates or
any of Seller's stockholders (the "Seller Group") by reason of this Agreement,
(ii) is under any duty or obligation to the Seller Group to initiate,
investigate, consider, respond or otherwise take any action with respect to a
proposal that may result in a change of control by reason of this Agreement, any
such potential transaction as with respect to the Seller Group being within the
sole discretion of the Company, and (iii) any such potential transaction will be
considered by the Company in light of the duties owed to the holders of the
Common Stock outstanding at such time. Notwithstanding the above, if any third
party approaches the Company or any of its affiliates or representatives
regarding a possible change in control, the Company shall in good faith not
delay or defer such consideration, evaluation or negotiation with the intent to
reduce any amounts payable to Seller hereunder.
(e) Subject to the last sentence of Section 1.2(a), any payment due
to Seller under this Section 1.2 shall, unless Seller otherwise agrees, be paid
in cash or in property of the kind and in the same proportion received by the
shareholders of the Company in connection with the change in control
transaction.
2
<PAGE>
2. CERTAIN REPRESENTATIONS AND WARRANTIES
2.1 Certain Representations and Warranties by the Seller. The Seller
represents and warrants to the Company that:
(a) Organization and Good Standing. Each Seller is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all necessary corporate power and authority to carry
on its business and to own and lease the assets which it owns and leases.
(b) Power and Authorization. Each Seller has full legal right, power
and authority to enter into and perform its obligations under this Agreement and
the other agreements and documents required to be delivered by it hereunder. The
execution, delivery and performance by each Seller of this Agreement and such
other agreements and documents have been duly authorized by all necessary
corporate action on the part of Seller. This Agreement has been duly and validly
executed and delivered by each Seller and constitutes its legal, valid and
binding obligation, enforceable against it in accordance with its terms. When
executed and delivered by such Seller as contemplated herein, each of such other
agreements and documents shall constitute the legal, valid and binding
obligation of each Seller, enforceable against it in accordance with its terms.
(c) No Conflicts. (i) Neither the execution of this Agreement nor
the consummation by each Seller of the transactions contemplated hereby will
constitute a violation of or default under, or conflict with, any statute or
regulation, contract, commitment, agreement, understanding, arrangement or
restriction of any kind to which such Seller is a party or by which it or any of
its properties are bound (which, in relation to a contract, commitment,
agreement, understanding, arrangement or restriction would have a material
adverse effect on the Seller or prohibit or delay the transactions contemplated
herein) and (ii) no consent, approval, order or authorization of any court,
administrative agency, other governmental entity or any other person is required
(as opposed to voluntary) by or with respect to such Seller in connection with
the execution and delivery of this Agreement by such Seller.
(d) Ownership of Shares. (i) Upon transfer and delivery of the
Issuer Shares and Warrants by the Seller hereunder to the Company, as provided
herein, Company shall acquire good and marketable title to such shares and
Warrants, free and clear of all claims, liens, charges, proxies, encumbrances
and security interests (other than as are imposed by applicable securities laws)
and (ii) the Seller does not own beneficially (as hereinafter defined) or of
record any shares of Common Stock or any right to acquire Common Stock of the
Company other than the Issuer Shares and Warrants.
3
<PAGE>
(e) No Broker. Neither Seller nor any director, officer, employee of
Seller has incurred or will incur on behalf of the Company any brokerage,
finder's or similar fee in connection with the transactions contemplated by this
Agreement.
(f) Board Members. Thomas Carroll and Michael Sandler or other
designees of the Seller have served on the Board of Directors of the Company by
designation of the Seller at all times since the consummation of the
transactions contemplated by the Merger Agreement (as defined in Section 6.3).
All documents, records, plans and books pertaining to the Company have been made
available to such designees. The Seller has made such examinations relating to
the terms, merits and risks of the transactions contemplated hereby as it deems
necessary, including the opportunity to ask questions of and receive answers
from the officers of the Company and the Company's auditors and consultants and
all such questions have been answered to the full satisfaction of the Seller. In
making the decision to enter into the transactions contemplated hereby, the
Seller is relying solely on the investigations made by the Seller and the
Company's representations and warranties made herein.
1.2 Certain Representations and Warranties by the Company. The Company
represents and warrants to the Seller that:
(a) Organization and Good Standing. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California and has all necessary corporate power and authority to carry
on its business and to own and lease the assets which it owns and leases.
(b) Power and Authorization. The Company has full legal right, power
and authority to enter into and perform its obligations under this Agreement and
the other agreements and documents required to be delivered by it hereunder. The
execution, delivery and performance by the Company of this Agreement and such
other agreements and documents have been duly authorized by all necessary
corporate action on the part of the Company. The transactions contemplated by
this Agreement have been approved by a special committee of the board of
directors composed entirely of directors who are not present or former
directors, officers, employees, or consultants of Seller. This Agreement has
been duly and validly executed and delivered by the Company and constitutes its
legal, valid and binding obligation, enforceable against it in accordance with
its terms. When executed and delivered as contemplated herein, each of such
other agreements and documents shall constitute the legal, valid and binding
obligation of the Company enforceable against it in accordance with its terms.
(c) No Conflicts. (i) Neither the execution of this Agreement nor
the consummation by the Company of the transactions contemplated hereby will
constitute a violation of or default under, or conflict with, any statute or
regulation, contract, commitment, agreement, understanding, arrangement, or
restriction of any kind to which the Company is a party or by which it or any of
4
<PAGE>
its properties is bound (which in relation to a contract, commitment, agreement,
understanding, arrangement or restriction would have a material adverse effect
on the Company or prohibit or delay the transactions considered herein) and (ii)
no consent, approval, order or authorization of or by the stockholders of the
Company or of any court, administrative agency, other governmental entity or any
other person (other than that which has already been obtained) is required (as
opposed to voluntary) by or with respect to the Company in connection with the
execution and delivery of this Agreement by it.
(d) Change in Control. Except as previously disclosed to Seller or
its designees serving as the Company's board of directors, there are no offers,
options, rights, agreements or commitments of any kind (contingent or otherwise)
relating to any possible change in control of the Company.
(e) No Brokers. Neither the Company nor any director, officer or
employee of the Company has incurred or will incur on behalf of the Company, any
brokerage, finder's or similar fee in connection with the transactions
contemplated by this Agreement.
2. CLOSING DELIVERIES
2.1 Seller's Deliveries. At the Closing, Seller shall deliver, or shall
cause to be delivered to the Company the following:
(a) certificates for all of the Issuer Shares and Warrants, duly
endorsed or accompanied by stock powers and other appropriate instruments of
transfer duly executed in blank;
(b) copies of the resolutions of the Board of Directors of each
Seller authorizing the execution, delivery and performance of this Agreement and
the other agreements and instruments referred to herein, certified as of the
Closing by the Secretary or an Assistant Secretary of Seller; and
(c) The resignation of Thomas E. Carroll from the Company's Board of
Directors; and
(d) such other documents and instruments as the Company may
reasonably request to effectuate or evidence the transactions contemplated by
this Agreement.
2.2 The Company's Deliveries. At the Closing, the Company shall
deliver, or shall cause to be delivered to Seller a copy of the resolutions of
the Board of Directors of the Company (and each committee thereof, if any)
authorizing the execution, delivery and performance by the Company of this
5
<PAGE>
Agreement and the other agreements and instruments referred to herein, certified
as of the Closing by the Secretary or an Assistant Secretary of the Company.
3. INDEMNIFICATION
3.1 Indemnification by Seller. Seller shall indemnify and hold the
Company and its officers, directors and shareholders harmless from and against
and in respect of any and all losses, costs, expenses, claims, damages,
obligations and liabilities, including interest, costs of investigation,
penalties and reasonable attorneys' fees and disbursements ("Damages") which the
Company or any such person may suffer, incur or become subject to arising out
of, based upon or otherwise in respect of any inaccuracy in or breach of (i) any
representation or warranty of Seller made in or pursuant to this Agreement or
any agreement or document required to be delivered pursuant to this Agreement,
(ii) or any breach or nonfulfillment of any covenant or obligation of Seller
contained in this Agreement or such other agreements and documents, or (iii) any
action, suit, proceeding or claim by a stockholder of the Seller (in such
capacity) challenging the transactions contemplated by this Agreement.
3.2 Indemnification by the Company. The Company shall indemnify and
hold Seller and its officers, directors and shareholders harmless from and
against and in respect of any and all Damages which Seller or any such person
may suffer, incur or become subject to arising out of, based upon or otherwise
in respect of (i) any inaccuracy in or breach of any representation or warranty
of the Company made in or pursuant to this Agreement or any agreement or
document required to be delivered pursuant to this Agreement, (ii) any breach or
nonfulfillment of any covenant or obligation of the Company contained in this
Agreement or such other agreements and documents or (iii) any action, suit,
proceeding or claim by a stockholder of the Company (in such capacity)
challenging the transactions contemplated by this Agreement.
3.3 Third Party Claims.
(a) Each party shall promptly notify the other of the assertion by
any third party of any claim with respect to which the indemnification set forth
in this Section relates. The indemnifying party shall have the right, upon
notice to the indemnified party within ten (10) business days after the receipt
of any such notice, to undertake the defense of or, with the consent of the
indemnified party (which consent shall not unreasonably be withheld) to settle
or compromise such claim. The failure of the indemnifying party to give such
notice and to undertake the defense of or to settle or compromise such a claim
shall constitute a waiver of the indemnifying party's rights under this Section
5.3(a) and in the absence of gross negligence or willful misconduct on the part
of the indemnified party shall preclude the indemnifying party from disputing
the manner in which the indemnified party may conduct the defense of such claim
or the reasonableness of any amount paid by the indemnified party in
satisfaction of such claim.
6
<PAGE>
(b) The election by the indemnifying party, pursuant to Section
4.3(a), to undertake the defense of a third party claim shall not preclude the
party against which such claim has been made also from participating or
continuing to participate in such defense, so long as such party bears its own
legal fees and expenses for so doing.
4. MISCELLANEOUS
4.1 Best Efforts. Each of the parties shall use its best reasonable
efforts to take all action and do all things necessary, proper or advisable to
consummate the transaction contemplated by this Agreement.
4.2 Amendment; Assignment. This Agreement may be amended only by
written instrument duly executed by the parties hereto. No party may waive any
term, provision, covenant or restriction of this Agreement except by duly signed
writing referring to the specific provision to be waived. Neither of the parties
to this Agreement may assign any of its rights or obligations under this
Agreement without the prior written consent of the other party hereto. Subject
to the foregoing, this Agreement shall be binding upon, inure to the benefit of
and be enforceable by the parties hereto and their respective successors and
permitted assigns. The parties expressly intend and agree that no provision of
this Agreement shall create any third party beneficiary rights in any person.
4.3 Termination of Prior Obligations. This Agreement sets forth the
entire understanding between the Seller and the Company and supersedes all prior
agreements, arrangements and understandings by and among the parties with
respect to the transactions contemplated hereby. All unperformed agreements,
arrangements and understandings under or entered into pursuant or relating to
the Agreement of Merger and Plan of Reorganization among MMI Medical, Inc. (now
the Company), MMI Acquisition Subsidiary, Inc., MEDIQ Incorporated and MEDIQ
Equipment and Maintenance Services, Inc. dated May 18, 1994, as amended (the
"Merger Agreement"), (including without limitation such Merger Agreement),
except as further provided herein, are hereby terminated without further
liability or obligation on the part of any party. Notwithstanding the foregoing,
the agreements set forth in Article X of the Merger Agreement shall continue in
full force and effect to the extent provided therein. Seller and the Company
each acknowledge that they have no claims against each other and hereby
irrevocably releases each other from and against, and irrevocably waives, any
and all claims, liabilities, obligations, covenants, agreements, damages and
causes of action, which each may have against the other arising out of events
occurring prior to the date hereof, provided that the foregoing shall not
include (i) Article X of the Merger Agreement, and (ii) shall not inlude, and
the parties shall use their best reasonable efforts to resolve within the next
180 days, all issues relating to the receipt of receivables, which are estimated
to be less than $50,000.
7
<PAGE>
4.4 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be delivered personally
or transmitted by telex, fax or telegram, to the respective parties as follows:
(a) If to the Seller, to it at:
MEDIQ Incorporated
One MEDIQ Plaza
Pennsauken, New Jersey 08110-1460
Attention: Thomas E. Carroll, President
Telecopier: (609) 661-0958
with a copy to:
Drinker Biddle & Reath LLP
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, Pennsylvania 19107-3496
Attention: F. Douglas Raymond, III, Esquire
Telecopier: (215) 988-2757
(b) If to the Company, to it at:
InnoServ Technologies, Inc.
320 Westway, Suite 520
Arlington, Texas 76018
Attention: Michael G. Puls
Telecopier: (817) 472-2926
with a copy to:
Gibson, Dunn & Crutcher LLP
1917 Main Street, Suite 5400
Dallas, Texas 75201
Attention: Ellen J. Curnes
Telecopier: (214) 698-3400
or to such other address as any party may have furnished to
the others in writing.
4.5 Governing Law. This Agreement will be governed by and construed in
accordance with the internal laws of the State of California.
8
<PAGE>
4.6 Survival. All representations, warranties, covenants and agreements
of the parties hereto shall survive indefinitely the Closing.
4.7 Counterparts; Headings. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same document. The article and
section headings contained herein are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement.
4.8 Expenses. Each of the parties hereto shall pay the fees and
expenses it incurs in connection with this Agreement, other than as a result of
the breach hereof by the other party hereto.
4.9 Certain Definitions. For purposes of the Agreement:
(a) "beneficially owned" shall have the meaning set forth in Rule
13d-3 promulgated under the Exchange Act, as such Rule is in effect on the date
hereof.
(b) "business day" means any day which is neither a Saturday or
Sunday nor a legal holiday on which banks are authorized or required to be
closed in New York, New York.
4.10 Stock Splits, etc. The amount of any payments under Section 1.2
shall be appropriately adjusted for any stock split, reverse stock split, stock
dividend or any similar event occurring after the date hereof and prior to the
consummation of a change in control.
4.11 Public Announcements. Seller and the Company shall consult with
each other before issuing any press release or public statement with respect to
the transactions contemplated by this Agreement, and shall not issue any such
press release or make any such public statement with respect to the transactions
contemplated by this Agreement without the prior consent of the other party,
which shall not be unreasonably withheld or delayed; provided, however, that a
party may, without the prior consent of the other party, issue such press
release or make such public statement as may upon the advice of counsel be
required by law or the rules and regulations of the AMEX or NASD.
4.12 Specific Performance. Each of the parties acknowledges and agrees
that the other party would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the parties agrees that
the other party shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof (including without limitation the
9
<PAGE>
Seller's rights under Section 1.2) in any action instituted in any court of the
United States or any state thereof having jurisdiction over the parties and the
matter, in addition to any other remedy to which they may be entitled, at law or
in equity, subject to Section 5.13.
4.13 Arbitration. Any controversy involving a claim as to the existence
of a "change in control" or the amount due in respect thereof shall be finally
settled by arbitration in Los Angeles, California, in accordance with the
then-current Commercial Arbitration Rules of the American Arbitration
Association, and judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction thereof. Such arbitration shall be
conducted by an arbitrator chosen by mutual agreement of Seller and Company.
Failing such agreement, the arbitration shall be conducted by three independent
arbitrators, none of whom shall have any competitive interest with Seller or
Company; Seller shall choose one such arbitrator, Company shall choose one such
arbitrator, and such two arbitrators shall mutually select a third arbitrator.
Any decision of two such arbitrators shall be binding on Seller and Company.
There shall be limited discovery prior to the arbitration hearing, subject to
the discretion of the arbitrators, as follows: (a) exchange of witness lists and
copies of documentary evidence and documents related to or arising out of the
issues to be arbitrated, (b) depositions of all party witnesses, and (c) such
other depositions as may be allowed by the arbitrator upon a showing of good
cause. Depositions shall be conducted in accordance with the California Code of
Civil Procedure. Each party shall pay its own costs and expenses (including
counsel fees) of any such arbitration except that the arbitrator can compel one
party to pay all or a portion of the other party's costs and expenses. The
parties recognize that time is of the essence, and agree to submit to
arbitration any such claim within 20 business days of a controversy having
arisen.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written.
MEDIQ INCORPORATED
By: /s/ Thomas E. Carroll
---------------------------------
MEDIQ INVESTMENT SERVICES, INC.
By: /s/ Thomas E. Carroll
---------------------------------
INNOSERV TECHNOLOGIES, INC.
By: /s/ Michael G. Puls
---------------------------------
EXHIBIT 4.1(a)
Amendment No. 1 to the Credit Agreement
<PAGE>
AMENDMENT NO. 1 TO THE
CREDIT AGREEMENT
Dated as of January 24, 1997
AMENDMENT NO. 1 TO THE CREDIT AGREEMENT, among MEDIQ/PRN LIFE SUPPORT
SERVICES, INC., a Delaware corporation (the "Borrower"), MEDIQ INCORPORATED, a
Delaware corporation ("MEDIQ"), PRN HOLDINGS, INC., a Delaware corporation
(together with MEDIQ, the "Parent Guarantors"), the banks, financial
institutions and other institutional lenders parties to the Credit Agreement
referred to below (collectively, the "Lenders") and Banque Nationale de Paris as
administrative agent (the "Administrative Agent") for the Lenders and
NationsBank N.A., as documentation agent (the "Documentation Agent").
PRELIMINARY STATEMENTS:
(1) The Borrower, the Parent Guarantors, the Lenders, the
Administrative Agent and the Documentation Agent have entered into a Credit
Agreement dated as of October 1, 1996 (the "Credit Agreement"). Capitalized
terms not otherwise defined in this Amendment have the same meanings as
specified in the Credit Agreement.
