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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
____________________
SCHEDULE 13E-3
Rule 13e-3 Transaction Statement
(Pursuant to Section 13(e) of the Securities Exchange Act of 1934)
____________________
MEDIQ INCORPORATED
(Name of the Issuer)
____________________
MEDIQ INCORPORATED
MQ ACQUISITION CORPORATION
BRUCKMANN, ROSSER, SHERRILL & CO., L.P.
Thomas E. Carroll
Michael J. Rotko
Bessie G. Rotko
Judith M. Shipon
Rotko 1983 Trust
#6 GST Exempt Trust
#7 GST Exempt Trust
(Name of Person(s) Filing Statement)
____________________
Common Stock, par value $1.00 per share
Series A Preferred Stock, $.50 par value
(Title of Class of Securities)
____________________
584906 10 1 (Common Stock)
584906 20 0 (Series A Preferred Stock)
(CUSIP Number of Class Securities)
____________________
<TABLE>
<S> <C> <C> <C>
MR. THOMAS E. CARROLL MR. BRUCE C. BRUCKMANN MR. BRUCE C. BRUCKMANN JOHN D. ISKRANT, ESQ.
MEDIQ Incorporated MQ Acquisition Corporation Bruckmann, Rosser, Sherrill & Schnader, Harrison Segal & Lewis
One MEDIQ Plaza 126 East 56th Street, 29th Floor Co., L.P. 1600 Market Street, Suite 3600
Pennsauken, NJ 08110 New York, NY 10022 126 East 56th Street, 29th Floor Philadelphia, PA 19103-7286
(609) 665-9300 (212) 521-3700 New York, NY 10022 (215) 751-2000
(212) 521-3700
</TABLE>
(Name, Address and Telephone Number of Person Authorized to Receive Notices and
Communications on Behalf of Person(s) Filing Statement)
____________________
With Copies to:
<TABLE>
<S> <C>
WILLIAM G. LAWLOR, ESQ. F. DOUGLAS RAYMOND, III, ESQ.
Dechert Price & Rhoads Drinker Biddle & Reath LLP
4000 Bell Atlantic Tower Philadelphia National Bank Building
1717 Arch Street 1345 Chestnut Street
Philadelphia, PA 19103 Philadelphia, PA 19107-3496
(215) 994-4000 (215) 988-2700
</TABLE>
This Statement is filed in connection with.
a. /x/ The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C or Rule 13e-3(c) under the
Securities Exchange Act of 1934.
b. / / The filing of a registration statement under the Securities Act of
1933.
c. / / A tender offer.
d. / / None of the above.
Check the following box if the soliciting material or information statement
referred to in checking box (a) are preliminary copies: /x/
CALCULATION OF FILING FEE
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TRANSACTION VALUATION* AMOUNT OF FILING FEE
<S> <C>
$352,236,031 $62,647
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</TABLE>
* Determined in accordance with Rule 0-11 under the Exchange Act of 1934, as
amended.
/x/ Check box if any part of the fee is offset as provided by Rule 0-11(a) (2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
<TABLE>
<S> <C> <C> <C>
Amount Previously Paid: $7,800 Filing Party: MEDIQ Incorporated
Form Registration No. Form S-4 Date Filed: As of the date hereof
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</TABLE>
<PAGE>
INTRODUCTION
This Rule 13e-3 Transaction Statement (the "Statement") is being filed by
MEDIQ Incorporated, a Delaware corporation ("MEDIQ" or the "Company"), MQ
Acquisition Corporation, a Delaware corporation ("MQ") organized by
Bruckmann, Rosser & Sherrill & Co., L.P. ("BRS"), Thomas E. Carroll, an
individual and resident of the Commonwealth of Pennsylvania, Michael J.
Rotko, an individual and resident of the Commonwealth of Pennsylvania, Bessie
G. Rotko, an individual and resident of the Commonwealth of Pennsylvania,
Judith M. Shipon, an individual and resident of the Commonwealth of
Pennsylvania, that certain Trust established by the late Bernard B. Rotko
under an Agreement of Trust dated November 18, 1983 (the "Rotko 1983 Trust"),
that certain Trust established under the will of Bernard B. Rotko dated
August 2, 1988 (the "#6 GST Exempt Trust"), and that certain Trust
established under the will of Bernard B. Rotko dated August 2, 1988 (the "#7
GST Exempt Trust"). The Rotko 1983 Trust, the #6 GST Exempt Trust and the #7
GST Exempt Trust are sometimes collectively referred to herein as the "Rotko
Trusts." The Rotko Trusts, Mr. Rotko, Mrs. Rotko and Mrs. Shipon are
sometimes collectively referred to herein as the "Rotko Filing Entities."
Each of Mr. Rotko, Mrs. Rotko and Mrs. Shipon is a trustee of each of the
Rotko Trusts.
This statement is being filed in connection with the filing, as part of a
Registration Statement on Form S-4 (the "Registration Statement"), by the
Company of a Proxy Statement/Prospectus (the "Proxy Statement/Prospectus")
relating to a Special Meeting of Stockholders at which the stockholders will
be asked to vote upon the approval of an Agreement and Plan of Merger, dated
as of January 14, 1998 (the "Merger Agreement"), between the Company and MQ
and the transactions contemplated thereby, including the merger of MQ with
and into the Company (the "Merger") with the Company as the surviving
corporation (the "Surviving Corporation"). Pursuant to the Merger, each share
of common stock, par value $1.00 per share, of the Company (the "MEDIQ Common
Stock") and each share of Series A preferred stock, par value $0.075 per share,
of the Company (the "MEDIQ Preferred Stock" and, collectively with the MEDIQ
Common Stock, the "MEDIQ Shares" or the "MEDIQ Stock") issued and outstanding
immediately prior to the effective time of the Merger (the "Effective Time")
will be converted into the right to receive (i) $13.75 per MEDIQ Share in
cash, without interest, and (ii) 0.075 of a share of the Surviving
Corporation's Series A 13% Cumulative Compounding Preferred Stock, par value
$.01 per share with a liquidation preference of $10.00 per share ("Series A
Preferred Stock"), except for MEDIQ Shares owned directly or indirectly by MQ
or the Company and Dissenting Shares. Each MEDIQ Share that is issued and
outstanding immediately prior to the Effective Time and owned by MQ or the
Company or any direct or indirect subsidiary of MQ or the Company, shall be
canceled, and no payments or any consideration shall be made with respect
thereto.
The following cross reference sheet is being supplied pursuant to General
Instruction F to Schedule 13E-3 and shows the location in the Proxy
Statement/Prospectus of the information required to be included in response
to items of this Statement. The information in the Proxy
Statement/Prospectus, including all exhibits thereto, is hereby expressly
incorporated herein by reference and the responses to each item are qualified
in their entirety by the provisions of the Proxy Statement/Prospectus.
Capitalized terms used but not defined herein shall have the respective
meanings ascribed to such terms in the Proxy Statement/Prospectus. All
information in, or incorporated by reference in, the Proxy
Statement/Prospectus or this Statement concerning the Company or its
advisors, or actions or events with respect to any of them, was provided by
the Company and all information in, or incorporated by reference in, the
Proxy Statement/ Prospectus or this Statement concerning MQ or its advisors,
or actions or events with respect to any of them, was provided by MQ. All
information in, or incorporated by reference in, the Proxy Statement/
Prospectus or this Statement concerning BRS or its advisors, or actions or
events with respect to any of them, was provided by BRS. All information in,
or incorporated by reference in, the Proxy Statement/ Prospectus or this
Statement concerning Mr. Carroll or his advisors, or actions or events with
respect to any of them, was provided by Mr. Carroll. All information in, or
incorporated by reference in, the Proxy Statement/Prospectus or this
Statement concerning the Rotko Filing Entities or their advisors, or actions
or events with respect to any of them, was provided by the Rotko Filing
Entities.
<PAGE>
CROSS REFERENCE SHEET
PURSUANT TO INSTRUCTION F
OF SCHEDULE 13E-3
<TABLE>
<CAPTION>
LOCATION OR CAPTION IN PROXY
ITEM NUMBER AND HEADING STATEMENT/PROSPECTUS
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
ITEM 1. Issuer and Class of Security subject to the
Transaction.
(a)..................................................... "SUMMARY -- The Parties" and "THE MERGER -- The
Parties."
(b)..................................................... "PROXY STATEMENT/PROSPECTUS," "THE SPECIAL MEETING
-- Record Date; Stock Entitled to Vote; Quorom" and
"DESCRIPTION OF MEDIQ CAPITAL STOCK PRIOR TO THE
MERGER."
(c) and (d)............................................. "SUMMARY -- Market Price and Dividend Information" and
"MARKET PRICE AND DIVIDEND INFORMATION."
(e) and (f)............................................. Not applicable
ITEM 2. Identity and Background
(a)--(d) and (g)........................................ "SUMMARY -- The Parties," "THE COMPANY," "THE MERGER
-- The Parties "MANAGEMENT OF SURVIVING CORPORATION AND
OTHER TRANSACTIONS -- Directors and Officers of the
Surviving Corporation" and Schedule I.
ITEM 3. Past Contacts, Transactions or Negotiations.
(a) and (b)............................................. "SPECIAL FACTORS -- Background of the Merger," "SPECIAL
FACTORS -- Interests of Certain Persons in the Merger,"
"THE STOCKHOLDER AGREEMENTS," "THE ROLLOVER AGREEMENT,"
"THE STOCK OPTION AGREEMENT" and Annexes V, VI and VII.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LOCATION OR CAPTION IN PROXY
ITEM NUMBER AND HEADING STATEMENT/PROSPECTUS
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
ITEM 4. Terms of the Transaction.
(a)..................................................... "SUMMARY -- The Merger," "SPECIAL FACTORS -- Interests
of Certain Persons in the Merger," "THE MERGER" and
"CERTAIN PROVISIONS OF THE MERGER AGREEMENT."
(b)..................................................... "SPECIAL FACTORS -- Interests of Certain Persons in
the Merger," "CERTAIN PROVISIONS OF THE MERGER
AGREEMENT -- Merger Consideration," "CERTAIN PROVISIONS
OF THE MERGER AGREEMENT -- Dissenting Shares," "CERTAIN
PROVISIONS OF THE MERGER AGREEMENT -- Option Consideration,"
"CERTAIN PROVISIONS OF THE MERGER AGREEMENT -- Indemnification,"
"THE ROLLOVER AGREEMENT" and "STOCK OPTION AGREEMENT."
ITEM 5. Plans or Proposals of the Issuer or Affiliate.
(a) and (b)............................................. Not applicable.
(c)..................................................... "MANAGEMENT OF SURVIVING CORPORATION AND OTHER
TRANSACTIONS -- Directors and Officers of the
Surviving Corporation" and "CERTAIN PROVISIONS
OF THE MERGER AGREEMENT -- Directors."
(d)..................................................... "SUMMARY -- The Merger," "SUMMARY -- Conversion of MEDIQ
Stock," "SUMMARY -- Treatment of MEDIQ Stock Options,"
"SUMMARY -- Conversion of MQ Stock," "DESCRIPTION OF
MEDIQ CAPITAL STOCK FOLLOWING THE MERGER," "SOURCES AND
AMOUNT OF FUNDS" and "CAPITALIZATION."
(e)..................................................... Not applicable.
(f) and (g)............................................. "RISK FACTORS -- Delisting of MEDIQ Common Stock and
MEDIQ Preferred Stock from AMEX; Uncertainty Regarding
Liquidity and Market Price for Series A Preferred
Stock," "RISK FACTORS -- Possible Termination of
Exchange Act Reporting" and "THE MERGER -- AMEX
De-Listing."
ITEM 6. Source and Amounts of Funds or Other
Consideration.
(a) and (c)............................................. "SUMMARY -- The Transactions" and "SOURCES AND AMOUNT OF
FUNDS."
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LOCATION OR CAPTION IN PROXY
ITEM NUMBER AND HEADING STATEMENT/PROSPECTUS
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
(b)..................................................... "SUMMARY -- The Transactions" "THE SPECIAL MEETING --
Solicitation of Proxies" and "CERTAIN PROVISIONS OF THE
MERGER AGREEMENT -- Expenses"
(d)..................................................... Not applicable.
ITEM 7. Purpose(s), Alternatives, Reasons and Effects.
(a)--(c)................................................ "SPECIAL FACTORS -- Background of the Merger," "SPECIAL
FACTORS -- Recommendation of the Special Committee and
the Board of Directors; Reasons for the Merger,"
"SPECIAL FACTORS -- Purposes and Reasons of BRS and MQ
for the Merger," "SPECIAL FACTORS -- Purposes and Reasons
of the Rotko Entities and Mr. Carroll in Agreeing to the
Merger," "SPECIAL FACTORS -- Anticipated Accounting
Treatment" and "SPECIAL FACTORS -- Federal Income Tax
Consequences."
(d)..................................................... "SPECIAL FACTORS -- Background of the Merger," "SPECIAL
FACTORS -- Recommendation of the Special Committee and
the Board of Directors; Reasons for the Merger,"
"SPECIAL FACTORS -- Purposes and Reasons of the Rotko
Entities and Mr. Carroll in Agreeing to the Merger,"
"SPECIAL FACTORS -- Structure," "SPECIAL FACTORS --
Federal Income Tax Consequences," "RISK FACTORS --
Substantial Leverage and Stockholders' Deficit;
Liquidity," "RISK FACTORS -- Delisting of MEDIQ Common
Stock and MEDIQ Preferred Stock from AMEX; Uncertainty
Regarding Liquidity and Market Price for Series A
Preferred Stock," "RISK FACTORS -- Limited Voting
Rights," "RISK FACTORS -- Possible Termination of
Exchange Act Reporting," "THE MERGER" and "PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS."
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LOCATION OR CAPTION IN PROXY
ITEM NUMBER AND HEADING STATEMENT/PROSPECTUS
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
ITEM 8. Fairness of the Transaction.
(a), (b), (d), (e) and (f).............................. "SPECIAL FACTORS -- Background of the Merger," "SPECIAL
FACTORS -- Recommendation of the Special Committee and
the Board of Directors; Reasons for the Merger,"
"SPECIAL FACTORS -- Position of BRS and MQ as to Fairness
of the Merger Transaction," "SPECIAL FACTORS -- Position
of Rotko Entities and Mr. Carroll as to Fairness of the
Merger," "SPECIAL FACTORS -- Opinion of the Company's
Financial Advisor" and Annex II.
(c)..................................................... "THE SPECIAL MEETING -- Record Date; Stock Entitled to
Vote; Quorum."
ITEM 9. Reports, Opinions, Appraisals and Certain
Negotiations.
(a)--(c)................................................ "SPECIAL FACTORS -- Background of the Merger," "SPECIAL
FACTORS -- Opinion of the Company's Financial Advisor"
and Annex II.
ITEM 10. Interest in Securities of the Issuer.
(a)..................................................... "MANAGEMENT OF SURVIVING CORPORATIONS AND OTHER
TRANSACTIONS -- Security Ownership of Certain
Beneficial Owners and Management."
(b)..................................................... Not applicable.
ITEM 11. Contracts, Arrangements or "SPECIAL FACTORS -- Background of the Merger,"
Understandings with Respect to the Issuer's "SPECIAL FACTORS -- Interests of Certain Persons in
Securities the Merger," "CERTAIN PROVISIONS OF THE
MERGER AGREEMENT," "STOCK OPTION
AGREEMENT," "THE STOCKHOLDER
AGREEMENTS" and "THE ROLLOVER
AGREEMENT."
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LOCATION OR CAPTION IN PROXY
ITEM NUMBER AND HEADING STATEMENT/PROSPECTUS
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
ITEM 12. Present Intention and Recommendation of Certain
Persons with Regard to the Transaction.
(a)..................................................... "SPECIAL FACTORS -- Interests of Certain Persons in the
Merger," "SPECIAL FACTORS -- Recommendation of the
Special Committee and the Board of Directors; Reasons
for the Merger," "SPECIAL FACTORS -- Purposes and Reasons
of BRS and MQ for the Merger," "SPECIAL FACTORS
-- Purposes and Reasons of the Rotko Entities and Mr.
Carroll in Agreeing to the Merger," "THE SPECIAL MEETING
-- Required Votes," "STOCK OPTION AGREEMENT," "THE
STOCKHOLDER AGREEMENTS" and "THE ROLLOVER AGREEMENT"
(b)..................................................... "SPECIAL FACTORS -- Background of the Merger," "SPECIAL
FACTORS -- Recommendation of the Special Committee and
the Board of Directors; Reasons for the Merger,"
"SPECIAL FACTORS -- Purposes and Reasons of BRS and MQ
for the Merger" and "SPECIAL FACTORS -- Purposes and
Reasons of the Rotko Entities and Mr. Carroll in
Agreeing to the Merger."
ITEM 13. Other Provisions of the Transaction.
(a)..................................................... "DISSENTING STOCKHOLDERS' RIGHTS" and Annex III.
(b) and (c)............................................. Not applicable.
ITEM 14. Financial Information.
(a)..................................................... "SUMMARY -- Selected Consolidated Historical Financial
Data."
(b)..................................................... "SUMMARY -- Selected Pro Forma Consolidated Financial
Data" and "PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS."
ITEM 15. Persons and Assets Employed Retained or
Utilized.
(a)..................................................... "SPECIAL FACTORS -- Background of the Merger," "THE
SPECIAL MEETING -- Interest of Certain Persons in the
Merger" and "CERTAIN PROVISIONS OF THE MERGER AGREEMENT
-- Employee Benefits."
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LOCATION OR CAPTION IN PROXY
ITEM NUMBER AND HEADING STATEMENT/PROSPECTUS
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
(b)..................................................... "SPECIAL FACTORS -- Opinion of the Company's Financial
Advisor" and "THE SPECIAL MEETING -- Solicitation of
Proxies."
ITEM 16. Additional Information Additional information concerning the Merger as set
forth in the Proxy Statement/Prospectus attached hereto
as Exhibit (d), which information is incorporated herein
by reference in its entirety.
ITEM 17. Material to be Filed as Exhibits Separately included herewith.
</TABLE>
<PAGE>
SCHEDULE 13E-3
ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION.
(a) The information set forth in "SUMMARY -- The Parties" and "THE
MERGER -- The Parties" of the Proxy Statement/Prospectus is incorporated
herein by reference.
(b) The information set forth in "PROXY STATEMENT/PROSPECTUS," "THE
SPECIAL MEETING -- Record Date; Stock Entitled to Vote; Quorum" and
"DESCRIPTION OF MEDIQ CAPITAL STOCK PRIOR TO THE MERGER," of the Proxy
Statement/Prospectus is incorporated herein by reference.
(c) and (d) The information set forth in "SUMMARY -- Market Price and
Dividend Information" and "MARKET PRICE AND DIVIDEND INFORMATION," of the
Proxy Statement/Prospectus is incorporated herein by reference.
(e) Not applicable.
(f) Not applicable.
ITEM 2. IDENTITY AND BACKGROUND.
(a) - (d) and (g) This Statement is being filed by the Company (the
issuer of MEDIQ Common Stock and MEDIQ Preferred Stock), MQ Acquisition
Corporation, BRS, Thomas E. Carroll, Michael J. Rotko, Bessie G. Rotko,
Judith M. Shipon and the Rotko Trusts. Reference is made to "SUMMARY -- The
Parties," "THE COMPANY," "THE MERGER -- The Parties," "MANAGEMENT OF
SURVIVING CORPORATION AND OTHER TRANSACTIONS -- Directors and Officers of the
Surviving Corporation"; Schedule I to the Proxy Statement/Prospectus and
"DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT" of the Company's Annual
Report on Form 10-K, as amended, for the fiscal year ended September 30, 1997
which is incorporated herein by reference. The address of each of the #6 GST
Exempt Trust and the #7 GST Exempt Trust is c/o John D. Iskrant, Esq.,
Schnader Harrison Segal & Lewis, 1600 Market Street, Suite 3600,
Philadelphia, PA 19103-7286. Bessie G. Rotko, a citizen of the United
States, resides at 100 Breyer Estate #4, Elkins Park, PA 19027. Judith M.
Shipon, a citizen of the United States, resides at 1115 Devon Road, Rydal, PA
19046. Michael J. Rotko, a citizen of the United States, resides at 2299
Hilltop View Road, Unionville, PA 19375.
(e) and (f) During the last five years, no person or entity filing this
Statement and, to the best of his, her or its knowledge, none of his, her or
its respective directors, executive officers or trustees (i) has been
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors) or (ii) was a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such
proceeding was or is subject to a judgment, decree or final order enjoining
any further violations of, or prohibiting activities subject to, federal or
state securities laws or finding any violation of such laws.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS.
(a) and (b) The information set forth in "SPECIAL FACTORS -- Background of
the Merger," "SPECIAL FACTORS -- Interests of Certain Persons in the Merger,"
"THE STOCKHOLDER AGREEMENTS," "THE ROLLOVER AGREEMENT" and "THE STOCK OPTION
AGREEMENT" of the Proxy Statement/Prospectus is incorporated herein by
reference.
ITEM 4. TERMS OF THE TRANSACTION.
(a) The information set forth in "SUMMARY -- The Merger," "SPECIAL FACTORS
- -- Interests of Certain Persons in the Merger," "THE MERGER" and "CERTAIN
PROVISIONS OF THE MERGER AGREEMENT" of
<PAGE>
the Proxy Statement/Prospectus is incorporated herein by reference.
(b) The information set forth in "SPECIAL FACTORS -- Interests of Certain
Persons in the Merger," "CERTAIN PROVISIONS OF THE MERGER AGREEMENT -- Merger
Consideration," "CERTAIN PROVISIONS OF THE MERGER AGREEMENT -- Dissenting
Shares," "CERTAIN PROVISIONS OF THE MERGER AGREEMENT -- Option
Consideration," "CERTAIN PROVISIONS OF THE MERGER AGREEMENT --
Indemnification," "THE ROLLOVER AGREEMENT" and "STOCK OPTION AGREEMENT" of
the Proxy Statement/Prospectus is in corporated herein by reference.
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
(a), (b) and (e) Not applicable.
(c) The information set forth in "MANAGEMENT OF SURVIVING CORPORATION AND
OTHER TRANSACTIONS -- Directors and Officers of the Surviving Corporation"
and "CERTAIN PROVISIONS OF THE MERGER AGREEMENT --Directors" of the Proxy
Statement/Prospectus is incorporated herein by reference.
(d) The information set forth in "SUMMARY -- The Merger," "SUMMARY --
Conversion of MEDIQ Stock," "SUMMARY -- Treatment of MEDIQ Stock Options,"
"SUMMARY --Conversion of MQ Stock," "DESCRIPTION OF MEDIQ CAPITAL STOCK
FOLLOWING THE MERGER," SOURCES AND AMOUNT OF FUNDS" and "CAPITALIZATION" of
the Proxy Statement/Prospectus is incorporated herein by reference.
(f) - (g) The information set forth in the "RISK FACTORS -- Delisting of
MEDIQ Common Stock and MEDIQ Preferred Stock from AMEX; Uncertainty Regarding
Liquidity and Market Price for Series A Preferred Stock," "RISK FACTORS
- -- Possible Termination of Exchange Act Reporting" and "THE MERGER -- AMEX
De-Listing" of the Proxy Statement is incorporated herein by reference.
ITEM 6. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) and (c) The information set forth in "SUMMARY -- The Transactions"
and "SOURCES AND AMOUNT OF FUNDS" of the Proxy Statement/Prospectus and the
Senior Secured Credit Facilities Commitment Letter attached hereto as Exhibit
(a)(1) is incorporated herein by reference.
(b) The information set forth in "SUMMARY -- The Transactions," "THE
SPECIAL MEETING -- Solicitation of Proxies" and "CERTAIN PROVISIONS OF THE
MERGER AGREEMENT -- Expenses," of the Proxy Statement/Prospectus is
incorporated herein by reference.
(d) Not applicable.
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS.
(a) - (c) The information set forth in "SPECIAL FACTORS -- Background of
the Merger," "SPECIAL FACTORS -- Recommendation of the Special Committee and
the Board of Directors; Reasons for the Merger," "SPECIAL FACTORS -- Purposes
and Reasons of BRS and MQ for the Merger," "SPECIAL FACTORS -- Purpose and
Reasons of the Rotko Entities and Mr. Carroll in Agreeing to the Merger,"
"SPECIAL FACTORS -- Anticipated Accounting Treatment" and "SPECIAL FACTORS --
Federal Income Tax Consequences" of the Proxy Statement/Prospectus is
incorporated herein by reference.
The purposes of the #6 GST Exempt Trust and the #7 GST Exempt Trust in
agreeing to the transactions contemplated by the Merger Agreement are to obtain
substantial liquidity for their equity investment in the Company, to
<PAGE>
facilitate the diversification of their assets generally and to enable existing
stockholders of the Company to realize a substantial premium on the MEDIQ Stock
owned by them.
(d) The information set forth in "SPECIAL FACTORS -- Background of the
Merger," "SPECIAL FACTORS -- Recommendation of the Special Committee and the
Board of Directors; Reasons for the Merger," "SPECIAL FACTORS -- Purposes and
Reasons of the Rotko Entities and Mr. Carroll in Agreeing to the Merger,"
"SPECIAL FACTORS -- Structure," "SPECIAL FACTORS -- Federal Income Tax
Consequences," "RISK FACTORS -- Substantial Leverage and Stockholders'
Deficit; Liquidity," "RISK FACTORS -- Delisting of MEDIQ Common Stock and MEDIQ
Preferred Stock from AMEX; Uncertainty Regarding Liquidity and Market Price
for Series A Preferred Stock," "RISK FACTORS -- Limited Voting Rights," "RISK
FACTORS -- Possible Termination of Exchange Act Reporting," "THE MERGER,"
"PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS" and "NOTES TO PRO
FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS" of the Proxy
Statement/Prospectus is incorporated herein by reference.
ITEM 8. FAIRNESS OF THE TRANSACTION.
(a), (b), (d) (e) and (f) The information set forth in "SPECIAL FACTORS
- -- Background of the Merger," "SPECIAL FACTORS -- Recommendation of the
Special Committee and the Board of Directors; Reasons for the Merger,"
"SPECIAL FACTORS --Position of BRS and MQ as to Fairness of the Merger
Transaction," "SPECIAL FACTORS -- Position of Rotko Entities and Mr. Carroll
as to Fairness of the Merger," "SPECIAL FACTORS -- Opinion of the Company's
Financial Advisor" and Annex II of the Proxy Statement/Prospectus is
incorporated herein by reference.
Neither the #6 GST Exempt Trust nor the #7 GST Exempt Trust has undertaken
any formal evaluation of the fairness of the Merger to the stockholders of the
Company and did not find it practicable to quantify or otherwise attach
relative weights to the various factors considered by them. Based, however,
on their consideration of, among other things, (i) historical market prices
for the MEDIQ Stock (including the fact that the Merger Consideration of
approximately $14.25 per share of MEDIQ Stock (valuing 0.075 of a share of
Series A Preferred Stock at approximately $0.50) is substantially higher than
the market price per share of MEDIQ Common Stock and MEDIQ Preferred Stock on
the last full day on which each such class of stock traded prior to
announcement that the Company and MQ had entered into the Merger Agreement)
and (ii) the factors taken into account by the Special Committee and the Board
of Directors, including that an the auction process was conducted on behalf of
the Company and that the Board of Directors obtained an opinion concerning the
fairness, from a financial point of view, of the Merger Consideration to be
received by the Company's stockholders in the Merger, each of the #6 GST
Exempt Trust and the #7 GST Exempt Trust believes that the Merger is fair to
the stockholders of the Company.
(c) The information set forth in "THE SPECIAL MEETING -- Record Date;
Stock Entitled to Vote; Quorom" of the Proxy Statement/Prospectus is
incorporated herein by reference.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
(a) and (b). The information set forth in "SPECIAL FACTORS -- Background
of the Merger," "SPECIAL FACTORS -- Opinion of the Company's Financial
Advisor" and Annex II of the Proxy Statement/Prospectus is incorporated
herein by reference.
(c) The Opinion of Salomon Smith Barney, dated January 14, 1998 (Annex II
to the Proxy Statement/Prospectus) and the materials presented to the Board
by Salomon Smith Barney on January 14, 1998 (included herein as Exhibit
(b)(2)), shall be made available for inspection and copying at the principal
executive offices of the Company during its regular business hours by any
interested equity security holder of the Company or his representative who
has been designated in writing. At the written request of such a security
holder, a copy of the opinion and/or materials will be sent, at the security
holder's expense, to such security holder or his representative.
<PAGE>
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
(a) The information set forth in "MANAGEMENT OF SURVIVING CORPORATIONS AND
OTHER TRANSACTIONS -- Security Ownership of Certain Beneficial Owners and
Management" of the Proxy Statement/Prospectus is incorporated herein by
reference. On January 14, 1998, MQ and BRS did not own any MEDIQ Stock.
(b) Not applicable.
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE ISSUER'S
SECURITIES.
The information set forth in "SPECIAL FACTORS -- Background of the
Merger," "SPECIAL FACTORS -- Interests of Certain Persons in the Merger,"
"CERTAIN PROVISIONS OF THE MERGER AGREEMENT," "STOCK OPTION AGREEMENT," "THE
STOCKHOLDER AGREEMENTS" and "THE ROLLOVER AGREEMENT" of the Proxy
Statement/Prospectus is incorporated herein by reference.
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD TO
THE TRANSACTION.
(a) The information set forth in "SPECIAL FACTORS -- Interests of Certain
Persons in the Merger," "SPECIAL FACTORS -- Recommendation of the Special
Committee and the Board of Directors; Reasons For the Merger," "SPECIAL
FACTORS -- Purposes and Reasons of BRS and MQ for the Merger," "SPECIAL
FACTORS -- Purposes and Reasons of the Rotko Entities and Mr. Carroll in
Agreeing to the Merger," "THE SPECIAL MEETING -- Required Votes," "STOCK
OPTION AGREEMENT," "THE STOCKHOLDER AGREEMENTS" and "THE ROLLOVER AGREEMENT"
of the Proxy Statement/Prospectus is incorporated herein by reference.
(b) The information set forth in "SPECIAL FACTORS -- Background of the
Merger," "SPECIAL FACTORS -- Recommendation of the Special Committee and the
Board of Directors; Reasons for the Merger," "SPECIAL FACTORS -- Purposes and
Reasons of BRS and MQ for the Merger" and "SPECIAL FACTORS -- Purposes and
Reasons of the Rotko Entities and Mr. Carroll in Agreeing to the Merger" of
the Proxy Statement/Prospectus is incorporated herein by reference.
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION.
(a) The information set forth in "DISSENTING STOCKHOLDERS' RIGHTS" and
Annex III of the Proxy Statement/Prospectus is incorporated herein by
reference.
(b) and (c) Not applicable.
ITEM 14. FINANCIAL INFORMATION.
(a) The information set forth in "SUMMARY -- Selected Consolidated
Historical Financial Data of MEDIQ Incorporated" of the Proxy
Statement/Prospectus is incorporated herein by reference.
(b) The information set forth in "SUMMARY -- Selected Pro Forma
Consolidated Financial Data" and "PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS" of the Proxy Statement/Prospectus is incorporated herein by
reference.
ITEM 15. PERSONS AND ASSETS EMPLOYED RETAINED OR UTILIZED.
(a) The information set forth in "SPECIAL FACTORS -- Background of the
Merger," "THE SPECIAL MEETING -- Interest of Certain Persons in the Merger"
and "CERTAIN PROVISIONS OF THE MERGER AGREEMENT -- Employee Benefits" of the
Proxy Statement/Prospectus is incorporated herein by reference.
<PAGE>
(b) The information set forth in "SPECIAL FACTORS -- Opinion of the
Company's Financial Advisor" and "THE SPECIAL MEETING -- Solicitation of
Proxies" of the Proxy Statement/Prospectus is incorporated herein by
reference.
ITEM 16. Additional Information.
The additional information concerning the Merger as set forth in the Proxy
Statement/Prospectus attached hereto as Exhibit (d), which information is
incorporated herein by reference in its entirety.
ITEM 17. Material to be Filed as Exhibits.
(a) Senior Secured Credit Facilities Commitment Letter dated February 2,
1998 by and between Credit Suisse First Boston, NationsBank, N.A., Banque
Nationale de Paris and Bruckmann, Rosser, Sherrill & Co., Inc. (filed
herewith).
(b) Salomon Smith Barney Opinion (incorporated herein by reference to
Annex II to the Proxy Statement/Prospectus).
Materials presented to the Board of Directors of the Company by Salomon
Smith Barney on January 14, 1998 (filed herewith).
(c) Agreement and Plan of Merger dated as of January 14, 1998 by and between
MEDIQ Incorporated and MQ Acquisition Corporation (incorporated herein
by reference to Annex I to the Proxy Statement/Prospectus).
Stock Option Agreement by and between the Rotko Entities and MQ
Acquisition Corporation (incorporated herein by reference to Annex V to
the Proxy Statement/Prospectus).
The Stockholder Agreements entered into by each of the Rotko Entities
with MQ Acquisition Corporation dated as of January 14, 1998
(incorporated herein by reference to Annex VI to the Proxy
Statement/Prospectus).
The Rollover Agreement dated as of January 14, 1998 by and between the
Rotko Entities and MQ Acquisition Corporation (incorporated herein by
reference to Annex VII to the Proxy Statement/Prospectus).
(d) Preliminary copy of Letter to Stockholders, Notice of Special Meeting of
Stockholders, Proxy Statement and Form of Proxy dated February 13, 1998,
for the Special Meeting of Stockholders to be held on ______________, 1998
(filed herewith).
(e) Excerpts from Delaware General Corporation Law Relating to Dissenters'
Rights (incorporated herein by reference to Annex III of the Proxy
Statement/Prospectus).
(f) Not Applicable.
<PAGE>
SIGNATURES
After due inquiry and to the best of its knowledge and belief, each of
the undersigned certifies that the information set forth in this statement is
true, complete and correct.
Dated: February 13, 1998
MEDIQ Incorporated
By:/s/ Thomas E. Carroll
-----------------------------------
Name: Thomas E. Carroll
Title: President
MQ ACQUISITION CORPORATION
By: /s/ Bruce C. Bruckmann
--------------------------------
Name: Bruce C. Bruckmann
Title: President
BRUCKMANN, ROSSER, SHERRILL & CO., L.P.
By: BRS PARTNER, L.P., its general partner
By: BRSE ASSOCIATES, INC., its general
partner
By: /s/ Bruce C. Bruckmann
--------------------------------
Bruce C. Bruckmann
Managing Director
/s/ Thomas E. Carroll
--------------------------------
Thomas E. Carroll
/s/ Michael J. Rotko
--------------------------------
Michael J. Rotko
/s/ Bessie G. Rotko
--------------------------------
Bessie G. Rotko
/s/ Judith M. Shipon
--------------------------------
Judith M. Shipon
[signatures continue on next page]
<PAGE>
ROTKO 1983 TRUST
By: /s/ Bessie G. Rotko
--------------------------------
Bessie G. Rotko, Trustee
By: /s/ Judith M. Shipon
--------------------------------
Judith M. Shipon, Trustee
By: /s/ Michael J. Rotko
--------------------------------
Michael J. Rotko, Trustee
By: /s/ John D. Iskrant
--------------------------------
John D. Iskrant, Trustee
#6 GST TRUST
By: /s/ Bessie G. Rotko
--------------------------------
Bessie G. Rotko, Trustee
By: /s/ Judith M. Shipon
--------------------------------
Judith M. Shipon, Trustee
By: /s/ Michael J. Rotko
--------------------------------
Michael J. Rotko, Trustee
By: /s/ John D. Iskrant
--------------------------------
John D. Iskrant, Trustee
[signatures continue on next page]
<PAGE>
#7 GST TRUST
By: /s/ Bessie G. Rotko
-------------------------------
Bessie G. Rotko, Trustee
By: /s/ Judith M. Shipon
-------------------------------
Judith M. Shipon, Trustee
By: /s/ Michael J. Rotko
-------------------------------
Michael J. Rotko, Trustee
By: /s/ John D. Iskrant
-------------------------------
John D. Iskrant, Trustee
<PAGE>
EXHIBIT INDEX
Exhibit No.
(a)(1) Senior Secured Credit Facilities Commitment Letter dated February 2,
1998 by and between Credit Suisse First Boston, NationsBank, N.A.,
Banque Nationale de Paris and Bruckmann, Rosser, Sherrill & Co.,
Inc. (filed herewith).
(b)(1) Salomon Smith Barney Opinion (incorporated herein by reference to
Annex II to the Proxy Statement/Prospectus).
(b)(2) Materials presented to the Board of Directors of the Company by
Salomon Smith Barney on January 14, 1998 (filed herewith).
(c)(1) Agreement and Plan of Merger dated as of January 14, 1998 by and
between MEDIQ Incorporated and MQ Acquisition Corporation
(incorporated herein by reference to Annex I to the Proxy
Statement/Prospectus).
(c)(2) Stock Option Agreement by and between the Rotko Entities and MQ
Acquisition Corporation (incorporated herein by reference to Annex V
to the Proxy Statement/Prospectus).
(c)(3) The Stockholder Agreements entered into by each of the Rotko
Entities with MQ Acquisition Corporation dated as of January 14,
1998 (incorporated herein by reference to Annex VI to the Proxy
Statement/Prospectus).
(c)(4) The Rollover Agreement dated as of January 14, 1998 by and between
the Rotko Entities and MQ Acquisition Corporation (incorporated herein
by reference to Annex VII the Proxy Statement/Prospectus).
(d) Preliminary copy of Letter to Stockholders, Notice of Special
Meeting of Stockholders, Proxy Statement/Prospectus and Form of
Proxy dated February 13, 1998, for the Special Meeting of
Stockholders to be held on ______________, 1998 (filed herewith).
(e) Excerpts from Delaware General Corporation Law Relating to
Dissenters' Rights (incorporated herein by reference to Annex
III to the Proxy Statement/Prospectus).
(f) Not applicable.
<PAGE>
EXHIBIT (a)(1)
CREDIT SUISSE FIRST BOSTON
Eleven Madison Avenue
New York, New York 10010
NATIONSBANK, N.A.
767 Fifth Avenue
New York, New York 10153
BANQUE NATIONALE DE PARIS
499 Park Avenue
New York, New York 10022
Bruckmann, Rosser, Sherrill & Co., Inc.
126 East 56th Street
New York, New York 10022
Attention: Mr. Bruce Bruckmann
Mr. Steve Sherrill
February 2, 1998
Project Q
Senior Secured Credit Facilities
Commitment Letter
Ladies and Gentlemen:
You have advised Credit Suisse First Boston ("CSFB"), NationsBank,
N.A. ("NB") and Banque Nationale de Paris ("BNP" and, together with CSFB and NB,
"we" or "us") that a corporation (the "Acquiror") to be established by you
intends to acquire (the "Acquisition") all of the issued and outstanding shares
of capital stock (other than the Rollover Stock (as defined below)) of MEDIQ
Incorporated, a Delaware corporation (the "Company" or "Holdco"), for a purchase
price of $14.50 (consisting of $13.75 of cash and $0.75 of Senior Preferred
Stock (as defined below)) per share of common stock pursuant to an acquisition
agreement (the "Acquisition Agreement") to be entered into between the Acquiror
and the Company. We understand that in connection with the Acquisition you will
refinance all outstanding debt of the Company (other than $3.3 million of
capital leases).
<PAGE>
2
You have further advised us that in connection with the Acquisition (i) you will
make or cause to be made a cash equity contribution (the "Equity Contribution")
to the Acquiror in exchange for all its outstanding capital stock, (ii) the
Company will establish a new, wholly owned subsidiary ("Sub" or the "Borrower")
to which it will contribute all of the Company's assets, (iii) the Acquiror will
merge with and into the Company (the "Merger"), (iv) certain existing
stockholders of the Company will rollover one million shares of common stock of
the Company (the "Rollover Stock") into new equity of the Company (the "Rollover
Equity"), (v) upon consummation of the Merger, the Company will have four
classes of capital stock outstanding, senior preferred stock (the "Senior
Preferred Stock"), rollover preferred stock (the "Rollover Preferred Stock"),
junior preferred stock (the "Junior Preferred Stock" and, collectively with the
Senior Preferred Stock and the Rollover Preferred Stock, the "Preferred
Stock")and common stock, (vi) the existing stockholders of the Company will
receive $20.0 million ($0.75 per share of common stock) of Senior Preferred
Stock, (vii) the Company will issue senior discount debentures for aggregate
gross proceeds of $30 million (the "Discount Debentures"), (viii) the Borrower
will obtain senior secured credit facilities (the "Facilities") described in the
Summary of Principal Terms and Conditions attached hereto as Exhibit A (the
"Term Sheet") in an aggregate principal amount of $225 million (consisting of
$175 million of term facilities and a $50 million revolving credit facility (of
which $1.7 million will be drawn at closing)) and (ix) the Borrower will issue
senior subordinated notes (the "Notes") in an aggregate principal amount of
$200 million pursuant to a Rule 144A/Regulation S distribution (the "Note
Offering") or, in lieu thereof, obtain certain bridge loans ("Bridge Loans") in
such principal amount (the Acquisition and the foregoing transactions are
collectively referred to herein as the "Transactions"). We understand that you
intend to account for the Acquisition using recapitalization accounting. The
approximate sources and uses of the funds necessary to consummate the
Transactions have been provided to us in connection herewith. You have
requested that (i) we agree to structure, arrange and syndicate the Facilities,
(ii) we commit to provide the Facilities and (iii) BNP serve as administrative
agent therefor.
In connection with the foregoing, (i) CSFB is pleased to advise you of its
commitment (the "CSFB Commitment") to provide 25% of the aggregate principal
amount of the Facilities, (ii) NB is pleased to advise you of its commitment
(the "NB Commitment") to provide 25% of the aggregate principal
<PAGE>
3
amount of the Facilities and (iii) BNP is pleased to advise you of its
commitment (the "BNP Commitment" and, together with the CSFB Commitment and the
NB Commitment, the "Commitments") to provide 50% of the aggregate principal
amount of the Facilities, in each case upon the terms and subject to the
conditions set forth or referred to in this commitment letter (the "Commitment
Letter") and in the Term Sheet and in Exhibit B hereto (the "Conditions"). The
CSFB Commitment, the NB Commitment and the BNP Commitment will be allocated pro
rata among the Facilities. You hereby appoint BNP to act, and BNP hereby agrees
to act, as exclusive advisor and arranger (in such capacities, the "Arranger")
for the Facilities on the terms set forth or referred to in this Commitment
Letter and in the Term Sheet.
It is agreed that (i) BNP will act as the sole and exclusive
administrative agent (in such capacity, the "Administrative Agent") for the
Facilities, (ii) NB will act as the sole and exclusive syndication agent (in
such capacity, the "Syndication Agent") for the Facilities and (iii) CSFB
will act as the sole and exclusive documentation agent (in such capacity, the
"Documentation Agent") for the Facilities, and that each will, in such
capacities, perform the duties and exercise the authority customarily
performed and exercised in such roles. You agree that no other agents,
advisors, co-agents or arrangers will be appointed, no other titles will be
awarded and no compensation (other than that expressly contemplated by the
Term Sheet and the Fee Letter referred to below) will be paid in connection
with the Facilities unless you and we shall so agree.
We intend to syndicate the Facilities to a group of financial
institutions (together with us, the "Lenders") identified by us in consultation
with you. We intend to commence syndication efforts promptly upon the execution
of this Commitment Letter, and you agree to assist, and to cause the Company to
assist, us in completing a syndication satisfactory to us. Such assistance
shall include (a) your using commercially reasonable efforts, and your causing
the Company to use commercially reasonable efforts, to ensure that the
syndication efforts benefit materially from your and its existing lending
relationships, (b) direct contact between senior management
<PAGE>
4
and advisors of you and the proposed Lenders (and your using commercially
reasonable efforts to cause direct contact between senior management and
advisors of the Company and the proposed Lenders), (c) assistance by you and the
Company in the preparation of a Confidential Information Memorandum and other
marketing materials to be used in connection with the syndication and (d) the
hosting, with us, of one or more meetings with prospective Lenders.
It is understood and agreed that we shall be entitled, prior to the
effectiveness of the Facilities, to change the allocation of commitments between
the Tranche A Facility and the Tranche B Facility (as such terms are defined in
the Term Sheet) and to add additional tranches in order to facilitate the
successful syndication of the Facilities (provided that the aggregate principal
amount of the Facilities remains the same).
BNP will manage all aspects of the syndication, including decisions as to
the selection of institutions to be approached and when they will be
approached, when their commitments will be accepted, which institutions will
participate, what titles (if any) they will be awarded, the allocations of
the commitments among the Lenders and the amount and distribution of fees
among the Lenders. To assist us in our syndication efforts, you agree
promptly to provide to us all information with respect to the Borrower and
the Transactions and the other transactions contemplated hereby, including
all financial information and projections (the "Projections"), as we may
reasonably request in connection with the arrangement and syndication of the
Facilities. You hereby represent and covenant that, based on your review and
analysis, to your knowledge (a) all written information other than the
Projections (the "Information") that has been or will be made available to
any of us by you or any of your representatives in connection with the
Transactions has been or will be reviewed and analyzed by you in connection
with the performance of your own due diligence and, as supplemented as
contemplated by the next sentence, is or will be complete and correct in all
material respects and does not or will not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements contained therein, taken as a whole, not misleading in light of
the circumstances under which such statements were or are made and (b) all
Projections that have been or will be made available to any of us by you or
any of your representatives in connection with the Transactions have been or
will be prepared in good faith based upon what you believe to be reasonable
assumptions.
<PAGE>
5
You agree to supplement the Information and the Projections from time to time
until the completion of the syndication so that the representation and covenant
in the preceding sentence remain correct without regard to when such Information
and Projections were made available. You understand that in arranging and
syndicating the Facilities, we may use and rely on the Information and the
Projections without responsibility for independent verification thereof.
As consideration for the Commitments hereunder and our agreements to
perform the services described herein, you agree to pay to us the
nonrefundable fees set forth in the Term Sheet and in the Senior Secured
Credit Facilities Fee Letter dated the date hereof and delivered herewith
(the "Fee Letter").
You agree to reimburse us and our respective affiliates, upon request made
from time to time, for our reasonable fees and expenses incurred in
connection with Facilities and the preparation, execution and delivery of any
related documentation and the activities thereunder or contemplated thereby,
including without limitation due diligence expenses, syndication expenses,
consultants' fees and expenses and the reasonable fees and expenses of
counsel to us and our respective affiliates, whether incurred before or after
the execution of this letter; provided, however, that there shall be no
obligation to reimburse any costs and expenses of us or our affiliates
hereunder, including due diligence expenses, syndication expenses,
consultants' fees and expenses and fees and expenses of our counsel, (i) in
excess of $250,000 (in the aggregate under this letter) in the event that the
Acquisition Agreement is terminated and you do not receive any fees or
reimbursement thereunder or (ii) in the event that the Acquisition Agreement
is terminated and you pay to us the amounts described in the sixth paragraph
of the Senior Secured Credit Facilities Fee Letter.
<PAGE>
6
You hereby agree to indemnify and hold harmless CSFB, NB, BNP, their
respective affiliates and their respective officers, directors, employees,
agents, advisors and controlling persons (each, an "Indemnified Person") from
and against any and all losses, claims, damages, liabilities and expenses,
joint or several, to which any such Indemnified Person may become subject
arising out of or in connection with this Commitment Letter, the Facilities,
the use of the proceeds thereof, the Transactions or any related transaction
or any claim, litigation, investigation or proceeding relating to any of the
foregoing, regardless of whether any Indemnified Person is a party thereto,
and to reimburse each such Indemnified Person for any reasonable legal or
other expenses as they are incurred in connection with investigating or
defending any of the foregoing; provided, however, that the foregoing
indemnification will not, as to any Indemnified Person, apply to losses,
claims, damages, liabilities or expenses to the extent that they are finally
judicially determined by a court of competent jurisdiction not subject to
further appeal to have resulted from the gross negligence or willful
misconduct of such Indemnified Person.
No Indemnified Person shall be liable for any indirect or consequential
damages in connection with its obligations hereunder or its activities
related to the Facilities.
This Commitment Letter is delivered to you on the understanding that
neither this Commitment Letter nor any other agreement between us related to
this Commitment Letter or the Transactions, including the Term Sheet and the
Fee Letter, nor any of their terms or substance shall be disclosed, directly
or indirectly, to any other person except (a) to your officers, employees,
agents and legal advisors who are directly involved in the consideration of
this matter (and then only on a confidential basis) or (b) as may be required
by law or compulsory legal process (in which case you agree to inform us
promptly thereof prior to any such disclosure); provided, however, that,
after your acceptance of this Commitment Letter and the Fee Letter, (i) you
may disclose this Commitment Letter, the Term Sheet, the Conditions and the
Bridge Fee Letter and their terms and substance, on a confidential basis, to
the Company and its directors, officers, employees, agents and legal advisors
and (ii) you may disclose the material terms of the Term Sheet and Conditions
(but not the Fee Letter) in any
<PAGE>
7
offering memorandum or prospectus relating to the Transactions.
The reimbursement, indemnification and confidentiality provisions
contained herein and in the Fee Letter shall remain in full force and effect
regardless of whether definitive financing documentation shall be executed
and delivered and notwithstanding the termination of this Commitment Letter
or any commitment hereunder.
If the foregoing correctly sets forth our agreement, please indicate your
acceptance of the terms hereof and of the Term Sheet, the Conditions and the
Fee Letter by returning to us executed counterparts hereof and of the Fee
Letter, not later than 5:00 p.m., New York City time, on February 3, 1998.
Our commitments and agreements contained herein will expire at such time in
the event we have not received such executed counterparts in accordance with
the immediately preceding sentence. If the initial borrowing in respect of
the Facilities does not occur on or before July 31, 1998, then this
Commitment Letter and our commitments and undertakings hereunder shall
automatically terminate unless we shall, in our discretion, agree to an
extension.
You agree to cause the Acquiror and the Company (the "Additional Parties")
to become parties to this Commitment Letter and the Fee Letter upon or prior
to the consummation of the Acquisition by executing and delivering to us
counterparts of each such agreement. Each Additional Party will have the
same rights, duties and obligations as you as if it were an original
signatory hereto and thereto. We agree that, upon such execution and
delivery of each such agreement by the Company, you shall be released
automatically from all your rights, duties and obligations hereunder and
under each such other agreement.
This Commitment Letter is intended to be solely for the benefit of the
parties hereto and is not intended to confer any benefits upon, or create any
rights in favor of, any person other than the parties hereto. This
Commitment Letter and CSFB's, NB's and BNP's commitment hereunder shall not
be assignable by you without the prior written consent of CSFB, NB and BNP
(and any purported assignment without such consent shall be null and void).
This letter agreement contains the entire agreement between the parties
relating to the subject matter hereof and supersedes all oral statements and
prior writings with respect thereto
<PAGE>
8
(including the Senior Secured Credit Facilities Commitment Letter dated
January 14, 1998, among you, CSFB, NB and BNP). This Commitment Letter may
not be amended or waived except by an instrument in writing signed by you,
CSFB, NB and BNP. This Commitment Letter may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original and all of which together shall constitute one and the same
instrument. Delivery of an executed counterpart of a signature page of this
Commitment Letter by facsimile transmission shall be as effective as delivery
of a manually executed counterpart hereof. This Commitment Letter and the
Fee Letter are the only agreements that have been entered into between us
with respect to the Facilities and set forth the entire understanding of the
parties with respect thereto. This Commitment Letter shall be governed by,
and construed in accordance with, the internal laws of the State of New York.
We are pleased to have been given the opportunity to assist you in
connection with this important financing.
Very truly yours,
CREDIT SUISSE FIRST BOSTON,
by
___________________________
Name:
Title:
by
___________________________
Name:
Title:
<PAGE>
9
NATIONSBANK, N.A.,
by
___________________________
Name:
Title:
by
___________________________
Name:
Title:
BANQUE NATIONALE DE PARIS,
by
___________________________
Name:
Title:
by
___________________________
Name:
Title:
Accepted and agreed to
as of the date first
written above,
BRUCKMANN, ROSSER, SHERRILL & CO., INC.,
by
_________________________________
Name:
Title:
<PAGE>
CONFIDENTIAL Exhibit A
February 2, 1998
Project Q
Senior Secured Credit Facilities
Summary of Principal Terms and Conditions
Borrower: MEDIQ Incorporated (the "Company" or "Holdco") will
establish a new, wholly owned subsidiary ("Sub" or the
"Borrower") to which it will contribute all of the
Company's assets.
Acquisition: A corporation (the "Acquiror") to be established by you
will acquire (the "Acquisition") all of the issued and
outstanding shares of capital stock (other than the
Rollover Stock (as defined below)) of the Company for a
purchase price of $14.50 (consisting of $13.75 of cash
and $0.75 of Senior Preferred Stock (as defined below))
per share of common stock pursuant to an acquisition
agreement (the "Acquisition Agreement") to be entered
into between the Acquiror and the Company. In
connection with the Acquisition (i) you will make or
cause to be made a cash equity contribution (the
"Equity Contribution") to the Acquiror in exchange for
all its outstanding capital stock, (ii) the Company
will contribute all of its assets to Sub, (iii) the
Acquiror will merge with and into the Company (the
"Merger"), (iv) certain existing stockholders of the
Company will rollover one million shares of common
stock of the Company (the "Rollover Stock") into new
equity of the Company (the "Rollover Equity"), (v) upon
consummation of the Merger, the Company will have four
classes of capital stock outstanding, senior preferred
stock (the "Senior Preferred Stock"), rollover
preferred stock (the "Rollover
<PAGE>
2
Preferred Stock"), junior preferred stock (the "Junior
Preferred Stock" and, collectively with the Senior
Preferred Stock and the Rollover Preferred Stock, the
"Preferred Stock") and common stock, (vi) the existing
stockholders of the Company will receive $20.0 million
($0.75 per share of common stock) of Senior Preferred
Stock, (vii) the Company will issue senior discount
debentures for aggregate gross proceeds of $30 million
(the "Discount Debentures"), (viii) the Borrower will
obtain the Facilities and (ix) the Borrower will issue
senior subordinated notes (the "Notes") in an aggregate
principal amount of $200 million or, in lieu thereof,
obtain bridge loans (the "Bridge Loans") in such
principal amount (the Acquisition and the foregoing
transactions being collectively referred to herein as
the "Transactions").
Facilities: (A) Two Senior Secured Term Loan Facilities in an
aggregate principal amount of $175 million (the
"Term Loan Facilities") such aggregate principal
amount to be allocated between (a) a Tranche A
Term Loan Facility in an aggregate principal
amount of $75 million (the "Tranche A Facility")
and (b) a Tranche B Term Loan Facility in an
aggregate principal amount of $100 million (the
"Tranche B Facility").
(B) Senior Secured Revolving Credit Facility (the
"Revolving Facility" and, together with the Term
Loan Facilities, the "Facilities") in an aggregate
principal amount not to exceed
<PAGE>
3
$50 million (of which an amount to be determined
will be available in the form of letters of
credit).
Agents: BNP will act as administrative agent (the "Agent"), NB will
act as syndication agent and CSFB will act as documentation
agent, in each case for a syndicate of financial
institutions (the "Lenders"), and will perform the duties
customarily associated with such role.
Advisor and BNP will act as advisor and
Arranger: arranger for the Facilities (the "Arranger") and will
perform the duties customarily associated with such roles.
Purpose: (A) The proceeds of the Term Loan Facilities will be
used on the date of the initial funding under the
Facilities (the "Closing Date"), together with the
Equity Contribution and the proceeds from the
issuance of the Discount Debentures and the Bridge
Loans or Notes, as the case may be, solely (i) to
finance the Acquisition (including the repayment
of existing debt) and (ii) to pay related fees and
expenses.
(B) Thereafter, the proceeds of loans under the
Revolving Facility, including the letters of
credit, will be used for general corporate
purposes.
Availability: (A) The full amount of the Term Loan Facilities must
be drawn in a single drawing on the Closing Date.
Amounts repaid under the Term Loan Facilities may
not be reborrowed.
<PAGE>
4
(B) Loans under the Revolving Facility will be
available at any time prior to the final maturity
of the Revolving Facility. Amounts repaid under
the Revolving Facility may be reborrowed prior to
the final maturity provided availability
requirements are met. Letters of credit will be
available at any time before the fifth business
day prior to the final maturity of the Revolving
Facility.
Default Rate: The applicable interest rate plus 2% per annum.
Final Maturity
and Amortization: (A) Tranche A Facility
The Tranche A Facility will mature on the sixth
anniversary of the Closing Date, and will amortize
on a quarterly basis and be payable in
installments under a schedule to be agreed upon.
(B) Tranche B Facility
The Tranche B Facility will mature on the eighth
anniversary of the Closing date, and will amortize
on a quarterly basis and be payable in
installments under a schedule to be agreed upon.
(C) Revolving Facility
The Revolving Facility will mature on the sixth
anniversary of the Closing Date.
Guarantees: All obligations of the Borrower under the
Facilities will be unconditionally guaranteed by
each existing and each subsequently
<PAGE>
5
acquired or organized subsidiary of the Borrower
as fully as is permitted by applicable law
(provided that no foreign subsidiary shall be
required to provide a guarantee to the extent and
for so long as to do so would cause adverse tax
consequences to the Borrower).
Security: The Facilities and the related guarantees will be
secured as fully as is permitted by applicable law
by substantially all the assets of the Borrower
and each existing and each subsequently acquired
or organized subsidiary of the Borrower
(collectively, the "Collateral"), including but
not limited to (a) a first priority pledge of all
the capital stock of the each existing and each
subsequently acquired or organized subsidiary of
the Borrower (which pledge, in the case of any
foreign subsidiary, shall be limited to the
percentage of the capital stock of such foreign
subsidiary that is necessary to avoid adverse tax
consequences to the Borrower) and (b) perfected
first priority security interests in, and
mortgages on, substantially all tangible and
intangible assets of the Borrower and each
existing and each subsequently acquired or
organized domestic (and, to the extent no adverse
tax consequences would result, foreign) subsidiary
of the Borrower (including but not limited to
accounts receivable, inventory, general
intangibles, intellectual property, real property,
cash and proceeds of the foregoing).
All the above-described pledges, security
interests and mortgages shall be created on terms,
and pursuant to documentation, reasonably
satisfactory to the
<PAGE>
6
Borrower and the Lenders, and, subject to limited
exceptions to be agreed upon, none of the
Collateral shall be subject to any other pledges,
security interests or mortgages.
Interest Rates
and Fees: As set forth in Annex I hereto.
Mandatory Prepayment: Loans under the Term Loan Facilities shall be
prepaid with (a) 75% of Excess Cash Flow (to be
defined) or, if the Total Debt (to be defined) to
pro forma EBITDA of the Company for the preceding
12-month period is less than 5.0 to 1.0 (but
greater than 0.0), 50% of Excess Cash Flow,
(b) 100% of the net cash proceeds of all
non-ordinary-course asset sales or other
dispositions of property by the Borrower and its
subsidiaries (including insurance and condemnation
proceeds), subject to exceptions to be agreed
upon, (c) 100% of the net cash proceeds of
issuances of debt obligations of the Borrower and
its subsidiaries, subject to exceptions to be
agreed upon; provided, that if the Bridge Facility
is provided on the Closing Date, the net cash
proceeds of a subsequent offering of Notes will be
used first to prepay the Bridge Facility, and
(d) 100% of the net cash proceeds of issuances of
equity securities of the Borrower and its
subsidiaries, subject to exceptions to be agreed
upon.
Except as provided above with respect to the
proceeds of the Notes, the above-described
mandatory prepayments shall be allocated between
the Term Loan Facilities pro rata, subject to the
provisions set forth below under the caption
"Special Application Provisions".
<PAGE>
7
Within each Term Loan Facility, mandatory
prepayments shall be applied pro rata to reduce
the remaining amortization payments under such
Facility.
Special Application
Provisions: Except as provided above with respect to the
proceeds of the Notes, holders of loans under the
Tranche B Facility may, so long as loans are
outstanding under the Tranche A Facility, decline
to accept any mandatory prepayment described above
and, under such circumstances, all amounts that
would otherwise be used to prepay loans under the
Tranche B Facility shall be used to prepay loans
under the Tranche A Facility.
Voluntary Prepayments: Voluntary prepayments will be permitted in whole
or in part, at the option of the Borrower, in
minimum principal amounts to be agreed upon,
without premium or penalty, subject to
reimbursement of the Lenders' redeployment costs
in the case of prepayment of Adjusted LIBOR
borrowings other than on the last day of the
relevant Interest Period. All voluntary
prepayments of the Term Loan Facilities will be
applied pro rata to the remaining amortization
payments under the Term Loan Facilities.
Representations Usual for facilities and trans-
and Warranties: actions of this type and others to be agreed upon.
Conditions Precedent Usual for facilities and
to Initial Borrowing: transactions of this type and others to be agreed
upon, including but not limited to the conditions
set forth on Exhibit B hereto.
<PAGE>
8
Affirmative
Covenants: Usual for facilities and transactions of this type
and others to be agreed upon, including but not
limited to: use of proceeds; maintenance of
corporate existence and rights; compliance with
laws; performance of obligations; maintenance of
properties in good repair; maintenance of
appropriate and adequate insurance; inspection of
books and properties; payment of taxes and other
liabilities; notice of defaults, litigation and
other adverse action; delivery of financial
statements, financial projections and compliance
certificates; and further assurances.
Negative Covenants: Usual for facilities and transactions of this type
and others to be agreed upon, including, but not
limited to: limitations on indebtedness;
limitations on loans, investments and joint
ventures; limitations on dividends on, and
redemptions and repurchases of, capital stock;
limitations on mergers, requisitions and asset
sales; limitations on liens and sale-leaseback
transactions; limitations on transactions with
affiliates; limitations on capital expenditures;
limitations on changes in business conducted;
limitations on amendment of indebtedness and other
material documents; and limitations on
prepayments, redemptions and repurchases of
subordinated debt and senior debt.
<PAGE>
9
Selected Financial Usual for facilities and transactions of this
Covenants: type and others to be agreed upon, including
but not limited to: (a) maximum ratio of Total
Debt to EBITDA, (b) minimum ratio of EBITDA
to Interest Expense and (c) minimum fixed
charge coverage ratio.
Events of Default: Usual for facilities and transactions of this type
and others to be agreed upon, including but not
limited to nonpayment of principal, interest fees
or other amounts when due; violation of covenants,
cross default and cross acceleration; change of
control; bankruptcy events, material judgments;
ERISA; and actual or asserted invalidity of the
guarantees or security documents.
Cost and Yield Usual for facilities
Protection: and transactions of this type.
Assignments and The Lenders will be permitted to
Participations: assign loans and commitments to other Lenders (or
their affiliates) without restriction, or to other
financial institutions with the consent of the
Agent, which is not to be unreasonably withheld.
The Agent will receive a customary processing and
recordation fee, payable by the assignor and/or
the assignee, with each assignment. Assignments
will be by novation.
The Lenders will be permitted to participate loans
and commitments to other financial institutions
without restriction. Voting rights of
participants shall be limited to matters in
respect of (a) reductions of principal, interest
or fees, (b) extensions of maturity and
(c) certain releases of Collateral.
<PAGE>
10
Expenses and In addition to those out-of-pocket expenses
Indemnification: reimbursable under the Commitment Letter,
all reasonable out-of-pocket expenses of the
Lenders for enforcement costs and documentary
taxes associated with the Facilities are to be
paid by the Borrower.
The Borrower will indemnify the Arranger,
the Agent, NB, CSFB, the Lenders
and their respective officers, directors,
employees, affiliates, agents and controlling
persons and hold them harmless from and
against all reasonable costs, expenses
(including reasonable fees, disbursements and
other charges of counsel) and liabilities
arising out of or relating to any claim or any
litigation or other proceedings (regardless of
whether any such indemnified person is a party
thereto) that relate to the Transactions, the
Facilities or any transactions connected
therewith; provided, however, that no
indemnified person will be indemnified for any
cost, expense or liability to the extent
determined by a court of competent
jurisdiction in a final and nonappealable
judgment to have resulted from its gross
negligence or willful misconduct.
Governing Law
and Forum: New York.
Agents' Counsel: Cravath, Swaine & Moore
<PAGE>
Annex I
to Exhibit A
Interest Rates: The interest rates under the Facilities will be, at the
Borrower's option, as follows:
Revolving Facility and Tranche A Facility
Adjusted LIBOR plus 2.25% or Base Rate plus 1.00%,
subject to adjustment as set forth below under the
caption "Change in Commitment Fees and Interest Rates".
Tranche B Facility
Adjusted LIBOR plus 2.75% or Base Rate plus 1.50%,
subject to adjustment as set forth below under the
caption "Change in Commitment Fees and Interest Rates".
All Facilities
The Borrower may elect interest periods of 1, 2, 3 or 6
months for Adjusted LIBOR borrowings.
Calculation of interest shall be on the basis of actual
days elapsed in a year of 360 days (or 365 or 366 days,
as the case may be, in the case of Base Rate loans
based on the Prime Rate) and interest shall be payable
at the end of each interest period and, in any event,
at least every 3 months.
The Base Rate is the higher of CSFB's Prime Rate the
Federal Funds Effective Rate plus 1/2 of 1%.
Adjusted LIBOR will at all times include statutory
reserves.
Commitment Fees: 0.50% per annum of the undrawn portion of the
commitments in respect of the Facilities (subject
<PAGE>
2
to adjustment as set forth below under the caption
"Change in Commitment Fees and Interest Rates"),
commencing to accrue upon the execution and delivery of
the Credit Agreement and payable quarterly in arrears
and upon the termination of any commitment, in each
case for the actual number of days elapsed in a 360-day
year.
Change in The Credit Agreement will contain provisions under
Commitment Fees which commitment fees and interest rates under the
and Interest Facilities will be adjusted in increments to be agreed
Rates: upon based on performance goals to be agreed upon.
<PAGE>
Exhibit B
CONDITIONS
The commitments of Credit Suisse First Boston ("CSFB"), NationsBank, N.A.
("NB") and Banque Nationale de Paris ("BNP") pursuant to the Senior Secured
Credit Facilities Commitment Letter dated as of February 2, 1998 (the
"Letter"), shall be subject to the following conditions (capitalized terms
used but not defined herein shall, unless otherwise specified, have the
meanings assigned to such terms in the Letter):
(i) the completion, to the reasonable satisfaction of CSFB, NB and
BNP, of CSFB's, NB's and BNP's legal, tax and environmental due diligence
investigation of the Acquiror and the Company and their subsidiaries (it
being understood that CSFB, NB and BNP will promptly notify the Acquiror
upon satisfaction of this condition);
(ii) after the date of the Letter, no information or other matter
becomes known to CSFB, NB or BNP that CSFB, NB or BNP in good faith
believes is material and inconsistent in a material and adverse manner with
any information or other matter obtained by CSFB, NB or BNP during its due
diligence investigation;
(iii) there shall not have occurred or become known to CSFB, NB or BNP
since December 31, 1997, any event or events, adverse condition or change
in or affecting the Acquiror or the Company that, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect;
(iv) the preparation, execution and delivery of definitive
documentation reasonably satisfactory to CSFB, NB and BNP in connection
with (a) the Bridge Loans, (b) the Senior Bank Facilities and (c) the
purchase of the Discount Debentures;
(v) the Transactions shall have been consummated or shall be
consummated simultaneously on the Closing Date, in each case in all
material respects in accordance with the terms hereof and the terms of the
relevant documentation therefor (and without the waiver of any material
terms thereof unless CSFB, NB and BNP consent to such waiver);
<PAGE>
2
(vi) CSFB, NB and BNP and the Lenders shall be reasonably satisfied as
of the Closing Date with (a) the material terms and conditions of (1) each
agreement entered into in connection with the Transactions and (2) the
Preferred Stock (including the amounts of each class thereof), and (b) all
tax and accounting matters relating to the Transactions;
(vii) there shall be no litigation or administrative proceedings,
governmental investigations or other legal or regulatory developments,
actual or threatened (in writing), that, singly or in the aggregate, could
reasonably be expected to have a Material Adverse Effect or could
materially and adversely affect the ability of the Acquiror or the Company
to fully and timely perform their respective obligations under the
documents executed in connection with the Transactions, or the ability of
the parties to consummate the financings or the other Transactions
contemplated by the Letter;
(viii) all requisite governmental authorities (including antitrust or
banking authorities in the Applicable Jurisdictions or any other relevant
jurisdiction) and third parties shall have approved or consented to the
Transactions and the other transactions contemplated by the Letter to the
extent required, in each case to the extent failure to obtain such consent
or approval could reasonably be expected to have a Material Adverse Effect,
and there shall be no governmental or judicial action, actual or threatened
(in writing), that has, singly or in the aggregate, a reasonable likelihood
of restraining, preventing or imposing materially burdensome conditions on
the Transactions or the other transactions contemplated hereby;
(ix) CSFB, NB and BNP and, if applicable, the Lenders, shall have
received an opinion (and related going-concern valuation) reasonably
satisfactory in all respects to the Lenders and CSFB, NB and BNP, as
applicable, from an independent valuation firm reasonably satisfactory to
the Lenders and CSFB, NB and BNP, as applicable, in each case to the effect
that, after giving effect to the Transactions, the Company will not (a) be
insolvent, (b) be rendered insolvent by the indebtedness incurred in
connection therewith, (c) be left with unreasonably small capital with
which to engage in its business or (d) have incurred debts beyond its
ability to pay such debts as they mature;
<PAGE>
3
(x) after giving effect to the Transactions and the other transactions
contemplated by the Letter, (a) the Acquiror, the Company and their
subsidiaries shall have outstanding no indebtedness or preferred stock
other than (w) the loans under the Senior Bank Facilities, (x) the Bridge
Loan or the Notes, as the case may be, (y) the Discount Debentures and
(z) the $10.1 million of exchangeable subordinated debentures due 2003 of
which $5.9 million is cash collateralized, the Preferred Stock and other
indebtedness or preferred stock to be agreed upon and (b) the total net
debt (total debt less immediately available cash) of the Acquiror, the
Company and their subsidiaries shall not exceed $410 million (net of the
Nutramax note receivable of $5.9 million);
(xi) customary closing conditions for transactions similar to the
Bridge Loans, the Senior Bank Facilities and the purchase of the Discount
Debentures, as applicable, including without limitation (a) the accuracy of
all representations and warranties (including a customary representation
and warranty in form satisfactory to CSFB, NB and BNP relating to all
Information and Projections provided to CSFB, NB or BNP by the Sponsor, the
Company or any of their representatives), (b) the absence of any defaults,
prepayment events or creation of liens under debt instruments or other
agreements as a result of the Transactions and the other transactions
contemplated by the Letter (other than (i) with respect to the
$10.1 million of exchangeable subordinated debentures due 2003, the
Repurchase Right (as defined in the indenture with respect thereto) and
(ii) the Company's existing Credit Facility that will be refinanced in
connection with the Transactions), (c) the absence of any material adverse
change in the capital, corporate and organizational structure of the
Acquiror, the Company and their subsidiaries, (d) first-priority perfected
security interests in the Collateral, (e) compliance with applicable laws
and regulations (including employee health and safety, margin regulations
and environmental laws), (f) obtaining reasonably satisfactory insurance,
(g) evidence of authority, (h) consents of all relevant persons, and (i)
the receipt by CSFB of reasonably satisfactory legal opinions and
accountants' comfort letters;
(xii) there shall not have occurred after the date of the Letter
(a) any general suspension of trading in, or limitation on prices for,
securities on any national
<PAGE>
4
securities exchange or in the over-the-counter market in any Applicable
Jurisdiction, (b) the declaration of a banking moratorium or any suspension
of payments in respect of banks in any Applicable Jurisdiction, (c) the
commencement of a war, armed hostilities or other international or national
calamity or emergency, directly or indirectly involving any Applicable
Jurisdiction, (d) any material limitations (whether or not mandatory)
imposed by any governmental authority on the nature or extension of credit
or further extension of credit by banks or other lending institutions, (e)
in the case of the foregoing clauses (c) and (d), a material escalation or
worsening thereof, or (f) any other material adverse change in banking or
capital market conditions that has had or reasonably could be expected to
have a material adverse effect on, or has materially impaired, the
syndication of leveraged bank credit facilities or the consummation of
high-yield offerings, as the case may be, that CSFB, NB or BNP shall
reasonably determine makes it impracticable to consummate (A) the Note
Offering or the syndication of the Bridge Loans, as the case may be,
(B) the Discount Debenture Offering or (C) the syndication of the Senior
Bank Facilities, in each case prior to the termination of the marketing
period with respect thereto;
(xiii) CSFB's, NB's and BNP's satisfaction that, immediately prior to
and during the marketing period for (a) the Note Offering or the
syndication of the Bridge Loans, as the case may be, (b) the Discount
Debenture Offering and (c) the Senior Bank Facilities, there shall be no
competing issues of debt securities or commercial bank facilities (other
than the Senior Bank Facilities, the Discount Debenture Offering, the Note
Offering or the Bridge Loans, as applicable) of the Acquiror, the Company
or any of their respective affiliates;
(xiv) the receipt by CSFB, NB and BNP and, if applicable, the Lenders,
on or before the closing of the Transactions, of financial statements of
the Company (including notes thereto), consisting of (a) audited balance
sheets as of the end of each period in the two fiscal-year period ended
September 30, 1997, (b) audited statements of operations and cash flows for
each period in the three fiscal-year period ended September 30, 1997, and
pro forma statements of operations for the fiscal year ended September 30,
1997, (c) consolidated and consolidating financial statements for each
period in the three fiscal-year period ending September 30, 1997, and
<PAGE>
5
supporting documentation satisfactory to CSFB, NB and BNP, and
(d) comparable unaudited historical and pro forma interim financial
statements covering all quarterly or other appropriate periods subsequent
to September 30, 1997, and (e) such other financial statements as may be
reasonably requested by CSFB, NB or BNP (including financial statements of
the Acquiror), and all such financial statements, historical or pro forma,
delivered pursuant to this paragraph (xiv) shall be in compliance with the
requirements of Regulation S-X for a public offering registered under the
Securities Act of 1933, as amended, and shall not be materially
inconsistent with financial statements previously provided to CSFB, NB or
BNP or, if applicable, the Lenders;
(xv) the ratio of the Company's and Sub's pro forma Total Debt (to be
defined) to pro forma EBITDA for (a) the 12-month period ended March 31,
1998, if the Company's Quarterly Report on Form 10-Q for the second quarter
of fiscal year 1998 ("Form 10-Q") has been or is required to have been
filed with the Securities and Exchange Commission, or (b) the 12-month
period ended December 31, 1997, if the Form 10-Q has not been so filed and
is not required to have been so filed, shall not exceed (a) with respect to
the Company, 6.5 to 1.0, and (b) with respect to the Sub, 6.0 to 1.0;
(xvi) payment of applicable fees and expenses pursuant to the terms of
the Senior Secured Credit Facility Fee Letter, the Bridge Fee Letter and
the Discount Debenture Fee Letter; and
(xvii) the Warrants shall have been issued and placed into escrow for
the benefit of the Lenders in accordance with the terms of the Bridge Loan
Warrant Letter and the Discount Debenture Warrant Letter.
A "Material Adverse Effect" shall mean the result of one or more
events, changes or effects which, individually or in the aggregate, could
reasonably be expected to have a material adverse effect on (i) the business,
results of operations, property, condition (financial or otherwise) or prospects
of the Acquiror, the Company and their respective subsidiaries, taken as a
whole, or (ii) the validity or enforceability of any of the documents entered
into in connection with the Transactions or the other transactions contemplated
by the Letter or the rights, remedies and benefits available to the parties
thereunder.
<PAGE>
6
"Applicable Jurisdiction" means the United States and New York State.
<PAGE>
Exhibit 99(b)(2)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROJECT SHOUT
BOARD OF DIRECTORS MEETING
JANUARY 14, 1998
CONFIDENTIAL
SALOMON SMITH BARNEY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CONFIDENTIAL
MATERIAL FOR THE BOARD OF DIRECTORS
OF
SHOUT
"Salomon Smith Barney" is a service mark of Smith Barney Inc. Smith Barney
Inc. and Salomon Brothers Inc. are affiliated but separately registered
broker/dealers under common control of Salomon Smith Barney Holdings Inc.
Salomon Brothers Inc. and Salomon Smith Barney Holdings Inc. have been licensed
to use the Salomon Smith Barney service mark. The following pages contain
material provided to the Board of Directors of SHOUT by Salomon Smith Barney in
connection with the potential business combination involving SHOUT and BIDDER.
The accompanying material was compiled or prepared on a confidential basis
solely for use by the Board of Directors of SHOUT and not with a view toward
public disclosure under state and federal securities laws or otherwise. The
information contained in this material was obtained from SHOUT, BIDDER and other
sources. Any estimates and projections for such companies herein have been
prepared by the respective managements of such companies or are based upon such
estimates and projections, and involve numerous and significant subjective
determinations, which may or may not be correct. No representation or warranty,
express or implied, is made as to the accuracy or completeness of such
information and nothing contained herein is, or shall be relied upon as, a
representation, whether as to the past or future. This material was not prepared
for use by readers not as familiar with the business affairs of SHOUT as the
Board of Directors and, accordingly, neither SHOUT nor Salomon Smith Barney nor
their respective legal or financial advisors or accountants takes any
responsibility for the accompanying material when used by persons other than the
Board of Directors of SHOUT.
<PAGE>
CONFIDENTIAL PROJECT SHOUT
TABLE OF CONTENTS
<TABLE>
<S> <C>
Overview of Proposed Transaction................................................... 1
Review of Process.................................................................. 2
-Marketing Efforts
-Final Bids Received
Analysis of SHOUT Trading.......................................................... 3
Common Shares.................................................................. A
Preferred Shares............................................................... B
Overview of Operating Assumptions.................................................. 4
Valuation of Preferred Stock....................................................... 5
Valuation of SHOUT................................................................. 6
LBO Model Overview................................................................. 7
Analysis of Break Up Fees.......................................................... 8
Exhibits........................................................................... 9
Comparable Company Analysis.................................................... A
Precedent Transactions......................................................... B
Leveraged Recapitalization Model............................................... C
Preferred Term Sheet & Valuation............................................... D
WACC Calculation............................................................... E
</TABLE>
<PAGE>
TAB
1
<PAGE>
- --------------------------------------------------------------------------------
OVERVIEW OF PROPOSED TRANSACTION
- --------------------------------------------------------------------------------
<PAGE>
CONFIDENTIAL PROJECT SHOUT
SUMARRY OF TERMS FOR PREFERRED
<TABLE>
<S> <C>
Consideration: - $13.75 in cash and $0.75 face value preferred shares
- Estimated value of preferred $0.47 to $0.54
- Estimated total value $14.22 to $14.29
- 30% premium to share price of $10.9375 on 1/13/97
- 68% premium to October 29, 1997 share price of $8.501
Structure: - Leveraged recapitalization
Topping Fee & Expenses - A topping fee of $16.5 million (approximately 3% of enterprise valuation)
will be payable in the event that the Company enters into another agreement
Break-up Fee - In the event that Bruckmann breaches the agreement, Bruckmann will pay the
Company $26.7 million (approximately $1.00 per share)
Conditions to Close - Receipt of financing
- Hart-Scott-Rodino approval
- Other customary conditions
Stockholder Agreement: - The offer is subject to shareholder approval
- Rotko Family has given irrevocable proxy and option to Bruckmann
</TABLE>
- ------------------------
(1) On October 29, 1997, the Company announced that Smith Barney had been
engaged to assist in the evaluation of strategic alternatives.
<PAGE>
CONFIDENTIAL PROJECT SHOUT
Transaction Overview-Calculation of Transaction Value
(Dollars in Thousands)
<TABLE>
<S> <C>
Shares Outstanding (1)............................................................ 25,648
Share Price....................................................................... $ 14.50
---------
$ 371,893
Plus:
Options Outstanding............................................................... 2,003
Share Price....................................................................... $ 14.50
---------
$ 29,044
Cost of Equity.................................................................... $ 400,938
Less:
Options Outstanding............................................................... 2,003
Average Exercise Price............................................................ $ 5.01
---------
$ 10,035
Purchase Price of Equity.......................................................... $ 390,902
Bank Debt......................................................................... $ 129,312
Exchangeable Debentures........................................................... 10,055
---------
$ 139,367
Less: Cash........................................................................ $ 4,027
---------
Net Debt.......................................................................... $ 135,340
Enterprise Value.................................................................. $ 526,242
---------
---------
</TABLE>
- ------------------------
(1) Common and preferred on a fully converted basis
<PAGE>
CONFIDENTIAL PROJECT SHOUT
Summary of Terms of Preferred Stock
Name: Series A % Cumulative Compounding Senior Preferred Stock
Face: Amount $10.00
Rank: At issuance, the Series A preferred stock will rank senior to all other
equity securities of the Company.
Dividends: $1.30 per share -- 13% per annum
Liquidation Preference: $10.00 per share plus accrued dividends
Redemption: Callable at a premium prior to the 3rd anniversary, callable
thereafter at par
Mandatory Redemption: Mandatory Redemption by December 31, 2011 at Liquidation
Preference plus accrued dividends
Voting Rights: Holders of the Series A preferred stock will have no voting
rights except as otherwise required by Delaware law.
<PAGE>
TAB
2
<PAGE>
- --------------------------------------------------------------------------------
REVIEW OF PROCESS
- --------------------------------------------------------------------------------
<PAGE>
Confidential PROJECT SHOUT
- --------------------------------------------------------------------------------
Marketing Efforts and Investor Response
<TABLE>
<S> <C> <C>
39 Buyers Signed 20 buyers Submitted
50 Potential Buyers --> Confidentiality Agreements --> Initial Indications of
Were Contacted and Received Confidential Interest
Memorandums
6 Buyers Attended --> 3 Buyers Submitted Final --> Negotiated Contract
Management Presentations Bids With Final Bidder
</TABLE>
<PAGE>
CONFIDENTIAL PROJECT SHOUT
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
DETAILS OF INITIAL BIDS
<TABLE>
<CAPTION>
COMMENTS ON
BIDDER PRICE CONSIDERATION ROLLOVER FINANCING AGREEMENT OTHER
- ---------------- --------- -------------- ---------------- ---------------- ---------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Bidder A $14.50/ $13.50 cash/ 1-2 MM shares Fully financed- Based on Management rolls
$14.25 $1.00 preferred MEDIQ/UHOS over options Proxy/
Agreement. Most Irrevocable option
extensive, but from Rotko Family. No
Changed to negotiable due diligence
$13.75 cash/ required
$0.75 preferred
Bidder B $13.00 $13.00 cash 1.138 MM shares Fully financed Most reasonable Irrevocable proxies
$14.8 MM from Rotko Family
Limited due
diligence required
Bidder C $12.00 $12.00 cash 2.5 MM shares Fully financed- Reasonable Irrevocable proxies
or less No fiduciary from Rotko family
out Limited due
diligence required
</TABLE>
<PAGE>
TAB
3
<PAGE>
TAB
A
<PAGE>
- ------------------------------------------------------------------------------
ANALYSIS OF SHOUT TRADING (1)
- ------------------------------------------------------------------------------
(1) Certain price and volume information that was set forth in Salomon Smith
Barney's written presentation to the Board cannot be reproduced in this
electronic filing. Such information may be inspected and obtained from
the Company at the principal executive offices of the Company during its
regular business hours.
<PAGE>
PROJECT SHOUT
- --------------------------------------------------------------------------------
Last 12 Months Annotated Price Volume Chart
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Price Volume
$12.00 160,000
140,000
$10.00
120,000
$8.00
100,000
$6.00
80,000
60,000
$4.00
40,000
$2.00
20,000
$0.00
0
1/10/97 3/3/97 4/24/97 5/16/97 8/7/97 9/29/97 11/20/97 1/12/98
</TABLE>
Source IDD Information Services/Tradeline
<PAGE>
<TABLE>
<CAPTION>
PROJECT SHOUT
- -------------------------------------------------------------------------------------------------------------------
Price Volume Chart for the Last 3 Years
<S> <C> <C> <C> <C> <C> <C> <C>
Price Volume
900,000
$12.00
800,000
700,000
$10.00
600,000
500,000
$8.00
400,000
300,000
$4.00
200,000
100,000
$2.00
$0.00 0
1/13/95 6/18/95 11/21/95 4/26/96 9/29/96 3/5/97 8/8/97 1/12/98
</TABLE>
Source: IDD Information Services/Tradeline
<PAGE>
<TABLE>
<CAPTION>
PROJECT SHOUT
- -------------------------------------------------------------------------------------------------------------------
Common Share Volume Trade at Specified Prices One Year Prior to Announcement
(Weighted average of daily closing price)
Volume
<S> <C> <C> <C> <C> <C>
2,500,000
2,000,000
1,500,000
1,000,000
500,000
0
$5.00-6.00 $6.00-7.00 $7.00-8.00 $8.00-9.00 Price
</TABLE>
Weighted Average of Daily Closing Prices: $7.625
Source: IDD Information Services/Tradeline
Note: Based on 19,377,000 shares outstanding as reported on 1/09/98. Based on
daily closing prices, October 29, 1996 to October 29, 1997.
Note: On October 29th, 1997, the Company announced that it had retained Smith
Barney to assist in the evaluation of strategic alternatives.
<PAGE>
<TABLE>
<CAPTION>
PROJECT SHOUT
- -------------------------------------------------------------------------------------------------------------------
Common Share Volume Traded at Specific Prices Since Announcement
(Weighted average of daily closing price: $10.329)
Volume
<S> <C> <C> <C> <C>
600,000
500,000
400,000
300,000
200,000
100,000
0
$9-10 $10-11 $11-12 Price
</TABLE>
Weighted Average of Daily Closing Price: $10,329
Source: IDD Information Services/Tradeline
Note: Based on 19,377,000 shares outstanding as reported on 1/09/98. Based on
Daily closing prices, October 29, 1997 to January 12, 1998.
Note: On October 29th, 1997, the Company announced that it had retained Smith
Barney to assist in the evaluation of strategic alternatives.
<PAGE>
<TABLE>
<CAPTION>
PROJECT SHOUT
- ----------------------------------------------------------------------------------------------------------------------------
Price Performance Chart for the Last Twelve Months
<S> <C> <C> <C> <C> <C> <C> <C>
210%
190%
170%
150%
130%
110%
90%
1/13/95 3/6/97 4/27/97 6/18/97 8/9/97 9/30/97 11/12/97 1/12/98
</TABLE>
- -- S&P 500 (500 STOCKS) 100 = 759,510 -- Shout 100 = 6.375 -- COMPS 100 = 28.519
Source: IDD Information Services/Tradeline
Note: COMPS is a composite of; KNCI, HB, DVI, LSN, COHR.
<PAGE>
TAB
B
<PAGE>
<TABLE>
<CAPTION>
PROJECT SHOUT
- ----------------------------------------------------------------------------------------------------------------
Price Volume Chart for the Last Twelve Months - Shout Pref.
<S> <C> <C> <C> <C> <C> <C> <C>
Price Volume
8,000
$12.00
7,000
6,000
$10.00
5,000
4,000
$8.00
3,000
2,000
$6.00
$4.00
1,000
$2.00
$0.00 0
1/13/97 3/14/97 5/14/97 7/14/97 9/12/97 11/12/97 1/12/98
</TABLE>
Source: IDD Information Services/Tradeline
<PAGE>
<TABLE>
<CAPTION>
PROJECT SHOUT
- -----------------------------------------------------------------------------------------------------------------
Price Volume Chart for the Last 3 Years - Shout Pref.
<S> <C> <C> <C> <C> <C> <C> <C>
Price Volume
$12.00 12,000
$10.00 10,000
$8.00 8,000
$6.00 6,000
$4.00 4,000
$2.00 2,000
$0.00 0
1/13/95 6/18/95 11/21/95 4/26/96 9.29/96 3/5/97 8/8/97 1/12/98
</TABLE>
Source: IDD Information Services/Tradeline
<PAGE>
<TABLE>
<CAPTION>
PROJECT SHOUT
- ------------------------------------------------------------------------------------------------------------
Volume Traded at Specified Prices One Year Prior to Announcement - Shout Pref.
Volume
<S> <C> <C> <C> <C> <C>
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
$5.00-6.00 $6.00-7.00 $7.00-8.00 $8.00-9.00 Price
</TABLE>
Weighted average daily closing prices; $7.335
Based on 6,280,000 shares outstanding as reported on 1/12/98.
Source: IDD Information Services/Tradeline.
Note: On October 29th, 1997, the Company announced that it had retained Smith
Barney to assist in the evaluation of strategic alternatives.
<PAGE>
<TABLE>
<CAPTION>
PROJECT SHOUT
- ------------------------------------------------------------------------------------------------------------
Volume Traded at Specified Prices Since Announcement - Shout Pref.
Volume
<S> <C> <C> <C> <C>
400
350
300
250
200
150
100
50
0
$9.00-10.00 $10.00-11.00 $11.00-12.00 Price
</TABLE>
Weighted average of daily closing prices; $10.786
Based on 6,280,000 shares outstanding as reported on 1/12/98.
Source: IDD Information Services/Tradeline.
Note: On October 29th, 1997, the Company announced that it had retained Smith
Barney to assist in the evaluation of strategic alternatives.
<PAGE>
<TABLE>
<CAPTION>
PROJECT SHOUT
- ------------------------------------------------------------------------------------------------------------
Price Performance Chart for the Last Twelve Months - Shout Pref.
<S> <C> <C> <C> <C> <C> <C>
210%
200%
190%
180%
170%
160%
150%
140%
130%
120%
110%
100%
90%
80%
70%
1/13/97 3/14/97 5/14/97 7/14/97 9/12/97 11/12/97 1/12/98
</TABLE>
S&P 500 (500 STOCKS) 100 = 759.510 Shout Pref. 100 = 6.000 COMPS 100 = 28.519
COMPS is a composite of; KNCI, HB, DVI, LSN, COHR.
Source: IDD Information Services/Tradeline.
<PAGE>
CONFIDENTIAL PROJECT SHOUT
- --------------------------------------------------------------------------------
Mediq Inc Common vs. Preferred Price/Volume Analysis
Daily: January 13, 1997 to January 12, 1998
<TABLE>
<CAPTION>
MEDIQ COMMON MEDIQ PREFERRED PRICE
DATE PRICE VOL. PRICE VOL. DIFFERENCE
- --------- ------------- --------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C>
16-Dec-97 $ 11.56 26000 $ 11.50 100 $ 0.06
12-Dec-97 11.63 38100 11.50 200 0.13
11-Dec-97 11.50 87500 11.50 100 0.00
08-Dec-97 10.69 18100 10.50 100 0.19
25-Nov-97 10.00 10600 9.75 100 0.25
30-Oct-97 9.06 126200 9.25 100 -0.19
29-Oct-97 8.50 20600 8.25 300 0.25
27-Oct-97 8.56 15100 8.50 200 0.06
07-Oct-97 9.00 14000 8.50 200 0.50
22-Sep-97 8.38 14600 8.13 100 0.25
15-Sep-97 8.13 50800 8.00 300 0.13
25-Aug-97 7.50 1200 7.50 300 0.00
12-Aug-97 7.88 3500 7.63 400 0.25
05-Aug-97 7.81 9700 7.75 400 0.06
24-Jul-97 8.25 8900 8.00 1,000 0.25
21-Jul-97 8.69 15700 8.25 400 0.44
07-Jul-97 8.25 16400 8.38 7,800 -0.13
03-Jul-97 8.50 3800 8.50 500 0.00
27-Jun-97 8.75 16400 8.63 100 0.13
17-Jun-97 8.13 54400 7.50 2,500 0.63
12-May-97 7.44 14500 7.38 300 0.06
23-Apr-97 7.25 102900 7.50 100 -0.25
02-Apr-97 7.75 35000 7.50 7,500 0.25
05-Mar-97 7.75 34100 7.75 200 0.00
03-Mar-97 7.75 11700 7.50 100 0.25
28-Feb-97 7.69 25000 7.50 400 0.19
21-Feb-97 7.69 25300 7.50 100 0.19
20-Feb-97 7.75 71200 7.50 600 0.25
14-Feb-97 7.63 38900 7.38 1,700 0.25
28-Jan-97 6.56 16600 6.50 200 0.06
21-Jan-97 6.63 10500 6.88 1,000 -0.25
17-Jan-97 6.75 15200 6.75 5,000 0.00
16-Jan-97 6.63 12100 6.50 200 0.13
15-Jan-97 6.63 29200 6.13 600 0.50
</TABLE>
Source: IDD Information Services Tradeline
<PAGE>
TAB
4
<PAGE>
- --------------------------------------------------------------------------------
OVERVIEW OF OPERATING ASSUMPTIONS
- --------------------------------------------------------------------------------
<PAGE>
Confidential Project SHOUT
- --------------------------------------------------------------------------------
Divisional Operating Projections Overview--Revenues
(Dollars in Millions)
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 2002
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Growth Management Case
Rental........................ $123.5 $132.4 $139.2 $145.7 $152.2 $159.3
Spectracair................... 11.2 16.8 21 26.2 32.7 40.9
Disposable Products........... 16.3 23.9 31.6 39.2 46.2 48.3
Remarketing................... 3.6 6.0 6.4 5.7 5.2 5.4
Reconditioning................ 2.2 2.1 1.5 1.3 1.2 1.1
Consulting.................... 3.3 2.9 3.3 3.8 4.2 4.6
Outsourcing................... 6.5 8.4 19.4 37.2 62.3 96.9
------ ------ ------ ------ ------ ------
Total..................... $166.6 $192.5 $222.4 $259.1 $304.0 $356.5
Base Management Case
Rental........................ $123.5 $133.0 $138.0 $143.7 $149.3 $152.9
Spectracair................... 11.2 12.1 18.3 20.9 24.3 28.6
Disposable Products........... 16.3 20.7 26.8 33.5 38.9 42.7
Remarketing................... 3.6 4.2 3.9 4.1 4.3 4.5
Reconditioning................ 2.2 1.3 1.0 0.8 0.6 0.5
Consulting.................... 3.3 2.6 2.8 3.1 3.4 3.8
Outsourcing................... 6.5 10.9 18.6 29.9 43.7 61.3
------ ------ ------ ------ ------ ------
Total..................... $166.6 $184.8 $209.4 $235.9 $264.5 $294.3
</TABLE>
Source: Company management projections
<PAGE>
<TABLE>
<CAPTION>
Confidential Project SHOUT
- ------------------------------------------------------------------------------------------
Projected Operating Financial Overview
(Dollars in Thousands)
1997 1998 1999 2000 2001 2002
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Growth Management Case
Revenues...................... $166,600 $192,500 $222,400 $259,100 $304,000 $356,500
Growth........................ -- 15.5% 15.5% 16.5% 17.3% 17.3%
EBITDA........................ $ 64,650 $ 70,510 $ 78,430 $ 90,150 $104,160 $120,970
Margin........................ 38.8% 36.6% 35.3% 34.8% 34.3% 33.9%
EBIT.......................... $ 34,291 $ 37,242 $ 46,300 $ 59,109 $ 72,558 $ 95,833
Margin........................ 20.6% 19.3% 20.8% 22.8% 23.9% 26.9%
Base Management Case
Revenues...................... $166,600 $184,789 $209,433 $235,929 $264,491 $294,297
Growth........................ -- 10.9% 13.3% 12.7% 12.1% 11.3%
EBITDA........................ $ 64,650 $ 68,077 $ 74,420 $ 81,383 $ 87,879 $ 95,756
Margin........................ 38.8% 36.8% 35.5% 34.5% 33.2% 32.5%
EBIT.......................... $ 34,291 $ 34,809 $ 42,290 $ 50,342 $ 56,277 $ 70,619
Margin........................ 20.6% 18.8% 20.2% 21.3% 21.3% 24.0%
</TABLE>
Source: Company management projections
<PAGE>
TAB
5
<PAGE>
- --------------------------------------------------------------------------------
VALUATION OF PREFERRED STOCK
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
Confidential Project SHOUT
- -------------------------------------------------------------------------------------------------------
Capital Structure and Coverages--Growth Management Case
(dollars in thousands)
MULTIPLE OF LTM REFERENCE ACTUAL
CAPITAL STRUCTURE EBITDA RATE RATE
- -------------------------------------------------- --------------- --------------- ------
<S> <C> <C> <C> <C>
Bank Debt......................................... $166,645 2.6x LIBOR + 225-275 8.27%
Assumed Debt (Exchangeable Debentures)............ 10,055 0.2x Fixed 7.50%
Subordinated Debentures........................... 200,000 3.1x Fixed 10.00%
-------- ------
Operating Company Debt............................ $376,700 5.8x
Senior Discount Debentures........................ 30,000 0.5x Fixed 13.00%
-------- ------
Total Debt........................................ $406,700 6.3x
Series A Preferred ("Seller Paper")............... 20,219 0.3x Fixed 13.00%
-------- ------
Debt and Preferred................................ $426,919 6.6x
Total Equity...................................... 137,350 2.1x
-------- ------
Total Capitalization.............................. $564,269 8.7x
-------- ------
-------- ------
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA PROJECTED
--------- ----------------------------------------
COVERAGES 1997 1998 1999 2000 2001 2002 2003
- -------------------------------------------------- --------- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
EBITDA / Interest Expense......................... 1.7x 1.8x 2.1x 2.4x 2.9x 3.6x 4.5x
EBITDA--CapEx / Interest Expense.................. 1.3x 1.5x 1.7x 2.0x 2.5x 3.1x 4.1x
EBIT / Interest Expense........................... 0.9x 0.9x 1.2x 1.5x 2.0x 2.8x 3.7x
Debt / Total Book Capitalization.................. -187% -178% -175% -173% -176% -190% -223%
Bank Debt / EBITDA................................ 2.6x 2.2x 1.8x 1.3x 0.8x 0.4x 0.0x
Operating Company Debt / EBITDA................... 5.8x 5.1x 4.5x 3.6x 2.8x 2.1x 1.4x
Total Debt / EBITDA............................... 6.3x 5.6x 5.0x 4.1x 3.3x 2.6x 1.9x
(Total Debt + Preferred) / EBITDA................. 6.6x 5.9x 5.2x 4.3x 3.5x 2.7x 2.0x
</TABLE>
Source: Company and Bidder estimates
<PAGE>
<TABLE>
<CAPTION>
Confidential Project SHOUT
- -------------------------------------------------------------------------------------------------------
Capital Structure and Coverages--Base Management Case
(dollars in thousands)
MULTIPLE OF LTM REFERENCE ACTUAL
CAPITAL STRUCTURE EBITDA RATE RATE
- -------------------------------------------------- --------------- --------------- ------
<S> <C> <C> <C> <C>
Bank Debt......................................... $166,645 2.6x LIBOR + 225-275 8.27%
Assumed Debt (Exchangeable Debentures)............ 10,055 0.2x Fixed 7.50%
Subordinated Debentures........................... 200,000 3.1x Fixed 10.00%
-------- ------
Operating Company Debt............................ $376,700 5.8x
Senior Discount Debentures........................ 30,000 0.5x Fixed 13.00%
-------- ------
Total Debt........................................ 406,700 6.3x
Series A Preferred ("Seller Paper")............... 20,219 0.3x Fixed 13.00%
-------- ------
Debt and Preferred................................ $426,919 6.6x
Total Equity...................................... 137,350 2.1x
-------- ------
Total Capitalization.............................. $564,269 8.7x
-------- ------
-------- ------
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA PROJECTED
--------- ----------------------------------------
COVERAGES 1997 1998 1999 2000 2001 2002 2003
- -------------------------------------------------- --------- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
EBITDA / Interest Expense......................... 1.7x 1.8x 2.0x 2.2x 2.4x 2.8x 3.2x
EBITDA--CapEx / Interest Expense.................. 1.3x 1.4x 1.6x 1.8x 2.0x 2.3x 2.8x
EBIT / Interest Expense........................... 0.9x 0.9x 1.1x 1.3x 1.5x 2.0x 2.4x
Debt / Total Book Capitalization.................. -187% -176% -172% -168% -164% -166% -173%
Bank Debt / EBITDA................................ 2.6x 2.2x 1.9x 1.5x 1.1x 0.7x 0.3x
Operating Company Debt / EBITDA................... 5.8x 5.3x 4.7x 4.1x 3.5x 2.9x 2.3x
Total Debt / EBITDA............................... 6.3x 5.8x 5.2x 4.6x 4.0x 3.4x 2.8x
(Total Debt + Preferred) / EBITDA................. 6.6x 6.1x 5.5x 4.8x 4.3x 3.7x 3.0x
</TABLE>
Source: Company and Bidder estimates
<PAGE>
Confidential Project SHOUT
- -------------------------------------------------------------
Preferred Share Valuation
<TABLE>
<CAPTION>
Summary of Preferred Terms
- ------------------------------------------------------------
<S> <C>
Face Value.............................. $0.75
Annual Coupon Rate...................... 13.0%
Maturity Date........................... Dec. 31, 2011
Maturity Term........................... 28 half-year periods
Payment Frequency....................... semi-annual
- ------------------------------------------------------------
</TABLE>
<TABLE>
- ------------------------------------------------
Estimate of Applicable Yield on Preferred
- ------------------------------------------------
<S> <C> <C>
Probable Senior Sub Rate...... 10.0%
Spread to Discount Notes...... 2.5%
Spread to Preferreds.......... 3.0%
Liquidity Discount............ 0.5%
Equity Kicker................. 0.0% -3.0%
----- -----
Implied Preferred Yield....... 16.0% -19.0%
- ------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
Applicable Market Yield....... 16% 17% 18% 19% 20% 21% 22%
Value of Preferred............ $0.5387 $0.5151 $0.4932 $0.4727 $0.4537 $0.4359 $0.4193
- ---------------------------------------------------------------------------------------------
</TABLE>
Value of preferred estimated by discounting cash dividends at the appropriate
market rate
<PAGE>
<TABLE>
<CAPTION>
CONFIDENTIAL PROJECT SHOUT
- ----------------------------------------------------------------------------------
DEBT COMPARABLES
(dollars in millions)
CREDIT RATING
COMPANY ISSUE (MATURITY) SIZE (MDY/S&P)
- ------------------------------ --------------------------- ------ -------------
<S> <C> <C> <C>
Alliance Imaging.............. 9.625% Sr Sub Notes ('05) $140.0 B3/B-
Alaris Medical Inc............ 9.750% Sr Sub Notes ('06) 200.0 B3/B
Dynacare Inc.................. 10.750% Sr Notes ('06) 125.0 B2/B+
Maxxim Medical................ 10.500% Sr Sub Notes ('06) 100.0 B3/B
Owens & Minor Inc............. 10.875% Sr Sub Notes ('06) 150.0 B3/B+
Graham Field Health........... 9.750% Sr Sub Notes ('07) 100.0 B3/B-
Physician Sales & Services.... 8.500% Sr Sub Notes ('07) 125.0 B2/B
Kinetic Concepts.............. 9.625% Sr Sub Notes ('07) 200.0 B3/B-
<CAPTION>
SPREAD
CALL DATE CURRENT TO
--------------- ------------- YTW US
COMPANY DATE PRICE PRICE YTW DATE TREAS.