(2) The Borrower seeks to acquire Universal Hospital Services, Inc., a
Minnesota corporation ("UHS"), (the "UHS Acquisition") and, in order to finance,
together with advances under the existing Facilities, such acquisition, has
requested that certain Lenders (the "Affected Lenders" or the "Incremental Term
B Lenders") increase their Commitments under the Term B Facility (the
"Incremental Term B Commitments") and the Working Capital Facility, and amend
certain provisions of the Credit Agreement in order to provide such financing
and for certain other purposes.
(3) The Required Lenders and the Affected Lenders are, on the terms and
conditions stated below, willing to grant the request of the Borrower and the
Borrower and such Lenders have agreed to amend the Credit Agreement as
hereinafter set forth.
<PAGE>
SECTION 1. Amendments to the Credit Agreement. The Credit Agreement is,
effective as of the date hereof and subject to the satisfaction of the
conditions precedent set forth in Section 2(a) hereof, hereby amended as
follows:
(a) Section 1.01 is amended by inserting therein the following
definitions in appropriate alphabetical order:
"`BERS' means Biomedical Equipment Rental and Sales, Inc., a
Subsidiary of UHS.
"'UHS' means Universal Hospital Services, Inc., a Minnesota
corporation.
"`UHS Acquisition' means the acquisition of the common stock of UHS
by the Borrower or any of the Borrower's Ongoing Subsidiaries, as permitted
under this Agreement."
"'UHS Acquisition Closing Date' means any Business Day on which the
UHS Acquisition occurs."
(b) The definition of "Acquisition Facility Sublimit" in Section 1.01
is amended by deleting clause (iii) thereof and substituting therefor the
following:
"(iii) the excess of the aggregate amount of Subordinated Notes
outstanding at such time over the principal amount of the NutraMax Note to the
extent secured by the NutraMax Letter of Credit multiplied by 66%."
(c) The definition of "Borrower's Account" is amended by deleting
therefrom the account number "200877-001-91" and substituting therefor the
account number "202330-001-77".
(d) The definition of "EBITDA" is amended by inserting immediately
before the proviso thereto the following:
"and (g) all one-time expenses of the Borrower and its Affiliates
incurred in connection with the UHS Acquisition for severance expenses, lease
related expenses and facility closure expenses".
(e) The definition of "Leverage Ratio" is amended (i) by inserting in
the seventh line thereof, immediately preceding the words ", so long as", the
phrase "multiplied by 66%", and (ii) by adding at the end thereof the following:
",except with respect to the UHS Acquisition, in which case the 12-month
trailing EBITDA of UHS shall be adjusted for the EBITDA of BERS included in such
calculation for the period of time that said EBITDA of BERS is not actually
reflected in the aforesaid EBITDA of UHS, in which case such EBITDA of UHS shall
be the pro forma EBITDA of UHS and BERS for such period."
2
<PAGE>
(f) The definition of "Senior Leverage Ratio" is amended by adding at
the end thereof the following: ",except with respect to the UHS Acquisition, in
which case the 12-month trailing EBITDA of UHS shall be adjusted for the EBITDA
of BERS included in such calculation for the period of time that said EBITDA of
BERS is not actually reflected in the aforesaid EBITDA of UHS, in which case
such EBITDA of UHS shall be the pro forma EBITDA of UHS and BERS for such
period."
(g) The definition of "Term B Borrowing" is amended by adding at the
end thereof the following:
"and Incremental Term B Advances made on the UHS Acquisition Closing
Date."
(h) Section 2.01(b) is amended by (i) inserting "(i)" immediately after
the heading "The Term B Advances" and (ii) adding a new clause (ii) at the end
thereof to read as follows:
"(ii) Each Incremental Term B Lender severally agrees, on the terms
and conditions hereinafter set forth, to make a single advance to the Borrower
on the UHS Acquisition Closing Date in an amount not to exceed such Incremental
Term B Lender's Incremental Term B Commitment as set forth in Schedule I hereto
(each such advance being an "Incremental Term B Advance"). Such Term B Borrowing
shall consist of Incremental Term B Advances made simultaneously by the
Incremental Term B Lenders ratably according to their Incremental Term B
Commitments. Amounts borrowed under this Section 2.01(b)(ii) and repaid or
prepaid may not be reborrowed."
(i) The table contained in Section 2.04(a) is amended by (i) deleting
each figure "8,500,000" therein and substituting for each such figure the figure
"13,000,000" and (ii) deleting each figure "15,000,000" therein and substituting
for each such figure the figure "21,750,000".
(j) Section 2.14(a) is amended by adding at the end thereof the
following:
"and, on the UHS Acquisition Closing Date, an aggregate amount of up
to $45,000,000 of Incremental Term B Advances to finance a portion of the UHS
Acquisition".
(k) Section 2.14(c) is amended by inserting therein, immediately after
"Section 5.01(p)", the following:
3
<PAGE>
", to provide up to $5,000,000 of the financing for the UHS
Acquisition".
(l) Section 4.01(i) is amended by inserting therein, immediately after
"provided that", the following:
", other than with respect to the UHS Acquisition as permitted under
Section 5.02(f)(i),".
(m) Section 5.01(n) is amended by substituting for the date "November
15, 1996" the phrase the date that is 45 days following the UHS Acquisition
Closing Date" and by adding after the phrase "the Term B Facilities " the
parenthetical "(including the Incremental Term B Advances)".
(n) Section 5.02(b)(ii)(B) is amended by deleting therein the figure
"$100,000,000" and substituting therefor the figure "$140,000,000".
(o) Section 5.02(b)(ii) is amended by adding at the end thereof a new
subsection (H) to read as follows:
"intercompany Debt owed to the Borrower in connection with the UHS
Acquisition, so long as such Debt is evidenced by an intercompany note in form
and substance satisfactory to the Administrative Agent, and".
(p) Section 5.02(f)(i) is amended (i) by inserting in the second line
thereof, immediately following "Acquisition Advances", the following ", Working
Capital Advances, Incremental Term B Advances" and (ii) by inserting therein,
immediately before "provided that", the following:
"or constituting the purchase of at least 90% of the common stock of
UHS in a transaction approved by the Board of Directors of UHS so long as UHS
becomes a wholly owned Subsidiary of the Borrower on the UHS Acquisition Closing
Date in a transaction approved by the Board of Directors of UHS or constituting
the payment of consideration for the merger of UHS and the Borrower or a wholly
owned Subsidiary of the Borrower,"
(q) Section 5.02(f)(i)(2) is amended by adding at the end thereof the
following:
"except with respect to the UHS Acquisition, in which case such
Leverage Ratio shall not be more than 3.75 to 1.0".
4
<PAGE>
(r) Section 5.02(f)(i)(3) is amended by adding at the end thereof the
following:
"except with respect to the UHS Acquisition, in which case such
amount shall not exceed 6.5 multiplied by the 12-month trailing EBITDA of UHS
(adjusted for the EBITDA of BERS included in such calculation for the period of
time that said EBITDA of BERS is not actually reflected in the aforesaid EBITDA
of UHS, in which case such EBITDA of UHS shall be the pro forma EBITDA of UHS
and BERS for such period)".
(s) Section 5.02(f)(i)(4) is amended by (i) deleting therefrom the
following:
"shall not exceed $100,000,000"
and (ii) adding at the end thereof the following:
"plus the aggregate amount of Advances made by the Lenders and used
for all such Investments outstanding at any time on and after the UHS
Acquisition Closing Date shall not exceed $140,000,000."
(t) Section 5.04(f) is amended by inserting in the eighth line thereof
immediately after the word "Investments" the following: ", except with respect
to the UHS Acquisition, in which case the 12-month trailing EBITDA of UHS shall
be adjusted for the EBITDA of BERS included in such calculation for the period
of time that said EBITDA of BERS is not actually reflected in the aforesaid
EBITDA of UHS, in which case such EBITDA of UHS shall be the pro forma EBITDA of
UHS and BERS for such period."
(u) Schedule 1 is supplemented by adding with respect to the Working
Capital Commitment of each of BNP and NationsBank, $2,500,000, and adding
Incremental Term B Commitments for each of BNP and NationsBank, in the amount of
$22,500,000.
SECTION 2. Conditions of Effectiveness. (a) This Amendment shall become
effective as of the date first above written when, and only when, the
Administrative Agent shall have received (x) counterparts of this Amendment
executed by the Borrower, the Required Lenders and each Affected Lender, or, as
to any of the Lenders, advice satisfactory to the Administrative Agent that such
Lender has executed this Amendment and (y) for the ratable account of the
Lenders, 1/10% of the sum of the Term A Advances, the Term B Advances, the
Acquisition Commitments and the Working Capital Commitments as such Advances and
Commitments shall be outstanding immediately prior to the effectiveness of this
Amendment (i.e. $260,000). The effectiveness of this Amendment is conditioned
5
<PAGE>
upon the accuracy of the factual matters described herein. This Amendment is
subject to the provisions of Section 9.01 of the Credit Agreement.
(b) This Amendment shall be null and void and of no effect if, on or
before April 23, 1997 (or such later date before July 15, 1997 as the Affected
Lenders may consent to in writing), the following conditions shall not have been
satisfied:
(1) The Administrative Agent shall not have additionally received
all of the following documents, each such document (unless otherwise specified)
dated the date of receipt thereof by the Administrative Agent (unless otherwise
specified) and in sufficient copies for each Lender, in form and substance
satisfactory to the Administrative Agent (unless otherwise specified):
(i) Certified copies of (x) the resolutions of the Board of
Directors of (A) the Borrower approving this Amendment, the Collateral
Documents, amendments or supplements thereto contemplated hereby and the matters
contemplated hereby and thereby and (B) each other Loan Party evidencing
approval of the Consent, the Collateral Documents, amendments or supplements
thereto contemplated hereby and the matters contemplated hereby and thereby and
(y) all documents evidencing other necessary corporate action and governmental
approvals, if any, with respect to this Amendment, the Consent, the Collateral
Documents, amendments or supplements thereto contemplated hereby and the matters
contemplated hereby and thereby;
(ii) A certificate of the Secretary or an Assistant Secretary of
the Borrower and each other Loan Party certifying the names and true signatures
of the officers of the Borrower and such other Loan Party authorized to sign
this Amendment, the Consent, the Collateral Documents, amendments or supplements
thereto contemplated hereby to any of which they are or are to be a party and
the other documents to be delivered hereunder and thereunder;
(iii) Counterparts of a consent with respect to this Amendment
No. 1, in form satisfactory to the Administrative Agent, executed by each of the
Loan Parties (other than the Borrower);
(iv) A favorable opinion of Drinker, Biddle & Reath, counsel for
the Loan Parties, as to such matters as the Administrative Agent may reasonably
request;
(v) A certificate signed by a duly authorized officer of the
Borrower stating that:
6
<PAGE>
(x) The representations and warranties contained in the Loan
Documents as amended hereby, Section 3 hereof, and in each of the Collateral
Documents and amendments and supplements thereto delivered pursuant to this
Section 2 are correct on and as of the date of such certificate as though made
on and as of such date other than any such representations or warranties that,
by their terms, refer to a date other than the date of such certificate; and
(y) No event has occurred and is continuing that constitutes a
Default; and
(vi) Notes payable to the order of the Affected Lenders; and
(2) Each of the following conditions shall have been satisfied:
(i) The Borrower and any additional Loan Party, as appropriate,
shall have delivered all such documents, agreements, certificates or instruments
as shall be required or as the Administrative Agent shall have requested
pursuant to Section 5.01(o);
(ii) All governmental and third party consents and approvals
necessary in connection with the UHS Acquisition shall have been obtained and
remain in effect, and all applicable waiting periods shall have expired without
any action being taken by any competent authority, and no law or regulation
shall be applicable which, in the case of any of the foregoing, restrains,
prevents or imposes materially adverse conditions upon the rights of any Loan
Party to transfer or otherwise dispose of shares of UHS acquired in the tender
offer, if applicable, the exercise by any transferee of any Loan Party of all
ownership rights with respect to the shares of UHS stock acquired in connection
with any such tender offer or otherwise owned by any Loan Party, or the
consummation of a merger if not completed prior to the UHS Acquisition Closing
Date;
(iii) All Advances made by the Lender Parties shall be in
compliance with Regulations G, T, U and X of the Board of Governors of the
Federal Reserve System; and
(iv) The Borrower shall have retained Murray, Devine & Co. to
prepare and deliver a letter attesting to the Solvency of the Borrower after
giving effect to the acquisition of UHS.
7
<PAGE>
SECTION 3. Representations and Warranties of the Borrower. The Borrower
represents and warrants as follows:
(a) The Borrower is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction indicated in the recital of
the parties to this Amendment.
(b) The execution, delivery and performance by each Loan Party of this
Amendment and the Loan Documents, as amended hereby, to which it is or is to be
a party, and the consummation of the transactions contemplated hereby, are
within such Loan Party's corporate powers, have been duly authorized by all
necessary corporate action and do not (i) contravene each such Loan Party's
charter or by-laws, (ii) violate any law (including, without limitation, the
Securities Exchange Act of 1934, as amended, and the Racketeer Influenced and
Corrupt Organizations Chapter of the Organized Crime Control Act of 1970), rule
or regulation (including, without limitation, Regulation X of the Board of
Governors of the Federal Reserve System), or any order, writ, judgment,
injunction, decree, determination or award, binding on or affecting any Loan
Party or any of its Subsidiaries or any of their properties, (iii) conflict with
or result in the breach of, or constitute a default under, any contract, loan
agreement, indenture, mortgage, deed of trust, lease or other instrument binding
on or affecting any Loan Party, any of their Subsidiaries or any of their
properties or (iv) except for the Liens created under the Collateral Documents,
as amended hereby, or any amendments or supplements thereto contemplated hereby,
result in or require the creation or imposition of any Lien upon or with respect
to any of the properties of any Loan Party or any of its Subsidiaries.
(c) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body or any other third
party is required for the due execution, delivery, recordation, filing or
performance by any Loan Party of this Amendment, any of the Collateral Documents
or any amendments or supplements thereto contemplated hereby to which each such
Loan Party is or is to be a party, or any of the Loan Documents, as amended
hereby, to which it is or is to be a party except for such approvals as shall
have been obtained by the UHS Acquisition Closing Date.
(d) This Amendment and each of the Collateral Documents and amendments
and supplements thereto contemplated hereby to which each Loan Party is a party
have been duly executed and delivered by each such Loan Party. This Amendment
and each of the other Loan Documents, as amended hereby, to which each Loan
Party is a party are, and each of the other Collateral Documents and amendments
and supplements thereto contemplated hereby to which each such Loan Party is or
is to be a party, when delivered hereunder, will be, legal, valid and binding
obligations of each such Loan Party, enforceable against each such Loan Party in
8
<PAGE>
accordance with their respective terms, including as to each entity that shall
become a Loan Party on the UHS Acquisition Closing Date, as to each such Loan
Party on the UHS Acquisition Closing Date.
(e) There is no action, suit, investigation, litigation or proceeding
affecting any Loan Party or any of their Subsidiaries (including, without
limitation, any Environmental Action) pending or threatened before any court,
governmental agency or arbitrator that (i) would be reasonably likely to have a
Material Adverse Effect or (ii) purports to affect the legality, validity or
enforceability of this Amendment, the Collateral Documents, any amendments or
supplements thereto contemplated hereby or any of the other Loan Documents, as
amended hereby, or the consummation of any of the transactions contemplated
hereby.
(f) As of the UHS Acquisition Closing Date, the Collateral Documents
and amendments or supplements thereto consisting of security agreements or
mortgages to which any Loan Party is or is to be a party, when delivered
hereunder, will create valid and perfected first priority liens and security
interests in and to the Collateral covered thereby, securing the payment of the
Secured Obligations (in each case, as defined in such Collateral Documents or
amendment or supplement thereto); and the execution, delivery and performance of
this Amendment, each of the Collateral Documents and any amendments or
supplements thereto contemplated hereby do not adversely affect the Liens
created under any of the Collateral Documents.
SECTION 4. Reference to and Effect on the Loan Documents. (a) On and
after the effectiveness of this Amendment, each reference in the Credit
Agreement to "this Agreement", "hereunder", "hereof" or words of like import
referring to the Credit Agreement, and each reference in the Notes and each of
the other Loan Documents to "the Credit Agreement", "thereunder", "thereof" or
words of like import referring to the Credit Agreement, shall mean and be a
reference to the Credit Agreement, as amended by this Amendment.
(b) The Credit Agreement, the Notes and each of the other Loan
Documents, as specifically amended by this Amendment, are and shall continue to
be in full force and effect and are hereby in all respects ratified and
confirmed. Without limiting the generality of the foregoing, the Collateral
Documents and all of the Collateral described therein do and shall continue to
secure the payment of all Obligations of the Loan Parties under the Loan
Documents, in each case as amended by this Amendment.
(c) The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate as a waiver of
any right, power or remedy of any Lender or the Agent under any of the Loan
Documents, nor constitute a waiver of any provision of any of the Loan
Documents.
9
<PAGE>
(d) Except as otherwise provided in this Amendment, from and after the
UHS Acquisition Closing Date, all references to (i) Term B Lenders shall include
the Incremental Term B Lenders, (ii) Term B Advances shall include all Term B
Advances made by the Incremental Term B Lenders and (iii) Term B Commitments
shall mean the Incremental Term B Commitments of the Incremental Term B Lenders
hereunder.
SECTION 5. Costs, Expenses. The Borrower agrees to pay on demand all
costs and expenses of the Agent in connection with the preparation, execution,
delivery and administration, modification and amendment of this Amendment, and
the other instruments and documents to be delivered hereunder (including,
without limitation, the reasonable fees and expenses of counsel for the Agent)
in accordance with the terms of Section 9.04 of the Credit Agreement.