- ------------------------------ -------- ----- ------ ----- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Alliance Imaging.............. 12/15/01 104.8% 102.50 9.069% 12/15/03 361 bp
Alaris Medical Inc............ 12/01/04 100.0 105.25 8.716 12/01/04 336
Dynacare Inc.................. 01/15/04 100.0 105.75 9.472 01/15/04 414
Maxxim Medical................ 08/01/04 100.0 108.25 8.814 07/30/04 333
Owens & Minor Inc............. 06/01/01 105.4 111.00 8.487 06/01/01 307
Graham Field Health........... 08/15/02 104.3 105.50 8.741 08/15/05 324
Physician Sales & Services.... 10/01/02 104.8 102.00 8.172 10/01/06 268
Kinetic Concepts.............. 11/01/02 104.8 102.00 9.256 11/01/05 375
</TABLE>
<TABLE>
<CAPTION>
ALLIANCE ALARIS (1) MAXXIM OWENS & GRAHAM PHYSICIAN
LATEST TWELVE MONTHS IMAGING (1) MEDICAL INC. DYNACARE (2) MEDICAL MINOR INC. FIELD SALES & SVCS
- ------------------------- ----------- ------------- ------------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales.................... $ 83.0 $ 366.3 $ 186.8 $ 536.3 $ 3,065.7 $ 364.1 $ 880.1
EBITDA................... 38.0 92.2 24.9 59.5 71.1 41.1 40.1
EBITDA Margin............ 45.8% 25.2% 13.3% 11.1% 2.3% 11.3% 4.6%
Interest Expense......... $ 20.1 $ 38.7 $ 14.4 $ 24.0 $ 15.5 $ 11.1 $ 11.7
Capital Expenditures..... 40.2 19.5 6.4 6.5 12.7 2.9 7.3
Total Debt............... 221.9 407.6 150.9 254.6 154.2 120.5 135.7
EBITDA/Interest.......... 1.9x 2.4x 1.7x 2.5x 4.6x 3.7x 3.4x
(EBITDA-CapEx)/
Interest............... NM 1.9x 1.3x 2.2x 3.8x 3.4x 2.8x
Total Debt/EBITDA........ 5.8x 4.9x 6.1x 4.3x 2.2x 2.9x 3.4x
Total Debt/Book
Capitalization......... 151.0% 79.2% 78.0% 67.0% 21.9% 26.0% 36.7%
<CAPTION>
KINETIC
LATEST TWELVE MONTHS CONCEPTS
- ------------------------- -----------
<S> <C>
Sales.................... $ 308.1
EBITDA................... 95.2
EBITDA Margin............ 30.9%
Interest Expense......... $ 46.7
Capital Expenditures..... 24.6
Total Debt............... 540.8
EBITDA/Interest.......... 2.0x
(EBITDA-CapEx)/
Interest............... 1.5x
Total Debt/EBITDA........ 5.7x
Total Debt/Book
Capitalization......... 209.0%
</TABLE>
- ------------------------
(1) LTM Figures are nine months ended 9/30/97, annualized
(2) Exchange rate CN$1.4/US$
<PAGE>
TAB
6
<PAGE>
- -------------------------------------------------------------------------------
VALUATION OF SHOUT
- -------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
Confidential Project SHOUT
- ----------------------------------------------------------------------------------------------------------------------
VALUATION SUMMARY--SHOUT
(Dollars in Millions, Except Per Share Data)
Value Per Share (In Dollars)
<S> <C> <C> <C> <C> <C> <C> <C>
$0.00 $5.00 $10.00 $15.00 $20.00 $25.00 $30.00
Comparable Company Valuation
$ 9.86 $12.93
Precedent Transaction Valuation $10.32 $13.42
Discounted Cash Flow-Growth Case $14.56 $18.43
Discounted Cash Flow-Base Case $13.87 $17.60
Absolute Accretion/(Dilution) $13.00 $14.00
52 Week Trading Range $6.31 $11.88
Current Price Implied Offer Price
$10.88 $14.25
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Confidential Project SHOUT
- ----------------------------------------------------------------------------------------------------------------------
VALUATION SUMMARY--SHOUT
(Dollars in Millions, Except Per Share Data)
COMPARABLE COMPANY ANALYSIS
- ----------------------------------------------------------------------------------------------------------------------------------
MULTIPLE RANGE ENTERPRISE VALUE EQUITY VALUE PER SHARE AMOUNT
FINANCIAL -------------------- ---------------------- ---------------------- --------------------
STATISTIC LOW HIGH LOW HIGH LOW HIGH LOW HIGH
------------------ --------- --------- ---------- ---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LTM Revenues...... $166,600 2.2x 2.8x $ 366,520 $ 466,480 $ 231,180 $ 331,140 $ 8.58 $ 12.28
LTM EBITDA........ 64,650 7.7 9.3 497,805 601,245 362,465 465,905 $ 13.45 $ 17.28
1998E Calendar
E.P.S. (1)...... $0.59 14.0x 18.0x -- -- -- -- $ 8.28 $ 10.65
1999E Calendar
E.P.S. (1)...... $0.79 11.5x 14.5x -- -- -- -- $ 9.12 $ 11.50
Valuation Range $9.86 $ 12.93
</TABLE>
PRECEDENT TRANSACTION ANALYSIS
<TABLE>
<CAPTION>
ADJ. MULTIPLE RANGE ENTERPRISE VALUE EQUITY VALUE PER SHARE AMOUNT
FINANCIAL -------------------- ---------------------- ---------------------- -------------------
STATISTIC LOW HIGH LOW HIGH LOW HIGH LOW HIGH
---------- --------- --------- ---------- ---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LTM Revenues............. $ 166,600 2.2x 2.8x $ 366,520 $ 466,480 $ 231,180 $ 331,140 $ 8.58 $ 12.28
LTM EBITDA............... 64,650 6.4 7.9 413,760 510,735 278,420 375,395 10.33 13.92
LTM EBIT................. 34,291 13.2 16.2 452,641 555,514 317,301 420,174 11.77 15.59
Control Premium (2)...... $ 8.50 25.0% 40.0% -- -- -- -- $ 10.63 $ 11.90
Valuation Range $ 10.32 $ 13.42
</TABLE>
Notes
- ------------------------
(1) Based on Growth Management Case Net Income
(2) Unaffected SHOUT stock price as of October 29, 1997
<PAGE>
<TABLE>
<CAPTION>
Confidential Project SHOUT
- ----------------------------------------------------------------------------------------------------------------------
VALUATION SUMMARY--SHOUT
(Dollars in Millions , Except Per Share Data)
Discounted Cash Flow Analysis
- ---------------------------------------------------------------------------------------------------------------------
Growth Management Case
EQUITY VALUE BASED ON EBITDA MULTIPLE
---------------------------------------------------------
EBITDA TERMINAL MULTIPLE
DISCOUNT -------------------------------
RATE 7.0x 7.5x 8.0x Per Share Amount
----------- --------- --------- --------- -----------------
<S> <C> <C> <C> <C>
14.5% $ 16.15 $ 17.29 $ 18.43
15.5% $ 15.33 $ 16.43 $ 17.52
16.5% $ 14.56 $ 15.61 $ 16.65
Valuation Range $ 14.56 $ 18.43
</TABLE>
BASE MANAGEMENT CASE
<TABLE>
<CAPTION>
EQUITY VALUE BASED ON EBITDA MULTIPLE
----------------------------------------------------
EBITDA TERMINAL MULTIPLE
DISCOUNT -------------------------------
RATE 7.0x 7.5x 8.0x Per Share Amount
----------- --------- --------- --------- -----------------
<S> <C> <C> <C> <C>
10.5% $ 15.45 $ 16.52 $ 17.60
11.5% $ 14.64 $ 15.67 $ 16.70
12.5% $ 13.87 $ 14.86 $ 15.85
Valuation Range $ 13.87 $ 17.60
Absolute Accretion/(Dilution) Analsis
- ---------------------------------------------------------------------------------------------------------
Valuation Range $ 13.00 $ 14.00
</TABLE>
<PAGE>
CONFIDENTIAL PROJECT SHOUT
- ------------------------------------------------------------------------------
DISCOUNTED CASH FLOW ANALYSIS--BASE MANAGEMENT CASE
(Dollars in Thousands)
<TABLE>
<CAPTION>
ESTIMATED PROJECTED
----------- -----------------------------------------------------
FISCAL YEAR END 12/31 1997 1998 1999 2000 2001 2002
- -------------------------------------------------------------- ----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues...................................................... $ 166,600 $ 184,789 $ 209,433 $ 235,929 $ 264,491 $ 294,297
EBITDA........................................................ 64,650 68,077 74,420 81,383 87,879 95,756
Less: Depreciation & Amortization............................. (30,359) (30,462) (29,324) (28,235) (28,796) (22,331)
----------- --------- --------- --------- --------- ---------
EBIT.......................................................... 34,291 37,615 45,096 53,148 59,083 73,425
Less: Income Taxes @ 40%...................................... (13,716) (15,046) (18,039) (21,259) (23,633) (29,370)
----------- --------- --------- --------- --------- ---------
Unlevered After-Tax Income.................................... $ 20,575 $ 22,569 $ 27,058 $ 31,889 $ 35,450 $ 44,055
Plus: Depreciation & Amortization............................. $ 30,359 $ 30,462 $ 29,324 $ 28,235 $ 28,796 $ 22,331
Less: Capital Expenditures.................................... (15,458) (15,000) (15,000) (15,000) (15,000) (15,000)
Less: Working Capital Investment.............................. (1,560) (1,731) (10,447) (5,949) (5,733) (4,482)
----------- --------- --------- --------- --------- ---------
Free Cash Flow................................................ $ 33,915 $ 36,300 $ 30,934 $ 39,175 $ 43,513 $ 46,904
----------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- ---------
</TABLE>
TERMINAL VALUE BASED ON EBITDA MULTIPLE
<TABLE>
<CAPTION>
EXIT MULTIPLE IN YEAR 5 (2002) 7.0 X EBITDA 7.5 X EBITDA
- ------------------------------------------------ ----------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
10.5% 11.5% 12.5% 10.5% 11.5% 12.5%
--------- --------- --------- --------- --------- ---------
DISCOUNTED FREE CASH FLOWS 1998--2002........... $ 144,876 $ 141,068 $ 137,415 $ 144,876 $ 141,068 $ 137,415
DISCOUNTED TERMINAL VALUE....................... 406,867 388,946 371,964 435,929 416,728 398,533
--------- --------- --------- --------- --------- ---------
ENTERPRISE VALUE................................ $ 551,743 $ 530,014 $ 509,380 $ 580,805 $ 557,796 $ 535,949
LESS: DEBT, PREFERRED & MINORITY INTEREST @
12/31/97....................................... (139,367) (139,367) (139,367) (139,367) (139,367) (139,367)
PLUS: CASH @ 12/31/97........................... 4,027 4,027 4,027 4,027 4,027 4,027
--------- --------- --------- --------- --------- ---------
IMPLIED EQUITY VALUE............................ $ 416,403 $ 394,674 $ 374,040 $ 445,465 $ 422,456 $ 400,609
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
EXIT MULTIPLE IN YEAR 5 (2002) 8.0 X EBITDA
- ------------------------------------------------ --------------------------------
<S> <C> <C> <C>
10.5% 11.5% 12.5%
--------- --------- ---------
DISCOUNTED FREE CASH FLOWS 1998--2002........... $ 144,876 $ 141,068 $ 137,415
DISCOUNTED TERMINAL VALUE....................... 464,991 444,510 425,102
--------- --------- ---------
ENTERPRISE VALUE................................ $ 609,867 $ 585,578 $ 562,518
LESS: DEBT, PREFERRED & MINORITY INTEREST @
12/31/97....................................... (139,367) (139,367) (139,367)
PLUS: CASH @ 12/31/97........................... 4,027 4,027 4,027
--------- --------- ---------
IMPLIED EQUITY VALUE............................ $ 474,527 $ 450,238 $ 427,178
--------- --------- ---------
--------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
EQUITY VALUE BASED ON EBITDA MUTLIPLE
-------------------------------------------------------------------
EBITDA TERMINAL MULTIPLE
DISCOUNT ----------------------------------------------
RATE 7.0X 7.5X 8.0X
------------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
10.5% $15.45 $16.52 $17.60
11.5% $14.64 $15.67 $16.70
12.5% $13.87 $14.86 $15.85
Shares (1) 26,959
</TABLE>
- ------------------------
Source: Company management estimates
(1) Fully converted shares outstanding
<PAGE>
<TABLE>
<CAPTION>
CONFIDENTIAL PROJECT SHOUT
- ------------------------------------------------------------------------------------------------
DISCOUNTED CASH FLOW ANALYSIS--GROWTH MANAGEMENT CASE
(DOLLARS IN THOUSANDS)
ESTIMATED PROJECTED
----------- -----------------------------------------------------
FISCAL YEAR END 12/31 1997 1998 1999 2000 2001 2002
----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues............... $ 166,600 $ 192,500 $ 222,400 $ 259,100 $ 304,000 $ 356,500
EBITDA................. 64,650 70,510 78,430 90,150 104,160 120,970
Less: Depreciation &
Amortization......... (30,359) (30,462) (29,324) (28,235) (28,796) (22,331)
----------- --------- --------- --------- --------- ---------
EBIT................... 34,291 40,048 49,106 61,915 75,364 98,639
Less: Income Taxes @
40%.................. (13,716) (16,019) (19,643) (24,766) (30,146) (39,456)
----------- --------- --------- --------- --------- ---------
Unlevered After-Tax
Income............... $ 20,575 $ 24,029 $ 29,464 $ 37,149 $ 45,218 $ 59,184
Plus: Depreciation &
Amortization......... $ 30,359 $ 30,462 $ 29,324 $ 28,235 $ 28,796 $ 22,331
Less: Capital
Expenditures......... (15,458) (15,000) (15,000) (15,000) (15,000) (15,000)
Less: Working Capital
Investment........... (3,128) (3,614) (11,934) (8,826) (10,160) (10,239)
----------- --------- --------- --------- --------- ---------
Free Cash Flow......... $ 32,348 $ 35,876 $ 31,854 $ 41,558 $ 48,854 $ 56,275
----------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
TERMINAL
VALUE BASED
ON EBITDA
MULTIPLE
EXIT
MULTIPLE IN 7.0 X EBITDA 7.5 X EBITDA 8.0 X EBITDA
YEAR 5 ---------------------------------- ---------------------------------- ----------------------------------
(2002) 14.5% 15.5% 16.5% 14.5% 15.5% 16.5% 14.5% 15.5% 16.5%
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Discounted
Free Cash
Flows
1998--2002... $ 140,334 $ 136,742 $ 133,293 $ 140,334 $ 136,742 $ 133,293 $ 140,334 $ 136,742 $ 133,293
Discounted
Terminal
Value....... 430,277 411,970 394,590 461,011 441,397 422,775 491,745 470,823 450,960
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Enterprise
Value....... $ 570,611 $ 548,712 $ 527,883 $ 601,345 $ 578,139 $ 556,068 $ 632,079 $ 607,565 $ 584,253
Less: Debt,
Preferred &
Minority
Interest @
12/31/97.... (139,367) (139,367) (139,367) (139,367) (139,367) (139,367) (139,367) (139,367) (139,367)
Plus: Cash @
12/31/97.... 4,027 4,027 4,027 4,027 4,027 4,027 4,027 4,027 4,027
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Implied
Equity
Value....... $ 435,271 $ 413,372 $ 392,543 $ 466,005 $ 442,799 $ 420,728 $ 496,739 $ 472,225 $ 448,913
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
EQUITY VALUE BASED ON EBITDA MULTIPLE
------------------------------------------------
EBITDA TERMINAL MULTIPLE
DISCOUNT ---------------------------------
RATE 7.0X 7.5X 8.0X
------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
14.5% $ 16.15 $ 17.29 $ 18.43
15.5% $ 15.33 $ 16.43 $ 17.52
Shares
(1).... 26,959 16.5% $ 14.56 $ 15.61 $ 16.65
</TABLE>
- ------------------------
Source: Company management estimates
(1) Fully converted shares outstanding
<PAGE>
CONFIDENTIAL PROJECT SHOUT
- -------------------------------------------------------------------------------
ABSOLUTE EARNINGS DILUTION AND CASH FLOW ANALYSIS--GROWTH MANANGMENT CASE
(DOLLARS IN THOUSANDS)
ASSUMPTIONS
<TABLE>
<S> <C>
Number of Shares........................... 26,959
Purchase Price Per Share................... $ 14.50
---------
Purchase Price of Equity................... $ 390,902
Book value................................. 49,232
Goodwill................................... $ 341,670
Existing Net Debt.......................... 135,340
Amortization Term.......................... 30 years
Amortization Per Year...................... $ 11,389
Key rates
Debt Used in Acquisition................. 100.0%
Interest on Acquisition Debt............. 7.5%
Tax Rate............................... 40.0%
</TABLE>
OPERATING RESULTS
<TABLE>
<CAPTION>
INCOME STATEMENT 1998 1999
- ------------------------------------------- --------- ---------
<S> <C> <C>
Sales...................................... $ 192,500 $ 222,400
EBIT....................................... 37,242 46,300
Synergies.................................. 5,000 7,500
Interest Expense-Existing Net Debt......... (10,151) (10,151)
Taxes.................................... (12,837) (17,460)
--------- ---------
Implied Net Income......................... $ 19,255 $ 26,190
Adjustments
Less: Interest Expense................... (29,318) (28,304)
Plus: Tax Benefit of
Interest Expense....................... 11,727 11,322
Less: Goodwill Amortization.............. (11,389) (11,389)
--------- ---------
Incremental Earnings Contribution.......... $( 9,725) $( 2,182)
Cash Flow
Plus: Depreciation and Amortization........ $ 30,462 $ 29,324
Plus: Goodwill Amortization................ 11,389 11,389
--------- ---------
Less: Capital Expenditures................. (15,000) (15,000)
Less: Investment in Working Capital........ (3,614) (8,826)
--------- ---------
Cash Flow Available to Debt Service........ $ 13,512 $ 14,705
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
ACQUIROR P/E REQUIRED FOR
BREAKEVEN TRANSACTION
100% STOCK INCREMENTAL EARNINGS CONTRIB.
PURCHASE ACCOUNTING 100% CASH TRANSACTION
PURCHASE -------------------------- -----------------------------
PRICE 1998 1999 1998 1999
- ----------------- ----- ----- ----- -------
<S> <C> <C> <C> <C>
$ 12.00 32.0x 19.0x (4,445) 3,234
12.50 34.9x 20.3x (5,501) 2,151
13.00 38.0x 21.7x (6,557) 1,068
13.50 41.5x 23.2x (7,613) (16)
14.00 45.4x 24.7x (8,669) (1,099)
14.50 49.7x 26.4x (9,725) (2,182)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONFIDENTIAL PROJECT SHOUT
- ---------------------------------------------------------------------------------------------------------------------------
VALUATION MATRIX
(DOLLARS IN THOUSANDS)
PURCHASE PRICE PER SHARE
FISCAL YEAR END SHOUT --------------------------------------------------------------------------------------------
9/30/97 09/30/97 AT MARKET PRICE
- ------------------ --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Price Per Share... $ 10.88 $ 12.00 $ 12.50 $ 13.00 $ 13.50 $ 14.00 $ 14.25 $ 14.50
Premium......... 0.0% 10.3% 14.9% 19.5% 24.1% 28.7% 31.0% 33.3%
MEDIQ Equity
Value........... $ 293,177 $ 323,505 $ 336,985 $ 350,464 $ 363,944 $ 377,423 $ 384,163 $ 390,902
Plus : Debt,
Preferred & MI.. 139,367 139,367 139,367 139,367 139,367 139,367 139,367 139,367
Less : Cash....... (4,027) (4,027) (4,027) (4,027) (4,027) (4,027) (4,027) (4,027)
--------------- --------- --------- --------- --------- --------- --------- ---------
MEDIQ Enterprise
Value........... $ 428,517 $ 458,845 $ 472,325 $ 485,804 $ 499,284 $ 512,763 $ 519,503 $ 526,242
--------------- --------- --------- --------- --------- --------- --------- ---------
--------------- --------- --------- --------- --------- --------- --------- ---------
<CAPTION>
PURCHASE PRICE PER SHARE
FISCAL YEAR END SHOUT --------------------------------------------------------------------------------------------
9/30/97 09/30/97 AT MARKET PRICE
- ------------------ --------- ---------------
<S> <C>
Price Per Share... $ 15.00
Premium......... 37.9%
MEDIQ Equity
Value........... $ 404,382
Plus : Debt,
Preferred & MI.. 139,367
Less : Cash....... (4,027)
---------
MEDIQ Enterprise
Value........... $ 539,722
---------
---------
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL
STATISTIC
(1) MULTIPLES OF ENTERPRISE VALUE
----------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$10.88 $12.00 $12.50 $13.00 $13.50
Revenue....................................... 1997PF $ 166,600 2.6x 2.8x 2.8x 2.9x 3.0x
1998E 192,500 2.2x 2.4x 2.5x 2.5x 2.6x
EBITDA........................................ 1997PF $ 64,650 6.6x 7.1x 7.3x 7.5x 7.7x
1998E 70,510 6.1x 6.5x 6.7x 6.9x 7.1x
EBIT.......................................... 1997PF $ 34,291 12.5x 13.4x 13.8x 14.2x 14.6x
1998E 37,242 11.5x 12.3x 12.7x 13.0x 13.4x
<CAPTION>
MULTIPLES OF ENTERPRISE VALUE
-----------------------------------------------------
<S> <C> <C> <C> <C>
$14.00 $14.25 $14.50 $15.00
Revenue....................................... 3.1x 3.1x 3.2x 3.2x
2.7x 2.7x 2.7x 2.8x
EBITDA........................................ 7.9x 8.0x 8.1x 8.3x
7.3x 7.4x 7.5x 7.7x
EBIT.......................................... 15.0x 15.1x 15.3x 15.7x
13.8x 13.9x 14.1x 14.5x
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL
STATISTIC
(1) MULTIPLES OF ENTERPRISE VALUE
----------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$10.88 $12.00 $12.50 $13.00 $13.50
Net Income...................................... FY 1997A ($2,241) NM NM NM NM NM
FY 1998E 15,237 19.2x 21.2x 22.1x 23.0x 23.9x
CY 1998E 16,775 17.5x 19.3x 20.1x 20.9x 21.7x
CY 1999E 23,309 12.6x 13.9x 14.5x 15.0x 15.6x
<CAPTION>
MULTIPLES OF EQUITY VALUE
------------------------------------------
<S> <C> <C> <C> <C>
$14.00 $14.25 $14.50 $15.00
Net Income...................................... NM NM NM NM
24.8x 25.2x 25.7x 26.5x
22.5x 22.9x 23.3x 24.1x
16.2x 16.5x 16.8x 17.3x
MEDIQ Share Price as of 1/12/98................. $ 10.88
MEDIQ Fully Diluted Shares Outstanding (MM)..... 26,959
</TABLE>
- ------------------------
(1) SHOUT financial statistics utilize the Company's Growth Management Case
<PAGE>
TAB
7
<PAGE>
- -------------------------------------------------------------------------------
LBO OVERVIEW
- -------------------------------------------------------------------------------
<PAGE>
CONFIDENTIAL PROJECT SHOUT
- -------------------------------------------------------------------------------
TRANSACTION SUMMARY--GROWTH MANAGEMENT CASE
(DOLLARS IN MILLIONS)
SOURCES AND USES OF FUNDS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SOURCES AMOUNT %
- ---------------------------------------------------------------- ---------- ---------
<S> <C> <C>
Balance Sheet Cash............................................ $ 0 0.0%
Revolver...................................................... 0 0.0%
Term A........................................................ 166,645 29.5%
Term B........................................................ 0 0.0%
Term C........................................................ 0 0.0%
Exchangeable Debentures....................................... 10,055 1.8%
Senior Sub Note............................................... 200,000 35.4%
Senior Discount Debentures.................................... 30,000 5.3%
Seller Preferred.............................................. 20,219 3.6%
New Common.................................................... 105,340 18.7%
Existing Common............................................... 32,011 5.7%
---------- ---------
Total Sources.................................................. $ 564,269 100.0%
---------- ---------
---------- ---------
Uses
Purchase Price of Equity...................................... $ 390,902 69.3%
Assumed / Refinanced Debt..................................... 139,367 24.7%
Financing Fees................................................ 20,975 3.7%
Transaction Costs............................................. 13,025 2.3%
---------- ---------
Total Uses..................................................... $ 564,269 100.0%
---------- ---------
---------- ---------
</TABLE>
PRO FORMA OWNERSHIP
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OWNER PRIMARY FULLY DILUTED
- -------------------------------------------------------------- ---------- -------------
<S> <C> <C>
Equity Investor............................................... 76.7% 68.4%
Existing Equity............................................... 23.3% 20.8%
Management + Options.......................................... -- 10.8%
---------- ---------
100.0% 100.0%
</TABLE>
PURCHASE PRICE CALCULATION
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Share Price Offered............................................................... $ 14.50
Shares Outstanding (000's)........................................................ 25,648
Options Outstanding (000's)....................................................... 2,003
Average Exercise Price............................................................ $ 5.01
Fully Diluted Shares.............................................................. 26,959
---------
Purchase Price of Equity.......................................................... $ 390,902
Plus: Net Debt.................................................................... 135,340
---------
Enterprise Value.................................................................. $ 526,242
</TABLE>
<TABLE>
<S> <C>
Non-Deductible Goodwill........................................................... yes
GOODWILL CALCULATION
Plus: Fees and Expenses........................................................... 13,025
Less: Book Value of Equity........................................................ 49,232
Goodwill Created.................................................................. N/A
</TABLE>
AMORTIZATION ASSUMPTIONS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Goodwill Amort. Book.............................................................. 20.0
Goodwill Amort. Tax............................................................... 15.0
PP&E Amortization Period.......................................................... 7.0
Fee Amortization Period........................................................... 7.0
</TABLE>
KEY RATES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
LIBOR............................................................................ 5.75%
Revolver......................................................................... 8.27%
Term A........................................................................... 8.27%
Term B........................................................................... 8.50%
Term C........................................................................... 8.75%
Exchangeable Debentures.......................................................... 7.50%
Senior Sub Note.................................................................. 10.00%
Junior Sub Note.................................................................. 13.00%
Preferred........................................................................ 13.00%
</TABLE>
EQUITY RETURNS ANALYSIS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Initial Equity Investment............................................. $ 137,350
Assumed EBITDA Exit Mult.............................................. 7.0x 7.5x 8.0x
--- --- ---------
2000 Implied Return................................................... 16.6% 23.2% 29.1%
2001 Implied Return................................................... 23.9% 28.0% 31.7%
2002 Implied Return................................................... 27.0% 29.8% 32.4%
</TABLE>
ACQUISITION MULTIPLES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Ent. Value / EBITDA................................................... 8.2x 7.5x 6.8x
Ent. Value / EBIT..................................................... 15.5 14.9 11.9
</TABLE>
PRO FORMA CREDIT STATISTICS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997PF 1998 1999
----------- ----- -----
<S> <C> <C> <C>
EBITDA / Interest............................................................ 1.7x 2.1x 2.4x
(EBITDA-CapEx) / Interest.................................................... 1.3 1.5 1.7
Bank Debt / EBITDA........................................................... 2.6 2.2 1.8
Total Debt / EBITDA.......................................................... 6.3 5.6 5.0
(Total Debt + Pref.) / EBITDA................................................ 6.6 5.9 5.2
</TABLE>
SUMMARY FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997PF 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Revenues..................................................................... $ 166,600 $ 192,500 $ 222,400
EBITDA....................................................................... 64,650 70,510 78,430
EBIT......................................................................... 34,291 35,495 44,553
Net Income................................................................... (2,366) (2,766) 3,104
</TABLE>
<PAGE>
TAB 8
<PAGE>
- --------------------------------------------------------------------------------
ANALYSIS OF BREAK UP FEES
- --------------------------------------------------------------------------------
<PAGE>
CONFIDENTIAL PROJECT SHOUT
TERMINATION FEES IN SELECTED TRANSACTIONS BETWEEN $500 MILLION & $750 MILLION
SINCE 1/1/90
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
VALUES
DATE: --------------------
ANNOUNCED EFFECTIVE TARGET NAME ACQUIROR NAME TRANS. ENTERP. CONSIDERATION
- ---------- ---------- ------------------------------- ------------------------------ --------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
12/23/97 Pending JC Nichols Co Highwoods Properties Inc $ 555.9 -- Cash
10/29/97 Pending CapMAC Holdings Inc MBIA Inc 687.0 $ 700.9 Common Stock
10/15/97 Pending Viewlogic Systems Inc Synopsys Inc 530.9 493.0 Common Stock
08/11/97 Pending Envirodyne Industries Inc Heico Holding Inc 651.3 635.4 Liabilities
07/28/97 Pending Stampeder Exploration Ltd Gulf Canada Resources Ltd 747.4 -- Common Stock
07/15/97 Withdrawn Florida Crystals(Flo-Sun Inc) Savannah Foods & Industries 691.4 -- Common Stock
07/03/97 Part Comp Duty Free International Inc BAA PLC 674.6 751.3 Cash
07/03/97 Part Comp Wyle Electronics Raab Karcher AG(VEBA AG) 633.0 751.3 Cash
06/23/97 10/17/97 Integon Corp General Motors Acceptance(GM) 517.1 668.0 Cash
06/12/97 Withdrawn Envirodyne Industries Inc HK Acquisition Corp 650.6 616.1 Cash
06/12/97 10/01/97 Giddings & Lewis Inc Thyssen AG 703.0 712.2 Cash
05/28/97 07/03/97 Fibreboard Corp Owens Corning 631.2 478.0 Cash
05/06/97 08/15/97 BBN Corp GTE Corp 713.8 678.3 Cash
05/06/97 07/22/97 BW/IP Inc Durco International Inc 530.7 537.9 Common Stock
05/05/97 Withdrawn Transitional Hospitals Corp Select Medical Corp 569.4 534.1 Cash
04/30/97 06/03/97 Sinter Metals Inc GKN PLC 563.4 429.0 Cash
04/09/97 05/13/97 Stant Corp Tomkins PLC 574.0 593.7 Cash
03/25/97 05/07/97 Foodbrands America Inc IBP Inc 657.5 634.7 Cash
02/26/97 07/02/97 Petrolite Corp Baker Hughes Inc 710.9 709.8 Common Stock
02/24/97 07/01/97 Security-Connecticut Corp ReliaStar Financial Corp,MN 545.4 503.5 Common Stock
01/27/97 03/07/97 Measurex Corp Honeywell Inc 597.0 587.4 Cash
12/16/96 04/16/97 Paragon Group Inc Camden Property Trust 624.8 619.1 Common Stock
11/27/96 03/19/97 Owen Healthcare Inc Cardinal Health Inc 544.1 481.7 Common Stock
11/18/96 03/27/97 Tyco Toys Inc Mattel Inc 737.4 1,073.1 Common Stock
10/21/96 Withdrawn Coram Healthcare Corp Integrated Health Services Inc 558.8 649.2 Common Stock
07/19/96 08/27/97 Rexene Corp Huntsman Corp 606.8 494.5 Cash
05/03/96 Nowsco Well Service Ltd Great Lakes Chemical Corp 509.3 466.8 Cash
03/29/96 07/02/96 Hayes Wheels International Inc Motor Wheel Corp 563.8 695.1 Cash
02/16/96 06/13/96 Forum Group Inc Marriott International Inc 622.3 598.8 Cash
02/14/96 03/20/96 Helene Curtis Industries Inc Unilever NV 737.4 882.1 Cash
01/31/96 03/04/96 Tivoli Systems Inc IBM Corp 709.8 688.0 Cash
12/18/95 05/14/96 AMSCO International Steris Corp 673.1 662.7 Common Stock
12/18/95 01/29/96 Cobra Golf Inc American Brands Inc 670.4 643.1 Cash
10/30/95 12/28/95 Learning Co SoftKey International Inc 579.6 573.4 Cash
07/31/95 Withdrawn Learning Co Broderbund Software Inc 515.7 513.3 Common Stock
06/26/95 10/05/95 Enterra Corp Weatherford International Inc 540.6 660.2 Common Stock
06/22/95 10/30/95 Frame Technology Corp Adobe Systems Inc 566.6 549.6 Common Stock
03/31/95 07/10/95 Continental Medical Systems Horizon Healthcare Corp 594.5 919.6 Common Stock
03/30/95 07/17/95 Circa Pharmaceuticals Inc Watson Pharmaceuticals Inc 621.1 607.1 Common Stock
11/28/94 06/30/95 Chambers Development Co Inc USA Waste Services Inc 725.0 626.4 Common Stock
<CAPTION>
TERMINATION FEE
DATE: ---------------
ANNOUNCED TARGET NAME $ %
- ---------- ----------- --- ---
<S> <C> <C> <C>
12/23/97 JC Nichols Co. $ 14.7 2.6%
10/29/97 CapMAC Holdings Inc 19.4 2.8%
10/15/97 Viewlogic Systems Inc 10.0 1.9%
08/11/97 Envirodyne Industries Inc 4.0 0.6%
07/28/97 Stampeder Exploration Ltd 14.4 1.9%
07/15/97 Florida Crystals(Flo-Sun Inc) 5.0 0.7%
07/03/97 Duty Free International Inc 20.0 3.0%
07/03/97 Wyle Electronics 20.0 3.2%
06/23/97 Integon Corp 15.0 2.9%
06/12/97 Envirodyne Industries Inc 10.0 1.5%
06/12/97 Giddings & Lewis Inc 20.0 2.8%
05/28/97 Fibreboard Corp 13.5 2.1%
05/06/97 BBN Corp 13.5 1.9%
05/06/97 BW/IP Inc 12.0 2.3%
05/05/97 Transitional Hospitals Corp 19.4 3.4%
04/30/97 Sinter Metals Inc 12.0 2.1%
04/09/97 Stant Corp 15.0 2.6%
TERMINATION FEE
DATE: ---------------
ANNOUNCED TARGET NAME $ %
- ---------- ----------- --- ---
03/25/97 Foodbrands America Inc 9.9 1.5%
02/26/97 Petrolite Corp 30.0 4.2%
02/24/97 Security-Connecticut Corp 8.0 1.5%
01/27/97 Measurex Corp 20.0 3.4%
12/16/96 Paragon Group Inc 10.0 1.6%
11/27/96 Owen Healthcare Inc 13.0 2.4%
11/18/96 Tyco Toys Inc 15.0 2.0%
10/21/96 Coram Healthcare Corp 25.0 4.5%
07/19/96 Rexene Corp 15.0 2.5%
05/03/96 Nowsco Well Service Ltd 5.1 1.0%
03/29/96 Hayes Wheels International Inc 20.0 3.5%
02/16/96 Forum Group Inc 14.0 2.2%
02/14/96 Helene Curtis Industries Inc 20.0 2.7%
01/31/96 Tivoli Systems Inc 5.0 0.7%
12/18/95 AMSCO International 20.0 3.0%
12/18/95 Cobra Golf Inc 15.0 2.2%
10/30/95 Learning Co 15.0 2.6%
07/31/95 Learning Co 15.0 2.9%
06/26/95 Enterra Corp 20.0 3.7%
06/22/95 Frame Technology Corp 18.0 3.2%
03/31/95 Continental Medical Systems 10.0 1.7%
03/30/95 Circa Pharmaceuticals Inc 15.0 2.4%
11/28/94 Chambers Development Co Inc 21.0 2.9%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VALUES
DATE: --------------------
ANNOUNCED EFFECTIVE TARGET NAME ACQUIROR NAME TRANS. ENTERP. CONSIDERATION
- ---------- ---------- ------------------------------- ------------------------------ --------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
09/15/94 10/31/94 American Income Holdings Torchmark Corp 550.8 585.9 Cash
09/12/94 01/03/95 Gencare Health Systems United HealthCare Corp 512.2 475.2 Cash
08/18/94 03/01/95 Worthen Banking,Little Rock,AR Boatmen's Bancshares,St Louis 585.5 2,048.0 Common Stock
07/27/94 07/03/95 Iowa-Illinois Gas & Electric Midwest Resources Inc 642.4 722.3 Common Stock
06/28/94 Withdrawn Sierra Pacific Resources Washington Water Power Co 625.8 1,300.4 Common Stock
03/28/94 07/25/94 Trizec Corp Ltd Investor Group 740.0 -- Cash
02/24/94 12/16/94 Associated Communications Corp Southwestern Bell Corp 680.0 -- Common Stock
02/15/94 05/31/94 Ramsay-HMO United HealthCare Corp 564.9 474.2 Common Stock
02/07/94 07/11/94 Medisys,HealthInfusion,1 Other T2 Medical Inc 549.0 -- Common Stock
10/08/93 11/11/93 Copley Pharmaceutical Inc Hoechst Celanese Corp(Hoechst) 546.0 975.8 Cash
07/06/93 06/01/94 Cragin Financial Corp ABN-AMRO Holding NV 501.6 1,730.8 Cash
06/28/93 08/05/93 Damon Corp Corning Inc 565.3 530.2 Cash
05/10/93 07/30/93 Lifetime Corp Olsten Corp 607.0 461.1 Common Stock
12/17/92 06/11/93 Dentsply International Inc GENDEX Corp 577.0 -- Common Stock
12/15/92 06/03/93 Immunex Corp American Cyanamid Co 736.3 741.8 Cash
09/17/92 10/30/92 CONSTAR International Inc Crown Cork & Seal Co 528.9 583.4 Cash
06/03/92 12/04/92 Advanced Telecommunications LDDS Communications Inc 585.6 759.6 Common Stock
03/12/92 07/23/92 International Corona Corp Homestake Mining Co 559.8 695.3 Common Stock
11/22/91 02/14/92 Sanford Corp Newell Co 575.1 555.6 Common Stock
10/30/91 05/04/92 Merchants National Corp National City,Cleveland,Ohio 655.4 5,073.8 Common Stock
09/19/91 01/16/92 Genetics Institute Inc American Home Products Corp 667.0 664.8 Cash
07/10/91 10/11/91 Ashton-Tate Corp Borland International Inc 547.6 361.2 Common Stock
06/07/91 Withdrawn Integrated Resources Inc Bankers Trust New York Corp 565.0 -- Cash
12/13/90 07/15/91 Vista Chemical Co RWE-DEA Mineraloel & Chemie 582.0 1,144.9 Cash
07/30/90 11/29/90 Diversified Energies Inc Arkla Inc 569.8 811.3 Common Stock
07/02/90 10/26/90 Kay Jewelers Inc Ratners Group PLC 533.3 456.4 Convert.Preferred
06/05/90 08/22/90 Phillips Industries Inc Tomkins PLC 529.0 -- Cash
03/16/90 11/07/90 Iowa Resources Midwest Energy Co 516.1 931.3 Common Stock
02/20/90 03/26/90 Freeport McMoRan Gold Co Minorco SA(Anglo American) 704.9 695.6 Cash
01/15/90 04/03/90 Sea Containers-Cargo Container Tiphook PLC 537.0 -- Cash
Mean:
Median:
Maximum:
Minimum:
<CAPTION>
TERMINATION FEE
DATE: ---------------
ANNOUNCED TARGET NAME $ %
- ---------- --------------- --- ---
<S> <C> <C> <C>
09/15/94 American Income Holdings 12.0 2.2%
09/12/94 Gencare Health Systems 13.0 2.5%
08/18/94 Worthen Banking,Little Rock,A 18.0 3.1%
07/27/94 Iowa-Illinois Gas & Electric 51.0 7.9%
06/28/94 Sierra Pacific Resources 25.0 4.0%
03/28/94 Trizec Corp Ltd 7.3 1.0%
02/24/94 Associated Communications Cor 25.0 3.7%
02/15/94 Ramsay-HMO 20.0 3.5%
02/07/94 Medisys,HealthInfusion,1 Othe 11.3 2.0%
10/08/93 Copley Pharmaceutical Inc 20.0 3.7%
07/06/93 Cragin Financial Corp 15.0 3.0%
06/28/93 Damon Corp 17.3 3.1%
05/10/93 Lifetime Corp 14.0 2.3%
12/17/92 Dentsply International Inc 5.0 0.9%
12/15/92 Immunex Corp 30.0 4.1%
09/17/92 CONSTAR International Inc 15.0 2.8%
06/03/92 Advanced Telecommunications 10.0 1.7%
03/12/92 International Corona Corp 10.0 1.8%
11/22/91 Sanford Corp 10.0 1.7%
10/30/91 Merchants National Corp 35.0 5.3%
09/19/91 Genetics Institute Inc 30.0 4.5%
07/10/91 Ashton-Tate Corp 13.5 2.5%
06/07/91 Integrated Resources Inc 6.0 1.1%
12/13/90 Vista Chemical Co 29.0 5.0%
07/30/90 Diversified Energies Inc 3.0 0.5%
07/02/90 Kay Jewelers Inc 10.0 1.9%
06/05/90 Phillips Industries Inc 5.0 0.9%
03/16/90 Iowa Resources 25.0 4.8%
02/20/90 Freeport McMoRan Gold Co 7.0 1.0%
01/15/90 Sea Containers-Cargo Container 50.1 9.3%
Mean 2.7%
Median 2.5%
Maximum 9.3%
Minimum 0.5%
</TABLE>
- ------------------------
Source: Securities Data Company, Inc. (201) 622-3100
<PAGE>
TAB 9
<PAGE>
- --------------------------------------------------------------------------------
EXHIBITS
- --------------------------------------------------------------------------------
<PAGE>
TAB A
<PAGE>
- --------------------------------------------------------------------------------
COMPARABLE COMPANY ANALYSIS
- --------------------------------------------------------------------------------
<PAGE>
COMPARABLE COMPANY ANALYSIS
(Dollars in Thousands, Except Per Share Items)
<TABLE>
<CAPTION>
Price/ Fully Dil Fully Dil Adj
Price 52 Week 52 Week Shares Market Market
Company Name Ticker 01/12/98 High-Low High Outs. Value Value(1)
- ------------------------------- ---------- -------- ------------ ------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Cohr Inc. CHRI $11.06 $28.50-10.25 38.8 6,433 $71,167 $57,187
DVI Inc. DVI $19.50 $21.00-10.88 92.9 12,480 $243,351 $729,182
Hillenbrand Industries HB $48.50 $31.50-36.75 94.2 68,802 $3,336,876 $3,270,876
Kinetic Concepts, Inc. (2) KNCI $17.63 $19.94-11.38 88.4 44,359 $781,828 $736,430
Leasing Solutions Inc. LSN $22.50 $32.50-6.75 69.2 8,519 $191,678 $609,487
</TABLE>
<TABLE>
<CAPTION>
Market Value Divided by: Adjusted Market Value(1)
---------------------------------------- --------------------------------
Cal. 98 P/E Net Revenue EBITDA
Cal. 97(E) Cal. 98(E) Cal. 99(E) as a % of -------------- --------------
Company Name Net Inc. Net Inc. Net Inc. 3-Yr. Gr. LTM LQA LTM LQA
- ------------------------------- ---------- ---------- ---------- ---------- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cohr Inc. 12.3x 10.3x 8.4x 47% 0.5x 0.5x 5.2x 5.4x
DVI Inc. 20.7x 15.9x 12.9x 84% 9.6x 8.6x 10.0x 9.0x
Hillenbrand Industries 21.2x 18.0x 15.4x 106% 1.9x 1.9x 8.9x 9.7x
Kinetic Concepts, Inc. 18.8x 16.3x 13.9x 94% 2.5x 2.4x 8.5x 8.4x
Leasing Solutions Inc. 14.7x 12.2x 10.2x 54% 3.0x 2.6x 3.2x 2.9x
---------------------------------------------------------------------------------------------------------
Mean 17.5x 14.6x 12.2x 77% 3.5x 3.2x 7.2x 7.1x
Median 18.8 15.9 12.9 84% 2.5 2.4 8.5 8.4
---------------------------------------------------------------------------------------------------------
</TABLE>
CAPITALIZATION & MARGINS
<TABLE>
<CAPTION>
Tot. Debt Adj. Tot. Debt Tot. Debt EBITDA Margin Pre-Tax Margin Net Margin
as % of as % of as % of -------------- --------------- -------------
Company Name Tot. Cap. Adj. Tot. Cap Equity LTM LQA LTM LQA LTM LQA
- ------------------------------ ---------- -------------- ---------- ----- ----- ------ ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cohr Inc. 2.1% 17.2% 2.1% 9.9% 9.4% 9.4% 8.2% 5.6% 5.0%
DVI Inc. 84.1% 84.2% 528.9% 95.7% 96.2% 22.6% 23.0% 13.3% 13.7%
Hillenbrand Industries 23.9% 31.8% 31.5% 21.1% 19.7% 14.2% 13.5% 8.6% 8.2%
Kinetic Concepts, Inc. 0.1% 0.1% 0.1% 29.3% 28.7% 24.2% 21.7% 14.6% 13.0%
Leasing Solutions Inc. 85.7% 85.8% 596.9% 91.9% 91.4% 9.8% 10.3% 5.7% 6.0%
- ----------------------------------------------------------------------------------------------------------------------------------
Mean 39.2% 43.8% 231.9% 49.6% 49.1% 16.0% 15.3% 9.6% 9.2%
Median 23.9% 31.8% 31.5% 29.3% 28.7% 14.2% 13.5% 8.6% 8.2%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Actual/Projected Cal. EPS Growth
-------------------------------------------------------------
Company Name 1997(E) 1998(E) 1999(E) 3 Yr. (E)
- ------------------------------ --------- --------- --------- -----------
<S> <C> <C> <C> <C>
Cohr Inc. 2.3% 19.1% 22.5% 22.0%
DVI Inc. 13.9% 30.3% 23.4% 19.0%
Hillenbrand Industries 12.4% 17.2% 17.0% 17.0%
Kinetic Concepts, Inc. 9.3% 13.8% 18.7% 17.5%
Leasing Solutions Inc. 31.9% 20.9% 18.9% 22.5%
- ----------------------------------------------------------------------------------------------------------------------------------
Mean 14.0% 20.3% 20.1% 19.6%
Median 12.4% 19.1% 18.9% 19.0%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
INCOME INFORMATION
<TABLE>
<CAPTION>
Net Revenues EBITDA EBIT Pretax
------------------------ -------------------- -------------------- --------------------
Company Name LTM LQA LTM LQA LTM LQA LTM LQA
- ---------------------------- ---------- ---------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cohr Inc. $100,856 $102,364 $9,983 $9,592 $8,408 $7,380 $9,433 $8,344
DVI Inc. $76,160 $84,396 $72,865 $81,200 $62,003 $69,900 $17,178 $19,424
Hillenbrand Industries $1,742,000 $1,716,000 $367,000 $337,333 $267,000 $232,000 $247,000 $232,000
Kinetic Concepts, Inc. $294,563 $305,196 $86,320 $87,519 $63,869 $64,660 $71,277 $66,364
Leasing Solutions Inc. $206,270 $233,688 $189,562 $213,696 $49,028 $58,484 $20,241 $23,960
</TABLE>
<TABLE>
<CAPTION>
Net Income Calendar EPS
------------------------ ----------------------------------
Company Name LTM LQA 1997E 1998E 1999E
- ---------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Cohr Inc. $5,651 $5,072 $0.90 $1.08 $1.32
DVI Inc. $10,093 $11,600 $0.94 $1.23 $1.51
Hillenbrand Industries $150,000 $140,000 $2.29 $2.69 $3.14
Kinetic Concepts, Inc. $43,031 $39,792 $0.94 $1.07 $1.27
Leasing Solutions Inc. $11,779 $13,940 $1.53 $1.85 $2.20
</TABLE>
Notes
- ----------------------------
(1) Adjusted Marked Value = Fully Diluted Market Value + Debt
Outstanding - Cash.
(2) KNCI stock price fixed as of 9/26/97, prior to announced acquisition by
Richard C. Blum & Assoc. LP and Fremont Partners LP.
<PAGE>
TAB B
<PAGE>
- --------------------------------------------------------------------------------
PRECEDENT TRANSACTIONS
- --------------------------------------------------------------------------------
<PAGE>
CONFIDENTIAL PROJECT SHOUT
- --------------------------------------------------------------------------------
SELECTED TRANSACTIONS IN THE MEDICAL EQUIPMENT RENTAL INDUSTRY
($ IN MILLIONS)
<TABLE>
<CAPTION>
MULTIPLES OF
PURCHASE PRICE MULTIPLES OF
-------------------------- TRANSACTION VALUE
DATE TARGET/ PURCHASE TRANSACTION NET TANGIBLE --------------------------
ANNOUNCED ACQUIROR PRICE VALUE INCOME BOOK VALUE SALES EBITDA EBIT
- ---------- ------------------------------ ----------- ----------- ----------- ------------- ----- ------- -----
<C> <S> <C> <C> <C> <C> <C> <C> <C>
11/26/97 Universal Hospital Services/
J.W. Childs Equity Partners LP $ 89.3 $ 122.8 30.1x 5.0x 2.0x 4.9x 13.8x
10/03/97 Kinetic Concepts Inc./
Richard C, Blum & Associates LP
Fremont Partners LP 875.0 836.8 20.9 3.9 2.9 10.2 13.6
07/10/96 Biomedical Equipment Rental/
Universal Hospital Services $ 12.7 $ 13.2 43.2 4.2 4.5 9.1 63.3*
08/23/94 KCI Therapeutic Services/
MEDIQ Inc. 83.3 84.0 NA NA 1.9 NA NA
12/12/91 ATI Medical Inc/
MEDIQ Inc. 21.9 70.4 NM 2.5 1.3 4.2 16.8
Mean 31.4x 3.9x 2.5x 7.1x 14.7x
High 43.2 5.0 4.5 10.2 16.8
Low 20.9 2.5 1.3 4.2 13.6
</TABLE>
- ------------------------
* Excluded from the calculations of mean, high and low.
(NA)- Not Available
(NM)- Not Meaningful
<PAGE>
TAB
C
<PAGE>
- --------------------------------------------------------------------------------
LEVERAGED RECAPITALIZATION MODEL
- --------------------------------------------------------------------------------
<PAGE>
CONFIDENTIAL PROJECT SHOUT
- --------------------------------------------------------------------------------
TRANSACTION SUMMARY--GROWTH MANAGEMENT CASE
(Dollars in Millions)
<TABLE>
<CAPTION>
SOURCES AND USES OF FUNDS AMOUNT %
- ---------------------------------------------------------------------------------------- ---------- -------------
<S> <C> <C>
Sources
- ----------------------------------------------------------------------------------------
Balance Sheet Cash.................................................................... $ 0 0.0%
Revolver.............................................................................. 0 0.0%
Term A................................................................................ 166,645 29.5%
Term B................................................................................ 0 0.0%
Term C................................................................................ 0 0.0%
Exchangeable Debentures............................................................... 10,055 1.8%
Senior Sub Note....................................................................... 200,000 35.4%
Senior Discount Debentures............................................................ 30,000 5.3%
Seller Preferred...................................................................... 20,219 3.6%
New Common............................................................................ 105,340 18.7%
Existing Common....................................................................... 32,011 5.7%
---------- -----
Total Sources........................................................................... $ 564,269 100.0%
---------- -----
Uses
- ----------------------------------------------------------------------------------------
Purchase Price of Equity.............................................................. $ 390,902 69.3%
Assumed / Refinanced Debt............................................................. 139,367 24.7%
Financing Fees........................................................................ 20,975 3.7%
Transaction Costs..................................................................... 13,025 2.3%
---------- -----
Total Uses.............................................................................. $ 564,269 100.0%
---------- -----
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA OWNERSHIP
- ----------------------------------------------------------------------------------------
OWNER PRIMARY FULLY DILUTED
- ---------------------------------------------------------------------------------------- ---------- -------------
<S> <C> <C>
Equity Investor....................................................................... 76.7% 68.4%
Existing Equity....................................................................... 23.3% 20.8%
Management + Options.................................................................. -- 10.8%
---------- -----
100.0% 100.0%
</TABLE>
<TABLE>
<CAPTION>
PURCHASE PRICE CALCULATION
- ------------------------------------------------------------------------------------------------------
<S> <C>
Share Price Offered................................................................................... $ 14.50
Shares Outstanding (000's)............................................................................ 25,648
Options Outstanding (000's)........................................................................... 2,003
Average Exercise Price................................................................................ $ 5.01
Fully Diluted Shares.................................................................................. 26,959
----------
Purchase Price of Equity.............................................................................. $ 390,902
Plus: Net Debt........................................................................................ 135,340
----------
Enterprise Value...................................................................................... $ 526,242
Non-Deductible Goodwill............................................................................... yes
Goodwill Calculation
- ------------------------------------------------------------------------------------------------------
Plus: Fees and Expenses............................................................................... 13,025
Less: Book Value of Equity............................................................................ 49,232
Goodwill Created...................................................................................... N/A
Amortization Assumptions
Goodwill Amort. Book.................................................................................. 20.0
Goodwill Amort. Tax................................................................................... 15.0
PP&E Amortization Period.............................................................................. 7.0
</TABLE>
<TABLE>
<S> <C>
Fee Amortization Period............................................................................... 7.0
</TABLE>
<TABLE>
<CAPTION>
KEY RATES
- ----------------------------------------------------------------------------------------------------------
<S> <C>
LIBOR................................................................................................... 5.75%
Revolver................................................................................................ 8.27%
Term A.................................................................................................. 8.27%
Term B.................................................................................................. 8.50%
Term C.................................................................................................. 8.75%
Exchangeable Debentures................................................................................. 7.50%
Senior Sub Note......................................................................................... 10.00%
Junior Sub Note......................................................................................... 13.00%
Preferred............................................................................................... 13.00%
</TABLE>
<TABLE>
<CAPTION>
EQUITY RETURNS ANALYSIS
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Initial Equity Investment $ 137,350
Assumed EBITDA Exit Mult..................................................... 7.0x 7.5x 8.0x
---------- ---------- ----------
2000 Implied Return 16.6% 23.2% 29.1%
2001 Implied Return 23.9% 28.0% 31.7%
2002 Implied Return 27.0% 29.8% 32.4%
<CAPTION>
ACQUISITION MULTIPLES 1997 1998 1999
- ----------------------------------------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Ent. Value / EBITDA.......................................................... 8.2x 7.5x 6.8x
Ent. Value / EBIT............................................................ 15.5 14.9 11.9
<CAPTION>
PRO FORMA CREDIT STATISTICS 1997PF 1998 1999
- ----------------------------------------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
EBITDA / Interest............................................................ 1.7x 2.1x 2.4x
(EBITDA-CapEx) / Interest.................................................... 1.3 1.5 1.7
Bank Debt / EBITDA........................................................... 2.6 2.2 1.8
Total Debt / EBITDA.......................................................... 6.3 5.6 5.0
(Total Debt + Pref.) / EBITDA................................................ 6.6 5.9 5.2
<CAPTION>
SUMMARY FINANCIAL INFORMATION 1997PF 1998 1999
- ----------------------------------------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Revenues..................................................................... $ 166,600 $ 192,500 $ 222,400
EBITDA....................................................................... 64,650 70,510 78,430
EBIT......................................................................... 34,291 35,495 44,553
Net Income (2,366) (2,766) 3,104
</TABLE>
<PAGE>
CONFIDENTIAL PROJECT SHOUT
- --------------------------------------------------------------------------------
PURCHASE PRICE SENSITIVITY--GROWTH MANAGEMENT CASE
(Dollars in thousands)
<TABLE>
<CAPTION>
EBITDA /
Interest Debt/ EBITDA 2001 Equity Return
Purchase price Transaftion Total Seller Equity ------------- ------------- -------------------
of Equity Value Debt Preferred Required 1997PF 1998 1997PF 1998 @7.0X @7.5X @8.0X
-------------- ----------- -------- --------- -------- ------ ---- ------ ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$12.00 $323,505 $458,845 $406,700 $20,219 $69,953 1.7x 1.8x 6.3x 5.6x 45.3% 50.1% 54.4%
12.50 336,985 472,325 406,700 20,219 83,433 1.7 1.8 6.3 5.6 39.5% 44.1% 48.2%
13.00 350,464 485,804 406,700 20,219 96,912 1.7 1.8 6.3 5.6 34.7% 39.1% 43.1%
13.50 363,944 499,284 406,700 20,219 110,391 1.7 1.8 6.3 5.6 30.6% 34.9% 38.8%
14.00 377,423 512,763 406,700 20,219 123,871 1.7 1.8 6.3 5.6 27.0% 31.2% 35.0%
14.50 390,902 526,242 406,700 20,219 137,350 1.7 1.8 6.3 5.6 23.9% 28.0% 31.7%
15.00 404,382 539,722 406,700 20,219 150,830 1.7 1.8 6.3 5.6 21.2% 25.2% 28.8%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONFIDENTIAL PROJECT SHOUT
- ------------------------------------------------------------------------------------------------------------------------
PRO FORMA BALANCE SHEET--GROWTH MANAGEMENT CASE
(Dollars in Thousands)
ADJUSTMENTS
----------------------- PRO FORMA
12/31/97 FINANCING ACCOUNTING 12/31/97
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Assets
Cash................................................................ $ 4,027 $ 564,269 ($ 564,269) $ 4,027
Accounts Receivable................................................. 38,458 38,458
Inventory........................................................... 13,533 13,533
Current Assets...................................................... 5,902 5,902
---------- ---------- ----------- -----------
Total Current Assets.................................................. $ 61,920 $ 564,269 ($ 564,269) $ 61,920
Net PP&E.............................................................. 114,164 0 0 114,164
Goodwill.............................................................. 56,129 0 0 56,129
Deferred Financing Costs.............................................. 0 0 20,975 20,975
Other Assets.......................................................... 16,548 0 0 16,548
---------- ---------- ----------- -----------
Total Assets.......................................................... $ 248,761 $ 564,269 ($ 543,294) $ 269,736
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Accounts Payable...................................................... $ 8,793 $ 0 $ 0 $ 8,793
Other Current Liabilities............................................. 21,531 0 0 21,531
Deferred Income Taxes................................................. 0 0 0 0
Other LT Liabilities.................................................. 29,838 0 0 29,838
Revolver.............................................................. 129,312 0 (129,312) 0
Term A................................................................ 0 166,645 0 166,645
Term B................................................................ 0 0 0 0
Term C................................................................ 0 0 0 0
Exchangeable Debentures............................................... 10,055 10,055 (10,055) 10,055
Senior Sub Note....................................................... 0 200,000 0 200,000
Junior Sub Note....................................................... 0 30,000 0 30,000
---------- ---------- ----------- -----------
Total Liabilities..................................................... $ 199,529 $ 406,700 ($ 139,367) $ 466,862
Preferred............................................................. 0 20,219 0 20,219
Stockholders Equity................................................... 49,232 137,350 (403,927) (217,345)
---------- ---------- ----------- -----------
Total Liabilities & Equity............................................ $ 248,761 $ 564,269 ($ 543,294) $ 269,736
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
0 0 0 0
</TABLE>
<PAGE>
CONFIDENTIAL PROJECT SHOUT
- -------------------------------------------------------------------------------
Pro Forma Credit Statistics
<TABLE>
<CAPTION>
Pro Forma Projected
--------- --------------------------------------------------------------------------
1997 1998 1999 2000 2001 2002 2003
--------- ----------- ------------ ----------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
EBITDA/Interest Expense.......... 1.7x 1.8x 2.1x 2.4x 2.9x 3.6x 4.5x
EBITDA - CapEx/Interest Expense.. 1.3x 1.5x 1.7x 2.0x 2.5x 3.1x 4.1x
EBIT/Interest Expense............ 0.9x 0.9x 1.2x 1.5x 2.0x 2.8x 3.7x
Debt/Total Book Capitalization... -187% -178% -175% -173% -176% -190% -223%
Bank Debt/EBITDA................. 2.6x 2.2x 1.8x 1.3x 0.8x 0.4x 0.0x
Operating Company Debt/EBITDA.... 5.8x 5.1x 4.5x 3.6x 2.8x 2.1x 1.4x
Total Debt/EBITDA................ 6.3x 5.6x 5.0x 4.1x 3.3x 2.6x 1.9x
(Total Debt + Preferred)/EBITDA.. 6.6x 5.9x 5.2x 4.3x 3.5x 2.7x 2.0x
</TABLE>
<PAGE>
Confidential Project SHOUT
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income Statement
(Dollars in Thousands)
Actual Projected
------ ---------------------------------------------------------------
1997 1998 1999 2000 2001 2002 2003
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues........................ $166,600 $192,500 $222,400 $259,100 $304,000 $356,500 $418,067
COGS............................ 68,750 85,290 102,370 123,650 149,940 180,130 211,238
-------- -------- -------- -------- -------- -------- --------
Gross Profit.................... $97,850 $107,210 $120,030 $135,450 $154,060 $176,370 $206,829
SG&A............................ 33,200 36,700 41,600 45,300 49,900 55,400 64,967
-------- -------- -------- -------- -------- -------- --------
EBITDA.......................... $64,650 $70,510 $78,430 $90,150 $104,160 $120,970 $141,862
Depreciation.................. $30,359 $30,462 $29,324 $28,235 $28,796 $22,331 $21,801
New Fees & Goodwill
Amortization................. 0 4,554 4,554 4,554 4,554 4,554 4,554
-------- -------- -------- -------- -------- -------- --------
EBIT............................ $34,291 $35,495 $44,553 $57,362 $70,810 $94,086 $115,508
--------
--------
Net Interest Expense............ 38,234 37,508 37,103 35,903 34,070 31,189
-------- -------- -------- -------- -------- --------
Pretax Income................... ($2,740) $7,044 $20,258 $34,907 $60,016 $84,318
Income Tax Expense............ 27 3,940 9,226 15,086 25,129 34,850
-------- -------- -------- -------- -------- --------
Net Income...................... ($2,766) $3,104 $11,032 $19,822 $34,887 $49,468
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Preferred Dividends on
Seller Paper................. 2,628 2,628 2,628 2,628 2,628 2,628
-------- -------- -------- -------- -------- --------
Net Income Available to Common.. ($5,395) $475 $8,404 $17,193 $32,258 $46,840
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
</TABLE>
<PAGE>
CONFIDENTIAL PROJECT SHOUT
- -------------------------------------------------------------------------------
Balance Sheet
(Dollars in Thousands)
<TABLE>
<CAPTION>
Pro forma Projected
----------------------------------------------------------------------------------
1997 1998 1999 2000 2001 2002 2003
---------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Cash......................... $4,027 $4,027 $4,027 $4,027 $4,027 $4,027 ($3,152)
Accounts Receivable.......... 38,458 42,426 51,182 59,629 69,962 82,044 96,213
Inventory.................... 13,533 14,378 18,679 20,480 22,079 22,237 26,077
Other Current Assets......... 5,902 6,820 7,879 9,179 10,770 12,629 14,811
---------- --------- --------- --------- --------- --------- ---------
Total Current Assets........... $61,920 $67,650 $81,768 $93,315 $106,837 $120,937 $133,949
Net PP&E....................... 114,164 98,702 84,379 71,144 57,348 50,018 43,217
Goodwill....................... 56,129 53,323 50,516 47,710 44,903 42,097 39,290
Deferred Financial Costs....... 20,975 19,228 17,480 15,733 13,985 12,238 10,490
Other Assets................... 16,548 16,548 16,548 16,548 16,548 16,548 16,548
---------- --------- --------- --------- --------- --------- ---------
Total Assets................... $269,736 $255,450 $250,691 $244,449 $239,622 $241,837 $243,495
---------- --------- --------- --------- --------- --------- ---------
---------- --------- --------- --------- --------- --------- ---------
Accounts Payable............... $8,793 $10,908 $13,093 $15,815 $19,177 $23,038 $27,017
Other Current Liabilities...... 21,531 21,531 21,531 21,531 21,531 21,531 21,531
Deferred Income Taxes.......... 0 0 0 0 0 0 0
Other LT Liabilities........... 29,838 29,838 29,838 29,838 29,838 29,838 29,838
Revolver....................... 0 0 0 0 0 0 0
Term A......................... 166,645 151,739 139,912 117,565 86,555 46,292 0
Term B......................... 0 0 0 0 0 0 0
Term C......................... 0 0 0 0 0 0 0
Exchangeable Debentures........ 10,055 10,055 10,055 10,055 10,055 10,055 0
Senior Sub Note................ 200,000 200,000 200,000 200,000 200,000 200,000 200,000
Senior Discount Debentures..... 30,000 33,900 38,307 43,287 48,914 55,273 62,459
---------- --------- --------- --------- --------- --------- ---------
Total Liabilities.............. $466,862 $457,971 $452,736 $438,091 $416,070 $386,027 $340,845
Preferred...................... 20,219 20,219 20,219 20,219 20,219 20,219 20,219
Stockholders Equity............ (217,345) (222,740) (222,264) (213,861) (196,667) (164,409) (117,569)
---------- --------- --------- --------- --------- --------- ---------
Total Liabilities & Equity..... $269,736 $255,450 $250,691 $244,449 $239,622 $241,837 $243,495
---------- --------- --------- --------- --------- --------- ---------
---------- --------- --------- --------- --------- --------- ---------
0 0 0 0 0 0 (0)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONFIDENTIAL PROJECT SHOUT
- ---------------------------------------------------------------------------------------------------------------------------------
Cash Flow Statement
(Dollars in Thousands)
Projected
-----------------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Income .............................. ($2,766) $3,104 $11,032 $19,822 $34,887 $49,468
Depreciation & Amortization............ 35,016 33,878 32,789 33,350 26,885 26,355
Change in Working Capital..............
Change in Accounts Receivable.......... (3,968) (8,757) (8,447) (10,333) (12,082 (14,169)
Change in inventory.................... (845) (4,302) (1,800) (1,599) (158) (3,840)
Change in Accounts Payable............ 2,115 2,185 2,722 3,362 3,861 3,979
Change in Other Short Term............. (918) (1,059) (1,300) (1,591) (1,860) (2,181)
Change in Other Long Term.............. 0 0 0 0 0 0
Change in Deferred Taxes............... 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
Operating Cash Flow...................... $28,635 $25,048 $34,995 $43,012 $51,533 $59,611
CapEx.................................. (15,000) (15,000) (15,000) (15,000) (15,000) (15,000)
------- ------- ------- ------- ------- -------
Investing Activities..................... ($15,000) ($15,000) ($15,000) ($15,000) ($15,000) ($15,000)
Cash Available for Debt Repayment........ $14,906 $11,826 $22,347 $31,011 $40,263 $49,168
Additional Debt Draws / (Repayments)
Revolver.............................. 0 0 0 0 0 0
Term A................................ (14,906) (11,826) (22,347) (31,011) (40,263) (46,292)
Term B................................ 0 0 0 0 0 0
Term C................................ 0 0 0 0 0 0
Senior Note........................... 0 0 0 0 0 (10,055)
Senior Sub Note....................... 0 0 0 0 0 0
Senior Discount Debentures............ 3,900 4,407 4,980 5,627 6,359 7,185
Less: Preferred Dividends Paid........ (2,628) (2,628) (2,628) (2,628) (2,628) (2,628)
------- ------- ------- ------- ------- -------
Financing Activities.................... ($13,635) ($10,048) ($19,995) ($28,012) ($36,533) ($51,790)
Change in Cash.......................... 0 0 0 0 0 (7,179)
Cash at Beginning of Year............... 4,027 4,027 4,027 4,027 4,027 4,027
------- ------- ------- ------- ------- -------
Cash at End of Year..................... $4,027 $4,027 $4,027 $4,027 $4,027 ($3,152)
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
</TABLE>
<PAGE>
TAB
D
<PAGE>
- -------------------------------------------------------------------------------
PREFERRED SHARE VALUATION
- -------------------------------------------------------------------------------
<PAGE>
CONFIDENTIAL PROJECT SHOUT
- -------------------------------------------------------------------------------
PREFERRED SHARE VALUATION
<TABLE>
<CAPTION>
PRESENT VALUE AT VARIOUS DISCOUNT RATES
---------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR PERIOD DIVIDEND 16% 17% 18%
- ---------------------------- --------- --------- --------- --------- ---------
1998 1 0.0488 0.0451 0.0449 0.0447
2 0.0488 0.0418 0.0414 0.0410
1999 3 0.0488 0.0387 0.0382 0.0376
4 0.0488 0.0358 0.0352 0.0345
2000 5 0.0488 0.0332 0.0324 0.0317
6 0.0488 0.0307 0.0299 0.0291
2001 7 0.0488 0.0284 0.0275 0.0267
8 0.0488 0.0263 0.0254 0.0245
2002 9 0.0488 0.0244 0.0234 0.0224
10 0.0488 0.0226 0.0216 0.0206
2003 11 0.0488 0.0209 0.0199 0.0189
12 0.0488 0.0194 0.0183 0.0173
2004 13 0.0488 0.0179 0.0169 0.0159
14 0.0488 0.0166 0.0156 0.0146
2005 15 0.0488 0.0154 0.0143 0.0134
16 0.0488 0.0142 0.0132 0.0123
2006 17 0.0488 0.0132 0.0122 0.0113
18 0.0488 0.0122 0.0112 0.0103
2007 19 0.0488 0.0113 0.0103 0.0095
20 0.0488 0.0105 0.0095 0.0087
2008 21 0.0488 0.0097 0.0088 0.0080
22 0.0488 0.0090 0.0081 0.0073
2009 23 0.0488 0.0083 0.0075 0.0067
24 0.0488 0.0077 0.0069 0.0062
2010 25 0.0488 0.0071 0.0063 0.0057
26 0.0488 0.0066 0.0058 0.0052
2011 27 0.0488 0.0061 0.0054 0.0048
28 0.0488 0.0057 0.0050 0.0044
--------- --------- --------- --------- ---------
Totals... $ 0.5387 $ 0.5151 $ 0.4932
</TABLE>
<PAGE>
TAB
E
<PAGE>
- -------------------------------------------------------------------------------
WACC CALCULATION
- -------------------------------------------------------------------------------
<PAGE>
CONFIDENTIAL PROJECT SHOUT
- -------------------------------------------------------------------------------
COST OF CAPITAL ANALYSIS
(Dollars in Thousands)
ASSUMPTIONS
<TABLE>
<S> <C>
Risk Free Rate (1).................................................................... 5.7%
Market Risk Premium (2)............................................................... 7.4%
Marginal Tax Rate..................................................................... 40.0%
Cost of Target Debt................................................................... 8.5%
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL PROJECTED
REPORTED BETAS BLOOMBERG IDD BARRA BARRA MEAN
- ---------------------------------------------------------------- ------------- --------- ------------- ----------- -----
<S> <C> <C> <C> <C> <C>
Hillenbrand Industries.......................................... 0.58 0.40 0.78 0.81 0.64
DVI Inc......................................................... 0.51 0.42 1.98 1.52 1.11
Kinetic Concepts, Inc........................................... 0.61 0.46 N/ A N/ A 0.54
Leasing Solutions Inc........................................... 0.63 0.46 1.11 1.15 0.84
Cohr Inc........................................................ 1.07 N/ A 1.03 1.21 1.10
SHOUT........................................................... 0.40 0.40
</TABLE>
<TABLE>
<CAPTION>
LEVERED MKT. VAL. BOOK VAL. BOOK VAL. BV DEBT/ BV PREF.
UNLEVERED BETAS BETA EQUITY DEBT PREFERRED MV EQUITY MV EQUITY
- ---------------------------------------- ----------- ------------ ---------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Hillenbrand Industries.................. 0.64 $ 3,336,876 $264,000 $ 0 7.9% 0.0%
DVI Inc................................. 1.11 243,357 521,800 0 214.4% 0.0%
Kinetic Concepts, Inc................... 0.54 781,828 477 0 0.1% 0.0%
Leasing Solutions Inc................... 0.84 191,678 427,000 0 222.8% 0.0%
Cohr Inc................................ 1.10 71,167 1,455 0 2.0% 0.0%
Mean....................................
SHOUT................................... 0.40 $ 293,177 $139,367 $ 0 47.5% 0.0%
<CAPTION>
UNLEVERED
UNLEVERED BETAS BETA
- ---------------------------------------- -------------
<S> <C>
Hillenbrand Industries.................. 0.59
DVI Inc................................. 0.35
Kinetic Concepts, Inc................... 0.53
Leasing Solutions Inc................... 0.26
Cohr Inc................................ 1.08
Mean.................................... 0.56
SHOUT................................... 0.31
</TABLE>
- --------------------------
COST OF EQUITY ESTIMATE
- --------------------------
<TABLE>
<S> <C>
Unlevered Beta........................................................................ 0.56
Target BV Debt/MV Equity.............................................................. 47.5%
Target BV Preferred/MV Equity......................................................... 0.0%
Levered Beta.......................................................................... 0.83
Risk Free Rate........................................................................ 5.7%
Risk Premium.......................................................................... 7.4%
Cost of Equity........................................................................ 11.9%
- --------------------------------------------------------------------------------------------------
WACC Estimate
- --------------------------------------------------------------------------------------------------
SHOUT BV Debt/MV Equity............................................................... 47.5%
SHOUT BV Debt/Total Market Capitalization............................................. 32.2%
SHOUT MV Equity/Total Market Capitalization........................................... 67.8%
Cost of Debt.......................................................................... 8.5%
Cost of Equity........................................................................ 11.9%
WACC.................................................................................. 10.8%
</TABLE>
Notes:
- ------------------------
(1) Based on 30 year U.S. treasury bond rate.
(2) Source: Ibbotson arithmetic market premium, 1926--1995.
(3) Assumes Shout capital structure is industry optimal capital structure.
<PAGE>
MEDIQ INCORPORATED
ONE MEDIQ PLAZA
PENNSAUKEN, NEW JERSEY, 08110-1460
, 1998
Dear Fellow Stockholders:
You are cordially invited to attend a Special Meeting of the stockholders of
MEDIQ Incorporated (the "Company") to vote on the proposed merger (the "Merger")
of the Company with MQ Acquisition Corporation, a Delaware corporation ("MQ")
that has been organized by Bruckmann, Rosser, Sherrill & Co., L.P. Details of
the Merger are discussed in the enclosed Proxy Statement/Prospectus (the "Proxy
Statement/Prospectus"), the forepart of which includes a summary of the terms of
the Merger and certain other information relating to the proposed transactions.
At the special meeting, you will be asked to approve and adopt the Agreement
and Plan of Merger, dated as of January 14, 1998 (the "Merger Agreement"), and
the transactions contemplated thereby. A copy of the Merger Agreement is
attached as Annex I to the enclosed Proxy Statement/Prospectus. Please carefully
read the accompanying Proxy Statement/Prospectus, which contains a detailed
description of the Merger and the Merger Agreement.
On January 14, 1998, a Special Committee of the Board of Directors (the
"Special Committee") and the Board of Directors of the Company, by unanimous
vote (i) determined that the Merger, the Merger Agreement and the transactions
contemplated thereby are fair to and in the best interests of the holders of
MEDIQ Common Stock, (ii) determined that the Merger, the Merger Agreement and
the transactions contemplated thereby are fair to and in the best interests of
the holders of MEDIQ Preferred Stock, and (iii) recommended that holders of
MEDIQ Common Stock and holders of MEDIQ Preferred Stock each approve the Merger,
the Merger Agreement and the transactions contemplated thereby.
The Merger requires the approval at the Special Meeting of (i) the holders
of a majority of the outstanding voting power of the MEDIQ Common Stock and the
MEDIQ Preferred Stock, voting together as a single class and (ii) the holders of
a majority of the outstanding shares of MEDIQ Preferred Stock. Pursuant to
stockholder agreements between MQ and certain stockholders of the Company,
holders of 4,701,464 shares of Common Stock and 4,730,006 shares of MEDIQ
Preferred Stock, representing approximately 24% of the outstanding MEDIQ Common
Stock (without giving effect to the conversion of any shares of MEDIQ Preferred
Stock into shares of MEDIQ Common Stock), 75% of the outstanding MEDIQ Preferred
Stock and approximately 63% of the total combined voting power of the MEDIQ
Common Stock and the MEDIQ Preferred Stock voting together as a single class (in
each case without giving effect to the exercise of any outstanding options to
acquire MEDIQ Stock) have agreed to vote their shares in favor of the Merger,
the Merger Agreement and the other actions contemplated thereby, subject to the
terms and conditions thereof. The affirmative vote of the shares of MEDIQ Stock
subject to the stockholder agreements will be sufficient to approve the Merger
and the Merger Agreement.
<PAGE>
On behalf of the Board of Directors, I wish to thank you for your support.
The Special Meeting will be held at the Company's corporate headquarters,
One MEDIQ Plaza, Pennsauken, New Jersey, 08110-1460 on , 1998,
beginning at 9:00 a.m.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE AND
SIGN THE ENCLOSED PROXY CARD AND RETURN IT AS SOON AS POSSIBLE IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
Very truly yours,
Thomas E. Carroll
PRESIDENT AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
MEDIQ INCORPORATED
ONE MEDIQ PLAZA
PENNSAUKEN, NEW JERSEY, 08110-1460
(609) 662-3200
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD , 1998
------------------------
To the Stockholders of MEDIQ Incorporated:
NOTICE IS HEREBY GIVEN that a Special Meeting of stockholders (including any
adjournments or postponements thereof, the "Special Meeting") of MEDIQ
Incorporated, a Delaware corporation (the "Company"), will be held at the
Company's corporate headquarters located at One MEDIQ Plaza, Pennsauken, New
Jersey, 08110-1460, on , 1998, beginning at 9:00 a.m., for the
following purposes, which are more fully described in the accompanying Proxy
Statement/Prospectus (the "Proxy Statement/Prospectus"):
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of January 14, 1998 (the "Merger
Agreement"), between the Company and MQ Acquisition Corporation, a Delaware
corporation ("MQ") organized by Bruckmann, Rosser, Sherrill & Co., L.P., and
the transactions contemplated thereby, including the merger of MQ with and
into the Company (the "Merger"), with the Company as the surviving
corporation (the "Surviving Corporation"). Pursuant to the Merger, each
share of common stock, par value $1.00 per share, of the Company (the "MEDIQ
Common Stock") and each share of Series A preferred stock, par value $.50
per share, of the Company (the "MEDIQ Preferred Stock" and, collectively
with the MEDIQ Common Stock, the "MEDIQ Shares" or the "MEDIQ Stock") issued
and outstanding immediately prior to the effective time of the Merger (the
"Effective Time") will be converted into the right to receive (i) $13.75 in
cash, without interest, and (ii) 0.075 of a share of the Surviving
Corporation's Series A 13% Cumulative Compounding Preferred Stock, par value
$.01 per share with a liquidation preference of $10.00 per share ("Series A
Preferred Stock"), except for the MEDIQ Shares owned directly or indirectly
by MQ or the Company and dissenting shares. Each MEDIQ Share that is issued
and outstanding immediately prior to the Effective Time and owned by MQ or
the Company or any direct or indirect subsidiary of MQ or the Company will
be canceled and no payments or any consideration will be made with respect
thereto. See "THE MERGER--Merger Consideration" in the accompanying Proxy
Statement/Prospectus. A copy of the Merger Agreement (including the
principal exhibits thereto) is attached as Annex I to the accompanying Proxy
Statement/Prospectus.
2. To transact such other and further business as may properly come
before the Special Meeting.
The Merger requires the approval at the Special Meeting of (i) the holders
of a majority of the outstanding voting power of the MEDIQ Common Stock and the
MEDIQ Preferred Stock, voting together as a single class, and (ii) the holders
of a majority of the outstanding shares of MEDIQ Preferred Stock. Pursuant to
stockholder agreements between MQ and certain stockholders of the Company,
holders of approximately 4,701,464 shares of Common Stock and 4,730,006 shares
of MEDIQ Preferred Stock, representing approximately 24% of the outstanding
MEDIQ Common Stock (without giving effect to the conversion of any shares of
MEDIQ Preferred Stock into shares of MEDIQ Common Stock), 75% of the outstanding
MEDIQ Preferred Stock and approximately 63% of the total combined voting power
of the MEDIQ Common Stock and the MEDIQ Preferred Stock voting together as a
single class (in each case without giving effect to the exercise of any
outstanding options to acquire MEDIQ Stock) have agreed to vote their shares in
favor of the Merger, the Merger Agreement and the other actions contemplated
thereby, subject to the terms and conditions thereof. The affirmative vote of
the shares of MEDIQ Stock subject to the stockholders agreements will be
sufficient to approve the Merger and the Merger Agreements.
<PAGE>
The record date for the determination of stockholders entitled to notice of,
and to vote at, the Special Meeting is , 1998 (the "Record Date").
Only holders of record of shares of MEDIQ Stock at the close of business on the
Record Date are entitled to notice of, and to vote at, the Special Meeting. A
list of the stockholders entitled to vote at the Special Meeting will be
available for examination by any holder of MEDIQ Stock, for proper purposes,
during normal business hours, at the Company's corporate headquarters, One MEDIQ
Plaza, Pennsauken, New Jersey, 08110-1460, for a period of 10 days prior to the
Special Meeting and continuing through the date of the Special Meeting.
Holders of MEDIQ Common Stock and MEDIQ Preferred Stock who do not vote in
favor of the Merger and who comply with the applicable provisions of the
Delaware General Corporation Law will be entitled to dissenters' rights of
appraisal in connection with the Merger. The full text of Section 262 of the
Delaware General Corporation Law relating to the rights of stockholders to
dissent from the Merger is attached as Annex III to the accompanying Proxy
Statement/Prospectus.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE SIGN, DATE AND
RETURN THE ENCLOSED PROXY WITHOUT DELAY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO ITS EXERCISE. IF YOU ARE PRESENT
AT THE SPECIAL MEETING OR ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF, YOU MAY
REVOKE YOUR PROXY AND VOTE PERSONALLY ON ANY MATTERS PROPERLY BROUGHT BEFORE THE
SPECIAL MEETING.
BY ORDER OF THE BOARD OF DIRECTORS
Eugene M. Schloss, Jr.
SECRETARY
, 1998
------------------------
PLEASE SIGN AND DATE THE ENCLOSED PROXY AND
RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE
2
<PAGE>
MEDIQ INCORPORATED
ONE MEDIQ PLAZA
PENNSAUKEN, NEW JERSEY 08110-1460
PROXY STATEMENT/PROSPECTUS
------------------------
This Proxy Statement/Prospectus (the "Proxy Statement/Prospectus") is being
furnished to stockholders of MEDIQ Incorporated, a Delaware corporation ("MEDIQ"
or the "Company"), in connection with the solicitation of proxies by the Board
of Directors of the Company for use at the Special Meeting of stockholders of
the Company, including any adjournments or postponements thereof, scheduled to
be held on , 1998 at 9:00 a.m., at the Company's corporate
headquarters located at One MEDIQ Plaza, Pennsauken, NJ 08110-1460 (the "Special
Meeting"). This Proxy Statement/Prospectus relates to the proposed merger (the
"Merger") of MQ Acquisition Corporation, a Delaware corporation ("MQ") that has
been organized by Bruckmann, Rosser, Sherrill & Co., L.P. ("BRS"), with and into
the Company with the Company as the surviving corporation (the "Surviving
Corporation") pursuant to the Agreement and Plan of Merger, dated as of January
14, 1998 (the "Merger Agreement"), between MQ and the Company, and the
transactions contemplated thereby.
Pursuant to the Merger, each share of common stock, par value $1.00 per
share, of the Company (the "MEDIQ Common Stock") and each share of Series A
preferred stock, par value $.50 per share, of the Company (the "MEDIQ Preferred
Stock" and, collectively with the MEDIQ Common Stock, the "MEDIQ Shares" or the
"MEDIQ Stock") issued and outstanding immediately prior to the effective time of
the Merger (the "Effective Time") will be converted into the right to receive
(i) $13.75 in cash, without interest, and (ii) 0.075 of a share of the Surviving
Corporation's Series A 13% Cumulative Compounding Preferred Stock, par value
$.01 per share with a liquidation preference of $10.00 per share (the "Series A
Preferred Stock") (such cash and Series A Preferred Stock, the "Merger
Consideration"), except for MEDIQ Shares owned directly or indirectly by MQ or
the Company and Dissenting Shares (as defined in "CERTAIN PROVISIONS OF THE
MERGER AGREEMENT--Dissenting Shares"). Each MEDIQ Share that is issued and
outstanding immediately prior to the Effective Time and owned by MQ or the
Company or any direct or indirect subsidiary of MQ or the Company, will be
canceled and no payments or any consideration will be made with respect thereto.
See "THE MERGER--Merger Consideration." As a consequence of the Merger, BRS,
together with other co-investors selected by BRS, will hold a majority of the
outstanding shares of each class of capital stock of the Company. A copy of the
Merger Agreement is attached as Annex I to this Proxy Statement/Prospectus.
This Proxy Statement/Prospectus also constitutes a prospectus of the Company
with respect to the shares of Series A Preferred Stock of the Surviving
Corporation to be issued in the Merger.
The Merger requires the approval at the Special Meeting of (i) the holders
of a majority of the outstanding voting power of the MEDIQ Common Stock and the
MEDIQ Preferred Stock, voting together as a single class, and (ii) the holders
of a majority of the shares of outstanding MEDIQ Preferred Stock. Pursuant to
stockholder agreements between MQ and certain stockholders of the Company,
holders of 4,701,464 shares of MEDIQ Common Stock and 4,730,006 shares of MEDIQ
Preferred Stock, representing approximately 24% of the outstanding MEDIQ Common
Stock (without giving effect to the conversion of any shares of MEDIQ Preferred
Stock into shares of MEDIQ Common Stock), 75% of the outstanding MEDIQ Preferred
Stock and approximately 63% of the total combined voting power of the MEDIQ
Common Stock and the MEDIQ Preferred Stock voting together as a single class (in
each case excluding treasury shares and without giving effect to the exercise of
any outstanding options to acquire MEDIQ Stock), have agreed to vote their
shares in favor of the Merger, the Merger Agreement and the other actions
contemplated thereby, subject to the terms and conditions thereof. See "THE
STOCKHOLDER AGREEMENTS." The affirmative vote of the shares of MEDIQ Stock
subject to the stockholders agreements will be sufficient to approve the Merger
and the Merger Agreement. Holders of MEDIQ Common Stock and MEDIQ Preferred
Stock who do not vote in favor of the Merger and who comply with the applicable
provisions of the Delaware General Corporation Law (the "DGCL") will be entitled
to dissenters' rights of appraisal in connection with the Merger as described
herein. See "DISSENTING STOCKHOLDERS' RIGHTS."
On January 14, 1998, a Special Committee of the Board of Directors (the
"Special Committee") and the Board of Directors (the "Board") of the Company,
each by unanimous vote of those directors present (who constituted all of the
directors then in office) (i) determined that the Merger, the Merger Agreement
and the transactions contemplated thereby are fair to and in the best interests
of the holders of MEDIQ Common Stock, (ii) determined that the Merger, the
Merger Agreement and the transactions contemplated thereby are fair to and in
the best interests of the holders of MEDIQ Preferred Stock, and (iii)
recommended that holders of MEDIQ Common Stock and holders of MEDIQ Preferred
Stock each approve the Merger, the Merger Agreement and the transactions
contemplated thereby.
MEDIQ Common Stock is listed for trading on the American Stock Exchange (the
"AMEX") under the symbol "MED." MEDIQ Preferred Stock is listed for trading on
the AMEX under the symbol "MED.Pr". On , 1998, the last reported sale
price of MEDIQ Common Stock was $ per share and the last reported sale
price of MEDIQ Preferred Stock was $ per share. On January 14, 1998, the
last trading day before public announcement of the execution of the Merger
Agreement, the last sale price of MEDIQ Common Stock as reported on the AMEX was
$11.00 per share. On December 16, 1997, the last day MEDIQ Preferred Stock was
traded before public announcement of the execution of the Merger Agreement, the
last sale price of MEDIQ Preferred Stock as reported on the AMEX was $11.50 per
share (and the last sale price of MEDIQ Common Stock on such date was $11.56).
If the Merger is consummated, the Company anticipates that none of the shares of
the Surviving Corporation's capital stock will be listed on the AMEX or any
other national securities exchange and will not be quoted on the NASDAQ Stock
Market. See "RISK FACTORS--Delisting of MEDIQ Common Stock and MEDIQ Preferred
Stock From AMEX; Uncertainty Regarding Liquidity and Market Price for Series A
Preferred Stock."
This Proxy Statement/Prospectus, the accompanying form of proxy and the
other enclosed documents are first being mailed to holders of MEDIQ Stock on or
about , 1998.
------------------------------
SEE "SPECIAL FACTORS" BEGINNING ON PAGE AND "RISK FACTORS" BEGINNING ON
PAGE FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS
OF MEDIQ STOCK IN CONNECTION WITH THEIR CONSIDERATION OF THE MERGER.
---------------------
NEITHER THIS TRANSACTION NOR THESE SECURITIES HAVE BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION. NEITHER THE SECURITIES AND EXCHANGE COMMISSION
NOR ANY STATE SECURITIES COMMISSION HAS PASSED UPON THE FAIRNESS
OR MERITS OF THIS TRANSACTION NOR UPON THE ACCURACY OR
ADEQUACY OF THE INFORMATION CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS , 1998.
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TABLE OF CONTENTS
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AVAILABLE INFORMATION...................................................................................... 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................................................ 2
FORWARD-LOOKING STATEMENTS................................................................................. 2
SUMMARY.................................................................................................... 3
The Parties.............................................................................................. 3
The Special Meeting...................................................................................... 4
The Merger............................................................................................... 7
Certain Federal Income Tax Consequences.................................................................. 10
Treatment of MEDIQ Stock Options......................................................................... 10
Interests of Certain Persons in the Merger............................................................... 11
Stockholder Agreements................................................................................... 12
Stock Option Agreement................................................................................... 12
The Rollover Agreement................................................................................... 13
Dissenting Stockholders' Appraisal Rights................................................................ 13
Market Price Information................................................................................. 13
The Transactions......................................................................................... 14
Selected Consolidated Historical Financial Data.......................................................... 16
SPECIAL FACTORS............................................................................................ 19
Background of the Merger................................................................................. 19
Recommendation of the Special Committee and the Board of Directors; Reasons for the Merger............... 25
Purposes and Reasons of BRS and MQ for the Merger........................................................ 27
Position of BRS and MQ as to Fairness of the Merger Transaction.......................................... 27
Purposes and Reasons of the Rotko Entities in Agreeing to the Merger..................................... 28
Position of the Rotko Entities and Mr. Carroll as to Fairness of the Merger.............................. 28
Interests of Certain Persons in the Merger............................................................... 28
Anticipated Accounting Treatment......................................................................... 31
Federal Income Tax Consequences.......................................................................... 31
Opinion of the Company's Financial Advisor............................................................... 34
Forecasts; Limits of Reliability......................................................................... 38
RISK FACTORS............................................................................................... 41
Substantial Leverage; Stockholders' Deficit; Liquidity................................................... 41
Control of the Company................................................................................... 42
Delisting of MEDIQ Common Stock and MEDIQ Preferred Stock From AMEX; Uncertainty Regarding Liquidity and
Market Price for Series A Preferred Stock.............................................................. 42
Limited Voting Rights.................................................................................... 43
Restrictions on the Payment of Dividends................................................................. 43
Possible Termination of Exchange Act Reporting........................................................... 44
THE SPECIAL MEETING........................................................................................ 45
Matters to be Considered................................................................................. 45
Required Votes........................................................................................... 45
Voting and Revocation of Proxies......................................................................... 46
Record Date; Stock Entitled to Vote; Quorum.............................................................. 46
Solicitation of Proxies.................................................................................. 47
Dissenters' Rights....................................................................................... 47
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THE MERGER................................................................................................. 48
The Parties.............................................................................................. 48
Effective Time........................................................................................... 48
Merger Consideration..................................................................................... 48
Conversion of MQ Stock................................................................................... 48
Exchange of Shares....................................................................................... 49
Fractional Shares........................................................................................ 49
Conduct of Business Pending the Merger................................................................... 50
Conditions to the Consummation of the Merger............................................................. 50
Regulatory Approvals..................................................................................... 51
Effect on Stock and Employee Benefit Matters............................................................. 52
Directors and Officers of the Surviving Corporation...................................................... 51
AMEX De-Listing.......................................................................................... 52
Resale of MEDIQ Preferred Stock Following the Merger..................................................... 52
SOURCES AND AMOUNT OF FUNDS................................................................................ 53
Description of New Credit Facility....................................................................... 53
Description of the Offerings............................................................................. 55
MARKET PRICE AND DIVIDEND INFORMATION...................................................................... 59
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS...................................................... 60
CAPITALIZATION............................................................................................. 67
THE COMPANY................................................................................................ 68
Stockholder Litigation................................................................................... 69
DESCRIPTION OF MEDIQ CAPITAL STOCK PRIOR TO THE MERGER..................................................... 69
General.................................................................................................. 69
MEDIQ Common Stock....................................................................................... 69
MEDIQ Preferred Stock.................................................................................... 70
DESCRIPTION OF MEDIQ CAPITAL STOCK FOLLOWING THE MERGER.................................................... 70
General.................................................................................................. 70
Common Stock............................................................................................. 71
Preferred Stock.......................................................................................... 71
Series A Preferred Stock................................................................................. 72
Series B Preferred Stock................................................................................. 76
Series C Preferred Stock................................................................................. 77
CERTAIN PROVISIONS OF THE MERGER AGREEMENT................................................................. 79
The Merger............................................................................................... 79
Certificate of Incorporation and Bylaws.................................................................. 79
Directors................................................................................................ 79
Merger Consideration..................................................................................... 79
Dissenting Shares........................................................................................ 80
Option Consideration..................................................................................... 80
Exchange of MEDIQ Shares................................................................................. 80
Adjustment of Merger Consideration and Option Consideration.............................................. 83
Representations and Warranties........................................................................... 83
No Solicitation of Alternative Transactions.............................................................. 83
Certain Covenants........................................................................................ 85
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Employee Benefits........................................................................................ 87
Indemnification.......................................................................................... 87
Financing................................................................................................ 88
Conditions............................................................................................... 88
Termination.............................................................................................. 91
Expenses................................................................................................. 92
Amendment and Waiver..................................................................................... 92
STOCK OPTION AGREEMENT..................................................................................... 93
General.................................................................................................. 93
Termination.............................................................................................. 94
Exercise of Option....................................................................................... 94
THE STOCKHOLDER AGREEMENTS................................................................................. 95
General.................................................................................................. 95
Agreement Not to Transfer................................................................................ 96
Certain Covenants of the Rotko Entities.................................................................. 96
Termination.............................................................................................. 96
THE ROLLOVER AGREEMENT..................................................................................... 96
MANAGEMENT OF SURVIVING CORPORATION AND OTHER TRANSACTIONS................................................. 99
Directors and Officers of the Surviving Corporation...................................................... 99
Security Ownership of Certain Beneficial Owners and Management........................................... 99
REGULATORY APPROVALS....................................................................................... 102
DISSENTING STOCKHOLDERS' RIGHTS............................................................................ 102
LEGAL MATTERS.............................................................................................. 104
EXPERTS.................................................................................................... 104
OTHER INFORMATION AND STOCKHOLDER PROPOSALS................................................................ 105
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SCHEDULE I................. Certain Information Regarding MQ Acquisition
Corporation and Bruckmann, Rosser, Sherrill &
Co., L.P.
ANNEX I.................... Agreement and Plan of Merger
ANNEX II................... Opinion of Salomon Smith Barney
ANNEX III.................. Excerpts from Delaware General Corporation Law
Relating to Dissenters' Rights
ANNEX IV................... Restated Certificate of Incorporation of the
Surviving Corporation (including Certificate of
Designation, Preferences and Rights for Series
A 13.0% Cumulative Compounding Preferred Stock;
Certificate of Designation, Preferences and
Rights For Series B 13.25% Cumulative
Compounding Perpetual Preferred Stock; and
Certificate of Designation, Preferences and
Rights for Series C 13.5% Cumulative
Compounding Preferred Stock)
ANNEX V.................... Stock Option Agreement
ANNEX VI................... The Stockholder Agreements
ANNEX VII.................. The Rollover Agreement
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NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN AS CONTAINED IN THIS PROXY STATEMENT/ PROSPECTUS, IN
CONNECTION WITH THE MERGER, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MAY NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY,
MQ OR BRS. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES TO WHICH IT RELATES IN ANY
JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS
NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR
IN THE AFFAIRS OF THE COMPANY (OR ANY SUBSIDIARY THEREOF) SINCE THE DATE HEREOF.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). MQ is not subject to the
informational requirements of the Exchange Act. Reports, proxy statements and
other information filed by the Company with the Commission can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 or at its
regional offices located at Citicorp Center, Suite 1400, Chicago, Illinois
60661, and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of
such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants, including
the Company, that file electronically with the Commission at http://www.sec.gov.
The MEDIQ Shares are listed on the American Stock Exchange (the "AMEX"), and
reports, proxy statements and other information concerning the Company may be
inspected and copied at the offices of the American Stock Exchange, 86 Trinity
Place, New York, NY 10006-1881.
This Proxy Statement/Prospectus also constitutes a Prospectus of the Company
filed as part of a Registration Statement on Form S-4 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act").
This Proxy Statement/Prospectus omits certain information contained in the
Registration Statement and the exhibits thereto in accordance with the rules and
regulations of the Commission. Reference is made to the Registration Statement
and related exhibits for further information with respect to the Company and
MEDIQ Shares. Statements contained in this Proxy Statement/ Prospectus as to the
contents of any contract or document are not necessarily complete and in each
instance reference is made to the copy of the document filed as an exhibit to
the Registration Statement or otherwise filed with the Commission, each such
statement being qualified in all respects by such reference.
A copy of each report and opinion referred to in this Proxy
Statement/Prospectus will be made available for inspection and copying at the
principal executive offices of the Company during its regular business hours by
any interested equity security holder of the Company or his representative who
has been so designated in writing.
Pursuant to the requirements of Section 13(e) of the Exchange Act and Rule
13e-3 promulgated thereunder, the Company, as the issuer of the class of equity
securities which is the subject of a Rule 13e-3 transaction, three trusts that
are holders of record of certain securities of the Company, certain trustees of
such trusts, the President and Chief Executive Officer of the Company, MQ and
BRS have filed with the Commission a Transaction Statement on Schedule 13E-3
(the "Schedule 13E-3") with respect to the Merger. As permitted by the rules and
regulations of the Commission, this Proxy Statement/Prospectus omits certain
information contained in the Schedule 13E-3 and the exhibits thereto. The
Schedule 13E-3 and the exhibits thereto may be inspected at and obtained from
the Commission and from the Company in the manner set forth above.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF ANY SUCH DOCUMENTS
RELATING TO THE COMPANY, OTHER THAN EXHIBITS TO SUCH DOCUMENTS (UNLESS SUCH
EXHIBITS SPECIFICALLY ARE INCORPORATED BY REFERENCE IN SUCH DOCUMENTS), ARE
AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM MEDIQ INCORPORATED,
ONE MEDIQ PLAZA, PENNSAUKEN, NEW JERSEY 08110-1460, ATTENTION: INVESTOR
RELATIONS. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS REQUESTED, ANY
SUCH REQUEST SHOULD BE MADE BY , 1998.
The following documents previously filed by the Company (File No. 1-8147)
with the Commission are incorporated in this Proxy Statement/Prospectus by
reference:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1997, as amended by the Company's Report on Form 10-K-A filed
on January 28, 1998.
(2) The description of MEDIQ Common Stock and MEDIQ Preferred Stock set
forth in the Company's Registration Statement on Form 8-A previously filed
with the Commission.
(3) The Company's Current Report on Form 8-K filed on January 21, 1998.
All reports and other documents subsequently filed by the Company pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the date of
the Special Meeting shall be deemed to be incorporated by reference herein and
to be part hereof from the date of the filing of such reports and documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement/Prospectus to the extent that a statement
contained herein, or in any other subsequently filed document that also is or is
deemed to be incorporated by reference herein, modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute part of this Proxy
Statement/Prospectus.
FORWARD-LOOKING STATEMENTS
Except for the historical information contained or incorporated by reference
in this Proxy Statement/ Prospectus, the matters discussed or incorporated by
reference herein are 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. The
forward-looking statements contained herein involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by these
forward-looking statements. The material factors known to the Company are
general economic and business conditions, competition with other companies and
other factors set forth in "RISK FACTORS" and elsewhere in this Proxy
Statement/Prospectus and in the documents incorporated by reference herein.
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SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS PROXY STATEMENT/ PROSPECTUS. REFERENCE IS MADE TO THE MORE DETAILED
INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT/PROSPECTUS AND THE ANNEXES HERETO. STOCKHOLDERS OF THE COMPANY ARE
URGED TO READ THIS PROXY STATEMENT/PROSPECTUS AND THE ANNEXES HERETO CAREFULLY
AND IN THEIR ENTIRETY.
FOR A DISCUSSION OF CERTAIN IMPORTANT FACTORS THAT SHOULD BE CONSIDERED BY
STOCKHOLDERS OF THE COMPANY IN CONNECTION WITH THEIR CONSIDERATION OF THE
MERGER, INCLUDING CERTAIN RISKS RELATED TO THE SHARES OF SERIES A PREFERRED
STOCK TO BE RECEIVED BY STOCKHOLDERS OF THE COMPANY PURSUANT TO THE MERGER, SEE
"SPECIAL FACTORS" AND "RISK FACTORS."
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THE PARTIES
The Company....................... The Company is a Delaware corporation that, 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. The Company also
sells a variety of disposable products, accessories and
repair parts associated with its rental equipment and
also provides outsourcing services such as logistics and
distribution services, asset management, consulting and
administrative services to health care providers. The
address and principal business office of the Company is
One MEDIQ Plaza, Pennsauken, New Jersey, 08110-1460.
BRS............................... BRS is a Delaware limited partnership principally
engaged in the business of investing in companies. The
address of the principal business offices of BRS is c/o
Bruckmann, Rosser, Sherrill & Co., Inc., 126 East 56th
Street, New York, NY 10022.
MQ................................ MQ, a Delaware corporation organized by BRS, was
organized in connection with the Merger and has not
carried on any activities to date other than those
incident to its formation and the transactions
contemplated by the Merger Agreement. The address and
principal business office of MQ is c/o Bruckmann,
Rosser, Sherrill & Co., Inc. 126 East 56th Street, New
York, NY 10022.
The Rotko Entities................ The Rotko Entities consist of (i) a trust established on
November 18, 1983 by the late Bernard B. Rotko, the
Company's founder, for the benefit of certain members of
his family (the "Rotko 1983 Trust"), (ii) Michael J.
Rotko, the son of Bernard B. Rotko, the chairman of the
Company's Board of Directors and a trustee of the Rotko
1983 Trust, (iii) Bessie G. Rotko, the spouse of Bernard
B. Rotko and a trustee of the Rotko 1983 Trust and (iv)
Judith M. Shipon, the daughter of Bernard B. Rotko and a
trustee of the Rotko 1983 Trust. The address of each of
the Rotko Entities is c/o Schnader Harrison Segal &
Lewis, 1600 Market Street, Suite 3600, Philadelphia, PA
19103-7286, Attention John D. Iskrant, Esquire.
The Management Stockholders....... Mr. Thomas E. Carroll, President and Chief Executive
Officer of the Company, Mr. Jay M. Kaplan, Senior Vice
President and Chief Financial Officer of the Company and
certain other members of the management of the Company
(the "Management Stockholders") will own shares of the
capital
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stock of the Surviving Corporation, including common
stock of the Surviving Corporation, after the Effective
Time. The address of each of them is c/o MEDIQ
Incorporated, One MEDIQ Plaza, Pennsauken, New Jersey,
08110-1460
THE SPECIAL MEETING
Time and Place; Record Date....... A Special Meeting of the stockholders of the Company has
been scheduled for , 1998, at 9:00 a.m. at
the Company's corporate headquarters, One MEDIQ Plaza,
Pennsauken, NJ 08110-1460. Stockholders of record at the
close of business on , 1998 (the "Record
Date") will be entitled to notice of, and to vote at,
the Special Meeting. The date of the mailing of this
Proxy Statement/Prospectus to stockholders of the
Company will be on or about , 1998. At the
close of business on the Record Date, there were
outstanding and entitled to vote shares of MEDIQ
Common Stock and shares of MEDIQ Preferred Stock.
Matters to be Considered.......... The purpose of the Special Meeting is to vote upon a
proposal to approve and adopt the Merger Agreement and
the transactions contemplated thereby, including the
Merger, pursuant to which (a) MQ will merge with and
into the Company, with the Company as the Surviving
Corporation, (b) the stockholders of the Company will
receive the Merger Consideration, other than with
respect to MEDIQ Shares owned by MQ, the Company or any
direct or indirect subsidiary of MQ or the Company
(which shares will be canceled and no consideration paid
with respect thereto), and (c) the shares of capital
stock of MQ, all of which will be owned immediately
prior to the Effective Time of the Merger by BRS and
certain persons affiliated with BRS (collectively, the
"BRS Holders"), other co-investors selected by BRS or
Management Stockholders, will be converted into shares
of capital stock of the Surviving Corporation as
described herein. As a consequence of the Merger, the
BRS Holders, together with the other co-investors
selected by BRS (collectively, the BRS Holders and any
such co-investors, the "Investors"), will hold a
majority of the outstanding shares of each class of
capital stock of the Company. See "The Merger--
Conversion of MQ Stock."
Required Votes.................... Approval of the Merger and the Merger Agreement requires
(i) the affirmative vote of the holders of a majority of
the outstanding voting power of the MEDIQ Common Stock
and the MEDIQ Preferred Stock, voting together as a
single class and (ii) the affirmative vote of the
holders of a majority of the outstanding shares of MEDIQ
Preferred Stock. With respect to the vote referred to in
clause (i), holders of MEDIQ Common Stock are entitled
to one vote for each share owned by such holder and
holders of MEDIQ Preferred Stock are entitled to ten
votes for each share owned by such holder.
The Rotko Entities collectively own 4,701,464 shares of
MEDIQ Common Stock and 4,730,006 shares of MEDIQ
Preferred Stock, representing approximately 24% of the
outstanding MEDIQ Common Stock (without giving effect to
the conversion of any shares of MEDIQ Preferred Stock
into shares of MEDIQ Common Stock), 75% of the
outstanding MEDIQ Preferred Stock and approximately 63%
of the total combined voting
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power of the MEDIQ Common Stock and the MEDIQ Preferred
Stock, voting together as a single class (in each case
without giving effect to the exercise of any outstanding
options to acquire MEDIQ Stock). Each Rotko Entity has
entered into a stockholder agreement pursuant to which
each has agreed, subject to certain limitations, that
all of the MEDIQ Stock beneficially owned by each Rotko
Entity will be voted (or caused to be voted) in favor of
the Merger Agreement and the transactions contemplated
thereby, including the Merger (collectively, the
"Stockholder Agreements"). See "THE SPECIAL
MEETING--Required Votes" and "THE STOCKHOLDER
AGREEMENTS." The affirmative vote of the shares of MEDIQ
Stock subject to the Stockholder Agreements will be
sufficient to approve the Merger and the Merger
Agreement.
Risks of the Transaction.......... The transaction entails certain special risks with
respect to the shares of Series A Preferred Stock to be
received by holders of MEDIQ Stock in the Merger, in
addition to those risks that are inherent in the
Company's business. The special risks include (i) the
fact that a majority of the outstanding shares of each
class of capital stock of the Surviving Corporation will
be held by the Investors and such persons will therefore
control the Company and have the power to elect a
majority of its directors, appoint new management and
approve any action requiring the approval of the holders
of a majority of any class of its capital stock, (ii)
termination of the listing of the Company's securities
on the AMEX, with the expectation that such delisting,
coupled with concentration of ownership in the Investors
and the Management Stockholders, may prevent the
existence or development of an active trading market for
the Series A Preferred Stock after the Merger, and (iii)
the substantial increase in the consolidated
indebtedness of the Company and its subsidiaries in
connection with the Merger, with the result that
following the Merger stockholders' equity will decline
from its present level to a deficit of $322 million on a
pro forma basis as if such transaction had occurred on
September 30, 1997 and negatively affect the Company's
earnings due to substantially increased interest costs
(with the further possibility that the equity and income
impairments could adversely affect the Company's ability
to achieve its business strategies and prospects or to
pay dividends on the Series A Preferred Stock to be
issued in the Merger). In addition, the Company's
ability to declare and pay dividends may also be limited
by the terms of the financing arrangements the Company
will enter into as part of the Merger. See "RISK
FACTORS."
Voting of Proxies................. Shares of MEDIQ Stock represented by a properly executed
proxy in the form accompanying this Proxy Statement/
Prospectus ("Proxy") received in time for the Special
Meeting will be voted in the manner specified in the
Proxy. Proxies that do not contain any instruction to
vote for or against or to abstain from voting on a
particular matter will be voted in favor of such matter.
Abstentions and broker non-votes will be counted as
present for the purposes of determining whether a quorum
is present but will not be counted as votes cast in
favor of the Merger Agreement. Because the outcome of
the vote on the
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Merger Agreement and the transactions contemplated
thereby, including the Merger, is based on the
percentage of affirmative votes entitled to be cast by
the holders of all outstanding shares of MEDIQ Preferred
Stock and MEDIQ Stock, abstentions and broker non-votes
will have the same effect as a vote against this
proposal. See "THE SPECIAL MEETING--Required Vote." It
is not expected that any matter other than the proposal
to approve and adopt the Merger Agreement will be
brought before the stockholders at the Special Meeting.
If, however, other matters are properly presented, the
persons named as proxies are expected to vote in
accordance with their best judgment with respect to such
matters.
Adjournments;
Revocability of Proxies......... If the Special Meeting is adjourned, for whatever
reason, the approval of the Merger Agreement will be
considered and voted upon by stockholders at the
subsequent, reconvened meeting, if any. A stockholder
may revoke a Proxy at any time prior to its exercise by
(i) attending the Special Meeting and voting in person
(although attendance at the Special Meeting will not in
and of itself constitute revocation of a Proxy), (ii)
giving notice of revocation of the Proxy at the Special
Meeting, or (iii) delivering (a) a written notice of
revocation of the Proxy, or (b) a duly executed Proxy
relating to the matters to be considered at the Special
Meeting, bearing a date later than the Proxy previously
executed, to the Secretary of the Company, One MEDIQ
Plaza, Pennsauken, NJ 08110-1460. Unless revoked in one
of the manners set forth above, Proxies in the form
enclosed will be voted at the Special Meeting in
accordance with the instructions set forth therein.
Solicitation of Proxies........... The cost of soliciting Proxies will be borne by the
Company. The Company may solicit Proxies and the
Company's directors, officers and employees may also
solicit Proxies by telephone, telegram or personal
interview. These persons will receive no additional
compensation for their services. Arrangements will be
made to furnish copies of Proxy materials to
fiduciaries, custodians and brokerage houses for
forwarding to beneficial owners of MEDIQ Stock. Such
persons will be reimbursed for their reasonable
out-of-pocket expenses. Holders of MEDIQ Stock should
not send stock certificates with their proxy cards.
Security Ownership of Management
and Affiliates.................. As of January 27, 1998, directors and executive officers
of the Company and their affiliates, including the Rotko
Entities, were beneficial owners of an aggregate of
5,566,584 shares of MEDIQ Common Stock and 5,141,056
shares of MEDIQ Preferred Stock (representing
approximately 29% of the outstanding shares of MEDIQ
Common Stock, approximately 82% of the outstanding
shares of MEDIQ Preferred Stock and approximately 66% of
the total combined voting power of the MEDIQ Common
Stock and MEDIQ Preferred Stock) (without taking into
account any exercise of stock options). The foregoing
totals include the 4,701,464 shares of MEDIQ Common
Stock and 4,730,006 shares of MEDIQ Preferred Stock
beneficially owned by the Rotko Entities. See "SECURITY
OWNERSHIP
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OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
THE MERGER
Conversion of MEDIQ Stock......... At the Effective Time, MQ will be merged with and into
the Company and the Company will continue as the
surviving corporation in the Merger. Pursuant to the
Merger, each issued and outstanding share of MEDIQ
Common Stock and each issued and outstanding share of
MEDIQ Preferred Stock will be converted into the right
to receive (i) $13.75 in cash, without interest, and
(ii) 0.075 of a share of Series A Preferred Stock of the
Surviving Corporation, except for MEDIQ Shares owned
directly or indirectly by MQ or the Company and
Dissenting Shares. Each MEDIQ Share that is issued and
outstanding immediately prior to the Effective Time and
owned by MQ or the Company or any direct or indirect
subsidiary of MQ or the Company, will be canceled and no
payment of any consideration will be made with respect
thereto. As a result of the transactions contemplated by
the Merger Agreement, the only equity interest in the
Surviving Corporation that the current holders of MEDIQ
Shares, other than the Rotko Entities and the Management
Stockholders, will have is an interest in the Series A
Preferred Stock. Ownership of Series A Preferred Stock
will not entitle or permit such holders to vote on any
matter required or permitted to be voted upon by the
stockholders of the Company, except as otherwise
required by Delaware law; provided that, without the
affirmative vote or written consent of the holders of a
majority of the outstanding shares of Series A Preferred
Stock, the Company will not (i) create, authorize or
issue any other class or series of stock entitled to a
preference prior to Series A Preferred Stock upon any
dividend or distribution or any liquidation,
distribution of assets, dissolution or winding up of the
Company, or (ii) amend, alter or repeal any provision of
the Company's Certificate of Incorporation so as to
materially adversely affect the relative rights and
preferences of the Series A Preferred Stock. Upon
consummation of the Merger, the Investors will, in the
aggregate, own a majority of the outstanding shares of
Series A Preferred Stock.
Rotko Interests................... Pursuant to the terms of the Stock Option Agreement
dated January 14, 1998, by and among MQ and the Rotko
Entities (the "Stock Option Agreement"), the Rotko
Entities granted MQ an irrevocable option (the "Rotko
Option") to purchase, under certain circumstances, at a
cash exercise price of $14.50 per share, up to 4,701,464
shares of MEDIQ Common Stock owned by the Rotko Entities
(which represents approximately 24% of the total
outstanding MEDIQ Common Stock as of January 14, 1998)
and 4,730,006 shares of MEDIQ Preferred Stock owned by
the Rotko Entities (which represents approximately 75%
of the outstanding MEDIQ Preferred Stock as of January
14, 1998). For a summary of the foregoing provisions and
certain other provisions of the Stock Option Agreement.
See "THE STOCK OPTION AGREEMENT."
As a condition to entering into the Merger Agreement, MQ
required that the Rotko Entities enter into an agreement
with MQ dated January 14, 1998 (the "Rollover
Agreement").
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7
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Pursuant to the Rollover Agreement, the Rotko Entities
have agreed to convert an aggregate of 1,000,000 shares
(the "Rolled Shares") of MEDIQ Preferred Stock into
certain securities specified therein. For a summary of
the foregoing provisions and certain other provisions of
the Rollover Agreement. See "THE ROLLOVER AGREEMENT."
Pursuant to the Stockholder Agreements, the Rotko
Entities have agreed, among other things and subject to
certain conditions, to vote in favor of the Merger and
the Merger Agreement. See "THE STOCKHOLDER AGREEMENTS."
Conversion of MQ Stock............ As a result of the Merger, each share of capital stock
of MQ issued and outstanding immediately prior to the
Effective Time, including any shares of capital stock
issued by MQ to the Rotko Entities in exchange for the
Rolled Shares, will be converted into and will represent
the same number of shares of the same class of capital
stock of the Surviving Corporation, provided that each
of the Rolled Shares not owned by MQ immediately prior
to the Effective Time will be converted into and
thereafter represent the number of shares of capital
stock of the Surviving Corporation as set forth in the
Rollover Agreement. See "THE ROLLOVER AGREEMENT."
Recommendation of the Board of
Directors....................... The Special Committee and the Board of Directors of the
Company, by unanimous vote of those directors present
(who constituted all of the directors then in office)
(i) determined that the Merger, the Merger Agreement and
the transactions contemplated thereby are fair to and in
the best interests of the holders of MEDIQ Common Stock,
(ii) determined that the Merger, the Merger Agreement
and the transactions contemplated thereby are fair to
and in the best interests of the holders of MEDIQ
Preferred Stock, and (iii) recommended that holders of
MEDIQ Common Stock and holders of MEDIQ Preferred Stock
each approve the Merger, the Merger Agreement and the
transactions contemplated thereby. See "SPECIAL
FACTORS--Background of the Merger" and "--Recommendation
of the Special Committee and the Board of Directors;
Reasons for the Merger."
Opinion of the Company's Financial
Advisor......................... Smith Barney Inc. (now associated with Salomon Brothers
Inc and collectively with Salomon Brothers Inc doing
business as, and herein referred to as, "Salomon Smith
Barney") has acted as financial advisor to the Company
in connection with the Merger and has delivered to the
Board of Directors of the Company a written opinion
dated January 14, 1998 to the effect that, as of the
date of such opinion and based upon and subject to
certain matters stated therein, the Merger Consideration
was fair, from a financial point of view, to the holders
of MEDIQ Shares (other than the Rotko Entities and the
Management Stockholders, as to which Salomon Smith
Barney was not asked to opine). The full text of the
written opinion of Salomon Smith Barney dated January
14, 1998, which sets forth the assumptions made, matters
considered and limitations on the review undertaken, is
attached as Annex II to this Proxy Statement/ Prospectus
and should be read carefully in its entirety. THE
</TABLE>
8
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OPINION OF SALOMON SMITH BARNEY IS DIRECTED TO THE BOARD
OF DIRECTORS OF THE COMPANY AND RELATES ONLY TO THE
FAIRNESS OF THE MERGER CONSIDERATION FROM A FINANCIAL
POINT OF VIEW, DOES NOT ADDRESS ANY OTHER ASPECT OF THE
MERGER OR RELATED TRANSACTIONS AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW SUCH
STOCKHOLDER SHOULD VOTE AT THE SPECIAL MEETING. See
"SPECIAL FACTORS--Opinion of the Company's Financial
Advisor."
Fractional Shares................. No certificates or scrip representing fractional shares
of Series A Preferred Stock will be issued in connection
with the Merger, and such fractional share interests
will not entitle the owner thereof to vote or to any
rights of a stockholder of the Surviving Corporation
after the Merger. Each holder of MEDIQ Shares exchanged
pursuant to the Merger who would otherwise have been
entitled to receive a fractional share of Series A
Preferred Stock (after taking into account all MEDIQ
Shares delivered by such holder) will receive, in lieu
thereof, a cash payment (without interest) therefor
determined as provided herein. See "THE MERGER--
Fractional Shares."
Conditions to the Merger.......... The obligations of the Company and MQ to consummate the
Merger are subject to various conditions, including,
without limitation, the approval of the Merger Agreement
and the transactions contemplated thereby by the holders
of the requisite number of shares of MEDIQ Common Stock
and MEDIQ Preferred Stock, the termination or expiration
of the relevant waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), the effectiveness of the
Registration Statement, the dissemination of this Proxy
Statement/Prospectus and the Schedule 13E-3 and the
absence of any injunction or other legal restraint or
prohibition preventing the consummation of the Merger.
See "REGULATORY APPROVALS." MQ's obligations to effect
the Merger are further subject to the continuing truth
in all material respects of the Company's
representations made in the Merger Agreement, the
performance of material obligations of the Company under
the Merger Agreement, the absence of pending material
litigation intended to prevent the Merger and the
receipt of proceeds of the financings described in the
commitment letters MQ has received from financial
institutions with respect to the funds necessary to
consummate the transactions contemplated by the Merger
Agreement on terms and conditions set forth therein (or
on such other terms and conditions, or involving such
other financing sources, as are acceptable to MQ in its
sole discretion) in amounts sufficient to consummate the
transactions contemplated by the Merger Agreement, the
Rotko Entities' performance of their obligations under
the Rollover Agreement, and the number of Dissenting
Shares not exceeding 15% of the outstanding MEDIQ
Shares. See "SOURCES AND AMOUNT OF FUNDS." The Company's
obligations to effect the Merger are further subject to
the continuing truth of MQ's representations made in the
Merger Agreement, the performance of all material
obligations of MQ under the Merger Agreement and the
absence of litigation intended to prevent the Merger.
See "CERTAIN PROVISIONS OF THE MERGER AGREEMENT--
</TABLE>
9
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<S> <C>
Conditions" and "THE MERGER--Conditions to the
Consummation of the Merger."
Termination of the Merger
Agreement....................... The Merger Agreement may be terminated at any time,
notwithstanding approval thereof by the requisite vote
of the Company's stockholders, prior to the Effective
Time (i) by mutual written consent of MQ and the
Company, (ii) by either party if such party's obligation
to consummate the transactions contemplated in the
Merger Agreement shall have become impossible to
satisfy, (iii) by either party if the Merger has not
been consummated on or before August 31, 1998 (other
than due to the failure of the party seeking to
terminate the Merger Agreement to perform its
obligations under the Merger Agreement at or prior to
the Effective Time), (iv) by either party if the other
party is in breach at any time prior to the Effective
Time of any of the representations and warranties made
by such party as though made on and as of such date and
such breach would reasonably be expected to have a
"material adverse effect" (as defined in the Merger
Agreement), (v) by either party if, after a cure period,
the other party shall not have performed and complied in
all material respects with all covenants required by the
Merger Agreement to be performed or complied with by it
on and as of such date, or (vi) by MQ or the Company in
certain other situations, including in connection with a
Superior Proposal (as defined below). Under certain
circumstances related to a third party transaction,
termination of the Merger Agreement prior to the
Effective Time will result in the payment of a break-up
fee of $16,500,000 plus expenses by the Company to MQ.
See "CERTAIN PROVISIONS OF THE MERGER
AGREEMENT--Termination" and "--No Solicitation of
Alternative Transactions."
Regulatory Approvals.............. On February 10, 1998, the Company and BRS each filed a
notification report together with requests for early
termination of the waiting period under the HSR Act with
the Federal Trade Commission and the Antitrust Division
of the Department of Justice (the "Antitrust Division")
in respect of the Merger and the related transactions.
Prior to the Merger, the relevant waiting period under
the HSR Act with respect to the Merger must be
terminated or expire. See "REGULATORY APPROVALS."
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES.................... The receipt of cash and Series A Preferred Stock by a
stockholder pursuant to the Merger will be treated as a
sale of stock generating capital gain (or loss) equal to
the sum of (i) the cash received and (ii) the fair
market value of the Series A Preferred Stock received
less the stockholder's basis in the stock surrendered in
the Merger. The Company may, in certain circumstances,
be required to withhold tax from cash paid to
stockholders. See "SPECIAL FACTORS-- Federal Income Tax
Consequences."
TREATMENT OF MEDIQ
STOCK OPTIONS................... Upon the consummation of the Merger, each option to
acquire MEDIQ Shares outstanding immediately prior to
the Effective Time under the Company's stock option
plans or similar
</TABLE>
10
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<S> <C>
arrangements, whether vested or unvested (each, an
"Option," and collectively, the "Options"), will
automatically become immediately exercisable and each
holder of an Option will have the right to receive from
the Company in respect of each MEDIQ Share underlying
the Option (less applicable withholding taxes) (i) a
cash payment in an aggregate amount equal to the
difference between the cash portion of the Merger
Consideration of $13.75, less the exercise price per
MEDIQ Share applicable to such Option as stated in the
applicable stock option agreement or other agreement
plus (ii) 0.075 of a share of Series A Preferred Stock
(the "Option Consideration"). From and after the
Effective Time, Option holders will not have any other
rights in respect thereof other than to receive payment
for their Options as set forth herein. The Company has
agreed to take all reasonably necessary actions to
terminate its stock option plans and similar
arrangements. The foregoing terms are subject to the
Company obtaining any required consents from the holders
of any Options and the making of any necessary
amendments to the Company's stock option plans and other
similar agreements. See "CERTAIN PROVISIONS OF THE
MERGER AGREEMENT--Option Consideration."
INTERESTS OF CERTAIN PERSONS IN
THE MERGER...................... In considering the recommendations of the Special
Committee and the Board with respect to the Merger,
stockholders should be aware that certain officers and
directors of the Company and affiliates, associates and
persons related to the officers and directors have
interests in connection with the Merger that are
different from, or in addition to, the interests of the
Company's stockholders generally. The Special Committee
and the Board of Directors were aware of these interests
and considered them in addition to the other matters
described under "SPECIAL FACTORS--Recommendation of the
Special Committee and the Board of Directors; Reasons
for the Merger."
The employment agreements with the Company's President
and Chief Executive Officer, Thomas E. Carroll, its
Chief Financial Officer, Jay M. Kaplan, and Michael F.
Sandler, a director of the Company and its former Chief
Financial Officer, include provisions entitling those
persons to bonuses paid in connection with the sale of
the Company, calculated based, in the cases of Messrs.
Carroll and Kaplan, upon the aggregate purchase price
paid for the Company and, in the case of Mr. Sandler,
upon the value received by the Company's stockholders in
a sale of the Company. See "SPECIAL FACTORS--Interests
of Certain Persons in the Merger."
The Options held by officers of the Company, including
Options that have not yet vested, will be treated in the
same manner as Options held by non-officers, as
described under "THE MERGER--Option Consideration."
The officers of the Company will remain in place after
the Merger and their current employment agreements will
remain in effect. In addition, the Management
Stockholders will purchase shares of capital stock of
the Surviving Corporation after the Merger and will be
granted certain options to purchase additional shares of
capital stock of the Surviving Corporation,
</TABLE>
11
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<S> <C>
as set forth in "SPECIAL FACTORS--Interests of Certain
Persons in the Merger."
As a condition to entering into the Merger Agreement, MQ
required that the Rotko Entities enter into the Rollover
Agreement. See "THE ROLLOVER AGREEMENT."
In addition, BRS or an affiliate of BRS will receive
certain fees. See "SPECIAL FACTORS--Interests of Certain
Persons in the Merger."
STOCKHOLDER AGREEMENTS............ Pursuant to the Stockholder Agreements, the Rotko
Entities have agreed, among other things and subject to
certain conditions, to vote in favor of the Merger and
the Merger Agreement. In addition, the Rotko Entities
have agreed that they will not permit any company, trust
or other person or entity controlled by them, and will
not authorize any of their affiliates, to directly or
indirectly (including through their officers, directors,
employees or other representatives) solicit, initiate,
encourage or facilitate, or furnish or disclose
non-public information in furtherance of, any inquiries
or the making of any proposal with respect to certain
extraordinary transactions involving the Company, or
negotiate, explore or otherwise engage in discussions
with any third party with respect to any such
transaction or enter into any agreement, arrangement or
understanding with respect to any such transaction or
agree to or otherwise assist in the effectuation of any
such transaction; provided, however, that nothing in the
Stockholder Agreements will prohibit any Rotko Entity
from taking any action in his capacity as a director or
officer of the Company to the extent such director or
officer would be permitted to take such action under the
Merger Agreement. For a summary of the foregoing
provisions and certain other provisions of the
Stockholder Agreements, see "THE STOCKHOLDER
AGREEMENTS."
STOCK OPTION AGREEMENT............ Pursuant to the terms of the Stock Option Agreement, the
Rotko Entities granted MQ an irrevocable option to
purchase, under certain circumstances, at a cash
exercise price of $14.50 per share, up to 4,701,464
shares of MEDIQ Common Stock owned by the Rotko Entities
(which represents approximately 24% of the total
outstanding MEDIQ Common Stock) and 4,730,006 shares of
MEDIQ Preferred Stock owned by the Rotko Entities (which
represents approximately 75% of the outstanding MEDIQ
Preferred Stock). The Rotko Option becomes exercisable
only upon the occurrence of a Purchase Event (as such
term is defined in the Stock Option Agreement). To the
extent the Rotko Option shall not have been previously
exercised, it shall terminate and be of no further force
and effect upon the earlier to occur of (i) the
Effective Time of the Merger; (ii) termination of the
Merger Agreement in accordance with certain of its
termination provisions and (iii) in the case of any
other termination of the Merger Agreement, the date that
is 6 months following such termination (such date, the
"Termination Date"). In the event MQ exercises the Rotko
Option prior to the Effective Time, the MEDIQ Shares
received by MQ would be canceled and would not be
entitled to be converted into any Merger Consideration
in the Merger. For a summary of the foregoing provisions
and certain other
</TABLE>
12
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<S> <C>
provisions of the Stock Option Agreement, see "THE STOCK
OPTION AGREEMENT."
THE ROLLOVER AGREEMENT............ As a condition to entering into the Merger Agreement, MQ
required that the Rotko Entities enter into the Rollover
Agreement. Pursuant to the Rollover Agreement, the Rotko
Entities have agreed to convert the Rolled Shares into
certain securities specified therein. The parties to the
Rollover Agreement have agreed that either (i)
immediately prior to the Effective Time, the Rotko
Entities will transfer the Rolled Shares to MQ in
exchange for securities of MQ which, at the Effective
Time, will be converted into 1,340,200 shares of Series
B Preferred Stock of the Surviving Corporation (the
"Series B Preferred Stock") and a number of shares of
Common Stock of the Surviving Corporation equal to
10.98% (assuming an initial investment of $10.0 million
in such common stock by the stockholders of the
Surviving Corporation) of the shares of Common Stock of
the Surviving Corporation to be outstanding immediately
after the Effective Time (such Series B Preferred Stock
and Common Stock of the Surviving Corporation are from
time to time referred to herein together as the
"Converted Shares") or (ii) the Certificate of Merger
that is to be filed pursuant to the Merger Agreement
will provide that the Rolled Shares will be converted in
the Merger into the Converted Shares. The Rollover
Agreement will terminate immediately upon the
termination of the Merger Agreement if the Merger
Agreement is terminated prior to the Effective Time;
provided, however, that if the termination of the Merger
Agreement results from a failure to satisfy a condition
relating to the performance by the Rotko Entities of the
Rollover Agreement, such termination will not derogate
from MQ's rights under the Rollover Agreement. For a
summary of the foregoing provisions and certain other
provisions of the Rollover Agreement, (see "THE ROLLOVER
AGREEMENT and "DESCRIPTION OF MEDIQ CAPITAL STOCK
FOLLOWING THE MERGER-- Series B Preferred Stock.")
DISSENTING STOCKHOLDERS' APPRAISAL
RIGHTS.......................... Holders of MEDIQ Common Stock and MEDIQ Preferred Stock
who do not vote in favor of the Merger and who comply
with the applicable provisions of the DGCL will be
entitled to dissenters' rights of appraisal in
connection with the Merger. See "DISSENTING
STOCKHOLDERS' RIGHTS" and Annex III.
MARKET PRICE INFORMATION.......... On January 14, 1998, the last trading day before public
announcement of the execution of the Merger Agreement,
the last sale price of MEDIQ Common Stock as reported on
the AMEX was $11.00 per share. On December 16, 1997, the
last day the MEDIQ Preferred Stock traded prior to the
execution of the Merger Agreement, the last sale price
of MEDIQ Preferred Stock as reported on the AMEX was
$11.50 per share (and the last sale price of MEDIQ
Common Stock on such date was $11.56 per share).
On , the most recent practicable date prior
to the date of this Proxy Statement/Prospectus, the last
sale price of MEDIQ Common Stock as reported on the AMEX
was $
</TABLE>
13
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<S> <C>
per share and the last sale price of MEDIQ Preferred
Stock as reported on the AMEX was $ per share.
MEDIQ STOCKHOLDERS SHOULD OBTAIN CURRENT MARKET
QUOTATIONS FOR MEDIQ COMMON STOCK AND MEDIQ PREFERRED
STOCK.
THE TRANSACTIONS.................. The aggregate consideration payable pursuant to the
Merger, including amounts payable to holders of the
Options, is expected to be approximately $390.7 million.
In addition, simultaneously with the consummation of the
Merger, all indebtedness of the Company outstanding
immediately prior to the Merger (other than $10.1
million of 7.5% exchangeable subordinated debentures and
$3.3 million of capital leases) will be refinanced (the
"Refinancing").
It is expected that the funds required to consummate the
Merger and the Refinancing and to pay related fees and
expenses will be provided by (i) $108.1 million of gross
proceeds from an equity contribution to MQ by the
Investors (the "Investor Equity Contribution"), (ii)
$5.7 million of gross proceeds from an equity
contribution to MQ by the Management Stockholders (the
"Management Equity Contribution"), (iii) the issuance of
approximately $20.0 million of Series A Preferred Stock
in connection with the conversion of each issued and
outstanding MEDIQ Share (other than the Rolled Shares
and any shares owned directly or indirectly by MQ or the
Company) into the Merger Consideration, (iv) the
conversion of the Rolled Shares owned by the Rotko
Entities into $14.5 million of equity in the Surviving
Corporation (the "Rollover"), (v) $175.0 million of term
loans (the "Term Loans") to MEDIQ/PRN, (vi) $200.0
million of gross proceeds from the offering by MEDIQ/PRN
of senior subordinated notes (the "Senior Subordinated
Note Offering"), (vii) $30.0 million of gross proceeds
from the offering by the Company of senior discount
debentures (the "Discount Debenture Offering" and,
together with the Investor Equity Contribution, the
Management Equity Contribution, the Rollover, the Term
Loans and the Senior Subordinated Note Offering, the
"Financings"), (viii) $3.6 million in existing cash of
the Company, and (ix) $0.3 million of borrowings under
the revolving credit facility. The Merger, the
Refinancing, the Financings and the application of the
net proceeds of each of the Financings are hereinafter
referred to as the "Transactions."
The following table sets forth the estimated sources and
uses of funds in connection with the Transactions,
assuming consummation of the Transactions as of
September 30, 1997.
</TABLE>
14
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<TABLE>
<CAPTION>
SOURCES OF FUNDS AMOUNT
- -------------------------------------------- -----------
<S> <C>
(IN
MILLIONS)
Cash........................................ $ 3.6
Revolving Credit Facility(1)................ 0.3
Tranche A Term Loans(2)..................... 75.0
Tranche B Term Loans(3)..................... 100.0
Senior Subordinated
Note Offering(4).......................... 200.0
Discount Debenture Offering(5).............. 30.0
Equity Contributions(6)..................... 148.2
-----------
Total Sources......................... $ 557.1
-----------
-----------
<CAPTION>
USE OF FUNDS AMOUNT
- -------------------------------------------- -----------
(IN
MILLIONS)
<S> <C>
Net Cash Purchase Price(7).................. $ 350.5
Series A Preferred Stock Rollover(8)........ 20.0
Rotko Rollover(9)........................... 14.5
Management Equity Contribution.............. 5.7
Repay Portion of Existing Debt(10).......... 132.4
Fees and Expenses(11)....................... 34.0
-----------
Total Uses............................ $ 557.1
-----------
-----------
</TABLE>
- ------------------------
(1) This amount represents the drawn portion of a $50.0 million revolving credit
facility which will be part of the New Credit Facility (as defined). See
"SOURCES AND AMOUNT OF FUNDS--Description of New Credit Facility."
(2) The Tranche A Term Loans will be made pursuant to a six-year senior secured
term loan facility in an aggregate principal amount equal to $75 million.
See "SOURCES AND AMOUNT OF FUNDS-- Description of New Credit Facility."
(3) The Tranche B Term Loans will be made pursuant to an eight-year senior
secured term loan facility in an aggregate principal amount equal to $100
million. See "SOURCES AND AMOUNT OF FUNDS--Description of New Credit
Facility."
(4) In the event that MEDIQ/PRN has not received the proceeds from the Senior
Subordinated Note Offering on or prior to the Effective Time, MQ and the
Company have received a commitment for a Standby Senior Subordinated Credit
Facility (as defined). See "SOURCES AND AMOUNT OF FUNDS--Description of the
Offerings."
(5) In the event that the Company has not received the proceeds from the
Discount Debenture Offering on or prior to the Effective Time, MQ and the
Company have in place a Discount Debenture Standby Purchase Arrangement (as
defined). See "SOURCES AND AMOUNT OF FUNDS--Description of the Offerings."
(6) Consists of $78.2 million of Series A Preferred Stock, $30.0 million of
Series B Preferred Stock of the Surviving Corporation, $30.0 million of
Series C Preferred Stock of the Surviving Corporation and $10.0 million of
Common Stock of the Surviving Corporation. See "DESCRIPTION OF MEDIQ CAPITAL
STOCK FOLLOWING THE MERGER."
(7) The net cash purchase price equals the cash price of $13.75 multiplied by
the number of fully diluted shares outstanding less the number of Rolled
Shares and Management Equity Contribution. The net cash purchase price is
net of proceeds received by the Company upon the exercise of all outstanding
Options.
(8) Represents Series A Preferred Stock issued as Merger Consideration; equals
$0.75 multiplied by the number of fully diluted shares outstanding less the
number of Rolled Shares.
(9) This amount equals $14.50 multiplied by the number of Rolled Shares.
(10) The Company will repay all outstanding debt other than $3.3 million of
capital leases and $10.1 of subordinated exchangeable debentures.
(11) Estimated fees and expenses include initial purchasers' discount, bank
fees, financial advisory fees, legal and accounting fees, printing costs and
other expenses related to the Transactions.
15
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
OF MEDIQ INCORPORATED
The following table sets forth selected consolidated historical financial
data of the Company for the last five completed fiscal years. The Statement of
Operations Data for the years ended September 30, 1993-1997 and the Balance
Sheet Data as of September 30, 1993-1997 were derived from audited Consolidated
Financial Statements of the Company. The Other Data was derived from Company
prepared schedules. The selected unaudited pro forma financial data has been
derived from the Pro Forma Condensed Consolidated Financial Statements (as
defined) included elsewhere herein. The pro forma balance sheet data gives
effect to the Transactions as if they were consummated on September 30, 1997.
The pro forma statement of operations data gives effect to the Transactions and
the Company's acquisition of SpectraCair as if they were consummated on October
1, 1996. The pro forma financial information is based on assumptions that
management believes are reasonable and such information is presented for
comparative and informational purposes only. The pro forma financial information
does not purport to represent what the Company's results of operations or
financial condition would actually have been had the Transactions and
acquisition of SpectraCair in fact occurred on such dates or to project the
Company's results of operations for any future period or financial condition of
any future date. This table should be read in conjunction with the Pro Forma
Condensed Consolidated Financial Statements included elsewhere herein and the
Company's Annual Report on Form 10-K for the year ended September 30, 1997, as
amended, the Consolidated Financial Statements of the Company and related notes
thereto and the other financial information contained in the documents included
or incorporated by reference herein. See "INCORPORATION BY REFERENCE."
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED
YEAR ENDED SEPTEMBER 30, SEPTEMBER 30,
---------------------------------------------------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1993 1994(1) 1995 1996 1997(2) 1997
---------- ---------- ---------- ---------- ---------- -------------
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
SUMMARY STATEMENT OF OPERATIONS DATA:
Revenues............................. $ 89,994 $ 81,498 $ 132,241 $ 136,066 $ 155,960 $ 164,274
Operating income(3).................. 8,614 1,354 24,202 25,446 29,504 28,881
Interest expense..................... (21,043) (21,335) (29,241) (27,307) (19,107) (40,365)
Other(4)............................. 1,918 7,381 1,381 (4,695) (7,504) (7,443)
Income (Loss) from continuing
operations before income tax
expense (benefit).................. (10,511) (12,600) (3,658) (6,556) 2,893 (18,927)
Loss from continuing operations...... (5,145) (8,254) (3,346) (6,178) (2,241) (15,333)
PER SHARE DATA:
Loss from continuing operations(5)... $ (.22) $ (.34) $ (.14) $ (.25) $ (.09) $ (15.33)
Cash dividends per common share...... $ .12 $ .09 -- -- -- --
Cash dividends per preferred share... $ .07 $ .05 -- -- -- --
Weighted average shares
outstanding........................ 24,366 24,405 24,604 24,967 25,960 1,000
OTHER DATA:
Rental revenues.................... $ 72,829 $ 69,079 $ 117,043 $ 114,275 $ 124,316 $ 133,963
Other revenues(6) $ 17,165 $ 12,419 $ 15,198 $ 21,791 $ 31,644 $ 30,311
EBITDA(7) $ 27,565 $ 22,480 $ 54,363 $ 55,603 $ 59,863 $ 61,553
EBITDA Margin(8) 31% 28% 41% 41% 38% 37%
Depreciation and Amortization $ 18,951 $ 21,126 $ 30,161 $ 30,157 $ 30,359 $ 32,672
Capital Expenditures $ 24,493 $ 13,257 $ 13,356 $ 18,913 $ 15,458
Branches and Distributors
(at end of period)............... 74 73 84 84 84
Equipment Units
(at end of period)............... 71,231 83,101 123,309 120,388 131,897
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
SEPTEMBER 30, SEPTEMBER 30,
---------------------------------------------------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1993 1994(1) 1995 1996 1997(2) 1997
---------- ---------- ---------- ---------- ---------- -------------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
SUMMARY BALANCE SHEET DATA:
Current assets....................... $ 42,500 $ 35,041 $ 44,436 $ 45,103 $ 69,751 $ 68,806
Investments in discontinued
operations......................... 98,095 99,911 70,162 64,967 -- --
Rental equipment; net................ 107,914 139,073 123,190 113,335 104,267 104,267
Property, plant and equipment........ 9,834 9,978 9,633 9,371 9,322 9,322
Total assets......................... 308,827 377,795 334,169 308,423 257,552 263,373
Current liabilities.................. 47,001 59,610 64,685 45,614 40,019 34,231
Senior debt, net of current
portion............................ 115,604 162,436 136,949 192,461 128,131 206,786
Subordinated debt, net of current
portion............................ 86,229 103,388 81,907 41,229 10,055 210,055
Mandatory Redeemable Preferred
Stock.............................. -- -- -- -- -- 108,240
Stockholders' equity................. 44,574 36,280 31,517 17,445 48,603 (322,117)
</TABLE>
- ------------------------
Notes to Selected Consolidated Financial Data
(1) On September 30, 1994, MEDIQ/PRN acquired the critical care and life support
rental equipment inventory of Kinetic Concepts, Inc. The purchase price,
which was primarily financed with long-term debt, approximated $88.0
million, including transaction costs and the assumption of certain capital
lease obligations.
(2) On September 1, 1997, the Company acquired the remaining 50% interest in
SpectraCair not previously owned by it for $1.9 million and the assumption
of its former joint venture partner's portion of the outstanding debt of
$4.4 million. Accordingly, the results of operations of SpectraCair for the
one month ended September 30, 1997 are included in the Company's operating
results.
(3) Fiscal 1996 includes a $2.2 million restructuring charge.
(4) Fiscal 1993 includes interest income of $1.1 million partially offset by a
$0.3 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 1995 includes $1.5 million of interest income partially offset by a
$0.4 million net loss on the sale of assets.
Fiscal 1996 includes a $6.0 million reserve on the note receivable from MHM
Services, Inc. ("MHM"), interest income of $1.5 million and a net gain on
the sale of assets of $0.6 million.
Fiscal 1997 includes an equity participation charge related to the
repurchase of MEDIQ/PRN warrants of $11.0 million, a gain on the sale of
stock of $9.2 million, a reserve on amounts due from MHM of $5.5 million,
the write-off of deferred acquisition costs of $4.0 million, a gain on a
note receivable of $1.8 million, and interest income of $2.1 million.
(5) Earnings per share have been restated in accordance with Statement of
Financial Accounting Standards No. 128, Earnings Per Share ("SFAS 128"). In
accordance with SFAS 128, since the Company has incurred losses from
continuing operations for the years ended September 30, 1993-1997, no
potential Common Shares have included in the computation of any diluted per
share amount. Accordingly, only basic earnings per share have been
presented.
(6) Includes sales of parts, disposables and equipment, outsourcing and
management consulting.
(7) EBITDA is defined as income from continuing operations before interest,
taxes, depreciation and amortization. EBITDA is presented because it is a
widely accepted financial indicator of a company's ability to service
indebtedness. However, EBITDA should not be considered as an alternative to
17
<PAGE>
income from operations or to cash flows from operating activities (as
determined in accordance with generally accepted accounting principles) and
should not be construed as an indication of a company's operating
performance or as a measure of liquidity.
(8) EBITDA divided by total revenues.
18
<PAGE>
SPECIAL FACTORS
Holders of MEDIQ Stock should carefully consider the following factors in
connection with their consideration of the Merger. See also "FORWARD-LOOKING
STATEMENTS" and "RISK FACTORS" elsewhere in this Proxy Statement/Prospectus.
BACKGROUND OF THE MERGER
In January 1995, the Company formed a special committee of the Board of
Directors and retained a financial advisor for the purpose of exploring
alternative ways to maximize stockholder value, including the possible sale or
restructuring of the Company. During this process, the Company solicited, with
the assistance of its financial advisor, indications of interest from potential
buyers for the Company and received a number of proposals from interested
parties, including an offer from certain of the then current members of the
Company's management to acquire all of the MEDIQ Stock outstanding at that time
for $6.87 per share, consisting of $4.00 in cash and a pro rata interest in a
liquidating trust with an estimated value of $2.87 per share. In April 1995, the
Board accepted the recommendation of the special committee to reject that offer
as inadequate. In April, 1995, Mr. Carroll was elected President and Chief
Executive Officer of the Company. At that time, the Company entered into
agreements with certain key executives that provided for the payment of "success
bonuses" upon the occurrence of certain strategic transactions involving the
Company, including a sale of the Company. See "SPECIAL FACTORS--Interests of
Certain Persons in the Merger." The Company and its financial advisor continued
to work through the spring and summer of 1995 to attract offers to acquire the
Company, but did not receive any satisfactory proposals. Finally, after
exploring a number of alternatives with its financial advisor, in October 1995,
the Board accepted the recommendation of the special committee to terminate any
further efforts to sell the Company at that time. The Board determined instead
to continue its previously announced strategy of divesting non-core operating
assets and using the divestiture proceeds to reduce indebtedness. This asset
sale program was substantially completed by the fall of 1996 and included the
transactions discussed below.
In July 1996, PCI Services, Inc. ("PCI") agreed to be acquired by Cardinal
Health, Inc. ("Cardinal"). In exchange for its 46% interest in PCI the Company
received shares of Cardinal stock which it subsequently sold for approximately
$88.4 million.
In September 1996, the Company entered an agreement with NutraMax Products,
Inc. ("NutraMax") pursuant to which NutraMax agreed to repurchase all of the
NutraMax shares owned by the Company for an aggregate purchase price of
approximately $36.3 million.
Also in 1996, the Company agreed to sell its ownership interest in
HealthQuest, Inc. for $75,000, and sold substantially all of the assets of MEDIQ
Mobile X-Ray Services, Inc. ("Mobile X-Ray") for (i) approximately $5.3 million
in cash, (ii) shares of Integrated Health Services common stock with an initial
value of $5.2 million (which shares were subsequently sold), and (iii) the
possibility of the Company receiving additional cash consideration based upon
the occurrence of certain future events. In fiscal year 1997, the Company
received approximately $1.1 million in additional cash consideration relating to
the Mobile X-Ray transaction.
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, as well as a
warrant to acquire additional shares of InnoServ common stock. Under the terms
of that agreement, no cash payment was made by InnoServ. The parties agreed,
however, 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.
19
<PAGE>
In the fall of 1996, with the implementation of the Company's strategic plan
to dispose of non-core assets substantially complete, the Company engaged
Salomon Smith Barney to advise the Company in respect of strategic alternatives,
including the possible sale of the Company and the acquisition of companies with
complementary businesses. The Company had identified Universal Hospital
Services, Inc., a corporation that rents movable medical equipment to hospitals
and other healthcare providers ("UHS"), as an attractive potential acquisition
candidate which complemented the Company's core equipment rental business.
Accordingly, Salomon Smith Barney was asked to assist the Company in connection
with a possible transaction with UHS.
In late 1996 and early 1997, the Company focused its efforts on UHS and the
potential growth in the Company's core equipment rental businesses which would
have resulted from the acquisition of UHS. In February 1997, the Company agreed
to acquire all of the outstanding shares of UHS for an aggregate purchase price
(including refinancing of indebtedness) of approximately $138 million. In April
1997, the stockholders 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 (the "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 transaction, the Company and UHS
mutually terminated their agreement.
During the summer of 1997, the Board of Directors also reviewed the
implementation of the Company's strategic plan and its belief that the trading
range of MEDIQ Stock did not necessarily reflect the value of the Company and
the benefits the Company had realized and expected to realize from its focus on
its core business and growth opportunities. At that time, the Board considered
resuming a process designed to explore strategic alternatives and maximize
stockholder value, but deferred any action pending resolution of the proposed
transaction with UHS.
Following termination in September 1997 of the agreement between the Company
and UHS, the Board determined to explore a possible sale of the Company and, on
October 17, 1997, the Executive Committee of the Board (the "Executive
Committee") met with executive management, the Company's legal counsel and
Salomon Smith Barney. At that meeting, the Executive Committee assessed the
Company's current market valuation and stock price performance and discussed the
possibility of enhancing stockholder value through the sale of the Company. In
addition, the Executive Committee discussed with the Company's legal and
financial advisors the principal anticipated events and timing of an auction
process. After discussion and evaluation of different transaction scenarios, the
Executive Committee authorized Salomon Smith Barney to conduct an auction on
behalf of the Company, in which bids for the acquisition of the Company would be
solicited with the goal of maximizing value for all stockholders. At that time,
the Rotko Entities advised the Company that they did not intend to seek any
treatment from any bidder different from that to be available to the Company's
other stockholders.
On October 29, 1997, the Company issued a press release stating that the
Company had authorized Salomon Smith Barney to explore strategic alternatives,
including the possible sale of the Company. A confidential memorandum (the
"Confidential Memorandum") was then prepared for distribution to potential
buyers and a list of potential buyers to be contacted directly in respect of
their interest in a possible transaction was assembled.
Between October 17 and November 17, 1997, approximately 50 potential buyers
were contacted. Confidentiality and standstill agreements were entered into with
the 39 potential buyers that expressed an interest in the Company and, beginning
on October 31, 1997, copies of the Confidential Memorandum, along with a letter
setting forth the procedures of the auction process, the deadline for firm
offers and other bidding requirements, were sent to such potential buyers.
20
<PAGE>
By the week of November 17, 1997, 20 written indications of interest had
been received from potential buyers. On November 21, 1997, at a regular meeting
of the Executive Committee, the Executive Committee reviewed with executive
management and the Company's legal and financial advisors the status of the
auction process and the identities of various potential buyers. The Executive
Committee was informed that the indications of interest submitted by 17 of the
20 potential buyers contemplated that the acquisition of the Company would be
treated as a recapitalization for financial reporting purposes.
After conferring with executive management and the Company's legal and
financial advisors, the Executive Committee authorized Salomon Smith Barney to
contact the parties that had submitted the six highest indications of interest,
five of which were from financial buyers. The five financial buyers were
invited, after an opportunity for further due diligence and presentations from
management, to make a definitive proposal to acquire the Company. The other
potential buyer, an entity with an existing business in the Company's industry,
was asked to ascertain its level of confidence regarding the antitrust issues
involved in a transaction with the Company. After further discussions with
representatives of such potential buyer, that party elected not to pursue
further negotiations with the Company. Another potential financial buyer
subsequently was included in the final group after indicating that it expected
to increase its bid to be competitive with the other remaining bidders.
On November 24, 1997, at a regular meeting of the Board of Directors, the
Board, executive management and the Company's legal counsel discussed the
results of the Company's requests for indications of interest and considered the
six potential buyers that had been invited to proceed in the auction process.
Also at that meeting, the Board affirmed the conclusions reached by the
Executive Committee at its meeting on November 21.
The six potential buyers were informed of their invitation to proceed and
given access to a special "Data Room" established by the Company that contained
detailed information concerning the Company. The six potential buyers were also
given the opportunity to meet with senior management of the Company and visit
the Company's headquarters. From December 3, 1997 through January 8, 1998, each
of the six potential buyers conducted extensive meetings with members of the
Company's senior management, including the chief executive officer, chief
financial officer and senior vice presidents, visited Company headquarters and
had access to the Data Room.
By December 18, 1997, each of the six potential buyers had received a draft
of a merger agreement prepared by the Company and its legal counsel, and a
letter instructing that each bidder's "best and final" bid, indicating price per
share and key terms and conditions, as well as any comments on or changes to the
draft merger agreement, were due in January. This letter also stated that final
bids should not be conditioned on financing or further due diligence.
On January 7 and 8, 1998, the Company received written offers to purchase
the Company, together with written revisions to the draft merger agreement, from
three of the six second-round bidders.
A special meeting of the Board of Directors was held on January 9, 1998, at
which the Board reviewed the three written offers with the Company's executive
management and its legal and financial advisors. Following this review, the
Board determined that the proposal from BRS, in which each share of MEDIQ Stock
would be converted into $13.50 cash plus 0.1 of a share of Series A Preferred
Stock, was economically and structurally superior to the other two offers. In
particular, the BRS proposal represented the highest value per share of MEDIQ
Stock and, in addition, the cash portion of the BRS proposal alone was higher
than the total value of either of the other two offers. Furthermore, the BRS
proposal was not contingent upon the completion of further due diligence.
The BRS proposal contemplated, among other things, (i) that the Merger would
qualify for recapitalization treatment for financial reporting purposes, which
BRS proposed to achieve by requiring the Rotko Entities and certain key
executives of the Company to acquire an equity interest in the Surviving
Corporation, (ii) that, in satisfaction of the foregoing requirement as it
related to the Rotko Entities, the
21
<PAGE>
Rotko Entities would be required to convert or exchange, prior to the Merger,
between one million and two million shares of their MEDIQ Preferred Stock into
or for stock of the Surviving Corporation, representing an equity interest of
between 11.8% and 23.6% in the Surviving Corporation, (iii) that, with respect
to the other shares of MEDIQ Stock owned by the Rotko Entities, the Rotko
Entities would receive the same consideration in the Merger as the other
stockholders, (iv) the agreement of the Rotko Entities to vote in favor of the
transaction and provide MQ with an option to purchase, under certain
circumstances, all of the shares of MEDIQ Stock owned by them, (v) the receipt
by MQ for use in the Merger of financing that, at that time, was described in
draft commitment letters from MQ's lenders which MQ indicated would be executed
prior to the execution of the merger agreement, and (vi) significant
restrictions on the Board's ability to terminate the merger agreement in the
event of a superior proposal.
The second highest bidder, among other things, (i) offered an aggregate
price lower than the cash portion of the BRS proposal, (ii) also required the
Rotko Entities and management to acquire an equity interest in the Surviving
Corporation, (iii) sought to conduct additional due diligence and (iv) failed to
assure the Company that it would have committed financing by the time of the
execution of a definitive merger agreement. The proposal submitted by the third
bidder offered a significantly lower price than the cash portion of the BRS
proposal. The Board, after conferring with executive management and the
Company's legal and financial advisors, determined that the substantially lower
bid, as well as other aspects of the third bidder's proposal, made it
undesirable for the Company to continue discussions with the third bidder at
that time.
The Board also discussed the fact that the BRS proposal was conditioned on
the Stock Option Agreement, the Rollover Agreement, the Stockholder Agreements
and an equity investment in the Surviving Corporation by certain members of
management. The Board noted that Mark Levitan, a director since 1989, had no
interest in any proposed transaction with BRS different from that of the
Company's stockholders generally. The Board also considered the fact that, of
its members, (i) Messrs. Rotko and Shipon are, with their families,
beneficiaries of the Rotko Trust, (ii) Mr. Carroll would receive a success fee
if the Company were sold and, as president of the Company, would be likely to
invest in the Surviving Corporation, (iii) Mr. Sandler would receive a success
fee if the Company were sold, (iv) Messrs. Bonovitz and Miller, had from time to
time acted as professional advisors to the Rotko family, and (v) each of the
foregoing individuals possessed interests potentially different from, or in
addition to, those of the Company's stockholders generally. Accordingly, after
further discussion, the Board asked Mr. Levitan to serve as a Special Committee
and evaluate independently the fairness of the proposed transactions.
The Company's legal counsel then reviewed the function of the Special
Committee with the Board which, after discussion with counsel, agreed that the
Board would require the Special Committee's approval of the transactions
proposed by BRS. The Special Committee was also advised that it should consider
engaging separate counsel, to be independently selected by the Special
Committee, to assist it in reviewing the BRS proposal. The Special Committee
subsequently engaged the firm of Cozen and O'Connor to serve as its counsel.
At the conclusion of the January 9, 1998 Board meeting, the Board directed
executive management, with the assistance of the Company's legal and financial
advisors, to (i) commence negotiations with BRS, (ii) ascertain whether the
second highest bidder would be willing to raise its bid, and (iii) not hold
further discussions with the third bidder at that time. The Board also
instructed executive management and the Company's legal and financial advisors
to attempt to maximize the value of the BRS proposal and limit, to the extent
possible, the contingencies that would allow BRS to terminate a merger agreement
with the Company.
During the afternoon of January 9, 1998, the second highest bidder, after
being contacted by the Company's legal and financial advisors, advised that it
expected to require three to four days of further due diligence and would also
require an additional period of time to conduct "background checks" on the
Company's management. This bidder also informed the Company that it was not
willing to increase its bid.
22
<PAGE>
BRS and its legal counsel were then contacted. BRS and the Company discussed a
number of issues relating to its bid. After further negotiations that evening,
BRS and the Company entered into an exclusivity agreement terminable at any time
by either party and which expired in any event on January 15, 1998.
On January 10, 1998, the Company's legal counsel delivered to BRS a revised
draft merger agreement.
On January 11, 1998, representatives of BRS and its legal counsel met with
the Company's general counsel, outside legal counsel and representatives of
Salomon Smith Barney. At that meeting, there were further negotiations regarding
the terms and conditions of the BRS offer. During these negotiations, BRS was
asked to increase the value of its bid. In response, BRS indicated that it would
be willing to reallocate a portion of the aggregate value of its bid from stock
in the Surviving Corporation to cash, increasing the cash portion of its bid by
$0.25 per share (from $13.50 to $13.75 per share) and decreasing by 0.025 of a
share (from 0.1 to 0.075 of a share) the number of shares of Series A Preferred
Stock of the Surviving Corporation to be received in the Merger in exchange for
one share of MEDIQ Stock. BRS also agreed to increase the dividend rate on the
Series A Preferred Stock to 13% from 12.5% and to provide for a premium in the
event such Series A Preferred Stock was redeemed prior to January 1, 2002. The
net effect of such reallocation was to increase the value of the BRS offer,
which, giving effect to the reallocation, was estimated to be approximately
$14.25 per share of MEDIQ Stock. Alternatively, BRS indicated during the
negotiations that it would be willing to pay $14.00 cash per share of MEDIQ
Stock, but in a cash-only transaction that would not provide the Company's
stockholders with an equity interest in the Surviving Corporation. BRS would
not, however, agree to an all-cash transaction at a price greater than $14.00.
Because the value of the cash-only alternative was estimated to be approximately
$0.25 per share less than the combined cash and stock proposal, the cash-only
alternative was not pursued and the Company continued to negotiate the Merger
Agreement on the basis that the Merger Consideration would consist of $13.75 in
cash and 0.075 of a share of Series A Preferred Stock. The parties also resolved
most of the other significant issues with respect to the terms of the Merger
Agreement. At this meeting, BRS reiterated that its offer remained subject to
its reaching a satisfactory arrangement with the Rotko Entities and management
in respect of their respective investments in the Surviving Corporation, and in
respect of the Stock Option Agreement, the Rollover Agreement and the
Stockholder Agreements.
On January 11, 1998, the Company's legal counsel discussed with the Special
Committee and its counsel the terms of the BRS proposal, including those aspects
that related to the arrangements among BRS, the Rotko Entities and management.
During the period from January 12 through 14, 1998, the Company's legal counsel
and counsel to the Special Committee held a number of telephonic discussions in
respect of the proposed transactions.
At a special meeting of the Board of Directors held on January 11, 1998, the
Board was advised of the progress of the negotiations with BRS and of the result
of discussions with the second highest bidder. Mr. Bonovitz, a director of the
Company and partner in the law firm of Duane, Morris & Heckscher LLP, counsel to
the Rotko Entities, also reported on discussions he had with counsel to BRS
regarding the general form of the proposed arrangements between BRS and the
Rotko Entities. Mr. Carroll also reported that he had engaged in general
discussions with BRS in respect of the terms of management's investment in the
Surviving Corporation and was awaiting a more specific proposal. At the
conclusion of the meeting, the Board directed the Company's executive
management, with the assistance of its advisors, to seek to finalize the merger
agreement with BRS on the terms described to the Board, and acknowledged that
management and representatives of the Rotko Entities should begin to negotiate
with BRS the arrangements requested by BRS. The Board then scheduled another
special meeting for the following evening.
On January 12, 1998, the Company and its advisors continued to negotiate the
terms of the Merger Agreement with BRS and its representatives, while Mr. Rotko,
independently represented by the firm of Duane, Morris & Heckscher LLP on behalf
of the Rotko Entities, separately negotiated with BRS the
23
<PAGE>
terms of the Stockholder Agreements, the Stock Option Agreement and the Rollover
Agreement. During these negotiations, the advisors to the Rotko Entities advised
BRS that the Rotko Entities would agree to invest one million shares of MEDIQ
Preferred Stock owned by them, representing the minimum amount sought by BRS in
its initial proposal of January 8, in securities of the Surviving Corporation.
Separately, Mr. Carroll, on behalf of himself and certain members of
management, negotiated with BRS an understanding as to the basic terms governing
management's participation in the Surviving Corporation, under which management
would acquire securities of the Surviving Corporation at the same price at which
BRS would acquire securities of the same class and/or series in the Merger.
On the evening of January 12, 1998, the Board held a special meeting at
which the Board reviewed with executive management and the Company's legal and
financial advisors the results of the day's negotiations and certain issues
remaining to be resolved, including the status of the commitments for the
financing required by BRS, the status of the discussions between executive
management and BRS with respect to management's investment in the Surviving
Corporation and the status of the discussions between BRS and the Rotko
Entities. After a discussion, the Board authorized executive management, with
the assistance of the Company's advisors, to seek to finalize the draft merger
agreement on the terms discussed with the Board.
Negotiations in respect of the final terms of the Merger Agreement, the
Stock Option Agreement, the Rollover Agreement, the Stockholder Agreements and
the arrangements with management continued on January 13, 1998 and concluded on
January 14, 1998.
On January 14, 1998, the Special Committee and its legal counsel met with
Mr. Carroll and the Company's legal and financial advisors and discussed in
detail the course of the negotiations with BRS and the proposed treatment of the
Rotko Entities and Management Stockholders in the Merger. In the course of that
discussion, the Special Committee compared the proposed treatment of the
interests of the Rotko Entities and the Management Stockholders to the proposed
treatment of the interests of the Company's other stockholders. The Special
Committee discussed with its counsel and the Company's legal and financial
advisors the fact that other than in respect of the Rolled Shares, the shares of
MEDIQ Stock owned by the Rotko Entities would receive the same consideration in
the Merger as the shares of MEDIQ Stock owned by the Company's other
stockholders. The Special Committee also discussed with its counsel and the
Company's advisors the fact that the Series A Preferred Stock was senior to the
Series B Preferred Stock in respect of dividends, repurchase rights and
liquidation preference, and that the Series B Preferred Stock, unlike the Series
A Preferred Stock, would not possess optional or mandatory redemption features.
The Special Committee also discussed with its counsel and the Company's advisors
the fact that the Rolled Shares to be converted or exchanged by the Rotko
Entities into Surviving Corporation Common Stock and Series B Preferred Stock,
as well as all purchases of securities of the Surviving Corporation by the
Management Stockholders pursuant to the Management Equity Contribution and the
other terms of their arrangements with BRS, would be made at the same prices at
which the Investors would acquire securities of the same class and/or series
pursuant to the Investor Equity Contribution, and that the conversion or
exchange of the Rolled Shares would not cause the Rotko Entities to recognize
any taxable income in respect of the Rolled Shares.
After Mr. Carroll and the Company's legal and financial advisors were
excused from the meeting, the Special Committee and its counsel reviewed the
various aspects of the transaction, the results of the various negotiations with
BRS and the treatment proposed to be received by the Rotko Entities, the
Management Stockholders and the Company's other stockholders in the Merger.
On the evening of January 14, 1998, the Board held a special meeting,
attended by all Board members, executive management, the Company's legal and
financial advisors and counsel to the Special Committee. The Board reviewed with
the Company's advisors the terms of the Merger Agreement and the other
agreements and arrangements contemplated thereby and reviewed the structure of
the Merger. In addition, counsel confirmed for the Board that BRS had stated
that it would not enter into the Merger
24
<PAGE>
Agreement unless, contemporaneously with its execution and delivery, the Rotko
Entities entered into the Stock Option Agreement, the Rollover Agreement and the
Stockholder Agreements.
At the meeting, the Board also discussed, among other things, the agreements
and other arrangements among the Rotko Entities, the Management Stockholders and
BRS. In respect of the Stock Option Agreement, the Board discussed the fact that
the exercise of the Rotko Option could, under certain circumstances, allow BRS
to impede a third party bid for the Company. In reviewing the Stock Option
Agreement, the Board also noted that the Stock Option Agreement was a
requirement of the BRS bid and that, without it, the Company's stockholders
would not be able to receive the Merger Consideration. The Board also discussed
the terms on which the Rotko Entities and the Management Stockholders would
acquire their equity interests in the Surviving Corporation, and noted that such
persons would be acquiring their equity interests at the same prices at which
the Investors would acquire securities of the same class and/or series pursuant
to the Investor Equity Contribution.
Salomon Smith Barney then reviewed with the Board (including the Special
Committee) the financial analyses it performed in connection with its evaluation
of the Merger Consideration from a financial point of view. (See "--Opinion of
the Company's Financial Advisor"). The Board and counsel to each of the Company
and the Special Committee discussed with Salomon Smith Barney such financial
analysis and the underlying methodologies and assumptions utilized for purposes
of such analysis. Salomon Smith Barney then rendered its oral opinion (which
opinion was subsequently confirmed by delivery of a written opinion dated
January 14, 1998) to the effect that, as of the date of such opinion and based
upon and subject to certain matters stated therein, the Merger Consideration was
fair, from a financial point of view, to the holders of MEDIQ Shares (other than
the Rotko Entities and the Management Stockholders, as to which Salomon Smith
Barney was not asked to opine). See "--Opinion of the Company's Financial
Advisor."
The Special Committee then reported to the Board that the Special Committee,
after reviewing the Merger Agreement, the Stock Option Agreement, the Rollover
Agreement, the Stockholder Agreements and the proposed arrangements between the
Management Stockholders and BRS, conferring with its counsel, and considering
the presentations of the Company's legal and financial advisors, approved the
Merger and the Merger Agreement, the Stock Option Agreement, the Rollover
Agreement, the Stockholder Agreements and the transactions and agreements
contemplated thereby and recommended that the Board approve the same.
Thereafter, the Board voted unanimously to approve the Merger and the Merger
Agreement, the Stock Option Agreement, the Rollover Agreement, the Stockholder
Agreements and the transactions and agreements contemplated thereby and to
recommend them for approval by the Company's stockholders.
RECOMMENDATION OF THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS; REASONS FOR
THE MERGER
At its meeting on January 14, 1998, the Board and the Special Committee each
unanimously determined, among other things, that the transactions contemplated
by the Merger Agreement, including the Merger and the execution and delivery of
the Stock Option Agreement, the Rollover Agreement and the Stockholder
Agreements among BRS and the Rotko Entities, and the transactions and agreements
contemplated thereby, taken together, are fair to, and in the best interests of,
the stockholders of the Company. The Special Committee and all of the members of
the Board recommend that holders of MEDIQ Stock vote FOR the Merger.
Other than the recommendations of the Special Committee and the Board of
Directors that the Company's stockholders vote for the Merger, none of BRS, MQ,
the Rotko Entities, the Management Stockholders or any of the persons or
entities set forth on Schedule I hereto has made any recommendation with respect
to the Merger or any transaction or agreement contemplated thereby.
The decisions of the Board and the Special Committee to approve the
Company's execution of the Merger Agreement were based, in large part, upon
balancing the risks and benefits of the Merger against
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the risks and benefits of the other strategic alternatives available to the
Company. After reviewing the terms and conditions of the Merger Agreement and
the transactions contemplated thereby with their respective legal counsel and
the Company's financial advisor, the Board and the Special Committee deemed the
Merger to be the alternative that would be fair to, and in the best interests
of, the stockholders of the Company. See "-- Background of the Merger."
In the course of reaching the decision to approve the Merger Agreement and
the Merger, during a series of meetings and special meetings that began in
November 1997 and concluded with the Special Meeting held on January 14, 1998,
each of the Board and the Special Committee consulted with executive management,
their respective legal counsel and the Company's financial advisor and
considered a number of factors, including, among others, the following:
- that BRS offered the greatest aggregate consideration for each share of
MEDIQ Stock offered in the auction process, and that the value of the
Merger Consideration of approximately $14.25 per share was more than was
offered by the next highest bidder;
- that the $13.75 per share cash portion of the Merger Consideration
represents a premium of approximately 26% over the closing price of
$10.9375 per share of the MEDIQ Common Stock and approximately 27% over
the closing price of $10.8125 per share of the MEDIQ Preferred Stock on
January 13, 1998, and approximately 62% over the closing price of $8.50
per share of the MEDIQ Common Stock and approximately 67% over the closing
price of $8.25 per share of the MEDIQ Preferred Stock on October 29, 1997,
the last trading day prior to the public announcement that the Company was
evaluating strategic alternatives and had engaged Salomon Smith Barney to
assist in that process;
- that the BRS offer was substantially greater than any offer received in
connection with the process conducted in 1995;
- that BRS had delivered to the Company commitments from its lenders for the
entire amount of the debt financing needed to consummate the Merger
transaction;
- the alternatives available to the Rotko Entities as the Company's majority
stockholders, including the possibility that they could sell their control
position without necessarily sharing any control premium with the
Company's other stockholders;
- that the Special Committee and the Board agreed to the Merger only after a
substantial number of potential buyers had been contacted over an extended
period of time in a lengthy auction process designed to elicit third party
proposals to acquire the Company and enhance stockholder value;
- that the auction process was conducted in an evenhanded manner and that
third parties interested in the Company had been afforded sufficient time
and information to submit such a proposal had they wished to do so;
- the opinion of Salomon Smith Barney to the effect that, as of the date of
such opinion and based upon and subject to certain matters stated therein,
the Merger Consideration was fair, from a financial point of view, to the
holders of MEDIQ Shares (other than the Rotko Entities and the Management
Stockholders, as to which Salomon Smith Barney was not asked to opine);
- that the Rotko Entities were willing to agree to vote their shares of
MEDIQ Stock in favor of the Merger and to enter into the Stock Option
Agreement;
- that the Company may, subject to the provisions set forth in the Merger
Agreement, terminate the Merger Agreement in order to pursue a superior
proposal if the Board of Directors determines that doing so is required by
its fiduciary duty to the stockholders of the Company;
- that the amounts of the break-up fee and expense reimbursement under the
Merger Agreement were reasonable in the judgment of the Special Committee
and the Board in light of the value of the Merger Consideration to the
Company's stockholders;
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<PAGE>
- that BRS had agreed to provide the Company with satisfactory financial
assurances regarding the performance by MQ of its obligations under the
Merger Agreement;
- that the Surviving Corporation agreed to honor the employment agreements
of the Management Stockholders, who will therefore be able to continue the
pursuit of their strategic view of the future of the Company; and
- the Special Committee's and the Board's belief that, for the foregoing
reasons, the Merger and Merger Agreement and the transactions contemplated
thereby are fair to, and in the best interests of, the Company's
stockholders.
The foregoing discussion of the information and factors considered and given
weight by the Special Committee and the Board is not intended to be exhaustive.
In view of the variety of factors considered in connection with their evaluation
of the Merger, the Special Committee and the Board did not find it practicable
to, and did not, quantify or otherwise assign relative weights to the specific
factors considered in reaching their determinations. In addition, the Special
Committee and individual members of the Board may have given different weight to
different factors.
The Special Committee and the Board of Directors evaluated the factors
described above in light of their knowledge of the business and operations of
the Company, and their business judgment, and concluded that the Merger and
Merger Agreement and the transactions contemplated thereby are fair to, and in
the best interests of, the Company and its stockholders.
The Special Committee and the Board of Directors believe that the decision
to enter into the Merger is procedurally fair because: (i) management, with the
assistance of the Company's advisors, conducted a thorough auction process; (ii)
the Special Committee was disinterested and was appointed to represent the
interests of the Company's stockholders; (iii) the Special Committee retained
and was advised by Cozen and O'Connor, counsel separate from counsel for the
Company; and (iv) the Board obtained an opinion concerning the fairness, from a
financial point of view, of the Merger Consideration to be received by the
Company's stockholders in the Merger. In light of these approvals and factors,
the Special Committee and the Board of Directors did not find it necessary to
provide for the approval of the Merger Agreement by the affirmative vote of at
least a majority of the unaffiliated stockholders of the Company.
PURPOSES AND REASONS OF BRS AND MQ FOR THE MERGER
The purposes of the Merger are to enable BRS through MQ to make an
investment in, and obtain a controlling interest in, the Company, and to enable
existing stockholders of the Company to realize a substantial premium on the
shares of MEDIQ Stock owned by them. MQ was formed by BRS for the purpose of
making an investment in the Company. MQ elected to proceed with the Merger for
the same purpose that motivated BRS. MQ and BRS believe that the Company will
have greater operating flexibility to focus on its long-term value by
emphasizing growth and operating cash flow without the constraint of the public
market's emphasis on quarterly earnings.
POSITION OF BRS AND MQ AS TO FAIRNESS OF THE MERGER
BRS and MQ have considered the analyses of and the factors examined by the
Special Committee and the Board (described in detail in "--Recommendation of the
Special Committee and the Board of Directors; Reasons for the Merger"), and BRS
and MQ believe these analyses and factors, when considered together with the
establishment of the Special Committee, the opinion of Salomon Smith Barney (see
"--Opinion of the Company's Financial Advisor") and the arm's length nature of
the negotiations between BRS and MQ, on the one hand, and the Company, on the
other, provide a reasonable basis for them to believe, as they do, that the
Merger is fair to the stockholders of the Company. This belief should not,
however, be construed as a recommendation to the Company's stockholders by BRS
or MQ to vote to approve the Merger or the Merger Agreement. Neither BRS nor MQ
has undertaken any formal evaluation of the fairness of the Merger to the
stockholders of the Company and neither of them has assigned specific relative
weights to the factors considered by them.
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<PAGE>
PURPOSES AND REASONS OF THE ROTKO ENTITIES AND MR. CARROLL IN AGREEING TO THE
MERGER
The purposes of the Rotko Entities in agreeing to the transactions
contemplated by the Merger Agreement are to obtain substantial liquidity for
their equity investment in the Company, to facilitate the diversification of
their assets generally and to enable existing stockholders of the Company to
realize a substantial premium on the MEDIQ Shares owned by them. The purposes of
Mr. Carroll in agreeing to the transactions contemplated by the Merger Agreement
are to continue the pursuit of his strategic view of the future of the Company
and to enable existing stockholders of the Company to realize a substantial
premium on the shares of MEDIQ Stock owned by them. See "--Recommendation of the
Special Committee and the Board of Directors; Reasons for the Merger" and
"--Interests of Certain Persons in the Merger."
POSITION OF THE ROTKO ENTITIES AND MR. CARROLL AS TO FAIRNESS OF THE MERGER
Neither the Rotko Entities nor Mr. Carroll has undertaken any formal
evaluation of the fairness of the Merger to the stockholders of the Company and
did not find it practicable to quantify or otherwise attach relative weights to
the various factors considered by them. Based, however, on their consideration
of, among other things, (i) historical market prices for the MEDIQ Stock
(including the fact that the Merger Consideration of approximately $14.25 per
share of MEDIQ Stock (valuing .075 of a share of Series A Preferred Stock at
approximately $0.50) is substantially higher than the market price per share of
MEDIQ Common Stock and MEDIQ Preferred Stock on the last full day on which each
such class of stock traded prior to announcement that the Company and MQ had
entered into the Merger Agreement), and (ii) the factors taken into account by
the Special Committee and the Board of Directors, including that an auction
process was conducted on behalf of the Company and that the Board of Directors
obtained an opinion concerning the fairness, from a financial point of view, of
the Merger Consideration to be received by the Company's stockholders in the
Merger, each of the Rotko Entities and Mr. Carroll believes that the Merger is
fair to the stockholders of the Company.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the Special Committee and the Board
with respect to the Merger, stockholders should be aware that certain officers
and directors of the Company and affiliates, and associates and persons related
to the officers and directors have interests in connection with the Merger that
are different from, or in addition to, the interests of the Company's
stockholders generally. The Special Committee and the Board were aware of these
interests and considered them among the other matters described under "SPECIAL
FACTORS--Recommendation of the Board of Directors and the Special Committee;
Reasons for the Merger."
ROTKO ENTITIES. The Rotko Entities, who as of the date hereof, collectively
were the beneficial owners of approximately 24% of the outstanding MEDIQ Common
Stock (without giving effect to the conversion of any shares of MEDIQ Preferred
Stock into shares of MEDIQ Common Stock) and 75% of the outstanding MEDIQ
Preferred Stock, may be deemed to be affiliates of the Company. The Merger
Agreement contemplates that the Rotko Entities, unlike other stockholders of the
Company, will maintain a continued interest in the Surviving Corporation Common
Stock. The Rotko Entities will also be required to acquire shares of the
Company's Series B Preferred Stock. The Rotko Entities have entered into
Stockholder Agreements pursuant to which they are, subject to certain
limitations, contractually bound to vote all MEDIQ Shares owned by them in favor
of the Merger. The affirmative vote of the shares of MEDIQ Stock subject to the
Stockholder Agreements will be sufficient to approve the Merger and the Merger
Agreement. See "THE STOCKHOLDER AGREEMENTS."
MQ has required, as a condition of its offer to purchase the Company, that
the Rotko Entities enter into an agreement with MQ, pursuant to which the Rotko
Entities must, immediately prior to the Merger, transfer the Rolled Shares to MQ
in exchange for securities of MQ, which at the Effective Time will be converted
into the Converted Shares. In the alternative, the Rolled Shares may be
converted into the Converted Shares in the Merger. MQ, BRS and the Rotko
Entities have also agreed to enter into a
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<PAGE>
securities holders agreement with respect to the securities in the Surviving
Corporation owned by the Rotko Entities (the "Equity Holders Agreement"). Such
Equity Holders Agreement will contain certain "drag-along," "tag-along,"
preemptive rights and registration rights with respect to such shares, as well
as certain restrictions on their transfer. In addition, the Equity Holders
Agreement will provide that the Rotko Trust will have the right to elect one
director of the Company so long as the Rotko Entities collectively own 5% or
more of the Surviving Corporation Common Stock. See "THE ROLLOVER AGREEMENT."
SUCCESS BONUSES. The employment agreements with the Company's President and
Chief Executive Officer, Thomas E. Carroll, its Chief Financial Officer, Jay M.
Kaplan, and Michael F. Sandler, a director of the Company and its former Chief
Financial Officer, include provisions entitling those persons to bonuses,
calculated based upon the purchase price paid for the Company and, in the case
of Mr. Sandler, the value received by the Company's stockholders upon a sale of
the Company.
Under the terms of his employment agreement with the Company, Mr. Carroll
will receive a one-time "success bonus" if, before June 30, 1998, a "Strategic
Transaction" (as defined in his employment agreement) occurs. The Merger
constitutes a "Strategic Transaction." Mr. Carroll's bonus payable upon a
Strategic Transaction is equal to the sum of (i) 0.25% of the aggregate purchase
price paid for the Company up to $375.0 million plus (ii) if the aggregate
purchase price paid for the Company exceeds $375.0 million, 1.5% of any purchase
price in excess of $375.0 million. For purposes of calculating the bonus, the
aggregate purchase price is based on the sum of (x) the total cash consideration
paid, plus (y) the value of any securities or other property received as
consideration, plus (z) the aggregate amount (including, without limitation,
accrued but unpaid interest and the unpaid amount of any capital leases) of any
liabilities assumed or refinanced by the purchaser in the acquisition, other
than current liabilities taken into account in computing working capital (except
for current liabilities for indebtedness for money borrowed, including accrued
but unpaid interest on capital leases). Accordingly, the Company expects to pay
a bonus to Mr. Carroll of approximately $[ ] upon consummation of the Merger.
Mr. Carroll's employment agreement further provides that if he becomes entitled
to receive the incentive bonus referred to in the preceding sentence, he will
forfeit all rights to any stock appreciation right compensation previously
granted to him pursuant to his employment agreement. Mr. Carroll is also
entitled to be indemnified by the Company for certain expenses incurred in
connection with his employment by the Company.
Under the terms of his employment agreement, Mr. Kaplan, Senior Vice
President and Chief Financial Officer of the Company, is entitled to receive a
one-time cash bonus upon the occurrence of a "Sale Event" (as defined in his
employment agreement). The Merger constitutes a "Sale Event." Mr. Kaplan's bonus
payable upon a Sale Event equals the sum of (i) 0.025% of the aggregate purchase
price paid for the Company up to $375.0 million plus (ii) if the aggregate
purchase price paid for the Company exceeds $375.0 million, 0.15% of any
purchase price in excess of $375.0 million. For purposes of calculating the
bonus, the aggregate purchase price is based on the sum of (x) the total cash
consideration paid for the Company, plus (y) the value of any securities or
other property received as consideration for the Company, plus (z) the aggregate
amount of any liabilities of the Company 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 of the Company
(except for current liabilities for indebtedness for money borrowed, including
accrued but unpaid interest on capital leases). Accordingly, the Company expects
to pay a bonus to Mr. Kaplan of approximately $[ ] upon consummation of the
Merger.
Mr. Sandler, a director of the Company, was Senior Vice President --
Finance, Treasurer and Chief Financial Officer of the Company until September
30, 1997. Under the terms of his employment agreement, Mr. Sandler is entitled
to receive a one-time bonus upon a "Sale Event" (as defined in his employment
agreement), based on the value realized by the Company's stockholders in the
event of such a transaction, if the transaction occurs during either the term of
his employment agreement or the one-year period thereafter. The Merger
constitutes a "Sale Event." If the Company's stockholders receive value for
their MEDIQ Shares equal to $6.50 or more per share, Mr. Sandler's bonus would
equal $.5 million, plus
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an additional $1,000 for each additional $.01 by which the value received by the
Company's stockholders exceeds $6.50 per MEDIQ Share. Accordingly, the Company
expects to pay a bonus to Mr. Sandler of approximately $[ ] upon
consummation of the Merger.
The executive officers of the Company are expected to remain in place after
the Merger and their current employment agreements will remain in effect.
OPTIONS. Options held by officers of the Company, (including Options which
have not yet vested), will be treated in the same manner as Options held by
non-officers, as described in "THE MERGER--Option Consideration" and "Effect on
Employee Benefit Matters." The number of Options held by Mr. Carroll, Mr.
Sandler and Mr. Kaplan are set forth in the table below.
<TABLE>
<CAPTION>
OPTION CONSIDERATION TO
BE RECEIVED IN THE MERGER
-------------------------------------------
SHARES OF
OPTIONS OPTIONS SERIES A
NAME, TITLE (VESTED) (UNVESTED) CASH (1) PREFERRED STOCK
- --------------------------------- --------- ----------- ------------ -----------------------------
<S> <C> <C> <C> <C>
Thomas E. Carroll, President and
Chief Executive Officer........ 180,000 128,000 $ 2,719,000 23,100
Michael F. Sandler, former Chief
Financial Officer.............. 165,000 0 $ 1,755,000 12,375
Jay M. Kaplan, Senior Vice
President and Chief Financial
Officer........................ 52,000 71,000 $ 1,063,000 9,225
</TABLE>
- ------------------------
(1) Represents net proceeds reduced for applicable exercise prices.
MANAGEMENT EQUITY INVESTMENT. The Management Stockholders will use the
after-tax proceeds from approximately $9.5 million in value received in respect
of the Option Consideration (the "Net Proceeds") to purchase securities of MQ
which will be converted into 7.7% of the Common Stock of the Surviving
Corporation upon consummation of the Merger at an aggregate purchase price of
$719,364, with the remaining Net Proceeds of approximately $ used to
purchase securities of MQ which will be converted into Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock of the Surviving
Corporation (the "Series C Preferred Stock" and, collectively with the Series A
Preferred Stock and the Series B Preferred Stock, the "Surviving Corporation
Preferred Stock"). The Surviving Corporation Preferred Stock will be acquired by
the Management Stockholders as described in "CAPITALIZATION."
Immediately after the Effective Time and in connection with the Merger, the
Management Stockholders and others will also have the opportunity to purchase up
to 7.5% of the Surviving Corporation Common Stock at an aggregate purchase price
of $833,333. The Surviving Corporation Common Stock so acquired (the "Management
Purchase Shares") will, as to an individual Management Stockholder, be subject
to certain rights of the Company to repurchase such Surviving Corporation Common
Stock if, at any time during the five years after the date of such acquisition,
such Management Stockholder resigns or is terminated. The amount of shares
subject to the Company's repurchase option and the price at which they may be
repurchased are subject to a variety of factors, including whether the
Management Stockholder resigns, is terminated for cause or without cause and at
what point over the five-year period any resignation or termination occurs.
Over a five-year period beginning on the Effective Time, the Management
Stockholders and others will also have the opportunity to receive non-qualified
options (the "New Options") to purchase shares of Surviving Corporation Common
Stock equal to an aggregate of 2.5% of the outstanding Surviving Corporation
Common Stock at an aggregate exercise price of $277,777. Each year during such
five-year period, the Management Stockholders will have the opportunity to
acquire New Options for 0.5% of the
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<PAGE>
outstanding Surviving Corporation Common Stock. For each year, the opportunity
to receive any New Option will be subject to the Surviving Corporation's
achievement of certain financial performance conditions. In certain
circumstances, the Management Stockholders will have the right to immediately
receive any unissued or unvested New Options regardless of whether certain
financial performance conditions have been met. See "THE MERGER--Option
Consideration".
OTHER. Consummation of the Merger will also trigger certain rights to
receive distributions from the Company's deferred compensation plan.
Pursuant to the Merger Agreement, the Company is obligated, for a period of
six years after the effective time of the Merger, to indemnify directors and
officers of the Company and, subject to certain limitations, to maintain
directors' and officers' liability insurance substantially similar to that
currently in effect.
MQ currently anticipates that BRS, or an affiliate of BRS, will enter into a
Management Agreement with the Company (the "Management Agreement") at the
Effective Time. The Management Agreement will provide that BRS or such affiliate
will receive an annual management fee of $1.0 million from the Surviving
Corporation. In addition, BRS, or an affiliate of BRS, will receive a
transaction fee in respect of the Transactions.
ANTICIPATED ACCOUNTING TREATMENT
The transaction has been structured as a merger so that stockholders of the
Company will have an opportunity to vote for or against the transaction prior to
any transfer of control and so that it can qualify and be accounted for as a
recapitalization. If the transaction is accounted for as a recapitalization, the
historical basis of the Company's assets and liabilities will not be affected by
the transaction. See "PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS."
FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of the material federal income tax
consequences of the Merger to owners of MEDIQ Stock and is based upon current
provisions of the Internal Revenue Code of 1986, as amended ("the Code"),
existing regulations thereunder and current administrative rulings and court
decisions, all of which are subject to change. The discussion assumes that
stockholders of the Company hold their shares of MEDIQ Stock as a capital asset.
No attempt has been made to comment on all federal income tax consequences of
the Merger that may be relevant to particular stockholders who are subject to
special tax rules, such as dealers in securities, foreign persons, mutual funds,
insurance companies, tax-exempt entities and persons who do not hold their
shares as capital assets. Furthermore, the discussion does not address tax
consequences that may apply to the Rotko Entities, the Management Stockholders
or to persons who may be considered, applying the constructive stock ownership
rules of Section 318 of the Code, to own shares of stock of the Surviving
Corporation that are held by the Rotko Entities, BRS or other investors in MQ.
OWNERS OF MEDIQ STOCK ARE ADVISED AND EXPECTED TO CONSULT THEIR OWN TAX
ADVISORS REGARDING THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER IN LIGHT OF
THEIR PERSONAL CIRCUMSTANCES AND THE CONSEQUENCES UNDER STATE, LOCAL AND FOREIGN
TAX LAWS.
THE MERGER. Owners of MEDIQ Stock will be treated as recognizing capital
gain or loss equal to the sum of (i) the cash received and (ii) the fair market
value of the Series A Preferred Stock received less the stockholder's basis in
the stock surrendered in the Merger. Such capital gain or loss will be long-term
(20% or 28% rate for non-corporate taxpayers) or short-term, depending on the
stockholder's holding period for the MEDIQ Stock. A stockholder's basis for
Series A Preferred Shares received in the Merger will also equal the fair market
value of such shares at that time.
DISTRIBUTIONS ON SERIES A PREFERRED STOCK. Cash distributions on the Series
A Preferred Stock will be taxable to the holder as ordinary dividend income to
the extent that the cash amount does not exceed the
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Company's then current or accumulated earnings and profits (as determined for
federal income tax purposes). To the extent that the amount of any distribution
on the outstanding Series A Preferred Stock exceeds the Company's then current
or accumulated earnings and profits (as determined for federal income tax
purposes), the distribution will be treated as a return of capital, thus
reducing the holder's adjusted tax basis in such outstanding Series A Preferred
Stock. The amount of any such excess distribution that is greater than the
holder's adjusted tax basis in the outstanding Series A Preferred Stock will be
taxed as capital gain and will be long-term capital gain (at a 20% or 28% rate
for non-corporate taxpayers, as applicable) if the holder's holding period for
such outstanding Series A Preferred Stock exceeds one year.
To the extent that dividends are treated as ordinary income, dividends
received by corporate holders generally will be eligible for the 70%
dividends-received deduction under Section 243 of the Code. There are, however,
many exceptions and restrictions relating to the availability of such
dividends-received deduction, such as restrictions relating to (i) the holding
period of the stock on which the dividends are sought to be deducted, (ii)
debt-financed portfolio stock, (iii) dividends treated as "extraordinary
dividends" for purposes of Section 1059 of the Code, and (iv) taxpayers that pay
alternative minimum tax. Corporate stockholders should consult their own tax
advisor regarding the extent, if any, to which such exceptions and restrictions
may apply to their particular factual situations.
Under Section 1059 of the Code, the tax basis of Series A Preferred Stock
that has been held by a corporate stockholder for two years or less is generally
reduced (but not below zero) by the non-taxed portion of an "extraordinary
dividend" for which a dividends-received deduction is allowed. To the extent
that a corporate holder's tax basis in its Series A Preferred Stock would have
been reduced below zero, such holder must generally recognize gain upon receipt
of such an "extraordinary dividend." Generally, an "extraordinary dividend" is a
dividend that (i) equals or exceeds 5% of the holder's basis in the Series A
Preferred Stock (treating all dividends having ex-dividend dates within an
85-day period as a single dividend) or (ii) exceeds 20% of the holder's adjusted
basis in the Series A Preferred Stock (treating all dividends having ex-dividend
dates within a 365-day period as a single dividend).
CORPORATE STOCKHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT
TO THE POSSIBLE APPLICATION OF SECTION 1059 OF THE CODE TO THEIR OWNERSHIP OF
PREFERRED STOCK.
The declaration and payment of cash dividends with respect to shares of
Series A Preferred Stock will, after the Effective Time, be limited under the
terms of the financing arrangements of the Company. See "DESCRIPTION OF MEDIQ
CAPITAL STOCK FOLLOWING THE MERGER--Series A Preferred Stock--Dividends" and
"SOURCES AND AMOUNT OF FUNDS". Dividends that are not declared currently will,
under the terms of the Series A Preferred Stock, be added to the liquidation
preference of the Series A Preferred Stock unless declared and paid prior to
liquidation. The Company does not believe that, under current law, holders of
Series A Preferred Stock will be required to include any such accrued and unpaid
dividends in income until such dividends are paid in cash, and the Company does
not intend to treat any such accruing but unpaid dividends as distributions to
holders of Series A Preferred Stock under the information reporting rules.
Holders should be aware that the Internal Revenue Service could take the
position that such dividends are includible in income as they accrue prior to
the time that such dividends are declared and paid in cash.
SERIES A PREFERRED STOCK DISCOUNT. The Series A Preferred Stock is subject
to mandatory redemption on December 31, 2011 (the "Mandatory Redemption"). In
addition, subject to certain restrictions, the Series A Preferred Stock is
redeemable at any time or from time to time at the option of the Company at
specified redemption prices (the "Optional Redemption"). See "DESCRIPTION OF
MEDIQ CAPITAL STOCK. FOLLOWING THE MERGER--Series A Preferred Stock--Optional
Redemption" and "-- Mandatory Redemption." In the event that the fair market
value of a share of Series A Preferred Stock is determined to be less than its
stated liquidation preference at the time of the Merger, holders of Series A
Preferred Stock may be required, pursuant to Section 305(c) of the Code, to
treat a portion of the
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<PAGE>
difference between the Series A Preferred Stock's issue price and its redemption
price as constructive distributions of property includible in income on a
periodic basis as it accrues.
Section 305(c) of the Code provides that the entire amount of a redemption
premium with respect to preferred stock that is subject to mandatory redemption
is treated as being distributed to the holders of such preferred stock on an
economic accrual basis over the period from issuance to the date of such
mandatory redemption. Preferred stock generally is considered to have a
redemption premium for this purpose if the price at which it must be redeemed
(the "Redemption Price") exceeds its issue price (its fair market value at the
time of issuance) by more than a DE MINIMIS amount. For this purpose, such
excess (the "Series A Preferred Stock Discount") will be treated as zero if it
is less than 1/4 of 1% of the Redemption Price multiplied by the number of
complete years from the date of issuance of the stock until the stock must be
redeemed. Series A Preferred Stock Discount is taxable as a constructive
distribution to the holder (treated as a dividend to the extent of the Company's
current and accumulated earnings and profits and otherwise subject to the
treatment described above for distributions) over the term of the preferred
stock using a constant interest rate method.
Under recently issued regulations (the "Regulations"), certain optional
redemption features may also result in constructive distributions over the
period from the date of issue to the date of such optional redemption
distribution. The Company does not believe that the optional redemption rights
will result in constructive distributions to holders of Series A Preferred Stock
under these rules.
SALE OR REDEMPTION OF SERIES A PREFERRED STOCK. A redemption of shares of
Series A Preferred Stock for cash would be a taxable event. A redemption of
shares of Series A Preferred Stock for cash will generally be treated as a sale
or exchange if the holder does not own, actually or constructively within the
meaning of Section 318 of the Code, any stock of the Company other than the
redeemed Series A Preferred Stock. If a holder does own, actually or
constructively, other stock of the Company (including Series A Preferred Stock
not redeemed), a redemption of Series A Preferred Stock may, in certain
circumstances, be treated as a dividend to the extent of the Company's current
and accumulated earnings and profits (as determined for federal income tax
purposes). Such dividend treatment would not be applied if the redemption is
"not essentially equivalent to a dividend" with respect to the holder under
Section 302(b)(1) of the Code. A distribution to a holder will be "not
essentially equivalent to a dividend" if it results in a "meaningful reduction"
in the holder's stock interest in the Company. For this purpose, a redemption of
Series A Preferred Stock that results in a reduction in the proportionate
interest in the Company (taking into account any actual ownership of common
stock of the Company and any stock constructively owned) of a holder whose
relative stock interest in the Company is minimal and who exercises no control
over corporate affairs should be regarded as a meaningful reduction in the
holder's stock interest in the Company.
If the redemption of the Series A Preferred Stock for cash is not treated as
a distribution taxable as a dividend, the redemption would result in capital
gain or loss equal to the difference between the amount of cash received and the
holder's adjusted tax basis in the Series A Preferred Stock redeemed, except to
the extent that the redemption price includes dividends which have been declared
by the Board of Directors of the Company prior to the redemption (such dividends
being separately taxable as described above). Similarly, upon the sale of the
Series A Preferred Stock, the difference between the sum of the amount of cash
and the fair market value of other property received and the holder's adjusted
basis in the Series A Preferred Stock would result in capital gain or loss. This
gain or loss would be long-term capital gain or loss if the holder's holding
period for the Series A Preferred Stock exceeds one year. Under current law,
capital gains recognized by corporations are taxed at a maximum rate of 35% and
the maximum rate on net capital gains in the case of individuals and other
non-corporate taxpayers is 20% for holding periods over 18 months (28% for
holding periods over one year, but not more than 18 months).
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If a redemption of Series A Preferred Stock is treated as a distribution
that is taxable as a dividend, the amount of the distribution will be measured
by the amount of cash received by the holder. The holder's adjusted tax basis in
the redeemed Series A Preferred Stock will be transferred to any remaining stock
holdings in the Company. If the holder does not retain any actual stock
ownership in the Company (only having a stock interest constructively), the
holder may lose such basis entirely. Under the "extraordinary dividend"
provision of Section 1059 of the Code, a corporate holder may, under certain
circumstances, be required to reduce its basis in its remaining shares of stock
of the Company (and possibly recognize gain) to the extent the holder claims the
70% dividends-received deduction with respect to the dividend. See the
discussion above under "--Distributions on Series A Preferred Stock."
BACKUP WITHHOLDING. Owners of MEDIQ Shares should be aware that the Company
will be required in certain cases to withhold and remit to the United States
Treasury 31% of amounts payable in the Merger or as dividends on Series A
Preferred Shares to any person (1) who has provided either an incorrect tax
identification number or no number at all, (2) who is subject to backup
withholding by the Internal Revenue Service for failure to report the receipt of
interest or dividend income properly, or (3) who has failed to certify to the
Company that he is not subject to backup withholding or that he is an "exempt
recipient." Backup withholding is not an additional tax, but rather may be
credited against the taxpayer's tax liability for the year.
OPINION OF THE COMPANY'S FINANCIAL ADVISOR
Salomon Smith Barney was retained by the Company to act as its financial
advisor in connection with the proposed Merger. In connection with such
engagement, the Company requested that Salomon Smith Barney evaluate the
fairness, from a financial point of view, to the holders of MEDIQ Shares (other
than the Rotko Entities and the Management Stockholders, as to which Salomon
Smith Barney was not asked to opine) of the consideration to be received by such
holders in the Merger. On January 14, 1998, at meetings of the Board of
Directors of the Company and the Special Committee held to evaluate the proposed
Merger, Salomon Smith Barney delivered an oral opinion (which opinion was
subsequently confirmed by delivery of a written opinion dated January 14, 1998)
to the effect that, as of the date of such opinion and based upon and subject to
certain matters stated therein, the Merger Consideration was fair, from a
financial point of view, to the holders of MEDIQ Shares (other than the Rotko
Entities and the Management Stockholders).
In arriving at its opinion, Salomon Smith Barney reviewed the Merger
Agreement and the terms of the Series A Preferred Stock attached as an exhibit
thereto and held discussions with certain senior officers, directors and other
representatives and advisors of the Company and certain senior officers and
other representatives and advisors of MQ concerning the business, operations and
prospects of the Company. Salomon Smith Barney examined certain publicly
available business and financial information relating to the Company as well as
certain financial forecasts and other information and data for the Company which
were provided to or otherwise discussed with Salomon Smith Barney by the
management of the Company. Salomon Smith Barney reviewed the financial terms of
the Merger as set forth in the Merger Agreement in relation to, among other
things: current and historical market prices and trading volumes of MEDIQ
Shares; the financial condition and historical and projected earnings and other
operating data of the Company; and the capitalization of the Company and MQ.
Salomon Smith Barney also considered, to the extent publicly available, the
financial terms of certain other similar transactions recently effected which
Salomon Smith Barney considered relevant in evaluating the Merger and analyzed
certain financial, stock market and other publicly available information
relating to the businesses of other companies whose operations Salomon Smith
Barney considered relevant in evaluating those of the Company. In connection
with its engagement, Salomon Smith Barney was requested to approach, and held
discussions with, third parties to solicit indications of interest in a possible
acquisition of the Company. In addition to the foregoing, Salomon Smith Barney
conducted such other analyses and examinations and
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considered such other financial, economic and market criteria as Salomon Smith
Barney deemed appropriate in arriving at its opinion. Salomon Smith Barney noted
that its opinion was necessarily based upon information available, and
financial, stock market and other conditions and circumstances existing and
disclosed, to Salomon Smith Barney as of the date of its opinion.
In rendering its opinion, Salomon Smith Barney assumed and relied, without
independent verification, upon the accuracy and completeness of all financial
and other information and data publicly available or furnished to or otherwise
reviewed by or discussed with Salomon Smith Barney. With respect to financial
forecasts and other information and data provided to or otherwise reviewed by or
discussed with Salomon Smith Barney, the management of the Company advised
Salomon Smith Barney that such forecasts and other information and data were
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the management of the Company as to the future financial
performance of the Company. Representatives of the Company also advised Salomon
Smith Barney that, in the Merger, the MEDIQ Preferred Stock would be treated as
the equivalent of the MEDIQ Common Stock into which it is convertible and,
therefore, with the consent of the Board of Directors of the Company, Salomon
Smith Barney evaluated the MEDIQ Preferred Stock as the equivalent of the MEDIQ
Common Stock for purposes of its opinion. Salomon Smith Barney assumed, with the
consent of the Board of Directors of the Company, that the Merger will be
recorded as a recapitalization for financial reporting purposes. Salomon Smith
Barney did not express any opinion as to what the value of the Series A
Preferred Stock will be when issued pursuant to the Merger or the price at which
the Series A Preferred Stock will trade or otherwise be transferable subsequent
to the Merger. Salomon Smith Barney did not make and was not provided with an
independent evaluation or appraisal of the assets or liabilities (contingent or
otherwise) of the Company nor did Salomon Smith Barney make any physical
inspection of the properties or assets of the Company. Although Salomon Smith
Barney evaluated the Merger Consideration from a financial point of view,
Salomon Smith Barney was not asked to and did not recommend the specific
consideration payable in the Merger, which was determined through negotiation
between the Company and MQ. No other limitations were imposed by the Company on
Salomon Smith Barney with respect to the investigations made or procedures
followed by Salomon Smith Barney in rendering its opinion.
THE FULL TEXT OF THE WRITTEN OPINION OF SALOMON SMITH BARNEY DATED JANUARY
14, 1998, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED HERETO AS ANNEX II AND IS
INCORPORATED HEREIN BY REFERENCE. HOLDERS OF MEDIQ SHARES ARE URGED TO READ THIS
OPINION CAREFULLY IN ITS ENTIRETY. THE OPINION OF SALOMON SMITH BARNEY IS
DIRECTED TO THE BOARD OF DIRECTORS OF THE COMPANY AND RELATES ONLY TO THE
FAIRNESS OF THE MERGER CONSIDERATION FROM A FINANCIAL POINT OF VIEW, DOES NOT
ADDRESS ANY OTHER ASPECT OF THE MERGER OR RELATED TRANSACTIONS AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD
VOTE AT THE MEDIQ SPECIAL MEETING. THE SUMMARY OF THE OPINION OF SALOMON SMITH
BARNEY SET FORTH IN THIS PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In preparing its opinion, Salomon Smith Barney performed a variety of
financial and comparative analyses, including those described below, and
provided the Company's Board and the Special Committee with a written
presentation with respect to such analyses. A copy of Salomon Smith Barney's
written presentation has been filed as an exhibit to the Schedule 13E-3 filed
with the Commission with respect to the Merger and will be available for
inspection and copying at the principal executive offices of the Company during
regular business hours by any interested stockholder or representatives of such
stockholder who have been designated as such in writing and may be inspected and
copied and obtained by mail from the Commission in the manner specified in
"AVAILABLE INFORMATION." The summary of such analyses does not purport to be a
complete description of the analyses underlying Salomon Smith Barney's opinion.
The preparation of a fairness opinion is a complex analytic process involving
various determinations as to the most appropriate and relevant methods of
financial analyses and the application of those methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. Accordingly, Salomon Smith Barney believes that its
analyses must be considered as
35
<PAGE>
a whole and that selecting portions of its analyses and factors, without
considering all analyses and factors, could create a misleading or incomplete
view of the processes underlying such analyses and opinion. In its analyses,
Salomon Smith Barney made numerous assumptions with respect to the Company, MQ,
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of the
Company and MQ. The estimates contained in such analyses and the valuation
ranges resulting from any particular analysis are not necessarily indicative of
actual values or predictive of future results or values, which may be
significantly more or less favorable than those suggested by such analyses. In
addition, analyses relating to the value of businesses or securities do not
purport to be appraisals or to reflect the prices at which businesses or
securities actually may be sold. Accordingly, such analyses and estimates are
inherently subject to substantial uncertainty. Salomon Smith Barney's opinion
and analyses were only one of many factors considered by the Board of Directors
of the Company and the Special Committee in their evaluation of the Merger and
should not be viewed as determinative of the views of the Board of Directors,
the Special Committee or management of the Company with respect to the Merger
Consideration or the proposed Merger.
SELECTED COMPANY ANALYSIS. Using publicly available information, Salomon
Smith Barney analyzed, among other things, the market values and trading
multiples of the following selected publicly traded companies in the medical
equipment rental industry: Cohr Inc.; DVI Inc.; Hillenbrand Industries, Inc.;
Kinetic Concepts, Inc.; and Leasing Solutions Inc. (collectively, the "Selected
Companies"). Salomon Smith Barney compared market values as multiples of, among
other things, estimated calendar 1998 and 1999 earnings per share ("EPS"), and
adjusted market values (fully diluted market value, plus total debt outstanding,
less cash) as multiples of, among other things, latest 12 months revenues and
earnings before interest, taxes, depreciation and amortization ("EBITDA"). EPS
multiples for the Selected Companies were based on estimates of selected
investment banking firms and EPS multiples for the Company were based on
internal estimates of the management of the Company. All multiples were based on
closing stock prices as of January 12, 1998. Applying a range of selected
multiples for the Selected Companies of estimated calendar 1998 and 1999 EPS and
latest 12 months revenue and EBITDA of 14.0x to 18.0x, 11.5x to 14.5x, 2.2x to
2.8x and 7.7x to 9.3x, respectively, to corresponding financial data for the
Company resulted in an equity reference range for MEDIQ of approximately $9.86
to $12.93 per share, as compared to the Merger Consideration of approximately
$14.25 per share.
SELECTED MERGER AND ACQUISITION TRANSACTIONS ANALYSIS. Using publicly
available information, Salomon Smith Barney analyzed, among other things, the
implied transaction value multiples paid in the following selected transactions
in the medical equipment rental industry (acquiror/target): J.W. Childs Equity
Partners LP/Universal Hospital Services, Inc.; Richard C. Blum & Associates LP
and Fremont Partners LP/ Kinetic Concepts, Inc.; Universal Hospital Services,
Inc./Biomedical Equipment Rental & Sales, Inc.; MEDIQ/KCI Therapeutic Services,
Inc.; and MEDIQ/ATI Medical Inc. (collectively, the "Selected Transactions").
Salomon Smith Barney compared, among other things, transaction values as
multiples of latest 12 months revenues, EBITDA and earnings before interest and
taxes ("EBIT"). All multiples for the Selected Transactions were based on
information available at the time of announcement of the transaction. Applying a
range of selected multiples (excluding outliers) for the Selected Transactions
of latest 12 months revenues, EBITDA and EBIT of 2.2x to 2.8x, 6.4x to 7.9x and
13.2x to 16.2x, respectively, to corresponding financial data for the Company
resulted in an equity reference range for the Company of approximately $10.32 to
$13.42 per share, as compared to the Merger Consideration of approximately
$14.25 per share.