SECTION 6. Execution in Counterparts. This Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute but one and the same agreement.
Delivery of an executed counterpart of a signature page to this Amendment by
telecopier shall be effective as delivery of a manually executed counterpart of
this Amendment.
SECTION 7. Governing Law. This Amendment shall be governed by, and
construed in accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
MEDIQ/PRN LIFE SUPPORT SERVICES, INC.
By: /s/ Jay M. Kaplan
--------------------------------------
Title: Senior Vice President - CFO
BANQUE NATIONALE DE
PARIS, as Administrative Agent and as
Lender
By /s/ Alan Mustacchi
--------------------------------------
Title: Vice President
By /s/ Steve Kovacs
--------------------------------------
Title: Assistant Vice President
10
<PAGE>
NATIONSBANK, N.A., as
Documentation Agent and as Lender
By /s/ Ashley M. Crabtree
--------------------------------------
Title: Senior Vice President
THE FIRST NATIONAL BANK OF BOSTON
By /s/ Kimberly F. Harris
--------------------------------------
Title: Vice President
CAISSE NATIONALE DE CREDIT AGRICOLE
By /s/ Craig Welsh
--------------------------------------
Title: First Vice President
CREDITANSTALT CORPORATE FINANCE, INC.
By /s/ Gregory F. Mathis
--------------------------------------
Title: Vice President
By /s/ Clifford L. Wells
--------------------------------------
Title: Vice President
FIRST SOURCE FINANCIAL, LLP
By: First Source Financial, Inc.
as Agent/Manager
By /s/
--------------------------------------
Title:
11
<PAGE>
METROPOLITAN LIFE INSURANCE COMPANY
By /s/ James R. Dingler
--------------------------------------
Title: Assistant Vice President
LASALLE NATIONAL BANK
By /s/ Olga Georgiev
--------------------------------------
Title: First Vice President
MASSACHUSETTS MUTUAL LIFE INSURANCE
COMPANY
By /s/
--------------------------------------
Title: Managing Director
MELLON BANK, N.A.
By
--------------------------------------
Title:
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.
By /s/ Anthony R. Clemente
--------------------------------------
Title:
PILGRIM AMERICA PRIME RATE TRUST
By /s/ Michael J. Bacevich
--------------------------------------
Title: Vice President
12
<PAGE>
SUMMIT BANK
By /s/ Gail L. Powers
--------------------------------------
Title: Vice President
USTRUST
By /s/ Thomas Macina
--------------------------------------
Title: Vice President
VAN KAMPEN AMERICAN CAPITAL PRIME RATE
INCOME TRUST
By /s/ Jeffrey W. Maillet
--------------------------------------
Title: Senior Vice President & Director
RESTRUCTURED OBLIGATIONS BACKED BY SENIOR
ASSETS B.V.
By its Managing Director, ABN
TRUSTCOMPANY (NEDERLAND) B.V.
By /s/ Christopher E. Jensen
--------------------------------------
Title: Managing Director
By /s/ Chancellor LGT Senior Secured
Management, Inc.
---------------------------------------
Title:
MERRILL LYNCH PRIME RATE PORTFOLIO
By /s/ Anthony R. Clemente
--------------------------------------
Title:
13
<PAGE>
SENIOR DEBT PORTFOLIO
By Boston Management and Research,
as Investment Advisor
By /s/ Payson F. Swaffield
--------------------------------------
Title: Vice President
CERES FINANCE LTD.
By /s/
--------------------------------------
Title: Director
CAPTIVA FINANCE LTD.
By /s/
--------------------------------------
Title: Director
14
<PAGE>
AMARA-1 FINANCE LTD.
By /s/
--------------------------------------
Title: Director
AMARA-2 FINANCE LTD.
By /s/
--------------------------------------
Title: Director
15
EXHIBIT 4.1(b)
Amendment No.2 and Waiver to Credit Agreement
<PAGE>
EXHIBIT 4.1(b)
AMENDMENT NO. 2 AND WAIVER TO THE
CREDIT AGREEMENT
Dated as of April 1, 1997
AMENDMENT NO. 2 AND WAIVER TO THE CREDIT AGREEMENT, among MEDIQ/PRN
LIFE SUPPORT SERVICES, INC., a Delaware corporation (the "Borrower"), MEDIQ
INCORPORATED, a Delaware corporation ("MEDIQ"), PRN HOLDINGS, INC., a Delaware
corporation (together with MEDIQ, the "Parent Guarantors"), the banks, financial
institutions and other institutional lenders parties to the Credit Agreement
referred to below (collectively, the "Lenders") and Banque Nationale de Paris as
administrative agent (the "Administrative Agent") for the Lenders and
NationsBank N.A., as documentation agent (the "Documentation Agent").
PRELIMINARY STATEMENTS:
(1) The Borrower, the Parent Guarantors, the Lenders, the
Administrative Agent and the Documentation Agent have entered into a Credit
Agreement dated as of October 1, 1996, as amended by Amendment No. 1 dated as of
January 24, 1997 (as so amended, the "Credit Agreement"). Capitalized terms not
otherwise defined in this Amendment and Waiver have the same meanings as
specified in the Credit Agreement.
(2) The Borrower seeks to acquire (the "UHS Acquisition") Universal
Hospital Services, Inc., a Minnesota corporation ("UHS") and has requested that
the Required Lenders amend and waive certain provisions of the Credit Agreement
in order to permit the Borrower to acquire UHS for a purchase price greater than
$140,000,000 and incur certain one time extraordinary charges associated with
the acquisition and the operations of UHS.
(3) The Required Lenders are, on the terms and conditions stated below,
willing to grant the request of the Borrower and the Borrower and such Lenders
have agreed to amend and waive the Credit Agreement as hereinafter set forth.
SECTION 1. Amendments to the Credit Agreement. Section 1.01 of the
Credit Agreement is, effective as of the date hereof and subject to the
satisfaction of the conditions precedent set forth in Section 3(a) hereof,
hereby amended as follows:
<PAGE>
(1) The definition of "EBITDA" is amended by deleting clause (g)
thereof in its entirety and substituting therefor the following:
"(g) all one-time expenses of the Borrower and its Affiliates
incurred in connection with the UHS Acquisition for (i) acquisition expenses,
lease related expenses, facility closure expenses and professional and other
fees, and (ii) the write-down of UHS's Demand Positive Airway Pressure Devices
inventory.
SECTION 2. Waiver. The provisions of Section 5.02(f)(i)(4) are hereby
waived solely to the extent that such section limits the aggregate amount of
Investments outstanding after giving effect to the UHS Acquisition to
$140,000,000.
SECTION 3. Conditions of Effectiveness. This Amendment and Waiver shall
become effective as of the date first above written when, and only when, the
Administrative Agent shall have received counterparts of this Amendment and
Waiver executed by the Borrower and the Required Lenders, or, as to any of the
Lenders, advice satisfactory to the Administrative Agent that such Lender has
executed this Amendment and Waiver. The effectiveness of this Amendment and
Waiver is conditioned upon the accuracy of the factual matters described herein.
This Amendment and Waiver is subject to the provisions of Section 9.01 of the
Credit Agreement.
SECTION 4. Representations and Warranties of the Borrower. The Borrower
represents and warrants as follows:
(a) The Borrower is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction indicated in the recital of
the parties to this Amendment and Waiver.
(b) The execution, delivery and performance by each Loan Party of this
Amendment and Waiver and the Loan Documents, as amended hereby, to which it is
or is to be a party, and the consummation of the transactions contemplated
hereby, are within such Loan Party's corporate powers, have been duly authorized
by all necessary corporate action and do not (i) contravene each such Loan
Party's charter or by-laws, (ii) violate any law (including, without limitation,
the Securities Exchange Act of 1934, as amended, and the Racketeer Influenced
and Corrupt Organizations Chapter of the Organized Crime Control Act of 1970),
rule or regulation (including, without limitation, Regulation X of the Board of
Governors of the Federal Reserve System), or any order, writ, judgment,
injunction, decree, determination or award, binding on or affecting any Loan
Party or any of its Subsidiaries or any of their properties, (iii) conflict with
or result in the breach of, or constitute a default under, any contract, loan
agreement, indenture, mortgage, deed of trust, lease or other instrument binding
on or affecting any Loan Party, any of their Subsidiaries or any of their
properties or (iv) except for the Liens created under the Collateral Documents,
2
<PAGE>
as amended hereby, or any amendments or supplements thereto contemplated hereby,
result in or require the creation or imposition of any Lien upon or with respect
to any of the properties of any Loan Party or any of its Subsidiaries.
(c) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body or any other third
party is required for the due execution, delivery, recordation, filing or
performance by any Loan Party of this Amendment and Waiver, any of the
Collateral Documents or any amendments or supplements thereto contemplated
hereby to which each such Loan Party is or is to be a party, or any of the Loan
Documents, as amended hereby, to which it is or is to be a party.
(d) This Amendment and Waiver and each of the Collateral Documents and
amendments and supplements thereto contemplated hereby to which each Loan Party
is a party have been duly executed and delivered by each such Loan Party. This
Amendment and Waiver and each of the other Loan Documents, as amended hereby, to
which each Loan Party is a party are, and each of the other Collateral Documents
and amendments and supplements thereto contemplated hereby to which each such
Loan Party is or is to be a party, when delivered hereunder, will be, legal,
valid and binding obligations of each such Loan Party, enforceable against each
such Loan Party in accordance with their respective terms.
(e) There is no action, suit, investigation, litigation or proceeding
affecting any Loan Party or any of their Subsidiaries (including, without
limitation, any Environmental Action) pending or threatened before any court,
governmental agency or arbitrator that (i) would be reasonably likely to have a
Material Adverse Effect or (ii) purports to affect the legality, validity or
enforceability of this Amendment and Waiver, the Collateral Documents, any
amendments or supplements thereto contemplated hereby or any of the other Loan
Documents, as amended hereby, or the consummation of any of the transactions
contemplated hereby.
SECTION 5. Reference to and Effect on the Loan Documents. (a) On and
after the effectiveness of this Amendment and Waiver, each reference in the
Credit Agreement to "this Agreement", "hereunder", "hereof" or words of like
import referring to the Credit Agreement, and each reference in the Notes and
each of the other Loan Documents to "the Credit Agreement", "thereunder",
"thereof" or words of like import referring to the Credit Agreement, shall mean
and be a reference to the Credit Agreement, as amended by this Amendment and
Waiver.
(b) The Credit Agreement, the Notes and each of the other Loan
Documents, as specifically amended by this Amendment and Waiver, are and shall
continue to be in full force and effect and are hereby in all respects ratified
and confirmed. Without limiting the generality of the foregoing, the Collateral
3
<PAGE>
Documents and all of the Collateral described therein do and shall continue to
secure the payment of all Obligations of the Loan Parties under the Loan
Documents, in each case as amended by this Amendment and Waiver.
(c) The execution, delivery and effectiveness of this Amendment and
Waiver shall not, except as expressly provided herein, operate as a waiver of
any right, power or remedy of any Lender or the Agent under any of the Loan
Documents, nor constitute a waiver of any provision of any of the Loan
Documents.
SECTION 6. Costs, Expenses. The Borrower agrees to pay on demand all
costs and expenses of the Agent in connection with the preparation, execution,
delivery and administration, modification and amendment of this Amendment and
Waiver, and the other instruments and documents to be delivered hereunder
(including, without limitation, the reasonable fees and expenses of counsel for
the Agent) in accordance with the terms of Section 9.04 of the Credit Agreement.
SECTION 7. Execution in Counterparts. This Amendment and Waiver may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute but one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Amendment and Waiver by telecopier shall be effective as delivery of a manually
executed counterpart of this Amendment and Waiver.
SECTION 8. Governing Law. This Amendment and Waiver shall be governed
by, and construed in accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment and
Waiver to be executed by their respective officers thereunto duly authorized, as
of the date first above written.
MEDIQ/PRN LIFE SUPPORT
SERVICES, INC.
By /s/ Jay M. Kaplan
-----------------------------------
Title: Senior Vice President - CFO
BANQUE NATIONALE DE
PARIS, as Administrative Agent and as
Lender
By /s/ Alan Mustacchi
-----------------------------------
Title: Vice President
4
<PAGE>
By /s/ Steve Kovacs
-----------------------------------
Title: Assistant Vice President
NATIONSBANK, N.A., as
Documentation Agent and as Lender
By /s/ Michael S. Sylvester
-----------------------------------
Title: Officer
THE FIRST NATIONAL BANK OF BOSTON
By /s/ Kimberly F. Harris
-----------------------------------
Title: Vice President
CAISSE NATIONALE DE CREDIT AGRICOLE
By /s/ Craig Welsh
-----------------------------------
Title: First Vice President
CREDITANSTALT CORPORATE FINANCE, INC.
By /s/ Clifford L. Wells
-----------------------------------
Title: Vice President
By /s/ Stacy Harmon
-----------------------------------
Title: Senior Associate
5
<PAGE>
FIRST SOURCE FINANCIAL, LLP
By: First Source Financial, Inc.
as Agent/Manager
By /s/ James W. Wilson
-----------------------------------
Title: Senior Vice President
METROPOLITAN LIFE INSURANCE COMPANY
By /s/ James R. Dingler
-----------------------------------
Title: Assistant Vice President
LASALLE NATIONAL BANK
By /s/ Olga Georgiev
-----------------------------------
Title: First Vice President
MASSACHUSETTS MUTUAL LIFE INSURANCE
COMPANY
By /s/ Michael P. Hermsen
-----------------------------------
Title: Managing Director
MELLON BANK, N.A.
By
-----------------------------------
Title:
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.
By
-----------------------------------
Title:
6
<PAGE>
PILGRIM AMERICA PRIME RATE TRUST
By /s/ Michael J. Bacevich
-----------------------------------
Title: Vice President
SUMMIT BANK
By /s/ Gail L. Powers
-----------------------------------
Title: Vice President
USTRUST
By /s/ Thomas Macina
-----------------------------------
Title: Vice President
VAN KAMPEN AMERICAN CAPITAL PRIME
RATE INCOME TRUST
By /s/ Kathleen A. Zarn
-----------------------------------
Title: Vice President
RESTRUCTURED OBLIGATIONS BACKED
BY SENIOR ASSETS B.V.
By its Managing Director, ABN
TRUSTCOMPANY (NEDERLAND) B.V.
By /s/ Christopher E. Jensen
-----------------------------------
Title: Managing Director
By /s/ Chancellor LGT Senior Secured
Management, Inc.
------------------------------------
Title:
7
<PAGE>
MERRILL LYNCH PRIME RATE PORTFOLIO
By
-----------------------------------
Title:
SENIOR DEBT PORTFOLIO
By Boston Management and Research,
as Investment Advisor
By /s/
-----------------------------------
Title: Vice President
CERES FINANCE LTD.
By /s/ John H. Cullinane
-----------------------------------
Title: Director
CAPTIVA FINANCE LTD.
By /s/ John H. Cullinane
-----------------------------------
Title: Director
8
<PAGE>
AMARA-1 FINANCE LTD.
By /s/
-----------------------------------
Title: Director
AMARA-2 FINANCE LTD.
By /s/
-----------------------------------
Title: Director
MERRILL LYNCH PRIME RATE PORTFOLIO
By Merrill Lynch Asset Management, L.P.
as Investment Advisor
By
-----------------------------------
Title:
9
<PAGE>
CONSENT
Dated as of April 1, 1997
Reference is made to Amendment No. 2 and Waiver dated as of
April 1, 1997 (the "Amendment and Waiver"), to the Credit Agreement dated as of
October 1, 1996, as amended by amendment No. 1 dated as of January 24, 1997 (as
so amended, the "Credit Agreement"; unless otherwise defined herein, capitalized
terms being used herein as therein defined) among MEDIQ/PRN Life Support
Services, Inc., a Delaware corporation, as Borrower, PRN Holdings, Inc. a
Delaware corporation and MEDIQ Incorporated, as Parent Guarantors, Banque
Nationale de Paris, as Administrative Agent, and certain other Lender Parties
party thereto.
Each of the undersigned, as a Loan Party party to certain of
the Loan Documents, hereby consents to the Amendment and Waiver and hereby
confirms and agrees that (a) notwithstanding the effectiveness of such Amendment
and Waiver, each Loan Document to which it is a party is, and shall continue to
be, in full force and effect and is hereby ratified and confirmed in all
respects, except that, on and after the effectiveness of such Amendment and
Waiver, each reference in such Loan Document to the "Credit Agreement",
"thereunder", "thereof" or words of like import shall mean and be a reference to
the Credit Agreement, as amended by such Amendment and Waiver, and (b) the
Collateral Documents to which such Loan Party is a party and all of the
Collateral described therein do, and shall continue to, secure the payment of
all of the Secured Obligations (in each case, as defined therein).
MEDIQ INVESTMENT SERVICES, INC.
By /s/ Michael F. Sandler
--------------------------------------
Name: Michael F. Sandler
Title: Vice President & CFO
MEDIQ MANAGEMENT SERVICES, INC.
By /s/ Michael F. Sandler
--------------------------------------
Name: Michael F. Sandler
Title: Vice President & CFO
10
<PAGE>
MEDIQ SURGICAL EQUIPMENT SERVICES, INC.
By /s/ Thomas E. Carroll
--------------------------------------
Name: Thomas E. Carroll
Title: President
VALUE-MED PRODUCTS, INC.
By /s/ Thomas E. Carroll
--------------------------------------
Name: Thomas E. Carroll
Title: President
MEDIQ MOBILE X-RAY SERVICES, INC.