No company, transaction or business used in the "Selected Company Analysis"
or "Selected Merger and Acquisition Transactions Analysis" as a comparison is
identical to the Company, MQ or the Merger. Accordingly, an analysis of the
results of the foregoing is not entirely mathematical; rather, it involves
complex considerations and judgments concerning differences in financial and
operating characteristics and other factors that could affect the acquisition,
public trading or other values of the Selected
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<PAGE>
Companies, Selected Transactions or the business segment, company or transaction
to which they are being compared.
DISCOUNTED CASH FLOW ANALYSIS. Salomon Smith Barney performed a discounted
cash flow analysis of the projected free cash flows of the Company for fiscal
years 1998 through 2002, based on internal estimates of the management of the
Company prepared under two scenarios, a base case ("Case I") and a growth case
("Case II"). The stand-alone discounted cash flow analysis of the Company was
determined by (i) adding (x) the present value of projected free cash flows over
the five-year period from 1998 to 2002 and (y) the present value of the
Company's estimated terminal value in year 2002 and (ii) subtracting the current
net debt of the Company. The range of estimated terminal values for the Company
at the end of the five-year period was calculated by applying terminal value
multiples ranging from 7.0x to 8.0x to the Company's projected 2002 EBITDA. The
cash flows and terminal values of the Company were discounted to present value
using discount rates ranging from 10.5% to 12.5% (Case I) and 14.5% to 16.5%
(Case II). Utilizing such terminal values and discount rates, these analyses
resulted in equity reference ranges for the Company of approximately $13.87 to
$17.60 per share (Case I) and $14.56 to $18.43 per share (Case II), as compared
to the equity value implied by the Merger Consideration of approximately $14.25
per share.
PREMIUM ANALYSIS. Salomon Smith Barney compared the premiums paid in the
Selected Transactions with the implied premium payable in the Merger. Applying a
range of selected premiums for the Selected Transactions of 25.0% to 40.0% to
the closing stock price of MEDIQ Common Stock on October 29, 1997 (the date on
which the Company publicly announced that it was exploring strategic
alternatives) resulted in an equity reference range for the Company of
approximately $10.63 to $11.90 per share, as compared to the Merger
Consideration of approximately $14.25 per share. The trading range of MEDIQ
Common Stock over the 52-week period prior to public announcement of the Merger
was between $6.31 and $11.88 per share.
ABSOLUTE ACCRETION/DILUTION ANALYSIS. Salomon Smith Barney analyzed the
ranges of prices that could potentially be payable by a strategic buyer of MEDIQ
Shares without the transaction having a dilutive effect on such buyer's EPS,
based on internal estimates of the management of the Company as to, among other
things, the pro forma combined company and the cost savings and other potential
synergies that could result from a transaction with a strategic buyer. For
purposes of such analysis, Salomon Smith Barney assumed, among other things,
transaction borrowing costs for such buyer consistent with a high quality credit
borrower. This analysis indicated that, at purchase prices in excess of $13.00
per share, the acquisition of the Company by a strategic buyer could be dilutive
to such buyer's EPS.
SERIES A PREFERRED STOCK VALUATION ANALYSIS. Salomon Smith Barney analyzed
the Series A Preferred Stock issuable in the Merger, based on Case I and Case II
estimates and on internal estimates of the management of the Company and
representatives of MQ as to, among other things, the debt-to-latest 12 months
EBITDA ratios of the pro forma combined company. The potential yield on the
Series A Preferred Stock was estimated by comparing the terms of the Series A
Preferred Stock with those of senior subordinated debt securities issued by
entities with debt-to-EBITDA levels comparable to those of the pro forma
combined entity. Risk adjustments were made for, among other things, seniority,
maturity, interest rates and liquidity. This analysis resulted in a present
value estimate for the Series A Preferred Stock of approximately $.50 per 0.075
of a share.
OTHER FACTORS AND COMPARATIVE ANALYSES. In rendering its opinion, Salomon
Smith Barney considered certain other factors and conducted certain other
comparative analyses, including, among other things, a review of (i) indications
of interest received from third parties other than MQ; (ii) the Company's
historical and projected financial results; (iii) the history of trading prices
and volume for MEDIQ Shares and the relationship between movements of such
shares, movements in the common stock of the Selected Companies and movements in
the S&P Industrial 500 Index; (iv) the liquidation, voting, conversion and
dividend features of the MEDIQ Preferred Stock and the Series A Preferred Stock;
(v) the potential rates
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<PAGE>
of return of an equity investment in the pro forma combined company; and (vi)
the break-up fees in selected transactions with transaction values of between
$500 million and $750 million.
Pursuant to the terms of Salomon Smith Barney's engagement, the Company has
agreed to pay Salomon Smith Barney for its services in connection with the
Merger an aggregate financial advisory fee based on a percentage of the total
consideration (including liabilities assumed) payable in connection with the
Merger. The fee payable to Salomon Smith Barney is currently estimated to be
approximately $3.7 million. The Company has also agreed to reimburse Salomon
Smith Barney for reasonable travel and other out-of-pocket expenses incurred by
Salomon Smith Barney in performing its services, including the reasonable fees
and expenses of its legal counsel, and to indemnify Salomon Smith Barney and
related persons against certain liabilities, including liabilities under the
federal securities laws, arising out of Salomon Smith Barney's engagement.
Salomon Smith Barney has advised the Company that, in the ordinary course of
business, Salomon Smith Barney and its affiliates may actively trade or hold the
securities of the Company for their own account or for the account of customers
and, accordingly, may at any time hold a long or short position in such
securities. In addition, Salomon Smith Barney and its affiliates (including
Travelers Group Inc. and its affiliates) may maintain relationships with the
Company and affiliates of MQ.
Salomon Smith Barney is an internationally recognized investment banking
firm and was selected by the Company based on Salomon Smith Barney's experience
and expertise. Salomon Smith Barney regularly engages in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive bids, secondary distributions of listed
and unlisted securities, private placements and valuations for estate, corporate
and other purposes.
FORECASTS; LIMITS OF RELIABILITY
The Company does not as a matter of policy make public forecasts or
projections as to future performance or earnings. The Confidential Memorandum
received by potential buyers in November 1997 contained the Management
Projections, an overview of management's estimates of the Company's future
financial performance. The Management Projections are summarized below.
MANAGEMENT PROJECTIONS. Set forth below is a summary of the Management
Projections.
<TABLE>
<CAPTION>
FISCAL YEAR END SEPTEMBER 30,
----------------------------------------------------------
1998 1999 2000 2001 2002
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
REVENUES
Rental (1)............................... $ 149,162 $ 160,148 $ 171,898 $ 184,924 $ 200,216
Sales of Parts, Equipment &
Disposables............................ 29,941 37,999 44,931 51,405 53,722
Outsourcing Services(2).................. 13,444 24,238 42,310 67,723 102,617
---------- ---------- ---------- ---------- ----------
TOTAL REVENUE.......................... $ 192,547 $ 222,385 $ 259,139 $ 304,052 $ 356,555
---------- ---------- ---------- ---------- ----------
COSTS AND EXPENSES
Cost of Sales............................ 36,538 46,597 57,634 71,331 87,437
Operating................................ 56,147 66,068 78,056 92,947 109,773
Selling and Administrative............... 29,326 31,292 33,357 35,525 37,801
Depreciation and Amortization............ 33,268 32,130 31,041 28,796 25,137
---------- ---------- ---------- ---------- ----------
TOTAL EXPENSES......................... $ 155,279 $ 176,087 $ 200,088 $ 228,599 $ 260,148
OPERATING INCOME........................... $ 37,268 $ 46,298 $ 59,051 $ 75,453 $ 96,407
EBITDA..................................... 70,536 78,428 90,092 104,249 121,544
CAPITAL EXPENDITURES....................... 15,000 15,000 15,000 15,000 15,000
</TABLE>
- ------------------------
(1) Includes revenue sharing rentals and SpectraCair rentals.
(2) Includes logistics, reconditioning, management and other services.
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Material assumptions on which the Management Projections were based included
the following:
1. Rental revenue growth is based on a 4% assumed growth rate in base
rental business, a 15% assumed growth rate in rental revenue share
activities and an assumed initial 50% growth rate in the SpectraCair rental
business decreasing to 25% after fiscal 1998. Base rental growth assumed
expansion into geographical markets where the Company currently does not
have a presence, additional penetration in the homecare and alternate care
markets, and new product expansions. Rental revenue share growth assumed
additional market penetration of current revenue share products and the
establishment of additional revenue share programs. Growth in the
SpectraCair rental business assumed internal growth through targeted
pricing, new product offerings, increased volume from existing customers and
new customer development.
2. Growth in the sales businesses assumed continued market expansion of
proprietary products, expansion of such products into corporate accounts and
new alliances with manufacturers, and it was also assumed that volume would
increase through the addition of complementary products and the
establishment of joint marketing arrangements with vendors and
manufacturers.
3. Growth in other revenues primarily assumed continued expansion of
outsourcing revenues through growth in the Company's medical gases business,
additional CAMP-Registered Trademark- and CAMP-Plus programs, and expansion
of manufacturer logistics and biomedical services. Expansion of such
services would be through increased market penetration and volume.
4. The cost and expense categories assumed that the historical
relationship of individual expenses to historical revenue streams will
remain consistent for the periods covered by the projections. Depreciation
and amortization was based on the Company's expected depreciation and
amortization for existing assets adjusted for projected capital expenditures
of $15 million per year.
Subsequent to the preparation of the Management Projections, at the request
of one of the six second-round bidders, management prepared and reviewed with
each of the second-round bidders a set of projections that assumed the
successful completion of an acquisition program by the Company and the
occurrence of certain other events (the "Acquisition Projections"). The
Acquisition Projections reflected the projected effects of potential
acquisitions not included in the Management Projections, the expansion of the
Company's business internationally and the expansion of the Company's
relationship with an existing business partner. Under the Acquisition
Projections, the Company's revenues were projected to be approximately $255,
$351, $405, $477 and $565 million for fiscal years 1998-2002, and EBITDA was
projected to be approximately $101, $145, $165, $192 and $225 million for fiscal
years 1998-2002. As of the date hereof, none of the acquisitions included in the
Acquisition Projections have been consummated or are probable and the Company
has not implemented any international expansion plans. The expansion of the
Company's relationship with an existing business partner has taken place, but
has not yet resulted in additional revenues and continues to be in the
developmental stage.
Management also prepared projections that assumed a more conservative
projected rate of sales and EBITDA growth than the Management Projections. These
projections, together with the Management Projections and certain other
materials, were utilized by Salomon Smith Barney for purposes of its financial
analysis. Under such projections, the Company's revenues were projected to be
approximately $185, $209, $236, $264 and $294 million for fiscal years
1998-2002, and EBITDA was projected to be approximately $68, $74, $81, $88 and
$96 million for fiscal years 1998-2002. Such projections were not provided to
BRS or any other bidder prior to the execution of the Merger Agreement on
January 14, 1998.
The projections were not prepared with a view to public disclosure or
compliance with the published guidelines of the Commission or the guidelines
established by the American Institute of Certified Public Accountants regarding
projections or forecasts, and are included herein only because such information
was provided to MQ and BRS. The projections are subjective in many respects and
thus susceptible to various interpretations and periodic revisions based on
actual experience and business developments. While presented with numeric
specificity, the projections are based upon numerous estimates and assumptions
that are inherently subject to significant business, economic, industry and
competitive uncertainties and contingencies, all of which are difficult to
predict and many of which are beyond the Company's control. Certain assumptions
on which the projections were based related to the achievement of strategic
goals, objectives and targets over the applicable periods that are more
favorable than historical results. There can
39
<PAGE>
be no assurance that the assumptions made in preparing the projections will
prove accurate, and actual results may be materially greater or less than those
contained in the projections. None of the Company, MQ and BRS or their
respective financial advisors assumes any responsibility for the accuracy of any
of the projections. Neither the Company's independent auditors, nor any other
independent accountants or financial advisors, have compiled, examined or
performed any procedures with respect to the projections contained herein, nor
have they expressed any opinion or any form of assurance on such information or
its achievability, and assume no responsibility for, and disclaim any
association with, the projections. The inclusion of the projections should not
be regarded as an indication that the Company, MQ , BRS or any other person who
received such information considers it an accurate prediction of future events.
None of the Company, MQ and BRS intends to update, revise or correct such
projections, even if events make it clear that such projections are not
accurate.
The projections constitute "forward-looking statements" under the Private
Securities Litigation Reform Act of 1995 and involve risks and uncertainties.
The Company's actual results may differ significantly from projected results.
Factors that might cause such a difference include, but are not limited to, the
effect of changing economic or business conditions, the impact of competition
and other risk factors described more fully in the "RISK FACTORS" section of
this Proxy Statement/Prospectus and elsewhere in this Proxy Statement/
Prospectus and the Company's other reports filed with the Commission.
40
<PAGE>
RISK FACTORS
SUBSTANTIAL LEVERAGE; STOCKHOLDERS' DEFICIT; LIQUIDITY
The Company is expected to issue senior discount debentures and to cause
MEDIQ/PRN to issue senior subordinated debt securities and enter into a new
senior secured credit facility as described in "--SOURCES AND AMOUNT OF FUNDS"
to finance a portion of the cash consideration to be paid to the holders of the
MEDIQ Common Stock and the MEDIQ Preferred Stock in the Merger, to refinance a
portion of indebtedness of the Company, to pay a portion of the fees and
expenses incurred in connection with the Merger and the Financings and to
provide for working capital requirements. Although the definitive terms of these
debt instruments have not been finalized as of the date of this Proxy Statement/
Prospectus, the Company expects that such terms will include significant
operating and financial restrictions, including limits on the Company's ability
to incur indebtedness, create liens, sell assets, engage in mergers or
consolidations, make investments and capital expenditures and pay dividends.
Upon consummation of the Merger, it is expected that the Company will have
substantial consolidated indebtedness. As of September 30, 1997, after giving
pro forma effect to the Merger and the Financings and the application of the net
proceeds therefrom, (i) the Company would have had $418.7 million of
consolidated indebtedness and (ii) since 370.7 million will be charged to
stockholders' equity, a deficit of $322.1 million in stockholders' equity would
exist. See "PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS." In addition,
the Company expects to incur additional indebtedness in connection with its
post-Merger strategy of pursuing strategic acquisitions and expanding through
internal growth. See "THE COMPANY." Such increased indebtedness and the
resulting leverage may have important consequences for the Company, including
the following: (i) the Company's ability to obtain additional financing for
acquisitions, working capital, capital expenditures or other purposes may be
impaired and any such financing may not be on terms favorable to the Company;
(ii) interest expense may reduce the funds that otherwise would be available to
the Company for its operations and future business opportunities; (iii) a
substantial decrease in net operating cash flows or an increase in expenses of
the Company could make it difficult for the Company to meet its debt service
requirements or pay cash dividends on the Series A Preferred Stock, and may
require the Company to modify its operations; (iv) substantial leverage may
place the Company at a competitive disadvantage and may make it more vulnerable
to a downturn in its business or the economy generally; (v) certain of such
indebtedness of the Company will be at variable rates of interest, which would
cause the Company to be vulnerable to increases in interest rates; (vi) certain
of such indebtedness will be secured by substantially all the assets of the
Company, reducing its ability to obtain additional financing; and (vii) the
Company may be hindered in the Company's ability to adjust rapidly to changing
market conditions. See "SOURCES AND AMOUNT OF FUNDS."
In addition, the substantial leverage will have a negative effect on the
Company's net income. For the fiscal year ended September 30, 1997, the
Company's loss from continuing operations, on a pro forma basis as adjusted to
give effect to the Transactions and the acquisition of SpectraCair, but
excluding non-recurring items directly attributable to the Merger, would have
been $15.3 million, compared to the historical amounts for such period of $2.2
million. Pro forma net interest expense would have been $38.3 million (net of
$2.1 million of interest income) for the year ended September 30, 1997, as
compared to $17.0 million (net of $2.1 million of interest income) for the same
period on a historical basis. See "PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS."
At the Effective Time, MEDIQ/PRN is expected to enter a new senior secured
credit facility consisting of a $175.0 million senior secured term loan facility
and a $50.0 million senior secured working capital credit facility. The new
credit facility agreement is expected to include certain covenants that, among
other things, restrict: (i) the making of investments, loans and advances,
redemptions and repurchases of capital stock and the paying of dividends and
other restricted payments including dividends in respect of the Series A
Preferred Stock to be issued in the Merger; (ii) the incurrence of additional
indebtedness; (iii) the granting of liens, other than certain permitted liens;
(iv) mergers, consolidations, and sales of all or a substantial part of the
Company's business or property; (v) the sale of assets; and
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(vi) the making of capital expenditures. The Company will also be required to
maintain certain financial ratios, including interest coverage, fixed charge
coverage and leverage ratios. All of these restrictive covenants may restrict
the Company's ability to expand or to pursue its business strategies. The
ability of the Company to comply with these and other provisions of the new
credit facility agreement may be affected by changes in economic or business
conditions, results of operations or other events beyond the Company's control.
The breach of any of these covenants could result in a default under the new
credit facility agreement, in which case, depending on the actions taken by the
lenders thereunder or their successors or assignees, such lenders could elect to
declare all amounts borrowed under the new credit facility, together with
accrued interest, to be due and payable, and the Company could be prohibited
from making payments with respect to other indebtedness or in respect of the
Series A Preferred Stock until the default is cured or all indebtedness under
the new credit facility is paid or satisfied in full. If the Company were unable
to repay such borrowings, such lenders could proceed against their collateral.
If the indebtedness under the new credit facility were to be accelerated, there
can be no assurance that the assets of the Company would be sufficient to repay
in full such indebtedness and the other indebtedness of the Company.
After the Merger is consummated, the Company's principal sources of
liquidity are expected to be cash flows from operations and borrowings under the
working capital credit portion of its senior secured credit facility. It is
anticipated that the Company's principal uses of liquidity under the new working
capital credit facility will be to finance working capital, meet debt service
requirements and make capital expenditures, and a portion thereof will be
available for the issuance of letters of credit. The term loan portion of the
senior secured credit facility will be drawn in full upon consummation of the
Merger.
CONTROL OF THE COMPANY
Upon consummation of the Merger, a majority of the outstanding shares of
each class of capital stock of the Company will be held by the Investors.
Accordingly, such persons will control the Company and have the power to elect a
majority of its directors, to appoint new management and to approve any action
requiring the approval of the holders of any class of the Company's capital
stock, including the adoption of most amendments to the Company's certificate of
incorporation and the approval of mergers or sales of substantially all of the
Company's assets or the creation of new classes or series of the Company's
capital stock. The directors so elected will have the authority to effect
decisions affecting the capital structure of the Company, including the issuance
of additional capital stock (including classes or series which may be senior to,
or pari passu with, the Series A Preferred Stock), the implementation of stock
repurchase programs and the declaration of dividends.
In addition, the existence of a small number of controlling stockholders of
the Company may have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from seeking to acquire, a majority of
the outstanding equity securities of the Company. A third party would be
required to negotiate any such transaction with such stockholders and the
interests of such stockholders may be different from the interests of other
stockholders.
Although, the Investors will hold a majority of the outstanding shares of
each class of capital stock of the Company at the Effective Time, there is no
current intention to engage in any post-Merger transaction that would eliminate
the Series A Preferred Stock of the Company to be issued in the Merger to
existing stockholders of the Company. However, no assurance can be given that
such a transaction will not occur in the future.
DELISTING OF MEDIQ COMMON STOCK AND MEDIQ PREFERRED STOCK FROM AMEX; UNCERTAINTY
REGARDING LIQUIDITY AND MARKET PRICE FOR SERIES A PREFERRED STOCK
The Company and MQ have each agreed, pursuant to the Merger Agreement, to
cooperate in taking, or causing to be taken, all actions necessary, following
consummation of the Merger, to delist the MEDIQ Common Stock and the MEDIQ
Preferred Stock from the AMEX. The Series A Preferred Stock will not
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be listed on the AMEX or any other securities exchange and will not be quoted on
the NASDAQ. Consequently, there can be no assurance that any trading market will
exist or develop for the Series A Preferred Stock after consummation of the
Merger. Shares of the Series A Preferred Stock will trade only in the
over-the-counter market. Although prices in respect of trades will be published
by the National Association of Securities Dealers, Inc. periodically in the
"pink sheets," quotes for such shares would not be readily available. As a
result, it is anticipated that the shares will trade much less frequently
relative to the trading volume of the Company's securities prior to consummation
of the Merger. At present there is no trading market for the Series A Preferred
Stock. There can be no assurance that holders will be able to sell their Series
A Preferred Stock at favorable prices or that the trading prices for the Series
A Preferred Stock will be comparable to the trading prices for MEDIQ Shares
prior to consummation of the Merger. A large number of shares of Series A
Preferred Stock may be traded by holders immediately following completion of the
Merger for various reasons, including payment of taxes. This might tend to
depress the market price of the Series A Preferred Stock.
Although the stated value of the Series A Preferred Stock is set at its
liquidation preference of $10.00 per share, the valuation of the Series A
Preferred Stock is subject to uncertainties and contingencies, all of which are
difficult to predict, and the stated value of the Series A Preferred Stock and
the amounts at which the Series A Preferred Stock are reflected in the pro forma
financial information contained herein are not necessarily reflective of the
prices at which the Series A Preferred Stock will actually trade at or after the
time of their issuance, whether before or after such securities are fully
distributed. The liquidity of and the market prices for the Series A Preferred
Stock can be expected to vary with changes in market and economic conditions,
the financial condition and prospects of the Company and other factors that
generally influence the market prices of securities, including in particular
further fluctuations in the market for high yield securities generally. Such
fluctuations in the high yield market may significantly affect liquidity and
market prices independent of the financial performance of and prospects for the
Company and its subsidiaries. In addition, the Series A Preferred Stock may
trade at prices that do not fully reflect the value of accrued but undeclared
dividends.
LIMITED VOTING RIGHTS
Holders of Series A Preferred Stock will have very limited voting rights as
set forth in "MEDIQ CAPITAL STOCK AFTER THE MERGER--Preferred Stock" and will
have no rights with respect to the election of directors in the Surviving
Corporation, which rights are vested exclusively in the holders of the Surviving
Corporation Common Stock.
RESTRICTIONS ON THE PAYMENT OF DIVIDENDS
Although dividends will accrue on the Series A Preferred Stock at the annual
rate of 13.0%, the declaration and payment of cash dividends will be subject to
the discretion of the Board of Directors. See "DESCRIPTION OF MEDIQ CAPITAL
STOCK FOLLOWING THE MERGER--Series A Preferred Stock." The ability of the
Company to declare and pay such dividends will depend upon its financial
condition, cash requirements, future prospects, and other factors deemed
relevant by the Board of Directors. The ability of the Board of Directors to
declare and pay such dividends may also be limited by the terms of any financing
arrangements which the Company may enter into in connection with the Merger. See
"SOURCES AND AMOUNT OF FUNDS." In addition, under Delaware law, the Company is
permitted to pay dividends on its capital stock, including the Series A
Preferred Stock, only out of its surplus or, in the event that it has no
surplus, out of its net profits for the year in which a dividend is declared or
for the immediately preceding fiscal year. Surplus is defined as the excess of a
company's total assets over the sum of its total liabilities plus the par value
of its outstanding capital stock. In order to pay dividends in cash, the Company
must have surplus or net profits equal to the full amount of the cash dividend
at the time such dividend is declared. In determining the Company's ability to
pay dividends, Delaware law permits the Board of Directors of the Company to
revalue the Company's assets and
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liabilities from time to time to their fair market values in order to create
surplus. The Company cannot predict what the value of its assets or the amount
of its liabilities will be in the future and, accordingly, there can be no
assurance that the Company will be able to pay cash dividends on the Series A
Preferred Stock. See "--Substantial Leverage; Stockholders' Deficit; Liquidity"
and "PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS." Even if the Company
has the ability to pay cash dividends on the Series A Preferred Stock, the
declaration and payment of such dividends will remain subject to the discretion
of the Board of Directors to declare and pay any such cash dividends and there
can be no assurance that the Board of Directors will declare and pay cash
dividends in respect of any given dividend payment period.
POSSIBLE TERMINATION OF EXCHANGE ACT REPORTING
After the Effective Time, the Company may not, depending upon the number of
holders of the Series A Preferred Stock, be subject to the reporting
requirements of the Exchange Act. The Company and MQ have agreed that, for a
period of twenty-four months after the Effective Time, the Company will continue
to comply with the periodic reporting requirements of the Exchange Act and
provide reports or information to its public stockholders so long as at least
500,000 shares of the Series A Preferred Stock remain outstanding. After the
expiration of the twenty-four month period following the Merger, the Company
may, depending upon the number of holders of the Series A Preferred Stock, no
longer file periodic reports under the Exchange Act or provide reports or
information to its stockholders. As a result, the information available to
stockholders regarding the financial condition of the Company could be reduced,
which reduction could have a material adverse effect on the value of the Series
A Preferred Stock. The Company currently anticipates being required to file
periodic reports under the Exchange Act pursuant to the Senior Subordinated
Notes and Discount Debentures (as defined in "SOURCES AND AMOUNT OF FUNDS"),
although such securities may be repaid subsequent to the Effective Time and the
Company's obligation to file periodic reports under the Exchange Act in respect
of such securities may subsequently terminate.
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THE SPECIAL MEETING
MATTERS TO BE CONSIDERED
The purpose of the Special Meeting is to consider and vote upon a proposal
to approve and adopt the Merger Agreement entered into between MQ and the
Company, and the transactions contemplated thereby, including the Merger. If the
Merger is approved by the stockholders of the Company, MQ will merge with and
into the Company, and each issued and outstanding share of MEDIQ Common Stock
and each issued and outstanding share of MEDIQ Preferred Stock will be converted
into the right to receive (i) $13.75 in cash, without interest, and (ii) 0.075
of a share of Series A Preferred Stock of the Surviving Corporation having the
terms described in DESCRIPTION OF MEDIQ CAPITAL STOCK FOLLOWING THE
MERGER--Series A Preferred Stock, except for MEDIQ Shares owned directly or
indirectly by MQ or the Company or any direct or indirect subsidiary of MQ or
the Company and Dissenting Shares. Each Share that is issued and outstanding
immediately prior to the Effective Time and owned by MQ or the Company or any
direct or indirect subsidiary of MQ or the Company will be canceled and no
payment of any consideration will be made with respect thereto. If the Merger is
approved by the stockholders of the Company, each share of capital stock of MQ
issued and outstanding immediately prior to the Effective Time (including any
shares of capital stock issued by MQ in exchange for the Rolled Shares) will be
converted into and thereafter represent the same number of shares of the same
class of capital stock of the Company, provided that, each of the Rolled Shares
not owned by MQ immediately prior to the Effective Time will be converted into
and thereafter represent the number of shares of capital stock of the Company as
contemplated by the Rollover Agreement. If the Merger is approved, a majority of
the outstanding shares of each class of capital stock of the Company will be
held by the Investors (see "THE MERGER--Conversion of MQ Stock" and "RISK
FACTORS--Control of the Company"). Although the Investors will hold a majority
of the outstanding shares of each class of capital stock of the Company at the
Effective Time, there is no current intention to engage in any post-Merger
transaction which would eliminate the Series A Preferred Stock of the Company to
be issued in the Merger to existing stockholders of the Company. However, no
assurance can be given that such a transaction will not occur in the future. The
Merger Agreement (including the principal exhibits thereto) is attached to this
Proxy Statement/Prospectus as Annex I. See "THE MERGER" and "CERTAIN PROVISIONS
OF THE MERGER AGREEMENT." The Special Committee and the Board of Directors of
the Company have each, by unanimous vote, approved the Merger and the Merger
Agreement and the transactions contemplated thereby and have each recommended
that the Company's stockholders vote FOR approval of the Merger, the Merger
Agreement and the transactions contemplated thereby.
REQUIRED VOTES
The Merger requires the approval at the Special Meeting of (i) the holders
of a majority of the outstanding voting power of the MEDIQ Common Stock and the
MEDIQ Preferred Stock, voting together as a single class and (ii) the holders of
a majority of the shares outstanding MEDIQ Preferred Stock. affirmative
votes of the holders of the outstanding voting power of the MEDIQ Shares, voting
together as a single class, with each share of MEDIQ Common Stock being entitled
to one vote and each share of MEDIQ Preferred Stock being entitled to ten votes,
and (ii) the affirmative vote of stockholders holding shares of MEDIQ
Preferred Stock, being a majority of the shares of MEDIQ Preferred Stock
entitled to vote thereon, are required to adopt and approve the Merger Agreement
and the transactions contemplated thereby, including the Merger.
Pursuant to Stockholders Agreements between MQ and certain stockholders of
the Company, holders of 4,701,464 shares of MEDIQ Common Stock and 4,730,006
shares of MEDIQ Preferred Stock, representing approximately 24% of the
outstanding MEDIQ Common Stock (without giving effect to the conversion of any
shares of MEDIQ Preferred Stock into shares of MEDIQ Common Stock), 75% of the
outstanding MEDIQ Preferred Stock and approximately 63% of the total voting
power of the MEDIQ Stock, voting together as a single class (in each case
without going effect to the exercise of any outstanding
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options to acquire MEDIQ Stock) have agreed, subject to certain limitations, to
vote their shares in favor of the Merger, the Merger Agreement and any other
actions contemplated thereby. The affirmative vote of the shares of MEDIQ Stock
subject to the Stockholder Agreements will be sufficient to approve the Merger
and the Merger Agreement. See "THE STOCKHOLDER AGREEMENTS." Approval of the
Merger by at least a majority of the stockholders who are not affiliated with
the Company is not required.
VOTING AND REVOCATION OF PROXIES
Shares of MEDIQ Stock that are entitled to vote and are represented by a
Proxy properly signed and received at or prior to the Special Meeting, unless
subsequently properly revoked, will be voted in accordance with the instructions
indicated thereon. If a Proxy is signed and returned without indicating any
voting instructions, shares of MEDIQ Stock represented by such Proxy will be
voted FOR the proposal to approve and adopt the Merger Agreement and the
transactions contemplated thereby, including the Merger. The Board of Directors
of the Company is not currently aware of any business to be acted upon at the
Special Meeting other than as described herein. If, however, other matters are
properly brought before the Special Meeting or any adjournments or postponements
thereof, the persons appointed as proxies will have discretion to vote or act
thereon in accordance with their best judgment. The persons appointed as proxies
may not exercise their discretionary voting authority to vote any Proxy in favor
of any adjournments or postponements of the Special Meeting if such proxy
contains an instruction to vote against the approval of the Merger Agreement.
Any Proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before the shares represented by such Proxy are voted at
the Special Meeting by (i) attending and voting in person at the Special
Meeting, (ii) giving notice of revocation of the Proxy at the Special Meeting,
or (iii) delivering to the Secretary of the Company (a) a written notice of
revocation or (b) a duly executed Proxy relating to the same shares and matters
to be considered at the Special Meeting, bearing a date later than the
previously executed Proxy. Attendance at the Special Meeting will not in and of
itself constitute a revocation of a Proxy. All written notices of revocation and
other communications with respect to revocation of proxies should be addressed
as follows: MEDIQ Incorporated, One MEDIQ Plaza, Pennsauken, NJ 08110-1460,
Attention: Secretary, and must be received before the taking of the votes at the
Special Meeting.
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
Only holders of MEDIQ Stock at the close of business on , 1998
(the "Record Date") will be entitled to receive notice of and to vote at the
Special Meeting. At the close of business on the Record Date, the Company had
outstanding and entitled to vote shares of MEDIQ Common Stock and
shares of MEDIQ Preferred Stock. The approximate number of record holders
of MEDIQ Shares on the Record Date is . Because the outcome of the vote on
the Merger Agreement and the transactions contemplated thereby, including the
Merger, is based on the percentage of affirmative votes entitled to be cast by
the holders of all outstanding shares of MEDIQ Preferred Stock and MEDIQ Stock,
abstentions and broker non-votes will have the same effect as a vote against
this proposal.
The presence, in person or by proxy, at the Special Meeting of the holders
at least shares of MEDIQ Common Stock and shares of MEDIQ Preferred
Stock, is necessary to constitute a quorum for the transaction of business.
Shares of MEDIQ Stock represented by Proxies which are marked "abstain" or which
are not marked as to any particular matter or matters will be counted as shares
present for purposes of determining the presence of a quorum on all matters.
Proxies relating to "street name" shares that are voted by brokers will be
counted as shares present for purposes of determining the presence of a quorum
on all matters, but will not be treated as shares having voted at the Special
Meeting as to any proposal as to which authority to vote is withheld by the
broker. The presence, in person or by proxy, of the shares of MEDIQ Stock
subject to the Stockholder Agreements will constitute a quorum for the
transaction of business.
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SOLICITATION OF PROXIES
The Company will bear the cost of the solicitation of Proxies and the cost
of printing and mailing this Proxy Statement/Prospectus. In addition to
solicitation by mail, the directors, officers and employees of the Company may
solicit Proxies from stockholders of the Company by telephone, telegram or in
person. Such directors, officers and employees will not be additionally
compensated for any such solicitation but may be reimbursed for out-of-pocket
expenses in connection therewith. Arrangements will also be made with brokerage
houses and other custodians, nominees and fiduciaries for their forwarding of
solicitation material to the beneficial owners of shares held of record by such
persons and the Company will reimburse such custodians, nominees and fiduciaries
for their reasonable out-of-pocket expenses in connection therewith.
MEDIQ STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY
CARDS.
DISSENTERS' RIGHTS
A holder of shares of MEDIQ Stock wishing to exercise dissenters' rights of
appraisal must, before the taking of the vote on the Merger at the Special
Meeting, deliver to the Company a written demand for appraisal of such shares. A
demand for appraisal will be sufficient if it reasonably informs the Company of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his or her shares and otherwise complies with applicable
law. See "DISSENTING STOCKHOLDERS' RIGHTS."
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THE MERGER
THE PARTIES
The Company is a Delaware corporation that, through its wholly-owned
subsidiary, MEDIQ/PRN, operates the largest movable critical care and life
support medical equipment rental business in the United States. The Company also
sells a variety of disposable products, accessories and repair parts associated
with its rental equipment and also provides outsourcing services such as
logistics and distributions services, asset management, consulting and
administrative services to health care providers. The address and principal
business office of the Company is One MEDIQ Plaza, Pennsauken, New Jersey 08110.
BRS is a Delaware limited partnership principally engaged in the business of
investing in companies. MQ, a Delaware corporation organized by BRS, was
organized in connection with the Merger and has not carried on any activities to
date other than those incident to its formation and the transactions
contemplated by the Merger Agreement. The address of the principal business
offices of each of BRS and MQ is c/o Bruckmann, Rosser, Sherrill & Co., Inc.,
126 East 56th Street, New York, NY 10022.
The Rotko Entities consist of the Rotko 1983 Trust, Michael J. Rotko, Bessie
G. Rotko and Judith M. Shipon. The address of each of the Rotko Entities is c/o
Schnader Harrison Segal & Lewis, 1600 Market Street, Suite 3600, Philadelphia,
PA 19103-7286, Attention: John D. Iskrant, Esq.
Mr. Carroll, Mr. Kaplan and certain other members of the management of the
Company comprise the Management Stockholders.
EFFECTIVE TIME
Pursuant to the Merger Agreement, upon the satisfaction or waiver (to the
extent permissible) of the conditions set forth in the Merger Agreement (see
"THE MERGER--Conditions to Consummation of the Merger"), MQ will merge with and
into the Company with the Company as the Surviving Corporation. The Merger will
be effected pursuant to the provisions of, and with the effect provided in, the
DGCL. The Merger will be consummated by filing with the Secretary of State of
the State of Delaware a certificate of merger in such form as may be required
by, and executed and acknowledged in accordance with, the DGCL (the "Certificate
of Merger"). At the Effective Time, the separate corporate existence of MQ will
cease, and the Surviving Corporation will continue its corporate existence under
the laws of the State of Delaware.
MERGER CONSIDERATION
Pursuant to the Merger, each issued and outstanding share of MEDIQ Common
Stock and each issued and outstanding share of MEDIQ Preferred Stock will be
converted into the right to receive the Merger Consideration of (i) $13.75 in
cash, without interest, and (ii) 0.075 of a share of Series A Preferred Stock of
the Surviving Corporation, except for MEDIQ Shares owned directly or indirectly
by MQ or the Company and Dissenting Shares. Each MEDIQ Share that is issued and
outstanding immediately prior to the Effective Time and owned by MQ or the
Company or any direct or indirect subsidiary of MQ or the Company will be
canceled and no payment of any consideration will be made with respect thereto.
CONVERSION OF MQ STOCK
As a result of the Merger, each share of capital stock of MQ issued and
outstanding immediately prior to the Effective Time (including any shares of
capital stock issued by MQ to the Rotko Entities in exchange for the Rolled
Shares) will be converted into and will represent the same number of shares of
the same class of capital stock of the Surviving Corporation, provided that,
each of the Rolled Shares not owned by MQ immediately prior to the Effective
Time will be converted into and thereafter represent the number of shares of
capital stock of the Surviving Corporation as set forth in the Rollover
Agreement. See "THE ROLLOVER AGREEMENT."
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EXCHANGE OF SHARES
[ ] or another bank or trust company designated by MQ will act as
the Exchange Agent for the Merger (the "Exchange Agent"). The fees and expenses
of the Exchange Agent will be paid by the Surviving Corporation. As soon as
practicable after the Effective Time and in no event later than ten business
days thereafter, the Surviving Corporation will cause the distribution to
holders of record of the certificates representing the MEDIQ Stock (each a
"Certificate") and Option Agreements (as of the Effective Time) of (i) notice of
the effectiveness of the Merger and (ii) a form of letter of transmittal and
other appropriate materials and instructions for use in effecting the surrender
of the Certificates for payment of the Merger Consideration therefor and in
effecting the surrender of the Option Agreements for payment of the Option
Consideration therefor. In the event any Certificate or Option Agreement has
been lost or destroyed, the Exchange Agent is authorized to accept an affidavit
from the record holder of such Certificate or the party to such Option Agreement
in a form reasonably satisfactory to the Surviving Corporation , subject to
other conditions as the Surviving Corporation may reasonably impose (including
the posting of an indemnity bond or other surety). Upon the surrender of each
such Certificate, together with such letter of transmittal, duly completed and
validly executed in accordance with the instructions thereto, the Exchange Agent
will pay out of the payment fund to which MQ remitted the Merger Consideration
and the Option Consideration (the "Payment Fund") amounts which such holders may
be entitled, less any amounts required to be withheld pursuant to applicable tax
laws. Upon the surrender of Option Agreements formerly representing Options,
together with a letter of transmittal, duly completed and validly executed in
accordance with the instructions thereto, the Exchange Agent will pay out of
such payment fund the Option Consideration to the holders of such Option
Agreements, less any amounts required to be withheld pursuant to applicable tax
laws. The Exchange Agent will accept such Certificates and Option Agreements
upon compliance with such reasonable terms and conditions as the Exchange Agent
may impose to effect an orderly exchange thereof in accordance with normal
exchange practices. Until surrendered as contemplated in this paragraph, (i)
each Certificate will be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the Merger
Consideration, and (ii) each Option Agreement will be deemed at any time after
the Effective Time to represent only the right to receive upon such surrender
the Option Consideration. No interest will be paid or will accrue on any cash
payable as Merger Consideration or in lieu of any fractional shares of Series A
Preferred Stock, as the case may be.
FRACTIONAL SHARES
No certificates or scrip representing fractional shares of Series A
Preferred Stock will be issued in connection with the Merger, and such
fractional share interests will not entitle the owner thereof to vote or to any
rights of a stockholder of the Surviving Corporation after the Merger. Each
holder of MEDIQ Shares exchanged pursuant to the Merger who would otherwise have
been entitled to receive a fractional share of Series A Preferred Stock (after
taking into account all MEDIQ Shares delivered by such holder) will receive, in
lieu thereof, a cash payment (without interest) therefor in an amount equal to
the value (determined with reference to the liquidation value of the Series A
Preferred Stock) of such fractional share provided that such cash payments do
not exceed $50,000 in the aggregate. If such cash payments exceed $50,000, each
holder of MEDIQ Shares exchanged pursuant to the Merger who would otherwise have
been entitled to receive a fractional share of Series A Preferred Stock (after
taking into account all MEDIQ Shares delivered by such holder) will receive, in
lieu thereof, a cash payment (without interest) representing such holder's
proportionate interest in the net proceeds from the sale by the Exchange Agent
(following the deduction of applicable transaction costs), on behalf of all such
holders, of the Series A Preferred Stock (the "Excess Shares") representing such
fractions. Such sale will be made as soon as practicable after the Effective
Time.
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CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the Merger Agreement, the Company will, and will cause each of
its subsidiaries to, carry on its respective business in the ordinary course
consistent with past practice to use commercially reasonable efforts to preserve
intact its current business organization, keep available the services of its
current officers and employees and preserve its relationships with customers,
suppliers and others having business dealings with it. Pursuant to the Merger
Agreement, the Company will, and will cause each of its subsidiaries to, use
commercially reasonable efforts to (A) maintain insurance coverages and its
books, accounts and records in the usual manner consistent with prior practices,
(B) comply in all material respects with all laws, ordinances and regulations of
governmental entities applicable to it and (C) perform in all material respects
its obligations under all contracts and commitments to which it is a party or by
which it is bound, in each case other than where the failure to so maintain,
comply or perform, either individually or in the aggregate, has not had and
would not reasonably be expected to result in a material adverse effect on the
Company.
CONDITIONS TO THE CONSUMMATION OF THE MERGER
The obligations of MQ under the Merger Agreement are subject to, among other
things, the fulfillment or waiver (to the extent permitted by the Merger
Agreement and applicable law), prior to or at the Effective Time, of certain
conditions including: (i) the requisite vote of the Company's stockholders
having been obtained; (ii) the representations and warranties made by the
Company remaining true and correct in all material respects unless the
inaccuracies (without giving effect to any materiality or material adverse
effect qualifications or materiality exceptions contained therein) in such
representations and warranties, individually or in the aggregate, have not had
and would not reasonably be expected to result in a material adverse effect with
respect to the Company; (iii) the Company having performed and complied with all
covenants required by the Merger Agreement to be performed or complied with by
it on or before the Effective Time except for such nonperformance or
noncompliance which, individually or in the aggregate, as of the Effective Time,
has not had and would not reasonably be expected to have a material adverse
effect on the Company; (iv) the applicable waiting period under the HSR Act,
having expired or terminated: (v) no preliminary or permanent injunction or
other order by any federal or state court in the United States which prevents
the consummation of the Merger having been issued and remaining in effect (the
Company and MQ having agreed to use their commercially reasonable efforts to
have any such injunction lifted); (vi) no pending litigation by or before any
governmental entity (or by any other person which has a reasonable likelihood of
success) (a) challenging or seeking to restrain consummation of the Merger or
any other transactions contemplated by the Merger Agreement or seeking to obtain
from MQ or any of its affiliates damages that are material to such party, (b)
seeking to prohibit or limit ownership or operation by MQ, the Company or any of
their respective subsidiaries of any material portion of the business or assets
of the Company, MQ or any of their respective subsidiaries, or (c) seeking to
impose limitations on the ability of any affiliate of MQ to acquire and exercise
fully rights of ownership of shares of capital stock of the Company; (vii) (a)
the Registration Statement having become effective under the Securities Act and
not subject to any stop order or proceedings seeking a stop order; (b) any
material "blue sky" and other state securities laws applicable to the
registration and qualification of, and any rules or regulations of any
self-regulatory organization applicable to, the shares to be issued in the
Merger having been complied with; and (c) this Proxy Statement/Prospectus and
the Schedule 13E-3 having been disseminated to the extent, and for the minimum
time period required by, the Exchange Act and the rules and regulations
promulgated thereunder; (viii) the Company having received the proceeds of the
financings described in the commitment letters delivered to the Company by MQ in
connection with the execution of the Merger Agreement, on terms and conditions
set forth therein (or on such other terms and conditions, or involving such
other financing sources, as are acceptable to MQ in its sole discretion) in
amounts sufficient to consummate the transactions contemplated by the Merger
Agreement, including, without limitation (a) to pay the Merger Consideration and
Option Consideration, (b) to refinance the outstanding indebtedness (including
capital lease obligations) of the Company, (c) to pay any fees and
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expenses in connection with the transactions contemplated by the Merger
Agreement or the Financings, (d) to pay all severance, retention, bonus or other
obligations which might become due and payable as a result of the consummation
of the Merger and the transactions contemplated by the Merger Agreement, (e) to
provide for the working capital needs of the Company upon consummation of the
Merger, including, without limitation, if applicable, letters of credit, (see
"SOURCES AND AMOUNT OF FUNDS"); (ix) the employment agreement with Thomas E.
Carroll remaining in full force and effect unless modified with the prior
written consent of MQ; (x) the number of Dissenting Shares not exceeding 15% of
the outstanding MEDIQ Shares; (xi) the Rotko Entities having performed their
obligations under the Rollover Agreement in all material respects; and (xii) MQ
having received evidence, in form and substance reasonably satisfactory to it,
that all licenses, permits, consents, approvals, authorizations, qualifications
and orders of governmental entities and other third parties necessary to
consummate the transactions contemplated hereby having been obtained, unless the
failure to so obtain such licenses, permits, consents, approvals,
authorizations, qualifications and orders, individually or in the aggregate,
would not have a material adverse effect on the Company.
The obligations of the Company under the Merger Agreement are subject to,
among other things, the fulfillment or waiver (to the extent permitted by the
Merger Agreement and applicable law), prior to or at the Effective Time, of
certain conditions, including : (i) the requisite vote of the Company's
stockholders having been obtained; (ii) the representations and warranties made
by MQ in the Merger Agreement remaining true and correct in all material
respects unless the inaccuracies (without giving effect to any materiality or
material adverse effect qualifications or materiality exceptions contained
therein) in such representations and warranties, individually or in the
aggregate, have not had and would not reasonably be expected to result in a
material adverse effect with respect to MQ; (iii) MQ having performed and
complied with all covenants required by the Merger Agreement to be performed or
complied with by it on or before the Effective Time except for such
nonperformance or noncompliance which, individually or in the aggregate, has not
had and would not reasonably be expected to have a material adverse effect on
MQ; (iv) the applicable waiting period under the HSR Act having expired or been
otherwise terminated; (v) no preliminary or permanent injunction or other order
by any federal or state court in the United States which prevents the
consummation of the Merger having been issued and remaining in effect (the
Company and MQ having agreed to use their commercially reasonable efforts to
have any such injunction lifted); (vi) no pending litigation by or before any
governmental entity (or by any other person which has a reasonable likelihood of
success) (a) challenging or seeking to restrain consummation of the Merger or
any other transactions contemplated by the Merger Agreement or seeking to obtain
from MQ or any of its affiliates damages that are material to such party, (b)
seeking to prohibit or limit ownership or operation by MQ, the Company or any of
their respective subsidiaries of any material portion of the business or assets
of the Company, MQ or any of their respective subsidiaries, or (c) seeking to
impose limitations on the ability of any affiliate of MQ to acquire and exercise
fully rights of ownership of shares of capital stock of the Company; and (vii)
(a) the Registration Statement having become effective under the Securities Act
and not being the subject of any stop order or proceedings seeking a stop order;
(b) any material "blue sky" and other state securities laws applicable to the
registration and qualification of, and any rules or regulations of any
self-regulatory organization applicable to, the shares to be issued in the
Merger having been complied with; and (c) the Proxy Statement/Prospectus and the
Schedule 13E-3 having been disseminated to the extent, and for the minimum time
period required by, the Exchange Act and the rules and regulations promulgated
thereunder.
REGULATORY APPROVALS
Prior to the Merger, the relevant period under the HSR Act with respect to
the Merger must have terminated or expired. See "REGULATORY APPROVALS."
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EFFECT ON STOCK AND EMPLOYEE BENEFIT MATTERS
Subject to the provisions of the plans, the employee benefit plans
maintained by the Company immediately prior to the Effective Time, other than
the Company's 1997 Stock Option Plan, will continue to be maintained by the
Company after the Effective Time.
Immediately prior to the Effective Time, each Option outstanding under the
Company's 1987 Stock Option Plan, 1997 Stock Option Plan or similar arrangements
will become exercisable. For each MEDIQ Share subject to an Option, the holder
of the Option will be entitled to receive the Option Consideration as provided
in the Merger Agreement. Upon payment of the Option Consideration, each Option
will terminate. With respect to any person subject to Section 16 of the Exchange
Act, the Option Consideration will be paid as soon as practicable after the
first date payment can be made without liability to such person under Section
16(b) of the Exchange Act. Payment of the Option Consideration is subject to the
Company obtaining any required consents from the holders of Options.
AMEX DE-LISTING
Following the consummation of the Merger, the Company anticipates that none
of the shares of the Company's capital stock will be listed on the AMEX or any
other national securities exchange and will not be quoted on the NASDAQ Stock
Market, Inc. Notwithstanding that the Surviving Corporation may not be required
to remain subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act, for the two (2) years following the Effective Time, MQ has agreed
that the Surviving Corporation will file with the Commission such reports as are
specified in Section 13 and 15(d) of the Exchange Act and required to be filed
in respect of securities similar to the Series A Preferred Stock by issuers
subject to the reporting requirements of Section 13 of the Exchange Act, such
reports to be so filed at the times specified for the filings of such reports
required under such Sections; provided that the Surviving Corporation will have
no obligation with respect to the shares of Series A Preferred Stock to file
such reports if fewer than 500,000 shares of Series A Preferred Stock remain
outstanding.
RESALE OF MEDIQ PREFERRED STOCK FOLLOWING THE MERGER
The Series A Preferred Stock of the Surviving Corporation to be issued in
connection with the Merger will be freely transferable, except that shares
issued to any stockholder who may be deemed to be an "affiliate" (as defined
under the Securities Act and generally including, without limitation, directors,
certain executive officers and beneficial owners of 10% or more of a class of
voting capital stock) of the Company for purposes of Rule 145 under the
Securities Act will not be transferable except in compliance with the Securities
Act. This Proxy Statement/Prospectus does not cover the resale of Series A
Preferred Stock issued to any person who may be deemed to be an affiliate of the
Company. In addition, the Investors, the Rotko Entities and the Management
Stockholders may enter into agreements among themselves and with the Company
restricting the transferability of their securities.
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SOURCES AND AMOUNT OF FUNDS
It is expected that the funds required to consummate the Merger and the
Refinancing and to pay related fees and expenses will be provided by (i) $108.1
million of gross proceeds from the Investor Equity Contribution, (ii) $5.7
million of gross proceeds from the Management Equity Contribution, (iii) the
issuance of approximately $20.0 million of Series A Preferred Stock in
connection with the conversion of each issued and outstanding MEDIQ Share (other
than the Rolled Shares and any shares owned directly or indirectly by MQ or the
Company) into the Merger Consideration, (iv) the issuance of $14.5 million of
equity pursuant to the Rollover, (v) $175.0 million from the Term Loans, (vi)
$200.0 million of gross proceeds from the Senior Subordinated Note Offering,
(vii) $30.0 million of gross proceeds from the Discount Debenture Offering,
(viii) $3.6 million in existing cash of the Company, and (ix) $.3 million of
borrowings under the revolving credit facility.
The documentation governing the New Credit Facility, the Senior Subordinated
Notes (as defined), and the Discount Debentures (as defined) have not yet been
finalized. The following summary (i) is based upon certain commitment letters
provided to Bruckmann, Rosser, Sherrill & Co., Inc. (the "Sponsor"), (ii)
assumes that the Company becomes a party to such letters on or prior to the
consummation of the Merger and (iii) is subject to completion of final
documentation.
DESCRIPTION OF NEW CREDIT FACILITY
The Company's existing $260.0 million credit facility (the "Existing Credit
Facility") with a syndicate of banks led by Banque Nationale de Paris ("BNP")
will be replaced by a senior secured credit facility provided to MEDIQ/PRN in an
aggregate principal amount of $225 million (the "New Credit Facility"). Pursuant
to the Senior Secured Credit Facility Commitment Letter dated as of February 2,
1998 (the "Senior Secured Credit Facility Commitment Letter") among the Sponsor,
Credit Suisse First Boston ("CSFB"), NationsBank, N.A. ("NB") and BNP (together
with CSFB and NB, the "Senior Lenders"), the Senior Lenders have agreed to
provide the New Credit Facility to MEDIQ/PRN. The following description is
qualified in its entirety by reference to the Senior Secured Credit Facility
Commitment Letter, which is incorporated herein by reference.
The New Credit Facility will consist of three facilities: (i) a six-year
senior secured term loan facility in an aggregate principal amount equal to
$75.0 million (the "Tranche A Term Loan Facility"); (ii) an eight-year senior
secured term loan facility in an aggregate principal amount equal to $100.0
million (the "Tranche B Term Loan Facility"); and (iii) a six-year revolving
credit facility in an aggregate principal amount not to exceed $50.0 million
(the "Revolving Credit Facility"). Loans made under the Tranche A Term Loan
Facility ("Tranche A Term Loans") and loans made under the Tranche B Term Loan
Facility ("Tranche B Term Loans") constitute "Term Loans." Advances under the
Revolving Credit Facility are referred to as "Revolving Loans."
Term Loans in the aggregate principal amount of $175.0 million will be drawn
on the closing date of the New Credit Facility. Subject to compliance with
customary conditions precedent, loans under the Revolving Credit Facility will
be available at any time prior to the final maturity of the Revolving Credit
Facility. Amounts repaid under the Revolving Credit Facility may be reborrowed
prior to the final maturity of the Revolving Credit Facility, provided that
availability requirements are met. Letters of credit will be available at any
time before the sixtieth business day prior to the final maturity of the
Revolving Credit Facility.
All obligations of MEDIQ/PRN under the New Credit Facility will be
unconditionally guaranteed by each existing and each subsequently acquired or
organized subsidiary of MEDIQ/PRN (the "Guarantors"). The New Credit Facility
and the related guarantees will be secured by substantially all the assets of
MEDIQ/PRN and each Guarantor, including but not limited to (a) a first priority
pledge of all the capital stock of each Guarantor and (b) perfected first
priority security interests in, and mortgages on, substantially all tangible and
intangible assets of MEDIQ/PRN and each Guarantor.
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Borrowings under the New Credit Facility will bear interest at a floating
rate based upon, at MEDIQ/ PRN's option, (i) the higher of the prime rate of
BNP, or the federal funds effective rate plus 0.50%, plus, in the case of the
Tranche A Term Loans and the Revolving Loans, a margin equal to 1.0%, and in the
case of the Tranche B Term Loans, a margin equal to 1.50%, or (ii) the London
Interbank Offered Rate ("LIBOR"), plus, in the case of the Tranche A Term Loans
and the Revolving Loans, a margin equal to 2.25%, and in the case of the Tranche
B Term Loans, a margin equal to 2.75%. MEDIQ/PRN may elect interest periods of
one, two, three or six months for LIBOR borrowings. Interest shall be payable at
the end of each interest period and, in any event, at least every three months.
In addition to paying interest on outstanding principal under the New Credit
Facility, MEDIQ/PRN will be required to pay a commitment fee to the lenders in
the New Credit Facility equal to 0.50% per annum of the undrawn portion of the
commitments in respect of the facilities (subject to adjustment as set forth
below), commencing to accrue upon the execution and delivery of the credit
agreement governing the New Credit Facility (the "Credit Agreement") and payable
quarterly in arrears and upon the termination of any commitment, in each case
for the actual number of days elapsed in a 360-day year. The Credit Agreement
will contain provisions under which commitment fees and margins on interest
rates under the facilities will be adjusted in increments to be agreed upon
based on performance goals to be agreed upon.
The Term Loans will amortize on a quarterly basis and be payable in
installments under a schedule to be agreed upon. Principal amounts outstanding
under the Revolving Credit Facility will be due and payable in full at maturity.
The Term Loans will be subject to mandatory prepayments and reductions in the
event of certain extraordinary transactions or issuances of debt and equity by
MEDIQ/PRN. The Term Loans will also be required to be prepaid with 75% of the
Excess Cash Flow (as such term will be defined in the Credit Agreement) of
MEDIQ/PRN or, if the Company's ratio of total debt to pro forma EBITDA for the
preceding 12-month period is less than 5.0 to 1.0, 50% of such Excess Cash Flow.
The New Credit Facility will contain representations and warranties,
covenants, events of default and other provisions customary for credit
facilities of this type. MEDIQ/PRN will pay the Senior Lenders certain
syndication and administration fees, reimburse certain expenses and provide
certain indemnities, in each case which are customary for credit facilities of
this type.
The Senior Secured Credit Facility Commitment Letter requires the Sponsor to
cause MQ and the Company to become parties to such letter on or prior to the
consummation of the Merger and provides that the Sponsor will be released
automatically from all its rights, duties and obligations thereunder when the
Company becomes a party thereto.
The Senior Lenders' commitment to provide the New Credit Facility is subject
to conditions customary for facilities of this nature, including, but not
limited to: (i) compliance with maximum total debt levels after giving effect to
the Transactions; (ii) compliance with maximum ratios of pro forma total debt to
pro forma EBITDA for MEDIQ/PRN and the Company; (iii) the satisfactory
completion by the Senior Lenders of a legal, tax and environmental due diligence
investigation of MQ and the Company and their subsidiaries; (iv) the absence of
any events, changes or effects which individually or in the aggregate could
reasonably be expected to have a material adverse effect on (A) the business,
results of operations, property, condition (financial or otherwise) or prospects
of MQ, the Company and their respective subsidiaries, taken as a whole or (B)
the validity or enforceability of any of the documents entered into in
connection with the Transactions or the rights, remedies and benefits available
to the parties thereunder (a "Material Adverse Effect"); (v) the absence of any
material litigation or administrative proceedings, governmental investigations,
actual or threatened, or other legal or regulatory developments that could
reasonably be expected to have a Material Adverse Effect; (vi) the receipt of
all material governmental or third party consents or approvals necessary in
connection with the Transactions and the absence of any governmental or judicial
action that has a reasonable likelihood of restraining, preventing or imposing
materially burdensome conditions on the Transactions; (vii) the receipt of a
satisfactory solvency opinion (and related going-concern valuation) from an
independent valuation firm; (viii) satisfaction of the Senior
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Lenders that there are no "market-out" events; and (ix) satisfaction of the
Senior Lenders with the terms of any class of preferred stock of the Company.
DESCRIPTION OF THE OFFERINGS
NOTES AND DEBENTURES. MEDIQ/PRN will issue senior subordinated notes (the
"Senior Subordinated Notes") in an aggregate principal amount of $200.0 million
pursuant to the Senior Subordinated Note Offering. The Company will issue senior
discount debentures (the "Discount Debentures") for aggregate gross proceeds of
$30.0 million pursuant to the Discount Debenture Offering. The Senior
Subordinated Notes will bear interest from the date of issuance at the then
prevailing market rate, which interest will be payable semi-annually. The
Discount Debentures will be issued at a substantial original issue discount and
will accrete in value until five years after the issuance date (and not pay
interest during such period). Thereafter interest will accrue and be payable
semi-annually on the Discount Debentures. The Senior Subordinated Note Offering
and the Discount Debenture Offering will each be made pursuant to a Rule
144A/Regulation S distribution that, in each case, is expected to be consummated
concurrently with the closing of the Merger, although no assurance to this
effect can be given. In the event that the Senior Subordinated Note Offering
and/or the Discount Debenture Offering is not consummated concurrently with the
closing of the Merger, the Standby Senior Subordinated Credit Facility and/or
the Discount Debenture Standby Purchase Arrangement, as the case may be, will be
made available or consummated, as the case may be, at the time of the
consummation of the Transactions, which would result in the incurrence of
additional interest expense by MEDIQ/PRN and the Company.
The Senior Subordinated Notes will be senior subordinated obligations of
MEDIQ/PRN, subordinated to all existing and future senior indebtedness,
including indebtedness pursuant to the New Credit Facility. The Senior
Subordinated Notes will be unconditionally guaranteed on a senior subordinated
basis by each subsidiary of MEDIQ/PRN that guarantees the New Credit Facility.
The Discount Debentures will be senior, secured obligations of the Company,
ranking PARI PASSU in right of payment with all existing and future senior
secured obligations of the Company and will rank senior to all future
subordinated debt of the Company. The Discount Debentures will be secured by the
capital stock of MEDIQ/PRN that is owned by the Company (after giving effect to
the Transactions), but will not be guaranteed.
The Senior Subordinated Notes will mature on the tenth anniversary of the
date of issuance and will be non-callable for five years and will be callable at
par plus one-half of the coupon following the fifth anniversary of issuance,
declining ratably to par following the eighth anniversary of issuance. At any
time prior to the third anniversary of issuance, MEDIQ/PRN may redeem an amount
to be determined of the Senior Subordinated Notes from the proceeds of one or
more public equity offerings at a redemption price to be fixed at the time of,
and as a function of, the pricing of the Senior Subordinated Notes, plus accrued
and unpaid interest. The Discount Debentures will mature on the eleventh
anniversary of the date of issuance. The Discount Debentures will be
non-callable for five years and will be callable at par plus one-half of the
yield following the fifth anniversary of issuance, declining ratably to par
following the eighth anniversary of issuance. At any time prior to the third
anniversary of issuance, the Company may redeem the Discount Debentures in
whole, but not in part, in each case from the proceeds of one or more public
equity offerings at a redemption price to be fixed at the time of, and as a
function of, the pricing of the Discount Debentures, plus accrued and unpaid
interest.
In the event of a Change of Control (as such term will be defined in the
indentures governing the Senior Subordinated Notes and the Discount Debentures,
respectively), each holder of Senior Subordinated Notes and Discount Debentures
will have the right to require MEDIQ/PRN and the Company, as the case may be, to
repurchase such holder's Senior Subordinated Notes and Discount Debentures at a
purchase price equal to 101% of the principal amount (in the case of the Senior
Subordinated Notes) or the then current accreted value (in the case of the
Discount Debentures) thereof, plus accrued and unpaid interest to the date of
purchase.
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The indentures governing the Senior Subordinated Notes and the Discount
Debentures, respectively, will contain certain covenants customary for high
yield securities such as the Senior Subordinated Notes and the Discount
Debentures that, among other things, will limit the ability of MEDIQ/PRN and/or
the Company to: (i) incur additional indebtedness or permit certain subsidiaries
to incur additional indebtedness; (ii) create certain liens; (iii) permit the
issuance of capital stock by certain subsidiaries; (iv) enter into certain
transactions with affiliates; (v) issue preferred stock, pay dividends or make
certain other payments or permit certain subsidiaries to pay dividends or make
other distributions; or (vi) enter into certain mergers, consolidations and
agreements to sell assets or permit other asset sales.
MEDIQ/PRN and the Company will, concurrently with the Senior Subordinated
Note Offering and the Discount Debenture Offering, enter into a registration
rights agreement with the initial purchasers of the Senior Subordinated Notes
and the Discount Debentures, pursuant to which MEDIQ/PRN and the Company will
agree to file a registration statement with respect to an offer to exchange the
Senior Subordinated Notes and the Discount Debentures for new issues of debt
securities of MEDIQ/PRN and the Company, respectively, registered under the
Securities Act, with terms substantially identical to those of the Senior
Subordinated Notes and the Discount Debentures. Under certain circumstances,
MEDIQ/ PRN and the Company will be required to provide a shelf registration
statement to cover resales of the Senior Subordinated Notes and Discount
Debentures by the holders thereof. If MEDIQ/PRN and/or the Company fail to
satisfy these registration obligations, they will be required to pay liquidated
damages to the holders of Senior Subordinated Notes and Discount Debentures,
respectively, under certain circumstances.
STANDBY SENIOR SUBORDINATED CREDIT FACILITY. In the event that the Senior
Subordinated Note Offering is not consummated on or prior to the consummation of
the Merger, pursuant to the Bridge Loan Commitment Letter (the "Bridge
Commitment Letter") dated as of February 2, 1998 among the Sponsor, CSFB,
NationsBridge, L.L.C. ("NLLC") and BNP (together with CSFB and NLLC, the "Bridge
Lenders"), the Bridge Lenders have agreed to provide to MEDIQ/PRN a senior
subordinated credit facility (the "Standby Senior Subordinated Credit Facility")
in the aggregate principal amount of $200.0 million.
The loans under the Standby Senior Subordinated Credit Facility (the "Senior
Subordinated Loans")
will mature 364 days after the date of issue (the "Bridge Maturity Date").
Interest on the Senior Subordinated Loans will accrue at a floating rate which
increases over time, subject to absolute and cash caps. As of [ ],
1998, the interest rate on the Senior Subordinated Loans would have been [ ]%.
Senior Subordinated Loans may be prepaid in whole or in part by MEDIQ/PRN at any
time upon five days' prior written notice.
The Senior Subordinated Loans will be senior subordinated obligations of
MEDIQ/PRN, subordinated to all existing and future senior indebtedness,
including indebtedness pursuant to the New Credit Facility. The Senior
Subordinated Loans will be unconditionally guaranteed on a senior subordinated
basis by each subsidiary of MEDIQ/PRN that guarantees the New Credit Facility.
The Standby Senior Subordinated Credit Facility will contain representations
and warranties, affirmative covenants, reporting covenants, negative covenants,
mandatory prepayment requirements and events of default customary for similar
financing transactions. Covenants will include (but not be limited to) certain
restrictions on indebtedness, loans, investments and joint ventures, guarantees
and other contingent obligations, restricted payments, fundamental changes,
sale-leaseback transactions, transactions with affiliates, subsidiary
distributions, capital expenditures, changes in business conducted, amendment of
indebtedness and other material documents, and prepayments or repurchase of
other indebtedness, all subject to customary exceptions. MEDIQ/PRN is also
obligated under the terms of the Bridge Commitment Letter to refinance the
Senior Subordinated Loans with a public offering or private placement of senior
subordinated notes.
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The Senior Subordinated Loans will be due and payable in a single
installment on the Bridge Maturity Date. Each Bridge Lender will have the option
to receive, in exchange for all or a part of its loans thereunder, exchange
notes of MEDIQ/PRN ("Exchange Notes") in a principal amount equal to the
principal amount of the Senior Subordinated Loans so exchanged and ranking pari
passu with the Senior Subordinated Loans; PROVIDED, that a Bridge Lender may not
exercise this option prior to the Bridge Maturity Date otherwise than in
connection with a sale of the Exchange Notes to an unaffiliated third party. If
any Bridge Lender does not exchange its Senior Subordinated Loans for Exchange
Notes on or prior to the Bridge Maturity Date, such Bridge Lender shall be
required to extend the maturity of such Senior Subordinated Loan to another date
selected by such Bridge Lender. Such Bridge Lender shall be required to continue
to extend such maturity date until such Bridge Lender exchanges the Senior
Subordinated Loans for Exchange Notes or until the tenth anniversary of the
closing date of the Standby Senior Subordinated Credit Facility. The Exchange
Notes will mature on the tenth anniversary of the closing date of the Standby
Senior Subordinated Credit Facility and will initially bear interest at a rate
determined in a customary manner (but no less than 0.50% above the then existing
interest rate of loans under the Standby Senior Subordinated Credit Facility),
which rate will increase over time, subject to absolute and cash caps. All
Senior Subordinated Loans that remain outstanding after the Bridge Maturity Date
will accrue interest at the same rate as the Exchange Notes. The indenture
relating to the Exchange Notes will include covenants customary for a high yield
senior subordinated note issue of this type.
The occurrence of a change of control (the definition of which is to be
agreed) (i) will be an event of default with respect to the Senior Subordinated
Loans and (ii) will give the holders of Exchange Notes the right to require
MEDIQ/PRN to repurchase such holder's Exchange Notes at a purchase price equal
to 101% of the principal amount thereof, plus accrued and unpaid interest to the
date of purchase.
MEDIQ/PRN will be required to provide a shelf registration statement to
cover resales of the Exchange Notes by the holders thereof or to effect a
registered exchange offer of registered notes identical to the Exchange Notes
for all outstanding Exchange Notes. If MEDIQ/PRN fails to satisfy these
registration obligations, it will be required to pay liquidated damages to the
holders of Exchange Notes.
In the event Senior Subordinated Loans are incurred under the Standby Senior
Subordinated Credit Facility, the Company has agreed that on the closing date of
the Standby Senior Subordinated Credit Facility, the Company will place in an
escrow account warrants to purchase shares of capital stock of the Company,
exercisable for ten years at the exercise price of $.01 per share, which will
represent up to 15% (on a fully diluted basis after giving effect to the
Transactions, but excluding $20.0 million of the Series A Preferred Stock) of
each class of capital stock of the Company to be outstanding after giving effect
to the Transactions; PROVIDED, that such warrants together with any warrants
placed in escrow in connection with the Discount Debenture Standby Purchase
Arrangement shall not, in the aggregate, represent more than 15% of each such
class on a fully diluted basis (after giving effect to the Transactions, but
excluding $20.0 million of Series A Preferred Stock). The Company will be
required to enter into a registration rights agreement with respect to such
warrants. Such warrants may be released from escrow in two circumstances: (i) in
connection with an issuance of senior subordinated notes to refinance the loans
under the Standby Senior Subordinated Credit Facility ("Refinancing"); and (ii)
pursuant to an "earn in" formula. In connection with a Refinancing, warrants
will be released from escrow upon the request of the managing underwriter of
such sale to the extent such warrants are being sold with the refinancing
securities based on then current market conditions. The "earn-in" provision
provides that on the 15 month anniversary of the closing date of the Standby
Senior Subordinated Credit Facility, holders of Senior Subordinated Loans or
Exchange Notes will receive 25% of their pro rata portion of any remaining
warrants and thereafter will receive an additional 25% at the end of each
three-month period thereafter (so long as they continue to hold Senior
Subordinated Loans or Exchange Notes) until the period which is 24 months
following the Bridge Maturity Date, when all remaining warrants will be released
to such holders.
The Bridge Commitment Letter requires the Sponsor to cause MQ and the
Company to become parties to such letter on or prior to the consummation of the
Merger and provides that the Sponsor will be
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released automatically from all its rights, duties and obligations thereunder
when the Company becomes a party thereto.
The funding of the Standby Senior Subordinated Credit Facility is subject,
among other things, to conditions comparable to those applicable to the funding
of the New Credit Facility, including obtaining all necessary consents and the
execution of satisfactory loan documentation.
DISCOUNT DEBENTURE STANDBY PURCHASE ARRANGEMENT. In the event that the
Discount Debenture Offering is not consummated on or prior to the consummation
of the Merger, pursuant to the Discount Debenture Commitment Letter (the
"Discount Debenture Commitment Letter") dated as of February 2, 1998 among the
Sponsor, Credit Suisse First Boston Corporation ("CSFBC"), NationsBanc
Montgomery Securities LLC ("NMS") and BNP (together with CSFBC and NMS, the
"Initial Purchasers"), the Initial Purchasers have agreed to purchase notes
having terms substantially the same as the Discount Debentures (the "Discount
Debenture Standby Purchase Arrangement"), subject to satisfaction or waiver of
certain conditions customary for arrangements of this type.
If the Initial Purchasers are required to purchase the Discount Debentures
in accordance with the Discount Debenture Standby Purchase Arrangement, the
Company will be required to provide a shelf registration statement to cover
resales of the Discount Debentures by the holders thereof. If the Company fails
to satisfy this registration requirement, it will be required to pay liquidated
damages to the holders of the Discount Debentures.
If the Initial Purchasers are required to purchase the Discount Debentures
in accordance with the Discount Debenture Standby Purchase Arrangement, the
Company will place in an escrow account warrants to purchase shares of capital
stock of the Company exercisable for ten years at the exercise price of $0.01
per share, which will represent up to the same percentage of capital stock of
the Company outstanding after giving effect to the Transactions as do the
warrants under the Standby Senior Subordinated Credit Facility; provided, that
such warrants together with any warrants placed in escrow in connection with the
Standby Senior Subordinated Credit Facility shall not, in the aggregate,
represent more than such percentage. The Company will be required to enter into
a registration rights agreement with respect to such warrants. Such warrants may
be released from escrow in two circumstances: (i) in the event warrants are
necessary for the resale of Discount Debentures by an Initial Purchaser to a
party not affiliated with such Initial Purchaser and only to the extent
necessary so that the sale price (including the warrants) does not exceed the
then accreted value of the Discount Debentures so sold; and (ii) pursuant to an
"earn in" formula with terms identical to those of the "earn-in" formula
applicable to the Standby Senior Subordinated Credit Facility.
The Discount Debenture Commitment Letter requires the Sponsor to cause MQ
and the Company to become parties to such letter on or prior to the consummation
of the Merger and provides that the Sponsor will be released automatically from
all its rights, duties and obligations thereunder when the Company becomes a
party thereto.
The obligation of the Initial Purchasers to purchase Discount Debentures
pursuant to the Discount Debenture Standby Purchase Arrangement is subject,
among other things, to conditions comparable to those applicable to the funding
of the New Credit Facility.
The Discount Debenture Commitment Letter will terminate in the event that
(i) a preliminary offering circular relating to the Discount Debenture Offering
reasonably acceptable to the Initial Purchasers shall not have been printed and
ready for distribution at least 30 days prior to the date of the Special
Meeting, (ii) after completion of an offering memorandum relating to the
Discount Debenture Offering, the Initial Purchasers shall have delivered a
written notice to the Company recommending that the Company proceed with the
marketing effort for the Discount Debenture Offering and the Company elects not
to then proceed with such marketing effort or (iii) following the marketing
effort with respect to the Discount Debenture Offering, (A) the Initial
Purchasers are prepared to enter into a customary purchase agreement providing
for the purchase of the Discount Debentures and (B) the Company elects not to
enter into such purchase agreement or, having entered into such purchase
agreement, such Discount Debenture Offering is not consummated for any reason
other than the failure by the Initial Purchasers to comply with their
obligations under such purchase agreement.
58
<PAGE>
MARKET PRICE AND DIVIDEND INFORMATION
MEDIQ Common Stock is listed and traded on the AMEX under the symbol "MED."
MEDIQ Preferred Stock is listed and traded on the AMEX under the symbol "MED
PR." The following table sets forth, for the periods indicated, the high and low
sales prices per share of MEDIQ Common Stock and MEDIQ Preferred Stock.
<TABLE>
<CAPTION>
MEDIQ MEDIQ
COMMON PREFERRED
STOCK STOCK
-------------------- --------------------
<S> <C> <C> <C> <C>
HIGH LOW HIGH LOW
--------- --------- --------- ---------
FISCAL YEAR ENDED SEPTEMBER 30, 1995
First Quarter....................................................... $ 4.063 $ 3.563 $ 3.813 $ 3.625
Second Quarter...................................................... 5.750 3.750 5.500 3.750
Third Quarter....................................................... 6.188 5.125 5.750 5.063
Fourth Quarter...................................................... 6.188 5.063 5.875 5.375
FISCAL YEAR ENDED SEPTEMBER 30, 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
FISCAL YEAR ENDED SEPTEMBER 30, 1997
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
FISCAL YEAR ENDED SEPTEMBER 30, 1998
First Quarter....................................................... 11.680 8.000 11.500 8.000
Second Quarter (through February , 1998).......................... 13.500 10.250 13.000 13.000
</TABLE>
The Company did not pay any dividends during the periods covered by the
table set forth above. The Company has no current plans to pay any dividends.
On January 14, 1998, the last trading day before public announcement of the
execution of the Merger Agreement, the last sale price of MEDIQ Common Stock as
reported on the AMEX was $11.00 per share. On December 16, 1997, the last day
the MEDIQ Preferred Stock traded prior to the execution of the Merger Agreement,
the last sale price of MEDIQ Preferred Stock as reported on the AMEX was $11.50
per share (and the last sale price of MEDIQ Common Stock on such date was $11.56
per share).
On , the most recent practicable date prior to the date of this
Proxy Statement/ Prospectus, the last sale price of MEDIQ Common Stock as
reported on the AMEX was $ per share and the last sale price of MEDIQ
Preferred Stock as reported on the AMEX was $ per share.
MEDIQ STOCKHOLDERS SHOULD OBTAIN CURRENT MARKET QUOTATIONS FOR MEDIQ COMMON
STOCK AND MEDIQ PREFERRED STOCK.
59
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial
statements (the "Pro Forma Condensed Consolidated Financial Statements") have
been based on the historical consolidated financial statements of the Company as
of and for the year ended September 30, 1997 and the historical income statement
of SpectraCair for the eleven months ended August 31, 1997. The Company acquired
the remaining fifty percent interest in its SpectraCair joint venture on
September 1, 1997, and, accordingly, the Company's historical balance sheet at
September 30, 1997 includes the assets and liabilities of SpectraCair and the
Company's historical consolidated statement of operations include the results of
operations of SpectraCair for the one month ended September 30, 1997.
As a result of the acquisition of SpectraCair on September 1, 1997, the
Company anticipates the elimination of duplicative costs for functional areas
and the reduction of certain expenses as a result of expected synergies of
$445,000. In addition, SpectraCair recognized a charge in its statement of
operations for the eleven months ended August 31, 1997 of $573,000 related to
the revenue generated in fiscal 1996 from its acquisition of the rental assets
of Bio Clinic Corporation, a subsidiary of Sunrise Medical, Inc. on January 31,
1996. The Pro Forma Condensed Consolidated Financial Statements do not reflect
the elimination of the above noted items.
The pro forma condensed consolidated balance sheet gives effect to the
Transactions as if they were consummated on September 30, 1997. The pro forma
condensed consolidated statement of operations gives effect to the acquisition
of SpectraCair and the Transactions as if they were all consummated on October
1, 1996. The pro forma adjustments are described more fully in the accompanying
notes.
The Pro Forma Financial Statements are presented for informational purposes
only and do not purport to be indicative of the results of operations that
actually would have been achieved had such transactions been consummated on the
date or for the periods indicated and do not purport to be indicative of the
balance sheet data or results of operations as of any future date or for any
future period. The Pro Forma Financial Statements should be read in conjunction
with the Company's historical consolidated financial statements and notes
thereto and other information contained in the documents incorporated by
reference herein.
The pro forma adjustments were applied to the respective historical
statements to reflect and account for the Merger as a recapitalization.
Accordingly, the historical basis of the Company's assets and liabilities has
not been affected by the Merger.
60
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30, 1997
-------------------------------------------------------------------------------
HISTORICAL
------------------------ CONSOLIDATION PRO FORMA
MEDIQ SPECTRACAIR ADJUSTMENTS CONSOLIDATED ADJUSTMENTS PRO FORMA
--------- ------------- ------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
REVENUES:
Rental........................... $ 124,316 $ 9,647 $ $ 133,963 $ $ 133,963
Sales of parts, disposables and
equipment...................... 19,922 142 20,064 20,064
Other............................ 11,722 (1,475)(A) 10,247 10,247
--------- ------ ------------- ------------ ----------- -----------
155,960 9,789 (1,475) 164,274 164,274
COSTS AND EXPENSES:
Cost of sales.................... 16,334 112 16,446 16,446
Operating........................ 46,138 2,638 (1,475)(A) 47,301 47,301
Selling.......................... 13,353 2,804 16,157 16,157
General and administrative....... 20,272 1,545 21,817 1,000(C) 22,817
Depreciation and amortization.... 30,359 2,313 32,672 32,672
--------- ------ ------------- ------------ ----------- -----------
OPERATING INCOME................... 29,504 377 29,881 (1,000) 28,881
OTHER (CHARGES) CREDITS:
Interest Expense................. (19,107) (499) (19,606) (20,759)(D) (40,365)
Interest Income.................. 2,069 2,069 2,069
Other--net....................... (9,573) 61(A) (9,512) (9,512)
--------- ------ ------------- ------------ ----------- -----------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES.............. 2,893 (122) 61 2,832 (21,759) (18,927)
INCOME TAXES....................... 5,134 (24)(B) 5,110 (8,704)(B) (3,594)
--------- ------ ------------- ------------ ----------- -----------
LOSS FROM CONTINUING OPERATIONS.... $ (2,241) $ (122) $ 85 $ (2,278) $ (13,055) $ (15,333)
--------- ------ ------------- ------------ ----------- -----------
--------- ------ ------------- ------------ ----------- -----------
</TABLE>
61
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
(A) Reflects the elimination of transactions between the Company and SpectraCair
for logistical services, and the elimination of the Company's portion of
SpectraCair's historical loss, which the Company recognized on the equity
method of accounting.
(B) Reflects the effect on income tax expense of the historical loss of
SpectraCair and the pro forma adjustments described in the footnotes herein
at an incremental effective tax rate of 40%. Prior to the September 1, 1997
acquisition of SpectraCair, SpectraCair was a limited liability company and,
therefore, was not subject to income taxes.
(C) Reflects the $1.0 million annual management fee pursuant to the Management
Agreement. See "THE MERGER--Interests of Certain Persons in the Merger."
(D) Reflects the increased interest cost related to the New Credit Facility, the
Discount Debentures and the Senior Subordinated Notes, as follows:
<TABLE>
<S> <C>
New Credit Facility:
Revolving Credit Facility....................................... $ 356
Tranche A Term Loan............................................. 6,070
Tranche B Term Loan............................................. 8,594
Discount Debentures............................................... 3,600
Senior Subordinated Notes......................................... 19,000
Amortization of financing fees/debt issue costs over the period of
the related financing........................................... 1,553
Existing borrowings to carry forward (capital leases and 7.5%
Subordinated Exchangeable Debentures)........................... 1,192
---------
40,365
Historical interest costs:
MEDIQ........................................................... (19,107)
SpectraCair..................................................... (499)
---------
$ 20,759
---------
---------
</TABLE>
The Revolving Credit Facility is assumed to bear interest at LIBOR plus a
margin of 2.25% on amounts borrowed, of 2.25% for amounts reserved for
letters of credit and of .5% for the undrawn portion of the unused
commitments. Interest on the Revolving Credit Facility is principally
interest on the undrawn portion of the commitments and amounts reserved for
letters of credit. The Tranche A Term Loan and the Tranche B Term Loan are
assumed to bear interest at LIBOR plus 2.25% and LIBOR plus 2.75%,
respectively. LIBOR is based on the Company's average LIBOR rate for fiscal
1997 of 5.84%. The Discount Debentures and the Senior Subordinated Notes are
assumed to bear interest at
62
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS (CONTINUED)
(UNAUDITED)
(IN THOUSANDS)
12% and 9.5%, respectively. A 0.125% change in the interest rate on the
above loans would increase or decrease annual interest expense and loss from
continuing operations by:
<TABLE>
<CAPTION>
ANNUAL INTEREST LOSS FROM CONTINUING
EXPENSE OPERATIONS
----------------- -----------------------
<S> <C> <C>
New Credit Facility.................................... $ 218 $ 131
Discount Debentures.................................... 38 23
Senior Subordinated Notes.............................. 250 150
</TABLE>
Deferred financing fees on the New Credit Facility are allocated between the
tranches based on each tranche's relative value to the total facility.
Amortization periods for deferred financing fees related to the Revolving
Credit Facility and the Tranche A Term Loan are six years and eight years
for the Tranche B Term Loan. Debt issue costs on the Discount Debentures and
the Senior Subordinated Notes are amortized over eleven and ten years,
respectively.
63
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------- -------------- -----------
<S> <C> <C> <C>
(IN THOUSANDS)
ASSETS:
Cash............................................................... $ 3,639 $ (3,581)(A) $ 58
Accounts receivable--Net........................................... 39,686 39,686
Inventories........................................................ 13,047 13,047
Deferred income taxes.............................................. 6,967 6,967
Other current assets............................................... 6,412 2,636(I) 9,048
----------- -------------- -----------
Total current assets............................................. 69,751 (945) 68,806
Property, Plant and equipment--Net................................. 113,589 113,589
Goodwill........................................................... 57,056 57,056
Other assets....................................................... 17,156 6,766(B) 23,922
----------- -------------- -----------
TOTAL ASSETS..................................................... $ 257,552 $ 5,821 $ 263,373
----------- -------------- -----------
----------- -------------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts Payable................................................... $ 8,793 $ $ 8,793
Accrued Expenses................................................... 22,732 22,732
Federal & State Taxes Payable...................................... 177 177
Other Current Liabilities.......................................... 669 669
Current portion of long-term debt.................................. 7,648 (5,788)(D) 1,860
----------- -------------- -----------
Total current liabilities........................................ 40,019 (5,788) 34,231
Existing Credit Facility............................................. 128,131 (126,645)(E) 1,486
New Credit Facility.................................................. 175,300(F) 175,300
Discount Debentures.................................................. 30,000(F) 30,000
Senior Subordinated Notes............................................ 200,000(F) 200,000
7.5% Subordinated Exchangeable Debentures(J)......................... 10,055 10,055
Deferred Income Taxes and Other Liabilities.......................... 30,744 (1,588)(C)
.............................. (2,978)(I) 26,178
----------- -------------- -----------
Total Liabilities................................................ 208,949 268,301 477,250
----------- -------------- -----------
Mandatory Redeemable Preferred Stock:
Series A Preferred Stock......................................... 78,240(G) 78,240
Series C Preferred Stock......................................... 30,000(G) 30,000
----------- -------------- -----------
108,240 108,240
STOCKHOLDERS' EQUITY:
MEDIQ Preferred Stock.............................................. 3,322 (3,322)(H)
Series B Preferred Stock........................................... 30(G) 30
Common Stock....................................................... 20,068 (20,068)(I)
........................................................ 10(G) 10
Capital in Excess of Par Value..................................... 27,127 (27,127)(H)
........................................... 29,970(G)
........................................... 9,990(G) 39,960
Retained Earnings.................................................. 2,892 (344,989)(H) (362,117)
..................................................... (20,020)(I)
Treasury Stock..................................................... (4,806) 4,806(H)
----------- -------------- -----------
Total Stockholders' Equity....................................... 48,603 (370,720) (322,117)
----------- -------------- -----------
TOTAL LIABILITIES and STOCKHOLDERS' EQUITY....................... $ 257,552 $ 5,821 $ 263,373
----------- -------------- -----------
----------- -------------- -----------
</TABLE>
64
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS)
(A) The pro forma adjustments to cash reflect the following:
<TABLE>
<S> <C>
Total Sources:
New Credit Facility............................................. $ 175,300
Discount Debentures............................................. 30,000
Senior Subordinated Notes....................................... 200,000
Preferred Stock................................................. 138,240
Common Stock.................................................... 10,000
---------
553,540
---------
Total Uses:
Merger Consideration............................................ 390,700
Repayment of Existing Credit Facility (see Notes D and E
below).......................................................... 132,433
Financing Fees and Expenses..................................... 13,800
Other Fees and Expenses......................................... 18,600
Deferred Compensation Payments.................................. 1,588
---------
557,121
---------
Net Cash Used..................................................... $ (3,581)
---------
---------
</TABLE>
(B) Reflects the increase in deferred financing fees related to the New Credit
Facility, the Discount Debentures and the Senior Subordinated Notes, as
follows:
<TABLE>
<S> <C>
Existing deferred financing fees related to debt to be refinanced
as a result of the Merger....................................... $ (7,034)
Deferred financing fees related to the debt to be issued as a
result of the Merger............................................ 13,800
---------
$ 6,766
---------
---------
</TABLE>
(C) Reflects the payout of the Company's deferred compensation plan of $1,588
under its provisions for change of control as a result of the Merger.
(D) Represents the repayment of the funds outstanding under the existing credit
facility with a portion of the proceeds from the New Credit Facility. The
New Credit Facility is not anticipated to require principal payments in the
first year. The remaining indebtedness of $1,860 represents the current
portion of capital lease obligations.
(E) Represents the repayment of the funds outstanding under the existing credit
facility with a portion of the proceeds from the New Credit Facility. The
remaining indebtedness of $1,486 represents the long-term portion of capital
lease obligations.
(F) Reflects the borrowings under the New Credit Facility, the Discount
Debentures and the Senior Subordinated Notes.
(G) Reflects the presently anticipated issuance of securities of the Company to
the Investors, the Rotko Entities and the Management Stockholders, as well
as shares of Series A Preferred Stock issued to holders of MEDIQ Shares
prior to the Effective Time (including the Rotko Entities and the Management
Stockholders), as follows:
65
<PAGE>
<TABLE>
<CAPTION>
ROTKO MANAGEMENT EXISTING
INVESTORS ENTITIES STOCKHOLDERS STOCKHOLDERS TOTAL
----------- ------------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Mandatory Redeemable Preferred Stock:
Series A Preferred Stock...................... $ 55,494 $ -- $ 2,767 $ 19,979 $ 78,240
Series C Preferred Stock...................... 28,575 -- 1,425 -- 30,000
----------- ------------- ------ ------------ ---------
Total Mandatory Redeemable Preferred
Stock..................................... 84,069 -- 4,192 19,979 108,240
Series B Preferred Stock:
At Par........................................ 16 13 1 -- 30
Capital in Excess of Par...................... 15,794 13,389 787 -- 29,970
----------- ------------- ------ ------------ ---------
Total Series B Preferred Stock.............. 15,810 13,402 788 -- 30,000
----------- ------------- ------ ------------ ---------
Total Preferred Stock......................... $ 99,879 $ 13,402 $ 4,980 $ 19,979 $ 138,240
----------- ------------- ------ ------------ ---------
----------- ------------- ------ ------------ ---------
Common Stock:
At Par........................................ $ 8 $ 1 $ 1 $ -- $ 10
Capital in Excess of Par...................... 8,175 1,097 718 -- 9,990
----------- ------------- ------ ------------ ---------
Total Common Stock.......................... $ 8,183 $ 1,098 $ 719 -- $ 10,000
----------- ------------- ------ ------------ ---------
----------- ------------- ------ ------------ ---------
</TABLE>
Year 1 dividends on the Series A, Series B and Series C Preferred Stock are
anticipated to be $10.2 million, $4.0 million, $4.1 million, respectively. Each
series of preferred stock includes compounding features which will increase the
amount of dividends in future years if accrued dividends from prior years have
not been paid.
Although the stated value of the Surviving Corporation Preferred Stock is
set at its liquidation value of $10.00 per share, the valuation of the Surviving
Corporation Preferred Stock is subject to uncertainties and contingencies, all
of which are difficult to predict, and stated value of the Surviving Corporation
Preferred Stock and the amounts at which the Surviving Corporation Preferred
Stock is reflected in the pro forma financial information are not necessarily
reflective of the prices at which the Surviving Corporation Preferred Stock will
actually trade at or after the time of their issuance, whether before or after
such securities are fully distributed.
(H) Reflects the purchase of MEDIQ Shares for the Merger Consideration, as
follows:
<TABLE>
<S> <C>
Preferred Stock................................................. $ 3,322
Common Stock.................................................... 20,068
Capital in Excess of Par........................................ 27,127
Retained Earnings............................................... 344,989
Treasury Stock.................................................. (4,806)
---------
Total stock purchase price...................................... $ 390,700
---------
---------
</TABLE>
(I) Reflects the fees and expenses anticipated to be paid to effect the Merger,
costs associated with employment contracts providing for additional
compensation as a result of the Merger, net of related income tax effects,
and the write-off of financing fees, net of related income tax effects,
related to the Existing Credit Facility repaid as a result of the Merger, as
follows:
<TABLE>
<CAPTION>
GROSS TAX EFFECT NET
--------- ----------- ---------
<S> <C> <C> <C>
Fees and Expenses........................................... $ 11,600 $ -- $ 11,600
Additional Compensation..................................... 7,000 2,800 4,200
Write-off of Deferred Fees.................................. 7,034 2,814 4,220
--------- ----------- ---------
$ 25,634 $ 5,614 $ 20,020
--------- ----------- ---------
--------- ----------- ---------
</TABLE>
Taxes were calculated at an incremental effective tax rate of 40%. Of the
$5,614 of total taxes, $2,636 of the tax effect of the above transactions were
used to increase the Company's income tax receivable reflected in Other Current
Assets. Such amount represents the Company's historical fiscal 1997 income tax
liability. The remainder of the tax effect of $2,978 is reflected in Deferred
Income Taxes and Other Liabilities.
(J) On December 31, 1996, the Company sold to NutraMax Products, Inc.
("NutraMax") all of the 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 cash and an interest bearing promissory note. 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.
66
<PAGE>
CAPITALIZATION
The following table sets forth the historical capitalization of the Company
as of September 30, 1997, and the pro forma capitalization of the Company as of
September 30, 1997, after giving effect to the Transactions. The information set
forth below should be read in conjunction with the Pro Forma Condensed
Consolidated Financial Statements included elsewhere herein. See "PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS."
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
SEPTEMBER 30, 1997 SEPTEMBER 30, 1997
------------------ ------------------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Long-Term Debt, including current portion:
MEDIQ/PRN:
Capital Lease Obligations............................. $ 3,346 $ 3,346
Existing Credit Facility.............................. 132,433 --
New Credit Facility:
Revolving Credit Facility........................... -- 300
Tranche A Term Loan................................. -- 75,000
Tranche B Term Loan................................. -- 100,000
Senior Subordinated Debentures........................ -- 200,000
-------- ----------
Total MEDIQ/PRN......................................... 135,779 378,646
MEDIQ:
7.5% Subordinated Exchangeable Debentures (1)......... 10,055 10,055
Discount Debentures................................... -- 30,000
-------- ----------
Total MEDIQ............................................. 10,055 40,055
-------- ----------
Total Long-Term Debt.................................. 145,834 418,701
Mandatory Redeemable Preferred Stock:
Series A Preferred Stock (2).......................... -- 78,240
Series C Preferred Stock (3).......................... -- 30,000
-------- ----------
Total Mandatory Redeemable Preferred Stock............ -- 108,240
Stockholders' Equity:
MEDIQ Preferred Stock................................. 3,322 --
Series B Preferred Stock (4).......................... -- 30
Common Stock(5)....................................... 20,068 10
Capital in Excess of Par.............................. 27,127 39,960
Retained Earnings..................................... 2,892 (362,117)
Treasury Stock........................................ (4,806) --
-------- ----------
Total Stockholders' Equity.......................... 48,603 (322,117)
-------- ----------
Total Capitalization...................................... $ 194,437 $ 204,824
-------- ----------
-------- ----------
</TABLE>
- ------------------------
(1) On December 31, 1996, the Company sold to NutraMax Products all of the
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
cash and an interest bearing promissory note. 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.
(2) Assumes that no stockholders exercise dissenters rights in connection with
the Merger. Upon the consummation of the Merger it is currently anticipated
that approximately 71% of these shares will be held by the Investors,
approximately 3% will be held by the Management Stockholders and
approximately 26% will be held by existing stockholders of the Company
(including the Rotko Entities and the Management Stockholders in respect of
the shares of MEDIQ Stock for which they received the Merger Consideration).
(3) Upon the consummation of the Merger it is currently expected that
approximately 95% of these shares will be held by the Investors and
approximately 5% will be held by the Management Stockholders.
(4) Upon the consummation of the Merger it is currently expected that
approximately 53% of these shares will be held by BRS and certain other
investors designated by BRS, approximately 44% will be held by the Rotko
Entities and approximately 3% will be held by the Management Stockholders.
(5) Upon the consummation of the Merger it is currently expected that
approximately 81% of these shares will be held by BRS and certain other
investors designated by BRS, approximately 11% will be held by the Rotko
Entities and approximately 8% will be held by the Management Stockholders.
Does not include the Management Purchase Shares or the New Options. See "THE
MERGER--Interests of Certain Persons in the Merger." See "SOURCES AND AMOUNT
OF FUNDS."
67
<PAGE>
THE COMPANY
The Company, through its wholly-owned subsidiary, MEDIQ/PRN, operates the
largest movable critical care medical equipment rental business in the United
States, serving more than 5,000 hospitals, alternate care facilities, nursing
homes and other health care providers nationwide. The Company rents over 650
different types of movable 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 specialty
hospital bed mattresses and overlays. The Company also sells a variety of
disposable products, accessories and repair parts used with the equipment it
rents, is the exclusive distributor of accessories and supplies manufactured by
Siemens Medical Systems, Inc. for respiratory care, catherization lab and
monitoring systems, and provides outsourcing services, including management,
consulting and administrative services, to health care providers and diagnostic
imaging centers. In fiscal 1997, rentals of movable medical equipment accounted
for approximately 80% of the Company's revenues, sales of disposable products,
equipment, accessories and repair parts used with equipment it rents accounted
for approximately 13% of the Company's revenues and the provision of outsourcing
services accounted for approximately 7% of the Company's revenues.
The Company believes that rentals of medical equipment and outsourcing of
non-core functions of hospitals and other health care providers have benefited
from certain industry trends. In recent years, hospitals have faced increasing
pressure to reduce operating costs and capital expenditures, while continuing to
offer state of the art care. As a result of these competing pressures, hospitals
often elect to rent or lease medical equipment rather than incur the substantial
capital costs required for equipment purchases. Additionally, as health care
costs have steadily increased, hospitals have sought to improve operating
performance by shifting the management of non-core activities such as asset
management and repair and maintenance to third parties. Hospitals and other
health care providers benefit from these programs by reducing operating costs,
increasing efficiency and/or minimizing technical obsolescence of equipment. As
a result, the Company believes that demand for medical equipment rentals and
outsourcing services is growing.
In its critical care medical equipment rental business, the Company rents
its 140,000 unit movable medical equipment inventory to customers through 84
office locations in major metropolitan areas nationwide, 73 of which are
operated by the Company and the remainder of which are operated by independent
distributors. Such locations operate 24 hours a day, 365 days a year, with
deliveries of patient-ready equipment typically made to customers within two
hours of a request. The Company's customers receive a full range of rental and
related support services, including equipment delivery, inspection, maintenance,
repair and documentation. The Company also rents therapeutic support surfaces
through SpectraCair, the remaining fifty percent (50%) interest of which the
Company did not already own having been acquired in September, 1997. In addition
to these standard rentals, the Company has entered into several revenue-share
arrangements with original equipment manufacturers ("OEM") pursuant to which the
Company rents moveable medical equipment and sells disposable products produced
by the OEM to the Company's customers. Under such arrangements, because the OEM
owns the equipment, the Company is able to generate additional revenues without
any additional capital investment in new equipment.
To address the needs of hospitals and other health care providers to better
manage their assets and increase profits, the Company also offers its customers
outsourcing services. Each of the Company's outsourcing services benefits from
the Company's extensive distribution network and broad customer base. These
services include: (i) a comprehensive asset management program
(CAMP-Registered Trademark-) which analyzes the critical care equipment usage of
a customer and provides a variety of logistics and outsourcing services designed
to manage, track and service the customer's movable medical equipment, (ii) a
biomedical service which provides safety inspections, preventive maintenance and
repairs for most critical care equipment through a team of more than 170
trained, experienced biomedical technicians, (iii) a logistics and
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distribution service to assist equipment manufacturers in reducing their
transportation costs through utilization of the Company's nationwide branch
office network and (iv) a medical gas supply program designed to complement the
Company's respiratory equipment rentals.
The Company believes that it can enhance its leadership position through the
continued implementation of its growth strategy. Key elements of such strategy
include (i) focusing on the development of its outsourcing businesses, including
CAMP-Registered Trademark-, biomedical repairs and logistics, (ii) leveraging
its infrastructure to increase sales in non-capital intensive businesses, such
as revenue sharing rentals, sales of parts, equipment and disposables and
outsourcing businesses and (iii) continuing to evaluate potential acquisitions
of critical care and other medical equipment rental companies and companies in
related industries.
STOCKHOLDER LITIGATION
On January 15, 1998, Crandon Capital Partners, a stockholder of the Company,
sued the Company and each of the Company's directors in Delaware Chancery Court,
alleging breaches of fiduciary duties in connection with the directors' approval
of the Merger and the related transactions. The complaint purports to be a class
action complaint and plaintiff seeks to enjoin the Merger or, in the
alternative, to recover compensatory damages. The Company believes that this
claim is completely without merit and the Company and the directors of the
Company intend to vigorously defend the action. A copy of the complaint was
filed as Exhibit 99.2 to the Company's Current Report on Form 8-K filed with the
Commission on January 21, 1998 and is hereby incorporated herein by reference.
DESCRIPTION OF MEDIQ CAPITAL STOCK PRIOR TO THE MERGER
GENERAL
The Company is authorized by its Certificate of Incorporation, as amended,
to issue an aggregate of 40,000,000 shares of Common Stock, par value $1.00 per
share and 20,000,000 shares of MEDIQ Preferred Stock, par value $.50 per share.
The following is a summary of certain of the rights and privileges pertaining to
the MEDIQ Stock. For a full description of the MEDIQ Stock, reference is made to
the Company's Certificate of Incorporation, as amended, which has been filed as
an exhibit to the Registration Statement.
The Merger and the Merger Agreement require for the approval thereof, (i)
the affirmative vote of the holders of a majority of the outstanding voting
power of the MEDIQ Shares, voting together as a single class and (ii) the
affirmative vote of the holders of a majority of the outstanding MEDIQ Preferred
Shares.
MEDIQ COMMON STOCK
The holders of MEDIQ Common Stock are entitled to one vote per share on all
matters submitted for action by the stockholders. As of , 1998,
shares of MEDIQ Common Stock were issued and outstanding.
There is no provision for cumulative voting with respect to the election of
directors. The MEDIQ Common Stock and MEDIQ Preferred Stock vote together as a
single class, except that pursuant to the Company's Certificate of
Incorporation, the nominees for director who are not officers or employees of
the Company ("Outside Directors") are to be elected solely by the holders of
MEDIQ Common Stock, voting as a separate class. Accordingly, the holders of more
than 50% of the shares of MEDIQ Common Stock can elect all of the Outside
Directors.
Subject to the rights of any holders of outstanding MEDIQ Preferred Stock,
all shares of MEDIQ Common Stock are entitled to share in such dividends as the
Board of Directors may from time to time declare from sources legally available
therefor.
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Subject to the rights of any holders of outstanding MEDIQ Preferred Stock,
upon liquidation or dissolution of the Company, whether voluntary or
involuntary, all shares of MEDIQ Common Stock are entitled to share equally in
the assets or surplus funds available for distribution to stockholders after
payment of all prior obligations of the Company.
No holder of MEDIQ Common Stock possesses any preemptive rights to subscribe
or acquire any unissued or capital stock of the Company (whether now or
hereafter authorized) or securities of the Company convertible into or carrying
a right to subscribe to or acquire shares of capital stock of the Company.
MEDIQ PREFERRED STOCK
On matters subject to a vote by holders of the MEDIQ Common Stock, the
holders of the MEDIQ Preferred Stock are entitled to 10 votes for each share of
MEDIQ Preferred Stock held. Without the consent of the holders of at least
66 2/3% of the outstanding shares of MEDIQ Preferred Stock, voting as a separate
class, the Company may not amend, alter or repeal the certificate of
incorporation of the Company in any way that would adversely affect the
preferences rights or powers of the MEDIQ Preferred Stock, or authorize any
class of stock ranking senior to the MEDIQ Preferred Stock. Without the consent
of the holders of at least a majority of the outstanding shares of MEDIQ
Preferred Stock, voting as a separate class, the Company cannot merge with any
other corporation. As of , 1998, shares of MEDIQ Preferred Stock
were issued and outstanding.
There is no provision for cumulative voting with respect to the election of
directors. The MEDIQ Common Stock and MEDIQ Preferred Stock vote together as a
single class, except that pursuant to the Company's Certificate of
Incorporation, the nominees for director who are not officers or employees of
the Company (the "Outside Directors") are to be elected solely by the holders of
MEDIQ Common Stock, voting as a separate class. Accordingly, the holders of more
than % of the shares of MEDIQ Preferred Stock can elect all of the directors
(other than Outside Directors).
All shares of MEDIQ Preferred Stock are entitled to share in such dividends
as the Board of Directors may from time to time declare from sources legally
available therefor, subject to the following provisions: (i) all shares of MEDIQ
Preferred Stock are entitled to share in cash dividends at a rate of 60% of the
then current rate of cash dividends payable on each share of MEDIQ Common Stock
and (ii) dividends of shares of MEDIQ Preferred Stock may be paid to holders of
MEDIQ Preferred Stock if a dividend of shares of MEDIQ Common Stock is paid
simultaneously to holders of MEDIQ Common Stock.
Upon the liquidation or dissolution of the Company, whether voluntary or
involuntary, the holders of MEDIQ Preferred Stock will be entitled to receive
from assets of the Company available for distribution to its stockholders,
before any payment or distribution will be made on the MEDIQ Common Stock, an
amount equal to $.50 per share. If after payment to the holders of MEDIQ
Preferred Stock of the full preferential amounts provided for in the preceding
sentence, assets or surplus funds remain in the Company then the holders of
MEDIQ Preferred Stock will be entitled to share in all such remaining assets or
surplus funds in the same manner as if all shares of MEDIQ Preferred Stock had
been converted into MEDIQ Common Stock.
DESCRIPTION OF MEDIQ CAPITAL STOCK FOLLOWING THE MERGER
GENERAL
If the Merger is approved by the requisite vote of the stockholders of MEDIQ
Stock at the Special Meeting, at the Effective Time the Certificate of
Incorporation of the Surviving Corporation shall be amended as set forth on
Annex IV. The following is a summary of certain of the rights and privileges
that, after the Effective Time, will pertain to the stock of the Surviving
Corporation. For a full description of
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such stock, reference is made to the Certificate of Incorporation of the
Surviving Corporation, as amended, a copy of which is attached hereto as Annex
IV.
The MEDIQ Common Stock and the MEDIQ Preferred Stock are currently listed on
the AMEX. It is MQ's present intention that, following the Merger, neither the
Series A Preferred Stock nor any other class or series of the Company's capital
stock will be listed on the AMEX or any other national securities exchange and
will not be quoted on the NASDAQ Stock Market, Inc. Notwithstanding that the
Surviving Corporation may not be required to remain subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, for the two (2) years
following the Effective Time, the Surviving Corporation will file with the
Commission such reports as are specified in Section 13 and 15(d) of the Exchange
Act and required to be filed in respect of securities similar to the Series A
Preferred Stock by issuers subject to the reporting requirements of Section 13
of the Exchange Act, such reports to be so filed at the times specified for the
filings of such reports required under such Sections; provided that the
Surviving Corporation will have no obligation to file such reports if fewer than
500,000 shares of Series A Preferred Stock remain outstanding.
In addition, the Bylaws of MQ as in effect at the Effective Time will be the
Bylaws of the Surviving Company until thereafter exchanged or amended (subject
to the restrictions set forth in the Merger Agreement) or by applicable law.
COMMON STOCK
Following the Merger, the Surviving Corporation will be authorized by its
Certificate of Incorporation, as amended, to issue an aggregate of 30,000,000
shares of Common Stock, par value $.01 per share (the "Surviving Corporation
Common Stock").
The holders of Surviving Corporation Common Stock will be entitled to one
vote per share on all matters submitted for action by the stockholders. There is
no provision for cumulative voting with respect to the election of directors.
Accordingly, the holders of more than 50% of the shares of Surviving Corporation
Common Stock will be able to elect all of the directors. In such event, the
holders of the remaining shares will not be able to elect any directors. The
Rotko Entities, pursuant to the Rollover Agreement, will be entitled to
designate one director of the Company under certain circumstances. See "THE
ROLLOVER AGREEMENT."
Subject to the rights of any holders of outstanding Surviving Corporation
Preferred Stock, all shares of Surviving Corporation Common Stock will be
entitled to share in such dividends as the Board of Directors may from time to
time declare from sources legally available therefor.
Subject to the rights of any holders of outstanding Surviving Corporation
Preferred Stock, upon liquidation or dissolution of the Company, whether
voluntary or involuntary, all shares of Surviving Corporation Common Stock are
entitled to share equally in the assets available for distribution to
stockholders after payment of all prior obligations of the Company.
PREFERRED STOCK
Following the Merger, the Company will be authorized by its Certificate of
Incorporation, as amended, to issue an aggregate of 30,000,000 shares of
Preferred Stock, par value $.01 per share (the "Surviving Corporation Preferred
Stock"). The Board of Directors will also be empowered under the Company's
Certificate of Incorporation and without further stockholder action to divide
any and all shares of the Surviving Corporation Preferred Stock into series and
to fix and determine the relative rights and preferences of the shares of any
series so established. The issuance of Surviving Corporation Preferred Stock by
the Board of Directors could affect the rights of holders of shares of Surviving
Corporation Common Stock. For example, issuance of Surviving Corporation
Preferred Stock could result in a class of securities outstanding that will have
certain preferences with respect to dividends and in liquidation over
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the MEDIQ Common Stock, and may enjoy certain voting rights, contingent or
otherwise, in addition to that of the Surviving Corporation Common Stock, and
could result in the dilution of the voting rights, net income per share and net
book value of the Surviving Corporation Common Stock.
SERIES A PREFERRED STOCK
GENERAL. In connection with the Merger, each holder of MEDIQ Shares will
receive, in exchange for each MEDIQ Share, in addition to cash consideration of
$13.75 (without interest), 0.075 of a share of Series A Preferred Stock.
Pursuant to the Certificate of Designation to be filed with the Secretary of
State of Delaware with respect to the Series A Preferred Stock included in Annex
IV hereto, 8,000,000 shares of Series A Preferred Stock, par value $.01, with a
liquidation value of $10.00 per share plus accrued and unpaid dividends will be
authorized for issuance. The Series A Preferred Stock will be, when issued,
fully paid and non-assessable and holders thereof will have no preemptive rights
in connection therewith. In connection with the Transactions, the Company
expects to issue up to 7,830,000 shares of Series A Preferred Stock.
The Series A Preferred Stock will not be listed on the AMEX or any other
securities exchange and will not be quoted on the NASDAQ, consequently, there
can be no assurance that any trading market will exist or develop for the Series
A Preferred Stock after the Merger. Shares of the Series A Preferred Stock would
trade only in the over-the-counter market. Although prices in respect of trades
would be published by the National Association of Securities Dealers, Inc.
periodically in the "pink sheets," quotes for such shares would not be readily
available. As a result, it is anticipated that the shares will trade much less
frequently relative to the trading volume of the Company's securities prior to
the Merger. At present there is no trading market for the Series A Preferred
Stock. There can be no assurance that holders will be able to sell their
securities at favorable prices or that the trading prices for the securities
will be comparable to the trading prices for MEDIQ Shares prior to consummation
of the Merger. A large number of securities may be traded by holders immediately
following completion of the Merger for various reasons. This might tend to
depress the market price of the Series A Preferred Stock.
Although the stated value of the Series A Preferred Stock is set at its
liquidation value of $10.00 per share, the valuation of the Series A Preferred
Stock is subject to uncertainties and contingencies, all of which are difficult
to predict, and stated value of the Series A Preferred Stock and the amounts at
which the Series A Preferred Stock is reflected in the pro forma financial
information contained herein are not necessarily reflective of the prices at
which the Series A Preferred Stock will actually trade at or after the time of
their issuance, whether before or after such securities are fully distributed.
The liquidity of and the market prices for the Series A Preferred Stock can be
expected to vary with changes in market and economic conditions, the financial
condition and prospects of the Company and other factors that generally
influence the market prices of securities, including in particular further
fluctuations in the market for high yield securities generally. Such
fluctuations in the high yield market may significantly affect liquidity and
market prices independent of the financial performance of and prospects for the
Company and its subsidiaries. In addition, the Series A Preferred Stock may
trade at prices that do not fully reflect the value of accrued but undeclared
dividends.
RANK. The Series A Preferred Stock will, with respect to dividend rights
and rights on liquidation, winding up and dissolution of the Company, rank (a)
senior to the Surviving Corporation Common Stock, the Series B Preferred Stock,
the Series C Preferred Stock, and each other class of capital stock or class or
series of preferred stock issued by the Company after the Effective Date the
terms of which specifically provide that such class or series will rank junior
to the Series A Preferred Stock as to dividend distributions or distributions
upon the liquidation, winding up and dissolution of the Company (collectively
referred to as "Series A Junior Securities"), (b) on a parity with each other
class of capital stock or class or series of preferred stock issued by the
Company after the Effective Date the terms of which do not specifically provide
that they rank junior to Series A Preferred Stock or senior to Series A
Preferred Stock as to dividend distributions or distributions upon liquidation,
winding up and dissolution of the Company
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(collectively referred to as "Series A Parity Securities"), and (c) junior to
each other class of capital stock or other class or series of preferred stock
issued by the Company that by its terms is senior to the Series A Preferred
Stock with respect to dividend distributions or distributions upon the
liquidation, winding up and dissolution of the Company (collectively referred to
as "Series A Senior Securities").
Although the Series A Preferred Stock will, with respect to dividend rights
and rights on liquidation, rank senior to Series A Junior Securities issued by
the Company, it will be junior in right of payment to all existing and future
indebtedness and obligations of the Company. The lending facilities to which the
Company will be a party will restrict payment of cash dividends by the Company.
See "RISK FACTORS-- Restrictions on the Payment of Dividends" and 'SOURCES AND
AMOUNT OF FUNDS."
DIVIDENDS. Each holder of Series A Preferred Stock will be entitled to
receive, when, as and if declared by the Board of Directors, out of funds
legally available therefor, cash dividends on each share of Series A Preferred
Stock at a rate equal to $1.30 per share per annum. All dividends will be
cumulative, whether or not earned or declared, and will accrue on a daily basis
from the date of issuance of Series A Preferred Stock, and will be payable
semi-annually in arrears on each dividend payment date, commencing on the second
dividend payment date after the date of issuance of such Series A Preferred
Stock. Each dividend on Series A Preferred Stock will be payable to the holders
of record of Series A Preferred Stock as they appear on the stock register of
the Company on such record date as may be fixed by the Board of Directors, which
record date will not be less than 10 nor more than 60 days prior to the
applicable dividend payment date. Dividends will cease to accrue in respect of
shares of Series A Preferred Stock on the date of their repurchase by the
Company unless the Company has failed to pay the relevant repurchase price on
the date fixed for repurchase. Notwithstanding anything to the contrary set
forth above, unless and until such dividends are declared by the Board of
Directors, there will be no obligation to pay such dividends; PROVIDED, that
such dividends will continue to cumulate and will be added to the Series A
Liquidation Preference at the time of repurchase as provided herein if not
earlier declared and paid. Accrued dividends on the Series A Preferred Stock if
not paid on the first or any subsequent dividend payment date following accrual
will thereafter accrue additional dividends ("Additional Dividends") in respect
thereof, compounded annually, at the rate of 13.0% per annum. All dividends paid
with respect to shares of Series A Preferred Stock will be paid pro rata to the
holders entitled thereto.
As long as any Series A Preferred Stock is outstanding, no dividends will be
declared by the Board of Directors or paid or funds set apart for the payment of
dividends or other distributions on any Series A Parity Securities for any
period, and no Series A Parity Securities may be repurchased, redeemed or
otherwise acquired, nor may funds be set apart for such payment (other than
dividends, other distributions, redemptions, repurchases or acquisitions payable
in Series A Junior Securities and cash in lieu of fractional shares of such
Series A Junior Securities in connection therewith), unless (i) full accumulated
dividends have been paid or set apart for such payment on the Series A Preferred
Stock and Series A Parity Securities for all Dividend Periods terminating on or
prior to the date of payment of such dividends or distributions on, or such
repurchase or redemption of, such Series A Parity Securities (the "Series A
Parity Payment Date") and (ii) any such dividends are declared and paid pro rata
so that the amounts of any dividends declared and paid per share on outstanding
Series A Preferred Stock and each other share of Series A Parity Securities will
in all cases bear to each other the same ratio that accrued and unpaid dividends
(including any accumulated dividends) per share of outstanding Series A
Preferred Stock and such other outstanding shares of Series A Parity Securities
bear to each other.
The holders of Series A Preferred Stock will be entitled to receive the
dividends in preference to and in priority over any dividends upon any of the
Series A Junior Securities. Such dividends on the Series A Preferred Stock will
be cumulative, whether or not earned or declared, so that if at any time full
accumulated dividends on all shares of Series A Preferred Stock then outstanding
have not been paid for all Dividend Periods then elapsed have not been paid or
set aside for payment, the amount of such unpaid dividends will be paid before
any sum will be set aside for or applied by the Company to the purchase,
redemption or other acquisition for value of any shares of Series A Junior
Securities (either pursuant to
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any applicable sinking fund requirement or otherwise) or any dividend or other
distribution will be paid or declared and set apart for payment on any Series A
Junior Securities; PROVIDED, HOWEVER, that the foregoing will not (i) prohibit
the Company from repurchasing shares of Series A Junior Securities from a holder
who is, or was, a director or employee of the Company (or an affiliate of the
Company) and (ii) prohibit the Company from making dividends, other
distributions, redemptions, repurchases or acquisitions in respect of Series A
Junior Securities payable in Series A Junior Securities and paying cash in lieu
of fractional shares of such Series A Junior Securities in connection therewith.
Dividends payable on Series A Preferred Stock for any period less than one
year will be computed on the basis of a 360-day year consisting of twelve 30-day
months and the actual number of days elapsed in the period for which such
dividends are payable.
The additional indebtedness incurred by the Company in connection with the
Merger may have an adverse effect on the Company's ability to declare and pay
accrued dividends on the Series A Preferred Stock or to redeem the Series A
Preferred Stock. See "RISK FACTORS--Substantial Leverage; Stockholders' Deficit;
Liquidity."
LIQUIDATION PREFERENCE. Upon any voluntary or involuntary liquidation,
dissolution or winding up of the Company, the holders of all shares of Series A
Preferred Stock then outstanding will be entitled to be paid out of the assets
of the Company available for distribution to its stockholders an amount in cash
equal to $10.00 per share, plus an amount equal to full cumulative dividends
(whether or not earned or declared) accrued and unpaid thereon, including
Additional Dividends, to the date of final distribution (the "Series A
Liquidation Preference") and no more, before any distribution is made on any
Series A Junior Securities. If upon any voluntary or involuntary liquidation,
dissolution or winding up of the Company, the application of all amounts
available for payments with respect to Series A Preferred Stock and all other
Series A Parity Securities would not result in payment in full of Series A
Preferred Stock and such other Series A Parity Securities, the holders and
holders of Series A Parity Securities will share equally and ratably in any
distribution of assets of the Company in proportion to the full liquidation
preference to which each is entitled. After payment in full in accordance with
the preceding sentence, the holders of the Series A Preferred Stock shall not be
entitled to any further participation in any distribution in the event of
liquidation, disolution or winding up of the affairs of the surviving
corporation with respect to the shares of Series A Preferred Stock.
OPTIONAL REDEMPTION. The Company may, at its option, redeem at any time or
from time to time, from any source of funds legally available therefor, in whole
or in part any or all of the shares of Series A Preferred Stock, at a redemption
prices set forth below, plus an amount equal to full cumulative dividends
(whether or not earned or declared) accrued and unpaid thereon, including
Additional Dividends, to the redemption date. The redemption price for
redemptions are as follows:
<TABLE>
<CAPTION>
REDEMPTION PRICE
REDEMPTION DATE PER SHARE
- ---------------------------------------------------------------------------- -----------------
<S> <C>
on or before December 31, 1999.............................................. $ 11.00
on or after January 1, 2000 but on or before December 31, 2001.............. $ 10.50
on or after January 1, 2002................................................. $ 10.00
</TABLE>
No partial redemption of Series A Preferred Stock may be authorized or made
unless prior thereto, full accrued and unpaid dividends thereon for all dividend
periods terminating on or prior to the redemption date and an amount equal to a
prorated dividend thereon for the period from the dividend payment date
immediately prior to the redemption date to the redemption date have been or
immediately prior to the redemption notice are declared and paid in cash or are
declared and there has been a sum set apart sufficient for such cash payment on
the redemption date.
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In the event of a redemption of only a portion of the then outstanding
shares of Series A Preferred Stock, the Company will effect such redemption pro
rata according to the number of shares held by each holder of Series A Preferred
Stock.
MANDATORY REDEMPTION. All outstanding shares of the Series A Preferred
Stock will be redeemed from funds legally available therefor on December 31,
2011, at a price per share equal to the Series A Liquidation Preference on
December 31, 2011.
NOTICE OF REDEMPTION. At least 30 days and not more than 60 days prior to
the date fixed for any redemption of Series A Preferred Stock, written notice
(the "Redemption Notice") will be given by first class mail, postage prepaid, to
each holder of record of Series A Preferred Stock on the record date fixed for
such redemption of Series A Preferred Stock at such holder's address as set
forth on the stock register of the Company on such record date. If a Redemption
Notice has been properly mailed, unless the Company defaults in the payment in
full of the redemption price, then, notwithstanding that the certificates
evidencing any shares of Series A Preferred Stock so called for redemption have
not been surrendered, (x) on the redemption date, the shares represented thereby
so called for redemption will be deemed no longer outstanding and will have the
status of authorized but unissued shares of Surviving Corporation Preferred
Stock, undesignated as to series, (y) dividends with respect to the shares so
called for redemption will cease to accrue after the redemption date and (z) all
rights with respect to the shares so called for redemption or subject to
conversion will forthwith after such date cease and terminate, except for the
right of the holders to receive the funds, if any, payable without interest upon
surrender of their certificates therefor.
VOTING RIGHTS. The holders of Series A Preferred Stock will not be entitled
or permitted to vote on any matter required or permitted to be voted upon by the
stockholders of the Company, except as otherwise required by Delaware law except
that, without the written consent of the holders of a majority of the
outstanding shares of Series A Preferred Stock or the vote of the holders of a
majority of the outstanding shares of Series A Preferred Stock at a meeting of
the holders of Series A Preferred Stock called for such purpose, the Company
will not (a) create, authorize or issue any other class or series of stock
entitled to a preference prior to Series A Preferred Stock upon any dividend or
distribution or any liquidation, distribution of assets, dissolution or winding
up of the Company, or (b) amend, alter or repeal any provision of the Company's
Certificate of Incorporation so as to materially adversely affect the relative
rights and preferences of the Series A Preferred Stock. In any case in which the
holders will be entitled to vote, each holder of Series A Preferred Stock will
be entitled to one vote for each share of Series A Preferred Stock held unless
otherwise required by applicable law. Without limiting the generality of the
foregoing, in no event will the holders of Series A Preferred Stock be entitled
to vote (individually or as a class) on any merger or consolidation involving
the Company, any sale of all or substantially all of the assets of the Company
or any similar transaction. The Investors will, immediately after the Effective
Time, own a majority of the outstanding shares of Series A Preferred Stock. In
light of the foregoing, holders of Series A Preferred Stock will have very
limited voting rights compared to the voting rights that such holders currently
have with respect to their MEDIQ Common Stock or MEDIQ Preferred Stock, as the
case may be. See "DESCRIPTION OF MEDIQ CAPITAL STOCK PRIOR TO THE MERGER."
NO RIGHT OF CONVERSION OR EXCHANGE. The holders of Series A Preferred Stock
will not have any rights hereunder to convert such shares into or exchange such
shares for shares of any other class or classes or of any other series of any
class or classes of capital stock of the Company.
NO PREEMPTIVE RIGHTS. No holder of Series A Preferred Stock will possess
any preemptive rights to subscribe or acquire any unissued shares of capital
stock of the Company (whether now or hereafter authorized) or securities of the
Company convertible into or carrying a right to subscribe to or acquire shares
of capital stock of the Company.
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Dividends, including dividends with respect to the Series A Preferred Stock,
can only be paid by the Company to the extent funds are legally available
therefor under the DGCL. See "RISK FACTORS--Restrictions on the Payment of
Dividends."
SERIES B PREFERRED STOCK
GENERAL. In connection with the Transactions, each Rotko Entity and certain
other persons (including the Investors and the Management Stockholders will
receive shares of 13.25% Cumulative Compounding Perpetual Preferred Stock, par
value $.01 per share, the Series B Preferred Stock of the Surviving Corporation.
Pursuant to the Certificate of Designation to be filed with the Secretary of
State of Delaware with respect to the Series B Preferred Stock included in as
Annex IV hereto, 3,000,000 shares of Series B Preferred Stock with a stated
value of $10.00 per share and a liquidation preference of $10.00 per share plus
accrued and unpaid dividends will be authorized for issuance. The Series B
Preferred Stock will be, when issued, fully paid and non-assessable and holders
thereof will have no preemptive rights in connection therewith.
Neither the stated value nor the liquidation preference of the Series B
Preferred Stock is necessarily indicative of the actual value of the shares of
Series B Preferred Stock at or after the time of their issuance. The value of
the Series B Preferred Stock can be expected to fluctuate with changes in market
and economic conditions, the financial condition and prospects of the Company
and other factors that generally influence the value of securities.
RANK. The Series B Preferred Stock will, with respect to dividend rights
and rights on liquidation, winding up and dissolution of the Company, rank
junior to the Series A Preferred Stock and senior to the Series C Preferred
Stock as to dividend distributions or distributions upon the liquidation,
winding up and dissolution of the Company
Although the Preferred Stock will, with respect to dividend rights and
rights on liquidation, rank senior to Series C Preferred Stock issued by the
Company, it will be junior in right of payment to all existing and future
indebtedness and obligations of the Company. As described in "SOURCES AND AMOUNT
OF FUNDS", the lending facilities to which the Company will be a party will
restrict payment of cash dividends by the Company.
DIVIDENDS. Each holder of Series B Preferred Stock will be entitled to
receive, when, as and if declared by the Board of Directors, out of funds
legally available therefor, cash dividends on each share of Series B Preferred
Stock at a rate equal to $1.325 per share per annum. All dividends will be
cumulative and compounding, whether or not earned or declared, and will accrue
on a daily basis from the date of issuance of Series B Preferred Stock, and will
be payable semi-annually in arrears.
LIQUIDATION PREFERENCE. Upon any voluntary or involuntary liquidation,
dissolution or winding up of the Company, the holders of all shares of Series B
Preferred Stock then outstanding will be entitled to be paid out of the assets
of the Company available for distribution to its stockholders an amount in cash
equal to $10.00 per share, plus an amount equal to full cumulative dividends
(whether or not earned or declared) accrued and unpaid thereon, including
Additional Dividends, to the date of final distribution after distributions are
made on the Series A Preferred Stock and before any distribution is made on any
Series C Preferred Stock. After payment in full in accordance with the preceding
sentence, the holders of the Series A Preferred Stock shall not be entitled to
any further participation in any distribution in the event of liquidation,
disolution or winding up of the affairs of the Surviving Corporation with
respect to the shares of Series A Preferred Stock.
NO MANDATORY REDEMPTION. The Company is not required to redeem any shares
of Series B Preferred Stock.
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VOTING RIGHTS. The holders of Series B Preferred Stock will not be entitled
or permitted to vote on any matter required or permitted to be voted upon by the
stockholders of the Company, except as otherwise required by Delaware law.
NO RIGHT OF CONVERSION OR EXCHANGE. The holders of Series B Preferred Stock
will not have any rights hereunder to convert such shares into or exchange such
shares for shares of any other class or classes or of any other series of any
class or classes of capital stock of the Company.
NO PREEMPTIVE RIGHTS. No holder of Series B Preferred Stock will possess
any preemptive rights to subscribe or acquire any unissued shares of capital
stock of the Company (whether now or hereafter authorized) or securities of the
Company convertible into or carrying a right to subscribe to or acquire shares
of capital stock of the Company, provided that the holders of the Series B
Preferred Stock shall have the rights provided for in the Equity Holders
Agreement described herein in "THE ROLLOVER AGREEMENT."
SERIES C PREFERRED STOCK
GENERAL. In connection with the Transactions, the Investors and the
Management Stockholders will receive shares of Series C 13.50% Cumulative
Compounding Preferred Stock, par value $.01 per share ("Series C Preferred
Stock") of the Company. Pursuant to the Certificate of Designation to be filed
with the Secretary of State of Delaware with respect to the Series C Preferred
Stock included in Annex IV hereto, 3,000,000 shares of Series C Preferred Stock
with a stated value of $10.00 per share and a liquidation preference of $10.00
per share plus accrued and unpaid dividends will be authorized for issuance. The
Series C Preferred Stock to be issued will be, when issued, fully paid and
non-assessable.
Neither the stated value nor the liquidation preference of the Series C
Preferred Stock is necessarily indicative of the actual value of the shares of
Series C Preferred Stock at or after the time of their issuance. The value of
the Series C Preferred Stock can be expected to fluctuate with changes in market
and economic conditions, the financial condition and prospects of the Company
and other factors that generally influence the value of securities.
RANK. The Series C Preferred Stock will, with respect to dividend rights
and rights on liquidation, winding up and dissolution of the Company, rank
junior to the Series A Preferred Stock and the Series B Preferred Stock as to
dividend distributions or distributions upon the liquidation, winding up and
dissolution of the Company. The Series C Preferred Stock will also be junior in
right of payment to all existing and future indebtedness and obligations of the
Company. As described in "SOURCES AND AMOUNT OF FUNDS" the lending facilities to
which the Company will be a party will restrict payment of cash dividends by the
Company.
DIVIDENDS. Each holder of Series C Preferred Stock will be entitled to
receive, when, as and if declared by the Board of Directors, out of funds
legally available therefor, cash dividends on each share of Series C Preferred
Stock at a rate equal to $1.35 per share per annum. All dividends will be
cumulative and compounding, whether or not earned or declared, and will accrue
on a daily basis from the date of issuance of Series C Preferred Stock, and will
be payable semi-annually in arrears.
LIQUIDATION PREFERENCE. Upon any voluntary or involuntary liquidation,
dissolution or winding up of the Company, the holders of all shares of Series C
Preferred Stock then outstanding will be entitled to be paid out of the assets
of the Company available for distribution to its stockholders an amount in cash
equal to $10.00 per share, plus an amount equal to full cumulative dividends
(whether or not earned or declared) accrued and unpaid thereon, including
Additional Dividends, to the date of final distribution, after distributions are
made on the Series A Preferred Stock and the Series B Preferred Stock (the
"Series C Liquidation Preference").
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NO RIGHT OF CONVERSION OR EXCHANGE. The holders of Series C Preferred Stock
will not have any rights hereunder to convert such shares into or exchange such
shares for shares of any other class or classes or of any other series of any
class or classes of capital stock of the Company.
NO PREEMPTIVE RIGHTS. No holder of Series C Preferred Stock will possess
any preemptive rights to subscribe or acquire any unissued shares of capital
stock of the Company (whether now or hereafter authorized) or securities of the
Company convertible into or carrying a right to subscribe to or acquire shares
of capital stock of the Company.
OPTIONAL REDEMPTION. The Company may, at its option, redeem at any time or
from time to time, from any source of funds legally available therefor, in whole
or in part any or all of the shares of Series C Preferred Stock, at $10.00 in
cash per share, plus an amount equal to full cumulative dividends (whether or
not earned or declared) accrued and unpaid thereon to the Series C redemption
date. No partial redemption of Series C Preferred Stock may be authorized or
made unless prior thereto, full accrued and unpaid dividends thereon for all
Dividend Periods terminating on or prior to the Series C redemption date and an
amount equal to a prorated dividend thereon for the period from the dividend
payment date immediately prior to the redemption date to the redemption date
have been or immediately prior to the redemption notice are declared and paid in
cash or are declared and there has been a sum set apart sufficient for such cash
payment on the redemption date.
In the event of a redemption of only a portion of the then outstanding
shares of Series C Preferred Stock, the Company will effect such redemption pro
rata according to the number of shares held by each holder of Series C Preferred
Stock.
MANDATORY REDEMPTION. All outstanding shares of the Series C Preferred
Stock will be redeemed from funds legally available therefor on December 31,
2012 at a price per share equal to the Series C Liquidation Preference on
December 31, 2012.
VOTING RIGHTS. The holders of Series C Preferred Stock will not be entitled
or permitted to vote on any matter required or permitted to be voted upon by the
stockholders of the Company, except as otherwise required by Delaware law.
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CERTAIN PROVISIONS OF THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger
Agreement, a copy of which is attached as Annex I to this Proxy
Statement/Prospectus and is incorporated herein by reference. This summary is
qualified in its entirety by reference to the full text of the Merger Agreement.
Capitalized terms that are used in this section and elsewhere in this Proxy
Statement/Prospectus and are not defined have the respective meanings given to
them in the Merger Agreement.
THE MERGER
Pursuant to the Merger Agreement, upon the satisfaction or waiver (to the
extent permissible) of the conditions set forth in the Merger Agreement (see
"THE MERGER--Conditions to the Consummation of the Merger"), MQ will merge with
and into the Company with the Company as the Surviving Corporation. The Merger
will be effected pursuant to the provisions of, and with the effect provided in,
the DGCL. The Merger will be consummated by filing the Certificate of Merger
with the Secretary of State of the State of Delaware. At the Effective Time, the
separate corporate existence of MQ will cease, and the Surviving Corporation
will continue its corporate existence under the laws of the State of Delaware
and the Merger will have the effects set forth in the applicable sections of the
DGCL.
CERTIFICATE OF INCORPORATION AND BYLAWS
At the Effective Time, the certificate of incorporation of MQ (which MQ will
amend prior to the Effective Time in order to provide for the Series A Preferred
Stock, the Merger Agreement, and the Series B Preferred Stock and the Series C
Preferred Stock, and to otherwise effect the transactions contemplated by the
Merger Agreement as provided in Annex IV hereto), as in effect immediately prior
to the Effective Time, will be the certificate of incorporation of the Surviving
Corporation until thereafter amended (subject to the restrictions set forth in
the Merger Agreement) in accordance with applicable law. MQ will not amend its
certificate of incorporation or bylaws prior to the Effective Time, pursuant to
the previous sentence or otherwise, without the consent of the Company, not to
be unreasonably withheld.
At the Effective Time, the bylaws of MQ as in effect immediately prior to
the Effective Time, will be the bylaws of the Surviving Corporation until
thereafter amended (subject to the restrictions set forth in the Merger
Agreement) in accordance with applicable law.
DIRECTORS
The directors of MQ immediately prior to the Effective Time will be the
initial directors of the Surviving Corporation in each case until their
successors are elected or appointed and qualified. The officers of the Company
immediately prior to the Effective Time will be the initial officers of the
Surviving Corporation in each case until their successors are elected or
appointed and qualified. See "MANAGEMENT OF THE SURVIVING CORPORATION AND
RELATED TRANSACTIONS."
MERGER CONSIDERATION
Upon the terms and subject to the conditions of the Merger Agreement, at the
Effective Time, automatically by virtue of the Merger and without any further
action on the part of any party hereto or the holders of any of the following
securities: (i) each MEDIQ Share issued and outstanding immediately prior to the
Effective Time, other than MEDIQ Shares held immediately prior to the effective
time by the Company or MQ or any direct or indirect subsidiary of the Company or
MQ and Dissenting Shares will be converted into and become the right to receive
the Merger Consideration of, (A) $13.75 in cash without any interest thereon and
(B) 0.075 of a share of Series A Preferred Stock; (ii) each MEDIQ Share that is
issued and outstanding immediately prior to the Effective Time and owned by MQ
or the Company or any direct or indirect subsidiary of MQ or the Company, will
be canceled and no payment of any consideration will be made with respect
thereto; (iii) as a result of their conversion pursuant to clause (i), all MEDIQ
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Shares (excluding any MEDIQ Shares described in clause (ii), and any Dissenting
Shares) issued and outstanding immediately prior to the Effective Time will
cease to be outstanding and will automatically be canceled and retired, and each
Certificate previously evidencing such MEDIQ Shares will thereafter solely
represent the right to receive the Merger Consideration pursuant to clause (i).
The holders of Certificates will cease to have any rights with respect to such
Converted Shares except as otherwise provided in the Merger Agreement or by law;
and (iv) each share of capital stock of MQ issued and outstanding immediately
prior to the Effective Time (including any shares of capital stock issued by MQ
in exchange for the Rolled Shares) will be converted into and thereafter
represent the same number of shares of the same class of capital stock of the
Surviving Corporation, provided that, each of the Rolled Shares not owned by MQ
immediately prior to the Effective Time will be converted into and thereafter
represent the number of shares of capital stock of the Surviving Corporation as
set forth in the Rollover Agreement.
DISSENTING SHARES
Notwithstanding any provision of the Merger Agreement to the contrary, any
MEDIQ Shares held by a holder (a "Dissenting Stockholder") who has timely
demanded and perfected his demand for appraisal of his MEDIQ Shares (such shares
being "Dissenting Shares") in accordance with Section 262 of the DGCL and as of
the Effective Time has neither effectively withdrawn nor lost his right to such
appraisal will not represent a right to receive Merger Consideration for such
MEDIQ Shares, but rather the holder thereof will be entitled to only such rights
as are granted by the DGCL. SEE "DISSENTING STOCKHOLDERS' RIGHTS."
OPTION CONSIDERATION
Upon the consummation of the Merger, each Option outstanding immediately
prior to the Effective Time under the Company's stock option plans or similar
arrangements, whether vested or unvested, will automatically become immediately
exercisable and each holder of an Option will have the right to receive from MQ
in respect of each MEDIQ Share underlying the Option (less applicable
withholding taxes) (i) a cash payment in an aggregate amount equal to the
difference between the cash portion of the Merger Consideration of $13.75, less
the exercise price per Share applicable to such Option as stated in the
applicable stock option agreement or other agreement plus (ii) 0.075 of a share
of Series A Preferred Stock (the "Option Consideration"); provided that, with
respect to any person subject to Section 16 of the Securities Exchange Act, no
Option Consideration will be paid to such person until payment can be made
without liability to such person under Section 16(b) of the Exchange Act. The
Company will take such other actions (including, without limitation, giving
requisite notices to holders of Options advising them of such accelerated
exercisability and right to obtain payment for their respective Options) as are
necessary to fully advise holders of Options of their rights and to facilitate
their timely exercise of such rights. From and after the Effective Time, other
than as expressly set forth in the Merger Agreement, no holder of an Option will
have any other rights in respect thereof other than to receive payment for his
or her Options as set forth herein, and the Company will take all reasonably
necessary actions to terminate the Company's stock option plans and similar
arrangements. The provisions of this paragraph are subject to the Company
obtaining any required consents from the holders of any Options and the making
of any necessary amendments to the Company's stock option plans and other
similar agreements.
EXCHANGE OF MEDIQ SHARES
At the Effective Time, MQ will remit (or cause to be remitted) to the
Exchange Agent, for the benefit of the holders of the MEDIQ Shares and Options,
an amount equal to the aggregate cash portion of the Merger Consideration and
the Option Consideration and a number of shares of Series A Preferred Stock
equal to the aggregate portion of the Merger Consideration and Option
Consideration necessary to pay the holders of the MEDIQ Shares and Options.
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As soon as practicable after the Effective Time and in no event later than
ten business days thereafter, the Surviving Corporation will cause the
distribution to holders of record of the Certificates and Option Agreements (as
of the Effective Time) of (i) notice of the effectiveness of the Merger and (ii)
a form of letter of transmittal and other appropriate materials and instructions
for use in effecting the surrender of the Certificates for payment of the Merger
Consideration therefor and in effecting the surrender of the Option Agreements
for payment of the Option Consideration therefor. In the event any Certificate
or Option Agreement has been lost or destroyed, the Exchange Agent is authorized
to accept an affidavit from the record holder of such Certificate or the party
to such Option Agreement in a form reasonably satisfactory to MQ, subject to
other conditions as MQ may reasonably impose (including the posting of an
indemnity bond or other surety). Upon the surrender of each such Certificate,
together with such letter of transmittal, duly completed and validly executed in
accordance with the instructions thereto, the Exchange Agent will pay out of the
Payment Fund the Merger Consideration to the holders of such Certificates, less
any amounts required to be withheld pursuant to applicable tax laws. Upon the
surrender of Option Agreements formerly representing Options, together with a
letter of transmittal, duly completed and validly executed in accordance with
the instructions thereto, the Exchange Agent will pay the Option Consideration
to the holders of such Option Agreements, less any amounts required to be
withheld pursuant to applicable tax laws. The Exchange Agent will accept such
Certificates and Option Agreements upon compliance with such reasonable terms
and conditions as the Exchange Agent may impose to effect an orderly exchange
thereof in accordance with normal exchange practices. Until surrendered as
contemplated in this paragraph, (i) each Certificate will be deemed at any time
after the Effective Time to represent only the right to receive upon such
surrender the Merger Consideration, and (ii) each Option Agreement will be
deemed at any time after the Effective Time to represent only the right to
receive upon such surrender the Option Consideration. No interest will be paid
or will accrue on any cash payable as Merger Consideration or in lieu of any
fractional shares of Series A Preferred Stock, as the case may be.
If any portion of the Cash Merger Consideration or Option Consideration is
to be paid or any certificate representing shares of Series A Preferred Stock is
to be issued to a person other than the person in whose name a canceled
Certificate or Option Agreement is registered, it is a condition to such payment
or issuance that such canceled Certificate or Option Agreement be surrendered
and properly endorsed or shall be otherwise in proper form for transfer and that
the person requesting such payment shall have paid any transfer and other taxes
required by reason of such payment in a name other than that of the registered
holder of the certificate or instrument surrendered or shall have established to
the reasonable satisfaction of MQ and the Exchange Agent that such tax either
has been paid or is not payable.
After the Effective Time of the Merger, there will be no further transfer on
the records of the Company or its transfer agent of Certificates representing
MEDIQ Shares which have been converted, in whole or in part, pursuant to the
Merger Agreement into the right to receive the Merger Consideration, and if such
Certificates are presented to the Company for transfer, they will be canceled
against delivery of cash and Certificates for shares of Series A Preferred Stock
as provided herein.
To the extent not immediately required for payment with respect to
surrendered MEDIQ Shares and Options, proceeds in the Payment Fund will be
invested by the Exchange Agent as directed by the Surviving Corporation (as long
as such directions do not impair the rights of holders of MEDIQ Shares or
Options), in direct obligations of the United States of America, obligations for
which the faith and credit of the United States of America is pledged to provide
for the payment of principal and interest, commercial paper rated of the highest
investment quality by Moody's Investors Service, Inc. or Standard & Poor's
Ratings Services, or certificates of deposit issued by a commercial bank having
at least $5 billion in assets, and any net earnings with respect thereto will be
paid to the Surviving Corporation as and when requested by the Surviving
Corporation.
No dividends or other distributions with a record date after the Effective
Time will be paid to the holder of any unsurrendered Certificate with respect to
the shares of Series A Preferred Stock represented thereby and no cash payment
in lieu of fractional shares will be paid to any such holder until the surrender
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of such Certificate in accordance with the Merger Agreement. Subject to the
effect of applicable laws, following surrender of any such Certificate, there
shall be paid to the holder of the Certificate representing whole shares of
Series A Preferred Stock issued in connection therewith, without interest, (i)
at the time of such surrender or as promptly thereafter as practicable, the
amount of any cash payable in lieu of a fractional share of Series A Preferred
Stock to which such holder is entitled and the proportionate amount of dividends
or other distributions with a record date after the Effective Time of the Merger
theretofore paid with respect to such whole number of shares of Series A
Preferred Stock, and (ii) at the appropriate payment date, the proportionate
amount of dividends or other distributions with a record date after the
Effective Time but prior to such surrender and a payment date subsequent to such
surrender payable with respect to such whole number of shares of Series A
Preferred Stock.
After the Effective Time, holders of Certificates will cease to have any
rights as stockholders of the Company, except as provided herein or under the
DGCL. All cash paid and shares of Series A Preferred Stock issued upon the
surrender for exchange of Certificates in accordance with the terms of the
Merger Agreement (including any cash paid) will be deemed to have been issued
(and paid) in full satisfaction of all rights pertaining to the MEDIQ Shares
exchanged theretofore represented by such Certificates. No interest will be paid
on any Merger Consideration or Option Consideration payable to former holders of
MEDIQ Shares or Options.
Promptly following the one-year anniversary date of the Effective Date, the
Exchange Agent will return to the Surviving Corporation all cash and shares of
Series A Preferred Stock in its possession out of the Payment Fund relating to
the transactions described in the Merger Agreement, and the Exchange Agent's
duties will terminate. Thereafter, each holder of a Certificate or an Option
Agreement will look only to the Surviving Corporation and only as general
creditors thereof for payment of their claims for the Merger Consideration and
the Option Consideration, including any cash in lieu of fractional shares of
Series A Preferred Stock and any dividends or distributions with respect to such
shares to which such holders may be entitled, and each such holder of a
Certificate or an Option Agreement may surrender the same to the Surviving
Corporation and upon such surrender (subject to applicable abandoned property,
escheat or similar laws) the Surviving Corporation will deliver to such holder
the Merger Consideration and/or Option Consideration with respect to such shares
or Options, as applicable.
No certificates or scrip representing fractional shares of Series A
Preferred Stock will be issued in connection with the Merger, and such
fractional share interests will not entitle the owner thereof to vote or to any
rights of a stockholder of the Surviving Corporation after the Merger. Each
holder of MEDIQ Shares exchanged pursuant to the Merger who would otherwise have
been entitled to receive a fractional share of Series A Preferred Stock (after
taking into account all MEDIQ Shares delivered by such holder) will receive, in
lieu thereof, a cash payment (without interest) therefor in an amount equal to
the value (determined with reference to the liquidation value of such Series A
Preferred Stock) of such fractional share provided that such cash payments do
not exceed $50,000 in the aggregate. If such cash payments exceed $50,000, each
holder of MEDIQ Shares exchanged pursuant to the Merger who would otherwise have
been entitled to receive a fractional share of Series A Preferred Stock (after
taking into account all MEDIQ Shares delivered by such holder) will receive, in
lieu thereof, a cash payment (without interest) representing such holder's
proportionate interest in the net proceeds from the sale by the Exchange Agent
(following the deduction of applicable transaction costs), on behalf of all such
holders, of the Excess MEDIQ Shares representing such fractions. Such sale will
be made as soon as practicable after the Effective Time.
None of MQ, the Company, their respective affiliates, or the Exchange Agent
will be liable to any person in respect of any shares of Series A Preferred
Stock (or dividends or distributions with respect thereto) or cash from the
Payment Fund delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law. If any Certificates or Option Agreements have
not been surrendered prior to three years after the Effective Time (or
immediately prior to such earlier date on which any cash, if any, in lieu of
fractional shares of Series A Preferred Stock would otherwise escheat to
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or become the property of any Governmental Entity (as defined below)), any such
cash, dividends or distributions in respect of such Certificates and Option
Agreements will, to the extent permitted by applicable law, become the property
of the Company, free and clear of all claims or interest of any person
previously entitled thereto.
ADJUSTMENT OF MERGER CONSIDERATION AND OPTION CONSIDERATION
The Merger Consideration and the Option Consideration have been calculated
based upon the representations and warranties made by the Company with regard to
its capitalization. In the event that, at the Effective Time, the actual number
of MEDIQ Shares outstanding and/or the actual number of MEDIQ Shares issuable
upon the exercise of outstanding options, warrants or similar agreements or upon
conversion of securities (including without limitation, as a result of any stock
split, stock dividend, including any dividend or distribution of securities
convertible into MEDIQ Shares, or a recapitalization) is more than described,
the Merger Consideration and the Option Consideration will be appropriately
adjusted downward; provided that, no adjustment will be made unless, at the
Effective Time, the actual number of MEDIQ Shares outstanding plus the actual
number of MEDIQ Shares issuable upon the exercise of all such options, warrants
or similar agreements or upon the conversion of securities is more than 20,000
more than described.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary representations and warranties of
the Company relating, with respect to the Company and its subsidiaries, to,
among other things, (a) organization, good standing and similar corporate
matters; (b) subsidiaries; (c) the Company's capital structure; (d) the
authorization, execution, delivery, performance and enforceability of the Merger
Agreement and related matters; (e) documents filed by the Company with the
Commission, the accuracy of information contained therein and the absence of
undisclosed liabilities; (f) the accuracy of information supplied by the Company
in connection with this Proxy Statement/Prospectus; (g) the absence of certain
changes or events since the date of the most recent financial statements filed
with the Commission, including material adverse changes with respect to the
Company; (h) the absence of pending or threatened material litigation, certain
labor matters and compliance with applicable laws; (i) benefit plans and other
matters relating to the Employee Retirement Income Security Act of 1974, as
amended, and employment matters; (j) filing of tax returns and payment of taxes;
(k) the absence of defaults under material contracts; (l) broker's fees and
expenses; (m) the receipt of an opinion of the Company's financial advisor; (n)
the recommendation of the Board of Directors of the Company with respect to the
Merger Agreement, the Merger and related transactions; (o) the required vote of
the Company's stockholders; (p) the lack of any provisions in the Company's
organizational documents restricting, and the inapplicability of any state
takeover or similar statutes to, the Merger Agreement, the Merger or related
agreements and transactions; (q) the ownership of Company trade names; and (r)
related party transactions.
The Merger Agreement also contains customary representations and warranties
of MQ relating to, among other things, (a) organization, good standing and
similar corporate matters; (b) subsidiaries; (c) the authorization, execution,
delivery, performance and enforceability of the Merger Agreement and related
matters; (d) absence of pending or threatened litigation; (e) broker's fees and
expenses; (f) financing; (g) the accuracy of information supplied by MQ in
connection with this Proxy Statement/Prospectus; and (h) participation by the
Company's management in the transaction contemplated by the Merger Agreement.
NO SOLICITATION OF ALTERNATIVE TRANSACTIONS
Except as otherwise consented to by MQ: (a) from the date of the Merger
Agreement until the termination of the Merger Agreement or the Effective Time,
whichever first occurs, the Company will not, and will cause its subsidiaries
not to, and will use its best efforts to cause the officers, directors,
employees,
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affiliates, representatives and other agents (including attorneys, investment
bankers and accountants) of the Company and its subsidiaries not to, directly or
indirectly, solicit, initiate or encourage any inquiry, proposal, indication of
interest or offer from any person that constitutes or would reasonably be
expected to lead to any Acquisition Proposal (as hereinafter defined) or enter
into discussions or negotiate with any person or entity in furtherance of any
such inquiries, proposals, indications of interest or offers or to obtain or
approve any Acquisition Proposal, or agree to or endorse any Acquisition
Proposal, and the Company will immediately notify MQ of all relevant terms of
any such inquiries, proposals, indications of interest or offers received by the
Company or any of its subsidiaries or by any such officer, director, employee,
affiliate, representative or agent, relating to any of such matters, any
material change in the details (including any amendments or proposed amendments)
of any such inquiries, proposals, indications of interest or offers, the
identity of each of the persons or entities making such inquiries, proposals,
indications of interest or offers, and, if any such inquiry, proposal,
indication of interest or offer is in writing, the Company will immediately
deliver a copy thereof to MQ; provided, however, that if, prior to the Effective
Time, the Company receives an Acquisition Proposal (that was not solicited after
January 9, 1998), from a New Bidder (as defined below) that the Board of
Directors of the Company, after receiving the written advice of its legal
counsel, reasonably believes that it has a fiduciary duty to consider, then the
Company, without violating the Merger Agreement, may thereafter furnish
information to and enter into discussions or negotiations with such New Bidder
making such Acquisition Proposal; provided that, before furnishing any
information to, or entering into discussions or negotiations with, any such New
Bidder, the Company shall have obtained an executed confidentiality agreement
containing confidentiality, "standstill" and other customary terms and
conditions no less favorable to the Company than the terms and conditions of the
Confidentiality Agreement by and between MQ and the Company, dated October 30,
1997. Neither the Board of Directors of the Company, nor any committee thereof,
may (a) withdraw or modify, in a manner adverse to MQ, the approval or
recommendation by the Board of Directors or any such committee thereof of the
Merger Agreement or the Merger, (b) approve or recommend any Acquisition
Proposal, (c) enter into any agreement with respect to any Acquisition Proposal,
(d) take any action to facilitate any other Acquisition Proposal in any respect,
or (e) terminate the Merger Agreement in connection with any Acquisition
Proposal; provided that, nothing contained in the Merger Agreement will prevent
the Board of Directors or any committee thereof, after receiving an Acquisition
Proposal as described in the immediately preceding sentence that, after
receiving the written advice of its legal counsel, the Board of Directors
reasonably believes that it has a fiduciary duty to consider, from considering,
negotiating, approving or recommending to the stockholders of the Company such
an Acquisition Proposal from a New Bidder, provided that the Board of Directors
of the Company reasonably determines (after consultation with its financial
advisors) that such Acquisition Proposal (a) would result in a transaction more
favorable to the Company's stockholders than the transaction contemplated by the
Merger Agreement, (b) is made by a person financially capable of consummating
such Acquisition Proposal, (c) provides for the acquisition by such person of
all or substantially all of the assets of the Company and its Subsidiaries,
taken as a whole, or at least a majority of the MEDIQ Shares outstanding on a
fully diluted basis (any such Acquisition Proposal being referred to herein as a
"Superior Proposal"); provided further that, at least three business days prior
to the Board of Directors (or any committee thereof) withdrawing, modifying or
changing its recommendation regarding the approval of the Merger or the Merger
Agreement in a manner adverse to MQ, or recommending to the stockholders of the
Company any Acquisition Proposal, the Company will send notice thereof to MQ (a
"Superior Proposal Notice") and, concurrently therewith, will pay the Break-Up
Fee (in the amount set forth below) and the Documented Expenses to MQ. The
Superior Proposal Notice will be deemed an irrevocable notice of termination of
the Merger Agreement by the Company and the Merger Agreement will be terminated
in accordance therewith, unless MQ, within three business days after delivery to
MQ of the Superior Proposal Notice, (a) makes an offer that the Company's Board
of Directors reasonably determines (after consultation with its financial
advisors is at least favorable to the Company's Stockholders as the Superior
Proposal that is the subject of the Superior Proposal Notice, and (b) returns
the Break-up Fee and the Documented Expenses to the Company. For purposes
hereof, "Acquisition Proposal" means any proposal for a merger, consolidation,
tender or exchange offer or other
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business combination involving the Company or the acquisition of any substantial
equity interest in, or a substantial portion of the assets of the Company and
its Subsidiaries considered as a whole, other than the transactions contemplated
by the Merger Agreement. For purposes hereof, "New Bidder" means any person or
entity other than those persons and entities to whom presentations by management
of the Company concerning a possible sale of the Company were made between
November 1, 1997 and the date of the Merger Agreement. Without limiting the
foregoing, it is agreed that any violation of the restrictions set forth in this
paragraph (i) by any officer, director, employee, affiliate, representative or
agent (including attorneys, investment bankers and accountants) of the Company
or any of its Subsidiaries will be deemed to be a breach of this paragraph (i)
by the Company; (b) concurrently with sending a Superior Proposal Notice, or
upon any termination by MQ of the Merger Agreement pursuant to Sections 8.1(e)
or (f) thereof, the Company will reimburse MQ for its Documented Expenses up to
$5.0 million and (y) pay to MQ the Break-Up Fee of $16.5 million, in each case
by wire transfer of immediately available funds to an account designated by MQ
for such purpose.
CERTAIN COVENANTS
On February 10, 1998, the Company and BRS each filed a notification report
together with requests for early termination of the waiting period under the HSR
Act with the FTC and the Antitrust Division in respect of the Merger and the
related transactions. The Company and MQ will use their best efforts to respond
as promptly as practicable to any inquiries received from the FTC or the
Antitrust Division of the Department of Justice for additional information or
documentation and to respond as promptly as practicable to all inquiries and
requests received from any state attorney general or any other governmental
entity, in connection with antitrust matters. The Company and MQ have agreed to
use commercially reasonable efforts to overcome any objections which may be
raised by the FTC or the Antitrust Division. MQ has agreed to reimburse the
Company for all expenses (including attorney's fees) reasonably incurred by the
Company in connection with matters referred to in the immediately preceding
sentence. The Company will make, subject to the condition that the transactions
contemplated by the Merger Agreement actually occur, any undertakings (including
undertakings to make divestitures, provided, in any case, that such undertakings
to make divestitures need not themselves be effective or made until after the
transactions contemplated hereby actually occur) required in order to comply
with the antitrust requirements or laws of any governmental entity, including
the HSR Act, in connection with the transactions contemplated by the Merger
Agreement, provided that no such divestiture or undertaking will be made unless
reasonably acceptable to MQ.
The Company has agreed to prepare and file with the Commission the
Registration Statement of which this Proxy Statement/Prospectus is a part. MQ
and the Company have also agreed to prepare and file with the Commission the
Schedule 13E-3 with respect to the transactions contemplated by the Merger
Agreement. All filing fees required to be paid, and all printing, mailing and
other costs of dissemination with respect to the Registration Statement, this
Proxy Statement/Prospectus or Schedule 13E-3 will be paid by the Company. The
Company has agreed to use its commercially reasonable efforts to take all steps
necessary to cause the Schedule 13E-3 to be filed with the Commission and to be
disseminated to the holders of MEDIQ Shares, in each case, as and to the extent
required by applicable federal securities laws. The Company has agreed to take
any action required to be taken under any applicable state securities laws in
connection with the registration and qualification of the shares of the capital
stock of the Company to be issued in connection with the Merger.
To the extent requested by MQ, each of the parties has agreed to cooperate
with each other in taking, or causing to be taken, all actions necessary to
delist the MEDIQ Shares from the AMEX; provided that such delisting will not be
effective until after the Effective Time. The parties also acknowledged that it
is MQ's intention that, following the Merger, none of the shares of the
Company's capital stock will be listed on the AMEX or any other national
securities exchange and will not be quoted on the NASDAQ. Notwithstanding that
the Surviving Corporation may not be required to remain subject to the reporting
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requirements of Section 13 or 15(d) of the Exchange Act, for the two (2) years
following the Effective Time, the Surviving Corporation will file with the
Commission such reports as are specified in Section 13 and 15(d) of the Exchange
Act and required to be filed in respect of securities similar to the Series A
Preferred Stock by issuers subject to the reporting requirements of Section 13
of the Exchange Act, such reports to be so filed at the times specified for the
filings of such reports required under such Sections; provided that the
Surviving Corporation will have no obligation to file such reports if fewer than
500,000 shares of Series A Preferred Stock remain outstanding.
The Company will give MQ the opportunity to participate in the defense or
settlement of any litigation against the Company and its directors directly
relating to any of the transactions contemplated by the Merger Agreement until
the Effective Time provided, however, that no such settlement will be agreed to
without MQ's consent, which consent will not be unreasonably delayed or
withheld; and provided further that no settlement requiring a payment by a
director will be agreed to without such director's consent.
At the request of MQ, prior to the Effective Time, the Company will
contribute all of its assets and liabilities (including any shares of capital
stock of its subsidiaries other than MEDIQ/PRN) to MEDIQ/ PRN, a wholly-owned
subsidiary of the Company, on terms and conditions reasonably acceptable to MQ
(the "Reorganization").
The Company has agreed to cooperate with any reasonable requests of MQ or
the Commission related to the recording of the Merger as a recapitalization for
financial reporting purposes and to take such actions consistent with the terms
of the Merger Agreement, at MQ's reasonable request, as may be required to cause
the Merger to be recorded as such, including, without limitation, to assist MQ
and its affiliates with any presentation to the Commission with regard to such
recording and to include appropriate disclosure with respect to such recording
in all filings with the Commission and all mailings to stockholders made in
connection with the Merger. In furtherance of the foregoing, the Company will
provide to MQ for the prior review of MQ's advisors any description of the
transactions contemplated by the Merger Agreement which is meant to be
disseminated.
The Company has agreed to provide, and will cause its Subsidiaries and its
and their respective officers and employees to provide, all reasonable
cooperation in connection with the arrangement of any financing contemplated by
the Merger Agreement, including without limitation, (a) the execution and
delivery of any commitment letters, underwriting or placement agreements, loan,
pledge and security documents, other definitive financing documents, or other
requested certificates or documents reasonably requested, (b) making available
on a timely basis any financial information of the Company and its Subsidiaries
that may be reasonably requested by MQ, (c) obtaining the solvency opinion
referred to in the Merger Agreement and obtaining the comfort letters and update
thereof from the Company's independent certified public accountants, with such
letters to be in customary form and to cover matters of the type customarily
covered by accountants in such financing transactions, and (d) making reasonably
available representatives and employees of the Company and its accountants and
attorneys in connection with any such financing, including for purposes of due
diligence and marketing efforts (including participation in "road shows")
related thereto. The obligations (including the payment of any fees and
expenses) on behalf of the Company in connection with any expenses of road
shows, commitment letters or other financings or refinancings contemplated
hereby will be subject to the occurrence of the closing under the Merger
Agreement.
The Company has agreed that it will continue to timely make any such filings
with the Commission as may be required by applicable federal securities laws,
including without limitation required Quarterly Reports on Form 10-Q and Current
Reports on Form 8-K.
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EMPLOYEE BENEFITS
As of the Effective Time, the employees of the Company and each of its
subsidiaries (the "Company Employees") will continue employment with the
Surviving Corporation and its subsidiaries, respectively, in the same positions
and at the same level of wages and/or salary and employee benefits, as in effect
on the date of the Merger Agreement, with such changes as may occur before the
Effective Time in the ordinary course of business consistent with past practice.
Except as may be specifically required by applicable law or any agreement by
which the Company is bound, the Surviving Corporation and its subsidiaries will
have the same right to terminate or change the conditions of any Company
employee's employment or to amend, modify or terminate any employee benefit plan
program or policy, as the Company and its subsidiaries presently.
Notwithstanding any provisions of any Company or subsidiary employee benefit
plan, program or policy to the contrary, at the Effective Time any right of any
employee to make future investments in shares of the Company or to receive
employer contributions in shares of the Company will terminate, and any shares
of the Company held under any such plan, program or policy will be treated in
the Merger in accordance with the Merger Agreement, and any Merger Consideration
(including shares of Series A Preferred Stock) received thereunder will be, to
the extent applicable, reinvested in accordance with the terms of such plan,
program or policy. Before the Effective Time, the Company and its Subsidiaries
will take any and all action reasonably required to assure that the right of any
employee to make future investments in shares of the Company and the obligation
of the Company or any of its subsidiaries to contribute shares of the Company
under any such plan, program or policy is terminated as of the Effective Time.
INDEMNIFICATION
Subsequent to the Effective Time, the Surviving Corporation will not, until
the later of (a) the six-year anniversary date of the Effective Date or (b) the
permitted termination or expiration date of any existing indemnification
agreement or arrangement of the Company or any of its subsidiaries disclosed on
the applicable schedule to the Merger Agreement (the period between the
Effective Date and the later of such subsequent dates, the "Indemnification
Period"), amend the certificate of incorporation or bylaws of the Surviving
Corporation or take any other action, or fail to take any action, the effect of
which amendment, action or failure to act would be to reduce or limit the rights
to indemnity or advancement of expenses afforded to those persons who served as
directors or officers of the Company or any present or past subsidiary at any
time prior to the Effective Time or to hinder, delay or make more difficult in
any way the exercise of such rights to indemnity or advancement of expenses or
the ability of the Surviving Corporation or any subsidiary to indemnify such
persons or advance expenses. The Surviving Corporation will at all times
promptly exercise the powers granted to it by its certificate of incorporation,
its bylaws and by applicable law to indemnify (and to advance expenses to),
subject to the terms and conditions thereof, to the fullest extent possible
those persons who served as directors or officers of the Company and present or
past subsidiaries prior to the Effective Time against all claims and expenses
made against or incurred by them arising from their service in such capacities.
Should any such person be made a party or be threatened to be made a party to
any threatened, pending or completed action, suit or proceeding at any time
during the Indemnification Period, by reason of the fact that he was a director
or officer of the Company or any present or past subsidiary or was serving as an
officer or director of any other enterprise at the request of the Company, the
indemnification provisions of the Merger Agreement will continue in effect until
the final disposition of all such actions, suits or proceedings, whether or not
the Indemnification Period has expired. These provisions are intended to be for
the benefit of, and are enforceable by, each person entitled to indemnification
thereunder, his heirs and his personal representatives. In the event the
Surviving Corporation or MQ or any of their respective successors or assigns (a)
consolidates with or merges into any other person and the Surviving Corporation
is not the continuing or surviving corporation or entity of such consolidation
or merger or (b) transfers all or substantially all of its properties and assets
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to any person, the Surviving Corporation has agreed to ensure that proper
provision will be made so that the successors and assigns of the Surviving
Corporation will assume the indemnification obligations set forth in the Merger
Agreement. The Surviving Corporation will obtain and maintain in effect for not
less than six years after the Effective Date, the current directors' and
officers' liability insurance policies maintained by the Company (provided that
the Surviving Corporation may substitute therefor a policy or policies providing
substantially equivalent coverage containing similar terms and conditions so
long as no lapse in coverage occurs as a result of such substitution) with
respect to all matters, including the transactions contemplated hereby,
occurring prior to, and including the Effective Date; provided that in no event
will the Surviving Corporation be required to expend more than 200% of the
current annual premiums paid by the Company for such coverage (the "Maximum
Premium"); and provided, further, that if the Surviving Corporation is unable to
obtain the amount of insurance required by the Merger Agreement for such
aggregate premium, the Surviving Corporation will obtain, if available, as much
insurance as can be obtained for an annual premium not in excess of the Maximum
Premium.
FINANCING
MQ will use commercially reasonable efforts, subject to normal conditions,
to arrange, as promptly as practicable, and consummate the financings described
in the commitment letters (or involving such other financing as may be
acceptable to MQ in its sole discretion) in respect of the transactions
contemplated by the Merger Agreement on customary commercial terms, including,
subject to normal conditions, using commercially reasonable efforts to assist
the Company in the negotiation of definitive agreements with respect thereto and
to satisfy all conditions applicable to MQ in such definitive agreements.
Subject to the Company having received the proceeds of such financings, MQ at
Closing will be capitalized with an equity contribution sufficient to finance
the transaction, in an amount up to $98,600,000. MQ will be under no obligation
pursuant to the immediately preceding sentence unless and until the Company
receives the proceeds of such financings on terms consistent with the commitment
letters or such other financings as may be acceptable to MQ in its sole
discretion. MQ will use commercially reasonable efforts to obtain a solvency
opinion in connection with such financings, addressed to the Board.
CONDITIONS
All obligations of MQ under the Merger Agreement are subject to, among other
things, the fulfillment or waiver (to the extent permitted by the Merger
Agreement and applicable law), prior to or at the Effective Time, of the
following conditions:
(a) The required Company stockholder approvals shall have been obtained.
(b) The representations and warranties made by the Company shall be true
and correct in all material respects unless the inaccuracies (without giving
effect to any materiality or material adverse effect qualifications or
materiality exceptions contained therein) in such representations and
warranties, individually or in the aggregate, have not had and would not
reasonably be expected to result in a material adverse effect with respect
to the Company.
(c) The Company shall have performed and complied with all covenants
required by the Merger Agreement to be performed or complied with by it on
or before the Effective Time except for such nonperformance or noncompliance
which, individually or in the aggregate, has not had and would not
reasonably be expected to have a material adverse effect on the Company.
(d) The Company shall have delivered to MQ a certificate of a duly
authorized officer of the Company in such person's capacity as an officer
and without personal liability, dated the Effective Date, certifying as to
the fulfillment of the conditions specified in (b) and (c) above.
(e) The applicable waiting period under the HSR Act, if any, shall have
expired or terminated.
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(f) No preliminary or permanent injunction or other order by any federal
or state court in the United States which prevents the consummation of the
Merger shall have been issued and remain in effect (the Company and MQ
agreeing to use their commercially reasonable efforts to have any such
injunction lifted).
(g) (i) The Registration Statement shall have become effective under the
Securities Act and shall not be the subject of any stop order or proceedings
seeking a stop order; (ii) any material "blue sky" and other state
securities laws applicable to the registration and qualification of, and any
rules or regulations of any self-regulatory organization applicable to, the
shares to be issued in the Merger shall have been complied with; and (iii)
this Proxy Statement/Prospectus and the Schedule 13E-3 shall have been
disseminated to the extent, and for the minimum time period required by, the
Exchange Act and the rules and regulations promulgated thereunder.
(h) There shall not be pending by or before any governmental entity any
suit, action or proceeding (or by any other person any suit, action or
proceeding which has a reasonable likelihood of success), (i) challenging or
seeking to restrain or prohibit the consummation of the Merger or any of the
other transactions contemplated by the Merger Agreement or seeking to obtain
from MQ or any of its affiliates any damages that are material to any such
party, (ii) seeking to prohibit or limit the ownership or operation by MQ,
the Company or any of their respective Subsidiaries of any material portion
of the business or assets of the Company, MQ or any of their respective
subsidiaries, to dispose of or hold separate any material portion of the
business or assets of the Company, MQ or any of their respective
Subsidiaries, as a result of the Merger or any of the other transactions
contemplated by the Merger Agreement, or (iii) seeking to impose limitations
on the ability of any affiliate of MQ to acquire and hold, or exercise fully
rights of ownership of, any shares of capital stock of the Company,
including, without limitation, the right to vote any shares of capital stock
of the Company on any matter properly presented to the holders of such class
of capital stock.
(i) The Company shall have received the proceeds of the financings
described in the commitment letters on terms and conditions set forth
therein (or on such other terms and conditions, or involving such other
financing sources, as are acceptable to MQ in its sole discretion) in
amounts sufficient to consummate the transactions contemplated by the Merger
Agreement, including, without limitation (i) to pay the Merger Consideration
and Option Consideration, (ii) to refinance the outstanding indebtedness
(including capital lease obligations) of the Company, (iii) to pay any fees
and expenses in connection with the transactions contemplated by the Merger
Agreement or the financing thereof, (iv) to pay all severance, retention,
bonus or other obligations which might become due and payable as a result of
the consummation of the Merger and the transactions contemplated by the
Merger Agreement, (v) to provide for the working capital needs of the
Company upon consummation of the Merger, including, without limitation, if
applicable, letters of credit.
(j) The Company shall have used commercially reasonable efforts to cause
the affiliates' agreements to be delivered to MQ.
(k) The employment agreement with Thomas E. Carroll shall be in full
force and effect unless modified with the prior written consent of MQ.
(l) MQ shall have received "comfort letters" and updates thereof from
the Company's independent certified public accountants, with such letters to
be in customary form and to cover matters of the type customarily covered by
accountants in transactions similar to the Merger and the other transactions
contemplated by the Merger Agreement.
(m) The number of Dissenting Shares shall not exceed 15% of the
outstanding MEDIQ Shares.
(n) All of the holders of the Options shall have (i) exercised such
Options or shall have entered into agreements with the Company to exercise
such Options prior to the Effective Time (or such later time as may be
specified by MQ) or shall have otherwise permitted the Company to cash-out
the
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Options and (ii) agreed to reinvest the after-tax proceeds of the Option
Consideration received by them in respect of 1,000,000 Options in securities
of the Surviving Corporation.
(o) The holders of the Rolled Shares shall have performed their
obligations under the Rollover Agreement in all material respects.
(p) MQ shall have received evidence, in form and substance reasonably
satisfactory to it, that all licenses, permits, consents, approvals,
authorizations, qualifications and orders of governmental entities and other
third parties necessary to consummate the transactions contemplated hereby
shall have been obtained, unless the failure to so obtain such licenses,
permits, consents, approvals, authorizations, qualifications and orders,
individually or in the aggregate, would not have a material adverse effect
on the Company.
All obligations of the Company under the Merger Agreement are subject to,
among other things, the fulfillment or waiver (to the extent permitted by the
Merger Agreement and applicable law), prior to or at the Effective Time, of the
following conditions.
(a) The Company stockholder approvals shall have been obtained;
(b) The representations and warranties made by MQ in the Merger
Agreement shall be true and correct in all material respects unless the
inaccuracies (without giving effect to any materiality or material adverse
effect qualifications or materiality exceptions contained therein) in such
representations and warranties, individually or in the aggregate, have not
had and would not reasonably be expected to result in a material adverse
effect with respect to MQ.
(c) MQ shall have performed and complied with all covenants required by
the Merger Agreement to be performed or complied with by it on or before the
Effective Time except for such nonperformance or noncompliance which,
individually or in the aggregate, has not had and would not reasonably be
expected to have a material adverse effect on MQ.
(d) MQ shall have delivered to the Company a certificate of a duly
authorized officer in such person's capacity as an officer and without
personal liability, dated the Effective Date, certifying as to the
fulfillment of the conditions specified in (b) and (c) above.
(e) The applicable waiting period under the HSR Act shall have expired
or been otherwise terminated.
(f) No preliminary or permanent injunction or other order by any federal
or state court in the United States which prevents the consummation of the
Merger shall have been issued and remain in effect (the Company and MQ
agreeing to use their commercially reasonable efforts to have any such
injunction lifted).
(g) (i) The Registration Statement shall have become effective under the
Securities Act and shall not be the subject of any stop order or proceedings
seeking a stop order; (ii) any material "blue sky" and other state
securities laws applicable to the registration and qualification of, and any
rules or regulations of any self-regulatory organization applicable to, the
shares to be issued in the Merger shall have been complied with; and (iii)
the Proxy Statement/Prospectus and the Schedule 13E-3 shall have been
disseminated to the extent, and for the minimum time period required by, the
Exchange Act and the rules and regulations promulgated thereunder.
(h) There shall not be pending by any governmental entity any suit,
action or proceeding (or by any other person, any suit, action or proceeding
which has a reasonable likelihood of success), (i) challenging or seeking to
restrain or prohibit the consummation of the Merger or any of the other
transactions contemplated by the Merger Agreement or seeking to obtain from
Company or any of its affiliates any damages that are material to any such
party, or (ii) seeking to prohibit or limit the ownership or operation by
MQ, the Company or any of their respective Subsidiaries of any material
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portion of the business or assets of the Company, MQ or any of their
respective Subsidiaries, to dispose of or hold separate any material portion
of the business or assets of the Company, MQ or any of their respective
subsidiaries, as a result of the Merger or any of the other transactions
contemplated by the Merger Agreement.
TERMINATION
The Merger Agreement may be terminated and the Merger contemplated hereby
may be abandoned at any time, notwithstanding approval thereof by the applicable
stockholders, but prior to the Effective Time:
(a) by mutual written consent of MQ and the Company.
(b) by either MQ or the Company, if any of the conditions to such
party's obligation to consummate the transactions contemplated in the Merger
Agreement shall have become impossible to satisfy;
(c) by either MQ or the Company, if the Merger has not been consummated
on or before August 31, 1998 (unless the failure to consummate the Merger by
such date shall be due to the action or failure to act of the party seeking
to terminate the Merger Agreement in breach of such party's obligations
under the Merger Agreement) provided that the right to terminate the Merger
Agreement pursuant to this provision solely because of the failure of
satisfaction of the conditions relating to litigation, shall not accrue
until September 30, 1998; or
(d) by the Company, effective three business days after delivery to MQ
of a Superior Proposal Notice, which Notice shall have been preceded or
accompanied by payment of the Break-Up Fee and the Documented Expenses to
MQ, unless, within such three business-day period, MQ (A) makes an offer
that the Company's Board of Directors reasonably determines (after
consultation with its financial advisors) is at least as favorable to the
Company's stockholders as the Superior Proposal that is the subject of the
Superior Proposal Notice, and (B) returns the Break-Up Fee and the
Documented Expenses to the Company.
(e) by MQ if (A) the Board of Directors of the Company (or any committee
thereof) (i) withdraws, modifies or changes its recommendation regarding the
approval of the Merger or the Merger Agreement or the transactions
contemplated hereby in a manner adverse to MQ, (ii) shall have recommended
to the stockholders of the Company any Acquisition Proposal; (iii) shall
have taken any action in violation of the covenant prohibiting solicitation
of other transactions; (iv) shall have failed to reaffirm publicly its
recommendation regarding the approval of the Merger or the Merger Agreement
and the transactions contemplated hereby within three business days of
receipt of MQ's written request to do so; or (v) shall have resolved, or
entered into any agreement, to do any of the foregoing, or (B) the parties
(other than MQ) to the Option Agreement or the Stockholder Agreement shall
have breached their material obligations thereunder to MQ, or (C) or there
shall have been a change in control of the Company.
(f) by MQ if (i) the Company is in breach at any time prior to the
Effective Time of any of the representations and warranties made by the
Company as though made on and as of such date, unless the inaccuracies
(without giving effect to any materiality or material adverse effect
qualifications or materiality exceptions contained therein) in such
representations and warranties, individually or in the aggregate, have not
had and would not reasonably be expected to result in a material adverse
effect with respect to the Company, or (ii) the Company shall not have
performed and complied in all material respects with all covenants required
by the Merger Agreement to be performed or complied with by it on and as of
such date, which breach in the case of clauses (i) and (ii) cannot be or has
not been cured, in all material respects, within 15 days after the giving of
written notice to the Company.
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(g) by the Company if (i) MQ is in breach at any time prior to the
Effective Time of any of the representations and warranties made by MQ as
though made on and as of such date, unless the inaccuracies (without giving
effect to any materiality or material adverse effect qualifications or
materiality exceptions contained therein) in such representations and
warranties, individually or in the aggregate, have not had and would not
reasonably be expected to result in a material adverse effect with respect
to MQ, or (ii) MQ shall not have performed and complied in all material
respects with all covenants required by the Merger Agreement to be performed
or complied with by it on and as of such date, which breach in the case of
clauses (i) and (ii) cannot be or has not been cured, in all material
respects, within 15 days after the giving of written notice to MQ.
Any party desiring to terminate the Merger Agreement is required to give
written notice of such termination and the reasons therefor to the other
parties.
If the Merger Agreement is terminated pursuant to the above provisions, the
Merger Agreement will become void and of no effect and no party hereto shall
have any liability to the other for costs, expenses, loss of anticipated profits
or otherwise, except that (i) the agreements contained in certain sections of
the Merger Agreement concerning confidentiality and the payment of certain fees
and expenses, will survive the termination of the Merger Agreement, and (ii)
nothing will relieve any party from liability for any willful breach of the
Merger Agreement.
EXPENSES
Except as expressly provided in the Merger Agreement, each party will bear
its respective expenses, fees and costs incurred or arising in connection with
the negotiation and preparation of the Merger Agreement and all transactions
related hereto, and the parties shall have no liability between or among
themselves for such expenses, fees or costs.
AMENDMENT AND WAIVER
The Merger Agreement may be amended only by a written instrument duly signed
by the parties hereto or their respective successors or assigns. The Merger
Agreement may be amended by the parties hereto by action taken by or on behalf
of their respective Boards of Directors at any time prior to the Effective Time;
provided, however, that after approval of the Merger by the stockholders of the
Company, no amendment may be made which would reduce the amount or change the
type of consideration into which each share of MEDIQ Common Stock or MEDIQ
Preferred Stock or Option will be converted upon consummation of the Merger.
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STOCK OPTION AGREEMENT
The following is a brief summary of certain provisions of the Stock Option
Agreement, a copy of which is attached as Annex V to the Proxy
Statement/Prospectus and is incorporated herein. This summary is qualified in
its entirety by reference to the full text of the Stock Option Agreement.
Capitalized terms that are used in this section and are not otherwise defined
have the respective meanings given to them in the Stock Option Agreement.
GENERAL
As a condition to entering into the Merger Agreement, MQ required that the
Rotko Entities and MQ enter into the Stock Option Agreement pursuant to which
the Rotko Entities granted MQ the option to purchase, under certain
circumstances, at an exercise price of $14.50 per share, up to 4,701,464 shares
of MEDIQ Common Stock owned or subsequently acquired by the Rotko Entities
(which represents approximately 24% of the total outstanding MEDIQ Common Stock
as of January 14, 1998) and 4,730,006 shares of MEDIQ Preferred Stock owned or
subsequently acquired by the Rotko Entities (which represents approximately 75%
of the outstanding MEDIQ Preferred Stock as of January 14, 1998)(collectively
the "Rotko Shares").
The Rotko Option becomes exercisable only upon certain events set forth in
the Stock Option Agreement (each, a "Purchase Event"). A Purchase Event means
any of the following events:
(i) any person (other than MQ or any of its subsidiaries) shall have
commenced (as such term is defined in Rule 14d-2 under the Exchange Act, or
shall have filed a registration statement under the Securities Act, with
respect to, a tender offer or exchange offer to purchase any MEDIQ Common
Stock or MEDIQ Preferred Stock such that, upon consummation of such offer,
such person would have beneficial ownership of 25% or more of the then
outstanding MEDIQ Common Stock or MEDIQ Preferred Stock or more than 25% of
the total voting power of the Company;
(ii) the Company or any of its Subsidiaries shall or shall have entered
into, authorized, recommended, proposed or publicly announced an intention
to enter into, authorize, recommend, or propose, an agreement, arrangement
or understanding with any person (other than MQ or any of its subsidiaries)
to, or any person (other than MQ or any of its subsidiaries) shall have
publicly announced a bona fide intention to, (A) effect any Acquisition
Proposal with the Company, (B) purchase, lease or otherwise acquire 25% or
more of the assets of the Company and its consolidated Subsidiaries or (C)
purchase or otherwise acquire (including by way of merger, consolidation,
tender or exchange offer or similar transaction) beneficial ownership of
securities representing 25% or more of the voting power of the Company or
any of its significant subsidiaries.
(iii) any person (other than MQ or any subsidiary or stockholder of MQ,
and other than a Rotko Entity) shall have acquired beneficial ownership or
the right to acquire beneficial ownership of 25% or more of the MEDIQ Common
Stock, MEDIQ Preferred Stock or voting power of the Company or there shall
otherwise have been a change in control of the Company;
(iv) the Company's Board of Directors (or any committee thereof) (a)
shall have withdrawn, modified or changed its recommendation regarding the
approval of the Merger or the Merger Agreement or the transactions
contemplated thereby in a manner adverse to MQ; (b) shall have recommended
to the stockholders of the Company any Acquisition Proposal; (c) shall have
taken any action in violation of the covenant in the Merger Agreement
prohibiting solicitation of other transactions; (d) shall have failed to
reaffirm publicly its recommendation regarding the approval of the Merger or
the Merger Agreement and the transactions contemplated thereby within three
business days' of receipt of MQ's written request to do so; or (e) shall
have resolved, or entered into any agreement, to do any of the foregoing;
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(v) if any of the Rotko Entities shall have breached in any material
respect any of their respective obligations under the Stockholder
Agreements;
(vi) if at the Special Meeting (including any adjournment or
postponement thereof) the MEDIQ stockholder approvals shall not have been
obtained or if the Company shall not have called and held a Special Meeting
prior to the termination of the Merger Agreement after being requested to do
so by MQ as provided in the Merger Agreement;
(vii) the Merger Agreement shall have been terminated (or MQ shall have
the right to terminate the Merger Agreement) (x) pursuant to certain
provisions of the Merger Agreement relating to failure to satisfy conditions
to the Merger or if the Merger is not consummated by August 31, 1998 and the
Company's failure to perform any material covenant or obligation under, or
other breach by the Company of, the Merger Agreement has caused or resulted
in the failure of the Merger to occur on or before the date of such
termination (or right to termination), or (y) pursuant to certain provisions
of the Merger Agreement relating to (a) a Superior Notice Proposal, (b) a
change in the Board of Directors recommendation for the Merger, (c) a breach
of the Stock Option Agreements or Stockholder Agreements, (d) a change in
control, or (e) the Company's material breach of its representations and
warranties or failure to perform or comply with its covenants in all
material respects; or
(viii) the Company shall have delivered a Superior Proposal Notice.
TERMINATION
To the extent the Rotko Option shall not have been previously exercised, it
will terminate and be of no further force and effect upon the earlier to occur
of (i) the Effective Time of the Merger; (ii) in the case of a termination of
the Merger Agreement in accordance with certain provisions for termination
relating to (a) mutual consent, (b) failure to satisfy conditions of the Merger,
(c) failure to consummate transaction prior to August 31, 1998 or (d) MQ's
material breach of a representation and warranty or failure to perform or comply
with its covenants in all material respects, the date of such termination;
provided that (x) no Purchase Event shall have occurred prior to such
termination and (y) the Company shall not have been in breach of the Merger
Agreement prior to such termination; and (iii) in the case of any other
termination of the Merger Agreement, the date that is six months following such
termination (such date, the "Option Termination Date").
Notwithstanding the foregoing, if the Rotko Option cannot be exercised
before the Termination Date as a result of any injunction, order or similar
restraint issued by a court of competent jurisdiction, the Rotko Option will
expire on (and the Option Termination Date will be so extended until the earlier
of) (i) the 30th business day after such injunction, order or restraint shall
have been dissolved or (ii) when such injunction, order or restraint shall have
become permanent and no longer subject to appeal, as the case may be.
EXERCISE OF OPTION
The MEDIQ Shares to be acquired pursuant to exercise of the Rotko Option (if
such option is exercised in part) will be allocated pro rata as between shares
of MEDIQ Common Stock and MEDIQ Preferred Stock and as among each Stockholder
based upon the number of MEDIQ Shares owned by them. If MQ exercises the Rotko
Option for no more than two million MEDIQ Shares in the aggregate, the Rotko
Entities may designate among themselves the stockholders who will sell MEDIQ
Shares to MQ pursuant to such partial exercise of the Rotko Option, provided
that (x) the aggregate number of shares of MEDIQ Common Stock and MEDIQ
Preferred Stock to be sold to MQ pursuant to such exercise will remain the same
as if there had been no designation and (y) such designation will not adversely
affect the accounting treatment or economic impact of exercise of the Rotko
Option to MQ.
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In the event MQ exercises the Rotko Option in part and acquires MEDIQ Shares
which represent a majority of the total voting power of the Company's capital
stock, on a fully-diluted basis, MQ agrees that it will exercise the Rotko
Option in respect of all the subject MEDIQ Shares.
In the event of any change in the MEDIQ Shares by reason of a stock
dividend, split-up, recapitalization, merger, consolidation, reorganization,
combination, exchange of shares or similar transaction, the type and number of
shares or securities subject to the Rotko Option, the purchase price therefor
will be adjusted appropriately so that MQ will receive upon exercise of the
Rotko Option the same class and number of outstanding shares or other securities
or property that MQ would have received in respect of the MEDIQ Common Stock or
MEDIQ Preferred Stock if the Rotko Option had been exercised immediately prior
to such event, or the record date therefor, as applicable.
If, in connection with the exercise of the Rotko Option, prior notification
to or approval of any governmental entity is required, then the required notice
or application for approval will be promptly filed and/or expeditiously
processed by each member of the Rotko Entities and periods of time that
otherwise would run pursuant hereto (if any) will run instead from the date on
which any such required notification period has expired or been terminated or
such approval has been obtained, and in either event, any requisite waiting
period shall have passed.
THE STOCKHOLDER AGREEMENTS
The following is a brief summary of certain provisions of the Stockholder
Agreements, copies of which agreements are attached as Annex VI to this Proxy
Statement/Prospectus and are incorporated herein by reference. This summary is
qualified in its entirety by reference to the full text of the Stockholder
Agreements. Capitalized terms that are used in this section and not defined have
the respective meaning given to them in the Stockholder Agreements.
GENERAL
As a condition to entering into the Merger Agreement, each of the Rotko
Entities entered into a separate Stockholder Agreement, pursuant to which, among
other things, the Rotko Entities granted to MQ an irrevocable proxy and power of
attorney to vote all of their respective MEDIQ Shares (i) in favor of the
Merger, the execution and delivery by the Company of the Merger Agreement and
the approval of the terms thereof and each of the other actions contemplated by
the Merger Agreement, the Stockholder Agreements and the Stock Option Agreement
and any actions required in furtherance thereof; (ii) against any action or
agreement that would result in a breach in any material respect of any covenant,
representation or warranty or any other obligation of the Company under the
Merger Agreement or under the Stockholder Agreements or the Stock Option
Agreement; and (iii) except as otherwise agreed to in writing in advance by MQ,
against the following actions (other than the Merger and the transactions with
the Rotko Entities or their affiliates contemplated by the Merger Agreement):
(1) any extraordinary corporate transaction, such as a merger, consolidation or
other business combination involving the Company or its subsidiaries; (2) any
sale, lease or transfer of a material amount of assets of the Company or its
subsidiaries or a reorganization, recapitalization, dissolution or liquidation
of the Company or its subsidiaries; (3) (a) any change in the majority of the
Board of Directors of the Company; (b) any material change in the present
capitalization of the Company or any amendment of the Company's certificate of
incorporation or bylaws; (c) any other material change in the Company's
corporate structure or business; or (d) any other action, which is intended, or
could reasonably be expected, to impede, interfere with, delay, postpone,
discourage or materially adversely affect the contemplated economic benefits to
MQ of the Merger or the transactions contemplated by the Merger Agreement, the
Stockholder Agreements or the Stock Option Agreement. The Rotko Entities will
not enter into any agreement or understanding with any person or entity to vote
or give instructions in any manner inconsistent with clauses (i), (ii) or (iii)
of the preceding sentence.
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The Rotko Entities represented and warranted that they have sole voting
power and sole power to issue instructions with respect to the matters set forth
in the Stockholder Agreements, sole power of disposition, sole power of
conversion, sole power to demand appraisal rights and sole power to engage in
the actions set forth in the Stockholder Agreements, in each case with respect
to the MEDIQ Shares owned by such Rotko Entities.
AGREEMENT NOT TO TRANSFER
Each of the Rotko Entities agreed that it will not, and that such Rotko
Entity will not permit any company, trust or other person or entity controlled
by it to, and will not permit any of its affiliates to, contract to sell, sell
or otherwise transfer or dispose of any MEDIQ Shares owned by it or any interest
therein or securities convertible therein to or any voting rights with respect
thereto, other than (i) pursuant to the Merger, (ii) pursuant to the Stock
Option Agreement and (iii) with MQ's prior written consent. Each of the Rotko
Entities agreed that it will not convert any MEDIQ Preferred Stock into MEDIQ
Common Stock or take any other action which diminishes the benefits of the
Stockholder Agreement to MQ.
CERTAIN COVENANTS OF THE ROTKO ENTITIES
The Rotko Entities agreed to, and agreed to cause any company, trust or
other person or entity controlled by the Rotko Entities to, cooperate fully with
MQ in connection with the Merger Agreement, the Stock Option Agreement, the
Stockholder Agreements and the transactions contemplated thereby. The Rotko
Entities agreed that they will not, and will not permit any such company, trust
or other entity or person to, and will not authorize any of its affiliates to,
directly or indirectly (including through its officers, directors, employees or
other representatives) solicit, initiate, encourage or facilitate, or furnish or
disclose non-public information in furtherance of, any inquiries or the making
of any proposal with respect to any recapitalization, merger, consolidation or
other business combination involving the Company, or the acquisition of any
capital stock or any material portion of the assets (except for acquisition of
assets in the ordinary course of business consistent with past practice and not
material in the aggregate to the Company) of the Company, or any combination of
the foregoing (a "Competing Transaction"), or negotiate, explore or otherwise
engage in discussions with any person (other than MQ and its affiliates, or
their respective directors, officers, employees, agents and representatives)
with respect to any Competing Transaction or enter into any agreement,
arrangement or understanding with respect to any Competing Transaction or agree
to or otherwise assist in the effectuation of any Competing Transaction;
provided, however, that nothing in the Stockholder Agreements will require the
Rotko Entities to prevent or restrict any director or trustee of the Rotko
Entities who is a director or officer of the Company from taking any action in
his capacity as a director or officer of the Company to the extent such director
or officer would be permitted to take such action under the Merger Agreement.
TERMINATION
The Stockholder Agreements may be terminated at the option of any party at
any time after the Option Termination Date.
THE ROLLOVER AGREEMENT
The following is a brief summary of certain provisions of the Rollover
Agreement, a copy of which is attached as Annex VII to this Proxy
Statement/Prospectus and is incorporated herein by reference. This summary is
qualified in its entirety by reference to the full text of the Rollover
Agreement. Capitalized terms that are used in this section and are not defined
have the respective meanings given to them in the Rollover Agreement.
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As a condition to entering into the Merger Agreement, MQ required that the
Rotko Entities enter into a Rollover Agreement pursuant to which the Rotko
Entities agreed to convert an aggregate of 1,000,000 Rolled Shares of MEDIQ
Preferred Stock into certain securities specified in the Rollover Agreement.
The parties to the Rollover Agreement agreed that either (i) immediately
prior to the Effective Time, the Rotko Entities will transfer the contribution
of the Rolled Shares in exchange for securities of MQ, which at the Effective
Time will be converted into the Converted Shares (1,340,200 shares of Series B
Preferred Stock and a number of shares of Surviving Corporation Common Stock
equal to 10.98% (assuming an initial investment of $10.0 million of Common
Stock), of the total outstanding shares of Surviving Corporation Common Stock)
or (ii) the Certificate of Merger will provide that the Rolled Shares will be
converted into the Converted Shares. The decisions as to whether alternative (i)
or (ii) above be employed will be determined by MQ in its sole discretion with
the approval of the Company, such approval not to be unreasonably withheld.
The Rolled Shares to be converted into the Converted Shares pursuant to the
above paragraph will be determined, and the Converted Shares will be distributed
to each of the Rotko Entities, based on their pro rata ownership of MEDIQ
Preferred Stock; PROVIDED, HOWEVER, that the Rotko Trust may, prior to the fifth
business day prior to the Effective Time, notify MQ in writing of a revised
allocation of Rolled Shares among the Rotko Entities and the allocation of the
Converted Shares among the Rotko Entities, whereby the schedule reflecting the
ownership of Shares will be revised to reflect such revised allocation (so long
as the aggregate number of Rolled Shares converted into the aggregate number of
Converted Shares and the aggregate number of Converted Shares distributed in
respect of the Rolled Shares remains unchanged) (the "Reallocation"); PROVIDED
FURTHER, that the Reallocation will not adversely affect the accounting
treatment or the economic impact of the Merger and related transactions to MQ,
the Surviving Corporation and their stockholders other than the Rotko Entities.
The Rollover Agreement will terminate immediately upon the termination of
the Merger Agreement if the Merger Agreement is terminated prior to the
Effective Time; provided, that if the termination of the Merger Agreement
results from a failure of the condition relating to performance of the Rollover
Agreement to be satisfied, such termination shall not derogate from MQ's rights
under the Rollover Agreement. The obligations of the parties to the Rollover
Agreement are subject to the execution of a definitive Equity Holders Agreement
reasonably satisfactory to the parties embodying terms substantially as set
forth in Exhibit I to the Rollover Agreement.
The Equity Holders Agreement will provide for the following: (i) if BRS
sells (other than to affiliates, coinvestors and other similar parties) or has
redeemed more than 10% of its original investment in Series B Preferred Stock,
the Rotko Entities will have the right to participate on same terms and
conditions pro rata with BRS and other holders of Series B Preferred Stock;
provided, that if such sale or redemption is to or by the Company or any person
related to the Company within the meaning of Section 351(g)(3)(B) of the
Internal Revenue Code (the Company and such a related person referred to herein
as a "Disqualified Person"), then BRS and/or its coinvestors, their respective
affiliates or a third party designated by BRS (other than to a Disqualified
Person) will offer to purchase such shares in lieu of the Disqualified Person
and any such purchase will not be directly or indirectly funded by a
Disqualified Person; (ii) if holders of a majority of Series B Preferred Stock
propose to sell their shares, they may elect to cause the Rotko Entities to sell
their shares on the same terms and conditions and the Rotko Entities will
consent to, and waive any objections with respect to, such transaction; PROVIDED
THAT, if such sale is to a Disqualified Person, BRS and/or its coinvestors,
their respective affiliates or a third party designated by BRS (other than to a
Disqualified Person) will have the right to purchase such shares in lieu of the
Disqualified Person and any such purchase will not be directly or indirectly
funded by a Disqualified Person; and if the Company redeems shares of the Series
A Preferred Stock or Series C Preferred Stock, BRS and/or its coinvestors, their
respective affiliates or a third party designated by BRS (other than to a
Disqualified Person) will offer to purchase (the "Purchase Option") from the
Rotko Entities a percentage
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of the Series B Preferred Stock held by them equal to the aggregate liquidation
preference of the Series A Preferred Stock or Series C Preferred Stock so
redeemed (not including any redemption of Series A Preferred Stock issued as
Merger Consideration) divided by the sum of the aggregate liquidation preference
of the Series A, B and C Preferred Stock then outstanding plus the original cost
of the shares of Surviving Corporation Common Stock then outstanding; it being
understood that (a) the intent of the foregoing provision is to provide the
Rotko Entity with a similar investment opportunity as if they converted on the
same terms as BRS and its coinvestors and acquired shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and Surviving
Corporation Common Stock in the same proportions as BRS and other coinvestors
selected by BRS, (b) a purchase pursuant to the Purchase Option shall not be
directly or indirectly funded by a Disqualified Person and (c) the purchase
price pursuant to the Purchase Option for the Series B Preferred Stock shall be
in an amount not less than the par value plus accrued dividends on such stock
and shall be paid in comparable consideration to that offered to the redeeming
stockholders.
The Equity Holders Agreement will provide that, if the Company proposes to
sell any equity securities, then the holders of the Series B Preferred Stock
will have an opportunity to purchase a proportionate amount of such equity
securities on the same terms and conditions as offered by the Company (in the
ratio of their equity ownership in the Company over the total equity in the
Company prior to the sale), unless such equity securities are issued (a) in
connection with a business combination (unanimously approved by Company's Board
of Directors), (b) to the Company's management or directors, (c) in connection
with debt financing or a bona fide public offering or (d) subject to certain
other exceptions to be negotiated.
For the five year period beginning at the Effective Time, the Rotko Entities
will not be permitted to transfer their Series B Preferred Stock or their
Surviving Corporation Common Stock other than to family members and others by
the law of descent distribution or trusts for the benefit of such persons. For
the five year period beginning on the fifth anniversary of the Effective Time
and ending on the tenth anniversary of the Effective Time, the Rotko Entities
may transfer their shares of Series B Preferred Stock and Surviving Corporation
Common Stock subject to the restrictions applicable to such shares. After the
tenth anniversary of the Effective Time, the Rotko Entities may transfer their
shares of Series B Preferred Stock and Surviving Corporation Common Stock free
of the restrictions applicable to such shares.
The Equity Holders Agreement will provide that the Rotko Trust will have the
right to elect one director of the Company so long as the Rotko Entities
collectively own 5% of the Surviving Corporation Common Stock.
The Equity Holders Agreement will provide that if BRS proposes to sell 10%
or more of its Surviving Corporation Common Stock to a third party, then the
Rotko Entities will have the right to participate on the same terms and
conditions pro rata with BRS and other holders of the Surviving Corporation
Common Stock subject to certain exceptions to be negotiated. The Equity Holders
Agreement will provide that if the holders of a majority of the Surviving
Corporation Common Stock proposes to sell their shares to a third party, they
may elect to cause the Rotko Entities to sell their shares of Surviving
Corporation Common Stock on the same terms and conditions and the Rotko Entities
will consent to, and waive any objections with respect to, such transaction.
These "tag-along" and "drag-along" rights relating to the Surviving Corporation
Common Stock will terminate immediately prior to such time as there is a bona
fide public offering of the Surviving Corporation Common Stock.
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MANAGEMENT OF SURVIVING CORPORATION AND OTHER TRANSACTIONS
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
It is expected that the Board of Directors of the Surviving Corporation
following the Merger will be comprised of Thomas E. Carroll, Bruce C. Bruckmann,
Stephen C. Sherrill, one individual to be designated prior to the Effective Time
by the Rotko Entities and other individuals to be determined by BRS. Thomas E.
Carroll will continue as President and Chief Executive Officer and Jay M. Kaplan
will continue as Chief Financial Officer. Schedule I to this Proxy
Statement/Prospectus contains certain other information with respect to the
anticipated directors and executive officers of the Surviving Corporation.
THOMAS E. CARROLL, AGE 54, Chief Executive Officer and President, MEDIQ,
Incorporated.
Mr. Carroll has served as President and Chief Executive Officer of the
Company since 1995. He served as President and Chief Operating Officer of
MEDIQ/PRN from 1994 to 1995, and as Executive Vice President and Chief Operating
Officer of MEDIQ/PRN from 1990 to 1994.
JAY M. KAPLAN, AGE 49, Senior Vice President, Finance and Chief Financial
Officer, MEDIQ Incorporated.
Mr. Kaplan has served as the Senior Vice President, Finance and Chief
Financial Officer of MEDIQ Incorporated since 1997. Since 1992, Mr. Kaplan has
served as the Senior Vice President and Chief Financial Officer of MEDIQ/PRN.
BRUCE C. BRUCKMANN, AGE 44, Managing Director, Bruckmann, Rosser, Sherrill &
Co., Inc.
Mr. Bruckmann is a Managing Director of Bruckmann, Rosser, Sherrill & Co.,
Inc. He was an officer of Citicorp Venture Capital Ltd, ("CVC") from 1983
through 1994. Prior to joining CVC, Mr. Bruckmann was an associate at the New
York law firm of Patterson, Belknap, Webb & Tyler. Mr. Bruckmann is a director
of Mohawk Industries, Inc., AmeriSource Corporation, Chromcraft Revington
Corporation, Cort Furniture Rental Corp., Jitney-Jungle Stores of Health
America, Inc., Town Sports International, Inc., Anvil Knitwear, Inc. and
California Pizza Kitchen, Inc.
STEPHEN C. SHERRILL, AGE 44, Managing Director, Bruckmann, Rosser, Sherrill &
Co., Inc.
Mr. Sherrill is a Managing Director of Bruckmann, Rosser, Sherrill & Co.,
Inc. He was an officer of CVC from 1983 through 1994. Previously, he was an
associate at the New York law firm of Paul, Weiss, Rifkind, Wharton & Garrison.
Mr. Sherrill is a director of Galey & Lord, Inc., Jitney-Jungle Stores of
America, Inc., Windy Hill Pet Food Holdings, Inc., Restaurant Associates Corp.,
B&G Foods, Inc. and HealthPlus Corporation.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of January 27, 1998, the beneficial
ownership of shares of MEDIQ Common Stock and MEDIQ Preferred Stock by: (i) each
person who is known by the Company to be the beneficial owner of more than 5% of
the such shares; (ii) each director of the Company; (iii) each of the Company's
executive officers named in the Summary Compensation Table (included elsewhere
herein); and (iv) all directors and executive officers of the Company as a
group. This information is based upon
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public filings and, in the case of the Company's officers and directors,
information provided to the Company by such persons.
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
NUMBER PERCENT OF CLASS NUMBER PERCENT OF CLASS
NAME(1)(2) OF SHARES OUTSTANDING OF SHARES OUTSTANDING
- ---------------------------------- ---------- ----------------- ---------- -----------------
Michael J. Rotko(3)(4)............ 4,137,260 21.4% 4,145,793 66.2%
Jacob A. Shipon(3)(4)............. 4,091,565 21.1% 4,100,098 65.4%
Thomas E. Carroll(5).............. 341,101 1.7% -- --
Michael F. Sandler(6)............. 186,617 1.0% -- --
Sheldon M. Bonovitz............... 34,100 * -- --
H. Scott Miller(7)................ 13,600 * 4,300 *
Mark S. Levitan................... 5,150 * -- --
Jay M. Kaplan(8).................. 155,366 * -- --
Bernard J. Korman................. 2,009,422 10.4% 801,030 12.8%
c/o Graduate Health System
22nd & Chestnut Streets
Philadelphia, PA 19103
All directors and executive
officers as a group
(8 persons)..................... 5,326,095 26.7% 4,602,994 73.5%
</TABLE>
- ------------------------
*Less than one percent
(1) Unless otherwise indicated, beneficial ownership is based on sole voting and
dispositive power with respect to the shares, and shares are held by the
person listed or members of his or her family. Shares of MEDIQ Common Stock
which the individual has the right to acquire, upon exercise of options and
in certain other circumstances, are deemed to be outstanding and
beneficially owned by the individual other than by conversion of shares of
Preferred Stock.
(2) Unless otherwise indicated, the address of each person listed in the table
is c/o One MEDIQ Plaza, Pennsauken, NJ 08110-1460.
(3) Michael J. Rotko is the son of Bessie G. Rotko. Mrs. Rotko, who resigned as
a director effective November 29, 1995, is the income beneficiary, during
her lifetime, of certain trusts (the "Rotko Trusts") created by her late
husband, Bernard B. Rotko, M.D., who was the founder of the Company. The
Rotko Trusts collectively hold 3,638,664 shares of MEDIQ Common Stock and
3,647,197 shares of MEDIQ Preferred Stock, as to which Mrs. Rotko, Mr.
Rotko, Judith M. Shipon, John Iskrant, Esq. and PNC Bank Corp. share voting
and dispositive power as co-trustees. Mrs. Shipon is the wife of Jacob A.
Shipon and the daughter of Mrs. Rotko and the late Dr. Rotko. The shares set
forth in the above chart for Mr. Rotko include 7,308 shares of MEDIQ Common
Stock and 7,308 shares of MEDIQ Preferred Stock, respectively, held as
custodian for children. Mr. Rotko is also a co-trustee of four additional
Trusts established by the late Dr. Rotko for the benefit of certain
grandchildren of Dr. Rotko. Collectively, these four Trusts hold 49,941
shares of MEDIQ Common Stock and 49,941 shares of MEDIQ Preferred Stock. As
a trustee of the Trusts described above (including the Rotko Trusts), Mr.
Rotko may be deemed a beneficial owner of the shares owned by the Trusts,
which consequently are included in the table above. The aggregate number of
shares of MEDIQ Common Stock held by Michael J. Rotko, Bessie G. Rotko,
Judith M. Shipon, Thomas E. Carroll and the Rotko Trusts, all of whom are
filing a statement on Schedule 13E-3 with the Company, MQ and BRS
concurrently with the filing of this Proxy Statement/Prospectus, is
5,110,259, representing 26.4% of the total outstanding Common Stock; the
aggregate number of shares of MEDIQ Preferred Stock held by
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Michael J. Rotko, Bessie G. Rotko, Judith M. Shipon, Thomas E. Carroll and
the Rotko Trusts is 4,806,234, representing 76.7% of the total outstanding
Preferred Stock.
(4) Dr. Shipon is the son-in-law of Mrs. Rotko. Includes 441,351 shares of MEDIQ
Common Stock and 441,351 shares of MEDIQ Preferred Stock, respectively,
which are owned by Mrs. Shipon, Dr. Shipon's spouse. Mrs. Shipon is a
trustee of the Rotko Trusts described in footnote 3, and may be deemed a
beneficial owner of the shares owned by the Rotko Trusts, which are included
in Dr. Shipon's share ownership in the Stock Ownership Table. Mrs. Shipon is
also a trustee of two additional trusts established by the late Dr. Rotko
for the benefit of certain grandchildren. Collectively, the trusts for the
benefit of certain grandchildren of Dr. Rotko of which Mrs. Shipon serves as
co-trustee hold 9,900 shares of MEDIQ Common Stock and 9,900 shares of MEDIQ
Preferred Stock, which are included in Dr. Shipon's share ownership in the
Stock Ownership Table.
(5) Includes 7,375 shares of MEDIQ Common Stock owned by Mr. Carroll's spouse
and children, and 307,500 shares of MEDIQ Common Stock which may be acquired
upon exercise of stock options.
(6) Includes 165,000 shares of MEDIQ Common Stock which may be acquired upon
exercise of stock options.