By /s/ Michael F. Sandler
--------------------------------------
Name: Michael F. Sandler
Title: Vice President & CFO
HEALTH EXAMINETICS, INC.
By /s/ Michael F. Sandler
--------------------------------------
Name: Michael F. Sandler
Title: Vice President & CFO
THERA-KINETICS ACQUISITION CORPORATION
By /s/ Thomas E. Carroll
--------------------------------------
Name: Thomas E. Carroll
Title: President
11
<PAGE>
MDTC HADDON, INC.
By /s/ Michael F. Sandler
--------------------------------------
Name: Michael F. Sandler
Title: Vice President & CFO
MEDIQ DIAGNOSTIC CENTERS, INC.
By /s/ Michael F. Sandler
--------------------------------------
Name: Michael F. Sandler
Title: Vice President & CFO
MEDIQ DIAGNOSTICS CENTERS-I INC.
By /s/ Michael F. Sandler
--------------------------------------
Name: Michael F. Sandler
Title: Vice President & CFO
MEDIQ IMAGING SERVICES, INC.
By /s/ Michael F. Sandler
--------------------------------------
Name: Michael F. Sandler
Title: Vice President & CFO
AMERICAN CARDIOVASCULAR IMAGING LABS,
INC.
By /s/ Michael F. Sandler
--------------------------------------
Name: Michael F. Sandler
Title: Vice President & CFO
ALPHA HEALTH CONSULTANTS, INC.
By /s/ Michael F. Sandler
--------------------------------------
Name: Michael F. Sandler
Title: Vice President & CFO
12
<PAGE>
P.I. CORPORATION
By /s/ Michael F. Sandler
--------------------------------------
Name: Michael F. Sandler
Title: Vice President & CFO
MEDIQ SERVICES, INC.
By /s/ Michael F. Sandler
--------------------------------------
Name: Michael F. Sandler
Title: Vice President & CFO
13
EXHIBIT 4.1(c)
Amendment No. 3 to Credit Agreement
<PAGE>
AMENDMENT NO. 3 TO THE
CREDIT AGREEMENT
Dated as of August 8, 1997
AMENDMENT NO. 3 TO THE CREDIT AGREEMENT, among MEDIQ/PRN LIFE SUPPORT
SERVICES, INC., a Delaware corporation (the "Borrower"), MEDIQ INCORPORATED, a
Delaware corporation ("MEDIQ"), PRN HOLDINGS, INC., a Delaware corporation
(together with MEDIQ, the "Parent Guarantors"), the banks, financial
institutions and other institutional lenders parties to the Credit Agreement
referred to below (collectively, the "Lenders") and Banque Nationale de Paris as
administrative agent (the "Administrative Agent") for the Lenders and
NationsBank N.A., as documentation agent (the "Documentation Agent").
PRELIMINARY STATEMENTS:
(1) The Borrower, the Parent Guarantors, the Lenders, the
Administrative Agent and the Documentation Agent have entered into a Credit
Agreement dated as of October 1, 1996, as amended by Amendment No. 1 dated as of
January 24, 1997 and as further amended by Amendment No. 2 and Waiver dated as
of April 1, 1997 (as so amended, the "Credit Agreement"). Capitalized terms not
otherwise defined in this Amendment have the same meanings as specified in the
Credit Agreement.
(2) The Borrower has requested that the Required Lenders amend
certain provisions of the Credit Agreement to increase the amount of Capital
Expenditures permitted during Fiscal Year 1997.
(3) The Required Lenders are, on the terms and conditions stated below,
willing to grant the request of the Borrower and the Borrower and such Lenders
have agreed to amend the Credit Agreement as hereinafter set forth.
<PAGE>
SECTION 1. Amendments to the Credit Agreement. Section 5.04(f) of the
Credit Agreement is, effective as of the date hereof and subject to the
satisfaction of the conditions precedent set forth in Section 2 hereof, hereby
amended by deleting the phrase "in any Fiscal Year to exceed $14,000,000"
contained therein and substituting for such phrase the phrase "in Fiscal Year
1997 to exceed $17,000,000 and in any Fiscal Year thereafter to exceed
$14,000,000".
SECTION 2. Conditions of Effectiveness. This Amendment shall become
effective as of the date first above written when, and only when, the
Administrative Agent shall have received counterparts of this Amendment executed
by the Borrower and the Required Lenders, or, as to any of the Lenders, advice
satisfactory to the Administrative Agent that such Lender has executed this
Amendment. The effectiveness of this Amendment is conditioned upon the accuracy
of the factual matters described herein. This Amendment is subject to the
provisions of Section 9.01 of the Credit Agreement.
SECTION 3. Representations and Warranties of the Borrower. The Borrower
represents and warrants as follows:
(a) The Borrower is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction indicated in the recital of
the parties to this Amendment.
(b) The execution, delivery and performance by each Loan Party of this
Amendment and the Loan Documents, as amended hereby, to which it is or is to be
a party, and the consummation of the transactions contemplated hereby, are
within such Loan Party's corporate powers, have been duly authorized by all
necessary corporate action and do not (i) contravene each such Loan Party's
charter or by-laws, (ii) violate any law (including, without limitation, the
Securities Exchange Act of 1934, as amended, and the Racketeer Influenced and
Corrupt Organizations Chapter of the Organized Crime Control Act of 1970), rule
or regulation (including, without limitation, Regulation X of the Board of
Governors of the Federal Reserve System), or any order, writ, judgment,
injunction, decree, determination or award, binding on or affecting any Loan
Party or any of its Subsidiaries or any of their properties, (iii) conflict with
or result in the breach of, or constitute a default under, any contract, loan
agreement, indenture, mortgage, deed of trust, lease or other instrument binding
on or affecting any Loan Party, any of their Subsidiaries or any of their
properties or (iv) except for the Liens created under the Collateral Documents,
as amended hereby, or any amendments or supplements thereto contemplated hereby,
result in or require the creation or imposition of any Lien upon or with respect
to any of the properties of any Loan Party or any of its Subsidiaries.
2
<PAGE>
(c) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body or any other third
party is required for the due execution, delivery, recordation, filing or
performance by any Loan Party of this Amendment, any of the Collateral Documents
or any amendments or supplements thereto contemplated hereby to which each such
Loan Party is or is to be a party, or any of the Loan Documents, as amended
hereby, to which it is or is to be a party.
(d) This Amendment and each of the Collateral Documents and amendments
and supplements thereto contemplated hereby to which each Loan Party is a party
have been duly executed and delivered by each such Loan Party. This Amendment
and each of the other Loan Documents, as amended hereby, to which each Loan
Party is a party are, and each of the other Collateral Documents and amendments
and supplements thereto contemplated hereby to which each such Loan Party is or
is to be a party, when delivered hereunder, will be, legal, valid and binding
obligations of each such Loan Party, enforceable against each such Loan Party in
accordance with their respective terms.
(e) There is no action, suit, investigation, litigation or proceeding
affecting any Loan Party or any of their Subsidiaries (including, without
limitation, any Environmental Action) pending or threatened before any court,
governmental agency or arbitrator that (i) would be reasonably likely to have a
Material Adverse Effect or (ii) purports to affect the legality, validity or
enforceability of this Amendment, the Collateral Documents, any amendments or
supplements thereto contemplated hereby or any of the other Loan Documents, as
amended hereby, or the consummation of any of the transactions contemplated
hereby.
SECTION 4. Reference to and Effect on the Loan Documents. (a) On and
after the effectiveness of this Amendment, each reference in the Credit
Agreement to "this Agreement", "hereunder", "hereof" or words of like import
referring to the Credit Agreement, and each reference in the Notes and each of
the other Loan Documents to "the Credit Agreement", "thereunder", "thereof" or
words of like import referring to the Credit Agreement, shall mean and be a
reference to the Credit Agreement, as amended by this Amendment.
(b) The Credit Agreement, the Notes and each of the other Loan
Documents, as specifically amended by this Amendment, are and shall continue to
be in full force and effect and are hereby in all respects ratified and
confirmed. Without limiting the generality of the foregoing, the Collateral
Documents and all of the Collateral described therein do and shall continue to
secure the payment of all Obligations of the Loan Parties under the Loan
Documents, in each case as amended by this Amendment.
(c) The execution, delivery and effectiveness of this Amendment shall
not, except as expressly provided herein, operate as a waiver of any right,
power or remedy of any Lender or the Agent under any of the Loan Documents, nor
constitute a waiver of any provision of any of the Loan Documents.
3
<PAGE>
SECTION 5. Costs, Expenses. The Borrower agrees to pay on demand all
costs and expenses of the Agent in connection with the preparation, execution,
delivery and administration, modification and amendment of this Amendment, and
the other instruments and documents to be delivered hereunder (including,
without limitation, the reasonable fees and expenses of counsel for the Agent)
in accordance with the terms of Section 9.04 of the Credit Agreement.
SECTION 6. Execution in Counterparts. This Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute but one and the same agreement.
Delivery of an executed counterpart of a signature page to this Amendment by
telecopier shall be effective as delivery of a manually executed counterpart of
this Amendment.
SECTION 7. Governing Law. This Amendment shall be governed by, and
construed in accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
MEDIQ/PRN LIFE SUPPORT
SERVICES, INC.
By /s/ Thomas E. Carroll
--------------------------------------
Title: President
MEDIQ INCORPORATED
By /s/ Thomas E. Carroll
--------------------------------------
Title: President
PRN HOLDINGS, INC.
By /s/ Thomas E. Carroll
--------------------------------------
Title: President
4
<PAGE>
BANQUE NATIONALE DE PARIS,
as Administrative Agent and as Lender
By /s/ Alan Mustacchi
--------------------------------------
Title: Vice President
By /s/ Steve Kovacs
--------------------------------------
Title: Assistant Vice President
NATIONSBANK, N.A., as
Documentation Agent and as Lender
By /s/ Ashley M. Crabtree
--------------------------------------
Title: Senior Vice President
AMARA-1 FINANCE LTD.
By /s/
--------------------------------------
Title: Director
AMARA-2 FINANCE LTD.
By /s/
--------------------------------------
Title: Director
BANKBOSTON, N.A.
By /s/ Kimberly F. Harris
--------------------------------------
Title: Vice President
CAISSE NATIONALE DE CREDIT AGRICOLE
By /s/ Craig Welsh
--------------------------------------
Title: First Vice President
5
<PAGE>
CAPTIVA FINANCE LTD.
By /s/ John H. Cullinane
--------------------------------------
Title: Director
CERES FINANCE LTD.
By /s/ John H. Cullinane
--------------------------------------
Title: Director
CREDITANSTALT CORPORATE FINANCE, INC.
By
--------------------------------------
Title:
By
--------------------------------------
Title:
FIRST SOURCE FINANCIAL, LLP
By: First Source Financial, Inc.
as Agent/Manager
By /s/
--------------------------------------
Title: Vice President
METROPOLITAN LIFE INSURANCE COMPANY
By /s/ James R. Dingler
--------------------------------------
Title: Assistant Vice President
6
<PAGE>
LASALLE NATIONAL BANK
By /s/ F. Ward Nixon
--------------------------------------
Title: Senior Vice President
MASSACHUSETTS MUTUAL LIFE INSURANCE
COMPANY
By /s/ John B. Wheeler
--------------------------------------
Title: Managing Director
MELLON BANK, N.A.
By /s/ Mark Avallone
--------------------------------------
Title: Vice President
MERRILL LYNCH SENIOR FLOATING RATE FUND,
INC.
By
--------------------------------------
Title:
PILGRIM AMERICA PRIME RATE TRUST
By /s/ Michael J. Bacevich
--------------------------------------
Title: Vice President
SUMMIT BANK
By /s/ Gail L. Powers
--------------------------------------
Title: Vice President
USTRUST
By /s/ Thomas Macina
--------------------------------------
Title: Vice President
7
<PAGE>
VAN KAMPEN AMERICAN CAPITAL PRIME RATE
INCOME TRUST
By /s/ Jeffrey W. Maillet
---------------------------------------
Title: Senior Vice President & Director
RESTRUCTURED OBLIGATIONS BACKED BY
SENIOR ASSETS B.V.
By its Managing Director, ABN
TRUSTCOMPANY (NEDERLAND) B.V.
By /s/ Christopher E. Jensen
--------------------------------------
Title: Managing Director
By /s/ Chancellor LGT Senior Secured Management, Inc.
--------------------------------------------------
Title:
MERRILL LYNCH PRIME RATE PORTFOLIO
By
--------------------------------------
Title:
SENIOR DEBT PORTFOLIO
By Boston Management and Research, as
Investment Advisor
By /s/ Payson F. Swaffield
--------------------------------------
Title: Vice President
8
<PAGE>
MERRILL LYNCH PRIME RATE PORTFOLIO
By Merrill Lynch Asset Management, L.P.
as Investment Advisor
By
--------------------------------------
Title:
9
<PAGE>
CONSENT
Dated as of August 8, 1997
Reference is made to Amendment No. 3 dated as of August 8, 1997 (the
"Amendment"), to the Credit Agreement dated as of October 1, 1996, as amended by
Amendment No. 1 dated as of January 24, 1997 and Amendment No. 2 and Waiver
dated as of April 1, 1997 (as so amended, the "Credit Agreement"; unless
otherwise defined herein, capitalized terms being used herein as therein
defined) among MEDIQ/PRN Life Support Services, Inc., a Delaware corporation, as
Borrower, PRN Holdings, Inc. a Delaware corporation and MEDIQ Incorporated, as
Parent Guarantors, Banque Nationale de Paris, as Administrative Agent, and
certain other Lender Parties party thereto.
Each of the undersigned, as a Loan Party party to certain of the Loan
Documents, hereby consents to the Amendment and hereby confirms and agrees that
(a) notwithstanding the effectiveness of such Amendment, each Loan Document to
which it is a party is, and shall continue to be, in full force and effect and
is hereby ratified and confirmed in all respects, except that, on and after the
effectiveness of such Amendment, each reference in such Loan Document to the
"Credit Agreement", "thereunder", "thereof" or words of like import shall mean
and be a reference to the Credit Agreement, as amended by such Amendment, and
(b) the Collateral Documents to which such Loan Party is a party and all of the
Collateral described therein do, and shall continue to, secure the payment of
all of the Secured Obligations (in each case, as defined therein).
MEDIQ INVESTMENT SERVICES, INC.
By /s/ Thomas E. Carroll
--------------------------------------
Name: Thomas E. Carroll
Title: President
MEDIQ MANAGEMENT SERVICES, INC.
By /s/ Michael F. Sandler
--------------------------------------
Name: Michael F. Sandler
Title: Vice President & CFO
10
<PAGE>
MEDIQ SURGICAL EQUIPMENT SERVICES, INC.
By /s/ Thomas E. Carroll
--------------------------------------
Name: Thomas E. Carroll
Title: President
VALUE-MED PRODUCTS, INC.
By /s/ Thomas E. Carroll
--------------------------------------
Name: Thomas E. Carroll
Title: President
MEDIQ MOBILE X-RAY SERVICES, INC.
By /s/ Michael F. Sandler
--------------------------------------
Name: Michael F. Sandler
Title: Vice President & CFO
THERA-KINETICS ACQUISITION CORPORATION
By /s/ Michael F. Sandler
--------------------------------------
Name: Michael F. Sandler
Title: Vice President & CFO
MDTC HADDON, INC.
By /s/ Michael F. Sandler
--------------------------------------
Name: Michael F. Sandler
Title: Vice President & CFO
MEDIQ DIAGNOSTIC CENTERS, INC.
By /s/ Michael F. Sandler
--------------------------------------
Name: Michael F. Sandler
Title: Vice President & CFO
11
<PAGE>
MEDIQ DIAGNOSTICS CENTERS-I INC.
By /s/ Michael F. Sandler
--------------------------------------
Name: Michael F. Sandler
Title: Vice President & CFO
MEDIQ IMAGING SERVICES, INC.
By /s/ Michael F. Sandler
--------------------------------------
Name: Michael F. Sandler
Title: Vice President & CFO
AMERICAN CARDIOVASCULAR IMAGING LABS, INC.
By /s/ Michael F. Sandler
--------------------------------------
Name: Michael F. Sandler
Title: Vice President & CFO
ALPHA HEALTH CONSULTANTS, INC.
By /s/ Michael F. Sandler
--------------------------------------
Name: Michael F. Sandler
Title: Vice President & CFO
P.I. CORPORATION
By /s/ Michael F. Sandler
--------------------------------------
Name: Michael F. Sandler
Title: Vice President & CFO
12
<PAGE>
MEDIQ SERVICES, INC.
By /s/ Michael F. Sandler
--------------------------------------
Name: Michael F. Sandler
Title: Vice President & CFO
13
EXHIBIT 4.1(d)
Amendment No. 4 to Credit Agreement
<PAGE>
AMENDMENT NO. 4 AND WAIVER TO THE
CREDIT AGREEMENT
Dated as of September 17, 1997
AMENDMENT NO. 4 AND WAIVER TO THE CREDIT AGREEMENT, among MEDIQ/PRN
LIFE SUPPORT SERVICES, INC., a Delaware corporation (the "Borrower"), MEDIQ
INCORPORATED, a Delaware corporation ("MEDIQ"), PRN HOLDINGS, INC., a Delaware
corporation (together with MEDIQ, the "Parent Guarantors"), the banks, financial
institutions and other institutional lenders parties to the Credit Agreement
referred to below (collectively, the "Lenders") and Banque Nationale de Paris as
administrative agent (the "Administrative Agent") for the Lenders and
NationsBank N.A., as documentation agent (the "Documentation Agent").