(7) H. Scott Miller provides financial advisory services to the Rotko Trusts
described in footnote 3. Includes 1,600 shares of MEDIQ Preferred Stock held
by the estate of Mr. Miller's mother.
(8) Includes 123,012 shares of MEDIQ Common Stock which may be acquired upon
exercise of stock options.
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REGULATORY APPROVALS
The Merger is subject to the expiration or termination of the applicable
waiting period under the HSR Act. Certain aspects of the Merger will require
notification to, and filings with, certain securities and other authorities in
certain states, including jurisdictions where the Company currently operates.
Under the HSR Act and the rules promulgated thereunder by the FTC, the
Merger may not be consummated until notifications have been given and certain
information has been furnished to the FTC and the Antitrust Division and the
applicable waiting period has expired or been terminated. On February 10, 1998,
the Company and BRS each filed a notification report together with requests for
early termination of the waiting period under the HSR Act with the FTC and the
Antitrust Division in respect of the Merger and the related transactions. At any
time before or after consummation of the Merger, notwithstanding termination of
the waiting period under the HSR Act, the Antitrust Division or the FTC could
take such action under the antitrust laws as it deems necessary or desirable in
the public interest, including seeking to enjoin the consummation of the Merger
or seeking divestiture of substantial assets of the Company. At any time before
or after the Effective Time, and notwithstanding termination of the waiting
period under the HSR Act, any state could take such action under the antitrust
laws as it deems necessary or desirable in the public interest. Such action
could include seeking to enjoin the consummation of the Merger or seeking
divestiture of substantial assets of the Company. Private parties may also seek
to take legal action under the antitrust laws under certain circumstances.
Based on information available to them, the Company and MQ believe that the
Merger can be effected in compliance with federal and state antitrust laws.
However, there can be no assurance that a challenge to the consummation of the
Merger on antitrust grounds will not be made or that, if such a challenge were
made, the Company and MQ would prevail or would not be required to accept
certain adverse conditions in order to consummate the Merger.
The obligations of MQ under the Merger Agreement are also subject to the
receipt of all necessary licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental authorities and other third parties as
are necessary in connection with the transactions contemplated by the Merger
unless the failure to so obtain would not have a material adverse effect on the
Company and its subsidiaries, taken as a whole.
DISSENTING STOCKHOLDERS' RIGHTS
If the Merger is consummated, stockholders of the Company who make the
demand described below with respect to their shares, who continuously are the
record holders of such shares through the Effective Time, who otherwise comply
with the statutory requirements of Section 262 (a copy of which is attached
hereto as Annex III to this Proxy Statement/Prospectus) and who neither vote in
favor of the Merger Agreement nor consent thereto in writing will be entitled to
an appraisal by the Delaware Court of the fair value of their shares of MEDIQ
Stock. Except as set forth herein, stockholders of the Company will not be
entitled to appraisal rights in connection with the Merger.
A holder of shares of MEDIQ Stock wishing to exercise dissenters' rights of
appraisal must, before the taking of the vote on the Merger at the Special
Meeting, deliver to the Company a written demand for appraisal of such shares. A
demand for appraisal will be sufficient if it reasonably informs the Company of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his or her shares.
Within 10 days after the Effective Time, the Company is required to, and
will, notify each stockholder of the Company who has satisfied the foregoing
conditions on the date on which the Merger became effective. Within 120 days
after the Effective Time, either the Company or any stockholder who has complied
with the required conditions of Section 262 may file a petition in the Delaware
Court, with a copy served on the Company in the case of a petition filed by a
stockholder, demanding a determination of the
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fair value of the shares of all dissenting stockholders. There is no present
intent on the part of the Company to file an appraisal petition and stockholders
seeking to exercise appraisal rights should not assume that the Company will
file such a petition or that the Company will initiate any negotiations with
respect to the fair value of such shares. Accordingly, stockholders who desire
to have their shares appraised should initiate any petitions necessary for the
perfection of their appraisal rights within the time periods and in the manner
prescribed in Section 262. Within 120 days after the Effective Time, any
stockholder who has theretofore complied with the applicable provisions of
Section 262 will be entitled, upon written request, to receive from the Company,
a statement setting forth the aggregate number of shares of MEDIQ Stock not
voted in favor of the Merger Agreement and with respect to which demands for
appraisal have been received by the Company and the aggregate number of holders
of such shares. Such statement must be mailed within 10 days after the written
request therefor has been received by the Company or within 10 days after
expiration of the period for the delivery of demands for appraisal, whichever is
later.
If a petition for an appraisal is timely filed, at the hearing on such
petition, the Delaware Court will determine which stockholders are entitled to
appraisal rights. The Delaware Court may require the stockholders who have
demanded an appraisal for their shares and who hold stock represented by
certificates to submit their certificates of stock to the Register in Chancery
for notation thereon of the pendency of the appraisal proceedings; and if any
stockholder fails to comply with such direction, the Delaware Court may dismiss
the proceedings as to such stockholder. Where proceedings are not dismissed, the
Delaware Court will appraise the shares of MEDIQ Stock, owned by such
stockholders, determining the fair value of such shares exclusive of any element
of value arising from the accomplishment or expectation of the Merger, together
with a fair rate of interest, if any, to be paid upon the amount determined to
be the fair value. In determining fair value, the Delaware Court is to take into
account all relevant factors. In Weinberger v. UOP Inc., the Delaware Supreme
Court discussed the factors that could be considered in determining fair value
in an appraisal proceeding, stating that "proof of value by any techniques or
methods which are generally considered acceptable in the financial community and
otherwise admissible in court" should be considered, and that "fair price
obviously requires consideration of all relevant factors involving the value of
a company." The Delaware Supreme Court stated that in making this determination
of fair value the court must consider market value, asset value, dividends,
earnings prospects, the nature of the enterprise and any other facts which could
be ascertained as of the date of the Merger which throw light on future
prospects of the merged corporation. In Weinberger, the Delaware Supreme Court
stated that "elements of future value, including the nature of the enterprise,
which are known or susceptible of proof as of the date of the Merger and not the
product of speculation, may be considered." Section 262, however, provides that
fair value is to be "exclusive of any element of value arising from the
accomplishment or expectation of the Merger."
Holders of shares of MEDIQ Stock considering seeking appraisal should
recognize that the fair value of their shares determined under Section 262 could
be more than, the same as or less than the consideration they are entitled to
receive pursuant to the Merger Agreement if they do not seek appraisal of their
shares. The cost of the appraisal proceeding may be determined by the Delaware
Court and taxed against the parties as the Delaware Court deems equitable in the
circumstances. Upon application of a dissenting stockholder of the Company, the
Delaware Court may order that all or a portion of the expenses incurred by any
dissenting stockholder in connection with the appraisal proceeding, including
without limitation, reasonable attorney's fees and the fees and expenses of
experts, be charged pro rata against the value of all shares of stock entitled
to appraisal.
From and after the Effective Time, no stockholder who has demanded appraisal
rights in compliance with the requirements of Section 262 of the DGCL will be
entitled to vote such stock for any purpose or to receive such stock for any
purpose or to receive payment of dividends or other distributions on the stock
(except dividends or other distributions that were payable to record holders
prior to the Effective Time).
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At any time within 60 days after the Effective Time, any stockholder will
have the right to withdraw such demand for appraisal and to accept the terms
offered in the Merger; after this period, the stockholder may withdraw such
demand for appraisal only with the consent of the Company. If no petition for
appraisal is filed with the Delaware Court within 120 days after the Effective
Time, stockholders' rights to appraisal will cease, and all holders of shares of
MEDIQ Stock will be entitled to receive the consideration offered pursuant to
the Merger Agreement. Inasmuch as the Company has no obligation to file such a
petition, and the Company has no present intention to do so, any holder of
shares of MEDIQ Stock who desires such a petition to be filed is advised to file
it on a timely basis. Any stockholder may withdraw such stockholder's demand for
appraisal by delivering to the Company a written withdrawal of his or her demand
for appraisal and acceptance of the Merger, except (i) that any such attempt to
withdraw made more than 60 days after the Effective Time will require written
approval of the Company, and (ii) that no appraisal proceeding in the Delaware
Court will be dismissed as to any stockholder without the approval of the
Delaware Court, and such approval may be conditioned upon such terms as the
Delaware Court deems just.
The foregoing is only a summary of Section 262, and is qualified in its
entirety by reference to the provisions thereof, the full text of which is set
forth as Annex III to this Proxy Statement/Prospectus. Each stockholder of the
Company is urged to read carefully the full text of Section 262.
LEGAL MATTERS
The legality of the shares of the Series A Preferred Stock being issued in
the Merger will be passed upon by Drinker Biddle & Reath LLP, Philadelphia,
Pennsylvania. Michael J. Rotko, Chairman of the Board of Directors of the
Company was a partner at the law firm of Drinker Biddle & Reath LLP until
February 1997.
EXPERTS
The consolidated balance sheets as of September 30, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity, cash flows,
and the related financial statement schedule for each of the three years in the
period ended September 30, 1997 incorporated in this Proxy Statement/ Prospectus
by reference from MEDIQ Incorporated's Annual Report on Form 10-K for the year
ended September 30, 1997 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report, which is incorporated herein by reference,
and have been so incorporated in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
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OTHER INFORMATION AND STOCKHOLDER PROPOSALS
Management of the Company knows of no other matters that may properly be, or
which are likely to be, brought before the Special Meeting. However, if any
other matters are properly brought before such Special Meeting, the persons
named in the enclosed Proxy or their substitutes will vote the Proxies in
accordance with their judgment with respect to such matters.
Proposals which stockholders intend to present at the Company's 1998 Annual
Meeting of Stockholders and wish to have included in the Company's proxy
materials are required to be received by the Company no later than .
If following the Merger, the Company continues to be subject to the requirement
to file and send proxy statements to its stockholders and if the 1998 Annual
Meeting of Stockholders is held in accordance with past practice,
proposals which stockholders intend to present at the Company's 1998 Annual
Meeting of Stockholders and wish to have included in the Company's proxy
materials will have to be received by the Company no later than .
By Order of the Board of Directors
, Secretary
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SCHEDULE I
CERTAIN INFORMATION REGARDING MQ ACQUISITION CORPORATION AND
BRUCKMANN, ROSSER, SHERRILL & CO., L.P.
The following table sets forth the name, business address, age, principal
occupation or employment at the present time and during the last five years, the
name, principal business and address of any corporation or other organization in
which such occupation or employment is or was conducted and current
directorships of the executive officers, directors and stockholders of MQ
Acquisition Corporation, all of whom are citizens of the United States. Except
as otherwise noted, the address of each such corporation or organization listed
and the business address of such persons is the address of Bruckmann, Rosser,
Sherrill & Co., Inc., 126 East 56th Street, 29th Floor, New York, New York
10022.
BRUCE C. BRUCKMANN Age 44
Mr. Bruckmann is a Managing Director of Bruckmann, Rosser, Sherrill & Co.,
Inc. He was an officer of Citicorp Venture Capital Ltd. ("CVC") from 1983
through 1994. Prior to joining CVC, Mr. Bruckmann was an associate at the New
York law firm of Patterson, Belknap, Webb & Tyler. Mr. Bruckmann is a director
of Mohawk Industries, Inc., AmeriSource Health Corporation, Chromcraft Revington
Corporation, Cort Furniture Rental Corp., Jitney-Jungle Stores of America, Inc.,
Town Sports International, Inc., Anvil Knitwear, Inc. and California Pizza
Kitchen, Inc.
HAROLD O. ROSSER, II Age 48
Mr. Rosser is a Managing Director of Bruckmann, Rosser, Sherrill & Co., Inc.
He was an officer of CVC from 1987 through 1994. Previously, he spent 12 years
with Citicorp/Citibank in various management and corporate finance positions. He
is a director of DavCo Restaurants, Inc., Jitney-Jungle Stores of America, Inc.,
Restaurant Associates Corp., B&G Foods, Inc. and California Pizza Kitchen, Inc.
STEPHEN C. SHERRILL Age 44
Mr. Sherrill is a Managing Director of Bruckmann, Rosser, Sherrill & Co.,
Inc. He was an officer of CVC from 1983 through 1994. Previously, he was an
associate at the New York law firm of Paul, Weiss, Rifkind, Wharton & Garrison.
Mr. Sherrill is a director of Galey & Lord, Inc., Jitney-Jungle Stores of
America, Inc., Windy Hill Pet Food Holdings, Inc., Restaurant Associates Corp.,
B&G Foods, Inc. and HealthPlus Corporation.
STEPHEN F. EDWARDS Age 34
Mr. Edwards is a Managing Director of Bruckmann, Rosser, Sherrill & Co.,
Inc. He was an officer of CVC from 1993 through 1994. From 1988 through 1991, he
was an associate of CVC. Prior to joining CVC, Mr. Edwards worked with
Citicorp/Citibank in various corporate finance positions. Mr. Edwards is a
director of Windy Hill Pet Food Holdings, Inc., Town Sports International, Inc.
and Anvil Knitwear, Inc.
Bruckmann, Rosser, Sherrill & Co., L.P. is a limited partnership, the sole
general partner of which is BRS Partners, L.P. and the general manager of which
is Bruckmann, Rosser, Sherrill & Co., Inc. The sole general partner of BRS
Partners, L.P. is BRSE Associates, Inc., Bruce C. Bruckmann, Harold O. Rosser,
II, Stephen C. Sherrill and Stephen F. Edwards are the only stockholders of
Bruckmann, Rosser, Sherrill & Co., Inc. and BRSE Associates, Inc.
<PAGE>
ANNEX I
AGREEMENT AND PLAN OF MERGER
DATED AS OF
JANUARY 14, 1998
BY AND BETWEEN
MQ ACQUISITION CORPORATION
AND
MEDIQ INCORPORATED
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TABLE OF CONTENTS
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ARTICLE I--THE MERGER...................................................................................... 1
Section 1.1 The Merger................................................................................. 1
Section 1.2 Closing; Effective Date and Time........................................................... 2
Section 1.3 Effects of the Merger...................................................................... 2
Section 1.4 Articles of Incorporation; Bylaws; Directors and Officers.................................. 2
Section 1.5 Merger Consideration; Cancellation of Shares............................................... 2
Section 1.6 Dissenting Shares.......................................................................... 3
Section 1.7 Stock Options.............................................................................. 3
Section 1.8 Surrender of Securities; Funding of Payments; Stock Transfer Books......................... 4
Section 1.9. Subsequent Actions......................................................................... 6
Section 1.10 Adjustment of Merger Consideration and Option Consideration................................ 7
ARTICLE II--REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................................................. 7
Section 2.1 Corporate Organization and Authorization................................................... 7
Section 2.2 Capitalization............................................................................. 9
Section 2.3 Noncontravention........................................................................... 9
Section 2.4 SEC Filings................................................................................ 10
Section 2.5 No Material Adverse Changes................................................................ 11
Section 2.6 Legal Proceedings.......................................................................... 11
Section 2.7 No Dividends or Distributions.............................................................. 11
Section 2.8 Opinion of the Company's Financial Advisor................................................. 11
Section 2.9 Tax Matters................................................................................ 12
Section 2.10 Absence of Undisclosed Liabilities......................................................... 13
Section 2.11 Compliance with Laws....................................................................... 13
Section 2.12 Contracts and Commitments.................................................................. 14
Section 2.13 Brokers and Finders Fees................................................................... 14
Section 2.14 Employee Benefit Plans; Labor Matters...................................................... 14
Section 2.15 Environmental Matters...................................................................... 16
Section 2.16 Information Supplied....................................................................... 18
Section 2.17 Properties; Condition of Assets............................................................ 18
Section 2.18 Disclosure................................................................................. 19
Section 2.19 Board Recommendation; Section 203; Required Vote........................................... 19
Section 2.20 Prior Negotiations......................................................................... 19
Section 2.21 Intellectual Property...................................................................... 20
Section 2.22 Certain Business Practices................................................................. 20
Section 2.23 Management Agreements...................................................................... 20
Section 2.24 Affiliate Transactions..................................................................... 20
ARTICLE III--REPRESENTATIONS AND WARRANTIES OF ACQUIROR.................................................... 21
Section 3.1 Corporate Organization and Authorization................................................... 21
Section 3.2 Noncontravention........................................................................... 21
Section 3.3 Legal Proceedings.......................................................................... 22
Section 3.4 Financing.................................................................................. 22
Section 3.5 Information Supplied....................................................................... 22
Section 3.6 Interim Operations of...................................................................... 22
Section 3.7 Brokers.................................................................................... 22
ARTICLE IV--COVENANTS...................................................................................... 23
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Section 4.1 Conduct of the Company Prior to the Effective Time......................................... 23
Section 4.2 Covenants of Acquiror; Employee Benefits; Indemnification.................................. 27
Section 4.3 Conduct of Business by Acquiror Pending the Merger......................................... 29
Section 4.4 Covenants of Acquiror and the Company...................................................... 29
Section 4.5 Transaction Litigation..................................................................... 32
ARTICLE V--CONDITIONS TO ACQUIROR'S OBLIGATIONS............................................................ 32
Section 5.1 Shareholder Approval....................................................................... 32
Section 5.2 Representations and Warranties............................................................. 32
Section 5.3 Performance................................................................................ 32
Section 5.4 Officer's Certificate...................................................................... 32
Section 5.5 HSR Waiting Period......................................................................... 32
Section 5.6 No Injunction.............................................................................. 32
Section 5.7 Form S-4................................................................................... 32
Section 5.8 No Litigation.............................................................................. 32
Section 5.9 Financing.................................................................................. 33
Section 5.10 Affiliate Letters.......................................................................... 33
Section 5.11 Comfort Letters............................................................................ 33
Section 5.12 Dissenting Shares; Rotko Rollover.......................................................... 33
Section 5.13 Consents................................................................................... 33
ARTICLE VI--CONDITIONS TO THE COMPANY'S OBLIGATIONS........................................................ 34
Section 6.1 Shareholder Approval....................................................................... 34
Section 6.2 Representations and Warranties............................................................. 34
Section 6.3 Performance................................................................................ 34
Section 6.4 Officer's Certificate...................................................................... 34
Section 6.5 HSR Waiting Period......................................................................... 34
Section 6.6 No Injunction.............................................................................. 34
Section 6.7 Form S-4................................................................................... 34
Section 6.8 No Litigation.............................................................................. 34
ARTICLE VII--SURVIVAL OF REPRESENTATIONS................................................................... 35
Section 7.1 No Survival of Representations............................................................. 35
Section 7.2 Exclusive Remedy........................................................................... 35
ARTICLE VIII--TERMINATION OF AGREEMENT..................................................................... 36
Section 8.1 Termination of Agreement Prior to the Effective Time....................................... 36
Section 8.2 Effect of Termination...................................................................... 37
ARTICLE IX--MISCELLANEOUS.................................................................................. 37
Section 9.1 Waiver of Compliance....................................................................... 37
Section 9.2 Expenses................................................................................... 37
Section 9.3 Assignability; Parties in Interest......................................................... 37
Section 9.4 Specific Performance....................................................................... 38
Section 9.5 Agreement; Amendments...................................................................... 38
Section 9.6 Headings................................................................................... 38
Section 9.7 Severability............................................................................... 38
Section 9.8 Notices.................................................................................... 39
Section 9.9 Law Governing.............................................................................. 39
Section 9.10 Counterparts............................................................................... 39
Section 9.11 Representations............................................................................ 39
Section 9.12 Jurisdiction............................................................................... 40
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of January 14,
1998, is by and between MQ ACQUISITION CORPORATION, a Delaware corporation
("Acquiror"), and MEDIQ INCORPORATED, a Delaware corporation (the "Company").
WHEREAS, the respective Boards of Directors of the parties hereto have each
approved, upon the terms and subject to the conditions set forth in this
Agreement, the merger of Acquiror with and into the Company (the "Merger"),
pursuant to which each issued and outstanding share of common stock, par value
$1.00 per share, of the Company (a "Common Share") and each issued and
outstanding share of Series A Preferred Stock, par value $.50 per share, of the
Company (a "Preferred Share"; the Common Shares and the Preferred Shares are
sometimes referred to herein collectively as the "Shares"), will be converted
into the right to receive (i) $13.75 per Share net to the stockholder in cash,
without interest, and (ii) 0.075 shares of Series A 13% Cumulative Compounding
Preferred Stock, par value $.01 per share with a liquidation preference of
$10.00 per share ("Senior Preferred Shares") having the terms set forth on
Exhibit A hereto, except for Shares owned directly or indirectly by Acquiror or
the Company and Dissenting Shares (as defined in Section 1.6(b)); and
WHEREAS, the respective Boards of Directors of the Company and Acquiror have
determined that the Merger would be fair and in the best interests of their
respective stockholders; and
WHEREAS, the Merger and this Agreement require for the approval thereof (i)
the affirmative vote of the holders of a majority of the outstanding voting
power of the Shares, voting together as a single class and (ii) the affirmative
vote of the holders of a majority of the outstanding Preferred Shares (the
"Company Stockholder Approvals"); and
WHEREAS, Acquiror is unwilling to enter into this Agreement unless,
contemporaneously with the execution and delivery of this Agreement, certain
beneficial and record stockholders of the Company enter into agreements
(collectively, the "Stockholders Agreement") providing for certain actions
relating to the transactions contemplated by this Agreement and agreements
(collectively, the "Option Agreement") providing Acquiror with the option to
acquire the Shares owned by such persons and entities on the terms and
conditions set forth in the Option Agreement; and in order to induce Acquiror to
enter into this Agreement, the Company has approved the entering into by
Acquiror and such stockholders of the Stockholders Agreement and the Option
Agreement, and such stockholders have agreed to enter into, execute and deliver
the Stockholders Agreement and the Option Agreement; and
WHEREAS, Acquiror is unwilling to enter into this Agreement unless,
contemporaneously with the execution and delivery of this Agreement, certain
beneficial and record stockholders of the Company (the "Rotko Entities") enter
into agreements to roll over certain Shares (the "Rotko Rollover Shares") owned
by such persons into securities of the Company, on the terms set forth on
Exhibit B hereto (the "Rollover Agreement"); and
WHEREAS, it is intended that the Merger be recorded as a recapitalization
for financial reporting purposes.
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties and agreements contained herein, the parties hereto
agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 THE MERGER. Subject to the satisfaction or waiver (to the
extent permissible under this Agreement) of the conditions set forth in Articles
V and VI herein, at the Effective Time, Acquiror shall merge with and into the
Company (the "Merger"). The Company, in its capacity as the corporation
surviving the Merger, is sometimes referred to herein as the "Surviving
Corporation." The Merger shall be effected pursuant to the provisions of, and
with the effect provided in, the Delaware General Corporation Law (the "DGCL").
<PAGE>
SECTION 1.2 CLOSING; EFFECTIVE DATE AND TIME.
(a) Unless this Agreement shall have been terminated and the transactions
herein contemplated shall have been abandoned pursuant to Section 8.1 and
subject to the satisfaction or waiver of the conditions set forth in Articles V
and VI hereof, the closing of the Merger (the "Closing") will take place at
10:00 a.m. on the fifth business day after satisfaction of the conditions set
forth in Articles V and VI (the "Closing Date"), at the offices of Dechert Price
& Rhoads, 4000 Bell Atlantic Tower, 1717 Arch Street, Philadelphia, Pennsylvania
19103, unless another date, time or place is agreed to in writing by the parties
hereto.
(b) As soon as practicable following the satisfaction or waiver of the
conditions set forth in Articles V and VI hereof, the parties hereto shall cause
the Merger to be consummated by filing with the Secretary of State of the State
ofDelaware a certificate of merger (the "Certificate of Merger") in such form as
may be required by, and executed and acknowledged in accordance with, the DGCL.
The parties hereto shall cause the effective date of the Merger (the "Effective
Date") to occur on the date that the Certificate of Merger is filed with the
Secretary of State of the State of Delaware in accordance with the DGCL (or at
such later time, which shall be as soon as reasonably practicable, as may be
specified in the Certificate of Merger). The time on the Effective Date when the
Merger shall become effective is referred herein to as the "Effective Time."
SECTION 1.3 EFFECTS OF THE MERGER. At the Effective Time, the separate
corporate existence of Acquiror shall cease, and the Surviving Corporation shall
continue its corporate existence under the laws of the State of Delaware and the
Merger shall have the effects set forth in the applicable sections of the DGCL.
SECTION 1.4 ARTICLES OF INCORPORATION; BYLAWS; DIRECTORS AND OFFICERS.
(a) At the Effective Time, the Certificate of Incorporation of Acquiror
(which Acquiror shall amend prior to the Effective Time in order to provide for
the Senior Preferred Shares, on the terms set forth on Exhibit A, and the Series
B Preferred Stock and the Series C Preferred Stock, on the terms set forth on
Exhibit B hereto, and to otherwise effect the transactions contemplated by this
Agreement), as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended (subject to the restrictions set forth in Section 4.2(c) hereof) in
accordance with applicable law. Acquiror shall not amend its Certificate of
Incorporation or Bylaws prior to the Effective Time, pursuant to the previous
sentence or otherwise, without the consent of the Company, not to be
unreasonably withheld.
(b) At the Effective Time, the Bylaws of Acquiror as in effect immediately
prior to the Effective Time, shall be the Bylaws of the Surviving Corporation
until thereafter amended (subject to the restrictions set forth in Section
4.2(c) hereof) in accordance with applicable law.
(c) The directors of Acquiror immediately prior to the Effective Time shall
be the initial directors of the Surviving Corporation in each case until their
successors are elected or appointed and qualified.
(d) The officers of the Company immediately prior to the Effective Time
shall be the initial officers of the Surviving Corporation in each case until
their successors are elected or appointed and qualified.
SECTION 1.5 MERGER CONSIDERATION; CANCELLATION OF SHARES. Upon the terms
and subject to the conditions of this Agreement, at the Effective Time,
automatically by virtue of the Merger and without any further action on the part
of any party hereto or the holders of any of the following securities:
(a) Each Share issued and outstanding immediately prior to the Effective
Time, other than Shares cancelled pursuant to Section 1.5(b) and Dissenting
Shares (as defined in Section 1.6(b)), shall be converted into and become the
right to receive, (i) $13.75 in net cash per Share without any interest thereon
and (ii) 0.075 shares of Senior Preferred Stock (collectively, the "Merger
Consideration").
(b) Each Share that is issued and outstanding immediately prior to the
Effective Time and owned by the Acquiror or the Company or any direct or
indirect subsidiary of the Acquiror or the Company, shall be
2
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cancelled, extinguished and retired, and no payment of any consideration shall
be made with respect thereto.
(c) As a result of their conversion pursuant to Section 1.5(a), all Shares
(excluding any Shares described in Section 1.5(b), and any Dissenting Shares)
issued and outstanding immediately prior to the Effective Time shall cease to be
outstanding and shall automatically be cancelled and retired, and each
certificate ("Certificate") previously evidencing such Shares ("Converted
Shares") shall thereafter solely represent the right to receive the Merger
Consideration pursuant to Section 1.5(a) of this Agreement. The holders of
Certificates shall cease to have any rights with respect to such Converted
Shares except as otherwise provided herein or by law.
(d) Each share of capital stock of Acquiror issued and outstanding
immediately prior to the Effective Time (including any shares of capital stock
issued by Acquiror in exchange for the Rotko Rollover Shares) shall be converted
into and thereafter represent the same number of shares of the same class of
capital stock of the Surviving Corporation, provided that, each of the Rotko
Rollover Shares not owned by the Acquiror immediately prior to the Effective
Time shall be converted into and thereafter represent the number of shares of
capital stock of the Surviving Corporation as set forth in the Rollover
Agreement.
SECTION 1.6 DISSENTING SHARES.
(a) Notwithstanding any provision of this Agreement to the contrary, any
Shares held by a holder (a "Dissenting Shareholder") who has timely demanded and
perfected his demand for appraisal of his Shares in accordance with Section 262
of the DGCL and as of the Effective Time has neither effectively withdrawn nor
lost his right to such appraisal shall not represent a right to receive Merger
Consideration for such Shares pursuant to Section 1.5 above, but rather the
holder thereof shall be entitled to only such rights as are granted by the DGCL.
(b) If any Dissenting Shareholder demanding appraisal of such Dissenting
Shareholder's Shares ("Dissenting Shares") under the DGCL shall effectively
withdraw or lose (through failure to perfect or otherwise) his right to
appraisal, then as of the Effective Time or the occurrence of such event,
whichever later occurs, such Dissenting Shares shall automatically be converted
into and represent only the right to receive the Merger Consideration with
respect to such Shares as provided in Section 1.5 above upon surrender of the
Certificate or Certificates representing such Dissenting Shares in accordance
with this Agreement.
(c) The Company shall give Acquiror prompt notice of any demands by a
Dissenting Shareholder for payment or notices of intent to demand payment
received by the Company under Section 262 of the DGCL and Acquiror shall have
the right to participate in and direct all negotiations and proceedings with
respect to such demands. The Company shall not, except with the prior consent of
Acquiror or as otherwise required by law, make any payment with respect to, or
settle, or offer to settle, any such demands.
SECTION 1.7 STOCK OPTIONS.
(a) Upon the consummation of the Merger, each option to acquire Shares
outstanding immediately prior to the Effective Time under the Company's stock
option plans or similar arrangements (as listed in Schedule 1.7(a)), whether
vested or unvested (each, an "Option," and collectively, the "Options"), shall
automatically become immediately exercisable and each holder of an Option shall
have the right to receive from Acquiror in respect of each Share underlying the
Option (less applicable withholding taxes) (i) a cash payment in an aggregate
amount equal to the difference between the cash portion of the Merger
Consideration of $13.75, less the exercise price per Share applicable to such
Option as stated in the applicable stock option agreement or other agreement
plus (ii) 0.075 share of Senior Preferred Stock (the "Option Consideration");
provided that, with respect to any person subject to Section 16 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), no Option
Consideration shall be paid to such
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person until payment can be made without liability to such person under Section
16(b) of the Exchange Act. The Company shall take such other actions (including,
without limitation, giving requisite notices to holders of Options advising them
of such accelerated exercisability and right to obtain payment for their
respective Options) as are necessary to fully advise holders of Options of their
rights and to facilitate their timely exercise of suchrights. From and after the
Effective Time, other than as expressly set forth in this Section 1.7, no holder
of an Option shall have any other rights in respect thereof other than to
receive payment for his or her Options as set forth herein, and the Company
shall take all reasonably necessary actions to terminate the Company's stock
option plans and similar arrangements.
(b) The provisions of Section 1.7(a) shall be subject to the Company
obtaining any required consents from the holders of any Options and the making
of any necessary amendments to the Company's stock option plans and other
similar agreements. The Company shall use its commercially reasonable efforts to
obtain any such consents and make any such amendments. As used in this
Agreement, the requirement that Acquiror, the Company or any Subsidiary (as
defined in Section 2.1(c)) shall use its "commercially reasonable efforts" shall
not include efforts which require the Acquiror, Company or any Subsidiary (i) to
do any act that is commercially unreasonable under the circumstances; (ii) to
amend, waive or release, other than as contemplated by this Agreement, any
material rights in order to obtain approvals or consents; or (iii) except in
connection with the Financing (as defined herein), to provide guarantees or to
post any collateral.
SECTION 1.8 SURRENDER OF SECURITIES; FUNDING OF PAYMENTS; STOCK TRANSFER
BOOKS.
(a) Prior to the Effective Time, Acquiror shall designate a bank or trust
company to act as agent for the holders of the Shares and Options (the "Exchange
Agent") for the purpose of exchanging Certificates for the Merger Consideration
and documents representing Options (the "Option Agreements") for the Option
Consideration. The fees and expenses of the Exchange Agent shall be paid by the
Company.
(b) At the Effective Time, Acquiror shall remit (or cause to be remitted) to
the Exchange Agent, for the benefit of the holders of the Shares and Options, an
amount equal to the aggregate cash portion of the Merger Consideration and the
Option Consideration and a number of Shares of Senior Preferred Stock equal to
the aggregate portion of the Merger Consideration and Option Consideration
necessary to pay the holders of the Shares and Options pursuant to Sections 1.5
and 1.7 (the "Payment Fund").
(c) As soon as practicable after the Effective Time and in no event later
than ten business days thereafter, the Surviving Corporation shall cause the
distribution to holders of record of the Certificates and Option Agreements (as
of the Effective Time) of (i) notice of the effectiveness of the Merger and (ii)
a form of letter of transmittal and other appropriate materials and instructions
for use in effecting the surrender of the Certificates for payment of the Merger
Consideration therefor and in effecting the surrender of the Option Agreements
for payment of the Option Consideration therefor. In the event any Certificate
or Option Agreement shall have been lost or destroyed, the Exchange Agent shall
be authorized to accept an affidavit from the record holder of such Certificate
or the party to such Option Agreement in a form reasonably satisfactory to
Acquiror, subject to other conditions as Acquiror may reasonably impose
(including the posting of an indemnity bond or other surety). Upon the surrender
of each such Certificate, together with such letter of transmittal, duly
completed and validly executed in accordance with the instructions thereto, the
Exchange Agent shall pay out of the Payment Fund the Merger Consideration to the
holders of such Certificates, less any amounts required to be withheld pursuant
to applicable tax laws. Upon the surrender of Option Agreements formerly
representing Options, together with a letter of transmittal, duly completed and
validly executed in accordance with the instructions thereto, the Exchange Agent
shall pay the Option Consideration to the holders of such Option Agreements,
less any amounts required to be withheld pursuant to applicable tax laws. The
Exchange Agent shall accept such Certificates and Option Agreements upon
compliance with such reasonable terms and conditions as the Exchange Agent may
impose to effect an orderly exchange thereof in accordance with normal exchange
practices. Until surrendered as contemplated by this Section 1.8(c), (i) each
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Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender the Merger Consideration as
contemplated by Section 1.5, and (ii) each Option Agreement shall be deemed at
any time after the Effective Time to represent only the right to receive upon
such surrender the Option Consideration as contemplated by Section 1.7. No
interest will be paid or will accrue on any cash payable as Merger Consideration
or in lieu of any fractional shares of Senior Preferred Stock, as the case may
be.
(d) If any portion of the Cash Merger Consideration or Option Consideration
is to be paid or any certificate representing shares of Senior Preferred Stock
is to be issued to a person other than the person in whose name a cancelled
Certificate or Option Agreement is registered, it shall be a condition to such
payment or issuance that such cancelled Certificate or Option Agreement shall be
surrendered and shall be properly endorsed or shall be otherwise in proper form
for transfer and that the person requesting such payment shall have paid any
transfer and other taxes required by reason of such payment in a name other than
that of the registered holder of the certificate or instrument surrendered or
shall have established to the reasonable satisfaction of Acquiror and the
Exchange Agent that such tax either has been paid or is not payable.
(e) After the Effective Time of the Merger, there shall be no further
transfer on the records of the Company or its transfer agent of Certificates
representing Shares which have been converted, in whole or in part, pursuant to
this Agreement into the right to receive the Merger Consideration, and if such
Certificates are presented to the Company for transfer, they shall be cancelled
against delivery of cash and Certificates for Shares of Senior Preferred Stock
as provided herein.
(f) To the extent not immediately required for payment with respect to
surrendered Shares and Options, proceeds in the Payment Fund shall be invested
by the Exchange Agent as directed by the Surviving Corporation (as long as such
directions do not impair the rights of holders of Shares or Options), in direct
obligations of the United States of America, obligations for which the faith and
credit of the United States of America is pledged to provide for the payment of
principal and interest, commercial paper rated of the highest investment quality
by Moody's Investors Service, Inc. or Standard & Poor's Ratings Services, or
certificates of deposit issued by a commercial bank having at least $5 billion
in assets, and any net earnings with respect thereto shall be paid to the
Surviving Corporation as and when requested by the Surviving Corporation.
(g) No dividends or other distributions with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Certificate with
respect to the shares of Senior Preferred Stock represented thereby and no cash
payment in lieu of fractional shares shall be paid to any such holder pursuant
to Section 1.8(j) until the surrender of such Certificate in accordance with
this Section 1.8. Subject to the effect of applicable laws, following surrender
of any such Certificate, there shall be paid to the holder of the Certificate
representing whole shares of Senior Preferred Stock issued in connection
therewith, without interest, (i) at the time of such surrender or as promptly
thereafter as practicable, the amount of any cash payable in lieu of a
fractional share of Senior Preferred Stock to which such holder is entitled
pursuant to Section 1.8(j) and the proportionate amount of dividends or other
distributions with a record date after the Effective Time of the Merger
theretofore paid with respect to such whole number of shares of Senior Preferred
Stock, and (ii) at the appropriate payment date, the proportionate amount of
dividends or other distributions with a record date after the Effective Time but
prior to such surrender and a payment date subsequent to such surrender payable
with respect to such whole number of shares of Senior Preferred Stock.
(h) After the Effective Time, holders of Certificates shall cease to have
any rights as stockholders of the Company, except as provided herein or under
the DGCL. All cash paid and shares of Senior Preferred Stock issued upon the
surrender for exchange of Certificates in accordance with the terms of this
Section 1.8 (including any cash paid pursuant to Section 1.8(j)) shall be deemed
to have been issued (and paid) in full satisfaction of all rights pertaining to
the Shares exchanged theretofore represented by such
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Certificates. No interest shall be paid on any Merger Consideration or Option
Consideration payable to former holders of Shares or Options.
(i) Promptly following the one-year anniversary date of the Effective Date,
the Exchange Agent shall return to the Surviving Corporation all cash and shares
of Senior Preferred Stock in its possession out of the Payment Fund relating to
the transactions described in this Agreement, and the Exchange Agent's duties
shall terminate. Thereafter, each holder of a Certificate or an Option Agreement
shall look only to the Surviving Corporation and only as general creditors
thereof for payment of their claims for the Merger Consideration and the Option
Consideration, including any cash in lieu of fractional shares of Senior
Preferred Stock and any dividends or distributions with respect to such shares
to which such holders may be entitled, and each such holder of a Certificate or
an Option Agreement may surrender the same to the Surviving Corporation and upon
such surrender (subject to applicable abandoned property, escheat or similar
laws) the Surviving Corporation shall deliver to such holder the Merger
Consideration and/or Option Consideration with respect to such shares or
Options, as applicable.
(j) No certificates or scrip representing fractional shares of Senior
Preferred Stock shall be issued in connection with the Merger, and such
fractional share interests will not entitle the owner thereof to vote or to any
rights of a stockholder of the Surviving Corporation after the Merger. Each
holder of Shares exchanged pursuant to the Merger who would otherwise have been
entitled to receive a fractional Senior Preferred Share (after taking into
account all Shares delivered by such holder) shall receive, in lieu thereof, a
cash payment (without interest) therefor in an amount equal to the value
(determined with reference to the Liquidation Value of such Senior Preferred
Share) of such fractional share provided that such cash payments do not exceed
$50,000 in the aggregate. If such cash payments exceed $50,000, each holder of
Shares exchanged pursuant to the Merger who would otherwise have been entitled
to receive a fractional Share Senior Preferred Stock (after taking into account
all Shares delivered by such holder) shall receive, in lieu thereof, a cash
payment (without interest) representing such holder's proportionate interest in
the net proceeds from the sale by the Exchange Agent (following the deduction of
applicable transaction costs), on behalf of all such holders, of the Senior
Preferred Stock (the "Excess Shares") representing such fractions. Such sale
shall be made as soon as practicable after the Effective Time.
(k) None of Acquiror, the Company, their respective affiliates, or the
Exchange Agent shall be liable to any person in respect of any shares of Senior
Preferred Stock (or dividends or distributions with respect thereto) or cash
from the Payment Fund delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law. If any Certificates or Option
Agreements shall not have been surrendered prior to three years after the
Effective Time (or immediately prior to such earlier date on which any cash, if
any, in lieu of fractional shares of Senior Preferred Stock would otherwise
escheat to or become the property of any Governmental Entity (as defined
below)), any such cash, dividends or distributions in respect of such
Certificates and Option Agreements shall, to the extent permitted by applicable
law, become the property of the Company, free and clear of all claims or
interest of any person previously entitled thereto.
SECTION 1.9. SUBSEQUENT ACTIONS. If, at any time after the Effective Time,
the Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of either of the Company or Acquiror acquired or to be
acquired by the Surviving Corporation as a result of, or in connection with, the
Merger or otherwise to carry out this Agreement, the officers and directors of
the Surviving Corporation shall be authorized to execute and deliver, in the
name and on behalf of either the Company or Acquiror, all such deeds, bills of
sale, assignments and assurance and to take, in the name and on behalf of each
of such corporations or otherwise, all such other actions and things as may be
necessary or desirable to vest, perfect or confirm any and all right, title and
interest in, to and under such rights, properties or assets in the Surviving
Corporation or otherwise to carry out the transactions contemplated by this
Agreement.
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SECTION 1.10 ADJUSTMENT OF MERGER CONSIDERATION AND OPTION
CONSIDERATION. The Merger Consideration payable pursuant to Section 1.5(a) and
the Option Consideration payable pursuant to Section 1.7 have been calculated
based upon the representations and warranties made by the Company in Section
2.2. In the event that, at the Effective Time, the actual number of Shares
outstanding and/or the actual number of Shares issuable upon the exercise of
outstanding options, warrants or similar agreements or upon conversion of
securities (including without limitation, as a result of any stock split, stock
dividend, including any dividend or distribution of securities convertible into
Shares, or a recapitalization) is more than as described in Section 2.2, the
Merger Consideration and the Option Consideration shall be appropriately
adjusted downward; provided that, no adjustment shall be made pursuant to this
Section 1.10 unless, at the Effective Time, the actual number of Shares
outstanding plus the actual number of Shares issuable upon the exercise of all
such options, warrants or similar agreements or upon the conversion of
securities is more than 20,000 more than as described pursuant to Section 2.2.
The provisions of this Section 1.10 shall not, in any event, derogate from the
representation and warranty set forth in Section 2.2.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Acquiror that:
SECTION 2.1 CORPORATE ORGANIZATION AND AUTHORIZATION.
(a) The Company is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware and, upon obtaining the
Company Stockholder Approvals, has all requisite corporate power and authority
to, execute and deliver this Agreement and to carry out its obligations
hereunder. (b) (i) The Company has all requisite corporate power and authority
and all governmental authorizations, certificates, licenses, consents and
approvals required to own, lease and operate its properties and to carry on its
business as currently conducted, except where the failure to possess such
authorizations, certificates, licenses, consents and approvals (either
individually or in the aggregate) would not reasonably be expected to have a
Material Adverse Effect on the Company (as defined in Section 2.1(b)(ii)). The
Company is duly qualified or licensed to do business as a foreign corporation
and is in good standing in each jurisdiction where the character of the
properties owned, operated or leased by it or the nature of the activities
conducted by it makes such qualification necessary, except where the failure to
so qualify or be licensed or to maintain such good standing (either in one
jurisdiction or in the aggregate) would not reasonably be expected to have a
Material Adverse Effect on the Company.
(ii) For purposes of this Agreement, "Material Adverse Effect" shall mean
with respect to the Company or Acquiror, as applicable, any change, effect or
event that (i) is material and adverse to the assets, liabilities, condition
(financial or otherwise), cash flows, results of operations or business of the
Company and the Subsidiaries (as defined in Section 2.1(c)) taken as a whole, or
Acquiror and its subsidiaries taken as a whole, respectively, or (ii) materially
impairs the ability of the Company or Acquiror, respectively, to perform its
obligations under this Agreement or otherwise materially threatens or materially
impedes the consummation of the Merger and the other transactions contemplated
by this Agreement or the conduct of the business of the Company or Acquiror, as
the case may be; provided, however, that Material Adverse Effect shall not be
deemed to include the impact of actions or omissions of the Company or Acquiror
taken with the prior written consent of the other in contemplation of the
transactions contemplated hereby.
(c) All of the Company's subsidiaries are listed on Schedule 2.1(c) hereto
(the "Subsidiaries"). For purposes of this Agreement, "subsidiary" means any
entity of which securities or other ownership interests having ordinary voting
power to elect a majority of the Board of Directors or other persons performing
similar functions are directly or indirectly owned by such party. All of the
Company's "significant subsidiaries" are marked with an asterisk on Schedule
2.1(c) (the "Significant Subsidiaries"). For purposes of this section,
"significant subsidiary" has the meaning set forth in Rule 1-02(w) of Regulation
S-X of the
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Securities and Exchange Commission (the "SEC"). Except as set forth on Schedule
2.1(c), each of the Company's Subsidiaries is wholly owned, directly or
indirectly, by the Company. Schedule 2.1(c) lists the outstanding capital stock
or other equity interests of each Subsidiary and the number of shares or other
equity interests owned by the record holders thereof. Other than bonus plans and
sales commission plans of the Company and the Subsidiaries implemented by the
Company and the Subsidiaries in the ordinary course of business, copies or
descriptions of which have been provided or made available to Acquiror, there
are no agreements, arrangements or commitments of any character (contingent or
otherwise) pursuant to which any person is or may be entitled to receive any
payment based on the revenues or earnings, or calculated in accordance
therewith, of the Company or any Subsidiary. There are no voting trusts, proxies
or other agreements or understandings to which the Company or any Subsidiary is
a party or by which the Company or any Subsidiary is bound with respect to the
voting of any shares of capital stock of the Company or any Subsidiary. Except
as set forth on Schedule 2.1(c), the Company and its Subsidiaries (i) do not
directly or indirectly own, (ii) have not agreed to purchase or otherwise
acquire and (iii) do not hold any interest convertible into or exchangeable or
exercisable for, 5% or more of the capital stock or other equity interest of any
corporation, partnership, company, joint venture or other business association
or entity.
(d) Each Subsidiary is a corporation duly organized, validly existing and in
good standing under the laws its jurisdiction of incorporation and has all
requisite corporate power and authority and all governmental authorizations,
certificates, licenses, consents and approvals required to own, lease and
operate its properties and to carry on its business as currently conducted,
except where the failure to possess such authorizations, certificates, licenses,
consents and approvals (either individually or in the aggregate) would not
reasonably be expected to have a Material Adverse Effect on the Company. Each
Subsidiary is duly qualified or licensed to do business as a foreign corporation
and is in good standing in each jurisdiction where the character of the property
owned, operated or leased by it or the nature of the activities conducted by it
makes such qualification necessary, except where the failure to so qualify or be
licensed or to maintain such good standing (either in one jurisdiction or in the
aggregate) would not reasonably be expected to have a Material Adverse Effect on
the Company.
(e) All of the outstanding capital stock of each Subsidiary held by the
Company (i) has been validly issued, is fully paid and nonassessable and is not
subject to preemptive or similar rights and (ii) except as described on Schedule
2.1(e), is owned by the Company free and clear of any lien or other encumbrance
and (iii) has been issued in material compliance with all applicable federal and
state securities laws. There are no outstanding (i) securities of any Subsidiary
convertible into or exchangeable for shares of capital stock or other voting
securities or ownership interests in any Subsidiary or (ii) options or other
rights to acquire from the Company or any Subsidiary and no other obligation of
the Company or any Subsidiary to issue, any capital stock, voting securities or
other ownership interests in, or any securities convertible into or exchangeable
for, any capital stock, voting securities or ownership interests in any
Subsidiary (items in clauses (i) and (ii) being referred to collectively as the
"Subsidiary Securities"). There are no outstanding obligations of the Company or
any Subsidiary to repurchase, redeem or otherwise acquire any outstanding
Subsidiary Securities.
(f) The execution, delivery and performance by the Company of this Agreement
and the consummation by the Company of the transactions contemplated hereby have
been duly authorized by the Board of Directors of the Company and, upon
obtaining the Company Stockholder Approvals, no further corporate authorization
on the part of the Company will be necessary to consummate the transactions
contemplated by this Agreement.
(g) This Agreement has been duly executed and delivered by the Company and
constitutes a valid and binding agreement of the Company and is enforceable
against the Company in accordance with its terms.
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(h) The Company has delivered or made available to Acquiror true and
complete copies of the Certificate of Incorporation and Bylaws (or similar
organizational documents) of the Company and its Subsidiaries as in effect on
the date hereof and such documents have not been amended, modified, rescinded or
repealed.
SECTION 2.2 CAPITALIZATION. The authorized capital stock of the Company
consists of 40,000,000 Common Shares, value $1.00 per share, and 20,000,000
shares of preferred stock, par value $.50 per share, all of which have been
designated Series A Preferred Stock (defined in the recitals of this Agreement
as the "Preferred Shares"). As of the date of this Agreement, (a) 19,368,326
Common Shares were validly issued and outstanding, fully paid and nonassessable
(excluding treasury shares and except for any Common Shares issued upon the
exercise of Options within three business days of the date of this Agreement)
and were issued free of any preemptive or similar rights; (b) 6,267,498
Preferred Shares were issued and outstanding and were issued free of any
preemptive or similar rights (excluding treasury shares); (c) 1,730,854 Common
Shares were reserved for issuance and are issuable upon or otherwise deliverable
in connection with the exercise of outstanding Options heretofore granted under
the stock option plans listed in Schedule 1.7(a); and (d) 256,710 Common Shares
and 9,675 Preferred Shares were reserved for issuance and are issuable upon or
otherwise deliverable in connection with the exercise of outstanding non- plan
Options and (e) 699,788 Common Shares and 377,253 Preferred Shares were held in
the treasury of the Company. Schedule 1.7(a) lists as of a recent date, (i) each
outstanding Option, the date it was granted, and the applicable stock option
plan or other arrangement under which it was granted; (ii) the number of and
series of Shares subject thereto; (iii) the exercise price and the name of the
option holder, and (iv) the weighted average exercise price of all outstanding
Options. There are no other shares of capital stock or other equity or voting
securities of the Company outstanding and no other outstanding options,
warrants, rights to subscribe to (including any preemptive rights), calls or
commitments of any character whatsoever to which the Company or any of its
Subsidiaries is a party or may be bound requiring the issuance, transfer or sale
of any shares of capital stock or other equity or voting securities of the
Company or any securities or rights convertible into or exchangeable or
exercisable for any such shares or equity or voting securities, and there are no
contracts, commitments, understandings or arrangements by which the Company or
any of its Subsidiaries is obligated to issue (or to issue upon the occurrence
of certain events) additional shares of its capital stock, options, warrants or
rights to purchase, redeem or acquire any additional shares of its capital stock
or securities convertible into or exchangeable or exercisable for any such
shares or other securities. Each Preferred Share is convertible into one Common
Share. All of the outstanding Common Shares and Preferred Shares are, and all
Common Shares and Preferred Shares which may be issued pursuant to the exercise
of outstanding Options or upon conversion of Preferred Shares will be, when
issued in accordance with the respective terms thereof, duly authorized, validly
issued, fully paid and nonassessable, issued in material compliance with all
applicable federal and state securities laws and not issued in violation of any
preemptive or similar rights. There are no bonds, debentures, notes or other
indebtedness having general voting rights (or convertible into securities having
such rights) of the Company issued and outstanding. There are no outstanding
obligations of the Company or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any of the Company's equity or voting securities or to provide
funds to or make any investment (in the form of a loan, capital contribution or
otherwise) in any such subsidiary or any other entity. No entity in which the
Company owns, directly or indirectly, less than a 50% equity interest is,
individually or when taken together with all such other entities, material to
the business of the Company and its Subsidiaries taken as a whole.
As used herein, "Options" shall mean options to acquire Common Shares or
Preferred Shares, as the case may be.
SECTION 2.3 NONCONTRAVENTION.
(a) Subject to the expiration or termination of the applicable waiting
period required by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), neither the execution or
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delivery by the Company of this Agreement nor the consummation by the Company of
the transactions contemplated hereby:
(i) violate, conflict with, or constitute a default under, the
Certificate of Incorporation or Bylaws, as amended, of the Company or any
Subsidiary; or
(ii) assuming that all consents, approvals, orders or authorizations
contemplated by subsection (b) below have been obtained and all filings
described therein have been made, (A) violates or will violate any statute
or law or any rule, regulation, order, writ, injunction, judgment or decree
of any Federal, state, local or foreign government or any court, tribunal,
administrative agency or commission or other governmental or other
regulatory authority or agency, domestic or foreign (a "Governmental
Entity") to which the Company or any Subsidiary (or any of their respective
assets or properties) is subject or (B) except as set forth on Schedule
2.3(a), result in any breach or violation of or constitute a default (or an
event which with the notice or lapse of time or both would become a default)
or result in the loss of a material benefit under, or give rise to any right
of termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of the
Company or any of its Subsidiaries pursuant to, any note, bond, mortgage,
indenture, deed of trust, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which the Company or any of
its Subsidiaries is a party or by which the Company or any of its
Subsidiaries or any of their respective properties are bound or affected,
except in the case of clauses (A) and (B) for any such conflicts,
violations, breaches, defaults or other occurrences which, individually or
in the aggregate, have not had and would not reasonably be expected to have
a Material Adverse Effect on the Company.
(b) Except for the expiration or termination of the applicable waiting
period under the HSR Act, the obtaining the Company stockholder approvals, the
filing of the Certificate of Merger with the Secretary of State of the State of
Delaware and as described on Schedule 2.3(b), there is no other consent,
approval, order or authorization of, or filing with, or any permit from, or any
notice to any (i) Governmental Entity or (ii) other person or entity, required
to be obtained by the Company or any Subsidiary for the execution of this
Agreement by the Company and the consummation of the transactions contemplated
hereby (except, in the case of consents, approvals, authorizations, filings or
permits with or from persons or entities other than Governmental Entities, where
the failure to make such filings or obtain such consents, approvals, orders,
authorizations or permits would not reasonably be expected to result in a
Material Adverse Effect on the Company.)
SECTION 2.4 SEC FILINGS.
(a) The Company has timely filed all required forms, reports, statements,
exhibits, schedules and other documents required to be filed with the SEC since
October 1, 1996 (collectively, the "Company Public Reports"). As of their
respective dates, the Company Public Reports complied in all material respects
with the requirements of the Securities Act, or the Exchange Act, as the case
may be, and the rules and regulations of the SEC promulgated thereunder
applicable to such Company Public Reports, and none of the Company Public
Reports contains any untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading except, in each case, to the extent that a Public Company
Report has been amended, revised or superseded by a subsequent filing with the
SEC made prior to the date hereof. No Subsidiary has, or since October 1, 1996
has had, any obligation to file any forms, reports, statements, exhibits,
schedules or other documents with the SEC.
(b) The consolidated financial statements included in the Company Public
Reports (including any pro forma financial information contained therein) (i)
have been prepared from, and are in accordance with, the books and records of
the Company and its Subsidiaries (ii) comply as to form in all material respects
with applicable accounting requirements and the published rules and regulations
of the SEC with respect
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thereto, (iii) have been prepared in accordance with generally accepted
accounting principles (except, in the case of unaudited consolidated quarterly
statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis
during the periods involved (except as may be indicated in the notes thereto or
required by changes in generally accepted accounting principles) and (iv) fairly
present in all material respects the consolidated financial position of the
Company and its Subsidiaries as of the dates thereof and the consolidated
results of their operations, changes in stockholders equity and cash flows for
the periods then ended (subject, in the case of unaudited quarterly statements,
to normal, recurring, year-end audit adjustments), except that any pro forma
financial statements contained in such consolidated financial statements are not
necessarily indicative of the consolidated financial position of Company and its
Subsidiaries as of the respective dates thereof and the consolidated results of
their operations, changes in stockholders' equity and cash flows for the periods
indicated.
(c) The unaudited preliminary financial information reflected on Schedule
2.4(c) has been prepared from, and is in accordance with, in all material
respects, the books and records of the Company and the Subsidiaries and, to the
Company's knowledge, are accurate in all material respects.
SECTION 2.5 NO MATERIAL ADVERSE CHANGES. Since September 30, 1997, except
as set forth on Schedule 2.5, there has been no event, change, loss, occurrence
or development in the business of the Company or its Subsidiaries (including the
incurrence of any liability of any nature, whether accrued, contingent or
otherwise), taken as a whole, that, taken together with other events, changes,
losses, occurrences and developments, has had or would reasonably be expected to
have a Material Adverse Effect on the Company. Except as set forth in Schedule
2.5, since September 30, 1997 the Company has conducted its business in the
ordinary course, and since such date, the Company has not taken any action
which, if taken after the date hereof, would be prohibited under Section 4.1(b)
hereof.
SECTION 2.6 LEGAL PROCEEDINGS. Except as specifically described in the most
recent Company Form 10-K included in the Company Public Reports or as set forth
on Schedule 2.6, (a) there are no claims, actions, suits, proceedings or
investigations pending or, to the Company's knowledge, threatened against the
Company or any Subsidiary or their assets or properties, or with respect to
which the Company or any Subsidiary has retained or assumed responsibility by
contract or operation of law (i) seeking to enjoin, prohibit, restrain or
otherwise prevent the transactions contemplated hereby or (ii) which, if
adversely determined, individually or in the aggregate would reasonably be
expected to result in a Material Adverse Effect on the Company; and (b) there
are no judgments, decrees, orders, writs, injunctions, determinations or awards
issued by any Governmental Entity currently outstanding and unsatisfied against
the Company or any Subsidiary, or for which the Company or any Subsidiary has
retained or assumed responsibility by contract or operation of law having, or
which could reasonably be expected to have a Material Adverse Effect on the
Company. Except as set forth in Schedule 2.6, there are no indemnification
agreements between the Company or its Subsidiaries on the one hand, and any
directors, officers, employees or other agents of the Company or any of its
current or former Subsidiaries on the other hand. Except as set forth in
Schedule 2.6, the Company is not aware of any indemnification, breach of
contract or similar claim by or against the Company or any of its Subsidiaries
that is pending or threatened, or which would reasonably be expected to be
asserted in the future, with respect to any acquisition or disposition by the
Company after January 1, 1992, which, if adversely determined would reasonably
be expected to have a Material Adverse Effect on the Company.
SECTION 2.7 NO DIVIDENDS OR DISTRIBUTIONS. Since September 30, 1997 there
has not been any declaration, setting aside or payment of any dividend or any
other distribution with respect to the Company's capital stock or any
redemption, purchase or other acquisition of any of the Company's debt or equity
securities, except in connection with purchases of stock pursuant to the
Company's 401(k) Plan.
SECTION 2.8 OPINION OF THE COMPANY'S FINANCIAL ADVISOR. The Board of
Directors of the Company has received a written opinion of Salomon Smith Barney,
financial advisor to the Company, dated the date of this Agreement to the effect
that, as of such date, the Merger Consideration to be received in the Merger
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by the holders of Shares (other than certain affiliates who will be continuing
stockholders) is fair to such holders from a financial point of view and such
opinion has not been withdrawn, amended or modified in any material respect. A
signed copy of such opinion will be delivered to Acquiror promptly after receipt
thereof by the Company.
SECTION 2.9 TAX MATTERS.
(a) Except as set forth on Schedule 2.9, each of the Company and the
Subsidiaries has filed all Tax Returns required to be filed by any of them and
has paid (or the Company has paid on its behalf) all Taxes shown to be due
thereon, or has set up an adequate reserve in its financial statements for the
payment of, all Taxes required to be paid in respect of the periods covered by
such returns whether or not shown to be due on such returns (except where the
failure to pay would not reasonably be expected to have a Material Adverse
Effect on the Company). The information contained in such Tax Returns is true
and correct in all material respects, except where a failure to be so would not
reasonably be expected to have a Material Adverse Effect on the Company. Except
as disclosed on Schedule 2.9, neither the Company nor any Subsidiary is
delinquent in the payment of any tax, assessment or governmental charge, except
where such delinquency would not reasonably be expected to have a Material
Adverse Effect on the Company. There are no Tax liens upon the assets of the
Company or any Subsidiary except liens for Taxes not yet due or being contested
in good faith through appropriate proceedings. Except as set forth on Schedule
2.9 no deficiency for any Taxes has been proposed, asserted or assessed against
the Company or any Subsidiary that has not been resolved or paid in full. Except
as set forth on Schedule 2.9, no audits or other administrative proceedings or
court proceedings are currently pending with regard to any Taxes or Tax Returns
of the Company or any Subsidiary.
(b) True and complete copies of all federal and state income tax returns of
the Company and the Subsidiaries for the taxable periods ended September 30,
1994 through September 30, 1996 have been delivered or made available to
Acquiror. No claim has been made by a taxing authority in a jurisdiction where
the Company or a Subsidiary does not file income or franchise Tax Returns that
such entity is or may be subject to income or franchise Tax in that
jurisdiction. Except as disclosed on Schedule 2.9, (i) neither the Company nor
any Subsidiary has ever filed an election under Section 341(f) of the Code; (ii)
neither the Company nor any Subsidiary has executed a waiver or consent, which
remains outstanding, extending any statute of limitations for any Tax liability;
(iii) neither the Company nor any Subsidiary has been the subject of a closing
agreement with any taxing authority or the subject of a ruling from any taxing
authority with respect to Tax matters that will have a continuing effect on the
taxable income of the Company or a Subsidiary following the Closing; (iv)
neither the Company nor any Subsidiary is required to make any adjustment under
Section 481 of the Code; (v) neither the Company nor any Subsidiary is a party
to any tax sharing, tax allocation or tax indemnification agreement with any
person other than the Company and/ or the Subsidiaries; (vi) all material Taxes
required to be withheld, collected and deposited with any taxing authority have
been so withheld, collected and deposited; (vii) neither the Company nor any
Subsidiary has been a United States real property holding corporation within the
meaning of Section 897((c)(2) of the Code during the applicable period specified
in Section 897(c)(1)(A)-(ii) of the Code; and (viii) neither the Company nor any
Subsidiary has granted a power of attorney that is currently in effect with
respect to any material Tax matter. Except as set forth on Schedule 2.9, no
amount that would be received by any person (whether in cash or property or the
vesting of property) as a result of any of the transactions contemplated by this
Agreement under any employment, severance, or other compensation arrangement or
benefit plan in effect with the Company or any Subsidiary would be an excess
parachute payment within the meaning of Section 280G(b)(1) of the Code.
(c) For Purposes of this Agreement:
(i) "Tax or Taxes" means any federal, state, county or local taxes,
charges, fees, levies, or other assessments, including, but not limited to,
all net income, gross income, sales and use, transfer, gains, profits,
excise, franchise, real and personal property, gross receipts, capital
stock, production, business
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and occupation, disability, employment, payroll, license, estimated,
severance or withholding taxes or charges imposed by any governmental
entity, and includes any interest and penalties (civil or criminal) on or
additions to any such taxes; and
(ii) "Tax Return" means a return or report, including accompanying
schedules, required to be supplied to a governmental entity with respect to
Taxes including, where permitted or required, combined or consolidated
returns for a group of entities and information returns.
SECTION 2.10 ABSENCE OF UNDISCLOSED LIABILITIES. All of the material
obligations or liabilities (whether accrued, absolute, contingent, unliquidated
or otherwise, whether due or to become due, and regardless of when asserted,
including Taxes (as defined in Section 2.9)) with respect to or based upon
transactions or events ("Liabilities"), required to be reflected on the latest
balance sheet contained in the most recent Company Form 10-K included in the
Company Public Reports (the "Latest Balance Sheet") in accordance with generally
accepted accounting principles, consistently applied, have been so reflected.
The Company has no Liabilities which are, in the aggregate, material to the
business, operation, condition (financial or otherwise), assets, or cash flows
of the Company and the Subsidiaries, taken as a whole, except (a) as reflected
on the Latest Balance Sheet, (b) Liabilities which arose prior to the date of
the Latest Balance Sheet and not required under generally accepted accounting
principals to be reflected on the Latest Balance Sheet and which, individually
or in the aggregate, have not had and would not reasonably be expected to have a
Material Adverse Effect on the Company, (c) Liabilities which have arisen after
the date of the Latest Balance Sheet in the ordinary course of business and (d)
as otherwise disclosed on Schedule 2.10.
SECTION 2.11 COMPLIANCE WITH LAWS.
(a) Except as set forth on Schedule 2.11, each of the Company and its
Subsidiaries during the last three years has complied, and any former subsidiary
or operations sold by the Company or any Subsidiary within the past three years,
during such period while owned by the Company or any Subsidiary had, complied
with all applicable laws regulations, statutes, codes, ordinances, rules,
permits, judgments, decrees and orders of any Governmental Entity ("Laws")
applicable to the business, operations, assets or properties of the Company and
its Subsidiaries and to which the Company or any such Subsidiary and their
respective properties and assets are subject (including, without limitation, any
state or federal acts (including rules and regulations thereunder) regulating or
otherwise affecting, equal employment opportunity), except where the failure to
so comply has not had and would not reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect on the Company; and except as set
forth on Schedule 2.11 or disclosed in the Company Public Reports, no claims
have been filed by any Governmental Entity against the Company or any Subsidiary
alleging such a violation of any such Law which have not been resolved to the
satisfaction of such Governmental Entity.
(b) Since October 1, 1995, neither the Company nor any of its Subsidiaries
has received from any Governmental Entity any written notification with respect
to alleged violations of Laws, except for notices relating to alleged violations
that have not had and would not reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect on the Company. The Company and each
Subsidiary has in effect (and the Company and/or each Subsidiary has timely made
appropriate filings for issuance or renewal thereof) all Federal, state, local
and foreign licenses, notices, permits and rights and exemptions from any of the
foregoing (collectively, "Permits") necessary for it to own, lease or operate
its properties and assets and to carry on its business as now conducted, except
where the failure to have such Permits, individually or in the aggregate, has
not had and would not reasonably be expected to have a Material Adverse Effect
on the Company. No default under any Permit has occurred, except for defaults
under Permits that, individually or in the aggregate, have not had and would not
reasonably be expected to have a Material Adverse Effect on the Company. The
Company has received no written notice of any pending investigation or review by
any Governmental Entity with respect to the Company or any Subsidiary. To the
Company's knowledge, no such investigation or review is threatened.
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SECTION 2.12 CONTRACTS AND COMMITMENTS.
(a) Except as set forth on Schedule 2.12 or in the most recent Company Form
10-K included in the Company Public Reports, neither the Company nor any
Subsidiary (i) is a party to or bound by any written Contract for the employment
of any officer, individual employee or other person on a full-time, part-time or
consulting basis, or relating to severance pay for any such person other than
those terminable at will, (ii) except for Contracts entered into in the ordinary
course of business, is a party to or bound by any (A) written or oral Contract
to repurchase assets previously sold (or to indemnify or otherwise compensate
the purchaser in respect of any assets previously sold) or (B) Contract for the
sale of any material capital asset, (iii) is a party to or bound by any Contract
which is a material contract (as defined in Item 601(b)(10) of Regulation S-K)
to be performed after the date of this Agreement that has not been filed or
incorporated by reference in the most recent Company Form 10-K included in the
Company Public Reports, (iv) is a party to or bound by any Contract which
prohibits the Company, its Subsidiaries or their respective affiliates from
freely engaging in any business anywhere in the world, (v) is a party to or
bound by any Contract relating to the borrowing of money or to mortgaging,
pledging or otherwise placing a lien on any of the assets of the Company or its
Subsidiaries, or (vi) has guaranteed any obligation for borrowed money.
As used in this Agreement, the term "Contract" shall mean any contract,
agreement, indenture, arrangement, commitment or understanding, whether written
or oral.
(b) Neither the Company nor any Subsidiary is and, to the knowledge of the
Company, no other party is in violation of or in default under (nor does there
exist any condition affecting the Company, or to the Company's knowledge, other
parties to such Contracts which upon the passage of time or the giving of notice
or both would reasonably be expected to cause such a violation of or default
under) any Contract to which it is a party or by which it or any of its
properties or assets is bound except for violations or defaults that would not
reasonably be expected to have a Material Adverse Effect on the Company. Each
Contract set forth on Schedule 2.12 or filed as an exhibit to the most recent
Company Form 10-K included in the Company Public Reports constitutes a valid and
binding obligation of the Company and/or Subsidiary which is party thereto and,
to the knowledge of the Company, each other party thereto, enforceable against
such other party in accordance with its terms.
(c) Prior to the date of this Agreement, Acquiror has been given an
opportunity to review a true and correct copy of each written Contract, and a
written description of each oral Contract, set forth on Schedule 2.12, together
with all amendments, waivers or other changes thereto.
SECTION 2.13 BROKERS AND FINDERS FEES. Except as set forth on Schedule
2.13, there are no claims for brokerage commissions, finders' fees, investment
advisory fees or similar compensation in connection with the transactions
contemplated by this Agreement, based on any arrangement, understanding,
commitment or agreement made by or on behalf of the Company, obligating the
Company or Acquiror (or any of their respective affiliates) to pay such claim.
The Company has furnished to Acquiror a complete and correct copy of each
agreements set forth on Schedule 2.13.
SECTION 2.14 EMPLOYEE BENEFIT PLANS; LABOR MATTERS.
(a) With respect to each employee benefit plan, program, arrangement and
contract (including, without limitation, any "employee benefit plan", as defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")), maintained or contributed to by the Company or any
Subsidiary, or with respect to which the Company or any Subsidiary is or
reasonably would be expected to be liable under Section 4069, 4212(c) or 4204 of
ERISA (the "Benefit Plans"), the Company has delivered or made available to
Acquiror a copy of (i) the most recent annual report (Form 5500) filed with the
Internal Revenue Service (the "IRS") for each Benefit Plan for which a Form 5500
is required to be filed, (ii) such Benefit Plan, (iii) each trust agreement, if
any, relating to such Benefit Plan, (iv) the most recent summary plan
description for each Benefit Plan for which a summary plan description is
required,
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(v) the most recent actuarial report or valuation relating to a Benefit Plan
subject to Title IV of ERISA and (vi) the most recent determination letter, if
any, issued by the IRS with respect to any Benefit Plan intended to be qualified
under Section 401 of the Code.
(b) Except as described on Schedule 2.14, no event has occurred with respect
to the Benefit Plans and there exists no condition or set of circumstances, in
connection with which the Company or any other employer (an "ERISA Affiliate")
that is, with the Company or any Subsidiary, considered a single employer within
the meaning of ss.414(b), ss.414(c), or ss.414(m) of the Code, could be subject
to any material liability under the terms of such Benefit Plans, ERISA, the Code
or any other applicable Law that would reasonably be expected to be required to
be satisfied by the Company or the Acquiror and which would reasonably be
expected to have a Material Adverse Effect on the Company.
(c) Neither the Company nor any Subsidiary is bound by any collective
bargaining or other labor union contract and no collective bargaining agreement
is currently being negotiated by the Company or any Subsidiary. There is no
pending or, to the knowledge of the Company, threatened labor dispute, strike or
work stoppage against the Company or any Subsidiary that may interfere with the
respective business activities of the Company or any Subsidiary and would
reasonably be expected to have a Material Adverse Effect on the Company. There
is no pending or, to the knowledge of the Company, threatened charge or
complaint against the Company or any Subsidiary by the National Labor Relations
Board or any comparable state agency.
(d) The Company has delivered or made available to Acquiror (i) copies of
all employment agreements with officers of the Company or its Subsidiaries; and
(ii) copies of all severance agreements, programs and policies of the Company
and its Subsidiaries with or relating to its employees. Except as set forth on
Schedule 2.14, neither the Company nor any Subsidiary shall owe a severance
payment or similar obligation to any of their respective employees, officers or
directors as a result of the Merger or the transactions contemplated by this
Agreement and none of such persons shall be entitled to an increase in severance
payments or other benefits as a result of the Merger or the other transactions
contemplated by this Agreement in the event of the subsequent termination of
their employment.
(e) Except as provided in Schedule 2.14, neither the Company nor any
Subsidiary contributes to or has an obligation to contribute to, and has not
within six years prior to the date of this Agreement contributed to or had an
obligation to contribute to, a multiemployer plan within the meaning of Section
3(37) of ERISA.
(f) Except as disclosed on Schedule 2.14: (i) all Benefit Plans intended to
be tax qualified under Section 401(a) or Section 403(a) of the Code are so
qualified (subject to amendments to reflect changes where retroactive amendments
are allowed, such as Public Law 104-188, the Small Business Job Protection Act
of 1996); (ii) all trusts established in connection with plans which are
intended to be tax exempt under Section 501(a) or (c) of the Code are so tax
exempt; (iii) to the extent required either as a matter of law or to obtain the
intended tax treatment and tax benefits, all Benefit Plans comply in all
material respects with the requirements of ERISA and the Code; (iv) all plans
have been administered in material compliance with the documents and instruments
governing the Benefit Plans except in cases where changes in the law require
compliance with the laws for periods preceding the date plans are required to be
amended with retroactive effect; (v) all reports and filings with governmental
agencies (including but not limited to the Department of Labor, Internal Revenue
Service, Pension Benefit Guaranty Corporation and the SEC) required in
connection with each Benefit Plan have been timely made; (vi) all material
disclosures and notices required by law or plan provisions to be given to
participants and beneficiaries in connection with each Benefit Plan have been
properly and timely made; and (vii) the Company has made a good faith effort to
comply in all material respects with the reporting and taxation requirements for
FICA taxes with respect to any deferred compensation arrangements under Section
3121(v) of the Code.
(g) Except as disclosed on Schedule 2.14: (i) all contributions, premium
payments and other payments required to be made in connection with the plans as
of the date of this Agreement have been made;
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(ii) proper accrual has been made on the books of the Company for all
contributions, premium payments and other payments due in the current fiscal
year but not made as of the date of this Agreement; (iii) no contribution,
premium payment or other payment has been made in support of any Benefit Plan
that is in excess of the allowable deduction for federal income tax purposes for
the year with respect to which the contribution was made (whether under Section
162, Section 280G, Section 404, Section 419, Section 419A of the Code or
otherwise); and (iv) with respect to each plan that is subject to Section 301
et. seq. of ERISA or Section 412 of the Code, such Benefit Plan has met the
minimum funding standard for the 1997 plan year.
(h) Except as disclosed on Schedule 2.14: (i) no action, suit, charge,
complaint, proceeding, hearing, investigation or claim is pending with regard to
any Benefit Plan other than routine uncontested claims for benefits; (ii) the
consummation of the transactions contemplated by this Agreement will not cause
any Benefit Plan to increase benefits payable to any participant or beneficiary;
(iii) the consummation of the transactions contemplated by this Agreement will
not: (A) entitle any current or former employee of the Company to severance pay,
unemployment compensation or any other payment, benefit or award under the
Benefit Plans, or (B) except as provided in Section 1.7 hereof, accelerate or
modify the time of payment or vesting, or increase the amount of any benefit,
award or compensation due any such employee under the Benefit Plans; (iv) no
Benefit Plan is currently under examination or audit by the Department of Labor,
the Internal Revenue Service, the Pension Benefit Guaranty Corporation or the
Securities and Exchange Commission; (v) the Company has no actual or potential
liability arising under Title IV of ERISA as a result of any Benefit Plan that
has terminated or is in the process of terminating; (vi) the Company has no
actual or potential liability under Section 4201 et. seq. of ERISA for either a
complete withdrawal or a partial withdrawal from a multiemployer plan; and (vii)
with respect to the Benefit Plans, the Company has no liability (either directly
or as a result of indemnification) for (and the transaction contemplated by this
Agreement will not cause any liability for): (A) any excise taxes under Section
4971 through Section 4980B, Section 4999 or Section 5000, or (B) any penalty
under Section 502(i), Section 502(l), Part 6 of Title I or any other provision
of ERISA, or (C) any excise taxes, penalties, damages or equitable relief as a
result of any prohibited transaction, breach of fiduciary duty or other
violation under ERISA or any other applicable law.
(i) Except as disclosed on Schedule 2.14 (i) all accruals required under FAS
106 have been properly accrued on the financial statements of the Company and
(ii) the Company has no liability for life insurance, death or medical benefits
after separation from employment other than: (A) such death benefits under the
plans identified on Schedule 2.14, (B) health care continuation benefits
described in Section 4980B of the Code, or (C) as may be required under other
federal, state or local law.
SECTION 2.15 ENVIRONMENTAL MATTERS.
Except as set forth on Schedule 2.15:
(a) The Company and its Subsidiaries (including solely for purposes of this
Section 2.15 to the best knowledge of the Company, their predecessors, all
former Subsidiaries and operators in respect of the period of ownership or
operation by the Company) are (or were) in compliance with all Environmental
Laws, including California's Safe Drinking Water & Toxic Enforcement Act of 1986
(commonly referred to as "Proposition 65"), and including the obligation to
apply for, obtain and comply with all permits, authorizations, licenses or other
approvals under Environmental Laws ("Environmental Permits"), except where the
failure to be in compliance with Environmental Laws or to apply for, obtain or
comply with Environmental Permits would not reasonably be expected to result in
a Material Adverse Effect on the Company;
(b) There is no pending or, to the knowledge of the Company, threatened
claim, suit, or administrative proceeding against the Company or any of its
Subsidiaries under any Environmental Law which is unresolved and would, if
successful, reasonably be expected to result in a Material Adverse Effect on the
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Company. Neither the Company or any of its Subsidiaries has received written
communication from any person, including but not limited to, a Governmental
Entity, alleging that the Company or any Subsidiary is or may be in violation of
any applicable Environmental Law or otherwise may be liable or responsible under
any applicable Environmental Law, including but not limited to, liability or
responsibility in connection with a Cleanup or requesting information in
connection with a site requiring a Cleanup, which violation or liability or
responsibility is unresolved and would reasonably be expected to result in a
Material Adverse Effect on the Company;
(c) Except as would not reasonably be expected to result in a Material
Adverse Effect on the Company: (i) there are no Regulated Materials present on,
at, in or underneath any location which is owned by Company or its Subsidiaries
("Properties") or, to the knowledge of the Company, at any properties leased or
otherwise operated by the Company or its Subsidiaries or to the knowledge of the
Company, at any former properties when owned, leased or otherwise operated by
the Company or any Subsidiary (including former Subsidiaries), and (ii) there
have been no Releases (as defined in the Comprehensive Environmental Response
Compensation and Liability Act of 1980, as amended), of Regulated Materials on,
at, in or underneath or from any Properties;
(d) No friable asbestos-containing materials are present at any property
owned by the Company; there are no underground storage tanks, active or
abandoned, at any such property and, and no chlorofluorocarbons ("CFCs") are
present at any such property or present in equipment or otherwise used by the
Company in the conduct of its business that as a result of the Environmental
Laws are required to be phased out and for which there is no replacement or for
which the cost of replacement would have a Material Adverse Effect on the
Company;
(e) To the knowledge of the Company, there have been no environmental
inspections, investigations, studies, audits, tests, reviews or other analyses
conducted in relation to any property or business now or previously owned,
operated or leased by the Company which are in the possession or control of the
Company; and
(f) For the purposes of this Agreement the following terms shall have the
following meanings:
"Cleanup" means all actions required to: (i) cleanup, remove, treat or
remediate Regulated Materials; (ii) prevent the release of Regulated
Materials so that they do not migrate, endanger or threaten to endanger
public health or welfare or the environment; (ii) perform studies and
investigations and monitoring and care; (iv) respond to any government or
private party requests for information or documents in any way relating to
cleanup, removal, treatment or remediation or potential cleanup, removal,
treatment or remediation of Regulated Materials in the environment; or (v)
any legal or administrative proceeding related to items (i) through (iv)
including, but not limited to, actions brought by third parties to recover
costs incurred with respect to Cleanup.
"Environmental Laws" shall mean all, federal, state, local laws,
statutes, ordinances, codes, rules and regulations related to the protection
of the environment, natural resources, safety or health or the handling,
use, recycle, generation, treatment, storage, transportation or disposal of
Regulated Materials, and any common law cause of action relating to the
environment, natural resources, safety health or the management or exposure
to Regulated Materials including without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Sections
9601 et seq., the Emergency Planning and Community Right-to-Know Act of
1986, 46 U.S.C. Sections 11001 et seq., the Resource Conservation and
Recovery Act, 42 U.S.C. Sections 6901 et seq., the Toxic Substances Control
Act, 15 U.S.C. Sections 2601 et seq., the Clean Air Act, 42 U.S.C. Sections
7401 et seq., the Clean Water Act (Federal Water Pollution Control Act), 33
U.S.C. Sections 1251 et seq., the Safe Drinking Water Act, 42 U.S.C.
Sections 300f et seq., the Hazardous Materials Transportation Act, 49 U.S.C.
Sections 1801 et seq., and the Occupational Safety and Health Act, 29 U.S.C.
Sections 651, et seq., each as amended.
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"Regulated Materials" shall mean any pollutants, contaminants, toxic,
hazardous or extremely hazardous substances, materials, wastes,
constituents, compounds, chemicals, natural or man-made elements or forces
(including, without limitation, petroleum or any by-products or fractions
thereof, any form of natural gas, Bevill Amendment materials, lead, asbestos
and asbestos-containing materials, building construction materials and
debris, polychlorinated biphenyls ("PCBs") and PCB-containing equipment,
radon and other radioactive elements, ionizing radiation, electromagnetic
field radiation and other non-ionizing radiation, sonic forces and other
natural forces, infectious, carcinogenic, mutagenic, or etiologic agents,
pesticides, defoliants, explosives, flammable, corrosives, ozone depleting
substances and urea formaldehyde foam insulation) that are regulated by any
Environmental Laws.
SECTION 2.16 INFORMATION SUPPLIED. None of the information supplied or to
be supplied by the Company for inclusion or incorporation by reference in (i)
the Form S-4 (as defined in Section 4.4(g)) will, at the time the Form S-4
becomes effective under the Securities Act of 1933, as amended (the "Securities
Act") contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading, or (ii) the Proxy Statement (as defined in Section 4.4(g)), will, at
the time the Proxy Statement is first mailed to the Company's stockholders or at
the time of the Special Meeting, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading or (iii) the Schedule 13E-3 (as defined in Section 4.4(g))
will, at the time the Schedule 13E-3 is filed with the SEC and at the time the
Schedule 13E-3 is disseminated as required by the Exchange Act and the rules and
regulations promulgated thereunder, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein in order
to make the statements therein, in light of the circumstances under which they
are made, not misleading. Notwithstanding the foregoing, no representation or
warranty is made by the Company with respect to statements made or incorporated
by reference therein based on information supplied by Acquiror specifically for
inclusion or incorporation by reference therein.
SECTION 2.17 PROPERTIES; CONDITION OF ASSETS.
(a) Schedule 2.17 sets forth each parcel of real property owned in fee by
the Company or any of its Subsidiaries (collectively, the "Owned Properties")
and each parcel of real property leased, subleased or licensed by the Company or
any of the Subsidiaries (collectively, the "Leased Properties") (the Owned
Properties and Leased Properties being sometimes referred to herein collectively
as the "Company Properties"). The Company or one of the Subsidiaries has (i)
good and marketable fee title to the Owned Properties and (ii) good and valid
leasehold title or other occupancy right to the Leased Properties, free and
clear of all liens, claims and encumbrances which individually or in the
aggregate would materially impair use of such properties in the Company's
business as they are currently being used.
(b) Each agreement under which the Leased Properties are leased, subleased
or licensed to the Company or its Subsidiaries as of the date hereof
(collectively, the "Company Leases") is in full force and effect in accordance
with its respective terms and the Company or one of the Subsidiaries is the
holder of the lessee's or tenant's interest thereunder and there exists no
default under any of the Company Leases by the Company or any of the
Subsidiaries and no circumstance exists which, with the giving of notice, the
passage of time or both would result in such a default, except for such defaults
or other circumstances which, individually or in the aggregate, have not had and
would not reasonably be expected to have a Material Adverse Effect on the
Company. Except as set forth in Schedule 2.17, the consummation of the Merger
and the transactions contemplated by this Agreement do not and will not violate
the terms of any of the Company Leases except for any violations, individually
or in the aggregate with all other violations, which have not had and would not
reasonably be expected to have a Material Adverse Effect on the Company. Neither
the Company nor any of the Subsidiaries (or any of the affiliates of any of the
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foregoing) has an ownership, financial or other interest in the landlord under
any of the Company Leases, which exceeds a 10% ownership, financial or other
interest in such landlord.
(c) The current operation and use of the Company Properties does not violate
any statutes, laws, regulations, rules, ordinances, permits, requirements,
orders or decrees now in effect except for such violations which, individually
or in the aggregate with all other violations, have not had and could not
reasonably be expected to have a Material Adverse Effect on the Company.
SECTION 2.18 DISCLOSURE. The representations and warranties of the Company
contained in this Agreement are true and correct in all material respects, and
such representations and warranties do not omit any material fact necessary to
make the statements contained therein, in light of the circumstances under which
they were made, not misleading.
SECTION 2.19 BOARD RECOMMENDATION; SECTION 203; REQUIRED VOTE. (a) The
Special Committee and the Board of Directors of the Company, at a meeting duly
called and held, have each by unanimous vote of those directors present (who
constituted all of the directors then in office) (i) determined that the Merger,
this Agreement and the transactions contemplated hereby are fair to and in the
best interests of the holders of Common Shares, (ii) determined that the Merger,
this Agreement and the transactions contemplated hereby are fair to and in the
best interests of the holders of Preferred Shares, and (iii) recommended that
holders of Common Shares and holders of Preferred Shares each approve the
Merger, this Agreement and the transactions contemplated hereby.
(b) The Special Committee and the Board of Directors of the Company have
each approved the execution of this Agreement and the execution of the
Stockholders Agreement and the Option Agreement by the Acquiror and certain
stockholders of the Company prior to the execution of this Agreement in
accordance with Section 203 of the DGCL, so that such Section will not apply to
Acquiror, the Merger, this Agreement, the Stockholders Agreement, the Option
Agreement or the transactions contemplated hereby or thereby. No provision of
the certificate of incorporation, bylaws or other governing instruments of the
Company or any of its Subsidiaries would, directly or indirectly, restrict or
impair the ability of Acquiror or its affiliates to vote, or otherwise to
exercise the rights of a stockholder with respect to, securities of the Company
and its Subsidiaries that may be acquired or controlled by Acquiror or its
affiliates or permit any stockholder to acquire securities of the Company on a
basis not available to Acquiror in the event that Acquiror were to acquire
securities of the Company, and neither the Company nor any of its Subsidiaries
has any rights plan, preferred stock or similar arrangement which has any of the
aforementioned consequences.
(c) The only votes of stockholders of the Company required to approve the
Merger, this Agreement and the transactions contemplated hereby are (i) the
affirmative vote of the holders of a majority of the Preferred Shares, and (ii)
the affirmative vote of the holders of a majority of the voting power of the
Common Shares and the Preferred Shares, voting together as a single class, with
the holders of the Common Shares each being entitled to cast one vote for each
Common Share owned of record by such holder and the holders of the Preferred
Shares each being entitled to cast ten votes for each Preferred Share owned of
record by such holder. No other vote of the holders of any class or series of
the Company's securities (including debt securities) is necessary to approve the
Merger, this Agreement or the transactions contemplated hereby and no vote of
the holders of any class or series of the Company's securities is necessary to
approve the Stockholders Agreement.
(d) The execution, delivery and performance of this Agreement, the
Stockholders Agreement, the Option Agreement and the consummation of the
transactions contemplated hereby or thereby will not cause to be applicable to
the Company any state anti-takeover or similar statute or regulation.
SECTION 2.20. PRIOR NEGOTIATIONS. The Company and its officers, directors,
employees, representatives and advisors (including the Company's financial
advisor) have not been involved in substantive discussions with any group or
person (or any of their respective affiliates or associates) or their
representatives or
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advisors, or furnished material confidential information (including the offering
memorandum prepared by the Company) to any such group or person (or any of their
respective affiliates or associates) or their representatives in connection with
a possible Acquisition Proposal except for such groups or persons which have
executed and delivered to the Company a customary confidentiality agreement
(containing "standstill" provisions).
SECTION 2.21 INTELLECTUAL PROPERTY. The Company and each Subsidiary owns,
or is validly licensed or otherwise has the right to use, without any obligation
to make any fixed or contingent payments, including any royalty payments, as
applicable, all patents, patent rights, trademarks, trademark rights, trade
names, trade name rights, service marks, service mark rights, copyrights and
other proprietary intellectual property rights that are used in the conduct of
the business of the Company as now operated (collectively, "Intellectual
Property Rights"). Schedule 2.21 sets forth a description of all patents,
trademarks and copyrights and applications therefor owned by the Company and
each Subsidiary, that are used in the conduct of the business of the Company and
the Subsidiaries as now operated and (i) are not generally available and (ii)
are material to its business. Except as set forth in Schedule 2.21, no claims
are pending or, to the knowledge of the Company, threatened that the Company is,
and to the knowledge of the Company, neither the Company nor any Subsidiary is,
infringing or otherwise adversely affecting the rights of any person with regard
to any Intellectual Property Right except for claims that have not had and would
not reasonably be expected to result in a Material Adverse Effect on the
Company. To the knowledge of the Company, except as set forth in Schedule 2.21,
no person is infringing the rights of the Company with respect to any
Intellectual Property Right. The Company has not licensed, or otherwise granted,
to any third party, any rights in or to any Intellectual Property Rights.
SECTION 2.22. CERTAIN BUSINESS PRACTICES. None of the Company, its
Subsidiaries or any directors, officers, agents or employees of the Company or
its Subsidiaries has (i) used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to political activity, (ii)
made any unlawful payment to foreign or domestic governmental officials or
employees or to foreign or domestic political parties or campaigns or violated
any provision of the Foreign Corrupt Practices Act of 1977, as amended, (iii)
consummated any transaction, made any payment, entered into any agreement or
arrangement or taken any other action in violation of Section 1128B(b) of the
Social Security Act, as amended, or (iv) made any other unlawful payment, that
in the case of clauses (i)-(iv), individually or in the aggregate has had or
would reasonably be expected to have a Material Adverse Effect on the Company.
SECTION 2.23. MANAGEMENT AGREEMENTS. Each of the employment agreements by
and between the Company and Messrs. Carroll and Kaplan listed on Schedule 2.12
has been duly executed and delivered by the respective employee.
SECTION 2.24. AFFILIATE TRANSACTIONS. Except as set forth in Schedule 2.24,
no director, officer, partner, employee, "affiliate" or "associate" (as such
terms are defined in Rule 12b-2 under the Exchange Act) of the Company or any of
its Subsidiaries (or any immediate family member of any of the foregoing
persons) (i) has borrowed any monies from or has outstanding any indebtedness or
other similar obligations to the Company or any of its Subsidiaries in excess of
$5,000; (ii) except for shares of a publicly traded company (in an amount not in
excess of 5% of the outstanding shares of such Company) owns any direct or
indirect interest of any kind in, or is a director, officer, employee, partner,
affiliate or associate of, or consultant or lender to, or borrower from, or has
the right to participate in the management, operations or profits of, any person
or entity which is (1) a competitor, supplier, customer, distributor, lessor,
tenant, creditor or debtor of the Company or any of its Subsidiaries, (2)
engaged in a business related to the business of the Company or any of its
Subsidiaries, (3) participating in any transaction to which the Company or any
of its Subsidiaries is a party or (iii) is otherwise a party to any Contract,
arrangement or understanding with the Company or any of its Subsidiaries.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
Acquiror represents and warrants to the Company that:
SECTION 3.1 CORPORATE ORGANIZATION AND AUTHORIZATION.
(a) Acquiror is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware, and has all requisite
corporate power and authority to execute and deliver this Agreement and to carry
out its obligations hereunder.
(b) The Acquiror has all requisite corporate power and authority and all
governmental authorizations, certificates, licenses, consents and approvals
required to own, lease and operate its properties and to carry on its business
as currently conducted, except where the failure to possess such authorizations,
certificates, licenses, consents and approvals (either individually or in the
aggregate) would not have a Material Adverse Effect on the Acquiror. The
Acquiror is duly qualified or licensed to do business as a foreign corporation
and is in good standing in each jurisdiction where the character of the property
owned, operated or leased by it or the nature of the activities conducted by it
makes such qualification necessary, except where the failure to so qualify or to
maintain such good standing (either in one jurisdiction or in the aggregate)
would not have a Material Adverse Effect on the Acquiror.
(c) The execution, delivery and performance by the Acquiror of this
Agreement and the consummation by the Acquiror of the transactions contemplated
hereby have been duly authorized by the Board of Directors of the Acquiror and,
if necessary, the stockholders of Acquiror, and no further corporate
authorization on the part of Acquiror is necessary to consummate the
transactions contemplated by this Agreement, except for the amendments to
Acquiror's Certificate of Incorporation contemplated by Section 1.4(a).
(d) This Agreement has been duly executed and delivered by the Acquiror and
constitutes a valid and binding agreement of Acquiror and is enforceable against
Acquiror in accordance with its terms.
(e) The copies of the Certificate of Incorporation and Bylaws, and all
amendments thereto, of the Acquiror delivered to the Company are complete and
true copies of such documents as in effect on the date hereof.
SECTION 3.2 NONCONTRAVENTION.
(a) Subject to the expiration or termination of the applicable waiting
period required by the HSR Act, neither the execution or delivery by Acquiror of
this Agreement nor the consummation by Acquiror of the transactions contemplated
hereby:
(i) violates, conflicts with, or constitutes a default under, the
Certificate of Incorporation or Bylaws, as amended, of Acquiror; or
(ii) assuming all consents, approvals, orders or authorizations
contemplated by subsection (b) below have been obtained and all filings
described therein have been made, (A) violates or will violate any statute
or law or any rule, regulation, order, judgment or decree of any court or
governmental authority to which Acquiror is subject or (B) (with or without
notice or lapse of time or both) except as set forth on Schedule 3.2(a)
hereto, constitutes a default under any note, bond, mortgage, indenture,
deed of trust, license, lease or other material agreement instrument or
obligation to which Acquiror is a party or by which either of them is bound
which default would reasonably be expected to result in a Material Adverse
Effect on the Acquiror.
(b) Except for the expiration or termination of the applicable waiting
period under the HSR Act, the obtaining of the Company Stockholder Approvals,
the filings with the SEC set forth in Section 4.4(g), the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware, and
as described on
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Schedule 3.2(b) there is no other consent, approval, order or authorization of,
or filing with, or any permit from, or any notice to, any Governmental Entity or
other person or entity required to be obtained by the Acquiror or the execution
of this Agreement by the Acquiror and the consummation of the transactions
contemplated hereby.
SECTION 3.3 LEGAL PROCEEDINGS. Except as set forth on Schedule 3.3, there
are no claims, actions, suits, proceedings or investigations pending or, to the
Acquiror's knowledge, threatened against, the Acquiror or any of its
subsidiaries (i) seeking to enjoin, prohibit, restrain or otherwise prevent the
transactions contemplated hereby or (ii) which, if adversely determined, would
reasonably be expected to result in a Material Adverse Effect on the Acquiror.
There are no judgments, decrees or orders issued by any court, board or other
governmental or administrative agency currently outstanding and unsatisfied
against the Acquiror or any or its subsidiaries.
SECTION 3.4 FINANCING. Acquiror has obtained and delivered true, correct
and complete copies of the financing commitments Acquiror has received from
financial institutions with respect to the funds necessary to consummate the
transactions contemplated hereby including, but not limited to, the funds
necessary to pay the aggregate Merger Consideration and Option Consideration to
holders of Shares and Options in accordance with this Agreement.
SECTION 3.5 INFORMATION SUPPLIED. None of the information supplied or to be
supplied by the Acquiror specifically for inclusion or incorporation by
reference in (i) the Form S-4 will, at the time the Form S-4 becomes effective
under the Securities Act, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading, or (ii) the Proxy Statement, will at the time the Proxy
Statement is first mailed to the Company's stockholders or at the time of the
Special Meeting, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein in order to make the
statements therein, in the light of the circumstances under which they are made,
not misleading or (iii) the Schedule 13E-3 will, at the time the Schedule 13E-3
is filed with the SEC and at the time the Schedule 13E-3 is disseminated as
required by the Exchange Act and the rules and regulations promulgated
thereunder, contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Notwithstanding the foregoing, no representation or warranty is made
by Acquiror with respect to statements made or incorporated by reference therein
based on information supplied by the Company specifically for inclusion or
incorporation by reference therein.
SECTION 3.6 INTERIM OPERATIONS OF ACQUIROR. Acquiror was organized solely
for the purpose of engaging in the transactions contemplated hereby and has
engaged in no other business activities and has conducted its operations only as
contemplated hereby.
SECTION 3.7 BROKERS. Except as set forth on Schedule 3.7 or in connection
with the Financing (including fees payable to sponsors), no broker, investment
banker, financial advisor or other person is entitled to any broker's, finder's,
financial advisor's, or other similar commission in connection with the
transactions contemplated hereby, based upon the arrangements made by or on
behalf of Acquiror.
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ARTICLE IV
COVENANTS
SECTION 4.1 CONDUCT OF THE COMPANY PRIOR TO THE EFFECTIVE TIME. EXCEPT AS
OTHERWISE CONSENTED TO BY ACQUIROR:
(a) No Solicitation; Other Offers.
(i) From the date of this Agreement until the termination of this
Agreement or the Effective Time, whichever first occurs, the Company shall
not, and shall cause the Subsidiaries not to, and shall use its best efforts
to cause the officers, directors, employees, affiliates, representatives and
other agents (including attorneys, investment bankers and accountants) of
the Company and the Subsidiaries not to, directly or indirectly, solicit,
initiate or encourage any inquiry, proposal, indication of interest or offer
from any person that constitutes or would reasonably be expected to lead to
any Acquisition Proposal (as hereinafter defined) or enter into discussions
or negotiate with any person or entity in furtherance of any such inquiries,
proposals, indications of interest or offers or to obtain or approve any
Acquisition Proposal, or agree to or endorse any Acquisition Proposal, and
the Company shall immediately notify Acquiror of all relevant terms of any
such inquiries, proposals, indications of interest or offers received by the
Company or any Subsidiary or by any such officer, director, employee,
affiliate, representative or agent, relating to any of such matters, any
material change in the details (including any amendments or proposed
amendments) of any such inquiries, proposals, indications of interest or
offers, the identity of each of the persons or entities making such
inquiries, proposals, indications of interest or offers, and, if any such
inquiry, proposal, indication of interest or offer is in writing, the
Company shall immediately deliver a copy thereof to Acquiror; provided,
however, that if, prior to the Effective Time, the Company shall receive an
Acquisition Proposal (that was not solicited after January 9, 1998), from a
New Bidder (as defined below) that the Board of Directors of the Company,
after receiving the written advice of its legal counsel, reasonably believes
that it has a fiduciary duty to consider, then the Company, without
violating this Agreement, may thereafter furnish information to and enter
into discussions or negotiations with such New Bidder making such
Acquisition Proposal; provided that, before furnishing any information to,
or entering into discussions or negotiations with, any such New Bidder, the
Company shall have obtained an executed confidentiality agreement containing
confidentiality, "standstill" and other customary terms and conditions no
less favorable to the Company than the terms and conditions of the
Confidentiality Agreement (as defined in Section 9.5). Neither the Board of
Directors of the Company, nor any committee thereof, shall (A) withdraw or
modify, in a manner adverse to Acquiror, the approval or recommendation by
the Board of Directors or any such committee thereof of this Agreement or
the Merger, (B) approve or recommend any Acquisition Proposal, (C) enter
into any agreement with respect to any Acquisition Proposal, (D) take any
action to facilitate any other Acquisition Proposal in any respect, or (E)
terminate this Agreement in connection with any Acquisition Proposal;
provided that, nothing contained in this Section 4.1(a) or any other
provision of this Agreement shall prevent the Board of Directors or any
committee thereof, after receiving an Acquisition Proposal as described in
the immediately preceding sentence that, after receiving the written advice
of its legal counsel, the Board of Directors reasonably believes that it has
a fiduciary duty to consider, from considering, negotiating, approving or
recommending to the stockholders of the Company such an Acquisition Proposal
from a New Bidder, provided that the Board of Directors of the Company
reasonably determines (after consultation with its financial advisors) that
such Acquisition Proposal (A) would result in a transaction more favorable
to the Company's stockholders than the transaction contemplated by this
Agreement, (B) is made by a person financially capable of consummating such
Acquisition Proposal,(C) provides for the acquisition by such person of all
or substantially all of the assets of the Company and its Subsidiaries,
taken as a whole, or at least a majority of the Shares outstanding on a
fully diluted basis (any such Acquisition Proposal being referred to herein
as a "Superior Proposal"); provided further that, at least three business
days prior to the Board of
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Directors (or any committee thereof) withdrawing, modifying or changing its
recommendation regarding the approval of the Merger or this Agreement in a
manner adverse to Acquiror, or recommending to the stockholders of the
Company any Acquisition Proposal, the Company shall send notice thereof to
Acquiror (a "Superior Proposal Notice") and, concurrently therewith, shall
pay the Break-Up Fee and the Documented Expenses to the Acquiror. The
Superior Proposal Notice shall be deemed an irrevocable notice of
termination of this Agreement by the Company pursuant to Section 8.1(d) and
this Agreement shall be terminated in accordance therewith unless Acquiror
takes such actions as are described in clauses (A) and (B) of Section
8.1(d). For purposes hereof, "Acquisition Proposal" means any proposal for a
merger, consolidation, tender or exchange offer or other business
combination involving the Company or the acquisition of any substantial
equity interest in, or a substantial portion of the assets of the Company
and its Subsidiaries considered as a whole, other than the transactions
contemplated by this Agreement. For purposes hereof, "New Bidder" means any
person or entity other than those persons and entities to whom presentations
by management of the Company concerning a possible sale of the Company were
made between November 1, 1997 and the date of this Agreement. Without
limiting the foregoing, it is understood and agreed that any violation of
the restrictions set forth in this paragraph (i) by any officer, director,
employee, affiliate, representative or agent (including attorneys,
investment bankers and accountants) of the Company or any of its
Subsidiaries shall be deemed to be a breach of this paragraph (i) by the
Company.
(ii) Concurrently with sending a Superior Proposal Notice in accordance
with Section 4.1(a)(i), or upon any termination by Acquiror of this
Agreement pursuant to Sections 8.1(e) or (f), the Company shall reimburse
Acquiror for its expenses (including attorney's fees) actually and
reasonably incurred by Acquiror in connection with the transactions
contemplated by this Agreement, documented to the reasonable satisfaction of
the Company, up to a maximum of $5,000,000 (the "Documented Expenses") and
(y) pay to Acquiror $16,500,000 (the "Break-Up Fee"), in each case by wire
transfer of immediately available funds to an account designated by Acquiror
for such purpose.