PRELIMINARY STATEMENTS:
(1) The Borrower, the Parent Guarantors, the Lenders, the
Administrative Agent and the Documentation Agent have entered into a Credit
Agreement dated as of October 1, 1996, as amended by Amendment No. 1 dated as of
January 24, 1997, as further amended by Amendment No. 2 and Waiver dated as of
April 1, 1997 and Amendment No. 3 dated as August 8, 1997 (as so amended, the
"Credit Agreement"). Capitalized terms not otherwise defined in this Amendment
and Waiver have the same meanings as specified in the Credit Agreement.
(2) The Borrower currently owns a 50% interest in Mediq PRN/HNE, LLC
("SpectraCair"), and its joint venture partner HNE Rentals, Inc. ("HNE") owns
the remaining 50% interest. The Borrower and MEDIQ desire to purchase HNE's
interest in SpectraCair for aggregate consideration (including the assumption of
approximately $4.25 million in Debt) of approximately $6.25 million (the
"Transaction"), as a result of which the Borrower and MEDIQ would collectively
own 100% of SpectraCair. Within seven Business Days following the consummation
of the Transaction, MEDIQ would transfer all of its interest in SpectraCair to
the Borrower, and SpectraCair would become a division of the Borrower.
(3) The Borrower has requested that the Required Lenders amend and
waive certain provisions of the Credit Agreement to enable it to consummate the
Transaction, and, following the Transaction, to allow SpectraCair to continue to
honor certain pre-existing agreements.
<PAGE>
(4) The Required Lenders are, on the terms and conditions stated below,
willing to grant the request of the Borrower and the Borrower, the Parent
Guarantors and such Lenders have agreed to amend and waive the Credit Agreement
as hereinafter set forth.
SECTION 1. Waiver to the Credit Agreement. (a) The Required Lenders
hereby waive the provisions of Section 5.02(f) of the Credit Agreement through
and including September 25, 1997 only, solely to the extent necessary to permit
the Borrower and MEDIQ to jointly invest in SpectraCair.
(b) The Required Lenders hereby waive the provisions of Section 5.02(d)
of the Credit Agreement solely in order to permit the merger and consolidation
of SpectraCair with and into the Borrower, with the Borrower as the surviving
corporation (the "Merger").
SECTION 2. Amendments to the Credit Agreement. The Credit Agreement is,
effective as of the date hereof and subject to the satisfaction of the
conditions precedent set forth in Section 3 hereof, hereby amended as follows:
(1) Section 1.01 is amended by inserting the following definition in
its proper alphabetical order:
"'SpectraCair' means Mediq PRN/HNE, LLC, a New Jersey limited
liability company."
(2) Section 5.02(b)(ii) is amended by deleting the word "and" at the
end of paragraph (H) thereof and inserting the following:
"(I) Debt consisting of take-or-pay contracts assumed by the
Borrower in connection with the acquisition of SpectraCair in an aggregate
amount not to exceed $3,000,000, and".
(3) Section 5.02(f) is amended by deleting the word "and" at the end
of clause (viii) thereof and inserting the following immediately before the
period at the end of clause (ix) thereof:
"(x) Investments in the common stock of MEDIQ made prior to
September 17, 1997, to the extent that such common stock is held in reserve for
the exercise of management stock options by executives of SpectraCair".
2
<PAGE>
(4) Section 5.02(o) is amended by inserting immediately prior to the
period at the end thereof the phrase "and take-or-pay contracts otherwise
permitted under Section 5.02(b)(ii)(I)".
SECTION 3. Conditions of Effectiveness. (a) This Amendment and Waiver
shall become effective as of the date first above written when, and only when,
the Administrative Agent shall have received counterparts of this Amendment and
Waiver executed by the Borrower and the Required Lenders, or, as to any of the
Lenders, advice satisfactory to the Administrative Agent that such Lender has
executed this Amendment and Waiver, and counterparts of the Consent attached
hereto, duly executed by each of the parties listed on the signature pages
thereof. Furthermore, the effectiveness of this Amendment and Waiver is
conditioned upon the accuracy of the factual matters described herein. This
Amendment and Waiver is subject to the provisions of Section 9.01 of the Credit
Agreement.
(b) This Amendment and Waiver shall be null and void and of no effect
if, on or before September 25, 1997, the Administrative Agent shall not have
additionally received either (i) evidence that the Merger shall have been
consummated in compliance with all applicable laws, together with a certified
copy of a certificate of merger or other confirmation from the Secretary of
State of New Jersey satisfactory to the Lenders of such compliance or (ii) a
supplement to the Security Agreement and a Subsidiary Guaranty in each case
executed by SpectraCair, adding SpectraCair as an additional Loan Party, in form
and substance satisfactory to the Administrative Agent, together with executed
copies of any uniform commercial code financing statements, Mortgages, fixture
filings or any other instruments, documents or opinions that the Administrative
Agent may deem necessary or desirable in order to perfect and protect the liens
and security interests created under the Security Agreement, the other
Collateral Documents and such supplement.
SECTION 4. Representations and Warranties of the Borrower. The Borrower
and the Parent Guarantors each represent and warrant as follows:
(a) Each such entity is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction indicated in the recital
of the parties to this Amendment and Waiver.
(b) The execution, delivery and performance by each Loan Party of this
Amendment and Waiver and the Loan Documents, as amended and waived hereby, to
which it is or is to be a party, and the consummation of the transactions
contemplated hereby, are within such Loan Party's corporate powers, have been
duly authorized by all necessary corporate action and do not (i) contravene each
such Loan Party's charter or by-laws, (ii) violate any law (including, without
limitation, the Securities Exchange Act of 1934, as amended, and the Racketeer
Influenced and Corrupt Organizations Chapter of the Organized Crime Control Act
of 1970), rule or regulation (including, without limitation, Regulation X of the
Board of Governors of the Federal Reserve System), or any order, writ, judgment,
injunction, decree, determination or award, binding on or affecting any Loan
Party or any of its Subsidiaries or any of their properties, (iii) conflict with
or result in the breach of, or constitute a default under, any contract, loan
agreement, indenture, mortgage, deed of trust, lease or other instrument binding
3
<PAGE>
on or affecting any Loan Party, any of their Subsidiaries or any of their
properties or (iv) except for the Liens created under the Collateral Documents,
as amended and waived hereby, or any amendments or supplements thereto
contemplated hereby, result in or require the creation or imposition of any Lien
upon or with respect to any of the properties of any Loan Party or any of its
Subsidiaries.
(c) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body or any other third
party is required for the due execution, delivery, recordation, filing or
performance by any Loan Party of this Amendment and Waiver, any of the
Collateral Documents or any amendments or supplements thereto contemplated
hereby to which each such Loan Party is or is to be a party, or any of the Loan
Documents, as amended and waived hereby, to which it is or is to be a party.
(d) This Amendment and Waiver and each of the Collateral Documents and
amendments and supplements thereto contemplated hereby to which each Loan Party
is a party have been duly executed and delivered by each such Loan Party. This
Amendment and Waiver and each of the other Loan Documents, as amended and waived
hereby, to which each Loan Party is a party are, and each of the other
Collateral Documents and amendments and supplements thereto contemplated hereby
to which each such Loan Party is or is to be a party, when delivered hereunder,
will be, legal, valid and binding obligations of each such Loan Party,
enforceable against each such Loan Party in accordance with their respective
terms.
(e) There is no action, suit, investigation, litigation or proceeding
affecting any Loan Party or any of their Subsidiaries (including, without
limitation, any Environmental Action) pending or threatened before any court,
governmental agency or arbitrator that (i) would be reasonably likely to have a
Material Adverse Effect or (ii) purports to affect the legality, validity or
enforceability of this Amendment and Waiver, the Collateral Documents, any
amendments or supplements thereto contemplated hereby or any of the other Loan
Documents, as amended and waived hereby, or the consummation of any of the
transactions contemplated hereby.
SECTION 5. Reference to and Effect on the Loan Documents. (a) On and
after the effectiveness of this Amendment and Waiver, each reference in the
Credit Agreement to "this Agreement", "hereunder", "hereof" or words of like
import referring to the Credit Agreement, and each reference in the Notes and
each of the other Loan Documents to "the Credit Agreement", "thereunder",
"thereof" or words of like import referring to the Credit Agreement, shall mean
and be a reference to the Credit Agreement, as amended and waived by this
Amendment and Waiver.
4
<PAGE>
(b) The Credit Agreement, the Notes and each of the other Loan
Documents, as specifically amended and waived by this Amendment and Waiver, are
and shall continue to be in full force and effect and are hereby in all respects
ratified and confirmed. Without limiting the generality of the foregoing, the
Collateral Documents and all of the Collateral described therein do and shall
continue to secure the payment of all Obligations of the Loan Parties under the
Loan Documents, in each case as amended and waived by this Amendment and Waiver.
(c) The execution, delivery and effectiveness of this Amendment and
Waiver shall not, except as expressly provided herein, operate as a waiver of
any right, power or remedy of any Lender or the Agent under any of the Loan
Documents, nor constitute a waiver of any provision of any of the Loan
Documents.
SECTION 6. Costs, Expenses. The Borrower agrees to pay on demand all
costs and expenses of the Agent in connection with the preparation, execution,
delivery and administration, modification and amendment of this Amendment and
Waiver, and the other instruments and documents to be delivered hereunder
(including, without limitation, the reasonable fees and expenses of counsel for
the Agent) in accordance with the terms of Section 9.04 of the Credit Agreement.
SECTION 7. Execution in Counterparts. This Amendment and Waiver may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute but one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Amendment and Waiver by telecopier shall be effective as delivery of a manually
executed counterpart of this Amendment and Waiver.
SECTION 8. Governing Law. This Amendment and Waiver shall be governed
by, and construed in accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment and
Waiver to be executed by their respective officers thereunto duly authorized, as
of the date first above written.
MEDIQ/PRN LIFE SUPPORT SERVICES, INC.
By /s/ Jay M. Kaplan
----------------------------------------
Title: CFO
MEDIQ INCORPORATED
By /s/ Jay M. Kaplan
----------------------------------------
Title: CFO
PRN HOLDINGS, INC.
By /s/ Jay M. Kaplan
----------------------------------------
Title: CFO
5
<PAGE>
BANQUE NATIONALE DE PARIS,
as Administrative Agent and as Lender
By /s/ Mary Beth Burnett
----------------------------------------
Title: Vice President
By /s/ Steve Kovacs
----------------------------------------
Title: Assistant Vice President
NATIONSBANK, N.A., as
Documentation Agent and as Lender
By /s/ Ashley M. Crabtree
----------------------------------------
Title: Senior Vice President
AMARA-1 FINANCE LTD.
By /s/
----------------------------------------
Title: Director
AMARA-2 FINANCE LTD.
By /s/
----------------------------------------
Title: Director
BANKBOSTON, N.A.
By
----------------------------------------
Title:
6
<PAGE>
CAISSE NATIONALE DE CREDIT AGRICOLE
By /s/ Craig Welsh
----------------------------------------
Title: First Vice President
CAPTIVA FINANCE LTD.
By /s/ John H. Cullinane
----------------------------------------
Title: Director
CERES FINANCE LTD.
By /s/ John H. Cullinane
----------------------------------------
Title: Director
CREDITANSTALT CORPORATE FINANCE, INC.
By
----------------------------------------
Title:
By
----------------------------------------
Title:
FIRST SOURCE FINANCIAL, LLP
By: First Source Financial , Inc.
as Agent/Manager
By /s/
----------------------------------------
Title: Vice President
METROPOLITAN LIFE INSURANCE COMPANY
By /s/ James R. Dingler
----------------------------------------
Title: Assistant Vice President
7
<PAGE>
LASALLE NATIONAL BANK
By
----------------------------------------
Title:
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
By /s/ John B. Wheeler
----------------------------------------
Title: Managing Director
MELLON BANK, N.A.
By /s/ Mark Avallone
----------------------------------------
Title: Vice President
MERRILL LYNCH SENIOR FLOATING RATE FUND,
INC.
By
----------------------------------------
Title:
MORGAN STANLEY SENIOR FUNDING, INC.
By /s/ Christopher A. Pucillo
----------------------------------------
Title: Vice President
PILGRIM AMERICA PRIME RATE TRUST
By /s/ Michael J. Bacevich
----------------------------------------
Title: Vice President
SUMMIT BANK
By /s/ Adrian M. Marquez
----------------------------------------
Title: Vice President
8
<PAGE>
USTRUST
By /s/ Thomas Macina
----------------------------------------
Title: Vice President
VAN KAMPEN AMERICAN CAPITAL PRIME
RATE INCOME TRUST
By /s/ Jeffrey W. Maillet
----------------------------------------
Title: Senior Vice President & Director
MERRILL LYNCH PRIME RATE PORTFOLIO
By
----------------------------------------
Title:
SENIOR DEBT PORTFOLIO
By Boston Management and Research,
as Investment Advisor
By /s/ Payson F. Swaffield
----------------------------------------
Title: Vice President
9
<PAGE>
MERRILL LYNCH PRIME RATE PORTFOLIO
By Merrill Lynch Asset Management, L.P.
as Investment Advisor
By
----------------------------------------
Title:
10
<PAGE>
CONSENT
Dated as of September 17, 1997
Reference is made to Amendment No. 4 and Waiver dated as of September
17, 1997 (the "Amendment and Waiver"), to the Credit Agreement dated as of
October 1, 1996, as amended by Amendment No. 1 dated as of January 24, 1997,
Amendment No. 2 and Waiver dated as of April 1, 1997 and Amendment No. 3 dated
as of August 8, 1997 (as so amended, the "Credit Agreement"; unless otherwise
defined herein, capitalized terms being used herein as therein defined) among
MEDIQ/PRN Life Support Services, Inc., a Delaware corporation, as Borrower, PRN
Holdings, Inc. a Delaware corporation and MEDIQ Incorporated, as Parent
Guarantors, Banque Nationale de Paris, as Administrative Agent, and certain
other Lender Parties party thereto.
Each of the undersigned, as a Loan Party party to certain of the Loan
Documents, hereby consents to the Amendment and Waiver and hereby confirms and
agrees that (a) notwithstanding the effectiveness of such Amendment and Waiver,
each Loan Document to which it is a party is, and shall continue to be, in full
force and effect and is hereby ratified and confirmed in all respects, except
that, on and after the effectiveness of such Amendment and Waiver, each
reference in such Loan Document to the "Credit Agreement", "thereunder",
"thereof" or words of like import shall mean and be a reference to the Credit
Agreement, as amended and waived by such Amendment and Waiver, and (b) the
Collateral Documents to which such Loan Party is a party and all of the
Collateral described therein do, and shall continue to, secure the payment of
all of the Secured Obligations (in each case, as defined therein).
MEDIQ INVESTMENT SERVICES, INC.
By /s/ Jay M. Kaplan
-------------------------------------
Name: Jay M. Kaplan
Title: CFO
11
<PAGE>
MEDIQ MANAGEMENT SERVICES, INC.
By /s/ Jay M. Kaplan
-------------------------------------
Name: Jay M. Kaplan
Title: CFO
MEDIQ SURGICAL EQUIPMENT SERVICES, INC.
By /s/ Jay M. Kaplan
-------------------------------------
Name: Jay M. Kaplan
Title: CFO
VALUE-MED PRODUCTS, INC.
By /s/ Jay M. Kaplan
-------------------------------------
Name: Jay M. Kaplan
Title: CFO
MEDIQ MOBILE X-RAY SERVICES, INC.
By /s/ Jay M. Kaplan
-------------------------------------
Name: Jay M. Kaplan
Title: CFO
MDTC HADDON, INC.
By /s/ Jay M. Kaplan
------------------------------------
Name: Jay M. Kaplan
Title: CFO
MEDIQ DIAGNOSTIC CENTERS, INC.
By /s/ Jay M. Kaplan
------------------------------------
Name: Jay M. Kaplan
Title: CFO
12
<PAGE>
MEDIQ DIAGNOSTICS CENTERS-I INC.
By /s/ Jay M. Kaplan
-------------------------------------
Name: Jay M. Kaplan
Title: CFO
MEDIQ IMAGING SERVICES, INC.
By /s/ Jay M. Kaplan
-------------------------------------
Name: Jay M. Kaplan
Title: CFO
AMERICAN CARDIOVASCULAR IMAGING LABS,
INC.
By /s/ Jay M. Kaplan
-------------------------------------
Name: Jay M. Kaplan
Title: CFO
ALPHA HEALTH CONSULTANTS, INC.
By /s/ Jay M. Kaplan
-------------------------------------
Name: Jay M. Kaplan
Title: CFO
P.I. CORPORATION
By /s/ Jay M. Kaplan
-------------------------------------
Name: Jay M. Kaplan
Title: CFO
MEDIQ SERVICES, INC.
By /s/ Jay M. Kaplan
-------------------------------------
Name: Jay M. Kaplan
Title: CFO
13
MEDIQ INCORPORATED
1997 STOCK OPTION PLAN
DRAFTED BY
DRINKER BIDDLE & REATH LLP
PHILADELPHIA NATIONAL BANK BUILDING
1345 CHESTNUT STREET
PHILADELPHIA, PA 19107-3496
JUNE 1997
<PAGE>
TABLE OF CONTENTS
Page
----
SECTION 1 - Purpose and Definitions........................... 1
SECTION 2 - Administration.................................... 3
SECTION 3 - Eligibility....................................... 4
SECTION 4 - Stock............................................. 4
SECTION 5 - Granting of Options............................... 5
SECTION 6 - Annual Limit...................................... 5
SECTION 7 - Terms and Conditions of Options................... 5
SECTION 8 - Option Agreements - Other Provisions.............. 12
SECTION 9 - Capital Adjustments............................... 12
SECTION 10 - Change in Control................................ 13
SECTION 11 - Amendment or Discontinuance of the Plan.......... 14
SECTION 12 - Termination of Plan.............................. 15
SECTION 13 - Shareholder Approval............................. 15
SECTION 14 - Miscellaneous.................................... 16
-i-
<PAGE>
MEDIQ INCORPORATED
1997 STOCK OPTION PLAN
SECTION 1 - Purpose and Definitions
(a) Purpose. This MEDIQ INCORPORATED 1997 STOCK OPTION PLAN is
intended to provide a means whereby MEDIQ Incorporated may, through the
grant of Options to Key Employees and Non-Employee Directors, attract
and retain such Key Employees and Non-Employee Directors and motivate
such Key Employees and Non-Employee Directors to exercise their best
efforts on behalf of the Company and of any Related Corporation.
(b) Definitions.
(1) Board. The term "Board" shall mean the Board of
Directors of the Company.
(2) Common Stock. The term "Common Stock" shall mean the
common stock of the Company, par value $1.00 per share.
(3) Code. The term "Code" shall mean the Internal Revenue
Code of 1986, as amended.
(4) Committee. The term "Committee" shall mean:
(A) A committee which consists of not fewer
than two (2) directors of the Company who shall be
appointed by, and serve at the pleasure of, the Board
(taking into consideration the rules under Section 16(b)
of the Securities Exchange Act of 1934 and the
requirements of section 162(m) of the Code); or
(B) In the event a committee has not been
established in accordance with (A) above, the entire
Board; provided, however, that a member of the Board shall
not participate in a vote approving the grant of an Option
to himself or herself to the extent provided under the
laws of the State of Delaware governing corporate
self-dealing.
(5) Company. The term "Company" shall mean MEDIQ
Incorporated.
<PAGE>
(6) Fair Market Value. The term "Fair Market Value" shall
mean the fair market value of the optioned shares of Common Stock,
which shall be arrived at by a good faith determination of the
Committee and shall be:
(A) The mean between the highest and lowest
quoted selling price, if there is a market for the Common
Stock on a registered securities exchange or in an over
the counter market, on the date of grant;
(B) The weighted average of the means between
the highest and lowest sales on the nearest date before
and the nearest date after the date of grant, if there are
no sales on the date of grant but there are sales on dates
within a reasonable period both before and after the date
of grant;
(C) The mean between the bid and asked prices,
as reported by the National Quotation Bureau on the date
of grant, if actual sales are not available during a
reasonable period beginning before and ending after the
date of grant; or
(D) Such other method of determining fair
market value as shall be authorized by the Code, or the
rules or regulations thereunder, and adopted by the
Committee. Where the fair market value of the optioned
shares of Common Stock is determined under (B) above, the
average of the means between the highest and lowest sales
on the nearest date before and the nearest date after the
date of grant is to be weighted inversely by the
respective numbers of trading days between the selling
dates and the date of grant (i.e., the valuation date), in
accordance with Treas. Reg. ss. 20.2031-2(b)(1).
(7) Incentive Stock Option. The term "Incentive Stock
Option" ("ISO") shall mean an option which, at the time such option
is granted under the Plan, qualifies as an ISO within the meaning of
section 422 of the Code and is designated as an ISO in the Option
Agreement.
(8) Key Employees. The term "Key Employees" shall mean
officers and other key employees of the Company or a Related
Corporation.
(9) Non-Employee Directors. The term "Non-Employee
Directors" shall mean directors of the Company who:
(A) Are not employees of the Company or any
Related Corporation; and
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<PAGE>
(B) Have not been employees of the Company or
any Related Corporation during the immediately preceding
12-month period.
(10) Non-Qualified Stock Option. The term "Non-Qualified
Stock Option" ("NQSO") shall mean an option which, at the time such
option is granted, does not qualify as an ISO, and/or is designated
as an NQSO in the Option Agreement.
(11) Option Agreement. The term "Option Agreement" shall
mean a written document evidencing the grant of an Option, as
described in Section 8.
(12) Optionee. The term "Optionee" shall mean a Key
Employee or Non-Employee Director to whom an Option has been granted.
(13) Options. The term "Options" shall mean Incentive
Stock Options and Non-Qualified Stock Options.
(14) Plan. The term "Plan" shall mean the MEDIQ
Incorporated 1997 Stock Option Plan, as set forth herein and as
amended from time to time.
(15) Related Corporation. The term "Related Corporation"
shall mean either a corporate subsidiary of the Company, as defined
in section 424(f) of the Code or the corporate parent of the Company,
as defined in section 424(e) of the Code.
Notwithstanding Sections 1(b)(7) and (10), if an Option granted to a
Key Employee is not designated in the Option Agreement as an ISO or NQSO,
the option shall constitute an ISO if it complies with the terms of section
422 of the Code, and otherwise, it shall constitute an NQSO.
SECTION 2 - Administration
The Plan shall be administered by the Committee. Each member of such
Committee, while serving as such, shall be deemed to be acting in his or her
capacity as a director of the Company.
The Committee shall have full authority, subject to the terms of the
Plan, to select the Key Employees to be granted ISOs and/or NQSOs under the
Plan, to select the Non-Employee Directors to be granted NQSOs under the Plan,
to grant Options on behalf of the Company and to set the date of grant and the
other terms of such Options. The Committee may correct any defect, supply any
omission and reconcile any inconsistency in this Plan and in any Option granted
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<PAGE>
hereunder in the manner and to the extent it shall deem desirable. The Committee
also shall have the authority to establish such rules and regulations, not
inconsistent with the provisions of the Plan, for the proper administration of
the Plan, and to amend, modify or rescind any such rules and regulations, and to
make such determinations and interpretations under, or in connection with, the
Plan, as it deems necessary or advisable. All such rules, regulations,
determinations and interpretations shall be binding and conclusive upon the
Company, its shareholders and all employees, and upon their respective legal
representatives, beneficiaries, successors and assigns and upon all other
persons claiming under or through any of them.
No member of the Board or the Committee shall be liable for any
action or determination made in good faith with respect to the Plan or any
Option granted under it.
SECTION 3 - Eligibility
The class of employees who shall be eligible to receive Options under
the Plan shall be the Key Employees (including any directors who also are
officers or are other key employees of the Company and/or of a Related
Corporation). More than one Option may be granted to a Key Employee under the
Plan. Non-Employee Directors shall be eligible to receive NQSOs, and not ISOs,
under the Plan. More than one NQSO may be granted to a Non-Employee Director
under the Plan.
SECTION 4 - Stock
Options may be granted under the Plan to purchase up to a maximum of
nine hundred thousand (900,000) shares of the Company's Common Stock, subject to
adjustment as hereinafter provided; provided, however, that no Key Employee
shall receive Options for more than one hundred thousand (100,000) shares of
Common Stock over any one (1) year period; and further provided that no shares
shall be issuable pursuant to Options for which shareholder approval is not
obtained if shareholder approval is required by applicable securities laws or by
any exchange on which Common Stock is then listed. Shares issuable under the
Plan may be authorized but unissued shares or reacquired shares, and the Company
may purchase shares required for this purpose, from time to time, if it deems
such purchase to be advisable.
If any Option granted under the Plan expires or otherwise terminates
for any reason whatever (including, without limitation, the Optionee's surrender
thereof) without having been exercised, the shares subject to the unexercised
portion of such Option shall continue to be available for the granting of
Options under the Plan as fully as if such shares had never been subject to an
Option; provided, however, that (a) if an Option is cancelled, the cancelled
Option is counted against the maximum number of shares for which Options may be
granted to an employee, and (b) if the Option price is reduced after the date of
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<PAGE>
grant, the transaction is treated as a cancellation of an Option and the grant
of a new Option for purposes of counting the maximum number of shares for which
Options may be granted to a Key Employee.
SECTION 5 - Granting of Options
From time to time until the expiration or earlier suspension or
discontinuance of the Plan, the Committee may, on behalf of the Company, grant
to Key Employees and Non-Employee Directors under the Plan such Options as it
determines are warranted; provided, however, that grants of ISOs and NQSOs shall
be separate and not in tandem; and further provided that Non-Employee Directors
shall not be eligible to receive ISOs under the Plan. The granting of an Option
under the Plan shall not be deemed either to entitle the Optionee to, or to
disqualify the Optionee from, any participation in any other grant of Options
under the Plan. In making any determination as to whether a Key Employee or
Non-Employee Director shall be granted an Option and as to the number of shares
to be covered by such Option, the Committee shall take into account the duties
of the Key Employee or Non-Employee Director, his or her present and potential
contributions to the success of the Company or a Related Corporation, and such
other factors as the Committee shall deem relevant in accomplishing the purposes
of the Plan. Moreover, the Committee may provide in the Option that said Option
may be exercised only if certain conditions, as determined by the Committee, are
fulfilled.
SECTION 6 - Annual Limit
(a) ISOs. The aggregate Fair Market Value of the Common Stock
with respect to which ISOs are exercisable for the first time by a Key
Employee during any calendar year (under this Plan and any other ISO
plan of the Company or a Related Corporation) shall not exceed one
hundred thousand dollars ($100,000).
(b) NQSOs. The annual limit set forth above for ISOs shall not
apply to NQSOs.
SECTION 7 - Terms and Conditions of Options
The Options granted pursuant to the Plan shall expressly specify
whether they are ISOs or NQSOs; however, if the Option is not designated in the
Key Employee's Option Agreement as an ISO or NQSO, the Option shall constitute
an ISO if it complies with the terms of section 422 of the Code, and otherwise,
it shall constitute an NQSO. In addition, the Options granted pursuant to the
Plan shall include expressly or by reference the following terms and conditions,
as well as such other provisions not inconsistent with the provisions of this
Plan and, for ISOs granted under this Plan, the provisions of section 422(b) of
the Code, as the Committee shall deem desirable:
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<PAGE>
(a) Number of Shares. A statement of the number of shares to
which the Option pertains.
(b) Price. A statement of the Option price which shall be
determined and fixed by the Committee in its discretion but, in the
case of an ISO, shall not be less than the higher of one hundred
percent (100%) (one hundred ten percent (110%) in the case of more than
ten percent (10%) shareholders as discussed in (k) below) of the Fair
Market Value of the optioned shares of Common Stock, or the par value
thereof, on the date the ISO is granted and, in the case of an NQSO,
shall not be less than the higher of one hundred percent (100%) of the
Fair Market Value of the optioned shares of Common Stock, or the par
value thereof, on the date the NQSO is granted.
(c) Term.
(1) ISOs. Subject to earlier termination as provided
in Subsections (e), (f), (g) and (h) below and in Section 9
hereof, the term of each ISO shall be not more than ten (10)
years (five (5) years in the case of more than ten percent
(10%) shareholders as discussed in (k) below) from the date of
grant.
(2) NQSOs. Subject to earlier termination as provided
in Subsections (e), (f), (g) and (h) below and in Section 9
hereof, the term of each NQSO shall be not more than ten (10)
years and one (1) day from the date of grant.
(d) Exercise.
(1) General. Options shall be exercisable in such
installments and on such dates as the Committee may specify.
The Committee may accelerate the exercise date of any
outstanding Options, in its discretion, if it deems such
acceleration to be desirable.
Any Option shares, the right to the purchase of which
has accrued, may be purchased at any time up to the expiration
or termination of the Option. Exercisable Options may be
exercised, in whole or in part, from time to time by giving
written notice of exercise to the Company at its principal
office, to the attention of its Secretary, specifying the
number of shares to be purchased and accompanied by payment in
full of the aggregate Option price for such shares; provided
that no partial exercise of an Option shall be for a number of
shares of Common Stock having an aggregate Option price of
less than $1,000, unless such partial exercise applies to the
remaining shares available under the Option. Only full shares
shall be issued under the Plan, and any fractional share
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which might otherwise be issuable upon exercise of an Option
granted hereunder shall be forfeited.
(2) Manner of Payment. The Option price shall be
payable:
(A) In cash or its equivalent;
(B) If the Committee, in its discretion, so
provides in the Option Agreement or, in the case of
Options which are not ISOs, if the Committee, in its
discretion, so determines at or prior to the time of
exercise, in whole or in part, in Company Common
Stock previously acquired by the Optionee, provided
that if such shares of Common Stock were acquired
through the exercise of an ISO and are used to pay
the Option price of an ISO, such shares have been
held by the Key Employee for a period of not less
than the holding period described in section
422(a)(1) of the Code on the date of exercise, or if
such shares of Common Stock were acquired through
exercise of an NQSO or of an option under a similar
plan or through exercise of an ISO and are used to
pay the Option price of an NQSO, such option was
granted more than six (6) months prior to the date of
exercise of the Option;
(C) If the Committee, in its discretion, so
provides in the Option Agreement or, in the case of
Options which are not ISOs, if the Committee, in its
discretion, so determines at or prior to the time of
exercise, in whole or in part, in Company Common
Stock newly acquired by the Optionee upon exercise of
such Option (which shall constitute a disqualifying
disposition in the case of an Option which is an
ISO);
(D) If the Committee, in its discretion, so
provides in the Option Agreement or, in the case of
Options which are not ISOs, if the Committee, in its
discretion, so determines at or prior to the time of
exercise, in any combination of (A), (B) and (C)
above; or
(E) If the Committee, in its discretion, so
provides in the Option Agreement or, in the case of
Options which are not ISOs, if the Committee, in its
discretion, so determines at or prior to the time of
exercise, by permitting the Optionee to deliver a
properly executed notice of exercise of the Option to
the Company and a broker, with irrevocable
instructions to the broker promptly to deliver to the
Company the amount of sale or loan proceeds necessary
to pay the exercise price of the Option.
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In the event such Option price is paid, in whole or
in part, with shares of Common Stock, the portion of the
Option price so paid shall be equal to the Fair Market Value
on the date of exercise of the Option of the Common Stock
surrendered in payment of such Option price.
(e) Termination of Employment or Board Membership for Cause.
If a Key Employee's employment by the Company (and Related
Corporations) or a Non-Employee Director's service as a director is
terminated for Cause, all rights of any kind under any Option then held
by such Optionee shall immediately lapse and terminate. For purposes of
this Subsection (e), "Cause" shall include, without limitation, the
following, not corrected after notice and a reasonable opportunity to
cure:
(1) Dishonesty;
(2) Fraud, theft or misappropriation or embezzlement
of Company funds;
(3) Conviction of any felony, crime involving fraud
or misrepresentation, or of any other crime (whether or not
connected with the Optionee's employment) the effect of which
is likely to adversely affect the Company or its affiliates;
(4) Material breach of the Optionee's obligations
under the Optionee's employment agreement with the Company (if
any);
(5) Repeated and consistent failure of Optionee to be
present at work during normal business hours unless the
absence is because of a disability;
(6) Willful violation of any express direction or any
rule or regulation established by the Company or its Chief
Executive Officer;
(7) Gross incompetence in the performance of, or
gross neglect of, Optionee's duties under Optionee's
employment agreement with the Company (if any);
(8) Illegal possession or use of any controlled
substance; or
(9) Use of alcohol or other drugs which interferes
with the performance by Optionee of his or her duties.
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<PAGE>
(f) Termination of Employment or Board Membership for A Reason
Other Than Cause, Death or Disability. If a Key Employee's employment
by the Company (and Related Corporations) or a Non-Employee Director's
service as a director is terminated by either party prior to the
expiration date fixed for his or her Option for any reason other than
Cause (as defined in Subsection (e)), death or disability, such Option
may be exercised, to the extent of the number of shares with respect to
which the Optionee could have exercised it on the date of such
termination, or to any greater extent permitted by the Committee, by
the Optionee at any time prior to the earlier of:
(1) The expiration date specified in such Option; or
(2) An accelerated termination date determined by the
Committee, in its discretion, except that, subject to Section
9 hereof, such accelerated termination date shall not be
earlier than the date of the Key Employee's termination of
employment or the date the Non-Employee Director ceases to
serve as a director, and in the case of ISOs, such termination
date shall not be later than three (3) months after the date
of such termination of employment.
(g) Exercise upon Disability of Optionee. If an Optionee shall
become disabled (within the meaning of section 22(e)(3) of the Code)
during his or her employment or Board membership and, prior to the
expiration date fixed for his or her Option, his or her employment or
service as a director is terminated as a consequence of such
disability, such Option may be exercised, to the extent of the number
of shares with respect to which the Optionee could have exercised it on
the date of such termination, or to any greater extent permitted by the
Committee, by the Optionee at any time prior to the earlier of:
(1) The expiration date specified in such Option; or
(2) An accelerated termination date determined by the
Committee, in its discretion, except that, subject to Section
9 hereof, such accelerated termination date shall not be
earlier than the date of the Optionee's termination of
employment or service as a director by reason of disability,
and in the case of ISOs, such date shall not be later than one
(1) year after the date of such termination of employment. In
the event of the Optionee's legal disability, such Option may
be so exercised by the Optionee's legal representative.
(h) Exercise upon Death of Optionee. If an Optionee shall die
during his or her employment or service as a director, and prior to the
expiration date fixed for his or her Option, or if an Optionee whose
employment or service as a director is terminated for any reason other
than Cause (as defined in Subsection (e)), shall die following his or
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her termination of employment or service as a director but prior to the
earliest of:
(1) The expiration date fixed for his or her Option;
(2) The expiration of the period determined under
Subsections (f) and (g) above; or
(3) In the case of an ISO, three (3) months following
termination of employment, such Option may be exercised, to
the extent of the number of shares with respect to which the
Optionee could have exercised it on the date of his or her
death, or to any greater extent permitted by the Committee, by
the Optionee's estate, personal representative or beneficiary
who acquired the right to exercise such Option by bequest or
inheritance or by reason of the death of the Optionee, at any
time prior to the earlier of:
(A) The expiration date specified in such
Option; or
(B) An accelerated termination date
determined by the Committee, in its discretion except
that, subject to Section 9 hereof, such accelerated
termination date shall not be earlier than six (6)
months, nor later than one (1) year after the date of
death.