(b) Conduct of the Company's Business and Operations. From the date hereof
to the Effective Time, except as may be expressly otherwise provided in this
Agreement or agreed to in writing by Acquiror:
(i) The Company shall, and shall cause each Subsidiary to, carry on its
respective business in the ordinary course consistent with past practice and
shall, and shall cause each Subsidiary to, use commercially reasonable
efforts to preserve intact its current business organization, keep available
the services of its current officers and employees and preserve its
relationships with customers, suppliers and others having business dealings
with it. The Company shall, and shall cause each Subsidiary to use
commercially reasonable efforts to (A) maintain insurance coverages and its
books, accounts and records in the usual manner consistent with prior
practices, (B) comply in all material respects with all laws, ordinances and
regulations of governmental entities applicable to it, and (C) perform in
all material respects its obligations under all contracts and commitments to
which it is a party or by which it is bound, in each case other than where
the failure to so maintain, comply or perform, either individually or in the
aggregate, has not had and would not reasonably be expected to result in a
Material Adverse Effect on the Company;
(ii) The Company shall not and, subject to Section 4.1(a), shall not
propose to (A) sell or pledge or agree to sell or pledge any capital stock
owned by it in any Subsidiary, (B) amend its Certificate of Incorporation or
Bylaws or those of any Subsidiary, (C) split, combine or reclassify its
outstanding capital stock or issue or authorize or propose the issuance of
any other securities in respect of, in lieu of or in substitution for shares
of capital stock of the Company or any Subsidiary, or declare, set aside or
pay any dividend or other distribution payable in cash, stock or property,
or (D) directly and/or indirectly redeem, purchase or otherwise acquire or
agree to redeem, purchase or otherwise acquire any shares of Company capital
stock, other than in connection with the exercise of Options outstanding on
the date hereof;
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(iii) Except as contemplated in the Option Agreements outstanding on the
date hereof, the Company shall not, nor shall it permit any Subsidiary to,
issue, deliver or sell, or agree to issue, deliver or sell, any additional
shares of, or rights of any kind to acquire any shares of, its capital stock
of any class, or any options, rights or warrants to acquire indebtedness or
securities convertible into, shares of capital stock;
(iv) The Company shall not, nor shall it permit any Subsidiary to: (A)
acquire, lease or dispose of or agree to acquire, lease or dispose of any
interest in any capital assets other than in the ordinary course of business
and consistent with past practice; (B) incur additional indebtedness or
encumber or grant a security interest in any asset or enter into any other
material transaction other than in each case pursuant to existing agreements
or otherwise in the ordinary course of business and consistent with past
practice (and in the case of incurring additional indebtedness, in any event
in an amount not more than $10 million in excess of the amount reflected on
the September 30, 1997 balance sheet included in the most recent Company
10-K Report, incurred in the ordinary course of business for the working
capital needs of the Company or to consummate an acquisition otherwise
permitted by clause (C) of this Section 4.1(b)(iv); (C) acquire or agree to
acquire by merging or consolidating with, or by purchasing a substantial
equity interest in, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof,
or otherwise acquire or agree to acquire any assets of any other person
(other than the purchase or lease of assets from suppliers or vendors in the
ordinary course of business consistent with past practice, for an amount in
excess of $2 million in any one case or $5 million in the aggregate; (D)
permit any insurance policy naming the Company or any Subsidiary as a
beneficiary or a loss payable payee to be cancelled or terminated without
notice to Acquiror, except in the ordinary course of business and consistent
with past practice; (E) assume, guarantee, endorse or otherwise become
liable or responsible (whether directly, contingently or otherwise) for the
obligations of any other person or entity; (F) make any loans or advances
other than in the ordinary course of business and consistent with past
practice; or (G) enter into any contract, agreement, commitment or
arrangement with respect to any of the foregoing;
(v) Except as described on Schedule 4.1(b), the Company shall not, nor
shall it permit any Subsidiary to (except as required to comply with
applicable law): (A) adopt, enter into, terminate or amend any bonus, profit
sharing, compensation, severance, termination, stock option, pension,
retirement, deferred compensation, or other employee benefit plan,
agreement, trust, fund or other arrangement for the benefit or welfare of
any director, officer or current or former employee, including any plan as
described in Section 2.14; (B) increase in any manner the compensation,
health benefit or other fringe benefit of any director, officer or employee
(except for normal increases in the ordinary course of business that are
consistent with past practice and that, in the aggregate, do not result in a
material increase in benefits or compensation expense to the Company
relative to the level of such expense prior to such increase); (C) pay any
material benefit not provided under any existing plan or arrangement; (D)
grant any awards under any incentive, performance or other compensation plan
or arrangement or employee benefit plan (including, without limitation, the
grant of stock options, stock appreciation rights, stock based or stock
related awards, performance units or restricted stock or (E) remove existing
restrictions in any benefit plans or agreements (other than removal of
restrictions in benefit plans or agreements in the ordinary course of
business); (F) take any action to fund or in any other way secure the
payment of compensation or benefits under any employee plan, agreement,
contract or arrangement or employee benefit plan other than in the ordinary
course of business consistent with past practice; or (G) adopt, enter into,
amend or terminate any contract, agreement, commitment or arrangement to do
any of the foregoing;
(vi) The Company shall not, nor shall it permit any Subsidiary to, waive
any rights it may have under, or release any third party from its
obligations under, any existing confidentiality and/or standstill agreement
or arrangement relating to any Acquisition Proposal or otherwise under any
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confidentiality, non-competition or other similar agreement, and the Company
agrees that, if requested by Acquiror, the Company shall assign to Acquiror
any rights it has to enforce such agreements and shall permit Acquiror to
enforce such agreements on the Company's behalf including seeking equitable
relief to the extent available;
(vii) The Company shall not, nor shall it permit any of its Subsidiaries
to, (A) change, in any material respect, any of its methods of accounting in
effect at September 30, 1997, or (B) make or rescind any express or deemed
election relating to Taxes or make any election relating to Taxes, or change
any of its methods of reporting income or deductions for federal income tax
purposes from those employed in the preparation of the federal income tax
returns for the taxable year ending September 30, 1997, except, in the case
of clause (A) or clause (B), as may be required by Law or generally accepted
accounting principles;
(viii) The Company shall not, nor shall it permit any of its Subsidiaries
to, settle or compromise any claim, lawsuit, liability or obligation or pay,
discharge or satisfy any claims, liabilities or obligations (whether
absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the settlement, payment, discharge or satisfaction of any such claims,
liabilities or obligations (w) not exceeding $250,000 per claim or $500,000
in the aggregate, (x) to the extent reserved against in the September 30,
1997 balance sheet included in the most recent Company Form 10-K included in
the Company Public Reports, (y) incurred in the ordinary course of business
and consistent with past practice or (z) which are legally required to be
paid, discharged or satisfied;
(ix) The Company shall not, nor shall it permit any of its Subsidiaries
to, enter into any agreement, Contract, commitment or arrangement to do any
of the foregoing, or to authorize, recommend, propose or announce any
intention to do any of the foregoing;
(x) The Company shall not, and shall cause its Subsidiaries not to take,
or agree to take, any actions that would make any representation or warranty
of the Company contained in this Agreement untrue or incorrect so as to
cause any of the conditions set forth in Article VI hereof not to be
fulfilled as of the Effective Time.
(c) Reorganization. If reasonably requested by Acquiror, the Company shall
contribute all of its assets and liabilities (including any shares of capital
stock of its Subsidiaries) to a newly formed, wholly-owned Subsidiary of the
Company, on terms and conditions reasonably acceptable to Acquiror (the
"Reorganization").
(d) Accounting. The Company shall cooperate with any reasonable requests of
Acquiror or the SEC related to the recording of the Merger as a recapitalization
for financial reporting purposes and to take such actions consistent with the
terms of this Agreement, at Acquiror's reasonable request, as may be required to
cause the Merger to be recorded as such, including, without limitation, to
assist Acquiror and its affiliates with any presentation to the SEC with regard
to such recording and to include appropriate disclosure with respect to such
recording in all filings with the SEC and all mailings to stockholders made in
connection with the Merger. In furtherance of the foregoing, the Company shall
provide to Acquiror for the prior review of Acquiror's advisors any description
of the transactions contemplated by this Agreement which is meant to be
disseminated.
(e) Cooperation; Financing. The Company agrees to provide, and will cause
its Subsidiaries and its and their respective officers and employees to provide,
all reasonable cooperation in connection with the arrangement of any financing
contemplated by Section 5.9, including without limitation, (i) the execution and
delivery of any commitment letters, underwriting or placement agreements, loan,
pledge and security documents, other definitive financing documents, or other
requested certificates or documents reasonably requested (including with respect
to the matters described in Section 6.9), (ii) making available on a timely
basis any financial information of the Company and its Subsidiaries that may be
reasonably requested by Acquiror, (iii) obtaining the solvency opinion referred
to in Section 4.2(d) and obtaining the comfort
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letters and update thereof from the Company's independent certified public
accountants, with such letters to be in customary form and to cover matters of
the type customarily covered by accountants in such financing transactions, and
(iv) making reasonably available representatives and employees of the Company
and its accountants and attorneys in connection with any such financing,
including for purposes of due diligence and marketing efforts (including
participation in "road shows") related thereto. The parties acknowledge that all
obligations (including the payment of any fees and expenses) on behalf of the
Company in connection with any expenses of road shows, commitment letters or
other financings or refinancings contemplated hereby shall be subject to the
occurrence of the Closing.
(f) Affiliates. Prior to the Effective Time, the Company shall deliver to
Acquiror a letter identifying all persons who are, as of the date hereof and at
the time the Company Stockholder Approvals are obtained, "affiliates" of the
Company for purposes of Rule 145 under the Securities Act. The Company shall use
reasonable best efforts to cause each such person to deliver to Acquiror on or
prior to the Effective Time a written agreement substantially in the form
attached as Exhibit C hereto.
(g) WARN. Neither the Company nor any of its Subsidiaries shall effectuate a
"plant closing" or "mass layoff", as those terms are defined in the Worker
Adjustment and Retraining Notification Act of 1988 ("WARN"), affecting in whole
or in party any site of employment, facility, operating unit or employee of the
Company or any Subsidiary.
(h) SEC Filings. The Company agrees that it shall continue to timely make
any such filings with the SEC as may be required by applicable federal
securities laws, including without limitation required Quarterly Reports on Form
10-Q and Current Reports on Form 8-K.
SECTION 4.2 COVENANTS OF ACQUIROR; EMPLOYEE BENEFITS; INDEMNIFICATION.
(a) Employee Benefits. As of the Effective Time, the employees of the
Company and each Subsidiary (the "Company Employees") shall continue employment
with the Surviving Corporation and its subsidiaries, respectively, in the same
positions and at the same level of wages and/or salary and employee benefits, as
in effect on the date hereof, with such changes as may occur before the
Effective Time in the ordinary course of business consistent with past practice.
Except as may be specifically required by applicable law or any agreement by
which the Company is bound, the Surviving Corporation and its subsidiaries shall
have the same right to terminate or change the conditions of any Company
Employee's employment or to amend, modify or terminate any employee benefit plan
program or policy, as the Company and its Subsidiaries have on the date hereof.
(b) Notwithstanding any provisions of any Company or Subsidiary employee
benefit plan, program or policy (including any employee pension benefit plan
within the meaning of Section 3(2) of ERISA) to the contrary, at the Effective
Time any right of any employee to make future investments in shares of the
Company or to receive employer contributions in shares of the Company shall
terminate, and any shares of the Company held under any such plan, program or
policy shall be treated in the Merger in accordance with this Agreement, and any
Merger Consideration (including shares of Senior Preferred Stock) received
thereunder shall be, to the extent applicable, reinvested in accordance with the
terms of such plan, program or policy. Before the Effective Time, the Company
and the Subsidiaries shall take any and all action reasonably required to assure
that the right of any employee to make future investments in shares of the
Company and the obligation of the Company or any Subsidiary to contribute shares
of the Company under any such plan, program or policy is terminated as of the
Effective Time.
(c) Indemnification; Directors' and Officers' Insurance. Subsequent to the
Effective Time as contemplated by Section 1.4 hereof, the Surviving Corporation
shall not, until the later of (i) the six-year anniversary date of the Effective
Date or (ii) the permitted termination or expiration date of any existing
Company or Subsidiary indemnification agreement or arrangement disclosed on
Schedule 4.2 (the period between the Effective Date and the later of such
subsequent dates, the "Indemnification Period"), amend the Certificate of
Incorporation or Bylaws of the Surviving Corporation or take any other action,
or fail to
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take any action, the effect of which amendment, action or failure to act would
be to reduce or limit the rights to indemnity or advancement of expenses
afforded to those persons who served as directors or officers of the Company or
any present or past subsidiary at any time prior to the Effective Time or to
hinder, delay or make more difficult in any way the exercise of such rights to
indemnity or advancement of expenses or the ability of the Surviving Corporation
or any Subsidiary to indemnify such persons or advance expenses. The Surviving
Corporation shall at all times promptly exercise the powers granted to it by its
Certificate of Incorporation, its Bylaws and by applicable law to indemnify (and
to advance expenses to), subject to the terms and conditions thereof, to the
fullest extent possible those persons who served as directors or officers of the
Company and present or past subsidiaries prior to the Effective Time against all
claims and expenses made against or incurred by them arising from their service
in such capacities. Should any such person be made a party or be threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding at any time during the Indemnification Period, by reason of the fact
that he was a director or officer of the Company or any present or past
subsidiary or was serving as an officer or director of any other enterprise at
the request of the Company, the provisions of this Section 4.2(c) shall continue
in effect until the final disposition of all such actions, suits or proceedings,
whether or not the Indemnification Period shall have expired. The provisions of
this Section 4.2(c) are intended to be for the benefit of, and shall be
enforceable by, each person entitled to indemnification hereunder, his heirs and
his personal representatives. In the event the Surviving Corporation or the
Acquiror or any of their respective successors or assigns (A) consolidates with
or merges into any other person and the Surviving Corporation shall not be the
continuing or surviving corporation or entity of such consolidation or merger or
(B) transfers all or substantially all of its properties and assets to any
person, the Surviving Corporation shall ensure that proper provision shall be
made so that the successors and assigns of the Surviving Corporation shall
assume the obligations set forth in this Section 4.2(c). The Surviving
Corporation shall obtain and maintain in effect for not less than six years
after the Effective Date, the current directors' and officers' liability
insurance policies maintained by the Company (provided that the Surviving
Corporation may substitute therefor a policy or policies providing substantially
equivalent coverage containing similar terms and conditions so long as no lapse
in coverage occurs as a result of such substitution) with respect to all
matters, including the transactions contemplated hereby, occurring prior to, and
including the Effective Date; provided that in no event shall the Surviving
Corporation be required to expend more than 200% of the current annual premiums
paid by the Company for such coverage (the Maximum Premium); and provided,
further, that if the Surviving Corporation is unable to obtain the amount of
insurance required by this Section 4.2(c) for such aggregate premium, the
Surviving Corporation shall obtain, if available, as much insurance as can be
obtained for an annual premium not in excess of the Maximum Premium.
(d) Financing. Acquiror shall use commercially reasonable efforts, subject
to normal conditions, to arrange, as promptly as practicable, and consummate the
Financing (as defined in Section 5.9) pursuant to the commitment letters
referred to in Section 3.4 hereof (or involving such other financing as may be
acceptable to Acquiror in its sole discretion) in respect of the transactions
contemplated by this Agreement on customary commercial terms, including, subject
to normal conditions, using commercially reasonable efforts to assist the
Company in the negotiation of definitive agreements with respect thereto and to
satisfy all conditions applicable to Acquiror in such definitive agreements.
Subject to the Company having received the proceeds of the Financing, Acquiror
at Closing shall be capitalized with an equity contribution sufficient to
finance the transaction, in an amount up to $98,600,000. Acquiror will be under
no obligation pursuant to the immediately preceding sentence unless and until
the Company receives the proceeds of the Financing on terms consistent with the
commitment letters referenced in Section 3.4, or such other financings as may be
acceptable to Acquiror in its sole discretion. Acquiror shall use commercially
reasonable efforts to obtain a solvency opinion in connection with the
Financing, addressed to the Board of Directors of the Company.
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SECTION 4.3 CONDUCT OF BUSINESS BY ACQUIROR PENDING THE MERGER. Prior to
the Effective Time, except as otherwise contemplated or permitted by this
Agreement: Acquiror shall not, and shall cause its subsidiaries not to take, or
agree to take, any actions that would make any representation or warranty of
Acquiror or its subsidiaries contained in this Agreement untrue or incorrect so
as to cause any of the conditions set forth in Article V hereof not to be
fulfilled as of the Effective Time. Notwithstanding the foregoing, this Section
4.3 shall not create any obligation on the part of Acquiror (or its affiliates)
with respect to the Financing, Acquiror's obligations with respect to the
Financing are set forth in Section 4.2(d) hereof.
SECTION 4.4 COVENANTS OF ACQUIROR AND THE COMPANY.
(a) Confidentiality. Prior to the Effective Time and after any termination
of this Agreement, each party to this Agreement shall hold (and not use, in the
conduct of its or their business or otherwise) and shall use all commercially
reasonable efforts to cause its officers, directors, employees, accountants,
counsel, consultants, advisors and agents (collectively, "Representatives") to
hold in confidence (and not use, in the conduct of its or their business or
otherwise), unless compelled to disclose by judicial or administrative process
or by other requirements of law, all documents and information concerning the
other parties furnished in connection with the transactions contemplated by this
Agreement, whether furnished before or after the date of this Agreement and
regardless of the manner in which it is furnished ("Confidential Information"),
together with all analyses, compilations, studies or other documents or records
prepared by a party hereto or any of its Representatives to the extent that such
analyses, compilations, studies or other documents or records contain or
otherwise reflect or are generated from Confidential Information ("Evaluation
Material"). Confidential Information shall not include information that can be
shown to have been (i) previously known on a nonconfidential basis by such
party, (ii) in the public domain through no fault of such party or (iii) later
lawfully acquired by such party from sources other than the other party.
Notwithstanding the foregoing, any party may disclose Confidential Information
and Evaluation Material to its Representatives in connection with evaluating the
transactions contemplated by this Agreement and to its lenders in connection
with obtaining the financing for the transactions contemplated by this Agreement
so long as such persons are informed by such party of the confidential nature of
such information and are directed by such party to treat such information
confidentially. A party hereto shall take, at its sole expense, all commercially
reasonable actions to cause its Representatives to comply with this Section
4.4(a). Each party hereto shall be deemed to have breached this Section 4.4(a)
in the event that any of its Representatives do not comply with this Section
4.4(a). If this Agreement is terminated and the Option Agreement has terminated
without exercise thereunder, each party shall, and shall cause its subsidiaries,
and shall use all commercially reasonable efforts to cause its Representatives
to, destroy or deliver to the other party, upon request, all Confidential
Information and Evaluation Material, and all copies thereof and upon request, a
party shall certify in writing to the party making such request that all such
Confidential Information and Evaluation Material has been so delivered or
destroyed.
(b) Subject to Section 4.4(a), the Company shall (and shall cause its
Representatives to) afford to the Acquiror (or its Representatives, including
without limitation directors, officers and employees of the Acquiror and its
affiliates and counsel, accountants and other professionals retained by
Acquiror) such access throughout the period prior to the earlier of the
termination of both this Agreement and the Option Agreement (without exercise of
the option thereunder) or the Effective Time to such books, records (including
without limitation) tax returns, work papers of independent auditors,
agreements, properties (including for the purpose of making any reasonable
"Phase I" environmental investigation and compliance audit), personnel,
suppliers and franchisees as the Acquiror reasonably requests from the Company.
(c) The Company and Acquiror shall use their best efforts to file as soon as
reasonably practicable notifications under the HSR Act in connection with the
Merger and the transactions contemplated hereby and to respond as promptly as
practicable to any inquiries received from the Federal Trade Commission (the
"FTC") or the Antitrust Division of the Department of justice (the "Antitrust
Division") for additional information or documentation and to respond as
promptly as practicable to all inquiries and
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requests received from any State Attorney General or any other Governmental
Entity, in connection with antitrust matters. The Company and Acquiror shall use
commercially reasonable efforts to overcome any objections which may be raised
by the FTC or Antitrust Division. Acquiror shall reimburse the Company for all
expenses (including attorney's fees) reasonably incurred by the Company in
connection with matters referred to in the immediately preceding sentence. The
Company shall make, subject to the condition that the transactions contemplated
herein actually occur, any undertakings (including undertakings to make
divestitures, provided, in any case, that such undertakings to make divestitures
need not themselves be effective or made until after the transactions
contemplated hereby actually occur) required in order to comply with the
antitrust requirements or laws of any governmental entity, including the HSR
Act, in connection with the transactions contemplated by this Agreement,
provided that no such divestiture or undertaking shall be made unless reasonably
acceptable to Acquiror.
(d) Best Efforts. Acquiror and the Company shall each use its best efforts
to perform its obligations under this Agreement to satisfy the conditions set
forth in Articles V and VI, and to consummate the Merger on the terms and
conditions set forth in this Agreement; provided, however, that this Section
4.4(d) shall not create any obligation to use best efforts with respect to those
obligations which are expressly conditioned upon the use of "reasonable" or
"commercially reasonable" efforts of similar terms.
(e) Certain Filings. The Company and Acquiror shall use their best efforts
to cooperate with one another in determining whether any action by or in respect
of, or filing with, any governmental body, agency or official, or authority is
required (other than pursuant to the HSR Act), or any actions, consents,
approvals or waivers are required to be obtained from parties to any material
contracts, in connection with the consummation of the transactions contemplated
by this Agreement and in seeking to timely obtain any such actions, consents,
approvals or waivers, or making any such filings or furnishing information
required in connection therewith.
(f) Public Announcements. Acquiror, and the Company shall consult with each
other before issuing any press release or making any public statement with
respect to this Agreement or the transactions contemplated hereby and, shall not
issue any such press release or make any such public statement without the prior
consent of the other party, which consent 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, any securities exchange or the
National Association of Securities Dealers, Inc. if it has used all commercially
reasonable efforts to consult with the other party.
(g) Form S-4; Proxy Statement; Schedule 13E-3; Shareholder Approval.
(i) As promptly as practicable after the execution of this Agreement,
the Company shall prepare and file with the SEC a registration statement on
Form S-4 (the "Form S-4") in which will be included a preliminary proxy
statement for stockholders of the Company in connection with the
solicitation of proxies to approve the transactions contemplated by this
Agreement (such proxy statement together with any amendments thereof or
supplements thereto, in each case, in the form or forms mailed to the
Company's stockholders, being the "Proxy Statement"). Concurrently with the
filing of the Proxy Statement, Acquiror and its respective affiliates (to
the extent required by law) shall prepare and file with the SEC, together
with the Company, a Rule 13E-3 Transaction Statement on Schedule 13E-3
(together with all supplements and amendments thereto, the "Schedule 13E-3")
with respect to the transactions contemplated by this Agreement. All filing
fees required to be paid, and all printing, mailing and other costs of
dissemination with respect to the Form S-4, Proxy Statement or Schedule
13E-3 shall be paid by the Company. The Acquiror shall furnish all
information concerning them and the holders of its capital stock as the
Company may reasonably request in connection with such actions. The Company
shall use its commercially reasonable efforts to have the Form S-4 declared
effective under the Securities Act as promptly as practicable after such
filing. The Company shall use its commercially reasonable efforts to cause
the Proxy Statement to be mailed to the
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Company's stockholders as promptly as practicable after the Form S-4 is
declared effective under the Securities Act. The Company shall use its
commercially reasonable efforts to take all steps necessary to cause the
Schedule 13E-3 to be filed with the SEC and to be disseminated to the
holders of Shares, in each case, as and to the extent required by applicable
federal securities laws. The Company shall take any action required to be
taken under any applicable state securities laws in connection with the
registration and qualification of the Shares of the Capital Stock to be
issued in connection with the Merger.
(ii) If at any time prior to the Special Meeting any event or
circumstance relating to the Company, the Acquiror or any of their
respective affiliates, or its or their respective officers or directors,
should be discovered by the Company or the Acquiror that should be set forth
in a supplement or amendment to the Proxy Statement or the Form S-4 or
Schedule 13E-3, such party shall promptly inform the other party and the
Company shall promptly supplement, amend, update, or correct the Form S-4,
Proxy Statement and/or Schedule 13E-3 and shall cause such supplement,
amendment, update or correction to be filed with the SEC and to be
disseminated to the holders of Shares, in each case, as and to the extent
required by applicable federal securities laws.
(iii) The Company shall immediately notify the Acquiror of (A) the
receipt of any comments from the SEC relating to the Form S-4, the Schedule
13E-3 or the Proxy Statement, (B) any request by the SEC for any amendment
or supplement to the Form S-4, the Schedule 13E-3 or Proxy Statement or for
additional information, and (C) the effectiveness of the Form S-4, the
Schedule 13E-3 and the clearance of the Proxy Statement, and the Schedule
13E-3. The Company shall consult with the Acquiror with respect to, and
prior to, all filings with the SEC, including the Form S-4 and Schedule
13E-3 and any amendment or supplement thereto, and all mailings to the
Companies' stockholders in connection with the Merger, including the Proxy
Statement. No filing of the Form S-4, the Proxy Statement, the Schedule
13E-3 or any amendment or supplement thereto shall be made by the Company
without the consent of the Acquiror (not to be unreasonably withheld.
(iv) The Company shall, as requested by Acquiror, take such action as
may be necessary with applicable law and its Certificate of Incorporation
and Bylaws, to convene a special meeting of the holders of the Shares
("Special Meeting") as promptly as practicable for the purpose of
considering and taking action upon this Agreement. The Proxy Statement shall
contain the recommendations of the Special Committee and the Board of
Directors of the Company that; the Merger, this Agreement and the
transactions contemplated hereby are fair to and in the best interests of
the holders of Common Shares, (ii) the Merger, this Agreement and the
transactions contemplated hereby are fair to and in the best interests of
the holders of Preferred Shares, and (iii) the recommendation referred to in
Section 2.20 hereof that holders of Common Shares and holders of Preferred
Shares each approve the Merger, this Agreement and the transactions
contemplated hereby. The Company will cause its transfer agent to make stock
transfer records relating to the Company available to the Acquiror.
(h) To the extent requested by Acquiror, each of the parties shall cooperate
with each other in taking, or causing to be taken, all actions necessary to
delist the Shares from the AMEX; provided that such delisting shall not be
effective until after the Effective Time. The parties also acknowledge that it
is Acquiror's present intention that, following the Merger, none of the shares
of the Company's capital stock will be listed on the AMEX or any other national
securities exchange and will not be quoted on the NASDAQ. Notwithstanding that
the Surviving Corporation may not be required to remain subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, for the two (2) years
following the Effective Time, the Surviving Corporation shall file with the SEC
such reports as are specified in Section 13 and 15(d) of the Exchange Act and
required to be filed in respect of securities similar to the Senior Preferred
Shares by issuers subject to the reporting requirements of Section 13 of the
Exchange Act, such reports to be so filed at the times specified for the filings
of such reports required under such Sections;
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provided that the Surviving Corporation shall have no obligation to file such
reports if fewer than 500,000 Senior Preferred Shares remain outstanding.
SECTION 4.5 TRANSACTION LITIGATION. The Company shall give Acquiror the
opportunity to participate in the defense or settlement of any litigation
against the Company and its directors directly relating to any of the
transactions contemplated by this Agreement until the Effective Time provided,
however, that no such settlement shall be agreed to without Acquiror's consent,
which consent shall not be unreasonably delayed or withheld; and provided
further that no settlement requiring a payment by a director shall be agreed to
without such director's consent.
ARTICLE V
CONDITIONS TO ACQUIROR'S OBLIGATIONS
All obligations of Acquiror under this Agreement are subject to the
fulfillment or waiver (to the extent permitted by this Agreement and applicable
law), prior to or at the Effective Time, of each of the following conditions:
SECTION 5.1 SHAREHOLDER APPROVAL. The Company Stockholder Approvals shall
have been obtained.
SECTION 5.2 REPRESENTATIONS AND WARRANTIES. The representations and
warranties made by the Company in this Agreement shall be true and correct in
all material respects unless the inaccuracies (without giving effect to any
materiality or material adverse effect qualifications or materiality exceptions
contained therein) in such representations and warranties, individually or in
the aggregate, have not had and would not reasonably be expected to result in a
Material Adverse Effect with respect to the Company.
SECTION 5.3 PERFORMANCE. The Company shall have performed and complied with
all covenants required by this Agreement to be performed or complied with by it
on or before the Effective Time except for such nonperformance or noncompliance
which, individually or in the aggregate, have not had and would not reasonably
be expected to have a Material Adverse Effect on the Company.
SECTION 5.4 OFFICER'S CERTIFICATE. The Company shall have delivered to
Acquiror a certificate of a duly authorized officer of the Company in such
person's capacity as an officer and without personal liability, dated the
Effective Date, certifying as to the fulfillment of the conditions specified in
Sections 5.2 and 5.3 hereof.
SECTION 5.5 HSR WAITING PERIOD. The applicable waiting period under the HSR
Act, if any, shall have expired or terminated.
SECTION 5.6 NO INJUNCTION. No preliminary or permanent injunction or other
order by any federal or state court in the United States which prevents the
consummation of the Merger shall have been issued and remain in effect (the
Company and Acquiror agreeing to use their commercially reasonable efforts to
have any such injunction lifted).
SECTION 5.7 FORM S-4. (a) The Form S-4 shall have become effective under
the Securities Act and shall not be the subject of any stop order or proceedings
seeking a stop order; (b) any material "blue sky" and other state securities
laws applicable to the registration and qualification of, and any rules or
regulations of any self-regulatory organization applicable to, the Shares to be
issued in the Merger shall have been complied with; and (c) the Proxy Statement
and the Schedule 13E-3 shall have been disseminated to the extent, and for the
minimum time period required by, the Exchange Act and the rules and regulations
promulgated thereunder.
SECTION 5.8 NO LITIGATION. There shall not be pending by or before any
Governmental Entity any suit, action or proceeding (or by any other person any
suit, action or proceeding which has a reasonable likelihood of success), (i)
challenging or seeking to restrain or prohibit the consummation of the Merger or
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any of the other transactions contemplated by this Agreement or seeking to
obtain from Acquiror or any of its affiliates any damages that are material to
any such party, (ii) seeking to prohibit or limit the ownership or operation by
the Acquiror, the Company or any of their respective Subsidiaries of any
material portion of the business or assets of the Company, Acquiror or any of
their respective Subsidiaries, to dispose of or hold separate any material
portion of the business or assets of the Company, Acquiror or any of their
respective Subsidiaries, as a result of the Merger or any of the other
transactions contemplated by this Agreement, or (iii) seeking to impose
limitations on the ability of any affiliate of Acquiror to acquire and hold, or
exercise fully rights of ownership of, any shares of capital stock of the
Company, including, without limitation, the right to vote any shares of capital
stock of the Company on any matter properly presented to the holders of such
class of capital stock.
SECTION 5.9 FINANCING. The Company shall have received the proceeds of the
financing pursuant to the commitment letters referred to in Section 3.4 hereof
on terms and conditions set forth therein (or on such other terms and
conditions, or involving such other financing sources, as are acceptable to
Acquiror in its sole discretion) in amounts sufficient to consummate the
transactions contemplated by this Agreement, including, without limitation (i)
to pay the Merger Consideration and Option Consideration, (ii) to refinance the
outstanding indebtedness (including capital lease obligations) of the Company,
(iii) to pay any fees and expenses in connection with the transactions
contemplated by this Agreement or the financing thereof, (iv) to pay all
severance, retention, bonus or other obligations which might become due and
payable as a result of the consummation of the Merger and the transactions
contemplated by this Agreement, (v) to provide for the working capital needs of
the Company upon consummation of the Merger, including, without limitation, if
applicable, letters of credit (the transactions referred to in this Section 5.9,
the "Financing").
SECTION 5.10 AFFILIATE LETTERS. The Company shall have used commercially
reasonable efforts to cause the agreements referred to in Section 4.1(f) to be
delivered to Acquiror. The employment agreement described on Schedule 5.10 shall
be in full force and effect unless modified with the prior written consent of
Acquiror.
SECTION 5.11 COMFORT LETTERS. Acquiror shall have received "comfort
letters" and updates thereof from the Company's independent certified public
accountants, with such letters to be in customary form and to cover matters of
the type customarily covered by accountants in transactions similar to the
Merger and the other transactions contemplated by this Agreement.
SECTION 5.12 DISSENTING SHARES; ROTKO ROLLOVER.
(a) The number of Dissenting Shares shall not exceed 15% of the outstanding
Shares.
(b) All of the holders of the Options shall have (i) exercised such Options
or shall have entered into agreements with the Company to exercise such Options
prior to the Effective Time (or such later time as may be specified by Acquiror)
or shall have otherwise permitted the Company to cash-out the Options and (ii)
agreed to reinvest the after-tax proceeds of the Option Consideration received
by them in respect of 1,000,000 Options in securities of the Surviving
Corporation.
(c) The holders of the Rotko Rollover Shares shall have performed their
obligations under the Rotko Rollover Agreement in all material respects.
SECTION 5.13 CONSENTS. Acquiror shall have received evidence, in form and
substance reasonably satisfactory to it, that all licenses, permits, consents,
approvals, authorizations, qualifications and orders of Governmental Entities
and other third parties necessary to consummate the transactions contemplated
hereby shall have been obtained, unless the failure to so obtain such licenses,
permits, consents, approvals, authorizations, qualifications and orders,
individually or in the aggregate, would not have a Material Adverse Effect on
the Company.
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ARTICLE VI
CONDITIONS TO THE COMPANY'S OBLIGATIONS
All obligations of the Company under this Agreement are subject to the
fulfillment or waiver (to the extent permitted by this Agreement and applicable
law), prior to or at the Effective Time, of each of the following conditions:
SECTION 6.1 SHAREHOLDER APPROVAL. The Company Stockholder Approvals shall
have been obtained.
SECTION 6.2 REPRESENTATIONS AND WARRANTIES. The representations and
warranties made by Acquiror in this Agreement shall be true and correct in all
material respects unless the inaccuracies (without giving effect to any
materiality or material adverse effect qualifications or materiality exceptions
contained therein) in such representations and warranties, individually or in
the aggregate, have not had and would not reasonably be expected to result in a
Material Adverse Effect with respect to the Acquiror.
SECTION 6.3 PERFORMANCE. Acquiror shall have performed and complied with
all covenants required by this Agreement to be performed or complied with by it
on or before the Effective Time except for such nonperformance or noncompliance
which, individually or in the aggregate, has not had and would not reasonably be
expected to have a Material Adverse Effect on the Acquiror.
SECTION 6.4 OFFICER'S CERTIFICATE. Acquiror shall have delivered to the
Company a certificate of a duly authorized officer in such person's capacity as
an officer and without personal liability, dated the Effective Date, certifying
as to the fulfillment of the conditions specified in Sections 6.2 and 6.3
hereof.
SECTION 6.5 HSR WAITING PERIOD. The applicable waiting period under the HSR
Act shall have expired or been otherwise terminated.
SECTION 6.6 NO INJUNCTION. No preliminary or permanent injunction or other
order by any federal or state court in the United States which prevents the
consummation of the Merger shall have been issued and remain in effect (the
Company and Acquiror agreeing to use their commercially reasonable efforts to
have any such injunction lifted).
SECTION 6.7 FORM S-4. (a) The Form S-4 shall have become effective under
the Securities Act and shall not be the subject of any stop order or proceedings
seeking a stop order; (b) any material "blue sky" and other state securities
laws applicable to the registration and qualification of, and any rules or
regulations of any self-regulatory organization applicable to, the Shares to be
issued in the Merger shall have been complied with; and (c) the Proxy Statement
and the Schedule 13E-3 shall have been disseminated to the extent, and for the
minimum time period required by, the Exchange Act and the rules and regulations
promulgated thereunder.
SECTION 6.8 NO LITIGATION. There shall not be pending by any Governmental
Entity any suit, action or proceeding (or by any other person, any suit, action
or proceeding which has a reasonable likelihood of success), (i) challenging or
seeking to restrain or prohibit the consummation of the Merger or any of the
other transactions contemplated by this Agreement or seeking to obtain from
Company or any of its affiliates any damages that are material to any such
party, or (ii) seeking to prohibit or limit the ownership or operation by the
Acquiror, the Company or any of their respective Subsidiaries of any material
portion of the business or assets of the Company, Acquiror or any of their
respective Subsidiaries, to dispose of or hold separate any material portion of
the business or assets of the Company, Acquiror or any of their respective
Subsidiaries, as a result of the Merger or any of the other transactions
contemplated by this Agreement.
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ARTICLE VII
SURVIVAL OF REPRESENTATIONS
SECTION 7.1 NO SURVIVAL OF REPRESENTATIONS. The representations,
warranties, covenants and agreements made by the parties hereto in this
Agreement shall terminate on, and shall have no further force or effect after,
the Effective Time, except for those covenants and agreements contained herein
which by their terms apply in whole or in part after the Effective Time
(including, without limitation, Sections 4.2(a) and 4.2(b), and the officers and
directors referred to therein are and shall continue to be third party
beneficiaries thereof). In the event of a breach of any of such covenants or
agreements, the party to whom such covenants or agreements have been made shall
have all rights and remedies for such breach available to it under applicable
law and the provisions of this Agreement, regardless of any disclosure to, or
investigation made by or on behalf of, such party.
SECTION 7.2 EXCLUSIVE REMEDY.
(a) Acquiror acknowledges and agrees that (i) other than the representations
and warranties of the Company specifically contained in this Agreement
(including the Schedules hereto) the Stockholders Agreement and the Option
Agreement, there are no representations or warranties of the Company or any
Subsidiary or any other person either expressed or implied with respect to the
Company, the Subsidiaries or their respective assets, liabilities and
businesses, and (ii) neither it nor the Surviving Corporation shall have any
claim or right to damages or indemnification from the Company, any Subsidiary,
or any current or former officer, director or stockholder of the Company or any
Subsidiary acting in their capacities as such with respect to any information
(whether written or oral), documents or material furnished by the Company, any
Subsidiary or any of their respective officers, directors, employees, agents,
counsel, accountants or advisors to Acquiror with respect to the transactions
contemplated by this Agreement, including any information, documents or material
made available to Acquiror in certain "data rooms," management presentations or
in any other form in expectation of the transactions contemplated by this
Agreement.
(b) The Company acknowledges and agrees that (i) other than the
representations and warranties of Acquiror specifically contained in this
Agreement (including the Schedules hereto) the Stockholders Agreement and the
Option Agreement, there are no representations or warranties of Acquiror or any
other person either expressed or implied with respect to Acquiror and (ii) it
shall not have any claim or right to damages or indemnification from Acquiror or
any current or former officer, director or stockholder of Acquiror with respect
to any information (whether written or oral), documents or material furnished by
Acquiror or any of its officers, directors, employees, agents, counsel,
accountants or advisors to Acquiror.
Subject to Section 9.4, the employees, officers, directors and shareholders
of Acquiror (and their respective affiliates and associates) shall not have any
liability or obligation to the Company with respect to this Agreement and the
transactions contemplated hereby except in respect of Bruckmann, Rosser,
Sherrill & Co., Inc. ("BRS") as set forth in the letter agreement between BRS
and the Company of even date herewith.
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ARTICLE VIII
TERMINATION OF AGREEMENT
SECTION 8.1 TERMINATION OF AGREEMENT. Prior to the Effective Time. This
Agreement may be terminated and the Merger contemplated hereby may be abandoned
at any time, notwithstanding approval thereof by the applicable stockholders,
but prior to the Effective Time:
(a) by mutual written consent of Acquiror and the Company.
(b) by either the Acquiror or the Company, if any of the conditions to such
party's obligation to consummate the transactions contemplated in this Agreement
shall have become impossible to satisfy;
(c) by either the Acquiror or the Company, if the Merger has not been
consummated on or before August 31, 1998 (unless the failure to consummate the
Merger by such date shall be due to the action or failure to act of the party
seeking to terminate this Agreement in breach of such party's obligations under
this Agreement) provided that the right to terminate this Agreement pursuant to
this Section 8.1(c) solely because of the failure to be satisfied of Section 5.8
or 6.8 hereof, shall not accrue until September 30, 1998; or
(d) by the Company, effective three business days after delivery to Acquiror
of a Superior Proposal Notice pursuant to Section 4.1(a), which Notice shall
have been preceded or accompanied by payment of the Break-Up Fee and the
Documented Expenses to the Acquiror, unless, within such three business-day
period, Acquiror (A) makes an offer that the Company's Board of Directors
reasonably determines (after consultation with its financial advisors) is at
least as favorable to the Company's stockholders as the Superior Proposal that
is the subject of the Superior Proposal Notice, and (B) returns the Break-Up Fee
and the Documented Expenses to the Company.
(e) by the Acquiror if (A) the Board of Directors of the Company (or any
committee thereof) (i) withdraws, modifies or changes its recommendation
regarding the approval of the Merger or this Agreement or the transactions
contemplated hereby in a manner adverse to the Acquiror, (ii) shall have
recommended to the stockholders of the Company any Acquisition Proposal; (iii)
shall have taken any action in violation of Section 4.1(a) of this Agreement,
(iv) shall have failed to reaffirm publicly its recommendation regarding the
approval of the Merger or this Agreement and the transactions contemplated
hereby within three business days' of receipt of Acquiror's written request to
do so; or (v) shall have resolved, or entered into any agreement, to do any of
the foregoing, or (B) the parties (other than Acquiror) to the Option Agreement
or the Stockholder Agreement shall have breached their material obligations
thereunder to Acquiror, or (C) or there shall have been a Change in Control of
the Company.
As used herein, "Change in Control" means any of the following:
(i) any person or group (other than Acquiror) acquires or beneficially
owns, or enters into an agreement with the Company or any of its
Subsidiaries to acquire, directly or indirectly, 25% or more of the
outstanding Shares or voting power in respect of the Shares or 25% or more
of the assets, revenues or earning power of the Company and its
Subsidiaries, taken as a whole (it being understood that (x) shares of
Subsidiaries constitute assets of the Company for purposes hereof and (y)
the beneficial ownership by the Rotko Entities of any Share beneficially
owned by them as of the date of this Merger Agreement shall not constitute a
"Change in Control"); or
(ii) the Company distributes or transfers, or publicly announces its
intention to distribute or transfer, to its shareholders, by dividend or
otherwise, assets constituting 25% or more of the market value or earning
power of the Company on a consolidated basis.
The Company agrees to notify Acquiror within five business days of the
occurrence of any Change in Control.
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(f) by the Acquiror if (i) the Company is in breach at any time prior to the
Effective Time of any of the representations and warranties made by the Company
as though made on and as of such date, unless the inaccuracies (without giving
effect to any materiality or material adverse effect qualifications or
materiality exceptions contained therein) in such representations and
warranties, individually or in the aggregate, have not had and would not
reasonably be expected to result in a Material Adverse Effect with respect to
the Company, or (ii) the Company shall not have performed and complied in all
material respects with all covenants required by this Agreement to be performed
or complied with by it on and as of such date, which breach in the case of
clauses (i) and (ii) cannot be or has not been cured, in all material respects,
within 15 days after the giving of written notice to the Company.
(g) by the Company if (i) the Acquiror is in breach at any time prior to the
Effective Time of any of the representations and warranties made by the Acquiror
as though made on and as of such date, unless the inaccuracies (without giving
effect to any materiality or material adverse effect qualifications or
materiality exceptions contained therein) in such representations and
warranties, individually or in the aggregate, have not had and would not
reasonably be expected to result in a Material Adverse Effect with respect to
the Acquiror, or (ii) the Acquiror shall not have performed and complied in all
material respects with all covenants required by this Agreement to be performed
or complied with by it on and as of such date, which breach in the case of
clauses (i) and (ii) cannot be or has not been cured, in all material respects,
within 15 days after the giving of written notice to the Acquiror.
Any party desiring to terminate this Agreement shall give written notice of
such termination and the reasons therefor to the other parties.
SECTION 8.2 EFFECT OF TERMINATION. If this Agreement is terminated pursuant
to Section 8.1 above, this Agreement shall become void and of no effect and no
party hereto shall have any liability to the other for costs, expenses, loss of
anticipated profits or otherwise, except that (i) the agreements contained in
Sections 4.1(a)(ii), 4.4(a) and 9.2 shall survive the termination hereof, and
(ii) nothing herein shall relieve any party from liability for any willful
breach of this Agreement. The right of any party hereto to terminate this
Agreement pursuant to Section 8.1 shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any party hereto,
any person controlling any such party or any of their respective officers,
directors, employees, accountants, consultants, legal counsel, agents, advisors
or other representatives, whether prior to or after the execution of this
Agreement.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 WAIVER OF COMPLIANCE. Any failure of a party to comply with any
obligation, covenant, agreement or condition herein may be expressly waived in
writing by the other party hereto, but such waiver shall not operate as a waiver
of, or estoppel with respect to, any subsequent or other failure.
SECTION 9.2 EXPENSES. Except as provided in Section 4.1(a)(ii) or otherwise
expressly provided in this Agreement, each party shall bear its respective
expenses, fees and costs incurred or arising in connection with the negotiation
and preparation of this Agreement and all transactions related hereto, and the
parties shall have no liability between or among themselves for such expenses,
fees or costs.
SECTION 9.3 ASSIGNABILITY; Parties in Interest. Neither this Agreement nor
any of the rights or obligations hereunder may be assigned by any of the parties
hereto without the prior written consent of the other party, except that
Acquiror may assign, in its sole discretion, any or all of its rights and
obligations hereunder to any direct or indirect wholly owned Subsidiary or
subsidiaries of Acquiror, provided that no such assignment shall relieve the
assigning party of its obligations hereunder if such assignee does not perform
such obligation. This Agreement shall be binding upon and inure solely to the
benefit of each party hereto, and, with respect to the provisions of Section
4.2(c), and 9.2, shall inure to the benefit of the
37
<PAGE>
persons or entities benefiting from the provisions thereof who are intended to
be third-party beneficiaries thereof. Except as provided in the preceding
sentence, nothing in this Agreement, express or implied, is intended to or shall
confer upon any other person any rights, benefits or remedies of any nature
whatsoever under or by reason of this Agreement. All the terms and provisions of
this Agreement shall be binding upon, inure to the benefit of and be enforceable
by, the respective successors and permitted assigns of the parties hereto.
SECTION 9.4 SPECIFIC PERFORMANCE. The parties hereto agree that if for any
reason any party hereto shall have failed to perform its obligations under this
Agreement, then any other party hereto seeking to enforce this Agreement against
such nonperforming party, in addition to any damages and other remedies
available to it, shall be entitled to specific performance and injunctive and
other equitable relief, and the parties hereto further agree to waive any
requirement for the securing or posting of any bond in connection with the
obtaining of any such injunctive or other equitable relief.
SECTION 9.5 AGREEMENT; AMENDMENTS.
(a) This Agreement (together with the Confidentiality Agreement, by and
between the Acquiror and the Company, dated October 30, 1997, 1997 (the
"Confidentiality Agreement")), including the exhibits, schedules, and other
documents delivered pursuant hereto, contains the entire understanding of the
parties. The Confidentiality Agreement shall terminate at the Effective Time.
This Agreement may be amended only by a written instrument duly signed by the
parties hereto or their respective successors or assigns. This Agreement may be
amended by the parties hereto by action taken by or on behalf of their
respective Boards of Directors at any time prior to the Effective Time;
provided, however, that after approval of the Merger by the stockholders of the
Company, no amendment may be made which would reduce the amount or change the
type of consideration into which each Common Share or Preferred Share or Option
shall be converted upon consummation of the Merger.
(b) No provision of the Confidentiality Agreement shall limit Acquiror's
right to exercise the Options granted to it under the Option Agreement or to
acquire Shares thereunder, and the provisions of the second paragraph on page 3
of the Confidentiality Agreement shall terminate upon any termination of this
Agreement in circumstances where a Break-Up Fee is paid or payable by the
Company or upon exercise of the option granted to Acquiror pursuant to the
Option Agreement.
(c) No discussions regarding or exchange of drafts or comments in connection
with the transactions contemplated herein shall constitute an agreement among
the parties hereto. Any agreement among the parties shall exist only when the
parties have fully executed and delivered this Agreement.
SECTION 9.6 HEADINGS.
The Article and Section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of any provision of this Agreement. The use of masculine pronouns
herein is intended to include the feminine and neuter, as appropriate.
SECTION 9.7 SEVERABILITY. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provision of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the fullest extent possible.
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SECTION 9.8 NOTICES. All notices, requests and other communications to any
party hereunder shall be in writing (including telecopy or similar writing) and
shall be given,
<TABLE>
<S> <C>
if to the Company, to: MEDIQ Incorporated
One MEDIQ Plaza
Pennsauken, NJ 08110-1460
Attention: Thomas E. Carroll
President and Chief Executive Officer
Telephone #: (609) 662-3200
Facsimile #: (609) 661-0958
with a copy to: Drinker Biddle & Reath LLP
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, PA 19107
Attention: F. Douglas Raymond, III
Telephone #: (215) 988-2548
Facsimile #: (215) 988-2757
if to Acquiror, to: c/o Bruckmann, Rosser, Sherrill & Co., Inc.
126 East 56th Street
New York, NY 10022
Attention: Bruce Bruckmann
Telephone #: (212) 521-3700
Facsimile #: (212) 521-3799
with a copy to: Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103
Attention: William G. Lawlor
Telephone #: (215) 994-4000
Facsimile #: (212) 994-2222
</TABLE>
or such other address or telecopy number as such party may hereafter specify for
the purpose by notice to the other parties hereto. Each such notice, request or
other communication shall be effective (i) if given by telecopy, when such
telecopy is transmitted to the telecopy number specified in this Section and
personal acknowledgment of receipt is returned, (ii) delivered by hand, or (iii)
when received by the addressee, if sent by a nationally recognized overnight
delivery service, in each case to the addresses specified in this section.
SECTION 9.9 LAW GOVERNING. This Agreement shall be governed by, construed
and enforced in accordance with the laws of the State of Delaware, without
regard to its conflict of laws rules.
SECTION 9.10 COUNTERPARTS. This Agreement may be executed simultaneously in
several counterparts, each of which shall be deemed an original, but all
counterparts so executed shall constitute one and the same agreement.
SECTION 9.11 REPRESENTATIONS. No representation or warranty in this
Agreement shall be deemed to be violated by a party hereto if the information
therein required to be disclosed is disclosed by such party in another Schedule
to this Agreement where the relevance of such disclosure to the representation
or warranty at issue is apparent.
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SECTION 9.12 JURISDICTION. Each party hereto irrevocably and
unconditionally consents and submits to the exclusive jurisdiction of the courts
of the State of Delaware and of the United States of America located in the
State of Delaware for any actions, suits or proceedings arising out of or
relating to this Agreement and the transactions contemplated hereby, and further
agrees that service of any process, summons, notice or document by U.S.
registered or certified mail to the Company or the Acquiror, as the case may be,
at the addresses set forth Section 9.8 hereof, shall be effective service of
process for any action, suit or proceedings brought against such party in such
court. Each party hereto hereby irrevocably and unconditionally waives any
objection to the laying of venue of any action, suit or proceeding arising out
of this Agreement or the transactions contemplated hereby, in the courts of the
State of Delaware located in Wilmington, Delaware or the United States of
America located in Wilmington, Delaware, and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such court that
any such action, suit or proceeding brought in any such court has been brought
in any inconvenient forum.
IN WITNESS WHEREOF, this Agreement has been duly executed on behalf of each
of the parties hereto as of the day and year first above written.
<TABLE>
<S> <C> <C>
MEDIQ INCORPORATED
By: /s/ THOMAS E. CARROLL
------------------------------------------
Name: Thomas E. Carroll
Title: President and Chief Executive
Officer
MQ ACQUISITION CORPORATION
By: /s/ BRUCE C. BRUCKMANN
------------------------------------------
Name: Bruce C. Bruckmann
Title: President
</TABLE>
40
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ANNEX II
[SALOMON SMITH BARNEY LETTERHEAD]
January 14, 1998
The Board of Directors
MEDIQ Incorporated
One MEDIQ Plaza
Pennsauken, New Jersey 08110
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the stockholders of MEDIQ Incorporated ("MEDIQ"), other than Rollover
Holders (as defined below), of the consideration to be received by such holders
pursuant to the terms and subject to the conditions set forth in the Agreement
and Plan of Merger, dated as of January 14, 1998 (the "Merger Agreement"), by
and among MQ Acquisition Corporation ("MQ") and MEDIQ. As more fully described
in the Merger Agreement, (i) MQ will be merged with and into MEDIQ (the
"Merger") and (ii) each outstanding share of the common stock, par value $1.00
per share, of MEDIQ (the "MEDIQ Common Stock") and each outstanding share of
Series A preferred stock, par value $0.50 per share, of MEDIQ (the "MEDIQ
Preferred Stock" and, together with the MEDIQ Common Stock, the "Shares") will
be converted into the right to receive (i) $13.75 in cash (the "Cash Amount")
and (ii) 0.075 of a share of newly issued Series A 13.0% cumulative compounding
preferred stock, par value $0.01 per share, of MEDIQ, with a liquidation
preference of $10.00 per share (the "Senior Preferred Stock" and, together with
the Cash Amount, the "Merger Consideration"). We have been advised by
representatives of MEDIQ that members of the Rotko family, related trusts and
certain members of the management of MEDIQ will, in connection with the
transactions contemplated by the Merger, rollover a portion of their Shares or
options to purchase such Shares, as the case may be, into newly issued
securities of MEDIQ (such stockholders and option holders, the "Rollover
Holders").
In arriving at our opinion, we reviewed the Merger Agreement and the terms of
the Senior Preferred Stock attached as an exhibit thereto and held discussions
with certain senior officers, directors and other representatives and advisors
of MEDIQ and certain senior officers and other representatives and advisors of
MQ concerning the business, operations and prospects of MEDIQ. We examined
certain publicly available business and financial information relating to MEDIQ
as well as certain financial forecasts and other information and data for MEDIQ
which were provided to or otherwise discussed with us by the management of
MEDIQ. We reviewed the financial terms of the Merger as set forth in the Merger
Agreement in relation to, among other things: current and historical market
prices and trading volumes of the Shares; the financial condition and historical
and projected earnings and other operating data of MEDIQ; and the capitalization
of MEDIQ and MQ. We considered, to the extent publicly available, the financial
terms of other transactions recently effected which we considered relevant in
evaluating the Merger and analyzed certain financial, stock market and other
publicly available information relating to the businesses of other companies
whose operations we considered relevant in evaluating those of MEDIQ. In
connection with our engagement, we were requested to approach, and we held
discussions with, third parties to solicit indications of interest in the
possible acquisition of MEDIQ. In addition to the foregoing, we conducted such
other analyses and examinations and considered such other financial, economic
and market criteria as we deemed appropriate in arriving at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available or furnished to or otherwise reviewed by
or discussed with us. With respect to financial forecasts and other information
and data provided to or otherwise reviewed by or discussed with us, we have been
advised by the management of MEDIQ that such forecasts and other information and
data were reasonably prepared reflecting the best currently available estimates
and judgments of the management of MEDIQ as to the
<PAGE>
The Board of Directors
MEDIQ Incorporated
January 14, 1998
Page 2
future financial performance of MEDIQ. We also have been advised by
representatives of MEDIQ that, in the Merger, the MEDIQ Preferred Stock will be
treated as the equivalent of the MEDIQ Common Stock into which it is convertible
and therefore, with your consent, have evaluated the MEDIQ Preferred Stock as
the equivalent of the MEDIQ Common Stock for purposes of our opinion. We have
assumed, with your consent, that the Merger will be recorded as a
recapitalization for financial reporting purposes. We express no opinion as to
what the value of the Senior Preferred Stock will be when issued pursuant to the
Merger or the price at which the Senior Preferred Stock will trade or otherwise
be transferable subsequent to the Merger. We have not made or been provided with
an independent evaluation or appraisal of the assets or liabilities (contingent
or otherwise) of MEDIQ nor have we made any physical inspection of the
properties or assets of MEDIQ. Our opinion is necessarily based upon information
available to us, and financial, stock market and other conditions and
circumstances existing and disclosed to us, as of the date hereof.
Smith Barney Inc. (now associated with Salomon Brothers Inc and collectively
with Salomon Brothers Inc doing business as Salomon Smith Barney) has been
engaged to render financial advisory services to MEDIQ in connection with the
Merger and will receive a fee for such services, a significant portion of which
is contingent upon consummation of the Merger. We also will receive a fee upon
the delivery of this opinion. In the ordinary course of our business, we and our
affiliates may actively trade or hold the securities of MEDIQ for our own
account or for the account of our customers and, accordingly, may at any time
hold a long or short position in such securities. In addition, we and our
affiliates (including Travelers Group Inc. and its affiliates) may maintain
relationships with MEDIQ and affiliates of MQ.
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Directors of MEDIQ in its evaluation of the proposed
Merger, and our opinion is not intended to be and does not constitute a
recommendation to any stockholder as to how such stockholder should vote on the
proposed Merger. Our opinion may not be published or otherwise used or referred
to, nor shall any public reference to Salomon Smith Barney be made, without our
prior written consent.
Based upon and subject to the foregoing, our experience as investment bankers,
our work as described above and other factors we deemed relevant, we are of the
opinion that, as of the date hereof, the Merger Consideration to be received in
the Merger by holders of Shares (other than Rollover Holders) is fair, from a
financial point of view, to such holders.
Very truly yours,
/s/ SALOMON SMITH BARNEY
2
<PAGE>
ANNEX III
EXCERPTS FROM DELAWARE GENERAL CORPORATION
LAW RELATING TO DISSENTERS' RIGHTS
262 APPRAISAL RIGHTS.--(a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to sec. 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be a available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec. 251 (other than a merger effected pursuant to Sec.
251(g) of this title), 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the holders of the surviving corporation as provided in
subsections (f) of sec. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to sec. 251,
252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
<PAGE>
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof that appraisal rights are
available for any or all of the shares of the constituent corporations, and
shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation, a
written demand for appraisal of his shares. Such demand will be sufficient
if it reasonably informs the corporation of the identity of the stockholder
and that the stockholder intends thereby to demand the appraisal of his
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must do
so by a separate written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation
who has complied with this subsection and has not voted in favor of or
consented to the merger or consolidation of the date that the merger or
consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to Section228
or Section253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days thereafter,
shall notify each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the approval
of the merger or consolidation and that appraisal rights are available for
any or all shares of such class or series of stock of such constituent
corporation, and shall include in such notice a copy of this section;
provided that, if the notice is given on or after the effective date of the
merger or consolidation, such notice shall be given by the surviving or
resulting corporation to all such holders of any class or series of stock of
a constituent corporation that are entitled to appraisal rights. Such notice
may, and, if given on or after the effective date of the merger or
consolidation, shall, also notify such stockholders of the effective date of
the merger or consolidation. Any stockholder entitled to appraisal rights
may, within 20 days after the date of mailing of such notice, demand in
writing from the surviving or resulting corporation the appraisal of such
holder's shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such holder's shares. If such
notice did not notify stockholders of the effective date of the merger or
consolidation, either (i) each such constituent corporation shall send a
second notice before the effective date of the merger or consolidation
notifying each of the holders of any class or series of stock of such
constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or
resulting corporation shall send such a second notice to all such holders on
or within 10 days after such effective date; provided, however, that is such
second notice is sent more than 20 days following the sending of the first
notice, such second notice need only be sent to each stockholder who is
entitled to appraisal rights and who has demanded appraisal of such holder's
shares in accordance with this subsection. An affidavit of the secretary or
assistant secretary or of the transfer agent of the corporation that is
required to give either notice that such notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated
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<PAGE>
therein. For purposes of determining the stockholders entitled to receive
either notice, each constituent corporation may fix, in advance, a record
date that shall be not more than 10 days prior to the date the notice is
given, provided, that if the notice is given on or after the effective date
of the merger or consolidation, the record date shall be such effective
date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the day
next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw his demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement shall
be mailed to the stockholder within 10 days after his written request for such a
statement is received by the surviving or resulting corporation or within 10
days after expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on
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<PAGE>
the list filed by the surviving or resulting corporation pursuant to subsection
(f) of this section and who has submitted his certificates of stock to the
Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled to appraisal
rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
4
<PAGE>
ANNEX IV
RESTATED CERTIFICATE OF INCORPORATION
OF
MQ ACQUISITION CORPORATION
1. NAME. The name of the Corporation is MQ Acquisition Corporation.
2. REGISTERED OFFICE AND AGENT. The address of the Corporation's registered
office in the State of Delaware is 1209 Orange Street, Wilmington, Delaware
19801, in the County of New Castle. The name of the Corporation's registered
agent at such address is The Corporation Trust Company.
3. PURPOSE. The purposes for which the Corporation is formed are to engage
in any lawful act or activity for which corporations may be organized under the
General Corporation Law of Delaware and to possess and exercise all of the
powers and privileges granted by such law and any other law of Delaware.
4. AUTHORIZED CAPITAL. The aggregate number of shares of stock which the
Corporation shall have authority to issue is 60,000,000 shares, divided into two
(2) classes consisting of 30,000,000 shares of Preferred Stock, par value $0.01
per share ("Preferred Stock"); and 30,000,000 shares of Common Stock, par value
$0.01 per share ("Common Stock").
The following is a statement of the designations, preferences,
qualifications, limitations, restrictions and the special or relative rights
granted to or imposed upon the shares of each such class and upon the shares of
the first series of Preferred Stock:
a. ISSUE IN SERIES. Preferred Stock may be issued from time to time in one
or more series, each such series to have the terms stated herein and in
the resolution of the Board of Directors of the Corporation providing
for its issue. All shares of any one series of Preferred Stock will be
identical, but shares of different series of Preferred Stock need not be
identical or rank equally except insofar as provided by law or herein.
b. CREATION OF SERIES. The Board of Directors will have authority by
resolution to cause to be created one or more series of Preferred Stock,
and to determine and fix with respect to each series prior to the
issuance of any shares of the series to which such resolution relates:
(i) The distinctive designation of the series and the number of shares
which will constitute the series, which number may be increased or
decreased (but not below the number of shares then outstanding) from
time to time by action of the Board of Directors;
(ii) The dividend rate and the times of payment of dividends on the
shares of the series, whether dividends will be cumulative, and if
so, from what date or dates;
(iii) The price or prices at which, and the terms and conditions on
which, the shares of the series may be redeemed at the option of
the Corporation;
(iv) Whether or not the shares of the series will be entitled to the
benefit of a retirement or sinking fund to be applied to the
purchase or redemption of such shares and, if so entitled, the
amount of such fund and the terms and provisions relative to the
operation thereof;
(v) Whether or not the shares of the series will be convertible into, or
exchangeable for, any other shares of stock of the Corporation or
other securities, and if so convertible or exchangeable, the
conversion price or prices, or the rates of exchange, and any
adjustments thereof, at which such conversion or exchange may be
made, and any other terms and conditions of such conversion or
exchange;
(vi) The rights of the shares of the series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the
Corporation;
<PAGE>
(vii) Whether or not the shares of the series will have priority over or
be on a parity with or be junior to the shares of any other series
or class in any respect or will be entitled to the benefit of
limitations restricting the issuance of shares of any other series
or class having priority over or being on a parity with the shares
of such series in any respect, or restricting the payment of
dividends on or the making of other distributions in respect of
shares of any other series or class ranking junior to the shares of
the series as to dividends or assets, or restricting the purchase
or redemption of the shares of any such junior series or class, and
the terms of any such restriction;
(viii) Whether the series will have voting rights, in addition to any
voting rights provided by law, and, if so, the terms of such voting
rights; and
(ix) Any other preferences, qualifications, privileges, options and
other relative or special rights and limitations of that series.
c. DIVIDENDS. Holders of Preferred Stock shall be entitled to receive, when
and as declared by the Board of Directors, out of funds legally
available for the payment thereof, dividends at the rates fixed by the
Board of Directors for the respective series, and no more, before any
dividends shall be declared and paid, or set apart for payment, on
Common Stock with respect to the same dividend period.
d. PREFERENCE ON LIQUIDATION. In the event of the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, holders of
each series of Preferred Stock will be entitled to receive the amount
fixed for such series plus, in the case of any series on which dividends
will have been determined by the Board of Directors to be cumulative, an
amount equal to all dividends accumulated and unpaid thereon to the date
of final distribution whether or not earned or declared before any
distribution shall be paid, or set aside for payment, to holders of
Common Stock. If the assets of the Corporation are not sufficient to pay
such amounts in full, holders of all shares of Preferred Stock will
participate in the distribution of assets ratably in proportion to the
full amounts to which they are entitled or in such order or priority, if
any, as will have been fixed in the resolution or resolutions providing
for the issue of the series of Preferred Stock. Neither the merger nor
consolidation of the Corporation into or with any other corporation, nor
a sale, transfer or lease of all or part of its assets, will be deemed a
liquidation, dissolution or winding up of the corporation within the
meaning of this paragraph except to the extent specifically provided for
herein.
e. REDEMPTION. The Corporation, at the option of the Board of Directors,
may redeem all or part of the shares of any series of Preferred Stock on
the terms and conditions fixed for such series.
f. VOTING RIGHTS. Except as otherwise required by law, as otherwise
provided herein or as otherwise determined by the Board of Directors as
to the shares of any series of Preferred Stock prior to the issuance of
any such shares, the holders of Preferred Stock shall have no voting
rights and shall not be entitled to any notice of meeting of
stockholders.
5. BYLAWS. The board of directors of the Corporation is authorized to adopt,
amend or repeal the bylaws of the Corporation, except as otherwise specifically
provided therein.
6. ELECTIONS OF DIRECTORS. Elections of directors need not be by written
ballot unless the bylaws of the Corporation shall so provide.
7. RIGHT TO AMEND. The Corporation reserves the right to amend any provision
contained in this Certificate as the same may from time to time be in effect in
the manner now or hereafter prescribed by law, and all rights conferred on
stockholders or others hereunder are subject to such reservation.
8. LIMITATION ON LIABILITY. The directors of the Corporation shall be
entitled to the benefits of all limitations on the liability of directors
generally that are now or hereafter become available under the
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<PAGE>
General Corporation Law of Delaware. Without limiting the generality of the
foregoing, no director of the Corporation shall be liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the director derived an improper personal
benefit. Any repeal or modification of this Section 8 shall be prospective only,
and shall not affect, to the detriment of any director, any limitation on the
personal liability of a director of the Corporation existing at the time of such
repeal or modification.
3
<PAGE>
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS FOR
SERIES A 13.0% CUMULATIVE COMPOUNDING PREFERRED STOCK
OF
MEDIQ INCORPORATED
MEDIQ Incorporated, a Delaware corporation (hereinafter called the
"Corporation"), pursuant to the provisions of Section 151 of the General
Corporation Law of the State of Delaware, does hereby make this Certificate of
Designation under the corporate seal of the Corporation and does hereby state
and certify that pursuant to the authority expressly vested in the Board of
Directors of the Corporation by the Certificate of Incorporation, the Board of
Directors has duly adopted the following resolutions:
RESOLVED, that, pursuant to Article 4 of the Certificate of Incorporation
(which authorizes the creation and issuance of shares of Preferred Stock on such
terms as are determined by the Board of Directors), the Board of Directors
hereby fixes the designations and preferences and relative, participating,
optional and other special rights and qualifications, limitations and
restrictions of the following series of Preferred Stock:
A. SERIES A PREFERRED STOCK.
1. DESIGNATION OF SERIES. The designation of the series of Preferred
Stock authorized by this resolution shall be "Series A 13.0% Cumulative
Compounding Preferred Stock" ("Series A Preferred Stock") consisting of
8,000,000 shares. The par value of Series A Preferred Stock shall be $.01
per share.
2. RANK. With respect to dividend rights and rights on liquidation,
winding up and dissolution of the Corporation, Series A Preferred Stock
shall rank (a) senior to the Common Stock of the Corporation, par value $.01
per share ("COMMON STOCK"), the Series B Preferred Stock (defined in
paragraph B below), the Series C Preferred Stock (defined in paragraph B
below), and each other class of capital stock or class or series of
preferred stock issued by the Corporation after the date hereof the terms of
which specifically provide that such class or series shall rank junior to
the Series A Preferred Stock as to dividend distributions or distributions
upon the liquidation, winding up and dissolution of the Corporation
(collectively referred to as "SERIES A JUNIOR SECURITIES"), (b) on a parity
with each other class of capital stock or class or series of preferred stock
issued by the Corporation after the date hereof the terms of which do not
specifically provide that they rank junior to Series A Preferred Stock or
senior to Series A Preferred Stock as to dividend distributions or
distributions upon liquidation, winding up and dissolution of the
Corporation (collectively referred to as "SERIES A PARITY SECURITIES"), and
(c) junior to each other class of capital stock or other class or series of
preferred stock issued by the Corporation that by its terms is senior to the
Series A Preferred Stock with respect to dividend distributions or
distributions upon the liquidation, winding up and dissolution of the
Corporation (collectively referred to as "SERIES A SENIOR SECURITIES").
3. DIVIDENDS.
(a) Each Holder of Series A Preferred Stock shall be entitled to
receive, when, as and if declared by the Board of Directors, out of funds
legally available therefor, cash dividends on each share of Series A
Preferred Stock at a rate equal to $1.30 per share per annum. All
dividends shall be cumulative, whether or not earned or declared, and
shall accrue on a daily basis from the date of issuance of Series A
Preferred Stock, and shall be payable semi-annually in arrears on each
Dividend Payment Date, commencing on the second Dividend Payment Date
after the date of issuance of such Series A Preferred Stock. Each
dividend on Series A Preferred Stock shall be payable to the Holders of
record of Series A Preferred Stock as they appear on the stock register
of the Corporation on such record date as may be fixed by the Board of
Directors, which record date shall not be less than 10 nor more than 60
days prior to the applicable Dividend Payment Date. Dividends shall cease
to accrue in respect of shares of Series A Preferred Stock on the date of
their repurchase by the Corporation unless the Corporation shall have
failed to pay the
<PAGE>
relevant repurchase price on the date fixed for repurchase.
Notwithstanding anything to the contrary set forth above, unless and
until such dividends are declared by the Board of Directors, there shall
be no obligation to pay such dividends; PROVIDED, that such dividends
shall continue to cumulate and shall be added to the Liquidation
Preference (as provided in Paragraph A4(a) below) at the time of
repurchase as provided herein if not earlier declared and paid. Accrued
dividends on the Series A Preferred Stock if not paid on the first or any
subsequent Dividend Payment Date following accrual shall thereafter
accrue additional dividends ("ADDITIONAL DIVIDENDS") in respect thereof,
compounded annually, at the rate of 13.0% per annum.
(b) All dividends paid with respect to shares of Series A Preferred
Stock pursuant to paragraph A(3)(a) shall be paid pro rata to the Holders
entitled thereto.
(c) Dividends on account of arrears for any past Dividend Period and
dividends in connection with any optional redemption pursuant to
paragraph A(5)(a) may be declared and paid at any time, without reference
to any regular Dividend Payment Date, to the Holders of record on any
date as may be fixed by the Board of Directors, which date is not more
than 60 days prior to the payment of such dividends.
(d) As long as any Series A Preferred Stock is outstanding, no
dividends shall be declared by the Board of Directors or paid or funds
set apart for the payment of dividends or other distributions on any
Series A Parity Securities for any period, and no Series A Parity
Securities may be repurchased, redeemed or otherwise acquired, nor may
funds be set apart for such payment (other than dividends, other
distributions, redemptions, repurchases or acquisitions payable in Series
A Junior Securities and cash in lieu of fractional shares of such Series
A Junior Securities in connection therewith), unless (i) full Accumulated
Dividends have been paid or set apart for such payment on the Series A
Preferred Stock and Series A Parity Securities for all Dividend Periods
terminating on or prior to the date of payment of such dividends or
distributions on, or such repurchase or redemption of, such Series A
Parity Securities (the "SERIES A PARITY PAYMENT DATE") and (ii) any such
dividends are declared and paid pro rata so that the amounts of any
dividends declared and paid per share on outstanding Series A Preferred
Stock and each other share of Series A Parity Securities will in all
cases bear to each other the same ratio that accrued and unpaid dividends
(including any Accumulated Dividends) per share of outstanding Series A
Preferred Stock and such other outstanding shares of Series A Parity
Securities bear to each other.
(e) The Holders shall be entitled to receive the dividends provided
for in paragraph A(3)(a) hereof in preference to and in priority over any
dividends upon any of the Series A Junior Securities. Such dividends on
the Series A Preferred Stock shall be cumulative, whether or not earned
or declared, so that if at any time full Accumulated Dividends on all
shares of Series A Preferred Stock then outstanding for all Dividend
Periods then elapsed have not been paid or set aside for payment, the
amount of such unpaid dividends shall be paid before any sum shall be set
aside for or applied by the Corporation to the purchase, redemption or
other acquisition for value of any shares of Series A Junior Securities
(either pursuant to any applicable sinking fund requirement or otherwise)
or any dividend or other distribution shall be paid or declared or set
apart for payment on any Series A Junior Securities (the date of any such
actions to be referred to as the "SERIES A JUNIOR PAYMENT DATE");
PROVIDED, HOWEVER, that the foregoing shall not (i) prohibit the
Corporation from repurchasing shares of Series A Junior Securities from a
holder thereof who is, or was, a director or employee of the Corporation
(or an affiliate of the Corporation) and (ii) prohibit the Corporation
from making dividends, other distributions, redemptions, repurchases or
acquisitions in respect of Series A Junior Securities payable in Series A
Junior Securities and cash in lieu of fractional shares of such Series A
Junior Securities in connection therewith.
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<PAGE>
(f) Dividends payable on Series A Preferred Stock for any period less
than one year shall be computed on the basis of a 360-day year consisting
of twelve 30-day months and the actual number of days elapsed in the
period for which such dividends are payable.
4. LIQUIDATION PREFERENCE.
(a) Upon any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the Holders of all shares of Series A
Preferred Stock then outstanding shall be entitled to be paid out of the
assets of the Corporation available for distribution to its stockholders
an amount in cash equal to $10.00 per share, plus an amount equal to full
cumulative dividends (whether or not earned or declared) accrued and
unpaid thereon, including Additional Dividends, to the date of final
distribution (the "LIQUIDATION PREFERENCE") and no more, before any
distribution is made on any Series A Junior Securities. If upon any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, the application of all amounts available for payments with
respect to Series A Preferred Stock and all other Series A Parity
Securities would not result in payment in full of Series A Preferred
Stock and such other Series A Parity Securities, the Holders and holders
of Series A Parity Securities shall share equally and ratably in any
distribution of assets of the Corporation in proportion to the full
liquidation preference to which each is entitled. After payment in full
pursuant to this paragraph A(4)(a), the Holders shall not be entitled to
any further participation in any distribution in the event of
liquidation, dissolution or winding up of the affairs of the Corporation.
(b) For the purposes of this paragraph A(4), neither the voluntary
sale, conveyance, exchange or transfer (for cash, shares of stock,
securities or other consideration) of all or substantially all of the
property or assets of the Corporation nor the consolidation, merger or
other business combination of the Corporation with one or more
corporations (whether or not the Corporation is the surviving
corporation) shall be deemed to be a voluntary or involuntary
liquidation, dissolution or winding up of the Corporation.
5. REDEMPTION.
(a) OPTIONAL REDEMPTION.
(i) The Corporation may, at its option, redeem at any time or
from time to time, from any source of funds legally available
therefor, in whole or in part, in the manner provided in paragraph
A(5)(c) hereof, any or all of the shares of Series A Preferred Stock,
at a redemption prices set forth below, plus an amount equal to full
cumulative dividends (whether or not earned or declared) accrued and
unpaid thereon, including Additional Dividends, to the Redemption
Date (as defined in paragraph B). The redemption price for
redemptions pursuant to this paragraph 5(a) are as follows:
<TABLE>
<CAPTION>
REDEMPTION PRICE
REDEMPTION DATE PER SHARE
- -------------------------------------------------------- -----------------
<S> <C>
on or before December 31, 1999.......................... $ 11.00
on or after January 1, 2000
but before December 31, 2001.......................... $ 10.50
on or after January 1, 2002............................. $ 10.00
</TABLE>
(ii) No partial redemption of Series A Preferred Stock pursuant
to paragraph A(5)(a) hereof may be authorized or made unless prior
thereto, full accrued and unpaid dividends thereon for all Dividend
Periods terminating on or prior to the Redemption Date and an amount
equal to a prorated dividend thereon for the period from the Dividend
Payment Date immediately prior to the Redemption Date to the
Redemption Date have been or immediately prior to the Redemption
Notice are declared and paid in cash or are
3
<PAGE>
declared and there has been a sum set apart sufficient for such cash
payment on the Redemption Date.
(iii) In the event of a redemption pursuant to paragraph A(5)(a)
hereof of only a portion of the then outstanding shares of Series A
Preferred Stock, the Corporation shall effect such redemption PRO
RATA according to the number of shares held by each Holder of Series
A Preferred Stock.
(b) MANDATORY REDEMPTION. All outstanding shares of the Series A
Preferred Stock shall be redeemed from funds legally available therefor
on December 31, 2011 (the "MANDATORY REDEMPTION DATE"), at a price per
share equal to the Liquidation Preference on such Mandatory Redemption
Date.
(c) PROCEDURES FOR REDEMPTION.
(i) At least 30 days and not more than 60 days prior to the date
fixed for any redemption of Series A Preferred Stock, written notice
(the "REDEMPTION NOTICE") shall be given by first class mail, postage
prepaid, to each Holder of record of Series A Preferred Stock on the
record date fixed for such redemption of Series A Preferred Stock at
such Holder's address as set forth on the stock register of the
Corporation on such record date; PROVIDED that no failure to give
such notice nor any deficiency therein shall affect the validity of
the procedure for the redemption of any shares of Series A Preferred
Stock to be redeemed except as to the Holder or Holders to whom the
Corporation has failed to give said notice or except as to the Holder
or Holders whose notice was defective. In addition to any information
required by law or by the applicable rules of any exchange upon which
shares of Series A Preferred Stock may be listed or admitted to
trading, the Redemption Notice shall state:
(A) the redemption price;
(B) whether all or less than all of the outstanding shares of
Series A Preferred Stock redeemable thereunder are to be redeemed
and the aggregate number of shares of Series A Preferred Stock
being redeemed;
(C) the number of shares of Series A Preferred Stock held, as
of the appropriate record date, by the Holder that the
Corporation intends to redeem;
(D) the Redemption Date;
(E) that the Holder is to surrender to the Corporation, at
the place or places where certificates for shares of Series A
Preferred Stock are to be surrendered for redemption, in the
manner and at the price designated, his, her or its certificate
or certificates representing the shares of Series A Preferred
Stock to be redeemed; and
(F) that dividends on the shares of Series A Preferred Stock
to be redeemed shall cease to accumulate on such Redemption Date
unless the Corporation defaults in the payment of the redemption
price.
(ii) Each Holder shall surrender the certificate or certificates
representing such shares of Series A Preferred Stock being so
redeemed to the Corporation, duly endorsed, in the manner and at the
place designated in the Redemption Notice, and on the Redemption Date
the full redemption price for such shares shall be payable in cash to
the Person whose name appears on such certificate or certificates as
the owner thereof, and each surrendered certificate shall be canceled
and retired. In the event that less than all of the shares
represented by any such certificate are redeemed, a new certificate
shall be issued representing the unredeemed shares.
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<PAGE>
(iii) If a Redemption Notice has been mailed in accordance with
paragraph A(5)(c) above, unless the Corporation defaults in the
payment in full of the redemption price, then, notwithstanding that
the certificates evidencing any shares of Series A Preferred Stock so
called for redemption shall not have been surrendered, (x) on the
Redemption Date, the shares represented thereby so called for
redemption shall be deemed no longer outstanding and shall have the
status of authorized but unissued shares of Preferred Stock,
undesignated as to series, (y) dividends with respect to the shares
so called for redemption shall cease to accrue after the Redemption
Date and (z) all rights with respect to the shares so called for
redemption or subject to conversion shall forthwith after such date
cease and terminate, except for the right of the holders to receive
the funds, if any, payable pursuant to this paragraph 5 without
interest upon surrender of their certificates therefor.
(d) DEPOSIT OF FUNDS. The Corporation's obligation to deliver funds
in accordance with this paragraph (5) shall be deemed fulfilled if, on or
before a Redemption Date, the Corporation shall deposit, with a bank or
trust Corporation, or an affiliate of a bank or trust Corporation such
funds as are required to be delivered by the Corporation pursuant to this
paragraph (5) upon the occurrence of the related redemption consideration
sufficient to pay all accrued and unpaid dividends on the shares to be
redeemed, in trust for the account of the Holders of the shares to be
redeemed (and so as to be and continue to be available therefor), with
irrevocable instructions and authority to such bank or trust Corporation
that such shares and funds be delivered upon redemption of the shares of
Series A Preferred Stock so called for redemption. Any interest accrued
on such funds shall be paid to the Corporation from time to time. Upon
surrender of the certificates pursuant to paragraph A(5)(c)(ii), each
Holder shall thereupon be entitled to any funds payable pursuant to this
paragraph 5 following such surrender and following the date of such
redemption.
6. VOTING RIGHTS.
(a) The Holders shall not be entitled or permitted to vote on any
matter required or permitted to be voted upon by the shareholders of the
Corporation, except as otherwise required by Delaware law or this
Certificate of Designation except that, without the written consent of
the holders of a majority of the outstanding shares of Series A Preferred
Stock or the vote of the holders of a majority of the outstanding shares
of Series A Preferred Stock at a meeting of the holders of Series A
Preferred Stock called for such purpose, the Corporation shall not (a)
create, authorize or issue any other class or series of stock entitled to
a preference prior to Series A Preferred Stock upon any dividend or
distribution or any liquidation, distribution of assets, dissolution or
winding up of the Corporation, or (b) amend, alter or repeal any
provision of the Corporation's Certificate of Incorporation so as to
materially adversely affect the relative rights and preferences of the
Series A Preferred Stock.
(b) Without limiting the generality of the foregoing, in no event
shall the Holders be entitled to vote (individually or as a class) on any
merger or consolidation involving the Corporation, any sale of all or
substantially all of the assets of the Corporation or any similar
transaction.
(c) In any case in which the Holders shall be entitled to vote
pursuant to paragraph A(6)(a) above, each Holder shall be entitled to one
vote for each share of Series A Preferred Stock held unless otherwise
required by applicable law.
7. CONVERSION OR EXCHANGE. The Holders shall not have any rights
hereunder to convert such shares into or exchange such shares for shares of
any other class or classes or of any other series of any class or classes of
Capital Stock of the Corporation.
8. REISSUANCE OF SERIES A PREFERRED STOCK. Shares of Series A Preferred
Stock which have been issued and reacquired in any manner, including shares
purchased, redeemed or exchanged, shall have
5
<PAGE>
the status of authorized and unissued shares of Preferred Stock and may be
reissued as part of a new series of Preferred Stock to be created by
resolution or resolutions of the Board of Directors or as part of any other
series of Preferred Stock, all subject to the conditions or restrictions on
issuance set forth in any resolution or resolutions adopted by the Board of
Directors providing for the issuance of any series of Preferred Stock;
except that the Corporation may reissue shares of Series A Preferred Stock
which are reacquired by the Corporation from a Holder who is, or was, an
employee or director of the Corporation (or its affiliates).
9. BUSINESS DAY. If any payment shall be required by the terms hereof to
be made on a day that is not a Business Day, such payment shall be made on
the immediately succeeding Business Day.
10. NO PREEMPTIVE RIGHTS. No Holder will possess any preemptive rights
to subscribe for or acquire any unissued shares of Capital Stock of the
Corporation (whether now or hereafter authorized) or securities of the
Corporation convertible into or carrying a right to subscribe to or acquire
shares of Capital Stock of the Corporation.
11. PROHIBITIONS AND RESTRICTIONS IMPOSED BY SENIOR SECURITIES AND
INDEBTEDNESS. To the extent that any action required to be taken by the
Corporation under this Certificate of Designation shall be prohibited or
restricted by the terms of any Series A Senior Securities or any contract or
instrument to which the Corporation is a party or by which it is bound in
respect of the incurrence of indebtedness, such Corporation's actions shall
be delayed until such time as such prohibition or restriction is no longer
in force.
B. DEFINITIONS. As used in this Resolution, the following terms shall have
the following meanings (with terms defined in the singular having comparable
meanings when used in the plural and VICE VERSA), unless the context otherwise
requires:
"ACCUMULATED DIVIDENDS" means (i) with respect to any share of Series A
Preferred Stock, the dividends that have accrued on such share as of such
specific date for Dividend Periods ending on or prior to such date and that
have not previously been paid in cash, and (ii) with respect to any Series A
Parity Security, the dividends that have accrued and are due on such
security as of such specific date.
"ADDITIONAL DIVIDENDS" has the meaning given to such term in paragraph
A(3)(a).
"BUSINESS DAY" means any day except a Saturday, Sunday or other day on
which commercial banking institutions in New York City are authorized by law
or executive order to close.
"CAPITAL STOCK" means any and all shares, interests, participations,
rights, or other equivalents (however designated) of corporate stock
including, without limitation, partnership interests.
"COMMON STOCK" shall have the meaning given to such term in paragraph
A(2)
"DIVIDEND PAYMENT DATE" means June 30th and December 31st of each year.
"DIVIDEND PERIOD" means the Initial Dividend Period and, thereafter,
each Semi-Annual Dividend Period.
"HOLDER" means a holder of shares of Series A Preferred Stock.
"INITIAL DIVIDEND PERIOD" means the dividend period commencing on the
Issue Date and ending on the first Dividend Payment Date to occur
thereafter.
"ISSUE DATE" means , 1998.
"LIQUIDATION PREFERENCE" has the meaning given to such term in paragraph
A(4)(a).
"MANDATORY REDEMPTION DATE" has the meaning given to such term in
paragraph A(5)(b).
6
<PAGE>
"PERSON" means any individual, corporation, partnership, joint venture,
incorporated or unincorporated association, joint-stock Corporation, trust,
unincorporated organization or government or other agency or political
subdivision thereof or any other entity of any kind.
"PREFERRED STOCK" means the Preferred Stock of the Corporation.
"REDEMPTION DATE", with respect to any shares of Preferred Stock, means
the date on which such shares of Preferred Stock are redeemed by the
Corporation pursuant to paragraph A(5).
"REDEMPTION NOTICE" has the meaning given to such term in paragraph
A(5)(c).
"SERIES A JUNIOR PAYMENT DATE" has the meaning given to such term in
A(3)(e).
"SERIES A JUNIOR SECURITIES" has the meaning given to such term in
paragraph A(2).
"SERIES A PARITY PAYMENT DATE" has the meaning given to such term in
A(3)(d).
"SERIES A PARITY SECURITIES" has the meaning given to such term in
paragraph A(2).
"SEMI-ANNUAL DIVIDEND PERIOD" means the annual period commencing on each
January 1st and July 1st and ending on each Dividend Payment Date,
respectively.
"SERIES A PREFERRED STOCK" has the meaning given to such term in
paragraph A(1).
"SERIES A SENIOR SECURITIES" has the meaning given to such term in
paragraph A(2).
"SERIES B PREFERRED STOCK" means the Series B 13.25% Cumulative
Compounding Perpetual Preferred Stock of the Corporation.
"SERIES C PREFERRED STOCK" means the Series C 13.5% Cumulative
Compounding Preferred Stock of the Corporation.
IN WITNESS WHEREOF, the undersigned officers of the Corporation have
executed this Certificate of Designation as of the day of , 1998.
<TABLE>
<S> <C>
ATTEST:
Secretary President
</TABLE>
7
<PAGE>
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS FOR
SERIES B 13.25% CUMULATIVE COMPOUNDING PERPETUAL PREFERRED STOCK
OF
MEDIQ INCORPORATED
MEDIQ Incorporated, a Delaware corporation (hereinafter called the
"Corporation"), pursuant to the provisions of Section 151 of the General
Corporation Law of the State of Delaware, does hereby make this Certificate of
Designation under the corporate seal of the Corporation and does hereby state
and certify that pursuant to the authority expressly vested in the Board of
Directors of the Corporation by the Certificate of Incorporation, the Board of
Directors has duly adopted the following resolutions:
RESOLVED, that, pursuant to Article 4 of the Certificate of Incorporation
(which authorizes the creation and issuance of shares of Preferred Stock on such
terms as are determined by the Board of Directors), the Board of Directors
hereby fixes the designations and preferences and relative, participating,
optional and other special rights and qualifications, limitations and
restrictions of the following series of Preferred Stock:
A. SERIES B PREFERRED STOCK.
1. DESIGNATION OF SERIES. The designation of the series of Preferred
Stock authorized by this resolution shall be "Series B 13.25% Cumulative
Compounding Perpetual Preferred Stock" ("Series B Preferred Stock")
consisting of 3,000,000 shares. The par value of Series B Preferred Stock
shall be $.01 per share.
2. RANK. With respect to dividend rights and rights on liquidation,
winding up and dissolution of the Corporation, Series B Preferred Stock
shall rank (a) senior to the Common Stock of the Corporation, par value $.01
per share ("COMMON STOCK"), the Series C Preferred Stock (defined in
paragraph B below), and each other class of capital stock or class or series
of preferred stock issued by the Corporation after the date hereof the terms
of which specifically provide that such class or series shall rank junior to
the Series B Preferred Stock as to dividend distributions or distributions
upon the liquidation, winding up and dissolution of the Corporation
(collectively referred to as "SERIES B JUNIOR SECURITIES"), (b) on a parity
with each other class of capital stock or class or series of preferred stock
issued by the Corporation after the date hereof the terms of which
specifically provide that such class or series shall rank neither senior nor
junior to the Series B Preferred Stock as to dividend distributions or
distributions upon liquidation, winding up and dissolution of the
Corporation (collectively referred to as "SERIES B PARITY SECURITIES"), and
(c) junior to (i) the Series A Preferred Stock, (ii) each other class of
capital stock or other class or series of preferred stock issued by the
Corporation that by its terms is senior to the Series B Preferred Stock with
respect to dividend distributions or distributions upon the liquidation,
winding up and dissolution of the Corporation and (iii) each other class of
capital stock or class or series of preferred stock issued by the
Corporation after the date hereof the terms of which do not specifically
provide that they rank junior to Series B Preferred Stock or senior to
Series B Preferred Stock as to dividend distributions or distributions upon
liquidation, winding up and dissolution of the Corporation (collectively
referred to as "SERIES B SENIOR SECURITIES").
3. DIVIDENDS.
(a) Each Holder of Series B Preferred Stock shall be entitled to
receive, when, as and if declared by the Board of Directors, out of funds
legally available therefor, cash dividends on each share of Series B
Preferred Stock at a rate equal to $1.325 per share PER ANNUM. All
dividends shall be cumulative, whether or not earned or declared, and
shall accrue on a daily basis from the date of issuance of Series B
Preferred Stock, and shall be payable semi-annually in arrears on each
Dividend Payment Date, commencing on the second Dividend Payment Date
after the date of issuance of such Series B Preferred Stock. Each
dividend on Series B Preferred Stock shall be payable to the Holders of
record of Series B Preferred Stock as they appear on the stock register
<PAGE>
of the Corporation on such record date as may be fixed by the Board of
Directors, which record date shall not be less than 10 nor more than 60
days prior to the applicable Dividend Payment Date. Dividends shall cease
to accrue in respect of shares of Series B Preferred Stock on the date of
their repurchase by the Corporation unless the Corporation shall have
failed to pay the relevant repurchase price on the date fixed for
repurchase. Notwithstanding anything to the contrary set forth above,
unless and until such dividends are declared by the Board of Directors,
there shall be no obligation to pay such dividends; PROVIDED, that such
dividends shall continue to cumulate and shall be added to the
Liquidation Preference (as provided in paragraph A4(a) below) at the time
of repurchase as provided herein if not earlier declared and paid.
Accrued dividends on the Series B Preferred Stock if not paid on the
first or any subsequent Dividend Payment Date following accrual shall
thereafter accrue additional dividends ("ADDITIONAL DIVIDENDS") in
respect thereof, compounded annually, at the rate of 13.25% per annum.
(b) All dividends paid with respect to shares of Series B Preferred
Stock pursuant to paragraph A(3)(a) shall be paid PRO RATA to the Holders
entitled thereto.
(c) Dividends on account of arrears for any past Dividend Period may
be declared and paid at any time, without reference to any regular
Dividend Payment Date, to the Holders of record on any date as may be
fixed by the Board of Directors, which date is not more than 60 days
prior to the payment of such dividends.
(d) As long as any Series B Preferred Stock is outstanding, no
dividends shall be declared by the Board of Directors or paid or funds
set apart for the payment of dividends or other distributions on any
Series B Parity Securities for any period, and no Series B Parity
Securities may be repurchased, redeemed or otherwise acquired, nor may
funds be set apart for such payment (other than dividends, other
distributions, redemptions, repurchases or acquisitions payable in Series
B Junior Securities and cash in lieu of fractional shares of such Series
B Junior Securities in connection therewith), unless (i) full Accumulated
Dividends have been paid or set apart for such payment on the Series B
Preferred Stock and Series B Parity Securities for all Dividend Periods
terminating on or prior to the date of payment of such dividends or
distributions on, or such repurchase or redemption of, such Series B
Parity Securities (the "SERIES B PARITY PAYMENT DATE") and (ii) any such
dividends are declared and paid pro rata so that the amounts of any
dividends declared and paid per share on outstanding Series B Preferred
Stock and each other share of Series B Parity Securities will in all
cases bear to each other the same ratio that accrued and unpaid dividends
(including any Accumulated Dividends) per share of outstanding Series B
Preferred Stock and such other outstanding shares of Series B Parity
Securities bear to each other.
(e) The Holders shall be entitled to receive the dividends provided
for in paragraph A(3)(a) hereof in preference to and in priority over any
dividends upon any of the Series B Junior Securities. Such dividends on
the Series B Preferred Stock shall be cumulative, whether or not earned
or declared, so that if at any time full Accumulated Dividends on all
shares of Series B Preferred Stock then outstanding for all Dividend
Periods then elapsed have not been paid or set aside for payment, the
amount of such unpaid dividends shall be paid before any sum shall be set
aside for or applied by the Corporation to the purchase, redemption or
other acquisition for value of any shares of Series B Junior Securities
(either pursuant to any applicable sinking fund requirement or otherwise)
or any dividend or other distribution shall be paid or declared or set
apart for payment on any Series B Junior Securities (the date of any such
actions to be referred to as the "SERIES B JUNIOR PAYMENT DATE");
PROVIDED, HOWEVER, that the foregoing shall not (i) prohibit the
Corporation from repurchasing shares of Series B Junior Securities from a
holder thereof who is, or was, a director or employee of the Corporation
(or an affiliate of the Corporation) and (ii) prohibit the Corporation
from making dividends, other distributions, redemptions, repurchases or
acquisitions in respect of Series B Junior Securities payable in Series B
Junior
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<PAGE>
Securities and cash in lieu of fractional shares of such Series B Junior
Securities in connection therewith.
(f) Dividends payable on Series B Preferred Stock for any period less
than one year shall be computed on the basis of a 360-day year consisting
of twelve 30-day months and the actual number of days elapsed in the
period for which such dividends are payable.
4. LIQUIDATION PREFERENCE.
(a) Upon any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the Holders of all shares of Series B
Preferred Stock then outstanding shall be entitled to be paid out of the
assets of the Corporation available for distribution to its stockholders
an amount in cash equal to $10.00 per share, plus an amount equal to full
cumulative dividends (whether or not earned or declared) accrued and
unpaid thereon, including Additional Dividends, to the date of final
distribution (the "Liquidation Preference") and no more, before any
distribution is made on any Series B Junior Securities. If upon any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, the application of all amounts available for payments with
respect to Series B Preferred Stock and all other Series B Parity
Securities would not result in payment in full of Series B Preferred
Stock and such other Series B Parity Securities, the Holders and holders
of Series B Parity Securities shall share equally and ratably in any
distribution of assets of the Corporation in proportion to the full
liquidation preference to which each is entitled. After payment in full
pursuant to this paragraph A(4)(a), the Holders shall not be entitled to
any further participation in any distribution in the event of
liquidation, dissolution or winding up of the affairs of the Corporation.
(b) For the purposes of this paragraph A(4), neither the voluntary
sale, conveyance, exchange or transfer (for cash, shares of stock,
securities or other consideration) of all or substantially all of the
property or assets of the Corporation nor the consolidation, merger or
other business combination of the Corporation with one or more
corporations (whether or not the Corporation is the surviving
corporation) shall be deemed to be a voluntary or involuntary
liquidation, dissolution or winding up of the Corporation.
5. REDEMPTION. The Company shall not have the right nor the power to,
and the Holders shall not have the right to require the Company to, redeem
any shares of Series B Preferred Stock. Notwithstanding the foregoing, this
Paragraph A(5) shall not prohibit the Corporation from acquiring from any
Holder, with such Holder's consent, any shares of Series B Preferred Stock
held by such Holder.
6. VOTING RIGHTS.
(a) The Holders shall not be entitled or permitted to vote on any
matter required or permitted to be voted upon by the shareholders of the
Corporation, except as otherwise required by Delaware law or this
Certificate of Designation except that, without the written consent of
the holders of a majority of the outstanding shares of Series B Preferred
Stock or the vote of the holders of a majority of the outstanding shares
of Series B Preferred Stock at a meeting of the holders of Series B
Preferred Stock called for such purpose, the Corporation shall not (a)
create, authorize or issue any other class or series of stock entitled to
a preference prior to Series B Preferred Stock upon any dividend or
distribution or any liquidation, distribution of assets, dissolution or
winding up of the Corporation, or (b) amend, alter or repeal any
provision of the Corporation's Certificate of Incorporation so as to
materially adversely affect the relative rights and preferences of the
Series B Preferred Stock.
(b) Without limiting the generality of the foregoing, in no event
shall the Holders be entitled to vote (individually or as a class) on any
merger or consolidation involving the Corporation, any sale of all or
substantially all of the assets of the Corporation or any similar
transaction.
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<PAGE>
(c) In any case in which the Holders shall be entitled to vote
pursuant to paragraph A(6)(a) above, each Holder shall be entitled to one
vote for each share of Series B Preferred Stock held unless otherwise
required by applicable law.
7. CONVERSION OR EXCHANGE. The Holders shall not have any rights
hereunder to convert such shares into or exchange such shares for shares of
any other class or classes or of any other series of any class or classes of
Capital Stock of the Corporation.
8. REISSUANCE OF SERIES B PREFERRED STOCK. Shares of Series B Preferred
Stock which have been issued and reacquired in any manner, including shares
purchased, redeemed or exchanged, shall have the status of authorized and
unissued shares of Preferred Stock and may be reissued as part of a new
series of Preferred Stock to be created by resolution or resolutions of the
Board of Directors or as part of any other series of Preferred Stock, all
subject to the conditions or restrictions on issuance set forth in any
resolution or resolutions adopted by the Board of Directors providing for
the issuance of any series of Preferred Stock; except that the Corporation
may reissue shares of Series B Preferred Stock which are reacquired by the
Corporation from a Holder who is, or was, an employee or director of the
Corporation (or its affiliates).
9. BUSINESS DAY. If any payment shall be required by the terms hereof to
be made on a day that is not a Business Day, such payment shall be made on
the immediately succeeding Business Day.
10. NO PREEMPTIVE RIGHTS. No Holder will possess any preemptive rights
to subscribe for or acquire any unissued shares of Capital Stock of the
Corporation (whether now or hereafter authorized) or securities of the
Corporation convertible into or carrying a right to subscribe to or acquire
shares of Capital Stock of the Corporation.
11. PROHIBITIONS AND RESTRICTIONS IMPOSED BY SENIOR SECURITIES AND
INDEBTEDNESS. To the extent that any action required to be taken by the
Corporation under this Certificate of Designation shall be prohibited or
restricted by the terms of any Series B Senior Securities or any contract or
instrument to which the Corporation is a party or by which it is bound in
respect of the incurrence of indebtedness, such Corporation's actions shall
be delayed until such time as such prohibition or restriction is no longer
in force.
B. DEFINITIONS. As used in this Resolution, the following terms shall have
the following meanings (with terms defined in the singular having comparable
meanings when used in the plural and vice versa), unless the context otherwise
requires:
"ACCUMULATED DIVIDENDS" means (i) with respect to any share of Series B
Preferred Stock, the dividends that have accrued on such share as of such
specific date for Dividend Periods ending on or prior to such date and that
have not previously been paid in cash, and (ii) with respect to any Series B
Parity Security, the dividends that have accrued and are due on such
security as of such specific date.
"ADDITIONAL DIVIDENDS" has the meaning given to such term in paragraph
A(3)(a).
"BUSINESS DAY" means any day except a Saturday, Sunday or other day on
which commercial banking institutions in New York City are authorized by law
or executive order to close.
"CAPITAL STOCK" means any and all shares, interests, participations,
rights, or other equivalents (however designated) of corporate stock
including, without limitation, partnership interests.
"COMMON STOCK" shall have the meaning given to such term in paragraph
A(2)
"DIVIDEND PAYMENT DATE" means June 30th and December 31st of each year.
"DIVIDEND PERIOD" means the Initial Dividend Period and, thereafter,
each Semi-Annual Dividend Period.
"HOLDER" means a holder of shares of Series B Preferred Stock.
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<PAGE>
"INITIAL DIVIDEND PERIOD" means the dividend period commencing on the
Issue Date and ending on the first Dividend Payment Date to occur
thereafter.
"ISSUE DATE" means , 1998.
"LIQUIDATION PREFERENCE" has the meaning given to such term in paragraph
4(a).
"PERSON" means any individual, corporation, partnership, joint venture,
incorporated or unincorporated association, joint-stock Corporation, trust,
unincorporated organization or government or other agency or political
subdivision thereof or any other entity of any kind.
"PREFERRED STOCK" means the Preferred Stock of the Corporation.
"SEMI-ANNUAL DIVIDEND PERIOD" means the annual period commencing on each
January 1st and July 1st and ending on each Dividend Payment Date,
respectively.
"SERIES A PREFERRED STOCK" means the Series A 13.0% Cumulative
Compounding Preferred Stock of the Corporation.
"SERIES B JUNIOR PAYMENT DATE" has the meaning given to such term in
A(3)(e).
"SERIES B JUNIOR SECURITIES" has the meaning given to such term in
paragraph A(2).
"SERIES B PARITY PAYMENT DATE" has the meaning given to such term in
A(3)(d).
"SERIES B PARITY SECURITIES" has the meaning given to such term in
paragraph A(2).
"SERIES B PREFERRED STOCK" has the meaning given to such term in
paragraph A(1).
"SERIES B SENIOR SECURITIES" has the meaning given to such term in
paragraph A(2).
"SERIES C PREFERRED STOCK" means the Series C 13.5% Cumulative
Compounding Preferred Stock of the Corporation.
IN WITNESS WHEREOF, the undersigned officers of the Corporation have
executed this Certificate of Designation as of the day of , 1998.
<TABLE>
<S> <C>
ATTEST:
Secretary President
</TABLE>
5
<PAGE>
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS FOR
SERIES C 13.5% CUMULATIVE COMPOUNDING PREFERRED STOCK
OF
MEDIQ INCORPORATED
MEDIQ Incorporated, a Delaware corporation (hereinafter called the
"Corporation"), pursuant to the provisions of Section 151 of the General
Corporation Law of the State of Delaware, does hereby make this Certificate of
Designation under the corporate seal of the Corporation and does hereby state
and certify that pursuant to the authority expressly vested in the Board of
Directors of the Corporation by the Certificate of Incorporation, the Board of
Directors has duly adopted the following resolutions:
RESOLVED, that, pursuant to Article 4 of the Certificate of Incorporation
(which authorizes the creation and issuance of shares of Preferred Stock on such
terms as are determined by the Board of Directors), the Board of Directors
hereby fixes the designations and preferences and relative, participating,
optional and other special rights and qualifications, limitations and
restrictions of the following series of Preferred Stock:
A. SERIES C PREFERRED STOCK.
1. DESIGNATION OF SERIES. The designation of the series of Preferred
Stock authorized by this resolution shall be "Series C 13.5% Cumulative
Compounding Preferred Stock" ("Series C Preferred Stock") consisting of
3,000,000 shares. The par value of Series C Preferred Stock shall be $.01
per share.