(i) Non-Transferability.
(1) ISOs. No ISO shall be assignable or transferable
by the Key Employee otherwise than by will or by the laws of
descent and distribution, and during the lifetime of the Key
Employee, the ISO shall be exercisable only by him or her or
by his or her guardian or legal representative. If the Key
Employee is married at the time of exercise and if the Key
Employee so requests at the time of exercise, the certificate
or certificates shall be registered in the name of the Key
Employee and the Key Employee's spouse, jointly, with right of
survivorship.
(2) NQSOs. Except as otherwise provided in any Option
Agreement, no NQSO shall be assignable or transferable by the
Optionee otherwise than by will or by the laws of descent and
distribution, and during the lifetime of the Optionee, the
NQSO shall be exercisable only by him or her or by his or her
guardian or legal representative. If the Optionee is married
at the time of exercise and if the Optionee so requests at the
time of exercise, the certificate or certificates shall be
registered in the name of the Optionee and the Optionee's
spouse, jointly, with right of survivorship.
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(j) Rights as a Shareholder. An Optionee shall have no rights
as a shareholder with respect to any shares covered by his or her
Option until the issuance of a stock certificate to him or her for such
shares.
(k) Ten Percent Shareholder. If the Key Employee owns more
than ten percent (10%) of the total combined voting power of all shares
of stock of the Company or of a Related Corporation at the time an ISO
is granted to such Key Employee, the Option price for the ISO shall be
not less than one hundred ten percent (110%) of the Fair Market Value
of the optioned shares of Common Stock on the date the ISO is granted,
and such ISO, by its terms, shall not be exercisable after the
expiration of five (5) years from the date the ISO is granted. The
conditions set forth in this Subsection (k) shall not apply to NQSOs.
(l) Listing and Registration of Shares. If at any time the
Committee shall determine, in its discretion, that the listing,
registration or qualification of the shares covered by an Option upon
any securities exchange or under any state or federal law, or the
consent or approval of any governmental regulatory body, is necessary
or desirable as a condition of, or in connection with, the granting of
such Option or the purchase of shares thereunder, the Company shall use
its best efforts to effect or obtain such listing registration,
qualification, consent or approval as soon as practicable. If such
listing registration, qualification, consent or approval is not
effected or obtained, no Option may be exercised, in whole or in part,
unless and until action shall have been taken by the Company or by the
Optionee in order to obtain an exemption from any such requirement,
under conditions acceptable to the Committee. Without limiting the
generality of the foregoing, each Optionee or his or her legal
representative or beneficiary may also be required to give satisfactory
assurance that shares purchased upon exercise of an Option are being
purchased for investment and not with a view to distribution, and
certificates representing such shares may be legended accordingly.
(m) Withholding and Use of Shares to Satisfy Tax Obligations.
The obligation of the Company to deliver shares of Common Stock upon
the exercise of any Option shall be subject to applicable federal,
state and local tax withholding requirements.
If the exercise of any Option is subject to the withholding
requirements of applicable federal, state and/or local tax laws, the
Committee, in its discretion (and subject to such withholding rules
("Withholding Rules") as shall be adopted by the Committee), may permit
the Key Employee to satisfy the minimum required federal, state and/or
local withholding tax, in whole or in part, by electing to have the
Company withhold (or by returning to the Company) shares of Common
Stock, which shares shall be valued, for this purpose, at their Fair
Market Value on the date of exercise of the Option (or if later, the
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<PAGE>
date on which the Optionee recognizes ordinary income with respect to
such exercise) (the "Determination Date"). An election to use shares of
Common Stock to satisfy tax withholding requirements must be made in
compliance with and subject to the Withholding Rules. The Committee may
not withhold shares in excess of the number necessary to satisfy the
minimum federal, state and local income tax withholding requirements.
In the event shares of Common Stock acquired under the exercise of an
ISO are used to satisfy such withholding requirement, such shares of
Common Stock must have been held by the Key Employee for a period of
not less than the holding period described in section 422(a)(1) of the
Code on the Determination Date.
SECTION 8 - Option Agreements - Other Provisions
Options granted under the Plan shall be evidenced by written Option
Agreements in such form as the Committee shall, from time to time, approve,
which Option Agreements shall contain provisions (such as, but not limited to,
non-compete provisions), not inconsistent with the provisions of the Plan (for
Options) and not inconsistent with section 422(b) of the Code (for ISOs), as the
Committee shall deem advisable, and which Option Agreements shall specify
whether the Option is an ISO or NQSO; provided, however, if an Option granted to
a Key Employee is not designated in the Option Agreement as an ISO or NQSO, the
Option shall constitute an ISO if it complies with the terms of section 422 of
the Code, and otherwise, it shall constitute an NQSO. Each Optionee shall enter
into, and be bound by, such Option Agreement.
SECTION 9 - Capital Adjustments
The number of shares which may be issued under the Plan, and the
maximum number of shares with respect to which options may be granted during a
specified period to any Key Employee under the Plan, as stated in Section 4
hereof, and the number of shares issuable upon exercise of outstanding Options
under the Plan (as well as the Option price per share under such outstanding
Options), shall, subject to the provisions of section 424(a) of the Code, be
adjusted, as may be deemed appropriate by the Committee, to reflect any stock
dividend, stock split, share combination, or similar change in the
capitalization of the Company.
In the event of a corporate transaction (as that term is described in
section 424(a) of the Code and the Treasury Regulations issued thereunder as,
for example, a merger, consolidation, acquisition of property or stock,
separation, reorganization, or liquidation), each outstanding Option shall be
assumed by the surviving or successor corporation or by a parent or subsidiary
of such corporation if such corporation is the employer corporation (as provided
in section 424(a) of the Code and the regulations thereunder); provided,
however, that, in the event of a proposed corporate transaction, the Committee
may terminate all or a portion of the outstanding Options if it determines that
such termination is in the best interests of the Company. If the Committee
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<PAGE>
decides to terminate outstanding Options, the Committee shall give each Optionee
holding an Option to be terminated not less than seven (7) days' notice prior to
any such termination by reason of such a corporate transaction, and any such
Option which is to be so terminated may be exercised (if and only to the extent
that it is then exercisable) up to, and including the date immediately preceding
such termination. Further, as provided in Section 7(d) hereof the Committee, in
its discretion, may accelerate, in whole or in part, the date on which any or
all Options become exercisable.
The Committee also may, in its discretion, change the terms of any
outstanding Option to reflect any such corporate transaction, provided that, in
the case of ISOs, such change is excluded from the definition of a
"modification" under section 424(h) of the Code.
SECTION 10 - Change in Control
Notwithstanding any other provision of this Plan, all outstanding
Options shall become fully vested and exercisable upon a Change in Control. For
purposes of this Section 10, a "Change in Control" of the Company shall be
deemed to have occurred if:
(a) any person (a "Person"), as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")
(other than (i) the Company and/or its wholly-owned subsidiaries, (ii) members
of the Rotko Family, as defined below, (iii) any ESOP or other employee benefit
plan of the Company, and any trustee or other fiduciary in such capacity holding
securities under such employee plan, (iv) any corporation owned, directly or
indirectly, by the shareholders of the Company in substantially the same
proportions as their ownership of stock of the Company), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 30% or more of the
combined voting power of the Company's then outstanding securities; or
(b) the Company's shareholders or the Company's directors shall approve
(i) any consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which the Company's voting
common shares (the "Common Shares") would be converted into cash, securities or
other property, other than a merger of the Company in which holders of Common
Shares immediately prior to the merger have the same proportionate ownership of
common shares of the surviving corporation immediately after the merger as
immediately before, (ii) any sale, lease, exchange or other transfer (in one
transaction or series of related transactions) of all or substantially all the
assets or earning power of the Company, or (iii) the liquidation or dissolution
of the Company.
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<PAGE>
As used in this Section 10, "members of the Rotko Family" shall mean
the wife, children and grandchildren of the late Bernard Rotko, their respective
spouses and estates and any trusts primarily for the benefit of any of the
foregoing.
SECTION 11 - Amendment or Discontinuance of the Plan
(a) General. The Board from time to time may suspend or
discontinue the Plan or any outstanding Option, or amend the Plan or
any outstanding Option in any respect whatsoever, except that the
following amendments shall require shareholder approval (given in the
manner set forth in Section 11(b) below):
(1) With respect to ISOs, any amendment which would:
(A) Change the class of employees eligible to
participate in the Plan;
(B) Except as permitted under Section 9 hereof,
increase the maximum number of shares of Common Stock with
respect to which ISOs may be granted under the Plan; or
(C) Extend the duration of the Plan under Section 12
hereof with respect to any ISOs granted hereunder;
(2) With respect to Options, any amendment which would require
shareholder approval pursuant to Treas. Reg. ss. 1.162-27(e)(4)(vi) (or
any successor thereto) (to the extent compliance with section 162(m) of
the Code is desired); and
(3) With respect to Options, any amendment which would require
shareholder approval under the rules of an exchange or market on which
Common Stock is traded or listed.
Notwithstanding the foregoing, no such suspension, discontinuance or
amendment shall materially impair the rights of any holder of an outstanding
Option without the consent of such holder.
(b) Shareholder Approval Requirements. Shareholder approval must meet
the following requirements:
(1) The approval of shareholders must be by a majority of the
outstanding shares of Common Stock present, or represented, and
entitled to vote at a meeting duly held in accordance with the
applicable laws of the State of Delaware; and
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(2) The approval of shareholders must comply with all
applicable provisions of the corporate charter, bylaws, and applicable
state law prescribing the method and degree of shareholder approval
required for the issuance of corporate stock or options. If the
applicable state law does not prescribe a method and degree of
shareholder approval in such case, the approval of shareholders must be
effected:
(A) By a method and in a degree that would be treated
as adequate under applicable state law in the case of an
action requiring shareholder approval (i.e., an action on
which shareholders would be entitled to vote if the action
were taken at a duly held shareholders' meeting); or
(B) By a majority of the votes cast at a duly held
shareholders' meeting at which a quorum representing a
majority of all outstanding voting stock is, either in person
or by proxy, present and voting on the plan.
SECTION 12 - Termination of Plan
Unless earlier terminated as provided in the Plan, the Plan and all
authority granted hereunder shall terminate absolutely at 12:00 midnight on June
22, 2007, which date is within ten (10) years after the date the Plan was
adopted by the Board (or the date the Plan was approved by the shareholders of
the Company, whichever is earlier), and no Options hereunder shall be granted
thereafter. Nothing contained in this Section 12, however, shall terminate or
affect the continued existence of rights created under Options issued hereunder
and outstanding on June 22, 2007, which by their terms extend beyond such date.
SECTION 13 - Shareholder Approval
This Plan shall become effective on June 23, 1997; provided, however,
that if the Plan is not approved by the shareholders in the manner described in
Section 11(b), within twelve (12) months before or after said date, no further
Options shall be granted under the Plan, and any ISOs granted under the Plan
shall be null and void.
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<PAGE>
SECTION 14 - Miscellaneous
(a) Governing Law. With respect to any ISOs granted pursuant
to the Plan and the Option Agreements thereunder, the Plan, such Option
Agreements and any ISOs granted pursuant thereto shall be governed by
the applicable Code provisions to the maximum extent possible.
Otherwise, the operation of, and the rights of Optionees under, the
Plan, the Option Agreements and any Options granted thereunder shall be
governed by applicable federal law and otherwise by the laws of the
State of Delaware.
(b) Rights. Neither the adoption of the Plan nor any action of
the Board or the Committee shall be deemed to give any individual any
right to be granted an Option, or any other right hereunder, unless and
until the Committee shall have granted such individual an Option, and
then his or her rights shall be only such as are provided by the Option
Agreement.
Any Option under the Plan shall not entitle the holder thereof
to any rights as a shareholder of the Company prior to the exercise of
such Option and the issuance of the shares pursuant thereto. Further,
notwithstanding any provisions of the Plan or the Option Agreement with
an Optionee, the Company shall have the right, in its discretion, to
retire an Optionee at any time pursuant to its retirement rules or
otherwise to terminate his or her employment at any time for any reason
whatsoever.
(c) Indemnification of Board and Committee. Without limiting
any other rights of indemnification which they may have from the
Company and any Related Corporation, the members of the Board and the
members of the Committee shall be indemnified by the Company against
all costs and expenses reasonably incurred by them in connection with
any claim, action, suit, or proceeding to which they or any of them may
be a party by reason of any action taken or failure to act under, or in
connection with, the Plan, or any Option granted thereunder, and
against all amounts paid by them in settlement thereof (provided such
settlement is approved by legal counsel selected by the Company) or
paid by them in satisfaction of a judgment in any such action, suit, or
proceeding, except a judgment based upon a finding of willful
misconduct or recklessness on their part. Upon the making or
institution of any such claim, action, suit, or proceeding, the Board
or Committee member shall notify the Company in writing, giving the
Company an opportunity, at its own expense, to handle and defend the
same before such Board or Committee member undertakes to handle it on
his or her own behalf.
(d) Application of Funds. The proceeds received by the Company
from the sale of Common Stock pursuant to Options granted under the
Plan shall be used for general corporate purposes. Any cash received in
payment for shares upon exercise of an Option to purchase Common Stock
shall be added to the general funds of the Company and shall be used
for its
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corporate purposes. Any Common Stock received in payment for shares
upon exercise of an Option to purchase Common Stock shall become
treasury stock.
(e) No Obligation to Exercise Option. The granting of an
Option shall impose no obligation upon an Optionee to exercise such
Option.
IN WITNESS WHEREOF, MEDIQ Incorporated has caused these presents to be
duly executed, under seal, this [ ] day of June, 1997.
ATTEST: MEDIQ INCORPORATED
[SEAL]
/s/ Eugene M. Schloss By: /s/ Thomas E. Carroll
- ------------------------- ------------------------
Secretary President
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AMENDMENT
THIS AMENDMENT to the Employment Agreement between MEDIQ Incorporated
(the "Company") and Michael F. Sandler (the "Executive"), dated as of June 26,
1995 (the "Employment Agreement"), is made by and between the Company and the
Executive as of April 30, 1997.
BACKGROUND
The parties hereto desire to extend through September 30, 1997 the term
of the Executive's employment pursuant to the Employment Agreement on the terms
and conditions as set forth therein, except as amended hereby.
NOW THEREFORE, in consideration of the premises and intending to be
legally bound hereby, the parties hereto agree as follows:
1. Section 2.1 of the Employment Agreement is hereby amended to read in
its entirety as follows:
2.1 Term. The term of Executive's employment hereunder shall commence
on June 26, 1995 and shall continue through September 30, 1997, upon
which such employment shall terminate without notice or further action
by any party (such term is referred to herein as the "Contract
Period"). Unless otherwise agreed by the parties, the termination of
the Executive's employment at the end of the Contract Period shall
constitute a nonrenewal of this Agreement within the meaning of Section
4.4(a)(ii) hereof.
2. Except as expressly modified herein, all other terms and conditions
set forth in the Employment Agreement shall remain in full force and effect.
3. This amendment has been duly authorized, executed and delivered by
each of the parties hereto in accordance with Section 6.6 of the Employment
Agreement.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
30th day of April, 1997.
MEDIQ INCORPORATED
By: /s/ Thomas E. Carroll
------------------------------
Thomas E. Carroll, President
/s/ Michael F. Sandler
------------------------------
Michael F. Sandler
SECOND AMENDMENT
This Second Amendment to the Employment Agreement between MEDIQ
Incorporated (the "Company") and Michael F. Sandler (the "Executive"), dated as
of June 26, 1995, as previously amended by an Amendment dated as of April 30,
1997 (the "Employment Agreement"), is made by and between the Company and the
Executive as of September 30, 1997.
For good and valuable mutual consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties hereto agree as follows:
1. Notwithstanding the provisions contained in paragraph 4.4(a)(ii) of
the Employment Agreement, the severance payments due to Executive pursuant to
said paragraph 4.4(a)(ii) of the Employment Agreement shall be paid ratably by
the Company to the Executive, without discount, at the same intervals as the
Company's normal payroll payments are made, throughout the fiscal year
commencing October 1, 1997 and ending September 30, 1998.
2. Notwithstanding the provisions contained in paragraph 4.4(a)(ii) of
the Employment Agreement, payment for all accrued vacation pay owed to Executive
shall be made by Company to Executive on the first payroll payment date in
January 1998.
3. Except as expressly modified herein, all other terms and conditions
set forth in the Employment Agreement shall remain in full force and effect.
4. This Second Amendment has been duly authorized, executed and
delivered by each of the parties hereto in accordance with section 6.6 of the
Employment Agreement.
MEDIQ Incorporated
By: /s/ Thomas E. Carroll
------------------------------
Thomas E. Carroll, President
/s/ Michael F. Sandler
-------------------------------
Michael F. Sandler
THIRD AMENDMENT
THIS THIRD AMENDMENT to the Employment Agreement between MEDIQ
Incorporated ("MEDIQ") and Michael F. Sandler (the "Executive"), dated as of
June 26, 1995, as previously amended by Amendments dated as of April 30, 1997
and September 30, 1997 (the "Employment Agreement"), is made by and between
MEDIQ and the Executive as of September 30, 1997.
BACKGROUND
The parties hereto desire to set forth the terms of Executive's
transition from MEDIQ by extending through September 30, 1998 the term of
Executive's employment pursuant to the Employment Agreement on the terms and
conditions as set forth therein, except as amended hereby.
NOW THEREFORE, in consideration of the premises and intending to be
legally bound hereby, the parties hereto agree as follows:
1. Section 1.2 of the Employment Agreement is hereby amended to read in
its entirety as follows:
1.2 Capacity and Duties.
(a) Executive resigns all of his positions as an officer of MEDIQ
and as an officer or director of any subsidiary of MEDIQ as of
September 30, 1997.
(b) During the term of his employment hereunder, Executive shall
perform such services for MEDIQ and its subsidiaries as may
reasonably be assigned to him, from time to time, by the Chief
Executive Officer of MEDIQ (the "CEO"). Such duties may include,
without limitation, the following:
(i) advising, consulting and assisting in transition matters
relating to the transfer of responsibilities to a successor
Senior Vice President of Finance and Chief Financial Officer;
and
(ii) advising, consulting and assisting in such other business
matters as requested by the CEO.
Unless expressly authorized by MEDIQ's Board of Directors or the
CEO, Executive shall not have, and shall not hold himself out as
having, any
<PAGE>
authority to make any representations on behalf of MEDIQ nor to
execute any agreements on behalf of MEDIQ or otherwise to bind
MEDIQ to any obligation to third parties.
During the term of his employment hereunder, Executive shall not be
required to spend more than 45 hours per month on the performance
of his duties. Executive shall record the time spent by him on the
duties assigned by the CEO and shall submit a statement of such
time to the CEO, upon request from the CEO. Further, such duties
may be performed via telephone and/or by written communication and
shall not require Executive's presence at MEDIQ's facilities or his
travel outside of the greater Philadelphia area unless otherwise
mutually agreed by the parties.
2. Section 2.1 of the Employment Agreement is hereby amended to read
in its entirety as follows:
2.1 Term. The term of Executive's employment hereunder shall continue
through September 30, 1998, upon which such employment shall terminate
without notice or further action by any party. The one-year period
beginning October 1, 1997 and ending September 30, 1998 is referred to
herein as the "Contract Period."
3. Sections 3.1, 3.2, 3.3 and 3.4 of the Employment Agreement are
hereby amended to read in their entirety as follows:
3.1 Basic Compensation. As compensation for Executive's services
hereunder, during the Contract Period MEDIQ shall pay to Executive a
salary at the annual rate in effect for Executive as of September 1,
1997 (the "Base Salary"). Such Base Salary shall be payable throughout
the Contract Period in accordance with MEDIQ's regular payroll
practices in effect from time to time, less applicable withholding and
deductions.
3.2 Performance Bonus. Any performance bonus due to Executive pursuant
to Section 3.2 of the Agreement as in effect prior to this Third
Amendment that is earned or accrued as of September 30, 1997 (as
determined in accordance with GAAP), shall be payable to Executive in
accordance with the corporate policies of MEDIQ. No performance bonus
shall be payable to Executive with respect to fiscal years beginning
after September 30, 1997.
-2-
<PAGE>
3.3 Employee Benefits.
(a) General Rule Regarding Benefits During Contract Period. Except
as otherwise provided in this Section 3.3, Executive shall be
entitled during the Contract Period to participate in all of
MEDIQ's employee benefit plans and benefit programs as may from
time to time be provided for employees of MEDIQ whose duties,
responsibilities and compensation are reasonably comparable to
those of Executive prior to October 1, 1997.
(b) Vacation. Payment for all accrued vacation pay owed to
Executive as of September 30, 1997 shall be made by MEDIQ to
Executive on the first payroll payment date in January 1998.
Executive shall not accrue vacation with respect to the Contract
Period.
(c) Automobile. During the Contract Period, MEDIQ shall continue to
provide Executive with the automobile currently assigned to him in
accordance with the terms of MEDIQ's executive benefits plan (the
reasonable expenses of which automobile shall be borne by MEDIQ).
(d) Incentive Compensation Plan. During the Contract Period, MEDIQ
shall cause Executive to be included at "Level A" in its Incentive
Compensation Plan.
(e) Directors' and Officers' Liability Insurance. During the
Contract Period, Executive shall be covered as an insured under
such Directors' and Officers' Liability insurance as MEDIQ
maintains generally for its Officers and Directors.
3.4 Expense Reimbursement. During the Contract Period, MEDIQ shall
reimburse Executive for all reasonable expenses incurred by him in the
performance of his duties hereunder in accordance with its regular reimbursement
policies as in effect from time to time and upon receipt of itemized vouchers
therefor and such other supporting information as MEDIQ may reasonably require.
4. The last sentence of Section 3.5(a) is amended to read as follows:
-3-
<PAGE>
3.5 Transaction Compensation.
(a) * * * The term "Applicable Period" shall mean the Contract
Period.
5. Sections 4.2, 4.3 and 4.4 of the Agreement are deleted in their
entirety.
6. Except as expressly modified herein, all other terms and conditions
set forth in the Employment Agreement shall remain in full force and effect.
7. This Third Amendment has been duly authorized, executed and
delivered by each of the parties hereto in accordance with Section 6.6 of the
Employment Agreement.
MEDIQ Incorporated
By:
------------------------------
Thomas E. Carroll, President
----------------------------------
Date
----------------------------------
Michael F. Sandler
----------------------------------
Date
-4-
AMENDMENT
THIS AMENDMENT to the Employment Agreement between MEDIQ Incorporated
(the "Company"), MEDIQ/PRN Life Support Services, Inc. ("MEDIQ/PRN") and Thomas
Carroll (the "Executive"), dated as of April 27, 1995 (the "Original
Agreement"), is made by and between the Company, MEDIQ/PRN and the Executive as
of November 14, 1997.
BACKGROUND
The Board of Directors of the Company (the "Board") has initiated a
process to examine certain strategic alternatives designed to enhance the
Company's value to its stockholders. Executive is the President and Chief
Executive Officer of the Company and as such his active participation and
involvement in this process is crucial to its success. In addition, the Company
has determined that it is in its best interests to obtain the Executive's
agreement to forego, under certain circumstances, any payments to him under
Section 3.6(c) of the Original Agreement and also to extend the duration of his
covenant not to compete with the Company following termination of his
employment, and also to extend the term of the Agreement. In consideration of
the Success Bonus provided for herein, the Executive is willing to extend the
term of this agreement and the duration of his non-competition agreements, as
well as to forego any payments under Section 3.6(c), as and to the extent
provided herein. Subject to the foregoing, the Executive is also willing to
actively participate in the strategic process being undertaken by the Board.
The parties hereto therefore desire to amend the Original Agreement in
certain respects (which agreement, as amended hereby, is referred to as the
Employment Agreement).
NOW THEREFORE, in consideration of the premises and intending to be legally
bound hereby, the parties hereto agree as follows:
1. Section 3.4 of the Original Agreement is hereby amended to read in
its entirety as follows:
3.4 Success Bonus.
(a) Executive has agreed to cooperate with the Board in analyzing
and pursuing various strategic alternatives, designed to enhance stockholder
value. If, before June 30, 1998, a Strategic Transaction (as hereafter defined)
occurs, Executive shall be entitled to receive a one-time bonus calculated as
provided in paragraph (b) below. For the purposes of this Agreement, a
- 1 -
<PAGE>
"Strategic Transaction" means any sale or divestiture of MEDIQ or MEDIQ/PRN,
including (i) a sale of substantially all of its stock (including through
merger, tender, exchange or otherwise) or assets, in either case in one or more
related transactions, (ii) a Change in Control (as defined below) and (iii) any
sale or distribution of the stock of MEDIQ or MEDIQ/PRN which results in a
Change in Control at the time of such sale or distribution or at any time within
the immediately succeeding twelve (12) months. Executive's bonus shall be paid
in cash within 30 days after the consummation of a Strategic Transaction.
(b) Executive's bonus payable upon a Strategic Transaction shall
equal the sum of (i) .25% of the aggregate purchase price paid for MEDIQ or
MEDIQ/PRN up to a maximum aggregate purchase price of $375,000,000 plus (ii) if
the aggregate purchase price paid for MEDIQ or MEDIQ/PRN exceeds $375,000,000,
1.5% of any purchase price in excess of $375,000,000. For purposes of
calculating the bonus, the aggregate purchase price shall equal the sum of (x)
the total cash consideration paid (including, without limitation, in respect of
any warrants or other security of MEDIQ or MEDIQ/PRN), plus (y) the fair market
value of any securities or other property received as consideration (including,
without limitation, in respect of any warrants or other security of MEDIQ or
MEDIQ/PRN), plus (z) the aggregate amount (including, without limitation,
accrued but unpaid interest and the unpaid amount of any capital leases) of any
aggregate liabilities assumed or refinanced by the purchaser in connection with
the completion of the acquisition, other than current liabilities taken into
account in computing the working capital (except for current liabilities for
indebtedness for money borrowed (including accrued but unpaid interest or
capital leases)). The aggregate purchase price on which Executive's bonus is to
be calculated is hereafter called "Enterprise Value." In the event of any
dispute between Executive and MEDIQ regarding the Enterprise Value on which
Executive's bonus shall be calculated, the Directors and Executive shall select
an investment banking firm, reasonably acceptable to each of them, to make the
determination of the Enterprise Value. The fees and expenses of the investment
banking firm incurred in making such determination shall be borne by MEDIQ,
unless the investment banking firm shall determine that the Executive's position
regarding the calculation of Enterprise Value was unreasonable under the
circumstances, in which case such fees and expenses shall be shared equally
between MEDIQ and Executive.
(c) Executive acknowledges that a Strategic Transaction may not
occur, that the Board of Directors may determine not to pursue a Strategic
Transaction, that such a transaction can occur only upon proper authorization of
the Board of Directors, or a duly constituted committee thereof, and accordingly
there can be no assurance that any bonus will become payable to Executive under
this Section.
(d) [Omitted]
(e) For purposes of Section 3.4 of this Agreement a "Change in
Control" shall mean the earlier of such time as (i) the Rotko Group collectively
ceases to beneficially own more than 35% of the voting power held by all
stockholders of MEDIQ (or MEDIQ/PRN, as the case may be) or (ii) the Rotko Group
- 2 -
<PAGE>
collectively ceases to beneficially own more than 50% of the voting power held
by all stockholders of MEDIQ (or MEDIQ/PRN, as the case may be) and none of
MEDIQ's securities are registered pursuant to Section 12 of the Securities
Exchange Act of 1934, as amended.
2. Section 3.6(a) and the first four sentences of Section
3.6 (c)(ii) of the Original Agreement are hereby amended to read in their
entirety as follows:
"(a) If a Strategic Transaction occurs before June 30,
1998 and the Executive thereupon becomes entitled to a bonus
payment under Section 3.4(a) of this Employment Agreement, the
Executive shall forfeit all rights to any stock appreciation right
compensation granted pursuant to Section 3.6 of the Original
Agreement, and shall be entitled in lieu thereof solely to the
bonus payable under such Section 3.4(a) (and to the stock options
granted pursuant to Section 3.6(b) of the Original Agreement)."
* * * *
"(ii) Except as provided in clause (iv) below, upon
the termination of Executive's employment for any reason, Executive
shall, subject to Section 3.6(a), be entitled to be paid the value
of his SARs (granted pursuant to Section 3.6(c)(i)) in cash.
Payment of the value of Executive's SARs shall be made within 120
days of the termination of his employment. In addition, subject to
Section 3.6(a), Executive may, at his option, request payment of
the value of his SARs at the time of such request, in whole or in
part, on each fifth anniversary of the date of this Agreement and
such request(s) shall not result in cancellation of such SARs
("Payment Request"). The value of Executive's SARS to be paid to
him (or his estate) upon the termination of his employment (or any
earlier request) as provided above shall be the amount obtained by
solving the following formula:" (The remainder of Section
3.6(c)(ii) is not being amended hereby and shall continue in full
force and effect as provided in the Original Agreement)
3. Section 2.1 of the Original Agreement is hereby amended to read
in its entirety as follows:
The term of Executive's employment hereunder shall continue until
November 14, 1999 (the second anniversary of the date of the First
Amendment to the Original Agreement) and shall thereafter
automatically be renewed for successive two-year terms unless and
until either party shall give notice of his or its election to
terminate Executive's employment at least 60 days before the end of
the then current term, unless earlier terminated as provided herein
(the "Contract Period").
4. Section 5.2(a) of the Original Agreement is hereby amended to
provide that the period of time referred to in the third line of the first
sentence of such section shall be two years, instead of one year, as provided in
the Original Agreement.
- 3 -
<PAGE>
5. Except as expressly modified herein, all other terms and
conditions set forth in the Original Agreement shall remain in full force and
effect. The parties may, but shall not be required to, execute a conformed
version of the Employment Agreement, incorporating the amendments to the
Original Agreement effect hereby. This Amendment may be executed in
counterparts, each of which shall be deemed to be an original but all of which
shall constitute one and the same agreement. Facsimile signatures shall be
treated as originals for all purposes hereunder.
6. This amendment has been duly authorized, executed and delivered
by each of the parties hereto in accordance with Section 6.6 of the Original
Agreement.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
14 day of November, 1997.
MEDIQ INCORPORATED
By: /s/ Jay M. Kaplan
-----------------------------------
MEDIQ/PRN LIFE SUPPORT SERVICES, INC.
By: /s/ Jay M. Kaplan
-----------------------------------
/s/ Thomas Carroll
-----------------------------------
EXHIBIT 11
Statement re: Computation of per share earnings
<PAGE>
EXHIBIT 11
MEDIQ INCORPORATED AND SUBSIDIARIES
Computation of Net Income Per Common Share
(in thousands except per share amounts)
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------------
1997 1996 1995
------- ------- ------
<S> <C> <C> <C>
Computation of Primary Earnings Per Share:
Net Income (Loss) $ 24,663 $(15,704) $ (4,947)
======== ======== ========
Weighted Average Number of Primary Shares:
Beginning Balance 25,297 24,578 24,174
Assumed Conversion of Options 663 389 431
-------- -------- --------
Total 25,960 24,967 24,605
======== ======== ========
Primary Income (Loss) Per Share $ .95 $ (.63) $ (.20)
======== ======== ========
Computation of Fully Diluted Earnings Per Share:
Net Income (Loss) $ 24,663 $(15,704) $ (4,947)
Interest and Amortization on Convertible
Subordinated Debentures - Net of Tax -- 1,697 2,317
-------- -------- --------
Total $ 24,663 $(14,007) $ (2,630)
======== ======== ========
Weighted Average Number of Fully Diluted Shares:
Beginning Balance 25,297 24,578 24,174
Assumed Conversion of Options 743 426 445
Assumed Conversion of Debentures -- 3,897 6,897
-------- -------- --------
Total 26,040 28,901 31,516
======== ======== ========
Fully Diluted Income (Loss) Per Share $ .95 $ (.48) $ (.08)
======== ======== ========
</TABLE>
EXHIBIT 21
Subsidiaries of the Registrant
<PAGE>
EXHIBIT 21
Set forth below is a list of MEDIQ's subsidiaries, as of December 12,
1997, with their respective states of incorporation, names under which they do
business and the percentage of their voting securities owned by the Company as
of such date.
<TABLE>
<CAPTION>
State of Percentage of
Name Incorporation Ownership
- ---- ------------- ---------
<S> <C> <C>
American Cardiovascular Imaging Labs, Inc. (1) PA 100
MDTC Haddon, Inc. (2) DE 100
MEDIQ Diagnostic Centers Inc. DE 100
MEDIQ Diagnostic Centers-I Inc. (2) DE 100
MEDIQ Imaging Services, Inc. DE 100
MDIP-I, Inc. (2) DE 100
MEDIQ Investment Services, Inc. DE 100
MEDIQ Management Services, Inc. DE 100
MEDIQ Mobile X-Ray Services, Inc. DE 100
MEDIQ/PRN Life Support Services, Inc. (3) DE 100
PRN Holdings, Inc. DE 100
Value-Med Products, Inc. (3) NJ 100
(1) Subsidiary of MEDIQ Imaging Services, Inc.
(2) Subsidiary of MEDIQ Diagnostic Centers, Inc.
(3) Subsidiary of PRN Holdings, Inc.
</TABLE>
EXHIBIT 23
Consent of Deloitte & Touche, independent auditors
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference, in the Registration
Statements listed below of our report, dated November 25, 1997 appearing in this
Annual Report on Form 10-K of MEDIQ Incorporated and subsidiaries for the year
ended September 30, 1997.
Registration Statement No. 33-13122 on Form S-8
Registration Statement No. 33-11042 on Form S-8
Registration Statement No. 33-59126 on Form S-3
Registration Statement No. 33-61724 on Form S-2
Registration Statement No. 33-16802 on Form S-8
Registration Statement No. 33-5089 on Form S-2
Registration Statement No. 33-47416 on Form S-8
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
December 23, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000350920
<NAME> MEDIQ Incorporated
<MULTIPLIER> 1,000
<CURRENCY> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 3,639
<SECURITIES> 0
<RECEIVABLES> 43,763
<ALLOWANCES> 4,077
<INVENTORY> 13,047
<CURRENT-ASSETS> 69,751
<PP&E> 249,620
<DEPRECIATION> 136,031
<TOTAL-ASSETS> 257,552
<CURRENT-LIABILITIES> 40,019
<BONDS> 128,131
0
3,322
<COMMON> 20,068
<OTHER-SE> 25,213
<TOTAL-LIABILITY-AND-EQUITY> 257,552
<SALES> 19,922
<TOTAL-REVENUES> 136,038
<CGS> 16,334
<TOTAL-COSTS> 110,122
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,107
<INCOME-PRETAX> 2,893
<INCOME-TAX> 5,134
<INCOME-CONTINUING> (2,241)
<DISCONTINUED> 34,941
<EXTRAORDINARY> (8,037)
<CHANGES> 0
<NET-INCOME> 24,663
<EPS-PRIMARY> .95
<EPS-DILUTED> .95
</TABLE>