2. Rank. With respect to dividend rights and rights on liquidation,
winding up and dissolution of the Corporation, Series C Preferred Stock
shall rank (a) senior to the Common Stock of the Corporation, par value $.01
per share ("COMMON STOCK"), and each other class of capital stock or class
or series of preferred stock issued by the Corporation after the date hereof
the terms of which specifically provide that such class or series shall rank
junior to the Series C Preferred Stock as to dividend distributions or
distributions upon the liquidation, winding up and dissolution of the
Corporation (collectively referred to as "SERIES C JUNIOR SECURITIES"), (b)
on a parity with each other class of capital stock or class or series of
preferred stock issued by the Corporation after the date hereof the terms of
which specifically provide that such class or series shall rank neither
senior nor junior to the Series C Preferred Stock as to dividend
distributions or distributions upon liquidation, winding up and dissolution
of the Corporation (collectively referred to as "SERIES C PARITY
SECURITIES"), and (c) junior to (i) the Series A Preferred Stock (defined in
Paragraph B), (ii) the Series B Preferred Stock (defined in Paragraph B),
(iii) each other class of capital stock or other class or series of
preferred stock issued by the Corporation that by its terms is senior to the
Series C Preferred Stock with respect to dividend distributions or
distributions upon the liquidation, winding up and dissolution of the
Corporation and (iv) each other class of capital stock or class or series of
preferred stock issued by the Corporation after the date hereof the terms of
which do not specifically provide that they rank junior to Series C
Preferred Stock or senior to Series C Preferred Stock as to dividend
distributions or distributions upon liquidation, winding up and dissolution
of the Corporation (collectively referred to as "SERIES C SENIOR
SECURITIES").
3. DIVIDENDS.
(a) Each Holder of Series C Preferred Stock shall be entitled to
receive, when, as and if declared by the Board of Directors, out of funds
legally available therefor, cash dividends on each share of Series C
Preferred Stock at a rate equal to $1.35 per share PER ANNUM. All
dividends shall be cumulative, whether or not earned or declared, and
shall accrue on a daily basis from the date of issuance of Series C
Preferred Stock, and shall be payable semi-annually in arrears on each
Dividend Payment Date, commencing on the second Dividend Payment Date
after the date of issuance of such Series C Preferred Stock. Each
dividend on Series C Preferred Stock shall be payable to the Holders of
record of Series C Preferred Stock as they appear on the stock register
<PAGE>
of the Corporation on such record date as may be fixed by the Board of
Directors, which record date shall not be less than 10 nor more than 60
days prior to the applicable Dividend Payment Date. Dividends shall cease
to accrue in respect of shares of Series C Preferred Stock on the date of
their repurchase by the Corporation unless the Corporation shall have
failed to pay the relevant repurchase price on the date fixed for
repurchase. Notwithstanding anything to the contrary set forth above,
unless and until such dividends are declared by the Board of Directors,
there shall be no obligation to pay such dividends; PROVIDED, that such
dividends shall continue to cumulate and shall be added to the
Liquidation Preference (as provided in paragraph A4(a) below) at the time
of repurchase as provided herein if not earlier declared and paid.
Accrued dividends on the Series C Preferred Stock if not paid on the
first or any subsequent Dividend Payment Date following accrual shall
thereafter accrue additional dividends ("ADDITIONAL DIVIDENDS") in
respect thereof, compounded annually, at the rate of 13.5% per annum.
(b) All dividends paid with respect to shares of Series C Preferred
Stock pursuant to paragraph A(3)(a) shall be paid PRO RATA to the Holders
entitled thereto.
(c) Dividends on account of arrears for any past Dividend Period and
dividends in connection with any optional redemption pursuant to
paragraph A(5)(a) may be declared and paid at any time, without reference
to any regular Dividend Payment Date, to the Holders of record on any
date as may be fixed by the Board of Directors, which date is not more
than 60 days prior to the payment of such dividends.
(d) As long as any Series C Preferred Stock is outstanding, no
dividends shall be declared by the Board of Directors or paid or funds
set apart for the payment of dividends or other distributions on any
Series C Parity Securities for any period, and no Series C Parity
Securities may be repurchased, redeemed or otherwise acquired, nor may
funds be set apart for such payment (other than dividends, other
distributions, redemptions, repurchases or acquisitions payable in Series
C Junior Securities and cash in lieu of fractional shares of such Series
C Junior Securities in connection therewith), unless (i) full Accumulated
Dividends have been paid or set apart for such payment on the Series C
Preferred Stock and Series C Parity Securities for all Dividend Periods
terminating on or prior to the date of payment of such dividends or
distributions on, or such repurchase or redemption of, such Series C
Parity Securities (the "SERIES C PARITY PAYMENT DATE") and (ii) any such
dividends are declared and paid pro rata so that the amounts of any
dividends declared and paid per share on outstanding Series C Preferred
Stock and each other share of Series C Parity Securities will in all
cases bear to each other the same ratio that accrued and unpaid dividends
(including any Accumulated Dividends) per share of outstanding Series C
Preferred Stock and such other outstanding shares of Series C Parity
Securities bear to each other.
(e) The Holders shall be entitled to receive the dividends provided
for in paragraph A(3)(a) hereof in preference to and in priority over any
dividends upon any of the Series C Junior Securities. Such dividends on
the Series C Preferred Stock shall be cumulative, whether or not earned
or declared, so that if at any time full Accumulated Dividends on all
shares of Series C Preferred Stock then outstanding for all Dividend
Periods then elapsed have not been paid or set aside for payment, the
amount of such unpaid dividends shall be paid before any sum shall be set
aside for or applied by the Corporation to the purchase, redemption or
other acquisition for value of any shares of Series C Junior Securities
(either pursuant to any applicable sinking fund requirement or otherwise)
or any dividend or other distribution shall be paid or declared or set
apart for payment on any Series C Junior Securities (the date of any such
actions to be referred to as the "SERIES C JUNIOR PAYMENT DATE");
PROVIDED, HOWEVER, that the foregoing shall not (i) prohibit the
Corporation from repurchasing shares of Series C Junior Securities from a
holder thereof who is, or was, a director or employee of the Corporation
(or an affiliate of the Corporation) and (ii) prohibit the Corporation
from making dividends, other distributions,
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<PAGE>
redemptions, repurchases or acquisitions in respect of Series C Junior
Securities payable in Series C Junior Securities and cash in lieu of
fractional shares of such Series C Junior Securities in connection
therewith.
(f) Dividends payable on Series C Preferred Stock for any period less
than one year shall be computed on the basis of a 360-day year consisting
of twelve 30-day months and the actual number of days elapsed in the
period for which such dividends are payable.
4. LIQUIDATION PREFERENCE.
(a) Upon any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the Holders of all shares of Series C
Preferred Stock then outstanding shall be entitled to be paid out of the
assets of the Corporation available for distribution to its stockholders
an amount in cash equal to $10.00 per share, plus an amount equal to full
cumulative dividends (whether or not earned or declared) accrued and
unpaid thereon, including Additional Dividends, to the date of final
distribution (the "LIQUIDATION PREFERENCE") and no more, before any
distribution is made on any Series C Junior Securities. If upon any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, the application of all amounts available for payments with
respect to Series C Preferred Stock and all other Series C Parity
Securities would not result in payment in full of Series C Preferred
Stock and such other Series C Parity Securities, the Holders and holders
of Series C Parity Securities shall share equally and ratably in any
distribution of assets of the Corporation in proportion to the full
liquidation preference to which each is entitled. After payment in full
pursuant to this paragraph A(4)(a), the Holders shall not be entitled to
any further participation in any distribution in the event of
liquidation, dissolution or winding up of the affairs of the Corporation.
(b) For the purposes of this paragraph A(4), neither the voluntary
sale, conveyance, exchange or transfer (for cash, shares of stock,
securities or other consideration) of all or substantially all of the
property or assets of the Corporation nor the consolidation, merger or
other business combination of the Corporation with one or more
corporations (whether or not the Corporation is the surviving
corporation) shall be deemed to be a voluntary or involuntary
liquidation, dissolution or winding up of the Corporation.
5. REDEMPTION.
(a) OPTIONAL REDEMPTION.
(i) The Corporation may, at its option, redeem at any time or
from time to time, from any source of funds legally available
therefor, in whole or in part, in the manner provided in paragraph
A(5)(c) hereof, any or all of the shares of Series C Preferred Stock,
at a redemption price of $10.00 per share, plus an amount equal to
full cumulative dividends (whether or not earned or declared) accrued
and unpaid thereon, including Additional Dividends, to the Redemption
Date (as defined in paragraph B).
(ii) No partial redemption of Series C Preferred Stock pursuant
to paragraph A(5)(a) hereof may be authorized or made unless prior
thereto, full accrued and unpaid dividends thereon for all Dividend
Periods terminating on or prior to the Redemption Date and an amount
equal to a prorated dividend thereon for the period from the Dividend
Payment Date immediately prior to the Redemption Date to the
Redemption Date have been or immediately prior to the Redemption
Notice are declared and paid in cash or are declared and there has
been a sum set apart sufficient for such cash payment on the
Redemption Date.
(iii) In the event of a redemption pursuant to paragraph A(5)(a)
hereof of only a portion of the then outstanding shares of Series C
Preferred Stock, the Corporation shall
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<PAGE>
effect such redemption PRO RATA according to the number of shares
held by each Holder of Series C Preferred Stock.
(b) MANDATORY REDEMPTION. All outstanding shares of the Series C
Preferred Stock shall be redeemed from funds legally available therefor
on December 31, 2012 (the "MANDATORY REDEMPTION DATE"), at a price per
share equal to the Liquidation Preference on such Mandatory Redemption
Date.
(c) PROCEDURES FOR REDEMPTION.
(i) At least 30 days and not more than 60 days prior to the date
fixed for any redemption of Series C Preferred Stock, written notice
(the "REDEMPTION NOTICE") shall be given by first class mail, postage
prepaid, to each Holder of record of Series C Preferred Stock on the
record date fixed for such redemption of Series C Preferred Stock at
such Holder's address as set forth on the stock register of the
Corporation on such record date; PROVIDED that no failure to give
such notice nor any deficiency therein shall affect the validity of
the procedure for the redemption of any shares of Series C Preferred
Stock to be redeemed except as to the Holder or Holders to whom the
Corporation has failed to give said notice or except as to the Holder
or Holders whose notice was defective. In addition to any information
required by law or by the applicable rules of any exchange upon which
shares of Series C Preferred Stock may be listed or admitted to
trading, the Redemption Notice shall state:
(A) the redemption price;
(B) whether all or less than all of the outstanding shares of
Series C Preferred Stock redeemable thereunder are to be redeemed
and the aggregate number of shares of Series C Preferred Stock
being redeemed;
(C) the number of shares of Series C Preferred Stock held, as
of the appropriate record date, by the Holder that the
Corporation intends to redeem;
(D) the Redemption Date;
(E) that the Holder is to surrender to the Corporation, at
the place or places where certificates for shares of Series C
Preferred Stock are to be surrendered for redemption, in the
manner and at the price designated, his, her or its certificate
or certificates representing the shares of Series C Preferred
Stock to be redeemed; and
(F) that dividends on the shares of Series C Preferred Stock
to be redeemed shall cease to accumulate on such Redemption Date
unless the Corporation defaults in the payment of the redemption
price.
(ii) Each Holder shall surrender the certificate or certificates
representing such shares of Series C Preferred Stock being so
redeemed to the Corporation, duly endorsed, in the manner and at the
place designated in the Redemption Notice, and on the Redemption Date
the full redemption price for such shares shall be payable in cash to
the Person whose name appears on such certificate or certificates as
the owner thereof, and each surrendered certificate shall be canceled
and retired. In the event that less than all of the shares
represented by any such certificate are redeemed, a new certificate
shall be issued representing the unredeemed shares.
(iii) If a Redemption Notice has been mailed in accordance with
paragraph A(5)(c) above, unless the Corporation defaults in the
payment in full of the redemption price, then, notwithstanding that
the certificates evidencing any shares of Series C Preferred Stock so
called for redemption shall not have been surrendered, (x) on the
Redemption
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<PAGE>
Date, the shares represented thereby so called for redemption shall
be deemed no longer outstanding and shall have the status of
authorized but unissued shares of Preferred Stock, undesignated as to
series, (y) dividends with respect to the shares so called for
redemption shall cease to accrue after the Redemption Date and (z)
all rights with respect to the shares so called for redemption or
subject to conversion shall forthwith after such date cease and
terminate, except for the right of the holders to receive the funds,
if any, payable pursuant to this paragraph 5 without interest upon
surrender of their certificates therefor.
(d) DEPOSIT OF FUNDS. The Corporation's obligation to deliver funds
in accordance with this paragraph (5) shall be deemed fulfilled if, on or
before a Redemption Date, the Corporation shall deposit, with a bank or
trust Corporation, or an affiliate of a bank or trust Corporation such
funds as are required to be delivered by the Corporation pursuant to this
paragraph (5) upon the occurrence of the related redemption consideration
sufficient to pay all accrued and unpaid dividends on the shares to be
redeemed, in trust for the account of the Holders of the shares to be
redeemed (and so as to be and continue to be available therefor), with
irrevocable instructions and authority to such bank or trust Corporation
that such shares and funds be delivered upon redemption of the shares of
Series C Preferred Stock so called for redemption. Any interest accrued
on such funds shall be paid to the Corporation from time to time. Upon
surrender of the certificates pursuant to paragraph A(5)(c)(ii), each
Holder shall thereupon be entitled to any funds payable pursuant to this
paragraph 5 following such surrender and following the date of such
redemption.
6. VOTING RIGHTS.
(a) The Holders shall not be entitled or permitted to vote on any
matter required or permitted to be voted upon by the shareholders of the
Corporation, except as otherwise required by Delaware law or this
Certificate of Designation except that, without the written consent of
the holders of a majority of the outstanding shares of Series C Preferred
Stock or the vote of the holders of a majority of the outstanding shares
of Series C Preferred Stock at a meeting of the holders of Series C
Preferred Stock called for such purpose, the Corporation shall not (a)
create, authorize or issue any other class or series of stock entitled to
a preference prior to Series C Preferred Stock upon any dividend or
distribution or any liquidation, distribution of assets, dissolution or
winding up of the Corporation, or (b) amend, alter or repeal any
provision of the Corporation's Certificate of Incorporation so as to
materially adversely affect the relative rights and preferences of the
Series C Preferred Stock.
(b) Without limiting the generality of the foregoing, in no event
shall the Holders be entitled to vote (individually or as a class) on any
merger or consolidation involving the Corporation, any sale of all or
substantially all of the assets of the Corporation or any similar
transaction.
(c) In any case in which the Holders shall be entitled to vote
pursuant to paragraph A(6)(a) above, each Holder shall be entitled to one
vote for each share of Series C Preferred Stock held unless otherwise
required by applicable law.
7. CONVERSION OR EXCHANGE. The Holders shall not have any rights
hereunder to convert such shares into or exchange such shares for shares of
any other class or classes or of any other series of any class or classes of
Capital Stock of the Corporation.
8. REISSUANCE OF SERIES C PREFERRED STOCK. Shares of Series C Preferred
Stock which have been issued and reacquired in any manner, including shares
purchased, redeemed or exchanged, shall have the status of authorized and
unissued shares of Preferred Stock and may be reissued as part of a new
series of Preferred Stock to be created by resolution or resolutions of the
Board of Directors or as part of any other series of Preferred Stock, all
subject to the conditions or restrictions on issuance set forth in any
resolution or resolutions adopted by the Board of Directors providing for
the issuance of any
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<PAGE>
series of Preferred Stock; except that the Corporation may reissue shares of
Series C Preferred Stock which are reacquired by the Corporation from a
Holder who is, or was, an employee or director of the Corporation (or its
affiliates).
9. BUSINESS DAY. If any payment shall be required by the terms hereof to
be made on a day that is not a Business Day, such payment shall be made on
the immediately succeeding Business Day.
10. NO PREEMPTIVE RIGHTS No Holder will possess any preemptive rights to
subscribe for or acquire any unissued shares of Capital Stock of the
Corporation (whether now or hereafter authorized) or securities of the
Corporation convertible into or carrying a right to subscribe to or acquire
shares of Capital Stock of the Corporation.
11. PROHIBITIONS AND RESTRICTIONS IMPOSED BY SENIOR SECURITIES AND
INDEBTEDNESS. To the extent that any action required to be taken by the
Corporation under this Certificate of Designation shall be prohibited or
restricted by the terms of any Series C Senior Securities or any contract or
instrument to which the Corporation is a party or by which it is bound in
respect of the incurrence of indebtedness, such Corporation's actions shall
be delayed until such time as such prohibition or restriction is no longer
in force.
B. DEFINITIONS. As used in this Resolution, the following terms shall have
the following meanings (with terms defined in the singular having comparable
meanings when used in the plural and VICE VERSA), unless the context otherwise
requires:
"ACCUMULATED DIVIDENDS" means (i) with respect to any share of Series C
Preferred Stock, the dividends that have accrued on such share as of such
specific date for Dividend Periods ending on or prior to such date and that
have not previously been paid in cash, and (ii) with respect to any Series C
Parity Security, the dividends that have accrued and are due on such
security as of such specific date.
"ADDITIONAL DIVIDENDS" has the meaning given to such term in paragraph
A(3)(a).
"BUSINESS DAY" means any day except a Saturday, Sunday or other day on
which commercial banking institutions in New York City are authorized by law
or executive order to close.
"CAPITAL STOCK" means any and all shares, interests, participations,
rights, or other equivalents (however designated) of corporate stock
including, without limitation, partnership interests.
"COMMON STOCK" shall have the meaning given to such term in paragraph
A(2)
"DIVIDEND PAYMENT DATE" means June 30th and December 31st of each year.
"DIVIDEND PERIOD" means the Initial Dividend Period and, thereafter,
each Semi-Annual Dividend Period.
"HOLDER" means a holder of shares of Series C Preferred Stock.
"INITIAL DIVIDEND PERIOD" means the dividend period commencing on the
Issue Date and ending on the first Dividend Payment Date to occur
thereafter.
"ISSUE DATE" means , 1998.
"LIQUIDATION PREFERENCE" has the meaning given to such term in paragraph
A(4)(a).
"MANDATORY REDEMPTION DATE" has the meaning given to such term in
paragraph A(5)(b).
"PERSON" means any individual, corporation, partnership, joint venture,
incorporated or unincorporated association, joint-stock Corporation, trust,
unincorporated organization or government or other agency or political
subdivision thereof or any other entity of any kind.
"PREFERRED STOCK" means the Preferred Stock of the Corporation.
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<PAGE>
"REDEMPTION DATE", with respect to any shares of Preferred Stock, means
the date on which such shares of Preferred Stock are redeemed by the
Corporation pursuant to paragraph A(5).
"REDEMPTION NOTICE" has the meaning given to such term in paragraph
A(5)(c).
"SEMI-ANNUAL DIVIDEND PERIOD" means the annual period commencing on each
January 1st and July 1st and ending on each Dividend Payment Date,
respectively.
"SERIES A PREFERRED STOCK" means the Series A 13.0% Cumulative
Compounding Preferred Stock of the Corporation.
"SERIES B PREFERRED STOCK" means the Series B 13.25% Cumulative
Compounding Preferred Stock of the Corporation.
"SERIES C JUNIOR PAYMENT DATE" has the meaning given to such term in
A(3)(e).
"SERIES C JUNIOR SECURITIES" has the meaning given to such term in
paragraph A(2).
"SERIES C PARITY PAYMENT DATE" has the meaning given to such term in
A(3)(d).
"SERIES C PARITY SECURITIES" has the meaning given to such term in
paragraph A(2).
"SERIES C PREFERRED STOCK" has the meaning given to such term in
paragraph A(1).
"SERIES C SENIOR SECURITIES" has the meaning given to such term in
paragraph A(2).
IN WITNESS WHEREOF, the undersigned officers of the Corporation have
executed this Certificate of Designation as of the day of ,
1998.
<TABLE>
<S> <C>
ATTEST:
Secretary President
</TABLE>
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<PAGE>
ANNEX V
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT ("Option Agreement") dated January 14, 1998, between
MQ Acquisition Corporation, a Delaware corporation ("Acquiror"), and the persons
who are signatories hereto (the "Stockholders").
W I T N E S S E T H:
WHEREAS, the Board of Directors of Acquiror and the Board of Directors of
Mediq Incorporated, a Delaware corporation (the "Company"), have approved an
Agreement and Plan of Merger dated as of even date herewith (the "Merger
Agreement") providing for the merger of Acquiror with and into the Company; and
WHEREAS, as a condition and inducement to Acquiror's willingness to enter
into the Merger Agreement, Acquiror has required that each Stockholder agree,
and each Stockholder has agreed, to grant to Acquiror the option set forth
herein to purchase all of the Common Shares and Preferred Shares owned, directly
or indirectly as set forth opposite his name on Schedule I hereto, or hereafter
acquired, directly or indirectly, by such Stockholder (the "Shares");
NOW THEREFORE, in consideration of the premises herein contained, the
parties agree as follows:
1. Definitions.
Capitalized terms used but not defined herein shall have the same meanings
as in the Merger Agreement.
2. Grant of Option.
Subject to the terms and conditions set forth herein, each Stockholder
hereby grants to Acquiror an irrevocable option (the "Option") to purchase all
of the Shares at a price per share in cash (the "Purchase Price") equal to
$14.50 per Share as provided in Section 4 hereof.
3. Exercise of Option.
(a) Acquiror may exercise the Option, in whole or in part, at any time or
from time to time if a Purchase Event (as defined below) shall have occurred;
provided, however, that, to the extent the Option shall not have been previously
exercised, it shall terminate and be of no further force and effect upon the
earlier to occur of (i) the Effective Time of the Merger; (ii) in the case of a
termination of the Merger Agreement in accordance with Sections 8.1 (a), (b),
(c) or (g), the date of such termination; provided that (x) no Purchase Event
shall have occurred prior to such termination and (y) the Company shall not have
been in breach of the Merger Agreement prior to such termination; and (iii) in
the case of any other termination of the Merger Agreement, the date that is 6
months following such termination (such date, the "Termination Date").
(b) Notwithstanding the foregoing, if the Option cannot be exercised before
the Termination Date as a result of any injunction, order or similar restraint
issued by a court of competent jurisdiction, the Option shall expire on (and the
Termination Date shall be so extended until the earlier of) (i) the 30th
business day after such injunction, order or restraint shall have been dissolved
or (ii) when such injunction, order or restraint shall have become permanent and
no longer subject to appeal, as the case may be.
(c) As used herein, a "Purchase Event" shall mean any of the following
events:
(i) any person (other than Acquiror or any of its subsidiaries) shall
have commenced (as such term is defined in Rule 14d-2 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), or shall have filed
a registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to, a tender offer or exchange offer to
purchase any Common Shares or Preferred Shares such that, upon consummation
of such offer, such person would have Beneficial
<PAGE>
Ownership (as defined below) of 25% or more of the then outstanding Common
Shares or Preferred Shares or more than 25% of the total voting power of the
Company;
(ii) the Company or any of its Subsidiaries shall or shall have entered
into, authorized, recommended, proposed or publicly announced an intention
to enter into, authorize, recommend, or propose, an agreement, arrangement
or understanding with any person (other than Acquiror or any of its
subsidiaries) to, or any person (other than Acquiror or any of its
subsidiaries) shall have publicly announced a bona fide intention to, (A)
effect any Acquisition Proposal with the Company, (B) purchase, lease or
otherwise acquire 25% or more of the assets of the Company and its
consolidated Subsidiaries or (C) purchase or otherwise acquire (including by
way of merger, consolidation, tender or exchange offer or similar
transaction) Beneficial Ownership (as defined below) of securities
representing 25% or more of the voting power of the Company or any of its
"significant subsidiaries" (as defined under Regulation S-X);
(iii) any person (other than Acquiror or any subsidiary or stockholder of
Acquiror, and other than a Stockholder) shall have acquired Beneficial
Ownership or the right to acquire Beneficial Ownership of 25% or more of the
Common Shares, Preferred Shares or voting power of the Company or there
shall otherwise have been a Change in Control (as defined in the Merger
Agreement) of the Company;
(iv) the Company's Board of Directors (or any committee thereof) (i)
shall have withdrawn, modified or changed its recommendation regarding the
approval of the Merger or the Merger Agreement or the transactions
contemplated thereby in a manner adverse to the Acquiror, (ii) shall have
recommended to the stockholders of the Company any Acquisition Proposal;
(iii) shall have taken any action in violation of Section 4.1(a) of the
Merger Agreement, (iv) shall have failed to reaffirm publicly its
recommendation regarding the approval of the Merger or the Merger Agreement
and the transactions contemplated thereby within three business days' of
receipt of Acquiror's written request to do so; or (v) shall have resolved,
or entered into any agreement, to do any of the foregoing;
(v) if any of the Stockholders shall have breached in any material
respect any of their respective obligations under the Stockholder
Agreements, dated the date hereof, between each Stockholder and Acquiror;
(vi) if at the Special Meeting (including any adjournment or
postponement thereof) the Company Stockholder Approvals shall not have been
obtained or if the Company shall not have called and held a Special Meeting
prior to the termination of the Merger Agreement after being requested to do
so by the Acquiror as provided in the Merger Agreement;
(vii) the Merger Agreement shall have been terminated (or Acquiror shall
have the right to terminate the Merger Agreement) (x) pursuant to Sections
8.1(b) or (c) of the Merger Agreement and the Company's failure to perform
any material covenant or obligation under, or other breach by the Company
of, the Merger Agreement has caused or resulted in the failure of the Merger
to occur on or before the date of such termination (or right to
termination), or (y) pursuant to Section 8.1(d), (e) or (f) of the Merger
Agreement; or
(viii) the Company shall have delivered a Superior Proposal Notice.
(d) As used herein, the terms "Beneficial Ownership," "Beneficial Owner" and
"Beneficially Own" shall have the meanings ascribed to them in Rule 13d-3 under
the Exchange Act. As used herein, "person" shall have the meaning specified in
Sections 3(a)(9) and 13(d)(3) of the Exchange Act.
(e) In the event Acquiror wishes to exercise the Option, it shall deliver to
each Stockholder at the address set forth on Schedule I, a written notice (the
date of which being herein referred to as the "Notice Date") specifying (i) the
total number of Shares it intends to purchase pursuant to such exercise and (ii)
a place and date not earlier than two business days nor later than 30 calendar
days from the Notice Date for
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<PAGE>
the closing of such purchase (the "Closing Date"); provided that if the closing
of the purchase and sale pursuant to the Option (the "Closing") cannot be
consummated by reason of any applicable judgment, decree, order, law or
regulation, the period of time that otherwise would run pursuant to this
sentence shall run instead from the date on which such restriction on
consummation has expired or been terminated; and, provided further that, without
limiting the foregoing, if prior notification to or approval of any regulatory
authority is required in connection with such purchase, Acquiror and, if
applicable, each Stockholder, shall promptly file the required notice or
application for approval and shall expeditiously process the same (and each
Stockholder shall cooperate in a commercially reasonable manner with Acquiror in
the filing of any such notice or application and the obtaining of any such
approval), and the period of time that otherwise would run pursuant to this
sentence shall run instead from the date on which, as the case may be, (i) any
required notification period has expired or been terminated or (ii) such
approval has been obtained, and in either event, any requisite waiting period
has passed.
(f) The Shares to be acquired pursuant to exercise of the Option shall be
allocated pro rata as between Common Shares and Preferred Shares and as among
each Stockholder based upon the number of Shares owned by them as set forth on
Schedule I. If Acquiror exercises the Option for no more than two million Shares
in the aggregate, the Stockholders may designate among themselves the
Stockholders who shall sell Shares to Acquiror pursuant to such partial exercise
of the Option, provided that (x) the aggregate number of Common Shares and
Preferred Shares to be sold to Acquiror pursuant to such exercise shall remain
the same as if there had been no designation and (y) such designation shall not
adversely affect the accounting treatment or economic impact of exercise of the
Option to Acquiror.
(g) In the event Acquiror exercises the Option in part and acquires Shares
which represent a majority of the total voting power of the Company's capital
stock, on a fully-diluted basis, Acquiror agrees that it will exercise the
Option in respect of all the Shares set forth on Schedule I.
4. Payment and Delivery of Certificates.
(a) At the Closing, referred to in Section 3 hereof, Acquiror shall pay to
each Stockholder the aggregate Purchase Price for the Shares purchased from such
Stockholder pursuant to the exercise of the Option.
(b) At such Closing, simultaneously with the delivery as provided in Section
4(a), each Stockholder shall transfer to Acquiror good, valid and marketable
title to, and shall deliver to Acquiror a certificate or certificates
representing, the number of Shares purchased by Acquiror, accompanied by
appropriate stock power(s) in form reasonably satisfactory to Acquiror), which
Shares shall be free and clear of all liens, claims, charges, security
interests, rights of first refusal or offer, proxies, voting trusts or
agreements, understandings or arrangements and other encumbrances of any kind
whatsoever other than any restrictions under the Securities Act or the Exchange
Act.
(c) If at the time of transfer of any Common Shares or Preferred Shares
pursuant to any exercise of the Option, the Company shall have issued any share
purchase rights or similar securities to holders of the Common Shares or the
Preferred Shares, then each such Share shall also represent rights with terms
substantially the same as and at least as favorable to Acquiror as those issued
to the Stockholders.
5. Authorizations, etc.
(a) Each Stockholder hereby represents and warrants to Acquiror that:
(i) The Stockholder has full power and authority to execute and deliver
this Option Agreement and to consummate the transactions contemplated
hereby;
(ii) such execution, delivery and consummation have been authorized by
the Stockholder, and no other proceedings or actions by the Stockholder are
necessary therefor;
3
<PAGE>
(iii) this Option Agreement has been duly and validly executed and
delivered and represents a valid and legally binding obligation of the
Stockholder, enforceable against the Stockholder in accordance with its
terms;
(iv) the Stockholder is the Beneficial Owner (in addition to the
registered owner) of, and has good, valid and marketable title to, the
Common Shares and the Preferred Shares set forth opposite his name on
Schedule I hereto, which are all of the Shares owned, directly or
indirectly, by the Stockholder, and the Stockholder does not have any right
to acquire any additional Shares; and
(v) the Stockholder has taken all necessary action, and obtained all
necessary consents and authorizations (except as may be required by the HSR
Act), to authorize and permit it to sell the Shares upon exercise of the
Option, all of which Shares, upon sale pursuant hereto, and shall be
delivered free and clear of all claims, liens, encumbrances, restrictions
and security interests, rights of first refusal or offer, and not subject to
any preemptive rights.
(b) Acquiror hereby represents and warrants to each Stockholder that:
(i) Acquiror has full corporate power and authority to execute and
deliver this Option Agreement and to consummate the transactions
contemplated hereby;
(ii) such execution, delivery and consummation have been authorized by
all requisite corporate action by Acquiror, and no other corporate
proceedings are necessary therefor;
(iii) this Option Agreement has been duly and validly executed and
delivered and represents a valid and legally binding obligation of Acquiror,
enforceable against Acquiror in accordance with its terms; and
(iv) any Shares or other securities acquired by Acquiror upon exercise
of the Option will not be taken with a view to the public distribution
thereof and will not be transferred or otherwise disposed of except in
compliance with the Securities Act.
(v) prior to the Closing, Acquiror will have taken all necessary action
and obtained all necessary consents and authorizations (except as may be
required by the HSR Act), to authorize and permit it to purchase the Shares
upon exercise of the Option.
6. Adjustment upon Changes in Capitalization.
In the event of any change in the Common Shares or Preferred Shares by
reason of a stock dividend, split-up, recapitalization, merger, consolidation,
reorganization, combination, exchange of shares or similar transaction, the type
and number of shares or securities subject to the Option, and the Purchase Price
therefor, shall be adjusted appropriately so that Acquiror shall receive upon
exercise of the Option the same class and number of outstanding shares or other
securities or property that Acquiror would have received in respect of the
Common Shares or Preferred Shares if the Option had been exercised immediately
prior to such event, or the record date therefor, as applicable.
7. Severability.
Any term, provision, covenant or restriction contained in this Option
Agreement held by a court or other Governmental Entity of competent jurisdiction
to be invalid, void or unenforceable, shall be ineffective to the extent of such
invalidity, voidness or unenforceability, but neither the remaining terms,
provisions, covenants or restrictions contained in this Option Agreement, nor
the validity or enforceability thereof in any other jurisdiction shall be
affected or impaired thereby. Any term, provision, covenant or restriction
contained in this Option Agreement that is so found to be so broad as to be
unenforceable shall be interpreted to be as broad as is enforceable.
4
<PAGE>
8. Miscellaneous.
(a) Expenses. Each of the parties hereto shall pay all costs and expenses
incurred by it or on its behalf in connection with the transactions contemplated
hereunder, including fees and expenses of its own financial consultants,
investment bankers, accountants and counsel, except as otherwise provided
herein.
(b) Entire Agreement. This Option Agreement and the Stockholder Agreement
(including the documents and the instruments referred to therein constitute the
entire agreement among the Stockholders and Acquiror and supersede all prior
agreements and understandings, agreements or representations by or among the
parties, written and oral, with respect to the subject matter hereof and
thereof.
(c) Successors; No Third Party Beneficiaries. Acquiror may assign the Option
in whole or in part to any person; provided that no such assignment shall
relieve Acquiror of its obligations hereunder. The terms and conditions of this
Option Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective successors and permitted assigns. Nothing in this
Option Agreement, expressed or implied, is intended to confer upon any party,
other than the parties hereto, and their respective successors and assigns, any
rights, remedies, obligations, or liabilities under or by reason of this Option
Agreement, except as expressly provided herein.
(d) Notices. Subject to Section 8(k) hereof, all notices or other
communications which are required or permitted hereunder shall be in writing and
sufficient if delivered to Acquiror in accordance with Section 9.8 of the Merger
Agreement and, in the case of the Stockholder, at the address set forth in the
Stockholder Agreement.
(e) Counterparts. This Option Agreement may be executed in counterparts, and
each such counterpart shall be deemed to be an original instrument, but both
such counterparts together shall constitute but one agreement.
(f) Further Assurances. In the event of any exercise of the Option by
Acquiror, each Stockholder and Acquiror shall execute and deliver all other
documents and instruments and take all other action that may be reasonably
necessary in order to consummate the transactions provided for by such exercise.
(g) Specific Performance. The parties hereto agree that if for any reason
Acquiror or any Stockholder shall have failed to perform its obligations under
this Option Agreement, then either party hereto seeking to enforce this Option
Agreement against such non-performing party shall be entitled to specific
performance and injunctive and other equitable relief, and the parties hereto
further agree to waive any requirement for the securing or posting of any bond
in connection with the obtaining of any such injunctive or other equitable
relief. This provision is without prejudice to any other rights that either
party hereto may have against the other party hereto for any failure to perform
its obligations under this Option Agreement.
(h) Governing Law. This Option Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware applicable to agreements
made and entirely to be performed within such state. Nothing in this Option
Agreement shall be construed to require any party (or any subsidiary or
affiliate of any party) to take any action or fail to take any action in
violation of applicable law, rule or regulation.
(i) Regulatory Approvals. If, in connection with the exercise of the Option
under Section 3, prior notification to or approval of any Governmental Entity is
required, then the required notice or application for approval shall be promptly
filed and/or expeditiously processed by each Stockholder and periods of time
that otherwise would run pursuant hereto (if any) shall run instead from the
date on which any such required notification period has expired or been
terminated or such approval has been obtained, and in either event, any
requisite waiting period shall have passed.
(j) Waiver and Amendment. Any provision of this Option Agreement may be
waived at any time by the party that is entitled to the benefits of such
provision. This Option Agreement may not be modified,
5
<PAGE>
amended, altered or supplemented except upon the execution and delivery of a
written agreement executed by the parties hereto.
(k) Jurisdiction. Each party hereto irrevocably and unconditionally consents
and submits to the exclusive jurisdiction of the courts of the State of Delaware
and of the United States of America located in the State of Delaware for any
actions, suits or proceedings arising out of or relating to this agreement and
the transactions contemplated hereby, and further agrees that service of any
process, summons, notice or document by U.S. registered or certified mail to the
Stockholder at Duane Morris & Heckscher LLP, One Liberty Place, Philadelphia, PA
19103, Attention: Sheldon M. Bonovitz or Frederick W. Dreher, or to Acquiror c/o
Bruckmann, Rosser & Sherrill & Co., Inc., 126 East 56th Street, New York, N.Y.
10022, Attention: Bruce Bruckmann, shall be effective service of process for any
action, suit or proceeding brought against such party in such court. Each party
hereto hereby irrevocably and unconditionally waives any objection to the laying
of venue of any action, suit or proceeding arising out of this Option Agreement
or the transactions contemplated hereby, in the courts of the State of Delaware
located in Wilmington, Delaware or the United States of America located in
Wilmington, Delaware, and hereby further irrevocably and unconditionally waives
and agrees not to plead or claim in any such court that any such action, suit or
proceeding brought in any such court has been brought in an inconvenient forum.
<TABLE>
<S> <C> <C>
MQ ACQUISITION CORPORATION
By: /s/ BRUCE C. BRUCKMANN
-----------------------------------------
Name: Bruce C. Bruckmann
Title: President
By: /s/ MICHAEL J. ROTKO
-----------------------------------------
Michael J. Rotko
By: /s/ BESSIE G. ROTKO
-----------------------------------------
Bessie G. Rotko
By: /s/ JUDITH M. SHIPON
-----------------------------------------
Judith M. Shipon
</TABLE>
6
<PAGE>
<TABLE>
<S> <C> <C>
T/D BERNARD B. ROTKO
DATED NOVEMBER 18, 1983
By: /s/ BESSIE G. ROTKO
-----------------------------------------
Bessie G. Rotko, Trustee
By: /s/ JUDITH M. SHIPON
-----------------------------------------
Judith M. Shipon, Trustee
By: /s/ MICHAEL J. ROTKO
-----------------------------------------
Michael J. Rotko, Trustee
By: /s/ JOHN D. ISKRANT
-----------------------------------------
John D. Iskrant, Trustee
</TABLE>
7
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
COMPANY
PREFERRED COMPANY
NAME AND ADDRESS OF STOCKHOLDER SHARES COMMON SHARES
- ------------------------------------------------------------------------------- --------------- ---------------
<S> <C> <C>
T/D BERNARD B. ROTKO DATED NOVEMBER 18, 1983................................... 3,570,969 3,570,969
Bessie G. Rotko, Michael J. Rotko, Judith M. Shipon, John D. Iskrant
and PNC Bank, Trustees.......................................................
Bessie G. Rotko................................................................ 269,031 240,489
Judith M. Shipon............................................................... 458,757 459,007
Michael J. Rotko............................................................... 448,655 448,665
--------------- ---------------
4,747,412 4,719,130
--------------- ---------------
--------------- ---------------
</TABLE>
c/o John D. Iskrant
Schnader Harrison Segal & Lewis
1600 Market Street, Suite 3600
Philadelphia, PA 19103
8
<PAGE>
ANNEX VI
January 14, 1998
MQ Acquisition Corporation
c/o Bruckmann, Rosser & Sherrill & Co., Inc.
126 East 56th Street
New York, NY 10022
Re: Stockholder Agreement
Dear Sirs:
The undersigned (the "Stockholder") understands that MQ Acquisition
Corporation, a Delaware corporation ("Acquiror") and Mediq Incorporated, a
Delaware corporation (the "Company") are entering into an Agreement and Plan of
Merger, dated the date hereof, as the same may be amended from time to time (the
"Merger Agreement"), providing for, among other things, the merger of Acquiror
with and into the Company on the terms and conditions set forth therein (the
"Merger").
The Stockholder is a stockholder of the Company and is entering into this
letter agreement (the "Stockholder Agreement") to induce you to enter into the
Merger Agreement and to consummate the transactions contemplated thereby.
Capitalized terms used but not defined herein shall have the same meanings as in
the Merger Agreement.
The Stockholder confirms its agreement with you as follows:
1. The Stockholder represents, warrants and agrees that Schedule I
annexed hereto sets forth the Common Shares and Preferred Shares of which
the Stockholder or its affiliates (as defined under the Securities Exchange
Act of 1934, as amended) are the record or beneficial owner and that the
Stockholder and its affiliates are on the date hereof the lawful owners of
the number of Shares set forth in Schedule I beside the name of the
Stockholder or such other person. Except as set forth in Schedule I, neither
the Stockholder nor any of its affiliates, own or hold any rights to acquire
any additional shares of the capital stock of the Company (by exercise of
stock options or otherwise) or any interest therein or any voting rights
with respect to any additional Shares. The Stockholder, together with other
persons who are signatories to this Stockholder Agreement or letter
agreements with Acquiror containing substantially the same terms and
conditions as set forth herein, has sole voting power and sole power to
issue instructions with respect to the matters set forth herein, sole power
of disposition, sole power of conversion, sole power to demand appraisal
rights and sole power to engage in the actions set forth herein, in each
case with respect to the Shares set forth on Schedule I hereto beside the
name of the Stockholder or such other person.
2. The Stockholder agrees that it will not, will not permit any company,
trust or other person or entity controlled by the Stockholder to, and will
not permit any of its affiliates to, contract to sell, sell or otherwise
transfer or dispose of any Shares or any interest therein or securities
convertible therein to or any voting rights with respect thereto, other than
(i) pursuant to the Merger, (ii) pursuant to the Option Agreement dated of
even date herewith between Acquiror and the undersigned (iii) with your
prior written consent. The Stockholder agrees that it shall not convert any
Preferred Shares into Common Shares or take any other action which
diminishes the benefits of this Stockholder Agreement to the Acquiror.
3. The Stockholder agrees to, and to cause any company, trust or other
person or entity controlled by the Stockholder to, cooperate fully with you
in connection with the Merger Agreement, the Option Agreement, this
Stockholders Agreement and the transactions contemplated thereby and hereby.
The Stockholder agrees that it will not, and will not permit any such
company, trust or other entity or person to, and will not authorize any of
its affiliates to, directly or indirectly (including through its officers,
directors, employees or other representatives) to solicit, initiate,
encourage or facilitate, or furnish or disclose non-public information in
furtherance of, any inquiries or the making
<PAGE>
of any proposal with respect to any recapitalization, merger, consolidation
or other business combination involving the Company, or the acquisition of
any capital stock or any material portion of the assets (except for
acquisition of assets in the ordinary course of business consistent with
past practice and not material in the aggregate to the Company) of the
Company, or any combination of the foregoing (a "Competing Transaction"), or
negotiate, explore or otherwise engage in discussions with any person (other
than Acquiror and its affiliates, or their respective directors, officers,
employees, agents and representatives) with respect to any Competing
Transaction or enter into any agreement, arrangement or understanding with
respect to any Competing Transaction or agree to or otherwise assist in the
effectuation of any Competing Transaction; provided, however, that nothing
herein shall require the Stockholder to prevent or restrict any director or
trustee of the Stockholder who is a director or officer of the Company from
taking any action in his capacity as a director or officer of the Company to
the extent such director or officer would be permitted to take such action
under the Merger Agreement.
4. The Stockholder agrees that all of the Shares beneficially owned by
the Stockholder, or over which the Stockholder has voting power or control,
directly or indirectly (including any Shares beneficial ownership of which
is acquired by the Stockholder after the date hereof), at the record date
for any meeting of the Company's stockholders, however called, or in
connection with any written consent of the stockholders of the Company,
shall be voted (or caused to be voted) (i) in favor of the Merger, the
execution and delivery by the Company of the Merger Agreement and the
approval of the terms thereof and each of the other actions contemplated by
the Merger Agreement, this Stockholder Agreement and the Option Agreement
and any actions required in furtherance hereof and thereof; (ii) against any
action or agreement that would result in a breach in any material respect of
any covenant, representation or warranty or any other obligation of the
Company under the Merger Agreement or under this Stockholder Agreement or
the Option Agreement; and (iii) except as otherwise agreed to in writing in
advance by Acquiror, against the following actions (other than the Merger
and the transactions with you or your affiliates contemplated by the Merger
Agreement): (1) any extraordinary corporate transaction, such as a merger,
consolidation or other business combination involving the Company or its
Subsidiaries; (2) any sale, lease or transfer of a material amount of assets
of the Company or its Subsidiaries or a reorganization, recapitalization,
dissolution or liquidation of the Company or its Subsidiaries; (3) (a)
subject to Section 7 hereof, any change in the majority of the Board of
Directors of the Company; (b) any material change in the present
capitalization of the Company or any amendment of the Company's Certificate
of Incorporation or Bylaws; (c) any other material change in the Company's
corporate structure or business; or (d) any other action, which is intended,
or could reasonably be expected, to impede, interfere with, delay, postpone,
discourage or materially adversely affect the contemplated economic benefits
to Acquiror of the Merger or the transactions contemplated by the Merger
Agreement, this Stockholder Agreement or the Option Agreement. The
Stockholder shall not enter into any agreement or understanding with any
person or entity to vote or give instructions in any manner inconsistent
with clauses (i), (ii) or (iii) of the preceding sentence.
5. The Stockholder hereby grants to, and appoints, Acquiror and its
officers, and any other designee of Acquiror, each of them individually, the
Stockholder's irrevocable proxy and attorney-in-fact (with full power of
substitution) to vote (as indicated in paragraph 4 above) the Shares listed
on Schedule I hereto beside the name of the Stockholder, and any Shares
beneficial ownership of which is acquired by the Stockholder after the date
hereof, at a duly called meeting of the Company's stockholders (and, in the
event the Stockholder has breached its obligations under this Stockholder
Agreement or the Option Agreement or the Company breaches its obligation
under the Merger Agreement to call and hold or otherwise fails to hold the
Special Meeting, by duly executed written consent of stockholders). The
Stockholder intends this proxy to be irrevocable, subject to Section 16
hereof, and coupled with an interest and will take such further action and
execute such other instruments as may be necessary to effectuate the intent
of this proxy and hereby revokes any proxy
2
<PAGE>
previously granted by the Stockholder with respect to the Stockholder's
Shares. The Stockholder agrees that if requested by Acquiror, the
Stockholder will not attend or vote any Shares beneficially owned by the
Stockholder at any annual or special meeting of stockholders or execute any
written consent of stockholders.
6. The Stockholder has the legal capacity, power and authority to enter
into and perform all of such Stockholder's obligations under this
Stockholder Agreement. The execution, delivery and performance of this
Stockholder Agreement by such Stockholder will not violate any other
agreement to which such Stockholder is a party including, without
limitation, any trust agreement, voting agreement, stockholders agreement or
voting trust. This Stockholder Agreement has been duly and validly executed
and delivered by the Stockholder, and is enforceable against the Stockholder
in accordance with its terms. There is no beneficiary or holder of any
interest of the Stockholder or any trust of which the Stockholder is a
trustee whose consent is required for the execution and delivery of this
Stockholder Agreement or the consummation of the transactions contemplated
hereby. If the Stockholder is married and the Stockholder's Shares
constitute community property, this letter agreement has been duly
authorized, executed and delivered by, and constitutes a valid and binding
agreement of, the Stockholder's spouse, enforceable against such spouse in
accordance with its terms.
7. Except for filings under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and with the Securities and Exchange Commission if
applicable, no filing with, and no permit, authorization, consent or
approval of, any state or federal public body or authority is necessary for
the execution of this Stockholder Agreement by the Stockholder and the
consummation by the Stockholder of the transactions contemplated hereby.
8. The Stockholder's Shares (as listed on Schedule I) and the
certificates representing such Shares are now and at all times during the
term hereof will be held by the Stockholder, or by a nominee or custodian
for the benefit of the Stockholder, free and clear of all liens, claims,
security interests, rights of first refusal or offer, proxies, voting trusts
or agreements, understandings or arrangements or any other encumbrances
whatsoever, except for any such encumbrances or proxies arising hereunder.
9. No broker, investment banker, financial advisor or other person is
entitled to any broker's, finder's, financial advisor's or other similar fee
or commission in connection with the transactions contemplated hereby based
upon arrangements made by the Stockholder.
10. The Stockholder agrees that damages are an inadequate remedy for the
breach by the Stockholder of any term or condition of this Stockholder
Agreement and that Acquiror shall be entitled, without limitation of other
available rights or remedies, to specific performance, a temporary
restraining order and preliminary and permanent injunctive relief in order
to enforce the Stockholder's agreements herein.
11. The Stockholder agrees that this Stockholder Agreement and the
obligations hereunder shall attach to such Stockholder's Shares and shall be
binding upon any person or entity to which legal or beneficial ownership of
such Shares shall pass, whether by operation of law or otherwise, including
without limitation such Stockholder's heirs, guardians, administrators or
successors.
12. From time to time, at the other party's request and without further
consideration, each party hereto shall execute and deliver such additional
documents and take all such further action as may be necessary or desirable
to consummate and make effective, in the most expeditious manner
practicable, the transactions contemplated by this Stockholder Agreement.
13. This Stockholder Agreement may not be modified, amended, altered or
supplemented, except upon the execution and delivery of a written agreement
executed by the parties hereto.
3
<PAGE>
14. This Stockholder Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof.
15. Whenever possible, each provision or portion of any provision of
this Stockholder Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of
any provision of this Stockholder Agreement is held to be invalid, illegal
or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not
affect any other provision or portion of any provision in such jurisdiction,
and this Stockholder Agreement will be reformed, construed and enforced in
such jurisdiction as if such invalid, illegal or unenforceable provision or
portion of any provision had never been contained herein. Each party hereto
irrevocably and unconditionally consents and submits to the exclusive
jurisdiction of the courts of the State of Delaware and of the United States
of America located in the State of Delaware for any actions, suits or
proceedings arising out of or relating to this agreement and the
transactions contemplated hereby, and further agrees that service of any
process, summons, notice or document by U.S. registered or certified mail to
the Stockholder at Duane Morris & Heckscher LLP, One Liberty Place,
Philadelphia, PA 19103, Attention: Sheldon M. Bonovitz or Frederick W.
Dreher, or to Acquiror c/o Bruckmann, Rosser & Sherrill & Co., Inc., 126
East 56th Street, New York, N.Y. 10022, Attention: Bruce Bruckmann, shall be
effective service of process for any action, suit or proceeding brought
against such party in such court (and such address shall be also used for
notices under this Stockholder Agreement). Each party hereto hereby
irrevocably and unconditionally waives any objection to the laying of venue
of any action, suit or proceeding arising out of this Stockholder Agreement
or the transactions contemplated hereby, in the courts of the State of
Delaware located in Wilmington, Delaware or the United States of America
located in Wilmington, Delaware, and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such court
that any such action, suit or proceeding brought in any such court has been
brought in an inconvenient forum.
16. This Stockholder Agreement may be terminated at the option of any
party at any time after the Termination Date (as defined in the Option
Agreement). Please confirm that the foregoing correctly states the
understanding between us by signing and returning to me a counterpart
hereof, whereupon this will become a legal and binding obligation.
<TABLE>
<S> <C> <C>
Very truly yours,
/s/ JUDITH SHIPON
---------------------------------------------
Judith Shipon
</TABLE>
Confirmed on the date
first above written.
<TABLE>
<S> <C> <C> <C>
MQ ACQUISITION CORPORATION
By: /s/ BRUCE C. BRUCKMANN
-------------------------------------------
Bruce C. Bruckmann
President
</TABLE>
4
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
COMPANY
PREFERRED COMPANY
NAME AND ADDRESS OF STOCKHOLDER SHARES COMMON SHARES
- ------------------------------------------------------ --------------- ---------------
<S> <C> <C>
Judith Shipon......................................... 458,757 459,007
1115 Devon Road
Rydal, PA 19046
</TABLE>
5
<PAGE>
January 14, 1998
MQ Acquisition Corporation
c/o Bruckmann, Rosser & Sherrill & Co., Inc.
126 East 56th Street
New York, NY 10022
Re: Stockholder Agreement
Dear Sirs:
The undersigned (the "Stockholder") understands that MQ Acquisition
Corporation, a Delaware corporation ("Acquiror") and Mediq Incorporated, a
Delaware corporation (the "Company") are entering into an Agreement and Plan of
Merger, dated the date hereof, as the same may be amended from time to time (the
"Merger Agreement"), providing for, among other things, the merger of Acquiror
with and into the Company on the terms and conditions set forth therein (the
"Merger").
The Stockholder is a stockholder of the Company and is entering into this
letter agreement (the "Stockholder Agreement") to induce you to enter into the
Merger Agreement and to consummate the transactions contemplated thereby.
Capitalized terms used but not defined herein shall have the same meanings as in
the Merger Agreement.
The Stockholder confirms its agreement with you as follows:
1. The Stockholder represents, warrants and agrees that Schedule I
annexed hereto sets forth the Common Shares and Preferred Shares of which
the Stockholder or its affiliates (as defined under the Securities Exchange
Act of 1934, as amended) are the record or beneficial owner and that the
Stockholder and its affiliates are on the date hereof the lawful owners of
the number of Shares set forth in Schedule I beside the name of the
Stockholder or such other person. Except as set forth in Schedule I, neither
the Stockholder nor any of its affiliates, own or hold any rights to acquire
any additional shares of the capital stock of the Company (by exercise of
stock options or otherwise) or any interest therein or any voting rights
with respect to any additional Shares. The Stockholder, together with other
persons who are signatories to this Stockholder Agreement or letter
agreements with Acquiror containing substantially the same terms and
conditions as set forth herein, has sole voting power and sole power to
issue instructions with respect to the matters set forth herein, sole power
of disposition, sole power of conversion, sole power to demand appraisal
rights and sole power to engage in the actions set forth herein, in each
case with respect to the Shares set forth on Schedule I hereto beside the
name of the Stockholder or such other person.
2. The Stockholder agrees that it will not, will not permit any company,
trust or other person or entity controlled by the Stockholder to, and will
not permit any of its affiliates to, contract to sell, sell or otherwise
transfer or dispose of any Shares or any interest therein or securities
convertible therein to or any voting rights with respect thereto, other than
(i) pursuant to the Merger, (ii) pursuant to the Option Agreement dated of
even date herewith between Acquiror and the undersigned (iii) with your
prior written consent. The Stockholder agrees that it shall not convert any
Preferred Shares into Common Shares or take any other action which
diminishes the benefits of this Stockholder Agreement to the Acquiror.
3. The Stockholder agrees to, and to cause any company, trust or other
person or entity controlled by the Stockholder to, cooperate fully with you
in connection with the Merger Agreement, the Option Agreement, this
Stockholders Agreement and the transactions contemplated thereby and hereby.
The Stockholder agrees that it will not, and will not permit any such
company, trust or other entity or person to, and will not authorize any of
its affiliates to, directly or indirectly (including through its officers,
directors, employees or other representatives) to solicit, initiate,
encourage or facilitate, or furnish or disclose non-public information in
furtherance of, any inquiries or the making of any proposal with respect to
any recapitalization, merger, consolidation or other business combination
involving the Company, or the acquisition of any capital stock or any
material portion of the
<PAGE>
assets (except for acquisition of assets in the ordinary course of business
consistent with past practice and not material in the aggregate to the
Company) of the Company, or any combination of the foregoing (a "Competing
Transaction"), or negotiate, explore or otherwise engage in discussions with
any person (other than Acquiror and its affiliates, or their respective
directors, officers, employees, agents and representatives) with respect to
any Competing Transaction or enter into any agreement, arrangement or
understanding with respect to any Competing Transaction or agree to or
otherwise assist in the effectuation of any Competing Transaction; provided,
however, that nothing herein shall require the Stockholder to prevent or
restrict any director or trustee of the Stockholder who is a director or
officer of the Company from taking any action in his capacity as a director
or officer of the Company to the extent such director or officer would be
permitted to take such action under the Merger Agreement.
4. The Stockholder agrees that all of the Shares beneficially owned by
the Stockholder, or over which the Stockholder has voting power or control,
directly or indirectly (including any Shares beneficial ownership of which
is acquired by the Stockholder after the date hereof), at the record date
for any meeting of the Company's stockholders, however called, or in
connection with any written consent of the stockholders of the Company,
shall be voted (or caused to be voted) (i) in favor of the Merger, the
execution and delivery by the Company of the Merger Agreement and the
approval of the terms thereof and each of the other actions contemplated by
the Merger Agreement, this Stockholder Agreement and the Option Agreement
and any actions required in furtherance hereof and thereof; (ii) against any
action or agreement that would result in a breach in any material respect of
any covenant, representation or warranty or any other obligation of the
Company under the Merger Agreement or under this Stockholder Agreement or
the Option Agreement; and (iii) except as otherwise agreed to in writing in
advance by Acquiror, against the following actions (other than the Merger
and the transactions with you or your affiliates contemplated by the Merger
Agreement): (1) any extraordinary corporate transaction, such as a merger,
consolidation or other business combination involving the Company or its
Subsidiaries; (2) any sale, lease or transfer of a material amount of assets
of the Company or its Subsidiaries or a reorganization, recapitalization,
dissolution or liquidation of the Company or its Subsidiaries; (3) (a)
subject to Section 7 hereof, any change in the majority of the Board of
Directors of the Company; (b) any material change in the present
capitalization of the Company or any amendment of the Company's Certificate
of Incorporation or Bylaws; (c) any other material change in the Company's
corporate structure or business; or (d) any other action, which is intended,
or could reasonably be expected, to impede, interfere with, delay, postpone,
discourage or materially adversely affect the contemplated economic benefits
to Acquiror of the Merger or the transactions contemplated by the Merger
Agreement, this Stockholder Agreement or the Option Agreement. The
Stockholder shall not enter into any agreement or understanding with any
person or entity to vote or give instructions in any manner inconsistent
with clauses (i), (ii) or (iii) of the preceding sentence.
5. The Stockholder hereby grants to, and appoints, Acquiror and its
officers, and any other designee of Acquiror, each of them individually, the
Stockholder's irrevocable proxy and attorney-in-fact (with full power of
substitution) to vote (as indicated in paragraph 4 above) the Shares listed
on Schedule I hereto beside the name of the Stockholder, and any Shares
beneficial ownership of which is acquired by the Stockholder after the date
hereof, at a duly called meeting of the Company's stockholders (and, in the
event the Stockholder has breached its obligations under this Stockholder
Agreement or the Option Agreement or the Company breaches its obligation
under the Merger Agreement to call and hold or otherwise fails to hold the
Special Meeting, by duly executed written consent of stockholders). The
Stockholder intends this proxy to be irrevocable, subject to Section 16
hereof, and coupled with an interest and will take such further action and
execute such other instruments as may be necessary to effectuate the intent
of this proxy and hereby revokes any proxy previously granted by the
Stockholder with respect to the Stockholder's Shares. The Stockholder agrees
that if requested by Acquiror, the Stockholder will not attend or vote any
Shares beneficially
2
<PAGE>
owned by the Stockholder at any annual or special meeting of stockholders or
execute any written consent of stockholders.
6. The Stockholder has the legal capacity, power and authority to enter
into and perform all of such Stockholder's obligations under this
Stockholder Agreement. The execution, delivery and performance of this
Stockholder Agreement by such Stockholder will not violate any other
agreement to which such Stockholder is a party including, without
limitation, any trust agreement, voting agreement, stockholders agreement or
voting trust. This Stockholder Agreement has been duly and validly executed
and delivered by the Stockholder, and is enforceable against the Stockholder
in accordance with its terms. There is no beneficiary or holder of any
interest of the Stockholder or any trust of which the Stockholder is a
trustee whose consent is required for the execution and delivery of this
Stockholder Agreement or the consummation of the transactions contemplated
hereby. If the Stockholder is married and the Stockholder's Shares
constitute community property, this letter agreement has been duly
authorized, executed and delivered by, and constitutes a valid and binding
agreement of, the Stockholder's spouse, enforceable against such spouse in
accordance with its terms.
7. Except for filings under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and with the Securities and Exchange Commission if
applicable, no filing with, and no permit, authorization, consent or
approval of, any state or federal public body or authority is necessary for
the execution of this Stockholder Agreement by the Stockholder and the
consummation by the Stockholder of the transactions contemplated hereby.
8. The Stockholder's Shares (as listed on Schedule I) and the
certificates representing such Shares are now and at all times during the
term hereof will be held by the Stockholder, or by a nominee or custodian
for the benefit of the Stockholder, free and clear of all liens, claims,
security interests, rights of first refusal or offer, proxies, voting trusts
or agreements, understandings or arrangements or any other encumbrances
whatsoever, except for any such encumbrances or proxies arising hereunder.
9. No broker, investment banker, financial advisor or other person is
entitled to any broker's, finder's, financial advisor's or other similar fee
or commission in connection with the transactions contemplated hereby based
upon arrangements made by the Stockholder.
10. The Stockholder agrees that damages are an inadequate remedy for the
breach by the Stockholder of any term or condition of this Stockholder
Agreement and that Acquiror shall be entitled, without limitation of other
available rights or remedies, to specific performance, a temporary
restraining order and preliminary and permanent injunctive relief in order
to enforce the Stockholder's agreements herein.
11. The Stockholder agrees that this Stockholder Agreement and the
obligations hereunder shall attach to such Stockholder's Shares and shall be
binding upon any person or entity to which legal or beneficial ownership of
such Shares shall pass, whether by operation of law or otherwise, including
without limitation such Stockholder's heirs, guardians, administrators or
successors.
12. From time to time, at the other party's request and without further
consideration, each party hereto shall execute and deliver such additional
documents and take all such further action as may be necessary or desirable
to consummate and make effective, in the most expeditious manner
practicable, the transactions contemplated by this Stockholder Agreement.
13. This Stockholder Agreement may not be modified, amended, altered or
supplemented, except upon the execution and delivery of a written agreement
executed by the parties hereto.
14. This Stockholder Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof.
3
<PAGE>
15. Whenever possible, each provision or portion of any provision of
this Stockholder Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of
any provision of this Stockholder Agreement is held to be invalid, illegal
or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not
affect any other provision or portion of any provision in such jurisdiction,
and this Stockholder Agreement will be reformed, construed and enforced in
such jurisdiction as if such invalid, illegal or unenforceable provision or
portion of any provision had never been contained herein. Each party hereto
irrevocably and unconditionally consents and submits to the exclusive
jurisdiction of the courts of the State of Delaware and of the United States
of America located in the State of Delaware for any actions, suits or
proceedings arising out of or relating to this agreement and the
transactions contemplated hereby, and further agrees that service of any
process, summons, notice or document by U.S. registered or certified mail to
the Stockholder at Duane Morris & Heckscher LLP, One Liberty Place,
Philadelphia, PA 19103, Attention: Sheldon M. Bonovitz or Frederick W.
Dreher, or to Acquiror c/o Bruckmann, Rosser & Sherrill & Co., Inc., 126
East 56th Street, New York, N.Y. 10022, Attention: Bruce Bruckmann, shall be
effective service of process for any action, suit or proceeding brought
against such party in such court (and such address shall be also used for
notices under this Stockholder Agreement). Each party hereto hereby
irrevocably and unconditionally waives any objection to the laying of venue
of any action, suit or proceeding arising out of this Stockholder Agreement
or the transactions contemplated hereby, in the courts of the State of
Delaware located in Wilmington, Delaware or the United States of America
located in Wilmington, Delaware, and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such court
that any such action, suit or proceeding brought in any such court has been
brought in an inconvenient forum.
16. This Stockholder Agreement may be terminated at the option of any
party at any time after the Termination Date (as defined in the Option
Agreement). Please confirm that the foregoing correctly states the
understanding between us by signing and returning to me a counterpart
hereof, whereupon this will become a legal and binding obligation.
<TABLE>
<S> <C> <C>
Very truly yours,
/s/ MICHAEL J. ROTKO
---------------------------------------------
Michael J. Rotko
</TABLE>
Confirmed on the date
first above written.
<TABLE>
<S> <C> <C> <C>
MQ ACQUISITION CORPORATION
By:
/s/ BRUCE C. BRUCKMANN
-------------------------------------------
Bruce C. Bruckmann
PRESIDENT
</TABLE>
4
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
COMPANY
PREFERRED COMPANY
NAME AND ADDRESS OF STOCKHOLDER SHARES COMMON SHARES
- ------------------------------------------------------ --------------- ---------------
<S> <C> <C>
Michael J. Rotko...................................... 448,655 448,665
P.O. Box 369
Unionville, PA 19375
</TABLE>
5
<PAGE>
January 14, 1998
MQ Acquisition Corporation
c/o Bruckmann, Rosser & Sherrill & Co., Inc.
126 East 56th Street
New York, NY 10022
Re: Stockholder Agreement
Dear Sirs:
The undersigned (the "Stockholder") understands that MQ Acquisition
Corporation, a Delaware corporation ("Acquiror") and Mediq Incorporated, a
Delaware corporation (the "Company") are entering into an Agreement and Plan of
Merger, dated the date hereof, as the same may be amended from time to time (the
"Merger Agreement"), providing for, among other things, the merger of Acquiror
with and into the Company on the terms and conditions set forth therein (the
"Merger").
The Stockholder is a stockholder of the Company and is entering into this
letter agreement (the "Stockholder Agreement") to induce you to enter into the
Merger Agreement and to consummate the transactions contemplated thereby.
Capitalized terms used but not defined herein shall have the same meanings as in
the Merger Agreement.
The Stockholder confirms its agreement with you as follows:
1. The Stockholder represents, warrants and agrees that Schedule I
annexed hereto sets forth the Common Shares and Preferred Shares of which
the Stockholder or its affiliates (as defined under the Securities Exchange
Act of 1934, as amended) are the record or beneficial owner and that the
Stockholder and its affiliates are on the date hereof the lawful owners of
the number of Shares set forth in Schedule I beside the name of the
Stockholder or such other person. Except as set forth in Schedule I, neither
the Stockholder nor any of its affiliates, own or hold any rights to acquire
any additional shares of the capital stock of the Company (by exercise of
stock options or otherwise) or any interest therein or any voting rights
with respect to any additional Shares. The Stockholder, together with other
persons who are signatories to this Stockholder Agreement or letter
agreements with Acquiror containing substantially the same terms and
conditions as set forth herein, has sole voting power and sole power to
issue instructions with respect to the matters set forth herein, sole power
of disposition, sole power of conversion, sole power to demand appraisal
rights and sole power to engage in the actions set forth herein, in each
case with respect to the Shares set forth on Schedule I hereto beside the
name of the Stockholder or such other person.
2. The Stockholder agrees that it will not, will not permit any company,
trust or other person or entity controlled by the Stockholder to, and will
not permit any of its affiliates to, contract to sell, sell or otherwise
transfer or dispose of any Shares or any interest therein or securities
convertible therein to or any voting rights with respect thereto, other than
(i) pursuant to the Merger, (ii) pursuant to the Option Agreement dated of
even date herewith between Acquiror and the undersigned (iii) with your
prior written consent. The Stockholder agrees that it shall not convert any
Preferred Shares into Common Shares or take any other action which
diminishes the benefits of this Stockholder Agreement to the Acquiror.
3. The Stockholder agrees to, and to cause any company, trust or other
person or entity controlled by the Stockholder to, cooperate fully with you
in connection with the Merger Agreement, the Option Agreement, this
Stockholders Agreement and the transactions contemplated thereby and hereby.
The Stockholder agrees that it will not, and will not permit any such
company, trust or other entity or person to, and will not authorize any of
its affiliates to, directly or indirectly (including through its officers,
directors, employees or other representatives) to solicit, initiate,
encourage or facilitate, or furnish or disclose non-public information in
furtherance of, any inquiries or the making
<PAGE>
of any proposal with respect to any recapitalization, merger, consolidation
or other business combination involving the Company, or the acquisition of
any capital stock or any material portion of the assets (except for
acquisition of assets in the ordinary course of business consistent with
past practice and not material in the aggregate to the Company) of the
Company, or any combination of the foregoing (a "Competing Transaction"), or
negotiate, explore or otherwise engage in discussions with any person (other
than Acquiror and its affiliates, or their respective directors, officers,
employees, agents and representatives) with respect to any Competing
Transaction or enter into any agreement, arrangement or understanding with
respect to any Competing Transaction or agree to or otherwise assist in the
effectuation of any Competing Transaction; provided, however, that nothing
herein shall require the Stockholder to prevent or restrict any director or
trustee of the Stockholder who is a director or officer of the Company from
taking any action in his capacity as a director or officer of the Company to
the extent such director or officer would be permitted to take such action
under the Merger Agreement.
4. The Stockholder agrees that all of the Shares beneficially owned by
the Stockholder, or over which the Stockholder has voting power or control,
directly or indirectly (including any Shares beneficial ownership of which
is acquired by the Stockholder after the date hereof), at the record date
for any meeting of the Company's stockholders, however called, or in
connection with any written consent of the stockholders of the Company,
shall be voted (or caused to be voted) (i) in favor of the Merger, the
execution and delivery by the Company of the Merger Agreement and the
approval of the terms thereof and each of the other actions contemplated by
the Merger Agreement, this Stockholder Agreement and the Option Agreement
and any actions required in furtherance hereof and thereof; (ii) against any
action or agreement that would result in a breach in any material respect of
any covenant, representation or warranty or any other obligation of the
Company under the Merger Agreement or under this Stockholder Agreement or
the Option Agreement; and (iii) except as otherwise agreed to in writing in
advance by Acquiror, against the following actions (other than the Merger
and the transactions with you or your affiliates contemplated by the Merger
Agreement): (1) any extraordinary corporate transaction, such as a merger,
consolidation or other business combination involving the Company or its
Subsidiaries; (2) any sale, lease or transfer of a material amount of assets
of the Company or its Subsidiaries or a reorganization, recapitalization,
dissolution or liquidation of the Company or its Subsidiaries; (3) (a)
subject to Section 7 hereof, any change in the majority of the Board of
Directors of the Company; (b) any material change in the present
capitalization of the Company or any amendment of the Company's Certificate
of Incorporation or Bylaws; (c) any other material change in the Company's
corporate structure or business; or (d) any other action, which is intended,
or could reasonably be expected, to impede, interfere with, delay, postpone,
discourage or materially adversely affect the contemplated economic benefits
to Acquiror of the Merger or the transactions contemplated by the Merger
Agreement, this Stockholder Agreement or the Option Agreement. The
Stockholder shall not enter into any agreement or understanding with any
person or entity to vote or give instructions in any manner inconsistent
with clauses (i), (ii) or (iii) of the preceding sentence.
5. The Stockholder hereby grants to, and appoints, Acquiror and its
officers, and any other designee of Acquiror, each of them individually, the
Stockholder's irrevocable proxy and attorney-in-fact (with full power of
substitution) to vote (as indicated in paragraph 4 above) the Shares listed
on Schedule I hereto beside the name of the Stockholder, and any Shares
beneficial ownership of which is acquired by the Stockholder after the date
hereof, at a duly called meeting of the Company's stockholders (and, in the
event the Stockholder has breached its obligations under this Stockholder
Agreement or the Option Agreement or the Company breaches its obligation
under the Merger Agreement to call and hold or otherwise fails to hold the
Special Meeting, by duly executed written consent of stockholders). The
Stockholder intends this proxy to be irrevocable, subject to Section 16
hereof, and coupled with an interest and will take such further action and
execute such other instruments as may be necessary to effectuate the intent
of this proxy and hereby revokes any proxy
2
<PAGE>
previously granted by the Stockholder with respect to the Stockholder's
Shares. The Stockholder agrees that if requested by Acquiror, the
Stockholder will not attend or vote any Shares beneficially owned by the
Stockholder at any annual or special meeting of stockholders or execute any
written consent of stockholders.
6. The Stockholder has the legal capacity, power and authority to enter
into and perform all of such Stockholder's obligations under this
Stockholder Agreement. The execution, delivery and performance of this
Stockholder Agreement by such Stockholder will not violate any other
agreement to which such Stockholder is a party including, without
limitation, any trust agreement, voting agreement, stockholders agreement or
voting trust. This Stockholder Agreement has been duly and validly executed
and delivered by the Stockholder, and is enforceable against the Stockholder
in accordance with its terms. There is no beneficiary or holder of any
interest of the Stockholder or any trust of which the Stockholder is a
trustee whose consent is required for the execution and delivery of this
Stockholder Agreement or the consummation of the transactions contemplated
hereby. If the Stockholder is married and the Stockholder's Shares
constitute community property, this letter agreement has been duly
authorized, executed and delivered by, and constitutes a valid and binding
agreement of, the Stockholder's spouse, enforceable against such spouse in
accordance with its terms.
7. Except for filings under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and with the Securities and Exchange Commission if
applicable, no filing with, and no permit, authorization, consent or
approval of, any state or federal public body or authority is necessary for
the execution of this Stockholder Agreement by the Stockholder and the
consummation by the Stockholder of the transactions contemplated hereby.
8. The Stockholder's Shares (as listed on Schedule I) and the
certificates representing such Shares are now and at all times during the
term hereof will be held by the Stockholder, or by a nominee or custodian
for the benefit of the Stockholder, free and clear of all liens, claims,
security interests, rights of first refusal or offer, proxies, voting trusts
or agreements, understandings or arrangements or any other encumbrances
whatsoever, except for any such encumbrances or proxies arising hereunder.
9. No broker, investment banker, financial advisor or other person is
entitled to any broker's, finder's, financial advisor's or other similar fee
or commission in connection with the transactions contemplated hereby based
upon arrangements made by the Stockholder.
10. The Stockholder agrees that damages are an inadequate remedy for the
breach by the Stockholder of any term or condition of this Stockholder
Agreement and that Acquiror shall be entitled, without limitation of other
available rights or remedies, to specific performance, a temporary
restraining order and preliminary and permanent injunctive relief in order
to enforce the Stockholder's agreements herein.
11. The Stockholder agrees that this Stockholder Agreement and the
obligations hereunder shall attach to such Stockholder's Shares and shall be
binding upon any person or entity to which legal or beneficial ownership of
such Shares shall pass, whether by operation of law or otherwise, including
without limitation such Stockholder's heirs, guardians, administrators or
successors.
12. From time to time, at the other party's request and without further
consideration, each party hereto shall execute and deliver such additional
documents and take all such further action as may be necessary or desirable
to consummate and make effective, in the most expeditious manner
practicable, the transactions contemplated by this Stockholder Agreement.
13. This Stockholder Agreement may not be modified, amended, altered or
supplemented, except upon the execution and delivery of a written agreement
executed by the parties hereto.
3
<PAGE>
14. This Stockholder Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof.
15. Whenever possible, each provision or portion of any provision of
this Stockholder Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of
any provision of this Stockholder Agreement is held to be invalid, illegal
or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not
affect any other provision or portion of any provision in such jurisdiction,
and this Stockholder Agreement will be reformed, construed and enforced in
such jurisdiction as if such invalid, illegal or unenforceable provision or
portion of any provision had never been contained herein. Each party hereto
irrevocably and unconditionally consents and submits to the exclusive
jurisdiction of the courts of the State of Delaware and of the United States
of America located in the State of Delaware for any actions, suits or
proceedings arising out of or relating to this agreement and the
transactions contemplated hereby, and further agrees that service of any
process, summons, notice or document by U.S. registered or certified mail to
the Stockholder at Duane Morris & Heckscher LLP, One Liberty Place,
Philadelphia, PA 19103, Attention: Sheldon M. Bonovitz or Frederick W.
Dreher, or to Acquiror c/o Bruckmann, Rosser & Sherrill & Co., Inc., 126
East 56th Street, New York, N.Y. 10022, Attention: Bruce Bruckmann, shall be
effective service of process for any action, suit or proceeding brought
against such party in such court (and such address shall be also used for
notices under this Stockholder Agreement). Each party hereto hereby
irrevocably and unconditionally waives any objection to the laying of venue
of any action, suit or proceeding arising out of this Stockholder Agreement
or the transactions contemplated hereby, in the courts of the State of
Delaware located in Wilmington, Delaware or the United States of America
located in Wilmington, Delaware, and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such court
that any such action, suit or proceeding brought in any such court has been
brought in an inconvenient forum.
16. This Stockholder Agreement may be terminated at the option of any
party at any time after the Termination Date (as defined in the Option
Agreement). Please confirm that the foregoing correctly states the
understanding between us by signing and returning to me a counterpart
hereof, whereupon this will become a legal and binding obligation.
<TABLE>
<S> <C> <C>
Very truly yours,
T/D BERNARD B. ROTKO
DATED NOVEMBER 18, 1983
By: /s/ BESSIE G. ROTKO
------------------------------------------
Bessie G. Rotko, Trustee
By: /s/ JUDITH M. SHIPON
------------------------------------------
Judith M. Shipon, Trustee
By: /s/ MICHAEL J. ROTKO
------------------------------------------
Michael J. Rotko, Trustee
</TABLE>
4
<PAGE>
<TABLE>
<S> <C> <C>
By: /s/ JOHN D. ISKRANT
------------------------------------------
John D. Iskrant, Trustee
</TABLE>
Confirmed on the date first above written.
<TABLE>
<S> <C> <C> <C>
MQ ACQUISITION CORPORATION
BY:
/S/ BRUCE C. BRUCKMANN
-------------------------------------------
Bruce C. Bruckmann
President
</TABLE>
5
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
COMPANY
PREFERRED COMPANY
NAME AND ADDRESS OF STOCKHOLDER SHARES COMMON SHARES
- ------------------------------------------------------ --------------- ---------------
<S> <C> <C>
T/D BERNARD B. ROTKO.................................. 3,570,969 3,570,969
DATED NOVEMBER 18, 1983, Bessie G. Rotko, Michael J.
Rotko, Judith M. Shipon, John D. Iskrant and PNC Bank,
Trustees
c/o John D. Iskrant...................................
Schnader Harrison Segal & Lewis
1600 Market Street, Suite 3600
Philadelphia, PA 19103
</TABLE>
6
<PAGE>
January 14, 1998
MQ Acquisition Corporation
c/o Bruckmann, Rosser & Sherrill & Co., Inc.
126 East 56th Street
New York, NY 10022
Re: Stockholder Agreement
Dear Sirs:
The undersigned (the "Stockholder") understands that MQ Acquisition
Corporation, a Delaware corporation ("Acquiror") and Mediq Incorporated, a
Delaware corporation (the "Company") are entering into an Agreement and Plan of
Merger, dated the date hereof, as the same may be amended from time to time (the
"Merger Agreement"), providing for, among other things, the merger of Acquiror
with and into the Company on the terms and conditions set forth therein (the
"Merger").
The Stockholder is a stockholder of the Company and is entering into this
letter agreement (the "Stockholder Agreement") to induce you to enter into the
Merger Agreement and to consummate the transactions contemplated thereby.
Capitalized terms used but not defined herein shall have the same meanings as in
the Merger Agreement.
The Stockholder confirms its agreement with you as follows:
1. The Stockholder represents, warrants and agrees that Schedule I
annexed hereto sets forth the Common Shares and Preferred Shares of which
the Stockholder or its affiliates (as defined under the Securities Exchange
Act of 1934, as amended) are the record or beneficial owner and that the
Stockholder and its affiliates are on the date hereof the lawful owners of
the number of Shares set forth in Schedule I beside the name of the
Stockholder or such other person. Except as set forth in Schedule I, neither
the Stockholder nor any of its affiliates, own or hold any rights to acquire
any additional shares of the capital stock of the Company (by exercise of
stock options or otherwise) or any interest therein or any voting rights
with respect to any additional Shares. The Stockholder, together with other
persons who are signatories to this Stockholder Agreement or letter
agreements with Acquiror containing substantially the same terms and
conditions as set forth herein, has sole voting power and sole power to
issue instructions with respect to the matters set forth herein, sole power
of disposition, sole power of conversion, sole power to demand appraisal
rights and sole power to engage in the actions set forth herein, in each
case with respect to the Shares set forth on Schedule I hereto beside the
name of the Stockholder or such other person.
2. The Stockholder agrees that it will not, will not permit any company,
trust or other person or entity controlled by the Stockholder to, and will
not permit any of its affiliates to, contract to sell, sell or otherwise
transfer or dispose of any Shares or any interest therein or securities
convertible therein to or any voting rights with respect thereto, other than
(i) pursuant to the Merger, (ii) pursuant to the Option Agreement dated of
even date herewith between Acquiror and the undersigned (iii) with your
prior written consent. The Stockholder agrees that it shall not convert any
Preferred Shares into Common Shares or take any other action which
diminishes the benefits of this Stockholder Agreement to the Acquiror.
3. The Stockholder agrees to, and to cause any company, trust or other
person or entity controlled by the Stockholder to, cooperate fully with you
in connection with the Merger Agreement, the Option Agreement, this
Stockholders Agreement and the transactions contemplated thereby and hereby.
The Stockholder agrees that it will not, and will not permit any such
company, trust or other entity or person to, and will not authorize any of
its affiliates to, directly or indirectly (including through its officers,
directors, employees or other representatives) to solicit, initiate,
encourage or facilitate, or furnish or disclose non-public information in
furtherance of, any inquiries or the making
<PAGE>
of any proposal with respect to any recapitalization, merger, consolidation
or other business combination involving the Company, or the acquisition of
any capital stock or any material portion of the assets (except for
acquisition of assets in the ordinary course of business consistent with
past practice and not material in the aggregate to the Company) of the
Company, or any combination of the foregoing (a "Competing Transaction"), or
negotiate, explore or otherwise engage in discussions with any person (other
than Acquiror and its affiliates, or their respective directors, officers,
employees, agents and representatives) with respect to any Competing
Transaction or enter into any agreement, arrangement or understanding with
respect to any Competing Transaction or agree to or otherwise assist in the
effectuation of any Competing Transaction; provided, however, that nothing
herein shall require the Stockholder to prevent or restrict any director or
trustee of the Stockholder who is a director or officer of the Company from
taking any action in his capacity as a director or officer of the Company to
the extent such director or officer would be permitted to take such action
under the Merger Agreement.
4. The Stockholder agrees that all of the Shares beneficially owned by
the Stockholder, or over which the Stockholder has voting power or control,
directly or indirectly (including any Shares beneficial ownership of which
is acquired by the Stockholder after the date hereof), at the record date
for any meeting of the Company's stockholders, however called, or in
connection with any written consent of the stockholders of the Company,
shall be voted (or caused to be voted) (i) in favor of the Merger, the
execution and delivery by the Company of the Merger Agreement and the
approval of the terms thereof and each of the other actions contemplated by
the Merger Agreement, this Stockholder Agreement and the Option Agreement
and any actions required in furtherance hereof and thereof; (ii) against any
action or agreement that would result in a breach in any material respect of
any covenant, representation or warranty or any other obligation of the
Company under the Merger Agreement or under this Stockholder Agreement or
the Option Agreement; and (iii) except as otherwise agreed to in writing in
advance by Acquiror, against the following actions (other than the Merger
and the transactions with you or your affiliates contemplated by the Merger
Agreement): (1) any extraordinary corporate transaction, such as a merger,
consolidation or other business combination involving the Company or its
Subsidiaries; (2) any sale, lease or transfer of a material amount of assets
of the Company or its Subsidiaries or a reorganization, recapitalization,
dissolution or liquidation of the Company or its Subsidiaries; (3) (a)
subject to Section 7 hereof, any change in the majority of the Board of
Directors of the Company; (b) any material change in the present
capitalization of the Company or any amendment of the Company's Certificate
of Incorporation or Bylaws; (c) any other material change in the Company's
corporate structure or business; or (d) any other action, which is intended,
or could reasonably be expected, to impede, interfere with, delay, postpone,
discourage or materially adversely affect the contemplated economic benefits
to Acquiror of the Merger or the transactions contemplated by the Merger
Agreement, this Stockholder Agreement or the Option Agreement. The
Stockholder shall not enter into any agreement or understanding with any
person or entity to vote or give instructions in any manner inconsistent
with clauses (i), (ii) or (iii) of the preceding sentence.
5. The Stockholder hereby grants to, and appoints, Acquiror and its
officers, and any other designee of Acquiror, each of them individually, the
Stockholder's irrevocable proxy and attorney-in-fact (with full power of
substitution) to vote (as indicated in paragraph 4 above) the Shares listed
on Schedule I hereto beside the name of the Stockholder, and any Shares
beneficial ownership of which is acquired by the Stockholder after the date
hereof, at a duly called meeting of the Company's stockholders (and, in the
event the Stockholder has breached its obligations under this Stockholder
Agreement or the Option Agreement or the Company breaches its obligation
under the Merger Agreement to call and hold or otherwise fails to hold the
Special Meeting, by duly executed written consent of stockholders). The
Stockholder intends this proxy to be irrevocable, subject to Section 16
hereof, and coupled with an interest and will take such further action and
execute such other instruments as may be necessary to effectuate the intent
of this proxy and hereby revokes any proxy
2
<PAGE>
previously granted by the Stockholder with respect to the Stockholder's
Shares. The Stockholder agrees that if requested by Acquiror, the
Stockholder will not attend or vote any Shares beneficially owned by the
Stockholder at any annual or special meeting of stockholders or execute any
written consent of stockholders.
6. The Stockholder has the legal capacity, power and authority to enter
into and perform all of such Stockholder's obligations under this
Stockholder Agreement. The execution, delivery and performance of this
Stockholder Agreement by such Stockholder will not violate any other
agreement to which such Stockholder is a party including, without
limitation, any trust agreement, voting agreement, stockholders agreement or
voting trust. This Stockholder Agreement has been duly and validly executed
and delivered by the Stockholder, and is enforceable against the Stockholder
in accordance with its terms. There is no beneficiary or holder of any
interest of the Stockholder or any trust of which the Stockholder is a
trustee whose consent is required for the execution and delivery of this
Stockholder Agreement or the consummation of the transactions contemplated
hereby. If the Stockholder is married and the Stockholder's Shares
constitute community property, this letter agreement has been duly
authorized, executed and delivered by, and constitutes a valid and binding
agreement of, the Stockholder's spouse, enforceable against such spouse in
accordance with its terms.
7. Except for filings under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and with the Securities and Exchange Commission if
applicable, no filing with, and no permit, authorization, consent or
approval of, any state or federal public body or authority is necessary for
the execution of this Stockholder Agreement by the Stockholder and the
consummation by the Stockholder of the transactions contemplated hereby.
8. The Stockholder's Shares (as listed on Schedule I) and the
certificates representing such Shares are now and at all times during the
term hereof will be held by the Stockholder, or by a nominee or custodian
for the benefit of the Stockholder, free and clear of all liens, claims,
security interests, rights of first refusal or offer, proxies, voting trusts
or agreements, understandings or arrangements or any other encumbrances
whatsoever, except for any such encumbrances or proxies arising hereunder.
9. No broker, investment banker, financial advisor or other person is
entitled to any broker's, finder's, financial advisor's or other similar fee
or commission in connection with the transactions contemplated hereby based
upon arrangements made by the Stockholder.
10. The Stockholder agrees that damages are an inadequate remedy for the
breach by the Stockholder of any term or condition of this Stockholder
Agreement and that Acquiror shall be entitled, without limitation of other
available rights or remedies, to specific performance, a temporary
restraining order and preliminary and permanent injunctive relief in order
to enforce the Stockholder's agreements herein.
11. The Stockholder agrees that this Stockholder Agreement and the
obligations hereunder shall attach to such Stockholder's Shares and shall be
binding upon any person or entity to which legal or beneficial ownership of
such Shares shall pass, whether by operation of law or otherwise, including
without limitation such Stockholder's heirs, guardians, administrators or
successors.
12. From time to time, at the other party's request and without further
consideration, each party hereto shall execute and deliver such additional
documents and take all such further action as may be necessary or desirable
to consummate and make effective, in the most expeditious manner
practicable, the transactions contemplated by this Stockholder Agreement.
13. This Stockholder Agreement may not be modified, amended, altered or
supplemented, except upon the execution and delivery of a written agreement
executed by the parties hereto.
3
<PAGE>
14. This Stockholder Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof.
15. Whenever possible, each provision or portion of any provision of
this Stockholder Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of
any provision of this Stockholder Agreement is held to be invalid, illegal
or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not
affect any other provision or portion of any provision in such jurisdiction,
and this Stockholder Agreement will be reformed, construed and enforced in
such jurisdiction as if such invalid, illegal or unenforceable provision or
portion of any provision had never been contained herein. Each party hereto
irrevocably and unconditionally consents and submits to the exclusive
jurisdiction of the courts of the State of Delaware and of the United States
of America located in the State of Delaware for any actions, suits or
proceedings arising out of or relating to this agreement and the
transactions contemplated hereby, and further agrees that service of any
process, summons, notice or document by U.S. registered or certified mail to
the Stockholder at Duane Morris & Heckscher LLP, One Liberty Place,
Philadelphia, PA 19103, Attention: Sheldon M. Bonovitz or Frederick W.
Dreher, or to Acquiror c/o Bruckmann, Rosser & Sherrill & Co., Inc., 126
East 56th Street, New York, N.Y. 10022, Attention: Bruce Bruckmann, shall be
effective service of process for any action, suit or proceeding brought
against such party in such court (and such address shall be also used for
notices under this Stockholder Agreement). Each party hereto hereby
irrevocably and unconditionally waives any objection to the laying of venue
of any action, suit or proceeding arising out of this Stockholder Agreement
or the transactions contemplated hereby, in the courts of the State of
Delaware located in Wilmington, Delaware or the United States of America
located in Wilmington, Delaware, and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such court
that any such action, suit or proceeding brought in any such court has been
brought in an inconvenient forum.
16. This Stockholder Agreement may be terminated at the option of any
party at any time after the Termination Date (as defined in the Option
Agreement). Please confirm that the foregoing correctly states the
understanding between us by signing and returning to me a counterpart
hereof, whereupon this will become a legal and binding obligation.
<TABLE>
<S> <C> <C>
Very truly yours,
/s/ BESSIE G ROTKO
---------------------------------------------
Bessie G. Rotko
</TABLE>
Confirmed on the date
first above written.
<TABLE>
<S> <C> <C> <C>
MQ ACQUISITION CORPORATION
BY:
/S/ BRUCE C. BRUCKMANN
-------------------------------------------
Bruce C. Bruckmann
PRESIDENT
</TABLE>
4
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
COMPANY
PREFERRED COMPANY
NAME AND ADDRESS OF STOCKHOLDER SHARES COMMON SHARES
- ------------------------------------------------------ --------------- ---------------
<S> <C> <C>
Bessie G. Rotko....................................... 269,031 240,489
100 Breyer Estate-4N
Elkins Park, PA 19027
</TABLE>
5
<PAGE>
ANNEX VII
AGREEMENT
THIS AGREEMENT (the "Agreement") is dated as of January 14, 1998 by and
between MQ Acquisition Corporation, a Delaware corporation ("MQ"), MEDIQ
Incorporated, a Delaware corporation ("MEDIQ"), Michael J. Rotko ("Rotko"), T/D
Bernard B. Rotko dated November 18, 1983 (the "Rotko Trust), Bessie G. Rotko and
Judith M. Shipon (each a "Rotko Entity," and collectively with Rotko, the "Rotko
Entities").
BACKGROUND
Contemporaneously with the execution of that certain Agreement and Plan of
Merger, dated as of January 14, 1998 (as may be amended from time to time, the
"Merger Agreement") by and between MQ and MEDIQ, MQ requires that Rotko Entities
enter into this Agreement whereby the Rotko Entities agree to convert an
aggregate of 1,000,000 shares (the "Rolled Shares") of Series A Preferred Stock,
par value $.50 per share of MEDIQ (the "MEDIQ Preferred Stock") into certain
securities specified herein.
Capitalized terms used herein but not otherwise defined shall have the
meanings ascribed to them in the Merger Agreement.
NOW, THEREFORE, in consideration of the premises and the agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. ROLLOVER. The parties hereto agree that either (i) immediately
prior to the Effective Time, the Rotko Entities will transfer the Rolled
Shares to MQ (the "Contribution") in exchange for securities of MQ, which
at the Effective Time will be converted into 1,340,200 shares of Series B
Preferred Stock (defined below) and a number of shares of Common Stock of
the Surviving Corporation equal to 10.98% (assuming an initial investment
of $10 million of Common Stock) of the total outstanding shares of Common
Stock of the Surviving Corporation (the Series B Preferred Stock and the
Common Stock, together the "Converted Shares") or (ii) the Certificate of
Merger that is to be filed pursuant to Section 1.2 of the Merger
Agreement shall provide that the Rolled Shares shall be converted into
the Converted Shares. The decisions as to whether alternative (i) or (ii)
above be employed shall be determined by MQ in its sole discretion with
the approval of MEDIQ, such approval not to be unreasonably withheld. For
purposes of this Agreement, "Series B Preferred Stock" shall mean
preferred stock of the Surviving Corporation having the terms
substantially in the form attached hereto as EXHIBIT I.
2. ALLOCATION. The Rolled Shares to be converted into the Converted
Shares pursuant to paragraph 1 shall be determined, and the Converted
Shares shall be distributed to the each of the Rotko Entities, based on
their pro rata ownership of Preferred Stock as set forth on Schedule I
hereto; PROVIDED, that the Rotko Trust may, prior to the fifth business
day prior to the Effective Time, notify MQ in writing of a revised
allocation of Rolled Shares among the Rotko Entities and the allocation
of the Converted Shares among the Rotko Entities, whereby such Schedule I
shall be revised to reflect such revised allocation (so long as the
aggregate number of Rolled Shares converted into the aggregate number of
Converted Shares and the aggregate number of Converted Shares distributed
in respect of the Rolled Shares remains unchanged) (the "Reallocation");
PROVIDED FURTHER that the Reallocation shall not adversely affect the
accounting treatment or the economic impact of the Merger and related
transactions to MQ, the Surviving Corporation and their shareholders
other than the Rotko Entities.
3. REPRESENTATIONS AND WARRANTIES OF THE ROTKO ENTITIES. Each of
the Rotko Entities represents and warrants that (i) the Rotko Entities as
the sole beneficial owner of the Rolled Shares and have good title to,
the Rolled Shares, free and clear of any lien, security interest,
restriction, right of first refusal or encumbrance or claim of any kind,
(ii) at the Effective Time, the Rotko
<PAGE>
Entities will be the sole beneficial owner of the Rolled Shares and will
have good title to, the Rolled Shares, free and clear of any lien,
security interest, restriction, right of first refusal or encumbrance or
claim of any kind, (iii) this Agreement has been duly executed and
delivered by each of the Rotko Entities, and this Agreement constitutes
the legal, valid and binding obligations of each of the Rotko Entities,
enforceable in accordance with its terms, and (iv) each of the Rotko
Entities has full legal right, power and authority to enter into this
Agreement and to perform its other obligations hereunder.
4. TERMINATION. This Agreement shall terminate immediately upon the
termination of the Merger Agreement if the Merger Agreement is terminated
prior to the Effective Time; provided, that if the termination of the
Merger Agreement results from a failure of the condition set forth in
Section 5.12(c) thereof to be satisfied, such termination shall not
derogate from MQ's rights under this Agreement. The obligations of the
parties hereto under this Agreement are subject to the execution of a
definitive shareholders agreement (the "Shareholders Agreement")
reasonably satisfactory to the parties embodying terms substantially as
set forth in Exhibit I. .
5. COUNTERPARTS. This Agreement may be executed in identical
counterpart copies, each of which shall be an original, but all of which
taken together shall constitute one and the same agreement.
6. FURTHER ASSURANCES. The parties hereto agree to execute such
other documents and to take such further actions as may be necessary to
carry out the intent and purposes of this Agreement and the transactions
contemplated hereby.
7. FACSIMILES. This Agreement and any signed agreement or
instrument entered into in connection with this Agreement, and any
amendments hereto or thereto, to the extent signed and delivered by means
of a facsimile machine, shall be treated in all manner and respects as an
original agreement or instrument and shall be considered to have the same
binding effect as if it were the original signed version thereof
delivered in person. At the request of any party hereto or to any such
agreement or instrument, each other party hereto or thereto shall
re-execute original forms thereof and deliver them to all other parties.
No party hereto or to any such agreement or instrument shall raise the
use of a facsimile machine to deliver a signature or the fact that any
signature or agreement or instrument was transmitted or communicated
through the use of a facsimile machine as a defense to the formation of a
contract and each such party forever waives any such defense.
8. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE WITHOUT REGARD TO
THE CONFLICTS OF LAW PRINCIPLES THEREOF.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first written above.
MQ ACQUISITION CORPORATION
<TABLE>
<S> <C> <C>
By: /s/ BRUCE C. BRUCKMANN
-----------------------------------------
Bruce C. Bruckmann
PRESIDENT
MEDIQ INCORPORATED
By: /s/ THOMAS E. CARROLL
-----------------------------------------
Thomas E. Carroll
PRESIDENT AND CHIEF EXECUTIVE OFFICER
By: /s/ MICHAEL J. ROTKO
-----------------------------------------
Michael J. Rotko
By: /s/ BESSIE G. ROTKO
-----------------------------------------
Bessie G. Rotko
By: /s/ JUDITH M. SHIPON
-----------------------------------------
Judith M. Shipon
T/D BERNARD B. ROTKO
DATED NOVEMBER 18, 1983
/s/ BESSIE G. ROTKO
---------------------------------------------
Bessie G. Rotko,
TRUSTEE
/s/ JUDITH M. SHIPON
---------------------------------------------
Judith M. Shipon
TRUSTEE
/s/ MICHAEL J. ROTKO
---------------------------------------------
Michael J. Rotko
TRUSTEE
John D. Iskrant
---------------------------------------------
John D. Iskrant, Trustee
TRUSTEE
</TABLE>
3
<PAGE>
EXHIBIT I
SERIES B PREFERRED STOCK
1. NAME OF SERIES: Series B 13.25% Cumulative Compounding Perpetual Preferred
Stock.
2. FACE AMOUNT: $10.00.
3. PAR VALUE: $.01 per share.
4. ISSUE DATE: The Effective Time.
5. RANK: The Series B Preferred Stock will rank junior to the Series A
Preferred Stock and senior to the Series C Preferred Stock and the Common
Stock for dividend, repurchase and liquidation purposes.
6. DIVIDENDS: $1.325 per share PER ANNUM. All dividends shall be cumulative,
whether or not earned or declared, and shall be payable semi-annually in
arrears. There shall be no obligation to pay dividends until declared by the
Board of Directors. Accrued dividends, if not paid, shall accrue additional
dividends at 13.25% per annum.
7. LIQUIDATION PREFERENCE: Upon any voluntary or involuntary liquidation,
dissolution or winding up of the Surviving Corporation, each holder of
Series B Preferred Stock then outstanding shall be entitled to be paid
$10.00 in cash per share, plus accrued dividends, prior to any payments to
junior security holders.
8. OPTIONAL REDEMPTION: None.
9. MANDATORY REDEMPTION: None.
10. VOTING RIGHTS: Holders of Series B Preferred Stock will have no voting
rights, except as otherwise required by Delaware law.
11. TAG-ALONG/DRAG-ALONG RIGHTS. The Shareholders Agreement shall provide for
the following:
-- If BRS sells (other than to affiliates, coinvestors and other similar
parties) or has redeemed more than 10% of its original investment in
Series B Preferred Stock, the Rotko Entities will have the right to
participate on same terms and conditions pro rata with BRS and other
holders of Series B Preferred Stock; provided, that if such sale or
redemption is to or by the Company or any person related to the Company
within the meaning of Section 351(g)(3)(B) of the Internal Revenue Code
(the Company and such a related person referred to herein as a
"Disqualified Person"), then BRS and/or its coinvestors, their
respective affiliates or a third party designated by BRS (other than a
Disqualified Person) will offer to purchase such shares in lieu of the
Disqualified Person and any such purchase shall not be directly or
indirectly funded by a Disqualified Person.
-- If holders of a majority of Series B Preferred Stock proposes to sell
their shares, they may elect to drag along the Rotko Entities who will
consent to, and waive any objections with respect to, such transaction;
PROVIDED, that, if such sale is to a Disqualified Person, BRS and/or its
coinvestors, their respective affiliates or a third party designated by
BRS (other than a Disqualified Person) shall have the right to purchase
such shares in lieu of the Disqualified Person and any such purchase
shall not be directly or indirectly funded by a Disqualified Person.
-- If the Company shall redeem shares of the Series A or Series C Preferred
Stock, BRS and/or its coinvestors, their respective affiliates or a
third party designated by BRS (other than a Disqualified Person) will
offer to purchase (the "Purchase Option") from the Rotko Entities a
percentage of the Series B Preferred Stock held by them equal to the
aggregate liquidation preference of the Series A or Series C Preferred
Stock so redeemed (not including any redemption of Series A Preferred
Stock issued as Merger Consideration) divided by the sum of the
aggregate liquidation preference of the Series A, B and C Preferred
Stock then outstanding plus the original cost of the shares of Common
Stock then outstanding; it being understood that (i) the intent of the
<PAGE>
foregoing provision is to provide the Rotko Entity with a similar
investment opportunity as if they converted on the same terms as BRS and
its coinvestors and acquired Shares of Series A, B and C Preferred Stock
and Common Stock in the same proportions as BRS and other coinvestors,
(ii) a purchase pursuant to the Purchase Option shall not be directly or
indirectly funded by a Disqualified Person and (iii) the purchase price
pursuant to the Purchase Option for the Series B Preferred Stock shall
be in an amount not less than the par value plus accrued dividends on
such stock and shall be paid in comparable consideration to that offered
to the redeeming shareholders.
12. PREEMPTION: The Shareholders Agreement will provide that, if the Company
proposes to sell any equity securities, then the holders of the Series B
Preferred Stock will have an opportunity to purchase a proportionate amount
of such equity securities on the same terms and conditions as offered by
the Company (in the ratio of their equity ownership in the Company over the
total equity in the Company prior to the sale), unless such equity
securities are issued (A) in connection with a business combination
(unanimously approved by Company's Board of Directors), (B) to the
Company's management or directors, (C) in connection with debt financing or
a bona fide public offering or (D) subject to certain other exceptions to
be negotiated.
13. RESTRICTIONS ON TRANSFER. For the five year period beginning the Effective
Time, the Rotko Entities will not be permitted to transfer their Series B
Preferred Stock or their Common Stock other than to family members and
others by the law of descent distribution or trusts for the benefit of such
persons. For the five year period beginning on the fifth anniversary of the
Effective Time and ending on the tenth anniversary of the Effective Time,
the Rotko Entities may transfer their shares of Series B Preferred and
Common stock subject to the restrictions applicable to such shares. After
the tenth anniversary of the Effective Time, the Rotko Entities may
transfer their shares of Series B Preferred and Common stock free of the
restrictions applicable to such shares.
14. BOARD OF DIRECTORS: The Shareholder Agreement will provide that the Rotko
Trust shall have the right to elect one director of the Company so long as
the Rotko Entities own 5% or more of the Common Stock of the Company.
15. TAG-ALONG/DRAG-ALONG RELATING TO COMMON SHARES: The Shareholders Agreement
will provide that if BRS proposes to sell 10% or more of its Common Shares
to a third party, then the Rotko Entities will have the right to
participate on the same terms and conditions pro rata with BRS and other
holders of the Common Stock subject to certain exceptions to be negotiated.
The Shareholders Agreement will provide that if the holders of a majority
of the Common Shares proposes to sell their shares to a third party, they
may elect to drag along the Rotko Entities on the same terms and conditions
who will consent to, and waive any objections with respect to, such
transaction. The tag-along and drag-along rights relating to the Common
Stock will terminate immediately prior to such time as there is a bona fide
public offering of the Company's Common Stock.
16. PIGGY-BACK RIGHTS. The Rotko Entities may include their shares of the
Series A Preferred Stock or Series B Preferred Stock, on a pro rata basis
with other shareholders, in any registration statement filed by the Company
under the Securities Act of 1933 (other than with respect to Form S-4 and
Form S-8) that registers shares of Series A Preferred Stock or Series B
Preferred Stock on terms and conditions to be negotiated.
2
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
PERCENTAGE
OWNERSHIP OF
MEDIQ
PREFERRED
ROTKO ENTITY SHARES
- ---------------------------------------------------------------------------------------------------- -------------
<S> <C>
T/D Bernard B. Rotko................................................................................ 75.22%
dated November 18, 1983
Bessie Rotko........................................................................................ 5.67%
Michael Rotko....................................................................................... 9.45%
Judith Shipon....................................................................................... 9.66%
------
AGGREGATE........................................................................................... 100.00%
------
------
</TABLE>
